Ultrapar Participações S.A. Q1 FY2026 earnings call

• Volumes of over 43,100 BOEs a day in Q1 beat analysts' expectations for the seventh consecutive quarter and exceeded quarterly guidance by over 1,600 BOE a day.
• Adjusted funds flow and free funds flow also beat analyst consensus despite only benefiting from one month of stronger oil price in March.
• Saturn's focus remains on disciplined capital allocation, reducing debt, and returning capital to shareholders via share buyback program.
• Plan to accelerate capital from the second half of 2026 into Q2, targeting late May to mid-June to bring new volumes on production earlier and capitalize on stronger oil price.
• Closed a small tuck-in acquisition in the Flat Lake area of southeast Saskatchewan, adding immediate value with current production in 300 to 400 BOE a day range and potential infrastructure consolidation and cost reduction.

Saturn's first quarter of 2026 saw volumes of over 43,100 BOEs a day, beating analysts' expectations for the seventh consecutive quarter and exceeding quarterly guidance by over 1,600 BOE a day. Adjusted funds flow was $170 million ($0.59 per basic share), beating average analyst consensus by 5%, and free funds flow was $62 million, exceeding average consensus by 13%. Royalties were below guidance at approximately 11% due to Alberta royalty incentives and sliding scale royalty framework. Operating costs were 2049 per BOE, at midpoint of annual guidance range but higher than previous quarter due to seasonality and weather. Net debt declined 5% compared to year-end 2025.

• Planning to accelerate capital from the second half of 2026 into Q2, which is typically the lowest capital expenditure period, subject to getting rigs back in the field by late May to mid-June.
• May look to update full year 2026 capital budget and guidance to better reflect the stronger oil price curve and increase cash flow generation if oil remains elevated.
• Debt repayment remains paramount, and exiting Q1, net debt declined 5% compared to year-end 2025.
• Prioritizing free funds flow towards debt reduction, share buyback, and other initiatives improving per share metrics.

• Price volatility: Earlier market commentary called for oil to drop below US $60 per barrel due to oversupply concerns, and ongoing uncertainty about the Iranian conflict and oil price resolution.
• Hedging impact: Sharp move in commodity prices drove realized and unrealized hedging losses, but hedging strategy is for risk management and average costing.
• Weather impact: Spring break-up restricts drilling activity, and weather conditions affect the ability to get rigs back in the field and accelerate capital spending.

Q: What exactly are you looking for in terms of oil prices to make the final decision to actually ramp up capital spending for the year? And what's kind of the upper limit on where that spending could end up?

A: Really, we're looking just for some stability here in the price range. If we see sustained prices, mid to upper seventies, we'll take a hard look at expanding that capital plan. Going into last year with a $320 million program, we ended up pairing that back. I think getting back to the $300 million mark, a 50% expansion to our CapEx plan would be the higher end if we see oil close to the $80 mark or even higher.

Q: Can you provide any detail on the timing, likely potential timing window and amounts around the repayment acceleration option on your bonds? And how does that impact the amount of hedging that you're likely to do going forward?

A: Contractually, we have to maintain 50% rolling hedges for the next 12 months. In a raised oil environment like we're seeing today, we are 55%, even closer to 60%. We have an on-call feature rolling off on June 15th, and the first step down premium will be 4.81% which is roughly $24 million in the event that we go to refinance that. The 12 months hedging requirement stays in place as long as the bonds are there.

Q: How do you handle the major shareholder when you're doing your NCIB? And can you give us some color on whether the company should probably try and shop that block around?

A: They've posted that several times that's just their kind of standard requirement that they do post. They've never filled that or so also near that many. They've sold they've posted similar ones for some of their other bigger oil holdings as well. Basically just gives them flexibility. They've never sold anywhere near that amount. We stay in great contact with them. We work very closely with them. Same with all of our key shareholders in the top 10. We're in pretty frequent conversation with. They're quite happy with what we're doing, with the share performance. And, again, they've been very supportive. In terms of the company being put up for sale, for $20 a share, we'd be willing to let it go, but we're just a steward of shareholders' capital. We didn't design this thing for a quick flip. We have a great team here. We have great assets. And we've got 20-plus years of drilling inventory that we'd like to see exploited. If there's an offer that comes along and the shareholders believe it's in their best interest, then that's our job to execute. But in the interim, we're just running the best company we can.

Q: If there is room for accelerating that even more and spotting some wealth earlier?

A: With what we deal with specifically in our field, Central Alberta and Saskatchewan, we deal with break-up, where generally from mid-March until mid-May, we can't get out in the field just due to road bans and other things. Generally we get out into the field somewhere between mid-June and July. There's a lot of wet weather that we're dealing with coming out of spring. This year we do want to accelerate that. We're going to be out in the field next week pre-setting our biking wells and then the following weeks we'll have a staggered start with about four rigs out the door after May long with the fifth rig in June. five operating rigs before the end of this quarter, with a sixth starting just after the July 1 weekend. So we are accelerating that from our previous plan. That acceleration will be in southeast and west central. We have mentioned before three core areas. We really like the short full cycle times of the biking. We can drill well at three to four days, complete it, bring it online within two weeks. So we're looking to take advantage of these commodity prices, and that's what we're doing in those places.