Good day, ladies and gentlemen. Welcome to the conference call to discuss second quarter 2019 results of PetroRio. Thank you for standing by. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session for analysts and investors when further instructions to participate will be provided. Should you need assistance during the conference call, please dial star zero for an operator. This event is also being broadcast simultaneously over the internet via webcast and may be accessed through PetroRio's investor relations website at ir.petroriosa.com.br by clicking on the banner 2Q19 earnings release. Before proceeding, let me mention that forward-looking statements that might be made during this conference call relative to the company's business perspectives, projections, and operating and financial goals are based on the beliefs and assumptions of PetroRio's management and on information currently available to the company.
Forward-looking statements are not a guarantee of success. They involve risks, uncertainties, and assumptions that may be related to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of PetroRio and could cause results to differ materially from those expressed in such forward-looking statements. I would now like to turn the conference over to Mr. Nelson Queiroz, family CEO, Mr. Roberto Monteiro, CFO, and Mr. Milton Rangel, Head of Finance. Mr. Tanure, please go ahead.
Good afternoon, everyone. This is Nelson. Welcome to PetroRio's conference call to discuss Q219 results. Thank you all for participating. I can see that there are employees on this call. I know many of you are shareholders. Folks, it's great to have you on board.
It's always a matter of pride for me to see you're interested in following our earnings conference call. Honestly, you're the ones creating all this value for the company, so it's only natural that you get interested in participating in all this value creation. This is great. Speaking a little about our Q219 results, to start more conceptually, PetroRio's second quarter was very good. Again, this quarter was better than the previous quarter in a long sequence of historical quarters, if you can call them that, with each quarter exceeding the previous record mark, and this quarter, the main driver behind this was Frade field. In the first quarter, we recorded just a little of Frade's production as we closed the deal in the end of March. Just a few days were posted.
In the second quarter, we had the whole production and result of Frade. This greatly explains such a significant result. Our expectation is that Frade Field and the results of the company will continue to improve as we implement our efficient management methodology. Roberto can comment more on that later with Francilmar as well at the end. The quarter was very good, as I said. We had Frade Field producing throughout the quarter. We also had a good performance at our Polvo Field. We had 2 off takes in this quarter, so Polvo contributed really well. It is a field that also has a very promising future. We have a drilling campaign scheduled for the second half. In other words, we hope to very soon see Polvo once again showing all of its resilience.
This is a great focus for us in the second half of the year. Manati field continues to operate very well. That field is like clockwork, and we're happy with its performance and production. There are some aspects related to the demand for gas from Petrobras, which impacted its results. Overall, it is a field that has been delivering good results. It is the most curious, this field that used to represent so much in terms of results and numbers for the company, now it is representing less and less because of our growth, although the field remains very important for us. To conclude with the financial piece, we posted a record net revenue, which makes me very happy. Revenue in this quarter accounts for more than half the revenue for the full year 2018.
This is excellent news in terms of cash generation, EBITDA, free cash flow. Our production posted very good numbers, all higher than any other number previously delivered so far. Our lifting cost was a very vast effort. Essentially, we had very good and positive numbers, which we believe will be long-lasting. Now, I would like to share with you a couple of other points which make us very happy regarding the company's performance. First, we recently received an award from InfoMoney and Ibmec as Best Oil & Gas Company in the 2016 through 2018 period. That makes us very happy, particularly for all of you who work at the company and who lived that period. You will remember how hard it was and all the effort and sacrifice we had to make to overcome the challenges and hurdles and to continue to grow the company.
Frankly, even with the good results that we are delivering now, the results are the consequence. The cause is all the effort, dedication, and discipline, the blood and sweat that we put into this company. This award reflects a little the good performance we had during that period, and it is 100% because of the effort of each and every one of you working day after day. Congratulations. We've had positive numbers in the past, but facing a lot of difficulties. We have bigger challenges ahead of us, but I'm sure that we'll put even more effort, and we have everything we need to continue to overcome these challenges and make the company continue to grow with sustainability.
