Petrobras - Earnings Call - Q3 2020
October 29, 2020
Transcript
Speaker 0
Hi, good morning. Welcome to Petrobras webcast with analysts and investors about the third quarter results. We'd like to inform you that all participants will follow the transmission by Internet as listeners. After introduction, a Q and A session will begin. You can send us questions by e mail, petroinvestepetrobras dot com.
Br. Today, we have with us Roberto Carcelo Branco, Petrobras CEO Andrea Almeida, Chief Financial Investor Relations Officer Andriy Zilara, Chief Refining and Natural Gas Officer Andre Quiarini, Chief Trading and Logistics Officer Carlos Alberto Pereira de Oliveira, Chief Exploration and Production Officer Marcel Zankner, Chief Governance and Compliance Officer Nicolas Simon, Chief Digital Transformation and Innovation Officer Roberto Hardengi, Chief Investor Relations and Sustainability Officer Rugimar Lorenzati, Chief Production Development Officer. The presentation will be available throughout the webcast on our website. We'll start by listing Petrobras' CEO, Roberto Castello Branco, which is the main highlights of the results. So please, Roberto.
Speaker 1
Hi. Good day. It's a pleasure to be here for to share with you our, third quarter results. I believe that, our rap response to the outbreak of the crisis was fundamental in order to survive and is starting to pay off. The quarter results the quarterly results are very good.
We had a very strong operational performance. I would I would highlight the increase in oil and gas production in the first nine months of the year compared to the same period last year. It's about an increase of nine percent. The pre salt production increased by 32%, which is an excellent result given that the pre salt is the lowest cost producer. It is responsible now for 70% of our production.
And the our refineries performed very well after low, in the utilization factor in labor. They reached levels above 80% during the quarter and continue on the same path. It's important to comment that we are not operating with negative margins and neither increasing inventories. On the contrary, inventories have been reduced. It's part of a broader, initiative to optimize the the inventory management across the board in the company and to liberate working capital for more productive use.
The natural gas energy area also performed well. In terms of costs, I do like to highlight the very low cost of the pre salt in the quarter, two dollars and thirty cents per barrel of equivalent oil. It's very good results. I believe that, this suggests the low breakeven price of our world class assets in the pre salt. Second, as an example of cost cutting, let me address the general and administrative expense.
In Brazilian reais, in nominal Brazilian reais, as they are fully denominated in Brazilian reais, not in U. S. Dollars, The first nine months of this year, they were the lowest in ten years, taking the time series beginning in 02/2010, they are the lowest in Brazilian reais in nominal terms, not in real terms corrected by inflation. So it's next result. And there is much more to come.
More important than that, there's much more to come given the several initiatives we are working on. In terms of events, we signed a very important agreement with our partners, Shell, Repsol, and DALP in order to integrate, the operation of the the routes one, two, three, the subsea gas pipelines that link the pre salt to the processing plants in the coast of states of Sao Paulo and Rio De Janeiro. This increased freight flexibility, increased productivity, and it is a source of large value creation as we can unlock this through the spin off of these assets into a new company and to IPO it, to unlock value. Other important event in the quarter was the relocation of the Itapu of the P71, platform to start operations in Itapu. Itapu field was acquired by Petrobras in 11/06/2019, in the auction for TOR of excess TOR, transferable rights.
And, we we anticipate its first oil in about a year. And Itapu is smaller than Buzos, of course, but is resilient at very low oil price, something below $20 per barrel. So it enhance our capacity to generate cash. Our financial numbers are very good. They reflect all these initiatives.
We had free cash flow reaching $16,400,000,000 in the first nine months of the year. And I'd like to highlight that 64% of the free cash flow was generating during what I call the pandemic quarters, the second and the third quarter, not the first quarter, not the pre COVID nineteen era. So it reflects all the efforts of close integration in our teams, the work of agile teams to deliver on a promise and the acceleration of the execution of the strategy. Our divestment program slowed to the COVID-nineteen crisis, of course. We delivered only $1,000,000,000 in the first nine months of the year, lower than we expected at the beginning of this year.
But we have it's our program is alive and well. We have 47 assets for sale in the market. We have some deals close to an end. We fail to relearn the refinery, Rimmer, another refinery leaky guys. It's waiting only for the approval by the antitrust authorities by CADE, Gaspetro, and several orders in the binding phase are a minority, only seven deals in the initial phase of the divestiture process.
So we can expect for the next few months, this quarter in the 2021, several deals being closed and improving capital allocation and generating cash to Petrobras. We made an amendment to our dividend policy. It's very simple. I believe that some people didn't understand this. This was, it was to clarify the fact that Petrobras can pay dividends even with accounting losses.
