Good morning, ladies and gentlemen. Welcome to our earnings release conference for the first quarter of 2022. I am Marcelo, Manager for the company, and I am here with me our executive directors, Marcelo Magalhães, our CEO, Rafael Cunha, our CFO, and Investor Relations Director. Please remind that this conference is being recorded. It is going to be available in the company's website. For those of you who need simultaneous translation, you have an interpretation icon located in the bottom side of the screen. Please click on it, select the language of your preference if you would like to hear it in English. Otherwise, you can select the original audio. At the end of the presentations, we will have a Q and A session.
If you would like to participate, please send your questions via chat box, and then during the session, we will be announcing the name of the analyst that is interacting with us so they can take the floor and ask the question, open the microphone. If you do not want to use this function, please let us know in the question. Before we start, we would like to emphasize that any statements made by these companies reflecting the current vision and expectations of the company are based on information available to the company. Future considerations are not a guarantee of performance. The investors need to understand that other factors may affect the company's earnings and be different from the expectations. Now I would like to give the floor to Marcelo Magalhães, the CEO, to start this meeting and make their final considerations.
Thanks. It is a pleasure to be here with you today again.
Above all, in a call to release our earnings. We consider such expressive earnings in this first quarter of 2022. I believe that the data we are going to share with you have already been sent to the market yesterday, and they show a strong performance by the company at a much better operational level already, including iron ore. After we incorporated these assets, we are also able to see expressive organic growth and a growth in the level of activities that reflect extremely positive EBITDA, net profit, increase of production. This has been obviously supported by the market price characteristics. As you know, part of the company's production comes from this market conditions that the company is experiencing. The company is aligned with these market conditions. For those of you who already know us, we know our attitude when it comes to risk management.
We are very reasonable when it comes to risks that the company may incur. Especially risks related to costs. That in any way reduces the results that we see on screen. We are experiencing extremely joyful week. We are celebrating one year of our IPO. I personally am celebrating 14 years as a CEO for the company. We also overachieved and overcame the target of 1,000 employees. We are seeing exceptional results when it comes to iron ore. There is a surprise for some, which is the reduction of the barrel cost. We are seeing a lot of inflation globally, both in Brazil, U.S., Europe.
Anyhow, the company was able to achieve a great cost performance, and that reflects the scale, the acquisition of assets, smaller operational costs. Also emphasizing that our decision to verticalize our structure allow us to have more independence, autonomy, not only for execution, but also for managing costs and services that are critical for a company that has such a huge development program. These values and numbers also reflect a very different situation for the company in the market compared to our last call. In January, the company became an independent operator supplier of natural gas to three local distributors, Spot Gas, and other distributors. This has an effective effect. It is arising from many complex negotiations with Petrobras, Vale, with clients, which are these distributors.
We received lots of institutional support from the state, from the energy ministry, AIP, and that allowed the company to become a reference of leadership and pioneers in the natural gas market. We are seeing a positive impact of our position way before we expected, not only in these earnings, but also in the broader presence of the company in the market of natural gas. We are the main supplier of natural gas, and we have expanded above and beyond the upstream. This is a target that we are achieving step by step. It's also important to highlight the extension of the Pajeú contract. That shows that we have a perspective that we will be accelerating the extensions. We have other extensions coming in, but it was an assertive decision for these contracts. We have 10, 15, 27 years of extensions allowed by law.
We also were able to reduce costs related to production. So we were able to achieve regulatory and process achievements, things that we've worked on for a long time, and now we are seeing the results. That is reflecting on the future expectations for our company, not only when it comes to earnings, but also in terms of stability in a regulatory context. Finally, as you know, this week, we're on the news. We were invited by Petrobras to have PetroReconcavo as a leader. We were going to be the operator of these concessions. So we'll be starting negotiations exclusively as the selected business for the Bahia Polo cluster. We'll give you more details, but I'd like to anticipate that we have huge expectations. After 22 years operating the Recôncavo Bay, we believe that we know this bay like no one else in this country.
We are aware of the potential for secondary recovery projects for many of the reservoirs in this basin. We were extremely successful in applying these strategies over the past 21 years under the Petrobras service contract, and we are confident that this is going to bring very positive results, and generate expressive values for our shareholders. In addition, this cluster is equipped with a structure to flow the natural gas. It's a very relevant structure. We are using it through swaps with Petrobras. Once we complete these negotiations, the company will be also broadening the expectations to act in the south, and to have much more attractive alternatives to monetize its production, both in oil and in gas. So these are positive results. We know Petrobras process few people. This is a long process, but we are really confident that we have a competitive proposal.
We designed it using the same processes that we participated earlier, based on a lot of criteria, lots of studies, involving a huge team, aware of the value that they can create for us. In this specific case, I also wanted to share that we were lucky enough to be in a process in which most of the relevant players were already compromised because they had huge commitments with other clusters. It somehow put us in a more privileged position and got us into the table to sit down with Petrobras to negotiate with them. I would like to thank the entire team at PetroReconcavo. You gave clear examples that you are able to continue executing things with excellence, even though the scale of operations are becoming much more challenging. Last year, we practically doubled the fleet of equipment that we have.
