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RIO DE JANEIRO, Aug. 11, 2016 /CNW/ - Petro Rio S.A. ("PetroRio" or "Company",
BM&FBovespa: PRIO3 and TSX-V: PRJ) announces its results for
the second quarter of 2016 ("2Q16"). The financial and operational
information below, except if otherwise indicated, is presented on a
consolidated basis and in Brazilian Reais (R$) according to the
International Financial Reporting Standards ("IFRS"), including its
direct subsidiaries: Petro Rio O&G Exloração e Produção de
Petróleo Ltda. (former HRT O&G Exploração e Produção de
Petróleo Ltda.), Petro Rio Internacional
S.A., HRT America Inc. and their respective subsidiaries and
branches.
2Q16 HIGHLIGHTS
- PRODUCTION OF 799,333 BARRELS IN THE QUARTER, REBOUNDING TO
2Q15 LEVELS
- OPERATIONAL EFFICIENCY OF 96.6%
- TOTAL NET REVENUES OF R$ 103.4
MILLION, 149% HIGHER THAN
1Q16 AND 7% ABOVE 2Q15 WHILE EBITDA REACHED R$ 5.9 MILLION
- PETRORIO REACHED THE LOWEST LIFTING COST (US$ 28.17/BBL) SINCE THE BEGINNING OF ITS
OPERATION, 21% BELOW 1Q16 AND 17% LOWER THAN 2Q15
- WELL INTERVENTIONS IN POLVO FIELD RESULTED ON PRODUCTIVITY
GAINS OF APPROXIMATELY 20%
- 1,500 DAYS WITHOUT LOST-TIME INJURIES, A BENCHMARK IN THE OIL
& GAS INDUSTRY
MANAGEMENT REPORT
PetroRio achieved important results in the second quarter of
2016. The Company successfully concluded the first phase of the
redevelopment program of Polvo Field, significantly increasing its
production while registered the lowest lifting cost since the
beginning of its operations. Additionally, PetroRio reached the
expressive milestone of 1,500 days without lost-time injuries and
posted positive EBITDA of R$ 5.9
million, even with Brent averaging less than US$ 50/bbl.
The first phase of Polvo Field's redevelopment was completed in
the end of July. Since the operational start-up of the three wells
that underwent interventions, average daily production has
stabilized at approximately 9,100 bbl versus our previous estimate
of 7,500 bbl, representing a productivity gain of around 20%. In
case we are able to maintain this productivity gain in the long
term, it has the potential to extend the field's working life by
one year and increase our estimates of proven reserves by more than
one million barrels. In addition to the increase in oil production
and the consequent dilution of fixed costs, we expect to achieve
annual savings of approximately US$ 1
million due to lower consumption of diesel as a result of
the field's expected higher natural gas production. The project's
investments year-to-date amount to US$ 14.4
million, of which US$ 9.3
million were spent in 2Q16, slightly above our original
estimate of US$ 12.5 million.
Altogether, we conducted interventions in two producing wells and
revitalized a third one that had been abandoned in 2008. New
good-quality reservoirs were successfully accessed, mostly
sandstone, and based on the final assessment of the results the
Company will consider the feasibility of drilling new wells.
In addition to Polvo Field's optimization, we highlight
PetroRio's innovative capacity as the Company will become the first
in Brazil to use a new technology
for oil containment and collection in case of oil spills. Our new
Individual Emergency Plan (PEI) was recently approved by the
Brazilian Institute of Environment and Renewable Natural Resources
(IBAMA) and contemplates the use of a new equipment, Side
Collector, that has already been installed in the dedicated vessel
Astro Pargo. At the same time the
equipment increases oil collection capacity, it eliminates the need
for a second dedicated vessel, thus promoting expected annual cost
savings of approximately US$ 3
million.
These results reflect the entrepreneurial culture focused on
results that will consolidate PetroRio as Brazil's largest independent oil production
company.
In the second quarter, daily production averaged 8,780 bbl, 23%
up relative to 1Q16 and resumed 2Q15 levels, thanks to the positive
impact of the interventions in Polvo Field during the quarter and
given an operational efficiency of 96.6%.
The Company executed two offtakes in the second quarter. Sales
totaled 766,734 barrels with revenue amounting to R$ 103.3 million and lifting cost of US$ 28.17/bbl, down by 21% on 1Q16 and 17% lower
than in 2Q15, despite the appreciation of the Brazilian Real
against the U.S. dollar in 2016, which increases our
foreign-currency denominated costs. Although the price of Brent
averaged less than US$ 50/bbl, EBITDA
was positive by R$ 5.9 million and
included non-cash expenses of R$ 6.3
million related to the write-down of four onshore rigs whose
sale are under negotiation. The net loss of R$ 51.0 million in 2Q16 was strongly affected by
the negative FX impact of R$ 39.8
million mainly due to the Company's cash position that is
mostly allocated in U.S. dollars. We highlight though that our
consolidated cash position in dollar terms increased by
US$ 8 million in 1H16, reaching
US$ 135 million in the end of June,
as a result of our efficient cash management. Maintaining the
financial health is essential for our strategic focus on
acquisitions.
