pbr-6k_20170331.htm

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 6-K

 

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

 

For the month of March, 2017

 

Commission File Number 1-15106

 

 

 

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)



Avenida República do Chile, 65 
20031-912 - Rio de Janeiro, RJ
Federative Republic of Brazil

(Address of principal executive office)


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 

 

Form 20-F ___X___ Form 40-F _______

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes _______ No___X____

 

 

 

 


FINANCIAL REPORT

FOURTH QUARTER OF 2016 RESULTS

Derived from consolidated interim financial information audited by independent auditors, stated in millions of U.S. dollars, prepared in accordance with International Financial Reporting Standards - IFRS issued by the International Accounting Standards Board - IASB.

Rio de Janeiro – March 21, 2017

Main financial highlights

Net income of US$ 754 million in 4Q-2016, compared to a loss of US$ 5,380 million in 3Q-2016, as a result of:

 

operating income of US$ 3,577 million, compared to an operating loss of US$ 3,401 million in 3Q-2016, mainly due to lower impairment charges;

 

decrease of 26% in net finance expenses;

 

increase of 12% in exports, which reinforces the Company’s position as net exporter;

 

sales, general and administrative expenses reduced by 7%; and

 

gross gains on the sale of interests in Block BM-S-8 (Carcará) totaling US$ 881 million.

Adjusted EBITDA* of US$ 7,527 million in 4Q-2016, 10% higher than 3Q-2016 and of US$ 25,630 million in 2016, 9% above 2015, reflecting lower costs with imports and government take. Adjusted EBITDA margin was 35% in 4Q-2016.

In 2016, free cash flow* was US$ 12,377 million, 2.8x above 2015, reflecting the investments reduction in 36% and the improved capital discipline. It was the seventh quarter in a row of positive free cash flow*, reaching US$ 3,630 million in the 4Q-2016, 28% lower than 3Q-2016.

Gross debt decreased 6%, from US$ 126,262 million as of December 31, 2015 to US$ 118,370 million as of December 31, 2016, a reduction of US$ 7,892 million, due to debt pre-payment and amortization, using resources from divestments and operations.

Net debt* decreased 4% (US$ 4,044 million), from US$ 100,425 million as of December 31, 2015 to US$ 96,381 million as of December 31, 2016. In addition, the liquidity management led to an average maturity of outstanding debt to increase from 7.14 years as of December 31, 2015 to 7.46 years as of December 31, 2016.

There was a significant reduction of the ratio between net debt and Adjusted EBITDA*, from 4.27 as of December 31, 2015 to 3.76 as of December 31, 2016. During the same period, leverage decreased from 60% to 55%.

Petrobras employees, as of December 31, 2016, were 68,829, a decrease of 12% compared to 2015, due to the Voluntary Separation Incentive Plan. The workforce reduced 20%.

Main operating highlights

Average crude oil production in Brazil reached, in 2016, a yearly historic record of 2,144 thousand barrels per day (bpd), 0.75% above the previous year and aligned with the goal of 2,145 thousand bpd for the period. The Company reinforced its commitment to its planned projections for the second consecutive year.

Total crude oil production in Brazil was 2,243 thousand bpd in 4Q-2016, an increase of 1% compared to 3Q-2016. In December, several production records were achieved:

 

crude oil and natural gas production in Brazil and abroad reached 2,937 thousand barrels of oil equivalent per day (boed);

 

crude oil and natural gas production in Brazil reached 2,811 thousand boed; and

 

crude oil and natural gas production operated by Petrobras in the pre-salt layer reached 1,580 thousand boed;

In 4Q-2016, output of domestic oil products decreased by 3% to 1,810 thousand bpd. Domestic oil product sales decreased by 4% to 2,001 thousand bpd, while crude oil and oil products exports increased by 13%, reaching 634 thousand bpd.

In 2016, the Company achieved the position of net exporter, due to the increase in exports of 6% and reduction in imports of 30%.

 

 

 

* See definitions of Free cash flow, Adjusted EBITDA and Net Debt in glossary and the respective reconciliations of such items in Liquidity and Capital Resources, Reconciliation of Adjusted EBITDA and Debt.

1

 

 

 


www.petrobras.com.br/ir*

Contacts:

 

PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Investor Relations Department

E-mail: petroinvest@petrobras.com.br / acionistas@petrobras.com.br

Av. República do Chile, 65 – 1002  – 20031-912 – Rio de Janeiro, RJ

Phone: 55 (21) 3324- 1510 / 9947 I 0800-282-1540

BM&F BOVESPA:  PETR3, PETR4

NYSE: PBR, PBRA

BCBA: APBR, APBRA

LATIBEX: XPBR, XPBRA

 

This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. The forward-looking statements, which address the Company’s expected business and financial performance, among other matters, contain words such as “believe,” “expect,” “estimate,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” and similar expressions. 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 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 Company’s 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: (i) failure to comply with laws or regulations, including fraudulent activity, corruption, and bribery; (ii) the outcome of ongoing corruption investigations and any new facts or information that may arise in relation to the “Lava Jato Operation”; (iii) the effectiveness of the Company’s risk management policies and procedures, including operational risk; and (iv) litigation, such as class actions or proceedings brought by governmental and regulatory agencies.  A description of other factors can be found in the Company’s Annual Report on Form 20-F for the year ended December 31, 2015, and the Company’s other filings with the U.S. Securities and Exchange Commission.

 

 

* See definitions of Free cash flow, Adjusted EBITDA and Net Debt in glossary and the respective reconciliations of such items in Liquidity and Capital Resources, Reconciliation of Adjusted EBITDA and Debt.

2

 

 

 


Main Items and Consolidated Economic Indicators

 

US$ million

 

Jan-Dec

 

 

 

 

 

2016

2015

2016 x

2015 (%)

4Q-2016

3Q-2016

4Q16 X

3Q16 (%)

4Q-2015

Sales revenues

81,405

97,314

(16)

21,403

21,693

(1)

22,147

Gross profit

25,988

29,829

(13)

6,926

7,187

(4)

6,987

Operating income (loss)

4,308

(1,130)

481

3,577

(3,401)

205

(10,451)

Net finance income (expense)

(7,755)

(8,441)

8

(1,612)

(2,193)

26

(1,283)

Consolidated net income (loss) attributable to the shareholders of Petrobras

(4,838)

(8,450)

43

754

(5,380)

114

(9,421)

Basic and diluted earnings (losses) per share

(0.37)

(0.65)

43

0.06

(0.41)

115

(0.72)

Adjusted EBITDA *

25,630

23,518

9

7,527

6,855

10

4,924

 

 

 

 

 

 

 

 

Gross margin (%)

32

31

1

32

33

(1)

32

Operating margin (%)

5

(1)

6

17

(16)

33

(47)

Net margin (%)

(6)

(9)

3

4

(25)

29

(43)

 

 

 

 

 

 

 

 

Total capital expenditures and investments

15,859

23,058

(31)

4,269

3,776

13

5,419

Exploration & Production

13,509

19,131

(29)

3,384

3,203

6

4,510

Refining, Transportation and Marketing

1,168

2,534

(54)

308

382

(19)

556

Gas & Power

717

793

(10)

437

103

324

161

Distribution

139

255

(45)

45

34

32

74

Biofuel

96

43

123

5

7

(29)

24

Corporate

230

302

(24)

90

47

91

94

 

 

 

 

 

 

 

 

Average commercial selling rate for U.S. dollar (R$/U.S.$)

3.48

3.34

4

3.30

3.25

2

3.84

Period-end commercial selling rate for U.S. dollar (R$/U.S.$)

3.26

3.90

(16)

3.26

3.25

3.90

Variation of the period-end commercial selling rate for U.S. dollar (%)

(16.5)

47.0

(64)

0.4

1.1

(1)

(1.7)

 

 

 

 

 

 

 

 

Domestic basic oil products price (U.S.$/bbl)

65.52

69.46

(6)

67.00

70.46

(5)

62.30

Brent crude (U.S.$/bbl)

43.69

52.46

(17)

49.46

45.85

8

43.69

 

 

 

 

 

 

 

 

Domestic Sales price

 

 

 

 

 

 

 

Crude oil (U.S.$/bbl)

39.36

42.16

(7)

45.71

41.77

9

33.50

Natural gas (U.S.$/bbl)

31.29

36.24

(14)

32.80

32.21

2

32.47

 

 

 

 

 

 

 

 

International Sales price

 

 

 

 

 

 

 

Crude oil (U.S.$/bbl)

43.52

55.99

(22)

42.44

42.38

49.28

Natural gas (U.S.$/bbl)

21.40

22.62

(5)

18.34

20.51

(11)

19.80

 

 

 

 

 

 

 

 

Total sales volume (Mbbl/d)

 

 

 

 

 

 

 

Diesel

780

923

(15)

707

804

(12)

907

Gasoline

545

553

(1)

553

521

6

562

Fuel oil

67

104

(36)

67

57

18

97

Naphtha

151

133

14

164

156

5

102

LPG

234

232

1

232

248

(6)

226

Jet fuel

101

110

(8)

101

101

108

Others

186

179

4

178

201

(11)

169

Total oil products

2,064

2,234

(8)

2,001

2,088

(4)

2,171

Ethanol, nitrogen fertilizers, renewables and other products

112

123

(9)

104

121

(14)

126

Natural gas

333

432

(23)

332

325

2

416

Total domestic market

2,509

2,789

(10)

2,438

2,534

(4)

2,713

Crude oil, oil products and others exports

554

510

9

649

579

12

534

International sales

418

546

(23)

364

360

1

625

Total international market

972

1,056

(8)

1,013

939

8

1,159

Total

3,481

3,845

(9)

3,450

3,472

(1)

3,872

*

 

* See definition of Adjusted EBITDA in glossary and the respective reconciliation in Reconciliation of Adjusted EBITDA.

