Welcome to Petrobras webcast and conference call with analysts and investors concerning its 2019 third quarter results. [Operator Instructions]. We'll start by listening to the Petrobras CFO, Andrea Almeida, with the main highlights results. Then [indiscernible] questions will be answered. Please note that the presentation will remain available throughout the webcast and at the company's Investor Relations website. Attending today, we have Mrs. Andrea Almeida, Chief Financial and Investor Relations Executive Officer; Mrs. Anelise Lara, Chief Refining and Natural Gas Executive Officer; Mr. Carlos Alberto Pereira de Oliveira, Chief Exploration and Production Executive Officer; Mr. Rudimar Lorenzatto, Chief Technology and Production Development Executive Officer; Mr. Eberaldo de Almeida, Chief Corporate Affairs Executive Officer; Mr. Marcelo Zenkner, Chief Governance and Compliance Executive Officer; and other company's executive officers. Mrs. Andrea, you may proceed, please. Ladies and gentlemen, please hold. [Technical Difficulty]. Speakers, you may know proceed.

Good morning and afternoon to everyone in the line. We are very happy to present Petrobras' third quarter results. We had excellent economic and financial performance in the third quarter. The results reflect our efforts to transform Petrobras into an increasing resilient, competitive company, capable of adapting to the most dynamic market in which we operate. In recognizing the challenge of this market and its risks, this led us to focus on cost optimization, increase operational efficiency and definitely reducing our indebtedness. The strong growth in oil and gas production this quarter at lower cost exemplifies the resilience we are aiming for. In the third quarter of 2019, production reached a new monthly record of 3 million barrels equivalent a day, in addition to a new daily record of 3.1 million barrels equivalent a day, both reached in August. Although Brent's price declined quarter-on-quarter, our EBITDA in the E&P segment increased 2% to BRL32.1 billion. This was due to the ramp-up of new platforms, especially in the assets in which we are the natural owners, the pre-salt, where we have achieved excellent results. The pre-salts represented 60.4% of oil production in Brazil. And the FPSO is 76 in the Búzios field, reached its ramp-up in record time of 7.7 months. In addition, our lifting costs reached its lowest pre-salt level of about $5 per barrel equivalent in the quarter, which were helped to reduce the average lifting cost in Brazil to $9.7 per barrel. These operating advances were reflected in the record operating cash flow of BRL32.8 billion in the third quarter of '19, also supported by the successful transaction for the anticipation of receivables from Eletrobras, whereby we received BRL8.4 billion for a debt maturing until 2025 and which, together with the sale of BR Distribuidora, shares resulted in…

[Operator Instructions]. Our first question comes from Regis Cardoso, Crédit Suisse.

So two topics I wanted to discuss. First one, probably to Anelise on downstream. I wanted to know whether you guys have quantified the impacts of IMO 2020. Could it either be in terms of crack spreads or any million dollars impact in the quarter? And still in downstream, there are ongoing studies regarding verticalization in the downstream segment regarding the sale of refineries. So I just wanted to know whether the actual sale of the refineries is contingent on final say regarding whether distribution companies or integrated IOCs can actually have production, refining and distribution. And then lastly, if I may, just a second question in terms of the new position at the Board of Executives on digitalization and innovation. I wanted to know whether you have met, so far, cost savings initiatives. And how could you implement these new digital initiatives to actually reduce costs?

I have to apologize. I believe, Regis, you will have to repeat the question because there was a problem in the line. We couldn't hear you. So would you mind just repeating for us? Sorry about that.

Absolutely. No problem. So two topics, one downstream, the other on digital innovation. On downstream, if you have quantified the impact of IMO 2020, either in terms of crack spreads for fuel oil banker or in terms of million dollars in the quarter. Still in downstream, whether the sale of the refineries are contingent on a final say regarding vertical integration, either downstream to distribution companies or upstream to companies that also have production of oil. So if the actual sale of the refinery depends on a final say on whether vertical integration will be allowed. And then on the digital initiatives, whether you have met opportunities to reduce costs and if you have examples of how these innovation and digital initiatives could be used in that sense.

Regis, related to the -- your question about the impact of bunker 2020, what we've seen today is an increase in the crack spread of gesium already. We are approaching $18 per barrel, and we expect next year to achieve $22 per barrel due to this -- to the impact of the bunker 2020, okay?

