Annual Report and
Form 20-F
2020
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2
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, 2020
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 - 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:
Petrobras Common Shares, without par value*
Petrobras American Depositary Shares, or ADSs
(evidenced by American Depositary Receipts, or ADRs), each
representing two Common Shares
Trading
Symbol(s):
PBR/PBRA
PBR/PBRA
Petrobras Preferred Shares, without par value*
PBR/PBRA
Petrobras American Depositary Shares
(as evidenced by American Depositary Receipts), each representing two
Preferred Shares
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
5.093% Global Notes due 2030, issued by PGF
5.600% Global Notes due 2031, isuued by PGF
6.875% Global Notes due 2040, issued by PGF (successor to PifCo)
6.750% Global Notes due 2041, issued by PGF (successor to Pifco)
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
6.750% Global Notes due 2050, issued by PGF
6.850% Global Notes due 2115, issued by PGF
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
PBR
Name of each exchange on which registered:
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
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
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
3
The number of outstanding shares of each class of stock as of December 31, 2020 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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report. ☒
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 ☒
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Table of Contents
DISCLAIMER ....................................................................................................................................................................................... 6
GLOSSARY .......................................................................................................................................................................................... 9
ABOUT US .................................................................................................................................................................. 18
DATASHEET ..................................................................................................................................................................................... 19
OVERVIEW ....................................................................................................................................................................................... 20
2020 HIGHLIGHTS ............................................................................................................................................................................ 24
RECENT DEVELOPMENTS ................................................................................................................................................................ 26
RISKS .......................................................................................................................................................................... 30
RISK FACTORS .................................................................................................................................................................................. 31
CORPORATE RISK MANAGEMENT ................................................................................................................................................... 54
DISCLOSURES ABOUT MARKET RISK ................................................................................................................................................ 55
INSURANCE ..................................................................................................................................................................................... 56
EMERGING RISKS ............................................................................................................................................................................. 57
OUR BUSINESS ........................................................................................................................................................... 61
EXPLORATION AND PRODUCTION ................................................................................................................................................... 62
REFINING, TRANSPORTATION AND MARKETING ............................................................................................................................ 92
GAS AND POWER .......................................................................................................................................................................... 117
PORTFOLIO MANAGEMENT .......................................................................................................................................................... 141
EXTERNAL BUSINESS ENVIRONMENT ............................................................................................................................................ 146
OUR RESPONSES TO THE COVID-19 PANDEMIC ............................................................................................................................ 154
STRATEGIC PLAN ...................................................................................................................................................... 158
2021-2025 STRATEGIC PLAN ......................................................................................................................................................... 159
DIGITAL TRANSFORMATION .......................................................................................................................................................... 172
ENVIRONMENT, SOCIAL AND GOVERNANCE ........................................................................................................... 183
ENVIRONMENT .............................................................................................................................................................................. 184
SOCIAL RESPONSIBILITY ................................................................................................................................................................ 192
CORPORATE GOVERNANCE ........................................................................................................................................................... 197
OPERATING AND FINANCIAL REVIEW AND PROSPECTS ............................................................................................. 204
CONSOLIDATED FINANCIAL PERFORMANCE ................................................................................................................................. 205
FINANCIAL PERFORMANCE BY BUSINESS SEGMENT ..................................................................................................................... 218
LIQUIDITY AND CAPITAL RESOURCES ............................................................................................................................................ 222
OTHER INFORMATION ................................................................................................................................................................... 235
MANAGEMENT AND EMPLOYEES ............................................................................................................................. 237
MANAGEMENT .............................................................................................................................................................................. 238
EMPLOYEES ................................................................................................................................................................................... 260
COMPLIANCE AND INTERNAL CONTROLS .................................................................................................................. 271
COMPLIANCE ................................................................................................................................................................................. 272
RELATED PARTY TRANSACTIONS ................................................................................................................................................... 277
CONTROLS AND PROCEDURES ...................................................................................................................................................... 279
OMBUDSMAN AND INTERNAL INVESTIGATIONS .......................................................................................................................... 281
SHAREHOLDER INFORMATION ................................................................................................................................. 282
LISTING .......................................................................................................................................................................................... 283
SHARES AND SHAREHOLDERS ....................................................................................................................................................... 285
SHAREHOLDERS’ RIGHTS ............................................................................................................................................................... 290
DIVIDENDS ..................................................................................................................................................................................... 296
ADDITIONAL INFORMATION FOR NON-BRAZILIAN SHAREHOLDERS ............................................................................................. 301
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LEGAL AND TAX ........................................................................................................................................................ 304
REGULATION ................................................................................................................................................................................. 305
MATERIAL CONTRACTS ................................................................................................................................................................. 314
LEGAL PROCEEDINGS .................................................................................................................................................................... 320
TAX ................................................................................................................................................................................................ 329
ADDITIONAL INFORMATION ..................................................................................................................................... 352
LIST OF EXHIBITS ........................................................................................................................................................................... 353
SIGNATURES .................................................................................................................................................................................. 359
ABBREVIATIONS ............................................................................................................................................................................ 360
CONVERSION TABLE ...................................................................................................................................................................... 361
CROSS REFERENCE TO FORM 20-F ................................................................................................................................................ 362
FINANCIAL STATEMENTS .......................................................................................................................................... 365
DISCLAIMER
Disclaimer
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In order to present information to investors in a manner more consistent with how we
view our business, last year we altered the structure and order of the disclosure in our
annual report on Form 20-F. In this annual report on Form 20-F for the year ended
December 31, 2020 (referred to herein as our “annual report”), we have included a cross
reference guide to SEC Form 20-F under “Cross-Reference to Form 20-F”, in order to
facilitate your review.
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”).
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
This annual report includes forward-looking statements that are not based on historical
facts and are not assurances 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 exploration and production activities, including drilling;
_ our activities related to refining, import, export, transportation of oil, natural gas and
oil products, petrochemicals, power generation, biofuels and other sources of
renewable energy;
_ our projected and targeted Capital Expenditures, commitments and revenues;
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
DISCLAIMER
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_ our liquidity and sources of funding;
_ our pricing strategy and development of additional revenue sources; and
_ the impact, including cost, of acquisitions and divestments.
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 ability to find, acquire or gain access to additional reserves and to develop our
current reserves successfully;
_ uncertainties inherent in making estimates of our oil and gas reserves, including
recently discovered oil and gas reserves;
_ 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, including the
role of the Brazilian government, as our controlling shareholder, in our business;
_ natural disasters, accidents, military operations, acts of sabotage, wars or embargoes;
_ global health crises, such as the Covid-19 pandemic;
_ the cost and availability of adequate insurance coverage;
_ our ability to successfully implement asset sales under our portfolio management
program;
_ our ability to succesfully implement our Strategic Plan, whether that Strategic Plan
remains in place, and the direction of any subsequent strategic plans;
_ 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;
_ potential changes to the composition of our Board of Directors and our management
team; and
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
DISCLAIMER
8
_ 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 any other reason.
The crude oil and natural gas reserve data presented 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 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 unaudited consolidated interim financial
statements and other financial information of our company.
We also file audited consolidated financial statements, unaudited consolidated interim financial
information and other periodic reports with the CVM.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
Glossary
—
9
GLOSSARY OF CERTAIN TERMS USED IN THIS ANNUAL REPORT
Unless the context indicates otherwise, the following terms are defined as follows:
ACL
ACR
ADR
ADS
Amex Oil
AMS
ANP
API
B3
BioQav
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) 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.
Brasil, Bolsa, Balcão, the Brazilian 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.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
Biofuel
Barrels
BNDES
Braskem
10
Standard measure of crude oil volume.
Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social).
Braskem S.A. is currently the largest producer of thermoplastic resins in the Americas and the
largest producer of polypropylene in the United States. Its production focuses on polyethylene
(PE), polypropylene (PP) and polyvinylchloride (PVC) resins, in addition to basic chemical inputs
such as ethylene, propylene, butadiene, benzene, toluene, chlorine, soda, and solvents, among
others. Together, they make up one of the most comprehensive portfolios in the industry by also
including the green polyethylene produced from the sugarcane, from 100% renewable sources.
Brazilian Treasury
The Brazilian 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 (Conselho Administrativo de Defesa
Econômica)
Câmara de Arbitragem do
Mercado
Capital Expenditures or
“CAPEX”
An arbitration chamber governed and maintained by B3.
Capital expenditures 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.
CEO
CFO
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.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
CGU
CMN
CNODC
CNOOC
11
The Controladoria Geral da União (General Federal Inspector’s Office) 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) 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.
Condensate
Hydrocarbons that are in the gaseous phase at reservoir conditions but condense into liquid as
they travel up the wellbore and reach separator conditions.
COMPERJ
CONAMA
CNPE
CVM
D&M
The Complexo Petroquímico do Rio de Janeiro (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) 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).
DeGolyer and MacNaughton, an independent petroleum engineer consulting firm that conducts
reserves evaluation of part of our net proved crude oil, condensate and natural gas reserves.
Deepwater
Between 300 and 1,500 meters (984 and 4,921 feet) deep.
Depositary
JPMorgan.
Distillation
The process by which liquids are separated or refined by vaporization followed by condensation.
DoJ
E&P
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.
Eletrobras
Centrais Elétricas Brasileiras S.A.
Exchange Act
Securities Exchange Act of 1934, as amended.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
EWT
Fitch
Extended well test.
Fitch Ratings Inc., a credit rating agency.
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Focus Survey
The Central Bank of Brazil carries out the Focus Survey compiling forecasts of about 140 banks,
asset managers and others institutions.
FPSO
G&P
Gaspetro
GHG
GSA
GTB
Floating production, storage and offloading unit.
Gas & Power is our business segment that 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
companies of natural gas in Brazil and abroad. It also includes natural gas processing and
fertilizer operations.
Petrobras Gás S.A. is our subsidiary and a holding company that carries out the
commercialization, import, export, storage and distribution of natural gas in Brazil. It
consolidates our equity interests in 19 of the 27 state natural gas distributors, with Mitsui
holding the remaining 49% interest.
Greenhouse gas.
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.
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 fuel 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).
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
13
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 was created in 1968.
Inovar-Auto
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.
IMO
IOF
IPCA
JPMorgan
Lava Jato
LIBOR
LNG
LPG
MME
Moody’s
ME
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 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)
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 hydro treaters or coking units, for example, do increase complexity.
NGL
The liquid resulting from the processing of natural gas and containing the heavier gaseous
hydrocarbons.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
NYSE
OCF
Oil
The New York Stock Exchange.
Operating Cash Flow (net cash provided by operating activities).
Crude oil, including NGLs and condensates.
14
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 derived from our audited consolidated financial
statements.
Organic Reserves
Replacement Ratio or
Organic RRR
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.
OSRL
OTC
The Oil Spill Response Limited.
Offshore Technology Conference.
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
Property, plant and equipment.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
15
PPSA
Pré-Sal Petróleo S.A.
Pre-salt Polygon
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
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.
Proved developed
reserves
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.
Proved undeveloped
reserves
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.
PTAX
The reference exchange rate for the purchase and sale of U.S. dollars in Brazil, as published by
the Central Bank of Brazil.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
R&D
RNEST
Refining
16
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.
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
SEC
SELIC
Standard & Poor’s Financial Services LLC, a credit rating agency.
The United States Securities and Exchange Commission.
The Central Bank of Brazil base interest rate.
Sete Brasil
Sete Brasil Participações, S.A.
Shell
Shell Brasil Petróleo Ltda.
Synthetic oil and
synthetic gas
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.
SPE
SS
Society of Petroleum Engineers.
Semi-submersible platform.
Strategic Plan
2021-2025 Strategic Plan
TAG
Transportadora Associada de Gás S.A. is a company operating in the natural gas transportation
industry, currently holding long-term permits to operate and manage a 4,500 km gas pipeline
system, located mainly in the North and Northeast regions of Brazil, with installed capacity of 75
million m³/d.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
GLOSSARY
TCU
TBG
TJLP
Total
17
The Tribunal de Contas da União (Federal Auditor’s Office) 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. is a company operating in the natural gas
transportation industry, currently holding long-term permits to operate and manage a 2,593 km
gas pipeline system, located mainly in the South and Southeast regions of Brazil, with installed
capacity of 30 million m³/d. Transportadora Brasileira Gasoduto Bolívia-Brasil S.A. is connected to
GTB, which permits access to Bolivian natural gas.
The Brazil long-term interest rate (Taxa de Juros de Longo Prazo) 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.
TRI
Total recordable injury per million man-hour frequency rate.
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.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
18
About us
ABOUT US
19
About us
—
We are a Brazilian company with over 49,000 employees committed to generate more
value for our shareholders and the society, with a focus on oil and gas, with safety and
respect for people and the environment. We are one of the largest companies in market
capitalization in Latin America, with a market capitalization of US$72.5 billion as of
December 31, 2020. 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 a large proven reserve base and have acquired expertise in 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, extraction, refining, processing, trading and
the transport of oil, its by-products, natural gas and other fluid hydrocarbon from wells, shale and other
rocks, in addition to energy-related activities, and the research, development, production, transport,
distribution, sale and trading of all forms of energy, and other related activities or similar purposes.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
20
Overview
We have a large base of proved reserves and operate and produce the majority of
Brazil’s oil and gas. The majority of our proved reserves are located in the adjacent
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.
Our business, however, goes beyond the oil and gas exploration and production. It
entails a long process through which we get the oil and gas to our refineries and gas
treatment units which themselves must be equipped and in constant evolution to
supply the best products.
We operate the majority 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. We distribute oil products through wholesalers and retailers.
We also participate in the Brazilian natural gas market, including the logistics,
distribution and processing of natural gas.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
21
To meet domestic demand, we process natural gas derived from our onshore and
offshore production (mainly from fields in the Campos, Espírito Santo and Santos
Basins), import natural gas from Bolivia and import liquefied natural gas (“LNG”)
through our regasification terminals. We also participate in the domestic power
market primarily through our investments in gas-fired, fuel oil and diesel oil
thermoelectric power plants and in renewable energy.
We currently divide our business into three main segments:
_ Exploration and Production (“E&P”): this segment covers the activities of
exploration, development and production of crude oil, Natutal Gas Liquids (“NGL”)
and natural gas in Brazil and abroad, for the primary purpose of supplying our
domestic refineries. The E&P segment also operates through partnerships with other
companies, including holding interests in non-Brazilian companies in 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 petrochemical
companies in Brazil.
_ 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
in
transportation and distribution companies of natural gas in Brazil and abroad. It also
includes natural gas processing and fertilizer operations.
interests
Activities that are not attributed to the business segments are classified as “Corporate
and Other Businesses” including, notably those related to corporate financial
management, corporate overhead and other expenses, provision for the class action
settlement, and actuarial expenses related to the pension and medical benefits for
retired employees and their dependents. It also comprises biofuels and distribution
businesses. The biofuels business covers the activities of production of biodiesel 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
(South America).
For further information regarding our business segments, see Notes 13 and 33 to our
audited consolidated financial statements, as well as “Operating and Financial Review
and Prospects” in this annual report.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
22
In 2020 we had activities in eight countries besides Brazil (i.e., Argentina, Bolivia,
Colombia, Uruguay, the U.S., Netherlands, United Kingdom and Singapore). In Latin
America, our operations include exploration and production, marketing, and retail
services, including natural gas. In North America, we produce oil and gas through a
joint venture. 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, responsible for market intelligence
and marketing of oil, oil products, natural gas, commodity derivatives and shipping.
Beginning in 2021, we will end our European trading activities in the United Kingdom
and concentrate them only in the Netherlands. In February 2021 we ended our
operational activities in Uruguay with the sale of our shares in the distribution
company.
We operate through 20 direct subsidiaries (18 incorporated 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”).
Companies
Location
Our
shareholding
Other
shareholders
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
Procurement Negócios Eletrônicos S.A.
Araucária Nitrogenados S.A.
Termomacaé S.A.
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
100%
100%
51%
100%
51%
72%
100%
100%
Breitener Energética S.A.
Brazil
94%
Termobahia S.A.
Baixada Santista Energia S.A.
Brazil
Brazil
Petrobras Comercializadora de Energia S.A. – PBEN
Brazil
Fundo de Investimento Imobiliário RB Logística – FII
Brazil
5283 Participações S.A.
Brazil
99%
100%
100%
99%
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%)
SAP Brasil Ltda. (17%)
Accenture do Brasil S.A. (11%)
—
—
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%)
—
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
23
Fábrica Carioca de Catalisadores S.A. – FCC(1)
Ibiritermo S.A.(1)
Petrobras International Braspetro – PIB BV
Braspetro Oil Services Company – Brasoil
Refinaria Mucuripe S.A.(2)
Refinaria de Manaus S.A.(2)
Paraná Xisto S.A.(2)
Refinaria Mataripe(2)
Brazil
Brazil
Abroad
Abroad
Brazil
Brazil
Brazil
Brazil
50%
50%
100%
100%
100%
100%
100%
100%
Albemarle Brazil Holding Ltda.
(50%)
Edison S.p.A (50%)
—
—
—
—
—
—
(1)
(2)
Joint operations.
Companies legally established, with capital contribution of US$ 58.000 for each company, for the subsequent divestment of these refineries.
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 and Note 30 to our Financial Statements. Additionally,
we participate in consortia that engage in the exploration of blocks and the
production of oil fields in Brazil – see “Our Business, E&P, Overview” for more details.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
24
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
25
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
26
Recent Developments
Pending Changes in our Senior Management and Board of
Directors
The Brazilian federal government controls a majority of our voting shares and has the
right to elect a majority of the members of our Board of Directors. Our Board of
Directors, in turn, selects our management.
On February 19, 2021, the Brazilian federal government, through the Ministry of
Mines and Energy (MME), issued a formal notice (oficio) to the Chairman of our Board
of Directors requesting that the Chairman call a general shareholders meeting for the
election of Directors. The notice designated Joaquim Silva e Luna to replace Roberto
da Cunha Castello Branco as a Director, based on the Brazilian federal government’s
power to remove members of the Board of Directors. It also requested the Board of
Directors to subsequently consider and elect Mr. Silva e Luna to replace Mr. Castello
Branco as our CEO. Media reports have suggested that the decision to replace Mr.
Castello Branco was related to our February 2021 announcement of increases in
prices for diesel and gasoline products.
Under Brazilian law, the removal of a Director elected by cumulative voting
automatically results in the removal of all other Directors elected through the same
mechanism. Mr. Castello Branco and seven other Directors were elected by
cumulative voting in the July 2020 Ordinary Shareholders Meeting. The MME notice
proposed that, at the meeting to replace Mr. Castello Branco, the other Directors be
re-elected for the balance of their terms. However, five of the seven have since
announced that they would not accept their nomination for the election (João Cox
Neto, Nivio Ziviani, Paulo Cesar de Souza e Silva, Omar Carneiro da Cunha Sobrinho
and Leonardo Pietro Antonelli).
On March 5, 2021, the Brazilian federal government, through MME and the Ministry
of Economy, designated six individuals for election to the Board of Directors: Eduardo
Bacellar Leal Ferreira (for Chairman of the Board), Joaquim Silva e Luna, Ruy Flaks
Schneider, Márcio Andrade Weber, Murilo Marroquim de Souza and Sonia Julia
Sulzbeck Villalobos.
On March 8, 2021, minority shareholders designated Leonardo Pietro Antonelli for a
Board position in the event that the election is conducted using cumulative voting.
Under Brazilian law, the election of our Board members must be by cumulative voting
if requested by holders of at least 5% of the outstanding shares. If cumulative voting
is adopted, the Brazilian federal government may not be able to elect all of its
designees in the general shareholders meeting.
On March 10, 2021, the Brazilian federal government, through MME, designated two
more individuals for election to the Board of Directors: Cynthia Santana Silveira and
Ana Silvia Corso Matte. These additional designations completed the list of eight
nominees by the Brazilian federal government.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
27
On March 11, 2021, our Board of Directors called an Extraordinary General Meeting,
to be held on April 12, 2021, for the election of eight Directors.
Continuing Uncertainty Concerning our Senior Management
and Board of Directors
The election of our Board of Directors will take place at the Extraordinary General
Meeting to be held on April 12, 2021. This meeting may provide more definition about
the future of Petrobras, the composition of our Board of Directors and our
management team. However, the situation is changing rapidly and there can be no
certainty as to the outcome of that meeting, the composition of our Board of
Directors or our management team.
For a current list of our Executive Officers and Board of Director members as of the
date of this annual report, see “Management and Employees – Management” and
“Management and Employees – Executive Officers” in this annual report.
It is possible that members of our Board of Directors may resign prior to the
Extraordinary General Meeting. Our CEO is expected to depart once his removal is
approved by a majority of votes at the Extraordinary General Meeting. It is also
possible that our CFO and other members of our senior management may depart,
whether by termination or resignation, after the Extraordinary General Meeting. On
March 24, 2021, four of our executive officers, Andrea Almeida, Chief Financial and
Investor Relations Officer, Carlos Alberto Pereira de Oliveira, Chief Exploration and
Production Officer, André Chiarini, Chief Trading and Logistics Officer, and Rudimar
Andreis Lorenzatto, Chief Production Development Officer, informed our Board that
they do not intend to renew their respective terms in such positions. Although their
terms expired on March 20, 2021, they will continue to serve until their successors
are appointed, in accordance with Brazilian law. On March 24, 2021, our Board
approved the appointment of Salvador Dahan as our new Chief Governance and
Compliance Officer, to be effective following completion of all internal processes. If
there are vacancies at the Board of Directors or in senior management, it is possible
that such positions will not be filled promptly.
The potential changes to the composition of our Board of Directors and our
management team may result in significant additional uncertainty. It is difficult to
predict the future strategic, business or policy decisions or views that any newly-
elected members of our Board of Directors or our management team may take or
have, and we cannot predict how this will affect our business, our results of
operations and our financial condition, which could in turn adversely affect the value
of our securities.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
28
Potential Changes to our Strategic Plan and our Pricing Policies
Our Strategic Plan consists of our continuous evaluation of the business environment
and the implementation of our strategies, allowing for adjustments to be made in a
more efficient way. See “Strategic Plan—2021-2025 Strategic Plan” in this annual
report. The recent developments described above, including any changes to our
Board of Directors and our management team, may affect not only our ability to
implement our Strategic Plan, but whether that Strategic Plan remains in place, as
well as the direction of any subsequent strategic plans, including decisions related to
the management of our operations and investments.
Our current pricing policy in Brazil takes into account domestic market conditions and
seeks to align the price of oil products with international prices. Specifically, diesel oil,
gasoline, LPG, jet fuel, fuel oil and other minor product prices are defined taking into
account the international import parity price, margins to remunerate the risks
inherent in our operations and the level of market share.
In 2021, we raised fuel prices according to international price parity as global oil prices
surged. Although we announced increases in fuel prices in early March, on March 24,
2021, we announced that we would decrease wholesale diesel prices by 4.2% and
wholesale gasoline prices by 4.4%, effective on March 25, 2021. For more
information, see “Risks—Financial Risks—Our cash flow and profitability are exposed
to the volatility of prices of oil, gas and oil products” and “Our Business—Refining,
Transportation and Marketing—Marketing—Oil products prices.” The Brazilian
federal government has recently made statements regarding the need to modify and
adjust our pricing policy for domestic conditions.
In February 2021, the Brazilian federal government announced, for a two-month
period, changes in state fuel taxes, and in March 2021, announced that it would
eliminate federal taxes on diesel fuel (for two months) and residential LPG.
In view of the statements made by the Brazilian President and the recent
developments described above, the new CEO, the new management team or the new
Board of Directors may propose changes to our pricing policies, including a decision
that such policies will not seek for alignment with international price parity. Changes
to our fuel pricing policy could have a material adverse effect on our business and
prospects, our results of operations and our financial condition, which could in turn
adversely affect the value of our securities.
Lava Jato Investigation
In 2021, the Brazilian Supreme Court started to decide cases brought by criminal
defendants in Lava Jato proceedings aimed at nullifying criminal convictions relating
to the investigation. These cases are still in progress and their outcomes may affect
our interests. For more information, see “Risks–Risk Factors—We may face additional
proceedings related to the Lava Jato investigation” and “Legal and Tax–Legal
Proceedings–Lava Jato Investigation” in this annual report.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ABOUT US
29
Risk Factors
The recent developments described above may materially and adversely impact our
business, prospects, results of operations and financial condition, and the value of our
securities. The role of the Brazilian federal government as our controlling shareholder
presents specific risks for investors. For more information, see “Risks—Government
Ownership and Country Risks” in this annual report.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
30
Risks
RISKS
Risks
—
31
The nature of our operations exposes us to a number of 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) operational risks, (ii) financial risks, and (iii)
compliance, legal and regulatory risks. We also describe herein the risks arising from
the government ownership and country risks, as well as debt and equity securities risks.
Risk Factors
Operational 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, may result in various
damages such as death, and serious environmental damage, and may impact our
workforce or communities. They may cause 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
for cleaning, repairing or remedying the damages caused.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
RISKS
32
We are also exposed to corporate security risks from acts of intentional interference by
third parties in our downstream areas and 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, public health
epidemics and pandemics such as the Covid-19 outbreak could cause health restrictions
to our workforce and, therefore, impact the operation of some of our facilities,
including our platforms, refineries, terminals, among others. This condition could have
a negative impact on our results and financial condition. Finally, due to risks such as
those mentioned above, we may face difficulties in obtaining or maintaining operating
licenses and may suffer damages to our image and reputation.
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 current Strategic
Plan or any subsequent plans adopted.
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 in our business, we may encounter adverse effects
on our results and operations.
Additionally, in the upstream segment, we may not be successful in acquiring
exploration blocks in future bidding rounds if our competitors are able to bid based on
better cost and capital structures than us. In that case, we may therefore have difficulty
in repositioning our portfolio towards upstream assets that offer higher profitability
and competitive advantage, especially in the pre-salt layer, which could negatively
affect our results.
In addition, changes in the regulatory framework and inquiries regarding compliance
with antitrust and competition laws may subject us to penalties, business restrictions
and difficulties in renewing concessions, adversely affecting our operations, results and
reputation.
In order to create a favorable environment for new investors to enter the natural gas
and refining industries in Brazil, we signed commitment agreements with the
Administrative Council for Economic Defense (CADE) and the National Petroleum,
Natural Gas and Biofuels Agency (ANP). Under the agreements, we committed to
include some of our shareholding participation in companies and assets of the gas
transportation and distribution segments in our divestment program and to renounce
some of the contracted transportation network capacity (of injection and withdrawal
volumes), which would create more competitive conditions to encourage new
economic agents to enter the downstream market. Failure to comply with these
commitment agreements may result in negative impacts such as administrative
proceedings and fines.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
RISKS
33
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, 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.
The selection and development of our investment projects have risks that may affect
our 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.
We also face specific risks for oil and gas projects. Despite our experience in the
exploration and production of oil in deepwater and ultra-deepwater and the
continuous development of studies during the planning stages, the quantity and quality
of oil produced in a certain field will only be fully known in the phases of deployment
and operation, which may require adjustments throughout the project lifecycle and its
expected rate of return.
Furthermore, decommissioning projects have grown and become more relevant to our
portfolio as concession contracts and production systems expire. With the recent
publication of Resolution ANP 817/2020, we might face some difficulties in defining the
scope of these decommissioning projects and meeting the regulation requirements,
particularly in light of our and the industry’s learning curve in this area.
Moreover, despite our experience in exploration and production, we may face new
technical challenges as we move closer to the technology frontier.
In addition, public health epidemics and pandemics such as the Covid-19 outbreak
could cause restrictions on of our workforce, partners and suppliers, that could have an
impact in the productivity of various activities.
External factors could impact the successful implementation of our partnerships and
our portfolio management.
Pursuant to our Strategic Plan, our divestment portfolio includes several assets in
different stages of the sales process, which we expect to conclude in the coming years.
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External factors, such as the decline of oil prices, exchange rate fluctuations, the
deterioration of the Brazilian economy and global economic conditions, the Brazilian
political scenario, judicial and administrative decisions, the passing of new laws, among
other unpredictable factors, may reduce, delay or hinder sale opportunities for these
assets or affect the price at which we can sell them.
Our Strategic Plan is adapted from time to time by our management; we cannot assure
you that our Strategic Plan will not be changed in the future. In the event our Strategic
Plan changes based on the decisions of the Brazilian federal government as our
controlling shareholder, our divestment plan might be revised. See “—Risks Relating to
Our Relationship with the Brazilian Federal Government—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” and “Recent
Developments” in this annual report. In addition, any changes to our Board of Directors
and our management team may affect not only our ability to implement our Strategic
Plan, but whether that Strategic Plan remains in place, as well as the direction of any
subsequent strategic plans, including decisions related to the management of our
operations and investments. See “Recent Developments” in this annual report.
If we are unable to successfully implement our planned partnerships and divestments,
or if our divestment plan is modified, this may negatively impact our business, results
and financial condition, including by potentially exposing us to short and medium-term
liquidity constraints.
Climate change could impact our results and strategy.
Climate change poses new challenges and opportunities for our business. More
stringent environmental regulations can result in the imposition of costs associated
with greenhouse gas emissions, either through environmental agency requirements
relating to mitigation initiatives or through other regulatory measures such as carbon
pricing taxation limitations on greenhouse gas emissions, which have the potential to
increase our operating costs and reduce production.
In addition, environmental laws that may be implemented in the future could increase
litigation risks and have a material adverse effect on us.
The risks associated with climate change could also include difficulties to access capital
due to public image issues with investors; changes in the consumer profile, with
reduced consumption of fossil fuels; and energy transitions in the world economy,
towards a lower carbon matrix, with the insertion of substitute products for fossil fuels
and the increasing use of electricity for urban mobility. These factors may have a
negative impact on the demand for our products and services and may jeopardize or
even impair the implementation and operation of our businesses, adversely impacting
our results and financial condition and limiting some of our growth opportunities.
Maintaining our long-term objectives for oil production depends on our ability to
successfully obtain and develop oil reserves.
Our ability to maintain our long-term objectives for oil production is highly dependent
upon our ability to obtain additional reserves and to successfully develop our existing
reserves.
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Our ability to obtain additional reserves depends upon exploration activities, which
demand significant capital investments, expose us to the inherent risks, and may not
lead to the discovery of commercially producible crude oil or natural gas reserves. We
may also obtain additional reserves by proposing and implementing new development
projects. Deepwater reservoirs exploitation demands significant investments and
involves numerous factors beyond our control, such as significant changes in economic
conditions, delays in availability of offshore equipment and critical resources, and
unexpected operational conditions, including equipment failures or incidents, that may
cause operations to be curtailed, delayed or cancelled.
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
rounds for new contracts and to explore existing contracted areas.
We are not insured against business interruption for our Brazilian operations, and
most of our assets are not insured against war or sabotage.
We generally do not maintain insurance coverage for business interruptions of any
nature for our Brazilian operations, including business interruptions caused by labor
disputes. If, for instance, our workers or those of our key third-party suppliers, vendors
and service providers were to strike, the resulting work stoppages could have an
adverse effect on us. In addition, we do not insure most of our assets against war or
sabotage. Therefore, an attack or an incident causing an interruption of our operations
could have a material adverse effect on our results and financial condition.
Additionally, our insurance policies do not cover all types of risks and liabilities related
to safety, environment, health, government fees, fines or punitive damages, which may
impact our results. There can be no guarantee that incidents will not occur in the future,
that there will be insurance to cover the damages or that we will not be held
responsible for these events, all of which may negatively impact our results.
In addition, we cannot guarantee that the amounts of insurance coverage contracted
to cover risks related to our activities will be sufficient to guarantee, in the event of a
claim, the payment of all damages caused, which may adversely affect our business and
results.
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.
Disagreements on how we manage our business, in particular divestments and their
implications for our personnel, changes in our strategy, human resources policies
regarding remuneration, benefits and headcount, employee contributions to cover the
deficit of our pension plan, implementation of regulations recently created relating to
health and pension plans and changes in labor law may lead 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.
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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.
We are susceptible to the risks of performance and product quality within our supply
chain. If our suppliers and service providers delay or fail to deliver goods and services
owed to us, we may not meet our operational goals within the expected timeframe. In
this case, we may ultimately need to postpone one or more of our projects, which may
have an adverse effect on our results and financial condition.
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
and projects.
Furthermore, disruptions due to health events such as Covid-19 could have a negative
impact on our results and on our supply chain as well.
Our projects and operations may affect, and be affected by, the expectations and
dynamics of the communities where we operate, impacting our business, image and
reputation.
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 impact and harm our
image and reputation.
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 industrial facilities that demand the use of water, ranging from large users
such as refineries to small users like distribution bases and terminals that, although not
very hydro-intensive, are logistically important within our chain. In recent years, several
regions of the world, including some regions in Brazil, have experienced events of
shortage of freshwater, including for public consumption. In case of water scarcity, the
grants pursuant to which we have the right to use water resources may be suspended
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or temporarily modified and, as a result, we may be required to reduce or suspend our
production activities, because the availability of water for public consumption and
watering of animals has priority over industrial use. This may jeopardize our business
continuity, as well as generate financial impacts on us and our image.
Developments in the economic environment and in the oil and gas industry and other
factors have resulted, and 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 circumstances require,
the carrying amount of our assets for possible impairment. Our impairment tests are
performed 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 value or cash generating unit is less than its carrying amount, an
impairment loss is recognized to reduce the carrying amount to the recoverable
amount.
Changes in the economic, regulatory, business or political environment in Brazil or
other markets where we operate, such as the recent significant decline in international
crude oil and gas prices, the depreciation of the real, as well as changes in financing
conditions, such as deterioration of risk 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.
The ability to develop, adapt, access new technologies and take advantage of
opportunities related to innovations in digital technology is fundamental to our
competitiveness.
The availability of technologies that ensure the maintenance 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 energy 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 energy market and our long-term objectives.
Our crude oil and natural gas reserve estimates involve some degree of uncertainty,
which could adversely affect 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 producible 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
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engineering data that we use to estimate our reserves are not accurate, our reserves
may be lower than the ones currently indicated in the volume estimates of our portfolio
and reported by companies that conduct an evaluation on our reserves estimates. In
addition, reserve estimates may be affected by significant changes in economic
conditions. Downward revisions in our reserve estimates indicate lower future
production, which could have an adverse effect on our results and financial condition.
We do not own any of the subsoil accumulations of crude oil and natural gas in Brazil.
Under Brazilian law, the Brazilian federal government owns all subsoil accumulations of
crude oil and natural gas in Brazil and, according to the Brazilian regulation, the
concessionaire or contracted party owns the oil and gas it produces from those subsoil
accumulations pursuant to applicable agreements executed with the Brazilian federal
government. We possess, as a concessionaire or contracted party of certain oil and
natural gas fields in Brazil, the exclusive right to develop the volumes of crude oil and
natural gas included in our reserves pursuant to concession and other agreements.
Access to crude oil and natural gas reserves is essential to an oil and gas company’s
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.
Upon completion of each divestment or partnership (post-closing stage), we must
perform integrated management and monitoring of the actions required and provided
for in the contracts related to each project, paying attention to the fulfillment of the
obligations established for the buyer and the seller. In the event of non-compliance
with these obligations, the financial adjustments between the parties may show results
different from the ones expected at the time of divestment or partnership. In addition,
as determined by the ANP in the event of total or partial sale of our participation in E&P
contracts, we remain
liable for abandonment costs after the new
concessionaire’s production closes, should it default on this task. Such joint liability
covers obligations arising prior to or after the transfer, provided that it arises from
activities carried out on a date prior to the transfer. The same is true for any
environmental liabilities.
jointly
Additionally, our sale of assets may negatively impact existing synergies or logistical
issues within our company which may adversely affect our 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 E&P project, we may be exposed to the risks
associated with those operations, including litigation (where joint liability could apply)
and the risk of government sanctions arising from such partnerships, which could have
a material adverse effect on our operations, reputation, cash flow and financial
condition.
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We have assets and investments in other countries in South America, where the
political, economic and social situation may negatively impact our business.
Although we have significantly reduced our participation abroad, we still operate and
have businesses in several countries, particularly in South America in areas where there
may be political, economic and social instabilities. In such regions, external factors may
adversely affect the results and the financial condition of our subsidiaries in these
countries, including: (i) the imposition of price controls; (ii) the imposition of
restrictions on hydrocarbon exports; (iii) the fluctuation of local currencies against the
real; (iv) nationalization of our oil and gas reserves and our assets; (v) increases in
export tax and income tax rates for oil and oil products; and (vi) unilateral
(governmental) and contractual
including controls on
investments and limitations on new projects.
institutional changes,
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 divestment plan includes the partial or total sale of our companies in the fuel
distribution segment and some of these businesses involve licensing agreements for
our brands. Once a licensee holds the right to display our brands in products, services
legitimate
and communications,
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.
it can be perceived by stakeholders as our
Financial Risks
Our cash flow and profitability are exposed to the volatility of prices of oil, gas and oil
products.
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 and pandemics (such as the Covid-19 pandemic
during 2020) could affect oil prices and demand, which, consequently, may affect our
financial results. Volatility and uncertainty in international oil prices are structural and
likely to continue. Changes in oil prices usually result in changes in the prices of oil
products and natural gas.
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Currently, diesel and gasoline prices are defined taking into account the international
import parity price, margins to remunerate the risks inherent in our operations and the
level of market share. Price adjustments can be made at any time. Since one of our
pricing objectives is to maintain fuel prices in parity with global market trends,
substantial or extended declines in international crude oil prices may have a material
adverse effect on our business, results and financial condition, and may also affect the
value of our proved reserves.Additionally, the periodicity of the fuel readjustments,
determined by us, may be revised due to exogenous factors that affect our customers,
such as the transportation sector, among others and consequently, our business.
In the past, our management has adjusted our pricing of oil, gas and oil products from
time to time. In the future, there may be periods during which our product prices will
not be at parity with international product prices. Actions of the Brazilian government,
as our controlling shareholder, could affect these pricing decisions. See “—Risks
Relating to Our Relationship with the Brazilian Federal Government—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.” We cannot guarantee that our way of setting prices will not change in the
future. As a result, when we are a net importer by volume of oil and oil products to
meet Brazilian demand, increases in the price of crude oil and oil products in the
international markets may have a negative impact on our costs of sales and margins,
since the cost to acquire such oil and oil products may exceed the price at which we are
able to sell these products in Brazil. A similar effect occurs when the real depreciates
in relation to the U.S. dollar, as we sell oil and oil products in Brazil in reais and
international prices for crude oil and oil products are set in U.S. dollars. A depreciation
of the real increases our cost of imported oil and oil products, without a corresponding
increase in our revenues unless we are able to increase the price at which we sell
products in Brazil.
The Brazilian President has, at times, made statements regarding the need to modify
and adjust our pricing policy for domestic conditions. In view of the statements made
by the Brazilian President and the recent developments described in “Recent
Developments” above, a new CEO, a new management team or Board of Directors may
propose changes to our pricing policies, including a decision that such policies will not
seek for alignment with international price parity. Changes to our fuel pricing policy
could have a material adverse impact on our businesses, results, financial condition,
and the value of our securities. See “Recent Developments” in this annual report.
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 Strategic Plan or any subsequent plan adopted.
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The loss of our investment grade credit rating and any further lowering of our credit
ratings could have adverse consequences on our ability to obtain financing in the
market through debt or equity securities, or may impact our cost of financing, also
making it more difficult or costly to refinance maturing obligations. The impact on our
ability 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.
As of December 31, 2020, 84.9% of our financial debt was denominated in currencies
other than the real. A substantial portion of our indebtedness is, and is expected to
continue to be, denominated in or indexed to the U.S. dollar and other foreign
currencies. A further depreciation of the real against any of these other currencies will
increase our debt service in reais, as the amount of reais 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 depreciation 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 U.S. dollars, 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.
As of December 31, 2020, 41.9% of our finance debt consisted of floating rate debt. We
generally do not enter into derivative contracts or similar financial instruments or make
other arrangements with third parties to hedge against the risk of an increase in interest
rates.
To the extent that such floating rates rise, we may incur in additional expenses.
Moreover, as we refinance our existing debt in the coming years, the mix of our
indebtedness may change, specifically as it relates to the ratio of fixed to floating
interest rates, the ratio of short-term to long-term debt, and the currencies in which
our debt is denominated or to which it is indexed.
Changes that affect the composition of our debt and cause rises in short or long-term
interest rates may increase our debt service payments, which could have an adverse
effect on our results and financial condition.
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The obligations relating to our pension plan (“Petros”) and health care benefits
(“AMS”) are estimates, which are reviewed annually, and may diverge from actual
future contributions due to changes in market and economic conditions, as well as
changes in actuarial assumptions.
The criteria used for determining commitments relating to pension and health care plan
benefits are based on actuarial and financial estimates and assumptions with respect
to (i) the calculation of projected short-term and long-term 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.
These risks may result in an increase in our liabilities and may adversely affect our
results and our financial conditions.
We are exposed to the credit risks of certain of our customers and associated risks of
default. Any material nonpayment or nonperformance by some of our customers
could adversely affect our cash flow, results and financial condition.
Some of our customers may experience financial constraints or liquidity issues that
could have a significant negative effect on their creditworthiness. Severe financial
issues encountered by our customers could limit our ability to collect amounts owed to
us, or to enforce the performance of obligations owed to us under contractual
arrangements.
In addition, many of our customers finance their activities through their cash flows from
operations, the incurrence of short and long-term debt.
Declining economic conditions in Brazil, and resulting decreased cash flows, combined
with a lack of debt or equity financing for our customers may affect us, since many of
our customers are Brazilian and may have significantly reduced liquidity and limited
ability to make payments or perform their obligations.
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.
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Compliance, Legal and Regulatory Risks
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.
We may be frequently affected by changes in rules and regulation.
In addition, changes in rules and regulations applicable to us may have a material
adverse effect on our financial condition and results.
These legal and administrative proceedings can have a negative impact on our results
due to their outcome, such as contracts` termination and/or the revision of
governmental authorizations.
Depending on the outcome, litigation can result in restrictions on our operations and
have a material adverse effect on some of our businesses.
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.
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 parties, against our interest.
This risk is heightened by the fact that we have many complex, high value contracts
with local and foreign suppliers, as well as the geographic distribution of our operations
and the wide variety of counterparties involved in our business.
We cannot guarantee that all our employees and contractors will comply with our
principles and rules of ethical behavior and professional conduct aimed at guiding our
management, employees and service providers. Any failure, whether actual or
perceived, to abide by our ethical principles or to comply with applicable governance
or regulatory obligations could harm our reputation, limit our ability to obtain financing
and have a material adverse effect on our results and financial condition, if not detected
in a timely manner.
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We are subject to the risk that our internal controls may become inadequate in the
future because of changes in conditions, or that our degree of compliance with our
policies and procedures may deteriorate.
Because of its inherent limitations, our internal control over financial reporting may not
prevent or detect misstatements. It is also difficult to project the effectiveness of
internal control over financial reporting for future periods, as our controls may become
inadequate because of changes in conditions, or because our degree of compliance
with our policies or procedures may deteriorate and we cannot be certain that in the
future additional material weaknesses will not occur or otherwise be identified in a
timely manner.
Any failure to maintain our internal control over financial reporting could adversely
impact our ability to report our financial results in future periods accurately and in a
timely manner, and to file required forms and documents with government authorities,
including the SEC. We may also be unable to detect accounting errors in our financial
reports 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.
Any violation of the agreements that resolved the investigations conducted by the SEC
and the DoJ and potential future investigations regarding the possibility of
noncompliance with the U.S. Foreign Corrupt Practices Act could adversely affect us.
Violations of this or other laws may require us to pay fines and expose us and our
employees to criminal sanctions and civil suits.
In 2018, in light of facts uncovered in connection with the Lava Jato investigation, we
entered into a nonprosecution agreement (“NPA”) with the DoJ, pursuant to which we
admitted that certain of our former executives and officers had engaged in conduct
during the period from 2004 to 2012 that gave rise to violations of books and records
and internal controls provisions under U.S. law. As part of the SEC resolution, we settled
charges of violation of the United 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.
If, during the term of the NPA (three years, unless extended), the DoJ determines that
we have committed a felony under U.S. federal law, provided deliberately false or
misleading information, or otherwise breached the NPA, we could be subject to
prosecution and additional fines or penalties, including charges under the U.S. Foreign
Corrupt Practices Act (“FCPA”).
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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 management team from our ordinary business operations.
In connection with any further investigations or proceedings carried out by any
authorities in Brazil or in any other jurisdiction, or any violation of the NPA, we may be
required to pay fines or other financial relief, or consent to injunctions or orders on
future conduct or suffer other penalties, any of which could have a material adverse
effect on us.
We may face additional proceedings related to the Lava Jato investigation.
In 2018 and 2019, we paid a total of US$2,950 million in the United States to settle a
consolidated securities class action filed in connection with the Lava Jato proceedings.
in Argentina, and arbitration and
We are currently party to a collective action commenced in the Netherlands, an
arbitration proceeding
judicial proceedings
commenced in Brazil. 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 issued by us outside of the United States,
alleging damages caused by facts uncovered in the Lava Jato investigations.
In Argentina, we are the defendant in two criminal lawsuits. The first 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.
In addition, EIG Management Company, LLC (“EIG Management”) and eight of EIG
Management’s managed funds (“EIG Funds”) (together with EIG Management, “EIG”)
filed a complaint against us on February 23, 2016 before 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 us relating to the Lava Jato investigation in the future. It is
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.
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In addition, as a result of the continuing Lava Jato investigation, substantive additional
information may come to light in the future that would make the estimate that we
made in 2014 for overpayments incorrectly capitalized 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 for prior years.
Differing interpretations and numerous environmental, health and safety regulations
and industry standards that are becoming more stringent may result in increased
capital and operating expenditures and decreased production.
Our activities are subject to evolving industry standards and best practices, and a wide
variety of federal, state and local laws, regulations and permit requirements relating to
the protection of human health, safety and the environment, both in Brazil and in other
jurisdictions where we operate. These laws, regulations and requirements may result
in significant costs, which may have a negative impact on the profitability of the projects
we intend to implement or may make such projects economically unfeasible.
Any substantial increase in expenditures for compliance with environmental, health or
safety regulations may have a material adverse effect on our results and financial
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.
Moreover, we have operational units in several metropolitan regions of the country
and, in some of these locations, the concentration of pollutants generated by a variable
set of polluters (industries, passenger cars, trucks, etc.) may exceed the air quality
standards defined by legislation. Recently, more restrictive air quality standards were
defined, which may increase the demands on industrial units installed in regions that
already have air quality problems. This could include obstacles to obtaining or renewing
operating licenses and the need to adopt new environmental control practices such as
new types of practices, increasing the frequency of monitoring emissions and installing
new environmental protection equipment, generating higher costs for us. There is also
a risk that the use of fuels will be subject to restrictions related to the level of pollutant
emissions, which may increase the need for investments in refineries or loss of market.
in
In addition, changes
interpretations regarding
interpretation or differing
environmental, health and safety regulations, as well as our decision to settle any
claims related to such regulations, could have a material adverse effect on our financial
condition and results.
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Differing interpretations of tax regulations or changes in tax policies could have an
adverse effect on our financial condition and results.
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 collateral to judicial courts, such as the
deposit of amounts equal to the potential tax liability in addition to accrued interest
and penalties. In certain of these cases, settlement of the matter may be a more
favorable option for us.
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 dispute may have a broader impact on other tax disputes. Any of
these occurrences could have a material adverse effect on our financial condition and
results.
Differences in interpretations and new regulatory requirements by the agencies in our
industry may result in our need for increased investments, expenses and operating
costs, or may cause delays in production.
Our activities are subject to regulation and supervision by regulatory agencies, such as
the ANP. Issues such as local content requirements, procedures for the unification of
areas, definition of reference prices for the calculation of royalties and governmental
participation, among others, are subject to a regulatory regime overseen by the ANP.
Any regulatory change, as well as change or differences of interpretation between us
and regulatory agencies may materially impact our results, since such newly enacted or
revised pronouncements or interpretations may directly affect the economic and
technical assumptions that guide our investment decisions.
We are subject to sanctions or the granting of environmental licenses and permits,
that may result in delays to deliver some of our projects and difficulties to reach our
crude oil and natural gas production objectives.
Our activities are subject to and depend on the granting of environmental licenses and
permits by a wide variety of federal, state and local laws, relating to the protection 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 comply with such laws and
regulations will increase substantially in the future.
We cannot ensure that the planned schedules and budgets of our projects, including
the decommissioning of mature fields and divestments, will not be affected by
demands of new regulatory bodies or that the relevant licenses and permits will be
transferred or issued in a timely manner. Potential delays in obtaining licenses may
impact our crude oil and natural gas production objectives, negatively influencing our
results and financial condition.
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We are also subject to sanctions that may result in delays in the execution of some of
our projects and difficulties in achieving our oil and natural gas production objectives,
such as embargoes or partial or total interdictions.
Operations with related parties may not be properly identified and handled.
Transactions with related parties must follow market standards and generate mutual
benefit. Decision processes surrounding such transactions must be objective and
documented. Further, we must comply with the rules of competition and adequate
disclosure of information, in accordance with the applicable legislation and as
determined by the CVM and the SEC. The possible failure of our process to identify and
deal with these situations may adversely affect our economic and financial condition,
as well as lead to regulatory assessments by agencies.
We may be required by courts to guarantee the supply of products or services to
defaulted counterparties.
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 and gas market, even in situations where these clients and institutions are
in default with contractual or legal obligations. Such supply in exceptional situations
may adversely affect our financial position.
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 law requires that
the Brazilian federal government owns 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 and business objectives, which may have an adverse effect on our
results and financial condition. The interests of our controlling shareholder may differ
from the interests of our other shareholders, and the decisions taken by our controlling
shareholder may involve different considerations, strategies and policies than they
have in the past.
Presidential 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 management
of our business strategy, including our Strategic Plan, and guidelines, as mentioned
above.
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As our controlling shareholder, the Brazilian federal government has guided and may
continue to guide certain macroeconomic and social policies through us, pursuant to
Brazilian law. Accordingly, we may make investments, incur costs and engage in
transactions with parties or on terms that may have an adverse effect on our results
and financial condition.
Fragility in the performance of the Brazilian economy, regulatory changes and
investor perception of these conditions may adversely affect the results of our
operations and our financial performance and may have a material adverse effect on
us.
Our activities are strongly concentrated in Brazil. Economic policies adopted by the
Brazilian federal government may 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;
_ liquidity of domestic capital and lending markets;
_ 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
_ other diplomatic, social and economic developments in or affecting Brazil.
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 increase the
volatility of the Brazilian securities market and securities issued abroad by Brazilian
companies, which may have a material adverse effect on our results and financial
condition.
Instability in the Brazilian Political Environment.
The Brazilian economy has been and continues to be affected by political events in
Brazil, which have also affected the confidence of investors and the public in general,
adversely affecting the performance of the Brazilian economy and resulting in
heightened volatility in the Brazilian securities markets. You should make your own
assessment about Brazil and prevailing conditions in the country before deciding to
invest in us.
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The Brazilian political environment has been considered polarized in the past few years.
Brazil had not fully recovered from the impact of the 2015-2016 economic crisis when
the country began feeling the effects of the Covid-19 pandemic, which severely affected
the economy and increased political tensions.
The Brazilian government’s policies to address economic and fiscal reforms in response
to the Covid-19 pandemic remain divisive issues for Brazilian society. Any developments
to the current political situation or any new relevant facts in connection with the
Brazilian political situation could adversely affect Brazil’s economic growth and, in turn,
affect our financial condition and results of operations.
In addition, any difficulties of the Brazilian government in obtaining a majority vote in
the national congress to implement reforms may result in congressional gridlock and
political unrest, which could adversely affect us. Uncertainties relating to the
implementation by the Brazilian government of changes to monetary, fiscal and social
security policies and related legislation may contribute to economic instability and
heighten market volatility and may materially and adversely affect us.
Allegations of political corruption against members of the Brazilian government could
create economic and political instability.
In the past, members of the Brazilian federal government and the Brazilian legislative
branch have faced allegations of political corruption. As a result, a number of
politicians, including senior federal officials and congressmen, resigned or have been
arrested.
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 conducted by the Office of the Brazilian Federal Prosecutor. The potential
outcome of these investigations is unknown, but they have already had an adverse
impact on the image and reputation of the implicated companies (including us), in
addition to the adverse impact on general market perception of the Brazilian economy.
These proceedings, their conclusions or further allegations of illicit conduct could have
additional adverse effects on the Brazilian economy. Such allegations may lead to
further instability, or 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.
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Holders of our ADSs may be unable to exercise preemptive rights with respect to the
common or preferred shares underlying the ADSs.
Holders of ADSs who are residents of the United States may not be able to exercise the
preemptive rights relating to the common or preferred shares underlying our 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. 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
sell the preemptive rights, and holders of ADSs will be entitled to receive the proceeds
of the sale. However, the preemptive rights will expire if the depositary cannot sell
them. For a more complete description of preemptive rights with respect to the
common or preferred shares, see “Shareholder Information – Shares and Shareholders
– Shareholders’ Rights – Other Shareholders’ Rights” in this annual report.
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
to receive dividends or distributions relating to the common or preferred shares or the
return of their capital in a timely manner.
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 their interests.
Our corporate affairs are governed by our Bylaws and Law No. 6,404/76 (“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 be, to protect their interests are
different under Brazilian Corporate Law than under the laws of other jurisdictions. Rules
against insider trading and self-dealing and the preservation of shareholder interests
may also be different in Brazil than in the United States. In addition, the structure of a
class action in Brazil is different from that in the U.S. Under Brazilian law, shareholders
in Brazilian companies do not have standing to bring a class action, and under our
Bylaws 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.
We are a state-controlled company organized under the laws of Brazil, and all of our
directors and officers reside in Brazil. Substantially all of our assets and those of our
directors and officers are located in Brazil. As a result, it may not be possible for holders
of ADSs to effect service of process upon us or our directors and officers within the
United States or other jurisdictions outside Brazil or to enforce against us or our
directors and officers’ judgments obtained in the United States or other jurisdictions
outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S.
federal securities laws may only be enforced in Brazil if certain requirements are met,
holders of ADSs may face greater difficulties in protecting their interest in 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.
Holders of our ADSs do not have the same voting rights as holders of our shares. Holders
of our ADSs are entitled to the contractual rights set forth for their benefit under the
deposit agreements. ADS holders exercise voting rights 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.
In addition, a portion of our ADSs represents our preferred shares. Under Brazilian
Corporate Law and our Bylaws, except for specific situations, holders of preferred
shares do not have the right to vote in shareholders’ meetings. Holders of ADSs
representing preferred shares are not entitled to vote most of decisions as well. See
“Shareholders – Shares and Shareholders – Shareholders Rights – Shareholders’
Meetings and Voting Rights” in this annual report.
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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 both
on the NYSE and the Luxembourg Stock Exchange and trade on the NYSE Euronext and
Euro Multilateral Trading Facility (“MTF”) market, respectively, although most trading
in PGF’s notes occurs over-the-counter. PGF can issue new notes that can be listed in
markets other than the NYSE and the Luxembourg Stock Exchange and traded in
markets other than the NYSE Euronext and the Euro MTF market. We can make no
assurance as to the liquidity of or trading markets for PGF’s notes. We cannot guarantee
that the holders of PGF’s notes will be able to sell their notes in the future. If a market
for PGF’s notes does not develop, holders of PGF’s notes may not be able to resell the
notes for an extended period of time, if at all.
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
only in reais. Under Brazilian exchange controls, an obligation to pay amounts
denominated in a currency other than reais, which is payable in Brazil pursuant to a
decision of a Brazilian court, will be satisfied in reais at the rate of exchange in effect
on the date of payment, as determined by the Central Bank of Brazil.
A finding that we are subject to U.S. bankruptcy laws and that the guaranty executed
by us was a fraudulent conveyance could result in PGF noteholders losing their legal
claim against us.
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
_ intended to incur or incurred, or believed or believe that we would incur, debts beyond
our ability to pay such debts as they mature; and
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_ in each case, intended to receive or received less than reasonably equivalent value or
fair consideration therefor, then our obligations under the guaranty could be avoided,
or claims with respect to that agreement could be 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.
Corporate Risk Management
We believe that integrated and proactive risk management is essential for the delivery
of results in a safe and sustainable way. Our risk-management process is centralized,
allowing 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
_ the risk response actions consider the possible long-term cumulative consequences,
the possible impacts on our stakeholders and should be oriented towards preserving or
adding value and for business continuity.
The risk management organizational structure, that is under the supervision of our CFO,
is responsible for:
_ 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 supporting the use of risk management practices in
organizational units; and
_ identifying, monitoring and reporting periodically to our Board of Executive Officers and
Board of Directors regarding our major risks.
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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 drive 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 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 incorporated into this annual report.
Disclosures about Market Risk
Commodity Price Risk
We operate in an integrated manner throughout the various stages of the oil industry.
A significant portion of our results relate directly to oil exploration and production,
refining and the sale of natural gas, biofuels, and electricity in Brazil. As our purchases
and sales of crude oil and oil products are linked to international commodity prices, we
are exposed to their price fluctuations, which may influence our profitability, our 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.
In addition, we are party to derivative contracts in order to protect our margins for
short-term commercial transactions carried out abroad. Our derivatives 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 38
to our audited consolidated financial statements.
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Exposure to interest rate and exchange rate risk
For information about interest rate and exchange rate risk, see “Operating and Financial
Review and Prospects” in this annual report.
Insurance
Regarding operational risks, our policy is to maintain insurance coverage when the
obligation to maintain such coverage derives from a legal or contractual instrument or
our Bylaws; or the event covered may cause significant damage to our financial results,
and coverage is economically feasible.
We maintain several insurance policies, including policies against fire, operational risk,
engineering risk, property damage coverage for onshore and offshore assets such as
fixed platforms, floating production systems and offshore drilling units, hull insurance
for tankers and auxiliary vessels, third party liability insurance and transportation
insurance. The coverages of these policies are contracted according to the objectives
we define and the limitations imposed by the global insurance and reinsurance
markets. Although some policies are issued in Brazil, most of our policies are reinsured
abroad with reinsurers rated A- or higher by Standard & Poor’s or A3 by Moody’s and/or
B ++ or higher by A.M. Best.
Our policies are subject to deductibles, limits, exclusions and limitations, and there is
no assurance that such coverage will adequately protect us against liability from all
possible consequences and damages associated with our activities. Thus, it is not
possible to assure that insurance coverage will exist for all damages resulting from
possible incidents or accidents, which may negatively affect our results.
Specifically, we do not maintain insurance coverage to safeguard our assets in case of
war or sabotage. We also do not maintain coverage for business interruption, except
for some specific assets in Brazil. Generally, we do not maintain coverage for our wells
in operation in Brazil, except when required by a joint operating agreement. In addition,
our third-party liability policies do not cover government fines or punitive damages.
Our national property damage policies have a maximum deductible of US$180 million
and their indemnity limits can reach US$2.2 billion for refineries and US$1.9 billion for
platforms, depending on the replacement value of our assets.
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 an indemnity
limit of US$50 million up to US$500 million, depending on the type of vessel. For
activities in Brazil, in the event of an explosion or similar event on one of our non-fixed
offshore platforms, these policies may provide third-party combined liability coverage
of up to US$750 million. In addition, although we do not insure most of our pipelines
against property damage, we have insurance against damages or losses to third parties
arising from specific incidents, such as unexpected infiltration and oil pollution.
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Outside Brazil, we maintain different levels of third-party liability insurance, as a result
of a variety of factors, including country risk assessments, whether we have onshore
and offshore operations, or legal requirements imposed by a particular country in
which we operate. We maintain separate 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$198 million depending on the country.
Emerging Risks
Emerging risks are the long-term risks that we have identified as the most severe and
could significantly impact the execution of our current and subsequent strategic plans.
We detail below the main emerging risks, which are also briefly described in “Risks –
Risk Factors” in this annual report, either as a separate risk factor or as part of one or
more risk factors.
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. In addition to cybersecurity issues, the concern and actions by
our management aimed to improve protection and privacy of personal data held by us.
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.
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 is considered
valuable we have maintained an area dedicated to information security, linked to the
Digital Transformation and Innovation Executive Officer, for the purpose of centralizing
management related to all security information disciplines.
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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 – Digital Transformation” in this annual
report.
Carbon Risk
The Paris Agreement requires a profound reduction in GHG emissions and a
transformation of the energy supply. Our scenarios point to an unequivocal energy
transition and alterations are already being observed in the energy markets, through
regulatory changes and some physical impacts of climate change on the infrastructure
of companies and countries. The industry leaders have been expanding their
commitments to lower carbon emissions, and the market’s increasing demand for
transparency of the results related to the emissions of greenhouse gases and the
impacts of the transition to low carbon emissions for the companies. The transition
generates a series of additional expenses, both for controlling emissions and eventual
adaptations to avoid or mitigate physical risks of the units, as well as for adapting to
the business to regulatory and market changes.
The scenario predicts possible reduction in the demand for fossil fuels, carbon pricing
generating higher costs, and segmentation of oils and fuels according to their carbon
intensity. Greater requirements regarding the transparency of actions related to low
carbon transition can also be expected, with the potential to generate image issues,
loss of investors and greater difficulty in capital access.
While we work to safeguard a solid financial position in the medium and long term, we
also work on our competitiveness to capture potential renewable opportunities from a
long-term perspective. In this context, the Strategic Plan presents the strategies to
“Undertake research aimed at operating, in the long term, in petrochemical and
renewable energy businesses with a focus on wind and solar power in Brazil” and “Add
value to the refining park, with more efficient processes and new BioRefining products,
such as Biokerosene and Renewable Diesel Fuel, moving towards a low carbon market.”
In the short and medium term, our Strategic Plan also contains ten sustainability
commitments, six of which are related to carbon with clear and well-defined metrics.
Since 2019, metrics related to carbon intensity in our refining and upstream operations
have been integrated into executive remuneration. In 2020, these metrics were
incorporated as a main indicator, influencing variable remuneration not only for
executives, but for all company employees.
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We have a greenhouse gas emission mitigation corporate program that aims to ensure
compliance with disclosed commitments and is part of our US$1 billion investment
forecast for environmental commitments between 2021 and 2025. The program
involves all our operational areas and includes actions related to reduce natural gas
flaring, CO2 reinjection, energy efficiency gains and control of operational losses.
The commitments and actions of the GHG emissions mitigation program are monitored
at different levels of governance, including senior management. In 2020, we created a
climate change executive management position, reinforcing our existing carbon
governance, also composed of advisory committees of the Executive Board and the
Board of Directors, in addition to several management level positions that evaluate
carbon aspects in its activities.
In addition, we assess the physical risk associated with climate change in our
operations, through research and development of climate regionalization, with
renowned institutions in Brazil and abroad (Federal University of São Paulo - USP,
National Institute for Space Research - INPE and National Oceanic and Atmospheric
Administration - NOAA), of parameters considered potentially more susceptible to
these changes, such as water availability for our refineries and thermoelectric plants
and wave, wind and current patterns for our offshore platforms, generating qualified
information for the process of our operations adaptation.
The Covid-19 Pandemic
Public health epidemics and pandemics, such as the Covid-19 pandemic, can impact our
workforce, our partners and our suppliers, which can affect our supply chain and the
productivity of many our activities, including impact on some of our facilities, such as
our platforms, refineries, terminals, among others. This may have a negative impact on
our results and financial condition. A pandemic has the potential to influence our
activities in many ways, which can result in operational discontinuity, increased costs,
reduced revenues, compromised supply, delays in processes and projects, interruption
and / or interdiction of activities. In addition, public health epidemics and pandemics
may affect oil prices and demand and, consequently, our financial results. The risk of
mass contagion of our own employees and contractors is being monitored by us. During
the Covid-19 pandemic, we have observed:
_ A reduction in demand for oil products due to the restriction in the mobility of society
by lockdown measures imposed by state and municipal governments.
_ A decrease in economic activity, recession, unemployment growth due to the closing of
small and medium-sized companies, which may affect our supply chain.
_ The postponement of return to work due to the pandemic, increase of employees'
absence from work due to the growth of mental illnesses related to social isolation and
social distance.
_ The increase in freight prices, given the depressed oil prices, led to a shortage of ships
in the market, as they were being used to store oil and byproducts.
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In order to manage a situation that involves the mass contagion of our employees due
to epidemics or public health pandemics, we must use mitigating actions that minimize
the impact on our operations. Some of these actions are already being carried out at
the time of the Covid-19 pandemic, such as the constitution of the ORS (Organizational
Response Structure) for organizing actions and making decisions, adopting different
work regimes for reducing exposure, defining ways operating conditions optimized for
the prioritized assets and units and providing the necessary resources for operational
continuity.
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Our Business
OUR BUSINESS
62
Exploration and Production
—
Overview
Our oil and natural gas exploration and production activities are the major components
of our investment portfolio and include offshore and onshore exploration, appraisal,
development, production and incorporation of oil and natural gas reserves, producing
oil and natural gas in a safe and profitable way.
Our activities are focused on deepwater and ultra-deepwater oil reservoirs in Brazil,
which accounted for 94% of our total production in 2020. We also have activities in
mature fields in shallow waters and onshore, as well as outside Brazil as detailed below
in this annual report. Brazilian exploration and production assets represent 93% of our
worldwide blocks and fields, 99% of our global oil production and 99.7% of our oil and
natural gas reserves.
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We have 360 assets in exploration and production including 109 consortia with other
oil and gas companies. From the 360 blocks and fields, 335 are under Concession
Agreements, 15 are Production Sharing Agreements and 10 are regulated by Transfer
of Rights Agreements.
EXPLORATION AND PRODUCTION ASSETS (NUMBER OF ASSETS)
Like most major oil and gas companies, we operate in partnerships using E&P consortia
in the exploration 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
CNOOC 10%), Berbigão, Sururu and Oeste de Atapu (all with Petrobras 42.5%, Shell
25%, Total 22.5% and Petrogal 10%).
These E&P consortia also comprise some of the biggest production fields in Brazil, such
as Tupi (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 in the Pre-salt Polygon
area.
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Other Basins
We produce oil and gas and hold exploration acreage in 17 other basins in Brazil. The
most significant potential for exploratory success within our other basins are the
Equatorial Margin and East Margin.
International
Outside Brazil, we have activies in South America and North America. In West Africa we
had activities until January 14, 2020. We have focused on opportunities to leverage the
deepwater expertise we have developed in Brazil. However, since 2012 we have been
substantially reducing our international activities through the sale of assets in
accordance with our portfolio management.
South America
We conduct exploration and production activities in Argentina, Bolivia and Colombia.
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 2020, our production
of oil and gas in Argentina, including NGL, was 5.9 mboed.
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In Bolivia, our gas and condensate production derives primarily from the San Alberto
and San Antonio fields with 35% working interest in each of those service operation
contracts, which are operated mainly to supply gas to Brazil and Bolivia. In 2020, our
production of oil and gas in Bolivia, including NGL, was 28.6 mboed. The return of those
contracts is a proportion of the production.
In Colombia, we operate and hold a 44.44% working interest in the Tayrona offshore
exploration block, which includes the Orca gas discovery. We also operate and hold a
50% working interest in the Villarica Norte onshore exploration block.
North America and West Africa
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 Malo and Dalmatian fields. In 2020, our 20% participation represents a production
of 12.1 mboed, including NGL.
In West Africa, we used to explore oil and gas opportunities exclusively through our
50% equity interest in Petrobras Oil & Gas B.V. (“PO&G”). 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.
For more information on our divestments, see “Portfolio Management” in this annual
report.
Main Assets
Exploration and Production
Production wells (oil and natural gas)(1)
Floating rigs
Operated platforms in production(2)
2020
2019
2018
5,646
20
67(3)
7,021(4)
16
107
7,256
16
113
_
(1) Includes the total amount of wells of our equity method investees (100, 164 and 163 wells in 2020, 2019 and 2018, respectively).
(2) Includes only definitive production systems, EWT and EPS units.
(3) Does not Include 37 producing platforms mothballed in 2020. Excludes 26 non-producing platforms mothballed in 2020 and platforms
operated by our partners.
(4) Adjusted to include wells from affiliated companies.
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Exploration
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 State 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 the Transfer of Rights Regime
and the Production Sharing Regime in the Pre-salt Polygon. Currently, our main
production fields follow the Concession Agreements model. However, our production
fields under the Transfer of Rights Agreement and Production Sharing Agreements will
represent an important part of our production in the medium and long term.
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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Bidding rounds
Over the past few years, we have participated 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 large oil 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.
In 2018, we acquired 11 new offshore exploratory blocks, with a total area of 8,800 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, we acquired two new offshore exploratory blocks, with a total area of 5,800 km2. In the Pre-salt
Polygon, we acquired one area under the production sharing regime, in partnership with CNODC. In the
Campos Basin, we acquired one block outside of the Pre-salt Polygon, under the concession regime, in
partnership with BP. Additionally, we acquired 90% of the exploration and production rights of the
surplus volume of the Búzios field during the Transfer of Rights Surplus Production Sharing Bidding
Round, in a partnership with CNODC Brasil Petróleo e Gás Ltda. (5%) and CNOOC Petroleum Brasil Ltda.
(5%). During the same bidding round, we also acquired 100% of the exploration and production rights of
the surplus volume of the Itapu field.
In 2020, due to limitations resulting from the Covid-19 pandemic, the 17th Bidding Round was
postponed. The 2nd Cycle of Open Acreage was the only bidding round of the year and took place on
December 4, 2020. We did not present any offers during this bidding round.
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Exploration Activities
As of December 31, 2020, we had 86 exploratory blocks (27 with 100% working interest)
that had three discoveries under evaluation. We also had three discoveries being
assessed in production areas. We serve as the operator in 59 of these exploration
partnership blocks.
The table below breaks down our participation in exploration activities in 2020:
OUR PARTICIPATION IN EXPLORATION ACTIVITIES IN 2020
Net exploratory area
(km2)
Exploratory blocks
(number)
Evaluation plans
(number)
Wells drilled
(number)
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
Brazil
42,996 40,625 51,600
82
113
133
32
24
26
Other S. America
5,751
6,081
6,081
0
0
0
0
0
0
4
0
0
4
0
0
4
0
0
2
0
0
1
0
2
1
0
2
48,747 46,706 57,681
86
117
137
34
27
29
North America
Africa
TOTAL
9
0
0
0
9
8
1
0
0
9
8
0
0
0
8
These investments mainly cover the costs of drilling, seismic surveys and acquisition of
blocks, which contributed to the following endeavors.
In 2020, we concentrated our exploratory efforts on delimiting pre-salt reservoirs, the
main oil-producing areas in Brazil. In addition to confirming the presence of oil of
excellent quality in the southeastern area of the Búzios field, in the Santos Basin, a well
test proved greater potential in the pre-salt area of the Albacora field, in the Campos
Basin. While the former is considered a promising area for a new Floating Production
Storage and Offloading (“FPSO”), the latter still has remaining untapped potential and
can continue to contribute to our production.
Another well in the pre-salt area of the Uirapuru block, in the Santos Basin, also resulted
in discoveries of oil and gas. There is at least one extension well planned for this
prospect in the next five years. Moreover, a prospect situated in block C-M-657, in the
Campos Basin, but outside of the main pre-salt cluster, was drilled this year and the
results identified the presence of hydrocarbons. Additional studies are being conducted
to provide better measurements and to guarantee each project’s economic viability and
future resources incorporation.
We also obtained encouraging results outside the pre-salt reservoirs. In the
southwestern portion of the ring fence of Tartaruga Verde, also located in the Campos
Basin, an exploratory well discovered oil in carbonate reservoirs from the Albian age.
We are currently evaluating the commerciality of the discovery and the possible
incorporation of resources into existing infrastructure.
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Finally, the turbiditic reservoirs in the Sergipe Alagoas Basin also showed promising
results. After the incorporation of the results of two wells in our geological models,
there was an increase in the expected volume of both Poço Verde and Moita Bonita´s
appraisal blocks. These results contributed to an increase in the future resources
incorporation. We also conducted a long-term test in the Farfan reservoir, which
resulted not only in reduced uncertainties regarding reservoir properties, but also in an
increase of the expected volumes. Thus, this test confirmed the good productivity
projections for this region of the deepwater complex.
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 implementation time of our
projects, with the ambition to reach 1,000 days between field discovery and the
beginning of production, compared to our current average of 3,540 days, considering
large projects that use FPSO systems. Our efforts in such program are related to the
integration of exploration and production development and technical data teams, the
optimization of reservoir processes, the standardization of FPSO, subsea and well
design, the early supplier engagement, the reduction of the construction time, and the
optimization of processes using digital technologies and agile methods. As an example
of our standardization efforts in the FPSO design, we applied for a patent for a
Polyvalent Riser Balcony, which can be applied to different project scenarios and reduce
engineering time and late changes during the FPSO construction phase.
In addition, we implemented 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.
Several initiatives are already underway, with notable advances in the integration of
the exploratory database and in the automated interpretation of seismic and well data.
Production
Production Development
After a field is declared commercially viable, the process of production development
begins. The investments made in this phase are mainly focused on designing and
contracting production systems, which includes platforms, subsea systems, drilling, and
the completion of wells.
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Over the last ten years, we pursued substantial cost optimizations related to project
development. Time to drill and complete wells in the Santos Basin pre-salt area
decreased by 64% in 2020 when compared to 2010. In 2020, we spent an average of
117 days in the drilling and completion of a pre-salt well on the Santos Basin. This
helped to significantly reduce our capital expenditures per well. Through the Well
Efficiency Program (PEP70), launched in 2019, we strive to further reduce well
construction costs by 30% by shortening construction time, optimizing well
configurations, streamlining operations and adopting new technologies. In the post-
salt, we highlight the adoption of the True One Trip - Three Phases (TOT-3P) technology,
which allowed us to build a well in half the estimated time and cost and resulted in
savings of US$30 million.
We have also pursued substantial cost optimizations in wells interconnections in the
Santos Basin pre-salt area, with an average cost reduction of around 6-7% per year
during the past four years. Regarding the integrity of subsea systems, we have made
progress in the development and application of new tools for inspection, leading to
greater reliability and availability of equipment, pipelines and other components,
especially those subsea components exposed to SCC-CO2 events.
In 2020, we also completed the Reference Basic Design for the new generation of FPSOs
for pre-salts. The design, which focuses on maximizing the economic value of
production development projects,
reducing
implementation times, increasing system standardization, enhancing operational
efficiencies and integrating new technologies and innovations to meet our low carbon
commitments. This project incorporates improvements based on more than a decade
of experience with the design, construction, start-up and operation of production
platforms in the pre-salt layer.
solutions aimed at
features
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 Tupi field; and (iii) the
P-68, located in the Berbigão and Sururu fields. In 2020, we started the P-70 platform,
located in the Atapu field. Those five new systems connected 32 new wells (19
production wells and 13 injection wells) into our production systems. We expect to
install 13 new FPSOs in the next five years.
In January 2020, the P-77 platform in the Búzios field reached its full capacity in only
10.4 months. In the Búzios field, we also achieved monthly production records of 615
kbpd of oil and 765 kboed in July, and the highest monthly production achieved by a
well in Brazil, with a record of 69.6 kboed from the BUZ-10 well, registered in
September. The performance of the Búzios platforms was aided by the temporary
expansion of the oil and gas processing capacity of the units, using spare capacity in
power generation and gas compression available until the beginning of gas exports, and
by the high production potential of the wells and the reservoir.
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In 2020, our producing platforms had a daily production of 2.06 million barrels of oil
and 2,393 million cubic feet of natural gas (discounting the liquefied volume). As part
of our response to the 2020 oil crisis, we indefinitely mothballed, and have no current
plan to reenable, our 63 shallow water platforms (37 active and 26 inactive immediately
prior to the mothballing). Additionally, during 2020, and due to divestment or
demobilization efforts, we also discontinued eight active platforms that contributed to
our annual production. These mothballed and discontinued platforms produced
approximately 29 mbbl/d in 2020. As of December 31, 2020, we own 43 and lease 16
offshore producing platforms. Besides these offshore platforms, there are three
platforms on fields operated by our partners, totalling 62 active platforms.
Pre-salt and the fields under the Transfer of Rights Agreements will be particularly
important to support our production growth.
In 2021, the FPSO Carioca will be installed in the Sépia field. This platform has the
capacity to process 180 kbpd and 211.9 mmcf/d of natural gas per day and arrived in
Rio de Janeiro in February 2021 to finalize the integration and commissioning activities.
In 2021, we also expect to install the FPSO Guanabara, the first definitive system in the
Mero field. This FPSO has the capacity to process 180 kbpd and 423.8 mmcf/d of natural
gas per day and is under construction in China.
After negotiations with our partners in the BM-S-11 Consortium, Shell Brasil Petróleo
Ltda (owning a 25% stake in the partnership) and Petrogal Brasil S.A. (owning a 10%
stake in the partnership), we signed a commitment to purchase platform P-71. The unit,
which is in the final phase of construction, has a production capacity of 150 kbpd and
will be allocated to the Itapu field, which will allow us to begin oil production one year
earlier.
With the commitment to sell P-71, subject to the above-mentioned conditions, the
partners of the BM-S-11 Consortium in Brazil agreed to prepare a new development
plan for the Tupi field, to be delivered to the ANP in 2021. The acquisition of P-71 and
the actions to elaborate a new DP for the Tupi field are in line with our strategy of
concentrating our activities on world-class assets in deep and ultra-deepwaters.