3

 

 

 


2016 x 2015 Results*:

Virtually all revenues and expenses of our Brazilian operations are denominated and payable in Brazilian Real. Although the fluctuation of Brazilian Real affects revenues and expenses in different ways when translated into U.S. dollars, we have only included it in the results of operations discussion when it was a contributing factor to changes in our results of operations as compared to previous periods. In 2016, the average Brazilian Real depreciated by 4% when compared to the U.S. dollar.

Gross Profit

Gross profit decreased 13% when compared to 2015, to US$ 25,988 million in 2016, as a result of a 8% drop in the domestic oil products sales volume, mainly of diesel and fuel oil, as well as the fall in electricity generation. The reduced volume of domestic natural gas sales volumes, the lower crude oil and oil products export prices as well as the increase in depreciation due to the reduction in reserves estimates also contributed to this decrease. On the other hand, there was decrease in import costs and government take in Brazil.

Operating income

Operating income was US$ 4,308 million in 2016, reverting the operating loss experienced in 2015. This result reflects the decrease of 50% in impairment charges, as well as the review of the provision for decommissioning costs in oil and gas producing areas in 3Q-2016, the gains derived from the sale of assets and the lower expenses with returned areas. Nevertheless, our results were impacted by the higher expenses related to the new Voluntary Separation Incentive Plan, by the reclassification of foreign exchange losses (cumulative translation adjustments – CTA, due to the PESA sale) and by higher expenses with drilling rigs idleness.

Net Finance Expense

Net finance expense of US$ 7,755 million, US$ 686 million lower relatively to 2015 due to the reduced foreign exchange losses and inflation indexation charges. The interest expenses increased due to the depreciation of the Brazilian Real against the U.S. dollar.

Net income (loss) attributable to the shareholders of Petrobras

The net loss attributable to the shareholders of Petrobras was US$ 4,838 million in 2016, mainly due to the impairment of assets and impairment in investments in associates, totaling US$ 6,375 million.

Adjusted EBITDA**

Adjusted EBITDA increased by 9% when compared to 2015, to US$ 25,630 million in 2016, mainly due to lower expenditures with imports and government take. The Adjusted EBITDA Margin reached 31% in 2016.

Free Cash Flow **

The higher operating cash flow and lower investments resulted in a positive free cash flow* of US$ 12,377 million, 2.8 times higher than 2015. The higher free cash flow and the results of divestments, representing cash inflows of US$ 2,205 million, contributed to the Company’s deleveraging

 

* Additional information about operating results of 2016 x 2015, see item 5.

* See definitions of Free cash flow and Adjusted EBITDA in glossary and the respective reconciliations in Liquidity and Capital Resources and Reconciliation of Adjusted EBITDA.

*

4

 

 

 


Exploration & Production Main Indicators

 

US$ million

 

Jan-Dec

 

2016

2015

2016 x

2015 (%)

Sales revenues

33,675

35,680

(6)

Brazil

32,382

33,818

(4)

Abroad

1,293

1,862

(31)

Gross profit

8,812

10,509

(16)

Brazil

8,387

9,935

(16)

Abroad

425

574

(26)

Operating expenses

(6,789)

(13,883)

51

Brazil

(6,205)

(12,688)

51

Abroad

(584)

(1,195)

51

Operating income (loss)

2,023

(3,374)

160

Brazil

2,185

(2,751)

179

Abroad

(162)

(623)

74

Net income (Loss) attributable to the shareholders of Petrobras

1,425

(2,480)

157

Brazil

1,592

(1,629)

198

Abroad

(167)

(851)

80

Adjusted EBITDA of the segment *

15,697

14,920

5

Brazil

15,251

14,456

5

Abroad

446

464

(4)

EBITDA margin of the segment (%)

46

42

4

Capital expenditures of the segment

13,509

19,131

(29)

 

 

 

 

Average Brent crude (US$/bbl)

43.69

52.46

(17)

 

 

 

 

Sales price - Brazil

 

 

 

Crude oil (US$/bbl)

39.36

42.16

(7)

Sales price - Abroad

 

 

 

Crude oil (US$/bbl)

43.52

55.99

(22)

Natural gas (US$/bbl)

21.40

22.62

(5)

 

 

 

 

Crude oil and NGL production  (Mbbl/d)

2,224

2,227

Brazil

2,144

2,128

1

Abroad

55

69

(20)

Non-consolidated production abroad

25

30

(17)

Natural gas production (Mbbl/d)

566

560

1

Brazil

485

469

3

Abroad

81

91

(11)

Total production

2,790

2,787

 

 

 

 

Lifting cost - Brazil (US$/barrel)

 

 

 

excluding production taxes

10.64

11.95

(11)

including production taxes

16.27

18.53

(12)

 

 

 

 

Lifting cost – abroad without production taxes (US$/barrel)

5.38

8.03

(33)

 

 

 

 

Production taxes - Brazil

4,652

5,743

(19)

Royalties

2,942

3,372

(13)

Special participation charges

1,658

2,321

(29)

Rental of areas

52

50

4

Production taxes - Abroad

226

321

(30)

 

*

 

 

* See reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

5

 

 

 


RESULT BY BUSINESS SEGMENT

 

 

 

EXPLORATION & PRODUCTION

 

 

2016 x 2015

 

Gross Profit

 

Gross profit decreased due to higher depreciation, given the reduction in reserves in 2015, which was more relevant in the E&P costs breakdown than the reduction of lifting costs and government take.

The reduction in gross profit abroad is related to the sale of PESA, in Argentina, in July/2016.

 

Operating income

 

In 2016, Petrobras had operating income, compared to the operating loss experienced in 2015, due to lower impairment charges.

Abroad, operating loss reduced due to lower impairment charges and to exploratory costs in the United States.

 

Operating Performance

 

Production

Domestic crude oil and NGL production increased by 1% mainly due to the production start-up and the ramp-up of new systems: FPSO Cid. Itaguaí (Lula – Iracema Norte area), FPSO Cid. Maricá (Lula – Lula Alto area) and P-58 (Jubarte).

Domestic natural gas production increased 3% mainly due to the above-mentioned factors plus the start-up and ramp-up of the new systems: FPSO Cid. Mangaratiba (Lula –Iracema Sul area), P-62 (Roncador) and FPSO Cid. Saquarema (Lula- Lula Central area).

Crude oil and NGL production abroad decreased 20% mainly as a result of the conclusion of the sale of Petrobras Argentina S.A. (PESA) in July/2016.

Gas production abroad decreased by 11% due to the sale of PESA.

 

Lifting Cost

Lifting cost reduced mainly due to lower expenses related to well interventions and with maintenance of subsea systems, as well as to the higher share of pre-salt production, with lower unit cost.

Additionally, government take costs decreased as a result of lower oil prices.

Lifting cost abroad decreased due to the conclusion of PESA’s sale, with higher operating costs, as well as the increase in production in the United States, with relatively lower costs.

 

6

 

 

 


Refining, Transportation and Marketing Main Indicators

 

US$ million

 

Jan-Dec

 

2016

2015

2016 x

2015 (%)

Sales revenues

62,588

74,321

(16)

Brazil (includes trading operations abroad)

63,414

72,241

(12)

Abroad

2,972

5,115

(42)

Eliminations

(3,798)

(3,035)

(25)

Gross profit

14,144

13,937

1

Brazil

14,101

13,738

3

Abroad

43

199

(78)

Operating expenses

(5,425)

(5,834)

7

Brazil

(5,440)

(5,579)

2

Abroad

15

(255)

106

Operating income (loss)

8,719

8,103

8

Brazil

8,661

8,159

6

Abroad

58

(56)

204

Net income (loss) attributable to the shareholders of Petrobras

5,746

5,727

Brazil

5,686

5,776

(2)

Abroad

60

(49)

222

Adjusted EBITDA of the segment *

13,562

12,093

12

Brazil

13,449

12,082

11

Abroad

113

11

927

EBITDA margin of the segment (%)

22

16

6

 

 

 

 

Capital expenditures of the segment

1,168

2,534

(54)

Domestic basic oil products price  (US$/bbl)

65.52

69.46

(6)

Imports (Mbbl/d)

374

533

(30)

Crude oil import

136

277

(51)

Diesel import

13

78

(83)

Gasoline import

32

28

14

Other oil product import

193

150

29

Exports (Mbbl/d)

542

509

6

Crude oil export

387

360

8

Oil product export

155

149

4

Exports (imports), net

168

(24)

800

Refining Operations - Brazil (Mbbl/d)

 

 

 

Output of oil products

1,887

2,026

(7)

Reference feedstock 

2,176

2,176

Refining plants utilization factor (%) 

81

89

(9)

Feedstock processed (excluding NGL)

1,772

1,936

(8)

Feedstock processed

1,819

1,976

(8)

Domestic crude oil as % of total feedstock processed

92

86

7

Refining Operations - Abroad (Mbbl/d)

 

 

 

Total feedstock processed

126

138

(9)

Output of oil products

128

149

(14)

Reference feedstock 

200

230

(13)

Refining plants utilization factor (%) 

65

58

12

Refining cost - Brazil

 

 

 

Refining cost (US$/barrel)

2.58

2.46

5

Refining cost - Abroad (US$/barrel)

3.95

4.03

(2)

Sales volume (includes sales to BR Distribuidora and third-parties)

 

 

 

Diesel

733

890

(18)

Gasoline

486

496

(2)

Fuel oil

63

94

(33)

Naphtha

151

133

14

LPG

234

232

1

Jet fuel

115

126

(8)

Others

199

201

(1)

Total domestic oil products (Mbbl/d)

1,982

2,172

(9)

*

 

 

* See reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

7

 

 

 


REFINING, TRANSPORTATION AND MARKETING

 

 

2016 x 2015

 

Gross Profit

 

Gross profit slightly increased due to the following factors: (i) decrease in crude oil purchase/transfer costs, tracking lower Brent prices, (ii) the higher share of national oil on the feedstock processed and (iii) the lower share of imported oil products in our sales mix, mainly diesel. On the other hand, there was a reduction in oil export prices and in domestic sales and an increase in diesel and gasoline imports by competitors, as well as foreign exchange translation effects.