We added perhaps more than 500 employees to our payroll. We had two relevant assets recovered, and we continue to ensure safety in our operations, bringing consistent results, both from the operational standpoint and the financial and accounting standpoint. That makes us confident that we are on the right path, and we will be seeing future growth. We expect that we will be facing up and standing up for the challenge soon. Now I will give the floor to our COO, who is going to give more details about our operational performance in the quarter. Troy, obrigado.
Thanks, Marcelo. Good afternoon. Those of you who are new to this call, we are going to give you some guidelines on the location of our company. Number one, it is near Salvador, Bahia. We have the Bahia asset. We have 17 concessions there.
We operate over the past few years under a Petrobras contract. We have five concessions that were owned by us, and 12 concessions were bought from Petrobras in the end of 2021. This is Remanso and BTREC . These are the two clusters. Also, in December, we acquired Miranga. These are nine concessions. In this part of Brazil, we are operating 26 concessions, which amount to approximately 70 km-100 km north of Salvador. The point two in the map is in Rio Grande do Norte, is Potiguar cluster. Two years ago, we bought 34 concessions from Petrobras, as we acquired Forquilha. We also acquired one mining concession. We are working on a plan for two years and four months, and we were able to conduct the takeover last year. The table to the right shows you a comparison for the past three months.
That is the first quarter of this year compared to the final quarter of 2021. For Bahia asset, we have 26 fields there, and we are able to increase 72%, and that increase is associated partially with the acquisition of Miranga, and also due to some organic growth and some quick wins that we saw in Miranga to improve production to more than 8,000 bbl equivalent. Now, regarding the Potiguar asset in the north, we continued our program there to develop those fields and refresh and revamp several aspects there. We started a continuous drilling program. We will be discussing that in detail soon. That helped us increase approximately 30% our equivalent barrel production by 30% in that asset. The company was able to increase its production between both quarters by 43% through the combination of new acquisitions and developments in new concessions that we are making.
Here you have some more details. You can see in this chart, starting from January 2021, when Riacho da Forquilha was acquired, you are able to see the increase in production. You have three colors. Potiguar stands for green, Remanso is Amarelo, and Miranga is in red. You are able to see that for Miranga, the growth is really fast in the first three months of production. This production growth are because of the activation and optimization of the fields in Miranga. This quick growth is happening continuously as we activated those fields. It's a batelada system. We focus on several optimization aspects on these fields in order to expedite the flow at the facilities, to implement several projects, to streamline production, to provide better equipment at the facilities, to innovate some tanks or repair some pieces and pieces of equipment in those facilities.
This quick growth, it's not going to continue on a linear scale, but it's going to take place for the next years as well. The production is more focused on increasing the gas production. This is what we are seeing in the company, taking place in the company. With Miranga now, you can see that the amount of gas that we are producing today is amounting to 35% of our entire production. We saw 36% in the first quarter, and this is because of increases in productions that we saw in Miranga. Now compared to the first quarter last year, you can see that there was a 68% increase in the total production. We are continue investing in several fields.
Now let's focus on the Potiguar asset that achieved 27% of incremental production in the first quarter, and this is associated with the acceleration of a development program regarding a new drilling machine to accelerate some workovers that we have over there. We are also doing continuous drilling using our own drilling machine. We are developing several concessions over there as well, and these are showing results that are aligned with our expectations. But we are also coming across a few restrictions in some of the facilities. But we know that this increase is going to see some setbacks, but it will continue in the second and third quarter. We have already seven wells drilled in the quarter. This chart shows the number of wells and incremental production that we are achieving in this area. Next slide, please. Now let's have a look at our Bahia asset.
The Miranga acquisition had a huge impact on the gas production. We already have four rigs operating in this basin. This is going to increase over the next few months in the second quarter with the expansion of our rigs fleet. It's going to be focused in Bahia. We'll be executing several workover interventions to return to production projects, and we'll continue the development that is underway at the Remanso and BTREC clusters. Increase in natural gas is a combination with reactivation of several gas drills, and also the rehabilitation refurbishment in some facilities in those fields, in those clusters. Now I'll give the floor to Rafael to have a look at the production costs.
Thanks, Troy. Good afternoon, everybody. First, I'd like to show you the average production cost per BOE. The yellow bar shows the average number of the company. This company is being reduced over time.
In this first quarter, we were able to reach $12.25. This is the production cost in these fields. It dropped compared to the average in 2022, 2021. We have those dots that divide the cost between several assets. For Potiguar asset, the production cost is historically slower, so it is $8- $9 per barrel. We are able to achieve reduction in this cost as well. In Bahia cluster, we had a more significant reduction because of the incorporation of Miranga, because this asset offers lots of gas capacity, so the production cost is smaller. Part of this reduction is also due to the gains in scale. As production increases and expands, we can dilute part of the costs, part of the fixed costs, along with the increase in the gas production, because the variable cost is more than the oil production.
Things that we can see in terms of synergy in Bahia, Miranga and Remanso clusters, they are very close to each other. Because of that, we can structure our operations, our maintenance, logistics, in a very integrated manner and achieve some savings because we are sharing these equipment, human resources, financial resources, and facilities. Most of the focus on the spending is on the compression system. We want to ensure ever-increasing availability and to process gas production. The processing scheme will explain revenues and costs. Over 2021, we developed a series of new gas contracts. Until 2021, we were selling gas before processing to Petrobras, and Petrobras would sell it. Starting in this quarter in 2021, we hired a service from Petrobras to process and transport, and then we also hired another TAG for transportation, and we started to process gas to state distributors in Bahia.
