1
SUMMARY
MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS
MESSAGE FROM THE PRESIDENT OF PETROBRAS
PROFILE
SECURITIES MARKET
Shareholding Position
Stock Performance
Risk Rating
LARGE NUMBERS
CORPORATE STRATEGY
Strategic Plan
2017-2021 Business and Management Plan
INTERNATIONAL ENVIRONMENT, OIL MARKET AND REGULATION
International Environment
Oil Market
Regulation
INVESTMENTS
Impairment
BUSINESS PERFORMANCE
Exploration and Production
Refining, Transportation, Trading and Petrochemicals
Distribution
Natural Gas, Electricity and Fertilizers
Biofuels
Awards and Recognition
GOVERNANCE, MANAGEMENT AND COMPLIANCE
Ethics
Health, Safety, and Environment.
Organizational Restructuring
Corporate Governance
Risk Management
Compliance and Internal Controls
Social Responsibility
Research and Development
Human Resources
2
OPERATION CAR WASH
CLASS ACTION AND RELATED PROCESSES
INFORMATION ON PROVISION OF SERVICES OTHER THAN EXTERNAL AUDIT BY
INDEPENDENT AUDITORS – CVM INSTRUCTION 381/2003
FINANCIAL ANALYSIS
Consolidated Results
Sales Volume
Result by Business Area
Impairment.
Liquidity and Capital Resources
Indebtedness
Assets and Liabilities Subject to Forex Variation
Contingencies
Contractual Obligations
ACKNOWLEDGMENTS
GLOSSARY
3
MESSAGE FROM THE CHAIRMAN OF THE BOARD OF
DIRECTORS
Dear shareholders, employees and business partners of PETROBRAS,
This message has two major purposes.
The first is to be the first message from the Board of Directors, through its current
Chairman, at the end of the first year of full term.
This Chairmanship was initially held throughout 2015 on an interim basis, thereafter
replacing its full holder, who took a leave and then resigned during his term.
Once this interim cycle and replacement was completed in April 2016, the Board of Directors
was mandated by shareholders for a full period of 02 (two) years, ending in April 2018, and
over the course of its first year in office, it faced the replacement of the Chairman of the
Executive Board.
Mr. Pedro Parente was appointed as the new President by the controlling shareholder; was
submitted to, and approved by, the integrity background check; and was nominated by the
Board. Since then, a partnership has been established between the presidency and the
Executive Board, which has practiced fruitful, constructive interaction, continuing the high-
level work already established under the presidency of Mr. Aldemir Bendine.
As soon as he was sworn in, President Pedro Parente decided to carry out a cycle of
constructive conversations focused on an in-depth review of the Strategic Plan of
PETROBRAS. The initiative was fully supported by the Board of Directors, which endorsed
and supported the promotion of 2 (two) main goals under this new Plan, namely:
to pursue a considerable reduction in accidents in our facilities and our activities –
thus supporting the larger goal of preserving life and pursuing safe working
conditions. Our targets in this regard are ambitious, seeking a dramatic reduction of
personal incidents per million hours worked, which will be achieved with much training,
intensive improvement of process safety and awareness, and
to significantly reduce the company’s debt and the financial leveraging. We are not
proud to flaunt the largest corporate debt in the oil and gas sector on the planet.
We recognized that our debt has reached such high levels that repairing measures are
required - as envisaged in the Strategic Plan - to refocus our debt to a level that will most
benefit Petrobras’ businesses. As our President Pedro Parente has already stated, in order
to honor the commitment to invest in our core business – oil extraction and fuel
industrialization – disinvestment in activities that are not directly related to this business is
not a choice between valid alternatives, it is a necessity. Divestment is one of the best ways
we can allocate, through active portfolio management, the necessary resources for
delivering the production curve we are capable – and obliged – to offer the market.
Another key strategy for ensuring the cash flow that will enable us to invest in our core
activities consists of technological, exploration, production, and/or financial partnerships.
4
The second purpose of this message concerns the formal record of changes in company
Governance, of which the current Board of Directors is particularly proud. Let it be said that
the current Board is the first, basically since the creation of Petrobras in the 1950s,
composed solely of Members with no relation to any government agencies. Additionally, care
in 2016, to appoint a
was been taken
multidisciplinary Board – legal operators are present, financial reporting experts are present,
accounting and auditing professionals are present, investors are present, there is a
representative elected by the employees, there is an expert in oil, gas, and deepwater,
because, ultimately, all facets of the life of the company count on the experts and
representatives on the Board.
in 2015, and the principle was preserved
After being sworn in in 2015,, the Board immediately reinforced the mission and the internal
rules of 5 (five) Advisory Committees to the Board itself:
the Auditing Committee, which became Statutory in 2016 in compliance with the
corresponding requirements from the Comissão de Valores Mobiliários – CVM (the
Brazilian Securities and Exchange Commission) and the Securities and Exchange
Commission – SEC, USA;
the Strategic Affairs Committee;
the Finance Committee;
the Committee on Nomination, Compensation, and Succession; and
the Health, Safety, and Environment Committee.
More recently, the Board of Directors incorporated a Minority Shareholders Committee,
which has the duty and prerogative to speak for the care of company interests in transaction
proposals with parties related to the Federal Government and
its Autarchies and
Foundations, within the authority of the Board of Directors.
Each of these six Committees is chaired by a member of the Board of Directors. The
Statutory Audit Committee is composed only of members of the Board of Directors. On the
other Committees, non-Board members who have knowledge and expertise in matters within
the scope of each Committee participate. It should be said, to give insight into the intensity
of Committee operations, that in 2016, the Statutory Audit Committee met 29 (twenty-nine)
times; the Committee on Nomination, Compensation and Succession met 32 (thirty-two)
times; the Health, Safety, and Environment Committee met 13 (thirteen) times; the Finance
Committee met 26 (twenty-six) times; and the Strategic Committee met 21 (twenty-one)
times. All of this alongside the 47 (forty-seven) Ordinary and Extraordinary meetings of the
Board of Directors meetings.
Our Whistleblowing Channel was enormously improved and background checks of suppliers
are in the thousands. Additionally, vetoes to the nomination of persons with inappropriate
curricula for positions with decision-making authority and vetoes to suppliers from which we
demand change in stance for a better governance have been frequent.
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It is our duty in rendering accounts of this nature to also confront specific challenges. Two of
them are worthy of record:
divestmentthe vital decision to abide by orders to improve transparency, issued by
competent authorities, will directly result in extended periods to operationalize
divestments; and
discussions with the DoJ – the United States Department of Justice – and the SECin
our defense in Class Action suits, in addition to several proceedings before Brazilian
authorities (CVM, TCU, Prosecutor’s Office, the Judiciary Branch) will ensure final
results once such cases are closed, although Petrobras is a victim in this process and
at no time benefited directly or indirectly from the illicit acts.
As I said in the beginning, this is the start of an “accountability” report in this first year of the
current mandate.
And if we can summarize the understanding of our Mission beyond the safety of human life
and the return to investment grade ratings, perhaps the best expression of our task is to
contribute to recovering the self-esteem of employees, investors and Brazilians in their
largest state-owned company, which we all want to be, once again, the best one.
Nelson Carvalho
Chairman of the Board of Directors
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MESSAGE FROM THE PRESIDENT OF PETROBRAS
Dear shareholders and investors,
I present my first message as President of Petrobras to our shareholders and investors with
the sense of immense responsibility for leading the Executive Board of the largest company
in Brazil, which is among the four largest companies in Brazil in terms of market value, in full
recovery.
The global oil and gas industry faced the second year of adversity, which began with the
abrupt drop in oil prices in the last quarter of 2014 when barrel price dropped from US$ 100
level to less than US$ 35 in early 2016. More recently, those prices have fluctuated in a range
between US$ 45 and US$ 55 per barrel. The industry had to adapt to this new reality of prices
by selling assets and reducing investments and costs. An important aspect of this new
competitive framework is the consolidation of so-called unconventional oil and gas
production (shale and tight oil/gas), which represents a disruptive change in exploration and
in so-called
production of hydrocarbons and
conventional production, including Petrobras.
imposes great challenges to players
This industry context, challenging in and of itself, also found Petrobras in the midst of the
biggest crisis in its history. The height of these problems is the size of our gross debt, which
reached the US$ 126 billion (R$ 493 billion) at the end of 2015. This is the largest debt among
non-financial entities in the country, except for the Federal Government’s debt. It is also the
largest debt among global public companies operating in our industry. Those are not
honorable positions and it is our strategic goal to reverse this situation.
left as an
Throughout 2016, we announced and implemented the necessary measures to deal with the
inheritance of this crisis. The Partnership and
numerous problems
DivestmentDivestment Program, which began a new cycle in 2015, had its pace accelerated in
August. In September, we announced a new Strategic Plan and the corresponding Business
and Management Plan for the 2017 to 2021 period, with two priority metrics. The first metric
is related to safety, in which we pledged that by 2018 we’ll limit our Recordable Injury Index
(TAR) to 1.4 accidents per million hours worked. The second metric is related to our debt, as
measured by the ratio between net debt and EBITDA (a proxy of operating cash generation).
By the end of 2015 this ratio had reached an index of 5.1, which is very high considering both
the circumstances of the Brazilian market and the comparison against other large
international companies in the oil and gas sector. The strategic plan provides for the
reduction of the net debt/EBITDA ratio to 2.5 by the end of 2018.
In our strategic plan, we clearly define the vision of the company we want to be: an
integrated energy company, focusing on oil and gas, which evolves together with society,
generates high value and has unique technical expertise. We objectively point out, with this
vision and the 21 corresponding strategies, the areas in which we will operate and, with
unprecedented clarity and transparency, those where we will not operate.
The plan defines five levers to ensure we achieve our top metrics. The first is the
“Commitment to Life” plan, which seeks to strengthen the behavioral and safety aspects of
processes to enable achieving our safety metric.
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The four other pillars are integrated to allow the reduction of our debt: (1) a new pricing
policy for gasoline and diesel, based on international parity and the declaration that at no
time will we charge prices below international parity; (2) greater efficiency in our investments
(CAPEX), translating into a reduction in our investments with an increase in our production;
(3) reduction of our costs without compromising our safety and production goals; and (4)
partnerships and divestments in transactions totaling US$21 billion in the 2017/18
biennium.
The 2016 results show advances on all fronts. The number of recordable accidents per
million man-hours was reduced by 24%, reaching the 1.63 index, which was only expected by
the end of 2017. We generated positive free cash flow in every quarter of the year, totaling 7
consecutive quarters. Operating profit was R$ 17 billion in 2016, with a 16% increase in
adjusted EBITDA, which represents the highest EBITDA margin among the main players in
the sector. The ratio between our net debt and our adjusted EBITDA was reduced by 31%,
from 5.11 times to 3.54 times.
We implemented a new pricing policy staring in October 2016. The company’s revenue began
to follow international market dynamics, with revisions carried out at intervals no greater
than 30 days. Today there is growing naturalness in the way that markets and other external
audiences receive these monthly revisions, consolidating the implementation of this new
policy.
Throughout 2016, we became more efficient in the production and exploration of oil and gas.
For the second consecutive year, we were able to achieve our oil production target,
registering several records. Average production in Brazil reached the level of 2.144 million
barrels per day. We highlight the 1.02 million barrels of oil per day mark in pre-salt layer-
operated production, where we prioritized our investments and gathered knowledge and
experience to provide a relevant increase in productivity. When we include gas, our total
production in Brazil and abroad reaches the expressive mark of 2.79 million barrels of oil
equivalent per day.
Partnerships and divestments have gained new impetus, and the announced transactions
reached an amount of US$ 13.6 billion in December 2016. In addition to being essential for
the financial recovery of the company, the strategic partnerships offer the opportunity of
broad relationship with global companies, sharing risks, unburdening
investments,
promoting technological exchanges and strengthening corporate governance. With
partnerships, we are more competitive to cope with industry challenges.
The relationship between the Executive Board and our Board of Directors merits special
highlight. As an oversight body, the Board has diligently fulfilled its statutory duties, as
presented in the message from its chair. Together with the Board of Directors, we have
enhanced the company’s governance,
internal controls, decision-making
processes and the policy on management succession. With this cooperation, we are better
qualified to deal with the challenge of getting Petrobras out of the financial and reputational
crisis in which it was placed in the recent past.
improving
It is essential to register the contribution of our workforce for these advances. The
dedication and technical competence of Petrobras employees have turned the company into
a world reference, especially in deepwater exploration and production. These same
attributes are needed now to overcome the challenges we face.
8
I send a special message to our shareholders. The company’s results in 2016 unfortunately
did not allow us to pay dividends as we’d like. However, in terms of overall return to
shareholders, which includes variation in market value of our shares, we were the company
that offered highest returns in 2016 in the oil and gas sector. We know that this result is due,
to a large extent, to the confidence of our shareholders and investors in our ability to deliver
what we promised in our Strategic Plan. We’ll work in 2017 with redoubled effort to match
that trust.
Pedro Parente
President
PROFILE
We are a publicly traded company that operates in an integrated, specialized manner in the
oil, natural gas, and energy industry.
SECURITIES MARKET
We are a mixed-capital company incorporated by Law no. 2004/53 to explore activities in oil,
gas, and their derivatives, initially under Federal Union monopoly. Upon the enactment of
Law no. 9478/97, we started to operate in the market under free competition. The activities
that we currently develop are outlined in our bylaws.
Brazilian law requires the Brazilian Federal Government, as our controlling shareholder, to
hold the majority of our shares with voting rights, thus holding power to elect the majority of
members of our Board of Directors (“BD”). The Executive Officers are elected by the BD.
We have two classes of shares listed on stock exchanges: (i) common shares, which grant
voting rights to holders, and (ii) preferred shares, which do not grant voting rights but
guarantee priority in the distribution of dividends.
In Brazil, our shares are listed on the São Paulo Stock Exchange (“BM&FBovespa”), under the
trading codes PETR3 (common) and PETR4 (preferred). In the United States, the ADRs
(American Depositary Receipts), which are certificates issued by American banks that
represent shares of a foreign company in the U.S., are listed on the New York Stock Exchange
(NYSE) under the codes PBR (receipts representing common stock) and PBRA (receipts
representing preferred the stock). In Spain, the receipts that represent company shares are
listed on Latibex under the codes XPBR (representing common stock) and XPBRA
(representing preferred stock). Receipts that represent our shares are also listed in
Argentina, on the Buenos Aires Stock Exchange, under the codes APBR (representing
common stock) and APBRA (representing preferred stock).
9
SHAREH
HOLDIN
NG POSIT
TION – D
DECEMB
ER 31, 2
2016
Chart 1: Vo
oting Capit
tal - Comm
mon Shares
rs (
Foreigner
CMN Res
ol.
4373)*
*
%
11.10%
Oth
investo
shareh
10.0
her
ors and
holders
04%
ADR Leve
el 3
%
18.73%
BNDES
9,87%
Federal
Government
50.26%
Chart 2: N
on-Voting
Capital - P
Preferred S
Shares
r
Other
investors
and
sharehold
ders
%
26.60%
BNDESP
Par
%
23,71%
Foreigners
CMN
(
Resol.4373
24.86%
)*
R Level 3
ADR
19.37%
1
PREVI**
5.46%
Chart 3: Ca
apital Stoc
ck
rs (
ol.
Foreigner
CMN Reso
4373)*
%
17.01%
Other
investors an
nd
shareholde
rs
15.67%
ADR Level 3
19.00%
Federal
Government
28.67%
BNDES
6,87%
ar
BNDESP
%
10,32%
PREVI**
2.46%
* CMN Resolu
markets, and
ution No. 4373:
includes othe
: governs inves
r provisions. **
stments by no
* PREVI: Pensio
on-resident for
on Fund of Ba
reign investors
nco do Brasil E
s in the Brazilia
Employees.
an financial annd capital
10
STOCK
PERFOR
E
RMANCE
In 2016,
BM&FBove
previous y
several fa
espa. In th
year.
actors pos
his context
sitively aff
t, Ibovespa
fected the
a, the exc
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ance of o
main index,
ur shares
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listed on
n
e
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Reflecting
in the end
rose by 98
and R$ 14
of that da
g this scena
d of 2016 w
8%, while p
4.87 as of 29
ate was R$ 2
ario as wel
were higher
preferred s
9 Decembe
209 billion
l as the inc
than in 20
hares (“PE
er 2016. Wi
(US$ 64 bi
crease in th
15. As com
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he internat
mpared to 2
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rp rise in sh
tional oil p
2015, comm
priced resp
hare prices
rice, our sh
mon shares
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s, our mark
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s
)
s (“PETR3”)
at R$ 16.94
4
s
et value as
In the New
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The price
against th
closed at U
w York Sto
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US$ 8.81.
ock Exchan
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ceipts wer
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are traded
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E, where th
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ase reache
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azilian rea
ed at US$ 1
ting comm
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al’s 18% ap
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on (“PBR”)
)
.
spectively.
n
ppreciation
e
PBRA price
Chart 4: Pe
etrobras M
Market Valu
e and Equi
ity Value
11
Chart 5: Fi
inancial Vo
olume Trad
ed on BM&
&FBovespa
(daily aver
rage in R$ m
million)
Source: Bl
loomberg
Chart 6: Fi
inancial Vo
olume Trad
ed on NYSE
E (daily ave
erage in US
S$ million)
Source: Bl
loomberg
12
RISK RATING
According to credit rating agencies, our rating reflects not only the perspectives on our
operating and financial performance, but also the level of Brazil’s sovereign risk.
In the first months of 2016, the three main rating agencies announced a reduction in our
credit rating. On 18 February 2016, Standard & Poor’s reviewed the risk level of our debt
from BB to B +, with a negative perspective, following the change in sovereign rating. On May
11, 2016, Fitch also downgraded our credit rating from BB+ to BB, after changes in sovereign
rating. In addition, Moody’s reduced our risk rating by two levels on February 24, 2016, from
Ba3 to B3.
In the end of 2016 and early 2017, however, two agencies improved our risk rating level. On
21 October, Moody’s announced a one-level increase the company’s rating plus a change in
perspective, from “negative” to “stable,” reflecting lower liquidity risk, considering changes
in the regulatory framework of Brazil and the expectation of better operating performance in
the medium term, in addition to the fact that Petrobras was able to achieve its cash
generation and sale of assets goals.
On February 10, 2017, Standard & Poor’s raised the rating of the company’s corporate debt
from B+ to BB-, and also altered the perspective from “negative” to “stable.” In addition to
the reasons highlighted by Moody’s, Standard & Poor’s stressed the recovery in the
relationship with domestic and international banks, and our capacity to access capital
markets, as well as the consistency of the new pricing policy, which allows greater visibility to
our cash generation.
Table 1: Petrobras’ assessment per rating agency
Rating Agency
Last Review
Overall Rating
Perspective
Moody’s
10/21/2016
Standard & Poor’s
2/10/2017
Fitch Ratings
1/26/2017
B2
BB-
BB
Stable
Stable
Negative
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LARGE NUMBERS
RESERVES
Chart 7: Proven Reserves of Oil, NGL, Condensate, and Natural Gas - ANP/SPE Criteria
(billion boe)
Proven Reserves of Oil, NGL, Condensate and Natural Gas -
ANP/SPE Criteria (billion boe)
16,4
2,6
13,8
16,6
2,7
13,9
16,6
2,7
13,9
13,3
2,4
10,9
2012
2013
2014
2015
Oil, NGL and Condensate
Natural Gas
12,5
2,0
10,5
2016
PRODUCTION
Chart 8: Production of Oil, NGL, Condensate, and Natural Gas (thousand boed)
Production of Oil, NGL, Condensate and Natural Gas
(thousand boed)
2.669
2.787
2.539
560
2.790
566
2.598
472
2.126
480
2.059
519
2.150
2.227
2.224
2012
2013
2014
2015
2016
Oil, NGL and Condensate
Natural Gas
14
SALE OF D
DERIVATIV
VES
Chart 9
Year (t
9: Sales Vo
thousand b
lume of De
erivatives o
y)
barrels/day
on the Dom
mestic Mark
ket, per Prooduct and TTotal in
CONSOLID
DATED NE
T INCOME
(LOSS)
Chart 1
10: Consoli
idated Net
Income (Lo
oss) (R$ mi
illion)
15
ADJUSTE
D EBITDA
Chart 1
11: Adjuste
ed EBITDA
(R$ million
n)
(R$ million))
(
CONSOLID
DATED DE
BT
Chart 1
12: Consoli
idated Deb
bt (R$ billio
on)
16
CORPORATE STRATEGY
The Strategic Plan (“EP”) and the 2017-2021 Business and Management Plan (“PNG 2017-
2021”), approved by the Board of Directors (“BD”) in September, were drafted in an
integrated manner and relied on direct involvement of senior management and other
executives in all of their drafting stages.
STRATEGIC PLAN
The Strategic Plan updates our vision, highlighting five elements that define what we will be,
based on our values:
Our Vision
An integrated energy company with a focus on oil and gas that evolves along with
society, generates high value and has unique technical capability .
Our Values
Respect
for life,
people and
the
environme
Ethics and
transparency
Market
oriented
Resilience and
confidence
Results
The five elements of our vision unfold in 21 strategies. These strategies were detailed in
initiatives and targets, with systematic follow-up in order to ensure discipline in the
execution. They are described below:
5 Elements
of the Vision
Integrated
energy
company
21 Strategies
Reduce Petrobras’ risk
in Exploration and Production, Refining,
Transportation, Logistics, Distribution, and Marketing operations
through partnerships and divestments;
Restructure the energy business by consolidating thermal power assets
and other businesses in this segment, seeking an alternative that
maximizes our value;
Review lubricant business positioning, aiming to maximize our value
generation;
17
Managing the exploration portfolio, in order to maximize economy and
ensure sustainability in oil and gas production;
Manage the Exploration and Production project portfolio
in an
integrated manner;
Focus on oil
and gas
Optimize business portfolio, by fully abandoning biofuel production
activities,
liquefied petroleum gas (“LPG”) distribution, fertilizer
production, and petrochemical interests, preserving technological skills
in areas with development potential;
Maximize value generation in the gas supply chain, in line with
regulatory developments, ensuring monetization of own production
and adapting the participation in the natural gas supply chain as a long
term transition fuel;
Strengthen internal controls and governance, ensuring transparency
and effectiveness of the prevention and combat system against
misappropriation, without negatively affecting the swift decision-
making process;
Evolution
with society
Recover credibility and strengthen our relationship and reputation with
all stakeholders, including our control and oversight bodies;
Maintain
transparent,
respectful, proactive dialogue with all
stakeholders, by using the best, most modern internal and external
communication practices;
Value
generation
Align social responsibility actions with our projects;
Strengthen the management of reservoirs to maximize the value of
E&P contracts in all regulatory regimes, seeking opportunities for
continuous incorporation of reserves;
Ensure discipline in the use of capital and return to shareholders in all
of our projects, with high reliability and predictability in delivery;
Continuously maximize productivity and cost reduction, in accordance
with the best international practices;
Promote market pricing and margin maximization policy in the supply
value chain;
Act with an emphasis on partnerships and divestments as key elements
for generating value;
Promote management of our workforce in participatory culture and
mutual trust environment, oriented towards results that add value,
with safety, ethics, responsibility, stimulating debate, meritocracy,
simplicity and compliance;
Manage the procurement process of goods and services with a focus on
value, aligned to
international standards and metrics, meeting
compliance requirements, while maintaining flexibility towards adverse
18
scenarios
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2017-20
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19
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debt/Ebitd
ncial planni
ecordable I
da), which
ing for the
e
e
Injury Rate
e
guide the
Figure 2: M
Main Metric
cs in the 20
017-2021 B
Business an
nd Managem
ment Plan
SAFETY
To meet o
Life progr
discipline
company,
processes
one of the k
ram, whose
and proc
leadership
s, managem
key metrics
e main goa
ess safety
p commitm
ment evalua
s in the PE
al is to red
y. The pro
ment, conti
ation and t
and PNG 2
duce the T
ogram aim
inuous trai
the system
017-2021,
TAR to 1.4
ms to enha
ining focus
of conseq
we created
in 2018, b
ance safet
sed on kno
uences.
d the Comm
based on o
ty awarene
owledge of
o
mitment to
l
operational
ess in the
e
d
f risks and
FINANCIA
AL PLANNIN
NG
Among th
e main ass
umptions c
considered
d in plannin
ng, we high
light:
avera
age Brent p
price and av
verage exch
hange rate
e, as per the
e following
table;
20
Table 2: B
rent and Fo
orex Projec
ction
Brent B
Base Year
2016
2017
2018
2019
2020
2021
U
S$ / bbl
48
56
68
71
71
Nomina
al Exchange
e Rate R
$ / US$
3.55
3.71
3.72
3.74
3.78
Growt
th of the B
razilian der
rivatives m
market;
Chart 13: B
Brazilian D
erivatives
Market (mi
illion bpd)
To meet t
described
he 2.5 Net
below:
Debt/EBIT
TDA financ
COMPET
TITIVE PR
RICES
ial metrics
, by 2018, w
we will wor
rk with four
s
r pillars, as
In Octobe
changes a
once a mo
r, we adop
are the freq
onth, in line
pt a new pr
quent asse
e with inter
ricing polic
essments f
national m
cy of gasol
for price re
market tren
ine and die
eview purp
ds.
esel in our
oses, to be
refineries
e carried o
. The main
n
t
ut at least
The follow
wing princip
ples are pa
rt of our pr
ricing polic
cy:
inte
ma
exc
ma
pric
ernational
argin for co
change rate
arket share
ces never b
parity pric
ompensatio
e and inter
level;
below inter
rnational pa
arity.
e (“IPP”) as
on of the i
national qu
s a referenc
inherent ri
uotes, dem
ce;
sks in the
murrage, am
operation,
mong other
, such as v
rs;
n
volatility in
The asses
committee
ssment of
e, the Exe
needs for
cutive Gro
r adjustme
oup of Mar
ents in fue
rket and P
el values in
rices, com
n refineries
posed of t
s is perfor
the Presid
rmed by a
a
e
ent of the
21
company,
Finance an
the Execu
nd Investor
utive Office
er for Refin
s.
r Relations
ning and N
Natural Gas
s and the E
Executive
r
Officer for
Since the
February 2
new policy
2017.
y was adop
pted in Oct
ober 2016,
, six revisio
ons have be
een carried
f
d out as of
CAPEX A
AND OPEX
X EFFICIE
ENCY
Originally
2017-202
the realloc
approved
1 investme
cation of re
with inves
ent progra
esources sc
stments of
m was upg
cheduled a
f US$74.1 b
graded to
and not car
billion for t
US$ 74.5 b
ried out in
the 2017-2
billion in Fe
2016.
2021 period
ebruary 20
d, the PNG
G
o
017, due to
The 2017
exploratio
business
related to
7-2021 Bu
on and pro
areas, inve
the discha
usiness an
oduction p
estments
arge of oil a
nd Manage
rojects in
are intend
and natura
ement Pla
Brazil, wit
ded primar
l gas produ
an
h emphasi
rily to mai
uction.
investm
ment port
s on deep
ntain oper
tfolio prio
p water. In
rations an
oritizes oil
l
the other
r
s
d projects
Most of th
mainly to
he investm
production
ments are co
n developm
oncentrate
ment.
ed in the Ex
xploration
and Produ
uction area
d
a, allocated
In the Re
continuity
efining and
y of the ass
d Natural
sets and pr
Gas area,
ojects relat
investmen
ted to the
nts will be
discharge
e allocated
of oil and g
d to the o
gas produc
l
operational
tion.
The incre
investmen
eased effic
nt volumes
ciency in t
s, without g
the applic
great impac
cation of
ct on produ
resources
uction targ
will enab
ets.
le the red
f
duction of
Chart 14: P
Production
n of Oil, NG
L, and Gas
(million bo
oed)
The plan p
measures
such as th
provides fo
. Among th
he Zero-bas
or the adop
hese action
sed Budget
ption of ne
ns, we highl
ting (“ZBB”
ew cost-red
light the im
”).
duction (ma
mplementa
anageable
tion of new
operating
w managem
)
expenses)
,
ment tools,
22
As noted
compared
in the char
d against th
rt below, t
he estimate
he goal is
ed value if
to reduce
no initiativ
manageab
ve had been
ble operatin
n implemen
ng expense
nted.
,
es by 18%,
Chart 15: M
Manageabl
le Operatin
ng Expense
es (US$ bill
ions)
These init
cash gene
reduce ou
provided b
mbined wit
tiatives, co
timated at
eration est
edness, wit
ur indebte
n.
by the plan
th our part
US$158 b
thout need
tnership an
billion afte
d for new
nd divestm
r dividend
net borro
ment progra
s, will enab
owings thr
am and an
ble investm
roughout t
operating
g
ments and
d
d
the period
PARTNE
ERSHIPS A
AND DIVE
ESTITURE
ES
Another im
spreading
to other a
billion in t
mportant
g the exper
areas of th
the 2015-20
strategy is
rience of w
he compan
016 bienni
s the expa
orking in p
y. The par
um. US$21
nsion of o
partnership
rtnership a
billion are
ur partner
ps in the Ex
and divestm
e expected
rship and d
xploration
ment progr
for the 201
divestment
and Produ
ram totale
17-2018 bi
t program,
,
a
uction area
6
ed US$13.6
ennium.
In 2015, 20
016 and ea
arly 2017, w
we complet
ed the follo
owing part
nerships a
nd divestm
ments:
Table 3: C
ompleted P
Partnership
ps and Dive
estments (
(in 2015, 20
016 and ear
rly 2017)
f
Date of
t
Contrac
Signatur
re
Date
Closing
Transa
e of
of the
ction
3/31/201
15
3/31/2
2015
Sale o
Argen
of assets in A
ntina
Tra
ansaction
ustral Basin,
in Santa Cru
z province,
10/23/20
15
5/13/201
16
12/28/
/2015 Sale o
of 49% of Pet
robras Gás S
.A. (“Gaspetr
ro”)
7/27/2
2016 Sale o
of the entire 6
67.19% stake
e in Petrobras
s Argentina
7/29/201
16
11/21/
/2016
Sale o
Santo
of the entire 6
os Basin
66% stake in
exploratory b
block BM-S-8
8, in
Transaction
T
Value*
US$ billion)
(
0.1
0.5
0.9
2.5
23
10/17/2016
12/28/2016
Sale of 100% of shares of Nansei Seikyu (NSS), located on Okinawa
island, Japan
7/22/2016
1/4/2017 Sale of 100% of Petrobras Chile Distribuición Ltda.
12/28/2016
2/3/2017 Sale of the entire 45.97% stake in Guarani S.A.
12/15/2016
2/23/2017
Total
Collection of 24 million new common shares issued by São
Martinho S.A., as payment for the incorporation, by the São
Martinho, of 49% stake held by Petrobras Biocombustíveis in Nova
Fronteira Biocombustíveis S.A.
0.2
0.5
0.2
0.1**
5.0
* Consider amounts received and future payments related to the transaction
** Based on the weighted average price for the trading volume of São Martinho shares in the 30 days prior to the signature of the
contractual instruments of incorporation
Additionally, we signed the contractual instruments relating to the partnerships and
divestments listed below. The completion of these transactions is subject to the fulfillment
of previous legal and contractual conditions.
Table 4: Partnerships and Divestments – Contractual Instruments Signed
Date of Contract
Signature
9/23/2016
Transaction
Sale of 90% of shares of Nova Transportadora do Sudeste (“NTS”), natural
gas carrier of southeastern Brazil
Transaction
Value*
5.2
11/17/2016
Sale of 100% of shares held by Petrobras for Liquigás Distribuidora S.A.
0.8**
12/28/2016
Sale of all the shares held by Petrobras in its wholly-owned subsidiaries
Companhia Petroquímica de Pernambuco (“PetroquímicaSuape”) and
Companhia Integrada Têxtil de Pernambuco (“Citepe”)
12/28/2016
Strategic Alliance with French company Total
in the upstream and
downstream segments. The following were signed: (i) joint exploratory
studies in exploratory areas of the Equatorial Margin and in Santos Basin;
in the areas of digital
and (ii) technology partnership agreement
petrophysics, geological processing and subsea production systems. In
addition, the contracts provided for the transfer of 22.5% rights from
Petrobras to Total in the Iara concession area; transfer of 35% rights of 35%,
plus operation, in the Lapa field concession area, in Block BM-S-9, whereas
Petrobras maintains 10%; sale of 50% stake in Termobahia, including the
Rômulo de Almeida and Celso Furtado thermal plants and the option of
acquisition by Petrobras of 20% stake in Block 2 of the Perdido Foldbelt
area, in the Mexican sector of Gulf of Mexico.
Total
* Consider receivables at transaction closing and subsequent payments
** Considering the exchange rate as of 12/31/2016
0.4
2.2
8.6
The transactions above are part of our Partnership and Divestment Program, which totaled
US$13.6 billion in the 2015-2016 biennium.
On 12/7/2016, through an interim decision, the Federal Accounting Court (“TCU”) ordered
that we refrained from “signing contracts for the sale of assets and companies that were
24
underway as of that date, as well as starting new sales projects,” until TCU decided on the
merit of the proceeding – the System for Company Divestments (“System”). This decision
provided an exception for the following projects: (i) sale of stake in U.S. Gulf of Mexico
assets; (ii) transfer of rights in the Baúna and Tartaruga Verde fields; (iii) sale of the entire
45.97% stake in Guarani S.A.; (iv) sale of all shares held by Petrobras in its wholly-owned
subsidiaries Companhia Petroquímica de Pernambuco (PetroquímicaSuape) and Companhia
Integrada Têxtil de Pernambuco (“Citepe”); and (v) incorporation by São Martinho of 49%
stake owned by Petrobras Biocombustível on Nova Fronteira Biocombustível S.A.
We reviewed the System to implement improvements, which were submitted to TCU for
evaluation. Thus, on 3/15/2017, TCU ordered that, before such improvements were
incorporated into the System, all divestment projects in progress were restarted. Specifically
in connection to the sale of stake in U.S. Gulf of Mexico assets and the transfer of rights in
the Baúna and Tartaruga Verde fields (for which a exception had already been granted in the
decision of 12/7/2016), the relevant competitive processes can proceed from their current
phase, based on the revised System.
Due to injunction decisions by the Judiciary issued in a class action, proceedings pertaining
to the following divestment projects are currently suspended:
sale of equity stake in Petrobras Distribuidora;
transfer of concessions rights in onshore fields located in the states of Sergipe,
Ceara, Rio Grande do Norte, Bahia, and Espírito Santo; and
transfer of rights in Baúna and Tartaruga Verde field concessions (which are
suspended for this reason, though their conclusion has been allowed by TCU).
All decisions issued by the Judiciary to date in ongoing proceedings, whether favorable or
unfavorable to us, are based on preliminary analysis (i.e., there was no statement on the
merits of the case), so that, at least in theory, the current status of project continuation or
suspension could be reversed by subsequent decisions that might be issued, including by the
very instances that have issued preliminary statements.
Lastly, in terms of strategic partnership, in addition to the aforementioned alliance with
Total, we have signed Memoranda of Understanding with the companies Statoil and Galp, to
consolidate the strategic alliance in the Exploration & Production and Natural Gas segments.
We’ll move forward with our partnership and divestment program, which is considered one of
the main pillars to achieve the leverage reduction target, focusing on the partnership and
divestment target defined in our Strategic Plan.
INTERNATIONAL ENVIRONMENT, OIL MARKET AND
REGULATION
INTERNATIONAL ENVIRONMENT
The global economy recorded difficulties in resuming more consistent growth in 2016.
During the year, several events contributed to maintain a high level of uncertainty in the
international market, whereas capital flows, which are significantly volatile, and the price of
commodities remained depressed. A particularly striking aspect of 2016, indicated by the
25
presidential election in the United States and the referendum in the United Kingdom that
voted in favor or its exit from the European Union, is the possibility of reversal of
globalization processes, with medium-term effects in economic, geopolitical, and social
dynamics. In this sense, the low growth of economies, unemployment, social fragility, and the
migratory flow from Middle Eastern countries, mainly for Europe, have encouraged defensive
movements opposed to further global integration. Should such movements advance, the
prospects are for decline in international trade and aggravation of geopolitical tensions.
Regarding developed economies, the year was marked by the slowdown of the U.S. economy,
from 2.6% to 1.6%, due to speculation on the trajectory of American interest rate (“FFR”) and
the U.S. presidential election. Donald Trump’s victory brought uncertainties to the
international market and strengthened the possibility of reversals in important international
agreements. In this regard, it should be noted that the President-elect’s campaign speech
was directly opposed to important agreements, such as the Transpacific Agreement, the
North American Free Trade Agreement (“Nafta”) and the climate agreement established in
Paris, on the 21st Climate Convention (“COP 21”). Europe continued to have difficulties
promoting income and employment growth amid restrictive policies for public sector
deleveraging. Moreover, no progress was made in solving inter-regional imbalances,
particularly those associated with the heterogeneity of competitiveness and productivity
among member countries of the Euro area. Another important point was the victory of the
proposal in favor of the United Kingdom’s departure from the European Union, in the
referendum held in June. Even though the exit is not immediate, the decision has great
importance, not only in economic terms but also in the more general context of questioning
the block’s current policies. It was the first time a country has decided to leave the European
Union, a fact that may encourage exit or reform movements in other countries.
In emerging economies, growth rates remained steady at 4.1% p.a. 1 However, this aggregate
result masks a great dispersion in the growth trajectory of these countries. In general, the
emerging countries of Asia maintained an expansion quite higher than the other countries.
India grew 6.6%2 in 2016, benefiting from improvements in the terms of exchange in its
international trade. In China, the 6.7% economic growth3 was slightly higher than the target
for the 2016-2020 period.
On the other hand, the slowdown in South America countered the good performance of Asian
countries. The South American economies, still under the impact of the negative effects
from the significant drop in commodity prices in 2014, recorded a reduction in activity level
in 2016. Despite the adverse foreign context, some countries have gone through this period
with small slowdown, as in the case of Chile, Bolivia and Colombia. In other countries,
however, there is a deeper economic crisis. This group consists mainly of Venezuela and, to a
lesser extent, Brazil, Ecuador and Argentina. Regarding Argentina, it is worth highlighting the
significant change in economic policy as a result of the 2015 presidential election, with the
implementation of measures aimed at improving the business environment, such as the
liberalization of the exchange rate and the reduction of subsidies.
1IMF, World Economic Outlook update, 1/16/2017.
2IMF, World Economic Outlook update, 1/16/2017.
3IMF, World Economic Outlook update, 1/16/2017.
26
The weak momentum of the international economy and the maintenance of the low level of
commodity prices directly impacted the dynamics of Brazilian economy. However, domestic
difficulties best explain the 3.6% drop of the level of activity in the country. Economic
performance was once again heavily influenced by the downturn in domestic demand,
particularly in private consumption and investment. The former’s drop is explained primarily
by the high level of household debt and the increased level of unemployment, which reached
13.02% by the end of the year. Meanwhile, investments followed a downward trajectory, due
mostly to the indebtedness of firms and to maintenance of wide idle production capacity in
industrial segments. In addition, the performance of economic activity turned out to be
influenced negatively by strong political instability, such as the impeachment process of the
President of the Republic of Brazil and other events.
From the point of view of monetary policy, the economic downturn was sufficient to cause
variation in price levels to stay below the target threshold set by the Central Bank (6.5%). As
such, accrued inflation in 2016 as measured by the Extended National Consumer Price Index
(IPCA) recorded 6.29% variation. Price expansion in 2016 occurred mainly due to increased
food prices. With the maintenance of a more significant rate of increase in domestic prices,
the Central Bank kept the basic interest rate at 14.25% p.a. over almost the entire year, with
reductions in October and November, closing the year at 13.75% p.a.
In addition, 2016 saw the Brazilian fiscal crisis worsen. Fiscal
indicators continued
deteriorating with the continuation of the recession. The primary result, which recorded a
deficit at 1.9% of GDP in 2015, reached the 2.5% deficit mark in 2016, the main reason for
which was the drop in tax revenue related to economic activity. Annual revenue in actual
terms was about 3% lower in 2016. The government’s general gross debt grew from 66% of
GDP to around 70%.
In relation to the exchange rate, the national currency began the year strong devaluation,
listed next to 4.00 BRL/USD during the months of January and February. From there,
however, the trajectory was reversed due to both foreign and domestic factors. At the
international level, the relative recovery in commodity prices strengthened the currencies of
the major exporters of raw materials, such as Brazil. In parallel, within the domestic arena,
the beginning of the process of change in the Federal Government was reflected in the drop
in country risk perception, increasing the movement of currency appreciation. In the second
half, although the exchange rate fluctuated at a level below 3.30 BRL/USD, speculations
about changes in the monetary policy of the United States retained the uncertainty about
the real’s trajectory. As such, the national currency was one of the most volatile currencies in
the world for over a year, especially sensitive to variation in commodities and signals from
the U.S. Federal Reserve.
As for hydro power generation, over the course of the year, a partial recovery was observed
in the volumes of the country’s main reservoirs, which returned to reasonable levels. The
relief in the water crisis in the Southeast area was due in most part to the improvement in the
rainfall regime itself (increase of rains).
Hydro power generation improved in general in comparison to 2015, except in the Northeast,
where reservoirs remained in the worst historical level. This led the National System
Operator (“ONS”) to request a decrease in the minimum flow of the São Francisco River
plants to the National Electric Energy Agency (“Aneel”). Despite the increased wind power
27
generation in the region, the spot market price remained above R$ 100/MWh throughout
2016, differently than what occurred in other subsystems, where this level only was reached
mid-year. Accrued power consumption presented a 1.1% drop in comparison to the previous
year. This downturn in demand was responsible for the cancellation of the new Energia Nova
A-3 auction in 2016.
CLIMATE CHANGES
Regarding climate change, the Global Agreement signed at COP 21, in Paris, aims primarily to
keep the planet’s temperature rise below a limit of 2o C, and there are efforts to keep it at
1.5o C, considered a time slice from the pre-industrial period until the end of this century.
The agreement’s entry into force, initially planned for 2020, has been anticipated for 2016.
At the UN General Assembly, Brazil delivered its ratification of the agreement. Brazil’s goal is
to cut greenhouse gas emissions by 37% by 2025, with the reduction target of 43% by 2030,
compared with 2005 levels. The main targets in the agreement are the reduction of
deforestation and the expansion of renewable energies within the energy matrix, from 39.4%
to 45% by 2030.
The 22nd Climate Convention (“COP 22”) took place in November in Marrakech, and its main
objectives covered both the discussion on the development of the Global Agreement to
achieve the goals proposed by the countries and the review processes that should boost
policies to intensify reductions in emissions, in order to reach the 2 C0 temperature rise
threshold as stated in the agreement.
OIL MARKET
In 2016, Brent oil prices continued their downward trajectory started in the second half of
2014. The US$ 44,11/bbl annual average was 15.6% lower than4 the US$5 2,31/bbl average
recorded in 2015. The first few months of the year were particularly critical to this result,
since Brent value reached its lowest level since January 2003, impacting the first quarter’s
average, which stood at US$ 34,80/bbl. Despite the rising prices in subsequent quarters, the
price drop in annual comparison was justified by the slowness in the process of market
rebalancing, still ongoing.
Insofar as oil demand is concerned, in comparison with the previous year, there was a 1.6%
increase, with reduction in growth rate in both member and non-member countries of the
Organization for Economic Cooperation and Development (“OECD”). In the first group, the
growth rate in demand dropped from 1.3% in 2015 to 0.4% in 2016. Among non-OECD
member countries, in turn, the growth rate dropped from 2.8% to 2.4%. Despite the reduced
rate in comparison to the previous year, the 1.6% growth rate in 2016 is still above historical
levels 5.
On the oil supply side, the volume recorded in 2016 was 0.3 million bpd6 (+0.34%) higher than
in 2015, with a decline in production from countries outside the Organization of Petroleum
4 Source: Bloomberg
5 Source: Oil Market Report – AIE/Jan/2017 Issue
6 Source: Oil Market Report – AIE/Jan/2017 Issue
28
Exporting Countries (“OPEC”) that was partially counterbalanced by the increase in OPEC
production.
Outside of Opec, American oil production started responding to low oil prices. The 8.9 million
bpd volume in 2016 corresponds to an annual drop of 530 thousand bpd (-5.6%) in relation to
20157, the first since 2008. Another relevant factor for non-OPEC production was the
occurrence of forest fires in Canada in the middle of the year, which temporarily reduced the
volume produced in the country in the months of May and June8.
Growth in OPEC production in turn was mainly the result of expansion in countries such as
Saudi Arabia, Iran and Iraq, which more than offset the decline resulting from geopolitical
strife in Nigeria and the economic/political difficulties in Venezuela. Due to the negative
impact of low prices on the revenues of member countries, the possibility of production
control in partnership with major producers outside OPEC was discussed on more than one
occasion throughout the year. At a meeting held at the end of September, in Algeria, OPEC
member countries agreed to reduce production volume, in order to accelerate market
rebalancing.
The details of the agreement, which were defined in the OPEC ordinary meeting held in
November, indicated an 1.2 million bpd cut in oil production compared to the production
level in October. The production cut took effect in January 2017, with the participation of all
Organization members except for Iran, Libya and Nigeria. A group of 11 producer countries
outside OPEC, including Russia, executed an agreement to contribute with a 558 thousand
bpd production cut in support of OPEC, for the same period. The positive impact on oil prices
in December, whose US$ 54.07/bbl average was 16% higher than in November, wasn’t
enough to reverse the drop in prices over the previous year.
In this context of low oil prices, oil companies reduced long-term investments in exploration
and production technologies, and prioritized efficiency gains and incremental advances in
existing technologies, relying, to that end, on increasing use of digital technologies9.
REGULATION
In 2016, the business environment in the oil and natural gas sector of Brazil was updated due
to relevant changes in regulatory aspects, particularly by the National Congress’ approval of
new rules for the pre-salt areas. Furthermore, throughout the year, actions designed to ease
the rules defined for local content policy were promoted, as well as regulatory adaptations to
suit the natural gas market to a more competitive model.
The changes in the regulatory framework for the pre-salt layer were the most outstanding
point of regulatory revisions occurred in 2016 in the country. Before, Petrobras was forced by
Law No. 12,351/2010, to be the single operator and to hold a minimum 30% stake on any
block contracted under the production sharing regime, which was exclusive to new
hydrocarbon exploration and production activities in the pre-salt polygon in Brazil. With the
change, we went from mandatory operator to preferred operator, being able to choose in
7 Source: EIA/DOE/data through November/2016
8 Source: PIRA Crude Oil Disruption Tracker-Aug/2016
9 Source: IHS Energy – Upstream Technology and Innovation – Jul/2016
29
which biddings for blocks in the pre-salt areas we wished to participate. In addition to the
change in the regulatory framework, in December, the National Energy Policy Council
(“CNPE”) authorized ANP to conduct three bidding rounds in 2017: the 2nd Round under the
Production Sharing regime for unitized areas, the 4th Round of Marginal Fields, and the 14th
Round under the Concession regime. The government’s expectation is that there are new
investments in exploration in Brazil, with the acceleration of production in some fields.
In the context of the local content policy, the Oil and Gas Sector Production Chain
Competitiveness, Development, and Supplier Enhancement Stimulus Program (“Pedefor”)
was established. In order to identify the main weaknesses of the rules in force, a few
technical meetings took place involving said institutions over 2016. One of the main
objectives was to draft a proposal for new guidelines for the operation of the local content
policy to be adopted in the new bidding rounds expected for 2017, forwarded to CNPE. The
final decision on the issue should take place in 2017.
In relation to the natural gas market, in mid-2016, the Ministry of Mines and Energy launched
the initiative “Gas to Grow,” which aims at improving the regulatory framework of the sector,
laying the groundwork for a competitive market by adopting best international practices in
order to build a favorable environment for new investments. The implementation of
activities within the framework of this initiative takes into account a strategic discussion with
the different industry players in Brazil. At a meeting held in December 2016, CNPE adopted a
Resolution defining the guidelines for the design of this new market and created the
Technical Committee for the Development of the Natural Gas Industry (CT-GN), which is to
present draft measures to be submitted to the National Congress within 120 days. The
Committee is composed of representatives from several Federal Government agencies,
associations, and natural gas industry players and civil society stakeholders (for additional
information on regulation, see item “Regulatory Models: Concession, Production Sharing and
Transfer of Rights” in this report).
INVESTMENTS
Our investments totaled R$ 55.35 billion in 2016, 27.5% less than the previous year,
distributed as follows:
30
Chart 16: C
Compariso
n of Total
Investmen
ts (R$ billio
on)
In the E&
developm
maintenan
operation
de Saquar
Cidade de
Santos Ba
&P area, w
ent of ne
nce of pro
al efficienc
rema platfo
e Caraguat
asin.
we investe
ew oil fiel
oduction a
cy. In 2016
orms, each
tatuba pla
d R$ 47.3
lds, prima
at old fiel
, we initiat
h with 150 t
tform, wit
3 billion. T
rily in the
lds, for ex
ted the ope
thousand b
h 100 tho
These reso
e Santos
xploratory
erations of
bpd in capa
ousand bpd
ources wer
Basin Pre
activities
f the Cidad
acity, both
d capacity
re allocate
e-Salt Area
and for
de de Maric
in Lula fie
in Lapa f
ed for the
e
e
a, for the
g
improving
cá e Cidade
e
ld, and the
e
n
field, all in
In the area
and expa
productio
started in
dischargin
processing
capacity o
a of Refinin
nsion of t
n in the Sa
n 2016 the
ng up to 16
g terminal
of the Abre
ng and Nat
the capaci
antos Basin
e operation
6 MM m³/d
in Cabiúna
u e Lima Re
tural Gas, w
ty of pipe
n Pre-Salt
n of the Ce
ay of natur
as (RJ). In
efinery (PE
we injected
elines and
Area and f
ernambi-T
ral gas pro
the year, w
E), from 74
R$ 6.4 billi
natural g
for mainte
TECAB (rou
oduced in t
we also exp
thousand t
ion, mainly
gas proces
nance of t
ute 2) pipe
he Santos
panded the
to 100 thou
n
onstruction
y for the co
s, to meet
t
ssing units
g park. We
e
the refining
r
onsible for
eline, respo
e
-salt to the
Basin pre-
g
processing
e daily oil p
.
usand bpd.
Transpetr
constructi
new ships
Sobrinho,
ro invested
ion of ship
s were de
Darcy Ribe
d R$ 1.236 m
s for the F
elivered: su
eiro, and Lú
million in 2
leet Upgra
uezmax M
úcio Costa.
2016. Invest
ade and Exp
achado de
tments we
pansion Pro
e Assis an
re directed
ogram (“Pr
nd gas tan
d, in particu
romef”). In
nkers Barb
ular, to the
e
2016, four
r
a
bosa Lima
Petrobras
expansion
of station
s Distribuid
n of the log
s, the aviat
dora invest
gistics infra
tion segme
ted R$ 41
astructure,
ent, and ga
0 million
the develo
s distribut
in 2016, a
opment and
ion and pow
imed at th
d moderniz
wer trading
he mainte
zation of th
g.
nance and
d
k
he network
31
Our investment budget, as well as the investment and budget of our subsidiaries, is
approved on an annual basis by the National Congress, pursuant to budgeting legislation in
force in Brazil for companies controlled either directly or indirectly by the Federal
Government. The budget in effect in 2016 was approved by Law 13,255/2016 (2016 Annual
Budget Law - LOA) and amends.
In compliance with the constitutional rule prohibiting investments that exceed the budget
and additional credits approved, we executed our investments within the limits approved by
the competent authorities.
IMPAIRMENT
The recoverability assessment of our assets takes place annually as of December 31, or when
there is evidence of devaluation over the course of the year. In 2016, the indicators were
checked for specific assets in the third quarter, mainly due to an expectation of more
moderate recovery in the international price of oil, as well as because of changes in the
Brazilian political and economic scenario, which raised country risk and the discount rate on
the cash flow of projects. These factors, together with the decrease in expenditure provided
for in the investment portfolio, reflecting portfolio optimization and the effort to reduce the
company leverage, changed the medium- and long-term economic projections used in the
context of Petrobras’ new 2017-2021 Business and Management Plan, with direct
consequences to key impairment testing assumptions. Said plan was completed and
approved in the third quarter of 2016.
We recognized a total value of R$ 20.3 billion in asset impairment, of which R$ 16.8 billion we
had already recorded by the third quarter.
For information on impairment in the business areas, refer to explanatory note 14 to the
financial statements in this Management Report.
32
BUSINESS PERFORMANCE
EXPLORATION AND PRODUCTION
We operate in the Exploration and Production area with focus on research, location,
identification, development, production, and incorporation of oil and natural gas reserves,
onshore and offshore, producing hydrocarbons safely and profitably.
We are world leaders in deep and ultra-deep water exploration and production, recognized
for pioneering the introduction of new technologies. Thanks to his leadership, we have
received nationally and internationally recognized awards in the oil and gas industry (for
more information, see item “Awards and Recognition” in chapter Business Performance).
After an abrupt drop in 2015, average Brent price suffered further 17% reduction in 2016,
reaching the average price of US$43,69/bbl in the year. In this scenario, upon revisiting our
investment plan, we reduced by 24% the amount to be invested in Exploration and
Production between 2017 and 2021. This cut will be based on the maturation and the
optimization of development projects, without significant impacts on the production curve
expected for the period.
As a result of our project portfolio review program, we decided to prioritize investments in
production development, with a focus on projects of greater profitability and cash
generation, and to perform divestments in some assets in Brazil and abroad (for more
information, see item “Partnerships and Divestments” in chapter Corporate Strategy).
In addition, we continued with our efforts to reduce costs, mainly through the reduction of
intervention activities in Campos Basin wells. Add to that the increased participation of the
pre-salt layer in our total production, which has lower operating costs. In 2016, our average
extraction cost, excluding government charges, was US$ 10,33/boe, which is a 11% decrease
compared to the US$ 11,67/boe average cost obtained in 2015.
Areas of Operation
Brazil
The focus of our activities is Brazil, with the portfolio focused on the Southeast, and most of
our oil reserves are located in offshore deepwater and ultra-deepwater, in the Campos,
Santos, and Espirito Santo basins. We also have relevant onshore and shallow water
production, concentrated primarily in the North and Northeast regions and, to a lesser
extent, in the Southeast, in the Espírito Santo area.
Our domestic exploration portfolio consists of 131 exploration blocks, totaling an area of
67,315 km², of which 20,818 km² onshore and 46,497 km² offshore. We are working on 37
Discovery Assessment Plans (PADs), 35 of which in areas solely exploratory and two in ring
fence areas (an exploratory area contiguous to a field where there were past discoveries).
In the development and operation of production, our domestic portfolio consists of 316
active oil and natural gas fields, 306 of which are governed by concession contracts and 10 by
transfer of rights contracts.
33
Regulator
ry models:
concessio
n, product
tion sharin
g and tran
sfer of righ
hts
In Brazil,
consortia
the regula
takes plac
and Biofu
productio
sharing m
the Union
through d
atory mode
ce through
els (ANP). T
n activities
odels were
n owns the
different pa
el applied. T
h tenders c
The conces
s until 2010
e enacted .
e oil, but t
ayment me
The main p
conducted
ssion mode
0, when the
the extract
ethods, su
process of
by the Na
el fully gov
e laws crea
tion can b
ch as roya
acquisition
ational Age
verned oil a
ting the tra
e perform
lties, which
n of rights
ency of Pet
and natural
ansfer of ri
med by com
h vary dep
in explorat
troleum, N
l gas explo
ights and p
mpanies or
r
pending on
n
s
tion blocks
s
atural Gas
oration and
d
n
production
As menti
Meanwhile
a large pa
distributio
and Santo
oned, our
e, fields un
art of our
on of our p
os – and the
main fie
nder the tra
production
participatio
e respectiv
lds in pro
ansfer of ri
n in the m
on in the fi
ve regulato
oduction c
ights and p
medium and
ields of the
ry models:
currently f
production
d long term
e two majo
follow the
n sharing re
ms. The m
or oil basin
e concessio
egimes will
map below
ns in Brazil
on model.
.
t
l represent
shows the
e
s
– Campos
Figure 3: M
Map of Majo
or Oil Basin
ns in Brazil
and their R
Regulatory
y Models
6
12/31/2016
Concession
Transfer of
Rights
R
Production
Within the
operating
Basin, wer
part. In De
in the Libr
e scope of
and explo
re granted
ecember 20
ra block an
f the Produ
oring a str
at public a
013, we sig
d are its ex
uction Sha
rategic pre
auction he
gned the fi
xclusive ope
aring Contr
e-salt bloc
ld in Octob
rst contrac
erator. Thi
ract model
k known a
ber 2013 to
ct under su
s contract
l, the right
as Libra, lo
o a consort
uch regime
has a term
ts and obli
ocated in t
tium of wh
e. We have
m of 35 year
gations of
f
s
the Santos
hich we are
e
e
40% share
rs.
In 2010, w
produce u
negotiatio
rights, wh
could be e
the subse
between t
we signed a
up to five b
on involved
hich consist
extracted f
equent rev
the blocks w
a Transfer o
illion barre
d importan
ted of expl
from this a
view of Co
whose righ
of Rights C
els of oil eq
nt aspects
loration blo
rea; (iii) th
ontract val
ts were tra
Contract, p
uivalent (b
s, such as:
ocks; (ii) th
e price to b
lue and (v
ansferred t
ursuant to
boe) in sele
(i) the are
he volume
be paid for
v) the term
o Petrobra
which we
cted areas
ea covered
in barrels o
r the Contr
ms of real
as.
acquired t
of pre-sal
d by the t
of oil equiv
ract; (iv) th
llocation o
he right to
o
t. Contract
t
f
transfer of
valent that
t
e terms of
f
s
of volumes
34
At this time, the terms of the Transfer of Rights Contract are under review, as planned,
including, most notably: value, maximum volume to be extracted, term, and local content
percentages. Once the Contract review process is completed, should it be determined that
the transferred rights reach a value greater than the one initially paid, Petrobras shall (i) pay
the difference to the Federal Government or (ii) reduce, proportionately, the total volume of
extracted barrels under the terms of the Transfer of Rights Contract. On the other hand, if it
is found that the revised value is lesser than the initial value of the contract, the Federal
Government will reimburse the difference to Petrobras in cash, government bonds, securities
issued by the concessionaire, or another method agreed by the parties. In December 2013,
after the first declaration of commerciality, as defined in the terms of Contract review,
negotiations began with the Federal Government on the Contract review process. These
negotiations continue to this day and it is not possible to specify a date for their conclusion.
Currently, the method for calculating special participations due in areas subject to
unification are under discussion. Because of the ANP’s order to unify unconnected fields
(read: Lula and Cernambi; Baúna and Piracaba; Tartaruga Verde and Tartaruga Mestiça; and
Parque das Baleias), as the administrative channels are exhausted, we have initiated four
arbitration proceedings against ANP, questioning such unifications both technically and
legally before the International Chamber of Commerce, as provided for in the transfer of
rights contracts signed.
Abroad
We operate internationally in Latin America, the United States and Africa.
In South America, we operate in Argentina, Bolivia and Colombia, with a portfolio composed
of nine assets (three in exploration and six in production, of which two still with exploratory
potential). Of this total, we operate seven assets (three in exploration and four in production,
one of which with exploratory potential), under two types of exploration and production
contracts: concession (Argentina and Colombia) and operation (Bolivia). Upon completion of
the sale of 67.19% stake in Petrobras Argentina (Pesa), on 7/27/2016, to Pampa Energía, we
left the integrated operation in Argentina, but we maintained participation in the Neuquina
Basin, in the Active Río Neuquén asset (for more information, see item “Partnerships and
Divestments” in chapter Corporate Strategy).
In the United States, we have 100% stake in Petrobras America, Inc. (PAI), which focuses on
deepwater and ultra-deepwater fields in the American section of the Gulf of Mexico. As of 31
December 2016, PAI held stakes in 52 offshore blocks. PAI production in the United States in
2016 originated mainly from the Cascade, Chinook, Saint Malo, Lucius, Hadrian South and
Cottonwood fields.
In Mexico, we execute service contracts without risk clause since 2003, through our joint
venture PTD Servicios Multiples SRL in the Cuervito and Fronterizo onshore blocks, in the
Burgos Basin. Based on these service contracts, we receive payments for our services, but all
the production belongs to the Mexican national oil company Pemex.
In Africa, we operate through our 50% stake in the company Petrobras Oil and Gas (PO&G).
Our activities are concentrated mainly in Nigeria, in the Agbami and Akpo fields. We also
have a production development project in the Egina field, and exploratory activity in the
Egina South and Preowei fields, all of which under the production sharing contract regime.
35
Exploration
Exploratory activity generates discoveries of hydrocarbon reservoirs, whose volumes are
incorporated into our reserves, according to the results of the Discovery Assessment Plans
(PADs). In Brazil, in 2016, we drilled 16 exploration wells – 10 onshore and 6 offshore – and
achieved 63% exploratory success rate. In the pre-salt layer, we drilled four wells, with 100%
success rate. Abroad, were drilled five onshore wells, four of which in Argentina and one in
Bolivia, with 80% success rate.
Our investments in exploration totaled R$ 2.85 billion in the year, R$ 2.64 billion of which in
Brazil. These investments cover mainly the cost of drilling, seismic surveys and the
acquisition of blocks, which resulted in the following discoveries and declarations of
commerciality:
Table 5: Main Discoveries in 2016
Country
Basin
Granting
Area/Well
Well Name (ANP)
Ambient
Brazil
Brazil
Brazil
Santos
Libra
3-RJS-741
PAD Libra 5 NW 5
Pre-Salt
Campos
Albacora
3-AB-128-RJS
PAD Forno Extensão NW2
Pre-Salt
Campos
BM-C-33
3-REPF-17-RJS
PAD Gávea A1
Pre-Salt
Water
Depth
(m)
1913
337
2740
% Petrobras
40
100
30
Table 6: Declaration of Commerciality in 2016
Country
Field
Basin
Brazil
Guriatã Recôncavo
Recoverable Volume
(million boe)
0.547
Quality (API) % Petrobras
37
100
Production
In 2016, we produced in Brazil an average of 2.144,3 thousand barrels per day (bpd) of oil,
representing a 0.75% increase over the previous year, in line with the 2.145 thousand bpd
target scheduled for the period. For the second consecutive year, we achieved the scheduled
planning, reinforcing the commitment to predictability in our projections. If the own
production of natural gas is considered, which reached unprecedented 77 million m³ a day in
2016, total production in Brazil reaches 2.63 million barrels of oil equivalent per day (boed) –
1% more than achieved in 2015, in addition to being a new record for Petrobras.
In the pre-salt, in the month of May we surpassed together with our partners the milestone
of one million barrels produced per day. Meanwhile, in November, we achieved accumulated
production of one billion barrels of oil in the pre-salt layer, just six years after the entry into
operation of the first production system.
36
The average annual production operated in the pre-salt layer in 2016, which includes the
production of Petrobras and its partners, was record, reaching 1.02 million bpd of oil and
surpassing the 2015 production by 33%. The main highlights were the significant production
growth in the Lula field (Iracema Norte and Iracema Sul areas, thanks to FPSOs Cidade de
Itaguaí and Cidade de Mangaratiba) and in the Sapinhoá field (FPSO Cidade de Ilhabela),
located in the Santos Basin pre-salt layer, in addition to the Parque das Baleias area (P-58),
in the Espirito Santo State’s portion of Campos Basin. In addition, operations for three
production systems were started, two of which in Lula field (FPSO Cidade de Maricá and FPSO
Cidade de Saquarema) and one in Lapa field (FPSO Cidade de Caraguatatuba), located in the
Santos Basin pre-salt layer.
Abroad, the average oil production in 2016 was 80 thousand bpd, 19% below the volumes
produced in the previous year. The average production of natural gas was 13.7 million
m³/day, 11% below the 2015 production. The reduction occurred mainly due to divestments,
such as the sale of our stake in Petrobras Argentina.
Consolidating the productions in Brazil and abroad, the average oil production in 2016 was
2.22 million bpd, and the annual average oil and gas production was 2.79 million boed - same
production level as 2015, as detailed in the table below.
Table 7: Consolidated Productions (Brazil and Abroad)
Petrobras Production
Brazil
Abroad
Total
2015
2016
2015
2016
2015
2016
Oil (million bpd)
Gas (million m³/d)
Total (million boed)
2.13
74.5
2.60
2.14
77.0
2.63
0.1
15.4
0.19
0.08
13.7
0.16
2.23
89.8
2.79
2.22
90.8
2.79
Reserves
According to ANP/SPE criteria, as of 31 December 2016, our proven reserves of oil,
condensate and natural gas reached 12.514 billion barrels of oil equivalent (boe), as shown in
the table below. In 2015, these volumes were 13.279 billion boe.
Table 8: Proven Reserves of Oil, Condensate, and Natural Gas (ANP/SPE criteria, as of 31
December 2016)
Description
Proven Reserves
Oil and Condensate (billion bbl)
Natural Gas (billion m3)
Oil Equivalent (billion boe)
10.553
312.293
12.514
Our volumes of oil, condensate and natural gas in Bolivia are not recorded because the
Bolivian Constitution does not allow reserves to be disclosed by the concessionaire.
37
The following table details the evolution of proven reserves in 2016, according to ANP/SPE
criteria.
Table 9: Evolution of Proven Reserves in 2016 (ANP/SPE criteria)
Composition of Proven Reserves
a) Proven Reserves December/2015
b) New Discoveries and New Accruals in 201610
c) Monetization of Reserves in 201611
d) Revisions in 201612
e) 2016 Balance (b+c+d)
f) 2016 Production in the Year
G) Annual Variation (e+f)
h) Proven Reserves December/2016 (a+g)
Petrobras
(billion boe)
13.279
0.110
‐0.153
0.203
0.160
‐0.925
‐0.765
12.514
The main factors that impacted reserves were:
incorporation of 0.110 billion boe in proven reserves due mainly to new well drilling in
the Búzios field (Santos Basin);
increase of 0.203 billion boe in proven reserves resulting from drilling new production
development wells and better behavior of post-salt layer onshore and offshore areas
in Brazil and in USA. In the pre-salt layer, the increase resulted from positive
responses in the behavior of reservoirs, recovery mechanisms (water injection) and
operating efficiency of production systems in operation, as well as of increased
drilling activity and interconnection of wells in the Santos Basin and in the Campos
Basin;
divestments that enabled early monetization of 0.153 billion boe of reserves in
Argentina and Venezuela; and
production of 0.925 billion boe in 2016. This volume includes shale oil production; it
does not, however, include the volume extracted in Tests of Long Duration (“TLD”)
and the production
in exploratory areas where field
commerciality has not yet been declared; therefore, there is no associated reserve. In
addition, as previously mentioned, in the case of Bolivia, the Bolivian Constitution
does not allow reserves to be recorded by the concessionaire.
in Bolivia. TLDs occur
We had a 34% Reserve Replacement Ratio (“RRR”), excluding the impact of divestments
made in 2016. The ratio between the volume of reserves and the volume produced is 13.5
years, and 13.9 years in Brazil. The Development Ratio (“DR”), which is the ratio between
developed proven reserves and proven reserves, was 50% in 2016.
10 Includes extensions that encompass expansions in the area of proven reserves through well drilling after the discovery.
11Divestitures, which representing early monetization of reserves.
12Revisions based on technical (ex: reservoir characteristics) and economic criteria.
38
REFININ
NG, TRA
ANSPORT
TATION
N, TRADI
NG AND
D PETRO
OCHEMIC
CALS
Our down
derivative
domestic
nstream are
es, guided
market. We
ea is respo
by the str
e also oper
onsible for
ategy of in
rate in part
r refining,
ncreasing t
ticipations
transporta
the efficie
in the petr
ation and m
ncy of our
ochemical
marketing
r assets to
segment.
of oil and
d
e
o serve the
REFININ
NG
We subst
located in
markets, a
meet the
processing
between t
antially op
n the sout
and to the
demand fo
g, which s
the cost of
perate all
theast of t
e source of
or derivativ
eeks to op
oil process
refining ca
the countr
most of o
ves in Brazi
ptimize ou
sing in Braz
apacity in
ry, close to
our crude o
il through
ur margins,
zil and the
Brazil. Six
o the mos
oil, in the C
a planned
, taking ad
cost of imp
of our th
st populou
Campos an
combinatio
dvantage o
porting oil d
ineries are
e
hirteen refi
ustrialized
d
us and ind
e
Basins. We
nd Santos B
orts and oil
l
on of impo
s
fferentials
of price di
derivatives
s.
The map b
below indic
cates the ge
eographica
al location
of each of
our refiner
ries in Braz
il:
Figure 4: M
Map of our
Refineries
in Brazil
In 2016, o
thousand
derivative
ur refinerie
bpd of o
es. Out of th
es in Brazil
oil and na
he total vo
l, with a tot
atural gas
lume of pr
tal capacity
liquid (N
ocessed oi
y of 2.176 t
GL), produ
l, 92% were
thousand b
ucing 1.88
e from Braz
bpd, proce
87 thousan
zilian fields
ssed 1.819
9
f
nd bpd of
s.
Out of der
oil in Braz
rivatives p
zil, totaling
roduced in
g 228 thous
our refine
sand bpd,
eries, we re
13% highe
gistered re
r than the
ecord prod
volume pr
uction of S
roduced in
S-10 diesel
l
e
2015. The
39
S-10 diesel oil has maximum sulfur content of 10 parts per million (ppm). Its main benefit is
the reduction in emission of polluting gases by vehicles.
We also registered records in oil processing in the Abreu e Lima Refinery (“Rnest”), achieving
the average of 99,77 thousand bpd of oil processed in August. The milestones achieved
reaffirm our continuous search for increased operating efficiency in our refineries, with
integrated management of the downstream system, contributing to the reduction of
derivate imports and increased profitability of the company.
Abroad, our refineries processed 126 thousand bpd of oil and natural gas liquid (NGL),
producing 128 thousand bpd of derivatives.
In the United States, through the Pasadena Refining System (“PRSI”), we operate a refinery
with capacity to process 100 thousand bpd of oil.
In Japan, we operated Nansei Sekiyu Kabushiki Kaisha (“NSS”) until April 2015. In March 2016,
its operation was discontinued definitively (final shutdown). Its sale was completed in
December, to Taiyo Oil Company (for more information, see item “Partnerships and
Divestments” in chapter Corporate Strategy).
In Argentina, until July 2016, we operated the Bahía Blanca Refinery, capable of processing
30,5 thousand bpd of oil, through stake in Petrobras Argentina S.A. (Pesa). Our stake was
wholly sold to Pampa Energía (for more
item “Partnerships and
Divestments” in chapter Corporate Strategy).
information, see
REFINING VENTURES
Abreu e Lima Refinery
The Abreu e Lima Refinery, located in Ipojuca, Pernambuco, is expected to operate two
processing units, known as refining lines. The first refining line enter in operation in
December 2014, with a 74 thousand bpd of oil load and, in January 2016, it was authorization
to process up to 100 thousand bpd of oil. We will resume work on the sulfur emissions
reduction unit (SNOX) in 2017, with expected startup in 2018, whereupon we will operate at
full load. For the completion of the second line, with the same capacity of the first, we are in
search of a partnership, as provided for in PNG 2017-2021.