 

Operating Income

 

Operating income increased due to the higher gross profit, as well as to decrease in operating expenses, mainly tax expenses (related to the Company’s decision, in 2015, to benefit from the Tax Amnesty and Refinancing Program - Programa de Recuperação Fiscal – REFIS) and legal contingencies, also occurred in 2015. Those factors were partially offset by higher impairment charges.

 

 

Operating Performance

 

Imports and Exports of Crude Oil and Oil Products

 

Net crude oil exports increased as a result of the decrease in volume processed in the refineries and of a lower share of imported crude oil on processed feedstock.

The reduction in net oil products imports, especially diesel, is due to lower domestic market along with the increase in market share of our competitors in the Brazilian market.  

 

Refining Operations

 

Processed feedstock was 8% lower, mainly due to lower oil products domestic demand, to increase in imports by third parties and to the impact of scheduled stoppages in the REPLAN, RPBC, REPAR and REFAP refineries, which was partially offset by higher production in RNEST, as a result of improvements in operational efficiencies.

 

Refining Cost

 

Refining cost in U.S. dollars was 5% higher. When measured in Brazilian Reais, refining cost increased by 9% mainly reflecting higher employee compensation costs attributable to the 2016 Collective Bargaining Agreement, along with a decrease in feedstock processed.

 

8

 

 

 


Gas & Power Main Indicators

 

US$ million

 

Jan-Dec

 

2016

2015

2016 x

2015 (%)

Sales revenues

9,401

13,145

(28)

Brazil

9,001

12,595

(29)

Abroad

400

550

(27)

Gross profit

2,611

2,606

Brazil

2,548

2,509

2

Abroad

63

97

(35)

Operating expenses

(1,439)

(2,211)

35

Brazil

(1,419)

(2,184)

35

Abroad

(20)

(26)

24

Operating income (loss)

1,172

395

197

Brazil

1,129

324

248

Abroad

43

71

(39)

Net income (Loss) attributable to the shareholders of Petrobras

732

237

209

Brazil

651

136

379

Abroad

81

101

(20)

Adjusted EBITDA of the segment *

2,300

2,154

7

Brazil

2,246

2,062

9

Abroad

54

92

(41)

EBITDA margin of the segment (%)

24

16

8

 

 

 

 

Capital expenditures of the segment

717

793

(10)

 

 

 

 

Physical and financial indicators

 

 

 

Electricity sales (Free contracting market - ACL) - average MW

835

858

(3)

Electricity sales (Regulated contracting market - ACR) - average MW

3,172

3,160

Generation of electricity - average MW

2,252

4,646

(52)

Electricity price in the spot market - Differences settlement price (PLD) - US$/MWh

31

86

(64)

Imports of LNG (Mbbl/d)

37

105

(65)

Imports of natural gas (Mbbl/d)

177

200

(12)

 

*

 

 

 

 

 

 

 

* See reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

9

 

 

 


GAS & POWER

 

 

 

2016 x 2015

 

Gross Profit

 

Gross profit remained stable in U.S. dollar in 2016 when compared to 2015. There were lower acquisition costs, mainly due to the reduction of natural gas and LNG imports. On the other hand, natural gas sales and electricity generation revenues decreased due to the improvement of hydrological conditions in Brazil.

 

Operating income

 

Operating income increased due to reduction in tax expenses and in impairment charges, as well as to revenues derived from contractual fines, despite higher provisions for losses with trade receivables from electrical sector in 2016.

 

Operating Performance

 

Physical and Financial Indicators

 

The lower volume of electricity generation was due to the improvement of the hydrological conditions, the decreased feedstock from the National Grid (SIN), impacted by the lower industrial and trade activities, as well as to the decision of the Electrical Sector Monitoring Committee (CMSE) restricting the use of plants with unit variable costs above the established limits in the first half of 2016.

 

There was a reduction in natural gas sales, mainly due to lower thermoelectric demand, enabling the reduction of LNG imports and of Bolivian natural gas.

 

 

 

10

 

 

 


Distribution Main Indicators

 

US$ million

 

Jan-Dec

 

2016

2015

2016 x

2015 (%)

Sales revenues

27,927

33,406

(16)

Brazil

24,720

29,270

(16)

Abroad

3,207

4,136

(22)

Gross profit

2,170

2,557

(15)

Brazil

1,832

2,192

(16)

Abroad

338

365

(7)

Operating expenses

(2,084)

(2,785)

25

Brazil

(1,760)

(2,496)

29

Abroad

(324)

(289)

(12)

Operating income (loss)

86

(228)

138

Brazil

72

(305)

124

Abroad

14

77

(82)

Net Income (Loss) attributable to the shareholders of Petrobras

67

(142)

147

Brazil

66

(210)

131

Abroad

1

68

(99)

Adjusted EBITDA of the segment *

325

23

1313

Brazil

203

(84)

342

Abroad

122

107

14

EBITDA margin of the segment (%)

1

1

 

 

 

 

Capital expenditures of the segment

139

255

(45)

 

 

 

 

Market share - Brazil

31.1%

34.9%

(4)

 

 

 

 

Sales Volumes - Brazil (Mbbl/d)

 

 

 

Diesel

316

373

(15)

Gasoline

192

203

(5)

Fuel oil

53

90

(41)

Jet fuel

50

56

(11)

Others

96

89

8

Total domestic oil products

707

811

(13)

 

*

 

 

 

 

 

 

 

* See reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

11

 

 

 


DISTRIBUTION

 

2016 x 2015

 

Gross Profit

Gross profit reduced  in 2016 due to lower sales volumes, caused by a reduction in economic activity in Brazil.

 

Operating income

Operating income, as opposed to the operating loss in 2015, reflected the reduction in provision for losses with receivables from the electrical sector, despite the lower gross profit and the effect of the provision for expenses with the new Voluntary Separation Inventive Plan of Petrobras Distribuidora.  

 

 

Operating Performance

 

 

Market Share - Brazil

The decrease in market share was mainly due to lower sales to thermoelectric power plants (-54%). In addition, the sales margins’ policy that prioritizes the Company’s profitability maximization strategy, was maintained in 2016.

 

 

12

 

 

 


Liquidity and Capital Resources

 

U.S.$ million

 

Jan-Dec

 

 

 

 

2016

2015

4Q-2016

3Q-2016

4Q-2015

Adjusted cash and cash equivalents* at the beginning of period

25,837

25,957

22,365

20,366

26,237

Government bonds and time deposits with maturities of more than 3 months at the beginning of period

(779)

(9,302)

(783)

(757)

(1,099)

Cash and cash equivalents at the beginning of period

25,058

16,655

21,582

19,609

25,138

Net cash provided by (used in) operating activities

26,114

25,987

7,210

8,226

6,603

Net cash provided by (used in) investing activities

(11,303)

(13,296)

(2,094)

(2,430)

(4,296)

Capital expenditures and investments in investees

(13,737)

(21,502)

(3,580)

(3,161)

(4,677)

Proceeds from disposal of assets (divestment)

2,205

224

1,466

735

9

Investments in marketable securities

229

7,982

20

(4)

372

(=) Net cash flow

14,811

12,691

5,116

5,796

2,307

Net financings

(19,071)

(3,694)

(5,334)

(3,678)

(2,953)

Proceeds from financing

18,897

17,420

6,401

3,396

1,590

Repayments

(37,968)

(21,114)

(11,735)

(7,074)

(4,543)

Dividends paid to non-controlling interest

(72)

(74)

(73)

(26)

Investments by non-controlling interest

29

100

27

(47)

(19)

Proceeds from sale of interest without loss of control

503

503

Effect of exchange rate changes on cash and cash equivalents

450

(1,123)

(113)

(98)

108

Cash and cash equivalents at the end of period 

21,205

25,058

21,205

21,582

25,058

Government bonds and time deposits with maturities of more than 3 months at the end of period

784

779

784

783

779

Adjusted cash and cash equivalents* at the end of period

21,989

25,837

21,989

22,365

25,837

Reconciliation of Free cash flow

 

 

 

 

 

Net cash provided by (used in) operating activities

26,114

25,987

7,210

8,226

6,603

Capital expenditures and investments in investees

(13,737)

(21,502)

(3,580)

(3,161)

(4,677)

Free cash flow*

12,377

4,485

3,630

5,065

1,926

`

As of December 31, 2016, the balance of cash and cash equivalents was US$ 21,205 million and the balance of adjusted cash and cash equivalents was US$ 21,989 million. Our principal uses of funds in 2016 were for repayment of financing (and interest payments) and for capital expenditures. We partially met these requirements with cash provided by operating activities of US$ 26,114 million and with proceeds from financing of US$ 18,897million.

