FORM-20 2019ABOUT US UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2019
Commission File Number 001-15106
Petróleo Brasileiro S.A. – Petrobras
(Exact name of registrant as specified in its charter)
Brazilian Petroleum Corporation – Petrobras
(Translation of registrant’s name into English)
The Federative Republic of Brazil
(Jurisdiction of incorporation or organization)
Avenida República do Chile, 65
20031-912 – Rio de Janeiro – RJ – Brazil
(Address of principal executive offices)
Andrea Marques de Almeida
Chief Financial Officer and Chief Investor Relations Officer
(55 21) 3224-4477 – dfinri@petrobras.com.br
Avenida República do Chile, 65 – 23rd Floor 20031-912 – Rio de Janeiro – RJ – Brazil
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which registered:
Petrobras Common Shares, without par value*
New York Stock Exchange*
Petrobras American Depositary Shares, or ADSs
(evidenced by American Depositary Receipts, or ADRs),
each representing two Common Shares
New York Stock Exchange
Petrobras Preferred Shares, without par value*
New York Stock Exchange*
Petrobras American Depositary Shares
(as evidenced by American Depositary Receipts),
each representing two Preferred Shares
New York Stock Exchange
Floating Rate Global Notes due 2020, issued by PGF
New York Stock Exchange
5.375% Global Notes due 2021, issued by PGF (successor to PifCo)
New York Stock Exchange
8.375% Global Notes due 2021, issued by PGF
6.125% Global Notes due 2022, issued by PGF
4.375% Global Notes due 2023, issued by PGF
6.250% Global Notes due 2024, issued by PGF
5.299% Global Notes due 2025, issued by PGF
8.750% Global Notes due 2026, issued by PGF
7.375% Global Notes due 2027, issued by PGF
5.999% Global Notes due 2028, issued by PGF
5.750% Global Notes due 2029, issued by PGF
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
6.875% Global Notes due 2040, issued by PGF (successor to PifCo)
New York Stock Exchange
6.750% Global Notes due 2041, issued by PGF (successor to PifCo)
New York Stock Exchange
5.625% Global Notes due 2043, issued by PGF
7.250% Global Notes due 2044, issued by PGF
6.900% Global Notes due 2049, issued by PGF
6.850% Global Notes due 2115, issued by PGF
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
*Not for trading, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the New York Stock
Exchange.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each class of stock as of December 31, 2019 was:
7,442,231,382 Petrobras Common Shares, without par value
5,601,969,879 Petrobras Preferred Shares, without par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
Yes☐ No☑
If this report is an annual or transitional report, indicate by check mark if the registrant is not required to file reports
pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes☐ No☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☑ No☐
Indicate by check mark whether the registrant has submitted electronically if any, every Interactive Data File required to
be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files).
Yes☑ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included
in this filing:
U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☑
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes☐ No☑
TABLE OF CONTENTS
Disclaimer
Glossary
ABOUT US
Selected Financial Data
Overview
RISKS
Risk Factors
Corporate Risk Management
Disclosures about Market Risk
Insurance
OUR BUSINESS
Exploration and Production
Refining, Transportation and Marketing
Gas and Power
Portfolio Management
External Business Environment
STRATEGIC PLAN
2020 – 2024 Strategic Plan
Digital Transformation
ENVIRONMENT, SOCIAL
AND GOVERNANCE
Environment
Social Responsibility
Governance
OPERATING AND FINANCIAL
REVIEW AND PROSPECTS
Group Financial Performance
Segments Financial Performance
Liquidity and Capital Resources
Other Information
004
006
011
013
015
020
022
037
038
038
041
042
065
085
103
107
111
112
118
122
123
128
130
133
134
145
147
159
MANAGEMENT AND
EMPLOYEES
Management
Employees
Benefits
COMPLIANCE AND
INTERNAL CONTROL
Controls and Procedures
Ombudsman and Internal Investigations
SHAREHOLDER
INFORMATION
Listing
Shares and Shareholders
Dividends
161
162
183
186
190
194
195
196
197
198
206
Additional Information for Foreign Shareholders 210
LEGAL AND TAX
Regulation
Material Contracts
Legal Proceedings
Tax
ADDITIONAL
INFORMATION
List of Exhibits
Signatures
Abbreviations
Conversion Table
Cross reference to Form 20-F
FINANCIAL
STATEMENTS
213
214
219
223
229
245
246
254
255
256
257
260
ANNUAL REPORT AND FORM 20-F 2019
DISCLAIMER
In prior years, we presented our annual report on Form 20-F following the structure and order of disclosure displayed in the
SEC Form 20-F. In this annual report on Form 20-F for the year ended December 31, 2019 (referred to herein as our “annual
report”) we made changes in the structure of our annual report in order to present information to investors in a manner more
consistent with how we view our business. To guide the reader, a cross reference guide to SEC Form 20-F is presented under
“Cross-Reference to Form 20-F” in this annual report.
Unless the context otherwise indicates, please consider this report the annual report of Petróleo Brasileiro S.A. – Petrobras.
Unless the context otherwise requires, the terms “Petrobras,” “we,” “us” and “our” refer to Petróleo Brasileiro S.A. – Petrobras
and its consolidated subsidiaries, joint operations and structured entities.
Our audited consolidated financial statements, presented in U.S. dollars, included in this annual report and the financial
information contained in this annual report that is derived therefrom are prepared in accordance with the International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), including the
effect of the implementation of IFRS 16 Leases, which became effective as of January 1, 2019.
Our functional currency and the functional currency of all of our Brazilian subsidiaries is the Brazilian real and the functional
currency of most of our entities that operate outside Brazil, such as Petrobras Global Finance B.V. or PGF, is the U.S. dollar.
In this annual report, references to “real,” “reais” or “R$” are to Brazilian reais and references to “U.S. dollars” or “US$” are to
United States dollars.
Forward-Looking Statements
❚ our projected and targeted Capital Expenditures,
This annual report includes forward-looking statements
commitments and revenues;
that are not based on historical facts and are not assurances
❚ our liquidity and sources of funding;
of future results. The forward-looking statements contained
in this annual report, which address our expected business
and financial performance, among other matters, contain
words such as “believe,” “expect,” “estimate,” “anticipate,”
“intend,” “plan,” “aim,” “will,” “may,” “should,” “could,”
“would,” “likely,” “potential” and similar expressions
(which are not the exclusive means of identifying such
forward-looking statements).
Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as
of the date on which they are made. There is no assurance
that the expected events, trends or results will
actually occur.
We have made forward-looking statements that address,
among other things:
❚ our marketing and expansion strategy;
❚ our pricing strategy and development of additional
revenue sources; and
❚ the impact, including cost, of acquisitions anddivestments.
Our forward-looking statements are not guarantees of future
performance and are subject to assumptions that may prove
incorrect and to risks and uncertainties that are difficult to
predict. Our actual results could differ materially from those
expressed or forecast in any forward-looking statements as a
result of a variety of assumptions and factors. These factors
include, but are not limited to, the following:
❚ our ability to obtain financing;
❚ general economic and business conditions, including
crude oil and other commodity prices, refining margins
and prevailing exchange rates;
❚ global economic conditions;
❚ our exploration and production activities, including drilling;
❚ our ability to find, acquire or gain access to additional
❚ our activities related to refining, import, export,
transportation of oil, natural gas and oil products,
reserves and to develop our current reserves successfully;
❚ uncertainties inherent in making estimates of our oil and
petrochemicals, power generation, biofuels and other
gas reserves, including recently discovered oil and
sources of renewable energy;
gas reserves;
4
ANNUAL REPORT AND FORM 20-F 2019 DISCLAIMER
❚ competition;
❚ technical difficulties in the operation of our equipment
and the provision of our services;
❚ changes in, or failure to comply with, laws or regulations,
including with respect to fraudulent activity, corruption
and bribery;
❚ receipt of governmental approvals and licenses;
❚ international and Brazilian political, economic and social
developments;
❚ natural disasters, accidents, military operations, acts of
sabotage, wars or embargoes;
❚ litigation, such as class actions or enforcement or other
proceedings brought by governmental and regulatory
agencies.
For additional information on factors that could cause
our actual results to differ from expectations reflected in
forward-looking statements, see “Risks” in this
annual report.
All forward-looking statements attributed to us or a person
acting on our behalf are qualified in their entirety by this
cautionary statement. We undertake no obligation to
publicly update or revise any forward-looking statements,
whether as a result of new information or future events or for
❚ the cost and availability of adequate insurance coverage;
any other reason.
❚ our ability to successfully implement asset sales under our
The crude oil and natural gas reserve data presented
portfolio management program;
❚ the outcome of ongoing corruption investigations and any
new facts or information that may arise in relation to the
Lava Jato investigation;
❚ the effectiveness of our risk management policies and
procedures, including operational risk; and
or described in this annual report are only estimates,
which involve some degree of uncertainty, and our actual
production, revenues and expenditures with respect to our
reserves may materially differ from these estimates.
Documents
on Display
We are subject to the information requirements of the Exchange Act, and accordingly our
reports and other information filed and furnished by us with the SEC may be inspected and
copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington,
D.C. 20549. You can obtain further information about the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. You may also inspect our reports and other information
at the offices of the New York Stock Exchange, or NYSE, at 11 Wall Street, New York, New York
10005, on which our ADSs are listed. Our SEC filings are also available to the public at the SEC’s
website at http://www.sec.gov and at our website at www.petrobras.com.br/ir. The information
available on these websites, which might be accessible through a hyperlink resulting from the
URLs, is not and shall not be deemed to be incorporated into this annual report. For further
information about obtaining copies of our public filings at the NYSE, call (212) 656-5060.
We also furnish reports on Form 6-K to the SEC containing our interim financial statements and
other financial information of our company.
We also file audited consolidated financial statements, interim financial information
and other periodic reports with the CVM.
5
ANNUAL REPORT AND FORM 20-F 2019 GLOSSARY
Glossary of certain terms used in this Annual Report
Unless the context indicates otherwise, the following terms have the meanings shown below:
ACL
ACR
ADR
ADS
Amex Oil
AMS
ANP
API
B3
BioQav
Biofuel
Barrels
BNDES
Braskem
Brazilian Treasury
Free Marketing Environment (Ambiente de Comercialização Livre). Market segment in which the purchase
and sale of electric energy are the subject of freely negotiated bilateral agreements, according to specific
marketing rules and procedures.
Regulated Marketing Environment (Ambiente de Comercialização Regulado). Market segment in which the
purchase and sale of electric power between selling agents and distribution agents, preceded by a bidding
process, except for cases provided by law, according to specific marketing rules and procedures.
American Depositary Receipt.
American Depositary Share.
The NYSE Arca Oil Index is a price-weighted index of the leading companies involved in the exploration,
production, and development of petroleum. It measures the performance of the oil industry through
changes in the sum of the prices of component stocks. The index was developed with a base level of
125 as of August 27, 1984.
Our health care plan (Assistência Multidisciplinar de Saúde).
The Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (National Petroleum, Natural Gas and
Biofuels Agency), or ANP, is the federal agency that regulates the oil, natural gas and renewable fuels
industry in Brazil.
Standard measure of oil density developed by the American Petroleum Institute.
The São Paulo Stock Exchange.
Fuel produced from several biomass sources in different production processes, also known as “biojet”
or “biokerosine” or “SAF” (synthetic aviation fuel) and named by the ANP as “Alternative Jet Fuel”, which
must be added to jet fuel up to a maximum limit that varies from 10% to 50% by volume depending on the
production process, as defined in ASTM (American Society for Testing and Materials) Annex D-7566 and
ANP Resolution 778/2019.
Any fuel that is derived from biomass (plant, algae material or animal waste). It is produced through
biological processes, such as agriculture and anaerobic digestion and it is considered renewable energy.
Biodiesel and ethanol can be used as a fuel for vehicles, pure or added to diesel or gasoline to reduce the
levels of carbon. Biodiesel is produced from oils or fats using a transesterification process, and ethanol
is made by fermentation mostly from carbohydrates produced in sugar or starch crops such as corn,
sugarcane or sweet sorghum.
Standard measure of crude oil volume.
Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social).
Braskem S.A.
The National Treasury is a Federal Government Secretariat, responsible for managing the financial
resources that enter in the public safes. The mission of the National Treasury is managing the public
accounts in an efficient and transparent way, ensuring a balanced fiscal policy and the quality of public
expenditure, in order to contribute to the sustainable economic development.
Brent Crude Oil
A major trading classification of light crude oil that serves as a major benchmark price for
commercialization of crude oil worldwide.
CADE
Administrative Council for Economic Defense
Câmara de Arbitragem
do Mercado
Capital Expenditures or
“CAPEX”
An arbitration chamber governed and maintained by B3.
Capital expenditures, or CAPEX, based on the cost assumptions and financial methodology adopted in
our strategic plans, which includes acquisition of intangible assets and property, plant and equipment,
investment in investees and other items that do not necessarily qualify as cash flows used in investing
activities, comprising geological and geophysical expenses, research and development expenses,
pre-operating charges, purchase of property, plant and equipment on credit and borrowing costs
directly attributable to works in progress.
6
ANNUAL REPORT AND FORM 20-F 2019 GLOSSARY
CDS
CEO
CFO
Credit Default Swap.
Chief Executive Officer.
Chief Financial Officer.
Central Bank of Brazil
The Banco Central do Brasil.
Central Depositária
The Central Depositária de Ativos e de Registro de Operações do Mercado, which serves as the custodian of
our common and preferred shares (including those represented by ADSs) on behalf of our shareholders.
CGU
CMN
CNODC
CNOOC
Condensate
COMPERJ
CONAMA
CNPE
CVM
D&M
Deepwater
Depositary
The Controladoria Geral da União (General Federal Inspector’s Office), or CGU, is an advisory body of the
Brazilian Presidency responsible for assisting in matters related to the protection of federal public property
(patrimônio público) and the improvement of transparency in the Brazilian executive branch, through
internal control activities, public audits, and the prevention and combat of corruption, among others.
The Conselho Monetário Nacional (National Monetary Council), or CMN, is the highest authority of the
Brazilian financial system, responsible for the formulation of the Brazilian currency, exchange and credit
policy, and for the supervision of financial institutions.
CNODC Brasil Petróleo e Gás Ltda.
CNOOC Petroleum Brasil Ltda.
Hydrocarbons that are in the gaseous phase at reservoir conditions but condense into liquid as they travel
up the wellbore and reach separator conditions.
The Complexo Petroquímico do Rio de Janeiro – COMPERJ (Petrochemical Complex of Rio de Janeiro).
The Conselho Nacional do Meio Ambiente (National Council for the Environment in Brazil).
The Conselho Nacional de Política Energética (National Energy Policy Council), or CNPE, is an advisory body
of the President of the Republic assisting in the formulation of energy policies and guidelines.
The Comissão de Valores Mobiliários (Brazilian Securities and Exchange Commission), or CVM.
DeGolyer and MacNaughton.
Between 300 and 1,500 meters (984 and 4,921 feet) deep.
JPMorgan.
Development Ratio
Measures the relation between proved developed reserves and total proved reserves.
Distillation
The process by which liquids are separated or refined by vaporization followed by condensation.
DoJ
E&P
Eletrobras
EMBI+
The U.S. Department of Justice.
Exploration & Production is our business segment that covers the activities of exploration, development
and production of crude oil, NGL and natural gas in Brazil and abroad.
Centrais Elétricas Brasileiras S.A. – Eletrobras.
Emerging Markets Bond Index Plus.
Exchange Act
Securities Exchange Act of 1934, as amended.
EWT
Fitch
Focus Survey
FPSO
Gaspetro
GSA
GTB
Extended well test.
Fitch Ratings Inc., a credit rating agency.
The Central Bank of Brazil carries out the Focus Survey compiling forecasts of about 140 banks, asset
managers and others institutions.
Floating production, storage and offloading unit.
Petrobras Gás S.A.
Long-term Gas Supply Agreement entered into with the Bolivian state-owned company Yacimientos
Petroliferos Fiscales Bolivianos.
Gás Transboliviano S.A.
HCC or Hydrocracking
Conversion of heavier intermediate streams into the middle distillates boiling range (kerosene and diesel)
in the presence of specific catalyst, hydrogen and severe conditions of temperature and pressure to
produce high quality fuels. Depending on feedstock quality and operational conditions it is possible to
direct production towards high quality lubes as well.
7
ANNUAL REPORT AND FORM 20-F 2019 GLOSSARY
HDT or Hydrotreating
Process widely used in oil refining industry to remove heteroatoms such as sulfur and nitrogen from
gasoline, kerosene and/or diesel in the presence of specific catalysts, hydrogen and adequate conditions of
temperature and pressure. The aim is to adjust composition to comply with fuels specifications.
HSE
IASB
IBAMA
Health, Safety and Environmental.
International Accounting Standards Board.
The Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis (Brazilian Institute of the
Environment and Renewable Natural Resources).
Ibovespa or IBOV
The gross total return index weighted by free float market cap and comprised of the most liquid stocks
traded on the B3. It has been divided ten times by a factor of ten since Jan 1, 1985.
Inovar-Auto
IMO
IOF
IPCA
JPMorgan
Lava Jato
LIBOR
LNG
LPG
MME
Moody’s
ME
This was a government program that proposed automotive industry to invest in research and development
of more efficient and safe vehicles in exchange for tax benefits.
International Maritime Organization.
Imposto sobre Operações Financeiras (Brazilian taxes over financial transactions).
The Índice Nacional de Preços ao Consumidor Amplo (National Consumer Price Index).
JPMorgan Chase Bank, N.A.
Operação Lava Jato, as detailed in “Risks Factors” and “Legal and Tax – Legal Proceedings – Lava Jato
Investigation” in this annual report.
The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend
to one another in the international interbank market for short-term loans.
Liquefied natural gas.
Liquefied petroleum gas, which is a mixture of saturated and unsaturated hydrocarbons, with up to five
carbon atoms, used as domestic fuel.
The Ministério de Minas e Energia (Ministry of Mines and Energy) of Brazil.
Moody’s Investors Service, Inc., a credit rating agency.
The Ministério da Economia of Brazil (Ministry of Economy, former MPDM – Ministério do Planejamento,
Desenvolvimento e Gestão).
Natural Gasoline (C5+)
Natural Gasoline C5+ is a NGL produced at natural gas processing plants with a vapor pressure
intermediate between condensate and LPG, that may compose a gasoline blend.
Nelson complexity
index (NCI)
NGL
NYSE
Oil
It is a pure cost index that provides a relative measure of the construction costs of a particular refinery
based on its crude and upgrading capacity. The NCI compares the costs of various upgrading units to
the cost of a pure crude distillation unit, where more complex refineries are able to produce lighter, more
heavily refined and valuable products from a barrel of oil. While the complexity factor is independent of
the refinery capacity, multiple units of the same process, like multiple hydrotreaters or coking units, for
example, do increase complexity.
The liquid resulting from the processing of natural gas and containing the heavier gaseous hydrocarbons.
The New York Stock Exchange.
Crude oil, including NGLs and condensates.
Oil Products
Produced through processing at refineries such as diesel, gasoline, liquid fuel, LPG and other products.
ONS
OPEC
The Operador Nacional do Sistema Elétrico (National Electric System Operator) of Brazil.
Organization of the Petroleum Exporting Countries.
Operating income
(loss)
The line equivalent to Net income (loss) before finance income (expense), results in equity-accounted
investments and income taxes in our audited consolidated financial statements.
Organic Reserves
Replacement Ratio
or Organic RRR
OSRL
OTC
Measures the amount of proved reserves added to a company’s reserve base during the year, excluding
disposals and acquisitons of proved reserves, relative to the amount of oil and gas produced.
The Oil Spill Response Limited.
Offshore Technology Conference
8
ANNUAL REPORT AND FORM 20-F 2019 GLOSSARY
Petrochemicals
Chemicals obtained in petrochemical industries such as ethane, propene, benzene, xylenes, polypropylene,
polyethylene and others.
Petros
Petros 2
PFLOPS
PGF
PifCo
PLSV
Fundação Petros de Seguridade Social, Petrobras’ employee pension fund.
Petrobras’ sponsored pension plan.
One PFLOPS equals the processing capacity of a quadrillion mathematical operations per second.
Petrobras Global Finance B.V.
Petrobras International Finance Company S.A.
Pipe laying support vessel.
Post-salt reservoir
A geological formation containing oil or natural gas deposits located above a salt layer.
PP&E
PPSA
Pre-salt Polygon
Property, plant and equipment.
Pré-Sal Petróleo S.A.
Underground region formed by a vertical prism of undetermined depth, with a polygonal surface defined
by the geographic coordinates of its vertices established by Law No. 12,351/2010, as well as other regions
that may be delimited by the Brazilian Federal Government, according to the evolution of geological
knowledge.
Pre-salt reservoir
A geological formation containing oil or natural gas deposits located beneath a salt layer.
Proved reserves
Proved developed
reserves
Proved undeveloped
reserves
PTAX
PwC
R&D
RNEST
Refining
Consistent with the definitions in Rule 4-10(a) of Regulation S-X, 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. Existing economic
conditions include prices and costs at which economic producibility from a reservoir is to be determined.
The price is the unweighted arithmetic average of the first-day-of-the-month price during the twelve-
month period prior to December 31, unless prices are defined by contractual arrangements, excluding
escalations based upon future conditions. The project to extract the hydrocarbons must have commenced
or we must be reasonably certain that we will commence the project within a reasonable time.
Reserves which can be produced economically through application of improved recovery techniques (such
as fluid injection) are included in the “proved” classification when successful testing by a pilot project, or
the operation of an installed program in the reservoir or an analogous reservoir, provides support for the
engineering analysis on which the project or program was based.
Reserves that can be expected to be recovered: (i) through existing wells with existing equipment and
operating methods or for 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 reserve estimate if the extraction is by means not involving a well.
Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required. Reserves on undrilled acreage are limited to those directly
offsetting development spacing areas that are reasonably certain of production when drilled, unless
evidence using reliable technology exists that establishes reasonable certainty of economic producibility at
greater distances. Undrilled locations are classified as having undeveloped reserves only if a development
plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific
circumstances justify a longer time. Proved undeveloped reserves do not include reserves attributable
to any acreage for which an application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual projects in the same reservoir
or an analogous reservoir or by other evidence using reliable technology establishing reasonable certainty.
The reference exchange rate for the purchase and sale of U.S. dollars in Brazil, as published by
the Central Bank of Brazil.
PricewaterhouseCoopers Auditores Independentes.
Research and development.
The Refinaria Abreu e Lima (Abreu e Lima Refinery).
Refining, Transportation and Marketing is our business segment that covers the activities of refining,
logistics, transport and trading of crude oil and oil products in Brazil and abroad, exports of ethanol,
petrochemical operations, such as extraction and processing of shale, as well as holding interests in
petrochemical companies in Brazil.
9
ANNUAL REPORT AND FORM 20-F 2019 GLOSSARY
Reserves
Replacement Ratio
or RRR
Measures the amount of proved reserves added to a company’s reserve base during the year relative
to the amount of oil and gas produced.
Reserves to production
ratio or R/P
Calculated as the amount of proved reserves of the year relative to the amount of oil and gas produced
during the year, indicates a number of years reserves would last if production remains constant.
S&P
SDNY
SEC
SELIC
Sete Brasil
Shell
Synthetic oil and
synthetic gas
SPE
TAG
TCU
TBG
TJLP
Total
Standard & Poor’s Financial Services LLC, a credit rating agency.
The United States District Court for the Southern District of New York.
The United States Securities and Exchange Commission.
The Central Bank of Brazil base interest rate.
Sete Brasil Participações, S.A.
Shell Brasil Petróleo Ltda.
A mixture of hydrocarbons derived by upgrading (i.e., chemically altering) natural bitumen from oil sands,
kerogen from oil shales, or processing of other substances such as natural gas or coal. Synthetic oil may
contain sulfur or other non-hydrocarbon compounds and has many similarities to crude oil.
Society of Petroleum Engineers.
Transportadora Associada de Gás S.A.
The Tribunal de Contas da União (Federal Auditor’s Office), or TCU, is a constitutionally established body
linked to the Brazilian Congress, responsible for assisting it in matters related to the supervision of the
Brazilian Federal Government and its resources with respect to accounting, finance, budget, operational
and public property (patrimônio público) matters.
Transportadora Brasileira Gasoduto Bolívia-Brasil S.A. (TBG).
The long-term interest rate target (Taxa de Juros de Longo Prazo or TJLP) is set quarterly by the National
Monetary Council. The rate is used as the benchmark rate for loans from the BNDES to companies.
Total E&P do Brasil Ltda.
Transfer of Rights
Agreement
An agreement under which the Brazilian Federal Government assigned to us the right to explore and
produce up to five billion barrels of oil equivalent “bnboe”) in specified pre-salt areas in Brazil. See “Material
Contracts” in this annual report.
Transpetro
Petrobras Transporte S.A.
Ultra-deepwater
Over 1,500 meters (4,921 feet) deep.
UPGN
Natural-gas processing Units (Unidade de Processamento de Gás Natural, in Portuguese). A natural gas
processing plant is a facility designed to process raw natural gas from the offshore production fields by
separating impurities and various non-methane hydrocarbons and fluids through different technologies
to produce specified natural gas for final consumption. Through the process a gas processing plant can
also recover natural gas liquids (condensate, natural gasoline and liquefied petroleum gas) with higher
added value.
YPFB
Yacimientos Petroliferos Fiscales Bolivianos.
10
ANNUAL REPORT AND FORM 20-F 2019 SELECTED FINANCIAL DATA
OVERVIEW
13
15
ABOUT US
11
ANNUAL REPORT AND FORM 20-F 2019ABOUT US SELECTED FINANCIAL DATA
OVERVIEW
13
15
We are a Brazilian company with over 57,000 employees committed to generate more value for our shareholders
and the society. We are the largest company in market capitalization in Latin America, with a market capitalization of
US$101.1 billion as of December 31, 2019. We are one of the largest producers of oil and gas in the world, primarily
engaged in exploration and production, refining, energy generation and trading. We have acquired expertise on deep and
ultra-deepwater exploration and production as a result of almost 50 years spent developing the Brazilian offshore basins,
becoming world leaders in this segment.
Datasheet
Name of the company: Petróleo Brasileiro S.A. – Petrobras
Date of Incorporation: 1953
Country of Incorporation: Brazil
Registration number at the CVM: 951-2
Central Index Key (or “CIK”) at the SEC: 0001119639
Address of principal executive office: Avenida República do Chile 65, 20031-912, Rio de Janeiro, RJ, Brazil
Telephone number: (55 21) 3224 4477
Corporate and investor relations websites: www.petrobras.com.br and www.petrobras.com.br/ir.
The information on these websites, which might be accessible through a hyperlink resulting from both URL,
is not and shall not be deemed to be incorporated into this annual report.
Corporate purpose established in our Bylaws: research, prospecting, extraction, processing, trading
and transportation of crude oil from wells, shale and other rocks, its products, natural gas and other
fluid hydrocarbons, in addition to other energy-related activities, and the research, development,
production, transportation, distribution, sale and trading concerning all forms of energy, as well as
other related activities or similar purposes.
12
ANNUAL REPORT AND FORM 20-F 2019ABOUT US SELECTED FINANCIAL DATA
OVERVIEW
13
15
Selected Financial Data
The information below should be read jointly with, and is qualified in its entirety by reference to, our audited consolidated
financial statements and the accompanying notes and “Operating and Financial Review and Prospects” in this annual report.
Statement of financial position
As of December 31,
2019
2018
2017
2016
2015
(in US$ million)
Assets
Cash and cash equivalents
Marketable securities
Trade and other receivables, net
Inventories
Assets classified as held for sale
Other current assets
Long-term receivables
Investments
Property, plant and equipment
Intangible assets
7,372
888
3,762
8,189
2,564
5,037
17,691
5,499
159,265
19,473
13,899
22,519
21,205
25,058
1,083
5,746
8,987
1,946
5,401
22,059
2,759
157,383
2,805
1,885
4,972
8,489
5,318
3,948
21,450
3,795
176,650
2,340
784
4,769
8,475
5,728
3,808
20,420
3,052
175,470
3,272
780
5,554
7,441
152
4,194
19,426
3,527
161,297
3,092
Total assets
229,740
222,068
251,366
246,983
230,521
Liabilities and equity
Total current liabilities
Non-current liabilities(1)
Non-current finance debt(2)
Total liabilities
Equity
28,816
67,918
58,791
25,051
43,334
80,508
24,948
42,871
24,903
36,159
28,573
24,411
102,045
108,371
111,482
155,525
148,893
169,864
169,433
164,466
Share capital (net of share issuance costs)
Reserves and other comprehensive income (deficit)(3)
Equity attributable to our shareholders
Non-controlling interests
107,101
(33,778)
73,323
892
107,101
(35,557)
71,544
1,631
107,101
(27,299)
79,802
1,700
107,101
(30,322)
76,779
771
107,101
(41,865)
65,236
819
Total equity
74,215
73,175
81,502
77,550
66,055
Total liabilities and equity
229,740
222,068
251,366
246,983
230,521
(1) Excludes non-current finance debt.
(2) Excludes current portion of long-term finance debt.
(3) Capital transactions, profit reserves and accumulated other comprehensive income (deficit).
13
ANNUAL REPORT AND FORM 20-F 2019ABOUT US
SELECTED FINANCIAL DATA
OVERVIEW
13
15
Statement of income and other information
For the Year Ended December 31,
2019(1)
2018(2)
2017(3)
2016(4)
2015(5)(10)
(in US$ million)
Sales revenues
Operating income (loss)
Net income (loss) attributable to our shareholders
From continuing operations
From discontinued operations
Weighted average number of shares outstanding(6):
76,589
20,614
10,151
7,660
2,491
84,638
16,788
7,173
6,572
601
77,884
10,553
(91)
(347)
256
72,426
4,303
(4,838)
(4,780)
(58)
97,314
(1,130)
(8,450)
-
-
Common
Preferred
7,442,231,382(7)
7,442,231,382(7)
7,442,231,382(8)
7,442,231,382(8)
7,442,231,382(8)
5,601,969,879(7)
5,601,969,879(7)
5,601,980,132(8) 5,601,980,132(8) 5,601,980,132(8)
Operating income (loss) per:
Common and preferred shares
Common and preferred ADS(6)
Basic and diluted earnings (losses) per:
Common and preferred shares
From continuing operations
From discontinued operations
Common and preferred ADS(6)
From continuing operations
From discontinued operations
Cash dividends per(9)
Common shares
Preferred shares
Common ADS(6)
Preferred ADS(6)
1.58
3.16
0.78
0.59
0.19
1.56
1.18
0.38
0.19
0.23
0.38
0.46
1.29
2.58
0.55
0.50
0.05
1.10
1.00
0.10
0.07
0.24
0.14
0.48
0.81
1.62
(0.01)
(0.03)
0.02
(0.02)
(0.06)
0.04
−
−
−
−
0.33
0.66
(0.37)
(0.36)
(0.01)
(0.74)
(0.72)
(0.02)
−
−
−
−
(0.09)
(0.18)
(0.65)
-
-
(1.30)
-
-
−
−
−
−
(1) In July 2019, we closed the transaction under which we sold a further portion of our interest in BR Distribuidora. After the closing of this transaction, we are
no longer the controlling shareholder of BR Distribuidora and, since August 2019, we have been reflecting BR Distribuidora’s results as an equity-accounted
investment. Thus, from January to July 2019, we presented our post-tax profit of BR Distribuidora as Net income from discontinued operations in our
consolidated statement of income, in accordance with IFRS 5, since it represented a separate major line of business. The statements of income for 2018, 2017
and 2016 were revised accordingly to reflect this classification. In 2019, we recognized impairment losses of US$2,848 million.
(2) In 2018, we recognized the effects of the settlement of open matters with the DoJ and the SEC investigation, in the amount of US$853 million. We also
recognized impairment losses of US$2,005 million.
(3) In 2017, we recognized US$3,449 million as other income and expenses, due to the provision for legal proceedings relating to the agreement to settle our
consolidated class action lawsuit before the United States District Court for the Southern District of New York. We also recognized impairment
losses of US$1,191 million.
(4) In 2016, we recognized impairment losses of US$6,193 million.
(5) In 2015, we recognized impairment losses of US$12,299 million.
(6) The ratio of ADR to our common and preferred shares is two shares to one ADR.
(7) The total number of shares does not include 295,669 shares in treasury, of which 222,760 are common shares and 72,909 are preferred shares.
(8) The total number of shares does not include 285,416 shares in treasury, of which 222,760 are common shares and 62,656 are preferred shares.
(9) Pre-tax interest on capital and/or dividends proposed for the periods. Amounts were based on the exchange rate prevailing at the date of the approval
by our Board of Directors, except for minimum mandatory dividends, which is based on the closing exchange rate on the date that our audited consolidated
financial statements were released.
(10) Our audited consolidated financial statements for the year ended December 31, 2015 were not retrospectively revised to reflect our sale of BR
Distribuidora as a discontinued operation.
14
ANNUAL REPORT AND FORM 20-F 2019ABOUT US Overview
SELECTED FINANCIAL DATA
OVERVIEW
13
15
Vision
The best energy company
Values
Respect for life, people
in generating value for the
shareholder, with focus on
oil and gas and with safety,
respect for people and
the environment.
and the environment;
ethics and transparency;
market-orientation;
outperformance and
confidence;
and results.
Purpose
Provide energy that ensures prosperity
in an ethical, safe and competitive way.
We have a large base of proved reserves and operate and
through which we get the oil and gas to our refineries which
produce most of Brazil’s oil and gas. Most of our proved
themselves must be equipped and in constant evolution to
reserves are world-class assets located in the adjacent
supply the best products.
offshore Campos and Santos Basins in southeast Brazil.
Their proximity allows us to optimize our infrastructure and
limit our costs of exploration, development and production.
Additionally, we have developed technical knowledge in
deepwater exploration and production from almost 50 years
of developing Brazil’s offshore basins, including the Campos
and Santos Basins. The Campos and Santos Basins are
expected to remain the main source of our future growth in
proved reserves and oil and gas production.
We operate most of the refining capacity in Brazil. Our
refining capacity is substantially concentrated in southeast
Brazil, within the country’s most populated and industrialized
markets and adjacent to the sources of most of our crude
oil in the Campos and Santos Basins. We meet our demand
for oil products through a planned combination of domestic
refining of crude oil and oil products imports, seeking
value creation. We are also involved in the production of
petrochemicals through stakes in some companies.
Our business, however, goes beyond the oil and gas
We distribute oil products through wholesalers
exploration and production. It entails a long process
and retailers.
15
ANNUAL REPORT AND FORM 20-F 2019ABOUT US SELECTED FINANCIAL DATA
OVERVIEW
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15
We also participate in the Brazilian natural gas market,
companies of natural gas in Brazil and abroad. It also
including the logistics, distribution and processing
includes natural gas processing and fertilizer operations.
of natural gas.
Furthermore, our “Corporate and Other Businesses”
To meet domestic demand, we process natural gas derived
classification includes the activities that are not attributed
from our onshore and offshore production (mainly from
to the business segments, notably those related to
fields in the Campos, Espírito Santo and Santos Basins),
corporate financial management, corporate overhead and
import natural gas from Bolivia and import liquefied
other expenses, provision for the class action settlement,
natural gas (“LNG”) through our regasification terminals.
and actuarial expenses related to the pension and medical
We also participate in the domestic power market primarily
benefits for retired employees and their dependents. It also
through our investments in gas-fired, fuel oil and diesel oil
comprises biofuels and distribution businesses. The biofuels
thermoelectric power plants and in renewable energy.
business covers the activities of production of biodiesel
As a result of the divestments we concluded in 2019 and
our portfolio review done as part of our 2020-2024 Strategic
Plan, we reassessed the presentation of our business into
certain segments. Our distribution and biofuels activities
and its co-products and ethanol. The distribution business
covers the equity interest in the associate BR Distribuidora
and the business for the distribution of oil products abroad
(in Argentina, Bolivia, Colombia and Uruguay).
are no longer considered separate segments. We currently
For further information regarding our business segments,
classify these activities as “Corporate and Other Businesses.”
see Notes 12 and 31 to our audited consolidated financial
Accordingly, we currently divide our business into three
statements, as well as “Operating and Financial Review
main segments:
and Prospects” in this annual report.
❚ Exploration and Production (“E&P”): this segment covers
the activities of exploration, development and production
In accordance with our 2020-2024 Strategic Plan, we have
reduced our activities to eight countries outside Brazil (i.e.,
of crude oil, Natutal Gas Liquids (“NGL”) and natural gas
Argentina, Bolivia, Colombia, Uruguay, the U.S., Netherlands,
in Brazil and abroad, for the primary purpose of supplying
United Kingdom and Singapore). In Latin America, our
our domestic refineries. The E&P segment also operates
operations include exploration and production, marketing
through partnerships with other companies, including
and retail services, including natural gas. In North America,
holding interests in non-Brazilian companies in
we produce oil and gas through a joint venture. Until April
this segment;
❚ Refining, Transportation and Marketing (“Refining”):
this segment covers the activities of refining, logistics,
transport, marketing and trading of crude oil and oil
products in Brazil and abroad, exports of ethanol,
petrochemical operations, such as extraction and
processing of shale, as well as holding interests in
2019, we had refining operations in the United States.
We have controlled companies in London, Rotterdam,
Houston and Singapore that support our trade and financial
activities. They constitute a complete and active trading
desk for markets worldwide, and are in charge of market
intelligence and marketing of oil, oil products, natural gas,
commodity derivatives and shipping.
petrochemical companies in Brazil; and
We operate through 20 direct subsidiaries (18 incorporated
❚ Gas and Power (“G&P”): this segment covers the
activities of logistics and trading of natural gas and
electricity, transportation and trading of LNG, generation
of electricity by means of thermoelectric power plants, as
well as holding interests in transportation and distribution
under the laws of Brazil and two incorporated abroad) and
two direct joint operations as listed below. We also have
indirect subsidiaries, including Petrobras Global Finance
B.V. (“PGF“).
16
ANNUAL REPORT AND FORM 20-F 2019ABOUT US SELECTED FINANCIAL DATA
OVERVIEW
13
15
Location
Our
shareholding
Other
shareholders
Companies
Petrobras Transporte S.A. – Transpetro
Petrobras Logística de Exploração e Produção S.A.
– PB-LOG
Petrobras Gás S.A. – Gaspetro
Petrobras Biocombustível S.A.
Transportadora Brasileira Gasoduto
Bolívia-Brasil S.A. – TBG
Liquigás Distribuidora S.A.
Araucária Nitrogenados S.A.
Termomacaé S.A.
Brazil
Brazil
Brazil
Brazil
100%
100%
51%
100%
Brazil
51%
Brazil
Brazil
Brazil
100%
100%
100%
Breitener Energética S.A.
Brazil
94%
Termobahia S.A.
Baixada Santista Energia S.A.
Petrobras Comercializadora de Energia S.A. –
PBEN
Fundo de Investimento Imobiliário RB
Logística – FII
Petrobras Negócios Eletrônicos S.A. – E-Petro
Termomacaé Comercializadora de Energia S.A.
5283 Participações S.A.
Fábrica Carioca de Catalisadores S.A. – FCC(1)
Ibiritermo S.A.(1)
Petrobras International Braspetro – PIB BV
Braspetro Oil Services Company – Brasoil
(1) Joint operations.
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Abroad
Abroad
99%
100%
100%
99%
100%
100%
100%
50%
50%
100%
100%
-
-
Mitsui Gás e Energia do Brasil Ltda (49%)
-
BBPP Holdings Ltda. (29%)
YPFB Transporte S.A. (12%)
GTB-TBG Holdings S.À.R.L. (8%)
-
-
-
Alcântara, Mendes & Cia Ltda (1%)
Arcadis Logos Energia S.A. (1%)
Orteng Equipamentos e Sistemas Ltda (1%)
GGR Participações S.A. (3%)
Petros (1%)
-
-
Pentágono SA DTVM (1%)
-
-
-
Albemarle Brazil Holding Ltda. (50%)
Edison S.p.A (50%)
-
-
For a complete list of our subsidiaries and joint operations, including each of their full names, jurisdictions of incorporation
and our percentage of equity interest, see Exhibit 8.1 to this annual report.
17
ANNUAL REPORT AND FORM 20-F 2019ABOUT US SELECTED FINANCIAL DATA
OVERVIEW
13
15
2019 HIGHLIGHTS
CONSOLIDATED CORPORATE INDICATORS
SALES REVENUES
(US$ million)
OPERATING INCOME/
LOSS1 (US$ million)
NET DEBT (US$ million)
AND NET DEBT/ADJUSTED
EBITDA RATIO2 (x)
CAPITAL EXPENDITURES
(US$ million)
77,884
84,638
76,589
10,553
16,788
20,614
84,871
95,953
78,861
15,084
13,439
27,413
3.67
26,575
23,684
2.34
2.46
1.99
69,378
55,177
2017
2018
2019
2017
2018
2019
20173
20183 2019
2017
2018
2019
NET DEBT
NET DEBT/ADJUSTED EBITDA RATIO
NET DEBT/ADJUSTED EBITDA RATIO
(EXCLUDING IFRS 16 EFFECTS)
IFRS 16 EFFECTS ON NET DEBT
0,00
0,00
0,24
0,07
0,23
0,18
DIVIDEND PAID
PER SHARE4
(US$)
2017
2018
2019
PETR3
PETR4
TOTAL RECORDABLE INJURY RATE – TRI5
GHG EMISSION (million tons of CO2 e)
1,63
67
62
60
1,08
1,01
0,76
2016
2017
2018
2019
2017
2018
2019
1 Operating Income/Loss is equivalent to the line item Net income (loss) before finance income (expense), results in equity-accounted investments and
income taxes in our audited consolidated financial statements.
2 The Net Debt is in US dollars and the basis for calculating the ratio is in reais. For reconciliation of Net Debt/Adjusted EBITDA, a non-GAAP measure, see
“Net Debt/Adjusted EBITDA Metric” in this annual report.
3 For comparative purposes, the December 31, 2018 net debt amounts shown above consider the initial application of IFRS 16 as of January 1, 2019. The net
debt amount of 2017 does not consider effects of adoption of IFRS 16.
4 Dividends declared in reais and converted into U.S. dollars at the average exchange rate for the quarter of the payment. ADS holders will receive these
distributions in proportion to the number of underlying common or preferred shares that such ADSs represent.
5 TRI below the peer group’s historical benchmark (0.80). Benchmark from comparative information obtained in the Sustainability Reports of BP, Shell,
Equinor, Total and Exxon.
18
ANNUAL REPORT AND FORM 20-F 2019ABOUT US SELECTED FINANCIAL DATA
OVERVIEW
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15
2019 HIGHLIGHTS
OPERATIONAL INDICATORS
LIFTING COST - BRAZIL
(USD/Boe)
BRAZILIAN SALES AND OIL
PRODUCTS PRODUCTION
(mbbl/d)
POWER GENERATION
(average MW)
11.3
10.9
9.6
1,835
1,807
1,754
3,165
2,205
2,028
2017
2018
2019
2017
2018
2019
2017
2018
2019
SALES
PRODUCTION
PRODUCTION
(millions boed)
REFINING COST
(US$/bbl)
GHG EMISSIONS – GAS AND
POWER (million tons CO2 e)
2,77
2,63
2,77
2,90
2,51
2,46
18
14
12
2017
2018
2019
2017
2018
2019
2017
2018
2019
PROVED RESERVES
(millions boe)
GHG EMISSION - RTM
(million tons CO2e)
9,752
9,606
9,590
27
26
26
2017
2018
2019
2017
2018
2019
GHG EMISSION - E&P
(million tons of CO2e)
22
21
22
2017
2018
2019
19
ANNUAL REPORT AND FORM 20-F 2019ABOUT US RISK FACTORS
CORPORATE RISK MANAGEMENT
22
37
DISCLOSURES ABOUT MARKET RISK
INSURANCE
38
38
RISKS
20
RISKSANNUAL REPORT AND FORM 20-F 2019 RISK FACTORS
CORPORATE RISK MANAGEMENT
22
37
DISCLOSURES ABOUT MARKET RISK
INSURANCE
38
38
The nature of our operations exposes us to a number of business risks that could, individually or together, have an effect
on our financial performance. We classify the risks to which we are exposed in the following groups: (i) strategic risks,
(ii) operational risks, (iii) financial risks, (iv) compliance, legal and regulatory risks, and (v) business risks. We also describe
herein the risks arising from the government ownership and country risks, as well as debt and equity securities risks.
BUSINESS
FINANCIAL
COMPLIANCE
OPERATIONAL
Risks related to the
company's business,
according to its value chain,
specific to an integrated
oil company (exploration
and production, refining,
distribution, natural gas,
transportation, etc.).
It gathers Risks arising
from market fluctuations,
defaults on counterparties
and mismatches between
assets and liabilities.
Risks arising from
non-compliance with the
legislation and regulations
applicable to Petrobras’
business, as well as internal
rules and procedures,
especially those related
to fraud, corruption,
money laundering and
the reliability of financial
reports.
It gathers Risks due to
failures, deficiencies or
inadequacies of internal
and industrial processes,
the supply of goods and
services, systems, as
well as natural disasters
and/or actions from
third parties.
Annually, from the list of business risks, analysis of business performance and the
company’s external and internal environment, our Board of Executive Officers and Board
of Directors define those risks that, individually or in a consolidated manner, should be
associated with Strategic Plan. These risks, called “Strategic Risks”, are selected due
to their importance for the implementation of the Strategic Plan, its scope, its degree of
severity and/or resources demanded for its treatment.
STRATEGIC RISKS
21
RISKSANNUAL REPORT AND FORM 20-F 2019 RISK FACTORS
CORPORATE RISK MANAGEMENT
22
37
DISCLOSURES ABOUT MARKET RISK
INSURANCE
38
38
Risk Factors
Strategic Risks
We are exposed to health, environment and safety risks in
our operations, which may lead to accidents, significant
losses, administrative proceedings and legal liabilities.
Some of our main activities present risks capable of
leading to accidents, such as oil spills, product leaks, fires
and explosions. In particular, deepwater, ultra-deepwater
and refining activities present various risks, such as oil
spills and explosions in our refineries and exploration and
production units, including platforms, ships, pipelines,
terminals and dams, among other assets owned or operated
by us. These events may occur due to technical failures,
human errors or natural events, among other factors. The
occurrence of one of these events, or other related incidents,
We may incur losses and spend time and financial
resources defending pending litigations and arbitrations.
We are currently party to numerous legal and administrative
proceedings relating to civil, administrative, tax, labor,
environmental and corporate claims filed against us. These
claims involve substantial amounts of money and other
remedies, and the aggregate cost of unfavorable decisions
could have a material adverse effect on our results and
financial condition. These claims include the following:
(i) indemnity actions (claiming material damages and loss of
profits) brought by ethanol plants in several locations against
the Brazilian federal government and us, as a result of diesel
and gasoline prices in effect until 2016, and (ii) claims that
seek to nullify divestments of assets and subsidiaries.
may result in various damages such as death, serious
We may be frequently affected by changes in rules
environmental damage and related expenses (including, for
and regulation.
example, cleaning and repairing expenses). These events
may have an impact on the health of our workforce or on
communities, and may cause environmental or property
damage, loss of production, financial losses and, in certain
circumstances, liability in civil, labor, criminal, environmental
and administrative lawsuits. As a consequence, we may incur
expenses to repair or remediate the damages caused.
Since 2016, we suffered a significant increase in acts of
intentional interference by third parties in our pipelines,
including illegal taps (thefts) of oil, gas and oil products,
especially in the states of São Paulo and Rio de Janeiro.
If this interference continues, we may experience short-term
or long-term accidents, leaks or damage in our facilities as a
result, which can impact the continuation of our operations.
In addition, we may be compelled to indemnify for any
damages caused to the environment or to third parties
because of these incidents.
In addition, changes in rules and regulations applicable to
us may have a material adverse effect on our financial
condition and results.
Depending on the outcome, litigation can result in
restrictions on our operations and have a material adverse
effect on some of our businesses.
The selection and development of our investment
projects involve risks that may affect our originally
expected results.
We have numerous project opportunities in our portfolio
of investments. Since most projects are characterized by a
long development period, we may face changes in market
conditions, such as changes in prices, consumer preferences
and demand profile, exchange and interest rates and
financing conditions of projects that may jeopardize our
expected rate of return on these projects.
In addition, public health epidemics such as the outbreak of
In addition, we face specific risks for oil and gas projects.
the coronavirus (“COVID-19”) could cause health restrictions
Despite our experience in the exploration and production
to our workforce and, therefore, impact the operation of
of oil in deepwater and ultra-deepwater and the continuous
some of our facilities, including our platforms, refineries,
development of studies during the planning stages, the
terminals, among others. This condition could have a
quantity and quality of oil produced in a certain field will only
negative impact on our results and financial condition.
be fully known in the phases of deployment and operation,
Finally, we may face difficulties in obtaining or maintaining
which may require adjustments throughout the project life
operating licenses and may suffer damages to our reputation.
cycle and expected rate of return on these projects.
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Our partnerships and divestments depend on
competitive advantage, especially in the pre-salt layer, which
external factors that could impact their successful
could negatively affect our results.
implementation.
In addition, changes in the regulatory framework and
Pursuant to our 2020-2024 Strategic Plan, we expect to
inquiries regarding compliance with antitrust and competition
divest a significant number of assets in the coming years.
laws may subject us to business restrictions and penalties,
External factors, such as the sustained decline in oil prices,
adversely affecting our operations, results and reputation.
injunctions and claims by third parties or public authorities
in judicial, arbitral or administrative proceedings, exchange
rate fluctuations, the deterioration of Brazilian and global
economic conditions, the Brazilian political scenario and
judicial decisions, among other factors, may reduce, delay or
hinder sale opportunities for our assets or affect the price at
which we can sell our assets.
If we are unable to successfully implement our planned
partnerships and divestments, this may negatively impact
our business, results and financial condition, including by
potentially exposing us to short and medium-term liquidity
constraints. In addition, the sale of assets may result in a
decrease in our cash flows, which could negatively impact
our long-term operating growth prospects and consequently
our results in the medium and long-term.
Changes in the competitive environment of the Brazilian
oil and gas market may intensify the requirements
for our performance levels to remain in line with the
best companies in the sector. The need to adapt to an
increasingly competitive and more complex environment
may compromise our ability to implement our
2020-2024 Strategic Plan.
We may face greater competitive forces in the downstream
segment in Brazil, with the emergence of new companies
competing against us in this sector. If we are unable to
maximize return on capital employed, reduce costs, sell our
products competitively, and implement new technologies
Failures in our information technology systems,
information security (cybersecurity) systems and
telecommunications systems and services can adversely
impact our operations and reputation.
Our operations are highly dependent on information
technology and communications systems and services.
Interruption or malfunction affecting these systems and/
or their infrastructure, as a result of obsolescence, technical
failures and/or deliberate acts, may harm or halt our business
and adversely impact our operations and reputation.
Moreover, cybersecurity and information security failures,
including automation systems, either due to external acts,
deliberate or unintentional, such as malware, hacking and
cyberterrorism, or internal ones, such as negligence and
misuse from employees or contractors, may also cause
impacts on our business, our reputation, our relationship
with stakeholders and external agents (government,
regulatory bodies, partners, suppliers and others), our
strategic positioning towards our competitors and our
results. According to Law No. 13,709/2018 – Lei Geral de
Proteção de Dados Pessoais (“LGPD”), we will be subject
to penalties in cases of disclosure or misuse of personal
information, when the law comes
into effect in August 2020.
Operational Risks
in our business, we may encounter adverse effects on our
We are not insured against business interruption for
results and operations.
Additionally, in the upstream segment, we may not be
our Brazilian operations, and most of our assets are not
insured against war or sabotage.
successful in acquiring exploration blocks in future bidding
We generally do not maintain insurance coverage for
rounds if our competitors are able to bid based on better
business interruptions of any nature for our Brazilian
cost and capital structures than us. In that case, we may
operations, including business interruptions caused by labor
therefore have difficulty in repositioning our portfolio
disputes. If, for instance, our workers or those of our key
towards upstream assets that offer higher profitability and
third-party suppliers, vendors and service providers were to
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strike, the resulting work stoppages could have an adverse
quality within our supply chain. If our suppliers and service
effect on us. In addition, we do not insure most of our
providers delay or fail to deliver goods and services owed to
assets against war or sabotage. Therefore, an attack or an
us, we may not meet our operational goals within the expected
incident causing an interruption of our operations could
timeframe. In this case, we may ultimately need to postpone
have a material adverse effect on our results and
one or more of our projects, which may have an adverse effect
financial condition.
on our results and financial condition.
Additionally, our insurance policies do not cover all types of
We are subject to minimum local content requirements
risks and liabilities related to safety, environment, health,
in some of our concession agreements, in the Transfer
government fees, fines or punitive damages, which may
of Rights Agreement and in the Production Sharing
impact our results. There can be no guarantee that incidents
Agreements. In this case, we may not meet the minimum
will not occur in the future, that there will be insurance to
percentages of local content required in those agreements
cover the damages or that we will not be held responsible for
with appropriate financial conditions and, as a result, we may
these events, all of which may negatively impact our results.
be pacteded by penalties in our contracts and we may need
Strikes, work stoppages or labor unrest by our employees
or by the employees of our suppliers or contractors could
adversely affect our results and our business.
to search for international providers in the foreign market,
which may subject us to consequences as defined in our
agreements or delays in our investment projects.
Disagreements on how we manage our business, in
particular divestments and their implications for our
personnel, changes in our strategy, human resources policies
Additionally, there may be risks of delays in the customs
clearance process caused by external factors, which may
impact the supply of goods to us and affect our operations
regarding remuneration, benefits and headcount, employee
and projects.
contributions to cover the deficit of our pension plan Petros,
Furthermore, disruptions due to health events such as
implementation of regulations recently created relating to
COVID-19 in China and elsewhere could have a negative
health and pension plans and changes in labor law may lead
impact on our results and on our supply chain as well.
to judicial inquiries, labor unrest, strikes and stoppages.
Strikes, work stoppages or other forms of labor unrest at
any of our facilities or in major suppliers, contractors or their
facilities or in sectors of society that affect our business
could impair our ability to complete major projects and
impact our ability to continue our operations and achieve our
long-term objectives.
Our success also depends on our ability to continue to train
and qualify our personnel so they can assume qualified
senior positions in the future. We cannot assure you that
we will be effective in training and qualifying our workforce
sufficiently, nor that we will be able to achieve this goal
without incurring additional costs. Any such failure could
adversely affect our results and our business.
We rely on suppliers of goods and services for the operation
and execution of our projects and, as a result, we may be
adversely affected by failures or delays of such suppliers.
Our projects and operations may affect, and be affected by,
the expectations and dynamics of the communities where
we operate, impacting our business, reputation and image.
It is part of our policy to respect human rights and maintain
responsible relationships with the local communities located
where we operate. However, the various locations where we
operate are exposed to a wide range of issues related to
political, social and economic instability, as well as intentional
acts, such as illegal diversion, crime, theft, sabotage,
terrorism, roadblocks and protests. We cannot control the
changes in local dynamics and the expectations of the
communities where we operate and establish our businesses.
Social impacts that result from our decisions and direct and
indirect activities – especially those related to divestments – and
disagreements with these communities and local governments
may affect the schedule or budget of our projects, hinder our
operations due to potential lawsuits, have a negative financial
We are susceptible to the risks of performance and product
impact and harm our reputation and image.
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Water scarcity in some regions where we operate may
impact the availability of water in the quantity and/or
quality required for our operations, as well as difficulties
in obtaining grants of the right to use water resources,
impacting the business continuity of our industrial units.
We have a number of industrial facilities that demand the
use of water, ranging from large users such as refineries
to small users like distribution bases and terminals, which
are logistically important within our chain. In recent years,
several regions of the world, including some regions in
Brazil, have experienced a shortage of freshwater, including
for public consumption. In case of water scarcity, the grants
to obtain financing and the cost of financing may adversely
affect our results and financial condition.
In addition, our credit rating is sensitive to any change in the
credit rating of the Brazilian federal government. Any further
lowering of the Brazilian sovereign’s credit ratings may have
additional adverse consequences on our ability to obtain
financing or the cost of our financing, and consequently, on
our results and financial condition.
We are vulnerable to increased debt service resulting from
depreciation of the real in relation to the U.S. dollar and
increases in prevailing market interest rates.
pursuant to which we have the right to use water resources
As of December 31, 2019, a significant portion of our
may be suspended or modified and, as a result, we may be
financial debt was denominated in currencies other than
required to reduce or suspend our production activities,
the real. A substantial portion of our indebtedness is, and
since water for public consumption and watering of animals
is expected to continue to be, denominated in or indexed
has priority over industrial use. This may jeopardize our
to the U.S. dollar and other foreign currencies. A further
business continuity, as well as generate financial and
depreciation of the real against any of these other currencies
environmental impacts on us and our image.
will increase our debt service in reais, as the amount of reais
Financial Risks
We have substantial liabilities and may be exposed to
significant liquidity constraints in the near and medium
term, which could materially and adversely affect our
financial condition and results.
We have incurred in a substantial amount of debt related
to investments decisions taken in the past and in order to
finance the capital expenditures needed to meet our long
term objectives.
Since there may be liquidity restrictions on the debt market
to finance our planned investments and repay principal
and interest obligations under the terms of our debt, any
difficulty in raising significant amounts of debt capital in the
future may impact our results and the ability to fulfill our
2020-2024 Strategic Plan.
The loss of our investment grade credit rating and any
further lowering of our credit ratings could have adverse
necessary to pay principal and interest on foreign currency
debt will increase with this depreciation.
Foreign exchange variations may have an immediate impact
on our reported income. According to our cash flow hedge
accounting policy, hedging relationships are designated
for the existing natural hedge between our U.S. dollar
denominated future exports that are considered to be
highly probable (hedged item) and U.S. dollar denominated
financial debt (hedging instruments).
Following a devaluation of the real, some of our operating
expenses, capital expenditures, investments and import
costs will increase. As most of our revenues are denominated
in reais but linked to Brent prices in dolar, unless we increase
the prices of our products in the local market to reflect the
depreciation of the real, our cash generation relative to our
capacity to service debt may decline.
To the extent we refinance our maturing obligations with newly
contracted debt, we may incur additional interest expense.
consequences on our ability to obtain financing in the
As of December 31, 2019, a significant portion of our total
market through debt or equity securities, or may impact our
indebtedness consisted of floating rate debt. We generally
cost of financing, also making it more difficult or costly to
do not enter into derivative contracts or similar financial
refinance maturing obligations. The impact on our ability
instruments or make other arrangements with third parties
to hedge against the risk of an increase in interest rates.
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To the extent that such floating rates rise, we may incur in
We are exposed to the credit risks of certain of our
additional expenses. Moreover, as we refinance our existing
customers and associated risks of default. Any material
debt in the coming years, the mix of our indebtedness
nonpayment or nonperformance by some of our customers
may change, specifically as it relates to the ratio of fixed to
could adversely affect our cash flow, results and
floating interest rates, the ratio of short-term to long-term
financial condition.
debt, and the currencies in which our debt is denominated or
to which it is indexed.
Some of our customers may experience financial constraints
or liquidity issues that could have a significant negative
Changes that affect the composition of our debt and cause
effect on their creditworthiness. Severe financial issues
rises in short or long-term interest rates may increase our
encountered by our customers could limit our ability to
debt service payments, which could have an adverse effect
collect amounts owed to us, or to enforce the performance of
on our results and financial condition.
obligations owed to us under contractual arrangements.
The obligations relating to our pension plan (“Petros”)
In addition, many of our customers finance their activities
and health care benefits (“AMS”) are estimates, which are
through their cash flows from operations, the incurrence of
reviewed annually, and may diverge from actual future
short and long-term debt.
contributions due to changes in market and economic
conditions, as well as changes in actuarial assumptions.
Declining economic conditions in Brazil, and resulting
decreased cash flows, combined with a lack of debt or equity
The criteria used for determining commitments relating to
financing for our customers may affect us, since many of our
pension and health care plan benefits are based on actuarial
customers are Brazilian and may have significantly reduced
and financial estimates and assumptions with respect to
liquidity and limited ability to make payments or perform
(i) the calculation of projected short-term and long-term
their obligations.
cash flows and (ii) the application of internal and external
regulatory rules. Therefore, there are uncertainties inherent
in the use of estimates that may result in differences
between the forecasted value and the actual realized value.
In addition, the financial assets held by Petros to cover
pension obligations are subject to risks inherent to
investment management and such assets may not generate
the necessary returns to cover the relevant liabilities, in
which case extraordinary contributions from us, as sponsor,
and the participants, may be required.
With respect to health care benefits (AMS), the projected
cash flows can also be impacted by (i) higher medical
costs than expected; (ii) additional claims arising from the
extension of benefits; and (iii) difficulties in adjusting the
contributions of participants to reflect increases in
health care costs.
In addition, we and Petros face risks relating to pension
funds in lawsuits that may occasionally require additional
disbursements from us.
This could result in a decrease in our cash flow and may
also reduce or curtail our customers’ future demand for our
products and services, which may have an adverse effect on
our results and financial condition.
Compliance, Legal and Regulatory Risks
Failures to prevent, detect in a timely manner, or correct
behaviors inconsistent with our ethical principles and
rules of conduct may have a material adverse effect on
our results and financial condition.
In the past, some of our senior managers, directors and
contractors have engaged in fraudulent activities incompatible
with our ethics and compliance standards. We are subject to
the risk that our management, employees, contractors or
any person doing business with us may engage in fraudulent
activity, corruption or bribery, circumvent or override our
internal controls and procedures or misappropriate or
manipulate our assets for their personal benefit or of third
These risks may result in an increase in our liabilities and
parties, against our interest.
may adversely affect our results and our business.
This risk is heightened by the fact that we have a large
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number of complex, valuable contracts with local and foreign
Act could adversely affect us. Violations of this or
suppliers, as well as the geographic distribution of our
other laws may require us to pay fines and expose
operations and the wide variety of counterparties involved
us and our employees to criminal sanctions and
in our business.
civil suits.
We cannot guarantee that all of our employees and
In 2018, in light of facts uncovered in connection with the
contractors will comply with our principles and rules of
Lava Jato investigation, we entered into a nonprosecution
ethical behavior and professional conduct aimed at guiding
agreement (“NPA”) with the DoJ, pursuant to which we
our management, employees and service providers. Any
admitted that certain of our former executives and officers
failure, whether actual or perceived, to abide by our ethical
had engaged in conduct during the period from 2004 to
principles or to comply with applicable governance or
2012 that gave rise to violations of books and records and
regulatory obligations could harm our reputation, limit our
internal controls provisions under U.S. law. As part of the
ability to obtain financing and have a material adverse effect
SEC resolution, we settled charges of violation of the United
on our results and financial condition.
We are subject to the risk that our internal controls may
become inadequate in the future because of changes in
States Securities Act of 1933 and the books and records and
internal control provisions of the Securities Exchange Act of
1934, without admitting the SEC allegations.
conditions, or that our degree of compliance with our
The agreements, subject to the terms thereof, fully resolve
policies and procedures may deteriorate.
the investigations carried out by the DoJ and the SEC. Under
Because of its inherent limitations, our internal control
the terms of the agreements, we paid US$85.3 million to
over financial reporting may not prevent or detect
the DoJ and US$85.3 million to the SEC. In addition, the
misstatements. It is also difficult to project the effectiveness
agreements credited our remittance of US$682.6 million to
of internal control over financial reporting for future
the Brazilian authorities, which we deposited on January 30,
periods, as our controls may become inadequate because of
2019. The SEC also credited the payments we already made
changes in conditions, or because our degree of compliance
under our previously announced settlement of a securities
with our policies or procedures may deteriorate and we
class action lawsuit in the United States. The amount of
cannot be certain that in the future additional material
US$853.2 million was recorded in other operating expenses
weaknesses will not occur or otherwise be identified
in the third quarter of 2018.
in a timely manner.
If, during the term of the NPA (three years, unless extended),
Any failure to maintain our internal control over financial
the DoJ determines that we have committed a felony under
reporting could adversely impact our ability to report our
U.S. federal law, provided deliberately false or misleading
financial results in future periods accurately and in a timely
information, or otherwise breached the NPA, we could be
manner, and to file required forms and documents with
subject to prosecution and additional fines or penalties,
government authorities, including the SEC. We may also be
including charges under the U.S. Foreign Corrupt Practices
unable to detect accounting errors in our financial reports
Act (“FCPA”).
or may even have to restate our financial results. Any of
these occurrences may adversely affect our business and
operation, and may generate negative market reactions,
potentially affecting our financial conditions leading to a
decline of our shareholder value.
The Lava Jato investigation is still in progress by Brazilian
authorities and additional relevant information affecting
our interests may come to light. Adverse developments
in relation to any of the above matters could negatively
impact us and could divert the efforts and attention of our
Any violation of the agreements that solved the
management team from our ordinary business operations.
investigations conducted by the SEC and the DoJ and
In connection with any further investigations or proceedings
potential future investigations regarding the possibility
carried out by any authorities in Brazil or in any other
of noncompliance with the U.S. Foreign Corrupt Practices
jurisdiction, or any violation of the NPA, we may be required
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to pay fines or other financial relief, or consent to injunctions
Management”) and eight of EIG Management’s managed
or orders on future conduct or suffer other penalties, any of
funds (“EIG Funds”) (together with EIG Management, “EIG”)
which could have a material adverse effect on us.
filed a complaint against us on February 23, 2016 before
We may face additional proceedings related to the
Lava Jato investigation.
We were subject to a number of U.S. civil proceedings
relating to the Lava Jato investigation, including the
consolidated securities class action before the United
States District Court for the Southern District of New York
(“SDNY”), 33 lawsuits filed by individual investors before the
same judge in the SDNY and one lawsuit filed in the United
the United States District Court for the District of Columbia.
The dispute arises out of the EIG Funds’ indirect purchase
of equity interests in Sete Brasil Participações S. A., and
EIG currently has claims against us for fraud and aiding and
abetting fraud related to the Lava Jato investigation. EIG
seeks damages of at least US$221 million.
It is possible that additional complaints or claims might
be filed in the United States, Brazil, or elsewhere against
States District Court for the Eastern District of Pennsylvania
us relating to the Lava Jato investigation in the future. It is
(collectively, the “Individual Actions.”)
We entered into an agreement to settle the consolidated
securities class action, which was approved by the SDNY,
as well as agreements to settle the Individual Actions.
In connection with the settlement of the consolidated
securities class action, we paid US$2,950 million in three
also possible that further information damaging to us and
our interests will come to light in the course of the ongoing
investigations of corruption by Brazilian authorities. Our
management may be required to direct its time and attention
to defending these claims, which could prevent them from
focusing on our core business.
different installments in 2018 and 2019, into an escrow
In addition, as a result of the continuing Lava Jato
account designated by the lead plaintiff. After resolving
investigation, substantive additional information may come
certain objections and appeals of the settlement, it is now
to light in the future that would make the estimate that
final and no longer subject to appeal.
we made in 2014 for overpayments incorrectly capitalized
We are also currently party to a collective action commenced
in the Netherlands, an arbitration proceeding in Argentina,
and arbitration and judicial proceedings commenced in Brazil,
all of which are currently in their initial stages. In each case,
the proceedings were brought by investors (or entities that
allegedly represent investors’ interests) who purchased our
shares traded on the B3 Stock Exchange or other securities
appear, retrospectively, to have been materially low or high.
In prior years, we were required to write off capitalized costs
representing amounts that we overpaid for the acquisition
of property, plant and equipment. We may be required
to restate our financial statements to further adjust the
write offs representing the overstatement of our assets
recognized in our audited consolidated financial statements
issued by us outside of the United States, alleging damages
for prior years.
caused by facts uncovered in the Lava Jato investigations.
Differing interpretations of tax regulations or changes in
In Argentina, we are the defendant in two criminal lawsuits
tax policies could have an adverse effect on our financial
related to an alleged fraudulent offer of securities. The first
condition and results.
lawsuit alleges non-compliance by us with the obligation to
disclose to the Argentinian market a pending class action
filed by Consumidores Financieros Asociación Civil para su
Defensa before the Judicial Commercial Courts, pursuant
to provisions of Argentine capital markets law. The second
criminal action alleges a fraudulent offer of securities
aggravated by allegedly false information included in our
financial statements issued prior to 2015.
We are subject to tax rules and regulation that may be
interpreted differently over time, or that may be interpreted
differently by us and Brazilian tax authorities (including the
federal, state and municipal authorities), both of which could
have a financial impact on our business. In some cases, when
we have exhausted all administrative appeals relating to a tax
contingency, further appeals must be made in the judicial
courts, which may require that, in order to appeal, we provide
In addition, EIG Management Company, LLC (“EIG
collateral to judicial courts, such as the deposit of amounts
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equal to the potential tax liability in addition to accrued
Any substantial increase in expenditures for compliance
interest and penalties. In certain of these cases, settlement
with environmental, health or safety regulations may
of the matter may be a more favorable option for us.
have a material adverse effect on our results and financial
In the future, we may face similar situations in which our
interpretation of a tax regulation may differ from that of tax
authorities, or tax authorities may dispute our interpretation
and we may eventually take unanticipated provisions and
charges. In addition, the eventual settlement of one tax
condition. These increasingly stringent laws, regulations
and requirements may result in significant decreases in our
production, including unplanned shutdowns, which may
also have a material adverse effect on our results and
financial condition.
dispute may have a broader impact on other tax disputes.
We are subject to the granting of environmental licenses
Any of these occurrences could have a material adverse
and permits that may result in delays to deliver some of
effect on our financial condition and results.
our projects and difficulties to reach our crude oil and
Differences in interpretations and new regulatory
natural gas production objectives.
requirements by the agencies in our industry may result
Our activities are subject to and depend on the granting
in our need for increased investments, expenses and
of environmental licenses and permits by a wide variety
operating costs, or may cause delays in production.
of federal, state and local laws, relating to the protection
Our activities are subject to regulation and supervision by
regulatory agencies, such as the ANP. Issues such as local
content requirements, procedures for the unitization of
areas, definition of reference prices for the calculation of
of human health, safety and the environment, both in
Brazil and in other jurisdictions in which we operate. As
environmental, health and safety regulations become
increasingly complex, it is possible that our efforts to
royalties and governmental participation, among others, are
comply with such laws and regulations will increase
subject to a regulatory regime overseen by the ANP.
substantially in the future.
Changes in the regulations applicable to us, as well as
We cannot ensure that the planned schedules and budgets of
differences of interpretation between us and the agencies
our projects, including the decommissioning of mature fields,
that regulate our industry, may have a material adverse
effect on our financial condition and results. Any future
differences in interpretation between us and these
regulatory agencies may materially impact our results,
will not be affected by demands of new regulatory bodies or
that the relevant licenses and permits will be issued in a timely
manner. Potential delays in obtaining licenses may impact our
crude oil and natural gas production objectives, negatively
since such interpretations directly affect the economic and
influencing our results and financial condition.
technical assumptions that guide our investment decisions.
Operations with related parties may not be properly
Differing interpretations and numerous environmental,
identified and handled.
health and safety regulations and industry standards that
are becoming more stringent may result in increased capital
and operating expenditures and decreased production.
Generally, transactions with related parties are part of the
business of large companies. Such transactions must follow
market standards and generate mutual benefit. Decision
Our activities are subject to evolving industry standards and
processes surrounding such transactions must be objective
best practices, and a wide variety of federal, state and local
and documented. Further, we must comply with the rules
laws, regulations and permit requirements relating to the
of competition and adequate disclosure of information, in
protection of human health, safety and the environment,
accordance with the applicable legislation and as determined
both in Brazil and in other jurisdictions where we operate.
by the CVM and the SEC. The possible failure of our process
These laws, regulations and requirements may result in
to identify and deal with these situations may adversely
significant costs, which may have a negative impact on the
affect our economic and financial condition, as well as lead to
profitability of the projects we intend to implement or may
regulatory assessments by agencies.
make such projects economically unfeasible.
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We may be required by courts to guarantee the supply of
the global market trends or reflect exchange rate volatility.
products or services to defaulted counterparties.
In the event that our way of setting prices changes based
As a company controlled by the federal government and
operating throughout Brazil, we may be required by the
Brazilian courts to provide products and services to clients,
whether public or private institutions, with the purpose of
guaranteeing supplies to the domestic oil market, even
in situations where these clients and institutions are in
on the decisions of the Brazilian federal government, as
our controlling shareholder, we may have periods in the
future during which our prices for diesel and gasoline will
not be at parity with international prices. Any such changes
in our pricing may have a material adverse effect on our
businesses, results and financial condition.
default with contractual or legal obligations. Such supply in
Developments in the economic environment and in the oil
exceptional situations may adversely affect our
and gas industry and other factors have resulted, and
financial position.
Business Risks
may result, in substantial write-downs of the carrying
amount of certain of our assets, which could adversely
affect our results and financial condition.
We evaluate on an annual basis, or more frequently when the
Our cash flow and profitability are exposed to the
circumstances require, the carrying amount of our assets for
volatility of prices of oil, gas and oil products.
possible impairment. Our impairment tests are performed
Most of our revenue derives primarily from sales of crude oil,
oil products and, to a lesser extent, natural gas. International
prices for oil and oil products are volatile and strongly
influenced by conditions and expectations of world supply
and demand. In addition, public health epidemics (such
as the COVID-19 epidemic in early 2020), which is likely to
by a comparison of the carrying amount of an individual
asset or a cash generating unit with its recoverable amount.
Whenever the recoverable amount of an individual asset
or cash generating unit is less than its carrying amount, an
impairment loss is recognized to reduce the carrying amount
to the recoverable amount.
decelerate the expected growth of worldwide oil demand
Changes in the economic, regulatory, business or political
in 2020, has already significantly affected oil prices and,
environment in Brazil or other markets where we operate,
consequently, could affect our financial results. Volatility and
such as the recent significant decline in international crude
uncertainty in international oil prices are structural and likely
oil and gas prices, the devaluation of the real, as well as
to continue. Changes in oil prices usually result in changes in
changes in financing conditions, such as deterioration of risk
the prices of oil products and natural gas.
Currently, diesel and gasoline prices are defined taking
into account the international import parity price, margins
perception and interest rates, for such projects, among other
factors, may affect the original profitability estimates of our
projects, which could adversely affect our results.
to remunerate the risks inherent in our operations and the
Climate change could impact our results and strategy.
level of market share. Price adjustments can be made at
Climate change poses new challenges and opportunities
any time. Since one of our pricing objectives is to maintain
for our business. More stringent environmental regulations
fuel prices in parity with global market trends, substantial
can result in the imposition of costs associated with
or extended declines in international crude oil prices may
greenhouse gas emissions, either through environmental
have a material adverse effect on our business, results and
agency requirements relating to mitigation initiatives or
financial condition, and may also affect the value of our
through other regulatory measures such as greenhouse
proved reserves.
In the past, our management has adjusted our pricing from
time to time. We cannot guarantee that our way of setting
gas emissions taxation and market creation of limitations
on greenhouse gas emissions that have the potential to
increase our operating costs.
prices will not change in the future. In previous years, we
The risks associated with climate change could also make
have not always adjusted our prices to reflect parity with
it difficult for us to access capital due to public image
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issues with investors; changes in the consumer profile, with
development projects. Deepwater reservoirs exploitation
reduced consumption of fossil fuels; and energy transitions
demands significant resources to be successful and involves
in the world economy, towards a lower carbon matrix, with
numerous factors beyond our control, such as delays in
the insertion of substitute products for fossil fuels and
availability of offshore equipment, shortages in access to
the increasing use of electricity for urban mobility. These
critical resources, and unexpected operational conditions,
factors may have a negative impact on the demand for our
including equipment failures or incidents, that may cause
products and services and may jeopardize or even impair the
operations to be curtailed, delayed or cancelled.
implementation and operation of our businesses, adversely
impacting our results and financial condition and limiting
some of our growth opportunities.
In addition, increased competition in the oil and gas sector
in Brazil and our own capital constraints may make it more
difficult or costly to obtain additional acreage in bidding
The ability to develop, adapt, access new technologies and
rounds for new contracts and to explore existing
take advantage of opportunities related to innovations in
contracted areas.
digital technology is fundamental to our competitiveness.
Our crude oil and natural gas reserve estimates involve
The availability of technologies that ensure the maintenance
some degree of uncertainty, which could adversely affect
of our reserve rates and the viability of production in
an efficient manner, as well as the development of new
products and processes that respond to environmental
regulations and new market trends, play a key role in
increasing our long-term competitiveness. In the event some
disruptive technology is introduced into the oil industry,
changing performance standards, it would be important for
us to have access to this technology, which may impact our
competitiveness in relation to other companies.
Recent advances in data acquisition and analysis,
connectivity, artificial intelligence, robotics and other
technologies are changing the sources that create
competitive advantage. Eventual failure to capture these
opportunities may have an impact on our competitiveness in
the oil and gas market and our long-term objectives.
our ability to generate income.
Our proved crude oil and natural gas reserves set forth in
this annual report are the estimated quantities of crude
oil and natural gas that geological and engineering data
demonstrate with reasonable certainty to be economically
recoverable from a given date forward from known reservoirs
under existing economic and operating conditions (i.e.
using prices and costs as of the date the estimate is made)
according to applicable regulations. Reserve estimates
presented are based on assumptions and interpretations,
which are subject to risks and uncertainties. If the geological
and engineering data that we use to estimate our reserves
are not accurate, our reserves may be significantly lower
than the ones currently indicated in the volume estimates
of our portfolio and reported by companies that conduct an
Maintaining our long-term objectives for oil production
evaluation on our reserves estimates. Downward revisions in
depends on our ability to successfully obtain and
our reserve estimates could lead to lower future production,
develop oil reserves.
which could have an adverse effect on our results and
Our ability to maintain our long-term objectives for oil
financial condition.
production is highly dependent upon our ability to obtain
We do not own any of the subsoil accumulations
additional reserves and to successfully develop
of crude oil and natural gas in Brazil.
our existing reserves.
Under Brazilian law, the Brazilian federal government owns
Our ability to obtain additional reserves depends upon
all subsoil accumulations of crude oil and natural gas in
exploration activities, which demands significant capital
Brazil and, according to the Brazilian concession regime, the
investments, exposes us to the inherent risks of drilling, and
concessionaire owns the oil and gas it produces from those
may not lead to the discovery of commercially productive
subsoil accumulations pursuant to applicable agreements
crude oil or natural gas reserves. We may also obtain
executed with the Brazilian federal government. We possess,
additional reserves by proposing and implementing new
as a concessionaire of certain oil and natural gas fields in
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Brazil, the exclusive right to develop the volumes of crude
relation to the ANP and production sharing regime) and the
oil and natural gas included in our reserves pursuant to
risk of government sanctions arising from such partnerships,
concession and other agreements. Access to crude oil and
which could have a material adverse effect on their
natural gas reserves is essential to an oil and gas company’s
operations, reputation, cash flow and financial condition.
sustained production and generation of income, and our
ability to generate income would be adversely affected if the
Brazilian federal government were to restrict or prevent us
from exploiting these crude oil and natural gas reserves.
As a result of divestments and partnerships,
we are exposed to risks that could lead to unforeseen
financial losses.
We have assets and investments in other countries,
where the political, economic and social situation may
negatively impact our business.
We operate and have businesses in several countries,
particularly in the Gulf of Mexico, in the U.S., in South
America, in Europe, in Asia and in Africa, in areas where there
may be political, economic and social instabilities. In such
Upon completion of each divestment or partnership, we
regions, external factors may adversely affect the results
must perform integrated management and monitoring
and the financial condition of our subsidiaries in these
of the actions required and provided for in the contracts
countries, including: (i) the imposition of price controls;
related to such project, paying attention to the fulfillment
(ii) the imposition of restrictions on hydrocarbon exports;
of the obligations established for the buyer and the seller.
(iii) the fluctuation of local currencies against the real; (iv)
In the event of non-compliance with these obligations, the
nationalization of our oil and gas reserves and our assets;
financial adjustments between the parties may be different
(v) increases in export tax and income tax rates for oil and oil
from the base scenario adopted at the time of divestment
products; and (vi) unilateral (governmental) and contractual
or partnership. In addition, as determined by the ANP, even
institutional changes, including controls on investments and
in the event of total or partial disposal of our participation
limitations on new projects.
in E&P contracts, we remain jointly and severally liable
for abandonment costs after the new concessionaire’s
production closes, should it default on this task. Such joint
and several liability covers obligations arising on a date prior
to the transfer, regardless of when such obligations arise.
The same is true for any environmental liabilities.
Additionally, our sale of assets may negatively impact
existing synergies or logistical issues within our company,
which may adversely affect our long-term operating growth
prospects and, as a result, our medium and long-term
results.
In addition, our partners may not be able to meet their
obligations, including financial obligations, which may
jeopardize the viability of some projects in which we
participate. When we act as operators, our partners may have
the right to veto certain decisions, which may also affect
the viability of some projects. Regardless of the partner
responsible for the operations of each project, we may
be exposed to the risks associated with those operations,
including litigation (where joint liability could apply, in relation
to the ANP, in the case of concession agreements, and in
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If one or more of the risks described above occurs, we may
lose part or all of our reserves in the affected country and
may also fail to achieve our strategic objectives in these
countries, or in our international operations as a whole, which
may negatively impact our results and financial resources.
The performance of companies licensed to use our brands
may impact our image and reputation.
Our divestments and partnerships plan includes the sale
of some of our companies in the fuel distribution segment.
Some of these transactions include licensing our brands
to future buyers and partners. Once a licensee holds
the right to display our brands in products, services and
communications, it can be perceived by stakeholders as
our legitimate representative or spokesperson. Licensees’
actions or events related to their business, such as, failures,
accidents, errors in business performance, environmental
crises, corruption scandals and improper use of our brand,
among other factors, may negatively impact our image
and reputation.
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Government Ownership and
Country Risks
The Brazilian federal government, as our controlling
shareholder, may pursue certain macroeconomic and
social objectives through us that may have a material
adverse effect on us.
Our Board of Directors consists of a minimum of seven
and a maximum of eleven members, who are elected at our
shareholders’ meeting for a term of up to two years, with a
maximum of three consecutive reelections allowed. Brazilian
have important effects on Brazilian companies, including us,
and on market conditions and prices of Brazilian securities.
Our financial condition and results may be adversely affected
by the following factors and the response of the Brazilian
federal government to these factors:
❚ exchange rate movements and volatility;
❚ inflation;
❚ financing of government fiscal deficits;
❚ price instability;
❚ interest rates;
law requires that the Brazilian federal government owns
❚ liquidity of domestic capital and lending markets;
a majority of our voting stock, and so long as it does, the
Brazilian federal government will have the power to elect
a majority of the members of our Board of Directors and,
through them, the executive officers who are responsible for
our day-to-day management. As a result, we may engage
in activities that give preference to the objectives of the
Brazilian federal government rather than to our own economic
❚ tax policy;
❚ regulatory policy for the oil and gas industry, including
pricing policy and local content requirements;
❚ allegations of corruption against political parties, elected
officials or other public officials, including allegations
made in relation to the Lava Jato investigation; and
and business objectives, which may have an adverse effect on
❚ other political, diplomatic, social and economic
our results and financial condition.
developments in or affecting Brazil.
Elections in Brazil occur every four years, and changes
in elected representatives may lead to a change of the
members of our Board of Directors appointed by the
controlling shareholder, which may further impact the
Uncertainty over whether the Brazilian federal government
will implement changes in policy or regulations that may
affect any of the factors mentioned above or other factors
in the future may lead to economic uncertainty in Brazil and
management of our business strategy and guidelines, as
increase the volatility of the Brazilian securities market and
mentioned above.
As our controlling shareholder, the Brazilian federal
government has guided and may continue to guide certain
securities issued abroad by Brazilian companies, which
may have a material adverse effect on our results and
financial condition.
macroeconomic and social policies through us, pursuant to
Allegations of political corruption against members
Brazilian law. Accordingly, we may make investments, incur
of the Brazilian government could create economic and
costs and engage in transactions with parties or on terms
political instability.
that may have an adverse effect on our results and
financial condition.
In the past, members of the Brazilian federal government
and the Brazilian legislative branch have faced allegations
Fragility in the performance of the Brazilian economy,
of political corruption. As a result, a number of politicians,
instability in the political environment, regulatory
including senior federal officials and congressmen, resigned
changes and investor perception of these conditions may
or have been arrested.
adversely affect the results of our operations and our
financial performance and may have a material
adverse effect on us.
Currently, elected officials and other public officials in Brazil
are being investigated for allegations of unethical and illegal
conduct identified during the Lava Jato investigation being
Our activities are strongly concentrated in Brazil. Economic
conducted by the Office of the Brazilian Federal Prosecutor.
policies adopted by the Brazilian federal government may
The potential outcome of these investigations is unknown,
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but they have already had an adverse impact on the image
sell the preemptive rights, and holders of ADSs will be
and reputation of the implicated companies (including
entitled to receive the proceeds of the sale. However, the
us), in addition to the adverse impact on general market
preemptive rights will expire if the depositary cannot sell
perception of the Brazilian economy. These proceedings,
them. For a more complete description of preemptive
their conclusions or further allegations of illicit conduct
rights with respect to the common or preferred shares, see
could have additional adverse effects on the Brazilian
“Shareholder Information – Shares and Shareholders – Other
economy. Such allegations may lead to further instability, or
Shareholders’ Rights” in this annual report.
new allegations against Brazilian government officials and
others may arise in the future, which could have a material
adverse effect on us. We cannot predict the outcome of any
such allegations nor their effect on the Brazilian economy.
Equity and Debt Securities Risks
The size, volatility, liquidity or regulation of the
Brazilian securities markets may curb the ability of
holders of ADSs to sell the common or preferred shares
underlying our ADSs.
Our shares are among the most liquid traded on the B3, but
overall, the Brazilian securities markets are smaller, more
volatile and less liquid than the major securities markets
in the United States and other jurisdictions, and may be
regulated differently from the way in which U.S. investors are
accustomed. Factors that may specifically affect the Brazilian
equity markets may limit the ability of holders of ADSs to sell
the common or preferred shares underlying our ADSs at the
price and time they desire.
Holders of our ADSs may be unable to exercise preemptive
rights with respect to the common or preferred shares
underlying the ADSs.
If holders of our ADSs exchange their ADSs for common
or preferred shares, they risk losing the ability to timely
remit foreign currency abroad and other
related advantages.
The Brazilian custodian for our common or preferred shares
underlying our ADSs must obtain a certificate of registration
from the Central Bank of Brazil to be entitled to remit
U.S. dollars abroad for payments of dividends and other
distributions relating to our preferred and common shares or
upon the disposition of the common or preferred shares.
The conversion of ADSs directly into ownership of the
underlying common or preferred shares is governed by
CMN Resolution No. 4,373 and foreign investors who intend
to do so are required to appoint a representative in Brazil
for the purposes of CMN Resolution No. 4,373, who will be in
charge for keeping and updating the investors’ certificates
of registrations with the Central Bank of Brazil, which entitles
registered foreign investors to buy and sell directly on the
B3. Such arrangements may require additional expenses
from the foreign investor. Moreover, if such representatives
fail to obtain or update the relevant certificates of
registration, investors may incur in additional expenses or be
subject to operational delays which could affect their ability
Holders of ADSs who are residents of the United States
to receive dividends or distributions relating to the common
may not be able to exercise the preemptive rights relating
or preferred shares or the return of their capital
to the common or preferred shares underlying our ADSs
in a timely manner.
unless a registration statement under the Securities Act
is effective with respect to those rights or an exemption
from the registration requirements of the Securities Act
is available. We are not obligated to file a registration
statement with respect to the common or preferred shares
relating to these preemptive rights, and therefore we may
not file any such registration statement. If a registration
statement is not filed and an exemption from registration
does not exist, JPMorgan, as depositary, will attempt to
The custodian’s certificate of registration or any foreign
capital registration directly obtained by such holders may
be affected by future legislative or regulatory changes, and
we cannot assure such holders that additional restrictions
applicable to them, the disposition of the underlying
common or preferred shares, or the repatriation of the
proceeds from the process will not be imposed
in the future.
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Holders of our ADSs may face difficulties in protecting
deposit agreements. ADS holders exercise voting rights
their interests.
Our corporate affairs are governed by our Bylaws and
Brazilian Corporate Law, which differ from the legal principles
that would apply if we were incorporated in a jurisdiction in
the United States or elsewhere outside Brazil. In addition, the
rights of an ADS holder, which are derivative of the rights of
holders of our common or preferred shares, as the case may
by providing instructions to the depositary, as opposed to
attending shareholders meetings or voting by other means
available to shareholders. In practice, the ability of a holder
of ADSs to instruct the depositary as to voting will depend
on the timing and procedures for providing instructions
to the depositary, either directly or through the holder’s
custodian and clearing system.
be, to protect their interests are different under Brazilian
In addition, a portion of our ADSs represents our preferred
Corporate Law than under the laws of other jurisdictions.
shares. Under Brazilian Corporate Law and our Bylaws, except
Rules against insider trading and self-dealing and the
for specific situations, holders of preferred shares do not
preservation of shareholder interests may also be different in
have the right to vote in shareholders’ meetings. Holders
Brazil than in the United States. In addition, the structure of
of ADSs representing preferred shares are not entitled to
a class action in Brazil is different from that in the U.S. Under
vote most of decisions as well. See “Shareholders – Shares
Brazilian law, shareholders in Brazilian companies do not
and Shareholders – Shareholders Rights – Shareholders’
have standing to bring a class action, and under our Bylaws
Meetings and Voting Rights” in this annual report.
must, generally with respect to disputes concerning rules
regarding the operation of the capital markets, arbitrate any
such disputes. See “Shareholder Information – Shares and
Shareholders – Dispute Resolution” in this annual report.
The market for PGF’s debt securities may not be liquid.
Some of PGF’s notes are not listed on any securities
exchange and are not quoted through an automated
quotation system. Most of PGF’s notes are currently listed
We are a state-controlled company organized under the laws
both on the NYSE and the Luxembourg Stock Exchange and
of Brazil, and all of our directors and officers reside in Brazil.
trade on the NYSE Euronext and Euro Multilateral Trading
Substantially all of our assets and those of our directors
Facility (“MTF”) market, respectively, although most trading
and officers are located in Brazil. As a result, it may not be
in PGF’s notes occurs over-the-counter. PGF can issue new
possible for holders of ADSs to effect service of process
notes that can be listed in markets other than the NYSE and
upon us or our directors and officers within the United
the Luxembourg Stock Exchange and traded in markets
States or other jurisdictions outside Brazil or to enforce
other than the NYSE Euronext and the Euro MTF market.
against us or our directors and officers judgments obtained
We can make no assurance as to the liquidity of or trading
in the United States or other jurisdictions outside Brazil.
markets for PGF’s notes. We cannot guarantee that the
Because judgments of U.S. courts for civil liabilities based
holders of PGF’s notes will be able to sell their notes in the
upon the U.S. federal securities laws may only be enforced
future. If a market for PGF’s notes does not develop, holders
in Brazil if certain requirements are met, holders of ADSs
of PGF’s notes may not be able to resell the notes for an
may face greater difficulties in protecting their interest in
extended period of time, if at all.
actions against us or our directors and officers than would
shareholders of a corporation incorporated in a state or other
jurisdiction of the United States.
Holders of our ADSs do not have the same voting rights
as our shareholders. In addition, holders of ADSs
representing preferred shares do not have voting rights.
We would be required to pay judgments of Brazilian
courts enforcing our obligations under the guaranty
relating to PGF’s notes only in reais.
If proceedings were brought in Brazil seeking to enforce
our obligations in respect of the guaranty relating to PGF’s
notes, we would be required to discharge our obligations
Holders of our ADSs do not have the same voting rights as
only in reais. Under Brazilian exchange controls, an obligation
holders of our shares. Holders of our ADSs are entitled to
to pay amounts denominated in a currency other than reais,
the contractual rights set forth for their benefit under the
which is payable in Brazil pursuant to a decision of a
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Brazilian court, will be satisfied in reais at the rate of
exchange in effect on the date of payment, as determined
❚ intended to incur or incurred, or believed or believe that we
would incur, debts beyond our ability to pay such debts as
by the Central Bank of Brazil.
they mature; and
A finding that we are subject to U.S. bankruptcy laws
❚ in each case, intended to receive or received less than
and that the guaranty executed by us was a fraudulent
reasonably equivalent value or fair consideration therefor,
conveyance could result in PGF noteholders losing their
then our obligations under the guaranty could be avoided,
legal claim against us.
or claims with respect to that agreement could be
PGF’s obligation to make payments on the PGF notes is
supported by our obligation under the corresponding
guaranty. We have been advised by our external U.S. counsel
that the guaranty is valid and enforceable in accordance with
the laws of the State of New York and the United States. In
addition, we have been advised by our general counsel that
the laws of Brazil do not prevent the guaranty from being
valid, binding and enforceable against us in accordance
with its terms. In the event that U.S. federal fraudulent
conveyance or similar laws are applied to the guaranty, and
we, at the time we entered into the relevant guaranty:
❚ were or are insolvent or rendered insolvent by reason of
our entry into such guaranty;
❚ were or are engaged in business or transactions for which
the assets remaining with us constituted unreasonably
small capital; or
subordinated to the claims of other creditors. Among other
things, a legal challenge to the guaranty on fraudulent
conveyance grounds may focus on the benefits, if any,
realized by us as a result of the issuance of the PGF notes.
To the extent that the guaranty is held to be a fraudulent
conveyance or unenforceable for any other reason, the
holders of the PGF notes would not have a claim against
us under the relevant guaranty and would solely have a
claim against PGF. We cannot ensure that, after providing
for all prior claims, there will be sufficient assets to satisfy
the claims of the PGF noteholders relating to any avoided
portion of the guaranty.
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Corporate Risk Management
We believe that integrated and proactive risk management is
❚ promoting integration and synergy of risk management
essential for the delivery of results in a safe and sustainable
actions taken in the organizational units, as well as in other
way. Our risk-management process is centralized, allowing
business processes, support and management;
the standardization and uniformity of risk analysis and the
management of risk responsibilities. We have an executive
risk committee to advise our Board of Executive Officers in
the analysis of matters relating to risk management. Each
of our organizational units must identify, prioritize, monitor
and, together with our business risks teams, periodically
communicate to the executive risk committee the main risks
involved in the activities performed by such unit, as well as
planned mitigating actions.
In order to assist in this process, our corporate risk
management policy establishes guidelines and
responsibilities and is based on the following fundamental
principles:
❚ respect for life and life diversity;
❚ full alignment and consistency with our Strategic Plan;
❚ ethical behavior and compliance with legal and regulatory
requirements;
❚ integrated risk management; and
❚ orientation of risk response actions aimed at aggregating
or preserving shareholder value and business continuity.
The risks we categorize as “strategic risks” are monitored
through specific actions, which are key for the
implementation of our Strategic Plan. The scope and
probability of these risks, as well as the resources required to
address these risks, are particularly important to assess for
our business.
The risk management organizational structure, that is under
the supervision of our CFO, is responsible for:
❚ identifying, monitoring and reporting periodically to our
Board of Executive Officers and Board of Directors on the
❚ establishing a corporate methodology for risk
management guided by an integrated and systemic view,
which allows for an environment of continuous monitoring
of risks in several hierarchical levels;
❚ disseminating knowledge and the culture of risk
management; and
❚ encouraging managers to develop and implement the
necessary measures to align our exposure to acceptable
risk levels.
In order to support the risk management process, our
corporate risk management policy specifies authorities
to be consulted, responsibilities to be undertaken, and
five principles and ten guidelines that guide our risk
management initiatives.
This policy has a comprehensive approach to corporate risk
management, which combines the traditional economic and
financial risk management approach with other relevant
areas of interest, such as protection of life, health and
environment, assets and business information protection
(property and security) and combating fraud and corruption
(legal and compliance), among other corporate risks.
With a focus on integrating risk management actions,
our policy allows any employee to have access to the
terms and concepts related to risk management, as well
as to the measures taken and parties responsible for the
management of each of the risks we are exposed to.
For further information regarding our revised business
risk management policy, please visit our website at
https://www.petrobras.com.br/ir. The information on this
website, which might be accessible through a hyperlink
resulting from this URL, is not and shall not be deemed to be
effects of major risks on our integrated results;
incorporated into this annual report.
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Disclosures about Market Risk
Commodity Price Risk
We operate in an integrated manner throughout the various
stages of the oil industry. A great part of our results relate
directly to oil exploration and production, refining and the
sale of natural gas, biofuels and electricity in Brazil. As our
due to the significant reduction in cash flow uncertainties
for the 2019-2023 period, we sold our put options at an
exercise price referenced to the average Brent oil prices from
April to the end of 2019 at US$60/barrel, with total premium
received of US$101 million.
purchases and sales of crude oil and oil products are linked
In addition, transactions with derivatives were also
to international commodity prices, we are exposed to their
implemented to protect our margins for short-term
price fluctuations, which may influence our profitability, our
commercial transactions carried out abroad. Our derivatives
cash flow from operations and our financial situation.
We prefer to maintain exposure to the price cycle than use
financial derivatives to systematically protect purchases and
sale transactions that focus on fulfilling our operation needs.
However, based on crude oil market conditions and prospects
of realization of our Strategic Plan, we may decide to
implement protection strategies using financial instruments
to manage our cash flow expenses.
contracts provide economic hedges for oil product
purchases and sales in the global markets, generally
expected to occur within a 30 to 360-day period.
For more information about our commodity derivatives
transactions, including a sensitivity analysis demonstrating
the net change in fair value of a 25% (or 50%) adverse
change in the price of the underlying commodity for options
and futures, see Note 36 to our audited consolidated
In March 2019, we deployed a hedging strategy for part of
financial statements.
our expected oil production in 2019, in a volume equivalent
to 186 million barrels. Put options were purchased with
exercise price referenced to the average price of Brent oil
Exposure to interest rate and
exchange rate risk
from April through the end of 2019, with an average exercise
For information about interest rate and exchange rate risk,
price of around US$60 per barrel. The options matured at the
see “Operating and Financial Review and Prospects” in this
end of 2019. However, throughout the third quarter of 2019,
annual report.
Insurance
Regarding operational risks, our policy is to maintain
to the objectives we define and the limitations imposed by
insurance coverage when the obligation to maintain such
the global insurance and reinsurance markets. Although
coverage derives from a legal or contractual instrument
some policies are issued in Brazil, most of our policies are
or our Bylaws; or the event covered may cause significant
reinsured abroad with reinsurers rated A- or higher by
damage to our financial results, and coverage is economically
Standard & Poor’s, or B + or higher by A.M. Best.
feasible.
Our policies are subject to deductibles, limits, exclusions and
We maintain several insurance policies, including policies
limitations, and there is no assurance that such coverage
against fire, operational risk, engineering risk, property
will adequately protect us against liability from all possible
damage coverage for onshore and offshore assets such as
consequences and damages associated with our activities.
fixed platforms, floating production systems and offshore
Thus, it is not possible to assure that insurance coverage
drilling units, hull insurance for tankers and auxiliary vessels,
will exist for all damages resulting from possible incidents or
third party liability insurance and transportation insurance.
accidents, which may negatively affect our results.
The coverages of these policies are contracted according
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37
DISCLOSURES ABOUT MARKET RISK
INSURANCE
38
38
Specifically, we do not maintain insurance coverage to
an indemnity limit of US$50 million up to US$500 million,
safeguard our assets in case of war or sabotage. We also do
depending on the type of vessel. For activities in Brazil,
not maintain coverage for business interruption, except for
in the event of an explosion or similar event on one of
some specific assets in Brazil. Generally, we do not maintain
our non-fixed offshore platforms, these policies may
coverage for our wells in operation in Brazil, except when
provide third-party combined liability coverage of up to
required by a joint operating agreement. In addition, our
US$750 million. In addition, although we do not insure most
third-party liability policies do not cover government fines or
of our pipelines against property damage, we have insurance
punitive damages.
Our national property damage policies have a maximum
deductible of US$180 million and their indemnity limits
against damages or losses to third parties arising from
specific incidents, such as unexpected infiltration
and oil pollution.
can reach US$2.28 billion for refineries and US$2.5 billion
Outside Brazil, we maintain different levels of third party
for platforms, depending on the replacement value of our
liability insurance, as a result of a variety of factors, including
assets. We self-insure less valuable assets, including but not
country risk assessments, whether we have onshore and
limited to small auxiliary vessels, certain storage facilities
offshore operations, or legal requirements imposed by a
and some administrative facilities.
particular country in which we operate. We maintain separate
Our general third party liability policy with respect to our
onshore and offshore activities in Brazil, including losses
due to sudden pollution, such as oil spills, has a maximum
indemnity limit of US$250 million with an associated
deductible of US$10 million. We also maintain marine
insurance with additional protection and indemnity against
third parties related to our domestic offshore operations with
well-control insurance policies in our international operations
to cover liabilities arising from the uncontrolled eruption
of oil, gas, water or drilling fluid. In addition, such policies
cover claims of environmental damage caused by wellbore
explosion and similar events as well as related clean-up costs
with coverage limits of up to US$345 million depending on
the country.
Emerging
Risks
Emerging risks are the long-term strategic risks that we have identified as the most severe and
could significantly impact the execution of our Strategic Plan. We detail below these risks already
briefly described in “Risks – Risk Factors” in this annual report.
Technology systems, security (cybersecurity) systems, telecommunications
systems and services.
Recently, concerns about information security failures have been growing in the world. These
failures may have an external source, such as malware, hacking, cyber terrorism, among others.
These failures can also have an internal origin, through intentional and fraudulent acts by
employees and contractors with the purpose of obtaining personal advantages.
The perception of the severity of this risk by our management has increased significantly over
time. Therefore such risk has been classified as a strategic risk in our Strategic Plan. In addition to
cybersecurity issues, the concern and actions by our management aimed to improve protection
and privacy of personal data held by us.
In Brazil, the LGPD will be completely effective as of August 2020. The LGPD has a series of
sanctions, including fines, to be applied to organizations that do not comply with LGPD’s rules.
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We are using layers of protection over e-mails, analysis of vulnerabilities in networks and
applications, audit trails in information systems, privileged access control, updating security
packages, authentication of devices and users for access to the internet, corporate network,
internet content filters, encryption and segregation of key functions.
Additionally, in order to guarantee our security in a world where data are considered valuable and
strategic assets, in December 2019, we created an area dedicated to information security, linked
to the Digital Transformation and Innovation Executive Officer, form purposes of centralizing
management related to all security information disciplines.
The strategic initiative for digital transformation of our strategic plan aims to prepare for a
competitive environment that is being increasingly influenced by digital technologies and a
new way of working, based on collaboration. The possibilities for transforming operational and
business models bring opportunities to increase the efficiency and safety of operations, reduce
costs and bring more robustness and agility to decisions. Efforts go beyond the implementation
of technological solutions, also seeking to implement a culture of innovation that promotes
experimentation, multifunctional collaboration and information sharing.
For more details, see “Risks – Risk Factors – Strategic Risks” and “Strategic Plan – Digital
Transformation” in this annual report.
Changes in the competitive environment.
In June 2019, we signed two commitment agreements with CADE, which consolidate the
understanding between the parties on the execution of divestment of refining assets and
the promotion of competition in the natural gas industry in Brazil, including the sale of our
shareholding in companies operating in the natural gas sector and their related assets. These
agreements suspend the administrative investigation started by CADE court to investigate alleged
abuse of our dominant position in the refining segment and creates a favorable environment for
new investors to enter the natural gas industry.
The implementation of these agreements, associated with possible upstream regulatory changes,
could increase the level of competition in the sector.
We are focusing on assets in which we are the natural owner and we expect better prospective
return on capital (deepwater and ultra-deepwater activities), constantly pursue a competitive and
efficient cost and investment structure, using active portfolio management as a key driver to our
partnerships and divestments.
In addition, we have improving our operating efficiencies, reducing significantly our financial debt
and we approved a plan of resilience related to our projects and assets, for guarantee profitability
even in low oil prices scenarios. Since 2015, we launched some voluntary dismissal programs
(see “Management and Employees – Employees – Workforce” in this annual report) and we maintain
the efforts to cut others costs, with a rationalization of our physical space as part of risk treatment
and strategy.
For more information, see “Risks – Risk Factors – Strategic Risks”, “Strategic Plan – 2020-2024
Strategic Plan” and “Portfolio Management” in this annual report.
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103
107
OUR
BUSINESS
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Exploration and Production
Overview
Our oil and natural gas exploration and production activities
Our activities are focused on deepwater and ultra-deepwater
are the major components of our investment portfolio
oil reservoirs in Brazil, which accounted for 87% of our total
and include offshore and onshore exploration, appraisal,
production in 2019. We also have activities in mature fields
development, production and incorporation of oil and
in shallow waters and onshore, as well as outside Brazil as
natural gas reserves, producing oil and natural gas in a safe
detailed below in this annual report. Brazilian exploration and
and profitable way.
production assets represent 92% of our worldwide blocks
and fields, 98% of our global oil production and
99% of our oil and natural gas reserves.
FOZ DO AMAZONAS
RORAIMA
AMAPÁ
PARÁ-MARANHÃO
Considering exclusively our
rights, we can explore and
produce oil and gas in Brazil
in an area of 59,363 km².
SOLIMÕES/AMAZONAS
CEARÁ
AMAZONAS
PARÁ
MARANHÃO
CEARÁ
RIO GRANDE
DO NORTE
POTIGUAR
OFFSHORE
BARREIRINHAS
ONSHORE
21%
of total area
79%
of total area
ACRE
RONDÔNIA
ONSHORE BASINS
OFFSHORE BASINS
TOCANTINS
DF
GÓIAS
MATO GROSSO
MATO GROSSO
DO SUL
PIAUÍ
PARAÍBA
PERNAMBUCO
ALAGOAS
SERGIPE
SERGIPE-
ALAGOAS
RECÔNCAVO
CAMAMU
BAHIA
ALMADA
JEQUITINHONHA
MINAS
GERAIS
ESPÍRITO
SANTO
ESPÍRITO SANTO
CAMPOS
SÃO PAULO
PARANÁ
PARANÁ
SANTA
CATARINA
RIO DE
JANEIRO
SANTOS
RIO GRANDE
DO SUL
PELOTAS
59,363
km2
72%
areas to be developed
[In exploratory and development phase]
28%
developed areas
We have 430 assets in exploration and production including 132 joint ventures with other oil and gas companies. From the
430 blocks and fields, 406 are under the concession regime, 14 are Production Sharing Agreements and 10 are regulated
by Transfer of Rights Agreements.
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107
Exploration and Production assets
(Number of assets)
117
313
39
52
26
259
28
26
Exploratory Assets
Production Assets
IN PARTNERSHIP (Operated by partners)
IN PARTNERSHIP (Operated by Petrobras)
100% PETROBRAS
Like most major oil and gas companies, we operate in
CNOOC 10%), Berbigão, Sururu and Atapu (all with Petrobras
partnerships using E&P consortia in the exploration
42.5%, Shell 25%, Total 22.5% and Petrogal 10%).
of blocks and the production of oil fields in Brazil, mainly in
ultra-deepwaters.
We lead and operate E&P consortia that are responsible
for some major projects under development, such as Mero
(Petrobras 40%, Shell 20%, Total 20%, CNODC 10% and
These E&P consortia also comprise some of the biggest
production fields in Brazil, such as Lula (Petrobras 65%, Shell
25%, Petrogal 10%), Sapinhoá (Petrobras 45%, Shell 30%,
Repsol Sinopec 25%), Roncador (Petrobras 75%, Equinor
25%) and Tartaruga Verde (Petrobras 50%, Petronas 50%).
We also operate these fields which are under the concession
regime in the Pre-salt Polygon area.
CONCESSION
TRANSFER OF RIGHTS
PRODUCTION SHARING
AREAS ACQUIRED IN 2019
Pre-salt Polygon
The pre-salt polygon occupies
an area of 150 thousand km²,
of which we have exploration
and production rights on 16%
of the total area, or 24 thousand
km² (gross area). In this region,
new exploratory areas can
only be granted in the
production-sharing regime.
CAMPOS BASIN
SANTOS BASIN
BÚZIOS
MERO
LULA
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CAMPOS
BASIN
100 thousand km2
43
1971
Jubarte, Roncador,
Marlim, Marlim Sul
and Marlim Leste
OIL
PRODUCTION
IN 2019:
899 mbbl/d
Pre-salt: 188 mbbl/d
Post-salt: 711 mbbl/d
The Campos Basin is one of Brazil’s main and most prolific oil and gas offshore basins. Its first oil production
occurred in the 70’s and although in decline, we have been able to mitigate the natural decline in mature fields of
Campos Basin by drilling in-fill wells and installing new production systems.
Most of our production in the Campos Basin is from post-salt reservoirs. Pre-salt reservoirs in the Campos Basin,
however, are a growing source of production. We first began pre-salt oil production in 2008 in
the Jubarte field.
SANTOS
BASIN
350 thousand km2
21
1970
Lula, Búzios,
Sapinhoá and Mero
OIL
PRODUCTION
IN 2019:
1,121 mbbl/d
Pre-salt: 1,088 mbbl/d
Post-salt: 33 mbbl/d
We believe the Santos Basin is one of the most promising offshore exploration sites in the world, containing the
southern and most prolific part of the pre-salt province. Our pre-salt activities in the Santos Basin began with the
acquisition of blocks in 2000.
We currently have 17 pre-salt production units in the Santos Basin. With these units, we have been increasing the
pre-salt oil production in the Santos Basin since its first oil production, in 2009.
TOTAL AREA START OF EXPLORATION ACTIVITIES OPERATED PLATFORMS IN PRODUCTION (2019) MAIN FIELDS
Other Basins
South America
We produce oil and gas and hold exploration acreage in
We conduct exploration and production activities in
17 other basins in Brazil. The most significant potential
Argentina, Bolivia and Colombia.
for exploratory success within our other basins are the
Equatorial Margin and East Margin.
International
Outside Brazil, we have activies in South America, North
America and West Africa. We have focused on opportunities
to leverage the deepwater expertise we have developed
In Argentina, through our subsidiary Petrobras
Operaciones S.A., we have a 33.6% working interest in the
Rio Neuquén production asset. Our unconventional gas and
condensate production is concentrated in the
Neuquén Basin. In 2019, our production of oil and gas in
Argentina, including NGL, was 7.7 mboed.
in Brazil. However, since 2012 we have been substantially
In Bolivia, our gas and condensate production comes,
reducing our international activities through the sale of
among others, mostly from the San Alberto and San Antonio
assets in accordance with our portfolio management.
fields with 35% working interest on each of those service
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operation contracts, which are operated mainly to supply gas
West Africa
to Brazil and Bolivia. In 2019, our production of oil and gas in
Bolivia, including NGL, was 27.5 mboed. The return of those
contracts is a proportion of the production.
We used to explore oil and gas opportunities in West Africa
exclusively through our 50% equity interest in Petrobras
Oil & Gas B.V. (“PO&G”), a joint venture with BTG Pactual.
In Colombia, we operate and hold a 44.44% working interest
The assets of this joint venture included the Agbami,
in the Tayrona offshore exploration block, which includes the
Akpo, and Egina fields, and the Preowei and Egina South
Orca gas discovery. We also operate and hold a 50% working
discoveries appraisal projects in Nigeria. In 2019, our
interest in the Villarica Norte onshore exploration block.
50% participation represents a production of 33.6 mboed,
North America
including NGL.
In the United States, we focus on deepwater fields in
the Gulf of Mexico, where we have non-consolidated
production from the 20% participation of Petrobras America
Inc. (“PAI”) in the joint venture with Murphy Exploration &
Production Company (“Murphy”), the MPGOM LLC. The
main contributors to the production are the Chinook, Saint
On October 31, 2018, our subsidiary Petrobras International
Braspetro BV (”PIBBV”) signed a sale and purchase
agreement for the sale of its 50% equity interest in PO&G
with Petrovida Holding B.V. (“Petrovida”). Petrovida is owned
by Africa Oil Corp. The transaction closed on
January 14, 2020.
Malo and Dalmatian fields. In 2019, our 20% participation
For more information on our divestments, see “Portfolio
represents a production of 13.5 mboed, including NGL.
Management” in this annual report.
In Mexico, we were party to the non-risk service contracts
through our joint venture with PTD Servicios Multiplos SRL
for the Cuervito and Fronterizo blocks in the Burgos Basin.
This was terminated in March 2019.
Main
Assets
Exploration and Production
2019
2018
2017
Production wells (oil and natural gas)(1)
6,587
7,256
7,888
Floating rigs
Operated platforms in production(2)
16
107
16
113
30
114
(1) Includes information from outside Brazil, corresponding to our shares in affiliated companies.
(2) Includes only definitive production systems, EWT and EPS units.
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Exploration
Exploration
Production
The oil and gas industry value chain begins in the exploratory phase, with the acquisition of exploratory blocks either through
bid rounds conducted by governments or by purchases from other companies.
In Brazil, the Brazilian federal government owns the oil deposits, but companies and consortia are allowed to extract
and explore such oil upon payment in several forms, such as royalties. Forms of payment vary depending on the applied
regulatory model. Biddings rounds are the main process for the acquisition of rights over the exploratory blocks.
There are currently three regulatory models in Brazil: Concession Agreements; Transfer of Rights Agreements and Production
Sharing Agreements. The concession model fully governed the oil and natural gas exploration and production until 2010,
when the Brazilian federal government enacted laws establishing Transfer of Rights Agreements and Production Sharing
Regimes in the Pre-salt Polygon. Currently, our main production fields follow the concession regime. However, our production
fields under the Transfer of Rights Agreement and Production Sharing Regime will represent an important part of our
production in the medium and long term.
Projected production by regulatory regime
(2020-2024 Strategic Plan)
1%
22%
77%
2020
2024
15%
19%
66%
PRODUCTION SHARING
TRANSFER OF RIGHTS
CONCESSION
For information on the regulatory models applicable to our exploration and production activities, see “Legal and Tax”
in this annual report.
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The Transfer
of Rights
Agreement
Amendment
The Transfer of Rights Agreement signed in 2010 between us and the Brazilian federal government
is governed by Law No. 12,276/2010. This agreement regulates the transfer of oil and natural gas
exploration and production rights in specific pre-salt areas and establishes provisions such as:
❚ Volume that can be extracted in these areas, up to five billion barrels of oil equivalent;
❚ Price paid for the Transfer of Rights Agreement;
❚ Term of the Transfer of Rights Agreement and percentage of local content; and
❚ Provisions that define a later revision on the following items: value, maximum volume, term and
percentage of local content.
As a counterpart to the right of exploration and production, we paid the Brazilian federal
government R$74.8 billion (US$42.5 billion as of September 1, 2010).
The Transfer of Rights Agreement defined that the revision of its clauses of value, maximum volume
to be produced by area, the term of validity and minimum percentages of local content could occur
after the first declaration of an area’s commercial feasibility. We have already declared commercial
feasibility in fields of all six blocks provided for in the 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).
We acquired a significant volume of information through the drilling of more than 50 wells and
long-term production tests and also have extensive knowledge of the Santos Basin pre-salt layer.
This allowed us to characterize the existence of volumes exceeding five billion equivalent oil barrels
originally contracted (“surplus volume”).
We formed an internal committee, composed of the two directors elected by the minority
shareholders, and by an independent external member with notable knowledge in the area
of technical and financial analysis of investment projects. The committee was responsible for
negotiating the review of the Transfer of Rights Agreement with representatives of the Brazilian
federal government.
In November 2019, we signed an amendment to the Transfer of Rights Agreement with the Brazilian
federal government. Under this amendment, we maintain the total contracted volume of five billion
barrels of oil equivalent, guarantee the reimbursement of US$8.3 billion, and adopt revised local
content requirements. In December 2019, we received the amount owed to us by the Brazilian
federal government.
For more information on the Transfer of Rights Agreement, see “Legal and Tax” in this annual report.
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Bid
rounds
We acted selectively in the bidding rounds carried out by the ANP, aiming to reorganize our
exploratory portfolio and maintain the relationship between our reserves and our production
in order to ensure the sustainability of our future oil and gas production. Our joint operation
with important companies in consortia is also aligned with our strategic goal to strengthen
partnerships, with the intent to share risks, combine technical and technological skills and capture
synergies to leverage results and reflect the importance of these areas in Brazil for world-class oil
companies.
In September and October 2017, we acquired 10 new exploratory blocks (nine offshore and
one onshore), with a total area of 11.4 thousand km2. In the offshore blocks outside the
Pre-salt Polygon, contracted under the concession regime, we hold 50% of the working interest in
partnerships with ExxonMobil. Under the Production Sharing Agreements, we acquired three blocks
inside the pre-salt area, in partnership with Shell, Repsol Sinopec, CNODC and BP.
In 2018, we acquired 11 new offshore exploratory blocks, with a total area of 8.8 thousand km2.
In the Pre-salt Polygon, we acquired four areas under the production sharing regime, in
partnerships with Chevron, Shell, Equinor, ExxonMobil, BP and Galp. In the Campos Basin, we
acquired four blocks outside of the Pre-salt Polygon, under the concession regime, in partnerships
with ExxonMobil, Qatar Petroleum and Equinor. We also acquired three blocks in
the Potiguar Basin, two of them in partnership with Shell.
In 2019, the ANP held three bidding rounds for exploratory blocks in Brazil.
The table below summarizes the areas acquired by us in each bidding round.
ESPÍRITO SANTO
RIO DE JANEIRO
SÃO PAULO
C-M-477
BÚZIOS
ITAPU
ARAM
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Round
Asset
Consortium
16th Round
Concession
Transfer of Rights
Surplus Production
Sharing Bidding
Round
C-M-477
BÚZIOS
Petrobras(1) 70%
BP 30%
Petrobras(1) 90%
CNOOC 5%
CNODC 5%
ITAPU
Petrobras 100%
1,766
6th Round
Production Sharing
ARAM
Petrobras(1) 80%
CNODC 20%
4,040
(1) Operator
(2) Using an exchange rate of R$ 4.1158 per USD for 4Q19
Bonus
R$ million
Bonus
USD Million(2)
Profit Oil
%
Area Acquired
km2
1,432
348
n/a
1,363
61,375
14,912
23.24
n/a
429
982
18.15
29.96
n/a
4,476
Búzios and
Itapu fields
The Búzios field started production in April 2018 and has already produced around 100 million
boe. The Búzios field is the largest discovered deepwater field in the world. It has light oil and
high productivity wells.
The Búzios field is an asset with significant reserves and low lifting costs. It is economically
resilient to a low oil price scenario.
In 2019, we acquired the exploration and production rights of the surplus volume of the Búzios
field from the Transfer of Rights Agreement, in a partnership with CNODC Brasil Petróleo e Gás
Ltda. (5%) and CNOOC Petroleum Brasil Ltda. (5%). This acquisition is consistent with the strategy
of focusing our investments on world class assets. New units will be installed in the field to
produce the surplus volume of the Transfer of Rights Agreement. The number and capacity of the
new units will be established with the formalization of the co-participation agreement between the
consortium participants. The co-participation agreement must be signed until September2021,
but we have the agreement with CNODC and CNOOC to conclude it until December 2020. The
Chinese partners in the consortium have the right to acquire more 5% of participation, or, if the
agreement has not been signed by Pré-Sal Petróleo S.A. (“PPSA”) until September 2021, they have
the right to leave the consortium.