We are not driven by accounting results. We are driven by cash. Cash is key. During the month of April, cash was even bought. And so that's it.
And this is very clear in the Brazilian corporate law article 201, that allows companies to pay dividends even if they do not have accounting profits, given that, they have some accounting reserves, and we do have. But we are not declaring dividends. No decision was made about dividend payment. The only decision was taken before, the aftermath of the start of the crisis when you postponed the payment of the last tranche of the dividends of 2019 to December. They will be paid on December 15 year.
And, talking about dividends, I'd like to make a comment about some malicious, speculation, that Petrobras is changing the rules, to help its parent company, the Brazilian state. I would like to clarify this issue. I would like to show you that's a malicious comment and a false one without any fundament, any any logical fundament. First of all, the Brazilian state only owns only 36% of the total capital of Petrobras. It owns 50.5% of the Voltion shares, but in total, it owns only 36%.
Second, what's important for the government is the are the the the the the the tax paid by Petrobras and other players in the oil industry in Brazil. Last year, we paid to the government 246,000,000,000 reais in taxes and several taxes and, subscription bonus, to acquire the rights to explore and produce oil in, some fields, including Buzios and Itaquo. At the same time, we paid dividends of BRL 1,800,000,000.0, a tiny fraction of the the tax paid taxes and bonuses paid to the government, $2.46 against 1.8. This year, the first nine months of the year, given the low oil price and low auctions, we paid only 91,000,000,000 reais. And as I said, we are going to pay the last tranche of the 2,009 dividends to and the government will receive only 900,000,000 reais.
So it's again out of question. And not last but not least, our this quarter, our, limiting cost of the pre salt, as I said, was $2.30. And out of each barrel produced in the pre salt, the government receives $15 $15. $15. $1.05.
So it's it's ridiculous, to convey this malicious speculation. It's really, it makes no sense, to be not intelligent to break some rule, to pay more dividends to the government. And Petrobras has no interference. The management of Petrobras has no interference, from the government. We are free to design a strategy, to execute our strategy, to price our products without any intervention.
The the purpose of the the amendment to the dividend policy was to give more flexibility to the to the to the to the policy and, link it to cash flow, not we pay dividends, we pay salaries, we pay taxes, we pay debt, we distribute dividends, we invest with cash, not with accounting items. Well, I'd like to say that, we may have won a battle, a very important battle, because the challenges in late March and April this year were very serious, and we won. But we continued in the same path, accelerating our status execution, going ahead with digital transformation and cultural transformation, cutting costs, in all fronts. We have several initiatives, many initiatives to cut costs, to improve capital allocation, only through divestments, but also due to, the approval of projects. So we do expect the company in the future to be much better than it's now.
We are placing the seeds for a great company. Petrobras is stronger, agile, and able to be the best oil and gas company in the world in terms of value creation. Thank you for your attention. I will pass to Carlo Bueno now.
Speaker 0
Thank you, Roberto.
Speaker 2
Thank you, Roberto.
Speaker 0
So now to start the presentation, the financial highlights.
Speaker 2
Hello, everybody. Good morning. Very happy to be with you presenting the third quarter results. And it's a good start with the corporate governance evolution that we have been through. I'm very happy to announce that we launched the Guide to Actico Conduct for Petrobras suppliers that is totally in line and in compliance with the highest standards of integrity, social and environment responsibility and ethical conduct.
This is in line and reinforce our zero tolerance for fraud and corruption, and it is in line with the Downtown Sustainability Index, ICE for B3, between others. So we are very happy to announce that. Entering to the financial highlights in the next slide. I believe Roberto already mentioned that maybe this quarter, the most important items that we deliver was a very strong cash flow generation. And this was a consequence of strong recovery in not strong, but a recovery in price and higher sales volumes.
In the end, we had a free cash flow of $7,500,000,000 Another important highlight was the reduction of our gross debt by $11,600,000,000 And now we are better than the goal we had for the year that it was to finish the year at $87,000,000,000 We are at 80,000,000,000 right now. In addition to that, we closed the quarter with a solid cash position of $13,400,000,000 And as a result of our excellent operating performance, we announced in our production reports the revision of the production targets to 2,840,000 barrels equivalent a day. This week, and Robert already mentioned that, we approved a change in the dividend policy. And the main objective is really to give management more flexibility to propose payments according to the cash generation of the company even in years when where we won't have accounting profit. Important to note that we remain absolutely committed to the reduction of the gross debt, and we expect to reach the level of $60,000,000,000 in 2022.
