Good morning, everyone. We're going to start our webinar from the first quarter 2026. I'm just gonna give a little more time so people can come into the room, and we're going to start. Good morning, everyone. We are now going to start our webinar from the earnings call from the first quarter of 2026. I am Marília Nogueira with José Firmo, who is going to do the presentation, then we're going to have a Q&A session with the executive board. This is being transmitted by the Internet, and it's going to be in the company's site later on. Please send your questions to the Q&A session so that I can read them at the end of the presentation.
I would like to say that all of the declarations made during this conference that have to do with the company's perspectives and operational and financial results have to do with the applicable and the information that is available from the company. Future considerations involve risks and cannot be set as the standard.
Thank you, Marília . Good morning, thank you for joining us in our presentation of the earnings this first quarter of 2026. The period was marked by a relevant change in the global macroeconomic scenario, especially starting in March, with the escalation of geopolitical tensions and their effect on the oil prices. Throughout the quarter, we achieved significant reductions in costs and CapEx, and these were translated into a better financial performance.
At the operational level, the average production was 24.4 thousand BOE per day, 2.5% lesser than the previous quarter and 11% less than in the same period of 2025, impacted by a difference in NGL, which in the first quarter of 2025 produced approximately 2,000 additional barrels of oil, additional, on average. The net revenue totaled BRL 684 million, down 3% compared to the previous quarter and 20% compared to the same period last year. The impact was on the production effect and because of the fall of the dollar. EBITDA was BRL 310 million, an increase of 5% compared to the previous quarter, showing the company's cost efficiency strategy.
In the year-on-year comparison, it was a 27% drop compared to the first quarter of 2025. Net income was BRL 154 million, an increase of 144% compared to the fourth quarter of 2025 due to the currency effects of the mark-to-market of debt and hedges. The annual comparison profit was 46% lower, also due to the effects of market variations exchange rates. Regarding indebtedness, we ended the period with a net debt of BRL 1.4 billion, equivalent to a leverage of 1.04 times net debt over EBITDA. Finally, we maintained a disciplined execution of the company's CapEx plan with a reduction in CapEx compared to the previous period, which resulted in free cash generation in the amount of BRL 80 million.
As a result, reaffirming our commitment to generating value to our shareholders, we announced a distribution of BRL 100 million in interest on equity, equivalent to BRL 0.334 per share. I would also like to highlight that we were included in the portfolio of B3's Great Place to Work Index, reinforcing our commitment to an inclusive work environment oriented to people's development. In April, we won the Great Place to Work certification, the second consecutive year. Moving on to production now. The company's average production decreased by 3% compared to the fourth quarter of last year, mainly impacted by the drop in production in Uruçu e Gomo.
The decline was mainly due to operational shutdowns, including interruptions associated to maintenance of processing units, compression systems and electrical events, which had a significant impact on the production of the Bahia assets in the quarter. In Potiguar, production was stable in the quarter in comparison. We maintained a disciplined execution of the company's reserve development plan with the execution of 57 workover projects and the advancement of the 2026 drilling schedule with the completion of three new wells in the Potiguar assets, two injectors and one producer who is still in the completion phase. In line with the project to intensify water injection to repressurize the reservoirs, this quarter we report the injection in Anchieta for the first year. In April, we have new injection wells came into operation in the Sapata and Samambaia and reinforcing initiatives to support the maintenance and recovery of the asset's production.
Now I'm going to give the floor to Rafael, who will continue the presentation.
Thank you, Firmo, good morning, everyone. The net revenue, we ended the quarter with BRL 684 million, a reduction of 3% compared to the fourth quarter of 2025. Mainly impacted by lower natural gas revenues that totaled BRL 263 million in the first quarter, BRL 31 million less than in the previous quarter, and BRL 15 million of this reduction was directly associated with the lower purchase of gas from third parties. In addition, it is important to note that the average realization price of natural gas, which stood at $9.36 per MMBTU, equivalent to $56 per barrel oil equivalent.