Petrochemical Complex of Rio de Janeiro
We have approved the re-evaluation of the Petrochemical Complex of Rio de Janeiro
(“Comperj”) project, located in the city of Itaboraí, Rio de Janeiro, to continue the
implementation of the units associated with the Natural Gas Processing Unit (“UPGN”). The
UPGN is part of the Integrated Route 3 Project, which also includes a pipeline (Route 3), the
Additional Gas Treatment Unit in Cabiúnas Terminal (Tecab), in Macaé, Rio de Janeiro, and
the pipeline track (Route 3 North). Together, these projects complement the discharge and
processing infrastructure of natural gas from the Santos Basin Pre-Salt Area. For the
completion of the first refining line, we are in search of a partnership, as provided for in PNG
2017-2021. The projects for the second refining line and lubricants unit were canceled.
40
TRANSPORT
TRANSPORT AND STORAGE
Petrobras Transporte (Transpetro), our wholly-owned subsidiary, is responsible for servicing
our oil and gas production, logistics, and refining and distribution areas by carrying and
storing oil, natural gas, derivatives, and biofuels, acting as an operator in terminals (47
terminals, 20 of which onshore and 27 waterway), own and chartered vessels (56), oil
pipelines (7,719 km), gas pipelines (7,155 km) and road transport.
Transpetro carries imported and exported cargo of oil and other products, and its main
clients, in addition to the Petrobras System, are distribution and petrochemical companies.
In Brazil, the subsidiary operates facilities in 19 out of the 27 federation units.
PIPELINES AND TERMINALS
Transpetro’s pipelines and terminals area carried 603.3 million m³ in oil, derivatives, and
biofuels in the terminals and pipelines operated by the company in 2016, a 5.4% drop
compared with the previous year’s transport, a result influenced by the country’s economic
scenario and the behavior of the oil derivate market.
The main highlights in 2016 were:
consolidation of remote operation in road loading bases in terminal located along the
pipelines connecting Paraná-Santa Catarina (Opasc) and São Paulo-Brasilia (Osbra).
The remote operation of these pipelines is performed by the National Center of
Control and Logistics (CNCL), located in Rio de Janeiro, ensuring greater flexibility and
safety to operations, optimizing the capacity of installations, reducing costs and the
need for investments.
start of the remote operations of pipelines connecting Manaus to Coari (Orsol I and II),
located in Amazonas, and remote operations of the oil pipeline interconnecting
Caraguatatuba to the Henrique Lage Refinery (Revap), in São José dos Campos
(Ocvap II), located in São Paulo, by CNCL. This action ensures greater efficiency and
safety to operations, requiring fewer resources locally (labor, transport, etc.), which
provides productivity gains.
expansion of vessel discharge operations and storage of derivatives, from Transpetro
to third parties, in the ports of Vitória, Belém, Maceió, Suape, Cabedelo and São Luís,
due to new purchase and sale contracts of derivatives signed between Petrobras and
distributors in the Southeast and Northeast. Under these new contracts, our
responsibility scales back to product delivery to the output flange for the moored
ship in the port of destination, where product ownership is transferred to the
customer, whereas the distributors, customers of Petrobras, are responsible for hiring
Transpetro to execute the necessary services for the delivery of the product at the
terminal of destination. In addition to representing a cost reduction for Petrobras,
this initiative contributes to broadening Transpetro’s client portfolio, strengthening
its position in the logistics market, with potential revenue increase.
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first-time execution of aviation kerosene (QAV) transport operation from São Paulo
to Rio de Janeiro using the Transpetro-operated pipeline system. Such a transport
allows full service to the market, with consequent reduction of logistics costs for the
Petrobras System.
execution of operating improvements in the logistics infrastructure of piers in the
port of Suape, in Pernambuco, enabling greater operating flexibility and reliability,
with estimated financial gains of up to R$25 million per year. The port of Suape
features the largest movement of Transpetro vessels, with monthly average of 55
ships. Other projects planned to be completed in 2017 aim to reduce logistical
bottlenecks and promote expected savings of R$ 52 million/year.
centralized maintenance of major equipment in Southeast terminals at the Campos
Elíseos Terminal workshop, in Rio de Janeiro, generating savings of approximately
R$14 million/year.
MARITIME
Transpetro has 56 vessels in its fleet and transport capacity of about 4.5 million metric tons
of deadweight (DWT), the equivalent to 32 million bbl. Participation by Transpetro
corresponds to 40% of the total cargo of the Petrobras System. The subsidiary is adapting its
fleet profile, in order to meet the increased oil production in Brazil.
In 2016, the fleet of Transpetro ships transported 78.7 million tons of oil and derivatives, the
equivalent of 551.8 million bbl, 18.8% more than in 2015.
The segment highlights in 2016 were:
receipt of four ships scheduled under the Fleet Expansion and Upgrade Program
(Promef). Since 2010, Transpetro has received a total of 17 vessels within the scope of
Promef. In the year, two fleet ships were sold. Twelve other ships are under
construction.
completion of preparatory work of Transpetro vessels for vetting, inspections which
provided a service standard close to the best international references. This action
enabled the increase in oil exports and imports by Transpetro for the Petrobras
System. Part of the fleet was destined to such operations, having carried out several
operations in China, Chile and Europe.
in relation to safety and operating availability of Transpetro’s fleet, there was no
record of oil or derivate spills in 2016, and Operational Availability Index (IDO), which
measures the hours in which the vessel was operating or ready to operate in relation
to total hours within a given period, reached 99.81%, without docking (mandatory ship
stops), a figure superior to the 2015 result (99.26%).
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TRADING
DOMESTIC MARKET
We traded 2.064 thousand of oil derivatives in the domestic market, a volume 8% lower than
in the 2015.
Sales of diesel fuel dropped 15%, due mainly to the decline in our market share as a result of
the significant increase in imports by third parties. Another factor that explains the
downturn is the smaller economic activity, the consequences of which have been strongly
felt in the demand for transport, in particular by road.
Gasoline trading featured 1% drop. The major factor was the increase in the volume sold by
importers, petrochemical plants and private refineries, which displaced part of our market
share. In addition, the sharp drop in the consumption of households impacted the demand as
a whole. The sales downturn was softened by the loss of competitiveness of hydrated
ethanol relative to gasoline compared to 2015.
It is worth noting that the effects of increased imports of diesel oil and gasoline by third
parties on company results were fully offset by competitive prices.
Sales of liquefied petroleum gas (LPG) grew 1%, influenced by lower average temperatures in
the winter time in the main consuming regions, which boosted the consumption of the
derivate for residential use.
A 36% downturn was observed in fuel oil sales, caused by the reduction in deliveries to the
thermal power generation segment due to lower economic activity, the expansion of wind
power generation, and increased production of hydro power by power plants in the northern
region of the country.
Trading of aviation kerosene recorded 8% drop due to the intensification of grid
optimization measures adopted by airlines, as a way to offset the strong reduction in
demand for travel caused by the crisis.
In 2015, there was a reduction of the amount of petrochemical naphtha hired to Petrobras,
with consequent increase in imports carried out directly by Braskem. Upon the signing in
December 2015 of a long term contract in the same quantities as in the previous contract,
sales increased to 14% in 2016, compared with the previous year.
EXPORTS X IMPORTS
Our oil exports reached 387 thousand bpd, an increase of 8% over the volume of 2015, due
mainly to two factors: domestic oil production growth and shrinkage of domestic demand,
which also influenced sales of oil derivatives to the foreign market, which reached 155
thousand bpd, a 4% increase over the previous year.
Our oil imports totaled 136 thousand bpd, a 51% decline from 2015, also due to downturn in
the domestic market. Imports of oil derivatives totaled 238,000 bpd, a 7% drop. The smaller
volume of imported derivatives was a result of the aforementioned the domestic market
downturn, associated to larger sale of products in the Brazilian market by third parties.
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In 2016, we assumed the position of net exporters of oil and oil derivatives.
The financial balance of our trade balance, calculated on the basis of oil and oil derivatives
exports and imports, disregarding natural gas, liquefied natural gas (LNG) and nitrogenous,
featured US$ 2.8 billion in surplus.
PETROCHEMICAL
Our current participation in the petrochemical sector occurs through the following
controlled, associated or jointly controlled companies (participation as of 31 December
2016):
Braskem S.A. (36.20%) – mainly produces ethylene, polyethylene, polypropylene and
PVC;
Deten Química S.A. (27.88%) - produces raw material for detergents:
linear
alkylbenzene (LAB), linear alkylbenzene sulfonic acid (LAS), heavy alkylates (ALP);
Metanor S.A./Copenor S.A. (34.54%) - produces methanol, formaldehyde and
hexamine;
Fábrica Carioca de Catalisadores (50%) - produces catalysts and additives;
Petrocoque S.A. (50%) - produces calcined petroleum coke;
Companhia Petroquímica de Pernambuco – PetroquímicaSuape
(100%) and
Companhia Integrada Têxtil de Pernambuco Citepe (100%) - produces purified
terephthalic acid (PTA), PET resin (polyethylene terephthalate) and polyester
filaments. In December, we signed a contract for the sale of PetroquímicaSuape and
Citepe to Grupo Petrotemex S.A. de C.V. and Dak Americas Exterior, s.l, subsidiaries of
Alpek, S.A.B. de C.V. (for more information, see item “Partnerships and Divestments”
in chapter Corporate Strategy).
DISTRIBUTION
Petrobras Distribuidora, our subsidiary, operates in the trading and distribution of oil
derivatives and biofuels in all of Brazil, through a network of 8,176 service stations and
14,100 large consumers. It is the leader in this market, with 31.1% market share as of 31
December 2016. It also operates in the segments of large consumers, chemicals, aviation,
asphalt, energy business and, locally, in Espírito Santo state, in the distribution of piped
natural gas.
Petrobras Distribuidora traded 45.5 million m³ of fuel in 2016, 14.7% lower than the volume
recorded in 2015, due mostly to the downturn in economic activity in the country. Net
operating revenue was R$ 86.6 billion, with net loss of R$ 0.3 billion.
Regarding the performance of Petrobras Distribuidora, we are analyzing the formation of a
partnership to share control of the company (for more information, see item “Partnerships
and Divestments” in chapter Corporate Strategy).
In the international market, we operate in the distribution segment in South American
countries. In Colombia, Paraguay and Uruguay, we have 114, 186, and 88 service stations and
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hold 4%, 18%, and 22% market share, respectively. In Chile, we used to have 281 service
stations and 13% market share until early January 2017, while the sale of full distribution
participation by Petrobras in Chile to the Southern Cross Group was completed, pursuant to
the terms of the contract signed in July 2016. In Argentina, we used to have 266 service
stations until July, when we signed with Pampa Energía, the contract for sale of our entire
distribution share
item “Partnerships and
Divestments” in chapter Corporate Strategy).
in Argentina (for more
information, see
Liquigás Distribuidora S.A. operates in the bottling, distribution and trading of liquefied
petroleum gas (LPG). In 2016, 1.6 million tons of LPG were sold. In November, we signed a
purchase and sale of shares contract for the sale of 100% of Liquigás shares, acquired by
Companhia Ultragaz S.A., a subsidiary of Ultrapar Participações S.A. Although the contract
has already been signed, only after consent by the Administrative Council for Economic
Defense (CADE) is obtained can the transfer of shares be effected (for more information, see
item “Partnerships and Divestments” in chapter Corporate Strategy).
NATURAL GAS, ELECTRICITY AND FERTILIZERS
NATURAL GAS
Our Natural Gas area is responsible for processing, logistics and trading of natural gas.
Monetization of the natural gas in Brazil’s sedimentary basins is one of our main strategic
goals. The growth in domestic oil production and consequent increase in associated gas
production also promote the increase in the supply of gas. Such an increase has contributed
to the increased reliability in the supply of the product, both for domestic consumption and
for contracts with distribution companies and for thermal power generation, progressively
reducing the need for imports.
Natural Gas Processing
The Natural Gas Processing Asset Operation Unit (UO-APGN) is composed of the natural gas
processing assets of Cabiúnas (APCAB), in Rio de Janeiro, Espírito Santo (APES) and São
Paulo (APSP). Together, these assets have nominal processing capacity of 63.6 million
m3/day in natural gas.
The average total volume of natural gas processed in 2016 by UO-APGN was 36 million
m³/day, which has made it possible to provide 33 million m³/day of natural gas, 1.7 thousand
t/day of LPG, 2 thousand m3/day of C5+ gasoline (natural gasoline) and 7 thousand m3/day
of natural gas liquid (NGL) to the market.
Upon the entry into operation of the Route 2 Natural Gas Processing Unit (UPGN2) in
Cabiúnas, and the larger supply of natural gas by the Santos Basin Pre-Salt Area, the average
volume processed at UO-APGN reached 41 million m³/day in the second half of the year,
representing a 28% increase over the first half. We also registered the record processing of
50.4 million m³/day which occurred on 11/30/2016. In turn, the supply of liquefied petroleum
gas (LPG) and C5+ gasoline reached 1.7 thousand t/day and 2 thousand m3/day levels,
respectively.
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In the Cabiúnas Processing Asset (APCAB), the largest Brazilian center for natural gas
processing, the average volumes of processed natural gas totaled 16 million m3/day. The
active has processing capacity of 25.1 million m3/day of natural gas, and 6 thousand m3/day
processing capacity of natural gas condensate.
The Espírito Santos Processing Asset (APES), composed of the Cacimbas (URGC) and Sul
Capixaba (UTGSUL) gas processing plants, has total capacity to process 18.500 millions
m3/day of natural gas and 6.8 thousand m3/day of condensate. APES processed, on average,
8 million m3/day.
In Sao Paulo, the Caraguatatuba Processing Asset (APSP) has processing capacity of 20
million m3/day of natural gas, and 8 thousand m³/day of condensate, having processed, on
average, 11 million m3/day.
Natural Gas Logistics
The natural gas transport system in Brazil, with equity stake by Petrobras, consists of gas
pipelines totaling 9,190 km in extension. Of this total, Transportadora Brasileira Gasoduto
Bolívia Brasil S.A. (TBG) is responsible for 2,593 km, and Petrobras indirectly holds via
Logigás, 51% stake in the company. Additionally, Petrobras holds 100% share ownership in
Transportadora Associada de Gás S.A. (TAG), responsible for 4,504 km, and in Nova
Transportadora do Sudeste S.A. (NTS), responsible for 2,043 km. In this company, Petrobras
is in the process of selling 90% of share to Brookfield Infrastructure Partners (BIP) and its
affiliates (for more information, see item “Partnerships and Divestments” in chapter
Corporate Strategy). Lastly, Petrobras holds indirectly, via Logigás, 11% stake in Gás
Transboliviano S.A. (GTB), responsible for the Bolivian side of the Bolivia-Brazil gas pipeline,
totaling 557 km, and 25% stake in Transportadora Sulbrasileira de Gás S.A. (TSB),
responsible for 50 km.
Natural Gas Trading
We sell natural gas through 44 contracts with 18 distribution companies, both for the
thermal power segment and the non-thermal power segment, including cogeneration units.
Additionally, we serve two free consumers and a consumer under court injunction.
We supplied in 2016, an average of 74.64 million m³/day of natural gas to the market and the
internal consumption of Petrobras units. Of this volume, 24.20 million m³/day went to the
thermal power market, 15.66 million m³/day to refining unites and fertilizer plants, and 34.78
million m³/day to gas distributors to serve the non-thermal power market.
Out of total natural gas supply, 44.03 million m³/day were from domestic production, 3.84
million m³/day of liquefied natural gas (LNG) were regasified in LNG terminals in Pecem (CE),
in Baía de Guanabara (Rio de Janeiro) and Bahia (BA) and 28.38 million m³/day were imported
from Bolivia. Of this total, 1.63 million m³/day was used in the natural gas transportation
system.
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Natural Gas Distribution
In the natural gas distribution business, we operate in Brazil and Uruguay. The distributors in
which have stake trade 21.36 million m³/day in Brazil and 182.06 thousand m³/day abroad to
351,318 and 59,189 customers (residential, commercial, industrial, vehicular, thermal power),
respectively.
In Brazil, we are the controlling shareholder, with 51% shares, of Petrobras Gás (Gaspetro),
holding that consolidates our equity interests in state natural gas distribution companies,
with the exception of the natural gas distributor of Espírito Santo, fully controlled by
Petrobras Distribuidora.
In Uruguay, through Petrobras Uruguay S.A. de Inversión, we hold stakes in two companies in
the natural gas distribution business, responsible for distribution throughout the Uruguayan
territory.
Completed Natural Gas Projects
Route 2 Gas Pipeline: pipeline that interconnects the Santos Basin Pre-Salt Area to
the Cabiúnas Processing Asset (APCAB), in Rio de Janeiro. With 401 km and initial
capacity to discharge 13 million m³/day, it entered into operation in February 2016.
In August, ANP granted authorization to operate a 16 million m³/day gas pipeline,
after a study attesting to the possibility of increased discharge capacity. With that,
we avoided cutting production in Santos Basin pre-salt fields, whose production
curve exceeds 13 million m3/day, after FPSO Cidade de Mangaratiba entered into
operation; and
Route 2 Natural Gas Processing Unit: located in Cabiúnas, it enabled increased daily
processing capacity of gas from the Santos Basin Pre-Salt Area by 5.4 million
m³/day, leading to the increase in APCAB capacity from 20 million to 25 million
m³/day. The work also allowed APCAB condensate processing to increase from 4.5
thousand to 6 thousand m³/day. This unit started operations in February 2016.
Natural Gas Projects in Progress
Gas Pipelines
Gasfor II (CE): segment from Horizonte to Caucaia with 83.2 km. Its scheduled
operation startup was adjusted to April 2018;
Route 3 Gas Pipeline: gas pipeline that will interconnect the Santos Basin Pre-Salt
Area to the Natural Gas Processing Unit located in Comperj, in Itaboraí, for discharge
of up to 18 million m3/day. This gas pipeline will be 355 km long, of which 307 km will
be offshore and 48 km onshore. Completion is scheduled for 2019.
Natural Gas Processing Units (UPGNs)
Complementary Treatment in APCAB: it will enable receiving and treating up to 2.9
million m3/day additional gas from the Santos Basin Pre-Salt Area, and will enable
discharge via Gasduc II, of this additional gas for processing at the Route 3 units in
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Comperj. Mechanical completion occurred in July 2016. The pre-operation and startup
stages are associated with the conclusion of the natural gas processing units at
Comperj; and
Route 3 Natural Gas Processing Unit: located in Comperj, it will have two units with
total capacity to process 21 million m³/day of natural gas from the Santos Basin Pre-
Salt Area, which will increase the supply of natural gas, LPG and natural gasoline (C5+)
to the market. The start of operations is scheduled for 2020.
ELECTRICITY
Our Energy area is responsible for the generation and sale of electricity.
Our generating park, with 6.1 thousand MW installed capacity, consists of 20 thermal power
plants, among wholly owned and leased plants, powered by natural gas, diesel or fuel oil.
Including the plants with generation from renewable sources and the projects in which we
have minority stakes, our power generation capacity totaled 6.5 thousand MW.
In 2016, we generated 2.3 thousand average megawatts (MWmed) of electricity to the
National Interconnected System (SIN). This result is approximately 50% lower than in 2015,
due to the increase in affluent energy (rains), the recovery of water levels in reservoirs at
hydro power plants, and load downturn (demand). We sold approximately 835 MWmed in
electricity in the free contracting environment, and 3.2 thousand MWmed in the regulated
contracting environment.
In July and August, we exported electricity to Argentina from our gas plants in the thermal
power park, which resulted in gains from the direct sale of energy in export and trading of
natural gas to third-party power plants.
FERTILIZERS
We operate in the production and trading of fertilizers. We currently have three plants,
located in the states of Bahia, Sergipe, and Paraná. In 2016, we registered record productions
of 435 thousand tons of ammonia and 418 thousand tons of urea at the Bahia plant. In total,
we produced 1.1 million tons of ammonia (of which 743 thousand tons were used in urea
production and 21 thousand were used in the production of ammonium sulfate) and 1.3
million tons of urea.
The works at the Nitrogenous Fertilizer Unit III, in Três Lagoas (MS), were discontinued and
we are re-evaluating the project (for more information about the company’s strategy in the
fertilizer segment, see item “Focus on oil and gas” in chapter Corporate Strategy - Strategic
Plan).
BIOFUELS
We operate in the production of biodiesel and ethanol through our wholly owned subsidiary
Petrobras Biocombustível. One of our goals is to manage our participation in the biofuels
market by integrating the activities in the production, logistics, and trading areas and
exploring synergies with the Petrobras System.
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Biodiesel and Agricultural Supply
Petrobras Biocombustível operates two biodiesel units, one located in Candeias (BA) and the
other in Montes Claros (MG), with total production capacity of 369 thousand m3/year,
whereas production in the Quixadá (CE) unit was discontinued in November 2016 due to poor
economic results, with no reversal expected in the short term.
It also has 50% stake in BSBios Sul Brasil, with shared management. BSBios operates two
units, one located in Marialva (PR) and the other in Passo Fundo (RS), with total capacity of
425 thousand m3/year.
In addition to the assets in biodiesel production, we developed Project Belém in equal
partnership with Galp Energia, which encompasses palm tree cultivation, oil extraction and
export in Brazil, and the production of 270 thousand tons of green diesel in Portugal. In 2016,
the palm tree-cultivated area in Pará totaled 42 thousand acres. Due to prioritization of
investments, the installation of palm oil extractors in Brazil and the construction of the green
diesel industrial plant in Portugal were postponed. In 2017, a partnership was approved in
part of the palm tree plantations, which will enable the entry of third-party resources for
implementation of the extraction unit, diluting the costs of current shareholders.
Petrobras Biocombustível also operates in the extraction and trading of Castor oil tree,
cotton and sunflower oils its stake in Bioóleo, a company located in Feira de Santana (BA).
The affiliate has the capacity to process 130 thousand tons/year of grain and refine 54
thousand t/year of soybean or cotton oil. Its operations contribute to maintaining the Selo
Combustível Social (“Social Fuel Seal”) issued by the Ministry of Agrarian Development, a
requirement for the sale of biodiesel in the auctions promoted by ANP.
Ethanol
We operate in ethanol production through our subsidiary Petrobras Biocombustível, a
company that as of 2016 held shared management in three companies: Bambuí Bioenergia
S.A. (MG), Guarani S.A. (SP) and Nova Fronteira Bioenergia S.A. (GO). Total crushing capacity
of these affiliates is 31.2 million t/year of sugarcane.
At Bambuí Bionergia, sugarcane crushing totaled 1.20 million tons, and production of 104.61
m³ of hydrous ethanol. In 2016, the equity ownership of Petrobras Biocombustível on
company was reduced from 44% to 26%, approximately, due to the non-exercise of
subscription rights in May 2016.
At Guarani, sugarcane crushing totaled 20.12 million tons, ethanol production totaled 636.35
thousand m³, and sugar production totaled 1.570,48 thousand tons. The participation of
Petrobras Biocombustível increased from 43% to 46%, approximately, after contribution
made in January 2016, as provided for in the Investment Agreement. In December, Petrobras
Biocombustível executed with Tereos Participations SAS a contract for the sale of its full
stake in Guarani (for more information, see item “Partnerships and Divestments” in chapter
Corporate Strategy).
In Nova Fronteira Bioenergia, sugarcane crushing reached 4.86 million tons, and ethanol
production was 412.05 thousand m³. In December, the incorporation of Nova Fronteira
Bioenergia by São Martinho was approved, through share exchange. With this transaction,
Petrobras Biocombustível will hold 6.593% of São Martinho shares, replacing its 49% stake in
49
Nova Fronteira Bioenergia (for more information, see item “Partnerships and Divestments” in
chapter Corporate Strategy). There is prospect of future sale of these shares, through a
structured process.
These divestments related to Guarani e Nova Fronteira Bioenergia comply with our strategic
guideline to exit biofuel production activities, preserving technological skills in areas with
potential for development.
AWARDS AND RECOGNITION
We are one of the world leaders in deep and ultra-deep water exploration and production,
recognized for pioneering the introduction of new technologies. Thanks to this leadership,
we have received nationally and internationally recognized awards in the oil and gas industry,
such as the OTC Distinguished Achievement Award, the most important award in the
industry, in 1992, 2001, and 2015.
In 2016, the constant search for overcoming challenges led to recognition in other areas of
performance.
Technological Innovation
We won three categories of the National Agency of Petroleum, Natural Gas and Biofuels’
(ANP) Technological Innovation award in 2016. In the first category, “Technological
Innovation Developed in Brazil by National Science and Technology Institution (ICT) in
Collaboration with Oil Company,” the winner was the project Feeler PIG for Multisize Offshore
Pipelines Inspection, developed in partnership with the Pontifical Catholic University of Rio
de Janeiro (PUC-RJ).
In the second category, “Technological Innovation Developed in Brazil by Micro, Small or
Medium-Sized Company in the Oil, Natural Gas and Biofuels Segment in Collaboration with
Oil Company,” the winning design was the Real-Time Diagnostics Program of Problems with
Drilling (PWDa), developed in partnership with Engineering Simulation and Scientific
Software Ltda. (ESSS), Ensino Superior Unificado Centro Leste (UCL), the Rural Federal
University of Rio de Janeiro (UFRRJ) and the Federal Technological University of Paraná
(UTFPR).
In the third category, “Technological Innovation Developed in Brazil by Large-Sized
Supplying Company in the Oil, Natural Gas and Biofuels Segment in Collaboration with Oil
Company,” the CO2 Self-Repairing project, developed in partnership with Schlumberger, was
awarded.
We also received the 2016 Brazil Innovation Valor Award, offered by the newspaper Valor
Econômico, as the most innovative company in the country in the category Base Industry and
Metallurgy, which includes oil and gas, ore, and cement companies. This award, organized by
the newspaper Valor Econômico since 2015, was created to recognize companies that excel in
developing research and technology in the country in 17 economic sectors. The ranking is
prepared based on a survey carried out by the newspaper in partnership with consulting firm
Strategy&, and on analysis of data such as investments in innovation, best practices,
creation of new products and solutions, and strategies, among other indicators. As
50
debutants in the competition, we number 14 in the ranking of the 100 most innovative
companies in Brazil.
Finances
We received the “Corporate Liability Management of the Year” award from magazine
LatinFinance, as we were considered to have been the company that performed the best
debt management operation in international capital markets in 2016.
We were awarded for the two securities issue and repurchase transactions in the
international market, held in May and July. In both transactions, we used the funds to buy
back bonds maturing between 2017 and 2019, in order to extend the average maturity of our
debt.
Communication and Brands
We received awards and honors in 2016, such as the title “Highly Reputed Brand,” awarded by
the National Institute of Intellectual Property (INPI). The title is a statement that the
Petrobras brand enjoys undisputed prestige, notoriety and tradition. Currently, only ten
brands in the country hold this title.
Still with regard to brands, we won the “Top of Mind 2016” award, granted by Instituto
Datafolha in two categories. In the debuting category “Brand that Represents Brazil,” we
were the big winner. In the category/segment “Fuel,” we led as the most remembered brand,
with 20% of mentions.
Petrobras Distribuidora received in April, for the third consecutive time, the “Seal of
Excellence in Franchising” - Master Category (companies with more than 10 years and over 60
franchisees) for its role as a franchisor of the BR Mania network of convenience stores. The
award is granted by the main entity in the franchise sector in Brazil - the Brazilian
Franchising Association (ABF) - and aims to recognize the company’s quality and excellence
in relation to its role as a franchisor, in addition to stimulating the improvement of its
performance by promoting the best practices and professionalism of the companies
operating in the franchising system.
Our distributor also won 1st place in the category Lubricants Brand - LUBRAX - in the
“Transport and Logistics Choice Award 2016,” and was featured in the category Best
Distributor, one of the most important categories in national economy.
GOVERNANCE, MANAGEMENT AND COMPLIANCE
ETHICS
We have an Ethics Committee that integrates the Ethics Management System of the Federal
Executive Branch, which in turn is coordinated, evaluated and supervised by the Public Ethics
Commission (CEP), under the Office of the President of the Republic. Our commission, which
is composed of seven members appointed by the Executive Board, guides, disseminates and
promotes compliance with ethical principles and conduct commitments, and orders the
51
investigation of conduct contrary to ethical standards by the units in charge, among others.
It also acts as advisory body to our managers and employees, and in the face of a complaint,
it assesses the need to act in accordance with its role of investigation and other appropriate
procedures, as well as owning documents such as the Petrobras System Code of Ethics and
our Code of Conduct.
In our Code of Ethics, we present the ethical principles and conduct commitments to be
followed by Board of Directors, Audit Committee, and Executive Board members, as well as
Petrobras System employees, interns and service providers. The Code of Conduct is
addressed to the same audience, and includes developments of the principles in the Code of
Ethics, with practical guidelines for day-to-day work. In December, the Executive Board and
the Board of Directors approved reassigning the Petrobras System Code of Conduct, with the
recommendation that it is followed also by wholly-owned subsidiaries and the controlled
companies in the Petrobras System.
In 2016, we spread the principles and commitments made in the Code of Ethics and the Code
of Conduct through lectures for new employees, strengthened the electronic signature
campaign of the Statement of Acknowledgment for those documents, supported managers
and the areas in clarifying questions and in developing local actions based on consultations
on ethics-related issues, and intensified a communication campaign with guidance to the
workforce on how to proceed in situations of nepotism, conflict of interest, and offers of
gifts, tokens, hospitality or sponsorship counterparts.
HEALTH, SAFETY, AND ENVIRONMENT (HSE)
In 2016, we invested R$ 5.88 billion in initiatives to improve our performance in health,
safety, and environment (“HSE”) to comply with specific legislation and contribute to ensure
operating practices at our units are safe, cost-effective, and environmentally responsible.
Among such
ISO 14001
initiatives, we highlight the compliance certification
(environmental management) and OHSAS 18001 (health and safety management) standards
of the HSE management systems for our operating units in Brazil and abroad. In 2016, all
refined oil in the country was processed in certified units.
in
We systematically evaluate the main risks to the elements of health, safety, and
environment in investment projects. The results of these assessments are periodically
followed by the BD HSE Committee, which consists of three members.
SAFETY
In order to improve the safety of our operations and prevent injuries and illnesses, we work
by disseminating the fundamentals, concepts and process safety practices of Process Safety
and Workplace Safety, and by implementing programs and actions in these disciplines.
We reinforce the commitment to safety, emphasizing the value “respect for life” in our
Strategic Plan (“PE”), wherein the main challenge to safety management is to reduce
accidents and any other types of harm to people.
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Figure 5: G
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uced from
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we track
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Time Injury
e Recorda
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ble Occurr
ved in 201
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rence Rate
5, resultin
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e (“TOR”)13
g from the
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13TOR - Reco
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14 TFCA is obt
TFCA equal to
rdable Occurre
every million m
tained by calcu
o 1 means 1 lo
ence Rate, tha
man hours of e
ulating the nu
st-time injury
at is, number of
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mber of lost-t
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f recordable in
sk in the period
time accidents
illion man-hou
njuries with or
d considered.
x 1 million on
urs worked.
without leave,
, with casualtie
es, and first-
HHER 1 (man
hour with risk
exposure). A
53
Chart 17: Lost-Time Injury Rate (TFCA)
0,83
0,75
0,72
0,76
0,59
2012
2013
2014
2015
2016
Despite the search for continuous improvement in HSE management, we recorded and regret
the occurrence of three casualties in the year involving our employees and subcontractors.
In the area of Process Safety, we track the indicator Number of Process Safety Accidents Tier
1 (NASP1), which records cases of greater severity (Tier 1). The NASP1 indicator has been set
in accordance with
industry best practices, enabling the comparison of Petrobras’
performance with that of its peers. Process safety accidents are characterized by loss of
primary containment of hazardous fluids or energy at processing facilities (for example, spill
of a volume of oil derivate at an operating unit caused by the breaking of a pipe). Although
rare, large process safety accidents may cause extensive environmental impacts, and
damage to industrial facilities and to the health of a large number of people.
We recorded, in 2016, 24 cases of process accidents (NASP1), 27 less than in 2015. We
investigated all accidents recorded to identify their root causes. We recommend preventive
and corrective actions, which we monitor while being implemented. In cases of major
accidents, we issued alerts for the entire company, in order to allow the units to assess the
likelihood of similar events in their own operations and decide on the advisability of adopting
the measures recommended.
Oil and Derivate Leakage
Spills of oil and derivatives totaled 48.32 m3 in 2016, 34% less than the volume recorded in
2015 and 78% below the Alert Threshold set by the company at 216.3 m³. The volume spilled
in 2016 corresponded to less than 7% compared to the average leaks recorded by
international companies in the same period.15
We are constantly improving our standards, procedures and response plans to spills, which
are structured in local, regional, and corporate levels. To act effectively in these types of
15 Leaked volumes data extracted from sustainability reports or similar published by the companies selected for
comparison.
54
emergency, we have distributed resources in our 12 Environmental Defense Centers (CDAs),
in 12 advanced bases, and in Transpetro’s Emergency Response Centers, located in different
parts of the national territory.
We are members of the Oil Spill Response Limited, an organization that operates at a global
level specializing in providing and supplementing resources for effective response to oil
spills. In 2016, we carried out 13 simulation exercises of regional scope, including training in
response to leaks.
ENVIRONMENT
To increase the eco-efficiency of our operations, we increasingly seek the rational use of
water, energy and other inputs, and manage atmospheric emissions and waste and effluent
generation. Our goal is to reduce the impacts of activities on the environment to a minimum.
For this, we operate on several fronts.
Biodiversity, Water Resources and Effluents
We reused 24.8 m³ million in 2016, a volume 7% higher than the volume in 2015 and enough
to supply a city of 600 thousand residents for one year. The resulting economy of
rationalization and reusing actions contributed to ensuring the security of supplies
necessary to our operations. We applied the Water Shortage Risk Index to a set of operating
units that account for about 90% of the total fresh water that we caught. The index is a tool
developed in partnership with Coppe/UFRJ to identify the risks of water scarcity in our units.
The results provide use with the basis to prioritize and structure actions aimed at the
mitigation of these risks.
We published for the second year the Annual Report on Biodiversity, consolidating
information on risk management and biodiversity impacts. Based on this information, we
planned and developed projects for the prevention, mitigation, environmental restoration or
compensation of these impacts.
The report is also important for the critical assessment of the company’s performance of this
issue, in order to enable the improvement of current management strategies.
Waste
We recycled through energy reuse, 28% of the 136 thousand tons of hazardous solid waste
from industrial processes, a volume 2% higher than in 2015. Reuse and recycling actions with
hydrocarbon recovery include: 1) deployment of processing unit at Alberto Pasqualini
Refinery (Refap), which enabled reprocessing 10.5 thousand m3 of residual oily streams with
incorporation of solids in green petroleum coke and 2) disposal of 64 thousand tons of
residual oily streams for reprocessing in the Shale Industrialization Unit (SIX).
We also sought to reduce the disposal of waste generated in our activities to landfills, by
recycling 90% of paper, 88% of wood, 96% of scraps, 51% of glass and 81% of plastics.
Atmospheric Emissions and Climate Change
In recent years, we have reduced the intensity of greenhouse gas (GHG) emissions in our
processes through different initiatives, with emphasis on the upgrade of facilities, the use of
55
more efficient equipment, the increased use of natural gas, the standardization of designs
and operating practices, and investments in research and technology.
Our efforts on programs and actions for process optimization and mitigation of emissions
resulted in a total of approximately 72 million t CO2eq avoided in the period from 2010 to
2015.
From an annual perspective, in 2016 we reduced absolute GHG emissions by about 15% in
comparison to 2015. Such a decrease is due to factors such as the reduction of electricity
generation in thermal power plants and divestments in assets. On a smaller scale, operating
fluctuations have also contributed to the reduction of emissions, such as lower activity of
drilling rigs and operations of support vessels to E&P activities and the reduction of the load
processed at refineries.
The aforementioned factors are also reflected in the reduction of regulated pollutants
emissions (NOx, CO, particulate matter, SOx, and non methane hydrocarbons).
The graph below demonstrates the evolution of GHG emissions in the period from 2012 to
2016. 16“.
Chart 18: GHG emissions (million tons of CO2eq)
74,2
68,0
81,4
78,1
66,5
2012
2013
2014
2015
2016
In 2016, we obtained the highest score in the CDP (formerly known as Carbon Disclosure
Project) since we first joined the Organization in 2006, earning the grade A-, which represents
leadership in management and transparency.
HEALTH
In addition to the Occupational Health Medical Control Program, we carry out prevention and
health promotion initiatives at the corporate level and in organizational units, for monitoring
16 Emissions Chart: CO2eq emissions were calculated based on Global Warming Potential values (GWP) in the IPCC Fourth
Assessment Report (AR4). In the previous Management Reports, these emissions were calculated considering the GWP
values from the Second IPCC Assessment Report (SAR), therefore changes in the data from 2012 to 2015 can be observed.
56
of health
initiatives
physical a
indicators
include in
ctivity, am
and the a
nformation
ong others
nalysis of
such as m
s.
the epidem
measureme
miological
ent of bloo
profile of o
od pressur
our employ
re, choleste
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h
,
erol levels,
These res
examinati
guide the
sults are
ons assoc
planning o
obtained b
iated with
of health pr
based on
the chara
romotion in
data colle
acteristics
nitiatives.
ected ann
and risks
ually durin
of employ
ng the oc
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ties, which
We track b
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Alert Thre
by using th
and disea
g also influ
eshold set f
he Lost Tim
ases, as we
uences our
for the yea
me Percenta
ell as its m
r health act
ar.
age (PTP) i
main cause
tions. In 20
ndicator, t
es, whethe
016, PTP w
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r or not re
as 2.47%, i
on of absen
elated to
n line with
y
nteeism by
work. This
s
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the 2.40%
ORGAN
NIZATION
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In 2016,
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Our organ
nizational s
tructure is
s:
as follows
Figure 6: P
Petrobras O
Organizatio
onal Struct
ture
CORPO
RATE G
OVERNA
ANCE
Our corpo
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external),
orate gove
ee, the Bo
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rnance mo
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man’s Office
odel consis
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its comm
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s Meeting,
diting (int
the Audit
t
d
ternal and
57
Figure 7: P
Petrobras C
Corporate G
Governanc
e Model
In 2015, w
the defin
improvem
Board of
Complianc
Executive
prioritize
our decisio
we initiated
ition of o
ments. We f
Directors;
ce (GRC); w
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collegiate
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agement m
f our gove
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the creatio
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g of new
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ability of o
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of several
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In 2016, w
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tended to p
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ittees: mu
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ence of the
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of the S
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as CAE, pu
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ursuant to
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Audit Com
t Committe
o CVM Inst
duties we
mmittee (
ee Interna
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l Rules, en
. 308/99, a
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ed by CVM
M
n
parency in
58
the Committee’s work by publishing an annual report (for more information on the CAE,
see item “Statutory Audit Committee” in this chapter).
disclosure of corporate governance instruments: availability of internal rules of the
Audit Committee, the Board of Directors and its committees, and the Executive Board on
the company’s website.
review of our Bylaws: the General Shareholders Meeting approved three amends to our
Bylaws, which promoted, among other measures: (i) amendment to the term of office for
Board of Directors and Executive Board members to two years, with a limit of three
consecutive reelections; (ii) deletion of substitute members for the Board of Directors;
(iii) the prohibition of the Board of Directors Chair and President of the Company
positions being occupied by the same person; (iv) report of the Executive Officer of
Governance and Compliance (DGC) to the Board of Directors, in compliance to the cases
provided for in art. 9 of Law 13,303/16.
evaluation of the Board of Directors, its Committees, and the Executive Board: an
external expert company was hired to implement and conduct a performance review of
the Board of Directors and its committees and the Executive Board. Such review is
currently in progress.
nomination of Executive Officers and Executive Managers: we included in our Bylaws, as
a duty of the Board of Directors, the approval of nominations of Executive Officers and
Executive Managers of the company. The selection of current senior management
members was submitted to the assessment of the (at the time) Committee on
Compensation and Succession prior to approval by the Board of Directors. In this
assessment, integrity and technical and management qualification criteria were adopted.
In the case of the selection of executives outside the company, an expert company was
used.
succession process of the Executive Board, senior management members and BD staff
and technical advisers: establishes criteria and procedures for: (i) the identification and
development of potential successors to Executive Officer and senior management
member positions; (ii) the nomination and selection for Executive Officer and senior
management positions, as well as staff and technical advisors to the Board of Directors
and its committees.
updating the Code of Best Practices: our code currently consists of the Policy on
disclosure of Material Act or Fact and Securities Trading; Petrobras Corporate
Compliance Policy; Petrobras Corporate Risk Management Policy; Policy and Guidelines of
the Petrobras System Ombudsman Office; Dividend Distribution Policy; Policy on
Nomination of Petrobras Audit Committee, Board of Directors, and Executive Board
Members; Communications Policy; and Petrobras Policy on Related Party Transactions.
Training and Qualification Program in Corporate Governance: dissemination of
information on relevant issues of corporate governance, aiming to reach all employees
and administrators in the Petrobras System. Additionally, we approved the new model for
training of Board of Directors and Executive Board members of Petrobras, consisting of
an Introduction Program for New Administrators and a Periodic Training Program for
2017.
59
Policy on Nomination of Petrobras Audit Committee, Board of Directors, and
Executive Board Members: establishes minimum requirements and impediments for the
nomination of Audit Committee, Board of Directors, and Executive Board members, as
well as external participants of advisory committees to the Petrobras BD, whereas the
Statutory Committee on Nomination, Compensation and Succession is tasked with
confirming the compliance of this process in the light of the requirements set forth. In
order to meet the provisions in legislation, we created in February 2017 the Eligibility
Committee, temporary in nature, tasked with issuing an opinion in order to assist
shareholders in the nomination of administrators and Audit Committee members on
compliance with requirements and absence of impediments to their corresponding
elections, as provided for in Law No. 13,303/16, Decree 8,945/16 and in our Bylaws.
Petrobras Policy on Related Party Transactions: reinforces the principles of ethical
conduct, commutativity, equity, and transparency in transactions with our related
parties.
Dividend Distribution Policy: grounded on the provisions set forth in our Bylaws and in
Law 6,404/76 (Brazilian Corporation Act). In September, the Board of Directors approved
the Petrobras Dividend Distribution Policy, which seeks to ensure the company’s
continuity and financial sustainability in the short, medium, and long term, adopting
flexibility and financial strength as premises for maintaining its business. Such a policy
complies with Law 13,303/16.
Petrobras Policy on Disclosure of Material Act or Fact and Securities Trading:
establishes the rules and procedures to be followed in the disclosure of information to
the market representing a material act or fact and in the trading of securities issued by
the company, in order to avoid the misuse of privileged information, ensure fair
treatment to investors, and the compliance and transparency in the trading of securities
issued by Petrobras. The policy provides for the establishment of the Executive
Committee on Disclosure, whose purpose is to monitor and improve the company’s
information disclosure process to the market; it was implemented in July 2016, with
monthly meetings.
Communications Policy: governs communication within the company and reinforces the
commitment to open, continuous dialogue with all the stakeholders, and includes
guidance on spokespersons.
Minority Shareholders Committee: intended for analysis and recommendations on
related-party transactions
its
autarchies, and foundations within level of approval of the Board of Directors,
particularly with regard to the Transfer of Rights Contract Review process, in order to
provide greater alignment to the best practices in corporate governance, ensuring the
transparent, impartial transactions to minority shareholders.
involving Petrobras and the Federal Government,
STATUTORY AUDIT COMMITTEE
Permanent body composed of three to five members selected among Board of Directors
members. Most Committee members shall all of the independence criteria set out in
applicable regulations, including those defined in article 22, paragraph 1 under Law
60
13,303/16 and in article 31-C, paragraph 2 of CVM Instruction no. 308/99, as amended by
CVM Instruction no. 509/11, whereas all Statutory Audit Committee (CAE) members shall
meet the independence criteria required under U.S. law.
The duties of this Committee include, among others: (i) advise the Board of Directors in the
analysis of annual and quarterly consolidated financial statements; (ii) receive, retain and
process complaints about accounting and financial issues, whether or not such complaints
are confidential, either internal or external to the company, establishing internal procedures
relating to such matters; (iii) advise the Board of Directors in establishing global policies
relating to the evaluation and management of risks.
In 2016, 29 meetings were held with the participation of executive managers, internal and
independent auditors and, eventually, Executive Board members, members of the other
Advisory Committees to the Board of Directors, and members of the Audit Committee.
information on
More
http://www.investidorpetrobras.com.br/pt/governanca-corporativa/orgaos-de-
governanca/comites.
the Statutory Audit Committee
can be
found
at:
RISK MANAGEMENT
We believe that the integrated and proactive management of risks is fundamental to the
delivery of safe and sustainable results.
We adopt a comprehensive approach to risk management that is restricted only to a
traditional economic and financial view of the risks, but also incorporates elements of
preservation of life, health, our rights, processes, assets, proprietary information and our
image and reputation. Our Corporate Risk Management Policy has as fundamental principles
the respect for life in all of its diversity, ethical performance in compliance with legal and
regulatory requirements, as well as the full alignment and coherence with our Strategic Plan,
with integrated risk management and with the orientation of risk response actions aimed at
adding or preserving value to shareholders.
Insofar as authorities and responsibilities are concerned, our risk management policy applies
the three lines of defense concept. The first relates to the managers responsible for the
company’s processes. In this sense, it is up to the managers of operating units or businesses
to identify risks and manage them according to corporate-defined limits, including timely
communication of identified risks under the responsibility of others. The second line of
defense is responsible for establishing the risk management duties in the first line, as well as
to monitor their operation continuously. In our company, the second line is present in, but is
not limited to, risk management, compliance,
internal controls, health, safety, and
environment, comptroller, legal, corporate security, and quality teams . Finally, the third line
of defense is exercised by the internal audit team, which is responsible for systematically
assessing the risk management process and recommending improvements, providing senior
management and governance bodies with reviews with the highest level of transparency and
independence. This governance structure is designed to allow an adequate segregation of
duties between the risk takers and those responsible for defining their limits and exposure,
and corresponding periodical monitoring.
61
In addition to defining the authorities, responsibilities and principles that guide risk
management actions at Petrobras, the policy serves as a reference for identifying risks in the
different activities of the company, since it explains the categories of risks to which the
company is exposed, and gathers them in 5 main groups, according to treatment strategies:
operating, strategic, business, compliance, and financial.
Operating Risks: we believe that it is possible to work without accidents and it is the
duty of all to care for safety, which is why we included the shared safety target in the
performance review system of all the company’s managers, including the President
and Executive Officers.
We also believe that life should be respected in all its diversity and protected against
threats resulting from intentional or unintentional actions. This naturally leads us to
prioritize the safety and reliability of our processes and our facilities as a way of
protecting people and the environment. Management of this risk takes place from
strict inspections and maintenance programs in our facilities, in addition to a
continuous effort to train our workforce for the correct compliance with safety
requirements, pursuant to international best practices.
Strategic Risks and Business Risks: our risk management system is fully aligned and
consistent with the Strategic Plan of Petrobras; risks are considered in all of our
strategic decisions and management is always performed in an integrated way, taking
advantage of the benefits inherent to diversification.
Once risks are identified, response actions are evaluated against the potential
long-range consequences of risks, and prioritized
cumulative
according to the aggregation or preservation of value for shareholders.
long-term and
Due to the peculiarity of the market in which it operates, Petrobras is naturally
exposed to a series of strategic and business risks, both manageable and non-
manageable, such as the risks associated with price fluctuation of its products in the
international market, geological risks, changes in consumption patterns of society,
actions of competitors, performance of suppliers, regulatory or tax changes,
macroeconomic and industry evolution, among others. Management of these risks in
turn occurs from a robust planning process and portfolio management that values
economy in the selection of projects, diversification of business lines, and the strict
compliance with targets, which are periodically monitored at various hierarchical
levels. In addition, we continuously monitor the evolution of the international scenario
and the performance of our various stakeholders.
Compliance Risks: risk management is part of Petrobras’ commitment to act ethically
and in compliance with the legal and regulatory requirements defined in countries
where it operates. Compliance risks, particularly risks of fraud, corruption, money
laundering, and reliability of financial reporting, are mitigated by internal controls and
constant publicity of our Code of Ethics, Code of Conduct, Petrobras Corruption
Prevention Program, and other instruments for preventing this type of risk.
Periodic training, both in-person and remotely, are systematically offered to the
entire workforce at all levels, including for all Executive Officers, the President, and
Board members.
62
The nomination of administrators, Executive Officers, Presidents, and other Senior
Management members meets integrity and absence of conflict of interest criteria
(Integrity Background Check) while procurement of goods and services depends on
the appropriate degree of supplier risks gathered from audits carried out by our
compliance team Integrity Due Diligence (for information on Integrity Background
Check and Integrity Due Diligence, see chapter Compliance).
Financial Risks: The management of financial risks is always performed in an
integrated manner, favoring the benefits inherent to diversification. Petrobras
actively manages its financial risks its considering various operational flows, the
application of financial availabilities, indebtedness conditions and other positions in
assets, liabilities, disbursements, and receivables to mitigate the exposure to risk in
the price of commodities, currencies, and interest rates. Derivative contract can also
be applied in the treatment of these risks. More detailed information regarding the
management of financial risks is presented in explanatory note 33 of the financial
statements for the year ended on 31 December 2016.
On March 3, 2017, we received Official Letter no. 30/2017/CVM/SEP/GEA-5, through which
the technical department of CVM ordered “re-preparation, resubmission, and republication
of the full annual financial statements as of 12/31/2013, 12/31/2014, and 12/31/2015, plus
re-preparation and resubmission of the corresponding financial statements , as well as the
re-preparation and resubmission of the quarterly financial information presented in the
course of the financial years of 2013 (2Q and 3Q), 2014, 2015, and 2016, contemplating the
reversals in the recognized accounting effects originated from the application of hedge
accounting.”
Pursuant to CVM Deliberation no. 463/03, we filed an appeal before with the Autarchy on 17
March 2017.
CVM’s technical area accepted the request for suspensive effect forwarded by us regarding
the order for re-preparation, until the merits of the filed appeal is evaluated .
As disclosed to the market in 2013, we began applying hedge accounting to future exports
starting in May of that year. Based on this accounting practice, we assign hedge relations
between “highly likely future exports” and particular obligations in U.S. dollars, so that the
foreign exchange effects on both are recognized at the same time in the result statement.
Our understanding is that we use the accounting practice correctly, and we reiterate that the
financial statements relating to the years 2013, 2014 and 2015 are in accordance with the
accounting practices adopted in Brazil, as well as international accounting standards (IFRS)
and have been audited by independent auditor, who issued an opinion without reservations
that said statements fairly presented in all material respects, the financial and equity
position of Petrobras.
More information on hedge accounting applied to highly likely future exports is presented in
explanatory note 33 of the financial statements for the year ended on 31 December 2016.
Risk Governance
Upon the organizational restructuring carried out
in 2016, various governance
enhancements within Petrobras contributed to strengthening corporate risk management.
63
The centralization of risk management teams in a single organizational unit reinforces the
necessary segregation of duties between risk takers and those responsible for their
monitoring. Currently, the risk structure is subordinated to the Executive Officer for
Strategy, Organization and Management System (DEORG).
Additionally, we structured an Executive Risk Committee, with the purpose of advising the
Executive Board (EB) in the analysis of specific matters of risk management or, eventually, to
deliberate on specific issues upon prior delegation from the EB.
Finally, the manager in charge of risk structure is one of the standing members of the
recently created Statutory Technical Committee For
Investment and Divestments,
responsible for advising the Executive Board on the approval of investment and divestment
projects.
More information on our Policy on Corporate Risk Management can be found at:
http://www.investidorpetrobras.com.br/pt/governanca-corporativa/instrumentos-de-
governanca/codigo-de-boas-praticas
COMPLIANCE AND INTERNAL CONTROLS
COMPLIANCE
Our Executive Office for Governance and Compliance has been improving the compliance of
our processes to, among other goals, mitigate risks such as fraud and corruption, with a
focus on the compliance to laws, norms, internal and external standards and regulations.
In March 2016, we approved our Policy on Corporate Compliance, with principles and
guidelines that aim to describe and disclose the commitments made by us in relation to the
promotion of the highest ethical values and transparency in the conduct of its business, with
zero tolerance to fraud, corruption and money laundering.
The policy contributes to the integration and strengthening of compliance initiatives within
the Petrobras System, in particular the Petrobras Corruption Prevention Program (PPPC), in
line with the best practices currently demanded by the market, in addition to complying with
anti-corruption legislation in force, particularly Law 12,846/2013, the Foreign Corrupt
Practices Act (FCPA) of 1977, and the UK Bribery Act, of 2010.
Among the initiatives, we can highlight the following:
Oversight Committee: We created the Oversight Committee, to reinforce the system of
consequences of company, guide, standardize and monitor the application of disciplinary
sanctions in cases related to fraud or corruption. Subordinated to the Executive Officer of
Governance and Compliance, the Committee is composed of the Legal, Human Resources,
and Compliance executive managers.
This is an important initiative for us because, upon its creation, there is now a centralized
instance to advise managers and oversee their actions, ensuring the compliance with the
principles of immediacy, transparency and equality.
In 2016, the Committee analyzed 63 investigative processes initiated based on suspicions of
fraud and corruption.
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Communication and Training: to continue the movement “Petrobras in Compliance,” to raise
workforce awareness on issues related to integrity, ethics, and compliance with legislation,
rules and procedures, we carry out publicity actions with guidelines on conduct and
reinforcement of our ethical values through publications and internal releases. Additionally,
we publish videos in the hotsite daquiprafrente.hotsitespetrobras.com.br, with the measures
adopted for the improvement of company processes.
In parallel, we conduct training for our employees, including to the President and Executive
Officers, with specific modules on “corruption prevention” provided by the United Nations
Global Pact. In addition to training for new employees held since 2014, on-site courses on
aspects of our PPPC were offered to audiences with greater exposure to compliance risks,
such as employees involved in the contracting process and the company’s managers.
Additionally, Presidents and Executive Officers of Petrobras and subsidiaries, and executive
managers of the holding, participated in face-to-face training on integrity and conflict of
interest, offered by a representative from the Ministry of Transparency, Oversight and
Federal Comptroller General. Meanwhile, the members of our Board of Directors attended
specific training on Brazilian Anti-Corruption Laws and Money Laundering Prevention,
associated with the importance of the Compliance Program.
Compliance Agents: We reviewed the initiative “Compliance Agents,” in order to adapt it to
our new structure and to expand the activities developed by the professionals assigned to
unfolding our governance and compliance actions, especially those related to prevention of
fraud, corruption, and money laundering. To meet this challenge, we created “Adjunct
Compliance Agents,” which, in partnership with the other Compliance Agents, amounted to
150 assigned professionals to contribute to the development of dissemination and
promotion of compliance and the Petrobras Corruption Prevention Program in the different
business units of the company.
Integrity Due Diligence: focused on ethics and transparency in our procurement of goods
and services, we adopted in August 2015 new criteria for supplier evaluation, called “Integrity
Criteria.”
In compliance with these criteria, all companies interested in initiating a process of
enrollment, renewal or reclassification in our corporate register or in our simplified register
must provide information on organizational and business structure, relationship with public
agents, integrity history, relationship with third parties and integrity program. This
information ground the Integrity Due Diligence (DDI) procedure, which results in the
classification of the Integrity Risk Degree (GRI) for the supplier, which can be high, medium
or low.
GRI, as well as the result of technical, legal, economic and health, safety, and environment
and (SMS) evaluations, is considered in selecting the companies to be invited to participate in
our contracting processes. In 2016, 12 thousand DDI processes were completed by the
Register System.
Specialized and
independent
Whistleblowing Channel, which provides confidentiality to the whistleblower, secrecy and
integrity of information, traceability of processes and treatment of all the complaints.
Independent Whistleblowing Channel: We use an
Managed by an external company, the new Whistleblowing Channel, called Contato Seguro
[Safe Contact], which is the same for the entire Petrobras System, is responsible for
65
receiving and the formal record of internal and external complaints related to fraud,
corruption, money laundering and serious irregularities, with a guarantee of anonymity and
the commitment on our part, not to retaliate the whistleblower.
We observed a greater effectiveness in the use of the Whistleblowing Channel, as illustrated
below:
Chart 19: Demands received by the Ombudsman’s Office
Denunciations
Complaints
Information requests
Other
1.525
3.423
5.359
1.062
2012
1.016
6.527
5.850
1.272
2013
1.582
4.643
6.691
911
2014
1.647
13.676
16.559
1.316
2015
3.852
8.903
9.853
2.520
2016
Integrity Background Check (BCI): to provide administrators with information on integrity
before the decision-making process for nominating individuals to key company positions, we
started performing the Integrity Background Check. This report consists of a summary of
public information from free or paid sources, and information from the company’s internal
systems, demonstrating the degree of exposure to integrity risks of the assessed entities,
taking into account the best practices in integrity relating to the prevention of fraud,
corruption, and money laundering.
We applied BCI in the nomination of employees to senior management positions of
Petrobras System companies in Brazil and abroad, in addition to managerial functions in
Petrobras.
Monitoring of the System of Consequences: We analyze the investigative processes
initiated in the company with suspicion of fraud and corruption, following the recovery of
values; the forwarding to external control bodies and judicial bodies; the application of
disciplinary measures to employees; and the opening of new investigative procedures arising
from controversial facts identified in investigations that couldn’t be fleshed out (for
information on values recovered in the Car Wash proceeding, see chapter Operation Car
Wash).
We incorporated the system of consequences to Petrobras senior management and Audit
Committee members to our process. This is another initiative that aims at strengthening the
66
compliance environment in the company. Until then, Board of Directors (and its committees),
Executive Board and senior management members responded to the system set forth in the
Brazilian Corporations Act. Now, this audience responds both to the internal and the external
standard. Penalties relating to senior management and Audit Committee members include
the application of written warning, temporary suppression of duties, up to the dismissal of
the position. Employees who suffer sanctions arising from irregularities committed during
the performance of their duties as members of the Board of Directors and its committees,
Executive Directors, members of the Audit Committee or members of Statutory Technical
Committee (CTE) may be cumulatively sanctioned by the disciplinary regime applicable to
other Petrobras employees.
Perception Survey on Compliance Actions: In 2016, as another initiative related to the
Petrobras Corruption Prevention Program (PPPC), we carried out the second issue of
Perception Survey on Compliance Actions, whose main goals are to evaluate the awareness
and perception of employees about our compliance actions, and identify improvements in
these actions. The research included the participation of more than 22 thousand Petrobras
employees (parent company).
Based on survey results, we found that the overall awareness on compliance-related
initiatives in the company has increased, where it is possible to highlight: Ninety-one percent
of participants stated they are aware of PPPC (in 2015, this percentage was 53%), while 86%
stated that they are aware of the company’s Whistleblowing Channel (in 2015, this
percentage was 56%).
INTERNAL CONTROLS
Our management
maintaining adequate internal control over financial reporting.
is responsible for establishing, evaluating the effectiveness, and
Our internal control over financial reporting is a process overseen by our Board of Directors
and carried out by management and other employees, designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our
consolidated financial statements for external purposes, in accordance with international
accounting standards (IFRS), as issued by the IASB.
Due to its inherent limitations, internal control over the financial statements may not
prevent or detect errors. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that the controls may become inadequate due to changes in
conditions or the degree of compliance with policies or procedures.
Our management has assessed the effectiveness of our internal control over financial
reporting as of 31 December 2016, based upon the criteria established in Internal Controls -
Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of
Treadway Commission (COSO). Based on this assessment, in using the classification of
internal control deficiencies set by the Brazilian standard NBC TA 265 (Brazilian Accounting
Standard 265), and due to the non-remedied significant deficiencies described below, our
management has concluded that internal control over financial reporting was not fully
effective as of December 31, 2016.
67
Evolution of Remediation of Significant Deficiencies in Internal Controls over Financial
Statements
A significant deficiency is a deficiency or a combination of deficiencies in internal control
that, in the auditor’s professional opinion, is sufficiently important to deserve the attention
of those in charge of governance.
Once the existence of control deficiencies which either individually or collectively constitute
significant deficiencies are identified, we are actively engaged in the development and
implementation of remediation efforts to correct them, as well as to identify potential risks
in other areas.
In this sense, our efforts were able to remedy the following significant deficiencies identified
in previous years:
Management Override of Controls refers to the possibility of control override by
administrators (“management override of controls”);
Review and Approval of Manual Journal Entries refers to the possibility that manual
accounting entries occur without proper authorization and review;
Property, plant and equipment (partially): related to the possibility of (i) incorrect
record of provisions and reversals for impairment of fixed assets and (ii) untimely
record of fixed assets depreciation.
Despite of improvements in internal controls and the remediation plans adopted, the
following significant deficiencies persisted in the 2016 fiscal year:
Property, plant and equipment
In 2014, our management identified control failures which collectively constituted a
[significant deficiency] related to property, plant and equipment, related to the
identification of possible risks arising from the economic and financial condition of
suppliers. Such deficiencies resulted in failures: (i) in the identification of the need to
write down payments advances to suppliers, that would not result in future economic
benefits, (ii) in the identification of the need to recognize expenses related to the
dissolution of such contracts.
These deficiencies resulted in a failure of our internal control over financial reporting
from previous years, specifically in 2014, 2015 and 2016, to detect an overstatement
of property, plant and equipment and understatement of expenses however, all
material aspects were reflected in the consolidated financial statements.
Our management recognizes that the remediation actions for the deficiencies
identified in the years 2014, 2015 and 2016 weren’t sufficient. In response, we will
expand the performance of controls so that (i) they are able to capture different
events related to dissolution of or advance payments to suppliers, and (ii) they are
registered in a timely manner.
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Provisions and contingent liabilities for legal proceedings
In 2015, our management identified deficiencies in design related to the controls to
capture and record judicial proceedings to which the Company is a party. Additionally,
a deficiency was identified related to the adequate posting of the classification of
likelihood of contingency loss as likely, possible or remote. In specific cases, control
operation did not guarantee with precision the change of classification of likelihood of
loss for specific contingencies.
In response to the significant deficiency identified in 2015, our management adopted
measures to remedy deficiencies and conform the operation of controls, which
internal
resulted
procedures for provision and contingent liabilities.
improvements to the design of processes, controls and
in
In this context, our management understands that the process shows evolution and
maturity in mitigating risks, whereas there still are areas of improvement and
strengthening of the control environment that deserve the attention of those
charged with governance, but which do not constitute, either individually or
collectively, a reasonably likelihood that material failure is not prevented or detected
and reported by the filing of quarterly or annual financial reports.
This deficiency did not have an impact on our financial reporting in 2015 or 2016.
System access management and segregation of duties in business and information
technology processes
In 2013, we identified deficiencies in the operation of controls related to procedures
for granting access and segregation of duties analysis in certain operations that,
when evaluated together, constituted a [significant deficiency].
The identified control deficiencies related to the management, review and monitoring
of access, including critical functions and segregation of duties in business processes
within the Enterprise Resource Planning - ERP environment (corporate management
system) showed exceptions, especially in the operation of controls.
This deficiency did not have an impact on our financial reporting in 2013, 2014, 2015
or 2016.
In 2016, we performed actions to remedy control deficiencies, including improvement
of procedures and automation in the management of access to users in the ERP
environment.
Our management believes that the actions taken to remedy the significant deficiency
of Access Restriction and Segregation of Duties represent an evolution in mitigating
risks and in the control environment for this process. However, pursuant to the
outlook of the aggregate results of tests, the control environment has not yet
reached the appropriate maturity to conclude that the significant deficiency has been
remedied.
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Our management remains committed to the strengthening and maturity of the
control environment, in order to remedy the significant deficiency identified.
Calculation of company net actuarial liabilities
In 2015, we identified deficiencies in the data generation process used to calculate the
actuarial liabilities related to our healthcare plan (AMS) and the pension plan (Petros).
These deficiencies referred to the totality of the sample and to the accuracy of its
individual information in the databases used for the actuarial calculation.
Such deficiencies resulted from failure of our internal control over financial reporting
to detect an overvaluation of liabilities and an understatement of comprehensive
income in fiscal years 2015 and 2016. However, these deficiencies had no impact on
our financial statements in 2015 or 2016.
In 2016, our management created a new set of controls which cover processes of
inclusion, alteration or exclusion of employees, dependents or retirees in the
databases for the health care plan (AMS) and the pension plan (Petros).
Though the actions taken represent an improvement, our management recognizes
that the control environment has not yet demonstrated adequate maturity to
conclude that the significant deficiency of actuarial liabilities was remedied.
Additionally, in 2016 we identified deficiencies in its controls over the monitoring of
specific benefit plan assets managed by Petros and their adjusted reflexes in
Petrobras’ financial statements. Despite the actions taken by our management to
mitigate those risks, mainly by strengthening the role of oversight and monitoring
exercised by the Sponsor (Petrobras), we understand that such actions were still not
sufficient to ensure adequate monitoring of all assets.
Our management remains committed to the strengthening and maturity of the
control environment, in order to remedy the significant deficiency identified.
These significant deficiencies were analyzed by our management, and all necessary
adjustments were made in our consolidated financial statements.
From the above, we concluded that our consolidated financial statements fairly present, in
all material respects, our financial condition, results of operations and cash flows at and for
the periods presented. The impact of all the facts known to management, so far, has been
reflected in the consolidated financial statements.
SOCIAL RESPONSIBILITY
In the area of Social Responsibility, we highlight social risk management, environmental
investment and community outreach. These activities contribute to integrate social
responsibility in the Petrobras System, both in strategic decisions and in the performance of
everyday activities, and increase our ability to generate value for the business due to the
prevention or mitigation of social risks and the strengthening of the relationship with our
stakeholders, in particular with the communities around our units and installations.
70
In 2016, we approved our standard on social risks, a development of the Policy on Corporate
Risk Management, to meet the Securities and Exchange Commission of Brazil (CVM)
Instruction 552/14. The standard includes the identification and classification of social risks,
considering their impact and likelihood of occurrence. Such risks involve issues such as
human rights in supply chain and the dynamic with local communities.
Social risk management should take place in all of our processes and activities, and in all
stages of the life cycle of our projects. The results of the analysis of these risks should help
us in the decision-making process and are integrated into other risks that may impact our
business and the relationship with stakeholders.
In order to assist our Executive Board, the Executive Committee for Communication and
Social Responsibility was created. The issues discussed by the committee include the
Communication Policy and the guidelines for the Petrobras Social and Environmental
Program.
invested approximately R$ 120 million
We
initiatives related to social and
environmental projects that we support. The amount for the Petrobras System was 55.7%
lower than in the previous year, considering our capital discipline initiatives.
in 470
Our Social and Environmental Program encompasses partnerships with more than 700
entities, such as the United Nations Children’s Fund (Unicef), the Network of Educational
Sports Multiplying Partners, the Pro-Tamar Foundation and the Baleia Jubarte Institute.
In the period from 2014 to 2016, program-supported projects mobilized 895 thousand
people in education actions, and had 72 thousand participants in professional training
initiatives produced about 90 thousand
courses. In the environmental area, these
publications, studies, technical documents and databases. In addition, they covered around
430 fauna species, one thousand flora species, and 1.6 million hectares in productive
reconversion activities, recovery of degraded areas, and conservation/management of
forests and natural areas (73% of which refer to conservation actions of natural areas in
indigenous lands or Conservation Units).
Our project portfolio also allows us to meet the challenges of our businesses. Due to our
activities
in the Brazilian coast, the demands of various stakeholders regarding
environmental risks have grown, especially for marine biodiversity. We sponsor the projects
by Rede Biomar, which are a reference in marine biodiversity conservation in Brazil and
generated technical and scientific information that contributed with inputs to our responses
to licensing organs due to our offshore performance. Currently, the network includes the
projects Tamar, Baleia Jubarte, Coral Vivo, Golfinho Rotador, and Albatroz.
We also highlight, in our social responsibility performance, the following initiatives:
Community Outreach: through a methodology-based participatory process called Agenda
21, we are active in promoting the development of action plans in 193 neighboring
communities to our operating units. Community diagnoses were developed that subsidized
the development of these plans, with a focus on health, public safety, education, and
employment and income. In the year 2016, about 4.4 thousand people were certified at 229
social management training workshops (training of entrepreneurs, preparation of projects,
and incorporation of legal entities) and community communication, aiming to promote the
implementation of these plans.
71
Gender and race equality: we signed in April 2016, the statement of commitment for the
sixth edition of the Pro Gender and Race Equality Program, an initiative led by the Special
Secretariat for Woman Policies with the support of UN Women, the International Labor
Organization, and the Secretariat of Policies to Promote Racial Equality. The purpose of the
program is to promote equality between men and women in the labor market, contributing to
the elimination of all manner of discrimination in access to employment, professional
remuneration, career advancement and stay at work.
RESEARCH AND DEVELOPMENT
Our activities in Research and Development (“R&D”) are coordinated by the Research and
Development Center Leopoldo Américo Miguez de Mello (“Cenpes”) and aim to develop
technologies to facilitate our Business and Management Plan, in addition to anticipate
trends and invest in technological routes aligned to our Strategic Planning. Cenpes has 1,458
employees, 1,345 of whom dedicated exclusively to the P&D area, whereas 21% hold master’s
degrees and 14% hold doctor’s degrees. Additionally, it works in partnership with over
domestic and foreign 100 universities and research institutions, suppliers, and other
companies.
In 2016, R&D investments totaled R$ 1,826 million, a 9.78% reduction compared to the
previous year.
Our main results in P&D this year, were:
installation of Stationary Production Unit control simulator and dynamic virtual
compression plant, enabling improvements and corrections in control settings, as well as
adjustments to new operation scenarios, reducing involved risks and optimizing
compressor operation, startup and outage (the use of this simulator prevented
unscheduled outages at 23 P-43, representing a gain of approximately R$ 2.5 million);
optimization of the anchoring system of platforms P-67, P-68, P-69, P-70, P-74, P-75, P-
P-76 and 77, reducing the need for 30 anchoring under original designs and providing
Petrobras with potential savings of R$ 470 million, referring to the reduction of material
and installation costs;
Use of the real-time drilling diagnostics program of in (PWDA), a software developed by
Petrobras that receives real-time information on well drilling, identifies risk situations,
and alerts to the occurrence of operational problems. Its use has enabled to reduce the
use of probe in 18 days, generating savings of R$ 34.4 million in 2016.
use of the ENDFlex tool, developed by Petrobras to define new deadlines for the
inspection of pipelines, risers, and subsea umbilicals. The software uses technical criteria
based on risk classification and history, and consequences of failures in the field. In the
Campos Basin Operating Unit, due to the new inspection deadlines, the potential for cost
reduction is R$ 120 million by reducing the fleet of vessels.
establishment of new recommendations for the procedure to open producer wells in the
Marlim field, in Campos Basin, considering laboratory tests and numerical simulations,
which enabled progressive increase in flow, avoiding production losses and generating
additional revenue of R$ 125 million in the year.