In Rio Grande do Norte, we get the cooking gas, and we distribute it to other distributors. In the first quarter, we were distributing to Ultragaz. Now in this quarter, we have a different contract, and there is a liquid fraction that is called condensated LNG that is being shared to Petrobras refineries in Bahia and Rio Grande do Norte. Now we are getting new sources of income for gas, and on the other hand, new sources of spending for the gas as well. This is a detail for the costs and expenses. The biggest news is that we created a new row. We are calling it acquisition, processing, and transportation of natural gas. This is the cost. The technical detail, in Rio Grande do Norte, we hire the service from Petrobras, but in Bahia, we do that through a swap contract.
I sell the gas to Petrobras, and then I buy it reprocessed from Petrobras. When you look at this BRL 880 million, part of that is explained from repurchasing gas from Petrobras, and the other part is the processing cost that is paid by Petrobras. Then we also have the costs for transportation by TAG. It is a bit difficult to explain, but if you want further information, please contact the IR area to provide you details. This transportation cost from TAG, it is transferred to the final price. In some contracts, we add, and we transfer the processing costs as well, but to some contracts, we do not. The offsetting of that is going to be reflected in the revenues. In many of the cases, we will be showing that we transferred these processing and transportation costs.
The other variations explained by the introduction of Miranga, for the full production of Remanso Cluster, it took place in December, so we were able to capture the full operation of those assets and increase our production. Part of our costs vary because depending on the amount of drills and wells that we drill, that will have an impact on the costs and expenses as well. When we look at the net revenue, part of the revenue from natural gas compared to the first quarter of 2021 and the fourth quarter 2021, you see there has been tremendous growth in the natural gas revenue. In the first quarter, the gross expense was BRL 326 million. It is considering all the transfers of costs of transportation, taxes, and everything.
We were able to reach approximately 37% of our revenues, and it is coming from natural gas. A few years ago, that was not even 5%. Oil revenues grew considerably as well, along with the increase of the oil price. Because of the oil price increase, we have the flip side, we have hedged derivatives. We saw BRL 85 million loss in the quarter. Even though the net revenue increased considerably compared to the fourth quarter of 2021 and the first quarter of 2022. More details on the natural gas. We have the sale of products. We have the dry gas and the volumes here, just to give you an idea. We get revenue of this product divided by the amount of gas that was sold for processing.
Based on this equation, we can calculate the sales price, including taxes, sale taxes, and sometimes transportation costs as well. C3+ and C5+ also, you have the prices here, and you have LPG, which is the cooking gas. You see the components and how much they added to our revenue in the period. Regarding the swap contract for Bahia, specifically, the way this contract is structured is that I sell the gas to Petrobras. Petrobras will process the gas, and now we buy it. The rich gas delivery creates BRL 65 million as additional revenue for the company. We also obtain revenues for the sale of rich gas to Petrobras. That is what we call gas swap. When you add all those components, we achieve those BRL 326 million, which is revenue for the period.
Part of this is regarding natural gas contracts that are used based on a fixed price in dollar. Other contracts, they have some variable portion, but they are usually according to market prices and rents and international quotations. This is the summarized income statement of the company. The royalties, they increase according to the revenues of the company. You have the EBITDA is the main highlight. We saw huge growth, BRL 414 million. It is approximately 77% of the entire EBITDA of 2021. You know, in this first quarter, the company took a huge leap because of this organic and inorganic and pricing factors combined. Operating profit. Net financial incomes. The dollar rate decreased. We have some obligations to pay to Petrobras and some debts in dollar, although part of our cash flow is up in dollar.
The results of this dollar rate decrease brings a positive net financial income for the company, which is BRL 185 million. The net income, BRL 401 million for the quarter. Now, let's have a look at the hedge impact on net revenue. We had BRL 85 million impact. These are all the contracts, the outstanding contracts for the next three years. This is the time horizon that the company used to keep their hedges because of the financial obligations. So at the end of March, we had 4,900,000 and some barrels, as is highlighted to the left. So $44.53 on average. Now, for future, we are looking to BRL -753 million for the company that shows in the company's net revenue. This hedge volume, we'll show you in the next slide. I think we said that in the press release.
We obtained a waiver from lenders not to enter into additional oil hedging contracts during the period beginning on January 1st until June, so we can wait to see what's going to happen to the oil price. Also considering that as the company grows, we don't need to have such a huge hedge volume like we had last year. This chart shows the evolution of the spot price versus the hedge contract curve. The oil hedges are at a low price. We are expecting approximately 5,407 bopd per day, which is at 27% of our average oil and gas production for the quarter. Almost 44% of our production affected by this hedge. Now, financial statements for cash flow. We saw a huge variation of cash flows, BRL 530 million in net income before taxes.