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SYSTEMS INSTALLED SINCE 2010
Basin
Field/Area
Production unit
Start
up
(year)
2020
Santos
Atapu
Petrobras 70
Crude oil
nominal
capacity
(bbl/d)
150,000
Gas
nominal
capacity
(mmcf/d)
Water depth
(meters)
Fiscal regime
Type
Main
production
source
211.9
2,300
2019
2018
2017
2016
2015
2014
2013
Santos
Berbigão
Petrobras 68
150,000
211.9
2,280
Santos
Búzios 4
Petrobras 77
150,000
211.9
1,980
Santos
Búzios 3
Petrobras 76
150,000
211.9
Santos
Campos
Tupi Norte
Tartaruga
Verde
Petrobras 67
Cid. de Campos dos
Goytacazes
150,000
211.9
150,000
117
2,030
2,130
765
Santos
Tupi Ext. Sul
Petrobras 69
150,000
211.9
2,170
Santos
Búzios 1
Petrobras 74
150,000
211.9
2,005
Santos
Búzios 2
Petrobras 75
150,000
211.9
2,010
Santos
Santos
Santos
Santos
Santos
Tupi Sul
Mero
Tupi Central
Tupi Alto
Tupi
Santos
Santos
Campos
Campos
Campos
Campos
Santos
Santos
2012 Campos
Campos
Santos
2011
2010
Campos
Santos
Santos
Campos
Sapinhoá
Tupi
Roncador
Jubarte
Roncador
Papa-Terra
Tupi
Sapinhoá
Jubarte
Marlim Sul
Mexilhão
Jubarte
Tupi
Uruguá
/Tambaú
Jubarte
Petrobras 66
Pioneiro de Libra
Cidade de Saquarema
Cidade de Maricá
Cidade de Itaguaí
Cidade de Ilhabela
Cidade de
Mangaratiba
Petrobras 62
Petrobras 58
Petrobras 55
Petrobras 63
Cidade de Paraty
Cidade de São Paulo
Cidade de Anchieta
Petrobras 56
Mexilhão
Petrobras 57
Cidade de Angra dos
Reis
Cidade de Santos
Capixaba
150,000
50,000
150,000
150,000
150,000
150,000
150,000
180,000
180,000
180,000
145,000
120,000
150,000
100,000
140,000
20,000
180,000
100,000
25,000
110,000
211.9
141.3
211.9
211.9
282.5
211.9
282.5
211.9
211.9
141.3
35.3
176.6
176.6
123.6
211.9
529.7
70.6
176.6
353.1
113.0
2,100
2,040
2,100
2,100
2,200
2,140
2,220
1,600
1,400
1,795
1,200
2,140
2,140
1,220
1,700
170
1,260
2,150
1,300
1,300
Transfer of
Rights/Concession
Transfer of
Rights/Concession
Transfer of
Rights/Production
Sharing/Concession
Transfer of
Rights/Production
Sharing/Concession
Concession
Pre-Salt
FPSO
Pre-Salt
FPSO
Pre-Salt
FPSO
Pre-Salt
FPSO
Pre-Salt
FPSO
Concession
Post-Salt
FPSO
Transfer of
Rights/Concession
Transfer of
Rights/Production
Sharing/Concession
Transfer of
Rights/Production
Sharing/Concession
Concession
Production Sharing
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Concession
Pre-Salt
FPSO
Pre-Salt
FPSO
Pre-Salt
FPSO
Pre-Salt
Pre-Salt
Pre-Salt
Pre-Salt
Pre-Salt
Pre-Salt
Pre-Salt
Post-Salt
Pre-Salt
Post-Salt
Post-Salt
Pre-Salt
Pre-Salt
Pre-Salt
Post-Salt
Post-Salt
Post-Salt
Pre-Salt
Post-Salt
Post-Salt
FPSO
FPSO
FPSO
FPSO
FPSO
FPSO
FPSO
FPSO
FPSO
SS
FPSO
FPSO
FPSO
FPSO
SS
Fixed
FPSO
FPSO
FPSO
FPSO
PETROBRAS _______________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
OUR BUSINESS
74
MAIN SYSTEMS TO BE INSTALLED THROUGH 2025
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
Expected
2021
Expected
2022
Expected
2023
Santos
Sépia
Carioca
180,000
211.9
2,200
Transfer of Rights
Pre-Salt FPSO
Santos
Mero 1
Guanabara
180,000
423.8
1,930 Production Sharing
Pre-Salt FPSO
Santos
Búzios 5 Alm. Barroso
150,000
211.9
2,100
Transfer of
Rights/Production
Sharing/Concession
Pre-Salt FPSO
Campos
Marlim 1
Anita
Garibaldi
80,000
247.3
670
Concession
Post-Salt FPSO
Campos
Marlim 2
Anna Nery
70,000
141.3
927
Concession
Post-Salt FPSO
Santos
Mero 2
Sepetiba
180,000
423.8
2,000 Production Sharing
Pre-Salt FPSO
Santos
Itapu Petrobras 71
150,000
211.9
2,010
Transfer of Rights/
Production Sharing
Pre-Salt FPSO
Campos
Parque das
Baleias
Expected
2024
Santos
Búzios 6(1)
Santos
Mero 3
N/D
100,000
176.6
1,385
Concession
Pre-Salt FPSO
Almirante
Tamandaré
Marechal
Duque de
Caxias
225,000
423.8
1,900
Transfer of
Rights/Production
Sharing/Concession
Pre-Salt FPSO
180,000
423.8
2,070 Production Sharing
Pre-Salt FPSO
Santos
Búzios 7(2) Petrobras 78
180,000
254.3
2,030
Expected
2025
Santos
Búzios 8 Petrobras 79
180,000
254.3
1,700
Transfer of
Rights/Production
Sharing/Concession
Transfer of
Rights/Production
Sharing/Concession
Pre-Salt FPSO
Pre-Salt FPSO
Santos
Mero 4
N/D
180,000
423.8
1,890 Production Sharing
Pre-Salt FPSO
(1) Regarding the production system to be installed in the Module 7 area of the Búzios field.
(2) Regarding the production system to be installed in the Module 6 area of the Búzios field.
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Decommissioning
When the output extension opportunities of an oil and gas production system are
exhausted, it is necessary to carry out its decommissioning. Before that, however, we
prioritize solutions for the continuity and maximization of production, including
processes for assigning our rights (through divestments) of fields that no longer fit into
our strategic portfolio or that have reached their economic limit.
In 2020, we made advancements in the approval of decommissioning plans and in the
execution of activities relating to decommissioning.
We obtained the approvals of Brazilian regulatory bodies overseeing decommissioning
plans as to: the P-07 platform, in the Bicudo field; the P-12 platform, in the Linguado
field; the P-15 platform, in the Piraúna field; and the P-32 platform, in the Marlim field,
all in the Campos Basin. During 2020, we sold three of those platforms (P-07, P-15 and
P-12) through a public auction, one (P-12) of which was already removed from the
location.
Additionally, some decommissioning processes approved before 2020 have also
advanced. We started the decommissioning of the FPSO Piranema Spirit, and
contracted Engineering, Preparation, Removal and Final Disposal (EPRD) services to
assist with the decommissioning of the PCA-1, PCA-2 and PCA-3 platforms.
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 19 rigs with this capacity as of December 31,
2020.
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.
PETROBRAS _______________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
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DRILLING UNITS IN USE BY EXPLORATION AND PRODUCTION AS OF DECEMBER 31(1)
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
(1) In operated fields.
2020
2019
2018
Leased
Owned
Leased
Owned
Leased
Owned
20
0
20
0
20
0
1
19
0
0
0
20
0
0
0
0
0
0
0
0
0
0
0
0
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
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, 2020, we had 13 PLSVs and our specialized vessels were
sufficient to meet our needs.
In the subsea area, we have also been developing the HISEPTM Technology, which is a
subsea separation and boosting system that will remove a significant portion of the
produced gas rich in CO2 from the seabed, debottlenecking the topside gas processing
plants. The new technology will enable the extension of the oil production plateau,
accelerating the production and boosting the economics of development projects in
areas with high GOR and high CO2 content. Once qualified, HISEPTM will have the
potential to unlock the development of new FPSO generations suitable for areas with
high GOR and high CO2 content, since they will benefit from the synergy between
topside and subsea processing systems capacities. This represents an opportunity to
maximize oil production with controlled handled gas inventory in the surface facility,
reducing CAPEX, OPEX, lead time as well as emissions, improving safety. The HISEPTM
will be qualified in 2025 in the Mero Field via construction, installation and tests
execution in a subsea real scale prototype that will be supported by Libra Consortium’s
R,D&I levy.
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77
Búzios field
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 90% of 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.
In March 2020, we signed the Production Sharing Contract for the Suplus of the Transfer of Rights of the
Búzios Area (ToR), with CNOOC and CNODC as private partners and Pré-Sal Petróleo S.A (PPSA) as its
manager. The parties have been discussing the global development strategy and other matters related
to the co-participation agreement, that will regulate the coexistence of the Transfer of Rights Contract
and Production Sharing Contract for the Surplus of the ToR. Pursuant to Ordinance MME 265/2019, the
co-participation agreement should be signed by September 2021. Each of the private partners will have
the right to increase their participating interest by 5%, if certain conditions have been met.
There are currently four units in operation in Búzios. A fifth platform, the FPSO Almirante Barroso, is
under construction and expected to start production in 2022. FPSO Almirante Barroso will be the first
chartered unit in the Búzios Field, capable of processing 150,000 barrels of crude oil per day.
In July 2020, we received approval for three additional operational units in Búzios. FPSO Almirante
Tamandaré, a chartered unit that will become the field’s sixth production system, is expected to start
production in 2024. In addition, P-78 and P-79, two platforms owned by us, are expected to start
production in 2025.
In 2020, with less than two years of operation, the Búzios field surpassed the 600 kbpd production mark,
due to good operating results and a technical study that allowed its units to operate above the nominal
capacity. In addition, three important field records were also achieved in 2020: daily field production of
674 kbbl, monthly field production of 615 kbpd in July and daily production of a single well of 65 kbbl (9-
BUZ-4-RJS). Moreover, another important milestone achieved this year was the start of gas exports from
the P-74 platform.
We expect better operating results for 2021 due to internal actions that have been taken to improve the
production efficiency and the maintenance of the production level above the nominal capacity until the
end of 2021. Finally, in 2021 we also expect to start exporting gas from other three FPSOs that are in
operation.
In 2020, investments in the Búzios field totaled US$1.7 billion. According to the Strategic Plan, US$20.2
billion will be invested over the next five years. The average daily production from 2021 to 2025 is
expected to be 639 kbbl, with Operational Expenditures around US$5.6 billion, including leasing of
vessels.
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Production
Despite the unprecedented crisis in the oil and gas sector, our operating performance
has improved significantly, reaching daily, quarterly and annual oil and gas production
records. In 2020, our total production of oil and gas, including NGL, was 2,836 mboed,
of which 2,788 mboed were produced in Brazil and 48 mboed were produced abroad,
a 2.4% increase compared to 2019. This production growth was due to higher
production in the Búzios and Tupi fields.
Our 2020 operating performance was leveraged by the ramp-up of new production
systems in the Búzios and Tupi fields, offsetting the negative effects derivedduring the
Covid-19 pandemic. The oil production represented 81% of the average of 2,788 mboed
oil and gas produced in Brazil.
Our production in the pre-salt layer reached 1,546 mbbl/d in 2020, representing an
increase of 21.1% in relation to our production in 2019. In 2020, the oil production in
the pre-salt layer represented 68% of all oil production in Brazil, compared to 59% in
2019.
OIL AND GAS PRODUCTION
Crude oil and natural gas — Brazil
Crude oil (mbbl/d)(1)
Onshore
Shallow Water
Post-salt deep and ultra-deepwaters
Pre-salt
Natural gas (mboed)
Crude oil and natural gas – Abroad (2)
TOTAL
(1) Including NGL.
2020
2,788
2,266
105
32
582
1,546
522
48
2,836
2019
2,688
2,172
124
66
704
1,277
516
82
2,770
2018
2020 vs 2019
2,527
2,035
135
90
816
994
492
101
2,628
3.7%
4.3%
-15.3%
-51.5%
-17.3%
21.1%
1.2%
-41.5%
2.4%
(2) Includes the proportional production of our equity method investees, based on our percentage interest in these entities.
Pre-salt oil production increased 21.1%, reflecting higher production in the Búzios and
Tupi fields. The pre-salt area is comprised of large accumulations of light oil, of excellent
quality and with high commercial value. The post-salt oil production, in deep and ultra-
deepwaters, decreased by 17.3%. This was due to natural decline in reservoirs,
especially from the Campos Basin.
Shallow waters oil production decreased by 51.5%, to 32 mbbl/d, due to hibernation of
all shallow water platforms. Onshore oil production decreased by 15.3%, to 105
mbbl/d, due to the natural decline in reservoirs.
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79
We produced 88.40 million m3/d of gas in 2020. From that volume, we used 48.50
million m3/d in our production processes (reinjected, flared, consumed, liquefied) and
destined 39.90 million m3/d for sale.
In 2020, our lifting cost, without government participation or leases, was US$5.2 per
boe, which represents a 33% decrease from the 2019 cost of US$7.8 per boe. Including
leases, our lifting cost in 2020 was US$6.8 per boe, which represents a 29% decrease
from the 2019 cost of US$9.6 per boe.
PETROBRAS _______________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
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80
MAIN PRODUCTION FIELDS
Basin
Santos
Main
Field
source Owned
Capacity
(mbbl/d)
Leased
Tupi
Pre-salt
4
4 units with 150
6
Production units
Capacity
(mbbl/d)
1 unit with 100
1 unit with 120
4 units with 150
Santos
Búzios
Pre-salt
4
4 units with 150
—
—
Santos
Sapinhoá
Pre-salt
—
—
2
2 units with 150
2
4
3
—
7
1
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
2
—
1 unit with 100
1 unit with 110
—
1
1 unit with 150
—
—
1
1 unit with 100
Campos
Jubarte
Pre-salt
Campos
Roncador
Campos
Campos
Marlim
Sul
Tartaruga
Verde
Campos
Marlim
Post-
salt
Post-
salt
Post-
salt
Post-
salt
Marlim
Leste
Post-
salt
Campos
Other pre and
post-salt fields
Onshore
Shallow waters
TOTAL
(1)
Including operations in 2020.
Consortium
Petrobras
(65%),
Shell (25%),
Petrogal (10%)
Petrobras
(100%)(1)
Petrobras
(45%),
Shell (30%),
Repsol
Sinopec (25%)
Petrobras
(100%)
Petrobras
(75%),
Equinor (25%)
Petrobras
(100%)
Petrobras
(50%)
Petronas
(50%)1
Petrobras
(100%)
Petrobras
(100%)
API
gravity
Sulphur
content
(% wt)
2020 oil
production
(mbbl/d)
28 – 32
0.29 –0.38
28- 29
0.31- 0.32
29.8
0.4
17 – 30
0.29 –0.56
17 – 28
0.53 – 0.74
17 – 25
0.59 – 0.73
27.5
0.76
19 – 23
0.68 – 0.77
23 – 29
0.50 – 0.51
619.8
516.8
92.6
185.5
112.0
109.9
45.5
61.3
41.4
344.2
104.9
31.9
2.265.8
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81
Tupi Field
In July 2020, we reached the accumulated production of two billion barrels of oil equivalent (boe) in the
Tupi field, located in the pre-salt of the Santos Basin, approximately 230 km from the coast of the state
of Rio de Janeiro. This milestone took place in the same month in which we celebrated the 20th
anniversary of the signing of the concession agreement for block BM-S-11, where the field is located
currently producing approximately one million barrels per day (bpd).
This accumulated production occured just 10 years after the start of the first permanent production
system, the FPSO Cidade Angra dos Reis, and 14 years after it was discovered, in 2006. From 2010 to
2019, the consortium, formed by us, with a 65% stake in the partnership with Shell Brasil Petróleo Ltda
(25% stake in the partnership) and Petrogal Brasil S.A. (10% stake in the partnership), put into operation
nine production systems, an average of one system per year.
In the process of implementing these production systems, we had to overcome a series of
unprecedented challenges in the industry, such as the distance from the coast and the existence of very
few similar reservoirs in the world, ultra-deep reservoirs under a thick layer of salt. In partnership with
research institutions, partner companies and suppliers, we developed a series of technologies and
innovations that allowed safe and profitable productions in pre-salt fields, which continues to be a
reference in terms of its environmental performance. As a result of the unprecedented technologies we
developed, in 2015 we received the Distinguished Achievement Award for Companies, Organizations and
Institutions, which is the main award in the industry and is promoted by the Offshore Technology
Conference (OTC).
The Future of Tupi
Together with our partners in the BM-S-11 block, we have developed several initiatives aimed at
revitalizing the field even before the start of its decline, seeking to increase the oil and gas recovery
factor that can be extracted from the field and, thus, maximize the value of the asset. Working towards
this goal, we are developing projects to maintain the reservoir's pressure, such as interconnecting new
wells into already implemented production systems and alternating water and gas injection technology
(Water Alternating Gas - WAG). In addition to these projects, together with our partners we are also
analyzing actions that will be taken according to the terms of the concession and seeking to develop
other low-cost and highly reliable technologies that may increase the recovery factor.
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.
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For more information on our production of crude oil, natural gas, synthetic oil and
synthetic gas by geographic area in 2020, 2019 and 2018, see Exhibit 15.3 to this annual
report.
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 China, Americas, Europe,
and other countries in Asia.
OIL CLIENTS (% VOL)
Fuel oil is one of the most representative types of oil products in terms of volume in
exports. In 2020, we exported high sulfur oil and, to a greater degree, low sulfur fuel oil
to several destinations. Our fuel oil is available in the major hubs in the market such as
Singapore, the Mediterranean, the US Gulf Coast, the west coast of Africa, Panama and
the Caribbean. Our counterparties list consists of major companies, trading companies
and barging companies. We have sold fuel oil to more than 40 different companies this
year.
In the exploration and production industry, we deal with several competitors when we
participate in bidding rounds conducted by the ANP.
PETROBRAS _______________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
OUR BUSINESS
Reserves
83
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 reserves
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 gas sales. In 2020, we did not book proved reserves relating to non-
traditional reserves such as synthetic oil and gas.
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 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 18 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, 2020 in Brazil. The amount of reserves
reviewed by D&M corresponds to 97% 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.
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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, 2020 were
estimated at 8,816 million boe. This estimate includes our interest in our equity method
investees, which represents 0.2% of our net reserves.
PROVED RESERVES(1) (MILLION BOE)
(1)
Apparent differences in the sum of the numbers are due to rounding off.
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.
PETROBRAS _______________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
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85
PROVED RESERVES(1)
(MILLION BOE)
(1) Apparent differences in the sum of the numbers are due to rounding off.
(2) The 922.5 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.
In 2020, we incorporated 223.7 million boe of proved reserves by revising previous
estimates, including:
_ addition of 637.1 million boe arising from technical revisions, mainly due to good
performance and increased production experience in reservoirs in the pre-salt layer of
Santos Basin;
_ addition of 253.9 million boe due to approvals of new projects, mainly in the Santos
and Campos Basins; and
_ reduction of 667.2 million boe related to economic revisions, mainly due to the
decrease in oil prices.
In addition, we added 40.8 million boe to our proved reserves due to extensions and
discoveries in the pre-salt of Santos Basin, and reduced 116.8 million boe due to sales
of proved reserves.
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Proved Undeveloped Reserves
As of December 31, 2020, our proved undeveloped reserves were estimated at 2,983.1
million boe, a net decrease of 16% when compared to 2019 year-end. This decrease is
a result of the following changes:
_ we converted a total of 423.9 million boe of proved undeveloped reserves to proved
developed reserves, mainly as a result of the P-70 platform start-up in the Santos Basin
and offshore and onshore drilling and tieback operations;
_ our proved undeveloped reserves decreased by 149.2 million boe as a result of revisions
to previous estimates, including a 456.3 million boe reduction due to economic
revisions, partially offset by additions from new project approvals, mainly in the Santos
and Campos Basins (247.2 million boe), and technical revisions, mainly due to good
performance and increased production experience in the pre-salt layer of the Santos
Basin (60.0 million boe);
_ we added 12.8 million boe to our proved undeveloped reserves due to extensions and
discoveries in the pre-salt of the Santos Basin; and
_ we reduced 9.6 million boe from our proved undeveloped reserves as a result of sales
of proved reserves.
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87
CHANGES IN PROVED UNDEVELOPED RESERVES(1) (MILLION BOE)
(1) Apparent differences in the sum of the numbers are due to rounding off.
As of December 31, 2020, 55% (1,647 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 2020, we invested a total of US$5.7 billion in development projects, of which 99%
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 may 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.
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, 2020. 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.
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GROSS AND NET PRODUCTIVE WELLS
Oil
As of December 31, 2020
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
5,187
5,155
316
310
46
46
20
20
5,233
5,176
191
191
507
0
38
0
0
3
0
0
1
0
94
94
404
0
0.1
0
TOTAL GROSS AND NET PRODUCTIVE WELLS
5,271
5,179
508
404
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
GROSS AND NET DEVELOPED AND UNDEVELOPED ACREAGE (IN ACRES)
Consolidated
Brazil
South America (outside of Brazil)
Total consolidated
Equity method investees
Africa
North America
Total equity method investees
TOTAL GROSS AND NET ACREAGE
As of December 31, 2020
Developed acreage
Undeveloped acreage
Gross
Net
Gross
Net
4,374,882.4
3,847,297.5
468,233.6
415,649.9
2,304.0
774.1
2,310.0
776.2
4,377,186.4
3,848,071.6
470,543.6
416,426.1
0
22,897.0
22,897.0
0
1,985.2
1,985.2
4,400,083.4
3,850,056.8
0
146,177.0
146,177.0
616,720.6
0
10,832.1
10,832.1
427,258.2
For “net” figures, we used our working interest held on December 31, 2020. 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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NET PRODUCTIVE AND DRY EXPLORATORY AND DEVELOPMENT WELLS
2020
2019(1)
2018
Net productive exploratory wells drilled
Consolidated subsidiaries
Brazil
South America (outside of Brazil)
Total consolidated subsidiaries
Equity method investees
North America(2)
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(2)
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(2)
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(2)
Africa
Total dry development wells drilled
4.6
—
4.6
—
—
4.6
1.5
—
1.5
—
—
1.5
6.1
79.0
0.336
79.3
0.306
0
79.6
—
—
—
—
—
—
—
—
5.5
1.0
6.5
—
—
6.5
1.0
—
1.0
—
—
1.0
7.5
102.0
—
102.0
0.14
0.6
102.7
—
—
—
—
—
—
—
—
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
—
—
—
—
—
—
—
—
TOTAL NUMBER OF NET DEVELOPMENT WELLS DRILLED
79.64
102.7
107.9
(1) Data from 2019 has been adjusted to reflect the inclusion of both injection and producing wells.
(2) 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, 2020.
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The following table summarizes the number of wells in the process of being drilled as of December 31, 2020.
NUMBER OF WELLS BEING DRILLED AS OF DECEMBER 31, 2020
Consolidated Subsidiaries
Brazil
International
South America (outside of Brazil)
North America
TOTAL WELLS DRILLING
Gross
Net
8.0
6.65
1.0
4.0
13.0
0.34
0.18
7.17
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$)
Brazil
South
America
North
America
Equity method
investees(2)
Total
2020
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
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
39.96
5.63
33.2
2.52
4.11
61.25
7.72
50.55
3.53
7.05
66.66
7.15
60.04
4.47
10.21
36.89
3.65
—
—
4.35
36.89
3.65
—
—
4.69
42.44
4.09
—
—
4.57
—
—
—
—
—
—
—
—
—
—
67.21
3.56
—
—
9.75
39.95
5.47
33.2
2.52
4.11
61.25
7.55
50.55
3.53
7.02
66.65
7.00
60.04
4.47
10.11
37.69
2.00
—
—
36.23
64.71
2.60
—
—
31.20
72.76
0.76
—
—
31.85
(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.
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For more information about our capitalized exploration costs, see Note 28 to our audited consolidated financial
statements and the unaudited supplementary information on oil and gas exploration and production contained
therein.
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Refining, Transportation and Marketing
—
We processed 73% of all our oil production, which includes oil and LNG and
excludes natural gasoline (“C5+”), in our refineries. The remainder was
exported. In 2020, we produced 1.828 million bbl/d of oil products, from the
processing of Brazilian oil (94% of feedstock) and imported oil (6% of feedstock).
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 2020 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 17 third-party terminals.
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Our Refining, Transportation and Marketing also include activities such as (i)
petrochemicals (ii) extraction and processing of shale and (iii) production of
biofuels.
We are repositioning ourselves in the refining business through divestment, a
strategy which allows us to share risks and to establish a dynamic, competitive
and efficient industry, while generating liquidity for us.
In line with our repositioning process, in June 2019, we signed a commitment
with CADE which consolidates our understanding 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 CADE’s court administrative
investigation related to the alleged abuse of our dominant position in the
refining segment. The agreement considers the divestment of approximately
50% of our refining capacity, which comprises seven refining units (Reman,
Lubnor, Rnest, Rlam, Regap, Repar and Refap) and a shale industrialization unit
(SIX).
For more information on our agreement with CADE regarding our divestments
in refining assets, see “Risks – Risk Factors – Operational Risks” and “Portfolio
Management” in this annual report.
The initial stages of these divestments processes were announced in 2019. We
have since announced additional stages in 2020.
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
2020
2019
2018
7,719
131
30
101
61
44
17
13
13
-
2,176
2,176
-
7,719
128
45
83
63
44
19
13
13
-
2,176
2,176
-
7,719
123
43
80
56
44
9
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.
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Refining
We serve our oil products clients in Brazil through a coordinated combination of
oil processing, importing and exporting that seeks to optimize our margins,
considering different opportunity costs of domestic and imported oil, oil
products in the several markets, as well as the costs for transport, storage and
processing involved.
In 2020, we processed 1,754 mbbl/d of oil in our 13 refineries. The following
graphs show the processed feedstock and the performance of our refineries.
PROCESSED FEEDSTOCK (MBBL/D)
There was a small increase in
processed feedstock seeking
value maximization and
alignment with demand
behavior.
In October, our refineries broke an internal production record of S-10 Diesel
low-sulfur diesel, producing 2.01 million m³ of the product, a higher volume than
in July, when production reached 1.81 million m³, and 25% higher than the June
mark of 1.6 million m³.
The S-10 Diesel records follow the evolution of heavy-duty and utility vehicle
engines powered by diesel, which are responsible for most of the goods
circulated in Brazil. There are two types of road diesel in Brazil, the S-500 and
the S-10, with the former being used by vehicles manufactured prior to 2012.
In 2020, there was an increase in the production of oil products and utilization
factor of the refining system as compared to 2019. Despite the reduction in
gasoline and jet fuel production between 2019 and 2020, the production of oil
products rose in 2020 mainly due to increases in the production of low sulfur
fuel oil for export, which resulted from higher bunker oil prices in the global
market due to the new IMO 2020 quality specifications. Diesel production
increased in 2020, despite the drop in sales in the domestic market, with the
surplus being directed to exports.
Naphtha production increased in 2020, accompanying the increase in sales in
the domestic market, due to the reduction in direct imports made by Braskem.
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LPG production increased in 2020 due to an increase in sales resulting from
lower average temperatures and social isolation because of the Covid-19
pandemic, both of which boosted the consumption of residential LPG.
In 2020, there was a decrease in the production of jet fuel following the
reduction in sales due to the impact of Covid-19 on commercial jet fuel 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 our refining operations. These investments
in our existing refineries have been largely completed.
The following table sets out the performance of our refineries.
PERFORMANCE OF REFINERIES
Refinery
LUBNOR
RECAP
REDUC
REFAP
REGAP
REMAN
REPAR
REPLAN
REVAP
RLAM
RPBC
RPCC
RNEST
Average crude oil throughput
Average NGL throughput
Average throughput
Crude
distillation
capacity
(mbbl/d)
2020
Nelson
Complexity
Index
Average throughput(1)
(mbbl/d)
Operational
availability
(%)
Utilization rate
(%)
2020
2020
2019
2018
2020
2019
2018
2020
2019
2018
8
57
239
201
157
46
208
434
252
279
170
38
88
—
—
—
3.5
6.8
15
6
7.9
1.8
7.8
6.9
8.6
7.7
10.2
1
10.7
—
—
—
—
8
39
178
129
123
27
179
306
216
239
143
29
93
7
50
190
138
134
32
168
326
185
206
133
32
74
8
50
190
135
141
97.3
95.3
96.8
96.2
96.8
96.9
97.6
93.7
97.4
96.3
30
97.9
97.9
97.8
94.2
96.8
96.2
97.1
94.5
94.1
92.9
96.2
95.3
—
—
173
286
213
201
140
32
67
97.5
97.6
95.3
95.8
97.7
97.1
96.6
87.2
96.5
95.2
97.5
—
102.0
82.7
94.5
68.4
87.8
93.1
74.5
79.5
79.7
64.1
68.8
66.8
78.0
85.3
89.7
59.3
69.1
64.3
86.3
80.9
83.1
70.4
75.2
68.8
85.9
73.5
84.8
85.6
73.9
63.8
84.0
78.3
82.4
—
—
—
96.8
97.8
94.6
105.7
84.4
90.2
1,709
1,675
1,664
45
45
51
1,754
1,720
1,715
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Crude Distillation capacity
2,176
(1)
Considers oil and NGL processing (fresh feedstock).
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MAIN PRODUCTS, MARKETS AND STORAGE CAPACITY OF OUR REFINARIES
Main products
Main markets in Brazil
Refinery
LUBNOR
Asphalt (45%); Fuel Oil (35%);
Lubricants (13%); Diesel (7%)
REDUC
RECAP Diesel (42%); Gasoline (33%); LPG
(9%)
Diesel (25%); Gasoline (14%);
Fuel Oil (19%); LPG (12%); Jet
Fuel (4%); Naphtha (12%)
Diesel (47%); Gasoline (20%);
Naphtha (14%); LPG (7%)
REFAP
REGAP
Diesel (48%); Gasoline (24%); Jet
Fuel (4%); LPG (7%)
REMAN
Gasoline (31%); Diesel (26%);
Naphtha (9%); Jet Fuel (7%); Fuel
Oil (15%)
REPAR Diesel (47%); Gasoline (27%); LPG
(8%)
REPLAN Diesel (46%); Gasoline (21%); LPG
(7%); Jet Fuel (3%)
REVAP
Diesel (32%); Gasoline (19%);
Naphtha (10%); Jet Fuel (10%);
Fuel Oil (14%)
RLAM Diesel (30%); Gasoline (17%); LPG
(5%); Fuel Oil (39%);
RPBC
Diesel (45%); Gasoline (25%);
Fuel Oil (13%); LPG (6%)
RPCC
RNEST
Fuel Oil (76%); Diesel (9%); Jet
Fuel (5%); Gasoline (6%)
Diesel (50%); Naphtha (13%);
Coke (8%); Fuel Oil (27%)
Lubricant Oil – sold to distributors and marketed
nationwide 0.3 0.6 Asphalts – states in Northern
and Northeastern Brazil and Minas Gerais
Part of the São Paulo metro region and
petrochemical plants
Rio de Janeiro, São Paulo, Espírito Santo, Minas
Gerais, Bahia, Ceará, Paraná, Rio Grande do Sul
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
Amazonas, Acre, Roraima, Rondônia, Amapá
and Pará
Paraná, Santa Catarina, Southern São Paulo and
Mato Grosso do Sul
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
Rio Grande do Norte and southern Ceará
Storage capacity
(mbbl)
Crude
oil
Oil
products
0.3
0.6
0.5
5.7
1.8
12.5
3.2
1.4
1.7
6.0
0.7
1.5
2.9
6.7
1.9
12.9
3.3
12.0
—(1)
4.3
2.5
6.8
0.12
0.12
North and Northeast of Brazil
—(2)
0.7
(1)
Crude oil is supplied directly to RLAM tank farms of 4.1 mbbl, with no external crude oil storage.
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(2)
Crude oil is supplied directly to RNEST’s tank farms of 5.1 mbbl, with no external crude oil storage.
With respect to oil products, we produced 1,828 mbbl/d of oil products in 2020, as shown in the
following graphic:
OIL PRODUCTS PRODUCTION (MBBL/D)
Ongoing undertakings
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 the UPGN, all critical bidding for
the UPGN utilities was successfully completed during 2019. In 2020, some
utilities systems were successfully completed and the unit start up is scheduled
for 2022. We are studying new 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 and the
construction of a Natural Gas Thermoelectric Power Plant.
International Maritime Organization
In 2016, the International Maritime Organization (“IMO”) decided to reduce the allowable upper limit
for sulfur content in marine fuels (bunker oil) from 3.5% to 0.5% from January 1, 2020 onwards.
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.
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In the last quarter of 2019, the demand for LSFO increased in all ports where we offered the product
while international prices have risen significantly.
In 2020, due to the rising value of the low sulfur fuel oil (LSFO), we have set new records of exports from
Brazil three times, the last one being in September when 1.14 mmt of fuel oil (mainly LSFO grades) left
Brazilian ports. Even with increasing export quantities during 2020, the average of LSFO grades from
Brazil were commercialized at a positive crackspread against Brent.
Logistics
Oil and oil products logistics connect the oil production systems to refineries and
markets seeking to maximize the value of oil refining operations and the
commercialization of oil and oil products in Brazil and abroad through an
integrated system of logistics planning, sales, and operations and assets, as
depicted below.
We directly manage some assets of this system, while we contract others with
our wholly owned subsidiary Transpetro.
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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.
The terminals and pipelines operation is an important link in our supply chain.
The oil is transported from the production fields to Transpetro terminals either
by pipeline or by ship. From there, it is transported to refineries or for export.
After refining, the oil products are again drained through 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 2020, Transpetro handled 568.4 million m3 of oil and oil
products, totaling 8,227 operations with tankers and oil barges.
VOLUME MOVED AT TERMINALS AND PIPELINES (MILLION M
3
)
The Brazilian economy is recovering more rapidly
than expected due to strong agribusiness activity
and the economic stimulus introduced by the
Brazilian federal government in response to the
Covid-19 pandemic. The resumption of demand in
the domestic market resulted in the recovery of
sales and production of oil by-products, prompting
an increase in domestic refinery runs and
leveraging the volumes handled by Transpetro.
External demand for crude oil and fuel oil also
exceeded estimates, increasing transhipment
operations.
In 2020, we continued, in partnership with Transpetro, our implementation of
the Integrated Pipeline Protection Program (“Pró-Dutos”). Pró-Dutos aims to
expand and integrate all actions targeted at mitigating the risks caused by fuel
thefts (illegal taps) in onshore pipelines. The scope of the program is
multidisciplinary and focuses on six areas: intelligence, legislation, social
responsibility, communication, technology and contingency.
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In addition to our attention to operational safety, we seek to work in
cooperation with public intelligence and security agencies to protect life and the
environment around the areas in which we operate. In 2020, new pipeline
routes for the transportation of LPG, naphtha and oil were put into operation.
As a result, these highly flammable products are now transported far away from
the urban centers of the metropolitan region of São Paulo, significantly
mitigating the risk to human life caused by the fuel theft from pipelines. In 2020,
4,973 m³ of oil and oil products were stolen, a decrease of 30% compared to
2019. The number of thefts in 2020 reached 201, slightly below the 203
occurrences in 2019.
We also launched a new and wide-ranging advertising campaign to raise public
awareness of fuel theft risks and to encourage the public to report criminal
actions through our communication channel. In addition, we continued to
exercise our crises procedures and responses to emergencies resulting from fuel
theft from pipelines. For example, in 2020, we completed the first integrated
crisis simulation exercise between Transpetro and us.
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TERMINALS
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
Santa Catarina
Sergipe
São Paulo
TOTAL
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
Biguaçu
Itajaí
Guaramirim
São Francisco do Sul
Aracaju
Santos
São Sebastião
Barueri
Cubatão
Guararema
Guarulhos
Paulínia
Ribeirão Preto
São Caetano do Sul
44
Type
Nominal capacity (m³)
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
Onshore
Onshore
Onshore
Marine
Marine
Marine
Marine
Onshore
Onshore
Onshore
Onshore
Onshore
Onshore
Onshore
–
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
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
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In 2020, aiming to optimize the operational fleet and following the best
practices of the shipping market, Transpetro performed an analysis of its ship
portfolio and decided to dispose of assets over 25 years old. In this way,
Transpetro created a divestment plan that will end in the first half of 2021. This
action plan resulted in a reduction in the average age of the fleet from 13.57
years to 9.34 years in 2020, in addition to improving the operational availability
indicator.
For more information on the vessels chartered or owned by us and Transpetro,
see Exhibit 15.4 to this annual report.
Marketing
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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.
2020
1,663
8
292
1,963
957
2,920
2019
1,738
7
350
2,095
735
2,830
2018
1,787
17
345
2,149
594
2,743
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Oil products prices
Crude oil is a commodity, the value of which depends on its quality. Traditionally, a lighter crude oil has
a better value than a heavier one, given that it can generate higher value products. Recently, however,
heavy crudes have shown a strong market value due to the possibility of high margin production when
these crudes are processed in high complexity hardware refineries. Moreover, low-sulfur crude oil could
have a better expectancy value than oil with higher sulfur content if they both have similar yields and
physical properties. 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.
As oil products are traded globally and can be transported between markets, prices around the world
tend to fluctuate together, subject to local conditions.
Diesel and Gasoline
Diesel and gasoline prices in the Brazilian market are defined taking into account the import parity price
and margins to remunerate the risks inherent in the operation.
Prices readjustments of diesel and gasoline are carried out without defined frequency, according to
market conditions and external environment analysis, enabling us to compete more efficiently and
flexibly.
In 2020, we announced adjustments to selling prices at refineries, resulting in price decreases of 4.1%
for gasoline and 13.2% for diesel, when comparing prices in place on December 31, 2020 with those
effective as of December 31, 2019.
LPG
In August 2019, prices for “residential LPG” began to adopt the import parity price as reference, similar
to the “industrial/commercial LPG” policy. This allowed a greater alignment of prices for both segments.
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In November 2019, we equalized prices for residential and industrial/commercial use. In March 2020,
the Brazilian National Council of Energy Policy (CNPE) revoked the legal basis that allowed differentiation
of prices by segment.
Price adjustments are made without defined periodicity, according to market conditions and analysis of
internal and external environments.
In 2020, we announced adjustments to selling prices at refineries, resulting in price increases of 21.9%
for LPG, when comparing prices in place on December 31, 2020 with those effective as of December 31,
2019.
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 our production in Brazil. In addition,
we continue to import oil products to balance any shortfall between production
from our Brazilian refineries and the market demand for each product.
In 2020, net exports increased by 362,000 bbl/d, reaching 743,000 bbl/d. This
increase resulted from the record in oil exports, 33% higher than in 2019 and
from an increase in fuel oil exports for bunker formulation due to the
appreciation caused by the entry of IMO 2020. In addition, there was a drop in
diesel and gasoline imports due to the negative impact on consumption caused
by the Covid-19 pandemic.
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
2020
2019
2018
713
194
50
957
97
18
10
89
214
536
133
66
735
168
70
28
88
354
428
121
43
592
154
59
19
117
349
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Our crude oil, oil products and LNG trading activities aim to meet our internal
demands or potential businesses opportunities identified by our commercial
teams, seeking to optimize the buying and selling operations in the Brazilian and
global markets, as well as offshore operations.
The international trading teams are based in the major global commercial hubs
of oil and oil products, such as London, Houston and Singapore and Rotterdam
and are comprised of crude oil and product traders, shipping and support
operators.
One of our most representative trades in terms of volume and profitability is
crude oil. We sell oil through long-term and spot-market contracts. In 2020, the
crude oil volume committed through long-term contracts with fixed quantity
subject to final agreement on commercial terms was approximately 100,000
bbl/d.
Distribution
We sell our oil products to several distribution companies in Brazil. Until July
2019, we had a 71.25% stake in BR Distribuidora (“BRDT”), one of the largest
distribution companies in the country. As a result of the follow-on offering
closed in July 2019, we have a 37.5% participation in BRDT as of December 31,
2020.
In August 2020, our Board of Directors approved the proposal to sell our
remaining 37.5% stake in the capital stock of BRDT, by means of a secondary
public offering (follow-on). The launch date of the offer will be defined at a later
time and is subject, among other conditions, to market conditions, the approval
of our internal boards (particularly regarding price), and to the analysis of the
CVM and other regulatory and self-regulatory bodies, under the terms of the
applicable legislation.
Even after completing the sale of part of our shareholding in BRDT, we remain
the owner of the main brands used by it, including those that identify service
stations, fuel, loyalty program, aviation segments and certification program,
among others.
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A 10-year trademark license agreement is in place and grants BRDT a non-
exclusive, paid, temporary license on certain trademarks we own, including but
not limited to “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
shall exclusively use the brands licensed by us. BRDT must also exclusively use
our licensed brands in the oil and gas and biofuels segments. Meanwhile, during
the term of the trademark license agreement, we undertake to refrain 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.
In 2020, we operated in the bottling, distribution and sale of LPG through our
subsidiary Liquigás Distribuidora S.A. (“Liquigás”). In line with our goals of
optimizing our portfolio, improving our capital allocation and creating value for
our shareholders, we completed the sale of our entire stake in Liquigás on
December 2020.
For more information on the sale of our equity stake in Liquigás see “Portfolio
Management” in this annual report.
For more information on oil products clients, see “Our Business – Production -
Customers and Competitors” in this annual report.
We also participate in the retail sector in other South American countries, as
follows:
_ Colombia: Our operations through Petrobras Colombia Combustibles S.A.
(PECOCO) include 123 service stations and a lubricant plant with a production
capacity of 54,000 m3/year. In March 2020, we announced the beginning of
PECOCO’s divestment process;
_ Uruguay: We had 88 service stations. In February 2021, we sold our stake in
PUDSA and ended the operation in this country.
_ 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;
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_ 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.
For more information of the divestment process, see “Portfolio Management”
in this annual report.
Customers and Competitors
We interact with around 470 clients in Brazil, in regards to liquid oil products,
seven of which account for 70% of the total volume sold.
LIQUID OIL PRODUCTS CLIENTS (% VOL)
The sale of oil products to distribution companies is done by contracts executed
in accordance with ANP regulations.
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 payment phase.
According to information provided by the ANP, we have a dominant
participation in the Brazilian market for refining. We own and operate 13
refineries in Brazil and a shale industrialization unit (“SIX”). SIX is presented in
the Shale Industrialization section in this annual report.
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In June 2019, we signed a commitment with CADE which consolidates the
understanding between the parties on the execution of the divestment of
refining assets and SIX in Brazil.
For more information on our agreement with CADE regarding our divestments
in refining assets, see “Risks – Risk Factors – Operational Risks” and “Portfolio
Management” in this annual report.
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 2020, 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 2020.
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Other Activities
Petrochemicals
We engage in the petrochemical sector through the following companies:
OUR SHAREHOLDING IN PETROCHEMICAL COMPANIES IN BRAZIL AND THEIR MAIN PRODUCTS
Company/Main products
Location
Braskem
Ethylene
Polyethylene
Polypropylene
DETEN Quĺmica S.A.
LAB(1)
LABSA(1)
METANOR S.A./COPENOR S.A.(2)
Formaldehyde
Hexamine
FCC Fábrica Carioca de Catalisadores
S.A.
Catalysts
Additives
PETROCOQUE S.A.
Bahia
Bahia
Bahia
Rio de
Janeiro
Nominal
capacity
(mmt/y)
5.00
4.11
4.50
0.22
0.12
0.09
0.01
0.04
0.01
Our shareholding
Other shareholding
36.15%
Novonor (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.
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Shale Industrialization
We operate shale processing through our shale industrialization unit (“SIX”), an
operating unit with installed capacity of 5,880 t/d, located in São Mateus do Sul,
Brazil. 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 as ceramics, oil refineries, cement plants, sugar mills
and agricultural undertakings. The process also produces shale water, which is
an input used to formulate foliar fertilizers.
Fuel oils obtained from shale are suitable for industrial consumption in urban
centers because they are highly fluid, very easy to handle and eliminate the need
for pre-heating. This allows for reductions in burning operating costs and, as
such, is ideal for cold climates.
In conducting our operation, we work to repair mined areas through an
environmental program that consists of reforestation with native species and
the return of fauna to rehabilitated land.
In line with our repositioning process, in 2019, we signed a commitment with
the CADE which consolidated our understanding on the execution of divestment
of refining assets in Brazil and started the divestment processes of seven refining
units (Reman, Lubnor, Rnest, Rlam, Regap, Repar and Refap) and SIX.
For more information on our agreement with CADE regarding our divestments
in refining assets, see “Risks – Risk Factors – Operational Risks” and “Portfolio
Management” in this annual report.
Biofuels
BioRefino 2030
In 2020, we launched the BioRefino 2030 Program, which aims to transform the refining park in sync with
a low-carbon based economy and anticipates projects for the generation of new, modern and
sustainable fuels, such as renewable diesel and biojet.
Renewable diesel is an advanced biofuel, produced from vegetable oils using our proprietary HBIO
technology. The resulting fuel presents the same structure as conventional diesel fuel. According to
reports from the Biodiesel Producers Association (APROBIO), this new fuel reduces the emission of
greenhouse gases by 70% compared to mineral diesel oil and by 15% compared to ester biodiesel.
Renewable diesel is also free of contaminants and does not cause any damage to engines, effectively
increasing vehicle life and reducing transportation costs. The authorization for the commercial sale of
this biofuel in Brazil will depend on a new regulation to be issued by the National Petroleum Agency
(ANP).
BioQAv, or biojet fuel, will be used worldwide to reduce the emission of greenhouse gases in the aviation
sector. This was determined by the International Civil Aviation Organization (ICAO) and will be
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mandatory in Brazil in 2027. The production process for BioQAv, through hydrogenation, uses the same
raw materials required for the production of renewable diesel and produces renewable diesel (HVO) as
a co-product.
We also operate in the production of biodiesel through our wholly owned
subsidiary PBIO, which manages our activities for the production, logistics and
marketing of these products.
Brazil is a global leader in the use and production of biofuels. The anhydrous
ethanol content requirement for gasoline sold in Brazil is 27%.
Historically, Brazil is a major producer of ethanol and sugar and some companies
that operate in this market sell the excess electricity generated from the burning
of sugarcane bagasse.
There is mandatory blend of 13% biodiesel in all diesel sold in Brazil on or after
March 2021, with gradual scheduled increases of 1% per year, until it reaches a
mandated 15% in 2023. PBIO had a 50% interest in BSBios Indústria e Comércio
de Biodiesel Sul Brasil S.A. (“BSBios”), which owns two biodiesel plants. In
February 2021, we announced the sale of PBIO’s entire stake in BSBios to RP
Participações em Biocombustíveis S.A. (“RPBio”), which owned the remaining
50% stake in BSBios. PBIO has three biodiesel plants for its own operations.
However, the Quixada biodiesel plant, one of our directly owned units, is in
hibernation state since November 2016. Our biodiesel production capacity in
the other two in operation is 8.63 mbbl/d. In 2020 we supplied 4.81% of Brazil’s
biodiesel demand, according to the ANP.
Main Assets
Biofuels
Biodiesel production units - PBIO
Biodiesel production capacity (mbbl/d) - PBIO
Biodiesel production units - BSBios
Biodiesel production capacity (mbbl/d) - BSBios
2020
2019
2018
3
10.5(1)
2
14.3(2)
3
10.0(1)
2
12.1(2)
3
8.2(1)
2
9.9(2)
_
(1)
(2)
Includes the capacity of Quixadá biodiesel plant, which has been in hibernation state since November 2016.
Includes total production capacity in two plants in which we have 50% interest through BSBIOS Sul Brasil.
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With respect to divestments, in July 2020, we announced the sale of PBIO’s
entire stake in Bambuí Bioenergia S.A. (Bambuí). This stake represented 8.40%
of Bambuí shares and was sold to Turdus Participações S.A. (Turdus), which held
the remaining 91.60% stake in the company. However, Turdus and Bambuí
initiated an arbitration process against PBIO. In February 2021, we also
announced the sale of PBIO’s entire stake in BSBios to RPBio. In addition, we are
in the process of divesting our stake in PBIO. In September 2020, we announced
the beginning of the binding phase of the sale of all of our shares in this wholly
owned subsidiary.
For more information on our divestments, see “Portfolio Management” in this
annual report.
In accordance with our 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.
BIOFUELS PRODUCTION(1) (THOUSAND M
3
)
(1)
(2)
Includes 100% of the volume of our equity method investee (net production of PBIO in biodiesel, considering PBIO
share in the investee, was 68.4% in 2018, 67.4% in 2019 and 64.5% in 2020 ).
Ethanol production figures from 2020 are up to July 10, 2020, the date when we sold our share in Bambuí, our
investee in this segment (net production of PBIO in ethanol was 8.4% of total).
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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 106.15 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
Gas pipelines in Brazil (km)
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)
2020
2019
2018
4,686(1)
22
19
3
149
105
44
3
47
20
6.1
9,190
22
19
3
149
105
44
3
47
20
6.1
9,190
23
20
3
149
105
44
3
47
20
6.1
_
(1)
In July 2020, we entered into a share purchase and sale agreement for our remaining 10% interest in TAG, which has 4,504 km of
pipelines.
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Natural Gas
Our Gas and Power segment comprises gas processing, transportation 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:
_ Act competitively in the trading of its own gas.
_ Optimize the thermoelectric portfolio focusing on self-consumption and trading
of its own gas.
_ Withdraw completely from gas distribution and transport.
Processing of Natural Gas
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.
The current processing capacity and production of our UPGNs in Brazil is:
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PROCESSING CAPACITY AND PRODUCTION OF OUR UPGNS IN BRAZIL
Location
Number
of units
2020
Processing
capacity
(million
m³/d)
Unprocessed
natural gas
(million
m³/d)
2020
Processed
natural
gas
(million
m³/d)
LPG
(thousand
t/d)
Unprocessed
natural gas
(million
m³/d)
2019
Processed
natural
gas
(million
m³/d)
LPG
(thousand
t/d)
Unprocessed
natural gas
(million
m³/d)
2018
Processed
natural
gas
(million
m³/d)
LPG
(thousand
t/d)
UTGCAB
UTGCA
UTGC
UTGSUL
REDUC
Rio de
Janeiro
São Paulo
Espírito
Santo
Espírito
Santo
Rio de
Janeiro
RPBC
São Paulo
LUBNOR
Ceará
URUCU
GUAMARÉ
Amazonas
Rio
Grande
do Norte
PILAR
Alagoas
ATALAIA
Sergipe
CATU
CANDEIAS
EVF
MANATI
TOTAL
Bahia
Bahia
Bahia
1
1
1
1
1
1
1
4
3
1
1
1
1
1
24.60
20.00
18.10(1)
2.50
5.00
2.00
0.35
22.58
17.54
12.43
11.84
3.98
0.48
1.05
0.08
–
3.50
0.46
0.93
–
–
0.98
0.62
0.59
–
0.05
–
–
23.37
17.35
14.68
14.03
4.89
0.58
1.46
0.46
–
4.36
0.57
1.02
0.43
–
0.71
0.70
0.82
–
0.06
–
–
22.15
17.85
11.47
10.95
6.41
1.01
1.02
0.52
–
5.83
0.96
0.71
0.37
–
0.61
0.47
0.92
–
–
–
–
12.20
11.61
10.81
1.08
12.10
11.56
1.21
12.32
11.45
1.26
5.7
1.8
3.00
2.00
2.90
6.00
0.69
1.24
0.21
1.22
–
0.63
1.20
0.20
1.06
–
0.1
0.07
0.02
–
–
2.32
2.20
–
1.36
1.24
0.78
1.57
–
3.54
1.25
1.19
0.73
1.45
–
–
0.15
0.07
0.06
–
–
–
1.45
1.40
0.83
1.71
–
4.80
1.34
1.34
0.76
1.58
–
–
0.16
0.10
0.08
–
–
–
19
106.15
57.89
50.37
3.51
66.33
53.95
3.78
65.09
53.16
3.60
(1)
The UTGC unit's project was estimated to have a gas richness of approximately 14%. However, it actually presented an approximate richness of
8.5%. Thus, there was an opportunity to increase the nominal capacity of the plant without impacting the process, as the real richness was less than
the projected richness.
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Logistics
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).
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OUR SHARE IN GAS TRANSPORTATION COMPANIES IN BRAZIL
Company
Transportadora Brasileira Gasoduto Bolívia Brasil
S.A (“TBG”)
Gas pipeline
extension (km)
Our
shareholding
2,593
51%
Nova Transportadora do Sudeste S.A. (“NTS”)
2,043
10%
Transportadora Sulbrasileira de Gás S.A. (“TSB”)
50
25%
TOTAL
4,686
—
Other shareholders
BBPP Holdings Ltda. (29%);
YPFB Transporte S.A. (12%);
GTB –TBG Holdings S.A.R.L.
(8%)
Nova Infraestrutura Fundo
de Investimento em
Participações (FIP)
(82.35%); Investimentos
Itaú S.A. (Itaúsa) (7.65%)
Ipiranga Produtos de
Petróleo S.A. (25%), Repsol
Exploração Brasil (25%) e
Total Gas and Power Brazil
(25%)
In July 2020, we sold our remaining 10% interest in Transportadora Associada
de Gás S.A. (TAG), with the group comprised of ENGIE and CDPQ.
In March 2020, we announced the start of the divestment process of our
remaining 10% interest in Nova Transportadora do Sudeste S.A. (NTS).
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
In order to derive natural gas from our production of the Santos Basin pre-salt pole, in addition to using
part of the existing infrastructure, we invested in the construction of subsea pipelines (routes) integrated
with the processing units, which seek to optimize the use of natural gas.
We have invested in the following flow routes: ROUTE 1 AND GASMEX: The 359 km pipeline consists of
two stretches: Route 1, which is the stretch connecting the Tupi Platform to the Mexilhão Platform, with
capacity to flow up to 10 million m3/d, and GASMEX, which is the stretch connecting the Mexilhão
platform to the Monteiro Lobato Gas Treatment Unit (“UTGCA”), in the city of Caraguatatuba in the state
of São Paulo, with capacity to flow up to 20 million m3/d of gas produced in the Santos Basin pre-salt.
We own 65% of Route 1, Shell owns 25% and Petrogal owns the remaining 10%.
ROUTE 2: The 401 km pipeline links the Santos Basin pre-salt to the UTGCAB processing asset, in the city
of Macaé in the state of Rio de Janeiro. It had an initial capacity to flow up to 13 million m3/d, which then
increased to 16 million m3/d. In July 2019, the ANP authorized the pipeline to operate with 20 million
m3/d. We own 65% of Route 2 Tupi-Cernambi, Shell owns 25% and Petrogal owns the remaining 10%.
We own 55% of Route 2 Cernambi-TECAB, Shell owns 25%, Petrogal owns 10%, and Repson owns the
remaining 10%.
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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 Janeiro, for the sale of up to 18 million m3/d. Three hundred seven km
of the pipeline will be offshore, and 48 km onshore. The natural gas processing plant will have two units
with a total capacity of processing 21 million m3/d of natural gas, which will increase the supply of natural
gas, LPG and natural gasoline (C5+) to the market. The construction of Route 3 is scheduled to start in
2022. We own 100% of Route 3.
Recently installed and upcoming units in the Santos Basin pre-salt will be progressively connected to
Route 2 (P-66, P-69, P-68, P-76) and to Route 3 once they become operational (P-67, P-75, P-77, P-70,
FPSO Carioca and FPSO Almirante Barroso). All projects will be able to flow through any of the three flow
routes once the system is fully implemented.
Marketing and Sales
The total volume of natural gas sold by us in 2020 was 68.3 mmm³/d. The
volume of our natural gas consumption by industrial, gas-fired electric power
generation, commercial and retail customers in 2020 was 54.7 mmm3/d,
representing a small decrease of approximately 11% compared to 2019. This
decrease is mainly attributable to the Covid-19 pandemic.
In 2020, the consumption of natural gas by our refineries and fertilizer plants
was 13.5 mmm³/d, the same level as in 2019.
Below we present our sources and consumption in 2020:
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Opening the gas market
In July 2019, we signed an agreement with CADE, which consolidates the
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. The
agreement signed in July 2019 also contains our commitment to sell the
following ownership interest: (i) our 10% stake in Nova Transportadora do
Sudeste S.A. (NTS); (ii) our 10% stake in Transportadora Associada de Gás S.A.
(TAG); (iii) our 51% stake in Transportadora Brasileira Gasoduto Bolívia-Brasil
S.A. (TBG); and (iv) our indirect stake in gas distribution companies, either by
selling our 51% interest in Gaspetro, or by selling our indirect stakes in the
distribution companies. In 2020, additional initiatives were implemented and
for 2021 other initiatives are planned, which are included in the infographic
below.
Additionally, we initiated the GAS + Program, which aims to increase our
competitiveness in the natural gas segment within Brazil’s current conditions of
market opening. With this program, we will launch new commercial products,
new forms of relationships with customers, new tools (such as digital contracts
and sales through automated platforms), and new business models (such as
negotiated access to the outflow infrastructure and gas processing in our Gas
Treatment Units), as well as direct the portfolio to high performance assets.
The Gas + Program also includes initiatives aimed at enhancing the efficiency
and profitability of our Gas and Energy segment, thereby contributing to our
high performance in a competitive market.
The program also provides for the incorporation of digital transformation
initiatives, utilizing technological advances as an important resource for
improving performance in all processes, whether at the industrial or business
level.
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For more information on our agreement with CADE, see “Risks – Risk Factors –
Operational Risks” and “Portfolio Management” in this annual report.
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, medium term supply contracts.
This represents 66% of total demand volumes. The price formulas under these
contracts are mostly aligned with Brent oil prices and the U.S. dollar. They were
negotiated under the new gas bill.
In 2020, we renegotiated some existing mid-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 12 local distribution companies that represent 46% of the non-
thermoelectric natural gas market and they were negotiated by the new gas
policy.
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. In 2020, the agreement may be extended until all
contracted volume has been delivered by YPFB. We estimate that the
agreement will be extended at least through May 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 continued 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, (Amendment Eight), 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 of 24.06 million
m3/d (annual basis with make-up possibility) to 14 million m3/d (daily basis
without make-up possibility), 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 our commitment to the
opening of the Brazilian natural gas market, stimulating its competition by
encouraging new agents to enter the market.
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Furthermore, on March 21, 2020, we invoked force majeure under the GSA due
to the impacts in the natural gas demand caused by the Covid-19 pandemic and,
the consequent declaration of force majeure by each of the local distribution
companies of natural gas in Brazil with respect to their own contracts with us.
As a result, any payments of take-or-pay obligations were suspended up until
the end of this event which occurred on August 31, 2020, which the GSA came
back into full force.
According to the GSA provisions, the suspension of payments of take-or-pay
obligations will be in place up until the date when we have taken the remaining
gas volume originally agreed with YPFB. We estimate that this will occur in 2024
or 2025, depending on the gas demand that we perceive until then.
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
through 2019 and pre-paid six million m3/d through 2039.
On the Brazilian side of GASBOL, after 2020, we expect 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 01/2019 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. As a result, we hired 18.08 million m³/d of entry capacity and
13.84 million m³/d of exit capacity for 2020 and 8.00 million m³/d of entry
capacity and 1.82 million m³/d of exit capacity for 2021.
In December 2020, the ANP authorized TBG to implement a public auction, as
an alternative to the postponed ANP Public Call 02/2020. After the conclusion
of the auction, we hired additional entry capacity of 3.00 million m³/d and exit
capacity of 9.47 million m³/d for the year 2021.
More recently, the ANP approved the resumption of its Public Call 02/2020
process, relating to the period from May 2021 up to December 2025. We plan
to participate in this process.
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.
The table below shows these contractual commitments under the above
agreements for the five-year period from 2021 through 2025.
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FUTURE COMMITMENTS UNDER NATURAL GAS SALES CONTRACTS (MILLION M
3
/D)
To local gas distribution companies:
Related parties(1) (2) (3)
Third parties(2) (3)
To gas-fired power plants:
Related parties(1) (2) (3)
Third parties (2) (3)
Total(1) (2) (3)
Estimated amounts to be invoiced (US$ billion)(3)(4)
2021
2022
2023
2024
2025
5.89
0.00
0.00
0.00
0.00
29.47
33.88
31.89
31.68
33.73
1.13
13.29
49.77
4.13
0.41
7.93
42.22
3.46
0.10
8.59
40.57
3.36
0.00
6.20
0.00
5.09
37.87
38.82
3.05
3.13
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)
Ship-or-pay contract with TBG (10)
Volume commitment (mmm3/d)(9)
Volume commitment (mmcf/d)
Estimated payments (US$ million)(8)
Ship-or-pay contract with NTS (10)
Volume commitment (mmm3/d)
Volume commitment (mmcf/d)
Estimated payments (US$ million)(8)
Ship-or-pay contract with TAG (10)
Volume commitment (mmm3/d)
Volume commitment (mmcf/d)
Estimated payments (US$ million)(8)
14.00
494.41
45.50
652.95
6.00
211.89
0.40
39.49(11)
1,394.47
14.00
494.41
45.00
634.30
6.00
211.89
0.40
11.20
395.53
331.22
5.89
14.00
494.41
50.00
690.27
6.00
211.89
0.40
11.20
395.53
5.95
14.00
494.41
50.00
692.16
6.00
211.89
0.40
11.20
395.53
5.97
14.00
494.41
50.00
461.96
6.00
211.89
0.40
11.20
395.53
5.95
158.21
5,587.01
1,009.60
158.21
5,587.01
1,009.60
158.21
5,587.01
1,009.60
158.21
5,587.01
1,012.37
158.21
5,587.01
1,009.60
74.28
2,620
74.28
2,620
74.28
2,620
74.28
2,620
74.28
2,620
1,313.74
1,313.74
1,313.74
1,317.34
1,313.74
(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 our Strategic Plan. Includes the migration of volumes from related parties to third parties due to the divestment in Gaspetro
in 2021.
(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 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) Includes ship-or-pay contracts relating to TBG’s capacity increase.
(10) We undertook divestment processes for TAG in of 2019 and 2020. 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.
(11) 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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Distribution
Distributors provide gas through their distribution networks to commercial
establishments, residences, industries, vehicles and thermoelectric plants.
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 2020, we started the sale process of our entire 51% stake in
Gaspetro. In addition, we hold a 37.5% stake in BR Distribuidora, which holds a
49% stake in a natural gas distribution company in the state of Espírito Santo.
For more information on our divestment process, see “Portfolio Management”
in this annual report.
In 2020, of the total of 34.1 mmm3/d of gas sold to distributors, 40% was
distributed through distributors which participation is partially held by
Gaspetro.
Power
Brazilian electricity needs are mainly met by hydroelectric power plants and
other sources of energy (wind, coal, nuclear, fuel oil, diesel oil, natural gas used
in thermoelectrics, and others). The Free Marketing Environment (“ACL”) and
the Regulated Marketing Environment (“ACR”) are involved in the regulation of
the electric energy market in Brazil.
Hydroelectric power plants are dependent on the annual level of rainfall. When
rainfall is abundant, Brazilian hydroelectric power plants generate more
electricity. As a result, under these circumstances, there is less demand for
power generation by thermoelectric power plants.
We generate and sell electric power from a generator complex consisting of 20
thermoelectric power plants that we own or lease, operating under the
authorization regime as an independent power producer. They are powered by
natural gas, diesel or fuel oil, with a total installed capacity of 6,131 MW. These
plants are designed to supplement power from the hydroelectric power plants.
In 2020, the total electricity generated in Brazil, according to the ONS, was
66,229 MWavg. Our thermoelectric power plants contributed 1,756 MWavg
(2,028 MWavg in 2019 and 2,205 MWavg in 2018). This was due to the decrease
in energy consumption resulting from the Covid-19 pandemic and the increase
in storage of the reservoirs supplying the hydroelectric plants of the National
Interconnected System (as a result of the favorable rainfalls throughout the
year).
We also have plants with generation through renewable sources. In addition,
we hold participation in other projects of power generation. This adds up to 315
MW to our electricity generation capacity.
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SALES AND GENERATION OF ELECTRICITY(1)
Electricity Sales (ACL) – average MW(2)
Electricity Sales (ACR) – average MW
Electricity generation – average MW
2020
837
2,404
1,756
2019
1,168
2,788
2,028
2018
1,231
2,788
2,205
(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.
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 that 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 by ONS. 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 2020, the commercial capacity certified by MME for all thermoelectric power plants we control was
3,532 MWavg. Our total generating capacity was 6,131 MWavg. Of the total 4,226 MWavg of commercial
capacity available for sale in 2020, approximately 57% was sold as standby availability in public auctions
in the regulated market (compared to 67% in 2019) and approximately 20% was committed under
bilateral contracts and self-productio, i.e. sales to related parties, (compared to 28% in 2019).
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)
2020
6,131
3,524
693
4,193
2019
6,148
3,770
391
4,161
2018
6,148
3,900
821
4,720
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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)
2020
3,242
496
342
2,404
1,756
1,855
2019
3,958
812
356
2,788
2,028
2,334
2018
4,020
832
399
2,788
2,205
3,066
(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.
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OUR POWER ASSETS (MW)
Type(1)
Region
Power Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
t
n
e
m
e
g
a
n
a
M
s
a
r
b
o
r
t
e
P
r
e
d
n
u
s
t
e
s
s
A
)
d
e
l
l
o
r
t
n
o
c
r
o
e
s
a
e
l
,
n
w
o
(
Ibirité
Fluminense
Seropédica
Cubatão
Nova
Piratininga
Piratininga
Termorio
Juiz de Fora
Três Lagoas
Termomacaé
Canoas
Termobahia
Vale do Açu
Termocamaçari
Termoceará
Bahia I
Arembepe
Muricy I
Southeast
/Midwest
South
Northeast
UTE
Fuel(1)
NG
NG
NG/DO
NG
NG
NG
NG
NG/ET
NG
NG
DO/NG
NG
NG
NG
NG/DO
FO
FO
FO
Installed
Capacity
Shareholding
or PIE
Petrobras
Capacity
Partners
226
530
386
219
386
190
1,058
87
386
923
249
186
323
120
220
32
150
147
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
226
530
386
219
386
190
1,058
87
386
923
249
186
323
120
220
32
150
147
Jaraqui NG
NG
76
93.66%
71
North
Jaraqui FO
FO
81
93.66%
76
Tambaqui NG
NG
93
93.66%
87
Tambaqui FO
FO
Petrobras Management
21
PV
Northeast
Solar Alto do
Rodrigues
Subtotal Petrobras Management
63
6,131
1
6,132
93.66%
100%
100%
59
6,111
1
6,112
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%
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1
2
3
4
5
6
7
8
9
l
i
s
g
n
d
o
h
e
r
a
h
S
s
a
r
b
o
r
t
e
P
Shareholding
or PIE
Petrobras
Capacity
Type(1)
Region
Power Plant
Southeast
/Midwest
South
Goiânia II
Araucária
Suape II
Termocabo
Northeast
UTE
Installed
Capacity
140.3
484
381
50
Fuel
DO
NG
FO
FO
Manauara
NG/FO
North
WIND
Northeast
Mangue Seco 1
Mangue Seco 2
Mangue Seco 3
Mangue Seco 4
10
Água Limpa
85
26
26
26
26
14
PCH
11
Southeast
/Midwest
Areia
11
14%
30%
18.80%
20%
12%
52%
49%
51%
49%
49%
14%
42
91
76
6
44
13
13
13
13
2
2
Partners
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%
FIP Pirineus: 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%
Subtotal Petrobras Shareholdings
TOTAL
1,269
7,401
315
6,427
(1) 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 contracted power and contract expiration date are listed in the table below.
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OUR CONTRACTS AT REGULATED MARKETING ENVIRONMENT
Region
Southeast /Midwest
Northeast
Power plant
Baixada Fluminense
Seropédica
Cubatão
Termorio
Três Lagoas
Termomacaé
Termoceará
Bahia I
Arembepe
Muricy
Termobahia
Vale do Açu
Contracted
power
(MWavg)
416.4
278.0
141.0
704.0
127.0
200.0
141.0
5.0
101.0
101.0
100.0
90.0
Contract expiration date
2033
2023
2024
2022 (352MW), 2024
(352MW)
2023
2025
2023 (64MW) e 2024 (77MW)
2025
2023
2023
2021
2021
We also have invested, independently and in partnership 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 Fotovoltaica de Alto Rodrigues. Additionally,
we participate in joint ventures in four wind power plants (Mangue Seco 1, 2, 3
and 4), all of which are currently undergoing divestment processes. During the
beginning of 2021, we signed the sale of Mangue Seco 1, 2, 3 and 4. 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.
As of December 31, 2020, our power generation capacity (alone and through
the equity interests we hold in renewable energy companies) was as follows:
_ 3.6 MW of hydroelectric capacity;
_ 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.
We and our partners sell energy from these plants directly to the Brazilian
federal government through auctions.
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In 2018, we signed the Memorandum of Understanding (“MoU”) with the
Norwegian company Equinor ASA (“Equinor”) to evaluate developments in
offshore wind energy, which expired in 2020. In 2020, we signed a letter of
intent (“LoI”) with Equinor aiming to jointly evaluate a future wind project in the
Campos Basin, using R&D funding. For more information on our divestment
process, see “Portfolio Management”.
Customers and Competitors
Natural gas is marketed to 21 clients, most of which are distributors. The entire
demand for natural gas includes our non-thermoelectric, thermoelectric,
refining and fertilizer markets, as well as the consumption by natural-gas
carriers contracted by us for the provision of transportation services.
GAS CLIENTS (% VOL)
NON-THERMOELECTRIC MARKET (% VOL) THERMOELECTRIC MARKET (% VOL)
In the energy segment, we operate in the regulated market (energy distributors)
and free market (marketers and free consumers/large consumers). We have 134
clients and suppliers, of which 39 are distributors, 36 are marketing companies,
11 are generating companies and 48 are free consumers. All contracts are
registered at the Electricity Trading Chamber, a sector agent responsible for the
settlement and accounting of these contracts.
In the commercialization of natural gas, we act as importers and domestic
producers who can directly sell our product to the distributors or thermoelectric
plants. We expect an increase in competition due to new regulation under
discussion which aims to improve the regulatory framework of the natural gas
sector and to establish guidelines for a new design of the market that allows the
entry of new agents in the sector in order to promote competition.
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The transportation of natural gas also consists of a monopoly of the Brazilian
federal government and may be exercised upon concession or authorization by
companies
law, with headquarters and
administration in the country.
incorporated under Brazilian
indirect
In the natural gas distribution segment we operate through
participation in state companies, where each distributor has a monopoly for its
concession area, and there is no competition, since the Brazilian federal
constitution provides that the natural-gas distribution segment can only be
exercised through concession by public authorities of each state.
We concluded the transition to new contracts for the sale of natural gas to Local
Distribution Companies in which the prices of the molecule started to be linked
to the variation in the price of Brent oil, replacing the basket of international
quotations of fuel oils that until then prevailed. This improvement brought
greater transparency to the update of contractual prices and also allowed selling
prices to respond more quickly to international references, making them more
competitive, as observed in the year 2020.
In addition, throughout 2020, due to the Covid-19 pandemic and the
consequent structural reduction in the demand for natural gas in the entire
Brazilian market, there was a declaration of force majeure by all Local
in their respective gas purchase contracts. By
Distribution Companies
September 2020, with the resumption of consumption
in the non-
thermoelectric market, the legal and contractual requirements of force majeure
were no longer met, so the contracts were resumed under their normal supply
conditions.
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.
For more information on our agreement with CADE regarding our divestments
in the natural gas industry, see “Risks – Risk Factors – Operational Risks” and
“Our Business – Gas and Power – Marketing” in this annual report.
In the energy segment, we operate in generation and sale. In generation, we
compete with third-party thermoelectric plants, as well as other generators with
other energy sources (hydro, wind, solar). In terms of commercialization, we
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 Sergipe (“FAFEN-SE”), and one subsidiary located
in Paraná, Araucaria Nitrogenados S.A. (“ANSA”). Their main products are
ammonia and urea. Together these plants have an installed capacity of 1.852
million t/year of urea, 1.406 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 2020. Most of our ammonia production is used to
produce urea, and the excess production is mainly sold in the Brazilian market.
We also have an unfinished Fertilizer Unit (UFN-III) in Mato Grosso do Sul.
We continue to pursue our strategy of leaving the fertilizer market and focusing
on assets that generate greater financial return and are more adherent to our
business. In 2019, we mothballed our plants located in Bahia and Sergipe and,
after that, we signed lease agreements with Proquigel Química S.A. (“Proquigel
Química”), a company of the Unigel Group, leasing FAFEN-BA and FAFEN-SE for
a total amount of R$177 million. The agreements have an initial term of 10 years
and may be extended for additional 10 years. Leases became effective in August
2020.
In August 2020, we concluded the mothballing of Araucária Nitrogenados S.A.
(ANSA) and in September, we announced the beginning of the divestment
process for the sale of our participation in this fertilizer plant. In October 2020
we started the binding phase.
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 September
2011, but was interrupted in December 2014, with a physical advance of about
81%. The completion of UFN-III will be the responsibility of the potential buyer.
FERTILIZER PRODUCTION (THOUSAND TONS)
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Main Assets
Fertilizers
2020
2019
2018
Fertilizer plants
Urea production capacity (thousand ton/year)
Ammonia production capacity (thousand ton/year)
3(1)
1,852(1)
1,406(1)
3(1)
1,852(1)
1,406(1)
3
1,852
1,406
_
(1) Includes FAFEN-BA, FAFEN-SE and ANSA capacity.
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Portfolio Management
—
Our active portfolio management, part of our 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
better investment opportunities. Currently, our partnerships and divestments comprise
the sale of minority, majority or entire participations in some of our subsidiaries,
affiliates, and assets to strategic or financial investors or by means of public offerings.
Our divestment portfolio contains more than 50 assets at different stages of the sale
process. Along with reducing debt, divestments contribute to improving capital
allocation and consequently create value for the shareholder.
In line with the TCU, guidelines and current legislation, the following stages of our
divestment projects are disclosed to the public:
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From January 1, 2020 through March 12, 2021, we have completed, among others, the
following divestitures.
Signing date
Closing date
Main transactions
10/31/2018
01/14/2020
8/9/2019
5/29/2020
7/24/2019
7/15/2020
9/30/2019
7/15/2020
7/20/2020
7/20/2020
10/11/2019
9/30/2020
7/24/2019
11/06/2020
3/9/2020
12/09/2020
11/19/2019
12/23/2020
11/28/2019
02/05/2021
10/2/2020
02/05/2021
TOTAL
Full sale of the corporate ownership held by Petrobras (50%) in the
company Petrobras Oil & Gas BV (“PO&G BV”)
Sale of the entire stake held in seven production fields (onshore and
offshore), known as the Macau Complex, in the Potiguar Basin, located in
the state of Rio Grande do Norte.
Sale of 100% stake in the Pampo and Enchova Hubs, located in shallow
waters of the Campos Basin
Sale of the entire stake in the Ponta do Mel and Redonda onshore fields,
located in the state of Rio Grande do Norte
Sale of the remaining stake (10%) held in Transportadora Associada de Gás
S.A. (TAG)
Sale of the entire stake in the onshore fields of Lagoa Parda Hub, located in
the state of Espírito Santo
Sale of 100% stake in the Baúna field (BM-S-40 concession area), located in
shallow waters in the Santos Basin
Sale of the entire stake in the onshore fields of the Tucano Sul Hub, located
in the state of Bahia
Full sale of equity interest in Liquigás Distribuidora SA
Sale of our entire stakein the Frade concession, located in the Campos Basin
in the north coast of the state of Rio de Janeiro
Sale of the entire stake held in Petrobras Uruguay Distribuición S.A. (PUDSA)
Transaction
nominal
value(1)
(US$ billion)
1.530
0.191
0.451(2)
0.007
0.205(3)
0.009
0.380(2)
0.003
0.879(3)
0.100
0.062
3.817
(1)
(2)
(3)
Considering agreed amounts at the signing of the transaction.
As per the amendment to the Sale and Purchase Agreement.
These operations were traded in R$. Thus, for purposes of this table, the amounts were converted using the exchange rate (PTAX) of the signing date.
From January 1, 2018 through March 12, 2021, 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.
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Signing date
Main transactions
Assignment of 10% rights from the Lapa field to Total, in Block BM-S-9. Exercise of
the put option for the remainder of our stakeas provided for in the contract signed in
January 2018 when Total acquired 35% of our stake within the scope of the strategic
partnership, taking over field operations
Sale of the entire stake in the offshore field of Pescada, Arabaiana and Dentão,
located in the state of Rio Grande do Norte
Sale of the entire stake in the onshore field of Fazenda Belém and Icapuí, located in
the state of Ceará
Sale of the entire stake held in eight onshore exploration and production
concessions, located in the state of Bahia, jointly known as the Rio Ventura Complex
Total assignment of rights in 27 mature onshore fields, located in Espirito Santo,
jointly known as the Cricaré Complex
Sale of the entire stake held in 14 onshore exploration and production concessions,
located in the state of Bahia, jointly known as the Recôncavo Complex
Sale of the entire stake held in 12 onshore exploration and production concessions,
located in the state of Bahia, jointly known as the Remanso Complex
Sale of the entire stake held in Eólica Mangue Seco 1
Sale of the entire stake held in Eólica Mangue Seco 3 and Eólica Mangue Seco 4
Sale of the entire stake in the Peroá and Cangoá shallow water fields and in the BM-
ES-21 deepwater concession, jointly known as Peroá Complex
Sale of the entire stake held in nine onshore fields, located in Bahia, jointly known as
the Miranga Complex
Sale of the entire stake held in Eólica Mangue Seco 2
12/21/2018
7/9/2020
8/14/2020
8/21/2020
8/27/2020
12/17/2020
12/23/2020
01/07/2021
01/07/2021
01/29/2021
02/24/2021
02/26/2021
TOTAL
Transaction
nominal
value (1)
(US$ billion)
0.05
0.002
0.035
0.094
0.155
0.250
0.030
0.0082(2)
0.0172(2)
0.055
0.220
0.007
0.923
(1) Agreed amounts at the signing of each transaction, subject to adjustment at closing.
