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Good morning, ladies and gentlemen, welcome to Petrobras webcast with analysts and investors about the first quarter of 2020. [Operator Instructions] Today with us Roberto da Cunha Castello Branco, Petrobras' CEO; Andrea Almeida, Chief Financial and Investor Relations Officer; and Anelise Quintao Lara, Chief Refining and Natural Gas Officer; André Barreto Chiarini, Chief Logistics Officer; Carlos Alberto Pereira de Rivera, Chief Exploration and Production Officer; Nicolás Simone, Chief Digital Transformation and Innovation Officer; Roberto Ardenghy, Chief Institutional Relations Officer; Rudimar Lorenzatto, Chief Production Development Officer; as well as other company's executives. The presentation will be available on our website. And now we will start with Petrobras' CEO, Roberto. Please, you can begin.
Thank you, Carla. It's a pleasure to be here with you for -- to exchange some ideas and to disclose some information about our company. The world is dealing with twin shocks. On the one hand, we have the worst public health crisis since the Spanish flu 100 years ago and a very severe recession, very severe and synchronized recession. All lives and livelihoods are at risk. At Petrobras, our #1 priority is health, health of our employees and health of our company. To deal with the health threats, we launched several measures to protect our employees, including a massive testing. Up to today, we have tested 22.5% of all employees and using home offices, reducing personnel operations at a level -- an average level of 50% of the total labor force at operations. In order to deal with the threats to our health, we are preserving our liquidity, have withdrawn revolving credit facilities and increased our total cash holdings up to USD 15.7 billion. We cut capital expenses by almost 30%, USD 3.5 billion and are pursuing a minimum reduction of our operating costs of USD 2 billion. We are developing several initiatives to do that. We organized under a liquidity committee that interacts with all operational areas of the company. They are the sentinels of our resilience and recovery. Because we are not dealing with not only the short term, but accelerating the execution of the strategy that was put in place back in January 2019, in order to emerge from this severe crisis as a stronger company and able to generate a lot of value to shareholders. I said that we are executing several deep cuts in capital expenditures and operating costs. But we are doing this given the preservation of the safety of the company and our commitment to sustainability. Petrobras is executing its good corporate citizenship of helping the Brazilian society to cope with the threats arising from the COVID-19 virus. We have donated PCR tests, 3 million liters of fuels and several other medical and materials to public hospitals. We are helping with our scientists and our high-power computers to develop research to -- related to the COVID-19 problem. As I said, [ the status ] execution has been accelerated. Our commitment to maximize value through the increase in return of capital employed and reduction of cost of capital remains in place. We are proceeding a full review of our product portfolio. The competition for capital was enhanced in order to have a stronger capital discipline in a scenario of lower price of oil as we are seeing in the future. We believe that the recovery will be slow and the price will converge to a plateau of $50 per barrel in the future. So we have to enhance the capital discipline to allocate capital on the most efficient way. Results will be shown later. Our divestment program remains intact, business as usual. Of course, we may have some delays in the execution, but the main block of assets, the refineries, the process is going ahead with some delay, of course, but we do expect that by year-end, we have signed sales and purchase agreements with several players. Different from 2008 when we had a global financial crisis, now we have a global economic crisis. The central banks reacted very fast to inject liquidity in the markets. So liquidity is not a problem, which facilitates the divestiture program. Well, having said that, I would say that we are confident that with the help of our professionals, highly committed with the company when the -- and high-skilled people, combined with our world-class assets, we'll survive through this crisis and after that we'll be even stronger than we are now. We are very fastly learning the lessons offered by the crisis, and this will be applied for sure the benefit of lower costs and higher efficiency and productivity. Now I pass to Carla to manage the conference.
Thank you, Roberto. Now we'll begin our Q&A section. The first question comes from Frank McGann with Bank of America Merrill Lynch. "In refinery, are there any issues with the mixed products being produced with demand in some remaining strong and for others, weak? How do you adjust the production's rate?" And the second question is what the current expectation for crude oil output over the next few months and the remainder of the year. Anelise, would you like to start? And then Capo?