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operation startup in our first multiphase pumping system in onshore fields. Conventional
machines essentially operate with liquid (pumps) or gaseous (compressors) fluids. The
multiphase pumps are a hybrid system that can operate with two fluids (100% liquid or up
to 95% gas). Designed to operate with 25 producing wells at the same time, they are
capable of significantly reducing the pressure on these wellheads, enabling an increase in
oil production by up to 30%. This technology can enable production in marginal deposits
and/or increase the recovery factor of so-called mature fields.
development of sedimentologic and stratigraphic models in the Lula, Búzios, and
Sapinhoá fields, in the Santos Basin pre-salt layer, used to minimize exploration and
production risks by increasing the degree of reliability of future locations for the
exploitation of these fields.
availability of two new real-time investigation techniques of contaminated areas -
induced fluorescence by laser-induced fluorescence (LIF) and x-ray fluorescence (XRF),
which enable greater precision, reduced response time by up to 50%, and consequent
reduction of the costs of investigation and remediation of contaminated areas by 40%, at
least. Pilots have been conducted in the fields of Carmópolis, in Sergipe, the Dom João
Treatment Plant and Oil Transfer, in the Bahia Operating Unit (UO-BA), and in the
Cacimbas, Espírito Santo Gas Treatment Unit (UTGC).
application of a system of membranes in a floating unit located in ultra-deep waters, to
separate the CO2 contained in natural gas. The work enabled to achieve the injection
threshold of more than 3 million tons of CO2 in the Lula and Sapinhoá fields, avoiding the
emission into the atmosphere and increasing oil recovery.
development of the Multi-Size Feeler PIG (tool for internal inspection of oil and gas
production pipelines), successfully used in the fields of Espírito Santo Operating Unit
(UO-ES) and the Santos Basin Operational Unit (UO-BS).
development of first filling diesel, which ensures protection to new vehicles are stored in
the courtyard of the automakers for a period of up to 180 days prior to sale. The product
reduces the occurrence of oxidation reactions and minimizes the formation of deposits in
the injection system, reducing wear of parts and reducing human exposure to the
degraded product. The reduction of fuel and worn parts disposal brings a significant
environmental gain and meets fuel specifications, in addition to environmental and
logistical requirements.
application of new technology of catalysts in one of two catalytic cracking units in the
Paulínia Refinery (Replan), in Sao Paulo, which, together with other initiatives, made it
possible to reduce emissions of particulate matter by 22%. The use of the technology has
provided an increase in the conversion of heavy fractions for diesel and gasoline
production, with estimated R$ 35 million annual gain, in addition to anticipating
compliance with Conama resolution 436, without relevant capital investment; and
filing of 62 patent applications, 24 of which in Brazil and 38 abroad.
Cenpes also works in the provision of technical assistance for the solution of operating
problems, seeking efficiency gains, operating optimization, and cost reduction. As an
example, it worked on the thermo-mechanical revaluation of the 18-inch Sapinhoá Norte
pipeline, due to changes in design bases. The work enabled the start of production by FPSO -
73
Sapinhoá Norte, which operates in the Sapinhoá field, in the Santos Basin pre-salt layer, and
ensured the start of exports of 2 million/day of gas on the scheduled date, avoiding last-
minute design changes and the consequent loss of production of 60 thousand boe/day. It is
also worth mentioning the application of non-destructive testing techniques in the detection
and sizing of cracks in welds and in delayed coking unit equipment at Replan. The work
enabled a more precise evaluation of the defects detected and a reduction in the scope of
planned repairs, reducing the time of interventions, postponing scheduled outages, and
recording R$ 37.5 million savings for the company.
HUMAN RESOURCES
STAFF EVOLUTION
The Petrobras System closed 2016 with 68,829 employees, a 12.29% reduction compared to
2015. The number of employees by region, turnover and the educational level are listed in
the following tables:
Table 10: Number of Employees by Petrobras System Region
Staff by Region
2016
2015
Petrobras Holding
Southeast
South
Northeast
North
Midwest
Controlled Companies - Brazil
Southeast
South
Northeast
North
Midwest
Controlled Companies - Abroad
51,255
36,883
2,529
10,565
1,078
200
13,936
8,760
1,826
2,242
527
581
3,638
56,874
40,326
2,740
12,344
1,214
250
14,740
9,396
1,816
2,267
655
606
6,856
Total Petrobras System
68,829
78,470
Table 11: Employee Turnover
Turnover
2016
2015
Petrobras Holding
Controlled Companies - Brazil
Controlled Companies - Abroad
6.66**
5.53
20.3
1.96
5.88
25.4
* There was greater turnover due to Volunteer Dismissal Incentive Programs (PIDVs) in 2014 and 2016.
74
Table 12: Educational Level of Employees
Educational Level
2016
2015
Petrobras Holding
High School
Higher Education
51,255
30,601
20,654
56,874
34,999
21,875
The Strategic Plan establishes an innovative, flexible people management model, based on
the valuation of employees, which aims to contribute to our sustainability. The Human
Resources area supports our strategy by seeking both the allocation and the retention of
talents, in terms of quantity and competence, and the satisfaction, commitment, and
productivity of our employees, through various initiatives, among which we highlight the
following:
(i)
(ii)
(iii)
the adequacy of manpower, through specific programs such as the Volunteer
Dismissal Incentive Program (PIDV) and the Internal Transfer of Employees
Program (Mobiliza);
the development of our employees; and
performance management strengthening, by deploying the meritocracy system
both in career development and in management succession processes.
ADEQUACY OF MANPOWER
To adjust the workforce to the challenges of PE and PNG 2017-2021 and to reconcile our
needs to the interests of employees, we highlight two programs: the Volunteer Dismissal
Incentive Program (PIDV), and Mobiliza.
In 2016, we launched a new Volunteer Dismissal Incentive Program (PIDV). Similarly to the
PIDV implemented in 2014, the new program was based on the principles of knowledge
management, management succession, and operating continuity, in order to enable the
planned and systematic dismissal of enrolled employees.
The 2016 PIDV was open to all our employees (Petrobras Holding) and today there are 11,866
individuals enrolled. According to the rules of this PIDV, employees who enrolled in the
program in 2016 may give up at any time up to the date of approval of employment contract
termination. A more accurate figure for the number of employees who will leave the company
based on the program will be effectively known in the first half of 2017, when the last
dismissal of employees whose employment contract is not suspended or interrupted should
occur.
The total number of Petrobras Holding employees already dismissed as a result of PIDVs
2014 and 2016, was 12,190 as of 12/31/2016. It is estimated that 6,502 more employees will
be dismissed.
Total indemnity borne by Petrobras Holding amounted to R$ 3.7 billion with both programs
(PIDVs 2014 and 2016). On the other hand, the financial return of the program by 2021 is
75
expected to be R$ 18.9 billion (based on estimate and the calculation of funding in the PNG
2017-2021, considering a percentage of 20% withdrawal).
In 2016, our subsidiary Petrobras Distribuidora also launched a volunteer dismissal program,
which registered a total of 1,105 enrolled individuals (up to the enrollment deadline on
12/31/16).
As for the Internal Transfer of Employees Program (Mobiliza), since 2013, we’ve had an
internal transfer program exclusive to employees on non-managerial positions, created to
adjust the staff of units to the company’s needs, seeking to reconcile the interests of
employees through conditions established in specific rules. In 2016, 155 employees changed
areas.
With the challenges of PE and PNG 2017-2021, the transfer of staff has become even more
relevant to the development of activities in the company, which is why, in December, we
structured the program to make it continuous (Continuous Corporate Transfer Process).
DEVELOPMENT OF HUMAN RESOURCES
Investments in employee training totaled R$ 76 million, a 56% reduction compared to the
previous year, reflecting the reduction in travel costs from the intensification of training
carried out in the units themselves and the greater use of educational technology. We
recorded nearly 249,000 participations in training courses for new employees and continuing
education in Brazil and abroad, reaching an average of 41 hours of training per employee. We
highlight the staging of 1,098 participations in compliance training actions, and about 60
thousand participations relating to remote training on corruption prevention available to
employees in the holding company and in Petrobras System companies.
CAREER AND MANAGEMENT SUCCESSION
In 2016, we approved the internal standard for the succession process of Executive Board
and Senior Management members, and Staff and Technical Advisors to the Board of
Directors. We also approved the performance review process for the BD, its committees and
the Executive Board.
Between October and December 2016, internal selection processes were carried out for the
role of Executive Officer for Finance of System companies: Petrobras Singapore, Petrobras
Colombia, Petrobras Biocombustível, and Petrobras Logística, in compliance with Law
13,303/2016 of the Legal Statute for Mixed-Capital Companies and their Subsidiaries, and
the Policy for Nomination of Petrobras Audit Committee, Board of Directors, and Executive
Board members, approved by the BD on 9/28/2016.
Another front in progress is the Review of Managerial and Specialist Positions, seeking to
adapt such positions to the new challenges of the company in qualitative terms, enabling the
allocation of professionals on the basis of the profiles required for managerial and experts
positions. This review process will allow the development of a model based on meritocracy
and focused on results.
76
MAIN BENEFITS OFFERED TO EMPLOYEES
We offer our employees benefits that are compatible with the size of the company and which
seek the valuation of employees. All employees are entitled to the same benefits, regardless
of positions or duties. Among the main benefits, we highlight private pension plans, medical
assistance, and pharmacy benefit.
We sponsor two private pension plans. One of the plans, called Petrobras System Petros Plan
(PPSP), is designed as a defined benefit closed to new accessions, and benefits granted
under it are supplementary to Social Security (INSS). The new plan, known as Petros Plan-2,
entered into effect on 7/1/2007 and was offered to all employees not enrolled in PPSP. The
Petros Plan-2 was incorporated as a variable contribution plan. Contributions intended for
the payment of future benefits are accumulated in individual employee accounts, whose
profitability will be based on the results of the investments made by Fundação Petrobras de
Seguridade Social (Petros), the entity in charge of managing the company’s pension plans.
Together, these plans cover 96.86% of our employees.
We maintain a supplementary health care plan (Multidisciplinary Health Assistance-AMS),
which provides medical and hospital assistance and dental services to all employees, retirees,
pensioners and their dependents. The plan is designed as a monthly contribution model,
considering income and age brackets, for carrying out procedures classified as High Risk
(surgeries, emergencies and some chronic treatments), and co-participation percentage,
which varies according to income bracket, for carrying out procedures classified as Small Risk
(consultations, exams and therapies). Plan costs are borne by the contribution of
beneficiaries, which corresponds to 25% of the total expenditure, whereas the remaining
costs are borne by the company.
The AMS benefit also provides coverage of supplementary programs through differentiated
costing schedule, such as the Pharmacy Benefit program. By joining the AMS plan, the
beneficiary is automatically enrolled in the program, which allows coverage of medication
currently registered at Anvisa (except for a few exceptions), whereas the program is funded
through a schedule of monthly contribution that varies according to the income bracket of
the plan holder.
For more information on the benefits above, please read explanatory note 22 in our
consolidated financial statements.
In addition to the aforementioned benefits, we have implemented other measures aimed at
the welfare of our employees. In this regard, we highlight that, in 2016, an allowance of up to
non-cumulative 120 hours per year was granted to employees who have children with
disabilities enrolled in the Special Care Program, who require an escort in consultation
and/or therapies. In addition, in the Addendum to the Collective Labor Agreement 2015-
2017, as well as in policy that we adopted for maternity leave, we expanded paternity leave to
20 days, including employees whose spouse or partner is on maternity leave with benefits
recognized by INSS. We also created for breastfeeding employees an allowance of up to 2
hours per day for breastfeeding their own children until the first year of age, upon
presentation of medical certificate.
77
OPERATION CAR WASH
In 2009, the Federal Police of Brazil launched an investigation to look into money-laundering
practices by criminal organizations in several states in the nation, named “Operation Car
Wash.” This scheme involved a set of companies that, between 2004 and April 2012,
organized in cartel to obtain contracts with Petrobras, imposing additional expenses in these
contracts and using such additional values to fund undue payments to political parties,
elected politicians or other political agents, employees of contractors and suppliers, former
Petrobras employees, and others parties involved in this scheme. The investigations also
showed specific cases in which other companies that did not participate in the cartel acted
individually, by imposing additional expenses and using such values to finance undue
payments.
Currently, there are still ongoing investigations relating to alleged crimes in disfavor of
Petrobras. Petrobras has undertaken efforts to the wide investigation of the facts revealed
by Operation Car Wash, including those related to any public officials who have perpetrated
unlawful acts towards the company.
We do not tolerate any corrupt practice and continue to implement measures to strengthen
our internal control structure. We are working to recover damages incurred as a result of the
improper payments scheme. For this purpose, we filed in eight lawsuits of administrative
misconduct and assistants to the prosecution by the Federal Prosecutor’s Office in 31
criminal actions, in addition to participating in five other criminal actions as interested party.
At this time, we have received as compensation for incurred damages the amount of R$ 661
million, which also includes an amount received as a result of criminal action in proceedings
in the Federal Court of Rio de Janeiro (SBM case). As proceedings and investigations evolve,
we may be entitled to receive other amounts.
Lastly, Petrobras reinforces that is officially recognized by public authorities as a victim in
this investigation process.
CLASS ACTION AND RELATED PROCESSES
A Consolidated Securities Class Action and 33 individual lawsuits were filed by investors
before the Federal Court for the Southern District of New York (USA) and one lawsuit was
filed by an individual investor in the Federal Court for the Eastern District of Pennsylvania
(USA), all with similar allegations.
The authors contend that Petrobras, through material facts and other information filed with
the Securities and Exchange Commission (SEC), allegedly reported materially false
information and made omissions capable of inducing investors to error, especially in relation
to the value of its assets, expenses, net income, effectiveness of its internal controls over
the financial statements, and anti-corruption policies, which supposedly increased the price
of company securities artificially.
In February 2016, the judge in charge of the trial of the class action issued a decision
certifying two classes of investors. The first class, whose claims are based on the Securities
78
Act, represented by authors Employees’ Retirement System of the State of Hawaii and North
Carolina Department of State Treasurer; and the second class, whose claims are based on the
Exchange Act, represented by author Universities Superannuation Scheme Limited. Both
classes have the office Pomerantz LLP as attorney.
Pursuant to a decision by the Court of Appeals for the Second Circuit, the appellate court
that examines appeals against decisions issued by the Federal Court for the Southern
District of New York, in August 2016, the class action and the individual actions therein
consolidated for trial purposes were suspended until the outcome of the appeal filed by the
company against the decision that certified the classes of investors. In November 2016, oral
arguments were held in a hearing on the topic. The company awaits a decision, without a
forecast for such. It is possible that months go by until a collegiate decision on the subject is
issued.
In October 2016, we executed agreements to terminate four individual actions filed before
the Federal Court of New York, by PIMCO Total Return Fund (and others), Dodge & Cox
International Stock Fund (and others), Janus Overseas Fund (and others) and Al Shams
Investments.
In November 2016, we executed agreements to end eleven other individual actions filed
before the Federal Court of New York, by Abbey Life Assurance Company Limited (and
others), Aberdeen Emerging Markets Fund (and others), Aberdeen Latin American Income
Fund Limited (and others), Delaware Enhanced Global Dividend and Income Fund (and
others), Dimensional Emerging Markets Fund (and others), Manning & Napier Advisors, LLC
(and others), Russell Investment Company (and others), Skagen (and others), State of Alaska
Department of Revenue, Treasury Division (and other), State Street Cayman Trust Co., Ltd,
and Ohio Public Employees Retirement System.
In February 2017, we celebrated agreements to end four other individual actions filed before
the Federal Court of New York, by New York City Employees Retirement System (and others),
Transamerica Income Shares, Inc. (and others), Internationale Kapitalanlagegesellschaft
mbH, and Lord Abbett Investment Trust Lord Abbett Short Duration – Income Fund (and
others).
On such agreements, we clarify to the market that they do not represent any
acknowledgment of guilt by the company, aiming to eliminate the uncertainties, burden and
costs associated with the continuation of these disputes.
In the balance sheet of the third and fourth quarters of 2016, provisioned values remain as a
result of the agreements reached and the stage of negotiations in progress with other
authors of individual actions, and the nineteen agreements informed are already included in
this provision.
These actions involve very complex issues, subject to substantial uncertainties that depend
on such factors as: originality of legal theses, schedule set by the Court, time of legal
decisions, production of evidence in the possession of third parties or opponents, court
decision on key issues, expert analysis, and the possibility that the parties negotiate a
potential agreement in good faith.
In addition, the claims made are broad, cover several years, involve a diversity of activities
and, in particular, the authors’ arguments in the class action and the individual actions on the
79
value of alleged damage are varied, causing the impact of the course of litigation at the
current stage to be complex and uncertain. The uncertainties inherent to all of these issues
affect the amount and the time of the final decision in these lawsuits.
As a result, it is not possible to provide a safe estimate of potential loss in the class action
and the individual actions for which we did not recognize provision.
Depending on the outcome of the case, we may have to pay substantial values, which could
have material adverse effect on our financial condition, our consolidated results or our
consolidated cash flow in a given period.
Regardless, we believe that we have been victims of the corruption system unveiled by
Operation Car Wash, and we seek to demonstrate and prove that position, as already
recognized by the Brazilian Judiciary.
INFORMATION ON PROVISION OF SERVICES OTHER
THAN EXTERNAL AUDIT BY INDEPENDENT AUDITORS
– CVM INSTRUCTION 381/2003
Our corporate management instruments are based on our Code of Ethics and our Code of
Best Practices and on the Corporate Governance Guidelines.
Article 30 of our Bylaws defines that independent auditors may not provide us consulting
services during the term of the audit contract.
PricewaterhouseCoopers Independent Auditors provided specialized technical services in
accounting audit for the financial periods from 2014 to 2016.
In 2016, PricewaterhouseCoopers (PWC) Independent Auditors provided the following
services, including our subsidiaries and controlled companies:
Table 13: Services Provided by PWC
Accounting Audit
SOX Audit
Additional audit-related services
Tax Audit
Total services
R$ thousand
48,739
4,984
8,253
2,251
64,227
We hired KPMG Independent Auditors (KPMG) to provide independent auditing services for
the years 2017 to 2019, with the possibility of renewal for a further two years.
80
FINANCIAL ANALYSIS
Petrobras presents the financial analysis on its consolidated financial statements, except
where otherwise stated.
CONSOLIDATED RESULTS
MAIN ITEMS AND INDICATORS OF FINANCIAL ANALYSIS
Sales revenue
Gross profit
Operating profit (loss)
Net financial result
Loss - Petrobras Shareholders
Loss per share
Adjusted EBITDA
Free Cash Flow
Gross margin (%)
Operating margin (%)
Net margin (%)
Average dollar ask price (R$)
Final dollar ask price (R$)
Variation - Final dollar ask price (R$)
Basic derivatives price - Domestic market (R$/bbl)
Brent (R$/bbl)
Brent (US$/bbl)
Sale price – Brazil
Crude (US$/bbl)
Natural gas (US$/bbl)
Sale price - International
Crude (US$/bbl)
Natural gas (US$/bbl)
Gross Profit
R$ million
2016
2015
2016 x
2015 (%)
282,589
321,638
89,978
17,111
(27,185)
(14,824)
(1.14)
88,693
41,572
32
6
(5)
3.48
3.26
(16.5)
227.47
150.89
43.69
39.36
31.29
43.52
21.40
98,576
(12,391)
(28,041)
(34,836)
(2.67)
76,752
15,889
31
(4)
(11)
3.34
3.90
47.0
228.18
172.66
52.46
42.16
36.24
55.99
22.62
(12)
(9)
238
3
57
58
16
162
1
10
6
4
(16)
(64)
−
(13)
(17)
(7)
(14)
(22)
(5)
Gross profit decreased 9% from 2015, reaching R$ 89.978 million due to the 8% drop in sales
of derivatives in the domestic market, mainly diesel and fuel oil, and the lesser electric power
generation. The smaller volume of natural gas sold in the domestic market, the drop in oil
and derivate export prices, and increased depreciation due to reduction in reserve estimates
also contributed to this result. On the other hand, there were larger margins in diesel and
gasoline, and lower expenditures with imports and government stake in Brazil.
81
Operating Profit
Operating profit reached R$ 17.111 million, reversing the losses recorded in 2015. This result
reflects the recognition of impairment 57% lower in comparison to 2015. Also contributing to
the operating result were: the review of abandonment of oil and gas areas, which occurred on
3Q 2016, the gains recorded with asset sales, and lower expenses for return of fields.
However, the result was affected by the higher expenditures of the new PIDV, the
reclassification of losses with foreign exchange depreciation (accumulated conversion
adjustments - CTA, as a result of the sale of PESA) and by higher expenditures on drilling rig
idleness.
Financial Result
The R$ 27.185 million net financial expense was R$ 856 million lower due to lesser negative
impact of monetary and foreign exchange variations. Meanwhile, expenses with interests
have increased, due to the depreciation of the average rate of the real against the dollar.
Net Result
The company recorded a R$ 14.824 million loss in 2016, mostly due to the impairment of
assets and investments in subsidiaries, to the amount of R$ 20.891 million.
Adjusted EBITDA
Adjusted EBITDA increased by 16% from 2015, amounting to R$ 88.693 million, due to higher
diesel and gasoline margins and lower expenditures on imports and government stakes.
Adjusted EBITDA margin was 31% in 2016.
Free Cash Flow
The greater operating generation and the reduction of investments resulted in positive free
cash flow of R$ 41.572 million, 2.6 times higher than recorded in 2015. The higher free cash
flow and the divestments carried out, with cash inflow of R$ 7.231 million, contributed to our
deleveraging.
Free cash flow – Resources generated by operating activities minus investments in business areas. Free cash flow measurement is not
provided for in international accounting standards, and it should not be considered in isolation or as a substitute to cash and cash
equivalents calculated under IFRS. In addition, it should not be a basis for comparison with other companies, however Management believes
it is an additional information that helps investors evaluate the liquidity and assists in leverage management.
82
RECONCILIATION OF ADJUSTED EBITDA
Loss in the period
Net Financial Result
Income tax and social contribution
Depreciation, depletion and amortization
EBITDA
Result of participations in investments
Impairment.
Accumulated conversion adjustments - CTA
Result with asset sales/write-offs
Adjusted EBITDA
R$ million
2016
2015
2016 X
2015 (%)
(13,045)
(35,171)
27,185
2,342
48,543
65,025
629
28,041
(6,058)
38,574
25,386
797
20,297
47,676
3,693
(951)
88,693
-
2,893
76,752
63
(3)
139
26
156
(21)
(57)
-
(133)
16
EBITDA is an indicator calculated as net profit for the period plus the taxes on profit, net
financial income, depreciation and amortization. Petrobras discloses EBITDA, as provides for
in CVM Instruction no. 527, as of October 4, 2012, adjusted for items such as: result from
participation in investments and impairment of assets.
Starting 2016, the company revised the presentation of adjusted EBITDA to better reflect
the Management vision on the composition of the result for current company activities,
additionally considering as adjustments the effects of accumulated foreign exchange
conversion adjustments (CTA), which are reclassified to the result, plus the result of asset
sale and write-off. Values from previous periods are re-presented for comparison purposes.
Adjusted EBITDA is not provided for in the international accounting standards - IFRS. In
addition, adjusted EBITDA should not be a basis for comparison with disclosures by other
companies and should not be considered as a substitute for any other measurement
calculated in accordance with IFRS. Management presents adjusted EBITDA as a additional
information on profitability, and it should be considered together with other performance
measurements and indicators for a better understanding of the company’s performance.
83
SALES VOLUME
SALES VOLUME - thousand barrels/day
Diesel
Gasoline
Fuel oil
Naphtha
LPG - Liquefied Petroleum Gas
QAV - Aviation Kerosene
Other
Total derivatives
Alcohols, renewable nitrogenous and other
Natural gas
Total domestic market
Export
International sales
Total foreign market
Total overall
2016
2015
2016 x
2015 (%)
780
545
67
151
234
101
186
2,064
112
333
2,509
554
418
972
3,481
923
553
104
133
232
110
179
2,234
123
432
2,789
510
546
1,056
3,845
(15)
(1)
(36)
14
1
(8)
4
(8)
(9)
(23)
(10)
9
(23)
(8)
(9)
The volume of domestic sales was 10% lower, with highlights for the following products:
Diesel: i) lesser consumption, reflecting the downturn in economic activity in the period;
II) increased sales by importers; and iii) lower sales for thermal power generation.
Fuel oil: i) lower sales to thermal plants due to lower economic activity, which affected the
demand for energy, greater supply of energy through wind power, and improvement of
reservoirs in the country; and ii) strong reduction in industrial production.
Naphtha: the greater sales volume stems from the execution in December 2015 of a new,
long-term contract to supply Braskem, which maintained the supply volume under the
prior agreement, which was terminated in 2014. In 2015, there was a reduction in the
amount hired, with consequent increase in imports carried out directly by Braskem.
Natural Gas: reduction in demand from the thermal power sector.
Exports were 9% higher due to the growth in domestic production of oil and retraction of
demand in the domestic market.
International sales were 23% lower due to the sale of PESA assets in Argentina.
RESULT BY BUSINESS AREA
Petrobras is a company that operates in an integrated manner, with most of the oil and
natural gas production transferred from Exploration and Production area to other business
areas in the company. In the calculation of results by business area, third-party transactions
with and between companies in the Petrobras System are considered, in addition to transfers
between business areas valued by internal prices set by methodologies based on market
parameters.
84
On April 28, 2016, the Extraordinary General Meeting of shareholders approved the statutory
adjustments according to the new organizational structure of the company and its new
management and governance model, aiming to align the organization to the new realities of
the oil and gas sector and to prioritize profitability and capital discipline. On December 31,
2016, the presentation of segmented information reflected our senior management’s
evaluation structure in relation to performance and resource allocation of the businesses.
GROSS PROFIT
E&P
Downstream
Gas & Energy
Distribution
Biofuel
OPERATING PROFIT
E&P
Downstream
Gas & Energy
Distribution
Biofuel
R$ million
2016
2015
2016 x 2015
(%)
29,847
49,495
8,980
7,538
(80)
6,761
31,119
4,086
292
(292)
34,190
46,017
8,695
8,407
(77)
(17,938)
25,438
817
(1,249)
(423)
(13)
8
3
(10)
4
138
22
400
123
(31)
Exploration and Production
The lower gross profit was due to increased depreciation, resulting from the reduction of
reserves in 2015, which is more relevant in the composition of segment costs than lifting cost
reductions and government stakes.
Gross profit reduction abroad stems mainly from the sale of PESA, in Argentina, in July 2016.
Operating profit reversed the loss recorded in 2015 due to expenditure reduction with
impairment.
Internationally, there was a reduction of operating
expenditures and exploration expenses in the United States.
loss due to
lower
impairment
Downstream
increase
in gross profit
is due to the following factors: (i)
The
lower cost with
acquisition/transfer of oil, as a result of the reduction in Brent price; (ii) increased proportion
of domestic oil in processed load; and (iii) lower participation of imported derivatives in the
mix of sales, mainly diesel. On the other hand, there was a reduction in the price of the
exported oil basket and in domestic market sales, as well as increasing diesel and petrol offer
by third parties.
The increase in operating profit is due to the higher gross profit associated with lower
operating expenses, primarily related to tax, due to adherence to REFIS, and legal
contingencies, both occurring in 2015. These factors were partially offset by greater
spending on impairment.
85
Gas and Energy
The higher gross profit resulted from lower costs of acquisition, mainly due to the smaller
imported volumes of natural gas and LNG. On the other hand, there was a reduction in
natural gas sales and lower revenue from power generation, due to the improvement of the
country’s hydrological context.
The increase in the operating profit resulted from lower expenses with tax and impairment,
and income from contractual fines applied, despite the higher provision for losses on
receivables in the electricity sector in 2016.
Distribution
The decrease in gross profit reflected the lower sales volume, mainly due to the lower level
of economic activity in Brazil.
Operating profit, in contrast to the loss in the previous year, reflected a reduction in the
provision for losses on receivables in the electricity sector, despite the lower gross profit and
the provision for expenses with the new PIDV of Petrobras Distribuidora.
IMPAIRMENT
The company recognized R$ 20.297 million losses on recoverability of assets in the 2016
period, mainly in:
Oil and gas production fields in Brazil (R$ 7,381 million), predominantly related to the
fields of Polo Norte, Polo Ceará Mar, Guaricema, Bijupirá and Salema, Dourado, Maromba,
Trilha, Papa-Terra, Pampo, Frade, Polo Uruguá, Badejo, Bicudo, Riachuelo, Fazendo
Bálsamo, and Polo Água Grande, due to the appreciation of the real against the U.S.
dollar, review of price assumptions, annual review of provision for dismantling areas, as
well as the increase in the discount rate due mainly to the larger risk premium for Brazil.
Additionally, there is a reversal of the provision for Plo Centro Sul, due to the redesign of
field operations, provided for in the Business and Management Plan PNG 2017-2021;
Suape Petrochemical Complex (R$ 3,445 million), of which: i) R$ 2.011 million in
September 2016, due to the reduction of market projections and appreciation of the real
against the U.S. dollar; and ii) R$ 1.434 million in December 2016, caused by the
difference between the value of the sale and the book value of investments adjusted for
the value of financial debt to be settled;
Equipment related to the oil and gas production and drilling activity in Brazil (R$ 2.772
million), mainly due to uncertainties about the continuity of the construction of the hulls
for FPSOs P-71, P-72 and P-73, in the amount of R$ 1,925, referring to the balance of
these assets;
2nd line of the Abreu e Lima refinery (R$ 2,531 million), essentially by the increase of the
discount rate and the postponement of the expected project cash inflow to 2023,
considering completing the work with own resources, provided for in the Business and
Management Plan PNG 2017-2021; and
86
Comperj (R$ 1,315 million), due to the re-evaluation of the project in the second quarter
of 2016, which maintained its units postponed until December 2020 (Line 1), with efforts
in search of partners to continue investments. The Line 1 refinery utilities which also
service the Natural Gas Processing Unit (UPGN) remain in progress, as part of the
necessary infrastructure for the discharge and processing of natural gas from the Santos
Basin pre-salt layer area.
LIQUIDITY AND CAPITAL RESOURCES
Adjusted availabilities* at the beginning of the period
Federal public securities and time deposits over 3 months from period start
Cash and cash equivalents at beginning of period
Resources generated by operating activities
Resources used in investment activities
Investments in business área
Receivables from the sale of assets (divestments)
Investments in bonds and securities
(=) Net cash flow
Net financing
Capital Raising
Amortization of principal and interest
Dividends paid to shareholders
Minority interest
Receivables from the sale of stakes, without loss of control
Effect of foreign exchange on cash and cash equivalents
Cash and cash equivalents at end of period
Federal public securities and time deposits over 3 months at period end
Adjusted availabilities* at the end of the period
Reconciliation of free cash flow
Resources generated by operating activities
Investments in business área
Free Cash Flow
R$ million
2016
2015
100,887
(3,042)
97,845
89,709
(40,064)
(48,137)
7,231
842
49,645
68,946
(24,707)
44,239
86,670
(44,152)
(70,781)
658
25,971
42,518
(66,609)
(14,434)
64,786
56,158
(131,395)
(70,592)
(239)
122
−
(11,656)
69,108
2,556
71,664
(263)
243
1,934
23,608
97,845
3,042
100,887
89,709
(48,137)
41,572
86,670
(70,781)
15,889
* Sum of availabilities and investments in government bonds and financial investments abroad in time deposits from frontline financial institutions with maturities greater than three
months from the date of investment, considering the expected realization of these investments in the short term. Adjusted availabilities measurement is not provided for in
international accounting standards, and it should not be considered in isolation or as a substitute to cash and cash equivalents calculated under IFRS. In addition, it should not be a
basis for comparison with other companies, however Management believes it is an additional information that helps investors evaluate the liquidity and assists in leverage
management.
As of December 31, 2016, cash and cash equivalent balance amounted to R$ 69,108 million,
and adjusted availabilities totaled R$ 71,664 million. The main applications of funds in 2016
were aimed at meeting debt service in the period and financing of investments in the
business areas. These funds were partially provided by an operating cash generation of R$
89,709 million and R$ 64,786 million in fundraising. The balance of adjusted availability was
negatively impacted in 2016 by the effect of foreign exchange variation on investments
abroad.
The operating cash generation of R$ 89,709 million was primarily driven by higher margins
for diesel and gasoline, reduction in government stake in Brazil, and imports of oil,
derivatives, and natural gas, as well as greater participation of domestic oil in processed
load. These effects were partially offset by lower prices for oil and derivatives exports, as
well as by the decrease in sales volume in Brazil due to the downturn in economic activity.
87
Investments in the company’s business amounted to R$ 48,137 million in 2016, a 32% decline
over the same period last year, whereas 85% of investments were in exploration and
production. This reduction does not impact the prospects of oil and natural gas production.
Free cash flow was positive by R$ 41,572 million in 2016, 2.6 times higher than the same
period last year.
In 2016, the company raised R$ 64,786 million, using the traditional sources of funding
(Export Credit Agencies - ECAs, banking market, capital market and development banks) to
obtain the resources necessary to rollover debt and finance investments. Highlight to the
offer of securities in the international capital market (Global Notes), to an amount of US$
9.75 billion and 5 and 10 year maturities, to repurchase securities (tender offer) amounting
to US$ 9.3 billion. In addition, the company prepaid debt transactions with BNDES that
totaled US$ 6.75 billion.
Additionally, a sale and leaseback transaction was carried out with the Industrial and
Commercial Bank of China (ICBC) in the amount of US$ 1 billion, and financing with the China
Development Band (CDB) in the amount of US$ 5 billion was effected.
Amortization of principal and interest totaled R$ 131,395 million in 2016, and nominal flow
(cash view) of principal and interest of financing by maturity is presented below:
Date
Principal
Interest
Total
2017
2018
2019
2020
2021
2022
onward
12/31/201
6
12/31/201
5
28,711
23,353
52,064
36,929
21,749
58,678
68,765
19,123
87,888
53,735
14,739
68,474
61,606
10,456
72,062
140,481
100,932
241,413
390,227
190,352
580,579
497,289
230,531
727,820
R$ million
88
INDEBTEDNESS
Consolidated indebtedness, referring to loans and financing in the country and abroad, is R$
385,784 million, as demonstrated below:
CONSOLIDATED DEBT
Short-Term Indebtedness
Long-Term Indebtedness
Total
Available Funds
Federal government bonds and Time Deposits (maturity higher than 3 months).
Adjusted availabilities
Net Indebtedness*
Net debt/(net debt+equity)
Total net liability**
Capital structure (net third-party capital / net total liability)
Net Debt/adjusted EBITDA Index
R$ million
12/31/2016
12/31/2015
Δ%
31,855
353,929
385,784
69,108
2,556
71,664
314,120
55%
57,407
435,616
493,023
97,845
3,042
100,887
392,136
60%
733,281
799,248
66%
3.54
68%
5.11
(45)
(19)
(22)
(29)
(16)
(29)
(20)
(5)
(8)
(2)
(31)
* Gross indebtedness minus adjusted availability. This metric is not provided for in international accounting standards - IFRS and should not be considered in isolation
or as a substitute to total long-term indebtedness, calculated in accordance with IFRS. Net indebtedness calculation should not be a basis for comparison with other
companies, however Management believes it is an additional information that helps investors evaluate the liquidity and assists in leverage management.
** Total liability minus adjusted availabilities.
Short-Term Indebtedness
Long-Term Indebtedness
Total
Net Indebtedness
Average debt maturity (years)
US$ million
12/31/2016
12/31/2015
Δ%
9,773
108,597
118,370
96,381
7.46
14,702
111,560
126,262
100,425
7.14
(34)
(3)
(6)
(4)
0.32
Compared to December 31, 2015, the gross debt of the Petrobras System retreated 22% and
net debt dropped by 20%, mainly due to the appreciation of the real by 16.5% and the
amortization of debt using proceeds from divestments.
Short and long-term debt includes Commercial and Financial Leases in the amount of R$ 59
million and R$ 736 million as of December 31, 2016, respectively (R$ 73 million and R$ 303
million as of December 31, 2015).
As of December 31, 2016, the average maturity of debt stood at 7.46 years (7.14 years as of
December 31, 2015).
The net debt to adjusted EBITDA ratio decreased from 5.11 as of December 31, 2015, to 3.54
as of December 31, 2016, due to the reduction of debt and the increase in Adjusted EBITDA.
ASSETS AND LIABILITIES SUBJECT TO FOREX VARIATION
The company has assets and liabilities subject to foreign exchange variations, for which the
main gross exposures refer to the real against the US dollar and the US dollar against the
Euro.
89
The company adopts hedge accounting since 2006. Starting May 2013, the company
extended hedge accounting to protect highly likely future exports.
As of December 31, 2016, obligations amounting to US$ 61,763 million (R$ 201,292 million)
were designated as hedging instruments, as follows:
MOVEMENT IN REFERENCE VALUE (PRINCIPAL AND INTEREST)
Designation as of December 31, 2015
New designations, cancellations and re-designations
Realization by exports
Amortization of debt
Foreign Exchange Variation
Amount as of 31 December 2016
US$ million
61,520
23,275
(2,621)
(20,411)
−
61,763
R$ million
240,222
79,211
(9,074)
(68,740)
(40,327)
201,292
The balances of assets and liabilities in foreign currency of subsidiaries abroad are not
included in the exposition below, when they are realized in currencies equivalent to their
respective functional currencies.
As of December 31, 2016, the net foreign exchange exposure of the company is passive, as
shown in the table below:
ITEMS
Asset
Liability
Hedge Accounting
Total
CONTINGENCIES
R$ million
12/31/2016
12/31/2015
44,303
(271,531)
201,292
(25,936)
67,040
(350,695)
240,222
(43,433)
Petrobras sets up provisions in a sufficient amount to cover likely losses and for which a
reliable estimate can be made, which resulted in the recognition of R$ 4,817 million expense
in 2016 (R$ 5,583 million in 2015).
PROVISIONED LEGAL PROCEEDINGS
Labor proceedings
Tax proceedings
Civil proceedings
Environmental proceedings and other
Total
12/31/2016
12/31/2015
3,995
4,981
1,873
203
11,052
3,323
3,087
2,069
297
8,776
The main actions with likely expectation of loss recognized in 2016 were:
individual lawsuits by subcontractors;
use of ICMS credits on platform imports;
claims for breach of contract related to platform construction; and
indemnity resulting from land expropriation lawsuits for the establishment of easement.
90
CONTRACTUAL OBLIGATIONS
The following table summarizes our obligations and commitments as of 12/31/2016:
CONTRACTUAL OBLIGATIONS
Balance Sheet Items: *
Debt liabilities**
With transfer of benefits, risks and control of assets
Provision for Decommissioning
Total balance sheet items
Other contractual commitments
Natural gas ship or pay ***
Contracted services
NG purchase commitment ***
With transfer of benefits, risks and control of assets
Purchase commitments
Total other commitments
Total
R$ million
Payments Due by Period
Total
2017
2018-2021
2022
onward
384,989
31,796
219,032
134,161
795
33,412
419,196
54,145
203,745
25,064
315,865
43,989
642,808
1,062,004
59
1,317
33,172
11,496
62,220
3,634
37,136
33,611
148,097
181,269
272
6,732
226,036
42,649
75,799
21,430
101,922
7,821
249,621
475,657
464
25,363
159,988
−
65,726
−
176,807
2,557
245,090
405,078
* Except the amount of R$ 123,329 million related to our obligations for pensions and medical benefits, which are partially funded by R$ 50,661 million in plan assets. Information on
post-retirement benefit plans of employees, including an expected maturity calendar of pension liabilities and health benefits, can be found in explanatory note 22 to our audited
consolidated financial statements.
** Includes accrued interest, short-term debt and long-term debt (current and non-current portion). Information on our future payments of principal and interest (undiscounted) for
the coming years can be found in explanatory note 33.6 to our audited consolidated financial statements.
*** The current import contract is set to expire initially on December 31, 2019 and is automatically extended until the entire maximum volume contracted is removed by Petrobras,
which indicates its duration at least through December 2021 . Petrobras and YPFB may renegotiate conditions for removal of the balance contracted volume not consumed. Such
conditions can enter in force from 2022 onward.
91
ACKNOWLEDGMENTS
We thank our employees for their dedication and commitment, which has enabled the
recovery of the company, and our shareholders, the market and society, for the confidence in
the company’s recovery process, pride of all Brazilians.
92
GLOSSARY:
Terms not listed in this glossary are defined in the text.
A-3 Energy Auction: bidding process for the procurement of electricity from new generation
projects, carried out three years in advance of the start of supply.
Agenda 21: consists of methodologies for participatory diagnostics resulting of Rio 92 -
United Nations Conference on the Environment and Development. It analyzes the current
situation of a country, state, city and/or region and plan actions for its sustainable
development.
Alert Threshold: maximum permissible parameter of a given indicator in a set period, used
for the application of corrective actions and process improvements.
Boed: Barrels of oil equivalent per day.
Brent: Oil used as one of the main references in the international oil market. Dated contracts
for Brent or its derivatives in the financial market reference several contracts of purchase
and sale of oil in the world.
Carbon Disclosure Project (CDP): independent non-profit international organization. Every
year, it formulates a collective questionnaire (formulated by institutional investors) and
addresses them to companies listed on major stock exchanges in the world. Its main
objectives are the disclosure of information and the performance review referring to the
management of greenhouse gas emissions - GHG, the use of energy and the risks and
opportunities arising from climate change.
Cernambi Pipeline –Cabiúnas Terminal (Tecab) : the pipeline project represents section 2
and 3 of the Route 2 Gas Pipeline, and belongs to the Cabiúnas 1 Consortium (Petrobras-
55%; BG-25%, Petrogal-10% and Repsol 10%), which connects the Santos Basin Pre-Salt Area
(PPSBS) to UTG Cabiúnas, approximately 382 km in length and flow capacity of 16 million
m³/day of natural gas. Its strategic goal is the discharge of gas to this unit, enabling the
production of oil in pre-salt fields. It is in operation since 02/20/2016.
Class action: It is a kind of collective action set forth in US law that allows a class composed
of individuals who have suffered the same damage, or harmed by the same fact and,
therefore, with a common interest, claim compensation together for damages suffered.
Clear derivatives: liquid, slightly viscous oil derivatives, such as gasoline, kerosene and
diesel.
Climate Convention (COP): it is an international environmental treaty aimed at stabilizing
greenhouse gas concentrations in the atmosphere resulting from human actions, in order to
prevent them from interfering in a harmful and permanent manner, in the planet’s climate
system.
93
CNCL: Transpetro’s National Center for Logistics Control, a structure that uses the latest
technology to monitor and operate remotely and centrally, the pipeline transportation of the
company.
CO: carbon monoxide.
Combined Cycle: gas and steam turbines associated in a single plant, both generating
electrical power by burning the same fuel. For such, the existing heat in the exhaust gases
from gas turbines is recovered to produce the steam necessary to drive the turbine.
Completion: oil exploration phase in which occurs the installation in the well of the
equipment necessary to controllably bring to the surface the desired fluid, and allow the
installation of monitoring equipment in the well.
Conama Resolution 436: defines the maximum emission levels of atmospheric pollutants
from stationary sources installed or with installation license application prior to January 2,
2007.
Concession model: regime of exploration and production of oil and natural gas in which a
company or a consortium of companies performs these activities in an area granted by the
government. In Brazil, if oil or gas is found, the companies securitize the volumes produced
and, in return, pay government stake ‐ royalties and special stake (the latter when applicable
to the field in production). In Brazil, concessions are granted through bidding of areas for oil
exploration and production, promoted by the National Agency of Petroleum, Natural Gas and
Biofuels (ANP), which also performs the technical regulation of exploration and production
activities. The concession model is applied in all Brazilian sedimentary basins, except for the
areas defined in the pre-salt polygon. It should be noted that the concession model is
adopted in cases where the areas were tendered prior to the effectiveness of the production
sharing scheme that defined the pre-salt polygon.
Condensate: hydrocarbon mixture in a gaseous state in the reservoir which, on the surface,
becomes liquid under normal atmospheric conditions.
Dark derivatives: high viscosity oil derivatives, such as fuel oil and asphalt.
Diesel S-10: product with a maximum of 10mg/kg total sulfur intended for vehicles approved
under the criteria of Proconve P7 stage, equivalent to Euro 5 standard (with high quality and
very low sulfur content).
Discovery Assessment Plan (PAD): document containing the set of operations to be carried
out in an area where there was a discovery, to assess its economic viability. A PAD must be
submitted by the concessionaire to the approval of the Regulatory Agency of the Oil and Gas
Industry.
Euro V: type of diesel with high quality and very low sulfur content.
FFR: Federal Funds Rate, the base rate of US interest.
94
Foreign Corrupt Practices Act (FCPA) of 1977: US federal law to fight corruption, to which
we are subject due to the fact that we have ADRs (American Depositary Receipts) traded on
the New York Stock Exchange.
FPSO: vessel with capacity to produce, store and discharge oil and/or natural gas to shuttle
tankers.
Gasduc II: Cabiúnas-Reduc Gas Pipeline, responsible for carrying rich gas to be processed at
Reduc.
Gasoline C5 +: extracted from natural gas, it can be mixed with gasoline for specification,
reprocessed, or added to the oil stream.
Green diesel: diesel produced from renewable raw materials that can be mixed in any
proportion with oil derivatives, without requiring changes in engines.
HSE Conduct Treatment System: system to assist managers in making decisions regarding
expected HSE behaviors, with valuation of positive practices and/or attitudes, and HSE
behaviors that are not expected, differentiating error from violation, enabling the
application of employee recognition program and the Petrobras disciplinary system.
Impairment: loss in the recovery value of assets.
Intelligent completion: set of operations to coat and equip the well for production or
injection of water or gas, using different well monitoring sensors and valves with remote
operations to control the produced or injected flow.
Law 12,846/2013: governs the administrative and civil liability of legal persons for the
practice of acts against national or foreign public administration.
Medium distillates: oil-based products such as diesel, kerosene, naphtha and jet fuel.
NOx: nitrogen oxides.
Occupational exams: examinations made periodically for monitoring, prevention and
promotion of workers’ health. They include medical, dental and nutritional assessment, with
custom approach of clinical and occupational history.
Ocvap II: oil pipeline about 70 km long and capable of carrying 50 thousand m³/month of C5+
gasoline. It is part of the network of pipelines linking the Gas Treatment Unit Monteiro
Lobato (UTGCA) in Caraguadatuba, and Revap.
Opasc: Paraná-Santa Catarina oil pipeline, with a length of 266 km, responsible for
transporting derivatives of the Presidente Getúlio Vargas Refinery, Repar, in Paraná, to
Santa Catarina state.
Orsol I and II: these oil pipelines are 281 km long and 280 long, respectively, interconnecting
the Arara Area in Manaus to the Coari Waterway Terminal, and transport oil and liquefied
petroleum gas (LPG).
95
Osbra: Sao Paulo-Brasília oil pipeline, 964 km long, responsible for transporting derivatives
from the Paulinia Refinery (Replan) in São Paulo, to the Midwest region.
PLD: settlement price of differences used to appraise the energy sold in the short term, i.e.,
the spot market price.
Proconve P7: Proconve P7 phase, equivalent to the Euro 5 standard, stage that features
requirements to ensure the reduction of pollutant emissions in vehicles equipped with diesel
engines.
Proconve: Motor Vehicle Air Pollution Control Program, established by the National Council
for the Environment (Conama).
Production sharing model: regime of exploration and production of oil and natural gas in
which a company performs these activities through a production sharing contract between a
state-owned company, which represents government
interests, and a company or
consortium of companies (contractors) for the exploration and production of oil by
compensating the parties upon sharing the production of an oil field. Companies or consortia
responsible for production must pay royalties to the government. In Brazil, Pre-Salt S.A.
(PPSA) inspects the costs and has specific powers in consortia formed to carry out the
activities under sharing. The current production sharing model is adopted only for areas of
the pre-salt polygon, without the effect of amending concession contracts for the areas
already under contracts executed prior to Law 12,351/2010. With the advent of the recent
Law 13,365, dated of November 29, 2016, Petrobras no longer has the obligation to be the
operator and hold 30% stake in the blocks to be granted under this regime, providing the
company, however, with the option to express preference in being hired by the government.
Public Ethics Commission (CEP): the Public Ethics Commission, under the Office of the
President of the Republic, was created by decree on May 26, 1999 tasked with acting as
advisory body to the President of the Republic and Ministers on matters of public ethics;
manage the implementation of the Code of Conduct of the Federal High Administration,
submitting to the President of the Republic measures to improve the document; resolve
questions regarding the interpretation of its norms, deciding on omissions; investigate upon
complaints or ex officio, conducts in breach of the rules therein defined when practiced by
authorities subject to it; resolve questions of interpretation on the rules of the Code of
Professional Ethics for Public Civil Servants of the Federal Executive Branch as addressed by
Decree no. 1,171/1994; coordinate, evaluate and supervise the Federal Executive Branch’s
Public Ethics Management System; approve its internal rules and select its chair.
Ramp up: stage of gradual increase in oil and gas production from a platform until the
system reaches productive potential. This stage usually begins after the first well connection
to the system.
Refining line: set of processing units that mainly involves the separation of oil into
derivatives, the conversion of oil’s heavier parts of lower value into smaller molecules,
originating nobler derivatives, and treatment to adjust derivatives to market-required
quality.
96
Reserve replacement ratio: measures the replacement of production by adding reserves,
extensions, revisions of estimates or recovery enhancements.
Reserve/production ratio: measures the longevity of current proven reserves considering
the constant level of production.
Revap: Henrique Lage Refinery, located in the Presidente Dutra highway in São José dos
Campos, in Vale do Paraíba. It began operations in March 1980. Currently, it is responsible
mainly for supplying the São Paulo market and the Midwest of the country.
Ring fence: exploration area contiguous to a field where there has been previous findings.
Route 2 Gas Pipeline Project: project conducted by partnerships (“Joint Operating
Agreement” - JOA), consists of three sections: (i) Section 1 - offshore (Lula-NE to Cernambi):
18” Gas Pipeline/approx. 19 km. BM-S-11 Consortium: Petrobras-65%; BG-25% and Petrogal-
10%; (ii) Section 2 - offshore (Cernambi to Praia do Lagomar - Macaé): 24” Gas
Pipeline/approx. 377.5 km. Cabiúnas 1 Consortium; and (iii) Section 3 - onshore (Praia do
Lagomar to Tecab): 24” Gas Pipeline/approx. 4.5 km. Cabiúnas 1 Consortium. “represents gas
pipeline sections 2 and 3.
Second generation ethanol (2G): ethanol from agricultural residues obtained by
fermentation of the sugars contained in its cellulosic structure (e.g., sugarcane bagasse and
straw). The final product is chemically identical to conventional (corn) or advanced
(sugarcane) ethanol. The differential of this technology is to increase ethanol production in
the same planted area, contributing to more efficient land use and higher reduction in CO2
emissions compared to fossil fuels.
Selo Combustível Social [Social Fuel Seal] awarded by the Ministry of Agrarian Development
to biodiesel producers that use raw material from family farming, a condition for
participation in auctions held exclusively for producers with such stamp, sales that account
for 80% of the total volume of biodiesel purchased by distributors.
Simple cycle: turbine operating alone.
Snox: catalytic process for the reduction of emissions from gas streams, removing solid,
liquid and gaseous contaminants and generating commercial sulfuric acid.
SOx: sulfur oxides.
Suezmax: oil tanker class with dimensions that allow its passage through the Suez Canal.
TAR: Recordable Injury Rate or number of recordable injury with or without lost time, and
with casualty, for every million man hours of exposure to risk in the period considered.
Transfer of Rights Contract: regime for the exploration and production of oil and natural
gas specific to certain fields located in the pre-salt polygon. Petrobras was directly hired by
the Federal Government to find and produce reserves with a maximum production limitation
of up to five billion barrels of oil and natural gas.
97
UK Bribery Act of 2010 : Anti-corruption law of the United Kingdom that allows British courts
to judge crimes related to fraud and corruption committed by companies incorporated in the
United Kingdom or which carry out operations on its territory.
Vetting Inspections: inspections responsible for ensuring that the vessel is able to operate in
safe conditions in any port, whether domestic or foreign, ensuring the preservation of the
environment and the operators involved.
WTI (West Texas Intermediate): Designates the stream that gathers conventional offshore
production of light, low-sulfur oils from the PADD3 region in the United States. WTI is one of
the main references for oil purchase and sale contracts in the Atlantic Basin and is treated as
a global benchmark in the oil market.
Zero Based Budgeting (ZBB): strategic tool used by organizations in the preparation or
review of the budget for a given period considering a zeroed basis, disregarding revenues,
costs, expenses and prior year investments (so-called historical basis).
21st Climate Convention (COP 21): The 21st Conference of Parties (COP-21) to the United
Nations Framework Convention on Climate Change established the new international climate
agreement - The Paris Agreement - which applies to all signatories to the Climate
Convention, in order to keep global warming below 2°C in relation to pre-industrial levels by
the end of the century .
98
FINANCIAL
STATEMENTS
December 31, 2016 and 2015 with
auditor’s report
(A free translation of the original in
Portuguese)
Index
(Expressed in millions of reais, unless otherwise indicated)
Independent auditor's report on the financial statements ............................................................................... 3
Statement of Financial Position ................................................................................................................... 13
Statement of Income .................................................................................................................................... 14
Statement of Comprehensive Income .......................................................................................................... 15
Statement of Cash Flows ............................................................................................................................. 16
Statement of Changes in Shareholders’ Equity ........................................................................................... 17
Statement of Added Value ........................................................................................................................... 18
Notes to the financial statements ................................................................................................................. 19
1. The Company and its operations .......................................................................................................... 19
2. Basis of preparation of financial statements ......................................................................................... 19
3. The “Lava Jato (Car Wash) Operation” and its effects on the Company ............................................. 21
4. Summary of significant accounting policies ........................................................................................ 24
5. Critical accounting policies: key estimates and judgments .................................................................. 34
6. New standards and interpretations ....................................................................................................... 40
7. Cash and cash equivalents and Marketable securities .......................................................................... 42
8. Trade and other receivables .................................................................................................................. 43
9.
Inventories ............................................................................................................................................ 46
10. Disposal of Assets and other changes in organizational structure .................................................... 47
Investments ....................................................................................................................................... 52
11.
Property, plant and equipment .......................................................................................................... 56
12.
Intangible assets ................................................................................................................................ 58
13.
Impairment ........................................................................................................................................ 60
14.
Exploration for and evaluation of oil and gas reserves..................................................................... 68
15.
Trade payables .................................................................................................................................. 69
16.
Finance debt ...................................................................................................................................... 69
17.
18.
Leases ............................................................................................................................................... 72
19. Related-party transactions ................................................................................................................ 73
Provision for decommissioning costs ............................................................................................... 78
20.
Taxes ................................................................................................................................................. 78
21.
Employee benefits (Post-Employment) ............................................................................................ 84
22.
Shareholders’ equity ......................................................................................................................... 92
23.
Sales revenues ................................................................................................................................... 94
24.
25. Other expenses, net ........................................................................................................................... 94
26. Costs and Expenses by nature ........................................................................................................... 95
27. Net finance income (expense) .......................................................................................................... 95
Supplemental information on statement of cash flows ..................................................................... 96
28.
Segment information ........................................................................................................................ 97
29.
30.
Provisions for legal proceedings ..................................................................................................... 100
31. Commitment to purchase natural gas ............................................................................................. 107
32. Collateral for crude oil exploration concession agreements ........................................................... 108
33. Risk management ............................................................................................................................ 108
Fair value of financial assets and liabilities .................................................................................... 115
34.
Subsequent events ........................................................................................................................... 116
35.
Supplementary information (unaudited) .................................................................................................... 117
2
(A free translation of the original in Portuguese)
Independent auditor's report on the financial statements
To the Board of Directors and Stockholders
Petróleo Brasileiro S.A. - Petrobras
Opinion
We have audited the accompanying parent company financial statements of Petróleo Brasileiro S.A. - Petrobras (the
"Company"), which comprise the balance sheet as at December 31, 2016 and the statements of income,
comprehensive income, changes in equity and cash flows for the year then ended, as well as the accompanying
consolidated financial statements of Petróleo Brasileiro S.A. - Petrobras and its subsidiaries ("Consolidated"),
which comprise the consolidated balance sheet as at December 31, 2016 and the consolidated statements of income,
comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Petróleo Brasileiro S.A. - Petrobras and of Petróleo Brasileiro S.A. - Petrobras and its subsidiaries as at
December 31, 2016, and the financial performance and cash flows for the year then ended, as well as the
consolidated financial performance and the cash flows for the year then ended, in accordance with accounting
practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Basis for opinion
We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities
under those standards are further described in the "Auditor's responsibilities for the audit of the financial
statements" section of our report. We are independent of the Company and its subsidiaries in accordance with the
ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the
Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgment,
were of most significance in our audit of the financial statements of the
current period. These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Matters
Why it is a
Key Audit
Matter
How the
matter was
addressed
3
Why it is a Key Audit Matter
How the matter was addressed in the audit
1 - "Car Wash Operation" and its effects on
the Company (Note 3)
In 2009, the Brazilian Federal Police initiated an
investigation called "Car Wash Operation", aiming
to investigate money laundering practices by
criminal organizations in several Brazilian states.
As from 2014, the Federal Public Prosecution Office
focused some of its investigations on irregularities
committed by Petrobras suppliers and discovered
an extensive scheme of undue payments, involving
several participants, including former employees of
Petrobras. This scheme consisted of a group of
companies that, between 2004 and April 2012,
were organized in cartel to obtain contracts with
Petrobras and impose additional expenditures
linked to these contracts, using these amounts to
make undue payments.
The amounts paid by the Company under the
contracts with the suppliers involved in the scheme
were included in the historical costs of the
respective property, plant and equipment items.
The Company's management understood that the
undue payments represent additional expenditures
and, consequently, recorded a write-off of
R$ 6,194 million (R$ 4,788 million in the Parent
Company) in prior years.
The "Car Wash Operation" and its effects on the
Company were considered as one of the key audit
matters due to: (i) the potential effects and inherent
limitations that are particularly significant in cases
like this; (ii) necessity of monitoring the
information related to the investigations in
progress conducted by the authorities to confirm
the reasonableness of the effects already consigned
in the financial statements; and (iii) the need to
improve the governance structure and internal
controls related to the processes for contracting
suppliers of goods and services, which constituted a
significant deficiency identified by the Company in
its internal control environment in 2015.
Significant aspects of our audit response involved,
among others, those described below.
We have enhanced our understanding of the
governance structure and how the parties
responsible for management perform the general
oversight to identify and respond to risks related to
the process of contracting suppliers of goods and
services, considering the changes introduced by
management in its processes and controls in order
to address the identified fraud.
We also obtained an understanding of the new
internal policies introduced and tested the
significant internal controls implemented and
transactions related to the process for contracting
suppliers of goods and services and corresponding
payments. Our objective was to identify and test the
transactions selected and the corresponding
payments made during the year and evaluate the
compliance with the internal policies and applicable
laws and regulations. In addition, we analyzed
Petrobras Program for Prevention of
Corruption ("PPPC"), tested the key controls related
to the complaints channel established within the
Ombudsman structure, evaluating the integrity of
the information, handling of complaints and
reporting of the results to the applicable
governance bodies.
We followed up the Company's main investigative
actions conducted by the Internal Assessment
Commissions and independent law firms, which are
led by a Special Committee composed of two
independent members and the Governance, Risk
and Compliance Officer. We discussed the
investigations with the Audit Committee, the Board
of Directors and the Company's legal advisors and
evaluated whether the disclosures in the notes are
consistent with the results of those investigations.
According to the Management Report, that
significant deficiency was considered as remedied
for the year ended December 31, 2016.
We consider that the disclosures in the explanatory
notes are consistent with the information and
representation obtained.
2 - Class action and related proceedings
(Note 30.4)
During 2015, a class action was filed against the
Company before the Federal Court for the Southern
District of New York, alleging that the Company,
through material facts, communications and other
information filed at the U.S. Securities and
Exchange Commission (SEC), would allegedly have
reported materially false information and made
omissions capable of artificially raising the price of
the Company's securities and misleading investors.
In June 2016, the Federal Court of Appeals
accepted the Company's request to appeal against
the decision on the "class" certification. As a result,
Significant aspects of our audit response involved
the following main procedures:
• understanding of the procedural stage of the
class action and individual actions;
•
interviews with the Company's external legal
advisors in order to understand the impossibility
of producing a reliable estimate of the loss
arising from the class action and individual
actions not yet provided for;
• confirmation, in writing, of the Company's
4
Why it is a Key Audit Matter
How the matter was addressed in the audit
external legal advisors on: (i) the procedural
stage of the class action and individual actions;
and (ii) impossibility of producing a reliable
estimate of the potential loss and classification
of probability of loss between probable, possible
and remote;
• evaluation of the technical ability of the internal
and external legal advisors used by the
Company; and
• evaluation of the accounting policy adopted for
the provision of individual actions and review of
the assumptions on which the estimates of the
provisioned amounts are based.
We consider that the criteria and assumptions
adopted by the Management to determine the
provision for the individual actions, as well as the
disclosures in the notes in relation to the class
action and individual actions are reasonable, in all
material respects, within the context of the financial
statements.
the request was accepted by the Federal Court of
Appeals and the proceeding is currently suspended
up to the judgment of the appeal.
In addition to the class action, thirty actions (three
of them suspended) were filed by individual
investors before the same Federal Court for the
Southern District of New York with similar claims
as those filed in the class action. In addition, a
similar action was filed by individual investors in
the Eastern District of Pennsylvania.
In 2016, the Company reached agreements to close
some of these individual actions. The Company is
also negotiating agreements with other authors of
individual actions and, based on the agreements
already entered into and on the stage of the
negotiations in progress with other authors of
individual actions, the Company recognized a
provision of R$ 1,215 million in the result for 2016.
As described in Note 30.4, due to the uncertainties
inherent to the proceeding, the Company's
management is not capable of producing a reliable
estimate of the potential loss arising from the class
action and individual actions not yet provided for.
This matter has been considered one of the key
audit matters due to the significant judgments
and substantial uncertainties related to the class
action and individual actions that affect the
amount and timing estimated for a final decision
for those actions.
3 - Impairment of property, plant and
equipment (Notes 12 and 14)
At December 31, 2016, the assets classified in the
property, plant and equipment group amounted to
R$ 571,876 million.
Potential impairment losses on property, plant and
equipment are determined based on estimates of
the value in use of these assets.
Significant aspects of our audit response involved,
among others, the understanding of the controls
related to the processes of impairment and tests of
the effectiveness of the controls considered key in
these processes. Regarding the testing of detail in
operations or transactions, our approach
considered the following main procedures:
The calculation of value in use requires the exercise
of significant judgments on certain assumptions,
such as: (i) estimation of the volume of oil and
natural gas reserves; (ii) estimation of future oil and
natural gas prices; (iii) average foreign exchange
rate (Brazilian reais/U.S. dollars); and iv) definition
of the discount rate.
In addition, the definition of Cash-Generating
Units (CGUs) also requires significant judgments by
management, as well as the establishment of
controls to review changes in these CGUs. Changes
in the aggregation or breakdown of assets that
comprise the CGUs may result in reversals or
additional impairment losses.
This matter was considered as one of the key audit
matters due to: (i) the significance of the
Company's property, plant and equipment;
(ii) the significant judgments and estimates
involved in the calculation of the value in use of the
assets; and (iii) the deficiencies in the controls for
the review of changes in certain CGUs that
(i) The evaluation of the definition of CGU by
management, based on tests of changes of CGU,
and review of the composition of CGU vis-à-vis
the criteria established by Technical
Pronouncement CPC 01 - Impairment of Assets.
(ii) Support from our team of asset valuation
experts in implementing the following key audit
procedures:
• comparison of key assumptions with the
2017-2021 Business and Management Plan
and sensitivity analysis of these
assumptions;
• evaluation of the reasonableness of the key
assumptions, including comparisons with
benchmarks, understanding of the main
variations of the period and retrospective
review of the projections;
• evaluation of the criteria used to determine
the discount rate and inflation and foreign
5
Why it is a Key Audit Matter
How the matter was addressed in the audit
exchange rate projections;
• review of the internal estimates of oil and
gas reserves compared to estimates prepared
by independent experts; and
• assessment of the technical ability of the
experts responsible for the independent
estimate of proven oil and natural gas
reserves.
We consider that the criteria and assumptions
adopted by the Management to determine the
impairment losses, as well as the disclosures in the
notes, are reasonable, in all material respects,
within the context of the financial statements.
Our audit approach considered the understanding
of controls related to judicial proceedings and
contingencies, and tests on the effectiveness of
controls considered as key. Additionally, in our
audit strategy, we involved our team of experts in
the labor and tax areas, as appropriate, to read and
discuss the judicial proceedings, including the
classification of the prognosis of loss attributed by
the Company's internal and external legal advisors.
Other significant aspects of our audit approach
included evaluating the technical ability of the
Company's legal counsel, testing the recalculation
of the amount of exposure of judicial and
administrative proceedings, testing for financial
update in accordance with applicable legislation,
obtaining confirmations from external legal
advisors and testing of unrecognized contingent
liabilities, based on searches on the websites of the
relevant courts of law.
We consider that the criteria and assumptions
adopted by the Management to determine the
provision for lawsuits and contingencies, as well as
the disclosures on contingent liabilities, are
reasonable, in all material respects, within the
context of the financial statements.
constituted a significant deficiency identified by the
Company in its internal control environment
in 2015.
According to the Management Report, that
significant deficiency was considered as remedied
for the year ended December 31, 2016.
4 - Judicial Proceedings and Contingencies
(Note 30)
At December 31, 2016, the Company had provisions
of R$ 11,052 million in connection with judicial
provisions whose loss expectation was classified as
probable. Additionally, the Company is a party to
litigations whose losses are classified as possible, in
the amount of R$ 216,003 million.
Provisions and contingent liabilities have inherent
uncertainties regarding their term and settlement
value. Also, the recognition and measurement of
contingent provisions and liabilities require the
Company to exercise significant judgments to
estimate the amounts of the obligations and the
likelihood of outflow of resources of the judicial and
administrative proceedings to which the Company
is a party. This evaluation is based on the opinions
of internal and external legal advisors and on
management's own judgments.
This matter was considered as one of the key audit
matters due to (i) the significance of the amounts of
the litigations provided for (contingent liabilities
disclosed) in a Note; (ii) the significant judgments
on different doctrinal and jurisprudential
interpretations used to estimate the amounts and
likelihood of outflow of resources arising from these
proceedings; and (iii) deficiencies in the controls on
completeness and the evaluation of the probability
of loss of contingencies, which constituted a
significant deficiency identified by the Company in
its internal control environment in 2015.
According to the Management Report, that
significant deficiency was maintained for the year
ended December 31, 2016.
6
Why it is a Key Audit Matter
How the matter was addressed in the audit
5 - Benefits granted to employees (Note 22)
At December 31, 2016, the amounts provided for in
the balance sheet totaled R$ 72,668 million.
The amount of the actuarial liability is determined
through actuarial calculations prepared by an
independent actuary hired by the Company's
management, net of guaranteeing assets. The
calculation is made based on actuarial assumptions
and information recorded of participants of the
pension plans and health care.
Our audit approach considered the understanding
of key controls related to the process of measuring
the actuarial liability and tests on the effectiveness
of controls considered as key. In addition, our audit
response considered testing of details on the
individual information recorded in the databases
used to calculate the actuarial liability. The audit
evidence deemed necessary was obtained by testing
the databases of active and assisted participants in
pension and medical care plans.
This matter was considered as one of the key audit
matters due to (i) the significance of the balance
provided for in the balance sheet referring to
benefits granted to employees; (ii) significant
judgments regarding the assumptions of the benefit
plans; and (iii) the deficiencies in controls over the
data generation process to calculate the actuarial
liability, which constituted a significant deficiency
identified by the Company in its internal control
environment in 2015.
According to the Management Report, the internal
control deficiencies over the data generation
process and assumptions for the calculation of the
actuarial liability and valuation of certain
guaranteeing assets constituted a significant
deficiency for the year ended December 31, 2016.
6 - Trade receivables - Electricity sector
(Note 8.4)
At December 31, 2016, the net balance of trade
receivables related to the electricity sector totaled
R$ 10,062 million.
A significant portion of the funds used to settle the
trade receivables comes from the Fuel Consumption
Account (Conta de Consumo de Combustível (CCC).
However, amendments to the legislation imposed
restrictions that reduced the amounts reimbursed
by the CCC, increasing the risk of default of the
distributors that operate in this sector and purchase
fuel to be used in their thermal plants.
Other significant aspects of our audit approach
included evaluating key assumptions that support
the calculation of actuarial liabilities, such as salary
growth projections, mortality and disability tables,
medical costs and discount rate estimates. These
procedures were performed with the support of our
team of actuarial calculation experts and included
the following key procedures:
• Review of the logical consistency and arithmetic
consistency of the model used to estimate the
value of the actuarial liability.
• Evaluation of the technical ability of the
independent external actuary responsible for
preparing the actuarial calculation.
• Review of the reconciliation of the actuarial
report with the balances of the Company's
financial statements.
In addition, we obtained confirmations from third
parties regarding the custody of the plans'
guaranteeing assets and tested the fair value of
these assets with the support of our team of
specialists in the valuation of financial instruments.
We consider that the criteria and assumptions
adopted by the Management to determine the value
of the actuarial liability, as well as the disclosures in
the notes are reasonable, in all material respects,
within the context of the financial statements.
Our audit approach considered the understanding
of the key controls related to the process of
measuring impairment losses on trade receivables
related to the electricity sector trade receivables and
tests of the effectiveness of controls considered as
key. As regards the testing of details in operations
and transactions, our approach considered the
review of the debt acknowledgment agreements
entered into between the Company and the
companies of the Eletrobras System, understanding
of the current stage of the negotiations with the
Federal Government and Eletrobras, reading of the
official letters and ordinances of the National
7
Why it is a Key Audit Matter
How the matter was addressed in the audit
This matter was considered as one of the key audit
matters due to those circumstances and the
consequent significant judgments in relation to the
assumptions used in the determination of the losses
on impairment of trade receivables and the
significance of the balance of trade receivables.
Electric Energy Agency (ANEEL) and the Ministry
of Mines and Energy (MME), as well as the
payments received and the reconciliation of the
provision for impairment of trade receivables
recorded for the total trade receivables of the
Electricity sector overdue or without actual
guarantees.
We consider that the criteria and assumptions
adopted by the Management to determine the
impairment losses on trade receivables related to
the trade receivables of the electricity sector, as
well as the disclosures in the notes, are reasonable,
in all material respects, within the context of the
financial statements.
