RESULTS FOR THE THIRD QUARTER OF 2017

Transcription

1 RESULTS FOR THE THIRD QUARTER OF 2017 Rio de Janeiro, November 10 th, 2017 Dommo Energia S.A. (B3: DMMO3; OTC: DMMOY) ( Dommo Energia or Company ) announces today its results for the third quarter of 2017 and relevant subsequent events to the market. Company Highlights Implementation of Settlement with Creditors. Extinguishment of the Judicial Reorganization Procedure. Production of thousand barrels in the quarter. Net revenue of R$ million, increase of 2.5% since the last quarter. Cash position of R$ 42.7 million at the end of the period. Positive Stockholders Equity of R$405 million from negative R$ 931 million in 4Q16. Negative operational EBITDA of R$ million from negative R$ million in 4Q16. Net loss of R$ 1,997 million accumulated in the year due debt conversion. Message from Management The restructuring accomplishments, including the extinguishment of the Judicial Reorganization Procedure, sets the Company in new grounds to continue its operations and develop in scenario of rebalanced liabilities. The conversion of the financial debt summing up to R$ 2.0 billion will result in a positive net worth of R$ million, establishing the turnaround momentum for the Company In accordance with the Judicial Reorganization Plan and the management efforts to adapt the Company s investments to its capital structure, the Company signed a binding term sheet subject to the fulfillment of the conditions precedent ( Term Sheet ) to sell 30% of the interest stake held on BS- 4 Block to Azibras Exploração de Petróleo e Gás Ltda. ( Azibras ), totaling approximately US$ 33 million in addition to contingent payments in the amount of approximately US$ 30 million. The Term Sheet subject to the fulfillment of the conditions precedent also comprises the payment of overdue cash calls and the upcoming investments until the first oil of Atlanta Field, after the conclusion of the transaction, which is subject to the fulfilment of all conditions precedent, Dommo Energia will remain with a carried 10% interest in BS-4 Block, in the management perspective, this stake represents a more suited strategy to the Company context.

2 In parallel, Barra Energia S.A. ( Barra ) notified the Company informing its intention to exercise an alleged option to require, with non-offer of payment of price or damages, of which the Company would completely exclude itself from the Joint Operating Agreement ( JOA ) related to the BS-4 Block, as well as from the BS-4 Consortium agreement and from the Concession Agreement of the BS-4 Block ( Notice ). The Notice s allegations are not valid, undermine Brazilian legal system and were out of their real context of the relation between the Company and other parties of BS-4 Consortium. Dommo Energia management will take all applicable legal measures available to protect the Company rights and its shareholders, including the establishment of the arbitration procedure against Barra and Queiroz Galvão Exploração e Produção S.A. ( QGEP or Operator ), as disclosed on October 23 rd, The operation at Tubarão Martelo Field finished the third quarter of 2017 with three producing wells totaling thousand barrels registered in the period, which is equivalent to an average daily production of 5.6 thousand barrels per day. In the first nine months of the year, total production amounted to approximately 1.93 million barrels of oil, with a net revenue of R$ in the quarter. The 7-TBMT-8H well remained interrupted during the third quarter of 2017 and had significant impact on the production in the period, as before this event the well registered approximately 2 thousand barrels per day. Dommo Energia technical staff has been implementing the appropriate actions to solve the issue and will execute contemplating safety, facilities status and environment elements to obtain the best results. Assets under Development Atlanta and Oliva Fields ( BS-4 ) Atlanta is a post-salt Field located in BS-4 Block, in the Santos Basin. Dommo Energia still holds a 40% interest in the consortium, in partnership with Barra, with a 30% stake interest, and QGEP, also with a 30% stake interest (when together Consortium ). On October 17 th, 2017, the Company signed the Term Sheet subject to the fulfillment of the conditions precedent with Azibras, subsidiary of Seacrest Group, for the assignment of 30% participating interest held by Dommo Energia on BS-4 Block. The transaction is subject to the fulfilment of all conditions