Additionally, we acquired 100% of the exploration and production rights of Itapu field’s surplus
volume. In July 2019 we started the procurement process of the production unit, which will now
be responsible for production under the Transfer of Rights Agreement and production of the
surplus volumes. The full acquisition of the area is extremely attractive economically, given the low
additional investments and the bid conditions.
The bidding round results help us ensure the maintenance of the operation in these fields, which
enhance our global leadership in ultra-deepwaters. This is consistent with our strategy of focusing
on the exploration and production of world-class offshore assets.
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As of December 31, 2019, we had 117 exploratory blocks (39 with 100% working interest) which had 22 discoveries under
evaluation. We also had five discoveries being assessed in production areas. We serve as the operator
in 52 of these exploration partnership blocks.
The table below breaks down our participation in exploration activities in 2019:
Our participation in exploration activities in 2019
Net exploratory area
(km²)
Exploratory blocks
(number)
Evaluation plans
(number)
Wells drilled
(number)
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
Brazil
40,625
51,600
41,820
113
133
123
24
26
28
Other S. America
6,081
6,081
5,425
0
0
0
0
198
0
4
0
0
4
0
0
2
10
0
1
0
2
1
0
2
1
0
2
46,706
57,681
47,443
117
137
135
27
29
31
North America
Africa
TOTAL
8
1
0
0
9
8
0
0
0
8
8
1
0
0
9
These investments mainly cover the costs of drilling, seismic
implementation time of our projects, with the ambition
surveys and acquisition of blocks, which contributed to the
to reach 1,000 days between field discovery and the
following endeavors.
In 2019, two exploratory wells were drilled in the Moita Bonita
Appraisal plan area, Sergipe Basin. These wells confirmed
Campanian oil and gas-bearing reservoirs extensions.
A Drilling Stem Test (“DST”) in the gas-bearing accumulation
has shown encouraging results regarding reservoir
continuity and productivity.
An exploratory well was drilled in 2019 in Marlim Leste,
Campos Basin. This well confirmed the Aptian pre-salt oil
reservoirs extensions discovered. Future extended well
testing at the discovery site is intended to provide better
measurements to guarantee the project’s economic viability
and future resources incorporation.
In order to achieve greater return on invested capital,
while always prioritizing safety, the speed at which our new
projects are implemented is key. Thus, we have a strategic
program (PROD1000) with the objective of reducing the
beginning of production, compared to current average for
pre-salts of 3,000 days. Our efforts in such program are
related to the integration of exploration and production
development teams, the optimization of reservoir processes,
the standardization of FPSO design, the early supplier
engagement, the reduction of the construction time, and
the optimization of processes through the use of digital
technologies and agile methods. In addition, we are also
implementing a strategic program (EXP100) that has the
ambition to increase the chance of discovering oil to 100%
in exploratory wells, reducing project risks and costs by
expediting production development. This program aims
to better evaluate the prediction of geological properties
through the use of an integrated upstream data platform
and high performance computing capacity, that enables the
application of more complex algorithms in the processing of
large volumes of data.
50
OUR BUSINESSANNUAL REPORT AND FORM 20-F 2019 EXPLORATION AND PRODUCTION
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Production
Exploration
Production
Production Development
After a field is declared commercially viable, the process of
production development begins. The investments made in
July, the P-75 reached its production capacity in 8.6 months;
in October, the P-76 reached its full capacity in only 7.7
months.
this phase are mainly focused on designing and contracting
We have installed eight new systems since 2018, including
production systems, which includes platforms, subsea
systems, drilling, and the completion of wells.
In the last three years, we have installed several major
systems, mainly in the pre-salt area of the Santos Basin,
which helped to mitigate the Santos Basin’s natural decline.
In 2019, we started four new production systems: (i) the P-76
and P-77 platforms, located in the Búzios field; (ii) the P-67
platform, located in the Lula field; and (iii) the P-68, located
the systems that were implemented in 2019. In total, we have
installed 10 new systems throughout the last three years,
and expect to install other systems in the next five years.
Currently, we own 89 and lease 18 offshore platforms.
Besides those, there are three platforms on fields operated
by our partners. In 2019, these 110 platforms had a daily
production of 2.09 million barrels of oil and 380.4 million
cubic feet of natural gas (discounting the liquefied volume).
in the Berbigão and Sururu fields. Those new systems
Pre-salt and the fields under the transfer of rights fiscal
connected 19 new wells (13 production and six injection
regime will be particularly important to support our
wells) in our production systems. We expect several major
production growth.
systems to be installed in the next five years.
In 2020, the P-70 platform will be installed in the Atapu field.
Over the last nine years, we pursued substantial cost
The P-70 platform has the capacity to process 150 mbbl/d
optimizations regarding project development. Time to
and 6 million m3 of natural gas per day and arrived in Brazil,
drill and complete wells in the Santos Basin pre-salt area
Rio de Janeiro on January 2020. A dry tow was used to
decreased by 63% in 2019 when compared to 2010. In
transport the unit from China to Rio de Janeiro. It was loaded
2019, we spent an average of 116 days in the drilling and
on a semi-submersible vessel used to transport heavy
completion of a pre-salt well on the Santos Basin. This
cargo instead of being driven by ocean tugs. Due to this
helped to significantly reduce our capital expenditures per
transportation method, we were able to reduce the average
well. Due to the wells’ high productivity, we have been able to
transportation time from 100 days to around 45 days.
complete the ramp-up of the platforms with fewer wells.
Time is an extremely important variable for the return of a
In the Búzios field, we hit a production record with 63 mbbl/d
from a single well connected to the P-75 platform. The
project, which highlights the contribution of the decrease in
transportation time obtained through the use
Búzios field’s greater productivity made the P-75 and P-76
of dry tow.
complete their ramp-up with just three wells each. This
As for the production sharing contracts areas, we expect to
productivity plus the reduction on FPSO commissioning time
install the first definitive system in the Mero field in 2021.
allowed us to beat our ramp-up time record twice in 2019. In
51
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Installed Systems since 2010
Start up
(year)
Basin
Field/Area
Production
unit
Crude oil
nominal
capacity
(bbl/d)
Gas
nominal
capacity
(mmcf/d)
Water
depth
(meters)
Fiscal
regime
Main
production
source
Type
Santos
Berbigão
Petrobras 68
150,000
211.9
2,280
Concession
Pre-Salt
FPSO
2019
2018
2017
2016
Santos
Búzios 4
Petrobras 77
150,000
247
2,000
Transfer of Rights
Pre-Salt
FPSO
Santos
Búzios 3
Petrobras 76
150,000
247
2,030
Transfer of Rights
Pre-Salt
FPSO
Santos
Lula Norte
Petrobras 67
150,000
211.9
2,130
Concession
Pre-Salt
FPSO
Campos
Tartaruga Verde
Cid. de Campos
dos Goytacazes
150,000
117
765
Concession
Post-Salt
FPSO
Santos
Lula Extremo Sul
Petrobras 69
150,000
211.9
2,200
Concession
Pre-Salt
FPSO
Santos
Búzios 1
Petrobras 74
150,000
247
2,005
Transfer of Rights
Pre-Salt
FPSO
Santos
Búzios 2
Petrobras 75
150,000
247
2,010
Transfer of Rights
Pre-Salt
FPSO
Santos
Lula Sul
Petrobras 66
150,000
211.9
2,100
Concession
Pre-Salt
FPSO
Santos
Mero
Pioneiro de Libra
50,000
141.3
2,040
Production Sharing
Pre-Salt
FPSO
Santos
Lula Central
Santos
Lula Alto
2015
Santos
Lula
Santos
Sapinhoá
2014
Santos
Lula
Cidade de
Saquarema
Cidade de
Maricá
Cidade de
Itaguaí
Cidade de
Ilhabela
Cidade de
Mangaratiba
150,000
211.9
2,100
Concession
Pre-Salt
FPSO
150,000
211.9
2,100
Concession
Pre-Salt
FPSO
150,000
282.5
2,200
Concession
Pre-salt
FPSO
150,000
211.9
2,140
Concession
Pre-salt
FPSO
150,000
282.5
2,220
Concession
Pre-salt
FPSO
Campos
Roncador
Petrobras 62
180,000
211.9
1,600
Concession
Post-salt
FPSO
Campos
Jubarte
Petrobras 58
180,000
211.9
1,400
Concession
Pre-salt
FPSO
Campos
Roncador
Petrobras 55
180,000
141.3
1,795
Concession
Post-salt
SS
Campos
Papa-Terra
Petrobras 63
145,000
35.3
1,200
Concession
Post-salt
FPSO
2013
Santos
Lula
Cidade de Paraty
120,000
176.6
2,140
Concession
Pre-salt
FPSO
Santos
Baúna
Cidade de Itajai
80,000
70.6
275
Concession
Post-salt
FPSO
Santos
Sapinhoá
Cidade de
São Paulo
150,000
176.6
2,140
Concession
Pre-salt
FPSO
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
2012
Campos
Jubarte
Cidade de
Anchieta
100,000
123.6
1,220
Concession
Pre-salt
FPSO
Campos Marlim Sul
Petrobras 56
140,000
211.9
1,700
Concession
Post-salt
SS
2011
2010
Santos
Mexilhão
Mexilhão
20,000
529.7
170
Concession
Post-salt
Fixed
Campos
Jubarte
Petrobras 57
180,000
70.6
1,260
Concession
Post-salt
FPSO
Santos
Lula
Santos
Uruguá /Tambaú
Cidade de
Angra dos Reis
Cidade de
Santos
100,000
176.6
2,150
Concession
Pre-salt
FPSO
25,000
353.1
1,300
Concession
Post-salt
FPSO
Campos
Jubarte
Capixaba
110,000
113.0
1,300
Concession
Post-salt
FPSO
Main Systems to be installed until 2024
Start up
(year)
Expected
2020
Expected
2021
Expected
2022
Expected
2023
Expected
2024
Basin
Field/Area
Production
unit
Crude oil
nominal
capacity
(bbl/d)
Gas
nominal
capacity
(mmcf/d)
Water
depth
(meters)
Fiscal
regime
Main
production
source
Type
Santos
Atapu 1
Petrobras 70
150,000
211.9
2,300
Transfer of Rights
Pre-Salt
FPSO
Santos
Sépia
Carioca
180,000
211.9
2,150
Transfer of Rights
Pre-Salt
FPSO
Santos
Mero 1
Guanabara
180,000
423.8
2,100
Production Sharing
Pre-Salt
FPSO
Campos Marlim 1
Anita Garibaldi
80,000
51.2
670
Concession
Post-Salt
FPSO
Santos
Búzios 5
Alm. Barroso
150,000
211.9
2,100
Transfer of Rights
Pre-Salt
FPSO
Santos
Lula (Lula Recovery
Factor Project)
N/D
150,000
211.9
2,000
Concession
Pre-Salt
FPSO
Campos
Parque das Baleias
N/D
100,000
176.6
1,400
Concession
Pre-Salt
FPSO
Santos
Mero 2
Sepetiba
180,000
423.8
2,000
Production Sharing
Pre-Salt
FPSO
Campos Marlim 2
Anna Nery
70,000
33.2
927
Concession
Post-Salt
FPSO
Santos
Búzios 6(1)
Santos
Mero 3
Sergipe
Alagoas
SEAP
Santos
Itapu
N/D
N/D
N/D
N/D
150,000
254.3
2,025
Transfer of Rights/
Production Sharing
Pre-Salt
FPSO
180,000
423.8
2,070
Production Sharing
Pre-Salt
FPSO
120,000
353.1
2,250
Concession
Deepwater FPSO
120,000
106
2,010
Transfer of Rights/
Production Sharing
Pre-Salt
FPSO
(1) Regarding the production system to be installed in the Module 7 area of the Búzios field.
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Critical Resources in Exploration
and Production
We seek to procure, develop and retain all of the critical
resources that are necessary to meet our production targets.
Drilling rigs and special vessels are important resources for
our exploration and production operations, and are centrally
coordinated to assure both technical specifications and
proper lead time.
Since 2008, we have grown from three rigs capable of drilling
in waters with depth greater than 2,000 meters (6,560 feet)
to 15 rigs with this capacity as of December 31, 2019.
We have sufficient rigs to meet our production targets, and
we will continue to evaluate our drilling and special vessels
demands and will adjust our fleet size as needed.
Drilling units in use by exploration and production as of December 31,
2019
2018
2017
Leased
Owned
Leased
Owned
Leased
Owned
Brazil
Onshore
Offshore, by water depth (WD)
Jack-up rigs
Floating rigs:
500 to 999 meters WD
1000 to 1999 meters WD
2000 to 3200 meters WD
Outside Brazil
Onshore
Offshore
Worldwide
18
2
16
0
16
0
1
15
1
1
0
19
0
0
0
0
0
0
0
0
0
0
0
0
17
1
16
0
16
1
2
13
1
1
0
18
4
3
1
0
1
0
0
1
0
0
0
4
29
1
28
0
28
1
3
24
4
3
1
33
7
4
3
2
1
0
1
0
0
0
0
7
In order to achieve our production goals, we have also secured a number of specialized vessels (such as Pipe Laying Support
Vessels or “PLSVs”) to connect wells to production systems. As of December 31, 2019, we had 13 PLSVs and our specialized
vessels were sufficient to meet our needs.
Production
After several years of stagnation, our operating
performance has improved significantly, reaching daily,
quarterly and annual oil and gas production records.
In 2019, our total production of oil and gas, including NGL,
was 2.77 mmboed, of which 2.69 mmboed were produced
in Brazil and 82.3 mboed were produced abroad, a 5.4%
increase compared to 2018. This production growth was due
to the ramp-up of the eight new systems in Búzios
(P-74, P-75, P-76 and P-77), Lula (P-67 and P-69),
Berbigão/Sururu (P-68) and Tartaruga Verde (FPSO
Campos dos Goytacazes) fields.
Our 2019 operating performance reflected better results in
the second half, leveraged by the ramp-up of new production
systems, compensating for the challenges faced during the
first half. The oil production in Brazil was 2.17 million bbl/d,
6.7% above production achieved in 2018, exceeding the
revised target in July (2.1 million bbl/d). The oil production
represented 81% of the average of 2.69 mmboed oil and gas
produced in Brazil.
Our production in the pre-salt layer reached 1.28 million
bbl/d in 2019, representing an increase of 28.4% in relation
to our production in 2018. In 2019, the oil production in the
pre-salt layer represented more than half of our total oil
production in Brazil,59% compared to 49% in 2018.
54
OUR BUSINESSANNUAL REPORT AND FORM 20-F 2019
EXPLORATION AND PRODUCTION
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
2019
2019
2,688
2,688
2,172
2,172
124124
6666
704704
1,277
1,277
516516
8282
2,770
2,770
2018
2018
2,527
2,527
2,035
2,035
135135
9090
816816
994994
492492
101101
2017
2017
2,654
2,654
2,154
2,154
150150
118118
977977
908908
500500
112112
2,628
2,628
2,767
2,767
2019 vs 2018
2019 vs 2018
6.4%6.4%
6.7%6.7%
-8.1%-8.1%
-26.7%
-26.7%
-13.7%
-13.7%
28.5%28.5%
4.9%4.9%
-18.8%
-18.8%
5.4%5.4%
Oil and gas production (mboed)
Crude oil and natural gas - Brazil
Crude oil and natural gas - Brazil
Crude oil (mbbl/d)(1)(1)
Crude oil (mbbl/d)
Onshore
Onshore
Shallow waters
Shallow waters
Post-salt deep and ultra-deepwaters
Post-salt deep and ultra-deepwaters
Pre-salt
Pre-salt
Natural gas (mboed)
Natural gas (mboed)
Crude oil and natural gas -Abroad
Crude oil and natural gas -Abroad
Total
Total
(1) Including NGL
Pre-salt oil production increased 28.5%, reflecting higher
of the production cycle of platforms P-33 and P-37
production in the Búzios and Lula fields. The pre-salt area
(which will be replaced by new units for the Marlim field
is comprised of large accumulations of light oil, of excellent
revitalization project) and (ii) the postponement of new wells
quality and with high commercial value.
on platforms that need adjustments in discharged water
The post-salt oil production, in deep and ultra-deepwaters,
processing plants.
decreased by 13.7%. This was due to (i) the closure
55
OUR BUSINESSANNUAL REPORT AND FORM 20-F 2019 FORM-20
2019
OUR BUSINESS
Main production fields
Basin
Santos
Field
Lula
Main
source
Pre-salt
Santos
Búzios
Pre-salt
Santos
Sapinhoá
Pre-salt
Campos
Jubarte
Pre-salt
Campos
Roncador
Post-salt
Campos
Marlim Sul
Post-salt
Campos
Tartaruga Verde
Post-salt
Campos
Marlim
Post-salt
Campos
Marlim Leste
Post-salt
Other pre and post-salt fields
Onshore
Shallow waters
TOTAL
(1) Including operations in 2019.
EXPLORATION AND PRODUCTION
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107
Production units
Owned
Capacity
(mbbl/d)
Leased
Capacity
(mbbl/d)
Consortium
API gravity
Sulphur content
(% wt)
2019 oil
production
(mbbl/d)
1 unit with 100
1 unit with 120
4 units with 150
Petrobras (65%),
Shell (25%),
Petrogal (10%)
-
Petrobras (100%)(1)
Petrobras (45%),
Shell (30%),
Repsol Sinopec (25%)
28 – 32
0.29 – 0.38
28.4
29.8
0.31
0.4
2 units with 150
1 unit with 100
1 unit with 110
-
-
Petrobras (100%)
17 – 30
0.29 – 0.56
Petrobras (75%),
Equinor (25%)
17 – 28
0.53 – 0.74
Petrobras (100%)
17 – 23
0.59 – 0.73
1 unit with 150
Petrobras (100%)(1)
26.9
0.61
-
Petrobras (100%)
19 – 23
0.68 – 0.77
1 unit with 100
Petrobras (100%)
23 – 29
0.50 – 0.51
615
252
106
205
121
135
94
75
55
324
124
66
2,172
3
4
-
2
4
3
-
7
1
3 units with 150
4 units with 150
-
2 units with 180
3 units with 180
1 unit with 190
1 unit with 140
1 unit with 180
1 unit with 200
-
1 unit with 50
1 unit with 75
4 units with 100
1 unit with 180
1 unit with 180
6
-
2
2
-
-
1
-
1
56
EXPLORATION AND PRODUCTION
REFINING, TRANSPORTATION AND MARKETING
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Shallow waters oil production decreased by 24 mbbl/d due to the divestment of Polo Pargo, the maintenance
stop of the PNA-2 platform and the end of the PNA-1 production. Onshore oil production decreased
11 mbbl/d due to the natural decline in reservoir.
We have produced 91.8 million m3/d of gas in 2019. From that volume, we have used 49 million m3/d in
our production processes (reinjected, flared, consumed), and destinated 42.8 million m3/d to our
processing plants.
In 2019, our average lifting cost excluding government fees was US$9.5 per boe, 11% less than the average
cost of US$10.7 per boe in 2018.
PRODUCTION
2019
AVERAGE OIL
AND GAS
PRODUCTION
IN PRE-SALT
1.54
million boed
AVERAGE OIL
PRODUCTION
IN PRE-SALT
1.28
million bbl/d
GAS UTILIZATION
INDEX
96
%
RECORD MONTHLY
PRODUCTION
OF OIL AND
NATURAL GAS
3.1
million boed
(November/2019)
We also carry out limited oil shale mining operations in São Mateus do Sul, in the Paraná Basin of Brazil,
and convert the kerogen (solid organic matter) from these deposits into synthetic oil and gas. This operation
is conducted in an integrated facility and its final products are fuel gas, liquefied petroleum gas (“LPG”), shale
naphtha and shale fuel oil. Our business units in Brazil do not utilize the fracking method or the hydraulic
fracturing method for oil production, since they are not appropriate in the context of our operations. Also, we
do not inject any water or chemicals in the soil in connection with our open pit oil shale mining operations.
Our process consists of crushing, screening and subsequently heating all the shale at high temperatures
(pyrolysis) and we have in place a proper segregation process for the by-products derived from such process.
For more information on our production of crude oil, natural gas, synthetic oil and synthetic gas by geographic
area in 2019, 2018 and 2017, see Exhibit 15.3 to this annual report.
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107
Customers and Competitors
Crude oil is primarily sold through long-term contracts and also in the spot market. Our overseas portfolio includes
approximately 60 clients, such as refiners that process or have processed Brazilian oils regularly, distributed throughout the
Americas, Europe, China, and Asia.
Oil clients (% vol)
4,6
9,2
15,4
70,8
CHINA
AMERICAS
EUROPE
ASIA (OTHERS)
In the exploration and production industry, we deal with several competitors when we participate in bidding rounds
conducted by the ANP.
Reserves
Preparation
of reserves
estimates
We apply SEC rules [Rule 4-10(a) of Regulation S-X] for estimating and disclosing oil and natural
gas reserve quantities included in this annual report. In accordance with those rules, we estimate
reserve volumes by considering 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, except for the reserves of the Amazon fields for which volumes are estimated
using gas prices as set forth in our contractual arrangements for the sale of gas. Reserve volumes
of non-traditional reserves such as synthetic oil and gas are also included in this annual report in
accordance with SEC rules.
We estimate reserves based on forecasts of field production, which depends on an array of technical
information, such as seismic surveys, well logs and tests, rock and fluid samples, and geoscience,
engineering and economic data. All reserve estimates involve some degree of uncertainty. The
uncertainty depends primarily on the amount of reliable geological and engineering data available
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107
at the time of the estimate and the interpretation of that data. Our estimates are thus made using
the most reliable data and technology at the time of the estimate, in accordance with the best
practices in the oil and gas industry and SEC rules and regulations.
Thus, the reserve estimation process begins with an initial evaluation of our assets by
geophysicists, geologists and engineers. Reserves coordinators in each business unit in Brazil
and the corporate reserves team provide guidance for reserves estimates in compliance with SEC
requirements to the asset teams. General managers in our business units in Brazil and executive
officers of companies outside Brazil where we have interests are responsible for regional reserves
estimates in compliance with SEC requirements. The corporate reserves team is responsible
for consolidating our reserves estimates, standardized measures of discounted net cash flows
related to proved oil and gas reserves and other information related to proved oil and gas
reserves. Our reserves estimates are approved by our Board of Executive Officers, which then
informs our Board of Directors about the approval. The technical person primarily responsible for
overseeing the preparation of our reserves is the manager of the corporate reserves team, who
has a degree in engineering and 17 years of experience in the oil and gas industry.
DeGolyer and MacNaughton (“D&M”) conducted a reserves evaluation of 97% of our net proved
crude oil, condensate and natural gas reserves as of December 31, 2019 in Brazil. The amount
of reserves reviewed by D&M corresponds to 96% of our total proved reserves company-wide
on a net equivalent barrel basis. For disclosure describing the qualification of D&M’s technical
person primarily responsible for overseeing our reserves evaluation, see Exhibit 99.1 to this
annual report.
For a description of the risks relating to our reserves and our reserve estimates, see “Risks” in
this annual report.
We discover new areas through exploratory activity.
Such areas constitute our fields after the declaration
of commerciality. We then prepare a development plan
for each field. As projects achieve adequate maturity,
proved reserves may be reported.
Our fields’ proved reserves can be later increased
with additional drilling, operational optimizations and
improved recovery methods, such as water injection,
among other activities.
Our net proved oil, condensate and natural gas reserves
as of December 31, 2019 were estimated at
9,590 million boe.
Proved reserves (million boe)*
9,752
9,606
9,590
216
1,281
133
1,299
8,255
8,174
101
1,399
8,091
2017
2018
2019
OIL AND CONDENSATE (BRAZIL)
NATURAL GAS (BRAZIL)
OIL, CONDENSATE AND NATURAL GAS (ABROAD)
* Apparent differences in the sum of the numbers are due to rounding off
59
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PORTFOLIO MANAGEMENT
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107
Oil and gas reserves volumes change yearly. Quantities included in our previous year’s reserves that are produced during
the year are no longer reserves at year-end. Other factors, such as reservoir performance, revisions in oil prices, discoveries,
extensions, purchases and sales of assets that occurred during the year, also influence year-end reserves quantities.
Proved reserves (million boe)(1)
9,606
944
26
9,590
-72
-913
(1) Apparent differences in the sum of the
numbers are due to rounding off.
(2) The 913 million boe production volume
is the net volume withdrawn from our
proved reserves. It therefore excludes NGL,
as we estimate our oil and gas reserves at
a reference point located prior to the gas
processing plants, except for the United
States of America and Argentina. The
production does not consider injected gas
volumes, production of EWTs in exploratory
blocks and production in Bolivia, since
Bolivian reserves are not included in our
reserves due to restrictions determined by
Bolivian Constitution.
Proved
reserves
2018
Production(2)
Revisions
Discoveries
and
extensions
Sales
Proved
reserves
2019
In 2019, we incorporated 944 million boe of proved reserves by revising previous estimates, including:
❚ addition of 529 million boe resulting from technical revisions, mainly due to good performance and increased production
experience in reservoirs in the pre-salt layer of Santos Basin;
❚ addition of 267 million boe related to contractual revisions, including the rearrangement of volumes due to the revision of
Transfer of Rights Agreement and renewals of concession contracts in Brazil;
❚ addition of 243 million boe due to approvals of new projects in the Santos, Campos and Espírito Santo Basins; and
❚ reduction of 95 million boe related to economic revisions, mainly due to the decrease in oil prices.
In addition, we added 26 million boe to our proved reserves due to extensions and discoveries, mainly in the pre-salt of Santos
Basin, and reduced 72 million boe due to sales of proved reserves.
RESERVES
INDEXES
2019
RESERVES
REPLACEMENT
RATIO
(RRR)
98
%
ORGANIC
RESERVES
REPLACEMENT
RATIO
(ORGANIC RRR)
106
%
60
RESERVES TO
PRODUCTION
RATIO
(R/P)
10.5
years
DEVELOPMENT
RATIO
63
%
OUR BUSINESSANNUAL REPORT AND FORM 20-F 2019 EXPLORATION AND PRODUCTION
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65
85
PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Proved Undeveloped Reserves
As of December 31, 2019, our proved undeveloped reserves were estimated at 3,553 million boe, a net decrease of 19% when
compared to 2018 year-end. This decrease is a result of the following changes:
❚ we converted a total of 1,701 million boe of proved undeveloped reserves to proved developed reserves, mainly as a result
of pre-salt fields platforms start-ups in the Santos Basin and offshore and onshore drilling and tieback operations;
❚ we incorporated 867 million boe into our proved undeveloped reserves as a result of revisions to previous estimates,
including: technical revisions (580 million boe), mainly due to the good performance and increased production experience
in the pre-salt layer of the Santos Basin; new project approvals (241 million boe) in the Santos, Campos and Espírito Santo
Basins; contractual revisions (59 million boe); and a reduction of 12 million boe due to economic revisions.
❚ we added 20 million boe to our proved undeveloped reserves due to extensions and discoveries, mainly in the pre-salt of
the Santos Basin; and
❚ we reduced 22 million boe from our proved undeveloped reserves as a result of sales of proved reserves.
Variation in proved undeveloped reserves (million boe)(1)
4,388
867
20
3,553
-22
-1,701
Proved
undeveloped
reserves
2018
Conversion to
Proved
Developed
Revisions
Discoveries
and
extensions
Sales
Proved
undeveloped
reserves
2019
(1) Apparent differences in the sum of the
numbers are due to rounding off.
As of December 31, 2019, 42% (1,489 million boe) of our proved undeveloped reserves have remained undeveloped
for five years or more, mainly due to the inherent complexity of ultra-deepwater development projects in giant fields,
particularly in the Santos and Campos Basins, in which we are investing in the required infrastructure.
In 2019, we invested a total of US$7.0 billion in development projects, of which 98% (US$6.8 billion) was invested in Brazil.
Most of our investments relate to long-term development projects, which are developed in phases due to the large
volumes and extensions involved, the deep and ultra-deepwater infrastructure and the production resources complexity.
In these cases, the full development of the reserves related to these investments can exceed five years.
For further information on our reserves, see the unaudited section “Supplementary Information on Oil and Gas
Exploration and Production” in our audited consolidated financial statements.
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85
PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Oil and Gas Additional Information
The following tables show (i) the number of gross and net productive oil and natural gas wells and (ii) total gross and net
developed and undeveloped oil and natural gas acreage in which we had working interests as of December 31, 2019. A gross
well or acre is a well or acre where we own a working interest, while the number of net wells or acres is the sum of fractional
working interests in gross wells or acres. We do not have any material acreage expiring before 2025.
Gross and net productive wells
As of December 31, 2019
Oil
Natural gas
Synthetic oil
Synthetic gas
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Consolidated subsidiaries
Brazil
International
South America (outside of Brazil)
Total international
Total consolidated
Equity method investees:
South America (outside of Brazil)
North America
Africa
Acreage (in acres)
Consolidated
Brazil
South America (outside of Brazil)
Total consolidated
Equity method investees
Africa
North America
Total equity method investees
5,870
5,841
346
339
55
55
24
24
5,925
5,864
-
42
67
-
5,0
4
197
197
543
-
1
-
96
96
435
-
0,1
-
435
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total gross and net productive wells
6,034
5,874
544
Gross and net developed and undeveloped acreage
As of December 31, 2019
Developed acreage
Undeveloped acreage
Gross
Net
Gross
Net
4,664,280.7
2,304.0
4,666,584.7
35,978.3
23,024.0
59,002.3
4,168,906.0
774.1
4,169,680.1
2,575.3
2,354.6
4,929.9
559,717.3
2,310.0
562,027.3
-
153,336.0
153,336.0
715,363.3
461,612.3
776.2
462,388.5
-
15,067.7
15,067.7
477,456.2
Total gross and net acreage
4,725,587.0
4,174,610.0
For “net” figures, we used our working interest held on December 31, 2019. The division in oil and gas in the acreage table was
not included because, usually, oil and gas are produced from the same acreage. Gross and net developed and undeveloped
acreage presented in this table does not include exploratory areas.
The following table sets forth the number of net productive and dry exploratory and development wells drilled in the last
three years.
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EXPLORATION AND PRODUCTION
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GAS AND POWER
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85
PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Net productive and dry exploratory and development wells
2019
2018
2017
Net productive exploratory wells drilled:
Consolidated subsidiaries:
Brazil
South America (outside of Brazil)
Total consolidated subsidiaries
Equity method investees:
North America(1)
Africa
Total productive exploratory wells drilled
Net dry exploratory wells drilled:
Consolidated subsidiaries:
Brazil
South America (outside of Brazil)
Total consolidated subsidiaries
Equity method investees:
North America(1)
Africa
Total dry exploratory wells drilled
Total number of net exploratory wells drilled
Net productive development wells drilled:
Consolidated subsidiaries:
Brazil
South America (outside of Brazil)
Total consolidated subsidiaries
Equity method investees:
North America(1)
Africa
Total productive development wells drilled
Net dry development wells drilled:
Consolidated subsidiaries:
Brazil
South America (outside of Brazil)
Total consolidated subsidiaries
Equity method investees:
North America(1)
Africa
Total dry development wells drilled
5.5
1.0
6.5
-
-
6.5
1.0
-
1.0
-
-
1.0
7.5
98.3
-
98.3
0.14
0.6
99.04
-
-
-
-
-
-
-
4.0
-
4.0
-
-
4.0
4.0
-
4.0
-
-
4.0
8.0
103.7
3.7
107.4
0.1
0.4
107.9
-
-
-
-
-
-
-
7.0
-
7.0
-
-
7.0
0.4
0.4
0.8
-
-
0.8
7.8
174.8
2.7
177.5
0.6
1.0
179.1
-
-
-
-
-
-
-
Total number of net development wells drilled
99.04
107.9
179.1
(1) Due to the joint venture formed by PAI and Murphy, information regarding proved reserves, acreage and wells in the United States are reported in the “equity
method investees” section. For “net” figures, we used the working interest held as of December 31, 2019.
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85
PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
The following table summarizes the number of wells in the process of being drilled as of December 31, 2019.
Number of wells being drilled as of December 31, 2019
Year-end 2019
Wells Drilling
Consolidated Subsidiaries:
Brazil
International:
South America (outside of Brazil)
North America
Total wells drilling
Gross
7.0
1.0
1.0
9.0
Net
5.45
1.0
0.2
6.65
The following table sets forth our average sales prices and average production costs by geographic area and
by product type for the last three years.
Average sales prices and average production costs (US$)
2019
Average sales prices
Oil and NGL, per barrel
Natural gas, per thousand cubic feet(1)
Synthetic oil, per barrel
Synthetic gas, per thousand cubic feet
Average production costs, per barrel – total
2018
Average sales prices
Oil and NGL, per barrel
Natural gas, per thousand cubic feet(1)
Synthetic oil, per barrel
Synthetic gas, per thousand cubic feet
Average production costs, per barrel – total
2017
Average sales prices
Oil and NGL, per barrel
Natural gas, per thousand cubic feet(1)
Synthetic oil, per barrel
Synthetic gas, per thousand cubic feet
Average production costs, per barrel – total
Brazil
South
America
North
America
61.25
7.72
50.55
3.53
7.05
66.66
7.15
60.04
4.47
10.21
50.48
6.30
42.42
3.97
11.15
36.89
3.65
-
-
4.69
42.44
4.09
-
-
4.57
34.18
3.53
-
-
3.65
-
-
-
-
-
67.21
3.56
-
-
9.75
47.92
3.31
-
-
9.17
Total
61.25
7.55
50.55
3.53
7.02
66.65
7.00
60.04
4.47
10.11
50.42
6.10
42.42
3.97
10.99
Equity method
investees(2)
64.71
2.60
-
-
31.20
72.76
0.76
-
-
31.85
53.87
-
-
-
27.00
(1) The volumes of natural gas used in the calculation of this table are the production volumes of natural gas available for sale and are also shown in the
production table above. Natural gas amounts were converted from bbl to cubic feet in accordance with the following scale: 1 bbl = 6 cubic feet.
(2) Operations in Venezuela until 2016, in Africa until October 2018, and in the United States from December 2018, following the creation of a joint venture with
Murphy, in which our wholly-owned subsidiary PAI has a 20% stake.
For more information about our capitalized exploration costs, see Note 26 to our audited consolidated financial statements
and the unaudited supplementary information on oil and gas exploration and production contained in our audited
consolidated financial statements.
64
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EXPLORATION AND PRODUCTION
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85
PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Refining, Transportation
and Marketing
We processed 71% of all our oil production, which includes oil and LNG and excludes natural gasoline (“C5+”), in our refineries.
The remainder was exported. In 2019, our production of oil products of 1.779 million bbl/d from the processing of 90% of
Brazilian oil, complemented with imported oil. We traded these oil products both in Brazil
and abroad.
Furthermore, we operate in the petrochemical sector with interests in companies, as well as in the production of biofuels
through our wholly-owned subsidiary, Petrobras Biocombustível S.A. (“PBIO”).
Overview
We own and operate 13 refineries in Brazil, with a total net crude distillation capacity of 2,176 mbbl/d. This represents 99% of
all refining capacity in Brazil, according to the 2019 statistical yearbook published by the ANP.
Most of our refineries are located near our crude oil pipelines, storage facilities, refined product pipelines and major
petrochemical facilities, easing access to crude oil supplies and end-users.
We also operate a large and complex infrastructure of pipelines and terminals, and a shipping fleet to transport oil products
and crude oil to Brazilian and global markets.
We operate 44 of our own terminals through our wholly-owned subsidiary Petrobras Transporte S.A. (“Transpetro”), and we
have contracts for the use of some of the storage capacity of 19 third-party terminals.
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OUR BUSINESSANNUAL REPORT AND FORM 20-F 2019 EXPLORATION AND PRODUCTION
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
RORAIMA
AMAPÁ
AMAZONAS
1
A
B
PARÁ
ACRE
RONDÔNIA
OWN TERMINALS*
MATO GROSSO
C
MARANHÃO
2
D
CEARÁ
TOCANTINS
PIAUÍ
BAHIA
5
J
E
3
RIO GRANDE
DO NORTE
F
PARAÍBA
G
4
PERNAMBUCO
H
ALAGOAS
I
SERGIPE
N
O
P
Q
R
S
BARRA DO RIACHO
NORTE CAPIXABA
VITÓRIA
BARUERI
CUBATÃO
GUARAREMA
GUARULHOS
PAULÍNIA
RIBEIRÃO PRETO
SÃO CAETANO DO SUL
SANTOS
SÃO SEBASTIÃO
ANGRA DOS REIS
CAMPOS ELÍSEOS
ILHA D'ÁGUA
ILHA REDONDA
JAPERI
VOLTA REDONDA
PARANAGUÁ
BIGUAÇU
GUARAMIRIM
ITAJAÍ
SÃO FRANCISCO DO SUL
NITERÓI
OSÓRIO
RIO GRANDE
K
DF
GÓIAS
L
SÃO PAULO
10
O
MATO GROSSO
DO SUL
6
M
MINAS GERAIS
N
ESPÍRITO SANTO
7
P
RIO DE JANEIRO
PARANÁ
8
Q
R
9
S
RIO GRANDE
DO SUL
SANTA CATARINA
4 RNEST
(ABREU E LIMA)
2014
88
23,2
5
RLAM
(LANDULPHO ALVES)
1950
279
30,2
START OPERATION
CRUDE DISTILLATION CAPACITY
API GRAVITY
7 REDUC (DUQUE DE CAXIAS)
10
RPBC (PRES. BERNARDES)
1961
239
29,2
1955
170
27
8 REPAR (PRES. GETÚLIO VARGAS)
REVAP (HENRIQUE LAGE)
1977
208
27,8
SIX (SHALE INDUSTRIALIZATION UNIT)
1972
-
-
9 REFAP (ALBERTO PASQUALINI)
1968
201
29,7
1980
252
26,4
REPLAN (PAULÍNIA)
1972
434
27,5
RECAP (CAPUAVA)
1954
57
30,9
3 RPCC
(POTIGUAR CLARA CAMARÃO)
6 REGAP
(GABRIEL PASSOS)
2009
38
25,9
1968
157
27,2
* Operated by Transpetro, a 100% Petrobras subsidiary
66
A
COARI
MANAUS
B BELÉM
C
SÃO LUÍS
D MUCURÍPE
E
GUAMARÉ
F CABEDELO
G
H
I
J
K
L
SUAPE
MACEIÓ
ARACAJU
CANDEIAS
ITABUNA
JEQUIÉ
MADRE DE DEUS
BRASÍLIA
SENADOR CANEDO
M UBERABA
UBERLÂNDIA
REFINERIES
1
REMAN
(ISAAC SABÁ)
1956
46
41,1
2
LUBNOR
(REFINARIA LUBRIFICANTES
E DERIVADOS DO NORDESTE)
1966
8
16,8
OUR BUSINESSANNUAL REPORT AND FORM 20-F 2019 EXPLORATION AND PRODUCTION
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85
PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Our Refining, Transportation and Marketing also include
competitive conditions, encouraging new economic agents
activities such as (i) petrochemicals (ii) extraction and
to enter the downstream market, as well as suspending
processing of shale and (iii) production of biofuels.
the CADE’s court administrative investigation related to
We are repositioning ourselves in the refining business
through divestment, a strategy which allows us to share
risks and the establishment of a dynamic, competitive and
efficient industry, while generating liquidity for us.
the alleged abuse of our dominant position in the refining
segment. The agreement considers the divestment of
approximately 50% of our refining capacity. We intend to
divest from seven refining units (Reman, Lubnor, Rnest,
Rlam, Regap, Repar and Refap) and a shale industrialization
In line with our repositioning process, in June 2019, we
unit (SIX).
signed a commitment with the Administrative Council
for Economic Defense (“CADE”) which consolidates our
understanding on the execution of divestment of refining
assets in Brazil. The purpose of the agreement is to provide
For more information on our partnerships and divestments,
see “Portfolio Management” in this annual report.
Main
Assets
Transport and storage
Pipelines (km)
Vessel fleet (owned and chartered)
Own
Chartered
Terminals
Own
Third party’s(1)
Refining
Refineries
Brazil
Abroad
Nominal installed capacity (mbbl/d)
Brazil
Abroad
2019
7,719
128
45
83
63
44
19
13
13
-
2,176
2,176
-
2018
7,719
123
43
80
56
44
9
14
13
1
2,276
2,176
100
2017
7,719
128
39
89
55
44
8
14
13
1
2,276
2,176
100
(1) Third party terminals that have existing contracts for the use of the storage service, except Transpetro contracts.
67
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Refining
Refining
Logistics
Marketing
Distribution
We serve our oil products clients in Brazil through a
In 2019, we processed 1,720 mbbl/d of oil in
coordinated combination of oil processing, importing and
our 13 refineries, based on the processing of 91% of
exporting that seeks to optimize our margins, considering
domestic oil. The following graphs show the processed
different opportunity costs of domestic and imported oil,
feedstock and the performance of our refineries.
oil products in the several markets, as well as the costs for
transport, storage and processing involved.
Processed feedstock (mbbl/d)
1,615
121
2017
2018
2019
1,565
1,557
1,736
1,715
1,720
150
163
NATIONAL OIL, NGL AND C5+
IMPORTED OIL
There was a small increase in processed
feedstock seeking value maximization
and alignment with demand behavior.
In 2019, there was an increase in the production of oil
opportunities in particular to Singapore. There was a drop in
products and utilization factor of the refining system as
sales volume in the Brazilian market between 2019 and 2018
compared to 2018. The higher production volume was
due to lower deliveries for thermal power generation.
directed to the export of bunker oil and high octane gasoline,
Naphtha production increased in 2019, enabling the
which is valued in the U.S. market.
reduction of imports compared to 2018.
Diesel output fell due to the use of some of its streams to
LPG production and sales remained stable in 2019 and 2018.
produce 0.5% bunker according to IMO 2020 specifications
and the lower availability of the refining system. Diesel
sales in 2019 dropped compared to 2018, with an increased
portion of imported diesel.
The volume of gasoline production remained stable between
2019 and 2018. There was a drop in sales due to the higher
market share of importers and hydrated ethanol. This drop
was offset by an increase in exports of 34 mbbl/d.
In 2019, there was a decrease in the production of jet fuel
following the reduction in sales due to a retraction in demand.
In addition to constructing new refineries, over the past 10
years, we have made substantial investments in our existing
refineries to increase our capacity to economically process
heavier Brazilian crude oil, improve the quality of our oil
products to meet stricter regulatory standards, modernize
our refineries, and reduce the environmental impact of
Fuel oil production increased in 2019 due to the bunker oil
our refining operations. These investments in our existing
price rose in the global market, which brought fuel oil export
refineries have been largely completed.
68
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EXTERNAL BUSINESS ENVIRONMENT
103
107
The following table sets out the performance of our refineries.
Performance of refineries
Crude
distillation
capacity
(mbbl/d)
Nelson
Complexity
Index
Average throughput(1)
(mbbl/d)
Operational availability
%
Utilization rate
%
2019
2019
2019
2018
2017
2019
Refinery
LUBNOR
RECAP
REDUC
REFAP
REGAP
REMAN
REPAR
REPLAN
REVAP
RLAM
RPBC
RPCC
RNEST
Average crude oil throughput
Average NGL throughput
Average throughput
8
57
239
201
157
46
208
434
252
279
170
38
88
-
-
-
Crude Distillation capacity
2,176
7
50
190
138
134
32
168
326
185
206
133
32
74
8
50
190
135
141
30
173
286
213
201
140
32
67
7
50
178
138
143
32
162
324
208
198
144
33
68
2018
97.5
97.6
95.3
95.8
97.7
97.1
96.6
87.2
96.5
95.2
97.5
-
95.3
96.2
96.9
93.7
96.3
97.9
94.2
96.2
94.5
92.9
95.3
-
97.8
94.6
1,675
1,664
1,686
45
1,72
-
51
50
1,715
1,736
-
-
-
-
-
-
-
-
-
-
2017
2019
2018
2017
98.0
97.5
93.9
97.3
97.2
97.6
96.0
95.7
94.8
93.9
96.9
98.7
94.6
-
-
-
-
82.7
87.8
79.5
68.8
85.3
69.1
80.9
75.2
73.5
73.9
78.3
-
94.5
93.1
79.7
66.8
89.7
64.3
83.1
68.8
84.8
63.8
82.4
-
84.4
90.2
-
-
-
-
-
-
-
-
89.9
94.0
74.5
68.4
91.0
69.8
78
77.9
82.8
62.7
85.0
87.8
92.4
-
-
-
-
3.5
6.8
14.9
5.7
7.8
1.8
7.7
6.9
8.5
7.7
9.6
1.0
8.5
-
-
-
-
(1) Considers oil and NGL processing (fresh feedstock).
Main products, markets and storage capacity of our refinaries
Refinery
Main
products
Main markets
in Brazil
LUBNOR
Asphalt (45%); Fuel Oil (31%);
Lubricants (12%); Diesel (11%)
RECAP
Diesel (44%); Gasoline (34%); LPG (8%)
Lubricant Oil – sold to distributors and marketed
nationwide
Asphalts – states in Northern and Northeastern
Brazil and Minas Gerais
Part of the São Paulo metro region and
petrochemical plants
REDUC
Diesel (23%); Gasoline (15%); Fuel Oil (15%);
LPG – Jet Fuel - Naphtha (10%)
Rio de Janeiro, São Paulo, Espírito Santo, Minas Gerais,
Bahia, Ceará, Paraná, Rio Grande do Sul
REFAP
Diesel (50%); Gasoline (26%); LPG (7%)
Diesel (45%); Gasoline (25%);
Jet Fuel (8%); LPG (7%)
REGAP
REMAN
Rio Grande do Sul, part of Santa Catarina and Paraná, in
addition to other states by means of coastal shipping
Currently supplies the state of Minas Gerais and,
occasionally, the state of Espírito Santo. It can also
expand its reach to the Rio de Janeiro market
Gasoline (36%); Diesel (28%); Naphtha (10%);
Jet Fuel (9%); Fuel Oil (8%)
Amazonas, Acre, Roraima, Rondônia, Amapá and Pará
REPAR
Diesel (46%); Gasoline (27%); LPG (8%)
Paraná, Santa Catarina, Southern São Paulo and
Mato Grosso do Sul
69
Storage capacity
(mbbl)
Crude
oil
Oil
products
0.3
0.6
0.5
5.7
3.2
1.7
0.7
2.9
1.8
12.5
1.4
6.0
1.5
1.9
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Countryside of the state of São Paulo, Mato Grosso,
Mato Grosso do Sul, Rondônia and Acre, Southern
Minas Gerais and the so-called “Triângulo Mineiro”,
Goiás, Brasília, and Tocantins
Paraíba Valley, the northern coast of the state of
São Paulo, southern Minas Gerais, the São Paulo metro
region, Midwestern Brazil and Southern Rio de Janeiro.
It supplies 80% of the demand for jet fuel in the São
Paulo state market and 100% of the
Guarulhos International Airport
Primarily the northeastern region of Brazil, followed by
the north region and the state of Minas Gerais
Most products are intended for São Paulo’s capital.
A portion is also shipped to Santos and to the Northern,
Northeastern, and Southern Brazilian regions
Storage capacity
(mbbl)
Crude
oil
Oil
products
6.7
12.9
3.3
12.0
-(1)
2.5
4.3
6.8
Rio Grande do Norte and southern Ceará
0.12
0.12
North and Northeast of Brazil
-(2)
0.7
Refinery
Main
products
Main markets
in Brazil
REPLAN
Diesel (43%); Gasoline (24%);
LPG – Jet Fuel (7%)
REVAP
Diesel (28%); Gasoline (22%);
Jet Fuel (14%); Fuel Oil (13%)
RLAM
RPBC
RPCC
RNEST
Diesel (35%); Fuel Oil (28%);
Gasoline (22%); LPG (7%)
Diesel (46%); Gasoline (29%);
Fuel Oil (9%); LPG (6%)
Fuel Oil (67.5%); Diesel (15%);
Jet Fuel (11.5%); Gasoline (6%)
Diesel (66%); Naphtha (15%);
Coke (10%); Fuel Oil (6%)
(1) Crude oil is supplied directly to RLAM tank farms of 4.1 mbbl, with no external crude oil storage.
(2) Crude oil is supplied directly to RNEST’s tank farms of 5.1 mbbl, with no external crude oil storage.
The Pasadena refinery was sold on May 1, 2019 to Chevron U.S.A. Inc. (“Chevron”) for US$467 million, which included the sale
of the Pasadena Refining System (“PRSI”). Therefore, Chevron began operating the Pasadena refinery.
With respect to oil products, we produced 1,779,000 bbl/d of oil products in 2019, as shown in the following graphic:
Oil products production (mbbl/d)
2017
2018
2019
692
439
200
53
126 106
185
715
393
178
67
126 110
176
698
394
205
78
124 105
175
1,801
1,765
1,779
DIESEL
GASOLINE
FUEL OIL
NAPHTHA
LPG
JET FUEL
OTHER OIL
PRODUCTS
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International
Maritime
Organization
In 2016, the International Maritime Organization (“IMO”) decided to reduce the allowable upper limit
for sulfur content in marine fuels (bunker fuel) from 3.5% to 0.5% from January 1, 2020 on.
From 2017 to the first quarter of 2019, we carried out studies and analyses in order to prepare
our refineries and logistics to produce and deliver a compliant fuel. Furthermore, our increasing
production of oil from pre-salt has low sulfur, allowing us to obtain fuel oil that already practically
meets the bunker fuel specifications without requiring the addition of high amounts of diluents
which give us a competitive edge in the global market.
We have a competitive advantage in the production of the IMO 2020 compliant marine fuel, allowing
us to anticipate the market trend and satisfying the needs of our clients.
On October 1, 2019, we started selling bunker fuel with a maximum sulfur content of 0.5% (Low
Sulfur Fuel Oil – LSFO) in all Brazilian ports. We began doing this 90 days before the deadline
set by the IMO.
In the last quarter of 2019, the demand for LSFO increased in all ports where we offered the product
while the international prices have risen significantly.
By December 2019, the appreciation of the cargo exports of fuel oils reached US$80 per ton higher
than gasoil low sulfur (10 parts per million).
Ongoing
undertakings
In the last few years, we initiated the construction of GASLUB Itaboraí, previously denominated
COMPERJ, to process our domestically produced heavy oil for oil products that were in highest
demand in the Brazilian market and with growing shortage.
Located in southeastern Brazil (Itaboraí, in the state of Rio de Janeiro), the GASLUB Itaboraí project
is comprised of the GASLUB Itaboraí Refinery, UPGNs and other underlying utilities. With respect to
UPGN, in 2019, all critical bidding for UPGN utilities was successfully completed and the unit start up
is scheduled for 2021. We are studying project alternatives for the GASLUB Itaboraí area that include
integration with the refinery operating in Duque de Caxias (REDUC) for the production of basic
lubricants G-II and high quality fuels.
In October, 2019, we entered into a Memorandum of Understanding (“MOU”) with Equinor ASA
(“Equinor”), to maximize value in the downstream segment of both companies through natural gas
thermoelectric generation projects as well as feasibility studies related to gas processing assets and
pipelines in TECAB (Cabiúnas Terminal in Macaé, RJ) and GASLUB Itaboraí, where an UPGN is under
construction, both belonging to Petrobras.
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Logistics
Refining
Logistics
Marketing
Distribution
Oil and oil products logistics connect the oil production
The terminals and pipelines operation is an important link in
systems to refineries and markets, seeking to minimize the
our supply chain. The oil is transported from the production
costs involved with transportation and storage. The system
fields to Transpetro terminals either by pipeline or by ship.
seeks to optimize the result of oil refining operations and the
From there, it is transported to refineries or for export.
commercialization of oil and oil products in Brazil and abroad.
After refining, the oil products are again drained through
We directly manage some assets of this system, while we
contract others with our wholly owned subsidiary Petrobras
Transporte S.A. (“Transpetro”).
Transpetro is a logistics company which performs operations
for the storage and handling of oil and its derivates, ethanol,
gas and biofuels for the supply of Brazilian machinery,
thermoelectric and refineries, including import and export
activities.
pipelines to the terminals to be delivered to fuel distribution
companies, which supply the Brazilian and global markets.
This operation covers a 7,719 km pipeline network and
44 terminals, 24 of which are marine and 20 onshore.
The terminals have a total nominal storage capacity of
10.24 million m3. In 2019, Transpetro handled 567.2 million
m3 of oil and oil products, totaling 8,161 operations with
tankers and oil barges.
Volume moved at terminals and pipelines (million m3)
2017
2018
2019
572
564
The increase observed in oil movement
in the terminals and pipelines operated
by Transpetro was mainly a result of the
increase in ship-to-ship exports due to the
rise in Petrobras oil production. We also
had an average refinery processing load
slightly above that of 2018, targeting the
567
production of the low sulfur bunker (fuel
highly valued at this time of transition to
IMO standards for 2020).
In 2019, we launched the Integrated Pipeline Protection
technology and contingency. We seek, in cooperation with
Program (“Pró-Dutos”), which aims to expand and integrate
public intelligence and security agencies, to reduce theft of
all of our actions to mitigate the risks caused by illegal taps
oil and oil products by 75% by December 2021. Alongside the
(thefts) of oil and oil products in its onshore pipelines. The
scope of Pró-Dutos is multidisciplinary and, therefore, we
integrity of our operations our key concern is to protect life
and the environment around the regions where we operate.
act preventively with several actions, focusing on six areas:
In 2019, we managed to reduce the number of incidents of
intelligence, legislation, social responsibility, communication,
oil and derivatives thefts by 22% compared to the 261 thefts
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that occurred in 2018 and reduced the volume of oil and
through our communication channel, telephone 168,
derivatives stolen by 35% compared to the 10.8 million liters
effectively reporting criminal actions. We also reviewed and
of products stolen in 2018. We also launched a wide range
improved our crisis management procedures and responding
advertising campaign to raise public awareness of this type
to emergencies caused by theft. In 2019, 3 emergency drills
of risk, which has encouraged the population to collaborate
were conducted with a focus on illegal taps.
Terminals
Location
Location
Alagoas
Amazonas
Bahia
Ceará
Espírito Santo
Distrito Federal
Goiás
Maranhão
Minas Gerais
Pará
Paraíba
Pernambuco
Paraná
Rio de Janeiro
Rio Grande do Norte
Rio Grande do Sul
TypeType
Marine
Marine
Marine
Onshore
Onshore
Onshore
Marine
Marine
Marine
Marine
Marine
Onshore
Onshore
Marine
Onshore
Onshore
Marine
Marine
Marine
Marine
Marine
Marine
Onshore
Marine
Onshore
Onshore
Marine
Marine
Marine
Marine
Terminal
Terminal
Maceió
Manaus (REMAN)
Coari
Candeias
Itabuna
Jequié
Madre de Deus
Mucuripe
Barra do Riacho
Norte Capixaba
Vitória
Brasília
Senador Canedo
São Luís
Uberaba
Uberlândia
Belém
Cabedelo
Suape
Paranaguá
Ilha d' Água
Angra dos Reis
Campos Elíseos
Ilha Redonda
Japeri
Volta Redonda
Guamaré
Osório
Niterói
Rio Grande
73
Nominal capacity (m³)
Nominal capacity (m³)
58.266
-
81,705
36,472
28,845
28,111
663,582
-
107,883
85,205
10,706
72,309
127,449
78,895
54,615
47,226
48,100
10,745
108,713
204,499
179,150
1,004,861
547,243
81,833
37,729
29,649
258,521
842,100
26,978
101,408
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Location
Location
Santa Catarina
Sergipe
São Paulo
Total
Terminal
Terminal
Biguaçu
Itajaí
Guaramirim
São Francisco do Sul
Aracaju
Santos
São Sebastião
Barueri
Cubatão
Guararema
Guarulhos
Paulínia
Ribeirão Preto
São Caetano do Sul
44
TypeType
Onshore
Onshore
Onshore
Marine
Marine
Marine
Marine
Onshore
Onshore
Onshore
Onshore
Onshore
Onshore
Onshore
-
Nominal capacity (m³)
Nominal capacity (m³)
37,916
56,806
18,926
472,408
156,940
382,561
2,041,906
206,262
160,836
1,030,673
164,194
274,349
50,826
227,496
10,244,896
In 2019, Transpetro received the last two ships from its fleet modernization program. Transpetro’s transport capacity, when
combined with the wholly-owned subsidiary Transpetro International B.V.–TIBV, is 4.8 million deadweight tonnage, through
59 vessels (owned and chartered). Additionally, we have 69 more vessels chartered by us. These vessels are used both for the
flow of offshore production and for the transportation of oil and oil products, LPG and ethanol to supply the Brazilian and
global markets.
For more information on the vessels chartered or owned by us and Transpetro, see Exhibit 15.4 to this annual report.
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Marketing
Refining
Logistics
Marketing
Distribution
MAIN SOURCES
CONSUMPTION
FROM THE
TOTAL SUPPLY
OF OIL
PRODUCTS
1.567
mmbbl/d
Come from
the production
of our refiniries
187
mbbl/d
Were imported
WE SOLD
An average of
1.754
mmbbl/d
Of oil product
for the Brazilian
market
199
mbbl/d
To the foreign
market
90% of the total sales of our oil products
were destined to the Brazilian market and
derived from our refineries and imports.
OIL PRODUCTS PRODUCTION
IMPORT OF OIL PRODUCTS
BRAZILIAN MARKET SALES
EXPORT OF OIL PRODUCTS
(mbbl/d)
(mbbl/d)
(mbbl/d)
(mbbl/d)
1.801
1.765
1.779
180
195
186
1,835
1,807
1,754
157
164
199
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
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Sales volumes of oil products to Brazilian market, per product and total in the year*
(mbbl/d)
1,835
1,807
1,754
645
453
236
134
114
67
187
731
402
231
97
123
46
178
725
378
229
82
119
39
182
2017
2018
2019
DIESEL
GASOLINE
LPG
NAPHTHA
JET FUEL
FUEL OIL
OTHERS
DIESEL
Diesel is a medium petroleum distillate used as fuel in vehicles with compression-ignites internal combustion
engines (Diesel cycle engines). It is used mostly for cargo and passenger’s road transport (80%) and in agriculture
sector (10%). All diesel sold to end users in Brazil must be blended with biodiesel. Mandatory level of biodiesel
in the fuel is currently at 11%. The most important variables that impact diesel demand are Brazilian economic
performance and the size of grain and sugarcane harvest, once the country is very dependent on road transport.
Diesel sales in 2019 showed a slight decrease compared to 2018. The main factor negatively affecting diesel sales
was a significant increase in imports by competitors during 2019. Positive factors to highlight include economic
growth, increase in acreage and production of a second corn crop, as well as a depreciated basis of comparison,
due to the truck drivers’ strike that took place at the end of May 2018.
GASOLINE
Gasoline is a light petroleum distillate used in vehicles with spark-ignites internal combustion engines
(Otto cycle engines). Refineries in Brazil produces a distillate named "gasoline A", which must be blended with 27%
of anhydrous ethanol (current mandate) at distributors sites and than sold to end users as "gasoline C" at gas
stations. Its main competitors are hydrated ethanol (sold directly by producers to distributors, who resell it on gas
stations) and CNG (sold by gas distributors directly to gas stations). In 2019, “gasoline A” share in Brazilian
Cycle-Otto market was 50%.
The sharp drop in gasoline sales in 2019 compared to 2018 is related with the entry of additional players in this
sector between 2018 and 2019. The additional players include importers, petrochemicals, private refineries and
formulators. Third party imports are noteworthy as they increased significantly. Compared to 2018, there was also
a decrease in the use of gasoline in flex vehicles, with increased use of hydrous ethanol.
* Due to the divestment of Petrobras Distribuidora, the data for 2017 and 2018 do not consider its sales.
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LPG
The liquefied petroleum gas (LPG) is a light distillate composed by propane and butane. It is used as fuel for
heating applications such as cooking equipment, rural heating and water boilers, among others. In Brazil, around
80% of LPG consumption is for cooking, whose demand is directly driven by population growth and real income
growth. On the other hand, consumption is inversely correlated with local temperatures and efficiency rate of
cooking equipment. The complement of LPG demand (20%) comes from industrial and services sectors, whose
demand is driven by economic growth.
The drop in LPG sales compared to 2018 can be mainly attributed to the increase in average temperatures in the
main consumer regions in 2019. Higher temperatures reduce the need for product use.
JET FUEL
Jet-Fuel is a medium petroleum distillate used as aviation fuel in aircrafts powered by gas-turbine engines. It is
used by all commercial aviation companies (passengers and cargo transportation), which represents 90% of total
Brazilian demand. Regarding commercial aviation, domestic flights add up to 60% of Brazilian jet-fuel demand,
leaving 40% for the international flights. Jet-fuel demand is strongly correlated with GDP growth, as it directly
affects the demand for travel – business and leisure.
Air transport industry in Brazil was strongly impacted due to the ending of Avianca Brasil operations in May of
2019 – the company was in judicial recovery since December 2018. As a result, QAV sales in 2019 declined from
the previous year.
FUEL OIL
Fuel oil is a residual fraction of the petroleum distillation. It is used in industrial (mostly non-ferrous metallurgy
companies) and electricity generation sectors (thermoeletric plants). The demand for fuel oil for industrial
consuption depends mostly on GDP growth and on the natural gas availability (its main competing product).
The fuel oil thermoeletric plants participate marginally in the country's energy supply, entering into operation
only when the water level in reservoirs are very low. In 2019, industrial use of fuel oil represented around 80% of
demand, while the use in power generation represented only 20%.
Sales of fuel oil in 2019 sharply fell compared to 2018. This was mainly due to the decrease in demand for
the product to complementary thermal plants when compared to the previous year. The main factors that
contributed to this lower demand was an improvement in the level of water reservoirs in general, as well as a
heightened wind and solar generation.
NAPHTHA
Naphtha is a light petroleum distillate that is mainly used as raw material for petrochemical sector. This product
is sold to three existing petrochemical plants in Brazil, which produce commodity chemicals such as ethylene,
propylene, butadiene and aromatics (benzene, toluene, xylenes).
Naphtha sales in 2019 decreased significantly compared to 2018. The drop was mainly due to the reduction in
sales to Braskem-BA as of May 2019, due to the maintenance shutdown of its Alagoas plant.
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Besides oil and oil products, we also trade natural gas, nitrogen fertilizers, renewables and other products.
Brazilian sales volumes and exports (mbbl/d)
Total oil products
Ethanol, nitrogen fertilizers, renewables and other products
Natural gas
Total Brazilian market
Exports(1)
Total Brazilian market and exports
(1) It mainly includes crude oil and oil products.
2019
2019
1,738
7
350
2,095
735
2,830
2018
2018
1,787
17
345
2,149
594
2,743
20172017
1,815
96
361
2,272
659
2,931
Oil products
prices
Crude oil is a commodity, the value of which depends on its quality. A lighter crude
oil has a better value than a heavier one, given that it can generate higher value products.
A low-sulfur crude oil also has a better value than oil with a higher sulfur content.
Different refineries assign different values to the same crude oil, depending on their
conversion capacity and the products they intend to produce to supply their specific
market. Refineries can process a wide variety of different crude oils, which make different
crude oils competitors among themselves.
Crude oils are globally traded and their prices used to be referenced on international
quotations, as WTI, Brent or Dubai. Depending on the quality, offer, demand, size lot,
commercial conditions and logistics costs to make a crude oil cargo available at a certain
delivery point, a premium or a discount negotiated between buyer and seller will be added
to the reference quotation.
Refined oil products are commodities and their prices in the global market are driven by
the supply and demand balance, crude oil price and crack spread. Crack spread refers to
the overall pricing difference between a barrel of crude oil and oil products refined from
it. It is an industry-specific type of gross processing margin. The “crack” being referred to
is an industry term for breaking apart crude oil into the component products, including
gases like propane, heating fuel, gasoline, light distillates like jet fuel, intermediate
distillates like diesel fuel and heavy distillates like grease. Typically, a crack is defined in
terms of one specific product versus one specific crude. For example, the diesel crack on
Brent indicates how much the price of the individual product is contributing to
refining profitability.
The price of a barrel of crude oil and the various prices of the products refined from it are
not always in perfect synchronization. Depending on seasonality and global inventories
among other factors, the supply and demand for particular distillates results in pricing
changes that can impact the profit margins on a barrel of crude oil for the refiner.
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As oil products are traded globally and can be transported between markets, prices
around the world tend to fluctuate together.
Therefore, the oil products in Brazil are priced to the parity with international prices.
Diesel and Gasoline
Diesel and gasoline prices are defined taking into account the international parity price
and margins to remunerate the risks inherent in the operation.
In 2019, we announced adjustments to selling prices at refineries, resulting in price
increases of 27.1% for gasoline and 28.9% for diesel, when comparing prices in place on
December 31, 2019 with those effective as of December 31, 2018.
In addition, we have the option to use derivatives, aiming to give additional flexibility to
the management of prices of these products. The derivative mechanism may be applied
in times of high market volatility in order to achieve a result equivalent to those that would
be obtained through daily adjustments, a practice that also remains an option for us, in
this case, the derivative mechanism can not be used for speculation purposes.
LPG
In August 2019, the price for the sale of LPG to distributors marketed began to be defined
considering the international parity price and margins to remunerate the risks inherent
in the operation. Price adjustments are made without defined periodicity, according to
market conditions and analysis of internal and external environments.
Imports, Exports, and International Sales
Our import and export of crude and oil products are driven
by economic factors involving our domestic refining, the
Brazilian demand levels and international prices. Most of the
crude oil we produce in Brazil is classified as medium API
gravity. We import some light crude oil to balance the slate
for our refineries, and export mainly medium crude oil from
In 2019, net exports increased by 138,000 bbl/d, reaching
381,000 bbl/d. This level represented the monthly record for
oil exports and it encompasses an increase in gasoline exports
and an increase in chain exports for bunker formulation 0.5%
due to the appreciation caused by the entry of IMO 2020.
In addition, there was a drop in naphtha imports due to the
Brazilian market’s own production.
our production in Brazil. In addition, we continue to import
We also export oil products from our refineries.
oil products to balance any shortfall between production
from our Brazilian refineries and the market demand
for each product.
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Exports and imports of crude oil and oil products (mbbl/d)
Exports
Crude oil
Fuel oil
Other oil products
Total exports
Imports
Crude oil
Diesel
Gasoline
Other oil products
Total imports
2019
2018
2017
536
133
66
735
168
70
28
88
354
428
121
43
592
154
59
19
117
349
512
119
28
659
127
12
11
158
308
Our crude oil, oil products and LNG trading activities aim
long-term and spot-market contracts. In 2019, the crude oil
to meet our internal demands or potential businesses
volume committed through long-term contracts with fixed
opportunities identified by our commercial teams, seeking
quantity subject to final agreement on commercial terms
to optimize the buying and selling operations in the Brazilian
is approximately 200 mbbl/d and the volume committed
and global markets, as well as offshore operations.
through long-term contracts subject to mutual agreement
The international trading teams are based in the major
global commercial hubs of oil and oil products, such as
London, Houston and Singapore, Rotterdam and Buenos
Aires, and are comprised of crude oil and product traders,
shipping and support operators.
Our most representative trade in terms of volume and
profitability is crude oil. We sell crude oil through
Distribution
is expected to be around 60 mbbl/d. Considering the
planned processing rates of our refineries for the coming
year and considering the impacts of the divestment projects,
we believe that our production will be sufficient to allow
us to continue delivering all contracted volumes.
Refining
Logistics
Marketing
Distribution
We sell our oil products to several distribution companies in
Even after completing the sale of part of our shareholding
Brazil. Until July 2019, we had a 71.25% stake in Petrobras
in BRDT, we remain the owner of the main brands used by
Distribuidora (“BRDT”), one of the largest distribution
companies in the country. As a result of the follow-on
it, including those that identify service stations, fuel, loyalty
program, aviation segments and certification program,
offering closed in July 2019, the first privatization of a
among others.
state-owned company through capital markets in the
history of Brazil, we have a 37.5% participation in BRDT as of
December 31, 2019.
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A 10-year trademark license agreement, is in place and
This transaction is in line with the optimization of our
grants BRDT a non-exclusive, paid, temporary license on
portfolio and with the improvement of our capital allocation,
certain trademarks we own, including but not limited to
aiming to create value for our shareholders.
“Petrobras,” “Petrobras Podium,” “Petrobras Premmia,”
“De Olho no Combustível,” “BR Aviation” and “Petrobras
Grid.” The trademark license agreement was renegotiated
before the follow on to incorporate changes necessary for
both companies. It was signed in 2019, and is renewable
for an additional 10-year period. Under the terms of
this agreement, the license is granted exclusively to the
service station and aviation segments, for which BRDT
For more information on the sale of part of our shareholding
position in Petrobras Distribuidora and our equity stake in
Liquigás Distribuidora, see “Portfolio Management” in this
annual report.
For more information on oil products clients, see “Customers
and Competitors” in this annual report.
We also participate in the retail sector in other South
shall exclusively use the brands licensed by us. BRDT must
American countries, as follows:
also exclusively use our licensed brands in the oil and gas
and biofuels segments. Meanwhile, during the term of
❚ Colombia: Our operations include 123 service stations
and a lubricant plant with a production capacity of
the trademark license agreement, we undertake to refrain
54,000 m³/year.
from operating in the service stations across the Brazilian
territory. The definition of a “service station” under this
agreement is any facility where oil and gas products and
services and/or services related to any other energy sources
(renewable or otherwise) intended to power automotive
vehicles and watercrafts are offered to the Business-to-
Consumer (or B2C) public, including convenience stores.
We operate in the bottling, distribution and sale of
LPG through our subsidiary Liquigás Distribuidora S.A.
(“Liquigás”). On November 19, 2019, we entered into an
agreement with Copagaz and Nacional Gás Butano for the
sale of our entire equity stake in Liquigás Distribuidora,
pursuant to a purchase and sales agreement. Closing of the
transaction is subject to customary conditions precedent,
including CADE’s approval.
❚ Uruguay: We have 87 service stations;
❚ Chile: Following the sale of our distribution operations in
Chile, which was concluded in January 2017, we entered
into a brand licensing agreement in that country, for the
initial term of eight years. To operate our acquired assets
in Chile, Southern Cross created Esmax, a company that
operates as our licensee in the fuel distribution segment;
❚ Paraguay: Until March 8, 2019, our operations included
201 service stations, the distribution and sales of fuel at
three airports and an LPG refueling plant. Our operations
were sold to Paraguay Energy, a subsidiary of Copetrol
Group. The sale agreement also included the licensing
for the exclusive use of our brands by Nextar
(the successor of Petrobras Paraguay Operaciones y
Logística SRL) in service stations in Paraguay, for the
initial term of five years.
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Customers and Competitors
We interact with around 400 clients in Brazil, in regards to liquid oil products, seven of which account for 67% of the total
volume sold.
Liquid oil products clients (% vol)
31
2
2
3
6
14
26
16
BRDT
GRUPO ULTRA
RAÍZEN COMBUSTÍVEIS S.A.
BRASKEM S/A
LIQUIGÁS DISTRIBUIDORA S.A.
NACIONAL GÁS BUTANO
SUPERGASBRAS ENERGIA LTDA
OTHERS
The sale of oil products to distribution companies is done by
the downstream market, as well as suspending the
contracts executed in accordance with ANP regulations.
administrative investigation opened by the CADE court to
We offer a virtual commercial platform, called Canal Cliente
to Brazilian market companies. The platform works 24 hours
a day, seven days a week. Through this online platform,
clients can place orders for products, schedule withdrawals
and track the entire business process up to the
investigate alleged abuse of our dominant position in the
refining segment. The agreement considers the divestment
of approximately 50% of our refining capacity. We intend
to divest from seven refining units (Reman, Lubnor, Rnest,
Rlam, Regap, Repar and Refap) and a shale industrialization
payment phase.
unit (SIX).
According to information provided by the ANP, we have a
dominant participation in the Brazilian market for refining.
We own and operate 14 refineries in Brazil, including a shale
industrialization unit (“SIX”). SIX is presented in the Shale
Industrialization section in this annual report.
In June 2019, we signed a commitment with CADE which
consolidates the understanding between the parties on
the execution of divestment of refining assets in Brazil.
The purpose of the agreement is to provide competitive
conditions, encouraging new economic agents to enter
With respect to the trading of oil products in the Brazilian
market, we face competition from importers, formulators,
other domestic producers and petrochemical plants. In 2019,
our participation in diesel and gasoline markets decreased
compared to the previous year, mainly due to the increase
in imports by third parties. In the specific case of gasoline,
demand also reflected competition with a substitute
product, hydrous ethanol, which recorded a sharp increase
in consumption during 2019.
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107
Other Activities
Petrochemicals
We engage in the petrochemical sector through the following companies:
Our shareholding in petrochemical companies in Brazil
Location
Nominal capacity
(mmt/y)
Our
shareholding
Other
shareholders
Braskem:
Ethylene
Polyethylene
Polypropylene
DETEN Química S.A.:
LAB(1)
LABSA(1)
METANOR S.A./COPENOR S.A.(2):
Methanol(3)
Formaldehyde
Hexamine
FCC Fábrica Carioca de Catalisadores S.A.:
Catalysts
Additives
PETROCOQUE S.A.:
Bahia
Bahia
Bahia
Rio de
Janeiro
5.00
4.11
4.50
0.22
0.12
0.00
0.09
0.01
0.04
0.01
36.15%
Odebrecht (38.32%);
Others (25.53%)
27.88%
34.34%
Petresa (69.78%);
Others (2.34%)
GPC – Grupo Peixoto de
Castro (45,22%);
Tesouraria (0.59%);
Others (20.44%)
50.00%
Albemarle (50.00%)
Calcined petroleum coke
São Paulo
0.55
50.00%
Universal Empreendimentos
e Participações Ltda (50.00%)
(1) Feedstock for the production of biodegradable detergents.
(2) Copernor S.A. is a subsidiary of Metanor S.A.
(3) The company decided to stop the production of methanol in 2016. On October 18, 2019, the company sold the plant (equipment) to International Process
Plants and Equipments Corporation.
Shale Industrialization
We operate shale processing through our shale
through an environmental program that consists of reforestation
with native species and the return of fauna to rehabilitated land.
industrialization unit (“SIX”), an operating unit with installed
In line with our repositioning process, in June 2019, we signed
capacity of 5,880 t/d, located in São Mateus do Sul, Brazil.
a commitment with the Administrative Council for Economic
We have developed a technology that covers all stages of the
manufacturing process. The products obtained from shale
processing are fuel oil, naphtha, fuel gas, liquefied gas, sulfur
and paving inputs that are used by various industries, such
Defense (“CADE”) which consolidates our understanding on
the execution of divestment of refining assets in Brazil. We
intend to divest from seven refining units (Reman, Lubnor,
Rnest, Rlam, Regap, Repar and Refap) and SIX.
as ceramics, oil refineries, cement plants, sugar mills and
For more information on our partnerships and divestments,
agricultural undertakings. The process also produces shale
see “Portfolio Management” in this annual report.
water, which is an input used to formulate foliar fertilizers.
Fuel oils obtained from shale are suitable for industrial
Biofuels
We also operate in the production of biodiesel and ethanol
consumption in urban centers because they are highly fluid,
through our wholly owned subsidiary Petrobras Biocombustível
very easy to handle and eliminate the need for pre-heating.
S.A. (“PBIO”), which manages our activities for the production,
This allows for reductions in burning operating costs and, as
logistics and marketing of these products.
such, is ideal for cold climates.
Brazil is a global leader in the use and production of biofuels.
In conducting our operation, we work to repair mined areas
The anhydrous ethanol content requirement for gasoline sold in
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107
Brazil is 27%. Historically, Brazil has been a producer of ethanol
auction for biodiesel acquisitions. PBIO has a 50% interest in
and sugar and sold the exceeding electricity generated from
the company BSBIOS Sul Brasil S.A. (“BSBIOS”) which owns
burning sugarcane bagasse. PBIO currently holds a 8.4% stake
two biodiesel plants. The company RP Biocombustíveis S.A.
in the Bambuí Bioenergia, an ethanol and power plant, located
owns the other 50% interest. PBIO has three biodiesel plants
in the city of Bambuí in the state of Minas Gerais. However, there
for its own operations. However, one of our directly owned
is an arbitration process in progress, and in parallel a divestment
units, the Quixada biodiesel plant, stopped operating in
process of PBIO’s equity interest in Bambuí Bioenergia.
November 2016, as a result of its economic performance.
There is mandatory blend of 11% biodiesel in all diesel sold
The unit is currently in a restorative hibernation state. Our
in Brazil since September 2019, with gradual scheduled
biodiesel production capacity in the other two in operation is
increases of 1% per year, until it reaches a mandated 15%
8.1 mbbl/d. In 2019 we supplied 6% of Brazil’s
in 2023. The ANP confirmed a mandatory blend of 12% for
biodiesel demand, according to ANP.
biodiesel deliveries for March 2020, when it announced the
Main
Assets
Biofuels
Biodiesel production units
Biodiesel production capacity (mbbl/d)
2019
2018
2017
5 (1)
22.1(1)
5(1)
18.2(1)
5(1)
18.2(1)
(1) Includes total production capacity in two plants in which we have 50% interest through BSBIOS Sul Brasil, as well as the
capacity of Quixadá, which is mothballing.
With respect to divestments, in November 2019 the sale
of PBIO’s 50% stake in Belém Bioenergia Brasil (“BBB”), to
Galp Bioenergy B.V., which holds the other 50% stake in
Biofuels production* (thousand m3)
the company, was concluded. We also announced the sale
678
98
865
93
928
88
of PBIO’s 100% stake in Bioóleo Industrial e Comercial S.A.
(“Bioóleo”). This stake represented 6.07% of Bioóleo shares,
and was sold to 2H Participações Societarias EIRELI, which
holds the other 93.93% stake in the company. In addition,
PBIO is in the process of divesting its stake in BSBIOS. In
January 2020, we announced the beginning of the non-
binding phase related to the planned sale by PBIO, the
wholly-owned subsidiary of BSBIOS, of all its BSBIOS shares.
For more information on our divestments, see “Portfolio
Management” in this annual report.
In accordance with our 2020-2024 Strategic Plan, we
decided to exit the biodiesel and ethanol production market.
Nevertheless, we are working to produce renewable diesel
and BioQav, in response to the sustainability policies of the
Brazilian energy matrix. We entered into several strategic
transactions to this end.
2017
2018
2019
BIODIESEL
ETHANOL
* Includes 100% of the volume of affiliates.
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Gas and Power
Overview
We process gas produced in our oil fields in our natural gas processing units (“UPGNs”) that have the capacity to treat
105.12 million m3/d of natural gas in Brazil. We market this natural gas, along with gas imported from Bolivia and
LNG acquired in the global market, to several consumers and to the thermoelectric plants.
We also operate in the generation and sale of electric energy through thermal power plants fired by natural gas,
diesel oil and fuel oil.
Main
Assets
Natural gas
2019
2018
2017
Gas pipelines in Brazil (km)
9,190
9,190
9,190
Processing Units
Brazil
Bolivia
Processing capacity (million m3/day)
Brazil
Bolivia
Regasification terminals
Regasification capacity (million m3/day)
Power
Number of thermal power plants
Installed capacity (thousand MW)
22
19
3
149
105
44
3
47
20
6.1
23
20
3
149
105
44
3
47
20
6.1
23
20
3
149
105
44
3
41
20
6.1
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107
RORAIMA
AMAPÁ
1
AMAZONAS
A
RONDÔNIA
ACRE
NATURAL GAS TRANSPORT PIPELINE
TAG
NTS
TSB
TBG
GTB
GASOCIDENTE
REGASIFICATION TERMINAL LNG
LNG CEARÁ – PECÉM
LNG BAHIA
LNG BAÍA DE GUANABARA
2
PIAUÍ
CEARÁ
B
C
PARAÍBA
D
PERNAMBUCO
ALAGOAS
3
RIO GRANDE
DO NORTE
5
6
4
SERGIPE
F
BAHIA
7
8
H
MINAS
GERAIS
9
10
ESPÍRITO
SANTO
12
I
11
RIO DE JANEIRO
PARÁ
MARANHÃO
E
TOCANTINS
G
GÓIAS
DF
K
SÃO PAULO
MATO GROSSO
J
MATO GROSSO
DO SUL
14
13
L
PARANÁ
SANTA
CATARINA
M
RIO GRANDE
DO SUL
UPGN ( NATURAL-GAS PROCESSING UNIT)
UTG (NATURAL-GAS TREATMENT UNIT)
POWER PLANTS
UPGN URUCU (4 UNITS)
UPGN LUBNOR
UPGN GUAMARÉ (3 UNITS)
UPGN PILAR
5
6
7
8
UPGN ATALAIA
UPGN CATU
UPGN CANDEIAS
EVF MANATI
9
UTGC (CACIMBAS)
12
UPGN REDUC
10
11
UTGSUL (SUL CAPIXABA)
13
UTGCA (CARAGUATATUBA)
UTGCAB (CABIÚNAS)
14
UPGN RPBC
THERMOELECTRIC
WIND
PHOTOVOLTAIC
SMALL HYDROELECTRIC
C
D
VALE DO AÇU
PARQUE EÓLICO GUAMARÉ
MANGUE SECO 1
MANGUE SECO 2
MANGUE SECO 3
MANGUE SECO 5
ALTO DO RODRIGUES
E
F
SUAPE II
TERMOCABO
ÁGUA LIMPA
AREIA
TERMOBAHIA
TERMOCAMAÇARI
BAHIA I
AREMBEPE
MURICY I
G
H
I
GOIÂNIA II
IBIRITÉ
JUIZ DE FORA
BAIXADA FLUMINENSE
SEROPÉDICA
TERMORIO
TERMOMACAÉ
J
K
L
M
TRÊS LAGOAS
CUBATÃO
NOVA PIRATININGA
PIRATININGA
ARAUCÁRIA
CANOAS
86
1
2
3
4
A
JARAQUI NG
JARAQUI FO
TAMBAQUI NG
TAMBAQUI FO
MANAUARA
B
TERMOCEARÁ
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107
Natural Gas
Our Gas and Power segment comprises gas processing, transmission and distribution, LNG regasification (Ceará, Bahia and
Rio de Janeiro), gas-fired, oil-fuelled and flex fuel power generation.
The Gas and Power segment strategy is:
❚ optimize our thermoeletric portfolio, prioritizing the self-consumption and commercialization of own natural gas;
❚ act in a competitive way, with a focus on the commercialization of own natural gas; and
❚ completely exit of natural gas distribution and transport business.
Processing of Natural Gas
Processing
Logistics
Marketing
Distribution
Natural gas from our exploration and production activities needs to be processed in processing units, to be transformed
into marketable products. These products serve as fuel and raw material for different uses, such as vehicular, industrial and
residential uses, as well as uses in the fertilizer industry and thermoelectric power generation.
Our UPGNs are located in the states of Amazonas, Ceará, Rio Grande do Norte, Alagoas, Sergipe, Bahia, Espírito Santo,
Rio de Janeiro and São Paulo in Brazil as well as in Bolivia, where we have the capacity to process natural gas in its
gaseous and condensed forms.
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OUR BUSINESS
The current processing capacity and production of our UPGNs in Brazil is:
Processing capacity and production of our UPGNs in Brazil
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Number
of units
2019
Processing
capacity
Unprocessed
natural gas
Processed
natural gas
LPG
Unprocessed
natural gas
Processed
natural gas
LPG
Unprocessed
natural gas
Processed
natural gas
LPG
2019
2018
2017
(million m³/d)
(million m³/d)
(million m³/d)
(thousand t/d)
(million m³/d)
(million m³/d)
(thousand t/d)
(million m³/d)
(million m³/d)
(thousand t/d)
Location
Rio de Janeiro
São Paulo
Espírito Santo
Espírito Santo
Rio de Janeiro
São Paulo
Ceará
Amazonas
UTGCAB
UTGCA
UTGC
UTGSUL
REDUC
RPBC
LUBNOR
URUCU
GUAMARÉ
Rio Grande do Norte
PILAR
ATALAIA
CATU
CANDEIAS
EVF MANATI
TOTAL
Alagoas
Sergipe
Bahia
Bahia
Bahia
1
1
1
1
1
1
1
4
3
1
1
1
1
1
24.60
20.00
16.61
2.50
5.00
2.00
0.35
23.37
14.68
4.89
0.58
1.46
0.46
-
17.35
14.03
4.36
0.57
1.02
0.43
-
12.10
12.10
11.56
6.10
1.98
2.98
1.95
2.95
6.00
1.36
1.24
0.78
1.57
-
3.54
66.33
1.25
1.19
0.73
1.45
-
-
53.95
19
105.12
22.15
11.47
6.41
1.01
1.02
0.52
-
17.85
10.95
5.83
0.96
0.71
0.37
-
12.32
11.45
1.45
1.40
0.83
1.71
-
4.80
65.09
1.34
1.34
0.76
1.58
-
-
53.16
0.61
0.47
0.92
-
-
-
-
1.26
0.16
0.10
0.08
-
-
-
3.60
23.42
14.51
7.52
1.34
1.05
0.73
-
11.64
1.57
1.40
1.05
1.80
0.01
4.77
18.68
13.82
6.92
1.32
0.73
0.51
-
10.84
1.45
1.34
0.96
1.67
-
-
70.81
58.25
0.78
0.57
1.01
-
-
-
-
1.16
0.18
0.09
0.10
-
-
-
3.89
0.71
0.70
0.82
-
0.06
-
-
1.21
0.15
0.07
0.06
-
-
-
3.78
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103
107
AVERAGE TOTAL VOLUME OF NATURAL
GAS PROCESSED IN OUR UNITS
million m3/day
2019
66.3
2018
65.1
2017
70.7
2%
higher than
2018
After processing of natural gas the main products were:
PROCESSED
NATURAL GAS*
million m3/day
2019
54.0
2018
53.0
2017
58.1
LPG
thousand ton/day
2019
3.8
2018
3.6
2017
3.9
* In addition to the consumer market, a portion of the volume of processed gas is destined for
reinjection in isolated areas and consumption in the processing units themselves.
The total average volume of natural gas imported from Bolivia:
In addition to the natural gas
produced in Brazil, we also received
natural gas from Bolivia through
pipeline and liquefied natural gas,
imported from other countries
on special ships and regasified at
terminals in Brazil.
2019
14.60
2018
17.02 19.48
2017
14% lower than 2018
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Logistics
Processing
Logistics
Marketing
Distribution
We use a pipeline system to transport natural gas from processing plants, regasification terminals and the border with Bolivia,
to the local distributors, as well as for the internal consumption of our units. Brazil has an integrated pipeline system
centered around two main interlinked pipeline networks, a gas pipeline connection with Bolivia and an isolated pipeline
in the northern region of Brazil (all together spanning over 9,190 km).
Our share in gas transportation companies in Brazil
Company
Gas pipeline extension
(km)
Our shareholding
Other shareholders
Transportadora Brasileira
Gasoduto Bolívia Brasil S.A (“TBG”)
2,593
51%
Transportadora Associada
de Gás S.A. (“TAG”)
Nova Transportadora do
Sudeste S.A. (“NTS”)
Transportadora Sulbrasileira
de Gás S.A. (“TSB”)
TOTAL
4,504
2,043
50
9,190
10%
10%
25%
-
BBPP Holdings Ltda. (29%);
YPFB Transporte S.A. (12%);
GTB – TBG Holdings S.A.R.L. (8%)
Caisse de Dépôt et Placement du Québec (CDPQ)
(31,50%);
GDF International (GDI) (29,25%);
Engie Brasil Energia S.A. (EBE) (29,25%)
Nova Infraestrutura Fundo de Investimento em
Participações (FIP) (82,35%);
Investimentos Itaú S.A. (Itaúsa) (7,65%)
Ipiranga Produtos de Petróleo S.A. (25%);
Total Gas and Power Brazil (25%);
Tucunaré Empreendimentos e Participações Ltda.
(25%)
In June 2019, we sold 90% of our stake in Transportadora Associada de Gás S.A. (“TAG”) to the group comprised of ENGIE and
the Canadian fund Caisse de Dépôt et Placement du Québec (“CDPQ”).
For more information on our divestments, see “Portfolio Management” in this annual report.
In addition, outside Brazil we hold an 11% stake in Gás Transboliviano S.A. (“GTB”), which is responsible for the Bolivian side of
the Bolivia-Brazil gas pipeline, measuring 557 km.
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Gas from Pre-Salt
SÃO PAULO
UTGCA
PARANÁ
MINAS GERAIS
RIO DE JANEIRO
UTGCAB
COMPERJ
10
9
2
1
3
8
7
6
4
5
ROUTE 1
ROUTE 2
ROUTE 3
ROUTE 3 - UNDER CONSTRUCTION
PLATFORM
ROUTE 1
AND GASMEX
UTGCA
EXTENSION
359 Km
CAPACITY
20 MM m3/d
ROUTE 2
UTGCAB
EXTENSION
401 Km
CAPACITY
20 MM m3/d
ROUTE 3
UTGCOMPERJ
EXTENSION
355 Km
CAPACITY
18 MM m3/d
1
2
3
4
FPSO CIDADE DE CARAGUATATUBA LAPA
FPSO CIDADE DE ILHABELA SAPINHOÁ NORTE
FPSO CIDADE DE SÃO PAULO PILOTO SAPINHOÁ
FPSO CIDADE DE ANGRA DOS REIS PILOTO LULA
5
6
7
8
9
P-66 LULA SUL
FPSO CIDADE DE SAQUAREMA LULA CENTRAL
FPSO CIDADE DE MARICÁ LULA ALTO
FPSO CIDADE DE PARATY LULA NORDESTE
FPSO CIDADE DE MANGARATIBA IRACEMA SUL
10
FPSO CIDADE DE ITAGUAÍ IRACEMA NORTE
In order to derive natural gas from our production of the Santos Ba-
la-Cernambi, Shell owns 25% and Petrogal owns the remaining 10%.
sin pre-salt pole, in addition to using part of the existing infrastruc-
We own 55% of Route 2 Cernambi-TECAB, Shell owns 25%, Petrogal
ture, we invested in the construction of flow routes integrated with
owns 10%, and Repson owns the remaining 10%.
the processing units, which seek to optimize the use of natural gas.
We have invested in the following flow routes:
ROUTE 3: This 355 km gas pipeline will connect the pre-salt to the
natural gas processing plant located in Itaboraí in the state of Rio de
ROUTE 1 AND GASMEX: The 359 km pipeline consists of two stretch-
Janeiro, for the disposal of up to 18 million m³/d. Three hundred sev-
es: Route 1, the Lula- Plataform stretch of Mexilhão, with capacity to
en km of the pipeline will be offshore, and 48 km onshore. The natural
flow up to 10 million m³/d, and the stretch connecting GASMEX - the
gas processing plant will have two units with a total capacity of pro-
Mexilhão platform to the Monteiro Lobato Gas Treatment Unit, in the
cessing 21 million m³/d of natural gas, which will increase the supply
city of Caraguatatuba in the state of São Paulo, with capacity to flow
of natural gas, LPG and natural gasoline (C5+) to the market. Route 3
up to 20 million m³/d of gas produced in the Santos Basin pre-salt.
is scheduled to start up in 2021. We own 100% of Route 3.
We own 65% of Route 1, Shell owns 25% and Petrogal owns the re-
maining 10%.
Recently installed and upcoming units in the Santos Basin pre-salt
will be progressively connected to Route 2 (P-66, P-74, P-69, P-68,
ROUTE 2: The 401 km pipeline links the Santos Basin pre-salt to the
P-76) and to Route 3 once they become operational (P-67, P-75,
UTGCAB processing asset, in the city of Macaé in the state of Rio de
P-77, P-70, FPSO Carioca and FPSO Almirante Barroso). All projects
Janeiro. It had an initial capacity to flow up to 13 million m³/d, then
will be able to flow through any of the three flow routes once the sys-
increased to 16 million m³/d. In July 2019, the ANP authorized the
tem is fully implemented.
pipeline to operate with 20 million m³/d. We own 65% of Route 2 Lu-
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Marketing
Processing
Logistics
Marketing
Distribution
The volume of our natural gas consumption to industrial,
gas-fired electric power generation, commercial and retail
customers in 2019 was 76.5 million mm³/d, representing a
small increase of approximately 1.5% compared to 2018. This
increase is mainly attributable to a higher power generation
from gas-fired power plants.
In 2019, the consumption of natural gas by our refineries
and fertilizer plants decreased by 9% compared to 2018.
This decrease is mainly attributable to the recent
mothballing of our fertilizer factories.
Below we present our sources and consumption in 2019:
SOURCES
TOTAL OFFER
NATURAL GAS
50.4
million m3/d
originated from
Brazilian production
17.9
at 2019
million m3/day
Imported
from Bolivia
8.2
million m3/day
LNG imports were subject to
regasifition at the LNG terminals in
Pecém (CE), at Baía de Guanabara (RJ)
and in Bahia (BA)
CONSUMPTION
WE SUPPLY
million m3/d
WE SELL
TOTAL VOLUME DELIVERED
million m3/d
The average of
Through
We delivered
76.5
natural gas
13.6
for the internal
consumption of
our units
62.9
to the market
38
agreements
19
distribution
companies
both for the
thermoelectric
segment,
as for the
non-thermal
segment,
including
cogeneration
units. Additionally,
we serve two free
consumers.
23.7
to the thermoelectric market
(includes our units and third party
units)
13.6
to the refinery units and
fertilizer manufacturers
38.2
to the gas distributors for
supplying the non-thermoelectric
market
1.0
was consumed by the natural
gas carriers hired by us for the
provision of transport service.
NATURAL GAS OFFER (million m3/day)
DEMAND FOR NATURAL GAS (million m3/day)
82.7
77.7
76.5
82.7
77.7
76.5
53.6 24.1
5.0
48.8 22.1
6.8
50.4 17.9
8.2
36.7 29.2 15.4
1.4
38.5 23.0 15.0
1.2
38.2 25.7 13.6
1.0
2017
2018
2019
2017
2018
2019
BRAZIL
BOLIVIA
LNG
NON THERMOELECTRIC
THERMOELECTRIC
REFINERIES
SYSTEM USAGE GAS
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Regarding changes in the Brazilian gas market, in July 2019, we signed an agreement with CADE, which consolidates our
understandings between the parties on the promotion of competition in the natural gas industry in Brazil. This agreement
includes the sale of shareholdings in gas transportation and distribution companies and, among other matters, increases the
flexibility for third parties to have access to our processing plants and release capacity in certain gas transportation contracts
to which we are part. The purpose of the agreement is to preserve and protect the competitive conditions, aiming to open the
Brazilian natural gas market, encouraging new agents to enter this market, as well as suspending administrative procedures
established by CADE court to investigate our natural gas business.
Opening the gas market
Full compliance with the commitments signed with CADE, anticipating the deadlines initially agreed
ACTIONS IN PROGRESS 2020
AND 2021
Leasing process of the
Regasification Terminal in Bahia
has started
Sale of a 10% stake in
TAG and NTS
Definition of the model for full
divestment in TBG
Negotiation of access to the
gas flow for contracting of
firm capacities
Negotiation of access to gas
treatment plants
COMPLETED ACTIONS
JUL/19
SEP/19
End of exclusive natural gas
transportation contracts
Execution of the Commitment
Agreement with ANP within the scope
of the TBG Public Call
DEC/19
Gas treatment units processing
services contract draft made available
Transition Agreement under the
natural gas supply contract with YPFB
Disclosure of the teaser to sell 10%
stake in TAG
JAN/20
Appointment of independent member
of the Board of Directors of TAG, TBG,
Gaspetro, NTS and TSB
Hiring a Monitoring Trustee to track
compliance with the CADE terms
FEB/20
MAR/20
Disclosure of the teaser for the full sale
of our 51% equity stake in Petrobras
Gás S.A. (“Gaspetro”).
Conclusion of negotiation with YPFB to
change trade conditions regarding the
acquisition of natural gas
For more information on the agreement with the CADE, see “Portfolio Management” in this annual report.
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107
Natural gas sales contracts and long-term gas purchase
and transportation commitments
We sell our gas primarily to local gas distribution companies and to gas-powered plants, generally based on standard take-
or-pay, long-term supply contracts. This represents 70% of total demand volumes. The price formulas under these contracts
are mostly aligned with Brent oil prices. Additionally, we have a number of sales contracts designed to create flexibility in
matching customer demand with our gas supply capabilities. These include interruptible long-term gas sales contracts.
In 2019, we renegotiated some existing long-term natural gas sales contracts with local natural gas distribution companies in
order to promote adjustments to commercial conditions tailored to specific market demands. We ultimately negotiated with
14 local distribution companies that represent 79% of the non-thermoelectric natural gas market and they were negotiated by
the new gas policy. The renegotiations will continue in 2020 with four local distribution companies, using the same adjustments
in commercial conditions adapted to specific market demands that we carried out with the other companies in 2019.
When we began construction of the Bolivia-Brazil pipeline (“GASBOL”) in 1996, we entered into a long-term Gas Supply
Agreement (“GSA”), with the Bolivian state-owned company Yacimientos Petroliferos Fiscales Bolivianos (“YPFB”), to purchase
certain minimum volumes of natural gas at prices linked to the global fuel oil price through 2019. The agreement may
thereafter be extended until all contracted volume has been delivered by YPFB. At present, we estimate that the agreement
will be extended at least through March 2024 under the existing terms.
In December 2019, we signed a transition agreement with YPFB under the GSA which sets a transition period (from January
1, 2020 to March 10, 2020), during which we will continue the ongoing negotiation process. Our purpose is to change certain
commercial conditions according to the Brazilian natural gas market opening process and the new context of the Bolivian market.
Following the transition agreement, in March 2020 we and YPFB signed a new amendment to the GSA which refers to the
volume of gas initially contracted that has not yet been delivered by YPFB until December 31, 2019. This amendment provides
for the reductions of (i) the YPFB supply obligation to us from the current volume of 30.08 million m³/d to 20 million m³/d and
(ii) our take-or-pay obligation from the current volume pf 24.06 million m³/d (annual basis) to 14 million m³/d (daily basis),
without any changes on the gas price formula, thus allowing the surplus volume of natural gas to be traded directly by YPFB
with other market agents in Brazil.
Therefore, the execution of this amendment reaffirms Petrobras’ commitment to the opening of the Brazilian natural gas
market, stimulating its competition by encouraging new agents to enter the market.
On the Bolivian side of GASBOL, while YPFB has shipper’s obligations, we agreed to pay, on behalf of YPFB, the amounts
related to 24 million m3/d directly to GTB until 2019 and pre-paid 6 million m3/d until 2039.
On the Brazilian side of GASBOL, after 2020, there will be 12 million m3/d of remaining volume related to Bolivian gas
imports and 5.2 million m3/d related to extra capacity between Paulínia, in the state of São Paulo, and Araucária, in the state
of Paraná. Any additional capacity must be contracted through a public process conducted by the ANP, in accordance with
Brazilian law. In December 2019, the ANP approved the resumption of the ANP Public Call January 2019 process, authorizing
Transportadora Brasileira Gasoduto Bolívia-Brasil S.A. (“TBG”) to disclose the result of the guaranteed proposal stage and the
signing of transport service contracts. TBG hired us for the years 2020 and 2021, respectively, 18 million m3/d and 8 mmm3/d.
Our volume obligations under the ship-or-pay arrangements entered into with GTB and TBG were originally designed to
match our gas purchase obligations under the GSA through 2019. Because of the transition agreement under the GSA, the
ship-or-pay arrangements entered into with GTB will last until March 10, 2020.
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103
107
The table below shows these contractual commitments under the above agreements for the five-year period from 2020
through 2024.
Future commitments under natural gas sales contracts, million m3/d
To local gas distribution companies:
Related parties(1)
Third parties
To gas-fired power plants:
Related parties(1)
Third parties
Total(2)
Estimated amounts to be invoiced (US$ billion)(3)(4)
Purchase Commitments
Purchase commitments to YPFB
Volume obligation (mmm³/d)(5)
Volume obligation (mmcf/d)(5)
Brent Crude Oil projection (US$)(6)
Estimated payments (US$ million)(7)
Transportation Commitments
Ship-or-pay contract with GTB
Volume commitment (mmm³/d)
Volume commitment (mmcf/d)
Estimated payments (US$ million)(8)(9)
Ship-or-pay contract with TBG (11)
Volume commitment (mmm³/d)(10)
Volume commitment (mmcf/d)
Estimated payments (US$ million)(8)
Ship-or-pay contract with NTS (11)
Volume commitment (mmm³/d)
Volume commitment (mmcf/d)
Estimated payments (US$ million)(8)
Ship-or-pay contract with TAG (11)
Volume commitment (mmm³/d)
Volume commitment (mmcf/d)
Estimated payments (US$ million)(8)
2020
2021
2022
2023
2024
17.27
21.33
2.80
9.26
50.66
5.07
14.00
495.00
65.21
931,73
6.00 (12)
211.89
0.32
9.04
18.66
2.96
8.50
39.15
4.46
14.00
495.00
65.00
851,34
6.00
211.89
0.32
51.71(13)
27.02(13)
1,826.08
385.10
954.21
210.80
1.59
8.17
2.99
10.49
23.24
2.28
14.00
495.00
65.00
806,18
6.00
211.89
0.32
11.20
395.53
13.05
1.34
7.35
3.26
11.04
22.99
2.01
14.00
495.00
65.00
827,48
6.00
211.89
0.32
11.20
395.53
13.16
1.34
7.33
3.02
9.71
21.40
1.79
14.00
495.00
-
848,57
6.00
211.89
0.32
11.2
395.53
13.27
158.21
158.21
158.21
158.21
158.21
5,587.01
5,587.01
5,587.01
5,587.01
5,587.01
1,270.13
1,305.26
1,319.18
1,329.82
1,337.00
74.28
2,623
73.58
2,598
73.58
2,598
73.58
2,598
73.58
2,598
1,536.40
1,590.43
1,607.39
1,620.36
1,629.11
(1) For purposes of this table, “related parties” include all local gas distribution companies and power generation plants in which we have an equity interest and
“third parties” refer to those in which we do not have equity interest.
(2) Estimated volumes are based on “take or pay and ship or pay” agreements in our contracts, expected volumes and contracts under negotiation (including
renewals of existing contracts), not maximum sales.
(3) Estimates are based on outside sales and do not include internal consumption or transfers.
(4) Prices may be adjusted in the future, according to formula defined in contract, and actual amounts may vary.
(5) 23.95% of contracted volume supplied by Petrobras Bolivia.
(6) Brent Crude Oil price forecast based on our 2020-2024 Strategic Plan.
(7) Estimated payments are calculated using gas prices expected for each year based on our Brent Crude Oil price forecast. Gas prices may be adjusted in the
future based on contract clauses and amounts of natural gas purchased by us may vary annually.
(8) Amounts calculated based on current prices defined in natural gas transport contracts.
(9) No estimated payments from 2020 due to Contract TCO-Bolivia prepayment.
(10) Includes ship-or-pay contracts relating to TBG’s capacity increase.
(11) We undertook divestment processes for TAG in of 2019. The ship-or-pay contracts shown with TBG, NTS and TAG are not included in our audited
consolidated financial statements, since such contracts are intercompany transactions.
(12) The TCQ Bolivia and TCX Bolivia Contracts were extended until March 20, 2020.
(13) The sum of legacy point-to-point contracts (TCO, TCX and CPAC) was considered with the new entry and exit contracts, object of public call No. 001/2019.
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Distribution
Processing
Logistics
Marketing
Distribution
Distributors provide gas through their distribution networks to commercial establishments, residences, industries, vehicles
and thermoelectric plants.
In February 2020 we have released the teaser for the full sale of our 51% equity stake in Petrobras Gás S.A. (“Gaspetro”).
Gaspetro is a holding company that consolidates our equity interests in 19 of the 27 state natural gas distributors, and Mitsui
holds the remaining 49% interest. In addition, we hold a 37.5% stake in Petrobras Distribuidora which operates the distribution of
natural gas in the state of Espírito Santo. In 2019, of the total of 38.16 mmm³/d of gas sold to distributors, 46% was distributed
through distributors which participation is partially held by Gaspetro.
In Uruguay, through Petrobras Uruguay S.A. de Inversión, we held, until September 2019, participation in two companies
in the natural gas distribution business which are responsible for the distribution of natural gas throughout the Uruguayan
territory. Due to the lack of economic viability, we returned the natural gas distribution concessions to the Uruguayan State
through the transfer of shares of the distributors. In 2018, these two companies sold 162,000 m³/d to 59,000 customers.
In the first three quarters of 2019, they sold 166,000 m³/d to 59,000 customers.
Power
Brazilian electricity needs are mainly met by hydroelectric
independent power producer. They are powered by natural
power plants and other sources of energy (wind, coal, nuclear,
gas, diesel or fuel oil, with a total installed capacity of
fuel oil, diesel oil, natural gas used in thermoeletrics, and
6,148 MW. These plants are designed to supplement power
others). The Free Marketing Environment (“ACL”) and the
from the hydroelectric power plants.
Regulated Marketing Environment (“ACR”) are involved in the
regulation of the electric energy market in Brazil.
In 2019, the total electricity generated in Brazil, according
to the ONS, was 67,763 MWavg. Our thermoelectric power
Hydroelectric power plants are dependent on the annual level
plants contributed 2,028 MWavg (2,205 MWavg in 2018 and
of rainfall. When rainfall is abundant, Brazilian hydroelectric
3,165 MWavg in 2017). This was due to the increase in storage
power plants generate more electricity. As a result, under
of the reservoirs supplying the hydroelectric plants of the
these circumstances, there is less demand for power
National Interconnected System (as a result of the favorable
generation by thermoelectric power plants.
rainfalls throughout the year).
We generate and sell electric power from a generator park
We also have plants with generation through renewable sources.
consisting of 20 thermoelectric power plants that we own
In addition, we hold participation in other projects. This adds up
or lease, operating under the authorization regime as an
to 316 MW to our electricity generation capacity.
Sales and generation of electricity(1)
Electricity Sales (ACL) – average MW(2)
Electricity Sales (ACR) – average MW
Electricity generation – average MW
2019
1,168
2,788
2,028
2018
1,231
2,788
2,205
2017
1,212
3,058
3,165
(1) The generation value in the table above includes only the plants where we manage the operation.
(2) Includes electricity sales from the Gas and Power segment to other operating segments, service and other revenues from electricity companies.
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107
Electricity sales and commitments for
future generation capacity
Under Brazil’s power pricing regime, a thermoelectric power plant is only allowed to sell electricity that is certified by the MME
and which corresponds to a fraction of its installed capacity. The certificate is granted to ensure a constant sale of commercial
capacity over the course of years to each power plant, given its role within Brazil’s system to supplement hydroelectricity
power during periods of unfavorable rainfall. The amount of certified capacity for each power plant is determined by its
expected capacity to generate energy over time.
The total capacity certified by the MME (garantia física) may be sold through long-term contracts in auctions to power
distribution companies (standby availability), and through bilateral contracts executed with free customers and used to meet
the energy needs of our own facilities.
In exchange for selling this certified capacity, the thermoelectric power plants must produce energy whenever requested ONS
it. In addition to a capacity payment, thermoelectric power plants also receive a reimbursement for variable costs (declared to
MME to calculate commercial certified capacity) incurred whenever they are requested to generate electricity.
In 2019, the commercial capacity certified by MME for all thermoelectric power plants we control was 3,770 MWavg. Our
total generating capacity was 6,148 MWavg. Of the total 4,161 MWavg of commercial capacity available for sale in 2019,
approximately 67% was sold as standby availability in public auctions in the regulated market (compared to 59% in 2018) and
approximately 28% was committed under bilateral contracts and self-production, i.e. sales to related parties, compared to 26%
in 2018.
Under the terms of standby availability contracts, we receive a fixed amount whether or not we generate any power.
Additionally, whenever we have to deliver energy under these contracts, we receive an additional payment for the energy
delivered that is set on the auction date and is revised monthly or annually, based on inflation-adjusted international
fuel price indexes.
The table below shows the evolution of our installed thermoelectric power plants’ capacity, our purchases in the free market
and the associated certificated commercial capacity.
Installed power capacity and utilization
Installed capacity (MW)
Certified commercial capacity (Mwavg)
Purchases in the free market (Mwavg)
Commercial capacity available (Lastro) (Mwavg)
2019
6,148
3,770
391
4,161
2018
6,148
3,900
821
4,720
2017
6,148
4,040
888
4,928
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The table below shows the allocation of our sales volume between our customers and our revenues for each of the past three years:
Volumes of electricity sold (MWavg)
Total sale commitments
Bilateral contracts
Internal consumption
Public auctions to distribution companies
Generation volume
Revenues (US$ million)(1)
2019
3,958
812
356
2,788
2,028
2,334
2018
4,020
832
399
2,788
2,205
3,066
2017
4,270
788
424
3,058
3,165
4,162
(1) Includes electricity sales revenues from the Power segment to other operating segments, service and other revenues from electricity companies.
Our power assets and their respective locations are listed in the table below.
Our power assets (MW)
Type
Region
Power Plant
Ibirité
Baixada Fluminense
Fuel
NG
NG
Southeast /
Midwest
Seropédica
NG/DO
Cubatão
Nova Piratininga
Piratininga
Termorio
NG
NG
NG
NG
Juiz de Fora
NG/ET
Três Lagoas
Termomacaé
NG
NG
UTE
South
Canoas
DO/NG
Termobahia
Vale do Açu
Termocamaçari
NG
NG
NG
Northeast
Termoceará
NG/DO
Bahia I
Arembepe
Muricy I
Jaraqui NG
Jaraqui FO
Tambaqui NG
Tambaqui FO
FO
FO
FO
NG
FO
NG
FO
North
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
)
d
e
l
l
o
r
t
n
o
c
r
o
e
s
a
e
l
,
n
w
o
(
t
n
e
m
e
g
a
n
a
M
s
a
r
b
o
r
t
e
P
UTEs Petrobras Management
21 WIND
Northeast
22
PV
Northeast
Parque Eólico
Guamaré
Solar Alto do
Rodrigues
Subtotal Petrobras Management
Installed
Capacity
Shareholding
or PIE
Petrobras
Capacity
Partners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Breitener Jaraqui S.A. and Breitener
Tambaqui S.A. 100% owned by
Breitener Energética – Petrobras:
93.66%; GGR Participações S.A.:
3.34%; Alcântara, Mendes & Cia: 1%
Arcadis Logos Energia S.A.: 1%; Orteng
Equipamentos e Sist. Ltda: 1%.
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
93.66%
93.66%
93.66%
93.66%
100%
100%
100%
226
530
386
219
386
190
1,058
87
386
923
249
186
323
138
220
32
150
147
71
76
87
59
6,128
2
1
6,131
226
530
386
219
386
190
1,058
87
386
923
249
186
323
138
220
32
150
147
76
81
93
63
6,148
2
1
6,151
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PORTFOLIO MANAGEMENT
EXTERNAL BUSINESS ENVIRONMENT
103
107
Type
Region
Power Plant
Fuel
Installed
Capacity
Shareholding
or PIE
Petrobras
Capacity
Partners
1
2
3
4
5
6
7
8
9
10
11
i
s
g
n
d
l
o
h
e
r
a
h
S
s
a
r
b
o
r
t
e
P
Total
Southeast /
Midwest
Goiânia II
South
Araucária
Suape II
145
484
381
30%
18.80%
20%
GN
OC
UTE
Northeast
Termocabo
OC
50
12%
North
Manauara
GN/OC
WIND
Northeast
PCH
Southeast /
Midwest
Mangue Seco 1
Mangue Seco 2
Mangue Seco 3
Mangue Seco 5
Água Limpa
Areia
Subtotal Petrobras Shareholdings
52%
49%
51%
49%
49%
14%
14%
85
26
26
26
26
14
11
1,275
7,426
44
91
76
6
44
13
13
13
13
2
2
316
6,447
Enegen Participações S.A.: 70%;
Petrobras: 30%
Copel: 20,3%; Copel GeT: 60.9%;
Petrobras: 18.8%
Savana SPE Incorporação Ltda.: 80%,
Petrobras: 20%
Brasympe Energia S.A.: 60% (Petrobras
has 20% of shareholding at Brasympe);
EBRASIL S.A.: 24%;
SZF Participações Ltda: 14%;
OZ&M Incorporação Participação Ltda: 2%
Petrobras: 40%; TEP: 60%
(Petrobras has 20% of shareholding at TEP)
Alubar Energia S.A.: 51%;
Petrobras 49%
Eletrobrás: 49%; Petrobras: 51%
Wobben Windpower Industria e Comércio
Ltda: 51%; Petrobras: 49%
Wobben Windpower Industria e Comércio
Ltda: 51%; Petrobras: 49%
TEP: 70% (Petrobras has 20% of
shareholding at TEP); RPE - Produtora de
Energia Elétrica Ltda: 30%
TEP: 70% (Petrobras has 20% of
shareholding at TEP); RPE - Produtora de
Energia Elétrica Ltda: 30%
Note: NG - Natural Gas; FO - Fuel Oil; DO - Diesel Oil; ET - Ethanol; PIE - Independent Power Producer; UTE - Thermoelectric Power Plant;
PCH - Small Hydroelectric Plant; PV - Photovoltaic.
Contracts of our thermoelectric power plant at Regulated Marketing Environment (or “ACR”) and their respective contrated
power and contract expiration date are listed in the table below.
Our contracts at regulated marketing environment (ACR)
Region
Power plant
Baixada Fluminense
Southeast /
Midwest
Northeast
Seropédica
Cubatão
Termorio
Três Lagoas
Termomacaé
Termoceará
Bahia I
Arembepe
Muricy I
Contracted power
(MWavg)
416.4
336.0
197.0
957.0
334.0
200.0
141.0
5.0
101.0
101.0
99
Contract expiration date
2033
2019 (58MW), 2023 (278MW)
2019 (56MW), 2024 (141MW)
2019 (253MW), 2022 (352MW), 2024 (352MW)
2019 (207MW), 2023 (127MW)
2025
2023 (64MW) e 2024 (77MW)
2025
2023
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We also have invested, independently and in partnership
❚ 3.6 MW of hydroelectric capacity,
with other companies, in renewable power generation
sources in Brazil, including wind. We hold indirect interests
in two small hydroelectric power plants (Areia and Água
Limpa) through our associate Termoelétrica Potiguar S.A.
(“TEP”). We also own a solar power plant unit, Unidade
❚ 1.1 MW of solar capacity; and
❚ 51.5 MW wind capacity, corresponding to 49.5% of the
104 MW of Mangue Seco 1, 2, 3 and 4.
Fotovoltaica de Alto Rodrigues. Additionally, we participate
We and our partners sell energy from these plants directly to
in joint ventures in four wind power plants (Mangue Seco 1,
the Brazilian federal government through auctions.
2, 3 and 4), two of them (Mangue Seco 1, 2) in divestment
process. Our strategy is to maximize value through active
portfolio management, maintaining investments in research
and development in renewable energy. In order to invest in
such areas in the future, we are planning to invest US$70
million/year in R&D for decarbonization and renewables. The
power generation capacity we have (alone and through the
equity interests we hold in renewable energy companies) is
Furthermore, we signed in 2018 a Memorandum of
Understanding (“MoU”) with the Norwegian company
Equinor ASA (“Equinor”), to evaluate a joint business
development in the offshore wind energy industry in Brazil.
The MoU with Equinor has evolved to jointly evaluate a future
wind project in the Campos Basin, using R&D funding.
as follows:
For more information on our divestment process, see
“Portfolio Management”.
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Customers and Competitors
Natural gas is marketed to 22 clients, most of which are distributors. The entire demand for natural gas includes our non-
thermoelectric, thermoelectric, refining and fertilizer segments, as well as the consumption by natural-gas carriers contracted
by us for the provision of transportation services.
Gas clientes
(% vol)
18
51
31
Non-Thermoelectric segment
(% vol)
Thermoelectric segment
(% vol)
44
41
56
59
NON-THERMOELECTRIC SEGMENT
DISTRIBUTORS
THIRDY PARTY PLANTS
THERMOELECTRIC SEGMENT
REFINING AND FERTILIZER
DISTRIBUTORS WITH PARTICIPATION
OWN PLANTS
OF PETROBRAS (BY GASPETRO)
In the energy segment, we operate in the regulated market
competition, since the Brazilian federal constitution provides
(energy distributors) and free market (marketers and free
that the natural-gas distribution segment can only be exercised
consumers/large consumers). We have 142 clients, of which
through concession by public authorities of each state.
41 are distributors, 48 are marketing companies, and 53 are
free consumers. All contracts are registered at the Electricity
Trading Chamber, a sector agent responsible for the
settlement and accounting of these contracts.
As mentioned before, in July 2019, we signed an agreement
with CADE, which consolidates understandings between
the parties on the promotion of competition in the natural
gas industry in Brazil. This agreement includes the sale
In the commercialization of natural gas, we act as importers
of shareholdings in gas transportation and distribution
and domestic producers who can directly sell our product
companies and, among other matters, increase the flexibility
to the distributors or thermoelectric plants. We expect
for third parties to have access to our processing plants
an increase in competition due to new regulation under
and release capacity in certain gas transportation contracts
discussion which aims to improve the regulatory framework
to which we are a part. The purpose of the agreement is to
of the natural gas sector and to establish guidelines for a
preserve and protect the competitive conditions, aiming
new design of the market that allows the entry of new agents
to open the Brazilian natural gas market, encouraging
in the sector in order to promote competition.
The transportation of natural gas also consists of a
monopoly of the Brazilian federal government. There is
no competition since the area of activity of the carriers is
divided by region across the national territory.
new agents to enter this market, as well as suspending
administrative procedures established by CADE court to
investigate our natural gas business.
In the energy segment, we operate in generation and sale.
In generation, we compete with third-party thermoelectric
In the natural gas distribution segment we operate through
plants, as well as other generators with other energy sources
indirect participation in state companies, where each distributor
(hydro, wind, solar). In terms of commercialization, we
has a monopoly for its concession area, and there is no
compete with other energy marketers.
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Fertilizers
We have two fertilizer plants in Brazil, one located in the
state of Bahia, (“FAFEN-BA”), and other in the state of
years and may be extended for additional 10 years. Leases
will become effective upon approval by CADE and issuance of
mandatory operation permits for Proquigel Química.
Sergipe (“FAFEN-SE”), and one subsidiary located in Paraná,
In January 2020, following our attempts to sell ANSA, we
Araucaria Nitrogenados S.A. (“ANSA”). Their main products
approved the mothballing of this fertilizer plants. With this
are ammonia and urea. Together these plants have an
decision, we continue our strategy of leaving the fertilizer
installed capacity of 1.852 million t/year of urea, 1.406
segment and focusing on assets that generate value.
million t/y of ammonia, 319,000 t/y of ammonium sulfate
and 800,000 tons/y of ARLA-32. The ammonium sulfate unit
in Sergipe, however, did not operate in 2019. Most of our
ammonia production is used to produce urea, and the excess
production is mainly sold in the Brazilian market.