Yes. Yes. Thank you, Frank, for the question. You're right. We have to -- we had some issues with the mix of products being produced in our refineries in order to meet the difference in the demand. That's why we did some adjustments in the operational side of the refineries in order to deal with these issues. Let me give you an example. For instance, in the FCC unit, we can adjust for certain percentage of production between gasoline and LPG. In these last weeks, we had an increase in LPG demand and a decrease in gasoline. So we adjust FCC units in all of refineries in order to meet this demand. Another example concerns diesel and fuel with low-sulfur content. And sometimes, we can reduce the production of diesel and increase the production of bunker low-sulfur oil. This is not an easy task to do, but we can manage some -- in the processing of the refineries in order to use different catalysts and other things in terms of temperature, pressure that we can deal with this difference in the mix of projects during this crisis, okay?
Hello, Frank. Regarding the expectation for crude oil output for this year and also for the next month, what we have been seeing is that the production for April that we have already realized, it's still in the same level of the first quarter, a little bit less than that because of the effects of the COVID-19 and also the effects of the reduction on the demand for oil. But the fact is that we have been having a very good operational efficiency, and we have to consider that now we have reduced production due to the fact that we have the mothballing of the shallow water platforms and also we can have some effects regarding the people that we have onboard and so that sometimes we have to reduce the efficiency of the platforms. But the fact is that we are still maintaining the same goal, the same target that we have for the year, the 2.7 million barrels of oil equivalent per day plus or minus 2.5%. So the current scenario is, we have a lot of uncertainties. It's difficult to forecast what's going to happen. But if we have the same pattern and we have the same efficiency that we have been having so far, we still are keeping the same goal for the year.
Thank you. Our next question comes from Rodolfo Angele from JPMorgan. "Regarding storage, one of the key concerns in the sector is related to the available spare capacity companies have. How is Petrobras current spare capacity? The second question is regarding Chinese [indiscernible] cover and relevant export markets. We've been seeing some high-frequency data pointing to recovery, fuel demand there with utilization rates for depot refiners also increasing, how did that reflected on Chinese demand for your crude? Chiarini, would you like to start?
Yes. Thank you, Carla. I'll start, and then I'll pass to Anelise to complement. So Rodolfo, thanks for your question. I will start by exploring our overall storage capacity. In addition to available storage on our FPSOs, the storage on vessels performing our offloading operations, those are -- which are in transit. And then I'm not talking about any vessels hired by us to -- just for floating storage. And also considering relevant storage capacity in our refineries. We also have various terminals of our subsidiary Transpetro covering the whole country, totaling a very relevant storage capacity of crude oil. The nominal capacity of crude oil in our system is over 15 million cubic meters. Also for storage capacity of fuel, we're talking about 4.7 million cubic meters. Currently, inventory levels of both oil and fuels are under control, and we have enough spare capacity. Over the recent weeks, we have managed to reduce inventory levels of gasoline, which are currently within the range considered ideal for us. With regards to crude oil inventories, we are operating within the ideal range, and we are also monitoring both the adequate load of refineries and also the export volumes to operate at the lower level of such ideal range by the end of June. We have recently revised down what historically were our ideal levels of crude oil inventories so that we can generate even more cash during this crisis. We are pretty confident that if necessary, we will have the logistics boarding capacity to set even higher records in crude oil exports, at least 10% increase over the 1 million barrels per day record set in April. Our commercial team has been developing a long-term relationship with Shandong refiners in China, where our oil has strong demand even during the crisis because crude oils from Lula, Iracema, Sapinhoá and Buzios fields have the same overall characteristics of specific Chinese oils such as Shengli, [ KENCO, Kenli 3-2 ] that are experiencing decline in production. As we are starting to see a slow recovery in our domestic market and as we have been able to adjust the fleet and product mix of our refineries to increase production of diesel, fuel oil and bunker oil, we are most probably going to have increased export volumes of those higher value-added products, thus reducing oil exports, not due to demand constraints nor logistics constraints but to generate higher margins. Having said that, we are not foreseeing oil production costs -- cuts due to demand constraints in the short term, and we are not facing any problems related to storage capacity in the near term. I'll pass to Anelise to follow on.
Just a quick remark on what Andre said is that we don't see any issue regarding the demand of our crude oil, especially in China nowadays. I mean, if you have more oil to export, we will be able to find a market for that. The main issue is the economics. Of course, we prefer to process this oil here in Brazil and to sell in our domestic market because of the higher margins. But what we see now is that the demand of fuel in China is ramping up very fast. And they are eager to buy more oil from us.