3 precedent and comprises the payment of overdue cash calls plus amounts related to Capex up to first oil, totaling approximately US$ 33 million in addition to contingent payments in the amount of approximately US$ 30 million. More recently, Barra Energia notified the Company informing its intention to exercise an alleged option to require, with non-offer of payment of price or damages, of which the Company would completely exclude itself from the Joint Operating Agreement ( JOA ) related to the BS-4 Block, as well as from the BS-4 Consortium agreement and from the Concession Agreement of the BS-4 Block ( Notice ). The Notice s allegations are not valid, undermine Brazilian legal system and were out of their real context of the relation between the Company and other parties of BS-4 Consortium. Further, mentioned allegations have disregarded the investments held by the Company until the present moment of the project. Due to the (i) refusal from Barra to withdraw the illegal Notice, (ii) Barra s representatives negligence to the Company s attempts to find a solution, and (iii) default regarding fulfilment of contractual and regulatory commitments by QGEP in order to begin the production in BS-4 Block, Dommo Energia notified Barra and QGEP requiring immediate establishment of an arbitration procedure against both companies, as disclosed on October 23 rd, According to information disclosed by the asset s Operator the first oil of the Early Production System ( SPA ) in the Atlanta Field is expected for the first quarter of 2018, with an expected initial production capacity of 20 kbbl/day for two wells, which are already drilled and completed. The Consortium may, in the future, drill an additional well, which would increase the capacity to 30 kbbl/day, without relevant increase on operational costs. The decision to invest in an additional well depends on several factors, including the oil price in the market. According to QGEP, it is estimated that for 2017, US$ 87 million will be required to be invested by the Consortium for the first oil related to the Early Production System. This value also does not reflect the investments for drilling a third well in the area, as well as the investments required for the definitive phase of production. On July 21 st, 2017, Dommo Energia entered into a series of agreements with parties involved in the charter of FPSO Petrojarl I ( FPSO ), which will operate on BS-4 Block, including: (a) Atlanta Field B.V.; (b) QGEP; (c) Barra; (d) OGX Netherlands Holding B.V.; and (e) Teekay Offshore Partners L.P. Among the main developments of the renegotiation for Dommo Energia are the partial amortization of the cash

4 calls owed by Dommo Energia to the BS-4 consortium, in the amount of US$14 million, and the replacement of the guarantee originally agreed upon with Teekay to cover charter obligations with a guarantee granted directly to QGEP and Barra through receivables related to 80% of the net result earned by Dommo Energia from the sale of oil produced in the Atlanta Field. The agreements also establish a reduction in the FPSO s charter rate during the first 18 months of production, according to the Operator, it is expected to reduce the overall costs of the SPA to US$410,000 per day. After the first 18 months of production, the original daily rate will come into effect, including a variable component linked to the oil price that will allow Teekay to recover the difference. These agreements became effective on July 28 th, Producing Asset Tubarão Martelo Field A - Production In 3Q17, thousand barrels of oil were produced, 27,4% less than the previous quarter due to the interruption of the 7-TBMT-8H well. The chart below shows the evolution in the Company's quarterly production in barrels of oil over the last five quarters. Total Production (thousand Bbl) Q16 4Q16 1Q17 2Q17 3Q17

5 As disclosed on July 31 st, 2017, the Company has detected a pressure decline in the wet Christmas tree operating in 7-TBMT-8HP well, in the Tubarão Martelo Field, and, in order to avoid possible damages, the submersible centrifugal pump was turned off and the well was closed. Dommo Energia s technical team has been implementing appropriate measures to solve the problem. Production well 7-TBMT-8HP began operating in December 2013 and, until the date production was suspended, produced around 2,000 barrels per day. Dommo Energia s technical group is implementing the appropriate measures to solve the issue and work is ongoing. B Financial Results of the Operation The table below shows the financial data for the operation in the Tubarão Martelo Field: In R$ thousands, except where indicated otherwise Description 9M2017 9M2016 Settlement Pro Forma 9M2017 Days of operation Sales volume 2,359,858 1,399,091 2,359,858 Unit price - R$/bbls Net Revenue 342, , ,055 Royalties (34,206) (14,454) (34,206) Leasing (272,422) (149,207) - O&M (60,662) (26,851) (60,662) Logistics (80,956) (42,955) (80,956) Others (13,323) (6,817) (13,323) Cost of products sold (461,569) (240,284) (189,147) EBITDA (119,514) (94,205) 152,908 % EBITDA / Gross Revenue -34,94% -64,49% 44,70% EBITDA / bbls - In R$ (50.64) (67.33) 64,79 (*) Converted by the average exchange rate for the quarter, weighted by sales. Gross Profit (Pro Forma) In accordance to the Settlement signed on July 24 th, 2017, the implementation to convert the debt into equity initiated, in this sense, Dommo Energia has carried out a pro forma exercise to measure the