It does not reflect yet the recent rise in Brent due to the contractual pricing methodology, which provides for quarterly adjustments based on the arithmetic average of Brent prices observed in the previous three months. The last adjustment carried out in February of this year considered the average of the prices observed between October and December 2025, while the next readjustment scheduled for May will incorporate the average of the prices observed between January and March of 2026. There is a natural lag in the capture of oil movements, which indicates that a relevant part of the recent appreciation of Brent has not yet been reflected in the quarter gas prices, reinforcing the expectation of greater value capture over the next few months.
This drop in gas revenue was partially offset by higher oil revenue, which reached BRL 442 million in the period, an increase of BRL 51 million due to the improvement in prices in this period, partially impacted by the hedging NDF operation with a negative financial impact of BRL 35 million in the period, totaling a net oil revenue of BRL 407 million. When analyzing the average realization price of oil, we observed a significant increase of 15%, reaching $63.4 per barrel, mainly reflecting the positive effects of the macroeconomic scenario, although mitigated by hedges and the increase of discounts associated with the spread between ICE Brent and Dated Brent, which in March exceeded $4 per barrel, a level significantly higher than that normally observed.
It should be noted that some of the company's contracts are indexed to the ICE Brent and others to the Dated one, which benefited us in the period. Finally, in the service line, we recorded revenue related to the provision of drilling services with PR-14 rig to third parties, contributing positively to the diversification of our revenue during this period. We also demonstrate our oil hedging position and its impact on the company's financial results in the quarter. For 2026, we have about 65% of the 1P oil production protected. With 2027, this number is reduced to 37% and in 2028 to 9%, which guarantees cash predictability but allows us to capture upsides in the positive Brent movements.
Regarding the accounting of futures, the settlement of NDF contracts resulted in a negative impact of a BRL 35 million on revenue in first quarter 2026. In addition, the mark-to-market of these contracts is recorded in shareholders' equity, affecting company's results only as the contracts are settled in the future. The operations via zero-cost collar are not considered hedge accounting and thus impact the financial results of the quarter, both by the installments that have already been settled in the first quarter in the amount of BRL 90 million, as well as by the mark-to-market futures contracts, which also have an accounting effect recorded in the financial results of the period. This quarter, we maintained a consistent trajectory of reducing costs and expenses, reinforcing operational discipline and a focus on efficiency.
Total costs and expenses totaled BRL 374 million in the first quarter, a reduction of approximately 9% compared to the fourth quarter of the previous quarter, 2025. This reduction is the result of a combination of factors. On the one hand, we observed an increase in royalties and a reflection of the higher reference prices of oil and natural gas in the period. On the other hand, this effect was more than offset by a drop in cost expenses and other expenses, mainly associated with the reduction of expenses with services, transportation, and materials. In the quarterly view, it is important to highlight the positive evolution of the main cost component. The lifting costs remained at the level of the previous quarter, substantially lower than the average of the first three quarters of 2025.
In dollar per barrel, the indicator was impacted by the drop in production and exchange rate, still remaining at controlled levels compatible with our operating base. We also recorded sequential reductions in midstream costs due to lower processing, outflow and transportation costs, mainly driven by efficiency gains in gas processing in Ubatã do Lomanto UPGN. Due to the acquisition of the Iguaí and UPGN, in addition to a significant drop in gas purchases in the quarter. Finally, it is worth mentioning that we remain focused on the sustainability of this reduction trend, combining rigor and expense control and operational efficiency. This set of measures is essential to improve margins, increase business resilience, and strengthen long-term value creation.
This efficiency and discipline are reflected in the company's EBITDA, which in the first quarter of 2026 totaled BRL 10 million, a growth of 5% compared to the fourth quarter of 2025. This progress is mainly the result of cost optimization, which more than offsets the impact of reduced revenue and increased royalties observed in the period, allowing the EBITDA margin to advance from 41.9%-45.3%. From a netback per barrel perspective, the average blend in the quarter was $81 per barrel, while net revenue was $60 per barrel of oil equivalent. The net realization reflects the combined effect of the product mix, where natural gas presented a lower value per BOE than oil, especially in this quarter, due to the temporal mismatch of the quarterly price adjustments of gas contracts, as previously explained.