Net cash provided by operating activities of US$ 26,114 million was mainly generated by lower government take in Brazil and lower crude oil, oil products and natural gas imports costs, along with a higher share of domestic crude oil on processed feedstock. These effects were partially offset by lower crude oil and oil product exports prices and decreased sales volume in Brazil due to lower economic activity.

Capital expenditures and investments in investees totaled US$ 13,737 million in 2016 (85% in E&P business segment), a 36% decrease when compared to 2015. This decrease does not impact crude oil and natural gas production forecast.

Free cash flow* was positive, amounting to US$ 12,377 million in 2016, 2.8 times higher compared to 2015.

In 2016, proceeds from financing amounted to US$ 18,897 million, These financings were entered into with the Export Credit Agencies – ECAs, the banking and capital markets and development banks, and proceeds were used to roll-over debt and pay for capital expenditures. Global notes issued in international capital markets totaled US$ 9.75 billion, with maturities of 5 and 10 years. The proceeds of those offerings were used to tender for US$ 9.3 billion of Petrobras’s existing global notes. In addition, the Company pre-paid debts of US$ 6.75 billion with BNDES.

Petrobras also entered into a sale and leaseback operation with the Industrial and Commercial Bank of China (ICBC) in the amount of US$ 1 billion and into a financing operation with the China Development Bank (CDB) in the amount of US$ 5 billion.

Repayments of principal and interest totaled US$ 37,968 million in 2016 and the nominal cash flow (cash view), including principal and interest payments, by maturity, is set out in US$ million, below:

 

 

Maturity

2017

2018

2019

2020

2021

2022 and thereafter

Balance at December 31, 2016

Balance at December 31, 2015

Principal

8,809

11,331

21,099

16,488

18,903

43,104

119,734

127,354

Interest

7,165

6,673

5,868

4,522

3,208

30,969

58,406

59,038

Total

15,974

18,004

26,967

21,010

22,111

74,073

178,140

186,392

 

 

* See reconciliation of adjusted cash and cash equivalents in net debt and definition of adjusted cash and cash equivalents and free cash flow in glossary.  

13

 

 


Consolidated debt

As of December 31, 2016, the gross debt in U.S. dollars decreased 6%. The net debt in U.S. dollars reduced 4% when compared to December 31, 2015, mainly as a result of repayments of principal and interest, using proceeds from the disposal of assets (divestments).

Current debt and non-current debt include finance lease obligations of US$18 million and US$226 million as of December 31, 2016, respectively (US$19 million and US$78 million on December 31, 2015).

The average maturity of outstanding debt reached 7.46 years as of December 31, 2016 (compared to 7.14 years as of December 31, 2015).

The ratio between net debt and the Adjusted EBITDA decreased from 4.27 as of December 31, 2015 to 3.76 as of December 31, 2016, due to the reduction in debt and increase in Adjusted EBITDA.

 

*

U.S.$ million

 

 

 

 

 

12.31.2016

12.31.2015

    Δ%

Current debt

9,773

14,702

(34)

Non-current debt

108,597

111,560

(3)

Total

118,370

126,262

(6)

  Cash and cash equivalents

21,205

25,058

(15)

  Government securities and time deposits (maturity of more than 3 months)

784

779

1

Adjusted cash and cash equivalents *

21,989

25,837

(15)

Net debt *

96,381

100,425

(4)

Net debt/(net debt+shareholders' equity)

55%

60%

(5)

Total net liabilities *

224,994

204,684

10

(Net third parties capital / total net liabilities)

66%

68%

(2)

Net debt/Adjusted EBITDA ratio *

3.76

4.27

(12)

Average maturity of outstanding debt (years)

7.46

7.14

0.32

 

 

 

US$ million

 

 

 

 

 

12.31.2016

12.31.2015

    Δ%

Summarized information on financing

 

 

 

Floating rate or fixed rate

 

 

 

Floating rate debt

63,978

62,307

3

Fixed rate debt

54,148

63,858

(15)

Total

118,126

126,165

(6)

 

 

 

 

Currency

 

 

 

Reais

24,175

20,555

18

US Dollars

84,951

93,567

(9)

Euro

6,640

8,685

(24)

Other currencies

2,360

3,358

(30)

Total

118,126

126,165

(6)

 

 

 

 

By maturity

 

 

 

until 1 year

9,755

14,683

(34)

1 to 2 years

11,216

11,397

(2)

2 to 3 years

20,898

16,091

30

3 to 4 years

16,313

22,596

(28)

4 to 5 years

18,777

15,537

21

5 years on

41,167

45,861

(10)

Total

118,126

126,165

(6)

 

 

 

 

 

 

 

 

 

 

* See definition of free cash flow, Adjusted EBITDA, net debt, and LTM Adjusted EBITDA in glossary and reconciliation on the Liquidity and Capital Resources, Adjusted EBITDA Reconciliation of Adjusted EBITDA, debt and LTM Adjusted EBITDA.

14

 

 

 


ADDITIONAL INFORMATION

 

1.

Impairment of assets

 

Consolidated

 

 

 

 

 

 

Assets or CGU, by nature

Carrying amount (**)

Recoverable amount (**)

Impairment (*) (**)

Impairment (*) (**)

Business Segment

 

2016

4Q-2016

 

Property, plant and equipment and intangible

 

 

 

 

 

 

 

 

 

 

 

Producing properties relating to oil and gas activities in Brazil (several CGUs)

12,788

10,718

2,268

439

E&P – Brazil

Second refining unit in RNEST

2,488

1,708

780

-

RTM - Brazil

Transpetro’s fleet of vessels

1,793

1,549

244

138

RTM - Brazil

Suape Petrochemical Complex

1,099

480

619

-

RTM - Brazil

Oil and gas production and drilling equipment in Brazil

918

64

854

1

E&P – Brazil

Fertilizer Plant - UFN III

523

370

153

-

Gas & Power- Brazil

Comperj

403

403

39

RTM - Brazil

Araucária (fertilizers plant)

197

57

140

-

Gas & Power- Brazil

Quixada Power plant

28

28

-

Biofuel - Brazil

Others

614

424

148

(9)

Several Segments

 

 

 

 

 

 

Assets classified as held for sale

 

 

 

 

 

Suape Petrochemical Complex

816

381

435

435

RTM - Brazil

Petrobras Chile Distribución

546

464

82

(16)

Distribution - Abroad

Celso Furtado and Rômulo Almeida Thermoelectrics

120

72

47

47

RTM - Brazil

Others

96

104

(8)

(4)

Several Segments

Total

 

 

6,193

1,070

 

 

 

 

 

 

 

(*) Impairment losses and reversals.

(**) Amounts referred to CGU tested in September 2016 are presented based on information prevailing at this period.

 

 

 

15

 

 

 


ADDITIONAL INFORMATION

2.

Reconciliation of Adjusted EBITDA

Our Adjusted EBITDA is a performance measure computed by using the EBITDA (net income before net finance income (expense), income taxes, depreciation, depletion and amortization) adjusted by items not considered as part of Company’s primary business, which include results in equity-accounted investments, impairment of assets and reversals, cumulative foreign exchange adjustments reclassified to the income statement and gains and losses on disposal and write-offs of assets.

In 2016, we revised our presentation of Adjusted EBITDA to better reflect management’s views of the performance of its primary business, by adding back gains and losses on disposal and write-offs of assets and the amount of cumulative translation adjustments reclassified to the income statement as a result of dispositions.  We have applied the same methodology to data for earlier periods in this report*.

Adjusted EBITDA is not a measure defined in the International Financial Reporting Standards – IFRS. Our calculation may not be comparable to the calculation of Adjusted EBITDA by other companies and it should not be considered as a substitute for any measure calculated in accordance with IFRS. The Company reports its Adjusted EBITDA to give additional information and a better understanding of the Company's income from its primary business and it must be considered in conjunction with other measures and indicators for a better understanding of the Company's operational performance.

Adjusted EBITDA is also a component of a metric included in the Company’s Business and Management Plan: Net debt / LTM Adjusted EBITDA ratio.

Adjusted EBITDA

 

U.S.$ million

 

Jan-Dec

 

 

 

 

 

2016

2015

2016 x

2015 (%)

4Q-2016

3Q-2016

4Q16 X

3Q16 (%)

4Q-2015

 

 

 

 

 

 

 

 

Net income (loss)

(4,349)

(8,611)

(49)

830

(5,339)

(116)

(9,068)

Net finance income (expenses)

7,755

8,441

(8)

1,612

2,193

(26)

1,283

Income taxes

684

(1,137)

(160)

748

(298)

(351)

(3,014)

Depreciation, depletion and amortization

13,965

11,591

20

3,410

3,916

(13)

3,011

EBITDA

18,055

10,284

76

6,600

472

1,298

(7,788)

Results in equity-accounted investments

218

177

23

387

43

800

348

Impairment of assets

6,193

12,299

(50)

1,071

4,710

(77)

11,880

Reclassification of cumulative translation adjustment - CTA

1,457

 

29

1,428

(98)

Gains and losses on disposal/write-offs of assets

(293)

758

(139)

(560)

202

(377)

484

Adjusted EBITDA

25,630

23,518

9

7,527

6,855

10

4,924

Adjusted EBITDA margin (%)

31

24

7

35

32

3

22

 

 

 

 

 

 

 

 

* see Note 33.4 to the Company´s audited consolidated financial statements.