8
Why it is a Key Audit Matter
How the matter was addressed in the audit
Our audit approach considered the understanding
of the main controls related to the process of
advances to suppliers and mutual rescissions, as
well as tests on the effectiveness of controls
considered as key. Additionally, our audit response
considered tests on details of transfers made to the
blocked accounts, provision for losses referring to
advances to the suppliers Ecovix and Enseada and
write-offs of investments related to the shipbuilder
Rio Grande and the construction of the hulls of
platforms P-71, P72 and P73.
Other significant aspects of our audit approach
included review of the main contracts and mutual
rescissions related to the subject-matter, inspection
of subrogation of debt agreements and testing of
details in relation to the subsequent financial
settlement of the liabilities recorded, as well as the
impairment test for the remaining assets.
We consider that the criteria and assumptions
adopted by the Management to determine the
provisions and write-offs related to the construction
of platforms hulls by the suppliers Ecovix and
Enseada, as well as the disclosures in the notes, are
reasonable, in all material respects, within the
context of the financial statements.
7 - Mutual rescissions and advances to
suppliers - Shipbuilders (Note 14.4)
In 2016, the Company recognized provisions and
write-offs totaling R$ 5,263 million, as follows:
(i) provision for impairment of R$ 1,925 million,
due to uncertainties on the continuity of the
construction of the hulls of platforms P-71, P-72
and P-73; (ii) provision for losses of R$ 2,353
million, referring to the remaining balance of the
advances to the suppliers Ecovix and Enseada; (iii)
write-off of investments made in the
Rio Grande shipbuilder, in the amount of
R$ 505 million, and (iv) write-offs of other
investments related to the construction of the hulls
of platforms P-71, P72 and P73, in the amount of
R$ 480 million.
Due to the strategic importance of certain assets
and the financial difficulties faced by the suppliers
contracted for their construction, the Company
implemented, in 2015, a blocked account system to
make feasible the development of the execution of
the work. In the third quarter of 2016, the Company
revalued whether the blocked accounts should be
kept, which resulted in the recognition of those
provisions and write-offs.
This matter was considered as one of the key audit
matters due to the significance of the amounts
involved and of the deficiencies in the controls
related to the necessity of writing off the advances
to suppliers that would not result in future
economic benefits and recognizing expenses related
to the mutual rescission of related agreements,
which constituted a significant deficiency
identified by the Company in its internal control
environment in 2015.
According to the Management Report, that
significant deficiency was maintained for the year
ended December 31, 2016.
9
Why it is a Key Audit Matter
How the matter was addressed in the audit
8 - Cash flow hedge accounting
(Notes 4.3.6 and 33.2)
At December 31, 2016, the Company presented
R$ 25,119 million, net of the tax effects, recognized
in other comprehensive income, in equity.
The Company designates hedging relationships, in
which highly probable future exports are defined as
hedged items, and liabilities denominated in
foreign currency are used as hedging instruments.
The purpose of this accounting practice is to
recognize the foreign exchange effects of both the
hedged item and the hedging instrument at the
same time in the statement of income.
The estimate of highly probable future exports
requires the use of significant judgments by the
Company's management. Such an estimate can be
significantly influenced by changes in the price
projections for oil and its byproducts and the future
production curve.
This matter was considered as one of the key audit
matters in view of the critical estimates and
significant judgments used by management to
estimate the "highly probable" future exports and
the significance of the accumulated balance of
foreign exchange variation recognized in Equity
arising from the application of the cash flow
hedge accounting.
Our audit approach considered the understanding
of key controls related to the process of hedge
accounting and tests on the effectiveness of controls
considered as key. Regarding the testing of detail in
operations or transactions, our approach involved
evaluating the reasonableness of the main
assumptions used by management to estimate
future exports. This work was carried out with the
support of our team of asset valuation experts.
The audit procedures also included reviewing the
criteria used by management to define the portion
of future exports deemed "highly probable", in
accordance with the criteria established by
Technical Pronouncement CPC 38 - Financial
Instruments: Recognition and Measurement
(CPC 38). In this regard, we reviewed historical
export data used by Management to define the
highly probable portion, as well as sensitivity
analysis of key assumptions and evaluation of
potential impacts within a range of
possible outcomes.
Other significant aspects of our audit approach
included: (i) analysis of the application of hedge
accounting by the Company vis a vis the
requirements established by CPC 38; (ii) review of
the documentation of hedge designations; (ii) test
for the recalculation of the foreign exchange
variation; and (iv) recalculation of prospective and
retrospective effectiveness tests.
We consider that the application of the hedge
accounting by the Company, which can be made by
the management under the terms of CPC 38, meets
the requirements established by that technical
pronouncement. Additionally, we consider that the
assumptions adopted by the Management to
determine the highly probable future exports and
foreign exchange losses and gains recorded in other
comprehensive income are reasonable, and the
disclosures in the notes are appropriate.
Supplementary information
Statements of Value Added
The parent company and consolidated Statement of Value Added for the year ended December 31, 2016, prepared
under the responsibility of the Company's management and presented as supplementary information for IFRS
purposes, was submitted to the same audit procedures performed in conjunction with the audit of the Company's
financial statements. For the purposes of forming our opinion, we evaluated whether these statements are
reconciled with the financial statements and accounting records, as applicable, and if their form and content are in
accordance with the criteria defined in Technical Pronouncement CPC 09 - "Statement of Value Added". In our
opinion, these Statements of Value Added are prepared in all material respects, in accordance with the criteria
established in the Technical Pronouncement and are consistent with the parent company and consolidated financial
statements taken as a whole.
Other information accompanying the financial statements and the independent auditor's report
10
The Company's management is responsible for the other information that comprises the Management Report and
the Financial Market Report ("RMF").
Our opinion on the financial statements does not cover the Management Report and the Financial Market Report,
and we do not express any form of audit conclusion thereon.
In connection with the audit of the financial statements, our responsibility is to read the Management Report and
the Financial Market Report and, in doing so, consider whether these reports are materially inconsistent with the
financial statements or with our knowledge obtained in the audit or otherwise appear to be materially misstated. If,
based on the work we have performed, we conclude that there is a material misstatement in the Management
Report and the Financial Market Report, we are required to communicate the matter to those charged with
governance. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB), and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Brazilian and International Standards on Auditing will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the parent company and consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
internal control of the Company and its subsidiaries.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the ability of the Company to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
11
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are responsible
for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Rio de Janeiro, March 21, 2017
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5 "F" RJ
Marcos Donizete Panassol
Contador CRC 1SP155975/O-8 "S" RJ
12
Statement of Financial Position
December 31, 2016 and 2015 (In millions of reais, unless otherwise indicated)
Consolidated
Parent Company
Note
2016
2015
2016
2015 Liabilities
Consolidated
Parent Company
Note
2016
2015
2016
2015
Assets
Current assets
Cash and cash equivalents
Marketable securities
Trade and other receivables, net
Inventories
Recoverable income taxes
Other recoverable taxes
Advances to suppliers
Others
Assets classified as held for sale
Non-current assets
Long-term receivables
Trade and other receivables, net
Marketable securities
Judicial deposits
Deferred income taxes
Other tax assets
Advances to suppliers
Others
7
7
8
9
21.1
21.1
10.3
8
7
30.2
21.6
21.1
69,108
2,556
15,543
27,622
1,961
6,192
540
3,716
127,238
18,669
145,907
14,832
293
13,032
14,038
10,236
3,742
10,378
66,551
97,845
3,047
21,685
29,057
3,839
6,893
421
5,225
168,012
595
168,607
15,301
342
9,758
23,490
11,017
6,395
9,550
6,267
2,487
31,073
23,500
786
5,064
361
3,466
73,004
8,260
16,553
2,982
27,701
24,015
1,520
4,986
208
2,979
80,944
535
81,264
81,479
Current liabilities
Trade payables
Finance debt
Finance lease obligations
Income taxes payable
Other taxes payable
Payroll and related charges
Pension and medical benefits
Others
16
17
18.1
21.1
21.1
22
Liabilities on assets classified as held for sale
10.3
10,262
286
11,735
4,873
9,326
510
9,106
Non-current liabilities
Finance debt
Finance lease obligations
Deferred income taxes
Pension and medical benefits
Provisions for legal proceedings
Provision for decommissioning costs
Others
7,335
260
8,590
15,156
9,485
1,017
8,216
50,059 Total liabilities
75,853
46,098
Investments
Property, plant and equipment
Intangible assets
11
12
13
9,948
571,876
10,663
659,038
13,772
629,831
12,072
121,191
424,771
8,764
115,536
442,439
9,133
731,528
600,824
617,167
Shareholders' equity
Share capital (net of share issuance costs)
Capital transactions
Profit reserves
Accumulated other comprehensive (deficit)
Attributable to the shareholders of Petrobras
Non-controlling interests
Total equity
Total assets
804,945
900,135
682,088
698,646 Total liabilities and shareholder's equity
The Notes form an integral part of these Financial Statements.
13
18,781
31,796
59
412
11,826
7,159
2,672
6,857
79,562
1,605
81,167
353,193
736
856
69,996
11,052
33,412
1,790
471,035
552,202
24,888
57,334
73
410
13,139
5,085
2,556
7,599
24,384
62,058
1,091
−
11,219
6,158
2,533
5,818
28,172
52,913
1,568
−
11,762
4,212
2,436
3,696
111,084
488
113,261
170
104,759
488
111,572
113,431
105,247
435,313
303
906
47,618
8,776
35,728
1,989
530,633
642,205
206,421
4,975
−
64,903
8,391
32,615
1,122
318,427
431,858
245,439
5,426
−
44,546
7,282
34,641
1,334
338,668
443,915
205,432
1,035
77,800
(34,037)
205,432
21
92,612
(43,334)
205,432
1,251
77,584
(34,037)
205,432
237
92,396
(43,334)
250,230
254,731
250,230
254,731
2,513
252,743
804,945
3,199
257,930
900,135
−
250,230
682,088
−
254,731
698,646
17
18.1
21.6
22
30.1
20
23.1
23.2
23.3
23.4
11.5
Statement of Income
December 31, 2016 and 2015 (In millions of reais, unless otherwise indicated)
Sales revenues
Cost of sales
Gross profit
Income (expenses)
Selling expenses
General and administrative expenses
Exploration costs
Research and development expenses
Other taxes
Impairment of assets
Other expenses, net
Income (loss) before finance income (expense), results in equity-accounted
investments and income taxes
Net finance income (expenses):
Finance income
Finance expense
Foreign exchange gains (losses) and inflation indexation charges
Note
24
Consolidated
Parent Company
2016
282,589
(192,611)
89,978
2015
321,638
(223,062)
98,576
2016
223,067
(153,725)
69,342
2015
251,023
(174,717)
76,306
15
14
25
27
(13,825)
(11,482)
(6,056)
(1,826)
(2,456)
(20,297)
(16,925)
(72,867)
(15,893)
(11,031)
(6,467)
(2,024)
(9,238)
(47,676)
(18,638)
(110,967)
(17,023)
(8,242)
(5,533)
(1,823)
(1,305)
(11,119)
(9,707)
(54,752)
(15,130)
(7,561)
(5,261)
(2,011)
(7,730)
(33,468)
(17,547)
(88,708)
17,111
(12,391)
14,590
(12,402)
(27,185)
3,638
(24,176)
(6,647)
(28,041)
4,867
(21,545)
(11,363)
(25,704)
2,418
(18,967)
(9,155)
(26,187)
3,303
(18,951)
(10,539)
Results in equity-accounted investments
11
(629)
(797)
(4,576)
(4,294)
Loss before income taxes
(10,703)
(41,229)
(15,690)
(42,883)
Income taxes
Loss
Net income (loss) attributable to:
Shareholders of Petrobras
Non-controlling interests
Loss
Basic and diluted loss per common and preferred share (in R$)
The Notes form an integral part of these Financial Statements.
21.7
(2,342)
6,058
866
8,047
(13,045)
(35,171)
(14,824)
(34,836)
(14,824)
1,779
(13,045)
(1.14)
(34,836)
(335)
(35,171)
(2.67)
(14,824)
−
(14,824)
(1.14)
(34,836)
−
(34,836)
(2.67)
23.6
14
Statement of Comprehensive Income
December 31, 2016 and 2015 (in millions of reais, unless otherwise indicated)
Loss for the period
Other comprehensive income
Items that will not be reclassified to the statement of income:
Actuarial losses on defined benefit pension plans
Deferred Income tax and social contribution
Items that may be reclassified subsequently to the statement of income:
Unrealized gains / (losses) on cash flow hedge - exports
Recognized in shareholders' equity
Reclassified to the statement of income
Deferred Income tax and social contribution
Unrealized gains / (losses) on cash flow hedge - others
Recognized in shareholders' equity
Cumulative translation adjustments in investees (*)
Recognized in shareholders' equity
Reclassified to the statement of income
Consolidated
Parent Company
2016
2015
2016
2015
(13,045)
(35,171)
(14,824)
(34,836)
(17,449)
3,485
(13,964)
(202)
(53)
(255)
(15,510)
3,219
(12,291)
40,327
9,935
(17,089)
33,173
(68,739)
7,088
20,961
(40,690)
36,607
8,994
(15,504)
30,097
30
35
(208)
(2)
(210)
45
(60,712)
6,200
18,534
(35,978)
−
(15,585)
3,693
(11,892)
24,545
24,545
(11,209)
−
(11,209)
23,826
23,826
Share of other comprehensive income in equity-accounted investments
(12)
(1)
(1,679)
Share of other comprehensive income in equity-accounted investments
1,285
(2,863)
4,391
(7,631)
Total other comprehensive income (loss)
8,620
(19,229)
9,309
(19,948)
Total comprehensive income (loss)
(4,425)
(54,400)
(5,515)
(54,784)
Comprehensive income (loss) attributable to:
Shareholders of Petrobras
Non-controlling interests
Total comprehensive income (loss)
(*) Includes, in the consolidated, a debit of R$ 1,063 (a credit of R$ 2,825 in 2015) relating to cumulative translation adjustments in associates and joint ventures.
(54,785)
385
(54,400)
(5,520)
1,095
(4,425)
(5,515)
(5,515)
(54,784)
(54,784)
The Notes form an integral part of these Financial Statements.
15
Statement of Cash Flows
December 31, 2016 and 2015 (in millions of reais, unless otherwise indicated)
Cash flows from Operating activities
Loss
Adjustments for:
Pension and medical benefits (actuarial expense)
Results in equity-accounted investments
Depreciation, depletion and amortization
Impairment assets
Inventory write-down to net realizable value
Allowance for impairment of trade receivables
Exploratory expenditures written off
(Gains) losses on disposal / write-offs of assets
Foreign exchange, indexation and finance charges
Deferred income taxes, net
Reclassification of cumulative translation adjustment - CTA
Review and unwinding of discount on the provision for decommissioning costs
Decrease (Increase) in assets
Trade and other receivables, net
Inventories
Judicial deposits
Other assets
Increase (Decrease) in liabilities
Trade payables
Other taxes payable
Income taxes paid
Pension and medical benefits
Other liabilities
Net cash provided by operating activities
Cash flows from Investing activities
Capital expenditures
Increase in investments in investees
Proceeds from disposal of assets - Divestment
Divestment (Investment) in marketable securities (*)
Dividends received
Net cash used in investing activities
Cash flows from Financing activities
Investments by non-controlling interest
Proceeds from financing
Repayment of principal
Repayment of interest
Dividends paid to non-controlling interests
Proceeds from sale of interest without loss of control (**)
Net cash used in financing activities
Consolidated
Parent Company
2016
2015
2016
2015
(13,045)
(35,171)
(14,824)
(34,836)
8,001
629
48,543
20,297
1,320
3,843
4,364
(951)
27,854
(3,280)
3,693
6,388
797
38,574
47,676
1,547
3,641
4,921
2,893
30,752
(8,911)
−
7,409
4,576
37,150
11,119
−
1,072
3,940
(1,399)
25,604
(1,010)
−
5,872
4,294
28,039
33,468
14
669
3,784
3,075
26,094
(8,047)
−
(2,591)
1,307
(2,601)
1,274
397
(2,010)
(3,357)
(1,214)
(4,154)
3,216
(1,284)
(2,634)
2,072
89,709
(49,289)
(455)
7,231
842
1,607
(40,064)
122
64,786
(105,832)
(25,563)
(239)
−
(66,726)
(1,496)
1,730
(2,526)
(2,474)
(3,890)
4,510
(1,794)
(2,367)
563
86,670
(71,311)
(344)
658
25,971
874
(44,152)
243
56,158
(49,741)
(20,851)
(263)
1,934
(12,520)
(22,470)
515
(3,145)
(2,961)
(3,302)
539
−
(2,465)
(486)
37,261
(33,512)
(26,782)
4,304
(1,652)
3,859
(53,783)
−
105,886
(91,877)
(7,773)
−
−
6,236
1,485
546
(2,640)
(3,191)
(11,896)
3,740
−
(2,232)
528
50,040
(50,589)
(29,229)
223
6,054
4,699
(68,842)
−
117,844
(82,544)
(6,973)
−
1,934
30,261
Effect of exchange rate changes on cash and cash equivalents
(11,656)
23,608
−
−
Net increase / (decrease) in cash and cash equivalents
(28,737)
53,606
(10,286)
11,459
Cash and cash equivalents at the beginning of the year
97,845
44,239
16,553
5,094
Cash and cash equivalents at the end of the period
(*) In the Parent Company, includes amounts relating to changes in the investment in FIDC-NP (receivables investment fund).
(**) Reclassified from Investing activities.
69,108
97,845
6,267
16,553
The Notes form an integral part of these Financial Statements.
16
Statement of Changes in Shareholders’ Equity
December 31, 2016 and 2015 (in millions of reais, unless otherwise indicated)
Accumulated other comprehensive income
Profit reserves
Share capital
(net of share
issuance
costs)
205,432
205,432
Capital
transactions
(430)
(430)
667
Cumulative
translation
adjustment
9,959
Losses on
pension plans
(14,545)
Cash flow
hedge - highly
probable
future exports
(17,601)
Other
comprehensiv
e income
(loss) and
deemed cost
(1,189)
(23,376)
(10)
23,826
(255)
(40,690)
(2,829)
Legal
16,524
Statutory Tax incentives
1,393
4,503
205,432
205,432
237
237
1,014
33,785
(14,800)
(58,291)
(4,028)
(43,334)
(12)
(11,209)
(13,958)
33,173
1,303
16,524
4,503
1,393
205,432
205,432
1,251
1,251
22,576
(28,758)
(25,118)
(2,737)
(34,037)
16,524
4,503
1,393
Shareholders'
equity
attributable
to
shareholders
of Petrobras
308,848
308,848
−
667
(34,836)
(19,948)
−
−
−
254,731
254,731
−
1,014
(14,824)
9,309
Non-
controlling
interests
1,874
1,874
−
1,161
(335)
719
−
−
(220)
3,199
3,199
−
(1,363)
1,779
(689)
Total
consolidated
shareholders'
equity
310,722
310,722
−
1,828
(35,171)
(19,229)
−
−
(220)
257,930
257,930
−
(349)
(13,045)
8,620
Profit
retention
104,802
127,222
Retained
earnings
−
10
(34,836)
(34,826)
34,826
69,976
92,396
−
12
(14,824)
(14,812)
14,812
55,164
77,584
−
−
−
−
250,230
250,230
(413)
2,513
2,513
(413)
252,743
252,743
Balance at January 1, 2015
Realization of deemed cost of associates
Change in interest in subsidiaries
Loss
Other comprehensive income (loss)
Distributions:
Offseting of loss against reserves
Dividends
Balance at December 31, 2015
Realization of deemed cost of associates
Capital transactions
Loss
Other comprehensive income (loss)
Distributions:
Offseting of loss against reserves
Dividends
Balance at December 31, 2016
The Notes form an integral part of these Financial Statements.
17
Statement of Added Value
December 31, 2016 and 2015 (in millions of reais, unless otherwise indicated)
Income
Sales of products, services provided and other revenues
Gains and losses on impairment of trade receivables
Revenues related to construction of assets for own use
Inputs acquired from third parties
Materials consumed and products for resale
Materials, power, third-party services and other operating expenses
Tax credits on inputs acquired from third parties
Impairment of property, plant and equipment, intangible and other assets
Inventory write-down to net realizable value (market value)
Consolidated
Parent Company
2016
2015
2016
2015
373,081
(3,843)
49,476
418,714
(65,864)
(72,846)
(19,766)
(20,297)
(1,320)
(180,093)
414,859
(3,641)
68,703
479,921
(94,453)
(109,876)
(22,311)
(47,676)
(1,547)
(275,863)
307,808
(1,072)
36,710
343,446
(42,210)
(56,412)
(17,880)
(11,119)
−
(127,621)
338,059
(669)
53,634
391,024
(67,401)
(88,143)
(19,753)
(33,468)
(14)
(208,779)
Gross added value
238,621
204,058
215,825
182,245
Depreciation, depletion and amortization
(48,543)
(38,574)
(37,150)
(28,039)
Net added value produced by the Company
190,078
165,484
178,675
154,206
Transferred added value
Share of profit of equity-accounted investments
Finance income
Rents, royalties and others
Total added value to be distributed
Distribution of added value
Personnel and officers
Direct compensation
Salaries
Benefits (**)
Short-term benefits
Pension plan
Medical plan
FGTS
Taxes
Federal (*)
State
Municipal
Abroad (*)
Financial institutions and suppliers
Interest, and exchange and indexation charges
Rental and affreightment expenses
Shareholders
Non-controlling interests
Absorbed losses
(629)
3,638
358
3,367
(797)
4,867
377
4,447
(4,576)
2,418
860
(1,298)
(4,294)
6,208
420
2,334
193,445
169,931
177,377
156,540
18,685
18,685
4,629
5,069
4,821
14,519
1,273
34,477
50,141
49,565
690
5,351
105,747
36,819
29,447
66,266
1,779
(14,824)
(13,045)
19,068
19,068
1,452
4,133
3,778
9,363
1,301
29,732
50,297
51,888
725
6,879
109,789
38,768
26,813
65,581
(335)
(34,836)
(35,171)
14,445
14,445
4,313
4,304
4,359
12,976
1,118
28,539
44,449
31,352
301
−
76,102
14,219
14,219
1,110
3,705
3,433
8,248
1,151
23,618
45,198
33,074
377
−
78,649
32,605
54,955
87,560
−
(14,824)
(14,824)
37,180
51,929
89,109
−
(34,836)
(34,836)
Added value distributed
193,445
169,931
177,377
156,540
(*) Includes government holdings.
(**) In 2016, include R$ 4,082 in the Consolidated (R$ 418 in 2015), relating to spending on Voluntary Separation Incentive Plan - PIDV (R$ 3,647 in 2016 and R$ 326 in 2015 in the
Parent Company).
The Notes form an integral part of these Financial Statements.
18
Notes to the financial statements
(Expressed in millions of Reais, unless otherwise indicated)
1.
The Company and its operations
Petróleo Brasileiro S.A. - Petrobras is a company controlled by the Brazilian government dedicated, directly or through
its subsidiaries (referred to jointly as “Petrobras”, “the Company”, or “Petrobras Group”), either independently or
through joint ventures or similar arrangements with third parties, to prospecting, drilling, refining, processing, trading
and transporting crude oil from producing onshore and offshore oil fields and from shale or other rocks, as well as oil
products, natural gas and other liquid hydrocarbons. In addition, Petrobras carries out energy related activities, such
as research, development, production, transport, distribution and trading of all forms of energy, as well as other
related or similar activities. The Company’s head office is located in Rio de Janeiro – RJ, Brazil.
2.
Basis of preparation of financial statements
The financial statements include:
Consolidated financial statements
The consolidated financial statements are being presented in accordance with accounting practices adopted in Brazil,
including the pronouncements issued by the Accounting Pronouncements Committee (Comitê de Pronunciamentos
Contábeis - CPC) and with the International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB) and present all relevant information related to financial statements, and only
them, corresponding to the information used by the Company’s management.
Individual financial statements
The individual financial statements had been prepared in accordance with accounting practices adopted in Brazil,
issued by the CPC. These accounting practices do not differ from IFRS standard to separate financial statement, since
2014, when it permitted investments in associates, subsidiaries and joint ventures to be accounted for by the equity
method. Therefore, the individual financial statements are in accordance with the IFRS issued by the IASB. Both
individual and consolidated financial statements are disclosed together.
The standards, interpretations and orientations of CPC converge with the International Accounting Standards issued
by IASB.
The financial statements have been prepared under the historical cost convention, except for available-for-sale
financial assets, financial assets and liabilities measured at fair value and certain current and non-current assets and
liabilities, as set out in the summary of significant accounting policies.
The annual financial statements were approved and authorized for issue by the Company’s Board of Directors in a
meeting held on March 21, 2017.
2.1. Statement of added value
The statement of added value present information related to the value added by the Company (wealth created) and
how it has been distributed. This statement is presented as supplementary information under IFRS and was prepared
in accordance with CPC 09 – Statement of Added Value, approved by CVM Deliberation 557/08.
2.2. Functional currency
The functional currency of Petrobras and all of its Brazilian subsidiaries is the Brazilian Real, which is the currency of
its primary economic environment of operation. The functional currency of most of the entities that operate in the
international economic environment is the U.S. dollar.
19
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The income statements and statement of cash flows of non-Brazilian Real functional currency subsidiaries, joint
ventures and associates in stable economies are translated into Brazilian Real using the monthly average exchange
rates prevailing during the year. Assets and liabilities are translated into Brazilian Real at the closing rate at the date
of the financial statements and the equity items are translated using the exchange rates prevailing at the dates of the
transactions or valuation where items are remeasured.
All exchange differences arising from the translation of the financial statements of non-Brazilian Real subsidiaries,
joint ventures and associates are recognized as cumulative translation adjustments (CTA) within accumulated other
comprehensive income in the shareholders’ equity and transferred to profit or loss in the periods when the disposal of
the investments affects profit or loss.
2.3. Corrections
For the preparation of the financial statements for the year ended December 31, 2016, the Company has corrected
certain amounts from prior periods to conform to current period presentations. The Company concluded that these
corrections are not material and they did not affect the income statement and the shareholders’ equity, as described
below:
•
•
•
•
•
Receivables from the electricity sector, in the Parent Company and Consolidated, in the amount of R$ 974,
previously accounted for as current assets, were reclassified to trade and other receivables, net within non-
current assets;
Finance lease installments, in the Consolidated, amounting to R$ 25 were reclassified from trade payables to
finance lease obligations within current liabilities, as well as finance lease installments amounting to R$ 149
were reclassified from other non-current liabilities to finance lease obligations within non-current liabilities;
Proceeds from disposal of interests in subsidiaries without loss of control, in the Parent Company and
Consolidated, in the amount of R$ 1,934, previously presented in the Statement of Cash Flows as investing
activities, were reclassified to financing activities;
The investment, in the Parent Company, in the receivables investment fund (FIDC-NP), in the amount of
R$ 7,812, was reclassified from Marketable Securities – Held-to-maturity to Trade receivables;
Fair value of finance debt changed from R$ 385,017 to R$ 426,282 due to changes in the finance debts fair value
approach based on inputs other than quoted prices (level 2), as set out in note 17.1.
20
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
3.
The “Lava Jato (Car Wash) Operation” and its effects on the Company
In 2009, the Brazilian Federal Police (Polícia Federal) began an investigation called “Lava Jato” (Car Wash) aimed at
criminal organizations engaged in money laundering in several Brazilian states. The Lava Jato investigation is
extremely broad and involves numerous investigations into several criminal practices focusing on crimes committed
by individuals in different parts of the country and sectors of the Brazilian economy.
Beginning in 2014, the Brazilian Federal Prosecutor’s Office focused part of its investigation on irregularities involving
Petrobras’s contractors and suppliers and uncovered a broad payment scheme that involved a wide range of
participants, including former Petrobras personnel. Based on the information available to Petrobras, the payment
scheme involved a group of companies that, between 2004 and April 2012, colluded to obtain contracts with
Petrobras, overcharge the Company under those contracts and use the overpayment received under the contracts to
fund improper payments to political parties, elected officials or other public officials, individual contractors and
suppliers personnel, former Petrobras personnel and other individuals involved in the scheme. Petrobras refers to this
scheme as the “payment scheme” and to the companies involved in the scheme as “cartel members”. The Company did
not make any improper payment.
In addition to the payment scheme, the investigations identified specific instances of other contractors and suppliers
that overcharged Petrobras and allegedly used the overpayment received from their contracts with the Company to
fund improper payments, unrelated to the payment scheme, to certain former Petrobras personnel. Those
contractors and suppliers are not cartel members and acted individually. Petrobras refers to these specific cases as
the “unrelated payments.”
Certain former executives of Petrobras were arrested and/or charged for certain crimes such as money-laundering
and passive corruption. Other former executives of the Company as well as executives of Petrobras contractors and
suppliers were or may be charged as a result of the investigation.
The amounts paid by Petrobras related to contracts with contractors and suppliers involved in the payment scheme
were included in historical costs of its property, plant and equipment. However, the Company believes that, under
International Accounting Standard IAS 16 – Property, Plant and Equipment, the portion of the payments made to
these companies and used by them to make improper payments, which represents additional charges incurred as a
result of the payments scheme, should not have been capitalized. Thus, in the third quarter of 2014, the Company
wrote off R$ 6,194 (R$ 4,788 in the parent company) of capitalized costs representing amounts that Petrobras
overpaid for the acquisition of property, plant and equipment in prior years.
The Company has continuously monitored the investigations for additional information and to assess any potential
impact on the adjustments made. No additional information has been identified that impacted the adopted
calculation methodology and the recorded adjustment in 2014 for the preparation of the financial statements for the
year ended December 31, 2016.
Petrobras will continue to monitor the results of the investigations and the availability of other information
concerning the payment scheme. If information becomes available that indicates with sufficient precision that the
estimate described above should be adjusted, Petrobras will evaluate whether the adjustment is material and, if so,
recognize it.
3.1. The Company’s response to the facts uncovered in the investigation
The Company has been closely monitoring the investigations and cooperating fully with the Brazilian Federal Police
(Policía Federal), the Brazilian Public Prosecutor’s Office (Ministério Público Federal), Federal Auditor’s Office
(Tribunal de Contas da União – TCU), and the Ministry of Transparency, Supervision and Control (Ministério da
Transparência , Fiscalização e Controle) in the investigation of all crimes and irregularities. We have responded to
numerous requests for documents and information from these authorities.
21
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The Company has also cooperated with the U.S. Securities and Exchange Commission (SEC) and the United States
Department of Justice (DOJ), which, since November 2014, have been investigating potential violations of U.S. law
based on information disclosed as a result of the Lava Jato investigation.
We have been formally recognized as a victim of the crimes identified under the Lava Jato investigation by the
Brazilian Federal Prosecutor’s Office, the lower court hearing the case and also by the Brazilian Supreme Court. As a
result, we have entered into 29 criminal proceedings as an assistant to the prosecutor. In addition, we have entered
into five criminal proceedings as an interested party. We have also renewed our commitment to continue cooperating
with authorities to clarify the issues and report them regularly to our investors and to the public in general.
We do not tolerate corrupt practices and illegal acts perpetuated by any of our employees. Accordingly, in 2016, the
Company continued to implement several measures as a response to the facts uncovered in the “Lava Jato”
investigation and to improve its corporate governance and compliance systems as described below.
As part of the process of strengthening the internal control structure, among the measures taken in 2016, the
Company approved its new Corporate Compliance Policy, performed training programs with personnel and executives
focused on the prevention of corruption, reviewed the “Compliance Agents” initiative and adapted its findings to the
new organization structure, conducted nearly 12,000 integrity due diligence procedures, and performed background
checks as part of the decision making for appointing personnel to key positions.
Internal investigations are still in progress and are being carried out by two independent firms hired in October 2014,
which report directly to a Special Committee that serves as a reporting line to the Board of Directors. The Special
Committee is composed of our Governance and Compliance Officer, João Adalberto Elek Junior and two other
independent and recognized experts: Ellen Gracie Northfleet, former Chief Justice of the Brazilian Supreme Court,
who is recognized internationally as a jurist with great experience in analyzing complex legal issues; and Andreas
Pohlmann from Germany, former Chief Compliance Officer of Siemens AG (2007-2010), who has broad experience in
compliance and corporate governance matters.
We established Internal Investigative Committees (Comissões Internas de Apuração) to investigate instances of non-
compliance with corporate rules, procedures or regulations. The Committees’ investigation results are shared with the
Brazilian authorities as they progress.
In addition, the Company has been taking the necessary procedural steps to seek compensation for damages suffered
from the improper payments scheme, including those related to its reputation.
Accordingly, the Company joined 12 public civil suits addressing acts of administrative misconduct filed by the
Brazilian Public Prosecutor’s Office and the Federal Government, including demands for compensation for reputation
damages.
In order to secure future compensation to Petrobras for each civil action related to misconduct, the courts granted
cautionary orders in certain actions to impound defendants’ property.
To the extent that any of the proceedings resulting from the Lava Jato investigation involve leniency agreements with
cartel members or plea agreements with individuals pursuant to which they agree to return funds, the Company may
be entitled to receive a portion of such funds. Nevertheless, the Company is unable to reliably estimate further
recoverable amounts at this moment. Any recoverable amount will be recognized as income when received or when
their economic benefits become virtually certain.
So far, the Company recognized the accumulated amount of R$ 661 as compensations for damages relating to the
“Lava Jato” Operation (R$ 432 in 2016) pursuant to leniency and cooperation agreements.
22
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
3.2. Approach adopted by the Company to adjust its property, plant and equipment for
overpayments
As it is not possible to specifically identify the amounts of each overpayment to contractors and suppliers, or periods
over which such payments occurred, Petrobras developed a methodology to estimate the aggregate amount that it
overpaid under the payment scheme, in order to determine the amount of the write‐off representing the
overstatement of its assets resulting from overpayments used to fund improper payments.
As it is impracticable to identify the periods and amounts of overpayments incurred, the Company developed a
methodology to estimate the adjustment incurred in property, plant and equipment in the third quarter of 2014 using
the five steps described below:
(1) Identify contractual counterparties: the Company listed all the companies identified as cartel members, and using
that information the Company identified all of the contractors and suppliers that were either so identified or were
consortia including entities so identified.
(2) Identify the period: the Company concluded from the testimony that the payment scheme was operating from
2004 through April 2012.
(3) Identify contracts: the Company identified all contracts entered into with the counterparties identified in step 1
during the period identified in step 2, which included supplemental contracts when the original contract was entered
into between 2004 and April 2012. It has identified all of the property, plant and equipment related to those
contracts.
(4) Identify payments: the Company calculated the total contract values under the contracts mentioned in step 3.
(5) Apply a fixed percentage to the amount determined in Step 4: the Company estimated the aggregate overpayment
by applying a percentage indicated in the depositions (3%) to the total amounts for identified contracts.
For overpayments attributable to non-cartel members, unrelated to the payment scheme, the Company included in
the write-off for incorrectly capitalized overpayments the specific amounts of improper payments or percentages of
contract values, as described in the testimony, which were used by those suppliers and contractors to fund improper
payments.
For more information on the approach adopted by the Company to estimate the write-off for overpayments
incorrectly capitalized, see note 3 to the Company’s audited consolidated financial statements for 2014.
The Company considered all available information for purposes of the preparation of the financial statements for the
year ended December 31, 2016 and did not identify any additional information that would impact the adopted
calculation methodology and consequently require additional write-offs. Information available to the Company
included:
Petrobras has closely monitored the progress of both the investigation by Brazilian authorities and the independent
law firms and no new facts that could impact the Company's previously recorded adjustments or change the
methodology adopted were discovered. The Company will continuously monitor the investigations for additional
information and will review its potential impact on the adjustment made.
3.3. Investigation involving the Company
Petrobras is not a target of the Lava Jato investigation and is formally recognized as a victim of the improper
payments scheme by the Brazilian Authorities.
23
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
On November 21, 2014, Petrobras received a subpoena from the U.S. Securities and Exchange Commission (SEC)
requesting certain documents and information about the Company. The Company has been complying with the
subpoena and intends to continue to do so, working with the independent Brazilian and U.S. law firms that were hired
to conduct an independent internal investigation.
On December 15, 2015, the State of São Paulo Public Prosecutor’s Office issued the Order of Civil Inquiry 01/2015,
establishing a civil proceeding to investigate the existence of potential damages caused by Petrobras to investors in
the stock market. The Company has provided all relevant information required by the authorities.
3.4. Legal proceedings involving the Company
Note 30 provides information about class actions and other material legal proceedings.
4.
Summary of significant accounting policies
The accounting policies set out below have been consistently applied to all periods presented in these
consolidated financial statements.
4.1. Basis of consolidation
The consolidated financial statements include the financial information of Petrobras and the entities it controls (its
subsidiaries), joint operations and consolidated structured entities.
Control is achieved when Petrobras: i) has power over the investee; ii) is exposed, or has rights, to variable returns
from involvement with the investee; and iii) has the ability to use its power to affect its returns.
Subsidiaries are consolidated from the date on which control is obtained until the date that such control no longer
exists. Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the
policies adopted by Petrobras.
Note 11 sets out the consolidated entities and other direct investees.
Petrobras has no equity interest in certain structured entities and control is not determined by voting rights, but by
the power the Company has over the relevant activities of such entities. Consolidated structured entities are set out
below:
Consolidated structured entities
Charter Development LLC – CDC
Companhia de Desenvolvimento e Modernização de Plantas Industriais – CDMPI
PDET Offshore S.A.
Fundo de Investimento em Direitos Creditórios Não-padronizados do Sistema Petrobras
Fundo de Investimento em Direitos Creditórios Padronizados do Sistema Petrobras
Country Main segment
E&P
RT&M
E&P
Corporate
Corporate
U.S.A
Brazil
Brazil
Brazil
Brazil
The consolidation procedures involve combining assets, liabilities, income and expenses, according to their function
and eliminating all intragroup balances and transactions, including unrealized profits arising from intragroup
transactions.
4.2. Business segment reporting
The information related to the Company’s operating segments (business areas) is prepared based on items directly
attributable to each segment, as well as items that can be allocated to each segment on a reasonable basis. This
information reflects the views of the Company’s Board of Executive Officers (Chief Operating Decision Maker – CODM).
24
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The measurement of segment results includes transactions carried out with third parties and transactions between
business areas, which are charged at internal transfer prices defined by the relevant areas using methods based on
market parameters.
The information of operating segments comprises the following business areas:
a) Exploration and Production (E&P): this segment covers the activities of exploration, development and production of
crude oil, NGL (natural gas liquid) and natural gas in Brazil and abroad, for the primary purpose of supplying its
domestic refineries and the sale of surplus crude oil and oil products produced in the natural gas processing plants to
the domestic and foreign markets. The E&P segment also operates through partnerships with other companies.
b) Refining, Transportation and Marketing (RT&M): this segment covers the refining, logistics, transport and trading
of crude oil and oil products activities in Brazil and abroad, exports of ethanol, extraction and processing of shale, as
well as holding interests in petrochemical companies in Brazil;
c) Gas and Power: this segment covers the activities of transportation and trading of natural gas produced in Brazil
and abroad, imported natural gas, transportation and trading of LNG (liquid natural gas), generation and trading of
electricity, as well as holding interests in transporters and distributors of natural gas and in thermoelectric power
plants in Brazil, in addition to being responsible for the fertilizer business;
d) Biofuels: this segment covers the activities of production of biodiesel and its co-products, as well as the ethanol-
related activities: equity investments, production and trading of ethanol, sugar and the surplus electric power
generated from sugarcane bagasse; and
e) Distribution: this segment covers the activities of Petrobras Distribuidora S.A, which operates selling oil products,
ethanol and vehicle natural gas in Brazil. This segment also includes distribution of oil products operations abroad
(South America).
The corporate segment comprises the items that cannot be attributed to the other segments, notably those related
to corporate financial management, corporate overhead and other expenses, including actuarial expenses related to
the pension and medical benefits for retired employees and their dependents.
Assets and the statement of income by business area are presented in note 29.
4.3. Financial instruments
4.3.1. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, term deposits with banks and short-term highly liquid financial
investments that are readily convertible to known amounts of cash, are subject to insignificant risk of changes in
value and have a maturity of three months or less from the date of acquisition.
4.3.2. Marketable securities
Marketable securities comprise investments in debt or equity securities. These instruments are initially measured at
fair value, classified and subsequently measured as set out below:
- Fair value through profit or loss – includes financial instruments purchased and held for trading in the
short term. These instruments are measured at fair value with changes recognized in the statement of
income in finance income (expenses).
- Held-to-maturity – includes non-derivative financial instruments with fixed or determinable payments
and fixed maturity, for which Management has the clear intention and ability to hold to maturity. These
instruments are measured at amortized cost using the effective interest rate method.
25
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
- Available-for-sale – includes non-derivative financial instruments that are designated as available for sale
or are not classified as financial assets at fair value through profit or loss or held-to-maturity investments.
These instruments are measured at fair value and changes are recognized in other comprehensive
income, in the shareholders’ equity and recycled to the statement of income when the instruments are
derecognized or realized.
Subsequent changes attributable to interest income or changes in foreign exchange rates or inflation indexation
(price indexes) are recognized in the statement of income for all categories, when applicable.
4.3.3. Trade receivables
Trade receivables are initially measured at the fair value of the consideration to be received and, subsequently, at
amortized cost using the effective interest rate method and adjusted for allowances for impairment or uncollectible
receivables.
The Company recognizes an allowance for impairment of trade receivables when there is objective evidence that a loss
event occurred after the initial recognition of the receivable and has an impact on the estimated future cash flows,
which can be reliably estimated. Impairment losses on trade receivables are recognized in the statement of income in
selling expenses.
4.3.4. Loans and financing (Debt)
Loans and financing are initially recognized at fair value less transaction costs incurred and subsequently measured at
amortized cost using the effective interest rate method.
4.3.5. Derivative financial instruments
Derivative financial instruments are recognized in the statement of financial position as assets or liabilities and are
initially and subsequently measured at fair value.
Gains or losses arising from changes in fair value are recognized in the statement of income in finance income (finance
expense), unless the derivative is qualified and designated for hedge accounting.
4.3.6. Cash flow hedge accounting
The Company qualifies certain transactions for cash flow hedge accounting.
Hedging relationships qualify for cash flow hedges when they involve the hedging of the exposure to variability in
cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable
forecasted transaction that may impact the statement of income.
Gains or losses relating to the effective portion of the hedge are recognized in other comprehensive income, in the
shareholders’ equity and recycled to the statement of income in finance income (expense) in the periods when the
hedged item affects the statement of income. The gains or losses relating to the ineffective portion are immediately
recognized in the statement of income.
When the hedging instrument expires or settled in advance, no longer meets the criteria for hedge accounting or the
Company revokes the designation, the cumulative gain or loss on the hedging instrument that has been recognized in
other comprehensive income from the period when the hedge was effective is recorded separately in equity until the
forecast transaction occurs. When the forecast transaction is no longer expected to occur, the cumulative gain or loss
on the hedging instrument that has been recognized in other comprehensive income is immediately reclassified from
equity to the statement of income.
26
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
4.4. Inventories
Inventories are determined by the weighted average cost method and mainly comprise crude oil, intermediate
products and oil products, as well as natural gas, LNG, fertilizers and biofuels, stated at the lower of the average cost,
and their net realizable value.
Crude oil and LNG inventories can be traded or used for production of oil products and/or electricity generation,
respectively.
Intermediate products are those product streams that have been through at least one of the refining processes, but
still need further treatment, processing or converting to be available for sale.
Biofuels mainly include ethanol and biodiesel inventories.
Materials, supplies and others mainly comprise production supplies and operating materials used in the operations of
the Company, stated at the average purchase cost, not exceeding replacement cost.
Net realizable value is the estimated selling price of inventory in the ordinary course of business, less estimated cost
of completion and estimated expenses to complete its sale.
The amounts presented in the categories above include imports in transit, which are stated at their cost of purchase.
4.5. Investments in other companies
An associate is an entity over which the Company has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but not the ability to exercise control or joint
control over those polices. The definition of control is set out in note 4.1.
A joint arrangement is an arrangement over which two or more parties have joint control (pursuant to contractual
provisions). A joint arrangement is classified either as a joint operation or as a joint venture depending on the rights
and obligations of the parties to the arrangement.
In a joint operation, the parties have rights to the assets and obligations for the liabilities related to the arrangement,
while in a joint venture the parties have rights to the net assets of the arrangement.
In the parent company’s financial statements, investments in associates, subsidiaries and joint ventures are
accounted for by the equity method from the date on which they become an associate, a joint venture or a subsidiary.
In the parent company’s financial statements, only joint operations structured through separate vehicles are
accounted for by the equity method. For other joint operations the Company recognizes the amount of its share of
assets, liabilities and related income and expenses.
Accounting policies of joint ventures and associates have been adjusted, where necessary, to ensure consistency with
the policies adopted by Petrobras. Distributions received from an investee reduce the carrying amount of the
investment.
4.6. Business combinations and goodwill
Acquisitions of businesses are accounted for using the acquisition method when control is obtained. Combinations of
entities under common control are not accounted for as business combinations.
The acquisition method requires that the identifiable assets acquired and the liabilities assumed be measured at the
acquisition-date fair value. Amounts paid in excess of the fair value are recognized as goodwill. In the case of a
bargain purchase, a gain is recognized in the statement of income when the acquisition cost is lower than the
acquisition-date fair value of the net assets acquired.
27
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Changes in ownership interest in subsidiaries that do not result in loss of control of the subsidiary are equity
transactions. Any excess of the amounts paid/received over the carrying value of the ownership interest
acquired/disposed is recognized in shareholders’ equity as changes in interest in subsidiaries.
4.7. Oil and Gas exploration and development expenditures
The costs incurred in connection with the exploration, appraisal and development of crude oil and natural gas
production are accounted for using the successful efforts method of accounting, as set out below:
- Costs related to geological and geophysical activities are expensed when incurred.
- Amounts paid for obtaining concessions for exploration of crude oil and natural gas (capitalized
acquisition costs) are initially capitalized as intangible assets and are transferred to property, plant and
equipment upon the declaration of commerciality.
- Costs directly attributable to exploratory wells pending determination of proved reserves are capitalized
within property, plant and equipment. Exploratory wells that have discovered oil and gas reserves, which
cannot be classified as proved when drilling is completed, continue to be capitalized if the well has found
a sufficient quantity of reserves to justify its completion as a producing well and progress on assessing the
reserves and the economic and operating viability of the project is under way. An internal commission of
technical executives of Petrobras reviews these conditions monthly for each well, by analysis of
geoscience and engineering data, existing economic conditions, operating methods and government
regulations.
- Costs related to exploratory wells drilled in areas of unproved reserves are charged to expense when
determined to be dry or uneconomic by an expert commission of the Company.
- Costs related to the construction, installation and completion of infrastructure facilities, such as drilling of
development wells, construction of platforms and natural gas processing units, construction of
equipment and facilities for the extraction, handling, storing, processing or treating crude oil and natural
gas, pipelines, storage facilities, waste disposal facilities and other related costs incurred in connection
with the development of proved reserve areas are capitalized within property, plant and equipment.
4.8. Property, plant and equipment
Property, plant and equipment are measured at the cost to acquire or construct, including all costs necessary to bring
the asset to working condition for its intended use and the estimated cost of dismantling and removing the asset and
restoring the site, reduced by accumulated depreciation and impairment losses.
A condition of continuing to operate certain items of property, plant and equipment, such as industrial plants,
offshore plants and vessels is the performance of regular major inspections and maintenance. Those expenditures are
capitalized if a maintenance campaign is expected occur, at least, 12 months later. Otherwise, they are expensed when
incurred. The capitalized costs are depreciated over the period through the next major maintenance date.
Spare parts are capitalized when they are expected to be used during more than one period and can only be used in
connection with an item of property, plant and equipment. These are depreciated over the useful life of the item of
property, plant and equipment to which they relate.
28
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Borrowing costs directly attributable to the acquisition or construction of qualifying assets are capitalized as part of
the costs of these assets. General borrowing costs are capitalized based on the Company’s weighted average of the
cost of borrowings outstanding applied over the balance of assets under construction. Borrowing costs are amortized
during the useful lives of the assets or by applying the unit-of-production method to the related assets. In general,
the Company suspends capitalization of borrowing to the extent investments in a qualifying asset hibernates during a
period greater than one year or whenever the asset is prepared for its intended use.
Whenever an asset is directly associated to oil and gas production and its estimated lifecycle is equal or greater than
the estimated length of reserves depletion, the depreciation of this asset will be accounted for pursuant to the unit-
of-production method.
Assets depreciated based on the straight line method include: (i)assets related to oil and gas production with useful
lives shorter than the life of the field; (ii) floating platforms; and (iii) assets that are unrelated to oil and gas
production.
The unit-of-production method of depreciation (amortization) is computed based on a unit-of-production basis
(monthly production) over the proved developed oil and gas reserves, applied on a field-by-field basis.
Amortization of amounts paid for obtaining concessions for exploration of oil and natural gas of producing properties,
such as signature bonuses (capitalized acquisition costs) is recognized using the unit-of-production method,
computed based on the units of monthly production over the total proved oil and gas reserves, applied on a field-by-
field basis.
Except for land, which is not depreciated, other property, plant and equipment are depreciated on a straight-line basis
over its useful life. Note 12.2 provides further information on the estimated useful life by class of assets.
4.9. Intangible assets
Intangible assets are measured at the acquisition cost, less accumulated amortization and impairment losses and
comprise rights and concessions, including the signature bonus paid for obtaining concessions for exploration of oil
and natural gas (capitalized acquisition costs), public service concessions, trademarks, patents, software and goodwill.
In the individual financial statements, this goodwill is presented in investments.
Signature bonuses paid for obtaining concessions for exploration of oil and natural gas are initially capitalized within
intangible assets and are transferred to property, plant and equipment upon the declaration of commerciality. They
are not amortized before their transference to property, plant and equipment. Intangible assets with a finite useful
life, other than amounts paid for obtaining concessions for exploration of oil and natural gas of producing properties,
are amortized over the useful life of the asset on a straight-line basis.
Internally-generated intangible assets are not capitalized and are expensed as incurred, except for development costs
that meet the recognition criteria related to completion and use of assets, probable future economic benefits, and
others.
Intangible assets with an indefinite useful life are not amortized but are tested annually for impairment. Their useful
lives are reviewed annually.
4.10. Impairment of property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets with definitive lives are tested for impairment when there is an
indication that the carrying amount may not be recoverable. Assets are assessed for impairment at the smallest
identifiable group that generates largely independent cash inflows from other assets or groups of assets (the cash-
generating unit - CGU).
29
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Assets related to development and production of oil and gas and (fields or group of fields) assets that have indefinite
useful lives, such as goodwill acquired in business combinations, are tested for impairment annually, irrespective of
whether there is any indication of impairment, or when any indication of impairment occurs.
The impairment test is performed through the comparison of the carrying amount of an individual asset or a cash-
generating unit (CGU) with its recoverable amount. Whenever the recoverable amount is less than the carrying
amount, an impairment loss is recognized to reduce the carrying amount to the recoverable amount. The recoverable
amount of an asset or a cash-generating unit is the higher of its fair value less costs of disposal and its value in use.
Considering the existing synergies between the Company’s assets and businesses, as well as the expectation of the
use of its assets for their remaining useful lives, value in use is generally used by the Company for impairment testing
purposes, except when specifically indicated.
Value in use is estimated based on the present value of the risk-adjusted (for specific risks) future cash flows
expected to arise from the continuing use of an asset or cash-generating unit, discounted at a pre-tax discount rate.
This rate is obtained from the Company’s post-tax weighted average cost of capital (WACC). Cash flow projections are
mainly based on the following assumptions: prices based on the Company’s most recent business and management
plan and strategic plan; production curves associated with existing projects in the Company's portfolio, operating
costs reflecting current market conditions, and investments required for carrying out the projects.
Reversal of previously recognized impairment losses is permitted for assets other than goodwill.
4.11. Impairment of associates and joint ventures (equity-accounted investments)
The Company assesses its investments in associates and joint ventures (equity-accounted investments) for
impairment whenever there is an indication that their carrying amounts may not be recoverable.
By performing impairment testing of an equity-accounted investment, goodwill, if exists, is also considered part of
the carrying amount to be compared to the recoverable amount.
Except when specifically indicated, value in use is generally used by the Company for impairment testing purposes in
the proportion to the Company’s interests in the present value of future cash flow projections via dividends and other
distributions.
Reversals of previously recognized impairment losses are permitted.
4.12. Leases
Leases that transfer substantially all the risks and rewards incidental to ownership of the leased item are recognized
as finance leases.
For finance leases, when the Company is the lessee, assets and liabilities are recognized at the lower of the fair value
of the leased property or the present value of the minimum lease payments, both determined at the inception of the
lease.
Capitalized lease assets are depreciated on a systematic basis consistent with the depreciation policy the Company
adopts for property, plant and equipment that are owned. Where there is no reasonable certainty that the Company
will obtain ownership by the end of the lease term, capitalized lease assets are depreciated over the shorter of the
lease term or the estimated useful life of the asset.
When the Company is the lessor, a receivable is recognized at the amount of the net investment in the lease.
If a lease does not transfer substantially all the risks and rewards incidental to ownership of the leased item, it is
classified as an operating lease. Operating leases are recognized as expenses over the period of the lease.
30
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Contingent rents are recognized as expenses when incurred.
4.13. Assets classified as held for sale
Non-current assets, disposal groups and liabilities directly associated with those assets are classified as held for sale
if their carrying amounts will, principally, be recovered through the sale transaction rather than through continuing
use.
The Company has an effective divestment program and is considering opportunities of divestments in several areas
where it operates. The divestment portfolio is dynamic because changes in market conditions and/or in the
Company’s evaluation of its different businesses may affect any ongoing negotiation or potential transaction.
The condition for classification as held for sale is met only when the sale is approved by the Company’s Board of
Directors and the asset or disposal group is available for immediate sale in its present condition and there is the
expectation that the sale occurs within 12 months after the classification as held for sale. In addition, the sale should
be expected to qualify for recognition as a completed sale within one year from the date of classification as held for
sale. However, extended period required to complete a sale does not preclude an asset (or disposal group) from being
classified as held for sale if the delay is caused by events or circumstances beyond the Company’s control and there is
sufficient evidence that it remains committed to its plan to sell the assets (or disposal groups).
Assets (or disposal groups) classified as held for sale and the associated liabilities are measured at the lower of their
carrying amount and fair value less costs to sell. Assets and liabilities are presented separately in the statement of
financial position.
4.14. Decommissioning costs
Decommissioning costs are future obligations to perform environmental restoration, dismantle and remove a facility
when it terminates its operations due to the exhaustion of the area or economic feasibility.
Costs related to the abandonment and dismantling of areas are recognized as part of the cost of an asset (with a
corresponding liability) based on the present value of the expected future cash outflows, discounted at a risk-
adjusted rate when a future legal obligation exists and can be reliably measured.
Decommissioning costs estimates for oil and natural gas producing properties are initially recognized after a field is
declared to be commercially viable.
The part of the cost of an asset relating to decommissioning costs estimates is depreciated on the same basis of its
corresponding property, plant and equipment. Unwinding of the discount on the corresponding liability is recognized
as a finance expense, when incurred. Decommissioning costs estimates are revised annually, at least.
4.15. Provisions, contingent assets and contingent liabilities
Provisions are recognized when there is a present obligation that arises from past events and for which it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation, which must be
reasonably estimable.
Contingent assets and liabilities are not recognized, but contingent liabilities are disclosed whenever the likelihood of
loss is considered possible, including those for which the amount outflow of resources are not reasonably estimable.
4.16. Income taxes
Income tax expense for the period includes current and deferred tax.
31
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
a)
Current income taxes
Since 2015, the Company has adopted the provisions of law 12.973/14 in order to determine its taxable profit for the
year. This law superseded the Transition Tax Regime (Regime Tributário de Transição-RTT).
Current tax expense is computed based on taxable profit for the year, calculated using tax rates that have been
enacted or substantively enacted at the end of the reporting period.
Current income taxes are offset when they relate to income taxes levied on the same taxable entity and tax authority ,
when a legally right and intention to set off current tax assets and current tax liabilities exists.
b)
Deferred income taxes
Deferred income taxes are recognized on temporary differences between the tax base of an asset or liability and its
carrying amount. Deferred income tax liabilities are generally recognized for all taxable temporary differences.
Deferred tax assets are generally recognized for all deductible temporary differences and carryforward of unused tax
losses or credits to the extent that it is probable that taxable profit will be available against which those deductible
temporary differences can be utilized. When there are insufficient taxable temporary differences relating to the same
taxation authority and the same taxable entity, a deferred tax is recognized to the extent that it is probable that the
entity will have sufficient taxable profit in future periods, based on projections approved by Management and
supported by the Company’s Business and Management Plan.
Deferred tax assets and deferred tax liabilities are measured at the tax rates that have been enacted or substantively
enacted by the end of the reporting period, and they are offset when relate to income taxes levied on the same
taxable entity, when a legally enforceable right to set off current tax assets and current tax liabilities exists and when
the deferred tax assets and deferred tax liabilities relate to taxes levied by the same tax authority on the same taxable
entity.
4.17. Employee benefits (Post-Employment)
Actuarial commitments related to post-employment defined benefit plans and health-care plans are recognized as
liabilities in the statement of financial position based on actuarial calculations which are revised annually by an
independent qualified actuary (updating for material changes in actuarial assumptions and estimates of expected
future benefits), using the projected unit credit method, net of the fair value of plan assets, when applicable, from
which the obligations are to be directly settled.
Actuarial assumptions include demographic assumptions, financial assumptions, medical costs estimates, historical
data related to benefits paid and employee contributions.
Under the projected credit unit method, each period of service gives rise to an additional unit of benefit entitlement
and each unit is measured separately to determine the final obligation.
Changes in the net defined benefit liability (asset) are recognized when they occur, as follows: i) service cost and net
interest cost in the statement of income; and ii) remeasurements in other comprehensive income.
Service cost comprises: (i) current service cost, which is the increase in the present value of the defined benefit
obligation resulting from employee service in the current period; (ii) past service cost, which is the change in the
present value of the defined benefit obligation for employee service in prior periods, resulting from a plan
amendment (the introduction, modification, or withdrawal of a defined benefit plan) or a curtailment (a significant
reduction by the entity in the number of employees covered by a plan); and (iii) any gain or loss on settlement.
Net interest on the net defined benefit liability (asset) is the change during the period in the net defined benefit
liability (asset) that arises from the passage of time.
32
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Remeasurement of the net defined benefit liability (asset) is recognized in shareholders’ equity, in other
comprehensive income, and comprises: (i) actuarial gains and losses and; (ii) the return on plan assets, less interest
income earned on these assets.
The Company also contributes amounts to defined contribution plans, that are expensed when incurred and are
computed based on a percentage of salaries.
4.18. Share capital and distributions to shareholders
Share capital comprises common shares and preferred shares. Incremental costs directly attributable to the issue of
new shares (share issuance costs) are presented (net of tax) in shareholders’ equity as a deduction from the proceeds.
To the extent the Company proposes distributions to shareholders, such dividends and interest on capital are
determined in accordance with the limits defined in the Brazilian Corporation Law and in the Company’s bylaws.
Interest on capital is a form of dividend distribution, which is deductible for tax purposes in Brazil to the entity
distributing interest on capital. Tax benefits from the deduction of interest on capital are recognized in the statement
of income.
4.19. Other comprehensive income
Other comprehensive income includes: i) changes in fair value of available-for-sale financial instruments; ii) effective
portion of cash flow hedge; iii) remeasurement of defined benefit plans; and iv) cumulative translation adjustment.
4.20. Government grants
A government grant is recognized when there is reasonable assurance that the grant will be received and the
Company will comply with the conditions attached to the grant.
4.21. Recognition of revenue, costs and expenses
Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the
Company and the amount of revenue and the costs incurred or to be incurred in the transaction can be measured
reliably. Revenue is measured at the fair value of the consideration received or receivable for products sold and
services provided in the normal course of business, net of returns, discounts and sales taxes.
Revenues from the sale of crude oil and oil products, petrochemical products, natural gas, biofuels and other related
products are recognized when the Company retains neither continuing managerial involvement nor effective control
over the products sold and the significant risks and rewards of ownership have been transferred to the customer,
which is usually when legal title passes to the customer, pursuant to the terms of the sales contract. Sales revenues
from freight and other services provided are recognized based on the stage of completion of the transaction.
Finance income and expense mainly comprise interest income on financial investments and government bonds,
interest expense on debt, gains or losses on marketable securities measured at fair value, as well as net foreign
exchange and inflation indexation charges. Finance expense does not include borrowing costs which are capitalized as
part of the costs of these assets.
Revenue, costs and expenses are recognized on the accrual basis.
33
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
5. Critical accounting policies: key estimates and judgments
The preparation of the consolidated financial information requires the use of estimates and judgments for certain
transactions and their impacts on assets, liabilities, income and expenses. The assumptions are based on past
transactions and other relevant information and are periodically reviewed by Management, although the actual
results could differ from these estimates.
Information about those areas that require the most judgment or involve a higher degree of complexity in the
application of the accounting practices and that could materially affect the Company’s financial condition and results
of operations is set out as follows:
5.1. Oil and gas reserves
Oil and gas reserves are estimated based on economic, geological and engineering information, such as well logs,
pressure data and drilling fluid sample data and are used as the basis for calculating unit-of-production depreciation,
depletion and amortization rates, impairment testing, decommissioning costs estimates and for projections of high
probable future exports subject to cash flow hedge.
These estimates require the application of judgment and are reviewed at least annually based on a re-evaluation of
already available geological, reservoir or production data and new geological, reservoir or production data, as well as
changes in prices and costs that are used in the estimation of reserves. Revisions can also result from significant
changes in the Company’s development strategy or in the production capacity.
The Company determines its oil and gas reserves both pursuant to the U.S. Securities and Exchange Commission - SEC
and the ANP/SPE (Brazilian Agency of Petroleum, Natural Gas and Biofuels / Society of Petroleum Engineers) criteria.
The main differences between the two criteria are: selling price of crude oil (ANP/SPE establishes the use of the
Company’s forecasted price, while SEC determines the use of an average price considering the each first day of the
last 12 months); concession period (ANP permission for the use of reserve quantities after the concession period).
Additionally, pursuant to the SEC criteria, only proved reserves are determined, while proved and unproved reserves
are determined pursuant to the ANP/SPE criteria.
According to the definitions prescribed by the SEC, proved oil and gas reserves are the estimated quantities which
geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions (i.e., prices and costs as of the date the estimate is
made). Proved reserves are subdivided into developed and undeveloped reserves.
Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods.
Although the Company is reasonably certain that proved reserves will be produced, the timing and amount recovered
can be affected by a number of factors including completion of development projects, reservoir performance,
regulatory aspects and significant changes in long-term oil and gas price levels.
Detailed information on reserves is presented as supplementary information.
a)
Impacts of oil and gas reserves on depreciation, depletion and amortization
Depreciation, depletion and amortization are measured based on estimates of reserves prepared by the Company’s
technicians in a manner consistent with SEC definitions. Reviews to the Company’s proved developed and
undeveloped reserves impact prospectively the amounts of depreciation, depletion and amortization recognized in
the statement of income and the carrying amounts of oil and gas properties assets.
34
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Therefore, considering all other variables being constant, a decrease in estimated proved reserves would increase,
prospectively, depreciation, depletion and amortization expense, while an increase in reserves would reduce
depreciation, depletion and amortization.
Notes 4.8 and 12 provide more detailed information about depreciation, amortization and depletion.
b)
Impacts of oil and gas reserves on impairment testing
The Company assesses the recoverability of the carrying amounts of oil and gas exploration and development assets
based on their value in use, as defined in note 4.10. In general, analyses are based on proved reserves and probable
reserves pursuant to the ANP/SPE definitions.
c)
Impacts of oil and gas reserves on decommissioning costs estimates
The timing of abandonment and dismantling of on shore and offshore areas is based on the length of reserves
depletion, in accordance with ANP/SPE definitions. Therefore, the review of the timing of reserves depletion may
impact the provision for decommissioning cost estimates.
d)
Impacts of oil and gas reserves on highly probable future exports subject to cash flow hedge
The Company estimates highly probable future exports in accordance with future exports forecasted in the scope of
its Business and Management Plan - BMP and its Strategic Plan projections, which are driven by proved and probable
reserves estimates. Reviews in such reserves may impact future exports forecasts and, consequently, hedge
relationship designations may also be impacted. For example, whenever future exports for which a hedging
relationship has been designated are no longer considered as highly probable, the Company revokes this designation
and the cumulative foreign exchange gains or losses recognized in other comprehensive income remain in
shareholders’ equity until the forecast exports occur. Additionally, if the future exports are also no longer expected to
occur, the cumulative foreign exchange recognized in other comprehensive income is immediately recycled from
shareholders’ equity to the statement of income.
5.2. Main assumptions for impairment testing
Impairment testing involves uncertainties mainly related to its key assumptions: average Brent prices and Real/U.S.
dollar average exchange rate. These assumptions are relevant to virtually all of the Company’s business segments and
a significant number of interdependent variables are derived from these key assumptions and there is a high degree
of complexity in their application in determining value in use for impairment tests.
The markets for crude oil and natural gas have a history of significant price volatility and although prices can drop
precipitously, industry prices over the long term tends to continue being driven by market supply and demand
fundamentals.
Projections relating to the key assumptions are derived from the Business and Management Plan for the first five
years and consistent with Strategic Plan for the following years. These assumptions are consistent with market
evidence, such as independent macro-economic forecasts, industry commentators and experts. Back testing analysis
and feedback process in order to continually improve forecast techniques are also performed.
The Company’s oil price forecast model is based on a nonlinear relationship between variables reflecting market
supply and demand fundamentals. This model also takes into account other relevant factors, such as historical idle
capacity, industry costs, oil and gas production forecasted by specialized firms, the relationship between the oil price
and the U.S. dollar exchange rate, as well as the impact of OPEC on the oil market.
35
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Changes in the economic environment may result in changing assumptions and, consequently, the recognition of
impairment charges on certain assets or CGUs. For example, the Brent price directly impacts the Company’s sales
revenue and refining margins, while the Real/U.S. dollar exchange rate mainly impacts our capital and operating
expenditures.
Changes in the economic and political environment may also result in higher country risk projections and then
discount rates for impairment testing would be increased.
In addition, changes in reserve volumes, production curve expectations and lifting costs could trigger the need for
impairment assessment, as well as capital expenditure decisions, which are also affected by the Company’s plan to
reduce its leverage, may result in postponement or termination of projects reducing their economic feasibility.
The recoverable amount of certain assets was not substantially in excess of their carrying amounts and, therefore, it is
reasonably possible that outcomes in future periods that are different from the current assumptions may result in the
recognition of additional impairment charges on these assets, as described in note 14.1.1.
Further information on impairment testing is set out in notes 4.10, 5.3 and 14.
5.3. Identifying cash-generating units for impairment testing
Identifying cash-generating units (CGUs) requires management assumptions and judgment, based on the Company’s
business and management model.
Changes in the aggregation of assets into Cash-Generating units (CGUs) could result in additional impairment charges
or reversals. Such changes may occur when investment, strategic or operational factors result in changes in the
interdependencies between those assets and, consequently, alter the aggregation of assets into CGUs.
The assumptions set out below have been consistently applied by the Company:
Exploration and Production CGUs:
i) Crude oil and natural gas producing properties CGU: comprises exploration and development assets related to crude
oil and natural gas fields and groups of fields in Brazil and abroad. In September 2016, the aggregations of assets for
Fazenda Cedro and Lagoa Suruaca groups, both located in Espírito Santo, were reviewed and impairment tests were
run separately for those individual fields due to the discontinuation of a relevant shared infrastructure in the
production process, as approved in 2017-2021 BMP; and
The drilling rigs are not part of any grouping of assets and are assessed for impairment separately.
36
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Refining, transportation and marketing CGUs:
i) Downstream CGU: comprises refineries and associated assets, terminals and pipelines, as well as logistics assets
operated by Transpetro, with a combined and centralized operation of logistical and refining assets in Brazil. These
assets are managed with a common goal of achieving efficiency, profitability and strategic value long term on a
nationwide basis. They are not operated for the generation of profit by asset/location. The operational planning is
made in a centralized manner and these assets are not managed, measured or evaluated by their individual results.
The refineries do not have autonomy to choose the oil to be processed, the mix of oil products to produce, the
markets in which these products will be traded, which amounts will be exported, which intermediaries will be received
and to decide the sales prices of oil products. The operational decisions are analyzed through an integrated model of
operational planning for market supply. This model evaluates the solutions to supply the market considering all the
options for production, importing, exporting, logistics and inventories seeking a comprehensive optimum of
Petrobras and not the profit of each unit. The decision regarding a new investment is not based on the profitability of
the project for the asset where it will be installed, but for the Petrobras Group. The model in which the entire planning
is based, used in the studies of technical and economic feasibility of new investments in refining, may, in its
indications, allocate a lower economic kind of oil to a certain refinery or define a lower economic mix of products to it,
or even force it to supply more distant markets (area of influence), leading it to operate with reduced margins if seen
individually, in case this is the best for the integrated system as a whole. Pipelines and terminals are an integral part
and interdependent portion of the refining assets, required to supply the market;
ii) CGU Comperj – comprises assets under construction of the first refining unit of Petrochemical Complex of Rio de
Janeiro. In 2014, the Company decided to postpone this project for an extended period of time;
iii) CGU Second Refining Unit of RNEST – comprises assets under construction of the second refining unit of Abreu e
Lima refinery. In 2014, the Company decided to postpone this project for an extended period of time;
iv) Petrochemical CGU: This CGU was composed of the PetroquímicaSuape and Citepe petrochemical plants until
November 2016. In December 2016, the Company’s Board of Directors approved the sale of these plants and,
consequently, these assets were not aggregated as a CGU as of December 31, 2016, pursuant to their reclassification
to assets held for sale;
v) Transportation CGU: comprises assets relating to Transpetro’s fleet of vessels. Recurrent delays in the construction
of support vessels for transporting ethanol over the Tietê River led the management of the wholly-owned subsidiary
Transpetro, in September 2016, to terminate the construction contracts for a new group of support vessels in the
scope of Hidrovias project. As a result, this project was postponed and its completed assets were reviewed and tested
for impairment separately;
vi) SIX CGU: shale processing plant; and
vii) Other operations abroad defined as the smallest group of assets that generates independent cash flows.
Gas & Power CGUs:
i) Natural gas CGU: comprises natural gas pipelines, natural gas processing plants and fertilizers and nitrogen
products plants other than the Fertilizer Plant UFN III, which is assessed for impairment separately. In September
2016, the Board of Directors approved the disposal of interest in the subsidiary NTS and, as a consequence, its
pipelines were removed from this CGU;
ii) CGU UFN III: comprises assets under construction of the fertilizer plant Unidade de Fertilizantes e Nitrogenados III
(UFN III). The Company decided to postpone this project for an extended period of time;
iii) Power CGU: comprises the thermoelectric power generation plants. In December 2016, the Company’s Board of
Directors approved the strategic alliance with Total that, among other matters, outlines the share of 50% interests in
the power plants Celso Furtado and Rômulo Almeida. Accordingly, these assets were removed from this CGU; and
37
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
iv) Other CGUs: operations abroad defined as the smallest group of assets that generates largely independent cash
flows.