(2) These operations were traded in R$. Thus, for purposes of this table, the amounts were converted using the exchange rate (PTAX) of the signing
date.
Agreements with CADE
In 2019, we signed two agreements with CADE, which consolidates agreements 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 the 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) below, 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
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be established by mutual agreement, will accompany the schedule and compliance with the
commitments assumed with CADE.
Natural gas agreement
The natural gas agreement includes the sale of our shareholding participation in companies of the gas
transportation and distribution segments:
_ 10% stake in NTS;
_ 10% stake in TAG;
_ 51% stake in TBG; and
_ indirect participation in gas distribution companies, either by selling our 51%
stake in Gaspetro, or by selling indirect participation in distribution
companies.
In March 2020, we announced the beginning of the divestment processes of our remaining 10% interest
in NTS, 51% stake in TBG, and 51% stake in Gaspetro. On July 20, 2020 we sold our remaining 10% stake
in TAG.
In our transportation systems, we undertake to specify 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 remainder of the transportation
network. 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 the regasification terminal in the state of Bahia.
The purpose of the agreement is to preserve and protect 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.
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.
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Phase
Summary scope of main transactions(1)
Full sale of equity interest (51%) in Transportadora Brasileira Gasoduto Brasil-Bolívia (TBG)
Full sale of equity interest (25%) in Transportadora Sulbrasileira de Gás S.A. (TSB)
Non-binding
Sale of the entire stake held in 28 onshore fields located in the Recôncavo and Tucano Basins, jointly known as the Bahia
Terra Cluster
Sale of the entire stake held in the Albacora field, located in deepwaters, in the Campos Basin
Sale of the entire stake held in Marlim, Voador, Marlim Leste and Marlim Sul fields, located in deepwaters in the Campos
Basin, jointly known as the Marlim Cluster
Sale of the entire stake held in the Albacora Leste field, located in deepwaters in the Campos Basin
Sale of the entire stake held in 26 onshore and shallow waters fields located in the Potiguar Basin, jointly known as the
Potiguar Cluster
Sale of the entire stake held in 11 onshore fields located in the Sergipe-Alagoas Basin, jointly known as the Carmopolis
Cluster
Sale of the entire stake held in four onshore fields located in the Espírito Santo Basin, jointly known as the Norte Capixaba
Cluster
Sale of the stake (51%) held in Petrobras Gas S.A. (Gaspetro)
Sale of refining and associated logistics assets in Brazil: Gabriel Passos Refinery (REGAP) in Minas Gerais, Isaac Sabbá
Refinery (REMAN) in Amazonas, Lubricants and Oil Products of the Northeast (LUBNOR) in Ceará, and Schist
Industrialization Unit (SIX) in Paraná, as well as their corresponding logistics assets
Sale of refining and associated logistics assets in Brazil: Abreu e Lima Refinery (RNEST) in Pernambuco, Landulpho Alves
(RLAM) in Bahia, and Alberto Pasqualini (REFAP) in Rio Grande do Sul, as well as their corresponding logistics assets
Sale of the entire stake held in Petrobras Colombia Combustibles (PECOCO)
Sale of the remaining stake (10%) held in Nova Transportadora do Sudeste S.A. (NTS)
Sale of the entire stake held in the Papa-Terra field, located in deepwaters in the Campos Basin
Sale of the entire stake held in 11 production fields located in shallow waters in the Campos Basin, jointly known as the
Garoupa Complex
Sale of the entire stake (100%) held in the Araucária Nitrogenados S.A. (ANSA)
Binding
Sale of the entire stake (100%) held in the Petrobras Biocombustiveis S.A. (PBIO), including the biodiesel plants.
Sale of the entire stake held in five electricity generation companies: Brasympe Energia S.A.(“Brasympe”), Energética
Suape II S.A. (“Suape II”), Termoelétrica Potiguar S.A. (“TEP”),Companhia Energética Manauara S.A. (CEM) and
Brentech Energia S.A. (“Brentech”)
Sale of the entire stake held in four thermal power stations, three of which are fuel oil-based (Bahia 1, Muricy and
Arembepe located in Camaçari – BA) and one biofuel-based (Canoas located in Canoas – RS)
Sale of the entire stake (100%) held in the Nitrogenated Fertilizer Unit III (UFN-III)
Sale of the entire stake held in the Manati field, a shallow water marine production concession located in the Camamu
Basin, in the Bahia state
Sale of the entire stake held in seven onshore exploration and production concessions, located in the Solimões Basin in
the Amazonas state, jointly known as the Polo Urucu
Sale of the entire stake held in seven onshore and shallow water fields located in the state of Alagoas, jointly called Polo
Alagoas
Sale of the entire stake held in the Atum, Curimã, Espada and Xaréu fields, located in shallowwaters in the Mundaú sub-
Basin, State of Ceará, jointly called Polo Ceará
Sale of the entire stake held in two sets of maritime concessions in the post-salt layer deepwaters, known as the Golfinho
Complex and the Camarupim Complex, located in the Espírito Santo Basin
(1)
Information updated as of March 12, 2021.
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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 2020 below.
Global Economy
The performance of the global economy in 2020 was shaped by the impact of the Covid-
19 pandemic. The first cases of the disease were reported in December 2019 in China,
remaining reasonably restricted to the region until February. In the beginning of March,
however, the situation became more serious as the virus spread to several other
countries. On March 11, the World Health Organization (WHO) officially recognized
Covid-19 as a pandemic. According to WHO data, over 82 million people globally have
been infected as of December 31, 2020.
Given this situation, the main measures adopted by countries to try to control the
spread of the virus among the population were restrictions on the circulation of people,
goods and services, which caused the global activity level to drop sharply and quickly.
The Gross Domestic Product (GDP) of the countries in the Organization for Economic
Co-operation and Development (OECD) already fell by 2.0% in the first quarter,
signaling the worsening of the sanitary crisis, the increase in global uncertainty and the
implementation of restrictive measures. Nevertheless, the most severe impact
occurred in the second quarter, when these countries’ GDP’s, in the aggregate, fell by
10.6% (the highest drop since 1962, when the series became available). The expansion
of monetary and fiscal measures to mitigate the economic slowdown, together with
the lifting of restrictive circulation measures, allowed for a moderate recovery to take
place in the second half of the year. The International Monetary Fund (IMF) projects
that the global economy will shrink by 3.5% in 2020.
GDP GLOBAL GROWTH RATE (%)
Source: IMF, 2020
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The Covid-19 pandemic had different effects on each of the U.S. and China, the two
largest economies in the world. In relation to the Chinese economy, the impacts were
concentrated in the first quarter, when the economy contracted by 10%. In the second
quarter, China’s GDP showed a solid recovery of 11.7%. Confirming the recovery, the
National Bureau of Statistics (NBS) reported that China grew 2.3% in 2020. Although
the number represented the smallest growth since 1980, China will be one of the few
countries whose GDP grew in 2020, according to the NBS. For 2021, the IMF projects a
GDP growth of 8.1%.
In the U.S., the economy was affected starting in March, represented in part by the
1.3% contraction during the first quarter. However, the shock took place in the second
quarter, when the activity level contracted by 9.0% (31% when annualized), the highest
quarterly fall in history. Other indicators show the intensity of the Covid-19 pandemic
shock across the U.S. economy. For example, unemployment rates rose to 14.7% in
April from 4.4% in March. The IMF projected a 3.4% contraction in the U.S. economy in
2020 and currently projects a 3.1% expansion in 2021.
For 2021, the global economy is expected to recover due to the possibility that a large
share of the world population will be vaccinated, which will decrease the need for
restrictions on the circulation of people, goods, and services, and will incentivize
growth. The IMF projects a 5.5% growth for the year.
Global Oil & Gas Market
The year 2020 began with high volatility on the supply side. On January 3, 2020, the
U.S. carried out an airstrike on the Baghdad airport in Iraq, killing the Iranian top
military leader. The attack increased tensions in the international oil market. In
response, the volatility of Brent increased, and its price rose to levels near US$70/bbl
during the first week of January.
During the first two months of 2020, the spread of Covid-19 in China led the
government to isolate affected cities. The cancellation of commercial flights and the
closing of the China-Russia border caused a reduction in the consumption of oil
products. As a result of reduction in Chinese demand, oil prices fell to an average of
US$55.57/bbl in February, which represented a drop of 13% in comparison to January.
In early March, the OPEC+ meeting failed to reach the expected outcome of increasing
oil production cuts to balance the oil market. The disagreement between the leading
members of OPEC+, Saudi Arabia, and Russia, led to the non-renewal of the production
cuts in force, thus allowing participating countries to produce without limits after April
1, 2020. In mid-March, the WHO declared the Covid-19 pandemic, which increased the
pessimism of the international oil market and led to severe social distancing measures
across the world.
In response to the fall in global oil demand by the end of April, on April 21, 2020 the
Brent price reached US$13.2/bbl, the lowest level seen since 1999. In response to this
drop in the Brent price, OPEC+ members reestablished negotiations, reaching an
agreement to cut about 10 million barrels per day of oil production.
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In May, with the entry into force of the OPEC+ agreement, the price began to recover.
A drop in supply from non-OPEC countries and the relaxation of social distancing
measures in some countries contributed to this recovery. In addition, an acceleration
in demand recovery, especially in China, improved the perception that the market
would be closer to rebalancing. As a result, the second quarter ended with a Brent price
above US$40/bbl.
The third quarter maintained the price recovery trend observed in 2Q20. However,
despite the high level of compliance with the OPEC+ agreement, there was a negative
effect on prices. This negative effect was due primarily to signs of a slowdown in the
demand recovery, due mainly to the advance of the Covid-19 pandemic in the U.S. and
the second wave of infections in Europe. Nonetheless, the average price of dated Brent
ended 3Q20 with a gain of 45.3% compared to 2Q20.
The last quarter of the year began with the oil prices down to levels below US$40/bbl,
in response to new lockdowns in many countries and the uncertainty regarding the
approval of an economic recovery plan for the U.S. On the supply side, the recovery of
production in Libya and the increase in oil exports from Saudi Arabia also contributed
to the drop in price. In November, the outcome of the U.S. election positively impacted
the market, reducing the uncertainty in the political field. In December, the start of
vaccination against Covid-19 in the United Kingdom and in the U.S. created an
optimistic atmosphere for a world economic recovery. The Brent price increased in
response, ending the year above US$50/bbl.
BRENT – CRUDE OIL PRICE (US$/BBL)
Source: Bloomberg, 2020
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Brazilian Economy
The Brazilian economy contracted by 4.1% in 2020, according to the Brazilian Institute
for Geography and Statistics (“IBGE”), the deepest contraction recorded by official
statistics. Despite the strong recession, after April, when the Covid-19 pandemic
negatively impacted economic activity, industrial production and retail sales recovered
at a quick pace. At the end of the year, the production levels of these activities were
higher in comparison to the same period of the previous year. On the other hand, the
services sector was the most affected by the Covid-19 pandemic, and at the end of 2020
was still operating below the pre-pandemic level.
From a demand perspective, the observed economic recovery was closely associated
to cash transfers made by the Brazilian government to the lowest income share of the
population. The social program reached around 67 million people who received at least
R$600 per month from April until August. Between September and December, the
amount was decreased to R$300 per month. The cash transfers boosted private
consumption, mainly of semi and non-durable goods, stimulating both industrial
production and retail trade.
Also, the depreciation of the Brazilian currency, one of the consequences of the Covid-
19 pandemic due to an increase in uncertainty and in the risk perception of
international investors, played an important role in the improvement of the
competitiveness of Brazilian production, contributing to the above-mentioned
recovery. The graph below shows the path of the exchange rate (BRL/US$) in the last
three years:
EXCHANGE RATE (BRL/US$, AVERAGE)
Source: Central Bank of Brazil
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In addition to domestic demand, Brazilian exports also showed significant
improvement. Besides the depreciation of the national currency, which increased the
competitiveness of Brazilian production, the strong recovery of the Chinese economy
in March supported Brazilian exports, as China is Brazil’s main trade partner, absorbing
around 30% of all Brazilian exports, mainly commodities.
This environment allowed an optimistic outlook for 2021 among some entrepreneurs,
but there are still many challenges to overcome. The first challenge is related to health
measures to control the Covid-19 pandemic, given the accelerated spread of the virus
in the last months of 2020. The second is that the unemployment rate is still high. The
majority of jobs in the Brazilian economy are in the services sector, in which most
companies suffered significant debt increases and will need to improve their financial
conditions in the post-Covid-19 period. Finally, inflation accelerated sharply at the end
of 2020. If price increases persist in 2021, the interest rate may rise again, limiting
economic recovery.
Another crucial component are Brazilian fiscal fundamentals. Public debt reached 89%
of the GDP in the end of 2020 due to the actions taken to fight the Covid-19 pandemic.
Fiscal fragility may affect risk perception, inflation and interest rates.
Brazilian Oil and Gas Market
After two years of recession in 2015 and 2016, the Brazilian economy experienced three
years of limited growth, affecting the domestic consumption of oil products.
The Covid-19 pandemic has had, and continues to have, extensive effects on oil
products demand, starting in the second quarter of 2020. Strong social distancing
measures, personal mobility restrictions, and temporary lockdowns led to an
unprecedented fall in oil-related demand for passenger transportation activities.
Gasoline and jet fuel were the most severely impacted products. Although goods and
cargoes kept moving around the country, the slowdown in economic activity also
slightly reduced diesel demand. Despite the overall slowdown, the higher use among
residential users strengthened LPG consumption in the same period.
In the following quarters, restriction measures were lifted gradually amid the decrease
in the daily number of Covid-19 related cases and deaths. Although strong, the recovery
was not enough to bring demand levels to where they were at the end of 2019. The
economic activity has not yet recovered from the negative impact of the Covid-19
pandemic.
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SELECTED CONSUMPTION OF FUELS IN BRAZIL (MBBL/D)
Source: Petrobras and ANP, 2020
Despite this extraordinary and impactful event, the long-term trends that are taking
place in the Brazilian market for oil products kept their course during 2020.
In specific terms, gasoline demand is expected to diminish due to its substitution by
hydrous ethanol, the use of which is motivated by public policies such as RenovaBio
that induce competitive prices of hydrous ethanol compared to fossil fuel. Additionally,
exclusively gasoline-fueled vehicles are being replaced by both flex fuel and electric
automobiles.
Moreover, 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. Diesel sales fell just 1.4% in 2020. Temporary basic income policies to
mitigate pandemic effects stimulated the demand for necessary goods such as food and
beverages, and therefore the freight and diesel demand. In turn, jet fuel demand was
the most affected by travel restrictions put into place due to the Covid-19 pandemic.
The demand fell by roughly 50% in comparison to 2019.
For at least two decades now, fuel oil has been undergoing a process of substitution by
other sources, especially natural gas, and there is still some room for this process to
continue in the next years. In the case of thermoelectric demand, there were fewer
dispatches using fuel oil, negatively affecting its sales. Bunker fuel represents an
important part of fuel oil market in Brazil and its demand has increased 6.2% in 2020.
Natural gas demand, according to the Ministry of Mines and Energy inter-annual data
until November 2020, has declined by 10%, from an average of 78 million m3/d for 2019
to 70 million m3/d.
The year 2020 began with an average total consumption of 80 million m³/d between
January and February, 3% above the figure for the year 2019, of 78 million m³/day
(Ministry of Mines and Energy). The demand started to reflect the impact of Covid-19
as of March, with a result of 65 million m³/day, and hit the lowest point in April,
reaching 54 million m³/d, which represented a drop of 24 MM m³/d relative to the
average for 2019. The market has been recovering since then, with November (95
million m³/d) surpassing November 2019 (91 million m³/d).
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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.
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
2019
In June 2019, we signed a Cessation Commitment Agreement with CADE, which
consolidates the understanding between the parties on the execution of divestment of
refining assets in Brazil.
For more information on our agreement with CADE regarding our divestments in
refining assets, see “Risks – Risk Factors – Operational Risks” and “Portfolio
Management” in this annual report.
In July 2019, we also signed an agreement with CADE which consolidates
understandings between the parties on the promotion of competition in the natural
gas industry in Brazil.
For more information on our agreement with CADE regarding our divestments in the
natural gas industry, see “Risks – Risk Factors – Operational Risks” and “Our Business –
Gas and Power – Marketing” in this annual report.
In December 2019, in alignment with the natural gas market opening process, we
signed a Commitment Agreement with the ANP, with the
intervention of
Transportadora Brasileira Gasoduto Bolívia-Brasil S.A. (TBG), whereby we promised to
(i) waive part of the transport capacity contracted with TBG as a result of the Public
Invitation for Contracting of Natural Gas Transport Capacity ANP No. 01/2019, in case
it negotiates the reduction of quantities of gas contracted with Yacimientos Petrolíferos
Fiscales Bolivianos (YPFB) within the scope of the Bolivian gas import contract signed in
1996, so that this capacity may be offered to third parties; or (ii) if there is no reduction
of the volumes contracted with YPFB, to structure, under implementation with the ANP,
a business model that allows the specific supply of Bolivian natural gas at the border
between Brazil and Bolivia, under conditions agreed between us and ANP. It is worth
mentioning that we were successful in negotiating the reduction of the volumes
contracted with YPFB (from 30 mmm³/day to 20 mmm³/day), through the signing of
Addendum no. 8 to the Gas Supply Agreement (GSA), signed on March 2020.
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2020
The gas sector has been experiencing several transformations towards the
establishment of a competitive market. The most awaited step, the revision of the
regulatory framework, progressed significantly this year.
In December, the Senate approved the New Gas Law, but the text had been altered
relative to what had been approved in the Chamber of Deputies, and thus was sent
back to the Chamber for the changes to be ratified or rejected.
Apart from legal matters, in 2020 the ANP also put in motion the modification of certain
normative acts related to the achievement of a competitive natural gas market,
beginning several public consultations and public hearings. These consultations and
hearings center around new guidelines brought by Decree No. 9,616/2018 and the
removal of restrictions on the provision of the natural gas processing services to
interested third parties.
Another advancement that took place in 2020 was the signature to the Integrated
Pipeline System and the Integrated Natural Gas Processing System, which is a
fundamental step to enable companies to commercialize their produced volumes of
natural gas directly to customers.
We, Petrogal Brasil, Repsol Sinopec Brasil and Shell Brasil, partners in the offshore
routes in the pre-salt Santos Basin, announced contracts for sharing natural gas
pipelines and processing plants. The contracts contemplate
the physical
interconnection and sharing of the outflow capacities in Routes 1, 2 and 3, resulting in
the creation of the Integrated Pipeline System. In addition to the Integrated Pipeline
System, the contracts also include specific terms for the construction of Integrated
natural gas Processing System, that cover the entry of the companies into our owned
processing units located in Caraguatatuba in São Paulo and Cabiúnas and Itaboraí
(under construction), both in Rio de Janeiro. With the signing of these contracts, each
company will be able to outflow their gas produced in the Santos Basin pre-salt fields
through any of the export routes for processing in our owned plants.
The signatures to the Integrated Pipeline System and Integrated natural gas Processing
System were commitments included in the Petrobras TCC with CADE, signed in 2019.
For more information on our divestment process, see “Portfolio Management”.
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Our Responses to the Covid-19 Pandemic
—
Employee’s health and society
The outbreak of the Covid-19 pandemic and the measures necessary to contain the
virus transformed 2020 into an unusual year. In line with our commitment to health
and safety, we are engaged in the struggle to mitigate the effects of this pandemic, the
largest in the last 100 years.
Per the pandemic Decree issued by the World Health Organization, we have internally
established an Organizational Response Structure (“EOR”), based on the Incident
Command System) (“ICS”) management tool. This provisional structure, composed of
our internal professionals, guided, in a uniform manner, all our actions to prevent and
combat the advance of Covid-19 and mitigate its consequences on all possible fronts.
We acted quickly and adopted a series of measures to preserve the health of our
employees in the operational and administrative areas. These initiatives are in line with
the recommendations from the World Health Organization and the Ministry of Health
and aim to contribute to efforts to mitigate the risks of the disease. Preventative
measures were adopted, such as:
(i) extensive testing, including carrying out more than 400,000 tests in our workforce
by December 2020; (ii) pre-shipment and preshift health monitoring, reinforcement in
hygiene measures, distance and mandatory mask use at the units; (iii) reducing the
number of personnel aboard platforms, rigs and other vessels to what is necessary for
the safe operation of each unit; (iv) intensification of the inspection of compliance with
the prevention rules in all operational units at sea or on land, with audits at all units
and immediate correction of any deviations; (v) extension of remote work for all
activities that can be carried out remotely until March 31, 2021; (vi) awareness and
orientation actions for employees and contractors about individual care; and (vii)
health monitoring and access to telemedicine services.
All employees and contractors were instructed to report any symptoms immediately.
We provide specific communication channels (24-hour call center and e-mail), as well
as an online form for self-reporting of suspected Covid-19 symptoms. We monitor
suspected cases and their contacts from the first report, taking all preventative
measures to avoid contagion, guiding employees and contractors and applying RT-PCR
(Protein Transcriptase Reverse Chain Reaction) tests when indicated by the health
team. We also provide our employees with medical service, including telemedicine 24
hours a day, seven days a week.
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For the offshore sector, considering the special containment characteristic, we have
adopted even more stringent measures, always maintaining constant contact with
regulatory bodies, service companies and other entities in this sector to align practices.
We implemented monitored home isolation and screening by health professionals in
pre-boarding platforms, with the suspension of boarding for those who show any
symptoms in the previous 14 days, as well as carrying out diagnostic tests before
boarding. We assess, by means of a dedicated health team, all employees and
contractors with symptoms on board and provide for the immediate disembarkation of
suspected cases and their contacts.
In order to ensure that the best practices are also adopted by our suppliers, we follow
the measures and planning of the companies responsible for chartered units and the
companies providing services.
In 2020, we used existing communication channels in the communities neighboring our
operations to address issues such as periodic monitoring of the status of Covid-19,
guidelines from the federal government, and hygiene tips. In virtual meetings, we
publicized these solidarity campaigns and dealt with topics such as mental health during
Covid-19, with the participation of our health professionals.
The Petrobras Socio-Environmental Program projects also acted promptly in response
to the Covid-19 pandemic, with subsequent measures to mitigate health risks, adopting
a series of measures to safeguard the health of technical teams and beneficiaries.
During this period, it was possible to count on the support network of socio-
environmental projects to raise funds for the communities surrounding our operations.
In total, the network raised US$55,233.82, an amount that allowed for the donation of
4,036 basic food baskets. In addition, more than 400,000 masks were produced for
distribution.
We also made financial contributions to projects to fight Covid-19, donating fuel, Covid-
19 tests, Individual Protection Equipment and hygiene
items, for a total of
US$4,542,195.22.
Hours from the academic supercomputers SDumont, at LNCC, and OGBON, at
SENAI/CIMATEC were devoted to research related to Covid-19 through the Stanford
folding@home project. Both LNCC and SENAI/CIMATEC are our academic partners. We
invest in the expansion and installation of supercomputers and we are entitled to use
part of the infrastructure. The reports showed a total of 19,248 OGBON and 459,772.50
SDumont hours dedicated to the folding@home project, that is, a total of 479,020.50
hours.
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Resilience and liquidity preservation
In view of the impact of Covid-19 on the energy market, the uncertainties regarding the
oil price and demand and the financing conditions of the capital market, we have
implemented several financial measures to guarantee liquidity. One such measure was
the draw down of revolving credit lines, amounting to US$8 billion, as well as other lines
in the domestic banking market, in the total amount of US$698 million in the first
quarter of 2020. In the third quarter of 2020, we repaid US$7.6 billion of revolving credit
lines.
We also adopted a series of measures to reduce disbursements and preserve cash as a
measure to protect our financial health. These measures include optimizing oil
production, postponing cash disbursements and reducing costs. We mothballed our
platforms that operate in shallow water fields, with higher lifting costs per barrel, and
adjusted the processing of our refineries in line with fuel demand. We reduced costs
with well interventions, optimized production logistics, and postponed significant new
hires.
Excluding the exchange rate effect, we have achieved a reduction of US$1 billion
compared to our operating expenses budget, and a US$2 billion reduction in the
investments scheduled for 2020, resulting in a total investment of US$8.1 billion.
Our expenses in corporate areas were reduced by 15% compared with 2019. For more
information on the Covid-19 pandemic impacts on our operations and results, see “Our
Business” and “Operating and Financial Review and Prospects” in this annual report.
Scientific journey
Led by our R&D Center (CENPES), we also worked to combat and mitigate the effects
caused by Covid-19.
Our scientists used their multidisciplinary expertise, including knowledge in agile
methodologies, digital technologies, prototyping, microbiology, and many other
specialties, to propose ways to fight the pandemic. All actions were aimed at
preventing, diagnosing and curing Covid-19, both within our company and in society.
We transformed our technical capacity into benefits for society on several fronts,
making use of partnerships that allowed us to expand and accelerate our actions. Our
energy was directed towards quick and viable solutions in facing Covid-19.
The main actions of the projects developed or supported were:
_ Acceleration of lung ventilator production through financial support for: (i) three
projects supported with US$19,245.57 each; and (ii) one USP (São Paulo University)
project supported with US$211,701.31, for the production of the first batch of 135
ventilators for donation to state-owned hospitals, of which 50 have already been
produced and donated.
_ Maintenance of pulmonary ventilators: Support of US$190,307.45 for the SENAI
initiative with the recovery of more than 2,400 unused ventilators in hospitals and more
than 68 ventilators repaired with our own resources in 2020.
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_ Artificial Intelligence for diagnostic imaging: (i) diagnostic imaging (tomography and X-
ray) using artificial intelligence in partnership with USP’s Hospital das Clinicas to identify
the effects caused by Covid-19; (ii) 24,000 tests analyzed from 49 registered hospitals;
and (iii) reduction from 30% to 10% of false negatives throughout Brazil, leading to
adequate treatment of Covid-19 and reduction of contagion.
_ High performance computers supporting the Folding@Home project: provision of
computational capacity for sequencing the virus genome, with our partners in the Libra
Consortium. Computational capacity equivalent to 15,000 next generation notebooks
aimed at studies to combat Covid-19.
_ New protocol to increase sample evaluation capacity in laboratories: (i) increase in
the availability of RT-PCR tests through the Disclosure of Test Protocol in partnership
with SENAI-Firjan, with the multiplex and pool method; (ii) 100% productivity gain in
the analysis of the collected samples; and (iii) savings of 43% in the reagents used in
analysis;
_ Adapting facilities for safer work: (i) implementation of an intelligent video analytics
system for face mask wearing detection and crowd monitoring at our facilities,
minimizing the risk of infection of teams in face-to-face work; (ii) implementation of
rapid testing for Covid-19, with 14-day cycle retesting and Rapid Antigen testing
counterproof for all positive cases; (iii) implementation of mandatory RT-PCR testing of
all offshore workers immediately before boarding; (iv) Distribution of kits with masks
for our employees; (v) daily transmission of Covid-19 guidance and prevention
messages through the internal sound system; (vi) installation of instructional and
guidance signs according to internal technical notes for safe return; and (vii) installation
of hand sanitizer dispensers and supply points, distributed in strategic points of the
buildings.
Recognition of our participation
Our partnerships with Senai and Hospital das Clínicas at USP to fight Covid-19 were
recognized with national awards, confirming that the collective effort between
institutions has been fundamental in fighting Covid-19. Senai's initiative to recover lung
ventilators, supported by us and other companies, received in December 2020, the
Social Entrepreneur of the Year Award from Folha de São Paulo and from the Schwab
Foundation (linked to the World Economic Forum).
Another recognized project was the artificial intelligence platform RadVid19, developed
by USP, which detects Covid-19 in radiography and computed tomography exams. This
initiative, a partnership between us and other institutions, won, in December 2020, the
Abril / Dasa Award as the best project in the Diagnostic Medicine category.
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Strategic Plan
STRATEGIC PLAN
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Strategic Plan
—
2021-2025 Strategic Plan
Our Strategic Plan consists of the continuous evaluation of the business environment
and the implementation of our strategies, allowing for 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.
In addition, our Board of Directors has scheduled a presentation in its 2021 agenda
regarding longer-term goals beyond this five-year period.
We continue to deliver competitive, low-carbon energy to the world, striving to
contribute to a prosperous and sustainable future. 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 Strategic Plan maintains the five pillars that support the implementation of our set
of strategies and two themes common to the strategic pillars - cultural and digital
transformation:
_ Maximization of the return on capital employed;
_ Reduction of the cost of capital;
_ Relentless search for low costs and efficiency;
_ Meritocracy; and
_ Safety, health and respect for people and the environment.
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Our Strategic Plan reaffirms our vision of "Being the best energy company in generating
shareholder value, focusing on oil and gas and with safety, respect for people and the
environment", which aims to eliminate the performance gap that separates us from the
best global oil and gas companies (Mind the Gap concept) and presents the model of
double resilience: economic, resilient to low oil price scenarios, and environmental,
focusing on low carbon.
Our business strategies ensure that our resources are employed at the right time and
in the right assets to ensure the highest possible return on invested capital. These
strategies guide our business decisions and dictate the path through which we aim to
achieve our objectives.
Our Strategic Plan presents four top metrics that will directly impact the compensation
not only of executives, but of all company employees in 2021. Two of them are related
to sustainability (ESG):
_ Intensity of greenhouse gas emissions (GHG);
_ Leaked volume of oil and oil products;
_ Gross Debt of US$67 billion in 2021;
_ Consolidated EVA® delta of US$1.6 billion.
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We maintain the total recordable injuries per million man-hours indicator (“TRI”) as the
top metric for 2021, but adjust the target to below 0.7, reinforcing our commitment to
life. We continue with our zero fatalities ambition and have added our ambition of zero
leakage.
Debt reduction and financial deleveraging will continue to be a priority, with the
operating cash generation and divestments fundamental for these purposes. From
January 2019 to September 2020, even with the impacts of the Covid-19 pandemic and
depressed oil prices in 2020, we have been able to reduce our Gross Debt by US$31
billion and maintain our target of US$60 billion by 2022.
Our strategies were adjusted by defining our actions by strategic segment, in view of
our focus on the core business and shareholders value generation, that give visibility to
issues that were relevant in 2020 for our future, such as: (i) transparency and focus on
sustainability (ESG), especially regarding the decarbonization of operations; (ii)
strengthening of logistics activities, marketing and sales; (iii) search for more efficient
and sustainable Refining - BioRefining and (iv) strengthening of our management
model.
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Our projected capital expenditures for the 2021-2025 period are US$55 billion, of which
84%, or US$46 billion, is allocated to the E&P segment. Moreover, 70% of the E&P
allocation, or US$32 billion, is allocated to pre-salt assets. These CAPEX allocations are
consistent with our strategic positioning, which focuses on maximizing the value of
assets in deep and ultra-deepwaters through innovation guided by our highly-skilled
workforce.
The amount of CAPEX was adjusted from US$75 billion (last plan) to US$55 billion
(current plan), of which US$35 billion corresponds to growth investments and US$20
billion to sustaining investments.
The main drivers of the reduction were the depreciation of the Brazilian real currency
against the U.S. dollar; the optimization of exploratory investments; keeping the
commitments with the ANP that were already agreed upon; avoiding CAPEX associated
with divestment; and the revision of the investment portfolio - postponed or canceled
projects that were no longer favorable given current oil prices.
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Our Strategic Plan presents an increasing E&P portfolio focusing on deep and ultra-
deepwater activities and a growth strategy based on world-class assets, where the
lifting cost is lower, providing higher returns. Thus, we expect 70% of our investments
in the segment for the 2021-2025 period will be directed to pre-salt assets and projects,
in particular on the Búzios field, which is expected to be allocated 36% of the total
investment planned for the E&P segment.
In the 2021-2025 period, our estimated CAPEX for the Campos Basin renovation plan is
US$13 billion. Approximately 10% of this US$13 billion corresponds to investments in
exploration in the 14 blocks that were acquired from 2017 to 2019 from the ANP, in the
Campos Basin. We expect to drill four exploratory wells in the Campos Basin in 2021,
all with pre-salt objectives.
Our Strategic Plan contemplates relevant investments in other basins outside the
Southeast in deep and ultra-deepwaters, all within Brazil. We will invest approximately
US$1 billion in the Equatorial Margin, where there is potential exploration of this
pathway front. We will also continue with the Sergipe deep-water development
project, where we expect investments of around US$2 billion.
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In the refining segment, our strategy is to focus on assets near the largest oil supply and
the largest Brazilian consumer market. We intend to sell part of our current refining
units and to invest in upgrading the remaining refineries (increasing S-10 diesel share,
biorefining, efficiency and lower emissions).
We have 13 refineries located in various regions of the country and a shale processing
unit in Paraná. We will keep five refineries concentrated in the Southeast. For the next
five years, we estimate a CAPEX of US$3.7 billion, 34% for the development of new
projects, for the refineries that will remain in our portfolio.
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In the Gas and Power segment, our investments are focused on Route 3 and natural gas
processing unit to enable natural gas outflow from pre-salt production. The Route 3
Project is our third pre-salt gas route, which will increase the amount of gas exported
and the processing capacity from the pre-salt assets. It is expected to start operating
between 4Q21 and 1Q22.
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In logistics, we are concluding the São Paulo duct master plan projects, which are
removing oil, LPG and naphtha pipes from high-populated areas in São Paulo. Also, the
new Trading and Logistics Executive Board created in 2020 is focusing on improving
efficiency, security, and logistical availability.
We continue to pursue deleveraging by means of cash generation and divestment. In
2021, our major cash needs are expected to meet our budgeted Capital Expenditures
for the year, amounting to US$ 10 billion, and to make principal and interest payments
of US$6 billion on our debt.
The divestments forecast in our Strategic Plan are between US$25-35 billion, with the
highest concentration expected in the years 2021 and 2022. In addition to divestments
already announced by us in our last strategic plan, we will also divest from some assets
including Marlim, Albacora, BR, and Braskem, among others, in line with our portfolio
review. The implementation of the potential sale of such assets may depend on market
and strategic conditions.
Our principal planned divestitures in the 2021-2025 period are presented below.
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 2021-2025 period, 13 new production systems are expected
to begin operation, all of which are allocated to deepwater or ultra-deepwater projects.
As we did last year, we present a commercial production vision showing 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.
The production curve estimated in our Strategic Plan is presented below.
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The oil production for 2021 reflects the impacts related to the Covid-19 pandemic and
the divestments that occurred in 2020. We estimate a variation of +/-4% for the 2021
production.
We believe this curve is sustained in a portfolio that generates more value and has
greater resilience to low oil prices. In the year 2021, for example, we expect a
production of 2.75 million boed before divestments and 2.72 million boed after
divestments that have yet to take place this year and next year.
In 2025, we expect a total production of 3.3 million boed before divestments and
predict 2.7 million boed after divestments. This difference of 600 thousand barrels/day
is due to divestments in onshore assets, shallow water assets, as well as in the Albacora,
Albacora Leste and Polo Marlim fields.
We also expect an increase in the share of pre-salt production, reaching 80% in 2025,
compared to 67% of our total production in 2020.
Below we present the schedule of our new units up until 2025. We believe we are the
leader in investment in these kind of projects in the world. In the next five years, we
will have 13 new FPSOs that will come into operation, 11 in pre-salt and two in post-
salt. Eight of them are already under construction, including seven under construction
in China. In 2021, we will start the operation of two of these units - Sépia and Mero 1.
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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$45/bbl in 2021-22 and US$50/bbl until 2025 and in the long-term. We assume an
average real/U.S. Dollar exchange rate of R$5.50, R$4.69, R$4.46, R$4.28 and R$4.07,
to US$1.00 for the 2021-2025 period, for each year respectively.
Financing
We expect a strong free cash flow generation to be the result of higher expected
efficiency, greater cost control and financial resources obtained due to active portfolio
management. This will allow a gradual reduction in Gross Debt, with a consequent
reduction in interest expenses and an increase in estimated dividend distribution
amounts through our Dividend Policy.
In addition, by anticipating cash flow through divestments of assets, we expect to make
our investments, without the need for new net fundraising in our Strategic Plan horizon.
Low Carbon and Sustainability Commitments
We reinforce our commitment to the environment and the use of new technologies for
decarbonization, which involve, for example, the reduction of natural gas flaring, CO2
reinjection and energy efficiency gains in our operations. We have created an executive
management area focused on climate change, linked to the Institutional Relations and
Sustainability Office, and we aim to remain in the first quartile of the oil and gas
offshore industry in relation to low carbon emissions.
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To this end, we have reviewed our ten commitments to sustainability1:
_ 1.
_ 2.
25% reduction in absolute operational emissions by 2030.
Zero routine flaring by 2030, in accordance to the zero routine flaring initiative
of the World Bank.
_ 3.
40 million tons CO2 reinjection by 2025 in Carbon Capture, Utilization and
Storage (“CCUS”) projects.
_ 4.
32% reduction in carbon intensity in the upstream segment by 2025 (15 kg
CO2e/boe, maintained until 2030).
_ 5.
_ 6.
40% reduction in methane emission intensity in the upstream segment by 2025.
16% reduction in carbon intensity in refining segment by 2025, expanding to 30%
by 2030 (30 kg CO2e/CWT).
_ 7.
_ 8.
_ 9.
_ 10. Investments
50% reduction in freshwater capture in our operations by 2030.
Zero increase in residues generation by 2025.
100% of our facilities with biodiversity action plan by 2025.
in socio-environmental projects, human rights programs and
community relationships.
We also intend to invest approximately US$1 billion over the next five years related to
our low carbon and sustainability commitments which will be distributed through
initiatives in innovation in our operations, biorefining (Renewable diesel, BioQAV,
bioproducts and lubricants) and the development of competencies for the future
through R&D in modern renewables, petrochemical and low carbon products and
compensatory projects.
In addition to the sustainability commitments, we approved five commitments in social
responsibility:
—
1 Carbon commitments related to 2015 base. Other commitments based on 2018.
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_ Human rights training program for 100% of employees;
_ Actions to promote diversity, providing an inclusive environment;
_ Human rights due diligence in 100% of our operations;
_ Socioeconomic diagnosis of communities;
_ Measurement and disclosure of the social return of at least 50% of the socio-
environmental projects.
Completing our ESG agenda, governance issues remain one of our priorities.
Throughout 2020, we made continuous efforts and presented a strong development in
this area by approving our Code of Ethical Conduct and the Guide to Ethical Conduct for
Suppliers, which contributed to our return to the Partnering Against Corruption
Initiative (PACI) of the World Economic Forum (WEF). Additionally, we present our
governance commitments:
_ A governance model that allows the balance between efficiency and control; and
_ Integrity and transparency, zero tolerance for fraud and corruption.
With the execution of our Strategic Plan, we reaffirm our commitment to becoming a
more financially robust company, with low indebtedness and cost of capital, focused
on world-class oil and gas assets and value creation, always acting in an ethical and
transparent manner, with safety in our operations and respect for people and the
environment.
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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. Our “Digital Transformation and
Innovation Executive Office”, created in September 2019, continues to develop a
consistent and synergic pathway, aligned with our strategic pillars.
Our digital transformation and innovation strategy is anchored in three fundamental
initiatives to persuit the exponential trajectory of generating value:
Go Digital: Focuses on technology platforms boosting digital evolution.
Be Digital: Focuses on digital and agile innovation – practices, mindset and cultural
change.
Go Lean: Focuses on optimizing and automating processes.
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Go Digital
The Go Digital strategy aims to put technology at the core of every one of our
businesses and, therefore, create value throughout our value chain. Through the
adoption of agile methodology at scale and our cloud computing technology, we are
seeking innovation as well as a modern IT architecture that enables us to extract value
from our data. This opens up the path to digital solutions with integrated data platforms
and up-to-date technologies, such as artificial intelligence.
In 2020, we have completed:
_ the implementation of the Atlas and Fênix supercomputers, the largest and most
environmentally friendly supercomputers in Latin America, in a project that increased
our high performance computing capacity by 520%, with nine new HPC clusters in two
years. We have also begun deployment of DRAGÃO, our new supercomputer that
surpasses both Atlas and Fênix combined. DRAGÃO alone has computational power
equivalent to four million modern smartphones. With new supercomputers and intense
use of public cloud technology, we expect to grow our HPC capacity by 1,600% in 2021
and by 4,000% by 2023, in comparison to 2018. Our high performance computing
investments are essential to support Upstream strategic programs, such as EXP100,
PROD1000 and Céos;
_ the fast and effective development and implementation of solutions to guarantee the
continuity of our home office operations, in response to the Covid-19 pandemic of
about two weeks to activate all necessary solutions such as the availability of Microsoft
Teams, which reaches more than 45,000 active daily users. Such tools will have
perennial effects, remaining even after the pandemic is over. Notably, this effort has
won the distinguished “IT Mídia” national award in the Energy sector for us;
_ the beginning of project #tranS4mar, which brings together initiatives for the
implementation of SAP S/4 HANA at Petrobras, that will be a digital enabler for Industry
4.0, throughout corporate and business selective processes review, simplification,
digitization and integration. The evolution of our Enterprise Resource Planning (ERP) is
placed among the biggest initiatives involving SAP solutions in the world;
_ the delivery of dashboards and environments from the Upstream Integrated Data
Platform, enabling the use of artificial intelligence in geological processing and
providing an 80% reduction in the time spent on the analysis and consumption of data
for geological modeling of the reservoirs;
_ process optimization at 11 refineries (REPLAN, REVAP, REPAR, RECAP, REGAP, REDUC,
REFAP, RPBC, REMAN, RNEST and LUBNOR), with gains of US$196 million as of
December 2020 (operating above 65% of the time in the optimal yield range), due to
the implementation of the Digital Twins tool;
_ process optimization and artificial intelligence (AI) tools at UN-BC and UN-ES offshore
production platforms;
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_ the implementation of digital technologies to maximize the reliability of downstream
operations, ensuring security for employees and financial gains resulting from
increased productivity; and energy efficiency, with highlights for the control of the
burning efficiency in flares through image recognition and also the development and
use of artificial intelligence algorithms for the prediction of the impact by emission of
odorous compounds in refineries, allowing a better management of emissions;
_ the launch of the Center of Excellence in Analytics and Artificial Intelligence (CoE) which
combines expertise, process and technology platforms to leverage value creation
through digital technology across our value chain. The CoE in Analytics and Artificial
Intelligence has already delivered models that are now being used to prevent
Emergency Shutdown (ESD) in plants, optimization of gas processing and for the new
Integrated Operation Centers. The CoE also has a role in developing digital technology
skills throughout the organization – this effort is part of the Digital Transformation and
Innovation Academy program;
_ the integration of data, we developed predictive analytical models related to Covid-19
and online panels that were made available to monitor the physical presence in
buildings and floors in order to prevent agglomerations and preserve the health of
employees and to analyze trends and preventative actions. In addition to the
availability of a mobile application, which allows employees doing face-to-face work to
be notified when they have had close contact with people with any reported symptom
of Covid-19;
_ for meetings of the Board of Directors and Fiscal Council to take place remotely, we
deployed a completely virtual and extremely secure solution, with agility and usability;
and
_ we have implemented WorkPlace by Facebook to enable communication and stimulate
the engagement of the entire workforce, a crucial step in this time of remote work.
Be Digital
In 2020, we continued the adoption of methodologies and mindset that support a
culture of digital innovation aimed at generating results. In this regard, we highlight the
creation of: (1) an Agile Center of Excellence (ACE), which focuses on the application of
agile methodologies and practices, and creative problem-solving processes, such as
Design Thinking. In 2020, we grew from 22 to 100 agile teams that are now helping the
business units achieve higher efficiency and better results accelerating solutions for
their biggest challenges; (2) a Digital Transformation and Innovation Academy to
promote the training of professionals in new skills and roles needed for this
transformation through innovative educational content and approaches; and (3) a
Corporate Innovation Laboratory that will work in synergy with an ecosystem of
internal and external partners for prototyping and testing in short cycles of digital
solutions.
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Corporate Innovation Lab and Safety Innovation Lab
We just launched our Corporate Innovation Lab, with the mission of fostering value
creation in the corporate areas through agile experimentation and open innovation. By
leveraging an ecosystem of startups, tech companies, academia and crowdsourcing,
and using the “fail fast” concept, the corporate lab not only aims to create disruptive
solutions, but, above all, to address the crucial opportunities within corporate areas.
The safety of our workers is one of our core values. Even though our accident ratio is
very low, a benchmark for the oil and gas industry, we challenged ourselves to improve
safety even more. For this purpose, we also launched the Safety Innovation Lab, which
follows the same processes of agility and collaboration above, to offer solutions to
predict and prevent risks through actively monitoring work or reducing risk exposure
by improving the use of wearables, intelligent video analytics, robotics and drones, for
example.
Digital Transformation Academy
Companies are transformed through transformation of people. Thus, we created a
digital transformation academy to coordinate this transformation journey, ensuring
that our teams will have all the necessary upskilling and reskilling routes available.
Promoters and supporters of our transformation are supported with company
investment in digital education programs. Through these efforts, we will provide
additional skills for employees by providing tools on technology use, collaborative
techniques and digital approaches that will empower them to be more efficient and
effective on the execution of their roles. We will also prepare several employees for
new data scientist roles, as required by our company transformation journey.
Go Lean
In 2020, we started to rethink our internal processes, enabling them for digital
transformation through inserting concepts of smart office and digital shared services
center. The combination of shared processes brings the possibility of optimization and
improved service level, especially with the application of new technologies. The
implementation of digital solutions in the mobility processes allows for the expansion
of self-service initiatives, enhancing cost optimization, reducing back-office, increasing
the safety of users and employee experiences.
We accelerated the modernization of workplace environments, associated with the
implementation of a definitive teleworking model, which imposes a new dynamic of
work environments using coworking concepts and maximizing building occupancy. All
of these environments speak directly to our culture transformation model, focused on
employee-centric solutions. In addition, we developed changes in systems and
processes for opening up the use of new mobility players and providers, expanding
access to other options available on the market. We also introduced building
optimizations of nine buildings in 2020 and during 2021, which we expect will reduce
our operating expenses.
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We also generate value through the active management of real estate assets, with the
publication of 13 public notice of sale and the conclusion of two sales in the fourth
quarter of 2020.
Another part of our strategy is to use our Shared Service Center capabilities as digital
process powerhouses fostering and leading process simplification and digitalization as
levers for increased workforce productivity, cost optimization, value creation and
enabling our front office team to focus on our core business.
In this regard, the creation of the Center for Excellence in Robotization and Digitization
(CERD), through digitization and process robotization, generates efficiency gains,
making our environments safer and allowing the relocation of employees on
operational repetitive tasks for activities of greater value. During six months of
operation, CERD delivered more than 30 optimized process flows and digitalizations
and 107 robotizations, contributing both to improving the efficiency of BE LEAN and to
its automation on GO DIGITAL.
Innovation and R&D
Along with the three initiatives mentioned above, we use innovation, research and
development as tools to expand the creation of value and influence our strategy.
implementing
We have a history of successfully developing and
innovative
technologies, mainly with respect to drilling, completing and producing wells in
increasingly deepwater. Our efforts received four OTC awards, recently in 2019 for the
technologies we developed for the Libra Extended Term Test. In 2020, the award
recognized the set of innovations developed to enable production in the Búzios field, in
the Santos Basin pre-salt. To make this project a reality, we developed a series of
technologies for a scenario that combines challenging conditions, such as ultra-
deepwaters and reservoirs located below the salt layer, subjected to high pressure
levels, as well as a high presence of carbon dioxide. The innovations cover the technical
areas of geosciences, reservoirs, wells, elevation and flow, as well as subsea
technologies and surface installations. One of the main highlights of the development
was the installation of four FPSO type vessels (floating oil production, storage and
transfer unit) in a period of just 11 months in a single production field.
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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, 2020, this facility had 1,237 employees, 89 % of which are dedicated to
research and development. This employee group includes 15 employees with post-
doctoral degrees, 253 with doctorates and 365 with master’s degrees in the sciences.
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. In 2020, we engaged in several activities
relating to research and development. We conducted joint research projects with more
than 120 universities and research centers in Brazil and 85 outside of Brazil.
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
technological partnerships to leverage our human capital. We have already started to
improve our connections with innovation ecosystems by adopting new open innovation
practices with start-ups. The first step was an innovation challenge in cooperation with
the Brazilian Micro and Small Business Support Service (“SEBRAE”) (a non-profit private
entity with the mission of promoting the sustainable and competitive development of
small businesses in Brazil) through a call for start-ups and small companies for projects
aiming to improve technology readiness and implementation rates. In 2020, we
launched the second public call for R&D challenges and optimized the engagement
process when compared to our original initiative in 2019, increasing the number of
proposals and startups involved. In addition, based on a strategy of quick wins, we also
held a pioneering public call in order to test innovative solutions at scale that can
improve the productivity or safety of critical operations.
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It is among our research and development priorities to provide technologies for the
deep and ultra-deepwaters, to meet desired operational efficiency and optimization of
the recovery factor, and to provide technologies for downstream, gas and energy, as
well as renewable energies aimed at long-term wind and solar operations. For instance,
our program “PROD1000” has the ambition to reach 1,000 days between field discovery
and beginning of production, compared to current average of 3,540 days (PROD1000).
Our intention is to combine PROD1000 with “EXP100”, a program with the ambition to
increase the chance of discovering oil to 100% in drilling exploratory wells, reducing
project risks and costs by expediting production development. The result would be
earlier starts of the production development stage, which would boost the full-cycle
capital efficiency. CENPES is currently working towards a vision of the future that
comprises smart subsea systems, with a high level of connectivity, leading to greater
integrity management, reliability and significant cost and emissions reductions. The
extensive use of resident autonomous underwater vehicles and enhanced exploration
of the sea floor could increase the use of subsea processing systems, relieving topside
units, which creates options for unmanned facilities, subsea to shore designs or a hybrid
production system.
Brazilian Pre-Salt heterogeneous carbonate reservoirs typically present long net pays,
high production/injection rates and flow assurance risks. The challenge is how to
maximize production volume with minimum overall costs. In order to accomplish this
challenge, two well designs were developed for Brazilian Pre-Salt application: PACI 3Z
HD (Open Hole Intelligent Completion – three zones – Direct Hydraulics) and PACI-e
(Open Hole Intelligent Completion – Electrical). Both focus on cost reduction and
production maximization. The second design represents a technology breakthrough
leading to better reliability resulting in maintenance cost reduction and ultimate
recovery improvement when compared with the first design. In 2020 we achieved a
new record for post-salt wells, by drilling a complete post-salt well in 44 days. This result
is a game changer in brownfields, by the introduction of a new concept called “True
One Trip – 3 Phases” due to its design innovation: drilling wells with only three phases
and install all completion in one trip. This concept was developed by one of our
multidisciplinary groups. This field trial also validates the concept, allowing its future
application in several projects and ultimately resulting in a general cost reduction of
50%.
RESEARCH AND DEVELOPMENT (US$ MILLION)
Currently, about 25.2% 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.
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Additionally, in the three-year period ended December 31, 2020, our research and
development operations were awarded 259 patents in Brazil and 51 overseas. Our
patents portfolio covers all of our areas of activities. Currently, we have 878 patent
applications under examination, 441 in Brazil and 473 abroad, throughout more than
40 countries.
In 2020, we built an innovation ecosystem that is constantly evolving to create and
leverage the potential of new technologies and our human capital, accelerating the
application of innovation in our businesses. We continuously improve our innovation
ecosystem based on business objectives and share our challenges with the entire
ecosystem, as in the Connections for Innovation program, organized in modules to
modernize our relationship with Startups, Science and Technology Institutes and
Companies. In 2020, we reinforced our structured relationship model with startups,
accelerating the advancement of the technological and commercial maturity level of
the solutions and increasing the success and implementation rate, thus stimulating the
development of technological solutions for the oil, gas and energy sector.
In this context, we launched a second call for proposals within the Connections for
Innovation program, in which we selected 18 startups, among 363 registered in the
country and 100 more than the previous edition. In two years, we ended up selecting
23 startups among more than 500 participating in the selection process. A total amount
of US$1.9 million will be invested in the development of technological solutions
proposed by the companies selected, in the areas of digital technologies, robotics,
energy efficiency, corrosion, carbon reduction, geological modeling and inspection
technologies.
Additionally, we also held a pioneering public call in order to test innovative solutions
at scale that can improve the productivity or safety of critical operations, considering
the strategy of obtaining quick wins with the innovation process. In this call we
published ten challenges and received around 70 proposals. In less than one month,
eight companies were selected to test and validate their solutions to support us with
our business goals.
In August 2020, the Massachusetts Institute of Technology (MIT) selected Rio de Janeiro
to participate in the REAP (Regional Entrepreneurship Acceleration Program) that
engages universities, corporations, government, entrepreneurs and venture capital
investors. The project, with our support, stimulates innovative business environments
through the articulation of entrepreneurship initiatives in the areas of energy and
sustainability.
In addition to engaging with the entrepreneurial ecosystem, we use agile
methodologies to accelerate our digital transformation through the development of
innovative solutions by multidisciplinary teams that act as internal startups. In 2020, 93
proposals were received and 15 proposals were selected for the development of
solutions by these startups.
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The internal startups program is intended to contribute to our competitive advantage
by seeking innovative and disruptive ideas that can transform our operations,
enhancing efficiency and safety. It also plays an important role in our cultural
transformation by strengthening entrepreneurship and a mindset of experimentation.
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Protect
Information security plays a crucial role in our day-to-day operations and is being
treated as a priority and an innovation-enabler in our journey of digital transformation.
In 2020, due to the intensification of cyber attacks since the beginning of the Covid-19
pandemic, we created the Center for Excellence in Treatment and Response to Security
Events. The Center focuses on the cyber protection of our technological and operational
assets, including industrial and control systems. This way, we have solid processes to
protect our digital environments, in line with the best market practices and the
constant improvement of preventative actions. Based on reference frameworks and
benchmarks with oil and gas industry peers, a consistent work plan is underway, which
we hope will elevate us to a position above the average of our market, regarding
security management maturity, information, both in the corporate and automation
environments.
We also lead a national intelligence network for sharing information about cyber
attacks.
Privacy is another relevant topic for us. We see the legislation on the protection of
personal data as an opportunity to evolve our degree of maturity, adding continuous
improvements to this process. To this end, we have created a program to adapt to the
Brazilian Law 13,709/2018 (the General Data Protection Law, “GDPL”), with a
multidisciplinary and dedicated approach, which, through a governance model,
includes the implementation of a privacy office to respond to legal requirements and
guarantee the data rights of its employees and stakeholders.
During the last year, we implemented several initiatives in order to adapt to the GDPL.
Some of these initiatives are outlined below.
_ Implementation of Services for treatment of demands from data subjects.
_ Implementation of Privacy and Data Protection Policies.
_ Categorization of data subjects.
_ Privacy and Personal data protection awareness events involving the entire workforce
and the board.
_ Creation of an online training format covering the basic topics of the GDPL.
_ Publication of the new Code of Ethical Conduct with a chapter dedicated to the
protection of personal data.
_ Mapping of data flows, risk and gap analysis concerning privacy and personal data
protection.
_ Creation of space dedicated to the GDPL on the intranet portal and on internal social
network.
_ Creation of a page on privacy and protection of personal data on our website.
_ Disclosure of institutional material on the GDPL for companies with our equity interest.
_ Wide disclosure of the beginning of the GDPL’s effectiveness in several internal
channels.
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_ Implementation of basic contractual clauses with suppliers related to Privacy and Data
Protection.
_ Consolidation of a control framework based on the international standard ISO/IEC
27,701/2019 - privacy information management.
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Environment, social and governance
ENVIRONMENT, SOCIAL AND GOVERNANCE
184
Environment
—
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. For this
purpose, 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 fifth cycle, 2020-2021, and
supports the implementation of the Total Recordable Injury safety indicator and of the
Leaked Volume of Oil and Petroleum Products, an environmental indicator, which are
two 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 2020-2021 cycle are the following:
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HSE INVESTMENTS (US$ BILLION)
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 prevent and
respond to emergencies. In addition, we support
several socioenvironmental projects.
Due to the pandemic, some licensing constraints
were implemented remotely or the schedules
were renegotiated, with the approval from
environmental authorities, causing a lower
disbursement when compared to 2019.
The development of business with suppliers also comprises environmental
requirements according to the best practices in the industry. 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,
according to new commitments formalized in 2020.
Since 2019, we have been certified by 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 continuously improve our
capacity to manage goods and services supply processes, contributing to our increased
credibility in a competitive market.
Total Recordable Injury
Safety is one of our core values. The TRI rate is one of the metrics monitored by our
senior management for matters 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.
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After obtaining a record TRI result of 0.56 and zero fatalities, in 2020, in our Strategic
Plan we established the alert threshold for TRI below 0.70 for 2021, which is lower than
the industry benchmark. 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 2020, we trained our employees in process safety,
HSE aspects in contracts, behavioral auditing, human factors, and almost 60,000
employees and outsourced professionals in hands safety.
TOTAL RECORDABLE INJURY RATE – TRI (1)
(1)
The TRI result achieved in 2020 represents an important improvement compared to the 2019 TRI result. In 2019, our TRI
result was the lowest among our peers, according to the results published in the Shell, ExxonMobil, Equinor and BP
Sustainability reports.
We expect to train 100,000 employees and outsourced professionals in safety risks in
2021.
Although we develop prevention programs in all of our operating units, we recorded
zero fatalities involving our own and contractors’ employees in 2020 (compared to two
fatalities in 2019). Our procedure is to investigate all incidents reported in order to
identify their causes and take preventative and corrective actions. These actions are
regularly monitored once they are adopted. In case of serious accidents, we send
company-wide alerts to enable other operating units to assess the probability of similar
events occurring in their own operations.
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Environmental impacts
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We are an energy company focusing on oil and gas. We therefore use natural resources
and impact the ecosystem through our activities. However, we seek to reduce the
impacts of our activities on the environment. In 2020, we invested US$508 million in
environmental projects, compared to US$891 million in 2019 and US$842 million in
2018. 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 prevent and respond to emergencies. Due to the
pandemic, some licensing constraints were implemented remotely or the schedules
were renegotiated, with the approval from environmental authorities, causing a lower
disbursement when compared to 2019.
We have established ten commitments in our Strategic Plan for the low carbon and
sustainability agenda1:
For more information, see “Strategic Plan” in this annual report.
—
1 Carbon commitments related to 2015 base. Other commitments based on 2018.
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Spills and Environmental Remediation Plans
Oil and oil product spills totaled 216.5 m3 in 2020, compared to 415.3 m3 in 2019. Two
main events were responsible for 99% of this total: (i) during the oil production line
inertization procedure using diesel, the service line collapsed and led to a discharge of
64.04 m³ of diesel into the sea, at FPSO Cidade de São Vicente, in the Farfan field,
located in the Sergipe Basin in ultra-deepwater; and (ii) the discharge of approximately
148 m³ of diesel at sea during a transfer operation with tug, at P-67 platform, in the
Tupi Field, in the Santos Basin. In both cases, immediate pollution control procedures
were implemented in order to minimize the impacts generated by the spills, and the
causes were investigated for future prevention 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” (Blue Ocean) with the aim of identifying and
addressing the main causes for loss of primary containment events, mainly those with
environmental impacts potential. This plan consists of investments for improving the
management of processes and for ensuring the integrity of our equipment and
installations. We adopt our operational and sanitary procedures in order to ensure not
only the readiness of the contingency bases but also a safety and efficient response on
the field from specialized personnel. We also conduct major table-top exercises,
including in the Buzios field, in the Santos basin Pre-Salt, which involved more than 200
people.
In 2020, the “Mar Azul” plan moved forward, proceeding to the structuring of phase
two, and it was integrated to “Programa Compromisso com a Vida” (Commitment to
Life Program), one of our major HSE programs.
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 from our offshore operations. The Brazilian Institute of the Environment
and of Renewable Natural Resources (IBAMA) 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 oil dispersants, among other resources.
These resources are distributed in Environmental Defense Centers, located in strategic
areas, in order to ensure rapid and coordinated response to onshore or offshore oil
spills.
We have approximately 300 trained workers available to respond to oil spills 24 hours
a day, seven days a week, and we can mobilize additional trained workers for shoreline
cleanups on short notice from a large group of trained 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.
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Since 2012, we have been a member of the Oil Spill Response Limited (“OSRL”), an
international organization that brings together over 160 corporations, including major,
national and independent oil companies, energy related companies as well as other
companies operating elsewhere in the oil supply chain. OSRL participates in the Global
Response Network, an organization composed of several other companies dedicated to
fighting oil spills. As a member of the OSRL, we have access to all resources available
through that network, 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 2020, even with the Covid-19 pandemic, we conducted six remote emergency drills
of regional scope using remote communication tools.
We continue to evaluate and develop initiatives to address HSE concerns and to reduce
our exposure to HSE risks on capital projects and operations.
Air Emissions and Transition to Low Carbon
Our actions related to climate change are supported by three pillars: (1) carbon
quantification and transparency, (2) resilience of our position in oil and gas facing low
carbon transition and (3) strengthening of our skills to create value in low carbon. To
that end,
_ we strive to ensure that carbon risks and opportunities are properly captured in
scenarios, quantified, and considered in our decisions, for the sustainability and
resilience of our business. We adopted transparency in carbon as a value and we
highlight our recent public support to the TCFD – Task Force for Climate Related
Financial Disclosures.
_ our priority is to operate at low costs and with superior performance in carbon, in order
to thrive in scenarios of low oil prices, carbon prices and possible oil differentiation
based on their carbon intensity in production. For this, we established a set of low
carbon targets and have a company-wide carbon mitigation program, with an allocated
budget. In 2020, we reinforced our structure and governance by creating an executive
management area of climate change that reports directly to the Chief Institutional
Relations and Sustainability Officer. We have also reviewed our oil price key
assumptions in 2020, assuming a long term price of crude oil of US$50 and a resilience
scenario of US$35. Those are stringent assumptions for the price of oil, compatible with
scenarios aligned with the Paris agreement and more conservative than the prices from
IEA Sustainable Development Scenario.
_ on the third pillar our focus is on innovation and in the acquisition of skills that may
allow future diversification in renewables and low carbon products. While we are
working to protect a solid financial situation in the medium and long term, we also work
on our competitiveness to capture the potential opportunities in renewables in a long-
term perspective. On that front we have recently announced our plans to produced
advanced hydrotreated biofuels.
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Our set of carbon targets and goals were updated in our Strategic Plan, adding an
operational emissions reduction target for 2030 and expanding our upstream and
refining intensity targets to 2030. Our operational emissions reduction target covers
100% of operated assets in all our businesses (including power generation), for all
greenhouse gases and represents a material, relevant and short-term contribution to
halting climate change. We include direct (Scope 1) and indirect GHG emissions from
the acquisition of electric and/or thermal energy produced by third parties (Scope 2).
Since 2019, metrics related to carbon intensity in our downstream and upstream
operations have been integrated into executive remuneration. In 2020, these metrics
were incorporated as one of our four top indicators, influencing variable remuneration
not only for executives, but for all company employees.
In 2020, our performance in terms of GHG emissions was as follows:
_ Total GHG emissions of 56 million tCO2e, consolidating six years of consecutive
reduction of emissions and compatible with our target to reduce total operational GHG
emissions by 25% by 2030, compared to 2015;
_ Carbon intensity in E&P of 15.8 kgCO2e/boe2, on track for achieving the medium-term
target of 15 kgCO2e/boe in 2025, maintained until 2030;
_ Carbon intensity in refining of 40.2 kgCO2e/CWT3 on track for achieving the medium-
term target of 36 kgCO2e/CWT in 2025 and of 30 kgCO2e/CWT in 2030.
Our carbon intensity targets (E&P and Refining) represented a coverage of 76% of
emissions from activities that we operated in 2020.
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. Our program on Connections for
Innovation – Startups Module, conducted in partnership with SEBRAE, had a topic of
carbon reduction on its two editions (2020 and 2019). In fact, one of the winning
companies of the 2020 edition, Alfa Sense, will work in GHG emissions reduction in our
operations and Pam Selective Membranes, which was one of the winning companies in
the 2019 edition, has initiated its work last year on carbon capture technology.
In addition, we note that our Climate Change Supplement is available on our website,
serving as an internal guide which details our contributions to reducing the carbon
intensity of our energy supply and how we aim to remain competitive in an evolving
context.
—
2 The kg CO2e / boe indicator considers gross oil and gas production (“wellhead”) in its denominator.
3 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,
represents a small portion of our refining emissions.
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Social Responsibility
—
Human Rights
A commitment to human rights is key for the sustainability of our business. Several
documents governing our activities detail our approach to human rights, as follows:
_ Code of Ethical Conduct: addresses issues such as respect for diversity, equal
opportunities, fair labor relations, health and safety assurance for workers and the right
to free association.
_ Guide to Ethical Conduct for Suppliers: reinforces that our suppliers must promote
dignified and safe working conditions for their employees and combat child and slave
labor, in addition to promoting diversity, gender and racial equality and the inclusion of
people with disabilities.
_ 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: our reported indicators and actions follow the Sustainable
Development Goals outlined in the sustainability report: Correlation with Global
Reporting Initiative (GRI) Indicators, Sustainable Development Goals (SDGs) and Global
Compact Principles. We use the IPIECA Oil and Gas Industry Guide for Voluntary
Reporting as a supplementary reporting methodology.
Our respect and defense of human rights commitments are also evident through
initiatives in favor of gender equity, racial equality, and the protection of early
childhood. We list below our main human rights initiatives.
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In 2010, we adhered to the seven UN Women’s Empowerment Principles (“WEPs”),
which address the promotion of gender equality in the labor market and in society.
Over time, our internal gender equity promotion policies have secured recognition in
the 2019 WEPs Brazil Award, an award organized by a partnership between UN Women,
the International Labor Organization, and the European Union, geared towards
companies promoting gender equity and women’s empowerment.
In November 2018, we joined the Business Initiative for Equality, put forward by the
NGO Afrobras and Zumbi dos Palmares College. Through its 10 commitments, the
initiative aims to promote racial equality, equal opportunities, and fair treatment for
all. In 2018, we also signed the Open Letter Enterprises for Human Rights, where we
pledged, among other things, to adopt a policy of communication, investigation of
complaints, and sanctions, in order to suppress practices that go against our Code of
Ethical Conduct.
We also promote a commitment to human rights in our supply chain. Each year, the
most distinguished suppliers are awarded with "Prêmio Melhores Fornecedores da
Petrobras" (“Award for Best Petrobras Suppliers”). Beyond technical categories, some
special ESG category awards include Diversity (focus on Gender Equity, Persons with
Disabilities, and Racial Equality), Early Childhood Education, and Best Practices in
Compliance. Suppliers were awarded in these ESG categories regarding their
performance in 2019.
In August 2019, we launched the Petrobras Early Childhood Initiative. In December
2019, we signed the National Pact for Early Childhood, a commitment signed by several
sectors to protect children in Brazil, which aims to strengthen public institutions
dedicated to guaranteeing rights provided for in Brazilian legislation and to promote
the improvement of the necessary infrastructure to protect children’s interests. In
2020, the Petrobras Early Childhood Initiative implemented a series of intersectoral
programs in 15 Brazilian municipalities aimed at protecting and boosting children’s
development in their first six years of life.
We have also formalized support for the Synapse project, executed by the Institute of
Research in Technology and Innovation, as another Petrobras Early Childhood Initiative
project. The project seeks the improvement of educational technology recognized by
the Ministry of Education, which integrates the management of educational data of
attendance, grades and enrollment, among others.
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The “Early Childhood is Priority” project, carried out by the Children’s Rights News
Agency (ANDI), has made important contributions in the field of promoting access to
public data and offering a digital library with a large collection specialized in Early
Childhood through the digital platform “Observa.” Launched in 2020, this platform
provides public access to Brazilian early childhood indicators in the areas of health,
social assistance, and education in all national municipalities at a local, state, and
federal level. In addition, ANDI has promoted training to ensure the rights of children
and adolescents to develop municipal plans for Early Childhood and, in partnership with
the University of Brasilia, has developed a discipline for undergraduate studies in
Communication and Journalism, with the aim of qualifying and expanding coverage of
early childhood issues in Brazilian society. In June 2020, we launched our Human Rights
Guidelines for business strategies with a view to ensuring respect for human rights,
recognized nationally and internationally in all regions where we operate and
throughout the life cycle of our projects and operations. Our human rights operations
are guided by the United Nations’ Guiding Principles on Business and Human Rights and
structured along four axes: People Management, Community Relations, Involvement
with the Supplier and Partner Chain, and Due Diligence in Human Rights. Each axis
describes the processes from which we aim to ensure the incorporation of respect for
human rights in all areas of our business and in our relations with our stakeholders, as
well as to identify potential risks of human rights violations related to operations,
products, or services we provide, and to remedy the impacts we cause.
Regarding the support given to projects through the Petrobras Socio-Environmental
Program, we consider that actions aimed at the promotion of human rights are a high
value attribute. In 2020, we included human rights as a transversal theme of the
Program, as it can be applied to all projects in relation to its main theme, to expand the
scope and potential for transformation of the Program. The projects that carry out
affirmative actions to promote Gender Equity, Racial Equality, and Inclusion of People
with Disabilities must demonstrate the association between their actions and the
expected results. Across all our activities, we carry out social risk assessments, where
we seek to identify and mitigate potential human rights impacts in the supply chain.
These assessments lead to recommendations including the review of emergency
response plans through the lens of community relationships, monitoring of community
occurrences and complaints, disclosure of projects and operational activities, and the
inclusion of social responsibility clauses in service contracts, among others.
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Community Relationship
We are committed to maintaining a long-term community 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 seek to foster collaborations to strengthen ties, promote networking, and generate
mutual benefits while respecting the social, environmental, territorial and cultural
rights of communities. We promote committees, meetings, lectures, visits and
investment 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.
In 2020, our community relationship activities carried out 300 interactions in
communities, including online meetings with community leaders through community
committees, visits and events.
Additionally, we strengthen our work with communities, civil society organizations, the
public sector and universities through the Petrobras Socio-Environmental Program. This
initiative contributes to environmental conservation and the improvement of living
conditions where we operate. The program is aligned with our social responsibility
policy, which seeks to provide energy, respect human rights and the environment,
responsibly manage our relationship with nearby communities and overcome
sustainability challenges. The portfolio included 147 projects in 2020.
The main fronts of our Socio-Environmental Program were revised in January 2020 and
are aligned with our Strategic Plan, as well as to the Sustainable Development Goals,
SDG 4 (Quality Education), SDG 8 (Decent Work and Economic Growth), SDG 14 (Life
Bellow Water) and SDG 15 (Life on Land). We have also prioritized the strategy of
transition to low carbon economy and offshore operations. Our budget for such
projects has been adjusted by the Resilience Plan released on March 8, 2020. The
performance of the activities planned in the Petrobras Socio-Environmental Program
projects has also been impacted by social isolation measures, since many involved
collective and face-to-face events.
Thus, to mitigate the risks related to Covid-19, the projects acted in an agile manner,
adopting a series of measures to safeguard the health of the technical teams and their
beneficiaries while maintaining distanced activities. During this period, it was possible
to count on the support of our network of socio-environmental projects for the
distribution of hygiene and cleaning items and basic food baskets to the communities
surrounding our operations, in addition to the sharing of content and important issues
for society in general, through digital platforms and social networks. The sponsored
projects have participated in more than 430 live video sessions on social networks, in
which educational content, human rights, entrepreneurship, sustainable development,
species conservation, among others, have been shared.
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In addition to the problems arising from the Covid-19 pandemic, we experienced other
emergency situations in Brazil in 2020, such as floods in the states of Minas Gerais and
Espírito Santo, fires in the Pantanal region, and blackouts in Amapá. Thus, to increase
our contribution to society, we have increased the amount of our donations
(US$4,956,166.37). In 2020, we invested US$17,267,625.83 in social and environmental
projects, 42% less than in 2019. This decrease takes into consideration the exchange
rate variation of the real compared to the U.S. dollar between 2019 and 2020. Thus,
the percentage decrease is 42% reported in U.S. dollars and 23% reported in reais.
Therefore, the amount of donations and investment in social and environmental
projects totals US$22,223,792.20 directly transferred to society in 2020.
We have also incorporated guidelines in our decision-making process related to capital
investment projects, including social risk analysis and human rights violations
performed by a multidisciplinary group. In 2020, 32 new risk assessments were required
to support projects passing through formal planning gates, compared to 18 in 2019.
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Corporate 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:
Law 13,303/16 requires that our Board of Directors be formed by at least 25% of
independent members. Our Bylaws extended the requirement to 40%. Technical
criteria for the selection of members of the Board of Directors and executive officers
set forth in Law 13,303/16 and in our Bylaws banned the appointment of ministers,
secretaries and others in certain positions of public administration. Our Bylaws also
provided additional requirements in addition to those of Law 13,303/16 for assessing
the reputation of the administrators and members of the Fiscal Council.
As we are a mixed-capital company, the Brazilian federal government can guide our
activities, with the purpose of contributing to the public interest that justified our
creation, aiming to guarantee the supply of oil products throughout the national
territory. However, this contribution to the public interest must be compatible with our
corporate purpose and with market conditions and cannot jeopardize our profitability
and financial sustainability.
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Thus, if providing for the public interest calls for conditions different from those of any
other private sector company operating in the same market, as explained in our Bylaws,
the obligations or responsibilities that we assume must be defined in rules or
regulations and outlined in a specific document, such as a contract or agreement,
widely publicized and with disclosure in such instruments of detailed costs and
revenues, including in the accounting plan. Then, the Brazilian federal government will
compensate us, each fiscal year, for the difference between market conditions and the
operating result or economic return of the assumed obligation.
Transactions with the Brazilian federal government that require our Board of Directors’
approval and occur outside the normal course of business must have been previously
reviewed by the minority committee and approved by two-thirds of the board. The
minority committee is formed by two members of our Board of Directors appointed by
minority common shareholders and preferred shareholders, as well as one
independent member, according to our Bylaws.
We have made improvements in our governance decision-making process as well. Our
Bylaws already define the board advisory committees that review all matters submitted
to the Board of Directors prior to a decision. In order to ensure transparency in our
most relevant decisions, we have implemented a shared authorization model, where at
least two people must come to a decision (the four-eyes principle).
Our whistleblower channel is an independent, confidential and impartial tool. It is
available to our external and internal audiences and our controlled companies to
laundering, harassment,
register denouncements of fraud, corruption, money
discrimination, HSE and other issues.
Our Board of Directors 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.
We are part of the special Level 2 corporate governance listing segment of the B3, which
demands compliance with differentiated governance regulation and the improvement
of the quality of the information we provide. This voluntary move to Level 2 of the B3
reinforces our advances in corporate governance and ratifies our commitment to the
continued improvement of processes and to our alignment with market best practices.
Possible initiatives related to changes for governance improvements require formality
and transparency of 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.
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Corporate Governance Structure
Our corporate governance structure consists of a general shareholders’ meeting, our
Fiscal Council, Board of Directors and its committees, internal and external audits,
general ombudsman office, Board of Executive Officers and its committees.
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.
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Shareholders’ Meeting
The shareholders’ meetings must take place on an ordinary or extraordinary basis. An
ordinary shareholders’ meeting must take place once a year in order to approve our
results 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.
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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.
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 refuse 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.
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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.
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.
Compensation Committee
303A.05
Audit Committee
303A.06
303A.07
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 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 are not required to
comply with the compensation committee
requirement.
Our audit committee is a statutory advisory committee
to our Board of Directors and satisfies the exemption
set forth in Rule 10A-3(c)(3) under the Exchange Act.
See “Management and Employees–Audit Committee”
for a description of our audit committee. 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.
Generally, 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.
However, pursuant to Exchange Act
Rule 10A-3(c)(3), a foreign private
issuer is not required to have an audit
committee equivalent to or
comparable with a U.S. audit
committee if the foreign private issuer
has a body established and selected
pursuant to home country legal or
listing provisions expressly requiring or
permitting such a body, and if the body
meets the requirements that (i) it be
separate from the full board, (ii) its
members not be elected by
management, (iii) no executive officer
be a member of the body, and (iv)
home country legal or listing provisions
set forth standards for the
independence of the members of the
body.
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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.
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.
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.
We have a set of Corporate Governance Guidelines
(Diretrizes de Governança Corporativa) that address
general ombudsman qualification standards,
responsibilities, composition, 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 also have a Corporate Governance Policy,
approved by our Board of Directors, which establishes
our governance principles and guidelines. This policy
applies to Petrobras and its affiliated, pursuant to
Article 16 of our Bylaws.
We have a Code of Ethical Conduct (Código de Conduta
Ética), applicable to the members of the Board of
Directors and its advisory committees, members of the
Fiscal Council, members of the Executive Board,
employees, interns, service providers and anyone
acting on behalf of the Petrobras (“collaborators”),
including its subsidiaries in Brazil and abroad, 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 Ethical
Conduct or the 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.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
204
Operating and financial review and
prospects
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
205
Consolidated Financial Performance
—
Our results in 2020 were based on a transformational agenda supported by five pillars:
(i) maximization of the return on capital employed, (ii) reduction in the cost of capital,
(iii) relentless search for low costs, (iv) meritocracy and (v) safety, health, respect for
people and the environment. We achieved net cash provided by operating activities of
US$28.9 billion, a Free Cash Flow (a non-GAAP measure defined below) of US$22 billion
and Adjusted EBITDA (a non-GAAP measure defined below) of US$28.4 billion.