6 accounting impact of the agreement, reflecting the exclusion of the FPSO OSX-3 charter in the Income Statement. Below is a preliminary, pro forma and simplified income statement (R$ 000): Dommo Energia 3Q2017 9M2017 Net sales revenue 116, ,055 Cost of products sold (190,233) (477,427) Gross Profit (73,406) (135,372) (-) Leasing OSX3 (excluded) 108, ,422 Gross Profit adjusted 35, ,050 Pursuant to the Settlement signed on July 24 th, 2017 with the involved creditors, including OSX-3 Leasing B.V., owner of the FPSO OSX-3 vessel, which operates in the Tubarão Martelo Field, all unpaid liabilities relating to the charter of the vessel will be settled by converting the credits into Dommo Energia. Dommo Energia will retain the right to use the FPSO OSX-3 vessel, as a result of the Settlement; however, when requested, the Company should take all necessary measures to conclude the redelivery process within 240 days of the request, and the same period is valid in case Dommo Energia decides to terminate the charter agreement. Additionally, it was defined in the Agreement that the costs to abandon the Tubarão Martelo Field and redeliver FPSO OSX-3 will be accrued in an escrow account through the deposits of: (i) 10% of all monthly revenue from the Tubarão Martelo Field, after the payment of royalties; (ii) 1/3 of the monthly revenue exceeding US$8 million, after the payment of the royalties and the deposit of 10% of the revenue from the Tubarão Martelo Field; (iii) 10% of the pro rata gross revenue attributable to Dommo Energia from the sale of oil produced by BS-4 Block after the payment of royalties.

7 Other Assets Equatorial Margin In the previous year, the Company was notified by Exxon, which operates the Consortium of Exploration Block POT-762, requesting payment of R$ 53.7 million corresponding to the percentage of non-compliance with the Minimum Exploration Program ( PEM ) agreed upon in the Block Concession Agreement in the first half of Dommo Energia requested a delayed claim to the court analyzing the Court-Supervised Reorganization, considering that the amount charged by Exxon is related to an obligation assumed before the Court-Supervised Reorganization. Equity Ownership Pursuant to the Settlement signed on July 24th, 2017, and following its implementation, 33.33% of Eneva s shares held by the Company will be transferred into an escrow account and may be sold as collateral for the Company s obligations regarding the future abandonment of the Tubarão Martelo Field and the redelivery of FPSO OSX-3. In addition, 8.31% of Dommo Energia s interest in Eneva will be transferred to the Incremental Facility lenders and 25.02% will be transferred to the debenture holders of the DIP Facility. Considering the conclusion of the Settlement, Dommo Energia remains with 4,958,470 ordinary shares issued by Eneva. Tubarão Azul Field Tubarão Azul Field, was Dommo Energia first producing offshore field, which began operation on February 2012, through three producing wells at FPSO OSX-1. Considering that Dommo Energia did not find a feasible alternative to resume activities in the Tubarão Azul Field, after a period of one year of suspension in production in 2016, the Company, as the field Operator, will begin to decommission and abandon the aforementioned field in compliance to the rules of ANP and environmental regulatory agencies. The process of abandoning the wells is currently underway. The Atlantic Zephyr ship has been contracted and the equipment mobilization of the suppliers is finalizing for the first intervention planned for within two weeks. The funds from the escrow account will be released by the ANP from the stages previously defined in the agreement, namely: a) movement of Schlumberger equipment; b) positioning of the ship on the first well to be abandoned; c) completion of the process in each of the wells, with partial releases for each of the completed activities.