In February 2020, we announced the beginning of the non-
binding phase related to the sale of all our equity stake in the
Nitrogen Fertilizer Unit (UFN-III). UFN-III is a nitrogen fertilizer
industrial project located in Três Lagoas, in the state of Mato
Grosso do Sul, Brazil. The construction of UFN-III began in
We continue to pursue our strategy of leaving the fertilizer
September 2011, but was interrupted in December 2014,
segment and focusing on assets that generate greater
with a physical advance of about 81%.
financial return and are more adherent to our business. In
After completion, UFN-III will have a projected urea and
2019, we mothballed our plants located in Bahia and Sergipe
ammonia production capacity of 3,600 t/d and
and, after that, we signed lease agreements with Proquigel
2,200 t/d, respectively. The completion of UFN-III will be the
Química S.A. (“Proquigel Química”), a company of the Unigel
responsibility of the potential buyer.
Group, leasing FAFEN-BA and FAFEN-SE for a total amount
of R$177 million. The agreements have an initial term of 10
Fertilizer production (thousand tons)
2017
2018
2019
782
867
713
864
329
434
AMMONIA
UREA
Main
Assets
Fertilizers
Fertilizer plants
Urea production capacity (thousand ton/year)
Ammonia production capacity (thousand ton/year)
2019
3(1)
1,852(1)
1,406(1)
2018
3
1,852
1,406
2017
3
1,852
1,406
(1) Includes FAFEN-BA, FAFEN-SE and ANSA capacity, although in November 2019, we signed lease agreements leasing two of our
nitrogen fertilizer plants (FAFEN-BA e FAFEN-SE) to third parties and in January 2020 we are mothballing ANSA’s plant.
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Portfolio Management
Our active portfolio management, part of our 2020-2024 Strategic Plan, is the key driver of our partnerships
and divestments, which aim to improve our operating efficiencies and returns on capital, and generate additional
cash to reduce our debt, while supporting best investment opportunities. Currently, our partnerships and
divestments comprise the sale of minority, majority or entire participations in certain of our subsidiaries,
affiliates, and assets to strategic or financial investors or by means of public offerings.
In line with the TCU, guidelines and current legislation, the following stages of our divestment projects are
disclosed to the public:
OPPORTUNITY DISCLOSURE
This is when the intention of divestment is made public,
(TEASER)
and potential interested parties are invited to take part
in the bidding process.
BEGINNING OF THE NON-BINDING PHASE
Optional step, held to identify and select the
(WHEN APPLICABLE)
participants who are really interested in the acquisition
and that see greater value in the assets/companies.
BEGINNING OF THE BINDING PHASE
Step where the selection of the best offer made
by the potential interested parties takes place, in order
to maximize the value of sales.
GRANTING EXCLUSIVITY IN THE NEGOTIATION
Optional step, which occurs when exclusivity is
(WHEN APPLICABLE)
formally granted to a potential buyer, after the
binding phase.
TRANSACTION APPROVAL BY SENIOR
MANAGEMENT (EXECUTIVE BOARD AND BOARD
Step containing the signing of purchase and sale
(or assignment of rights) agreements containing the
OF DIRECTORS) AND SIGNING OF AGREEMENTS
conditions of the transaction, including the conditions
CLOSING OF THE TRANSACTION
precedent for the closing.
Step where the transaction is concluded with the
fulfillment of the conditions precedent set forth
in the agreement.
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From January 1, 2019 through March 16, 2020, we completed, among others, the following divestitures.
Signing date
Closing date
Main transactions
June 27, 2018
March 8, 2019
Full sale of stake in Petrobras Paraguay Distribución Limited (“PPDL UK”), Petrobras
Paraguay Operaciones y Logistics SRL (“PPOL”) and Petrobras Paraguay Gas SRL
(“PPG”).
January 30, 2019 May 1, 2019
Sale of all the shares held by PAI in the companies that encompass Pasadena’s entire
refining operations system: PRSI and PRSI Trading LLC (“PRST”).
April 25, 2019
June 13, 2019
Sale of 90% of stake in the TAG.
July 23, 2019
July 26, 2019
Sale of 33.75% of Petrobras Distribuidora’s capital stock through the secondary
public offering of shares.
March 8, 2019
Sept. 10, 2019
Sale of our full stake in the Maromba field
Nov. 28, 2018
Oct. 8, 2019
Sale of stake in the fields of Pargo, Carapeba and Vermelho, the so-called “Polo
Nordeste”, located in shallow waters off the coast of Rio de Janeiro state.
August 8, 2019
Nov. 1, 2019
Sale of 50% of stake in Belem Bioenergia Brasil (“BBB”).
April 25, 2019
Dec. 9, 2019
Sale of full stake in 34 onshore production fields, located in the state of
Rio Grande do Norte.
April 25, 2019
Dec. 27, 2019
Sale of 50% working interest in Tartaruga Verde field (BM-C-36 Concession) and
Module III of Espadarte field.
Oct. 31, 2018
Jan. 14, 2020
Sale of entire 50% interest in PO&G.
Total
Transaction
nominal value(1)
(US$ billion)
0.38
0.56
8.72(2)
2.55(3)
0.09
0.37
0.006(4)
0.38
1.29
1.53
15.88
(1) Considering agreed amounts at the signing of the transaction.
(2) The transaction was negotiated in reais in the amount of R$33.5 billion. Thus, for purposes of table composition, the amount was translated at the exchange
rate R$3.84 per US Dollar on the closing day (June 13, 2019). The total amount includes US$0.536 billion destined to settle TAG’s debt with BNDES.
(3) The transaction was negotiated in reais in the amount of R$9.6 billion. Thus, for purposes of table composition, the amount was translated at the exchange
rate R$3.77 per US Dollar on the closing day (July 26, 2019). The amount includes the full exercise of overallotment option also known as a “Greenshoe Option”.
(4) The transaction was negotiated in reais in the amount of R$24.7 million. Thus, for purposes of table composition, the amount was translated at the
exchange rate R$3.97 per US Dollar on the closing day (November 1, 2019). Despite the completed transaction, the amount will be retained by Galp Bioenergy
B.V until December 2020 to offset potential indemnity payments.
From January 1, 2018 through March 16, 2020, we have signed agreements for transactions that are currently pending
closing. Completion of such transactions is subject to compliance with certain contractual and legal conditions precedent.
Signing date
Main transactions
Dec. 21, 2018
Assignment of 10% rights from the Lapa field to Total, in Block BM-S-9. Exercise of the option to sell the
remainder of our interest, as provided for in the agreement signed in January 2018, when Total acquired
35% of our stake, within the scope of the strategic partnership.
July 24, 2019
Sale of 100% of interest in the Pampo and Enchova clusters, located in shallow waters in the Campos Basin.
July 24, 2019
Sale of 100% of interest in the Baúna field (awarded area BM-S-40), located in shallow waters in the Santos Basin.
Sept. 8, 2019
Sale of entire working interest in a set of onshore and maritime producing fields in the Potiguar Basin,
denominated Macau Cluster, located in the state of Rio Grande do Norte, Brazil.
Sept. 30, 2019 Sale of stake in the onshore fields of Ponta do Mel and Redonda, located in the state of Rio Grande do Norte,Brazil.
Oct. 11, 2019
Sale of entire working interest in the onshore fields of the Lagoa Parda Cluster, located in Espírito Santo state, Brazil.
Nov. 19, 2019
Sale of 100% stake in Liquigás Distribuidora S.A.
Nov. 28, 2019
Sale of 30% stake in the Frade concession, located in the Campos Basin, north coast of the state of
Rio de Janeiro, Brazil.
Mar. 9, 2020
Sale of all participations in four onshore fields, located in Bahia, jointly called Polo Tucano Sul
Total
Transaction
nominal value(1)
(US$ billion)
0.05
0.851
0.665
0.191
0.007
0.009
0.879(2)
0.100
0.003
2.76
(1) Agreed amounts subject to adjustment at the closing of the transaction.
(2) The transaction for this operation was negotiated in reais. Thus, for purposes of table composition, the amount was translated at the exchange rate R$4.208
per US Dollar the signing day (November 19, 2019).
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Our divestment process is aligned with TCU and subject to
we currently adopt to sell our shareholding in other
judicial review by Brazilian authorities.
companies. For more information on judicial proceedings
In 2019, the Brazilian Federal Supreme Court (“STF”)
understood that the sale of subsidiaries of state-owned
companies does not require prior legislative authorization
and public bidding, confirming the legality of the procedure
related to our divestments, see “Legal and Tax – Legal
Proceedings – Other Legal Proceedings – Legal Proceedings
and Preliminary Procedure on TCU – Divestments” in this
annual report.
Agreements
with CADE
In 2019, we signed two agreements with CADE, which consolidates understandings between the
parties related to (i) the execution of divestment of refining assets, and (ii) promoting competition in
the natural gas industry in Brazil.
Refining agreement
With the execution of refining agreement, among other related commitments, we are committed to
divesting approximately 50% of our refining capacity, which represents the full sale of seven refineries
(REPAR, REFAP, RLAM, RNEST, REGAP, LUBNOR, REMAN) and a shale industrialization unit (SIX) with
their associated logistics.
The agreement also provides that, of the following subgroups (i), (ii) and (iii), the companies listed may
not be acquired by the same buyer or by companies of the same economic group, as the companies
listed in each subgroup are considered competitors with one another: (i) RLAM and RNEST; (ii) REPAR
and REFAP; and (iii) REGAP and RLAM. An external agent that we contract, according to specifications
to be established by mutual agreement, will accompany the schedule and compliance with the
commitments assumed with CADE.
Natural gas agreement
The agreement includes the sale of our shareholding participation in companies of the gas
transportation and distribution segments:
(i) 10% stake in NTS;
(ii) 10% stake in TAG;
(iii) 51% stake in TBG; and
(iv) indirect participation in gas distribution companies, either by selling our 51% stake in Gaspetro, or
by selling indirect participation in distribution companies.
In transportation, we undertake to indicate in the transportation systems the maximum injection and
withdrawal volumes at each receiving point and delivery area, for further adjustments to the current
transportation service contracts, so that transportation companies, under the supervision of the ANP,
can offer the remaining capacity to the market, thus enabling other companies to use the transportation
network not used by us. Furthermore, we are committed to other actions to allow greater competitiveness
in the natural gas market, such as: (i) negotiating access to outflow and processing assets, (ii) refraining
from purchasing new gas volumes from partners/third parties, except in certain situations provided for in
the agreement, and (iii) leasing of the regasification terminal in the state of Bahia.
The purpose of the agreement is to preserve and protect the competitive conditions, aiming to open
the Brazilian natural gas market, encouraging new agents to enter this market, as well as suspending
administrative procedures established by CADE to investigate our natural gas business.
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In addition, we have in our portfolio other projects in their structuring phase, and believe in a strategy for our portfolio
management that focuses on core assets, in order to improve our capital allocation, enable debt and capital cost reduction,
and ultimately increase value generation for us and our shares.
We have disclosed the teasers, non-binding and binding phases related to the following assets that are currently part of our
divestment portfolio.
Phase
Teaser
Non-binding
Summary scope of main transactions(1)
Sale of the entire stake in the Papa-Terra field, located in deepwaters in the Campos Basin.
Sale of the entire stake in Merluza and Lagosta fields, located in shallow waters in the Santos Basin.
Sale of the totality of participation in two sets of maritime concessions in deep waters in the post-salt, called Polo
Golfinho and Polo Camarupim, located in the Espírito Santo Basin.
Full sale of stakes in the wind power companies Eólica Mangue Seco 1, Eólica Mangue Seco 2,
Eólica Mangue Seco 3 and 4.
Sale of the totality of participation in our fuel and lubricant distribution company in Colombia, named Petrobras
Colombia Combustibles (PECOCO)
Sale of the entire stake (100%) in the fertilizer unit UFN-III (Unidade de Fertilizantes Nitrogenados III).
Sale of the totality of our 51% equity stake in Petrobras Gas S.A. (Gaspetro).
Full sale of interest in Petrobras Uruguay Distribuición S.A. (PUDSA).
Sale of the remaining stake (10%) in Transportadora Associada de Gás S.A. (TAG).
Sale of assets in refining and associated logistics in the country: Gabriel Passos Refinery (REGAP) in Minas Gerais,
Isaac Sabbá Refinery (REMAN) in Amazonas, Northeast Lubricants and Petroleum Derivatives (LUBNOR)
in Ceará and SIX in Paraná, as well as their corresponding logistics assets.
Sale of assets in refining and associated logistics in the country: Abreu e Lima Refinery (RNEST) in Pernambuco,
Landulpho Alves (RLAM) in Bahia, Presidente Getúlio Vargas (REPAR) in Paraná and Alberto Pasqualini (REFAP) in
Rio Grande do Sul and its corresponding logistics assets.
Full disposal of 34% interest in the Company MEGA S.A.
Total assignment of two land concessions, including drainage facilities, called Polo Cupiúba and Carapanaúba,
located in the state of Amazonas.
Binding
Sale of all stakes in nine onshore fields, located in Bahia, jointly called Polo Miranga.
Sale of all stakes in eight onshore exploration and production concessions, located in the state of Bahia, jointly
called Polo Rio Ventura.
Sale of all shares in 14 onshore exploration and production concessions, located in the state of Bahia, jointly known
as the Polo Recôncavo.
Total assignment of rights in 27 mature onshore fields, located in Espirito Santo, jointly called Polo Cricaré.
Total assignment of rights in four sets of onshore fields (totaling 12 concessions), in Ceará and Sergipe.
Sale of all stakes in the Peroá production fields, and in the BM-ES-21 concession, located in the
Espírito Santo Basin.
Sale of partial participation of up to four exploration and production blocks in deep waters concessions, located in
the states of Sergipe and Alagoas.
Sale of all stakes in 11 production fields located in shallow waters in the Campos Basin, jointly called Polo Garoupa.
(1) Information updated as of March 20, 2020.
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External Business Environment
We are subject to external variables that can impact the
performance of our business and the way we plan for the
future. We describe key variables in 2019 below.
Global Economy
Growth of the global economy slowed from 3.6% in 2018
GDP global growth rate (%)
to 2.9% in 2019, according to the World Economic Outlook
published by the International Monetary Fund (“IMF”) in
January 2020. The year was marked by the escalation of the
trade war between the U.S. and China, which increased the
uncertainty and risk aversion in global markets. During the
year, the U.S. set importing tariffs of over US$550 billion on
Chinese products. China in turn retaliated on over
US$185 billion in American exports.
The main impact of the trade war was in the global trade,
which slowed from a 3.6% growth in 2018 to 1.1% in 2019,
according to data from the IMF. Consequently, the two main
world economies suffered a deceleration in the GDP in the
3.8
3.6
2.9
2017
2018
2019
last year. The U.S. fell from a growth closer to 3% to around
Source: IMF, 2019
2%, and the Chinese economy, from a growth of around 6.7%
to approximately 6%, according to data from the U.S. Bureau
and Japan also fell over the year. The higher liquidity in
of Economic Analysis and the National Bureau of Statistics
global markets encouraged an increase in stock exchanges
of China. The slowdown was mainly due to the worsening
around the world. In the U.S., the Standard & Poor’s 500
of exports performance.
(S&P 500) reached its historical maximum (monthly average)
The deceleration in the growth of the world economy and,
in December 2019.
in particular, of the U.S. economy, caused the American
In the end of 2019 and beginning of 2020, two new factors
monetary authority to stop increasing the policy interest
affected growth expectations for this year. On the one hand,
rate, or the Fed Funds Rate (“FFR”). During the year, the
there were advances in the negotiations between China and
Federal Open Market Committee (“FOMC”) made three cuts
the U.S. for the resolution of the trade war. The two countries
in the FFR, causing the rate, which began the year at 2.50%
signed what was called “phase one of the agreement. On the
p.a., to reach 1.75% p.a. in December.
other hand, the coronavirus epidemic, originating in China,
The downward movement in U.S. interest rates was
accompanied by other regions and countries. Thus,
has negatively influenced growth projections due to its
potential impact on the circulation of people and
overnight interest rates in the United Kingdom, Europe
products worldwide.
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Global Oil & Gas Market
2019
In the beginning of 2019, the anticipation of the
“OPEC+ agreement” between the Organization of the
Petroleum Exporting Countries (“OPEC”) and non-OPEC
groups, which contemplated a total cut of 1.2 million
bbl/d compared to the October 2018 level, triggered
prospects of crude oil supply constraints in the global
market. In addition, there was pressure from sanctions
imposed on Iran, as the U.S. indicated that it would not
renew the waivers granted in November 2018 for the
imports of Iranian oil by some oil-importing countries.
Brent – crude oil price (US$/bbl)
54
50
52
61
67
75
75
68
63
69
62
63
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
As a result, the first quarter of 2019 saw a consistent rise
2017
2018
2019
in oil prices, which had been on a downward trend since
September 2018. This was due to the bearish market
Source: Bloomberg, 2019
outlook for growth in oil products demand and upward
2020
revisions in tight oil supply in the U.S.
In mid-2019, the trade war between the U.S. and China
escalated and feelings of uncertainty about the dynamics of
the world economy were reflected in the market, resulting
in the reversal of the upward trajectory of oil prices. Crude
oil prices fell again during the month of June to levels
near those of the beginning of the year, causing the Brent
average price in the first half of 2019 to be 7% below the
same period in the previous year.
On September 14, 2019, an attack on Saudi Arabian oil
facilities led to a sharp rise in oil prices. Brent increased
by US$8 per barrel at the closing of the first working day
after the bombing, reversing a downward trend in prices
2020 begins with high volatility on the supply side. On
January 3, 2020, the United States carried out an air strike on
the Baghdad airport in Iraq, killing Iran’s top military leader,
Qasem Soleimani. The attack increased tensions between
Washington and Tehran, as well as in the international oil
market. In response, Brent’s volatility increased and its
price rose to levels near US$70/bbl during the first week of
January. However, as the United States announced that it
would not pursue new military action against Iran, opting for
trade sanctions instead, market tensions subsided. In the
second week of January, the price of oil stabilized around
US$64 per barrel, near the average price of 2019.
Over the first weeks of 2020, the spread of coronavirus
throughout the year. However, the rapid re-establishment of
infections in China led the government to isolate cities affected
the Saudi supply defied market expectations, again driving
the price down to US$64 per barrel on the annual average.
by the epidemic. The cancellation of commercial flights, the
closing of the border with Russia and the constraints on the
In December 2019, the OPEC+ group decided to carry out
supply and demand of goods and services in the country
an additional cut of 500,000 bbl/d, increasing its total cut
resulted in a sharp reduction in the consumption of oil
to 1.7 million bbl/d in comparison to the October 2018
products. In the face of this new constraint, the oil price fell to
level. Furthermore, Saudi Arabia announced that it would
US$58 per barrel in the last week of January, which represented
voluntarily cut another 400,000 bbl/d from its production,
a drop of 14% in comparison with the first week of the year. The
increasing the adjustments to 2.1 million bbl/d.
LNG international benchmark prices fell significantly in
2019. Henry Hub fell by 17% and NBP by 35%. Among the
main reasons are new supply projects that came onstream,
potential for damage to oil markets lies in the fact that China is
currently the main driver of global oil demand growth. Between
2010 and 2018, Chinese oil demand and imports grew by 44%
and by 94%, respectively, according to IHS Markit.
demand slowdown and high inventory levels during the
In March, the OPEC+ meeting failed to reach the expected
whole year, including winter periods.
outcome of increasing the oil production cuts until December
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2020 by 1.5 million bbl/d, which would have brought the total
consumer price index (IPCA) variation ended the year at 4.3%,
reduction to 3.6 million bbl/d (OPEC+ agreed on a cut of
according to the IBGE, giving room to a more accommodative
2.1 million bbl/d in December 2019). The disagreement
monetary policy. SELIC ended 2019 at 4.25% p.a., the lowest
between the leading members of OPEC+, Saudi Arabia and
historical level, according to the Central Bank of Brazil.
Russia, led to the non-renewal of the production cuts in force,
thus allowing participating countries to produce without limits
after April 1, 2020.
The exchange rate recorded a devaluation of 7.9%, reaching
an average of R$/US$ 3.95 in 2019, compared to the 2018
average of R$/US$ 3.66. This trend was not limited to
In response to all these shocks, oil prices fell, reaching levels of
the Brazilian economy as there was a wide movement of
US$32 per barrel (on March 9, 2020). The perspective of Russia
appreciation of the U.S. dollar in the global market. The
and Saudi Arabia not agreeing on new oil production cuts and
dollar index, the dollar exchange rate relative to a basket of
the uncertain evolution of the economic shock associated to the
the main international currencies, recorded an increase of
spread of the COVID-19 bring volatility to the oil price outlook.
4.1% in 2019, according to Bloomberg.
Brazilian Economy
The Brazilian economy grew 1.2% in 2019, according to the
Brazilian Institute for Geography and Statistics (“IBGE”).
Despite the ongoing reforms and more accommodative
monetary policy, the results were hindered by the fiscal
consolidation in place and the smaller growth in the world
economy and in the global trade, which increased risk
aversion for emerging markets. The Argentinian crisis also
affected the Brazilian economy, as Brazilian exports to
In addition, there was a reduction in the risk assessment of
the Brazilian economy in 2019, measured by EMBI+ (-22.5%)
and CDS (-20.3%), indicating an optimistic expectation about
the ongoing reforms and the fiscal consolidation in place
(Bloomberg).
Brazilian Oil and Gas Market
❚ Oil and oil products demand
For the last three years, the Brazilian economy has been
Argentina fell by 35% in 2019, according to Foreign Trade
growing slowly. This is reflected in oil products consumption
Studies Center Foundation (“Funcex”).
by the economic segments (i.e. industry and services
Exchange rate (BRL/USD, average)
3.66
3.95
3.19
segments). The market for oil products in 2019 was
about 1% greater than in 2018. In specific terms, the
volume of gasoline is diminishing due to the substitution
of gasoline by hydrous ethanol, which is motivated by the
competitive prices of hydrous ethanol compared to fossil
fuel. Additionally, vehicles fueled exclusively by gasoline
are being replaced by flex fuel automobiles.
Brazil oil products demand (mbbl/d)
2017
2018
2019
2,301
2,154
2,175
Source: Central Bank of Brazil
The modest growth was driven by domestic demand,
especially private consumption and investment. Driven by the
recovery of the construction sector, the industry sector grew
0.5% in 2019, while the service sector grew by more than 1%.
In this context of moderate economic activity, there were
2017
2018
2019
no relevant demand pressures on price levels. The national
Source: Petrobras and EPE, 2019
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Fuel oil is undergoing a process of substitution by other
The Brazilian energy and power mixes have one of the
sources, especially natural gas. In the case of thermoelectric
largest share of renewables in the world.
demand, there were fewer dispatches using fuel oil,
negatively affecting its sales. Bunker fuel represents an
important part of fuel oil sales in Brazil and it has been
positively impacted by IMO 2020 since October 2019. From
January 2020, the International Maritime Organization (IMO)
will ban ships from using fuels with a sulphur content above
0.5%.In this timeframe, bunker fuel price has surpassed
Brent price by more than 10%.
The development of diesel demand is being slowed due to
the mandatory increase of the biodiesel percentage in the
fuel blend that is delivered to the final consumer. However,
diesel sales increased in 2019, following the growth of the
Brazilian GDP.
LPG sales were reduced in 2019, due to higher average
temperatures and weaker industrial production.
In terms of motorization, there was a trend towards more
efficient-consumption vehicles, influenced by Inovar-Auto
and the introduction of the first hybrid flex fuel vehicle
manufactured in Brazil. Today, the government program
Rota 2030 implies further investments in energy efficiency
and vehicles safety, resulting in less taxes for automobile
manufacturers.
❚ Regulation
In June 2019, we signed a commitment with CADE which
consolidates the understanding between the parties on
the execution of divestment of refining assets in Brazil.
The purpose of the agreement is to provide competitive
conditions, encouraging new economic agents to enter
the downstream market, as well as suspending the
administrative investigation opened by CADE court to
By its turn, jet fuel demand suffered impacts from
investigate alleged abuse of our dominant position in the
the exchange rate devaluation, improvements in airplanes’
refining segment. The agreement considers the divestment
energy efficiency and the reduction of available
of approximately 50% of our refining capacity.
seat-kilometers due to the judicial recovery from
an airline company.
In July 2019, we also signed an agreement with CADE which
consolidates understandings between the parties on the
Natural gas demand, according to the Ministry of Mines
promotion of competition in the natural gas industry in
and Energy interannual data until November 2019, has
Brazil. This agreement includes the sale of shareholdings in
declined by 3.1%, from an average of 80.35 million m3/d
gas transportation and distribution companies and, among
to 77.85 million m3/d, due to the reduction of industrial
other matters, increases the flexibility for third parties to
consumption (-6.9%) and to the slight reduction in power
have access to our processing plants and release capacity in
generation (-1.2%). This effect was partially offset by an
certain gas transportation contracts to which we are a part.
increase of 3.8% in the natural gas vehicle consumption.
The purpose of this agreement is to preserve and protect
❚ Technology and alternative sources
The Brazilian energy mix (i.e. different types of primary
energy sources) is going through transformations,
especially in terms of power generation. These
transformations are influenced by the development of
renewable sources, such as wind and solar photovoltaic
power that have become less costly in the recent years.
competitive conditions, aiming to open the Brazilian natural
gas market, encouraging new agents to enter this market, as
well as to suspend administrative procedures established by
CADE to investigate our natural gas business.
For more information related to our commitment with CADE,
see “Portfolio Management” in this annual report.
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STRATEGIC
PLAN
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2020 – 2024 Strategic Plan
Our 2020-2024 Strategic Plan (the “Strategic Plan” or “2020-2024 Strategic Plan”) consists of the continuous evaluation of the
business environment and the implementation of the plan, allowing adjustments to be made in a more efficient way. The Plan
is focused on oil and natural gas exploration and production, notably in the Brazilian pre-salt area, which is one of our greatest
strengths and sources of value creation. Digital transformation has gained strength as an important instrument for adding
value to our business in a competitive environment. Another highlight of our Strategic Plan is adopting economic value added
(EVA®, referred to herein as “EVA”) as a management tool for our company.
Our 2020-2024 Strategic Plan, “Mind the Gap”, provides for a transformational agenda that aims to bridge the performance
gap that separates us from other global oil and gas companies and create shareholder value. In addition, our Strategic Plan is
consistent with the five strategic pillars we have defined:
MAXIMIZE RETURNS
ON CAPITAL EMPLOYED
REDUCTION OF
COST OF CAPITAL
RELENTLESS SEARCH
FOR LOW COSTS
MERITOCRACY
Focusing on assets
in which we are the
natural owner
Continuing
the deleveraging path
Transparency
and liability
management
Cost cutting
and resilience
to low-price
scenarios
Merit-based variable
compensation
program
EVA®
implementation
PEOPLE, ENVIRONMENT
AND SAFETY
People’s empowerment
Safety culture
Decarbonizing oil
production
We are in a moment of cultural and digital transformation and seeking an effective return on capital employed by our
shareholders. Thus, we decided to incorporate the new management tool into our Strategic Plan: the EVA®. The indicator
represents the beginning of performance evaluation focused on value generation, transforming our culture through clear
incentives for management and other professionals.
We aim to be a company with an operational return greater than our capital cost, positioned in world-class assets, with
operations focused on oil and gas, advancing in the exploration and production of the Brazilian pre-salt, with an efficient
refining system. In relation to renewable energy sources, we will engage in research to acquire skills to position ourselves in
the long term in the wind and solar energy segments.
Our Strategic Plan has three top metrics focused on safety of people, debt reduction and value creation:
TRI*
< 1.0
NET DEBT/EBITDA**
1.5x
∆ EVA®***
US$ 2.6 BILLION
AMBITION: ZERO FATALITIES
* TRI: Total Recordable Injuries; ** NET DEBT/EBITDA: Net Debt / LTM adjusted EBITDA (including IFRS16); *** EVA: Economic Value Added
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In 2019 we were able to reduce our gross debt by US$24
Adjusted EBITDA Metric” in this annual report) of
billion, reaching US$87 billion as compared to our gross debt
1.5x in 2020.
as of 2018 applying the effects of IFRS 16. We maintain our
Our strategies were adjusted by defining our actions by
target to achieve a ratio of Net Debt/Adjusted EBITDA
strategic segment, in view of our focus on the core business
(a non-GAAP measure, as defined below in “Net Debt/
and shareholders value generation:
EXPLORATION AND
PRODUCTION "E&P"
(i) maximize portfolio value, focusing on deep and ultra-deepwaters, seeking
operational efficiency, recovery factor optimization and partnerships; and
(ii) grow sustained by world-class oil and gas assets in deep and ultra-deepwaters.
GAS AND
POWER "G&P"
(i) act competitively in the trading of our own gas;
(ii) optimize the thermoelectric portfolio focusing on self-consumption and trading of
our own gas; and
(iii) withdraw from gas distribution and transport completely.
REFINING,
TRANSPORTATION
AND MARKETING "RTM"
(i) operate competitively in refining, logistics and oil products trading activities with
focus on Southeastern operations;
(ii) withdraw from fertilizers, LPG and biodiesel businesses completely; and
(iii) act competitively in global oil trading.
RENEWABLES
(i) develop research aimed at long-term operations in renewable energy businesses
focused on wind and solar segments in Brazil; and
(ii) make renewable diesel and BioQav commercially viable as a response to the
sustainability policies of the Brazilian energy matrix.
(i) transform us digitally by delivering solutions to challenges, empowering our
employees, generating value, and increasing operational safety;
TRANSVERSAL
STRATEGIES
(ii) develop critical skills and a high-performance culture to meet the new company
challenges using economic value added as a management tool;
(iii) constantly pursue a competitive and efficient cost and investment structure with a
high safety standard and respect for the environment; and
(iv) strengthen our credibility and reputation.
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Projected investments 2020-2024
(US$ billion)
2.3
3.0
6.1
64.3
75.7
US$ BILLION
E&P
REFINING
CORPORATE
G&P
12
13
15
20
15
1
1
1
0,2
9
1
1
2
0,3
10
1
1
1
2
11
1
1
1
5
13
0,3
1
1
4
9
2020
2021
2022
2023
2024
E&P WITHOUT TOR SURPLUS
E&P TOR SURPLUS
REFINING
CORPORATE
G&P
Our Strategic Plan presents a repositioning of our E&P
segment for the 2020-2024 period will be directed to pre-
portfolio focusing on deepwater and ultra-deepwater
salt assets and projects, in particular on the Búzios field,
activities, where the extraction cost is lower, providing higher
which is expected to be allocated 28% of the total investment
returns. Thus, we expect 59% of our investments in the
planned for the E&P segment.
Projected E&P investments 2020 - 2024 (%)
MARLIM
MARLIM SUL
MARLIM LESTE
RONCADOR
ALBACORA
ALBACORA LESTE
TARTARUGA VERDE
BARRACUDA/CARATINGA
SEAP
LULA
JUBARTE
SÉPIA
ATAPU
MERO
SAPINHOÁ
ITAPU
BERBIGÃO/SURURU
5
64
US$ BILLION
18
28
29
20
ONSHORE AND RESEARCH & DEVELOPMENT
EXPLORATION
BÚZIOS
OTHERS PRE-SALT
POST-SAL ULTRADEEPWATER
59
PRE-SALT
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In the Refining segment, our efforts are focused on
In the Gas and Power segment, our investments are focused
investments in maintenance (refining and logistics),
on Route 3 and natural gas processing unit to enable natural
hydrotreatings (“HDTs”) in REPLAN (Paulínea), REDUC
gas outflow from pre-salt production. In addition, we plan to
(Duque de Caxias) and RPBC (Presidente Bernardes), and
invest in R&D in solar and wind power.
hydrocracking (“HCC”) in REDUC (Duque de Caxias) to
produce high quality lubricants.
Projected Refining,
Gas and Power
Investments
2020 – 2024
26%
74%
8
US$ BILLION
REFINING, TRANSPORTATION AND MARKETING
GAS AND POWER
We continue to pursue deleveraging by means of cash
currently evaluating the potential sale of thermoelectrics,
generation and divestment. In 2020, our major cash needs
gas pipelines in the pre-salt area and other E&P assets, in
are expected to meet our budgeted Capital Expenditures for
addition to the sale of our shareholding in BR Distribuidora
the year, amounting to US$12 billion, and to make principal
and Braskem. Nonetheless, our evaluation is still ongoing,
and interest payments of US$6.8 billion on our debt.
and there is no corporate decision by our management with
The divestments forecasted in our Strategic Plan are
between US$20-30 billion for the 2020-2024 period, with the
highest concentration expected in the years 2020 and 2021.
In addition to divestments already announced by us, we are
respect to the structure or implementation of the potential
sale of such assets, which may depend on market and
strategic conditions.
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Production of Oil, NGL and Natural Gas
The oil and gas production curve estimated in our Strategic Plan indicates a continuous growth path. During the 2020-2024
period, 13 new production systems are expected to begin operation, all of which are allocated to deepwater and ultra-
deepwater projects.
We decided to present a commercial production vision in order to represent the financial impact of production on our results,
deducting from our natural gas production the volumes of gas reinjected into the reservoirs, consumed in E&P facilities and
burned in production processes. In addition, the production curve does not include divestments, except for approximately
100 mboed, relating to the Nigerian fields and the Tartaruga Verde field, which sale transactions were concluded on January,
14, 2020 and December 27, 2019, respectively.
The production curve estimated in our Strategic Plan is presented below.
Estimated oil and
gas production*
(mmboed)
2.7
2.4
2.2
2.9
2.6
2.3
3.1
2.8
2.5
3.3
3.0
2.7
3.5
3.2
2.9
2020**
2021
2022
2023
2024
ATAPU
MERO 1
SÉPIA
OIL PRODUCTION
COMMERCIAL PRODUCTION
TOTAL PRODUCTION
MARLIM 1
BÚZIOS 5
LULA RF
PARQUE DAS BALEIAS
BÚZIOS 6***
MERO 2
MARLIM 2
MERO 3
SEAP
ITAPU
* Does not consider divestments, except from Nigerian assets and Tartaruga Verde (~100 kbpd of total production)
** 2020 figures include +/- 2.5%
*** Regarding to the sixth production system of the Búzios field (chronological order) to be installed in the Module 7 area
For the 2020 production target, we consider a variation of plus or minus 2.5%. The oil production in this year mainly
reflects losses in volumes related to natural decline of mature fields and higher concentration of production stoppages to
increase the integrity of the systems, partially offset by the ramp-up of new platforms. In the long term, the growth path is
supported by new production systems, particularly in the pre-salt, with higher profitability and value generation and by the
Campos Basin production stability.
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Crude Oil Price and Exchange Rate
Future calculations have been carried out assuming an average Brent Crude Oil price of US$65 per barrel and an average
nominal exchange rate of R$3.93 to US$1.00 for the 2020-2024 period.
Operational Costs
Our Strategic Plan includes cost optimization and reduction initiatives, which includes a reduction in corporate expenses
(costs and expenses excluding raw materials).
The 2020-2024 Strategic Plan includes initiatives to optimize and reduce costs, with cost reduction targets of 10% and a 15%
reduction in corporate spending in 2020.
Financing
Our cash generation will be the result of higher expected efficiency, greater cost control and financial resources due to active
portfolio management. This will allow for a gradual reduction in gross debt, with a consequent reduction in interest expenses
and an increase in estimated dividend distribution amounts through our new dividend policy.
In addition, by anticipating cash flow through divestments of assets, we will make our investments, looking for reducing our
indebtedness, without the need for new net fundraising in our Strategic Plan horizon.
Low Carbon and Sustainability Commitments
So far, we have already advanced with a series of carbon emission reduction actions in our processes, which involve reducing
the flaring of natural gas, reinjection of CO2 and gains in energy efficiency. We maintain our commitment to reducing carbon
emissions of our processes and products, with a carbon resilience and efficiency action plan.
Accordingly, we have established 10 commitments for the low carbon and sustainability agenda:
1. Zero growth in absolute operating emissions by 2025*;
2. Zero routine flaring by 2030;
3. Re-injection of approximately 40 MM ton CO2 up to 2025 in carbon capture, utilization and storage projects;
4. 32% reduction in carbon intensity in the E&P segment by 2025;
5. 30% to 50% reduction in methane emission intensity in the E&P segment by 2025;
6. 16% reduction in carbon intensity in refining segment by 2025;
7. 30% reduction in freshwater capture in our operations with focus on increasing reuse by 2025;
8. Zero increase in residues generation by 2025;
9. 100% of our facilities with biodiversity action plan by 2025; and
10. Maintenance of investments in socio-environmental projects.
* Carbon commitments related to 2015 base. Other commitments based on 2018.
We also intend to invest US$100 million per year in decarbonization and US$70 million per year in R&D for decarbonization
and renewables.
With the execution of our Strategic Plan, we reaffirm our commitment to be a financially competitive company with an
efficient capital structure focused on a world-class oil and gas assets base, low indebtedness, concious of the safety of
people and the environment and oriented toward ethical principles and transparency.
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Digital Transformation
We believe that it is important to be prepared for a competitive environment that is increasingly influenced by digital
technologies. In September 2019, we created the “Digital Transformation and Innovation Executive Office” to develop a more
consistent and synergic journey, aligned with our strategic pillars.
In order to accelerate our digital transformation and innovation pursuits, generate value and increase operational safety and
efficiency, we are working on the following initiatives:
Go Digital: Focuses on technology platforms boosting digital evolution.
Be Digital: Focuses on digital and agile innovation – practices, mindset and cultural change.
Lean Petro: Focuses on optimizing and automating processes.
Innovating and R&D: Focuses on value creation, time to market, growth engine and business models.
Protect: Focuses on information security as an innovation enabler.
Go Digital
Be Digital
We are opening the path to digital solutions by offering
In order to explore new technologies and navigate the
integrated data platforms and up-to-date technologies, such
ever-growing complexity of the digital world, we must
as artificial intelligence.
In 2019, our information technology advances led to several
improvements in our work performance, including (i)
implement a culture of collaboration and adaptability.
Adaptable and efficient methods can be a key factor in
making our business more resilient, empowering teams and
reductions in downstream operational costs, (ii) significant
increasing creativity and effectiveness to deliver end-user
improvements to our upstream high-performance
demands. We are also working with all business units to
computing capabilities, which has tripled from 3 to 9 PFLOPS
build digital agendas that bring focus to our investments,
during 2019, and should exceed 30 PFLOPS by the end of
ensuring our digital efforts will help us overcome our
2020, and (iii) adoption of cloud-based solutions to enhance
strategic challenges.
our make vs buy strategy and to transform the way we work.
In partnership with our information technology team, we
Among the programs at the corporate level, Future ERP
have launched an internal startups program. As part of this
(“SAP S/4 HANA”), stands out with potential to foster
program, entrepreneurs present proposals on how digital
agility and analytics-based decisions. The program makes
technology can have strategic impact and deliver exponential
use of advanced digital technologies such as “internet
returns to a panel composed of a board of business
of things” and “machine learning.” Due to its innovative
executives. Teams then develop the selected proposals to
characteristics, transactional and analytics features and its
deliver value in a short period of time.
ability to provide company-wide coverage, we think that SAP
S/4 HANA will enable a wide range of opportunities for our
digital transformation. We hope that the program will result
in an increase in productivity through process redesign
and will facilitate our business activities, including our
mergers & acquisitions endeavors, making the use of digital
technologies simple, accessible and agile.
An example of a winning proposal that is already being
implemented is the project titled “Trip Detector.”
This project uses artificial intelligence to run a platform to
predict system failures. The program also interprets process
data and suggests actions to avoid automatic shutdown
events. The first implementation achieved a prediction
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success rate of 70%. This solution will be implemented for
transfer unit) in a period of just 11 months in a single
other equipment and facilities, generating exponential
production field.
results through efficiency and safety.
Lean Petro
We work to optimize and digitize processes all over our
organization using technological tools such as Robot
Process Automation (“RPA”), Enterprise Service Management
(“ESM”) and Business Process Management Suite (“BPMS”).
Those tools helps us promote several goals, including
(i) an integrated management for a process digitization
center of excellence; (ii) the innovation and incorporation
of technologies across business processes; and (iii) the
mapping, redesign and simplification of processes and
structures. This allows us to pursue cost optimization and
improve our efficiency.
In 2019, we began restructuring our processes to implement
the SAP 4 HANA, which will be a major driver for process
reengineering. During the year, approximately 3,000
processes and procedures were simplified or reduced,
continuing an effort started in 2016 that brought about a
reduction of around 18,000 of our procedures.
Innovating and R&D
Our research and development center (“Cenpes”) is one of
the largest facilities of its kind in the energy sector and one
of the largest in the Southern Hemisphere. The Cenpes
facility has a total area of 308,000 m2, and includes 147
laboratories and more than 8,000 pieces of equipment,
with cutting edge technology. The facility’s laboratories are
dedicated in particular to pre-salt technologies, which is our
main source of value. Cenpes’ mission is to “imagine, create
and make today the future of Petrobras.” As of December
31, 2019, this facility had 1,358 employees, 89.5 % of which
are dedicated to research and development. This employee
group includes 12 employees with postdoctoral degrees,
261 with doctorates and 420 with masters in science. We
also have several semi-industrial scale prototype plants
throughout Brazil that are located near our industrial
facilities and are aimed at fast prototyping and scaling up
new industrial technologies at reduced costs.
As we pursue valuable results in research and development,
we are exploring new ways to innovate through disruptive
technologies, digital transformation and start-up
engagement. The innovation ecosystems are key to
unlocking the full potential of emerging technologies
and can speed up innovation. We currently work with
We have a history of successfully developing and
technological partnerships to leverage our human capital.
implementing innovative technologies, mainly with respect
We have already started to improve our connections with
to drilling, completing and producing wells in increasingly
innovation ecosystems by adopting new open innovation
deep water. Our efforts received four OTC awards, recently
practices with start-ups. The first step was an innovation
in 2019 for the technologies we developed for the Libra
challenge in cooperation with SEBRAE (a non-profit private
Long Term Test. In 2020, the award recognizes the set of
entity with the mission of promoting the sustainable and
innovations developed to enable production in the Búzios
competitive development of small businesses in Brazil)
field, in the Santos Basin pre-salt. To make this project a
through a call for start-ups and small companies for projects
reality, the company developed a series of technologies for
aiming to improve technology readiness and implementation
a scenario that combines challenging conditions, such as
rates. It is among our research and development priorities to
ultra-deepwaters and reservoirs located below the salt layer,
provide technologies for the deep and ultra-deepwaters, to
subjected to high pressure levels, as well as a high presence
seek operational efficiency and optimization of the recovery
of carbon dioxide. The innovations cover the technical areas
factor, and to provide technologies for downstream, gas
of reservoirs, wells, elevation and flow, as well as subsea
and energy, as well as renewable energies aimed at long-
technologies and surface installations. One of the main
term wind and solar operations. For instance, our program
highlights of the development was the installation of four
“PROD1000” has the ambition to reach 1,000 days between
FPSO type vessels (floating oil production, storage and
field discovery and beginning of production, compared to
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current average for pre-salts of 3,000 days (PROD1000). Our
costs by expediting production development. The result would
intention is to combine PROD1000 with “EXP100”, a program
be earlier starts of the production development stage, which
with the ambition to increase the chance of discovering oil to
would boost the full-cycle capital efficiency.
100% in drilling exploratory wells, reducing project risks and
Research and development investment (US$ million)
2017
2018
2019
572
641
576
Currently, about 30.7% of our R&D portfolio
includes digital technologies such as big
data, high performance computing and
artificial intelligence, in order to support the
development of our business.
Additionally, in the 3-year period ended December 31, 2019, our research and development operations were awarded
214 patents in Brazil and 113 overseas. Our patents portfolio covers all of our areas of activities.
In 2019, we engaged in several activities relating to research and development. We conducted joint research projects
with universities and research centers in Brazil and abroad. We also participated in technology exchange and assistance
partnerships with several oilfield service companies, technology companies and other operators and start-ups that benefited
from our acceleration initiatives.
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DIGITAL TRANSFORMATION
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Protect
Information security plays an important role in our day-to-day operations and is considered an innovation enabler in our
journey of digital transformation. In 2019, we conducted several initiatives related to information security, continuous
awareness, threat intelligence platforms, adoption of cybersecurity frameworks, data loss prevention solutions and security
of industrial control systems, in order to improve information security maturity levels. In 2019, there were no reported
cybersecurity incidents that could have compromised the confidentiality, integrity or availability of information technology
resources supporting our financial statements.
An important example concerning the integration of all the initiatives above – Go Digital; Be Digital; Lean Petro; Innovating
and R&D and Protect – is the deployment of “digital twins.” These are digital representations of our operating facilities – such
as a platform, an oil reservoir, a submarine system, a critical equipment or a refinery – that have the potential to contribute to
the reduction of operating costs and the increase in efficiency and safety in our operations.
DIGITAL TWINS
DATA
TEMPERATURE
SENSORS
PRESSURE
ASSETS
DIGITAL TWIN
FLOW RATE
OPTIMIZES
PARAMETERS
IN THE ASSET
INTERSECTION WITH HISTORICAL
DATA AND OTHER SOURCES
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ENVIRONMENT, SOCIAL
AND GOVERNANCE
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Environment
The protection of human health and the environment is one of our primary concerns and is essential to our success.
Each year, we maintain a set of initiatives focused on the prevention of accidents and the preservation of life and the
environment. To this end, we launched the Commitment to Life Program (the “Program”), which aims to strengthen guidelines
and standardize safety practices at all stages of our operations. The Program was launched in 2016. It is currently in its fourth
cycle, 2019-2020, and supports the implementation of the Total Recordable Injury (“TRI”) safety indicator, which is one
of our top metrics.
We structured these initiatives under our Program keeping in mind (i) the results of our Health, Safety and Environment
(“HSE”) management assessments, (ii) the root causes of accidents identified in accident investigations and (iii) environmental
scenarios in recent years and future perspectives.
The main initiatives of the Program for the 2019-2020 cycle are the following:
Commitment to Life Program
CYCLE 2019-2020
Health, Safety and
Environment - Management
Assessment Program
Intelligent Data Management
to Optimize HSE Evaluations
and Continuous Improvement
HSE Academy
Knowledge management
directed to critical areas
generating value
Simplify
Work Permission
Process
Greater agility
and security in the Work
Permission Process
Risk Factors
Workforce training regarding
behavior enhancement
on Safety
Process Safety
Prevention, Mitigation, and
Response to Hazardous
Containment Loss Events
Technology
Technologies
and innovation
in risk management
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1.63
1.61
1.60
ENVIRONMENT
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Our HSE investments are directed towards: our operations,
reduction of emissions and waste from industrial processes,
management of water and effluent use, repair of impacted
areas, implementation of new environmental technologies,
modernization of our pipelines and improvement of our
capacity to respond to emergencies. In addition, we support
several socioenvironmental projects.
2017
2018
2019
The relationship with our suppliers also includes environmental aspects. Our new commitments formalized in 2019 consider
environmental criteria. Contracted companies must present evidence and certifications related to compliance with HSE
standards and confirm that they comply with all applicable requirements, laws and regulations.
In 2019, we became the first company to achieve ASCM Enterprise Certification, which is the first-of-its-kind corporate level
designation that demonstrates supply chain excellence and transparency – a growing value for consumers as they become
more educated about supply chain supporting ethical and sustainable business practices. The certification is valid for
three years, with the annual requirement to demonstrate adherence to ASCM defined standards for certificate maintenance
throughout the validity period. By obtaining the certification, we reinforce our commitment to improving how we manage our
goods and services supply processes, contributing to the company’s increased credibility in a competitive market.
Total Recordable Injury
Safety is one of our core values. The total recordable injury
Total recordable injury rate – TRI*
per million man-hour frequency rate (“TRI”) is one of the
metrics monitored by our senior management for matters
1.63
of health and safety. The evolution of the TRI reflects the
implementation of several initiatives for the promotion
of our safety culture, trainings and our HSE management
assessment program.
After obtaining a TRI result of 0.76 in 2019, in the 2020-
2024 Strategic Plan we established an alert threshold for TRI
below 1.00 for the year 2020. We expect this result to place
us among top oil and gas companies in terms of safety.
Eliminating fatal accidents and achieving top-notch
performance when it comes to the prevention of injuries to
our employees and to third parties are the two key important
goals of our HSE management. In 2019, we trained more
than 40,000 employees on the issues of process safety, HSE
aspects in contracts, behavioral auditing and human factors.
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1.08
1.01
0.76
2016
2017
2018
2019
* TRI below the peer group’s historical benchmark (0.80). Benchmark from
comparative information obtained in the Sustainability Reports of BP, Shell,
Equinor, Total and Exxon.
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We expect training 180 thousand employees and contractors
impacts of our activities on the environment. In 2019,
in safety risks until 2021.
we invested US$891 million in environmental projects,
Although we develop prevention programs in all of our
operating units, we recorded two fatalities involving our
own and contractors’ employees in 2019 (compared to
six fatalities in 2018). Our procedure is to investigate all
incidents reported in order to identify their causes and take
preventive and corrective actions. These actions are regularly
monitored once they are adopted. In case of serious
compared to US$842 million in 2018 and US$790 million in
2017. These investments continued to be primarily directed
at reducing emissions and waste from industrial processes,
managing water use and effluents, remedying impacted
areas, implementing new environmental technologies,
upgrading our pipelines and improving our ability to respond
to emergencies.
accidents, we send company-wide alerts to enable other
We have established ten commitments in our 2020-2024
operating units to assess the probability of similar events
Strategic Plan, ten commitments for the low carbon and
occurring in their own operations.
sustainability agenda:
Environmental impacts
Main Impacts
EMISSIONS
million tons co2 e
60 million tons CO2 e in 2019
62 million tons CO2 e in 2018
67 million tons CO2 e in 2017
BIODIVERSITY AND ECOSYSTEMS
Events with a confirmed or probable impact
on fauna, flora or habitat.
17 events in 2019
31 events in 2018
20 events in 2017
WASTE
thousand tons
Hazardous solids generated in industrial processes.
119 thousand tons in 2019
120 thousand tons in 2018
113 thousand tons in 2017
EFFLUENTS
millions m3
271.6 millions m3 in 2019
289.1 millions m3 in 2018
293.2 millions m3 in 2017
SPILLS
m3
415.3 m3 in 2019
18.5 m3 in 2018
35.8 m3 in 2017
We are an energy company focusing on oil and gas. We
Zero growth in absolute
Zero routine
operating emissions by 2025*
flaring by 2030
Re-injection of approximately
40 MM ton CO2 up to 2025 in
carbon capture, utilization and
storage projects
32% reduction in carbon
intensity in the E&P segment
by 2025
16% reduction in carbon intensity
30% to 50% reduction in methane
in refining segment by 2025
emission intensity in the E&P
segment by 2025
30% reduction in freshwater
Zero increase in residues
capture in our operations with
generation by 2025
focus on increasing reuse by 2025
100% of our facilities with
biodiversity action plan
by 2025
Maintenance of investments
in socio-environmental
projects
* Carbon commitments related to 2015 base. Other commitments based
on 2018.
therefore use natural resources and impact the ecosystem
For more information, see “2020-2024 Strategic Plan” in
through our activities. However, we seek to reduce the
this annual report.
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Spills and Environmental Remediation Plans
cleanups on short notice from a large group of trained
Oil and oil product spills totaled 415.3 m³ in 2019, compared
to 18.5 m3 in 2018. The increase in leakage is mainly due to
the occurrence of two events: (i) the rupture of the offload
environmental agents in the country. While these workers
are located in Brazil, they are also available to respond to an
offshore oil spill outside of Brazil.
hose during the transfer of oil from the P-58 platform to the
Since 2012, we have been a member of the Oil Spill Response
relief vessel, generating a leakage of 251.8 m3 of oil into the
Limited (“OSRL”) , an international organization that brings
sea; and (ii) the loss of water/oil interface in the production
together over 160 corporations, including major, national
separator of P-53, resulting in oil dragging into the produced
and independent oil companies, energy related companies as
water system and consequent disposal of water with a high
well as other companies operating elsewhere in the oil supply
oil content into the sea (generating a leakage of 122 m3).
chain. OSRL participates in the Global Response Network,
In both cases, immediate remediation procedures were
an organization composed of several other companies
implemented in order to minimize the impacts generated
dedicated to fighting oil spills. As a member of the OSRL, we
by spills, and the causes were investigated for prevention
have access to all resources available through that network,
purposes.
We are constantly seeking to improve our standards,
procedures and leakage response plans, which are structured
at the local, regional and corporate levels.
In 2019, we set up a plan called “Mar Azul,” with the aim
of identifying and addressing what could cause loss
of containment. This plan consists of investments for
improving the management of processes and for ensuring
the integrity of our equipment and installations.
As part of our environmental plans, procedures and efforts,
we maintain detailed response and remediation contingency
plans to be implemented in the event of an oil spill or leak
and also subscribe to their Subsea Well Intervention
Services, which provide swift international deployment
of response-ready capping and containment equipment.
The capping equipment is stored and maintained at bases
worldwide, including Brazil.
In 2019, we conducted 15 emergency drills of regional
scope with the Brazilian Navy, the civil defense, firefighters,
the military police, environmental organizations and local
governmental and community entities.
We continue to evaluate and develop initiatives to address
HSE concerns and to reduce our exposure to HSE risks on
capital projects and operations.
from our offshore operations. The Brazilian Institute of the
At the request of IBAMA, in 2019 we supported emergency
Environment and of Renewable Natural Resources (IBAMA)
response actions in the northeast region of Brazil, by
audits, approves and authorizes the execution of
these programs.
In order to respond to these events, we have dedicated oil
spill recovery vessels fully equipped for oil spill control and
firefighting, support boats and other vehicles, additional
support and recovery boats available to fight offshore oil
spills and leaks, containment booms, absorbent booms and
furnishing the performance of our supplying equipment
and materials for the operational fronts. We will receive
reimbursement of the costs we incurred in providing support
for responding to this emergency. As part of our support
efforts, we mobilized two specialized vessels (Oil Spill
Response Vessels – OSRV), two readiness aircraft and
4,000 meters of oil containment barriers.
oil dispersants, among other resources. These resources
Air Emissions and Transition to Low Carbon
are distributed in Environmental Defense Centers, located
in strategic areas, in order to ensure rapid and coordinated
response to onshore or offshore oil spills.
Our climate strategy focuses on the decarbonization of
our operations and aims to ensure a superior carbon
performance and to strengthen the resilience of our oil and
We have approximately 300 trained workers available to
gas business. We have a company-wide carbon mitigation
respond to oil spills 24 hours a day, seven days a week, and
program, with an allocated budget. We also implement
we can mobilize additional trained workers for shoreline
strategies to consider carbon emissions and financially
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quantify the carbon risk in our decision-making process.
In addition, we work to strengthen our long-term options by
(“wellhead”) in its denominator), on track for achieving the
medium-term target of 15 kgCO2e/boe in 2025;
focusing on R&D and assessing opportunities in selected
low-carbon businesses that offer a competitive advantage
and have synergies with our activities. Examples of such
businesses include renewable aviation fuels and offshore
wind developments.
We have launched a comprehensive set of carbon targets
and goals for the medium-term, covering the 2015–2025
decade. Our “no emissions growth” targets 100% of operated
assets in all our businesses (including power generation), for
all greenhouse gases (“GHG”). We include direct (Scope 1)
and indirect GHG emissions from the acquisition of electric
and/or thermal energy produced by third parties (Scope 2).
We also established specific intensity targets for our refining
and upstream businesses and we linked a short-term 2019
internal target to the remuneration of executives, including
selected board members, across the related areas.
In 2019, our performance in terms of GHG emissions
was as follows:
❚ Total emissions of GHG of 60 million tCO2e, well under our
target of no growth, provided that zero growth considers
our absolute emissions in 2015, which totaled 78 million
tons of CO2e. Our commitment is not to exceed 78 million
tons of CO2e in any year until 2025, unless there is a strong
pressure for electricity generation from thermal plants due
to national water stress events;
❚ Carbon intensity in E&P of 17.3 kgCO2e/boe (the kg CO2e
/ boe indicator considers gross oil and gas production
❚ Carbon intensity in refining of 42.5 kgCO2e/CWT* on track
for achieving the medium-term target of 36 kgCO2e/CWT
in 2025.
Our carbon intensity targets (E&P and Refining) represented
a coverage of 74% of emissions from activities operated by
us in 2019.
Our strategy also focuses on collaboration and we have
continued to partner with other companies and with the
science, technology and innovation community.
We highlight, for instance, our participation in the Oil &
Gas Climate Initiative and our support for the World Bank’s
“Zero Routine Flaring by 2030” initiative. In our program on
Connections for Innovation – Startups Module, conducted
in partnership with the Brazilian Micro and Small Business
Support Service (“SEBRAE”), the topic of low carbon
solutions was one the topics selected. In fact, one of the
winning companies, Pam Selective Membranes, worked in
the carbon capture technology arena.
In addition, we announced updates to our Climate Change
Supplement, an internal guide which will be available on
our website. The Climate Change Supplement details our
contributions to reducing the carbon intensity of our energy
supply and how we aim to remain competitive in an
evolving context.
*The kg CO2/CWT indicator was developed by Solomon Associates specifically for refineries and was adopted by the European Emissions Trading System (EU
Emissions Trading System, EU ETS) and by CONCAWE (association of European oil refining and distribution companies and gas). A refinerys CWT (Complexity
Weighted Tonne) considers the potential for GHG emissions, in equivalence to distillation, for each process unit. Thus, it is possible to compare emissions from
refineries of various sizes and complexities.
We monitor the kg CO2/CWT indicator, according to our original identity.
We also monitor an adapted indicator: kg CO2e / CWT, to enable the inclusion of emissions from other GHG (for example methane), which, however, represent a
small portion of our refining emissions.
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Social Responsibility
Human Rights
A commitment to human rights is key to the sustainability of our business. Several documents governing our activities detail
our approach to human rights, as follows:
❚ Code of Ethics: addresses issues such as respect for diversity, equal opportunities, fair labor relations, health and safety
assurance for workers and the right to free association.
❚ Human Resources Policy: states that we must provide employees with a good working environment that promotes
diversity and relationships based on trust and respect, without tolerating any form of harassment or discrimination.
❚ Social Responsibility Policy: seeks to prevent and mitigate negative impacts on our direct activities, supply chain and
partnerships. It is based on respect for human rights and seeks to combat discrimination in all its forms, setting forth
standards related to social risk management, community relations and social investment present in the guidelines related
to these subjects.
❚ Sustainability Report: we conform our reported indicators and actions with the Sustainable Development Goals outlined
in the sustainability report: Correlation with Global Reporting Initiative (GRI) Indicators, Sustainable Development Goals
(SDGs) and Global Compact Principles.
Our respect and defense of human rights commitments also occurs through initiatives in favor of gender equity, racial
equality and the protection of early childhood. We list below our main human rights initiatives.
2003
UN global
compact
2005
Gender and
ethinic
pro-equity
program
2010
2015
2018
2019
Women's
empowerment
principles
National pact
for slave labour
eradication
Corporate statement
adressing sexual
violence against
children and
adolescents
Business initiative
for ethnic equality
Early childhood
national network
Open letter
companies for
human rights
In 2010, we adhered to the seven UN Women Empowerment
aims to promote racial equality, equal opportunities and
Principles (“WEPs”), which address the promotion of
fair treatment for all. In 2018, we also signed the Open
gender equality in the labor market and in society. Over
Letter Companies for Human Rights, in which we pledged,
time, our internal gender equity promotion policies have
among other things, to adopt a policy of communication,
secured recognition in the 2019 WEPs Brazil Award, an
investigation of complaints and sanctions, in order to
award organized by a partnership between UN Women, the
suppress practices that contradict our Code of Ethics.
International Labor Organization and the European Union,
geared towards companies promoting gender equity and
women’s empowerment.
We also promote a commitment to human rights issues
with our suppliers. We annually award a prize to our best
suppliers. In 2019, we created a special category to value
In November 2018, we joined the Business Initiative for
best practices in gender equity, the Special
Equality, put forward by the NGO Afrobras and Zumbi dos
Equity Award 2018.
Palmares College. Through its 10 commitments, the initiative
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Through our partnership with Zumbi dos Palmares College,
and generate mutual benefits, allowing for respect for
in 2019 we also held the first Petrobras Equity Forum, where
communities’ social, environmental, territorial, and cultural
our main suppliers participated.
rights. We promote committees, meetings, lectures, visits,
In August 2019, we launched the Petrobras Early Childhood
Initiative. In 2020, the program will implement a series of
intersectoral programs in 15 Brazilian municipalities aimed at
protecting and boosting children’s development in their first
six years of life. In December 2019, we signed the National
and investments in social and environmental programs and
projects, which aligns with the objectives of our business
and contributes to the conservation of the environment and
improvement of the living conditions of the communities
where we operate.
Pact for Early Childhood, a commitment signed by several
In 2019, our relationship plans realized 364 events in
sectors to protect children in Brazil, which aims to strengthen
communities, such as regular meetings with community
public institutions dedicated to guaranteeing rights provided
leaders through community committees, community visits
for in Brazilian legislation and to promote the improvement
and lectures on the operational units’ activities and on topics
of the necessary infrastructure to protect children’s interests.
related to HSE.
In November 2019, through our partnership with InPACTO,
Additionally, we strengthen our work with communities, civil
we promoted a workshop with representatives from the
society organizations, the public sector and universities
Social Responsibility, Legal, Supplies and Transpetro areas
through our social-environmental program, namely
to discuss the prevention and combat of contemporary slave
Petrobras Socioambiental. This initiative contributes to
labor in the supply chain.
Across all of our activities, we carry out social risk
assessments, where we seek to identify and mitigate
potential human rights impacts in the supply chain. The
assessment leads to recommendations including review of
emergency response plans through the lens of community
environmental conservation and the improvement of living
conditions where we operate. The program is aligned with
our social responsibility policy, which aims to provide energy,
respect human rights and the environment, manage our
relationship with nearby communities responsibly and
overcome sustainability challenges.
relationships, monitoring of community occurrences and
In 2019, our voluntary social investment totaled US$29
complaints, disclosure of projects and operational activities
million, 21% more than our social investment in 2018
and inclusion of social responsibility clauses in service
(US$24 million). This increase takes into consideration the
contracts, among others.
Community Relationship
exchange rate variation of real compared to the US dollar
between 2018 and 2019. Thus, the percentage increase is
21% reported in U.S. dollars and 33% reported in reais.
This investment supports 144 social and environmental
We are committed to maintaining a long-term community
projects.
relationship based on dialogue and transparency. To achieve
this, we seek to know the dynamics of the communities that
neighbor the sites where we operate and their leaders, and to
develop relationship plans which we monitor and evaluate.
We have also incorporated guidelines in our decision-
making process related to capital investment projects,
such as incorporating a social risk analysis, including human
rights violations, by a multidisciplinary group. In 2019,
In that vein, we seek to foster the development of
18 projects have been assessed for social risks, compared to
collaborations to strengthen ties, promote networking
19 projects in 2018.
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Governance
Since 2015, we have been implementing a series of governance improvements.
As one of the key actions, we have established a new corporate governance model and created a set of rules and procedures
that seek to ensure that our decisions are aligned with good governance:
Petrobras main governance improvements
BOARD OF
DIRECTORS
PUBLIC
INTEREST
TRANSACTIONS
WITH THE
GOVERNMENT
IMPROVEMENTS
IN THE DECISION-
MAKING PROCESS
WHISTLEBLOWER
CHANNEL
Independent
members
Technical experience
Background check
Barrier for political
appointments
Definition
Disclosure on
the Financial
Statements
Government
compensation
Minority
Committee and
Audit Committee
approval
Qualified Board
approval
Board Advisory
Committees
Shared
authorization
External &
Independent
Whistleblower
Channel
GOVERNANCE
& COMPLIANCE
DEPARTMENT
Report directly
to the Board;
Qualified
dismissal
Level 2 – B3
Law 13.303/16 requires that our Board of Directors be
operating in the same market, as explained in our Bylaws,
formed by at least 25% of independent members. Our Bylaws
the obligations or responsibilities that we assume must be
extended the requirement to 40%. Technical criteria for the
defined in rules or regulations and outlined in a specific
selection of members of a Board of Directors and executive
document, such as a contract or agreement, widely
officers set forth in Law 13.303/16 and in our Bylaws banned
publicized and with disclosure in such instruments of
the appointment of ministers, secretaries and others in
detailed costs and revenues, including in the accounting
certain positions of public administration. Our Bylaws also
plan. Then, the Brazilian federal government will compensate
provided additional requirements in addition to those of Law
us, each fiscal year, for the difference between market
13.303/16 for assessing the reputation of the administrators
conditions and the operating result or economic return of
and members of the Fiscal Council.
the assumed obligation.
As we are a mixed-capital company, the Brazilian federal
Transactions with the Brazilian federal government that
government can guide our activities, with the purpose of
require our Board of Directors approval and occur outside
contributing to the public interest that justified our creation,
the normal course of business must have been previously
aiming to guarantee the supply of oil products throughout
reviewed by the minority committee and approved by two-
the national territory. However, this contribution to the public
thirds of the board. The minority committee is formed by two
interest must be compatible with our corporate purpose
members of our Board of Directors appointed by minority
and with market conditions, and cannot jeopardize our
common shareholders and preferred shareholders, as well as
profitability and financial sustainability.
one independent member, according to our Bylaws.
Thus, if providing for the public interest calls for conditions
We have made improvements in our governance decision-
different from those of any other private sector company
making process as well. Our Bylaws already define the board
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advisory committees that review all matters submitted
We are part of the special Level 2 corporate governance
to the Board of Directors prior to a decision. In order to
listing segment of the B3, which demands compliance with
ensure transparency in our most relevant decisions, we have
differentiated governance regulation and the improvement
implemented a shared authorization model, where at least
of the quality of the information we provide. This voluntary
two people must come to a decision (the four-eyes principle).
move to Level 2 of the B3 reinforces our advances in
Our whistleblower channel is an independent, confidential
and impartial tool. It is available to external and internal
audiences of Petrobras and our controlled companies
corporate governance and ratifies our commitment to the
continued improvement of processes and to our alignment
with market best practices.
to register denouncements of fraud, corruption, money
Possible initiatives related to changes for governance
laundering, harassment, discrimination, HSE and
improvements require formality and transparency of
others issues.
Our Board of Director nominates the chief governance and
compliance officer. The majority of the board must approve
the dismissal of such an officer, with the vote of at least one
of the directors elected by minority shareholders.
process. In most cases, a shareholders’ meeting is required if
the proposed change is to a governance rule provided for in
our Bylaws, or stems from a legislative amendment if relates
to a Law 13.303/16 provision.
Governance Structure
Our corporate governance structure consists of general shareholders’ meetings, our audit committee and Fiscal Council,
Board of Directors and its committees, internal and external audits, general ombudsman office, Board of Executive Officers
and its committees.
Setting
strategies and
monitoring its
execution.
GENERAL SHAREHOLDERS’
MEETINGS
FISCAL COUNCIL
BOARD OF
DIRECTORS
BOARD COMMITTEES
A
D
B
E
C
F
AUDITING
OMBUDSMAN
CEO
BOARD OF
EXECUTIVE OFFICERS
EXECUTIVE OFFICERS
Proposal and execution
of strategies.
Management and
supervision
of operations.
TECHNICAL
STATUTORY
COMMITTEES
1
2
3
4
5
6
7
8
9
ADVISORY
OR DELIBERATIVE
COMMITTEES*
*THE BOARD OF EXECUTIVE OFFICERS MAY CREATE ADVISORY OR DELIBERATIVE
COMMITTEES ACCORDING TO THE RELEVANCE OF TOPICS AND SUBJECTS.
131
Investment
STATUTORY BOARD COMMITTEES:
A
B Audit
C Health, Safety and Environment
D People
E Minority
F Audit of the Petrobras Conglomerate
STATUTORY TECHNICAL COMMITTEES:
1 Production Development
2 Exploration and Production
3 Refining and Natural Gas
4 Financial and Investor Relations
5 Corporate Affairs
6 Governance and Compliance
7
8
9 Digital Transformation and Innovation
Institutional Relations
Investments and Divestment
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Our Code of Best Practices gathers our main governance
policies and aims to improve and strengthen our
governance mechanisms, guiding the performance of our
directors, executive officers, managers, employees and
collaborators.
Shareholders’ Meeting
Our Code of Best Practices
We have a Code of Best Practices, which is an
instrument approved by our Board of Directors
The shareholders’ meetings must take place on an ordinary
that brings together our main governance policies
or extraordinary basis. An ordinary shareholders’ meeting
(available at our website), as listed below:
must take place once a year in order to approve our
accounts and profits. In addition to the matters provided
for by law, an extraordinary shareholders’ meeting must
take place if called to decide on matters of our best
interest, as defined in our Bylaws.
For more detailed information on our shareholders’
meetings, see “Shareholder Information” in this
annual report.
Relevant Act or Fact Disclosure
and Negotiation of Securities Policy
Compliance Policy
Business Risk
Management Policy
Ombudsman Function
Policy
Shareholders
Compensation Policy
Appointment Policy for Members of the
Audit Committee, Board of Directors,
Executive Office and Officers in the
General Structure of Petrobras and
Petrobras System Companies
Communication
Policy
Related Party
Transactions Policy
Corporate Governance
Policy
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145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
OPERATING AND FINANCIAL
REVIEW AND PROSPECTS
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159
Group Financial Performance
We presented solid results in 2019, based on a
and 2017 were adjusted in a similar manner, in accordance
transformational agenda supported by five pillars:
with IFRS 5.
(i)maximization of the return on capital employed, (ii)
reduction in the cost of capital, (iii) relentless search for
low costs, (iv) meritocracy and respect for people and (v)
the environment and focus on the safety of operations.
We achieved Net cash provided by operating activities of
US$25.6 billion, a Free cash flow of US$18.4 billion and
Adjusted EBITDA (a non-GAAP measure defined below) of
US$32.7 billion.
Operating income1 in 2019 was US$20.6 billion, 22.8%
higher than 2018 due to gains from assets sales, reduction
in production costs and lower contingencies. This positive
result was achieved even with lower Brent prices and higher
abandonment, selling expenses and higher impairment,
Fluctuations in our financial condition and results of
operations are driven by a combination of factors, including:
❚ the volume of crude oil, oil products and natural gas we
produce and sell;
❚ changes in international prices of crude oil and oil
products (denominated in U.S. dollars);
❚ changes in the domestic prices of oil products
(denominated in reais);
❚ fluctuations in the real vs. U.S. dollar exchange rates and
other currencies, as discussed in Note 34.2 to our audited
consolidated financial statements;
❚ the demand for oil products in Brazil;
alongside the reduction of margins for oil products.
❚ the recoverable amounts of assets for impairment testing
Net income attributable to our shareholders in 2019 was
US$10.2 billion, a 41.5% increase compared to 2018, mainly
as a result of capital gains on divestments (primarily TAG,
purposes; and
❚ the amount of production taxes from our operations that
we are required to pay.
BR Distribuidora and E&P assets), partially offset by higher
Exchange rate variation impacts
financial expenses associated with liability management,
higher impairments and lower Brent prices.
As we are a Brazilian company and most of our operations
are carried out in Brazil, we prepare our financial statements
In 2019, we sold the control of Petrobras Distribuidora
primarily in reais, which is our functional currency and that
through a secondary public offering. This transaction was
of all of our Brazilian subsidiaries. We also have entities that
the first privatization of a state-owned company via capital
operate outside Brazil which functional currency is the U.S.
markets in the history of Brazil, carried out in a transparent
dollar. We have selected the U.S. dollar as our presentation
manner and contributing to the development of the
capital markets. Accordingly, pursuant to IFRS 5 – Non-
current Assets Held for Sale and Discontinued Operations,
our investment became a discontinued operation, since
it represented a separate major line of business. The
consolidated statements of income and cash flows for 2019
present net income, operating, investing and financing cash
flows relating to this investment in separate line items,
as “discontinued operations.” Additionally, the
consolidated statements of income and cash flows for 2018
currency in this report to facilitate the comparison with
other oil and gas companies and to translate the audited
consolidated financial statements from real into U.S. dollar,
we have used criteria set forth in IAS 21 – “The effects of
changes in foreign exchange rates.” Based on IAS 21, we
have translated (i) all assets and liabilities into U.S. dollars at
the exchange rate as of the date of the statement of financial
position; (ii) all accounts in the statements of income, other
comprehensive income and cash flows at the average rates
on a quarterly basis and (iii) equity items at the exchange
rates prevailing at the dates of the transactions.
1 Equivalent to ‘Income before finance income (expense), results
in equity-accounted investments and income taxes’ in our audited
consolidated financial statements.
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159
In order to isolate the foreign exchange translation effect on
on a constant currency basis were computed by converting
our results of operations, the table presents a reconciliation
the 1Q19, 2Q19, 3Q19 and 4Q19 results from reais into U.S.
of our statement of income to financial information on a
dollars based on the same average exchange rates used in
constant currency basis, assuming the same exchange rates
1Q18, 2Q18, 3Q18 and 4Q18 (3.3238, 3.8558, 4.009 and
between each quarter for translation. In 2019, the results
3.8748, respectively).
Consolidated Statement of Income and effect of foreign exchange translation
As reported
Financial information on a constant currency basis
Jan-Dec
Variation
Jan-Dec2019
Variation(1)
US$ million
US$ million
Sales revenues
Cost of sales
Gross profit
Selling expenses
2019
2018
∆
76,589
84,638
(8,049)
(45,732)
(52,184)
6,452
30,857
32,454
(1,597)
∆(%)
(10)
12
(5)
(4,476)
(3,827)
(649)
(17)
General and administrative expenses
(2,124)
(2,239)
115
5
(275)
(52)
Exploration costs
Research and development expenses
Other taxes
Impairment of assets
Other income and expenses
Operating income
(799)
(576)
(619)
(524)
(641)
(670)
(2,848)
(2,005)
1,199
(5,760)
20,614
16,788
65
51
(843)
6,959
3,826
Net finance income (expense)
(8,764)
(6,484)
(2,280)
Results of equity-accounted investments
153
523
(370)
Income before income taxes
Income taxes
12,003
10,827
1,176
(4,200)
(4,256)
56
Net income from continuing operations for the period
7,803
6,571
Net income from discontinued operations for the year
2,560
843
Net income for the year
10,363
7,414
1,232
1,717
2,949
10
8
(42)
121
23
(35)
(71)
11
1
19
204
40
Foreign exchange
translation
effects
Results on
a constant
currency basis
∆
∆(%)
(6,359)
3,856
(2,503)
347
183
74
46
49
184
(134)
(1,753)
694
(16)
(1,075)
325
(750)
(38)
(788)
82,948
(1,690)
(2)
(49,588)
2,596
33,360
(4,823)
(2,307)
(873)
(622)
(668)
906
(996)
(68)
(349)
19
2
(3,032)
(1,027)
1,333
22,367
(9,458)
169
13,078
(4,525)
8,553
2,598
11,151
7,093
5,579
(2,974)
(354)
2,251
(269)
1,982
1,755
3,737
5
3
(26)
(3)
(67)
3
−
(51)
123
33
(46)
(68)
21
(6)
30
208
50
(1) Variation after isolating foreign exchange translation effects between periods used for translation. The amounts and respective variations presented in constant
currency are not measures defined in accordance with IFRS (they are non-GAAP measures). Our calculation may not be comparable to the calculation of other
companies and it should not be considered as a substitute for any measure calculated in accordance with IFRS.
For more information regarding our functional and
Additionally, fluctuations in exchange rate have multiple
presentation currency, see “About Us” and Note 2.2 to our
effects on our results of operations in reais.
audited consolidated financial statements.
In 2019, the average real depreciated 8.2% against the U.S.
dollar, compared to a depreciation of 14.4% in 2018 and an
appreciation of 8.3% in 2017. Through March 18, 2020, the
real has depreciated by 26.8% against the U.S. dollar, when
compared to December 31, 2019.
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159
2019
4.03
(4.1)%
3.95
(8.2)%
4.31%
2018
3.87
(16.9)%
3.65
(14.4)%
3.75%
2017
3.31
(1.5)%
3.19
8.3%
2.95%
Exchange and inflation rates
Year-end exchange rate (reais/US$)
Appreciation (depreciation) during the year(1)
Average exchange rate for the year (reais/US$)
Appreciation (depreciation) during the year(2)
Inflation rate (IPCA)
(1) Based on year-end exchange rate
(2) Based on average exchange rate for the year
When the Brazilian real appreciates against the U.S. dollar,
service relative to our cash flows while also reducing our
the effect is to generally increase both revenues and
operating margins. As our net debt denominated in other
expenses when expressed in U.S. dollars. When the Brazilian
currencies increases, the negative impact of a depreciation
real depreciates against the U.S. dollar, as it did in 2019, the
of the real on our results and net income when expressed in
effect is to generally decrease both revenues and expenses
reais also increases, thereby reducing the earnings available
when expressed in U.S. dollars.
for distribution.
Exchange rate fluctuations may affect the results of variables
- Retained earnings available for distribution: Exchange
such as the following:
- Margins: The relative pace at which our total revenues and
expenses in reais increase or decrease with the exchange
rate, and its impact on our margins, is affected by our pricing
policy in Brazil. Absent changes in the international prices
of crude oil, oil products and natural gas, when the real
appreciates against the U.S. dollar, and we do not adjust
our prices in Brazil, our margins generally improve. Absent
changes in the international prices of crude oil, oil products
and natural gas, when the real depreciates against the U.S.
dollar and we do not adjust our prices in Brazil, our margins
generally decline. However, it is our goal to sell our products
in Brazil at parity with international product prices. For
further information on our prices, see “Sales Volumes and
Prices” in this annual report.
- Debt service: The depreciation of the real against the
U.S. dollar also increases our debt service in reais, as the
amount of reais necessary to pay principal and interest on
foreign currency debt increases with the depreciation of
the real. A devaluation of the real also increases our costs
to import oil and oil products, imported goods and services
rate variation also affects the amount of retained earnings
available for distribution by us when expressed in U.S.
dollars. Amounts reported as available for distribution in
our statutory accounting records are calculated in reais
and prepared in accordance with IFRS. They may increase
or decrease when expressed in U.S. dollars as the real
appreciates or depreciates against the U.S. dollar.
We designated hedging relationships to account for the
effects of the existing hedge between a foreign exchange
gain or loss from portions of our long-term debt obligations
(denominated in U.S. dollars) and foreign exchange gain or
loss of our 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.
For more information about our cash flow hedge, see Notes 4.8
and 36.2(a) to our audited consolidated financial statements.
For information about our related foreign exchange exposure
related, see “Operating and Financial Review and Prospects –
Exposure to Interest Rate and Exchange Rate Risk”
necessary for our operations and our production taxes.
in this section.
Unless the depreciation of the real is offset by higher prices
For more information about our foreign exchange exposure
for our products sold in Brazil, that is the practice under our
related to assets and liabilities, see Note 36.2(e) to our
currently pricing policy, a devaluation increases our debt
audited consolidated financial statements.
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RESOURCES
OTHER INFORMATION
147
159
Sales Revenues
2019 compared to 2018
2018 compared to 2017
Sales revenues were US$76,589 million in 2019, a 10%
Sales revenues increased by 9% to US$84,638 million in 2018
decrease (US$8,049 million) when compared to US$84,638
from US$77,884 million in 2017, driven primarily by:
million in 2018, mainly due to:
❚ Increase in domestic revenues, in the amount of
❚ Decrease in domestic revenues (US$6,591 million), mainly
US$2,797 million, mainly as a result of:
as a result of:
a) Increase in oil products revenues (US$6,260 million),
a) Decrease in oil products revenues (US$5,797 million)
primarily reflecting an increase in the average prices
primarily reflecting a decrease in the average prices of
of diesel, gasoline and other oil products, as a result
diesel, gasoline and naphtha when expressed in U.S.
of the increase in international prices, as well as an
dollars, following lower international prices, as well as lower
increase in diesel sales volume due to lower imports from
sales of gasoline (mainly due to higher third-party imports
competitors. These effects were partially offset by the
and to the higher portion of ethanol in fuel market),
decrease in sales volume mainly for gasoline, due to a
decreased sales of naphtha to Braskem, lower sales of
higher portion of ethanol in the domestic fuel market, as
diesel (mainly due to higher imports by other players,
well as lower sales of naphtha to Braskem; and
increased average content of biodiesel, partially offset
by the trucker strike in May 2018 and by higher economic
growth) and decreased fuel oil sales (as a result of lower
sales to thermoelectric plants);
b) Lower electricity revenues, basically reflecting the
decrease of difference settlement prices (US$705 million);
and
b) Decrease in electricity revenues, in the amount
of US$1,589 million, as a result of lower prices when
expressed in U.S. dollars.
❚ Increase in export revenues, in the amount of
US$2,736 million, driven by an increase in international
prices of crude oil and oil products and by higher volume
of gasoline exports due to the higher market share of
c) These effects were partially offset by higher natural
ethanol in the Brazilian market, partially offset by the
gas revenues (US$504 million), following contract price
decrease in crude oil volume exported due to lower
adjustments mainly.
production; and
❚ Increased export revenues (US$2,672 million), mainly
driven by higher crude oil export volumes, following
❚ Increase in revenues from operations abroad, in the amount
of US$1,221 million following higher international prices.
increased domestic crude oil production, and by higher oil
product export volumes, mainly gasoline and fuel oil; and
❚ Decreased revenues from operations abroad (US$4,130
million) mainly due to the disposal of the Pasadena
refinery, to the sale of E&P assets of PAI and the
distribution companies in Paraguay.
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159
Sales
volumes
and prices
As a vertically integrated company, we process most of our crude oil production in our refineries
and sell the refined oil products primarily in the Brazilian market. Therefore, the price of oil products
in Brazil tends to have a more significant impact on our financial results than crude oil prices.
International oil product prices vary over time as the result of many factors, including the price of
crude oil. We intend to sell our products in Brazil at par with international product prices. After the
announced divestment plan in refineries and oil production growth take place, we expect that crude
oil prices will tend to gain importance.
The average price of Brent Crude Oil (as reported by Bloomberg, an international benchmark of oil
prices) was US$64 per barrel in 2019, US$71 per barrel in 2018 and US$54 per barrel in 2017.
In December 2019, Brent Crude Oil prices averaged US$66 per barrel.
During 2019, 73.1% of our sales revenues were derived from sales of oil products, natural gas and
other products in Brazil, compared to 73.9% in 2018 and 76.8% in 2017.
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145
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RESOURCES
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159
For the year ended December 31
Diesel (1)
Automotive gasoline
Fuel oil (including bunker fuel)
Naphtha
Liquefied petroleum gas
Jet fuel
Other oil products
Subtotal oil products
Natural gas (boe)
Ethanol, nitrogen products, renewables and other non-oil products
Electricity, services and others
Total Brazilian market
Exports
International sales
Total global market
Consolidated sales revenues
2019
Net
Average
Price
Sales
Revenues
(US$)(2)
87.00
71.12
71.21
55.74
49.82
88.04
56.41
73.97
46.47
93.48
-
-
67.39
68.05
-
-
(US$
million)
23,007
9,810
1,026
1,669
4,159
3,832
3,410
46,913
5,929
245
2,907
55,994
18,085
2,510
20,595
76,589
Volume
(mbbl,
except as
otherwise
noted)
266,706
146,681
16,846
35,296
84,371
44,731
57,380
652,011
125,787
6,156
-
783,954
216,838
85,815
302,654
1,086,608
2018
Net
Average
Price
Sales
Revenues
(US$)(2)
93.23
79.70
73.19
69.55
53.22
94.07
65.68
80.84
43.13
59.45
-
-
71.08
77.38
-
-
(US$
million)
24,865
11,690
1,233
2,455
4,490
4,208
3,769
52,710
5,425
366
4,084
62,585
15,413
6,640
22,053
84,638
Volume
(mbbl,
except as
otherwise
noted)
235,436
165,456
24,304
48,880
85,949
41,789
60,904
662,718
131,882
35,149
-
829,749
240,388
88,358
328,745
1,158,494
2017
Net
Average
Price
Sales
Revenues
(US$)(2)
83.43
73.92
58.39
53.95
46.53
78.11
53.49
70.09
37.92
99.52
-
-
52.74
61.33
-
-
(US$
million)
19,642
12,231
1,419
2,637
3,999
3,264
3,258
46,450
5,001
3,498
4,839
59,788
12,677
5,419
18,096
77,884
Volume
(mbbl,
except as
otherwise
noted)
264,462
137,928
14,408
29,942
83,486
43,528
60,453
634,207
127,583
2,621
-
764,411
268,344
36,885
305,229
1,069,640
(1) In 2018, this line item includes revenues related to the Diesel Price Subsidy Program, described in Note 37 to our audited consolidated financial statements.
(2) Net average price calculated by dividing sales revenues by the volume for the year.
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159
Cost of Sales
Selling Expenses
2019 compared to 2018
2019 compared to 2018
Cost of sales was US$45,732 million in 2019, a 12% decrease
Selling expenses were US$4,476 million in 2019, a 17%
(US$6,452 million) compared to US$52,184 million in 2018,
increase (US$649 million) compared to US$3,827 million
mainly due to:
❚ Lower production costs and lower costs from operations
abroad, following the disposal of E&P assets of PAI,
the sale of distribution companies in Paraguay and the
disposal of the Pasadena refinery;
❚ Decreased eletricity costs due to lower thermoelectric
demand; and
in 2018, mainly due to higher transportation charges, as a
result of the payment of tariffs for the use of third-party gas
pipelines following the sale of TAG in June 2019, and also
increased oil product and crude oil export volumes.
2018 compared to 2017
Selling expenses increased by 6% to US$3,827 million in
2018 from US$3,614 million in 2017, mainly due to increased
❚ Partially offset by higher import costs and increased
impairment of trade and other receivables, primarily relating
domestic crude oil acquisitions, generating higher share
to companies from the electricity sector, higher expenses
of crude oil imports on feedstock processed and of natural
with LNG regasification terminals and coastal navigation
gas, following increased prices.
services (cabotage), as well as higher transportation charges.
2018 compared to 2017
Selling expenses also increased due to the payment of tariffs
for the use of third party gas pipelines, following the sale of
Cost of sales increased by 2% to US$52,184 million in 2018,
Nova Transportadora do Sudeste (NTS) in April 2017.
compared to US$51,198 million in 2017, mainly due to:
❚ Higher production tax expenses and import costs of
crude oil, oil products and natural gas, due to higher
General and Administrative Expenses
international prices. Production taxes were also impacted
2019 compared to 2018
by increased production in fields with higher special
participation rates;
General and administrative expenses were US$2,124 million
in 2019, a 5% decrease (US$115 million) compared to
❚ Increased costs from operations abroad, as a result of
US$2,239 million in 2018, mainly due to foreign exchange
higher international prices; and
translation effects that resulted in decreased average
❚ Higher share of crude oil imports on feedstock processed
and of LNG on sales mix, due to lower production.
Foreign exchange translation effects partially offset the
aforementioned factors due to the decrease of the average
cost of sales when expressed in U.S. dollars, reflecting the
depreciation of the average real.
general and administrative expenses, reflecting the
depreciation of the average Brazilian real, partially offset
by higher personnel expenses following wage increases
from the collective bargaining agreement in the 4Q18 and
from higher wages and promotion of employees, as well as
actuarial review of health care and pension plans.
2018 compared to 2017
General and administrative expenses decreased by 16% to
US$2,239 million in 2018 from US$2,656 million in 2017. This
decrease mainly reflects lower expenses with outsourced
consulting, IT and administrative services, following financial
discipline of controlling expenses.
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159
Exploration Costs
2019 compared to 2018
primarily driven by higher estimates of decommissioning
costs in producing properties in Brazil, the sale of production
fields in Gulf of Mexico and lower freight rate forecasts
Exploration costs were US$799 million in 2019, a 52%
pertaining to transportation assets.
increase (US$275 million) compared to US$524 million in
2018, mainly due to higher exploration expenditures
written-off with projects without commercial feasibility and
increased geological and geophysical expenses.
2018 compared to 2017
2018 compared to 2017
Impairment of assets in the amount of US$2,005 million
were recognized in 2018 mainly for E&P and Refining
assets (US$1,391 million and US$442 million, respectively),
primarily driven by higher estimates of decommissioning
Exploration costs decreased by 35% to US$524 million in
costs in producing properties in Brazil, the sale of production
2018 from US$800 million in 2017, mainly due to a decrease
fields in Gulf of Mexico and lower freight rate forecasts
in exploration expenditures written off on projects without
pertaining to transportation assets. In 2017, impairment
commercial feasibility, in the amount of US$192 million
charges of US$1,191 million were mainly related to
and to a decrease of US$61 million in provisions related to
Refining and Gas and Power assets (US$781 million and
contractual penalties arising from local content requirements.
US$446 million, respectively), mainly due to higher costs of
A breakdown of our exploration costs by type is set forth in
raw materials and the lower refining margin projection, as
Note 26 to our audited consolidated financial statements.
well as the lower expectation of a successful sale of fertilizers
Impairment of Assets
2019 compared to 2018
and nitrogen products plants.
Impairment losses in 2018 were 68% higher when
compared to 2017. See Notes 4.2, 4.3 and 25 to our audited
consolidated financial statements for more information
We recognized impairment of assets in the amount of
about the impairment of our assets.
US$2,848 million in 2019 mainly for E&P and Refining assets
(US$1,956 million and US$697 million, respectively), mainly
due to significant reduction in the prices of oil and natural gas
Other Income and Expenses
projected for the 2020-2024 period and the increase in the
2019 compared to 2018
provision for the dismantling of areas, due to the reduction
in risk-free discount rates, and to changes in the schedule
for removal and treatment of oil and gas production facilities.
The higher estimates of decommissioning costs of E&P fields
in Brazil are notably in cash generating units of Papa-Terra,
in Campos Basin, in the Uruguá group (Uruguá and Tambaú
fields), in Santos Basin, in the Canapu and Golfinho fields and
Other income and expenses totaled income of US$1,199
million in 2019, compared to an expense of US$5,760 million
in 2018, mainly due to:
❚ Higher net gains on the sale and write-off of assets
(US$5,630 milion), as a result of:
. Gain from the disposal of TAG (US$5,458 million);
in the Espírito Santo Basin, partially offset by the effects of
. Gain on the sale of Pargo, Carapeba and Vermelho fields,
reversals relating to the disposal of producing fields in Brazil.
mainly with the write-off of provision for abandoned areas,
In addition, we accounted for impairment losses in 2019
as a result of the assumption by the buyer of expenses
due to the postponing of a project to conclude the second
for the decommissioning of areas related to the fields
refining unit of RNEST, and also due to the writing-off of
(US$787 million);
UFN-III, following our decision to forego the conclusion of
this plant. In 2018, we recognized impairment of assets in
the amount of US$2,005 million mainly for E&P and Refining
assets (US$1,391 million and US$442 million, respectively),
. Gain on the sale of Riacho da Forquilha Complex
(34 onshore producing fields on Potiguar Basin)
(US$221 million);
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PERFORMANCE
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
. Gain on the sale of distribution companies in Paraguay
These gains were partially offset by:
(US$141 million);
. Gains in 2018, on sale of Lapa and Iara fields (US$689
❚ Higher expenses with decommissioning of returned/
abandoned areas (a US$155 million expenses in 2019
million) and by the contingent payment received for the
compared to a US$621 million reversal of expense in 2018);
sale of Carcará area (US$300 million); and
. Loss on the sale of Tartaruga Verde field and Module III of
Espadarte field (US$74 million).
❚ Lower expenses in 2019 with the Employee Career and
Compensation Plan – PCR (a US$2 million expense in 2019
when compared to a US$293 million expense in 2018);
❚ Lower amounts recovered from Lava Jato investigation
(a US$220 million income in 2019 when compared to a
US$457 million income in 2018); and
❚ Higher expenses with the Voluntary Separation Program,
or PDV (a US$198 million expense in 2019 when compared
to a US$2 million reversal of expenses in 2018).
❚ Lower equalization of expenses related to production
2018 compared to 2017
individualization agreements, which provide for
Other income and expenses totaled US$5,760 million of
equalization of expenses and production volumes related
expenses in 2018, a 4% increase compared to 2017, when
to Sapinhoá, Lula, Tartaruga Verde, Berbigão and Sururu
totaled US$5,511 million of expenses, mainly reflecting:
fields (a US$2 million income in 2019 when compared to a
US$279 million expense in 2018); and
❚ A lower provision for legal, administrative and arbitration
proceedings (a US$1,520 million expense in 2019 when
compared to a US$2,283 expense in 2019), mainly due to:
❚ The agreement to settle Lava Jato with U.S. authorities
(US$895 million) in the third quarter of 2018;
❚ An increase of US$1,422 million in provision for legal,
administrative and arbitration proceedings, mainly
affected by: (i) unitization agreements with the ANP related
. Unitization agreements with ANP related to the Parque das
to the Parque das Baleias complex entered into in the
Baleias complex entered into in 4Q18 (US$928 million);
fourth quarter of 2018 (US$928 million); and (ii) arbitration
. Agreement to settle Lava Jato Investigation with U.S.
authorities (US$895 million) in the 3Q18;
. Arbitration in the United States for drilling service
agreement related to Titanium Explorer (Vantage) drillship
in 2018 (US$698 million);
. Lower foreign exchange losses over class action
liability exposure in U.S. dollar, as a result of decreased
depreciation of the Brazilian real against the U.S. dollar
between the years, with definitive termination of the
agreement in September 2019 (US$336 million);
. Provision related to the arbitration of Sete Brasil
quotaholders in 2019 (US$740 million);
. Reversal of disputes involving state taxes after joining
Rio de Janeiro State Tax Amnesty Program in the 4Q18
(US$319 million); and
in the United States for drilling service agreement related
to Titanium Explorer (Vantage) drillship, also in the fourth
quarter of 2018 (US$698 million). These factors were
partially offset by reversal of disputes involving state taxes
after joining Rio de Janeiro state tax amnesty program in
the 4Q18 (US$319 million); and
❚ Losses on the fair value of commodities put options
related to the hedge of part of crude oil production
(US$416 million) that were made in 2018.
These increases in other expenses were partially offset by:
❚ Expenses in 2017 that did not recur in 2018, related to the
agreement to settle the class action in the United States
(US$3,449 million); and
❚ Decrease in the net gain on the sale and write-off of
assets, in the amount of US$1,079 million, mainly driven
by the US$1,952 million gain on sale of interests in NTS
. Provision due to the environmental accident in the State
recognized in 2017, when compared to the gains in 2018,
of Paraná with the OSPAR pipeline in the 3Q19 (Santa
on sale of Lapa and Iara field (US$689 million) and by the
Catarina – Paraná Pipeline – US$155 million).
contingent payment received for the sale of Carcará area
(US$300 million).
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134
SEGMENTS FINANCIAL
PERFORMANCE
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Net Finance Income (Expense)
Results in equity-accounted investments
2019 compared to 2018
2019 compared to 2018
Net finance expense was US$8,764 million in 2019, a 35%
We experienced positive results in equity-accounted
increase (US$2,280 million) when compared to the expense
investments of US$153 million in 2019, a 71% decrease
of US$6,484 million in 2018, mainly due to:
❚ Increased unwinding of discount on lease liabilities, due to
the effects of the adoption of IFRS 16 (US$1,504 million);
❚ Decreased gains from signed agreements in the electric
sector (a US$79 million gain in 2019 when compared to a
US$724 million gain in 2018);
❚ Higher net costs on repurchase of debt securities
(US$527 million);
❚ Lower capitalized borrowing costs, as a result of decreased
balance of assets under construction (US$482 million);
(US$370 million) compared to US$523 million in 2018,
mainly as a result of the decreased result in Braskem, due
to legal proceedings related to activities at the rock salt
mining in Alagoas, partially offset by the positive result of
BR Distribuidora, as a result of the follow-on transaction
in July 2019 which led to its classification as an equity-
accounted investment.
2018 compared to 2017
Gain on equity-accounted investments decreased by 22%
from US$673 million in 2017 to US$523 million in 2018, due
to lower results in investments in the petrochemical sector,
❚ Higher unwinding of discount on the provision for
notably Braskem.
decommissioning costs (US$143 million), as a result of
higher balance to be abandoned; and
❚ Partially offset by lower interest on finance debt
Income Taxes
(US$1,073 million), mainly due to lower average debt,
2019 compared to 2018
generating decreased interest expenses.
2018 compared to 2017
Net finance expense decreased by 33% to US$6,484 million in
2018 from US$9,719 million in 2017, due to:
❚ Lower interest expenses (US$765 million) following
pre-payment of debt;
❚ Finance income recognized in 2018 based on the
agreements reached and conclusion of the privatization
process of companies in the electricity sector
(US$724 million); and
❚ Finance expenses in 2017 following our decision to
benefit from Brazilian federal settlement programs
(US$837 million).
Income tax expenses were US$4,200 million in 2019, a 1%
decrease (US$56 million) compared to US$4,256 million in
2018, remaining relatively flat during the year. The effective
tax rate based on our results decreased to 35.0% from
39.3% in 2018.
2018 compared to 2017
Income tax expenses were US$4,256 million in 2018, a 151%
increase (US$2,559 million) compared to US$1,697 million
in 2017, as a result of higher taxable income (before taxes)
for the year, partially offset by the tax benefits from the
deduction of interest on capital distribution and by our
decision, in 2017, to benefit from tax settlement programs.
The effective tax rate based on our results decreased to
a rate of 39.3% from a rate of 112.6% in 2017. In 2018
the difference between the statutory corporate tax rate
(34%) and our effective tax rate was primarily affected
by tax benefits from the deduction of interest on capital
distribution (see “Shareholder Information – Dividends –
Payment of Dividends and Interest on Capital” in this annual
report) and nondeductible expenses and nontaxable income
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PERFORMANCE
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
including post-retirement health care plan expenses and
results in equity accounted investments.
Tax benefits from interest on capital distribution occur
to the extent that we distribute dividends in this manner.
Expenses related to post-retirement health care benefits are
recognized and we account for results in equity-accounted
investees for each reporting period.
See Note 16.5 to our audited consolidated financial
statements for a reconciliation of statutory tax rates
and our tax expense.
Results of Discontinued Operations
2019 compared to 2018
Net income from discontinued operations in 2019 was
US$2,560 million, a 204% increase (US$1,717 million)
compared to US$843 million in 2018, mainly due to the gains
arising from the follow-on offering of BR Distribuidora in
July 2019.
2018 compared to 2017
Net income from discontinued operations in 2018 was
US$843 million, representing a 135% increase compared to
US$359 million in 2017, mainly due to BR Distribuidora gains
arising from agreements signed in 2018 with companies
from the electricity sector (US$710 million) and reversal
of the provision regarding an extrajudicial settlement of
BR Distribuidora relating to tax debt with the state of Mato
Grosso (US$347 million), partially offset by higher income
tax expenses as a result of increased taxable income.
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SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Segments Financial Performance
Selected financial data by operating business segments
For the year ended December 31
Exploration and Production
Sales revenues to third parties(1)(2)
Intersegment sales revenues
Total sales revenues(2)
Net income (loss)(3)
Capital Expenditures(4)
2019
2018
(US$ million)
(US$ million)
19-18
%
2017
(US$ million)
1,062
49,400
50,462
12,624
25,081
2,330
50,052
52,382
12,190
11,592
Property, plant and equipment
122,496
116,153
Refining, Transportation and Marketing
Sales revenues to third parties(1)(2)
Intersegment sales revenues
Total sales revenues(2)
Net income (loss)(3)
Capital Expenditures(4)
Property, plant and equipment
Gas and Power
Sales revenues to third parties(1)(2)
Intersegment sales revenues
Total sales revenues(2)
Net income (loss)(3)
Capital Expenditures (4)
Property, plant and equipment
Corporate and other Businesses
Sales revenues to third parties(1)(2)
Intersegment sales revenues
Total sales revenues(2)
Net income (loss)(3)
Capital Expenditures (4)
Property, plant and equipment
58,106
9,432
67,528
1,021
1,463
26,710
8,185
3,308
11,493
4,180
543
8,181
995
226
1,221
(6,273)
326
1,915
56,793
16,655
73,448
2,393
1,107
27,356
8,540
3,701
12,241
482
433
11,057
1,526
205
1,731
(7,382)
307
2,856
(54%)
(1%)
(4%)
4%
116%
5%
2%
(43%)
(8%)
(57%)
32%
(2%)
(4%)
(11%)
(6%)
767%
25%
(26%)
(35%)
10%
(29%)
(15%)
7%
(33%)
1,422
40,762
42,184
7,021
12,397
126,487
50,895
16,142
67,037
4,235
1,284
33,400
9,079
3,261
12,340
1,912
1,127
13,231
1,382
201
1,583
(13,004)
276
3,580
(1) Not all of our segments have significant third-party revenues. For example, our Exploration and Production segment accounts for a large part of our economic
activity and capital expenditures, but has little third-party revenues.
(2) Revenues from commercialization of oil to third parties are classified in accordance with the points of sale, which could be either the Exploration and
Production or Refining, Transportation and Marketing segments.
(3) Attributable to our shareholders.
(4) See definition of Capital Expenditures in “Glossary of Certain Terms Used in this Annual Report.”
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SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Exploration and Production
2019 compared to 2018
Net income attributable to our shareholders in E&P segment
was US$12,624 million in 2019 compared to US$12,190 million
higher impairment (RNEST, COMPERJ and Pasadena) and
higher expenses with lawsuits related to environmental taxes
alongside contingencies related to the OSPAR pipeline. These
factors were partially offset by higher volumes and margins in
exports of fuel oil and crude oil. Refining unit cost decreased
in 2018. Operating income increased due to higher production,
due to lower personnel costs in U.S. dollars combined with the
lower lifting costs, lower expenses with legal contingencies
exchange rate variation during the period.
and higher gains with divestments, partially compensated by
higher impairment losses, lower Brent prices and exploratory
expenses. See Note 25 to our audited consolidated financial
statements for further information about impairment
expenses. The lifting cost decreased 12%, mainly due to the
increase in production, with the start-up and ramp-up of
pre-salt platforms, mainly in the Búzios and Lula fields.
2018 compared to 2017
2018 compared to 2017
In 2018, net income attributable to our shareholders in the
Refining segment was US$2,393 million, which was lower
than 2017 (US$4,235 million). Operating income was reduced
due to the lower margin of oil products, mainly gasoline,
diesel and LPG, and higher selling expenses, partially offset
by inventories formed at lower prices and lower impairment
costs. The implementation of cost optimization measures
Net income in our E&P segment was US$12,190 million in
resulted in a reduction in the unit cost of refining.
2018 compared to US$7,021 million in 2017. Even with lower
production, there was an increase in operating income due to
the effects of higher Brent prices. In addition, we had greater
Gas and Power
impairment costs and higher expenses with production
taxes and judicial agreements and contingencies, mitigated
by the positive result with de-commissioning of areas. See
Note 25 to our audited consolidated financial statements
for further information about impairment expenses. The
lifting cost decreased 4%, mainly due to lower expenses with
interventions in wells.
2019 compared to 2018
Net income attributable to our shareholders was US$4,180
million in 2019 compared to US$482 million in 2018.
Operating profit increased due to the sale of a 90% interest
in TAG June 2019, despite higher selling expenses with the
payment of TAG’s tariffs.
2018 compared to 2017
Refining, Transportation and Marketing
Net income attributable to our shareholders was
2019 compared to 2018
US$482 million in 2018 compared to US$1,915 million
in 2017. The decrease was attributable to higher selling
In 2019, net income attributable to our shareholders in the
expenses for the use of pipelines of the southeast grid and
Refining segment was US$1,021 million, which was lower
the gain with the sale of our interest in NTS in 2017, partially
than 2018 (US$2,393 million). Lower operating profit was due
offset by better margins and decrease in impairment.
to lower margins and volumes of diesel and gasoline sold in
the Brazilian market, the exchange translation effect and
the reduction in the positive effect of inventory turnover of
approximately US$0.8 billion, as well as higher selling expenses,
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SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Liquidity and Capital Resources
Liquidity and capital resources
US$ million
Adjusted cash and cash equivalents at the beginning of period(1)
Government bonds and time deposits with maturities of more than three
months at the beginning of period
Cash and cash equivalents at the beginning of period
Net cash provided by (used in) operating activities
Net cash provided by operating activities from continuing operations
Discontinued operations – net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) investing activities from continuing operations
Acquisition of PP&E and intangibles assets (except for the Transfer of Rights surplus
and other signature bonus) and investments in investees
Signature bonus
Transfer of Rights surplus
Proceeds from disposal of assets – Divestment
Reimbursement of Transfer of rights agreement
Dividends received
Divestment (Investment) in marketable securities
Discontinued operations – net cash provided by (used in) investing activities
(=) Net cash provided by operating and investing activities
Net cash provided by (used) in financing activities from continuing operations
Net financings
Proceeds from financing
Repayments
Repayment of lease liability
Dividends paid to shareholders of Petrobras
Dividends paid to non-controlling interest
Investments by non-controlling interest
Discontinued operations – net cash used in financing activities
Net cash provided by (used) in financing activities
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of period
Government bonds and time deposits with maturities of more than three
months at the end of period
Adjusted cash and cash equivalents at the end of period (1)
2019
14,982
(1,083)
13,899
25,600
25,277
323
(1,684)
(3,496)
(7,224)
(1,339)
(15,341)
10,413
8,361
1,436
198
1,812
23,916
(31,561)
(24,310)
7,464
(31,774)
(5,207)
(1,877)
(138)
(29)
(508)
(32,069)
1,631
7,377
888
8,265
2018
24,404
(1,885)
22,519
26,353
25,447
906
(4,504)
(4,460)
(11,108)
(841)
−
5,791
−
994
704
(44)
21,849
(29,694)
(29,009)
10,707
(39,716)
−
(625)
(103)
43
(156)
(29,850)
(619)
13,899
1,083
14,982
(1) Adjusted Cash and Cash Equivalents is a non-GAAP measure that comprises cash and cash equivalents, government bonds and time deposits from highly
rated financial institutions abroad with maturities of more than three months from the end of the period, considering the expected realization of those financial
investments in the short-term.
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SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Free Cash
Flow
We use free cash flow as a supplemental measure to assess our liquidity and support leverage management.
Free cash flow is not defined under IFRS and should not be considered in isolation or as a substitute for
cash and cash equivalents calculated in accordance with IFRS. Additionally, it may not be comparable to the
free cash flow of other companies.
Our free cash flow metric comprises net cash provided by operating activities less acquisition of PP&E,
intangibles assets (except for signature bonus, including the bidding for oil surplus of the Transfer of Rights
Agreement, paid for obtaining concessions for exploration of crude oil and natural gas) and investments
in investees, as presented below:
Reconciliation of free cash flow
Jan-Dec
Jan-Dec
Net cash provided by operating activities assets
(-) Acquisition of PP&E and intangible assets
(except for the bidding for oil surplus of the Transfer of Rights Agreement)
(+) Other signature bonuses paid for exploration of crude oil and natural gas(1)
(-) Investments in investees
Free Cash Flow
2019
25,600
2018
26,353
(8,556)
(11,905)
1,339
(7)
18,376
841
(44)
15,245
(1) Signature bonuses paid for Concession and Production sharing regimes, included in “Acquisition of PP&E
and intangibles assets”.
In addition, in August 2019 we approved a new Shareholder Compensation Policy, which aims to establish
an objective parameter for the payment of earnings, providing more transparency to investors on their
compensation, considering our indebtedness and cash flow.
For more information on our new Shareholder Compensation Policy, see “Shareholder Information” in this
annual report.
Our free cash flow in 2019 increased by 21%, primarily reflecting lower investments in PP&E.
The principal uses of funds in the year ended December
Source of Funds
31, 2019 were for debt service obligations, including pre-
payment of debt and lease payments (US$36,981 million)
and acquisition of PP&E and intangibles assets, including the
bidding for oil surplus of the Transfer of Rights Agreement
(US$23,897 million). These funds were principally provided
by operating activities (US$25,373 million), disposal of
assets (US$10,413 million), reimbursement relating to
In 2019, our financing strategy was to fund our necessary
capital expenditures and to preserve our cash balance and
liquidity while meeting our principal and interest
payment obligations.
We pursued our financing strategy in 2019 in the
following ways:
the Transfer of Rights Agreement (US$8,361 million) and
(i) using cash flow from operations;
proceeds from financing (US$7,464 million).
(ii) moving forward with our portfolio management program
and continuing with divestments; and
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LIQUIDITY AND CAPITAL
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OTHER INFORMATION
147
159
(iii) moving forward with our liability management program,
Disposal of Assets
incurring new debt from funding sources to prepay
expensive loans with certain of our creditors.
From January 01, 2019 through to March 16, 2020, we signed
divestment agreements for a total price of US$16.3 billion.
Cash Flows from Operating Activities
We received cash inflow from the sale of assets amounting to
Net cash provided by operating activities decreased 2.9% to
US$14.7 billion, which represents the prices paid to us on the
US$25,600 million in 2019, from US$26,353 million in 2018,
closing of the completed transactions and the prepayments
mainly due to lower crude prices and refining margins and
related to certain transactions that have not yet been closed.
higher payments for contingencies.
Assets
Full sale of stake in Petrobras Paraguay Distribución Limited (“PPDL UK”), Petrobras Paraguay Operaciones y
Logistics SRL (“PPOL”) and Petrobras Paraguay Gas SRL (“PPG”)
Sale of all the shares held by PAI in the companies that encompass Pasadena’s entire refining operations system:
PRSI and PRSI Trading LLC (“PRST”)
Sale of 90% of stake in the TAG.
Sale of 33.75% of Petrobras Distribuidora’s capital stock through the secondary public offering of shares
Sale of our full stake in the Maromba field
Sale of stake in the fields of Pargo, Carapeba and Vermelho, the so-called “Polo Nordeste”, located in shallow
waters off the coast of Rio de Janeiro state
Sale of 50% working interest in Tartaruga Verde field (BM-C-36 Concession) and Module III of Espadarte field
Sale of entire 50% interest in PO&G
Sale of 50% of stake in Belem Bioenergia Brasil (“BBB”)
Sale of full stake in 34 onshore production fields, located in the state of Rio Grande do Norte
Prepayment for the sale of our full stake in the Baúna field
Prepayment for the sale of Pampo and Enchova clusters
Prepayment for the sale of Macau cluster
Prepayment for the sale of Lagoa Parda cluster
Prepayment for the sale of Frade field
Prepayment for the sale of Tucano Sul cluster
Total
(1) Information updated as of March 9, 2020.
Cashed-in(1)
(US$ billion)
0.38
0.47
8.72
2.55
0.02
0.32
0.95
0.81
-
0.30
0.05
0.05
0.05
0.001
0.008
0.001
14.7
For additional information on divestments, see “Portfolio
The change in accounting requirements has no effects on cash
Management” in this annual report.
and cash equivalents and did not affect shareholders’ equity.
Debt
Our proceeds from financing are comprised of global notes
For more information on IFRS 16, see Note 2.3.1 to our
audited consolidated financial statements.
issued in the capital markets, debentures issued in the Brazilian
market and funds raised from export credit agencies and from
domestic and international banking market.
Considering the effects of IFRS 16, our gross debt totaled
US$87,121 million, and the Net Debt, representing the sum of
short and long-term loans and financing and lease liabilities
Additionally, our total debt includes lease liabilities. Among
(IFRS 16), deducted by cash and cash equivalents, Brazilian
changes arising from IFRS 16, the standard eliminated the
federal government securities and time deposits maturing
classification between finance leases and operating leases,
over three months totaled US$78,861 million. Considering
providing for a single model for the lessee in which all leases
the first time adoption of the IFRS 16 as of January 1, our Net
result in the recognition of assets related to the right-of-use
Debt decreased from US$95,953 million to US$78,861 million
of leased assets and lease liability.
as a result of repurchase and payments of debt.
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SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Net Debt (US$ million)
and net Debt/Adjusted
Ebitda Ratio1 (x)
84,871
95,953
78,861
3.67
26,575
23,684
2.34
2.46
1.99
69,378
55,177
20172
20182 2019
NET DEBT
NET DEBT/ADJUSTED EBITDA RATIO
NET DEBT/ADJUSTED EBITDA RATIO
(EXCLUDING IFRS 16 EFFECTS)
IFRS 16 EFFECTS ON NET DEBT
1 The Net Debt is in US dollars and the basis for calculating the ratio is in reais. For reconciliation of Net Debt/Adjusted EBITDA, a non-GAAP measure, see “Net
Debt/Adjusted EBITDA Metric” in this annual report.
2 For comparative purposes, the December 31, 2018 net debt amounts shown above consider the initial application of IFRS 16 as of January 1, 2019. The net
debt amount of 2017 does not consider effects of adoption of IFRS 16.
For reconciliation of Net Debt, a non-GAAP measure, see “Net Debt/Adjusted EBITDA Metric” in this annual report.
Finance Debt
Debt profile
In 2019, proceeds from financing amounted to US$7,464 million, principally reflecting: (i) global notes issued in the capital
markets in the amount of US$2,980 million, of which US$737 million relates to the reopening of bonds maturing in 2029, and
the remaining relates to new bonds issued maturing in 2049; and (ii) debentures issued amounting to US$1,685 million.
We currently issue notes in the international capital markets through our wholly-owned finance subsidiary PGF. We fully and
unconditionally guarantee such notes issued by PGF, and PGF is not required to file periodic reports with the SEC.
See Note 39 to our audited consolidated financial statements.
In order to protect ourselves from the current crisis relating to the COVID-19 pandemic and the volatility in oil prices, we have
requested banks to disburse part of our revolving credit lines in the total amount of approximately US$8billion.
The average cost of our debt fell below 6% per year, reaching 5.9% per year. Meanwhile, the average duration increased from
9.14 years in December 2018 to 10.79 years in December 2019.
Average interest rate
Weighted average maturity (in years)
Leverage (%)(1)
2019
5.9%
10.79
44
2018
6.1%
9.14
46
2017
6.1
8.62
57
(1) This leverage takes into account market capitalization. Considering book value of Equity, the leverage is 52% for 2019, 49% for 2018 and 51% for 2017.
Debt profile per currency (%)
Debt profile per category (%)
3
4
17
76
3
5
35
57
USD
BRL
EURO
OTHER
CURRENCIES
150
CAPITAL MARKET
BANKING MARKET
EXPORT CREDIT
AGENCY
DEVELOPMENT BANK
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019 GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
As of December 31, 2019, our total debt due in the short-term, including accrued interest, amounted to US$4,469 million,
compared to US$3,667 million as of December 31, 2018.
Our outstanding long-term debt amounted to US$58,791 million as of December 31, 2019, compared to US$80,508 million as
of December 31, 2018. This decrease was primarily due to repurchase of global bonds and pre-payment of debt.
See Note 32 to our audited consolidated financial statements for a breakdown of our debt, a roll-forward schedule of our debt
by source and other information.
For more information about our securities, including our bonds, see Exhibit 2.4 to this annual report.
Rating
We are rated by the three major rating agencies (S&P, Moody’s and Fitch). Our ratings are based on
our financial health and are highly influenced by the Brazilian sovereign rating.
Global rating
Standard & Poor’s
Moody’s
Fitch
(1) As of March 16, 2020.
(2) As of December 31.
Stand alone rating
Standard & Poor’s
Moody´s
Fitch
(1) As of March 16, 2020.
(2) As of December 31.
2020(1)
BB-
Ba2
BB-
2020(1)
BB
Ba2
BBB
2019(2)
BB-
Ba2
BB-
2019(2)
BB
Ba2
BB+
2018
BB-
Ba2
BB-
2018(2)
BB-
Ba3
BB-
In 2019, S&P, Fitch and Moody’s upgraded our stand-alone credit profile ratings (S&P by one-notch,
from BB- to BB; Fitch by two-notches, from BB- to BB+; Moody’s by one-notch, from Ba3 to Ba2). We
also had a global rating perspective upgraded from stable to positive by S&P, while Fitch and Moody´s
kept us on a stable perspective basis. In 2020, Fitch performed another upgrade on our stand-alone
credit profile rating by two-notches, from BB+ to BBB, second level on the investment grade scale.
This maintained our global rating at BB- (S&P and Fitch) and Ba2 (Moody’s). These upgrades reflect
the overall improvement in our operating and financial performance.
151
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019 Exposure to
interest rate
and exchange
rate risk
GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
The table below provides summary information regarding our exposure to interest rate and exchange
rate risk in our total finance debt portfolio for 2019 and 2018, including short-term and long-term debt.
Total Debt portfolio
Real - denominated:
Fixed rate
Floating rate
Sub-total
U.S.dollar - denominated:
Fixed rate
Floating rate
Sub-total
Other currencies:
Fixed rate
Floating rate
Sub-total
Total
Floating rate debt:
Real-denominated
Foreign currency-denominated
Fixed rate debt:
Real-denominated
Foreign currency denominated
Total
U.S. dollars
Euro
GBP
Japanese Yen
Brazilian reais
Total
(1) Short term and long term.
2019
(%)
6.0
10.6
16.6
44.8
31.5
76.3
7.1
0.0
7.1
100.0
10.6
31.5
6.0
51.9
100.0
76.3
4.0
3.0
0.0
16.7
Total debt portfolio(1) (%)
2018
(%)
3.2
15.8
19.0
40.4
33.8
74.2
6.6
0.2
6.8
100.0
15.8
34.0
3.2
47.0
100.0
74.2
4.2
2.6
0.0
19.0
2017
(%)
3.3
16.4
19.7
40.7
32.4
73.1
6.9
0.3
7.2
100.0
16.4
32.6
3.3
47.7
100.0
73.1
4.9
2.2
0.1
19.7
100.0
100.0
100.0
We practice integrated risk management in every decision-making process with which we are involved.
Thus, we do not focus on the individual risks of our operations or business units, but, rather, we take a
broader view of our consolidated activities, capturing possible natural hedges where available.
With respect to the management of financial risks, including market risks, we use more structural
actions through the management of our equity and indebtedness levels, instead of applying the use
of financial derivative instruments.
152
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019
GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Market risk management focuses on the uncertainties inherent in meeting our objectives and aims
at establishing action plans towards a balanced combination of risk, return and liquidity. Acceptable
limits for market risks depend on the conditions of the business environment, such as price levels,
rates and volatility of risk factors, political, macroeconomic and other uncertainties that significantly
influence our economic and financial performance. We define the limits for market risks when
elaborating each new strategic plan we adopt, considering our strategic objectives, goals, expected
value and the liquidity of financial resources required for the implementation of that strategic plan.
The use of financial instruments, such as derivatives, may be necessary to meet our needs.