Operating income in 2020 was US$10 billion, 51% lower than 2019 primarily due to
lower average Brent prices in 2020 and increase in operating expenses, mainly, higher
impairment, as a result of the reduction in projected Brent prices, and higher selling
expenses, led by an increase in international freight costs and the sale of 90% stake held
in TAG in 2019, resulting in higher payments of associated tariffs in 2020. On the other
hand, in 2020 there were more exports, which compensated for the reduction in
demand and margins on oil products in Brazil, lower General and Administrative
expenses (G&A) and gains of the health care plan actuarial review, as a consequence of
the reduction in the contribution paid by us. There were also gains related to the
exclusion of the VAT tax from the calculation basis of the PIS/COFINS and lower
provision for legal and administrative proceedings in 2020. Net income attributable to
our shareholders was US$ 1.1 billion in 2020, an 89% decrease compared to 2019,
mainly as a result of lower Brent prices, higher impairment losses, lower gains with
divestments and the depreciation of the real against the U.S. dollar.
In 2019, we lost control of BR Distribuidora through a secondary public offering.
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. Thus, in the consolidated statement of income and cash
flows, the net income, operating, investing and financing cash flows relating to BR
Distribuidora are presented in separate line items, as a net amount for discontinued
operations.
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;
_ the recoverable amounts of assets for impairment testing purposes; and
_ the amount of production taxes from our operations that we are required to pay.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
206
Exchange rate variation impacts
As we are a Brazilian company and most of our operations are carried out in Brazil, we prepare our
financial statements primarily in reais, which is our functional currency and that of all of our Brazilian
subsidiaries. We also have entities that operate outside Brazil, the functional currency of which is the
U.S. dollar. We have selected the U.S. dollar as our presentation currency in this report to facilitate the
comparison with other oil and gas companies. We have used criteria set forth in IAS 21 – “The effects of
changes in foreign exchange rates” to translate the audited consolidated financial statements from reais
into U.S. dollars. 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 using the average exchange rates prevailing during
the relevant period and (iii) equity items at the exchange rates prevailing at the respective transactions
dates.
CONSOLIDATED STATEMENT OF INCOME
Sales revenues
Cost of sales
Gross profit
Selling expenses
General and administrative expenses
Exploration costs
Research and development expenses
Other taxes
Impairment of assets
Other income and expenses
Operating income
Net finance income (expense)
Results of equity-accounted investments
Income before income taxes
Income taxes
Net income from continuing operations for the period
Net income from discontinued operations for the year
Net income for the year
As reported (US$ million)
Jan-Dec
2020
2019
53,683
(29,195)
24,488
(4,884)
(1,090)
(803)
(355)
(952)
(7,339)
998
10,063
(9,630)
(659)
(226)
1,174
948
-
948
76,589
(45,732)
30,857
(4,476)
(2,124)
(799)
(576)
(619)
(2,848)
1,199
20,614
(8,764)
153
12,003
(4,200)
7,803
2,560
10,363
Variation
▲
(22,906)
16,537
(6,369)
(408)
1,034
(4)
221
(333)
(4.491)
(201)
(10,551)
(866)
(812)
(12,229)
5,374
(6,855)
(2,560)
(9,415)
▲ (%)
(29.9)
(36.2)
(20.6)
9.1
(48.7)
0.5
(38.4)
53.8
157.7
(16.8)
(51.2)
9.9
(530.7)
(101.9)
(128.0)
(87.9)
(100.0)
(90.9)
For more information regarding our functional and presentation currency, see “About Us” and Note
2.3 to our audited consolidated financial statements.
Exchange rate fluctuations have multiple effects on our results of operations in reais.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
207
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.
2020
5.20
(28.9%)
5.16
(30.7%)
4.52%
2019
4.03
(4.1)%
3.95
(8.2)%
4.31%
2018
3.87
(16.9)%
3.65
(14.4)%
3.75%
From January 1, 2021 to March 23, 2021, the real has depreciated 5.43% against the U.S. dollar.
When the real appreciates against the U.S. dollar, generally the effect is an increase both in revenues
and expenses when expressed in U.S. dollars. When the real depreciates against the U.S. dollar, as it
did in 2020, generally the effect is a decrease both in revenues and expenses when expressed in U.S.
dollars.
Exchange rate fluctuations may affect the results of variables such as the following:
_ Margins: The relative pace at which our total revenues and expenses in reais
increase or decrease as a result of exchange rate fluctuations, 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 increase. 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 and
recent developments in our pricing policies, see “Sales Volumes and Prices” in
this section and “Recent Developments” 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
depreciation of the real also increases our costs to import oil, oil products, goods
and services necessary for our operations and our production taxes. Unless the
depreciation of the real is offset by higher prices for our products sold in Brazil,
which is the practice under our currently pricing policy, a depreciation increases
our debt service relative to our cash flows while also reducing our operating
margins. As our net debt denominated in other currencies increases, the negative
impact of a depreciation of the real on our results and net income when
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
208
expressed in reais also increases, thereby reducing the earnings available for
distribution.
_ Retained earnings available for distribution: Exchange 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 38.3(a) to our audited
consolidated financial statements.
For information about our related foreign exchange exposure related, see “Liquidity and Capital
Resources – Exposure to Interest Rate and Exchange Rate Risk” in this section.
For more information about our foreign exchange exposure related to assets and liabilities, see Note
38.3(c) to our audited consolidated financial statements.
Sales Revenues
2020 compared to 2019
In 2020, although total sales volume increased, given that a steep increase in exports
(30% YoY) more than compensated for the drop in demand in Brazil, net revenues
decreased by 30% compared to 2019 due to the drop in Brent prices (35%) and in the
sales of oil products, with higher added value than crude oil.
Sales revenues were US$53,683 million in 2020, a 30% decrease when compared to
US$76,589 million in 2019, mainly due to:
_ Decrease in domestic revenues (US$19,660 million), mainly as a result of:
a) decrease in oil products revenues (US$16,637 million) primarily reflecting a
decrease in the average prices of diesel and gasoline due to the drop of Brent
prices as well as lower sales volume of gasoline, diesel and jet fuel, reflecting the
effects of the pandemic; and
b)
lower natural gas revenues (US$2,280 million), primarily reflecting lower
demand from the thermoelectric market.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
209
_ Decreased export revenues (US$2,140 million), mainly driven by lower Brent prices.
This effect was partially offset by higher crude oil and oil product export volumes.
_ Decreased revenues from operations abroad (US$1,106 million) mainly due to the sale
of the Pasadena refinery and the distribution companies in Paraguay, lower
international prices and the effects of the pandemic.
2019 compared to 2018
Sales revenues were US$76,589 million in 2019, a 10% decrease (US$8,049 million)
when compared to US$84,638 million in 2018, mainly due to:
_ Decrease in domestic revenues (US$6,591 million), mainly as a result of:
a) decrease in oil products revenues (US$5,797 million) primarily reflecting a
decrease in the average prices of diesel, gasoline and naphtha when expressed
in U.S. dollars, following lower international prices, as well as lower sales of
gasoline (mainly due to higher third-party imports and to the higher portion of
ethanol in fuel market), decreased sales of naphtha to Braskem, lower sales of
diesel (mainly due to higher imports by other players, 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 (US$705 million), primarily reflecting the decrease of
difference settlement prices;
c) partial offset by higher natural gas revenues (US$504 million), following contract
price adjustments mainly;
_ Increased export revenues (US$2,672 million), mainly driven by higher crude oil export
volumes, following increased domestic crude oil production, and by higher oil products
export volumes, mainly gasoline and fuel oil; and
_ Decreased revenues from operations abroad (US$4,130 million) mainly due to the sale
of the Pasadena refinery, to the sale of E&P assets of PAI and the distribution companies
in Paraguay.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
210
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 has
a significant impact on our financial results. International oil product prices vary over time as the result
of many factors, including the price of crude oil. We seek to sell our products in Brazil at par with
international product prices, when possible. The announced divestment plan will contribute to improve
the capital allocation and, consequently, also the shareholder value creation.
The average price of Brent Crude Oil (as reported by Bloomberg, an international benchmark of oil prices)
was US$42 per barrel in 2020, US$64 per barrel in 2019 and US$71 per barrel in 2018. As of December
31, 2020, Brent Crude Oil prices averaged US$50 per barrel.
During 2020, 67.7% of our sales revenues were from sales of oil products, natural gas and other products
in Brazil, compared to 73.1% in 2019 and 73.9% in 2018.
For the year ended December 31
Volume
(mbbl,
except as
otherwise
noted)
251,400
125,536
14,669
42,544
86,170
21,887
66,470
608,676
106,890
2020
Net
Average
Price
(US$)(2)
Sales
Revenues
(US$
million)
2019
Net
Average
Price
(US$)(2)
Volume
(mbbl,
except as
otherwise
noted)
55.39
50.29
54.20
39.82
39.26
66.48
40.80
49.74
34.14
13,924
264,462
6,313
137,928
795
1,694
3,383
1,455
2,712
14,408
29,942
83,486
43,528
60,453
30,276
634,207
3,649
127,583
87.00
71.12
71.21
55.74
49.82
88.04
56.41
73.97
46.47
Sales
Revenues
(US$
million)
Volume
(mbbl,
except as
otherwise
noted)
23,007
266,706
9,810
146,681
1,026
1,669
4,159
3,832
3,410
16,846
35,296
84,371
44,731
57,380
46,913
652,011
5,929
125,787
2018
Net
Average
Price
(US$)(2)
Sales
Revenues
(US$
million)
93.23
79.70
73.19
69.55
53.22
94.07
65.68
80.84
43.13
24,865
11,690
1,233
2,455
4,490
4,208
3,769
52,710
5,425
2,899
20.35
59
2,621
93.48
245
6,156
59.45
366
—
—
2,350
—
718,465
350,090
31,190
381,280
1,099,745
—
36,334
764,411
45.55
45.02
—
—
15,945
268,344
1,404
36,885
17,349
305,229
53,683
1,069,640
—
—
67.39
68.05
—
—
2,907
55,994
18,085
2,510
—
783,954
216,838
85,815
20,595
302,654
76,589
1,086,608
—
—
71.08
77.38
—
—
4,084
62,585
15,413
6,640
22,053
84,638
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
(1) In 2018, this line item includes revenues related to the Diesel Price Subsidy Program.
(2) Net average price calculated by dividing sales revenues by the volume for the year.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
211
Cost of Sales
2020 compared to 2019
Cost of Sales (“COGS”) was US$29,195 million in 2020, a 36% decrease compared to
US$45,732 million in 2019, following the decrease in oil products production and lower
Brent prices, mainly due to:
_ Lower import costs and production taxes, following the lower Brent prices; and
_ The higher share of pre-salt assets in the production mix and lower lifting costs, that
enabled the reduction of crude oil production costs despite higher production volumes.
It also contributed to the decrease of operations abroad, as well as to the lower
production costs and lower costs from operations abroad, following the sale of
distribution companies in Paraguay and the sale of the Pasadena refinery.
2019 compared to 2018
Cost of sales was US$45,732 million in 2019, a 12% decrease (US$6,452 million)
compared to US$52,184 million in 2018, mainly due to:
_ Lower production costs and lower costs from operations abroad, following the sale of
E&P assets of PAI, the sale of distribution companies in Paraguay and the sale of the
Pasadena refinery;
_ Decreased eletricity costs due to lower thermoelectric demand;
_ Partial offset by higher import costs and increased domestic crude oil acquisitions,
generating higher share of crude oil imports on feedstock processed and of natural gas,
following increased prices; and
_ Foreign exchange conversion 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.
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212
Selling Expenses
2020 compared to 2019
Selling expenses were US$4,884 million in 2020, a 9% increase (US$408 million)
compared to US$4,476 million in 2019, mainly due to increased oil product and crude
oil export volumes and an increase in international freight costs, as well as higher
transportation costs, as a result of fee payments for the use of third-party gas pipelines,
following the sale of TAG in June 2019.
2019 compared to 2018
Selling expenses were US$4,476 million in 2019, a 17% increase (US$649 million)
compared to US$3,827 million in 2018, mainly due to higher transportation costs, as a
result of fee payments 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.
General and Administrative Expenses
2020 compared to 2019
General and administrative expenses were US$1,090 million in 2020, a 48.7% decrease
(US$1,034 million) compared to US$2,124 million in 2019, mainly due to foreign
exchange translation effects that resulted
in decreased average general and
administrative expenses, reflecting the depreciation of the average Brazilian real,
resilience measures and the effect of the gains on the actuarial review of our health
care plan.
2019 compared to 2018
General and administrative expenses were US$2,124 million in 2019, a 5% decrease
(US$115 million) compared to US$2,239 million in 2018, mainly due to foreign exchange
translation effects that resulted in decreased average 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
the actuarial review of health care and pension plans.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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Exploration Costs
2020 compared to 2019
Exploration costs were US$803 million in 2020, the same level when compared to
US$799 million in 2019.
2019 compared to 2018
Exploration costs were US$799 million in 2019, a 52% 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.
Impairment of Assets
2020 compared to 2019
We recognized impairment of assets in the amount of US$7,339 million in 2020, a 157%
increase (US$4,491 million) compared to US$2,848 million in 2019 mainly for E&P
assets (US$7,316 million). Impairment losses on producing properties in Brazil
amounted to US$7,083 million, most of it related to CGUs that provide service in E&P
fields, also reflecting the hibernation of producing assets in the first quarter of 2020, as
well as the revision on the key assumptions of the Strategic Plan, mainly expected Brent
prices, depreciation of the Brazilian real against U.S. dollar, economic slowdown and
reduction in the demand for oil and oil products.
2019 compared to 2018
We recognized impairment of assets in the amount of US$2,848 million in 2019
compared to US$2,005 million in 2018, 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 projected for the 2021-2025 period and the increase in the
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 in
the Espirito Santo Basin, partially offset by the effects of reversals relating to the sale
of producing fields in Brazil. In addition, we accounted for impairment losses in 2019
due to the postponing of a project to conclude the second refining unit of RNEST, and
also due to the writing-off of 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), 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 pertaining to transportation assets.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
214
Other Income and Expenses
2020 compared to 2019
Other income and expenses totaled income of US$998 million in 2020, compared to an
income of US$1,199 million in 2019, mainly due to higher disposal and write-off of
assets in 2019 (US$5,547 million), the voluntary severance programs (US$819 million),
offset by the recovery of PIS / COFINS (VAT excluded from the calculation base)
(US$1,514 million); equalization of expenses related to production individualization
agreements (US$699 million), gains on health care plan actuarial review (US$2,164
million); legal proceedings (US$1,089 million) and the variable compensation program
(US$204 million).
2019 compared to 2018
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:
a) Gain from the sale of TAG (US$5,458 million);
b) Gain on the sale of Pargo, Carapeba and Vermelho fields, mainly with the write-
off of provision for abandoned areas, as a result of the assumption by the buyer
of expenses for the decommissioning of areas related to the fields (US$787
million);
c) Gain on the sale of Riacho da Forquilha Complex (34 onshore producing fields on
Potiguar Basin) (US$221 million);
d) Gain on the sale of distribution companies in Paraguay (US$141 million);
e) Gains in 2018, on sale of Lapa and Iara fields (US$689 million) and by the
contingent payment received for the sale of Carcará area (US$300 million); and
f) 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 equalization of expenses related to production individualization agreements,
which provide for equalization of expenses and production volumes related to
Sapinhoá, Tupi, Tartaruga Verde, Berbigão and Sururu 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 million expense in 2019), mainly
due to:
a) Unitization agreements with the ANP related to the Parque das Baleias complex
entered into in 4Q18 (US$928 million);
b) Agreement to settle Lava Jato Investigation with U.S. authorities (US$895
million) in the 3Q18;
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
215
c) Arbitration in the United States for drilling service agreement related to Titanium
Explorer (Vantage) drillship in 2018 (US$698 million);
d) 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);
e) Provision related to the arbitration of Sete Brasil quotaholders in 2019 (US$740
million);
f) Reversal of disputes involving state taxes after joining Rio de Janeiro State Tax
Amnesty Program in the 4Q18 (US$319 million); and
g) Provision due to the environmental accident in the State of Paraná with the
OSPAR pipeline in the 3Q19 (Santa Catarina – Paraná Pipeline – US$155 million).
These gains were partially offset by:
_ Higher expenses with decommissioning of returned/ abandoned areas (US$155 million
in expenses in 2019 compared to a US$621 million reversal of 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 compared to a US$2 million reversal of expenses in 2018).
Net Finance Income (Expense)
2020 compared to 2019
Net finance expense was US$9,630 million in 2020, a 10% increase (US$866 million)
when compared to US$8,764 million in 2019, mainly due to:
_ The increase in hedge accounting expense of US$1,584 million, reflecting higher
exports in the period and an additional loss on hedge instruments due to exports that
are no longer foreseen;
_ the depreciation of the real against the U.S. dollar and negative net foreign exchange
exposure, which increased the net finance expense in US$1,291 million, due to the
exchange rate fluctuation;
_ the reduction in financial expenses of US$1,082 million due to lower interest payments
_ higher premium payment on the repurchase of debt securities (US$ 297 million); and
_ partial offset by monetary restatement on PIS / COFINS gains (US$1,709 million).
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
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2019 compared to 2018
Net finance expense was US$8,764 million in 2019, a 35% increase (US$2,280 million)
when compared to the expense 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 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);
_ Higher unwinding of discount on the provision for decommissioning costs (US$143
million), as a result of higher balance to be abandoned; and
_ Partially offset by lower interest on finance debt (US$1,073 million), mainly due to
lower average debt, generating decreased interest expenses.
Results in equity-accounted investments
2020 compared to 2019
We experienced a loss in equity-accounted investments of US$659 million in 2020,
compared to an income of US$153 million in 2019. This variation is explained by the
decreased result in Braskem due to legal proceedings related to activities at the rock
salt mining in Alagoas and currency depreciation; and impairment losses in BR
Distribuidora triggered by our decision to sell our remaining shares. The recoverable
value of this investment took into account the value in use, including the disposal value,
considering our intention to sell the shares.
2019 compared to 2018
We experienced income in equity-accounted investments of US$153 million in 2019, a
71% decrease (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.
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Income Taxes
2020 compared to 2019
Income tax was a benefit of US$1,174 million in 2020, compared to expenses of
US$4,200 million in 2019, mainly due to higher impairment and foreign exchange
losses.
2019 compared to 2018
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.
Results of Discontinued Operations
2020 compared to 2019
Net income from discontinued operations in 2020 was US$0 compared to US$2,560
million in 2019, mainly due to the gains arising from the follow-on offering of BR
Distribuidora in July 2019, after which we no longer controlled BR Distribuidora.
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$843 million in 2018, mainly due to the
gains arising from the follow-on offering of BR Distribuidora in July 2019.
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Financial Performance by Business Segment
—
SELECTED FINANCIAL DATA BY REPORTABLE OPERATING SEGMENTS AND FOR CORPORATE AND OTHER
BUSINESS
Exploration and Production
Sales revenues to third parties(1)(2)
Intersegment sales revenues
Total sales revenues(2)
Net income (loss) attributable to our shareholders
Capital Expenditures(3)
Property, plant and equipment
Refining, Transportation and Marketing
Sales revenues to third parties(1)(2)
Intersegment sales revenues
Total sales revenues(2)
Net income (loss) attributable to our shareholders
Capital Expenditures(3)
Property, plant and equipment
Gas and Power
Sales revenues to third parties(1)(2)
Intersegment sales revenues
Total sales revenues(2)
Net income (loss) attributable to our shareholders
Capital Expenditures (3)
Property, plant and equipment
Corporate and other Businesses
Sales revenues to third parties(1)(2)
Intersegment sales revenues
Total sales revenues(2)
Net income (loss) attributable to our shareholders
Capital Expenditures (3)
Property, plant and equipment
2020
(US$ million)
For the year ended December 31
▲ 20-19
(%)
2019
(US$ million)
2018
(US$ million)
871
33,524
34,395
4,475
6,557
95,222
46,917
865
47,782
111
947
20,842
5,270
2,455
7,725
821
353
6,614
625
251
876
(4,670)
200
1,523
1,062
49,400
50,462
12,624
25,081
122,496
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
(18)%
(32) %
(32) %
(65) %
(74)%
(22) %
(19) %
(91) %
(29) %
(89) %
(35)%
(22) %
(36) %
(26) %
(33) %
(80) %
(35)%
(19) %
(37) %
11 %
(28) %
(26) %
(39)%
(20) %
2,330
50,052
52,382
12,190
11,592
116,153
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
(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) See definition of Capital Expenditures in “Glossary of Certain Terms Used in this Annual Report.”
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Exploration and Production
2020 compared to 2019
Net income attributable to our shareholders in our E&P segment was US$4,475 million
in 2020 compared to US$12,624 million in 2019, primarily due to:
_ lower revenues (a decrease of US$16,068 million), due to the drop in average Brent oil
prices of US$22.6/bbl (2019: US$64.3/bbl; 2020: US$41.7/bbl), a 35% decrease when
compared to 2019, partially offset by the increase in production of 66 mboed (2019:
2,770 mboed; 2020: 2,836 mboed);
_ lower cost of sales (a decrease of US$9,207 million), mainly due to lower taxes given
the decrease in Brent prices and lower operating costs mainly due to currency
depreciation, reduction of operating expenses and asset management with hibernation
of platforms in shallow water; and
_ higher impairment losses (an increase of US$5,428 million). See Note 25 to our audited
consolidated financial statements for further information about impairment losses.
2019 compared to 2018
Net income attributable to our shareholders in our E&P segment was US$12,624 million
in 2019 compared to US$12,190 million in 2018, primarily due to:
_ lower revenues (a decrease of US$1,920 million), due to the drop in average Brent oil
prices (US$6.7/bbl), a 10% decrease when compared to 2018, partially offset by the
increase in production (142 mboed);
_ lower cost of sales (a decrease of US$1,664 million), mainly due to lower taxes given
the decrease in Brent prices and lower operating costs;
_ lower expenses with legal contingencies (a decrease of US$1,521 million) and higher
gain on divestments (an increase of US$464 million);
_ higher impairment losses (an increase of US$561 million). See Note 25 to our audited
consolidated financial statements for further information about impairment losses; and
_ higher exploratory expenses (an increase of US$275 million).
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Refining, Transportation and Marketing
2020 compared to 2019
Net income attributable to our shareholders in our RTM segment was US$111 million
in 2020 compared to US$1,021 million in 2019, primarily due to:
_ lower operating income due to lower margins of diesel (a decrease of US$2,627 million)
and lower margins and volumes of jet fuel (a decrease of US$669 million) sold in the
Brazilian market, lower margins in exports of crude oil (a decrease of US$504 million)
and negative effect of inventory turnover (sale of inventories formed at lower prices)
between the years of US$1,333 million. These factors were partially offset by higher
volumes and margins of LPG and naphtha sold in the Brazilian market (an increase of
US$851 million) and higher exports of fuel oil (US$419 million); and
_ higher selling expenses mainly due to the increase in shipping expenses (an increase of
US$356 million), reversal of impairments of US$260 million at COMPERJ, partially offset
by an impairment at RNEST of US$22 million (a decrease of US$861 million impairment
losses, net of reversals), and positive result with the sale of Liquigás (an increase of
US$531 million).
2019 compared to 2018
Net income attributable to our shareholders in our RTM segment was US$1,021 million
in 2019 compared to US$2,393 million in 2018, primarily due to:
_ lower operating income due to lower margins and volumes of diesel (a decrease of
US$285 million) and gasoline (a decrease of US$622 million) sold in the Brazilian
market, the exchange translation effect, and the reduction in the positive effect of
inventory turnover of US$800 million. These factors were partially offset by higher
volumes and margins in exports of fuel oil (by US$274 million) and crude oil (by US$361
million); and
_ higher selling expenses (an increase of US$387 million), increase in impairment losses,
net of reversals (US$255 million), mainly at RNEST, COMPERJ and Pasadena and higher
expenses with provisions for legal proceedings (an increase of US$416 million) mainly
contingencies related to the Ospar pipeline and adherence to the tax amnesty program
in the state of Bahia.
The refining unit cost, an important measure to this segment, decreased by
US$0.05/bbl due to lower personnel costs in U.S. dollars combined with the exchange
rate variation during the period.
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Gas and Power
2020 compared to 2019
Net income attributable to our shareholders in our Gas and Power segment was US$821
million in 2020 compared to US$4,180 million in 2019. Operating income decreased
due to the sale of our 90% interest in Transportadora Associada de Gás S.A. (TAG) in
June 2019 with a US$5,458 million gain and higher selling expenses due to transport
tariff for the TAG gas pipelines.
2019 compared to 2018
Net income attributable to our shareholders in our Gas and Power segment was
US$4,180 million in 2019 compared to US$482 million in 2018. Operating income
increased due to the sale of our 90% interest in Transportadora Associada de Gás S.A.
(TAG) in June 2019 with a US$5,458 million gain, including the remeasurement of our
remaining interest in the amount of US$546 million under other income and expenses,
partially offset by higher selling expenses in the amount of US$760 million.
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Liquidity and Capital Resources
—
LIQUIDITY AND CAPITAL RESOURCES
US$ 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)
2020
8,265
(888)
7,377
28,890
28,890
−
(4,510)
(4,510)
(6,816)
−
−
1,997
−
243
66
−
24,371
(19,259)
(11,861)
17,023
(28,884)
(5,880)
(1,367)
(84)
(67)
−
(19,259)
(773)
11,725
659
12,384
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
(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. This measure is not defined under the International Financial Reporting Standards – IFRS and should not be considered in isolation or as a substitute for cash and
cash equivalents computed in accordance with IFRS. It may not be comparable to adjusted cash and cash equivalents of other companies, however management believes
that it is an appropriate supplemental measure to assess our liquidity and supports leverage management.
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Free Cash Flow
We use Free Cash Flow as a supplemental measure to assess our liquidity and to support liability
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
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
Jan-Dec
2020
28,890
(5,874)
-
(942)
22,074
2019
25,600
(8,556)
1,339
(7)
18,376
(1)
Signature bonuses paid for Concession and Production sharing regimes, included in “Acquisition of PP&E and intangibles assets”.
The principal uses of funds in the year ended December 31, 2020 were for debt service
obligations, including pre-payment of debts in the national and international banking
market, repurchase and redemption of securities in the international capital market
and lease payments totaling US$34,764, acquisition of PP&E and intangibles assets in
the amount of US$5,874 and investments in investees amounting to US$942 (mainly
relating to the acquisition of additional interest in shares in Tupi B.V. and Iara B.V. in
the amount of US$889). These funds were principally provided by cash from operating
activities of US$28,890, proceeds from divestments of US$1,997 and a set of measures
to reduce cash outflows and preserve cash, in order to reinforce our business financial
strength and resilience. The negative exchange rate effect on the balances of cash and
cash equivalents resulting from investments abroad was US$773.
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Source of Funds
In 2020, our financing strategy was to fund our necessary capital expenditures and to
continue our debt deleveraging process, preserving our cash balance, solvency and
liquidity.
We pursued our financing strategy in 2020 in the following ways:
_ using cash flow from operations;
_ moving forward with our portfolio management program and continuing with
divestments; and
_ moving forward with our liability management program, incurring new debt from
funding sources to prepay expensive loans with certain of our creditors.
Cash Flows from Operating Activities
Net cash provided by operating activities was US$28,890 million in 2020, an increase of
13% from US$25,600 million in 2019, mainly due to greater integration of logistics,
marketing and sales, the production records and inventory management, resulting in
increased exports, and the use of tax credits.
Disposal of Assets
We received cash inflow from the sale of assets amounting to US$1.997 billion, as of
December 31, 2020, which represents the prices paid to us on the closing of the
completed transactions and the prepayments related to certain transactions that have
not yet been closed.
Assets
Sale of the corporate ownership held by Petrobras (50%) in the company Petrobras Oil & Gas BV (“PO&G
BV”) and a deffered payment
Sale of the Macau complex
Sale of the Pampo and Enchova Hubs
Sale of the entire stake in the Ponta do Mel and Redonda onshore fields
Sale of the remaining stake (10%) held in Transportadora Associada de Gás S.A. (TAG) and dividends received
Sale of the entire stake in the onshore fields of Lagoa Parda Hub
Sale of 100% stake in the Baúna field
Sale of the entire stake in the Tucano Sul Hub
Full sale of equity interest in Liquigás Distribuidora SA
Others
TOTAL
Cash -inflow
(US$ billion)
0.301
0.125
0.365
0.003
0.205
0.009
0.150
0.003
0.780
0.056
1.997
As of March 12, 2021, we have received US$ 0.11 billion, mainly due to the sale of the
entire stake of Petrobras Uruguay Distribuición and Frade field.
For additional information on divestments, see “Portfolio Management” in this annual
report.
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Debt
Our proceeds from financing are comprised of local and global notes issued in the
capital markets, funds raised from banking markets (in Brazil and abroad) and use of
revolving credit lines.
Additionally, our total debt includes lease liabilities. Our Gross Debt totaled US$75,538
million, and the Net Debt, representing the sum of short and long-term loans and
financing and lease liabilities, deducted by cash and cash equivalents, Brazilian federal
government securities and time deposits maturing over three months totaled
US$63,168 million.
For reconciliation of Net Debt and Gross Debt, non-GAAP measures, see “- Liquidity and
Capital Resouces – Sources of Funds – Finance Debt - Adjusted EBITDA and Net
Debt/Adjusted EBITDA ratio” in this annual report.
Finance Debt
Debt profile
In 2020, proceeds from financing amounted to US$17,023 million, principally reflecting:
(i) funds raised from banking market (in Brazil and abroad), in the amount of US$3,153
million, (ii) use of revolving credit lines, in the amount of US$8,010 million and (iii)
global notes issued in the international capital market in the amount of US$4,300
million of which US$2,588 million relates to the issue, and reopening, of new bonds
maturing in 2031 and the remaining US$1,712 million relates to new bonds issued
maturing in 2050.
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 drew down our revolving credit lines amounting to
approximately US$8,010 million.
For additional
Obligations” in this annual report.
information on Finance Debt amortization, see “Debt Service
The average cost of our finance debt remained below 6.0% per year, reaching 5.9% per
year. Meanwhile, the average duration increased from 10.79 years in December 2019
to 11.71 years in December 2020.
Average interest rate (%)
Weighted average maturity (in years)
Leverage (%)(1)
2020
5.9
11.71
46
2019
5.9
10.79
44
2018
6.1
9.14
46
(1)This leverage takes into account market capitalization. Considering book value of Equity, the leverage is 51% for 2020, 52% for 2019 and 49% for 2018 and it is defined
as (Gross Debt – Cash Equivalents) / (Equity + Gross Debt – Cash Equivalents).
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DEBT PROFILE PER CATEGORY (%)
DEBT PROFILE PER CURRENCY (%)
As of December 31, 2020, our finance debt due in the short-term, including accrued
interest, amounted to US$4,186 million, compared to US$4,469 million as of December
31, 2019.
Our outstanding long-term finance debt amounted to US$49,702 million as of
December 31, 2020, compared to US$58,791 million as of December 31, 2019. This
decrease was primarily due to repurchase of global bonds and pre-payment of debt.
See Note 34 to our audited consolidated financial statements for a breakdown of our
finance debt, a roll-forward schedule of our finance debt by source and other
information.
For more information about our securities, including our bonds, see Exhibit 2.4 to this
annual report.
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227
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.
In 2020, S&P and Moody’s maintained and Fitch upgraded our stand-alone credit profile ratings (S&P at
BB; Moody´s at Ba2 and Fitch upgraded by two notches, from BB+ to BBB, second level of investment
grade). We also had our global rating perspective downgraded from positive to stable by S&P and from
stable to negative by Fitch, while Moody´s kept us on a stable perspective basis during the year. There
were no changes on our global rating in 2020 by S&P, Moody’s and Fitch, (BB-, Ba2 and BB-, respectively).
As of February 28, 2021, there were no changes to our stand-alone credit profile rating or to our global
rating.
GLOBAL RATING
Standard & Poor’s
Moody’s
Fitch
(1) As of February 28, 2021.
(2) As of December 31, 2020.
STAND ALONE RATING
Standard & Poor’s
Moody’s
Fitch
(1) As of February 28, 2021.
(2) As of December 31, 2020.
2021(1)
2020(2)
2019(2)
BB-
Ba2
BB-
BB-
Ba2
BB-
BB-
Ba2
BB-
2021(1)
2020(2)
2019(2)
BB
Ba2
BBB
BB
Ba2
BBB
BB
Ba2
BB+
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
228
Exposure to interest rate and exchange rate risk
The table below provides a summary with information regarding our exposure to interest rate and
exchange rate risk in our total finance debt portfolio for 2020 and 2019, including short-term and long-
term debt.
TOTAL FINANCE DEBT PORTFOLIO (1)
2020 (%)
2019 (%)
2018 (%)
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.
5.1
10.0
15.1
46.4
31.9
78.3
6.6
0.0
6.6
100.0
10.0
31.9
5.1
53.0
100.0
78.3
3.1
3.5
0.0
15.1
100.0
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
100.0
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
100.0
We practice integrated risk management in every decision-making process. Thus, we do not focus solely
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 and when 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 using financial derivative instruments.
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
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229
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 through the date of this annual report, 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 presence 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 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 sterling pounds versus U.S. dollars, arising from past issues of bonds in that currency. Both transactions
are still outstanding.
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 “Consolidated Financial Performance – Exchange Rate Variation Impacts” in this section and Notes
4.8 and 38.3(a) to our audited consolidated financial statements for further information about our cash
flow hedge.
See Note 38.3(c) 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, 2020.
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
34, 38.5 and 38.6 to our audited consolidated financial statements.
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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, lands and buildings. As of December 31, 2020, the amount of lease
liabilities totaled US$21,650 million.
Adjusted EBITDA and Net Debt/Adjusted EBITDA ratio
The Net Debt/Adjusted EBITDA ratio is a metric that helps our management in assessing
our liquidity and leverage, and it is measured in U.S. dollars.
Adjusted EBITDA represents an alternative measure to our net cash provided by
operating activities and is computed by using the EBITDA (net income before net
finance income (expense), income taxes, depreciation, depletion and amortization)
adjusted by results in equity-accounted investments, impairment, cumulative foreign
exchange adjustments reclassified to the income statement, results from disposal and
write-offs of assets and foreign exchange gains and losses resulting from provisions for
legal proceedings denominated in foreign currencies. Legal provisions in foreign
currencies primarily consist of our portion of the class action settlement provision
signed in December 2017. In addition, they are substantially similar to the foreign
exchange effects presented within net finance income.
US$ million
Net income (loss) from continuing operations
Net finance income (expense)
Income taxes
Depreciation, depletion and amortization
EBITDA
Results in equity-accounted investments
Impairment
Reclassification of comprehensive income (loss) due to the disposal of equity-accounted
investments
Results on disposal/write-offs of assets and on remeasurement of investment retained with loss
of control
Foreign exchange gains or losses on provisions for legal proceedings
Adjusted EBITDA from continuing operations
Adjusted EBITDA from discontinued operations
Adjusted EBITDA
2020
948
9,630
(1,174)
11,445
20,849
659
7,339
2019
7,803
8,764
4,200
14,836
35,603
(153)
2,848
2018
6,571
6,484
4,256
11,912
29,223
(523)
2,005
43
34
−
(499)
(6,046)
−
120
(416)
455
28,391
32,406
30,744
−
301
758
28,391
32,707
31,502
Net Debt reflects the Gross Debt, net of Adjusted Cash and Cash Equivalents (see
definition in “Liquidity and Capital Resources” in this annual report). Gross Debt reflects
the sum of current and non-current finance debt and lease liabilities.
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Our EBITDA, Adjusted EBITDA, Adjusted Cash and Cash Equivalents, Gross Debt, Net
Debt and Net Debt/Adjusted EBITDA ratio are non-GAAP measures and may not be
comparable to the calculation of liquidity measures presented by other companies, and
they should neither be considered in isolation nor as substitutes for any measures
calculated in accordance with IFRS. These metrics 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 period.
The following table presents the reconciliation for 2020 and 2019 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 Finance debt plus Lease liability less
cash and cash equivalents / Net cash provided by operating activities ratio:
2020
(US$ million)
2019
(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
Allowance for credit loss on trade and other 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
11,711
659
12,370
53,888
21,650
75,538
63,168
28,890
-
28,890
(1,174)
(144)
(1)
(724)
(216)
1,743
(2,914)
2,931
28,391
28,391
-
2.21
2.22
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
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Our Net Debt/Adjusted EBITDA ratio computed in U.S. dollar decreased from 2.41 at
December 31, 2019 to 2.22 at December 31, 2020, reflecting the effects derived by a
20% reduction in the Net Debt.
Use of Funds
Capital Expenditures
We disbursed a total of US$8,056 million in 2020 (which 81% was used in E&P business),
a 71% decrease when compared to our Capital Expenditures of US$27,413 million in
2019. In line with our previous 2019-2023 Business and Management Plan, our Capital
Expenditures in 2020 were primarily directed toward the most profitable investment
projects relating to oil and gas production. These expenditures are based on our plan
cost assumptions and financial methodology.
CAPITAL EXPENDITURES BY BUSINESS SEGMENTS (US$ MILLION)
For the Year Ended December 31,
Exploration and Production
Refining, Transportation and Marketing
Gas and Power
Corporate and Other Businesses
TOTAL
2020
6,557
947
352
200
2019
25,080
1,463
543
328
2018
11,592
1,107
433
307
8,056
27,413
13,439
For information on our future Capital Expenditures, see “Strategic” in this annual
report.
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Dividends
Our Board of Directors proposed a distribution of dividends in 2020 in the amount of
US$1,977 million, which includes US$849 million related to the minimum mandatory
dividend to preferred shareholders and US$1,128 million as additional dividends
proposed to ordinary shareholders.
For more information on our dividend policy, see “Shareholder Information –
Dividends” in this annual report and Note 36.5 to our audited consolidated financial
statements.
Debt Service Obligations
As of December 31, 2020, our debt maturity profile includes, for the next five years,
US$42,338 million in finance debt and lease liability (nominal amounts).
AMORTIZATION PROFILE (US$ MILLION)
Financial Debt
In 2020, we repaid several finance debts, in the amount of US$28,884 million notably:
(i) prepayment of banking loans in the domestic and international market totaling
US$4,147 million; (ii) US$9,515 million to repurchase global bonds previously issued by
us in the capital market, with net premium paid to bond holders amounting to US$1,155
million; and (iii) partial prepayment of its revolving credit lines, in the amount of
US$7,600 million.
Lease Liabilities
We are the lessee in agreements primarily including oil and gas producing units, drilling
rigs and other exploration and production equipment, vessels and support vessels,
helicopters, land and buildings.
Payments in certain lease agreements vary due to changes in facts or circumstances
occurring after their inception other than the passage of time. These payments are not
included in the measurement of the lease obligations.
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For information on changes in the balance of lease liabilities and on leases by class of
underlying assets, see note 35 to our audited consolidated financial statements.
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Other Information
—
Contractual Obligations
The following table summarizes our outstanding contractual obligations and commitments as of December 31,
2020:
Payments Due by Period (US$ million)
Total
< 1 year
1-3 years
3-5 years
> 5 years
Contractual obligations
Statement of Financial Position (1)(5)
Finance debt(2)
Lease liability
Provision for decommissioning costs(3)
53,888
29,020
18,780
4,186
5,756
938
9,174
7,206
2,171
12,190
4,075
1,866
Total Statement of Financial Position
101,688
10,880
18,551
18,131
28,338
11,983
13,805
54,126
10,666
39,969
0
41,813
0
100
92,548
146,674
22,647
82,910
3,123
67,408
96
5,160
181,344
283,032
2,655
1,829
651
7,218
96
1,583
14,032
24,912
4,659
19,436
1,326
16,267
0
1,975
43,663
62,214
4,666
21,676
1,146
2,110
0
1,503
31,101
49,232
Other contractual commitments
Natural gas ship-or-pay(4)
Service contracts
Natural gas supply agreements(4)(6)
Leases not yet started
Short-term lease arrangements
Purchase commitments
Total other commitments
TOTAL
(1)
(2)
It excludes the amount of US$27,218 million related to our pension and medical benefits obligations, which are partially funded by US$11,575 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.
It 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 34.3 to our audited consolidated financial statements.
It includes US$640 million of liabilities related to assets classified as held for sale.
(3)
(4)
(5) 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
Import contract was expected to terminate in December 2019, but it will be outstanding until all contracted volume has been delivered.
development.
(6) On March 6, 2020, we 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.
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Off-Balance Sheet Arrangements
As of December 31, 2020, we had no off-balance sheet arrangements that have, or are
reasonably likely to have, a material effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
Information on critical accounting policies and estimates, which involves a higher
degree of complexity in the application of the accounting policies that currently affect
our financial condition and results of operations is provided in our audited 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 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.
The impacts of Covid-19 and its effects over the economic environment were
considered in the preparation of our financial statements. The results of the review of
assumptions are presented in Note 6 to our audited consolidated financial statements.
Additional information, including our significant accounting policies, are provided in
each of our explanatory notes to our audited consolidated financial statements.
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Management and employees
MANAGEMENT AND EMPLOYEES
238
Management
—
Our Board of Directors is composed of a minimum of seven and maximum of eleven
members and is responsible for, among other things, establishing our general business
policies. Our Bylaws specifically provide that our Board of Directors must be composed
of 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.
The Brazilian federal government controls a majority of our voting shares and has the
right to elect a majority of the members of our Board of Directors. Our Board of
Directors, in turn, elects our management. See “Recent Developments” in this annual
report.
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 and any member of our
Board of Directors may be re-elected for up to three consecutive times.
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.
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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.
For further information relating to potential changes to the composition of our Board
of Directors and our management team, see “Recent Developments” in this annual
report.
As of the date of this annual report, we have the following 11 directors:
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Fiscal Council
We have a permanent Fiscal Council composed of up to five members, which is
independent of our management and independent auditors. Our Fiscal Council’s
responsibilities, as a supervisory body, include, among others: (i) representing the
shareholders, monitoring management activities; (ii) verifying compliance with legal
and statutory duties; and (iii) reviewing the annual management report and the audited
consolidated financial statements, issuing an opinion at the end of the year.
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 (Chairman)
Sergio Henrique Lopes de Sousa
Agnes Maria de Aragão da Costa
Marcelo Gasparino da Silva
Daniel Alves Ferreira
Alternate members of our Fiscal Council
Gildenora Batista Dantas Milhomem
Alan Sampaio Santos
Jairez Elói de Sousa Paulista
Paulo Roberto Evangelista de Lima
Fabrício Santos Debortoli
Year of first
appointment
2019
2020
2020
2019
2018
2019
2020
2019
2020
2020
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
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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 pursuant to the
Internal Regiment of Board of Directors. According to the Internal Regiment of Board
of Directors, in order to decide 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.
As of the date of this annual report, we have the following 9 executive officers:
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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 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:
_ 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;
_ not have commercial or financial pending issues claimed or included in official debtor
registers, although clarification on such issues may be provided to us;
_ demonstrate diligence in solving issues raised in reports of internal or external control
bodies in processes and/or activities under their management, when applicable;
_ not have violated our Code of Ethics, Code of Conduct, Manual of our Program for
Corruption Prevention or other internal rules, when applicable;
_ 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; and
_ 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, 2020, the aggregate amount of compensation we
paid to all members of our Board of Directors and our Board of Executive Officers was
US$2.8 million. As of December 31, 2020 we had 9 executive officers and 11 Board of
Directors members.
For more information on the amounts set aside or accrued by us to provide pension,
retirement or similar benefits, see “– Employees – Benefits” in this section.
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Average number of members in the period
Average number of paid members in the period
Value of maximum compensation (US$)
Value of minimum compensation (US$)
Average value of compensation (US$)
As of December 31, 2020
Board of Executive Officers
Board of Directors
Fiscal Council
9.00
9.00
573,975.58
425,001.35
534,455.53
10.00
4.42
34,122.07
34,122.07
34,543.84
5.00
5.00
34,129.90
34,129.90
33,802.29
For further information regarding compensation of our employees and officers, see
Notes 19 and 39.3 to our audited consolidated financial statements.
In addition, the members of our Board of Executive Officers receive additional benefits,
such as medical assistance, supplementary social security benefits and a housing
allowance.
The members of the Board of Directors are entitled to supplementary social security
benefits. Members of the Board of Directors and the Board of Executive Officers may
be legally entitled to gardening leave (“Quarentena”) upon termination of office, which
rules and exceptions are provided by Brazilian law. None of the Directors are engaged
with Petrobras or any of its subsidiaries providing for benefits upon termination of
employment. We have a People Committee in the form of an advisory committee.
For information on our advisory committee, see “Statutory Board Committees” below.
Share Ownership
As of December 31, 2020, the members of our Board of Directors, executive officers
and members of Fiscal Council beneficially held the following shares of our capital stock:
Common shares
Preferred shares
Board of Directors
Board of Executive Officers
Fiscal Council
23,208
383,361
9,100
32,083
1,800
1,700
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.
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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 business
plan and other strategic issues, including financial policies, and its execution. This
committee is also responsible for advising our Board of Directors with respect to risks
and strategies concerning business, investment, and divestment opportunities.
_ Audit Committee: for further information on our audit committee, please see “Audit
Committee” in this section.
_ Health, Safety and Environmental Committee: responsible for advising our Board of
Directors on policies and guidelines related to the strategic management of HSE,
climate change, transition to a low carbon economy and social responsibility issues,
among other matters. This committee monitors, among other issues, indicators and
research on our image and reputation suggesting actions when necessary.
_ People Committee: responsible for assisting the Board of Directors in all aspects
regarding the management of senior level human assets, including, but not limited to:
compensation (fixed and variable), career advancement, appointments, and succession
policies as well as the selection and eligibility processes. The Committee oversees the
implementation of the required background checks on integrity and conformity and
advises the Board of Directors on legal compliance as well as compliance with company
policies regarding Board of Directors, Fiscal Council and Executive Officers nominees,
as well as external members of the Board of Directors advisory committees. The People
Committee stands in compliance with Law No. 13,303/12 and Decree No. 8,945/16,
assisting shareholders to nominate members to the Board of Directors and Fiscal
Council. The People Committee acts as our body of last resource regarding any
disciplinary procedures.
_ Minority Committee: responsible for advising our Board of Directors on transactions
with related parties involving us, the Brazilian federal government, its entities and
foundations, or federal state-owned enterprises on a permanent basis, including
following up the revision process of the Transfer of Rights Agreement. The minority
committee also advises our shareholders issuing its opinion on certain matters that
require approval in shareholders’ meetings, pursuant to article 30, §4 of our Bylaws.
_ Conglomerate Audit Committee: approved to meet the requirements of Law No.
13,303/16, which provides the possibility that controlled companies share the costs and
structures of their corresponding parent companies. It is responsible for the companies
of the Petrobras Conglomerate that do not have a local audit committee.
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SUMMARY OF THE COMPOSITION OF OUR STATUTORY ADVISORY COMMITTEES
Committees
Members
Investment
Audit
Health, Safety,
and
Environment
People
Minority
Audit of the
Petrobras
Conglomerate
Durval José Soledade Santos
Edson Chil Nobre
Evely Forjaz Loureiro
Francisco Vidal Luna
João Cox Neto
Leonardo Pietro Antonelli(1)
Marcelo Mesquita de Siqueira Filho(2)
Nivio Ziviani
Omar Carneiro da Cunha Sobrinho
Paulo Cesar de Souza e Silva
Rodrigo de Mesquita Pereira
Rosangela Buzanelli Torres
Ruy Flaks Schneider
Sergio Luiz de Toledo Piza
Tales José Bertozzo Bronzato
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(1) Mr. Antonelli joined the People Committee on December 1, 2020.
(2) Mr. Mesquita was a member of the People Committee until November 30, 2020.
● CHAIRMAN / CHAIRWOMAN OF EACH COMMITTEE
● EXTERNAL MEMBERS OF EACH COMMITTEE
● REMAINING MEMBERS
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Audit Committee
Our statutory audit committee is an advisory committee of our Board of Directors, and
provides assistance in matters involving our accounting, internal controls, financial
reporting and compliance. Our statutory audit committee also recommends the
appointment of our independent auditors to our Board of Directors and evaluates the
effectiveness of our internal financial and legal compliance controls. In accordance with
Law No. 13,303/2016 and Decree No. 8,945/2016, our statutory audit committee must
have at least three members, and not more than five members, who must be
independent in accordance with the independence requirements of the Law No.
13,303/2016 and CVM Instruction No. 509/2011 and at least one of whom must have
recognized experience in corporate accounting. Additionally, CVM Instruction No.
509/2011 requires at least one member of the audit committee to be a board member,
although they permit the appointment of other members who are not members of the
Board of Directors provided that such other members meet the independence
requirements of the CVM. On November 30, 2020, our shareholders approved an
amendment to our bylaws requiring our audit committee to be composed of members
of our Board of Directors and external individuals. On March 24, 2021, our Board of
Directors nominated Mr. Valdir Augusto de Assunção as an external member of our
audit committee.
Due to its composition, our statutory audit committee is not equivalent to or
comparable with a U.S. audit committee. Pursuant to Exchange Act Rule 10A-3(c)(3),
which provides for an exemption under the rules of the SEC regarding the audit
committees of listed companies, a foreign private issuer is not required to have an audit
committee equivalent to or comparable with a U.S. audit committee if the foreign
private issuer has a body established and selected pursuant to home country legal or
listing provisions expressly requiring or permitting such a body, and if the body meets
the requirements that (i) it be separate from the full board, (ii) its members not be
elected by management, (iii) no executive officer be a member of the body, and (iv)
home country legal or listing provisions set forth standards for the independence of the
members of the body.
Given that in 2011, the CVM approved an Instruction (No. 509/2011) governing the
comitê de auditoria estatutário (statutory audit committee), an audit committee
established under the bylaws of the issuer and subject to certain requirements under
the CVM rules, we understand that our statutory audit committee complies with these
requirements, and we rely on the exemption provided by Rule 10A-3(c)(3) under the
Exchange Act.
Mr. Paulo Cesar de Souza e Silva is our audit committee financial expert. Our audit
committee is currently composed of three members (all independent, in accordance
with the independence requirements of the CVM and Rule 10A-3 under the Exchange
Act) and is responsible for, among other matters:
_ monitoring, analyzing, and making recommendations to our Board of Directors with
respect to the appointment and dismissal of our independent auditors, as well as
evaluating the independence of our independent auditors for issuing an opinion on the
financial statements and their qualifications and expertise;
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_ advising our Board of Directors on the review of our annual and quarterly consolidated
listing
financial statements, monitoring compliance with relevant
requirements and ensuring appropriate disclosure of our economic and financial
situation filed with the CVM and the SEC;
legal and
_ advising our Board of Directors and our management, in consultation with internal and
independent auditors and our risk management and internal controls units, in
monitoring the quality and integrity of our internal control over financial reporting
systems, our audited consolidated financial statements and related financial
disclosures;
_ 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 related
party transactions and a previous analysis of related party transactions involving
amounts higher than certain levels;
_ establishing and reviewing procedures for the receipt, retention and processing of
complaints regarding accounting, internal control and auditing matters, including
procedures for the confidential submission of internal and external complaints relating
to the scope of the committee’s activities, as well as receiving, retaining and processing
any such complaints;
_ evaluating the parameters underlying the actuarial calculations, as well as the actuarial
result of the benefit plans maintained by our social security foundation, Fundação
Petrobras de Seguridade Social; and
_ conducting the formal evaluation of our internal audit executive manager on an annual
basis.
For further information relating to potential changes to the composition of our Board
of Directors, see “Recent Developments” in this annual report.
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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
audit’s contract. Our audit committee has the authority to recommend pre-approval
policies and procedures for the engagement of our independent auditor’s services. Our
management is required to obtain the audit committee’s pre-approval before engaging
independent auditors to provide any audit or permitted non-audit services to us or 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.
Principal accountant fees and services
The following table sets forth the fees billed to us by our independent auditors KPMG during the fiscal
years ended December 31, 2020 and 2019:
AUDIT AND NON-AUDIT FEES (US$ MILLION)
Audit fees(1)
Audit-related fees(2)
Tax fees(3)
TOTAL FEES
2020
8.7
1.6
0.4
10.7
2019
10.1
1.0
0.3
11.4
(1)
(2)
(3)
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.
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.”
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.
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Additional Information on Members of our Audit Committee
In reliance on the exemption in Rule 10A-3(b)(1)(iv)(E), two members to our audit
committee, Mr. Omar Carneiro da Cunha Sobrinho and Mr. Paulo Cesar de Souza e Silva
have been designated by the Brazilian federal government, which is our controlling
shareholder. In our assessment, Mr. Sobrinho and Mr. Silva act independently in
performing their responsibilities of an audit committee as defined in Rule 10A-3 under
the Exchange Act and in accordance with the CVM Rules.
Mr. Rodrigo de Mesquita Pereira is also a member of our audit committee, designated
by holders of our preferred shares. Mr. Pereira is independent, as defined in Rule 10A-
3 under the Exchange Act and in accordance with the CVM Rules.
For recent developments relating to potential changes to the composition of our Board
of Directors, see “Recent Developments” in this annual report.
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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.
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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
As of December 31,
2020
2019
2018
34,047
36,077
35,699
4,910
2,528
7,400
2,939
8,608
3,249
41,485
46,416
47,556
5,216
856
717
776
7,565
49,050
5,697
2,328
2,666
876
11,567
57,983
7,830
2,793
3,312
1,870
15,805
63,361
We attract and retain talented employees by offering competitive benefits and
participation in a variable compensation program, as well as the possibility for
professional growth and development based on performance and meritocracy in
addition to monthly compensation.
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
US$ millions
2020
2019
3,037.5
4,184.9
6.0
6.0
439
48.9
43.0
643
2018
4,355.2
55.1
442.0
265
For more information on profit-sharing distributions and variable compensation
program see respectively “Labor Relations” and “Employees Variable Compensation”
in this annual report.
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Workforce
In accordance with our 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:
_ our strategy and future prospects considering partnerships, divestments, asset sales,
expansion of activities, etc;
_ workforce planning metrics and future of work tendencies;
_ knowledge management actions among employees;
_ employees’ performance and our interest in retaining staff; and
_ cost of dismissals.
OUR TURNOVER (NOT INCLUDING OUR SUBSIDIARES, JOINT OPERATIONS OR
STRUCTURE ENTITIES)
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 Severance Program (“PDV”), formerly the
Voluntary Severance Incentive Program (“PIDV”); and Incentive Retirement Program
(“PAI”). In case of business growth or need for specific skills, new hiring programs can
be launched by means of public selection processes.
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In 2019, we launched a PDV focused on retired employees and other two programs: a
program which targets employees of certain areas undergoing divestment processes,
and the second program focuses on administrative employees. Until December 31,
2019, 3,294 employees enrolled in these three programs. Regarding the dismissals in
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.
In 2020, we launched a specific program (“PAI”) focused on employees that, despite
meeting the legal conditions for retirement, do not require the benefit for personal
reasons. Considering these four programs, three PDVs since 2019 and PAI, launched in
2020, we had 10,567 employees enrolled during 2019 and 2020 until December 31,
2020. Regarding dismissals in 2020, 4,638 employees left as part of the PDVs, 177
employees left as part of th PAI, nine left as part of PIDV launched in 2016 and three
left as part of PIDV launched in 2014, totaling 4,827 employees.
The total number of employees who have left our company between 2014 and 2020
due to PIDV, PDV or PAI is 22,417. The total severance paid as a result of these programs
was US$1 billion, amounting to a financial return of US$7 billion in saved costs between
2014 and 2020.
TIME IN PETROBRAS (NOT INCLUDING OUR SUBSIDIARES, JOINT OPERATIONS OR
STRUCTURE ENTITIES) (%)
We have also been hiring employees through different selection processes. In order to
determine the number of new employees, we consider both our business demand and
our current vacancies.
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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 our 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
We value transparency in our relationships with all of our stakeholders, including trade
unions. We maintain relationships with 17 trade unions and one federation (i.e. a top-
level union entity) of oil workers, as well as eight unions and one federation of maritime
workers. 43% of our employees are unionized, and 92% of our employees are covered
by collective bargaining agreements. These agreements include economic and social
clauses relating to work, safety conditions, benefits, and other matters and are valid for
two years under the current collective bargaining agreement.
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
with 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.
By June, we began negotiations of the 2020-2022 Collective Bargaining Agreement
(“2020-2022 CBA”) with all of the oil workers’ trade unions. The negotiation was
concluded in October with the signature of the Collective Bargaining Agreement by all
the unions. The 2020-2022 CBA is valid for two years and ensures a 2.94% increase in
meal vouchers in September 2020, the automatic adjustment of wages and benefits for
the cost of living in September 2021, guarantee of non-dismissal during its term. In
October 2020, we started the negotiations of the 2020-2022 CBA with maritime unions.
Once the negotiation of the Collective Bargaining Agreement was concluded, we began
the negotiations on the profit and results sharing agreement for the years 2021 and
2022, which ended in December 2020.
This year we also offered employees who hold a higher education degree and receive a
monthly salary of US$2,366.68 or more the option to negotiate their labor conditions
through individual employment agreements. Currently, 8% of our employees are under
individual employment agreements.
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Benefits
Employees Variable Compensation
In 2019, our Board of Directors approved the Performance Award Program (“PPP”), a
new variable remuneration model for all our employees. In line with the 2020-2024
Strategic Plan, the PPP aims to enhance meritocracy and bring flexibility to a scenario
in which we seek more efficiency and alignment with the best management practices.
The PPP was activated in 2019 due to our fulfillment of the minimum requirement to
present a net profit above US$2.5 billion (R$10 billion) by the end of the 2019 fiscal
year. As a result, during 2020, US$397 million was paid between the advance in the first
quarter and settlement in the last quarter.
The settlement of the 2019 PPP payment was originally scheduled to occur in May 2020
but was postponed due to the resilience measures adopted due to the Covid-19
pandemic. Instead, the final payments to employees occurred in November 2020 and
the final payments to members of the Executive Board ocurred in December 2020, after
the payment of dividends to shareholders.
The overall compensation of the administrators (Board of Directors and Board of
Executive Officers) is approved annually during the General Meeting, in accordance
with Article 152 of the Brazilian Corporate Law (Law No. 6,404, 12/15/1976). The People
Committee (“COPE”) is linked to our Board of Directors, and is comprised of board
members and / or people in the market that have notable experience and technical
capacity. Among its duties, COPE evaluates and proposes policies and mechanisms to
the Board of Directors for the remuneration of members of our senior management, in
compliance with our strategies and market benchmarks. It is up to the Board of
Directors to approve the proposals presented by COPE. The remuneration of Executive
Officer members is guided by a consideration of economic and financial results, as well
as by the desire to recognize managers’ efforts and their alignment with our short,
medium and long term strategies and goals. The remuneration of the members of the
Board of Directors corresponds to 10% of the average monthly fees received by these
members. There are no differences between the benefit plans and contribution rates
of the highest governance body, senior executives and all other employees.
In the calculation of the variable remuneration, the scorecards of organizational units
were considered as inputs for the evaluation of directors, executive managers and
other members of our corporate structure. These scorecards reported the following
items: (i) Net Debt / Adjusted Ebitda results which measured our leverage and Roce
results, which measured our return on capital employed; (ii) specific metrics for which
organizational units were responsible (represented by specific indicators and strategic
initiatives covering economic, environmental and social factors); and (iii) discretionary
assessments made by immediate superiors in accordance with an employee's profile
and performance. Throughout 2019, the results and projections of top metrics, specific
indicators, and strategic initiatives were monitored, making it possible to assess the
performance of the organizational units at the end of the year, which in turn served as
input for the assessment of personal performance.
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For the calculation of our PPP for the 2020 fiscal year, adjustments were made to the
2019 PPP with respect to the metrics that serve as requirements for PPP activation and
to our top performance indicators. These adjustments were made to achieve
consistency with the 2020-2024 Strategic Plan.
The requirements to activate the 2020 PPP in relation to members of the Board of
Executive Officers was the achievement of a positive net income in the 2020 fiscal year.
The requirements to activate the 2020 PPP in relation to employees was the
achievement of net income, excluding impairment losses or reversals and exchange
rate variation, in the 2020 fiscal year.
In addition, the scorecards of the organizational units continue to be considered as
inputs for the evaluations made by members of the Board of Executive Officers,
executive managers and other members of our company’s corporate structure. These
scorecards report the following items: (i) the results of key metrics such as Delta
Economic Value Added, which measures economic profit in a given period less the cost
of capital invested from operating profit); IGEE, which monitors our performance
regarding direct emissions of greenhouse gases into the atmosphere; and VAZO, which
calculates the total volume of oil leaked, exceeding one barrel, that has reached water
bodies or non-waterproofed soil); (ii) specific metrics for which organizational units
were responsible (represented by specific indicators and strategic initiatives covering
economic, environmental and social factors); and (iii) discretionary assessments made
by immediate superiors in accordance with an employee's profile and performance.
Throughout 2019, the results and projections of key metrics, specific indicators, and
strategic initiatives were monitored, making it possible to assess the performance of
the organizational units at the end of the year, which in turn served as input for the
assessment of personal performance.
The estimated amount of disbursement will depend on a variety of factors, such as
individual employee performance and our performance metrics.
The Profit Sharing Program (“PLR”) agreement was signed for the fiscal years 2019 and
2020 only for maritime employees. In December 2020, PLR 2019 was paid to maritime
employees after the payment of dividends to shareholders.
Also in December 2020, the agreement established the regulation of the PLR for the
2021-2022 period. The PLR’s target audience is employees who do not hold leadership
and expert roles (i.e., it would not include individuals holding positions such as
managers, specialists and supervisors).
For the payment of the PLR to occur, the following conditions must be met:
_ Dividend distribution approval by the Annual General Meeting;
_ Net Income Calculation of the reference year; and
_ Achievement of an average percentage (weighted) of at least 80% for target indicators
established by the Board of Directors in the PLR agreement.
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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
Until March 2018, we sponsored two pension plans: (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.
In April 2018, the PPSP was split up into two plans: (i) one made up of employees and
pensioners, who adhered to 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, once again, the PPSP-Renegotiated and PPSP-Not
Renegotiated plans were split into two new plans each: (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 14.6% of our employees. In addition
to Petros 2, 96,1% of our workforce is in a pension plan.
In order to offer a pension plan option separate from the post-70 benefit plan, we,
together with Petros, structured a new defined-contribution plan, called the Petros-3
Plan (“PP3”), which will be open for voluntary migration of participants and
beneficiaries from PPSP-Renegotiated and PPSP-Not Renegotiated.
PP3 pension plan is a defined contribution plan to which the employer and the
employee make contributions on a regular basis. Individual accounts are set up for
participants and benefits are based on the account sum plus any biometric (such as
longevity or disability) or investment variations along the time.
In January 2021, the Board of Directors recieved the approval for the PP3 plan from the
Superintendência Nacional de Previdência Complementar (“PREVIC”), the Brazilian
Pension Funds Regulatory Agency, and the Secretaria de Coordenação e Governança
das Empresas Estatais (“SEST”), the Brazilian State-Owned Companies Regulatory
Agency.
Petros will proceed with the new migration plan offer and, after this phase, its viability
will be confirmed. Then, it will be able to operate the new plan, with the
implementation scheduled beginning in the second half of 2021.
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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, and we do the same as sponsors.
Since 2002, which was the last year that new participants could join the plan, Petros began to observe
the deficits in the PPSP. As a result, 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. At the time, the remaining term for
this equalization plan was 16 years, and in March 2018 DEP 2015 received the previously outstanding
contributions from all participants and from us. These include active and retired employees and
pensioners, as well as us, BR Distribuidora and Petros as sponsors, as required by Brazilian law.
We and Petros 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 of DEP 2015. These discussions led to injunctions that temporarily suspended those
extraordinary contributions for certain participants.
After those discussions and a favorable outcome to Petros, contributions to the DEP 2015 began again
and the flow of extraordinary monthly contributions was restored until its review through the New
Deficit Equalization Plan (“New DEP”).
In March 2020, our Board of Directors deliberated on the New DEP of the PPSP-Renegotiated and PPSP-
Not Renegotiated, managed by Petros and in compliance with Brazilian social security legislation.
The New DEP, approved in May 2020 by PREVIC and SEST, came into effect in June 2020. It replaced the
DEP 2015, mitigated the deficit registered in 2018, considered the utilization of the plans’ actuarial
results achieved in 2019, and the actuarial impacts related to changes in PPSP-Renegotiated and PPSP-
Not Renegotiated plans regulations, which was approved by the Board of Directors, in compliance with
new Brazilian social security legislation, which allowed the deficit to be refinanced for a new term,
throughout the life of the plans. Therefore, it was possible to reduce the extraordinary contributions for
most of the participants and beneficiaries and improve the regulations of the plans, which will allow for
the revision of the regular contributions and will mitigate the need for new equalization plans in the
future.
The remaining balance to be settled by the extraordinary contributions contracted through the New DEP
in the PPSP-Renegotiated and PPSP-Not Renegotiated plans was US$6.1 billion as of December 31, 2020,
as recorded in Petros plans balance sheets at present value. Of this total, US$3.1 billion corresponds to
our liability in strict compliance with the principle of contributory parity provided for in Constitutional
Amendment No. 20/1998, and adding the remaining obligation arising from a 20-year contract between
us and Petros of US$0.4 billion to cover our share of responsibility for reducing peculium benefits (after
death lumpsum benefit) in context of the New DEP.
The effects of the New DEP on our financial statements have been accounted for since the second
quarter of 2020, when the New DEP was approved.
For more information on the New DEP, see Note 19.2 to our audited consolidated financial statements.
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The table below presents the benefits paid, contributions made, and outstanding
pension liabilities for the years ended December 31, 2020, 2019 and 2018:
Total benefits paid – pension plans
Total contributions – pension plans(1)
Net actuarial liabilities(2)
US$ million
2019
1,552
699
2020
1,185
513
2018
2,211
538
10,286
14,508
10,514
Contributions by sponsors (except for contributions under the terms of the financial commitment to cover obligations under the pension plans)
(1)
(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 19 to our audited consolidated financial statements.
Health and Pharmacy Benefit Plan
We maintain a supplementary health care plan, the Assistência Multidisciplinar de
Saúde (“AMS”), 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
will only occur as a result of the recent 2020-2022 collective bargaining agreement.
During 2020, we had to absorb 70% of these costs and 30% must be paid by health
insurance associates. For 2021, the agreement settled with our employee unions state
that 60% of the costs will be absorbed by us. The same agreement indicates that we
will be responsible for 50% of these costs in 2022, leaving the other half to be paid by
health insurance associates.
The changes in the proportion of costs paid by us and our employees in the AMS Plan,
brought by the current collective bargaining agreement, led to a reallocation in our
liabilities. As of December 31, 2020, we recognized a US$2,538 million gain relating to
past service cost, a portion of which was recognized in service cost (related to active
participants) and another portion was recognized in other income and expenses
(related to assisted and retired participants).
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.
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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.
New management model of AMS
In April 2020, our Board of Directors approved a new management model for AMS
through the creation of a non-profit association that maintains a self-management and
private health care provider model.
The change in the model aims to provide greater corporate security with technology,
governance and compliance, through professional management and with expertise in
supplementary health. This will enable the improvement of the quality of services and
assistance to beneficiaries, as well as greater transparency in their administration, cost
efficiency and risk segregation. It should be noted that the new management model
will not affect the benefits or scope under the plan.
We expect that the new operator will begin managing the health plan in the first half
of 2021.
The table below shows the benefits paid, contributions made and outstanding medical
liabilities for the years ended December 31, 2020, 2019 and 2018:
Total benefits paid – medical plan(1)
Total contributions – medical plan(1)
Net actuarial liabilities(2)
Includes AMS and Benefício Farmácia amounts.
(1)
(2) Unfunded medical plan obligations.
US$ million
2019
442
442
2018
456
321
11,986
12,236
2020
310
308
5,356
For more information on our employee benefits, see Notes 4.4 and 19 to our audited
consolidated financial statements and “Risks – Risk Factors” in this annual report.
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Compliance and internal controls
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Compliance
—
Ethical principles guide our business and our relations with third parties.
In order to guarantee an ethical environment for our business, we work to promote a
culture of integrity, the prevention, detection and correction of incidents of fraud,
corruption and money laundering, the management of our internal controls and the
integrity analysis of managers and counterparts.
We have a corporate compliance policy that describes and discloses our commitments
to the promotion of the transparency in conducting our business ethically, with zero
tolerance for fraud, corruption and money laundering.
In order to integrate and strengthen compliance initiatives, in addition to our corporate
compliance policy, we also have a code of ethics (“Code of Ethical Conduct”), an
Antitrust Code of Conduct, an Ethical Conduct Guide for Suppliers, an ethics
commission and an integrity program called Petrobras Corruption Prevention Program
(“PCPP”).
Code of Ethical Conduct
Created in 2020, the new Code of Ethical Conduct is an improvement of the “Code of
Ethics” and the “Conduct Guide,” which were merged. The unification of the previous
documents is a simple approach, improving the organization’s values, the principles and
conduct it expects, promoting elements such as trust, transparency, responsibility,
innovation, meritocracy, and good market practices.
Our Code of Ethical Conduct defines the ethical principles that guide our system’s
actions and our conduct commitments, both corporate and that of our employees,
explaining the ethical sense of our mission, of our vision, and of our Strategic Plan.
The Code of Ethical Conduct also applies to the members of the Board of Directors and
its advisory committees, members of the Fiscal Council, members of the Executive
Board, employees, interns, service providers and anyone acting on our behalf, including
our subsidiaries in Brazil and abroad.
We believe the Code of Ethical Conduct is aligned with the best corporate integrity
practices and represents another step towards strengthening our integrity culture. It is
based on our values such as respect for life, people and the environment, ethics and
transparency, outperformance and confidence, market orientation, and results. Based
on these values, the three main principles that support the guidelines of the Code of
Ethical Conduct are:
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_ Respect for life, people and the environment;
_ Integrity, transparency and meritocracy; and
_ Value creation.
Our commitments of conduct are: example, accountability, trust, courage, union,
cooperation,
reputation and
transparency.
innovation, continuous
improvement,
results,
Our Code of Ethical Conduct is available on our website. The information on our website
is not and shall not be deemed to be incorporated into this annual report.
Antitrust Code of Conduct
The review of the Antitrust Code of Conduct was approved by our Executive Board in
May 2020. It summarizes the applicable legislation, provides control for internal
procedures, ensuring compliance with principles and rules and serves as a general guide
for our managers and employees. Acting in compliance with the Antitrust Code is
essential to avoid penalties for antitrust breaches, as well as to prevent anti-
competitive practices by third parties against us.
Ethical Conduct Guide for Suppliers
In October 2020 we approved the Ethical Conduct Guide for Suppliers. It is the first
document exclusively aimed at our suppliers, with guidelines on expected values and
ethical behavior. The Ethical Conduct Guide for Suppliers applies to all suppliers, in
Brazil or abroad, that are involved in business processes and have signed contracts,
agreements and terms of cooperation with us. The Ethical Conduct Guide for Suppliers
reaffirms our zero tolerance to any form of fraud and corruption, demanding the same
stance from our supply chain. The Ethical Conduct Guide for Suppliers was elaborated
in accordance with the best international practices and is aligned with the guidelines of
the Dow Jones Sustainability Index, the B3 Corporate Sustainability Index and the
Corporate Human Rights Benchmark. The Ethical Conduct Guide for Suppliers
reinforces that suppliers must promote decent and safe working conditions for their
employees, combat child and slavery labor and respect the environment. The Ethical
Conduct Guide for Suppliers also determines that suppliers must promote diversity,
gender and racial equality and the inclusion of people with disabilities. The Ethical
Conduct Guide for Suppliers brings an evolution by consolidating the principles and
ethical guidelines applicable to suppliers in a single document. The observance of this
Ethical Conduct Guide by all suppliers is crucial for us to achieve our goals in an ethical
and transparent way and is aligned with our ESG – Environmental, Social and
Governance standards.
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Ethics Commission
Our ethics commission is responsible for promoting corporate compliance with ethical
principles and serves as a forum for discussion of subjects related to ethics. Our ethics
commission also serves in a consulting capacity for our management and workforce,
providing recommendations with respect to topics related to ethics management,
proposing rules for the incorporation of new concepts, and adopting measures to
comply with legislation and follows best practices that reinforce our zero tolerance
approach to acts of misconduct.
Our ethics commission is composed of employees appointed after an internal selection
process consisting of interviews and resumes review. Our Board of Directors and our
Board of Executive Officers approve each new appointment.
Petrobras Corruption Prevention Program
The PCPP, our integrity program, is driven by ongoing actions to prevent, detect, and
correct ethical deviations, including fraud, corruption and money laundering. The
program is aimed at our various stakeholders, such as senior management, customers,
investors, partners, public authorities, company employees and suppliers.
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 (Brazilian Anti-Corruption Act), 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 to our managers the findings of such due diligence in terms of integrity
risk and our managers consider these findings in their decision-making processes. In
2020, our team evaluated 3,101 counterparties.
In addition, we perform Integrity Background Check for individuals appointed by us for
key positions in our company and our subsidiaries and affiliates. This procedure aims to
assist managers in making decisions considering the degree of exposure to integrity
risks and proposes mitigation measures. In 2020, we conducted 6,790 integrity
assessments for key positions.
We have also developed other integrity mechanisms. These mechanisms deal with
topics such as: conflicts of interests; nepotism; illegal acts such as fraud and corruption;
receiving or offering gifts and entertainment; transparency in actions and resources for
sponsored projects; Bid-Tailoring favoritism, bribery or facilitation payment; payment
of funds to foreign governments; anti-corruption laws; international embargoes and
sanctions; internal investigations; internal controls; accounting practices and records of
assets and
information security; overpricing and underpricing; and
relationships with public authorities. In order to raise workforce awareness, we
disseminate guidelines on proper conduct and reinforce our ethical values through
publications and communications in our internal channels.
liabilities;
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We offer e-learning training for all our employees, particularly employees working on
activities with greater exposure to compliance risks, as well as the members of our
Board of Executive Officers and our Board of Directors.
In 2020, we offered training on the Code of Ethical Conduct to approximately 42,000
employees, in order to present the main aspects of the document. From July 31 through
September 30, 2020, we undertook a campaign aiming to have all employees sign the
term in which they declare that they have knowledge of the Code of Ethical Conduct’s
content, when we reached a rate of 98.5% of total employees who have signed the
acknowledgement term.
In addition, due to social distance measures in order to control the Covid-19 pandemic,
we have reformulated our face-to-face integrity program courses to e-learning training.
In 2020, we trained:
_ 5,472 managers;
_ 1,686 employees who perform activities that are more exposed to compliance risks,
such as our employees involved in procurement processes and contract management;
_ 1,103 professionals involved in trading and portfolio management activities; and
_ 50 professionals, including compliance professionals, internal audit and ombudsman.
In 2019, we decided to develop and implement a multi-language training focused on
our counterparties. The training is available to counterparties in a manner that
prioritizes those who offer us the greatest risk. Although it is not mandatory, it assists
in fulfilling the obligations entered into by these counterparties when signing a contract
with us. In 2020, 710 members from our counterparts completed the training.
In 2020, we also provided training sessions to directors and senior management,
covering mainly the following topics:
_ Code of Ethical Conduct;
_ Law No. 13,709/2018 – General Personal Data Protection Law (“GDPL”);
_ Our model of corporate governance and decision-making process;
_ Internal controls and related party transactions;
_ Tone at the top - Top management’s commitment to the compliance culture;
_ Risk management;
_ Compliance;
_ Business performance;
_ Brazilian anti-corruption law; and
_ Prevention of money laundering and terrorism financing.
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In 2020, we also promoted the following initiatives:
Description
Improvements In 2020
Initiative
Petrobras Integrity
Dialogues
Annually, for the past seven years, we
held, in December, an event in
observance of the International Anti-
Corruption Day stated by United
Nations (UN). In 2020, we promoted
the "Petrobras Integrity Dialogues".
The event was fully remote and assembled notable key-
speakers of international organisms, universities, public and
private sector to exchange experiences and knowledge about
how we can improve the culture of integrity in business and
society.
For four days, we hosted discussions, round tables and
dialogue with compliance authorities and specialists. We also
presented our progress and challenges in combating fraud,
corruption, and money laundering. To open the event, we
received a Minister of Federal Supreme Court of Brazil.
Other participants included: senior management (including of
our subsidiaries); executive managers; general managers;
authorities and experts; members of the ethics committee;
members of the integrity committee; governance and
compliance employees; press; academics; anti-corruption
organizations; chief compliance officers of other companies,
including state-owned companies; and general public.
Senior management recorded pocket videos directed to our
workforce reinforcing our widespread commitment towards
compliance in order to strengthen our ethical culture.
It was created in June 2020, engaging more than 54 thousand
employees. Over than 350 contents are available in the
knowledge base, including Integrity Moments, and Integrity
Pills.
The knowledge base is organized in Units of Learning, divided
in categories: Legislation and External Guidelines; Rules and
regulations; External Research; Case Studies; Good practices;
Articles; Podcasts; Webinars; Books; Websites; Films and
Series.
Tone at the
Top Strengthening
Senior management continuous
communication to the workforce
Integrity Channel
Virtual knowledge base, available in
the Workplace tool for our internal
audience, through which specialized
content curation is offered, and
reference knowledge on Integrity,
Ethics and Compliance.
Partnering Against Corruption Initiative (PACI)
In 2020 we became signatory to the Partnering Against Corruption Initiative (“PACI”) of
the World Economic Forum. PACI is the leading international anti-corruption
international
organization with compliance officers from
organizations and governments. The initiative acts as a global platform for collective
action, working so that companies can maximize their collective impact in the fight
against corruption through the exchange of experiences, guaranteeing conditions of
fair competition and creating healthier and more transparent markets. We were
previously a member of the organization from 2005 to 2014, and our return is in
recognition of our efforts to promote transparency and fight against corruption in
recent years.
large multinationals,
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Related Party Transactions
—
In order to comply with Law No. 13,303/16 and Decree No. 8,945/16, our Board of
Directors approved the annual review of our policy for related party transactions in
November 2020, aiming at fostering transparency in our procedures and conducting
better corporate governance practices and the CVM provisions. This policy also aims to
guarantee the adequate and diligent decision-making process by our management,
observing market conditions or appropriate compensation mechanics, in the event of
potential conflicts of interest.
