巴西石油 (PBR.A) 2018 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Petrobras conference call with analysts and investors for the presentation of the second quarter of 2018 results. (Operator Instructions)

Today with us, we have Mr. Rafael Salvador Grisolia, Petrobras' CFO and Investor Relations Officer; Ms. Solange da Silva Guedes, Chief Exploration and Production Officer; Mr. Jorge Celestino Ramos, Chief Refining and Natural Gas Officer; Mr. Nelson Luiz Costa Silva, Chief Strategy and Performance Officer; Mr. Hugo Repsold, Jr., Chief Technology and Production Development Officer; Mr. Rafael Mendes Gomes, Chief Governance and Compliance Officer; Mr. Eberaldo de Almeida, Chief Human Resources and Services Officer as well as other company executives. We would like to remind you that this meeting is being recorded.

And please be mindful of Slide #2, which contains a notice to shareholders and investors. The words believe, expect and similar ones related to projections and targets are mere forecasts, which are based on the expectations of Petrobras executives regarding the future of the company.

To begin, we will hear Mrs. Isabela Carneiro da Rocha, Executive Manager of Investor Relations, who will start with the presentation about the second quarter of 2018 results. Subsequently, the questions from participants will be answered. Mrs. Rocha, you may proceed.

Good afternoon. I thank you very much for your participation and attention. We will start the presentation of the second quarter of 2018 results. Let's go to Slide #3, and we start the presentation with focus on our top metrics. We have the safety indicator, which is measured by the total recordable injuries per man- hour, which had a slight increase this quarter to 1.06, but the company remains committed to maintaining safety and is working to maintain the downward trend that we saw since 2015 and a commitment to go back to the lower than the alert limit of one injury per million man-hour at the end of 2018. The leverage metrics, which is measured by net debt/EBITDA ratio had incurred the reduction towards 2.5x per year, we reached 3.23, and additionally, we make adjustments, excluding the effect of the Class Action agreement because this is the way it will be by the end of 2018, when the effect no longer will impact the adjusted EBITDA of the last 12 months. With this adjustment, we reached 2.86.

Going to Slide #4. We show the result of the discipline in the execution of our business plan -- business and management plan, and we had the PNG presented in 2017 -- in September 2017, and we have been executing with discipline, and we bring you the results of this execution. We would like to highlight on the operational side. The startup of the first production system in the area of Transfer of Rights in the Búzios field on April 20 by the platform P-74 and the new production system in the Campos Basin in Tartarugas Verde in (inaudible) on June 22, and the last system to start operation in Campos Basin was in 2015. And we highlight the arrival of P-67 to Brazil on July 18. It will be the eighth platform to operate in the Lula, Cernambi fields.

We would like to highlight the increase of our exploratory portfolio by means of the acquisition of new areas in ANP bidding round where we gave priority to the great potential of the Campos and Santos Basins, and we added 13% in this area since '17. The ongoing or consistent improvement in our financial result leads to a net income of the first half of 2018, BRL 17 billion, a 257% increase when compared to the first half of 2017 and the best results for the company since 2011.

Operating income had an important increase, 18% higher than the first half of '17, reaching BRL 34.5 billion. Another highlight is the evolution of our deleveraging reaching the lowest level since 2012 with gross debt remaining at $92 billion at the end of the first half and net income -- net debt $74 billion. The lower indebtedness allowed us to reduce our financial expenses in the half year by BRL 1.6 billion. Besides, we have been maintaining the prepayment of remuneration to our shareholders in terms of interest on equity, BRL 652 million in equal proportions, equivalent to 0.05%, both for ONs and PN. The year-to-date for the half year, BRL 1.3 billion.

On Slide #5, we show the consistent monitoring of our Business and Management Plan with the results reached so far by means of this monitoring, mainly keeping unchanged our top metrics of the company such as, I said before, the TRI at 1 and net debt/EBITDA at 2.5. And we deliver our best estimate at the time to carry out investment, divestments for the year. As we said previously, many times, our plan for partnerships and divestments is dynamic. And we -- all the time, we manage our portfolio, and we expect the cash-in of $7 billion during this year. Of these, $5 billion have already flowed in, in the first half, and we will talk in detail about that. And we expect to make investments of $15 billion this year, not considering the signature bonuses that we might have in the bidding rounds, the next bidding rounds.

On the next slide, we show the results of the quarter highlighting 2 very important variables for our result, the increase in Brent that went up 36% year-on-year, reaching $74 per barrel and also the depreciation of the real, which was 8% on a year-on-year basis, half year.

On the next slide, we summarize the main lines of our results. And in all our lines, we see growth vis-à-vis the previous year, and this shows the sound performance of the company. So our revenue was BRL 158.9 billion, 17% higher vis-à-vis the first half of '17. Our gross profit, BRL 58.4 billion, 29% higher. Adjusted EBITDA, BRL 555.8 billion (sic) [BRL 55.8 billion], 26% higher in relation to 1H '17, and EBITDA margin of 35%. Net income was BRL 17 billion in the quarter, as I said before, the best since 2011 and much higher than the first half of the previous year. And the highlight also is the free cash flow, BRL 29.4 billion, 30% higher to this -- vis-à-vis the same period last year and positive for the 13th quarter in a row.

On Slide #8, we explain the result per business segment. E&P was the one that brought the highest contribution to the improvement of our result with a higher Brent, and therefore, higher prices for oil exports and delivery of oil to the downstream segment and lower expenditures with idle equipment. The higher Brent means 63% higher in government take in this half year.