We will do everything we can and more to get there. But with more flexibility, we will be able to propose dividends when there is a reduction of the net debt in the previous twelve month period if we understand the company had strong cash generation and it is financially sustainable. So it's really a change to bring more flexibility whenever we have retained earnings and something that is allowed by the law, dollars 6,404. As previously mentioned, we reduced our gross debt significantly this quarter to $79,600,000,000 and we were able to reach an average term of debt of eleven point one nine years with an average cost of 5.8%. And the leverage measured by the net debt to EBITDA reached 2.33x.
As we mentioned already, we had a strong cash generation. If we measure that through EBITDA, this means $6,900,000,000 and it was driven by higher Brent price that rose around 47% in the quarter, higher sales revenues, lower costs, partially offset by lower crack spreads in our oil products. Specifically in the business areas, Brent's price recovery reflected in the EBITDA and generated a positive effect on inventory turnover in refining. If we look at our cash flow generation back again, we had an operating cash flow of $8,600,000,000 which was helped by the use of tax credits arising from the accelerated depreciation on E and P assets. The use of ICMS and PISCOFINS started in October, so we will see that coming in the next quarters.
And we should expect to use those credits in the next twelve months. If we look at reduction of investments, we reached after the investments, we reached a free cash flow of $7,500,000,000 as we mentioned already. And we had a net financing and interest of spend of $13,300,000,000 that was what helped us get to a lower gross debt. As we mentioned earlier, we are back to liability management exercise, and we are very proud of a historic achievement in our last bond issuance, where we got the lowest level for a ten year bond in Petrobras history. Together with that, we did two trades where we repurchased more than $5,000,000,000 in bonds.
We continue our divestment strategy and launched more teasers in the quarter, and we are advancing the negotiations for the sale of refineries. So we had a very strong third quarter, and, we are very happy to be here presenting, and we will be very happy to answer all the questions you have. So I pass the word to Carla back again.
Speaker 0
Andrea, so now we'll start our Q and A session. The first question comes from Regis Cardoso with Credit Suisse, and it's for Herbert Lardengue. Can you comment on Petrobras initiatives concerning ESG, and in particular, the transition to a low carbon economy?
Speaker 3
Hello, Regis. Thank you for the question. Yes, we are very focused on ESG right now because this is the one area that we want not just to improve our process, but also to show to the market what we are doing. We are one of the companies that has the lowest emission per barrel that we are producing when we compare Petrobras with other companies. This is a benchmark we have in the market, and we want to continue to improve these objectives with a series of commitments.
We have already announced to the market, such as, to continue to lower our emissions, to lower our use of fresh water and other objectives that are including showing in our document that we have approved recently that is the climate change handbook. In this area of carbon emission, we want also to take a look on our own process and see how we can improve the quality and how we can lower the emissions when you consider, for instance, the refining or the production of oil and gas in our installations. For instance, the renewable diesel that we are establishing in the refining area is one of the initiatives that I could mention here as very important to this aim. But the SDG is not just environmental, it's also social and it's also governance. Andrea has already mentioned in the presentation that we have launched recently ethical conduct guidebook for our supply chain, in which we want to be very strict regarding any kind of corruption or and we have to fight this, very strongly.
In the governance area also, we are, launching a lot, other initiatives like, human rights, handbook in which we also are showing how our policies regarding this area is also being implemented in the company. And the least but not the last is the last but not the least is an area that we are also to continue to work is the environmental project. Petrobras has been working very strongly over the years in some flagship programs, like the Tamar program in which we have been able to protect sea turtles in Brazil, from the three, most injured pieces of sea turtle sea turtle in Brazil. We have been able to increase the population of two of them through the Tamar project that have been supported by Petrobras for more than forty years. We also are working in other projects like the one that we have here in the Guanabara Basin in Rio De Janeiro to work in the remote areas of the the bay and collecting trash and and and trying to improve the quality of the wetlands and the marshals areas that are located in these remote areas of the Guanabara Bay to improve the fishing area and to improve the quality of the fishing for the small village.
So it's a very broad program. For this reason, we have decided also to create a specific department in Petrobras just to deal with climate change. And we are going to pursue those objectives, but working, as a whole and seeing, maybe some, progress for, renewables in more long term, like like the offshore wind, hydrogen research that we have here in our facility, research facility in Rio, but also looking for our own process and see how we can improve also the process in terms of lowering the emissions. So those are the two areas that we are very concentrated now.
Speaker 0
Thank you, Andengi. The next question from Reg is for Andrea. Andrea, with Petrobras has been deleveraging incredibly fast, can you comment on what factors have allowed debt, efficiency, payable deferrals, CapEx running below budget?