Any related-party transaction in which we are involved and that meets the criteria
established in our policy, must be 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, its
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 and (ii) fall within the purview
of our Board of Directors for approval. Any such transaction must be approved by two-
thirds of the present members at the meeting of our Board of Directors.
For additional information regarding our outstanding related party transactions, see
Note 39 to our audited consolidated 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 an arms-length transaction and market practice guiding
transactions with third parties. None of our Board of Directors members, our executive
officers or close members of their families has had any direct interest in any transaction
we effected that is or was unusual in its nature or conditions, or material to our business
during the year, and which remains in any way outstanding or unperformed. In
addition, 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.
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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 Ownership” in this annual report.
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. These transactions resulted in
a net asset of US$6,505 million due from the Brazilian federal government and other
entities under its control as of December 31, 2020.
On November 30, 2020, there was a final decision in relation to the Petroleum and
Alcohol Account lawsuit filed in 2011. As of December 31, 2020, this receivable
amounted to US$482 million. In addition, in 2020, we recorded a US$235 million gain
within net finance income (expense), including inflation indexation and interests, of
which US$228 million arising from the difference between the Reference Rate and the
IPCA-E of the outstanding balance, which was under dispute.
In addition, we are allowed to invest in securities issued by the Brazilian federal
government in Brazil and also abroad, provided that the legal and regulatory
requirements are met and taking into consideration market’s best practices and the
conservatism that should guide our investments.
As of December 31, 2020, the value of securities issued by the Brazilian federal
government that have been directly acquired and held by us amounted to US$1,632
million.
For further information on related party transactions, see Note 39 to our audited
consolidated financial statements.
Transactions with Eletrobras’ Subsidiaries
In 2019, we and Apolo Investment Fund in Credit Rights (Apolo Fundo de Investimento
em Direitos Creditórios) entered into an assignment agreement without recourse
relating to all credit rights under the debt acknowledgement by energy distributors in
2014, which financial settlement occurred for the amount of US$2,251 million, with a
US$128 million discount.
As of December 31, 2020, the receivables from the isolated electricity system
amounted to US$ 205 million.
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Controls and Procedures
—
Disclosure Controls and Procedures
We, together with our CEO and CFO, have evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2020. 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.
Although we have faced the Covid-19 pandemic and, as a consequence, have adopted
preventive measures, the effects of the Covid-19 pandemic did not materially affect our
internal control over financial reporting. For more information, see “Our Business—
Our responses to the Covid-19 Pandemic” in this annual report.
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.
Our management has assessed the effectiveness of our internal control over financial
reporting as of December 31, 2020 based on the criteria established in “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.
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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 of December 31, 2020, as stated in their
report, which is included herein.
Changes in Internal Control over Financial Reporting
In 2020, we implemented changes in our controls related to the valuation and
composition of assets in the E&P segment, due to changes in the tax and customs
legislation for the economic use of goods intended to oil and natural gas exploration,
development and production activities (Repetro-Sped). There were no other significant
changes that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.
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Ombudsman and Internal Investigations
—
Our general ombudsman office provides channels for receiving comments from our
internal and external audience, such as complaints, requests for information, general
requests, suggestions, compliments and denouncements.
In order to receive complaints, we provide a specific denouncement channel, operated
by an independent external company, and allowing for anonymity of 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 area. Allegations regarding compliance issues, which include fraud,
corruption and other matters, are sent to the governance and compliance office.
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 the Federal Public Prosecutor’s Office, Brazilian federal police and advisory
bodies (the CVM, CGU and TCU). Our governance and compliance office has full access,
independence, qualification and autonomy to thoroughly investigate allegations of this
nature.
Upon the conclusion of each investigation, we use its material findings to improve our
compliance efforts. If the 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.
Irrespective of the findings of our internal investigations, in order to mitigate potential
risks of further non-compliance 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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Shareholder information
SHAREHOLDER INFORMATION
283
Listing
—
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Delisting in Argentina
On November 11, 2019, we delisted our common and preferred shares from Bolsa de Comercio de
Buenos Aires, the Buenos Aires Stock Exchange and withdrew from the public reporting regime in
Argentina. Due to the delisting, our shareholders in Argentina have 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.
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% 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.
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Shares and Shareholders
—
Our capital stock is composed of common and preferred shares, all without par value
and denominated in reais. Under Brazilian Corporate Law, the number of our preferred
shares may not exceed two-thirds of the total number of our shares.
Our shares are negotiated on the B3 and registered in book-entry form. Banco Bradesco
performs services of safekeeping and transfer of shares.
Holders of our common shares are entitled to one voting right for each unit of common
shares held. Holders of our preferred shares are not entitled to voting rights, except
for: (i) the right to appoint one member of our Board of Directors and one member of
our Fiscal Council; and (ii) certain matters relating to preferred shares (such as creation,
increasing, changes in the preferences or creation of a new class), whenever rights of
holders of preferred shares are adversely affected.
In the U.S., our common or preferred shares, which are evidenced by ADRs, are listed
in the form of ADSs on the NYSE. The ADSs are registered and delivered by a depositary
bank, JPMorgan Chase Bank, N.A (“JPMorgan” or “Depositary”) which, since January 2,
2020, acts as the depositary for both of our common and preferred ADSs. The ratio of
ADR to our common and preferred shares is two shares to one ADR.
The rights of ADS holders differ from shareholders’ rights. With respect to voting rights,
ADS holders may only vote by means of proxy voting cards mailed to the ADR depositary
bank while shareholders have the right to vote directly at the shareholders’ meeting.
On December 31, 2020 there were 1,868,187,842 outstanding common shares and
644,018,330 outstanding preferred shares represented by ADSs. There has been no
change in the past four fiscal years in the amount of our issued share capital, as well as
in the number of our common and preferred shares or in the voting rights of our
common and preferred shares. See Exhibit 1.1 to this annual report for a copy of our
Bylaws.
In the beginning of 2021, our stock value decreased, and as of March 23, 2021, our
stock price was US$ 8.15 (PBR) and US$ 8.25 (PBR/A). In 2020, our stock value was
affected by the
impact of Covid-19 pandemic and Brent prices reduction,
underperforming the IBOV at the B3. Our stock value increased in 2019, maintaining
the growth performance of 2018, and outperformed our peers at the NYSE (Amex Oil
index or AMEXOIL), as well as performed slightly below the Ibovespa index (or IBOV) at
the B3.
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The following table sets forth information concerning the ownership of our common
and preferred shares as of February 28, 2021 by the Brazilian federal government and
certain public sector entities:
Shareholders
Brazilian federal
government
BNDES
BNDES Participações
S.A. – BNDESPar
All members of our
Board of Directors
(permanent and
alternate), executive
officers and members
of our Fiscal Council
(permanent and
alternate) (24 people in
total)
Others
TOTAL
Common Shares
%
Preferred Shares
3,740,470,811
50.26
—
%
—
Total Shares
%
3,740,470,811
28.67
1.04
—
—
135,248,258
2.41
135,248,258
17,700,392
0.24
900,210,496
16.07
917,910,888
7.04
34,108
3,684,248,831
0.00
49.50
356,542
4,566,227,492
0.01
81.51
390,650
8,250,476,323
0.00
63.25
7,442,454,142
100.00
5,602,042,788
100.00
13,044,496,930
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 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) at a price of R$30.00 per share, totaling
R$22,026,080,970.00. As each ADS represents two underlying shares, the ADSs’ price is equivalent to
twice the price per share converted to U.S. dollars, based on the exchange rate for the sale of that
currency (PTAX) released by the Central Bank of Brazil.
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Under Brazilian Corporate Law and Law No. 13,303/16, the Brazilian federal
government is required to own at least a majority of our voting shares.
Although the Brazilian federal government does not have different voting rights than
our other shareholders, as long as it holds a majority of our voting share, any change in
our control would require a change in applicable laws. Our Bylaws also provide for rules
applicable to any eventual transfer of control of our major shareholders.
The majority of our voting shares also gives the Brazilian federal government the right
to elect a majority of our directors, regardless of the rights our minority shareholders
may have to such election according to our Bylaws.
Additionally, our Bylaws clearly state that we may have our activities guided by the
Brazilian federal government in order to contribute to the public interest that justified
our creation. However, if the Brazilian federal government’s guidelines lead us to
undertake obligations and responsibilities under conditions different from those of any
other company in the private sector that operates in the same market, such obligations
and responsibilities shall be defined in law or 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, for the difference between market conditions
and the operational result or economic return from such obligation.
Our shareholding base includes over 750,000 shareholders at the B3 and ADR accounts
at the NYSE.
VOTING CAPITAL (1) (%)
NON-VOTING CAPITAL (1) (%)
TOTAL CAPITAL (1) (%)
The majority of our voting rights
are held by the Brazilian federal
government through a block
composed of the Brazilian federal
government and BNDESPar, which
together hold 50.50% of our
shares with voting rights.
(1)
Information about our shareholders as of February 28, 2021.
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Pursuant to CVM rules, any (i) direct or indirect controlling shareholder, (ii) shareholder
who has elected members of a Brazilian public company’s Board of Directors or Fiscal
Council, and (iii) person or group of persons representing the same interest, in each
case that has directly or indirectly acquired or sold an interest that exceeds (either
upward or downward) the threshold of 5%, or any multiple thereof, of the total number
of shares of any type or class, must be disclosed by such Brazilian public company,
immediately after the acquisition or sale of shares, to the CVM and the B3.
Self-Dealing Restrictions
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 mechanism
only for disputes involving negotiable economic rights. As a result, such entities cannot
submit to arbitration any rights deemed non-negotiable under Brazilian law (direitos
indisponíveis), such as those deemed to relate to public interest. Therefore, decisions
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.
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Shareholders’ Rights
—
Shareholders’ Meetings and Voting Rights
Our shareholders have voting rights 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 matters whose
authority to resolve are exclusively held by our corporate governing bodies.
Our annual shareholders’ meeting takes place at our headquarters, in Rio de Janeiro,
Brazil, in April of 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. Given the effects of the Covid-19
pandemic in Brazil and the measures taken by health authorities and governments to
address the pandemic, particularly regarding social distance measures, the annual
shareholders´ meeting was held exclusively virtually, as permitted by Instruction CVM
No. 622/2020.
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.
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Quorum
Attendance quorum. In order to start, shareholders representing at least one-fourth of
our issued and 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 the attendance of shareholders representing at least two-thirds of
our issued and outstanding common shares. If the required quorum is not reached, our
Board of Directors 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 Fiscal Council (and its respective
alternates), subject to the right of our preferred shareholders to elect or dismiss one
member of our Board of Directors and to elect one member of our Fiscal Council (and
its respective alternates) and to the right of our employees to elect or dismiss one
member of our Board of Directors;
_ receive the yearly financial statements prepared by our management and accept or
reject management’s financial statements, including the allocation of net income for
payment of the mandatory dividend and allocation to the various reserve accounts;
_ authorize the issuance of debentures, except for the issuance of non-convertible
unsecured debentures or the sale of such debentures when in treasury, which may be
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;
_ establish the compensation of the former members of our Board of Executive Officers,
our Board of Directors, our Fiscal Council, including the compensation due during the
period of six months of forfeiture provided for in our Bylaws, and of advisory
committees to our Board of Directors;
_ approve the cancellation of our registration as a publicly-traded company; and
_ approve the requirements of our nomination policy, in addition to the requirements
provided by law applicable to boards of directors and fiscal councils.
Matter approved by at least one-half of the common shares of our total capital stock:
_ reduce of the mandatory dividend distribution;
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_ 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;
_ spin-off of a portion of us, subject to the conditions set forth in Brazilian Corporate Law;
_ waive the right to subscribe to shares or convertible debentures issued by our wholly-
owned subsidiaries or associate;
_ decide on our dissolution;
_ create preferred shares or increase the existing classes of preferred shares, without
preserving the proportions to any other class of preferred shares, except as set forth in
or authorized by our Bylaws;
_ change the preferences, privileges or redemption or amortization conditions of any
class of preferred shares; and
_ create new class of preferred shares entitled to more favorable conditions than the
existing classes.
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 of the outstanding
shares that are present at the meeting. According to B3´s Level 2 regulation,
outstanding shares means all the shares issued by a company, except for the shares
held by the controlling shareholder, by persons linked to such controlling shareholder
and by our managers, as well as those shares in treasury and special class of preferred
shares which purpose is to guarantee differentiated political rights and, be non-
transferable and 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.
Pursuant to Law No. 13,303/16, no decision taken at any 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 be annulled and such shareholder may
be liable for any damages caused and be required to return to us any gain it may have
obtained as a result of the transaction.
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Also under Brazilian Corporate Law, minority shareholders representing at least 10% of
our voting capital have the right to demand that a cumulative voting procedure be
adopted to entitle each common share to as many votes as there are board members
and to give each common share the right to vote cumulatively for only one candidate
of our Board of Directors or to distribute its votes among several candidates. Pursuant
to regulations promulgated by the CVM, the 10% threshold requirement for the
exercise of cumulative voting procedures may be reduced depending on the amount of
capital stock we possess. For a company like us, the threshold is 5%. Thus, shareholders
representing 5% of our voting capital may demand the adoption of the cumulative
voting procedure.
Regarding the right to appoint members of our Board of Directors and our Fiscal
Council, the following should be highlighted:
_ 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;
_ our minority common shareholders have the right to elect and remove one member to
our Board of Directors, if a greater number of directors is not elected by such minority
shareholders by means of the cumulative voting procedure;
_ 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
_ subject to the provisions of applicable law, the Brazilian Minister of Economy has the
right to elect and remove one member of our Board of Directors.
_ 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
In addition to their voting rights, shareholders have the following rights:
Preemptive rights: Each of our shareholders has a general preemptive right to
subscribe for shares or securities convertible into shares in any capital increase, in
proportion to his or her shareholding. A minimum period of 30 days following the
publication of notice of a capital increase is assured for the exercise of the right, and
the right is transferable. Under our Bylaws and Brazilian Corporate Law, and subject to
the requirement for shareholder approval of any necessary increase to our authorized
share capital, our Board of Directors may decide not to extend preemptive rights to our
shareholders, or to reduce the 30-day period for the exercise of preemptive rights, in
each case with respect to any issuance of shares, debentures convertible into shares or
warrants in the context of a public offering.
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In the event of a capital increase by means of the issuance of new shares, holders of
ADSs and holders of common or preferred shares would have, except under
circumstances 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.
For more information, see “Risks – Risk Factors – Equity and Debt Securities Risks” in
this annual report.
Redemption and rights of withdrawal: Brazilian Corporate Law provides that, under
limited circumstances, shareholders have the right to withdraw their equity interest
from a company and to receive payment for the portion of shareholder’s equity
attributable to their equity interest.
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;
_ transfer all of our shares to another company or to receive shares of another company
in order to make us, whose shares are transferred a wholly-owned subsidiary, known
in Brazil as incorporação de ações; or
_ acquire control of another company at a price that exceeds the limits set forth in
Brazilian Corporate Law.
This right of withdrawal may also be exercised in the event that the entity resulting
from a merger, consolidation or spin-off of a listed company and us do not negotiate
new shares in the secondary market, within 120 days from the date of the shareholders’
meeting approving the transaction, in accordance with the applicable SEC regulations.
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Considering that our Bylaws do not provide for rules to determine any value for
redemption, under Brazilian Corporate Law, any redemption of shares arising out of the
exercise of such withdrawal rights would be made based on the book value per share,
determined on the basis of the last balance sheet approved by our shareholders.
However, if a shareholders’ meeting giving rise to redemption rights occurred more
than 60 days after the date of the last approved balance sheet, a shareholder would be
entitled to demand that his or her shares be valued on the basis of a new balance sheet
dated within 60 days of such shareholders’ meeting. In this case, we would immediately
pay 80% of the amount of reimbursement calculated based 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.
Liability of our shareholders for further capital calls: Neither Brazilian Corporate Law
nor our Bylaws provide liability for our shareholders for further capital calls. Our
shareholders’ liability for capital stock is limited to the payment of the issuance price of
the shares subscribed or acquired.
Rights not subject to waiver: According to Brazilian Corporate Law, neither a
company’s Bylaws nor decisions taken at a shareholders’ meeting may deprive a
shareholder of some specific rights, such as the right to:
_ participate in the distribution of profits;
_ participate in any remaining residual assets in the event of our liquidation;
_ supervise the management of the corporate business as specified in Brazilian Corporate
Law;
_ exercise preemptive rights in the event of a subscription of shares, debentures
convertible into shares or subscription warrants (other than with respect to a public
offering of such securities, as may be set out in the Bylaws); and
_ withdraw from our company in the cases specified in Brazilian Corporate Law.
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Dividends
—
Payment of Dividends and Interest on Capital
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 (juros sobre capital
próprio). 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.
Payments for each fiscal year must be made following shareholders’ approval at the
annual general meeting of shareholders. The profits are distributed in proportion to the
number of shares owned by each shareholder on the applicable record date. Our
preferred shares have preference in the distribution of dividends and interest on
capital. Thus, the payment of dividends to holders of common shares is subject to the
right to dividend distributions held by the holders of preferred shares.
In 2020, we revised our Dividend Policy in order to enable Management to propose the
payment of dividends compatible with our cash generation, even in years with
accounting losses. In the event that our Gross Debt, including lease commitments, is
above US$60 billion, our Management can recommend the distribution of dividends,
with accounting losses, when there is a reduction in Net Debt in the last 12-month
period, if the management believes that it will not negatively affect our financial
sustainability. The distribution proposal should be limited to the value of the Net Debt
reduction.
We may also, in exceptional cases, propose the payment of extraordinary dividends,
exceeding the minimum legal mandatory dividend or the annual amount calculated
from the formula:
Remuneration = 60% x (Operating Cash Flow1 – CAPEX Investments2)
In all cases, the dividends distribution must comply with the provisions of the applicable
legislation, including article 201 of the Brazilian Corporate Law.
—
1 Operating Cash Flow means net cash generated by operating activities.
2 CAPEX Investments mean acquisitions of assets, fixed assets and intangibles, as well as investments in investees, provided that the following are not considered as
CAPEX Investments: (i) proceeds from the sale of assets; (ii) payments in the participation of bidding rounds for oil and natural gas upstream; and (iii) payments relating
to the acquisition of companies or equity interests.
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Our Dividend Policy includes the following types of dividend distribution:
_ 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 operate, existing investment opportunities,
maintenance 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
semi-annual or quarterly balance sheet prepared during the current fiscal year and not
yet approved by our shareholders, i.e. before we have determined our full-year
earnings.
_ Interim Dividends (dividendos intermediários): Our Board of Directors may also
approve the payment of interim dividends, which shall be calculated based on our profit
reserve account existing in the last balance sheet approved by our shareholders’
meeting (i.e. these dividends are paid based on either an annual or semi-annual balance
sheet already approved by our shareholders). The amount of interim dividends
distributed cannot exceed the amount of our capital reserves.
Pursuant to our Bylaws, intermediate and interim dividends and interest on capital shall
be allocated as minimum mandatory dividend as set forth by the Brazilian law, including
for the purpose of paying the minimum priority dividends of preferred shares.
Law No. 9,249/95, as amended, provides for distribution of interest on capital to
shareholders as an alternative form of distribution. Such interest is limited to the daily
pro rata variation of the TJLP 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:
_ 50% of net income before taking into account such 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
_ 50% of retained earnings and profit reserves.
With respect to the payment of dividends, our shareholder must also consider the
following:
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_ 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%, subject to possible reduction by an applicable tax treaty. 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 of dividends. Under Brazilian Corporate Law, we are
required to distribute to shareholders an amount sufficient to ensure that the net
amount received, after payment by us of applicable Brazilian withholding taxes in
respect of the distribution of interest on capital, is at least equal to the minimum
mandatory dividend as set forth by the Brazilian law.
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 annual
report.
_ 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 shareholders’ resolution sets forth for another date of payment, which, in any case,
must occur prior to the end of the fiscal year in which the dividend was declared.
_ Adjustments: Our board of directors may approve the payment of anticipated
dividends or interest on capital to our shareholders which amountis subject to financial
charges at the SELIC rate from the end of each fiscal year through the date we actually
pay such dividends or interest on capital.
_ 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.
Our total distributions to shareholders for 2020 amounts to US$1,977 million and will
be voted at our shareholder’s annual general meeting to occur in 2021. For further
information, see Note 36.5 to our audited consolidated financial statements.
Mandatory distribution
Pursuant to Brazilian Corporate Law and our Bylaws, we must comply with two minimum mandatory
distributions of dividends, both of which are provided in our Dividend Policy.
_ 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
_ 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 are entitled to an additional
dividend amount per share in the same amount per share paid to holders of common shares. Holders
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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
minimum 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
our financial condition. In this case, our Board of Directors must file with the CVM an explanation for
suspending the dividend distribution. Profits not distributed due to such 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 such payments.
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 years. Any amount so allocated in a prior
year must be either (i) reversed in the fiscal year in which the reasons justifying the
reserve cease to exist, or (ii) written off in the event that 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
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.
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A portion of our net income that exceeds the minimum mandatory distribution may be
allocated to fund working capital needs and investment projects, as long as such
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 non-Brazilian
shareholders
—
Foreign investors may trade their shares directly on the 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 Brazil is subject to restrictions under foreign investment legislation (Brazilian
foreign exchange controls). However, if 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, any non-Brazilian holder who registers with the
CVM in accordance with CMN Resolution No. 4,373 may buy and sell securities directly
on the B3. Such non-Brazilian holders 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.
The right to convert dividend payments and proceeds from the sale of shares into
foreign currency and to remit such amounts outside Brazil may also be subject to
restrictions under foreign investment legislation. If any restrictions are imposed on the
remittance of foreign capital abroad, they 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.
Non-Brazilian Holders on B3
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:
_ appoint at least one representative in Brazil, with powers to perform actions relating to
the investor’s investment;
_ register as a foreign investor with the CVM;
_ appoint at least one authorized custodian in Brazil for the investor’s investments;
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_ register all portfolio investments of the foreign investor in Brazil, through the investor’s
representative, with the Central Bank of Brazil; and
_ comply with other requirements provided for under CVM Resolution No. 13/20.
After the fulfillment of these requirements, the foreign investor will be able to trade in
the Brazilian financial and capital markets.
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, any transfer of
securities held under CMN Resolution No. 4,373 and CVM Resolution No. 13/20 must
be carried out in the stock exchanges or through organized over-the-counter markets
licensed by the CVM, except for transfers resulting from private transactions.
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.
JPMorgan is the depositary for both of our common and preferred ADSs since January
2, 2020. The Depositary will register and deliver the ADSs, each of which currently
represents (i) two shares (or a right to receive two shares) deposited with an agent of
the Depositary acting as 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 to our existing ADR program. Pursuant to the registration, the
custodian and the Depositary will be able to convert dividends and other distributions
with respect to the relevant shares represented by ADSs into foreign currency and to
remit the proceeds outside Brazil.
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 to remit proceeds outside of Brazil. Additionally, the holder may be
subjected to a less favorable Brazilian tax treatment than a holder of ADSs. If the foreign
investor resides in a tax haven jurisdiction, the investor will also be subject to less
favorable tax treatment.
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For more information, see “Risks – Risk Factors – Equity and Debt Securities Risks” and
“Legal and Tax – Tax – Taxation Relating to Our ADSs and Common and Preferred
Shares” in this annual report.
Fees Payable by ADS holders
ADS holders are required to pay various fees to the Depositary, including: (i) an annual
fee of US$0.05 (or less) per ADS for administering the ADR program, and (ii) amounts
in respect of expenses incurred by the Depositary or its agents on behalf of ADS holders,
including expenses 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
Issuance and delivery of ADSs, including issuances resulting from a distribution of shares
or rights or other property
Distribution of dividends
Cancellation of ADSs for the purpose of withdrawal
Fees Payable by ADS Holders
US$5.00 (or less) per 100 ADSs
(or portion thereof)
US$0.03 (or less) per ADS per
year
US$5.00 (or less) per 100 ADSs
(or portion thereof)
Fees Payable by the Depositary
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, 2020, 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
LEGAL AND TAX
305
Regulation
—
Business 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 accumulations in the country.
There are three different types 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.
The concession-based regulatory framework granted us the right to explore crude oil
reserves in each of our already existing producing fields under concession contracts for
an initial term of 27 years from the date when they were declared commercially
profitable. These are known as the “Round Zero” concession agreements. This initial
27-year period for production can be extended at the request of the concessionaire,
subject to approval from the ANP.
Starting in 1999, all areas that were not already subject to concessions became
available for public bidding conducted by the ANP. We participated in these biddings
both independently or through partnerships with private companies (as operator or as
non-operator, in a case-by-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 federal
government a portion of the corresponding proceeds.
For information related to Taxation under Concession Regime for Oil and Gas, see item
“Legal and Tax – Tax” in this annual report.
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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
and production activities. In 2010, laws were enacted to 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 in (i) cases of winning proposals above the minimum profit oil,
should we decide to be part of such consortium and have previously expressed interest
and (ii) cases in which the winning proposal is in the minimum profit oil, then we are
required to be the operator, with minimum 30% of participating interest, as applicable
according to the relevant Governmental Resolution. Regardless of whether we exercise
our preemption right, we will also be able to participate, at our discretion, in the bidding
process to increase our interest in any of the pre-salt areas.
The winning bidder will be the company that offers to the Brazilian federal government
the highest percentage of “profit oil,” which is the gross revenue of the production of
a 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.
The production-sharing contracts are executed by and between the private companies
that are winning bidders, the state-owned non-operating company PPSA, which
represents the interests of the Brazilian federal government 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 2010, we entered into an agreement with the Brazilian federal government, under
which the government assigned to us the right to conduct activities for the exploration
and production of oil, natural gas and other fluid hydrocarbons in specified pre-salt
areas, subject to a maximum production of five bnboe. The initial contract price for our
rights under the Transfer of Rights Agreement was US$14,395 million, as of December
31, 2020, which was paid in full in 2010. See “Material Contracts” in this annual report.
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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 oil and natural gas; and (c) specification of the product being
produced. In addition, as provided in the Transfer of Rights Agreement, the review must
follow the assumptions set forth in such agreement.
An internal committee to negotiate the revision of the Transfer of Rights Agreement
with representatives of the Brazilian federal government (i.e. representatives of the
MME, the Ministry of Finance, and the ANP) was created. The negotiations resulted in
a revision of the Transfer of Rights Agreement that was submitted to the TCU for
analysis, by recommendation of the MME.
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 amendment
establishes new percentages for local content: 25% for well construction; 40% for
production collection and disposal system; and 25% for stationary production unit. For
information related to the new taxation model for the oil and gas industry (“REPETRO”)
see “Legal and Tax – Tax” in this annual report.
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.
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The ANP also requires that refineries and importers of oil byproducts publicly release
their price lists electronically (standard prices) as well as the prices for the previous 12
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.
Failure to comply with the ANP rules can lead to a range of fines and penalties, including
the revocation of the authorization.
In December 2016, the Brazilian federal government launched the “RenovaBio”
program to stimulate the production of biofuels in the local market, namely ethanol,
biodiesel, biogas and biojet fuel. In June 2019, the CNPE fixed the mandatory annual
reduction of carbon emission targets and the ANP established (i) the individualization
of the annual mandatory greenhouse gas emission reduction targets for the
commercialization of fuels (Resolution No. 791/2019) and (ii) the procedures for the
primary emission of carbon emission reduction credits (Resolution No. 802/2019).
In June 2017, the CNPE established strategic guidelines for the development of the local
market for fuels, other oil 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.
In December 2020, the CNPE established guidelines (Resolution No. 14/2020) to
substitute the relevant bidding procedure for biodiesel acquisition and designated ANP
to design the new marketing model that must be in force by January 1, 2022).
Our oil and natural gas refining area is also subject to the preventive and stringent
control of CADE.
In June 2019, we signed a commitment with CADE (termo de cessação de conduta) that
consolidates our understanding on the divestment of refining assets in Brazil.
For more information on our agreement with CADE regarding our divestments in
refining assets, see “Risks – Risk Factors – Operational Risks” and “Portfolio
Management” in this annual report.
Gas and Power
Natural Gas Law of 2009
In March 2009, the Brazilian Congress enacted Law No. 11,909, or “Gas Law”, regulating
activities in the gas industry, including transport, processing, storage, liquefaction,
regasification and commercialization. The Gas Law created a concession regime for the
construction and operation of new pipelines to transport natural gas of general
interest, while maintaining an authorization regime for pipelines subject to
international agreements. According to the Gas Law, after a certain exclusivity period,
operators will be required to grant access to transport pipelines and maritime
terminals, except for LNG terminals, to third parties in order to maximize utilization of
capacity.
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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 to previously established criteria, for the use of new gas transport pipelines
subject to the authorization regime.
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 access and carrier compensation if no agreement is reached between the
parties.
The Gas Law also authorized certain consumers, who can purchase natural gas on the
open market or obtain their own supplies of natural gas, to construct facilities and
pipelines for their own use in the event local gas distributors controlled by the states,
which have monopoly over local gas distribution, do not meet their distribution needs.
These consumers are required to delegate the operation and maintenance of the
facilities and pipelines to local gas distributors, but they are not required to sign gas
supply agreements with the local gas distributors.
In December 2010, Decree No. 7,382 was enacted in order to regulate Chapters I to VI
and VIII of the Gas Law as it relates to activities in the gas industry, including
transportation and commercialization. Since the publication of this decree, 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 to be
further clarified. Among those is ANP Resolution No. 51/2013, which prevents a carrier
from holding any relevant equity interest in companies holding concessions for gas
transport pipelines. Resolution No. 51/2013 applies only to the concessions granted
after its publication, not affecting, therefore, the transportation of our natural gas
production through pipelines operated by TBG and subject to the previous
authorization regime.
Another important resolution is ANP Resolution No. 52/2011, which (i) establishes that
ANP is responsible for authorizing the activity of commercialization of natural gas,
within the competence of the Brazilian federal government; (ii) regulates the
registration of the gas seller agent; and (iii) regulates the registration of gas sales and
purchase agreements. This resolution was modified in July 2019 by Resolution No.
794/2019, which requires the publication, by 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.
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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, was created and Decree
No. 9,934 was signed. This decree establishes a committee that monitors the
implementation of the actions required for the entry of new agents into the natural gas
market.
Also, in July 2019, we signed an agreement with CADE (termo de compromisso de
cessação), which consolidates understandings between the parties on the promotion
of competition in the natural gas industry in Brazil.
For more information on our agreement with CADE regarding our divestments in the
natural gas industry, see “Risks – Risk Factors – Operational Risks” and “Our Business –
Gas and Power – Marketing” in this annual report.
In 2020, considering the obligations established in the agreement mentioned above,
we concluded the sale of our shareholdings in the transportation company, TAG, and
initiated the sale processes of other transportation companies, NTS and TBG, and of
Gaspetro, which hold stakes of several gas distribution companies in Brazil. We also
negotiated some contracts for third party access to our processing plants and started
the competitive process for the lease of the Regasification Terminal in the state of
Bahia, among other actions in compliance with the agreement signed with CADE.
In the context of the ongoing market opening process, in 2020 the ANP also initiated
public consultations about important changes in the gas regulation, including
discussions on the creation of independence criteria for gas transportation companies,
on the conceptual model for the gas market activities of federal competence and on
the exercise of production of oil products and natural gas activities. The ANP also
intends to start the process of modifying several resolutions regarding gas market
activities, according to its regulatory agenda.
There is also a pending bill that intents to modify the Gas Law (Bill No. 6,407/2013),
which includes proposals that have been discussed in the context of the Gas to Grow
and New Gas Market programs. If the bill is approved, it will result in important changes
in the natural gas market, including the exploitation regime of natural gas transport
activities.
For more information on our agreement with CADE, see “Risks – Risk Factors –
Operational Risks”, “Portfolio Management” and “Our Business – Gas and Power –
Marketing” in this annual report.
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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.
Environmental Regulation
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
laws, regulations and permit requirements relating to the protection of human health
and the environment, and they fall under the regulatory authority of CONAMA.
Our offshore activities are subject to the administrative authority of IBAMA, which
issues operating and drilling licenses. We are required to submit reports on a regular
basis, including safety and pollution monitoring reports to IBAMA and third party
environmental audits in order to maintain our licenses. This way, we maintain an
ongoing communication channel with the environmental authorities, in order to
improve issues connected with the environmental management of our exploration,
production and refining processes of oil and natural gas. In 2018, we designed actions
and measures, together with IBAMA, to adjust the treatment and discharge of
produced water in some of our offshore platforms in order to accommodate recently
issued requirements by IBAMA. All of these actions are being met by us within the
schedules defined with IBAMA.
In addition, in order to help ensuring the safety of navigation, the Brazilian maritime
authority also works towards the prevention of environmental pollution, with random
or periodic surveys of offshore units.
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 possible for these conditions to
be controlled on a local basis whenever the activities generate a local impact or are
established in a county conservation unit. Under Brazilian law, there is strict and joint
liability for environmental damage, mechanisms for enforcement of environmental
standards and licensing requirements for polluting activities.
Individuals or entities whose conduct or activities cause harm to the environment are
subject to criminal, civil and administrative sanctions. Government environmental
protection agencies may also impose administrative sanctions for noncompliance with
environmental laws and regulations, including:
_ fines;
_ partial or total suspension of activities;
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_ 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
As a federal state-owned company, we are subject to certain rules that limit our
investments, and we are required to submit our annual capital expenditures budget
(Orçamento Anual de Investimentos, or OAI) to the ME and the MME. Following the
review by these governmental authorities, the Brazilian Congress must approve our
budget. Thus, there may be a reduction or change in our planned investments. As a
result, we may not be able to implement all of our planned investments, including those
related to the expansion and development of our oil and natural gas fields, which may
adversely affect our results of operation and financial condition.
All medium and long-term debt incurred by us or our subsidiaries requires the approval
of the Finance Executive Manager jointly with another Executive Manager within the
parameters established by our Board of Executive Offices and the Board of Directors.
The exceptions are the issuance of public debt in the capital markets and collateralized
debt obligations, which require the approval of our Board of Executive Officers, within
the parameters established by our Board of Directors, and the issuance of debentures,
which requires the approval of our Board of Directors.
In addition, Law No. 13,303/16 requires us to define in our Bylaws the public interest
we pursue and which publicly-oriented actions we are allowed to take in the pursuit of
such public interest. In order to comply with Law No. 13,303/16, we amended our
Bylaws to include the definition of public interest and to state that the Brazilian federal
government 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.
More specifically, the Brazilian federal government may guide us to take publicly-
oriented obligations or 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.
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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. The evaluation by our committees is based on certain technical and economic
aspects of the planned investment projects and on the analysis of certain operating
costs 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 2.22 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:
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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
80.00
800
250
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 additional 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.
The bidding rules established the fixed value of the signing bonus, the minimum
exploratory program, and the local 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.
On November 7, 2019, we acquired, together with other international company, the
Aram block, and we will be the operator of such block.
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The resulting three production-sharing agreements were all signed on March 30, 2020.
We will be the operator of these blocks under the production-sharing regime.
According to the relevant production-sharing agreements, the appointed operator, on
behalf of the parties, offers to the Brazilian federal government a percentage of the
“surplus in oil profit for the Brazilian federal government.” The only criteria adopted by
the ANP to define the winning bidder was the amount of oil profit to the Brazilian
federal government too, since the bidding rules provided for the fixed value of the
signing bonus, the minimum exploratory program and the local content commitments.
Basic Terms:
Operating Committee. The Production Sharing Agreement 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 in the blocks, PPSA holds 50% of the operating committee voting rights and also
has a casting vote and veto powers, as defined in the Production Sharing Agreements.
Risks, Costs and Compensation. All exploration, development and production activities
under the Production Sharing Agreements will be conducted at the expense and risk of
the members of the consortium. For commercial discoveries of crude oil and/or natural
gas in the blocks, the consortium will be entitled to recover, on a monthly basis, (i) a
portion of the production of oil and gas in the block corresponding 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 in 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.
Phases:
Our activities under the Production Sharing Agreements are divided into two phases,
as follows:
Exploration phase. This phase comprises appraisal activities for purposes of
determining the commerciality of any discoveries of crude oil and natural gas. The
exploration phase begins upon the execution of the Production Sharing Agreements
and will end for each discovery upon the declaration of commerciality. We will have
four years (which may be extended upon the ANP’s prior approval) to comply with the
minimum work program and other ANP-approved activities provided for in the
Production Sharing Agreements.
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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.
Minimum Work Program:
During the exploration phase, we are required to undertake a minimum work program,
as specified in the Production Sharing Agreements. We may perform other activities
outside the scope of the minimum work program, provided that such activities are
approved by the ANP.
Unitization:
A reservoir covered by a block granted to us in the Production Sharing Agreements may
extend to adjacent areas outside the block. In such case, we must notify the ANP
immediately after identifying the extension and we will be prevented from performing
development and production activities within such block, until we have negotiated
unitization agreement with the third-party concessionaire or contractor who has rights
over such adjacent area, unless otherwise authorized by the ANP. The ANP will
determine the deadline for the execution of unitization agreement by the 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.
If the parties are unable to reach an agreement within a deadline established by the
ANP, the ANP will determine 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:
We are required to preserve the environment and protect the ecosystem in the area
subject to the Production Sharing Agreements and to avoid harming local fauna, flora
and natural resources. We will be liable for damages to the environment resulting from
our operations, including costs related to any remediation measures.
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Brazilian Content:
The Production Sharing Agreements specify certain equipment, goods and services, as
well as different levels of required local content, in accordance with the different
phases under the Production Sharing Agreements. If we fail to comply with the Brazilian
content obligations, we may be subject to fines imposed by the ANP.
The original Libra Production Sharing Agreement (“Production Sharing Bidding Round
1”) gave the Libra consortium the right to waive the local content obligations in terms
of technology, price and schedule. This right was used once, and the ANP conceded
waiver to the hull items and certain items of the process plants. By Resolution No
726/2018, the ANP gave the Libra consortium the possibility of changing the local
content requirements to lower levels, but the possibility of waiver was excluded.
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 for the Production Sharing
Agreements, and the Bidding Rounds 3, 4, 5 and 6 used those levels.
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:
Under the Brazilian production-sharing regime, we can assign our rights and obligations
inherent to our participation above 30% in the areas in which we exercised our
preemptive right to be the operator.
All members of the consortia (other than PPSA) have a right of first refusal with respect
to an assignment of rights and obligations by any other member of the consortium
(other than PPSA).
The Production Sharing Agreements shall be terminated in the following circumstances:
(i) the expiration of their terms; (ii) if the minimum work program has not been
completed by the end of the exploration phase; (iii) if there has not been any
commercial discovery by the end of the exploration phase; (iv) if the consortium
members (other than PPSA) exercise their withdrawal rights during the exploration
phase; (v) if the consortium refuses to execute a unitization agreement after the ANP
makes such determination (which termination may be complete or partial) and (vi) any
other basis for termination described in the Production Sharing Agreements.
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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
accordance with applicable legislation and the terms of the Production Sharing
Agreements. If any breach of the Production Sharing Agreements is considered by the
Brazilian federal government not to be significant, intentional, or a result of negligence,
imprudence or recklessness, or it is proved that the consortium has 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.
We and other consortium members will use our best efforts to settle any disputes. If
we are unable to do so, any consortium member may submit such dispute or
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 administration entities, it may be
submitted to conciliation service of the Câmara de Conciliação e Arbitragem da
Administração Federal, or CCAF, under the AGU. In the event of a dispute involving non-
negotiable rights, the parties shall submit the dispute to the federal courts in Brasília,
Brazil.
The Production Sharing Agreements are governed by Brazilian law.
Amendment to the 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.
The parties involved discussed several scenarios about the revision of the original
agreement, as both of them could be simultaneously creditor and/or debtor. The
amendment consolidates one such scenario, resulting in a credit of US$9,058 billion in
our favor, which was fully paid in December 2019.
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 production stages)
and (ii) the dispute resolution provisions that became similar to the provisions of the
Production Sharing Agreements of the latest ANP bid rounds.
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
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We are currently party to numerous legal proceedings relating to civil, administrative,
tax, labor, criminal, 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 financial statements only include
provisions for probable and 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 aimed at criminal
organizations engaged in money laundering in several Brazilian states, known as “Car
wash” operation (“Lava Jato”). The Lava Jato investigation is extremely broad and
comprises numerous investigations into several criminal practices, spanning crimes and
conduct committed by individuals in different parts of the country and different sectors
of the Brazilian economy. In 2014, Lava Jato started to focus part of its investigation on
irregularities involving our contractors and suppliers and uncovered a broad payment
scheme that involved a wide range of participants, including our former personnel. It is
possible that further information damaging us and our interests will come to light in the
course of the ongoing investigations of corruption by Brazilian authorities.
We are not a target of the Lava Jato investigation and we are formally recognized, by
the Brazilian authorities, as a victim of the improper payments scheme. We will
continue to pursue legal measures against companies and individuals, including former
employees and politicians, who have caused financial and image damages to us. We
have been working together with the Brazilian Federal Prosecutor’s Office, the 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 Lava Jato through December 31, 2020 was US$1,287 million (about
US$155 million in 2020, US$220 million in 2019, US$457 million in 2018, US$252 million
in 2017, and US$131 million in 2016).
For further information regarding Lava Jato and its impacts on us, see Note 23 to our
audited consolidated financial statements.
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Investigations Carried out by Authorities
U.S.: SEC, DoJ and the US Commodity Futures Trading
Commission (“CFTC”)
Because our ADRs are traded on the NYSE, we are subject to SEC and DoJ regulations.
In 2014, the SEC and DoJ initiated investigations in connection with the facts disclosed
in connection with Lava Jato. We have fully cooperated with their investigations.
In September 2018, we entered into agreements with the SEC and the DoJ related to
our internal controls, accounting records and financial statements for the period 2003
to 2012, which fully resolved their respective investigations. Under the terms of these
agreements, we paid US$85.3 million to the DoJ, US$85.3 million to the SEC and
US$682.6 million to Brazilian authorities.
In our agreements with them, the DoJ and SEC recognize improvements to our
compliance program, internal controls and anti corruption procedures. We have
committed to continue evaluating and improving these and other efforts. We believe
the resolution of the SEC and DOJ investigations was in our best interests and the best
interests of our shareholders, and eliminates uncertainties, risks, burdens and costs of
potential litigations in the United States.
In May 2019, the CFTC contacted us with an inquiry regarding trading activities related
to 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.
Brazil: Prosecutor’s Office
In 2015, the state of São Paulo Prosecutor’s Office 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
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 our former
officers.
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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
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. The Foundation filed its
submission on May 6, 2020 and we filed our submission on August 11, 2020. The oral
arguments were presented in a hearing held on January 26, 2021 and a decision is still
pending.
The Foundation only seeks declaratory reliefs from the Dutch court and is not able to
demand compensation for damages. Compensation for the alleged damages will only
be determined by court rulings if subsequent complaints are filed by individual
investors.
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 identify possible risks related to this action and to produce a reliable estimate of
eventual loss.
Moreover, currently, it is not possible to determine if investors will be able to file
subsequent individual complaints against us and if we will be found responsible for the
payment of compensation, as this assessment depends on the outcome of this action.
We, along with our subsidiaries, deny the allegations presented by the Foundation and
intend to defend ourselves vigorously. We are a victim of the corruption scheme
uncovered by 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 seven arbitration proceedings brought by Brazilian and
foreign investors that purchased our shares traded on the B3, alleging financial losses
caused by facts uncovered in Lava Jato.
Due to substantial uncertainties inherent to these kinds of proceedings and the highly
uncertain impacts of such allegations, it is not possible for us to identify possible risks
related to this action and to produce a reliable estimate of 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.
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Most of these arbitrations are far from a definitive judgment by the respective arbitral
tribunals. However, in one of the arbitrations, proposed by two institutional investors,
on May 26, 2020, a partial arbitration award has been issued. The partial award
indicates our liability, but does not determine our payment of amounts, nor does it end
the procedure. This arbitration is confidential, as well as the others in progress, and the
partial award represents only the position of the three arbitrators of such arbitration
panel and are not extendable to the other existing arbitrations. On July 20, 2020, we
filed a lawsuit for the annulment of this partial arbitration award, considering our view
that it contains serious flaws and improprieties. On November 10, 2020, the first level
judge of Rio de Janeiro state court declared the partial award null. The appeals against
this decision are pending. In compliance with CAM rules, the lawsuit is confidential. We
reiterate that we will continue to defend ourselves vigorously, out of respect for our
current shareholders, in all arbitrations to which we are a party.
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”).
Among other issues, the Association alleged our liability for a supposed loss of market
value of our shares in Argentina, due to proceedings related to Lava Jato.
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:
_ Criminal action alleging non-compliance by us with the obligation to publish as
“relevant fact” to the Argentinian 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 have filed procedural defenses before the
criminal court and some of them are still pending.
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_ 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 have
filed procedural defenses before the criminal court and some of them are still pending
judgement. On September 14, 2020, the judge accepted our defense grounded in
jurisdiction immunity and decided that we cannot be sued in criminal proceedings
before the Argentine Courts. The Association appealed against this decision, and the
appeal is pending judgment.
Sete Brasil’s Investor Claim and Mediation Procedure
We are currently a party to a lawsuit in the District Court of the District of Columbia in
Washington, D.C. filed by EIG in 2016, a complaint against us concerning its indirect
purchase of equity interests in Sete Brasil, a company created in order to build rigs with
high local content. In this proceeding, EIG alleges that we induced investors to invest in
Sete Brasil and that we were among the parties responsible for the financial crisis of
Sete Brasil, which filed judicial recovery proceedings (“recuperação judicial”), in Brazil.
The District 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. During 2020, the parties engaged
in extensive document exchanges and other written discovery. The parties also have
taken the depositions of numerous fact witnesses. Depositions will continue in 2021
and then the parties will proceed to expert discovery.
We were also a party to arbitrations in Brazil filed by investors of Sete Brasil, which
concluded in 2020 when a favorable arbitration award was granted to us. On April 1,
2020, July 29, 2020, and on December 17, 2020, we disclosed the settlement of three
other arbitrations related to the investment in Sete Brasil.
In addition, as result of an extrajudicial mediation initiated in 2017 in Brazil, in 2019 our
Board of Directors approved the final terms of an agreement to be executed between
us and Sete Brasil, the key terms of which include: (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.
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In 2020, the settlement agreement was executed by PNBV, Sete Brasil, other group
companies and us, however Sete Brasil notified us in late January 2021 that certain
required conditions would not be fulfilled prior to the deadline of January 31, 2021. As
a result, our Executive Board authorized the beginning of a new negotiation with Sete
Brasil.
We no longer hold any direct or indirect equity in the companies of the Sete Brasil
Group.
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, and in some cases the purchase price,
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 in 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. 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 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. Another constitutional action (Direct Unconstitutionality Action
5841), with the same purpose, was filed and the Brazilian Supreme Court has denied
the injunction in virtual sessions held in December 2020. The final decision of both
constitutional procedures are still pending.
Also, there is a Direct Unconstitutionality Action filed against Federal Decree No.
9,355/18 (“Federal Decree”) that aims at the immediate suspension of its effects and a
declaration of unconstitutionality for allegedly disregarding the provisions of articles 28
to 84 of Law No. 13,303/16 and the principles of legality, morality, impersonality and
efficiency (Direct Unconstitutionality Action – ADI -5942).
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On December 19, 2018, a preliminary injunction was granted to suspend the
effectiveness of the Federal Decree and order us to follow the rules of Law No.
13,303/16 in relation to the procedures for the assignment of exploration and
production rights in Brazil (“Decision”). On January 11, 2019, the President of the
Supreme Court granted a preliminary injunction to suspend the effects of the Decision
until the judgment by the plenary of the court, which occurred in virtual sessions in
October, 2020. The court has ruled the claim groundless by a decision yet to be
published in the Federal Official Gazette on February 8, 2021.
With respect to TCU, all projects included in our divestment portfolio (excluding
partnerships and acquisitions, subject to another set of rules) follow the methodology
deemed appropriate by TCU under administrative procedure TC-013.056/2016 -6.
Recently, our divestment process methodology was reviewed and forwarded to TCU
under administrative procedure TC-009.508/2019
-8. The most up-to-date
methodology took effect on December 23, 2020.
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 it was
only challenged three years after its implementation. The matter at dispute is whether
to include additional working arrangements and special working conditions as a
complement to RMNR.
In 2018, the Brazilian Superior Labor Court (“TST”) ruled against us and we filed an
appeal against its decision. The STF suspended the effects of the decision issued by the
TST and called for the national suspension of the ongoing proceedings relating to
RMNR.
Applicable rate
Since several judges were considering the application of the rate provided for by the
law (“Taxa Referencial”) to be unconstitutional, the matter was referred to the STF. In
December 2020, the STF decided that, in labor litigation, the IPCA-E rate should be
applied up until the date that the process is initiated, and the SELIC rate should be
applied as of the date that the process has been initiated. However, this decision has
not yet been published officially, and its exact content is not yet available. This may
have an effect on our provisions, including RMNR provisions.
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Unification of Fields
We filed four arbitrations under the ICC administration challenging the ANP’s decision
to unify our unconnected oil fields (Parque das Baleias, Tupi and Cernambi; Baúna and
Piracaba; Tartaruga Verde and Tartaruga Mestiça). The Parque das Baleias arbitration
was terminated by means of an agreement executed by the parties.
In the case of the Tartaruga Mestiça and Tartaruga Verde arbitration, the Federal Court
of Rio de Janeiro upheld the competence-competence principle, in which the arbitral
tribunal is entitled to rule on its own jurisdiction of the case. Thus, this arbitration was
resumed and at the hearings held in December 2020, the parties presented a brief “case
exposition” and arguments related to the discussion of preliminary issues.
In relation to the Baúna and Piracaba arbitration, a judicial injunction is keeping it
suspended. The Federal Court of Rio de Janeiro will decide an appeal filled by us to
resume the arbitration proceeding.
In addition, the BM-S-11 Consortium, formed with Shell and Petrogal, of which we are
the operator, challenged the ANP’s decision on unifying Tupi and Cernambi fields. The
arbitration remains suspended due to a judicial injunction. Currently, the Brazilian
Superior Court decided to annul the former judgment issued by the Federal Court of
Rio de Janeiro in order to determine a new trial. Therefore, the Federal Court will once
again decide which court (the state court or arbitral 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 the arbitral award. In May 2019,
the Federal Court confirmed the arbitration award and denied our motion to vacate it.
In June 2019, our subsidiaries paid approximately US$700 million related to such
decision. The payment ceased accruing interest, 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. In July 2020, the
Court of Appeals affirmed the Federal Court decision and rejected the appeal. The Court
of Appeals subsequently rejected our petitions for rehearing in August 2020. In January
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2021, we filed a petition for a writ of certiorari before the Supreme Court of the United
States, which was denied.
Environmental
The state of Rio de Janeiro Prosecutor’s Office filed five public civil actions against us,
the State Environmental Institute (“INEA”) and the state of Rio de Janeiro (collectively,
the “Defendants”), in June 2018, requesting that the Defendants present proof of
compliance with environmental licensing regulations related to COMPERJ, complement
technical research, re-define certain conditions applicable to the 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 was 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 by the first agreement and another
agreement (“termo de ajustamento de conduta”) in the amount of US$11 million was
signed in February 2020 with the same parts to conclude them. As a result, the judicial
procedures were archived.
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$150 million
was provisioned. Clarification appeals have been filed and we are currently considering
further appeals.
For further information on our material legal proceedings, see Note 20 to our audited
consolidated financial statements.
Tax Proceedings
We are currently party to legal proceedings relating to tax claims. For further
information on our material tax proceedings, see Note 20 to our audited consolidated
financial statements.
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Tax Strategy and Effect of Taxes on Our Income
Our tax strategy outlines the compliance with tax laws of Brazil and other countries,
where we operate as a corporation that influences the economic and social
environment of which we are part. We also aim at engaging 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.
We are subject to tax on our income at a Brazilian statutory corporate rate of 34%,
comprising of a 25% rate of income tax and a social contribution tax at a 9% rate. Since
2015, we have been recognizing income tax expenses over non-exempt income
generated by our foreign subsidiaries based on Brazilian statutory corporate rates as
established by Law No. 12,973/2014.
In addition to taxes paid on behalf of consumers to the Brazilian federal government,
as well as state and municipal governments, such as the value-added tax (Imposto sobre
Circulação de Mercadorias e Serviços, or “ICMS”), we are required to pay three main
charges on our oil production activities in Brazil under the scope of the ANP: (i) royalties,
(ii) special participation and (iii) retention bonuses. See “– Taxation under Concession
Regime for Oil and Gas” below and “Risks – Risk Factors – Government Ownership and
Country Risks” in this annual report. These charges imposed by the Brazilian federal
government are included in our cost of sales.
Taxation under Concession Regime for Oil and Gas
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:
_ Signing bonuses paid upon the execution of the concession agreement, which are based
on the amount of the winning bid, subject to the minimum signing bonuses 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 established by the ANP in the relevant bidding
guidelines based on the size, location and geological characteristics of the concession
block;
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_ Special participation charges at a rate ranging from 0 to 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 Decree
No. 2,705 and ANP regulatory acts, less royalties paid, investments in exploration,
operational costs and depreciation adjustments and applicable taxes. In 2020, we paid
this government take on 10 of our fields, namely Jubarte, Leste do Urucu, Marlim,
Marlim Sul, Mexilhão, Rio Urucu, Roncador, Sapinhoá, Tartaruga Verde and Tupi; and
_ Royalties to be established in the concession contracts at a rate ranging between 5%
and 10% of gross revenues from production, based on reference prices for crude oil or
natural gas established in its regulatory acts. In establishing royalty rates in the
concession contracts, the ANP also takes consideration the geological risks and
expected productivity levels for each concession. Most of our crude oil production is
currently paid at the maximum royalty rate.
Law No. 9,478/1997 also requires concessionaires of 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.
Taxation Model for the Oil and Gas Industry (Repetro-
SPED)
On December 28, 2017, the Brazilian federal government enacted Law No. 13,586,
which outlined a new taxation model for the oil and gas industry and, along with the
Decree No. 9,128/2017, established a new special regime for exploration, development
and production of oil, gas and other liquid hydrocarbons named Repetro-Sped, which
will expire in December 2040.
This regime provides for the continuation of total tax relief over goods imported with
temporary permanence in Brazil, as previously established 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. This benefit allowed for the migration of all the goods
acquired in the former Repetro to the Repetro-Sped.
In 2018, we started to transfer the ownership of oil and gas assets under this regime
from our foreign subsidiaries to our parent company and the joint ventures (consortia)
in Brazil. The transfer was completed 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.
Following the creation of Repetro-Sped and Repetro-Industrialização, some Brazilian
states, pursuant to a decision by the Brazilian National Council of Finance Policies
(CONFAZ), agreed to grant tax incentives relating to the value added tax (ICMS) over
transactions under these regimes to the extent each state enacts its specific regulation
providing for the tax relief on the oil and gas industry.
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Taxation Relating to the ADSs 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.
This summary is based upon the tax laws of Brazil and the United States as in effect on
the date of this annual report, which are subject to change (possibly with retroactive
effect). This summary is also based upon the representations of the 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.
This description is not a comprehensive description of the tax considerations that may
be relevant to any particular investor, including tax considerations that arise from rules
that are generally applicable to all taxpayers or to certain classes of investors or rules
that investors are generally assumed to know. Prospective purchasers of common or
preferred shares or ADSs should consult their own tax advisors as to the tax
consequences of the acquisition, ownership and disposition of common or preferred
shares or ADSs.
There is no income tax treaty between the United States and Brazil. 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 affect the U.S. holders of common or preferred shares or ADSs.
Brazilian Tax Considerations
General
The following discussion summarizes the material Brazilian tax consequences of the
acquisition, ownership and disposition of preferred or common shares or ADSs, as the
case may be, by a holder that is not deemed to be domiciled 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 funds and other collective
investment entities, domiciled or
headquartered abroad.
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Pursuant to this rule, foreign investors must: (i) appoint at least one representative in
Brazil with powers to perform actions relating to their foreign investment (such as
registration and keeping updated records of all transactions with the Central Bank of
Brazil); (ii) complete the appropriate foreign investor registration form; (iii) register as
a foreign investor with the CVM; and (iv) register the foreign investment with the
Central Bank of Brazil.
On October 1, 2020, CMN Resolution No. 4,852 amended Resolution No. 4,373,
allowing CVM to release non-resident individual investors from the obligation to obtain
registration with CVM.
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, securities trading is
restricted to transactions carried out in 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 180 days. However, when the
beneficiary is a non-Brazilian holder, under CMN Resolution No. 4,373 rules, the general
applicable withholding income tax rate over interest is 15% except in case the
beneficiary is resident or domiciled in a country or other jurisdiction that does not
impose income tax or imposes it at a maximum income tax rate lower than 17% (a Low
or Nil Tax Jurisdiction) or, based on the position of the Brazilian tax authorities, a
country or other jurisdiction where the local legislation does not allow access to
information related to the shareholding composition of legal entities, to their
ownership or to the identity of the effective beneficiary of the income attributed to
shareholders (the “Non-Transparency Rule”), when the applicable withholding income
tax rate will be 25%. See “Tax – Taxation of Dividends – Clarifications on Non-Brazilian
Holders Resident or Domiciled in a Low or Nil Tax Jurisdiction” in this annual report.
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Taxation on Interest on Capital
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 – Taxation of Dividends –
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
For purposes of Brazilian taxation on capital gains, two types of non-Brazilian holders
have to be considered: (i) non-Brazilian holders of ADSs, preferred shares or common
shares that are not resident or domiciled in a Low or Nil Tax Jurisdiction, and that, in
the case of preferred or common shares, have registered before the Central Bank of
Brazil and the CVM in accordance with CMN Resolution 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
– Taxation of Dividends – 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.
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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.
The withdrawal of ADSs in exchange for preferred or common shares should not be
considered as giving rise to a capital gain subject to Brazilian income tax, provided that
on receipt of the underlying preferred or common shares, the non-Brazilian holder
complies with the registration procedure with the Central Bank of Brazil as described
below in “Registered Capital.”
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 also apply and can be offset against the eventual income tax due on the
capital gain.
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In the case of a redemption of preferred or common shares or ADSs or a capital
reduction made by us, the positive difference between the amount received by the
non-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 – Taxation of Dividends – Clarifications
on Non-Brazilian Holders Resident or Domiciled in a Low or Nil Tax Jurisdiction” in this
annual report.
Any exercise of preemptive rights relating to the preferred or common shares will not
be subject to Brazilian taxation. Any gain on the sale or assignment of preemptive rights
will be subject to Brazilian income taxation according to the same 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
Executive Order (Medida Provisoria) 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).
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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 income tax or which imposes such tax at a maximum rate lower than
17%. Under certain circumstances, the NonTransparency Rule is also taken into account
for determining whether a country or other jurisdiction is a Low or Nil Tax 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 – 2020), issued by the Brazilian Revenue Service.
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%. However, foreign
exchange transactions related to inflows 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.
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Taxation on Bonds and Securities Transactions (IOF/Bonds)
Brazilian law imposes IOF/Bonds on transactions involving equity securities, bonds and
other securities, including 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 federal government may increase such rate at any time up
to 1.5% of the transaction amount per day, but the tax cannot 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 applicable to the ownership,
transfer or disposition of preferred or common shares or ADSs by a non-Brazilian
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.
Registered Capital
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:
_ the average price of a preferred or common share on the Brazilian stock exchange on
which the highest volume of such shares were traded on the day of withdrawal; or
_ 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 traded in the 15 trading sessions immediately preceding the date of such
withdrawal.
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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).
A non-Brazilian holder of preferred or common shares may be subject to delays in
effecting such registration, which in turn may delay remittances abroad. Such a delay
may adversely affect the amount, in U.S. dollars, received by the non-Brazilian holder.
See “Risks – Risk Factors – Equity and Debt Securities Risks” in this annual report.
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 purport to be a comprehensive description
of all of the tax consequences that may be relevant to a decision to hold or dispose of
common or preferred shares or ADSs. This summary applies only to purchasers of
common or preferred 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 whose functional currency is not the U.S. dollar, holders of 10% or more of our
shares, measured by voting power or value (taking into account shares held directly or
through depositary arrangements), tax-exempt organizations, partnerships or partners
therein, financial institutions, life insurance companies, holders liable for the
alternative minimum tax, securities traders who elect to account for their investment
in common or preferred shares or ADSs on a mark-to-market basis, persons that enter
into a constructive sale transaction with respect to common or preferred shares or
ADSs, persons holding common or preferred shares or ADSs in a hedging transaction or
as part of a straddle or conversion transaction, or nonresident alien individuals present
in the United States for more than 182 days in a taxable year. Moreover, this summary
addresses only U.S. federal income tax consequences and does not address state, local
or foreign taxes or the U.S. federal estate and gift taxes or the Medicare tax on net
investment income.
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING THE OVERALL
TAX CONSEQUENCES
INCLUDING THE
CONSEQUENCES UNDER LAWS OTHER THAN U.S. FEDERAL INCOME TAX LAWS
ADDRESSED HEREIN, OF AN INVESTMENT IN COMMON OR PREFERRED SHARES OR
ADSs.
ITS PARTICULAR CIRCUMSTANCES,
IN
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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:
_ an individual who is a citizen or resident of the United States;
_ a corporation organized under the laws of the United States, any state thereof, or the
District of Columbia; or
_ otherwise subject to U.S. federal income taxation on a net basis with respect to the
share or the ADS.
Taxation of Distributions
A U.S. Holder will recognize ordinary dividend income for U.S. federal income tax
purposes in an amount equal to the amount of any cash and the value of any property
we distribute as a dividend to the extent that such distribution is paid out of our current
or accumulated earnings and profits, as determined for U.S. federal income tax
purposes, when such distribution is received by the depositary, in the case of ADSs, or
by the U.S. Holder in the case of a holder of common or preferred shares. The amount
of any distribution will include distributions characterized as interest on capital and the
amount of Brazilian tax withheld on the amount distributed, and the amount of a
distribution paid in reais will be measured by reference to the exchange rate for
converting reais into U.S. dollars in effect on the date the distribution is received by the
depositary, in the case of ADSs, or by a U.S. Holder in the case of a holder of common
or preferred shares. If the depositary, in the case of ADSs, or U.S. Holder in the case of
a holder of common or preferred shares, does not convert such reais into U.S. dollars
on the date it receives them, it is possible that the U.S. Holder will recognize foreign
currency loss or gain, which would be U.S. source ordinary loss or gain, when the reais
are converted into U.S. dollars. Dividends paid by us will not be eligible for the dividends
received deduction allowed to corporations 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) we were 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 tax purposes with respect to the 2020 or
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2019 taxable year. 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 2021 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.
Distributions out of earnings and profits with respect to the shares or ADSs generally
will be treated as dividend income from sources outside of the United States and
generally will be treated as “passive category income” for U.S. foreign tax credit
purposes. Subject to certain limitations, Brazilian income tax withheld in connection
with any distribution with respect to the shares or ADSs may be claimed as a credit
against the U.S. federal income tax liability of a U.S. Holder, or, at the U.S. Holder’s
election, such Brazilian withholding tax may be taken as a deduction against taxable
income (provided that the U.S. Holder elects to deduct, rather 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.
Taxation of Capital Gains
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 result in foreign source income to a U.S. Holder. As a result, a U.S. Holder
may not be able to use the foreign tax credit associated with any Brazilian income taxes
imposed on such gains, unless such holder can use the credit against U.S. tax due on
other foreign source income. U.S. Holders should consult their own tax advisors
regarding the availability of the U.S. foreign tax credit.
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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 withholding has occurred and otherwise complies with 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.
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 our
ADSs, or common or preferred shares.
A non-U.S. Holder generally will be exempt from these information reporting
requirements and backup withholding tax, but may be required to comply with certain
certification and identification procedures in order to establish its 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 by a non-U.S. issuer (which would
include our common and preferred shares and ADSs) 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. In addition, the statute of limitations for assessment of
tax would be suspended, in whole or part. 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.
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Taxation Relating to PGF’s Notes
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 United States.
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
retroactive effect). This description is not a comprehensive description of all tax
considerations that may be relevant to any particular investor, including tax
considerations that arise from rules generally applicable to all taxpayers 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 affect the U.S. Holders of notes.
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 all categories of
investors, some of which may be subject to special rules. In view of its general nature,
this general summary should therefore be treated with appropriate caution.
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, and
all of which are subject to change or to different 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:
_ an owner of one or more notes who, in addition to the title to such notes, has an
economic interest in such notes;
_ 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
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_ 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 originator of a trust, foundation or similar entity that holds the notes.
The discussion below is included for general information purposes only and is not Dutch
tax advice or a complete 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
Holders of Notes Not Related to PGF
All payments of interest and principal made by PGF under the notes to holders of notes
other than holders that are "related entities" in respect of PGF (within the meaning of
the Dutch Withholding Tax Act 2021; Wet bronbelasting 2021) (see below) can be made
free of withholding or deduction for any taxes of any nature imposed, levied, withheld
or 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.
Holders of Notes Related to PGF
Payments of interest and principal made by PGF under the notes to holders of notes
that are related entities in respect of PGF (within the meaning of the Dutch Withholding
Tax Act 2021, as defined below) may become subject to Dutch withholding tax at a rate
of 25% (rate for 2021), if such related entity:
_ is considered to be resident (gevestigd) in a jurisdiction that is listed in the yearly
updated Dutch Regulation on low-taxing states and non-cooperative jurisdictions for
tax purposes (Regeling laagbelastende staten en niet-coöperatieve rechtsgebieden voor
belastingdoeleinden) (a "Listed Jurisdiction"); or
_ has a permanent establishment located in a Listed Jurisdiction to which the interest
payment is attributable; or
_ is entitled to the interest payment for the main purpose or one of the main purposes
to avoid taxation for another person; or
_ is a hybrid entity (a hybrid mismatch); or
_ is not resident in any jurisdiction;
_ all within the meaning of the Dutch Withholding Tax Act 2021.
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For the fiscal year 2021, the following 23 jurisdictions are Listed Jurisdictions: American
Samoa, Anguilla, Bahamas, Bahrain, Barbados, Bermuda, the British Virgin Islands, the
Cayman Islands, Fiji, Guam, Guernsey, Isle of Man, Jersey, Palau, Panama, Samoa,
Seychelles, Trinidad and Tobago, Turkmenistan, Turks and Caicos Islands, Vanuatu, the
United Arab Emirates and the U.S. Virgin Islands.
For purposes of the Dutch Withholding Tax Act 2021, an entity is considered a related
entity in respect of PGF if:
_ such entity has a Qualifying Interest (as defined below) in PGF; or
_ PGF has a Qualifying Interest in such entity; or
_ a third party has a Qualifying Interest in both PGF and such entity.
The term "Qualifying Interest" means a directly or indirectly held interest – either
individually or jointly as part of a collaborating group (samenwerkende groep) – that
confers a definite influence over the entity's decisions and allows the holder of such
interest to determine its activities (within the meaning of case law of the European
Court of Justice on the right of freedom of establishment (vrijheid van vestiging)).
Taxes on Income and Capital Gains
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 foster
children), have a substantial interest (aanmerkelijk belang) or deemed substantial
interest (fictief 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 non-
recognition basis;
_ pension funds,
institutions (fiscale beleggingsinstellingen), exempt
investment institutions (vrijgestelde beleggingsinstellingen) (as defined in the Dutch
Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969)) and other
entities that are, in whole or in part, not subject to or exempt from Dutch corporate
income tax; and
investment
_ holders of notes who are individuals and for whom the notes or any benefit derived
from the notes are 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).
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A holder of notes will not be subject to any Dutch taxes on 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:
_ such holder is neither a resident nor deemed to be a resident of the Netherlands;
_ such holder does not have, and is not deemed to have, an enterprise or an interest in
an enterprise that, in whole or in part, is either effectively managed in the Netherlands
or carried on through a (deemed) permanent establishment (vaste inrichting) or a
permanent representative (vaste vertegenwoordiger) in the Netherlands and to which
enterprise or part of an enterprise the notes are attributable;
_ if such holder is an individual, such income or capital gains do not form “benefits from
miscellaneous activities in the Netherlands” (resultaat uit overige werkzaamheden in
Nederland), including without limitation activities in the Netherlands with respect to
the notes that exceed “normal asset management” (normaal, actief vermogensbeheer);
_ 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 way of securities, and to which enterprise
the notes are attributable; and
_ if such holder is an individual, the holder is not entitled to a share in the profits of an
enterprise that is effectively managed in the Netherlands, other than by way of
securities, and to which enterprise the notes are attributable.
A holder of notes will not be treated as a resident of the Netherlands by reason only of
the execution, delivery or enforcement of its rights and obligations connected to the
notes, the issue of the notes or the performance by PGF of its obligations under the
notes.
Gift and Inheritance Taxes
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 Netherlands for the relevant
provisions, unless:
_ 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 the Netherlands at the date of
(i) the fulfillment of the condition or (ii) his/her death and the condition of the gift is
fulfilled after the date of his/her death; or
_ in case of a gift of notes by an individual who at the date of the gift or, in case of a gift
under a suspensive condition, at the date of the fulfillment of the condition was neither
resident nor deemed to be resident in the Netherlands, such individual dies within 180
days after the date of the gift or fulfillment of the condition, while being resident or
deemed to be resident in the Netherlands.
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For purposes of Dutch gift and inheritance taxes, amongst others, a person who holds
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 ten years preceding the
date of the gift or his/her death. Additionally, for purposes of Dutch gift tax, amongst
others, 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.
Value added tax (VAT)
No Dutch VAT will be payable by a holder of the notes in respect of any payment in
consideration for the issue of the notes or with respect to any payment by PGF of
principal, interest or premium (if any) on the notes.
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 of the notes by reason only of the purchase, ownership and disposal of the
notes.
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 ADVISERS AS TO THE CONSEQUENCES
OF PURCHASING THE NOTES,
LIMITATION, THE
CONSEQUENCES OF THE RECEIPT OF INTEREST AND THE SALE, REDEMPTION OR
REPAYMENT OF THE NOTES OR COUPONS.
INCLUDING, WITHOUT
Generally, an individual, entity, trust or organization domiciled for tax purposes outside
Brazil, or a “Nonresident,” is taxed in Brazil only when income is derived from Brazilian
sources or when the transaction giving rise to such earnings involves assets in Brazil.
Therefore, any gains or interest (including original issue discount), fees, commissions,
expenses and any other income paid by PGF in respect of the notes issued by them in
favor of non-resident holders are not subject to Brazilian taxes.
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Interest, fees, commissions, expenses and any other income payable by us as guarantor
resident in Brazil to a non-resident are generally subject to income tax withheld at
source. The rate of withholding income tax in respect of interest payments is generally
(in case of fixed yields – See “Taxation of Dividends”) 15%, unless (i) the holder of the
notes is resident or domiciled in a “tax haven jurisdiction” (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 the beneficiary.
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 and penalties thereon), a non-resident holder will receive an amount
equal to the amount that such non-resident holder would have received as if no such
Brazilian taxes (plus interest and penalties thereon) were withheld. The Brazilian
obligor will, subject to certain exceptions, pay additional amounts in respect of such
withholding or deduction so that the non-resident holder receives the net amount due.
Gains on the sale or other disposition of the notes made outside of Brazil by a non-
resident, other than a branch or a subsidiary of Brazilian resident, to another non-
resident are not subject to Brazilian income tax.
In addition, payments made from Brazil are subject to the tax on foreign exchange
transactions (IOF/Câmbio), which is levied on the conversion of Brazilian currency into
foreign currency and on the conversion of foreign currency into Brazilian currency at a
general rate of 0.38% . Other IOF/ Câmbio rates may apply to specific transactions. In
any case, the Brazilian federal government may increase, at any time, such rate up to
25% but only with respect to future transactions.
Generally, there are no inheritance, gift, succession, stamp, or other similar taxes in
Brazil with respect to the ownership, transfer, assignment or any other disposition of
the notes by a non-resident, except for gift and inheritance taxes imposed 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.
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U.S. Federal Income Taxation
The following summary sets forth material United States federal income tax
considerations that may be relevant to a holder of a note that is, for U.S. federal income
purposes, a citizen or resident of the United States or a domestic corporation or that
otherwise is subject to U.S. federal 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. Treasury regulations promulgated thereunder, published
rulings by the IRS, and court decisions, all as in effect as of the date hereof, all of which
are subject to change or differing interpretations, possibly with retroactive effect. This
summary does not purport to discuss all aspects of the U.S. federal income taxation
which may be relevant to special classes of investors, such as financial institutions,
insurance companies, dealers or traders in securities or currencies, securities traders
who elect to account for their investment in notes on a mark-to-market basis, regulated
investment companies, tax-exempt organizations, partnerships or partners therein,
holders that are subject to the alternative minimum tax, certain short-term holders of
notes, persons that hedge their exposure in the notes or hold notes as part of a position
in a “straddle” or as part of a hedging transaction or “conversion transaction” for U.S.
federal tax purposes, persons that enter into a “constructive sale” transaction with
respect to the notes, nonresident alien individuals present in the United States for more
than 182 days in a taxable year, or U.S. Holders whose functional currency is not the
U.S. dollar. U.S. Holders should be aware that the U.S. federal income tax consequences
of holding the notes may be materially different for investors described in the prior
sentence.
In addition, this summary addresses only U.S. federal income tax consequences and
does not discuss any foreign, state or local tax considerations or the Medicare tax on
net investment income or under special timing rules prescribed under section 451(b) of
the U.S. Internal Revenue Code. This summary only applies to original purchasers of
notes who have purchased notes at the original issue price and hold the notes as
“capital assets” (generally, property held for investment). U.S. Holders of 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.
EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING THE
OVERALL TAX CONSEQUENCES IN ITS PARTICULAR CIRCUMSTANCES, INCLUDING THE
CONSEQUENCES UNDER LAWS OTHER THAN U.S. FEDERAL INCOME TAX LAWS
ADDRESSED HEREIN, OF AN INVESTMENT IN THE NOTES.
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Payments of Interest
Payment of “qualified stated interest,” as defined below, on a note (including additional
amounts, if any) generally will be taxable to a U.S. Holder as ordinary interest income
when such interest is accrued or is actually or constructively received, in accordance
with the U.S. Holder’s applicable 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 uses the cash or the accrual
method of tax accounting, will be required to include in gross income as ordinary
interest income the sum of the “daily portions” of OID on the note, if any, for all days
during the taxable year that the U.S. Holder owns the note. The daily portions of OID
on a note are determined by allocating to each day in any accrual period a ratable
portion of the OID allocable to that accrual period. In general, in the case of an initial
holder, the amount of OID on a note allocable to each accrual period is determined by
(i) multiplying the “adjusted issue price,” as defined below, of the note at the beginning
of the accrual period by the yield to maturity of the note, and (ii) subtracting from that
product the amount of qualified stated interest allocable to that accrual period. U.S.
Holders should be aware that they generally must include OID in gross income as
ordinary interest income for U.S. federal income tax purposes as it accrues, in advance
of the receipt of cash attributable to that income. The “adjusted issue price” of a note
at the beginning of any accrual period will generally be the sum of its issue price
(generally including accrued interest, if any) and the amount of OID allocable to all prior
accrual periods, 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 stated interest” generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the issuer)
at least annually during the entire term of a note at a single fixed rate of interest, or
subject to certain conditions, based on one or more interest indices.
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.
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Sale or Disposition of Notes
A U.S. Holder generally will recognize capital gain or loss upon the sale, exchange,
retirement or other disposition of a note in an amount equal to the difference between
the amount realized upon such sale, exchange, retirement or other disposition (other
than amounts attributable to accrued qualified stated interest, which will be taxed as
such) and such U.S. Holder’s adjusted tax basis in the note. A U.S. Holder’s adjusted tax
basis in the note generally will equal the U.S. Holder’s cost for the note increased by
any amounts included in gross income by such U.S. Holder as OID, if any, and reduced
by any payments other than payments of qualified stated interest on that note. Gain or
loss realized by a U.S. Holder on the sale, exchange, retirement or other disposition of
a note generally will be U.S. source gain or loss for U.S. federal income tax purposes
unless it is attributable to an office or other fixed place of business outside the United
States and certain other conditions are met. The gain 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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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. In addition,
the statute of limitations for assessment of tax would be suspended, in whole or part.
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.
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Additional information
ADDITIONAL INFORMATION
353
List of Exhibits
—
No.
1.1
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
Description
Amended Bylaws of Petróleo Brasileiro S.A.-Petrobras, dated as of November 30, 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)).
Description of Securities.
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)).
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)).
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 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)).
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
354
2.11
2.12
2.13
2.14
2.15
2.16
2.17
2.18
2.19
2.20
2.21
2.22
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)).
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)).
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)).
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
355
2.23
2.24
2.25
2.26
2.27
2.28
2.30
2.31
2.32
2.33
2.34
2.35
2.36
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)).
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 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 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)).
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)).
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)).
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)).
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
356
2.37
2.38
2.39
2.40
2.41
2.42
2.43
2.44
2.45
2.46
2.47
2.48
2.49
2.50
2.51
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-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 8.750% 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 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-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)).
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)).
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
357
2.52
2.53
2.54
2.55
2.56
2.57
2.58
2.59
2.60
2.61
2.62
2.63
2.65
2.66
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 the Amended 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)).