Another point that also makes me very proud and that I would like to share with all of you is the fact that our internship program, once again, attracted a significant number of students interested in joining the company. This year, we had more than 16,000 applicants for our internship. We selected 15 or 16, so it was a very competitive process. To you interns who might be on the call, for every one of you, there were another 1,000 who wanted to be in your place. We expect a lot from you guys. Count on us to help you, but also, what has made this company continue to grow? People are the drivers of PetroRio. This is a virtuous cycle, and this is one of the main reasons explaining the continuous growth of the company, with people coming to join us.
A couple more points and I'll be done. I'll comment on the acquisition of approximately 18% working interest of Frade field from Impact. We wanted this deal to have been completed by now, and we continue to expect this to happen soon. We are all working very hard for this to happen sooner than later, and our expectation remains unchanged. Finally, I've touched on this, the company is getting ready for the drilling campaign at Polvo Field this year. This is among our goals for the next quarter, to drill wells at Polvo. We also announced previously the issuance of a Norwegian bond, intent to raise around $400 million so the company can be capitalized to have more firepower, to be able to continue very active in trying to buy new assets, new fields for PetroRio, and to maintain our solid financial health.
Well, before I turn the floor to Roberto, I guess you all have heard that Warner Mayhew left the company. For many years, he was the company's CFO and IRO. Warner, on behalf of the whole company, I'd like to thank you for your contribution to PetroRio. It was very much appreciated. We wish you good luck. Let me say a few words about Roberto. He already was our Chief Operations Officer and now takes over as CFO. Roberto has been with us for a long time, approximately 15 years at PetroRio. Well, he was CFO in the past, and he is very knowledgeable about the company's numbers. He has great, ambitious plans to improve our financial department even more. Roberto, you're not new to the company, and I'm excited that you're taking on this new role. I would like to welcome Francilmar .
He was one of the main people responsible for our successful drilling campaign last year at Polvo. Francilmar spent many weekends here, making sure that our campaign would unfold well. Francilmar, welcome to your new role. You have a big challenge ahead of you, but we are confident that you're more than capable of delivering excellent results. You'll be spending more weekends at work with your new team, given that we have a new drilling campaign coming up. That's it, everyone. Thank you all for participating, and I now turn the floor to our new CFO, Roberto Monteiro. Thank you.
Thank you very much, Nelson. This will be my last call as the head of operations. Let's start on slide three, where we start presenting our operational highlights. I believe the main operational highlight in this quarter was Frade's transition. Everything unfolded really well.
The operation is running well. I'd say everything is very smooth. All synergies are being captured as planned. Actually, some of them are a little ahead of schedule. We maintained a high operating efficiency, both at Frade and Polvo. Actually, Frade's operating efficiency in this quarter was the highest that we posted, at least in the last 12 months, for sure. All is unfolding really well. The drilling campaign at Polvo is planned to start in September. The drilling rig is 100% ready. All is 100% prepared. The only news here regarding the drilling campaign is Frade. We'll see this later. We divided it into two phases with the possibility of starting earlier, but we'll talk more about this in a moment. Please go to slide number four.
I'd just like to draw your attention to the geographic location of our assets, particularly when we take into account Frade and Polvo. It is this proximity that allows us to derive great operating synergies, particularly regarding land and sea logistics, air logistics, and so on and so forth. I guess this plot serves this purpose, to give you an overview and to help you understand where the synergies are coming from. They're very much related to the proximity of the fields. Moving on to slide five, please. We see our operating efficiency. We see Frade with more than 99% operating efficiency. The field running very well, 100% under Petrobras' operatorship. The Polvo with a high operating efficiency, 97.6% in this quarter.
We did have some BCS problems mainly related to VSD, which is not the part that is in the well, but the part that sits on the platform. This reduced a little our operating efficiency at Polvo, but nothing too striking, nothing problematic. Today, we are back to a higher operating efficiency. Frade, on the upper right-hand corner of the slide, this is the part that deserves to be highlighted. Looking closely, we can see great stability since March. In March, we produced 19.2 thousand barrels, in February, 19.1 thousand barrels. In June, we are producing 18,978 barrels. In July, we also reopened one of the wells that were stopped at Frade. There were two wells idle, one because of fine solids and the other because of hydrate formation. We solved the problem of this hydrate well and reopened it.