I'll highlight the exchange variation that was not realized because of accessions to pay to Petrobras. So it gets back to the cash flow variation. The main variation here was in the company's account receivables. As the revenues increased and the turnover increased, that increases the accounts receivables for the company. The increase in the oil price has a negative impact in the short term because I'm going to receive my physical contracts a little bit later. We had some delay in the delivery of oil in Rio Grande do Norte between February and March, but it has been regularized in April. These variations are basically on the company's account receivables because of the increase in the gas production of the company. In 2021, it was small, and it became really relevant this year in this first quarter. Now, I just wanted to highlight our current debts.
We are amortizing it every month, $12 million, which is about BRL 60 million. We had one in January, now we have one in April. That's why the financial flow is negative. You know this table already. This is the detail of the obligations payable through Petrobras. So we have $56 million for Potiguar Complex. In April, we did the extension of the Pajeú complex. We paid a portion of it in April, so we expect that we'll be materializing that in the next months. At the end of the year, we will have it settled. We have some outstanding installments for Hermenegildo Miranda. This installment in Miranga that is related to earn-out. The acquisition payments are distributed over a longer period, and the company's cash flow generation is going to be enough for us to settle those obligations. Okay? This is the same information.
To the left, we have the company's cash position at the end of the quarter, $157 million, and how it is distributed over time. Payments of debts, this is in red, and from the acquisitions of Petrobras, and the possible earn-outs associated with the bench prices. Now, I will get back to Marcelo, give it to you to wrap up.
Guys, it has been outstanding quarter, but we are continue on a strong flow of reinforcing, mobilizing more human resources, logistics, and equipment. We have nine drills engaged in our assets. We are expecting to acquire up to 14 drills this year, and we also expect to incorporate other assets. We have a strong development program, continuous drilling. With the acquisition of new drills, we expect an acceleration of these programs.
We will be developing the facilities that somehow sometimes they work as bottlenecks because we see the results from the drilling operations, and we have to know how to address and sell and transport this production, and that sometimes leads to some bottlenecks, and we are working to solve them. With the release of our new sustainability report is expected for the next days. We will be releasing it soon because it is a relevant source of information. It provides a baseline for the company's emissions and social, environmental, and government aspects. Based on that, we will be able to plan actions more strongly in these areas. We continue strong in the gas market. We are in a great position now. The company was able to reach a position where it is supplying to three local distributors. We have some specific targets.
We want to try once again, to take the lead in establishing contracts with free consumers, permanent contracts with local distributors as well, and free distributors. These are the initiatives that we have on the horizon, and it is going to give us margin in terms of productions to fulfill the contracts. With that, we will be able to monetize at prices that are closer to market prices. Therefore, we expect that sometime in the year, we will see an increment in the average value of the gas produced by the company. We remain actively exploring and tapping to in developing M&A opportunities. We are structuring this area here. We will start negotiations with the Polo Bahia Terra complex. We are also looking at the market as the market develops and start migrating to the end of primary availability of assets in Petrobras.
Our expectation is to grow through a consolidation process, working with small operators. They might find it attractive to engage with our negotiation. I think that is it for the quarter. Now we can open the floor for questions, and we are available to clarify any doubts that you may have.
Thanks, Marcelo. Let us start Q and A session now. Operator, you can please open the mic.
Hi, everybody. Good afternoon. Can you hear me? Great. Hi, Marcelo, Troy. Thanks for your questions. Let me start with two questions. The first is regarding the pricing in this quarter, both in Bahia and in Riacho da Forquilha. Did you see any changes in the quarter, especially after the closing at Remanso? Were you able to increase this gas price, oil price? Any movements regarding Petrobras contracts as well? You mentioned that swaps are more transition thing.
Can you comment on what is going to happen with the company after this period? What will be the recurring costs? How are you going to price the services, and how it is going to be the gross up in the sale price? A recent question, we saw some news that you would be open to evaluate the Urucu cluster if Petrobras decides to reopen the sale process. If you could please share what is on your mind in terms of allocating capital to this cluster. Does it make sense to bring Bahia Terra and Urucu this year? If you are going to evaluate Urucu, are you going to do a consortium with Eneva, or does it make sense to go alone? Regarding your final comments, Marcelo, the opportunities for M&A, in addition to the Urucu complex, do you think anything sort of hotter on the table?
These are my questions for you.
I am going to start with the final question. I mentioned Urucu recently. I do not think that is for the short term. First, because the process is not on the table. I do not know if Petrobras is going to reopen the sale process, but when we talk about that, like I mentioned before, the company has a team that is dedicated to evaluating and monitoring assets and other operators in Brazil and even in South America. Previously, when Urucu was the subject of a Petrobras bid, we sort of obtained data. We looked for it, and at that point, it did not seem proper for us to continue with that process because we had other priorities.
I would say, we were scaling up the process, in the company's growth plan, and at that point, Urucu was out of our league, so to speak, and we are always cautious to measure our steps so that we can always do what we did this quarter, is to execute things, but properly execute it. This asset is very interesting. They have a very good oil gas production capacity. When we looked at it at first, we saw some challenges in selling the gas. I think that if this asset is brought to the table, we will probably repeat this process, where we will sit down with Petrobras, we evaluate the data that is made available. We evaluate the size of the company. Today, the size of our company is different from when we looked at it first, and then we will make a decision.