On the oil side, the discounts applicable to sales contracts also reflected in addition to the negative impact of the NDF. Now, the breakeven cash cost totaled $13.61 per barrel, generating a positive margin of $29.49 per equivalent barrel. We also highlight the significant reduction in CapEx as a direct reflection of our discipline and capital allocation. In the quarter, the total CapEx was BRL 197 million, a reduction of 26% compared to the fourth quarter of 2025, with prioritization of projects with better returns and greater adherence to cash flow. In the development of reserves, investments totaled BRL 196 million and remains in line with the operational plan, more concentrated in workovers and water injection projects and operational resilience.
We have seen a reduction in drilling with a focus on low-risk projects while increasing the number of workover interventions, diversifying the project mix and capturing the short-term gains. In facilities, we continue to prioritize investments in water injection infrastructure and asset integrity, which are fundamental for the sustainability of the production and for the preservation of value over time. Overall, the quarter reflects a disciplined selective approach consistent with our strategy of business resilience, growth with profitability, and preservation of financial flexibility. On this slide, we reinforce the company's financial strength and the low level of leverage. We ended the quarter with a cash position of BRL 1 billion 657 million, slightly above the balance recorded at the end of the fourth quarter of 2025, even after the payments of CapEx, interest, hedging effects, and other financial commitments.
This performance was supported by strong operating cash flow, which totaled BRL 274 million in the quarter, evidencing the business' recurring cash generation capacity. The perspective of indebtedness, we continue with a comfortable structure. Leverage ended the quarter at 1.04x net debt to EBITDA, remaining at a low and controlled level. The average cost of debt in USD remains around 6.12% per year, with a duration of close to four years, which ensures financial predictability and flexibility to go through different market scenarios. This combination of consistent cash generation, low leverage, and elongated low cost debt profile reinforces our ability to finance growth with capital discipline and sustain recurring shareholder returns responsibly. Now I give the floor back to Firmo.
Thank you, Rafael.
To conclude, on this last slide, we have a good consolidation of the central message of this quarter. The free cash generation coming supported by discipline and capital allocation, structural cost reduction, and a more efficient investment profile. In the first quarter of 2026, we generated BRL 80 million in free cash, even though we've not yet fully captured the benefits of the rise in oil prices that occurred only since February. This result directly reflects the continuous effort to optimize our cost base, combined with a relevant reduction in CapEx through the focus on projects with better financial returns. The total CapEx in the quarter was significantly below the level seen throughout 2025.
This higher cash generation supports our focus on remuneration to shareholders, which led to the decision to distribute BRL 100 million in JCP, in line with cash generation and the preservation of the company's financial strength. We have a current phase, a different scenario from the one predicted a few months ago, and we must maintain our agility for just the level of investment activity in the coming months, depending on the macroeconomic scenario. I take this opportunity to highlight the very relevant advance in our operational resilience strategy in the flow of oil. We signed three-month amendments with Brava, Spartan and Itel in the oil field contracts at the Potiguar assets that increase the predictability of volume delivery and improve risk sharing and market upside requirements to align the companies in the search for systemic efficiency in the Brazilian onshore.
We continue to execute our strategy with technical rigor in focus of long-term value creation. We continue this strategy focusing on this long-term value creation and the combination of operational excellence and resilience, financial discipline and balanced commercial strategy, which gives us confidence in the ability to navigate in the near future. Thank you. Now Marília is going to conduct the Q&A session.
Thank you, Firmo. Thank you, Rafael. We're gonna start the Q&A session now, and I will ask you to send the questions through the Q&A so that I can read them. Starting, I'm going to do it according to topics I think it's easier to answer. This is about CapEx. In the fourth quarter, production had a flat production for 2026 with a more conservative CapEx.
Considering this new prices, is the company actually checking CapEx for 2026? What are the specific triggers to accelerate the production activities?