Speaker 2
Okay. That's thank you, Jesus, for the question. That's a very important question. I believe deleveraging is a function and has been this year a function of cash flow generation. And, what we have been doing even to surpass this crisis, it was really, impressive actions that the company took, to generate more cash and to have, I would say, a better a more sustainable company.
So starting with cost reduction. So I think, Capo showed and has in his presentation the amazing evolution of lifting costs. So we presented in Petrobras Day lifting cost of $7.6 per barrel, and we are, this quarter, with $4.5 in the overall. Portfolio management of assets. We have been looking which are the assets that are not economic, and we stopped the production of those assets.
Concentrating on layers that are lower cost. So 70% of our production in the pre salt where we see the lifting cost of $2.3 per barrel is very important lever of cash generation. Personnel. So if we look at cost reduction, this year was an amazing year where we were able to implement lots of reductions in cost of personnel. We had a very important voluntary dismissal program where we got more than 10,000 people to decide to leave the company in the program.
This will generate it's not generating the full BRL4 billion, but it will, through time, generate BRL 4,000,000,000 reduction whenever everybody left the company. We had a change in our structure. So we reduced the number of managers in our structure, and that generates a cost reduction related to personnel as well. Investments. We did a we are doing.
So we finished. At least we are step by step, but we did a portfolio review of projects. So we did, for the year, a very important reduction of CapEx from $12,000,000,000 to $8,500,000,000 and $7,000,000,000 in cash. But we are looking at the portfolio of projects and see which ones are going to stay that have a breakeven below $35 per barrel. And that was the driver as well for even for the postponement of Parque De Valais.
And a very important, again, innovative thing we did with P-seventy one that is going to generate, again, value over the long run that it's going to somehow to bring more value, the acquisition of that and the how can I say, the other side, the anticipation production? So and that in line with that, we reduced the CapEx for the next five years from E and P to 40,000,000,000 to $50,000,000,000 We have lots of other strategies. So let's talk about buildings. If we talk about buildings, the cost reduction we are having because we had so many buildings available for people, and now we are streamlining the buildings and having only the ones that we need, for our people. And even for some that we cannot, leave the contract because it's a twenty year contract, we are at least cutting the maintenance expenses whenever we are shutting down the building.
Guarantees. We are streamlining all the cash we have for legal proceedings. So we have lots of cash deposits as guarantees in our legal proceeds. We are streamlining this process and really getting, for sure, a more trying to get as less as we can cash on those legal proceedings as guarantees. Tax credits.
So you saw this quarter, dollars 900,000,000 as tax credits impacting our cash flow generation. I would say there's lots. I can be speaking here half an hour or more about everything this company did through the crisis to surpass the crisis and to be more sustainable over time. I think that's why we are deleveraging so much.
Speaker 0
Thank you, Andrea. Our next question comes from Luiz Carvalho with UBS. So it's for you as well. Just a follow-up on the divestment process. What is preventing Petrobras to move forward with BRG Subredura share sale?
Is it only the right price of the asset?
Speaker 2
So thank you for the question. I what we did, we asked the Board of Directors to approve, the sale so as we have more flexibility to decide the timing. Sale The decision of a timing of asset sales that goes through capital markets definitely will be impacted by the window of opportunity. And you know this window of opportunity is linked to what is happening in the world and in Brazil. So the volatility of the markets will impact.
And another thing that we have to take into consideration definitely is the price. Petrobras has strong guidelines according to TCU. And whenever and we'll be always looking at our internal valuation compared to what is the price of the stock in the market to decide when is the right time of the sale. But it's a combination of price, and it's a combination of a very good window of time to execute a capital market transaction.
Speaker 0
Thank you, Andrea. The next question also from Luis is for Chiarini and also Andemizin. So on the fuel price policy, from company was a bit more active recently, but import seems close, to private players. At the current moment, are you comfortable with the refineries utilization rates and spreads?
Speaker 4
Well, thank you for your question, Luis. I would like to start by saying that we are following international prices, and imports are not close to to anyone. Distributors, trading companies are still operating, and it can be easily checked. Our commitment is to have competitive prices. So competitive importers will always have their market share.
As for the utilization rates of the refineries, it's also important to clarify that we don't see it as our goal, a target to be followed. It's a consequence, basically, a result of our sales and operations planning, which takes into account local and international demands, current and projected crack spreads of each product among other variables. So I can say that we are comfortable that given the conditions of the market currently, we are running our overall production systems, in a way that maximizes value for Petrobras. Crack spreads are very low nowadays, although, still generating positive margins in the refineries. Alize, why don't you comment further on that?