So I believe you asked as well about refineries. So just a snapshot on that. The decision -- when we decided to sell the refineries, we took the portfolio view of the refineries, and we considered the operational efficiency of the -- how the refineries integrated to the E&P systems as well and how the refineries were integrated themselves. So this decision on which ones would be sold, it's already taken. So it doesn't -- it's not going to be impacting. So there's no final discussion around that, and that's how we decided which ones would be sold. I don't know if it was the question, but I wanted to mention that before the digital transformation. So on the digital transformation, all areas had the chance. So we did a war room, and all areas had the chance to define what are the most important projects that we have to develop to -- definitely to reduce costs or to improve efficiencies in the overall company. Maybe I'll give one example from the refineries. We do have, in some refineries already, what we call the digital twins, where we use a digital refinery to simulate the best feeds that we have to get into the refinery with the products that we wanted to produce or the products that are better demand by the market. And this simulation was done once a month before. We don't have that technology in place. With the technology, we can run the simulation and the optimization of the feed in the refinery system every day. So this is one of the examples that we would be implementing. And in E&P, I would say, we would be focused as well on projects to allow us to shorten the time between the discoveries and the swallow into the market. So definitely, this might be the best focus for the E&P digital transformation.

If I may, just a follow-up regarding the topic on the vertical integration. I understand very clearly on Petrobras perspective, but I wanted to know if you also have a view on whether the potential buyer for those assets could be someone vertically integrated. Because I remember at the time, the CNPE put out the guidelines for breaking Petrobras quasi-monopoly in refineries. One of the topics that raised attention to was the demanded studies regarding vertical integration of the potential buyers.

Ladies and gentlemen, please hold. [Technical Difficulty]. Speakers, you may proceed.

Regis, concerning this verticalization issue, for the buyers, we understand that it's not -- it won't be an issue since Petrobras will be integrated company in the southeast of Brazil, right? We are going to have upstream and downstream in the southeast of Brazil. And we see that this behavior can also be used for other buyers. Concerning distribution companies, it was -- there was a restriction for BR to participate in the refineries divestment process, but it does not mean that other distribution companies cannot buy our refineries. It's clear that it was only to avoid Petrobras to increase Petrobras shares in the other regions also. So for the downstream divestment, I think this unbundling or the verticalization issue won't be a problem for the potential buyers.

The next question comes from Christian Audi, Santander.

Congratulations on the results and on the continually improving disclosure because it's very helpful for us. Andrea, my first question was on the cost front. You've been able to improve lifting costs, for example, for pre-salt, among others. So I was wondering if you could share with us your outlook of where do you see more opportunities for costs to go down. Could we expect further lifting costs reduction? What's the outlook for refining costs? And then any other specific administrative costs that you see, potential upside for them to be further reduced? The second question was on the production front. After a difficult June, production has really turned around. And with this improvement, I was just wondering if you could talk in general terms or talk about how your conviction for this continued production growth is going to next year. Do you feel that you've really overcome the issues that you had, had in Búzios and how you foresee the outlook for next year?

Thank you, Christian, for your questions. So starting with the costs. We do have some goals, more focused on 2020. So we will have goals for 2020, and there will be goals for all areas on cost reduction. So let's say, what we have been doing in the voluntary dismissal programs will continue because this is the -- somehow, this is how we can reduce the personnel costs in Petrobras, so we will use those kind of initiatives to reduce costs everywhere. We will have, for the operations and so forth, the refineries and from the E&P goals as well to reduce costs in 2020, and definitely, they will be attached to the strategy of the VRS. So there will be certain indicators we'll be looking for, but we'll give this guidance to you in December. But definitely, we'll see 2020 more focused goals and not 2023, so something that we will need to implement faster. And now I transfer the words to Carlos Alberto. I don't know if I answered your question.

Yes, Andrea. Just as a quick follow-up. Do you see -- where do you see the biggest opportunity on the cost-reduction front going into next year? Is it upstream? Is it downstream? Are you able to give us a sense of where you see the biggest upside in terms of reducing costs?

[Technical Difficulty] considering that all the operations are going to reduce. Somehow we have sales of assets in refineries. We have sales of assets in the shallow waters and onshore. So definitely, the corporate areas that support those business, they have to reduce as well. So those areas will be -- may be more focused on head costs and taking a look at the service costs that we have as well. So I think there will be opportunities everywhere. So we will have very good ways on improving this company moving forward. I will pass the words to Carlos.

Christian, regarding the production and the -- we are very close to our business plan. And at the end of the year, we are going to have this growth for the 2020. I think that in terms of guidance for next year, we should think about that we have now a higher production, for sure. But at the same time, we will have -- we went into a decline phase of some system that we have, which is natural, a natural decline of productions. And we have to consider, at the same time, that we have more platforms and systems. We will have more production that will be -- less production that comes from the stoppage of those systems as well. And also, we have to consider that we would be doing more inspections for the risers, the subsea risers that we have and when we want to control better the problem that we have been facing on the corrosion by the CO2. So there are also some guidelines. We do not -- we should not forget as well that we are going to close an important transaction related to the Tartaruga Verde field and where we are selling 50% of our share on the field, which means something like 60,000 barrels per day and also the participation that we have on the assets of Nigeria, which means something like 35,000 barrels per day. So we have to put it all together in the mix and to take what should be the real production for the year 2020. We are really on a good perspective, but we have sum it all and see what's going to be the production that we have until -- on the 2020. So that's -- we also have some units that will go onstream, the P-68 unit at the end of this year; the P-70 next year; also, some wells that are going to come onstream, and we'll fill those platforms. So it is a lot of facts that we have to take into consideration, but the perspective is good. But so far, I can't anticipate a number that we are going to -- for the 2020. And I think that -- but in 2 months from now and -- at least 1 month and something more, we will have this goal for the target that we are going to present to you for the year 2020. It's a lot of facts, but good facts. But at the same time, we'll have to think about what is -- what are the negative effects that we're always facing as we have to manage with them.