I think this question that we were all asking in the oil industry around the world. The answer for this year is no. We will continue to maintain the original strategy that was decided on late last year. Obviously, we are reviewing the portfolio. Sorry about that. There was an audio problem. Okay, now it's back. Right. We are reviewing our portfolio for a possible implementation of change in investment. However, it has not been defined yet, and at this point, we're still maintaining implementation of our strategy. We are trying to understand the medium and long-term effects, especially on the future price, because today, in my opinion, is still very uncertain.
The next question is from UBS.
The CapEx is lower and the quarter can give more details. Was it below the expectations or can we expect this level of CapEx for the next quarters as well?
This is the level of CapEx that we designed this year. We were able to design a structure of activity that was both stable and our expectation is to maintain this year.
We have a question from BTG. We presented that we are operating with only PR-21 that is in because of the launch. Is there any expectation for PR-14 to continue to activate or PR-04? Is it going to be activated, the 04?
Our drilling structure, and we are proud to say that it is the best one in Brazil.
It has a lot of flexibility in terms of depth as well as the technological profile of these wells. This year we planned conventional and focusing on PR-21 and there's little in PR-14. Usually this is done throughout the year and today we have PR-14 working for an external project with third parties. The possibility of drilling the other wells, this is being evaluated. The decisions are made throughout the year. The PR-04, there's no forecast to use it. We're still going to maintain it and waiting for this change in the drilling profile the future. This year these two are being applied like we planned it.
Okay. XP is asking the priority project to deliver a growing increase in curve, a growth increase.
Well, 2026 was a very important change for us.
We made an adjustment so that the year would be focused on the generation in the midterm. What do I mean by that? That phase where the company actually buys new assets, there's always an initial phase, which we call the low-hanging fruit, and we focus on activities that generate short-term growth. We definitely agree, and we've been talking about this with you. The company is in the stage of thinking in medium and long term. We're thinking about projects to manage mature fields, especially with water injection and water flooding. These are projects that have to be seen in a more, longer term. Not, you know, just getting more production to get more production next month. This is a change that we structured for this year in the company, and we are delivering this aspect.
In general, what we see is a development of workover and the drilling is focused on the projects, the water flooding projects, also focusing on trying to get stability so that the capital that is used will have a better return compared to what we got, especially in the last two years. It is a change in perspective for a long-term perspective. We are not only looking at this period. Our commitment this year is to try and get stabilization of the average production this year and next year. We are 5% below what we had projected the first quarter because of the well-known problem, seasonal problems, maintenance and interruptions.
We believe, and we're still working to be able to, at the end of the year, to achieve the CapEx that we set and the average production will be flat compared to next year, and the return will be much better this year compared to last year. The structure has not been modified yet. We're working on this, and we have several workover projects as well as drilling projects to be able to achieve this final objective. All right, now for production, Esau is asking. When we talk about increased production expectations with the start of these wells that were drilled. We have two injector wells that we drill. Basically, once again, we make our technical analysis. You drill a well, an injector well, to stabilize the production of several wells, but it's not a direct production.
It's not like when we drilled the GA-11 well, the next month we're already producing 1,000 barrels of oil or more. Once again, this change that today's activity is part of a process to generate medium-term value that obviously tries to bring the management of the reservoir, the management of the mature fields to the company's core activities. Of course, we continue to work on the portfolio, especially in the surface portfolio. We're still looking for opportunities to increase production, trying to find opportunities that can bring additional production. The core of what we're doing now was designed this year, it's still being implemented, and the reason between what is invested and increase in production is not as linear as what we were talking about before. Answering Monique.
Monique, we have a workover structure, a drilling structure that focuses on the injection projects, and these injection projects are going to bring a lot of value in the future. If we look at what the company did in the 25 years of existence, what we planted for many years and what we harvested for decades was a management structure for the portfolio that made us invest a lot less for maintenance and growth of the production. This level of investment that we have today, this model that we are using today, is exactly to establish this. It's not an immediate response, it's a more long-term response. It's just something to say that we believe in stabilization and growth in production, but it's not going to be immediate. It's not like drilling a well and then next month already having an increase in production.