 

16

 

 

 


ADDITIONAL INFORMATION

3.

Impact of our Cash Flow Hedge policy

 

US$ million

 

Jan-Dec

 

 

 

 

 

2016

2015

2016 x

2015 (%)

4Q-2016

3Q-2016

4Q16 X

3Q16 (%)

4Q-2015

Total inflation indexation and foreign exchange variation

11,770

(22,491)

152

320

(675)

147

1,572

Deferred Foreign Exchange Variation recognized in Shareholders' Equity

(10,779)

21,132

(151)

293

674

(57)

(999)

Reclassification from Shareholders’ Equity to the Statement of Income

(2,841)

(2,057)

-38

(730)

(658)

-11

(753)

Net Inflation indexation and foreign exchange variation

(1,850)

(3,416)

46

(117)

(659)

82

(180)

 

The increased reclassification of foreign exchange variation expense from Shareholders’ Equity to the Income Statement in the 4Q-2016 compared to the 3Q-2016 was mainly due to: (i) the depreciation of the Brazilian Real against the U.S. dollar (0.4%); and (ii) reclassification of foreign exchange variation expenses from Shareholders’ Equity to the Income Statement as a result of planned exports that were no longer expected to occur or did not occur.

 

Additional hedging relationships may be revoked or additional reclassification adjustments from equity to the income statement may occur as a result of changes in forecast export prices and export volumes following a review of the Company’s business plan. Based on a sensitivity analysis considering a US$ 10/barrel decrease in Brent prices stress scenario, when compared to the Brent price projections in our most recent update of the 2017-2021 Business and Management Plan (Plano de Negócios e Gestão – PNG), a US$ 31 million reclassification adjustment from equity to the income statement would occur.

The expected annual realization of the foreign exchange variation balance in shareholders’ equity, on December 31, 2016, is set out below:

 

 

Consolidated

 

2017

2018

2019

2020

2021

2022

2023

2024 to 2027

Total

Expected

realization

(4,718)

(4,672)

(3,158)

(2,301)

(1,947)

(2,226)

(1,021)

2,924

(17,119)

 

17

 

 

 


ADDITIONAL INFORMATION

 

4.

Special Items

 

US$ million

Jan-Dec

 

 

 

 

 

2016

2015

 

Items of Income Statement

4Q-2016

3Q-2016

4Q-2015

 

 

 

 

 

 

 

(6,375)

(12,849)

Impairment of assets and investments

Several

(1,125)

(4,838)

(12,376)

(1,228)

(115)

Voluntary Separation Incentive Plan – PIDV

Other income (expenses)

(121)

(761)

(80)

(1,457)

Cumulative translation adjustment  - CTA

Other income (expenses)

(29)

(1,428)

(442)

(1,016)

(Losses)/Gains on legal proceedings

Other income (expenses)

474

(678)

(491)

(346)

(564)

Impairment of trade receivables from companies in the isolated electricity system

Selling expenses

(8)

(83)

(653)

(2,334)

Tax Recoverable Program  - REFIS

Several

(30)

(45)

(387)

State Tax Amnesty Program / PRORELIT

Other income (expenses)

(32)

(111)

131

72

Amounts recovered relating to Lava Jato Operation

Other income (expenses)

62

46

1,234

162

Gains (losses) on Disposal of Assets

Other income (expenses)

1,027

207

20

1,491

(144)

Gains / (losses) on decommissioning of returned/abandoned areas

Several

493

998

(103)

(7,037)

(17,175)

Total

 

741

(6,537)

(13,824)

 

 

 

 

 

 

 

Impact of the impairment of assets and investments on the Company´s Income Statement:

 

 

 

 

 

 

 

(6,193)

(12,299)

Impairment

 

(1,071)

(4,710)

(11,880)

(182)

(550)

Results in equity-accounted investments

 

(54)

(128)

(496)

(6,375)

(12,849)

Impairment of assets and investments

 

(1,125)

(4,838)

(12,376)

 

 

 

 

 

 

 

Impact of the Company’s decision to adhere to the Tax Recoverable Program  - REFIS on its Income Statement:

 

 

 

 

 

 

 

(1,566)

Tax expenses

 

(16)

(768)

Interest expenses

 

(14)

(2,334)

Tax Recoverable Program  - REFIS

 

(30)

 

 

 

 

 

 

 

Impact of the effects of State Tax Amnesty Program and of Program of Reduction of Tax Litigation (PRORELIT) on the Company’s Income Statement:

 

 

 

 

 

 

 

(37)

(324)

Tax expenses

 

(26)

(80)

(8)

(63)

Interest expenses

 

(6)

(31)

(45)

(387)

State Tax Amnesty Program / PRORELIT

 

(32)

(111)

 

 

 

 

 

 

 

 

These special items are related to the Company’s businesses and based on management’s judgement have been highlighted and are presented as additional information to provide a better understanding of the Company’s performance. These items are presented when relevant and do not necessarily occur in all periods.

 

18

 

 

 


ADDITIONAL INFORMATION

5. Results of Operations of 2016 compared to 2015 (additional information):

Virtually all revenues and expenses of our Brazilian operations are denominated and payable in Brazilian Real. Although the fluctuation of Brazilian Real affects revenues and expenses in different ways when translated into U.S. dollars, we have only included it in the results of operations discussion when it was a contributing factor to changes in our results of operations as compared to previous periods. In 2016, the average Brazilian Real depreciated by 4% when compared to the U.S. dollar.

Sales revenues were US$ 81,405 million in 2016, a 16% decrease (US$ 15,909 million) when compared to US$ 97,314 million in 2015 due to:

Decreased domestic revenues (US$ 11,127 million) due to lower economic activity in Brazil, mainly as a result of:

 

Lower oil products revenues (US$ 6,963 million), reflecting an 8% decrease on sales, due to lower demand of diesel, consumption of fuel oil following the decreased thermoelectric generation, as well as lower average prices of jet fuel and naphtha. These effects were partially offset by an increase in average prices of diesel and gasoline;

 

Decreased electricity revenues (US$ 2,097 million) mainly from electricity generation, due to improved hydrological conditions; and

 

Decreased natural gas revenues (US$ 1,942 million), as a result of lower thermoelectric demand and of decreased prices.

Lower revenues from operations abroad (US$ 3,529 million) pursuant to the disposal of interests in Petrobras Argentina S.A. (PESA) and to lower crude oil and oil product sales prices; and

Lower export revenues (US$ 1,253 million), as a result of a decrease in international oil and oil products prices, partially offset by higher export volumes, mainly crude oil, due to lower domestic demand and higher domestic production.

Cost of sales were US$ 55,417 million in 2016, a 18% decrease (US$ 12,068 million) compared to US$ 67,485 million in 2015, reflecting:

Lower import costs of natural gas, crude oil and oil products, generated by lower domestic demand and by the 17% decrease in Brent price, partially offset by the effect of the 4% depreciation of the Brazilian Real against the U.S. dollar over acquisition costs;

Decreased government take in Brazil, as a result of lower international crude oil prices;

Decreased costs from operations abroad attributable to the disposal of Petrobras Argentina S.A. (PESA) and to lower international crude oil prices; and

Lower electricity costs as a result of decreased thermoelectric demand.

These effects were partially offset by higher crude oil production costs, reflecting increased depreciation expenses, as a result of a decrease in estimated reserves (based on the unit of production method), partially offset by lower carrying amounts of assets impacted by the impairment losses recognized in 2015 and in September 2016.

Selling expenses were US$ 3,963 million in 2016, a 14% decrease (US$ 664 million) compared to US$ 4,627 million in 2015, due to lower allowance for impairment of trade receivables from companies in the electricity sector, and to decreased freight expenses, as a result of lower domestic sales volume.

Other taxes were US$ 714 million in 2016, a 74% decrease (US$ 2,082 million) compared to US$ 2,796 million in 2015, mainly due to the Company’s decision, in 2015, to benefit from the Tax Amnesty and Refinancing Program (Programa de Recuperação Fiscal – REFIS) (US$ 1,566 million) and from the State Tax Amnesty Programs (US$ 324 million).

Impairment of assets were US$ 6,193 million in 2016, a 50% decrease (US$ 6,106 million) compared to US$ 12,299 million in 2015. For more information about impairment charges, see Additional Information -  Impairment of assets.

Other expenses, net were US$ 5,207 million in 2016, a 3% decrease (US$ 138 million) when compared to US$ 5,345 million in 2015, mainly due to:

Positive effect related to the review of provision for decommissioning costs, as a result of higher discount rate and the appreciation of the Brazilian Real against the U.S. dollar (US$ 1,635 million);

Gross gains on disposal of assets (US$ 1,051 million), mainly due to gains on the sale of the company’s interest in exploratory block BM-S-8 – Carcará and of PESA shares, and also due to lower expenses with returned areas to ANP and cancelled projects;

Reversal of the contingency filed by Triunfo Agro Industrial S/A and other cooperatives, in the amount of US$ 418 million, due to the favorable decision in the rescission action filed by the Company, confirmed through appeal;

Lower expenses with institutional relations and cultural projects (US$ 175 million);

Reclassification of foreign exchange losses derived from the depreciation of Argentine Peso and Yen, from Shareholders’ Equity to the Statement of Income (related to cumulative translation adjustment), due to the disposal of PESA (US$ 1,428 million)  and of Petrobras Nansei Seikyu (US$ 29 million), respectively;

Higher expenses related to the new Voluntary Separation Incentive Plan (US$ 1,113 million); and

Higher unscheduled stoppages and pre-operating expenses (US$ 620 million), mainly related to drilling rigs idleness.