Over the first semester of 2016, oil prices have significantly
recovered. After reaching its lowest level of US$ 28/bbl in January, Brent surpassed the
US$ 50/bbl barrier in 2Q16, averaging
US$ 47/bbl, 30% higher than in 1Q16.
This strong recovery was initially driven by several factors,
including (a) unexpected supply disruptions, mainly in Nigeria, Iraq
and Libya, (b) the drop of U.S.
onshore production in response to the sharp decline in prices, and
(c) the depreciation of the U.S. dollar and its positive impact on
commodities in general.
After a brief period of relative flat prices, we saw in the
beginning of 2Q16 the start of a new rally fueled by (a) a sharper
production decline, not easily reverted, in important producing
countries such as Colombia,
Mexico and China, (b) along with enduring geopolitics
tension in key producing regions, (c) the wildfire in Alberta, Canada, which significantly affected
the production of the Canadian Oil Sands reservoirs, and (d) the
seasonal stronger demand in the summer of the northern hemisphere.
In the end of June, however, the upward trend in oil prices lost
strength with events such as the Brexit that widely contaminated
asset prices with a higher pessimism towards the macroeconomic
scenario. Additionally, the resilient high inventories of oil and
oil products together with fears of a rebound on the US onshore
production, following the rising rig counts, dropped prices again
to less than US$ 45/bbl.
Oil price volatility has been very high and should remain like
that in the upcoming months. Nevertheless, we still strongly
believe in a recovery in the medium and long term. Our optimism is
based on the thesis that current prices are insufficient to
stimulate the necessary investments to maintain supply at current
levels, given the natural decline of mature fields, and to balance
demand that even at a slow pace should continue to grow. In 2016,
production of more than ten countries not members of OPEC has
already significantly declined while in 2015 this group comprised
only the USA and Mexico.
As a result, we are confident in maintaining our growth strategy
through acquisitions of producing fields. The current scenario
offers good opportunities both in Brazil and abroad, and PetroRio is
strategically positioned as one of the sector's main candidates for
value creation given its solid balance sheet, highly qualified
technical staff and capital allocation discipline.
Lastly, as already announced, on July 14,
2016 we completed 1,500 days without lost-time injuries in
the Polvo A fixed platform, which is equivalent to more than four
years or approximately one million working hours. PetroRio is
currently a reference in the Oil & Gas industry. This important
milestone demonstrates our commitment to reflect the principles of
economic, environmental and social sustainability in our values and
culture.
OPERATING PERFORMANCE
POLVO FIELD
Oil production totaled 799,333 barrels in 2Q16, averaging a
daily production of 8,780 barrels, 23% higher than 1Q16 and
rebounding to 2Q15 levels. The productivity gain in 2Q16 was
influenced by Polvo Field's redevelopment program and the increased
operational efficiency of 96.6% that profited from the lower impact
from interventions and the lower incidence of operational failures.
Since the operational start-up of the three wells which underwent
interventions, daily production stabilized at around
9,100 bbl. We present below our oil average production since
1Q15:
In line with our cost control strategy, 2Q16 lifting cost
declined to US$ 28.17/bbl, the lowest
since the beginning of our operations in Polvo Field. Despite the
increase of our foreign currency-denominated costs due to the
strong appreciation of the Brazilian Real against the U.S. dollar
in 2016, 2Q16 lifting cost fell by 17% over 2Q15 and 21% over
1Q16.
Polvo Field's operating costs in 2Q16 were US$ 22.5 million and totaled US$ 45.7 million in 1H16, in line with the annual
target of US$ 90 million established
for 2016 and representing a significant cut of 17% comparing to
2015.
1Q16 + 2Q16 + 2016E: costs of 1H16 + PetroRio estimates for the
next semester.
FINANCIAL PERFORMANCE
In 2Q16, the Company executed two offtakes, totaling
766,734 barrels at the gross average price of US$ 45.41/bbl, and ended the quarter with 554,000
barrels in inventory, equivalent to R$ 75.6
million. In July, we executed another offtake totaling
305,000 barrels.
EBITDA was positive by R$ 5.9
million in 2Q16, fueled by the 25% increase in the gross
sale price and the reduction in COGS per barrel. This reduction
will become even more evident in 3Q16, when the offtakes will
correspond to a higher share of the volume produced in
2Q16.
General and administrative expenses (G&A) amounted to
US$ 4.2 million in 2Q16, 28% less
than the US$ 5.4 million posted in
2Q15. The slight increase over 1Q16 was basically influenced by the
foreign exchange appreciation. In the first six months, G&A
expenses totaled US$ 7.7 million,
within our annual target of US$ 14
million, which represents a reduction by more than 30%
compared to last year.
1Q16 + 2Q16 + 2016E: expenses of 1H16 + PetroRio estimates for
the next semester.
The positive result of R$ 10.2
million registered in other operating revenue came
influenced particularly by gains of R$ 21.3
million refers to the reversion of a loss provision related
to the market-to-market of the oil inventory, partially offset by
the accounting write-down of R$ 6.3
million related to four onshore rigs whose sale are under
negotiation.