The objective is exactly the same, keeping a flat production this year with less CapEx activity. If we stabilize that, we're going to continue doing this over the next few years, trying to get growth. We have growth leverages that are very interesting. Last year, we tested technology. We brought other opportunities. These projects are being developed. They are there to be able to stable and gain maturity. When we believe that these projects are ready and that they should go into our portfolio of activities, we're going to give you a better view about the CapEx acceleration, which obviously is more comfortable with a higher oil price. If we see a higher oil price, especially in the medium-term horizon, we can actually accelerate these projects, but we have not changed the strategy up to now for this year. Okay.
There's a question from an investor. It's in English, but I'm going to read it in Portuguese because you have the translation.
You don't have to change the channel.
You've already answered a bit of it. It's a question from Monique. It's important to emphasize this. When are you planning to return to the production growth path? After the lessons from the pilot wells from last year, what is going to happen to Pedro e Paulo Cabral thinking about increased production going forward?
In terms of change in phase, the establishment of our understanding that the phase where we got these assets and we brought a lot of what we call the RTP, return to production, to the business.
We have the responsibility of looking at this business in the same way that we look at Limoeiro and Pecém. Now it's time to structure projects, water flooding projects, that allow the future to be much better in terms of allocation of capital compared to now. The question of capital allocation to the return to quick production, it is very place to buy an investment now and the return capital will be more long term. I think that's the topic. After we establish this, and this is a project that we see especially this year and probably also good part of last year. At the same time, we can also start thinking about other projects with the increase in production, let's call it that. The increased production projects are anchors to investment.
That's a form of bid, an investment in equipment and technology for future developments of the company. They're going to be implemented inside the company's plan when we acquire the right level of maturity. Last year was very relevant. It was very important to test horizontal technologies and test the deep well technologies that allowed us to check the potential of the surface, but also in terms of technical capacity of the company, the cost and all this. This potential has a transforming potential for the company. We can't simply continue to have mature fields and not develop them, but each of them reach their own maturity at their own speed for implementation. This is a year that everything that we put into practice last year, it is being developed this year.
It's a future where the company is able to make horizontal wells, multi-stage frac with depth to able to reach the reservoirs, the deep gas reservoirs that we know we have in the company's portfolio. This transforms not only the reserves but also the company in the future. This is a moment that we have to talk about later on when the maturity of these projects become more well known and our decision to manage risks and the investments when everything is decided. At this point, we're focused on this current strategy, which is the implementation in a very disciplined manner and the water flooding projects that are going to work on the allocation of capital in the future and will generate more value later on.
The next question is from Brad esco about the water injection project in Tiê.
Is that finished or is there more work? What is your evaluation about the outcome now?
Water injection projects are very similar to the safety culture projects. You never stop looking at them, and you have to be very humble to learn all the time with them. In terms of investment, yes, fundamental investments that we made in Tiê in terms of construction of wells and the structure of the surface, this has been done. There are still a few things to do, later on, nothing too big. The project in terms of implementation is ready, but there's still a lot of work with adjustments and refining and understanding of the technology that we're doing in Tiê for this project to actually give us a result and a more controlled decline curve.
The oil and water proportion much better compared to what we have today, and that's what we want in all the injection projects.
Okay, one more question from Citi. Are you more confident about the oil price because the oil price can become stronger for a longer time considered to what was priced at the end of 2025?
Well, my decades of oil and gas, I think we should run away from people who know what the future price of oil will be. Our strategy is agility and flexibility. We were a few months ago with the expectation that we had a completely different profile for oil compared to what we see today. In my opinion, what is the total effect in the middle and long term compared to everything that we've seen in the first months of this year?