Speaker 5
Yes. As Andres said, we are monitoring the markets in a daily basis, adjusting our refineries' product profile to maximize economic results. The utilization rate is a consequence of this optimization. But I have to say that being the head of refining, I'm not comfortable at all with the crack spread margins of our oil products globally. The refining margins are at the lower level since two thousand year February.
This is a consequence of diesel inventories worldwide that are still very high and jet fuel demand that is still very low. But as you know, as Andres said, in Brazil, we consider an import parity price that takes into account not only the crack spread margins, but the exchange rates, shipping and internal logistic costs to establish the price of our products. And also, we are working very hard to reduce our refining costs. That's why we have been able to keep positive margins in our refinery part, even if internationally, it may not be the case. Thank you, Luis.
Speaker 0
Thank you, Karimi. Thank you, Anneliese. The next question comes from Pedro Medeiros, and it's for Andrea. So Andrea, considering the changes in dividend policy announced, how's the company considering to distribute dividends once it reaches the $60,000,000,000 gross debt target? Is it going to be on a quarterly basis?
Speaker 2
So thank you for the question. Nothing changed whenever we reached the $60,000,000,000 We whenever we reached the $60,000,000,000 we will pay the 60% of operating free cash flow operating cash flow minus CapEx. The if it is going to be quarterly or semiannually, we have flexibility to do that. Maybe we'll pay twice a year, but it's nothing that we can change that so we can pay twice or more so that there's no fixed rule around that. And the difference is only that when we have negative earnings that we will be able to pay only when we have retained earnings and whenever we have a reduction of the net debt.
I think that's the change.
Speaker 0
So the second question also from Pedro Medeiros with Citi is for Roberto. So Roberto, can you rank all the major initiatives under implementation for the coming twelve months that can generate most gain for shareholders?
Speaker 1
Thank you for your question, Pedro. There is a it's a long list of initiatives in terms of cutting costs, in terms of gaining more efficiency that will come on stream the next few months and others were already implemented, but the the the the the major part of the results will be shown only in 2021. One of them is the voluntary dismissal program. It's a program that has a pay, payback of twelve months. So it's for the future.
The the the returns will come in a large part just 2020 and 2022. Several of the measures have been taken. I believe that Andrea mentioned several of them is initiative to improve inventory management, to optimize it, to liberate working capital, to cut personal costs, to to to use, digital transformation to gain more efficiency across the board, not only in operational activities, but also in corporate activities, safety, environment. So it it's impossible to list all the measures that we have, on progress, and some of them we are planning to to implement. You are going to see the results.
Andrea mentioned about the buildings. In by the 2018, Petrobras occupied 23 administrative buildings. We started this year with 17 buildings. For the in the at the end of the first quarter next year, we have only eight buildings. We already free three buildings by the September, early October, and this is a trend.
At the same time, we are selling fifth 550, buildings across the country. Petrobras is also a real estate company. I can say that Petrobras had 50,000 tons of scrap in storage. Now we are also in the scrap business. So there's a large room yet to reduce costs to become more efficient As, in terms of growth, as we demand that we we, eight platforms coming streamed from, 2018 till this year.
Till 02/2025, we will have more 12 platforms coming on the street. This is more oil and oil at much lower cost, resilient to low price. We have the innovation projects focused on exploration, production of oil and gas to reduce the breakeven price and to allow us to exploit more successfully areas of the pre salt with higher concentration of CO2, making, operating costs, both CapEx and operating costs much lower than they are now. So there's there's a widespread effort on the same direction become a low cost and much more efficient producer.
Speaker 0
The next question comes from Bruno Montanari with Morgan Stanley. So it's for Andrea. Andrea, Petrobras faced the perfect storm in its free cash flow generation, leading to a very strong figure. Working capital account seems very benign, while CapEx very low in the quarter. What can we expect for working capital and CapEx into the 2020?
Should there be a strong reversal of working capital and sharp increase in CapEx, assuming that COVID related restriction seems to have been eased?
Speaker 2
Thank you for the question. So regarding investments or CapEx, we executed up to now $5,400,000,000 out of the $7,000,000,000 So I don't expect in the I expect in the fourth quarter that we complete the $7,000,000,000 cash for the year. That's what we expect. And if we need to stay where it's going to be focused, I believe it will be Babygou, Buzios, Can, Atapu and Sepe, the places where, we will have that CapEx being applied. Regarding the working capital for the fourth quarter, we have been reducing a lot.