In general, our foreign currency floating rate debt is principally subject to fluctuations in LIBOR. Our
floating rate debt denominated in reais is subject to fluctuations in the Brazilian interbank offering
rate, or “DI”, and Brazilian long-term interest rate, or “TJLP”, as fixed by the CMN.
We are taking actions to mitigate the potential impact of the discontinuation of LIBOR by 2021
on our debt contracts in order to substitute LIBOR with another reference rate but according to
informations that we have until now, we do not believe this event should represent a material risk to
our consolidated results and financial condition.
We generally do not use derivative instruments to manage our exposure to interest rate fluctuation,
but we may utilize these financial instruments in the future.
The exchange rate risk to which we are exposed has greater impact on the balance sheet and derives
principally from the incidence of non-real denominated obligations in our debt portfolio. With respect
to the management of foreign exchange risks, we take a broader view of our consolidated activities,
capturing possible natural hedges whenever they are available, benefiting from the correlation
between our income and expenses. For the short term, the management of our foreign exchange risk
involves allocating our cash investments between the real and other foreign currencies. Our strategy,
reevaluated annually in the revision of our 2020-2024 Strategic Plan, may also involve the use of
financial instruments, such as derivatives, to hedge certain liabilities, minimizing foreign exchange
rate risk exposure, especially when we are exposed to a foreign currency in which no cash inflows are
expected, for example, Pound Sterling.
In 2017, we entered into derivative transactions, through our indirect subsidiary Petrobras Global
Trading BV (“PGT”), in the form of cross-currency swaps to hedge against exposure in sterling pounds
versus U.S. dollars, arising from past issues of bonds in that currency. In 2018, we also entered into,
through PGT, derivative operations in the form of non-deliverable forwards to hedge against exposure
in euros and sterling pounds versus U.S. dollars, arising from past issues of bonds in that currency.
In September 2019, we contracted derivative operations to hedge against cash flow exposure arising
from debt issued in Brazilian reais, the first series of the 7th issue of debentures, with the IPCAxCDI
interest rate swap maturing in September 2029 and September 2034 and the CDI x Dollar cross-
currency swap operations maturing in September 2024 and September 2029.
We have designated cash flow hedging relationships to reflect the economic essence of the structural
hedge mechanism between U.S. dollar-denominated debt and future sales revenues.
See “Operating and Financial Review and Prospects – Group Financial Performance – Exchange
Rate Variation Impacts” in this annual report and Notes 4.8 and 34.2(a) to our audited consolidated
financial statements for further information about our cash flow hedge.
153
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019 GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
See Note 36.2(e) to our audited consolidated financial statements for more information about our
interest rate and exchange rate risks, including a sensitivity analysis demonstrating the potential
impact of a 25% (or 50%) adverse change in the underlying variables as of December 31, 2019.
For further information regarding expected maturity schedule and currency, the principal and interest
cash flows, related average interest rates of our debt obligations, credit risk and liquidity risk, see
Notes 32, 36.4 and 36.5 to our audited consolidated financial statements.
Lease Liabilities
With the adoption of IFRS 16, we recognized on January 1,
2019 US$26,575 million in the balance of property, plant
and equipment due to the measurement of the right-of-
use assets, and the same amount as lease liability. As of
December 31, 2019 the amount of lease liabilities totaled
US$23,861 million.
Net Debt/Adjusted EBITDA Metric
The Net Debt/Adjusted EBITDA ratio is a metric used in our
2020-2024 Strategic Plan that supports our management
in assessing our liquidity and leverage. All of the metrics
included in our 2020-2024 Strategic Plan are in U.S. dollars.
Currently, our metric are measured in Brazilian reais.
Adjusted EBITDA represents an alternative measure to our
net cash provided by operating activities and 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, cumulative foreign exchange
adjustments reclassified to the income statement and
results from disposal and write-offs of assets.
In calculating Adjusted EBITDA, we adjusted our EBITDA for
the year by adding foreign exchange gains and losses resulting
from provisions for legal proceedings denominated in foreign
currencies. Legal provisions in foreign currencies primarily
consist of our portion of the class action settlement provision
signed in December 2017. The foreign exchange gains or
losses on legal provisions are presented in other income and
expenses for accounting purposes but management does not
consider them to be part of our primary business. In addition,
they are substantially similar to the foreign exchange effects
presented within net finance income.
Net Debt reflects the gross debt, including lease liabilities,
net of “Adjusted Cash and Cash Equivalents” (which is a
non-GAAP measure that comprises cash and cash
equivalents, government bonds and time deposits from
highly rated financial institutions abroad with maturities
of more than three months from the end of the period,
considering the expected realization of those financial
investments in the short-term).
Our Net Debt/Adjusted EBITDA ratio is a non-GAAP measure
and may not be comparable to the calculation of liquidity
measures presented by other companies, and it should
neither be considered in isolation nor as a substitute for any
measure calculated in accordance with IFRS. This metric must
be considered together with other measures and indicators
for a better understanding of our financial condition.
We applied the same foreign exchange translation method
as set forth in Note 2 to our audited consolidated financial
statements for presenting this metric in U.S. dollars.
Accordingly, assets and liabilities items were translated
into U.S. dollars at the exchange rate as of the date of the
statement of financial position, and all items pertaining to
the statement of income and statement of cash flows were
translated at the average rates prevailing at each
quarter of the years.
Depending on the foreign translation effects on items that
comprise this metric, the Net Debt/Adjusted EBITDA may
differ or even present a different trend when comparing
results in reais and U.S. dollars. However, we are pursuing
a 1.5 target based on our Net Debt and Adjusted EBITDA
computed in reais, as described in “2020-2024 Strategic
Plan” in this annual report.
The following table presents, in both currencies, the
reconciliation for 2019 and 2018 of the Net Debt/Adjusted
EBITDA ratio measure to the most directly comparable GAAP
measure in accordance with IFRS, which is, in this case, the
Gross Debt Net of Cash and Cash Equivalents / Net Cash
provided by operating activities ratio:
154
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019 GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
2019
2018
2019
2018
(R$ million)
(US$ million)
Cash and cash equivalents
Government securities and time deposits (maturity of more than three
months)
Adjusted cash and cash equivalents
Finance Debt
Lease Liability
Current and non-current debt - Gross Debt
Net debt
Net cash provided by operating activities from continuing operations
Net cash provided by operating activities from discontinued activities
Net cash provided by operating activities - OCF
Income taxes
Impairment of trade and others receivables
Trade and other receivables, net
Inventories
Trade payables
Deferred income taxes, net
Taxes payable
Others
Total Adjusted EBITDA
Adjusted EBITDA from continuing operations
Adjusted EBITDA from discontinued operations
Gross debt net of cash and cash equivalents/OCF ratio
Net debt/Adjusted EBITDA ratio
29,714
3,580
33,294
254,982
96,179
351,161
317,867
100,542
1,224
101,766
-16,400
343
8,578
-1,208
-3,821
11,036
-8,328
-17,683
129,249
128,091
1,158
3.16
2.46
53,854
4,198
58,052
326,161
715
326,876
268,824
92,518
3,328
95,846
-15,462
282
-5,983
-7,599
3,557
1,297
-1,358
6,260
114,852
112,035
2,816
2.85
2.34
7,372
888
8,260
63,260
23,861
87,121
78,861
25,277
323
25,600
-4,200
87
2,233
-281
-989
2,798
-2,105
-4,650
32,707
32,406
301
3.12
2.41
13,899
1,083
14,982
84,175
185
84,360
69,378
25,447
906
26,353
-4,256
91
-1,536
-2,108
858
370
-302
1,734
31,502
30,744
758
2.67
2.20
Additionally, in order to make it clear that both “Net debt” as well as “Net debt/Adjusted EBITDA ratio” increased in 2019 when
compared to 2018 primarily because of the effects of IFRS 16 adoption, we present the following additional information:
Net debt
Effects of IFRS 16 adoption on Net debt
Net debt excluding the effects of IFRS 16 adoption
Total Adjusted EBITDA
Effects of IFRS 16 adoption on Adjusted EBITDA
Total Adjusted EBITDA excluding the effects of IFRS 16 adoption
Net debt/Adjusted EBITDA ratio - excluding the effects of IFRS 16 adoption
2019
2018
2019
2018
(R$ million)
(US$ million)
317,867
(95,464)
222,403
129,249
(17,211)
112,038
1.99
268,824
-
268,824
114,852
-
114,852
2.34
78,861
(23,684)
55,177
32,707
(4,353)
28,354
1.95
69,378
-
69,378
31,502
-
31,502
2.20
Our Net Debt/Adjusted EBITDA ratio computed in reais
December 31, 2019 reflecting the effects derived from the
increased from 2.34 to 2.46, due to the IFRS16 effects. We
adoption of IFRS16. Our Net Debt/Adjusted EBITDA ratio
will continue working in order to reach a Net Debt/Adjusted
(excluding the effects of IFRS 16 adoption) computed in U.S.
EBITDA more consistent with oil and gas industry standards.
dollar decreased from 2.20 at December 31, 2018 to 1.95
Our Net Debt/Adjusted EBITDA ratio (excluding the effects
at December 31, 2019 also reflecting the proceeds from
of IFRS 16 adoption) computed in reais decreased from 2.34
divestments.
to 1.99, mainly due to proceeds from divestments.
For information on our Net Debt/Adjusted EBITDA target,
Our Net Debt/Adjusted EBITDA ratio computed in U.S.
see “2020-2024 Strategic Plan” in this annual report.
dollar increased from 2.20 at December 31, 2018 to 2.41 at
155
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019 GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Use of Funds
Capital Expenditures
We disbursed a total of US$27,413 million in 2019 (which
91.5% was used in E&P business), a 104% increase when
in 2018. In line with our previous 2018-2022 Business
and Management Plan, our Capital Expenditures in
2019 were primarily directed toward the most profitable
investment projects relating to oil and gas production.
These expenditures are based on our plan cost assumptions
compared to our Capital Expenditures of US$13,349 million
and financial methodology.
Capital Expenditures by business segments
For the Year Ended December 31
Exploration and Production
Refining, Transportation and Marketing
Gas and Power
Corporate and Other Businesses
Total
2019
25,080
1,463
543
328
27,413
2018
(US$ million)
11,592
1,107
433
307
13,439
2017
12,397
1,284
1,127
276
15,084
For information on our future Capital Expenditures, see “Strategic Plan – 2020-2024 Strategic Plan” in this annual report.
EXPLORATION
AND PRODUCTION
INVESTMENTS:
REFINING,
TRANSPORTATION
AND MARKETING
INVESTMENTS:
GAS AND POWER
INVESTMENTS:
US$25,081
million
US$1,463
million
US$543
million
Started operation of
4 new systems: P-76,
P-77, P-67 and P-68.
Ramp up of 8 systems:
P-74 to P-77 (Búzios 1
to 4), P-67 to P-69 (Lula
Norte, Berbigão-Sururu
and Lula Extremo Sul),
and Cidade de Campos
(Tartaruga).
Bid round of
US$ 16,671 million
Basic design to allow
REPLAN to produce 100%
S-10 diesel oil and
aviation fuel.
Completion of the basic
project to enable REDUC to
produce more diesel S10
(2.4 million m3/year).
Conducting scheduled
stops with emphasis on the
refineries: REPLAN, RLAM,
RPBC, REVAP and REGAP.
Delivery of ships Garrincha
and Portinari to Transpetro.
156
Construction and
expansion of the capacity
of gas pipelines and
natural gas processing
units to supply the pre-
salt pole production in
the Santos basin.
Conducting scheduled
stops with emphasis
on UTE-TRI BLOCO3,
UTE-TMA and UTE-NPI.
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019
GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Dividends
Our Board of Directors proposed distribution of dividends in 2019 in the amount of US$2,687 million, most of it as
interest on capital.
For more information on our shareholders compensation policy, see “Shareholder Information – Dividends” in this annual
report and Note 34.7 to our audited consolidated financial statements.
Debt Service Obligations
As of December 31, 2019, our debt maturity profile includes, for the next five years, US$48,558 million in finance debt and
lease liability.
Amortization profile (US$ million)
9,451
9,201
8,340
10,775
10,791
48,978
2020
2021
2022
2023
2024
2025PONWARDS
FINANCE DEBT
LEASE LIABILITY (IFRS 16)
Financial Debt
In 2019, we repaid finance debt in the amount of US$31,774 million notably: (i) US$9,994 million relating to repurchase
of global bonds previously issued by us in the capital market, with a net premium paid to bond holders amounting to
US$855 million; (ii) pre-payment of banking loans in the Brazilian and global market totaling US$13,446 million; and (iii)
pre-payment of US$578 million with respect to financings with the BNDES.
157
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019 GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Lease Liabilities
We are the lessee in agreements primarily including oil and gas producing units, drilling rigs and other exploration and
production equipment, vessels and support vessels, helicopters, land and buildings.
Changes in the balance of lease liabilities are presented below:
Balance at
January 31,
2018
Adoption
of
IFRS 16
Remeasure-
ment /new
contracts
Payment of
principal and
interest
Unwinding
of
discount
Foreign
exchange
gains and
losses
Cumulative
translation
adjustment
(CTA)
Transfer to
assets and
liabilities
held for sale
185
-
185
5,628
20,947
26,575
1,239
1,060
2,299
(1,597)
(3,655)
(5,252)
376
1,138
1,514
160
479
639
(246)
(445)
(691)
(241)
(1,167)
(1,408)
Balance at
December
31, 2019
5,504
18,357
23,861
(84)
110
19
(5,207)
In Brazil
Abroad
Total
Payments
relating to
liabilities held
for sale
Amounts
received
Payments
relating to
discontinued
operations
Net cash used
in financing
activities
Payments in certain lease agreements vary due to changes in facts or circumstances occurring after their inception other than
the passage of time. These payments are not included in the measurement of the lease obligations.
For additional information on impacts brought up by IFRS 16 see Note 2.3.1 to our audited consolidated financial statements.
158
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019 GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
Other Information
Contractual Obligations
The following table summarizes our outstanding contractual obligations and commitments as of December 31, 2019:
Total
< 1 year
1-3 years
3-5 years
> 5 years
Payments Due by Period
(US$ million)
Contractual obligations
Balance sheet items(1)(6):
Finance Debt(2)
Lease liability(3)
Provision for decommissioning costs(4)
63,260
32,255
20,502
4,469
5,901
599
8,660
8,495
1,745
Total balance sheet items
116,017
10,969
18,900
Other contractual commitments
Natural gas ship-or-pay(5)
Service contracts
Natural gas supply agreements(5)(7)
Leases not yet started
Short-term lease arrangements
Purchase commitments
Total other commitments
Total
30,743
93,964
5,105
49,815
101
5,038
184,684
300,782
2,807
20,245
932
1,111
101
3,869
29,321
40,034
5,823
23,481
2,485
4,030
0
967
37,276
55,686
16,573
4,801
603
21,977
5,916
14,609
1,688
0
0
177
21,562
44,367
33,558
13,058
17,555
64,171
16,197
35,628
0
44,673
0
25
96,524
160,695
(1) Excludes the amount of US$40,569 million related to our pension and medical benefits obligations, which are partially funded by US$14,075 million in plan
assets. Information on employees’ post-retirement benefit plans, including a schedule of expected maturity of pension and medical benefits obligations, is
presented in Note 18 to our audited consolidated financial statements.
(2) Includes accrued interest, short-term and long-term debt (current and non-current portions). Information about our future interest and principal payments
(undiscounted) for the coming years is presented in Note 36.5 to our audited consolidated financial statements.
(3) IFRS 16, effective as of January 1, 2019, eliminated the classification of leases as either operating or finance leases. For more information on IFRS 16, see
Note 2.3.1 to our audited consolidated financial statements.
(4) Includes US$2,961 million of liabilities related to assets classified as held for sale.
(5) Import contract was expected to terminate in December 2019, but it will be outstanding until all contracted volume has been delivered.
(6) Our Brazilian oil and gas agreements require us to invest at least 1% of our gross revenue originating from high productivity oil fields on research and
development.
(7) On March 6, 2020, the Company entered into a new amendment to the long-term Gas Supply Agreement (GSA) with YPFB. The signed amendment refers to
the portion of gas contracted in 1999, at the beginning of the Bolivia-Brazil gas pipeline operation, and which has not yet been withdrawn by us.
Off Balance Sheet Arrangements
Critical Accounting Policies and Estimates
As of December 31, 2019, we had no off-balance sheet
Information on critical accounting policies and estimates,
arrangements that have, or are reasonably likely to have,
which involves a higher degree of complexity in the application
a material effect on our financial condition, revenues
of the accounting policies that currently affect our financial
or expenses, results of operations, liquidity, capital
condition and results of operations is provided in our audited
expenditures or capital resources.
consolidated financial statements. Note 4 to our audited
consolidated financial statements addresses the estimates
that we consider most significant based on the degree of
uncertainty, the potential events that may negatively affect
159
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GROUP FINANCIAL PERFORMANCE
SEGMENTS FINANCIAL
PERFORMANCE
134
145
LIQUIDITY AND CAPITAL
RESOURCES
OTHER INFORMATION
147
159
our estimates and the likelihood of a material impact if we
used a different estimate. These assumptions are based on
past transactions and other relevant information and are
periodically reviewed by our management. Actual results could
differ from these estimates.
Additional information, including our significant accounting
policies, are provided in each of our explanatory notes to our
audited consolidated financial statements.
New accounting Standards and
Interpretations
On January 1, 2019, IFRS 16 – Leases and IFRIC 23 –
Uncertainty over Income Tax Treatments, issued by IASB,
became effective. Information on their initial application
are set out in Note 2.3 to our audited consolidated financial
statements.
160
OPERATING AND FINANCIAL REVIEW AND PROSPECTSANNUAL REPORT AND FORM 20-F 2019 MANAGEMENT
EMPLOYEES
BENEFITS
162
183
186
MANAGEMENT
AND EMPLOYEES
161
MANAGEMENT AND EMPLOYEESANNUAL REPORT AND FORM 20-F 2019
Management
Board of Directors
EMPLOYEES
CONTROLLING
SHAREHOLDER
MANAGEMENT
EMPLOYEES
BENEFITS
162
183
186
MINORITY
SHAREHOLDERS
CEO
CHAIRMAN
MEMBERS
ON
PN
Our Board of Directors is composed of a minimum of seven
and any member of our Board of Directors may be re-elected
and maximum of eleven members and is responsible for,
for up to three consecutive times.
among other things, establishing our general business
policies. Our Bylaws were amended in September 2019 to
specifically provide that our Board of Directors must be
composed by external members only, without any current
statutory or employment relationship with us, except for the
member designated as our CEO and the member elected by
our employees.
As a mixed-capital company with 200 or more employees, in
which the Brazilian federal government directly or indirectly
holds a majority of the voting rights, our employees have
the right to elect one member of our Board of Directors to
represent them, by means of a separate voting procedure.
Our Bylaws also provide that, regardless of the rights
granted to minority shareholders, the Brazilian federal
government always has the right to elect the majority of our
directors, regardless of the number of directors.
The term of office of our directors may not exceed two years
In accordance with Brazilian Corporate Law, shareholders may
remove any director from office at any time with or without
cause at an extraordinary shareholders’ meeting, and in case
of removal of any board member elected through cumulative
voting procedure, it will result in the removal of all of the
other members elected under the same procedure, after
which new elections must occur.
Our Board of Directors must be composed of, at least,
40% independent members, in compliance with Brazilian
Corporate Law and B3 Level 2 rules. In case of contradictions
between these rules, the stricter rules prevail.
For further information on Level 2 listing segment, see
“Shareholder Information” in this annual report.
For further information regarding the composition,
attributions and duties of our Board of Directors, see Exhibit
1.1 to this annual report for a copy of our Bylaws.
We currently have the following 10 directors:
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OTHER DIRECTORSHIPS
None
Roberto da Cunha Castello Branco
BORN
July 20, 1944
NATIONALITY
Brazilian
TERM OF OFFICE
from January 2019
to April 2020
NOMINATED BY
Controlling
Shareholder
POSITION
Member of the Board
of Directors
INDEPENDENT
No
BUSINESS EXPERIENCE: Mr. Castello Branco was a member of our Board of Directors between May 2015 and April 2016 and has
been our Chief Executive Officer since January 2019. He is an affiliated professor at Fundação Getulio Vargas (FGV EPGE) and
director at the center for studies in economic growth and development at EPGE. Previously, Mr. Castello Branco was a director
at Vale S.A., Banco Central do Brasil, Banco Boavista, Banco Boavista Investimentos and Banco InterAtlântico. He also acted
as a member of the Board of Directors of GRU Airport, Invepar, ABRASCA, IBEF and director at the American Chamber of
Commerce (RJ).
EDUCATION: Mr. Castello Branco holds a bachelor’s degree in economics, with a PHD from Fundação Getulio Vargas (FGV EPGE)
and a postdoctoral degree from University of Chicago. Mr. Castello Branco also participated in executive training programs at
Sloan School of Management (MIT) and International Institute for Management Development (IMD).
FAMILY RELATIONS: None
Eduardo Bacellar Leal Ferreira
BORN
June 02, 1952
NATIONALITY
Brazilian
TERM OF OFFICE
from January 2019
to April 2020
NOMINATED BY
Controlling
Shareholder
OTHER DIRECTORSHIPS
None
POSITION
Chairman of the Board
of Directors
INDEPENDENT
No
BUSINESS EXPERIENCE: Mr. Leal Ferreira is a fleet admiral and was the commander of the Brazilian Navy until January 2019. Before
he held this position, Mr. Leal Ferreira served in the Brazilian Navy for 48 years in different positions, having been the commander
in chief of the Brazilian Navy fleet and the commander of Brazil’s national war college. He was director of the ports and coasts
area of the Brazilian Navy which is responsible for the technical supervision of maritime safety of all operating vessels in Brazil,
including platforms and support vessels.
EDUCATION: Mr. Leal Ferreira was trained at the Brazilian Naval School, the Brazilian Naval War College, and the Naval War College
of Chile.
FAMILY RELATIONS: None.
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Ana Lúcia Poças Zambelli
BORN
November 25, 1972
NATIONALITY
Brazilian
TERM OF OFFICE
from May 2018
to April 2020
NOMINATED BY
Controlling
Shareholder
POSITION
Member of the Board
of Directors
INDEPENDENT
Yes
OTHER DIRECTORSHIPS
Braskem S.A., Museu
do Amanhã and IDG - Instituto de
Desenvolvimento e Gestão
BUSINESS EXPERIENCE: Mrs. Zambelli was a member of the Board of Directors of Alcoa América Latina from 2012 to 2014, was
senior commercial vice president of Maersk Drilling from 2015 to 2017, vice president of submarine operations and president of
South America at Transocean from 2012 to 2015 and Brazil president of Schumberger from 2007 to 2011. She has also served
as member of the Board of Directors for Braskem S.A., Museu do Amanhã and IDG – Instituto de Desenvolvimento e Gestão.
EDUCATION: Mrs. Zambelli holds a degree in mechanical engineering from the Universidade Federal do Rio de Janeiro (UFRJ), with
a master’s degree in petroleum engineering from Heriot Watt University, Scotland, and a post-graduate degree in leadership,
innovation and technology from the Massachusetts Institute of Technology.
FAMILY RELATIONS: None
Danilo Ferreira da Silva
BORN
September 22, 1982
NATIONALITY
Brazilian
POSITION
Member of the Board
of Directors
OTHER DIRECTORSHIPS
None
TERM OF OFFICE
from January 2019
to April 2020
NOMINATED BY
Employees
INDEPENDENT
No
BUSINESS EXPERIENCE: Mr. Ferreira da Silva is working in the engineering and technical operational support departments at the
Paulínia refinery at Petrobras. Mr. Ferreira da Silva began his career at Petrobras in 2003, as a maintenance technician at Replan,
where he worked on the implementation of large industrial projects. Mr. Ferreira da Silva was a deliberative counselor from 2011
to 2012 at Fundação Petrobras de Seguridade Social (Petros), an assistant to the CEO from 2013 to 2015 and the administrative
financial director from 2015 to 2016. Mr. Ferreira da Silva also acted as a member of the Board of Directors at Fras – Le, from
2014 to 2015, Invepar, from 2015 to 2016, Iguatemi Shopping Centers, from 2016 to 2018, and Totvs, from 2015 to 2017.
EDUCATION: Mr. Ferreira da Silva holds a degree in social sciences and law from Pontifícia Universidade Católica de Campinas
(PUC-Campinas), an MBA in financial management from Fundação Getulio Vargas (FGV) with extension from Ohio University,
and a global executive MBA from the Instituto Universitário of Lisbon in partnership with FGV. He is currently a candidate for a
degree in pedagogy at Universidade Virtual do Estado de São Paulo (Univesp).
FAMILY RELATIONS: None.
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João Cox Neto
BORN
May 2, 1963
NATIONALITY
Brazilian
TERM OF OFFICE
from February 2019
to April 2020
NOMINATED BY
Controlling
Shareholder
POSITION
Member of the Board
of Directors
INDEPENDENT
Yes
OTHER
DIRECTORSHIPS
Chairman of the Board of Directors
of Vivara; Vice Chairman of the
Board of Directors of Braskem and
member of the Board of Directors
of Embraer; Linx and Qualicorp
BUSINESS EXPERIENCE: Mr. Cox has served as president of Telemig Celular and president of Claro, and in other distinguished
positions in C-level. Mr. Cox was a member of the Board of Directors of various companies including , Embraer, Linx, Qualicorp,
Braskem - where he currently is the chairperson and Vivara, where he currently is the chairperson.
EDUCATION: Mr. Cox has a bachelor degree in economics and attended graduate studies in Economics at the Université du Quebec
à Montreal and at the Oxford University’s College of Petroleum Studies program.
FAMILY RELATIONS: None
Marcelo Mesquita de Siqueira Filho
BORN
December 20, 1969
NATIONALITY
Brazilian
TERM OF OFFICE
from August 2016 to
April 2020
NOMINATED BY
Common
Shareholders
POSITION
Member of the Board
of Directors
INDEPENDENT
Yes
OTHER DIRECTORSHIPS
Mr. Mesquita is a Board Member at
the Endowment Fund of PUC-Rio
(Pontifícia Universidade Católica
do Rio de Janeiro) and Tamboro
Educacional S.A.
BUSINESS EXPERIENCE: Mr. Mesquita is a co-founding partner of Leblon Equities (since 2008) and co-manager of equity funds
and of private equity investments. He has approximately 28 years of experience in the Brazilian stock market, having worked at
UBS Pactual for 10 years and at Banco Garantia for seven years. At UBS Pactual, he was the co-head of Brazilian Equity Capital
Markets; co-head of Brazilian Equities; and head of Brazil Equity Research & Strategy Analysis. At Banco Garantia he was a
commodities stock analyst and investment banker. Since 1995, he was appointed by investors as one of the leading analysts
in Brazil according to several surveys made by Institutional Investor magazine. He was ranked “#1 Brazil Analyst” from 2003 to
2006 (#3 in 2002, #2 in 2001 and #3 in 2000). He was also ranked as “#1 Stock Strategist in Brazil” from 2003 to 2005.
EDUCATION: Mr. Mesquita holds a degree in economics from the Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), in
French studies from Nancy University II and an OPM (Owner/President Management) from Harvard Business School.
FAMILY RELATIONS: None.
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Nivio Ziviani
BORN
August 27, 1946
NATIONALITY
Brazilian
TERM OF OFFICE
from March 2019
to April 2020
NOMINATED BY
Controlling
Shareholder
POSITION
Member of the Board
of Directors
INDEPENDENT
Yes
OTHER DIRECTORSHIPS
Member of the Board of Directors of
Technology Park of Belo Horizonte
and Kunumi and Technology Council of
Digital Transformation of the Brazilian
Petroleum, Gas and Biofuels Institute.
BUSINESS EXPERIENCE: Mr. Ziviani is Professor Emeritus of the Department of Computer Science (DCS) of the Federal University
of Minas Gerais (UFMG), member of our Board of Directors, Technology Park of Belo Horizonte and Kunumi and member of
the Technology Council of Digital Transformation of the Brazilian Petroleum, Gas and Biofuels Institute. He is a member of the
Brazilian Academy of Sciences and the National Order of Scientific Merit in the classes Comendador and Gran Cruz. He founded
companies from knowledge generated within the DCS/UFMG, namely: Kunumi Neemu, Akwan and Miner. He is the author of
the book Design of Algorithms and co-author of over 200 scientific articles in the areas of algorithms, information retrieval,
machine learning and artificial neural networks.
EDUCATION: Mr. Ziviani holds a bachelor’s degree in mechanical engineering from UFMG, a master’s degree in informatics from
PUC-Rio and a PhD in computer science from the University of Waterloo, Canada.
FAMILY RELATIONS: None
Sonia Julia Sulzbeck Villalobos
BORN
June 6, 1963
NATIONALITY
Brazilian
TERM OF OFFICE
from May 2018 to
April 2020
NOMINATED BY
Preferred
Shareholders
POSITION
Member of the Board
of Directors
INDEPENDENT
Yes
OTHER DIRECTORSHIPS
Member of the Board of Directors of
LATAM Airlines Group S.A, Telefonica
Vivo S.A. and OTP S.A.
BUSINESS EXPERIENCE: Ms. Villalobos has 33 years of experience in the Brazilian stock market and in 1994 became the first person
from South America to receive the CFA charter. Ms. Villalobos worked from 1985 to 1987 at Equipe DTVM, and from 1987 to
1989 at Banco Iochpe as an investment analyst. From 1989 to 1996, she worked at Banco Garantia as the head of the investment
analysis department, where she was elected best analyst in Brazil by Institutional Investor Magazine in 1992, 1993 and 1994.
She worked for Bassini, Playfair & Associates from 1996 to 2002 and was responsible for private equity in Brazil, Chile and
Argentina. From 2005 to 2011, she worked for Larrain Vial as an asset manager. From 2012 to 2016, Ms. Villalobos worked as a
founding partner and equity fund manager in Latin America for Lanin Partners. Since 2016, she has been a professor at Insper
for post-graduate students in disciplines related to asset management and financial statement analysis. Since May 2016, she
has been a member of the Board of Directors of Telefônica do Brasil. Ms. Villalobos has been a member of the Board of Directors
for LATAM Airlines Group S.A. since August of 2018. She has also served as member of the Board of Directors for TAM Linhas
Aéreas, Método Engenharia (Brasil), Tricolor Pinturas e Fanaloza/Briggs (Chile), Milkaut and Banco Hipotecario (Argentina).
EDUCATION: Ms. Villalobos holds a bachelor’s degree in public administration and a master’s degree in business administration
with a focus in finance, both from the Escola de Administração de Empresas de São Paulo (EAESP-FGV).
FAMILY RELATIONS: None.
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Walter Mendes de Oliveira Filho
BORN
December 07, 1955
NATIONALITY
Brazilian
POSITION
Member of our Board
of Directors
OTHER DIRECTORSHIPS
Amec- Association of Brazilian
Capital Market Investors and Abrapp-
Association of Brazilian Pension Funds.
TERM OF OFFICE
from August 2019
to April 2020
NOMINATED BY
Controlling
Shareholder
INDEPENDENT
Yes
BUSINESS EXPERIENCE: Mr. Mendes has been a member of our Board of Directors since 2019. He is an economist, with professional
experience focused on investment management. He was head of Investment Research at Unibanco; head of Schroder Investment
Management Brazil; head of Latin American Funds of Schroder Investment Management plc; head of Equity Funds Management
at Banco Itau; Partner of Cultinvest Asset Management and Executive Director of CAF (Brazilian Takeover Panel). In 2016, Mr.
Mendes became the CEO of Petros – Petrobras Pension Fund. In 2018, he was hired as CEO of Funcesp – Pension Fund of the
Power Companies of the State of São Paulo. In 2015, he was appointed by the minority shareholders as member of our Board
of Directors. Mr. Mendes was member of the board of other companies, such as Itausa, Invepar and Santa Helena. In 2019,
Walter was appointed by the Ministry of Economy as a member of our Board of Directors. Mr. Mendes is also Chairman of Amec–
Association of Brazilian Capital Market Investors and member of the board of Abrapp – Association of Brazilian Pension Funds.
EDUCATION: Mr. Mendes holds a degree in economics from the Universidade de São Paulo (USP) and a post-graduate degree
from the Pontifícia Universidade Católica de São Paulo (PUC-SP).
FAMILY RELATIONS: None
Maria Cláudia Mello Guimarães
BORN
September 18, 1965
NATIONALITY
Brazilian
POSITION
Member of our Board
of Directors
OTHER DIRECTORSHIPS
None
TERM OF OFFICE
from February 2020
to April 2020
NOMINATED BY
Controlling
Shareholder
INDEPENDENT
Yes
BUSINESS EXPERIENCE: Ms. Guimarães has a solid career in the financial market, where she has worked for 33 years. She was
executive officer at Bank of America Merrill Lynch, ING Bank N.V. and Bank Boston, leading the oil & gas, mining, steel and energy
sectors. Today she is a partner at KPC Consultoria Financeira focused on wealth management. Recently, she served as a counselor
at Constellation Oil Services in Luxembourg. She has extensive experience in corporate finance, capital markets, mergers and
acquisitions, debt restructuring and project financing. Throughout his career, she worked with us and our subsidiaries in Brazil
and abroad, through financing projects for the development of the Campos Basin and the Santos Basin, issuances of shares and
bonds, development of treasury products and cash management and advising on divestment in the offshore area, having also
coordinated a course on mergers, acquisitions and capital markets at Petrobras University.
EDUCATION: Ms. Maria Cláudia has a degree in production engineering from the Federal University of Rio de Janeiro (UFRJ), with
an executive MBA from COPPEAD (UFRJ).
FAMILY RELATIONS: None
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Fiscal Council
We have a permanent Fiscal Council composed of up to five members, which council is independent of our management
and external auditors. Our Fiscal Council’s responsibilities include, among others: (i) monitoring management’s activities
and (ii) reviewing our annual report and audited consolidated financial statements.
The members of our Fiscal Council and their corresponding alternates are elected by our shareholders at the annual
shareholders’ meeting for a one-year term. Two consecutive re-elections are permitted under Brazilian Corporate Law.
Holders of preferred shares and minority holders of common shares are each entitled, as a class, to elect one member and
the corresponding alternate of our Fiscal Council. The Brazilian federal government has the right to appoint the majority
of the members of our Fiscal Council and their alternates, of which one member and the corresponding alternate will be
necessarily appointed by the Minister of Economy, representing the Brazilian Treasury.
Current members of our Fiscal Council
Members of our Fiscal Council
José Franco Medeiros de Morais
Eduardo César Pasa (Chairman)
Marisete Fátima Dadald Pereira
Marcelo Gasparino da Silva
Daniel Alves Ferreira
Alternate members of our Fiscal Council
Gildenora Batista Dantas Milhomem
Jairez Elói de Sousa Paulista
Agnes Maria de Aragão da Costa
Patrícia Valente Stierli
Aloísio Macário Ferreira de Souza
Year of first
appointment
Elected/
appointed by
Brazilian federal government/Ministry of Economy
Brazilian federal government
Brazilian federal government
Minority shareholder
Preferred shareholder
Brazilian federal government /Ministry of Economy
Brazilian federal government
Brazilian federal government
Minority shareholder
Preferred shareholder
2019
2017
2011
2019
2018
2019
2019
2015
2019
2019
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Executive Officers
CEO
EXECUTIVE
OFFICERS
Our Board of Executive Officers is composed of one Chief Executive Officer (“CEO”) and eight executive officers. According
to our Bylaws, our Board of Executive Officers is responsible for our day-to-day management. Our executive officers are not
required to be Brazilian citizens but must reside in Brazil. Pursuant to our Bylaws, our Board of Directors elects our executive
officers, including the CEO, and must consider personal qualifications, expertise and specialization when electing executive
officers. The mandate of our executive officers lasts for two years, and no more than three consecutive re-elections are
allowed. Our Board of Directors may remove any executive officer from office at any time and without cause, with a special
procedure for the removal of the Executive Director of Governance and Compliance. For deciding on the removal of the
Executive Director of Governance and Compliance the Board of Directors must follow a qualified quorum which requires the
vote of the Director elected by the minority shareholders or the Director elected by the preferred shareholders.
For further information regarding our Board of Executive Officers, see Exhibit 1.1 to this annual report for a copy
of our Bylaws.
We currently have the following nine executive officers:
Roberto da Cunha Castello Branco
BORN
July 20, 1944
NATIONALITY
Brazilian
POSITION
Chief Executive Officer (CEO)
TERM OF OFFICE
from January 2019
to March 2021
BUSINESS EXPERIENCE: Mr. Castello Branco was a member of our Board of Directors between May 2015 and April 2016 and has
been our Chief Executive Officer since January 2019. He is an affiliated professor at Fundação Getulio Vargas (FGV EPGE) and
director at the center for studies in economic growth and development at EPGE. Previously, Mr. Castello Branco was a director
at Vale S.A., Banco Central do Brasil, Banco Boavista, Banco Boavista Investimentos and Banco InterAtlântico. He also acted
as a member of the Board of Directors of GRU Airport, Invepar, ABRASCA, IBEF and director at the American Chamber of
Commerce (RJ).
EDUCATION: Mr. Castello Branco holds a bachelor’s degree in economics, with a PHD from Fundação Getulio Vargas (FGV EPGE)
and a postdoctoral degree from University of Chicago. Mr. Castello Branco also participated in executive training programs at
Sloan School of Management (MIT) and International Institute for Management Development (IMD).
FAMILY RELATIONS: None.
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Andrea Marques de Almeida
BORN
January 13, 1971
NATIONALITY
Brazilian / Portuguese
POSITION
Chief Financial Officer (CFO) /
Chief Investor Relations
Officer (CIRO)
TERM OF OFFICE
from May 2019
to March 2021
BUSINESS EXPERIENCE: Mrs. Almeida worked at Vale S.A. for 25 years with extensive experience in Corporate Finance, Global
Treasury and Risk Management. She was CFO of Vale Canada in Toronto from 2015 to 2018, most recently holding the position
of Global Treasury Executive Manager at Vale.
EDUCATION: Mrs. Almeida is a production engineer, with an MBA in Finance from IBMEC-RJ and an MBA in management from
USP, as well as management courses at the Wharton School of Finance and Sloan School of Management (MIT).
FAMILY RELATIONS: None.
Anelise Quintão Lara
BORN
May 24, 1961
NATIONALITY
Brazilian
POSITION
Chief Refining and
Natural Gas Officer
TERM OF OFFICE
from March 2019
to March 2021
BUSINESS EXPERIENCE: Mrs. Lara has been our Chief Refining and Natural Gas Officer since March 2019. She joined Petrobras in
1986 and has held various positions since, including executive manager for acquisitions & divestments between April 2016 and
March 2019. Prior to that, Mrs. Lara was the joint project team director for the Libra Consortium, ruled by the first production
sharing agreement in Brazil. She has managed several activities related to exploration and production, including in reservoir
technology, reservoir engineering, subsurface studies, and production development projects for deepwater fields.
EDUCATION: Mrs. Lara earned a bachelor’s of science degree in chemical engineering and a master of science degree in petroleum
engineering from Universidade Federal de Ouro Preto in Minas Gerais, Brazil, as well as a PhD in Earth Sciences from Université
Pierre et Marie Curie (Paris 6), France. She also completed the “Top Management Executive MBA” program at the Universidade
Federal do Rio de Janeiro/COPPEAD Graduate School of Business.
FAMILY RELATIONS: None.
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Carlos Alberto Pereira de Oliveira
BORN
September 11, 1957
NATIONALITY
Brazilian
POSITION
Chief Exploration and
Production Officer
TERM OF OFFICE
from March 2019 to
March 2021
BUSINESS EXPERIENCE: Mr. Oliveira joined Petrobras in 1981, having become a petroleum engineering specialist. Since 1999,
he has held various executive positions linked to the senior management of the companies of our group, including executive
manager of E&P Corporative from 1999 to 2003, Director of Exploration and Production of Oil and Gas in Petrobras Energia S.A.
from 2003 to 2008, Executive Manager of Technical Support for International Affairs from 2008 to 2012, Executive Manager of
E&P Investment Management Programs in Drilling Rigs and Stationary Production Units from 2012 to 2013, Executive Manager
of Production Development Projects in 2013, Executive Manager of Strategy in 2016 and General Manager of E&P Integrated
Asset Management from 2016 to January 2019.
EDUCATION: Mr. Oliveira graduated in mechanical engineering from Instituto Militar de Engenharia do Rio de Janeiro (IME) and
in business management from Universidade Federal do Rio de Janeiro (UFRJ). He holds a master’s degree in finance and
investments from Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio) and completed a course in Petroleum Finance
and Accounting at the University of Texas, in the United States.
FAMILY RELATIONS: None.
Eberaldo de Almeida Neto
BORN
November 19, 1962
NATIONALITY
Brazilian
POSITION
Chief of Corporate Affairs Officer
TERM OF OFFICE
from March 2019 to
March 2021
BUSINESS EXPERIENCE: Mr. Almeida joined Petrobras in 1986 and has held various positions since then. He was our Executive
Manager of Supply Chain from 2016 to January 2018, General Manager of Rio de Janeiro Operations Unit from 2012 to 2016,
General Manager of Contracting Services Unit from 2006 to 2012 and General Manager of Subsea Services Unit from 1998
to 2006.
EDUCATION: Mr. Almeida holds a degree in electrical engineering from Universidade Federal do Rio de Janeiro (UFRJ), a degree
in advanced management program from IESE Business School – University of Navarra, Spain and a MBA in advanced business
management from Coppead Graduate School of Business/Universidade Federal do Rio de Janeiro (UFRJ).
FAMILY RELATIONS: None.
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Marcelo Barbosa de Castro Zenkner
BORN
August 9, 1971
NATIONALITY
Brazilian
POSITION
Chief Governance and
Compliance Executive Officer
TERM OF OFFICE
from September
2019 to March 2021
BUSINESS EXPERIENCE: Mr. Zenkner worked as public prosecutor, member of the prosecution service of the State of Espírito Santo
from 1997 to January 2019, where he held multiple roles in the fight against corruption and organized crime. Until April 2016,
he held the position of Secretary of State for Control and Transparency of the State of Espírito Santo, which was the first state
in Brazil to create an administrative structure and to apply administrative sanctions based on corporate anti-corruption law.
From February 2019 to August 2019, he held the position of CEO Consultant and member of the Petrobras Disciplinary Actions
Committee, an internal body of our integrity system directly linked to our Board of Directors
EDUCATION: Mr. Zenkner holds a bachelor degree in law from the Federal University of Juiz de Fora (UFJF), and specialized in civil
procedural law at the Catholic University of Petrópolis (UCP). He also holds a master’s degree in fundamental constitutional
rights and guarantees from the School of Law of Vitória (FDV) and a PhD in public law, from the Universidade Nova de Lisboa
(FDUNL).
FAMILY RELATIONS: None.
Nicolas Simone
BORN
January 31, 1977
NATIONALITY
Uruguayan
POSITION
Chief Digital Transformation and
Innovation Executive Officer
TERM OF OFFICE
from October 2019
to March 2021
BUSINESS EXPERIENCE: Mr. Simone has held leadership positions in large companies such as Itaú-Unibanco, Lojas Renner, ABInBev
and Grupo Boticário, with a strong business expertise in industry, consumer goods, retail and financial market segments.
EDUCATION: Mr. Simone holds a degree in software and systems engineering from O.R.T University – Uruguay with extensive
international experience and knowledge of information technology, digital transformation, cyber security, AI, omnichannel,
CRM, innovation, sales, logistics, process reengineering, large projects, shared services center (SSC) and industry 4.0.
FAMILY RELATIONS: None.
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Roberto Furian Ardenghy
BORN
November 26, 1961
NATIONALITY
Brazilian
POSITION
Chief Institutional
Relations Executive Officer
TERM OF OFFICE
from May 2019
to March 2021
BUSINESS EXPERIENCE: Mr. Ardenghy has a diplomatic career with a long experience in energy and oil and gas business. He
has held a number of top positions at the Brazilian federal government in Brasília and in Brazilian embassies and consulates
outside of Brazil, including Washington, Buenos Aires, Houston and New York. From 2002 to 2007, he worked as chief of staff,
president of the ethics committee and head of downstream department at the National Petroleum Agency – ANP. From 2007
to 2011, he served as Corporate Relations Manager at BG E&P Brasil. He was a member of the Upstream Committee of the
Brazilian Petroleum Institute and Director of the American Chamber of Commerce of Rio de Janeiro – AmCham Rio. He was also
Honorary President of the Brazil-Texas Chamber of Commerce (BRATECC).
EDUCATION: Mr. Ardenghy holds a degree in law from the Federal University of Santa Maria and a master’s degree in international
relations and diplomacy, from the Diplomatic Academy of Rio Branco Institute. He also obtained an executive MBA in economics
of oil and gas from COPPE at the Federal University of Rio de Janeiro.
FAMILY RELATIONS: None.
Rudimar Andreis Lorenzatto
BORN
January 6, 1965
NATIONALITY
Brazilian
POSITION
Chief Production
Development Officer
TERM OF OFFICE
from March 2019 to
March 2021
BUSINESS EXPERIENCE: Mr. Lorenzatto joined Petrobras in 1987 and since 1995 has held management positions in several areas
as Offshore Wells, Production Operations and Subsea Systems. Between 2013 and 2019, he was Executive Manager of Offshore
Wells Construction and Subsea Systems.
EDUCATION: Mr. Lorenzatto graduated in civil engineering from the Federal University of Santa Maria (RS) in 1987. He completed
a specialization in petroleum engineering from Petrobras Corporate University in 1989. He also holds MBAs from Fundação
Getúlio Vargas (FGV) and Columbia University (USA), as well as an Advanced Management Program from INSEAD (France).
Between 2012 and 2013, he also worked as a lecturer of production development at the post-graduate program of the Federal
University of Rio de Janeiro (UFRJ).
FAMILY RELATIONS: None.
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Additional Information on our Board of Directors and Board of Executive Officers
Requirements for Election
Our Bylaws determine certain limitations on the election of our executive officers, members of our management and
members of our Board of Directors in addition to criteria set forth by Brazilian Corporate Law, our nomination policy,
Law No. 13,303/16, and Decree No. 8,945/16. Thus, in order to be elected, each of our executive officers and each member of
our Board of Directors must:
(i) not be a defendant in any legal or administrative proceedings concerning a matter related to the activities to be performed
in our company, with an unfavorable ruling by appellate courts;
(ii) not have commercial or financial pending issues claimed or included in official debtor registers, although clarification on
such issues may be provided to us;
(iii) demonstrate diligence in solving issues raised in reports of internal or external control bodies in processes and/or
activities under their management, when applicable;
(iv) not have violated our Code of Ethics, Code of Conduct, Manual of our Program for Corruption Prevention or other internal
rules, when applicable;
(v) not have been included in the disciplinary system of any of our subsidiaries or affiliates, nor have been subject to labor or
administrative penalty in any other legal entity in the last three years as a result of internal investigations, when applicable.
(vi) have 10 years of experience in leadership, preferably, in business or in a related area, as specified in our nomination policy.
Compensation
Under our Bylaws, our shareholders establish the aggregate compensation, or allocate the compensation on an individual basis,
payable to our directors, executive officers, members of our Fiscal Council and advisory committees to our Board of Directors. In
case shareholders do not allocate the compensation on an individual basis, our Board of Directors is allowed to do so.
For the year-ended December 31, 2019, the aggregate amount of compensation we paid to all members of our Board of
Directors and our Board of Executive Officers was US$7.8 million. As of December 31, 2019 we had nine executive officers and
10 Board of Directors members.
December 31, 2019
Board of Executive Officers
Board of Directors
Fiscal Council
Average number of members in the period
Average numbers of paid members in the period
Value of maximum compensation (US$)
Value of minimum compensation (US$)
Average value of compensation (US$)
7.67
7.67
658,820.35
491,623.24
710,392.54
9.75
5.00
42,168.74
42,168.74
47,204.01
5.00
5.00
33,574.69
33,574.69
32,161.21
For further information regarding compensation of our employees and officers, see Notes 17 and 37.2 to our audited
consolidated financial statements.
In addition, the members of our Board of Directors and executive officers receive medical assistance benefits, as generally
provided to our employees and their families. Our executive officers also receive supplementary social security benefits and
housing allowance.
We have no service contracts with members of our Board of Directors providing for benefits upon termination of employment.
We have a remuneration and succession committee in the form of an advisory committee.
For information on our advisory committee, see “Statutory Board Committees” below.
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Share Ownership
As of February 29, 2020, the members of our Board of Directors, executive officers and Fiscal Council beneficially held the
following shares of our capital stock:
Common shares
Preferred shares
-
14,380
-
17,398
-
9,310
Board of Directors
Board of Executive Officers
Fiscal Council
Accordingly, on an individual basis, and as a group, our directors, executive officers and Fiscal Council members beneficially
owned less than one percent of any class of our shares. The shares held by our directors, executive officers and Fiscal Council
members have the same voting rights as the shares of the same type and class that are held by our other shareholders. None
of our directors, executive officers and Fiscal Council members holds any options to purchase common shares or preferred
shares, nor does any other person have any option to purchase our common or preferred shares. We do not have a stock
option plan for our directors, officers or employees.
Statutory Board Committees
Our Board of Directors has a total of six statutory advisory
committees:
❚ Investment Committee: responsible for advising our Board
of Directors on our strategic plan and other strategic issues.
This committee is also responsible for advising our Board
of Directors with respect to risks and strategies concerning
financial management.
❚ Audit Committee: for further information on our audit
committee, please see “Audit Committee” in this annual
report.
the compliance of the appointment of the members of
our Fiscal Council, our Board of Directors, our Board of
Executive Officers and external participants from our
Board of Directors advisory committees, among other
matters. This committee is also in charge of acting as
the eligibility committee for us in compliance with Law
No. 13,303/16 and Decree No. 8,945/16. As such, this
committee helps our shareholders to nominate members
of our Board of Directors and our Fiscal Council.
❚ Minority Committee: responsible for advising our
Board of Directors on transactions with related parties
involving us, the Brazilian federal government, its entities
❚ Health, Safety and Environmental Committee:
and foundations, or federal state-owned enterprises on
responsible for advising our Board of Directors with
a permanent basis, including following up the revision
respect to global policies related to the strategic
process of the Transfer of Rights Agreement. The minority
management of HSE issues, among other matters. This
committee also advises our shareholders issuing its
committee oversees among other issues, those related
opinion on certain matters that require approval in
to our HSE strategy, goals and policies, including the
shareholders’ meetings, pursuant to article 30, §4
climate strategy.
of our Bylaws.
❚ People Committee: responsible for advising our Board of
Directors with respect to the compensation of members
❚ Conglomerate Audit Committee: approved to meet the
requirements of Law No. 13,303/16, which provides the
of our senior management and with respect to our
possibility that controlled companies share the costs and
general compensation policies and mechanisms, among
structures of their corresponding parent companies. It is
other matters. This committee has also been responsible
responsible for the companies of our group that do not
for advising our Board of Directors with respect to the
have a local audit committee.
changes proposed in our appointment policy; verifying
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Summary of the composition of our statutory advisory committees
Members
Investment(1)
Audit
Committees
Health
Safety, and
Environment(1)
People(1)
Minority(1)
Audit of the
Petrobras
Conglomerate(1)
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Ana Lúcia Poças Zambelli
Danilo Ferreira da Silva
Durval José Soledade Santos
Edson Chil Nobre
Evely Forjaz Loureiro
Francisco Vidal Luna
Guilherme José Macedo Pinheiro de Lima
João Cox Neto
Maria Cláudia Mello Guimarães
Marcelo Mesquita de Siqueira Filho
Nivio Ziviani
Sergio Luiz de Toledo Piza
Sonia Aparecida Consiglio
Sonia Julia Sulzbeck Villalobos
Tales José Bertozzo Bronzato
Walter Mendes de Oliveira Filho
•
•
•
CHAIRMAN / CHAIRWOMAN OF EACH COMMITTEE
EXTERNAL MEMBERS OF EACH COMMITTEE
REMAINING MEMBERS
(1) Committee with external member in the composition.
•
•
•
•
•
•
•
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Audit Committee
We have an audit committee that complies with the
requirements of the Sarbanes-Oxley Act of 2002. Ms. Sonia
Julia Sulzbeck Villalobos is our audit committee financial
expert and is independent, as defined in Rule 10A-3 under
related parties transactions and a previous analysis of
related parties transactions involving amounts higher than
certain levels;
❚ establishing and reviewing procedures for the receipt,
retention and processing of complaints regarding
the Exchange Act. In accordance with our Bylaws, our audit
accounting, internal control and auditing matters,
committee is composed exclusively by members of our
including procedures for the confidential submission of
Board of Directors and advises our Board of Directors. Our
internal and external complaints relating to the scope of
audit committee is currently composed of three members
the committee’s activities, as well as receiving, retaining
and is responsible for, among other matters:
and processing any such complaints;
❚ monitoring, analyzing, and making recommendations to
our Board of Directors with respect to the appointment
❚ evaluating the parameters underlying the actuarial
calculations, as well as the actuarial result of the benefit
and dismissal of our independent auditors, as well as
plans maintained by our social security foundation,
evaluating the independence of our independent auditors
Fundação Petrobras de Seguridade Social; and
for issuing an opinion on the financial statements and
❚ conducting the formal evaluation of our internal audit
their qualifications and expertise;
executive manager on an annual basis.
❚ advising our Board of Directors on the review of our
annual and quarterly consolidated financial statements,
monitoring compliance with relevant legal and listing
requirements and ensuring appropriate disclosure of our
economic and financial situation filed with the CVM and
the SEC;
With respect to the relationship of our audit committee with
our independent auditors, as provided in our Bylaws, our
Board of Directors is responsible for deciding, among other
matters, the appointment and dismissal of independent
auditors and prohibiting our independent auditor from
providing consulting services to us during the term of an
❚ advising our Board of Directors and our management,
in consultation with internal and independent auditors
audit’s contract. Our audit committee has the authority to
recommend pre-approval policies and procedures for the
and our risk management and internal controls units, in
engagement of our independent auditor’s services. Our
monitoring the quality and integrity of our internal control
management is required to obtain the audit committee’s
over financial reporting systems, our audited consolidated
pre-approval before engaging independent auditors to
financial statements and related financial disclosures;
provide any audit or permitted non-audit services to us or
❚ reviewing and submitting proposals to our Board of
Directors relating to the resolution of conflicts between
management and the independent auditor relating to our
audited consolidated financial statements;
❚ assessing and monitoring, together with our internal
management and audit area, the adequacy of actions to
prevent and combat fraud and corruption;
❚ evaluating and monitoring, jointly with our management
and our internal auditors, our transactions with related
parties, including a review, at least once a year, of all
any of our consolidated subsidiaries. Our audit committee
has pre-approved a detailed list of audit services, up to
specified monetary thresholds. The list of pre-approved
services is updated from time to time. The audit services
that are not included in the list, or that exceed the thresholds
specified therein, must be directly approved by our audit
committee. Our audit committee monitors the performance
of the services provided by our independent auditors and
reviews and monitors our external auditor’s independence
and objectivity.
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Principal
accountant fees
and services
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by our independent auditors KPMG during the
fiscal years ended December 31, 2019 and 2018:
Audit fees(1)
Audit-related fees(2)
Tax fees(3)
Total fees
(US$ million)
2019
10.1
1.0
0.3
11.4
2018
10.0
0.7
0.3
11.0
(1) Audit fees comprise fees billed in connection with the audit of our audited consolidated financial statements (IFRS and
Brazilian GAAP), interim reviews (IFRS and Brazilian GAAP), audits of our subsidiaries (IFRS and Brazilian GAAP, among
others), comfort letters, consents and review of periodic documents filed with the SEC.
(2) Audit-related fees refer to assurance and related services that are reasonably related to the performance of the audit or
reviews of our audited consolidated financial statements and are not reported under “audit fees.”
(3) Tax fees are fees billed for services related to tax compliance reviews conducted in connection with the audit procedures
on our audited consolidated financial statements.
Additional Information on Members of our Audit Committee
All of the current members of our audit committee satisfy the requirements set forth in Rule 10A-3 under the Exchange Act.
In reliance on the exemption in Rule 10A-3(b)(1)(iv)(E), we have designated two members to our audit committee, Mr. Walter
Mendes de Oliveira Filho and Ms. Maria Cláudia Mello Guimarães, who are designated by the Brazilian federal government,
which is our controlling shareholder and, therefore, one of our associates. In our assessment, Mr. Oliveira Filho and Ms.
Guimarães act independently in performing their responsibilities of an audit committee members under the Sarbanes-Oxley
Act and satisfies the other requirements of Rule 10A-3 under the Exchange Act.
Ms. Sonia Julia Sulzbeck Villalobos is also a member of our audit committee, designated by holders of our preferred shares.
Ms. Villalobos is our audit committee financial expert and is independent, as defined in Rule 10A-3 under the Exchange Act.
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Comparison of our Corporate Governance Practices
with NYSE Corporate Governance Requirements
Applicable to U.S. Companies
Under the rules of the NYSE, foreign private issuers are subject to a more limited set of corporate governance requirements
than U.S. domestic issuers. As a foreign private issuer, we must comply with four principal NYSE corporate governance rules:
(i) we must satisfy the requirements of Rule 10A-3 under the Exchange Act; (ii) our Chief Executive Officer must promptly
notify the NYSE in writing after any executive officer becomes aware of any material non-compliance with the applicable NYSE
corporate governance rules; (iii) we must provide the NYSE with annual and interim written affirmations as required under
the NYSE corporate governance rules; and (iv) we must provide a brief description of any significant differences between our
corporate governance practices and those followed by U.S. companies under NYSE listing standards.
The table below briefly describes the significant differences between our corporate governance practices and the NYSE
corporate governance rules.
Section
New York Stock Exchange Corporate
Governance Rules for U.S. Domestic Issuers
Our Practices
Director Independence
303A.01
Listed companies must have a majority of
independent directors.
“Controlled companies” are not required to
comply with this requirement.
303A.03
The non-management directors of each listed
company must meet at regularly scheduled
executive sessions without management.
Nominating/Corporate Governance Committee
303A.04
Listed companies must have a nominating/
corporate governance committee composed
entirely of independent directors, with a
written charter that covers certain minimum
specified duties.
“Controlled companies” are not required to
comply with this requirement.
Compensation Committee
303A.05
Listed companies must have a compensation
committee composed entirely of independent
directors, with a written charter that covers
certain minimum specified duties.
“Controlled companies” are not required to
comply with this requirement.
We are a controlled company because more than a majority of our
voting power is controlled by the Brazilian federal government. As
a controlled company, we would not be required to comply with
the majority of independent directors requirement if it were a U.S.
domestic issuer. According to our Bylaws, we are required to have at
least 40% of independent directors.
Except for our CEO (who is also a director), all of our directors are
non-management directors. The regulation of our Board of Directors
provides that if a particular matter may represent a conflict of
interests, the CEO must recuse himself from the meeting, which will
continue without his presence. Additionally, the board’s regulation
also establishes a regular executive session for our Board of Directors
matters without management.
We have a statutory committee that verifies the compliance of the
appointment of members of our Fiscal Council, our Board of Executive
Officers, and our Board of Directors and the external members of the
committees that advise our Board of Directors. Our people committee
has a written charter that requires the majority of its members to be
independent.
Our Board of Directors develops, evaluates and approves corporate
governance principles. As a controlled company, we would not be
required to comply with the nominating/corporate governance
committee requirement if we were a U.S. domestic issuer.
We have a committee that advises our Board of Directors with respect
to compensation and management succession. Our People Committee
has a written charter that requires the majority of its members to be
independent.
As a controlled company, we would not be required to comply with the
compensation committee requirement if we were a U.S.
domestic issuer.
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Section
New York Stock Exchange Corporate
Governance Rules for U.S. Domestic Issuers
Our Practices
Audit Committee
303A.06
303A.07
Listed companies must have an audit committee
with a minimum of three independent directors
that satisfy the independence requirements of
Rule 10A-3 under the Exchange Act, with a
written charter that covers certain minimum
specified duties.
Equity Compensation Plans
303A.08
Shareholders must have the opportunity to vote
for compensation plans through shares and
material reviews, with limited exceptions as set
forth by the NYSE’s rules.
Corporate Governance Guidelines
303A.09
Listed companies must adopt and disclose
corporate governance guidelines.
Code of Ethics for Directors, Officers and Employees
303A.10
Listed companies must adopt and disclose a code
of business conduct and ethics for directors,
officers and employees, and promptly disclose
any waivers of the code for directors or executive
officers.
Our audit committee is a statutory advisory committee to our Board of
Directors and is composed of members that satisfy the independence
requirements set forth in Rule 10A-3 under the Exchange Act. Our
audit committee has a written charter that sets forth its responsibilities
that include, among other things: (i) strengthening ties with the
external auditors, permitting closer supervision of their work and of
issues regarding their competency and independence, (ii) assuring
legal and regulatory compliance, including with respect to internal
controls, compliance procedures and ethics, and (iii) monitoring our
financial position, especially as to risks, internal auditing work and
financial disclosure; (iv) carry out prior analysis of transactions with
related parties that meet the criteria established in the Related Party
Transactions Policy, approved by our Board of Directors.
Under Brazilian Corporate Law, shareholder approval is required for
the adoption and revision of any equity compensation plans. We do
not currently have any equity compensation plans.
We have a set of Corporate Governance Guidelines (Diretrizes
de Governança Corporativa) that address director qualification
standards, responsibilities, compensation, appraisals and access
to information by the management. The guidelines do not reflect
the independence requirements set forth in Sections 303A.01
and 303A.02 of the NYSE rules. Certain portions of the guidelines,
including the responsibilities and compensation sections, are not
discussed with the same level of detail set forth in the commentaries
to the NYSE rules. The guidelines are available on our website.
We have a Code of Ethics (Código de Ética) and a Conduct Guide
(Guia de Conduta), applicable to our directors, executive officers,
senior management, employees, interns and service providers within
our group, and a Code of Best Practices (Código de Boas Práticas)
applicable to our directors, executive officers, senior management,
employees and collaborators. No waivers of the provisions of
the Code of Ethics, Conduct Guide or Code of Best Practices are
permitted. These documents are available on our website.
Certification Requirements
303A.12
Each listed company CEO must certify to the
NYSE each year that he or she is not aware of
any violation by the company of NYSE corporate
governance listing standards.
Our CEO will promptly notify the NYSE in writing if any executive
officer becomes aware of any material noncompliance with any
applicable provisions of the NYSE corporate governance rules.
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Related Party Transactions
In order to comply with Law No. 13,303/16, our Board of
Directors approved the annual review of our policy for
related party transactions in November 2019, aiming at
fostering transparency in our procedures and conducting
better corporate governance practices. This policy also aims
to guarantee the adequate and diligent decision-making
process by our management, observing market conditions
and appropriate compensation mechanics, in the event of
potential conflicts of interest.
Any related-party transaction in which we are involved
we have not entered into any transaction with related parties
which is or was unusual in its nature or conditions during
the current or the three immediately preceding financial
years, nor is any such transaction proposed, that is or would
be material to our business. We have no outstanding loans
or guarantees to the members of our board of directors,
executive officers, key management personnel or any close
member of their families. For a description of the shares
beneficially held by the members of our board of directors
and close members of their families, see “Management and
Employees – Management – Additional Information on our
Board of Directors and Board of Executive Officers – Share
and that meets criteria established in our policy, must be
Ownership” in this annual report.
previously analyzed by our audit committee, which has to
report its conclusions to our Board of Directors on a
monthly basis.
Our policy provides for a strict governance procedure for
proposed transactions directly or indirectly involving our
controlling shareholder. In such cases, whenever there is a
need to evaluate potential transactions with the Brazilian
federal government, municipalities, foundations or federal
state-owned enterprises, our minority committee must issue
an opinion on the proposed transactions, provided that such
transactions (i) are not in our ordinary course of business
Transactions with the Brazilian Federal
Government
We have engaged, and expect to continue to engage, in
the ordinary course of business in numerous transactions
with our controlling shareholder, the Brazilian federal
government, and with banks and other entities under its
control, including financing and banking, asset management
and other transactions. The mentioned transactions
amounted to a net asset of US$5,107 million as of
December 31, 2019.
and (ii) fall within the purview of our Board of Directors for
As of December 31, 2019, we had a receivable (the Petroleum
approval. Any such transaction must be approved by
and Alcohol Account) from the Brazilian federal government
two-thirds of the members present at the meeting of our
of US$304 million.
Board of Directors.
In addition, we are allowed to invest in securities issued by
For additional information regarding our outstanding related
the Brazilian federal government in Brazil and also abroad,
party transactions, see Note 37 to our audited consolidated
provided that the legal and regulatory requirements are met
financial statements.
Transactions with our Board of Directors or
Executive Officers
Direct transactions with members of our Board of Directors
or our executive officers must follow the conditions of
and taking into consideration market’s best practices and the
conservatism that should guide our investments.
As of December 31, 2019, the value of securities issued by
the Brazilian federal government that have been directly
acquired and held by us amounted to US$1,580 million.
an arms-length transaction and market practice guiding
In 2018, after risk assessment, we joined the diesel
transactions with third parties. None of our Board of
price subsidy program established by the Brazilian
Directors members, our executive officers or close members
federal government, starting on June 1 and expiring on
of their families has had any direct interest in any transaction
December 31, 2018. This program granted reimbursements
we effected that is or was unusual in its nature or conditions,
to diesel producers and importers to the extent that their
or material to our business during the year, and which
selling prices to the domestic distributors were equal or
remains in any way outstanding or unperformed. In addition,
lower than prices determined in the applicable regulation.
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In that year, we accounted for US$1,415 million as revenues
its distributors. In 2017, we recognized in our income
with respect to sales of the diesel price subsidy program.
statement an allowance for impairment, net of reversals,
We collected the remaining balance of the subsidy in the
of US$250 million, to cover certain trade receivables
first two months of 2019. Thus, as of December 31, 2019,
due Eletrobras’ subsidiaries that operate in the isolated
there is no remaining balance relating to this program. For
electricity sector in the Northern region of Brazil.
more information on such program, see “Legal and Tax –
Regulation” in this annual report.
For further information on related party transactions, see
Note 37 to our audited consolidated financial statements.
As of December 31, 2019, the receivables from the isolated
electricity system amounted to US$438 million.
Subject to the criteria adopted by our committees and their
evaluation, we may request the Brazilian federal government
Transactions with Eletrobras’ Subsidiaries
to compensate us for the difference between the amount
In 2019, we and Apolo Investment Fund in Credit Rights
(Apolo Fundo de Investimento em Direitos Creditórios)
entered into an assignment agreement without recourse
that would be involved under market conditions and the
operating result or economic return derived from the
obligations undertaken by us for each fiscal year.
relating to all credit rights under the debt acknowledgement
For further information relating to trade receivables from the
by energy distributors in 2014, which financial settlement
electricity sector, see Note 13.4 to our audited consolidated
occurred for the amount of US$2,251 million, with a
financial statements.
US$128 million discount.
In 2018, we recognized reversals of credit losses provisions
amounting to US$1.3 billion, reflecting agreements signed
with Eletrobras group and the privatization of some of
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Employees
Our workforce is our most important asset. Our people management is based on meritocracy, inclusion, diversity, dialogue
and respect for our employees.
OUR EMPLOYEES’
PROFILE
TOTAL EMPLOYEES AT PETROBRAS
62,703
46,979
13,914
1,810
TOTAL EMPLOYEES
TOTAL EMPLOYEES
TOTAL EMPLOYEES
AT PETROBRAS
AT PETROBRAS
AT PETROBRAS
(NOT INCLUDING OUR
(NOT INCLUDING OUR
(NOT INCLUDING OUR
SUBSIDIARES, JOINT OPERATIONS
SUBSIDIARES, JOINT OPERATIONS
SUBSIDIARES, JOINT OPERATIONS
OR STRUCTURE ENTITY)
OR STRUCTURE ENTITY)
OR STRUCTURE ENTITY)
46,416
46,416
46,416
Business Area
2019
2018
2017
2017
Exploration and Production
Refine, Transportation
and Marketing
Gas and Power
63,361
47,556 13,935
1,870
Others
Total
17,971
9,404
1,783
17,258
46,416
17,910
17,574
9,440
9,476
1,688
1,621
18,518
18,308
47,556
46,979
2018
57,983
46,416
10,691
876
PETROBRAS
(NOT INCLUDING OUR
SUBSIDIARES, JOINT OPERATIONS
OR STRUCTURE ENTITY)
SUBSIDIARIES IN BRAZIL
SUBSIDIARIES ABROAD
2019
183
38,833
38,833
38,833
MEN
MEN
MEN
7,583
7,583
7,583
WOMEN
WOMEN
WOMEN
84%
84%
84%
16%
16%
16%
CORPORATE FUNCTION
CORPORATE FUNCTION
CORPORATE FUNCTION
Manager
MANAGER
MANAGER
Supervisor
SUPERVISOR
SUPERVISOR
Specialist
SPECIALIST
SPECIALIST
Other
OTHER
OTHER
10%
10%
10%
5%
5%
5%
3%
3%
3%
81%
81%
81%
Manager
MANAGER
MANAGER
Supervisor
SUPERVISOR
SUPERVISOR
SPECIALIST
SPECIALIST
Specialist
OTHER
OTHER
other
12%
12%
12%
3%
3%
3%
4%
4%
4%
81%
81%
81%
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As of December 31,
2019
2018
2017
Our employees by region (not including our subsidiaries, joint operations or structure entities):
Southeastern Brazil
Northeastern Brazil
Other locations
Total
Our subsidiaries’ employees by region:
Southeastern Brazil
Northeastern Brazil
Other locations in Brazil
Abroad
Total
Total
36,077
7,400
2,939
46,416
5,697
2,328
2,666
876
11,567
35,699
8,608
3,249
47,556
7,830
2,793
3,312
1,870
15,805
34,456
8,963
3,560
46,979
7,606
2,999
3,309
1,810
15,724
57,983
63,361
62,703
We attract and retain valuable employees by offering competitive compensation and benefits, merit-based promotions and a
profit-sharing plan (“PLR” – Participação nos Lucros e Resultados).
The table below sets forth the main expenses related to our employees for the last three years:
Salaries
Employee training
Profit-sharing distributions
Variable compensation program
2019
2018
2017
4,184.9
48.9
43.0
643
(in US$ millions)
4,355.2
55.1
442.0
265
4,972.0
43.5
145.0
-
For more information on profit-sharing distributions and variable compensation program see respectively “Labor Relations”
and “Employees Variable Compensation” in this annual report.
Workforce
In accordance with our 2020-2024 Strategic Plan, we have been developing an active portfolio management and focusing
on the profitability of our operations. To that end, we are seeking to improve our workforceto the business needs, which
considers:
(i) our future prospects: partnerships, divestments, asset sales, expansion of activities, etc;
(ii) certain workforce planning metrics and our operating units;
(iii) our need to strengthen knowledge management actions among our employees;
(iv) the performance of our employees and our interest in retaining staff; and
(v) the cost of dismissals.
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MANAGEMENT
EMPLOYEES
BENEFITS
162
183
186
2015
2016
2017
2018
2019
2,013 (PIDV 1,605)
244
6,444 (PIDV 6,262)
876
4,395 (PIDV 4,272)
158
300 (PIDV 85)
902
1,364 (PIDV/PDV 1,090)
288
DISMISSALS
NEW HIRES
One of the tools for workforce adequacy is the identification of our needs and the efficient allocation of our human resources
in order to better align the profile of our professionals with the opportunities available in our company. We have an internal
personnel movement program called “Mobiliza”. We adopt two other important tools for staff adjustments: the Voluntary
Separation Program (“PDV”) or Voluntary Separation Incentive Program (“PIDV”); and, in case of business growth or need for
specific skills, new hiring programs by means of public selection processes.
In 2019, we launched a PDV focused on retired employees. In addition to this PDV, we launched two other programs: the
first program targets employees of certain areas undergoing divestment processes, and the second program focuses
on administrative employees. In 2019, 3,294 employees enrolled in these three programs. Until December 31, 2019, 995
employees left as part of those three PDVs launched in 2019, 12 left as part of the PIDV launched in 2014 and 83 left as part
of the PIDV launched in 2016, totaling 1,090 employees.
Time in Petrobras (not including our subsidiares, joint operations or structure entity) (%)
2015
2016
2017
2018
2019
48
39
37
28
25
18
33
40
50
54
185
34
28
23
22
21
0 A 9 YEARS
10 A 19 YEARS
20 YEARS OR MORE
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186
The total number of employees who have left our company
In September 2019, we also offered employees holding a
due to PIDV or PDV is 17,590. The total severance paid as
higher education degree and receiving a monthly salary of
a result of these programs was US$1.48 billion, amounting
US$2,960.36 or more the option to negotiate their labor
to a financial return of US$7.18 billion in saved costs as of
conditions through individual employment agreements.
December 2019.
Currently, 3% of our employees are under individual
We have also been hiring employees through different public
employment agreements.
selection processes. In order to determine the number of
In 2019, we paid out to our employees the amounts
new employees, we consider both our business demand and
determined under our profit sharing plan (“PLR –
our current vacancies.
Participação nos Lucros e Resultados”) for the 2018
As the number of dismissals exceeded the number of
our new employees in the last several years, the range
distribution of our employees by time spent at the
company, as well as the age pyramid, underwent significant
changes. This created a more balanced professional profile
distribution by seniority. Our current workforce profile is
appropriate for our growth in terms of knowledge and talent
management, which ensures competitive advantage and
value to our business.
Labor Relations
fiscal year.
In 2019, no strikes or protests affected our production. .
In February 2020 the oil workers’ unions launched a strike
that lasted 21 days. The strike was against the mothballing
of ANSA, one of our subsidiaries, and having no relation
whit the 2019-2020 collective bargaining agreement. The
Superior Labor Court decreed the strike of oil tankers
abusive and illegal. Despite the number of days, there was
no impact on production.
We value transparency in our relationships with all of
our stakeholders, including trade unions. We maintain
Benefits
relationships with 17 trade unions and one federation (i.e.
Employees Variable Compensation
a top-level union entity) of oil workers, as well as eight
unions and one federation of maritime workers. 42% of
our employees are unionized, and 97% of our employees
are covered by collective bargaining agreements. These
agreements include social clauses relating to work, safety
conditions, benefits, and other matters and are valid for one
year under the current collective bargaining agreement.
In May 2019, we started to negotiate the 2019-2020
collective bargaining agreement (“2019-2020 CBA”) with all
of the oil workers trade unions. In September 2019,
we sought to mediate the 2019-2020 CBA at the Superior
Labor Court (“TST’), and in early November, we signed a new
collective bargaining agreement, which sets out a
2.3% increase in salaries and benefits in relation to 2018.
In October 2019, we also started negotiating the 2019-2020
collective bargaining agreement with the maritime unions.
Negotiations ended in January 2020, and we offered a
1.8% increase in salaries and 2.3% increase in benefits.
Currently, our workforce comprises of approximately
130 maritime workers.
186
In 2019, in addition to the payment under our PLR, we paid
the amounts determined in the 2018 fiscal year related to
our variable compensation program (“PRVE” or Programa de
Remuneração Variável dos Empregados).
In the first quarter of 2019, our Board of Directors approved
a new variable remuneration model for all of our employees:
the performance award program (“PPP” or Programa de
Prêmio por Performance). The PPP is in line with our 2020-
2024 Strategic Plan, focusing on meritocracy and enhancing
flexibility as we seek more efficiency and alignment with
best management practices.
The PPP will be paid in a lump sum payment in case we
achieve a net income higher than R$10.0 billion in 2019.
The estimated amount of disbursement will depend on
certain factors, such as individual employee performance
and our performance metrics.
For 2019, the new model replaces other benefits related to
variable compensation, such as our PLR and the PRVE.
MANAGEMENT AND EMPLOYEESANNUAL REPORT AND FORM 20-F 2019 MANAGEMENT
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183
186
Main Benefits Granted to Employees
We offer benefits that are commensurate with our size
and seek to value our employees. All of our employees are
entitled to the same benefits, regardless of their positions
or duties. Namely, we offer complementary pension plans,
medical assistance and pharmacy benefits. In addition, some
of our consolidated subsidiaries have their own benefit plans.
Pension Plans
the new rules of the plan in 2006, 2007 and 2012 (“PPSP-
Renegotiated”) and (ii) one for those employees that did
not adhere (“PPSP-Not Renegotiated”). In December 2019,
the PPSP-Renegotiated and PPSP-Not Renegotiated plans
were split into two new plans: (i) one for employees and
pensioners who joined the plan before 1970 and (ii) one for
employees and pensioners who joined the plan after 1970.
Thus, apart from Petros 2, there are currently four defined-
benefit plans. Together, these plans cover 96%
Until March 2018, we sponsored two pension plans:
of our employees.
(i) the Plano Petros do Sistema Petrobras (“PPSP”), a
defined-benefit plan closed to new members, and (ii) the
Petros-2 Plan (“Petros 2”), a variable contribution plan, open
and in force since 2007, and managed by Petrobras Social
Security Foundation – Petros.
Due to the effects of the PPSP plans on the sponsor and
participants, we, together with Petros, structured a new
defined-contribution plan, called the Petros-3 Plan,
which will be open for voluntary migration of participants
and beneficiaries as soon as it is approved by the
In April 2018, the PPSP was split up into two plans: (i) one
appropriate bodies.
made up of employees and pensioners, who adhered to
Equalization
of Petros
Plans
The main purpose of our pension plans is to supplement the social security pension benefits of our
retired employees. Thus, our employees make mandatory monthly contributions as participants
of our plans. However, we started to experience deficits in the Petros plans after Petros stopped
admitting new participants in 2002.
In 2017, the PPSP underwent an equalization plan due to a total deficit of US$8.0 billion (as of
December 2019). The equalization plan was based on the rules established in the 2015 Deficit
Equalization Plan (“DEP 2015”) made by Petros. The remaining term for this equalization plan is
16 years, and as of March 2018 DEP 2015 received the previously outstanding contributions from
all participants. These include active and retired employees and pensioners, as well as us, Petrobras
Distribuidora and Petros as sponsors, as required by Brazilian law.
We have also been subject to material legal proceedings in connection with the benefits granted
by the Petros plans. In 2019, there were judicial discussions regarding extraordinary contributions.
These discussions led to injunctions that temporarily suspended extraordinary contributions for
certain participants.
After those discussions, contributions to the DEP 2015 began again and the flow of extraordinary
contributions continues on a monthly basis. The flow is handled by Petros and monitored by us.
In the year ended December 31, 2019, we disbursed US$256 million in contributions referring to the
DEP 2015.
On March 2020 our Board of Directors deliberated on the New Deficit Equalization Plan (“New DEP”)
of the PPSP-Renegotiated and PPSP-Not Renegotiated, managed by Petros and in compliance with
Brazilian social security legislation.
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The New DEP aims to review the DEP 2015, the treatment of the deficit registered in 2018, the
utilization of the actuarial plans results achieved in 2019, and the treatment of actuarial impacts
related to changes in PPSP-Renegotiated and PPSP-Not Renegotiated plans regulations, approved
by the Board of Directors, in compliance with Brazilian social security legislation. Therefore, it was
possible to reduce the extraordinary contributions for most of the participants and beneficiaries,
as well as to improve the regulations of the plans, which will allow the revision of the regular
contributions and will mitigate the need for new equalization plans in the future.
The New DEP will take into account the insufficient resources of such plans, estimated at US$8.36
billion on December 31, 2019, with US$8.0 billion already recognized in the 2015 plan and US$0.36
billion referring to the equalization of the accrued deficit of 2018/2019 and other above-mentioned
changes. Of the total amount, US$3.88 billion will be the liability of Petrobras, in strict compliance
with the principle of contributory parity provided for in the Constitutional Amendment No. 20/1998.
The rest of the deficit will be supported by the other sponsors (Petrobras Distribuidora and Petros)
and by participants and beneficiaries.
Petrobras’ liability amount will be paid by extraordinary contributions throughout the life of the plans,
in a total of US$3.38 billion, and by cash contribution, in the amount of US$0.5 billion, at the time of
the effective implementation of the New DEP. The disbursement of extraordinary contributions is
estimated, in the first year, at US$233 million for Petrobras, with a decreasing amortization flow, with
91% of which being amortized over 25 years.
The effective implementation of the New DEP and changes in the plans regulations are still subject to
approval by the Secretariat for Coordination and Governance of State-Owned Companies (“SEST”) and
by the National Superintendence of Supplementary Pension Plans (“PREVIC”).
The effects of the New Plan on Petrobras’ financial statements will be carried through an intermediate
review executed by an independent actuary, when the New DEP is approved, and there may be a
positive result from the reduction of commitments to the plans as a compensation to the cash
contribution made by us.
The table below presents the benefits paid, contributions made, and outstanding pension liabilities for the years ended
December 31, 2019, 2018 and 2017:
Total benefits paid – pension plans
Total contributions – pension plans(1)
Actuarial liabilities(2)
2019
1,552
555
14,508
2018
(in US$ million)
2,211
652
10,514
2017
1,942
300
11,028
(1) Includes contributions by employees and sponsors (except for contributions under the terms of the financial commitment to cover
obligations under the pension plans).
(2) Unfunded pension plans obligations.
For more information on the Petros plan, see “Risks – Risk Factors” in this annual report and Notes 4.4 and 18 to our audited
consolidated financial statements.
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183
186
Health and Pharmacy Benefit Plan
We maintain a supplementary health care plan (“AMS” or Assistência Multidisciplinar de Saúde), which provides for medical,
hospital and dental care services to all active and retired employees and their dependents, through the participation
of our employees.
In 2018, the Interministerial Committee on Corporate Governance of State-Owned Enterprises (“CGPAR”) established
important drivers for health plan management. CGPAR established new governance and cost guidelines for self-managed
health-care benefits of companies controlled by the Brazilian federal state. These guidelines target sustainability and
financial-actuarial balance. As of January 2018, we had 48 months to adjust our AMS contribution practices to the new
guidelines; however, the adjustments may only occur after the next collective bargaining agreement. As a result, we expect
a liability reduction, since the change implies parity limit of costs between us and our employees. Other effects due to our
adjustments will be timely measured and considered.
An independent actuary calculates our commitment related to future benefits for plan participants on an annual basis, based
on the projected unit credit method. The health care plan is not funded or otherwise collateralized by assets. Instead, we make
benefit payments based on annual costs incurred by plan participants.
The AMS benefit also offers coverage of complementary programs, such as the Benefício Farmácia program. The Benefício
Farmácia program only covers drugs from a predefined list of chronic or psychiatric diseases. By choosing to use the
Benefício Farmácia, the beneficiary must incur costs as determined in the co-participation system.
The table below shows the benefits paid, contributions made and outstanding medical liabilities for the years ended
December 31, 2019, 2018 and 2017:
Total benefits paid – medical plan(1)
Total contributions – medical plan(1)
Actuarial liabilities(2)
(1) Includes AMS and Benefício Farmácia amounts.
(2) Unfunded medical plan obligations.
2019
442
442
11,986
2018
(in US$ million)
456
321
12,236
2017
466
467
10,802
For more information on our employee benefits, see Notes 4.4 and 18 to our audited consolidated financial statements and
“Risks – Risk Factors” in this annual report.
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COMPLIANCE AND
INTERNAL CONTROL
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Ethical principles guide our business and our relations with
proposing rules for the incorporation of new concepts, and
third parties.
In order to guarantee an ethical environment for our
business, we work to promote a culture of integrity, the
adopting measures to comply with legislation and follow best
practices that reinforce our zero tolerance approach to acts
of misconduct.
prevention, detection and correction of incidents of fraud,
Our ethics commission is composed of employees appointed
corruption and money laundering, the management of our
after an internal selection process consisting of interviews
internal controls and the integrity analysis of managers
and resumes review. Our Board of Directors and our Board of
and counterparts.
Executive Officers approve each new appointment.
We have a corporate compliance policy that describes
In 2018, our ethics commission reviewed our Conduct Guide
and discloses our commitments to the promotion of the
and Code of Ethics based on the commission’s previous
transparency in conducting our business ethically, with zero
experiences, benchmarks in related documents, compliance
tolerance for fraud, corruption and money laundering.
with relevant legislation and internal regulations, and with
In order to integrate and strengthen compliance initiatives,
in addition to our corporate compliance policy, we also have a
code of ethics (“Code of Ethics”), a conduct guide (“Conduct
Guide”), and an ethics commission and a corruption
prevention program called Petrobras Corruption Prevention
Program (“PCPP”).
Code of Ethics and Conduct Guide
Our Code of Ethics presents ethical principles (such as
respect for life and all human beings, integrity, truth,
honesty, justice, equity, institutional loyalty, responsibility,
diligence, merit, transparency, lawfulness, impersonality and
coherence between discourse and practice), as well as conduct
commitments for the members of our Board of Directors, audit
committee and Board of Executive Officers, our employees,
trainees, and business and service providers to follow.
Likewise, our Conduct Guide establishes the basic rules for
ethical behavior and professional conduct to be adopted
within our company.
Our Code of Ethics and Conduct Guide are available on our
website. The information on this website is not and shall not
be deemed to be incorporated into this annual report.
Ethics Commission
Our ethics commission is responsible for promoting
recommendations of control bodies and consultations with
our workforce, management and subsidiaries. In 2019, we
announced the new versions of these documents, which are
all available on our website. The information on this website
is not and shall not be deemed to be incorporated into this
annual report.
Petrobras Corruption Prevention Program
The PCPP is our integrity program and it is focused on the
prevention, detection and correction of acts of fraud and
corruption committed against us. The PCPP is designed for
our different stakeholders, such as customers, suppliers,
investors, partners, public authorities, employees and
outsourced service providers.
In performing our activities in Brazil and abroad, we are
subject to national and international anti-corruption laws. We
work to continually improve our integrity program. It adheres
to best practices and anti-corruption laws, particularly Law
No. 12,846/13, the FCPA and the U.K. Bribery Act.
Pursuant to the PCPP, we undertake Integrity Due Diligence
on our counterparties, seeking to assess the integrity risks
inherent in our business relationships. We communicate the
findings of such due diligence in degree of integrity risk. Our
managers consider these findings in their decision-making
processes. In 2019, we evaluated 4,226 counterparties.
corporate compliance with ethical principles, and serves as a
In addition, we perform Integrity Background Check
forum for discussion of subjects related to ethics. Our ethics
for individuals appointed by us for key positions in our
commission also serves in a consulting capacity for our
company and our subsidiaries and affiliates. This procedure
management and workforce, providing recommendations
aims to assist managers in making decisions considering
with respect to topics related to ethics management,
the degree of exposure to integrity risks and proposes
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mitigation measures. In 2019, we conducted 2,748 integrity
In addition to e-learning trainings for all of our employees,
assessments for key positions in our company.
we offer face-to-face PCPP courses to:
We also have other compliance mechanisms in place,
(i) managers (230 in 2018 and 150 in 2019);
including a disciplinary policy, risk assessment related to
fraud and corruption, a guide to receiving and offering gifts
and hospitality, safeguards for anti-money laundering and
prevention of terrorism financing and administrative liability
proceedings.
(ii) employees who perform activities that are more exposed
to compliance risks, such as our employees involved in
procurement processes (370 in 2018 and 188 in 2019);
(iii) professionals, including compliance professionals,
internal audit and ombudsman (50 in 2018 and 100 in 2019);
In order to raise workforce awareness, we disseminate
and
guidelines on proper conduct and reinforce our ethical values
through publications and communications in our internal
channels.
We offer e-learning training for all of our employees,
especially employees working in activities with greater
(iv) new employees (450 in 2018) and new compliance
employees (121 in 2019).
In 2019, we also provided face-to-face training sessions to
senior management, including on the following topics:
exposure to compliance risks, as well as the members of our
❚ Code of Ethics and Code of Conduct;
Board of Executive Officers and our Board of Directors. In
❚ Risk management;
2019, we offered training on moral and sexual harassment to
around 47,000 employees, in order to disseminate ways to
❚ Compliance;
identify, prevent and combat this kind of misconduct.
❚ Our model of corporate governance and decision process;
In 2019, we also offered an e-learning training regarding
❚ Business performance;
compliance risks responses to such risks. The module on
❚ LGPD;
anti-corruption legislation and business ethics was available
until March 2019 and its content was disseminated to over
46,000 employees, including senior management.
❚ Reputation as a strategic driver; and
❚ Brazilian anti-corruption law.
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In 2019, we also promoted the following initiatives:
Initiative
Description
Improvements In 2019
Counterpart’s
Training focused on our
In 2019, we decided to develop and implement a multi-language training
Training
counterparts, such as: suppliers,
focused on our counterparts.
clients, sponsored entities,
business partners, and those
involved in mergers and
acquisitions.
The goal of this initiative is to expand to our counterparts the
dissemination of our culture of integrity. The training is 25 minutes long
and was developed in an online platform. In 2019, almost 290 members
from our counterparts completed the training.
Petrobras
Annual week-long compliance
The Petrobras Compliance Week is a week-long event for discussion, round
Compliance Week
event (previously held in one day)
tables and dialogue with compliance authorities and specialists, including
with regards to our progress and challenges in combating fraud, corruption
and money laundering.
Participants include:
• senior management (including of our subsidiaries);
• executive managers;
• general managers;
• authorities and experts;
• members of the ethics committee;
• members of the disciplinary measures committee;
• governance and compliance employees;
• press;
• academics;
• organizations against corruption;
• chief compliance officers of other companies, including state-owned
companies; and
• other employees.
Tone at the Top
Senior management
Senior management recorded pocket videos directed to our workforce
Strengthening
continuous communication
reinforcing our widespread commitment towards compliance in order to
to the workforce
strengthen our ethical culture.
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Our management has assessed the effectiveness of our
internal control over financial reporting as of December 31,
2019 based on the criteria established in the guide called
“Internal Controls – Integrated Framework (2013)” issued by
the Committee of Sponsoring Organizations of Treadway
Commission (“COSO”). Our management has concluded that
our internal control over financial reporting was effective.
Audit of the Effectiveness of Internal Control
over Financial Reporting
Our independent registered public accounting firm
has audited the effectiveness of our internal control
over financial reporting, as stated in their report as of
December 31, 2019, which is included herein.
Changes in Internal Control over Financial
Reporting
In 2019, we implemented changes in our controls related
to recognition, measurement, presentation and disclosure
of leases. There were no other significant changes in our
controls that have materially affected, or are reasonably
likely to materially affect our internal control over financial
reporting.
Controls and Procedures
Disclosure Controls and Procedures
We, along with our CEO and CFO, have evaluated the
effectiveness of our disclosure controls and procedures as
of December 31, 2019. Our CEO and CFO concluded that
our disclosure controls and procedures were effective to
provide reasonable assurance that the information we are
required to disclose in the reports that we file or submit
under the Exchange Act was being recorded, processed,
summarized and reported within the time periods specified
in the applicable rules and forms. They also concluded that
such disclosure was compiled for and communicated to our
management, including our CEO and CFO, as appropriate, to
allow for timely decisions regarding the required disclosure.
Management’s Report on Internal Control over
Financial Reporting
Our management is responsible for establishing, adequately
maintaining and assessing the effectiveness of internal
control over financial reporting. Such internal control is
a process designed by, or under the supervision of our
CEO and CFO, and effected by our board of directors,
management and other employees.
The internal control over financial reporting is designed
to provide reasonable assurances regarding the reliability
of financial reporting and of the preparation of our
consolidated financial statements for external purposes, in
accordance with IFRS, as issued by the IASB.
Due to its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness of
internal control over financial reporting to future periods
are subject to the risk of becoming inadequate because of
changes in its conditions and assumptions.
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Ombudsman and Internal
Investigations
Our general ombudsman office provides channels for
the Federal Public Prosecutor’s Office, Brazilian federal
receiving comments from our internal and external audience,
police and advisory bodies (the CVM, CGU and TCU).
such as complaints, requests for information, general
Our governance and compliance office has full access,
requests, suggestions, compliments and denouncements.
independence, qualification and autonomy to thoroughly
In order to receive complaints, we provide a specific
investigate allegations of this nature.
denouncement channel, operated by an independent
Upon the conclusion of each investigation, we use its
external company, and allowing for anonymity of the
material findings to improve our compliance efforts. If the
informants.
All complaints received through the whistleblower channel
are forwarded to the ombudsman’s office, which analyzes,
classifies, and routes them for follow-up by the appropriate
findings in some instances indicate that any of our former
and current employees did not comply with certain internal
policies, we may take action in accordance with applicable
labor laws and our applicable employment policies.
area. Allegations regarding fraud or corruption are sent to
Irrespective of the findings of our internal investigations, in
the governance and compliance office.
order to mitigate potential risks of further non-compliance
We continuously reaffirm and reinforce our zero-tolerance
approach toward fraud and corruption, including by
thoroughly investigating all allegations that arise. We take
allegations of misconduct seriously – in particular allegations
of corruption – and are committed to promptly cooperating
with all authorities regarding such investigations, including
with our internal policies, we continue to develop and
implement a number of measures aimed at improving
corporate governance, our management of processes and
risk management and controls, including those related to
fraud and corruption.
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SHARES AND SHAREHOLDERS
197
198
DIVIDENDS
ADDITIONAL INFORMATION FOR
FOREIGN SHAREHOLDERS
206
210
SHAREHOLDER
INFORMATION
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SHAREHOLDER INFORMATIONANNUAL REPORT AND FORM 20-F 2019 LISTING
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DIVIDENDS
ADDITIONAL INFORMATION FOR
FOREIGN SHAREHOLDERS
206
210
STOCK*
EXCHANGE
BRAZIL
CAPITAL MARKET
REGULATOR
CVM
USA
CAPITAL MARKET
REGULATOR
SEC
Listing
We are a publicly
traded company
and we are listed
in Brazil and
abroad, as follows:
COMMON SHARES
PREFERRED SHARES
CORPORATE
GOVERNANCE
SHARES
AND ISIN
CODES
LEVEL 2
LEVEL 3
PETR3
BRPETRACNOR9
PETR4
BRPETRACNOR9
PBR
US71654V408
PBRA
US71654V101
CLOSING
PRICE
12.31.2019
PETR3 R$ 32.00
PETR4 R$ 30.18
PBR
U$ 15.94
PBRA U$ 14.92
TOTAL
NUMBER
OF SHARES**
12.31.2019
13,044,201,261
PETR3: 5,992,292,392 SHARES
PETR4: 4,956,899,781 SHARES
PBR: 1,449,938,990 ADRs
PBRA: 645,070,098 ADRs
* Additionally, our common (XPBR) and preferred
(XPBRA) shares have been traded on the LATIBEX,
Spain, since 2002 under ISIN codes BRPETRACNOR9
and BRPETRACNPR6, respectively. The LATIBEX is
an electronic market created in 1999 by the Madrid
Stock Exchange in order to enable trading of Euro-
denominated Latin American equity securities.
** The total number of shares does not include 295,669
shares in treasury, of which 222,760 are common
shares and 72,909 are preferred shares.
*** On 12.31.2019, the controlling group was composed
of the Brazilian federal government, BNDES, BNDESPar
and Social Participation Fund.
TOTAL CAPITAL
18.98%
BRAZILIAN
INVESTORS
42.62%
CONTROLLING
GROUP***
38.40%
NON-BRAZILIAN
INVESTORS
Delisting in
Argentina
Our common and preferred shares have been traded on the Bolsa de Comercio de Buenos Aires (Buenos
Aires Stock Exchange) since 2006. On November 11, 2019, however, we delisted our common and preferred
shares from the Buenos Aires Stock Exchange and withdrew from the public reporting regime in Argentina,
as authorized by the Comisión Nacional de Valores (CNV), the Argentinian capital markets regulatory
authority, exempting us from a public offering of our shares in accordance with CNV General Resolution
779. After the delisting, our shareholders in Argentina had the option to either maintain their shares
deposited with the Argentinian market custodian, or sell them in markets where our shares are still traded.
The delisting is in accordance with our business strategy, which focuses on cost reduction and
concentration in our core business operations.
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Corporate
Governance of
B3 – Level 2
Since 2018, we have been listed in the corporate governance Level 2 listing segment of the B3.
Below are some of our corporate governance practices implemented due to our listing on the Level 2
listing segment:
❚ the attributions of our minority committee were expanded;
❚ our Board of Directors is composed of at least 40% of independent members;
❚ we started to disclose an annual calendar of corporate events;
❚ we must assure 100% of tag along to holders of our preferred shares – under the same conditions
granted to holders of our common shares; and
❚ we provide an arbitration procedure for matters arising from, and relating to, Level 2 rules and
regulation.
Shares and Shareholders
Our capital stock is composed of common and preferred
depositary for both of our common and preferred ADSs.
shares, all without par value and denominated in reais. Under
The ratio of ADR to our common and preferred shares is two
Brazilian Corporate Law, the number of our preferred shares
shares to one ADR.
may not exceed two-thirds of the total number of our shares.
The rights of ADS holders differ from shareholders rights.
Our shares are negotiated on the B3 and registered in
With respect to voting rights, ADS holders may only vote by
book-entry form. Banco Bradesco performs services of safe-
means of proxy voting cards mailed to the ADR depositary
keeping and transfer of shares.
bank while shareholders have the right to vote directly at the
Holders of our common shares are entitled to one voting
shareholders’ meeting.
right for each unit of common shares held. Holders of our
On February 29, 2020, there were 1,593,801,740 outstanding
preferred shares are not entitled to voting rights, except
common shares and 624,070,098 outstanding preferred
for: (i) the right to appoint one member of our Board of
shares represented by ADSs. There has been no change
Directors and one member of our Fiscal Council; and (ii)
in the past three fiscal years in the amount of our issued
certain matters relating to preferred shares (such as creation,
share capital, as well as in the number of our common and
increasing, changes in the preferences or creation of a new
preferred shares or in the voting rights of our common and
class), whenever rights of holders of preferred shares are
preferred shares. See Exhibit 1.1 to this annual report for a
adversely affected.
copy of our Bylaws.
In the U.S., our common or preferred shares, which are
After a slight increase in our stock value in 2017, our stock
evidenced by ADRs, are listed in the form of ADSs on
value increased again in 2018, and outperformed our peers
the NYSE. The ADSs are registered and delivered by a
at the NYSE (Amex Oil index or AMEXOIL) in 2019, as well as
depositary bank, JPMorgan Chase Bank, N.A (“JPMorgan”
performed slightly below the Ibovespa index (or IBOV)
or “Depositary”) which, since January 2, 2020, acts as the
at the B3.
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Stock Performance since 2017
Index No = 100 on 01/01/2017
7
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n
a
j
+70,4%
+73,0%
+60,3%
PETR3
PETR4
IBOV
Common Shares (PETR3):
Preferred Shares (PETR4):
Appreciation in 2019:
Stock Value as of February 29, 2020*:
Appreciation in LTM of February 29, 2020:
* Information regarding LTM of February 29, 2020.
Source: Bloomberg
+26.0%
R$ 27.15
-16.0%
+33.7%
R$ 25.34
-11.6%
Market value*:
-8.0% / R$ 344 billion
Ibovespa*
+14.3%
ADR Performance since 2017
Index No = 100 on 01/01/2017
Index No = 100 on 01/01/2017
7
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7
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.
n
a
j
+27,8%
+19,7%
-24,9%
PBR
PBR/A
AMEXOIL
ADSs representing
Common Shares (PBR):
ADRs representing
Preferred Shares (PBRA):
Market value*:
-22.4% / US$ 77 billion
Appreciation in 2019:
Value on February 29, 2020*:
+22.5%
US$ 12.10
Appreciation in LTM of February 29, 2020:
-35.8%
+28.7%
US$ 11.26
-34.8%
* Information regarding LTM of February 29, 2020.
Source: Bloomberg
AMEXOIL*
-26.6%
BRENT OIL*
-27.3%
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The following table sets forth information concerning the ownership of our common and preferred shares as of February 29,
2020 by the Brazilian federal government and certain public sector entities:
Shareholders
Common
Shares
%
Preferred
Shares
Brazilian federal government
3,740,470,811
50.26
-
BNDES
-
BNDES Participações S.A. – BNDESPar
11,700,392
Social Participation Fund
6,000,000
0.00
0.16
0.08
135,248,258
900,210,496
-
%
-
2.41
16.07
-
Total
Shares
%
3,740,470,811
28.67
135,248,258
911,910,888
6,000,000
1.04
6.99
0.05
All members of our Board of Directors
(permanent and alternate), executive
officers and members of our Fiscal
Council (permanent and alternate)
(22 people in total)
0
0.00
41,088
0.00
41,088
0.00
Others
Total
3,684,282,939
7,442,454,142
49.50
100.00
4,566,542,946
5,602,042,788
81.52
100.00
8,250,825,885
13,044,496,930
63.25
100.00
For detailed information on the shares held by the members of our Board of Directors, executive officers and members of our
Fiscal Council, see “Management and Employees” in this annual report.
Public
offerings of
secondary
distribution
of shares
In June 2019, Caixa Econômica Federal sold 241,340,371 of our common shares through a public
secondary offering, simultaneously distributed in Brazil and abroad (in form of ADSs). The fixed
price was R$30.25 per share, totaling R$7,300,546,222.75.
Likewise, in February 2020, BNDES sold 734,202,699 of our common shares through a public
secondary offering, simultaneously distributed in Brazil and abroad (in form of ADSs). On February
20, 2020, the price was fixed in R$ 30.00 per share, totaling R$ 22,026,080,970.00.
In each case, the ADSs’ price is equivalent to the price per share converted to US dollars, based on
the exchange rate for the sale of that currency (PTAX) released by the Central Bank of Brazil.
Under Brazilian Corporate Law, the Brazilian federal
The majority of our voting shares also gives the Brazilian
government is required to own at least a majority of our
federal government the right to elect a majority of our
voting shares.
Although the Brazilian federal government does not have
directors, regardless of the rights our minority shareholders
may have to such election according to our Bylaws.
different voting rights than our other shareholders, as long
Additionally, our Bylaws clearly state that we may have our
as it holds a majority of our voting share, any change in our
activities guided by the Brazilian federal government in order
control would require a change in applicable laws. Our Bylaws
to contribute to the public interest that justified our creation.
also provide for rules applicable to any eventual transfer of
However, if the Brazilian federal government’s guidelines
control of our major shareholders.
lead us to undertake obligations and responsibilities under
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conditions different from those of any other company in
for the difference between market conditions and the
the private sector that operates in the same market, such
operational result or economic return from
obligations and responsibilities shall be defined in law or
such obligation.
regulation and shall have their costs and revenues broken
down and disclosed. In addition, the Brazilian federal
government shall compensate us, at each fiscal year,
Our shareholding base includes over 400,000 shareholders
at the B3 and over 100,000 ADR accounts at the NYSE.
Voting capital* (%)
0.24
12.85
15.23
21.42
Total capital* (%)
8.08
28.67
17.00
22.56
23.69
Non-voting capital* (%)
2.41
11.15
50.26
16.07
35.44
BRAZILIAN FEDERAL
GOVERNMENT
NYSE
FOREIGNERS IN B3
BRAZILIANS IN B3
BNDESPar AND SOCIAL
PARTICIPATION FUND
34.93
BRAZILIAN FEDERAL GOVERNMENT
FOREIGNERS IN B3
BRAZILIANS IN B3
NYSE
BNDESPar, BNDES AND SOCIAL
PARTICIPATION FUND
BRAZILIANS IN B3
FOREIGNERS IN B3
BNDESPar
NYSE
BNDES
The majority of our voting
rights is held by the Brazilian
federal government through
a block composed by the
Brazilian federal government,
BNDESPar and the Social
Participation Fund, which
together hold 50.50% of our
shares with voting rigths.
* Information about our shareholders as of February 29, 2020.
Pursuant to CVM regulations, any (i) direct or indirect
upward or downward) the threshold of 5%, or any multiple
controlling shareholder, (ii) shareholder who has elected
thereof, of the total number of shares of any type or class,
members of a Brazilian public company’s Board of Directors
must be disclosed by such Brazilian public company,
or Fiscal Council, as well as (iii) person or group of persons
immediately after the acquisition or sale of shares, to the
representing the same interest, in each case that has directly
CVM and the B3.
or indirectly acquired or sold an interest that exceeds (either
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Self-Dealing Restrictions
Shareholders Rights
In accordance with our Relevant Act or Fact Disclosure and
Negotiation of Securities Policy, the trading by us or any
related party of securities issued by us, our subsidiaries or
our associates (that are public companies) is forbidden, in
the following periods:
(i) 15 days before the disclosure of our quarterly information
and annual information; and
(ii) in the period between the decision taken by the
competent corporate body to increase or reduce the share
capital, to distribute dividends, bonus shares or issue other
securities by us, and the publication of the respective notices
or announcements.
Our directors, the members of our audit committee, their
respective alternates and members with any technical or
advisory functions created by provisions of our Bylaws, are
obliged to inform us in the event of ownership and trading of
securities issued by us or our subsidiaries, which are public
companies. They should also indicate the securities issued
by us and/or our subsidiaries, which are public companies,
owned by related persons.
Dispute Resolution
As a company listed on the B3’s Level 2, our Bylaws provide
for mandatory dispute resolution, by means of arbitration
before the Câmara de Arbitragem do Mercado, or the Market
Arbitration Chamber, concerning any dispute or controversies
that may arise among us, our shareholders, our management
and members of our Fiscal Council, related to or arising
from the application, validity, effectiveness, interpretation,
violation and effects of the provisions contained in the
applicable Brazilian law, regulations and our Bylaws.
Entities that are part of the direct and indirect public
administration, as our company and our controlling
shareholder, may use arbitration as a dispute resolution
Shareholders’ Meetings and Voting Rights
Our shareholders have the power, through voting at the
shareholders’ meeting, to decide on any matters related
to our corporate purposes and to pass any resolutions
they deem necessary for our protection and development,
except for certain powers exclusively held by our corporate
governing bodies.
Our annual shareholders’ meeting takes at our headquarter,
in Rio de Janeiro,Brazil, at the end of April each year.
Additionally, our Board of Directors or, in some specific
situations set forth in Brazilian Corporate Law, our
shareholders or Fiscal Council, may call our extraordinary
shareholders’ meetings.
The notice of the annual shareholders’ meeting and related
documents must be published at least 30 calendar days prior
to the scheduled meeting date.
For ADS holders, we are required to provide notice to the ADS
depositary at least 30 calendar days prior to a shareholders’
meeting. Upon receipt of our shareholders’ meeting notice,
the depositary must fix the ADS record date and distribute
to ADS holders a notice. This notice must contain (i) final
information particular to such vote and meeting and any
solicitation materials, (ii) a statement that each holder on
the record date set by the depositary will be entitled to
instruct the depositary as to the exercise of the voting
rights, subject to any applicable provisions of Brazilian law as
well as our Bylaws, and (iii) a statement as to the manner in
which these instructions can be given, including instructions
to give a discretionary proxy to a person designated by
us. Our shareholders may vote in person, at the meeting,
or remotely, prior to the date of the meeting. Electronic
participation in shareholders’ meetings is not available to
ADS holders, which may only vote by means of proxy voting
cards mailed to the ADR depositary bank.
mechanism only for disputes involving negotiable economic
rights. As a result, such entities cannot submit to arbitration
Quorum
any non-negotiable rights (direitos indisponíveis), such as
those deemed to relate to public interest. Therefore, decisions
Attendance quorum. In order to start, shareholders
representing at least one-fourth of our issued and
of the Brazilian federal government exercised at any general
shareholders’ meeting, if based or related to public interest,
will not be subject to an arbitration proceeding.
outstanding common shares must attend our shareholders’
meeting, except when the matter to be decided aims to
amend our Bylaws. In this case, a valid meeting requires
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the attendance of shareholders representing at least two-
. approve the requirements of our nomination policy, in
thirds of our issued and outstanding common shares. If
addition to the requirements provided by law applicable to
the required quorum is not reached, our Board of Directors
boards of directors and fiscal councils.
may call a second meeting by sending a notice at least
eight calendar days prior to the new scheduled meeting.
The attendance quorum requirements will not apply to
such second meeting, but the voting quorum requirements
described below shall be observed.
Voting quorum. Matters to be approved at our shareholders’
meeting must be approved by the quorums specified below.
❚ Matter approved by majority vote (of holders of
common shares attending the meeting):
. amend our Bylaws;
. approve any capital change;
. elect or dismiss members of our Board of Directors and
❚ Matter approved by at least one-half of the common
shares of our total capital stock:
. reduce of the mandatory dividend distribution;
. merge into another company or consolidate with another
company, subject to the conditions set forth in Brazilian
Corporate Law;
. participate in a group of companies subject to the
conditions set forth in Brazilian Corporate Law;
. change our corporate purpose, which must be preceded
by an amendment to our Bylaws by federal law, as we are
controlled by the Brazilian federal government and our
corporate purpose is established by law;
Fiscal Council (and its respective alternates), subject to the
. spin-off of a portion of us, subject to the conditions set
right of our preferred shareholders to elect or dismiss one
forth in Brazilian Corporate Law;
member of our Board of Directors and to elect one member
. waive the right to subscribe to shares or convertible
of our Fiscal Council (and its respective alternates) and to the
debentures issued by our wholly-owned subsidiaries or
right of our employees to elect or dismiss one member of
associate;
our Board of Directors;
. decide on our dissolution;
. receive the yearly financial statements prepared by our
. create preferred shares or increase the existing classes
management and accept or reject management’s financial
of preferred shares, without preserving the proportions to
statements, including the allocation of net income for
any other class of preferred shares, except as set forth in or
payment of the mandatory dividend and allocation to the
authorized by our Bylaws;
various reserve accounts;
. change the preferences, privileges or redemption or
. authorize the issuance of debentures, except for the
amortization conditions of any class of preferred shares; and
issuance of non-convertible unsecured debentures or the
. create new class of preferred shares entitled to more
sale of such debentures when in treasury, which may be
favorable conditions than the existing classes.
approved by our Board of Directors;
. accept or reject the valuation of assets contributed by a
shareholder in consideration for increase of capital stock;
. approve the disposal of convertible debentures issued by
our wholly-owned subsidiaries and held by us;
❚ Matter approved by a special quorum:
. select a specialized company to work out the appraisal of
our shares by economic value in the event of the cancellation
of our registry as a publicly-traded company, which matter
must be approved by the majority of votes from the holders
. establish the compensation of the former members of our
of the outstanding shares that are present at the meeting.
Board of Executive Officers, our Board of Directors, our Fiscal
According to B3´s Level 2 regulation, outstanding shares
Council, including the compensation due during the period
means all the shares issued by a company, except for the
of six months of forfeiture provided for in our Bylaws, and of
shares held by the controlling shareholder, by persons
advisory committees to our Board of Directors;
linked to such controlling shareholder and by the company’s
. approve the cancellation of our registration as a publicly-
managers, as well as those shares in treasury and special
traded company; and
class of preferred shares which purpose is to guarantee
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differentiated political rights and, be non-transferable and
shareholders by means of the cumulative voting procedure;
exclusive property of the privatizing entity. This matter
must only be discussed in a shareholders’ meeting installed
with the presence of at least 20% of the holders of the
outstanding shares in a first call, or the presence of any
number of holders of the outstanding shares in a second call.
(iii) our employees have the right to directly elect one
member to our Board of Directors by means of a separate
voting procedure, pursuant to Law No. 12,353/10; and
(iv) subject to the provisions of applicable law, the Brazilian
Minister of Economy has the right to elect and remove one
Pursuant to Law No. 13,303/16, no decision taken at any
member of our Board of Directors.
shareholders’ meeting can change the corporate status of
our company (i.e. sociedade anônima).
Under Brazilian Corporate Law, if a shareholder has a conflict
of interest with a company in connection with any proposed
transaction, the shareholder may not vote in any decision
regarding such transaction. Any transaction approved with
the vote of a shareholder having a conflict of interest may
Brazilian Corporate Law and our Bylaws provide that,
regardless of the exercise by our minority shareholders
of the rights related to the cumulative voting process, the
Brazilian federal government always has the right to appoint
the majority members of our directors and our Fiscal Council.
Other Shareholders’ Rights
be annulled and such shareholder may be liable for any
In addition to their voting rights, shareholders have the
damages caused and be required to return to the company
following rights:
any gain it may have obtained as a result of the transaction.
Preemptive rights: Each of our shareholders has a general
Also under Brazilian Corporate Law, minority shareholders
preemptive right to subscribe for shares or securities
representing at least 10% of the company’s voting capital
convertible into shares in any capital increase, in proportion
have the right to demand that a cumulative voting procedure
to his or her shareholding. A minimum period of 30 days
be adopted to entitle each common share to as many votes
following the publication of notice of a capital increase
as there are board members and to give each common share
is assured for the exercise of the right, and the right is
the right to vote cumulatively for only one candidate of our
transferable. Under our Bylaws and Brazilian Corporate Law,
Board of Directors or to distribute its votes among several
and subject to the requirement for shareholder approval of
candidates. Pursuant to regulations promulgated by the
any necessary increase to our authorized share capital, our
CVM, the 10% threshold requirement for the exercise of
Board of Directors may decide not to extend preemptive
cumulative voting procedures may be reduced depending on
rights to our shareholders, or to reduce the 30-day period for
the amount of capital stock of the company. For a company
the exercise of preemptive rights, in each case with respect
like us, the threshold is 5%. Thus, shareholders representing
to any issuance of shares, debentures convertible into shares
5% of our voting capital may demand the adoption of the
or warrants in the context of a public offering.
cumulative voting procedure.
In the event of a capital increase by means of the issuance
Regarding the right to appoint members of our Board of
of new shares, holders of ADSs and holders of common or
Directors and our Fiscal Council, the following should be
preferred shares would have, except under circumstances
highlighted:
(i) our minority preferred shareholders that together hold
at least 10% of the total capital stock (excluding the shares
held by our controlling shareholder) have the right to elect
and remove one member to our Board of Directors at a
shareholders’ meeting, by a separate voting procedure;
(ii) our minority common shareholders have the right to
described above, preemptive rights to subscribe for any class
of our newly issued shares. However, holders of ADSs may
not be able to exercise the preemptive rights relating to the
common and preferred shares underlying their ADSs unless
a registration statement under the Securities Act is effective
with respect to those rights or an exemption from the
registration requirements of the Securities Act is available.
elect and remove one member to our Board of Directors, if a
For more information, see “Risks – Risk Factors – Equity and
greater number of directors is not elected by such minority
Debt Securities Risks” in this annual report.
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Redemption and rights of withdrawal: Brazilian
approved balance sheet, a shareholder would be entitled
Corporate Law provides that, under limited circumstances,
to demand that his or her shares be valued on the basis
shareholders have the right to withdraw their equity interest
of a new balance sheet dated within 60 days of such
from a company and to receive payment for the portion of
shareholders’ meeting. In this case, we would immediately
shareholder’s equity attributable to their equity interest.
pay 80% of the amount of reimbursement calculated based
This right of withdrawal may be exercised by the holders
of the adversely affected common or preferred shares,
provided that certain conditions set forth in Brazilian
Corporate Law are met, in the event that we decide to:
. increase the existing classes of preferred shares, without
preserving the proportions to any other class of preferred shares;
. change the preferences, privileges, redemption or
amortization conditions of any class of preferred shares or
to create a new class of preferred shares entitled to more
favorable conditions than the existing classes;
. merge into another company or to consolidate with another
company;
. participate in a centralized group of companies as defined
under Brazilian Corporate Law;
. reduce the mandatory distribution of dividends;
. change our corporate purposes;
. spin-off a portion of us;
on the last balance sheet and, after the special balance
sheet has been drawn up, we would pay the balance within
120 days from the date of the shareholders’ meeting
resolution. The right of withdrawal lapses 30 days after
publication of the minutes of the shareholders’ meeting that
approved the matters described above. We would be entitled
to reconsider any action giving rise to withdrawal rights
within ten days following the publication of the minutes of
the meeting ratifying the decision if the payment of the
price of reimbursement of the shares to the dissenting
shareholders would jeopardize our financial stability.
Liquidation: In the event of a liquidation, holders of
preferred shares are entitled to receive, prior to any
distribution to shareholders, payment for the portion of
shareholder’s equity attributable to their equity interest.
Conversion rights: Our common shares are not convertible
into preferred shares, nor are preferred shares convertible
into common shares.
. transfer all of our shares to another company or to receive
shares of another company in order to make the company
Liability of our shareholders for further capital calls:
Neither Brazilian Corporate Law nor our Bylaws provide liability
whose shares are transferred a wholly-owned subsidiary,
for our shareholders for further capital calls. Our shareholders’
known in Brazil as incorporação de ações; or
liability for capital stock is limited to the payment of the
. acquire control of another company at a price that exceeds
the limits set forth in Brazilian Corporate Law.
issuance price of the shares subscribed or acquired.
Rights not subject to waiver: According to Brazilian
This right of withdrawal may also be exercised in the event
Corporate Law, neither a company’s Bylaws nor decisions
that the entity resulting from a merger, consolidation or
taken at a shareholders’ meeting may deprive a shareholder
spin-off of a listed company and us do not negotiate new
of some specific rights, such as the right to:
shares in the secondary market, within 120 days from the
. participate in the distribution of profits;
date of the shareholders’ meeting approving the transaction,
in accordance with the applicable SEC regulations.
. participate in any remaining residual assets in the event of
liquidation of the company;
Considering that our Bylaws do not provide for rules to
determine any value for redemption, under Brazilian
. supervise the management of the corporate business as
specified in Brazilian Corporate Law;
Corporate Law, any redemption of shares arising out of the
exercise of such withdrawal rights would be made based on
. exercise preemptive rights in the event of a subscription of
shares, debentures convertible into shares or subscription
the book value per share, determined on the basis of the
warrants (other than with respect to a public offering of such
last balance sheet approved by our shareholders. However,
securities, as may be set out in the Bylaws); and
if a shareholders’ meeting giving rise to redemption rights
occurred more than 60 days after the date of the last
. withdraw from the company in the cases specified in
Brazilian Corporate Law.
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Dividends
Our preferred shares have preference in the distribution
of dividends and interest on capital. Thus, the payment of
Payment of Dividends and Interest on Capital
dividends to holders of common shares is subject to the right to
Our dividend payments are subject to the provisions of
Brazilian Corporate Law and applicable local laws and
regulations, our Bylaws and our dividend distribution policy.
Our distributions can include dividends and/or interest on
capital. The payment of interest on capital to our shareholders
is subject to withholding income tax, pursuant to the Brazilian
tax laws, which is not levied upon payments of dividends. The
holders of ADSs are also subject to withholding income tax,
unless provided otherwise by their applicable law.
dividend distributions held by the holders of preferred shares.
In 2019, we approved a new dividend distribution policy, called
“Shareholders Compensation Policy,” which more clearly
defines the rules and procedures related to the distribution
of dividends and interest on capital. Our Shareholders
Compensation Policy seeks to guarantee our short, medium
and long-term financial sustainability and the predictability of
the payment flow to our shareholders and it is based on the
assumption that we need financial flexibility and stability for
the maintenance of our businesses.