I think that all of us have a view that this effect is not absolutely in the short term. Definitely, there is a medium-term effect, especially when we talk about risk of the Gulf oil. That was one of the great reasons for the price of oil to change. If this is going to be solved over the next few months, and if we're gonna change the supply and demand model we're using for oil, we don't know. We can clearly see that it's not going to be in the short term. It's probably going to be in middle term, but that's the little I can say in my perspective about oil for later on. What we've seen is not going to be solved quickly. What we've seen is going to have a more long-term effect.
How long it's going to be and the size of these effects, I would not dare to say based on what I know about the oil industry. Our strategy, our way of working is to have our portfolio reviewed all the time and able to react to different changes. One of the main protections of PetroReconcavo that it benchmarks on the production costs of Brazil onshore. This is something we're not going to stop using. To hedge, there is an individual asking about what percentage of the production is in hedge and what is the value per barrel. This is in one of the slides in the presentation. 65% of the production of the reserves to 14 for 2026, 37% for 2027, 9% for 2028.
The size is about 10,000 barrels a day now for 2026, we produce about 14,000 barrels a day. That's more or less the proportion. The average price has two different formats. There's an NDF, where it's a fixed price at $65 per barrel, more or less. You have those that are in the collar where you capture a certain window, and usually there is a standard of about $60. You protect below any drops below 60, and the upside is like $17 a barrel. It's important to remember that the company produces 40% of its gas capacity. You know, it is a company where the oil hedging is important, but it does not determine the capacity to generate for the company.
Gas takes a lot longer to capture these price variations, the capital structure and the hedging structure is very well thought to be able to maintain a balance to ensure predictability and at the same time allow the company to continue being an oil and gas company that captures the oil upside. Still about the hedge. I have explained it a little, but there are some questions about this. This is from Bank of America, we evaluate the hedging strategy currently in terms of prices and if it is possible to renegotiate or close positions of NDF as an advanced manner.
Well, the hedging strategy is discussed a lot, especially in these financial areas here in our board, and they were designed to think about this scenario, you know, having a protection that is big enough against downsizing of the prices. This is what we had a few months ago, also allowing us to capture the upside as well. That's how it was designed. We actually do reviews of the hedge position periodically according to the evolution of the scenario. I think at this point, we don't have the intention of closing any hedge contract. I don't see any benefits on this path. I think the idea is to continue. As I said, most of this is treated with hedge accounting. These are contracts that have monthly settlements. I'm protected until 2026 in December.
You do the settlements of the results from that month, this is going to affect the result of the company during this period. If this disbursement is cashed, it's always according to my physical selling oil. I have to pay some value to the bank because of the hedging operation. I receive, if I have more production, I receive a lot more than that in the physical selling of oil. The net effect is always positive in terms of cash generation for the company. There is no temporary mismatch, and we don't have any calls or margin in our contract. Everything is well structured, so it will never be damaging for the company. The opposite. It only helps the cash flow for the company. About lifting cost. This is a question from Citi.
What can we expect for the lifting cost over the next few months in 2026? Does it make sense to say that the cost in reais is going to be flat and it's going to be diluted by a potential increase in production? Our lifting cost is really, let's say, this is what we really focus on. Of course, the lifting cost per barrel is an important reference. PetroReconcavo will have this as a Brazilian benchmark. It's onshore. It's very relevant for us. What we really control is the lifting cost in reais and in production. That your understanding is exactly the one that we use. We have maintenance of the cost. After a joint effort, we were able to bring this cost down at the beginning of last year.
Beginning of last year, we had a lot of difficulty and lots of challenges, especially in terms of operational resilience. Obviously, the idea is to continue pushing lifting costs down, maintaining the standard that we're at. It really depends a lot on how much João and his new function will be able to extract efficiency over the next. Yeah, I'm gonna let him say something about that. This is exactly the case. Doing this and being able to lift part of the lifting cost, it varies, and it goes up according to the production, but most of it is fixed. When we're able to get bigger production, then we have a change in the ratio. Would you like to comment on that?
Well, it's a fact.