Net finance expense was US$ 7,755 million in 2016, a 8% decrease (US$ 686 million) when compared to US$ 8,441 million in 2015, due to:

Lower foreign exchange and inflation indexation charges (US$ 1,566 million), generated by:

 

(i)

Foreign exchange variation of the Brazilian Real on the Company’s net debt in U.S. dollar (US$ 1,275 million), due to the 16.5% appreciation of the Brazilian Real against the U.S. dollar, net of the reclassification of cumulative foreign exchange variation from shareholders’ equity to net income due to occurred exports designated for cash flow hedge accounting;

 

(ii)

Lower foreign exchange losses of the Brazilian Real against the Euro, caused by the decreased Company’s net debt in Euro (US$ 591 million);

 

(iii)

Higher foreign exchange gains generated by the impact of a 16.5% appreciation of the U.S. dollar against the Pound Sterling on the Company’s net debt, compared to the appreciation of 4.9% in 2015 (US$ 282 million); and

 

(iv)

Lower foreign exchange gains caused by the impact of a 3.1% appreciation of the U.S. dollar against the Euro on the Company’s net debt in 2016, compared to a 10.4% appreciation in 2015 (US$ 497million).

Higher finance expenses (US$ 521 million), due to:

 

(i)

An increase in the Company’s average debt, caused by the impact of the depreciation of the average Brazilian Real against the U.S. dollar, net of capitalized finance expenses (US$ 950 million); and

 

(ii)

Higher interest accrued on provision for decommissioning costs (US$ 431 million).

These effects were partially offset by finance expenses generated by the Tax Amnesty and Refinancing Program (Programa de Recuperação Fiscal – REFIS), adopted by the Company in 2015 (US$ 768 million).

Lower finance income (US$ 359 million), mainly due to lower average balance invested and to lower gains with derivatives on trade operations.

Income taxes expenses (corporate income tax and social contribution) were US$ 684 million in 2016, a 160% increase (US$ 1,821 million) compared to income tax credits of US$ 1,137 million in 2015, mainly due to the effect of different rates applied abroad, to the taxation in Brazil of income earned from companies abroad and to the taxable income (loss) generated in 2016 and 2015. For more information about income taxes expenses, see Note 21.7 to the Company´s audited consolidated financial statements.

Loss related to non-controlling interests of US$ 489 million in 2016 (a US$ 161 million gain in 2015), mainly reflecting the impact of foreign exchange variation on debt of structured entities in U.S. dollars in the period.

 

 

19

 

 

 


ADDITIONAL INFORMATION

6. Brazilian Securities and Exchange Commission Formal Notice (nº 30/2017/CVM/SEP/GEA-5)

On March 03, 2017, the Company received from the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) a Formal Notice (Ofício CVM) nº 30/2017/CVM/SEP/GEA-5 requesting the Company to re-make, re-present and re-state its Annual Financial Statements and Interim Financial Reporting filed since the second quarter of 2013. This formal notice requested the restatement of the effects of the hedge accounting policy application.

The Company appealed the CVM decision on March 17, 2017, in reliance on CVM Deliberation No. 463/03, and requested the suspension of the effects of Letter No. 30 until the merits of the appeal is analyzed. The CVM accepted this request and the suspension.

As presented to the market in 2013, Petrobras started to apply the accounting policy known as Hedge Accounting to its exports, as of May 2013. Based on this accounting practice, the Company designates hedge relationships between "highly probable future exports" and installments of certain liabilities in U.S. dollars, so that the exchange effects of both are recognized at the same time in the income statement, as disclosed in its annual financial statements.

Petrobras reaffirms its understanding that it uses the Hedge Accounting policy correctly and reiterates that the Company’s financial statements for the years 2013, 2014 and 2015 were prepared in accordance with accounting practices adopted in Brazil, as well as in accordance with international standards (IFRS) and were audited by an independent auditor that issued an unqualified opinion that these statements adequately presented, in all material respects, the financial position of Petrobras.

For more information about Risk Management and Hedge Accounting applied to “highly probable future exports”, see Note 35 to the Company´s audited consolidated financial statements.

 

20

 

 

 


FINANCIAL STATEMENTS

Income Statement - Consolidated

 

U.S.$ million

 

Jan-Dec

 

 

 

 

2016

2015

4Q-2016

3Q-2016

4Q-2015

Sales revenues

81,405

97,314

21,403

21,693

22,147

Cost of sales

(55,417)

(67,485)

(14,477)

(14,506)

(15,160)

Gross profit

25,988

29,829

6,926

7,187

6,987

Selling expenses

(3,963)

(4,627)

(926)

(1,027)

(1,673)

General and administrative expenses

(3,319)

(3,351)

(894)

(937)

(729)

Exploration costs

(1,761)

(1,911)

(428)

(572)

(476)

Research and development expenses

(523)

(630)

(99)

(151)

(77)

Other taxes

(714)

(2,796)

(260)

(188)

(383)

Impairment of assets

(6,193)

(12,299)

(1,071)

(4,710)

(11,880)

Other expenses, net

(5,207)

(5,345)

329

(3,003)

(2,220)

 

(21,680)

(30,959)

(3,349)

(10,588)

(17,438)

Income (loss) before finance income (expense), results in equity-accounted investments and income taxes

4,308

(1,130)

3,577

(3,401)

(10,451)

Finance income

1,053

1,412

242

366

430

Finance expenses

(6,958)

(6,437)

(1,737)

(1,900)

(1,533)

Foreign exchange gains (losses) and inflation indexation charges

(1,850)

(3,416)

(117)

(659)

(180)

Net finance income (expense)

(7,755)

(8,441)

(1,612)

(2,193)

(1,283)

Results in equity-accounted investments

(218)

(177)

(387)

(43)

(348)

Income (loss) before income taxes

(3,665)

(9,748)

1,578

(5,637)

(12,082)

Income taxes

(684)

1,137

(748)

298

3,014

Net income (loss)  

(4,349)

(8,611)

830

(5,339)

(9,068)

Net income (loss) attributable to:

 

 

 

 

 

Shareholders of Petrobras

(4,838)

(8,450)

754

(5,380)

(9,421)

Non-controlling interests

489

(161)

76

41

353

 

(4,349)

(8,611)

830

(5,339)

(9,068)

 

21

 

 

 


FINANCIAL STATEMENTS

Statement of Financial Position – Consolidated

ASSETS

U.S.$ million

 

12.31.2016

12.31.2015

 

 

 

Current assets

44,769

43,179

Cash and cash equivalents

21,205

25,058

Marketable securities

784

780

Trade and other receivables, net

4,769

5,554

Inventories

8,475

7,441

Recoverable taxes

2,502

2,748

Assets classified as held for sale

5,728

152

Other current assets

1,306

1,446

Non-current assets

202,214

187,342

Long-term receivables

20,420

19,426

Trade and other receivables, net

4,551

3,918

Marketable securities

90

88

Judicial deposits

3,999

2,499

Deferred taxes

4,307

6,016

Other tax assets

3,141

2,821

Advances to suppliers

1,148

1,638

Other non-current assets

3,184

2,446

Investments

3,052

3,527

Property, plant and equipment

175,470

161,297

Intangible assets

3,272

3,092

Total assets

246,983

230,521

 

 

 

LIABILITIES

U.S.$ million

 

12.31.2016

12.31.2015

Current liabilities

24,903

28,573

Trade payables

5,762

6,373

Current debt

9,773

14,702

Taxes payable

3,755

3,470

Payroll and related charges

2,197

1,302

Pension and medical benefits

820

655

Liabilities associated with assets classified as held for sale

492

125

Other current liabilities

2,104

1,946

Non-current liabilities

144,530

135,893

Non-current debt

108,597

111,560

Deferred taxes

263

232

Pension and medical benefits

21,477

12,195

Provision for decommissioning costs

10,252

9,150

Provisions for legal proceedings

3,391

2,247

Other non-current liabilities

550

509

Shareholders' equity

77,550

66,055

Share capital  (net of share issuance costs) 

107,101

107,101

Profit reserves and others

(30,322)

(41,865)

Non-controlling interests

771

819

Total liabilities and shareholders' equity

246,983

230,521

 

 

 

 

22

 

 

 


FINANCIAL STATEMENTS

Statement of Cash Flows – Consolidated

 

US$ million

 

Jan-Dec

 

 

 

 

2016

2015

4Q-2016

3Q-2016

4Q-2015

Net income (loss)  

(4,349)

(8,611)

830

(5,339)

(9,068)

(+) Adjustments for:

30,463

34,598

6,380

13,565

15,671

Depreciation, depletion and amortization

13,965

11,591

3,410

3,916

3,011

Foreign exchange, indexation and finance charges

7,962

9,172

1,715

2,344

2,072

Results in equity-accounted investments

218

177

387

43

348

Reclassification of cumulative translation adjustment - CTA

1,457

-

29

1428

Revision and unwinding of discount on the provision for decommissioning costs

(836)

382

(322)

(824)

150

Allowance for impairment of trade receivables

1,131

941

652

141

800

Gains and losses on disposal / write-offs of assets

(293)

758

(560)

202

484

Deferred income taxes, net

(913)

(2,043)