Petrobras new Shareholders Compensation Policy
ADJUSTED
NET
INCOME*
SHAREHOLDERS’
MEETING APPROVAL
Total amount of
dividend payable
related to the last
fiscal year
Payment
dates
MANAGEMENT’S
PROPOSAL
GROSS DEBT
>US$ 60
BILLION
GROSS DEBT
≤ US$ 60
BILLION
Mandatory minimum
dividends (25%),
according to
Brazilian
Corporate Law
Dividends determined
according to our
Shareholders
Compensation Policy**
D = 60% x (OCF -
CAPEX Investments)**
Additionally, we may, in exceptional
cases, pay extraordinary dividends,
exceeding the annual amount
described above
Our Bylaws provide for a minimum dividend equal to the
greater of 5% of the share capital or 3% of equity, to our
preferred shareholders.
NO DIVIDENDS
DISTRIBUTION
* Adjusted Net Income = Considers legal reserve, tax incentive reserve and other reversals / additions
** D = Dividends
OCF: Operating cash flow (net cash generated by operating activities)
CAPEX Investments: Acquisition of assets, fixed assets, intangibles and corporate investments. Does not consider
proceeds from the sale of assets; payments in the participation of bidding rounds for oil and natural gas upstream;
and payments relating to the acquisition of companies or equity interests
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Our Shareholders Compensation Policy includes the
❚ 50% of net income before taking into account such
following dividends:
❚ Annual: The decision to distribute dividends and other
earnings depends on a number of factors, including
our financial results and condition, cash needs, future
prospects of current and potential markets in which we
distribution, in case these are considered expenses, based
on the calculated profit after taking into account any
deductions for social contributions on net income and
before deducting income tax for the period in respect of
which the payment is made; or
operate, existing investment opportunities, maintenance
❚ 50% of profit reserves.
and expansion of our production capacity. The payment
of annual dividends is based on our year-end audited
consolidated financial statements.
❚ Intermediate Dividends (dividendos intercalares):
Pursuant to Brazilian Corporate Law, we may distribute
intermediate dividends, which shall be calculated based on
our balance sheet issued during the current fiscal year and
not yet approved by our shareholders, i.e. before we have
determined our full-year earnings.
With respect to the payment of dividends, our shareholder
must also consider the following:
❚ Taxation: Any payment of interest on capital to ADS
holders or shareholders, whether or not they are Brazilian
residents, is subject to Brazilian withholding taxes at
the rate of 15% or 25%. The 25% rate applies only if the
beneficiary is resident in a tax haven. The amount paid to
shareholders as interest on capital, net of any withholding
tax, may be included as part of any mandatory distribution
❚ Interim Dividends (dividendos intermediários): Our Board
of dividends. Under Brazilian Corporate Law, we are
of Directors may also approve the payment of interim
required to distribute to shareholders an amount sufficient
dividends, which shall be calculated based on our profit
to ensure that the net amount received, after payment by
reserve account existing in the last balance sheet approved
us of applicable Brazilian withholding taxes in respect of
by our shareholders’ meeting (i.e. these dividends are paid
the distribution of interest on capital, is at least equal to
based on either an annual or semi-annual balance sheet
the mandatory dividend.
already approved by our shareholders). The amount of
interim dividends distributed cannot exceed the amount of
our capital reserves.
For more information on Brazilian taxation of ADSs and
our shares, see “Legal and Tax – Taxation Relating to the
ADSs and our Common and Preferred Shares” in this
Pursuant to our Bylaws, intermediate and interim dividends
annual report.
and interest on capital shall be allocated as minimum
mandatory dividend, including for the purpose of paying the
minimum priority dividends of preferred shares.
❚ Date of payment: Under Brazilian Corporate Law and our
Bylaws, dividends are generally required to be paid within
60 days following the date they are declared, unless a
Law No. 9,249/95, as amended, provides for distribution of
shareholders’ resolution sets forth for another date of
interest on capital to shareholders as an alternative form
payment, which, in any case, must occur prior to the end of
of distribution. Such interest is limited to the daily pro rata
the fiscal year in which the dividend was declared.
variation of the TJLP interest rate, the Brazilian federal
government’s long-term interest rate. The effective payment
or credit of interest on capital depends on the existence of
profits, calculated before deducting interest, or accumulated
profits and profit reserves, in an amount equal to or greater
than twice the amount of the interest to be paid or credited.
We may treat these payments of interest on capital as
a deductible expense for calculating real profit, but the
deduction cannot exceed the greater of:
❚ Adjustments: The amounts of dividends due to our
shareholders are subject to financial charges at the SELIC
rate from the end of each fiscal year through the date we
actually pay such dividends.
❚ Unclaimed dividends: Shareholders have a three-year
period from the dividend payment date to claim dividends
or interest on capital payments with respect to their
shares, after which the amount of the unclaimed dividends
reverts to us.
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In 2019, we anticipated the remuneration to shareholders,
annual general meeting to occur in 2020. The remaining
as interest on capital in the amount of US$1,008 million and,
amount to be received by shareholders will take into
in February 2020, we paid an additional US$1,230 million.
consideration the amount already paid in advance
Our total distributions to shareholders for 2019 amounts
For further information, see Note 34.7 to our audited
to US$2,687 million and will be voted at our shareholder’s
consolidated financial statements.
Mandatory
distribution
Pursuant to Brazilian Corporate Law and our Bylaws, we must comply with two mandatory
distributions of dividends, both of which are provided in our Shareholders Compensation
Policy.
(i) We must pay at least 25% of our adjusted net income, after deducting allocations to
the legal reserve and further allocations eventually required by Brazilian Corporate Law;
and
(ii) Holders of our preferred shares have priority to receive the mandatory dividend
amount, as well as to receive a payment in the event of reimbursement of capital. They
are also entitled to minimum annual non-cumulative preferential dividends in case we
declare dividends equal to the higher of (a) 5% of their pro rata share of our paid-in
capital, or (b) 3% of the book value of their preferred shares.
To the extent that we declare dividends on our common shares in any particular year
in an amount that exceeds the minimum preferential dividends, holders of preferred
shares would be entitled to an additional dividend amount per share in the same
amount per share paid to holders of common shares. Holders of preferred shares also
participate equally with common shareholders in share capital increases derived from the
incorporation of reserves and profits.
Brazilian Corporate Law, however, permits a publicly held company such as ours to
suspend the mandatory distribution of dividends in case our Board of Directors and our
Fiscal Council report to the annual general shareholders’ meeting that the distribution
would not be advisable due to the company’s financial condition. In this case, our Board
of Directors must file an explanation for suspending the distribution of dividends with
the CVM. Profits not distributed due to such a suspension must be allocated to a special
reserve and, if not absorbed by subsequent losses, must be distributed as soon as our
financial condition allows for such payments.
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Allocation of net income
At each annual general shareholders’ meeting, our Board
of Directors and Board of Executive Officers are required to
recommend how to allocate net income for the preceding
fiscal year. Under Brazilian Corporate Law, net income
is obtained after deducting statutory holdings of the
employees, managers and beneficiary parties.
In accordance with Brazilian Corporate Law, an amount
equal to our net profits, as further reduced by amounts
allocated to the legal reserve, to the fiscal incentive
investment reserve, to the contingency reserve or to the
unrealized income reserve established by us in compliance
with applicable law (discussed below) and increased by
reversals of reserves constituted in prior years, is available
for distribution to shareholders in any given year. After
the distribution of preferred dividends, a percentage of
net income may be allocated to a contingency reserve for
anticipated losses that are deemed probable for future
a given year, this excess may be allocated to an unrealized
revenue reserve. Brazilian Corporate Law defines realized net
income as the amount of net income that exceeds the sum of
the net positive result of equity adjustments and profits or
revenues from operations whose financial results take place
after the end of the next succeeding fiscal year. As long as
we are able to make the minimum mandatory distribution
described below, we must allocate an amount equivalent to
0.5% of subscribed and fully paid-in capital at year-end to
a statutory reserve. The reserve is used to fund the costs
of research and technological development programs. The
accumulated balance of this reserve cannot exceed 5% of the
subscribed and fully paid-in capital stock.
Brazilian Corporate Law also provides for the retention of
profits, which cannot be approved in the event there is
mandatory dividend distribution, and must be in accordance
with the terms of our capital budget previously approved by
the shareholders’ meeting.
years. Any amount so allocated in a prior year must be either
A portion of our net income that exceeds the minimum
(i) reversed in the fiscal year in which the reasons justifying
mandatory distribution may be allocated to fund working
the reserve cease to exist, or (ii) written off in the event that
capital needs and investment projects, as long as such
the anticipated loss occurs.
A portion of the net income from donations or government
grants for investments may also be allocated to the creation
of a tax incentive reserve.
If the mandatory distribution amount, determined without
deducting the amount of unrealized profits from its
calculation basis, exceeds the sum of realized net income in
allocation is based on a capital budget previously approved
by our shareholders. Capital budgets for more than one year
must be reviewed at each annual shareholder meeting.
The creation of statutory reserves and the retention
of profits cannot be approved to the detriment of the
mandatory dividend.
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Additional information for
foreign shareholders
Foreign investors may trade their shares directly on the B3
Non-Brazilian Holders on B3
(non-Brazilian holders) or through ADSs on the NYSE. There
are no restrictions on ownership of our common or preferred
shares in Brazil by individuals or legal entities domiciled
outside Brazil and all of them are entitled to the rights and
preferences of our common or preferred shares, as the
case may be.
The ability to convert dividend payments and proceeds from
the sale of common or preferred shares or preemptive rights
into foreign currency and to remit such amounts outside
Under CMN Resolution No. 4,373, foreign investors may
invest in almost all financial assets and engage in almost all
transactions available in the Brazilian financial and capital
markets, provided that certain requirements are fulfilled.
Therefore, a foreign investor must:
(i) appoint at least one representative in Brazil, with powers
to perform actions relating to the investor’s investment;
(ii) register as a foreign investor with the CVM;
Brazil is subject to restrictions under foreign investment
(iii) appoint at least one authorized custodian in Brazil for the
legislation (Brazilian foreign exchange controls). However, if
investor’s investments;
foreign investors are registered with the CVM, in accordance
with CMN Resolution No. 4,373, they may use the dividend
payments and proceeds from the sale of shares to buy
and sell securities directly on the B3, which generally
requires, among other steps, the registration of the relevant
investment with the Central Bank of Brazil. Nonetheless,
(iv) register all portfolio investments of the foreign investor
in Brazil, through the investor’s representative, with the
Central Bank of Brazil; and
(v) comply with other requirements provided for under CVM
Instruction No. 560/15.
any non-Brazilian holder who registers with the CVM in
After the fulfillment of these requirements, the foreign
accordance with CMN Resolution No. 4,373 may buy and sell
investor will be able to trade in the Brazilian financial and
securities directly on the B3. Such non-Brazilian holders
capital markets.
must appoint a local representative in Brazil who will be
required, among other duties, to register and keep updated
with the Central Bank of Brazil the record of all transactions
of such investors on the B3.
Securities and other financial assets held by investors under
CMN Resolution No. 4,373 must be registered or maintained
in deposit accounts or under the custody of an entity duly
licensed by the Central Bank of Brazil or the CVM. In addition,
The right to convert dividend payments and proceeds from
any transfer of securities held under CMN Resolution
the sale of shares into foreign currency and to remit such
No. 4,373 and CVM Instruction No. 560/15 must be carried
amounts outside Brazil may also be subject to restrictions
out in the stock exchanges or through organized over-the-
under foreign investment legislation. If any restrictions are
counter markets licensed by the CVM, except for transfers
imposed on the remittance of foreign capital abroad, they
resulting from private transactions.
could hinder or prevent the Central Depositária, as custodian
for the common and preferred shares represented by the
ADSs, or registered holders who have exchanged ADSs for
common or preferred shares, from converting dividends,
distributions or the proceeds from any sale of such common
or preferred shares, as the case may be, into U.S. dollars and
remitting the U.S. dollars abroad.
ADS Holders
CMN Resolution No. 4,373 allows Brazilian companies to
issue depositary receipts in foreign exchange markets.
We currently have an ADR program for our common and
preferred shares duly registered with the CVM and the
Central Bank of Brazil. The proceeds from the sale of
ADSs by holders outside Brazil are free of Brazilian foreign
exchange controls.
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JPMorgan is the depositary for both of our common and
to remit proceeds outside of Brazil. Additionally, the holder
preferred ADSs as of January 2, 2020. The Depositary
may be subjected to a less favorable Brazilian tax treatment
will register and deliver the ADSs, each of which currently
than a holder of ADSs. If the foreign investor resides in a tax
represents (i) two shares (or a right to receive two shares)
haven jurisdiction, the investor will also be subject to less
deposited with an agent of the Depositary acting as
favorable tax treatment.
custodian, and (ii) any other securities, cash or other
property which may be held by the Depositary. The
Depositary’s corporate trust office at which the ADSs will be
administered is located at 383 Madison Avenue, Floor 11,
New York, New York 10179, United States.
The Depositary has obtained from the Central Bank of
Brazil an electronic certificate of registration with respect
For more information, see “Risks – Risk Factors – Equity and
Debt Securities Risks” and “Legal and Tax – Taxation Relating
to Our ADSs and Common and Preferred Shares” in this
annual report.
Fees Payable by ADS holders
to our existing ADR program. Pursuant to the registration,
ADS holders are required to pay various fees to the
the custodian and the Depositary will be able to convert
Depositary, including: (i) an annual fee of US$0.05 (or less)
dividends and other distributions with respect to the relevant
per ADS for administering the ADR program, and (ii) amounts
shares represented by ADSs into foreign currency and to
in respect of expenses incurred by the Depositary or its
remit the proceeds outside Brazil.
agents on behalf of ADS holders, including expenses
In the event that an ADS holder exchanges ADSs for the
underlying common or preferred shares, the holder will be
required to obtain registration as a foreign investor in Brazil
pursuant to CMN Resolution No. 4,373 by appointing a local
representative and obtaining a certificate of registration from
the Central Bank of Brazil. Failure to take these measures
may subject the holder to the inability of converting the
proceeds from the disposition of, or distributions with
respect to, the relevant shares, into foreign currency and
arising from compliance with applicable law, taxes or other
governmental charges, facsimile transmission, or conversion
of foreign currency into U.S. dollars. In both cases, the
Depositary may decide in its sole discretion to seek payment
by directly billing investors or by deducting the applicable
amount from cash distributions. ADS holders may also be
required to pay additional fees for certain services provided
by the Depositary, as set forth in the table below.
Depositary Services
Fees Payable By Ads Holders
Issuance and delivery of ADSs, including issuances resulting
from a distribution of shares or rights or other property
US$5.00 (or less) per 100 ADSs (or portion thereof)
Distribution of dividends
US$0.03 (or less) per ADS per year
Cancellation of ADSs for the purpose of withdrawal
US$5.00 (or less) per 100 ADSs (or portion thereof)
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Fees Payable by the Depositary to Petrobras
The Depositary reimburses us for certain expenses we incur in connection with the administration and maintenance of the
ADR program. These reimbursable expenses comprise, among others, investor relations expenses, listing fees and legal fees.
Purchases of equity
securities by the
issuer and affiliated
purchasers
During the fiscal year ended December 31, 2019, neither any “affiliated purchaser,” as
defined in Rule 10b-18(a)(3) under the Exchange Act, nor we, have purchased any of
our equity securities.
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LEGAL
AND TAX
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Regulation
Segments Regulation
Exploration & Production
Under Brazilian law, the federal government owns all crude
oil and natural gas subsoil accumulations in Brazil, and
any state or privately owned company can carry out the
exploration and production of such oil and natural gas
For information related to Taxation under Concession Regime
for Oil and Gas, see item “Legal and Tax – Tax” in this annual
report.
Production-Sharing Contract Regime for Unlicensed
Pre-Salt and Potentially Strategic Areas
Discoveries of large oil and natural gas reserves in the pre-
salt areas of the Campos and Santos Basins prompted a
change in the legislation regarding oil and gas exploration
accumulations in the country. There are three different types
and production activities. In 2010, laws were enacted to
of E&P contracts: (i) Concession Regime; (ii) Production
Sharing; and (iii) Transfer of Rights.
Concession Regime
Until 1997, we were the Brazilian federal government’s
exclusive agent to carry out exploration and production of oil
and gas in Brazil.
In 1997, the Brazilian federal government established a
concession-based regulatory framework and created an
independent regulatory agency to regulate the oil, natural
gas and renewable fuel industry in Brazil, namely the
ANP. This framework and the ANP created a competitive
environment in the oil and gas sector.
regulate contracts under a production-sharing regime in the
pre-salt area, as defined under Law No. 12,351/2010 and in
potentially strategic areas. The enacted legislation did not
impact the concession contracts.
We are no longer required to be the exclusive operator of
the pre-salt areas, but prior to any bid round, the Brazilian
federal government must offer us, the right to express our
interest to exercise the preemption right to operate the
blocks under production-sharing regime with minimum
30% of participating interest. Should there be no proposal
for the areas to which we have expressed such interest that
area will not be awarded and therefore, we have no remaining
obligations. The preemption right only becomes effective
The concession-based regulatory framework granted us
in (i) cases of winning proposals above the minimum profit
the right to explore crude oil reserves in each of our already
oil, should we decide to be part of such consortium and
existing producing fields under concession contracts for
have previously expressed interest and (ii) cases in which
an initial term of 27 years from the date when they were
the winning proposal is in the minimum profit oil, then
declared commercially profitable. These are known as the
we are required to be the operator, with minimum 30% of
“Round Zero” concession agreements. This initial 27-year
participating interest, as applicable according to the relevant
period for production can be extended at the request of the
Governmental Resolution. Regardless of whether we exercise
concessionaire, subject to approval from the ANP.
our preemption right, we will also be able to participate, at
Starting in 1999, all areas that were not already subject
to concessions became available for public bidding
our discretion, in the bidding process to increase our interest
in any of the pre-salt areas.
conducted by the ANP. We participated in these biddings
The winning bidder will be the company that offers to the
both independently or through partnerships with private
Brazilian federal government the highest percentage of
companies (as operator or as non-operator, in a case-by-
“profit oil,” which is the gross revenue of the production of a
case analysis).
According to Law No. 9,478/1997, and as per our concession
agreements for exploration and production activities, we
are entitled to the oil and gas exploited from the concession
areas and we are required to distribute to the Brazilian
certain field after deduction of royalties and “cost oil,” which
is the cost associated with oil production. The royalty rate is
15% applicable to the gross production of oil and natural gas
and there is no other government fee payable to the Brazilian
federal government.
federal government a portion of the corresponding
The production-sharing contracts are executed by and
proceeds.
between the private companies that are winning bidders,
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the state-owned non-operating company PPSA, which
Agreement that was submitted to the TCU for analysis, by
represents the interests of the Brazilian federal government
recommendation of the MME.
in the production-sharing contracts and manages the
Brazilian federal government’s share of the profit oil, and the
ANP. The PPSA participates in operational committees, with a
casting vote and veto powers and manages and controls the
relevant costs, all of it according to each specific production-
sharing contract.
Transfer of Rights (Cessão Onerosa)
In 2019, the amendment to the Transfer of Rights Agreement
was approved by us, the TCU and the National Council for
Energy Policy.
The amendment consolidates one of several scenarios
discussed among the Brazilian federal government and our
comissions, and resulted in a credit of US$9,058 billion in our
favor, that was fully paid in December 2019. Additionaly, the
In 2010, we entered into an agreement with the Brazilian
amendment establishes new percentages for local content:
federal government, under which the government assigned
25% for well construction; 40% for production collection and
to us the right to conduct activities for the exploration and
disposal system; and 25% for stationary production unit. For
production of oil, natural gas and other fluid hydrocarbons in
information related to the new taxation model for the oil and
specified pre-salt areas, subject to a maximum production of
gas industry (“REPETRO”) see “Legal and Tax – Tax” in this
five bnboe. The initial contract price for our rights under the
annual report.
Transfer of Rights Agreement was R$74,808 million, which
was equivalent to US$18,560 as of December 31, 2019. See
“Material Contracts” in this annual report.
Both Law No. 12,276/2010 (the “Transfer of Rights Law”)
and the Transfer of Rights Agreement provide for a review
procedure. The main purpose of the review procedure is
to verify whether the price paid to the Brazilian federal
government by us in 2010 was appropriate in relation to the
price for granting us the rights to explore and produce five
billion barrels of oil equivalent in certain pre-salt areas.
According to the Transfer of Rights Agreement, the
review must be based on technical reports prepared by
independent certifying entities to be contracted by the
ANP and the assignee, which shall consider the best
practices of the oil industry, including the following items:
(a) information contained in the final report of the
mandatory exploration program (as such term is defined in
the Transfer of Rights Agreement); (b) the market prices of
Refining, Transportation and Marketing
Regarding oil refining, the ANP requires specific
authorization for the construction and operation of each
of the process units, product treatment units and ancillary
units of an oil refinery. The byproducts commercialization
is subject to compliance with the specifications established
by the ANP for each product (e.g. gasoline, diesel, jet fuel,
liquefied petroleum gas).
The ANP requires information on import, export, production,
processing, handling, transportation and transfer, storage
and distribution of oil, oil products, natural gas products and
shale products activities on a monthly basis.
Since 2013, the ANP requires oil product producers
(refineries and other agents) and fuel distributors to ensure
minimum inventories of gasoline and diesel. In 2015, the
ANP established the same obligation for producers of LPG
and jet fuel.
oil and natural gas; and (c) specification of the product being
The ANP also requires that refineries and importers of oil
produced. In addition, as provided in the Transfer of Rights
byproducts publicly release their price lists electronically
Agreement, the review must follow the assumptions set
(standard prices) as well as the prices for the previous 12
forth in such agreement.
An internal committee to negotiate the revision of the
Transfer of Rights Agreement with representatives of the
months, with a description of the specific commercial terms
for: (i) regular and premium gasoline; (ii) diesel oil and marine
diesel; (iii) jet fuel; (iv) LPG; (v) fuel oil; and (vi) asphalt.
Brazilian federal government (i.e. representatives of the
Failure to comply with the ANP rules can lead to a range
MME, the Ministry of Finance, and the ANP) was created. The
of fines and penalties, including the revocation of the
negotiations resulted in a revision of the Transfer of Rights
authorization.
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In December 2016, the Brazilian federal government
Gas Law created a concession regime for the construction
launched the “RenovaBio” program to stimulate the
and operation of new pipelines to transport natural gas of
production of biofuels in the local market, namely ethanol,
general interest, while maintaining an authorization regime
biodiesel, biogas and biojet fuel. In June 2019, the CNPE
for pipelines subject to international agreements. According
fixed the mandatory annual reduction of carbon emission
to the Gas Law, after a certain exclusivity period, operators
targets and the ANP established (i) the individualization of
will be required to grant access to transport pipelines and
the annual mandatory greenhouse gas emission reduction
maritime terminals, except for LNG terminals, to third parties
targets for the commercialization of fuels (Resolution No.
in order to maximize utilization of capacity.
791/2019) and (ii) the procedures for the primary emission
of carbon emission reduction credits (Resolution No.
802/2019).
The Gas Law authorized the ANP to regulate prices for the
use of gas transport pipelines subject to the new concession
regime and to approve prices submitted by carriers, according
In June 2017, the CNPE established strategic guidelines
to previously established criteria, for the use of new gas
for the development of the local market for fuels, other oil
transport pipelines subject to the authorization regime.
byproducts and biofuels. As part of the guidelines, the MME
launched the “Abastece Brasil” program on April 24, 2019,
which aims to develop Brazil’s local fuel market, promote
competition in the sector, diversification of players, new
investments in refining and logistics, and combating tax
evasion and adulteration of fuels.
Authorizations previously issued by the ANP for natural
gas transport will remain valid for 30 years from the date of
publication of the Gas Law, and initial carriers were granted
exclusivity in these pipelines for 10 years. All pipelines
currently operated in Brazil are subject to an authorization
regime. The ANP will issue regulations governing third-party
Our oil and natural gas refining area is also subject to the
access and carrier compensation if no agreement is reached
preventive and stringent control of CADE.
between the parties.
In June 2019, we signed a commitment with CADE (termo de
The Gas Law also authorized certain consumers, who can
cessação de conduta) which consolidates the understanding
purchase natural gas on the open market or obtain their
between the parties on the execution of divestment of
own supplies of natural gas, to construct facilities and
refining assets in Brazil. The purpose of the agreement
pipelines for their own use in the event local gas distributors
is to provide competitive conditions, encouraging new
controlled by the states, which have monopoly over local
economic agents to enter the downstream market, as well
gas distribution, do not meet their distribution needs.
as suspending the administrative investigation opened by
These consumers are required to delegate the operation
CADE court to investigate alleged abuse of our dominant
and maintenance of the facilities and pipelines to local gas
position in the refining segment. The agreement considers
distributors, but they are not required to sign gas supply
the divestment of approximately 50% of our refining
agreements with the local gas distributors.
capacity.
In December 2010, Decree No. 7,382 was enacted in order to
For more information on our agreement with CADE,
regulate Chapters I to VI and VIII of the Gas Law as it relates
see “Portfolio Management” and “Risks – Risk Factors –
to activities in the gas industry, including transportation
Emerging Risks” in this annual report.
and commercialization. Since the publication of this decree,
Gas and Power
Natural Gas Law of 2009
a number of administrative regulations were enacted by
the ANP and the MME in order to regulate various issues
related to the Gas Law and Decree No. 7,382 that needed
In March 2009, the Brazilian Congress enacted Law
to be further clarified. Among those is ANP Resolution
No. 11,909, or “Gas Law”, regulating activities in the
No. 51/2013, which prevents a carrier from holding any
gas industry, including transport, processing, storage,
relevant equity interest in companies holding concessions
liquefaction, regasification and commercialization. The
for gas transport pipelines. Resolution No. 51/2013 applies
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only to the concessions granted after its publication, not
enter this market, as well as suspending administrative
affecting, therefore, the transportation of our natural gas
procedures established by CADE to investigate our natural
production through pipelines operated by TBG and subject
gas business.
to the previous authorization regime.
There is also a pending bill that intents to modify the Gas
Another important resolution is ANP Resolution
Law (Bill No. 6,407/2013), which includes proposals that have
No. 52/2011, which (i) establishes that ANP is responsible for
been discussed in the context of the Gas to Grow and New
authorizing the activity of commercialization of natural gas,
Gas Market programs. If the bill is approved, it will result in
within the competence of the Brazilian federal government;
important changes in the natural gas market, including the
(ii) regulates the registration of the gas seller agent; and
exploitation regime of natural gas transport activities.
(iii) regulates the registration of gas sales and purchase
For more information on our agreement with CADE,
agreements. This resolution was modified in July 2019 by
see “Portfolio Management” and “Risks – Risk Factors –
Resolution No. 794/2019, which requires the publication, by
Emerging Risks” in this annual report.
the ANP, of all natural gas sales and purchase agreements
signed with local gas distributors to attend captive markets.
In June 2016, the MME created the program Gas to Grow,
or Gás para Crescer, which aims to promote a competitive
market environment to achieve the effective development of
gas trading in Brazil, enabling the entry of new agents into
the gas market.
In December 2018, Decree No. 9,616 amended Decree
No. 7,382/2010 to allow the change of gas transmission
system from capacity hired under the point-to-point system
on long-term contracts to an entry-exit system. More
recently, in June 2019, the CNPE established guidelines for
promoting competition in the natural gas market, and in July
2019, the New Gas Market program, or Novo Mercado de Gás,
Price Regulation
Until 1997, the Brazilian federal government had the power
to regulate all aspects of the pricing of crude oil, oil products,
ethanol, natural gas, electric power and other energy sources.
In 2002, the Brazilian federal government eliminated price
controls for crude oil and oil products, although it retained
regulation over certain existing natural gas sales agreements
and electricity agreements (specifically the electric power
trade contracts in the regulated market – CCEAR).
For information on our price policy, see “Our Business –
Refining, Transportation and Marketing” in this annual report.
was created and Decree No. 9,934 was signed. This decree
Environmental Regulation
establishes a committee that monitors the implementation
of the actions required for the entry of new agents into the
natural gas market.
All phases of the crude oil and natural gas business present
environmental risks and hazards. Our facilities in Brazil
are subject to a wide range of federal, state and local
Also, in July 2019, we signed an agreement with CADE
laws, regulations and permit requirements relating to the
(termo de compromisso de cessação), which consolidates
protection of human health and the environment, and they
understandings between the parties on the promotion
fall under the regulatory authority of CONAMA.
of competition in the natural gas industry in Brazil. This
agreement includes the sale of shareholdings in gas
Our offshore activities are subject to the administrative
authority of IBAMA, which issues operating and drilling
transportation and distribution companies and, among other
licenses. We are required to submit reports, including
matters, establishes measures to release capacity in gas
safety and pollution monitoring reports to IBAMA in order
transportation pipelines and includes our commitment to
to maintain our licenses. This way, we maintain an ongoing
negotiate, in good faith, third party access to our processing
communication channel with the environmental bodies, in
plants. The purpose of the agreement is to preserve and
order to improve issues connected with the environmental
protect the competitive conditions, aiming to open the
management of our exploration, production and refining
Brazilian natural gas market, encouraging new agents to
processes of oil and natural gas. In 2018, we designed
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actions and measures, together with IBAMA, to adjust
Following the review by these governmental authorities, the
the disposal of water produced in some of our offshore
Brazilian Congress must approve our budget. Thus, there
platforms in order to accommodate recently issued
may be a reduction or change in our planned investments.
requirements by IBAMA. All of these actions are being met by
As a result, we may not be able to implement all of our
us within the schedules defined with IBAMA.
planned investments, including those related to the
In addition, in order to help ensuring the safety of
navigation, the Brazilian maritime authority also works
towards the prevention of environmental pollution, with
expansion and development of our oil and natural gas fields,
which may adversely affect our results of operation and
financial condition.
random or periodic surveys of offshore units.
All medium and long-term debt incurred by us or our
Most of the onshore environmental, health and safety
conditions are controlled either at the federal or the state
level depending on where our facilities are located and
the type of activity under development. However, it is also
subsidiaries requires the approval of our Board of Executive
Officers, within the parameters established by our Board
of Directors, except for the issuance of debentures, which
requires the approval of our Board of Directors.
possible for these conditions to be controlled on a local
In addition, Law No. 13,303/16 requires us to define in our
basis whenever the activities generate a local impact or are
Bylaws the public interest we pursue and which publicly-
established in a county conservation unit. Under Brazilian
oriented actions we are allowed to take in the pursuit of such
law, there is strict and joint liability for environmental
public interest. In order to comply with Law No. 13,303/16,
damage, mechanisms for enforcement of environmental
we amended our Bylaws to include the definition of public
standards and licensing requirements for polluting activities.
interest and to state that the Brazilian federal government
Individuals or entities whose conduct or activities cause
harm to the environment are subject to criminal, civil and
administrative sanctions. Government environmental
may orient our activities to pursue the public interest under
certain circumstances, which distinguishes us from any other
private company operating in the oil and gas market.
protection agencies may also impose administrative
More specifically, the Brazilian federal government
sanctions for noncompliance with environmental laws and
may guide us to take publicly-oriented obligations or
regulations, including:
❚ fines;
❚ partial or total suspension of activities;
❚ requirements to fund reclamation and environmental
projects;
❚ forfeiture or restriction of tax incentives or benefits;
❚ closing of establishments or operations; and
❚ forfeiture or suspension of participation in credit lines with
official credit establishments.
For more information see, Notes 12 and 31 to our audited
consolidated financial statements.
Government Regulation
responsibilities, including executing investment projects and
undertaking certain operating costs, when two conditions
are met: (i) the undertaking of obligations or responsibilities
must be defined by law or regulation and provided for in a
contract or agreement entered into with any public entity
with powers to negotiate such contract or agreement; and (ii)
the investment projects must have their cost and revenues
broken down and disclosed in a transparent manner.
Our financial committee and our minority committee,
exercising their advisory role to our Board of Directors,
are in charge of evaluating whether the obligations and
responsibilities undertaken by us, in connection with the
pursuit of the public interest, are different from those of any
other private company operating in the oil and gas market.
As a federal state-owned company, we are subject to certain
The evaluation by our committees is based on certain
rules that limit our investments, and we are required to
technical and economic aspects of the planned investment
submit our annual capital expenditures budget (Orçamento
projects and on the analysis of certain operating costs
Anual de Investimentos, or OAI) to the ME and the MME.
previously adopted by our management.
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Material Contracts
Production-Sharing Agreements
(Contratos de Partilha de Produção)
First Production Sharing Agreement – 1st Production Sharing Bidding Round
In 2013, a consortium formed by us (with a 40% interest), Shell (with a 20% interest), Total S.A (with a 20% interest),
CNODC Brasil Petróleo e Gás Ltda. (with a 10% interest) and CNOOC Petroleum Brasil Ltda. (with a 10% interest) (the “Libra
Consortium”), entered into a production sharing agreement with the Brazilian federal government, which holds 41.65% of
the Libra Consortium’s profit oil, the ANP, as regulator and supervisor, and PPSA, as manager (the “First Production Sharing
Agreement”). Under the First Production Sharing Agreement, the Libra Consortium was awarded the rights and obligations
to operate and explore a strategic pre-salt area known as Libra block, located in the ultra-deepwaters of the Santos Basin. For
further information on the Production Sharing Agreement, see Exhibit 2.27 to this annual report.
Second and Third Production Sharing Agreements – 2nd and 3rd Production Sharing Bidding Rounds
In 2017, we acquired, in partnership with other international oil companies, three offshore blocks in the 2nd and 3rd bidding rounds
under the production sharing system held by the ANP. We are the operator of these blocks (“Second and Third Production
Sharing Agreements”). In January 2018, together with our partners, the ANP, PPSA and the Brazilian federal government, we
signed the Second and Third Production Sharing Agreements for exploration and production of oil and natural gas.
Under the production sharing system, the consortium submits to the government a percentage of the so-called “surplus in oil
profit for the Brazilian federal government,” which is applied to revenue discounted of the production costs and royalties. The
only criteria adopted by the ANP to define the winning bidder was the amount of profit oil to the Brazilian federal government,
since the bidding rules provided for the fixed value of the signing bonus, the minimum exploratory program and the local
content commitments.
The following table summarizes the blocks we acquired, in partnership, in the 2nd and 3rd bidding rounds as part of the
production sharing system:
Area
Entorno de Sapinhoá
Peroba
Alto de Cabo Frio Central
Consortium
composition
Petrobras Bonus
(R$ million)
Surplus
in profit oil (%)
Petrobras (45%)
Shell (30%)
Repsol Sinopec (25%)
Petrobras (40%)
BP (40%)
CNODC (20%)
Petrobras (50%)
BP (50%)
90
800
250
80.00
76.96
75.86
Fourth and Fifth Production Sharing Agreements – 4th and 5th Production Sharing Bidding Rounds
On June, 7, 2018, we acquired, together with other international companies, three offshore blocks: (i) Dois Irmãos, (ii)
Três Marias and (iii) Uirapuru (“Fourth Production Sharing Agreements”) and, together with the First Production Sharing
Agreement, and the Second and Third Production Sharing Agreements, the “Production Sharing Agreements”). We will be the
operator of these three blocks under the production sharing regime. According to the regime, the consortium submits to the
Brazilian federal government a percentage of the “surplus in oil profit for the Brazilian federal government.” Again, the only
criteria adopted by the ANP to define the winning bidder was the amount of oil profit to the Brazilian federal government.
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The bidding rules established the fixed value of the signing
will be entitled to recover, on a monthly basis, (i) a portion
bonus, the minimum exploratory program, and the local
of the production of oil and gas in the block corresponding
content commitments.
On September 28, 2018, we acquired the block Sudoeste
de Tartaruga Verde under the production sharing regime
and, as a result, we will be the operator of the corresponding
agreement.
Sixth and Transfer of Rights Surplus Production
Sharing Agreements – 6th and ToR Surplus
Production Sharing Bidding Rounds
On November 6, 2019, we acquired, together with other
international companies, the Buzios block, and with 100% of
participation, the Itapu block.
to its royalty expenses and (ii) the “cost oil” corresponding
to costs incurred (which is the amount associated with
capital expenditures incurred and operating costs of the
consortium’s exploration and production activities), subject
to the conditions, proportions and terms set forth on the
Production Sharing Agreements. In addition, for each
commercial discovery, the consortia are entitled to receive,
on a monthly basis, their share of “profit oil” as defined
under the Production Sharing Agreements.
Duration:
The term of the Production Sharing Agreements is 35 years.
On November 7, 2019, we acquired, together with other
Phases:
international company, the Aram block, and we will be the
Our activities under the Production Sharing Agreements are
operator of such block.
divided into two phases, as follows:
We will be the operator of these blocks under the
(i) Exploration phase. This phase comprises appraisal
production-sharing regime. According to the relevant
activities for purposes of determining the commerciality of
production-sharing contracts, the appointed operator,
any discoveries of crude oil and natural gas. The exploration
on behalf of the parties, offers to the Brazilian federal
phase began upon the execution of the Production Sharing
government a percentage of the “surplus in oil profit for the
Agreements and will end for each discovery upon the
Brazilian federal government.” The only criteria adopted
declaration of commerciality. We will have four years (which
by the ANP to define the winning bidder was the amount
may be extended upon ANP’s prior approval) to comply
of oil profit to the Brazilian federal government too, since
with the minimum work program and other ANP-approved
the bidding rules provided for the fixed value of the signing
activities provided for in the Production Sharing Agreements.
bonus, the minimum exploratory program and the local
content commitments.
Basic Terms:
Operating Committee. The PSA Consortia are managed
by an operating committee in which we, our partners and
PPSA all participate. PPSA represents the interests of the
Brazilian federal government and although it will not invest
(ii) Production Phase. The production phase for each
particular discovery begins as of the date of the declaration
of commerciality by the consortia to the ANP, and lasts until
the termination of the Production Sharing Agreements. It
comprises a development period, during which we will carry
out activities pursuant to a development plan approved
by the ANP.
in the blocks, PPSA holds 50% of the operating committee
Minimum Work Program:
voting rights and also has a casting vote and veto powers, as
defined in the Production Sharing Agreements.
During the exploration phase, we are required to undertake
a minimum work program, as specified in the Production
Risks, Costs and Compensation. All exploration, development
Sharing Agreements. We may perform other activities
and production activities under the Production Sharing
outside the scope of the minimum work program, provided
Agreements will be conducted at the expense and risk of the
that such activities are approved by the ANP.
members of the consortium. For commercial discoveries of
crude oil and/or natural gas in the blocks, the consortium
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Unitization:
A reservoir covered by a block granted to us in the
to comply with the Brazilian content obligations, we may be
subject to fines imposed by the ANP.
Production Sharing Agreements may extend to adjacent
The original Libra’s Production Sharing Agreement
areas outside the block. In such case, we must notify the
(“Production Sharing Bidding Round 1”) gave the Libra’s
ANP immediately after identifying the extension and we will
consortium the right to waive the local content obligations
be prevented from performing development and production
in terms of technology, price and schedule. This right was
activities within such block, until we have negotiated
used once, and the ANP conceded waiver to the hull items
unitization agreement with the third-party concessionaire
and certain items of the process plants. By Resolution No
or contractor who has rights over such adjacent area, unless
726/2018, the ANP gave Libra consortium the possibility of
otherwise authorized by the ANP. The ANP will determine the
changing the local content requirements to lower levels, but
deadline for the execution of unitization agreement by the
the possibility of waiver was excluded.
parties. If the adjacent area is not licensed (i.e., not granted
for E&P activities to any other party), the Brazilian federal
government, represented by PPSA or by the ANP, shall
negotiate with us.
On the Production Sharing Bidding Round 2, the fields bid
on had the same local content requirements of their adjacent
fields contracts, according to the CNPE Resolution No
7/2017. Such resolution established new local content levels
If the parties are unable to reach an agreement within a
for the Production Sharing Agreements, and the Bidding
deadline established by the ANP, the ANP will determine
Rounds 3, 4, 5 and 6 used those levels.
the terms and obligations related to such unitization,
on the basis of an expert report, and will also notify us
and the third-party or the Brazilian federal government
representative, as applicable, of such determination.
Until the unitization agreement is approved by the ANP,
operations for the development and production of such
reservoir must remain suspended, unless otherwise
authorized by the ANP. The refusal of any party to execute
the unitization agreement will result in the termination of
the Production Sharing Agreements and the return to the
Brazilian federal government of the area subject to the
unitization process.
Environmental:
Royalties and Expenses with Research and
Development:
Once we begin production in each field, members of the
consortia (other than PPSA) will be required to pay monthly
royalties of 15% of the oil and natural gas production, to be
recovered from a portion of the production of oil and gas in
the block. All members of the consortia (other than PPSA)
will also be required to invest 1.0% of their annual gross
revenues from crude oil and natural gas production under the
Production Sharing Agreements in research and development
activities related to the oil, gas and biofuel sectors.
Miscellaneous Provisions:
We are required to preserve the environment and protect
Under the Brazilian production-sharing regime, we
the ecosystem in the area subject to the Production Sharing
can assign our rights and obligations inherent to our
Agreements and to avoid harming local fauna, flora and
participation above 30% in the areas in which we exercised
natural resources. We will be liable for damages to the
our preemptive right to be the operator.
environment resulting from our operations, including costs
related to any remediation measures.
Brazilian Content:
The Production Sharing Agreements specify certain
All members of the consortia (other than PPSA) have a right
of first refusal with respect to an eventual assignment of
rights and obligations to be made by any other member of
the consortium (other than PPSA).
equipment, goods and services, as well as different levels
The Production Sharing Agreements shall be terminated
of required local content, in accordance with the different
in the following circumstances: (i) the expiration of their
phases under the Production Sharing Agreements. If we fail
terms; (ii) if the minimum work program has not been
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completed by the end of the exploration phase; (iii) if there
administration entities, it may be submitted to conciliation
has not been any commercial discovery by the end of the
service of the Câmara de Conciliação e Arbitragem da
exploration phase; (iv) if the consortium members (other
Administração Federal, or CCAF, under the AGU. In the event
than PPSA) exercise their withdrawal rights during the
of a dispute involving non-negotiable rights, the parties shall
exploration phase; (v) if the consortium refuses to execute a
submit the dispute to the federal courts in Brasília, Brazil.
production individualization agreement after the ANP makes
such determination (which termination may be complete or
partial) and (vi) any other basis described in the Production
Sharing Agreements.
Any breach of the Production Sharing Agreements or of
any regulations issued by the ANP may result in sanctions
and fines imposed by the ANP on the relevant party, in
The Production Sharing Agreements are governed by
Brazilian law.
Amendment to Transfer of Rights Agreement
The Transfer of Rights Agreement was executed in 2010. Its
amendment was approved in 2019 by the TCU and the CNPE
and our governing bodies.
accordance with applicable legislation and the terms of
The parties involved discussed several scenarios about
the Production Sharing Agreements. If any breach of
the revision of the original agreement, as both of them
the Production Sharing Agreements is considered by
could be simultaneously creditor and/or debtor. The
the Brazilian federal government not to be significant,
amendment consolidates one such scenario, resulting in a
intentional, or a result of negligence, imprudence or
credit of US$9,058 billion in our favor, which was fully paid in
recklessness, or it is proved that the consortium has
December 2019.
worked diligently to cure such breach, the Brazilian federal
government may, instead of terminating the Production
Sharing Agreements, propose that the ANP apply designated
sanctions on the relevant parties.
In addition to such credit, the main changes as a result of
the amendment to the Transfer of Rights Agreement were
(i) the local content clauses that lowered the local content
requirements for the production phase (development and
We and other consortium members will use our best
production stages) and (ii) the conflict resolution rules
efforts to settle any disputes. If we are unable to do so,
that became similar to the rules of the Production Sharing
any consortium member may submit such dispute or
Agreements of the latest ANP bid rounds.
controversy to an ad hoc arbitration following the rules
established by the UNCITRAL, or by the consent of the
parties in interest, to the ICC, or any other well-regarded
arbitration chamber. If a dispute involves only public
For more information concerning our other material
contracts, see “Our Business” and “Operating and Financial
Review and Prospects” in this annual report.
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Legal Proceedings
We are currently party to numerous legal proceedings
million in 2018, US$252 million in 2017, US$131 million in
relating to civil, administrative, tax, labor, criminal,
2016 and US$72 million in 2015).
environmental and corporate issues arising in the normal
course of our business. These proceedings involve claims for
substantial amounts of money and other remedies. Several
individual disputes account for a significant part of the
total amount of claims against us. Our audited consolidated
For further information regarding the Lava Jato and its
impacts on us, see Note 21 to our audited consolidated
financial statements.
financial statements only include provisions for probable and
Investigations Carried out by Authorities
reasonably estimable losses and expenses we may incur in
connection with pending proceedings.
Some of our main legal proceedings are listed below.
Lava Jato Investigation
In 2009, the Brazilian federal police began an investigation
U.S.: SEC, DoJ and the US Commodity Futures
Trading Commission (“CFTC”)
Because our ADRs are traded on the NYSE, we are subject to
the SEC and DoJ regulations. In 2014, SEC and DoJ initiated
investigations in connection with the facts disclosed in
connection with the Lava Jato. We have fully cooperated
aimed at criminal organizations engaged in money
with their investigations.
laundering in several Brazilian states, known as “Car wash”
In September 2018, we entered into agreements with the
operation (“Lava Jato”). The Lava Jato investigation is
SEC and the DoJ related to our internal controls, accounting
extremely broad and comprises numerous investigations
records and financial statements for the period 2003 to
into several criminal practices, spanning crimes and conduct
2012, which fully resolved their respective investigations.
committed by individuals in different parts of the country
Under the terms of these agreements, we paid US$85.3
and different sectors of the Brazilian economy. In 2014,
million to the DoJ, US$85.3 million to the SEC and US$682.6
the Lava Jato started to focus part of its investigation on
million to Brazilian authorities. In addition, we also entered
irregularities involving our contractors and suppliers, and
into an agreement with the Brazilian Federal Prosecutor’s
uncovered a broad payment scheme that involved a wide
Office, the Commitments’ Assumption Agreement, in order
range of participants, including our former personnel. It is
to regulate how the amount would be used in Brazil. The
possible that further information damaging to us and our
amount of US$682.6 million was deposited by us in Brazil, in
interests will come to light in the course of the ongoing
January 2019.
investigations of corruption by Brazilian authorities.
In our agreements with them, the DoJ and SEC recognize
We are not a target of the Lava Jato investigation and we
improvements to our compliance program, internal controls
are formally recognized, by the Brazilian authorities, as a
and anti-corruption procedures. We have committed to
victim of the improper payments scheme. We will continue to
continue evaluating and improving these and other efforts.
pursue legal measures against companies and individuals,
The resolution of the SEC and DoJ investigations meets our
including former employees and politicians, who have caused
best interests and the best interests of our shareholders,
financial and image damages to us. We have been working
and eliminates uncertainties, risks, burdens and costs of
together with the Brazilian Federal Prosecutor’s Office, the
potential litigations in the United States.
Brazilian federal police, the Federal Revenue Services and
other competent authorities since the beginning of the
investigation. The total amount of restitution paid to us
since the beginning of the Lava Jato through December 31,
2019 was US$1,132 million (US$220 million in 2019, US$457
In May 2019, the CFTC contacted us with an inquiry
regarding trading activities related to the Lava Jato. We
reiterate that we will continue to cooperate with regulatory
authorities, including the CFTC, regarding any inquiry,
reinforcing our commitment to integrity and transparency.
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In September 2019, the Commitment Assumption
The settlement of this class action does not constitute an
Agreement was abrogated by the Brazilian federal Supreme
admission of guilt or of improper practices by Petrobras,
Court (“STF”). The new allocation of the amount paid by
which has been recognized by the Brazilian authorities
us is described in the “Allocation Agreement” between
as a victim of the events revealed through the Lava Jato
the Brazilian Attorney General’s Office and the Presidency
investigation.
of the Chamber of Deputies, with the intervention of the
Presidency of the Federal Senate and the Attorney General
of the National Treasury, which was approved by the STF and
which negotiation was not attended by us.
Brazil: Prosecutor’s Office
Netherlands: Collective action in the Netherlands
In 2017, the Stitching Petrobras Compensation Foundation
(“Foundation”) filed a collective action before the district
court in Rotterdam, in the Netherlands, against us and our
subsidiaries PIBBV and PGF, joint venture PO&G and some of
In 2015, the state of São Paulo Prosecutor’s Office
our former officers.
established a civil proceeding to investigate the existence
of potential damages caused by us to investors listed in
the Brazilian stock market. However, the Brazilian Federal
Prosecutor’s Office assessed this civil proceeding and
determined that the São Paulo Public Prosecutor’s Office
has no authority over this matter, which must be presided
over by the Brazilian Federal Prosecutor’s Office. We have
provided all relevant information required by the authorities.
Petrobras’ Investor Claims
USA: Class Action
At the end of 2017, we signed an agreement to settle the
consolidated securities class action that had been filed
against us and certain other defendants in connection
with facts relating to Lava Jato. Under this settlement, we
In the collective claim the Foundation allegedly represents
the interests of an unidentified group of investors and
alleges that as a result of the facts uncovered by the Lava
Jato, the defendants acted unlawfully toward investors.
In January 2020, the court considered that shareholders
who understand Portuguese and/or who bought shares
through intermediaries or other agents that understand
such language, among others, are bound by the arbitration
clause of our Bylaws, and cannot be party to the collective
action filed by the Foundation. The court also considered
the binding effect of the US class settlement. In light of this,
the Foundation must establish that it represents a sufficient
group of investors to justify the continuance of a collective
claim in the Netherlands.
(together with our subsidiary PGF) agreed to pay US$2,950
The Foundation only seeks declaratory reliefs from the
million to resolve the claims in three installments of US$983
Dutch court, and is not able to demand compensation for
million, in March, 2018, US$983 million, in June, 2018, and
damages. Compensation for the alleged damages will only
a further installment of US$984 million, in January 2019.
be determined by court rulings if subsequent complaints are
Accordingly, we charged US$3,449 million to our statement
filed by individual investors.
of income for the last quarter of 2017 as other income and
expenses, taking into account the gross up of tax related to
our portion of the settlement.
At this current stage, due to substantial uncertainties
inherent to this kind of proceedings and the highly uncertain
impacts of such allegations, it is not possible for us to
Certain objectors appealed the District Court’s June 22, 2018
identify possible risks related to this action and to produce a
decision to approve the class action settlement.
reliable estimate of eventual loss.
On August 30, 2019, the United States Court of Appeals for the
Moreover, currently, it is not possible to determine
Second Circuit affirmed that decision. As of September 6, 2019,
if investors will be able to file subsequent individual
the settlement is no longer appealable and is therefore final.
complaints against us and if we will be found responsible for
On September 24, 2019, the District Court authorized the
distribution of the settlement funds to investors who presented
eligible claims to the court-approved claims administrator.
the payment of compensation, as this assessment depends
on the outcome of this action.
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We, along with our subsidiaries, deny the allegations
Among other issues, the Association alleged our liability for
presented by the Foundation and intend to defend ourselves
a supposed loss of market value of our shares in Argentina,
vigorously. We are a victim of the corruption scheme
due to proceedings related to the Lava Jato.
uncovered by the Lava Jato and aim to present and prove
this before the Dutch court.
Other Related Investor Claims
Arbitration in Brazil
We are also currently a party to five arbitration proceedings
brought by Brazilian and foreign investors that purchased
our shares traded on the B3, alleging financial losses caused
by facts uncovered in the Lava Jato.
Due to substantial uncertainties inherent to these kinds
of proceedings and the highly uncertain impacts of such
In June 2019, the Arbitral Tribunal decided that the arbitral
claim should be considered withdrawn due to the lack
of payment of the arbitral fee by the Association. The
Association has filed appeals that were rejected by the
court of appeals on November 20, 2019. The Association
has appealed to the Argentinian Supreme Court, and a final
decision is still pending.
Criminal Actions in Argentina
We were accused of these two criminal actions in Argentina,
as described below:
allegations, it is not possible for us to identify possible risks
(i) Criminal action alleging non-compliance by us with the
related to this action and to produce a reliable estimate of
obligation to publish as “relevant fact” to the Argentinian
eventual loss.
Depending on the outcome of these claims, we may have to
pay substantial amounts, which may have a significant effect
on our financial condition.
On September 17, 2019, the Commitment Assumption
Agreement was abrogated by the STF. Thus, we no longer
have the ability to use half of the amount paid on January
30, 2019 (US$682.6 million) to the Brazilian authorities in the
event of any convictions in these arbitrations, as provided for
in the agreement.
The new allocation of the amount paid is described in the
“Allocation Agreement” between the Brazilian Attorney
General’s Office and the Presidency of the Chamber of
Deputies, with the intervention of the Presidency of the
Federal Senate and the Attorney General of the National
Treasury, which was approved by the STF and whose
negotiation was not attended by Petrobras.
We deny the allegations presented by these investors and
intend to defend these claims vigorously.
Arbitration in Argentina
In 2018, we were served with an arbitral claim filed by
Consumidores Financieros Asociación Civil para su Defensa
(the “Association”) against us and other individuals and
legal entities, before the “Tribunal de Arbitraje General de
la Bolsa de Comercio de Buenos Aires” (“Arbitral Tribunal”).
market the existence of a class action claim filed by
Consumidores Financieros Asociación Civil para su Defensa
before the Judicial Commercial Courts (Judicial Commercial
Claim), pursuant to provisions of Argentine capital market
law. It is worth mentioning that the Judicial Commercial Claim
had never been served to us. This criminal court docket is
being handled by Criminal Economic Court No. 3 of the city
of Buenos Aires. We filed procedural defenses before the
criminal court that have not been decided yet.
(ii) Criminal action alleging fraudulent offer of securities
aggravated by allegedly having stated false data in our
financial statements issued in 2015. This criminal court
docket is being handled by Criminal Economic Court No. 2 of
the city of Buenos Aires. We filed procedural defenses before
the criminal court that have not been decided yet.
Sete Brasil’s Investor Claim and Mediation
Procedure
We are currently a party to arbitrations in Brazil and a
lawsuit in the District Court of the District of Columbia in
Washington, D.C. filed by investors of Sete Brasil, a Project
Finance created in order to build rigs with high local content.
In these proceedings, the plaintiffs allege that we induced
investors to invest in Sete Brasil and that we were among
the parties responsible for the financial crisis of Sete
Brasil, company which filed judicial recovery proceedings
(“recuperação judicial”), in Brazil. The arbitrations are
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in different stages and all of them are confidential.
Nonetheless, we still defend that we should not be held
responsible. In 2019, we provisioned US$740 million as
expected losses to comply with accounting standards.
In 2016, EIG filed a complaint against us before the federal
district court in the District of Columbia, where the court
denied our motion to dismiss on various grounds including
sovereign immunity and ruled that the claims could proceed
to discovery, which is the exchange of legal information and
known facts of a case between the parties. We appealed
the decision to the United States Court of Appeals for the
District of Columbia Circuit, which affirmed the court’s
decision. We presented a petition for writ of certiorari to
the Supreme Court of the United States that was denied.
We subsequently moved the District Court to stay the case
pending arbitration, which was denied. We have appealed
that decision and that appeal was denied.
In addition, as result of an extrajudicial mediation initiated
in 2017 in Brazil to reach a possible solution, our Board of
Directors approved the final terms of the agreement to
be executed between us and Sete Brasil. The key terms of
the settlement are stated in the press release disclosed on
March 1, 2018: (i) maintenance of charter and operation
contracts referring to four drilling rigs, with termination of
signed contracts in relation to the other twenty-four drilling
rigs; (ii) the contracts shall have effect for ten years, with
a daily rate of US$299 thousand, including the chartering
and operation of the units; (iii) and our removal and the
removal of our subsidiaries from the shareholding structure
of the companies of Grupo Sete Brasil and FIP Sondas until
we no longer hold any shares in such company; and (iv)
the resulting dissolution of all other contracts that are not
compatible with the terms of the agreement. Magni Partners
shall charter the rigs to us and the rigs shall be operated by
Etesco. The settlement is subject to suspensive condition
and shall be approved by Sete Brasil and other companies
involved in the deal.
Other information relating to the arbitration and mediation
filed in Brazil is confidential.
Other Legal proceedings
Legal Proceedings and Preliminary Procedure on
TCU – Divestments.
There are some judicial proceedings (mainly civil suits), which
allege a supposed lack of publicity and competitiveness
in our proceedings for the sale of participation shares in
controlled companies and assets, such as exploration and
production rights in Oil & Gas Fields (“Divestment Bids”).
Some bids were suspended due to injunctions granted under
preliminary analysis, which were reversed after we presented
our statement of defense and/or appeals. Although the
aforementioned court proceedings are still pending on
the final awards, there is no injunction preventing any
Divestment Bid.
There are constitutional actions filed before the Brazilian
Supreme Court challenging the constitutionality of the
Decree No. 9,188/2017, which sets forth rules for divestment
of assets and controlled affiliates by federal mixed-capital
corporations, including us. Due to the preliminary injunction
granted on June 27, 2018 by the Supreme Court’s Minister
Ricardo Lewandowski (Direct Unconstitutionality Action
– ADI 5624 MC/DF), which presumably could affect its
Divestments, we have suspended some sales, according
to the press release dated July 3, 2018. Such sales were
resumed on January 17, 2019 under the legal grounds
stated in a legal memorandum rendered by the Federal
Attorney’s Office, according to the press release dated
January 17, 2019. On June 6, 2019, the court partially
revised the injunction to the extent that state companies are
allowed to sell their corporate control in affiliates’ companies
provided that such state companies were granted a general
authorization to do so by the their law of incorporation
and that the sale process is competitive and executed in
accordance with the constitutional principles applicable to
the public administration, pursuant to Federal Decree No.
9,188/2017. Hence, we may seek the divestment of assets
and controlled affiliates, without any constraint.
Also, there is a Direct Unconstitutionality Action against
Federal Decree No. 9,355/18 (“Federal Decree”) that aims
at the immediate suspension of the effects of Federal
Decree and a declaration of unconstitutionality for allegedly
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disregarding the provisions of articles 28 to 84 of Law
Applicable rate
No. 13,303/16 and the principles of legality, morality,
impersonality and efficiency.
There are also discussions relating to the rate applicable
to damages awarded by Brazilian labor courts, as well
On December 19, 2018, a preliminary injunction was granted
as its period of application. The STF has initially ruled
to suspend the effectiveness of the Federal Decree and
that application of the official reference rate, or “Taxa
order us to follow the rules of Law No. 13,303/16 in relation
Referencial,” is unconstitutional in relation to damages
to the procedures for the assignment of exploration and
awarded against the Brazilian federal government. Following
production rights in Brazil (“Decision”). On January 11, 2019,
the STF decision, the TST ruled that the IPCA should apply
the President of the Supreme Court granted a preliminary
(as opposed to the Taxa Referencial) since March 2015 and
injunction to suspend the effects of the Decision until
acknowledged payments already made. An appeal was
the judgment by the plenary of the court, which has not
brought against that decision and judgment is pending. Also,
occurred yet.
With respect to TCU, all projects included in our divestment
judgment is still pending by the STF on the application of
Taxa Referencial to labor damages, as opposed to IPCA.
portfolio (excluding partnerships and acquisitions, subject
Although we are not a party to any of the lawsuits before the
to another set of rules) follow the methodology deemed
TST and the STF involving these discussions, such lawsuits
appropriate by TCU under administrative procedure
may have an adverse effect on our provisions. There is no
TC-013.056/2016-6. Recently, our divestment process
expected date for judgment by the STF and it is possible
methodology was reviewed and forwarded to TCU under
that the STF decides that its decision should apply only from
administrative procedure TC-009.508/2019-8. The most
a certain date onward. However, in the event that the STF
up-to-date methodology took effect on August 20, 2019.
decides that the applicable rate should change from Taxa
Labor Proceedings
RMNR
There are a number of lawsuits relating to Minimum
Compensation per Level and Working Regime (“RMNR”) with
the purpose to review its calculating criteria.
The RMNR consists of a minimum compensation
guaranteed to the workforce, based on the salary level, the
work regime and condition and the geographic location.
This compensation policy was created and implemented
in 2007 as a result of collective bargaining with union
representatives and approval in employee assemblies, and
Referencial to IPCA, this may have an adverse effect on our
provisions, including RMNR.
Since November 2019, a new Temporary Order (medida
provisória) 905/2019 approved the use of the IPCA-E and
savings account rate to correct labor debts.
Temporary Orders are rules that serve as laws temporarily.
Such orders are issued by the Brazilian President, but
they need congressional referral to be enacted into law. If
congress does not consider an issued temporary order within
120 days, the order is declared null and void.
Unification of Fields
it was only challenged three years after its implementation.
We have filed four arbitrations under the ICC administration
The matter at dispute is whether to include additional
challenging the ANP’s decision to unify our unconnected
working arrangements and special working conditions as a
oil fields (Parque das Baleias, Lula and Cernambi; Baúna
complement to RMNR.
In 2018, the Brazilian Superior Labor Court (“TST”) ruled
and Piracaba; Tartaruga Verde and Tartaruga Mestiça). The
Parque das Baleias arbitration is already concluded.
against us and we filed an appeal against its decision. The
In the case of Tartaruga Mestiça and Tartaruga Verde
STF suspended the effects of the decision issued by the
arbitration, the federal court of Rio de Janeiro also upheld
TST and called for the national suspension of the ongoing
the competence-competence principle, in which the arbitral
proceedings relating to RMNR.
tribunal is entitled to rule on its own jurisdiction of the case.
Thus, this arbitration was restarted.
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In relation to the Baúna and Piracaba´s arbitration, a judicial
Environmental
injunction still keeps it suspended.
The state of Rio de Janeiro Prosecutor’s Office filed five
In addition, the BM-S-11 Consortium, formed with Shell and
public civil actions against us, the State Environmental
Petrogal, of which we are the operator, challenged the ANP’s
Institute (“INEA”) and the state of Rio de Janeiro (collectively,
decision on unifying Lula e Cernambi fields. The arbitration
the “Defendants”), in 2018, requesting that the Defendants
remains suspended due to a judicial injunction. Currently, the
present proof of compliance with environmental licensing
controversy is under review by the Brazilian superior court.
regulations related to COMPERJ, complement technical
The court will decide which court (the state court or arbitral
research, re-define certain conditions applicable to the
tribunal) should decide the merits of the case.
Drilling contract with Vantage
Furthermore, we were a party to an arbitration with Vantage
Deepwater Company and Vantage Deepwater Drilling, Inc.
(collectively, “Vantage”) administered by the International
Centre for Dispute Resolution and related to a drilling
contract we entered into with Vantage. In July 2018, a
tribunal of three members concluded by majority, with
one dissenting opinion, Vantage was entitled to receive
US$622.02 million, plus interest of 15.2% per annum
compounded monthly, as compensation for the early
termination of said contract and invoices related to the
drilling of a well in the Gulf of Mexico. We filed a motion to
vacate the award before a Federal Court in Texas, arguing
that we had been denied the fundamental safeguards of
due process, as expressed by the dissenting arbitrator’s
opinion. Vantage sought and obtained attachments from
a Dutch court, which were served in 2018, blocking the
shares of our Netherlands-based subsidiaries and any
amounts and assets due to us, arising from obligations of
our Netherlands-based subsidiaries to secure payment of
environmental licensing process and compensate for
collective damages to property, moral damages and
damages to communities affected by any environmental
impact related to COMPERJ. The amount claimed is
US$2,096 billion. In August 2019, we signed an agreement
(“termo de ajustamento de conduta”) in the amount
of US$208 million with the state of Rio de Janeiro, the
Prosecutor’s Office and INEA, to conclude one of the civil
actions concerning the environmental licensing of COMPERJ.
Regarding the four other civil actions, they have been
partially settled and an agreement is being negotiated to
conclude them. As to the remainder of pending judicial
procedures, they are currently suspended.
Additionally, since 2000, we are party to another public
civil action regarding the OSPAR pipeline, related to the
obligation to compensate damages and alleged moral
damages resulting from the environmental accident that
occurred in the state of Paraná on July 16, 2000. We had a
court decision condemning us and the amount of US$155
million was provisioned. Clarification appeals have been filed
and we are currently considering further appeals.
the arbitral award. In May 2019, the Federal Court confirmed
For further information on our material legal proceedings,
the arbitration award and denied our motion to vacate it.
see Note 19 to our audited consolidated financial
In June 2019, our subsidiaries paid approximately US$700
statements.
million related to such decision. The payment ceased interest
accrual, allowed the lifting of the pre-judgment attachments
of our Netherland-based subsidiaries and avoided other
legal constraints, but did not end the dispute. We appealed
the decision in June 2019 and will continue to take measures
to defend our interests.
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TAX
Tax Strategy and Effect of Taxes
on Our Income
published in the relevant bidding guidelines (edital de
licitação);
❚ Annual retention bonuses for the occupation or retention
of areas available for exploration and production, at a rate
Our tax strategy outlines the compliance with tax laws
established by the ANP in the relevant bidding guidelines
of Brazil and other countries, where we operate as a
based on the size, location and geological characteristics
corporation that influences the economic and social
of the concession block;
environment of which we are part. We also aim at engaging
❚ Special participation charges at a rate ranging from 0 to
with tax authorities in an ethical and transparent manner.
Considering that we are the biggest taxpayers in Brazil, our
engagement with tax authorities may result in various effects
on tax collection at the federal, state and municipal levels, as
well as production taxes under the ANP.
40% of the net income derived from the production of
fields that reach high production volumes or profitability,
according to the criteria established in the applicable
legislation. Net revenues are gross revenues, based on
reference prices for crude oil or natural gas established by
We are subject to tax on our income at a Brazilian statutory
Decree No. 2,705 and ANP regulatory acts, less royalties
corporate rate of 34%, comprising of a 25% rate of income
paid, investments in exploration, operational costs and
tax and a social contribution tax at a 9% rate. Since 2015,
depreciation adjustments and applicable taxes. In 2019,
we have been recognizing income tax expenses over non-
we paid this government take on 16 of our fields, namely
exempt income generated by our foreign subsidiaries based
Albacora Leste, Barracuda, Baúna, Jubarte (which unified
on Brazilian statutory corporate rates as established by Law
Baleia Azul and Baleia Franca fields), Leste do Urucu, Lula,
No. 12,973/2014.
In addition to taxes paid on behalf of consumers to the
Manati, Marlim, Marlim Leste, Marlim Sul, Mexilhão, Rio
Urucu, Roncador, Sapinhoá and Tartaruga Verde; and
Brazilian federal government, as well as state and municipal
❚ Royalties to be established in the concession contracts
governments, such as the value-added tax (Imposto sobre
at a rate ranging between 5% and 10% of gross revenues
Circulação de Mercadorias e Serviços, or “ICMS”), we are
from production, based on reference prices for crude
required to pay three main charges on our oil production
oil or natural gas established in its regulatory acts. In
activities in Brazil under the scope of the ANP: (i) royalties,
establishing royalty rates in the concession contracts,
(ii) special participation and (iii) retention bonuses. See “Tax
the ANP also takes consideration the geological risks and
– Tax Strategy and Effect of Taxes on Our Income – Taxation
expected productivity levels for each concession. Most of
under Concession Regime for Oil and Gas” and “Risks – Risk
our crude oil production is currently paid at the maximum
Factors – Government Ownership and Country Risks” in
royalty rate.
this annual report. These charges imposed by the Brazilian
Law No. 9,478/1997 also requires concessionaires of
federal government are included in our cost of sales.
Taxation under Concession Regime
for Oil and Gas
onshore fields to pay to the owner of the land a participation
fee that varies between 0.5% and 1.0% of the sales revenues
derived from the production of the field.
According to Law No. 9,478/1997 and under our concession
agreements for exploration and production activities with the
ANP, we are required to pay the government the following:
New Taxation Model for the Oil and
Gas Industry
On December 28, 2017, the Brazilian federal government
❚ Signing bonuses paid upon the execution of the
enacted Law No. 13,586, which outlined a new taxation
concession agreement, which are based on the amount of
model for the oil and gas industry and, along with the
the winning bid, subject to the minimum signing bonuses
Decree No. 9,128/2017, established a new special regime
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for exploration, development and production of oil, gas and
which are subject to change (possibly with retroactive effect).
other liquid hydrocarbons named Repetro-Sped, which will
This summary is also based upon the representations of the
expire in December 2040.
This regime provides for the continuation of total tax
relief over goods imported with temporary permanence
depositary and on the assumption that the obligations in
the deposit agreement and any related documents will be
performed in accordance with their respective terms.
in Brazil, as previously established by the former Repetro
This description is not a comprehensive description of the
(special customs regime for the export and import of goods
tax considerations that may be relevant to any particular
designated to exploration and production of oil and natural
investor, including tax considerations that arise from rules
gas reserves), and adds this relief to goods permanently
that are generally applicable to all taxpayers or to certain
held in Brazil. Accordingly, the absence of the need to return
classes of investors or rules that investors are generally
such goods to foreign countries eliminates future cost of
assumed to know. Prospective purchasers of common
removal. This benefit allowed for the migration of all the
or preferred shares or ADSs should consult their own tax
goods acquired in the former Repetro to the Repetro-Sped.
advisors as to the tax consequences of the acquisition,
Since 2018, we have been transferring the ownership of
oil and gas assets under this regime from our foreign
ownership and disposition of common or preferred
shares or ADSs.
subsidiaries to our parent company and the joint ventures
There is no income tax treaty between the United States and
(consortia) in Brazil and we expect to finish this process
Brazil. In recent years, the tax authorities of Brazil and the
in 2020.
In addition, the legislation prescribes the Repetro-
Industrialização, a special tax regime, regulated in 2019,
which exempts acquisitions from the O&G supply chain
established in Brazil.
United States have held discussions that may culminate in
such a treaty. We cannot predict, however, whether or when a
treaty will enter into force or how it will affect the U.S. holders
of common or preferred shares or ADSs.
Following the creation of Repetro-Sped and Repetro-
Industrialização, some Brazilian states, pursuant to a
decision by the Brazilian National Council of Finance Policies
Brazilian Tax Considerations
General
(CONFAZ), agreed to grant tax incentives relating to the value
The following discussion summarizes the material Brazilian
added tax (ICMS) over transactions under these regimes to
tax consequences of the acquisition, ownership and
the extent each state enacts its specific regulation providing
disposition of preferred or common shares or ADSs, as the
for the tax relief on the oil and gas industry.
case may be, by a holder that is not deemed to be domiciled
Taxation Relating to THE ADS and our
Common and Preferred Shares
The following summary contains a description of material
Brazilian and U.S. federal income tax considerations that
may be relevant to the purchase, ownership and disposition
of preferred or common shares or ADSs by a holder. This
summary does not describe any tax consequences arising
under the laws of any state, locality or taxing jurisdiction
other than Brazil and the United States.
in Brazil for purposes of Brazilian taxation, also called a non-
Brazilian holder.
Under Brazilian law, investors (non-Brazilian holders) may
invest in the preferred or common shares under CMN
Resolution No. 4,373 or under Law No. 4,131/1962. The
rules of CMN Resolution No. 4,373 allow foreign investors to
invest in almost all instruments and to engage in almost all
transactions available in the Brazilian financial and capital
markets, provided that certain requirements are met. In
accordance with CMN Resolution No. 4,373, the definition of
foreign investor includes individuals, legal entities, mutual
This summary is based upon the tax laws of Brazil and the
funds and other collective investment entities, domiciled or
United States as in effect on the date of this annual report,
headquartered abroad.
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Pursuant to this rule, foreign investors must: (i) appoint at
rate lower than 17% (a Low or Nil Tax Jurisdiction) or, based
least one representative in Brazil with powers to perform
on the position of the Brazilian tax authorities, a country
actions relating to their foreign investment (such as
or other jurisdiction where the local legislation does not
registration and keeping updated records of all transactions
allow access to information related to the shareholding
with the Central Bank of Brazil); (ii) complete the appropriate
composition of legal entities, to their ownership or to
foreign investor registration form; (iii) register as a
the identity of the effective beneficiary of the income
foreign investor with the CVM; and (iv) register the foreign
attributed to shareholders (the “Non-Transparency Rule”),
investment with the Central Bank of Brazil.
when the applicable withholding income tax rate will be
Securities and other financial assets held by foreign
investors pursuant to CMN Resolution No. 4,373 must be
registered or maintained in deposit accounts or under the
custody of an entity duly licensed by the CVM. In addition,
25%. See “Tax – Tax Strategy and Effect of Taxes on Our
Income – Clarifications on Non-Brazilian Holders Resident
or Domiciled in a Low or Nil Tax Jurisdiction” in this annual
report.
securities trading is restricted to transactions carried out in
Taxation on Interest on Capital
the stock exchanges or organized over-the-counter markets
authorized by the CVM.
Taxation of Dividends
Generally speaking, dividends paid by us, including stock
dividends and other dividends paid in property to the
Depositary in respect of the ADSs, or to a non-Brazilian
holder in respect of the preferred or common shares, are
not subject to withholding income tax in Brazil, to the extent
that such amounts are related to profits generated after
January 1, 1996.
We must pay to our shareholders (including non-Brazilian
holders of common or preferred shares or ADSs) interest
on the amount of dividends payable to them, updated by
the SELIC rate, from the end of each fiscal year through
the date of effective payment of those dividends. These
interest payments are considered fixed-yield income and are
subject to withholding income tax at varying rates depending
on the length of period of interest accrual. The tax rate
for payments made to beneficiaries resident or domiciled
in Brazil varies from 15%, in case of interest accrued for
a period greater than 720 days, 17.5% in case of interest
accrued for a period between 361 and 720 days, 20% in case
of interest accrued for a period between 181 and 360 days,
and to 22.5%, in case of interest accrued for a period up to
Any payment of interest on capital to holders of ADSs
or preferred or common shares, whether or not they are
Brazilian residents, is subject to Brazilian withholding income
tax at the rate of 15% at the time we record such liability,
whether or not the effective payment is made at that time.
See “Shareholder Information – Dividends – Payment of
Dividends and Interest on Capital” in this annual report. In
the case of non-Brazilian residents that are resident in a
Low or Nil Tax Jurisdiction (including in the view of Brazilian
authorities the jurisdictions to which the Non-Transparency
Rule applies), the applicable withholding income tax rate
is 25%. See “Tax – Tax Strategy and Effect of Taxes on Our
Income – Clarifications on Non-Brazilian Holders Resident
or Domiciled in a Low or Nil Tax Jurisdiction” in this annual
report. The payment of interest with respect to updating
recorded distributions by the SELIC rate that is applicable
to payments of dividends applies equally to payments of
interest on capital. The determination of whether or not we
will make distributions in the form of interest on capital or in
the form of dividends is made by our Board of Directors at
the time distributions are to be made. We cannot determine
how our Board of Directors will make these determinations in
connection with future distributions.
Taxation of Gains
180 days. However, when the beneficiary is a non-Brazilian
For purposes of Brazilian taxation on capital gains, two
holder the general applicable withholding income tax rate
types of non-Brazilian holders have to be considered:
over interest is 15% except in case the beneficiary is resident
(i) non-Brazilian holders of ADSs, preferred shares or
or domiciled in a country or other jurisdiction that does not
common shares that are not resident or domiciled in a Low
impose income tax or imposes it at a maximum income tax
or Nil Tax Jurisdiction, and that, in the case of preferred or
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common shares, have registered before the Central Bank
procedure with the Central Bank of Brazil as described below
of Brazil and the CVM in accordance with CMN Resolution
in “Registered Capital.”
No. 4,373; and (ii) any other non-Brazilian holder, including
non-Brazilian holders who invest in Brazil not in accordance
with CMN Resolution No. 4,373 (including registration under
Law No. 4,131/1962) and who are resident or domiciled in
a Low or Nil Tax Jurisdiction. See “Tax – Tax Strategy and
Effect of Taxes on Our Income – Clarifications on Non-
Brazilian Holders Resident or Domiciled in a Low or Nil Tax
Jurisdiction” in this annual report.
According to Law No. 10,833/2003, capital gains realized on
the disposition of assets located in Brazil by non-Brazilian
holders, whether or not to other non-residents and whether
made outside or within Brazil, may be subject to taxation
in Brazil. With respect to the disposition of common or
preferred shares, as they are assets located in Brazil, the
non-Brazilian holder may be subject to income tax on
any gains realized, following the rules described below,
regardless of whether the transactions are conducted
in Brazil or with a Brazilian resident. We understand the
ADSs do not fall within the definition of assets located in
Brazil for the purposes of this law, but there is still neither
pronunciation from tax authorities nor judicial court rulings
in this respect. Therefore, we are unable to predict whether
such understanding will prevail in the courts of Brazil.
Although there are grounds to sustain otherwise, the deposit
of preferred or common shares in exchange for ADSs may be
subject to Brazilian taxation on capital gains if the acquisition
cost of the preferred or common shares is lower than the
average price per preferred or common share.
The difference between the acquisition cost and the market
price of the preferred or common shares will be considered
realized capital gain that is subject to taxation as described
below. There are grounds to sustain that such taxation is not
applicable with respect to non-Brazilian holders registered
under the rules of CMN Resolution No. 4,373 and not
resident or domiciled in a Low or Nil Tax Jurisdiction.
Capital gains realized by a non-Brazilian holder on a sale or
disposition of preferred or common shares carried out on a
Brazilian stock exchange (which includes transactions carried
out on the organized over-the-counter market) are:
❚ exempt from income tax when the non-Brazilian holder
(i) has registered its investment in accordance with CMN
Resolution No. 4,373 and (ii) is not resident or domiciled in
a Low or Nil Tax Jurisdiction;
❚ subject to an income tax at a 25% rate, in cases of gains
realized by a non-Brazilian holder resident or domiciled in
a Low or Nil Tax Jurisdiction or a jurisdiction to which the
Non-Transparency Rule applies. In this case, a withholding
income tax at a rate of 0.005% of the sale value is levied on
the transaction which can be offset against the eventual
income tax due on the capital gain; or
❚ in all other cases, including a case of capital gains
realized by a non-Brazilian holder that is not registered
in accordance with CMN Resolution No. 4,373, subject to
income tax at the following progressive rates: 15% that
do not exceed R$5 million, 17.5% on the gains between
R$5 million and R$10 million, 20% on the gains between
R$10 million and R$30 million and 22.5% on the gains
that exceed R$30 million. In these cases, a withholding
income tax at a rate of 0.005% of the sale value is levied on
the transaction, which can be offset against the eventual
income tax due on the capital gain.
Any capital gains realized on a disposition of preferred or
common shares that is carried out outside the Brazilian stock
exchange are subject to income tax above rates in case of
gains realized by a non-Brazilian holder that is domiciled or
resident in a Low or Nil Tax Jurisdiction or a jurisdiction to
which the Non-Transparency Rule applies. In this last case,
for the capital gains related to transactions conducted on
the Brazilian non-organized over-the-counter market with
intermediation, the withholding income tax of 0.005% will
The withdrawal of ADSs in exchange for preferred or
also apply and can be offset against the eventual income tax
common shares should not be considered as giving rise to
due on the capital gain.
a capital gain subject to Brazilian income tax, provided that
In the case of a redemption of preferred or common shares
on receipt of the underlying preferred or common shares,
or ADSs or a capital reduction made by us, the positive
the non-Brazilian holder complies with the registration
difference between the amount received by the non-
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Brazilian holder and the acquisition cost of the preferred or
common shares or ADSs redeemed or reduced is treated
as capital gain derived from the sale or exchange of shares
not carried out on a Brazilian stock exchange market and is
therefore generally subject to the above rates. See “Tax – Tax
Strategy and Effect of Taxes on Our Income – Clarifications
on Non-Brazilian Holders Resident or Domiciled in a Low or
Nil Tax Jurisdiction” in this annual report.
Clarifications on Non-Brazilian Holders Resident
or Domiciled in a Low or Nil Tax Jurisdiction
Law No. 9,779/1999 states that, except for limited prescribed
circumstances, income derived from transactions by a
person resident or domiciled in a Low or Nil Tax Jurisdiction
will be subject to withholding income tax at the rate of 25%.
A Low or Nil Tax Jurisdiction is generally considered to be
a country or other jurisdiction which does not impose any
Any exercise of preemptive rights relating to the preferred
income tax or which imposes such tax at a maximum rate
or common shares will not be subject to Brazilian taxation.
lower than 17%. Under certain circumstances, the Non-
Any gain on the sale or assignment of preemptive rights will
Transparency Rule is also taken into account for determining
be subject to Brazilian income taxation according to the same
whether a country or other jurisdiction is a Low or Nil Tax
rules applicable to the sale or disposition of
preferred or common shares.
No assurance can be made that the current preferential
treatment of non-Brazilian holders of the ADSs and some
non-Brazilian holders of the preferred or common shares
under CMN Resolution No. 4,373 will continue to apply
in the future.
Additional Recent Rules Regarding
Taxation of Gains
On March 16, 2016, the Brazilian federal government
converted the Provisional Measure No. 692 into Law
No. 13,259, which established progressive income tax rates
applicable to capital gains derived from the disposition of
assets by Brazilian individuals. Law No. 13,259 provides for
new rates that range from 15% to 22.5% depending on the
amount of the gain recognized by the Brazilian individual,
as follows: (i) 15% on gains not exceeding R$5 million;
(ii) 17.5% on gains that exceed R$5 million and do not
exceed R$10 million; (iii) 20% on gains that exceed R$10
million and do not exceed R$30 million; and (iv) 22.5% on
gains exceeding R$30 million. Pursuant to Section 18 of
Law No. 9,249/95, the tax treatment applicable to capital
gains earned by Brazilian individuals also applies to capital
gains earned by non-Brazilian residents (except in cases
that remain subject to the application of specific rules, as
explained in Section 149 of such law).
Jurisdiction. In addition, Law No. 11,727/2008 introduced
the concept of a “privileged tax regime,” which is defined
as a tax regime which (i) does not tax income or taxes it
at a maximum rate lower than 17%; (ii) grants tax benefits
to non-resident entities or individuals (a) without the
requirement to carry out a substantial economic activity
in the country or other jurisdiction or (b) contingent on
the non-exercise of a substantial economic activity in the
country or other jurisdiction; (iii) does not tax or that taxes
foreign source income at a maximum rate lower than 17%;
or (iv) does not provide access to information related to
shareholding composition, ownership of assets and rights or
economic transactions carried out. We believe that the best
interpretation of Law No. 11,727/2008 is that the concept
of a “privileged tax regime” will apply solely for purposes of
the transfer pricing rules in export and import transactions,
deductibility for Brazilian corporate income taxes and the
thin capitalization rules and, would therefore generally not
have an impact on the taxation of a non-Brazilian holder of
preferred or common shares or ADSs, as discussed herein.
However, we are unable to ascertain whether the privileged
tax regime concept will also apply in the context of the rules
applicable to Low or Nil Tax Jurisdictions, although the
Brazilian tax authorities appear to agree with our position, in
view of the provisions of the Withholding Income Tax Manual
(MAFON – 2019), issued by the Brazilian Revenue Service.
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Taxation of Foreign Exchange Transactions
(IOF/Exchange)
Brazilian law imposes the IOF/Exchange on the conversion of
reais into foreign currency and on the conversion of foreign
currency into reais. Currently, for most foreign currency
exchange transactions, the rate of IOF/Exchange is 0.38%.
holder, except for gift and inheritance taxes which are levied
by certain states of Brazil on gifts made or inheritances
bestowed by a non-Brazilian holder to individuals or entities
resident or domiciled within such states in Brazil. There are no
Brazilian stamp, issue, registration, or similar taxes or duties
payable by holders of preferred or common shares or ADSs.
However, foreign exchange transactions related to inflows
Registered Capital
of funds to Brazil for investments made by foreign investors
in the Brazilian financial and capital markets are generally
subject to IOF/Exchange at a zero percent rate. Foreign
exchange transactions related to outflows of proceeds
from Brazil in connection with investments made by foreign
investors in the Brazilian financial and capital markets are
also subject to the IOF/Exchange tax at a zero percent rate.
This zero percent rate applies to payments of dividends and
interest on capital received by foreign investors with respect
to investments in the Brazilian financial and capital markets,
such as investments made by a non-Brazilian holder as
provided for in CMN Resolution No. 4,373. The Brazilian
executive branch may increase such rates at any time, up to
25% of the amount of the foreign exchange transaction, but
not with retroactive effect.
Taxation on Bonds and Securities Transactions
(IOF/Bonds)
The amount of an investment in preferred or common shares
held by a non-Brazilian holder who obtains registration
under CMN Resolution No. 4,373, or by the depositary
representing such holder, is eligible for registration with
the Central Bank of Brazil; and such registration allows the
remittance outside Brazil of foreign currency, converted
at the commercial market rate, acquired with the proceeds
of distributions on, and amounts realized with respect to
dispositions of, such preferred or common shares. The
amount registered (“registered capital”) for each preferred
or common share purchased as part of the international
offering or purchased in Brazil after the date hereof, and
deposited with the depositary, will be equal to its purchase
price (in U.S. dollars). The registered capital for a preferred or
common share that is withdrawn upon surrender of an ADS
will be the U.S. dollar equivalent of:
(i) the average price of a preferred or common share on the
Brazilian law imposes IOF/Bonds on transactions involving
Brazilian stock exchange on which the highest volume of
equity securities, bonds and other securities, including
such shares were traded on the day of withdrawal; or
those carried out on a Brazilian stock exchange. The rate of
IOF/Bonds applicable to transactions involving preferred
or common shares is currently zero. However, the Brazilian
(ii) if no preferred or common shares were traded on that day,
the average price on the Brazilian stock exchange on which
the highest volume of preferred or common shares were
federal government may increase such rate at any time up to
traded in the 15 trading sessions immediately preceding the
1.5% of the transaction amount per day, but the tax cannot
date of such withdrawal.
be applied retroactively.
The IOF on transfer of shares, which are admitted to trading
on a stock exchange located in Brazil, with the specific
purpose of backing the issuance of depositary receipts
traded abroad have been reduced from 1.5% to zero, as of
December 24, 2013.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes
The U.S. dollar value of the average price of preferred or
common shares is determined on the basis of the average
of the U.S. dollar/real commercial market rates quoted by
the Central Bank of Brazil information system on that date
(or, if the average price of preferred or common shares is
determined under the second option above, price will be
determined by the average quoted rates verified on the
same 15 preceding trading sessions as described above).
applicable to the ownership, transfer or disposition of
A non-Brazilian holder of preferred or common shares may
preferred or common shares or ADSs by a non-Brazilian
be subject to delays in effecting such registration, which
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in turn may delay remittances abroad. Such a delay may
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR
adversely affect the amount, in U.S. dollars, received by the
CONCERNING THE OVERALL TAX CONSEQUENCES IN
non-Brazilian holder. See “Risks – Risk Factors – Equity and
ITS PARTICULAR CIRCUMSTANCES, INCLUDING THE
Debt Securities Risks” in this annual report.
CONSEQUENCES UNDER LAWS OTHER THAN U.S.
U.S. Federal Income Tax Considerations
This summary describes material U.S. federal income tax
consequences that may be relevant to a U.S. Holder (as
defined below) from the ownership and disposition of
common or preferred shares or ADSs. This summary is
based on the U.S. Internal Revenue Code of 1986, as
amended (“the Code”), its legislative history, existing and
proposed U.S. Treasury regulations promulgated thereunder,
published rulings by the U.S. Internal Revenue Service (IRS),
and court decisions, all as in effect as of the date hereof, and
all of which are subject to change or differing interpretations,
possibly with retroactive effect. This summary does not
FEDERAL INCOME TAX LAWS, OF AN INVESTMENT IN
COMMON OR PREFERRED SHARES OR ADSs.
Shares of our preferred stock will be treated as equity for
U.S. federal income tax purposes. In general, a holder of an
ADS will be treated as the holder of the shares of common or
preferred stock represented by those ADSs for U.S. federal
income tax purposes, and no gain or loss will be recognized
if you exchange ADSs for the shares of common or preferred
stock represented by that ADS.
In this discussion, references to ADSs refer to ADSs
with respect to both common and preferred shares, and
references to a “U.S. Holder” are to a holder of a common or
preferred share or ADS that is:
purport to be a comprehensive description of all of the tax
❚ an individual who is a citizen or resident of the United
consequences that may be relevant to a decision to hold
States;
or dispose of common or preferred shares or ADSs. This
❚ a corporation organized under the laws of the United
summary applies only to purchasers of common or preferred
States, any state thereof, or the District of Columbia; or
shares or ADSs who hold the common or preferred shares
or ADSs as “capital assets” (generally, property held for
investment), and does not apply to special classes of holders
such as dealers or traders in securities or currencies, holders
❚ otherwise subject to U.S. federal income taxation on a net
basis with respect to the share or the ADS.
Taxation of Distributions
whose functional currency is not the U.S. dollar, holders of
A U.S. Holder will recognize ordinary dividend income for
10% or more of our shares, measured by voting power or
U.S. federal income tax purposes in an amount equal to
value (taking into account shares held directly or through
the amount of any cash and the value of any property we
depositary arrangements), tax-exempt organizations,
distribute as a dividend to the extent that such distribution
partnerships or partners therein, financial institutions,
is paid out of our current or accumulated earnings and
life insurance companies, holders liable for the alternative
profits, as determined for U.S. federal income tax purposes,
minimum tax, securities traders who elect to account for
when such distribution is received by the depositary, in the
their investment in common or preferred shares or ADSs
case of ADSs, or by the U.S. Holder in the case of a holder of
on a mark-to-market basis, persons that enter into a
common or preferred shares. The amount of any distribution
constructive sale transaction with respect to common or
will include distributions characterized as interest on capital
preferred shares or ADSs, persons holding common or
and the amount of Brazilian tax withheld on the amount
preferred shares or ADSs in a hedging transaction or as part
distributed, and the amount of a distribution paid in reais
of a straddle or conversion transaction, or nonresident alien
will be measured by reference to the exchange rate for
individuals present in the United States for more than 182
converting reais into U.S. dollars in effect on the date the
days in a taxable year. Moreover, this summary does not
distribution is received by the depositary, in the case of
address state, local or foreign taxes or the U.S. federal estate
ADSs, or by a U.S. Holder in the case of a holder of common
and gift taxes.
or preferred shares. If the depositary, in the case of ADSs, or
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U.S. Holder in the case of a holder of common or preferred
tax credit purposes. Subject to certain limitations, Brazilian
shares, does not convert such reais into U.S. dollars on the
income tax withheld in connection with any distribution with
date it receives them, it is possible that the U.S. Holder will
respect to the shares or ADSs may be claimed as a credit
recognize foreign currency loss or gain, which would be U.S.
against the U.S. federal income tax liability of a U.S. Holder,
source ordinary loss or gain, when the reais are converted
or, at the U.S. Holder’s election, such Brazilian withholding
into U.S. dollars. Dividends paid by us will not be eligible for
tax may be taken as a deduction against taxable income
the dividends received deduction allowed to corporations
(provided that the U.S. Holder elects to deduct, rather
under the Code.
Subject to certain exceptions for short-term and hedged
positions, the U.S. dollar amount of dividends received by
a non-corporate U.S. Holder with respect to the ADSs will
generally be subject to taxation at preferential rates if the
dividends are “qualified dividends.” Dividends paid on the
ADSs will be treated as qualified dividends if (i) the ADSs
are readily tradable on an established securities market
in the United States and (ii) Petrobras was not, in the year
prior to the year in which the dividend was paid, and is not,
in the year in which the dividend is paid, a “passive foreign
investment company” as defined for U.S. federal income tax
purposes (a PFIC). The ADSs are listed on the NYSE, and
will qualify as readily tradable on an established securities
market in the United States so long as they are so listed.
Based on our audited consolidated financial statements
and relevant market and shareholder data, we believe that
we should not be treated as a PFIC for U.S. federal income
than credit, all foreign income taxes paid or accrued for the
relevant taxable year). A U.S. foreign tax credit may not be
allowed for Brazilian withholding tax imposed in respect of
certain short-term or hedged positions in securities or in
respect of arrangements in which a U.S. Holder’s expected
economic profit is insubstantial. U.S. Holders should consult
their own tax advisors regarding the availability of the
U.S. foreign tax credit, including the translation of reais into
U.S. dollar for these purposes, in light of their particular
circumstances.
Holders of ADSs that are foreign corporations or nonresident
alien individuals (non-U.S. Holders) generally will not be
subject to U.S. federal income tax, including withholding
tax, on distributions with respect to shares or ADSs that
are treated as dividend income for U.S. federal income tax
purposes unless such dividends are effectively connected
with the conduct by the holder of a trade or business in the
United States.
tax purposes with respect to the 2019 or 2018 taxable year.
Taxation of Capital Gains
In addition, based on our audited consolidated financial
statements and our current expectations regarding the
value and nature of our assets, the sources and nature of
our income, and relevant market and shareholder data, we
do not anticipate becoming a PFIC for our 2020 taxable year.
Based on existing guidance, it is not clear whether dividends
received with respect to the shares will be treated as
qualified dividends, because the shares are not themselves
listed on a U.S. exchange. U.S. Holders of our ADSs should
consult their own tax advisors regarding the availability
of the reduced dividend tax rate in the light of their
particular circumstances.
Upon the sale or other disposition of a share or an ADS, a
U.S. Holder will generally recognize U.S. source capital gain
or loss for U.S. federal income tax purposes, equal to the
difference between the amount realized on the disposition
and the U.S. Holder’s tax basis in such share or ADS. Any
gain or loss will be long-term capital gain or loss if the
shares or ADSs have been held for more than one year. Non-
corporate U.S. Holders of shares or ADSs may be eligible
for a preferential rate of U.S. federal income tax in respect
of long-term capital gains. Capital losses may be deducted
from taxable income, subject to certain limitations. For U.S.
federal income tax purposes, such disposition would not
Distributions out of earnings and profits with respect to the
result in foreign source income to a U.S. Holder. As a result,
shares or ADSs generally will be treated as dividend income
a U.S. Holder may not be able to use the foreign tax credit
from sources outside of the United States and generally
associated with any Brazilian income taxes imposed on such
will be treated as “passive category income” for U.S. foreign
gains, unless such holder can use the credit against U.S. tax
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due on other foreign source income. U.S. Holders should
maintained by financial institutions. Higher reporting
consult their own tax advisors regarding the availability of
thresholds apply to certain individuals living abroad and
the U.S. foreign tax credit.
Information Reporting and Backup Withholding
The payment of dividends on, and proceeds from the sale
or other disposition of, the ADSs or common or preferred
shares to a U.S. Holder within the United States (or through
certain U.S. related financial intermediaries) will generally
be subject to information reporting, and may be subject
to “backup withholding” unless the U.S. Holder (i) is an
exempt recipient, and demonstrates this fact when so
required, or (ii) timely provides a taxpayer identification
number and certifies that no loss of exemption from backup
to certain married individuals. Regulations extend this
reporting requirement to certain entities that are treated
as formed or availed of to hold direct or indirect interests
in specified foreign financial assets based on certain
objective criteria. U.S. Holders who fail to report the required
information could be subject to substantial penalties.
Prospective investors should consult their own tax advisors
concerning the application of these rules to their investment,
including the application of the rules to their particular
circumstances.
withholding has occurred and otherwise complies with
Taxation Relating to PGF’s Notes
applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax. The amount of
any backup withholding collected from a payment to a U.S.
Holder will be allowed as a credit against the U.S. Holder’s
U.S. federal income tax liability and may entitle the U.S.
Holder to a refund, so long as the required information is
furnished to the IRS in a timely manner.
The following summary contains a description of material
Brazilian, Dutch, European Union and U.S. federal income
tax considerations that may be relevant to the purchase,
ownership and disposition of PGF’s debt securities
(the “notes”). This summary does not describe any tax
consequences arising under the laws of any state, locality or
taxing jurisdiction other than the Netherlands, Brazil and the
U.S. Holders should consult their own tax advisors about any
United States.
additional reporting requirements that may arise as a result
of their purchasing, holding or disposing of our ADSs, or
common or preferred shares.
This summary is based on the tax laws of the Netherlands,
Brazil and the United States as in effect on the date of this
annual report, which are subject to change (possibly with
A non-U.S. Holder generally will be exempt from these
retroactive effect). This description is not a comprehensive
information reporting requirements and backup withholding
description of all tax considerations that may be relevant
tax, but may be required to comply with certain certification
to any particular investor, including tax considerations
and identification procedures in order to establish its
that arise from rules generally applicable to all taxpayers
eligibility for such exemption.
Specified Foreign Financial Assets
Certain U.S. Holders that own “specified foreign financial
assets” with an aggregate value in excess of US$50,000 on
the last day of the taxable year or US$75,000 at any time
during the taxable year are generally required to file an
information statement along with their tax returns, currently
on Form 8938, with respect to such assets. “Specified foreign
financial assets” include any financial accounts held at a
non-U.S. financial institution, as well as securities issued
or to certain classes of investors or that investors are
generally assumed to know. Prospective purchasers of notes
should consult their own tax advisors regarding the tax
consequences of the acquisition, ownership and disposition
of the notes.
There is no tax treaty to avoid double taxation between Brazil
and the United States. In recent years, the tax authorities
of Brazil and the United States have held discussions that
may culminate in such a treaty. We cannot predict, however,
whether or when a treaty will enter into force or how it will
by a non-U.S. issuer (which would include our common and
affect the U.S. Holders of notes.
preferred shares and ADSs) that are not held in accounts
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Dutch Taxation
The following is a general summary of certain material Dutch
tax consequences to holders of the notes in connection with
the acquisition, ownership and disposal of notes in a Dutch
company. This summary does not purport to describe all
possible Dutch tax consequences that may be relevant to
a holder or prospective holder of the notes and does not
purport to deal with the tax consequences applicable to
description of all Dutch tax consequences relating to the
acquisition, holding and disposal of the notes. Holders or
prospective holders of notes should consult their own tax
advisers as to the Dutch tax consequences of purchasing,
including, without limitation, the consequences of the receipt
of interest and the sale or other disposition of notes or
coupons, in light of their particular circumstances.
Withholding Tax
all categories of investors, some of which may be subject
All payments of interest and principal made by PGF under
to special rules. In view of its general nature, this general
the notes can be made free of withholding or deduction
summary should therefore be treated with appropriate caution.
for any taxes of any nature imposed, levied, withheld or
This summary is based on the tax laws of the Netherlands,
published regulations thereunder and published
authoritative case law, all as in effect on the date hereof,
assessed by the Netherlands or any political subdivision or
taxing authority thereof or therein, unless the notes qualify
as equity of PGF for Dutch tax purposes.
and all of which are subject to change or to different
Taxes on Income and Capital Gains
interpretation, possibly with retroactive effect. Where the
text refers to the Netherlands, it refers only to the part of the
Kingdom of the Netherlands located in Europe.
For Dutch tax purposes, a holder of notes may include,
without limitation:
Please note that the summary in this section does not
describe the Dutch tax considerations for:
❚ holders of the notes if such holders, and in the case of
an individual, his or her partner or certain of his or her
relatives by blood or marriage in the direct line (including
❚ an owner of one or more notes who, in addition to the title
foster children), have a substantial interest (aanmerkelijk
to such notes, has an economic interest in such notes;
belang) or deemed substantial interest (fictief
❚ a person who or an entity that holds the entire economic
interest in one or more notes;
❚ a person who or an entity that holds an interest in an
entity, such as a partnership or a mutual fund, that is
transparent for Dutch tax purposes, the assets of which
comprise one or more notes; and
❚ an individual who or an entity that does not have the legal
title to the notes, but to whom the notes are attributed
based either on such individual or entity holding a
beneficial interest in the notes or based on specific
statutory provisions, including statutory provisions
pursuant to which the notes are attributed to an individual
who is, or who has directly or indirectly inherited the notes
from a person who was, the settlor, grantor or similar
aanmerkelijk belang) in PGF under the Dutch Income
Tax Act 2001 (Wet inkomstenbelasting 2001). Generally
speaking, a holder of notes has a substantial interest
in PGF if it has, directly or indirectly (and, in the case of
an individual, alone or together with certain relatives) (i)
the ownership of, a right to acquire the ownership of, or
certain rights over, shares representing 5% or more of
either the total issued and outstanding capital of PGF or
the issued and outstanding capital of any class of shares
of PGF, or (ii) the ownership of, or certain rights over, profit
participating certificates (winstbewijzen) that relate to
5% or more of either the annual profit or the liquidation
proceeds of PGF. A deemed substantial interest may
arise if a substantial interest (or part thereof) has been
disposed of, or is deemed to have been disposed of, on a
originator of a trust, foundation or similar entity that holds
non-recognition basis;
the notes.
The discussion below is included for general information
purposes only and is not Dutch tax advice or a complete
❚ pension funds, investment institutions (fiscale
beleggingsinstellingen), exempt investment institutions
(vrijgestelde beleggingsinstellingen) (as defined in
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the Dutch Corporate Income Tax Act 1969 (Wet op de
A holder of notes will not be treated as a resident of the
vennootschapsbelasting 1969)) and other entities that are,
Netherlands by reason only of the execution, delivery or
in whole or in part, not subject to or exempt from Dutch
enforcement of its rights and obligations connected to the
corporate income tax; and
notes, the issue of the notes or the performance by PGF of
❚ holders of notes who are individuals and for whom
its obligations under the notes.
the notes or any benefit derived from the notes are
Gift and Inheritance Taxes
a remuneration or deemed to be a remuneration for
activities performed by such holders or certain individuals
related to such holders (as defined in the Dutch Income
Tax Act 2001).
No gift or inheritance taxes will arise in the Netherlands with
respect to an acquisition or deemed acquisition of notes
by way of a gift by, or on the death of, a holder of notes
who is neither resident nor deemed to be resident in the
A holder of notes will not be subject to any Dutch taxes on
Netherlands for the relevant provisions, unless:
income or capital gains in respect of the notes, including
such tax on any payment under the notes or in respect of any
gain realized on the disposal, deemed disposal, redemption
or exchange of the notes, provided that:
❚ in case of a gift of the notes under a suspensive condition
by an individual who at the date of the gift was neither
resident nor deemed to be resident in the Netherlands,
such individual is resident or deemed to be resident in
❚ such holder is neither a resident nor deemed to be a
the Netherlands at the date of (i) the fulfillment of the
resident of the Netherlands;
condition or (ii) his/her death and the condition of the gift
❚ such holder does not have, and is not deemed to have, an
is fulfilled after the date of his/her death; or
enterprise or an interest in an enterprise that, in whole or
❚ in case of a gift of notes by an individual who at the
in part, is either effectively managed in the Netherlands or
date of the gift or, in case of a gift under a suspensive
carried on through a (deemed) permanent establishment
condition, at the date of the fulfillment of the condition
(vaste inrichting) or a permanent representative (vaste
was neither resident nor deemed to be resident in the
vertegenwoordiger) in the Netherlands and to which
Netherlands, such individual dies within 180 days after the
enterprise or part of an enterprise the notes are
date of the gift or fulfillment of the condition, while being
attributable;
resident or deemed to be resident in the Netherlands.
❚ if such holder is an individual, such income or capital gains
For purposes of Dutch gift and inheritance taxes, amongst
do not form “benefits from miscellaneous activities in the
others, a person who holds the Dutch nationality will be
Netherlands” (resultaat uit overige werkzaamheden in
deemed to be resident in the Netherlands if such person
Nederland), including without limitation activities in the
has been resident in the Netherlands at any time during the
Netherlands with respect to the notes that exceed “normal
ten years preceding the date of the gift or his/her death.
asset management” (normal, actief vermogensbeheer);
Additionally, for purposes of Dutch gift tax, amongst others,
❚ if such holder is an entity, the holder is not entitled
to a share in the profits of an enterprise nor a co-
entitlement to the net worth of an enterprise, which is
effectively managed in the Netherlands, other than by
a person not holding the Dutch nationality will be deemed
to be resident in the Netherlands if such person has been
resident in the Netherlands at any time during the twelve
months preceding the date of the gift.
way of securities, and to which enterprise the notes are
Value added tax (VAT)
attributable; and
No Dutch VAT will be payable by a holder of the notes in
❚ if such holder is an individual, the holder is not entitled
respect of any payment in consideration for the issue of the
to a share in the profits of an enterprise that is effectively
notes or with respect to any payment by PGF of principal,
managed in the Netherlands, other than by way of
interest or premium (if any) on the notes.
securities, and to which enterprise the notes are attributable.
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Other Taxes and Duties
No other Dutch registration taxes, or any other similar taxes
of a documentary nature, such as capital tax or stamp duty,
will be payable in the Netherlands by or on behalf of a holder
after the date that is six months after the date on which
final United States Treasury Regulations defining the term
“foreign pass thru payment” are filed with the United States
Federal Register.
of the notes by reason only of the purchase, ownership and
A number of jurisdictions, including the Netherlands,
disposal of the notes.
FATCA
have entered into, or have agreed in substance to,
intergovernmental agreements with the United States to
implement FATCA (“IGAs”), which modify the way in which
FATCA applies in their jurisdictions. Certain holders of the
Pursuant to certain provisions of the U.S. Internal Revenue
notes therefore may be required to provide information and
Code of 1986 and the U.S. Treasury regulations promulgated
tax documentation regarding their identities, as well as that
thereunder, commonly known as FATCA, a “foreign financial
of their direct and indirect owners, and this information may
institution” may be required to withhold on certain payments
be reported to the Dutch tax authorities and ultimately
it makes to persons that fail to meet certain certification,
to the IRS.
reporting or related requirements.
Holders should consult their own tax advisors regarding how
Pursuant to FATCA, holders and beneficial owners of the
these rules may apply to their investment in the notes.
notes may be required to provide to a financial institution
in the chain of payments on the notes information and tax
documentation regarding their identities, and in the case
of a holder that is an entity, the identities of their direct
and indirect owners, and this information may be reported
to relevant tax authorities, including the IRS. Moreover,
financial institutions through which payments are made,
may be required to withhold U.S. tax at a 30% rate on “foreign
pass thru payments” (a term not yet defined) paid to an
investor who does not provide information sufficient for
the institution to determine whether the investor is a U.S.
The Proposed Financial Transactions Tax
(FTT)
On February 14, 2013, the European Commission published
a proposal (“Commission’s Proposal”) for a directive for
a common financial transaction tax, or FTT, in Austria,
Belgium, Estonia, France, Germany, Greece, Italy, Portugal,
Slovenia, Slovakia and Spain, or the participating member
states (“Member States”). However, Estonia has since stated
that it will not participate.
person or should otherwise be treated as holding a “United
Under the Commission’s Proposal, the FTT could apply in
States account” of the institution, or to an investor that is,
certain circumstances to persons both within and outside of
or holds the notes directly or indirectly through, a non-U.S.
the participating Member States. Generally, it would apply
financial institution that is not in compliance with FATCA.
to certain dealings in the notes where at least one party is
Regulations implementing the rules on withholding taxes
a financial institution, and at least one party is established
imposed on “foreign pass thru payments” have not yet been
in a participating Member State. A financial institution may
adopted or proposed and the IRS has indicated that any such
be, or be deemed to be, “established” in a participating
regulations would not be effective for payments made two
Member State in a broad range of circumstances, including
years after the date on which final regulations on this issue
(1) by transacting with a person established in a participating
are published). Holders of our common or preferred shares
Member State or (2) where the financial instrument which is
or ADSs should consult their own tax advisors to obtain a
subject to the dealings is issued in a participating
more detailed explanation of FATCA and to learn how FATCA
Member State.
might affect each holder in its particular circumstances.
However, the FTT remains subject to negotiation between
Under a grandfathering rule, this withholding tax will not
the participating Member States and the legality of the
apply unless the notes are issued or materially modified
proposal is uncertain. The FTT may therefore be altered prior
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to any implementation, the timing of which remains unclear.
interest payments is generally (in case of fixed yields – See
Additional European Union Member States may decide to
“Taxation of Dividends”) 15%, unless (i) the holder of the
participate and/or certain of the participating Member States
notes is resident or domiciled in a “tax haven jurisdiction”
may decide to withdraw.
The Commission’s Proposal has a very broad scope and
could, if introduced in its current form, apply to certain
dealings in notes in certain circumstances. This could,
accordingly, affect the market value of notes and/or limit the
ability to resell notes but given the lack of certainty at this
stage, it is not possible to predict in full the effects of the
proposed FTT. Prospective holders of notes are advised to
seek their own professional advice in relation to the FTT.
Brazilian Taxation
The following discussion is a summary of the Brazilian tax
considerations relating to an investment in the notes by a
non-resident of Brazil. The discussion is based on the tax
laws of Brazil as in effect on the date hereof and is subject to
any change in Brazilian law that may come into effect after
such date. The information set forth below is intended to be
a general discussion only and does not address all possible
consequences relating to an investment in the notes.
INVESTORS SHOULD CONSULT THEIR OWN TAX
(that is deemed to be a country or jurisdiction which does
not impose any tax on income or which imposes such tax
at a maximum effective rate lower than 17% or where the
local legislation imposes restrictions on disclosing the
identities of shareholders, the ownership of investments,
or the ultimate beneficiary of earnings distributed to the
non-resident – “tax haven jurisdiction”), in which case the
applicable rate is 25% or (ii) such other lower rate as provided
for in an applicable tax treaty between Brazil and another
country where the beneficiary is domiciled. In case the
guarantor is required to assume the obligation to pay the
principal amount of the notes, Brazilian tax authorities could
attempt to impose withholding income tax at the rate of up
to 25% as described above. Although Brazilian legislation
does not provide a specific tax rule for such cases and there
is no official position from tax authorities or precedents
from the Brazilian court regarding the matter, we believe
that the remittance of funds by us as a guarantor for the
payment of the principal amount of the notes will not be
subject to income tax in Brazil, because the mere fact that
the guarantor is making the payment does not convert the
nature of the principal due under the notes into income of
ADVISERS AS TO THE CONSEQUENCES OF PURCHASING
the beneficiary.
THE NOTES, INCLUDING, WITHOUT LIMITATION, THE
CONSEQUENCES OF THE RECEIPT OF INTEREST AND
THE SALE, REDEMPTION OR REPAYMENT OF THE NOTES
OR COUPONS.
Generally, an individual, entity, trust or organization
domiciled for tax purposes outside Brazil, or a “Non-
If the payments with respect to the notes are made by us,
as provided for in the guaranties, the non-resident holders
will be indemnified so that, after payment of all applicable
Brazilian taxes collectable by withholding, deduction or
otherwise, with respect to principal, interest and additional
amounts payable with respect to the notes (plus any interest
resident,” is taxed in Brazil only when income is derived
and penalties thereon), a non-resident holder will receive
from Brazilian sources or when the transaction giving rise
an amount equal to the amount that such non-resident
to such earnings involves assets in Brazil. Therefore, any
holder would have received as if no such Brazilian taxes (plus
gains or interest (including original issue discount), fees,
interest and penalties thereon) were withheld. The Brazilian
commissions, expenses and any other income paid by PGF in
obligor will, subject to certain exceptions, pay additional
respect of the notes issued by them in favor of non-resident
amounts in respect of such withholding or deduction so that
holders are not subject to Brazilian taxes.
the non-resident holder receives the net amount due.
Interest, fees, commissions, expenses and any other
Gains on the sale or other disposition of the notes made
income payable by us as guarantor resident in Brazil to a
outside of Brazil by a non-resident, other than a branch or a
non-resident are generally subject to income tax withheld
subsidiary of Brazilian resident, to another non-resident are
at source. The rate of withholding income tax in respect of
not subject to Brazilian income tax.
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In addition, payments made from Brazil are subject to the
federal tax purposes, persons that enter into a “constructive
tax on foreign exchange transactions (IOF/Câmbio), which
sale” transaction with respect to the notes, nonresident
is levied on the conversion of Brazilian currency into foreign
alien individuals present in the United States for more than
currency and on the conversion of foreign currency into
182 days in a taxable year, or U.S. Holders whose functional
Brazilian currency at a general rate of 0.38%. Other IOF/
currency is not the U.S. dollar. U.S. Holders should be aware
Câmbio rates may apply to specific transactions. In any
that the U.S. federal income tax consequences of holding the
case, the Brazilian federal government may increase, at any
notes may be materially different for investors described in
time, such rate up to 25% but only with respect to future
the prior sentence.
transactions.
In addition, this summary does not discuss any foreign, state
Generally, there are no inheritance, gift, succession, stamp,
or local tax considerations. This summary only applies to
or other similar taxes in Brazil with respect to the ownership,
original purchasers of notes who have purchased notes at
transfer, assignment or any other disposition of the notes by
the original issue price and hold the notes as “capital assets”
a non-resident, except for gift and inheritance taxes imposed
(generally, property held for investment). U.S. Holders of
by some Brazilian states on gifts or bequests by individuals
or entities not domiciled or residing in Brazil to individuals or
entities domiciled or residing within such states.
notes denominated in a currency other than US$ should
consult their tax advisors regarding the application of foreign
currency gain or loss rules to the notes and the treatment of
any foreign currency received in respect of the notes.
U.S. Federal Income Taxation
EACH INVESTOR SHOULD CONSULT ITS OWN
The following summary sets forth material United States
TAX ADVISOR CONCERNING THE OVERALL TAX
federal income tax considerations that may be relevant to
CONSEQUENCES IN ITS PARTICULAR CIRCUMSTANCES,
a holder of a note that is, for U.S. federal income purposes,
INCLUDING THE CONSEQUENCES UNDER LAWS
a citizen or resident of the United States or a domestic
OTHER THAN U.S. FEDERAL INCOME TAX LAWS, OF AN
corporation or that otherwise is subject to U.S. federal
INVESTMENT IN THE NOTES.
income taxation on a net income basis in respect of the
notes (a “U.S. Holder”). This summary is based upon the
Code, its legislative history, existing and proposed U.S.
Book/Tax Conformity
Treasury regulations promulgated thereunder, published
U.S. Holders that use an accrual method of accounting for tax
rulings by the IRS, and court decisions, all as in effect as
purposes (“accrual method holders”) generally are required
of the date hereof, all of which are subject to change or
to include certain amounts in income no later than the time
differing interpretations, possibly with retroactive effect.
such amounts are reflected on certain financial statements
This summary does not purport to discuss all aspects of
(the “book/tax conformity rule”). The application of the
the U.S. federal income taxation which may be relevant to
book/tax conformity rule thus may require the accrual of
special classes of investors, such as financial institutions,
income earlier than would be the case under the general
insurance companies, dealers or traders in securities or
tax rules described below. It is not entirely clear to what
currencies, securities traders who elect to account for
types of income the book/tax conformity rule applies, or, in
their investment in notes on a mark-to-market basis,
some cases, how the rule is to be applied if it is applicable.
regulated investment companies, tax-exempt organizations,
However, recently released proposed regulations generally
partnerships or partners therein, holders that are subject
would exclude, among other items, original issue discount
to the alternative minimum tax, certain short-term holders
and market discount (in either case, whether or not de
of notes, persons that hedge their exposure in the notes or
minimis) from the applicability of the book/tax conformity
hold notes as part of a position in a “straddle” or as part of
rule. Although the proposed regulations generally will not
a hedging transaction or “conversion transaction” for U.S.
be effective until taxable years beginning after the date
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on which they are issued in final form, taxpayers generally
it accrues, in advance of the receipt of cash attributable
are permitted to elect to rely on their provisions currently.
to that income. The “adjusted issue price” of a note at the
Accrual method holders should consult with their tax
beginning of any accrual period will generally be the sum of
advisors regarding the potential applicability of the book/tax
its issue price (generally including accrued interest, if any)
conformity rule to their particular situation.
and the amount of OID allocable to all prior accrual periods,
Payments of Interest
reduced by the amount of all payments other than payments
of qualified stated interest (if any) made with respect to
such note in all prior accrual periods. The term “qualified
Payment of “qualified stated interest,” as defined below,
stated interest” generally means stated interest that is
on a note (including additional amounts, if any) generally
unconditionally payable in cash or property (other than debt
will be taxable to a U.S. Holder as ordinary interest income
instruments of the issuer) at least annually during the entire
when such interest is accrued or is actually or constructively
term of a note at a single fixed rate of interest, or subject to
received, in accordance with the U.S. Holder’s applicable
certain conditions, based on one or more interest indices.
method of accounting for U.S. federal tax purposes. In
general, if a note is issued with an “issue price” that is less
than its “stated redemption price at maturity” by more
than a de minimis amount, such note will be considered to
have “original issue discount,” or OID. For this purpose, the
“issue price” generally is the first price at which a substantial
amount of such notes is sold to investors for money. A U.S.
Holder should consult its own tax advisors regarding the
issue price for a note, in particular where the note has been
issued pursuant to an exchange offer or a reopening or the
note’s terms have been amended. The stated redemption
price at maturity of a note generally includes all payments on
the note other than payments of qualified stated interest.
In general, each U.S. Holder of a note, whether such holder
Interest income, including OID, in respect of the notes will
constitute foreign source income for U.S. federal income
tax purposes and, with certain exceptions, will be treated
separately, together with other items of “passive category
income,” for purposes of computing the foreign tax credit
allowable under the U.S. federal income tax laws. The
calculation of foreign tax credits involves the application
of complex rules that depend on a U.S. Holder’s particular
circumstances. U.S. Holders should consult their own tax
advisors regarding the availability of foreign tax credits and
the treatment of additional amounts.
Sale or Disposition of Notes
uses the cash or the accrual method of tax accounting, will
A U.S. Holder generally will recognize capital gain or loss
be required to include in gross income as ordinary interest
upon the sale, exchange, retirement or other disposition
income the sum of the “daily portions” of OID on the note, if
of a note in an amount equal to the difference between
any, for all days during the taxable year that the U.S. Holder
the amount realized upon such sale, exchange, retirement
owns the note. The daily portions of OID on a note are
or other disposition (other than amounts attributable to
determined by allocating to each day in any accrual period
accrued qualified stated interest, which will be taxed as such)
a ratable portion of the OID allocable to that accrual period.
and such U.S. Holder’s adjusted tax basis in the note. A U.S.
In general, in the case of an initial holder, the amount of OID
Holder’s adjusted tax basis in the note generally will equal
on a note allocable to each accrual period is determined by
the U.S. Holder’s cost for the note increased by any amounts
(i) multiplying the “adjusted issue price,” as defined below,
included in gross income by such U.S. Holder as OID, if any,
of the note at the beginning of the accrual period by the
and reduced by any payments other than payments of
yield to maturity of the note, and (ii) subtracting from that
qualified stated interest on that note. Gain or loss realized
product the amount of qualified stated interest allocable
by a U.S. Holder on the sale, exchange, retirement or other
to that accrual period. U.S. Holders should be aware that
disposition of a note generally will be U.S. source gain or loss
they generally must include OID in gross income as ordinary
for U.S. federal income tax purposes unless it is attributable
interest income for U.S. federal income tax purposes as
to an office or other fixed place of business outside the
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United States and certain other conditions are met. The gain
Specified Foreign Financial Assets
Certain U.S. Holders that own “specified foreign financial
assets” with an aggregate value in excess of US$50,000 on
the last day of the taxable year or US$75,000 at any time
during the taxable year are generally required to file an
information statement along with their tax returns, currently
on Form 8938, with respect to such assets. “Specified foreign
financial assets” include any financial accounts held at a
non-U.S. financial institution, as well as securities issued by
a non-U.S. issuer (which would include the notes) that are
not held in accounts maintained by financial institutions.