Thank you, Anelise. Thank you, Chiarini. The next question comes from Bruno Montanari with Morgan Stanley. "As we are now some 2 months into the crisis, can you comment on key lessons learned and how those might contribute to Petrobras emerging from this situation even stronger? Has the crisis somehow accelerated any measures that were considering to be implemented to make the company more efficient?" And the second question, "As the company materially increase exports in an oversupply oil market with higher transportation costs, how does the netback of exports compare with the netbacks of sales on the domestic markets for refineries?" Roberto, would you like to start?
Yes. I'll respond to the first question. Thank you, Bruno, for the question. Well, first of all, we learned the most obvious lessons. We will be able in the future to reduce travel expense. No need for many travels. Home office is being very successful. We have adapted very well to home office. So in the post COVID-19 period, we see that very feasible to work with 50% of our personnel in corporate activities in home office. That will save costs. We'll be able to leave several buildings. And this will provide us with significant savings. We learned also that home office has been very productive. We have a very -- worked very extensively with home office. We -- and other lessons learned -- already learned during the crisis is that teamwork is -- was reinforced with an integration of corporate and business areas, it's been great. So several ideas has been raised to cut costs to increase efficiency. This integration has been highly productive to us. This is the lesson learned. Another lesson was shown in the increase of exports in the month of, particularly in April, where we reached an all-time high level of exports to -- exports of oil, crude oil. This was feasible due to the stronger integration between logistics and marketing. And we are acquiring much more flexibility. We're dealing with the domestic market and international markets. This includes not only logistics and marketing, but refining and oil production. The integration of this added much more efficiency, and we're able to discover new horizons in our ability to market and sell oil and fuels. This is a short list at the moment, but I do believe that it's to be highly -- it has a high potential to contribute to value generation over time. So every crisis has 2 sides, a negative one and positive one. We think that we are enjoying the good lessons and extracting significant benefits from the positive side of the crisis. I will pass now to...
It's me, Roberto.
To Anelise. Sorry, I forgot the question.
Yes. Bruno, just a quick comment on your question about the netback of export compared with the netbacks of sales to our domestic refineries. Of course, the netback of our domestic sales are higher than the netback of our export. But it has been like that since 2016 when Petrobras has a strategy to have this parity -- import parity prices for gasoline and diesel. It's an important pillar of our strategy to keep our company healthy. And keeping that, having an important parity prices for our products in Brazil, we have a better netback for netback prices -- margins. This is also done even in this crisis when the import parity prices decreased and some people, they didn't believe that we will follow this reduction in price. But we did. In the first quarter, you see a reduction in gasoline and in diesel in Brazil, around 50%. Not all this price went to the -- our vendors or to our gasoline offices but from Petrobras refineries. We achieved a great reduction both in gasoline and diesel following the tightened parity prices.
Thank you, Roberto. Thank you, Anelise. The next question comes from Luiz Carvalho regarding our pricing policy. "So oil dropped almost 70% in the low, and Petrobras was able to pass through refineries close to 50%. However, pump prices dropped only 10%. In addition, foreign exchange rates depreciated significantly recently. The question is how much of a challenge will be to follow oil prices rebound and foreign exchange valuation?"
Well, Luiz, this is a frequent question. One of the most frequently asked questions. And the experience is telling investors and analysts that we are following international price. We have no problem in following them. Of course, during a period, we are an oil producer. We are not an oil trading company. If you follow international price at every moment, we have to put someone in front of a Bloomberg screen adjusting price instantly. There's no purpose in doing that. We -- our pricing policy is to adjust to international price after the observation of the trends. It's much more than just having a clock to adjust every minute. And during the severe drop in fuel price, we are not driven -- just an explanation, we are not driven only by oil price or driven by fuel price because they carry a crack spread, maybe highly positive; some cases, they may be negative. So in a downward trend, we tend to have price higher than the international price during some days. In an upward trend is the contrary. We tend to have our price lower than international price during some days. But we follow them. We see an upward trend in gasoline price taking place since April 22. And we made -- we have made 2 price increase, 1 of 12%, another 1 of 10%. If needed, if we think that's needed another price increase, of course, we will go ahead. There are no problem at all. Carla, please?
Thank you, Roberto. Our next question comes from Pedro Medeiros with Citi. "Can you give more color on cost and expenses savings expectations throughout 2020?" That's the first question. Andrea, please? And then "Petrobras has been successfully narrowing the selling discount of oil exports relatively to the brand in the last quarters. Can you discuss how does the selling spread of Brazil oil exports behave relatively to the brand throughout the second quarter?"
