Our net income reached R$4.45 billion in the 1Q17, reversing the loss posted in the same period a year ago. This reflects our operating performance, despite the lower demand for oil products on the Brazilian market.
The quarter’s performance was the outcome of lower expenses with oil and oil imports due to the increased share of Brazilian oil in the throughput, to the growth in the supply of domestic natural gas, and to lower selling, overhead, and administrative expenses. In addition, there was a drop in net financial expenses and lower expenses with dry/subcommercial wells.
In operating terms, we reached a total oil and natural gas production of 2,805,000 barrels of oil equivalent per day (boed). Oil output added up to 2,248,000 barrels per day (bpd), of which 2,182,000 bpd in Brazil, 10 percent more than in the 1Q16.
Oil product sales on the domestic market were impacted by the contraction in demand and tougher competition with other players, closing at 1,951,000 bpd, 5 percent less than a year ago. Oil and oil product exports were up 72 percent, to 782,000 bpd, benefiting from a higher average Brent price and the appreciation of domestic oil. Oil and oil product imports, in turn, slipped 40 percent, to 290,000 bpd. These factors resulted in net exports of 489,000 bpd.
With increased operating generation and a 32-percent reduction in investments compared to the 1Q16, we posted a free cash flow of R$41.57 billion. The 1Q17 was the eighth consecutive quarter of positive free cash flow, demonstrating our commitment to capital discipline.
Ongoing active debt management made it possible to extend the average maturity from 7.46 years, on Dec. 31, 2016, to 7.61 years on Mar. 31, 2017, in addition to a 3-percent reduction in gross indebtedness, which closed at $115.1 billion at the end of the 1Q17.
The Ebitda, a benchmark the financial market uses as an approximation of cash generation, was R$25.2 billion in the first quarter of this year, 19 percent higher than a year ago, closing at a significant margin of 37 percent.
Thus, our adjusted Net Debt/Ebitda financial metric outlined in our Business and Management Plan was reduced from 3.54, in late 2016, to 3.24, on Mar. 31,2017, in a converging trend towards the target of 2.5 set for late 2018.
At Mar. 31, 2017, we had 65,220 employees, a 17-percent drop compared to a year ago due to our Voluntary Dismissal Incentive Plan (PIDV).
Check out the highlights of the 1Q17 results:
• We posted net income of R$4.45 billion in the first quarter of 2017, compared to a loss of R$1.2 billion a year ago. This result was determined by:
• Lower expenses with oil and natural gas imports, the increased share of domestic oil in the throughput, and the greater supply of domestic natural gas;
• 72-percent increase in exports, with higher average oil prices;
• 27-percent decrease in selling, overhead, and administrative expenses;
• 11-percent reduction in net financial expenses; and
• Lower expenditures with dry and/or subcommercial wells and idle equipment.
Free Cash Flow
• In the 1Q17, our free cash flow was positive for the eighth consecutive quarter, closing at R$13.4 billion, 5.6 times that posted a year ago. This result reflects the combination of the significant improvement in our operating generation and the lower investments.
• Adjusted EBITDA was R$25.2 billion in the 1Q17, 19 percent more than in the 1Q16.
• This result reflects lower operating expenses and lower expenditures with oil and natural gas imports.
• The adjusted Ebitda margin was 37 percent in the first quarter of 2017.
Net Debt/Adjusted Ebitda ratio
• The net debt to adjusted Ebitda rate decreased to 3.24, on Mar. 31, 2017, from 3.54 on Dec. 31, 2016. Leverage was reduced from 55 percent to 54 percent in the same period.
• Gross debt decreased 5 percent, to R$364.8 billion on Dec. 31, 2016, down from R$385.8 billion on Mar. 31, 2017. Net debt, meanwhile, decreased 4 percent, to R$301.0 billion, down from R$314.1 billion.
• In Dollars, the decrease in net debt was 1 percent, to $95.0 billion on Mar. 31, 2017, from $96.4 billion on Dec. 31, 2016.
• Debt management made it possible to increase the average indebtedness term from 7.46 years, on Dec. 31, 2016, to 7.61 years on Mar. 31, 2017.
Oil and Natural Gas Production
• Our average oil production in Brazil reached 2,182,000 bpd in the 1Q17, 10 percent more than in the first quarter of 2016.
• In the 1Q17, our total oil output in Brazil was 2,248,000 bpd, up 9 percent compared to the same period of the previous year.
• We maintained our position as a net exporter due to the 72-percent increase in oil and oil product exports and to the 40-percent reduction of imports compared to a year ago.