Second Supplemental Indenture for the 5.600% Global Notes due 2031, dated as of June 3, 2020, 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 June 3, 2020 (File No. 001-15106).
Guaranty for the 5.600% Global Notes due 2031, dated as of June 3, 2020, 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 3, 2020 (File No. 001-15106).
Third Supplemental Indenture for the 6.750% Global Notes due 2050, dated as of June 3, 2020, 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 June 3, 2020 (File No. 001-15106).
Guaranty for the 6.750% Global Notes due 2050, dated as of June 3, 2020, 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 June 3, 2020 (File No. 001-15106).
Amended and Restated Second Supplemental Indenture for the 5.600% Global Notes due 2031, dated as of
October 21, 2020, 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
October 21, 2020 (File No. 001-15106).
Amended and Restated Guaranty for the 5.600% Global Notes due 2031, dated as of October 21, 2020,
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 October 21, 2020 (File No.
001-15106).
Indenture, dated as of September 18, 2019 between Petrobras Global Finance B.V. and The Bank of New York,
as Trustee (incorporated by reference to Exhibit 4.75 to the Registration Statement of Petrobras and Petrobras
Global Finance B.V. on Form F-4, filed with the Securities and Exchange Commission on July 6, 2020 (as
amended on July 28, 2020) (File Nos. 333-239714 and 333-239714-01).
Guaranty for the 5.093% Global Notes due 2030, dated as of September 18, 2019, between Petrobras and The
Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.73 to Petrobras’ Registration
Statement on Form F-4, filed with the SEC on July 6, 2020 (as amended on July 28, 2020) (File No. 333-239714).
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
358
4.1
4.2
8.1
12.1
13.1
15.1
15.2
15.3
15.4
99.1
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 Petroliferos
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
eight GSA Additives have been concluded since its celebration on August 16, 1996, so the GSA remains in force.
List of Subsidiaries.
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.
Consent letter of DeGolyer and MacNaughton.
Hydrocarbon Production by Geographic Area.
List of Our Vessels.
Third Party Report 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.
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
359
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 24, 2021.
Petróleo Brasileiro S.A.—PETROBRAS
By: ________________________________________
Name: Roberto da Cunha Castello Branco
Title: Chief Executive Officer
By: ________________________________________
Name: Andrea Marques de Almeida
Title: Chief Financial Officer and Chief Investor Relations
Officer
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
360
Abbreviations
—
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
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 Million barrels per day
mmboe
mmboed
mmcf
mmcf/d
mmm3
mmm3/d
mmt
mmt/y
MW
MWavg
MWh
ppm
R$
t
Tcf
US$
/d
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) inwhich 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
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
361
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
1 t of crude oil
=
1,000 kilograms of crude oil
=
=
=
=
=
0.004047 km2
Approximately 0.13 t of oil
6,000 cf of natural gas
0.0059 boe
Approximately 7.5 barrels of crude oil
(assuming an atmospheric pressure
index gravity of 37°API)
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
362
Pages
6
9
18
20
30
20
6, 20, 143;
162, 313, 322
20
62, 162, 313
ADDITIONAL INFORMATION
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
Overview
PART I
Item 1.
Item 2.
Item 3.
Identity of Directors, Senior Management
and Advisers
Offer Statistics and Expected Timetable
Not applicable
Not applicable
Key Information
A. Selected Financial Data
B. Capitalization and indebtedness
Not applicable
Not applicable
C. Reasons for the offer and use of proceeds Not applicable
D. Risk factors
Risks (risk Factors)
Item 4.
Information on the Company
A. History and development of the company About Us (Overview)
B. Business overview
C. Organizational structure
D. Property, plants and equipment
Item 4A.
Unresolved Staff Comments
Item 5.
Operating and Financial Review and
Prospects
A. Operating results
B. Liquidity and capital resources
C. Research and development, patents and
licenses, etc.
D. Trend Information
E. Off-balance sheet arrangements
F. Tabular disclosure of contractual
obligations
G. Safe harbor
Disclaimer (Documents on Display); About Us
(Overview); Our Business (Portfolio
Management); Strategic Plan; Legal and Tax
(Regulation); Legal and Tax (Material
Contracts)
About Us (Overview); Exhibit 8.1 – List of
Subsidiaries
Our Business; Strategic Plan; Legal and Tax
(Regulation)
None
Operating and Financial Review and Prospects
Operating and Financial Review and Prospects
(Liquidity and Capital Resources)
Strategic Plan (Digital Transformation)
Our Business; Risks; Operating and Financial
Review and Prospects
Operating and Financial Review and Prospects
(Other Information)
Operating and Financial Review and Prospects
(Other Information)
Disclaimer (Forward-Looking Statements)
208
227
173
62, 29, 208
242
242
6
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
363
Item 6.
Directors, Senior Management and
Employees
A. Directors and senior management
B. Compensation
C. Board practices
D. Employees
E. Share Ownership
Item 7.
Major Shareholders and Related Party
Transactions
A. Major shareholders
B. Related party transactions
Recent Developments; Management and
Employees (Management)
Management and Employees
Management and Employees (Management)
Management and Employees (Employees)
Shareholder Information (Listing; Shares and
Shareholder) and Management and Employees
(Management)
Shareholder Information (Shares and
Shareholders)
Management and Employees (Management)
C. Interests of experts and counsel
Not applicable
26, 249
249, Note 18
to Financial
Statements
245
268
291, 244
293
244, Note 37
to Financial
Statements
F-1; 335, 309
Item 8.
Financial Information
A. Consolidated Statements and Other
Financial Information
B. Significant Changes
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
Financial Statements; Legal and Tax (Legal
Proceedings); Shareholder Information
(Dividends)
Not applicable
Not applicable
Not applicable
Shareholder Information (Listing)
291
Not applicable
Not applicable
Not applicable
Item 10.
Additional Information
A. Share capital
Not applicable
B. Memorandum and articles of association
C. Material contracts
D. Exchange controls
E. Taxation
Shareholder Information (Shareholders
Rights); Environment, Social and Governance
(Corporate Governance)
Legal and Tax (Material Contracts)
Shareholder Information (Additional
Information for non-Brazilian Shareholders)
Legal and Tax (Tax)
F. Dividends and paying agents
Not applicable
G. Statement by experts
H. Documents on display
I. Subsidiary Information
Our Business (Exploration and Production)
Disclaimer
Not applicable
398, 204,
Exhibit 1.1
322
309
339
63
6
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
ADDITIONAL INFORMATION
364
309
280
245
279
245
245
309
Risks (Disclosures About Market Risk)
56
Item 11.
Item 12.
Qualitative and Quantitative Disclosures
about Market Risk
Description of Securities other than Equity
Securities
A. Debt Securities
B. Warrants and Rights
C. Other Securities
D. American Depositary Shares
PART II
Item 13.
Item 14.
Item 15.
Defaults, Dividend Arrearages and
Delinquencies
Material Modifications to the Rights of
Security Holders and Use of Proceeds
Controls and Procedures
Not applicable
Not applicable
Not applicable
Shareholder Information (Additional
information for non-Brazilian shareholders)
None
None
Compliance and Internal Control (Compliance)
Item 16A.
Audit Committee Financial Expert
Management and Employees (Management)
Item 16B.
Code of Ethical Conduct
Compliance and Internal Control
Item 16C.
Principal Accountant Fees and Services
Management and Employees (Management)
Item 16D.
Item 16E.
Item 16F.
Exemptions from the Listing Standards for
Audit Committees
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
Change in Registrant’s Certifying Accountant Not applicable
Management and Employees (Management )
Shareholder Information (Additional
Information for non-Brazilian Shareholders)
Item 16G.
Corporate Governance
Management and Employeess (Management)
245
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
F-1
364
370
371
372
373
PETROBRAS __________________________________________________________________________ ANNUAL REPORT AND FORM 20-F | 2020
bn
Financial Statements 2020
December 31, 2020, 2019 and 2018
with report of independent registered
public accounting firm
—
INDEX
PETROBRAS
Report of Independent Registered Public Accounting Firm……………………………..…………………............................................ F-3
Management’s Report on Internal Control over Financial Reporting ........................................................................................ F-8
Consolidated Statements of Financial Position ........................................................................................................................... F-9
Consolidated Statements of Income ......................................................................................................................................... F-10
Consolidated Statements of Comprehensive Income ............................................................................................................... F-11
Consolidated Statements of Cash Flows ................................................................................................................................... F-12
Consolidated Statements of Changes in Shareholders’ Equity ................................................................................................. F-13
The Company and its operations ...................................................................................................................................... F-14
1.
Basis of preparation .......................................................................................................................................................... F-15
2.
Significant accounting policies .......................................................................................................................................... F-16
3.
4.
Critical accounting policies: key estimates and judgments .............................................................................................. F-16
5. New standards and interpretations .................................................................................................................................. F-22
Context, resilience measures and impacts of the COVID-19 pandemic ........................................................................... F-22
6.
Capital Management ........................................................................................................................................................ F-25
7.
Cash and cash equivalents and Marketable securities ..................................................................................................... F-26
8.
Sales revenues .................................................................................................................................................................. F-27
9.
Costs and expenses by nature ...................................................................................................................................... F-29
10.
Other income and expenses......................................................................................................................................... F-30
11.
Net finance income (expense) ..................................................................................................................................... F-30
12.
Net income by operating segment .............................................................................................................................. F-31
13.
Trade and other receivables ........................................................................................................................................ F-35
14.
Inventories ................................................................................................................................................................... F-37
15.
Trade payables ............................................................................................................................................................. F-38
16.
Taxes ............................................................................................................................................................................ F-38
17.
Employee benefits ........................................................................................................................................................ F-44
18.
Employee benefits (post-employment) ....................................................................................................................... F-46
19.
Provisions for legal proceedings .................................................................................................................................. F-57
20.
Provision for decommissioning costs ........................................................................................................................... F-64
21.
Other Assets and Liabilities .......................................................................................................................................... F-66
22.
The “Lava Jato (Car Wash) Operation” and its effects on the Company ...................................................................... F-67
23.
Commitment to purchase natural gas ......................................................................................................................... F-68
24.
Property, plant and equipment .................................................................................................................................... F-69
25.
Intangible assets ........................................................................................................................................................... F-72
26.
Impairment................................................................................................................................................................... F-74
27.
Exploration and evaluation of oil and gas reserves ...................................................................................................... F-84
28.
Collateral for crude oil exploration concession agreements ....................................................................................... F-85
29.
Partnerships in E&P activities ....................................................................................................................................... F-86
30.
Investments .................................................................................................................................................................. F-88
31.
Disposal of assets and other changes in organizational structure ............................................................................... F-92
32.
Assets by operating segment ....................................................................................................................................... F-98
33.
Finance debt ................................................................................................................................................................. F-99
34.
Lease liabilities ........................................................................................................................................................... F-103
35.
Equity ......................................................................................................................................................................... F-105
36.
Fair value of financial assets and liabilities ................................................................................................................ F-108
37.
Risk management ....................................................................................................................................................... F-109
38.
Related-party transactions ......................................................................................................................................... F-117
39.
Supplemental information on statement of cash flows ............................................................................................. F-121
40.
Subsequent events ..................................................................................................................................................... F-121
41.
42.
Information related to guaranteed securities issued by subsidiaries ........................................................................ F-124
Supplementary information on Oil and Gas Exploration and Production (unaudited) ............................................ F-1248
F-2
KPMG Auditores Independentes
Rua do Passeio, 38, setor 2, 17º andar - Centro/RJ
Caixa Postal 2888 - 20021-290 - Rio de Janeiro/RJ - Brasil
Telefone +55 (21) 2207-9400
kpmg.com.br
To the Shareholders and Board of Directors
Petróleo Brasileiro S.A. - Petrobras
Rio de Janeiro
Report of Independent Registered Public Accounting Firm
Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Petróleo Brasileiro S.A. –
Petrobras and subsidiaries (“the Company”) as of December 31, 2020 and 2019, 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, 2020, and the related notes (collectively, the “consolidated financial statements”).
We also have audited the Company’s internal control over financial reporting as of December 31, 2020, 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 consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2020, in conformity with International
Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2.3 to the consolidated financial statements, the Company changed its method of accounting
for lease arrangements as of January 1, 2019 due to the adoption of IFRS 16 “Leases”.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, 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 consolidated financial statements and an opinion on the
Company’s internal control over financial reporting 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, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements 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
KPMG Auditores Independentes, uma sociedade simples brasileira e firma-
membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG
International Cooperative (“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
F-3
the consolidated financial statements. 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
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
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.
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 measurement of the defined benefit obligations for pension and health care plans
As discussed in notes 4.4 and 19 of the consolidated financial statements, the Company sponsors defined benefit
pension and health care plans that provide supplementary retirement benefits to its employees. As of December
31, 2020, the defined benefit obligations for these pension and health care plans were USD 16,069 million. The
measurement of the Company’s defined benefit obligations with respect to these plans requires the determination
of certain actuarial assumptions. These assumptions include the discount rate and projected medical costs. The
Company hires external actuarial professionals to assist in the process of determining the actuarial assumptions
and the valuation of the defined benefit obligations for its pension and health care plans.
We identified the assessment of the measurement of the defined benefit obligations for the pension and health care
plans as a critical audit matter. Subjective auditor judgment was required because minor changes to the discount
rates and projected medical costs used to determine the defined benefit obligations can cause significant changes
to the measurement of the defined benefit obligations for the pension and health care plans.
The following are the primary procedures we performed to address this critical audit matter:
• we evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s
process for determining the defined benefit obligations for pension and health care plans. This included
controls related to the determination, review and approval of the discount rates and projected medical costs;
• we evaluated the scope of the work, competency, and objectivity of the external actuarial professionals hired
by the Company to assist in the process of determining the actuarial assumptions and the measurement of the
defined benefit obligations for the pension and health care plans. This included assessing the nature and
KPMG Auditores Independentes, uma sociedade simples brasileira e firma-
membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG
International Cooperative (“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
F-4
scope of the work performed by these external actuarial professionals 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 27 to the consolidated financial statements, for the purposes of
impairment testing, the Company identifies its cash generating units (“CGUs”), estimates the recoverable amount
of these CGUs and compares the recoverable amount with the carrying amount of these CGUs. The carrying
amount of the exploration and production CGUs as of December 31, 2020 was USD 42,421 million. For the year
ended December 31, 2020, the amount of impairment loss recognized in relation to the exploration and production
CGUs was USD 7,316 million.
We identified the evaluation of the impairment testing of exploration and production CGUs as a critical audit matter.
A high degree of complexity and subjectivity of auditor judgment was 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 expected future cash flows used to determine the recoverable amount depend on certain
assumptions about the future 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.
The following are the primary procedures we performed to address this critical audit matter:
• we evaluated the design and tested the operating effectiveness of 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 it with estimated
volumes certified by an external reservoir specialist hired by the Company and, for a selection of CGUs, with
historical production;
• we evaluated the scope of the work, competency, and objectivity of the external reservoir specialists hired by
the Company that certified the estimated 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, for a selection of CGUs, the Company’s projected future capital and operating expenditures by
comparing these projections with the latest approved business and management plan and long-term budgets;
• we evaluated the Company’s ability to accurately project cash flows by comparing, for a selection of CGUs,
the prior years’ estimated cash flows for the year ended December 31, 2020 with actual cash flows in this
year; and
•
in addition, we involved a valuation professional with specialized skill and knowledge, who assisted in
evaluating certain assumptions 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 20 to the consolidated financial statements, 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
KPMG Auditores Independentes, uma sociedade simples brasileira e firma-
membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG
International Cooperative (“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
F-5
obligation and when the outflow can be reasonably estimated. The Company discloses a contingent liability
whenever the likelihood of an outflow to settle a present obligation is considered possible, or when the likelihood is
considered probable, but it is not possible to reasonably estimate the amount of the outflow.
We identified the evaluation of the provisions and / or disclosures for certain specific labor, civil and tax lawsuits as
a critical audit matter. Challenging auditor judgment and effort was required due to the subjective nature of the
estimates and assumptions. Specifically, judgments about the likelihood of an outflow and estimates of the
amounts of outflows.
The following are the primary procedures we performed to address this critical audit matter:
• we evaluated the design and tested the operating effectiveness of 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 an outflow to settle a present obligation and the estimate of amounts of outflows, as well as over
the financial statement disclosures;
• we evaluated the scope of work, competency, and objectivity of the internal and external legal counsel that
determined the likelihood of an outflow to settle a present obligation and the estimate of the amounts of
outflows. This included assessing the nature and scope of the work performed by the internal and external
legal counsel 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 amounts of outflows. 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 related to labor, civil and tax
lawsuits by comparing the amounts paid upon resolution of legal proceedings during the year to the provision
amounts as of the prior year end.
Evaluation of the estimate of the provision for decommissioning costs
As discussed in notes 4.1(c), 4.6 and 21 to the consolidated financial statements the Company records a provision
for decommissioning costs which reflects its obligations to restore the environment and dismantle and remove oil
and gas production facilities upon abandonment. As of December 31, 2020, the carrying amount of provision for
decommissioning costs was USD18,780 million. The Company’s estimate of the provision for decommissioning
costs includes assumptions in relation to the nature and extent of the environmental restoration and the
dismantlement and removal work 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.
Subjective auditor judgment was necessary 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, the criteria to 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 following are the primary procedures we performed to address this critical audit matter:
• we evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s
process to estimate the provision for decommissioning costs. This included controls related to the
determination, 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 estimated reserve volumes certified by external reservoir
specialists hired by the Company;
• we assessed the estimated costs of decommissioning by comparing certain key assumptions with external
industry reports;
KPMG Auditores Independentes, uma sociedade simples brasileira e firma-
membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG
International Cooperative (“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
F-6
• we evaluated the scope of the work, competency, and objectivity of the internal engineers that estimated the
production curves and life of the oil and gas reserves and the external reservoir specialists hired by the
Company that certified the estimated 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
selection 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
March 24, 2021
KPMG Auditores Independentes, uma sociedade simples brasileira e firma-
membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG
International Cooperative (“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
F-7
Petróleo Brasileiro S.A. – Petrobras
Management Report on Internal Control over Financial Reporting
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.
Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based
on the criteria established in “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.
Roberto Castello Branco
Chief Executive Officer
Andrea Marques de Almeida
Chief Financial Officer
F-8
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
PETROBRAS
December 31, 2020 and December 31, 2019 (Expressed in millions of US Dollars, unless otherwise indicated)
Note
12.31.2020
12.31.2019
Liabilities
Note
12.31.2020
12.31.2019
Assets
Current assets
Cash and cash equivalents
Marketable securities
Trade and other receivables
Inventories
Recoverable income taxes
Other recoverable taxes
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 recoverable taxes
Others
Investments
Property, plant and equipment
Intangible assets
4.1
4.2
14.1
15
17.1
17.1
22
32
14.1
8.2
20.2
12.4
17.1
22
31
25
26
11,711
659
4,731
5,677
418
2,177
1,230
26,603
785
27,388
2,631
44
7,281
6,451
3,158
635
20,200
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
1,503
17,691
Current liabilities
Trade payables
Finance debt
Lease liability
Income taxes payable
Other taxes payable
Dividends payable
Short-term employee benefits
Pension and medical benefits
Others
Liabilities related to assets classified as held for sale
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
3,273
124,201
14,948
162,622
5,499
159,265
19,473
201,928
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
16
34.1
35
17.1
17.1
36.5
18
19
22
32
34.1
35
17.1
17.4
19
20.1
21
22
36.1
31.5
6,859
4,186
5,698
198
2,636
858
1,953
1,549
1,603
25,540
685
26,225
49,702
15,952
357
195
14,520
2,199
18,780
2,204
103,909
130,134
107,101
1,064
65,917
(114,734)
59,348
528
59,876
190,010
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
Total assets
190,010
229,740
Total liabilities and equity
The notes form an integral part of these financial statements.
F-9
CONSOLIDATED STATEMENTS OF INCOME
PETROBRAS
Years ending December 31, 2020, 2019 and 2018 (Expressed in millions of US Dollars, unless otherwise indicated)
Note
9
10.1
10.2
10.3
28
27
11
12
31.3
17.3
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 (loss) before finance expense, results of equity-accounted investments and
income taxes
Finance income
Finance expenses
Foreign exchange gains (losses) and inflation indexation charges
Net finance expense
Results of equity-accounted investments
Net income (loss) before income taxes
Income taxes
Net income from continuing operations for the year
Net income from discontinued operations for the year
Net income for the year
Net income attributable to shareholders of Petrobras
Net income from continuing operations
Net income from discontinued operations
Non-controlling interests
Net income (loss) from continuing operations
Net income from discontinued operations
Basic and diluted earnings per common and preferred share - in U.S. dollars
36.6
The notes form an integral part of these financial statements.
2020
53,683
(29,195)
24,488
(4,884)
(1,090)
(803)
(355)
(952)
(7,339)
998
(14,425)
2019
76,589
(45,732)
30,857
(4,476)
(2,124)
(799)
(576)
(619)
(2,848)
1,199
2018
84,638
(52,184)
32,454
(3,827)
(2,239)
(524)
(641)
(670)
(2,005)
(5,760)
(10,243)
(15,666)
10,063
20,614
16,788
551
(6,004)
(4,177)
(9,630)
(659)
(226)
1,174
948
−
948
1,141
1,141
−
(193)
(193)
−
0.09
1,330
(7,086)
(3,008)
(8,764)
2,381
(5,675)
(3,190)
(6,484)
153
523
12,003
10,827
(4,200)
(4,256)
7,803
2,560
10,363
10,151
7,660
2,491
212
143
69
0.78
6,571
843
7,414
7,173
6,572
601
241
(1)
242
0.55
F-10
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PETROBRAS
Years ending December 31, 2020, 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
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
Share of other comprehensive income in equity-accounted investments
Recognized in equity
Reclassified to the statement of income
2020
948
2019
10,363
2018
7,414
2,415
(127)
2,288
(5,589)
1,491
(4,098)
(3,130)
(119)
(3,249)
(2)
1
(1)
46
(21,460)
4,720
5,690
(11,050)
(5,211)
−
(5,211)
(378)
43
(335)
−
−
−
−
(3,510)
3,136
126
(248)
(1,465)
34
(1,431)
69
−
69
(5)
2
(3)
−
(8,950)
3,315
1,916
(3,719)
(6,409)
−
(6,409)
(135)
−
(135)
Total other comprehensive income (loss)
(14,263)
(5,708)
(13,515)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to non-controlling interests
Comprehensive income (loss) attributable to shareholders of Petrobras
(13,315)
(189)
(13,126)
4,655
186
4,469
(6,101)
65
(6,166)
(*) It includes US$ 804 loss (US$ 132 loss in 2019 and US$ 236 loss in 2018), of cumulative translation adjustments in associates and joint ventures.
The notes form an integral part of these financial statements.
F-11
CONSOLIDATED STATEMENTS OF CASH FLOWS
PETROBRAS
Years ending December 31, 2020, 2019 and 2018 (Expressed in millions of US Dollars, unless otherwise indicated)
Cash flows from operating activities
Net income (loss) 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
PIS and COFINS recovery - exclusion of ICMS (VAT tax) from the basis of calculation
Disposal/write-offs of assets, remeasurement of investment retained with loss of control and
reclassification of CTA
Early termination and cash outflows revision of lease agreements
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
Net cash provided by operating activities - discontinued operations
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
Net cash used in investing activities - discontinued operations
Net cash used in investing activities
Cash flows from financing activities
Investments by non-controlling interest
Proceeds from financing
Repayment of principal - finance debt
Repayment of interest - finance debt
Repayment of lease liability
Dividends paid to Shareholders of Petrobras
Dividends paid to non-controlling interests
Net cash used in financing activities from continuing operations
Net cash used in financing activities - discontinued operations
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-12
2020
948
−
(1,001)
659
11,445
7,339
144
456
11,094
(1,743)
981
375
(3,173)
(456)
(276)
1
724
(859)
−
159
216
3,246
(1,048)
(261)
781
(482)
−
(47)
(332)
28,890
−
28,890
(5,874)
−
(942)
1,997
−
66
243
(4,510)
−
(4,510)
(67)
17,023
(25,727)
(3,157)
(5,880)
(1,367)
(84)
(19,259)
−
(19,259)
(773)
4,348
7,377
11,725
2019
10,363
(2,560)
2,086
(153)
14,836
2,848
87
308
8,460
2,798
950
15
−
(6,012)
(60)
2,233
(281)
(2,144)
1,819
(219)
(989)
225
(1,882)
(3,767)
185
(512)
(768)
(259)
(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
2018
7,414
(843)
2,018
(523)
11,912
2,005
91
87
7,941
370
31
421
−
(416)
−
(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
7,377
13,899
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
PETROBRAS
Years ending December 31, 2020, 2019 and 2018 (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
Additional
dividends
proposed
Retained
earnings
(losses)
Equity
attributable to
shareholders of
Petrobras
Non-
controlling
interests
Total
consolidated
equity
Balance at December 31, 2018
107,380
Balance at January 1, 2018
Realization of deemed cost
Treasury shares
Capital transactions
Net income
Other comprehensive income
Appropriations:
Transfer to reserves
Dividends
Realization of deemed cost
Treasury shares
Capital transactions
Net income
Other comprehensive income
Appropriations:
Transfer to reserves
Dividends
Balance at December 31, 2019
Capital increase with reserves
Realization of deemed cost
Capital transactions
Net income
Other comprehensive income (loss)
Appropriations:
Transfer to reserves
Dividends
Balance at December 31, 2020
107,380
(279)
107,101
−
−
−
−
−
−
−
−
−
−
−
−
−
−
107,380
−
−
−
−
−
−
−
−
−
−
−
−
−
(279)
107,101
−
−
−
−
−
−
−
(279)
107,101
−
−
−
−
−
−
−
107,380
−
(279)
107,101
1,067
1,067
−
(2)
2
−
−
−
−
1,067
1,067
−
−
(3)
−
−
−
−
1,064
1,064
−
−
−
−
−
−
−
1,064
1,064
(61,043)
(9,573)
(10,015)
(811)
7,919
2,182
720
42,235
−
−
−
−
−
−
−
−
−
−
−
−
(81,442)
(4)
−
−
−
(6,273)
(3,719)
(3,209)
(138)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
338
−
270
−
(67,316)
(13,292)
(13,224)
(953)
8,257
2,452
203
−
923
4,294
−
46,529
−
−
−
−
−
−
−
−
−
−
−
−
(1,405)
(248)
(4,098)
−
−
(68,721)
−
−
(13,540)
−
−
(17,322)
−
−
−
−
−
−
−
(5,215)
−
(11,050)
−
−
−
−
2,288
−
−
(73,936)
−
−
(24,590)
−
−
(15,034)
(94,785)
(2)
−
−
−
69
−
−
(886)
(100,469)
−
2
−
−
(290)
−
−
(1,174)
(114,734)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
488
−
8,745
250
−
2,702
179
−
1,102
6,549
−
53,078
−
−
−
−
−
−
−
−
−
−
68
−
8,813
198
−
2,900
−
−
−
−
−
−
−
1,102
−
−
−
−
−
(226)
(878)
51,974
−
53,056
−
−
−
−
−
−
−
−
58,161
−
−
−
−
−
−
−
−
65,627
−
−
−
−
−
−
1,128
1,128
65,917
(222)
(222)
4
−
−
7,173
−
(5,105)
(1,850)
−
−
2
−
−
10,151
−
(7,466)
(2,687)
−
−
−
(2)
−
1,141
−
(40)
(1,099)
−
−
79,560
79,560
−
(2)
2
7,173
(13,339)
−
(1,850)
71,544
71,544
−
−
(3)
10,151
(5,682)
−
(2,687)
73,323
73,323
−
−
−
1,141
(14,267)
−
(849)
59,348
59,348
1,685
1,685
−
−
115
241
(176)
−
(234)
1,631
1,631
−
−
(658)
212
(26)
−
(267)
892
892
(13)
−
(81)
(193)
4
−
(81)
528
528
81,245
81,245
−
(2)
117
7,414
(13,515)
−
(2,084)
73,175
73,175
−
−
(661)
10,363
(5,708)
−
(2,954)
74,215
74,215
(13)
−
(81)
948
(14,263)
−
(930)
59,876
59,876
The notes form an integral part of these financial statements.
F-13
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(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 case a difference is identified, for every financial year, the Brazilian
Federal Government shall compensate the Company.
F-14
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
2.
Basis of preparation
2.1. Statement of compliance and authorization of consolidated 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 based on assumptions and judgements, which may
affect the application of accounting policies and reported amounts of assets, liabilities, revenues and expenses. Although our
management periodically reviews these assumptions and judgments, the actual results could differ from these estimates. For
further information on accounting estimates, see note 4.
These consolidated financial statements were approved and authorized for issue by the Company’s Board of Directors in a
meeting held on March 24, 2021.
2.2. Discontinued operation
After 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, Petrobras is no longer the controlling shareholder of BR.
Furthermore, 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, in
the consolidated statement of income and cash flows, the net income, operating, investing and financing cash flows relating
to BR are presented in separate line items, as a net amount for discontinued operations.
2.3. Initial adoption of new accounting standard
On January 1, 2019, the Company adopted 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.
Following the adoption of IFRS 16, lease payments under operating leases are not charged to the statement of income as a
single expense item on an 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, are recognized in the statement of income.
In the statement of cash flows, the lease payments previously presented within operating and investing activities are presented
as financing activities, comprising the settlement of lease liabilities. However, such change does not affect the Company’s cash
and cash equivalents balance.
2.4. 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-20
Sep-20
Jun-20 Mar-20 Dec-19
Sep-19
Jun-19 Mar-19 Dec-18
Sep-18
Jun-18 Mar-18
F-15
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Quarterly average exchange rate
Period-end exchange rate
5.39
5.20
5.38
5.64
5.39
5.48
4.47
5.20
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
2.5. 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.
Therefore, the order of the explanatory notes align the Company's financial statements with the users' view, in addition to
emphasizing the importance of the Company's Strategic Management.
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 proceeds with the explanatory note on Capital Management, followed
by the other notes, separated by the activities as set out on the statement of cash flows.
3.
Significant accounting policies
The significant accounting policies used in the preparation of the annual financial statements of the Company, for the year
ended December 31, 2020, are consistent with those adopted and disclosed in the financial statements of the previous years.
To aid cohesion and comprehension, the accounting policies are set out at the end of each explanatory note.
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.
The impacts of COVID-19 and its effects over economic environment were considered in the preparation of these financial
statements and the results of the revision of assumptions are presented in note 6.
Information about 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 fluid sample data. The reserves are used as the basis for calculating unit-of-production depreciation, depletion and
amortization rates, impairment testing and decommissioning costs estimates, and for projections of highly probable future
exports subject to the cash flow hedge.
Reserves estimates are revised at least annually, based on updated geological and production data of reservoirs, as well as on
changes in prices and costs used in these estimates. 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 these criteria relate to the use of different economic premises and to the possibility, under the ANP/SPE
criteria, to include volumes expected to be produced after the expiration of contracts related to the Brazilian fields, according
to the ANP criteria.
F-16
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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, where the cost of the required equipment is relatively minor compared to the cost of a
new well; (ii) installed extraction equipment and infrastructure operational at the time of the reserves estimate, if the
extraction is by means not involving wells.
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
Estimates of proved reserves volumes used in the calculation of depreciation, depletion and amortization rates, under the unit-
of-production method, are prepared by the Company’s technicians according to SEC definitions. Revisions 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 25.3 provides more detailed information on depreciation, amortization and depletion.
b)
Impacts of oil and gas reserves on impairment testing
The measurement of the value in use of oil and gas exploration and development assets is based on proved and probable
reserves pursuant to the ANP/SPE definitions. Note 25.3 provides further information on 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 current Strategic
Plan projections. Changes in the expected oil and gas production may affect future exports forecasts and, consequently, hedge
relationship designations may also be impacted.
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.
F-17
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Projections relating to the key assumptions are derived from the Strategic Plan and are consistent with market evidence, such
as independent macro-economic forecasts, industry analysts 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 the effects of OPEC decisions on the
oil market, industry costs, idle capacity, the oil and gas production forecasted by specialized firms, the relationship between
the oil price and the U.S. dollar exchange rate.
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 or reversals 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 27.1.5.
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 or individual assets. 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 CGUs: comprises exploration and development assets related to crude oil and
natural gas fields and groups of fields in Brazil and abroad. At December 31, 2020, Exploration and Production CGUs had 132
fields and 30 groups of fields. Changes in the aggregation of CGUs are presented in note 27.
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 the sale 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 for Petrobras and not for 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 Petrobras as a whole. The model that supports the
F-18
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
entire planning, 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 of the first refining unit of Petrochemical Complex of Rio de Janeiro. The utilities plant that
supports the natural gas processing plant (UPGN) of the route 3 integrated project is under construction. This asset is assessed
for impairment separately;
iii) CGU Second Refining Unit of RNEST: comprises assets of the second refining unit of Abreu e Lima refinery;
iv) Transportation CGU: comprises assets relating to Transpetro’s fleet of vessels. In 2020, the Cartola and Afaulfo Alves vessels
were excluded from this CGU, because they ceased operations, and were tested for impairment separately;
v) PANAMAX CGU: comprises 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). In 2020, management decided to cease operations of UPGN Atalaia, which was tested for impairment separately;
ii) CGU nitrogen fertilizer plants: the nitrogen fertilizer plants have been assessed for impairment separately;
iii) Power CGU: comprises the thermoelectric power generation plants (UTEs);
iv) Termocamaçari CGU: the Termocamaçari thermoelectric plant was assessed for impairment separately because there is no
expectation of future operation;
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 its
discontinued operation.
Investments in associates and joint ventures, including goodwill, are assessed for impairment separately.
Further information on impairment testing is set out in note 27.
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:
F-19
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
•
•
Discount rate: comprises the projected future inflation in addition to an equivalent discounted 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 19.
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 20 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 relates to offshore areas. Estimates of costs for future
environmental cleanup and remediation activities are based on current information about costs and expected plans for
remediation. These obligations are recognized 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.
Note 21 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
F-20
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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 17.
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 38.3 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 23, 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, 2020, the
Company has not identified any additional information that would affect 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. These incremental borrowing rates are determined mainly based on the
Company’s cost of funding based on yields of bonds issued by the Company, adjusted by currency and duration of cash outflows
of the lease arrangements, economic environment of the country where the lessee operates and similar collateral.
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.
F-21
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
5. New standards and interpretations
5.1. New International Financial Reporting Standards not yet adopted
Standard
Interest Rate Benchmark
Reform (Phase 2) –
Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and
IFRS 16.
Annual
IFRS Standards 2018–2020.
Improvements
to
Reference to the
Conceptual Framework -
Amendments to IFRS 3
Onerous Contracts - Cost of
Fulfilling a Contract
-
Amendments to IAS 37
Description
The amendments relates to the interest rate benchmark reform and transition to IBOR
recommended by the Financial Stability Board (FSB), which establishes new
requirements relating to the basis for determining the contractual cash flows of
financial assets and liabilities measured at amortized cost under the scope of IFRS 9;
lease liabilities; hedge accounting; and disclosures.
The amendments change requirements related to: (i) simplifying the application of
IFRS 1 by a subsidiary that becomes a first-time adopter of IFRS after its parent
company has already adopted IFRS; (ii) clarifying the fees a company includes in
assessing the terms of a new or modified financial liability in order to determine
whether to derecognize a financial liability (IFRS 9); and (iii) aligning the fair value
measurement requirements in IAS 41 with those in other IFRS Standards. Additionally,
the amendments change an illustrative example accompanying IFRS 16 regarding
lease incentives.
The amendments (i) update a certain reference in IFRS 3 to the most recent
conceptual framework and (ii) include additional requirements related to obligations
under the scope of IAS 37 - Provisions, Contingent Liabilities and Contingent Assets
and IFRIC 21 - Levies. In addition, the amendments provide that the buyer should not
recognize contingent assets acquired in a business combination.
Effective on
January 1, 2021,
retrospective application
(with certain exceptions).
January 1, 2022,
prospective application.
January 1, 2022,
prospective application.
The amendments specify which costs an entity includes in determining the cost of
fulfilling a contract in assessing whether the contract is onerous.
January 1, 2022.
Property, Plant and
Equipment: Proceeds
before Intended Use
Amendments to IAS 16
-
The amendments prohibit a company from deducting plant and equipment amounts
received from selling items produced while the company is preparing the asset for its
intended use from the cost of property. Instead, a company will recognize such sales
proceeds and related cost in profit or loss.
January 1, 2022,
retrospective application
(with certain exceptions).
Classification of Liabilities as
-
Current or Non-current
Amendments to IAS 1
The amendments establish requirements for the classification of a liability as current
or non-current.
January 1, 2023,
retrospective application.
IFRS 17 – Insurance
Contracts (and
Amendments)
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
reinsurance contracts.
January 1, 2023,
retrospective application,
with certain exceptions.
Petrobras and its subsidiaries have debts indexed to Libor, corresponding to 32% of total finance debt.
In order to prepare for the transition to alternative reference rates, the Company is monitoring the new regulations, aiming at
adapting its financial instruments to the new benchmark.
The Company is currently assessing potential impacts arising from the initial application of amendments and new standards
listed above, effective as of January 1, 2022, on its consolidated financial statements.
6.
Context, resilience measures and impacts of the COVID-19 pandemic
6.1. Context
In January 2020, China reported having identified a new variant of coronavirus, causing the disease COVID-19, which was
spreading quickly in its population. On March 11, 2020, COVID-19 was a declared a pandemic by the World Health Organization
(WHO). Social isolation measures arising from this pandemic affected the global economic environment, reducing the demand
for oil and its oil products and triggering a shock in the oil and gas industry.
Therefore, in early April, members of the Organization of the Petroleum Exporting Countries and other oil producing countries
(OPEC+) announced a new agreement providing for the cut of their combined production by 9.7 million barrels per day (bpd)
for May and June 2020, after Brent prices present a material reduction in March and April, reaching the lowest price of the
year (US$ 19.33 per barrel). In another meeting held in July 2020, OPEC+ members agreed to reduce their cuts from 9.7 million
F-22
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
bpd to 7.7 million bpd from August to December 2020. In December 2020, OPEC+ members decided to reduce their cuts to 7.2
million bpd, mentioning that additional and gradual increases in oil production may occur in the following months.
These events led the Company to bring forward, in the first quarter of 2020, the approval of a new set of assumptions for oil
prices, exchange rates and demand, since the short, medium and long-term estimates for these variables were no longer
compatible with those approved in the 2020-2024 Strategic Plan. This new set of assumptions was reflected in the interim
financial statements of the first quarter of 2020.
The Company regularly monitors realized prices in relation to its assumptions and observed relevant changes in market
conditions compared to that approved in the first quarter of 2020, such as the recovery in Brent oil prices and the devaluation
of the Real against the U.S. Dollar. Thus, events led the Company to incorporate, in its 2021-2025 Strategic Plan (approved in
November 2020), new projections aiming at adjusting short and medium-term premises, but maintaining the convergence of
Brent oil price to US$ 50 per barrel in the long-term.
6.2. Resilience measures
The Company, in line with the recommendations of the WHO and the Ministry of Health, announced measures to preserve the
health of its employees and support the prevention of contagion in its administrative and operational areas. Some of the
measures includes home office for activities which can be realized remotely; temporarily changed work shifts in operational
areas to minimize the number of workers commuting; rigorous cleaning of workplaces; distribution of face masks; testing,
tracking and quarantine for covid-19; measuring body temperature and testing on pre-shipment for oil platforms and
periodically on onshore plants; health monitoring and access to telemedicine services.
Brazilian governmental authorities, in turn, implemented a set of measures to address the economic side effects of the COVID-
19 pandemic, aimed at helping the productive sector, mainly: (a) Federal Government measures - (i) PIS/Cofins and INSS-
Companies’ Contribution - collections for the period from March to May 2020 were postponed to August until November 2020;
(ii) FGTS - collections for the period from March to May 2020 were paid in six installments from July to December 2020; (iii)
System S (employer contributions to social entities that train and support employees) - 50% reduction in rates from April to
June 2020; and (iv) IOF - reduction from 3% to 0% in operations carried out from April to December 2020; and (b) State of
Pernambuco measures - (i) ICMS tax on fuel imports from April to December 2020 was deferred for up to 30 days.
As a result of the abrupt reduction in the demand and prices of oil and fuel, the Company adopted a set of measures aiming at
reducing costs, postponing cash outflows and optimizing its working capital. The main measures are:
• Draw down of revolving credit lines, amounting to US$ 8 billion, as well as other lines in the domestic banking market, in
the total amount of US$ 698, in the first quarter of 2020. In the third quarter of 2020, the Company repaid US$ 7.6 billion
of revolving credit lines (see note 34).
• postponement of payment of declared dividends based on 2019 earnings, paid on December 15, 2020;
• postponement of judicial deposits to 2021, mainly relating to tax proceedings;
• reduction and postponement of human resources expenses, with an emphasis on: (i) postponement of payment for the
2019 Performance Award Program to December 2020; (ii) postponement of the payment of 30% of the total monthly
remuneration from April to June 2020 of the Board of Directors, President, Executive Officers and upper management, and
postponement of the payment of between 10% to 30% of the monthly remuneration of lower management and consultants
(which was subsequently paid in September 2020); and (iii) temporary change in workday regime from shift turn and stand-
by work to administrative regime, reassessed on a monthly basis, depending on the return to regular operations;
• a set of actions aiming at reducing capital expenditures scheduled for 2020 from US$ 12 billion to US$ 8.1 billion, mainly
postponement of exploratory activities and interconnection of wells, as well as the depreciation of the Brazilian real against
the U.S. dollar;
• reduction of 200 thousand bpd of oil production from April 2020 (including the reduction of 100 thousand bpd announced
at the end of March 2020), and a reduction in the utilization factor of refineries from 79% to 60%, allowing the maintenance
of reasonable surplus in the storage capacity, aiming at avoiding the adoption of costly measures such as the chartering of
ships to store liquids. However, with the evolution of the demand for our products performing better than expected, the
F-23
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Company opted for the gradual return to the previous level of average oil production, accompanied by an increase in the
utilization factor of the refining facilities;
• a set of actions intending to decrease operating expenses for 2020 by an additional US$ 2 billion, mainly by: (i) hibernation
of platforms operating in shallow waters, which have higher lifting costs per barrel, and for which, due to the drop in oil
prices, the Company estimates negative cash flows; (ii) lowering expenses with stoppages in wells and optimization of
production logistics; and (iii) postponement of new relevant contracts for a period of 90 days (during the second quarter of
2020); and
• as a result of the structural reduction in the demand for natural gas in the Brazilian market, with the consequent declaration
of force majeure by all local natural gas distributors, the Company declared force majeure in the agreements for the
purchase of natural gas from the Manati field and from Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), as provided for
in these contracts. These measures resulted in a reduction of potential disputes, exempting the Company from complying
with the take-or-pay obligations. In September 2020, with the resumption of consumption from our customers, both
contracts were resumed in their normal supply conditions.
In addition, the global adverse scenario encouraged the Company to revise its main metric relating to indebtedness, contained
in the Strategic Plan 2020-2024, replacing the Net debt / Adjusted EBITDA ratio with Gross debt. The target approved for Gross
debt for 2020 is US$ 87 billion, the same level as December 31, 2019, which was achieved at December 31, 2020.
As a result of the implementation of the aforementioned measures, the Company, after simulating several stress scenarios,
estimates that it will be able to balance its financing and cash flows. Thus, management believes that it has adequate resources
to continue its operations for at least 12 months after the reporting date and, therefore, the Company comply with the going
concern principle in the preparation of these consolidated financial statements.
6.3. Effects on these consolidated financial statements
The effects of the COVID-19 pandemic and the economic environment were considered in the preparation of these
consolidated financial statements. For information on key estimates and judgments that require a high level of judgment and
complexity in their applications and that could materially affect the Company's financial condition and results, see note 4.
The results of the revision of assumptions (both in the first quarter of 2020 and in the 2021-2025 Strategic Plan), as well as the
effects arising from the pandemic, are presented below:
•
Impairment losses for 2020 amounted to US$ 7,339. Oil prices and expectations for the world economy growth presented
a consistent decline in 2020, since the end of March 2020, as well as the demand for oil products was also severely affected
in this period. As a result, in the first quarter of 2020, the Company adopted a new set of assumptions adjusted from those
approved in the 2020-2024 Strategic Plan, as well as decided to hibernate certain developed fields which management did
not considered highly profitable. Thus, impairment losses were recognized in the first quarter of 2020 in the amount of
US$ 13,371. In the last quarter of 2020, the Company approved its 2021-2025 Strategic Plan, updating expected future
production, project portfolio, economic assumptions, among other estimates. In this context, impairment reversals were
accounted for in the last quarter, in the amount of US$ 6,019 (see note 27);
• expected exports were impacted by the effects arising from the oil price shock in the first half of 2020 and effects arising
from the COVID-19 pandemic. Thus, a portion of highly probable future exports whose exchange rate variations were
designated in hedge relationships are no longer considered highly probable, but are still expected to occur, and as a
consequence the hedge relationships were revoked in the first quarter of 2020, in the amount of US$ 35,774, significantly
increasing the Company's U.S. dollar/real exposure at March 31, 2020. According to the 2021-2025 Strategic Plan, there is
an increase in expected exports compared to the expectation in the first quarter and consequently in highly probable future
exports, but not in an amount equal to or greater than the finance debt and lease liabilities subject to designation as hedge
instruments. As a result, the relevant increase in Dollar/Real exposure observed during 2020 remains at December 31, 2020.
In 2020, US$ 548 was reclassified from Other comprehensive income to the Statement of income, mainly in the first quarter
of 2020 (note 38.3);
•
inventories adjusted to net realizable value, accounting for a US$ 375 loss within cost of sales (note 15);
F-24
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
• recognition of expected credit losses (ECL) on the Company's financial assets that are not measured at fair value through
profit or loss considered estimated impacts of the COVID-19 pandemic throughout 2020. For financial assets whose
counterparties have ratings published by credit risk agencies, when already reflecting the effects of the pandemic, the
information was used to calculate the ECL. For other financial assets, in general, the expected effects of the COVID-19
pandemic were incorporated into the ECL by identifying the changes in default probability based on observable data by
area of operation, type of product and region. No significant effects were identified (note 14.3);
• deferred tax assets were assessed for recoverability based on projections of future taxable profits (note 17);
• with the approval of the 2021-2025 Strategic Plan, new estimates of oil and gas reserves were incorporated to reflect the
update on the Company's project portfolio, the technical uncertainties and the updated assumptions such as prices and
costs. Therefore, the provision for decommissioning costs was adjusted by US$ 5,720 (note 21);
• revenue recognition from contracts with customers had no changes in its assumptions. The expectation of satisfaction of
the obligation by the customer remains at the maturity of each operation, considered highly probable. The Company’s
customers gave no indication about the intent to breach or revise the terms and conditions of contracts in effect as of
December 31, 2020; and
•
the Company's litigation includes no cases related to COVID-19 with potential financial risk that directly impact this financial
information. However, the Company is aware of some recent labor actions filed by certain unions, whose claims are related
to the pandemic and the resilience measures recently announced to reduce expenses, as follows: (i) two temporary
measures to contain personnel expenses; (ii) sufficiency of the preventive measures against the spread of COVID-19 and
the criteria used for removing people from the risk group; and (iii) the union's participation in the organizational response
structure. The best estimate for these claims as of the reporting date is that the likelihood of loss is not probable.
7.
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.
The reduction in the cost of capital, by means of its liability management, is one of the pillars of the 2021-2025 Strategic Plan.
The Company aims to mitigate risks by actively managing liabilities, maximizing shareholder return and optimizing working
capital.
Gross debt (composed of finance debt and lease liability, current and non-current) is a top metric for the Company, allowing
monitoring Petrobras’s indebtedness, which management considers essential for increasing competitiveness with peers by
reducing our cost of capital. For 2021, the Company seeks to reduce its gross debt to US$ 67 billion. In addition, the
Shareholders Dividends Policy determines that, in case of a gross debt lower than US$ 60 billion (which is targeted for 2022),
it may distribute 60% of the difference between net cash provided by operating activities and acquisition of PP&E and
intangibles assets, as set out in note 36.
As of December 31, 2020, gross debt decreased to US$ 75,538, from US$ 87,121 as of December 31, 2019.
F-25
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
8.
Cash and cash equivalents and Marketable securities
8.1. 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
12.31.2020
552
12.31.2019
572
2,592
28
2,620
2,574
5,633
332
8,539
11,159
11,711
1,699
4
1,703
7
4,620
470
5,097
6,800
7,372
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 time deposits that mature in three months or less from
the date of their acquisition, highly-liquid automatic investment accounts, interest checking accounts and other short-term
fixed income instruments.
8.2. Accounting policy for cash and cash equivalents
Cash and cash equivalents comprise cash on 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.
8.3. Marketable securities
Fair value through profit or loss
Fair value through other comprehensive income
Amortized cost
Total
Current
Non-current
In Brazil
Abroad
Total
In Brazil
Abroad
Total
12.31.2020
12.31.2019
652
−
44
696
652
44
−
−
7
7
7
−
652
−
51
703
659
44
875
7
45
927
875
52
−
−
19
19
13
6
875
7
64
946
888
58
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.
8.3.1. Accounting policy for marketable securities
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;
26
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
•
Fair value through profit or loss: if the marketable security do not meet the criteria for the two aforementioned
categories.
9.
Sales revenues
9.1. 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
13.
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
contractually agreed place or when the service is provided. Generally, prices for products and services are fixed prior 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$ 37 in 2020 (US$ 46 in
2019).
9.2. 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
Oil
Fuel oil (including bunker fuel)
Other oil products
Sales abroad (*)
Foreign market
Sales revenues (**)
(*) Sales revenues from operations outside of Brazil, including trading and excluding exports.
(**) Sales revenues by business segment are set out in note 9.
F-27
2020
13,924
-
6,313
3,383
1,455
1,694
795
2,712
30,276
3,649
59
438
1,109
803
36,334
15,945
11,720
3,525
700
1,404
17,349
53,683
2019
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
13,180
3,321
1,584
2,510
38,680
76,589
2018
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
11,192
3,022
1,199
6,640
22,053
84,638
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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.
9.3. Remaining performance obligations
The Company is party to sales contracts with original expected duration of more than 1 year, which define the volume and
timing of goods or services to be delivered during the term of the contract, and the payment terms for these future sales.
The estimated remaining values of these contracts at December 31, 2020 presented below are based on the contractually
agreed future sales volumes, as well as prices prevailing at December 31, 2020 or practiced in recent sales reflecting more
directly observable information:
Domestic market
Gasoline
Diesel
Natural gas
Services and others
Naphtha
Electricity
Other oil products
Jet fuel
Foreign market
Exports
Total
Expected
recognition within
1 year
Expected
recognition after 1
year
6,561
15,008
4,383
4,110
946
713
17
404
1,925
34,067
-
-
7,865
4,330
3,703
2,491
-
-
-
9,539
27,928
Total
6,561
15,008
12,248
8,440
4,649
3,204
17
404
11,464
61,995
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 less than one year, 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 mainly driven by demands to generate electricity from thermoelectric power plants, as and
when requested by the Brazilian National Electric System Operator (ONS). These requests are substantially affected by Brazilian
hydrological conditions. Thus, the table above presents mainly fixed amounts for the electricity to be available to customers in
these operations.
9.4. Contract liabilities
The balance of contract liabilities carried on the statement of financial position at December 31, 2020 amounted to US$ 69
(US$ 128 as of December 31, 2019). This amount is classified as other current liabilities and primarily comprises advances from
customers in ship and take or pay contracts to be recognized as revenue based on future sales of natural gas or following the
non-exercise of the right by the customer.
9.5. 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.
F-28
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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.
10. Costs and expenses by nature
10.1. 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.
10.2. Selling expenses
Materials, third-party services, freight, rent and other related costs
Depreciation, depletion and amortization
Allowance for expected credit losses
Employee compensation
Total
10.3. General and administrative expenses
Employee compensation
Materials, third-party services, freight, rent and other related costs
Depreciation, depletion and amortization
Total
2020
(12,699)
(8,847)
(5,920)
(1,729)
(29,195)
2020
(4,163)
(564)
2
(159)
(4,884)
2020
(749)
(252)
(89)
(1,090)
2019
(20,694)
(12,036)
(9,741)
(3,261)
(45,732)
2019
(3,664)
(549)
(49)
(214)
(4,476)
2019
(1,427)
(539)
(158)
(2,124)
2018
(26,810)
(10,954)
(10,905)
(3,515)
(52,184)
2018
(3,445)
(145)
(32)
(205)
(3,827)
2018
(1,500)
(626)
(113)
(2,239)
F-29
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
11. Other income and expenses
PIS and COFINS credit - exclusion of ICMS (VAT tax) from the basis of calculation
Reimbursements from E&P partnership operations
Pension and medical benefits - retirees
Equalization of expenses - Production Individualization Agreements
Results on disposal/write-offs of assets and on remeasurement of investment retained with
Early termination and cash outflows revision of lease agreements
Amounts recovered from Lava Jato investigation
Fines imposed on suppliers
Unscheduled stoppages and pre-operating expenses
Voluntary Separation Plan - PDV
Losses with legal, administrative and arbitration proceedings
Variable compensation program (*)
Gains / (losses) on decommissioning of returned/abandoned areas
Gains/(losses) with Commodities Derivatives
Reclassification of comprehensive income (loss) due to the disposal of equity-accounted
Profit sharing
Employee Career and Compensation Plan - PCR
Agreement with US Authorities
Others
2020
1,514
912
889
701
499
276
155
95
(1,441)
(1,017)
(493)
(439)
(342)
(308)
(43)
-
-
-
40
998
2019
-
480
(1,371)
2
6,046
60
220
260
(1,321)
(198)
(1,520)
(643)
(155)
(370)
(34)
(43)
(2)
-
(212)
1,199
Total
(*) In 2020, it includes a US$ 84 reversal related to the provision recognized in 2019, and US$3 expense related to Directors variable compensation.
12. Net finance income (expense)
Finance income
Income from investments and marketable securities (Government Bonds)
Gains from signed agreements (electric sector)
Interest on petroleum and alcohol accounts
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 (*)
Pis and Cofins inflation indexation income - exclusion of ICMS (VAT tax) from the basis of
calculation
Other foreign exchange gains (losses) and indexation charges, net
Total
(*) For more information, see notes 38.3c and 38.3a.
2020
551
202
−
79
270
(6,004)
(3,595)
(1,322)
(1,157)
941
(638)
(233)
(4,177)
(1,363)
(4,720)
1,709
197
(9,630)
2019
1,330
558
79
8
685
(7,086)
(4,847)
(1,514)
(860)
1,332
(795)
(402)
(3,008)
(72)
(3,136)
−
200
(8,764)
F-30
2018
-
331
(1,401)
(279)
416
-
457
223
(1,282)
2
(2,283)
(265)
621
(416)
-
(442)
(293)
(895)
(254)
(5,760)
2018
2,381
563
724
87
1,007
(5,675)
(5,920)
(10)
(651)
1,814
(652)
(256)
(3,190)
(66)
(3,315)
−
191
(6,484)
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
13. Net income by operating segment
Consolidated Statement of Income by operating segment
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 for the period
Attributable to:
Shareholders of Petrobras
Non-controlling interests
Exploration
and
Production
Refining,
Transportation
& Marketing
Gas
&
Power
Corporate
and other
business
34,395
33,524
871
(18,098)
16,297
(9,247)
-
(155)
(803)
(232)
(478)
(7,364)
(215)
7,050
-
(181)
6,869
(2,398)
4,471
4,475
(4)
4,471
47,782
865
46,917
7,725
2,455
5,270
(44,011)
(3,985)
3,771
(2,992)
(2,520)
(161)
-
(11)
(137)
164
(327)
779
-
(437)
342
(265)
77
111
(34)
77
3,740
(2,581)
(2,320)
(85)
-
(10)
(31)
36
(171)
1,159
-
128
1,287
(393)
894
821
73
894
876
251
625
(832)
44
419
(20)
(689)
-
(102)
(306)
(175)
1,711
463
(9,630)
(169)
(9,336)
4,438
(4,898)
(4,670)
(228)
(4,898)
2020
Eliminations
Total
(37,095)
(37,095)
53,683
−
-
53,683
37,731
(29,195)
636
(24)
(24)
-
-
-
-
-
-
612
-
-
612
(208)
404
404
−
404
24,488
(14,425)
(4,884)
(1,090)
(803)
(355)
(952)
(7,339)
998
10,063
(9,630)
(659)
(226)
1,174
948
1,141
(193)
948
F-31
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Exploration
and
Production
Refining,
Transportation
& Marketing
Gas
&
Power
Corporate
and other
business
Eliminations
Total
2019
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
50,462
49,400
1,062
(27,304)
23,158
(4,181)
-
(254)
(799)
(394)
(127)
(1,956)
(651)
67,538
11,493
9,432
58,106
3,308
8,185
1,221
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)
(134)
-
(15)
(152)
(194)
5,335
Net income / (loss) before financial results and income taxes
18,977
1,626
6,360
(54,125)
(54,125)
-
52,030
(2,095)
(26)
(21)
1
-
-
-
(2)
(4)
(2,121)
-
-
(2,121)
720
(1,401)
-
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
(1,401)
10,363
(1,401)
(1,401)
-
−
-
-
10,151
7,660
2,491
212
143
69
54
(4,282)
(31)
(1,401)
-
(156)
(189)
1
(2,506)
(4,228)
(8,764)
115
(12,877)
4,245
(8,632)
2,557
(6,075)
(6,273)
(8,763)
2,490
198
132
66
-
103
6,463
(2,162)
4,301
3
4,304
4,180
4,179
1
124
121
3
4,304
(6,075)
(1,401)
10,363
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
Net income attributable to shareholders of Petrobras
Net income from continuing operations
Net income from discontinued operations
Non-controlling interests
Net income from continuing operations
Net income from discontinued operations
-
86
19,063
(6,451)
12,612
-
12,612
12,624
12,624
-
(12)
(12)
-
12,612
-
(151)
1,475
(552)
923
-
923
1,021
1,021
-
(98)
(98)
-
923
F-32
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Exploration
and
Production
Refining,
Transportation
& Marketing
Gas
&
Power
Corporate
and other
business
Eliminations
Total
2018
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
52,382
50,052
2,330
(28,968)
23,414
(5,068)
(80)
(257)
(524)
(443)
(115)
(1,391)
(2,258)
Net income / (loss) before financial results and income taxes
18,346
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:
Net income attributable to shareholders of Petrobras
Net income from continuing operations
Net income from discontinued operations
Non-controlling interests
Net income from continuing operations
Net income from discontinued operations
-
75
18,421
(6,236)
12,185
-
12,185
12,190
12,190
-
(5)
(5)
-
12,185
73,448
16,655
56,793
12,241
3,701
8,540
1,731
205
1,526
(55,164)
(55,164)
-
84,638
15,449
69,189
(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
2,393
2,393
-
(51)
(51)
-
2,342
3,218
(2,461)
(1,867)
(152)
-
(21)
(65)
(190)
(166)
757
-
95
852
(257)
595
15
610
482
471
11
128
124
4
610
120
(4,662)
(76)
(1,453)
-
(166)
(283)
18
(2,702)
(4,542)
(6,484)
(9)
(11,035)
2,994
(8,041)
828
(7,213)
(7,382)
(7,972)
590
169
(69)
238
(735)
32,454
(38)
(27)
(1)
(15,666)
(3,827)
(2,239)
-
-
-
-
(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
7,173
6,572
601
241
(1)
242
(7,213)
(510)
7,414
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.
13.1. 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.
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
F-33
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
E&P segment also operates through partnerships with other companies and includes holding interest in foreign entities
operating in this segment.
As an 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 oil products 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.
Corporate and other businesses comprise 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 in equity-
accounted investments), as well as the distribution of oil products abroad (South America). From 2018 to July 2019, for
comparative purposes, it also includes net income from discontinued operations. Biofuels business reflects production
activities of biodiesel, its co-products and ethanol.
F-34
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
14. Trade and other receivables
14.1. Trade and other receivables, net
Receivables from contracts with customers
Third parties
Related parties
Investees (note 39.1)
Receivables from the electricity sector
Subtotal
Other trade receivables
Third parties
Receivables from divestments (*)
Lease receivables
Other receivables
Related parties
Petroleum and alcohol accounts - receivables from Brazilian Government (note 39.2)
Subtotal
Total trade receivables
Expected credit losses (ECL) - Third parties
Expected credit losses (ECL) - Related parties
Total trade receivables, net
Current
Non-current
(*) It comprises receivable from the divestment of NTS and contingent payments from the sale of interest in Roncador field.
(**) It includes amounts related to the purchase and sale of production platforms and equipment from our partners in E&P consortia
12.31.2020
12.31.2019
3,081
664
205
3,950
1,523
467
2,536
482
5,008
8,958
(1,528)
(68)
7,362
4,731
2,631
4,481
794
334
5,609
1,434
482
831
304
3,051
8,660
(2,286)
(45)
6,329
3,762
2,567
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$507 as of December 31, 2020 (US$ 357 as of December 31, 2019).
14.2. Aging of trade and other receivables – third parties
Current
Overdue:
1-90 days
91-180 days
181-365 days
More than 365 days
Total
12.31.2020
12.31.2019
Trade receivables
5,850
Expected credit
losses
(130)
Trade receivables
4,658
Expected credit
losses
(142)
205
15
42
1,495
7,607
(8)
(9)
(28)
(1,353)
(1,528)
251
24
49
2,245
7,227
(38)
(8)
(13)
(2,086)
(2,287)
F-35
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
14.3. Changes in provision for expected credit losses
Opening balance
Additions
Write-offs
Reversals
Transfer of assets held for sale
Cumulative translation adjustment
Closing balance
Current
Non-current
2020
2,331
209
(698)
(3)
(3)
(240)
1,596
218
1,378
2019
4,305
217
(1,241)
-
(871)
(79)
2,331
1,103
1,228
In 2020, the additions include an increase of US$ 60 on receivables in foreign currency, resulting from the 29% exchange rate
devaluation in the year ended December 31, 2020, as well as the recording of a supplementary provision arising from the
effects of the COVID-19 on the economy (US$ 19).
In 2020, the write-offs primarily relate to the write-off of receivables, by a subsidiary abroad, relating to construction and
renovation of platforms. In 2019, the write-offs primarily relate to the termination of a lawsuit relating to the electricity sector.
14.4. 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.
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.
In the absence of controversy or other issues that may result in the suspension of collection, 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.
F-36
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
15.
Inventories
Crude oil
Oil products
Intermediate products
Natural gas and Liquefied Natural Gas (LNG)
Biofuels
Fertilizers
Total products
Materials, supplies and others
Total
12.31.2020
2,242
1,925
396
122
30
8
4,723
954
5,677
12.31.2019
3,905
2,274
586
173
28
28
6,994
1,195
8,189
In the year ended December 31, 2020, the Company recognized a US$ 375 loss within cost of sales, adjusting inventories to
net realizable value (a US$ 15 loss within cost of sales in the year ended December 31, 2019) primarily due to changes in
international prices of crude oil and oil products.
At December 31, 2020, 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$ 2,750 (US$ 3,525 at December 31, 2019).
15.1. 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. Changes in sales prices after the reporting date of the financial
statements are considered in the calculation of the net realizable value if they confirm the conditions existing on that reporting
date.
Crude oil and LNG inventories can be traded or used for production of oil products.
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.
F-37
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
16. Trade payables
Third parties in Brazil
Third parties abroad
Related parties
Total in current liabilities
17. Taxes
17.1. Income taxes and other taxes
Income taxes
Taxes in Brazil
Income taxes
Income taxes - Tax settlement programs
Taxes abroad
Total
Other taxes
12.31.2020
2,828
12.31.2019
2,560
3,603
428
6,859
2,045
996
5,601
12.31.2020
Current assets
12.31.2019
Current liabilities
12.31.2019
12.31.2020
Non-current liabilities
12.31.2019
12.31.2020
391
-
391
27
418
2,485
-
2,485
8
2,493
111
45
156
42
198
71
57
128
148
276
-
357
357
-
357
-
504
504
-
504
Current assets
Non-current assets
12.31.2020 12.31.2019 12.31.2020 12.31.2019 12.31.2020 12.31.2019 12.31.2020
Current liabilities Non-current liabilities (*)
12.31.2019
Taxes in Brazil
Current / Non-current ICMS (VAT)
Current / Non-current PIS and COFINS
Claim to recover PIS and COFINS
PIS and COFINS - exclusion of ICMS (VAT
tax) from the basis of calculation
CIDE
Production taxes
Withholding
income taxes
Others
Total in Brazil
Taxes abroad
Total
507
340
-
1,230
4
-
-
87
2,168
9
2,177
555
417
-
-
31
-
-
31
1,034
17
1,051
293
2,055
681
364
2,591
820
-
-
-
-
119
3,148
10
3,158
-
-
-
-
153
3,928
11
3,939
642
544
-
-
41
1,173
106
117
2,623
13
2,636
759
252
-
-
45
1,929
232
189
3,406
18
3,424
-
37
-
-
-
94
-
275
406
-
406
-
44
-
-
-
266
-
225
535
-
535
(*) Other non-current taxes are classified as other non-current liabilities.
Income taxes within current assets refer mainly to tax credits resulting from the computation process of IRPJ and CSLL, in
addition to the negative balance relating to 2018 and 2019.
Current and non-current ICMS (VAT) credits arise from requests for extemporaneous and overpaid tax, offset in accordance
with the legislation of each state, on average within three years. They also arise on the acquisition of assets for property, plant
and equipment, which are offset in a straight line over 4 years.
Current and non-current PIS/COFINS credits mainly refer to the acquisition of goods and services for assets under construction,
since their use is permitted only after these assets enter into production, as well as to extemporaneous tax credits.
Production taxes are financial compensation due to the Brazilian Federal Government by companies that explore and produce
oil and natural gas in Brazilian territory. They are composed of royalties, special participations, signature bonuses and payment
for retention or occupation of area.
F-38
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
17.2. Exclusion of ICMS (VAT tax) from the basis of calculation of PIS and COFINS
In 2020, the Company obtained a favorable and definitive court decision regarding the exclusion of ICMS (VAT tax) in the basis
of calculation of sales taxes PIS and COFINS, recognizing US$ 3,226 (R$ 16,764 million) as other recoverable taxes. These sales
taxes credits refer to the ICMS included in the basis of calculation of PIS and COFINS, from October 2001 to August 2020,
inappropriately paid during this period.
The Company recognized this credit as the realization of income was virtually certain and the inflow of economic benefits was
highly probable, since: (i) the final decision in 2020 (with no possibility of appeal) constitutes a right that is no longer contingent
at the date of that decision; and (ii) the measurement methodology adopted is accepted by the Federal Revenue of Brazil,
resulting in an amount to be recovered by the Company.
Thus, a US$ 2,050 gain for the recovery of taxes was accounted for within other income and expenses, a US$ 1,516 gain for the
inflation indexation within net finance income (expense). In addition, the Company accounted for an US$ 78 expense within
other taxes and an US$ 1,097 expense within income taxes.
In 2020, the Company compensated US$ 1,857 (R$ 10,372 million) on the payment of federal taxes. As of December 31, 2020,
the unused credit, updated by the SELIC interest rate, amounts to US$ 1,230 (R$ 6,392 million).
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, 2020, the Company had non-current receivables of US$ 681 (US$ 820 as of December 31, 2019) related to
PIS and COFINS, which are indexed to inflation.
F-39
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
17.3. Tax amnesty programs – State Tax
In 2020, Petrobras adhered to state amnesty programs that resulted in the payment of US$ 359, of which US$ 347 was
recognized as other taxes, US$ 29 as finance expenses, and the balance as cumulative translation adjustments.
A summary of the agreements is presented below:
State
State
Law/Decree n°
RJ
ES
AL
SE
RN
9,041/2020
4,709-R/2020
71,800/2020
72,199/2020
40,691/2020
10,784/2020
Benefits received
Claimed
Amount (*)
Reduction
Benefit
Reduction of 90% of interest and 90% of the fines related to
tax credits
50% of tax remission, 90% of fines and interest
551
139
(230)
(104)
Reduction of 95% of fines and interest
50% of tax remission and, 90% of fines and interest
Reduction of 90% of fines and interest
Reduction of 95% of fines and interest
(5)
(2)
(1)
6
3
2
(342)
(*) US$ 565 refers to previous disputes for which the likelihood of losses were deemed possible and US$ 125 refers to self-denunciation. (RJ).
701
Amount
paid
after
benefit
321
35
1
1
1
359
State of Rio de Janeiro
On October 1, 2020, the Company’s Board of Directors approved an agreement with the tax authority of the state of Rio de
Janeiro aiming at reducing fines and interest on taxes claimed by the state. The agreement, based on ICMS Agreement 51/2020
and Law RJ 9,041 / 2020, allows a 90% reduction of the amounts due as fine and interest, resulting in a disbursement by
Petrobras to the state of Rio de Janeiro of US$ 321.
This agreement allowed the settlement of contingencies related to the collection of ICMS and fines in the domestic
consumption operations of diesel oil used by the maritime units chartered by the Company, considering the approval, in the
same legal provision, with a reduction in the tax burden in internal supplies of marine diesel oil, instead of the previous rate of
12%, reaching a definitive solution to the cause of these contingencies. The disbursement was made in installments, having
been fully settled, in accordance with the 2020 Terms of Adjustment of Tax Conduct entered into with the State of Rio de
Janeiro.
State of Espírito Santo
On October 1, 2020, the Board of Directors approved the adhesion to a remission and amnesty program with the State of
Espírito Santo, entered into under the terms of the ICMS Agreement 146/2019 and Decree 4,709-R / 2020, payment of US$ 35
in October 2020, to settle tax claims arising from differences in the appropriation of ICMS credits on property, plant and
equipment and from differences in ICMS in oil and oil products operations. In addition, the presumed ICMS credit system was
implemented, based on the ICMS the agreement, providing a definitive solution to this dispute.
17.4. Reconciliation between statutory income tax rate and effective income tax rate
The following table provides the reconciliation of Brazilian statutory tax rate to the Company’s effective rate on income before
income taxes:
F-40
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(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)
· Agreement with US authorities
· Non-taxable income (non-deductible expenses), net (**)
· Expenses with post-employment medical benefits (***)
· Results of equity-accounted investments in Brazil and abroad
· 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 provisions for legal proceedings.
(***) This plan was revised in 2020, as set out in note 19.5.
17.5. Deferred income taxes - non-current
The changes in the deferred income taxes are presented as follows:
2020
(226)
77
(16)
1,874
(743)
(9)
(428)
-
(280)
559
49
91
1,174
1,743
(569)
1,174
519.5%
Balance at January 1
Recognized in the statement of income for the period
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
Deferred tax assets
Deferred tax liabilities
Balance at December
2019
12,003
(4,081)
728
1,056
(175)
443
(682)
-
(1,556)
(417)
53
431
(4,200)
(2,798)
(1,402)
(4,200)
35.0%
2020
(372)
1,743
-
5,564
(623)
(60)
4
-
6,256
6,451
(195)
6,256
The composition of deferred tax assets and liabilities as of December 31 is set out in the following table:
Nature
Realization basis
Exploration and decommissioning costs
Depreciation, amortization and write-offs of assets
Impairment
Others
Amortization, impairment reversals and write-offs of
assets
Depreciation, amortization and write-offs of assets
Loans, trade and other receivables / payables and financing
Payments, receipts and considerations
Finance leases
Provision for legal proceedings
Tax loss carryforwards
Inventories
Employee Benefits
Others
Balance at December 31
Deferred tax assets
Deferred tax liabilities
Balance at December 31
Depreciation
Payments and use of provisions
30% of taxable income compensation
Sales, write-downs and losses
Payments and use of provisions
F-41
2020
(3,205)
6,626
(8,690)
3,913
1,190
664
2,501
158
2,882
217
6,256
6,451
(195)
6,256
2018
10,827
(3,681)
553
355
(41)
74
(484)
(293)
(780)
(367)
184
224
(4,256)
(370)
(3,886)
(4,256)
39.3%
2019
2,026
(2,798)
(612)
1,617
58
(329)
(276)
(58)
(372)
1,388
(1,760)
(372)
2019
(5,508)
6,280
(9,868)
1,349
189
782
2,511
630
3,706
(443)
(372)
1,388
(1,760)
(372)
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
17.6. 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 2021-
2025 Strategic Plan, aiming at the maximization of returns on capital employed, reduction of cost of capital and search for low
costs and efficiencies.
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 2021-2025 Strategic Plan.
The estimated schedule of recovery/reversal of net deferred tax assets (liabilities) as of December 31, 2020 is set out in the
following table:
2021
2022
2023
2024
2025
2026 and thereafter
Recognized deferred tax assets
Assets
2,257
975
764
15
14
2,426
6,451
Liabilities
49
21
20
19
44
42
195
In addition, at December 31, 2020, the Company has tax loss carryforwards arising from offshore subsidiaries, for which no
deferred taxes were recognized.
Brazil
Abroad
Unrecognized deferred tax assets
Total
Assets
35
1,369
1,404
7,855
Liabilities
2
-
2
197
These tax losses arose mainly from oil and gas exploration and production and refining activities in the United States of
US$ 1,295 (US$ 1,346 as of December 31, 2019).
An aging of the unrecognized deferred tax assets from companies abroad is set out below:
Unrecognized deferred tax assets
205
708
320
62
74
1,369
2026 - 2028
2029 - 2031
2032 - 2034
2035 -2037
Undefined
expiration
Total
17.7. 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.
17.7.1. 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.
F-42
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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.
17.7.2. 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 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.
F-43
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
18. Employee benefits
Voluntary Severance Program (PDV)
Employees variable compensation program
Accrued vacation pay
Salaries and related charges
Profit sharing
Total
Current
Non-current
18.1. Voluntary Severance Programs
12.31.2020
12.31.2019
900
522
470
204
4
2,100
1,953
147
140
655
660
212
16
1,683
1,645
38
As of December 31, 2020, the Company has seven voluntary severance programs (PDV) and one Incentive Retirement Program
(PAI), whose enrollment deadline ended in December 2020, totaling 11,117 enrollments:
i.
ii.
PDV 2019 for retired employees under the Brazilian Social Security Institute (INSS) by June 2020.
PDV specific for employees of divestment units;
iii. PDV exclusively for corporate employees;
iv. PAI aimed at employees who are eligible to retire under INSS;
v.
PDV for employees of wholly owned subsidiary Transpetro;
vi. PDV for employees of wholly owned subsidiary PBIO; and
vii. PDV for employees of subsidiary TBG.
Recognition of the provision for expenses occur as employees enroll to the programs. Changes in the provision for expenses
relating to voluntary severance programs 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
12.31.2020
140
−
1,076
(59)
(245)
(12)
900
754
146
12.31.2019
35
(21)
200
(2)
(71)
(1)
140
98
42
On April 7, 2020, the Board of Directors approved adjustments to the current programs, triggering an additional provision
amounting to US$ 311, relating to the employees enrolled by June 2020. On the same date, it also approved a new severance
program aimed at employees who are eligible to retire under the public pension program (PAI) and, after the promulgation of
the public pension reform in the second half of 2019, were unable to participate in PDV 2019 (enrollments from May 6 to July
31, 2020).
The Company chose to disburse the severance payments in two installments, one at the time of termination and the other in
July 2021 or one year after the termination, whichever is later, and expects to disburse US$ 754 in 2021, US$ 128 in 2022 and
US$ 18 in 2023.
F-44
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
18.2. Variable compensation program - Performance award program (PPP)
On January 21, 2021, the Company’s Board of Administration approved changes in the criteria for granting PPP 2020 to
employees (in relation to regulation approved on April 28, 2020).
The regulation for this variable compensation program establishes that, in order to trigger this payment, it is necessary to have
net income for the year, excluding impairment losses and foreign exchange gains (losses) from this calculation, associated with
the achievement of the Company’s performance metrics and the individual performance of employees and results of the
departments.
The PPP for 2020 amounts to US$ 435 (US$ 645 for 2019) and was approved by the Company’s Board of Directors in a meeting
held on January 26, 2021, accounted for within other income and expenses.
18.3. Profit sharing (PLR)
At December 21, 2020, the 17 unions representing onshore employees of the Parent Company had signed the agreement for
the PLR for the next two years before the deadline determined by the Collective Labor Agreement (ACT). Among the offshore
employees, only one union had signed the agreement within the period defined by the ACT.
The current agreement for the PLR provides that only employees without managerial functions will be entitled to receive profit
sharing, and it will be cumulative to the payment of the PPP.
In order for the PLR to be paid in the next two years, the following requirements must be met: (i) dividend distribution to
shareholders approved by the Board of Directors, (ii) net income for the year, and iii) achievement of the weighted average
percentage of at least 80% of a set of indicators.
The maximum amount of PLR to be distributed is limited to 6.25% of net income and 25% of dividends distributed to
shareholders, in each year. There was no PLR expense for 2020 (US$ 43 for 2019 and US$ 442 for 2018).
F-45
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
19. Employee benefits (post-employment)
Liabilities
AMS Medical Plan
Petros Pension Plan - Renegotiated (PPSP-R)
Petros Pension Plan - Non-renegotiated (PPSP-NR)
Petros Pension Plan - Renegotiated - Pre-70
Petros Pension Plan - Non-renegotiated - Pre-70
Petros 2 Pension Plan
Other plans
Total
Current
Non-current
Total
12.31.2020
12.31.2019
5,356
6,016
1,621
1,508
1,075
477
16
16,069
1,549
14,520
16,069
11,986
10,231
3,264
−
−
989
24
26,494
887
25,607
26,494
(*) It includes obligations with contribution for the revision of the lump sum death benefit (see note 19.2.1).