In the Downstream segment, we had a lower volume of sales vis-à-vis the first half of '17. Nevertheless, with an increase in the volume of sales on a quarterly basis, with an increase in market share for diesel and gasoline, highlighting diesel 15% in volume of sales. In relation to our margins, we reduced our margins. We had lower margins of diesel and gasoline vis-à-vis Brent. And it is important to explain that the improvement in the result in the downstream area, EBITDA increase 5%, was due to the realization of inventory that performed at lower prices. As I said, in reality, the difference between the average realization price and Brent dropped 45% if we compare vis-à-vis the first half of 2017, and for the next quarter, we expect an increase in the cost of COGS due to this effect of the inventory.

Now going to Slide #9. We have our operating income growing 18%, net income 257%, as we said before, due to the higher Brent and also the depreciation of the real vis-à-vis the dollar, resulting into higher margins in exports, be it in oil and oil products. But here, we have also lower G&A and lower expenditures with idle equipment and better financial results, and this came from lower financial expenditures as well, BRL 1.6 billion coming from a reduction in our indebtedness and also the gains with the renegotiation of this -- the debt with the Eletrobras system.

Now on Page #10. We highlight the control and the discipline of our costs. G&A expenses reduced 4%, vis-à-vis the first half of 2017 due to the lower expenditures with third-party services mainly. On the right of the slide, we show our cost for lifting and refining, and in the quarter, the cost of lifting was reduced by 7%, reaching $10.05 per barrel, considering Brazil and abroad. In the half year, the cost -- the lifting cost remained at the same level with a slight increase if compared to the first half due to the lower production and also higher expenditures with workovers. The unit cost of refining had a reduction of 11% in the quarter, BRL 8.57 per barrel due to the lower expenditures and the higher processed feedstock.

In terms of selling expenses, we explained the increase due to the payment of tariffs after the sale of NTS gas pipeline, which occurred last year, amounting to approximately BRL 1 billion and also the higher losses -- higher credit losses expected referring to electric sector, BRL 1.3 billion.

Now going to Slide #11. We highlight the trajectory of our free cash flow, and we are delivering a positive free cash flow sustainably since 2015. We reached BRL 29.4 billion in this half year coming from the higher operational generation and lower investments, which is in orange here. Operating generation is more than enough to cover our advancements, interest payment and dividend payout. It is important to highlight that of the total of BRL 18.4 billion investment for the half year, 89% were allocated to E&P.

On the next slide, we highlighted reduction of our indebtedness. Both operating generation and cash-in coming from divestment allowed us to amortize and prepay debt that resulted into a reduction of 16% of gross debt and 13% of our net debt in dollars when compared to December 2017. Thus, our net debt reached $73.7 billion, and we are already lower than the projection that we had informed you in the first quarter when we talked about $77 billion in net debt. So our level is already lower than we had informed before. And we have a very active liability management, and we raised in the half year BRL 27.2 billion, and we settled financing amounting to BRL 81.5 billion by means of repos and redemptions and prepayments, be it in Brazil or in -- or abroad. With liability management, we were able to extend the term of our debt, 8.62 to 9.11 years, keeping the same level of average cost of 6%, so our leverage was reduced to 60% -- 50%.

Now going to the next slide, Slide 13. We show the amortization profile that comes from our liability management, and we also reduced our cash position, which at the end of 2017 was higher than $20 billion and on June 30, it closed at $18.1 billion. I would like to remind you that we have access to repo lines amounting to BRL 5.4 billion with 19 banks. Cash position is enough currently to cover the amortizations that we have in the next 4 years and the amortization profile has a much more comfortable situation than last year when we had very high values in 2018 and '19.

Now Slide 14, where we show you the partnership and divestment program with the cash-in of $5 billion in the first half and this cash inflow was due to the closing of many projects and highlighting -- highlighted here as closed with the partnership of Total. In Lapa e Iara fields, we received the second part from Carcará. We also closed with Petrochemical Suape e Citepe and the Azulão field and the partnership with Equinor and Roncador. Many other projects continue ongoing. Many of them are already in the binding phase and some are not in the binding phase yet. And besides these, we have the strategic partnerships that are underway. Recently, we announced the partnership with Total in renewable energies and with CNPC for the promotion of investments in Comperj and in the Marlim cluster. I would like to remind you that some projects are suspended, among which TAG, the projects and partnership in refining and also Araucária nitrogen fertilizers due to a judicial decision.

Moving on to Slide 15. We continue with our policy to remunerate our shareholders. The Board of Directors approved the second prepayment of interest on equity that should be paid by August 23. As I said, we will pay BRL 0.05 equally to common and preferred shares. And at the end of the fiscal year, we will apply our remuneration policy, which sets forth a minimum payment to preferred shareholders, 5% of capital linked to this class of shares of 3% of shareholders' equity when they retire in addition to a minimum compulsory dividend payout of 25% of adjusted net income.

On Slide 16, we have updated our cash generation expectations for 2018. We expect $30 billion of generation of operational cash. We reviewed (sic) [revised] the projection of cash coming from divestments from $11 billion to $7 billion because of the interruption of some projects. We reviewed (sic) revised our investments to $15 billion, a slight reduction compared to what we had announced in our plan and payment of $6 billion in interest. With these variables, we are fully confident that we will reach our goal of net debt over EBITDA of 2.5x by year end.