Pedro, thanks for the question. We announced the additional $2 billion reduction in operating expenses. And definitely, this is not everything that we are doing, but this is what we up to now are able to announce. In that number, definitely, there are included many items. I think the mothballing of the drilling rigs, the -- the postponement of -- the negotiation in contracts that we are postponing some payments. We started this discussion first in the postponement of payments. And now we are going to get back to the table and even connect it to the review of the portfolio. We will be able to renegotiate with a big -- again, always important to mention. We are going to focus on the big suppliers. But after the review of the overall portfolio, we might find other and additional cost reductions related to some of our contracts. We continue to find -- to try to find cost [indiscernible] that we have been talking about, the adjustments of our health system. We are talking about adjustments to our overall structure to reduce costs related to personnel. We will be doing additional items. But up to now, we have the overall embedded into that additional $2 billion that we announced.
Concerning the second question, Pedro, our -- you're right. We are selling our oil relative to Brent in a good margin in the next quarters. But this margin has been reduced in the first quarter. It was lower than in the last quarter of 2019 because of the volatility of the oil price in the market, it affects also the premium of our oil. And the surplus of oil in the market also is an issue. So if you -- in my opinion, the second quarter, you'll see the same behavior. High volatility of oil prices impacting our margins in terms of oil but still keeping a positive margin especially because of the quality of our oil, okay?
Just a little remark from what Andrea said, is that our -- the CapEx cuts that we announced for 2020 will not affect the startup of the production system in the short-term production. Just to emphasize that.
Thank you. We just received a question. This time it's from Christian Audi with Santander. "You had originally planned to reduce production by 200,000 barrels a day. But given rise in export demand, should we understand that the original 200,000 cuts will no longer be needed?" Chiarini, would you like to start? We also have another question from Christian Audi to Andrea. "Could you please comment on the hedge accounting for the exports contracted for April to December? What level of exports are already contracted for these periods and what products are involved?"
Okay. Thank you, Carla. Yes, we do not expect to have further cuts due to demand constraints in the production of oil. We are experiencing a very volatile and complex market dynamics these days. So our team is continuously monitoring and reassessing production levels, domestic sales in order to define our, let's say, export targets. That can vary over time, but we are not foreseeing, as I said before, oil production cuts due to demand constraints in the short term. Andrea?
Okay. Talking about the hedge accounting, I think it's important. We had an impact on the results as well, together with the impairment related to the hedge account. So what happened to explain in small words. We do have a hedge accounting considering the future exports that we have or the exports we have for the future being hedged to our debt in U.S. dollars. Whenever we have a deep reduction in the price like we have right now, what is going to happen? The forecast of the value of our exports for the future, they are going to be reduced. So we will have less exports in value to be protecting the debt in U.S. dollars. That's exactly what happened. So it's what is -- and what we use to forecast the exports is definitely we have to prove or we have to use the past experience to show that we will have volumes and the price we have to adjust together with the price that we adjusted for the overall portfolio. We expect the exports to continue to be the way we have seen. Again, China has been an important, I would say, place. After we see the China going back, we saw higher exports as we release to the market. And we expect to continue to have that, but we don't force forecast. It's not just these that we are forecasting for the hedge account. We have to prove looking to the past.
Thank you. Our next question comes from Andre Hachem with Itaú. "So in the last crisis, Petrobras took the opportunity to review several contracts. However, when looking at the current status of suppliers in the industry today, as an example, the rig services, many of them have not yet recovered from last crisis. In this regard, is there still room for further contract revision? Is there anything that can be done in regards to FPSO leases?" Rudimar, would you like to start?
Yes. Andre, Petrobras procurement area with the technical areas are, at the moment, under negotiation or already in negotiation with the supplier. And we already made progress in some areas. So far, we have made renegotiations, movement aimed to adjust the cash flow for 2020. And we are now planning a new wave for negotiation to adapt the current contracts to the new market reality. Rigs and leased FPSOs are strategic services, and we are still studying the detail to define some new objectives and negotiation strategies.
Our next question comes from Bruno Amorim with Goldman Sachs. "What's the current level of utilization of Petrobras storage facility, both oil and fuels? Is utilization still going up or it started to fall given the recent pickup in demands and oil prices?" And there's also a second question. "Given the strong depreciation of the BRL, can you please remind us the impact of a 10% depreciation of BRL on your upstream EBITDA per barrel in the U.S. terms, all else equal?" So maybe Chiarini, would you like to start about the storage capacity?