I think it is a preliminary time now. We cannot say whether we are going to join or not, if we are going to do it through a consortium, because the asset is not even open for discussion. But it is interesting. It has expressive oil and gas production capacity, and you only add to the company's portfolio and expertise. For smaller operations in Rio Grande do Norte, we are always discussing that. We are always looking into it. I will tell you that in Bahia, if we see a closure in the Bahia complex and we can bring all the processing, flowing, structure for oil and gas in the basin, that will increase the attractiveness for other operators. From there, that might lead us to transactions.
As I said, again, we are setting up a dedicated team here, so we do not find ourselves in a position where we are always involved the operation and we are now looking outside. I believe that we are acting strongly, and we are more prepared for that now. This is a radical transformation, like Rafael said. Just briefly, a short period of time ago, our production was not huge. We would sell liquid gas to Petrobras. We were obliged to do that somehow because we did not have a framework for using the infrastructures, the key infrastructures. This work was very well done by CADE, the governments, when Petrobras was sort of forced to enter into contracts on the use of this infrastructure from operators and independent distributors.
I think we, as a company, were able to harness and tap into this opportunity because we tied the dots of contracts with public bids, and we had the challenge of winning contracts and swap contracts in Bahia, and processing contracts in Rio Grande do Norte. Let's be clear, Petrobras was also very collaborative in this process. That changed substantially. We, today, we have significant gas production, but we sell the gas to local distributors, the dry gas to local distributors. We sell LPG to Ultragaz, and we sell the condensed gas to Petrobras as well. You also asked about costs. We obviously have an expectation for Rio Grande do Norte. We are planning, if we see it being taken over by a private operator, the processing cost is beyond the reasonable and beyond the benchmark, not only abroad, but in Brazil.
There's another facility operated here at substantially smaller costs. If you don't see the cost reduced, we will seek to build our own units. We see attractive results. Instead of paying $2.40 to process, we can achieve a less than $1 cost, perhaps $0.70 on the dollar. There's a company that operates a natural gas processing plant at a $0.30 on the dollar. It's interesting. The company is willing to enter the upstream. We will be discussing that. Here in Bahia, we have a contract swap, a swap contract. It is inside the Bahia asset, so we have to wait how this is going to develop and how the transition is going to take place. But if it remains in the hands of Petrobras, we are going to try to negotiate.
If it goes to the private sector, then we are going to have to evaluate, and we are also starting an advanced project to extend the processing of the basin here in Bahia, because the nominal capacity of UPGN Catu is inferior to our expected volumes in a few months. So we are going to have to add processing capacity at the Recôncavo Basin. Here at the Catu unit, we don't see segregation between coke and gas. We might take it to a unit that will be able to handle that, and then we'll be incorporating these gas revenues here in Bahia, and that's going to increase our revenues in a more structured way while reducing costs. As satisfied as we are with the first quarter, we believe there is a huge upside, both for production, both for the economics of the molecule per se.
That's clear, Marcelo.
Thank you. Let me just follow up on the UPGN Catu. Regarding the transition, does it make sense to think about a transition while the negotiations with Polo Bahia are in progress, and then after you get an answer, yes or no, then you think about the definitive model? Does it make sense to think that way?
What is your question? Because we are still in the swap model here, right? The plan is that it is going to become a service provision model. We are not going to wait for the closing of the Bahia cluster. The model is supposed to be a service contract, but we did not have time. Petrobras does not have time to establish this contract here in Bahia. We play in the region with other players, so these contracts are being renegotiated.
What we expect is that at some point in the second quarter, we will see a migration from the swap format to the processing format, similar to what we see in Maré. This is the first step. The second step is to build a new unit as a complement for that, but it is not going to be on hold.
All right. It is very clear for me. Thank you.
Thank you, Cassio. Next question from André Vidal, XP. André, over to you.
Good afternoon, everybody. Can you hear me?
Good afternoon.
First of all, congratulations for the outstanding earnings in the first quarter, and thanks for the opportunity of asking my questions. I have three questions. You mentioned lots about reducing the lifting costs, the increased gas production, and the scale-up of operations.
Regarding the P certification, I imagine that you are already estimating the gas production, and you did that. Was it a surprise for you? Were you expecting that? What sort of costs can we expect for the second quarter, for the rest of the year? Will we see an increase in costs? The second question is regarding the gas processing risks. That is one thing that caught our attention when you mentioned that the thresholds for the contracted area, they incur penalties, and you say that it has to be corrected on a quarterly basis. As we read that, we understood that the unit processing cost should be reduced in the next quarters, and will be similar to the reserve certification cost in spite of the higher volumes. Could you please clarify that? Are we right on our thinking?
Regarding Bahia Terra, we have seen that investors are increasingly interested to understand the asset characteristics a little bit better. We know that the oil has high quality in that field, but we are still in the dark in terms of evaluating the potential value generation coming from this activity. We know that the field has to go through a formal certification process for the reserve so we can get more expressive numbers. But if you could give us a magnitude, a range of some of these aspects to help us do the maths, the calculations. If you could please tell us on the recovery of oil and gas in the fields, if the lifting cost is going to be similar to the Bahia complex, some magnitude about the CapEx would be interesting to learn about as well.
Good morning, Rafael.