We have followed up the last three quarters, the nominal values of a 10% reduction per quarter when we compare with the quarters from last year. Sequence of investment in terms of the assets, but it's at a lower level, and it's more located in CapEx. This is one of the things that we have invested a lot on water injections, the integrity of the assets. This impacts the lifting cost. We also have benefits because of improvement in the breaking of wells year-over-year. This has made the repair costs smaller. The repair is continuous and our expectation is to maintain the best standard and with other levels of efficiency in the repairing of wells and other efficiency of micro energy or something that will allow us to continue this reduction path.
We've answered all of the questions here.
Yeah, you've already answered all the other questions about lifting costs. The next question, I'm gonna do them all at the same time. Obviously, it's about the contract, the three-month contract and the signing with Brava. The question is: What is the improvement of the average discount for commercialization practiced by the company that we should expect with the changes announced with this new contract of pricing with Brava? If you could give more details about this, about the signed contract. I think that's it. Yeah, the rest is just repeated.
Well, I think this contract, of course, it is very important to us. The additional has a function of starting the negotiation process and marking the term for us to be able to have a long-term contract. I think that's part of our strategy.
The objective, the fundamental objective for PetroReconcavo is to go for what we want. Remember, I came one month after PetroReconcavo had its biggest losses in terms of closing of the wells and the Butcher Glad for 12 days. That was something that had never happened in the company, and it took months for us to recover in terms of service. At that moment, we made a decision, and we have been very efficient in finding alternatives for the production and alternatives that are economically possible, too. This advance with Brava, with Brava now is another phase of the operational resiliency that we have been designing. Every time I do up here, I said that onshore was going to be 1 of the best for the companies to work together for the systemic reduction of costs.
We still have situations at the onshore. We hope to have, you know, something that we did not have something at gross efficiency, but we have some advances in this path. Before with we had better outcomes so that we could reduce the risk of constraint that the clients, that the refineries bring and moving together so that we could get a level of efficiency that we wanted. Of course, there is visibility and the delivery that is extremely important for the rigs and this is necessary. At the same time, it also brings benefits to Petroreconcavo, and it allows Petroreconcavo to have the option so when we have this product that is ready, you know, we deliver to both sides and everything that we designed. I'm very satisfied, and we have the generation of value to both companies.
The discussions are always, what do we need to do so that the total systemic costs can go down and both companies can generate value? We did this with Balmorhea when we acquired it. It was extraordinarily positive. Even months after we joined with Balmorhea, we managed to reduce the cost. The methodology is the same. It allows for a reduction of costs and improvement if you be selling oil in the short term. I don't like to talk about my history in services. You should never discuss long-term private contracts in public. This does not bring any advantage, but you're going to have the opportunity of checking the quarter-over-quarter. There will be an improvement that you will see. That is something we announced yesterday. It's a contract that moves in the right direction.
It's going to bring positive gains for both companies. Of course, there will be a system for PetroReconcavo to improve the monetization of our oil in the same way that we did in the reduction of lifting costs together with Brava. This is my view. After the long term, the objective of the two companies are going to have a better five-year view, a much better view compared to the value that is generated to Brava and PetroReconcavo. This is the work we're going to do over the next few months. A question from Safra. How the replacement of diesel for LNG will increase its use in trucks, and is that a more attractive product to sell? I'm going to use the word attraction. Yes, it is more attractive. Yes, but it's a pilot study, right?
NGL already starts as being produced. It starts as moving cargo as a pilot study with NGL, and we want to understand what is possible. In my opinion, in terms of the gas strategy, micro distribution of NGL and especially in transport, in the modal of transport in Brazil, cars in Brazil, it is transforming. Brazil has gas, it is able to use it, and it's able to balance the dependence on diesel that we have that is now highly complicated at this moment of stress. I really believe in the entrance of NGL, the way that we're doing it in the Brazilian transport system. We are testing this pilot. It's very attractive. Yesterday I heard this question.
I'm going to consider it attractive when we have a volume of activity that is enough for us to understand everything in terms of maintenance and cost and in terms of safety and with everything that we want to do with LNG. LNG, GNL in Portuguese. It's relevant for us, and we need more time to really be able to shed some light on it and show its potential. Baby steps on this project, but it is definitely very attractive using the same word.