425

(610)

(3,054)

Exploration expenditures written-off

1,281

1,441

315

467

391

Impairment of assets

6,193

12,299

1,071

4,710

11,879

Inventory write-down to net realizable value

343

431

38

(17)

173

Pension and medical benefits (actuarial expense)

2,304

1,960

604

612

347

Judicial deposits

(986)

(789)

(493)

(138)

(221)

Inventories

(518)

291

(218)

261

670

Trade and other receivables, net

(39)

(396)

(840)

55

(460)

Trade payables

(1,060)

(1,226)

351

(105)

(387)

Pension and medical benefits

(766)

(709)

(275)

(153)

(199)

Taxes payable

1,047

1,628

883

151

(262)

Income taxes paid

(372)

(567)

(118)

(97)

(55)

Other assets and liabilities

345

(743)

(674)

1,179

(16)

(=) Net cash provided by (used in) operating activities

26,114

25,987

7,210

8,226

6,603

(-) Net cash provided by (used in) investing activities

(11,303)

(13,296)

(2,094)

(2,430)

(4,296)

Capital expenditures and investments in investees

(13,737)

(21,502)

(3,580)

(3,161)

(4,677)

Proceeds from disposal of assets (divestment)

2,205

224

1,466

735

9

Divestment (investment) in marketable securities

229

7,982

20

(4)

372

(=) Net cash flow

14,811

12,691

5,116

5,796

2,307

(-) Net cash provided by (used in) financing activities

(19,114)

(3,165)

(5,380)

(3,725)

(2,495)

Proceeds from financing

18,897

17,420

6,401

3,396

1,590

Repayment of principal

(30,660)

(14,809)

(9,735)

(5,415)

(3,127)

Repayment of interest

(7,308)

(6,305)

(2,000)

(1,659)

(1,416)

Dividends paid to non-controlling interest

(72)

(74)

(73)

 

(26)

Investments by non-controlling interest

29

100

27

(47)

(19)

Proceeds from sale of interest without loss of control

503

503

Effect of exchange rate changes on cash and cash equivalents

450

(1,123)

(113)

(98)

108

(=) Net increase (decrease) in cash and cash equivalents in the period

(3,853)

8,403

(377)

1,973

(80)

Cash and cash equivalents at the beginning of period

25,058

16,655

21,582

19,609

25,138

Cash and cash equivalents at the end of period

21,205

25,058

21,205

21,582

25,058

 

 

 

 

 

 

 

23

 

 

 


SEGMENT INFORMATION

Consolidated Income Statement by Segment – 2016

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Sales revenues

33,675

62,588

9,401

240

27,927

(52,426)

81,405

Intersegments

32,195

17,090

2,490

231

420

(52,426)

Third parties

1,480

45,498

6,911

9

27,507

81,405

Cost of sales

(24,863)

(48,444)

(6,790)

(264)

(25,757)

50,701

(55,417)

Gross profit

8,812

14,144

2,611

(24)

2,170

(1,725)

25,988

Expenses

(6,789)

(5,425)

(1,439)

(62)

(2,084)

(5,968)

87

(21,680)

Selling expenses

(143)

(1,846)

(768)

(2)

(1,309)

10

95

(3,963)

General and administrative expenses

(346)

(442)

(206)

(25)

(271)

(2,029)

(3,319)

Exploration costs

(1,761)

(1,761)

Research and development expenses

(198)

(57)

(17)

(1)

(250)

(523)

Other taxes

(85)

(98)

(220)

(4)

(29)

(278)

(714)

Impairment of assets

(3,272)

(2,457)

(375)

(7)

(82)

(6,193)

Other expenses, net

(984)

(525)

147

(23)

(393)

(3,421)

(8)

(5,207)

Income (loss) before finance income (expense), results in equity-accounted investments and income taxes

2,023

8,719

1,172

(86)

86

(5,968)

(1,638)

4,308

Net finance income (expense)

(7,755)

(7,755)

Results in equity-accounted investments

32

(75)

80

(265)

10

(218)

Income (loss) before income taxes

2,055

8,644

1,252

(351)

96

(13,723)

(1,638)

(3,665)

Income taxes

(687)

(2,964)

(397)

28

(29)

2,809

556

(684)

Net income (loss)

1,368

5,680

855

(323)

67

(10,914)

(1,082)

(4,349)

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

Shareholders of Petrobras

1,425

5,746

732

(323)

67

(11,403)

(1,082)

(4,838)

Non-controlling interests

(57)

(66)

123

489

489

 

1,368

5,680

855

(323)

67

(10,914)

(1,082)

(4,349)

 

 

 

 

 

 

 

 

 

 

Consolidated Income Statement by Segment – 2015

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Sales revenues

35,680

74,321

13,145

229

33,406

(59,467)

97,314

Intersegments

34,178

22,451

2,073

213

552

(59,467)

Third parties

1,502

51,870

11,072

16

32,854

97,314

Cost of sales

(25,171)

(60,384)

(10,539)

(252)

(30,849)

59,710

(67,485)

Gross profit

10,509

13,937

2,606

(23)

2,557

243

29,829

Expenses

(13,883)

(5,834)

(2,211)

(95)

(2,785)

(6,363)

212

(30,959)

Selling expenses

(225)

(1,999)

(511)

(2)

(2,124)

20

214

(4,627)

General and administrative expenses

(418)

(438)

(236)

(29)

(277)

(1,953)

(3,351)

Exploration costs

(1,911)

(1,911)

Research and development expenses

(172)

(117)

(53)

(9)

(1)

(278)

(630)

Other taxes

(160)

(709)

(412)

(2)

(69)

(1,444)

(2,796)

Impairment of assets

(9,830)

(1,664)

(683)

(46)

(76)

(12,299)

Other expenses, net

(1,167)

(907)

(316)

(7)

(238)

(2,708)

(2)

(5,345)

 

 

 

 

 

 

 

 

 

Income (loss) before finance income (expense), results in equity-accounted investments and income taxes

(3,374)

8,103

395

(118)

(228)

(6,363)

455

(1,130)

Net finance income (expense)

(8,441)

(8,441)

Results in equity-accounted investments

(309)

356

123

(199)

9

(157)

(177)

Income (loss) before income taxes

(3,683)

8,459

518

(317)

(219)

(14,961)

455

(9,748)

Income taxes

1,200

(2,746)

(132)

41

78

2,851

(155)

1,137

Net income (loss)

(2,483)

5,713

386

(276)

(141)

(12,110)

300

(8,611)

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

Shareholders of Petrobras

(2,480)

5,727

237

(276)

(142)

(11,816)

300

(8,450)

Non-controlling interests

(3)

(14)

149

1

(294)

(161)

 

(2,483)

5,713

386

(276)

(141)

(12,110)

300

(8,611)

 

 

 

 

 

 

 

 

 

 

24

 

 

 


Other Income (Expenses) by Segment – 2016

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Unscheduled stoppages and pre-operating expenses

(1,748)

(63)

(45)

(3)

(1,859)

(Losses)/gains on legal, administrative and arbitral proceedings

(326)

(168)

(144)

(1)

(306)

(448)

(1,393)

Reclassification of cumulative translation adjustments - CTA

9

(1,466)

(1,457)

Pension and medical benefits - retirees

(1,428)

(1,428)

Voluntary Separation Incentive Plan - PIDV

(479)

(258)

(44)

(133)

(314)

(1,228)

Allowance for impairment of other receivables

(631)

(12)

(28)

(671)

Institutional relations and cultural projects

(6)

(4)

(27)

(216)

(253)

Provision for debt assumed from suppliers with subcontractors

(105)

(105)

Operating expenses with thermoeletric power plants

(96)

(96)

Health, safety and environment

(17)

(13)

(5)

(1)

(44)

(80)

Amounts recovered relating to Lava Jato Operation

131

131

Government grants

4

31

131

1

6

173

Ship/Take or Pay Agreements

282

282

Gains / (losses) on disposal/write-offs of assets (*)

75

(101)

97

2

220

293

Expenses/Reimbursements from E&P partnership operations

569

569

Gains / (losses) on decommisioning of returned/abandoned areas

1,491

1,491

Others

189

54

(29)

(23)

72

169

(8)

424

 

(984)

(525)

147

(23)

(393)

(3,421)

(8)

(5,207)

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses) by Segment – 2015

 

(*)

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Unscheduled stoppages and pre-operating expenses

(904)

(229)

(98)

(8)

(1,239)

(Losses)/gains on legal, administrative and arbitral proceedings

(53)

(396)

(6)

(211)

(903)

(1,569)

Pension and medical benefits - retirees

(1,151)

(1,151)

Voluntary Separation Incentive Plan - PIDV

(28)

(18)

(36)

(5)

(24)

(4)

(115)

Allowance for impairment of other receivables

(14)

(115)

(2)

(243)

(374)

Institutional relations and cultural projects

(20)

(17)

(1)

(60)

(330)

(428)

Operating expenses with thermoeletric power plants

(119)

(119)

Health, safety and environment

(21)

(19)

(7)

(48)

(95)

Amounts recovered relating to Lava Jato Operation

72

72

Government grants

5

7

2

3

17

Ship/Take or Pay Agreements

34

191

225

Gains / (losses) on disposal/write-offs of assets (*)

(514)

(41)

(180)

(2)

5

(26)

(758)

Expenses/Reimbursements from E&P partnership operations

530

530

Gains / (losses) on decommisioning of returned/abandoned areas

(144)

(144)

Others

(38)

(79)

(60)

52

(70)

(2)

(197)

 

(1,167)

(907)

(316)

(7)

(238)

(2,708)

(2)

(5,345)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(*) Includes losses on advances to suppliers, returned areas and cancelled projects.