I think we are in the best quarter since 2019 the inventory. So I believe the logistics team has been doing a great amount of job, a great job of reducing inventories, and we have been reducing a lot. In terms of accounts receivable, it will depend on the fourth quarter if we have more sales in the local markets or exports. So this quarter, we had lots of we had the demand was up, and we were able to have more sales done in the local market. And you know those get to revenues faster.
Whenever we are exporting, then it gets forty five days so as we get it to revenue. So it will depend on the mix. But I believe if everything keeps the same, we won't have any, negative impact. We might expect to see the same trend, we saw in the third quarter in working capital. So if we look at inventories and accounts receivables or revenues, I would say that, that will be the case.
I don't know if Ujimao wants to say anything else about CapEx.
Speaker 1
Andre, I think you are very complete. Thank you. Thanks.
Speaker 0
Thank you. So the second question also from Bruno Montanari with Morgan Stanley is for Capo, regarding the production platforms that were most volatile during the crisis, is the idea to keep them agronated indefinitely or until some of those assets are sold? This would contribute to keep the lifting cost at low levels. Is that a fair assumption?
Speaker 6
Well, hello, Bruno. Well, what I what I can say about that is so far, there is not an economic reason to reopen those fields and to put on string again the platforms. And particularly in this current scenario of oil prices where we see that they are very low and where we also see that there is a lot of volatility. There is a it's important, that we see that there are a lot of reasons that contributed for the total reduction of 43% that we saw on the lifting cost and the optimization of cost, increase of the production. For sure, the mothballing of those platforms, they have contributed with something, but it was just a small amount of the 43% of the total reduction that we had.
I could say that it's something like 5% of this 43% is due to this molten balling effect. Okay. I hope I have answered your question.
Speaker 0
You, Pablo. The next question comes from Andrea Chen with Itau BBA. When you look into Petrobras' current roster of new platforms in the current capacity of pipelines, the routes, it seems that the bulk of the new projects will continue to use gas injection. Is there any outlook considering the units planned for the coming years? So the idea is to increase the capacity using these new projects of the offloading pipelines and thus monetizing the gas.
So first, I think it's Capo and then Anidisi. Right?
Speaker 5
Okay. I've started
Speaker 6
them. Well, for the time being, our installed capacity for the platforms that produced from the presalt today comprise the Jota Hou and Jota Doest. And the next route, the hot trace, it will be available by 2022. So we think that this structure is sufficient to accumulate the projects that we have in the horizon of our strategic plan, but it's something that we have to continually be evaluating as we also have some exploratory activity and also the development of other fields that they are more gas prone. So but I'd like to pass the word to Annalise, and I think that she can complement us with some more aspects about this subject.
Speaker 5
Thank you. As Trapu said, considering the current projects under development, we don't foresee the necessity of a new gas route. But if you take into account the new projects that have already an exploratory success in pre salt area, like Block BMC-thirty 3, Sugarloaf, we foresee the necessity of a new gas route. This block is operated by Equinor, having Petrobras and Repsol as partners. Also, the signing of the integration of gas routes and processing gas plants, we think that this is also an important step for monetization of assets, which are currently being studied by our team.
Thank you.
Speaker 1
Anelios, let me complement a little bit about Route 3. Yes. We have we have we still have a good expectation for starting up Route 3 at the end of this '21. Okay? '2 2021.
Thank you.
Speaker 0
Thank you, Anunise. Thank you, So Andre also has another question, and this one is for So while the details of the new business plans are yet to be released, could you comment on your expectations for the Campos Basin recovery? While we understand there are a lot of promising opportunities there, amidst capital restrictions, it does seem less interesting than the Santos Basin. In this regard, could you expect more divestments in this region?
Speaker 6
Andre, well, the projects that we see for the in our plan or that we have in our plan for the renovation of Campos Basin, they are very resilient to low, to low oil price. So therefore, Campos Basin remains for sure one important target for us, one important part in our exploration production portfolio. Campus Basin is very well aligned with our strategy between investing world class assets that are located in deep and ultra deepwater due to the fact that the projects are very resilient. They can be viable under oil price of the 35 target that we have established inside the company. So we continue to pursue the same goal that we had on the strategic plan of the 2020, 2024, which is to produce in 2024 a similar volume that we have produced in the 2019.
We are going to show more details about this when we disclose the strategic plan 2021 to 2025, but I can anticipate that we are still keeping the path to put investments on this basin and where we see a lot of potential. Yeah. Okay. Thank you. I don't know if I have answered your question.
Thank you very much.
Speaker 0
Thank you, Capo. The next question comes from Christian Alge. He just sent some questions. So it's for Roberto. Roberto, you have a solid liquid position.