In the month of July, we had days producing 20,000 barrels or a little under 20,000 barrels. I'd say that our Frade operation is fully under control, and we are managing to somehow control really well the natural decline at Frade with midterm actions, which are also on the slide. Our objective at Frade in the mid-run is to do what we call a water shutoff, a polymer injection to contain water, to contain the water produced, and also well stimulation, primarily related to cleaning the well or eliminating fine solids in the well. These are the midterm actions for Frade, which should help us maintain the field decline very much under control until we begin our drilling campaign, which we will address later on. Well, going to the next slide, we see our lifting costs. We can see $24 per barrel.
These $24 per barrel in a consolidated fashion show the importance of Frade in our operation. This number already includes everything related to operations and maintenance, as well as air logistics, all included, all synergies included. There were still some transient costs as part of these $24, such as transition costs, which ended in August. Land and sea logistics that were not yet captured. Actually, we were still paying for some things twice because of the two companies. There were vessel return schedules and so on and so forth. Now, from August onward, everything is running 100% optimized. Our expectation is that this lifting cost will be lowered from $24 per barrel in a consolidated fashion, and we should easily get to $20 per barrel by year-end, as we have said in the previous earnings call.
Moving to the next slide seven, regarding Polvo's drilling campaign. No great novelties here, except that we have scheduled and are planning to start this campaign in September. We have the possibility of drilling up to four wells. Honestly, they kind of depend on one another, so we'll evolve as we are successful, but the targets are the same, more or less two months for every well and an estimated CapEx of $30 million-$60 million. Well, if we move to Frade field, perhaps this is the novelty, the drilling campaign at Frade. We have a global revitalization plan for the field. An initial revitalization plan with four producing wells and three injection wells. As part of this overarching global plan, we defined two phases. The first, as you can see, with one producing well and two water injection wells.
We have to remember that at Frade, the main reason why the field is declining is the lack of energy in the reservoir, the lack of water. That's why these two injection wells are so important. One producing well that is located in a well-known reservoir with discovery and all. I'd say the risk is really well controlled. The three wells of the first phase will cost, according to our present estimates, between $190 million and $200 million for 100% of the field. What is interesting regarding PetroRio making investments in phases is that we can try to move this first phase forward to 2020. I guess perhaps by mid-2020, this drilling campaign should be happening. Of course, it all depends on the drilling rig and on equipment, but all is moving ahead and is aligned for us to get there.
With that, I'll turn the floor to Nelson. I'd like to thank everyone and thank Nelson for the possibility to return to my background area of interest, finance. Good luck to Francilmar , who as of next quarter, will be leading operations. As Nelson mentioned, Francilmar is a homegrown star. He has been here since the beginning of the company, since the beginning of PetroRio. Actually, since before the birth of PetroRio. Last year, he was one of the main people responsible for the drilling campaign. Francilmar , good luck. Nelson, over to you to talk about our financials.
Thank you, Roberto. Good afternoon, everyone. Well, moving to the financial part of our presentation. Overall, the second quarter was quite emblematic, with strong and positive results considering the addition of Frade field to the company's results. With that, we hit some record marks, starting with our net revenue with almost BRL 550 million. EBITDA was also very strong, around BRL 260 million ex IFRS 16 effect, which was 643% higher than the adjusted EBITDA of Q1 2019, reflecting the start up of Frade field, which was not reflected in Q1 2019.
In terms of EBITDA per barrel, another record mark, an all-time high in our history of practically BRL 31 per barrel. Net income totaled more than BRL 160 million, more than 130% up year-on-year. Not only in terms of accounting indicators, but also cash generation, free cash flow, we also had another record, reaching the highest cash generation in the history of this company.
This clearly influenced positively our indebtedness metric because the net debt is reduced, and with that, we can perceive a strong deleveraging trajectory for the coming quarters, which puts the company in a very comfortable, in a very healthy position as regards our debt level. Moving to the next slide, we have our income statement. I'd like to draw your attention to some figures, especially the revenue line, up almost 130% in the quarter and almost 100% in the half year. Our revenue totaled almost BRL 690 million, and it's important to highlight that this was not just a change in terms of level and size of our revenue, but above all, of our profitability.