8 Financial Performance The financial and operating data shown below are presented on a consolidated basis, in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board IASB and in Reais (R$), unless otherwise stated. The Tubarão Martelo Field production totaled 513 thousand barrels of oil in the third quarter of 2017 and 2,364 thousand barrels of oil year to date. The reduction compared to the same period in the previous year is due to the 7-TBMT-8H well temporary interruption. In 3Q17, the Company sold thousand barrels of oil, with revenue of R$116.8 million, whereas in the 3Q16 the revenue was of R$ 92.4 million trading 747,5 thousand barrels of oil. In the first nine months of 2017, the Company sold 2,364.3 thousand barrels of oil, with a revenue of R$ million, versus 1,339.1 thousand barrels of oil, with a revenue of R$146.1 million in the same period last year. Net loss of R$1.791 million in 3Q17, versus net loss of R$293 million in the same period in the previous year. With pro forma excluding debt conversion loss for each period. The EBITDA from operations had a reduction on this quarter in relation to the same period in the previous year due to increase in O&M and Logistics costs. Including Settlement Pro-forma for each period. Profit (Loss) - (R$ million) (231,9) Total Production TBMT - (thousand bbls) Net Revenue - (R$ million) (1.997,1) Operating EBITDA - (R$ million) Cash balance of R$42.7 million at the end of 3Q (149,8) (143,4) 1,413 1,931 Pro-forma Q16 3Q17 (407,1) (293,9) Cash Balance - (R$ million) 845 (1.791,1) Q16 3Q Q16 3Q17 Pro-forma Q16 3Q17 129, (47,4) (67,6) 42.7 Pro-forma 3Q17 (200,2) Pro-forma 3Q17 41,8 4Q16 3Q17

9 Income Statement INCOME STATEMENT (R$ 000) 9M2017 9M2016 ($) Net Revenue 342, , ,976 Cost of products sold (461,569) (240,284) (221,285) Exploration expenses - (897) 897 General and administrative expenses (i) (23,849) (54,762) 30,913 Operational EBITDA (143,363) (149,864) 6,501 Reestructuring Cost (i) (30,514) (6,687) (23,827) Other operating expenses (ii) (59,778) (89,372) 29,594 Adjusted EBITDA (233,655) (245,923) 12,268 Depreciation/Amortization (438) (10,073) 9,635 Deferred PIS e COFINS (ii) 16, ,684 (100,607) Stock option (i) (75) (2,329) 2,254 Impairment (638,228) (18,110) (620,118) Provision for losses / devaluation on inventories (ii) 47,001 34,287 12,714 Equity results (3,155) 70,302 (73,457) Realization of cumulative translation adjustment - 3,613 (3,613) EBIT ( ) (51,549) ( ) Net financial results (iii) 343,559 (222,729) 566,288 Loss on conversion of debt into equity instruments (iii) (1,590,937) - (1,590,937) Exchange Variation (iii) 54,118 89,541 (35,423) EBT (2,005,733) (184,737) (1,820,996) Valuation allowance IRPJ/CSLL 8,631-8,631 Net income (loss) - Continued operations (1,997,102) (184,737) (1,812,365) Net income (loss) - Discontinued operations (27) (47,183) 47,156 Net income (loss) - Total (1,997,129) (231,920) (1,765,209) (i) The sum of these lines plus Depreciation and Amortization (R$(438)), corresponds to total General and Administrative Expenses in the Income Statement in the Quarterly Information of September 30, (ii) Presented as Other Operational Expenses in Income Statement in the Quarterly Information of September 30, (iii) The sum of these lines corresponds to the Financial Results in the Income Statement in the Quarterly Information of September 30, EBITDA EBITDA from operations in the first nine months of 2017 was a negative R$143.3 million, versus a negative R$149.8 million in the same period of the previous year, a small difference mainly due to an increase in international oil prices during Considering the conclusion of the Settlement, the proforma EBTIDA in the first nine months was of positive R$ million. Net Loss The Company recorded a net loss of R$1,997 million in the first half of 2017, versus net loss of R$231.9 million in the same period in 2016, mainly due to (i) capital increase of the DIP Debentures, issued by the Company in the amount of R$ million equivalent to US$ 215 million, to be converted into equity in accordance to the Indenture, extinguishing the Company s partial remaining financial debt through the private issuance of 1,732,538,613 new ordinary, nominative, book-entry