Thus, there is no urgency to sell assets. That said, how do you balance this with the fact that you want to divest assets to help in the deleveraging process?
Speaker 1
Thank you for your question, Christian. First of all first of all sorry. First of all, divestments are not driven by liquidity, by the the the surge of liquidity. A comp the company has a solid liquid liquid position. There is no need for by this reason, there is no need to sell assets.
No need to to have urgency in selling assets. But asset sales, asset divestment is guided by strategic rules. First of all, as we have declared many times, our focus is on assets in which we are the national owners, assets in which we can extract the maximum return. So we are passionate for world class assets, in order to increase return of capital employed in the future above our cost of capital and generate positive EVA to our shareholders, delivering value to our shareholders. This is one important reason for divestitures.
Second is to deleverage. Although we have paid in the last twenty one months $31,500,000,000 of debt, we are still overleveraged. Net debt to EBITDA, as shown by Andrea, is 2.3 times. We need to deleverage the company to de risk its balance sheet to reduce our, our expense with interest, to free cash to invest in our world class assets. We ended the quarter with a gross debt of $79,600,000,000 So we are still well above our target of $60,000,000,000 $19,600,000,000 of debt we should eliminate.
And, in the case of refineries, there is a third factor, the risk the company. Because Petrobras, the only player in the Brazilian refining market with 98% of capacity, of its total capacity, it will it will always be exposed to the risk of government intervention. If you are the the only player, although it hasn't been true, we are over the the last at least the the last couple of years, you are seen as the monopolies. And then when price, full price rise, there are political pressures to government intervention in the full price, as we have seen in the past several times, although the Brazilian law established that, full price are free. This is was set by law since 02/2002.
In a market, there are several players. We understand the risk this risk will minimize them. And regarding our refineries, we have plans to improve the efficiency of our refineries, reduce costs. One major focus is energy efficiency as it reached dual goals. One is to reduce costs, and second, to reduce greenhouse gas gases emission.
It's one of our goals as in our ESG agenda. Thank you.
Speaker 0
Thank you, Roberto. Christian Audi also has another question for you. So the question is about brassing. Brassing continues to improve on several fronts, which is positive for the potential sale of your stake. What else do you think is important to take place to accelerate this divestiture?
Speaker 1
JOSE It's a good question. Another good question, Christian. Braskem has improved, but it has improved it has to improve much more, in terms of solving all the environmental liabilities and to improve significantly the governments. We have discussions with the controlling shareholder, that's other branch, in order to reach an agreement that will allow us to list Braskem shares in the Novo Mercado in order to increase the to improve significant devaluation of the company to be able to sell our stake. We don't want we have no intention to continue as a minority shareholder in a petrochemical company.
We would like to sell our stake in order to use cash to invest world class assets to reduce debt and to pay dividends to our shareholders, to submit this to the capital management process.
Speaker 0
Roberto, the next question is from Bruno Marin with Goldman Sachs and it's for Andrea. Andrea, what's the sustainable level of cash under normal circumstance? And so how much more debt can be paid only by using current cash balance as opposed to asset sale or free cash flow generation?
Speaker 2
Okay. Thank you for the question. I believe before the crisis, we were trying to reach the level of $6,000,000,000 $5,500,000,000 to $6,000,000,000 That is still the case. That is still the operational minimum cash that the company can, how can I say, can And, but we still believe we need some? We need to see how the crisis is going to be.
From now on, we are seeing the second wave in some countries. So we believe we will still need to keep maybe a higher cash while we see higher volatility and then go back to the $6,000,000,000 So if you look at our cash balance right now, it's around $13.4 But you have to take into account that we and it's important to mention that we have back our insurance that is our committed bank facility. So we have back the $17,600,000,000 of committed bank facilities. So after volatility is gone, we can work with the cash of $6,000,000,000 But we still don't know when it's going to be the case.
Speaker 0
Thank you, Andrea. There's one more question for you as well. So could you please update us on the asset sale program? What's the status of the sale of the refineries, your stake on BRG C. Bordeaux and also on the assets related to gas.
Speaker 2
Okay. So I believe Roberto already gave an update on refineries. So we are negotiating with a buyer for Hema. HEMA, we are analyzing the proposals received. In HIPAA, we might receive proposals in the end of the year.
TBG, that is the one related to gas, is one that we are waiting A and P to define new tariffs. So we are waiting some the regulator to do their part so as we can go on. At Gazpetro, we received proposals, and we are, right now, evaluating the proposals. We talked already today about the offshore gas pipelines that we are discussing with the other players if we are going to go for a new entity, as Roberto mentioned, so put all the those pipelines into a company and then do an IPO where we can get the future investments into this company. So that's one option.
