May 15, 2020 / News
PRIO posts R$44.5 million profit amid COVID-19 and falling oil prices
PRIO, the largest independent oil company in the country focused on mature fields, recorded positive indicators in the first quarter, such as increased production and reserves and an Adjusted EBITDA of R$238.9 million – almost 12x higher than the R$20.2 million earned in the same period of 2019.
The net profit in the period was R$44.5 million, despite the drop in oil prices and in the midst of Covid-19.
The adjustment in EBITDA resulted from the company’s strategy of signing hedge contracts (protection against price oscillations), with the objective of facing the period of low prices, maintaining its effective oil sales at US$ 65 per barrel – much higher than the current range of US$ 30 per barrel.
These contracts generated R$206.6 million in earnings for the Company in the first three months of 2020.
Focused on prudent financial management, PRIO hedged part of its second quarter sales, also with the price at $65 a barrel.
“PRIO’s business model has been designed to ensure the Company’s resilience in periods of uncertainty and volatility since its implementation in 2015. With it, we are able to go through both moments of strong expansion, as well as more challenging moments, such as the one we find today,” said Roberto Monteiro, CEO of PRIO.
The executive also highlights the measures adopted to cope with the crisis generated by the Covid-19 pandemic, such as cost rationalization, renegotiation with suppliers, postponing some investments, and reducing by 50% the directors’ salaries and 25% the onshore employees’.
“We maintained the essential activities and reduced the number of people on board to ensure the greatest possible protection and safety of our employees and service providers in the operational area, with testing of the teams and reinforcement in protective equipment and sanitary measures.”
The measures adopted, especially the hedge operation, ensured the preservation of the company’s cash, which ended March at $127 million.
Production and reserves
As the quarter’s main operational highlight, the Company’s total production grew 102% compared to the first quarter of 2019, reaching 23.4 thousand barrels per day.
The expansion reflects especially the incorporation of 70% of the Frade field, whose production has been increasing since the acquisition by PRIO, and a 30% increase in the Polvo field, after the successful drilling campaign that ended in the first quarter.
With the increased scale of production and gains in operational and administrative synergy, PRIO’s lifiting cost was down 44% versus the first quarter of 2019 – to $17.3 per barrel.
The company’s lifting cost tends to drop even more after the permission for the interconnection of the Octopus and Tubarão Martelo fields – under evaluation by the ANP. In February 2020, PRIO announced the acquisition of FPSO OSX3 and 80% of the Tubarão Martelo field for $140 million.
The combined costs of this new production hub should be reduced from the current $200 million to less than $80 million per year after the planned synergies are implemented.
With the acquisition of the remaining 30% of Frade (under approval by the ANP) and the incorporation of Tubarão Martelo, PRIO’s 2P reserves (proven, probable and possible) should reach 190.8 million barrels, which makes production possible for at least another 25 years.
This is a significant increase from 24 million barrels in December 2018. The company’s reserves have recently been re-certified.
“Despite these achievements, the global epidemic of COVID-19 and the consequent reduction in demand for oil created a very challenging global environment. Health, safety, and efficiency were the pillars of our response to this new scenario, maintaining our strategy of financial discipline and operational excellence,” highlights Roberto Monteiro.