Distribution CGU:
Mainly comprises the distribution assets related to the operations of Petrobras Distribuidora S.A.
Biofuels CGUs:
An integrated unit of biodiesel plants defined based on the production planning and operation process, considering
domestic market conditions, the production capacity of each plant, as well as the results of biofuels auctions and raw
materials supply. Due to the decision to discontinue operations of Quixadá Biofuel Plant, as approved by the Board of
Directors of the subsidiary Petrobras Biocombustível in September 2016, impairment test for this Biofuel Plant was
run separately.
Investments in associates and joint ventures, including goodwill, are assessed for impairment separately.
5.4. Pension and other post-retirement benefits
The actuarial obligations and net expenses related to defined benefit pension and health care post-retirement plans
are computed based on several financial and demographic assumptions, of which the most significant are:
• Discount rate: comprises the projected future inflation in addition to an equivalent real interest rate that matches
the duration of the pension and health care obligations with the future yield curve of long-term Brazilian
Government Bonds; and
• Medical costs: comprise the projected growth rates based on per capita health care benefits paid over the last five
years, which are used as a basis for projections, converge to the general price inflation index within 30 years.
These and other estimates are reviewed at least annually and may differ materially from actual results due to
changing market and financial conditions, as well as actual results of actuarial assumptions.
The sensitivity analysis of discount rates and changes in medical costs as well as additional information about
actuarial assumptions are set out in note 22.
5.5. Estimates related to contingencies and legal proceedings
The Company is a defendant in numerous legal proceedings involving tax, civil, labor, corporate and environmental
issues arising from the normal course of its business for which it estimates the amounts of the obligations and the
probability that an outflow of resources will be required. Those estimates are based on legal counsel and
Management’s best estimates.
Note 30 provides further detailed information about contingencies and legal proceedings.
5.6. Decommissioning costs estimates
The Company has legal and constructive obligations to remove equipment and restore onshore and offshore areas at
the end of operations at production sites. Its most significant asset removal obligations involve removal and disposal
of offshore oil and gas production facilities in Brazil and abroad. Estimates of costs for future environmental cleanup
and remediation activities are based on current information about costs and expected plans for remediation.
38
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
These estimates require performing complex calculations that involve significant judgment since: i) the obligations
are long-term; ii) the contracts and regulations contain subjective definitions of the removal and remediation
practices and criteria involved when the events actually occur; and iii) asset removal technologies and costs are
constantly changing, along with regulations, environmental, safety and public relations considerations.
The Company is constantly conducting studies to incorporate technologies and procedures to optimize the operations
of abandonment, considering industry best practices. However, the timing and amounts of future cash flows are
subject to significant uncertainty.
Notes 4.14 and 20 provide further detailed information about the decommissioning provisions.
5.7. Deferred income taxes
The recognition of deferred tax liabilities and deferred tax assets involves significant estimates and judgments by the
Company. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available
against which a deductible temporary difference can be utilized or it is probable that the entity will have sufficient
taxable profit in future periods. In evaluating whether it will have sufficient taxable profit in future periods to support
the recognition of deferred tax assets, the Company uses future projections and estimates based on its Business and
Management Plan (BMP), approved by the Board of Directors annually. Future taxable profits projections are mainly
based on the following assumptions: i) Brent crude oil prices; ii) foreign exchange rates; and iii) the Company’s
projected net finance expenses (income).
Changes in deferred tax assets and liabilities are presented in note 21.6.
5.8. Cash flow hedge accounting involving the Company’s future exports
The Company determines its future exports as “highly probable future exports” based on its Business and
Management Plan - BMP and its Strategic Plan. The highly probable future exports are determined by a percentage of
projected exports revenue over the mid and long term, taking account the Company’s operational and capital
expenditure optimization model which considers future uncertainties, such as oil price and production, as well as
products demand. Future exports forecasts are reviewed whenever the Company reviews its BMP and Strategic Plan
assumptions. The approach for determining exports as highly probable future exports is reviewed annually, at least.
See note 33.2 for more detailed information about cash flow hedge accounting and a sensitivity analysis of the cash
flow hedge involving future exports.
5.9. Write-off – overpayments incorrectly capitalized
As described in note 3, in the third quarter of 2014, the Company wrote off R$ 6,194 of capitalized costs representing
the estimated amounts that Petrobras had overpaid for the acquisition of property, plant and equipment.
To account for these overpayments, the Company developed an estimation methodology, as set out in note 3.
Petrobras acknowledges the degree of uncertainty involved in the estimation methodology and continues to monitor
the ongoing investigations and the availability of other information concerning the amounts it may have overpaid in
the context of the payment scheme. If reliable information becomes available that indicates with sufficient precision
that the Company’s estimate should be modified, it will evaluate materiality and, if so, adjust.
However, as previously discussed, the Company believes it has used the most appropriate methodology and
assumptions to determine the amounts of overpayments incorrectly capitalized and there is no evidence that would
indicate the possibility of a material change in the amounts written-off.
39
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
5.10. Allowance for impairment of trade receivables
Management continuously assesses whether there is objective evidence that trade receivables are impaired and
recognizes allowances for impairment of trade receivables to cover losses. Such evidence includes insolvency,
defaults, judicial recovery claims, a significant probability of a debtor filing for bankruptcy and others.
See note 8 for more detailed information about allowance for impairment of trade receivables.
6. New standards and interpretations
a)
IASB - International Accounting Standards Board
The main standards issued by the IASB and not effective as of December 31, 2016 are set out below. The Company did
not adopt those standards early.
Standards
Brief Description
Effective Date
IIFRS 15 – “Revenue from
Contracts with Customers”
Sets out requirements for recognition, measurement and disclosure of revenue from
contracts with customers
According to IFRS 15, revenue is recognized when a customer obtains control of a good or
service sold. It changes the current model, based on which revenue is recognized when
significant risks and rewards of ownership are transferred. In addition IFRS 15 provides
guidance for revenue recognition in more complex cases. Upon adoption of the standard,
certain freight services may be identified as a distinct performance obligation from the
related products which may change its timing of revenue recognition. The company
continues to evaluate the effect of the standard on its financial statements.
Establishes a new model of financial assets classification, based on their cash flow
characteristics and entity's business model objective for them. This standard also changes
the assumptions of financial assets impairment recognition based on expected losses and
adds new requirements regarding hedge accounting.
January 1, 2018
IFRS 9 - "Financial Instruments"
The Company continues to evaluate the effect of the standard on its financial statements,
such as possible changes when classifying and measuring its financial assets based on their
contractual cash flows and the business model in which they are held. The Company is also
assessing effects on the recoverable amount of its financial assets that may arise from the
expected losses approach.
January 1, 2018
The Company also qualifies certain transaction for cash flow hedge accounting and the
evaluation of effects on this accounting policy is ongoing.
Establishes that the date of the transaction, for the purpose of determining the exchange
rate in foreign currency transactions, is the date of initial recognition of the non-monetary
prepayment asset or deferred income liability.
January 1, 2018
The company continues to evaluate the effect of the standard on its financial statements.
IFRIC 22 – “Foreign Currency
Transactions
and Advance
Consideration”
IFRS 16 – “Leases”
On January 13, 2016, the IASB issued IFRS 16 "Leases", which will become effective for the financial report period
beginning on or after January 1, 2019, superseding IAS 17 "Leases" and related interpretations.
IFRS 16 provides requirements for leases identification, recognition, measurement, presentation and disclosure
according to the lessee and lessor perspectives.
40
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Among the changes for lessees, IFRS 16 eliminates classification between financial and operating leases, required by
IAS 17. Therefore, it will be a single model in which all leases will result in the recognition of assets related to the use
of rights of assets leased. If the payments provided for in the commercial lease are due over time, financial liabilities
should be recognized as well.
For lessors, IFRS 16 will maintain the classification as either financial or operating leases as required by IAS 17. IFRS 16
will not substantially change the way leases will be accounted for lessors when compared to IAS 17.
The Company is assessing the impacts of this new standard and believes that the adoption of IFRS 16 may cause a
significant increase in assets and liabilities presented in its consolidated statement of financial position. Accordingly,
the Company may also need to negotiate some covenants in its loan agreements with BNDES – (Brazilian
Development Bank) when a reliable estimate of these impacts can be made.
41
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
7.
Cash and cash equivalents and Marketable securities
Cash and cash equivalents
Cash at bank and in hand
Short-term financial investments
- In Brazil
Single-member funds (Interbank Deposit) and other short-term deposits
Other investment funds
- Abroad
Time deposits
Automatic investing accounts and interest checking accounts
Treasury bills
Other financial investments
Total short-term financial investments
Total cash and cash equivalents
Consolidated
Parent Company
12.31.2016
12.31.2015
12.31.2016
12.31.2015
1,926
3,157
17
4
3,845
427
4,272
10,053
31,875
17,004
3,978
62,910
67,182
69,108
3,599
42
3,641
51,842
34,471
−
4,734
91,047
94,688
97,845
849
1
850
−
5,400
−
−
5,400
6,250
6,267
1,100
2
1,102
−
15,447
−
−
15,447
16,549
16,553
Short-term financial investments in Brazil comprise investment in funds, with maturities of three months or less,
holding Brazilian Federal Government Bonds. Short-term financial investments abroad comprise time deposits with
maturities of three months or less, highly-liquid automatic investing accounts, interest checking accounts and other
short-term fixed income instruments, including U.S. Treasury bills.
Marketable securities
Trading securities
Available-for-sale securities
Held-to-maturity securities
Total
Current
Non-current
In Brazil
2,556
1
292
2,849
2,556
293
Abroad
−
−
−
−
−
−
12.31.2016
Total
2,556
1
292
2,849
2,556
293
Consolidated
Parent Company
12.31.2015
12.31.2016
12.31.2015
In Brazil
3,042
21
271
3,334
3,042
292
Abroad
−
5
50
55
5
50
Total
3,042
26
321
3,389
3,047
342
Total
2,487
1
285
2,773
2,487
286
Total
2,982
2
258
3,242
2,982
260
Trading securities refer mainly to investments in Brazilian Federal Government Bonds. These financial investments
have maturities of more than three months and are mostly classified as current assets due to their maturity or the
expectation of their realization in the short term.
42
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
8.
Trade and other receivables
8.1. Trade and other receivables, net
Trade receivables
Third parties
Related parties
Investees (note 19.7)
Investments in the Receivables Investment Fund - FIDC-NP (note 19.4)(*)
Receivables from the electricity sector (note 8.4)
Petroleum and alcohol accounts - receivables from Brazilian Government (note 19.8)
Other receivables
Allowance for impairment of trade receivables
Total
Current
Non-current
(*) In 2015, reclassified from Marketable securities.
8.2. Trade receivables overdue - Third parties
Up to 3 months
From 3 to 6 months
From 6 to 12 months
More than 12 months
Total
Consolidated
Parent Company
12.31.2016
12.31.2015
12.31.2016
12.31.2015
21,182
28,358
7,585
10,975
1,809
−
16,042
875
8,149
48,057
(17,682)
30,375
15,543
14,832
2,085
−
13,335
857
6,625
51,260
(14,274)
36,986
21,685
15,301
20,304
11,301
5,995
875
2,951
49,011
(7,676)
41,335
31,073
10,262
15,176
7,812
3,940
857
2,790
41,550
(6,514)
35,036
27,701
7,335
Consolidated
Parent Company
12.31.2016
1,313
218
1,339
8,637
11,507
12.31.2015
1,229
701
3,135
6,775
11,840
12.31.2016
609
90
412
4,332
5,443
12.31.2015
328
412
2,775
2,498
6,013
8.3. Changes in the allowance for impairment of trade receivables
Opening balance
Additions (*)
Write-offs
Reversals
Cumulative translation adjustment
Closing balance
Current
Non-current
Consolidated
Parent Company
12.31.2016
14,274
4,532
(28)
(595)
(501)
17,682
6,551
11,131
12.31.2015
8,956
7,133
(41)
(2,476)
702
14,274
6,727
7,547
12.31.2016
6,514
1,400
−
(238)
−
7,676
4,414
3,262
12.31.2015
4,873
3,830
−
(2,189)
−
6,514
4,150
2,364
(*) In 2016, includes additions mainly relating to: R$ 1,242 from electricity sector and R$ 2,045 from losses on advances to suppliers, debts assumptions and termination costs relating
to agreement with Ecovix shipyard. In 2015, includes additions mainly relating to: R$ 4,056 from electricity sector and R$ 1,206 from losses on fines executed.
43
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
8.4. Trade receivables – electricity sector (isolated electricity system in the northern region of Brazil)
As of
12.31.2015
7,793
1,111
302
9,206
558
168
726
9,932
Sales
1,707
175
319
2,201
2,321
1,123
3,444
5,645
Amounts
received Transfers (*)
Allowance for impairment
Recognition,
net of
reversals Transfers (*)
Inflation
indexation
As of
12.31.2016
Consolidated
(2,513)
(237)
(347)
(3,097)
(1,069)
(1,274)
(2,343)
(5,440)
2,445
−
−
2,445
(2,445)
−
(2,445)
−
(1,070)
−
(9)
(1,079)
(153)
(10)
(163)
(1,242)
(1,255)
−
−
(1,255)
1,255
−
1,255
−
958
152
48
1,158
1
8
9
1,167
8,065
1,201
313
9,579
468
15
483
10,062
Related parties (Eletrobras Group)
AME(**)
Ceron(***)
Others
Subtotal
Third parties
Cigás
Others
Subtotal
Trade receivables, net
16,042
Trade receivables - Eletrobras Group
(6,463)
(-) Allowance for impairment
9,579
Subtotal
1,683
Trade receivables - Third parties
(1,200)
(-) Allowance for impairment
483
Subtotal
17,725
Trade receivables - Total
(7,663)
(-) Allowance for impairment
Trade receivables, net
10,062
(*) Transfer of overdue receivables from Cigás to AME, pursuant to the purchase and sale agreement of natural gas (upstream and downstream) entered into by Petrobras, Cigás and
AME.
(**) Amazonas Distribuidora de Energia
(***) Centrais Elétricas do Norte
2,445
−
2,445
(2,445)
−
(2,445)
−
−
−
13,335
(4,129)
9,206
3,018
(2,292)
726
16,353
(6,421)
9,932
−
(1,079)
(1,079)
−
(163)
(163)
−
(1,242)
(1,242)
−
(1,255)
(1,255)
−
1,255
1,255
−
−
−
(3,097)
−
(3,097)
(2,343)
−
(2,343)
(5,440)
−
(5,440)
2,201
−
2,201
3,444
−
3,444
5,645
−
5,645
1,158
−
1,158
9
−
9
1,167
−
1,167
The Company supplies fuel oil, natural gas, and other products to entities that operate in the isolated electricity
system in the northern region of Brazil, such as thermoelectric power plants controlled by Eletrobras, state-owned
natural gas distribution companies and independent electricity producers (Produtores Independentes de Energia –
PIE). The isolated electricity system provides the public service of electricity distribution in the northern region of
Brazil as the Brazilian National Interconnected Power Grid (Sistema Interligado Nacional) has not yet met the demand
for electricity due to technical or economic reasons.
A significant portion of the funds used by those companies to pay for products supplied by the Company came from
the Fuel Consumption Account (Conta de Consumo de Combustível – CCC), which provides funds to cover a portion of
the costs related to the supply of fuel to thermoelectric power plants located in the northern region of Brazil
(operating in the isolated electricity system). However, as a result of changes in the CCC regulations over time,
principally relating to the Provisional Measure 579/2012 which significantly changed the sources of funds that were
used to cover the cost of electricity generated in the Isolated Electricity System, funds transferred from the CCC to
these electricity companies have not been sufficient for them to meet their financial obligations and, as a result, some
have not been able to pay the total amount for the products supplied by the Company, increasing the default rate of
those customers to the Company.
The Company intensified the negotiations with the state-owned natural gas distribution companies, the independent
electricity producers (PIEs), other private companies and entities controlled by Eletrobras. As a result, on December
31, 2014, the Company entered into a debt acknowledgement agreement with subsidiaries of Eletrobras with respect
to the balance of its receivables as of November 30, 2014. Eletrobras acknowledged it owed R$ 8,601 to the Company,
of which R$ 7,380 were collateralized. This amount has been adjusted by the Selic interest rate (Brazilian short-term
interest rate) on a monthly basis. Under this agreement, the first of 120 monthly installments was paid in February
2015 and these payments have continued.
In order to mitigate an increase in default rates, on September 1, 2015 the Brazilian National Electricity Agency
(Agência Nacional de Energia Elétrica - ANEEL) enacted the Normative Instruction 679 enabling the Company to
receive funds directly from the CCC, as these funds would be paid directly from the CCC for products supplied in the
prior month with a limit of 75% of the average payments made by the CCC in the previous three months.
44
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The Company had expected that the abovementioned rule would have strengthened the financial situation of the
companies in the electricity sector. However, this has not occurred and the level of these defaults increased.
Accordingly, in 2015 the Company recognized R$ 1,876 as allowance for impairment of trade receivables (net of
reversals) with respect to uncollateralized receivables outstanding since December 1, 2014.
In 2016, the Company recognized an allowance for impairment of trade receivables (net of reversals) in the amount of
R$ 1,242 mainly relating to new supplies of: (i) fuel oil by legal enforcement (injunction) in the first quarter of 2016;
and (ii) natural gas. Accordingly, the Company has adopted the following measures:
•
•
judicial collection of overdue receivables with respect to natural gas supplied to Amazonas Distribuidora de
Energia (AME), Eletrobras and Cigás;
judicial collection of overdue receivables with respect to fuel oil supplied by the wholly-owned subsidiary BR
Distribuidora to companies of Eletrobras Group (Amazonas, Acre, Rondônia and Roraima);
• partial suspension of gas supply;
•
•
suspension of fuel oil supply on credit, except when legally enforced; and
registration of entities controlled by Eletrobras as delinquent companies in the Brazilian Central Bank files and
registration of AME as a delinquent company in ANEEL files.
Excluding the effects of foreign exchange translation, the amount of trade receivables from the electricity sector
remained relatively flat mainly due to contractual clauses of amortization established in the debt acknowledgement
agreement, which determine the payment of 15% of the amount of renegotiated debt within 36 months and the
remaining 85% to be paid in 84 installments beginning in January 2018. Therefore, the Company expects the balance
of trade receivables from the electricity sector will decrease from 2018 onwards as the amounts to be received will be
higher than sales and inflation indexation on debt acknowledgement agreements.
45
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
9.
Inventories
Crude oil
Oil products
Intermediate products
Natural gas and LNG (*)
Biofuels
Fertilizers
Total products
Materials, supplies and others
Total
Current
Non-current
(*) LNG - Liquid Natural Gas
12.31.2016
11,485
8,634
2,281
435
686
85
23,606
4,053
27,659
27,622
37
Consolidated
Parent Company
12.31.2015
11,305
8,613
2,390
989
616
239
24,152
4,967
29,119
29,057
62
12.31.2016
9,961
7,091
2,281
310
74
66
19,783
3,755
23,538
23,500
38
12.31.2015
10,425
6,612
2,390
436
65
190
20,118
3,935
24,053
24,015
38
Inventories are presented net of a R$ 92 allowance reducing inventories to net realizable value (R$ 607 as of December
31, 2015), mainly due to changes in international prices of crude oil and oil products. In 2016, the Company recognized
as cost of sales a R$ 1,320 allowance charge (net of reversals) reducing inventories to net realizable value (R$ 1,547 in
the same period of 2015).
A portion of the crude oil and/or oil products inventories have been pledged as security for the Terms of Financial
Commitment (TFC) signed by Petrobras and Petros in the amount of R$ 6,449 (R$ 6,711 as of December 31, 2015), as
set out in note 22.1.
46
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
10. Disposal of Assets and other changes in organizational structure
10.1. Disposal of Assets
Termination of the contract for the sale of Bijupirá and Salema fields (BJS)
On February 26, 2016, Petro Rio S.A. terminated the contracts signed with the Company on July 1, 2015, for the sale of
20% interest in Bijupirá and Salema concessions (BJS) and in the Dutch joint operation BJS Oil Operations B.V. (BJSOO
BV). Accordingly, the amounts relating to these fields were reclassified from assets and liabilities held for sale back to
property, plant and equipment (R$ 527) and to provision for decommissioning costs (R$ 493), respectively.
Due to the aforementioned reclassification, the respective assets were depreciated based on their historical data and
their recoverable amounts were reassessed. As a result, the Company recognized, in the first quarter of 2016, an
impairment loss as set out in note 14.1.
Sale of Petrobras Argentina
On May 12, 2016, the Board of Directors approved the disposal of the Company’s entire 67.19% interest in Petrobras
Argentina - PESA, owned through the subsidiary Petrobras Participaciones S.L. (“PPSL”), to Pampa Energía.
On July 27, 2016, the amount of US$ 897 million was disbursed by Pampa Energia and, on December 14, 2016,
additional US$ 3 was paid due to contractual clauses. Accordingly, the Company recognized a gain of R$ 684 on this
sale, as other expenses, net. In addition, the amount of R$ 3,627 was reclassified from shareholders’ equity to other
expenses within the income statement, reflecting the reclassification of cumulative translation adjustment resulting
from the depreciation of Argentinian Peso against the U.S Dollar from the acquisition of this investment to its
disposal (see note 23.4).
On October 28, 2016, as expected, the Company concluded this transaction with the acquisition of 33.6% of the
concession of Rio Neuquén in Argentina and 100% of Colpa Caranda asset in Bolivia for the amount of US$ 56 million,
after adjustments relating to Colpa Caranda asset.
Disposal of distribution assets in Chile
On July 22, 2016, the Company signed a sale and purchase agreement with the Southern Cross Group for the sale of
100% of Petrobras Chile Distribución Ltda (PCD), held through Petrobras Caribe Ltda.
Pursuant to this disposal approval by the Board of Directors, the respective assets were classified as held for sale and
measured at their estimated exit price and, as a result, the Company recognized impairment charges as set out in note
14.2.
This transaction was concluded on January 4, 2017 and the net proceeds from this deal were US$ 470 million, of which
US$ 90 million were received via distribution of dividends after taxes on December 9, 2016 and the remaining
US$ 380 million were paid by Southern Cross in the transaction closing.
Disposal of interest in exploratory block BM-S-8
On July 28, 2016 the Board of Directors of Petrobras approved the disposal of the Company’s 66% interest in the
exploratory block BM – S-8 to Statoil Brasil Óleo e Gás Ltda, which includes the Carcará area located in the pre-salt
layer of Santos Basin, for the amount of US$ 2.5 billion.
The Brazilian Antitrust Regulator (Conselho Administrativo de Defesa Econômica – CADE) and the Brazilian Agency of
Petroleum, Natural Gas and Biofuels (Agência Nacional de Petróleo, Gás Natural e Biocombustíveis) – ANP approved
this transaction on September 8, 2016 and November 10, 2016, respectively.
47
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
After performing all conditions precedent established in the agreement, on November 22, 2016 the Company received
the first installment in the amount of US$ 1.25 billion, corresponding to 50% of the transaction and, as a result of the
transaction closing, the Company recognized a gain in the amount of R$ 2.9 billion as other expenses, net. The
remaining amount will be recognized based on two contingent payments relating to future events: the bid for an
extended adjacent area of the Carcará reservoir (US$ 300 million) and the signing of the unitization agreement (US$
950 million).
Disposal of interest in Nova Transportadora do Sudeste (NTS) and related changes in organizational structure
After a corporate restructuring intended to concentrate the transportation assets of the southeastern region in NTS
(Rio de Janeiro, Minas Gerais and São Paulo), the Company’s Board of Directors approved on September 22, 2016 the
sale of 90% interest in Nova Transportadora do Sudeste (NTS) to Brookfield Infrastructure Partners (BIP) and its
affiliates, through a Private Equity Investment Fund (FIP) whose other shareholders are British Columbia Investment
Management Corporation (BCIMC), CIC Capital Corporation (wholly-owned subsidiary of China Investment Corporation
- CIC) and GIC Private Limited (GIC).
The following changes in organizational structure occurred as part of this process:
- The Extraordinary General Meeting of NTS, held on October 21, 2016, approved an increase to its share capital
in the amount of R$ 2.31 billion, based on independent expert report dated on October 14, 2016, through net
assets of the Company’s subsidiary TAG. This capital increase approval depended on ANP permission through
the issuance of Permissions of Provisional Operation (Autorizações de Operação Provisórias), as occurred on
October 24, 2016.
- The Extraordinary General Meeting of the TAG, held on October 21, 2016, approved a reduction to its share
capital, via capital surplus, in the amount of its investment in NTS (R$ 2.6 billion) and transfer of all its
interest in NTS to Petrobras, as occurred on October 24, 2016 pursuant to Permissions of Provisional
Operation (Autorizações de Operação Provisórias), as occurred on October 24, 2016.
The Shareholder’s General Meeting held on November 30, 2016 approved this transaction in the amount of
US$ 5.19 billion, of which US$ 3.55 billion correspond to 90% interest in NTS and US$ 1.64 billion correspond to the
NTS debt settlement with the Company’s wholly-owned subsidiary PGT. FIP will subscribe convertible debentures
issued by NTS for the replacement of this debt. The first installment, in the amount of US$ 4.34 billion will be paid at
the closing of the transaction, and the remaining amount (US$ 850 million) will be paid in the fifth year, bearing annual
interests at a fixed rate, as established in the purchase and sale agreement.
This transaction prescribes the maintenance of charge capacity and also the same terms of five Firm Gas
Transportation Agreements including 100% ship-or-pay clauses. These agreements have terms of 20 years from 2016
and their rates are indexed to the Brazilian General Market Price Index (IGP-M) and regulated by Brazilian Petroleum,
Natural Gas and Biofuels Agency (ANP).
The completion of the transaction is subject to certain customary conditions precedent, including approval by
relevant regulators. Thus, the related assets and liabilities were classified as held for sale as of December 31, 2016.
On February 10, 2017, the federal court in the state of Sergipe determined the interruption of this disposal by
ordering an injunction based on a civil action. However, on March 9, 2017, this injunction was dismissed, enabling the
progress of this transaction.
Disposal of Nansei Sekiyu (NSS)
On October 17, 2016 the Company’s Board of Directors approved the disposal of the Company’s interests in Nansei
Sekiyu Kabushiki Kaisha (NSS) to Taiyo Oil Company ("Taiyo").
48
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
On December 28, 2016, this disposal was closed after the fulfillment of all conditions precedent in the sales and
purchase agreement. Accordingly, Taiyo disbursed US$ 165 to the Company and, as a result, the Company recognized
as other expenses, net a gain on this transaction amounting to R$ 436. This transaction is still subject to price
adjustments.
In addition, a loss of R$ 66 was reclassified from shareholders equity to other expenses within the income statement,
reflecting the reclassification of cumulative translation adjustment resulting from the depreciation of Japanese Yen
against the U.S Dollar from the acquisition of this investment to its disposal (see note 23.4).
Disposal of Liquigás
On November 17, 2016 the Company’s Board of Directors approved the disposal of its wholly-owned subsidiary
Liquigás Distribuidora S.A. to Companhia Ultragaz S.A., a subsidiary of Ultrapar Participações S.A.
At December 31, 2016, the related assets and liabilities were classified as held for sale as conditions precedent were
not yet performed, such as the transaction approval at Shareholders’ Meetings of Ultrapar and Petrobras, as well as
the approval of the Brazilian Antitrust Regulator (CADE).
On January 31, 2017, the sale of Petrobras’s entire interests in Liquigás in the amount of R$ 2.7 billion was approved
at Petrobras’ Shareholders’ Meeting.
Disposal of Guarani
On December 28, 2016, the Company’s wholly-owned subsidiary Petrobras Biocombustível S.A. (PBIO) disposed of its
interests in the associate Guarani S.A. (45,97% of share capital) to Tereos Participations SAS, an entity of the French
group Tereos.
As of December 31, 2016, this investment was classified as held for sale as this transaction was still subject to certain
conditions precedent. As a result, the Company recognized an impairment charge in the amount of R$ 219 accounted
for within results in equity-accounted investments.
On February 3, 2017 this transaction was concluded pursuant to the payment of US$ 203 million, after all conditions
precedent were performed by Tereos Participations SAS.
Disposal of Petroquímica Suape and Citepe petrochemical plants
On December 28, 2016, the Company’s Board of Directors approved the disposal of its interests in the wholly-owned
subsidiaries Companhia Petroquímica de Pernambuco (PetroquímicaSuape) and Companhia Integrada Têxtil de
Pernambuco (Citepe) to Grupo Petrotemex S.A. de C.V. and Dak Americas Exterior, S.L., both subsidiaries of Alpek,
S.A.B. de C.V., which is a company from Grupo Alfa S.A.B. de C.V. (a Mexican public company), in the amount of
US$ 385 million, which will be totally disbursed pursuant to the transaction closing. This amount is still subject to
adjustments relating to working capital, net debt and recoverable taxes.
This transaction closing is subject to the approval at Petrobras Shareholder’s General Meeting, Grupo Alfa’s Board of
Directors and Brazilian Antitrust Regulator (CADE), as well as to certain other customary conditions precedent.
As the conditions precedent to this transaction were not performed at December 31, 2016, the respective assets were
reclassified as held for sale and measured at their estimated exit price. As a result, the Company recognized
impairment losses as described in notes 14.1 and 14.2.
On January 31, 2017, the federal court in the state of Sergipe determined the interruption of this disposal by ordering
an injunction based on in a civil action. However, on February 22, 2017, this injunction was dismissed, enabling the
progress of this transaction.
49
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Strategic alliance with Total
On December 21, 2016, the Company entered into a master agreement with Total, in connection with the Strategic
Alliance established in the Memorandum of Understanding signed on October 24, 2016. Accordingly, certain assets
were classified as held for sale at December 31, 2016 due to the share of interests established in this agreement, as
described below:
• Transfer of the Company’s 22.5% stake in the concession area named as Iara, comprising Sururu, Berbigão and
West of Atapu fields, which are subject to unitization agreements with Entorno de Iara (an area under the
Assignment Agreement in which the Company holds 100% interests and is located in the Block BM-S-11);
• Transfer of the Company’s 35% stake in the concession area of Lapa field, located in the Block BM-S-9. Total will
also become the operator and the Company will remain holding10% interests in this area; and
• Transfer of the Company’s 50% interests in the power plants Celso Furtado and Rômulo Almeida. The Company
recognized an impairment loss on this transaction as described in note 14.2.
On February 28, 2017, the Company and Total signed the purchase and sale agreements with respect to the
aforementioned assets. Total will pay to the Company the total amount of US$ 2,225 million with respect to these
transactions, comprising US$ 1,675 million in cash for assets and services, a line of credit in the amount of US$ 400
million that can be used by the Company for investments in the Iara fields, as well as US$ 150 million relating to
contingent payments.
These transactions are still subject to the relevant authorities’ approvals, to the potential exercise of preemptive
rights by current Iara partners, as well as other customary conditions precedent.
The aforementioned agreements adds up to the ones already executed on December 21, 2016, such as: (i) option for
Petrobras to purchase a 20% interest in block 2 of the Perdido Foldbelt area, in the Mexican sector of the Gulf of
Mexico, (ii) joint exploration studies in the exploratory areas of Equatorial Margin and in Santos Basin; and (iii)
Technological partnership agreement in the areas of digital petrophysics, geological processing and subsea
production systems.
10.2. Other changes in organizational structure
Merger of Nova Fronteira Bioenergia
On December 15, 2016, the Company’s wholly-owned subsidiary Petrobras Biocombustível S.A. (PBIO) entered into an
agreement with São Martinho group which establishes the merger of PBIO interests in Nova Fronteira Bioenergia S.A.
(49%) into São Martinho.
As of December 31, 2016, the related assets were classified as held for sale due to certain conditions precedent and
the Company recognized a loss on this transaction in the amount of US$ 30 within results in equity-accounted
investments.
On February 23, 2017, this transaction was concluded as São Martinho granted to PBIO an additional 24 million of its
common shares, corresponding to 6.593% of its voting and total paid in capital, in exchange and in proportion to the
shares that PBIOs held in Nova Fronteira. These shares will not be subject to any kind of lock-up and their sale will
occur in 4 years through a structured process.
50
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
10.3. Assets classified as held for sale
Assets classified as held for sale (*)
Cash and Cash Equivalents
Trade receivables
Inventories
Investments
Property, plant and equipment
Others
Total
Liabilities on assets classified as held for sale (*)
E&P
−
−
−
−
3,381
−
3,381
Distributi
on
328
247
170
87
640
114
1,586
RT&M
27
420
390
20
921
999
2,777
Consolidated
12.31.2016
12.31.2015
Biofuel
Total
Total
−
−
−
1,126
−
−
1,126
355
667
560
1,233
14,409
1,445
18,669
11
43
−
−
541
−
595
Gas
&
Power
−
−
−
−
9,467
332
9,799
Trade Payables
Finance debt
Provision for decommissioning costs
Others
−
488
−
−
Total
488
(*) As of December 31, 2016, the amounts mainly refer to assets and liabilities transferred by the disposal of Petrobras Chile Distribución LTDA (PCD), Nova Transportadora do
Sudeste, Liquigás, Petroquímica Suape and Citepe, Guarani S.A, Nova Fronteira, transfer of interest in the concession areas named as Iara and Lapa, as well as the share of interest in
the thermoelectric power generation plants Rômulo Almeida and Celso Furtado.
440
45
170
950
1,605
245
−
−
96
341
29
−
−
566
595
166
45
−
256
467
−
−
170
32
202
−
−
−
−
−
10.4. Civil action filed by the Brazilian Federal Audit Court (TCU)
On December 8, 2016, the Brazilian Federal Audit Court (Tribunal de Contas da União – TCU) filed a civil action
prohibiting Petrobras from commencing additional divestment projects and entering into sales agreements relating
to the ongoing disposal projects while it assesses the Company’s divestments decision-making methodology. This
action does not impact five deals which were under their final stages of negotiation when this civil action was filed,
including the sale of Guarani, sale of Suape and Citepe petrochemical plants, as well as the merger of Nova Fronteira
Bioenergia, as described in note 10.1.
The Company reviewed its divestments decision-making methodology and, on March 15, 2017, this civil action was
dismissed, which enabled the Company to progress with two ongoing deals (sale of interests in Baúna and Tartaruga
Verde fields and Saint Malo field located in U.S. Gulf of Mexico) and also to commence new divestment projects based
on the reviewed methodology.
51
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
11.
Investments
11.1. Information about direct subsidiaries, joint arrangements and associates (Parent Company)
Main business
segment
% Petrobras'
ownership
% Petrobras'
voting rights
Shareholders’
equity (deficit)
Net income
(loss) for the
year
Country
100.00
100.00
70,631
477
Netherlands
99.99
100.00
100.00
100.00
100.00
100.00
51.00
100.00
100.00
100.00
99.99
93.66
98.85
100.00
100.00
100.00
99.20
99.91
99.95
99.99
99.99
100.00
100.00
100.00
50.00
50.00
15.10
40.00
33.20
50.00
30.00
20.00
49.00
49.00
34.54
49.00
51.00
45.00
50.00
36.20
20.00
27.88
20.00
20.00
4.59
38.80
30.00
5.00
99.99
100.00
100.00
100.00
100.00
100.00
51.00
100.00
100.00
100.00
99.99
93.66
98.85
100.00
100.00
100.00
99.20
99.91
99.95
99.99
99.99
100.00
100.00
100.00
50.00
50.00
15.10
40.00
33.33
50.00
30.00
20.00
49.00
49.00
34.54
49.00
51.00
45.00
50.00
47.03
20.00
27.88
20.00
20.00
4.59
38.80
30.00
5.00
21,800
8,887
7,410
4,205
4,101
4,008
1,871
1,347
1,191
967
705
676
573
543
228
194
111
96
34
15
3
1
(124)
(479)
234
229
615
160
151
144
85
79
44
42
40
38
38
4
−
2,728
571
347
266
99
1
1
−
(21,777)
Netherlands
(4,764)
Brazil
7,396
Brazil
(314)
Brazil
1,224
Brazil
473
Brazil
286
Brazil
315
Brazil
(886)
Brazil
453
Brazil
200
Brazil
28
Brazil
17
92
Brazil
22 Cayman Islands
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
(63)
(620)
45
15
1
6
−
(1)
(1,244)
(1,315)
48
71
(183)
44
87
42
4
4
5
5
(10)
5
5
(2)
−
(452)
(171)
108
87
9
(3,388)
−
−
(393)
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Consolidated entities
Subsidiaries
Petrobras Netherlands B.V. - PNBV (i)
Petrobras International Braspetro - PIB BV (i) (ii)
Transportadora Associada de Gás S.A. - TAG
Petrobras Distribuidora S.A. - BR
Petrobras Logística de Exploração e Produção S.A. - PB-LOG
Nova Transportadora do Sudeste S.A. - NTS
Petrobras Transporte S.A. - Transpetro
Petrobras Gás S.A. - Gaspetro
Petrobras Biocombustível S.A.
Petrobras Logística de Gás - Logigás
Liquigás Distribuidora S.A.
Termomacaé Ltda.
Breitener Energética S.A.
Termobahia S.A.
Braspetro Oil Services Company - Brasoil (i)
Baixada Santista Energia S.A.
Araucária Nitrogenados S.A.
Fundo de Investimento Imobiliário RB Logística - FII
Petrobras Comercializadora de Energia Ltda. - PBEN
Petrobras Negócios Eletrônicos S.A. - E-Petro
Termomacaé Comercializadora de Energia Ltda
Downstream Participações Ltda.
5283 Participações Ltda.
Companhia Integrada Têxtil de Pernambuco S.A. - CITEPE
Companhia Petroquímica de Pernambuco S.A. - PetroquímicaSuape
Joint operations
Ibiritermo S.A.
Fábrica Carioca de Catalizadores S.A. - FCC
Nonconsolidated entities
Joint ventures
Logum Logística S.A.
Cia Energética Manauara S.A.
Refinaria de Petróleo Riograndense S.A.
Petrocoque S.A. Indústria e Comércio
Brentech Energia S.A.
Brasympe Energia S.A.
Eólica Mangue Seco 4 - Geradora e Comercializadora de Energia Elétrica S.A.
Eólica Mangue Seco 3 - Geradora e Comercializadora de Energia Elétrica S.A.
Metanol do Nordeste S.A. - Metanor
Eólica Mangue Seco 1 - Geradora e Comercializadora de Energia Elétrica S.A.
Eólica Mangue Seco 2 - Geradora e Comercializadora de Energia Elétrica S.A.
Companhia de Coque Calcinado de Petróleo S.A. - Coquepar
Participações em Complexos Bioenergéticos S.A. - PCBIOS
Associates
Braskem S.A.
UEG Araucária Ltda.
Deten Química S.A.
Energética SUAPE II
Termoelétrica Potiguar S.A. - TEP
Fundo de Investimento em Participações de Sondas - FIP Sondas
Nitroclor Ltda.
Bioenergética Britarumã S.A.
Sete Brasil Participações S.A.
(i) Companies abroad with financial statements prepared in foreign currency.
(ii) 5283 Participações Ltda holds a 0.0050% interest.
(iii) Cover activities abroad in E&P, RTM, Gas & Power and Distribution segments.
E&P
Several
segments (iii)
Gas & Power
Distribution
E&P
Gas & Power
RT&M
Gas & Power
Biofuels
Gas & Power
RT&M
Gas & Power
Gas & Power
Gas & Power
Corporate
Gas & Power
Gas & Power
E&P
Gas & Power
Corporate
Gas & Power
Corporate
Corporate
RT&M
RT&M
RT&M
RT&M
RT&M
Gas & Power
RT&M
RT&M
Gas & Power
Gas & Power
Gas & Power
Gas & Power
RT&M
Gas & Power
Gas & Power
RT&M
Biofuels
RT&M
Gas & Power
RT&M
Gas & Power
Gas & Power
E&P
RT&M
Gas & Power
E&P
52
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
11.2. Changes in investments (Parent Company)
Balance at
12.31.2015 Investments
Capital
transactions
Restructurin
g, capital
decrease
and others
(*)
Share of
results of
investments
(**)
Cumulative
translation
adjustments
(CTA)
Other
comprehensi
ve results
Dividends
Transfers to
held for sale
Balance at
12.31.2016
−
23
3,076
(1,453)
(156)
−
293
(7)
−
(2)
−
(28)
(12)
−
−
−
(2)
−
(4)
224
−
1,556
−
−
−
−
−
−
−
−
−
−
1,360
−
−
−
−
−
5,150
16,646
538
−
−
−
772
−
−
−
−
−
−
2,632
554
433
6
−
−
76,324
6,491
2,832
9,703
5,095
3,093
1,124
1,100
950
717
609
842
1,051
−
562
378
675
223
280
−
−
(2,632)
−
−
−
−
−
31
−
−
−
−
−
1,014
1,576
(34)
−
−
(80)
(5,322)
4,346
(209)
367
760
(980)
460
106
32
16
(620)
191
473
(1,220)
(1,310)
124
59
92
(13,451)
2,238
−
−
(241)
−
141
−
−
−
−
−
−
−
−
−
72
−
−
Subsidiaries
PNBV
PIB BV
TAG (***)
BR Distribuidora
Transpetro
PB-LOG
PBIO
Logigás
Gaspetro
Termomacaé Ltda
Breitener
Araucária Nitrogenados
Liquigás
NTS (***)
Citepe
PetroquímicaSuape
Other subsidiaries
Joint operations
Joint ventures
Associates
Braskem
Other associates
Subsidiaries, joint
operations/joint ventures
and associates
Other investments
Total investments
Result of companies
classified as held for sale
- provision for losses with
Citepe and Suape
disposal
Earnings in equity-
accounted investments
(*) Debts of Citepe and Petroquímica Suape reclassified to other current liabilities, as they are not connected to the disposal operation.
(**) Includes unrealized profits from transactions between companies.
(***) TAG transferred all its interest in NTS to Petrobras, as disclosed in note 10.1.
(11,209)
−
(11,209)
115,516
20
115,536
(3,143)
−
(3,143)
26,731
−
26,731
3,140
−
3,140
2,712
−
2,712
(45)
(1)
(46)
3,142
325
(338)
(90)
984
−
(11,209)
(4,576)
(1,433)
32
−
2,712
−
−
−
−
−
−
−
−
−
−
(1,222)
(747)
(1,186)
(505)
−
(363)
(135)
(42)
8
−
(161)
(364)
−
−
(33)
(49)
(54)
(452)
(68)
−
−
−
−
−
−
−
−
−
−
−
−
(1,069)
(4,101)
(910)
(1,077)
−
−
−
−
−
−
68,167
20,076
8,494
7,294
3,879
3,348
1,350
1,190
952
705
633
194
−
−
−
−
808
233
314
−
3,368
167
(5,373)
−
(5,373)
(7,157)
(7,157)
121,172
19
121,191
53
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
11.3. Changes in investments in joint ventures and associates (Consolidated)
Balance at
12.31.2015
Investments
Restructuring,
capital
decrease and
others
Share of
results in
investments
(*)
Cumulative
translation
adjustments
(CTA)
Other
comprehensiv
e income
Dividends
Transfers to
held for sale
Balance at
12.31.2016
−
−
−
−
−
−
−
−
97
91
980
465
103
236
174
6,031
Joint Ventures
Petrobras Oil & Gas
B.V. - PO&G
State-controlled
natural gas
distributors
Nova Fronteira
Bionergia S.A.
Compañia Mega S.A. -
MEGA
Compañia de
Inversiones de Energia
S.A. - CIESA
Other petrochemical
joint ventures
Other joint ventures
Associates
Braskem S.A.
Associates in
Venezuela
Guarani S.A.
Other petrochemical
associates
UEG Araucária Ltda.
Other associates
Other investments
Total
(*) Does not include results in investees transferred to assets held for sale, in the amount of R$ 285 (credit).
95
169
429
45
13,772
−
−
−
(9)
(101)
30
(149)
146
−
(344)
−
−
−
−
358
(6)
(487)
−
(92)
18
(94)
81
381
−
268
851
759
3,142
(338)
170
90
−
−
−
−
−
9
(970)
−
−
(41)
(25)
(1)
32
(80)
140
−
−
(132)
14
(1,063)
−
−
−
−
−
−
984
−
289
−
−
−
−
1,273
(504)
(140)
−
(568)
(109)
(5)
(16)
(39)
(452)
−
−
(29)
(20)
(89)
−
(1,403)
(149)
−
(765)
(877)
−
(185)
(2,544)
4,654
1,076
−
115
−
83
337
3,368
−
−
96
−
169
50
9,948
11.4. Investments in listed companies
Company
Indirect subsidiary
Petrobras Argentina S.A. (*)
Associate
Braskem S.A.
Braskem S.A.
(*) Investment disposed of as set out in note 10.1.
Thousand-share lot
Quoted stock exchange
prices (R$ per share)
Market value
12.31.2016
12.31.2015
Type
12.31.2016
12.31.2015
12.31.2016
12.31.2015
−
1,356,792
Common
−
2,38
212,427
75,762
212,427
Common
75,762 Preferred A
29.99
34.25
15.91
27.62
−
−
6,371
2,595
8,966
3,229
3,229
3,380
2,093
5,473
The market value of these shares does not necessarily reflect the realizable value upon sale of a large block of shares.
11.5. Non-controlling interest
The total amount of non-controlling interest at December 31, 2016 is R$ 2,513 (R$ 3,199 in 2015), of which R$ 917 and
R$ 323 relate to non-controlling interest of the subsidiaries Gaspetro and Transportadora Brasileira Gasoduto Brasil-
Bolívia (TBG), respectively (R$ 916, R$ 213 and R$ 1,432 relating to Gaspetro, TBG and Petrobras Argentina,
respectively, at December 31, 2015), and R$ 570 refer to Consolidated Structured Entities (debt of R$ 153 at
December 31, 2015).
Condensed financial information is set out as follows:
54
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Current assets
Long-term receivables
Investments
Property, plant and equipment, net
Other noncurrent assets
Current liabilities
Non-current liabilities
Shareholders' equity
Sales revenues
Net Income for the year
Net change in cash and cash equivalents
2016
269
275
1,279
3
304
2,130
150
109
1,871
2,130
334
252
3
Gaspetro
Structured entities
2015
317
230
1,183
4
310
2,044
69
106
1,869
2,044
693
490
(549)
2016
2,429
5,452
−
277
−
8,158
1,657
5,931
570
8,158
−
1,002
40
2015
2,119
7,473
−
286
−
9,878
1,777
8,254
(153)
9,878
−
(708)
(312)
2016
1,073
2
−
2,087
9
3,171
1,284
1,228
659
3,171
1,476
847
652
TBG
2015
743
3
−
2,205
9
2,960
551
1,973
436
2,960
1,472
267
−
Petrobras
Argentina
2015
3,106
281
1,078
4,234
6
8,705
2,111
2,229
4,365
8,705
810
395
237
(*) Comprises Charter Development LLC - CDC, Companhia de Desenvolvimento e Modernização de Plantas Industriais - CDMPI and PDET Offshore.
Gaspetro, a Petrobras’ subsidiary, holds interests in several state distributors of natural gas in Brazil. Petrobras
concluded the sale of 49% of its interest in Gaspetro on December 28, 2015.
TBG is an indirect subsidiary which operates in natural gas transmission activities mainly through Bolivia-Brazil Gas
Pipeline. The Company holds 51% of interests in this indirect subsidiary.
11.6. Summarized information on joint ventures and associates
The Company invests in joint ventures and associates in Brazil and abroad, whose activities are related to
petrochemical companies, gas distributors, biofuels, thermoelectric power plants, refineries and other activities.
Condensed financial information is set out below:
Joint ventures
Other
companies
abroad
497
67
In Brazil
3,311
1,818
PO&G (*)
2,722
115
2016
Associates
Joint ventures
2015
Associates
In Brazil
16,992
5,369
In Brazil
4,317
1,339
PO&G (*)
3,648
196
Other
companies
abroad
1,278
81
In Brazil
20,921
10,531
Abroad
8,748
777
2,826
10,767
60
30,452
4,711
10,896
1,905
37,482
7,087
2,346
10,301
3,997
1,627
4,677
4
13,608
1,273
5,928
6,407
−
624
273
3
348
3,121
55,934
14,002
60,663
(15,609)
2,164
12,531
5,198
2,498
4,327
17
14,757
891
5,183
8,683
14
3,278
832
1,185
697
11,055
79,989
19,057
48,896
12,762
304
16,916
14,083
4,129
(1,296)
Current assets
Non-current assets
Property, plant and
equipment, net
Other non-current
assets
Current liabilities
Non-current liabilities
Shareholders' equity
Non-controlling
interest
−
10,301
9,411
−
13,608
2,688
−
624
1,156
(3,122)
55,934
49,407
508
12,531
12,742
−
14,757
7,527
564
3,278
947
(726)
79,989
52,654
−
16,916
652
Sales revenues
Net Income (loss) for
(5,460)
the year
Ownership interest - %
11 a 49%
(*) Petrobras Oil & Gas (PO&G) is a joint venture located in the Netherlands, with 50% share of Petrobras International BV (PIBBV), for exploration and oil and gas production in Africa.
237
34 a 50%
155
34 a 50%
517
20 a 83%
647
20 a 83%
(4,510)
5 a 49%
3,452
5 a 49%
219
50%
816
50%
55
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
12. Property, plant and equipment
12.1. By class of assets
Balance at January 1, 2015
Additions
Additions to / review of estimates of decommissioning costs
Capitalized borrowing costs
Write-offs
Transfers
Depreciation, amortization and depletion
Impairment recognition
Impairment reversal
Cumulative translation adjustment
Balance at December 31, 2015
Cost
Accumulated depreciation, amortization and depletion
Balance at December 31, 2015
Additions
Additions to / review of estimates of decommissioning costs
Capitalized borrowing costs
Write-offs
Transfers (***)
Depreciation, amortization and depletion
Impairment recognition
Impairment reversal
Cumulative translation adjustment
Balance at December 31, 2016
Cost
Accumulated depreciation, amortization and depletion
Balance at December 31, 2016
Weighted average of useful life in years
Land, buildings
and
improvement
21,341
657
−
−
(27)
4,006
(1,528)
(928)
1
299
23,821
33,561
(9,740)
23,821
361
−
−
(210)
1,479
(1,479)
(1,036)
−
(180)
22,756
32,589
(9,833)
22,756
Equipment and
other assets
260,297
4,396
−
−
(192)
28,814
(21,241)
(14,981)
42
31,404
288,539
438,533
(149,994)
288,539
3,223
−
−
(465)
16,645
(26,102)
(12,652)
2,511
(15,128)
256,571
415,663
(159,092)
256,571
Assets under
construction (*)
140,627
60,263
−
5,842
(6,184)
(54,132)
−
(11,489)
21
11,913
146,861
146,861
−
146,861
41,337
−
5,982
(4,689)
(55,069)
−
(1,510)
−
(7,210)
125,702
125,702
−
125,702
40
(25 to 50)
(except land)
20
(3 to 31)
(**)
Exploration and
development
costs (oil and
gas producing
properties)
158,725
1,745
15,932
−
(1,455)
27,668
(15,296)
(20,324)
90
3,525
170,610
262,480
(91,870)
170,610
720
3,113
−
(153)
20,570
(20,422)
(6,357)
584
(1,818)
166,847
262,886
(96,039)
166,847
Units of
production
method
Consolidated
Parent
Company
Total
580,990
67,061
15,932
5,842
(7,858)
6,356
(38,065)
(47,722)
154
47,141
629,831
881,435
(251,604)
629,831
45,641
3,113
5,982
(5,517)
(16,375)
(48,003)
(21,555)
3,095
(24,336)
571,876
836,840
(264,964)
571,876
Total
437,150
50,464
16,511
4,767
(5,994)
664
(27,642)
(33,597)
116
−
442,439
617,596
(175,157)
442,439
33,657
2,868
4,470
(5,210)
(5,516)
(36,742)
(13,709)
2,514
−
424,771
624,946
(200,175)
424,771
(*) See note 29 for assets under construction by business area.
(**) Includes exploration and production assets depreciated based on the units of production method.
(***) Includes amounts transferred to assets held for sale.
At December 31, 2016, consolidated and Parent Company property, plant and equipment includes assets under
finance leases of R$ 407 and R$ 6,004, respectively (R$ 189 and R$ 9,248 at December 31, 2015).
12.2. Estimated useful life – Consolidated
Estimated useful life
5 years or less
6 - 10 years
11 - 15 years
16 - 20 years
21 - 25 years
25 - 30 years
30 years or more
Units of production method
Buildings and improvements
Equipment and other assets
56
Buildings and improvements, equipment and
other assets
Balance at
12.31.2016
3,413
19,996
3,086
86,238
44,813
35,774
58,411
26,450
278,181
21,610
256,571
Accumulated
depreciation
(9,833)
(31,469)
(3,630)
(43,153)
(21,396)
(12,007)
(20,420)
(27,017)
(168,925)
(9,833)
(159,092)
Cost
13,246
51,465
6,716
129,391
66,209
47,781
78,831
53,467
447,106
31,443
415,663
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
12.3. Concession for exploration of oil and natural gas - Assignment Agreement (“Cessão Onerosa”)
Petrobras and the Brazilian Federal Government entered into the Assignment Agreement in 2010, which grants the
Company the right to carry out prospection and drilling activities for oil, natural gas and other liquid hydrocarbons
located in the pre-salt area limited to the production of five billion barrels of oil equivalent in up to 40 years and
renewable for a further five years subject to certain conditions. As of December 31, 2016, the Company’s property,
plant and equipment include the amount of R$ 74,808 related to the Assignment Agreement.
Petrobras has already declared commerciality in fields of all six blocks in the scope of this agreement: Franco (Búzios),
Florim (Itapu), Nordeste de Tupi (Sépia), Entorno de Iara (Norte de Berbigão, Sul de Berbigão, Norte de Sururu, Sul de
Sururu, Atapu), Sul de Guará (Sul de Sapinhoá) and Sul de Tupi (Sul de Lula).
The agreement establishes that the review procedures of the agreement will commence immediately after the
declaration of commerciality for each area and must be based on reports by independent experts engaged by
Petrobras and by the ANP. The review of the Assignment Agreement will be concluded after the assessment of all the
areas.
If the review of the Assignment Agreement determines that the value of acquired rights is greater than initially paid,
the Company may be required to pay the difference to the Brazilian Federal Government, or may proportionally
reduce the total volume of barrels acquired under the agreement. If the review determines that the value of the
acquired rights is lower than initially paid by the Company, the Brazilian Federal Government will reimburse the
Company for the difference by delivering cash or bonds or equivalent means of payment, subject to budgetary
regulations.
The formal review procedures for each block are based on costs incurred over the exploration phase and estimated
costs and production for the development period. The review of the Assignment Agreement may result in changes in:
(i) the amount of the agreement; (ii) the total volume (in barrels of oil) to be produced; (iii) the term of the agreement;
and (iv) the minimum percentages of local content.
Currently, the settlement form and the final amount to be established for this agreement are not defined. The
beginning of negotiation with the Brazilian Federal Government still depends on the conclusion of the appraisals by
independent experts engaged by both parties, and the issuance of the respective reports.
With respect to the negotiation with the Brazilian Federal Government, on October 21, 2016 the Company’s Board of
Directors approved the creation of the minority shareholders committee responsible for monitoring the agreement
review process and providing support to the board decisions through opinions about related matters. This committee
will be composed of two members nominated by the minority shareholders and an independent member with
recognized expertise in technical-financial analysis of investment projects.
12.4. Oil and Gas fields operated by Petrobras returned to ANP
During 2016 the following oil and gas fields were returned to ANP: Tiziu, Japuaçu, Rio Joanes, part of Golfinho and
part of Tambuatá. These fields were returned to ANP mainly due to their uneconomic feasibility and, as a
consequence, the Company wrote off an amount of R$ 12 as other expenses, net.
In 2015, the oil and gas fields Itaparica, Camaçari, Carapicú, Baúna Sul, Salema Branca, Nordeste Namorado, part of Rio
Preto, Pirapitanga, Piracucá, Catuá and part of Mangangá were returned to ANP and the Company wrote-off the
amount of R$ 1,032 as other expenses, net.
57
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
13.
Intangible assets
13.1. By class of assets
Balance at January 1, 2015
Addition
Capitalized borrowing costs
Write-offs
Transfers
Amortization
Impairment recognition
Cumulative translation adjustment
Balance at December 31, 2015
Cost
Accumulated amortization
Balance at December 31, 2015
Addition
Capitalized borrowing costs
Write-offs
Transfers
Amortization
Impairment recognition
Cumulative translation adjustment
Balance at December 31, 2016
Cost
Accumulated amortization
Balance at December 31, 2016
Estimated useful life in years
Rights and
Concessions
9,542
59
−
(589)
273
(75)
(98)
404
9,516
10,526
(1,010)
9,516
39
−
(523)
(44)
(78)
(7)
(178)
8,725
9,367
(642)
8,725
Software
Developed
in-house
1,148
259
18
(7)
36
(325)
−
2
1,131
3,762
(2,631)
1,131
204
14
(4)
(1)
(342)
−
(4)
998
3,941
(2,943)
998
Acquired
315
73
−
−
21
(109)
−
8
308
1,699
(1,391)
308
53
−
−
(15)
(120)
−
(4)
222
1,587
(1,365)
222
Goodwill
971
−
−
−
−
−
−
146
1,117
1,117
−
1,117
−
−
−
(332)
−
−
(67)
718
718
−
718
(*)
5
5
Indefinite
Consolidated
Parent
Company
Total
11,976
391
18
(596)
330
(509)
(98)
560
12,072
17,104
(5,032)
12,072
296
14
(527)
(392)
(540)
(7)
(253)
10,663
15,613
(4,950)
10,663
Total
9,108
299
18
(169)
273
(396)
−
−
9,133
12,442
(3,309)
9,133
208
14
(177)
(7)
(407)
−
−
8,764
12,459
(3,695)
8,764
(*) Mainly composed of assets with indefinite useful lives, which are reviewed annually to determine whether events and circumstances continue to support an indefinite useful life
assessment.
13.2. Exploration rights returned to the Brazilian Agency of Petroleum, Natural Gas and Biofuels -
Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (ANP)
Exploration areas returned to the ANP in 2016, totaling R$ 27 (R$ 82 in 2015) are set out below:
Area
Campos Basin
Santos Basin
Potiguar Basin
Recôncavo Basin
Tucano Sul Basin
Foz do Amazonas Basin
Amazonas Basin
Parecis Basin
Exploratory phase
Exclusive
1
1
1
−
−
2
−
2
Partnership
−
−
−
2
3
−
1
−
13.3. Exploration rights - production sharing contract
Following the first pre-salt public auction held in October, 2013, the Libra consortium, composed of Petrobras (40%
interest), Shell (20% interest), Total (20% interest), CNPC (10% interest), CNOOC (10% interest) and the Pré-Sal
Petróleo S.A. (PPSA) as the manager of the agreement, entered into a production sharing contract with the Federal
Government on December 2, 2013.
58
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The contract granted rights and obligations to explore and operate oil and gas production in a strategic pre-salt area
known as the Libra block, comprising an area of around 1,550 km2, located in ultra-deep waters in the Santos Basin.
This was the first oil and gas production sharing contract signed in Brazil. The contract is for 35 years and cannot be
renewed.
Libra reservoir was discovered in 2010 following the drilling of 2-ANP-2A-RJS well. The Libra consortium offered a
41.65% stake of profit oil to the Brazilian Government, according to the rules of the first pre-salt public auction. This
stake refers to the profit oil on a baseline scenario of price ranging from 100.01 US$/bbl to 120 US$/bbl, and
production per producing well from 10 thousand bbl/d to 12 thousand bbl/d. This stake may vary with the
international oil price and the productivity of the wells, as established by the Brazilian Agency of Petroleum, Natural
Gas and Biofuels (ANP).
The signature bonus (acquisition cost) of R$ 15,000 was paid by the consortium. The Company paid R$ 6,000 relating
to its share of the acquisition cost paid by the consortium, recognized in its intangible assets as Rights and
Concessions.
Currently, the project is in its initial stage in the exploration phase (4 years), and its minimum work program have been
partially performed and comprises a 3D seismic acquisition for the whole block, two exploratory wells and the
extended well test (EWT) to be performed in 2017. The results confirmed oil reservoirs at depth of up to 410 meters
with high porosity and permeability. The production tests confirmed the high productivity and oil quality of these
reservoirs.
In September 2016, the Libra consortium commenced the process of hiring its second FPSO for the Northwest area
(the FPSO of Libra Pilot Project), with expected start-up in 2020 and capacity of producing 180 thousands of barrels
per day and processing 12 million cubic meters of gas.
A FPSO will be allocated to 3 parts in the Northwest area of this block in order to perform extended well tests and
early production systems.
The start-up of Libra Pioneer is expected to occur in 2017 with capacity of processing 50 thousand barrels per day and
compressing 4 million cubic meters per day of associated gas. The Company also intends to mitigate risks and
optimize producing systems in Libra through this FPSO.
At the end of 2016, the first two wells completions of Libra Block were concluded. These wells have intelligent
completion systems in two zones, enabling real time data monitoring and control and will commence operation in
2017 interconnected to Libra Pioneer.
In 2020, four definitive systems will be installed in Libra northwest. The pilot system is planned to be concluded in
September 2020 and the remaining systems in the following 3 years. The size of wells and subsea systems to be
concluded after the pilot project will be based on extended well test data.
13.4. Service concession agreement - Distribution of piped natural gas
As of December 31, 2016, intangible assets include service concession agreements related to piped natural gas
distribution in Brazil, in the amount of R$ 578 (R$ 580 in 2015), maturing between 2029 and 2043, which may be
renewed. According to the distribution agreements, service is provided to customers in the industrial, residential,
commercial, automotive, air conditioning and transport sectors, among others.
The consideration receivable is a factor of a combination of operating costs and expenses, and return on capital
invested. The rates charged for gas distribution are subject to periodic reviews by the state regulatory agency.
The agreements establish an indemnity clause for investments in assets which are subject to return at the end of the
service agreement, to be determined based on evaluations and appraisals.
59
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
On February 2, 2016, the state of Espírito Santo enacted the Law No. 10,493/2016 under which the service concession
agreements related to piped natural gas distribution are considered ineffective pursuant Brazilian Federal Law
8,987/1995. This concession is accounted for as intangible assets totaling R$ 274 as of December 31, 2016 (R$ 270 as
of December 31, 2015) and the Company has not recognized any provision on this matter based on indemnity
established by law.
14.
Impairment
The Company’s assets are tested for impairment on December 31, annually, or when there is an indication that their
carrying amount may not be recoverable. During September 2016 such indication was identified for certain assets and
triggered their impairment assessment due to changes mainly driven by a slower recovery of oil prices, a decrease in
future capital expenditures, reflecting the Company’s plan to reduce current debt levels and optimize its investment
portfolio, as well as changes in Brazilian political and economic scenario. These changes impacted the medium and
long term assumptions used in our updated Business and Management Plan that was finalized and approved in the
third quarter of 2016 and also impacted the key assumptions for impairment testing. Changes in the political and
economic scenario in Brazil also resulted in increases in discount rates applied for impairment testing purposes in
2016.
At December 31, 2016, the company reassessed the existence of any new indication of impairment in assets previously
tested in the third quarter of 2016. Accordingly, additional impairment charges were recognized in the last quarter of
2016 with respect to producing properties relating to oil and gas activities in Brazil, COMPERJ, Transpetro’s fleet of
vessels, as well as reversals of impairment previously recognized for the Thermoelectric power generation plants,
mainly as a result of: (i) Company’s annual review of oil and gas reserves; (ii) annual review of decommissioning cost
estimates; (iii) the work in progress relating to the infrastructure shared by Comperj’s first refining unit and the
natural gas processing plant (UPGN); (iv) changes in the Power CGU as described in note 5.3; and (v) the
commencement of 5 vessels constructions, as part of Transportation CGU, following the signing of funding contracts
which have enabled these projects funding.
In addition, the company also recognized in the last quarter of 2016 impairment charges relating to divestments and
assets of certain subsidiaries that were tested for impairment based on their annual review at December 31, 2016.
For 2015, impairment losses were principally recognized in its fourth quarter pursuant to the annual tests in
December, mainly due to changes in international crude oil prices, a downward review of proved and probable reserves
estimates, a decrease in capex projections and an increase in Brazil’s risk premium.
The table below shows the impairment losses, net of reversals, recognized within the statement of income in 2016 and
2015:
60
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Assets or CGUs, by nature
Carrying
amount (**)
Recoverable
amount (**)
Impairment
(*) (***)
Consolidated
Business segment
Comments
2016
41,584
34,855
7,381
E&P - Brazil
item (a1)
Producing properties relating to oil and gas activities
in Brazil (several CGUs)
Oil and gas production and drilling equipment in
Brazil
Second refining unit in RNEST
Suape Petrochemical Complex
Comperj
Fertilizer Plant - UFN III
Araucária (fertilizers plant)
Transpetro’s fleet of vessels
Quixadá Power plant
Others
Assets classified as held for sale
Suape Petrochemical Complex
Petrobras Chile Distribución
Power Plants Celso Furtado and Rômulo Almeida
Others
Total
2,980
8,077
3,569
1,315
1,699
638
5,822
90
2,009
2,689
1,773
394
315
208
5,546
1,558
−
1,202
185
5,024
−
1,390
1,255
1,507
238
341
2,772
2,531
2,011
1,315
497
453
798
90
619
18,467
1,434
266
156
(26)
20,297
82,982
6,193
6,045
47,402
912
3,583
Producing properties relating to oil and gas activities
in Brazil (several CGUs)
Comperj
Oil and gas producing properties abroad
Oil and gas production and drilling equipment in
Brazil
Fertilizer Plant - UFN III
Suape Petrochemical Complex
Nitrogen Fertilizer Plant - UFN-V
Biodiesel plants
Others
Total
(*) Impairment losses and reversals.
(**) CGUs only tested for impairment at September 30, 2016 are presented based on information prevailing at this period.
(***) In 2015, does not include impairment on assets classified as held for sale in the amount R$ 10.
1,978
1,955
782
585
181
720
47,666
949
1,696
3,681
−
343
611
2,927
3,651
4,463
585
524
1,331
33,722
5,281
2,462
item (b1)
item (c)
item (d1)
item (e1)
item (f1)
item (g)
item (h)
Note 14.2
2015
item (a2)
item (e2)
item (i)
item (b2)
item (f2)
item (d2)
E&P - Brazil
RTM - Brazil
RTM - Brazil
RTM - Brazil
Gas & Power - Brazil
Gas & Power - Brazil
RTM - Brazil
Biofuel, Brazil
Several Segments
RTM - Brazil
Distribution- Abroad
RTM - Brazil
Several Segments
E&P - Brazil
RTM - Brazil
E&P - Abroad
E&P - Brazil
Gas & Power - Brazil
RTM - Brazil
Gas & Power
Biofuel - Brazil
Several segments
14.1. Impairment of property, plant and equipment and intangible assets
For impairment testing purposes, the Company uses the value in use of its property, plant and equipment and
intangible assets (individually or grouped into cash-generating units - CGUs) as their recoverable amount. In
measuring value in use the Company bases its cash flow projections on:
•
•
•
The estimated useful life of the asset or assets grouped into the CGU, based on the expected use of those
assets, considering the Company’s maintenance policy;
Assumptions and financial budgets/forecasts approved by management for the period corresponding to the
expected life cycle of each different business; and
A pre-tax discount rate, which is derived from the Company’s post-tax weighted average cost of capital (WACC).
Information on key assumptions for impairment testing and the definition of Company’s CGUs are presented in notes
5.2 and 5.3, respectively. Management assumptions and judgements, which are based on the Company’s business and
management model, are required on these matters.
The cash flow projections used to measure the value in use of the CGUs in 2016 were mainly based on the following
estimates of key assumptions for impairment testing:
61
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Average Brent (US$/bbl)
Average Brazilian Real (excluding inflation) - Real /U.S. dollar
exchange rate
2017
48
3.46
2018
56
3.54
2019
68
3.48
2020
71
3.42
2021
71
3.38
Long term
average
70
3.36
For comparative purposes, estimates of key assumptions for impairment testing in 2015 are shown below:
Average Brent (US$/bbl)
Average Brazilian Real (excluding inflation) - Real /U.S. dollar
exchange rate
2016
45
4.06
2017
59
3.73
2018
61
3.66
2019
64
3.60
2020
67
3.60
Long term
average
71
3.06
Information on the main impairment losses of property, plant and equipment and intangible assets are described
below:
a1) Producing properties in Brazil – 2016
Impairment losses of R$ 7,381 were recognized for certain oil and gas fields in Brazil under E&P concessions. Cash flow
projections were based on: financial budgets/forecasts approved by Management and the post-tax discount rates
(excluding inflation) derived from the WACC for the E&P business of 9.1% p.a. at September 30, 2016, which decreased
to 8.6% p.a. at December 31, 2016, mainly reflecting improvement in Brazil’s risk premium. The impairment losses
were related primarily to the following fields and groups of fields: North group (R$ 3,823), Ceará Mar Group (R$ 693),
Guaricema (R$ 415), Bijupirá and Salema (R$ 317), Dourado (R$ 284), Maromba (R$ 281), Trilha (R$ 228), Papa-Terra
(R$ 234), Pampo (R$ 216), Frade (R$ 213), Uruguá group (R$ 196), Badejo (R$ 183), Bicudo (R$ 160), Riachuelo (R$146),
Fazenda Bálsamo (R$ 135) e Água Grande Group (R$ 101). These impairment losses were mainly due to the
appreciation of the Brazilian Real against the U.S. Dollar, price assumptions review, Company’s annual reviews of oil
and gas reserves and decommissioning cost estimates, as well a higher discount rate following the increase in Brazil’s
risk premium. In addition, an impairment reversal relating to Centro Sul group, amounting to R$ 1,347, was recognized
due to increased estimate of reserves and production, as well as lower operating expenses estimates based on a
review of its fields operations, as set forth in 2017-2021 BMP, considering the decommissioning of a unit which had
high operational costs and replacing another unit with an investment in a new processing plant which was committed
to during the third quarter of 2016.
a2) Producing properties in Brazil - 2015
Impairment losses of R$ 33,722 were recognized for certain oil and gas fields in Brazil under E&P concessions. Cash
flow projections were based on: financial budgets/forecasts approved by Management; and an 8.3% p.a. post-tax
discount rate (excluding inflation) derived from the WACC for the E&P business. The impairment losses were related
primarily to the following fields: Papa-Terra (R$ 8,723), Centro Sul group (R$ 4,605), Uruguá group (R$ 3,849),
Espadarte (R$ 2,315), Linguado (R$ 1,911), CVIT – Espírito Santo group (R$ 1,463), Piranema (R$ 1,333), Lapa
(R$ 1,238), Bicudo (R$ 937), Frade (R$ 773), Badejo (R$ 740), Pampo (R$ 355) and Trilha (R$ 327). These impairment
losses are mainly due to the impact of the decline in international crude oil prices on the Company’s price
assumptions, the use of a higher discount rate, as well as the geological revision of Papa-Terra reservoir.
b1) Oil and gas production and drilling equipment in Brazil – 2016
Impairment losses of R$ 2,772 were recognized for oil and gas production and drilling equipment which were not
directly related to oil and gas producing properties. Cash flow projections were based on: financial budgets/forecasts
approved by Management; and an 9.9% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the
oil and gas services and equipment industry. These impairment losses were mainly related to uncertainties over the
ongoing hulls construction of the FPSOs P-71, P-72 and P-73, amounting to R$ 1,925 as set out in note 14.4.