I will comment on. All the questions would probably require us to do a few calls. We are not willing to answer all those questions on this call, but over the past few weeks, next weeks and days, we will be talking to the market, and we will be sharing our vision. This has been one of my favorite complexes. It is right in my backyard. I must emphasize that we know this complex better than anybody, and we see huge potential for value generation. I will ask you to be a bit patient because we are going to need some more time, and we need to work a little bit more with you, but I will ensure you that we will have these conversations, and I will provide you these answers in the next few days, okay? Rafael, could you please answer all these questions or complement any things?
Well, let me start with the lifting cost. We saw a reduction compared to the past. You talked about the reserve specification. One other thing is the increase in production that it was a bit faster than we expected. We sort of have the entire production capacity sort of estimated for the entire year because we gained the scale. We started to capture the synergy as Miranga was incorporated, and we saw a huge upside in the gas production in the Spot Gas. It grew quickly, so that helps reduce the production cost because the production cost for the natural gas is smaller. We are continuing the strategy of internalizing services and drills. So we are sort of shielding ourselves from inflation pressures because we are working internally. So this way, we were able to reduce our production costs. We still have this ambition to continue decreasing this cost.
This is our internal target, so to speak. It is hard to provide you an accurate answer whether it is going to be possible or not for this year. We expect to continue growing production and gain some scale. That will thus reduce cost. There is a variable portion of the cost regarding maintenance, repair in the wells. Sometimes there is a problem, and that leads to variation. We have some inflation pressure. We see abroad, we have some internal services here, so this way we are protected. But when it comes to materials, we use the international market reference. I will say that reducing cost is not our priority. Our priority is to control costs. Our focus is in avoiding bottlenecks as we expand our production. We have to sort of anticipate ourselves. We have to hire people. We put a drill in operation, then I have to hire a team.
I have to start mobilizing people two months in advance. So, that entails cost, and at this point, as we grow, only we reach the end of the road, we will be able to compile the actual cost involved. It might seem counterintuitive, but if we increase the average price of barrel, that might add value. I will give you an example. The price of oil today, $113. I may decide, together with Troy and Rafael, I might decide to reopen a series of wells that can produce 2,000 bbl. Sometimes it takes you 2,000 bbl of water to produce 80 bbl of oil, and we have some wells here in the company with these characteristics. Now, if you go to Africa to reopen these wells, it is extremely attractive project. It adds value to the company.
But like I say, and like Rafael said, we could have a strategic perspective for barrel price, unit barrel price. This is relevant, especially when the pricing moment, the high pricing moment is a reality now. I think Troy has learned some Portuguese. He can talk about the Bahia cluster now.
Yes, my Portuguese is still not so good. André , regarding the Bahia cluster, if we look at the Bahia cluster, we had 12 fields in 1997, 1998. We look at the Miranga fields. We know this basin very well. We have been working on that over the past 22 years. We have several reservoirs, structures. We know the way of production, the problems involved with production, how Petrobras operates these fields, how it used to operate in the past. We have all this synergy with this company. It is huge synergy with Petrobras.
We already know, and I personally visited and evaluated several fields in this cluster in the past, 10 years ago, 15 years ago, in several events in which Petrobras was thinking about establishing partnerships or developing them jointly. We have some history. We know. We have know-how, not only on the region, but about these specific fields, and there is potential, of course. That is why we launched a good offer. These reserves will be classified, will be certified, and will be launched and disclosed to you. But it is similar to what we are finding in Miranga. It is similar to what we found 22 years in the first Remanso fields. We are expecting to do some serendipity. You are getting, you start finding a few things, something that were unexplored, some forgotten areas and opportunities that are easy, that can be defined now. This is the upside.
These fields are a bit deeper as well. In some cases, for example, Araçá, there is a treasury there. You have three fields that are underdeveloped, Massapê, Lamarão, and several other fields that we expect to increase. The secondary recovery efficiency in those fields was not the best because Petrobras was focusing on other basins that were much larger, and that is okay. They have to focus on things that bring them more profits. But there are lots of opportunities to optimize and do secondary recovery and develop several fields here. Above all, there is a synergy with our operation, our knowledge, our ability to revamp those fields. This is the reason for several calls. We will be sharing this to the market as soon as possible. We will be providing more details and more information on our vision to add value.
Thank you, Marcelo, Rafael, Troy, for comments on Bahia. Thank you. On Bahia Terra. Good afternoon. Now we have a question from Conrado Vegner from Banco Safra.
Hello, everybody. Good afternoon, everybody. First, I would like to congratulate the team for the progress that you saw in the business of the past year, and also for building a solid foundation over the past few years. From my side, I have one question, which is regarding the workover drills. Do you expect to add more equipment this year in Bahia or Rio Grande do Norte? If yes, can you see any effects on the increase of costs, both in terms of equipment or workforce, or if you are finding more trouble setting up a team than ever before? Now a different question on Catu processing unit.
Do you think that the additional capacity will be exhausted before a new operator takes over at Polo Bahia cluster, or no, you still have some room to continue operating, considering that Miranga is showing really great performance in the oil gas production? These are my two questions.
Regarding the processing capacity here, we are not expecting the closing or anything. We are well advanced in engineering studies in order to expand this capacity. Depending on what's going to happen with Polo Bahia cluster, we will expand it more or less. The unit there, although it is at the limit of its nominal capacity, it still has a lot of space. The area is spacious. In the past, we had a complimentary station there from Petrobras on that site, and it was moved to the north, to Urucu, if I'm not mistaken.