10 and with no par value shares with the issuance price of R$ 0,393 per share, established in the terms of article 170, paragraph 1st, of Law No. 6,404/76; and (ii) BS-4 Block impairment totaling R$ 638,2 million. Revenue x Costs The table below shows a comparison between revenue and costs referring to the operation in the Tubarão Martelo Field in 2017, including a pro forma exercise considering the Settlement: Tubarão Martelo Field (R$ 000) Settlement Pro-forma 9M2017 9M2017 Offloadings ('000 bbls) 2,360 2,360 Sales revenues - R$ ('000) 342, ,055 Sales price - US$/bbls (*) Royalties 34,206 34,206 Leasing 272,422 - O&M 60,662 60,662 Logistics 80,956 80,956 Others 13,323 13,323 Total COPS - R$ ( 000) 461, ,147 Unit COPS - R$/bbls Unit COPS - US$/bbls (*) (*) Converted by the average exchange rate for the quarter, weighted by sales. Equity Analysis The Company conducted an equity analysis, based on the Balance Sheet as of September 30 th, 2017 (Attachment I), in order to identify its main assets and liabilities and assess its financial position and capacity to comply with commitments. The charts below show their breakdown: Assets Liabilities BS-4 assets 221,0 42,7 137,3 142,8 183,5 469,6 77,1 Marketable securities (Eneva) Atlanta Field investment Restricted deposits Deferred IRPJ and CSLL Oil inventory Cash and cash equivalents Accounts receivable 82,5 60,8 73,9 110,3 156,1 412,9 ARO Local content BS-4 liabilities BS-4 liabilities ANP provision Outros Passivos Other Asset

11 According to the equity analysis as of September 30 th, 2017, the Company registered 79.9% of total assets as Non-Current, distributed as follows: (i) fixed and intangible assets related to BS-4 Block in the amount of R$ million; and (ii) deferred tax assets arising from tax losses totaling R$137.3 million. This scenario is a result of the implementation of the Settlement with creditors signed on July 24 th, 2017, of which the Company disclosed to the market a Material Fact informing that it settled the definitive agreement with creditors, which essentially consist of the conversion of (i) any and all outstanding amounts of the Incremental Facility; (ii) all unpaid charter liabilities, which may include contracting the charter for a future period until the redelivery of FPSO OSX-3 to OSX3 ("Unpaid Charter"); and (iii) the DIP (before or immediately after the conversion of the Incremental Facility and the Unpaid Charter into shares) into Dommo Energia shares. Marketable Securities In 2016, the Company recognized the effects of Eneva s capital increase, through contribution of the total interest held by the Company in Parnaíba Gás Natural. Pursuant to the Settlement signed on July 24 th, 2017, and following its implementation, 33.33% of Eneva s shares held by the Company will be transferred into an escrow account and may be sold as collateral for the Company s obligations regarding the future abandonment of the Tubarão Martelo Field and the redelivery of FPSO OSX-3. In addition, 8.31% of Dommo Energia s interest in Eneva will be transferred to the Incremental Facility lenders and 25.02% will be transferred to the debenture holders of the DIP Facility. Considering the conclusion of the Settlement, Dommo Energia remains with 4,958,470 ordinary shares, representing 1,57% of the total shares issued by Eneva. On September 30th, 2017, the value of Eneva Shares, held by the Company, would be valuated at R$77,1 million. Loans and Financing with Third Parties and Obligations with Related Parties On September 30 th, 2017, the following loans and financing payable and obligations were extinguished in accordance to the implementation of the Settlement with creditors signed on July 24 th, 2017: (i) DIP Financing totaling R$1,109.7 million; (ii) Incremental Facility totaling R$340.9 million and (iii) accounts payable to OSX for the charter of FPSO OSX3 totaling R$898.9 million.