But we are still discussing this option or an M and A option with the other partners. So it's still under, discussion to come. I believe those are the most important ones to update you all. I believe so.
Speaker 0
Thank you, Andrea. The next question comes from Thiago Duarte with BTG Pactual. So it's for Capo. Capo, it's interesting to see that 60% of the year on year lifting cost reduction is explained by factors that are under company's control, such as efficiency gains, for example. Considering the prospects for increased production in pre salt areas, how much would the company say it's still possible to deliver on cost reduction in the next year?
Speaker 6
Well, we have made an important effort, in order to reduce costs. And part of the cost reduction is due to the reduction cost the reduction is also in activities that we have. So the COVID is something that was typical and impacts on cost and production for sure. We've made a lot of effort. But our goal is to continue to work with low cost and to continue to proceed to suit cost reduction.
And as I mentioned, for the next quarter, we expect to have an increase on the lifting costs as we will have some reduction on the production due to the stoppage that we have postponed from the beginning to the end of this year. But for the years to come, we and particularly for 2021, as I also mentioned, the intention is to continue to pursue a reduction in cost and to keep the same perspective, same good performance that we have seen in the 2020. But for the years to come, we will show our guidance when we open our strategic plan.
Speaker 0
And we have time for one last question. And the last question comes from Liana Young from HSBC, and it's for Roberto. Roberto, can you please comment on the rationale of changing the dividend policy to allow management to pay a dividend even when reporting accounting losses? This goes against the prior message of leverage first, dividend later, variable compensation even later. Is this change to cater for a larger shareholder base, namely the retail investors or to allow your cash strapped parents to get some extra funds?
Speaker 1
Liliana, I do believe that this question was already addressed by Andrea and myself, particularly on the on the malicious speculate speculation on the net team, our cash strapped parent company that owns 36% of our total capital is totally false. I have given numbers, to that. I have given arguments. There's no reason for that. It's a drop in the ocean, dividends paid by Petrobras, a drop in the ocean, against the total taxes paid by Petrobras.
I'll repeat this. In 2019, we delivered to the government 246,000,000,000 reais in taxes and subscription bonus and only 1,800,000,000 in dividends. This year, till September 30, we paid 91,000,000,000 reais in taxes. In December, as part of the as part of the last tranche of the dividend payment referred to 2019, we are going to pay BRL900 million to the government. Look, 246 against 1.8, 91 against point nine.
And out of, we our lifting cost at the pre salt in this quarter was $2.30 per barrel. Each barrel of oil paid 15 US dollars to the Brazilian government. So this makes no sense. Please, you are a serious analyst. This is total totally out of question.
As managers of the company, we are committed to deliver value to shareholders. We are not going to put our credibility at risk with such irresponsible decision, neither ourselves nor the our board of directors. And the the the the capital management remains the same. We have to allocate funds to finance our investments in world class assets or to to provide funds for sustaining capital to pay back the debt. We have been doing debt, and we are laser focused on reducing debt and leverage.
There's no doubt about that. You are going to see in the future. And third, to distribute dividends to our shareholders. It's normal. We didn't break any rule.
We didn't, make any movement, strange movement. We have accounting profits. We are not driven by accounting. We are driven by cash. We have examples of peers that in 02/2015, 02/2016, even, revving accounting losses, they distribute the dividends to shareholders.
We are not an innovator. The and it's legal. It's provided by, again, the article two zero one of our corporate law. That's it. So nothing changed.
We took this step only to clarify a situation that was not clear, as Petrobras said in the past that it will not pay dividends if it if it had accounting loss. At that time, Petrobras has a very weak cash flow, and we put a condition. Petrobras may distribute dividends even with accounting loss if net debt has been reduced over the last twelve months. That's it. That's it.
No change. Please, management remains the same. Just as Andrea highlighted to give more flexibility to our policy. That's it.
Speaker 0
Thank you, Roberto. So at this time, the Q and A session is over. If you have any further questions, you can send to our Investor Relations team. So now Roberto will make his final remarks. Please, Roberto.
Speaker 1
I'd like to thank you for, participating in this video conference. I take the opportunity to invite you for the Analyst and Investors tool twenty twenty twenty twenty this year. Of course, on November 12, this will be a virtual tour that's being allowed by our progress in digital transformation that is and to be very important for Petrobras becoming a better company. We the fundamentals remain the same. Our strategy remain the same.
It it's intact. It remains intact. And, we are day by day pursuing our purpose, which is to become the best oil and gas company in the world, in value creation. Thank you, and, stay healthy and safe. Bye.
Take care.