62
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
b2) Oil and gas production and drilling equipment in Brazil - 2015
Impairment losses of R$ 1,978 were recognized for oil and gas production and drilling equipment which were not
directly related to oil and gas producing properties. Cash flow projections were based on: financial budgets/forecasts
approved by Management; and a 9.2% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the
oil and gas services and equipment industry. The impairment losses were mainly related to the planned idle capacity
of drilling rigs in the future and the use of a higher discount rate.
c) Second refining unit in RNEST - 2016
An impairment loss of R$ 2,531 was recognized for the second refining unit in RNEST. Cash flow projections were
based on: financial budgets/forecasts approved by Management; and an 8.7% p.a. (8.1% p.a. in 2015) post-tax
discount rate (excluding inflation) derived from the WACC for the refining business, reflecting a specific risk premium
for the postponed project. The impairment loss was mainly attributable to: (i) the use of a higher discount rate and (ii)
a delay in expected future cash inflows to 2023 resulting from postponing the project, considering the completion of
this project with the Company’s own capital resources as set forth in the 2017-2021 Business and Management Plan.
d1) Suape Petrochemical Complex - 2016
An impairment loss of R$ 2,011 was recognized for Companhia Integrada Têxtil de Pernambuco S.A. - CITEPE and
Companhia Petroquímica de Pernambuco S.A. – PetroquímicaSuape at September 31, 2016. Cash flow projections were
based on: financial budgets/forecasts approved by Management; and a 7.5% p.a. post-tax discount rate (excluding
inflation) derived from the WACC for the petrochemical business. The impairment loss was mainly attributable to
lower market projections and the appreciation of Brazilian real against the U.S. dollar. Following the disposal of Suape
Petrochemical Complex in December 2016, the Company recognized an additional impairment charge as set out in
note 14.2.
d2) Suape Petrochemical Complex - 2015
An impairment loss of R$ 782 was recognized for Companhia Integrada Têxtil de Pernambuco S.A. - CITEPE and
Companhia Petroquímica de Pernambuco S.A. – PetroquímicaSuape. Cash flow projections were based on: financial
budgets/forecasts approved by Management; and a 7.2% p.a. post-tax discount rate (excluding inflation) derived from
the WACC for the petrochemical business. The impairment loss was mainly attributable to changes in market and price
assumptions resulting from a decrease in economic activity in Brazil, a reduction in the spread for petrochemical
products in the international market and the use of a higher discount rate.
e1) Comperj - 2016
Following a reassessment of COMPERJ project in the second quarter of 2016 confirming the postponement of its first
refining unit until December 2020, with continuous efforts to seek new partnerships to resume the project, the
Company recognized an impairment charge on the remaining balance of this project. However, the construction of
Comperj’s first refining unit facilities that will also support the natural gas processing plant (UPGN) are still in
progress as the facilities are part of the infrastructure for transporting and processing natural gas from the pre-salt
layer in Santos Basin. Nevertheless, due to the interdependence between such infrastructure and Comperj first
refining unit, the Company recognized additional impairment charges, totaling R$ 1,315 of impairment losses in 2016.
e2) Comperj - 2015
An impairment loss of R$ 5,281 was recognized for refining assets of Comperj. Cash flow projections were based on:
financial budgets/forecasts approved by Management, and; an 8.1% p.a. post-tax discount rate (excluding inflation)
derived from the WACC for the refining business reflecting a specific risk premium for the postponed projects. This
impairment loss was mainly attributable to: (i) the use of a higher discount rate; and (ii) the delay in expected future
cash inflows resulting from postponing construction.
63
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
f1) Fertilizer Plant - UFN III - 2016
An impairment loss of R$ 497 was recognized for the fertilizer plant UFN III (Unidade de Fertilizantes e Nitrogenados
III). Cash flow projections were based on: financial budgets/forecasts approved by Management; and an 8.3% p.a.
post-tax discount rate (excluding inflation) derived from the WACC for the fertilizer business, reflecting a specific risk
premium for the postponed projects. This impairment loss mainly relates to: (i) the use of a higher discount rate, (ii)
the appreciation of Brazilian Real against the US Dollar.
f2) Fertilizer Plant - UFN III - 2015
An impairment loss of R$ 1,955 was recognized for the fertilizer plant UFN III (Unidade de Fertilizantes e Nitrogenados
III). Cash flow projections were based on: financial budgets/forecasts approved by Management; and a 7.1% p.a. post-
tax discount rate (excluding inflation) derived from the WACC for the Gas & Power business, reflecting a specific risk
premium for the postponed projects. The impairment losses were mainly related to: (i) the use of a higher discount
rate; and (ii) the delay in expected future cash inflows resulting from postponing the project.
g) Araucaria - 2016
An impairment loss of R$ 453 was recognized for Araucária Nitrogenados S.A. Cash flow projections were based on:
financial budgets/forecasts approved by Management; and a 7.8% p.a. post-tax discount rate (excluding inflation)
derived from the WACC for the fertilizer business (6.6% p.a. in 2015). The impairment loss was mainly attributable to
(i) the use of a higher discount rate, (ii) the appreciation of Brazilian Real against the U.S. Dollar and (iii) an increase in
estimated production costs.
h) Transpetro’s fleet of vessels - 2016
An impairment loss of R$ 798 was recognized for Transpetro’s fleet of vessels. Cash flow projections were based on:
financial budgets/forecasts approved by Management; and post-tax discount rates (excluding inflation) ranging from
4.53% p.a. to 9.97% p.a. (3.92% p.a. to 8.92% p.a. in 2015) derived from the WACC for the transportation industry,
considering financial leverage and the respective tax benefits. The impairment loss recognized in the third quarter
mainly relates to a group of support vessels of Hidrovias project that were removed from this CGU due to the
postponements and suspension of constructions projects, as well as the use of a higher discount rate. In the last
quarter of 2016, additional impairment charges were accounted for due to the commencement of construction on five
vessels after securing the projects funding, which avoided the possibility of future claims by alleging breach of
contracts, as well as a further increase in discount rate.
i) Producing properties abroad – 2015
Impairment losses of R$ 2,462 were recognized in E&P assets abroad. Cash flow projections were based on: financial
budgets/forecasts approved by Management; and 5.6% p.a. to 10.4% p.a. post-tax discount rates (excluding inflation)
derived from the WACC for the E&P business in different countries. The impairment losses were mainly in producing
properties located in the United States (R$ 1,750) and Bolivia (R$ 614), attributable to the decline in international
crude oil prices.
14.1.1. Carrying amounts of assets not substantially lower than their recoverable amounts
In 2016, the recoverable amounts of certain mature producing fields in Brazil were not substantially in excess of their
carrying amounts. The carrying amounts of these assets totaled R$ 465 as of December 31, 2016. Changes in material
assumptions for impairment testing may result in the recognition of additional impairment charges on such assets in
future periods.
64
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
14.2. Assets classified as held for sale
In 2016, the Company recognized impairment losses amounting to R$ 1,935 pursuant to certain sales of interests in
investees approved by the Board of Directors, as described in note 10, mainly due to the following investments:
• Suape Petrochemical Complex - Impairment losses amounting to R$ 1,434 following the sale of Suape and Citepe
petrochemical plants, which is aligned to the Company’s Strategic Plan that foresees the entire withdrawal from
petrochemical interests. These losses are attributable to the lower the exit price of these investments when
compared to their carrying amount adjusted by the debt to be settled by the Company, as part of the transaction
closing.
•
Petrobras Chile Distribución - impairment loss of R$ 266 was recognized for distribution assets in Chile, as the
sales price of this disposal was lower than the respective carrying amount.
• Power plants Romulo Almeida and Celso Furtado - impairment losses amounting to R$ 156 were accounted for
due to the difference between the exit price and the respective carrying amounts. A portion of this impairment
(R$ 23) was recognized in the third quarter of 2016 when these assets were part of the Power CGU.
For 2015, impairment losses were recognized in E&P assets classified as held for sale. The Board of Directors approved
the disposal of the Bijupirá and Salema fields, PI, PIII and PIV drilling rigs and PXIV platform. As their fair values were
below their carrying amount, impairment losses in the amount of R$ 10 were recognized.
14.3. Investments in associates and joint ventures (including goodwill)
Value in use is generally used for impairment test of investments in associates and joint ventures (including goodwill).
The basis for estimates of cash flow projections includes: projections covering a period of 5 to 12 years, zero-growth
rate perpetuity, budgets, forecasts and assumptions approved by management and a pre-tax discount rate derived
from the WACC or the Capital Asset Pricing Model (CAPM), when applicable.
The carrying amount and the value in use of the investments in associates and joint ventures which include goodwill
as of December 31, 2016 are set out below:
Investment
Braskem S.A. (*)
Natural Gas Distributors
% Post-tax
discount rate
(excluding
inflation) p.a.
11.6
6.0
Segment
RTM
Gas & Power
Value in use
12,660
1,433
Carrying
amount
3,368
1,076
(*) The discount rate of Braskem is CAPM of petrochemical segment, as the value in use considers the cash flow projections via dividends.
14.3.1. Investment in publicly traded associate (Braskem S.A.)
Braskem’s shares are publicly traded on stock exchanges in Brazil and abroad. As of December 31, 2016 the quoted
market value of the Company’s investment in Braskem was R$ 8,966 based on the quoted values of both Petrobras’
interest in Braskem’s common stock (47% of the outstanding shares), and preferred stock (22% of the outstanding
shares). However, there is extremely limited trading of the common shares, since non-signatories of the shareholders’
agreement hold approximately 3% of the common shares.
Given the operational relationship between Petrobras and Braskem, the recoverable amount of the investment for
impairment testing purposes was determined based on value in use, considering future cash flow projections and the
manner in which the Company can derive value from this investment via dividends and other distributions to arrive at
its value in use. As the recoverable amount was higher than the carrying amount, no impairment losses were
recognized for this investment.
Cash flow projections to determine the value in use of Braskem were based on the following key assumptions:
65
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
•
•
estimated average exchange rate of R$ 3.46 to U.S.$1.00 in 2017 (converging to R$ 3.36 in the long run);
average Brent crude oil price at US$ 48 in 2017, converging to US$ 70 in the long run;
• prices of feedstock and petrochemical products reflecting projected international prices;
• petrochemical products sales volume estimates reflecting projected Brazilian and global G.D.P. growth; and
•
increases in the EBITDA margin during the growth cycle of the petrochemical industry in the next years and
declining in the long run.
14.3.2. Impairment losses on equity-method investments
In 2016, impairment losses on equity-method investments in the amount of R$ 626 were recognized in the statement
of income as results in equity-accounted investments, substantially attributable to investees of biofuels segment,
mainly relating to:
• Guarani S.A. – At September 30, 2016, impairment losses in the amount of R$ 359 were recognized mainly due to
an increase in post-tax discount rate (real rate) from 9.3% p.a. in 2015 to 10.2% p.a. and lower sugar prices
forecasts. In addition, the company also recognized an impairment charge amounting to R$ 219 made up of the
difference between the exit price and the carrying amount following the disposal of interests in this associate
approved in the last quarter of 2016.
• Nova Fronteira S.A. – The company recognized an impairment charge in the amount of R$ 100 made up of the
difference between the exit price and the carrying amount following the disposal of interests in this joint venture
approved in the last quarter of 2016.
For 2015, impairment losses on equity-method investments in the amount of R$ 2,072 were recognized in the
statement of income as results in equity-accounted investments, mainly due to (i) losses in investees abroad
reflecting the fall in international crude oil price (R$ 1,077); (ii) higher discount rates and capital expenditure decisions
relating to the biofuels segment (R$ 543); (iii) the deteriorated economic and financial conditions of the associate Sete
Brasil (R$ 328); and (iv) losses relating to the associate Arpoador Drilling B.V, an entity indirectly controlled by Sete
Brasil (R$ 54).
14.4. Construction of platform hulls by Ecovix and Enseada shipyards
The Company entered into contracts with the suppliers Ecovix-Engevix Construções Oceânicas S.A and Enseada
Industria Naval S.A. for supplying eight hulls for the FPSOs P-66 to P-73 and for hulls conversion of four FPSOs (P-74
to P-77), respectively.
Considering the relevance of these assets in the context of the Business and Management Plan and due to the
financial difficulties faced by the suppliers, escrow accounts relating to these projects were created in the last quarter
of 2015 in order to ensure the ongoing performance of the services hired.
These escrow accounts have comprised funds transferred in advance for payments to be made by the shipyards,
restricted to the scope of the contracts and limited to their total balance. The deposits would be offset to the extent
that services rendered or equipment delivered, with the remaining balance being reimbursed. This strategy was
considered effective as the projects achieved significant progress up to September 2016, enabling the delivery of P-
67 hull to shipyard in China for integration services, the recommence of the work in progress of P-69 hull also in China,
the continuity of the work in progress of P-68 hull in Rio Grande shipyard, as well as the progress on priority activities
for the conclusion of minimum scope of P-74 and P-76 hulls, delivering these units to shipyards in China for
integration services and for setting up topsides.
66
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
During the third quarter of 2016, the Company reassessed the progress of the hulls project and the continuity of the
escrow accounts related to the projects. Consequently, significant delays on projects progress were detected and the
Company concluded that this strategy, which in its beginning avoided the work in progress discontinuation, was not as
effective as it was previously.
Due to uncertainties regarding the FPSOs P-71, P-72 and P-73 hulls construction continuity after significant delays on
projects progress, the Company recognized, in the third quarter of 2016, impairment charges amounting to R$ 1,925
as set out in note 14.1. Impacts in the Company’s production curve are not expected in case of the discontinuation of
this work in progress, as the 2017-2021 Business and Management Plan includes other options and additional budget
funds.
Based on management evaluation, the Company recognized allowances for impairment amounting to R$ 2,353 within
other expenses, net with respect to the remaining balance of advances to these suppliers in the context of the escrow
accounts (R$ 1,256) and debts assumption relating to Ecovix and Enseada (R$ 1,097), in which legal procedures to
recover them are being assessed.
In addition, the Company wrote-off capital expenditures related to the right of use the Rio Grande shipyard in the
amount of R$ 505, as well as other investments related to the P-71, P-72 and P-73 amounting to R$ 480.
The effects of the negotiation with each shipyard are presented below.
14.4.1. Negotiations with Ecovix
Pursuant the reassessment made by the Company in the third quarter of 2016 in order to verify the effectiveness of
the escrow account approach implemented to ensure access to P-66 to P-73 hulls, a provision in the amount of R$ 375
was recognized within other expenses, net.
On December 9, 2016, the Company, through its investees TUPI BV and Petrobras Netherlands BV, entered into
agreements with Ecovix Construções Oceânicas S.A establishing the termination of EPC contracts signed in 2010 for
the construction of eight FPSO hulls. Therefore, the Company has assumed certain liabilities from Ecovix as the most
adequate solution for Petrobras Group: ensure the access to the hulls of platforms P-66 to P-70 and the achievement
of the 2017-2021 Business and Management Plan production targets. These debts were recognized in 2016 within
other expenses, net in the amount of R$ 764.
Along with those agreements signed in the last quarter of 2016, the Company assessed investments carried out for
the construction of the P-71, P-72 and P-73 hulls to determine the best option for their allocation. As a result, the
amount of R$ 480 were written-off and accounted for as other expenses, net.
The negotiations with Ecovix in the last quarter of 2016 also resulted in a transfer of the right of use of Rio Grande
shipyard from Ecovix to the Company pursuant to a finance lease agreement. The Company reassessed the
recoverable amount of this right of use and related improvements totaling R$ 505 and, as a consequence, these
assets were written-off.
14.4.2. Negotiations with Enseada
With the escrow accounts, the Company eliminated any risk of non-delivery of the P-74 to P-77 hulls. In 2016, PNBV
transferred funds in advance amounting to R$ 881 for the payment in the name of Enseada of certain liabilities
relating to the hull construction of these platforms. Due to financial difficulties faced by this supplier, the Company
recognized a provision for impairment on this entire amount within other expenses, net.
67
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
In addition, as part of the Company’s strategy of ensuring the continuity of FPSOs P-75 and P-77 hulls construction,
the Company approved the transfer of the contract entered into by Enseada and COSCO (Dalian) Shipyard Co., Ltd to
its wholly-owned subsidiary Petrobras Netherlands B.V. (PNBV), resulting in the recognition of payables within the
scope of this contract. As a result, the Company recognized a provision in the amount of R$ 333 within other expenses
in the third quarter of 2016.
In addition, the Company also assessed the recoverable amount of improvements made for the hulls conversion of
FPSOs P-74 to P-77 in the Inhaúma Shipyard, as well as the right of use of this shipyard. Accordingly, the Company did
not accounted for any additional write-off related to these assets at December 31, 2016 based on the use of this
location as a logistic center mainly dedicated to Santos Basin operations.
15. Exploration for and evaluation of oil and gas reserves
The exploration and evaluation activities include the search for oil and gas reserves from obtaining the legal rights to
explore a specific area to the declaration of the technical and commercial viability of the reserves.
Changes in the balances of capitalized costs directly associated with exploratory wells pending determination of
proved reserves and the balance of amounts paid for obtaining rights and concessions for exploration of oil and
natural gas (capitalized acquisition costs) are set out in the following table:
Capitalized Exploratory Well Costs / Capitalized Acquisition Costs (*)
Property, plant and equipment
Opening Balance
Additions to capitalized costs pending determination of proved reserves
Capitalized exploratory costs charged to expense
Transfers upon recognition of proved reserves
Cumulative translation adjustment
Closing Balance
Intangible Assets
Capitalized Exploratory Well Costs / Capitalized Acquisition Costs
(*) Amounts capitalized and subsequently expensed in the same period have been excluded from this table.
Consolidated
12.31.2016
12.31.2015
20,310
3,543
(3,603)
(3,304)
(218)
16,728
7,288
24,016
18,594
7,310
(2,874)
(3,423)
703
20,310
7,996
28,306
Exploration costs recognized in the statement of income and cash used in oil and gas exploration and evaluation
activities are set out in the following table:
Exploration costs recognized in the statement of income
Geological and geophysical expenses
Exploration expenditures written off (includes dry wells and signature bonuses)
Other exploration expenses
Total expenses
Cash used in:
Operating activities
Investment activities
Total cash used
Consolidated
Jan-Dec/2016 Jan-Dec/2015
1,360
4,921
186
6,467
1,292
4,364
400
6,056
1,529
3,778
5,307
1,546
8,897
10,443
68
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
15.1. Aging of Capitalized Exploratory Well Costs
The following tables set out the amounts of exploratory well costs that have been capitalized for a period of one year
or more after the completion of drilling, the number of projects whose costs have been capitalized for a period greater
than one year, and an aging of those amounts by year (including the number of wells relating to those costs):
Aging of capitalized exploratory well costs*
Exploratory well costs capitalized for a period of one year
Exploratory well costs capitalized for a period greater than one year
Ending balance
Number of projects relating to exploratory well costs capitalized for a period greater than one year
2015
2014
2013
2012
2011 and previous years
Ending balance
(*) Amounts paid for obtaining rights and concessions for exploration of oil and gas (capitalized acquisition costs) are not included.
2016
2,628
14,100
16,728
57
Capitalized
costs (2016)
3,036
3,669
2,199
2,338
2,858
14,100
Consolidated
2015
5,417
14,893
20,310
70
Number of
wells
20
23
13
12
20
88
Exploratory well costs that have been capitalized for a period greater than one year since the completion of drilling
amount to R$ 14,100. Those costs relate to 57 projects comprising (i) R$ 13,342 for wells in areas in which there has
been ongoing drilling or firmly planned drilling activities in the near term and for which an evaluation plan (“Plano de
Avaliação”) has been submitted for approval by ANP; and (ii) R$ 758 relate to costs incurred to evaluate the reserves
and their potential development.
16. Trade payables
Third parties in Brazil
Third parties abroad
Related parties
Balance on current liabilities
17. Finance debt
Consolidated
Parent Company
12.31.2016
10,690
6,580
1,511
18,781
12.31.2015
13,005
10,020
1,863
24,888
12.31.2016
9,000
3,268
12,116
24,384
12.31.2015
10,734
3,897
13,541
28,172
The Company obtains funding through debt financing for capital expenditures to develop crude oil and natural gas
producing properties, construct vessels and pipelines, construct and expand industrial plants, among other uses.
The Company has covenants that were not in default at December, 31 2016 in its loan agreements and notes issued in
the capital markets requiring, among other obligations, the presentation of interim financial statements within 90
days of the end of each quarter (not reviewed by independent auditors) and audited financial statements within 120
days of the end of each fiscal year. Non-compliance with these obligations do not represent immediate events of
default and the grace period in which the Company has to deliver these financial statements ranges from 30 to 60
days, depending on the agreement. The Company also has covenants with respect to debt level in some of its loan
agreements with the Brazilian Development Bank (Banco Nacional de Desenvolvimento - BNDES).
A roll-forward schedule of non-current debt is set out as follows:
69
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Non-current
In Brazil
Opening balance at January 1, 2015
Cumulative translation adjustment (CTA)
Additions (new funding obtained)
Interest incurred during the period
Foreign exchange/inflation indexation charges
Transfer from long-term to short-term
Balance as of December 31, 2015
Abroad
Opening balance at January 1, 2015
Cumulative translation adjustment (CTA)
Additions (new funding obtained)
Interest incurred during the period
Foreign exchange/inflation indexation charges
Transfer from long-term to short-term
Balance as of December 31, 2015
Total Balance as of December 31, 2015
Non-current
In Brazil
Opening balance at January 1, 2016
Cumulative translation adjustment (CTA)
Additions (new funding obtained)
Interest incurred during the period
Foreign exchange/inflation indexation charges
Transfer from long-term to short-term
Transfer to liabilities associated with assets classified as held for
sale
Balance as of December 31, 2016
Abroad
Opening balance at January 1, 2016
Cumulative translation adjustment (CTA)
Additions (new funding obtained)
Interest incurred during the period
Foreign exchange/inflation indexation charges
Transfer from long-term to short-term
Transfer to liabilities associated with assets classified as held for
sale
Balance as of December 31, 2016
Total Balance as of December 31, 2016
Current
Short-term debt
Current portion of long-term debt
Accrued interest
Total
Export Credit
Agencies
Banking
Market Capital Market
Others
Total
Total
Consolidated
Parent
Company
77,795
482
15,962
951
9,662
(8,416)
96,436
79,414
33,669
18,285
110
4,112
(14,671)
120,919
217,355
96,436
(342)
1,543
1,045
(5,277)
(24,394)
(21)
68,990
120,919
(17,565)
24,956
60
(4,117)
(14,472)
−
109,781
178,771
3,456
−
3,510
1
257
(490)
6,734
142,930
62,702
6,283
161
(3,350)
(18,098)
190,628
197,362
6,734
−
−
1
194
(471)
−
6,458
190,628
(30,304)
33,450
178
(1,931)
(36,659)
(1,061)
154,301
160,759
74
−
−
−
7
(13)
68
1,723
607
−
26
181
(147)
2,390
2,458
68
−
−
−
5
(8)
−
65
2,390
(303)
−
30
(80)
(390)
−
1,647
1,712
81,325
482
19,472
952
9,926
(8,919)
103,238
237,997
101,750
25,069
310
2,382
(35,433)
332,075
435,313
103,238
(342)
1,543
1,046
(5,078)
(24,873)
(21)
75,513
332,075
(50,382)
58,406
281
(6,745)
(54,894)
(1,061)
277,680
353,193
58,453
−
6,463
506
6,175
(6,138)
65,459
92,946
−
42,530
5,973
52,077
(13,545)
179,981
245,440
65,459
−
134
586
(3,274)
(13,313)
−
49,592
179,981
−
60,794
7,230
(33,300)
(57,876)
−
156,829
206,421
Consolidated
Parent Company
12.31.2016
1,167
25,352
5,277
31,796
12.31.2015
5,946
44,907
6,481
57,334
12.31.2016
23,121
37,979
958
62,058
12.31.2015
20,779
31,043
1,091
52,913
−
−
−
−
−
−
−
13,930
4,772
501
13
1,439
(2,517)
18,138
18,138
−
−
−
−
−
−
−
−
18,138
(2,210)
−
13
(617)
(3,373)
−
11,951
11,951
70
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
17.1. Summarized information on current and non-current finance debt
Maturity in
up to 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
Consolidated
5 years and
onwards
Total (*)
Fair value
Financing in Brazilian Reais (R$):
Floating rate debt
Fixed rate debt
Average interest rate
Financing in U.S. Dollars (US$):
Floating rate debt
Fixed rate debt
Average interest rate
Financing in R$ indexed to US$:
Floating rate debt
Fixed rate debt
Average interest rate
Financing in Pound Sterling (£):
Fixed rate debt
Average interest rate
Financing in Japanese Yen (¥):
Floating rate debt
Average interest rate
Financing in Euro (€):
Floating rate debt
Fixed rate debt
Average interest rate
Financing in other currencies:
Fixed rate debt
Average interest rate
Total as of September 30, 2016
Average interest rate
Total as of December 31, 2015
Average interest rate
8,032
6,064
1,968
10.2%
21,666
15,758
5,908
5.1%
891
77
814
6.2%
186
186
6.2%
286
286
0.5%
713
3
710
3.7%
22
22
14.0%
31,796
6.1%
57,333
5.9%
7,948
6,470
1,478
9.0%
23,889
20,595
3,294
5.3%
573
71
502
6.4%
−
−
−
286
286
0.4%
3,861
−
3,861
3.9%
−
−
−
36,557
6.0%
44,505
6.4%
14,172
12,733
1,439
8.6%
48,882
37,810
11,072
5.3%
565
63
502
6.4%
−
−
−
−
−
−
4,493
−
4,493
4.2%
−
−
−
68,112
5.9%
62,827
5.6%
19,570
18,196
1,374
7.2%
32,356
19,363
12,993
5.6%
565
63
502
6.5%
−
−
−
−
−
−
674
521
153
4.5%
−
−
−
53,165
5.9%
88,231
5.8%
10,835
9,477
1,358
6.3%
47,235
8,064
39,171
5.2%
565
63
502
6.6%
−
−
−
−
−
−
2,563
−
2,563
4.6%
−
−
−
61,198
5.4%
60,670
6.9%
18,231
12,270
5,961
5.2%
97,200
40,240
56,960
6.6%
2,489
52
2,437
6.9%
6,908
6,908
6.3%
−
−
−
9,333
−
9,333
4.7%
−
−
−
134,161
6.4%
179,081
6.7%
78,788
65,210
13,578
7.9%
271,228
141,830
129,398
6.0%
5,648
389
5,259
6.6%
7,094
7,094
6.2%
572
572
0.5%
21,637
524
21,113
4.3%
22
22
14.0%
384,989
6.2%
492,647
6.3%
68,112
286,276
5,485
5,191
646
21,345
22
387,077
426,282
* The average maturity of outstanding debt as of December 31, 2016 is 7.46 years (7.14 years as of December 31, 2015).
The fair value of the Company's finance debts is mainly determined and categorized into fair value hierarchy as
follows:
•
•
Level 1- quoted prices in active markets for identical liabilities, when applicable, amounting to R$ 151,582 as of
December 31, 2016 (R$ 167,631 as of December 31, 2015); and
Level 2 – discounted cash flows based on discount rate determined by interpolating spot rates considering
financing debts indexes proxies, taking account their currencies and also the Petrobras’ credit risk, amounting to
R$ 235,495 as of December 31, 2016 (R$ 258,651 as of December 31, 2015). Finance debts categorized into level 2
were previously determined by a discounted cash flow based on a theoretical curve derived from the yield curve of
the Company's most liquid bonds.
The sensitivity analysis for financial instruments subject to foreign exchange variation is set out in note 33.2.
71
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
17.2. Capitalization rate used to determine the amount of borrowing costs eligible for capitalization
The capitalization rate used to determine the amount of borrowing costs eligible for capitalization was the weighted
average of the borrowing costs applicable to the borrowings that were outstanding during the period, other than
borrowings made specifically for the purpose of obtaining a qualifying asset. In 2016 the capitalization rate was 5.80%
p.a. (5.03% p.a. in 2015).
17.3. Lines of credit – outstanding balance
Company
Abroad (Amounts in US$ million)
Petrobras
PGT BV
PGT BV
Total
In Brazil
Petrobras
PNBV
Transpetro
Transpetro
Transpetro
Total
17.4. Collateral
Financial institution
Date
Maturity
JBIC
7/16/2013 12/31/2018
CHINA EXIM 10/24/2016 Not defined
SACE 12/22/2016 12/22/2017
4/16/2014 12/26/2017
3/26/2018
1/31/2007 Not defined
4/10/2038
Caixa Econômica Federal 11/23/2010 Not defined
FINEP
BNDES
BNDES
Banco do Brasil
7/9/2010
9/3/2013
Available
(Lines of
Credit)
1,500
1,000
300
2,800
255
9,878
2,246
159
329
12,867
Amount
Used
Balance
−
−
−
−
240
2,295
636
70
-
3,241
1,500
1,000
300
2,800
15
7,583
1,610
89
329
9,626
Most of the Company’s debt is unsecured, but certain specific funding instruments to promote economic
development are collateralized. In addition, financing agreements with China Development Bank (CDB) are also
collateralized, as set in note 19.5.
The loans obtained by structured entities are collateralized based on the projects’ assets, as well as liens on
receivables of the structured entities.
The Company’s capital market financing relates primarily to unsecured global notes.
18. Leases
18.1. Future minimum lease payments / receipts – finance leases
Receipts
Consolidated
Parent
Company
Payments
Payments
Estimated lease payments / receivable
2017
2018 - 2021
2022 and thereafter
As of December 31, 2016
Current
Non-current
As of December 31, 2016
Future value
699
2,560
4,461
7,720
Annual
interest Present value Future value
140
553
1,264
1,957
(402)
(1,366)
(1,149)
(2,917)
297
1,194
3,312
4,803
297
4,506
4,803
(81)
(281)
(800)
(1,162)
Annual
interest Present value Present value
1,091
3,461
1,514
6,066
1,091
4,975
6,066
59
272
464
795
59
736
795
Current (*)
1,568
Non-current (*)
5,426
6,994
As of December 31, 2015
(*) For comparative purposes, the present value of payments in the amount of R$ 25 was reclassified from trade payables in current liabilities and the amount of R$ 149 was
reclassified from others in non-current liabilities.
256
5,441
5,697
73
303
376
72
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
18.2. Future minimum lease payments – operating leases
Operating leases mainly include oil and gas production units, drilling rigs and other exploration and production
equipment, vessels and support vessels, helicopters, land and building leases.
2017
2018
2019
2020
2021
2022 and thereafter
As of December 31, 2016
As of December 31, 2015
Consolidated
37,136
28,514
25,619
24,639
23,150
176,807
315,865
387,332
Parent
Company
59,930
51,122
47,385
45,765
44,084
279,124
527,410
587,276
As of December 31, 2016, the balance of estimated future minimum lease payments under operating leases includes
R$ 161,884 in the Consolidated and R$ 161,882 in the Parent Company (in 2015, R$ 236,739 in the Consolidated and
R$ 211,634 in the Parent Company) with respect to assets under construction, for which the lease term has not
commenced.
During 2016, the Company recognized expenditures of R$ 34,438 in the Consolidated from operating lease
installments and R$ 53,228 in the Parent Company (during 2015, R$ 32,485 in the consolidated and R$ 49,620 in the
Parent Company).
19. Related-party transactions
The Company has a related-party transactions policy, which is applicable to all the Petrobras Group, in accordance
with the Company’s by-laws.
This policy provides for guidance to Petrobras and its workforce while entering into related-party transactions and
dealing with potential conflicts of interest on these transactions, in order to ensure the goals of the Company and
align them with transparency of processes and corporate governance best practices, such as: (i) Audit Committee prior
assessment of transactions between the Company and its associates, the Brazilian Federal Government (including its
agencies or similar bodies and controlled entities), as well as transactions with entities controlled by key management
personnel or by their close family members, for the transactions that match the criteria stablished in Instruction CVM
480/09; and (ii) prior approval of, at least, 2/3 of board members with respect to transactions with the Brazilian
Federal Government.
The Related-Party Transactions Policy also aims to ensure an adequate and diligent decision-making process for the
Company’s key management.
73
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
19.1. Commercial transactions by operation with companies of the Petrobras’ group (parent
company)
Assets
Trade and other receivables
Trade and other receivables, mainly from sales
Dividends receivable
Intercompany loans
Capital increase (advance)
Amounts related to construction of natural gas pipeline
Finance leases
Other operations
Assets held for sale
Total
Liabilities
Finance leases
Intercompany loans
Prepayment of exports
Accounts payable to suppliers
Purchases of crude oil, oil products and others
Affreightment of platforms
Advances from clients
Other operations
Total
Profit or Loss
Revenues, mainly sales revenues
Foreign exchange and inflation indexation charges
Financial income (expenses), net
Total
Current Non-current
Total
Current Non-current
Total
12.31.2016
12.31.2015
10,031
3,045
−
−
−
98
558
702
14,434
(1,096)
−
(28,115)
(12,116)
(6,373)
(5,282)
(461)
−
(41,327)
−
−
225
3,882
1,126
914
425
−
6,572
10,031
3,045
225
3,882
1,126
1,012
983
702
21,006
8,916
1,595
−
−
−
61
637
−
−
266
1,364
1,050
873
414
8,916
1,595
266
1,364
1,050
934
1,051
11,209
3,967
15,176
(4,452)
(28,903)
(101,011)
−
−
−
−
−
(134,366)
(5,548)
(28,903)
(129,126)
(12,116)
(6,373)
(5,282)
(461)
−
(175,693)
(1,568)
−
(18,346)
(13,541)
(7,251)
(5,778)
(512)
−
(33,455)
(5,354)
(51,465)
(109,607)
−
−
−
−
(99)
(166,525)
2016
129,260
(7,595)
(11,970)
109,695
(6,922)
(51,465)
(127,953)
(13,541)
(7,251)
(5,778)
(512)
(99)
(199,980)
2015
147,898
(11,624)
(11,580)
124,694
19.2. Commercial transactions with companies of the Petrobras’ group (parent company)
Income (expense)
12.31.2016
12.31.2015
12.31.2016 12.31.2015
2016
2015
90,203
7,394
10,150
2,106
864
246
(192)
(153)
(1,573)
5,082
114,127
(564)
(939)
(1,503)
75,343
11,272
6,341
2,717
955
(115)
(209)
Subsidiaries (*)(**)
BR
PIB BV
Gaspetro
PNBV
Transpetro
Logigás
Thermoelectrics
Fundo de Investimento
Imobiliário
TAG
Other subsidiaries
Total Subsidiaries
Structured Entities
PDET Off Shore
CDMPI
Total Structured Entities
Associates
Companies from the
petrochemical sector
Other associates
Total Associates
Total
(*) Includes its subsidiaries and joint ventures.
(**) A list with the companies is provided in note 11.
12,251
36
12,287
109,695
(260)
(554)
2,282
97,772
(114)
(250)
(364)
12,041
29
12,070
124,694
412
68
480
14,434
Current
Assets
2,259
4,279
752
1,851
978
242
27
66
1,334
2,166
13,954
−
−
−
Non-current
Assets Total Assets Total Assets
Current
Liabilities
Non-current
Liabilities
Total
Liabilities
Total
Liabilities
2,259
4,395
849
1,880
1,169
1,368
322
66
5,942
2,272
20,522
−
−
−
2,608
2,287
1,074
2,236
786
1,078
455
158
1,075
2,788
14,545
(211)
(28,846)
(291)
(5,891)
(1,093)
(205)
(172)
(258)
(1,938)
(1,634)
(40,539)
−
(129,914)
−
−
−
−
(931)
(211)
(158,760)
(291)
(5,891)
(1,093)
(205)
(1,103)
(282)
(180,718)
(307)
(7,632)
(1,125)
(445)
(1,127)
(1,465)
−
−
(132,310)
(1,723)
(1,938)
(1,634)
(172,849)
(1,830)
(1,990)
(967)
(196,423)
−
−
−
(334)
(374)
(708)
(554)
(1,502)
(2,056)
(888)
(1,876)
(2,764)
(1,161)
(2,172)
(3,333)
412
72
484
21,006
559
72
631
15,176
(72)
(8)
(80)
(41,327)
−
−
−
(134,366)
(72)
(8)
(80)
(175,693)
(172)
(52)
(224)
(199,980)
−
116
97
29
191
1,126
295
−
4,608
106
6,568
−
−
−
−
4
4
6,572
74
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
19.3. Annual rates for intercompany loans
Up to 5%
From 5.01% to 7%
From 7.01% to 9%
More than 9.01%
Total
Parent Company
Assets
12.31.2015
−
81
128
57
266
12.31.2016
−
(28,903)
−
−
(28,903)
Liabilities
12.31.2015
(5,623)
(45,842)
−
−
(51,465)
12.31.2016
−
77
100
48
225
19.4. Non standardized receivables investment fund
The Parent Company invests in the receivables investment fund FIDC-NP (FIDC-NP and FIDC-P, as of December 31,
2015), which comprises mainly receivables and non-performing receivables arising from operations performed by
subsidiaries of the Petrobras Group. Investments in FIDC-NP and FIDC-P are recognized as other receivables.
The assignment of performing and non-performing receivables is recognized as current debt within current liabilities.
Other receivables
Assignments of receivables
Finance income FIDC P and NP
Finance expense FIDC P and NP
Net finance income (expense)
19.5. Guarantees
Parent Company
12.31.2016
11,301
(23,121)
12.31.2015
7,812
(20,779)
2016
1,018
(2,680)
(1,662)
2015
891
(2,129)
(1,238)
Petrobras guarantees certain financial operations carried out by its subsidiaries in Brazil and abroad.
Petrobras, based on contractual clauses that support the financial operations between the subsidiaries and third
parties, offers guarantees, mainly fidejussory, to the payment of debt service in the event that a subsidiary defaults
on a debt.
The outstanding balance of financial operations carried out by these subsidiaries and guaranteed by Petrobras is set
out below:
Maturity date of the loans
2016
2017
2018
2019
2020
2021
2022 and thereafter
Total
(*) Petrobras Global Finance B.V., subsidiary of PIB BV.
(**) Petrobras Global Trading B.V., subsidiary of PIB BV.
PGF (*)
−
3,417
6,510
17,562
15,323
41,688
75,300
159,800
PGT (**)
−
−
8,148
19,229
17,371
−
33,713
78,461
PNBV
−
2,946
4,673
7,561
1,636
733
8,308
25,857
TAG
−
−
−
−
−
−
4,678
4,678
Others
−
11
1,604
1,111
6,940
5,529
3,879
19,074
12.31.2016
12.31.2015
Total
−
6,374
20,935
45,463
41,270
47,950
125,878
287,870
Total
29,089
22,132
45,479
63,241
48,680
30,753
148,579
387,953
75
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Petrobras entered into 2 finance agreements with China Development Bank (CDB), maturing in 2019 and 2026, which
are collateralized based on future oil exports for specific buyer, limited to 300 thousand barrels per day up to 2019
and 100 thousand barrels per day from 2020 to 2026. This collateral may not exceed the amount of the related debt.
PGT, a wholly-owned subsidiary of Petrobras, guarantees these financing operations.
19.6. Investment fund of subsidiaries abroad
As of December 31, 2016, a subsidiary of PIB BV had R$ 10,389 (R$ 15,623 as of December 31, 2015) invested in an
investment fund abroad that held debt securities of NTS, PGF and of consolidated structured entities, mainly with
respect to the following projects: Gasene, CDMPI, Charter and PDET.
19.7. Transactions with joint ventures, associates, government entities and pension funds
The Company has engaged, and expects to continue to engage, in the ordinary course of business in numerous
transactions with joint ventures, associates, pension plans, as well as with the Company’s controlling shareholder, the
Brazilian federal government, which includes transactions with banks and other entities under its control, such as
financing and banking, asset management and others.
The balances of significant transactions are set out in the following table:
Joint ventures and associates
State-controlled gas distributors
Petrochemical companies
Other associates and joint ventures
Subtotal
Government entities
Government bonds
Banks controlled by the Federal Government
Receivables from the Electricity sector (note 8.4)
Petroleum and alcohol account - receivables from Federal
government
Others
Subtotal
Pension plans
Total
Revenues, mainly sales revenues
Foreign exchange and inflation indexation charges, net
Finance income (expenses), net
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Total
12.31.2016
Assets
Liabilities
Consolidated
12.31.2015
Assets
Liabilities
2016
Income
(expense)
6,088
12,337
1,624
20,049
454
(10,740)
3,359
18
687
(6,222)
1
13,828
22,758
(1,035)
(7,895)
2015
Income
(expense)
9,849
12,020
1,878
23,747
1,090
(13,641)
5,821
14
30
(6,686)
−
17,061
28,331
(4,730)
(6,540)
803
426
580
1,809
3,628
13,408
16,042
875
1,326
35,279
158
37,246
9,979
27,267
226
88
1,245
1,559
−
64,727
8
−
1,081
65,816
324
67,699
13,157
54,542
67,699
996
565
524
2,085
4,352
10,181
13,335
857
1,190
29,915
141
32,141
8,806
23,335
281
174
1,768
2,223
−
95,034
−
−
1,230
96,264
431
98,918
12,683
86,235
98,918
13,828
37,246
17,061
32,141
19.8. Petroleum and Alcohol accounts - Receivables from Federal Government
As of December 31, 2016, the balance of receivables related to the Petroleum and Alcohol accounts was R$ 875
(R$ 857 as of December 31, 2015). Pursuant to Provisional Measure 2,181 of August 24, 2001, the Federal Government
may settle this balance by using National Treasury Notes in an amount equal to the outstanding balance, or allow the
Company to offset the outstanding balance against amounts payable to the Federal Government, including taxes
payable, or both.
76
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The Company has provided all the information required by the National Treasury Secretariat (Secretaria do Tesouro
Nacional - STN) in order to resolve disputes between the parties and conclude the settlement with the Federal
Government.
Following several negotiation attempts at the administrative level, the Company filed a lawsuit in July 2011 to collect
the receivables.
On October 28, 2016, the court ruled in favor of the Company, disallowing the use of an alleged debt from the
liquidated company of the group, Petrobras Comércio Internacional S.A. – Interbrás, by the Brazilian Federal
Government, when offsetting the outstanding balance. However, the parties are still able to file appeals at this stage.
19.9. Compensation of employees and key management personnel
The criteria for compensation of employees and officers are established based on the relevant labor legislation and
the Company’s Positions, Salaries and Benefits Plan (Plano de Cargos e Salários e de Benefícios e Vantagens).
The compensation of employees (including those occupying managerial positions) and officers in the months of
December 2016 and December 2015 were:
Compensation of employees, excluding officers
Lowest compensation
Average compensation
Highest compensation
Compensation of highest paid Petrobras officer
The total compensation of Petrobras’ key management personnel is set out as follows:
Amounts in reais
Dec/2015
2,812.74
16,582.21
90,078.93
Dec/2016
3,078.15
17,707.71
92,203.64
116,761.20
106,748.22
Wages and short-term benefits
Social security and other employee-related taxes
Post-employment benefits (pension plan)
Benefits due to termination of tenure
Total compensation recognized in the statement of income
Total compensation paid
Average number of members in the period (*)
Average number of paid members in the period (**)
(*) Monthly average number of members.
(**) Monthly average number of paid members.
Board
(members and
alternates)
1.2
0.3
−
−
1.5
1.5
11.00
9.33
Officers
11.8
3.4
1.0
0.7
16.9
16.9
7.67
7.67
2016
Total
13.0
3.7
1.0
0.7
18.4
18.4
18.67
17.00
Board
(members and
alternates)
1.4
0.3
−
−
1.7
1.7
Officers
12.7
3.4
0.8
−
16.9
16.9
8.00
8.00
13.67
11.33
2015
Total
14.1
3.7
0.8
−
18.6
18.6
21.67
19.33
In 2016 the board members and executive officers of the Petrobras group received R$ 76.8 as compensation (R$ 67.4
in 2015).
The Extraordinary General Meeting held on July 1, 2015 amended the following:
• Article 18 of the Company's Bylaws to allow board members to have alternates with mandates limited to a two-
year period; article 29 to establish that five Advisory Committees will support the Board of Directors with their
appraisals and recommendations regarding specific issues related to the Board; article 41 to permit that board
members’ alternates may participate in all board meetings and receive a fixed monthly stipend as defined by the
Board and in accordance with compensation limits established in the General Meeting;
• The total Board members compensation established at the Annual General Meeting increased by R$ 754
thousand, in order to cover the fees of the alternate Board members from July 2015 to March 2016.
77
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The compensation of the Advisory Committees to the Board of Directors is apart from the fixed compensation set for
the Board members and, therefore, has not been classified under compensation of Petrobras’ key management
personnel.
In 2016, the alternates of Board members, who were also members of these committees, received the amount of R$ 54
thousand as compensation in 2016 (R$ 65 thousand including related charges).
20. Provision for decommissioning costs
Consolidated
Parent Company
Non-current liabilities
12.31.2015
Opening balance
20,630
Adjustment to provision
17,277
Transfers related to liabilities held for sale (*)
(488)
Payments made
(3,306)
Interest accrued
721
Others
(193)
34,641
Closing balance
(*) Includes R$ 493 relating to the termination of sales contract of Bijupirá and Salema fields, R$ 170 relating to the intention to sell interest in Lapa, Sururu, Berbigão and Oeste de
Atapu fields, and R$ 383 transferred pursuant to the sale of the subsidiary PESA.
12.31.2016
35,728
(1,785)
(60)
(2,606)
2,290
(155)
33,412
12.31.2015
21,958
17,300
(488)
(4,149)
753
354
35,728
12.31.2016
34,641
(2,029)
323
(2,600)
2,280
−
32,615
The estimates for abandonment and dismantling of oil and natural gas producing properties areas are revised
annually at December 31 along with the annual process of oil and gas reserves certification or whenever an indication
of significant change in the assumptions used in the estimates occurs.
In 2016, the revisions resulted in a R$ 2.3 billion decrease in the provision for decommissioning costs, mainly due to: (i)
a R$ 3.2 billion decrease due to lower exchange rate with direct impact on costs in dollars, (ii) a R$ 1.6 billion decrease
due to a higher risk adjustment rate of discount (from 6.73% p.a. on December 31, 2015 to 7.42% p.a. on December 31,
2016). These effects were partially offset by a R$ 2.5 billion increase attributable to a revision on abandonment
estimates, mainly due to additional drilling wells and other equipment.
21. Taxes
21.1. Income taxes and other taxes
Income tax and social contribution
Taxes in Brazil
Taxes abroad
Total
Current assets
Current liabilities
Consolidated
Parent Company
Current assets
12.31.2016
1,938
23
1,961
12.31.2015
3,743
96
3,839
12.31.2016
364
48
412
12.31.2015
242
168
410
12.31.2016
786
−
786
12.31.2015
1,520
−
1,520
78
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Other taxes and contributions
Current assets
Non-current assets
Current liabilities
Non-current liabilities (*)
2016
2015
2016
2015
2016
2015
2016
2015
Consolidated
Taxes In Brazil:
Current / Deferred ICMS (VAT)
Current / Deferred PIS and COFINS
(taxes on revenues)
CIDE
Production Taxes (Special
participation / Royalties)
Withholding income tax and social
contribution
REFIS and PRORELIT
Others
Total in Brazil
Taxes abroad
Total
Taxes In Brazil:
ICMS/ Deferred ICMS (VAT)
PIS and COFINS/ Deferred PIS and
COFINS (Taxes on Revenues)
CIDE
Production Taxes (Special
Participation / Royalties)
Withholding income tax and social
contribution
REFIS and PRORELIT
Others
3,156
3,151
2,202
2,364
3,513
4,081
2,314
71
2,913
72
7,374
−
7,913
−
1,509
386
1,902
449
−
−
−
−
4,015
2,428
−
−
540
6,081
111
6,192
−
−
585
6,721
172
6,893
−
−
623
10,199
37
10,236
−
−
718
10,995
22
11,017
1,584
90
621
11,718
108
11,826
1,698
1,068
956
12,582
557
13,139
2,790
2,700
2,066
2,291
3,303
3,830
1,740
71
1,762
72
7,154
−
7,194
−
1,434
385
1,745
449
−
−
−
−
4,015
2,428
−
−
463
5,064
−
−
453
4,987
−
−
106
9,326
−
−
−
9,485
1,490
90
502
11,219
1,621
1,068
621
11,762
−
−
−
−
−
−
−
−
−
−
65
65
−
65
60
43
−
103
−
103
Parent Company
−
−
−
−
−
−
−
−
−
−
−
−
−
43
−
43
(*) Other non-current taxes are classified as other non-current liabilities.
79
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
21.2. Tax amnesty program – (Programa de Recuperação Fiscal - REFIS)
On July 16, 2015 Petrobras paid R$ 1,580 (R$ 1,183 in cash and R$ 397 in tax credits) related to a definitive ruling at
the administrative stage with respect to a tax deficiency notice issued by the Brazilian Federal Tax Authorities. The
notice is related to the tax on financial operations (Imposto sobre operações financeiras - IOF) applicable to
intercompany loans made by Petrobras to foreign subsidiaries in 2008.
In addition, Joint Ordinance 1,064 (Portaria Conjunta RFB/PGFN 1.064) issued by the Brazilian Federal Tax Authorities
and by the Brazilian Federal Tax Attorney General's Office, and Normative Instruction 1,576/15 (Instrução Normativa
RFB 1.576/15) issued by the Brazilian Federal Tax Authorities, both published on August 3, 2015, clarified that
taxpayers had an opportunity for relief in connection with additional existing federal tax debts, through the tax
amnesty program created under Law 12,996/14 – Programa de Recuperação Fiscal (REFIS). The Company has decided
to adhere to the REFIS to pay for the tax liabilities set out as follows:
- Pay amounts due according to the tax deficiency notices issued by the Brazilian Federal Tax Authorities related to
the tax on financial operations (IOF) applicable to intercompany loans made by Petrobras to its foreign subsidiaries
in 2007, 2009 and 2010 and to pay amounts due related to the IOF applicable to similar intercompany loans made
in other periods, for which a tax deficiency notice has not been issued (2011 and 2012), in the amount of R$ 3,118.
The Company modified its procedures with respect to the payment of the IOF applicable to transactions in 2013
and, therefore, it does not expect any additional tax deficiency notices.
- Pay the tax deficiency notices issued by the Brazilian Federal Tax Authorities related to the alledged failure to
withhold income tax (imposto de renda retido na fonte- IRRF) on amounts Petrobras paid to its former subsidiary
Petrobras International Finance Company (PifCo) with respect to crude oil and oil product imports between 1999
and 2002, 2004, 2005 and 2007 to 2012, in the amount of R$ 2,840.
- Penalties for noncompliance with customs clearance procedures on crude oil and oil product imports from 2008 to
2013, in the amount of R$ 46.
-
Inflation indexation of REFIS in the amount of R$ 33 in the period relating to the fourth quarter of 2015.
The Company will pay those federal tax liabilities in 30 monthly installments following an immediate payment of 20%
of the total amount due (after the reductions provided by the tax amnesty program) and using tax credits (tax loss
carryforwards) to pay for interest and penalties.
As a result, in the period from January to December, 2015, the Company recognized a total expense of R$ 7,617 in
2015, of which R$ 5,090 was recognized as other taxes expenses and R$ 2,527 as finance expenses. In the same period,
the Company paid a total amount of R$ 6,527, of which R$ 3,467 was paid in cash, R$ 1,806 by using tax credits and R$
1,254 by using judicial deposits. The remaining amount was settled in January 2017.
21.3. Tax amnesty programs – State Tax (Programas de Anistias Estaduais)
In 2016, the Company elected to settle taxes in cash through an amnesty settlement programs administered by the
State of São Paulo pursuant to the Decree No. 61,625/2015 and Decree No. 61,788/2016, as well as Complementary
Law 333/2016 enacted by the State of Pernambuco. In 2015, the Company decided to benefit from tax amnesty
programs relating to the states of Rio de Janeiro, Espírito Santo, Bahia, Pará and Brazil Federal District.
In 2016 the Company charged to income R$ 155 (R$ 1,229 in 2015), of which R$ 126 (R$ 1,046 in 2015) was recognized
as other taxes and R$ 29 (R$ 183 in 2015) as finance expense within Statement of Income.
80
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
21.4. Reduction tax litigation program (Programa de Redução de Litígios Tributários – PRORELIT)
On October 30, 2015, Petrobras joined the PRORELIT, established by Law No. 13,202 / 15 (Measure Conversion Act No.
685/15) paying R$ 67, R$ 20 in cash and R$ 47 in tax credits debts and customs fines against the Company from 2014
and 2015 and to tax penalties for improper deduction of tax bases in 2003 and 2004. In 2015 the Company charged to
income R$ 67, of which R$ 28 was recognized in other taxes expenses and R$ 39 in finance expenses in the Statement
of Income.
21.5. Brazilian Tax Law
On December 30, 2015, the state of Rio de Janeiro enacted two laws that increased the tax burden on the oil industry
from March 2016, as follows:
•
•
Law No. 7,182 – establishes a Rate Control, Monitoring and Supervision of Research, Mining, Oil and Gas
Exploration and Utilization Activities tax (Taxa de Controle, Monitoramento e Fiscalização das Atividades de
Pesquisa, Lavra, Exploração e Aproveitamento de Petróleo e Gás – TFPG) over each barrel of crude oil or
equivalent unit of natural gas extracted in the State of Rio de Janeiro, and
Law No. 7,183 – establishes a VAT (ICMS) tax over transactions involving crude oil operations.
The Company believes that the taxation established by both laws is not legally justifiable, and therefore, the Company
has supported the Brazilian Association of Companies for the Exploration and Production of Oil and Gas (ABEP -
Associação Brasileira de Empresas de Exploração e Produção de Petróleo e Gás), which has filed complaints
challenging the constitutionality of such laws before the Brazilian Supreme Court.
The Brazilian Federal Attorney has expressed favorable opinions regarding the basis of the ABEP complaints and the
granting of judicial injunctions in favor of the oil and gas industry, to avoid the associated tax burden on it.
As the Brazilian Supreme Court has not ruled on the ABEP request for formal injunctions, the Company filed individual
complaints before the State Court of Rio de Janeiro challenging both laws and, as a result, judicial injunctions were
granted in favor of the Company in December 2016 and this tax burden has been suspended.
81
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
21.6. Deferred income tax and social contribution - non-current
a)
Changes in deferred income tax and social contribution are set out below:
Property, Plant and
Equipment
Loans, trade
and other
receivables /
payables and
financing
10,155
(1,687)
20,961
2
-
296
29,727
(1,192)
(17,089)
47
(47)
11,446
Others (*)
(595)
5,894
-
106
-
(362)
5,043
(2,161)
-
(77)
250
3,055
Oil and gas
exploration
costs
(36,249)
(4,061)
-
-
-
-
(40,310)
3,792
-
-
-
(36,518)
Balance at January 1, 2015
Recognized in the statement of income for the year
Recognized in shareholders’ equity
Cumulative translation adjustment
Use of tax credits - REFIS and PRORELIT
Others
Balance at December 31, 2015
Recognized in the statement of income for the period
Recognized in shareholders’ equity
Cumulative translation adjustment
Others (**)
Balance at December 31, 2016
Deferred tax assets
Deferred tax liabilities
Balance at December 31, 2015
Deferred tax assets
Deferred tax liabilities
Balance at December 31, 2016
(*) Relates, primarily, to disposal of interests in investees or mergers.
(**) Includes R$ 249 transferred to liabilities associated with assets held for sale due to the disposal of subsidiary PESA.
82
Finance
leases
(1,573)
186
-
-
-
21
(1,366)
108
992
-
(28)
Provision for
legal
proceedings
Tax losses
Inventories
Employee
benefits
Others
1,397
1,712
-
(14)
-
(3)
3,092
663
-
5
(84)
15,191
6,789
(336)
501
(1,853)
73
20,365
(362)
(10)
(190)
(119)
1,302
74
-
(4)
7
1,379
19
-
-
-
5,371
(612)
(54)
3
-
(27)
4,681
1,731
3,485
(13)
(77)
9,807
(378)
616
-
(276)
-
11
(27)
682
-
(43)
316
928
(294)
3,676
19,684
1,398
Consolidated
Parent
Company
Total
(5,379)
8,911
20,571
318
(1,853)
16
22,584
3,280
(12,622)
(271)
211
13,182
23,490
(906)
22,584
14,038
(856)
13,182
Total
(9,062)
8,047
17,991
−
(1,853)
33
15,156
1,010
(11,305)
−
12
4,873
15,156
−
15,156
4,873
−
4,873
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
b)
Timing of reversal of deferred income taxes
Deferred tax assets were recognized based on projections of taxable profit in future periods supported by the
Company’s 2017-2021 Business and Management Plan (BMP). The main goals and objectives outlined in its business
plan include business restructuring, a divestment plan, demobilization of assets and reducing operating expenses.
Management considers that the deferred tax assets will be realized to the extent the deferred tax liabilities are
reserved and expected taxable events occur, based on its 2017-2021 BMP.
The estimated schedule of recovery/reversal of net deferred tax assets (liabilities) recoverable (payable) as of
December 31, 2016 is set out in the following table:
2017
2018
2019
2020
2021
2022
2023 and thereafter
Recognized deferred tax credits
In Brazil
Abroad
Unrecognized deferred tax credits
Total
Deferred income tax and social contribution
Consolidated
Parent Company
Assets
6,681
1,062
1,463
1,772
1,052
779
1,229
14,037
1,576
8,252
9,828
23,865
Liabilities
374
30
44
47
222
1
138
856
835
−
835
1,691
Assets
4,873
−
−
−
−
−
−
4,873
−
−
−
4,873
Liabilities
−
−
−
−
−
−
−
−
−
−
−
−
At December 31, 2016, the Company had tax loss carryforwards arising from offshore subsidiaries, for which no
deferred tax assets had been recognized. These tax losses totaling R$ 8,252 (R$ 9,513 as of December 31, 2015) arose
mainly from oil and gas exploration and production and refining activities in the United States of R$ 7,416 (R$ 7,816 as
of December 31, 2015), as well as Spanish companies in the amount of R$ 834 (R$ 1,697 as of December 31, 2015).
An aging of the unrecognized tax carryforwards, from companies abroad, classified by lapse of the applicable statute
of limitations is set out below:
Year
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030 and thereafter
Total
Lapse of
Statute of
Limitations
123
435
17
158
103
19
369
424
480
529
5,595
8,252
83
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
21.7. Reconciliation between statutory tax rate and tax expense
The following table provides the reconciliation of Brazilian statutory tax rate to the Company’s effective rate on
income before income taxes:
Loss before income taxes
Nominal income taxes computed based on Brazilian statutory corporate tax rates (34%)
Adjustments to arrive at the effective tax rate:
Different jurisdictional tax rates for companies abroad
Brazilian income taxes on income of companies incorporated outside Brazil (*)
Tax incentives
Tax loss carryforwards (unrecognized tax losses)
Non-taxable income (non-deductible expenses), net (**)
Others
Income taxes benefit (expense)
Deferred income taxes
Current income taxes
Total
Effective tax rate of income taxes
(*) Relates to Brazilian income taxes on earnings of offshore investees, as established by Law No. 12,973/2014.
(**) Includes results in equity-accounted investments and CTA transferred to income statement due to the disposal of Pesa and Nansei as set out in note 10.1.
Consolidated
Parent Company
2016
(10,703)
3,639
2015
(41,229)
14,018
2016
(15,690)
5,335
2015
(42,883)
14,580
(391)
(1,089)
171
(913)
(3,242)
(517)
(2,342)
3,280
(5,622)
(2,342)
(21.9)%
(1,388)
(2,528)
43
(1,864)
(2,081)
(142)
6,058
8,911
(2,853)
6,058
14.7%
−
(1,089)
18
−
(2,749)
(649)
866
1,010
(144)
866
5.5%
−
(2,528)
−
(3,997)
(8)
8,047
8,047
−
8,047
18.8%
22. Employee benefits (Post-Employment)
The balance of employee benefits (post-employment) are set out below:
Liabilities
Petros pension plan
Petros 2 pension plan
AMS medical plan
Other plans
Current
Non-current
Consolidated
Parent Company
2016
2015
2016
2015
35,040
955
36,549
124
72,668
2,672
69,996
72,668
23,185
277
26,369
343
50,174
2,556
47,618
50,174
33,191
778
33,467
−
67,436
2,533
64,903
67,436
22,110
231
24,641
−
46,982
2,436
44,546
46,982
22.1. Petros Plan and Petros 2 Plan
The Company’s post-retirement plans are managed by Fundação Petrobras de Seguridade Social (Petros), which was
established by Petrobras as a nonprofit legal entity governed by private law with administrative and financial
autonomy.
a) Petros Plan - Fundação Petrobras de Seguridade Social
The Petros Plan was established by Petrobras in July 1970 as a defined-benefit pension plan and currently provides
post-retirement benefits for employees of Petrobras and Petrobras Distribuidora S.A., in order to complement
government social security benefits. The Petros Plan has been closed to new participants since September 2002.
Petros performs an annual actuarial review of its costs using the capitalization method for most benefits. The
employers (sponsors) make regular contributions in amounts equal to the contributions of the participants (active
employees, assisted employees and retired employees), on a parity basis.
84
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
On July 31, 2016, Petros Plan announced a deficit in the amount of R$ 22.6 billion. The deficit exceeds in R$ 16 billion
the ceiling amount as established in the Resolution 22/2015 enacted by the Post-retirement Benefit Federal Council -
CNPC, that outlines terms of equating plans. Accordingly, participants of the plan and their employers (sponsors)
would be called to cover this deficit based on their respective proportions of regular contributions and in accordance
with an equation plan guideline in a period totaling 1.5 times the duration of the liabilities under the plan, which is
estimated to be 18 years.
Pursuant to the aforementioned rule, Petros should have developed and approved by December 31, 2016, an equating
plan to be implemented within 60 calendar days following the Executive Council approval. However, due to managerial
and technical reasons, the Pension Plan requested a Conduct Adjustment Declaration (TAC) before Superintendency
of Post-retirement Benefits – PREVIC, in order to postpone the implementation of its equating plan for 2015 within
approximately 210 calendar days after the TAC approval. Therefore, the Company, as sponsor of this pension plan,
expects to make additional contributions only after the term established in the TAC.
As of December 31, 2016, the balance of the Terms of Financial Commitment (TFC), signed by Petrobras and Petros in
2008 is R$ 11,832 (R$ 11,436 in the Parent Company). The TCF is a financial commitment agreement to cover
obligations with the pension plan, which amounts are due in 20 years, with 6% p.a. semiannual coupon payments
based on the updated balance. The Company has provided crude oil and oil products pledged as security for the TFC
totaling R$ 6,449 which are been reviewed.
The employers' expected contributions to the plan for 2017 are R$ 624 (R$ 588 in the Parent Company) and interest
payments on TCF R$ 719 (R$ 696 in the Parent Company).
The average duration of the actuarial liability related to the plan, as of December 31, 2016, is 11.42 years (10.06 years
as of December 31, 2015).
b) Petros 2 Plan - Fundação Petrobras de Seguridade Social
Petros 2 Plan was established in July 2007 by Petrobras and certain subsidiaries as a variable contribution plan
recognizing past service costs for contributions for the period from August 2002 to August 29, 2007. The Petros 2
Plan currently provides post-retirement benefits for employees of Petrobras, Petrobras Distribuidora S.A., Stratura
Asfaltos, Termobahia, Termomacaé, Transportadora Brasileira Gasoduto Brasil-Bolívia S.A. – TBG, Petrobras
Transporte S.A. – Transpetro and Petrobras Biocombustível. The plan is open to new participants although there will
no longer be payments relating to past service costs.
Certain elements of the Petros 2 Plan have defined benefit characteristics, primarily the coverage of disability and
death risks and the guarantee of minimum defined benefit and lifetime income. These actuarial commitments are
treated as defined benefit components of the plan and are accounted for by applying the projected unit credit
method. Contributions paid for actuarial commitments that have defined contribution characteristics are accrued
monthly in the statement of income and are intended to constitute a reserve for programmed retirement. The
contributions for the portion of the plan with defined contribution characteristics were R$ 871 in 2016 (R$ 765 in the
Parent Company).
The defined benefit portion of the contributions was suspended from July 1, 2012 to June 30, 2017, as determined by
the Executive Council of Petros, based on advice of the actuarial consultants from Petros. Therefore, the entire
contributions are being applied to the individual accounts of plan participants.
For 2017 the employers' expected contributions to the defined contribution portion of the plan are R$ 854 (R$ 732 in
the Parent Company).
The average duration of the actuarial liability related to the plan, as of December 31, 2016, is 43.20 years (29.58 years
as of December 31, 2015).
85
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
22.2. Other plans
The Company also sponsors other pension and health care plans of certain of its Brazilian and international
subsidiaries. Most of these plans are unfunded and their assets are held in trusts, foundations or similar entities
governed by local regulations.
Following the disposals of Petrobras Argentina and Nansei Sekiyu, the Company is not a sponsor of their pension and
health care plans at December 31, 2016. In addition, the Company’s Board of Directors approved the disposal of its
interest in the subsidiary Liquigás and, accordingly, the related actuarial liabilities were reclassified as held for sale.
Further information on these divestments is presented in note 10.1.
22.3. Pension Plans assets
Pension plans assets follow a long term investment strategy based on the risks assessed for each different class of
assets and provide for diversification, in order to lower portfolio risk. The portfolio profile must comply with the
Brazilian National Monetary Council (Conselho Monetário Nacional – CMN) regulations.
Petros establishes investment policies for 5-year periods, reviewed annually. Petros uses an asset liability
management model (ALM) to address net cash flow mismatches of the benefit plans, based on liquidity and solvency
parameters, simulating a 30-year period.
Portfolio allocation limits for the period between 2017 and 2021 for the Petros Plan of the Petrobras Group are 40% to
75% in fixed-income securities, 10% to 35% in variable-income securities, 4% to 8% in real estate, 2% to 8% in loans to
participants, as well as 0% to 7% in structured finance projects. Allocation limits for Petros 2 Plan for the same period
are: 60% to 100% in fixed-income securities, 0% to 20% in variable-income securities, 0% to 5% in real estate, 2% to 8%
in loans to participants, 0% to 4% in structured finance projects and 0% to 2% in investments abroad.
The pension plan assets by type of asset are set out as follows:
Type of asset
Fixed income
Corporate bonds
Government bonds
Other investments
Variable income
Common and preferred shares
Other investments
Structured investments
Private equity funds
Venture capital funds
Real estate funds
Real estate properties
Loans to participants
Quoted prices
in active
markets
21,530
−
21,530
−
16,129
16,129
−
−
−
−
−
−
37,659
−
Unquoted
prices
3,798
221
−
3,577
369
−
369
2,519
2,182
56
281
4,052
10,738
2,264
Total fair
value
25,328
221
21,530
3,577
16,498
16,129
369
2,519
2,182
56
281
4,052
48,397
2,264
50,661
2016
%
50
33
5
8
96
4
100
Total fair
value
21,283
620
17,033
3,630
17,484
16,826
658
3,819
3,490
37
292
4,203
46,789
2,074
48,863
Consolidated
2015
%
43
36
8
9
96
4
100
As of December 31, 2016, the investment portfolio included Petrobras’ common and preferred shares in the amount
of R$ 36 and R$ 146, respectively, and Petros’ real estate properties leased by the Company in the amount of R$ 1,489.
Loans to participants are measured at amortized cost, which is considered to be an appropriate estimate of fair value.
86
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
22.4. Medical Benefits: Health Care Plan - Assistência Multidisciplinar de Saúde (“AMS”)
Petrobras, Petrobras Distribuidora S.A., Petrobras Transporte S.A. – Transpetro, Petrobras Biocombustível and
Transportadora Brasileira Gasoduto Brasil-Bolívia - TBG operate a medical benefit plan for their employees in Brazil
(active and retired) and their dependents: the AMS health care plan. The plan is managed by the Company based on a
self-supporting benefit assumption and includes health prevention and health care programs. The plan is mainly
exposed to the risk of an increase in medical costs due to new technologies, new types of coverage and to a higher
level of usage of medical benefits. The Company continuously improves the quality of its technical and administrative
processes, as well as the health programs offered to beneficiaries in order to hedge such risks.
The employees make fixed monthly contributions to cover high-risk procedures and variable contributions for a
portion of the cost of the other procedures, both based on the contribution tables of the plan, which are determined
based on certain parameters, such as salary and age levels. The plan also includes assistance towards the purchase of
certain medicines in registered drugstores throughout Brazil. There are no health care plan assets. Benefits are paid
and recognized by the Company based on the costs incurred by the participants.
The average duration of the actuarial liability related to this health care plan, as of December 31, 2016, is 22.04 years
(21,54 as of December 31, 2015).
22.5. Net actuarial liabilities and expenses calculated by independent actuaries and fair value of plans
assets
Aggregate
information
is presented for other plans, whose total assets and liabilities are not material.