We're going to see some operational highlights. Now we'll start with production. We observed the 4% production reduction in the first half of 2018 compared to the same period of the previous year, mainly resulting from divestments in Lapa and Roncador from the natural decline in production and from the end of the extended well test. We have 2.7 million barrels of oil equivalent a day. It is in line with our goal of 2.7 million barrels a day. Production growth in Búzios, Tartaruga Verde and Lula Norte and Lula Extremo Sul will help us achieve this goal. Finally, I'd like to highlight an important point that operated production in the pre-salt has exceeded the mark of 1.5 million barrels per day in the last days of April.

Moving to Slide 19, please. Highlight going to Campos Basin. Campos Basin has a number of promising opportunities to increase production. In addition to concession extensions already granted by ANP in Marlim, Voador and Verde, we obtained one more, the extension of the concession contract of Marlim Sul field for another 27 years. We also closed our partnership with Equinor, which increased the recovery sector by at least 5%. We have the operation startup of yet another production system in Tartaruga Verde field as we mentioned. And we have 2 new exploratory clusters formed by 12 blocks acquired in the bidding rounds of ANP that occurred in 2017 and '18 with very promising prospects.

We continue to talk about the extension of our exploratory portfolio and need to ensure the sustainability of our production future -- in the future. Here, we highlight the quality of our portfolio. In the last ANP auction, Petrobras won 20 exploration blocks in the Campos, Santos, Paraná and Potiguar basins. And we also have an increase in our participation in pre-salt exploration ensured, because in the first round of production sharing agreements held this past June, we exercised our right of first refusal in the blocks of Três Marias, Uirapuru e Dois Irmãos. In these blocks, we won a partnership with great companies. For the fifth production sharing round scheduled for September, we have manifested to ANP our interest in exercising the right of first refusal in the Southeast of Tartaruga Verde.

On Slide 21, we bring you the highlights for this well at Sururu field. On July 13, with a oil column of about 550 meters above the average that we had in the 5 wells in the pre-salt with the largest oil column of 436 meters. So now we have more than 500 meters in this oil column, so we would like to stress the importance of this. We are the operators in this field and our partners are Shell, Total, and Petrogal.

In the next slide, we highlight the production of 2 new systems that started operating this year, P-74 in Búzios, which is a Transfer of Rights area and with 30,000 barrels a day and Tartaruga Verde with 2 wells and a production of about 25,000 barrels per day. The startup of these 2 new systems is contributing currently with more than 55,000 barrels a day of production.

Moving on to the next slide, we give you an update of the next platforms that should start operating this year. We have 4 platforms, and 2 in Lula and 2 in Búzios. They are at an advanced stage of progress. We expect them to arrive on location of P-67 in the third quarter of '18 and of P-75 also in the third quarter and Lula Extremo Sul. So P-67 -- P-69 should get to location in the first quarter. Actually, P-69 should leave the shipyard in the third quarter. P-76 will be leaving the shipyard in the fourth quarter of this year. So with these 4 new systems, we would complete 6 big systems in Brazil. And we still have a new system in Nigeria that should start operating this year and P-68, as we mentioned in the previous quarter. That should start operating in the beginning of 2018. With that, we have 93% of the wells already completed and that ensures a production ramp-up that we are considering in our plan.

On Slide 24, the highlight is refining, transportation and marketing downstream. The sales volume decreased by 7% to 1.72 million barrels per day and production of oil products followed that movement given a reduction in the demand for oil products, lower sales of naphtha to Braskem, greater penetration of ethanol vis-à-vis gasoline and the increase in biodiesel in the mix. In the quarter, as mentioned before, both production and sales volume of oil products increased. We highlight on the right the high participation of Brazilian oil in the process, the throughput about 94% and the high availability of our refineries, reaching a level of operational excellence.

In the next slide, we talk about our market share of diesel and gasoline. We see a consistent resumption or regain in our market share, implementing our policy as we said in the beginning of the year. We had a market share of under 80% in the first quarter '18, now increasing to around 85% in the second quarter, both for diesel and gasoline. And the utilization factor of our refineries grew and is at around 8 -- 80%, 8-0.

And on Slide 26, we highlight the use and integration in the programming of our vessels, we were able to reduce by 10, the number of coastal navigation vessels, a 15% reduction in the unit costs of offloads, an increase in the number of vessels with dynamic positioning, bringing us higher safety in our operations.

In the next Slide, 27, we see our exports balanced. Crude exports reduced by 16% in the quarter and the import of oil products was also reduced, particularly the -- given the reduced sale of naphtha to Braskem. But we continue to be net exporters with an importing balance of 372,000 barrels per day.

The following slide, we show the behavior of the natural gas segment around 77 million cubic meters a day. There was a slight increase in the non-thermoelectric demand in this quarter, a slight increase in the import of gas from Bolivia.

On the next slide, there was lower thermoelectric generation in the quarter, but this was different in the quarter given the reduction in the level of water of the reservoirs as we can see on the chart on the right. Consequently, there was an increase in the price -- in the spot price of electricity, represented by the difference settlement price or spot price shown on the chart on the right of the slide.

With that, I finish my presentation, and we will move to the Q&A please.

(Operator Instructions) Our first question comes from Bruno Montanari with Morgan Stanley.