Higher reporting thresholds apply to certain individuals
living abroad and to certain married individuals. Regulations
extend this reporting requirement to certain entities that
are treated as formed or availed of to hold direct or indirect
interests in specified foreign financial assets based on
certain objective criteria. U.S. Holders who fail to report
the required information could be subject to substantial
penalties. Prospective investors should consult their own tax
advisors concerning the application of these rules to their
investment in the notes, including the application of the
rules to their particular circumstances.
or loss realized by a U.S. Holder will be capital gain or loss,
and will be long-term capital gain or loss if the notes were
held for more than one year. The net amount of long-term
capital gain recognized by an individual holder generally is
subject to taxation at preferential rates. Capital losses may
be deducted from taxable income, subject to
certain limitations.
Backup Withholding and Information
Reporting
A U.S. Holder may, under certain circumstances, be subject
to “backup withholding” with respect to certain payments to
that U.S. Holder, unless the holder (i) is an exempt recipient,
and demonstrates this fact when so required, or (ii) provides
a correct taxpayer identification number, certifies that it is
not subject to backup withholding and otherwise complies
with applicable requirements of the backup withholding
rules. Any amount withheld under these rules generally
will be creditable against the U.S. Holder’s U.S. federal
income tax liability. While non-U.S. Holders generally are
exempt from backup withholding, a non-U.S. Holder may,
in certain circumstances, be required to comply with certain
information and identification procedures in order to prove
entitlement to this exemption.
U.S. Holders should consult their own tax advisors about any
additional reporting requirements that may arise as a result
of their purchasing, holding or disposing of the notes.
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SIGNATURES
ABBREVIATIONS
246
254
255
CONVERSION TABLE
CROSS REFERENCE TO FORM 20-F
256
257
ADDITIONAL
INFORMATION
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SIGNATURES
ABBREVIATIONS
246
254
255
CONVERSION TABLE
CROSS REFERENCE TO FORM 20-F
256
257
List of Exhibits
No.
1.1
2.1
2.2
2.3
Description
Amended Bylaws of Petróleo Brasileiro S.A.-Petrobras, dated as of March 04, 2020.
Indenture, dated as of December 15, 2006, between Petrobras International Finance Company and The Bank of
New York, as Trustee (incorporated by reference to Exhibit 4.9 to the Registration Statement of Petrobras and
Petrobras International Finance Company on Form F-3, filed with the Securities and Exchange Commission on
December 18, 2006 (File Nos. 333-139459 and 333-139459-01))
Fourth Supplemental Indenture, dated as of October 30, 2009, among Petrobras International Finance
Company, Petrobras and The Bank of New York Mellon, as Trustee, relating to the 6.875% Global Notes due
2040 (incorporated by reference to Exhibit 2.36 to the Annual Report on Form 20-F of Petrobras and Petrobras
International Finance Company, filed with the Securities and Exchange Commission on May 20, 2010 (File Nos.
001-15106 and 001-33121))
Guaranty for the 6.875% Global Notes due 2040, dated as of October 30, 2009, between Petrobras and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 2.38 to the Annual Report on Form 20-F of
Petrobras and Petrobras International Finance Company, filed with the Securities and Exchange Commission on
May 20, 2010 (File Nos. 001-15106 and 001-33121))
2.4
Description of Securities
2.5
2.6
2.7
2.8
2.9
Transfer of Rights Agreement, dated as of September 3, 2010, among Petrobras, the Brazilian Federal Government
and the National Petroleum, Natural Gas and Biofuels Agency (incorporated by reference to Exhibit 2.47 to the
Annual Report on Form 20-F of Petrobras and Petrobras International Finance Company, filed with the Securities
and Exchange Commission on May 26, 2011 (File Nos. 001-15106 and 001-33121))
Ninth Supplemental Indenture, dated as of December 9, 2011, among Petrobras International Finance Company,
Petrobras, The Bank of New York Mellon, as Trustee, The Bank of New York Mellon, London Branch, as Principal
Paying Agent and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Paying Agent, relating to the
5.875% Global Notes due 2022 (incorporated by reference to Exhibit 4.5 to Form 6-K of Petrobras and Petrobras
International Finance Company, furnished to the Securities and Exchange Commission on December 9, 2011 (File
Nos. 001-15106 and 001-33121))
Guaranty for the 5.875% Global Notes due 2022, dated as of December 9, 2011, between Petrobras and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.4 to Form 6-K of Petrobras and Petrobras
International Finance Company, furnished to the Securities and Exchange Commission on December 9, 2011 (File
Nos. 001-15106 and 001-33121))
Tenth Supplemental Indenture, dated as of December 12, 2011, among Petrobras International Finance Company,
Petrobras, The Bank of New York Mellon, as Trustee, The Bank of New York Mellon, London Branch, as Principal
Paying Agent and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Paying Agent, relating to the
6.250% Global Notes due 2026 (incorporated by reference to Exhibit 4.2 to Form 6-K of Petrobras and Petrobras
International Finance Company, furnished to the Securities and Exchange Commission on December 12, 2011 (File
Nos. 001-15106 and 001-33121))
Guaranty for the 6.250% Global Notes due 2026, dated as of December 12, 2011, between Petrobras and The
Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to Form 6-K of Petrobras and
Petrobras International Finance Company, furnished to the Securities and Exchange Commission on December 12,
2011 (File Nos. 001-15106 and 001-33121))
246
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ABBREVIATIONS
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No.
Description
2.10
2.11
2.12
2.13
2.14
2.15
2.16
2.17
2.18
2.19
Further Amended and Restated Deposit Agreement, dated as of January 2, 2020, among Petrobras, JPMorgan
Chase Bank, N.A., as depositary, and registered holders and beneficial owners from time to time of the ADSs,
representing the common shares of Petrobras, and Form of ADR evidencing ADSs representing the common
shares of Petrobras
Further Amended and Restated Deposit Agreement, dated as of January 2, 2020, among Petrobras, JPMorgan
Chase Bank, N.A., as depositary, and registered holders and beneficial owners from time to time of the ADSs,
representing the preferred shares of Petrobras, and Form of ADR evidencing ADSs representing the preferred
shares of Petrobras
Amended and Restated Sixth Supplemental Indenture, dated as of February 6, 2012, among Petrobras
International Finance Company, Petrobras and The Bank of New York Mellon, as Trustee, relating to the 5.375%
Global Notes due 2021 (incorporated by reference to Exhibit 4.2 to Form 6-K of Petrobras and Petrobras
International Finance Company, furnished to the Securities and Exchange Commission on February 6, 2012 (File
Nos. 001-15106 and 001-33121))
Amended and Restated Seventh Supplemental Indenture, dated as of February 6, 2012, among Petrobras
International Finance Company, Petrobras and The Bank of New York Mellon, as Trustee, relating to the 6.750%
Global Notes due 2041 (incorporated by reference to Exhibit 4.5 to Form 6-K of Petrobras and Petrobras
International Finance Company, furnished to the Securities and Exchange Commission on February 6, 2012 (File
Nos. 001-15106 and 001-33121))
Amended and Restated Guaranty for the 5.375% Global Notes due 2021, dated as of February 6, 2012, between
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to Form 6-K of
Petrobras and Petrobras International Finance Company, furnished to the Securities and Exchange Commission on
February 6, 2012 (File Nos. 001-15106 and 001-33121))
Amended and Restated Guaranty for the 6.750% Global Notes due 2041, dated as of February 6, 2012, between
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.4 to Form 6-K of
Petrobras and Petrobras International Finance Company, furnished to the Securities and Exchange Commission on
February 6, 2012 (File Nos. 001-15106 and 001-33121))
Sixth Supplemental Indenture, dated as of February 10, 2012, among Petrobras International Finance Company,
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 2.11 to the Annual
Report on Form 20-F of Petrobras and Petrobras International Finance Company, filed with the Securities and
Exchange Commission on April 2, 2012 (File Nos. 001-15106 and 001-33121))
Thirteenth Supplemental Indenture, dated as of February 10, 2012, among Petrobras International Finance
Company, Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 2.60 to the
Annual Report on Form 20-F of Petrobras and Petrobras International Finance Company, filed with the Securities
and Exchange Commission on April 2, 2012 (File Nos. 001-15106 and 001-33121))
Indenture, dated as of August 29, 2012, between Petrobras Global Finance B.V. and The Bank of New York Mellon,
as Trustee (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form F-3 of Petrobras,
Petrobras International Finance Company and Petrobras Global Finance B.V., filed with the Securities and Exchange
Commission on August 29, 2012 (File Nos. 333-183618, 333-183618-01 and 333-183618-02))
Second Supplemental Indenture, dated as of October 1, 2012, among Petrobras Global Finance B.V., Petrobras,
The Bank of New York Mellon, as Trustee, The Bank of New York Mellon, London Branch, as principal paying agent,
and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg paying agent, relating to the 4.25% Global
Notes due 2023 (incorporated by reference to Exhibit 4.5 to Form 6-K of Petrobras, furnished to the Securities and
Exchange Commission on October 1, 2012 (File No. 001-15106))
247
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No.
Description
2.20
2.21
2.22
2.23
2.24
2.25
2.26
2.27
2.28
2.29
Third Supplemental Indenture, dated as of October 1, 2012, among Petrobras Global Finance B.V., Petrobras, The
Bank of New York Mellon, as Trustee, The Bank of New York Mellon, London Branch, as principal paying agent,
and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg paying agent, relating to the 5.375% Global
Notes due 2029 (incorporated by reference to Exhibit 4.8 to Form 6-K of Petrobras, furnished to the Securities and
Exchange Commission on October 1, 2012 (File No. 001-15106))
Guaranty for the 4.25% Global Notes due 2023, dated as of October 1, 2012, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.4 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on October 1, 2012 (File No. 001-15106))
Guaranty for the 5.375% Global Notes due 2029, dated as of October 1, 2012, between Petrobras and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.7 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on October 1, 2012 (File No. 001-15106))
Sixth Supplemental Indenture, dated as of May 20, 2013, between Petrobras Global Finance B.V., Petrobras and
The Bank of New York Mellon, as Trustee, relating to the 4.375% Global Notes due 2023 (incorporated by reference
to Exhibit 4.8 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on May 20, 2013
(File No. 001-15106))
Seventh Supplemental Indenture, dated as of May 20, 2013, between Petrobras Global Finance B.V., Petrobras and
The Bank of New York Mellon, as Trustee, relating to the 5.625% Global Notes due 2043 (incorporated by reference
to Exhibit 4.11 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on May 20, 2013
(File No. 001-15106))
Guaranty for the 4.375% Global Notes due 2023, dated as of May 20, 2013, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.7 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on May 20, 2013 (File No. 001-15106))
Guaranty for the 5.625% Global Notes due 2043, dated as of May 20, 2013, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.10 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on May 20, 2013 (File No. 001-15106))
Production Sharing Agreement, dated as of December 2, 2013, among Petrobras, Shell Brasil Petróleo Ltda.,
Total E&P do Brasil Ltda., CNODC Brasil Petróleo e Gás Ltda. and CNOOC Petroleum Brasil Ltda., the Brazilian
Federal Government, Pré-Sal Petróleo S.A. - PPSA and the National Petroleum, Natural Gas and Biofuels Agency
(incorporated by reference to the Annual Report on Form 20-F of Petrobras, filed with the Securities and Exchange
Commission on April 30, 2014 (File No. 001-15106))
Eleventh Supplemental Indenture, dated as of January 14, 2014, among Petrobras Global Finance B.V., Petrobras,
The Bank of New York Mellon, as Trustee, The Bank of New York Mellon, London Branch, as principal paying agent,
and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg paying agent, relating to the 3.750% Global
Notes due 2021 (incorporated by reference to Exhibit 4.5 to Form 6-K of Petrobras, furnished to the Securities and
Exchange Commission on January 14, 2014 (File No. 001-15106))
Twelfth Supplemental Indenture, dated as of January 14, 2014, among Petrobras Global Finance B.V., Petrobras,
The Bank of New York Mellon, as Trustee, The Bank of New York Mellon, London Branch, as principal paying agent,
and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg paying agent, relating to the 4.750% Global
Notes due 2025 (incorporated by reference to Exhibit 4.8 to Form 6-K of Petrobras, furnished to the Securities and
Exchange Commission on January 14, 2014 (File No. 001-15106))
248
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ABBREVIATIONS
246
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CROSS REFERENCE TO FORM 20-F
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257
No.
Description
2.30
2.31
2.32
2.33
2.34
2.35
2.36
2.37
2.38
2.39
2.40
Thirteenth Supplemental Indenture, dated as of January 14, 2014, among Petrobras Global Finance B.V.,
Petrobras, The Bank of New York Mellon, as Trustee, The Bank of New York Mellon, London Branch, as principal
paying agent, and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg paying agent, relating to the
6.625% Global Notes due 2034 (incorporated by reference to Exhibit 4.11 to Form 6-K of Petrobras, furnished to
the Securities and Exchange Commission on January 14, 2014 (File No. 001-15106))
Guaranty for the 3.750% Global Notes due 2021, dated as of January 14, 2014, between Petrobras and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.4 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on January 14, 2014 (File No. 001-15106))
Guaranty for the 4.750% Global Notes due 2025, dated as of January 14, 2014, between Petrobras and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.7 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on January 14, 2014 (File No. 001-15106))
Guaranty for the 6.625% Global Notes due 2034, dated as of January 14, 2014, between Petrobras and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.10 to Form 6-K of Petrobras, furnished to
the Securities and Exchange Commission on January 14, 2014 (File No. 001-15106))
Sixteenth Supplemental Indenture, dated as of March 17, 2014, among Petrobras Global Finance B.V., Petrobras
and The Bank of New York Mellon, as Trustee, relating to the 6.250% Global Notes due 2024 (incorporated by
reference to Exhibit 4.8 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on March
17, 2014 (File No. 001-15106))
Seventeenth Supplemental Indenture, dated as of March 17, 2014, among Petrobras Global Finance B.V., Petrobras
and The Bank of New York Mellon, as Trustee, relating to the 7.250% Global Notes due 2044 (incorporated by
reference to Exhibit 4.11 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on
March 17, 2014 (File No. 001-15106))
Nineteenth Supplemental Indenture, dated as of March 17, 2014, among Petrobras Global Finance B.V., Petrobras
and The Bank of New York Mellon, as Trustee, relating to the Floating Rate Global Notes due 2020 (incorporated
by reference to Exhibit 4.17 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on
March 17, 2014 (File No. 001-15106))
Guaranty for the 6.250% Global Notes due 2024, dated as of March 17, 2014, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.7 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on March 17, 2014 (File No. 001-15106))
Guaranty for the 7.250% Global Notes due 2044, dated as of March 17, 2014, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.10 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on March 17, 2014 (File No. 001-15106))
Guaranty for the Floating Rate Global Notes due 2020, dated as of March 17, 2014, between Petrobras and The
Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.16 to Form 6-K of Petrobras, furnished
to the Securities and Exchange Commission on March 17, 2014 (File No. 001-15106))
Seventh Supplemental Indenture, dated as of December 28, 2014, among Petrobras International Finance
Company S.A., Petrobras Global Finance B.V., Petrobras and The Bank of New York Mellon, as Trustee (incorporated
by reference to Exhibit 4.1 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on
January 15, 2015 (File No. 001-15106))
249
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No.
Description
2.41
2.42
2.43
2.44
2.45
2.46
2.47
2.48
2.49
2.50
2.51
Fourteenth Supplemental Indenture, dated as of December 28, 2014, among Petrobras International Finance
Company S.A., Petrobras Global Finance B.V., Petrobras and The Bank of New York Mellon, as Trustee (incorporated
by reference to Exhibit 4.2 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on
January 15, 2015 (File No. 001-15106))
First Amendment to the Guaranties, dated as of December 28, 2014, between Petrobras and The Bank of New York
Mellon, as Trustee (incorporated by reference to Exhibit 4.3 to Form 6-K of Petrobras, furnished to the Securities
and Exchange Commission on January 15, 2015 (File No. 001-15106))
Twentieth Supplemental Indenture, dated as of June 5, 2015, among Petrobras Global Finance B.V., Petrobras and
The Bank of New York Mellon, as Trustee, relating to the 6.850% Global Notes due 2115 (incorporated by reference
to Exhibit 4.2 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on June 5, 2015
(File No. 001-15106))
Guaranty for the 6.850% Global Notes due 2115, dated as of June 5, 2015, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on June 5, 2015 (File No. 001-15106))
Twenty-First Supplemental Indenture, dated as of May 23, 2016, among Petrobras Global Finance B.V., Petrobras
and The Bank of New York Mellon, relating to the 8.375% Global Notes due 2021 (incorporated by reference to
Exhibit 4.2 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on May 23, 2016 (File
No. 01-15106))
Amended and Restated Twenty-First Supplemental Indenture, dated as of July 13, 2016, among Petrobras
Global Finance B.V., Petrobras and The Bank of New York Mellon, relating to the 8.375% Global Notes due 2021
(incorporated by reference to Exhibit 4.2 to Form 6-K of Petrobras, furnished to the Securities and Exchange
Commission on July 13, 2016 (File No. 01-15106))
Twenty-Second Supplemental Indenture, dated as of May 23, 2016, among Petrobras Global Finance B.V.,
Petrobras and The Bank of New York Mellon, relating to the 8.750% Global Notes due 2026 (incorporated by
reference to Exhibit 4.5 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on May
23, 2016 (File No. 01-15106))
Amended and Restated Twenty-Second Supplemental Indenture, dated as of July 13, 2016, among Petrobras
Global Finance B.V., Petrobras and The Bank of New York Mellon, relating to the 8.750% Global Notes due 2026
(incorporated by reference to Exhibit 4.5 to Form 6-K of Petrobras, furnished to the Securities and Exchange
Commission on July 13, 2016 (File No. 01-15106))
Twenty-Third Supplemental Indenture, dated as of January 17, 2017, among Petrobras Global Finance B.V.,
Petrobras and The Bank of New York Mellon, relating to the 6.125% Global Notes due 2022 (incorporated by
reference to Exhibit 4.2 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on
January 17, 2017 (File No. 01-15106))
Twenty-Fourth Supplemental Indenture, dated as of January 17, 2017, among Petrobras Global Finance B.V.,
Petrobras and The Bank of New York Mellon, relating to the 7.375% Global Notes due 2027 (incorporated by
reference to Exhibit 4.5 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on
January 17, 2017 (File No. 01-15106))
Guaranty for the 8.375% Global Notes due 2021, dated as of May 23, 2016, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on May 23, 2016 (File No. 01-15106))
250
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ABBREVIATIONS
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CROSS REFERENCE TO FORM 20-F
256
257
No.
Description
2.52
2.53
2.54
2.55
2.56
2.57
2.58
2.59
2.60
2.61
2.62
2.63
2.64
Amended and Restated Guaranty for the 8.375% Global Notes due 2021, dated as of July 13, 2016, between
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to Form 6-K of
Petrobras, furnished to the Securities and Exchange Commission on July 13, 2016 (File No. 01-15106))
Guaranty for the 8.750% Global Notes due 2026, dated as of May 23, 2016, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.4 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on May 23, 2016 (File No. 01-15106))
Amended and Restated Guaranty for the 8.750% Global Notes due 2026, dated as of July 13, 2016, between
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.4 to Form 6-K of
Petrobras, furnished to the Securities and Exchange Commission on July 13, 2016 (File No. 01-15106))
Amended and Restated Guaranty for the 6.125% Global Notes due 2022, dated as of May 22, 2017, between
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to Form 6-K of
Petrobras, furnished to the Securities and Exchange Commission on May 22, 2017 (File No. 01-15106))
Amended and Restated Guaranty for the 7.375% Global Notes due 2027, dated as of May 22, 2017, between
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.4 to Form 6-K of
Petrobras, furnished to the Securities and Exchange Commission on May 22, 2017 (File No. 01-15106))
Amended and Restated Twenty-Third Supplemental Indenture, dated as of January 17, 2017, among Petrobras
Global Finance B.V., Petrobras and The Bank of New York Mellon, relating to the 6.125% Global Notes due 2022
(incorporated by reference to Exhibit 4.2 to Form 6-K of Petrobras, furnished to the Securities and Exchange
Commission on May 22, 2017 (File No. 01-15106))
Amended and Restated Twenty-Fourth Supplemental Indenture, dated as of May 22, 2017, among Petrobras
Global Finance B.V., Petrobras and The Bank of New York Mellon, relating to the 7.375% Global Notes due 2027
(incorporated by reference to Exhibit 4.5 to Form 6-K of Petrobras, furnished to the Securities and Exchange
Commission on May 22, 2017 (File No. 01-15106))
Amended and Restated Seventeenth Supplemental Indenture, dated as of May 22, 2017, among Petrobras Global
Finance B.V., Petrobras and The Bank of New York Mellon, as Trustee, relating to the 7.250% Global Notes due
2044 (incorporated by reference to Exhibit 4.8 to Form 6-K of Petrobras, furnished to the Securities and Exchange
Commission on May 22, 2017 (File No. 01-15106))
Indenture, dated as of September 27, 2017, among Petrobras Global Finance B.V., Petrobras and The Bank of New
York Mellon, as trustee, relating to the 5.299% Global Notes due 2025.
Indenture, dated as of September 27, 2017, among Petrobras Global Finance B.V., Petrobras and The Bank of New
York Mellon, as trustee, relating to the 5.999% Global Notes due 2028.
Guaranty for the 5.299% Global Notes due 2025, dated as of September 27, 2017, between Petrobras and The
Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.96 to Form 6-K of Petrobras, furnished
to the Securities and Exchange Commission on July 27, 2018 (File No. 333-226375))
Guaranty for the 5.999% Global Notes due 2028, dated as of September 27, 2017, between Petrobras and The
Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.97 to Form 6-K of Petrobras, furnished
to the Securities and Exchange Commission on July 27, 2018 (File No. 333-226375))
Twenty-Fifth Supplemental Indenture, dated as of February 1, 2018, among Petrobras Global Finance B.V.,
Petrobras and The Bank of New York Mellon, relating to the 5.750% Global Notes due 2029 (incorporated by
reference to Exhibit 4.2 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on
February 1, 2018 (File No. 001-15106))
251
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ABBREVIATIONS
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256
257
No.
Description
2.65
2.66
2.67
2.68
2.69
2.70
2.71
2.72
4.1
4.2
Guaranty for the 5.750% Global Notes due 2029, dated as of February 1, 2018, between Petrobras and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on February 1, 2018 (File No. 001-15106))
Indenture, dated as of August 28, 2018 between Petrobras and The Bank of New York, as Trustee (incorporated by
reference to Exhibit 4.3 to the Registration Statement of Petrobras and Petrobras Global Finance on Form F-3, filed
with the Securities and Exchange Commission on August 28, 2018 (File Nos. 333-227087 and 333-227087-01))
Indenture, dated as of August 28, 2018 between Petrobras Global Finance B.V. and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.4 to the Registration Statement of Petrobras and Petrobras Global
Finance B.V. on Form F-3, filed with the Securities and Exchange Commission on August 28, 2018 (File Nos. 333-
227087 and 333-227087-01))
Amended And Restated Guaranty for the 5.750% Global Notes due 2029, dated as of March 19, 2019, between
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to Form 6-K of
Petrobras, furnished to the Securities and Exchange Commission on March 19, 2019 (File No. 001-15106)
Amended And Restated Twenty-Fifth Supplemental Indenture for the 5.750% Global Notes due 2029, dated as
of March 19, 2019, between Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to
Exhibit 4.2 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on March 19, 2019
(File No. 001-15106)
Guaranty for the 6.90% Global Notes due 2049, dated as of March 19, 2019, between Petrobras and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.5 to Form 6-K of Petrobras, furnished to the
Securities and Exchange Commission on March 19, 2019 (File No. 001-15106)
First Supplemental Indenture for the 6.90% Global Notes due 2049, dated as of March 19, 2019, between
Petrobras and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.6 to Form 6-K of
Petrobras, furnished to the Securities and Exchange Commission on March 19, 2019 (File No. 001-15106)
Amended and Restated Guaranty of theAmended and Restated Guaranty of the 7.250% Global Notes due 2044,
dated as of March 17, 2014, between Petrobras and The Bank of New York Mellon, as Trustee (incorporated by
reference to Exhibit 4.7 to Form 6-K of Petrobras, furnished to the Securities and Exchange Commission on May
22, 2017 (File No. 001-15106))
Form of Concession Agreement for Exploration, Development and Production of crude oil and natural gas
executed between Petrobras and the ANP (incorporated by reference to Exhibit 10.1 of Petrobras’ Registration
Statement on Form F-1 filed with the Securities and Exchange Commission on July 14, 2000 (File No. 333-12298)).
This was a paper filing, and is not available on the SEC website.
Purchase and Sale Agreement of natural gas, executed between Petrobras and Yacimientos Petroliferous Fiscales
Bolivianos-YPFB (together with and English version) (incorporated by reference to Exhibit 10.2 to Petrobras’
Registration Statement on Form F-1 filed with the Securities and Exchange Commission on July 14, 2000 (File
No. 333-12298)). This was a paper filing, and is not available on the SEC website.
Until the moment seven GSA Additives have been concluded since its celebration on August 16, 1996, so the GSA
remains in force.
8.1
List of subsidiaries.
12.1
13.1
15.1
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Consent letter of KPMG.
252
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No.
Description
15.2
15.3
15.4
99.1
Consent letter of DeGolyer and MacNaughton.
Hydrocarbon production by geographic area.
List of our vessels.
Third Party Reports of DeGolyer and MacNaughton.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
253
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Signatures
The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and has duly caused
this annual report to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Rio de Janeiro, on March 20, 2020.
Petróleo Brasileiro S.A. – PETROBRAS
Name: Roberto da Cunha Castello Branco
Title: Chief Executive Officer
By:
By:
Name: Andrea Marques de Almeida
Title: Chief Financial Officer and Chief Investor Relations Officer
254
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ABBREVIATIONS
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257
Abbreviations
bbl
bbl/d
bcf
bn
bnbbl
bncf
bnm3
bnboe
boe
boed
cf
GWh
km
km2
m3
mbbl
mbbl/d
mboe
mboed
mcf
mcf/d
mm3
mm3/d
mm3/y
mmbbl
mmbbl/d
mmboe
mmboed
mmcf
mmcf/d
mmm3
mmm3/d
mmt
mmt/y
MW
MWavg
MWh
ppm
R$
t
Tcf
US$
/d
/y
Barrels
Barrels per day
Billion cubic feet
Billion (thousand million)
Billion barrels
Billion cubic feet
Billion cubic meters
Billion barrels of oil equivalent
Barrels of oil equivalent
Barrels of oil equivalent per day
Cubic feet
One gigawatt of power supplied or demanded for one hour
Kilometer
Square kilometers
Cubic meter
Thousand barrels
Thousand barrels per day
Thousand barrels of oil equivalent
Thousand barrels of oil equivalent per day
Thousand cubic feet
Thousand cubic feet per day
Thousand cubic meters
Thousand cubic meters per day
Thousand cubic meter per year
Million barrels
Million barrels per day
Million barrels of oil equivalent
Million barrels of oil equivalent per day
Million cubic feet
Million cubic feet per day
Million cubic meters
Million cubic meters per day
Million metric tons
Million metric tons per year
Megawatts
Amount of energy (in MWh) divided by the time (in hours) in
which such energy is produced or consumed
One megawatt of power supplied or demanded for one hour
Parts per million
Brazilian reais
Metric ton
Trillion cubic feet
United States dollars
Per day
Per year
255
ADDITIONAL INFORMATIONANNUAL REPORT AND FORM 20-F 2019 LIST OF EXHIBITS
SIGNATURES
ABBREVIATIONS
246
254
255
CONVERSION TABLE
CROSS REFERENCE TO FORM 20-F
256
257
Conversion Table
1 acre
1 barrel
1 boe
1 m3 of natural gas
1 km
1 meter
= 43,560 square feet
= 42 U.S. gallons
= 1 barrel of crude oil equivalent
= 35.315 cf
= 0.6214 miles
= 3.2808 feet
= 0.004047 km2
= Approximately 0.13 t of oil
= 6,000 cf of natural gas
= 0.0059 boe
1 t of crude oil
= 1,000 kilograms of crude oil
=
Approximately 7.5
barrels of crude
oil (assuming
an atmospheric
pressure index
gravity of 37°API)
256
ADDITIONAL INFORMATIONANNUAL REPORT AND FORM 20-F 2019
LIST OF EXHIBITS
SIGNATURES
ABBREVIATIONS
246
254
255
CONVERSION TABLE
CROSS REFERENCE TO FORM 20-F
256
257
Cross Reference to Form 20-F
Form 20-F
Captions
Location in this Annual Report
Disclaimer
Glossary of Certain Terms used in this Annual Report
About Us
❚ Selected Financial Data
❚ Overview
PART I
Identity of Directors, Senior Management
and Advisers
Not applicable
Offer Statistics and Expected Timetable
Not applicable
Item 1.
Item 2.
Item 3.
Pages
4
6
11
13
15
-
-
Key Information
A. Selected Financial Data
About us (Selected Financial Data; Overview)
13; 15
B. Capitalization and indebtedness
Not applicable
C. Reasons for the offer and use of proceeds
Not applicable
D. Risk factors
Risks
Item 4.
Information on the Company
A. History and development of the company
About Us (Overview)
-
-
20
15
B. Business overview
About Us (Overview); Our Business; Portfolio
Management; 2020-2024 Strategic Plan; Legal
and Tax (Regulation)
15; 41; 103;
112; 214
C. Organizational structure
Overview; Exhibit 8.1 – List of Subsidiaries
D. Property, plants and equipment
Our Business; Legal and Tax (Regulation)
Item 4A.
Unresolved Staff Comments
None
Item 5.
Operating and Financial Review and Prospects
A. Operating results
B. Liquidity and capital resources
Operating and Financial Review and Prospects
Operating and Financial Review and Prospects
(Liquidity and Capital Resources)
C. Research and development, patents and
licenses, etc.
Strategic Plan (Digital Transformation)
D. Trend Information
Our Business
E. Off-balance sheet arrangements
F. Tabular disclosure of contractual obligations
Operating and Financial Review and Prospects
(Other Information – Off-Balance Sheet
Arrangements)
Operating and Financial Review and Prospects
(Other Information – Contractual Obligations)
G. Safe harbor
Forward-Looking Statements
Item 6.
Directors, Senior Management and Employees
A. Directors and senior management
Management and Employees (Management)
B. Compensation
C. Board practices
D. Employees
Management and Employees
(Additional Information on our Board of Directors
and Board of Executive Officers)
Management and Employees (Management)
Management and Employees (Employees)
257
15; -
41; 214
-
133
147
118
41
159
159
4
162
174
162
183
ADDITIONAL INFORMATIONANNUAL REPORT AND FORM 20-F 2019
LIST OF EXHIBITS
SIGNATURES
ABBREVIATIONS
246
254
255
CONVERSION TABLE
CROSS REFERENCE TO FORM 20-F
256
257
Form 20-F
Captions
Location in this Annual Report
E. Share Ownership
Item 7.
Major Shareholders and Related Party
Transactions
Shareholder Information (Listing; Shares and
Shareholder) and Management and
Employees (Share Ownership)
A. Major shareholders
B. Related party transactions
Shareholder Information
(Shares and Shareholders)
Management and Employees
(Related Party Transactions)
C. Interests of experts and counsel
Not applicable
Item 8.
Financial Information
Pages
197; 198; 175
198
181
-
A. Consolidated Statements and Other Financial
Information
Financial Statements; Legal Proceedings;
Shareholder Information (Dividends)
F-1; 223; 206
B. Significant Changes
Not applicable
Item 9.
The Offer and Listing
A. Offer and listing details
B. Plan of distribution
C. Markets
D. Selling shareholders
E. Dilution
F. Expenses of the issue
Item 10.
Additional Information
A. Share capital
B. Memorandum and articles of association
C. Material contracts
D. Exchange controls
E. Taxation
F. Dividends and paying agents
G. Statement by experts
H. Documents on display
I. Subsidiary Information
Item 11.
Item 12.
Qualitative and Quantitative Disclosures
about Market Risk
Description of Securities other than Equity
Securities
Not applicable
Not applicable
Shareholder Information (Listing)
Not applicable
Not applicable
Not applicable
Shareholder Information
(Listing, Shares and Shareholders)
Shareholder Information (Shareholders Rights);
Environment, Social and Governance
Legal and Tax (Material Contracts)
Shareholder Information (Additional Information
for Foreign Shareholders)
Legal and Tax (Tax)
Not applicable
Our Business (Preparation of Reserves Estimates)
Box: Documents on Display
Not applicable
Risks (Disclosures About Market Risk)
A. Debt Securities
B. Warrants and Rights
C. Other Securities
Not applicable
Not applicable
Not applicable
D. American Depositary Shares
Shareholder Information (ADS Holders)
-
-
-
197
-
-
-
197; 198
202; 130
219
210
229
-
58
5
-
38
-
-
-
210
258
ADDITIONAL INFORMATIONANNUAL REPORT AND FORM 20-F 2019
LIST OF EXHIBITS
SIGNATURES
ABBREVIATIONS
246
254
255
CONVERSION TABLE
CROSS REFERENCE TO FORM 20-F
256
257
Form 20-F
Captions
Location in this Annual Report
PART II
Item 13.
Item 14.
Defaults, Dividend Arrearages and
Delinquencies
Material Modifications to the Rights of
Security Holders and Use of Proceeds
None
None
Item 15.
Controls and Procedures
Compliance and Internal Control
Item 16A.
Audit Committee Financial Expert
Management and Employees
(Management - Statutory Board Committees)
Item 16B.
Code of Ethics
Compliance and Internal Control
Item 16C.
Principal Accountant Fees and Services
Management and Employees
(Management - Audit Committee -Principal
Accountant Fees and Services)
Item 16D.
Exemptions from the Listing Standards for
Audit Committees
Management and Employees
(Management - Audit Committee)
Item 16E.
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
Shareholder Information
(Additional Information for Foreign
Shareholders - Purchases of Equity Securities by
the Issuer and Affiliated Purchasers
Item 16F.
Change in Registrant’s Certifying Accountant
Not applicable
Item 16G.
Corporate Governance
Management and Employeess (Management
- Comparison of our Corporate Governance
Practices with NYSE Corporate Governance
Requirements applicable to U.S. Companies)
Item 16H.
Mine Safety Disclosure
Not applicable
Item 17.
Item 18.
Item 19.
PART III
Financial Statements
Financial Statements
Exhibits
Not applicable
Financial Statements
Exhibits
Signatures
Abbreviations
Conversion Table
Cross Reference to Form 20-F
Pages
-
-
190
175
190
178
177
212
-
179
-
-
F-1
246
254
255
256
257
259
ADDITIONAL INFORMATIONANNUAL REPORT AND FORM 20-F 2019
FINANCIAL
STATEMENTS
260
FINANCIALSTATEMENTSANNUAL REPORT AND FORM 20-F 2019 Petróleo Brasileiro S.A. – Petrobras
Index
Report of Independent Registered Public Accounting Firm (Consolidated Financial Statements) ............................................. F-3
Report of Independent Registered Public Accounting Firm (Internal Control Over Financial Reporting) .................................. F-7
Management Report on Internal Control over Financial Reporting ........................................................................................... F-9
Consolidated Statement of Financial Position .......................................................................................................................... F-10
Consolidated Statement of Income ........................................................................................................................................... F-11
Consolidated Statement of Comprehensive Income ................................................................................................................ F-12
Consolidated Statement of Cash Flows ..................................................................................................................................... F-13
Consolidated Statement of Changes in Shareholders’ Equity ................................................................................................... F-14
The Company and its operations ...................................................................................................................................... F-15
1.
Basis of preparation .......................................................................................................................................................... F-15
2.
Summary of significant accounting policies ..................................................................................................................... F-18
3.
4.
Critical accounting policies: key estimates and judgments .............................................................................................. F-18
5. New standards and interpretations .................................................................................................................................. F-24
Capital Management ........................................................................................................................................................ F-25
6.
Cash and cash equivalents and Marketable securities ..................................................................................................... F-25
7.
Sales revenues .................................................................................................................................................................. F-26
8.
Costs and expenses by nature .......................................................................................................................................... F-29
9.
Other income and expenses......................................................................................................................................... F-30
10.
Net finance income (expense) ..................................................................................................................................... F-30
11.
Net income by operating segment .............................................................................................................................. F-31
12.
Trade and other receivables ........................................................................................................................................ F-36
13.
Inventories ................................................................................................................................................................... F-39
14.
Trade payables ............................................................................................................................................................. F-40
15.
Taxes ............................................................................................................................................................................ F-40
16.
Short-term and other benefits ..................................................................................................................................... F-47
17.
Employee benefits (Post-Employment) ....................................................................................................................... F-48
18.
Provisions for legal proceedings .................................................................................................................................. F-58
19.
Provision for decommissioning costs ........................................................................................................................... F-68
20.
The “Lava Jato (Car Wash) Operation” and its effects on the Company ...................................................................... F-68
21.
Commitment to purchase natural gas ......................................................................................................................... F-70
22.
Property, plant and equipment .................................................................................................................................... F-71
23.
Intangible assets ........................................................................................................................................................... F-75
24.
Impairment................................................................................................................................................................... F-77
25.
Exploration and evaluation of oil and gas reserves ...................................................................................................... F-87
26.
Collateral for crude oil exploration concession agreements ....................................................................................... F-88
27.
Joint ventures in E&P activities .................................................................................................................................... F-90
28.
Investments .................................................................................................................................................................. F-93
29.
Disposal of assets and other changes in organizational structure ............................................................................... F-97
30.
Assets by operating segment ..................................................................................................................................... F-104
31.
Finance debt ............................................................................................................................................................... F-105
32.
Lease liabilities ........................................................................................................................................................... F-110
33.
Equity ......................................................................................................................................................................... F-112
34.
Fair value of financial assets and liabilities ................................................................................................................ F-116
35.
Risk management ....................................................................................................................................................... F-116
36.
Related-party transactions ......................................................................................................................................... F-126
37.
Supplemental information on statement of cash flows ............................................................................................. F-131
38.
Information related to guaranteed securities issued by subsidiaries ........................................................................ F-131
39.
Supplementary information on Oil and Gas Exploration and Production (unaudited)…………………………………………………..……F-132
F-2
KPMG Auditores Independentes
Rua do Passeio, 38 - Setor 2 - 17º andar - Centro
20021-290 - Rio de Janeiro/RJ - Brasil
Caixa Postal 2888 - CEP 20001-970 - Rio de Janeiro/RJ - Brasil
Telefone +55 (21) 2207-9400
kpmg.com.br
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Petróleo Brasileiro S.A. - Petrobras
Rio de Janeiro – RJ
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Petróleo Brasileiro S.A. –
Petrobras and subsidiaries (“the Company”) as of December 31, 2019 and 2018, the related consolidated
statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-
year period ended December 31, 2019, and the related notes (collectively, the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2019, in conformity with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated March 20, 2020, expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2.3 to the consolidated financial statements, the Company has changed its method of
accounting for lease arrangements as of January 1, 2019 due to the adoption of IFRS 16 “Leases”.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
F-3
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Assessment of the valuation of the obligations for the defined benefit pension and health care plans
As discussed in notes 4.4 and 18 of the consolidated financial statements as of December 31, 2019, the Company
sponsors defined benefit pension plans and health care plans that provide supplementary retirement benefits and
medical care to its employees. As of December 31, 2019, the obligations under these pension and health care
plans were USD 26,494 million. The determination of the Company’s defined benefit pension and health care
obligation with respect to these plans is dependent, in part, on the selection of certain actuarial assumptions. These
assumptions include the discount rate and projected medical costs. The Company hires external actuaries to assist
in the process of determining the actuarial assumptions and valuing the obligations under its pension and health
care plans.
We identified the assessment of the valuation of the obligations for the defined benefit pension and health care
plans as a critical audit matter because it required subjective auditor judgment. The discount rates and projected
medical costs used to determine the obligations were challenging to audit as minor changes in these assumptions
had a significant impact on the measurement of the obligations for the defined benefit pension and health care
plans.
The primary procedures we performed to address this critical audit matter included the following:
• we tested certain internal controls over the Company’s process for estimating the defined benefit pension and
health care obligations. This included controls related to the development, review and approval of the discount
rates and projected medical costs;
• we evaluated the scope, competency, and objectivity of the external actuaries that the Company hired to
assist in estimating the obligations for the defined benefit pension and health care plans. This included
assessing the nature and scope of the work they were engaged to perform and their professional qualifications
and experience; and
• we involved actuarial professionals with specialized skills and knowledge, who assisted in evaluating the
Company’s discount rates and projected medical costs including by comparing them to external sources.
Evaluation of the impairment testing of exploration and production cash generating units (“CGUs”)
As discussed in notes 4.1(b), 4.2, 4.3 and 25 to the consolidated financial statements as of December 31, 2019, for
the purposes of impairment testing, the Company identifies its cash generating units (“CGUs”), estimates the
recoverable amount of these CGUs and compares this amount to their carrying value. The estimation of the
recoverable amount is based on cash flow projections for the CGUs. The carrying value of the exploration and
production CGUs as of December 31, 2019 was USD 106,189 million. For the year ended December 31, 2019, the
amount of provision expense recognized in relation to the exploration and production CGUs was USD 2,499
million.
We identified the evaluation of the impairment testing of exploration and production CGUs as a critical audit matter
because there is a high degree of complexity and subjectivity of auditor judgment involved in evaluating the
Company’s definition of these CGUs and the estimate of the recoverable amount. The definition of exploration and
production CGUs requires auditor judgment in the consideration of operational factors that impact the
interdependencies between oil and gas assets. These interdependencies alter the aggregation or segregation of
the oil and gas assets into CGUs. The cash flow projections used to determine the recoverable amount are
dependent on certain assumptions including: average Brent oil price; exchange rate; capital and operating
expenditure and volume and timing of recovery of the oil and gas reserves. The recoverable amount is also
sensitive to minor changes in the discount rate. The assessment of these assumptions required significant auditor
judgment.
F-4
The primary procedures we performed to address this critical audit matter included the following:
• we tested certain internal controls over the Company’s impairment assessment process. These included
controls related to the review and approval of the Company’s determination of the CGUs and of the key
assumptions used to estimate the recoverable amount;
for changes in exploration and production CGUs during the year, we assessed the operational factors
considered by the Company when defining these changes by comparing to information obtained from internal
and external sources;
•
• we evaluated the Company’s projected recovery of oil and gas reserves by comparing with volumes certified
by external specialist hired by the Company and with historical production;
• we evaluated future capital and operating expenditures by comparing to the latest approved business and
management plan and long-term budgets; and
• we evaluated the Company’s ability to accurately project cash flows by comparing the prior years’ estimated
cash flows for the year ended December 31, 2019 with actual cash flows in this year.
In addition, we involved a valuation professional with specialized skill and knowledge, who assisted in evaluating
key inputs used in the impairment testing such as the discount rates, average Brent oil prices and the exchange
rates by comparing them against available external market data.
Evaluation of provisions and disclosures for certain specific labor, civil and tax lawsuits
As discussed in notes 4.5 and 19 to the consolidated financial statements as of December 31, 2019, the Company
is involved in labor, civil and tax lawsuits during the normal course of its activities. The Company records provisions
for these lawsuits when it is probable that an outflow of resource embodying economic benefits will be required to
settle a present obligation and when the outflow can be reasonably estimated. The Company discloses a
contingency whenever the likelihood of loss of the lawsuit is considered possible, or when the likelihood of loss is
considered probable but it is not possible to reasonably estimate the amount of the outflow.
We identified the evaluation of certain specific legal proceedings and the related provisions recognized and/or
disclosures made as a critical audit matter because it required challenging auditor judgment and effort due to the
subjective nature of the estimates and assumptions. Specifically judgments about the likelihood of loss and
estimates of the amounts that would be paid in the event of loss.
The primary procedures we performed to address this critical audit matter included the following:
• we tested certain internal controls over the Company’s evaluation of lawsuits. These included controls related
to the review and approval of the determination of the likelihood of loss and the estimate of the loss amount,
as well as controls over the financial statement disclosures;
• we evaluated the scope, competency, and objectivity of the internal and external legal counsel that determined
the likelihood of loss and the estimate of the loss amount. This included assessing the nature and scope of the
work they were engaged to perform and their professional qualifications and experience;
• we obtained and evaluated letters received directly from the Company’s external legal counsel that included
an assessment of the likelihood of loss and the estimate of the loss amount. For certain specific legal
proceedings, we compared these assessments and estimates to those used by the Company and evaluated
the sufficiency of the Company’s legal contingency disclosures; and
• we evaluated the Company’s ability to accurately estimate amounts to be paid under lawsuits by comparing a
sample of amounts paid upon resolution of legal proceedings during the year to the amounts provided for as of
the prior year end.
Evaluation of the estimate of provision for decommissioning costs
As discussed in notes 4.1(c), 4.6 and 20 to the consolidated financial statements as of December 31, 2019, the
provision for decommissioning costs reflects the obligation to restore the environment and dismantle and remove
oil and gas production facilities upon abandonment. As of December 31, 2019, the Provision for decommissioning
costs balance was USD17,460 million. The Company’s estimate of the provision for decommissioning costs
includes assumptions in relation to the extent of the obligations assumed for environmental restoration and the
dismantlement and removal of oil and gas production facilities as well as the cost and timing of this work.
We identified the evaluation of the estimate of the provision for decommissioning costs as a critical audit matter
because of the subjective auditor judgment that is involved to evaluate the key assumptions used in the estimate
such as the extent of the decommissioning work that will be required by contract and regulations and the criteria to
F-5
be met when the decommissioning actually occurs and the costs and related timing of the future payments that will
be incurred in the decommissioning process.
The primary procedures we performed to address this critical audit matter included the following:
• we tested certain internal controls over the Company’s process to estimate the provision for decommissioning
costs. This included controls relating to the development, review and approval of the key assumptions,
including estimates of the timing of abandonment and estimated costs of decommissioning;
• we assessed the estimates of timing until abandonment used by the Company, by comparing the production
curves and life of the oil and gas reserves used with reserve volumes certified by external specialist hired by
the Company;
• we assessed the estimated costs of decommissioning by comparing with external industry reports;
• we evaluated the scope, competency, and objectivity of the internal engineers that estimated the production
curves and life of the oil and gas reserves and the external specialist hired by the Company that certified the
reserve volumes. This included assessing the nature and scope of the work they were engaged to perform
and their professional qualifications and experience;
• we evaluated the Company´s ability to accurately forecast costs of decommissioning work, by comparing a
sample of actual expenditure incurred with the decommissioning of oil and gas production facilities during the
year to the Company´s forecasts of that expenditure in the prior year.
/s/ KPMG Auditores Independentes
We have served as the Company’s auditor since 2017.
KPMG Auditores Independentes
Rio de Janeiro – Brazil
February 19, 2020
F-6
KPMG Auditores Independentes
Rua do Passeio, 38 - Setor 2 - 17º andar - Centro
20021-290 - Rio de Janeiro/RJ - Brasil
Caixa Postal 2888 - CEP 20001-970 - Rio de Janeiro/RJ - Brasil
Telefone +55 (21) 2207-9400
kpmg.com.br
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Petróleo Brasileiro S.A. - Petrobras
Rio de Janeiro – RJ
Opinion on Internal Control Over Financial Reporting
We have audited Petróleo Brasileiro S.A. – Petrobras and subsidiaries’ (“the Company”) internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the consolidated statement of financial position of the Company as of December 31,
2019 and 2018, the related consolidated statements of income, comprehensive income, changes in equity, and
cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes
(collectively, the “consolidated financial statements”), and our report dated February 19, 2020 expressed an
unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
F-7
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ KPMG Auditores Independentes
KPMG Auditores Independentes
Rio de Janeiro – Brazil
March 20, 2020
F-8
Petróleo Brasileiro S.A. – Petrobras
Management Report on Internal Control over Financial Reporting
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing, adequately maintaining and assessing the effectiveness of internal
control over financial reporting. Such internal control is a process designed by, or under the supervision of our CEO and
CFO, and effected by our Board of Directors, management and other employees.
The internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of
financial reporting and of the preparation of our consolidated financial statements for external purposes, in accordance
with IFRS, as issued by the IASB.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are
subject to the risk of becoming inadequate because of changes in its conditions and assumptions.
Our management has assessed the effectiveness of our internal control over financial reporting as of December 31,
2019 based on the criteria established in the guide called “Internal Controls — Integrated Framework (2013)” issued by
the Committee of Sponsoring Organizations of Treadway Commission (“COSO”). Our management has concluded that
our internal control over financial reporting was effective.
Audit of the Effectiveness of Internal Control over Financial Reporting
Our independent registered public accounting firm has audited the effectiveness of our internal control over financial
reporting, as stated in their report as of December 31, 2019, which is included herein.
Roberto Castello Branco
Chief Executive Officer
Andrea Marques de Almeida
Chief Financial Officer
F-9
Petróleo Brasileiro S.A. – Petrobras
Consolidated Statement of Financial Position
December 31, 2019 and December 31, 2018
(Expressed in millions of US Dollars, unless otherwise indicated)
Assets
Current assets
Cash and cash equivalents
Marketable securities
Trade and other receivables
Inventories
Recoverable income taxes
Other recoverable taxes
Escrow account - Class action agreement
Others
Assets classified as held for sale
Non-current assets
Long-term receivables
Trade and other receivables
Marketable securities
Judicial deposits
Deferred income taxes
Other tax assets
Advances to suppliers
Others
Investments
Property, plant and equipment
Intangible assets
Note
12.31.2019
12.31.2018
Note
12.31.2019
12.31.2018
Liabilities related to assets classified as held for sale
30
7.1
7.2
13.1
14
16.1
16.1
19.4
30
13.1
7.2
19.2
16.6
16.1
29
23.1
24.1
7,372
888
3,762
8,189
2,493
1,051
−
1,493
25,248
2,564
27,812
2,567
58
8,236
1,388
3,939
326
1,177
17,691
13,899
1,083
5,746
8,987
739
1,296
1,881
1,485
35,116
1,946
37,062
5,492
53
6,711
2,680
3,540
666
2,917
22,059
Liabilities
Current liabilities
Trade payables
Finance debt
Lease liability
Income taxes payable
Other taxes payable
Dividends payable
Short-term benefits
Pension and medical benefits
Provisions for legal proceedings
Agreement with US Authorities
Others
Non-current liabilities
Finance debt
Lease liability
Income taxes payable
Deferred income taxes
Pension and medical benefits
Provisions for legal proceedings
Provision for decommissioning costs
Others
Total liabilities
Equity
5,499
159,265
19,473
201,928
2,759
157,383
2,805
185,006
Share capital (net of share issuance costs)
Capital reserve and capital transactions
Profit reserves
Accumulated other comprehensive (deficit)
Attributable to the shareholders of Petrobras
Non-controlling interests
15
32.1
33
16.1
16.1
34.6
17
18
19.1
21.1
32.1
33
16.1
16.6
18
19.1
20
34.1
29.5
5,601
4,469
5,737
276
3,424
1,558
1,645
887
−
−
1,973
25,570
3,246
28,816
58,791
18,124
504
1,760
25,607
3,113
17,460
1,350
126,709
155,525
107,101
1,064
65,627
(100,469)
73,323
892
74,215
229,740
6,327
3,667
23
211
3,556
1,109
1,658
810
3,482
783
2,442
24,068
983
25,051
80,508
162
552
654
21,940
3,923
15,133
970
123,842
148,893
107,101
1,067
58,161
(94,785)
71,544
1,631
73,175
222,068
Total assets
229,740
222,068
Total liabilities and equity
The notes form an integral part of these financial statements.
F-10
Petróleo Brasileiro S.A. – Petrobras
Consolidated Statement of Income
Years ending December 31, 2019, 2018 and
2017
(Expressed in millions of US Dollars, 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 income and expenses
Income before finance income (expense), results in equity-accounted investments and
income taxes
Finance income
Finance expenses
Foreign exchange gains (losses) and inflation indexation charges
Net finance income (expense)
and
Note
2019
2018
Reclassified
2017
Reclassified
8.2
9.1
9.2
9.3
26
25
10
11
76,589
(45,732)
30,857
84,638
(52,184)
32,454
77,884
(51,198)
26,686
(4,476)
(2,124)
(799)
(576)
(619)
(2,848)
1,199
(10,243)
(3,827)
(2,239)
(524)
(641)
(670)
(2,005)
(5,760)
(15,666)
(3,614)
(2,656)
(800)
(572)
(1,789)
(1,191)
(5,511)
(16,133)
20,614
16,788
10,553
1,330
(7,086)
(3,008)
(8,764)
2,381
(5,675)
(3,190)
(6,484)
928
(7,006)
(3,641)
(9,719)
Results of equity-accounted investments
29.2
153
523
673
Net income before income taxes
12,003
10,827
1,507
Income taxes
16.5
(4,200)
(4,256)
(1,697)
Net income (loss) from continuing operations for the year
Net income from discontinued operations for the year
10.2
Net income for the year
Non-controlling interests
Net income (loss) from continuing operations
Net income from discontinued operations
Net income (loss) attributable to shareholders of Petrobras
Net income (loss) from continuing operations
Net income from discontinued operations
7,803
2,560
10,363
212
143
69
10,151
7,660
2,491
6,571
843
7,414
241
(1)
242
7,173
6,572
601
(190)
359
169
260
157
103
(91)
(347)
256
Basic and diluted earnings per common and preferred share - in U.S. dollars
34.7
0.78
0.55
(0.01)
The notes form an integral part of these financial statements.
F-11
Petróleo Brasileiro S.A. – Petrobras
Consolidated Statement of Comprehensive
Income
Years ending December 31, 2019 and 2018
(Expressed in millions of US Dollars, unless otherwise indicated)
Net income for the year
Items that will not be reclassified to the statement of income:
Actuarial gains (losses) on post-employment defined benefit plans
Recognized in equity
Deferred income tax
2018
Reclassified
2017
Reclassified
2019
10,363
7,414
169
(5,589)
1,491
(4,098)
(3,130)
(119)
(3,249)
1,908
(273)
1,635
Unrealized gains (losses) on equity instruments measured at fair value through other comprehensive
income
Recognized in equity
Deferred income tax
Share of other comprehensive income (losses) in equity-accounted investments
Items that may be reclassified subsequently to the statement of income:
Unrealized gains (losses) on cash flow hedge - highly probable future exports
Recognized in equity
Reclassified to the statement of income
Deferred income tax
Cumulative translation adjustments (*)
Recognized in equity
Reclassified to the statement of income
−
−
−
−
(3,510)
3,136
126
(248)
(1,465)
34
(1,431)
(5)
2
(3)
−
(8,950)
3,315
1,916
(3,719)
(6,409)
−
(6,409)
Share of other comprehensive income in equity-accounted investments
69
(135)
Unrealized gains (losses) on equity instruments measured at fair value through other comprehensive
income
Recognized in equity
Deferred income tax
Unrealized gains (losses) on cash flow hedge - others
Recognized in equity
−
−
−
−
−
−
−
−
−
−
−
(1)
(543)
3,154
(887)
1,724
(851)
37
(814)
156
15
(4)
11
(5)
Total other comprehensive income (loss)
(5,708)
(13,515)
2,706
Total comprehensive income (loss)
Comprehensive income attributable to non-controlling interests
Comprehensive income (loss) attributable to shareholders of Petrobras
4,655
186
4,469
(6,101)
65
(6,166)
2,875
291
2,584
(*) It includes a US$ 131 loss (a US$ 236 loss in 2018 and a US$ 49 loss in 2017), of cumulative translation adjustments in associates and joint ventures.
The notes form an integral part of these financial statements.
F-12
Petróleo Brasileiro S.A. – Petrobras
Consolidated Statement of Cash Flows
Years ending December 31, 2019, 2018 and 2017
(Expressed in millions of US Dollars, unless otherwise indicated)
Cash flows from Operating activities
Net income for the year
Adjustments for:
Net income from discontinued operations
Pension and medical benefits (actuarial expense)
Results of equity-accounted investments
Depreciation, depletion and amortization
Impairment of assets (reversal)
Allowance (reversals) for credit loss on trade and other receivables
Exploratory expenditure write-offs
Foreign exchange, indexation and finance charges
Deferred income taxes, net
Revision and unwinding of discount on the provision for decommissioning costs
Inventory write-down (write-back) to net realizable value
Provision for the class action agreement
Disposal/write-offs of assets, remeasurement of investment retained with loss of control and
reclassification of CTA
Decrease (Increase) in assets
Trade and other receivables, net
Inventories
Judicial deposits
Escrow account - Class action agreement
Other assets
Increase (Decrease) in liabilities
Trade payables
Other taxes payable
Pension and medical benefits
Provisions for legal proceedings
Short-term benefits
Provision for decommissioning costs
Agreement with US authorities
Other liabilities
Income taxes paid
Net cash provided by operating activities from continuing operations
Discontinued operations – net cash provided by operating activities
Net cash provided by operating activities
Cash flows from Investing activities
Acquisition of PP&E and intangibles assets (except for the Bidding for oil surplus of Transfer of
rights agreement)
Bidding for oil surplus of Transfer of rights agreement
Investments in investees
Proceeds from disposal of assets - Divestment
Reimbursement on the Transfer of rights agreement
Divestment (Investment) in marketable securities
Dividends received
Net cash used in investing activities from continuing operations
Discontinued operations – net cash provided by (used in) investing activities
Net cash used in investing activities
Cash flows from Financing activities
Investments by non-controlling interest
Proceeds from financing
Repayment of finance debt - principal
Repayment of finance debt - interest
Repayment of lease liability - principal
Dividends paid to Shareholders of Petrobras
Dividends paid to non-controlling interests
Proceeds from sale of interest without loss of control
Net cash used in financing activities from continuing operations
Discontinued operations – net cash used in financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
The notes form an integral part of these financial statements.
F-13
2018
Reclassified
2017
Reclassified
2019
10,363
7,414
169
(2,560)
2,086
(153)
14,836
2,848
87
308
8,460
2,798
950
15
−
(843)
2,018
(523)
11,912
2,005
91
87
7,941
370
31
421
−
(359)
2,569
(673)
13,166
1,191
720
279
9,413
400
425
66
3,449
(6,012)
(416)
(1,656)
2,233
(281)
(2,144)
1,819
(219)
(989)
225
(1,882)
(3,767)
185
(512)
(768)
(319)
(2,330)
25,277
323
25,600
(8,556)
(15,341)
(7)
10,413
8,361
198
1,436
(3,496)
1,812
(1,684)
(29)
7,464
(27,273)
(4,501)
(5,207)
(1,877)
(138)
−
(31,561)
(508)
(32,069)
1,631
(6,522)
13,899
7,377
(1,535)
(2,108)
(2,040)
(2,019)
461
858
2,265
(1,002)
1,686
529
(500)
(85)
996
(2,567)
25,447
906
26,353
(11,905)
−
(44)
5,791
−
704
994
(4,460)
(44)
(4,504)
43
10,707
(34,013)
(5,703)
−
(625)
(103)
−
(29,694)
(156)
(29,850)
(619)
(8,620)
22,519
13,899
(879)
(171)
(1,669)
−
(126)
(121)
2,960
(876)
305
(755)
(426)
−
83
(769)
26,715
397
27,112
(13,546)
−
(2,069)
3,087
−
(861)
662
(12,727)
727
(12,000)
(797)
27,075
(33,618)
(6,500)
−
−
(167)
1,511
(12,496)
(1,177)
(13,673)
(125)
1,314
21,205
22,519
Petróleo Brasileiro S.A. – Petrobras
Consolidated Statement of Changes in Shareholders’ Equity
Years ending December 31, 2019, 2018 and 2017
(Expressed in millions of US Dollars, unless otherwise indicated)
Share capital (net of
share issuance costs)
Accumulated other comprehensive income (deficit) and
deemed cost
Profit Reserves
Share
Capital
Share
issuance
costs
Capital reserve,
Capital
Transactions
and Treasury
shares
Cumulative
translation
adjustment
Cash flow
hedge -
highly
probable
future
exports
Actuarial
gains (losses)
on defined
benefit
pension plans
Other
comprehensive
income (loss) and
deemed cost
Legal
Statutory
Tax
incentives
Profit
retention
Retained
earnings
Equity
attributable to
shareholders of
Petrobras
Non-
controlling
interests
Total
consolidated
equity
Balance at January 1, 2017
Realization of deemed cost
Capital transactions
Net income
Other comprehensive income
Appropriations:
Transfer to reserves
Dividends
Balance at December 31, 2017
Initial application of IFRS 9
Balance at January 1, 2018
Realization of deemed cost
Capital transactions
Net income
Other comprehensive income
Appropriations:
Transfer to reserves
Dividends
Balance at December 31, 2018
Balance at December 31, 2018
Realization of deemed cost
Capital transactions
Net income
Other comprehensive income (loss)
Appropriations:
Transfer to reserves
Dividends
Balance at December 31, 2019
107,380
(279)
107,101
-
-
-
-
-
-
-
-
-
-
-
-
107,380
107,380
(279)
107,101
(279)
107,101
−
−
−
−
−
−
−
−
−
−
−
−
107,380
107,380
(279)
107,101
(279)
107,101
−
−
−
−
−
−
−
−
−
−
−
−
628
628
-
439
-
-
-
-
1,067
1,067
1,067
1,067
−
2
−
−
−
−
1,067
1,067
1,067
1,067
−
(3)
−
−
−
−
107,380
(279)
107,101
1,064
1,064
The notes form an integral part of these financial statements.
(60,248)
(11,297)
(11,600)
(948)
7,919
2,182
720
-
-
-
-
-
-
-
-
-
(795)
1,724
1,585
-
-
-
-
-
-
(84,093)
(4)
-
-
161
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(61,043)
(9,573)
(10,015)
(791)
7,919
2,182
720
(61,043)
(9,573)
(10,015)
−
−
−
−
−
−
−
−
−
(6,273)
(3,719)
(3,209)
−
−
−
−
−
−
(81,422)
(20)
(811)
(81,442)
(4)
−
−
(138)
−
−
7,919
2,182
720
−
−
−
−
338
−
−
−
−
−
270
−
−
−
−
−
203
−
923
(67,316)
(13,292)
(13,224)
(953)
8,257
2,452
(94,785)
(67,316)
(13,292)
(13,224)
(953)
8,257
2,452
923
−
−
−
−
−
−
−
−
−
(1,405)
(248)
(4,098)
−
−
−
−
−
−
(94,785)
(2)
−
−
69
−
−
−
−
−
−
488
−
−
−
−
−
250
−
(68,721)
(13,540)
(17,322)
(886)
8,745
2,702
−
−
−
−
179
−
1,102
(100,469)
F-14
42,322
53,143
-
-
-
-
(87)
-
42,235
53,056
42,235
53,056
−
−
−
−
4,294
−
46,529
58,161
46,529
58,161
−
−
−
−
6,549
−
53,078
65,627
−
−
4
-
(91)
-
87
-
−
−
(222)
(222)
(222)
4
−
7,173
−
(5,105)
(1,850)
−
−
−
−
2
−
10,151
−
(7,466)
(2,687)
−
−
76,779
76,779
−
439
(91)
2,675
−
−
79,802
79,802
(242)
79,560
79,560
−
2
7,173
(13,339)
−
(1,850)
71,544
71,544
71,544
71,544
−
(3)
10,151
(5,682)
−
(2,687)
73,323
73,323
771
771
-
792
260
31
-
(154)
1,700
1,700
(15)
1,685
1,685
−
115
241
(176)
−
(234)
1,631
1,631
1,631
1,631
−
(658)
212
(26)
−
(267)
892
892
77,550
77,550
-
1,231
169
2,706
-
(154)
81,502
81,502
(257)
81,245
81,245
−
117
7,414
(13,515)
−
(2,084)
73,175
73,175
73,175
73,175
−
(661)
10,363
(5,708)
−
(2,954)
74,215
74,215
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
1. The Company and its operations
Petróleo Brasileiro S.A. (Petrobras), hereinafter referred to as “Petrobras” or “Company,” is a partially state-owned
enterprise, controlled by the Brazilian Federal Government, of indefinite duration, governed by the terms and
conditions under the Brazilian Corporate Law (Law 6,404 of December 15, 1976), Law 13,303 of June 30, 2016 and its
Bylaws.
Petrobras’ shares are listed on the Brazilian stock exchange (B3) in the Level 2 Corporate Governance special listing
segment and, therefore, the Company, its shareholders, its managers and fiscal council members are subject to
provisions under its regulation (Level 2 Regulation - Regulamento de Listagem do Nível 2 de Governança Corporativa
da Brasil Bolsa Balcão – B3). The provisions of the Level 2 Regulation, which are based on high standards of corporate
governance, shall prevail over statutory provisions in the event of harm to the rights of public offers investors provided
for in the Company's Bylaws, except when otherwise determined by other regulation. On February 13, 2020, as
requested, Petrobras had its disassociation from the B3 State-Owned Governance Program approved.
The Company is dedicated 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.
Petrobras may perform any of the activities related to its corporate purpose, directly, through its wholly-owned
subsidiaries, controlled companies, alone or through joint ventures with third parties, in Brazil or abroad.
The economic activities linked to its business purpose shall be undertaken by the Company in free competition with
other companies according to market conditions, in compliance with the other principles and guidelines of Laws no.
9,478/97 and 10,438/02 (oil & gas and electricity sector regulations, respectively). However, Petrobras may have its
activities, provided they are in compliance with its corporate purpose, guided by the Brazilian Federal Government to
contribute to the public interest that justified its creation, aiming to meet national energy policy objectives when:
I – established by law or regulation, as well as under agreements provisions with a public entity that is competent to
establish such obligation, abiding with the broad publicly stated of such instruments; and
II – the cost and revenues thereof have been broken down and disseminated in a transparent manner.
In this case, the Company’s Investment Committee and Minority Shareholders Committee, exercising their advisory role
to the Board of Directors, shall assess and measure the difference between such market conditions and the operating
result or economic return of the transaction, based on technical and economic criteria for investment valuation and
specific operating costs and results under the Company's operations. In this case, for every financial year, the Brazilian
Federal Government shall compensate the Company.
2. Basis of preparation
2.1. Statement of compliance and authorization of financial statements
These consolidated financial statements have been prepared and are being presented in accordance with the
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements have been prepared under the historical cost convention, except when otherwise
indicated. The significant accounting policies used in the preparation of these financial statements are set out in their
respective explanatory notes.
The preparation of the financial statements requires the use of estimates and assumptions which may affect the
application of accounting policies and reported amounts of assets, liabilities, revenues and expenses. Although our
F-15
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
management periodically reviews these assumptions and judgments, the actual results could differ from these
estimates. For further information on accounting estimates, see note 4.
As presented in note 30.2, with the additional sale of the Company’s interest in the subsidiary Petrobras Distribuidora
(BR), carried out through a secondary public offering (follow-on), in July 2019, all requirements were met to classify this
investment as a discontinued operation, in accordance with IFRS 5 - Non-current Assets Held for Sale and Discontinued
Operations, since it represented a separate major line of business. Thus, the consolidated statements of income and
cash flows present net income, operating, investing and financing cash flows relating to this investment in separate line
items, as a net result of discontinued operations. Additionally, the consolidated statements of income and cash flows
for the years ended December 31, 2018 and 2017 were adjusted in a similar manner.
The annual consolidated financial statements were approved and authorized for issue by the Company’s Board of
Directors in a meeting held on February 19, 2020.
2.2. Functional and presentation currency
The functional currency of Petrobras and all of its Brazilian subsidiaries is the Brazilian Real. The functional currency of
the Petrobras direct subsidiaries that operate outside Brazil is the U.S. dollar.
Petrobras has selected the U.S. dollar as its presentation currency to facilitate a more direct comparison to other oil
and gas companies. The financial statements have been translated from the functional currency (Brazilian real) into the
presentation currency (U.S. dollar). All assets and liabilities are translated into U.S. dollars at the closing exchange rate
at the date of the financial statements; income and expenses, as well as cash flows are translated into U.S. dollars using
the average exchange rates prevailing during the period. All exchange differences arising from the translation of the
consolidated financial statements from the functional currency into the presentation currency are recognized as
cumulative translation adjustments (CTA) within accumulated other comprehensive income in the consolidated
statements of changes in shareholders’ equity.
Brazilian Real x U.S. Dollar
Dec 19 Sep 19 Jun 19 Mar 19 Dec 18 Sep 18 Jun 18 Mar 18 Dec 17 Sep 17 Jun 17 Mar 17
Quarterly average exchange rate
Period-end exchange rate
4.12
4.03
3.97
4.16
3.92
3.83
3.77
3.90
3.81
3.87
3.95
4.00
3.61
3.86
3.24
3.32
3.25
3.31
3.16
3.17
3.22
3.31
3.15
3.17
2.3. Initial adoption of new accounting standards
At January 1, 2019, the Company adopted IFRS 16 – Leases. A number of other new standards are also effective from
January 1, 2019 but they do not have material effect on the Company´s financial statements.
2.3.1. IFRS 16 – Leases
Among the changes arising from IFRS 16, this standard eliminated the classification of leases as either operating or
finance leases for lessees, providing for a single lessee accounting model in which all leases result in the recognition of
a right-of-use asset and a lease liability. For more information regarding the effects of the adoption of IFRS 16, see
notes 10, 21 and 31.
Following the adoption of IFRS 16, lease payments under operating leases are not charged to operating results on
accrual basis. Instead, depreciation of the right to use a leased asset, as well as the finance expenses and foreign
exchange gains or losses over the lease liability, affect the results.
In the statement of cash flows, the lease payments previously presented within Cash flows from operating and investing
activities are presented from 2019 onwards as Cash flows from financing activities (US$ 5,207 in 2019), comprising the
settlement of lease liabilities. However, such change does not affect the Company’s cash and cash equivalents balance.
F-16
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
According to the transition provisions set forth in IFRS 16, the Company applied this standard retrospectively with the
cumulative effect of its initial application recognized at January 1, 2019, without restatement of prior period
information, and the following practical expedients were chosen:
a)
b)
c)
Application of this standard to contracts that were previously identified as leases (note 18.2 to the Company’s
audited financial statements ended December 31, 2018);
Lease liabilities measured at the present value of the remaining lease payments, net of applicable recoverable
taxes, discounted by the lessee’s incremental borrowing rate at the date of initial application;
Recognition of right-of-use assets at an amount equal to the lease liability, adjusted by the amount of any
prepaid or accrued lease payments relating to that lease recognized in the statement of financial position
immediately before the date of initial application, excluding initial direct costs.
The Company applies the short-term lease exemption and recognizes payments associated with such leases as
expenses over the term of the arrangements.
At January 1, 2019, the Company accounted for right-of-use assets and lease liabilities at the same amount
(US$ 26,575) and, as a result, the impacts arising from the initial application of this standard did not affect equity. The
right-of-use assets are presented as Property, Plant and Equipment (PP&E), and the lease liabilities are presented as a
separate line item in the statement of financial position.
Right-of-use by underlying asset at January 1, 2019
Oil and gas producing units
Vessels
Lands and buildings
Others
Total
12,925
11,996
1,011
643
26,575
The incremental borrowing rate at the date of initial application was 6.06%.
Reconciliation between operating lease commitments disclosed as of December 31, 2018 and lease liabilities recognized
at the date of initial application is presented below:
Commitment to operating lease as of December 31, 2018
Commitments for which lease terms have not commenced
Discount
Short-term leases and others
Initial application
Finance lease (IAS 17) recognized at December 31, 2018
Lease liability at January 1, 2019
95,379
(54,825)
(9,980)
(3,999)
26,575
185
26,760
The changes arising from the adoption of IFRS 16 did not impact the Company’s business practice and there was no
need to renegotiate covenant clauses in finance debts.
2.4. Order of presentation of the explanatory notes
As recommended in the Conceptual Framework for Financial Reporting, the expectations of users of financial
statements regarding the Company's returns depend on their assessment of the amount, timing and uncertainty of
(the prospects for) future net cash inflows to the entity and on their assessment of management's stewardships of the
entity’s economic resources.
Thus, we promoted a change in the order of the explanatory notes in order to align the Company's financial statements
with the users' view, in addition to emphasizing the importance of the Company's Strategic Management.
F-17
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Thus, after the explanatory notes presenting the Company and its operations, and those related to the conceptual
structure applied in the preparation of the financial statements, it begins with the explanatory note on Capital
Management, followed by the other notes, following primarily the groupings of cash flow statement activities.
3. Summary of significant accounting policies
The accounting policies used in the preparation of the annual financial statements of the Company, for the year ended
December 31, 2019, are set out at the end of each explanatory note, consistently with those adopted and disclosed in
the financial statements of the previous years, except for the changes arising from the adoption of IFRS 16 – Leases
and IFRIC 23 - Uncertainty over Income Tax Treatments, which became effective on January 1, 2019.
4. 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 significant judgment or involve a higher degree of complexity in the
application of the accounting policies and that could materially affect the Company’s financial condition and results of
operations is set out as follows.
4.1. 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 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 those quantities of oil and gas which,
by analysis of geoscientific 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 regulation. Proved reserves are subdivided into developed and undeveloped reserves.
Proved developed oil and gas reserves are those that can be expected to be recovered through: (i) existing wells with
existing equipment and operating methods; (ii) extraction technology installed and operational at the time of the
reserves estimate, extracting oil and gas in other ways than using wells.
F-18
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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 unaudited 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.
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.
Note 23 provides more detailed information on 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
annually, regardless of any absence of impairment indication. The measurement of their value in use is based on proved
and probable reserves pursuant to the ANP/SPE definitions. Note 4.2 provides further information on other
assumptions used in impairment testing.
c)
Impacts of oil and gas reserves on decommissioning costs estimates
The timing of abandonment and dismantling 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. Note 4.6 provides further information on other assumptions used in estimating the
provision for decommissioning costs.
d)
Impacts of oil and gas reserves on highly probable future exports subject to cash flow hedge accounting
The Company estimates highly probable future exports in accordance with future exports forecasted in the scope of its
Strategic Plan projections, which are driven by proved and probable reserves estimates. Changes in such estimates may
impact future exports forecasts and, consequently, hedge relationship designations may also be impacted. Note 4.8
provides further information on other assumptions used in determining highly probably future exports.
4.2. Main assumptions for impairment testing
Impairment testing involves uncertainties mainly related to its key assumptions: average Brent prices and Brazilian
real/U.S. dollar average exchange rate. These assumptions are relevant to virtually all of the Company’s operating
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 Strategic Plan for the first five years and consistent
with the Strategic Plan for the following years. These assumptions are consistent with market evidence, such as
F-19
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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.
The Real/U.S. dollar exchange rate projections are based on econometric models that take into account long-term
assumptions involving observable inputs, such as country risk, commodity prices, interest rates and the value of the
U.S. Dollar relative to a basket of foreign currencies (U.S. Dollar Index – USDX).
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 Brazilian 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 that would increase
discount rates for impairment testing.
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 may not substantially exceed 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 25.1.1.
4.3. 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 CGUs may occur due to a review of
investment, strategic or operational factors, which could result in changes in the interdependencies between those
assets and, consequently, alter the aggregation or breakdown of assets into CGUs. Therefore, this change could result
in additional impairment charges or reversals. The primary considerations in relation to identifying the CGUs are set out
below:
a)
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. At December 31, 2019, Exploration and Production
CGUs had 124 fields and 41 groups. Changes in the aggregation of CGUs are presented in note 25.
ii) Drilling rigs are not part of any CGU and are assessed for impairment separately.
b)
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
F-20
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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;
iii) CGU Second Refining Unit of RNEST – comprises assets under construction of the second refining unit of Abreu e
Lima refinery;
iv) Transportation CGU: comprises assets relating to Transpetro’s fleet of vessels;
v) PANAMAX CGU: comprises three Panamax class vessels under construction (EI-512, EI-513 and EI-514);
vi) Hidrovia CGU: comprises the fleet of vessels under construction of the Hidrovia project (transportation of ethanol
along the Tietê River);
vii) SIX CGU: shale processing plant; and
viii) Other operations abroad defined as the smallest group of assets that generates independent cash flows.
c)
Gas & Power CGUs:
i) Natural gas CGU: comprises natural gas pipelines, natural gas processing plants, consolidating the purchase,
transportation and treatment of natural gas businesses, in order to enable the commercialization of natural gas and its
liquids (LPG, NGL and ethane);
ii) CGU nitrogen fertilizer plants: the nitrogen fertilizer plants have been assessed for impairment separately;
iii) Power CGU: comprises the thermoelectric power generation plants;
iv) Fafens CGUs: The fertilizer plants Fafen BA and Fafen SE have been assessed for impairment separately since 2017;
v) Other CGUs: operations abroad defined as the smallest group of assets that generates largely independent cash
flows.
d)
Biofuels business CGUs:
i) Biodiesel CGU: an integrated unit of biodiesel plants defined based on the production planning and operation process,
that takes into consideration domestic market conditions, the production capacity of each plant, as well as the results
of biofuels auctions and raw materials supply.
ii) Quixadá CGU: comprises the assets of Quixadá Biofuel Plant. This plant is assessed for impairment separately due to
the decision to discontinue its operations.
Investments in associates and joint ventures, including goodwill, are assessed for impairment separately.
Further information on impairment testing is set out in note 25.
F-21
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
4.4. 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, converged 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 18.
4.5. Estimates related to contingencies and legal proceedings
The Company is defendant in arbitrations and in legal and administrative proceedings involving civil, tax, labor and
environmental issues arising from the normal course of its business, and makes use of estimates to recognize the
amounts and the probability of outflow of resources, based on reports and technical assessments from legal advisors
and on management’s assessment.
These estimates are performed individually, or aggregated if there are cases with similar characteristics, primarily
considering factors such as assessment of the plaintiff’s demands, consistency of the existing evidence, jurisprudence
on similar cases and doctrine on the subject. Specifically for lawsuits by outsourced employees, the Company estimates
the expected loss based on a statistical procedure, due to the number of actions with similar characteristics.
Arbitral, legal and administrative decisions against the Company, new jurisprudence and changes of existing evidence
can result in changes regarding the probability of outflow of resources and on the estimated amounts, according to the
assessment of the legal basis.
Note 19 provides further detailed information about contingencies and legal proceedings.
4.6. Decommissioning costs estimates
The Company has legal and constructive obligations to remove equipment and restore onshore and offshore areas at
the end of operations. 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. The recognition of these
obligations must be at present value, using a risk-free discount rate, adjusted to the Company's credit risk. Due to the
long term until the abandonment, changes in the discount rate can cause significant variations in the recognized
amount.
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 conducts studies to incorporate technologies and procedures to optimize the process of abandonment,
considering industry best practices. However, the timing and amounts of future cash flows are subject to significant
uncertainty.
F-22
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Note 20 provides further detailed information about the decommissioning provisions.
4.7. Deferred income taxes
The recognition of deferred taxes 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 Strategic Plan, which is 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 16.6.
4.8. Cash flow hedge accounting involving the Company’s future exports
The Company determines its future exports as “highly probable future exports” based on its current Strategic Plan. The
highly probable future exports are determined by a percentage of projected exports revenue over the mid and long
term, taking into account the Company’s operational and capital expenditure optimization model, limited to a threshold
based on a historical percentage of the oil production that is usually sold abroad. Future exports forecasts are reviewed
whenever the Company reviews its Strategic Plan assumptions. The approach for determining exports as highly
probable future exports is reviewed annually, at least.
See note 36.2 for more detailed information about cash flow hedge accounting and a sensitivity analysis of the cash
flow hedge involving future exports.
4.9. Write-off – overpayments incorrectly capitalized
As described in note 21, in the third quarter of 2014, the Company developed an estimation methodology and wrote off
US$2,527 of capitalized costs representing the estimated amounts that Petrobras had overpaid for the acquisition of
property, plant and equipment.
The Company has continuously monitored the results of the Lava Jato investigation and the availability of other
information related to the scheme of improper payments. In preparing the financial statements for the year ended
December 31, 2019, the Company has not identified any additional information that would impact the adopted
calculation methodology and consequently require additional write-offs.
4.10. Expected credit losses on financial assets
Expected credit losses on financial assets are based on assumptions relating to risk of default, the determination of
whether or not there has been a significant increase in credit risk and expectation of recovery, among others. The
Company uses judgment for such assumptions in addition to information from credit rating agencies and inputs based
on collection delays.
4.11. Leases
The Company uses incremental borrowing rates to determine the present value of the lease payments, when the
interest rate implicit in the lease cannot be readily determined. The incremental borrowing rates used to determine the
present value of the remaining lease payments were determined mainly based on the Company’s cost of funding based
on yields of bonds issued by the Company, adjusted by terms and currency of the lease arrangements, economic
environment of the country where the lessee operates and similar collaterals.
F-23
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
4.12. Uncertainty over Income Tax Treatments
Uncertainties over income tax treatments represent the risks that the tax authority does not accept a certain tax
treatment applied by the Company. The Company estimates the probability of acceptance of an uncertain tax treatment
by the tax authority based on technical assessments by its legal advisors, considering precedent jurisprudence
applicable to current tax legislation, which may be impacted mainly by changes in tax rules or court decisions which may
affect the analysis of the fundamentals of uncertainty.
5. New standards and interpretations
5.1. New International Financial Reporting Standards not yet adopted
Standard
Definition of a Business –
Amendments to IFRS 3
Description
This amended IFRS 3 to narrow and clarify the definition of a business, and to
permit a simplified assessment of whether an acquired set of activities and
assets is a group of assets rather than a business.
Effective on
January 1, 2020,
prospective application.
Interest Rate Benchmark
Reform – Amendments to
IFRS 9, IFRS 7 and IAS 39
Amendments to IFRS 9-Financial Instruments, IFRS 7-Financial Instruments:
Disclosures, and IAS 39-Financial instruments: recognition and measurement, in
order to
include temporary exceptions to current hedge accounting
requirements, to offset the effects of uncertainties caused by the interest rate
benchmark reform, relating to the transition to the Interbank Offered Rate
(IBOR) recommended by the Financial Stability Board (FSB).
January 1, 2020,
retrospective application.
Definition of Material –
Amendments to IAS 1 and
IAS 8
Amendments to IAS 1 - Presentation of Financial Statements and IAS 8 -
Accounting Policies, Changes in Accounting Estimates and Errors, updating the
definition of “material” in order to establish that information is material if its
January 1, 2020,
prospective application.
omission, distortion or obscurity can reasonably influence the decision making of
the primary users of the financial statements.
IFRS
17
Contracts
–
Insurance
IFRS 4 – Insurance Contracts will be superseded by IFRS 17, which stablishes the
requirements to be applied in the recognition and disclosure of insurance and
January 1, 2021,
prospective application.
reinsurance contracts.
As for the amendments listed above, the Company estimates no impact arising from the initial application on its
consolidated financial statements. In relation to IFRS 17 - Insurance Contracts, the Company is evaluating the
applicability on the financial statements.
F-24
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
6. 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 and divestments.
In 2019, the Company reported earnings per share of US$ 0.78 (US$ 0.55 in 2018) and is proposing to the Shareholder’s
General Meeting the distribution of dividends of US$ 0.2320 (US$ 0.2397 in 2018) per preferred share and US$ 0.1864
(US$ 0.0681 in 2018) per common shares and, as detailed in note 34.
In line with the assumptions in the 2020-2024 Strategic Plan, the Company does not foresee net proceeds from
financing over the next five years. 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 10.80
years (9.14 years as of December 31, 2018).
As a part of the financing planning, the Company expects to raise funds by means of its partnership and divestment
program outlined by its portfolio management.
7. Cash and cash equivalents and Marketable securities
7.1. Cash and cash equivalents
Cash at bank and in hand
Short-term financial investments
- In Brazil
Brazilian interbank deposit rate investment funds and other short-term deposits
Other investment funds
- Abroad
Time deposits
Automatic investing accounts and interest checking accounts
Other financial investments
Total short-term financial investments
Total cash and cash equivalents
12.31.2019
572
12.31.2018
863
1,699
4
1,703
7
4,620
470
5,097
6,800
7,372
1,875
12
1,887
3,823
6,708
618
11,149
13,036
13,899
Short-term financial investments in Brazil primarily consist of investments in funds holding Brazilian Federal
Government Bonds that can be redeemed immediately, as well as reverse repurchase agreements that mature within
three months as of the date of their acquisition. Short-term financial investments abroad comprise highly-liquid
automatic investment accounts, interest checking accounts and other short-term fixed income instruments.
The principal uses of funds in the year ended December 31, 2019 were for debt service obligations, including pre-
payment of debts and lease payments (US$ 36,981) and acquisition of PP&E and intangibles assets, including the
bidding for oil surplus of the Transfer of Rights Agreement (US$ 23,897). These funds were principally provided by
operating activities (US$ 25,373), disposal of assets (US$ 10,413), reimbursement on the Transfer of Rights Agreement
(US$ 8,361) and proceeds from financing (US$ 7,464).
The Company uses revolving credit facilities, which allowed the reduction in cash and cash equivalents without
compromising the Company's liquidity. For additional information, see note 32.4.
F-25
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
7.1.1. Accounting Policy
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.
7.2. Marketable securities
Fair value through profit or loss
Fair value through other comprehensive income
Amortized cost
Total
Current
Non-current
12.31.2019
12.31.2018
In Brazil
Abroad
Total
In Brazil
Abroad
875
7
45
927
875
52
−
−
19
19
13
6
875
7
64
946
888
58
1,083
8
45
1,136
1,083
53
−
−
−
−
−
−
Total
1,083
8
45
1,136
1,083
53
Marketable securities classified as fair value through profit or loss refer mainly to investments in Brazilian Federal
Government Bonds. These financial investments have maturities of more than three months and are generally classified
as current assets due to their maturity or the expectation of their realization in the short term.
7.2.1. Accounting Policy
Marketable securities are initially measured at fair value and their subsequent measurement depends on their
classification:
•
•
•
Amortized cost: when the contractual terms of the security give rise on specified dates to cash flows arising from
payments of principal and interest on the principal amount outstanding, and the business model’s objective is to
hold the security in order to collect contractual cash flows. The interest income is based on the effective interest
method.
Fair value through other comprehensive income: equity instruments not held for trading purposes for which the
Company has made an irrevocable election in their initial recognition to present changes in fair value in other
comprehensive income rather than within profit or loss;
Fair value through profit or loss: if the marketable security do not meet the criteria for the two aforementioned
categories.
8. Sales revenues
8.1. Revenues from contracts with customers
As an integrated energy company, revenues from contracts with customers derive from different products sold by the
Company’s operating segments, taking into consideration specific characteristics of the markets where they operate.
For additional information about the operating segments of the Company, its activities and its respective products sold,
see note 12.
The determination of transaction prices derives from methodologies and policies based on the parameters of these
markets, reflecting operating risks, level of market share, changes in exchange rates and international commodity
prices, including Brent oil prices, oil products such as diesel and gasoline, and the Henry Hub Index.
Revenues from sales are recognized at the moment the control is transferred to the client, that occurs upon delivery at
the contractual agreed place or when the service is provided. Generally, prices for products and services are fixed prior
F-26
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
to or shortly after delivery. Therefore, no significant changes in transactions prices are expected to be recognized in
periods after the satisfaction of the performance obligations, except for some exports in which final prices are linked
to changes in commodity price after their transfer of control. Sales proceeds are generally collected in the short-term,
thus there are no significant financing components.
In addition, the Company acts as an agent in the biofuel business, where there is no control of the biodiesel purchased
from the producers and sold to distributors at any time during the sale operation. Those revenues totaled US$ 46 in
2019.
8.2. Net sales revenues
Diesel
Diesel subsidy
Gasoline
Liquefied petroleum gas
Jet fuel
Naphtha
Fuel oil (including bunker fuel)
Other oil products
Subtotal oil products
Natural gas
Renewables and nitrogen products
Breakage
Electricity
Services, agency and others
Domestic market
Exports
Sales abroad (*)
Foreign market
Sales revenues
2018
2017
2019
Reclassifed
Reclassifed
23,007
−
9,810
4,159
3,832
1,669
1,026
3,410
46,913
5,929
245
645
1,322
940
55,994
18,085
2,510
20,595
76,589
23,450
1,415
11,690
4,490
4,208
2,455
1,233
3,769
52,710
5,425
366
687
2,027
1,370
62,585
15,413
6,640
22,053
84,638
19,642
−
12,231
3,999
3,264
2,637
1,419
3,258
46,450
5,001
3,498
-
3,616
1,223
59,788
12,677
5,419
18,096
77,884
(*) Sales revenues from operations outside of Brazil, including trading and excluding exports.
Following the reduction of the investment in BR Distribuidora on July 25, 2019, this company became a non-
consolidated entity. Hence, sales to this associate represent more than 10% of the Company sales revenues, mainly
associated with the refining, transportation and marketing segment.
8.3. Remaining performance obligations
The company has current sales contracts with original expected duration of more than 1 year, in which volumes of goods
or services for future sales are determined with their respective payment terms.
The estimated remaining values of these contracts at the end of 2019 presented below are based on volumes of goods
and services for future sales, as well as prices prevailing at December 31, 2019 or practiced in recent sales when they
reflect the more directly observable information:
Domestic market
Gasoline
Diesel
Natural gas
Services and others
Naphtha
Electricity
F-27
Expected
recognition
within 1 year
3,853
6,538
4,714
1,542
3,722
718
Total
3,853
6,538
15,929
5,722
3,722
4,286
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Other oil products
Jet fuel
Foreign market
Exports
Sales abroad
Total
45
943
18,465
-
59,503
45
943
2,655
-
24,730
The revenues will be recognized once goods are transferred and services are provided to the customers and their
measurement and timing of recognition will be subject to future demands, changes in commodities prices, exchange
rates and other market factors.
The table above does not include information on contracts with original expected duration of one year or less, such as
spot-market contracts, variable considerations which are constrained, and information on contracts only establishing
general terms and conditions (Master Agreements), for which volumes and prices will only be defined in subsequent
contracts.
In addition, electricity sales are manly driven by demands to generate electricity from thermoelectric power plants,
according the Brazilian National Electric System Operator (ONS) requests. These requests are substantially affected by
Brazilian hydrological conditions, thus, the table above presents fixed amounts representing sales of certified capacity
in accordance with the installed capacity of the Company.
8.4. Contract liabilities
The balance of contract liabilities carried on the statement of financial position at December 31, 2019 amounted to
US$ 128 (US$ 245 at December 31, 2018). This amount is classified as other current liabilities and primarily comprises
advances from customers in take and ship or pay contracts, that, will be recognized as revenue based on future sales of
natural gas or following the non-exercise of the right by the customer.
8.5. Accounting policy for revenues
The Company evaluates contracts with customers that will be subject to revenue recognition and identifies the distinct
goods and services promised in each of them.
Performance obligations are promises to transfer to the customer goods or services (or a bundle of goods or services)
that are distinct, or series of distinct goods or services that are substantially the same and that have the same pattern
of transfer to the customer.
Revenues are measured based on the amount of consideration to which an entity expects to be entitled in exchange for
transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
Transaction prices are based on contractually stated prices, reflecting the Company's pricing methodologies and
policies based on market parameters.
When transferring a good, that is, when the customer obtains its control, the company satisfies the performance
obligation and recognizes the respective revenue, which usually occurs at a point in time upon delivery.
F-28
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
9. Costs and expenses by nature
9.1. Cost of sales
Raw material, products for resale, materials and third-party services (*)
Depreciation, depletion and amortization
Production taxes
Employee compensation
Total
(*) It Includes short-term leases and inventory turnover.
9.2. Selling expenses
Materials, third-party services, rent and other related costs
Depreciation, depletion and amortization
Allowance for expected credit losses
Employee compensation
Total
9.3. General and administrative expenses
2019
Reclassified
Reclassified
2018
2017
Jan-Dec
(20,694)
(12,036)
(9,741)
(3,261)
(45,732)
Jan-Dec
(26,810)
(10,954)
(10,905)
(3,515)
(52,184)
Jan-Dec
(27,388)
(12,309)
(7,895)
(3,606)
(51,198)
2019
Reclassified
Reclassified
2018
2017
Jan-Dec
(3,664)
(549)
(49)
(214)
(4,476)
Jan-Dec
(3,445)
(145)
(32)
(205)
(3,827)
Jan-Dec
(3,033)
(75)
(288)
(218)
(3,614)
Employee compensation
Materials, third-party services, freight, rent and other related costs
Depreciation, depletion and amortization
Total
2019
Reclassified
Reclassified
2018
2017
Jan-Dec
(1,427)
(539)
(158)
(2,124)
Jan-Dec
(1,500)
(626)
(113)
(2,239)
Jan-Dec
(1,605)
(911)
(140)
(2,656)
F-29
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
10. Other income and expenses
Gains / (losses) related to legal, administrative and arbitration proceedings
Pension and medical benefits - retirees
Unscheduled stoppages and pre-operating expenses
Variable compensation program
Gains/(losses) with Commodities Derivatives
Voluntary Separation Plan - PDV
Profit sharing
Employee Career and Compensation Plan - PCR
Agreement with US Authorities
Institutional relations and cultural projects
Operating expenses with thermoelectric power plants
Government grants
Results on disposal/write-offs of assets and on remeasurement of investment retained
with loss of control
Expenses/Reimbursements from E&P partnership operations
Amounts recovered from Lava Jato investigation
Equalization of expenses - Production Individualization Agreements
Gains / (losses) on decommissioning of returned/abandoned areas
Provision for the class action agreement
Others
Total
11. Net finance income (expense)
Finance income
Income from investments and marketable securities (Government Bonds)
Discount and premium on repurchase of debt securities
Gains from signed agreements (electric sector)
Other income, net
Finance expenses
Interest on finance debt
Unwinding of discount on lease liabilities
Discount and premium on repurchase of debt securities
Capitalized borrowing costs
Unwinding of discount on the provision for decommissioning costs
Other finance expenses and income, net
Foreign exchange gains (losses) and indexation charges
Foreign Exchange gains (losses)
Reclassification of hedge accounting to the Statement of Income
Other foreign exchange gains (losses) and indexation charges, net
Total
F-30
2019
(1,520)
(1,371)
(1,321)
(643)
(370)
(198)
(43)
(2)
-
(180)
(128)
238
6,046
383
220
2
(155)
-
241
1,199
2019
Jan-Dec
1,330
558
5
79
688
(7,086)
(4,847)
(1,514)
(860)
1,332
(795)
(402)
(3,008)
(72)
(3,136)
200
(8,764)
2018
2017
Reclassified
(2,283)
(1,401)
(1,282)
(265)
(416)
2
(442)
(293)
(895)
(178)
(107)
248
416
331
457
(279)
621
-
6
(5,760)
Reclassified
(861)
(1,791)
(1,598)
-
-
-
(145)
-
-
(208)
(67)
91
1,725
372
252
-
337
(3,449)
(169)
(5,511)
2018
2017
Reclassified
Jan-Dec
2,381
563
323
724
771
(5,675)
(5,920)
(10)
(651)
1,814
(652)
(256)
(3,190)
(66)
(3,315)
191
(6,484)
Reclassified
Jan-Dec
928
472
−
−
456
(7,006)
(6,685)
(19)
(338)
1,976
(762)
(1,178)
(3,641)
(857)
(3,154)
370
(9,719)
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
12. Net income by operating segment
Consolidated Statement of Income by operating segment
Exploration
and
Production
Refining,
Transportatio
n
& Marketing
Gas
&
Power
Corporate
and other
business Eliminations
Sales revenues
Intersegments
Third parties
Cost of sales
Gross profit (loss)
Income (expenses)
Selling
General and administrative
Exploration costs
Research and development
Other taxes
Impairment of assets
Other income and expenses
Net income / (loss) before financial results and income
taxes
Net finance income (expenses) (*)
Results in equity-accounted investments
Net income / (loss) before income taxes
Income taxes
Net income from continuing operations for the period
Net income from discontinued operations for the period
Net income for the period
Attributable to:
Non-controlling interests
Net income from continuing operations
Net income from discontinued operations
Shareholders of Petrobras
Net income from continuing operations
Net income from discontinued operations
50,462
49,400
1,062
(27,304)
23,158
(4,181)
-
(254)
(799)
(394)
(127)
(1,956)
(651)
67,538
9,432
58,106
11,493
1,221
3,308
8,185
226
995
(61,578)
(7,713)
(1,167)
5,960
(4,334)
(2,164)
(336)
-
(11)
(151)
(697)
(975)
3,780
2,580
(2,260)
54
(4,282)
(31)
(134)
(1,401)
-
(15)
(152)
(194)
5,335
-
103
-
(156)
(189)
1
(2,506)
(4,228)
(8,764)
115
6,463
(12,877)
(2,162)
4,245
4,301
(8,632)
3
2,557
(54,125)
(54,125)
-
52,030
(2,095)
(26)
(21)
1
-
-
-
(2)
(4)
(2,121)
-
-
(2,121)
720
(1,401)
-
18,977
1,626
6,360
2019
Total
76,589
8,241
68,348
(45,732)
30,857
(10,243)
(4,476)
(2,124)
(799)
(576)
(619)
(2,848)
1,199
20,614
(8,764)
153
12,003
(4,200)
7,803
2,560
4,304
(6,075)
(1,401)
10,363
124
121
3
4,180
4,179
1
198
132
66
(6,273)
(8,763)
2,490
−
-
-
(1,401)
(1,401)
-
212
143
69
10,151
7,660
2,491
-
(151)
1,475
(552)
923
-
923
(98)
(98)
-
1,021
1,021
-
-
86
19,063
(6,451)
12,612
-
12,612
(12)
(12)
-
12,624
12,624
-
F-31
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
2018 - Reclassified
Exploration
and
Production
Refining,
Transportatio
n
& Marketing
Gas
&
Power
Corporate
and other
business Eliminations
Total
84,638
15,449
69,189
73,448
16,655
56,793
12,241
3,701
8,540
1,731
205
1,526
(55,164)
(55,164)
-
(67,011)
(9,023)
(1,611)
54,429
(52,184)
6,437
(3,437)
(1,777)
(376)
-
(11)
(207)
(442)
(624)
3,000
-
362
3,362
(1,020)
2,342
-
2,342
(51)
(51)
-
2,393
2,393
-
3,218
(2,461)
(1,867)
120
(4,662)
(76)
(152)
(1,453)
(735)
32,454
(38)
(27)
(1)
(15,666)
(3,827)
(2,239)
-
(21)
(65)
(190)
(166)
757
-
95
-
(166)
(283)
18
(2,702)
(4,542)
(6,484)
(9)
852
(11,035)
(257)
595
15
610
128
124
4
482
471
11
2,994
(8,041)
828
(7,213)
169
(69)
238
(7,382)
(7,972)
590
-
-
-
-
(10)
(773)
-
-
(773)
263
(510)
-
(510)
−
-
-
(510)
(510)
-
(524)
(641)
(670)
(2,005)
(5,760)
16,788
(6,484)
523
10,827
(4,256)
6,571
843
7,414
241
(1)
242
7,173
6,572
601
Sales revenues
Intersegments
Third parties
Cost of sales
Gross profit (loss)
Income (expenses)
Selling
General and administrative
Exploration costs
Research and development
Other taxes
Impairment of assets
Other income and expenses
Net income / (loss) before financial results and income
taxes
Net finance income (expenses) (*)
Results in equity-accounted investments
Net income / (loss) before income taxes
Income taxes
Net income from continuing operations for the period
Net income from discontinued operations for the period
Net income for the period
Non-controlling interests
Net income from continuing operations
Net income from discontinued operations
Net income attributable to shareholders of Petrobras
Net income from continuing operations
Net income from discontinued operations
52,382
50,052
2,330
(28,968)
23,414
(5,068)
(80)
(257)
(524)
(443)
(115)
(1,391)
(2,258)
18,346
-
75
18,421
(6,236)
12,185
-
12,185
(5)
(5)
-
12,190
12,190
-
F-32
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
2017 - Reclassified
Exploration
and
Production
Refining,
Transportatio
n
& Marketing
Gas
&
Power
Corporate
and other
business Eliminations
Sales revenues
Intersegments
Third parties
Cost of sales
Gross profit (loss)
Income (expenses)
Selling
General and administrative
Exploration costs
Research and development
Other taxes
Impairment of assets
Other income and expenses
Net income / (loss) before financial results and income
taxes
Net finance income (expenses) (*)
Results in equity-accounted investments
Net income / (loss) before income taxes
Income taxes
Net income from continuing operations for the period
Net income from discontinued operations for the period
Net income for the period
Non-controlling interests
Net income from continuing operations
Net income from discontinued operations
Net income attributable to shareholders of Petrobras
Net income from continuing operations
Net income from discontinued operations
42,184
40,762
1,422
(27,937)
14,247
(3,750)
(125)
(331)
(800)
(333)
(503)
43
(1,701)
10,497
-
136
10,633
(3,571)
7,062
-
7,062
41
41
-
7,021
7,021
-
Total
77,884
15,106
62,778
67,037
16,142
50,895
12,340
3,261
9,079
1,583
201
1,382
(45,260)
(45,260)
-
(57,778)
(8,807)
(1,476)
44,800
(51,198)
9,259
(3,603)
(1,731)
(457)
-
(13)
(203)
(781)
(418)
5,656
-
443
6,099
(1,922)
4,177
-
3,533
(659)
(1,776)
107
(8,194)
(63)
(165)
(1,703)
-
(26)
(258)
(446)
2,012
2,874
-
117
2,991
(977)
2,014
17
-
(200)
(825)
(7)
(5,396)
(8,087)
(9,719)
(23)
(17,829)
4,641
(13,188)
342
4,177
2,031
(12,846)
(58)
(58)
-
4,235
4,235
-
119
123
(4)
1,912
1,891
21
158
51
107
(13,004)
(13,239)
235
(460)
26,686
73
81
-
-
-
-
-
(8)
(387)
-
-
(387)
132
(255)
-
(255)
−
-
-
(255)
(255)
-
(16,133)
(3,614)
(2,656)
(800)
(572)
(1,789)
(1,191)
(5,511)
10,553
(9,719)
673
1,507
(1,697)
(190)
359
169
260
157
103
(91)
(347)
256
The consolidated amounts of intersegment sales (remaining after eliminations) relates to sales from the RT&M to BR,
which is presented as discontinued operation within Corporate and other business.
12.1. Accounting policy for operating segments
The information related to the Company’s operating segments is prepared based on available financial information
directly attributable to each segment, or items that can be allocated to each segment on a reasonable basis. This
information is presented by business activity, as used by the Company’s Board of Executive Officers (Chief Operating
Decision Maker – CODM) on the decision-making process of resource allocation and performance evaluation.
The measurement of segment results includes transactions carried out with third parties, including associates and joint
ventures, as well as transactions between operating segments. Transfers between operating segments are recognized
at internal transfer prices derived from methodologies that take into account market parameters and are eliminated
only to provide reconciliations to the consolidated financial statements.
As a result of the divestments in 2019, the strategy of repositioning its portfolio as set out in the 2020-2024 Strategic
Plan, approved on November 27, 2019, as well as the materiality of the remaining businesses, the Company reassessed
the presentation of the Distribution and Biofuels businesses, which are now included in the segment Corporate and
F-33
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
other businesses. Thus, comparative information has been reclassified. Accordingly, the company's business segments
disclosed separately are:
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. The E&P segment also operates through partnerships with other companies and includes holding interest in
foreign entities operating in this segment.
As an integrated energy company with a focus on oil and gas, intersegment sales revenue refers mainly to oil transfers
to the Refining, Transportation and Marketing segment, aiming to supply the Company's refineries and meet the
domestic demand for oil products. These transactions are measured by internal transfer prices based on international
oil prices and their respective exchange rate impacts, taking into account the specific characteristics of the transferred
oil stream.
In addition, the E&P segment revenues include transfers of natural gas to the natural gas processing plants within Gas
and Power segment. These transactions are measured at internal transfer prices based on the international prices of
this commodity.
Revenue from sales to third parties mainly reflects services rendered relating to E&P activities, sales of the E&P’s
natural gas processing plants, as well as the oil and natural gas operations carried out by subsidiaries abroad.
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, as well as exports of ethanol. This segment also includes the
petrochemical operations, such as extraction and processing of shale and holding interests in petrochemical companies
in Brazil.
This segment carries out the acquisition of crude oil from the E&P segment, imports oil for refinery slate, and acquires
oil products in international markets taking advantage of the existing price differentials between the cost of processing
domestic oil and that of importing oil products.
Intersegment revenues primarily reflect the sale of derivatives for the distribution segment at market prices and the
operations for the Gas and Power and E&P segments at internal transfer price.
Revenues from sales to third parties primarily reflect the trading of oil products in Brazil and the export and trade of oil
and oil products by foreign subsidiaries.
Gas and Power: this segment covers the activities of logistic and trading of natural gas and electricity, transportation
and trading of LNG (liquefied natural gas), generation and electricity by means of thermoelectric power plants, as well
as holding interests in transporters and distributors of natural gas in Brazil and abroad. It also includes natural gas
processing and fertilizers production.
Intersegment revenues primarily reflect the transfers of natural gas processed, liquefied petroleum gas (LPG) and NGL
to RT&M. These transactions are measured at internal transfer prices.
This segment purchases national natural gas from the E&P segment, from partners and third parties, imports natural
gas from Bolivia and LNG to meet national demand.
Revenues from sales to third parties primarily reflect natural gas processed to distributors, as well as generation and
trading of electricity.
The Corporate segment comprises items that cannot be attributed to the other segments, as well as distribution and
biofuels businesses. Corporate items comprise 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. Distribution business reflects the interest in the associate BR Distribuidora (investments and results
F-34
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
in equity-accounted investments), as well as the distribution of derivatives abroad (South America). Until July 2019 and
the previous years for comparative purposes, it also includes net income from discontinued operations, as set out in
note 30. Biofuels businesses reflects production activities of biodiesel, its co-products and ethanol.
F-35
12.31.2019
12.31.2018
4,481
794
334
5,609
1,434
482
831
-
304
3,051
8,660
(2,286)
(45)
6,329
3,762
2,567
6,614
682
4,400
11,696
1,296
519
1,325
400
307
3,847
15,543
(3,390)
(915)
11,238
5,746
5,492
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
13. Trade and other receivables
13.1. Trade and other receivables, net
Receivables from contracts with customers
Third parties
Related parties
Investees (note 37.1)
Receivables from the electricity sector (note 13.4) (*)
Subtotal
Other trade receivables
Third parties
Receivables from divestments (**)
Lease receivables
Other receivables
Related parties
Diesel subsidy (note 37.1)
Petroleum and alcohol accounts - receivables from Brazilian Government (note 37.1)
Subtotal
Total trade receivables
Expected credit losses (ECL) - Third parties
Expected credit losses (ECL) - Related parties
Total trade receivables, net
Current
Non-current
(*)It includes the amount of US$ 176 at December 31, 2019 (US$ 199 at December 31, 2018) regarding finance lease receivable from Amazonas Distribuidora de
Energia.
(**) It comprises receivable from the divestment of NTS and contingent payments from the sale of interest in Roncador field.
Trade and other receivables are generally classified as measured at amortized cost, except for receivables with final
prices linked to changes in commodity price after their transfer of control, which are classified as measured at fair value
through profit or loss, amounting to US$ 357 as of December 31, 2019.
13.2. Aging of trade and other receivables – third parties
Current
Overdue:
1-90 days
91-180 days
181-365 days
More than 365 days
Total
12.31.2019
12.31.2018
Trade
receivables
4,658
Expected
credit losses
(142)
Trade
receivables
5,863
Expected
credit losses
(360)
251
24
49
2,245
7,227
(38)
(8)
(13)
(2,085)
(2,286)
484
35
48
3,325
9,755
(54)
(12)
(20)
(2,944)
(3,390)
F-36
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
13.3. Changes in provision for expected credit losses
Opening balance
Initial application of IFRS 9
Additions
Write-offs
Transfer of assets held for sale
Cumulative translation adjustment
Closing balance
Current
Non-current
Jan-Dec/2019 Jan-Dec/2018
5,945
122
104
(1,253)
6
(619)
4,305
1,715
2,590
4,305
-
217
(1,241)
(871)
(79)
2,331
1,103
1,228
In the year ended December 31, 2019, the write-offs primarily relate to the termination of a lawsuit, as set out in note
13.4.
In 2018, it primarily reflect the effects related to the agreements signed with Eletrobras.
13.4. Trade receivables – electricity sector (isolated electricity system in the northern region of
Brazil)
Receivables from electricity sector
Receivables
ECL
Balance at December 31, 2018
Sales
Amounts received
Interest
Derecognition of receivables
Agreements in 2018
Discount on transfer of rights
(Additions)/reversals of ECL
Derecognition of receivables - ECL
Transfer to assets held for sale (*)
CTA
Balance at December 31, 2019
Receivables
ECL
Receivables
outside the scope
of DAAs
DAA 2014
DAA 2018
Lease
receivables
1,348
(1,182)
166
857
(832)
12
(879)
-
-
(19)
866
(6)
(11)
154
214
(60)
2,560
(5)
2,555
-
(2,466)
114
-
-
(128)
2
-
(23)
(54)
−
-
-
−
739
(1)
738
-
(667)
36
-
217
-
-
-
(200)
(16)
108
108
-
108
199
-
199
-
(39)
30
-
-
-
(8)
-
-
(6)
176
183
(7)
176
Others
1
(1)
−
-
-
-
-
-
-
-
-
-
-
−
-
-
−
Total
4,847
(1,189)
3,658
857
(4,004)
192
(879)
217
(128)
(25)
866
(229)
(87)
438
505
(67)
438
Balance at December 31, 2019
(*) Amounts relate to BR receivables that were transferred to assets held for sale at June 30, 2019.
154
F-37
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Related parties - Eletrobras Group
Eletrobras
Amazonas Geração e Transmissão - AmGT
Total
Third parties
Cia de Gás do Amazonas - CIGÁS
Cia de Eletricidade do Amapá - CEA
Others
Total
Balance at December 31, 2019
Balance at December 31, 2018
Receivables
ECL
Total
108
226
334
156
15
−
171
505
−
(44)
(44)
(8)
(15)
-
(23)
(67)
108
182
290
148
-
-
148
438
4,847
(1,189)
3,658
As a result of the conclusion of the privatization of the energy distributors of the electricity system, in April 2019, all
the conditions precedent set forth in the Debt Assumption Agreements (DAAs), signed between the distributors and
Petrobras, were met and, thus, Eletrobras became the debtor of all the related amounts.
Following the additional sale of Petrobras’s interest in BR Distribuidora, the amount of US$ 229, relating to the
receivables assigned to this company, was transferred to assets held for sale in the second quarter of 2019, and finally
were derecognized in the third quarter of 2019, at the closing of this sale.
On July 31, 2019, Petrobras, Eletrobras and Amazonas Energia requested the termination of the lawsuit filed by
Petrobras against debtors Eletrobras and Amazonas Energia, in the amount of US$ 766, as set out in an out-of-court
settlement signed by these three companies, and in the Debt Assumption Agreement signed on December 3, 2018 (DAA
2018). Thus, in the third quarter of 2019, the disputed receivables and the corresponding provision for expected credit
losses (ECL) were derecognized, with no net effect in the statement of income, since the totality of the credits were
covered by the ECL.
The remaining balance of DAA 2018, in which Amazonas Energia (AME) was debtor and later assumed by Eletrobras
after the implementation of all conditions contained in the debt acknowledgement, is US$ 108.
On September 20, 2019, Petrobras and Apolo Fundo de Investimento em Direitos Creditórios entered into an
assignment agreement without recourse relating to the all credit rights under the debt acknowledgement by energy
distributors in 2014 (DAA 2014), whose financial settlement occurred for the amount of US$ 2,251, with a US$ 128
discount, recognized as a finance expense in 2019.
Regarding the gas supply, following the assignment of the gas trading agreement from Amazonas Energia (AME) to
Amazonas Geração e Transmissão (AmGT), which occurred in December 2018, no further delays or defaults were
identified.
13.5. Accounting policy for trade receivables
Trade receivables are generally classified at amortized cost, except for certain receivables classified at fair value
through profit or loss, whose cash flows are distinct from the receipt of principal and interest, including receivables with
final prices linked to changes in commodity price after their transfer of control.
When the Company is the lessor in a finance lease, a receivable is recognized at the amount of the net investment in the
lease, consisting of the lease payments receivable and any unguaranteed residual value accruing to the Company,
discounted at the interest rate implicit in the lease.
The Company measures expected credit losses for short-term trade receivables using a provision matrix based on
historical observed default rates adjusted by current and forward-looking information when applicable and available
without undue cost or effort.
F-38
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
The Company measures the allowance for expected credit losses of other trade receivables based on their 12-month
expected credit losses unless their credit risk has increased significantly since their initial recognition, in which case the
allowance is based on their lifetime expected credit losses.
When determining whether there has been a significant increase in credit risk, the Company compares the risk of default
on initial recognition and at the reporting date.
Regardless of the assessment of significant increase in credit risk, a delinquency period of 30 days past due triggers
the definition of significant increase in credit risk on a financial asset, unless otherwise demonstrated by reasonable
and supportable information.
The Company assumes that the credit risk on the trade receivable has not increased significantly since initial recognition
if the receivable is considered to have low credit risk at the reporting date. Low credit risk is determined based on
external credit ratings or internal methodologies.
The Company assumes that a default occurs whenever the counterparty does not comply with the legal obligation to
pay its debts when due or, depending on the instrument, when it is at least 90 days past due.
The measurement of expected credit loss comprises the difference between all contractual cash flows that are due to
the Company and all the cash flows that the Company expects to receive, discounted at the original effective interest
rate weighted by the probability of default.
14.
Inventories
Crude oil
Oil products
Intermediate products
Natural gas and Liquefied Natural Gas (LNG)
Biofuels
Fertilizers
Total products
Materials, supplies and others
Total
12.31.2019
3,905
2,274
586
173
28
28
6,994
1,195
8,189
12.31.2018
4,150
2,758
610
122
150
78
7,868
1,119
8,987
In the year ended December 31, 2019, the Company recognized a US$ 15 loss within cost of sales, adjusting inventories
to net realizable value (a US$ 420 loss within cost of sales in the year ended December 31, 2018) primarily due to changes
in international prices of crude oil and oil products.
At December 31, 2019, the Company had pledged crude oil and oil products volumes as collateral for the Terms of
Financial Commitment (TFC) signed by Petrobras and Petros in 2008, in the amount of US$ 3,525 (US$ 4,496 at
December 31, 2018), as set out in note 18.
14.1. Accounting policy for inventories
Inventories are determined by the weighted average cost method adjusted to the net realizable value when
it is lower than its carrying amount.
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.
Crude oil and LNG inventories can be traded or used for production of oil products and/or electricity generation,
respectively.
F-39
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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.
15. Trade payables
Third parties in Brazil
Third parties abroad
Related parties
Balance in current liabilities
16. Taxes
16.1. Income taxes and other taxes
Income taxes
Taxes in Brazil
Income taxes
Income taxes - Tax settlement programs
Taxes abroad
Total
Other taxes
Taxes in Brazil
12.31.2019
12.31.2018
2,560
2,045
996
5,601
4,008
1,572
747
6,327
Current assets
Current liabilities
Non-current liabilities
12.31.2019
12.31.2018
12.31.2019
12.31.2018
12.31.2019
12.31.2018
2,485
-
2,485
8
2,493
733
-
733
6
739
71
57
128
148
276
66
56
122
89
211
-
504
504
-
504
-
552
552
-
552
Non-current
liabilities (*)
12.31.2019 12.31.2018 12.31.2019 12.31.2018 12.31.2019 12.31.2018 12.31.2019 12.31.2018
Non-current assets
Current liabilities
Current assets
Current / Deferred ICMS (VAT)
Current / Deferred PIS and COFINS
Claim to recover PIS and COFINS
CIDE
Production taxes
Withholding income taxes
Tax Settlement Program
Others
Total in Brazil
Taxes abroad
Total
555
417
−
31
-
-
-
31
1,034
17
1,051
781
442
-
22
-
-
-
36
1,281
15
1,296
364
2,591
820
-
-
-
-
153
3,928
11
3,939
700
1,831
837
-
-
-
-
158
3,526
14
3,540
759
252
−
45
1,929
232
-
189
3,406
18
3,424
922
309
-
50
1,757
308
2
184
3,532
24
3,556
-
44
-
-
266
-
−
225
535
-
535
−
−
-
−
−
−
-
107
107
-
107
Income taxes credits refer mainly to the carryforward of unused tax losses in the computation process of income taxes,
in addition to the negative balance of IRPJ and CSLL related to 2018 and 2019.
Deferred PIS and COFINS credits mainly refer to the acquisition of goods and services for assets under construction,
since their use are allowed after these assets enter into production.
F-40
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
In 2019, provisions for current and non-current recoverable taxes (ICMS, PIS and COFINS) were recognized, in the
amount US$ 243, mainly due to changes in the scope of projects in progress, reflecting the vision of the Company's
Strategic Plan, as well as uncertainties related to the realization of credits in electricity trading operations.
Recovery of PIS and COFINS
The Company filed civil lawsuits against the Brazilian Federal Government claiming to recover PIS and COFINS paid over
finance income and foreign exchange variation gains, from February 1999 to January 2004.
The court granted to the Company, in all the lawsuits, the definitive right to recover those taxes, but it requires previous
examination and approval by the court of the settlement reports (court-ordered liquidation stage). In 2017, there were
a settlement reports issued in favor of the Company relating to the most significant amount to be recovered. However,
final approvals by the court are still pending.
As of December 31, 2019, the Company had non-current receivables of US$ 820 (US$ 837 as of December 31, 2018)
related to PIS and COFINS, which are indexed to inflation.
16.2. Tax amnesty programs – State Tax (Programas de Anistias Estaduais)
In 2019, in accordance with its current corporate governance process and following cost-benefit analysis, the Company
elected to settle in cash VAT (ICMS) tax disputes by joining states amnesty settlement programs and taking advance of
their reliefs, as shown below:
State
State
Law/Decree n°
Benefits received Disputes (*)
Amount to
be paid
after
benefit (**)
Reduction
Benefit
BA
14,085/2019
Reduction of 90% of fines and interest and 50% of Vat tax
forgiveness
PE
AM
414/2019
202/2019
Reduction of 90% of interest and 43% of the fines
Reduction of 95% of fines and interest
CE
33,135/2019
Reduction of 90% of fines and interest and 50% of Vat tax
forgiveness
AL
SE
RS
5,900/96 Reduction of 90% of fines and interest
40,486/2019 Reduction of 90% of fines and interest
54,853/2019 and
54,887/2019
Reduction of 60% and 90% of fines and interest and 50% of Vat
tax forgiveness
449
(344)
335
196
(224)
(135)
127
(98)
83
41
76
(63)
(26)
(58)
105
111
61
29
20
15
18
1,307
(948)
359
(*) US$ 1.2 billion refers to previous disputes for which the likelihood of losses were deemed possible , as set out in note 19.