If we compare the first half and the second half of 2019, excluding IFRS 16 effect, for us to have a good comparison, EBITDA margin increased to 39% from 28%, 11 percentage points of improvement. If we consider adjusted EBITDA, 14 percentage points with an EBITDA margin of more than 40%. Considering the impact of IFRS 16, our EBITDA margin in the quarter was almost 60%, and year to date, higher than 50%. Therefore, in general, a very strong and positive result that makes us proud. Moving to the next slide, we see the evolution of our results per barrel. We start now to follow this metric of EBITDA per barrel. We can see that from the beginning of 2017 to date, we see a clear ascending curve and have been improving our profitability per barrel.
Even in the year-over-year comparison, Q2 2019 against Q2 2018, we can already observe an improvement despite a reduction in Brent oil prices between these two quarters. It is also important to point out that synergies between Polvo and Frade have not been fully captured in Q2 numbers. There's a lot of work being done, and we have been focused on reducing costs to a minimum by capturing synergies between the fields. With that, we post this result of almost $31 per barrel. Similar to players and competitors in the industry that produce more than 2 million barrels a day. That shows how we, despite being a smaller company, we are able to generate a lot of cash per barrel, trying to reach maximum efficiency and profitability.
This really reflects our DNA, which is to increase the size of the company through M&A deals and improve our profitability by managing our assets and consequently creating as much value as possible to our shareholders. Moving to the next slide. To give you more on our leverage. Well, in 2018, the company did not have a relevant debt, and that's why we observe a negative net debt. This starts to change in 2019 with the loans granted by FINEP, ICBC, and Chevron for the acquisition of Frade field. We see a significant leap of net debt over adjusted EBITDA ratio, which is 3.3 times. This has reduced markedly in Q2 2019, given the company's cash generation and cash inflow increment from Frade.
It is important to show that this indicator is at one time and a half if we take into account the last 12 months, and considering that in these 12 months, only one quarter had full contribution from Frade. We have a clear indication that our debt level will drop in the coming quarters. This puts the company in a very comfortable position for future funding and greater firepower for future acquisitions. On the next slide, regarding our funding and the characteristics of the loans that we are getting, generally speaking, we have been building a stronger relationship with several banks, both Brazilian and international. We observe a number of banks approaching us, wanting to do more business with us, and we have been able to get some loans at very attractive costs as you can see on the slide.
Today, the main debt of PetroRio is with Chevron through vendor finance at a cost of LIBOR plus 3% per annum. We also signed the PPE, Export Prepayment Agreement, this year with PetroChina and with ICBC. ICBC being the bank in charge of the operation at a cost of LIBOR plus 3% per annum. ICBC is one of the largest banks worldwide. We also signed recently, as previously announced, a nice credit line with FINEP, geared to innovation and improvement at Polvo Field. It has everything to do with our business case. Also, we have access to many short-term working capital credit facilities with a number of partnering banks. Moving on with the presentation to our last slide, talking about duration. Currently, our duration is relatively short because the bulk of our debt will be repaid in the next two years through vendor finance.
This puts us in a very comfortable position to reduce our leverage, and it gives us room for future leverage. Naturally, we are looking into extending this duration, which is currently short, to give us more and more strength and momentum to grow, either for drilling campaigns or for the acquisition of new assets, incorporating new reserves for the company. The fact is that we have good room in our balance sheet to sign more and more credit deals to enhance our purchasing power and to develop our assets. With that, I end my participation in this presentation. I'd like to thank all of you for joining us and turn the floor back to our CEO, Nelson. Thank you.
Thank you very much, everyone, for participating in our Q2 '19 earnings conference call. I hope you have enjoyed it. Now we open the call to questions.
Thank you. Ladies and gentlemen, we will now begin the Q&A session for analysts and investors. If you have a question, please press star one. If at any time you would like to remove yourself from the queue, please press star two. Our first question comes from the webcast from Marcelo Coutinho. According to news published by the company, the acquisition of 18% from Impact will not have a cash effect. Is it paid already? If so, was this paid with the corresponding production?