My first question has to do with the diesel subsidy program. Could you help me understand how this was recognized in the balance sheet? What has been received? What is pending? And there was a confirm -- a point you said this morning in the press conference about imports. I understood that imports would be returning, but I had a different impression listening to the comments of the distribution companies yesterday. So what kind of imports do you expect? My second question is about divestments, particularly TAG. I'd like to understand what was the reaction of the companies that were negotiating this with you? Does the company feel that the appetite remains the same and the restriction is removed? Do you think that the process will go back to the very beginning? And a quick question for Solange. I thought the Sururu field oil column was very interesting. We have a lot of information of Lula, Sapinhoá, Búzios and others. I would love to hear your opinion about the productivity of this cluster because it seems to be bringing more and more positive data. I'd like to understand if the flow rate trend is to increase given the reservoir and its current characteristics?

Bruno, this is Rafael Grisolia. Thank you for the questions. We will speak a little about the subsidy and how we recognize this in our financial and divestments. But first, I will turn the floor to Jorge Celestino to speak about imports. Then I'll turn the floor to Solange, and I'll finally close your set of questions talking about divestment and subsidy.

Thank you, Bruno, for the question. Regarding the subsidy program, what we saw -- I haven't got the totally consolidated figure for July, but in our June numbers, was imports of about 560,000 cubic meters, which is being discussed because the pricing model changed through the subsidy. What we have noted is that companies have signaled an operation at more or less that level. For example, I don't have any increase in the number of orders for August. I don't see a possible increase in demand for Petrobras. That would be too different from what we had in June. This is why we're signaling more or less the same level of imports, at least considering the clients that do talk directly with Petrobras.

This is Solange. Bruno, thank you for your question. I really liked your question because it gives me an opportunity to show you what's happening. We have different realities in the pre-salt. And as time goes by, we get more experience, and we are acquiring a lot of knowledge, but it becomes clearer every day that every area is different. Every area has a different characteristic and the Sururu field, as you could see, you followed recent events in Sururu field that is showing positive data, both for wells and for our tests -- our production tests that we're running in different areas of the field. That raises an interesting expectation for our partners. We look at productivity, but we also consider, Bruno, our experience in terms of how we equip the wells and complete the wells. When we join this experience of drilling wells at more affordable prices with higher productivity, then we get into a new generation of well. So but we have to measure the high quality of reservoirs. But putting it all together, we can potentialize the productivity of this area. So we do have optimistic prospects, but considering the whole, by the whole, I mean, knowledge about the reservoirs and knowledge about the ability to make them more and more profitable and yield more.

So Rafael Grisolia again. You asked about the financials. You will see in the explanatory notes, we recognized accounts receivable of subsidies of BRL 590 million barrels in the quarter. This amount basically refers to the second phase of the first part. And it is the recognition that we did via revenue with the counterpart of accounts receivables. It is in the explanatory notes that when we stretch the period, the first part of the second phase, the amount receivable, that considers some days of July, and that's why it's not included of BRL 870 million, so BRL 590 million when updated until July, the BRL 870 million, which is the first payment that we're awaiting from ANP. As I mentioned during the press conference this morning, we don't doubt that we will receive this, but we understand that these are new procedures. ANP is still consolidating that. And another point in the explanatory note is that in the first phase, there is a small amount that we are not recognizing in the revenue. It's not in the balance of receivables, but we're talking with ANP about procedures to abide by the legislation as mentioned in our calculation, so we did not recognize that amount either. Regarding divestments, as we communicated this morning to the press, we're maintaining the goal for the year. We're going for (inaudible) of 21 billion in our plan for the 2 years. It continues. It is linked to a concept of timing and of completing all of the projects. In terms of cash flowing in, we're considering 7 billion, practically 5 billion happening in the first half. As for TAG, the process continues. We informed the market that the process is suspended. What we can do internally to get a head start, we're doing and we're awaiting the reviews of the judiciary power regarding this project. If it is no longer suspended -- once it is no longer suspended, we'll communicate to the market.

Mr. Andre Hachem from Banco Itaú (sic) [Itaú Corretora]

I would like to ask a question about Upstream. You have these planned for 2018 and so far 2 have been delivered but I see in the plan that you have an additional 2, P-69 that will leave the shipyard and the other one in the fourth quarter of '18. So would it be considered that P-76 could be in 2019 and P-69 may be as well? And my second question has to do with the sale of assets. As you mentioned, you were expecting 7 billion for this year, and I would like to confirm this is what you expect for cash in 2018? So when this is reviewed, the other assets would go back to signing or the sale of more assets would be in 2018 and the original target of 21 billion would be maintained? And the third question, I would like to better understand the dynamics of the Campos Basin. We still see a very big acceleration there vis-à-vis pre-salt. Is it because of the asset or lack of investments. And could you give us some more color about that?

Thank you for the questions once again, Andre. This is Rafael, and I will turn the floor over to Hugo first about the upstream and operations and the platforms and then afterwards, I will be back talking about investments.

Andre, thank you for the questions. In relation to 69, 6-9, it would be in August and even if it takes some time or to put it in production, we should start production this year, and our expectation would be at the beginning of the last quarter and if possible, to bring this forward. 76 is leaving the shipyard, then going to the location in the fourth quarter, and we should -- this should be at the end of the year. And even if it's not producing this year, it will only contribute to production next year. So any uncertainty in relation to the startup could affect that because it will be right at the end of the year, the P-76, but the major contribution of P-76 for production is for 2019.