87
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
a)
Changes in the actuarial liabilities, in the fair value of the assets and in the amounts recognized in the statement of financial position
Pension Plan
Petros
Petros 2
Medical Plan
Other
plans
Total
Petros
Petros 2
Medical Plan
Pension Plan
2016
Other
plans
2015
Total
73,601
1,441
23,957
443
99,442
Changes in the present value of obligations
Obligations at the beginning of the year
Interest expense:
· Term of financial commitment (TFC)
· Actuarial
Current service cost
Employee contributions
Benefits paid, net of assisted contributions
Remeasurement: Experience (gains) / losses
Remeasurement: (gains) / losses - demographic assumptions
Remeasurement: (gains) / losses - financial assumptions
Others
Obligations at the end of the year
Changes in the fair value of plan assets
Fair value of plan assets at the beginning of the year
Interest income
Contributions paid by the sponsor (Company)
Contributions paid by participants
Term of financial commitment (TFC) paid by the Company
Benefits paid, net of assisted contributions
Remeasurement: Return on plan assets lower than interest income
Others
Fair value of plan assets at the end of the year
Amounts recognized in the Statement of Financial Position
Present value of obligations
( -) Fair value of plan assets
Net actuarial liability as of December 31,
Changes in net actuarial liability
Balance as of January 1,
(+) Remeasurement effects recognized in other comprehensive income
(+) Costs incurred in the period
(-) Contributions paid
(-) Payments related to Term of financial commitment (TFC)
Others
Balance as of December 31,
70,952
1,160
26,369
556
1,506
8,560
288
321
(4,649)
(4,735)
260
11,815
−
84,318
47,767
6,788
672
321
706
(4,649)
(2,327)
−
49,278
−
166
74
−
(57)
(42)
(20)
930
−
2,211
883
125
−
−
−
(57)
305
−
1,256
84,318
(49,278)
35,040
2,211
(1,256)
955
23,185
9,667
3,566
(672)
(706)
−
35,040
277
563
115
−
−
−
955
−
3,792
446
−
(1,224)
(2,716)
(138)
10,020
−
36,549
−
−
1,224
−
−
(1,224)
−
−
−
36,549
−
36,549
26,369
7,166
4,238
(1,224)
−
−
36,549
−
28
64
1
(7)
5
5
44
(445)
251
213
10
32
1
−
(7)
1
(123)
127
251
(127)
124
343
53
82
(32)
−
(322)
124
99,037
−
1,506
12,546
872
322
(5,937)
(7,488)
107
22,809
(445)
123,329
48,863
6,923
1,928
322
706
(5,937)
(2,021)
(123)
50,661
1,428
7,926
254
341
(4,041)
(1,735)
(152)
(6,670)
−
70,952
52,685
6,729
644
341
550
(4,041)
(9,141)
−
47,767
123,329
(50,661)
72,668
70,952
(47,767)
23,185
50,174
17,449
8,001
(1,928)
(706)
(322)
72,668
20,916
584
2,879
(644)
(550)
−
23,185
−
188
107
−
(16)
13
(162)
(411)
−
1,160
679
88
−
−
−
(16)
132
−
883
1,160
(883)
277
762
(692)
207
−
−
−
277
−
3,065
148
−
(1,155)
(2,544)
10
2,888
−
26,369
−
−
1,155
−
−
(1,155)
−
−
−
26,369
−
26,369
23,957
354
3,213
(1,155)
−
−
26,369
−
60
38
1
(14)
(12)
(2)
(33)
75
556
160
9
18
1
−
(14)
(3)
42
213
1,428
11,239
547
342
(5,226)
(4,278)
(306)
(4,226)
75
99,037
53,524
6,826
1,817
342
550
(5,226)
(9,012)
42
48,863
556
(213)
343
99,037
(48,863)
50,174
283
(44)
89
(18)
−
33
343
45,918
202
6,388
(1,817)
(550)
33
50,174
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
b)
Defined benefit costs
Service cost
Interest on net liabilities (assets)
Net expenses for the year
Related to active employees:
Included in the cost of sales
Operating expenses in statement of income
Related to retirees
Net expenses for the year
Service cost
Interest on net liabilities (assets)
Net expenses for the year
Related to active employees:
Included in the cost of sales
Operating expenses in statement of income
Related to retirees
Net expenses for the year
Pension Plans Medical Plan
Petros
Petros 2
AMS
Other
Plans
288
3,278
3,566
888
446
2,232
3,566
254
2,625
2,879
841
437
1,601
2,879
74
41
115
61
38
16
115
107
100
207
105
86
16
207
446
3,792
4,238
995
539
2,704
4,238
148
3,065
3,213
638
406
2,169
3,213
64
18
82
5
72
5
82
38
51
89
6
79
4
89
Consolidated
Total
2016
872
7,129
8,001
1,949
1,095
4,957
8,001
2015
547
5,841
6,388
1,590
1,008
3,790
6,388
c)
Sensitivity analysis of the defined benefit plans
The effect of a 100 basis points (bps) change in the assumed discount rate and medical cost trend rate is as set out
below:
Pension Benefits
Discount rate
Medical Benefits
Consolidated
Rate of changes of medical
and hospital changes
Medical Benefits
+ 100 bps
- 100 bps
+ 100 bps
- 100 bps
+ 100 bps
- 100 bps
Pension Obligation
Current Service cost and interest cost
(8,159)
(14)
9,930
595
(4,348)
(246)
5,406
297
5,463
742
(4,485)
(599)
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
d)
Actuarial assumptions
Assumptions
Discount rate - (real rate )
Expected Inflation (Brazilian price
index - IPCA)
Nominal discount rate (real rate +
inflation)
Expected salary growth - real rate
Expected salary growth - nominal
(real rate + Inflation)
Medical plan turnover
Pension plan turnover
Expected changes in medical and
hospital costs
Mortality table
Disability table
Mortality table for disabled
participants
Age of retirement
2016
5.74% (1) / 5.69% (2) / 5.72% (3)
2015
7.33% (1) / 7.28% (2) / 7.32% (3)
4.87% (1) (2) (3) (4)
6.87% (1) (2) (3) (4)
10.89% (1) / 10.84% (2) / 10.87% (3)
1.53% (1) (5) / 2.58% (2) (5)
14.70% (1) / 14.65% (2) / 14.69% (3)
1.48% (1) (5) / 2.79% (2) (5)
6.47% (1) (5) / 7.57% (2) (5)
0.597% p.a (6)
Null
8.45% (1) (5) / 9.85% (2) (5)
0.753% p.a (6)
Null
13.91% to 4.00%p.a (7)
EX-PETROS 2013 (both genders) (1) (3)
AT-2000 female, smoothed in a 10% coefficient (2)
TASA 1927 (1) (3) / LIGHT-low (2)
AT-49 male amplified in a 10%
coefficient (1) (3)
IAPB 1957 low (2)
Male, 57 years / Female, 56 years (8)
14.92% to 3.70%p.a (7)
EX-PETROS 2013 (both genders) (1) (3)
AT-2000 female, smoothed in a 10% coefficient (2)
TASA 1927 (1) (3) / Álvaro Vindas (2)
AT-49 male amplified in a 10%
coefficient (1) (3)
IAPB 1957 low (2)
Male, 57 years / Female, 56 years (8)
(1) Petros Plan for Petrobras Group.
(2) Petros 2 Plan.
(3) AMS Plan.
(4) Inflation reflects market projections: 4.87% for 2017 and converging to 4.00% in 2026 torwards.
(5) Expected salary growth only of Petrobras, the sponsor, based on the Salaries and Benefits Plan.
(6) Average turnover (only of Petrobras, the sponsor) according to age and employment term.
(7) Decreasing rate, converging in 30 years to the long-term expected inflation. Refers only to Petrobras (sponsor) rate.
(8) Except for Petros 2 Plan, for which it was used the eligibility as the rules of Regime Geral de Previdência Social (RGPS) and the rules of the plan.
e)
Expected maturity analysis of pension and medical benefits
Up to 1 year
1 to 2 years
2 to 3 years
3 to 4 years
Over 4 years
Total
Pension plan Medical plan
Petros
5,865
5,153
4,956
4,788
63,556
84,318
Petros 2
75
76
77
77
1,906
2,211
AMS
1,334
1,401
1,465
1,517
30,832
36,549
Consolidated
2016
Total
7,278
6,633
6,501
6,385
96,532
123,329
Other
plans
4
3
3
3
238
251
22.6. Other defined contribution plans
Petrobras, through its subsidiaries in Brazil and abroad, also sponsors other defined contribution pension plans for
employees. Contributions paid in 2016, in the amount of R$ 16, were recognized in the statement of income.
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
22.7. Voluntary Separation Incentive Plan
From January 2014 to December 31, 2016 the Company implemented voluntary separation incentive plans (PIDV) as
described below:
• Petrobras (PIDV 2014) – the enrollment period lasted from February 12 to March 31, 2014. This plan was re-
opened for eligible employees from November 30 to December 18, 2015, resulting in 7,634 enrollments with 6,878
separations and 415 cancelations;
• Petrobras Distribuidora S.A. (PIDV BR 2014) – the enrollment period lasted from February 12 to March 31, 2014,
resulting in 712 enrollments with 656 separations and 55 cancelations;
• Petrobras Distribuidora S.A. (PIDV BR 2015) – the enrollment period lasted from October 13 to December 30,
2015, resulting in 345 enrollments with 316 separations and 29 cancelations;
• Petrobras PIDV 2016 – the enrollment period lasted from April 1 to August 31, 2016 resulting in 11,866
enrollments with 5,312 separations and 393 cancelations; and
• Petrobras Distribuidora S.A. (PIDV BR 2016) – the enrollment period lasted from November 1 to December 30,
2016, resulting in 1,105 enrollments. The separation period commenced on January 17, 2017.
Accordingly, 13,162 voluntary separations of employees who enrolled in these plans were made.
As of December 31, 2016 changes in the provision are set out as follows:
Balance as of December 31, 2015
New enrolments PIDV Petrobras 2016
Revision of provisions
Separations in the period
Balance as of December 31, 2016
Current
Non-current
Consolidated
777
4,117
(35)
(2,215)
2,644
2,644
-
91
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
23. Shareholders’ equity
23.1. Share capital
As of December 31, 2016, subscribed and fully paid share capital was R$ 205,432, represented by 7,442,454,142
outstanding common shares and 5,602,042,788 outstanding preferred shares, all of which are registered, book-entry
shares with no par value.
Preferred shares have priority on returns of capital, do not grant any voting rights and are non-convertible into
common shares.
23.2. Capital transactions
a)
Incremental costs directly attributable to the issue of new shares
Includes any transaction costs directly attributable to the issue of new shares, net of taxes.
b)
Change in interest in subsidiaries
Includes any excess of amounts paid/received over the carrying value of the interest acquired/disposed. Changes in
ownership interest in subsidiaries that do not result in loss of control of the subsidiary are equity transactions.
Information on interest in subsidiaries is set out in note 11.
23.3. Profit reserves
a)
Legal reserve
Represents 5% of the net income for the year, calculated pursuant to article 193 of the Brazilian Corporation Law.
b)
Statutory reserve
Appropriated by applying a minimum of 0.5% of the year-end share capital and is retained to fund technology
research and development programs. The balance of this reserve may not exceed 5% of the share capital, pursuant to
article 55 of the Company’s bylaws.
c)
Tax incentives reserve
Government grants are recognized in the statement of income and are appropriated from retained earnings to the tax
incentive reserve in the shareholders’ equity pursuant to article 195-A of Brazilian Corporation Law. This reserve may
only be used to offset losses or increase share capital.
The Company recorded a loss in 2016 and 2015, therefore, the effect of the tax incentives in the north and northeast
regions of Brazil from Superintendência de Desenvolvimento do Nordeste (SUDENE) and Superintendência de
Desenvolvimento da Amazônia (SUDAM) were not allocated to the tax incentives reserve. However, the impact of tax
incentives will be allocated to the tax incentives reserve in future periods, pursuant to Chapter I of Law 12,973/14.
The accumulated amount of tax incentives derived from the statements of income for the years 2014, 2015 and 2016,
to be allocated to the tax incentives reserve, are R$ 104 (R$ 54 for 2016, R$ 25 for 2015 and R$ 25 for 2014).
d)
Profit retention reserve
Includes funds intended for capital expenditures, primarily in oil and gas exploration and development activities, as
per the capital budget of the Company, pursuant to article 196 of the Brazilian Corporation Law.
92
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The accumulated deficit balance of R$ 14,812 as of December 31, 2016 will be allocated to the profit retention reserve.
23.4. Other comprehensive income
In 2016 the Company principally recognized as other comprehensive income the following effects:
-
cumulative translation adjustment of R$ 15,585. As set out in note 10.1, this amount was impacted by the
disposal of the Company’s interests in the subsidiaries Petrobras Participaciones S.L. (“PPSL”) and Nansei
Seikyu (NSS) that triggered the reclassification of R$ 3,693 to income statement within other expenses, net,
relating to the cumulative translation adjustments resulted from the operation, since the acquisition of these
investments to their disposals;
- actuarial losses on defined benefit plans in the amount of R$ 17,449, after taxes; and
-
foreign exchange rate variation gains of R$ 40,327, after taxes and amounts reclassified to the statement of
income, recognized in the Company's shareholders' equity in 2016, as a result of its cash flow hedge
accounting policy. The cumulative balance of foreign exchange variation losses as of December 31, 2016 is
R$ 25,121, as set out in note 33.2.
23.5. Dividends
Shareholders are entitled to receive minimum mandatory dividends (and/or interest on capital) of 25% of the adjusted
net income for the year proportional to the number of common and preferred shares, pursuant to Brazilian
Corporation Law. To the extent the Company proposes dividend distributions, preferred shares have priority in
dividend distribution, which is based on the highest of 3% of the preferred shares’ net book value, or 5% of the
preferred share capital. Preferred shares participate under the same terms as common shares in capital increases
resulting from the capitalization of profit reserves or retained earnings.
Due to the loss recorded in 2016 and 2015, the Board of Directors did not propose dividend distributions for those
years.
23.6. Earnings (losses) per share
Basic and diluted numerator
Loss attributable to shareholders of Petrobras
Basic and diluted denominator
Common
Preferred
2016
Total
Consolidated and Parent Company
2015
Common
Preferred
Total
(8,458)
(6,366)
(14,824)
(19,875)
(14,961)
(34,836)
Weighted average number of common and preferred shares outstanding
Basic and diluted losses per common and preferred share (R$ per share)
7,442,454,142
(1.14)
5,602,042,788 13,044,496,930
(1.14)
(1.14)
7,442,454,142
(2.67)
5,602,042,788 13,044,496,930
(2.67)
(2.67)
Basic earnings per share are calculated by dividing the net income (loss) attributable to shareholders of Petrobras by
the weighted average number of outstanding shares during the period.
Diluted earnings (losses) per share are calculated by adjusting the net income (loss) attributable to shareholders of
Petrobras and the weighted average number of outstanding shares during the period taking into account the effects
of all dilutive potential shares (equity instrument or contractual arrangements that are convertible into shares).
Basic and diluted earnings (losses) represent the amount as the Company has no potential share in issue.
93
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
24. Sales revenues
Gross sales
Sales taxes (*)
Sales revenues (**)
Diesel
Automotive gasoline
Jet fuel
Liquefied petroleum gas
Naphtha
Fuel oil (including bunker fuel)
Other oil products
Subtotal oil products
Natural gas
Ethanol, nitrogen products and renewables
Electricity, services and others
Domestic market
Exports
Sales abroad (***)
Foreign market
Sales revenues (**)
(*) Includes, mainly, CIDE, PIS, COFINS and ICMS (VAT).
(**) Sales revenues by business segment are set out in note 29.
(***) Sales revenues from operations outside of Brazil, including trading and excluding exports.
2016
357,366
(74,777)
282,589
88,750
56,540
8,931
10,669
8,500
4,068
11,676
189,134
13,801
13,024
9,611
225,570
28,910
28,109
57,019
282,589
Consolidated
Parent company
2015
401,320
(79,682)
321,638
100,804
53,903
11,003
9,585
8,487
7,414
11,409
202,605
19,405
12,872
15,916
250,798
32,179
38,661
70,840
321,638
2016
296,101
(73,034)
223,067
74,471
43,540
9,288
8,966
8,500
3,634
10,074
158,473
13,204
10,881
11,119
193,677
29,390
−
29,390
223,067
2015
328,747
(77,724)
251,023
87,559
42,344
11,718
8,042
8,487
5,951
10,332
174,433
18,815
9,681
19,249
222,178
28,845
−
28,845
251,023
In 2016, sales from transactions with two customers reached approximately 10 % or more of the Company’s sales
revenue, totaling R$ 30,156 (R$ 32,624 in 2015) and R$ 26,843 (R$ 27,137 in 2015). These sales revenues mainly
impacted the Refining, Transportation and Marketing (RT&M) business segment.
25. Other expenses, net
Unscheduled stoppages and pre-operating expenses
Gains / (losses) related to legal, administrative and arbitration proceedings
Pension and medical benefits (retirees)
Voluntary Separation Incentive Plan - PIDV
Reclassification of cumulative translation adjustments - CTA
Allowance for impairment of other receivables
Institutional relations and cultural projects
Operating expenses with thermoelectric power plants
Provision for debt assumed from suppliers with subcontractors
Health, safety and environment
Amounts recovered relating to Lava Jato Operation
Government grants
Ship/Take or Pay Agreements
Gains / (losses) on disposal/write-offs of assets (*)
Expenses / Reimbursements from E&P partnership operations
Gains / (losses) on decommissioning of returned/abandoned areas
Others
Total
(*) Includes returned areas and cancelled projects.
Consolidated
Parent Company
2016
(6,560)
(4,817)
(4,956)
(4,082)
(3,693)
(2,225)
(879)
(337)
(333)
(281)
432
587
949
951
1,988
4,864
1,467
(16,925)
2015
(4,156)
(5,583)
(3,790)
(417)
−
(1,206)
(1,401)
(386)
−
(314)
230
62
777
(2,893)
1,863
(550)
(874)
(18,638)
2016
(6,460)
(2,725)
(4,722)
(3,647)
−
(148)
(775)
(332)
−
(276)
430
122
956
1,399
1,988
4,886
(403)
(9,707)
2015
(4,113)
(4,708)
(3,619)
(326)
−
(1,175)
(1,165)
(428)
−
(306)
230
50
625
(3,075)
1,863
(550)
(850)
(17,547)
94
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
26. Costs and Expenses by nature
Raw material and products for resale
Materials, third-party services, freight, rent and other related costs
Depreciation, depletion and amortization
Employee compensation
Impairment (losses) / reversals
Production taxes
Unscheduled stoppages and pre-operating expenses
(Losses) / Gains on legal, administrative and arbitration proceedings
Reclassification of cumulative translation adjustment - CTA
Exploration expenditures written-off (includes dry wells and signature bonuses)
Allowance for impairment of trade receivables
Other taxes
Changes in inventories
Gains / (losses) on disposal/write-offs of assets
Institutional relations and cultural projects
Health, safety and environment
Amounts recovered relating to Lava Jato Operation
Total
In the Statement of income
Cost of sales
Selling expenses
General and administrative expenses
Exploration costs
Research and development expenses
Other taxes
Impairment
Other expenses, net
Total
27. Net finance income (expense)
Debt interest and charges
Foreign exchange gains (losses) and indexation charges on net debt (*)
Income from investments and marketable securities (Government Bonds)
Financial result on net debt
Capitalized borrowing costs
Gains (losses) on derivatives
Interest income from marketable securities (**)
Unwinding of discount on the provision for decommissioning costs
Other finance expenses and income, net (***)
Other foreign exchange gains (losses) and indexation charges
Net finance income (expenses)
Income
Expenses
Foreign exchange gains (losses) and indexation charges
95
2016
(65,864)
(52,308)
(48,543)
(34,477)
(20,297)
(16,688)
(6,560)
(4,817)
(3,693)
(4,364)
(3,843)
(2,456)
(1,458)
951
(879)
(281)
432
(333)
(265,478)
(192,611)
(13,825)
(11,482)
(6,056)
(1,826)
(2,456)
(20,297)
(16,925)
(265,478)
Consolidated
Parent Company
2015
(94,453)
(70,405)
(38,574)
(29,732)
(47,676)
(19,812)
(4,156)
(5,583)
−
(4,921)
(3,641)
(9,238)
(1,460)
(2,893)
(1,401)
(314)
230
−
(334,029)
(223,062)
(15,893)
(11,031)
(6,467)
(2,024)
(9,238)
(47,676)
(18,638)
(334,029)
2016
(42,210)
(58,332)
(37,150)
(28,539)
(11,119)
(15,888)
(6,460)
(2,725)
−
(3,940)
(1,072)
(1,305)
(515)
1,399
(775)
(276)
430
−
(208,477)
(153,725)
(17,023)
(8,242)
(5,533)
(1,823)
(1,305)
(11,119)
(9,707)
(208,477)
2015
(67,401)
(66,338)
(28,039)
(23,618)
(33,468)
(18,734)
(4,113)
(4,708)
−
(3,784)
(669)
(7,730)
(507)
(3,075)
(1,165)
(306)
230
−
(263,425)
(174,717)
(15,130)
(7,561)
(5,261)
(2,011)
(7,730)
(33,468)
(17,547)
(263,425)
Consolidated
Parent Company
2016
(26,955)
(8,971)
1,894
(34,032)
5,996
(375)
21
(2,296)
979
2,522
(27,185)
3,638
(24,176)
(6,647)
(27,185)
2015
(22,935)
(12,775)
2,315
(33,395)
5,860
986
77
(757)
(2,153)
1,341
(28,041)
4,867
(21,545)
(11,363)
(28,041)
2016
(20,523)
(10,550)
664
(30,409)
4,484
(66)
1,046
(2,285)
68
1,458
(25,704)
2,418
(18,967)
(9,155)
(25,704)
2015
(19,903)
(11,268)
1,207
(29,964)
4,785
(74)
906
(724)
(1,768)
652
(26,187)
3,303
(18,951)
(10,539)
(26,187)
Total
(*) Includes debt raised in Brazil (in Brazilian reais) indexed to the U.S. dollar.
(**) Includes investments in the Receivables Investment Fund (FIDC-NP), in the Parent Company.
(***) In 2015, includes R$ 2,749 (R$ 2,694 in the parent company) of finance expense related to the tax amnesty program (REFIS and State Tax) and PRORELIT, as set out on note 21.
17:00
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
28.
Supplemental information on statement of cash flows
Amounts paid/received during the period
Withholding income tax paid on behalf of third-parties
Capital expenditures and financing activities not involving cash
Purchase of property, plant and equipment on credit
Finance Leases
Provision/(reversals) for decommissioning costs
Use of deferred tax and judicial deposit for the payment of contingency
Consolidated
Parent Company
2016
2015
2016
2015
3,297
3,355
2,828
2,696
417
296
3,113
464
591
−
15,932
3,634
355
2,868
390
−
374
16,511
3,583
96
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
29. Segment information
The Extraordinary General Meeting held on April 28, 2016 approved adjustments to the Company’s organization structure and governance and management model, aiming to
align the organization with the new conditions faced by the oil and gas industry and to prioritize profitability and capital discipline.
The current business segment information is reported in the manner in which the Company’s senior management assesses business performances and makes decisions
regarding investments and resource allocation.
Consolidated assets by Business Area - 12.31.2016
Current assets
Non-current assets
Long-term receivables
Investments
Property, plant and equipment
Operating assets
Under construction
Intangible assets
Total Assets
Consolidated assets by Business Area - 12.31.2015
Current assets
Non-current assets
Long-term receivables
Investments
Property, plant and equipment
Operating assets
Under construction
Intangible assets
Total Assets
Exploration
and
Production
Refining,
Transportatio
n & Marketing
18,262
438,332
24,870
4,722
401,057
295,655
105,402
7,683
456,594
40,609
130,750
10,793
3,597
115,745
101,520
14,225
615
171,359
Exploration
and
Production
Refining,
Transportatio
n & Marketing
14,215
469,181
25,250
7,054
428,447
310,761
117,686
8,430
35,247
142,384
9,309
3,431
128,982
112,470
16,512
662
Gas
&
Power
11,707
51,808
6,539
1,520
42,675
38,659
4,016
1,074
63,515
Gas
&
Power
9,424
66,599
6,277
1,781
57,300
47,611
9,689
1,241
Biofuels Distribution
Corporate Eliminations
Total
1,319
380
12
43
325
315
10
−
1,699
9,906
10,398
3,314
47
6,308
5,389
919
729
20,304
81,262
28,795
22,285
19
5,929
4,798
1,131
562
110,057
(17,158)
(1,425)
(1,262)
−
(163)
(163)
−
−
(18,583)
145,907
659,038
66,551
9,948
571,876
446,174
125,702
10,663
804,945
Biofuels Distribution
Corporate Eliminations
Total
176
1,709
12
1,339
358
317
41
−
8,979
11,609
3,355
134
7,296
6,175
1,121
824
112,715
41,350
32,792
33
7,610
5,798
1,812
915
(12,149)
(1,304)
(1,142)
−
(162)
(162)
−
−
168,607
731,528
75,853
13,772
629,831
482,970
146,861
12,072
483,396
177,631
76,023
1,885
20,588
154,065
(13,453)
900,135
97
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Consolidated Statement of Income by Business Area - 2016
Sales revenues
Intersegments
Third parties
Cost of sales
Gross profit (loss)
Income (Expenses)
Selling
General and administrative
Exploration costs
Research and technological development
Other taxes
Impairment of assets
Other expenses, net
Net income (loss) before financial results, profit sharing and income taxes
Financial income (expenses), net
Share of earnings in equity-accounted investments
Net Income (loss) before income taxes
Income tax and social contribution
Net income (loss)
Net income (loss) attributable to:
Shareholders of Petrobras
Non-controlling interests
Net income (loss)
Exploration
and
Production
Refining,
Transportatio
n & Marketing
116,033
110,946
5,087
(86,186)
29,847
(23,086)
(510)
(1,216)
(6,056)
(696)
(295)
(10,700)
(3,613)
6,761
−
97
6,858
(2,299)
4,559
4,762
(203)
4,559
217,181
59,522
157,659
(167,686)
49,495
(18,376)
(6,430)
(1,535)
−
(199)
(342)
(8,090)
(1,780)
31,119
−
(176)
30,943
(10,581)
20,362
20,594
(232)
20,362
Gas
&
Power
32,809
8,638
24,171
(23,829)
8,980
(4,894)
(2,651)
(716)
−
(62)
(762)
(1,217)
514
4,086
−
282
4,368
(1,389)
2,979
2,557
422
2,979
Biofuels Distribution
Corporate Eliminations
Total
839
807
32
(919)
(80)
(212)
(6)
(83)
−
(2)
(10)
(24)
(87)
(292)
−
(862)
(1,154)
99
(1,055)
(1,055)
−
(1,055)
97,101
1,461
95,640
(89,563)
7,538
(7,246)
(4,590)
(937)
−
(1)
(103)
(266)
(1,349)
292
−
30
322
(99)
223
220
3
223
−
−
−
−
(181,374)
(181,374)
−
175,572
282,589
−
282,589
(192,611)
−
(19,357)
29
(6,994)
−
(866)
(944)
−
(10,582)
(19,357)
(27,185)
−
(46,542)
10,058
(36,484)
(38,273)
1,789
(36,484)
(5,802)
304
333
(1)
−
−
−
−
(28)
(5,498)
−
−
(5,498)
1,869
(3,629)
(3,629)
−
(3,629)
89,978
(72,867)
(13,825)
(11,482)
(6,056)
(1,826)
(2,456)
(20,297)
(16,925)
17,111
(27,185)
(629)
(10,703)
(2,342)
(13,045)
(14,824)
1,779
(13,045)
98
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Consolidated Statement of Income per Business Area - 2015
Sales revenues
Intersegments
Third parties
Cost of sales
Gross profit
Expenses
Selling
General and administrative
Exploration costs
Research and technological development
Other taxes
Impairment of assets
Other expenses, net
Net income (loss) before financial results, profit sharing and income taxes
Financial income (expenses), net
Share of earnings in equity-accounted investments
Net Income (loss) before income taxes
Income tax and social contribution
Net income (loss)
Net income (loss) attributable to:
Shareholders of Petrobras
Non-controlling interests
Net income (loss)
Exploration
and
Production
Refining,
Transportatio
n & Marketing
117,098
112,071
5,027
(82,908)
34,190
(52,128)
(741)
(1,387)
(6,467)
(499)
(552)
(38,292)
(4,190)
(17,938)
−
(1,145)
(19,083)
6,099
(12,984)
(12,963)
(21)
(12,984)
245,613
73,635
171,978
(199,596)
46,017
(20,579)
(6,648)
(1,464)
−
(386)
(2,488)
(6,399)
(3,194)
25,438
−
1,192
26,630
(8,649)
17,981
18,034
(53)
17,981
Gas
&
Power
43,185
6,827
36,358
(34,490)
8,695
(7,878)
(1,975)
(777)
−
(169)
(1,295)
(2,507)
(1,155)
817
−
403
1,220
(277)
943
423
520
943
Biofuels Distribution
Corporate Eliminations
Total
769
716
53
(846)
(77)
(346)
(6)
(96)
−
(30)
(6)
(181)
(27)
(423)
−
(687)
(1,110)
144
(966)
(966)
−
(966)
110,030
1,808
108,222
(101,623)
−
−
−
−
(195,057)
(195,057)
−
196,401
8,407
(9,656)
(7,288)
(916)
−
(4)
(244)
(297)
(907)
(1,249)
−
31
(1,218)
425
(793)
(798)
5
(793)
−
(21,076)
60
(6,390)
−
(936)
(4,653)
−
(9,157)
(21,076)
(28,041)
(591)
(49,708)
9,010
(40,698)
(39,912)
(786)
(40,698)
1,344
696
705
(1)
−
−
−
−
(8)
2,040
−
−
2,040
(694)
1,346
1,346
−
1,346
321,638
−
321,638
(223,062)
98,576
(110,967)
(15,893)
(11,031)
(6,467)
(2,024)
(9,238)
(47,676)
(18,638)
(12,391)
(28,041)
(797)
(41,229)
6,058
(35,171)
(34,836)
(335)
(35,171)
99
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
30. Provisions for legal proceedings
30.1. Provisions for legal proceedings, judicial deposits and contingent liabilities
The Company recognizes provisions based on the best estimate of the costs of proceedings for which it is probable
that an outflow of resources embodying economic benefits will be required and that can be reliably estimated. These
proceedings mainly include:
•
Labor claims, in particular: (i) a review of the methodology by which the minimum compensation based on an
employee's position and work schedule (Remuneração Mínima por Nível e Regime - RMNR) is calculated; (ii)
lawsuits relating to overtime pay; and (iii) individual actions of outsourced employees;
• Tax claims including: (i) claims relating to Brazilian federal tax credits applied that were disallowed; (ii) demands
relating to the VAT (ICMS) tax collection on jet fuel sales; and (iii) alleged misappropriation of VAT (ICMS) tax
credits on import of platforms;
• Civil claims relating to: (i) royalties collection over the shale extraction; (ii) non-compliance with contractual terms
relating to oil platform construction; (iii) ongoing agreements to settle Opt-out Claims filed before the United
States District Court for the Southern District of New York; and (iv) compensation relating to an easement over a
property.
• Environmental claims regarding fishermen seeking indemnification from the Company for January 2000 oil spill in
the State of Rio de Janeiro.
Provisions for legal proceedings are set out as follows:
Non-current liabilities
Labor claims
Tax claims
Civil claims
Environmental claims
Other claims
Total
Opening Balance
Additions
Use of provision
Accruals and charges
Others
Closing Balance
30.2. Judicial deposits
12.31.2016
3,995
4,981
1,873
194
9
11,052
12.31.2016
8,776
3,462
(2,213)
1,211
(184)
11,052
Consolidated
Parent Company
12.31.2015
3,323
3,087
2,069
282
15
8,776
12.31.2016
3,594
3,241
1,377
179
−
8,391
12.31.2015
2,998
2,323
1,768
193
−
7,282
Consolidated
Parent Company
12.31.2015
4,091
5,294
(989)
346
34
8,776
12.31.2016
7,282
1,630
(1,615)
1,094
−
8,391
12.31.2015
3,338
4,368
(764)
340
−
7,282
Judicial deposits made in connection with legal proceedings are set out in the table below according to the nature of
the corresponding lawsuits:
Non-current assets
Tax
Civil
Labor
Environmental
Others
Total
Consolidated
Parent Company
12.31.2016
5,875
3,588
3,277
275
17
13,032
12.31.2015
2,693
2,670
4,076
305
14
9,758
12.31.2016
5,013
3,483
2,989
250
−
11,735
12.31.2015
3,352
2,540
2,417
281
−
8,590
100
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
30.3. Contingent liabilities
Contingent liabilities for which either the Company is unable to make a reliable estimate of the expected financial
effect that might result from resolution of the proceeding, or a cash outflow is not probable, are not recognized as
liabilities in the financial statements but are disclosed in the notes to the financial statements, unless the likelihood of
any outflow of resources embodying economic benefits is considered remote.
The estimated contingent liabilities for legal proceedings as of December 31, 2016, for which the possibility of loss is
not considered remote, are set out in the following table:
Nature
Tax
Labor
Civil
Environmental
Others
Total
Consolidated
155,882
23,547
29,491
7,079
4
216,003
A brief description of the nature of the main contingent liabilities (tax, civil, environmental and labor) is set out in the
following table:
101
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Description of tax matters
Plaintiff: Secretariat of the Federal Revenue of Brazil
1) Withholding income tax (IRRF), Contribution of Intervention in the Economic Domain (CIDE), Social Integration Program (PIS) and
Contribution to Social Security Financing (COFINS) on remittances for payments of vessel charters.
Current status: This claim involves lawsuits in different administrative and judicial stages.
2) Immediate deduction from the basis of calculation of taxable income (income tax - IRPJ and social contribution - CSLL) of crude oil
production development costs.
Current status: This claim involves lawsuits in administrative stages.
3) Requests to compensate federal taxes disallowed by the Brazilian Federal Tax Authority.
Current status: This claim involves lawsuits in different administrative and judicial stages.
4) Income from subsidiaries and associates located outside Brazil not included in the basis of calculation of taxable income (IRPJ and CSLL).
Current status: This claim involves lawsuits in different administrative and judicial stages.
5) Deduction from the basis of calculation of taxable income (income tax - IRPJ and social contribution - CSLL) of amounts paid to Petros
Plan, as well as several expenses, related to employee benefits and Petros.
Current status: This claim involves lawsuits in different administrative and judicial stages.
6) Incidence of social security contributions over contingent bonuses paid to employees.
Current status: Awaiting the hearing of an appeal at the administrative level.
7) Collection of Contribution of Intervention in the Economic Domain (CIDE) on transactions with fuel retailers and service stations protected
by judicial injunctions determining that fuel sales were made without gross-up of such tax.
Current status: This claim involves lawsuits in judicial stages.
Plaintiff: State of São Paulo Finance Department
8) Penalty for the absence of a tax document while relocating a rig to an exploratory block, and on the return of this vessel, as well as
collection of the related VAT (ICMS), as a result of the temporary admission being unauthorized, because the customs clearance has been
done in Rio de Janeiro instead of São Paulo.
Current status: This claim involves lawsuits in judicial stages.
9) Deferral of payment of VAT (ICMS) taxes on B100 Biodiesel sales and the charge of a 7% VAT rate on B100 on Biodiesel interstate sales,
including states in the Midwest, North and Northeast regions of Brazil and the State of Espírito Santo.
Current status: This claim involves lawsuits at administrative level.
Plaintiff: States of RJ and BA Finance Departments
10) VAT (ICMS) on dispatch of liquid natural gas (LNG) and C5+ (tax document not accepted by the tax authority), as well as challenges on the
rights to this VAT tax credit.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: States of RJ, SP, PR, RO and MG Finance Departments
11) Additional VAT (ICMS) due to differences in rates on jet fuel sales to airlines in the domestic market, among other questions relating to
the use of tax benefits.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: Municipal governments of the cities of Anchieta, Aracruz, Guarapari, Itapemirim, Marataízes, Linhares, Vila Velha and Vitória
12) Alleged failure to withhold and pay tax on services provided offshore (ISSQN) in favor of some municipalities in the State of Espírito
Santo, under the allegation that the service was performed in their "respective coastal waters".
Current status: This claim involves lawsuits in administrative and judicial stages.
Plaintiff: States of PR, AM, BA, ES, PA, PE and PB Finance Departments
13) Incidence of VAT (ICMS) over alleged differences in the control of physical and fiscal inventories.
Current status: This claim involves lawsuits in different administrative and judicial levels.
Plaintiff: States of SP, RS and SC Finance Departments
14) Collection of VAT (ICMS) related to natural gas imports from Bolivia, alleging that these states were the final destination (consumers) of
the imported gas.
Current status: This claim involves lawsuits in different administrative and judicial stages, as well as three civil lawsuits in the Federal
Supreme Court.
Plaintiff: States of RJ, RN, AL, AM, PA, BA, GO, MA and SP Finance Departments
15) Alleged failure to write-down VAT (ICMS) credits related to exemption or non-taxable sales made by the Company's customers.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: States of SP, CE, PB, RJ, BA and PA Finance Departments
16) VAT (ICMS) and VAT credits on internal consumption of bunker fuel and marine diesel, destined to chartered vessels.
Current status: This claim involves several tax notices from the states in different administrative and judicial stages.
Plaintiff: States of RJ, SP, ES and BA Finance Departments
17) Misappropriation of VAT tax credit (ICMS) on the acquisitions of goods that, per the tax authorities, are not related to property, plant and
equipment.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: States of RJ, SP, SE and BA Finance Departments
18) Use of VAT (ICMS) credits on the purchase of drilling rig bits and chemical products used in formulating drilling fluid.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: States of AM, BA, RS and RJ Finance Departments
19) Disagreement about the basis of calculation of VAT (ICMS) on interstate sales and transfers between different stores from the same
contributor.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: States of MG, MT, GO, RJ, PA, CE, BA, PR, SE, AL and RN Finance Departments
20) Misappropriation of VAT tax credit (ICMS) on the acquisitions of goods that, per the tax authorities, are not related to inventories.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: State of Pernambuco Finance Department
102
Estimate
50,446
20,549
11,000
10,088
7,675
3,431
2,137
5,551
2,718
4,412
4,189
3,642
2,739
2,696
2,459
1,846
1,598
1,321
1,143
1,111
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
21) Alleged incorrect application of VAT (ICMS) tax base with respect to interstate sales of natural gas transport through city-gates in the
State of Pernambuco destined to the distributors in that State. The Finance Department of the State of Pernambuco understands that
activity as being an industrial activity which could not be characterized as an interstate sale transaction (considering that the Company has
facilities located in Pernambuco), and consequently charging the difference on the tax levied on the sale and transfer transactions.
Current status: This claim involves lawsuits in different administrative and judicial stages.
22) Other tax matters
Total for tax matters
Description of labor matters
Plaintiff: Sindipetro of ES, RJ, BA, MG, SP, PE, SE, RN, CE, PR, SC and RS.
1) Class actions requiring a review of the methodology by which the minimum compensation based on an employee's position and work
schedule (Remuneração Mínima por Nível e Regime - RMNR) is calculated.
Current status: Awaiting the Superior Labor Court to judge appeals filed by the Company. The judgement on the Company’s collective
bargaining agreement is stayed pending the Superior Labor Court decision on the appeal.
Plaintiff: Sindipetro of Norte Fluminense – SINDIPETRO/NF
2) The plaintiff claims Petrobras failed to pay overtime for standby work exceeding 12-hours per day. It also demands that the Company
respects a 12-hour limit per workday, subject to a daily fine.
Current status: Awaiting the Superior Labor Court to judge appeals filed by both parties.
Plaintiff: Sindipetro of ES, RJ, BA, MG, SP, PR, CE, SC,SE, PE and RS
3) Class Actions regarding wage underpayments to certain employees due to alleged changes in the methodology used to factor overtime
into the calculation of paid weekly rest, allegedly computed based on ratios that are higher than those established by Law No. 605/49.
Current status: The Superior Labor Court ("Tribunal Superior do Trabalho - TST") unified a favorable understanding to the Company's
opinion. There are TST decisions favorable to the plaintiffs on individual and collective proceedings judged before the mentioned unification.
With respect to the claim filed by Sindipetro Norte Fluminense (NF): (i) the Company has filed an appeal in the TST to overturn a decision and
is awaiting judgment; and (ii) The Regional Labor Court ("Tribunal Regional do Trabalho - TRT") from the First Region issued an opinion
favorable to the Company in its review appeal. The court stated that the enforceable title changed the factors used on the calculation of
extra hour, increasing it and resulting in a considerable decrease in the estimated amount.
4) Other labor matters
Total for labor matters
Description of civil matters
Plaintiff: Agência Nacional de Petróleo, Gás Natural e Biocombustíveis - ANP
1) Proceedings challenging an ANP order requiring Petrobras to unite Lula and Cernambi fields on the BM-S-11 joint venture; to unite Baúna
and Piracicaba fields; to unite Tartaruga Verde and Mestiça fields; and to unite Baleia Anã, Baleia Azul, Baleia Franca, Cachalote, Caxaréu,
Jubarte and Pirambu, in the Parque das Baleias complex, which would cause changes in the payment of special participation charges.
Current status: The claims are being disputed in court and in arbitration proceedings. As a result of judicial decisions, the arbitrations have
been suspended. On the Lula and Cernanbi proceeding, for the alleged differences on the special participation, the Company made judicial
deposits. However, with the cancellation of the favorable injunction, currently the payment of these alleged differences have been made
directly to ANP, until a final judicial decision is handed down. On the Baúna and Piracicaba proceeding, Petrobras made court-ordered judicial
deposits. On the Baleia Anã, Baleia Azul, Baleia Franca, Cachalote, Caxaréu, Jubarte and Pirambu, in the Parque das Baleias complex
proceeding, as a result of a judicial decision and of a Chamber of Arbitration ruling, the collection of the alleged differences has been
suspended. On the Tartaruga Verde and Mestiça proceeding, the arbitration is suspended by judicial decision and, so far, there has been no
additional collection of special participation due to the unification.
2) Administrative proceedings challenging an ANP order requiring Petrobras to pay special participation fees and royalties (government
take) with respect to several fields and alleged failure to comply with the minimum exploration activities program, as well as alleged
irregularities related to compliance with the oil and gas industry regulation.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: Several plaintiffs in Brazil and EIG Management Company in USA
3) Arbitration in Brazil and lawsuit in the USA regarding Sete Brasil.
Current status: The arbitrations in Brazil are at an early stage and a Chamber of Arbitration has not yet been established. The lawsuit filed by
EIG and affiliates alleges that the Company committed fraud by inducing plaintiffs to invest in Sete Brasil Participações SA ("Sete") through
communications that failed to disclose the alleged corruption scheme. After a hearing held on January 31, 2017 in the federal court in
Washington, D.C., the Company awaits a decision relating to the Motion to Dismiss requested by Petrobras.
Plaintiff: Refinaria de Petróleo de Manguinhos S.A.
4) Lawsuit seeking to recover damages for alleged anti-competitive practices with respect to gasoline, diesel and LPG sales in the domestic
market.
Current status: This claim is in the judicial stage and was ruled in favor of the plaintiff in the first stage. The Company is taking legal actions
to ensure its rights. The Brazilian Antitrust regulator (CADE) has analyzed this claim and did not consider the Company's practices to be anti-
competitive.
Plaintiff: Vantage Deepwater Company e Vantage Deepwater Drilling Inc.
5) Arbitration in the United States for unilateral termination of the drilling service contract tied to ship-probe Titanium Explorer.
Current status: The arbitration panel has been established and the parties will discuss the schedule of the proceeding.
6) Other civil matters
Total for civil matters
1,018
14,113
155,882
Estimate
14,286
1,203
1,016
7,042
23,547
Estimate
6,493
5,437
5,358
1,875
1,304
9,024
29,491
103
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Description of environmental matters
Plaintiff: Ministério Público Federal, Ministério Público Estadual do Paraná, AMAR - Associação de Defesa do Meio Ambiente de Araucária,
IAP - Instituto Ambiental do Paraná and IBAMA - Instituto Brasileiro de Meio Ambiente e Recursos Naturais Renováveis.
1) Legal proceeding related to specific performance obligations, indemnification and compensation for damages related to an environmental
accident that occurred in the State of Paraná on July 16, 2000.
Current status: The court partially ruled in favor of the plaintiff, however both parties (the plaintiff and the Company) filed an appeal.
Plaintiff: Instituto Brasileiro de Meio Ambiente - IBAMA and Ministério Público Federal
2) Administrative proceedings arising from environmental fines related to exploration and production operations (Upstream) contested
because of disagreement over the interpretation and application of standards by IBAMA, as well as a public civil action filed by the Ministério
Público Federal for alleged environmental damage due to the accidental sinking of P-36 Platform.
Current status: A number of defense trials and the administrative appeal regarding the fines are pending, and others are under judicial
discussion. With respect to the civil action, the Company appealed the ruling that was unfavorable in the lower court and monitors the use of
the procedure that will be judged by the Regional Federal Court.
3) Other environmental matters
Total for environmental matters
Estimate
2,786
1,439
2,854
7,079
30.4. Class action and related proceedings
Between December 8, 2014 and January 7, 2015, five putative securities class action complaints were filed against the
Company in the United States District Court for the Southern District of New York (SDNY). These actions were
consolidated on February 17, 2015 (the “Consolidated Securities Class Action”). The Court appointed a lead plaintiff,
Universities Superannuation Scheme Limited (“USS”), on March 4, 2015. Together with two other plaintiffs—Union
Asset Management Holding AG (“Union”) and Employees' Retirement System of the State of Hawaii (“Hawaii”)—USS
filed a consolidated amended complaint (“CAC”) on March 27, 2015 that purported to be on behalf of investors who:
a) purchased or otherwise acquired Petrobras securities traded on the NYSE or pursuant to other transactions in the
U.S. during the period January 22, 2010 and March 19, 2015, inclusive (the “Class Period”), and were damaged
thereby;
b) purchased or otherwise acquired during the Class Period certain notes issued in 2012 pursuant to a registration
statement filed with the SEC filed in 2009, or certain notes issued in 2013 or 2014 pursuant to a registration
statement filed with the SEC in 2012 , and were damaged thereby; and;
c) purchased or otherwise acquired Petrobras securities on the Brazilian stock exchange during the Class Period,
who also purchased or otherwise acquired Petrobras securities traded on the NYSE or pursuant to other
transactions in the U.S. during the same period.
The CAC alleged, among other things, that in the Company’s press releases, filings with the SEC and other
communications, the Company made materially false and misleading statements and omissions regarding the value of
its assets, the amounts of the Company’s expenses and net income, the effectiveness of the Company’s internal
controls over financial reporting, and the Company’s anti-corruption policies, due to the alleged corruption
purportedly committed in connection with certain contracts, which allegedly artificially inflated the market value of
the Company’s securities.
On April 17, 2015, Petrobras, Petrobras Global Finance - PGF and the underwriters of notes issued by PGF (the
“Underwriter Defendants”) filed a motion to dismiss the CAC.
On July 9, 2015, the judge presiding over the Consolidated Securities Class Action ruled on the motion to dismiss,
partially granting the Company’s motion. Among other decisions, the judge dismissed claims relating to certain debt
securities issued in 2012 under the Securities Act of 1933 as time barred by the Securities Act’s statute of repose, and
ruled claims relating to securities purchased on the Brazilian stock exchange must be arbitrated, as established in the
Company’s bylaws. The judge rejected other arguments presented in the motion to dismiss the CAC and, as a result,
the Consolidated Securities Class Action continued with respect to those other claims.
104
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
As allowed by the judge, a second consolidated amended complaint was filed on July 16, 2015, a third consolidated
amended complaint (“TAC”) was filed on September 1, 2015, among other things extending the Class Period through
July 28, 2015 and adding Petrobras America, Inc. as a defendant, and a fourth consolidated amended complaint
(“FAC”) was filed on November 30, 2015. The TAC and FAC, brought by lead plaintiff, Union, Hawaii, and an additional
plaintiff, North Carolina Department of State Treasurer (“North Carolina”) (collectively, “class plaintiffs”), brings those
claims alleged in the CAC that were not dismissed or were allowed to be re-pleaded under the judge’s July 9, 2015
ruling.
Petrobras, PGF, Petrobras America, Inc. and the Underwriter Defendants filed motions to dismiss the TAC on October
1, 2015 and the FAC on December 7, 2015.
On December 20, 2015, the judge ruled on the motions to dismiss, partially granting the motions. Among other
decisions, the judge dismissed the claims of USS and Union based on their purchases of notes issued by PGF for
failure to plead that they purchased the notes in U.S. transactions. The judge also dismissed claims under the
Securities Act of 1933 for certain purchases for which class plaintiffs had failed to plead the element of reliance. The
judge rejected other arguments presented in the motion to dismiss the FAC and, as a result, the Consolidated
Securities Class Action continued with respect to the remaining claims.
On October 15, 2015, class plaintiffs filed a motion for class certification in the Consolidated Securities Class Action,
and on November 6, 2015, Petrobras, PGF, Petrobras America, Inc. and the Underwriter Defendants opposed the
motion. On February 2, 2016, the judge granted plaintiffs’ motion for class certification, certifying a Securities Act
Class represented by Hawaii and North Carolina and an Exchange Act Class represented by USS. On June 15, 2016, the
United States Court of Appeals for the Second Circuit (“Second Circuit”) granted Petrobras’s motion requesting
interlocutory appellate review of the class certification decision. The parties completed briefing the appeal on
September 8, 2016. Petrobras and the other defendants moved in district court for a stay of all district court
proceedings pending the Second Circuit’s decision on the merits of the appeal of the class certification, which the
district judge denied on June 24, 2016. Defendants then moved in the Second Circuit for a stay of all district court
proceedings pending a decision on the appeal of the class certification decision. On August 2, 2016, the Second Circuit
granted Defendants’ motion and stayed all district court proceedings. Oral argument regarding the appeal was held
before the Second Circuit on November 2, 2016.
On June 27, 2016, the parties filed motions for summary judgment. Further summary judgment briefing is stayed
pursuant to the Second Circuit’s August 2, 2016 decision.
In addition to the Consolidated Securities Class Action, to date, 33 lawsuits have been filed by individual investors
before the same judge in the SDNY (six of which have been stayed), and one has been filed in the United States
District Court for the Eastern District of Pennsylvania (collectively, the “Opt-out Claims”), consisting of allegations
similar to those in the Consolidated Securities Class Action. On August 21, 2015, Petrobras, PGF and underwriters of
notes issued by PGF filed a motion to dismiss certain of the Opt-out Claims in the SDNY, and on October 15, 2015, the
judge ruled on the motion to dismiss, partially granting the motion. Among other decisions, the judge dismissed
several Exchange Act, Securities Act and state law claims as barred by the relevant statutes of repose. The judge
denied other portions of the motion to dismiss and, as a result, these actions continued with respect to other claims
brought by these plaintiffs.
In the action in the Eastern District of Pennsylvania, Petrobras and PGF filed a motion to dismiss on May 13, 2016, and
the district judge denied the motion on November 1, 2016, allowing the action to continue. On January 26, 2017, the
district judge set a schedule for discovery and dispositive motions, with a pre-trial conference scheduled for January
5, 2018.
105
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
On October 31, 2015, the SDNY judge ordered that the Opt-out Claims before him in the SDNY and the Consolidated
Securities Class Action be tried together in a single trial not to exceed a total of eight weeks. On November 5, 2015,
the judge scheduled the trial to begin on September 19, 2016; however, the trial is now stayed due to the stay imposed
by the Second Circuit decision on August 2, 2016. On November 18, 2015, the judge ordered that any Opt-out Claim
filed before him in the SDNY after December 31, 2015 will be stayed in all respects until after the completion of the
trial.
On October 21, 2016, Petrobras’ board of directors approved agreements to settle Opt-out Claims in four cases:
Dodge & Cox Int’l Stock Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-10111 (JSR), Janus
Overseas Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-10086 (JSR),PIMCO Funds: PIMCO Total
Return Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-08192 (JSR) and Al Shams Investments Ltd.,
et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-6243 (JSR). The terms of the settlements are
confidential.
On November 23, 2016, Petrobras’ board of directors approved agreements to settle Opt-out Claims in eleven cases:
Ohio Public Employees Retirement System v. Petróleo Brasileiro S.A. – Petrobras et al., No. 15-cv-03887 (JSR); Abbey
Life Assurance Company Limited, et al. v. Petróleo Brasileiro S.A., et al., No. 15-cv-6661 (JSR); Aberdeen Emerging
Markets Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-3860 (JSR); Aberdeen Latin American
Income Fund Limited, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-4043 (JSR); Delaware Enhanced
Global Dividend and Income Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-4043 (JSR);
Dimensional Emerging Markets Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-02165 (JSR);
Manning & Napier Advisors, LLC, et al. v. Petróleo Brasileiro S.A. – Petrobras, No. 15-cv-10159 (JSR); Russell
Investment Company, et al. v. Petróleo Brasileiro S.A. – Petrobras, No. 15-cv-07605 (JSR); Skagen, et al. v. Petróleo
Brasileiro S.A. – Petrobras, et al., No.15-cv-2214 (JSR); State of Alaska Department of Revenue, Treasury Division, et
al. v. Petróleo Brasileiro S.A. – Petrobras, No. 15-cv-8995 (JSR), and State Street Cayman Trust Co., Ltd., v. Petróleo
Brasileiro S.A. – Petrobras, No. 15-cv-10158 (JSR).
On February 24, 2017, Petrobras’ board of directors approved agreements to settle Opt-out Claims in four cases: New
York City Employees Retirement System, et al. v. Petróleo Brasileiro S.A. – Petrobras et al., No. 15-cv-2192 (JSR),
Transamerica Income Shares, Inc., et al v. Petróleo Brasileiro S.A. - Petrobras, et al., No. 15-cv-3733 (JSR),
Internationale Kapitalanlagegesellschaft mbH v. Petróleo Brasileiro S.A. - Petrobras, et al., No. 15-cv-6618 (JSR) Lord
Abbett Investment Trust – Lord Abbett Short Duration Income Fund, et al v. Petróleo Brasileiro S.A. - Petrobras, et al.,
No. 15-cv-7615 (JSR).
Based on the settlements reached and the status of certain other Opt-out Claims, the Company charged to statement
of income the amount of R$ 1,215 (US$ 372) in 2016. The terms of the settlements are confidential and Petrobras
denies all allegations of wrongdoing and continues to defend itself vigorously in all pending actions. The settlements,
the terms of which are confidential, are aimed at eliminating the uncertainties, burdens and expense of ongoing
litigation.
Petrobras denies all allegations of wrongdoing and continues to defend itself vigorously in all pending actions. The
settlements, the terms of which are confidential, are aimed at eliminating the uncertainties, burdens and expense of
ongoing litigation.
The Consolidated Securities Class Action and certain Opt-out Claims involve highly complex issues that are subject to
substantial uncertainties and depend on a number of factors such as the novelty of the legal theories, the information
produced in discovery, the timing of court decisions, rulings by the court on key issues, analysis by retained experts,
and the possibility that the parties negotiate in good faith toward a resolution.
106
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
In addition, the claims asserted are broad, span a multi-year period and involve a wide range of activities, and the
contentions of the plaintiffs in the Consolidated Securities Class Action and certain Opt-out Claims concerning the
amount of alleged damages are varied and, at this stage, their impact on the course of the litigation is complex and
uncertain. The uncertainties inherent in all such matters affect the amount and timing of the ultimate resolution of
these actions. As a result, the Company is unable to make a reliable estimate of eventual loss arising from the
Consolidated Securities Class Action and certain Opt-out Claims.
Depending on the outcome of the litigation, we may be required to pay substantial amounts, which could have a
material adverse effect on the Company’s financial condition, its consolidated results of operations or its consolidated
cash flows for an individual reporting period.
The Company has engaged a U.S. firm as legal counsel and intends to defend these actions vigorously.
30.5. Contingent assets
30.5.1. Recovery of PIS and COFINS
The Company filed civil lawsuits against the Federal Government claiming to recover PIS and COFINS paid over finance
income and foreign exchange variation gains, claiming that paragraph 1 of article 3 of Law No. 9,718/98 is
unconstitutional, comprising:
i) PIS: from February 1999 to November 2002; and
ii) COFINS: from February 1999 to January 2004.
Up to the year 2014, the court granted to the Company the definitive right to recover those taxes. Currently, these
legal proceedings are in their court-ordered liquidation stage.
As of December 31, 2016, the Company had non-current receivables of R$ 3,193 (R$ 2,960 as of December 31, 2015)
related to PIS and COFINS, which are indexed to inflation.
31. Commitment to purchase natural gas
As of December 31, 2016, the total amount of the GSA agreement (Gas Supply Agreement), entered into by Petrobras
and Yacimentos Petrolíferos Fiscales Bolivianos – YPFB, for the 2017 to 2019 period is approximately 32.94 billion
cubic meters (m³) of natural gas (equivalent to 30.08 million cubic meters (m³) per day) and corresponds to a total
estimated value of US$ 4.68 billion.
107
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
32. Collateral for crude oil exploration concession agreements
The Company has granted collateral to the Brazilian Agency of Petroleum, Natural Gas and Biofuels (Agência Nacional
de Petróleo, Gás Natural e Biocombustíveis -ANP) in connection with the performance of the Minimum Exploration
Programs established in the concession agreements for petroleum exploration areas in the total amount of R$ 7,965
of which R$ 3,231 were still in force as of December 31, 2016, net of commitments undertaken. The collateral
comprises crude oil from previously identified producing fields, pledged as collateral, amounting to R$ 2,598 and bank
guarantees of R$ 633.
33. Risk management
The Company is exposed to a variety of risks arising from its operations, including price risk (related to crude oil and
oil products prices), foreign exchange rates risk, interest rates risk, credit risk and liquidity risk. Corporate risk
management is part of the Company’s commitment to act ethically and comply with the legal and regulatory
requirements of the countries where it operates. To manage market and financial risks the Company prefers
structuring measures through adequate capital and leverage management. The Company takes account of risks in its
business decisions and manages any such risk in an integrated manner in order to enjoy the benefits of diversification.
A summary of the positions of the derivative financial instruments held by the Company and recognized in other
current assets and liabilities as of December 31, 2016, as well as the amounts recognized in the statement of income
and other comprehensive income and the guarantees given is set out as follows:
Derivatives not designated for hedge accounting
Future contracts - total (*)
Long position/Crude oil and oil products
Short position/Crude oil and oil products
Options - total (*)
Call/Crude oil and oil products
Put/Crude oil and oil products
Forward contracts - total
Long position/Foreign currency forwards (BRL/USD) (**)
Short position/Foreign currency forwards (BRL/USD) (**)
Derivatives designated for hedge accounting
Swap - total
Foreign currency / Cross-currency Swap (**)
Interest - Libor / Fixed rate (**)
Total recognized in the Statement of Financial Position
(*) Notional value in thousands of bbl.
(**) Amounts in US$ are presented in million.
Commodity derivatives
Foreign currency derivatives
Interest rate derivatives
Notional value
Statement of Financial Position
Fair value
Asset Position (Liability)
Maturity
12.31.2016
12.31.2015
12.31.2016
12.31.2015
(1,866)
88,303
(90,169)
120
−
120
(5,694)
53,735
(59,429)
123
−
123
US$ 0
US$ 15
US$ 217
US$ 50
US$ 0
US$ 371
US$ 298
US$ 396
(25)
−
−
−
−
−
1
−
1
(34)
−
(34)
(58)
149
−
−
38
−
38
24
23
1
(130)
(62)
(68)
81
2017
2017
2017
2017
−
2017
−
2016
2019
Gains/(losses) recognized in
the statement of income (*)
Gains/(losses) recognized in
the Shareholders’ Equity (**)
Guarantees given as
collateral
2016
(169)
(181)
(24)
(374)
(9,935)
(10,309)
2015
927
90
(31)
986
(7,088)
(6,102)
2016
−
21
9
30
50,262
50,292
2015
−
30
5
35
(61,651)
(61,616)
12.31.2016
180
−
−
180
−
180
12.31.2015
36
−
−
36
−
36
Cash flow hedge on exports (***)
Total
(*) Amounts recognized in finance income in the period.
(**) Amounts recognized as other comprehensive income in the period.
(***) Using non-derivative financial instruments as designated hedging instruments, as set out in note 33.2.
108
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
A sensitivity analysis of the derivative financial instruments for the different types of market risks as of December 31,
2016 is set out as follows:
Financial Instruments
Derivatives not designated for hedge accounting
Future contracts
Forward contracts
Options
Risk
Crude oil and oil products - price changes
Foreign currency - depreciation BRL x USD
Crude oil and oil products - price changes
Derivatives designated for hedge accounting
Swap
Debt
Net effect
Interest - LIBOR increase
Stressed
Scenario
Consolidated
Stressed
Scenario
(∆ of 25%)
(∆ of 50%)
Probable
Scenario (*)
−
−
−
−
10
(10)
−
(221)
12
−
(209)
(3)
3
−
(442)
25
−
(417)
(7)
7
−
(*) The probable scenario was computed based on the following risks: oil and oil products prices: fair value on December 31, 2016; R$ x U.S. Dollar - a 0.6% depreciation of the Real;
Japanese Yen x U.S. Dollar - a 1.5% appreciation of the Japanese Yen; LIBOR Forward Curve - a 0.27% increase throughout the curve. Source: Focus and Bloomberg.
33.1. Risk management of price risk (related to crude oil and oil products prices)
Petrobras does not regularly use derivative instruments to hedge exposures to commodity price cycles related to
products purchased and sold to fulfill operational needs. Derivatives are used as hedging instruments to manage the
price risk of certain short-term commercial transactions.
33.2. Foreign exchange risk management
The Company’s Risk Management Policy provides for, as an assumption, an integrated risk management extensive to
the whole corporation, pursuing the benefit from the diversification of its businesses.
By managing its foreign exchange risk, the Company takes into account the group of cash flows derived from its
operations. This concept is especially applicable to the risk relating to the exposure of the Brazilian Real against the
U.S. dollar, in which future cash flows in U.S. dollar, as well as cash flows in Brazilian Real affected by the fluctuation
between both currencies, such as cash flows derived from diesel and gasoline sales in the domestic market, are
assessed in an integrated manner.
Accordingly, the financial risk management mainly involves structured actions by using natural hedges derived from
the business of the Company.
The foreign exchange risk management strategy may involve the use of derivative financial instruments to hedge
certain liabilities, minimizing foreign exchange rate risk exposure, especially when the Company is exposed to a
foreign currency in which no cash inflows are expected, for example, Pound Sterling.
In the short-term, the foreign exchange risk is managed by applying resources in cash or cash equivalent
denominated in Brazilian Real, U.S. Dollar or in another currency.
a)
Cash Flow Hedge involving the Company’s future exports
Considering the natural hedge aforementioned, the Company designates hedging relationships to account for the
effects of the existing hedge between a portion of its long-term debt obligations (denominated in U.S. dollars) and its
highly probable U.S. dollar denominated future export revenues, so that gains or losses associated with the hedged
transaction (the highly probable future exports) and the hedging instrument (debt obligations) are recognized in the
statement of income in the same periods.
109
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
A portion of principal amounts and accrued interest (non-derivative financial instruments), as well as foreign
exchange rate forward contracts (derivative financial instruments) have been designated as hedging instruments.
Derivative financial instruments expired during the year were replaced by principal and interest amounts in the
hedging relationships for which they had been designated.
Individual hedging relationships were designated in a one-to-one proportion, meaning that a portion of the highly
probable future exports for each month will be the hedged transaction of an individual hedging relationship, hedged
by a portion of the company’s long-term debt. Only a portion of the Company’s forecast exports are considered highly
probable.
Whenever a portion of future exports for a certain period for which a hedging relationship has been designated is no
longer highly probable, the Company revokes the designation and the cumulative foreign exchange gains or losses
that have been recognized in other comprehensive income remain separately in equity until the forecast exports
occur.
If a portion of future exports for which a hedging relationship has been designated is no longer expected to occur, any
related cumulative foreign exchange gains or losses that have been recognized in other comprehensive income from
the date the hedging relationship was designated to the date the Company revoked the designation is immediately
recycled from equity to the statement of income.
Mainly due to the decrease in international oil prices, a portion of future exports for which a hedging relationship had
been designated was no longer expected to occur or did not occur in 2016. Therefore, a hedging relationship was
revoked and a portion was reclassified to the statement of income in the amount of R$ 1,116 in 2016.
The carrying amounts, the fair value as of December 31, 2016, and a schedule of expected reclassifications to the
statement of income of cumulative losses recognized in other comprehensive income (shareholders’ equity) based on
a US$ 1.00 / R$ 3.2591 exchange rate are set out below:
Hedging Instrument
Non-derivative financial instruments (debt: principal and interest)
Nature of the
Risk Maturity Date
Principal
Amount (US$
million)
Carrying
amount as of
December 31,
2016
Foreign
Currency
– Real vs U.S.
Dollar
Spot Rate
January 2017 to
March 2027
61,763
201,292
Hedged
Transactions
Portion of
highly probable
future monthly
exports
revenues
Changes in the reference value (principal and interest)
Amounts designated as of December 31, 2015
Additional hedging relationships designated, designations revoked and hedging instruments re-designated
Exports affecting the statement of income
Principal repayments / amortization
Foreign exchange variation
Amounts designated as of December 31, 2016
US$ million
61,520
23,275
(2,621)
(20,411)
−
61,763
R$
240,222
79,211
(9,074)
(68,740)
(40,327)
201,292
The ratio of highly probable future exports to debt instruments for which a hedging relationship has been designated
in future periods is set out below:
2017
2018
2019
2020
2021
2022
2023 2024 to 2027
Average
Consolidated
Hedging instruments
designated / Highly
probable future
exports (%)
73
61
66
73
86
88
74
62
73
A roll-forward schedule of cumulative foreign exchange losses recognized in other comprehensive income as of
December 31, 2016 is set out below:
110
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Balance at January 1, 2015
Recognized in shareholders' equity
Reclassified to the statement of income - occurred exports
Reclassified to the statement of income - exports no longer expected or not occurred
Balance at December 31, 2015
Recognized in shareholders' equity
Reclassified to the statement of income - occurred exports
Reclassified to the statement of income - exports no longer expected or not occurred
Balance at December 31, 2016
Exchange rate
(26,669)
(68,739)
6,889
199
(88,320)
40,327
8,819
1,116
(38,058)
Tax effect
9,067
23,371
(2,342)
(68)
30,028
(13,711)
(2,998)
(380)
12,939
Total
(17,602)
(45,368)
4,547
131
(58,292)
26,616
5,821
736
(25,119)
Additional hedging relationships may be revoked or additional reclassification adjustments from equity to the
statement of income may occur as a result of changes in forecast export prices and export volumes following a review
of the Company’s business plan. Based on a sensitivity analysis considering a US$ 10/barrel decrease in Brent prices
stress scenario, when compared to the Brent price projections in our most recent update of the 2017-2021 Business
and Management Plan (Plano de Negócios e Gestão – PNG), a R$ 100 reclassification adjustment from equity to the
statement of income would occur.
A schedule of expected reclassification of cumulative foreign exchange losses recognized in other comprehensive
income to the statement of income as of December 31, 2016 is set out below:
Expected realization
2017
(10,490)
2018
(10,388)
2019
(7,021)
2020
(5,117)
2021
(4,329)
2022
(4,950)
2023 2024 to 2027
6,503
(2,266)
Total
(38,058)
Consolidated
b)
Cash flow hedges involving swap contracts – Yen x Dollar
The Company had cross currency swap to fix in U.S. dollars the payments related to bonds denominated in Japanese
yen, which matured on September 23, 2016. The relationship between the derivative and the bonds was designated
for cash flow hedge accounting.
c)
Sensitivity analysis for foreign exchange risk on financial instruments
A sensitivity analysis is set out below, showing the probable scenario for foreign exchange risk on financial
instruments, computed based on external data along with stressed scenarios (a 25% and a 50% change in the foreign
exchange rates), except for assets and liabilities of foreign subsidiaries, when transacted in a currency equivalent to
their respective functional currencies.
111
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Risk
Liabilities
Assets
Liabilities
(212,413) Dollar/Real
Exposure at
12.31.2016
13,523
Financial Instruments
Assets
Liabilities
Cash flow hedge on exports
Consolidated
Stressed
Scenario
(∆ of 50%)
6,762
(106,207)
100,646
1,201
(300)
(300)
7
(82)
(75)
11,049
(21,775)
(10,726)
4
(32)
(28)
4,331
(7,372)
(3,041)
Total
(12,969)
(*) On December 31, 2016, the probable scenario was computed based on the following risks: R$ x U.S. Dollar - a 0.6% depreciation of the Real/ Japanese Yen x U.S. Dollar - a 1.5%
appreciation of the Japanese Yen/ Euro x U.S. Dollar: a 1.4% depreciation of the Euro / Pound Sterling x U.S. Dollar: a 2.3% depreciation of the Pound Sterling/ Real x Euro - a 0.8%
appreciation of the Real / Real x Pound Sterling - a 1.7% appreciation of the Real. Source: Focus and Bloomberg.
Probable
Scenario (*)
87
(1,362)
1,291
16
(9)
(9)
−
1
1
(316)
623
307
−
1
1
(201)
341
140
456
Stressed
Scenario
(∆ of 25%)
3,381
(53,103)
50,323
601
(150)
(150)
4
(41)
(37)
5,524
(10,888)
(5,364)
2
(16)
(14)
2,166
(3,686)
(1,520)
(6,484)
201,292
2,402
(599)
(599)
14
(163)
(149)
22,097
(43,550)
(21,453)
(14,743)
(6,081)
(25,936)
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
8,662 Pound/Dollar
7 Pound/Real
Euro/Dollar
Yen/Dollar
(63)
(56)
Euro/Real
33.3. Interest rate risk management
The Company considers that interest rate risk does not create a significant exposure and therefore, preferably does
not use derivative financial instruments to manage interest rate risk, except for specific situations encountered by
certain subsidiaries of Petrobras.
33.4. Capital Management
The Company’s objectives in its capital management is to achieve an adequate level of return on its capital structure
in order to safeguard its ability to continue as a going concern, adding value to its shareholders and investors. Its main
sources of funding have been cash provided by its operating activities, divestments, loan agreements with commercial
banks and debt issuance in the international capital markets.
In line with the assumptions in the 2017-2021 Business and Management Plan, the Company does not foresee net
proceeds from financing for the two year period 2017-2018. However, the Company has continually assessed options
of funding following its liability management strategy, aiming at improving its debt repayment profile and achieving a
lower cost of its debt along with an indebtedness level matching the capital expenditures. Currently, the average
repayment term is approximately 7 years.
Net debt is calculated as total debt (short-term debt and long-term debt) less cash, cash equivalents and government
bonds from Brazil, U.S.A., Germany and England, as well as time deposits with maturities higher than three months.
Adjusted EBITDA is computed by using the EBITDA (net income before net finance income (expense), income taxes,
depreciation, depletion and amortization) adjusted by results in equity-accounted investments, impairment of assets
and reversals, cumulative foreign exchange adjustments reclassified to the income statement and gains and losses on
disposal and write-offs of assets. These measures are not defined by the International Financial Reporting Standards
– IFRS (non-GAAP measures) and should neither be considered in isolation or as substitutes for profit, indebtedness
and cash flow provided by operating activities as defined by the IFRS, nor be compared to those measures of other
companies.
112
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
Total debt (current and non-current)
Cash and cash equivalents
Government securities and time deposits (maturity of more than three months)
Net debt
Net debt/(net debt+shareholders' equity)
Adjusted EBITDA
Net debt/Adjusted EBITDA ratio
12.31.2016
385,784
69,108
2,556
314,120
55%
88,693
3.54
Consolidated
12.31.2015
493,023
97,845
3,042
392,136
60%
76,752
5.11
The venture and divestment program for the 2017-2018 period, with forecasted divestments of US$ 21 billion and the
Net debt/Adjusted EBITDA ratio reaching 2.5 in 2018, is part of the Company's financial planning, aimed at reducing
leverage, preserving cash and prioritizing capital expenditures, primarily in oil and gas production in Brazil in highly
productive and profitable areas.