25

 

 

 


Consolidated Assets by Segment – 12.31.2016

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Total assets

140,096

52,580

19,488

522

6,230

33,769

(5,702)

246,983

 

 

 

 

 

 

 

 

 

Current assets

5,604

12,460

3,592

405

3,039

24,934

(5,265)

44,769

Non-current assets

134,492

40,120

15,896

117

3,191

8,835

(437)

202,214

Long-term receivables

7,630

3,312

2,006

4

1,017

6,838

(387)

20,420

Investments

1,449

1,104

466

13

14

6

3,052

Property, plant and equipment

123,056

35,515

13,094

100

1,936

1,819

(50)

175,470

Operating assets

90,716

31,150

11,862

97

1,654

1,472

(50)

136,901

Assets under construction

32,340

4,365

1,232

3

282

347

38,569

Intangible assets

2,357

189

330

224

172

3,272

 

 

 

 

 

 

 

 

 

Consolidated Assets by Segment – 12.31.2015

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Total assets

123,797

45,492

19,469

482

5,270

39,455

(3,444)

230,521

 

 

 

 

 

 

 

 

 

Current assets

3,640

9,027

2,413

45

2,299

28,866

(3,111)

43,179

Non-current assets

120,157

36,465

17,056

437

2,971

10,589

(333)

187,342

Long-term receivables

6,467

2,384

1,608

3

858

8,398

(292)

19,426

Investments

1,807

879

456

343

34

8

3,527

Property, plant and equipment

109,724

33,032

14,674

91

1,868

1,949

(41)

161,297

Operating assets

79,585

28,803

12,193

81

1,581

1,485

(41)

123,687

Assets under construction

30,139

4,229

2,481

10

287

464

37,610

Intangible assets

2,159

170

318

211

234

3,092

 

 

 

 

 

 

 

 

 

 

26

 

 


Reconciliation of Consolidated Adjusted EBITDA Statement by Segment – 2016

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Net income (loss)

1,368

5,680

855

(323)

67

(10,914)

(1,082)

(4,349)

Net finance income (expenses)

7,755

7,755

Income taxes

687

2,964

397

(28)

29

(2,809)

(556)

684

Depreciation, depletion and amortization

10,477

2,294

850

6

159

179

13,965

EBITDA

12,532

10,938

2,102

(345)

255

(5,789)

(1,638)

18,055

Results in equity-accounted investments

(32)

75

(80)

265

(10)

218

Impairment of assets

3,272

2,457

375

7

82

6,193

Reclassification of cumulative translation adjustment - CTA

(9)

1,466

1,457

Gains and losses on disposal/write-offs of assets

(75)

101

(97)

(2)

(220)

(293)

Adjusted EBITDA *

15,697

13,562

2,300

(73)

325

(4,543)

(1,638)

25,630

 

Reconciliation of Consolidated Adjusted EBITDA Statement by Segment – 2015

*

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Net income (loss)

(2,483)

5,713

386

(276)

(141)

(12,110)

300

(8,611)

Net finance income (expenses)

8,441

8,441

Income taxes

(1,200)

2,746

132

(41)

(78)

(2,851)

155

(1,137)

Depreciation, depletion and amortization

7,950

2,285

896

9

180

271

11,591

EBITDA

4,267

10,744

1,414

(308)

(39)

(6,249)

455

10,284

Results in equity-accounted investments

309

(356)

(123)

199

(9)

157

177

Impairment of assets

9,830

1,664

683

46

76

12,299

Reclassification of cumulative translation adjustment - CTA

Gains and losses on disposal/write-offs of assets

514

41

180

2

(5)

26

758

Adjusted EBITDA *

14,920

12,093

2,154

(61)

23

(6,066)

455

23,518

 

 

* See definition of Adjusted EBITDA in glossary.

27

 

 


Glossary

 

ACL - Ambiente de Contratação Livre (Free contracting market) in the electricity system.

ACR - Ambiente de Contratação Regulada (Regulated contracting market) in the electricity system.

ANP - Brazilian National Petroleum, Natural Gas and Biofuels Agency.

Reference feedstock or installed capacity of primary processing - Maximum sustainable feedstock processing reached at the distillation units at the end of each period, respecting the project limits of equipment and the safety, environment and product quality requirements. It is lower than the authorized capacity set by ANP (including temporary authorizations) and by environmental protection agencies.

Feedstock processed (excluding NGL) - Daily volume of crude oil processed in the Company´s refineries in Brazil and is factored into the calculation of the Refining Plants Utilization Factor.

Feedstock processed – Brazil - Daily volume of crude oil and NGL processed.

CTA – Cumulative translation adjustment – The exchange variation cumulative amount that is recognized on Shareholders’ Equity should be transferred to the Statement of Income at the moment of the investment disposal.

Adjusted cash and cash equivalents - Sum of cash and cash equivalents, government bonds and time deposits from highly rated financial institutions abroad with maturities of more than 3 months from the date of acquisition, 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 that helps investors assess our liquidity and supports leverage management.

Adjusted EBITDA – Net income plus net finance income (expense); income taxes; depreciation, depletion and amortization; results in equity-accounted investments; impairment, cumulative translation adjustment and gains/losses on disposal/write-offs of assets. Adjusted EBITDA is not a measure defined by IFRS and it is possible that it may not be comparable to similar measures reported by other companies.

Effect of average cost in the Cost of Sales – In view of the average inventory term of 60 days, the crude oil and oil products international prices movement, as well as foreign exchange effect over imports, government take and other factors that impact costs, do not entirely influence the cost of sales in the period, having its total effects only in the next period.  

Net debt – Gross debt less adjusted cash and cash equivalents. Net debt is not a measure defined in the International Standards - IFRS and should not be considered in isolation or as a substitute for total long-term debt calculated in accordance with IFRS.  Our calculation of net debt may not be comparable to the calculation of net debt by other companies. Management believes that net debt is an appropriate supplemental measure that helps investors assess our liquidity and supports leverage management.

Consolidated Structured Entities - Entities that have been designated so that voting or similar rights are not the determining factor that decides who controls the entity. Petrobras has no share of earnings in investments in certain structured entities that are consolidated in the financial statements, but the control is determined by the power it has over its relevant operating activities. As there are no interests, the result came from certain consolidated structured entities is attributable to non-controlling interests in the income statement, and it is not considered on net income attributable to shareholders of Petrobras.

Refining plants utilization factor (%) - Feedstock processed (excluding NGL) divided by the reference feedstock.

 

 

 

Free cash flow - Net cash provided by operating activities less capital expenditures and investments in operating segments. Free cash flow 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 calculated in accordance with IFRS. It may not be comparable to free cash flow of other companies, however management believes that it is an appropriate supplemental measure that   helps   investors assess our liquidity and supports leverage management.

LPG - Liquified crude oil gas.

LNG - Liquified natural gas.

Operating indicators - Indicators used for businesses management and are not reviewed by independent auditor.

NGL - Natural gas liquids.

Lifting Cost - Crude oil and natural gas lifting cost indicator, which considers expenditures occurred in the period.

LTM Adjusted EBITDA – Sum of the last 12 months (Last Twelve Months) of Adjusted EBITDA.

Basic and diluted earnings (losses) per share - Calculated based on the weighted average number of shares.

Operating margin - Calculated based on operating income (loss) excluding write-offs of overpayments incorrectly capitalized.

 

Adjusted EBITDA margin - Adjusted EBITDA divided by sales revenues.

Market share - Relation between Distribution sales and total market. Beginning in 2015, our market share excludes sales made to wholesalers. Market share for prior periods was revised pursuant to the changes made ​​by the Brazilian National Petroleum, Natural Gas and Biofuels Agency (ANP) and by the Brazilian Wholesalers and Fuel Traders Syndicate (Sindicom). Prior periods are presented based on the new methodology.

Total liabilities net - Total liability less adjusted cash and cash equivalents.

PESA – Petrobras Argentina S.A.

PLD (differences settlement price) - Electricity price in the spot market.  Weekly weighed prices per output level (light, medium and heavy), number of hours and related market capacity.

Domestic crude oil sales price - Average between the prices of exports and the internal transfer prices from Exploration & Production to Refining, Transportation and Marketing.

Domestic natural gas production - Natural gas production in Brazil less LNG plus gas reinjection.

Jet fuel – Aviation fuel.

Net Income by Business Segment - Company’s segment results. Petrobras is an integrated energy company and most of the crude oil and natural gas production from the Exploration & Production segment is transferred to other business segments of the Company. Our results by business segment include transactions carried out with third parties, transactions between companies of Petrobras’s Group and transfers between Petrobras’s business segments that are calculated using internal prices defined through methodologies based on market parameters. On April 28, 2016, the Extraordinary General Meeting approved the statutory adjustments according to the new organizational structure of the company and its new management and governance model, to align the organization to the new reality of the oil and gas sector and prioritize profitability and capital discipline.

On December 31st, 2016, the presentation related to the business segment information reflects the top management assessment related to the performance and the business resources allocation.

 

28

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 21, 2017

PETRÓLEO BRASILEIRO S.A—PETROBRAS

By: /s/ Ivan de Souza Monteiro

____________________________________

Ivan de Souza Monteiro

Chief Financial Officer and Investor Relations Officer