The next question is from Bank of America. What is the allocation of capital to the company because of the low leverage? Would you still like to focus more on the current portfolio and the distribution of dividends? All of the above. Can we answer that in this way? We're still structuring.
We just redid it. The decision came out of JCP exactly where we were two years ago. We have not only a classical structure that allows the company to do a lot of flexibility in its strategy. It allows us to do a lot. The allocation of capital is stronger. Allocation of capital, just like the payment of dividends, that is more aggressive as we see this year. We also have the operational capacity to do this. This is going to be maintained as the main source of potential source to be able to do something that will bring value to the company in the long term. Maintaining the same assumptions, flexibility is our strategy. We want to have it all the time.
The M&A evaluations that are coming out, the midstream evaluations also increase investment in our portfolio and to other portfolios as well, to use the farm-outs, and the distribution of dividends or any other kind of structure for return on investor capital. Maintaining the same assumptions and strategies of flexibility, that is our strategy.
Okay. Bradesco sent a question, and they would like to hear your opinion, Firmo, about the probable entry of Ecopetrol in the Brazilian onshore. You have a lot of experience working with majors, so what did you think?
Ecopetrol was a customer of mine for several years, and I respect them very much because of its operational capacity, its technical knowledge, its team as well. It is a company that definitely has the capacity to do whatever they decide to do.
There's this category, and they're going to. You know, that's as much as I can say. Of course, it's a company that, well, I can also say what I said in the acquisition when we formed Brava. Brazilian onshore every day needs to have key companies that are focused on solving the efficiency problems. We are going to be robust. We're going to be robust onshore when we actually face the challenge of systemic transformation of the onshore efficiency. An E&P company like Ecopetrol that can participate in this market is welcome. I always considered the coming of companies who want to solve these problems welcome. It's these efficiency problems that will demand long-term solutions, more difficult solutions like these.
We are doing it, of course, through the different goals that will drive improving the equipment, reducing the midstream costs, and improving the treatments of our processing of our product. I think this search for systemic efficiency, I definitely am always welcoming E&P companies that know the surface well, that know the E&P very well so that we can address this well. That's my personal perspective of this question that was done.
Last question for us to close. It is from Sculptor. Even without a formal guidance, what is the main message that you would like investors to take for the next two years, 2026 and 2027? Preservation of cash, production stability, preparation to start growth again. What needs to happen operationally for this to be achieved?
I'm going to try to simplify this.
It's not easy, but I'm going to try to say what we here, together with the board, are definitely focused on. We need to bring to the company the capacity that it has always had to provide return on capital above what we were able to do in the last two years. This is a big topic. It's a topic of return of capital. It is balance. It's the return on capital and the consumption of capital through projects that are very well designed, very well carried out in terms of development of reserves. I think this is a big topic the company has. Trying to get short term production and short term growth that competes better with a return on capital that is more structured. Now, with that, just enabling the capacity to go back to growth that the company has.
It's a structure that includes strategy, where we focus basically over the next two years on the project, on the development of projects in an efficient manner, the water flooding projects, and the return on capital will go back to a much better level compared to what we have today. At the same time, we are also observing the development of technology, new projects, so that we can in fact go back to growing in this production, but going back to having the return on capital, a better one compared to what we did in the last two years. In general, I think this is what I'd like an answer to this. Everything else we're doing. It depends on the cost. Definitely this never comes down to our agenda.
The only reason for the existence of companies, the mature, the you know, they operate at much lower costs compared to the others. Otherwise we wouldn't survive the costs, especially the operational costs, the investment that is very well done, with a focus on the capacity of evaluating return on investment in a more granular fashion and being able to learn very quickly and understand what you're investing in a cycle, in a PDCA that is very fast. At the same time, bringing this capacity and still counting on the portfolio of the company and the opportunity to find new reserves. These are the great topics. I don't know if anybody else wants to add anything. If not, that's it. Thank you. Thank you everyone, and I'll see you in the next call. Thank you.