No. Very helpful, Capo. And do you feel that you've overcome and really understand the issues that impacted you back in June? So they are behind us. The learning curve is behind us, and therefore, you're more comfortable with the Búzios dynamics with these more complex platforms from a natural gas production point of view dynamic.

Christian, Rudimar here. I'd like to say that, of course, we had some problems in Búzios, mainly in the commissioning of the gas plants of these platforms. I have to say that we got very good solutions, but it was partial, and we are still studying how to improve this uptime of these platforms. We have a lot of specialists working hard for getting better results, considering the operational efficiency of this platforms, and is according with our target production.

Great. And just one last follow-up, Andrea. On the topic of CapEx, you've done a very good job in your CapEx discipline, lowering your target and sticking to it in terms of the yearly CapEx between BRL10 billion and BRL11 billion. But pre-salt production, as you've highlighted, is increasing. Does that mean that we could see a potential increase in CapEx purely due to this higher expenditure to pre-salt production? Or do you feel comfortable that BRL10 billion to BRL11 billion per year is a sustainable level for the company?

We will be doing that work, definitely. We are doing right now to give you the new five year sense of CapEx. But we don't expect any huge increase in CapEx. That's what I can tell you. So you might expect something similar coming for the next 5 years.

Our next question comes from Frank McGann, Bank of America.

Just two quick questions, if I may. One, just in terms of your lifting costs and specifically special participation taxes. It seems as if with the Búzios production rising, the specialization tax should decline. And I was just wondering how much you have seen already in terms of the average decline that we've seen over the last year that could be attributed to that and how much additional upside or downside, depending on how you're looking at it, you could expect to see. Because that should be, I think, a fairly important driver of cash flows as we go forward. And then secondly, just if you could comment on the status of the labor negotiations.

Frank, about the lifting costs, for sure we are having a very good performance on the pre-salt assets and particularly around the Búzios field. I think the Búzios field today, we could think about, I feel like, $4 per barrel based on the fact that we have our own platforms there. We do not share the FPSOs. And we are now with our prediction, reaching the top of some platforms. So the figure is -- I think to use or to consider $4 per barrel as a figure for the Búzios field could be a very good number on the estimates for the field, could be less as well. It depends on the performance that we are going to be facing on the next quarters.

Okay. If it works out, that would be lifting costs, you mean?

Yes, lifting costs for Búzios.

Okay. And in terms of just the special participation tax. I don't know, yes, at least at some point, I mean we should begin to see a very substantial reduction or no paying off, at least, special participation tax in Búzios and the other Transfer of Rights field. Just wondering how much impact that could have going forward.

I will try to understand you, Frank. We don't have a special participation on the Búzios field because that's a Transfer of Rights regime. And I don't know if I got your question.

We've seen a sharp reduction in the level of taxes over the last 12 months, which part of it verifies it, of course, but I would assume also a part of it is just no special participation tax on some of this new production. So I was wondering, as we go forward, how much additional benefit you could -- we could see potentially in the special participation tax line.

Well, on the following quarters, as we don't have a special participation, we just have special participation on the Lula field. We can also increase the special participation for those fields with the entry of the P-68, for instance. We expect it to grow, but it all depends on the profile that we're going to face for the price of the oil. And particularly in this quarter, we have this phenomenon associated with the fact that we were considering to pay the special participation for Lula and also Cernambi. And by a decision from the -- our supreme judges to Lula.

Supreme Court.

Supreme Court. It was a decision from it. And based on this decision, we are now -- we are not now paying the special participation for those fields. And it has the effect that -- make that we have this reduction in this -- on the government participation. But it was event isolated for this quarter, and we expect that it will continue, and as particularly, we will win this battle. And for the years to come or for the quarters to come, there will be an increase in the special participation due to the fact that I mentioned regarding the platforms that are produced from Lula field.

About the labor negotiations, we concluded the negotiations last week. So we didn't succeed in having a [indiscernible] with the unions. We have here in Petrobras 17 unions representing the employees of Petrobras. So right now, we are discussing with the labor just as in Brasilia in order to avoid the strikes that were announced to start to commence tomorrow. But anyway, we are very well prepared to avoid the impacts on production and on sites as well. So now we are running -- discussing this -- all this, the storms with the labor justice in Brasilia right now.