Andre, going back to your questions about investments. So once again, we made it clear that the target for investment for the 2 years continues to be the same and this is the same concept that is to see the close of the operations in -- we have already talked in public about the processes that have been suspended, and basically, our participation in Araucária and in the nitrogen fertilizer plant and TAG and the [Paulo Sul] Northeast. For the cash inflow, what we expect for this year is 7 plus 5 plus 2. These are all cash inflows that are associated to the project that are affected by this suspension, temporary suspension and that are in the binding phase. And we'll go to the next phase as we close. So this is the estimate for cash for this year. The processes have been suspended and some in-house work that we do. While we work with these processes, we continue to do this. And Solange will be answering your other question, just a moment.

Good afternoon, Andre. Your question about the Campos Basin is very interesting because it allows us to clarify some repercussions about this matter. Yet you're correct when you make your evaluation, as it is performing slightly lower than we expected and it has -- this drop is slightly higher than we expected that with the 9% of the business plan. So the opportunity you're giving me is that I can clarify that this has nothing to do with potential. Our potential for the Campos Basin is totally preserved. And we are only consolidating some date of some producing wells or some platforms that are being consolidated with other demand, and because of that we are postponing this because we have to fit this date into our planning. So this is not a permanent situation, this is not a recurrent situation. And the Campos Basin continues to be our major cash generation.

I would like to ask another question to Jorge. We saw a relevant increase in the import of diesel by Petrobras. So how do you intend to supply the market in terms of diesel imports, vis-à-vis the utilization rate?

In relation to oil product, the planning model that we run is according to the price of oil, the differences in prices between diesel and oil, gasoline and oil. And to run this model and the best result is the economic result in the overall balance of these products. And then based on that, we -- you decide whether you're going to export or import the oil product. And this has a lot to do with your availability, mainly in what we call conversion activity, the activities where you transform them in diesel -- gasoline, in coking unit and catalytic unit and this, we do permanently. And for August, for instance, given the diesel market that we have to supply and the availability of oil and the availability of [hard]. For August, it showed that some import was something economical. So it would be worthwhile to import and this was the decision that we made and this was the best decision based on the system that I have just described.

Our next question comes from Regis Cardoso with Crédit Suisse.

Rafael, welcome. It is your first webcast and the first earnings conference call with strong results. I hope it will be the first of many. I have 2 questions. First, it has to do with the dynamics of cash flow. Based on the projection that you provided, it seems that we had a higher concentration of CapEx along the second quarter income. Comparing that with your cash generation, it seems that achieving your goal of 2.5x by year end will be relying a lot on the operational cash flow generation, particularly considering the difficulties of having cash flowing in from new projects in addition to the ones that you already have in your pipeline for this year. So more objectively, I would like to understand, if you see -- if you expect a similar profile of cash flow, free cash flow that would be almost neutral for the second half of the year, and if in your vision making new investments would be necessary to achieve the net debt over EBITDA of 2.5x or if it really depends on the operational cash flow generation? That's my first question. But I would like to go back also to Downstream and talk about the subsidy program. The subsidy program was adopted after the first few months. What is the diagnosis? Now that things calmed down, it seems that the solution at the end of the day was not that bad as initially expected with a potential price control for Petrobras. The market feared that, that would happen during the truckers' strike. So what are the loose ends that you still need to tie? And I refer to things, for example, the ability to use prices above commercialization or marketing prices or do you think that bringing forward 2 days, the ANP price, that would open up the possibility of arbitration? Are there any things in the program that could be worrisome? And also talking about refining as a follow-up to the last question. From what level onwards, Celestino an increment in the utilizations factor would be detrimental to the profitability of the refining park? I know that this is a complicated analysis, but overall, in an order of magnitude, we should expect a utilization factor of close to 100% as being good, but is it truly good? And I ask this because overall people think about 2014 for diesel consumption used to be 1 million to 1.1 million barrels a day and now it's substantially lower, about 850,000 a day. So in 2014 even when Petrobras was operating with 100%, the diesel production was about 800,000 barrels a day and since then, you've started doing adds that I guess should add 70,000 barrels a day of capacity. It seems that the whole refining park would be able to supply the domestic demand if necessary. So do you see this in the same way? Is it a fair statement?

Regis, thank you for the questions and for the comments. I will address your question about cash generation and budget and deleveraging and then I'll turn the floor to Celestino. You are correct and that is why we're focused on informing in our guidance exactly this message. With the current portfolio management, the current Brent oil price, what we can see is the best number for cash generation and the EBITDA will be the first indicator of the year. We most likely can achieve our goal of deleveraging for the year. Even with the cash-in coming from the management of our divestment portfolio with expectation of more than 2 billion in the second half alone. So this is true. This is the message that we want to convey, though again in a constant monitoring of our portfolio. When we decide on new investments and on divestments, we have to work with all of the projects. So cash generation is important and maintaining the conditions that we saw in the second quarter. Again linking with everything we're saying here, it is important to stress that the quality of Petrobras assets, the management and financial discipline that we have in terms of cost of capital, all of that allows us to capture the EBITDA that we have projected for the year, with the current variables, the current Brent oil price in the international market. I will turn the floor now to Celestino.