Marcelo, good afternoon. Let me clarify regarding Impact. The effective date of this deal is way previous to the current date. With the production of the field from that date to now, there is an adjustment in the price. This price adjustment led the transaction or the deal to have a zero value. This has not been paid yet.
However, when the deal is authorized. It's not authorized, but when the deal is executed because it has gone through all levels and passed all levels of authorization in Japan. Now we are at a much more operational level. It depends on the Japanese. When this is done, we acquired the company that owns the field. When that company comes, it comes with a positive cash balance, and this cash balance will be used to pay exactly what we owe for the deal. We'll have a zero cash, a zero effect. This has not been paid yet because the deal has not been completed. When it's executed, when it's complete, and we expect this to happen in the third quarter, then this will be consolidated in the balance sheet, both production, EBITDA, and so on and so forth.
Next question, also from the webcast, Rodrigo Siqueira. Regarding Frade field, what are the expectations with the drilling campaign to increase production? Any estimate for CapEx in this campaign? Do you intend to disclose reports of reserves? In this drilling campaign, will you be accepting some targets in the pre-salt?
Hello, this is Francilmar speaking. Rodrigo, in overview, we are in the final phase of study for the drilling campaign. We are estimating a CapEx of $190 million-$200 million for the full campaign. In terms of reserves, it's way too early. We are reviewing the study. The G&G team is reviewing the report, and then soon we're going to have more to disclose on that. I would just like to add to what Francilmar said regarding the pre-salt. At Frade, there is a prospect, there is a possibility of drilling in the pre-salt.
This is not included in the initial drilling campaign of one producing well and two injection wells. Frade does have a pre-salt prospect. It could be a future target of a future drilling campaign, but this is not our core focus at the moment, because we believe that there are lower-risk initiatives that we should tackle at the field. Pre-salt at Polvo. We do have a prospect in the Coquina layer, which is normally the layer of production in the pre-salt, for logical reasons, Polvo does not have that layer. There's no possibility of drilling a pre-salt well as we are used to reading in the media that is under the salt, because we don't have that layer.
Again, if that happens, there are some prospects at Polvo for later on, for the future, that are much less risky in terms of geological results than the pre-salt. Much lower risk than in the pre-salt.
Next question, also from the webcast, from Pablo Spyer. What about the royalties discount for mature fields? Does the company have this kind of benefit currently? Are you seeking to have it? Our company, PetroRio, is entitled to that right.
Yes, we are going after that benefit. PetroRio was one of the precursors of this idea. One of the precursors raising this request to ANP. According to ANP regulation, they are considering a reduction in the payment of royalties regarding the production of wells drilled last year.
These wells would enjoy this benefit, and the production from these wells, instead of being 10% royalties, would pay less than that, down to 5%. This is our expectation. Again, this is a new regulation from ANP. It entails a long process. We believe that the process is moving ahead. It's towards the end. We estimate this benefit coming still this year. This is it. Although we are entitled to that right, we have not enjoyed the benefit yet, but it will happen eventually. Next question, also from the webcast, from Thiago Noel at Ativa Capital . Hello. Congratulations to the whole company for the results. What is the initial expected impact from the first phase of the development of Frade? Thiago, good afternoon. I'm not going to tell you exactly the impact from the wells that we intend to drill.
I'm going to give an overall answer. I think the take-home message is, at Frade field, the wells that started producing at Frade, all of them started with an initial flow greater than 5,000 barrels a day. I'm not saying that this specific well will begin with 5,000 barrels a day. What I'm saying is that in this region, in this reservoir, with the opportunities that were drilled before, all wells started with more than 5,000 barrels a day. This will be the producing well. The other two wells are injection wells. They don't lead to a spontaneous production increase. What they do is reduce the decline rate of the field. That's why we would inject water. We would not see an increase to production exactly when we start injecting water. The result of that will be seen over time.