(*) Amounts recognized as other taxes (US$ 230), other expenses (US$ 103), and finance expenses (US$ 33).
16.3. Brazilian federal settlement programs
In 2018 the Company settled most of the debts relating to the tax settlement programs it joined in 2017. These
programs were created by the Brazilian Federal Government, which enabled the settlement of significant disputes with
Brazilian tax authorities and other Brazilian federal agencies, in which the Company was a defendant, with certain
benefits, such as the use of tax loss carry forwards and reduction in interests, penalties and related charges.
As of December 31, 2019, there is an open balance relating to the Special Tax Settlement Program (PERT), which covered
the lawsuit related to the Brazilian Federal Revenue Service, with respect to a notice of deficiency issued due to the use
F-41
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
of expenses arising from the Terms of Financial Commitment (TFC), signed by Petrobras and Petros Plan in 2008, as
deductible in determining taxable profit for the calculation of income taxes (IRPJ and CSLL).
The following table presents changes in the balance of this program:
PERT
Income taxes
Others taxes
Current
Non-current
12.31.2018
Payments
Use of tax loss
carryforwards
Inflation
indexation
Others
CTA
12.31.2019
607
-
608
(55)
−
(55)
−
−
−
30
−
30
−
1
−
(23)
−
(23)
559
1
560
56
504
The following table presents the settlement years of the outstanding amounts under this program:
PERT
Total
2020
2021
2022
2023
2024
onwards
Total
56
56
56
56
56
56
56
56
56
56
280
280
560
560
2025
16.4. New Taxation Model for the Oil and Gas Industry
Law No. 13,586, enacted in 2017, outlined a new taxation model for the oil and gas industry and, along with the Decree
9,128/2017, established a new special regime for exploration, development and production of oil, gas and other liquid
hydrocarbons named Repetro-Sped.
Following the application of this new regime, the Company expects greater legal stability in the oil and gas industry in
Brazil, which may encourage higher investments and reduce the number of litigations involving the industry players.
Regarding the Repetro-Sped, this regime provides for the continuation of total tax relief over goods imported with
temporary permanence in Brazil, as previously governed by the former Repetro (Special Customs Regime for the Export
and Import of Goods designated to Exploration and Production of Oil and Natural Gas Reserves), and adds this relief to
goods permanently held in Brazil, through the final acquisition of these by Petrobras and Brazilian Consortiums. For
goods that were already in the country on December 31, 2017, the Company initiated the transfer of ownership of the
oil and gas assets of PNBV and its subsidiaries to the parent company and consortiums in Brazil, which will take place
before the end of 2020. Therefore, due to the fact that these assets no longer need to return abroad at the end of the
contract, their respective operational and financial removal costs were eliminated. The regime will expire in December
2040. As a result of these transfers, there was a corporate restructuring of companies abroad, as mentioned in note
30.2.
On September 4, 2019, IN RFB No. 1,901 was released, regulating Repetro-Industrialization. This taxation model allows
the beneficiary company to be able to import or purchase in domestic market, with the relief of federal taxes, raw
materials, intermediate products and packaging materials to be fully used in the production.
Following the creation of Repetro-Sped, the Brazilian states, pursuant to a decision of the Brazilian National Council of
Finance Policies (CONFAZ), agreed to grant tax incentives relating to VAT (ICMS) over transactions in the scope of this
regime to the extent each state enacts its specific regulation providing for the tax relief for the oil and gas industry.
At the date of issuance of these financial statements, the states enacting new regulations governing the VAT tax
incentives authorized by CONFAZ were: Amazonas, Bahia, Ceará, Espirito Santo, Rio de Janeiro, Rio Grande do Norte,
São Paulo, Sergipe, Minas Gerais and Piauí.
F-42
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Finally, on December 17, 2019, the ICMS 220 Agreement was released, aiming to amend ICMS Agreement 03/2018,
improving the rules applicable and clarifying several points such as the tax competence in interstate operations and the
responsibility for the payment of ICMS. These amendments were promoted to incorporate the ICMS into the Repetro-
Industrialization model.
F-43
Petróleo Brasileiro S.A. - Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
16.5. Deferred income taxes - non-current
The changes in the deferred income taxes (corporate income tax (IRPJ, 25%) and social contribution on net income (CSLL, 9%) are presented as follows:
Property, Plant and
Equipment
Exploration
and
decommissioning
costs
(10,692)
2,048
-
1,397
-
-
(7,247)
-
(7,247)
1,497
Loans, trade and
other receivables /
payables
and financing (**)
1,661
(1,509)
1,916
(260)
-
18
1,826
-
1,826
(95)
Finance
leases
(130)
(134)
-
28
-
89
(147)
-
(147)
(4)
Provision for
legal
proceedings
2,201
208
-
(345)
-
2
2,066
-
2,066
(1,142)
Others (*)
(498)
(1,109)
-
205
-
(26)
(1,428)
-
(1,428)
(2,711)
Tax losses
6,031
(244)
-
(668)
(1,117)
15
4,017
-
4,017
(886)
Inventories
569
(49)
-
(65)
-
-
455
-
455
217
Balance at January 1, 2018
Recognized in the statement of income for the year
Recognized in shareholders’ equity
Cumulative translation adjustment
Use of tax credits
Others
Balance at December 31, 2018
Initial application of IFRS9
Balance at January1,2019
Recognized in the statement of income for the year
Recognized in the statement of income of discontinued
operation (***)
Recognized in shareholders’ equity
Cumulative translation adjustment
Use of tax credits
Transfers to held for sale
Others
Balance at December 31, 2019
Deferred tax assets
Deferred tax liabilities
Balance at December 31, 2018
Deferred tax assets
Deferred tax liabilities
Balance at December 31, 2019
(*) It mainly includes impairment adjustments, capitalized borrowing costs, and expansion of the base of assets to calculate accelerated depreciation.
(**) The amounts presented as Loans, trade and other receivables/payables and financing relate to the tax effect on exchange rate variation recognized within other comprehensive income (cash flow hedge accounting) as set out in note 36.2.
(***) For more information on the discontinued operation, see note 30.
−
−
242
−
−
−
(5,508)
−
−
92
−
444
14
(3,589)
−
−
(54)
(352)
(175)
(39)
2,511
−
(203)
(114)
−
(55)
(16)
1,343
−
1,491
(56)
−
(216)
(10)
3,710
(612)
−
25
23
(181)
(3)
(439)
−
−
(17)
−
(23)
(2)
630
−
−
(51)
−
(87)
(4)
782
−
329
(9)
−
17
2
188
Others
534
(167)
2
(34)
(105)
(101)
129
-
129
180
Employee
Benefits
2,688
192
(119)
(417)
-
11
2,355
-
2,355
146
Total
2,364
(764)
1,799
(159)
(1,222)
8
2,026
-
2,026
(2,798)
(612)
1,617
58
(329)
(276)
(58)
(372)
2,680
(654)
2,026
1,388
(1,760)
(372)
The Company recognizes the deferred tax assets based on assessment of uncertainty over income tax treatments in the context of applicable tax laws, as well as projections of
future taxable profits in a ten-year perspective supported by the Business and Management Plan, which is revised annually.
F-44
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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 2020-2024 Strategic Plan. The main goals and objectives outlined in this 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 reversed
and expected taxable events occur based on its 2020-2024 Strategic Plan.
The estimated schedule of recovery/reversal of net deferred tax assets (liabilities) recoverable (payable) as of
December 31, 2018 is set out in the following table:
2020
2021
2022
2023
2024
2025 and thereafter
Recognized deferred tax assets
Brazil
Abroad
Unrecognized deferred tax assets
Total
Assets
Liabilities
928
24
46
20
32
338
1,388
245
1,414
1,659
3,047
21
39
19
288
705
688
1,760
-
-
-
1,760
At December 31, 2018, the Company had tax loss carryforwards arising from offshore subsidiaries, for which no deferred
tax assets had been recognized. These tax losses totaling U$ 1,414 (US$ 1,472 as of December 31, 2018) arose mainly
from oil and gas exploration and production and refining activities in the United States of US$ 1,346 (US$ 1,398 as of
December 31, 2017), as well as activities in Spain in the amount of US$ 68 (US$ 69 as of December 31, 2017).
An aging of the unrecognized tax carryforwards, from companies abroad is set out below:
2021
2022
2023
2024
2025
2026 - 2028
2029 - 2031
2032 - 2034
2035 - 2037
Total
Unrecognized
deferred tax
assets
45
1
13
9
3
234
292
563
254
1,414
16.6. Reconciliation between statutory tax rate and effective tax expense rate
The following table provides the reconciliation of Brazilian statutory tax rate to the Company’s effective rate on income
before income taxes:
F-45
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Net income before income taxes
Nominal income taxes computed based on Brazilian statutory corporate tax rates (34%)
· Tax benefits from the deduction of interest on capital distribution
· 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 (****)
· Tax settlement programs (*****)
· Agreement with US authorities
· Others
Income taxes expense
Deferred income taxes
Current income taxes
Total
Effective tax rate of income taxes
(*) It relates to Brazilian income taxes on earnings of offshore investees, as established by Law No. 12,973/2014.
(**) It includes tax incentives granted by dutch authorities.
2019
12,003
(4,081)
728
1,056
(175)
443
(682)
(1,556)
-
-
69
(4,200)
(2,798)
(1,402)
(4,200)
35.0%
2018
Reclassified
2017 -
Reclassified
10,827
(3,681)
553
355
(41)
74
(484)
(780)
-
(293)
41
(4,256)
(370)
(3,886)
(4,256)
39.3%
1,507
(513)
(53)
669
(70)
168
(146)
(454)
(1,373)
-
75
(1,697)
(400)
(1,297)
(1,697)
112.6%
(***) As of December 31, 2019, it includes US$ 674 regarding uncertainty over income tax treatments adopted by subsidiaries abroad.
(****) It includes results in equity-accounted investments, expenses relating to health care plan and provisions for legal proceedings.
(*****) Income taxes in the scope of PRT and PERT and reversals of losses carry forwards from 2012 to 2017.
16.7. Accounting policy for income taxes
Income tax expense for the period includes current and deferred taxes, recognized in the statement of income of the
period, except when the tax arises from a transaction or event which is recognized directly in equity. Income tax expense
comprises current and deferred taxes based on the rates of 25% for income tax (IRPJ) and 9% for social contribution on
net income (CSLL), and the offsetting of the carryforward of credit losses and negative basis of CSLL, limited to 30% of
taxable income for the year. Since 2015, income tax expenses on profits arising from subsidiaries abroad are recognized
as established by Law No. 12,973 / 2014.
16.7.1. Current income taxes
Current income taxes are computed based on taxable profit for the year, determined in accordance with the rules
established by the taxation authorities, 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 by the same tax
authority, when there is a legal right and the entity has the intention to set off current tax assets and current tax
liabilities, simultaneously.
16.7.2. Deferred income taxes
Deferred income taxes are recognized on temporary differences between the tax base of an asset or liability and its
carrying amount. They are measured at the tax rates that are expected to apply to the period when the asset is realized
or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end
of the reporting period.
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
F-46
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
entity will have sufficient taxable profit in future periods, based on projections approved by management and
supported by the Company’s Strategic Plan.
Deferred tax assets and deferred tax liabilities are offset when they 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.
17. Short-term and other benefits
Accrued vacation pay
Profit sharing
Employees variable compensation program
Voluntary Severance Program (PDV)
Salaries and related charges
Total
Current
Non-current
Performance Award Program
12.31.2019
31.12.2018
660
16
655
140
212
1,683
1,645
38
781
355
269
36
217
1,658
1,658
−
In the first quarter of 2019, the Board of Directors approved a new variable remuneration model for all the Company's
employees for 2019: the Performance Award Program (Programa de Prêmio por Performance - PPP). This program is in
line with the Strategic Plan, focusing on meritocracy and bringing flexibility to a scenario in which the Company seeks
more efficiency and alignment with the best management practices.
The PPP will be paid in a lump sum payment if the Company presents a net income higher than R$ 10 billion in 2019 and
the estimated amount of disbursement will depend on certain factors such as individual employee performance and
results of the areas, as well as performance metrics of the Company.
This new model replaces other benefits related to variable compensation, such as profit sharing and the Variable
Compensation Program – PRVE.
In 2019, the Company recognized a US$ 655 expense relating to the PPP for the employees within other income and
expenses.
Voluntary Severance Programs
On April 24, 2019, the Board of Directors approved the Company's Voluntary Severance Program (PDV). Petrobras
employees may join the program from May 2, 2019 to June 30, 2020, provided they are retired under the Brazilian Social
Security Institute (INSS) by the end of the enrollment period. The program aims to adapt size of the Company’s
workforce and optimize costs.
The recognition of the provision for expenses with this plan occurs to the extent that the employees join the program.
Accordingly, the Company has already registered 3,045 enrollments and 966 separations.
In addition, the Company launched two new voluntary severance programs with the same legal advantages and
indemnity as PDV, but intended for non-retired employees with specific regulations. These programs are destined to
the corporate segment employees (Corporate PDV) and to employees of divestment units (Specific PDVs). The
Corporate PDV has already registered 243 enrollments and 28 separations.
F-47
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
As of December 31, 2019, changes in the provision for expenses relating to separation plans implemented by the
Company are set out as follows:
Opening Balance
Discontinued operations (*)
Enrollments
Revision of provisions
Separations in the period
Cumulative translation adjustment
Closing Balance
Current
Non-current
18. Employee benefits (Post-Employment)
Liabilities
Petros Pension Plan - Renegotiated
Petros Pension Plan - Non-renegotiated
Petros 2 Pension Plan
AMS Medical Plan
Other plans
Total
Current
Non-current
Total
12.31.2019
35
(21)
200
(2)
(71)
(1)
140
98
42
12.31.2018
34
−
29
(7)
(16)
(5)
35
35
−
2019
2018
10,231
3,264
989
11,986
24
26,494
887
25,607
26,494
7,152
2,880
411
12,236
71
22,750
810
21,940
22,750
Following the divestment in BR Distribuidora on July 25, 2019, its actuarial liabilities are no longer considered in the
balance of Petrobras' post-employment benefit obligations on December 31, 2019. In determining an eventual deficit
in the defined benefit plan, it must be equalized by participants and sponsors, observing the proportion of their
contributions to the plan, according to complementary Law No. 109/2001.
18.1. Pension Plans
The Company’s post-retirement plans are managed by Fundação Petrobras de Seguridade Social (Petros Foundation),
which was established by Petrobras as a nonprofit legal entity governed by private law with administrative and financial
autonomy.
a)
Renegotiated and Non-renegotiated Petros Plans (former Petros Plan)
These plans were established by Petrobras in July 1970 (originally solely Petros Plan) 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 Foundation 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.
In August 2019, the Board of Directors approved the prepayment of part of the Term of Financial Commitment (TFC) to
Petros in the amount of US$ 690, of which US$ 524 relating to Petros Renegotiated (PPSP-R) and US$ 166 to Petros
Non Renegotiated (PPSP-NR). Such payment, which was scheduled to occur in 2028, was anticipated aiming at
improving the liquidity of the plans.
F-48
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
As of December 31, 2019, the balances of the Terms of Financial Commitment (TFC), signed by Petrobras and Petros
Foundation in 2008, relating to PPSP-R and PPSP-NR are US$ 2,264 and US$ 1,216. The TFC is a financial commitment
agreement to cover obligations under the pension plans (PPR and PPNR), 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 US$ 3,525.
The employers' expected contributions to PPSP-R and PPSP-NR plans for 2020 are US$ 247 and US$ 116. Interest
payments on TFC are expected to reach US$ 101 and US$ 47, repectivelly.
The average durations of the actuarial liability related to PPSP-R and PPSP-NR plans, as of December 31, 2019, are
13.78 and 11.05 years, respectively (13.08 and 11.69 as of December 31, 2018).
Split of Petros Plan
On December 27, 2019, the Previc authorized the split of PPSP-R and PPSP-NR plans, aiming to gather participants of
“Pre-70 group” in “PPSP-R Pre-70” and “PPSP-NR Pre-70”.
The Pre-70 Group is made up of Petrobras employees and former employees hired prior to July 1, 1970, who enrolled in
the PPSP until January 1, 1996 and remained continuously linked to the original sponsor obtaining the condition of
assisted.
In the first quarter of 2020, changes on actuarial obligations of the pre-70 group recognized in the statement of
financial position will be presented separately in two independent plans, PPSP-R Pre-70 and PPSP-NR Pre-70.
As of December 31, 2019, the balance of the actuarial liability related to the Pre-70 group (PPSP-R Pre-70 and PPSP-
NR Pre-70) represents 7% and 22% of the balance of the actuarial liability of PPSP-R and PPSP-NR plans, respectively.
Deficit settlement plan – Petros Plan
The Petros Plan has a deficit settlement plan (PED) in place due to its accumulated deficit until 2015. This deficit,
updated by interest and inflation until December 2017, reached US$ 6,773 (R$ 27,300 million as of December 31, 2019).
The PED was approved by the Executive Council of Petros Foundation on September 12, 2017 and assessed by the
Company and the SEST.
Additional contributions from participants and sponsors, relating to this deficit, commenced in March 2018. Certain
participants appealed before the judiciary and have had their contributions suspended based on judicial injunctions,
which totaled US$ 430 at December 31, 2019. However, all judicial sentences were favorable to the maintenance of the
settlement plan approved by Petros' Deliberative Council. In 2019, the Company made contributions amounting to
US$ 256 with respect of contributions under the PED (US$ 154 in 2018).
Pursuant to relevant regulation, the sponsors (Petrobras, BR Distribuidora and Petros Foundation) and participants will
cover this deficit based on their respective proportions of regular contributions (parity basis).
The deficit of Petros Plan was transferred to PPR and PPNR on April 1, 2018.
On March 29, 2019, the Petros Foundation's Deliberative Council approved the financial statements for 2018 with
accumulated deficits of US$ 1,389 and US$ 695 for the PPSP-R and PPSP-NR, respectively, in accordance with
accounting practices adopted in Brazil applicable to entities regulated by the National Council for Supplementary
Pension Plans (CNPC).
New deficit settlement plan
Due to the deficits accumulated in 2018 having exceeded the legal limit, Petros Foundation had to implement a new
deficit settlement plan until March 2020, according to the deadline established by Previc on December 27, 2019.
F-49
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
The Petros Foundation has been working on the implementation of this plan, an alternative settlement plan with the
objective of rebalancing the PPSP-R and PPSP-NR plans, which includes the 201 5 and 2018 deficits, in addition to
reducing the impact of extraordinary monthly contributions of participants.
The solution includes changes to some rights and to the regulations of both plans, intended for employees and assisted
participants not included in the Pre-70 Group. The amounts to be settled and the payment conditions are under
evaluation and will follow the internal approval procedures and then, Petrobras should submit it to the analysis of the
SEST.
The recalculation of the actuarial liabilities is being carried out by the independent actuaries, through an intermediate
review, which effect will be recognized in the financial statements when the new deficit settlement plan is approved.
The approval may occur in the first quarter of 2020 and the new contribution may start in April.
b)
Petros 2 Plan
Petros 2 Plan was established in July 2007 by Petrobras, 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. (currently an associate),
Stratura Asfaltos, Termobahia, Termomacaé, Transportadora Brasileira Gasoduto Brasil-Bolívia S.A. – TBG, Petrobras
Transporte S.A. – Transpetro, Petrobras Biocombustível and Araucária Nitrogenados. 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 US$ 242 in 2019.
The defined benefit portion of the contributions was suspended from July 1, 2012 to June 30, 2020, as determined by
the Executive Council of Petros Foundation, based on advice of the actuarial consultants from Petros Foundation.
Therefore, the entire contributions are being applied to the individual accounts of plan participants.
For 2020, the sponsors' expected contributions to the defined contribution portion of the plan are US$ 257.
The average duration of the actuarial liability related to the plan, as of December 31, 2019 is 23.34 years (19.68 at
December 31, 2018, recalculated for better comparability).
c)
Petros 3 Plan
On December 18, 2018, the Board of Directors approved a proposal for a new pension plan with defined contribution
characteristics to be offered. Its adhesion is voluntary to the participants of Petros Plan –Renegotiated and Petros Plan
– Non-renegotiated.
The migration to this new plan will only be possible after the proposal review and approval by all relevant bodies. The
proposal has already been approved by the Petros Deliberative Council and the Petrobras Board of Directors and is
awaiting approval from PREVIC and SEST.
The participants’ new benefit will be recalculated based on future commitments on a participant basis at the time of
migration. Therefore, each participant will have an individual account, and the amount of the retirement benefit will
depend on the accumulated balance, being recalculated annually in connection with the return on plan assets.
The migration for Petros 3 Plan is expected to be offered in the first half of 2020.
F-50
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
d)
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.
18.2. 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 Foundation 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.
Petros
Petros
Renegotiated
Non-renegotiated
Petros plan 2
Minimum Maximum
Minimum Maximum
Minimum Maximum
Fixed-income
Variable-income
Structured investments
Real estate properties
Loans to participants
Investments abroad
20%
-
-
-
-
-
100%
45%
40%
10%
15%
10%
20%
-
-
-
-
-
The pension plan assets by type of asset are set out as follows:
Type of asset
Receivables
Fixed income
Government bonds
Fixed income funds
Other investments
Variable income
Common and preferred shares
Other investments
Structured investments
Real estate properties
Loans to participants
Total
Quoted prices
in active
markets
Unquoted
prices
Total fair
value
-
6,179
6,179
-
-
2,753
2,753
-
-
-
8,932
-
8,932
963
2,607
-
1,608
999
152
-
152
185
767
4,674
469
5,143
963
8,786
6,179
1,608
999
2,905
2,753
152
185
767
13,606
469
14,075
100%
45%
40%
10%
15%
5%
2019
%
7%
62%
-
-
-
21%
-
-
1%
6%
97%
3%
100%
-
-
-
-
-
-
Total fair
value
1,087
7,761
6,522
940
299
2,208
2,081
127
237
829
12,122
533
12,655
100%
45%
40%
10%
15%
10%
2018
%
9%
61%
-
-
-
17%
-
-
2%
7%
96%
4%
100%
As of December 31, 2019, the investment portfolio included debentures of US$ 11 (US$ 11 in 2018), Company’s common
shares in the amount of US$ 1 (US$ 3 in 2018) and real estate properties leased by the Company in the amount of US$
342 (US$ 344 in 2018).
Loans to participants are measured at amortized cost, which is considered an appropriate estimate of fair value.
F-51
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
18.3. Medical Benefits: Health Care Plan - Assistência Multidisciplinar de Saúde (“AMS”)
Petrobras, Petrobras Distribuidora S.A., Petrobras Transporte S.A. – Transpetro, Petrobras Biocombustível,
Transportadora Brasileira Gasoduto Brasil-Bolívia – TBG and Termobahia 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 mitigate 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, of which the Company
satisfies 70% of these costs as governed by the collective bargaining agreement.
The average duration of the actuarial liability related to this health care plan, as of December 31, 2019, is 21.64 years
(22.24 as of December 31, 2018).
CGPAR resolutions
On January 18, 2018, the Inter-ministerial Commission for Corporate Governance and Administration of Participations
of the Union (CGPAR), through CGPAR Resolutions 22 and 23, established guidelines and parameters of governance and
cost limits to health care plans operated by state-owned companies.
The main objective of the resolutions is to make feasible the sustainability and the economic, financial and actuarial
balance of the health plans operated by state-owned companies.
The company has up to 48 months to adjust the AMS health plan to this new regulation provisions and is assessing the
financial impacts it may cause, including among others, a possible decrease in its actuarial liability following the parity
basis of contribution, between the Company and the participants, determined by this rule.
18.4. Net actuarial liabilities and expenses, and fair value of plans assets
F-52
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, 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
Plans
Medical
Plan
2019
Petros
Renegotiated (*)
Petros Non-
renegotiated (*)
Petros 2
AMS
Other
plans
Total
Changes in the present value of obligations
Obligations at the beginning of the year
Discontinued operations
Interest expense
Current service cost
Contributions paid by participants
Benefits paid
Remeasurement: Experience (gains) / losses (**)
Remeasurement: (gains) / losses - demographic
assumptions
Remeasurement: (gains) / losses - financial assumptions
Others
Cumulative Translation Adjustment
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
Discontinued operations
Interest income
Contributions paid by the sponsor (Company)
Contributions paid by participants
Term of financial commitment (TFC) paid by the Company
Benefits Paid
Remeasurement: Return on plan assets due to lower
interest income
Others
Cumulative Translation Adjustment
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 the net actuarial liability
Balance as of January 1,
Discontinued operations
Remeasurement effects recognized in other comprehensive
income
Costs incurred in the period
Current service cost
Contributions paid
Payments related to Term of financial commitment (TFC)
Others
Cumulative Translation Adjustment
Balance as of December 31,
(*) It includes the changes in Pertros plan, PPR and PPNR plans.
16,689
(892)
1,357
51
82
(1,097)
1,165
45
4,044
−
(525)
20,919
9,537
(493)
847
342
82
725
(1,097)
1,099
−
(354)
10,688
20,919
(10,688)
10,231
7,152
(399)
4,155
51
510
(340)
(717)
−
(181)
10,231
996
(58)
83
39
−
(33)
12,236
(651)
1,024
208
−
(442)
112
−
6
2
−
(2)
35,405
(1,905)
2,901
306
98
(1,994)
(34)
(2,489)
(7)
(1,348)
(43)
(169)
(1)
(109)
747
−
(25)
1,672
2,747
−
(478)
11,986
5,372
(304)
431
6
16
(420)
17
59
957
−
(179)
5,955
2,492
(128)
226
108
16
273
(420)
218
−
(94)
2,691
585
(42)
48
−
−
−
(33)
143
−
(18)
683
−
−
−
442
−
−
(442)
−
−
−
−
11,986
−
11,986
12,236
(651)
89
208
1,024
(442)
−
−
(478)
11,986
5,955
(2,691)
3,264
1,672
(683)
989
2,880
(176)
815
6
205
(107)
(269)
−
(90)
3,264
411
(17)
527
40
35
−
−
−
(7)
989
13
(84)
(2)
37
41
−
2
7
−
−
(2)
2
(36)
(1)
13
37
(13)
24
71
(1)
3
2
5
(7)
−
(48)
(1)
24
8,508
(84)
(1,209)
40,569
12,655
(663)
1,123
899
98
998
(1,994)
1,462
(36)
(467)
14,075
40,569
(14,075)
26,494
22,750
(1,244)
5,589
307
1,779
(897)
(985)
(48)
(757)
26,494
(**) It includes additional constribuitons of participants regarding the deficit settlement plan as set out in note 23.1.
F-53
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Pension
Plan
Medical
Plan
2018
Petros
Petros 2
AMS
Other
plans
Total
Changes in the present value of obligations
Obligations at the beginning of the year
Interest expense:
Current service cost
Contributions paid by participants
Benefits paid
Remeasurement: Experience (gains) / losses (*)
Remeasurement: (gains) / losses - demographic
assumptions
Remeasurement: (gains) / losses - financial assumptions
Others
Cumulative Translation Adjustment
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
25,081
2,111
83
374
(2,173)
(1,373)
80
1,577
−
(3,699)
22,061
14,353
1,203
278
374
223
(2,401)
(233)
−
(1,768)
12,029
Term of financial commitment (TFC) paid by the Company
Benefits Paid
Remeasurement: Return on plan assets due to lower
interest income
Others
Cumulative Translation Adjustment
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 the net actuarial liability
10,728
Balance as of January 1,
Remeasurement effects recognized in other comprehensive
517
income
991
Costs incurred in the period
908
Current service cost
(278)
Contributions paid
(223)
Payments related to Term of financial commitment (TFC)
−
Others
(2,611)
Cumulative Translation Adjustment
Balance as of December 31,
10,032
(*) It includes additional constribuitons of participants regarding the deficit settlement plan as set out in note 23.1.
22,061
(12,029)
10,032
887
77
33
−
(35)
8
−
165
−
(139)
996
627
54
−
−
−
(38)
35
−
(93)
585
996
(585)
411
260
138
56
23
−
−
−
(66)
411
10,802
927
155
−
(456)
(115)
176
2,412
−
(1,665)
12,236
−
−
321
−
−
(504)
−
−
183
−
12,236
−
12,236
10,802
2,473
1,082
927
(321)
−
−
(2,727)
12,236
85
4
7
−
(3)
−
−
(2)
34
(13)
112
45
−
−
−
−
(3)
(4)
3
−
41
112
(41)
71
40
2
11
4
−
−
31
(17)
71
36,855
3,119
278
374
(2,667)
(1,480)
256
4,152
34
(5,516)
35,405
15,025
1,257
599
374
223
(2,946)
(202)
3
(1,678)
12,655
35,405
(12,655)
22,750
21,830
3,130
2,140
1,862
(599)
(223)
31
(5,421)
22,750
F-54
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
b)
Defined benefit costs
Related to active employees:
Related to retirees
Net expenses for the year
Related to active employees:
Related to retirees
Net expenses for the year
Related to active employees:
Related to retirees
Net expenses for the year
Pension
Plans
Medical
Plan
Petros
Renegotiated
Petros Non -
renegotiated
Petros 2
AMS
Other Plans
160
401
561
27
184
211
58
17
75
466
766
1,232
4
3
7
Pension Plans
Medical
Plan
Petros
Renegotiated
Petros Non -
renegotiated
Petros
Petros 2
63
198
261
132
386
518
32
126
158
43
10
53
AMS
340
678
1,018
Pension Plans
Medical
Plan
Petros
Petros 2
331
862
1,193
60
12
72
AMS
377
916
1,293
Other
Plans
7
3
10
Other
Plans
10
1
11
2019
Total
715
1,371
2,086
2018
Total
617
1,401
2,018
2017
Total
778
1,791
2,569
F-55
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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:
2019
Pension Benefits
Medical Benefits
Medical Benefits
Discount Rate
Medical Cost
Pension Obligation
Current Service cost and interest cost
2018
Pension Obligation
Current Service cost and interest cost
d)
Actuarial assumptions
+100 bps
-100 bps
+100 bps
-100 bps
+100 bps
-100 bps
(3,195)
16
4,444
91
(1,623)
(70)
2,073
86
2,063
228
(1,171)
(121)
Pension Benefits
Discount Rate
Medical Benefits
Medical Cost
Medical Benefits
+100 bps
-100 bps
+100 bps
-100 bps
+100 bps
-100 bps
(1,714)
13
3,889
140
(1,498)
(74)
1,869
89
1,994
248
(1,005)
(117)
Assumptions
Nominal discount rate (including
inflation)(1)
Nominal expected salary growth
(including inflation) (2)
Expected changes in medical and
hospital costs (3)
Mortality table
PPSP-R Pre-70 PPSP-R Post-70 PPSP-NR Pre-70 PPSP-NR Post-70
6.82%
4.61%
n/a
7.13%
4.61%
n/a
6.81%
4.34%
n/a
7.10%
4.34%
n/a
EX-PETROS 2016
(bidecremental)
EX-PETROS 2013
(bidecremental)
EX-PETROS 2020
(bidecremental)
EX-PETROS 2020
(bidecremental)
Disability table
n/a
American group
n/a
American group
2019
AMS
7.19%
according to
security plan
PP2
7.30%
6.40%
n/a
10.46% a 3.50%
p.a.
AT-2000
female,
smoothed in a
American group
reduced by 40%
EX-PETROS 2013
(bidecremental)
American group
Mortality table for disabled participants
Age of retirement
MI 2006, by
gender,
smoothed in a
20%
Male, 56 years /
Female, 55 years
AT-49 male
MI 2006, by gender,
smoothed in a 20%
AT-49 male
IAPB 1957
strong
AT-49 male
Male, 56 years /
Female, 55 years
Male, 58 years /
Female, 56 years
Male, 58 years /
Female, 56 years
1st eligibility
Male, 56 years /
Female, 55 years
F-56
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Assumptions
Nominal discount rate (including
inflation)(1)
Nominal expected salary growth
(including inflation) (2)
Expected changes in medical and
hospital costs (3)
Expected changes in medical and
hospital costs (3)
Mortality table
Disability table
PPR
9.11%
PPNR
Petros 2
9.08%
9.22%
For 2019: 5.55%
For 2019: 5.40% For 2019: 7.28%
As of 2020: 5.33%
As of 2020: 5.24%
As of 2020:
6.84%
2018
AMS
9.16%
according to
security plan
n/a
n/a
n/a 12.03% to 4% p.a.
EX-PETROS 2013
(bidecremental)
EX-PETROS 2017
(bidecremental)
American group
American group
AT-2000
female,
smoothed in a
American group
reduced by 40%
IAPB 1957
strong
EX-PETROS 2013
(bidecremental)
American group
AT-49 male
Mortality table for disabled participants
AT-49 male
AT-49 male
Age of retirement
Male, 56 years /
Female, 55 years
Male, 58 years /
Female, 56 years
1st eligibility
Male, 56 years /
Female, 55 years
(1) Inflation reflects market projections: 3.61% for 2019 and converging to 3.5% in 2026 onwards.
(2) Expected salary growth only of Petrobras, the sponsor, based on the Salaries and Benefits Plan.
(3) Decreasing rate, converging in 30 years to the long-term expected inflation. Refers only to Petrobras (sponsor) rate.
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
Renegotiated
Petros Non -
renegotiated
Petros 2
1,064
5,018
4,165
3,254
7,418
20,919
445
1,990
1,554
1,121
845
5,955
35
183
187
189
1,078
1,672
AMS
378
2,109
2,134
1,889
5,476
11,986
2019
Other
Plans
Total
1
5
6
6
19
37
1,923
9,305
8,046
6,459
14,836
40,569
18.5. Other defined contribution plans
Petrobras, through its subsidiaries in Brazil and abroad, also sponsors other defined contribution pension plans for
employees. Contributions paid amounting to US$ 2 in 2019 (US$ 3 in 2018) were recognized in the statement of income.
18.6. Accounting policy for post-employment defined benefit
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. 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. Actuarial assumptions include demographic assumptions, financial assumptions, medical costs estimates,
historical data related to benefits paid and employee contributions.
Service cost are accounted for within results and 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
F-57
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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. Such interest is accounted for in results.
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, excluding
amounts included in net interest on the net defined benefit liability (asset).
The Company also contributes amounts to defined contribution plans, that are expensed when incurred and are
computed based on a percentage of salaries.
19. Provisions for legal proceedings
19.1. 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) opt-out claims related to 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) actions of outsourced employees;
Tax claims including: (i) claims relating to Brazilian federal tax credits applied that were disallowed; and (ii) alleged
misappropriation of VAT (ICMS) tax credits;
Civil claims relating to: (i) collection of royalties over the shale extraction; (ii) compensation of loss of profits;
(iii) penalties applied by ANP relating to measurement systems; and (iv) litigations involving the company Sete
Brasil.
Environmental claims for compensation relating to an environmental accident in the State of Paraná, in 2000.
Provisions for legal proceedings are set out as follows:
Current and Non-current liabilities
Labor claims
Tax claims
Civil claims
Environmental claims
Total
Current liabilities
Non-current liabilities
12.31.2019
12.31.2018
895
463
1,523
232
3,113
−
3,113
1,093
491
5,710
111
7,405
3,482
3,923
F-58
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Opening Balance
Additions, net of reversals
Use of provision (*)
Accruals and charges
Transfer to assets held for sale
Others
Cumulative translation adjustment
Closing Balance
Jan-Dec/2019
7,405
1,290
(5,332)
233
(289)
22
(216)
3,113
Jan-Dec/2018
7,026
1,325
(650)
736
−
95
(1,127)
7,405
(*) It includes the US$ 2,866 relating to approval of the Class Action agreement, US$ 903 relating to an agreement regarding the Parque das Baleias
field, and US$ 656 relating to the proceeding regarding drilling rig Titanium Explorer.
In preparing its consolidated financial statements for the year ended December 31, 2019, the Company considered all
available information concerning legal proceedings in which the Company is a defendant, in order to estimate the
amounts of obligations and probability that outflows of resources will be required.
The main additions to provisions for legal proceedings in the year ended December 31, 2019 relate to (i) litigations
involving the company Sete Brasil, in the amount of US$ 740, including an arbitration award favorable to Petrobras, in
the last quarter of 2019, which reduced the estimate of losses; (ii) the Conduct Adjustment Declaration (“TAC”) to close
the public civil action requesting the environmental licensing of Comperj, in the amount of US$ 208, which was
transferred to other current liabilities, after the TAC becoming effective; (iii) ICMS debts under the ICMS Agreement
7/2019 in the states of Bahia and Ceará, in the amount of US$ 94; (iv) compensation relating to an environmental
accident in the State of Paraná for US$ 155; and (v) action for the cancellation of collection of production taxes in the
amount of US$ 66.
19.2. Judicial deposits
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
Labor
Civil
Environmental
Others
Total
Opening Balance
Additions
Use
Accruals and charges
Transfer to assets held for sale
Others
Cumulative translation adjustment
Closing Balance
12.31.2019
12.31.2018
5,926
1,056
1,082
160
12
8,236
4,563
1,161
823
160
4
6,711
12.31.2019
12.31.2018
6,711
2,021
(187)
329
(313)
(1)
(324)
8,236
5,582
1,883
(86)
294
-
26
(988)
6,711
In 2019, the Company made judicial deposits in the amount of US$ 2,021, including: (i) US$ 710 related to the chartering
of platforms due to the legal dispute related to the IRRF; (ii) US$ 456 referring to IRPJ and CSLL for not adding the
profits of subsidiaries domiciled abroad to the IRPJ and CSLL calculation base; (iii) US$ 177 related to questions from
the ANP about differences in the calculation of royalties and special participation; (iv) US$ 177 related to the civil lawsuit
related to IPI credit, whose author is Triunfo Agro Industrial. On the other hand, there was a reduction of US$ 313, mainly
F-59
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
due to the sale of interest in BR Distribuidora.
19.3. 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 estimates of contingent liabilities for legal proceedings are indexed to inflation and updated by applicable interest
rates. As of December 31, 2019, estimated contingent liabilities for which the possibility of loss is not considered remote
are set out in the following table:
Nature
Tax
Labor
Civil - General
Civil - Environmental
Total
12.31.2019
32,376
9,734
5,977
1,576
49,663
12.31.2018
37,290
8,619
6,539
4,221
56,669
The tables below detail the main causes of tax, civil, environmental and labor nature, whose expectations of losses are
classified as possible.
F-60
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, 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: The claim about the incidence of withholding income tax (Imposto de Renda Retido na Fonte- IRRF) on
remittances for payments of vessel charters, occurred from 1999 to 2002, involves the legality of the normative rule issued
by the Federal Revenue of Brazil, which ensured no taxation over those remittances. The Company considers the likelihood
of loss as possible, since there are decisions from Superior Courts favorable to the understanding of the Company, and will
continue to defend its opinion.
The other claims, concerning CIDE and PIS/COFINS, involve lawsuits in different administrative and judicial stages, for
which the Company understands there is a possible likelihood of loss, since there are legal predictions in line with the
position of the Company.
2) Income from foreign subsidiaries and associates located outside Brazil not included in the computation of taxable
income (IRPJ and CSLL).
Current status: This claim involves lawsuits in different administrative and judicial stages. The Company considers the
likelihood of loss as possible, since there are decisions from Superior Courts favorable to the understanding of the
Company. In 2019, the company received a new infraction notice.
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. The company obtained a final
decision at CARF, canceling part of the debts.
4) Incidence of social security contributions over contingent bonuses paid to employees.
Estimate
12.31.2019 12.31.2018
11,632
11,568
5,224
5,208
1,019
3,156
Current status: Awaiting defense judgment and appeals at the administrative and judicial levels.
992
929
5) 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 different judicial stages.
6) Deduction from the basis of calculation of taxable income (income tax - IRPJ and social contribution - CSLL) of several
expenses related to employee benefits.
Current status: The claim involves lawsuits in different administrative and judicial stages.
Plaintiff: Municipal governments of the cities of Anchieta, Aracruz, Guarapari, Itapemirim, Marataízes, Linhares, Vila
7) 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 different administrative and judicial stages.
Plaintiff: States of SP, RJ, BA, PA, AL, MA and PB Finance Departments
8) 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, including two new material notices applied in the
third quarter of 2018, which are in different administrative and judicial stages.
Plaintiff: States of RJ and AL Finance Departments
9) 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, AL, AM, PA, BA, GO, MA, SP and PE Finance Departments
10) Alleged failure to write-down VAT (ICMS) credits related to zero tax rated or non-taxable sales made by the Company
and its customers.
Current status: This claim involves lawsuits in different administrative and judicial stages. New assessments were added
in 2019.
Plaintiff: State of Rio de Janeiro Finance Department
11) The plaintiff alegges that the transfers without segregating VAT (ICMS), under the special regime, reduced the total
credits of the central department.
Current status: The Company presented administrative defense from the notices issued, pending court assessment.
Plaintiff: States of SP and RS Finance Departments
12) 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, SP, PR, RO and MG Finance Departments
13) 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: States of RJ Finance Departments
579
588
536
542
1,250
1,123
1,191
1,323
1,098
1,198
1,058
942
989
800
640
740
634
965
F-61
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
14) Appropriation of ICMS credit on the acquisition of goods (products in general) that, in the understanding of the
inspection, would fit into the concept of material for use and consumption, being the tax credit undue.
Current status: The issue involves several administrative and judicial proceedings. There were new infraction notices in
2019, partially offset by the inclusion of ICMS debts in state amnesty programs.
Plaintiff: States of PR, AM, BA, ES, PA, PE, SP, PB and AL Finance Departments
15) 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. Exposure reduction due to the
inclusion of VAT (ICMS) debts in state amnesty programs.
Plaintiff: State of SP Finance Department
16) 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 in different administrative and judicial stages. In 2019, the company obtained
final favorable decisions, contributing to the partial reduction of the exposure.
Plaintiff: States of RJ, SP, ES, BA, PE, RS, AL, SE, CE and RN 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 judicial stages. Exposure reduction due to the inclusion of ICMS
debts in state amnesty programs.
Plaintiff: States of RJ, SP, SE and BA Finance Departments
18) Misappropriation of VAT tax credit (ICMS) on the acquisitions of drills and chemicals used in the formulation of drilling
fluid, per the tax authorities.
Current status: This claim involves lawsuits in different administrative and judicial stages. In 2019, the company obtained
final favorable decisions, contributing to the partial reduction of the exposure.
Plaintiff: State of BA Finance Department
19) 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), consequently charging the difference on
the tax levied on the sale and transfer transactions.
Current status: This claim involves lawsuits in different judicial stages. Exposure reduction due to the inclusion of ICMS
debts in state amnesty programs.
Plaintiff: States of GO, PA, RJ, RR, SC, SP and TO.
20) Charge of VAT (ICMS) on remittance and symbolic return of jet fuel to retail establishment which, in the understanding
of the tax authority, should have retention and collection of the ICMS for the subsequent operations, since it is considered
a remittance to a retail taxpayer established in the State.
Current status: The exposure was zeroed due to the Petrobras Distribuidora follow-on in July 2019.
21) Other tax matters
Total for tax matters
602
589
571
890
565
659
562
900
511
567
8
304
−
2,715
373
3,926
32,376
37,290
F-62
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Description of civil matters
Plaintiff: Agência Nacional de Petróleo, Gás Natural e Biocombustíveis - ANP
1) Administrative proceedings challenging an ANP order requiring Petrobras to pay additional special participation fees
and royalties (production taxes) with respect to several fields. It also includes contention about fines imposed by ANP
due to alleged failure to comply with the minimum exploration activities program, as well as alleged irregularities relating
Current status: The claims involve lawsuits in different administrative and judicial stages.
2) 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
Current status: This list involves claims that are disputed in court and in arbitration proceedings, as follows:
a) Lula and Cernanbi: initially, the Company made judicial deposits for the alleged differences resulting from the special
participation. However, with the reversal of the favorable injunction, the payment of these alleged differences were
made directly to ANP, and such judicial deposits were resumed in the 2nd Quarter of 2019. Arbitration remains
suspended by court decision;
b) Baúna and Piracicaba: the Court reassessed previous decision that disallowed judicial deposits, therefore the Company
is currently depositing the controversial amounts. The arbitration is stayed.
c) Tartaruga Verde and Mestiça: The Company has authorization to make the judicial deposits relating to these fields.
The Regional Federal Court of the Second Region has the opinion that the Chamber of Arbitration has jurisdiction on this
claim and the arbitration is ongoing.
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: This list involves claims that are disputed in court and in arbitration proceedings, as follows:
a) Lula and Cernanbi: initially, the Company made judicial deposits for the alleged differences resulting from the special
participation. However, with the reversal of the favorable injunction, the arbitration is stayed and currently the payment
of these alleged differences have been made directly to ANP, until a final judicial decision is handed down.
b) Baúna and Piracicaba: the Court reassessed previous decision that disallowed judicial deposits, therefore the Company
is currently depositing the controversial amounts. The arbitration is stayed.
c) Tartaruga Verde and Mestiça: The Company has authorization to make the judicial deposits relating to these fields.
The Regional Federal Court of the Second Region has the opinion that the Chamber of Arbitration has jurisdiction on this
claim and the arbitration is ongoing. On both parties initiative, the arbitration is stayed.
d) Parque das Baleias complex: the Judiciary stated decisions allowing the arbitration with ANP. Therefore, the Chamber
of Arbitration disallowed ANP to charge for special participation, establishing that Petrobras should provide collateral on
the debt to be negotiated. On both parties initiative, the arbitration is stayed, with the objective of seeking an
alternative to solve this dispute, which amounts to US$ 2.8 billion at December 31, 2018. In December 2018, the ANP held
a hearing presenting a draft of the preliminary agreement developed by the technical departments of Petrobras and
ANP, including the calculation of the updated amounts of special participation due up the last quarter of 2018, totaling
US$ 0.9 billion. Therefore, the Company believes, as of December 31, 2018, that an outflow of resources in this amount is
probable to settle the controversy with the ANP and, as a result, recognized a provision for this proceeding in 2018.
Plaintiff: Agência Estadual de Regulação de Serviços Públicos de Energia, Transportes e Comunicações da Bahia
4) Public Civil Action (ACP) to discuss the alleged illegality of the gas supply made by the company to its Nitrogenated
Fertilizer Production Unit (FAFEN / BA).
Current status: The lawsuit is at the Bahia Court of Justice awaiting judgment of an appeal filed by the company.
5) Other civil matters
Total for civil matters
Estimate
12.31.2019 12.31.2018
1,520
1,663
391
287
1,024
2,082
299
2,743
5,977
278
2,229
6,539
F-63
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Description of labor matters
Plaintiff: Employees and Sindipetro Union of ES, RJ, BA, MG, SP, PE, PB, RN, CE, PI, PR and SC.
1) 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: In 2018, the Superior Labor Court (Tribunal Superior do Trabalho - TST) denied the special appeal filed by
the Company. Petrobras filed a Motion for Clarification on the decision, which was denied by the TST. The Company will
file the appropriate appeal. On July 26, 2018, a minister of the Superior Federal Court (Superior Tribunal Federal - STF)
granted Petrobras' request to prevent the effects of the judgment of the TST, determining the suspension of individual
and class actions on this subject, pending the deliberation on this matter in the Supreme Court or further deliberation of
the rapporteur minister assigned to this case. On August 13, 2018, the rapporteur confirmed the decision of the minister
and extended the decision to the ongoing actions on the matter, suspending all cases relating to this subject.
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 of standby work per workday, as well as an 11-hour period for rest between
Current status: Transfer to remote loss due to the decision of the TST that denied to follow up the appeal of the
SINDIPETRO / NF.
3) Other labor matters
Total for labor matters
Description of environmental matters
Plaintiff: Ministério Público do Estado do Rio de Janeiro.
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. In the third quarter of 2019, there was a reduction on the contingent liability, with a provision of US$ 150
being recognized as other income and expenses.
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
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.
Plaintiff: Ministério Público do Estado do Rio de Janeiro.
3) Five public civil actions filed by the Public Prosecutor's Office of the State of Rio de Janeiro against Petrobras, the
State Environmental Institute - INEA and Rio de Janeiro State, requesting proof of compliance with regulation relating to
the environmental licensing of COMPERJ, complementation of technical researchs, as well as compensation for collective
Current status: The main claim was closed due to the signing of the conduct adjustment term (TAC) between the parties,
resulting in an obligation of US$ 208, while, in the remaining four actions, the parties are in negotiations for solution
through again TAC, which resulted in the transfer of exposure to remote loss and a provision of US$ 13.
4) Other environmental matters
Total for environmental matters
Estimate
12.31.2019 12.31.2018
7,732
6,254
14
1,988
9,734
352
2,013
8,619
Estimate
12.31.2019 12.31.2018
470
901
326
400
-
780
1,576
2,096
824
4,221
19.4. Class action and related proceedings
19.4.1. Class action and related proceedings in the USA
Under the Class action Settlement, Petrobras (together with its subsidiary PGF) agreed to pay US$ 2,950 to resolve
claims in two installments of US$ 983 and a further installment of US$ 984. Accordingly, the Company charged US$
3,449 to its statement of income for the last quarter of 2017 as other income and expenses, taking into account the
gross up of tax related to Petrobras’s portion of the settlement. The three installments were deposited on March 1,
2018, July 2, 2018 and January 15, 2019 into an escrow account designated by the lead plaintiff and accounted for as
other current assets. However, certain objectors had appealed the District Court’s final decision to approve the Class
Action Settlement.
F-64
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
On August 30, 2019, the United States Court of Appeals for the Second Circuit confirmed the decision approving the
agreement for the Class Action Settlement and, therefore, the agreement is no longer subject to appeals.
On September 24, 2019, the District Court authorized the beginning of the distribution of the amounts deposited in the
escrow account designated by the lead plaintiff to investors who had their claims admitted by that Court.
Thus, the installments deposited in the escrow account were offset with the liability accounted for as current provision
for legal proceedings.
In connection with consummated settlements of Individual Actions, the company charged US$ 456, during the years
2016 to 2018, to the statement of income as other income and expenses. In 2019, there were no new payments.
19.4.2. Class action in the Netherlands
On January 23, 2017, the Stichting Petrobras Compensation Foundation (“Foundation”) filed a class action before the
district court in Rotterdam, in the Netherlands, against Petrobras parent company and Petrobras International
Braspetro B.V. (PIBBV), Petrobras Global Finance B.V. (PGF), Petrobras Oil & Gas B.V. (PO&G) and some former managers
of Petrobras.
The Foundation allegedly represents the interests of an unidentified group of investors and alleges that based on the
facts uncovered by the Lava Jato investigation the defendants acted unlawfully towards investors. Based on the
allegations, the Foundation seeks a number of declaratory relieves from the Dutch court.
The Company filed their first response to the claim on May 3, 2017 (first docket date), presenting the law firms that will
defend these companies and requesting a hearing to discuss some aspects of the case.
On August 23, 2017, a hearing was held at the District Court in Rotterdam (“Court”) to establish the timeframe for
proceedings. Petrobras (and other defendants) presented preliminary defenses on November 29, 2017 and the
Foundation presented its response on March 28, 2018. On June 28, 2018, a hearing was held for the parties to present
oral arguments. On September 19, 2018, the Court rendered its interim decision in the motion proceedings in which it
accepted jurisdiction in most of 7 claims of the Foundation, without any assessment on the merits of the case.
On April 16, 2019, a hearing was held to present oral arguments on some procedural issues of this Class action.
On January 29, 2020, the Court determined that shareholders who understand Portuguese and / or who bought shares
through intermediaries or other agents who understand that language, among other shareholders, are subject to the
arbitration clause provided for in the Company's Bylaws, remaining out of the collective action proposed by the
Foundation. The Court also considered the binding effect of the agreement signed to close the United States' Class
action. In this way, the Foundation needs to demonstrate that it represents a sufficient number of investors to justify
pursuing collective action in the Netherlands. The Foundation must answer some questions raised by the Court by May
6, 2020. After the presentation of the answers by the Foundation, Petrobras will have 12 weeks to respond.
This collective action involves complex issues that are subject to substantial uncertainties and depend on a number of
factors such as the standing of the Foundation as the alleged representative of the investors' interests, the applicable
rules to this complaint, the information produced the evidentiary phase of the proceedings, analysis by experts, the
timing of court decisions and rulings by the court on key issues, and the Foundation only seeks declaratory reliefs in
this collective action. Currently, it is not possible to determine if the Company will be found responsible for the payment
of compensation in subsequent individual complaints after this action as this assessment depends on the outcome of
these complex issues. Moreover, it is uncertain which investors will be able to file subsequent individual complaints
related to this matter against the Company.
In addition, the allegations asserted are broad, span a multi-year period and involve a wide range of activities, and, at
the current stage, the impacts of such allegations are highly 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
F-65
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
reliable estimate of eventual loss arising from this action. The company is victim of the corruption scheme uncovered
by the Lava Jato investigation and aims to present and prove this before the Dutch Court.
The uncertainties inherent in all such matters do not enable the company to identify possible risks related to this action.
Compensation for the alleged damages will only be determined by court rulings on complaints to be filed by individual
investors. The Foundation is not able to demand compensation for damages.
The Company denies the allegations presented by the Foundation and intend to defend themselves vigorously.
19.4.3. Arbitrations in Brazil
Petrobras is also currently a party to 5 arbitration proceedings brought by Brazilian and foreign investors that
purchased Petrobras’ shares traded in Brazilian Stock Exchange (B3),alleging financial losses caused by facts uncovered
in the Lava Jato investigation.
These claims involve complex issues that are subject to substantial uncertainties and depend on a number of factors
such as the novelty of the legal theories, the timing of the Chamber of Arbitration decisions, the information produced
in discoveryand analysisby retained experts.
Moreover, the claims asserted are broad and span a multi-year period. The uncertainties inherent in all such matters
affect the amount and timing of their ultimate resolution. As a result, the Company is unable to make a reliable estimate
of eventual loss arising from such arbitrations asserted. The Company denies the allegations presented by these
investors and intends to defend these claims vigorously.
Depending on the outcome of these complaints, the Company may have to pay substantial amounts, which may cause
a significant effect on its financial condition, its financial statements or consolidated cash flow in a certain period.
On September 17, 2019, the Brazilian Federal Supreme Court (STF) abrogated the Commitment Assumption Agreement
signed with the Brazilian Prosecutor’s Office (MPF). Thus, the Company has no longer the possibility of using half of the
amount of US$ 683 paid on January 30, 2019 to the Brazilian authorities, as provided for in the agreement, in compliance
with the subsequently abrogated agreement, in the event of any convictions in these arbitrations. The new allocation
of the amount paid is described in the “Allocation Agreement” between the Brazilian Attorney General's Office and the
Presidency of the Chamber of Deputies, with the intervention of the Presidency of the Federal Senate and the Attorney
General of the National Treasury, which was approved by the STF and whose negotiation was not attended by Petrobras.
19.4.4. Arbitrations in Argentina
On September 11, 2018, Petrobras was served of an arbitral claim filed by Consumidores Financieros Asociación Civil
para su Defensa ("Association") against the company and other individuals and legal entities, before the “Tribunal de
Arbitraje General de la Bolsa de Comercio de Buenos Aires”. Among other issues, the Association alleges Petrobras'
liability for a supposed loss of market value of Petrobras' shares in Argentina, due to proceedings related to Lava Jato
investigation.
On June 14, 2019, the Company informed that the Chamber of Arbitration recognized the withdrawal of the arbitration
due to the fact that the Association had not paid the arbitration fee within the established period. The Association
appealed to the Argentine Judiciary against this decision, which was rejected on November 20, 2019. The Association
filed a new appeal addressed to the Argentine Supreme Court, pending a final decision.
Petrobras denies the allegations presented by the Association and intends to defend itself vigorously.
19.5. Other arbitrations in Argentina
Petrobras was included as a defendant in criminal actions in Argentina:
F-66
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
•
•
Criminal action related to an alleged fraudulent offer of securities for alleged non-compliance with the obligation
to publish “press release” in the Argentine market about the existence of a class action filed by Consumidores
Financieros Asociación Civil para su Defensa before the Commercial Court, according to the provisions of the
Argentine capital market law. Petrobras was never mentioned in the scope of the referred collective action.
Petrobras presented procedural defenses in the criminal action that have not yet been judged by the court. This
criminal action is pending before the Criminal Economic Court No. 3 of the city of Buenos Aires;
Criminal action related to an alleged fraudulent offer of securities, when Petrobras allegedly declared false data
in its financial statements prior to 2015. Petrobras presented procedural defenses that have not yet been judged
by the court. This criminal action is pending before the Criminal Economic Court No. 2 of the city of Buenos Aires.
19.6. Accounting policy for provisions for legal proceedings and contingent liabilities
Provisions are recognized when: (i) the company has a present obligation as a result of a past event; (ii) it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation, and (iii) the amount
of the obligation can be reliably estimated.
Contingent liabilities are not recognized but are disclosed in explanatory notes when the likelihood of outflows is
possible, including those whose amounts cannot be estimated.
The methodology used to estimate the provisions is described in note 4.5.
19.7. Tax recoveries under dispute
19.7.1. Deduction of VAT tax (ICMS) from the basis of calculation of PIS and COFINS
The Company filed complaints against Brazilian Federal Government challenging the constitutionality of the inclusion,
from 2001 to 2017, of VAT tax within the calculation basis of PIS and COFINS.
The Brazilian Supreme Court ruled on this matter, on March 2017, determining that such tax must not be included in the
computation. However, the Brazilian Federal Government filed a motion to clarification in October 2017, and its
assessment by the court is still pending.
The Regional Federal Court ruled in favor to the Company in August 2018, reinforcing the decision of the Brazilian
Supreme Court.
The Company is gathering all the amounts involved in this matter, which covers a long period of time, and is not yet able
to reasonably estimate this contingent asset prior to the issuance of these financial statements. In January 2019, the
Company's appeal was fully upheld to cover the period claimed in the lawsuit. Currently, the appeal filed by the Brazilian
Government is awaiting judgment.
Considering that judicial discussions about the methodology for calculating the credit are still pending, the contingent
asset could not be estimated.
19.7.2. Accounting policy for contingent assets
Contingent assets are not recognized, but are disclosed in explanatory notes when the inflow of economic benefits is
considered probable. However, if the inflow of economic benefits is virtually certain, the related asset is not a contingent
asset and it is recognized.
F-67
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements - unaudited
(Expressed in millions of US Dollars, unless otherwise indicated)
20. Provision for decommissioning costs
Non-current liabilities
Opening balance
Adjustment to provision
Transfers related to liabilities held for sale (*)
Payments made
Interest accrued
Others
Cumulative translation adjustment
Jan-Dec/2019 Jan-Dec/2018
15,133
5,642
(3,071)
(502)
699
3
(444)
14,143
4,129
(1,221)
(481)
649
51
(2,137)
15,133
17,460
Closing balance
(*) In 2018, it includes transfer to held for sale related to Campos basin (US$ 850); Potiguar basin (US$ 70) and Lapa field (US$ 11), as set out in note 7.
The estimates for abandonment and dismantling of oil and natural gas producing properties are revised annually at
December 31 along with the annual process of oil and gas reserves certification and whenever an indication of
significant change in the assumptions used in the estimates occurs.
In 2019, the adjustment to this provision in the amount of US$ 5,642 primarily reflects (i) anticipation of timing of
abandonments in some projects, (ii) reduction in the risk-adjusted discount rate from 5.17% p.a. in 2018 to 4.22% p.a. in
2019, due to the decrease in the country risk; and (iii) the revision of estimates of wells and equipment costs and the
decrease in the average-term of abandonment of some producing fields.
20.1. Accounting policy for decommissioning costs
Decommissioning costs are future obligations to perform environmental restoration, dismantle and remove a
facility when the Company terminates its operations due to the exhaustion of the area or economic feasibility. Its most
significant asset removal obligations involve removal and disposal of offshore oil and gas production facilities in Brazil
and abroad. The Company recognizes these obligations at present value of the expected future cash outflows, using a
risk-free discount rate, adjusted to the Company's credit risk. Due to the long periods until the abandonment date,
variations in the discount rate can cause large variations in the recognized amount.
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 process of
abandonment, considering industry best practices. However, the timing and amounts of future cash flows are subject
to significant uncertainty.
The estimates of decommissioning costs are reviewed annually based on current information on expected costs and
recovery plans. When the revision of the estimates results in an increase in the provision for decommissioning costs,
there is a corresponding increase in assets. Otherwise, when there is a decrease in the provision, there is a corresponding
reduction in assets, without exceeding its book value. Any excess portion is immediately recognized in the statement of
income within other expenses.
21. The “Lava Jato (Car Wash) Operation” and its effects on the Company
In the preparation of these annual consolidated financial statements, the Company did not identify any additional
information that would affect the adopted calculation methodology to write off, in the third quarter of 2014, US$ 2,527
of capitalized costs representing overpayments for the acquisition of property, plant and equipment. The Company will
continue to monitor these investigations for additional information in order to assess their potential impact on the
adjustment made.
F-68
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
The Company has been closely monitoring the investigations and cooperating fully with the Brazilian Federal Police
(Polícia Federal), the Brazilian Public Prosecutor’s Office (Ministério Público Federal), the Federal Auditor’s Office
(Tribunal de Contas da União – TCU) and the General Federal Inspector’s Office (Controladoria Geral da União) in the
investigation of all crimes and irregularities.
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.
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.
In addition to US$ 912 recovered from Lava Jato investigation through December 31, 2018 (US$ 457 in 2018, US$ 252
in 2017, US$ 131 in 2016 and US$ 72 in 2015), new leniency and plea agreements in 2019 entitled the Company to receive
funds with respect to compensation for damages in the amount of US$ 220. This amounts were accounted for as other
income and expenses. Thus, the total amount recovered from Lava Jato investigation through December 31, 2019 was
US$ 1,132.
21.1. Investigations involving the Company
21.1.1. U.S. Securities and Exchange Commission and Department of Justice inquiries
On September 27, 2018, the Company settled the open matters with the U.S. Department of Justice (DoJ) and the U.S.
Securities and Exchange Commission (SEC) investigation which encompassed the Company’s internal controls, books
and records, and financial statements from 2003 to 2012.
These agreements fully resolve the inquiries carried out by these authorities. Following this agreement, the Company
paid US$ 85 to the DoJ in 2018 and the same amount to the SEC in the first quarter of 2019. Additionally, the agreements
also credit a remittance of US$ 683 to the Brazilian authorities, which Petrobras deposited in January 2019 into a court
deposit account. The Company fully recognized the effects of these settlements as other income and expenses in the
third quarter of 2018.
This resolution met the best interest of the Company and its shareholders, and eliminated uncertainties, risks, burdens
and costs of potential litigations in the United States.
21.1.2. U.S. Commodity Futures Trading Commission - CFTC
In May 2019, the U.S. Commodity Futures Trading Commission (“CFTC”) contacted Petrobras with an inquiry regarding
trading activities related to the Lava Jato Operation. Petrobras reiterates that it continues to cooperate with the
regulatory authorities, including the CFTC, regarding any inquiry.
21.1.3. Order of civil inquiry - Brazilian Public Prosecutor’s Office
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 Brazilian stock market. The Brazilian Attorney General’s Office (Procuradoria Geral da República) assessed this civil
proceeding and determined that the São Paulo Public Prosecutor’s Office has no authority over this matter, which must
be presided over by the Brazilian Public Prosecutor’s Office. The Company has provided all relevant information
requested by the authorities.
F-69
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
22. Commitment to purchase natural gas
The Company has an active GSA agreement (Gas Supply Agreement ) entered into with Yacimentos Petroliferos Fiscales
Bolivianos – YPFB to purchase certain minimum volumes of natural gas at prices linked to the international fuel oil price.
This contract will be outstanding until all contracted volume has been delivered, based on an extension clause.
Thus, as of December 31, 2019, the total amount of the GSA for 2020 is nearly 11.01 billion cubic meters of natural gas
(equivalent to 30.08 million cubic meters per day) and corresponds to a total estimated value of US$ 1.82 billion. Based
on the aforementioned extension clause, the Company expects purchases to continue through October 2022, on the
same volume basis according to current indicators, representing an estimated additional amount of US$ 5.6 billion, for
the period from January 1, 2020 to October 30, 2022.
F-70
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
23. Property, plant and equipment
23.1. By class of assets
Balance at January 1, 2018
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, 2018
Cost
Accumulated depreciation, amortization and depletion
Balance at December 31, 2018
Adoption of IFRS 16
Additions
Additions to / review of estimates of decommissioning
costs (note 20)
Capitalized borrowing costs
Reimbursement under the Transfer of Rights Agreement
Write-offs
Transfers
Transfers to assets held for sale
Depreciation, amortization and depletion
Impairment recognition (note 25)
Impairment reversal (note 25)
Cumulative translation adjustment
Balance at December 31, 2019
Cost
Accumulated depreciation, amortization and depletion
Balance at December 31, 2019
Land,
buildings
and
improvement
6,665
4
-
-
(61)
(93)
(359)
-
-
(946)
5,210
7,829
(2,619)
5,210
-
-
-
-
-
(3)
478
(803)
(231)
(2)
-
(199)
4,450
6,856
(2,406)
4,450
Exploration
and
development
costs (oil and
gas
producing
properties)
(***)
52,462
6
Equipment
and other
assets (*)
75,002
1,751
Assets under
construction
(**)
42,521
8,707
Right-of-
use assets
-
-
-
-
-
-
-
-
-
-
−
-
-
−
26,575
2,332
-
-
-
(21)
126
(1,339)
(5,019)
(161)
-
(905)
21,588
26,440
(4,852)
21,588
Total
176,650
10,468
4,778
1,810
(431)
(954)
(11,916)
(2,678)
558
(20,902)
157,383
242,607
(85,224)
157,383
26,575
10,530
5,497
1,336
(8,319)
(816)
1,072
(8,909)
(16,112)
(3,657)
775
(6,090)
159,265
245,888
(86,623)
159,265
-
1,810
(327)
(18,667)
-
(250)
23
(4,891)
28,926
28,926
-
28,926
-
5,269
-
1,336
-
(293)
(10,466)
(621)
-
(1,453)
80
(826)
21,952
21,952
-
21,952
4,778
-
(27)
4,086
(5,028)
(1,686)
226
(7,598)
47,219
77,141
(29,922)
47,219
-
145
5,497
-
(8,319)
(407)
4,879
(1,204)
(4,756)
(743)
459
(1,873)
40,897
70,647
(29,750)
40,897
-
-
(16)
13,720
(6,529)
(742)
309
(7,467)
76,028
128,711
(52,683)
76,028
-
2,784
-
-
-
(92)
6,055
(4,942)
(6,106)
(1,298)
236
(2,287)
70,378
119,993
(49,615)
70,378
20
(3 to 31)
40
(25 to 50)
(except land)
Units of
production
method
8
(2 to 47)
Weighted average useful life in years
(*) It is composed of platforms, refineries, thermoelectric power plants, natural gas processing plants, pipelines, rights of use and other operating, storage and
production plants, also including exploration and production assets depreciated based on the units of production method.
(**) See note 31 for assets under construction by operating segment.
(***) It is composed of exploration and production assets related to wells, abandonment and dismantling of areas, signature bonuses associated to proved reserves and
other costs directly associated with the exploration and production of oil and gas.
For the year ended December 31, 2019, additions to property, plant and equipment primarily relate to the development
of oil and gas production in the pre-salt area, mainly the entry into operation of two new production systems: FPSO P-
77, located in the Búzios field; and FPSO P-68, located in the Berbigão field.
F-71
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
At the adoption of IFRS 16, the Company recognized right-of-use assets at an amount equal to the lease liability. The
rights-of-use at December 31, 2019 comprise the following underlying assets:
Balance at December 31, 2018
Adoption of IFRS 16
Additions
Write-offs
Transfers
Transfers to assets held for sale
Depreciation, amortization and depletion
Impairment recognition
Cumulative translation adjustment
Balance at December 31, 2019
Cost
Accumulated depreciation, amortization and
depletion
Without contractual readjustment clauses
With contractual readjustment clauses - Brazil
With contractual readjustment clauses – abroad
Balance at December 31, 2019
23.2. Estimated useful life
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
Total
Buildings and improvements
Equipment and other assets
Platforms
Vessels
Properties
Others
Total
15,111
881
−
−
(1,037)
(2,230)
−
(529)
12,196
14,378
(2,182)
(624)
(11)
(1,547)
12,196
9,775
1,412
(11)
−
−
(2,489)
−
(352)
8,335
10,698
(2,363)
(1,942)
(308)
(113)
8,335
798
27
(4)
−
−
(101)
−
(29)
691
778
(87)
−
(87)
−
691
891
12
(6)
126
(302)
(199)
(161)
5
366
586
(220)
(49)
(168)
(3)
366
26,575
2,332
(21)
126
(1,339)
(5,019)
(161)
(905)
21,588
26,440
(4,852)
(2,615)
(574)
(1,663)
21,588
Buildings and improvements, equipment and other assets
Cost
4,413
9,633
1,200
37,176
25,576
9,054
23,940
15,687
126,679
6,686
119,993
Accumulated
depreciation
(3,248)
Balance at
December 31, 2019
1,165
(6,468)
(562)
(17,162)
(5,272)
(2,753)
(8,827)
(7,729)
(52,021)
(2,406)
(49,615)
3,165
638
20,014
20,304
6,301
15,113
7,958
74,658
4,280
70,378
23.3. Accounting policy for 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 for 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
F-72
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
capitalized if a maintenance campaign is expected to 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.
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 cost of
borrowings outstanding applied over the balance of assets under construction. Loans directly attributable to the
construction of assets are only considered at this average rate when their financial charges are incurred upon
completion of the specific construction. 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.
Assets directly associated to oil and gas production of a contract area without useful life lower than the estimated
length of reserves depletion, such as signature bonuses, are depreciated or amortized based on the unit-of-production
method.
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, except for signature bonuses for which unit
of production method takes into account the monthly production over the total proved oil and gas reserves on a
field-by-field basis.
Assets related to oil and gas production with useful lives shorter than the life of the field; floating platforms and other
assets unrelated to oil and gas production are depreciated on a straight-line basis over their useful lives, which are
reviewed annually. Note 23.2 provides further information on the estimated useful life by class of assets. Lands are not
depreciated.
Right-of-use assets are presented as property, plant and equipment and, according to the useful lives of their
respective underlying assets and the characteristics of lease agreements (term, asset transfer or exercise of call option),
are depreciated using the straight-line method based on contractual terms.
23.4. Concession for exploration of oil and natural gas – Transfer of Rights Agreement (“Cessão
Onerosa”)
On November 1, 2019, Petrobras signed with the Brazilian Federal Government the Amendment to the Transfer of
Rights Agreement, which provides for the reimbursement to the Company of US$ 9,058, as established in the Resolution
5/2019 enacted in April 2019 by the National Energy Policy Council (Conselho Nacional de Política Energética – CNPE).
The signing of the Amendment occurred prior to the surplus bidding round related to this agreement, after reaching
the budget solution for the payment by the Federal Government to Petrobras and after meeting other conditions
established by the Company's Board of Directors.
At this signing, the Company recognized accounts receivable offsetting property, plant and equipment, in the amount
of US$ 8,319 (considering the average exchange rate prevailing in the fourth quarter of the year).
On December 11, 2019, the Brazilian Federal Government paid this amount to the Company, bearing interest at SELIC
rate from the date of the signing, in the amount of US$ 43, accounted for as finance income.
Information on the result of the Bidding Round for the Oil Surplus of the Transfer of Rights Agreement is
presented in note 24.1.
F-73
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
23.5. Oil and Gas fields operated by Petrobras returned to ANP
In 2019, the following oil and gas fields were returned to ANP: Juruá, Iraúna, Barra do Ipiranga, Lagoa Branca, Nativo
Oeste, Jacupemba, Mariricu Oeste, Rio Barra Seca, Rio Itaúnas Leste, Rio São Mateus Oeste and Sul de Sapinhoá. These
fields were returned to ANP mainly due to their economic unfeasibility and, as a consequence, the Company wrote off
the amount of US$ 74 in addition to impairments recognized in prior years.
In 2018, the following oil and gas fields were returned to ANP: Japiim, Camarão Norte, part of Espadarte and part of
Sibite. These fields were returned to ANP mainly due to their economic unfeasibility and, as a consequence, the
Company wrote off the amount of US$ 0.1 in addition to impairments recognized in prior years.
In 2017, the Mosquito, Siri and Saíra oil and gas fields were returned to ANP also due to economic unfeasibility. However,
due to impairment losses recorded for these assets in prior years, these write-offs amounted to US$ 0.1.
23.6. 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. For the year ended December 31, 2019,
the capitalization rate was 6.40% p.a. (6.35% p.a. for the year ended December 31, 2018).
F-74
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
24.
Intangible assets
24.1. By class of assets
Balance at January 1, 2018
Addition
Capitalized borrowing costs
Write-offs
Transfers
Amortization
Cumulative translation adjustment
Balance at December 31, 2018
Cost
Accumulated amortization
Balance at December 31, 2018
Addition
Concession for exploration of oil and natural gas – Oil
Surplus on theTransfer of rights agreement
Capitalized borrowing costs
Write-offs
Transfers
Amortization
Impairment recognition
Impairment reversal
Cumulative translation adjustment
Balance at December 31, 2019
Cost
Accumulated amortization
Balance at December 31, 2019
Estimated useful life in years
Rights and
Concessions
Software
Goodwill
1,801
841
-
(15)
(42)
(14)
(241)
2,330
2,549
(219)
2,330
1,339
15,341
-
(11)
(83)
(10)
(1)
-
263
19,168
19,290
(122)
19,168
(*)
321
85
4
-
6
(98)
(46)
272
1,592
(1,320)
272
74
-
4
(6)
(47)
(60)
-
-
5
242
1,469
(1,227)
242
5
218
-
-
-
14
-
(29)
203
203
-
203
-
-
-
-
(137)
-
-
-
(3)
63
63
-
63
Indefinite
Total
2,340
926
4
(15)
(22)
(112)
(316)
2,805
4,344
(1,539)
2,805
1,413
15,341
4
(17)
(267)
(70)
(1)
-
265
19,473
20,822
(1,349)
19,473
(*) 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.
At December 31, 2019 and 2018, no impairment was identified on goodwill.
Result of the 16th ANP Bidding Round
On October 10, 2019, Petrobras acquired one offshore block in the 16th Bidding Round under the Concession Regime,
held by the ANP. Petrobras will hold a 70% stake and will be the operator of the block C-M-477, located in deep waters
in the Campos basin, in partnership with BP Energy do Brasil Ltda. The total amount of the signature bonus paid in the
last quarter of 2019 was US$ 348.
Result of Bidding Round for the Surplus Volume of the Assignment Agreement
On November 6, 2019, the ANP held the Bidding Round for the Surplus Volume of the Assignment Agreement, when the
Company acquired, in partnership with CNODC Brasil Petróleo e Gás Ltda. (5%) and CNOOC Petroleum Brasil Ltda. (5%),
the exploration and production rights of the surplus volume of Búzios field from the Assignment Agreement. The
Company will hold a 90% interest and will be the operator of the field, whose signature bonus corresponding to the
Company's interest was US$ 14,912, paid in December 2019. The co-participation agreement should be finalized by
September 2021, and until this date, partners in the consortium have the right to acquire an additional 5% interest each
or, on the deadline, if the agreement has not been signed with Pré-Sal Petróleo S.A. (PPSA), to leave the consortium.
F-75
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Petrobras also acquired the exploration and production rights of the surplus volume of Itapu field, whose signature
bonus, paid in December 2019, was US$ 429.
24.2. Exploration rights - production sharing contract
On June 7, 2018, the Company acquired three offshore blocks (Uirapuru, Dois Irmãos and Três Marias) in partnership
with other companies through the 4th ANP Bidding Round under the production-sharing regime. The Company will be
the operator of all these blocks and the total amount of the signature bonus paid by the Company in September 2018
was US$ 254.
On September 28, 2018, the Company acquired the Sudoeste de Tartaruga Verde block through the 5th ANP Bidding
Round under the production-sharing regime. The Company offered the minimum profit oil set forth in this bidding and
a bonus of US$ 17 was paid in November 2018.
On November 7, 2019, the ANP held the 6th Bidding Round under the production sharing regime. Petrobras acquired, in
partnership with CNODC Brasil Petróleo e Gás Ltda. (20%), the Aram block, located in the Santos Basin. Petrobras will
be the operator of the field with an 80% interest. The signature bonus corresponding to the Company's interest was
US$ 982, paid in December 2019.
24.2.1. Accounting policy for 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 concessions and production sharing
agreements for exploration and production of oil and natural gas (capitalized acquisition costs), public service
concessions, trademarks, patents, software and goodwill.
Internally-generated intangible assets are not capitalized and are expensed as incurred, except for development costs
that meet the recognition criteria related to the completion and use of assets, probable future economic benefits, and
others.
Signature bonuses paid for obtaining concessions for exploration of crude oil and natural gas are initially capitalized
within intangible assets and are transferred to property, plant and equipment when the technical and commercial
feasibility can be demonstrated. They are not amortized before their transference to property, plant and equipment. In
the event of a signature bonus encompassing an area in which exploration activities occur in different locations, a
portion of the signature bonus is transferred to property, plant and equipment whenever the technical and commercial
feasibility can be demonstrated for a specific location, based on the ratio between the oil in place at this location and
total reservoir volume of the area. 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.
Intangible assets with an indefinite useful life are not amortized but are tested annually for impairment. Their useful
lives are reviewed annually.
24.3. Exploration rights returned to the Brazilian Agency of Petroleum, Natural Gas and Biofuels
- Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (ANP)
In 2019, 12 exploration areas were returned to the ANP, in Sergipe-Alagoas, Potiguar, Recôncavo and Parnaíba basins
(9 in 2018 in Recôncavo and Parnaíba basins), totaling US$ 3 (US$ 6 in 2018).
F-76
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
25.
Impairment
The Company annually tests its assets for impairment or when there is an indication that their carrying amount may not
be recoverable. In 2019, impairment losses and reversals were primarily recognized in the last quarter reflecting assets
management and updates of mid and long-term assumptions used in the Company’s Strategic Plan for the 2020-2024
period, approved on November 27, 2019.
A higher estimate in decommissioning costs of E&P fields contributed significantly to the recognition of impairment
losses, notably in CGUs Papa-Terra, in Campos basin, Uruguá group (Uruguá and Tambaú fields), in Santos basin, and
CVIT group (Canapu and Golfinho fields), in Espírito Santo basin. This increase is mainly due to: (i) reduction in Brent's
projections bringing forward the expected date of abandonment of the producing fields; and (ii) reduction in the
discount rate, reflecting an improvement in the yields of the Company's bonds throughout 2019. Such losses were
offset by the reversals associated with gains in sales (realized and expected) of producing fields in Brazil.
These losses were partially offset by the effects of reversals relating to the disposal of producing fields in Brasil.
Additionally, impairment losses were recognized due to: the postponing of project to conclude the second refining unit
of Abreu e Lima refining plant (RNEST); the decision to discontinue the use of P-37 platform in Marlim field; the sale of
the drillship Sonda Vitória 10,000 (NS-30); the investments made due to the Conduct Adjustment Declaration (“TAC”)
to close the public civil action requesting the environmental licensing of Comperj.
The table below shows the impairment losses, net of reversals, recognized within the statement of income in 2019, 2018
and 2017:
F-77
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Assets or CGU by nature (*)
Property, plant and equipment and intangible assets
Producing properties relating to oil and gas activities in Brazil
(several CGUs)
Transpetro’s fleet of vessels
Oil and gas production and drilling equipment in Brazil
UFN III
Comperj
Second refining unit in RNEST
Oil and gas production and drilling equipment abroad
Others
Assets classified as held for sale
Producing properties Pampo and Enchova fields
Producing properties Pampo and Frade field
Producing properties Pampo and Maromba field
PO&G BV
Others
Total
Property, plant and equipment and intangible assets
Producing properties relating to oil and gas activities in Brazil
(several CGUs)
Transpetro’s fleet of vessels
Oil and gas production and drilling equipment in Brazil
UFN III
Producing properties relating to oil and gas activities Abroad
(several CGUs)
GASFOR II
Comperj
Second refining unit RNEST
Others
Assets classified as held for sale
Producing properties relating to oil and gas activities in
Riacho da Forquilha
Others
Total
Property, plant and equipment and intangible assets
Producing properties relating to oil and gas activities in Brazil
(several CGUs)
Second refining unit in RNEST
Fertilizer Plants
Oil and gas production and drilling equipment in Brazil
Producing properties relating to oil and gas activities abroad
(several CGUs)
Panamax vessels - Transpetro
Araucária
Comperj
Conecta and DGM
Others
Assets classified as held for sale
Producing properties relating to oil and gas activities in
Roncador
Others
Total
Carrying
amount
Recoverable
amount (**)
Impairment
(***)
Business
segment
Comments
2019
105,532
1,347
196,994
1,453
314
204
330
1,043
343
33
328
19
−
444
592
7,019
1,721
199
312
2,258
58
46
1,114
666
98
25
11,826
1,716
412
360
215
112
70
51
38
1,863
−
−
117
498
15
−
808
105
68
354
468
9,923
1,300
6
200
1,554
−
−
1,092
756
459
109
16,070
1,261
−
4
89
−
−
−
−
1,797
1,859
(103)
307
200
209
534
333
67
3,406
(494)
(84)
(67)
89
(2)
2,848
524
428
197
114
715
59
47
22
14
2,120
(34)
(81)
2,005
(870)
464
412
363
E&P - Brazil
RTM - Brazil
item (a1)
item (b1)
E&P - Brazil
RTM - Brazil
item (c1)
item (d1)
RTM - Brazil
RTM - Brazil
item (e1)
item (f1)
E&P - Abroad
Several
item (g1)
E&P - Brazil
E&P - Brazil
E&P - Brazil
E&P - Abroad
Several
item 25.2
item 25.2
item 25.2
item 25.2
2018
E&P - Brazil
RTM - Brazil
E&P - Brazil
RTM - Brazil
item (a2)
item (b2)
item (c2)
item (d2)
E&P - Brazil
item (h1)
Gas & Power - Brazil
RTM - Brazil
item (i)
item (e2)
RTM - Brazil
Several Segments
item (f2)
E&P - Brazil
Several Segments
2017
E&P - Brazil
item (a3)
RTM - Brazil
item (f3)
Gas & Power - Brazil
E&P - Brazil
item (j)
item (c3)
E&P - Abroad
128
RTM - Brazil
112
Gas & Power - Brazil
70
RTM - Brazil
51
38 Distribution- Abroad
68
Several Segments
836
item (h2)
item (k)
item (l)
item (e3)
item (m)
3,164
317
2,766
366
405
(50)
1,191
E&P - Brazil
Several Segments
F-78
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
(*) It only includes carrying amounts and recoverable amounts of impaired assets or asses for which reversals were recognized.
(**) The recoverable amounts of assets for impairment computation were their value in use, except for oil and gas production and drilling equipment that were based on
their fair value.
(***) Reversals are presented in brackets.
25.1. Impairment of property, plant and equipment and intangible assets
For impairment testing purposes, 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
Pre-tax discount rates derived from the Company’s post-tax weighted average cost of capital (WACC), adjusted
by specific risk-premiums in case of projects postponed for an extended period, or specific country-risks, in case
of assets abroad. The use of post-tax discount rates in determining value in use does not result in materially
different recoverable amounts if pre-tax discount rates had been used.
Information on key assumptions for impairment testing and the definition of Company’s CGUs are presented in notes
4.2 and 4.3, respectively.
During 2019, management identified and assessed the following changes in CGUs:
a) CGUs of E&P: (i) Transfer of Rights Agreement group (extinction of this CGU and formation of six new ones - CGU
Itapu; CGU Búzios group; CGU Sépia group; CGU Atapu group; CGU Lula group and CGU Berbigão-Sururu group,
following the conclusion of the revision of the Transfer of Rights Agreement and the definition of a new business and
management model for assets); (ii) Parques da Baleias group (due to the redefinition of the Jubarte field, approved by
the ANP, the Baleia Anã and Cacharéu fields remain in this CGU and the Cachalote and Pirambu fields were removed due
to the lack of interdependence of these assets in the generation of cash inflows); (iii) North group (excluding the Corvina
field and the P-37 platform, both due to the end of the productive useful life);
b) CGU Natural Gas: the sale of 90% of Transportadora Associada de Gás (TAG) resulted in its exclusion as an asset of
the CGU; and
c) CGU Energy: with the failure to sell the Termobahia e Termocamaçari thermoelectric plants, the Company’s
management reversed the classification of assets held for sale to property, plant and equipment. Termobahia plant
returned to the CGU due to the perspective of its use by Petrobras and its interdependence in cash generation with the
other plants of the CGU, while Termocamaçari plant is now assessed separately due to the lack of perspective of
operation.
The cash flow projections used to measure the value in use of the CGUs in 2019 were mainly based on average Brent
prices and Brazilian real/U.S. dollar average exchange rate:
F-79
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
2019
Average Brent (US$/bbl)
Average Brazilian Real (excluding inflation ) - Real /U.S. dollar exchange rate
2020
2021
2022
2023
2024
Long term
Average
65
3.85
65
3.79
65
3.75
65
3.72
65
3.7
65
3.6
2018
Average Brent (US$/bbl)
Average Brazilian Real (excluding inflation ) - Real /U.S. dollar exchange rate
2017
Average Brent (US$/bbl)
Average Brazilian Real (excluding inflation ) - Real /U.S. dollar exchange rate
2019
66
3.64
2020
2021
2022
2023
67
3.56
72
3.5
75
3.46
75
3.44
2018
53
3.44
2019
2020
2021
2022
58
3.47
66
3.47
70
3.46
73
3.49
Long term
Average
73
3.37
Long term
Average
71
3.4
Information on the main impairment losses and reversals of property, plant and equipment and intangible assets are
described below:
a1) Producing properties in Brazil – 2019
Impairment assessment for producing properties in Brazil resulted in US$ 1,859 impairment losses. 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 6.7% p.a. at December 31, 2019. This amount
comprises:
Impairment losses in the amount of US$ 2,092, mainly related to the CGUs of Papa-Terra (US$ 369), Uruguá group
(US$ 344), CVIT group (US$ 206), Corvina (US$ 158), Piranema (US$ 128), Camorim (US$ 109), Pirambu (US$ 102),
Merluza group (US$ 98), Miranga group (US$ 76), Guaricema (US$ 76) and Água Grande group (US$ 72), mainly due to
the decrease in estimates for the average Brent price on the projection horizon, to higher estimates for future
decommissioning costs, due to the reduction in risk-free discount rates, and to changes in the schedule for removal and
treatment of oil and gas production facilities;
Impairment reversals totaling US$ 53 primarily relating to Peroá group (US$ 30) and Castanhal (US$ 12), mainly due to
gains in the production curve and accelerated depreciation tax benefit related to Repetro's new tax model.
a2) Producing properties in Brazil – 2018
Impairment assessment for producing properties in Brazil under the concession regime for oil and gas resulted in a net
reversal of impairment losses of US$ (103). 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
7.4% p.a. at December 31, 2018. This amount comprises:
Impairment losses totaling US$ 1,054 primarily related to CGUs Camorim (US$ 140), Linguado (US$ 139), Piranema
(US$ 93), Guaricema (US$ 92), Juruá (US$ 91), Bicudo (US$ 83), Caioba (US$ 61), Pper-1 group (US$ 49), Garoupinha
(US$ 39), Frade (US$ 39), Castanhal (US$ 36) and Papa Terra (US$ 35). These losses were substantially due to higher
estimates of future decommissioning costs driven by costs related to subsea facilities and equipment and depreciation
of the Brazilian real against the U.S. dollar.
F-80
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Reversals of impairment totaling US$ 530 primarily from the CGUs Cvit group (US$ 158), Uruguá group (US$ 151), Ceará
Mar group (US$ 50), Dom João (US$ 23), Miranga group (US$ 16), Fazenda Belém group (US$ 13) and Bijupirá-Salema
group (US$ 13), due to upward revision in the estimated production curves following a review of certain projects
investments, as set out in the BMP 2019-2023.
a3) Producing properties in Brazil – 2017
Impairment assessment for producing properties in Brazil under the concession regime for oil and gas resulted in a net
reversal of impairment losses of US$ 870. 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
7.6% p.a. at December 31, 2017. This amount comprises:
•
•
Reversals of impairment totaling US$ 1,733 primarily from North group (US$ 912), Espadarte and Papa-Terra
fields (US$ 125 and US$ 122), Uruguá group (US$ 100), Pampo field (US$ 91), Fazenda Alegre group (US$ 45),
Cidade de São Mateus group (US$ 44), Riachuelo field (US$ 40), Fazenda Imbé group (US$ 28), Fazenda Bálsamo
field (US$ 26), Peroá group (US$ 25), São Mateus group (US$ 19) and Riacho da Forquilha field (US$ 18). These
reversals substantially reflected the lower post-tax real discount rate, the approval of investments in enhancing
recovery of mature fields and the lower tax burden set forth in the new tax rules applicable to the oil and gas
industry (see note 21.4).
Impairment losses totaling US$ 863 mainly related to CGUs Piranema (US$ 227), Salgo (US$ 104) Ceara Mar
group (US$ 95), Cvit group (US$ 63), Miranga group (US$59), Fazenda Belém group (US$ 49), Frade (US$ 40) Dom
João (US$ 27) and Candeias (US$ 18). These losses were substantially driven by an expected acceleration of
production cessation reflecting an optimization of investment portfolio, as well as by a lower risk-adjusted
discount rate for decommissioning costs, which also increased the costs of assets related to the abandonment
and dismantling of these areas.
b1) Transpetro’s fleet of vessels – 2019
The depreciation of Reais against U.S. Dollars used in the projections of the Strategic Plan 2020-2024, compared to the
assumptions used in the previous plan, had a positive effect on the cash generation projected in Reais for the CGU,
given that freight rates (cash inflows) are quoted in U.S. dollars. Thus, a US$ 103 reversal of impairment was accounted
for in 2019. The post-tax discount rate (excluding inflation) in constant currency applied to the transportation sector
ranged from 4.3% p.a. to 5.8% p.a.
b2) Transpetro’s fleet of vessels – 2018
The lower freight rates projected in PNG 2019-2023 significantly affected impairment assessment of the Transpetro's
fleet of vessels, resulting in the recognition of impairment losses in the amount of US$ 428 in 2018. The post-tax
discount rates (excluding inflation) applied to the transportation sector ranged from 3.8% p.a. to 6.6% p.a.
c1) Oil and gas production and drilling equipment in Brazil – 2019
The Company decided to discontinue the use of P-37 platform in Marlim field, resulting in its exclusion of North group
and its independent assessment for impairment, resulting in losses in the amount of US$ 307.
c2) Oil and gas production and drilling equipment in Brazil – 2018
In 2018, impairment losses for oil and gas production and drilling equipment in Brazil that were not directly related to
oil and gas producing properties amounted to US$ 197, as a result of: i) ceased operation of the single buoy mooring
Monobóia 2 – PDET (US$ 172); ii) lower fair value of certain equipment related to the FPSO P-72 and P- 73 that could
not be committed to other projects, when compared to their carrying amount (US$ 24).
F-81
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
c3) Oil and gas production and drilling equipment in Brazil – 2017
In 2017, impairment losses amounted to US$ 363 as a result of: i) lower fair value of certain equipment related to the
FPSO P-72 and P- 73 that could not be committed to other projects, when compared to their carrying amount (US$ 127);
ii) decommissioning of a crane and launch ferry (US$ 114) and iii) hibernation of equipment of Inhaúma Shipyard
excluded from the initial scope of Inhauma logistic center (US$ 125).
d1) Fertilizer Plant - UFN III – 2019
Following the Company’s decision to quit the conclusion of this plant, this asset was written-off, in the amount of
US$ 200.
d2) Fertilizer Plant - UFN III – 2018
An impairment loss of US$ 114 was recognized for the fertilizer plant UFN III (Unidade de Fertilizantes e Nitrogenados
III) due to its lower fair value.
e1) Comperj - 2019
Impairment losses amounted to US$ 209, the investments made due to the Conduct Adjustment Declaration (“TAC”) to
close the public civil action requesting the environmental licensing of Comperj, as well as to the investments made in
the first refining unit facilities of Comperj, which are part of the infrastructure for transporting and processing natural
gas from the pre-salt layer in the Santos Basin.
e2) Comperj - 2018
As set forth in BMP 2019-2023, the resumption of the Comperj project still depends on new partnerships. However, the
construction of Comperj’s first refining unit facilities that will also support the natural gas processing plant (UPGN) are
in progress as the facilities are part of the infrastructure for transporting and processing natural gas from the pre-salt
layer in the Santos Basin. Nevertheless, due to the interdependence between such infrastructure and Comperj first
refining unit, the Company recognized additional impairment charges, totaling US$ 47 in 2018.
e3) Comperj - 2017
In 2017, the resumption of the Comperj project was still depending on new partnerships. Accordingly, due to the same
aforementioned reasons, the Company recognized impairment charges, in 2017, totaling US$ 51.
f1) Second refining unit in RNEST – 2019
The cash flows to measure the value in use of the second refining unit in RNEST take into account the postponing of
the beginning of the operation to three years and eight months, triggering impairment losses in the amount of US$ 534.
The real discount rate applied was 7.8% p.a. post-tax discount rate derived from the WACC for the refining business,
reflecting a specific risk premium for the postponed project.
f2) Second refining unit in RNEST – 2018
The impairment assessment over the second refining unit in RNEST resulted in the recognition an impairment loss
amounting to US$ 22, as its start-up was postponed by five months. The real discount rate applied was 7.3% p.a. post-
tax discount rate derived from the WACC for the refining business, reflecting a specific risk premium for the postponed
project.
f3) Second refining unit in RNEST - 2017
An impairment loss of US$ 464 was recognized for the second refining unit in RNEST. Cash flow projections were based
on: financial budgets/forecasts approved by Management; and an 7.7% p.a. post-tax discount rate (excluding inflation)
F-82
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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) higher costs of raw materials and ii) lower refining margin, as set forth in
BMP 2018-2022.
g1) Oil and gas production and drilling equipment abroad - 2019
In January 2020, the sale of drillship Sonda Vitória 10,000 (NS-30), owned by Drill Ship International B.V. - DSI, a
subsidiary of PIB BV, was closed. Thus, impairment losses in the amount of US$ 333 were reconized, due to the
difference between the expected sale value and its carrying amount.
h1) Producing properties abroad – 2018
The Company recognized an impairment loss in the amount of US$ 715 with respect to producing properties of oil and
gas activities in the Gulf of Mexico. The impairment loss was primarily driven by changes in operational assumptions
and discount rate considering the terms of the agreement between the Company and Murphy Oil Corporation in order
to establish a joint venture through such assets.
h2) Producing properties abroad – 2017
In 2017, impairment losses of US$ 128 were recognized for E&P assets located in the United States, principally reflecting
the expected cessation of production and definitive abandonment of operation in Hadrian South field. Cash flow
projection were based on: financial budgets/forecasts approved by Management; 5.7% p.a. post-tax real discount rate
(5.5% p.a. in 2016) derived from the WACC for the E&P business in United States.
i) GASFOR II – 2018
Management decided to halt the development of the GASFOR II project, carried out by TAG, for an extended period.
Accordingly, this asset was excluded from the Natural Gas CGU and its impairment test was performed separately. Due
to its halt, it is not possible to estimate future cash flows arising from the use of this asset, resulting in the recognition
of impairment losses in the amount equal to the carrying amount thereof (US 59).
j) Fertilizer Plants - 2017
The Company decided to halt its operations in the fertilizer plants Camaçari-BA (FAFEN-BA) and Laranjeiras-SE
(FAFEN-SE), following its plans to optimize its investment portfolio as set out in BMP 2018-2022, thereby, being
removed from the Gas & Power CGU, assessed for impairment separately and their cash flow projections for the period
covered by the BMP 2018-2022 were not able to be estimated. Accordingly, an impairment loss amounting to US$ 412
was recognized in 2017 with respect to these fertilizer plants.
k) Panamax vessels – Transpetro - 2017
In December 2017, the decision to hibernate the construction of three vessels of PANAMAX project (EI-512, EI-513 and
EI-514) triggered their removal from the Transpetro’s fleet of vessels CGU. These assets were assessed for impairment
separately and, as a result, the Company accounted for an impairment loss for the total carrying amounts of these
assets (US$ 112).
l) Araucária - 2017
Indications of impairment were identified during this period, such as lower sales volume and prices, as well as higher
production costs. Therefore, the Company assessed the related assets for impairment and, as a result, an impairment
charge of US$ 70 was recognized primarily in the second quarter of 2017 due to negative cash flow projections that were
based on financial budget and forecasts approved by the management and a post-tax real discount rate of 6.6% p.a.
derived for the weighted average cost of capital (WACC) for the fertilizer business.
F-83
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
i) Conecta and DGM – 2017
Following prices forecast and current agreements of natural gas supply in Uruguay, the Company recognized
impairment losses for intangible assets and property, plant and equipment, in the amount of US$ 38, with respect to
concession agreements for natural gas distribution carried out by the subsidiaries Conecta and DGM.
25.1.1. Assets most sensitive to future impairment
Whenever the recoverable amount of an asset or CGU falls below the carrying amount, an impairment loss is recognized
to reduce the carrying amount to the recoverable amount. The following table presents the assets and CGU most
sensitives to future impairment losses, presenting recoverable amounts up to 10% higher than their current carrying
amount. Changes in material assumptions for impairment testing may result in the recognition of additional impairment
charges on such assets in future periods.
Producing properties relating to oil and gas activities in Brazil (7 CGUs)
Thermoelectric plants
(*) It is based on a 10% reduction in the recoverable amount of CGUs.
12.31.2019
Business
segment
Carrying
amount
Recoverable
amount
Sensitivity
(*)
E&P
G&P
10,149
1,948
10,626
2,051
(585)
(102)
25.1.2. Accounting policy for 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 (CGU). Note
4.3 presents detailed information about the Company’s CGUs.
Assets related to development and production of oil and gas assets (fields or group of fields) that have indefinite useful
lives, such as goodwill, are tested for impairment annually, irrespective of whether there is any indication of impairment.
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. When specifically indicated, the Company assesses differences between its assumptions and assumptions
that would be used by market participants in the determination of the fair value of an asset or CGU.
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 pre-tax discount rates obtained
from the Company’s post-tax weighted average cost of capital (WACC). Cash flow projections are mainly based on the
following assumptions: foreign exchange rates and prices based on the Company’s most recent 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 may occur for assets other than goodwill.
25.2. Assets classified as held for sale
In 2019, as a result of the Company’s Board of Director approvals for the sale of several assets of the E&P segment,
according to note 30, the Company recognized reversals in the amount of US$ 558, considering the net fair value of
disposal expenses, mainly in the following assets:
. Pampo and Enchova Project - 10 concessions located in shallow waters in the Campos Basin with impairment reversal
of US$ 494 in Badejo, Bicudo, Linguado, Pampo and Trilha fields;
F-84
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
. Bispo Project – impairment reversal in the amount of US$ 84 in Frade field;
. Mangalarga 2 Project - impairment reversal in the amount of US$ 67 in Maromba field;
. PO&G B.V. - Sale of Petrobras Oil & Gas B.V. (PO & GBV), a subsidiary of PIB BV, with impairment losses in the amount
of US$ 89;
In 2018, following the Company’s Board of Director approvals for the disposal of certain assets, impairment reversals
were accounted for amounting to US$ 115 for assets held for sale, including the effects arising from the sale of onshore
producing fields located in Potiguar basin.
In 2017, impairment losses amounting to US$ 355 on assets held for sale were primarily attributable to the sale of 25%
interest in Roncador field.
The accounting policy for assets and liabilities held for sale is set out in note 30.4.
25.3. 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 post-tax discount rate derived
from the WACC or the Capital Asset Pricing Model (CAPM), when applicable.
25.3.1. Accounting policy for impairment of associates and joint ventures
Investments in associates and joint ventures are tested individually for impairment. When performing impairment
testing of an equity-accounted investment, goodwill, if it 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
proportion to the Company’s interests in the present value of future cash flow projections via dividends and other
distributions.
25.3.2. 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, 2019, the quoted
market value of the Company’s investment in Braskem was US$ 2,223 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 only 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:
- Estimated average exchange rate of R$ 3.85 to U.S.$1.00 in 2019 (converging to R$ 3.60 in the long-term);
- Average Brent crude oil price at US$ 65 in 2020, same price in the long-term;
F-85
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
- Prices of feedstock and petrochemical products reflecting projected international prices;
- Petrochemical products sales volume estimates reflecting projected Brazilian and global G.D.P growth;
- Post-tax real discount rate (excluding inflation) of 8.9%p.a., considering cash flows from dividends; and
-
Increases in the EBITDA margin during the growth cycle of the petrochemical industry in the next years and
declining in the long-term.
BR Distribuidora
In July 2019, Petrobras further reduced its stake in BR Distribuidora in a follow-on secondary offering of its shares,
following which BR Distribuidora became an associate. The equity-accounted investment in BR Distribuidora at
December 31, 2019 amounted to US$ 2,684, equivalent to US$ 6.14 (R$ 24.76) per common share. Information on the
market value since the date of the transaction presents the following values per common share:
- On December 30, 2019 – US$ 7.46
- Average through the period – US$ 6.87
- Highest quotation in the period – US$ 7.55 (December 27, 2019)
- Lowest quotation in the period – US$ 6.45 (July 23, 2019)
As the fair value of BR is higher than the investment accounted for on the period, the Company estimate this investment
is recoverable.
25.3.3. Investments in state-controlled natural gas distributors
In 2019, impairment assessments on investments in state-controlled natural gas distributors did not give rise to any
indication that these assets would be impaired, which carrying amount is US$ 1,313. Post-tax real discount rate
(excluding inflation) used in such assessment was 5.3% p.a..
25.3.4. Impairment losses on equity-method investments
In 2019, the Company recognized an impairment loss of US$ 4 as results in equity-accounted investments.
In 2018, the Company accounted for a US$ 28 reversal of impairment losses previously recognized as results in equity-
accounted investments, substantially attributable to POGBV and Riograndense refinery (RPR).
In 2017, the Company recognized an impairment loss of US$ 20 as results in equity-accounted investments,
substantially attributable to the investees Logum, Belém Bioenergia Brasil and Refinaria de Petróleo Riograndense.
F-86
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
26. Exploration 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 (*)
12.31.2019
12.31.2018
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
4,132
510
(216)
-
(164)
4,262
18,919
23,181
4,522
379
(10)
(95)
(664)
4,132
1,980
6,112
(*) Amounts capitalized and subsequently expensed in the same period have been excluded from this table.
(**) The signature bonuses related to the results of the 16th ANP bidding round and Surplus Oil of Transfer of Rights Agreement are described in note 24.
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)
Contractual penalties
Other exploration expenses
Total expenses
Cash used in :
Operating activities
Investment activities
Total cash used
2018
2017
2019
Reclassified
Reclassified
477
308
4
10
799
485
17,265
17,750
330
87
91
16
524
346
1,273
1,619
361
279
152
8
800
371
1,794
2,165
For the year ended December 31, 2019, the Company recognized a provision in the amount of US$ 4 (US$ 91 in US$ 2018
and US$ 152 in 2017) arising from potential contractual penalties for non-compliance with minimum percentages of
local content in 125 blocks for which the exploratory phases were concluded.
26.1. Accounting policy for exploration and evaluation of oil and gas reserves
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:
• Geological and geophysical costs related to exploration and appraisal activities incurred until economic and technical
feasibility can be demonstrated are expensed.
• 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 once the
technical and commercial feasibility can be demonstrated.
F-87
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
• Costs directly attributable to exploratory wells, including their equipment and installations, pending determination of
proved reserves are capitalized within property, plant and equipment. In some cases, exploratory wells have discovered
oil and gas reserves, but at the moment the drilling is completed they are not yet able to be classified as proved.
In such cases, the expenses 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 the Company reviews these
conditions monthly for each well, by analysis of geoscience and engineering data, existing economic conditions,
operating methods and government regulations. For additional information on proved reserves estimates, see note 4.1.
• Costs related to exploratory wells drilled in areas of unproved reserves are charged to expense when determined
to be dry or uneconomic by the aforementioned internal commission.
• 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.
26.2. 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
Total capitalized exploratory well costs
Number of projects relating to exploratory well costs capitalized for a period greater than one year
2018
2017
2016
2015
2014 and previous years
Exploratory well costs that have been capitalized for a period greater than one year
2019
219
4,043
4,262
43
2018
85
4,047
4,132
49
Capitalized
costs (2019)
Number of
wells
54
48
292
852
2,797
4,043
1
1
4
14
46
66
(*) Amounts paid for obtaining rights and concessions for exploration of oil and gas (capitalized acquisition costs) are not included.
Exploratory well costs that have been capitalized for a period greater than one year since the completion of drilling
amount to US$ 4,047. Those costs relate to 43 projects comprising (i) US$3,834 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) US$213 relate to costs incurred to evaluate the reserves
and their potential development.
27. Collateral for crude oil exploration concession agreements
The Company has granted collateral to ANP in connection with the performance of the Minimum Exploration Programs
established in the concession agreements for petroleum exploration areas in the total amount of US$ 2,801 of which
US$ 2,042 were still in force as of December 31, 2019 , net of commitments undertaken. The collateral comprises crude
F-88
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
oil from previously identified producing fields, pledged as collateral, amounting to US$ 1,639 and bank guarantees of
US$ 403.
89
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
28. Joint ventures in E&P activities
In line with its strategic objectives, Petrobras operates in association with other companies in joint ventures in Brazil as
holder of oil and natural gas exploration and production rights in concessions and production sharing regimes.
As of December 31, 2019, the Company holds interests in 112 joint ventures in partnership with 42 partners, among
which Petrobras is the operator in 64 (in 2018, 124 joint ventures, with 44 partners and operator in 72). The partnerships
formed in 2018 and 2019 are described below:
Tartaruga Verde
Módulo III
Espadarte
Búzios
Consortium
Location
Campos Basin
%
Petrobras
50%
%
Partners
Petronas –
50%
Operator
Year
Additional Information
Petrobras
2019
Concession – Disposal of 50% to
Petronas
Santos basin
pre-salt
90%
CNODC – 5%
CNOOC – 5%
Petrobras
2019
C-M-477
Campos Basin
70%
BP – 30%
Petrobras
2019
Aram
Roncador
Uirapuru
Santos basin
pre-salt
Campos Basin
80%
CNODC – 20%
Petrobras
2019
75%
Equinor – 25%
Petrobras
2018
Santos basin
pre-salt
30%
Petrobras
2018
Production sharing – Transfer of
Rights Surplus Production ANP
Bidding Round
Concession - 16ª ANP Bidding
Round
Production sharing - 6ª ANP Bidding
Round
Concession – Disposal of 25% to
Equinor
Production sharing - 4ª ANP Bidding
Round
Dois Irmãos
Três Marias
Campos basin
pre-salt
Santos basin
pre-salt
C-M-657
Campos Basin
C-M-709
Campos Basin
C-M-789
Campos Basin
C-M-753
Campos Basin
POT-M-859
POT-M-952
Lapa (BM-S-9A)
Potiguar basin
Santos basin
pre-salt
45%
30%
30%
40%
30%
30%
60%
10%
Iara (BM-S-11A)
Santos basin
pre-salt
42,50%
ExxonMobil –
28%
Equinor – 28%
Petrogal –
14%
BP – 30%
Equinor – 25%
Shell – 40%
Chevron –
30%
Exxon – 40%
Equinor – 30%
Exxon – 40%
Equinor – 20%
Exxon – 40%
Qatar – 30%
Exxon – 40%
Qatar – 30%
Shell – 40%
Total – 35%
Shell – 30%
Repsol
Sinopec –
25%
Shell – 25%
Total –
22,50%
Petrogal –
10%
Petrobras
2018
Petrobras
2018
Production sharing - 4ª ANP Bidding
Round
Production sharing - 4ª ANP Bidding
Round
Petrobras
2018
Petrobras
2018
Exxon
2018
Exxon
2018
Petrobras
2018
Total
2018
Concession - 15ª ANP Bidding
Round
Concession - 15ª ANP Bidding
Round
Concession - 15ª ANP Bidding
Round
Concession - 15ª ANP Bidding
Round
Concession - 15ª ANP Bidding
Round
Concession - Disposal of 35% to
Total
Petrobras
2018
Concession - Disposal of 22,50% to
Total
ANP Bonus
Petrobras portion
N/A
14,912
348
982
N/A
201
46
8
162
152
215
25
5
N/A
N/A
Partnerships brings benefits through risk sharing, increased investment capacity, technical and technological
interchange, aiming at the growth in oil and gas production. The following table presents the production referring to
Petrobras's participation in the joint ventures in which it is an operator:
F-90
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Field
Lula
Roncador
Sapinhoá
Albacora Leste
Mero
Papa-Terra
Manati
Location
Santos basin pre-salt
Campos basin
Santos basin pre-salt
Campos basin
Santos basin pre-salt
%
Petrobras
67,50%
75%
45%
90%
40%
Campos basin
Camamu basin
62,50%
35%
Berbigão
Santos basin pre-salt
42,50%
%
Partners
Shell – 23,2%
Petrogal – 9,3%
Equinor – 25%
Shell – 30%
Repsol Sinopec – 25%
Repsol Sinopec - 10%
Total – 20%
Shell – 20%
CNODC – 10%
CNOOC – 10%
Chevron - 37,5%
Enauta Energia S.A. – 45%
Brasoil – 10%
Geopark – 10%
Shell – 25%
Total – 22,5%
Petrogal – 10%
Petrobras
production
portion in 2019
(boed)
768.225
Regime
Concession
144.870
134.666
Concession
Concession
20.010
17.326
Concession
Production
sharing
Operator
Petrobras
Petrobras
Petrobras
Petrobras
Petrobras
Petrobras
Petrobras
10.911
7.903
Concession
Concession
Petrobras
765
Concession
28.1. Accounting policy for joint operations
The E&P partnerships are classified as joint operations, where the Company recognizes according to its interests: i) its
assets, including its stake in any assets held jointly ii) its liabilities , including its stake in any liabilities assumed jointly;
iii) its sales revenues corresponding to the proportion of its participation in the production resulting from the joint
operation; iv) its portion on sales revenues realized directly by the joint operation; and v) its expenses, including the
portion of any expenses incurred together.
Assets, liabilities, revenues and expenses relating to the participation in a joint operation are accounted for in
accordance with the specific accounting policies applicable to assets, liabilities, revenues and expenses.
28.2. Unitization Agreements
Since 2018, Petrobras has entered into Production Individualization Agreements (Acordos de Individualização da
Produção - AIPs) with Pré-Sal Petróleo S.A. (PPSA) and the Company’s partners (Shell, Petrogal, Repsol and Total) in
certain E&P consortiums, submitting these agreements to ANP for approval. As of December 31, 2019, a US$ 113
provision is accounted for within other current liabilities. These agreements provide for cost equalization and
production volumes referring to the Berbigão, Sururu, Atapu and Albacora Leste fields. During 2019, Petrobras paid
US$ 92 relating to these agreements.
The table below presents the effects of the agreements:
F-91
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Opening balance
Additions/(Write-offs) on PP&E
Indexation charges
Payments made
Other income and expenses
Cumulative translation adjustments
Closing balance
12.31.2019
12.31.2018
159
50
4
(92)
(2)
(6)
113
49
(62)
2
(100)
279
(9)
159
28.3. Accounting Policy for unitization agreements
A unitization agreement occurs when a reservoir extends across two or more license or contract areas. In this case,
partners pool their individual interests in return for an interest in the overall unit and determine their new stake in the
single producing unit.
Events that occurred prior to the unitization agreement may lead to the need for compensation between the partners.
At the signing of the AIP, an amount to be reimbursed to the Company will be recognized as an asset only when there is
a contractual right to reimbursement or when the reimbursement is practically certain. An amount to be reimbursed by
the Company will be recognized as a liability when it derives from a contractual obligation or, when the outflow of funds
is deemed probable and the amount can be reliable estimated.
F-92
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
29.
Investments
29.1. Information on direct subsidiaries, joint arrangements and associates
Main
business
segment
%
Petrobras'
ownership
%
Petrobras'
voting
rights
Share-
holders’
equity
(deficit)
Net
income
(loss)for
the year
Subsidiaries
Petrobras International Braspetro - PIB BV (i)
Petrobras Transporte S.A. - Transpetro
Petrobras Logística de Exploração e Produção S.A. - PB-LOG
Petrobras Gás S.A. - Gaspetro
Petrobras Biocombustível S.A.
Liquigás Distribuidora S.A.
Araucária Nitrogenados S.A.
Termomacaé Ltda.
Braspetro Oil Services Company - Brasoil (i)
Breitener Energética S.A.
Termobahia S.A.
Baixada Santista Energia S.A.
Petrobras Comercializadora de Energia Ltda. - PBEN
Fundo de Investimento Imobiliário RB Logística - FII
Petrobras Negócios Eletrônicos S.A. - E-Petro
Termomacaé Comercializadora de Energia Ltda
5283 Participações Ltda.
Transportadora Brasileira Gasoduto Bolívia - Brasil S.A. - TBG
Joint operations
Fábrica Carioca de Catalizadores S.A. - FCC
Ibiritermo S.A.
Joint ventures
Logum Logística S.A.
Cia Energética Manauara S.A.
Petrocoque S.A. Indústria e Comércio
Refinaria de Petróleo Riograndense S.A.
Brasympe Energia S.A.
Brentech Energia S.A.
Metanol do Nordeste S.A. - Metanor
Eólica Mangue Seco 1 - Geradora e Comercializadora de Energia Elétrica
Eólica Mangue Seco 2 - Geradora e Comercializadora de Energia Elétrica
Eólica Mangue Seco 3 - Geradora e Comercializadora de Energia Elétrica
Eólica Mangue Seco 4 - Geradora e Comercializadora de Energia Elétrica
Companhia de Coque Calcinado de Petróleo S.A. - Coquepar
Participações em Complexos Bioenergéticos S.A. - PCBIOS
Associates
Sete Brasil Participações S.A. (Iii)
Fundo de Investimento em Participações de Sondas - FIP Sondas
Braskem S.A. (iv)
UEG Araucária Ltda.
Petrobras Distribuidora S.A. - BR (iv)
Transportadora Associada de Gás S.A. - TAG
Deten Química S.A.
Energética SUAPE II
Termoelétrica Potiguar S.A. - TEP
Nitroclor Ltda.
Bioenergética Britarumã S.A.
Nova Transportadora do Sudeste - NTS
GNL Gemini LTDA
Several
RT&M
E&P
Gas & Power
Corporate,others
RT&M
Gas & Power
Gas & Power
Corporate,others
Gas & Power
Gas & Power
Gas & Power
Gas & Power
E&P
Corporate,others
Gas & Power
Corporate,others
oTHERS others
Gas & Power
RT&M
Gas & Power
RT&M
Gas & Power
RT&M
RT&M
Gas & Power
Gas & Power
RT&M
Gas & Power
Gas & Power
Gas & Power
Gas & Power
RT&M
Corporate,others
oTHERS others
E&P
E&P
RT&M
Gas & Power
Corporate,others
Gas & Power
RT&M
Gas & Power
Gas & Power
RT&M
Gas & Power
Gas & Power
Gas & Power
100.00
100.00
100.00
51.00
100.00
100.00
100.00
100.00
100.00
93.66
98.85
100.00
100.00
99.20
100.00
100.00
100.00
51.00
50.00
50.00
30.00
40.00
50.00
33.20
20.00
30.00
34.54
49.00
51.00
49.00
49.00
45.00
50.00
5.00
4.59
36.20
18.80
37.50
10.00
27.88
20.00
20.00
38.80
30.00
10.00
40.00
100.00
100.00
100.00
51.00
100.00
100.00
100.00
100.00
100.00
93.66
98.85
100.00
100.00
99.20
100.00
100.00
100.00
51.00
50.00
50.00
30.00
40.00
50.00
33.20
20.00
30.00
34.54
49.00
51.00
49.00
49.00
45.00
50.00
5.00
4.59
47.03
18.80
37.50
10.00
27.88
20.00
20.00
38.80
30.00
10.00
40.00
41,150
884
907
538
314
243
(69)
104
107
177
155
76
26
22
11
3
−
142
59
32
259
49
48
19
19
23
12
5
9
10
11
−
−
(6,662)
−
1,840
83
2,382
2,438
124
99
55
−
−
655
33
2,350
155
232
89
62
31
(138)
40
1
(17)
20
3
5
12
2
−
−
53
12
8
(19)
7
18
8
3
1
5
−
−
−
1
−
−
(29)
−
70
(22)
313
535
19
37
8
−
−
562
1
Country
Netherlands
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Cayman
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
(i) Companies abroad with financial statements prepared in foreign currencies.
(ii) Cover segments abroad in E&P, RTM and Gas & Power segments.
(iii) Despite the negative amount of net assets, allowance for losses was not recognized as the Company's obligations with Sete Brasil are limited to the investments
made in this associate.
(iv) Equity and net income at September 30, 2019, most current public information.
In 2019, the Company had the following corporate restructuring:
F-93
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
i) Petrobras Distribuidora S.A. (BR) and Transportadora Associada de Gás S.A. (TAG) became associates.
ii) Petrobras Logística de Gás (Logigás) was incorporated in Petrobras and Petrobras Netherlands B.V. (PNBV) became
a subsidiary of PIB BV.
iii) Petrobras holds now direct interest in Transportadora Brasileira Gasoduto Bolívia - Brasil S.A. and GNL Gemini LTDA
and Transportadora Sulbrasileira de Gás S.A , former subsidiaries of Logigás.
The main investees of PIB BV are the wholly-owned subsidiaries Petrobras Global Trading B.V. – PGT (in the
Netherlands), Petrobras Global Finance B.V. – PGF (Netherlands); Petrobras America Inc. – PAI (United States), and PNBV
(Netherlands). PGT is dedicated to the trade of oil, oil products, biofuels and LNG (liquefied natural gas), as well as to
the funding of its activities in light of Petrobras Group. PGF is the finance subsidiary of Petrobras Group, raising funds
through bonds issued in the international capital market. PAI is dedicated to E&P (MP Gulf of Mexico, LLC). PNBV
operates through joint operations in Tupi BV (65%), Guará BV (45%), Agri Development BV (90%), Libra (40%), Papa Terra
BV (62.5%), Roncador BV (75%), Iara BV (42.5%) and Lapa BV (10%). They are dedicated to construction and lease of
equipment and platforms for Brazilian E&P consortia and are incorporated under the law of the Netherlands. PNBV’s
interests in these entities comprise the voting shares.
Gaspetro holds interests in several natural gas distributors in Brazil that carry out, by means of concessions, public
service of distribution of piped natural gas.