The next question comes from Pedro Soares, BTG Pactual.

I just have one quick question to Andrea. Andrea, regarding the $9 billion amount to be received by the government related to the Transfer of Rights agreement, the company has been stating that it shall use that amount in the surplus auction itself since the rates of returns are worth it and so on. But given the very strong results that the pre-salt has delivered so far and also with the very promising outlook derived from those fields, would it make sense to perhaps be even more aggressive? In other words, it would be interesting to have a sense from you guys whether is there any possibility to disburse from more than the amount owed by the government in the surplus auction. Or is Petrobras really limited to that $9 billion amount?

Thanks for the question, Pedro. We know how good those fields are, and we'll be balancing our objectives on the leverage with the quality of the fields that we'll be bidding to decide how much we are going to use on the auction. But we cannot anticipate to you, but we know it's very good. So we definitely agree with you that we have good fields there, but that will be a balance between our overall strategy, that is to focus on the assets that have higher return with the leverage. So that would be a combination. Thank you for the question.

Yes. Sure. Makes sense. Just a very quick second question, if I may, maybe to Capo. Capo, concerning the production in the next quarter and considering the ramp-up of the pre-salt platforms and also the starting P-68 operations, is there any possibility of a no-growth scenario in the Q4? Like, any kind of stoppage or technical issues that might pose some threat for growth or not? Because it seems to us that, that's mainly given at this point.

Well, as I had already mentioned, Pedro, one thing important to consider is that at the same time that we are now in the process of having this growth forward, keeping the production on the Búzios field, which is approaching its stop with new wells entering, new platforms into. But at the same time, we have to consider that we face a closing -- the closing of the Tartaruga Verde field and also the selling of the assets that we have owned on Nigeria. And this amount is something like 100,000 barrels per day. So it will depend on what we -- when it will happen, the closing; and at the same time, the capability that we'll have in the next quarter in order to keep this good performance on the Búzios field.

The next question comes from Pedro Medeiros, Citibank.

I have two additional questions. First one is just to get an update on Petrobras interest and whether there was any progress for crafting a potential partnership for the Marlim field. This has been an ongoing process for a while. I think last guidance was to potentially see some evolution in the third quarter. So if you have any incremental color on this, I would appreciate. The second question is, in our last meetings, company has mentioned it was considering to look for alternatives for reducing its pension fund deficit or its -- the annual deduction and contribution to the pension fund from results. So just wanted to understand whether there was any evolution about a plan targeting that deficit and whether any of the alternatives could potentially involve commitments that would impact the trajectory to reach the gross debt target, okay, meaning there would be any kind of contribution that would impact that trajectory, okay?

Pedro, regarding the Marlim field, we're in the possible partnership with CNPC. We don't have anything to add right now. We are still with them evaluating because it's part of the strategic evaluation that we are making with CNPC regarding not only the Marlim field but also the Comperj asset. So we cannot anticipate to you what -- how we are going to close or the end of this, how it's going to end and then effect.

Pedro, thanks for your question. So regarding Petros, we do have not some news, but something we have been working on that still have to be discussed then approved. But we might have a better solution to solve the deficit of the plan right now. And the solution might be to not just to increase the contributions of everybody, that was the solution we used in 2015, but to balance the increase of the contributions with the decrease of the benefits in the future and to increase the term that people would be able to pay those contributions. So I don't expect any negative impacts for Petrobras. Petrobras has to contribute 50% of that always. But I do expect some faster process to solve this problem.

The next question comes from Bruno Amorim, Goldman Sachs.

I have three follow-up question on the Transfer of Rights surplus auction. At this point, are you discussing with potential bidders the amounts and mechanisms for the compensation that you have to give to Petrobras for the deferral of the production curve and also the CapEx you have made in that area? Or will that be discussed only post the auction?

Bruno, this is Capo. Right now, I can't anticipate to you what we are doing because it is -- in fact, it's part of the -- our process of participation to be on the bid. I'm sorry about that.

Thank you, all. At this time, the Q&A session of Petrobras webcast and conference call is over. Mrs. Andrea Almeida will make now her final remarks. Please, ma'am.

Thank you very much, everybody, for joining today. We will be focusing on our strategy very well discussed with you over the last months, so you should not expect any difference moving forward. So increasing transparency, deleverage, continue the divestments and looking for all ways we can improve the efficiency of this company is going to be our biggest focus moving forward. Thank you very much.

Thank you. Ladies and gentlemen, the audio of this conference call for replay will be available in Petrobras Investor Relations website at www.petrobras.com.pr/ir. Thank you very much for your participation, and have a great day.