19.1. AMS Medical Plan
The Company maintains a healthcare plan for its employees in Brazil (active and retired) and their dependents: the AMS
Medical Plan. The plan is managed by the Company 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 through
reimbursement, with co-participation of the employees. There are no health care plan assets.
Benefits are paid by the Company based on the costs incurred by the participants. The financial participation of the Company
and the beneficiaries on the expenses are provided for in the collective bargaining agreement, as follows:
i)
Until 2020, this benefit was covered 70% by the Company and 30% by the participants;
ii) As from January 2021, this benefit will be covered 60% by the Company and 40% by the participants;
iii) As of January 2022, this benefit will be covered 50% by the Company and 50% by the participants, in compliance to the
Resolution No. 23 of Commission for Corporate Governance and Administration of Participations of the Brazilian Federal
Government (CGPAR).
In case of a change or revocation of CGPAR Resolution No. 23, as a result of legal acts issued by the Brazilian Federal
Government or the Brazilian Congress, the Company pre-agreed with the unions that the proportion will remain 60%- 40%,
until further adjustment between the parties.
As of December 31, 2020, considering that changes in the AMS Plan costing proportion brought by the current collective
bargaining agreement led to a change in the liabilities, the Company recognized a US$ 2,538 gain relating to past service cost,
of which a portion was recognized in service cost (related to active participants) and other portion was recognized in other
income and expenses (related to assisted and retired participants).
The average duration of the actuarial liability related to this plan, already considering the changes on the participation of the
Company and the participants, as of December 31, 2020, is 15.26 years (21.64 as of December 31, 2019).
F-46
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
19.1.1. New healthcare management model
On April 28, 2020, the Company’s Board of Directors approved a new management model for AMS. The management of this
plan will now be carried out by a nonprofit civil association, nominated Petrobras Saúde, also through the self-management
type, in accordance with the requirements of the National Supplementary Health Agency (Agência Nacional de Saúde
Suplementar - ANS).
This change will generate no change in benefit, coverage or scope on the plan, as well as no accounting effects.
Currently, the association is in the process of obtaining the required qualifications and registers for its operation, with an
expected implementation of the new model in the first quarter of 2021.
19.2. 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.
19.2.1. Renegotiated and Non-renegotiated Petros Plans (PPSP-R and PPSP-NR)
These plans were established by Petrobras in July 1970 (originally solely Petros Plan) as a defined-benefit pension plan, in order
to complement government social security benefits. The Petros Plan is 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. Exceptionally in 2020, there was also an intermediate
remeasurement of the actuarial liabilities for these plans, following the approval of the New PED.
New Deficit Settlement Plan (New PED)
On April 28, 2020, the New Deficit Settlement Plan for the PPSP-R and PPSP-NR (New PED) was approved by the Secretariat of
Management and Governance of the State-owned Companies (SEST) and by the Superintendency of Post-retirement Benefits
(PREVIC), also approving changes in regulation regarding the reduction of the lump sum death benefit.
The New PED covers 2015 and 2018 deficits and incorporates 2019 results. Total settlement amounts to US$ 6,485 (R$ 33.7
billion). Of the total amount, US$ 3,006 (R$ 15,620 million) will be paid by Petrobras, in compliance with contributory parity
provided for by relevant legislation, of which US$ 2,611 (R$ 13,566 million) will be paid through lifelong additional
contributions and US$ 395 (R$ 2,054 million) as a counterpart contribution for the reduction of the lump sum death benefit.
This counterpart contribution will be paid in 40 semiannual installments for a period of 20 years, updated based on the fixed
actuarial target of the plans, revised annually. As of December 31, 2020, the updated balance of this Company’s obligation
amounted to US$ 444 (R$ 2,206 million).
The rest of the deficit will be paid by other sponsors and participants of the PPSP-R and PPSP-NR plans.
The current model differs from that applied in PED-2015, aiming at reducing the additional contributions of most of the
participants by: (i) extending the collection time from 18 years to a lifetime; (ii) specific fixed contribution rates for active and
assisted employees; (iii) the implementation of an annual contribution of 30% on the 13th salary; and (iv) the reduction in the
amount of the lump sum death benefit.
The New PED sets forth changes in some rights and regulation of the PPSP-R and PPSP-NR, in accordance with Resolution No.
25 of CGPAR, which establishes guidelines and parameters for federal state companies regarding the sponsorship of pension
plans.
In May 2020, following the approval of the New PED and based on relevant regulation, the Company made an intermediate
remeasurement of the actuarial liabilities of the PPSP-R and PPSP-NR plans, with a US$ 10 gain in profit or loss, as a net effect
of a US$ 374 gain for the reduction on the lump sum death benefit, as well as other changes in the regulation of these plans,
partially offset by a US$ 364 loss related to the contribution for the settlement of the deficit.
F-47
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Changes in the cost of past service results from the changes in the regulations of the plans, mainly the reduction on the lump
sum death benefit, retirement independent from being retired by the INSS, as well as the establishment of a reference unit for
the plan (UR), which sets a single value of US$ 0.7 thousand (R$ 4 thousand) , adjusted annually by the IPCA (National Consumer
Price Index), to determine the value of the Petros supplementation, replacing the previous rule which was based on an
estimation of INSS retirement of active participants without acquired rights (active employees who did not retire by INSS before
the amendment to the regulation). For information on the annual remeasurement of the actuarial liabilities, see note 19.3.b.
The average durations of the actuarial liability related to PPSP-R and PPSP-NR plans, as of December 31, 2020, are 12.43 and
11.51 years, respectively (13.78 and 11.05 as of December 31, 2019).
The employers' expected contributions to PPSP-R and PPSP-NR plans for 2021 are US$ 240 and US$ 74, respectively.
19.2.2. Renegotiated and Non-renegotiated Petros Plans - Pre-70 (PPSP-R Pre-70 and PPSP-NR Pre-70)
The Renegotiated Petros Plan Pre-70 (PPSP-R Pre-70) and Non-renegotiated Petros Plan Pre-70 (PPSP-NR Pre-70) are defined
benefit plans derived from the split of the PPSP-R and PPSP-NR plans, established on January 1 2020.
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.
According to these plans rules, Petrobras is responsible for any deficits, given the Term of Financial Commitment (TCF) between
Petrobras and Petros Foundation, which exempts the participants from paying any extraordinary contributions in case of
deficit.
The average durations of the actuarial liability related to PPSP-R Pre-70 and PPSP-NR Pre-70 plans, as of December 31, 2020,
are 8.85 and 8.62 years, respectively.
Term of Financial Commitment - TFC
As of December 31, 2020, the balance of the TFC, signed by Petrobras and Petros Foundation in 2008, to cover obligations with
defined benefits plans is presented as follows:
Liabilities
Petros Pension Plan - Renegotiated Pre-70 (PPSP-R Pre-70) (*)
Petros Pension Plan - Non-renegotiated - Pre-70 (PPSP-NR Pre-70) (*)
Petros Pension Plan - Renegotiated (PPSP-R)
Total
12.31.2020
1,254
808
465
2,527
(*) Includes the amendment to the TCF Pre-70, amounting to US$ 210, of which US$ 101 relates to PPSP-R Pre-70 and US$ 109 to PPSP-NR Pre-70.
These amounts are due in 20 years, with 6% p.a. semiannual coupon payments based on the updated balance. As of December
31, 2020, the Company has provided crude oil and oil products pledged as security for the TFC totaling US$ 2,750 (US$ 3,525
as of December 31, 2019). The TFC is accounted for in the pension and medical benefits liabilities, within the statement of
financial position.
On January 15, 2021, the Company prepaid the remaining balance of TFC relating to Pre-70 plans, in the amount of US$ 865
(R$ 4,493 million), of which U$ 468 relates to the PPSP-R Pre-70 and US$ 397 to the PPSP-NR Pre-70. As a result, the amount
of collateral is under revision.
The amount of interests expected to be paid in 2021 relating to this commitment is US$ 97.
19.2.3. Petros 2 Plan
Petros 2 Plan was established in July 2007 by Petrobras as a variable contribution plan, currently open to new enrollments.
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
F-48
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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 Company’s contributions for the portion of the plan with
defined contribution characteristics were US$ 177 in 2020 (US$ 242 in 2019 and US$ 260 in 2018).
The defined benefit portion of the contributions are suspended from July 1, 2012 to June 30, 2021, 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 2021, the sponsors' expected contributions to the defined contribution portion of the plan are US$ 188.
The average duration of the actuarial liability related to the plan, as of December 31, 2020 is 22.07 years (23.34 at December
31, 2019).
F-49
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
19.3. Net actuarial liabilities and expenses, and fair value of plans assets
a)
Changes in the actuarial liabilities recognized in the statement of financial position
Pension
Plans
Medical
Plan
2020
Petros
Renegotiated (*)
Petros Non-
renegotiated (*)
Petros 2
AMS
Other
plans
Total
15,847
(8,650)
7,197
10,231
84
(298)
382
(344)
(344)
(474)
(255)
(219)
(2,300)
−
(2,300)
7,197
315
12
7,524
4,811
(2,213)
2,598
3,264
40
(93)
133
285
285
(265)
(80)
(185)
(726)
−
(726)
2,598
99
(1)
2,696
1,177
(700)
477
989
131
64
67
(391)
(391)
−
−
−
(252)
−
(252)
477
−
−
477
5,356
−
5,356
11,986
(1,672)
(2,348)
676
(1,957)
(1,957)
(308)
(308)
−
(2,693)
−
(2,693)
5,356
−
−
5,356
26
(12)
14
27,217
(11,575)
15,642
24
2
−
2
(8)
(8)
(1)
(1)
−
(3)
2
(5)
14
−
2
16
26,494
(1,415)
(2,675)
1,260
(2,415)
(2,415)
(1,048)
(644)
(404)
(5,974)
2
(5,976)
15,642
414
13
16,069
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,
Recognized in the Statement of Income
Costs incurred in the period
Service cost
Recognized in Equity - other comprehensive income
Remeasurement effects recognized in other comprehensive
Cash effects
Contributions paid
Payments related to Term of financial commitment (TFC)
Other changes
Others
Cumulative Translation Adjustment
Balance of actuarial liability as of December 31,
Obligations with contribution for the revision of the lump sum
death benefit
Cumulative Translation Adjustment
Total obligation with pension and medical benefits
(*) It includes the balance of PPSP-R pre-70 and PPSP-NR pre-70.
(**) 'It includes the gain from past service cost, in the amount of US$ 374, due to the change in the Renegotiated and Non-renegotiated Petros Plans, and US$ 2,538 due to the
change in the AMS Medical Plan.
F-50
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Pension
Plans
Medical
Plan
2019
Petros
Renegotiated (*)
Petros Non-
renegotiated (*)
Petros 2
AMS
Other
plans
Total
20,919
(10,688)
10,231
7,152
561
51
510
4,155
4,155
(1,057)
(340)
(717)
(580)
(399)
−
(181)
10,231
5,955
(2,691)
3,264
1,672
(683)
989
2,880
211
6
205
815
815
(376)
(107)
(269)
(266)
(176)
−
(90)
3,264
411
75
40
35
527
527
−
−
−
(24)
(17)
−
(7)
989
11,986
−
11,986
12,236
1,232
208
1,024
89
89
(442)
(442)
−
(1,129)
(651)
−
(478)
11,986
37
(13)
24
71
7
2
5
3
3
(7)
(7)
−
(50)
(1)
(48)
(1)
24
40,569
(14,075)
26,494
22,750
2,086
307
1,779
5,589
5,589
(1,882)
(896)
(986)
(2,049)
(1,244)
(48)
(757)
26,494
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,
Recognized in the Statement of Income
Costs incurred in the period
Service cost
Recognized in Equity - other comprehensive income
Remeasurement effects recognized in other comprehensive
Cash effects
Contributions paid
Payments related to Term of financial commitment (TFC)
Other changes
Discontinued operations
Others
Cumulative Translation Adjustment
Balance of actuarial liability as of December 31,
(*) It includes the balance of PPSP-R pre-70 and PPSP-NR pre-70.
b)
Present value of the obligation
At December 31, 2020, a US$ 3,762 gain was accounted for in Equity, within other comprehensive income, arising from the
effect of updated premises on the present value of the obligations of benefit plans, as set out as follows:
Changes in the present value of obligations
Present value of obligations at the beginning of the year
Recognized in the Statement of Income
Interest expense
Service cost (**)
Recognized in Equity - other comprehensive income
Remeasurement: Experience (gains) / losses (***)
Remeasurement: (gains) / losses - demographic assumptions
Remeasurement: (gains) / losses - financial assumptions
Others
Benefits paid
Contributions paid by participants
Others
Cumulative Translation Adjustment
Present value of obligations at the end of the year
Pension
Plans
Medical
Plan
Petros
Renegotiated (*)
Petros Non-
renegotiated (*)
Petros 2
AMS
Other
plans
20,919
589
887
(298)
(148)
(436)
−
288
(5,513)
(920)
75
−
(4,668)
15,847
5,955
190
283
(93)
211
231
−
(20)
(1,545)
(228)
15
−
(1,332)
4,811
1,672
176
112
64
(228)
55
(20)
(263)
(443)
(35)
−
−
(408)
1,177
11,986
(1,672)
676
(2,348)
(1,957)
(671)
1
(1,287)
(3,001)
(310)
−
−
(2,691)
5,356
37
3
3
−
(7)
−
1
(8)
(7)
(2)
−
2
(7)
26
2020
Total
40,569
(714)
1,961
(2,675)
(2,129)
(821)
(18)
(1,290)
(10,509)
(1,495)
90
2
(9,106)
27,217
(*) It includes the balance of PPSP-R pre-70 and PPSP-NR pre-70.
(**) 'It includes the gain from past service cost, in the amount of US$ 374, due to the change in the Renegotiated and Non-renegotiated Petros Plans, and US$ 2,538 due to the
change in the AMS Medical Plan.
(***) It includes additional contributions - New PED.
F-51
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Pension
Plans
Medical
Plan
2019
Petros
Renegotiated (*)
Petros Non-
renegotiated (*)
Petros 2
AMS
Other
plans
Total
16,689
1,408
1,357
51
5,254
1,165
45
4,044
(2,432)
(892)
(1,097)
82
−
(525)
20,919
5,372
437
431
6
1,033
17
59
957
(887)
(304)
(420)
16
−
(179)
5,955
996
122
83
39
670
12,236
112
35,405
1,232
1,024
208
89
8
6
2
5
3,207
2,901
306
7,051
(34)
(2,489)
(7)
(1,348)
(43)
747
(116)
(58)
(33)
−
−
(25)
1,672
(169)
2,747
(1,571)
(651)
(442)
−
−
(478)
11,986
(1)
13
(88)
−
(2)
−
(84)
(2)
37
(109)
8,508
(5,094)
(1,905)
(1,994)
98
(84)
(1,209)
40,569
Changes in the present value of obligations
Present value of obligations at the beginning of the year
Recognized in the Statement of Income
Interest expense
Service cost
Recognized in Equity - other comprehensive income
Remeasurement: Experience (gains) / losses (**)
Remeasurement: (gains) / losses - demographic assumptions
Remeasurement: (gains) / losses - financial assumptions
Others
Discontinued operations
Benefits paid
Contributions paid by participants
Others
Cumulative Translation Adjustment
Present value of obligations at the end of the year
(*) It includes the balance of PPSP-R pre-70 and PPSP-NR pre-70.
(**) It includes additional contributions - PED 2015.
Pension Plan Medical Plan
2020
2019
Up to 1 Year
1 to 5 Years
6 to 10 Years
11 To 15 Years
Over 15 Years
Total
Petros
Renegotiated
879
3,306
3,474
3,290
4,898
15,847
Petros Non -
renegotiated
312
1,119
1,135
778
1,467
4,811
Petros 2
31
149
145
145
707
1,177
AMS
261
866
996
859
2,374
5,356
Other
Total
Plans
1,923
1
9,305
4
8,046
5
6,459
5
14,836
11
40,569
26
Total
1,484
5,444
5,755
5,077
9,457
27,217
(*) It includes the balance of PPSP-R pre-70 and PPSP-NR pre-70.
F-52
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
c)
Fair value of plan assets
Pension
Plans
Medical
Plan
Petros
Renegotiated (*)
Petros Non-
renegotiated (*)
Petros 2
AMS
Other
plans
Changes in the fair value of plan assets
Fair value of plan assets at the beginning of the year
Recognized in the Statement of Income
Interest income
Recognized in Equity - other comprehensive income
Remeasurement: Return on plan assets due to lower interest
income
Cash effects
Contributions paid by the sponsor (Company) (*)
Term of financial commitment (TFC) paid by the Company
Other Changes
Contributions paid by participants
Benefits Paid
Others
Cumulative Translation Adjustment
Fair value of plan assets at the end of the year
(*) It includes the balance of PPSP-R pre-70 and PPSP-NR pre-70.
10,688
505
505
196
196
474
255
219
(3,213)
75
(920)
−
(2,368)
8,650
13
1
1
1
1
1
1
−
(4)
−
(2)
−
(2)
12
2,691
150
150
(74)
(74)
265
80
185
(819)
15
(228)
−
(606)
2,213
683
45
45
163
163
−
−
−
(191)
−
(35)
−
(156)
700
−
−
−
−
−
308
308
−
(308)
−
(310)
−
2
−
Pension
Plans
Medical
Plan
Changes in the fair value of plan assets
Fair value of plan assets at the beginning of the year
Recognized in the Statement of Income
Interest income
Recognized in Equity - other comprehensive income
Remeasurement: Return on plan assets due to lower interest
income
Cash effects
Contributions paid by the sponsor (Company) (*)
Term of financial commitment (TFC) paid by the Company
Other Changes
Discontinued operations
Contributions paid by participants
Benefits Paid
Others
Cumulative Translation Adjustment
Fair value of plan assets at the end of the year
(*) It includes the balance of PPSP-R pre-70 and PPSP-NR pre-70.
Petros
Renegotiated (*)
Petros Non-
renegotiated (*)
Petros 2
Other
plans
9,537
847
847
1,099
1,099
1,067
342
725
(1,862)
(493)
82
(1,097)
−
(354)
10,688
2,492
226
226
218
218
381
108
273
(626)
(128)
16
(420)
−
(94)
2,691
585
48
48
143
143
−
−
−
(93)
(42)
−
(33)
−
(18)
683
−
−
−
−
−
442
442
−
(442)
−
−
(442)
−
−
−
41
2
2
2
2
7
7
−
(39)
−
−
(2)
(36)
(1)
13
2020
Total
14,075
701
701
286
286
1,048
644
404
(4,535)
90
(1,495)
−
(3,130)
11,575
2019
12,655
1,123
1,123
1,462
1,462
1,897
899
998
(3,062)
(663)
98
(1,994)
(36)
(467)
14,075
Seeking to maintain an appropriate investment performance, Petros Foundation annually prepares Investment Policies (PI)
specific to each plan, aiming at planning assets management for a period of five years, following two models: (i) for defined
benefit plans, the minimal mismatch in net cash flows, conditioned to the achievement of the actuarial target; and (ii) for the
variable contribution plan, the achievement of the actuarial goal with the lowest value at risk. The plan asset portfolio must
comply with the rules defined by the Brazilian National Monetary Council.
The Company uses the ATM - Asset and Liability Management model to resolve mismatches in the net cash flow of the benefit
plans managed by Petros Foundation, considering parameters of liquidity and solvency, adopting a 30-year horizon in the
simulations.
F-53
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
d)
Pension Plan 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.
The pension plan assets by type of asset are set out as follows:
2020
2019
Total fair
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
-
4,372
4,372
-
-
2,377
2,377
-
3
-
6,752
-
6,752
Unquoted
prices
Total fair
value
847
2,814
452
1,500
862
137
-
137
110
563
4,471
352
4,823
847
7,186
4,824
1,500
862
2,514
2,377
137
113
563
11,223
352
11,575
%
8%
62%
-
-
-
21%
-
-
1%
5%
97%
3%
100%
value
963
8,786
6,179
1,608
999
2,905
2,753
152
185
767
13,606
469
14,075
%
7%
62%
-
-
-
21%
-
-
1%
5%
97%
3%
100%
Loans to participants are measured at amortized cost, which is considered an appropriate estimate of fair value.
As of December 31, 2020, the investment portfolio included debentures of US$ 9 (US$ 11 in 2019), Company’s common shares
in the amount of US$ 1 (US$ 1 in 2019) and real estate properties leased by the Company in the amount of US$ 254 (US$ 342
in 2019).
e)
Net expenses relating to benefit plans
Pension
Plans
Medical
Plan
2020
2019
2018
Petros
Renegotiated
(*)
589
(505)
Petros Non-
renegotiated
(*)
190
(150)
Petros 2
176
(45)
315
399
66
333
399
99
139
15
124
139
−
131
112
19
131
AMS
(1,672)
−
−
(1,672)
(276)
(1,396)
(1,672)
Other
Plans
3
(1)
Total
(714)
(701)
Total
3,209
(1,123)
Total
3,275
(1,257)
−
2
−
2
2
414
(1,001)
(83)
(918)
(1,001)
−
2,086
715
1,371
2,086
−
2,018
617
1,401
2,018
Present value of obligations
Fair value of plan assets
Obligations with contribution for the revision of
the lump sum death benefit
Net expenses for the year
Related to active employees
Related to retired employees (**)
Net expenses for the year
(*) It includes the balance of PPSP-R Pre-70 and PPSP-NR Pre-70.
(**) It includes US$ 889 related to the actuarial remeasurement and US$ 29 to the update of the obligation with the contribution for the reduction of the lump sum death
benefit.
F-54
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
f)
Main actuarial assumptions
2020
Medical
Pension Plans
Plan
Assumptions
Nominal discount rate
(including inflation)(1)
PPSP-R
5.83% (05/2020)
7.03% (12/2020)
PPSP-NR
5.77% (05/2020)
6.97% (12/2020)
PPSP-R
Pré-70
6.55%
PPSP-NR
Pré-70
6.55%
PP2
7.44%
AMS
7.2%
Nominal expected salary
growth (including inflation) (2)
Expected changes in medical
and hospital costs (3)
4.75%
4.54%
4.75%
4.54%
6.2%
according to
security plan
n/a
n/a
n/a
n/a
n/a 6.17% a 3.90% a.a.
Mortality table
EX-PETROS 2013
(bidecremental)
EX-PETROS 2020
(bidecremental)
EX-PETROS 2016
(bidecremental)
EX-PETROS 2020
(bidecremental)
AT-2012 IAM basic
fem 10%
smoothed
EX-PETROS 2013
(bidecremental)
Disability table
American group
American group
n/a
n/a
Álvaro Vindas 40%
smoothed
Álvaro Vindas 40%
smoothed
Mortality table for disabled
participants
AT-49 male
AT-49 male
MI 2006, by
gender, 20%
smoothed
Petros Experience
2014
IAPB 1957
strong, 20%
smoothed
AT-49 male
Age of retirement
Male, 56 years /
Female, 55 years
Male, 58 years /
Female, 56 years
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: 3.32% for 2021 and converging to 3.9% in 2025 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.
2019
Assumptions
Nominal discount rate
(including inflation)(1)
Nominal expected salary
growth (including inflation) (2)
Expected changes in medical
and hospital costs (3)
PPSP-R
PPSP-NR
PPSP-R Pre-70
PPSP-NR Pre-70
PP2
AMS
7.13%
7.10%
6.82%
6.81%
7.30%
7.19%
4.61%
4.34%
4.61%
4.34%
6.40%
according to
security plan
n/a
n/a
n/a
n/a
Mortality table
EX-PETROS 2013
(bidecremental)
EX-PETROS 2020
(bidecremental)
EX-PETROS 2016
(bidecremental)
EX-PETROS 2020
(bidecremental)
n/a
10.46% a 3.50%
p.a.
AT-2000 female,
smoothed in a
10%
EX-PETROS 2013
(bidecremental)
Disability table
American group
American group
n/a
n/a
American group
reduced by 40%
American group
Mortality table for disabled
participants
AT-49 male
AT-49 male
MI 2006, by
gender, 20%
smoothed
MI 2006, by
gender, 20%
smoothed
IAPB 1957 strong
AT-49 male
Age of retirement
Male, 56 years /
Female, 55 years
Male, 58 years /
Female, 56 years
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 2020 and converging to 3.5% in 2035 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.
F-55
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
g)
Sensitivity analysis of the defined benefit plans
The effect of a 100 basis points (bps) change in the assumed discount rate and medical cost trend rate is as set
out below:
Pension Benefits
Discount Rate
Medical Benefits
Expected change in medical
and hospital costs
Medical Benefits
+100 bps
-100 bps
+100 bps
-100 bps
+100 bps
-100 bps
(2,376)
(5)
3,064
−
(670)
(36)
849
46
857
114
(652)
(81)
Pension Obligation
Current Service cost and interest cost
19.4. Plano Petros 3 (PP-3)
On October 1, 2020, the Board of Directors approved the submission of the PP-3 for analysis by the Secretariat of Management
and Governance of the State-owned Companies (SEST) and to the Superintendency of Post-retirement benefits (PREVIC).
The PP-3 is a new pension plan with defined contribution characteristics and will be an exclusive option for voluntary migration
of participants from the PPSP-R and PPSP-NR plans, not including pre-70.
The mentioned agencies have approved this plan after adjustments on its regulation, and is expected to begin operating in the
second quarter of 2021. Then, the Company will carry out an actuarial review of the original plans to determine the effect of
the past service cost, resulting from the reduction of such plans, to be accounted for in the Statement of income.
19.5. Accounting policy for post-employment defined benefits
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 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.
F-56
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
20. Provisions for legal proceedings
20.1. 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; and (ii) 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; and (iii) fines for non-compliance with accessory tax obligations;
Civil claims relating to: (i) lawsuits related to contracts; (ii) royalties and special participation charges, including royalties
over shale extraction; and (iii) penalties applied by ANP relating to measurement systems.
Environmental claims mainly regarding: (i) compensation and fines relating to an environmental accident in the State of
Paraná in 2000; and (ii) fines relating to the Company’s offshore operation.
Provisions for legal proceedings are set out as follows:
Current and Non-current liabilities
Labor claims
Tax claims
Civil claims
Environmental claims
Total
Opening Balance
Additions, net of reversals
Use of provision
Accruals and charges
Transfer to assets held for sale
Others
Cumulative translation adjustment
Closing Balance
12.31.2020
706
488
713
292
2,199
12.31.2019
895
463
1,523
232
3,113
2020
3,113
464
(744)
28
-
20
(682)
2,199
2019
7,405
1,290
(5,332)
233
(289)
22
(216)
3,113
In preparing its consolidated financial statements for the year ended December 31, 2020, 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 reductions in provisions for legal proceedings in 2020 relate to the use of provisions relating to civil claims involving
contractual issues, mainly due to agreements made in the period.
20.2. 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:
F-57
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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
12.31.2020
5,154
831
1,095
113
88
7,281
12.31.2019
5,926
1,056
1,082
160
12
8,236
2020
8,236
937
(86)
90
-
(4)
(1,892)
7,281
2019
6,711
2,021
(187)
329
(313)
(1)
(324)
8,236
In the year ended December 31, 2020, the Company made judicial deposits in the amount of US$ 937, including: (i) US$ 301
related to the chartering of platforms due to the legal dispute related to the IRRF; (ii) US$ 294 referring to IRPJ and CSLL for
not adding the profits of subsidiaries and affiliates domiciled abroad to the IRPJ and CSLL calculation basis; (iii) US$ 210 relating
to the Unification of Fields (Cernambi, Lula, Tartaruga Verde and Tartaruga Mestiça); (iv) US$ 78 deposit as guarantee for a
ship seizure operation; and (v) US$ 67 relating to the collection of income taxes (IRPJ and CSLL) due to the deduction of
expenses for the contribution to the Petros Plan.
20.3. 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, 2020, 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
12.31.2020
24,511
8,179
4,621
1,465
38,776
12.31.2019
32,376
9,734
5,977
1,576
49,663
The tables below detail the main causes of tax, civil, environmental and labor nature, whose expectations of losses are classified
as possible.
F-58
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(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.
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.
Current status: Awaiting defense judgment and appeals at the administrative and judicial levels.
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 Velha and
Vitória
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, PB and SE 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 which are in different administrative and judicial stages. The
reduction primarily relate to VAT tax amnesty programs in RJ.
Plaintiff: States of RJ, AL and BA 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.
Plaintiff: States of RJ, BA, PE, SE and AM Finance Departments
11) The plaintiff alleges that the transfers between branches, especially in RJ, without segregating VAT (ICMS), under the special
regime, reduced the total credits of the central department.
Current status: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: States of SP, SC 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, instead of MS state.
Estimate
12.31.2020
12.31.2019
9,532
11,632
4,106
5,224
781
1,019
812
992
454
579
468
536
1,056
1,250
384
1,191
788
1,098
818
1,058
812
989
F-59
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Current status: This claim involves lawsuits in different administrative and judicial stages, as well as three civil lawsuits in the
Federal Supreme Court. In the judgment of a lawsuit filed by the State of MS against the States of SP, SC and RS in the STF, the
State of MS was considered the legitimate creditor of the tax. After the Supreme Court decision, the expectation was changed to
remote loss. This decision has not yet become final, and an appeal period is in progress for the States of SP, SC and RS.
Plaintiff: States of RJ and PR 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. In 2020, the federal and state laws of RJ
recognized the remission/amnesty on these debts. As a result, the loss expectation is deemed remote in RJ's lawsuits.
Plaintiff: States of GO, RJ, PA, BA, SE, AL, SP and PR Finance Departments
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: This claim involves lawsuits in different administrative and judicial stages.
Plaintiff: States of PR, AM, BA, PA, PE, SP 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 stages.
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.
Plaintiff: States of RJ, SP, BA, PE, RS, PR and SE 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 loss expectation revision on
this matter.
Plaintiff: States of RJ, SP, BA, AL, PB and AM 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.
Plaintiff: Secretariat of the Federal Revenue of Brazil
19) Income taxes (IRPJ and CSLL) - Amortization of goodwill on the acquisition of equity interests.
Current status: This claim involves lawsuits in different administrative and judicial stages.
20) Other tax matters
Total for tax matters
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: The Superior Labor Court (Tribunal Superior do Trabalho - TST) denied the special appeal filed by the Company.
Petrobras filed a appeal, which is currently pending judgment by the Federal Supreme Court. On July 26, 2018, the president
minister of the Federal Supreme Court (Supremo 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
selected Rapporteur confirmed the decision of the president minister and extended its effects to the ongoing actions on the
matter, suspending all cases relating to this subject.
2) Other labor matters
Total for labor matters
-
640
21
634
517
602
392
571
416
565
331
562
418
511
326
2,079
24,511
228
2,495
32,376
Estimate
12.31.2020
12.31.2019
6,679
1,500
8,179
7,732
2,002
9,734
F-60
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(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 and legal proceedings challenging an ANP order requiring Petrobras to pay additional special participation fees
and royalties (production taxes) with respect to several fields.
Current status: The claims involve lawsuits in different administrative and judicial stages.
Plaintiff: Agência Nacional de Petróleo, Gás Natural e Biocombustíveis - ANP and other agencies
2) Administrative and legal proceedings about fines imposed by ANP due to alleged failure to comply with the minimum
exploration activities program, as well as alleged irregularities relating to compliance with oil and gas industry regulation. It also
includes fines imposed by other agencies.
Current status: The claims involve lawsuits in different administrative and judicial stages.
Plaintiff: Agência Nacional de Petróleo, Gás Natural e Biocombustíveis - ANP and other agencies
3) Proceedings challenging an ANP order requiring Petrobras to unite Tupi and Cernambi fields on the BM-S-11 joint venture; to
unite Baúna and Piracicaba fields; to unite Tartaruga Verde and Mestiça fields; and to unite Baleia Anã, Baleia Azul, Baleia Franca,
Cachalote, Caxaréu, Jubarte and Pirambu, in the Parque das Baleias complex, which would cause changes in the payment of special
participation charges.
Current status: This list involves claims that are disputed in court and in arbitration proceedings, as follows:
a) Tupi 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: EIG Management Company in USA
4) Lawsuit in the USA regarding Sete Brasil.
Current status: The lawsuit brought by EIG and its affiliates alleges that the Company has committed fraud by inducing the
claimants to invest in "Sete" through communications that would have omitted an alleged corruption scheme involving Petrobras
and "Sete". During the year 2020, the case continued at the stage of producing evidence in the lower court. The next procedural
phases are expected to be scheduled, including the final merit hearing. Decrease in value mainly due to the closure in 2020 of
several arbitrations in Brazil relating to the Sete Brasil matter.
Plaintiff: Agência Estadual de Regulação de Serviços Públicos de Energia, Transportes e Comunicações da Bahia (AGERBA) and
State Gas Companies
5) 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.
6) Other civil matters
Total for civil matters
Description of environmental matters
Plaintiff: Ministério Público Federal, Ministério Público Estadual do Paraná, AMAR - Associação de Defesa do Meio Ambiente
de Araucária, IAP - Instituto Ambiental do Paraná and IBAMA - Instituto Brasileiro de Meio Ambiente e Recursos Naturais
Renováveis.
1) Legal proceeding related to specific performance obligations, indemnification and compensation for damages related to an
environmental accident that occurred in the State of Paraná on July 16, 2000.
Current status: The court partially ruled in favor of the plaintiff. However, both parties (the plaintiff and the Company) filed an
appeal. The appeals were parttially granted.
2) Other environmental matters
Total for environmental matters
Estimate
12.31.2020
12.31.2019
927
892
392
627
471
391
53
1,024
308
2,469
4,620
299
2,744
5,977
Estimate
12.31.2020
12.31.2019
425
1,040
1,465
470
1,106
1,576
F-61
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
20.4. Class action in Netherlands and Arbitrations in Brazil and in Argentina
20.4.1. Class action in 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 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 and the Company presented the oral arguments at a hearing held on January 26, 2021.
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 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.
20.4.2. Arbitrations in Brazil
Petrobras is also currently a party to seven arbitrations proceedings before the Market Arbitration Chamber (Câmara de
Arbitragem do Mercado - CAM), linked to the Brazilian Stock Exchange (B3), brought by investors who purchased Petrobras’
shares traded on B3. Six of these arbitrations were initiated by national and foreign investors. The other proceeding was
brought by an association that is not a shareholder of the Company and intends to be a collective arbitration, through
representation of all minority shareholders of Petrobras that acquired shares on B3 between January 22, 2010 and July 28,
2015. Investors claim alleged financial losses caused by facts uncovered in the Lava Jato investigation.
F-62
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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 discovery
and analysis by 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.
Depending on the outcome of these complaints, the Company may have to pay substantial amounts, which may have a
significant effect on its consolidated financial position, financial performance and cash flows in a certain period. However,
Petrobras does not recognize responsibility for the losses alleged by investors in these arbitrations.
Most of these arbitrations are still in the preliminary stages and a final decision is not expected in the near future. However, in
relation to one of the arbitrations, proposed by two institutional investors, on May 26, 2020, a partial arbitral award was issued
indicating the Company's responsibility, but not determining the payment of amounts by Petrobras, nor ending the procedure.
This arbitration, as well as the other arbitrations in progress, are confidential and the partial arbitral award - which does not
represent a CAM position, but only of the three arbitrators that make up this arbitration panel - does not extend to the other
ongoing arbitrations.
On July 20, 2020, Petrobras filed a lawsuit for the annulment of this partial arbitral award, as the Company understands that
the award contains serious flaws and improprieties. This lawsuit is still without any assessment on the merits of the case and
its judgement is pending. On November 11, 2020, the 5th Business Court of Rio de Janeiro annulled the partial arbitration
award, due to these serious flaws and improprieties pointed out by Petrobras. There is still appeal against this decision. In
compliance with CAM rules, the lawsuit is confidential and only available to those involved in the original arbitration
proceeding. Petrobras will continue to defend itself in this and other arbitrations.
20.4.3. 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.
20.5. Other legal proceeding in Argentina
Petrobras was included as a defendant in criminal actions in Argentina:
•
•
Criminal action 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 but some of them 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 but some of them have not yet been
judged by the court. On September 14, 2020, the judge accepted the defense presented by the Company and decided
that Petrobras could not be sued in a criminal case before the Argentine Justice. The Association appealed this decision,
and the appeal is pending judgment. This criminal action is pending before the Criminal Economic Court No. 2 of the
city of Buenos Aires.
F-63
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
20.6. Tax recoveries under dispute
20.6.1. 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 2020, of ICMS within the calculation basis of PIS and COFINS. In 2020, the Company obtained a favorable and definitive
court decision on this claim, and the Company recognized the corresponding credit, as set out in note 17.
The tax credit relates to the exclusion of the ICMS effectively collected when included in the basis of calculation of PIS and
COFINS, as deliberated by the Superior Federal Court (Superior Tribunal Federal – STF). In relation to the amounts
corresponding to the difference between the criterion established in the regulation and the ICMS amount reported in the
invoices, these were not recognized as tax credit, since it is still pending final decision of the STF.
20.7. Accounting policy for provisions for legal proceedings, contingent liabilities and contingent assets
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.
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.
21. 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
Closing balance
2020
17,460
5,720
(519)
(446)
571
15
(4,021)
18,780
2019
15,133
5,642
(3,071)
(502)
699
3
(444)
17,460
(*) In 2019, it includes transfers to held for sale related to the Campos basin; concessions in Rio Grande do Norte and Bahia states; Frade and Baúna fields, as set out in note 24.
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 2020, the revision of the provision resulted in an increase of US$ 5,720, reflecting the Strategic Plan 2021-2025 and the
revision of technical assumptions. These are the main factors:
•
•
•
•
increase attributable to the devaluation of the Real against the US Dollar (from R$ 4.03 / US$ 1.00 in 2019, to R$ 5.20
/ US$ 1.00 in 2020) , with a direct impact on dollar costs;
anticipation of timing the abandonments in some fields (mainly Tupi, Marlim Sul, Roncador and Jubarte);
reduction in the risk-adjusted discount rate from 4.22% p.a. in 2019 to 4.15% p.a. in 2020, due to an improvement in
risk perception in the world panorama;
reduction due to the review of technical assumptions for wells and equipment.
F-64
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
21.1. Accounting policy for decommissioning costs
The initial recognition of legal obligations to remove equipment and restore land or sea areas at the end of operations occurs
after the technical and commercial feasibility of producing oil and gas in a field has been demonstrated. The calculations of the
cost estimates for future environmental removals and recoveries are complex and involve significant judgments (as set out in
note 4.6).
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, in the event that a decrease in the liability exceeds the carrying amount of the
asset, the excess shall be recognized immediately in profit or loss.
In the classification of non-current assets as held for sale, provisions for decommissioning costs related to these assets are also
included. Any commitments assumed with future environmental removals and recoveries resulting from the sale of assets are
recognized after the closing of the sale operation, in accordance with the contractual terms.
F-65
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
22. Other Assets and Liabilities
Assets
Escrow account and/ or collateral
Prepaid expenses
Advances to suppliers
Derivatives Transactions
Agreements and covenants
Others
Current
Non-Current
Liabilities
Obligations arising from divestments
Contractual retentions
Advances from customers and partners
Provisions for environmental expenses, R&D and fines
Other recoverable taxes
Derivatives Transactions
Various creditors
Short-term benefits
Others
Current
Non-Current
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(d)
(k)
12.31.2020
12.31.2019
780
394
263
119
71
238
1,865
1,230
635
670
647
1,130
85
115
349
2,996
1,493
1,503
12.31.2020
12.31.2019
936
536
433
460
406
283
123
147
483
3,807
1,603
2,204
70
642
509
610
534
157
155
38
608
3,323
1,973
1,350
a) Amounts deposited for payment of obligations related to the finance agreement with China Development Bank, as well as
margin in guarantee for futures and over-the-counter derivatives. In addition, there are amounts in investment funds from
escrow accounts related to divestment of TAG and NTS.
b) Amounts whose compensation must be made by supplying materials or providing services contracted with these suppliers.
c) Spending on platform charters and equipment rentals to be appropriated in situations in which the start of operations has
been postponed due to legal requirements or the need for technical adjustments.
d) Amounts anticipated by the joint operating partners.
e) Provisions for financial reimbursements assumed by Petrobras to be made to the acquirer, referring to abandonment costs
of the divested assets of the following groups of fields: (i) Riacho da Forquilha; (ii) Pampo and Enchova; (iii) Macau; and (iv)
Lagoa Parda. The settlement of these provisions follows decommissioning schedules, with payments beginning between two
and three months after the date expected for the execution of operations, according to the contractual terms for
reimbursement of abandonment of the respective groups of fields.
f) Retained amounts from obligations with suppliers to guarantee the execution of the contract, accounted for when the
obligations with suppliers are due. Contractual retentions will be paid to suppliers at the end of the contract, upon issuance of
the contract termination term.
g) Amounts related to the advanced or cash receipt from third parties, related to the sale of products or services in Brazil.
h) Accrued amounts for environmental compensation assumed by the Company in the course of its operations and research
projects.
F-66
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
i) Non-current portion of other recoverable taxes (see note 17).
k) Non-current portion of the voluntary severance programs (PDV), as set out in note 18.
j) Fair value of open positions and transactions closed but not yet settled.
22.1. Accounting policy for obligations arising from divestments
Obligations arising from divestments are recognized at present value, using a risk-free discount rate, adjusted to the Company's
credit risk, as the best estimate of disbursement required to settle the present obligation at the reporting date and may be
subject to changes as activity execution schedules are updated and detailed by acquirers.
23. The “Lava Jato (Car Wash) Operation” and its effects on the Company
The Company has monitored the progress of investigations under the “Lava Jato” Operation and, in the preparation of these
annual consolidated financial statements for the period ended December 31, 2020, did not identify any additional information
that would affect the adopted calculation methodology to write off, in the third quarter of 2014, amounts overpaid 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.
In addition, the Company has fully cooperated 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.
During 2020, new leniency and plea agreements entitled the Company to receive funds with respect to compensation for
damages, in the amount of US$ 155 (US$ 220 in 2019), accounted for as other income and expenses. Thus, the total amount
recovered from Lava Jato investigation through December 31, 2020 was US$ 1,287.
23.1. Investigations involving the Company
23.1.1. 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.
23.1.2. 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.
23.1.3. 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
F-67
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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.
24. Commitment to purchase natural gas
The GSA agreement (Gas Supply Agreement) entered into with Petrobras and Yacimientos Petroliferos Fiscales Bolivianos -
YPFB was initially effective until December 31, 2019. In addition, according to agreement provision, after December 31, 2019,
the GSA was automatically extended until the entire volume contracted is delivered by YPFB and withdrawn by Petrobras. On
March 6, 2020, by means of a contractual amendment, the Parties changed the daily contracted quantity (QDC) from 30.08
million m³ per day to 20 million m³ per day, which became effective as from March 11, 2020.
Thus, as of December 31, 2020, the total amount of the GSA for 2021 is nearly 7.30 billion cubic meters of natural gas
(equivalent to 20.00 million cubic meters per day) and corresponds to a total estimated value of US$ 1.06 billion. Based on the
aforementioned extension clause, the Company expects purchases to continue through May 2024, on the same volume basis
according to current indicators, representing an estimated additional amount of US$ 3.35 billion, for the period from January
1, 2021 to May 05, 2024.
F-68
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
25. Property, plant and equipment
25.1. By class of assets
Land, buildings
and
improvement
5,210
-
-
Equipment
and other
assets (*)
76,028
-
2,784
Assets under
construction
(**)
28,926
-
5,269
Exploration
and
development
costs (oil and
gas producing
properties) (***)
47,219
-
145
Right-of-use
assets
-
26,575
2,332
Balance at January 1, 2019
Adoption of IFRS 16
Additions
Additions to / review of estimates of decommissioning costs
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
Impairment reversal
Cumulative translation adjustment
Balance at December 31, 2019
Cost
Accumulated depreciation, amortization, depletion and
impairment
Balance at December 31, 2019
Additions
Additions to / review of estimates of decommissioning
costs (note 21)
Capitalized borrowing costs
Write-offs
Transfers
Transfers to assets held for sale
Depreciation, amortization and depletion
Impairment recognition (note 27)
Impairment reversal (note 27)
Cumulative translation adjustment
Balance at December 31, 2020
Cost
Accumulated depreciation, amortization, depletion and
impairment (****)
Balance at December 31, 2020
Weighted average useful life in years
-
-
-
(3)
478
(803)
(231)
(2)
-
(199)
4,450
6,856
(2,406)
4,450
-
-
-
(4)
(258)
(8)
(142)
(14)
-
(981)
3,043
5,450
(2,407)
3,043
40
(25 to 50)
(except land)
-
-
-
(92)
6,055
(4,942)
(6,106)
(1,298)
236
(2,287)
70,378
119,993
(49,615)
70,378
4,587
-
-
(438)
2,676
(226)
(4,298)
(7,293)
5,542
(12,248)
58,680
107,199
(48,519)
58,680
20
(3 to 31)
Total
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
12,380
5,421
941
(2,361)
558
(1,068)
(12,326)
(15,102)
7,760
(31,267)
124,201
224,875
-
1,336
-
(293)
(10,466)
(621)
-
(1,453)
80
(826)
21,952
21,952
-
21,952
3,090
-
941
(461)
(3,175)
27
-
(2,855)
482
(4,558)
15,443
27,544
5,497
-
(8,319)
(407)
4,879
(1,204)
(4,756)
(743)
459
(1,873)
40,897
70,647
(29,750)
40,897
365
5,421
-
(187)
1,336
(848)
(3,864)
(4,603)
1,612
(8,963)
31,166
60,902
-
-
-
(21)
126
(1,339)
(5,019)
(161)
-
(905)
21,588
26,440
(4,852)
21,588
4,338
-
-
(1,271)
(21)
(13)
(4,022)
(337)
124
(4,517)
15,869
23,780
(12,101)
15,443
(29,736)
31,166
(7,911)
15,869
(100,674)
124,201
Units of
production
method
8
(2 to 47)
(*) It is composed of production platforms, refineries, thermoelectric power plants, natural gas processing plants, pipelines, and other operating, storage and production plants,
including subsea equipment for the production and flow of oil and gas, depreciated based on the units of production method.
(**) See note 33 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.
(****) In the case of assets under construction, it refers only to impairment losses.
For the the year ended December 31, 2020 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 the FPSO P-77, a new production system located
in the Atapu field.
F-69
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
The right-of-use assets at December 31, 2020 comprise the following underlying assets:
Balance at December 31, 2020
Cost
Accumulated depreciation, amortization and depletion
Balance at December 31, 2019
Cost
Accumulated depreciation, amortization and depletion
25.2. Estimated useful life
Platforms
7,979
11,144
(3,165)
12,196
14,542
(2,346)
Vessels
7,167
11,257
(4,090)
8,335
10,698
(2,363)
Properties
723
1,379
(656)
1,057
1,364
(307)
Total
15,869
23,780
(7,911)
21,588
26,604
(5,016)
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
Buildings and improvements, equipment and other assets
Cost
3,456
8,255
5,266
35,395
28,875
11,464
4,500
15,305
112,516
5,317
107,199
Accumulated
depreciation
Balance at
December 31, 2020
(2,627)
(4,947)
(1,075)
(25,213)
(5,966)
(2,296)
(1,992)
(6,804)
(50,920)
(2,401)
(48,519)
829
3,308
4,191
10,182
22,909
9,168
2,508
8,501
61,596
2,916
58,680
25.3. 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 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 qualifying
assets are excluded from this calculation until the completion of all activities necessary to set the asset in conditions for use or
sale intended by management. 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.
F-70
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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 25.2 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.
25.4. 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).
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 2019). 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 in 2019.
25.5. Oil and Gas fields operated by Petrobras returned to ANP
In 2020, the following oil and gas fields were returned to ANP: Agulha, Caioba, Camorim, Dourado, Guaricema, Piranema,
Piranema Sul, Salgo e Tatuí. These fields were returned to ANP mainly due to their economic unfeasibility and, as a
consequence, the Company wrote off the amount of US$ 12 in addition to impairments recognized in prior years.
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.
25.6. 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, 2020, the capitalization rate was
6.12% p.a. (6.40% p.a. for the year ended December 31, 2019).
F-71
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
26.
Intangible assets
26.1. By class of assets
Balance at January 1, 2019
Addition
Concession for exploration of oil and natural gas - Oil Surplus
on the Transfer of Rights Agreement
Capitalized borrowing costs
Write-offs
Transfers
Amortization
Impairment recognition
Cumulative translation adjustment
Balance at December 31, 2019
Cost
Accumulated amortization
Balance at December 31, 2019
Addition
Capitalized borrowing costs
Write-offs
Transfers
Amortization
Impairment recognition
Cumulative translation adjustment
Balance at December 31, 2020
Cost
Accumulated amortization
Balance at December 31, 2020
Estimated useful life in years
Rights and Concessions
2,330
Software
272
Goodwill
203
1,339
15,341
-
(11)
(83)
(10)
(1)
263
19,168
19,290
(122)
19,168
31
-
(173)
(2)
(8)
-
(4,302)
14,714
14,803
(89)
14,714
(*)
74
-
4
(6)
(47)
(60)
-
5
242
1,469
(1,227)
242
88
1
(3)
(1)
(58)
(6)
(53)
210
1,245
(1,035)
210
5
-
-
-
-
(137)
-
-
(3)
63
63
-
63
-
-
-
(26)
-
(6)
(7)
24
24
-
24
Indefinite
Total
2,805
1,413
15,341
4
(17)
(267)
(70)
(1)
265
19,473
20,822
(1,349)
19,473
119
1
(176)
(29)
(66)
(12)
(4,362)
14,948
16,072
(1,124)
14,948
(*) 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, 2020 and 2019, 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. The total amount of the signature bonus paid was US$ 348.
There were no new bidding rounds in the concession regime during 2020.
Exploration Rights - Surplus Volume of the Transfer of Rights Agreement and Production Sharing contract
On November 6, 2019, the ANP held the Bidding Round for the Surplus Volume of the Transfer of Rights Agreement, when the
Company acquired 90% interest in the exploration and production rights of the surplus volume of Búzios field from the
Assignment Agreement, in partnership with CNODC Brasil Petróleo e Gás Ltda. (5%) and CNOOC Petroleum Brasil Ltda. (5%)
and 100% interest of the surplus volume of the Itapu field.
The signature bonus corresponding to the Company's interest was US$ 14,912, paid in December 2019.
The co-participation agreement is being negotiated and should be concluded by September 2021, final basis to the rights and
obligations arising from the production sharing contract in Búzios and Itapu. Since it was a special bidding round, related to the
production surplus from fields with technical and commercial feasibility already defined, the values of the signature bonuses
paid will be transferred from intangible assets to property, plant and equipment after the finalization of the co-participation
agreement and eventual adjustments to the reserves volumes that will be incorporated by Petrobras.
F-72
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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.
There were no new bidding rounds in the production sharing regime during 2020.
Assumption of additional participation in concession contracts
During 2020, partner companies in some exploratory projects decided to leave the business and the company assumed their
participation in the consortia. Assumption of rights was non-onerous, and did not imply disbursement by the company. Until
December 31, 2020, the ANP had approved the signing of the additives to the concession contracts for the exploration blocks
ES-M-596 (originally 50% Petrobras and 50% Equinor), ES-M-671 (40% Petrobras; 35% Equinor and 25% Total) and ES-M-743
(40% Petrobras; 35% Equinor and 25% Total), in which the company now holds 100% interest.
The transaction is similar to a donation, thus the installments related to the exploration rights assumed were assessed at fair
value, taking as a parameter the total value of the bonus offered to these blocks in the 11th bidding round. The value of the
signature bonus corresponds to the shares assumed and was recognized in intangible assets in the amount of US$ 25, and the
corresponding income as other operating income. The company received the installments due by the partners in the minimum
exploratory program (Programa Exploratório Mínimo - PEM).
26.2. 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.
When the technical and commercial feasibility of oil and gas production is demonstrated for the first field in an area, the value
of the signature bonus corresponds to the right to explore, drill and produce oil and gas fields is reclassified to property, plant
and equipment at their full value. While they are in intangible assets, they are not amortized. Other intangible assets with
defined useful lives are amortized on a straight-line basis over their estimated useful lives.
If, when defining the first field of a block, there are exploratory activities being carried out in different locations in the block,
so that oil and gas volumes can be estimated for other possible reservoirs in the area, then the value of the signature bonus is
partially reclassified to PP&E, based on the ratio between the volume of oil and gas expected (oil in place - VOIP) of a specific
reservoir and the total volume of oil and gas expected for all possible reservoirs in the area.
However, if exploratory activities in the remaining areas do not result in technical and commercial viability, the corresponding
value of the signature bonus is not written off, but transferred to PP&E and added to the value of the signature bonus related
to the location that was previously assessed as technically and commercially viable.
Intangible assets with an indefinite useful life are not amortized but are tested annually for impairment. Their useful lives are
reviewed annually.
26.3. Exploration rights returned to the Brazilian Agency of Petroleum, Natural Gas and Biofuels -
Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (ANP)
In 2020, 45 exploration areas were returned to the ANP, in Camamu-Almada, Espírito Santo, Jequitinhonha, Potiguar,
Recôncavo, Pelotas, Pernambuco-Paraíba, Santos and Sergipe-Alagoas basins (12 in 2019 in Sergipe-Alagoas, Potiguar,
Recôncavo and Parnaíba basins), totaling US$ 172 (US$ 3 in 2019), mainly due to the Peroba exploratory block US$ 154.
F-73
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
27.
Impairment
The Company annually tests its assets for impairment or when there is an indication that their carrying amount may not be
recoverable.
During 2020, impairment losses were mainly recognized in the first quarter, arising from significant and adverse effects on the
oil and oil products market: (i) the outbreak of the COVID-19 pandemic, with a sharp reduction in the circulation of people and
in the world economic activity, causing a shock on demand of these products, and (ii) failure in negotiations between members
of Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, to define production levels, which
contributed to an increase in the global oil supply with a reduction in price in early March.
These events led the Company to adopt a set of measures, in the first quarter of 2020, aiming at preserving cash generation,
as well as to revise the key assumptions of the 2020-2024 Strategic Plan, such as Brent prices, exchange rates, oil product
spreads, among others, whose effects were accounted for in the first quarter of 2020.
On November 25, 2020, management concluded and approved its 2021-2025 Strategic Plan, considering a complete update of
economic assumptions, as well as its project portfolio and estimates of reserve volumes, which support the impairment tests
conducted in this reporting period.
The oil and gas production estimated in the scope of the plan indicates a continuous growth focused on the development of
projects that generate higher value, with an increase in the participation of assets in the pre-salt layer, which present lower
lifting costs. During this period, 13 new production systems are expected to enter into operation, all of which will be allocated
to deep and ultra-deep water projects.
The expected investment considered in the plan for the five-year period is US$ 55 billion, 84% allocated to E&P segment (of
which US$ 32 billion destined for pre-salt layer assets).
The table below shows impairment losses and reversals recognized within the statement of income in 2020, 2019 and 2018:
F-74
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Asset or CGU by nature (*)
Property, plant and equipment and intangible assets
Producing properties relating to oil and gas activities in Brazil
(several CGUs)
Oil and gas production and drilling equipment in Brazil
Comperj
Second refining unit in RNEST
Corporate facilities
Others
Assets classified as held for sale
Producing properties relating to oil and gas activities
Cartola and Ataulfo Alves vessels
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
Fertilizer plant - UFN III
Comperj
Second refining unit of 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
Fertilizer plant - UFN III
Producing properties relating to oil and gas activities Abroad
(several CGUs)
GASFOR II
Comperj
Second refining unit of RNEST
Others
Assets classified as held for sale
Producing properties relating to oil and gas activities in Riacho da
Forquilha
Others
Total
Carrying
amount
Recoverable
amount (**)
Impairment
(losses) /
reversals
42,421
120
266
410
152
40,511
−
526
388
−
−
80
270
19
105,532
1,347
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
196,994
1,453
−
−
117
498
15
−
808
105
68
354
468
9,923
1,300
6
200
1,554
−
−
1,092
756
459
109
(7,316)
(119)
260
(22)
(161)
3
(7,355)
79
(62)
(7,338)
(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)
Business
segment Comments
2020
E&P - Brazil
E&P - Brazil
RTM - Brazil
RTM - Brazil
Corporate, others
Several
item (a1)
item (b1)
item (c1)
item (d1)
item (e)
E&P - Brazil
RTM - Brazil
note 27.2
note 27.2
E&P - Brazil
RTM - Brazil
E&P - Brazil
RTM - Brazil
RTM - Brazil
RTM - Brazil
E&P - Abroad
Several
E&P - Brazil
E&P - Brazil
E&P - Brazil
E&P - Abroad
Several
2019
item (a2)
item (f1)
item (b2)
item (g1)
item (c2)
item (d2)
item (h)
note 27.2
note 27.2
note 27.2
2018
E&P - Brazil
RTM - Brazil
E&P - Brazil
RTM - Brazil
item (a3)
item (f2)
item (b3)
item (g2)
E&P - Brazil
Gas & Power - Brazil
RTM - Brazil
RTM - Brazil
Several Segments
item (i)
item (j)
item (c3)
item (d3)
E&P - Brazil
Several Segments
note 27.2
(*) It only includes carrying amounts and recoverable amounts of impaired assets or assets 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.
F-75
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
27.1. 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.
Post-tax discount rates, excluding inflation, applied in the tests were:
Activity
Producing properties relating to oil and gas activities in Brazil
RTM in Brazil
RTM in Brazil – postponed projects
Gas logistics
Transport in Brazil
12.31.2020
7.1% p.a.
6.1% p.a.
7.4% p.a.
6.4% p.a.
5.4% p.a.
27.1.1. Planning assumptions used in impairment testing
12.31. 2019
6.8% p.a.
6.4% p.a.
7.8% p.a.
6.3% p.a.
from 4.3% to 5.8% p.a.
The cash flow projections used to measure the value in use of the CGUs at December 31, 2020, were mainly based on the
following updated assumptions for average Brent prices and Brazilian real/U.S. dollar average exchange rates:
2021-2025 Strategic Plan (*)
Average Brent (US$/barrel)
Average Brazilian Real (excluding inflation) - Real /U.S. dollar exchange rate
2021
45
5.50
2022
45
4.69
2023
50
4.46
2024
50
4.28
2025
50
4.07
Long term
Average
50
3.76
(*) In the impairment testing in the first quarter, average Brent prices ranged from US$ 25/barrel to US$ 50/barrel, and average exchange rate from R$ 5.09 to R$ 3.78.
At December 31, 2019, average Brent prices and Brazilian real/U.S. dollar average exchange rates used were:
Average Brent (US$/barrel)
Average Brazilian Real (excluding inflation) - Real /U.S. dollar exchange rate
27.1.2. Revision of Cash Generating Units
2020
65
3.85
2021
65
3.79
2022
65
3.75
2023
65
3.72
2024
65
3.7
Long term
Average
65
3.6
During 2020, management identified and assessed the following changes in CGUs:
E&P Segment
i.
ii.
CGU North group – exclusion of platforms PCH-1, PCH-2 and PNA-2, and fields of Anequim, Bagre, Cherne, Congro,
Garoupa, Malhado, Namorado, Parati and Viola, who had their activities hibernated, with no expected resumption.
Currently, this CGU is formed by Marlim, Albacora and Voador fields and remaining platforms;
CGU Fazenda Alegre group - exclusion of fields of Campo Grande, Córrego Cedro Norte, Córrego Cedro Norte Sul, Córrego
Dourado, Fazenda São Jorge, Inhambu, Jacutinga, Lagoa Bonita, Seriema e Tabuiaiá, due to the divestments occurred.
Currently, this CGU is formed by Cancã and Fazenda Alegre fields.
F-76
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
iii.
CGU CVIT group: extinction of the group of fields, which was formed by Golfinho and Canapu fields, since the Company
decided to end Canapu field operations. The two fields are now tested separately.
Gas & Power Segment
i.
ii.
CGU Natural gas – exclusion of the Atalaia Natural Gas Processing Unit (UPGN), due to the decision to cease its operation
in the 2021-2025 Strategic Plan. The unit is now tested separately.
CGUs FAFEN BA and SE - extinction of these CGUs, since the Company signed a lease agreement relating to these fertilizer
plants with Proquigel Química, classifying it as a financial lease, with the recognition of a receivable and the write-off of
remaining carrying amounts classified as PP&E.
RT&M Segment
i.
Transportation CGU - vessels Cartola and Afaulfo Alves were excluded from this CGU, since the Company decided to cease
their operations, and were reclassified to assets held for sale, tested for impairment separately.
Information on key assumptions for impairment testing and on CGU definitions is presented in notes 4.2 and 4.3, respectively.
27.1.3. Information on the main impairment losses
Information on the main impairment losses and reversals of property, plant and equipment and intangible assets are described
below:
a1) Producing properties in Brazil – 2020
Impairment losses on producing properties in Brazil amount to US$ 7,316, most of it related to CGUs that provide service in
E&P fields, also reflecting the hibernation of producing assets on the first quarter of 2020, as well as the revision on the key
assumptions of the Strategic Plan, mainly expected Brent prices, depreciation of Brazilian real against U.S. dollar, economic
slowdown and reduction on demand for oil and oil products.
The following table presents significant impairment for 2020:
F-77
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
CGU
North
Roncador
Carmópolis
Albacora Leste
Berbigão-Sururu
Namorado
Marlim Sul
Golfinho
Viola
Papa-Terra
Cherne
Garoupa
Canto do Amaro
Malhado
Congro
Uruguá
Siririzinho
Others (*)
Total
Basin
Campos basin
Campos basin
Sergipe basin
Campos basin
Santos basin
Campos basin
Campos basin
Santos basin
Santos basin
Campos basin
Campos basin
Santos basin
Potiguar basin
Campos basin
Campos basin
Santos basin
Area
Post-Salt
Post-Salt
Onshore and shallow-water
Post-Salt
Pre-Salt
Post-Salt
Post-Salt
Pre-Salt
Post-Salt
Post-Salt
Post-Salt
Post-Salt
Onshore and shallow-water
Post-Salt
Post-Salt
Post-Salt
Sergipe-Alagoas basin
Onshore and shallow-water
Several
Several
(*) It comprises 92 CGUs.
a2) Producing properties in Brazil – 2019
Impairment
(1,335)
(1,265)
(594)
(470)
(467)
(304)
(299)
(253)
(180)
(164)
(157)
(148)
(138)
(133)
(131)
(114)
(86)
(1,078)
(7,316)
Carrying amount after
impairment
4,765
7,271
127
1,379
2,754
−
5,913
182
−
1
−
−
210
−
−
129
60
13,046
35,837
Impairment assessment for producing properties in Brazil resulted in US$ 1,859 impairment losses, mainly comprising:
•
•
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 the new tax model for oil and gas activities.
a3) 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 (post-tax discount rates of 7.4% p.a.). 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.
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.
b1) Oil and gas production and drilling equipment in Brazil - 2020
F-78
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Impairment losses of US$ 120 relates to equipment and structures in the E&P segment, mainly due to the decision to cease
with the Estaleiro Inhaúma project, leading to the recognition of losses in the amount of US$ 69.
b2) Oil and gas production and drilling equipment in Brazil - 2019
In 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.
b3) Oil and gas production and drilling equipment in Brazil - 2018
In 2018, impairment losses for oil and gas production and drilling equipment in Brazil 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).
c1) Comperj – 2020
Impairment reversals amounted to US$ 260, mainly due to the reduction in the estimated investments for the completion of
the project relating to the first refining unit facilities, resulting from the depreciation of the Brazilian Real in relation to the U.S.
Dollar, as well as to optimization measures adopted.
c2) Comperj – 2019
Impairment losses amounted to US$ 209, arising from the investments made due to the Conduct Adjustment Declaration
(“TAC”) to close the public civil action requesting the environmental licensing, as well as to the investments made in the first
refining unit facilities, which are part of the infrastructure for transporting and processing natural gas from the pre-salt layer
in the Santos Basin.
c3) Comperj – 2018
At December 31, 2018, the resumption of the Comperj project still depended on new partnerships. However, the construction
of the first refining unit facilities that would also support the natural gas processing plant (UPGN) was in progress as the facilities
were 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 the first refining unit, the Company recognized
additional impairment charges, totaling US$ 47 in 2018.
d1) Second refining unit of RNEST – 2020
The cash flows to measure the value in use of the second refining unit of RNEST take into account the postponing of the
beginning of the operation, triggering impairment losses in the amount of US$ 22.
d2) Second refining unit of RNEST – 2019
The cash flows to measure the value in use of the second refining unit of RNEST took into account the postponing of the
beginning of the operation, triggering impairment losses in the amount of US$ 534.
d3) Second refining unit of RNEST – 2018
The impairment assessment over the second refining unit of RNEST resulted in the recognition of an impairment loss amounting
to US$ 22, as the beginning of operation had been postponed (real discount rate applied was 7.3% p.a. post-tax discount rate
for the refining business).
e) Corporate facilities – 2020
The Company decided to hibernate a corporate building, in the state of Bahia, due to its permanent vacancy, resulting in a US$
161 impairment loss on the right of use asset.
F-79
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
f1) 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.
f2) 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 (post-tax discount rates applied to
the transportation sector ranged from 3.8% p.a. to 6.6% p.a.).
g1) Fertilizer plant - UFN III – 2019
Following the Company’s decision to quit the conclusion of this plant located in the state of Mato Grosso do Sul, this asset was
written-off, in the amount of US$ 200.
g2) Fertilizer plant - UFN III – 2018
An impairment loss of US$ 114 was recognized for the fertilizer plant UFN III due to its lower fair value.
h) 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 recognized, due to the difference between the
expected sale value and its carrying amount.
i) Producing properties relating to oil and gas activities 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, 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.
j) GASFOR II – 2018
In 2018, management decided to halt the development of the GASFOR II project, carried out by TAG. 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).
27.1.4. 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 CGUs most sensitive to
future impairment losses, presenting recoverable amounts close to their current carrying amounts. The analysis presented
below considers the estimated impairment losses or reversals if there was a 10% reduction or increase in the recoverable
amount of the CGUs, arising from changes in material assumptions:
F-80
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Potential impairment losses - 10% reduction in the recoverable amount
Assets with recoverable amounts close to their carrying amounts
Business
segment
Carrying
amount
Recoverable
amount
Sensitivity
Producing properties relating to oil and gas activities in Brazil (5 CGUs)
E&P
597
578
(19)
Assets with impairment losses
Producing properties relating to oil and gas activities in Brazil (39 CGUs)
Refining plants (3 CGUs)
Potential impairment reversals - 10% increase in the recoverable amount
Assets with impairment losses
Producing properties relating to oil and gas activities in Brazil (39 CGUs)
Refining plants (3 CGUs)
E&P
RT&M
26,228
944
27,769
23,605
850
25,033
(2,623)
(94)
(2,736)
Business
segment
Carrying
amount
Recoverable
amount Sensitivity (*)
E&P
RT&M
26,228
944
27,172
28,851
1,038
29,889
1,825
94
1,919
(*) When calculating a 10% increase in the recoverable amount, the amount of impairment to be reversed is limited to the accumulated impairment of the CGU or to their
recoverable amounts, whichever is lower.
27.1.5. 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 at least 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.
Reversal of previously recognized impairment losses may occur for assets other than goodwill.
27.2. Assets classified as held for sale
In 2020, the Company recognized reversals in the amount of US$ 17 arising from the fair value of assets, net of disposal
expenses, with the most significant relating to: the sale of Recôncavo group of fields (14 concessions located onshore and in
shallow waters) in the amount of US$ 35; the sale of Rio Ventura group of fields (8 concessions located onshore) in the amount
of US$ 18; the sale of Fazenda Belém group of fields, in the amount of US$ 14; partially offset by a US$ 62 impairment loss
relating to Cartola and Ataulfo Alves vessels.
In 2019, as a result of the sale of several assets of the E&P segment, the Company recognized reversals in the amount of US$
558, considering the net fair value of disposal expenses, mainly: US$ 494 relating to Pampo and Enchova Project (10
concessions located in shallow waters); US$ 84 relating to Bispo project (in Frade field); US$ 67 relating to Mangalarga project
(in Maromba field), partially offset by a US$ 89 impairment loss recognized on the sale of Petrobras Oil & Gas B.V. (PO & GBV).
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.
The accounting policy for assets and liabilities held for sale is set out in note 32.
F-81
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
27.3. 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) models, specific for each case.
27.3.1. 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.
27.3.2. 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, 2020, the quoted market
value of the Company’s investment in Braskem was US$ 1,375 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 estimated prices of feedstock and petrochemical
products reflecting international trends on prices, petrochemical products sales volume estimates reflecting projected Brazilian
and global G.D.P. growth, post-tax discount rate (excluding inflation) of 8.7% p.a., considering cash flows from dividends, and
decreases in the EBITDA margin during the growth cycle of the petrochemical industry in the next years and declining in the
long-term. Estimated exchange rates and Brent prices are the same as those set out in note 27.1.2.
Petrobras Distribuidora S.A.
In July 2019, with the additional sale of the Company’s interest in the subsidiary Petrobras Distribuidora S.A. (BR Distribuidora),
carried out through a secondary public offering (follow-on), BR Distribuidora became an associate. Considering the fair value
as the market value of its shares, at December 31, 2020, the Company estimated this investment was recoverable.
On August 26, 2020 the Company’s Board of Directors approved the disposal of the remaining interest in this Company.
Accordingly, the recoverable value of this investment took into account the value in use, including the disposal value,
considering the intention to sell the shares. Thus, impairment testing resulted in a US$ 459 loss.
The post-tax discount rate in constant currency applied was is 11.1% p.a., considering the cost of equity.
27.3.3. Investments in state-controlled natural gas distributors
In 2020, 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$ 1,108. Post-tax discount rate (excluding inflation) used in
such assessment was 5.7% p.a..
F-82
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
27.3.4. Impairment losses on equity-accounted investments
In the year ended December 31, 2020, the Company recognized impairment losses amounting to US$ 59 (a US$ 4 loss in 2019
and a US$ 28 reversal in 2018), mainly in joint venture MP Gulf of Mexico (US$ 59), due to the revised Brent prices projections
(with a 5.4% p.a. post-tax discount rate in constant currency, applied for the E&P segment in the USA), and in BSBIOS (US$ 22),
resulting from the classification of this investment as held for sale, after the signing of the purchase and sale agreement by the
Company’s subsidiary Petrobras Biocombustível with RP Participações em Biocombustíveis, in December 2020.
F-83
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
28. 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 (*)
Property plant and equipment
Opening Balance
Additions
Write-offs
Transfers
Cumulative translation adjustment
Closing Balance
Intangible Assets (**)
Capitalized Exploratory Well Costs / Capitalized Acquisition Costs
12.31.2020
12.31.2019
4,262
428
(197)
(494)
(975)
3,024
14,526
17,550
4,132
510
(216)
-
(164)
4,262
18,919
23,181
(*) 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, in the amount of US$ 15,341, are described in
note 24.1 to the consolidated financial statements for the year ended December 31, 2019.
The transfers refer to the completion of exploratory well projects that are now associated with the proved reserves of existing
fields, mainly Albacora (US$ 421) and Búzios (US$ 73).
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
2020
2019
296
456
38
13
803
307
532
839
477
308
4
10
799
485
17,265
17,750
2018
330
87
91
16
524
0
346
1,273
1,619
Exploration expenditures written off arise from projects without economic feasibility, mainly related to the reduction of
exploratory wells in the Candy Park in the Espirito Santos Basin (US$ 189) and signature bonus for the Peroba exploratory block
(US$ 155).
For the the year ended December 31, 2020, the Company recognized a provision arising from potential contractual penalties
for non-compliance with minimum percentages of local content in 186 blocks for which the exploratory phases were concluded
(125 for the year ended December 31, 2019).
28.1. 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.
F-84
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
• 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. More information on intangible assets accounting policy, see note 27.
• 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 (for more
information see note 28.2). 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.
28.2. 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
2019
2018
2017
2016
2015 and previous years
Exploratory well costs that have been capitalized for a period greater than one year
(*) Amounts paid for obtaining rights and concessions for exploration of oil and gas (capitalized acquisition costs) are not included.
12.31.2020
118
2,906
3,024
38
12.31.2019
219
4,043
4,262
43
Capitalized
costs (2020)
152
44
39
58
2,613
2,906
Number of
wells
6
1
1
3
80
91
Exploratory well costs that have been capitalized for a period greater than one year since the completion of drilling relate to
38 projects comprising (i) US$ 2,769 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$ 137 relate to costs incurred to evaluate the reserves and their potential development.
29. 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$ 1,631 of which US$ 1,543
were still in force as of December 31, 2020, net of commitments undertaken. The collateral comprises crude oil from previously
identified producing fields, pledged as collateral, amounting to US$ 1,256 and bank guarantees of US$ 287.
F-85
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
30. Partnerships in E&P activities
In line with its strategic objectives, Petrobras operates in association with other companies in partnerships in Brazil as holder
of oil and natural gas exploration and production rights in concessions and production sharing regimes.
As of December 31, 2020, the Company holds interests in 98 partnerships with 40 companies, among which Petrobras is the
operator in 55 (in 2019, 112 partnerships with 42 companies and operator in 64). The partnerships formed in 2019 and 2020
are described below:
Consortium
Location
Tartaruga Verde
Módulo III
Espadarte
Búzios (Transfer
of Rights Surplus)
C-M-477
Aram
BT-SEAL-13A
BT-POT-55A
Campos Basin
Santos basin
pre-salt
Campos Basin
Santos basin
pre-salt
Sergipe Alagoas
basin
Potiguar basin
%
Petrobras
50%
%
Partners
Petronas –
50%
Operator
Year
Additional Information
Petrobras
2019
Concession – Disposal of 50% to
Petronas
ANP Bonus
Petrobras portion
N/A
90%
70%
80%
CNODC – 5%
CNOOC – 5%
BP – 30%
CNODC – 20%
Petrobras
2019
Petrobras
Petrobras
2019
2019
50%
Petrogal – 50%
Petrogal
2020
Production sharing – Transfer of Rights
Surplus Production ANP Bidding Round
Concession - 16th ANP Bidding Round
Production sharing – 6th ANP Bidding
Round
Concession – split
70%
Sonangol –
30%
Petrobras
2020
Concession – split
14,912
348
982
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 main fields in which the Company is the operator in the partnership:
Field
Tupi (BMS-11)
Roncador
Sapinhoá (BMS-9)
Albacora Leste
Mero
Papa-Terra
Manati
Berbigão
Sururu
Location
Santos basin pre-salt
Campos basin
Santos basin pre-salt
Campos basin
Santos basin pre-salt
Campos basin
Camamu basin
%
Petrobras
65%
75%
45%
90%
40%
62.5%
35%
Santos basin pre-salt
42.5%
Santos basin pre-salt
42.5%
Oeste de Atapu
Santos basin pre-salt
42.5%
Tartaruga Verde
Campos basin
50%
Total
30.1. Accounting policy for joint operations
%
Partners
Shell – 25%
Petrogal – 10%
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%
Shell – 25%
Total – 22.5%
Petrogal – 10%
Shell – 25%
Total – 22.5%
Petrogal – 10%
Petronas – 50%
Petrobras production
portion in 2020 (kboed)
790,4
132,1
119,0
31,2
12,5
12,2
5,3
Regime
Concession
Concession
Concession
Concession
Production sharing
Concession
Concession
26,7
Concession
8,7
1,6
Concession
Concession
48,.8
Concession
1,188.5
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.
F-86
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
30.2. Unitization Agreements
Petrobras has Production Individualization Agreements (AIP) signed in Brazil with partner companies (Shell, Petrogal, Repsol
and Total) in E&P consortiums. These agreements result in reimbursements payable to (or receivable from) partners regarding
expenses and production volumes related to Tupi, Sépia, Atapu, Berbigão, Sururu, Albacora Leste and other fields.
Berbigão, Sururu, Albacora Leste and others
The table below presents changes on the reimbursements payable relating to these fields:
Opening balance
Additions/(Write-offs) on PP&E
Indexation charges
Payments made
Other income and expenses
Cumulative translation adjustments
Closing balance
12.31.2020
12.31.2019
113
278
−
(17)
(50)
46
370
159
50
4
(92)
(2)
(6)
113
As of December 31, 2020, Petrobras has reimbursements payable amounting to US$ 370 (US$ 113 on December 31, 2019). In
2020, these agreements resulted in payments and recognition of additions and write-offs in PP&E, in addition to other net
expenses, reflecting the best available estimate of the assumptions used in calculating the calculation base and the sharing of
relevant assets in areas to be equalized.
Tupi, Sépia and Atapu
On April 30, 2020, Petrobras and partner companies in E&P consortiums in Tupi, Sépia and Atapu fields signed the Agreements
for the Equalization of Expenses and Volumes (AEGV). Thus, on May 29, 2020, as a result of the increase in interest in these
three consortiums, Petrobras received from partner companies the amount of US$ 441, in addition to US$ 284 in PP&E, totaling
US$ 725 within other income and expenses.
Also as a result of these agreements, on May 1, 2020, the wholly owned subsidiary Petrobras Netherlands BV (PNBV) signed
Share Purchase Agreements acquiring an additional interest in Tupi BV, for US$ 84, and an additional interest in Iara BV (Atapu)
for US$ 805, subject to price adjustments. The computation of the acquisition price was based on the fair value of the acquired
assets and related liabilities, bringing a net increase of US$ 889 mainly in PP&E.
The price adjustment relating to the acquisition of interest in Tupi BV occurred on September 15, 2020, resulting in an
additional payment of US$ 13, registered as property, plant and equipment.
30.3. 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-87
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
31.
Investments
31.1. 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
Country
Subsidiaries
Petrobras International Braspetro - PIB BV
Petrobras Transporte S.A. - Transpetro
Petrobras Logística de Exploração e Produção S.A. - PB-LOG
Petrobras Gás S.A. - Gaspetro
Petrobras Biocombustível S.A.