As I mentioned before, inventory levels of both oil and fuels are under control. And as we have enough spare space and we have been adjusting the production and also adjusting the feed of the refineries to adequately meet the demands of the internal market and exports, we don't see any problems regarding storage in the near term. In fact, the inventory levels are going down. Gasoline inventory levels have been going down over the last weeks. And also, oil inventory levels are also going down especially by the end of June. But they are perfectly under control. And there's no concerns about that at the moment.
Okay. Following up with the question of the impact of real-dollar in our EBITDA. I have the number for the [indiscernible]. And after the adjustment we made, we have, for instance, a change in real-dollar. We have around $200 million impact -- positive impact on EBITDA. So we see that the further depreciation of the real that we observed in the -- right now, actually, it's going to further increase or improve our results in Petrobras.
Thank you, Chiarini. Thank you, Andrea. The next question comes from Lilyanna Yang with HSBC. "So please give us some color on demand for fuels, gasoline, diesel in April and May? Is demand in Brazil recovering fast? Any estimates for the second quarter, third quarter and fourth quarter in terms of demand?" Please, Anelise, go ahead.
Lilyanna, in terms of demand for fuels, what we are seeing so far is that we had a huge impact in the first weeks of April that we got a reduction on diesel, around 50%; in gasoline, 65%; in jet fuel, 90% -- and even during April and now in May, we are seeing a recovery, especially in gasoline but also diesel is getting better. So -- and other products also. Our main concern is jet fuel. We don't believe that jet fuel could be recoverable soon because of the international flights and all over the world. It's not only in Brazil. This will affect probably the demand of jet fuel the whole year. But diesel, gasoline, bunk and naphtha and other oil products, we are seeing almost a complete recovery in the third and fourth quarter. Okay?
Okay. Thank you. Our next question comes from Vicente Falanga with Bradesco. "How are the conversations with local groups about the sale of refinery going. With the exchange rate at 6, does this impact the transactions?" Anelise, would you like to start?
Well, we are talking with different players that are interested in our refineries. It's not through -- it's not only local players but also international ones. As I said, we see that the interest keeps -- is continuing. So we don't see any of the players saying that they will give up. It's a good sign. And what we see is that we had to postpone the binding offers because of the crisis. And we hope that by the third or fourth quarter of this year, we could have the binding offers already presented so we can go on with the negotiation with the first player and sign the contracts in the first quarter of 2021.
Thank you, Anelise. And now it's our last question. Our last question comes from Barbara Halberstadt with JPMorgan. So this is for Andrea. "What's the plan regarding the debt level? Any liability management plans for the year? Is there any risk of covenant breaches?"
So thanks for the question. Regarding the debt level, we announced that we want -- so our goal for the year is to end the year with $87 billion of total debt. If we can do better, definitely, we will look and try to do better, but that's the goal for the year. In the medium and long term, we keep the $60 billion. That's the debt we believe is the one that Petrobras should have to be prepared for the volatility of any scenario including the one we are just experiencing right now. Regarding liability management and -- liabilities management, we will look for opportunities for -- always, actually. This is always. Now we are focused on liquidity. But if there is opportunity -- there are opportunities in the market to extend the term of the debt and roll some of the debt that we just got, definitely, we will take the opportunities. And the last point was...
Regarding covenants.
Okay, covenants. And the covenants we just have -- the debt would be MBS with the financial covenants. There is the net debt-to-EBITDA of 5.5. We don't believe we are going to get there. But we have all the documents ready even to ask for waiver if necessary.
Thank you all. At this time, our Q&A session is over. If you have any further questions, please send us an e-mail to our Investor Relations team. And now Roberto will make his final remarks. Please Roberto, go ahead.
Thanks, Carla. I would like to thank you for your interest and attention to our video conference. As I said before, we are very confident on the survival and emergence of Petrobras as a stronger company. During a crisis, courage and optimism are key, and we have as our main [ lives ] in this process, highly committed people and highly skilled people. And this, combined with the world-class assets we have, I am sure that Petrobras will continue to generate a lot of value to shareholders. Thank you, and I expect to see you soon in another opportunity.
Thank you, ladies and gentlemen. The audio of this webcast will be available at Petrobras' website. Thank you very much for your interest, and have a great day.
Stay safe.