Regis, regarding the subsidies, the model created for the program is very, very competitive. We have the marketing price and the reference price, and they're linked to the international oil price. They vary with the dollar price and the exchange rate. So permanently, we have prices aligned with the international market, not just the marketing price, but the subsidy as well. And the question is, if the reference price is above 0.30 of the subsidy -- if the cap is 0.30, that exceeding amount would be compensated, offset in the following month, considering the marketing price. So in a general way, the way that the prices are used in the subsidy program are very similar to the prices that the market would be exercising dynamically day by day. The model that was implemented is one that is competitive and it adds competitiveness to market operations. When it exceeds 0.30, that amount will be offset in the following months. So that is one important point. And something that you mentioned, the operation of the model, given the volume of information, the volume of invoices that take place (technical difficulty) it always feels a learning period for ANP and for market agents. So regarding the subsidy program, this is the best view that we can give you. Regarding operating efficiency, obviously, I will try to simplify a discussion, which is a little bit more complex. But let's consider the following. When you work at crude oil, there are 3 products that are worth more than crude oil: diesel, jet fuel and gasoline. These products, despite seasonality, they are always worth crude oil plus a margin. And we have 2 to simplify, fuel oil and naphtha, that are worth less than crude oil, minus $15 or $20 per barrel. When we run the refinery with crude oil, it produces a set of oil products, you run the refinery, you input crude oil and it will come out as diesel, naphtha and fuel oil. And depending on the costs that we have, for example, if you produce a lot of fuel oil in Brazil, the best destination of this product is China, then you have to consider freight costs. So when you produce more diesel, the marginal diesel that you produce, if you had a lot of fuel oil and naphtha, when you add up all of the products that you produce, it is all worth less than crude oil. And when that happens, it's worthwhile exporting crude oil than importing diesel, and this is the rationale of the model. For example, when you operate thermal that use fuel oil in Brazil, thermal power plants, obviously, diesel production in Brazil in your refining parks will be competitive because the market is closer and you open up the possibility of -- instead of exporting oil and importing diesel, it opens up the possibility of producing diesel domestically. So this is how the model does all of the calculations. I'm not sure that I was able to explain this to you.

Perfect, Celestino. I understand the mechanics. And exactly because of the limitations in hardware that you mentioned, the coking model and others, typically secondary utilization factor, very close to 100%. Despite arbitration of freights internationally and domestically, typically, you would be transforming oil into fuel oil. I understand and correct me if I'm wrong, but a utilization factor very close to 100% tends to be bad or worse than a utilization factor close to 95%. Is this a fair statement? And then the other question was regarding the diesel balance. Because if we have a utilization factor above 90%, it's necessary.

It would be possible to supply the whole domestic demand with production in the Brazilian refining park, which was not possible in 2014, for example. You are correct. We will have to do this assessment permanently, every market, every set of conditions have to be analyzed.

Mr. Christian Audi, Banco Santander.

My first question has to do with CapEx. As you are in a run rate -- that is to say you had given the objective of BRL 50 billion and it is lower now, do you still intend to reach BRL 15 billion or is something changing along the year that could maybe lead to levels lower than BRL 15 billion because I know that there is a seasonality there coming into play? And the second question has to do with the things that you were talking about, refining, and it was not quite clear to me in a more simplified or oversimplified way. I would like to ask if you are happy with 80% give or take. It is ideally the level that allows you to have a market share that makes you happy and at the same time, having high margins. Or do you still see room for improvement there? And lastly, about prices, given everything that is going on, what do you suggest to the market in terms of how we could think about gasoline prices for 2019 and the remainder of '18? Could we use the model of prices in line with international prices or not? So anything you say about it will help us a lot.

Christian, thank you very much for the questions. The question about CapEx, I would like to ask Hugo to answer, but in fact, we have a different run rate for the second half, and this is why we are reinforcing this guidance, and Hugo will say a few words about that. And I would like to remind you that we are not changing production of our Business and Management Plan. Then we will come back to your question and then Celestino will answer.

I think your question has already been answered because what we are doing -- this adjustment has to do with including what we'll be realizing this year and also based on the pace of the first quarter and the implementation of -- the first half of the implementations that we have for the second half of the year. So we're already giving this as a guidance, that is to say that we will reach USD 15 billion still by the end of 2018 and the remainder will be in 2019, and this does not change whatsoever the investment plan that we are finalizing in -- within our plan, our Business and Management Plan and not (technical difficulty) with relation of the metrics for our refining cluster, I would like to reinforce once again that we run refining for -- in order to give the maximum return, maximum value to our shareholders. There is a metric regarding market share or utilization factor. We will have the market share and the utilization factor. We have a very adequate hardware for that, investment in quality and quality of conversion. So our guideline is to operate always in order to maximize profits to our shareholders. So this is our guidance, our guiding line. And regarding prices, price is always aligned with the international market. So this is a statement that this management has been making over all these years, and this is what we have been putting into practice and will continue to put into practice.

Our next question comes from Luiz Carvalho with UBS.

I have 3 questions. First to Rafa. You showed a slide with a free cash flow of BRL 16 billion, when you break down operational cash flow generation investments, et cetera. I have 2 questions regarding that. First, did you consider dividends there? Because looking forward, that number should be lower. And given the perception so far, I understand that you will be paying dividends this year. My second question is regarding capital allocation looking forward. You're going to have cash generation that will be very strong, assuming that the oil price will continue to be at this level and with the pricing policy and leveraging being reduced. So what would be the adequate level for capital generation? Do you want to deleverage the company even further? How should we see this looking forward? My second question goes to Solange. Solange, next week, the Senate House will go back to their activities, and we have an expectation that they will probably vote the transfer of right. So I would like to understand, regarding Petrobras, as much as you can share with us, what are the procedures that you still need to do? How close are you in this agreement with the government, assuming that this law will pass at the Upper House? Well, these are my questions.