The net result of 2Q16 was negative in R$
51.0 million, strongly affected by the impact of the foreign
exchange variation of R$ 39.8 million
on the Company's cash position, most of which allocated in U.S.
dollars.
TOTAL CASH, CASH EQUIVALENTS AND INVESTMENTS
At the end of 2Q16, PetroRio's consolidated cash position,
including cash equivalents and investments in marketable
securities, was R$ 439 million, most
of which allocated abroad, in U.S. dollars. Although impacted by
the appreciation of the Brazilian Real against the US dollar, our
cash position remained stable compared to the end of 2015 and in
dollar terms presented a slight increase in 1H16.
Cash variation in the first semester was influenced by the
following aspects:
- Inflow of R$ 140 million related
to oil sales;
- Divestments/M&A of R$ 133
million with (a) the inflow of R$ 113
million related to the reimbursement of payments made in
advance to the Bijupirá and Salema fields, (b) R$ 15.4 million (US$ 5
million) from Rosneft related to the farm-out in the
Solimões Basin and (c) R$ 3.5 million (US$ 1 million) related to
the reimbursement for the non-utilization of the letter of credit
acquired with Glencore;
- Production costs, operating expenses and payment of royalties
totaling R$ 223 million;
- Negative impact of R$ 124 million
from exchange variation;
- Financial results of R$ 16
million.
Sedar Profile # 00031536
Neither the TSX Venture
Exchange nor its Regulation Services Provider (as that term is
defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
About PetroRio
PetroRio is one of the largest
independent companies in the oil and gas production in Brazil. It is the operator of the Polvo Field,
located in the Campos Basin, which has Brazil's seventh largest daily production of
barrels of oil equivalent (boe). PetroRio is the owner of "Polvo A"
fixed platform and a 3.000HP drilling rig, currently in operation
in this Field, being the platform connected to the "Polvo FPSO"
vessel, with capacity to segregate hydrocarbons and water
treatment, oil storage and offloading. Polvo Field license covers
an area of approximately 134km2, with several prospects with
potential for further explorations.
The Company´s corporate culture seeks to increase production
through the acquisition of new production assets, the
re-exploration of assets, increased operational efficiency and
reduction of production costs and corporate expenses. PetroRio's
main objective is to create value for its shareholders with growing
financial discipline and preserving its liquidity, with full
respect for safety and the environment. For further information,
please visit the Company's website: www.petroriosa.com.br.
Disclaimer
This news release contains forward-looking
statements. All statements other than statements of historical fact
contained in this news release are forward-looking statements,
including, without limitation, statements regarding our drilling
and seismic plans, operating costs, acquisitions of equipment,
expectations of finding oil, the quality of oil we expect to
produce and our other plans and objectives. Readers can identify
many of these statements by looking for words such as "expects",
"believe", "hope" and "will" and similar words or the negative
thereof. Although management believes that the expectations
represented in such forward-looking statements are reasonable,
there can be no assurance that such expectations will prove to be
correct. By their nature, forward-looking statements require us to
make assumptions and, accordingly, forward-looking statements are
subject to inherent risks and uncertainties. We caution readers of
this news release not to place undue reliance on our
forward-looking statements because a number of factors may cause
actual future circumstances, results, conditions, actions or events
to differ materially from the plans, expectations, estimates or
intentions expressed in the forward-looking statements and the
assumptions underlying the forward-looking statements.
The following risk factors could affect our operations, as well
as our ability to complete the proposed acquisition: the contingent
resource and prospective resource evaluation reports involving a
significant degree of uncertainty and being based on projections
that may not prove to be accurate; inherent risks to the
exploration and production of oil and natural gas; limited
operating history as an oil and natural gas exploration and
production company; drilling and other operational hazards;
breakdown or failure of equipment or processes; contractor or
operator errors; non-performance by third party contractors; labor
disputes, disruptions or declines in productivity; increases in
materials or labor costs; inability to attract sufficient labor;
requirements for significant capital investment and maintenance
expenses which PetroRio may not be able to finance; cost overruns
and delays; exposure to fluctuations in currency and commodity
prices; political and economic conditions in Brazil; complex laws that can affect the cost,
manner or feasibility of doing business; environmental, safety and
health regulation which may become stricter in the future and lead
to an increase in liabilities and capital expenditures, including
indemnity and penalties for environmental damage; early
termination, non-renewal and other similar provisions in concession
contracts; and competition. We caution that this list of factors is
not exhaustive and that, when relying on forward-looking statements
to make decisions, investors and others should also carefully
consider other uncertainties and potential events. The
forward-looking statements herein are made based on the assumption
that our plans and operations will not be affected by such risks,
but that, if our plans and operations are affected by such risks,
the forward-looking statements may become inaccurate.
The forward-looking statements contained herein are expressly
qualified in their entirety by this cautionary statement. The
forward-looking statements included in this news release are made
as of the date of this news release. Except as required by
applicable securities laws, we do not undertake to update such
forward-looking statements.
SOURCE PetroRio