Araucária Nitrogenados S.A.
Termomacaé S.A.
Braspetro Oil Services Company - Brasoil
Breitener Energética S.A.
Termobahia S.A.
Baixada Santista Energia S.A.
Petrobras Comercializadora de Energia S.A.. - PBEN
Fundo de Investimento Imobiliário RB Logística - FII
Procurement Negócios Eletrônicos S.A.
5283 Participações LTDA
Transportadora Brasileira Gasoduto Bolívia - Brasil S.A.
Refinaria de Mucuripe S.A. (i)
Refinaria de Manaus S.A. (i)
Paraná Xisto S.A (i)
Refinaria de Mataripe S.A. (i)
Joint operations
Fábrica Carioca de Catalizadores S.A. - FCC
Ibiritermo S.A.
Joint ventures
Logum Logística S.A.
Cia Energética Manauara
Petrocoque S.A. Indústria e Comércio
Refinaria de Petróleo Riograndense S.A.
Brasympe Energia S.A.
Brentech Energia S.A.
Metanor S.A. - Metanol do Nordeste
Several
RT&M
E&P
Gas & Power
Corporate, others
Gas & Power
Gas & Power
Corporate, others
Gas & Power
Gas & Power
Gas & Power
Gas & Power
E&P
Corporate, others
Corporate, others
Gas & Power
RT&M
RT&M
RT&M
RT&M
RT&M
Gas & Power
RT&M
Gas & Power
RT&M
RT&M
Gas & Power
Gas & Power
RT&M
Eólica Mangue Seco 4 - Geradora e Comercializadora de Energia Elétrica S.A.
Gas & Power
Eólica Mangue Seco 3 - Geradora e Comercializadora de Energia Elétrica S.A.
Gas & Power
Eólica Mangue Seco 1 - Geradora e Comercializadora de Energia Elétrica S.A.
Gas & Power
Eólica Mangue Seco 2 - Geradora e Comercializadora de Energia Elétrica S.A.
Companhia de Coque Calcinado de Petróleo S.A. - Coquepar
Participações em Complexos Bioenergéticos S.A. - PCBIOS
GNL Gemini Comercialização e Logística de Gás LTDA.
Associates
Braskem S.A. (ii)
UEG Araucária Ltda.
Petrobras Distribuidora S.A. - BR (ii)
Deten Química S.A.
Energética SUAPE II S.A.
Termoelétrica Potiguar S.A. - TEP
Nitrocolor Produtos Químicos LTDA.
Bioenergética Britarumã S.A.
Nova Transportadora do Sudeste S.A. - NTS
Transportadora Sulbrasileira de Gás - TSB
Gas & Power
RT&M
Corporate, others
Gas & Power
E&P
E&P
Corporate, others
RT&M
Corporate, others
Gas & Power
RT&M
Gas & Power
Gas & Power
Gas & Power
(i) Companies legally established, with capital contribution of US$ 58 thousand for each company.
(ii) Equity and net income at September 30, 2020, most current public information.
In 2020, the Company had the following corporate restructuring:
F-88
100
100
100
51
100
100
100
100
94
99
100
100
99
72
100
51
100
100
100
100
50
50
30
40
50
33
20
30
35
49
49
49
51
45
50
40
36
19
38
28
20
20
39
30
10
25.00
100
100
100
51
100
100
100
100
94
99
100
100
99
72
100
51
100
100
100
100
50
50
30
40
50
33
20
30
35
49
49
49
51
45
50
40
47
19
38
28
20
20
39
30
10
25.00
46,266
951
86
435
275
32
86
110
139
115
68
12
3
4
−
81
−
−
−
−
40
23
157
38
37
3
14
20
12
5
6
4
4
−
−
30
(859)
26
1,850
110
82
47
−
−
412
4
Netherlands
5,212
Brazil
258
Brazil
256
Brazil
64
Brazil
30
Brazil
(49)
4
Brazil
2 Cayman Islands
Brazil
6
Brazil
1
Brazil
13
Brazil
7
Brazil
(14)
Brazil
(9)
Brazil
−
Brazil
111
Brazil
−
Brazil
−
Brazil
−
Brazil
−
14
9
(64)
3
21
(12)
−
6
3
−
−
−
−
−
−
4
(1,531)
(39)
147
41
24
4
−
−
490
1
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
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
i) Transportadora Associada de Gás S.A., Liquigás Distribuidora S.A., Investimentos e Participações de Sondas (FIP Sondas) and
Sete Brasil Participações S.A. were divested;
ii) Termomacaé Comercializadora de Energia S.A. (TMC) was merged into Petrobras Comercializadora de Energia (PBEN);
iii) Petrobras Negócios Eletrônicos S.A. (E-Petro) was merged into Petrobras, with no capital increase. Thus, Procurement
Negócios Eletrônicos became a subsidiary of Petrobras;
iv) Creation of subsidiaries Refinaria de Mucuripe S.A., Refinaria de Manaus S.A., Paraná Xisto S.A. and Refinaria de Mataripe
S.A. (see note 32.3).
The main investees of PIB BV are:
•
•
•
•
Petrobras Global Trading B.V. – PGT (100%, based in the Netherlands), 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;
Petrobras Global Finance B.V. – PGF (100%, based in the Netherlands); the finance subsidiary of Petrobras, raising funds
through bonds issued in the international capital market;
Petrobras America Inc. – PAI (100%, based in the United States), dedicated to E&P activities (MP Gulf of Mexico, LLC);
and
PNBV (100%, based in the Netherlands), 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%),
dedicated to the construction and lease of equipment and platforms for Brazilian E&P consortia. In December 2020,
PNBV transferred to Sete Brasil, for the symbolic amount of 7 Euros, its 15% equity interest which held in each of the
Dutch structured entities controlled by Sete Brasil: Arpoador Drilling B.V., Marambaia Drilling B.V., Grumari Drilling B.V.,
Copacabana Drilling B.V., Leme Drilling B.V., Leblon Drilling B.V. and Ipanema Drilling B.V. After this disposal, Petrobras
no longer holds any interests in subsidiaries of Sete Brasil.
On January 14, 2020, PIB BV concluded the sale of its remaining 50% interest in Petrobras Oil & Gas B.V. - PO & GBV to Petrovida
Holding B.V.
31.2. Investments in associates and joint ventures
Balance at
12.31.2019
Investments
Transfer to
assets held
for sale
Restructuring,
capital decrease
and others
Results in
equity-
accounted
investments
CTA
OCI
Dividends
Balance at
12.31.2020
Joint Ventures
MP Gulf of Mexico, LLC/PIB BV
Distribuidoras Estaduais de Gás
Natural/Gaspetro
Compañia Mega S.A. - MEGA
Other joint ventures
Associates (*)
Nova Transportadora do Sudeste
Transportadora Associada de Gás S.A.
Others Associates
Other investments
Total
1,192
577
380
79
156
4,302
239
283
3,780
5
5,499
7
-
-
-
7
8
-
-
8
-
(65)
-
-
-
(65)
−
-
-
-
-
15
(65)
(2)
3
-
-
(5)
(196)
(12)
(202)
18
-
(198)
(91)
(133)
(179)
−
58
10
20
(87)
(7)
(39)
−
-
-
-
-
(568)
(667)
(292)
49
(54)
-
19
(82)
(18)
(636)
(531)
(274)
−
(3)
3
(95)
(35)
(53)
-
(7)
(132)
(46)
-
(86)
-
(659)
(803)
(289)
(227)
813
366
298
82
67
2,455
176
−
2,279
5
3,273
(*) It includes Petrobras Distribuidora and Braskem, mainly hedge accounting on future exports and provision for decommissioning costs of halite deposits.
F-89
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
31.3. Investments in non- consolidated listed companies
Associate
Petrobras Distribuidora S.A.
Associate
Braskem S.A.
Braskem S.A.
Thousand-share lot
12.31.2019
12.31.2020
Quoted stock exchange
prices (US$ per share)
12.31.2019
12.31.2020
Type
12.31.2020
Fair value
12.31.2019
436,875
436,875
Common
4.26
7.46
212,427
75,762
212,427
75,762
Common
Preferred A
4.85
4.54
7.82
7.41
1,860
1,860
1,031
344
1,375
3,259
3,259
1,662
561
2,223
The fair value of these shares does not necessarily reflect the realizable value upon sale of a large block of shares.
Braskem S.A. and BR Distribuidora S.A. - Investments in non-consolidated listed companies
Information on the main estimates used in the cash flow projections to determine the value in use of Braskem and BR
Distribuidora is set out in Note 27.3.
31.4. Non-controlling interest
The total amount of non-controlling interest at December 31, 2020 is US$ 528 (US$ 892 in 2019) primarily comprising US$ 213
of Gaspetro (US$ 263 in 2019), US$ 65 of Consolidated Structured Entities (US$ 203 in 2019), US$ 192 of FIDC (US$ 343 in
2019), and US$ 39 of Transportadora Brasileira Gasoduto Brasil-Bolívia – TBG (US$ 69 in 2019).
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
2020
897
460
−
−
1
1,358
1,043
132
183
1,358
−
(195)
2019
793
586
−
−
−
1,379
8
1,104
267
1,379
−
41
2020
3,951
−
−
−
−
3,951
1
−
3,950
3,951
−
416
FIDC
2019
16,377
−
−
−
−
16,377
6
−
16,371
16,377
−
910
2020
228
−
−
313
3
544
206
257
81
544
310
111
TBG
2019
154
−
−
430
3
587
105
340
142
587
426
180
7
227
16
2
786
25
3
2020
81
50
298
−
53
482
25
23
434
482
83
64
(4)
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.
The structured entities are Charter Development LLC (CDC), dedicated to construct, acquire 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).
The Credit Rights Investment Fund (FIDC) is a fund mainly intended to securitize “performed” and “non-performed” credits for
operations carried out by the Company’s subsidiaries, aiming to optimize cash management.
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.
F-90
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
31.5. 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,
refining, production, trade and logistics of oil products, gas distribution, biofuels, thermoelectric power plants, and other
activities. Condensed financial information is set out below:
2020
2019
Joint ventures
Associates
Joint ventures
Associates
In Brazil
MP Gulf of
Mexico, LLC
Other
companies
abroad
In Brazil
In Brazil
MP Gulf of
Mexico, LLC
Other
companies
abroad
Current assets
Non-current assets
Property, plant and equipment
Other non-current assets
Current liabilities
Non-current liabilities
Shareholders' equity
Non-controlling interest
795
385
492
482
2,154
573
661
887
33
2,154
Sales revenues
Net Income (loss) for the year
Ownership interest - %
2,056
93
23.5 to 83%
277
259
2,380
2
2,918
228
789
1,535
366
2,918
748
(607)
20%
137
4
62
−
203
58
17
81
47
203
9,968
3,941
9,914
761
24,584
7,279
15,246
2,358
(299)
24,584
1,147
486
641
634
2,908
790
808
1,270
40
2,908
−
9
1,610
246
34 to 45% 4.59 to 40% 20 to 51.5%
28,425
(241)
372
−
3,132
−
3,504
237
373
2,317
577
3,504
1,300
423
20%
In Brazil
9,226
4,880
20,210
1,579
35,895
6,751
28,878
255
11
35,895
165
5
48
−
218
74
19
79
46
218
−
17
40,218
2,416
34 to 45% 4.59 to 40%
31.6. 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, 2020, Petrobras controls and consolidates the following
structured entities: CDC (U.S.A., E&P); CDMPI (Brazil, RT&M) and FIDC (Brazil, Corporate, others).
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.
F-91
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
A joint arrangement is an arrangement over which two or more parties have joint control (pursuant to contractual
provisions). A joint arrangement is classified either as a joint operation or as a joint venture depending on the rights
and obligations of the parties to the arrangement.
In a joint operation, the parties have rights to the assets and obligations for the liabilities related to the arrangement, while in
a joint venture the parties have rights to the net assets of the arrangement. 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.
32. 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, whose 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.
The major classes of assets and related liabilities classified as held for sale are shown in the following table:
F-92
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(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
Others
Total
E&P
Gas &
Power
RT&M
Biofuels Distribution
Corporate and
other business
Total
Total
12.31.2020
12.31.2019
1
-
-
-
600
-
601
1
-
640
-
641
−
−
−
−
19
−
19
-
-
-
-
−
−
−
−
19
−
−
19
-
-
-
-
−
−
−
−
49
−
−
49
-
-
-
-
−
13
24
4
−
21
35
97
21
5
-
10
36
−
−
−
−
−
−
−
-
8
-
-
8
14
24
4
68
640
35
785
22
13
640
10
685
5
68
13
355
2,046
77
2,564
27
142
2,961
116
3,246
32.1. Transactions pending closing at December 31, 2020
Transaction
Exercise of the put option to transfer the remaining interest (10%) in Lapa field to
Total, in block BM-S-9, as provided in the contract signed in January 2018, when Total
acquired a 35% interest on this field, becoming the operator of the field.
Sale of 30% of the Frade field concession. The transaction also includes the sale of the
entire stake held by the subsidiary Petrobras Frade Inversiones S.A. (PFISA), in the
company Frade BV, which owns the offshore assets used in the production
development of this field.
Acquirer Signature date
Transaction
amount (*)
Further
informati
on
Total
December
2018
PetroRio
November
2019
August
2019
August
2020
August
2020
August
2020
December
2020
December
2020
50
100
35
51
37
62
250
30
62
(R$ 320
million)
a
b
c
d
e
f
g
h
i
J
k
Sale of the Company’s entire interest in the onshore fields Fazenda Belém and Icapuí,
called Fazenda Belém group, located in the Potiguar basin, in the state of Ceará.
SPE Fazenda Belém S.A., subsidiary of
3R Petroleum e Participações S.A.
Sale of the Company’s entire interest in eight onshore fields, called Rio Ventura group,
located in the in the state of Bahia.
SPE Rio Ventura S.A., subsidiary of 3R
Petroleum e Participações S.A
Sale of the Company’s entire interest in 27 onshore fields, called Cricaré group, located
in the in the state of Espírito Santo.
Karavan SPE Cricaré S.A. (51%) and
Seacrest Capital Group Limited (49%
and equity provider)
Sale of the Company’s entire interest in Petrobras Uruguay Distribución S.A. (PUDSA).
DISA Corporación Petrolífera S.A.
Sale of the Company’s entire interest in 14 onshore fields, called Recôncavo group of
fields, located in the state of Bahia.
Ouro Preto Energia Onshore S.A,
subsidiary of Petroleum Óleo e Gás S.A..
Sale of the Company’s entire interest in 12 onshore fields, called Remanso group of
fields, located in the state of Bahia.
Petrobras Biocombustível S.A. (PBio) signed a contract for the sale of all of its shares
issued by BSBios Indústria e Comércio de Biodiesel Sul Brasil S.A. (BSBios) (50% of the
share capital).
Petrorecôncavo S.A.
RP Participações em Biocombustíveis
S.A
December
2020
Sale of its 49% interest in the company Eólica Mangue Seco 1 - Geradora e
Comercializadora de Energia Elétrica S.A. (“Eólica Mangue Seco 1.
V2I Transmissão de Energia Elétrica S.A.
January
2021
8
(R$ 42 million)
Sale with Wobben Windpower Indústria e Comércio Ltda (Wobben) of all interests
(51% Wobben and 49% Petrobras) in the companies Eólica Mangue Seco 3 - Geradora e
Comercializadora de Energia Elétrica SA (“Eólica Mangue Seco 3”) and Eólica Mangue
Seco 4 - Geradora e Comercializadora de Energia Elétrica SA (“Eólica Mangue Seco 4”).
(*) Only amounts considered at the signing of the transaction.
V2I Transmissão de Energia Elétrica S.A.
January
2021
17
(R$ 90 million)
F-93
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
a)
Sale of Lapa field – Strategic alliance with Total
The transaction is subject to price adjustments and to the fulfillment of certain conditions precedent.
b)
Sale of Frade field
Amounts due to Petrobras are composed of: (i) US$ 7.5 was paid at the contract signing; (ii) US$ 92.5 to be paid at the closing
of the transaction, subject to price adjustments. In addition, there is a contingent payment amounting to US$ 20 subject to a
new discovery in the field.
c)
Sale of onshore fields in Ceará – Fazenda Belém group of fields
Amounts due to Petrobras are composed of: (i) US$ 9 was paid at the contract signing; (ii) US$ 16 to be paid at the transaction
closing; and (iii) US$ 10 to be paid in twelve months after the transaction closing.
This sale is subject to price adjustments and to the fulfillment of conditions precedent, mainly ANP approval.
d)
Sale of onshore fields in Bahia – Ventura group of fields
Amounts due to Petrobras are composed of: (i) US$ 4 was paid at the contract signing; (ii) US$ 31 to be paid at the transaction
closing; (iii) US$ 16 to be paid in thirty months after the transaction closing. In addition, there is the contingent payment of up
to US$ 43 provided for in the contract, depending on future oil prices negotiated between the parties.
This sale is subject to price adjustments and to the fulfillment of conditions precedent, mainly ANP approval.
e)
Sale of onshore fields in Espírito Santo – Cricaré group of fields
Amounts due to Petrobras are composed of (i) US$ 11 paid at the contract signing; and (ii) US$ 26 to be paid at the transaction
closing. In addition, there are up to US$ 118 of contingent payments, of which US$ 88 depending on future oil prices negotiated
between the parties, and US$ 30 conditioned to the ANP approval of the extension of the concession terms for nine fields
considered major by the acquirer (São Mateus, Rio Itaúnas, Cedro Farm, Lagoa Suruaca, São Jorge Farm, São Mateus River,
Campo Grande, Mariricu and Mariricu Norte).
This sale is subject to price adjustments and to the fulfillment of conditions precedent, such as ANP approval and environmental
licenses to be granted by local regulatory agencies.
f)
Sale of Petrobras Uruguay Distribución S.A. (PUDSA)
Amounts due to Petrobras are composed of (a) US$ 6 were paid at the contract signing; and (b) US$ 56 to be paid at the
transaction closing.
This sale is subject to price adjustments and to the fulfillment of conditions precedent, such as approval by the Uruguayan
Competition Defense Authority.
g)
Sale of onshore fields in Bahia – Recôncavo group of fields
Amounts due to Petrobras are composed of: (i) US$ 10 was paid at the contract signing; and (ii) US$ 240 to be paid at the
transaction closing.
This sale is subject to price adjustments and to the fulfillment of conditions precedent, mainly ANP approval.
h)
Sale of onshore fields in Bahia – Remanso group of fields
Amounts due to Petrobras are composed of: (i) US$ 4 was paid at the contract signing; (ii) US$ 21 to be paid at the transaction
closing; and (iii) US$ 5 to be paid in twelve months after the transaction closing.
This sale is subject to price adjustments and to the fulfillment of conditions precedent.
F-94
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
i)
Sale of BSBios
The sale amount, including inflation indexation, will be deposited in escrow accounts, due to the PBio's interest in BSBios. This
amount is subject to usual adjustments for transactions of this nature.
PBio will be able to draw down US$ 49 (R$ 255 million) from the escrow account at the transaction closing, and US$ 13 (R$ 67
million) will draw down for the indemnification of eventual contingencies and released according to the terms and conditions
set forth in the contract.
j)
Sale of Eólica Mangue Seco 1
Amount to be paid to Petrobras in a single installment at the transaction closing, subject to price adjustments provided for in
the contract.
k)
Sale of Eólica Mangue Seco 3 and 4
Amounts due to Petrobras are composed of: US$ 4 (R$ 23 million) at the signing of the contract and US$ 13 (R$ 67 million) at
the transaction closing, subject to price adjustments provided for in the contracts.
32.2. Closed transactions during 2020
Transaction
Sale of the Company’s 50% interest in PO&GBV to Petrovida Holding B.V.
(PO&GBV), a joint venture registered in the Netherlands consisting of
assets located in Nigeria.
Sale of Pampo and Enchova groups (Enchova, Enchova Oeste, Marimbá,
Piraúna, Bicudo, Bonito, Pampo, Trilha, Linguado and Badejo fields),
located in shallow Waters in the Campos basin.
Acquirer
Signature date (S)
Closing date (C)
Sale amount
Gain/(loss)
Further
information
Petrovida Holding B.V
October 2018 (S)
January 2020 (C)
1,454
2
Trident Energy do Brasil LTDA,
subsidiary of Trident Energy L.P
July 2019 (S)
July 2020 (C)
419
364
Sale of onshore and offshore fields in Macau group (Aratum, Macau,
Serra, Salina Cristal, Lagoa Aroeira, Porto Carão and Sanhaçu), in the
Potiguar Basin.
SPE 3R Petroleum S.A., subsidiary
of 3R Petroleum e Participações
S.A.
August 2019 (S)
May 2020 (C)
Purchase and sale agreement for the sale of the Company’s remaining
10% interest in Transportadora Associada de Gás S.A. (TAG).
Sale of the Company’s interest in the Baúna field (awarded area BM-S-40),
located in shallow waters in the Santos Basin.
Group formed by ENGIE and
Caisse de Dépôt et Placement du
Québec (CDPQ).
July 2020 (S)
July 2020 (C)
Karoon Petróleo & Gás Ltda
(Karoon), subsidiary of Karoon
Energy Ltd.
July 2019 (S)
November 2020 (C)
Sale of the Company’s interest in Liquigás Distribuidora S.A
Copagaz e Nacional Gás Butano
November 2019 (S)
December 2020 (C)
174
191
75
28
240
273
784
3,262
531
1,273
a
b
c
d
e
-
a)
Sale of Petrobras’s interest in Petrobras Oil & Gas B.V. (PO&GBV)
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. Cumulative
amounts of dividends received from PO&GBV since inception of investment (January 1, 2018) have totaled US 1,030. At the
closing, the Company received US$ 276, additional US$ 25 was received in June 2020, and the remaining US$ 123 to be received
as soon as the Abgami field redetermination process is implemented, up to five years after the transaction closing.
b)
Sale of Pampo and Enchova groups of fields
At the transaction closing, the Company received US$ 366 after the fulfillment of all the conditions precedent and the inclusion
of additional conditions, providing for the payment of amounts of up to US$ 650 classified as contingent assets, to be
recognized when the agreed conditions are met.
The amount received at the transaction closing in addition to the US$ 53 paid to Petrobras upon the contract signing, totaling
US$ 419.
F-95
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
c)
Sale of fields in Macau group of fields
Petrobras held a 100% interest in all these concessions, except for the Sanhaçu field, in which it held a 50% interest (the other
50% belongs to Petrogal).
The sale amount includes price adjustments provided for in the contract and the installment received on August 9, 2019, in the
signing of the contract.
d)
Sale of remaining interest in Transportadora Associada de Gás (TAG)
The transaction was closed and fully paid on the date of the signing of the contract, after the deduction of US$ 21 of dividends
paid to Petrobras in June 2020 and other price adjustments.
In addition to the gain on the transaction, a US$ 43 loss relating to the cash flow hedge accumulated in comprehensive income
since the sale of TAG's control in June 2019 was reclassified to the statement of income, within other income and expenses.
e)
Sale of Baúna field
Due to the economic effects caused by the COVID-19 pandemic and the consequent difficulty in meeting the conditions
precedent originally set, the parties defined adjustments to the terms of the contract and the payment of the transaction value.
After the fulfillment of conditions precedent, the transaction was closed with the payment of US$ 150, which adds up to the
US$ 50 already paid at the contract signing. The remaining balance of US$ 40 will be paid in 18 monthly installments after the
transaction closing. In addition, a contingent installment of US$ 285 may be paid by 2026, depending on future oil prices
negotiated between the parties.
32.3. Other operations
a)
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, linked to submission for approval of the Production Individualization
Agreements (AIP) to the ANP. The AIP was submitted to ANP by Equinor on January 29, 2021 and payment will occur on its
approval or twelve months after its submission, whichever occurs first.
32.4. Cash flows from sales of interest with loss of control
In 2020 and 2019, 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:
F-96
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
2020
Petrobras Oil & Gas B.V.(PO&GBV) (*)
Liquigas
Total
2019
Petrobras Paraguay
Total
Cash received
Cash in subsidiary
before losing
control
Net Proceeds
276
784
1,060
381
381
−
(10)
(10)
(45)
(45)
276
774
1,050
336
336
32.5. 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.
F-97
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
33. Assets by operating segment
Consolidated assets by operating segment - 12.31.2020
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 - 12.31.2019
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,
Transportation &
Marketing
Gas
&
Power
Corporate and
other
business
Elimina-
tions
Total
5,333
114,947
4,745
390
95,222
84,916
10,305
14,590
120,280
5,734
148,546
6,456
592
122,496
106,331
16,165
19,002
154,280
8,170
23,879
2,539
400
20,842
18,304
2,537
98
32,049
12,273
31,248
3,299
1,109
26,710
23,630
3,080
130
43,521
1,975
8,321
976
607
6,614
4,300
2,315
124
10,296
1,932
10,781
1,369
1,067
8,181
5,605
2,576
164
12,713
15,337
15,473
11,938
1,876
1,523
1,238
286
136
30,810
12,700
11,390
6,567
2,731
1,915
1,784
131
177
24,090
(3,427)
2
2
−
−
−
−
−
(3,425)
(4,827)
(37)
−
−
(37)
(37)
−
−
(4,864)
27,388
162,622
20,200
3,273
124,201
108,758
15,443
14,948
190,010
27,812
201,928
17,691
5,499
159,265
137,313
21,952
19,473
229,740
F-98
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
34. Finance debt
34.1. 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
Current finance debt is composed of:
Short-term debt
Current portion of long-term debt
Accrued interest on short and long-term debt
Total
12.31.2020
5,016
2,512
1,315
11
8,854
12.31.2019
5,322
3,468
1,927
13
10,730
13,581
27,625
201
3,424
203
45,034
53,888
4,186
49,702
16,555
32,476
40
3,233
226
52,530
63,260
4,469
58,791
12.31.2020
12.31.2019
1,140
2,383
663
4,186
2,004
1,579
886
4,469
At December 31, 2020, there was no default, breach of covenants or change in collateral provided or clauses that would result
in change in payment terms compared December 31, 2019.
34.2. Changes in finance debt and reconciliation with cash flows from financing activities
In Brazil
Abroad
Balance at
12.31.2018 Additions
2,181
16,251
67,924
84,175
5,362
7,543
Principal
amorti
zation (*)
(5,663)
(20,788)
(26,451)
Interest
amorti
zation (*)
(745)
(3,853)
(4,598)
Accrued
interest
(**)
829
3,878
4,707
Foreign
exchange/
inflation
indexation
charges
111
Cumulative
translation
adjustment
(CTA)
(352)
Modification
of contractual
cash flows
−
Transfer to
liabilities
classified as
held for sale
(1,882)
Balance at
12.31.2019
10,730
538
649
(560)
(912)
29
29
-
(1,882)
52,530
63,260
F-99
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Balance at
12.31.2019 Additions
1,488
15,535
17,023
10,730
52,530
63,260
Principal
amorti
zation (*)
(1,080)
(23,471)
(24,551)
Interest
amorti
zation (*)
(352)
(2,967)
(3,319)
Accrued
interest
(**)
399
3,187
3,586
Foreign
exchange/
inflation
indexation
charges
142
1,667
1,809
Cumulative
translation
adjustment
(CTA)
(2,473)
(1,201)
(3,674)
Modification
of contractual
cash flows
-
(245)
(245)
Transfer to
liabilities
classified as
held for sale
-
-
−
Balance at
12.31.2020
8,853
45,035
53,888
(1,176)
-
-
162
In Brazil
Abroad
Debt
restructuring
Deposits linked
to financing
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.
(25,727)
(3,157)
For the year ended December 31, 2020, in line with the Company’s Business and Management Plan and following its liability
management strategy, funds were raised mainly in order to settle older debts and manage liabilities, aiming at improving the
debt repayment profile taking into account its alignment with investments returns over the long run, and also to have cash
reserve to maintain the Company’s liquidity.
In the year ended December 31, 2020, proceeds from financing amounted to US$ 17,023, principally reflecting: (i) funds raised
from banking market (in Brazil and abroad), in the amount of US$ 3,153, and (ii) use of revolving credit lines, in the amount of
of
US$ 8
US$ 4,300 of which US$ 2,588 relates to the issue of new bonds maturing in 2031 and US$ 1,712 relates to new bonds issued
maturing in 2050.
capital market
amount
issued
billion
global
notes
and
the
the
(iii)
in
in
The Company repaid several finance debts, in the amount of US$ 28,884 notably: (i) prepayment of banking loans in the
domestic and international market totaling US$ 4,147 and (ii) US$ 9,515 to repurchase of global bonds previously issued by the
Company in the capital market, with net premium paid to bond holders amounting to US$ 1,155; (iii) partial prepayment of its
revolving credit lines , in the amount of US$ 7.6 billion.
In addition, the Company carried out, in the international banking market, operations to improve its debt profile and to extend
its maturity, not involving financial settlements, in the total amount of US$ 2,490.
F-100
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
34.3. Summarized information on current and non-current finance debt
Maturity in
2021
2022
2023
2024
2025
2026
onwards
Total (**)
Fair Value
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
Total as of December 31, 2020
Average interest rate
Total as of December 31, 2019
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, 2020 is 11.71 years (10.79 years as of December 31, 2019).
3,288
2,119
1,169
4.8%
793
501
292
3.0%
58
58
4.6%
47
47
6.2%
4,186
4.6%
4,469
5.1%
2,133
2,133
-
4.9%
1,149
930
219
3.8%
-
-
-
-
-
-
3,282
4.8%
3,971
5.2%
5,290
4,306
984
5.3%
407
322
85
4.2%
532
532
4.7%
-
-
-
6,229
5.2%
8,537
5.3%
4,391
3,598
793
5.1%
1,555
1,197
358
4.5%
15
15
4.7%
-
-
-
5,961
5.1%
8,036
5.3%
3,793
2,865
928
4.8%
1,747
1,591
156
4.8%
352
352
4.6%
-
-
-
5,892
4.8%
4,689
5.3%
23,289
2,151
21,138
6.6%
2,492
867
1,625
4.3%
737
737
4.7%
1,820
1,820
6.4%
28,338
6.4%
33,558
6.3%
42,184
17,172
25,012
6.1%
8,143
5,408
2,735
4.1%
1,694
1,694
4.7%
1,867
1,867
6.3%
53,888
5.9%
63,260
5.9%
48,540
8,739
1,993
2,245
61,517
72,801
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$ 33,236 of December 31,
2020 (US$ 34,992 as of December 31, 2019); 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$ 28,281 as of December
31, 2020 (US$ 37,809 as of December 31, 2019).
The sensitivity analysis for financial instruments subject to foreign exchange variation is set out in note 38.3.
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
2021
3,522
2,436
5,958
2022
3,395
2,346
5,741
2023
5,807
2,188
7,995
2024
6,230
2,037
8,267
2025
6,347
1,827
8,174
2026 and
thereafter
29,831
28,119
57,950
12.31.2020
55,132
38,953
94,085
12.31.2019
65,284
43,859
109,143
(*) A maturity schedule of the lease arrangements (nominal amounts) is set out in note 35
F-101
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
34.4. Lines of credit
Company
Abroad
PGT BV
PGT BV
PGT BV
PGT BV
Total
In Brazil
Petrobras
Petrobras
Petrobras
Transpetro
Total
Financial
institution
Date
Maturity
Available
(Lines of Credit)
Used
Balance
Amount
Syndicate of banks
Syndicate of banks
BNP Paribas
The Export - Import Bank of
Banco do Brasil
Bradesco
Banco do Brasil
Caixa Econômica Federal
3/7/2018
3/27/2019
12/22/2016
12/23/2019
3/23/2018
6/1/2018
10/4/2018
11/23/2010
2/7/2023
2/27/2024
1/9/2021
12/27/2021
1/26/2023
5/31/2023
9/5/2025
Not defined
4,350
3,250
350
750
8,700
385
385
385
63
1,218
−
−
336
714
1,050
−
385
−
−
385
4,350
3,250
14
36
7,650
385
−
385
63
833
On March 20, 2020, Petrobras draw down its Revolving Credit Lines (RCF), in the amount of US$ 7.6 billion and
US$ 698, in order to protect itself from the economic effects arising from the COVID-19 pandemic and the decrease of oil prices.
In the third quarter of 2020, Petrobras repaid US$ 7.6 billion relating to the RCF.
34.5. Covenants and Collateral
34.5.1. Covenants
The Company has covenants that were not in default at December 31, 2020 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; and iii) 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).
Additionally, there are other non-financial obligations that the Company has to comply with: i) clauses of compliance with the
laws, rules and regulations applicable to the conduct of its business including (but not limited to) environmental laws; (ii)
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;
and (iii) 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.
34.5.2. 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$ 5,005 at December 31, 2020 and US$ 5,006 at December 31, 2019).
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.
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
39.6.
F-102
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
34.6. Accounting policy for financial liabilities
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.
35. 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:
In Brazil
Abroad
Total
Payments relating to
liabilities held for sale
Net cash used in financing
activities
Balance at
12.31.2019
5,504
18,357
23,861
Remeasure
ment / new
contracts
647
2,104
2,751
Payment of
principal and
interest (*)
(1,568)
(4,248)
(5,816)
Interest
expenses
293
1,029
1,322
Foreign
exchange gains
and losses
812
2,546
3,358
Cumulative
translation
adjustment
(1,325)
(2,484)
(3,809)
Transfers
(23)
6
(17)
Balance at
12.31.2020
4,340
17,310
21,650
(64)
(5,880)
A maturity schedule of the lease arrangements (nominal amounts) is set out as follows:
Nominal Future Payments
Without readjustment
Vessels
Others
With readjusment - abroad (*)
Vessels
Platforms
With readjusment - Brazil
Vessels
Properties
Others
2021
2022
2023
2024
2025
2,864
136
726
1,503
337
101
89
2,186
83
386
1,295
203
87
70
1,173
45
116
1,268
150
90
54
693
9
353
1
116
1,224
116
1,192
110
84
14
75
84
4
2026
onwards
1,162
−
253
9,569
53
936
10
Total
8,431
274
1,713
16,051
928
1,382
241
TOTAL
(*) Contracts signed in the U.S. Dollars.
5,756
4,310
2,896
2,250
1,825
11,983
29,020
The following table presents information on leases by class of underlying assets:
Recoverable
taxes
247
16
−
−
83
14
15
375
F-103
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Present Value of Future Payments
Without readjustment
Vessels
Others
With readjusment - abroad (*)
Platforms
Vessels
With readjusment - Brazil
Vessels
Properties
Others
Discount
rate (% a.a.)
Average
Period
Recoverable
taxes
Closing
Balance
Opening
Balance
3.9933
5.3 years
2.5681
2.3 years
6.1264
13.4 years
4.6173
4.1 years
6.7280
3.9 years
8.4268
20.8 years
228
15
−
−
71
11
7,462
262
10,747
1,530
794
643
6.4310
5.5398
3.3 years
10.4 years
13
338
212
21,650
7,199
319
12,941
1,050
1,147
859
346
23,861
TOTAL
(*) Incremental nominal rate on company debt calculated from the yield curve of bonds and credit risk of the Company, as well as terms.
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, 2020 amounted to US$ 785, representing 13% in relation to fixed payments (US$ 671 and 13%
in the same period of 2019).
All extension options were included in the measurement of lease obligations.
In the year ended December 31, 2020, the Company recognized lease expenses in the amount of US$ 118 relating to short-
term leases (US$ 674 in the same period of 2019).
At December 31, 2020, 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$ 67,408 (US$ 50,130 at December 31, 2019).
The sensitivity analysis of financial instruments subject to exchange variation is presented in note 38.3.
35.1. Accounting policy
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 38.3).
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.
F-104
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
36. Equity
36.1. Share capital (net of share issuance costs)
As of December 31, 2020 and 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.
36.1.1. 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.
36.2. Capital reserves
Capital reserve comprises treasury shares owned by Petrobras, in the amount of US$ 2, at December 31, 2020.
36.3. Capital transactions
36.3.1. 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.
36.3.2. 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.
36.3.3. Treasury shares
Shares held in treasury in the amount of US$ 2, represented by 222,760 common shares and 72,909 preferred shares.
36.4. Profit reserves
36.4.1. Legal reserve
It represents 5% of the net income for the year, calculated pursuant to article 193 of the Brazilian Corporation Law.
36.4.2. Statutory reserve
Appropriated by applying 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 56 of the Company’s bylaws.
36.4.3. 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.
36.4.4. 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.
F-105
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
36.4.5. 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.
36.5. 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.
The payment of dividends may be made only to preferred shareholders if the priority dividends absorb all the adjusted net
income for the year or reach an amount equal to or greater than the mandatory minimum dividend of 25%.
The Company’s policy on distributions to shareholders defines 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
acquisition of PP&E and intangibles assets (except for signature bonuses paid for exploration of crude oil and natural gas). 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.
In addition, on October 27, 2020, the Company’s Board of Directors approved the revision of the Shareholders Compensation
Policy, in order to enable management to propose the payment of dividends according to the Company's cash generation, even
when presenting losses in a fiscal year.
36.5.1. Accounting policy on distributions to shareholders
Distributions to shareholders are made by means of dividends and interest on capital, determined in accordance with the limits
defined in the Brazilian Corporation Law and in the Company’s bylaws. Interest on capital is a deductible expense in the income
tax calculation, while is dividend is not deductible.
The dividends portion provided for in the bylaws or that represents the minimum mandatory dividends is recognized as a
liability in the financial statements. Any excess must be maintained in shareholders' equity, as additional dividends proposed,
until its approval on the Annual General Shareholders Meeting.
36.5.2. Proposed dividends
Proposed distribution to shareholders sent by management for approval at the Annual General Shareholders Meeting, in the
amount of US$ 1,977, includes the minimum mandatory dividend to preferred shareholders (US$ 849) and the additional
dividends proposed (US$ 1,128) to ordinary shareholders, arising from the remaining portion of the net income for the year
and the profit retention reserve, considering cash generation in the year and the Company's preserved financial sustainability.
Distributions to shareholders for 2019 amounted to US$ 2,687, most of it proposed as interest on capital, consistent with the
minimum mandatory dividend of 25% of the adjusted income and withholding income tax rate of 15%.
36.5.3. Dividends payable
As of December 31, 2020, the consolidated balance of dividends payable, within the consolidated statement of financial
position, based on the 2020 earnings, is US$ 858 (US$ 1,558 as of December 31, 2019). Dividends payable attributable to
shareholders of Petrobras amounts to US$ 849 as of December 31, 2020 (US$ 1,530 as of December 31, 2019), while dividends
payable to non-controlling shareholders for US$ 9 (US$ 28 as of December 2019).
F-106
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Dividends payment will be defined in the Annual General Shareholders Meeting, bearing interest at Selic rate (Brazilian short-
term interest rate) since December 31, 2020.
36.6. Earnings per share
Common
Preferred
Total
Common
Preferred
Total
Common
Preferred
2020
2019
2018
Total
Net income
attributable to
shareholders of
Petrobras
Continuing
operations
Discontinued
operations
Weighted average
number of
outstanding shares
Basic and diluted
earnings per share -
in U.S. dollars
Continuing
operations
Discontinued
operations
Basic and diluted
earnings per ADS
equivalent - in U.S.
dollars (*)
Continuing
operations
Discontinued
operations
651
651
−
490
490
−
1,141
5,791
4,360
10,151
4,093
3,080
7,173
1,141
4,370
3,290
7,660
3,750
2,822
6,572
−
1,421
1,070
2,491
343
258
601
7,442,231,382 5,601,969,879 13,044,201,261 7,442,231,382 5,601,969,879 13,044,201,261 7,442,231,382 5,601,969,879 13,044,201,261
0.09
0.09
−
0.18
0.18
−
0.09
0.09
−
0.18
0.18
−
0.09
0.09
−
0.18
0.18
−
0.78
0.59
0.19
1.56
1.17
0.39
0.78
0.59
0.19
1.56
1.17
0.39
0.78
0.59
0.19
1.56
1.17
0.39
0.55
0.50
0.05
1.10
1.00
0.10
0.55
0.50
0.05
1.10
1.00
0.10
0.55
0.50
0.05
1.10
1.00
0.10
(*) Petrobras' ADSs are equivalent to two shares.
Basic earnings per share are calculated by dividing the net income (loss) attributable to shareholders of Petrobras by the
weighted average number of outstanding shares during the period.
Diluted earnings (losses) per share are calculated by adjusting the net income (loss) attributable to shareholders of Petrobras
and the weighted average number of outstanding shares during the period taking into account the effects of all dilutive
potential shares (equity instrument or contractual arrangements that are convertible into shares).
Basic and diluted earnings (losses) are identical as the Company has no potential shares in issue.
F-107
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
37. Fair value of financial assets and liabilities
Assets
Marketable securities
Foreign currency derivatives
Interest rate derivatives
Balance at December 31, 2020
Balance at December 31, 2019
Liabilities
Foreign currency derivatives
Commodity derivatives
Balance at December 31, 2020
Balance at December 31, 2019
Level I
Level II
Level III
652
-
-
652
882
-
(10)
(10)
(28)
-
67
48
67
58
(269)
−
(269)
(110)
-
-
-
-
−
-
-
-
−
Total fair
value
recorded
652
67
48
719
940
(269)
(10)
(279)
(138)
The estimated fair value for the Company’s long-term debt, computed based on the prevailing market rates, is set out in note
34.
Certain receivables are classified as fair value through profit or loss, as presented in note 14.
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.
F-108
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
38. 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.
38.1. Derivative financial instruments
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, 2020 , as well as the amounts recognized in the statement of income and other
comprehensive income and the guarantees given is set out as follows:
Derivatives not designated for hedge accounting
Future contracts - total (*)
Long position/Crude oil and oil products
Short position/Crude oil and oil products
Forward contracts
Long position/Foreign currency forwards (BRL/USD) (**)
Long position/Foreign currency forwards (EUR/USD) (**)
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 (**)
Swap - IPCA
Foreign currency / Cross-currency Swap (**)
Total recognized in the Statement of Financial Position
(*) Notional value in thousands of bbl.
(**) Amounts in US$, GBP and EUR are presented in million.
Statement of Financial Position
Fair value
12.31.2020
Notional value
12.31.2019
Asset Position (Liability)
12.31.2019
12.31.2020
Maturity
(240)
3,927
(10,383)
9,865
(4,167)
(20,248)
-
-
GBP 354
-
GBP 615
GBP 600
R$ 3008
US$ 729
US$ 273
EUR 2.245
GBP 388
GBP 224
GBP 700
GBP 600
R$ 3008
US$ 729
(10)
(28)
-
-
-
-
23
-
44
(26)
47
(244)
(166)
-
-
-
(45)
11
(14)
32
(50)
2021
2021
-
-
2021
-
2026
2034
6
2029/2034
2024/2029
11
(77)
F-109
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Commodity derivatives
Crude oil - 38.2 (a) (b)
Gasoline - 38.2 (b)
Diesel - 38.2 (b)
Other commodity derivative transactions - 38.2 (c)
Recognized in Other Income and Expenses
Currency derivatives
Swap Pounds Sterling x Dollar - 38.3 (b)
NDF – Euro x Dollar - 38.3 (b)
NDF – Pounds Sterling x Dollar - 38.3 (b)
Swap CDI x Dollar - 38.3 (b)
Others
Interest rate derivatives
Swap - CDI X IPCA
Cash flow hedge on exports (*)
Recognized in Net finance income (expense)
Total
(*) As presented in note 38.3
Cash flow hedge on exports (*)
(*) As presented in note 38.3
Commodity derivatives
Currency derivatives
Total
2020
(502)
−
−
194
(308)
11
(23)
20
(284)
(2)
(278)
(36)
(36)
(4,720)
(5,034)
(5,342)
2020
(17,542)
Gains/ (losses) recognized in the statement of
income
2019
(216)
11
(12)
(153)
(370)
−
(18)
(153)
(8)
7
6
(166)
6
6
(3,136)
(3,296)
(3,666)
2018
(401)
(34)
−
19
(416)
(265)
(129)
(12)
−
36
(370)
−
−
(3,315)
(3,685)
(4,101)
Gains/ (losses) recognized in other
comprehensive income
2019
(5,060)
2018
(5,635)
Guarantees given as collateral
12.31.2020
13
78
91
12.31.2019
57
230
287
A sensitivity analysis of the derivative financial instruments for the different types of market risks as of December 31, 2020 is
set out as follows:
Financial Instruments
Risk
Derivatives not designated for hedge accounting
Future and forward contracts
Crude oil and oil products - price changes
Probable
Scenario (*)
Reasonably
possible
scenario (*)
Remote
Scenario
(*)
-
−
(27)
(27)
(55)
(55)
Net effect
(*) The probable scenario was computed based on the fair value of oil and oil products prices at December 31, 2020. Reasonably possible and remote scenarios consider 25% and
50% deterioration in the associated risk variables, respectively.
38.2. 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 targets of the Strategic Plan are being met.
F-110
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
a)
Crude oil
In March 2020, in order to preserve the Company's liquidity, Petrobras approved a hedge strategy for exported oil already
shipped but not priced mainly due to the high volatility of the current context, both due to the effects of the oil price drop and
the effects of the COVID-19 pandemic on the global oil consumption.
As a result of this strategy, from April 2020, transactions using forward and futures contracts were carried out. Forward
transactions do not require initial disbursement, whereas future transactions require margin deposits, depending on the
volume contracted.
b)
Crude oil, diesel and gasoline – 2019
Crude oil – results relate to put options referenced in the average Brent oil prices, with strike price of US$ 60/barrel to protect
production. 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.
Diesel and gasoline – results relate to non-deliverable forwards (NDF) derivatives contracted in 2018 as a hedge strategy for
gasoline and diesel prices and foreign exchange rates, aiming at giving additional flexibility to the pricing policy at that time.
c)
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.
38.3. 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 cash flows derived from its operations as a whole.
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.
F-111
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
a)
Cash Flow Hedge involving the Company’s future exports
The carrying amounts, the fair value as of December 31, 2020, 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$ 5.1967
exchange rate are set out below:
Hedging Instrument
Hedged Transactions
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 2021 to
December 2030
Present value of hedging instrument notional value at
12.31.2020
(US$ million)
(R$ million)
61,502
319,608
Changes in the present value of hedging instrument notional value
Amounts designated as of January 1, 2020
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, 2020
Nominal value of hedging instrument (finance debt and lease liability) at December 31, 2020
US$
87,651
12,128
(13,432)
(24,845)
-
61,502
69,314
R$ million
353,295
59,145
(67,343)
(124,955)
99,466
319,608
360,205
In 2020, highly probable future exports were impacted by the effects of the oil price war and the COVID-19 pandemic.
Thus, a portion of exports designated for hedge relationships are no longer considered highly probable, but are still expected
to occur, and consequently the hedge relationships were revoked at March 31, 2020, in the amount of US$ 35,774. The foreign
exchange variation accounted for these operations within other comprehensive income up to the end of the first quarter
remains in shareholders' equity, and will be reclassified to the statement of income when exports occur.
According to the 2021-2025 Strategic Plan, there is an increase in expected exports compared to the expected in the first
quarter and consequently in highly probable future exports, but not in an amount equal to or greater than the finance debt
and lease liabilities subject to designation as hedge instruments. As a result, the relevant increase in Dollar/Real exposure
observed during 2020 remains at December 31, 2020, as presented in item (c) below.
In the year ended December 31, 2020, the Company recognized a US$ 1 gain within foreign exchange gains (losses) due to
ineffectiveness (a US$ 9 gain in 2019).
In addition, a portion of exports designated for hedge relationships, from April to December 2020 and from August to
December 2021, were no longer expected to occur, and the corresponding foreign exchange variation were recycled from
shareholder’s equity to the statement of income in 2020, in the amount of US$ 572 (of which US$ 510 was redesignated in the
first quarter of 2020).
The average ratio of future exports for which cash flow hedge accounting was designated to the highly probable future exports
is 100%.
A roll-forward schedule of cumulative foreign exchange losses recognized in other comprehensive income as of December 31,
2020 is set out below:
F-112
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Balance at January 1,2019
Recognized in Other comprehensive income
Reclassified to the statement of income - occurred exports
Balance at December 31, 2019
Recognized in Other comprehensive income
Reclassified to the statement of income - occurred exports
Reclassified to the statement of income - exports no longer expected to occur
Balance at December 31, 2020
Exchange
rate variation
Tax effect
Total
(20,143)
(3,510)
3,136
(20,517)
(21,460)
4,172
548
(37,257)
6,851
1,192
(1,066)
6,977
7,296
(1,419)
(187)
12,667
(13,292)
(2,318)
2,070
(13,540)
(14,164)
2,753
361
(24,590)
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 revision of the Company’s
strategic 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 2021-2025, 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, 2020 is set out below:
Expected realization
(6,895)
(7,323)
(6,132)
(4,647)
(3,163)
(2,731)
(2,832)
(3,534)
(37,257)
2021
2022
2023
2024
2025
2026
2027
2028 to 2030
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.
F-113
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
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.
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)
Information on ongoing contracts
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.
Non Deliverable Forward (NDF) – Euro x Dollar and Pounds Sterling x Dollar
In 2018, the Company, also through PGT, entered into non deliverable forwards, in other to reduce its euro x dollar and pounds
x dollar exposures raised by bonds issued.
As of December 31, 2020, net notional amount of pounds x dollars derivative changed to £ 354 million, while the position in
Euros was terminated.
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, maturing in September 2029 and September 2034, and for CDI x U.S. Dollar
operations, maturing in September 2024 and September 2029.
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$ 71 loss, while a constant reduction (parallel shock) of 100 basis points, would result
in a US$ 70 gain.
c)
Sensitivity analysis for foreign exchange risk on financial instruments
A sensitivity analysis is set out below, showing the probable scenario for foreign exchange risk on financial instruments,
computed based on external data along with stressed scenarios (a 25% and a 50% change in the foreign exchange rates), except
for assets and liabilities of foreign subsidiaries, when transacted in a currency equivalent to their respective functional
currencies.
F-114
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Financial Instruments
Assets
Liabilities
Exchange rate - Cross currency swap
Cash flow hedge on exports
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Derivative - cross currency swap
Non Deliverable Forward (NDF)
Total at December 31, 2020
Total at December 31, 2019
Exposure at
12.31.2020
Risk
Probable
Scenario (*)
Reasonably
possible
scenario
Dollar/Real
Euro/Real
Euro/Dollar
Pound/Real
Pound/Dollar
4,639
(107,346)
(579)
61,502
(41,784)
4
(48)
(44)
1,705
(3,406)
(1,701)
5
(23)
(18)
1,883
(3,742)
1,660
483
284
(43,263)
950
(42)
965
5
(553)
375
−
2
2
(10)
20
10
−
1
1
(22)
44
(20)
(6)
(4)
384
16
1,160
(26,836)
(145)
15,376
(10,445)
1
(12)
(11)
426
(852)
(426)
1
(6)
(5)
471
(935)
415
121
72
(10,815)
285
Remote
Scenario
2,320
(53,673)
(289)
30,751
(20,891)
2
(24)
(22)
852
(1,703)
(851)
2
(12)
(10)
942
(1,871)
830
242
143
(21,631)
570
(*) At December 31, 2020, the probable scenario was computed based on the following risks: R$ x U.S. Dollar - a 0.9% appreciation of the Real; Euro x U.S.
Dollar: a 0.6% depreciation of the Euro; Pound Sterling x U.S. Dollar: a 1.19% depreciation of the Pound Sterling; Real x Euro: a 5% appreciation of the Real;
and Real x Pound Sterling - a 4.6% appreciation of the Real. Source: Focus and Thomson Reuters.
38.4. 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.
Risk
LIBOR 1M
LIBOR 3M
LIBOR 6M
CDI
TJLP
IPCA
Probable
Scenario (*)
Reasonably
possible
scenario
Remote
Scenario
10
13
414
83
84
77
681
12
15
463
104
105
96
795
14
17
512
125
126
115
909
(*) The probable scenario was calculated considering the quotations of currencies and floating rates to which the debts are indexed.
38.5. 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.
F-115
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
38.5.1. Credit quality of financial assets
a)
Trade and other receivables
Most of Petrobras's clients do not have a risk rating granted by rating agencies. Thus, for the definition and monitoring of credit
limits, management evaluates the customer's field of activity, commercial relationship, financial relationship with Petrobras
and its financial statements, among other aspects.
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:
AA
A
BBB
BB
AAA.br
AA.br
Other ratings
Cash and cash equivalents
Marketable securities
12.31.2020
12.31.2019
12.31.2020
12.31.2019
1,995
2,363
168
4,154
673
1,960
398
11,711
1,053
1,173
41
3,591
80
1,224
210
7,372
−
−
−
−
652
43
8
703
−
−
−
838
33
48
27
946
38.6. Liquidity risk management
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); and
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.
38.6.1. Measures to protect the Company’s liquidity
As a result of the sharp reduction in prices and demand for oil and oil products caused by the effects of the COVID-19 pandemic
in the economy around the world, the Company adopted a set of measures to reduce disbursements and preserve cash
generation, in order to reinforce its financial strength and the resilience of its businesses.
These measures are described in note 6.
F-116
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
38.7. 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 39.
The main information concerning the insurance coverage outstanding at December 31, 2020 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
124,493
3,341
48,786
176,620
Petrobras does not have loss of earnings insurance or insurance related to automobiles and pipeline networks in Brazil.
39. Related-party transactions
The Company has a related-party transactions policy, which is annually revised and approved by the Board of Directors 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, entities controlled by
key management personnel or by their close family members, 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 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.
F-117
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
39.1. 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:
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 14.1)
Petroleum and alcohol account - receivables from the Brazilian Government (note 14.1)
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
The income/expenses of significant transactions are set out in the following table:
12.31.2020
12.31.2019
Assets
Liabilities
Assets
Liabilities
196
74
225
17
152
664
1,632
7,676
205
482
2
-
38
10,035
52
10,751
2,663
8,088
10,751
39
191
68
9
120
427
-
3,707
−
-
−
−
47
3,754
65
4,246
1,225
3,021
4,246
224
150
338
47
35
794
1,580
8,584
334
304
−
−
45
10,847
60
11,701
2,849
8,852
11,701
47
717
104
29
203
1,100
-
4,904
−
-
417
20
43
5,384
110
6,594
1,904
4,690
6,594
F-118
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(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 14.1)
Petroleum and alcohol account - receivables from the Brazilian Government (note 14.1)
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
Revenues, mainly sales revenues
Purchases and services
Income (expenses)
Foreign exchange and inflation indexation charges, net
Finance income (expenses), net
Total
(*) It includes TAG results until July 2020, when the Company entered into an agreement for the sale of its remaining interest (note 24.2)
2020
2019
2018
11,038
(1,478)
1,723
2,769
265
14,317
41
(456)
72
235
−
(4)
(135)
(15)
(262)
(177)
13,878
16,202
(2,074)
(93)
(102)
(55)
13,878
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
The liability related to pension plans of the Company's employees and managed by the Petros Foundation, including debt
instruments, is presented in note 19.
39.2. Petroleum and alcohol account - receivables from the Brazilian 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.
On November 30, 2020, since there was no possibility of impugnment because the decision was final, the precatory was sent
to the Federal Regional Court of the 2nd Region. The amount of US$ 476 (R$ 2,473 million), will be indexed up to the date of
the effective payment. The Company expects to receive the amount in the first half of 2022.
Accordingly, the Company recorded the amount of US$ 235 within net finance income (expense), including inflation indexation
and interests, of which US$ 228 arises from the update relating to the difference between the Reference Rate and the IPCA-E
of the outstanding balance.
As of December 31, 2020, the balance of receivables related to the Petroleum and Alcohol accounts is US$ 482 (US$ 304 as of
December 31, 2019), recorded within non-current assets. Thus, no amounts remain classified as a contingent asset as of
December 31, 2020.
39.3. 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).
F-119
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
The compensation of employees (including those occupying managerial positions) and officers in December 2020 and
December 2019 were:
Compensation of employees, excluding officers (amounts in U.S. dollars)
Lowest compensation
Average compensation
Highest compensation
Compensation of highest paid Petrobras officer
2020
708
3,814
19,939
20,700
The total compensation of Executive Officers and Board Members of Petrobras is set out as follows:
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.
Officers
2.0
0.5
0.1
−
0.1
2.7
2.7
9.00
9.00
Board members
0.1
-
-
-
-
0.1
-
9.44
4.33
2020
Total
2.1
0.5
0.1
−
0.1
2.8
2.7
18.44
13.33
Officers
2.9
1.0
0.4
2.8
0.4
7.5
6.0
7.67
7.67
Board members
0.3
-
-
-
-
0.3
-
9.75
5.00
2019
928
4,985
26,602
28,038
2019
Total
3.2
1.0
0.4
2.8
0.4
7.8
6.0
17.42
12.67
For 2020 December 31, 2020, expenses related to compensation of the board members and executive officers of Petrobras
amounted to US$ 14 (US$ 21 for the same period of 2019).
On July 22, 2020, the Company’s Annual Shareholders’ Meeting approved a change in the overall compensation for executive
officers and board members, setting the total compensation threshold at US$ 8 (R$ 43,3 million) from April 2020 to March
2021.
The compensation of the Advisory Committees to the Board of Directors is separate 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 Petrobras and its subsidiaries are only
compensated with respect to their Audit Committee duties. The total compensation concerning these members was US$ 430
thousand for the year ended December 31, 2020 (US$ 527 thousand with tax and social security costs). For the same period of
2019, the total compensation concerning these members was US$ 430 thousand (US$ 506 thousand with tax and social security
costs).
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.
On December 31, 2020, the company provisioned US$ 2 (R$ 13 million) related to the Performance Award Program – (PPP)
2020.
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.
F-120
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
The first period of the agreement coverage began on December 18, 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 March 24, 2020 is US$ 500.
The second period of the agreement coverage began on April 25, 2020 and continues until the occurrence of the same kind of
events of the first period. The maximum exposure established by the company (global limit for all eventual claims) until March,
2022 is US$ 300.
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) 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. Petrobras will have no obligation to indemnify the Beneficiaries
for loss of profits, loss of business opportunity, interruption of professional activity, moral damages or indirect damages.
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.
40. Supplemental information on statement of cash flows
Additional information on 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
41. Subsequent events
Sale of Mangue Seco Wind Farms 1, 3 and 4
2020
2019
2018
770
310
4,255
5,174
2
1,165
76
2,301
5,497
3
839
137
-
4,777
60
In January 2021, Petrobras signed a contract to sell all of its interests in companies that are part of the Company's wind farm
complex.
Sale of E&P assets in Espírito Santo (Polo Peroá)
On January 29, 2021, Petrobras signed a contract for the sale of all of its interests in the Peroá and Cangoá production fields
and in the BM-ES-21 concession, jointly called Polo Peroá and located in the Espírito Santo basin. The total sales are up to
US$ 55, of which (a) US$ 5 paid at the contract signing; (b) US$ 7.5 to be paid at the transaction closing and (c) up to US$ 42.5
as contingent payments provided for in the contract, related to factors such as Malombe's declaration of commerciality, future
oil prices and extension of the concession terms. This transaction is subject to price adjustments and to the fulfillment of
conditions precedent, such as approval by the ANP.
F-121
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
Sale of Frade Field
On February 5, 2021, the Company finalized the sale of its 30% stake in the Frade field to PetroRio Jaguar Petróleo Ltda., a
subsidiary of Petro Rio S.A. (PetroRio), which holds the remaining 70%. The transaction also included the sale of the entire
interest held by Petrobras Frade Inversiones S.A. (PFISA), a Petrobras subsidiary, in the company Frade BV to Petrorio
Luxembourg, which now holds 100% of Frade BV.
The operation was concluded with the payment of US$ 36 to Petrobras at the closing date, as provided for in the contract
including price adjustments. This amount is in addition to the amount of US$ 7.5 paid to Petrobras upon the contract signing.
In addition, there is an amount of US$ 20 contingent on a potential new commercial discovery in the field.
Sale of Petrobras Uruguay Distribución S.A. (PUDSA)
On February 5, 2021, Petrobras Uruguay Sociedad Anónima de Inversiones (PUSAI), an indirect subsidiary of Petrobras,
completed the sale of its entire stake in Petrobras Uruguay Distribución SA (PUDSA), in Uruguay, to Mauruguay SA, a fully
indirect subsidiary of Disa Corporación Petrolífera SA (DISA).
After all the conditions precedent were met, the transaction was concluded with the payment of US$ 62, including price
adjustments provided for in the contract. This amount adds up to the amount of US$ 6 paid to PUSAI upon the contract signing,
totaling US$ 68.
Sale of BSBios
On February 9, 2021, Petrobras Biocombustível SA (PBio) completed the sale of all of its shares (50% of the company's capital)
issued by BSBios Indústria e Comércio de Biodiesel Sul Brasil S.A. (BSBios) to the company RP Participações em Biocombustíveis
SA.
After all the conditions precedent were met, the transaction was concluded with the payment of US$ 48 to PBio, including
price adjustments provided for in the contract. In addition to this amount, US$ 13 is held in an escrow account for
indemnification of eventual contingencies and released according to terms and conditions set forth in the contract, and US$ 1
was received in advance as interest on capital in December 2020, totaling US$ 62.
Sale of onshore fields in Bahia
On February 24, 2021, Petrobras signed with SPE Miranga S.A., a wholly owned subsidiary of PetroRecôncavo S.A., a contract
for the sale of its total interest in nine onshore exploration and production fields, called Miranga group, located in the state of
Bahia.
The sale amounts to up to US$ 220, of which (a) US$ 11 paid upon the contract signing; (b) US$ 44 to be paid at the transaction
closing; (c) US$ 80 deferred in three installments over three years from the transaction closing, and (d) up to US$ 85 million in
contingent payments related to future average Brent prices for the years 2022, 2023 and 2024. This transaction includes price
adjustments and is still subject to conditions precedent, such as approval by the ANP.
Sale of Mangue Seco Wind Farm 2
On February 24, 2021, Petrobras signed a contract with Fundo de Investimento em Participações Multiestratégia Pirineus (FIP
Pirineus) for the sale of its entire 51% interest in Eólica Mangue Seco 2 (a wind farm plant). The transaction results from the
exercise of the preemptive right by FIP Pirineus, in accordance with the shareholders' agreement of Eólica Mangue Seco 2, and
amounts to US$ 6, to be paid at the transaction closing, subject to price adjustments.
Samsung leniency agreement
In February and March 2021, Petrobras received US$ 65 and US$ 59, respectively, comprising the total amount of the the
leniency agreement of Samsung Heavy Industries with Brazilian Federal Prosecutor’s Office.
Approval of the sale of the RLAM refinery
F-122
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
On March 24, 2021, the Company’s Board of Directors approved the sale of Landulpho Alves Refinery (RLAM) and its associated
logistics assets, in the state of Bahia, to Mubadala Capital for the amount of US$ 1.65 billion. The purchase and sale agreement
is expected to be signed shortly after the approval.
This sale is subject to price adjustments arising from changes in working capital, net debt and investments until the transaction
closing, and to the fulfillment of certain conditions precedent, such as approval by the CADE.
F-123
NOTES TO THE FINANCIAL STATEMENTS
PETROBRAS
(Expressed in millions of US Dollars, unless otherwise indicated)
42.
Information related to guaranteed securities issued by subsidiaries
42.1. 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-124
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, 2020, 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 the joint venture company
MP Gulf of Mexico, LLC (MPGoM), in 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 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.
i) Capitalized costs relating to oil and gas producing activities
As set out in note 28, the Company uses the successful efforts method of accounting for appraisal and development costs of
crude oil and natural gas production. In addition, notes 25.3 and 26.2 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, 2020
Unproved oil and gas properties
Proved oil and gas properties
Support Equipment
Gross Capitalized costs
Depreciation, depletion and amortization
Net capitalized costs
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
17,438
61,857
73,199
152,494
(43,008)
109,486
23,063
81,063
88,289
192,414
(51,332)
141,081
5,999
88,572
83,822
178,393
(60,890)
117,503
112
140
761
1,013
(687)
326
117
135
687
940
(581)
359
112
144
649
905
(544)
361
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
1
(1)
-
-
-
1
1
(1)
-
-
-
389
389
(29)
360
112
140
762
1,014
(688)
326
117
135
688
941
(582)
359
112
144
1,038
1,294
(573)
721
17,550
61,997
73,961
153,508
(43,696)
109,812
23,180
81,198
88,977
193,355
(51,914)
141,441
6,111
88,716
84,860
179,687
(61,463)
118,224
Equity
Method
Investees
-
792
-
792
(316)
476
-
4,202
-
4,202
(1,690)
2,513
-
4,091
6
4,097
(1,410)
2,687
F-125
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
315
24
805
5,664
6,808
-
16,670
1,069
6,819
24,558
-
832
776
9,685
11,293
-
-
10
3
13
-
-
11
6
17
-
-
10
32
43
-
-
-
-
-
-
-
-
-
-
-
-
1
229
230
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
3
13
-
-
11
6
17
-
-
11
261
272
315
24
815
5,667
6,821
-
16,670
1,080
6,825
24,575
-
832
787
9,946
11,565
-
-
−
57
57
-
-
3
150
153
-
-
5
252
257
December 31, 2020
Acquisition costs:
Proved
Unproved (*)
Exploration costs
Development costs
Total
December 31, 2019
Acquisition costs:
Proved
Unproved (*)
Exploration costs
Development costs
Total
December 31, 2018
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, 2020, 2019 and
2018 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-126
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, 2020
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, 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)
Consolidated entities
Abroad
Brazil
South
America
North
America
Others
Total
Total
763
33,524
34,287
(9,378)
(796)
(8,611)
(7,364)
(885)
7,253
(2,466)
108
-
108
(59)
(7)
(50)
-
(2)
(10)
3
-
-
-
-
-
-
-
(167)
(167)
57
-
-
-
-
-
-
-
(26)
(26)
9
108
-
108
(59)
(7)
(50)
-
(195)
(203)
69
871
33,524
34,395
(9,437)
(803)
(8,661)
(7,364)
(1,080)
7,050
(2,398)
Equity
Method
Investees
148
-
148
(54)
-
(57)
-
(158)
(121)
41
4,786
(7)
(110)
(17)
(134)
4,652
(80)
888
49,400
50,288
(15,749)
(793)
(11,436)
(1,535)
(1,420)
19,354
(6,579)
174
−
174
(69)
(6)
(37)
-
(13)
50
(17)
-
-
-
-
-
-
-
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)
12,775
33
27
(309)
(249)
12,526
443
1,142
50,052
51,194
(19,741)
(516)
(8,716)
(686)
(2,188)
19,347
(6,576)
190
−
190
(77)
(7)
(40)
-
(839)
(773)
263
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
F-127
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 2020, 2019 and 2018 are presented
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.
Proved reserves for which substantial new investments in additional wells and related facilities will be required 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(*)
Reserves at December 31, 2017 (1)
Transfers by loss of control (2)
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
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2019 (1)
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2020
Consolidated Entities
Equity Method Investees
Crude oil
in Brazil
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
268.7
34.8
−
(60.8)
−
(791.7)
7,533.9
Crude Oil
in South
America
1.2
−
−
0.6
−
−
−
(0.3)
1.6
−
−
−
−
−
(0.2)
1.4
(0.9)
−
−
−
−
(0.2)
0.3
Crude Oil
in North
America
114.6
(100.4)
−
−
−
−
−
(14.3)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Synthetic Oil
in Brazil
6.0
−
(0.3)
−
−
−
−
(0.9)
4.8
−
3.6
−
−
−
(0.8)
7.7
(6.8)
−
−
−
−
(0.9)
−
Consolidated
Total
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
261.0
34.8
−
(60.8)
−
(792.8)
7,534.2
Crude Oil
in North
America
−
100.4
(0.9)
−
−
(80.4)
7.9
(0.4)
26.6
0.7
−
−
−
−
(4.7)
22.7
(0.4)
−
−
−
−
(4.2)
18.1
Crude Oil
in Africa
63.4
−
3.7
−
−
−
−
(7.3)
59.8
(6.5)
0.6
−
−
−
(12.3)
41.6
−
−
−
(41.1)
−
(0.5)
−
Total
8,434.7
−
345.3
309.1
224.2
(335.2)
7.9
(724.5)
8,261.5
713.0
21.7
−
(68.3)
−
(771.7)
8,156.1
260.7
34.8
−
(101.8)
−
(797.5)
7,552.3
(1) In 2017, total proved reserves includes 263.7 million barrels related to assets held for sale. 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-128
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):
Consolidated Entities
Equity Method
Investees
Natural
Gas in
Brazil
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
(92.5)
36.0
−
(42.3)
−
(735.2)
7,546.7
Natural
Gas in
South
America
160.2
−
−
70.1
−
−
−
(16.2)
214.1
(42.3)
−
−
−
−
(15.5)
156.3
(118.7)
−
−
−
−
(12.0)
25.6
Natural
Gas in
North
America
40.9
(36.8)
−
−
−
−
−
(4.1)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Synthetic
Gas in
Brazil
8.1
−
(1.0)
−
−
−
−
(1.3)
5.7
−
7.6
−
−
−
(1.2)
12.1
(10.8)
−
−
−
−
(1.4)
−
Consolidated
Total
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
(221.9)
36.0
−
(42.3)
−
(748.5)
7,572.3
Gas
Natural in
North
America
−
36.8
(3.1)
−
−
(29.7)
6.9
(0.1)
10.8
0.1
−
−
−
−
(1.7)
9.2
0.2
−
−
−
−
(1.6)
7.8
Gas
Natural in
Africa
17.3
−
34.8
−
−
−
−
(4.8)
47.3
10.9
0.3
−
−
−
(11.3)
47.2
−
−
−
(47.2)
−
−
−
Total
7,902.6
−
768.0
206.9
207.6
(195.2)
6.9
(828.4)
8,068.5
1,384.4
23.2
−
(24.0)
−
(846.7)
8,605.4
(221.7)
36.0
−
(89.5)
−
(750.1)
7,580.1
Proved developed and
undeveloped reserves (*)
Reserves at December 31, 2017 (1)
Transfers by loss of control (2)
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
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2019 (1)
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2020
(1) In 2017, total proved reserves includes 173.7 billion cubic feet related to assets held for sale. 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 consumed in
operations, which represent 30% of our total proved reserves of natural gas as of December 31, 2020.
F-129
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 2020, 2019 and 2018:
Consolidated Entities
Equity Method Investees
Proved developed and
undeveloped reserves(*)
Reserves at December 31, 2017 (1)
Transfers by loss of control (2)
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
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2019 (1)
Revisions of previous estimates
Extensions and discoveries
Improved Recovery
Sales of reserves
Purchases of reserves
Production for the year
Reserves at December 31, 2020
Oil
equivalent
in Brazil
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
253.3
40.8
−
(67.8)
−
(914.2)
8,791.7
Oil
equivalent
inSouth
America
27.9
−
−
12.3
−
−
−
(3.0)
37.2
(7.0)
−
−
−
−
(2.8)
27.4
(20.6)
−
−
−
−
(2.2)
4.6
Oil
equivalent
in North
America
121.5
(106.5)
−
−
−
−
−
(15.0)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Synthetic
Oil in Brazil
7.4
−
(0.4)
−
−
−
−
(1.2)
5.8
−
4.9
−
−
−
(1.0)
9.7
(8.6)
−
−
−
−
(1.2)
−
Consolidated
Total
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
224.1
40.8
−
(67.8)
−
(917.6)
8,796.3
Oil
equivalent
in North
America
−
106.5
(1.4)
−
−
(85.4)
9.1
(0.5)
28.4
0.7
−
−
−
−
(4.9)
24.2
(0.3)
−
−
−
−
(4.5)
19.4
Oil
equivalent
in Africa
66.3
−
9.6
−
−
−
−
(8.1)
67.7
(4.7)
0.6
−
−
−
(14.1)
49.5
−
−
−
(49.0)
−
(0.5)
−
Total
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
223.7
40.8
−
(116.8)
−
(922.5)
8,815.7
(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.
(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.
In 2020, we incorporated 223.7 million boe of proved reserves by revising previous estimates, including:
(i) addition of 637.1 million boe arising from technical revisions, mainly due to good performance and increased production
experience in reservoirs in the pre-salt layer of Santos Basin;
(ii) addition of 253.9 million boe due to approvals of new projects in the Santos and Campos Basins; and
(iii) reduction of 667.2 million boe related to economic revisions, mainly due to the decrease in oil prices.
In addition, we added 40.8 million boe to our proved reserves due to extensions and discoveries in the pre-salt of Santos Basin,
and reduced 116.8 million boe due to sales of proved reserves.
The company's total proved reserve resulted in 8,815.7 million boe in 2020, considering the variations above and the reduction
from 2020 production of 922.5 million boe. Production refers to volumes that were previously 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 2019, we incorporated 943.7 million boe of reserves proved by revisions of previous estimates, composed of:
F-130
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) 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.
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.
The tables below present the volumes of proved developed and undeveloped reserves, net, that is, reflecting Petrobras'
participation:
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)
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
−
−
−
−
−
−
−
4,807.0
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
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
4.8
8,062.7
5.7
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-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)
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
(mmbbl)
(bncf)
Total oil and gas
(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
−
−
−
−
−
−
−
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
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
7.7
8,593.2
12.1
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.
Net proved developed reserves (*):
Consolidated Entities
Brazil
South America, outside Brazil (1)
Total Consolidated Entities
Equity Method Investees
North America (1)
Total Equity Method Investees
Total Consolidated and Equity Method Investees
Net proved undeveloped reserves (*):
Consolidated Entities
Brazil
South America, outside Brazil (1)
Total Consolidated Entities
Equity Method Investees
North America (1)
Total Equity Method Investees
Total Consolidated and Equity Method Investees
Total proved reserves (developed and undeveloped)
Crude Oil
Synthetic Oil
Natural Gas
Synthetic Gas
(mmbbl)
(bncf)
Total oil and gas
(mmboe)
2020
4,857.6
0.3
4,857.9
16.9
16.9
4,874.8
2,676.3
−
2,676.3
1.2
1.2
2,677.5
7,552.3
−
−
−
−
−
−
−
−
−
−
−
−
−
5,713.9
25.6
5,739.5
7.2
7.2
5,746.7
1,832.8
−
1,832.8
0.6
0.6
1,833.4
7,580.1
−
−
−
−
−
−
−
−
−
−
−
−
−
5,809.9
4.6
5,814.5
18.1
18.1
5,832.6
2,981.8
−
2,981.8
1.3
1.3
2,983.1
8,815.7
(1) South America oil reserves includes 21.3% of natural gas liquid (NGL) in proved developed reserves. North America oil reserves includes 6.3% 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-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)
(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-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)
Standardized measure of discounted future net cash flows:
Consolidated entities
Abroad
Brazil
South
America
North
America
Total
Total
Equity
Method
Investees (2)
December 31, 2020
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, 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
333,248
(182,534)
(31,236)
(46,862)
72,616
(26,638)
45,978
535,788
(272,381)
(34,346)
(86,012)
143,049
(54,928)
88,121
601,754
(269,942)
(34,119)
(111,522)
186,171
69
(51)
(16)
-
2
-
1
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
(1) Semiannual capitalization
(75,050)
(194)
111,121
185
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
69
(51)
(16)
-
2
-
1
609
(285)
(141)
(31)
152
333,317
(182,585)
(31,252)
(46,862)
72,618
(26,638)
45,979
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
667
(465)
(48)
(79)
75
(1)
74
4,045
(1,349)
(515)
(438)
1,743
(332)
1,412
5,998
(1,570)
(520)
(1,006)
2,903
(613)
2,290
(2) Includes the amount of US$ 1,675 millions related to PO&G assets classified as held for sale in 2018. Includes the amount of US$ 1,047 millions related to PO&G assets classified as held for sale in 2019.
Apparent differences in the sum of the numbers are due to rounding off.
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)
Changes in discounted net future cash flows:
Balance at January 1, 2020
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, 2020
Balance at January 1, 2019
Sales and transfers of oil and gas, net of production
Development cost incurred
Net change due to purchases and sales of minerals in
Net change due to extensions, discoveries and
Revisions of previous quantity estimates
Net change in prices, transfer prices and in production
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
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
Brazil (1)
88,121
(24,908)
5,664
(847)
509
3,160
(54,606)
(4,716)
8,812
24,788
-
45,978
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
72,662
1,857
6,369
(28,910)
-
111,121
South
America
69
North
America
-
(14)
3
-
-
(35)
(145)
97
9
24
(7)
1
185
(65)
6
-
-
(44)
(145)
60
25
41
7
69
126
-
(76)
32
-
123
-
44
(76)
19
(4)
(4)
185
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,628
(1,428)
(844)
229
-
-
-
383
(118)
150
-
-
-
Consolidated entities
Abroad
Total
69
(14)
3
-
-
(35)
(145)
97
9
24
(7)
1
185
(65)
6
-
-
(44)
(145)
60
25
41
7
69
1,755
(1,428)
(921)
261
Total
88,190
(24,922)
5,666
(847)
509
3,125
(54,751)
(4,618)
8,821
24,812
(7)
45,979
111,305
(34,587)
6,826
(1,387)
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)
1,412
(94)
57
(1,047)
-
(10)
(375)
67
12
51
1
74
2,290
(792)
150
-
-
8
(505)
(97)
244
363
(249)
1,412
1,294
1,428
(369)
252
-
(4,773)
(1,770)
123
-
427
(194)
169
(4)
(4)
185
11,407
10,688
73,089
1,664
6,537
(28,914)
(4)
111,305
-
50
1,740
(93)
129
(489)
119
2,290
(1) Includes the amount of US$ 1,770 millions related to assets classified as held for sale in 2017 (January of 2018).
(2) Includes the amount of US$ 1,675 millions related to PO&G assets classified as held for sale in 2018. Includes the amount of US$ 1,047 millions related to PO&G assets classified as held for sale in 2019.
(3) 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