Luiz, thank you for the questions. I will try to answer the first 2 questions and then obviously, Solange will be answering the third question. Regarding the guidance for cash generation, we have been careful in terms of operational cash generation. We're assuming an EBITDA number slightly different, because in cash generation we are considering a dividend payout policy. And the way that it was previously informed, some capital variation and some other noncash elements that make up the EBITDA. So we think that this operational cash generation will continue according to what was informed in our dividend policy. In terms of cash generation, we continue to have the same driver to achieve the goal that we have informed the market in terms of our debt goal with that indicator, net debt over adjusted EBITDA ratio. And we know that when we compare Petrobras with its main international peers and competitors internationally, our debt level remains high even if we achieve our goal. And this is something that we are considering internally at the management level and together with the board. We will decide on the future goals for the next year. Now I'll turn the floor to Solange.

Thank you for the question about the transfer of right. In terms of procedures, necessary procedures to finalize, in our assessment, what we have ahead of us is -- the next steps are -- when the Senate House votes (technical difficulty) the law (technical difficulty) that regulates some aspects of the previous law, it's an amendment to the previous law, right? Based on that, we have just a few steps ahead of us, new and quick steps so that the amendment will be agreed upon by the parties, and so that the government and Petrobras can move on to our respective deliberations. So we have to wait for the voting and there are just a few things pending.

Pedro Medeiros from Citibank.

Rafa, welcome. And I have a few questions, some of them are already a follow-up of previous questions. I would like to still talk about the capital allocation of the company. I think we should expect the business plan to be reviewed. But to have already reported an [expressive] cash generation and it could have been even better if it were not for the consumption of cash for your working capital. When we look at the business plan, it was totally prepared with the oil price much lower than the market prices that we have today. The company, at the beginning of the year, decided to adopt the strategy of a partial hedge of the oil price in such a way as to facilitate reaching the target for your deleveraging. So how do you consider the maintenance of the strategy of locking in the price of oil from now on? How do you see that for 2019? So this is my first question. And the second question is to Solange. Solange, I would like to understand what you could say about improving operation and the use of the Campos Basin asset? We haven't seen the industry working in a more opportunistic way because of the oil price hike and having that more competitive prices for campaigns regarding -- like drilling campaigns, et cetera, because of the reservoirs. So you have the project of Marlim and Roncador revitalization projects and Parque das Baleias. What else could we expect from Petrobras regarding the Campos Basin? And one last question about the lifting costs for the quarter. We saw an improvement, a relevant improvement in the lifting costs in spite of the fact that the company have a slight drop in production and with the startup of 2 new systems that have not yet had a ramp-up. So what was the driver for this drop in your lifting costs this quarter? And does it have to do with the divestment you made in Roncador?

Pedro, thank you for the question and for the welcome. The first question, which was about the continuation of our hedging policy and what we're thinking for our planning, and Solange will be answering the other questions.

Pedro, thank you for the questions. Starting with the hedging policy, this is reevaluated on an annual basis. And at the time when we made the decision was after we made a risk analysis that is always the basis for our decisions, we understood that it was the best measure to be taken at the time in order to decrease the risk of not reaching the target at the time. And of course, from then on, the market has evolved positively and ran -- surprised us positively in the sense of being quite higher than we had. In the plan, it was $53. And the policy or the in-house process of establishing a reference in Brent, this has to do with our governance. And this is a very detailed process and it takes around 2, 3 months and you have all the governance because of approval levels with the executive board and the Board of Directors. And when we look at the Brent now and when we look at the $53 that we had in our plan for 2018, you see that it was rather conservative. But at the time, we had to publish these figures. Some people do not, but we do. But more or less, all the oil and gas operators were around $50, so slightly higher level or lower level, but it was correct at the time. So we made the right decision at the time, and we will continue to do our work and always complying with the very strict governance that we have for that.

Answering the first part of your question regarding the use of the Campos Basin assets. We have 3 different fronts here that should be mentioned. Access of less expensive equipment, and we are continuing -- or going back to hiring these rigs and -- but before doing that, I have to have a different project generation, infield drilling, as you said, are project that are very much applied when you have an offshore activity such as ours that requires a differentiated way to treat the interconnection, the -- so it has more to do with the way we generate the infra drilling projects and then supplementing them with the more favorable rig mix for this project of workover. That already answers your other question about the lifting costs in this quarter. We were able to have -- or feel the impact of workovers that were necessary and you see this more favorable mix of rigs for these workovers or in other words, fine-tuning this to the profile or fine-tuning the type of rig to our needs. But we are placing our bets consistently with the -- on the evaluation made by Petrobras vis-à-vis a liability management or -- no, cost management of the Campos Basin. And this has to do with the recovery factor and also reserves. So we have to have operational practices in practice and that lead us to increased production with the capacity that is already installed, so a different approach to generate new opportunities. But on the other hand, a more strict behavior regarding the -- what we have in terms of installed capacity in the Campos Basin.

Our next question is from Vicente Falanga with Bradesco BBI.

I have 2 quick questions. If imports drop more and if we have to -- if Petrobras has to work with agri business, can you expect an increase in refining? And please correct me if I'm wrong, but will you reduce the price of gasoline? It was a little reduced vis-à-vis the interventional markets in the last 2 months. Would this be just to compete with ethanol, which is a lot cheaper? Or can this be considered a strategy that would last until the end of the year?

Thank you for the questions. Celestino will be answering both questions.

