Prio (PRIO3) releases robust numbers for 1Q24, with higher sales prices and good expense control

Yesterday (7), after the market closed, the Prio (PRIO3) released a robust result regarding the 1Q24 (see here which other B3 companies report their balance sheets this week).

Weak numbers were expected due to the drop in production, previously announced. However, the company guaranteed oil sales prices and control of expenses, which led to the positive surprise.

Adjusted Ebitda was US$467 million, a sequential increase of 1%, despite the 12% drop in production.

As already announced, production was 88.3 thousand barrels of oil per day (-12%), due to failures in the gas compression system at the Campo de Frade and in the generation of electrical energy in the East Albacora Fieldthe company’s two largest.

These structures have now been repaired, and production of these assets has returned to normal.

The company sold 95% of the oil produced in the quarter, with an average reference price of Brent of US$85.06/barrel, 3% above the previous quarter, despite the average Brent being 1% lower.

This is due to the periods chosen for pricing sales. Only 8% was priced in February (average Brent of US$84/barrel), 81% in March (average Brent of US$87) and 11% in April (average Brent of US$88).

Prio’s net revenue fell less than oil production

Furthermore, the direct delivery method to the customer gained representation, reducing discounts on the reference Brent. With this, the Net Revenue was US$606 million, a quarterly drop of 4% – below the drop in production.

Already the lifting cost (extraction cost) rose 10% quarterly, to US$6.80/barrel, due to the loss of scale in production. This effect was already expected, since when production falls, the cost dilution effect is smaller.

On the other hand, there was a 51% quarterly reduction in general and administrative expenses, resulting in EBITDA of US$467 million (+1%).

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Leverage remains comfortable

The company generated US$415 million in operating cash (-50%), due to having still maintained some inventory for sale in April. Even so, it generated US$115 million in free cash after investments and closed the quarter with a comfortable leveragewith net debt representing 0.6x adjusted Ebitda.

What to expect from Prio from now on

After the normalization of operational problems in Frade and Albacora Leste, we have already seen production increase to 93 thousand barrels per day in April (+8%), which suggests better results in the coming quarters.

Furthermore, given the continuity of strike IBAMAwhich can push the start of production in Wahoo towards the end of 2024, it is likely that the company will redirect the rigs to the current assets. This would partially compensate for the delay and generate production growth even without Wahoo.

Trading at 4.4x its estimated EBITDA for 2024, Prio (PRIO3) remains one of the best ways to expose yourself to oil with actions. We maintain our buy recommendation for the stock.

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