29.2. Investments in associates and joint ventures
Joint Ventures
MP Gulf of Mexico, LLC
State-controlled natural gas
distributors
Compañia Mega S.A. - MEGA
Other joint ventures
Associates
Nova Transportadora do Sudeste
Transportadora Associada de Gás S.A.
Others Associates (**)
Other investments
Total
Balance at
12.31.2018
1,170
622
308
78
162
263
-
1,310
16
2,759
Investments
Transfer to
assets held
for sale
Restructuring,
capital decrease
and others (*)
31
-
-
-
31
-
-
7
-
38
(6)
-
-
-
(6)
-
-
(6)
-
(12)
28
-
49
-
(21)
(16)
306
2,672
(10)
2,980
Results in
equity-
accounted
investments
205
83
87
10
25
56
11
(119)
-
CTA
(21)
-
(12)
1
(10)
(9)
(15)
(86)
(1)
153
(132)
OCI
Dividends
−
-
-
-
-
-
10
59
-
69
(215)
(128)
(52)
(10)
(25)
(55)
(29)
(57)
-
(356)
Balance at
12.31.2019
1,192
577
380
79
156
239
283
3,780
5
5,499
(*) It includes the transfer of the 10% remaining interest in TAG and the 37.5% remaining interest in BR Distribuidora to Associates (previously consolidated
(**) It includes Petrobras Distribuidora and Braskem.
29.3. Investments in non- consolidated listed companies
Associate
Petrobras Distribuidora
Associate
Braskem S.A.
Braskem S.A.
Thousand-share lot
12.31.2018
12.31.2019
Quoted stock exchange
prices (US$ per share)
12.31.2018
12.31.2019
Type
12.31.2019
Market value
12.31.2018
1,165,000
1,165,000
Common
7.46
6.39
212,427
75,762
212,427
75,762
Common
Preferred A
8
7
12
12
8,691
8,691
1,662
561
2,223
7,447
7,447
2,495
926
3,421
F-94
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
The market value of these shares does not necessarily reflect the realizable value upon sale of a large block of shares.
On June 4, 2019, the Company was informed by Odebrecht S.A that the negotiations with LyondellBasell for a potential
transaction involving the transfer of Odebrecht’s entire interest in Braskem had not succeeded.
Information on the main estimates used in the cash flow projections to determine the value in use of Braskem is set out
in Note 25.3.
29.4. Non-controlling interest
The total amount of non-controlling interest at December 31, 2019 is US$ 892 (US$ 1,631 in 2018) primarily comprising
US$ 263 of Gaspetro (US$ 255 in 2018), US$ 70 of Transportadora Brasileira Gasoduto Brasil-Bolívia – TBG (US$ 65 in
2018), and US$ 203 refer to Consolidated Structured Entities (US$ 206 in 2018).
Condensed financial information is set out as follows:
Current assets
Long-term receivables
Investments
Property, plant and equipment
Other non-current assets
Current liabilities
Non-current liabilities
Shareholders' equity
Sales revenues
Net income
Increase (decrease) in cash and
cash equivalents
Gaspetro
Consolidated
Structured entities (*)
2019
91
61
380
1
73
606
40
28
538
606
136
89
2018
79
58
360
1
76
574
26
29
519
574
114
74
2019
793
586
−
−
−
1,379
8
1,104
267
1,379
−
41
2018
826
781
−
−
−
1,607
75
1,326
206
1,607
−
(142)
2019
16,377
−
−
−
−
16,377
6
−
16,371
16,377
−
910
FIDC
2018
6,622
−
−
−
−
6,622
4
−
6,618
6,622
−
489
2019
154
−
−
430
3
587
105
340
142
587
426
180
BR
Distribuidor
a
2018
3,304
1,609
9
1,496
123
6,541
1,177
2,864
2,500
6,541
26,753
874
TBG
2018
174
1
−
463
2
640
173
334
133
640
425
160
7
(7)
16
128
786
(181)
3
7
704
Gaspetro, a Petrobras’ subsidiary, holds interests in several state distributors of natural gas in Brazil. The Company
holds 51% of interests in this indirect subsidiary.
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.
Structured entities include Charter Development LLC – CDC, dedicated to construct, acquirer and charter FPSOs, and
Companhia de Desenvolvimento e Modernização de Plantas Industriais – CDMPI, which is dedicated to coking and
hydrotreating of coke naptha from Henquique Lage refinery (REVAP).
On May 22, 2019, the Company’s Board of Directors approved the sale of a further portion of its interest in Petrobras
Distribuidora (BR), carried out through a secondary public offering (follow-on). After the closing of this operation, in
July 25, Petrobras's interest in BR's capital stock was reduced to 37.50%, and, Petrobras is no longer the controlling
shareholder of BR. For more information see note 30.
29.5. 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:
F-95
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
2019
2018
Joint ventures Associates
Joint ventures Associates
MP Gulf of
Mexico,
LLC
Other
companies
abroad
Other
companies
in Brazil
MP Gulf of
Mexico,
LLC
Other
companies
abroad
Other
companies
in Brazil
In Brazil
In Brazil
Current assets
Non-current assets
Property, plant and equipment
Other non-current assets
Current liabilities
Non-current liabilities
Shareholders' equity
Non-controlling interest
1,147
486
641
634
2,908
790
808
1,270
40
2,908
Sales revenues
Net Income (loss) for the year
Ownership interest - %
1,610
246
20 to 51.5%
372
−
3,131
−
3,503
237
373
2,317
577
3,504
1,300
423
20%
165
5
48
−
218
74
19
79
46
218
9,226
4,880
20,210
1,579
35,895
6,751
28,878
255
11
35,895
1,162
520
866
633
3,181
1,163
673
1,354
(9)
3,181
−
17
40,218
2,416
34 to 45% 4.59 to 40%
3,975
92
20 to 83%
151
−
3,643
−
3,794
86
599
2,487
622
3,794
92
48
20%
158
10
45
1
214
72
23
79
40
214
6,314
1,388
12,932
863
21,497
6,159
17,566
(2,168)
(60)
21,497
136
17
34 to 50%
18,954
1,888
5 to 49%
29.6. Accounting policy for investments in subsidiaries, joint operations, joint ventures and
associates
Basis of consolidation
The consolidated financial statements include the financial information of Petrobras and the entities it controls
(subsidiaries), joint operations (at the level of interest the Company has in them) 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, by using accounting policies consistent with those adopted by Petrobras. Note 11 sets out the consolidated
entities and other direct investees.
Investments structured through a separate vehicle are set up so that the voting rights, or similar rights, are not the
dominant factor to determine who controls the entity. At December 31, 2019, Petrobras controls and consolidates the
following structured entities: Charter Development LLC - CDC (U.S.A., E&P); Companhia de Desenvolvimento e
Modernização de Plantas Industriais - CDMPI (Brazil, RT&M) and, Fundo de Investimento em Direitos Creditórios Não-
padronizados do Sistema Petrobras (Brazil, Corporate).
Intragroup balances and transactions, including unrealized profits arising from intragroup transactions, are eliminated
in the consolidation of the financial statements.
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.
F-96
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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. Some of the Company's activities
in the E&P segment are conducted through joint operations.
Profit or loss, assets and liabilities related to joint ventures and associates are accounted for by the equity method. In
a joint operation the Company recognizes the amount of its 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.
Business combination and Goodwill
A business combination is a transaction in which the acquirer obtains control of another business, regardless it
legal form. Acquisitions of businesses are accounted for using the acquisition method when control is obtained.
Combinations of entities under common control are accounted for at cost. The acquisition method requires that the
identifiable assets acquired and the liabilities assumed be measured at the acquisition-date fair value, with limited
exceptions.
Goodwill is measured as the excess of the aggregate amount of: (i) the consideration transferred; (ii) the amount
of any non-controlling interest in the acquiree; and (iii) in a business combination achieved in stages, the fair value of
the acquirer’s previously held equity interest in the acquiree at the acquisition-date; over the net of the amounts of the
identifiable assets acquired and the liabilities assumed. When this aggregate amount is lower than the net of the
amounts of the identifiable assets acquired and the liabilities assumed, a gain on a bargain purchase is recognized in
the statement of income.
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, including directly attributable costs, over the carrying value
of the ownership interest acquired/disposed of is recognized in shareholders’ equity as changes in interest in
subsidiaries.
30. Disposal of assets and other changes in organizational structure
The Company has an active partnership and divestment portfolio, which takes into account opportunities for disposal
of non-strategic assets in several areas in which it operates. The partnerships provide for the sharing and development
of new technologies, strengthening corporate governance, and sharing future risks and investments. The divestment
and partnership portfolio is dynamic, since the development of transactions also depends on conditions beyond the
control of the Company. The divestment projects and strategic partnerships follow the procedures aligned with the
guidelines of the Brazilian Federal Auditor’s Office (Tribunal de Contas da União – TCU) and the current legislation. In
2019, partnerships and divestments resulted in US$ 10,413 million of cash inflows to the Company.
The major classes of assets and liabilities classified as held for sale are shown in the following table:
F-97
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
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
Trade Payables
Finance debt
Provision for decommissioning costs
Dividends
Pension and medical benefits
Others
Total
Operating segment
12.31.2019
12.31.2018
E&P
RT&M
Corporate
Total
Total
1
1
-
351
1,773
-
2,126
-
-
2,961
-
-
-
2,961
4
67
13
4
273
77
438
27
-
-
-
-
116
143
−
−
−
−
−
−
−
-
142
-
-
-
-
142
5
68
13
355
2,046
77
2,564
27
142
2,961
-
-
116
3,246
40
39
47
973
745
102
1,946
1
-
932
-
-
50
983
Details on transactions not closed as of December 31, 2019 and, therefore, classified as held for sale are presented as
follows.
30.1. Transactions pending closing at December 31, 2019
The corresponding assets and liabilities of this transactions are classified as held for sale as of December 31, 2019.
a)
Sale of Petrobras’s interest in Petrobras Oil & Gas B.V. (PO&GBV)
On October 31, 2018, the wholly owned subsidiary Petrobras International Braspetro BV (PIBBV) entered into an
agreement to sale its 50% interest in PO&GBV to Petrovida Holding B.V. PO&GBV is a joint venture in the Netherlands
consisting of assets located in Nigeria. PO&GBV does not operate any of these fields.
In the last quarter of 2019, an impairment losses in the amount of US$ 89 was accounted for within equity-accounted
investments, (an impairment reversal in the amount of US$ 45, in the last quarter of 2018, following the signing of the
agreement).
On January 14, 2020, the transaction was closed, in the amount of US$ 1,454, reflecting price adjustments and the
deduction of Petrobras’ portion from the payment of fees to the Nigerian Government for approval of the transaction.
From this total, Petrobras has received US$ 1,030 as dividends from PO&GBV, since the beginning of the transaction
(January 1, 2018). At the closing, the Company received US$ 276, with an additional US$ 25 to be received up to June
30, 2020, and the remaining US$ 123 to be received as soon as the Abgami field redetermination process is
implemented.
b)
Strategic alliance with Total
Petrobras and Total have a Strategic Alliance based on a master agreement signed in 2016. In 2018, the Company
exercised a put option, transferring its remaining 10% stake in Lapa field to Total, in block BM-S-9, as provided in the
contract signed in January 2018. This transaction amounts to US$ 50 and is still subject to some conditions precedent.
With respect to the sale of the Company’s 50% interest in Termobahia S.A, including the power plants Termobahia
(former Celso Furtado) and Termocamaçari (former Rômulo Almeida), as set out in the master agreement signed in
2016, there is no expectation that the negotiation will be concluded in the next 12 months. Thus, these assets are no
longer classified as held for sale.
F-98
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
c)
Sale of Baúna field
On July 24, 2019, Petrobras signed a contract for the sale of 100% of its interest in the Baúna field (awarded area BM-
S-40), located in shallow waters in the Santos Basin, to Karoon Petróleo & Gás Ltda., a subsidiary of Karoon Energy Ltd.
This transaction amounts to US$ 665, of which US$ 50 was paid at the signing date and the remaining US$ 615 will be
paid at the closing of this transaction, including price adjustments.
This transaction is subject to customary conditions precedent, such as approval by the Brazilian Agency of Petroleum,
Natural Gas and Biofuels (ANP).
d)
Sale of Pampo and Enchova groups of fields
On July 24, 2019, Petrobras signed a contract for the sale of 100% of its interest in the Pampo and Enchova groups,
located in shallow waters in the Campos Basin, comprising Enchova, Enchova Oeste, Marimbá, Piraúna, Bicudo, Bonito,
Pampo, Trilha, Linguado and Badejo fields, to Trident Energy do Brasil LTDA, a subsidiary of Trident Energy L.P.
(“Trident Energy”).
This transaction amounts to US$ 851, of which US$ 53 was paid at the signing date and the remaining US$ 798 will be
paid at the closing of this transaction, including price adjustments.
The transaction closing is subject to the fulfillment of some conditions precedent, such as the approval by the ANP and
a license to be issued by the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA).
e)
Sale of producing fields in Macau group of fields in the Potiguar Basin
On August 9, 2019, Petrobras signed a contract for the sale of its interest in a set of onshore and offshore producing
fields in the Potiguar Basin, denominated the Macau group of fields, located in the state of Rio Grande do Norte, to SPE
3R Petroleum S.A., a wholly owned subsidiary of 3R Petroleum e Participações S.A.
The Macau group comprises the Aratum, Macau, Serra, Salina Cristal, Lagoa Aroeira, Porto Carão and Sanhaçu fields.
Petrobras holds a 100% interest in all these concessions, except for the Sanhaçu field, in which it is the operator with a
50% interest, and the remaining 50% interest belongs to Petrogal.
The sale price is US$ 191, of which US$ 48 was paid upon signature of the contract and the remaining US$ 143 will paid
upon transaction closing, including price adjustments.
This transaction is subject to customary conditions precedent, such as approval by the ANP.
f)
Disposal of Liquigás Distribuidora S.A.
On November 19, 2019, Petrobras entered into an agreement with Copagaz and Nacional Gás Butano for the sale of its
whole interest in Liquigás Distribuidora S.A., in the amount of US$ 918 (R$ 3.7 billion), to be adjusted according to
contract conditions and paid upon transaction closing.
This transaction is subject to customary conditions precedent, such as approval by the Brazilian Antitrust Regulator
(CADE).
g)
Sale of Frade producing field
On November 28, 2019, Petrobras signed with PetroRio Jaguar Petróleo Ltda., subsidiary of Petro Rio S.A., a contract
for the sale of its 30% stake in the Frade field, located in the Campos Basin, north coast of the state of Rio de Janeiro.
The transaction also included the sale of the entire stake held by Petrobras Frade Inversiones S.A. (PFISA), a subsidiary
of Petrobras, in the company Frade BV, which owns the offshore assets used in the development of production in Frade
field.
F-99
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
The sale price of US$ 100 comprises US$ 7.5 paid at the signing of the contract and the remaining at the closing of the
transaction, subject to price adjustments. In addition, Petro Rio is subject to pay US$ 20 conditioned to a potential new
discovery of reservoirs in the field.
The transaction closing is subject to the fulfillment of some conditions precedent, such as the approval by the CADE
and ANP.
h)
Contingent installment of the exploratory block BM-S-8 sale
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 Bacalhau field (former Carcará area
located in the pre-salt of Santos Basin, for the amount of US$ 2,500.
The first installment (US $ 1,250) was received on November 22, 2016, and the second installment (US$ 300) on March
21, 2018.
The third installment (US$ 950) is still pending the approval of the Production Individualization Agreements (AIP) by
the ANP or twelve months after its submission to this agency, what happens first.
30.2. Closed transactions at of December 31, 2019
a)
Sale of distributors in Paraguay
On June 26, 2018 the Company entered into a Sale and Purchase Agreement (SPA) related to the sale to Copetrol Group
of its entire interest held through its wholly-owned subsidiary Petrobras International Braspetro B.V. (PIB BV) in
Petrobras Paraguay Distribución Limited (PPDL UK), Petrobras Paraguay Operaciones y Logistica SRL (PPOL) and
Petrobras Paraguay Gas SRL (PPG).
On March 8, 2019, this sale was completed after the fulfilment of all conditions precedent and the payment of US$ 332
to the Company, which includes US$ 45 of cash and cash equivalents of the companies and US$ 7 relating to working
capital adjustment. This amount sums to the US$ 49 deposited in an escrow account at the signing date (June 27, 2018).
As a result of this transaction, the Company recognized a US$ 141 gain within other income and expenses. In addition,
a US$ 34 loss relating to cumulative translation adjustment previously recognized in shareholders' equity was
reclassified to the statement of income, within other income and expenses, due to the depreciation of the Paraguayan
Guarani against the US dollar, accumulated since the acquisition of the investment.
b)
Sale of interest in three offshore producing fields in Campos basin
On November 28, 2018, the Company’s Board of Directors approved the sale of 100% interest in Pargo, Carapeba and
Vermelho fields (the Nordeste group of fields), located in shallow waters on the coast of the state of Rio de Janeiro, to
Perenco company, which paid US$ 74 at the contract signing.
On October 8, 2019, after all conditions precedent had been met, the sale was closed with the additional payment of
US$ 324 to Petrobras, totaling US$ 398, and the Company recorded a US$ 787 gain within other income and expenses,
mainly due to the reversal of decommissioning costs.
c)
Sale of onshore producing fields in Potiguar basin
On December 27, 2018, the Company’s Board of Directors approved the sale of its total interest in 34 onshore producing
fields, located in Potiguar basin, in the state of Rio Grande do Norte, to the company 3R Petroleum, in the amount of
US$ 453. However, the transaction was not consummated.
Accordingly, the Company promptly reassessed the other offers and accepted PetroRecôncavo’s offers in the amount
of US$ 384, which was the second highest amount offered for this sale. Of this amount, US$ 61 is conditioned on the
F-100
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
extension of the concession to be granted by the ANP and its present value is US$ 47. The agreement was signed on
April 25, 2019, when PetroRecôncavo disbursed US$ 29 in advance.
On December 9, 2019, the transaction was closed after the fulfilment of all conditions precedent, with the payment of
additional US$ 266 to Petrobras. Additionally, Petrobras assumes the obligation to reimburse PetroRecôncavo
regarding abandonment costs, which present value is US$ 5. The gain on this operation was US$ 221, accounted for as
other income and expenses.
d)
Sale of 50% working interest in Tartaruga Verde and Module III of Espadarte fields
On April 25, 2019, Petrobras entered into an agreement with Petronas Petróleo Brasil Ltda., for the sale of 50% working
interest in Tartaruga Verde field (BM-C-36 Concession) and Module III of Espadarte field. Petrobras will maintain a 50%
working interest and the operation of the fields. The transaction amounts to US$ 1,294, of which US$ 259 was paid at
the signing date.
On December 27, 2019, the transaction was closed with the payment of US$ 692 to Petrobras, after the fulfillment of all
conditions precedent and price adjustments provided for in the contract. The remaining US$ 343 was compensated
based on proceeds obtained by Petrobras from January 1 to the closing, considering Petronas’s stake during this period.
At the transaction closing, US$ 74 loss was accounted for as other income and expenses.
e)
Sale of Pasadena Refinery
On January 30, 2019, Petrobras America Inc. (PAI) entered into a SPA with Chevron USA Inc. for the sale of the shares
held by PAI on Pasadena Refining System Inc. (PRSI) and PRSI Trading LLC (PRST), which comprise the Pasadena refining
system in the United States.
On May 1, 2019, this sale was concluded after the fulfillment of conditions precedent. Accordingly, the amount of
US$ 467 was received by the Company, of which US$ 350 relates to shares of the Pasadena refinery and the remaining
US$ 117 to its working capital, subject to price adjustments.
At the transaction closing, in the second quarter of 2019, a US$ 49 loss was accounted for as other income and expenses.
f)
Sale of interest in Transportadora Associada de Gás - TAG
On April 25, 2019, the Company entered into an agreement for the sale of a 90% interest in TAG to a group formed by
ENGIE and the Canadian fund Caisse de Dépôt et Placement du Québec, acting through Aliança Transportadora de Gás
Participações S.A. (“Aliança”), a Brazilian private company, to take over the control of TAG.
On June 13, 2019, after the fulfilment of all conditions precedent, this sale was closed for US$ 8.5 billion, with the
settlement as follows:
•
•
•
US$ 7.5 billion for the acquisition of 90% of TAG’s shares;
US$ 0.5 billion relating to the sale of additional shares, so that the Company will preserve a 10% interest in TAG
after the corporate restructuring carried out by the new controlling shareholder of TAG.
Aliança made a loan to TAG, to repay the remaining debt with BNDES, in the amount of US$ 0.5 billion.
On September 2, 2019, TAG incorporated Aliança, when Petrobras transferred 64,016 common shares issued by TAG to
the new controlling shareholders in return for the US$ 0.5 billion received in June 2019.
Following the closing of the transaction, a US$ 5.458 gain, including the remeasurement of the remaining interest in the
amount of US$ 546, was accounted for in the second quarter of 2019, within other income and expenses.
F-101
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
In the scope of this transaction, Petrobras remained responsible for certain TAG contingencies, in the amount of
US$ 645, classified as contingent liabilities.
Petrobras will continue to use natural gas transportation services rendered by TAG, through contracts already in force
between the two companies, with no impacts on its operations.
g)
Public offer of shares of Petrobras Distribuidora (BR)
On May 22, 2019, the Company’s Board of Directors approved the sale of a further portion of its interest in Petrobras
Distribuidora (BR), to be carried out through a secondary public offering (follow-on).
On July 23, 2019, the Board of Directors approved the sale of 349,500,000 shares at a price per share of US$ 6.5123
(R$ 24.50).
On July 25, 2019, an overallotment option was fully exercised and the number of shares offered increased by 43,687,500,
under the same conditions and at the same price per share initially offered. Thus, the offering amount totaled US$ 2,561
and Petrobras' interest in BR's capital stock was reduced to 37.50%. After the closing of this operation, Petrobras is no
longer the controlling shareholder of BR.
The Company recognized a US$ 2,221 gain (US$ 3,349 before taxes), including the remeasurement of the remaining
interest in the amount of US$ 1,780, as a result of this operation, accounted for as net income from discontinued
operations in the third quarter of 2019.
The supply relationship will continue after the disposal as this transaction does not change the current supply
contracts.
As BR represented a separate major line of business, the disposed interest is considered a discontinued operation, for
which the statements of income and cash flows are presented below (including restatement of previous years):
Sales revenues
Cost of sales
Gross profit
Income (expenses)
Selling expenses
General and administrative expenses
Other taxes
Other income and expenses
Income before finance income (expense) and income taxes
Net finance income (expense)
Results of equity-accounted investments
Net income before income taxes
Income taxes
Net income for the year from discontinued operation - BR
Gain on sale of interest
Income taxes on the gain on sale of interest
Net income for the period from discontinued operation
Attributable to:
Shareholders of Petrobras
Net income for the period from discontinued operation
F-102
Jan-Jul/2019
2018
2017
5,735
(4,886)
849
(439)
(116)
(14)
(15)
(584)
265
138
−
403
(150)
253
3,515
(1,208)
2,560
2,560
2,560
10,946
(9,334)
1,612
(804)
(216)
(82)
133
(969)
643
628
−
1,271
(428)
843
−
−
843
843
843
10,943
(8,949)
1,994
(924)
(261)
(54)
(89)
(1,328)
666
(175)
(1)
490
(131)
359
−
−
359
359
359
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Cash flows from Operating activities
Net income for the year
Adjustments for:
Pension and medical benefits (actuarial expense)
Depreciation, depletion and amortization
Foreign exchange, indexation and finance charges
Deferred income taxes, net
Others
Decrease (Increase) in assets
Trade and other receivables, net
Other assets
Increase (Decrease) in liabilities
Trade payables
Pension and medical benefits
Other liabilities
Income taxes paid
Net income from discontinued operations
Net cash provided by operating activities
Cash flows from Investing activities
Acquisition of PP&E and intangibles assets
Proceeds from disposal of assets - Divestment
Divestment (Investment) in marketable securities
Others
Net cash (used in) provided by investing activities
Cash flows from Financing activities
Proceeds from financing
Repayment of principal
Repayment of interest
Dividends paid to Shareholders of Petrobras
Others
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Jan-Jul/2019
Jan-Dec/2018
Jan-Dec/2017
2,560
73
76
(132)
136
105
451
(159)
(171)
(138)
(45)
(102)
(2,331)
323
(81)
1,829
61
3
1,812
−
(30)
(60)
(387)
(31)
(508)
(136)
1,491
789
2,280
843
121
115
(644)
395
7
467
103
(168)
(3)
(325)
(5)
−
906
(116)
−
72
−
(44)
244
(49)
(88)
(263)
−
(156)
(66)
640
149
789
359
158
142
188
68
−
(50)
(265)
9
(43)
(139)
(30)
−
397
(93)
−
817
3
727
1,944
(2,478)
(481)
(210)
48
(1,177)
1
(52)
201
149
30.3. Cash flows from sales of interest with loss of control
In 2019 and 2018, the Company disposed of its interest in certain subsidiaries over which control was lost. The following
table summarizes cash flows arising from losing control in subsidiaries:
2019
Petrobras Paraguay
TAG
BR (*)
Total
2018
PetroquímicaSuape e Citepe
Total
(*) Discontinued operation.
Cash in
subsidiary
before losing
control
Net Proceeds
Cash received
381
8,206
2,509
11,096
435
435
(45)
(174)
(591)
(810)
(14)
(14)
336
8,033
1,917
10,286
421
421
F-103
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
30.4. Accounting Policy for assets and liabilities 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 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 will occur within 12 months after its classification as held for sale. However, an 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 the
Company 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.
When a component of the Company is disposed of or classified as held for sale, and it represented a separate major line
of business, the disposed interest is considered a discontinued operation, thus its net income, operating, investing and
financing cash flows are presented in separate line items until the date of the closing of the operation.
31. Assets by operating segment
Consolidated assets by operating segment - 12.31.2019
Current assets
Non-current assets
Long-term receivables
Investments
Property, plant and equipment
Operating assets
Under construction
Intangible assets
Total Assets
Consolidated assets by operating segment - 12.31.2018
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,
Transportati
on &
Marketing
Gas
&
Power Corporate
Elimination
s
Total
5,734
148,546
6,456
592
122,496
106,331
16,165
19,002
154,280
5,324
126,989
8,115
650
116,153
93,172
22,981
2,071
132,313
12,273
31,248
3,299
1,109
26,710
23,630
3,080
130
43,521
11,964
32,119
3,286
1,303
27,356
24,347
3,009
174
44,083
1,932
10,781
1,369
1,067
8,181
5,605
2,576
164
12,713
2,027
13,582
1,525
757
11,057
8,517
2,540
243
15,609
12,700
11,390
6,567
2,731
1,915
1,784
131
177
24,090
21,404
12,120
8,898
49
2,856
2,460
396
317
33,524
(4,827)
(37)
−
−
(37)
(37)
−
−
(4,864)
(3,657)
196
235
−
(39)
(39)
−
−
(3,461)
27,812
201,928
17,691
5,499
159,265
137,313
21,952
19,473
229,740
37,062
185,006
22,059
2,759
157,383
128,457
28,926
2,805
222,068
F-104
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
32. Finance debt
32.1. Balance by type of finance debt
In Brazil
Banking Market
Capital Market
Development banks
Others
Total
Abroad
Banking Market
Capital Market
Development banks
Export Credit Agency
Others
Total
Total finance debt
Current
Non-current
12.31.2019
12.31.2018
5,322
3,468
1,927
13
10,730
16,555
32,476
40
3,233
226
52,530
63,260
4,469
58,791
9,576
3,320
3,346
9
16,251
24,124
39,627
41
3,881
251
67,924
84,175
3,667
80,508
F-105
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
32.2. Changes in finance debt and reconciliation with cash flows from financing activities
In Brazil
Abroad
Balance
at
12.31.201
7
21,930
87,116
109,046
Balance
at
12.31.201
In Brazil
Abroad
8 Additions
16,251
67,924
84,175
2,181
5,362
7,543
Adoption
of IFRS 9
Additions
Principal
amortizatio
n (*)
Interest
amortizatio
n (*)
Accrued
interest
(**)
Foreign
exchange
/ inflation
indexatio
n charges
65
177
242
2,442
8,644
11,086
(5,451)
(27,988)
(33,439)
(1,220)
(4,465)
(5,685)
1,338
4,400
5,738
27
1,409
1,436
Cumulativ
e
translatio
n
adjustme
nt (CTA)
(2,880)
(1,357)
(4,237)
Modificatio
n of
contractual
cash flows
Balance at
12.31.2018
-
(12)
(12)
16,251
67,924
84,175
Principal
amortizatio
n (*)
(5,663)
(20,788)
(26,451)
Interest
amortizatio
n (*)
(745)
(3,853)
(4,598)
Accrued
interest (**)
829
3,878
4,707
Foreign
exchange
/ inflation
indexatio
n charges
111
538
649
Cumula
tive
translatio
n
adjustme
nt (CTA)
(352)
(560)
(912)
Transfer
to
liabilities
classified
as held
for sale
(1,882)
-
(1,882)
Modificatio
n of
contractual
cash flows
−
29
29
Balance at
12.31.2019
10,730
52,530
63,260
-
-
-
(76)
(861)
PP&E on credit
Debt
restructuring
Deposits linked
to financing
Discontinued
operations
Net cash used in
financing
activities
(*) It includes pre-payments.
(**) It includes premium and discount over notional amounts, as well as gains and losses by modifications in contractual cash flows.
(27,273)
(4,501)
7,464
(3)
47
39
50
-
-
-
In the year ended December 31, 2019, proceeds from financing amounted to US$ 7,464, principally reflecting: (i) global
notes issued in the capital market in the amount of US$ 2,980, of which US$ 737 relates to the reopening of bonds
maturing in 2029, and the remaining relates to new bonds issued maturing in 2049; and (ii) debentures issued
amounting to US$ 1,685.
In addition, the Company repaid several finance debts, in the amount of US$ 31,774 notably: (i) US$ 9,994 relating to
repurchase of global bonds previously issued by the Company in the capital market, with net premium paid to bond
holders amounting to US$ 855; (ii) pre-payment of banking loans in the domestic and international market totaling
US$ 13,446; and (iii) pre-payment of US$ 578 with respect to financings with the Brazilian Development Bank (Banco
Nacional de Desenvolvimento Econômico e Social – BNDES).
In September 2019, the Company made an offer to exchange Global Notes maturing between 2023 and 2029, in the
amount of US$ 3,650, for new Global Notes maturing in 2030 in the amount of US$ 4,115, with net premium amounting
to US$ 465 to the bond holders.
Issuance of debentures
In 2019, the Company made, through public offers, two issuances of simple, non-convertible and unsecured debentures,
totaling US$ 1,685 in local currency (R$ 6,608 million). The tables below present a summary containing the final
conditions of the debentures:
F-106
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
6th issuance – Bookbuilding finalized on January 31, 2019
Interests paid in January and July of each year.
Serie
1st Serie
Maturity
01/15/2026
2nd Serie
01/15/2029
3rd Serie
01/15/2026
Rate on Bookbuilding
Amounts issued (US$ million)
IPCA+ 4.0460% p.a.
IPCA+ 4.2186% p.a.
106.25% of CDI
238
450
267
7th issuance – Bookbuilding finalized on September 25, 2019
Interests paid in March and September of each year.
Serie
1st Serie
2nd Serie
Maturity
09/15/2029
09/15/2034
Rate on Bookbuilding
Amounts issued (US$ million)
IPCA + 3.6% p.a.
IPCA + 3.9% p.a.
371
359
F-107
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
32.3. Summarized information on current and non-current finance debt
Maturity in
2020
2021
2022
2023
2024
Financing in U.S.Dollars (US$)(*):
Floating rate debt
Fixed rate debt
Average interest rate
Financing in Brazilian Reais (R$):
Floating rate debt
Fixed rate debt
Average interest rate
Financing in Euro (€):
Fixed rate debt
Average interest rate
Financing in Pound Sterling (£):
Fixed rate debt
Average interest rate
Financing in other currencies:
Fixed rate debt
Average interest rate
Total as of December 31, 2019
Average interest rate
3,512
2,745
767
5.3%
771
338
433
3.8%
137
137
4.7%
48
48
6.2%
1
1
10.1%
4,469
5.1%
3,157
1,731
1,426
5.4%
611
375
236
4.1%
203
203
4.7%
-
-
-
-
-
-
2,777
2,154
623
5.5%
1,524
1,211
313
4.5%
388
388
4.8%
-
-
-
-
-
-
5,842
4,454
1,388
5.5%
1,783
1,571
212
4.3%
411
411
4.6%
-
-
-
-
-
-
6,509
4,977
1,532
5.6%
2,015
1,558
457
3.8%
13
13
4.6%
-
-
-
-
-
-
3,971
5.2%
4,689
5.3%
8,036
5.3%
8,537
5.3%
33,558
6.3%
Total as of December 31, 2018
Average interest rate
(*) Includes debt raised in Brazil (in Brazilian reais) indexed to the U.S. dollar.
(**)The average maturity of outstanding debt as of December 31, 2019 is 10.79 years (9.14 years as of December 31, 2018).
11,951
5.8%
47,307
6.4%
10,317
5.8%
3,667
5.5%
7,012
5.9%
3,921
5.9%
2025
onwards
26,474
3,847
22,627
6.6%
3,800
1,675
2,125
2.8%
1,410
1,410
4.6%
1,874
1,874
6.3%
-
-
-
Total (**) Fair Value
48,271
19,908
28,363
6.2%
10,504
6,728
3,776
3.7%
2,562
2,562
4.7%
1,922
1,922
6.3%
1
1
10.1%
63,260
5.9%
84,175
6.1%
55,905
11,089
3,418
2,388
1
72,801
85,929
The fair value of the Company's finance debt is mainly determined and categorized into a fair value hierarchy as follows:
Level 1- quoted prices in active markets for identical liabilities, when applicable, amounting to US$ 34,992 as of
December 31, 2019 (US$ 39,057 as of December 31, 2018); and
Level 2 – discounted cash flows based on discount rate determined by interpolating spot rates considering financing
debts indexes proxies, taking into account their currencies and also Petrobras’ credit risk, amounting to US$ 37,809 as
of December 31, 2019 (US$ 46,872 as of December 31, 2018).
The sensitivity analysis for financial instruments subject to foreign exchange variation is set out in note 36.2.
F-108
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
32.4. Lines of credit
Company
Abroad
PGT BV
PGT BV
PGT BV
PGT BV
Petrobras
Total
In Brazil
Petrobras
Petrobras
Petrobras
Transpetro
Total
Financial
institution
Date
Maturity
Available
(Lines of Credit)
Amount
Used
Balance
Syndicate of banks
Syndicate of banks
BNP Paribas
The Export - Import Bank of
China
New Development Bank
3/7/2018
3/27/2019
12/22/2016
2/7/2023
2/27/2024
1/9/2021
12/23/2019
8/27/2018
12/27/2021
8/27/2022
Banco do Brasil
Bradesco
Banco do Brasil
Caixa Econômica Federal
3/23/2018
6/1/2018
10/4/2018
11/23/2010
1/26/2023
5/31/2023
9/5/2025
Not defined
4,350
3,250
350
750
200
8,900
496
496
496
82
1,570
−
−
310
−
40
350
−
−
−
−
−
4,350
3,250
40
750
160
8,550
496
496
496
82
1,570
32.5. Covenants and Collateral
32.5.1. Covenants
The Company has covenants that were not in default at December 31, 2019 in its loan agreements and notes issued in
the capital markets requiring, among other obligations i) the presentation of interim financial statements within 90
days of the end of each quarter (not reviewed by Independent Registered Public Accounting Firm) and audited financial
statements within 120 days of the end of each fiscal year, with a grace period ranging from 30 to 60 days, depending on
the agreement; ii) Negative Pledge / Permitted Liens clause; iii) clauses of compliance with the laws, rules and
regulations applicable to the conduct of its business including (but not limited to) environmental laws; (iv) clauses in
financing agreements that require both the borrower and the guarantor to conduct their business in compliance with
anti-corruption laws and anti-money laundering laws and to institute and maintain policies necessary for such
compliance; (v) clauses in financing agreements that restrict relations with entities or even countries sanctioned
primarily by the United States (including, but not limited to, the Office of Foreign Assets Control (OFAC), Department
of State and Department of Commerce), the European Union and United Nations; and vi) covenants with respect to debt
level in some of its loan agreements with the Brazilian Development Bank (Banco Nacional de Desenvolvimento
Econômico e Social - BNDES).
32.5.2. Collateral
Most of the Company’s debt is unsecured, but certain specific funding instruments to promote economic development
are collateralized.
A Financing agreement with China Development Bank (CDB) maturing in 2026 is also collateralized based on future oil
exports for specific buyers limited to 200 thousand barrels per day. This collateral may not exceed the amount of the
related debt (US$ 5,006 at December 31, 2019 and US$ 10,020 at December 31, 2018).
On December 16, 2019, the Company prepaid a US$ 5,000 debt with CDB, maturing in 2027, which was also collateralized.
The loans obtained by structured entities are collateralized based on the projects’ assets, as well as liens on receivables
of the structured entities. Bonds issued by the Company in the capital market are unsecured.
F-109
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
The global notes issued by the Company in the capital market through its wholly-owned subsidiary Petrobras Global
Finance B.V. – PGF are unsecured. However, Petrobras fully, unconditionally and irrevocably guarantees these notes, as
set out in note 35.
32.6. Accounting policy for finance debt
Loans and finance debt are initially recognized at fair value less transaction costs that are directly attributable to its
issue and subsequently measured at amortized cost using the effective interest method. When the contractual cash
flows of a financial liability measured at amortized cost are renegotiated or modified and this change is not substantial,
its gross carrying amount will reflect the discounted present value of its cash flows under the new terms using the
original effective interest rate. The difference between the book value immediately prior to such modification and the
new gross carrying amount is recognized as gain or loss in the statement of income. When such modification is
substantial, the original liability is extinguished and a new liability is recognized, impacting the statement of income for
the period.
33. Lease liabilities
The Company is the lessee in agreements primarily including oil and gas producing units, drilling rigs and other
exploration and production equipment, vessels and support vessels, helicopters, lands and buildings.
Changes in the balance of lease liabilities are presented below:
Balance at
12.31.2018
Adoption of
IFRS 16
Remeasure
ment / new
contracts
Payment of
principal
and interest
(*)
185
-
185
5,628
20,947
26,575
1,239
1,060
2,299
(1,597)
(3,655)
(5,252)
Foreign
exchange
gains and
losses
Cumulative
translation
adjustment
(CTA)
Transfer to
assets and
liabilities
held for sale
160
479
639
(246)
(445)
(691)
(241)
(1,167)
(1,408)
Interest
expense
376
1,138
1,514
Balance at
12.31.2019
5,504
18,357
23,861
(84)
110
19
(5,207)
In Brazil
Abroad
Total
Payments relating
to liabilities held for
sale
Amounts received
Payments relating
to discontinued
operations
Net cash used in
financing activities
The following table presents main information by class of underlying assets:
F-110
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Present Value of Future Payments
Without readjustment
Vessels
Platforms
Others
With readjusment - abroad (*)
Vessels
Platforms
Others
With readjusment - Brazil
Vessels
Properties
Others
TOTAL
Initial
Application
Closing
Balance
Recoverable
taxes
Discount
rate (%)
Average
Period
7,162
4,213
472
1,123
10,898
86
7,199
3,283
319
1,050
9,658
45
−
−
−
−
271 4.4173 p.a.
5.1 years
6.1264 p.a.
15.5 years
7 2.8723 p.a.
2.3 years
5.4336 p.a.
8.7 years
5.8219 p.a.
11.7 years
2.3401 p.a.
0.9 years
1,489
1,147
101 6.8919 p.a.
4.5 years
798
334
859
301
26,575
23,861
16 8.4804 p.a.
20.7 years
20 6.9033 p.a.
415 6.0033 p.a.
3.2 years
9.8 years
For information regarding depreciation, additions and carrying amount by class of underlying assets, see note 23.
A maturity schedule of the lease arrangements (nominal amounts) is set out as follows:
Nominal Future Payments
Without readjustment
Vessels
Platforms
Others
With readjusment - abroad (*)
Vessels
Platforms
Others
With readjusment - Brazil
Vessels
Properties
Others
TOTAL
(*) Contracts signed in the U.S. Dollars.
2020
2021
2022
2023
2024
2,390
563
151
169
1,911
41
406
116
153
1,943
397
123
155
1,808
3
327
138
90
1,347
321
10
155
1,281
1
215
134
47
954
306
18
155
892
−
164
111
36
619
306
1
156
847
−
126
104
5
2025
onwards
945
3,285
30
556
6,846
−
133
1,248
14
Total
8,198
5,178
333
1,346
13,585
45
1,371
1,851
345
5,900
4,984
3,511
2,636
2,164
13,057
32,252
Recoverable
taxes
300
−
8
−
−
−
121
20
15
464
Payments in certain lease agreements vary due to changes in facts or circumstances occurring after their inception
other than the passage of time. Such payments are not included in the measurement of the lease obligations. Variable
lease payments in the year ended December 31, 2019 amounted to US$ 671, representing 13% in relation to fixed
payments.
All extension options were included in the measurement of lease obligations.
The sensitivity analysis of financial instruments subject to exchange variation is presented in note 36.2.
In the year ended December 31, 2019, the Company recognized lease expenses in the amount of US$ 674 relating to
short-term leases.
At December 31, 2019, the balance of lease agreements for which the lease term has not commenced, as they relate to
assets under construction or not yet available for use, is US$ 50,130.
F-111
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
33.1. Accounting policy for lease liabilities
Lease liabilities, including those whose underlying assets are of low value, are measured at the present value of lease
payments, which includes recoverable taxes, non-cancellable periods and options to extend a lease when they are
reasonably certain. These payments are discounted at the Company's nominal incremental rate on loans, as the interest
rates implicit in lease agreements with third parties usually cannot be readily determined.
Lease remeasurements reflect changes arising from contractual rates or indexes, as well as lease terms due to new
expectations of lease extensions or terminations.
Unwinding of discount on the lease liability is classified as finance expense, while payments reduce their carrying
amount. According to the Company’s foreign exchange risk management, foreign exchange variations on lease liabilities
denominated in U.S. dollars are designated as instruments to protect cash flow hedge relationships from highly
probable future exports (see note 36.2).
In the E&P segment, some activities are conducted by joint operations where the company is the operator. In cases
where all parties to the joint operation are primarily responsible for the lease payments, the Company recognizes the
lease liability in proportion to its share. In addition, underlying assets arising from a specific contract in which the
Company is solely responsible for the lease payments may be used in a joint operation. In such cases, the lease liabilities
remain fully recognized and the partners are charged in proportion to their interests.
Payments associated with short-term leases (term of 12 months or less) are recognized as an expense over the term of
the lease.
34. Equity
34.1. Share capital (net of share issuance costs)
As of December 31, 2019, subscribed and fully paid share capital, net of issuance costs, was US$ 107,101, represented
by 7,442,454,142 common shares and 5,602,042,788 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.
34.2. Accounting policy on share capital
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.
34.3. Capital reserve
Capital reserve comprises treasury shares owned by Petrobras, in the amount of US$ 2, at December 31, 2019.
34.4. Capital transactions
34.4.1. Incremental costs directly attributable to the issue of shares
It includes any transaction costs directly attributable to the issue of new shares, net of taxes.
F-112
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
34.4.2. Change in interest in subsidiaries
It includes any excess of amounts paid/received over the carrying value of the interest acquired/disposed. Changes in
interests in subsidiaries that do not result in loss of control of the subsidiary are equity transactions.
34.4.3. Treasury shares
Shares held in treasury in the amount of US$ 2, represented by 222,760 common shares and 72,909 preferred shares.
34.5. Profit reserves
34.5.1. Legal reserve
It represents 5% of the net income for the year, calculated pursuant to article 193 of the Brazilian Corporation Law.
34.5.2. 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.
34.5.3. 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.
In 2019, US$ 179 was appropriated to this reserve (US$ 203 in 2018), of which US$ 177 relates to subventions from
agencies Superintendência de Desenvolvimento do Nordeste (SUDENE) and Superintendência de Desenvolvimento da
Amazônia (SUDAM).
34.5.4. Accounting policy on tax incentives reserve
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.
34.5.5. Profit retention reserve
It 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.
The Board of Directors proposes to retain in the shareholder’s equity, within the profit retention reserve, the amount
of US$ 6,549 in order to partially fund the annual investment program determined in the capital budget for 2019, to be
approved at the Shareholder’s General Meeting.
34.6. Other comprehensive income
In 2019 , the Company primarily recognized as other comprehensive income the following effects:
•
•
Cumulative translation adjustment loss of US$ 1,431 primarily reflecting translations from the main functional
currency of Petrobras group (Brazilian real) into the presentation currency (U.S. dollar);
Actuarial loss on post-employment defined benefit plans in the amount of US$ 4,098, after taxes.
F-113
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
•
Foreign exchange rate variation loss of US$ 248 after taxes and amounts reclassified to the statement of income,
recognized in the Company's equity, as a result of its cash flow hedge accounting policy. In 2018, the cumulative
balance of foreign exchange variation losses, net of tax effects, was US$ 13,292 (see note 29.2).
34.7. Distributions to shareholders
Pursuant to Brazilian Corporation Law, the Company’s shareholders are entitled to receive minimum mandatory
dividends (and/or interest on capital) of 25% of the adjusted net income for the year in proportion to the number of
common and preferred shares held by them.
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. However, this priority does not necessarily grant dividend
distributions to the preferred shareholders in the event of loss for a year.
On August 28, 2019, the Company’s Board of Directors approved a new policy on distribution to shareholders, in which
the main change is the definition that in the event of total debt lower than US$ 60,000, the Company may distribute to
its shareholders 60% of the difference between net cash flow from operating activities and capital expenditures
(comprising investments for the acquisition of PP&E and intangibles assets and in investees). In the event of total debt
exceeding US$ 60,000, the Company may distribute to its shareholders the minimum mandatory dividends provided for
by relevant regulation and the Company’s bylaws.
The General Shareholders Meeting held on April 26, 2018 amended provisions in the Company’s bylaws governing
distribution to shareholders (dividends and interest on capital) on a quarterly basis. The quarterly distributions were
included in the Company’s minimum mandatory distribution for 2018 and were updated by Selic rate from the date of
the payments to the end of the fiscal year.
Distributions to shareholders for 2019 amounts to US$ 2,687, most of it proposed as interest on capital, to be approved
at the 2020 Shareholder’s General Meeting, are consistent with the minimum mandatory dividend of 25% of the adjusted
income and withholding income tax rate of 15%. This proposal meets the priority rights of the preferred shareholders,
whose criteria of 5% on the proportion of the capital represented by this class of shares prevailed for 2019.
Date of
approval
by the
Board of
Directors
Payment
Date of
register
Date of
Amount
Payment Amount(*)
per Share Amount(*)
Amount
per Share
Total
Amount
Common Shares
Preferred Shares
1st payment of interest on capital
05.07.2019 05.21.2019 07.05.2019
2nd payment of interest on capital
08.01.2019 08.12.2019 10.04.2019
3 rd payment of interest on capital
10.24.2019 11.11.2019 02.07.2020
4 th payment of interest on capital
12.18.2019 12.26.2019 02.07.2020
Indexation charges on paid anticipations
Complement of minimum mandatory dividends
02.19.2020
(**)
(**)
Total for 2019
Total for 2018
187
389
371
−
9
431
1,387
507
0.0251
0.0522
0.0499
−
0.0012
0.0580
0.1864
0.0681
140
293
279
580
7
1
1,300
1,343
0.0251
0.0522
0.0499
0.1035
0.0012
0.0001
0.2320
0.2397
327
681
650
580
16
432
2,687
1,850
(*) Amounts translated into U.S. dollar based on the exchange rate prevailing at the date of the approval, except for the complement of minimum mandatory dividends,
based on the closing exchange rate at the date of the financial statements.
(**) To be settled within 60 days after the Shareholder’s General Meeting.
Dividends payable attributable to shareholders of Petrobras amounts to US$ 1,530 as of December 31, 2019 (US$ 1,005
as of December 31, 2018), and comprise the minimum mandatory dividend of 25% of the adjusted income, including
indexation charges based on Selic rate, net of the advances made during the year. In addition to the dividends payable
F-114
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
to Petrobras’ shareholders, there are dividends payable to non-controlling shareholders for US$ 28, totaling US$ 1,558
accounted for in the statement of financial position as of December 31, 2019 (US$ 1,109 as of December 31, 2018).
34.8. Earnings per share
2019
2018
2017
Common
Preferred
Total
Common
Preferred
Total
Common
Preferred
Total
5,790
4,361
10,151
4,093
3,080
7,173
(52)
(39)
(91)
4,369
3,291
7,660
3,750
2,822
6,572
(198)
(149)
(347)
1,421
1,070
2,491
343
258
601
146
110
256
7,442,454,142 5,602,042,788 13,044,496,930 7,442,454,142 5,602,042,788 13,044,496,930 7,442,454,142 5,602,042,788 13,044,496,930
0.78
0.78
0.78
0.55
0.55
0.55
(0.01)
(0.01)
(0.01)
0.59
0.19
0.59
0.19
0.59
0.19
0.50
0.05
0.50
0.05
0.50
(0.03)
(0.03)
(0.03)
0.05
0.02
0.02
0.02
1.56
1.56
1.56
1.10
1.10
1.10
(0.02)
(0.02)
(0.02)
1.18
0.38
1.18
0.38
1.18
0.38
1.00
0.10
1.00
0.10
1.00
(0.06)
(0.06)
(0.06)
0.10
0.04
0.04
0.04
Net income
attributable to
shareholders of
Petrobras
Continuing
operations
Discontinued
operations
Weighted average
number of
outstanding
shares
Basic and diluted
earnings (losses)
per share - in U.S.
dollars
Continuing
operations
Discontinued
operations
Basic and diluted
earnings (losses)
per ADS
equivalent - in
U.S. dollars(*)
Continuing
operations
Discontinued
operations
(*) Petrobras' ADSs
are equivalent to
two shares.
F-115
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
35. Fair value of financial assets and liabilities
Assets
Marketable securities
Commodity derivatives
Foreign currency derivatives
Interest rate derivatives
Balance at December 31, 2019
Balance at December 31, 2018
Liabilities
Foreign currency derivatives
Commodity derivatives
Interest rate derivatives
Balance at December 31, 2019
Balance at December 31, 2018
Fair value measured based on
Level I
Level II
Level III
1.352
56
-
-
1.408
1.464
-
−
−
−
−
-
3
15
10
18
29
(333)
3
−
(330)
(349)
-
-
-
-
-
-
-
-
-
-
-
Total fair
value
recorded
1.352
59
15
10
1.426
1.493
(333)
(3)
−
(336)
(349)
The estimated fair value for the Company’s long-term debt, computed based on the prevailing market rates, is set out
in note 10.
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.
36. 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. While managing risks, the Company considers its
corporate governance and controls, technical departments and statutory committees monitoring, under the guidance
of the Board of Executive Officers and the Board of Directors. 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, 2019 , as well as the amounts recognized in the statement of income and other
comprehensive income and the guarantees given is set out as follows:
F-116
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Notional value
Fair value
Asset Position (Liability)
Maturity
Statement of Financial Position
12.31.2019
12.31.2018
12.31.2019
12.31.2018
Derivatives not designated for hedge accounting
Future contracts - total (*)
Long position/Crude oil and oil products
Short position/Crude oil and oil products
Forward contracts
Long position/Foreign currency forwards (BRL/USD) (**)
Short position/Foreign currency forwards (BRL/USD) (**)
(10,383)
9,865
(20,248)
US$ 273
US$ 0
(14,043)
40,017
(54,060)
US$ 137
US$ 92
Long position/Foreign currency forwards (EUR/USD) (**)
EUR 2245
EUR 3000
Long position/Foreign currency forwards (GPB/USD) (**)
Short position/Foreign currency forwards (GPB/USD) (**)
Swap
Foreign currency / Cross-currency Swap (**)
Foreign currency / Cross-currency Swap (**)
Interest / Swap
Foreign currency / Cross-currency Swap (**)
Total recognized in the Statement of Financial Position
(*) Notional value in thousands of bbl.
(**) Amounts in US$, GBP and EUR are presented in million.
GBP 505
GBP 282
GBP 700
GBP 600
3,008
US$ 240
GBP 450
GPB 31
GBP 700
GBP 600
-
-
(28)
-
-
-
-
(45)
11
(14)
32
(50)
6
11
(77)
108
-
-
(2)
(1)
(123)
(11)
-
1
(70.5)
-
-
(99)
2020
2020
2020
2020
2020
2020
2020
2026
2034
2029/2034
2024/2029
Gains/(losses) recognized in the
statement of income
Gains/(losses) recognized in Shareholders’
Equity (*)
2019
Jan-Dec
(370)
(166)
6
(530)
(3,136)
(3,666)
2018
Reclassified
2017
Reclassified
Jan-Dec
(416)
(370)
−
(786)
(3,315)
(4,101)
Jan-Dez
(121)
89
(9)
(41)
(3,154)
(3,195)
2019
Jan-Dec
−
−
−
−
(5,060)
(5,060)
2018
Reclassified
2017
Reclassified
Jan-Dec
−
−
−
−
(5,635)
(5,635)
n/a
−
−
−
−
(5,635)
(5,635)
Commodity derivatives
Foreign currency derivatives
Interest rate derivatives
Cash flow hedge on exports (**)
Total
(*) Amounts recognized as other comprehensive
income in the period.
(**) Using non-derivative financial instruments as designated hedging instruments, as set out in note 28.2.
Commodity derivatives
Foreign currency derivatives
Total
Guarantees given as collateral
12.31.2019
57
230
287
12.31.2018
(48)
70
22
A sensitivity analysis of the derivative financial instruments for the different types of market risks as of December 31,
2019 is set out as follows:
F-117
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Financial Instruments
Risk
Derivatives not designated for hedge accounting
Future contracts
Forward contracts
Crude oil and oil products - price changes
Foreign currency - depreciation BRL x USD
Probable
Scenario (*)
Reasonably
possible
scenario (*)
Remote
Scenario
(*)
-
(3)
(3)
(128)
(68)
(196)
(256)
(136)
(392)
(*) The probable scenario was computed based on the following risks: oil and oil products prices: fair value at December 31, 2019; Real x U.S. Dollar - 1.2% depreciation of
the Real. Source: Focus. Reasonably possible and remote scenarios consider 25% and 50% deterioration in the associated risk variables, respectively.
36.1. Risk management of crude oil and oil products prices
The Company is usually exposed to commodity price cycles, although it may use derivative instruments to hedge
exposures related to prices of products purchased and sold to fulfill operational needs and in specific circumstances
depending on business environment analysis and assessment of whether the Business and Management targets are
being met.
Crude Oil
In March 2019, Petrobras implemented a hedge strategy for part of its oil exports foreseen for 2019. Over-the-Counter
(OTC) put options referenced in the average Brent oil prices from April to the end of 2019 were purchased with strike
price of US$ 60/barrel, with premium of US$ 320. In 2018, a similar strategy was implemented, with an average strike
price of US$ 65/barrel and total cost of approximately US$ 445.
However, in the third quarter of 2019, based on the significant reduction in cash flow uncertainties concerning the
Business and Management Plan for 2019, Petrobras sold the put options at a strike price of US$ 60/barrel, totaling
US$ 101 received.
In the year ended December 31, 2019, due to the mark to market of these put options and the increase of the commodity
price in the international market, a US$ 216 loss was accounted as other income and expenses (a US$ 401 loss in the
year ended December 31, 2018).
Gasoline
Since September 2018, the Company also has executed a hedge strategy related to gasoline prices and foreign
exchange rates by using commodity derivatives and non-deliverable forwards (NDF), in order to give flexibility on its
pricing policy for this oil product, allowing the Company to hold gasoline prices constant in the domestic market for
periods of up to 15 days. The Company recognized a US$ 11 gain arising from this strategy in the year ended December
31, 2019, recorded in other income and expenses.
Diesel
With the objective of giving additional flexibility to the pricing policy, in December 2018, Petrobras adopted a hedge
strategy applied to diesel prices and foreign exchange rates by using NDF, in a manner similar to the strategy applied
to gasoline. In June 2019, Petrobras approved the review of the frequency of adjustments in the prices of diesel and
gasoline. From then on, the price adjustments of diesel and gasoline are carried out without defined frequency. The
Company recognized a US$ 12 loss arising from this strategy on diesel in the year ended December 31, 2019, recorded
in other income and expenses.
When applying this hedge strategy, the Company maintains the principles that govern the practice of competitive
prices, such as international parity price, margins according to the risks inherent to the operation, share of participation
in the market and mechanisms of protection through derivatives.
F-118
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Other commodity derivative transactions
Petrobras, by use of its assets, positions and market knowledge from its operations in Brazil and abroad, occasionally
seeks to optimize some of its commercial operations in the international market, with the use of commodity derivatives
to manage price risk. Changes in operations contracted for other commodities derivatives resulted in a US$ 150 loss in
2019 (a US$ 19 gain in 2018).
36.2. Foreign exchange risk management
The Company’s Risk Management Policy provides for, as an assumption, an integrated risk management that extends
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 encompassing the business of the
Company.
Changes in the Real/U.S. dollar spot rate, as well as foreign exchange variation of the Real against other foreign
currencies, may affect net income and the statement of financial position due to the exposures in foreign currencies,
such as:
•
•
•
High probable future transactions;
Monetary items; and
Firm commitments.
The Company seeks to mitigate the effect of potential variations in the Real/U.S. dollar spot rates mainly raising funds
denominated in US dollars, aiming at reducing the net exposure between obligations and receipts in this currency, thus
representing a form of structural protection that takes into account criteria of liquidity and cost competitiveness.
Foreign exchange variation on future exports denominated in U.S. Dollar in a given period are efficiently hedged by the
US dollar debt portfolio taking into account changes in such portfolio over time.
The foreign exchange risk management strategy may involve the use of derivative financial instruments to hedge
certain liabilities, mitigating foreign exchange rate risk exposure, especially when the Company is exposed to a foreign
currency in which no cash inflows are expected, for example, the 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
Aligned with Company’s foreign exchange risk management, and considering the initial adoption of IFRS 16 on January
1, 2019, the Company performed additional designations in the year ended December 31, 2019, amounting to
US$ 28,009 (R$ 108,481 million), in which the hedged item was the highly probable future exports in US dollars, and as
hedging instruments lease agreements denominated in US dollars.
F-119
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
The carrying amounts, the fair value as of December 31, 2019, 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$ 4.0307 exchange rate are set out below:
Hedging Instrument
HedgedTransactions
Nature
of theRisk
Maturity
Date
Foreign exchange gains
and losses on
proportion of non-
derivative financial
instruments cash flows
Foreign exchange gains
and losses on a portion
of highly probable
future monthly exports
revenues
Foreign
Currency
– Real vs U.S.
Dollar
Spot Rate
January 2019
to December
2028
Present value of hedging instrument notional value at
12.31.2019
(US$ million)
(R$ million)
87,651
353,295
Changes in the present value of hedging instrument notional value
Amounts designated as of January 1, 2019
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, 2019
Nominal value of hedging instrument (finance debt and lease liability) at December 31, 2019
US$
66,168
56,573
(9,247)
(25,843)
-
87,651
104,212
R$ million
256,390
222,874
(36,560)
(102,827)
13,418
353,295
420,046
In the year ended December 31, 2019, the Company recognized a US$ 9 gain within foreign exchange gains (losses) due
to ineffectiveness (a US$ 50 loss in 2019).
The average ratio of future exports for which cash flow hedge accounting was designated to the highly probable future
exports is 57.7%.
A roll-forward schedule of cumulative foreign exchange losses recognized in other comprehensive income as of
December 31, 2019 is set out below:
Balance at January 1,2018
Recognized in Other comprehensive income
Reclassified to the statement of income - occurred exports
Balance at December 31, 2018
Recognized in Other comprehensive income
Reclassified to the statement of income - occurred exports
Balance at December 31, 2019
Exchange
rate
(14,508)
(8,950)
3,315
(20,143)
(3,510)
3,136
(20,517)
Tax effect
Total
4,935
3,043
(1,127)
6,851
1,192
(1,066)
6,977
(9,573)
(5,907)
2,188
(13,292)
(2,318)
2,070
(13,540)
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 forecasted 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 Strategic Plan 2020-2024, would not indicate a
reclassification adjustment from equity to the statement of income.
A schedule of expected reclassification of cumulative foreign exchange losses recognized in other comprehensive
income to the statement of income as of December 31, 2019 is set out below:
F-120
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Expected realization
(4,673)
(4,495)
(4,851)
(3,131)
(1,925)
(505)
259
(1,196)
(20,517)
2019
2020
2021
2022
2023
2024
2025 2026 to 2028
Total
a.1)
Accounting policy
At inception of the hedge relationship, the Company documents its objective and strategy, including identification of
the hedging instrument, the hedged item, the nature of the hedged risk and evaluation of hedge effectiveness
requirements.
Considering the natural hedge and the risk management strategy, the Company designates hedging relationships to
account for the effects of the existing hedge between a foreign exchange gain or loss from proportions of its long-
term debt obligations (denominated in U.S. dollars) and foreign exchange gain or loss of 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.
Foreign exchange gains and losses on proportions of debt obligations and lease liability (non-derivative financial
instruments) have been designated as hedging instruments.
The highly probable future exports for each month are hedged by a proportion of the debt obligations with an equal US
dollar nominal amount. Only a portion of the Company’s forecast exports are considered highly probable.
The Company’s future exports are exposed to the risk of variation in the Brazilian Real/U.S. dollar spot rate, which is
offset by the converse exposure to the same type of risk with respect to its debt denominated in US dollar.
The hedge relationships are assessed on a monthly basis and they may cease and may be re-designated in order
to achieve the risk management strategy.
Foreign exchange gains and losses relating to the effective portion of such hedges are recognized in other
comprehensive income and reclassified to the statement of income within 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 finance income (expense).
Whenever a portion of future exports for a certain period, for which their foreign exchange gains and losses 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 future exports for which foreign exchange gains and losses 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.
In addition, when a financial instrument designated as a hedging instrument expires or settles, the Company may
replace it with another financial instrument in a manner in which the hedge relationship continues to occur.
Likewise, whenever a hedged transaction effectively occurs, its financial instrument previously designated as a hedging
instrument may be designated for a new hedge relationship.
F-121
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
The gains or losses relating to the ineffective portion are immediately recognized in finance income (expense).
Ineffectiveness may occur as hedged items and hedge instruments have different maturity dates and due to discount
rate used to determine their present value.
b)
Cross currency swap – Pounds Sterling x Dollar
In 2017, the Company, through its wholly owned subsidiary Petrobras Global Trading B.V. (PGT), entered into cross
currency swaps maturing in 2026 and 2034, with notional amounts of £ 700 million and £ 600 million, respectively, in
order to hedge its Pounds/U.S. Dollar exposure arising from bonds issued amounting to £ 1,300. The Company
recognized a US$ 241 loss in the year ended December 31, 2019 (a US$ 265 gain in the year ended December 31, 2018)
arising from this strategy, recorded in finance income (expense). The Company does not expect to settle these swaps
before their expiration dates.
c)
Swap contracts – National consumer price index (IPCA) x Brazilian interbank offering rate (CDI) and CDI x
Dollar
In September 2019, Petrobras contracted a cross currency swap aiming to protect against exposure arising from the 7th
issuance of debentures, settled on October 9, 2019, in the total notional amount of US$ 367 for IPCA x CDI operations,
maturing in September 2029, and US$ 240 for CDI x U.S. Dollar operations, maturing in September 2024 and September
2029.
The mark to market of IPCA x CDI swap operations registered a US$ 11 gain in the year ended December 31, 2019, while
the mark to market of CDI x USD swap operations presented a US$ 7 loss in the same period, both recorded as finance
income (expense). The Company does not expect to settle these swaps before their expiration dates.
Changes in future interest rate curves (CDI) may have an impact on the Company's results, due to the market value of
these swap contracts. A sensitivity analysis on CDI with a constant increase (parallel shock) of 100 basis points, all other
variables remaining constant, would result in a US$ 20 loss, while a constant reduction (parallel shock) of 100 basis
points, would result in a US$ 24 gain.
d)
Non Deliverable Forward (NDF) – Euro x Dollar and Pounds Sterling x Dollar
In 2018, the Company, also through PGT, entered into non deliverable forwards with notional amounts of Euro 3,000
million and £ 419 million, maturing in 2019, in other to reduce its euro x dollar and pounds x dollar exposures raised by
bonds issued. In the year ended December 31, 2019, the notional amount was reduced to Euro 2,255 million and £ 167
million, adjusting the protection to a lower exposure to the Euro and Pounds Sterling provided by the repurchase of
bonds in these currencies over the course of this period. The Company recognized a US$ 227 loss in the year ended
December 31, 2019 arising from this strategy (US$ 139 in the same period of 2018), recorded in finance income
(expense). The Company does not expect to settle these NDFs before their expiration dates.
e)
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.
Financial Instruments
Exposure at
12.31.2019
Risk
Probable
Scenario (*)
Assets
Liabilities
Exchange rate - Cross currency swap
Cash flow hedge on exports
Dollar/Real
74
(1,130)
(9)
1,072
6,088
(92,470)
(746)
87,651
F-122
Reasonably
possible
scenario
1,522
(23,094)
(187)
21,913
Remote
Scenario
3,044
(46,188)
(373)
43,826
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Assets
Liabilities
Assets
Liabilities
Non Deliverable Forward (NDF)
Assets
Liabilities
Assets
Liabilities
Derivative - cross currency swap
Non Deliverable Forward (NDF)
Total at December 31, 2019
Total at December 31, 2018
1,046
3
(18)
(15)
2,554
(5,136)
2,524
(58)
2
(21)
(19)
Euro/Real
Euro/Dollar
Pound
Sterling/Real
1,925 Pound Sterling
/Dollar
(3,863)
1,718
216
(4)
950
848
14
−
−
−
(9)
19
(9)
1
−
−
−
(2)
5
(2)
−
1
16
6
309
1
(5)
(4)
639
(1,284)
631
(14)
1
(5)
(4)
481
(966)
429
54
(2)
285
210
618
2
(9)
(7)
1,277
(2,568)
1,262
(29)
1
(11)
(10)
963
(1,932)
859
108
(2)
570
422
(*) On December 31, 2019, the probable scenario was computed based on the following risks: R$ x U.S. Dollar - a 1.2% depreciation of the Real; Iene
x Dollar: a 0.4% depreciation of the Iene; Euro x U.S. Dollar: a 0.4% depreciation of the Euro; Pound Sterling x U.S. Dollar: a 0.12% depreciation of the
Pound Sterling; Real x Euro: a 0.9% depreciation of the Real; and Real x Pound Sterling - a 1.1% depreciation of the Real . Source: Focus and
Bloomberg.
36.3. 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 faced by certain
subsidiaries of Petrobras.
36.4. Credit risk
Credit risk management in Petrobras aims to mitigate 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 with low credit risk.
36.4.1. Credit quality of financial assets
a)
Trade and other receivables
The Company has internal credit commissions that 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
considered to be credit impaired, are set out below:
F-123
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
AAA
AA
A
BBB
BB
B
AAA.br
AA.br
A.br
BB.br
Other ratings
36.5. Liquidity risk
Cash and cash equivalents
Marketable securities
2019
−
1,053
1,173
41
3,591
2
80
1,224
−
−
208
7,372
2018
−
811
8,421
51
2,599
2
706
1,299
−
−
10
13,899
2019
2018
−
−
−
−
838
−
33
48
−
−
27
946
1
−
−
−
−
−
1,077
58
−
−
−
1,136
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 need for investments and short-term obligations is met
even in adverse market conditions; increase in the average debt maturity, increase in funding sources from domestic
and international markets (new markets and financial products), as well as funds under the partnership and divestment
program.
Following its liability management strategy, the Company regularly evaluates market conditions and may enter into
transactions to repurchase its own securities or those of its affiliates, through a variety of means, including tender
offers, make whole exercises and open market repurchases, in order to improve its debt repayment profile and cost of
debt.
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
2020
3,551
3,295
6,846
2021
4,217
3,201
7,418
2022
4,829
3,024
7,853
2023
8,139
2,738
10,877
2024
8,627
2,354
10,981
2025 and
thereafter
35,921
29,247
65,168
Balance at
December 31,
2019
65,284
43,859
109,143
Balance at
December 31,
2018
85,279
51,359
136,638
F-124
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
36.6. Insurance
The Company’s insurance strategy involves acquiring insurance to cover risks that may produce material impacts and
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
deductible clauses up to the equivalent to US$180.
Additionally, the Company has indemnify clauses in its bylaws, as set out in note 30.
The main information concerning the insurance coverage outstanding at December 31, 2019 is set out below:
Assets
Types of coverage
Amount insured
Facilities, equipment inventory and products inventory
Tankers and auxiliary vessels
Fixed platforms, floating production systems and offshore drilling units
Total
Fire, operational
risks and
engineering risks
Hulls
Oil risks
140,248
3,212
27,505
170,965
Petrobras does not have loss of earnings insurance or insurance related to automobiles and pipeline networks in Brazil.
F-125
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
37. Related-party transactions
The Company has a related-party transactions policy, which is annually revised and approved by the Board of Directors,
and is applicable to all the Petrobras Group, in accordance with the Company’s by-laws.
In order to ensure the goals of the Company are achieved and to align them with transparency of processes and
corporate governance best practices, this policy guides Petrobras while entering into related-party transactions and
dealing with potential conflicts of interest on these transactions, based on the following assumptions and provisions:
•
•
•
•
Prioritization of the Company’s interests regardless of the counterparty;
Arm’s length basis;
Compliance with market conditions, especially concerning terms, prices and guarantees or with adequate
compensatory payment;
Accurate and timely disclosure in accordance with applicable authorities.
The Audit Committee must approve in advance transactions between the Company and its associates, the Brazilian
Federal Government, including its agencies or similar bodies and controlled entities, taking into account the materiality
established by this policy. The Audit Committee reports monthly to the Board of Directors.
Transactions with entities controlled by key management personnel or by their close family members are also approved
in advance by the Audit Committee regardless of the amount involved.
Transactions with the Brazilian Federal Government, including its agencies or similar bodies and controlled entities,
which are under the scope of Board of Directors approval, must be preceded by the Audit Committee and Minority
Shareholders Committee assessment and must have prior approval of, at least, 2/3 of the board members.
The related-party transactions policy also aims to ensure an adequate and diligent decision-making process for the
Company’s key management.
37.1. Transactions with joint ventures, associates, government entities and pension plans
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 include transactions with banks and other entities under its control, such as
financing and banking, asset management and other transactions.
The balances of significant transactions are set out in the following table:
F-126
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
12.31.2019
12.31.2018
Assets
Liabilities
Assets
Liabilities
Joint ventures and associates
Petrobras Distribuidora (BR)
Natural Gas Transportation Companies
State-controlled gas distributors (joint ventures)
Petrochemical companies (associates)
Other associates and joint ventures
Subtotal
Brazilian government – Parent and its controlled entities
224
150
338
47
35
794
Government bonds
Banks controlled by the Brazilian Government
Receivables from the Electricity sector (note 13.4)
Petroleum and alcohol account - receivables from the Brazilian Government
Diesel Price Subsidy Program
Brazilian Federal Government - dividends
Empresa Brasileira de Administração de Petróleo e Gás Natural – Pré-Sal Petróleo
S.A. – PPSA
Others
Subtotal
Pension plans
Total
Current
Non-Current
Total
(*) Purchase of crude oil and natural gas and Production Individualization Agreements (AIPs).
1,580
8,584
334
304
−
-
-
45
10,847
60
11,701
2,849
8,852
11,701
The income/expenses of significant transactions are set out in the following table:
47
717
104
29
203
1,100
-
4,904
-
-
-
417
20
43
5,384
110
6,594
1,904
4,690
6,594
−
92
307
90
193
682
1,958
7,445
4,400
307
400
−
−
64
14,574
59
15,315
4,345
10,970
15,315
−
336
114
7
408
865
-
10,332
−
-
-
324
144
121
10,921
96
11,882
2,528
9,354
11,882
F-127
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Joint ventures and associates
Petrobras Distribuidora (BR)
Natural Gas Transportation Companies
State-controlled gas distributors (joint ventures)
Petrochemical companies (associates)
Other associates and joint ventures
Subtotal
Brazilian government – Parent and its controlled entities
Government bonds
Banks controlled by the Brazilian Government
Receivables from the Electricity sector (note 5.4)
Petroleum and alcohol account - receivables from the Brazilian Government
Diesel Price Subsidy Program
Brazilian Federal Government - dividends
Empresa Brasileira de Administração de Petróleo e Gás Natural – Pré-Sal Petróleo
S.A. – PPSA
Others
Subtotal
Total
Revenues, mainly sales revenues
Purchases and services
Foreign exchange and inflation indexation charges, net
Finance income (expenses), net
Total
2019
2018
2017
Jan-Dec
Jan-Dec
Jan-Dec
7,242
(1,858)
2,812
2,926
208
11,330
107
(652)
300
8
−
(4)
(110)
(130)
(482)
10,848
13,748
(2,591)
(395)
87
10,848
−
(932)
2,306
3,762
36
5,172
109
(902)
1,713
92
1,559
3
(461)
144
2,257
7,429
8,733
(2,239)
(316)
1,251
7,429
−
(1,040)
2,203
3,847
407
5,417
153
(1,466)
643
1
−
−
−
227
(442)
4,975
7,517
(1,588)
239
(1,193)
4,975
In addition to the aforementioned transactions, Petrobras and the Brazilian Federal Government entered into the
Assignment Agreement in 2010, which grants the Company the right to carry out prospecting and drilling activities for
hydrocarbons located in the pre-salt area limited to the production of five billion barrels of oil equivalent. For detailed
information on Assignment Agreement, see note 9.
During the second quarter of 2019, the wholly owned subsidiary Transpetro signed an agreement with Transportadora
Associada de Gás SA - TAG, an associate of Petrobras since June 13, 2019, to provide technical support services for gas
transportation for a period of ten years.
For more information on the disposal of TAG, see note 9.
37.1.1. Diesel Price Subsidy Program
In 2018, after risk assessment, the Company joined the Diesel Price Subsidy Program established by the Brazilian
Federal Government, specifically for that year. This program granted reimbursements to diesel producers and
importers to the extent that their selling prices to the domestic distributors were equal or lower than prices determined
by relevant regulation.
Through December 31, 2018, the Company accounted for US$ 1,415 as revenues with respect to sales within the second
and third phases of the program. Of this amount, US$ 1,157 was disbursed to the Company in 2018, and the remaning
balance through February 2019.
37.1.2. Accounting policy
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.
F-128
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
37.1.3. Petroleum and Alcohol accounts - Receivables from the Brazilian Federal Government
Pursuant to Provisional Measure 2,181 of August 24, 2001, the Brazilian Federal Government may settle the balance of
receivables related to the Petroleum and Alcohol accounts 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.
Following several negotiation attempts at the administrative level, the Company filed a lawsuit in July 2011 to collect
the receivables. In October 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. In July 2017, the Brazilian Federal Government appealed the
ruling and, shortly after, the Regional Federal Court (Tribunal Regional Federal – TRF) denied the appeal, sustained the
aforementioned ruling from 2016 and determined the settlement of the amount owed by the Brazilian Federal
Government including inflation charges from August 2011 based on the National Consumer Price Index – IPCA and
interest at rates provided for the Brazilian Federal Justice.
In September 2018, the Brazilian Supreme Court ruled on a decision of including inflation indexation on an amount to
be paid by the Brazilian Federal Government with respect to another proceeding in which the Company is not a party.
According to this decision, such inflation charges were stayed and this decision affects all similar claims in which the
Brazilian Federal Government is a party.
In October 2019, the Superior Federal Court (Superior Tribunal Federal - STF) dismissed the Brazilian Federal
Government's appeal, maintaining the inflation indexation by the IPCA-E, according to the TRF ruling. Considering that
the STF decision mentioned above has not yet become final and that the Brazilian Federal Government may challenge
the Compliance with Judgment that Petrobras would present, the indexation to the IPCA-E, amounting to US$ 277 at
December 31, 2019, remains unrecorded as it is classified as a contingent asset.
As of December 31, 2018, the balance of receivables related to the Petroleum and Alcohol accounts was US$ 304
(US$ 307 as of December 31, 2018), recorded within non-current assets.
On November 1, 2019, Petrobras presented Compliance with Judgment in the case file, intending to receive the amounts
due by the Brazilian Federal Government. The proceeding is awaiting a decision from the judge and a subpoena of the
Federal Government to proceed.
37.2. Compensation of 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 December 2019 and
December 2018 were:
Compensation of employees, excluding officers (amounts in U.S. dollars)
Lowest compensation
Average compensation
Highest compensation
Compensation of highest paid Petrobras officer
Dec/2019
Dec/2018
928
4,985
26,602
973
4,961
27,219
28,038
30,659
The compensation of Executive Officers and Board Members of Petrobras parent company, which are based on the
assumptions governed by the Secretariat of Management and Governance of the State-owned Companies (Secretaria
de Coordenação e Governança das Empresas Estatais – SEST) and the Ministry of Mines and Energy, is set out as follows
F-129
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
Wages and short-term benefits
Social security and other employee-related taxes
Post-employment benefits (pension plan)
Variable compensation
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.
Jan-Dec/2019
Jan-Dec/2018
Officers
Board
members
2.9
1.0
0.4
2.8
0.4
7.5
6.0
7.67
7.67
0.3
−
−
−
−
0.3
−
9.75
5.00
Total
3.2
1.0
0.4
2.8
0.4
7.8
6.0
17.42
12.67
Officers
Board
members
3.6
1.0
0.3
1.4
0.5
6.8
4.9
7.92
7.92
0.4
−
-
−
−
0.4
0.4
10.08
6.00
Total
4.0
1.0
0.3
1.4
0.5
7.2
5.3
18.00
13.92
For the year ended December 31, 2019, charges related to compensation of the board members and executive officers
of the Petrobras group amounted to US$ 15 (US$ 24.2 for the year ended December 31, 2018).
On September 30, 2019, the Company’s Extraordinary General Meeting approved a change in the overall compensation
for executive officers and board members, given the creation of the Executive Office of Digital Transformation and
Innovation, setting the total compensation threshold at US$ 8.2 from April 2019 to March 2020.
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 accordance with Brazilian regulations applicable to companies controlled by the Brazilian Federal Government, Board
members who are also members of the Audit Committee or Audit Committee of the Petrobras Conglomerate are only
compensated with respect to their Audit Committee duties. The total compensation concerning these members was
US$ 431 thousand for the year ended December 31, 2019 (US$ 507 thousand with social security and related charges).
In 2018, the Board of Directors approved the variable compensation program (PRV) of the Board of Executive Officers
for the year 2018. The amount of compensation to be paid varies according to the percentage of achievement of the
financial and operational targets. The program foresees compensations being disbursed through 5 years.
Exemption from damage (indemnity)
The company's bylaws establishes the obligation to indemnify and keep the officers without losses, members with
statutory functions and other employees and agents that legally act through officers’ delegation, so as to cope with
certain expenses related to arbitration, judicial or administrative processes that involve acts performed in the exercise
of their duties or powers, since the date of your possession or the since the beginning of the contractual relation with
the Company.
The period of the agreement coverage began on December18, 2018 and continues until the occurrence of the following
events, whichever comes last: (i) the end of the fifth (5th) year following the date on which the beneficiary leave, for any
reason, to exercise the mandate, function or position; (ii) the course of the time required in transit of any Process in
which the Beneficiary is partly due to the practice of Regular Management Act; or (iii) the course of the limitation period
according to law to events that can generate the obligations of indemnification by the Company, including, but not
limited to, the criminal statute applicable deadline, even if such period is applied by administrative authorities. The
maximum exposure established by the company (global limit for all eventual claims) until April 2020 is US$ 500.
Indemnity agreements shall not cover: (i) acts covered under and insurance policy purchased by the Company, as
formally recognized and implemented by the insurance company; (ii) acts outside the regular exercise of the duties or
powers of the Beneficiaries; (iii) acts in bad faith act, malicious acts, fraud or serious fault on the part of the
Beneficiaries; (iv) self-interested acts or in favor of third parties that damage the company’s social interest; (v)
F-130
Petróleo Brasileiro S.A. – Petrobras
Notes to the financial statements
(Expressed in millions of US Dollars, unless otherwise indicated)
obligation to pay damages arising from social action according to article 159 of Law 6,404/76 or reimbursement of the
damages according to art. 11, § 5°, II of Law 6,385/76; (iv) other cases where a manifest conflict of interest with the
company is established. It is worth noting that after a final unappealable decision, if it is proved that the act performed
by the beneficiary is not subject to indemnification, the beneficiary is obligated to return the advanced amounts to the
company.
In case of potential conflicts of interest, it is important to mention that the company may hire outside professionals,
with a principled, impartial and independent reputation and with a strong experience to evaluate eventual indemnity
lawsuits, verifying whether or not the act will be covered. In addition, the beneficiary of an indemnity agreement would
be prevented from attending meetings or discussions concerning the payment approval of his or her own expenses.
38. 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
Lease (*)
Provision/(reversals) for decommissioning costs
Use of deferred tax and judicial deposit for the payment of contingency
(*) The effects arising from the adoption of IFRS 16 are set out in note 33.
Jan-Dec/2019 Jan-Dec/2018
1,165
76
2,301
5,497
3
839
137
-
4,777
60
39.
Information related to guaranteed securities issued by subsidiaries
39.1. Petrobras Global Finance B.V. (PGF)
Petróleo Brasileiro S.A. - Petrobras fully and unconditionally guarantees the debt securities issued by Petrobras Global
Finance B.V. (PGF), a 100-percent-owned finance subsidiary of Petrobras. There are no significant restrictions on the
ability of Petrobras to obtain funds from PGF.
F-131
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Supplementary information on Oil and Gas Exploration and Production (unaudited)
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.
The Company, on December 31, 2019, maintains activities mainly in Brazil, in addition to activities in
Argentina, Colombia and Bolivia, in South America. The equity-accounted investments are comprised of the
operations of Petrobras Oil and Gas B.V. (PO&G) in Nigeria, Africa (note 30.1), and the joint venture company
of which Murphy Exploration & Production Company ("Murphy" ) has 80% stake and Petrobras America Inc
("PAI") 20% stake in United States of America, North America. The Company reports its reserves in Brazil,
United States of America, Nigeria and Argentina. Bolivian reserves are not included due to restrictions
determined by Bolivian Constitution. In Colombia, our activities are exploratory, and therefore, there are no
associated reserves.
F-132
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
i) Capitalized costs relating to oil and gas producing activities
As set out in note 26, the Company uses the successful efforts method of accounting for appraisal and development
costs of crude oil and natural gas production. In addition, notes 23.3 and 24.2 presents the accounting policies applied
by the Company for recognition, measurement and disclosure of property, plant and equipment and intangible assets.
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 obligations:
Consolidated entities
Abroad
Brazil
South
America
North
America
Others
Total
Total
December 31, 2019
Unproved oil and gas properties
Proved oil and gas properties
Support Equipment
Gross Capitalized costs
Depreciation, depletion and amortization
Net capitalized costs
December 31, 2018
Unproved oil and gas properties
Proved oil and gas properties
Support Equipment
Gross Capitalized costs
Depreciation, depletion and amortization
Net capitalized costs
December 31, 2017
Unproved oil and gas properties
Proved oil and gas properties
Support Equipment
Gross Capitalized costs
Depreciation, depletion and amortization
Net capitalized costs
23,063
81,063
88,289
192,414
(51,332)
141,081
5,999
88,572
83,822
178,393
(60,890)
117,503
5,803
96,195
86,021
188,019
(63,245)
124,774
117
135
687
940
(581)
359
112
144
649
905
(544)
361
109
111
606
826
(504)
322
-
-
-
-
-
-
-
-
-
-
-
-
-
4,656
81
4,737
(2,217)
2,520
-
-
1
1
(1)
-
-
-
389
389
(29)
360
-
-
392
392
(12)
380
117
135
688
941
(582)
359
112
144
1,038
1,294
(573)
721
109
4,767
1,079
5,955
(2,733)
3,222
23,180
81,198
88,977
193,355
(51,914)
141,441
6,111
88,716
84,860
179,687
(61,463)
118,224
5,912
100,962
87,100
193,974
(65,978)
127,996
Equity
Method
Investees
-
4,202
-
4,202
(1,690)
2,513
-
4,091
6
4,097
(1,410)
2,687
-
3,134
6
3,140
(1,287)
1,853
F-133
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, 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:
Consolidated entities
Abroad
Brazil
South
America
North
America
Others
Total
Total
Equity
Method
Investees
-
16,670
1,069
6,819
24,558
-
832
776
9,685
11,293
-
903
1,223
11,553
13,679
-
-
11
6
17
-
-
10
32
43
-
-
33
23
56
-
-
-
-
-
-
-
1
229
230
-
-
4
230
234
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
6
17
-
-
11
261
272
-
-
37
253
290
-
16,670
1,080
6,825
24,575
-
832
787
9,946
11,565
-
903
1,260
11,806
13,969
-
-
3
150
153
-
-
5
252
257
-
-
4
294
298
December 31, 2019
Acquisition costs:
Proved
Unproved (*)
Exploration costs
Development costs
Total
December 31, 2018
Acquisition costs:
Proved
Unproved
Exploration costs
Development costs
Total
December 31, 2017
Acquisition costs:
Proved
Unproved
Exploration costs
Development costs
Total
(*) Mainly acquisition of oil exploration rights - Transfer of Rights, according to note 23.4
(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, 2019, 2018
and 2017 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.
F-134
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
December 31, 2019
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, 2018
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, 2017
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)
Consolidated entities
Abroad
Brazil
South
America
North
America
Others
Total
Total
Equity
Method
Investees
888
49,400
50,288
(15,749)
(793)
(11,436)
(1,535)
(1,420)
19,354
(6,579)
12,775
1,142
50,052
51,194
(19,741)
(516)
(8,716)
(686)
(2,188)
19,347
(6,576)
174
−
174
(69)
(6)
(37)
-
(13)
50
(17)
33
190
−
190
(77)
(7)
(40)
-
(839)
(773)
263
-
-
-
-
-
-
-
41
41
(14)
-
-
-
-
−
(13)
(421)
(34)
(468)
159
174
−
174
(69)
(6)
(50)
(421)
(6)
(377)
128
1,062
49,400
50,462
(15,818)
(799)
(11,486)
(1,956)
(1,426)
18,977
(6,451)
1,114
-
1,114
(124)
(5)
(292)
-
(20)
672
(229)
27
(309)
(249)
12,526
443
998
-
998
(152)
(1)
(221)
(705)
(88)
(169)
57
-
-
-
-
−
(21)
-
(38)
(59)
20
1,188
−
1,188
(229)
(8)
(282)
(705)
(965)
(1,001)
340
2,330
50,052
52,382
(19,970)
(524)
(8,998)
(1,391)
(3,153)
18,346
(6,236)
375
-
375
(40)
(2)
(109)
-
(12)
212
(162)
12,771
(510)
(112)
(39)
(661)
12,110
50
482
40,762
41,244
(17,894)
(686)
9,466
169
(2,571)
10,796
3,672
215
-
215
(71)
(37)
(44)
(13)
(12)
38
(13)
725
-
725
(163)
(77)
(302)
(113)
(125)
(55)
18
-
-
-
-
-
(8)
-
(274)
(282)
96
940
-
940
(234)
(114)
(354)
(126)
(411)
(299)
101
1,422
40,762
42,184
(18,128)
(800)
(9,820)
43
(2,982)
10,497
(3,571)
7,124
25
(37)
(186)
(198)
6,926
443
-
443
(51)
1
(123)
-
(19)
251
(98)
153
F-135
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
(iv) Reserve quantities information
As presented in note 4.1, 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. The project to extract the hydrocarbons must have commenced or there must be
reasonable certainty that the project will commence within a reasonable time. Reserves estimate involves a high degree
of judgment and complexity and its application affects different items of these Financial Statements.
The Company’s estimated net proved oil and gas reserves and changes thereto for the years 2019, 2018 and 2017 are
shown in the following table. Proved reserves are estimated in accordance with the reserve definitions prescribed by
the Securities and Exchange Commission.
Proved developed oil and gas reserves are proved reserves 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.
Reserve estimates are subject to variations due to technical uncertainties in the reservoir and changes in economic
scenarios. 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 (*)
Reserves at December 31, 2016
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Production for the year
Reserves at December 31, 2017 (1)
Transfers by loss of control (2)
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Production for the year
Reserves at December 31, 2018
Revisions of previous estimates
Extensions and discoveries
Sales of reserves
Production for the year
Reserves at December 31, 2019
Crude oil
in Brazil
8,063.0
649.3
69.1
212.7
(744.6)
8,249.4
-
342.7
308.5
224.2
(254.8)
(701.3)
8,168.7
718.8
17.5
(68.3)
(753.9)
8,082.8
South
America
0.8
0.3
0.3
-
(0.2)
1.2
-
-
0.6
-
-
(0.3)
1.6
-
-
-
(0.2)
1.4
North
America
96.4
31.4
-
-
(13.2)
114.6
(100.4)
-
-
-
-
(14.3)
-
-
-
-
-
−
Abroad
Total of
crude oil
abroad
97.3
31.7
0.3
-
(13.4)
115.8
(100.4)
-
0.6
-
-
(14.5)
1.6
-
-
-
(0.2)
1.4
Synthetic
oil in Brazil
6.8
0.2
-
-
(1.0)
6.0
-
(0.3)
-
-
-
(0.9)
4.8
-
3.6
-
(0.8)
7.7
Africa
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
−
Total
8,167.1
681.1
69.4
212.7
(759.0)
8,371.3
(100.4)
342.5
309.1
224.2
(254.8)
(716.8)
8,175.1
718.8
21.1
(68.3)
(754.8)
8,091.9
(1) In 2017, total proved reserves includes 263.7 million barrels related to assets held for sale.
(2) Amounts transferred from consolidated entities to equity method investees, as the Company concluded the operation that has resulted in the formation of a joint venture company ("JV"), of
which Murphy Exploration & Production Company ("Murphy" ) has 80% stake and Petrobras America Inc ("PAI") 20% stake.
(*) Apparent differences in the sum of the numbers are due to rounding off.
F-136
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Proved developed and undeveloped reserves - Equity
Method Investees (*)
Reserves at December 31, 2016
Revisions of previous estimates
Production for the year
Reserves at December 31, 2017
Transfers by loss of control (2)
Revisions of previous estimates
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2018 (1)
Revisions of previous estimates
Extensions and discoveries
Production for the year
Reserves at December 31, 2019 (1)
Crude oil
in Brazil
-
-
-
-
-
-
-
-
-
-
-
-
-
South
America
-
-
-
-
-
-
-
-
-
-
-
-
-
-
North
America
-
-
-
-
100.4
(0.9)
(80.4)
7.9
(0.4)
26.6
0.7
-
(4.7)
22.7
Abroad
Total of
crude oil
abroad
69.0
2.6
(8.2)
63.4
100.4
2.9
(80.4)
7.9
(7.7)
86.4
(5.8)
0.6
(16.9)
64.2
Africa
69.0
2.6
(8.2)
63.4
-
3.7
-
-
(7.3)
59.8
(6.5)
0.6
(12.3)
41.6
Brazil's
Synthetic
Oil
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
69.0
2.6
(8.2)
63.4
100.4
2.9
(80.4)
7.9
(7.7)
86.4
(5.8)
0.6
(16.9)
64.2
(1) In 2018, total proved reserves includes 59.8 million barrels related to PO&G assets held for sale. In 2019, total proved reserves include 41.6 million barrels of assets held for sale (PO&G).
(2) Amounts transferred from consolidated entities to equity method investees, as the Company concluded the operation that has resulted in the formation of a joint venture company ("JV"), of
which Murphy Exploration & Production Company ("Murphy" ) has 80% stake and Petrobras America Inc ("PAI") 20% stake.
(*) Apparent differences in the sum of the numbers are due to rounding off.
F-137
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
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 (*)
Reserves at December 31, 2016
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Production for the year
Reserves at December 31, 2017 (1)
Transfers by loss of control (2)
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Production for the year
Reserves at December 31, 2018
Revisions of previous estimates
Extensions and discoveries
Sales of reserves
Production for the year
Reserves at December 31, 2019
Abroad
Natural
Gas in
Brazil
8,394.0
(81.5)
37.4
204.2
(877.9)
7,676.1
-
737.2
136.8
207.6
(165.5)
(801.8)
7,790.5
1,415.7
15.3
(24.0)
(816.9)
8,380.6
South
America
113.9
19.5
41.0
-
(14.2)
160.2
-
-
70.1
-
-
(16.2)
214.1
(42.3)
-
-
(15.5)
156.3
North
America
87.2
(24.9)
-
-
(21.3)
40.9
(36.8)
-
-
-
-
(4.1)
-
-
-
-
-
-
Total
Natural
Gas
Abroad
Brazil's
Synthetic
Gas
Africa
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
201.1
(5.5)
41.0
-
(35.5)
201.1
(36.8)
-
70.1
-
-
(20.3)
214.1
(42.3)
-
-
(15.5)
156.3
9.2
0.1
-
-
(1.2)
8.1
-
(1.0)
-
-
-
(1.3)
5.7
-
7.6
-
(1.2)
12.1
8,604.3
(86.9)
78.4
204.2
(914.6)
7,885.3
(36.8)
736.2
206.9
207.6
(165.5)
(823.5)
8,010.3
1,373.4
22.9
(24.0)
(833.7)
8,549.0
(1) In 2017, total proved reserves includes 173.7 billion cubic feet related to assets held for sale.
(2) Amounts transferred from consolidated entities to equity method investees, as the Company concluded the operation that has resulted in the formation of a joint venture company ("JV"), of
which Murphy Exploration & Production Company ("Murphy" ) has 80% stake and Petrobras America Inc ("PAI") 20% stake.
(*) Apparent differences in the sum of the numbers are due to rounding off.
Proved developed and undeveloped reserves - Equity
Method Investees (*)
Reserves at December 31, 2016
Revisions of previous estimates
Production for the year
Reserves at December 31, 2017
Transfers by loss of control (2)
Revisions of previous estimates
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2018 (1)
Revisions of previous estimates
Extensions and discoveries
Production for the year
Reserves at December 31, 2019 (1)
Natural
Gas in
Brazil
-
-
-
-
-
-
-
-
-
-
-
-
-
-
South
America
-
-
-
-
-
-
-
-
-
-
-
-
-
-
North
America
-
-
-
-
36.8
(3.1)
(29.7)
6.9
(0.1)
10.8
0.1
-
(1.7)
9.2
Africa
12.5
5.7
(0.9)
17.3
-
34.8
-
-
(4.8)
47.3
10.9
0.3
(11.3)
47.2
Abroad
Total
Natural
Gas
Abroad
12.5
5.7
(0.9)
17.3
36.8
31.8
(29.7)
6.9
(4.9)
58.1
11.0
0.3
(13.0)
56.4
Brazil's
Synthetic
Gas
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
12.5
5.7
(0.9)
17.3
36.8
31.8
(29.7)
6.9
(4.9)
58.1
11.0
0.3
(13.0)
56.4
1) In 2018, total proved reserves includes 47.3 billion cubic feet related to PO&G assets held for sale. In 2019, total proved reserves includes 47.2 billion cubic feet related to PO&G assets held for
sale.
(2) Amounts transferred from consolidated entities to equity method investees, as the Company concluded the operation that has resulted in the formation of a joint venture company ("JV"), of
which Murphy Exploration & Production Company ("Murphy" ) has 80% stake and Petrobras America Inc ("PAI") 20% stake.
(*) Apparent differences in the sum of the numbers are due to rounding off.
Natural gas production volumes used in these tables are the net volumes withdrawn from our proved
reserves, including gas consumed in operations and excluding reinjected gas. Our disclosure of proved gas
reserves includes gas volumes consumed, which represent 34% of our total proved reserves of natural gas at
December, 2019.
F-138
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
The tables 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 entities and equity method investees for 2019, 2018 and 2017:
Proved developed and undeveloped reserves –
Consolidated Entities (*)
Reserves at December 31, 2016
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Production for the year
Reserves at December 31, 2017 (1)
Transfers by loss of control (2)
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Production for the year
Reserves at December 31, 2018
Revisions of previous estimates
Extensions and discoveries
Sales of reserves
Production for the year
Reserves at December 31, 2019
Oil
equivalent
in Brazil
9,462.0
635.7
75.4
246.7
(891.0)
9,528.8
-
465.6
331.3
258.8
(282.4)
(834.9)
9,467.1
954.7
20.1
(72.3)
(890.0)
9,479.6
South
America
19.8
3.5
7.1
-
(2.6)
27.9
-
-
12.3
-
-
(3.0)
37.2
(7.0)
-
-
(2.8)
27.4
North
America
111.0
27.2
-
-
(16.7)
121.5
(106.5)
-
-
-
-
(15.0)
-
-
-
-
-
-
Abroad
Total oil
equivalent
abroad
130.8
30.7
7.1
-
(19.3)
149.3
(106.5)
-
12.3
-
-
(17.9)
37.2
(7.0)
-
-
(2.8)
27.4
Africa
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
synthetic
oil
equivalent
in Brazil
8.3
0.2
-
-
(1.2)
7.4
-
(0.4)
-
-
-
(1.2)
5.8
-
4.9
-
(1.0)
9.7
Total for all
products
9,601.1
666.6
82.5
246.7
(911.4)
9,685.5
(106.5)
465.2
343.6
258.8
(282.4)
(854.0)
9,510.1
947.7
25.0
(72.3)
(893.8)
9,516.7
(1) In 2017, total proved reserves includes 292.7 million barrels of oil equivalent related to assets held for sale.
(2) Amounts transferred from consolidated entities to equity method investees, as the Company concluded the operation that has resulted in the formation of a joint venture company ("JV"), of
which Murphy Exploration & Production Company ("Murphy" ) has 80% stake and Petrobras America Inc ("PAI") 20% stake.
(*) Apparent differences in the sum of the numbers are due to rounding off.
Proved developed and undeveloped reserves -
Equity Method Investees (*)
Reserves at December 31, 2016
Revisions of previous estimates
Production for the year
Reserves at December 31, 2017
Transfers by loss of control (2)
Revisions of previous estimates
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2018 (1)
Revisions of previous estimates
Extensions and discoveries
Production for the year
Reserves at December 31, 2019 (1)
Oil
equivalent
in Brazil
-
-
-
-
-
-
-
-
-
-
-
-
-
-
South
America
0.0
-
-
-
-
-
-
-
-
-
-
-
-
-
North
America
-
-
-
-
106.5
(1.4)
(85.4)
9.1
(0.5)
28.4
0.7
-
(4.9)
24.2
Abroad
Total oil
equivalent
abroad
71.1
3.5
(8.3)
66.3
106.5
8.2
(85.4)
9.1
(8.6)
96.1
(4.0)
0.6
(19.1)
73.6
Africa
71.1
3.5
(8.3)
66.3
-
9.6
-
-
(8.1)
67.7
(4.7)
0.6
(14.1)
49.5
Total
synthetic
oil
equivalent
in Brazil
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total for all
products
71.1
3.5
(8.3)
66.3
106.5
8.2
(85.4)
9.1
(8.6)
96.1
(4.0)
0.6
(19.1)
73.6
(1) In 2018, total proved reserves includes 67.7 million barrels of oil equivalent related to PO&G assets held for sale. In 2019, total proved reserves includes 49.5 million barrels of oil equivalent
related to PO&G assets held for sale.
(2) Amounts transferred from consolidated entities to equity method investees, as the Company concluded the operation that has resulted in the formation of a joint venture company ("JV"), of
which Murphy Exploration & Production Company ("Murphy" ) has 80% stake and Petrobras America Inc ("PAI") 20% stake.
(*) Apparent differences in the sum of the numbers are due to rounding off.
F-139
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Proved developed and undeveloped reserves -
Consolidated and Equity Method Investees (*)
Reserves at December 31, 2016
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Production for the year
Reserves at December 31, 2017 (1)
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2018 (1)
Revisions of previous estimates
Extensions and discoveries
Sales of reserves
Production for the year
Reserves at December 31, 2019 (1)
Oil
equivalent
in Brazil
9,462.0
635.7
75.4
246.7
(891.0)
9,528.8
465.6
331.3
258.8
(282.4)
-
(834.9)
9,467.1
954.7
20.1
(72.3)
(890.0)
9,479.6
South
America
19.8
3.5
7.1
-
(2.6)
27.9
-
12.3
-
-
-
(3.0)
37.2
(7.0)
-
-
(2.8)
27.4
North
America
111.0
27.2
-
-
(16.7)
121.5
(1.4)
-
-
(85.4)
9.1
(15.4)
28.4
0.7
-
-
(4.9)
24.2
Abroad
Total oil
equivalent
abroad
201.8
34.3
7.1
-
(27.7)
215.6
8.2
12.3
-
(85.4)
9.1
(26.5)
133.3
(11.0)
0.6
-
(21.9)
101.1
Africa
71.1
3.5
-
-
(8.3)
66.3
9.6
-
-
-
-
(8.1)
67.7
(4.7)
0.6
-
(14.1)
49.5
Total
synthetic
oil
equivalent
in Brazil
8.3
0.2
-
-
(1.2)
7.4
(0.4)
-
-
-
-
(1.2)
5.8
-
4.9
-
(1.0)
9.7
Total for all
products
9,672.2
670.1
82.5
246.7
(919.8)
9,751.7
473.3
343.6
258.8
(367.8)
9.1
(862.6)
9,606.2
943.7
25.6
(72.3)
(912.8)
9,590.4
(1) In 2017, total proved reserves includes 292.7 million barrels of oil equivalent related to assets held for sale in Brazil; in 2018, includes 67.7 million barrels of oil equivalent related to PO&G assets
held for sale in Africa; and in 2019, includes 49.5 million barrels of oil equivalent related to assets held for sale in Africa.
(*) Apparent differences in the sum of the numbers are due to rounding off.
In 2019, we incorporated 943.7 million boe of reserves proved by revisions of previous estimates, composed of:
(i) addition of 529.1 million boe due to technical reviews, mainly associated with good performance and increased
production experience of pre-salt reservoirs in the Santos Basin;
(ii) addition of 266.8 million boe referring to contractual revisions, including the reallocation of volumes due to the
revision of the Transfer of Rights agreement, and the extension of concession contracts in Brazil;
(iii) addition of 242.6 million boe due to the approval of new projects in the Santos, Campos and Espírito Santo Basins;
and
(iv) a 94.8 million boe reduction due to economic revisions, mainly due to the price reduction.
We also incorporated 25.6 million boe into our proved reserves due to discoveries and extensions, mainly in the Santos
Basin pre-salt, and reduced 72.3 million boe from our proved reserves due to proved reserve sales.
Considering the production of 912.8 million boe in 2019 and the variations above, the company's total proved reserve
resulted in 9,590.4 million boe in 2019. Production refers to volumes that were included in our reserves and, therefore,
does not consider natural gas liquids, since the reserve is estimated at a reference point prior to gas processing, except
in the United States and Argentina. The production also does not consider volumes of injected gas, the production of
Extended Well Tests in exploratory blocks and production in Bolivia, since the Bolivian Constitution does not allow the
disclosure of reserves.
In 2018, we incorporated 473.3 million boe of proved reserves by revising of previous estimates, including 233.5 million
boe due to economic revisions, mainly due to the increase in prices, and 239.9 million boe due to technical revisions,
mainly due to the good performance of reservoirs in the pre-salt layer of Santos and Campos basins, both in Brazil. In
addition, we added 258.8 million boe in our proved reserves resulting from positive responses from improved recovery
(water injection), and added 343.6 million boe in our proved reserves due to extensions and discoveries, mainly in the
pre-salt of Santos basin.
F-140
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
We reduced 367.8 million boe of our proved reserves due to sales of reserves and increased 9.1 million boe in our proved
reserves due to purchases of reserves, resulting in a net effect of a decrease of 358.7 million boe in our proved reserves.
Considering a production of 862.6 million boe in 2018 and changes above, the company total proved reserves resulted
in 9,606.2 million boe. This 862.6 million boe production volume is the net volume withdrawn from our proved reserves.
Therefore, exclude NGL (except for North America), as we estimate our oil and gas reserves at a reference point prior to
the gas processing plants, and does not consider the production of Extended Well Tests (EWTs) in exploratory blocks
and production in Bolivia, since the Bolivian Constitution prohibits the disclosure and registration of its reserves.
In 2017, we incorporated 670.1 million boe of proved reserves by revising of previous estimates, including 355.4 million
boe due to economic revisions, mainly due to the increase in prices, and 314.7 million boe due to technical revisions,
mainly due to better than forecasted behavior from reservoirs, in the pre-salt layer of Santos and Campos basins, both
in Brazil. In addition, we added 246.7 million boe in our proved reserves resulting from positive responses from improved
recovery (water injection), and added 82.5 million boe in our proved reserves due to extensions and discoveries, mainly
in the pre-salt of Santos basin.
Considering a production of 919.8 million boe in 2017, the company total proved reserves resulted in 9,751.7 million
boe. This 919.8 million boe production does not consider the production of Extended Well Tests (EWTs) in exploratory
blocks and production in Bolivia, since the Bolivian Constitution prohibits the disclosure and registration of its reserves.
The tables below show the volumes of proved developed and undeveloped reserves, net, that is, reflecting Petrobras'
participation:
F-141
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Net proved developed reserves (*):
Consolidated Entities
Brazil
South America, outside Brazil
North America
Total Consolidated Entities
Equity Method Investees
Africa
Total Equity Method Investees
Total Consolidated and Equity Method Investees (1)
Net proved undeveloped reserves (*):
Consolidated Entities
Brazil
South America, outside Brazil
North America
Total Consolidated Entities
Equity Method Investees
Africa
Total Equity Method Investees
Total Consolidated and Equity Method Investees (1)
Total proved reserves (developed and undeveloped)
Crude Oil
Synthetic Oil
Natural Gas
Synthetic Gas Total oil and gas
(mmbbl)
(bncf)
(mmboe)
2017
4,282.2
0.7
72.1
4,355.0
29.6
29.6
4,384.6
3,967.2
0.5
42.6
4,010.2
33.8
33.8
4,044.0
8,428.6
6.0
−
−
6.0
−
−
6.0
−
−
−
−
−
−
−
6.0
4,515.9
56.7
24.2
4,596.8
9.3
9.3
4,606.0
3,160.2
103.5
16.7
3,280.5
8.0
8.0
3,288.5
7,894.5
8.1
−
−
8.1
−
−
8.1
−
−
−
−
−
−
−
8.1
5,042.2
10.2
76.1
5,128.5
31.1
31.1
5,159.6
4,493.9
17.7
45.3
4,557.0
35.1
35.1
4,592.1
9,751.7
(1) It includes amounts related to assets held for sale (191.9 million barrels of oil and 131.8 billion cubic feet of natural gas in net proved developed reserves and 71.9 million barrels of oil and 41.9
billion cubic feet of natural gas in net proved undeveloped reserves) in Brazil.
(*) Apparent differences in the sum of the numbers are due to rounding off.
F-142
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Net proved developed reserves (*):
Consolidated Entities
Brazil
South America, outside Brazil
Total Consolidated Entities
Equity Method Investees
North America (2)
Africa
Total Equity Method Investees
Total Consolidated and Equity Method Investees (1)
Net proved undeveloped reserves (*):
Consolidated Entities
Brazil
South America, outside Brazil
Total Consolidated Entities
Equity Method Investees
North America (2)
Africa
Total Equity Method Investees
Total Consolidated and Equity Method Investees (1)
Total proved reserves (developed and undeveloped)
Crude Oil
Synthetic Oil
Natural Gas
Synthetic Gas Total oil and gas
(mmbbl)
(bncf)
(mmboe)
2018
4,339.5
1.0
4,340.5
20.0
30.9
51.0
4,391.5
3,829.2
0.5
3,829.7
6.5
28.9
35.4
3,865.1
8,256.6
4.8
−
4.8
−
−
−
4.8
−
−
−
−
−
−
−
4.8
4,807.0
83.5
4,890.5
8.3
27.6
35.9
4,926.4
2,983.5
130.6
3,114.1
2.5
19.7
22.2
3,136.3
8,062.7
5.7
−
5.7
−
−
−
5.7
−
−
−
−
−
−
−
5.7
5,146.4
15.0
5,161.4
21.4
35.5
56.9
5,218.3
4,326.4
22.3
4,348.7
6.9
32.2
39.1
4,387.9
9,606.2
(1) It includes amounts related to assets held for sale (30.9 million barrels of oil and 27.6 billion cubic feet of natural gas in net proved developed reserves and 28.9 million barrels of oil and 19.7
billion cubic feet of natural gas in net proved undeveloped reserves) in Africa (PO&G).
(2) North America oil reserves includes 4.2% of natural gas liquid (NGL) in proved developed reserves and 3.6% of NGL in proved undeveloped reserves.
(*) Apparent differences in the sum of the numbers are due to rounding off.
F-143
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Net proved developed reserves (*):
Consolidated Entities
Brazil
South America, outside Brazil (2)
Total Consolidated Entities
Equity Method Investees
North America (2)
Africa
Total Equity Method Investees
Total Consolidated and Equity Method Investees (1)
Net proved undeveloped reserves (*):
Consolidated Entities
Brazil
South America, outside Brazil (2)
Total Consolidated Entities
Equity Method Investees
North America (2)
Africa
Total Equity Method Investees
Total Consolidated and Equity Method Investees (1)
Total proved reserves (developed and undeveloped)
Crude Oil
Synthetic Oil
Natural Gas
Synthetic Gas Total oil and gas
(mmbbl)
(bncf)
(mmboe)
2019
4,999.1
0.9
5,000.0
18.2
37.1
55.3
5,055.3
3,083.7
0.5
3,084.2
4.4
4.5
8.9
3,093.1
8,148.4
7.7
−
7.7
−
−
−
7.7
−
−
−
−
−
−
−
7.7
5,715.6
66.9
5,782.5
7.0
44.7
51.7
5,834.3
2,665.0
89.3
2,754.3
2.2
2.4
4.6
2,759.0
8,593.2
12.1
−
12.1
−
−
−
12.1
−
−
−
−
−
−
−
12.1
5,961.4
12.1
5,973.5
19.4
44.6
64.0
6,037.4
3,527.9
15.4
3,543.3
4.8
4.9
9.7
3,552.9
9,590.4
(1) It includes amounts related to assets held for sale (37.1 million barrels of oil and 44.7 billion cubic feet of natural gas in net proved developed reserves and 4.5 million barrels of oil and 2.4 billion
cubic feet of natural gas in net proved undeveloped reserves) in Africa (PO&G).
(2) South America oil reserves includes 20.3% of natural gas liquid (NGL) in proved developed reserves and 59.2% of NGL in proved undeveloped reserves. North America oil reserves includes 3.8 %
of natural gas liquid (NGL) in proved developed reserves and 5.3% of NGL in proved undeveloped reserves.
(*) Apparent differences in the sum of the numbers are due to rounding off.
F-144
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, 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 existing 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
current costs, assuming continuing 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.
F-145
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Standardized measure of discounted future net cash flows:
Consolidated entities
Abroad
South
America
North
America
Total
Total
Equity
Method
Investees (3)
4,045
(1,349)
(515)
(438)
1,743
(332)
1,412
5,998
(1,570)
(520)
(1,006)
2,903
(613)
2,290
3,487
(857)
(524)
(339)
1,768
(474)
December 31, 2019
Future cash inflows
Future production costs
Future development costs
Future income tax expenses
Undiscounted future net cash flows
10 percent midyear annual discount for timing of
estimated cash flows (1)
Standardized measure of discounted future net
cash flows
December 31, 2018
Future cash inflows
Future production costs
Future development costs
Future income tax expenses
Undiscounted future net cash flows
Brazil (2)
535,788
(272,381)
(34,346)
(86,012)
143,049
(54,928)
88,121
601,754
(269,942)
(34,119)
(111,522)
186,171
609
(285)
(141)
(31)
152
(83)
69
1,112
(425)
(218)
(91)
379
10 percent midyear annual discount for timing of
estimated cash flows (1)
Standardized measure of discounted future net
cash flows
(75,050)
(194)
111,121
185
-
-
-
-
-
-
-
-
-
-
-
-
-
-
609
(285)
(141)
(31)
152
536,397
(272,666)
(34,487)
(86,044)
143,200
(83)
(55,010)
69
88,190
1,112
(425)
(218)
(91)
379
602,866
(270,367)
(34,337)
(111,613)
186,549
(194)
(75,244)
185
111,305
December 31, 2017
Future cash inflows
Future production costs
Future development costs
Future income tax expenses
Undiscounted future net cash flows
439,058
(213,037)
(46,731)
(63,087)
116,204
912
(412)
(147)
(89)
265
5,361
(2,291)
(649)
(86)
2,335
6,274
(2,703)
(796)
(175)
2,600
445,332
(215,740)
(47,527)
(63,262)
118,803
10 percent midyear annual discount for timing of
estimated cash flows (1)
(52,516)
(138)
(707)
(845)
(53,361)
Standardized measure of discounted future net
cash flows
(1) Semiannual capitalization
(2) Includes the amount of US$ 1,770 million related to assets classified as held for sale in 2017.
(3) Includes the amount of US$ 1,675 million related to PO&G assets classified as held for sale in 2018. Includes the amount of US$ 1,047 million related to PO&G assets classified as held for sale in
(*) Apparent differences in the sum of the numbers are due to rounding off.
65,442
63,687
1,755
1,628
126
1,294
F-146
Petróleo Brasileiro S.A. – Petrobras
Supplementary information on Oil and Gas Exploration and Production (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Changes in discounted net future cash
Balance at January 1, 2019
Sales and transfers of oil and gas, net of production
cost
Development cost incurred
Net change due to purchases and sales of minerals
in place
Net change due to extensions, discoveries and
improved recovery 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
Other - unspecified
Balance at December 31, 2019
Balance at January 1, 2018
Transfers by loss of control (3)
Sales and transfers of oil and gas, net of production
cost
Development cost incurred
Net change due to purchases and sales of minerals
in place
Net change due to extensions, discoveries and
improved recovery related costs
Brazil (1)
111,121
(34,522)
6,819
(1,387)
385
18,317
(34,114)
(5,324)
11,112
15,714
-
88,121
63,687
-
(31,429)
9,685
(4,773)
11,284
10,688
185
(65)
6
-
-
(44)
(145)
60
25
41
7
69
126
-
(76)
32
-
123
-
South
America
North
America
Consolidated entities
Abroad
Total
185
(65)
6
Total
111,305
(34,587)
6,825
-
(1,387)
-
(44)
(145)
60
25
41
7
69
1,755
(1,428)
(921)
261
385
18,273
(34,259)
(5,265)
11,137
15,755
7
88,190
65,442
(1,428)
(32,350)
9,946
Equity
Method
Investees (2)
2,290
(792)
150
-
-
8
(505)
(97)
244
363
(249)
1,412
1,294
1,428
(369)
252
-
-
-
-
-
-
-
-
-
-
-
-
1,628
(1,428)
(844)
229
-
-
(4,773)
(1,770)
-
-
123
-
11,407
10,688
44
(76)
19
(4)
(4)
185
98
383
(118)
150
-
-
-
830
427
(194)
169
(4)
(4)
185
927
72,662
1,857
6,369
(28,910)
-
111,121
34,424
73,089
1,664
6,537
(28,914)
(4)
111,305
35,351
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
Other - unspecified
Balance at December 31, 2018
Balance at January 1, 2017
Sales and transfers of oil and gas, net of production
cost
Development cost incurred
Net change due to purchases and sales of minerals
in place
Net change due to extensions, discoveries and
improved recovery 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
Other - unspecified
Balance at December 31, 2017
(1) In 2017, total proved reserves includes 263.7 million barrels related to assets held for sale.
(2) Amounts transferred from consolidated entities to equity method investees, as the Company concluded the operation that has resulted in the formation of a joint venture company ("JV"), of
which Murphy Exploration & Production Company ("Murphy" ) has 80% stake and Petrobras America Inc ("PAI") 20% stake.
(*) Apparent differences in the sum of the numbers are due to rounding off.
50,326
(15,878)
3,442
(9,237)
-
63,687
51,064
(16,053)
3,532
(9,257)
16
65,442
735
(144)
76
(2)
25
1,628
738
(175)
90
(20)
16
1,755
3
(31)
14
(18)
(9)
126
(23,394)
11,553
(24,018)
11,806
4,187
8,264
4,256
8,744
(624)
253
(564)
230
(60)
23
69
480
-
443
69
37
-
-
-
-
-
-
50
1,740
(93)
129
(489)
119
2,290
583
(261)
294
-
-
51
494
(25)
58
(92)
190
1,294
F-147
Petróleo Brasileiro S.A. – Petrobras
Supplementary information – General public concerned under Law 13.303/16 (unaudited)
(Expressed in millions of US Dollars, unless otherwise indicated)
Additional information of general public concern – Law 13.303/16 (unaudited)
In order to comply with rules of disclosure about the activities that, in accordance with the requirements of article 3 of
Petrobras' Bylaws, are related to the achievement of public interest purposes under conditions different from those of
any other private sector company operating in the same market, we summarize below the commitments in effect in the
year 2018.
I – Priority Thermoelectric Program – (Programa Prioritário de Termeletricidade- PPT)
On February 24, 2000, the Brazilian federal government enacted the Decree No. 3.371 governing the implementation of
thermoelectric power plants in Brazil through the Priority Thermoelectric Program (PPT). The thermoelectric power
plants in the scope of this program were entitled to supply natural gas for up to 20 years with a pre-established price
indexed to the U.S. inflation. The gas supply for the plants included in this program, in 2019, generated revenues of
approximately US$ 306 and costs of US$ 581. As of December 31, 2019, the company had two plants in the scope of this
program plus one plant, which supply of natural gas occurs by virtue of a court order.
II– National Program for Rationalization of the Use of Oil and Gas Products – (Programa Nacional de Racionalização
do Uso dos Derivados do Petróleo e do Gás Natural – CONPET)
On February 18, 1991, the Brazilian federal government established the National Program for Rationalization of the Use
of Oil and Gas Products (CONPET), which was intended to develop an anti-waste culture in the use of non-renewable
natural resources. The Company is also a member of the Brazilian Labeling Program (Programa Brasileiro de
Etiquetagem- PBE) in partnership with the National Institute of Metrology, Quality and Technology (INMETRO), which
goal is to stimulate the production and use of gas appliances and vehicles with lower carbon emission, in addition of
taking part in other agreements for the elaboration of partnerships with entities for the purpose of monitoring and
guidance on vehicular emissions. In 2019, the costs associated with CONPET were immaterial.
F-148
4
FINANCIALSTATEMENTSANNUAL REPORT AND FORM 20-F 2019