Vicente, good questions. Regarding if we have to increase the production of F10, the impact on the refining cost would be very small, marginal actually. We have the set of operators. And so this is not very sensitive. F10, F500, so nothing much about that. And as for gasoline, we have great asymmetry with ethanol, and it's hard to overcome that via price. The asymmetry is more than BRL 400 per cubic meter. It doesn't make any sense to adjust the margin to compete with ethanol.

Our next question comes from Vinicius Tsubone with HSBC.

If possible, could you elaborate regarding that loss of BRL 1.2 billion, referring the sale of assets? Could you detail more what are the main reasons leading to a reduction in CapEx for this year? And another question, when you say that there was a 15% reduction in the unit cost of offloads, what would be the comparison base for that?

Vinicius, this is Rafael. Thank you for the question. But could you please repeat? The sound wasn't clear.

(Operator Instructions)

Well, to repeat my questions, I would like you to give us more color on what were the reasons that led Petrobras to recognize a loss of more than BRL 1 billion in the second quarter results referring to the sale of assets. My second question is regarding the main drivers that led to a reduction in your CapEx estimates. And my third question, regarding what you mentioned in the slides, regarding a 15% reduction in the offloading costs, what would be the comparison base for that number?

This is Rafael Grisolia. We're very sorry we couldn't hear your questions the first time and we apologize. Okay, your first question, I'll give you more color regarding that reduction effect. It's basically related to the Roncador investment. We are recognizing in the quarter the finalization of the operation. When we close the deal, completed the deal, we have to account for it. If you need more on that, we can speak offline. And as for the CapEx question, we mentioned this, we just wanted to illustrate to compare with the guidance of our cash generation and to say that we continue to invest. We're not canceling any investments. It's just what we are expecting for the year. Our investment indicators announced that the NPR maintains. It's just that for cash realization, we expect BRL 15 billion and not BRL 17 billion. But again, this is not impacting any of the key investments, no cancellations whatsoever. This is just a better indication of what the operation will be until the end of the year. And your third question, I will turn the floor to Jorge for -- to answer the last question.

Vinicius, regarding the reduction of offloading costs, if you look at the number of vessels that we reduced, from 37 to 26, that already gives you a color of the increase in efficiency in our offloading operations because we have a better utilization factor of the vessels and better -- we've used our trips better. This new of way of operating, this new way of planning offloading, all of this led to a reduction in the offloading costs.

The next question comes from Mr. Paul Cheng from Barclays.

Three quick questions. First, what is your hindsight of view at your refining system? And do you have any trend of the maximum related of upcoming, the greenfield , new spend at the IMO 2020? Second question, in your press release, you said the downstream result benefit from the sale of inventory. Can you quantify the benefit? Lastly, given your productivity improvement in the press release, how that your (inaudible) is going to change your [jerman mix] is going to change over the next several years?

Mr. Paul, can you repeat your question, please?

The first question is what is your hindsight view of new -- in your refining system? And are you planning any investment related to the upcoming new global marine field standard, the IMO 2020? The second question is in your press release, you mentioned the downstream result benefit from the sales of inventory. Can you quantify what is that benefit in the second quarter? Lastly, with your productivity improvement in the consulting area, how's that impacting your outlook for how many weeks [in the cycle miss]? Do you need me to repeat the question?

Paul, thank you for the questions. So we will try to answer them. And if you have any additional doubts, we will be pleased to answer them afterwards. With relation to your first question, which was about the adaptation of our products in order to comply with the IMO 2020 rule, Petrobras has a very good position regarding low sulphur because we produce oil with low sulphur. So here, Brazil, this is the way that oil is produced. So it will be -- it will not be necessary to make any additional refining facilities in order to adapt our production to the specifications of a new bunker. In fact, we see this as a competitive advantage for Petrobras because of the availability of oil with low sulphur. Now regarding the gain in terms of prices vis-à-vis inventories, well, between the upstream and the downstream areas, in fact, this does not bring any results outside the company itself, so this is something internal to the company. Regarding productivity, your question about productivity, since the beginning of our activities of exploration to the pre-salt as we see ourselves with a unique type of reservoir with just a handful of similar reservoirs in the industry, we are -- we were very careful when we made this forecast for you -- of productivity. And after 8 years producing in the pre-salt, we saw that our most probable view is being realized and with a bullish bias so to say, because it's slightly higher than what we expected in terms of the most probable level of viewed. And we are fine-tuning our capacity to understand how the well engineering projects and also undersea project can increase our productivity. So we have a lesson learned in these last few 8 years, and this led us to improve the way we place this reservoir in production. And in these 8 years, we saw no event that could draw our attention to some kind of deviation vis-à-vis what we are projecting. And we also saw that the initial decision that we made were very good because ever since the beginning of production of the field, we had an alternate interaction of oil and gas and it has been -- proving to be very good. And so this is our best estimate.

Thank you very much. Now we close the question-and-answer session of this webcast. And we would like to give the floor to Mr. Rafael Grisolia for his closing remarks. So Mr. Grisolia, you may proceed.

Once again, I would like to thank you all for participating in our call. In case you have any additional doubts, our whole Investor Relations team of Petrobras will be available to you as always. So once again, thank you, and I wish you a very good afternoon.

Thank you, ladies and gentlemen. The audio for replay and the slide presentation will be available at the Investor Relations website, www.petrobras.com.br/ir. This concludes this webcast. Thank you very much for participating. Please disconnect your lines now, and have a very good afternoon.