However, this divestment portfolio is dynamic and the occurrence of the transactions depend on business conditions,
market conditions and the Company’s continuing assessment of its businesses, due to these reasons the rating
conditions for assets available for sale were not fulfilled as set out in note 4.12.
33.5. Credit risk
Credit risk management in Petrobras aims at minimizing risk of not collecting receivables, financial deposits or
collateral from third parties or financial institutions through efficient credit analysis, granting and management
based on quantitative and qualitative parameters that are appropriate for each market segment in which the
Company operates.
The commercial credit portfolio is broad and diversified and comprises clients from the domestic and foreign markets.
Credit granted to financial institutions is related to collaterals received, cash surplus invested and derivative financial
instruments. It is spread among “investment grade” international banks rated by international rating agencies and
Brazilian banks.
33.5.1. Credit quality of financial assets
a)
Trade and other receivables
Most of the company’s customers have no credit agency ratings. Thus, credit commissions assess creditworthiness
and define credit limits, which are regularly monitored, based on the customer´s main activity, commercial
relationship and credit history with Petrobras, solvency, financial situation and external market assessment of the
customer.
b)
Other financial assets
Credit quality of cash and cash equivalents, as well as marketable securities is based on external credit ratings
provided by Standard & Poor’s, Moody’s and Fitch. The credit quality of those financial assets, that are neither past
due nor have been impaired, are set out below:
113
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
AAA
AA
A
BBB
BB
B
AAA.br
AA.br
Other ratings
33.6. Liquidity risk
Cash and cash equivalents
Marketable securities
Consolidated
2016
17,004
24
37,064
138
9,107
32
1,217
4,463
59
69,108
2015
−
2,214
73,986
14,063
653
29
6,590
42
268
97,845
2016
−
−
−
−
−
−
2,848
1
−
2,849
2015
−
−
−
260
−
−
3,043
−
86
3,389
Liquidity risk is represented by the possibility of a shortage of cash or other financial assets in order to settle the
Company’s obligations on the agreed dates and is managed by the Company based on policies such as: centralization
of cash management, optimization of the level of cash and cash equivalents held and reduction of working capital;
maintenance of an adequate cash balance to ensure that cash needed for investments and short-term obligations is
met even in adverse market conditions; increase in funding sources from domestic and international markets, and
developing a strong presence in the capital markets and also searching for new funding sources (such as new markets
and financial products), as well as funds under the venture and divestment program.
In 2016, the Company used traditional funding sources (export credit agencies – ECAs, banking market, capital
markets and development banks) to obtain the necessary funding to repay debt and fund its capital expenditures.
The Company raised approximately US$ 18.8 billion through proceeds from long-term financing, mainly from the
international capital markets. The Company used part of these funds (US$ 17.9 billion) to repurchase global notes
previously issued, to settle certain debts with the Brazilian Development Bank (BNDES) in advance and also to push
forward other debts.
In December 2016, the Company raised funds through financing agreements with China Development Bank CDB in the
amount of US$ 5 billion, maturing in 10 years.
A maturity schedule of the Company’s finance debt (undiscounted), including face value and interest payments is set
out as follows:
Maturity
Principal
Interest
Total
2017
28,711
23,353
52,064
2018
36,929
21,749
58,678
2019
68,765
19,123
87,888
2020
53,735
14,739
68,474
2021
61,606
10,456
72,062
2022 and
thereafter
140,481
100,932
241,413
Consolidated
12.31.2016
390,227
190,352
580,579
12.31.2015
497,289
230,531
727,820
33.7. Insurance (unaudited)
The Company’s insurance strategy involves acquiring insurance to cover risks that may produce material impacts and
also to cover risks that are subject to compulsory insurance coverage (pursuant to legal or contractual requirements).
The remaining risks are self-insured and Petrobras intentionally assumes the entire risk by abstaining from
contracting insurance.
The Company assumes a significant portion of its risk, by entering into insurance policies that have deductibles up to
the equivalent to US$ 180 million (US$ 25 million as of December 31, 2015). The higher amount related to deductible
clauses was based on a reassessment of the Company’s adverse events historical data, which resulted in economic
benefits through a decrease in the amount of insurance premiums.
114
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
The Company’s risk assumptions for insurance are not part of the audit scope of the financial statements audit and
therefore were not examined by the independent auditors.
The main information concerning the insurance coverage outstanding at December 31, 2016 is set out below:
Assets
Facilities, equipment inventory and products inventory
Tankers and auxiliary vessels
Fixed platforms, floating production systems and offshore drilling units
Total
Types of
coverage Consolidated
Amount insured
Parent
company
Fire,
operational
risks and
engineering
risks
Hulls
Oil risks
522,758
13,233
107,502
643,493
367,171
1,562
20,143
388,876
Petrobras does not have loss of earnings insurance or insurance related to well control, automobiles and pipeline
networks in Brazil.
34. Fair value of financial assets and liabilities
Fair values are determined based on market prices, when available, or, in the absence thereof, on the present value of
expected future cash flows.
The hierarchy of the fair values of the financial assets and liabilities, recorded on a recurring basis, is set out below:
- Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity
can access at the measurement date.
- Level 2: inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly.
- Level 3: inputs are unobservable inputs for the asset or liability.
Assets
Marketable securities
Foreign currency derivatives
Balance at December 31, 2016
Balance at December 31, 2015
Liabilities
Foreign currency derivatives
Commodity derivatives
Interest derivatives
Balance at December 31, 2016
Balance at December 31, 2015
Fair value measured based on
Total fair
value
recorded
Level III
Level I
Level II
2,557
−
2,557
3,255
−
(25)
−
(25)
−
−
1
1
24
−
−
(34)
(34)
(130)
−
−
−
−
−
−
−
−
−
2,557
1
2,558
3,279
−
(25)
(34)
(59)
(130)
There are no material transfers between levels.
The estimated fair value for the Company’s long term debt as of December 31, 2016, computed based on the
prevailing market rates is set out in note 17.1.
The fair values of cash and cash equivalents, short-term debt and other financial assets and liabilities are equivalent
or do not differ significantly from their carrying amounts.
115
Notes to the financial statements
(Expressed in millions of reais, unless otherwise indicated)
35. Subsequent events
Global notes issued in international capital market
On January 17, 2017, the Company concluded, through its wholly-owned subsidiary Petrobras Global Trading – PGF, a
US$ 4 billion global notes issuance in the international market. This issuance comprises two series of notes each in the
amount of US$ 2 billion, maturating in 5 and 10 years and bearing interest at the rates of 6.125% and 7.375% per
annum, respectively.
The net proceeds of this issuance were entirely used to repurchase global notes previously issued by the Company
through a tender offer that expired on February 8, 2017. Old notes accepted for purchase amounted to US$ 4,899
million and € 632 million (US$ 676 million) in accordance with the tender cap.
Legal Proceeding in the Netherlands
On January 24, 2017, the Stichting Petrobras Compensation Foundation, which is not a Petrobras entity, filed a
complaint before the district court in Rotterdam, in the Netherlands, against the wholly-owned subsidiaries Petrobras
International Braspetro B.V. and Petrobras Global Finance B.V.
This foundation represents a group of investors alleging damages from fraud and bribery schemes perpetrated by
Company. These investors purchased shares or bonds issue by Company and traded outside U.S.A. before July 28,
2015.
This action is at an early stage, and the Company did not have access to the allegations and claims in this complaint.
Cross currency swap
In the first quarter of 2017, the Company, through its wholly-owned subsidiary Petrobras Global Trading B.V. (PGT),
entered into a £ 700 million notional amount cross currency swap maturing in 2026, in order to hedge its Pounds/U.S.
Dollar exposure arose from the Company’s debt denominated in Pounds.
Formal Notice from CVM – Hedge accounting
On March 07, 2017, the Company received from the Brazilian Securities and Exchange Commission (Comissão de
Valores Mobiliários – CVM) a Formal Notice (Ofício CVM) requesting the Company to restate its Annual Financial
Statements and Interim Financial Reporting filed since the second quarter of 2013. This formal notice requested the
restatement of the effects of the hedge accounting policy application. The Company believes its accounting policy
complies with the applicable literature. The Company filed before CVM a request to suspend the effects of this notice,
which was granted by the authority’s collegiate body.
The Company appealed the CVM decision on March 17, 2017 and has taken all the measures to safeguard its interests.
116
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Social Balance (unaudited)
1 - Calculation basis
Consolidated sales revenues (SR)
Consolidated net income (loss) before profit sharing and taxes (OI)
Consolidated gross payroll (GP) (i)
2 - Internal Social Indicators
Meal and food
Compulsory payroll charges
Pension
Health Care
Health and Safety
Education
Culture
Professional training and development
Day-care assistance
Profit sharing
Others
Total - Internal social indicators
3 - External Social Indicators
Social and environmental
Culture
Sport
Total contributions for the community
Taxes (excluding payroll charges)
Total - External social indicators
4 - Environmental Indicators
Investments related to the Company’s production/operation
With respect to establishing “annual goals” for minimizing wastage,
input general consumption in production/operation and for
increasing efficiency in the use of natural resources, the Company
(I):
2016
282,589
(10,703)
33,309
% of
SR
0.39
2.08
0.83
0.62
0.06
0.10
−
0.05
0.03
−
0.03
4.18
% of
SR
0.04
0.03
0.02
0.09
36.95
37.03
% of
SR
1.07
Consolidated
2015
321,638
(41,229)
30,637
% of
SR
0.38
1.92
0.68
0.52
0.07
0.08
−
0.10
0.02
−
0.03
3.81
% of
SR
0.08
0.04
0.03
0.15
35.39
35.55
% of
SR
1.14
Amount
1,226
6,162
2,190
1,685
233
263
7
309
79
−
92
12,246
Amount
271
139
86
496
113,840
114,336
GP
4.00
20.11
7.15
5.50
0.76
0.86
0.02
1.01
0.26
−
0.30
39.97
OI
(0.66)
(0.34)
(0.21)
(1.20)
(276.12)
(277.32)
Amount
3,678
OI
(8.92)
Amount
1,095
5,867
2,349
1,750
177
271
1
146
72
−
74
11,802
Amount
120
71
50
241
104,403
104,644
GP
3.29
17.61
7.05
5.25
0.53
0.81
−
0.44
0.22
−
0.22
35.43
OI
(1.12)
(0.66)
(0.47)
(2.25)
(975.46)
(977.71)
Amount
3,011
OI
(28.13)
( ) does not have goals ( ) attains from 51% to
75%
( ) attains from 0 to 50% (x) attains from 76 to
100%
( ) does not have goals ( ) attains from 51% to
75%
( ) attains from 0 to 50% (x) attains from 76 to
100%
117
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Social Balance (continuation)
5 - Indicators for the staff
Nº of employees at the end of the period
Nº of hired people during the period (II)
Nº of contracted employees (outsourcing) (III)
Nº of student trainees (IV)
Nº of employees older than 45 (V)
Nº of women that work in the Company (V)
% of leadership positions held by women (V)
Nº of Afro-descendant employees in the Company (VI)
% of leadership positions held by Afro-descendants (VII)
Nº of employees with disabilities(VIII)
6 - Significant information with respect to the exercise of
corporate citizenship
Ratio between the Company’s highest and lowest compensation (IX)
Total number of work accidents (X)
The social and environmental projects developed by the Company
were defined by:
The health and safety standards in the work environment were
defined by:
With respect to union freedom, the right to collective bargaining
and internal representation of the employees, the Company:
The pension benefits include:
Profit-sharing includes:
In the selection of suppliers, the same ethical standards and
standards of social and environmental responsibility adopted by
the Company:
With respect to the participation of employees in voluntary work
programs, the Company:
Total number of complaints and criticisms from consumers: (XI)
% of claims and criticisms attended or resolved:
2016
68,829
2,108
117,555
765
27,123
12,030
14.5%
18,193
20.8%
441
2016
30.0
1,847
Consolidated
2015
78,470
804
158,076
1,438
31,268
13,695
15.3%
20,098
25.3%
444
Goals 2017
-
1,786
(X) directors
(X) directors
( ) directors
and managers ( ) all employees
( ) directors
and managers ( ) all employees
(X) directors
and managers
( ) all the
employees
( ) everyone +
Cipa
(X) directors
and managers
( ) all the
employees
( ) is not
involved
( ) directors
( ) directors
( ) follows ILO
standards
( ) directors and
managers
( ) directors and
managers
(X) encourages
and follows ILO
(X) all
employees
(X) all
employees
( ) will not be
involved
( ) directors
( ) directors
( ) will follow ILO
standards
( ) directors and
managers
( ) directors and
managers
( ) everyone +
Cipa
(X) will
encourage and
follow ILO
(X) all
employees
(X) all
employees
( ) are not
considered
( ) are
suggested (X) are required
( ) will not be
considered
( ) will be
suggested
(X) will be
required
( ) is not
involved ( ) gives support
in Procon
34
in Procon
23.5%
in the Company
11,598
in the Company
99.5%
(X) organizes
and encourages
in court
57
in court
7%
( ) will not be
involved
in the Company
8,211
in the Company
97.7%
( ) will give
support
in Procon
0
in Procon
0%
(X) will organize
and encourage
in court
20
in court
15%
Total value added to distribute (in thousands of R$):
Distribution of added value:
In 2016:
55% government
0% shareholders 34% third parties
0% shareholders 39% third parties
193,445
18% employees
-7%
retained
In 2015:
65% government
169,931
17% employees
-21%
retained
7 - Other information
I. In 2016, the alert limit for wastage was 245,000 tons, and the Company achieved approximately 132,000 tons.
II. Information of the Petrobras Group, which includes hiring through public selection processes in Brazil, and direct hiring from the Parent Company and its subsidiaries abroad.
III. Reflects only the service providers who work at Petrobras facilities.
IV. Information relating to interns of the Parent Company, Petrobras Distribuidora, Transpetro, Termobahia and TBG. Other subsidiaries do not have internship programs.
V. Information relating to employees of the Parent Company, Petrobras Distribuidora, Transpetro, Liquigás, Araucária, Breitener Energética, Breitener Tambaqui, Breitener Jaraqui,
Citepe, Gas Brasiliano, Suape, Stratura, TBG, Termobahia and Petrobras Biocombustível.
VI. Information relating to employees of the Parent Company, Petrobras Distribuidora, Transpetro, Liquigás, Araucária, Breitener Energética, Breitener Tambaqui, Breitener Jaraqui,
Citepe, Gas Brasiliano, Suape, Stratura, TBG, Termobahia and Petrobras Biocombustível, who declared to be black.
VII. Of the total leadership positions in the Parent Company held by employees who informed their color/race, 20.8% are held by people who declared to be black.
VIII. Data obtained through the health records of the Company, from the self-declaration of the employee and medical analysis during the occupational exams.
IX. Information from the Parent company.
X. It refers to the number of injured people. There is no specific target for the total number of work accidents. The number presented for 2017 was estimated based on the alert limit
established for the TOR and HHER (hours-men of risk exposure) indexes projected for the year .
XI. The information on the Company includes the number of complaints and criticisms received by the Parent Company, Petrobras Distribuidora and Liquigás. The forecast for 2017
includes the Parent Company and Liquigás.
(i) Consisting of salaries, benefits, FGTS, Social Security and other benefits to employees.
118
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Supplementary information on Oil and Gas Exploration and Production
In accordance with Codification Topic 932 - Extractive Activities – Oil and Gas, this section provides supplemental
information on oil and gas exploration and production activities of the Company. The information included in items (i)
through (iii) provides historical cost information pertaining to costs incurred in exploration, property acquisition and
development, capitalized costs and results of operations. The information included in items (iv) and (v) presents
information on Petrobras’ estimated net proved reserve quantities, standardized measure of estimated discounted
future net cash flows related to proven reserves, and changes in estimated discounted future net cash flows.
Beginning in 1995, the Federal Government of Brazil undertook a comprehensive reform of the country’s oil and gas
regulatory system. On November 9, 1995, the Brazilian Constitution was amended to authorize the Federal
Government to contract with any state or privately owned company to carry out the activities related to the upstream
and downstream segments of the Brazilian oil and gas sector. This amendment eliminated Petrobras’ effective
monopoly. The amendment was implemented by the Oil Law, which liberated the fuel market in Brazil beginning
January 1, 2002.
The Oil Law established a regulatory framework ending Petrobras’ exclusive agency and enabling competition in all
aspects of the oil and gas industry in Brazil. As provided in the Oil Law, Petrobras was granted the exclusive right for a
period of 27 years to exploit the petroleum reserves in all fields where the Company had previously commenced
production. However, the Oil Law established a procedural framework for Petrobras to claim exclusive exploratory
(and, in case of success, development) rights for a period of up to three years with respect to areas where the
Company could demonstrate that it had “established prospects”. To perfect its claim to explore and develop these
areas, the Company had to demonstrate that it had the requisite financial capacity to carry out these activities, alone
or through financing or partnering arrangements.
The Company, on December 31, 2016, maintains activities in South America, which includes Argentina, Colombia and
Bolivia; North America, which includes Mexico and the United States of America; and Turkey (others). The equity-
accounted investments are comprised of the operations of Petrobras Oil and Gas B.V. (PO&G) in Africa, mainly Nigeria,
as well as Venezuelan companies involved in exploration and production activities, over which the Company had
significant influence until July 2016. However, the Company only estimates reserves in the United States, Nigeria and
Argentina.
i) Capitalized costs relating to oil and gas producing activities
The following table summarizes capitalized costs for oil and gas exploration and production activities with the related
accumulated depreciation, depletion and amortization, and asset retirement obligation assets:
119
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
December 31, 2016
Unproved oil and gas properties
Proved oil and gas properties
Support equipments
Gross capitalized costs
Depreciation, depletion and
amortization
Net capitalized costs
December 31, 2015
Unproved oil and gas properties
Proved oil and gas properties
Support equipments
Gross capitalized costs
Depreciation, depletion and
amortization
Net capitalized costs
December 31, 2014
Unproved oil and gas properties
Proved oil and gas properties
Support equipments
Gross capitalized costs
Depreciation, depletion and
amortization
Net capitalized costs
Brazil
South America North America
Africa
Others
22,741
284,439
272,926
580,106
376
288
1,541
2,205
(181,213)
398,893
(1,134)
1,071
26,239
276,544
276,972
579,755
(159,173)
420,582
24,698
256,376
211,159
492,233
520
7,872
4,164
12,556
(7,955)
4,601
192
5,332
3,136
8,660
(124,020)
368,213
(4,656)
4,004
899
13,896
228
15,023
(6,247)
8,776
1,547
16,037
256
17,840
(6,146)
11,694
1,788
11,281
206
13,275
(3,383)
9,892
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
13
13
(13)
−
−
−
16
16
(16)
−
−
−
9
9
(9)
−
Consolidated Entities
Abroad
Total
1,275
14,184
1,782
17,241
Total
24,016
298,623
274,708
597,347
Equity
Method
Investees
−
9,162
20
9,182
(7,394)
9,847
(188,607)
408,740
(3,796)
5,386
2,067
23,909
4,436
30,412
28,306
300,453
281,408
610,167
(14,117)
16,295
(173,290)
436,877
1,980
16,613
3,351
21,944
26,678
272,989
214,510
514,177
(8,048)
13,896
(132,068)
382,109
−
11,318
345
11,663
(5,006)
6,657
24
12,065
69
12,158
(4,831)
7,327
120
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
ii) Costs incurred in oil and gas property acquisition, exploration and development activities
Costs incurred are summarized below and include both amounts expensed and capitalized:
December 31, 2016
Acquisition costs:
Proved
Unproved
Exploration costs
Development costs
Total
December 31, 2015
Acquisition costs:
Proved
Unproved
Exploration costs
Development costs
Total
December 31, 2014
Acquisition costs:
Proved
Unproved
Exploration costs
Development costs
Total
Brazil
South America North America
Africa
Others
−
−
5,127
42,342
47,469
−
−
9,989
47,906
57,895
−
120
12,833
42,726
55,679
347
−
155
622
1,124
−
−
179
1,486
1,665
209
−
288
1,285
1,782
−
−
21
523
544
−
−
275
1,310
1,585
−
−
317
983
1,300
−
−
−
−
−
−
−
−
−
−
−
−
36
−
36
−
−
4
−
4
−
−
−
−
−
−
−
−
−
−
Consolidated Entities
Abroad
Total
347
−
180
1,145
1,672
−
−
454
2,796
3,250
209
−
641
2,268
3,118
Total
347
−
5,307
43,487
49,141
−
−
10,443
50,702
61,145
209
120
13,474
44,994
58,797
Equity
Method
Investees
−
−
16
1,374
1,390
−
−
34
1,420
1,454
−
−
−
1,501
1,501
iii) Results of operations for oil and gas producing activities
The Company’s results of operations from oil and gas producing activities for the years ended December 31, 2016,
2015 and 2014 are shown in the following table. The Company transfers substantially all of its Brazilian crude oil and
gas production to the Refining, Transportation & Marketing segment in Brazil. The internal transfer prices calculated
by the Company’s model may not be indicative of the price the Company would have realized had this production been
sold in an unregulated spot market. Additionally, the prices calculated by the Company’s model may not be indicative
of the future prices to be realized by the Company. Gas prices used are those set out in contracts with third parties.
Production costs are lifting costs incurred to operate and maintain productive wells and related equipment and
facilities, including operating employees’ compensation, materials, supplies, fuel consumed in operations and
operating costs related to natural gas processing plants.
Exploration expenses include the costs of geological and geophysical activities and projects without economic
feasibility. Depreciation and amortization expenses relate to assets employed in exploration and development
activities. In accordance with Codification Topic 932 – Extractive Activities – Oil and Gas, income taxes are based on
statutory tax rates, reflecting allowable deductions. Interest income and expense are excluded from the results
reported in this table.
121
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Brazil
South America North America
Africa
Others
December 31, 2016
Net operation revenues:
Sales to third parties
Intersegment
Production costs
Exploration expenses
Depreciation, depletion and
amortization
Impairment of oil and gas properties
Other operating expenses
Results before income tax expenses
Income tax expenses
Results of operations (excluding
corporate overhead and interest
costs)
December 31, 2015
Net operation revenues:
Sales to third parties
Intersegment
Production costs
Exploration expenses
Depreciation, depletion and
amortization
Impairment of oil and gas properties
Other operating expenses
Results before income tax expenses
Income tax expenses
Results of operations (excluding
corporate overhead and interest
costs)
December 31, 2014
Net operation revenues:
Sales to third parties
Intersegment
Production costs
Exploration expenses
Depreciation, depletion and
amortization
Impairment of oil and gas properties
Other operating expenses
Results before income tax expenses
Income tax expenses
Results of operations (excluding
corporate overhead and interest
costs)
2,363
109,101
111,464
(48,162)
(5,533)
(34,958)
(10,134)
(5,425)
7,252
(2,466)
776
1,845
2,621
(1,119)
(115)
(349)
(418)
(347)
273
(162)
1,948
−
1,948
(464)
(404)
(1,150)
(148)
(634)
(852)
(1)
4,786
111
(853)
2,076
108,846
110,922
(53,863)
(5,262)
(24,735)
(35,739)
(6,581)
(15,258)
5,188
1,002
3,225
4,227
(1,853)
(66)
(1,005)
(796)
182
689
(261)
1,949
−
1,949
(629)
(1,139)
(823)
(1,757)
(352)
(2,751)
5
(10,070)
428
(2,746)
1,190
152,515
153,705
(64,366)
(6,720)
(18,091)
(5,665)
(6,722)
52,141
1,975
2,903
4,878
(2,459)
(69)
(852)
(230)
2,610
3,878
2,144
−
2,144
(489)
(308)
(1,208)
(4,183)
(276)
(4,320)
(17,728)
(1,206)
(10)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
(38)
−
(16)
6
(48)
−
Consolidated Entities
Abroad
Total
2,724
1,845
4,569
(1,583)
(523)
(1,499)
(566)
(904)
(506)
(118)
Total
5,087
110,946
116,033
(49,745)
(6,056)
(36,457)
(10,700)
(6,329)
6,746
(2,584)
Equity
Method
Investees
1,165
96
1,261
(171)
(13)
(520)
−
(84)
473
(330)
−
−
−
−
(4)
−
−
77
73
45
118
(624)
4,162
143
−
−
−
−
−
−
−
(618)
(618)
53
2,951
3,225
6,176
(2,482)
(1,205)
(1,828)
(2,553)
(788)
(2,680)
(203)
5,027
112,071
117,098
(56,345)
(6,467)
(26,563)
(38,292)
(7,369)
(17,938)
4,985
1,853
62
1,915
(698)
(110)
(624)
(1,077)
(166)
(760)
(286)
(565)
(2,883)
(12,953)
(1,046)
−
−
−
−
−
−
−
279
279
4,119
2,903
7,022
(2,948)
(415)
(2,060)
(4,429)
2,619
(211)
5,309
155,418
160,727
(67,314)
(7,135)
(20,151)
(10,094)
(4,103)
51,930
1,578
3,279
4,857
(1,398)
(675)
(421)
(180)
(20)
2,163
41
(1,175)
(18,903)
(1,576)
34,413
2,672
(4,330)
(48)
320
(1,386)
33,027
587
iv) Reserve quantities information
The Company’s estimated net proved oil and gas reserves and changes thereto for the years 2016, 2015 and 2014 are
shown in the following table. Proved reserves are estimated by the Company’s reservoir geoengineers in accordance
with the reserve definitions prescribed by the Securities and Exchange Commission.
122
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data,
can be estimated with reasonable certainty to be economically producible from a given date forward, from known
reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the
time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably
certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to
extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence
within a reasonable time.
Developed oil and gas reserves are reserves of any category that can be expected to be recovered: (i) through existing
wells with existing equipment and operating methods or in which the cost of the required equipment is relatively
minor compared to the cost of a new well; and (ii) through installed extraction equipment and infrastructure
operational at the time of the reserves estimate if the extraction is done by means not involving a well.
In some cases, substantial new investments in additional wells and related facilities will be required to recover these
proved reserves and are named proved undeveloped reserves. Due to the inherent uncertainties and the limited
nature of reservoir data, estimates of reserves are subject to change as additional information becomes available.
A summary of the annual changes in the proved reserves of oil is as follows (in millions of barrels):
Proved developed and undeveloped reserves - Consolidated Entities
South
Reserves at December 31, 2013
Revisions of previous estimates
Extensions and discoveries
Improved recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2014
Revisions of previous estimates
Extensions and discoveries
Improved recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2015
Revisions of previous estimates
Extensions and discoveries
Improved recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2016
Apparent differences in the sum of the numbers are due to rounding off.
Bolivian proved reserves are not included due to restrictions determined by Bolivian Constitution.
America North America
123.1
5.3
1.6
−
(0.1)
−
(10.0)
119.9
(18.1)
−
−
−
−
(11.2)
90.6
17.9
−
−
−
−
(12.1)
96.4
166.0
(3.2)
3.0
0.5
(104.4)
22.9
(18.3)
66.5
(3.5)
4.8
0.7
(4.5)
−
(11.7)
52.3
0.1
−
−
(46.6)
0.7
(5.7)
0.8
Crude oil in
Brazil
10,658.4
629.3
267.7
−
−
−
(704.6)
10,850.9
(1,968.9)
407.1
0.4
(2.3)
−
(743.1)
8,544.1
179.5
87.8
−
−
−
(748.5)
8,063.0
Abroad
Total of crude
oil abroad
289.2
2.1
4.6
0.5
(104.5)
22.9
(28.3)
186.5
(21.6)
4.8
0.7
(4.5)
−
(22.8)
142.9
18.0
−
−
(46.6)
0.7
(17.8)
97.3
Africa
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Synthetic oil
in Brazil
8.8
0.2
−
−
−
−
(1.1)
7.9
0.1
−
−
−
−
(1.0)
6.9
0.8
−
−
−
−
(0.9)
6.8
Total
10,956.4
631.6
272.3
0.5
(104.5)
22.9
(734.0)
11,045.1
(1,990.4)
411.9
1.1
(6.8)
−
(767.0)
8,693.9
198.4
87.8
−
(46.6)
0.7
(767.2)
8,167.1
123
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Proved developed and undeveloped reserves - Equity Method Investees
Reserves at December 31, 2013
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2014
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2015
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2016
Apparent differences in the sum of the numbers are due to rounding off.
Crude Oil
abroad
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
South
America North America
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
21.2
(1.6)
−
−
−
−
(1.7)
18.0
(2.2)
−
−
−
−
(1.2)
14.6
−
−
−
(14.1)
−
(0.5)
−
Abroad
Total of crude
oil abroad
84.5
(1.1)
−
−
−
−
(11.3)
72.1
3.1
−
16.2
−
−
(10.9)
80.4
11.9
−
−
(14.1)
−
(9.2)
69.0
Africa
63.2
0.5
−
−
−
−
(9.6)
54.1
5.2
−
16.2
−
−
(9.7)
65.8
11.9
−
−
−
−
(8.7)
69.0
Brazil's
Synthetic Oil
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
A summary of the annual changes in the proved reserves of natural gas is as follows (in billions of cubic feet):
Proved developed and undeveloped reserves - Consolidated Entities
South
Reserves at December 31, 2013
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2014
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2015
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2016
Apparent differences in the sum of the numbers are due to rounding off.
Bolivian proved reserves are not included due to restrictions determined by Bolivian Constitution.
Natural Gas in
Brazil
11,291.7
468.0
216.0
−
−
−
(805.4)
11,170.3
(1,178.3)
417.6
0.2
(1.3)
−
(820.8)
9,587.7
(476.2)
92.1
0.1
−
−
(809.7)
8,394.0
America North America
132.9
46.1
6.0
−
(0.1)
−
(4.9)
180.0
(17.0)
−
−
−
−
(24.5)
138.5
(19.3)
−
−
−
−
(32.1)
87.2
1,058.5
25.5
42.1
10.8
(351.7)
47.1
(101.5)
730.8
16.8
74.6
27.7
(90.2)
−
(79.2)
680.5
22.9
−
−
(631.9)
93.3
(50.9)
113.9
Abroad
Total Natural
Gas abroad
1,191.4
71.6
48.1
10.8
(351.8)
47.1
(106.4)
910.8
(0.2)
74.6
27.7
(90.2)
−
(103.7)
819.1
3.6
−
−
(631.9)
93.3
(82.9)
201.1
Africa
0.0
−
−
−
−
−
−
0.0
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Brazil's
Synthetic Gas
11.8
0.1
−
−
−
−
(1.4)
10.6
0.2
−
−
−
−
(1.4)
9.3
1.2
−
−
−
−
(1.4)
9.2
Total
84.5
(1.1)
−
−
−
−
(11.3)
72.1
3.1
−
16.2
−
−
(10.9)
80.4
11.9
−
−
(14.1)
−
(9.2)
69.0
Total
12,494.8
539.7
264.1
10.8
(351.8)
47.1
(913.2)
12,091.5
(1,178.3)
492.2
27.9
(91.5)
−
(925.9)
10,416.1
(471.4)
92.1
0.1
(631.9)
93.3
(894.0)
8,604.3
124
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Proved developed and undeveloped reserves - Equity Method Investees
Reserves at December 31, 2013
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2014
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2015
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production
Reserves at December 31, 2016
Apparent differences in the sum of the numbers are due to rounding off.
Natural Gas in
Brazil
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
South
America North America
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
41.3
(13.1)
−
−
−
−
(0.6)
27.6
(10.4)
−
−
−
−
(0.3)
16.9
−
−
−
(16.8)
−
(0.1)
(0.0)
Abroad
Total Natural
Gas abroad
61.9
(14.4)
−
−
−
−
(0.6)
46.9
(13.1)
−
−
−
−
(0.3)
33.5
(4.1)
−
−
(16.8)
−
(0.1)
12.5
Africa
20.6
(1.2)
−
−
−
−
−
19.3
(2.7)
−
−
−
−
−
16.6
(4.1)
−
−
−
−
−
12.5
Total
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Total
61.9
(14.4)
−
−
−
−
(0.6)
46.9
(13.1)
−
−
−
−
(0.3)
33.5
(4.1)
−
−
(16.8)
−
(0.1)
12.5
The table below summarizes information about the changes in total proved reserves of crude oil and natural gas, in
millions of barrels of oil equivalent, in our consolidated and non-consolidated affiliate entities for 2016, 2015 and
2014:
Proved developed and undeveloped reserves - Consolidated
South
Reserves at December 31, 2014
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2014
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2015
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2016
Apparent differences in the sum of the numbers are due to rounding off.
Bolivian proved reserves are not included due to restrictions determined by Bolivian Constitution.
Oil equivalent
in Brazil
12,540.4
707.3
303.7
−
−
−
(838.8)
12,712.6
(2,165.3)
476.7
0.4
(2.5)
−
(879.9)
10,142.1
100.2
103.2
−
−
−
(883.4)
9,462.0
America North America
145.4
13.0
2.6
−
(0.1)
−
(10.8)
150.1
(20.9)
−
−
−
−
(15.3)
113.7
14.7
−
−
−
−
(17.4)
111.0
342.5
1.1
10.0
2.3
(163.0)
30.8
(35.2)
188.3
(0.7)
17.2
5.3
(19.5)
−
(24.9)
165.7
3.9
−
−
(151.9)
16.3
(14.2)
19.8
Abroad
Total oil
equivalent
abroad
487.9
14.1
12.6
2.3
(163.1)
30.8
(46.0)
338.3
(21.6)
17.2
5.3
(19.5)
−
(40.2)
279.4
18.6
−
−
(151.9)
16.3
(31.6)
130.8
Total
synthetic oil
equivalent in
Brazil
10.7
0.2
−
−
−
−
(1.3)
9.6
0.1
−
−
−
−
(1.3)
8.5
1.0
−
−
−
−
(1.2)
8.3
Total for all
products
13,039.0
721.6
316.3
2.3
(163.1)
30.8
(886.1)
13,060.7
(2,187.1)
494.0
5.8
(22.0)
−
(921.3)
10,430.0
119.8
103.2
−
(151.9)
16.3
(916.2)
9,601.1
Africa
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
125
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Proved developed and undeveloped reserves - Equity Method Investees
Reserves at December 31, 2013
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2014
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2015
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2016
Apparent differences in the sum of the numbers are due to rounding off.
Oil equivalent
in Brazil
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
South
America North America
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
28.1
(3.7)
−
−
−
−
(1.8)
22.6
(3.9)
−
−
−
−
(1.3)
17.4
−
−
−
(16.9)
−
(0.5)
0.0
Proved developed and undeveloped reserves - Consolidated and Equity Method Investees
Reserves at December 31, 2013
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2014
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2015
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2016
Apparent differences in the sum of the numbers are due to rounding off.
Oil equivalent
in Brazil
12,540.4
707.3
303.7
−
−
−
(838.8)
12,712.6
(2,165.3)
476.7
0.4
(2.5)
−
(879.9)
10,142.1
100.2
103.2
−
−
−
(883.4)
9,462.0
South
America North America
145.4
13.0
2.6
−
(0.1)
−
(10.8)
150.1
(20.9)
−
−
−
−
(15.3)
113.7
14.7
−
−
−
−
(17.4)
111.0
370.6
(2.6)
10.0
2.3
(163.0)
30.8
(37.0)
211.0
(4.6)
17.2
5.3
(19.5)
−
(26.2)
183.1
3.9
−
−
(168.8)
16.3
(14.7)
19.8
Abroad
Total oil
equivalent
abroad
94.8
(3.5)
−
−
−
−
(11.4)
79.9
0.9
−
16.2
−
−
(11.0)
86.0
11.2
−
−
(16.9)
−
(9.2)
71.1
Total
synthetic oil
equivalent in
Brazil
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Total for all
products
94.8
(3.5)
−
−
−
−
(11.4)
79.9
0.9
−
16.2
−
−
(11.0)
86.0
11.2
−
−
(16.9)
−
(9.2)
71.1
Abroad
Total oil
equivalent
abroad
582.7
10.6
12.6
2.3
(163.1)
30.8
(57.4)
418.4
(20.8)
17.2
21.5
(19.5)
−
(51.2)
365.4
29.8
−
−
(168.8)
16.3
(40.8)
201.8
Total
synthetic oil
equivalent in
Brazil
10.7
0.2
−
−
−
−
(1.3)
9.6
0.1
−
−
−
−
(1.3)
8.5
1.0
−
−
−
−
(1.2)
8.3
Total for all
products
13,133.8
718.1
316.3
2.3
(163.1)
30.8
(897.6)
13,140.6
(2,186.2)
493.9
21.9
(22.0)
−
(932.3)
10,516.0
131.0
103.2
−
(168.8)
16.3
(925.4)
9,672.2
Africa
66.7
0.3
−
−
−
−
(9.6)
57.3
4.8
−
16.2
−
−
(9.7)
68.6
11.2
−
−
−
−
(8.7)
71.1
Africa
66.7
0.3
−
−
−
−
(9.6)
57.3
4.8
−
16.2
−
−
(9.7)
68.6
11.2
−
−
−
−
(8.7)
71.1
In 2016, we incorporated 103 million boe of proved reserves from extensions and discoveries in Brazil (Santos Basin),
and we added 131 mmboe to our proved reserves due to revisions of previous estimates, as a result of drilling of new
production development wells and better reservoir response in onshore and offshore post-salt fields, in Brazil and the
USA, and as result of positive answers from the reservoirs, recovery mechanisms (water injection) and operating
efficiency of production systems in operation, as well as the growing drilling activities and tie-back activities, in the
pre-salt fields, in Santos and Campos Basin, both in Brazil.
126
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
We reduced 169 mmboe of our proved reserves due to sales of minerals in situ and increased 16 mmboe in our proved
reserves due to purchases of minerals in situ, resulting in a net effect of a decrease of 153 mmboe in our proved
reserves. The net result of these additions and disposals, excluding production, was an increase of 81 mmboe to our
proved reserves in 2016. Considering a production of 925 mmboe in 2016, our decrease of proved reserves was 844
mmboe. This volume production does not take into account the production of Extended Well Tests (EWTs) in
exploratory blocks in Brazil, and production in Bolivia, since the Bolivian Constitution prohibits the disclosure and
registration of its reserves.
We had a total of 4,441.1 mmboe of proved undeveloped reserves company-wide at December 31, 2016,
approximately 7.4% (329.1 mmboe) of which have remained undeveloped for five years or more as a result of several
factors affecting development and production, including the inherent complexity of ultra-deep water development
projects, particularly in the Santos Basin and in the Campos Basin, in which we are making investments to develop
necessary infrastructure.
In 2015, our proved reserves decreased by 2,186 mmboe due to revisions of previous estimates, mostly as result of
the decrease in oil prices during fiscal year of 2015, and decreased by 22 mmboe due to sales of proved reserves. This
decrease was partially offset by the incorporation of 494 mmboe of proved reserves from discoveries of new
accumulations and extensions in Brazil, specifically in the Santos, Campos and Espírito Santo Basins, and in Argentina,
in the Neuquina Basin, and the incorporation of 22 mmboe due to improved recovery. The net result (excluding
production) was a decrease of 1,692 mmboe in our proved reserves in 2015. Considering a production of 932 mmboe in
2015, our net decrease of proved reserves was 2,625 mmboe. This volume production does not take into account the
production of Extended Well Tests (EWTs) in exploratory blocks in Brazil, and production in Bolivia, since the Bolivian
Constitution prohibits the disclosure and registration of its reserves.
In 2014, 1,097 mmboe were added to our proved reserves, excluding synthetic oil and synthetic gas, while we (i)
returned to the ANP eleven fields in Brazil (four with proved reserves) and (ii) we divested from fields in which we had
interests in Peru, Colombia, Argentina and United States, representing aggregate proved reserves of 193 mmboe. The
net result of these additions and dispositions was an increase of 904 mmboe to our proved reserves in 2014.
Considering a production of 896 mmboe in 2014, our net increase of proved reserves was 8 mmboe. This volume
production does not take into account the production of Extended Well Tests (EWTs) in exploratory blocks in Brazil,
production of synthetic oil and synthetic gas and production in Bolivia, since the Bolivian Constitution prohibits the
disclosure and registration of its reserves.
127
Informação Complementar (não auditada)
(Em milhões de reais, exceto se indicado de outra forma)
The tables below present the volumes of proved developed and undeveloped reserves, net:
Net proved developed reserves:
Consolidated Entities
Brazil
South America
North America
Abroad
Total Consolidated Entities
Nonconsolidated Entities
South America
Africa
Abroad
Total Nonconsolidated Entities
Total Consolidated and Nonconsolidated Entities
Net proved undeveloped reserves:
Consolidated Entities
Brazil
South America
North America
Abroad
Total Consolidated Entities
Nonconsolidated Entities
South America
Africa
Abroad
Total Nonconsolidated Entities
Total Consolidated and Nonconsolidated Entities
Apparent differences in the sum of the numbers are due to rounding off.
Bolivian proved reserves are not included due to restrictions determined by Bolivian Constitution.
3,866.5
36.5
36.5
Crude Oil Synthetic Oil Natural Gas
2016
Synthetic
Gas
Crude Oil Synthetic Oil Natural Gas
2015
Synthetic
Gas
Crude Oil Synthetic Oil Natural Gas
2014
Synthetic
Gas
(millions of barrels)
(billions of cubic feet)
(millions of barrels)
(billions of cubic feet)
(millions of barrels)
(billions of cubic feet)
4,250.1
0.5
79.6
80.1
4,330.2
−
32.5
32.5
32.5
6.8
−
−
−
6.8
−
−
−
−
5,034.2
33.7
83.6
117.3
5,151.5
−
8.6
8.6
8.6
9.2
−
−
−
9.2
−
−
−
−
4,266.5
39.7
53.6
93.4
4,359.8
6.6
28.0
34.7
34.7
6.9
−
−
−
6.9
−
−
−
−
5,320.5
366.3
122.5
488.8
5,809.3
8.0
10.4
18.4
18.4
9.3
−
−
−
9.3
−
−
−
−
7,002.7
52.0
63.6
115.6
7,118.3
9.4
30.8
40.2
40.2
7.9
−
−
−
7.9
−
−
−
−
6,661.0
358.2
146.2
504.3
7,165.4
15.7
14.4
30.1
30.1
10.6
−
−
−
10.6
−
−
−
−
4,362.7
6.8
5,160.1
9.2
4,394.5
6.9
5,827.7
9.3
7,158.5
7.9
7,195.5
10.6
3,812.9
0.3
16.8
17.1
3,830.0
−
36.5
−
−
−
−
−
−
−
−
−
−
3,359.7
80.2
3.6
83.8
3,443.6
−
3.9
3.9
3.9
3,447.5
−
−
−
−
−
−
−
−
−
−
4,277.7
12.5
37.0
49.5
4,327.2
7.9
37.8
45.7
45.7
4,372.9
−
−
−
−
−
−
−
−
−
−
4,267.2
314.2
16.0
330.3
4,597.5
8.9
6.2
15.1
15.1
4,612.6
−
−
−
−
−
−
−
−
−
−
3,848.2
14.6
56.4
71.0
3,919.2
8.6
23.3
31.9
31.9
3,951.1
−
−
−
−
−
−
−
−
−
−
4,509.2
372.5
33.8
406.3
4,915.5
11.9
4.9
16.8
16.8
4,932.3
−
−
−
−
−
−
−
−
−
−
128
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
v) Standardized measure of discounted future net cash flows relating to proved oil and gas quantities and
changes therein
The standardized measure of discounted future net cash flows, related to the above proved oil and gas reserves, is
calculated in accordance with the requirements of Codification Topic 932 – Extractive Activities – Oil and Gas.
Estimated future cash inflows from production in Brazil are computed by applying the average price during the 12-
month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic
average of the first-day-of-the-month price for each month within such period, unless prices are defined by
contractual arrangements, excluding escalations based upon future conditions. Future price changes are limited to
those provided by contractual arrangements in existence at the end of each reporting year. Future development and
production costs are those estimated future expenditures necessary to develop and produce year-end estimated
proved reserves based on year-end cost indications, assuming continuation of year-end economic conditions.
Estimated future income taxes (including future social contributions on net income - CSLL) are calculated by applying
appropriate year-end statutory tax rates. The amounts presented as future income taxes expenses reflect allowable
deductions considering statutory tax rates. Discounted future net cash flows are calculated using 10% mid-period
discount factors. This discounting requires a year-by-year estimate of when the future expenditures will be incurred
and when the reserves will be produced.
The valuation prescribed under Codification Topic 932 – Extractive Activities – Oil and Gas requires assumptions as to
the timing and amount of future development and production costs. The calculations are made as of December 31
each year and should not be relied upon as an indication of Petrobras’ future cash flows or the value of its oil and gas
reserves.
Information relating to the standardized measure of discounted future net flows, presented originally in U.S. dollars in
Form 20-F of the SEC, were converted to reais for these financial statements. Therefore, in order to maintain
consistency with the criteria used in measuring the estimates of future cash flows, as described above, the exchange
rate used for converting each period follows the average prices calculated as the unweighted arithmetic average of
the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period.
Exchange differences arising from translation are shown as cumulative translation adjustments in the following
tables.
129
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Discounted future net cash flows:
Brazil
South America North America
At December 31, 2016
Future cash inflows
Future production costs
Future development costs
Future income tax expenses
Undiscounted future net cash flows
10% midyear annual discount for timing of estimated cash flows *
Standardized measure of discounted future net cash flows
At December 31, 2015
Future cash inflows
Future production costs
Future development costs
Future income tax expenses
Undiscounted future net cash flows
10% midyear annual discount for timing of estimated cash flows *
Standardized measure of discounted future net cash flows
1,260,888
(738,852)
(149,444)
(163,121)
209,471
(88,016)
121,455
1,524,183
(844,332)
(215,751)
(202,433)
261,667
(120,677)
140,990
At December 31, 2014
Future cash inflows
Future production costs
Future development costs
Future income tax expenses
Undiscounted future net cash flows
10% midyear annual discount for timing of estimated cash flows *
Standardized measure of discounted future net cash flows
(*) Semiannual capitalization
Bolivian proved reserves are not included due to restrictions determined by Bolivian Constitution.
2,529,273
(1,098,425)
(164,084)
(441,802)
824,962
(418,349)
406,613
2,116
(843)
(425)
(229)
619
(275)
344
21,563
(10,434)
(3,481)
(1,736)
5,912
(1,939)
3,973
16,770
(8,762)
(2,798)
(1,447)
3,763
(1,230)
2,533
13,437
(7,597)
(1,875)
(141)
3,824
(897)
2,927
15,560
(8,847)
(3,272)
(76)
3,365
(488)
2,877
26,530
(8,630)
(5,504)
(955)
11,441
(3,703)
7,738
Consolidated Entities
Equity
Method
Investees
Abroad
Total
15,553
(8,440)
(2,300)
(370)
4,443
(1,172)
3,271
37,123
(19,281)
(6,753)
(1,812)
9,277
(2,427)
6,850
43,300
(17,392)
(8,302)
(2,402)
15,204
(4,933)
10,271
Total
1,276,441
(747,292)
(151,744)
(163,491)
213,914
(89,188)
124,726
1,561,306
(863,613)
(222,504)
(204,245)
270,944
(123,104)
147,840
2,572,573
(1,115,817)
(172,386)
(444,204)
840,166
(423,282)
416,884
10,407
(3,839)
(2,481)
(808)
3,279
(1,221)
2,058
12,995
(4,629)
(4,050)
(1,151)
3,165
(1,480)
1,685
14,704
(4,456)
(3,775)
(2,152)
4,321
(1,296)
3,025
130
Supplementary information (unaudited)
(Expressed in millions of reais, unless otherwise indicated)
Consolidated Entities
South America
Balance at January 1, 2016
Sales and transfers of oil and gas, net of production cost
Development costs incurred
Net change due to purchases and sales of minerals in place
Net change due to extensions, discoveries and improved, less related
costs
Revisions of previous quantity estimates
Net change in prices, transfer prices and in production costs
Changes in estimated future development costs
Accretion of discount
Net change in income taxes
Others - unspecified
Cumulative translation adjustment
Balance at December 31, 2016
Brazil
140,990
(63,242)
42,342
−
4,353
4,225
(95,372)
32,372
14,099
31,044
−
10,644
121,455
3,973
(1,238)
622
(3,860)
−
−
−
−
571
−
(2)
278
344
2,877
(1,524)
523
−
1,709
785
(2,681)
814
290
(4)
(66)
204
2,927
Balance at January 1, 2015
Sales and transfers of oil and gas, net of production cost
Development costs incurred
Net change due to purchases and sales of minerals in place
Net change due to extensions, discoveries and improved, less related
costs
Revisions of previous quantity estimates
Net change in prices, transfer prices and in production costs
Changes in estimated future development costs
Accretion of discount
Net change in income taxes
Others - unspecified
Cumulative translation adjustment
Balance at December 31, 2015
Brazil
406,613
(57,037)
47,906
(113)
South America North America
7,739
(1,329)
1,310
−
2,532
(1,845)
1,486
(191)
21,499
(97,550)
(610,081)
(22,904)
40,661
226,167
−
185,829
140,990
1,068
6
499
(1,221)
517
220
(133)
1,035
3,973
−
(2,161)
(9,258)
1,775
1,035
305
303
3,158
2,877
Balance at January 1, 2014
Sales and transfers of oil and gas, net of production cost
Development costs incurred
Net change due to purchases and sales of minerals in place
Net change due to extensions, discoveries and improved, less related
costs
Revisions of previous quantity estimates
Net change in prices, transfer prices and in production costs
Changes in estimated future development costs
Accretion of discount
Net change in income taxes
Others - unspecified
Cumulative translation adjustment
Balance at December 31, 2014
Brazil
406,422
(89,330)
42,726
−
South America North America
7,186
(1,638)
983
249
5,935
(1,525)
1,285
(2,555)
16,847
39,241
(78,114)
(27,679)
40,642
17,720
−
38,138
406,613
427
(64)
(599)
(846)
308
(266)
(71)
503
2,532
−
498
(884)
90
803
(220)
57
615
7,739
Bolivian proved reserves are not included due to restrictions in accordance with Bolivian Constitution.
6,850
(2,762)
1,145
(3,860)
1,709
785
(2,681)
814
861
(4)
(68)
482
3,271
Total
147,840
(66,004)
43,487
(3,860)
6,062
5,010
(98,053)
33,186
14,960
31,040
(68)
11,126
124,726
Consolidated Entities
Abroad
Total
10,271
(3,174)
2,796
(191)
1,068
(2,155)
(8,759)
554
1,552
525
170
4,193
6,850
Total
416,884
(60,211)
50,702
(304)
22,567
(99,705)
(618,840)
(22,350)
42,213
226,692
170
190,022
147,840
Consolidated Entities
Abroad
Total
13,121
(3,163)
2,268
(2,306)
427
434
(1,483)
(756)
1,111
(486)
(14)
1,118
10,271
Total
419,543
(92,493)
44,994
(2,306)
17,274
39,675
(79,597)
(28,435)
41,753
17,234
(14)
39,256
416,884
Equity
Method
Investees
1,685
(733)
1,374
(189)
236
854
(1,682)
(65)
184
217
59
118
2,058
Equity
Method
Investees
3,025
(818)
1,420
−
1,606
441
(5,728)
(399)
429
1,110
599
−
1,685
Equity
Method
Investees
3,672
(2,228)
1,501
−
−
(71)
(1,347)
(273)
412
202
−
1,157
3,025
131
Petróleo Brasileiro S.A. – Petrobras
Board of Directors and Officers
BOARD OF DIRECTORS
LUIZ NELSON GUEDES DE CARVALHO
CHAIRMAN
PEDRO PULLEN PARENTE
JERÔNIMO ANTUNES
SEGEN FARID ESTEFEN
MEMBER
MEMBER
CONSELHEIRO
GUILHERME AFFONSO FERREIRA
DURVAL JOSÉ SOLEDADE SANTOS
BETANIA RODRIGUES COUTINHO
MEMBER
MEMBER
CONSELHEIRO
FRANCISCO PETROS OLIVEIRA LIMA PAPATHANASIADIS
MARCELO MESQUITA DE SIQUEIRA FILHO
MEMBER
MEMBER
EXECUTIVE COMMITTEE (OFFICERS)
PEDRO PULLEN PARENTE
Chief Executive Officer (CEO) - President
HUGO REPSOLD JÚNIOR
CHIEF HUMAN RESOURCES, HSE AND SERVICES
EXECUTIVE OFFICER
JOÃO ADALBERTO ELEK JÚNIOR
CHIEF GOVERNANCE AND COMPLIANCE
EXECUTIVE OFFICER
NELSON LUIZ COSTA SILVA
CHIEF STRATEGY, ORGANIZATION AND MANAGEMENT SYSTEM
EXECUTIVE OFFICER
ROBERTO MORO
CHIEF TECHNOLOGY AND PRODUCTION DEVELOPMENT
EXECUTIVE OFFICER
IVAN DE SOUZA MONTEIRO
CHIEF FINANCIAL AND INVESTOR RELATIONS
EXECUTIVE OFFICER
SOLANGE DA SILVA GUEDES
CHIEF EXPLORATION AND PRODUCTION
EXECUTIVE OFFICER
JORGE CELESTINO RAMOS
CHIEF REFINING AND NATURAL GAS
EXECUTIVE OFFICER
PAULO JOSE ALVES
Chief Accounting Officer (CAO)
CRC-RJ-060.073/O-0
Petróleo Brasileiro S.A. – Petrobras
REPORT OF THE PETROBRAS STATUTORY AUDIT COMMITTEE –
FISCAL YEAR 2016
Summary Annual Report of the Statutory Audit Committee – Fiscal Year 2016
The Board of Directors of
Petróleo Brasileiro S.A. – Petrobras
1. Introduction
The Statutory Audit Committee ("CAE" or "Committee") is a permanent body directly under the Board of Directors
of Petróleo Brasileiro S.A. – Petrobras ("Company"), governed by CVM Instruction No. 308, dated of May 14,
1999, as amended by CVM Instruction No. 509, dated of November 16, 2011, and other applicable regulations,
including the Sarbanes-Oxley Act ("SOx") and rules issued by the Securities and Exchange Commission ("SEC") and
the New York Stock Exchange ("NYSE"), with its own Internal Rules ("Rules").
The purpose of the Statutory Audit Committee is to advise the Board of Directors in the exercise of their duties,
working primarily on (i) the quality, transparency, and integrity of individual and consolidated financial
statements (hereinafter the "financial statements"); (ii) the effectiveness of internal control processes for the
production of financial reports; and (iii) the performance, independence, and quality of the work by Independent
Auditors and Internal Auditors.
In fulfilling its responsibilities, the CAE is not responsible for planning or conducting audits or any assertion on the
completeness and accuracy of the Company's financial statements, or are presented in accordance with the
accounting practices adopted in Brazil issued by the Committee on Accounting Standards (Comitê de
Pronunciamentos Contábeis) – CPC and with the International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB). This is the responsibility of Management and the independent
auditors. In fulfilling its responsibilities as described in its Internal Rules, the CAE members are not performing the
duties of auditors or accountants.
2. Duties and Responsibilities
2.1 Company Management
Company Management is responsible for: (i) defining and implementing processes and procedures whose purpose is
to collect data in the preparation of the financial statements, in compliance with corporate law, the accounting
practices adopted in Brazil plus the practices issued by the IASB, the relevant regulatory acts of the Securities and
Exchange Commission of Brazil ("CVM") and, because it is listed on the New York Stock Exchange, the standards issued
by the SEC and the SOx; (ii) preparing and ensuring the integrity of financial statements, managing risks, maintaining
an effective system of internal controls, and enforcing compliance of activities to meet legal and regulatory
standards, and (iii) internal control processes, policies, and procedures that ensure the safeguard of assets, the timely
recognition of liabilities, and the elimination or reduction to acceptable levels of risk factors
. 2.2 Compliance and Internal Controls
The current Executive Office of Governance and Compliance ("DGC") started activities in 2015, and its mission is
to ensure compliance with processes and mitigate risks, among which the risk of fraud and corruption, enforcing
compliance to laws, norms, standards, and internal and external and rules.
The Executive Department for Compliance, which is part of DGC, is tasked with planning, steering, coordinating,
and assessing control and compliance activities, including the investigation and reduction of fraud and corruption
risks, reporting to Senior Management on compliance actions and results throughout the Petrobras System.
Since creation in late 2014 of the Executive Office of Governance, Risk and Compliance ("DGRC” – currently
Executive Office of Governance and Compliance, "DGC"), numerous actions have been implemented in Petrobras
in order to ensure process compliance and risk reduction, in addition to enforce compliance with laws, norms,
standards, and regulations, both internal and external to the Company. In this sense, over 2016, the following
stand out as important measures of improvement in governance and controls: transformation of the Petrobras
Audit Committee into a Statutory Audit Committee ("CAE") pursuant to CVM regulation; approval of the
Appointment Policy for Members of the Audit Committee, Board of Directors and Executive Board of Petrobras;
and approval of the revision for the Policy on Related Party Transactions.
2.3 Internal Audit
Internal Audit, which is directly subordinated to the Board of Directors, is technically supervised by the Statutory
Audit Committee, and is responsible for carrying out periodic works focused on major risks, broadly and
independently evaluating the actions to manage those risks and the adequacy of governance and internal controls,
covering the areas and activities that present the most sensitive risks to Petrobras’ operations and strategy.
2.4 Risk Management and Monitoring
After the amendment to the Petrobras Bylaws in 2016, the Executive Department of Corporate Risk became
subordinate to the Executive Office for Strategy, Organization and Management System, and it is responsible for
strengthening the integrated outlook of the business risks within the Petrobras System by identifying, assessing,
monitoring and managing relevant risks, together with the different areas and companies in the Petrobras System.
2.5 Ombudsman and Whistleblowing Channel
In 2015, after completing a recruitment process among market professionals, the Board of Directors, selected the
new Ombudsman General of Petrobras and approved the restructuring of the Company’s Ombudsman Office,
including the implementation of an independent Whistleblowing Channel. Complaints, including anonymous
complaints, are received through a system supplied by contractor company “Contato Seguro.”
2.6 Independent Audit
PricewaterhouseCoopers – PwC is responsible for the independent audit of the annual financial statements
published and for the review of quarterly information (ITRs) filed with CVM, issuing reports that reflect the result
of its findings and present its independent opinion on the reliability of financial statements in relation to the
accounting practices adopted in Brazil issued by the Committee on Accounting Standards (Comitê de
Pronunciamentos Contábeis) – CPC and with the International Financial Reporting Standards (IFRS) , issued by the
International Accounting Standards Board (IASB), in addition to compliance to CVM rules, the provisions in
Brazilian corporate law, and American regulations applicable to Petrobras.
2.7 Transactions with Related Parties
The Statutory Audit Committee is in charge of assessing and monitoring together with Management and Internal
Audit, the appropriateness of transactions with related parties carried out by the Company, as well as reviewing
at least once a year, the summary of transactions with related parties by Petrobras involving the latter’s Executive
Officers, Board members, as well as the spouse or direct or collateral relatives up to the third degree, and, by
affinity, up to the second degree, of said administrators, plus companies that employ any of its Executive Officers
or Board members, in addition to any other related party relationship that is relevant, as defined by CVM and the
SEC.
Upon the Board of Directors’ approval on 12/15/2016 of the revision of Petrobras’ Policy on Related Party
Transactions, the CAE Internal Rules were changed so the Committee, in addition to assessing and monitoring
transactions with related parties, pre-screens those transactions that meet the materiality criteria set out in CVM
Instruction 480/09, pursuant to the revision of the Policy on Related Party Transactions.
3. History of Committee Composition
On 1/1/2016, the Audit Committee was composed of the following Board members: Walter Mendes de Oliveira
Filho (Committee Chair), Jerônimo Antunes, Luiz Augusto Fraga Navarro de Britto Filho and Roberto da Cunha
Castello Branco.
On 2/24/2016, Board member Roberto da Cunha Castello Branco left the Audit Committee, but remained as
member of the Petrobras Board of Directors and as Chair of this Board’s Finance Committee.
On 2/26/2016, the Board of Directors approved the revision of the Audit Committee Internal Rules, turning it into
a Statutory Audit Committee ("CAE") pursuant to CVM regulation.
On 3/4/2016, the Petrobras Board of Directors approved the appointment of Board member Francisco Petros
Oladimeji Papathanasiadis as new CAE member, replacing Board member Luiz Augusto Navarro de Britto Filho,
who left the CAE as he took office as Chief Minister of the Comptroller General's Office - CGU. Board member
Francisco Petros had been elected as substitute to Board member Walter Mendes de Oliveira Filho by the
common share minority shareholders during the Extraordinary General Meeting held by the Company on
7/1/2015.
On 5/2/2016, the Petrobras Board of Directors approved the appointment of Board members Walter Mendes de
Oliveira Filho, Durval José Soledade Santos and Jerônimo Antunes as Statutory Audit Committee members for the
2016/2018 period, nominating Walter Mendes de Oliveira Filho as Committee Chair.
At a meeting held on 8/12/2016, in light of Board member Walter Mendes de Oliveira Filho’s resignation from his
posts as Board of Directors member and CAE Chair on 8/11/2016, the Board of Directors approved (i) to
nominated Board member Jerônimo Antunes as Statutory Audit Committee Chair remainder of the 2016/2018
period, and (ii) to appoint Board member Marcelo Mesquita de Siqueira Filho as CAE member for the remainder
of the 2016/2018 period. Board member Marcelo Mesquita had been appointed as Board member by the Board
of Directors itself on 8/11/2016, in light of Board member Walter Mendes’ resignation. Later, Board member
Marcelo Mesquita was elected Board member by the common share minority shareholders at the Company’s
Extraordinary General Meeting held on 11/30/2016.
Therefore, the CAE is currently composed of the following Board of Directors members: Jerônimo Antunes (Chair),
Durval José Soledade Santos and Marcelo Mesquita de Siqueira Filho, whereas Board member Jerônimo Antunes
is the CAE’s financial and corporate accounting expert, as provided for in Brazilian and American law.
It should be noted that all current CAE members meet the independence criteria set forth in Law No. 13,303/16,
article 22, paragraph 1, and CVM Instruction n° 308/99, article 31-C, paragraph 2, as amended by CVM Instruction
No. 509/11, as well as the independence criteria required by American law as applicable to Petrobras.
4. Summary of Activities in 2016
In the period from January 1, 2016 to March 21, 2017, the Petrobras Statutory Audit Committee held 44 meetings
covering 216 items, involving Executive Officers, Executive Managers, Ombudsman, Internal Auditors and
Independent Auditors, thus segregated:
4.1 Auditoria Independente
Fourteen meetings were held, discussing 17 items that addressed, among other topics, (i) the planning and
execution of audit work on the quarterly and annual financial statements for the 2016 fiscal year, (ii) learn the
nature, time and extent of the main audit procedures of selected and the materiality adopted, (iii) the audit risk
analysis conducted, (iv) the significant deficiencies identified in the risk assessment of internal controls, (v) the
points of attention identified and (vi) the conclusions of their audit tests. Information confirming the
independence of auditors and the absence of conflicts of interest in work other than the auditing of the financial
statements was also gathered.
Additionally, the so-called Main Audit Topics were discussed with the independent auditors, to be reported from
this fiscal period on in the new Independent Auditor’s Report, namely: (i) "Operation Car Wash" and its
consequences to the Company; (ii) Class action and related processes; (iii) Fixed asset impairment; (iv) Lawsuits
and contingencies; (v) Employee benefits; (vi) Accounts receivable – Electrical sector; (vii) Cancellations and
advances to suppliers – Shipyards and (viii) Cash flow hedge accounting – Estimate of future exports.
4.2 Accounting and Tax
Twenty-seven items were assessed over 21 meetings, whose object were the quarterly and annual financial
statements for the 2016 fiscal period, addressing the main accounting practices adopted, accounting estimates
made, plus the presentations of financial standing, financial results, cash flows and added value, and the
explanatory notes to the financial statements. These items also involved the following areas in addition to
Independent Audit: Legal, Internal Controls, and Internal Audit.
4.3 Internal Audit
Twenty items under Internal Audit’s responsibility were addressed in 14 meetings, during which the Statutory
Audit Committee was informed of the points of attention and recommendations arising from the work of Internal
Audit, and followed up on the corrective actions adopted by Management. These items addressed the quarterly
and annual reports of Internal Audit work (RAINT), the Internal Audit Activity Plan (PAINT), in addition to the
evolution of testing of SOx controls at Petrobras and its main subsidiaries.
It should be noted that, since September/2016, the Executive Manager of Internal Audit participates as a
permanent guest of all Committee meetings.
4.4 Conformidade e Sistemas de Controles Internos
Thirty-eight items were presented in 20 meetings, whereas the following topics were subject to monitoring and
recommendations, among others: (i) action plan regarding the points of attention and remediation of significant
deficiencies reported in the 2016 Reference Form - 2016 fiscal year - filed with CVM (corresponding to the "Material
Weaknesses” reported in the 2016 20-F Form - 2015 fiscal year - filed with the SEC), with rigorous monitoring by CAE
on a monthly and/or weekly basis; (ii) internal control system; (iii) SOx/CVM risks; and (iv) Integrity Due Diligence
Process.
4.5 Ouvidoria-Geral e Canal de Denúncias
Specifically, in relation to the Ombudsman and Whistleblowing Channel, 12 items were addressed in 10 meetings,
in which very high and high risk complaints and quarterly reports covering all activities, complaints, and actions
taken were presented in detail, as well as the revision of the Petrobras Ombudsman Policy and Guidelines.
4.6 Gestão e Monitoramento de Riscos
Nine Risk Management and Monitoring items were discussed over 9 meetings, with involvement of other
company areas such as: Investor Relations, Governance, Internal Controls, and Accounting and Tax. These items
addressed the following subjects, among others: (i) governance for tax risks; (ii) fraud and corruption risk
management matrix; (iii) inventory of SOx/CVM risks; (iv) review and update process for the risk factors included
in the Reference Form and the 20-F Form; (V) map of strategic risks, labor risks and risk appetite.
4.7 Transações com Partes Relacionadas
Six meetings were held, wherein 6 items were assessed on transactions with related parties, including the revision
of the Policy on Related Parties.
4.8 Outras Atividades
The Statutory Audit Committee met with the main executives of the Company and its main subsidiaries, in order
to learn of the key business strategies and monitor the operating and systemic improvements to strengthen the
processing and security of transactions, totaling 94 items on such other topics.
Among other CAE activities, we mention the joint meetings with the Finance Committee on the Financial
Statements, and with the Audit Committee, where accounting issues were addressed such as impairment and
hedge accounting; and joint meetings with the Safety, Environment and Health Committee, which addressed
topics related to HSE indicators; reports on HSE internal audits; and reports of serious accidents and fatalities in
the Company.
5. Audit Committee Communications
5.1 Board of Directors
The Statutory Audit Committee reports monthly to the Board of Directors meetings, the issues discussed in its
meetings, its positions and requests made to the different areas of the Company, as well as monitoring results of
the activities by Internal Auditors, Independent Auditors, the Executive Department of Compliance and the
Ombudsman.
In addition, CAE issues specific recommendations to the Board of Directors on items submitted for resolution by
this collegiate, as part of its statutory duties.
5.2 Senior Management - Executive Board and Executive Managers
In all meetings held by the Statutory Audit Committee, the Executive Offices involved in the topics to be discussed
are invited and indicate the participation of the Executive Managers for the areas in charge of the items to be
addressed.
In addition, the Executive Offices and Departments submit items to the CAE, as relevant to the duties of this
Committee, referring to issues to be submitted for assessment and final decision by the Board of Directors, so
that the Committee can examine them and issue its recommendation to the Board.
6. Recommendations to the Executive Board
Among other recommendations, the Statutory Audit Committee recommended to the Executive Board to include
in its regular meetings the monitoring of progress in measures to eliminate significant deficiencies (“Material
Weaknesses”) in internal controls identified in the fiscal year ending on 12/31/2015, as well as monitoring any
new obstacles identified, including efforts to advance the deadlines for completion of their treatment; and to
arrange for the necessary resources to implement the following Action Plans and policies highlighted below:
- Remediation Plan of said significant deficiencies (“Material Weaknesses”);
- Harmonization of corporate policies between the holding and wholly-owned subsidiaries and controlled
companies, regarding policies, Ombudsman performance and assessment standards, Internal Audit, HSE, Human
Resources, Compliance, Legal, and Information Technology;
- Completion and Implementation of the Work Plan for Review of Judicial and Administrative Litigation
Classification Methodology, to be executed jointly by the Legal, Accounting and Tax, Internal Audit, and Corporate
Risks departments.
The Statutory Audit Committee believes that the issues highlighted in "Recommendations" above – whose Action
Plans are either completed or in progress – were surrounded by satisfactory mitigating procedures to minimize
any internal control risks that could impact the financial statements as of 12/31/2016.
7. Conclusions and recommendation to the Board of Directors
The Statutory Audit Committee members, in the exercise of their duties and legal responsibilities, has completed the
examination and analysis of the Financial Statements, together with the Independent Auditor’s Report and the Annual
Management Report for the fiscal year ending on December 31, 2016 (“2016 Annual Financial Statements").
Considering the information provided by Petrobras Management and by PricewaterhouseCoopers Independent
Auditors, the members of the Statutory Audit Committee believe that all relevant facts of which they were informed
by the work completed are properly disclosed in the Management Report and in the audited Financial Statements as
of 12/31/2016, and recommend its approval by the Board of Directors.
Rio de Janeiro, March 21, 2017.
____________________________________
Jerônimo Antunes
Chair, Statutory Audit Committee
Financial and corporate accounting expert
____________________________________
Marcelo Mesquita de Siqueira Filho
Member, Statutory Audit Committee
____________________________________
Durval José Soledade Santos
Member, Statutory Audit Committee
Petróleo Brasileiro S.A. – Petrobras
REPORT OF THE FISCAL COUNCIL – FISCAL YEAR 2016
The Fiscal Council of Petróleo Brasileiro S.A. - PETROBRAS, in the exercise of its legal and statutory functions, at a
meeting held on this date, examined the following documents issued by Petrobras:
I - 2016 Management Report; and
II- The Statement of financial position and other financial statements for the year ended December 31, 2016.
2. Based on the examinations carried out, considering the accounting practices adopted by the Company, the
information provided by Management, as well as the Unqualified Opinion of PricewaterhouseCoopers Auditores
Independentes, dated on 03/21/17,the Fiscal Council, with dissenting votes of the members Reginaldo Ferreira
Alexandre and Walter Luis Bernardes Albertoni, believes that the documents presented are able of being appraised at
the Shareholders’ General Meeting of Petrobras
Rio de janeiro, Brazil
March 21, 2017
Marisete Fátima Dadald Pereira
Chair
Luiz Augusto Fraga Navarro de Britto Filho
Member
Reginaldo Ferreira Alexandre
Member
Walter Luís Bernardes Albertoni
Member
Antonio Roberto da Silva
Technical Adivisor
CRC/RJ- 0550 19/0-5
99