Over months, we would start seeing a reduction in the natural decline of the field. At the right time, when we have the whole campaign designed and ready, then we will come back to that and talk about initial production, and talk about flow. I want to remind you that the company traditionally does not give a precise guidance regarding initial production of wells. Last year, we didn't give you a guidance either, because there are many uncertainties in this business and in this kind of project. Next question, also from the webcast, from Eduardo Schenk. We have a record EBITDA at the company, but as mentioned, we have not incorporated all of the Polvo Frade synergies. How relevant can this be for the EBITDA per barrel in the next quarter? Afternoon, Eduardo. Well, I look at this in the reverse way.
I see this related to the lifting cost, the analysis is basically the same. It's a matter of looking at a glass half full or half empty. Regarding the lifting cost in this quarter, we had a lifting cost of $34 a barrel. This lifting cost includes several transition costs. It also includes some costs of, for instance, we're operating in the property. It sounds too much, when you acquire an oil field, you have the wells, the vessels. You have to start organizing everything. What we still have to solve, not to solve, because it's solved, what was not included in this quarter was the whole land logistics piece and the sea logistics piece. These two things. Sea logistics includes support vessels. To move the support vessels around, you need to have them authorized by IBAMA, according to an emergency plan.
You have to submit this emergency plan to IBAMA. This was approved. We went from seven to three vessels, which is in Polvo plus Frade. Regarding land logistics, we started the operation with one logistics base here in Niterói and another one in Açu at Frade. We consolidated the whole of the Niterói operation. First of all, correct me. We consolidated our operation in Açu and returned the Niterói base. These things happened along the quarter, and there were some transition expenses. We had a sharing program with Chevron, and we operated the FPSO with Chevron people on board to ensure safety, efficiency, and so on and so forth. Now all of this is over in the quarter. In the next quarter, we will not have these costs. Our estimate is to get to $20 lifting cost in a consolidated fashion.
Next question, also from the webcast, coming from Rodrigo Siqueira. Regarding the bond issuance process, what is the status of this operation? Two, what are you going to use these resources for? Thank you, Rodrigo, for the question. Well, we have been saying that we are considering some funding options for the company, as mentioned by Nelson. I would say that one of the main uses of the proceeds would be to enable a drilling campaign at Frade, as explained by Roberto. In terms of status, the documentation is progressing. It's well advanced. This is a summer break period in Europe and the United States. We are waiting for them to get back to us, and we are waiting for attractive market conditions. This includes the Brent oil price. Brent price should recover.
The good thing is that we are ready. In addition, we have a comfortable cash position. We are in a comfortable position to choose the right market moment. The company is ready. I can tell you the process is way advanced. Next question from webcast to Diogo Queiroz. What is the profile of the assets that you are considering? Smaller fields? High producing fields? Hello, Diogo. Regarding the fields that we are considering. We tend to look at fields that would offer synergies to what we are having today, Frade and Polvo. Ideally, we would consider close by fields where we can derive synergies from in terms of logistics, personnel, and so on and so forth. Fields that would offer an upside in terms of revitalization. It's not a matter of being a small field or a big field.
What really matters is if it's a mature field, it's normally a field that was forgotten, not in the radar of large companies. Fields that large companies do not pay attention to. With that, this kind of field becomes an opportunity for revitalization. You can see dynamically very simple. Large companies, they have a large balance sheet, a large structure. They tend to focus on development, large projects like the pre-salt. Because they want to optimize their own resources, they kind of leave smaller fields aside. That's when we have a great possibility of adding value. This is our quest, and it is this kind of field that would be in our pipeline. Thank you. This concludes today's question and answer session. I would like to invite Mr. Roberto for his closing remarks.
Well, again, I would like to thank all of you for joining PetroRio's earnings conference call. This quarter was a very strong one, a very interesting one. Once again, it shows the company's ability to create value with our strategy of acquiring mature fields, revitalizing mature fields, and optimizing costs. I would also like to thank all of you who supported me during my time at PetroRio, and I'd like to wish Francilmar good luck. Actually, not as of now. Since last week, he became the COO, and he will handle the operational highlights in the coming quarters. Thank you very much and have a good day. That concludes PetroRio's conference call for today. Thank you very much for your participation and have a good day.