12 Evolution of Cash Position The chart below shows consolidated cash variation, cash equivalents and short-term investments totaling R$42.7 million at the end of 3Q17. Dommo Energia Cash Flow (R$ 000) Cash flows from operating activities Loss for the period from continuing operations (1,997,102) Loss for the period from discontinued operations (27) Adjustments to reconcile results to cash flows from operating activities: Depreciation of property, plant and equipment and amortization of intangible assets 10,559 Equity in the earnings of subsidiaries 3,155 Sundry provisions 0 Provision for inventory losses 75 Stock options (pro rata, cancellation, forfeiture and guarantees) 0 Provision for/realization of impairment 638,228 Fair value adjustment of financial assets (47,671) General Provisions 813 Unrealized exchange variation on loans and financing (50,023) Interest/charges on financing - provisioned assets and liabilities (290,094) Deferred income tax and social contribution (8,631) Deferred PIS and COFINS (16,077) Interest and exchange variation on provision for ARO (2,713) Fair value adjustment of financial assets (48,841) Loss to sale of interest stake 0 Loss in debt conversion into equity 1,590,937 Others 6,422 Cash used in operations (210,990) Variation in assets and laibilities 302,997 Net cash generated through (applied in) operational activities 92,007 Cash flow from investing activities Net cash used in investing activities (81,205) Cash flow from financing activities Net cash used in financing activities 0 Variation in cash and cash equivalents 10,802 Variation in cash and cash equivalents Opening balance of cash and cash equivalents 31,874 Closing balance of cash and cash equivalents 42,676 Variation in cash and cash equivalents 10,802

13 Dommo Energia Contacts Investors: Paulo Narcélio Simões Amaral Victor Rosenzvaig Cinthya Coutinho Media: Cibele Flores DISCLAIMER This document contains statements and information about the Company that reflect the current views and/or expectations of the Company and its management with regard to its business plan. These include all statements containing forecasts and projections that indicate or imply future results, performance or achievements, which may include such words as "believe," predict, expect, contemplate, will probably result, or any other words or expressions of a similar meaning. Such forward-looking statements are subject to a series of risks, uncertainties and assumptions. Readers are advised that several important factors may lead actual results to significantly diverge from the plans, targets, expectations, estimates and intentions expressed herein. Under no circumstances shall the Company or its directors, officers, representatives or employees be liable to any third parties (including investors) should they make decisions or investments or carry out business acts based on the information and statements presented herein, nor shall the Company be liable for any indirect damages, loss of profit, or similar consequences thereof. The Company does not intend to provide shareholders with any revised versions of the statements or analysis of the differences between these statements and actual results. This presentation does not contain all the necessary information for a complete investment assessment on the Company. Investors should carry out their own assessments, including of the associated risks, before making an investment decision.

14 Attachment I Balance Sheet 09/30/ /31/2016 Var. Assets Current assets Cash and cash equivalents Securities market Escrow deposits Accounts receivable Oil inventory (65.541) Other credits and prepaid expenses Non current Long-term assets ( ) Securities market ( ) Escrow deposits ( ) Materials and supplies (1.348) Loans with related parties Taxes and contributions recoverable (7.459) Deferred income taxes Credits with related parties (1.421) Investments Fixed assets ( ) Intangible ( ) Total Asset ( ) 09/30/ /31/2016 Var. Liabilities Current Trade payables Taxes, contributions and government take Salaries and payroll taxes (4.052) Loans and financings ( ) Accounts payable to related to parties ( ) Sundry provisions (30.298) Other accounts payable ( ) Non current Sundry provisions (29.531) Deferred PIS/COFINS (16.077) (45.608) Shareholders' equity Paid-in capital Capital Reserve Currency translation adjustments ( ) ( ) Retained earnings (deficit) ( ) ( ) ( ) ( ) Total Liability + Shareholders' equity ( )