It's just a matter of where, and considering a few variables, how much additional capacity is going to be needed, but we are not anticipating any processing bottlenecks in Bahia. Okay? Now, regarding the drills, I'll ask Troy to talk about the incorporation of new pieces of equipment this year. We've received a few questions in the past. This market was sort of dormant. The rentability was sort of low. We have been able to add people in a very safe manner within our plan. I don't know if it's relevant to mention, but we selected approximately 150 people in the two basins to take part in a training process for operators in partnership with SENAI.
Again, we are taking the lead, not only in terms of having our own equipment, but we are developing workforce that is duly trained and skilled to identify with the efficiency and safety standards as we expect. Now, Troy, what are the plans for adding new drilling equipments for this year?
Thank you, Marcelo. We have a strategic plan for drills. It's a bit dynamic, considering this new acquisition. Our plans to continue expanding our fleet of drills, either by purchasing new drills and internalize it into our verticalization process, ramp-up process, or perhaps we'll be renting it from other companies in the market. We are going both ways simultaneously. Now we have nine drills, and our idea is that by the end of this year, we'll be adding up to 14 or 15 drills. Up to 14 drills.
If everything goes well with Polo Bahia, the number of drills that we'll be acquiring for that complex since the first month. We are planning to get 8- 10 drills in that area specifically. The plan is that in the next 18 months, we'll have approximately 20- 25 drills in our fleet. This is our plan. Now we are in the process of internalizing two additional drills over the next few months, and we are looking to add one drill every month, every two months to our fleet. Now, regarding costs, material and equipment costs, obviously because of the crude oil price has increased, so the cost of these materials and equipments is increasing as well as fast. It's almost double so far.
Now, in terms of workforce and personnel, the quality and experience that we are finding in the market, we actually see less quality in the people that are available in the market. Several people are hiring those people. Like Marcelo explains, we have a program. We will start training those 150 people, and that is to start providing people and staff with basic knowledge. They can start operating the fleets, the service area, and be aligned with our development program. In addition to the drill fleet, we are looking to opportunities for adding another two drills. We are able to get our second fracture equipment fleet, which is much higher than our initial fleet. We did our first fracture last week using this new equipment, and it works well. The equipment has much more HP capacity.
It increases our capacity to conduct fracture work that is more, for deeper zones with higher pressure. We have seen increasing costs for acquiring this equipment, but these are investments, they provide higher returns, still very high returns. We are confident that by continuing with this fleet internationalization strategy is the right thing to do. We have teams in the United States looking into this equipment now, and we should move forward with this strategy like we did in the past few years. We imported one fracture unit, one light drill, and another two pieces of equipment, and we should continue with this strategy.
Okay, thank you.
Next question from Guilherme Levy, from Morgan Stanley.
Hi, everybody. Good afternoon. Thanks for getting my questions. My first question is regarding Bahia Terra. I would like to understand where your mind at in terms of timing for exclusive negotiations with Petrobras.
Do you expect that the process is going to take a few weeks, or will it take more months? Can you also comment on the EBITDA value that Petrobras mentioned a little bit above $1.4 billion? Could you give us an idea, how much of this value is contingent payment, and how much of this value is fee payment? Second question regarding Bahia Terra. Where is your mind at for a potential funding depreciation strategy? Considering the current oil price, what is going to be a strategy for filling out the gaps in your funding needs? Are you going to be using hedge pricing strategy?
Well, thinking about Bahia Terra, in terms of timing, we have a schedule. We are ready to start negotiations. I think next week we might have a kickoff for this negotiation phase with Petrobras.
Since we have already gone through three recent negotiations of SPAs with Petrobras, we have a contract model template that has been accepted by both parties, so that is going to expedite the process. But still, I believe it is going to take a long time because of the governance areas of all companies involved, and then obviously it has to be approved by the Board of Directors of Petrobras. We know that they gather every once a month. So the target is to try to conclude the negotiations, have everything ready and approved by the Board of Directors of the companies, and then perhaps by June. This is our internal target to start to get this timing. Now, we know that historically it takes from 8 to 12 months to close the deal, the transaction, and takeover. So connecting that with the funding question, this process takes time.
Most of the payments, they are associated with the closing. Sometimes you have another installment at the closing that is postponed. We have a one-year term to equate your funding needs. We are starting to discuss that. We are studying it with several banks that support us. We do not have any decision yet on the best funding structure, neither about the right time to approach the market. We know that it takes time, and it is good for us to monitor the development of the negotiation so we are absolute sure that the business is going to go off the paper before we commit ourselves to anything. I do not know if I forgot any question. Has it all been answered?
Yes. Perfect. Thank you.
We cannot disclose the amounts that were offered at this point because this is still a bid process.
Only after we get a signature, then we will be able to provide more details about the price composition.
Thank you, Guilher me. Final question is from Bruno Amorim from Goldman Sachs.
Good afternoon. Thanks for selecting my question. I would like to understand the earnings of the first quarter per se. You saw the incorporation with Miranga operation, with Hermen's operation, and we saw an important leap amounting to BRL 130 million, BRL 140 million to more than BRL 400 million in the first quarter. If you look at unit metrics per barrel, it was a huge leap, so to speak. The company is obviously commended, and congratulations for that, but I would like to understand if it is going to be a recurring thing from now on.
When you imagine the world and the oil price as it is, the contracts the way you have them, are you going to run BRL 400 million in EBITDA per quarter, or can we consider any non-recurring factor in this equation? I have also a second question regarding the cash flow. I saw the cash flows operations, they were about half of the EBITDA in the first quarter, and there was a reduction in the working capital. It is natural when you have a huge growth in the revenue, but I just wanted to know if that is a one-off recovery because of this leap in the revenues, or should we see a cash flow closer to EBITDA in the next quarters.
You are a bit more cautious than we normally are. The first quarter does not seem extraordinary. I think Troy said it well before.
We had an expressive production gain over the past four months. We are creating the expectations that we will continue on this trend, on this upward trend continuously. Because oftentimes success makes you come across a few bottlenecks, and we are working to tackle those. But if you look in the quarter, we were able to reach 98% of the average curve of the year, so we are a bit ahead of where we should be. We do confirm that we are ahead, and it is good. Our future expectations for growth of the production, the potentials for Miranga are more than confirmed. I would not talk about the shortest term, but we have the expectation to improve our pricing when it comes to spot prices, both for oil and gas.
When you talk about future spot prices, we use the reference, and we have space and room to gain, either reducing the scopes of current contracts with Petrobras. We might have achieved better conditions to outflow this production. Polo Bahia offers conditions for that. Some contracts, they are two-year terms, others are five-year terms, and we are working on the expectations of what to do with these shorter contracts. We might try to come up with a more attractive pricing scheme. I will let Rafael answer the second part.
I will only say that we did not see any extraordinary revenue or extraordinarily below reduced cost that would lead us to believe that this is not going to be a recurring cost result. Quite the opposite.
We saw same temperature and pressure conditions in other periods, and we believe that we could even get better results for the second quarter, but it is hard to provide an accurate answer. We expect to come up with this permanent oil gas contract, that is going to help us monetize gas at higher prices compared to what we are selling today. When it comes to cash flow, the main factor is the accounts receivable, especially in gas. We went from very low to extremely relevant. We have some issues in terms of the derivative operations because they are due at the end of the month, and then the income from the oils, they are only due in the subsequent months. So there is something regarding cash flow. Also, Miranga's investments. We show our stock in the mobilized assets roll.
We saw a growth in the mobilization of this stock. Once we stabilize the price, I think this is going to become a cash flow and you have more convergency between the EBITDA and the cash generation for the upcoming quarters. Second positive factor that we did not see happening is that as we increase our incremental production, and because we obtained this waiver, we have a percentage of production that could be reduced, then you have the possibility of bringing this gain home, where you might have some data on the release amounting to 80% or something for the adjusted EBITDA. Over time, in similar pricing conditions, we might start incorporating that to the results.
Final question, and we have another one from Bruno Montanari. Let us open it for discussions. Thanks, Guilherme.
Sorry, let me get back to Bahia Terra.
It is just about the consortium mindset. How do you see this partnership with Eneva? What can they do differently with gas to allow you for a more attractive monetization of the asset as a whole? I would like to understand how you are dividing PetroReconcavo.
Sorry, the connection was cut out. Could not understand the end of the question. Yeah, we could not hear you until the end, but I think I got the question. The section of Eneva as a partner at this bid comes from the perception that they are here to complement our business and our work. The consortium is 60% us, 40% them. We obviously intend to explore and tap into that a bit more. We have an exceptional integration between the teams and the groups.
The mature fields team at Eneva that was set up in the BD Urucu, they spent more than one week here with Troy's teams, and the teams, they got along really well. We had a long conversation with the team that the idea was to bring a company that we've never looked at as a competitor, and they bring new things to the table. Every time we sit down together, we are able to make them feel the same about us. Of course, the monetization of this market is recent, and it opens a wealth of opportunities. Gas makes more sense for Eneva's assets than the Northeast assets. We have to understand the complexities that this may lead because we have other types of energy demands in the country. We have basic capacity, which is larger.
We need to have a larger basic capacity to avoid coming across problems that we had in the past. This type of monetization of our gas might become a bit more attractive. I do not know if I have answered your question. We see Eneva as a complementing partner, and also we see that we have lots to explore with them. There is room for opportunities with them.
Thanks. Now let us go to the final question from Vale Stanley. Could you please open the microphone? That was from Bruno Amorim. Sorry. I mixed up the names. Okay, so we had our final question. Thanks, everybody.
Okay, guys, please, final considerations, Marcelo.
I would like to thank everybody for being here today. We are pleased with this meeting, and I hope that you are pleased too. We are pleased with your work as well.
It was great to start the year with results like that. We are satisfied. It is within our expectations. It is not easy, like any work, obviously, but we are very content, and this is a key message. I think somebody said that before in a question. The company side took the whole new level in terms of productivity, of revenue, of volume, and we are happy that we are able to work with safety. We can only gain from it, and part of our work is to ensure that this is going to continue happening because the expectations of growth, especially with Bahia Terra now, are much higher. Thanks, everybody.
Thank you. Bye-bye.