6-K
Table of Contents

 

 

UNITED STATES

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 August, 2018

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  ☒            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  ☒

 

 

 


Table of Contents

LOGO

UNAUDITED

INTERIM

FINANCIAL

STATEMENTS

 

 

June 30, 2018 and 2017 with report

of independent registered public

accounting firm


Table of Contents

Petróleo Brasileiro S.A. – Petrobras

 

Index

 

  

LOGO

 

 

 

Report of Independent Registered Public Accounting Firm

     3  

Unaudited Consolidated Statement of Financial Position

     4  

Unaudited Consolidated Statement of Income

     6  

Unaudited Consolidated Statement of Comprehensive Income

     7  

Unaudited Consolidated Statement of Cash Flows

     8  

Unaudited Consolidated Statement of Changes in Shareholders’ Equity

     9  
1.  

The Company and its operations

     10  
2.  

Basis of preparation

     11  
3.  

The “Lava Jato (Car Wash) Operation” and its effects on the Company

     11  
4.  

Summary of significant accounting policies

     12  
5.  

Accounting estimates

     15  
6.  

Cash and cash equivalents and Marketable securities

     16  
7.  

Trade and other receivables

     17  
8.  

Inventories

     20  
9.  

Disposal of Assets and other changes in organizational structure

     21  
10.  

Investments

     25  
11.  

Property, plant and equipment

     26  
12.  

Intangible assets

     28  
13.  

Exploration and evaluation of oil and gas reserves

     28  
14.  

Trade payables

     29  
15.  

Finance debt

     30  
16.  

Leases

     34  
17.  

Related-party transactions

     34  
18.  

Provision for decommissioning costs

     38  
19.  

Taxes

     38  
20.  

Employee benefits (Post-Employment)

     42  
21.  

Equity

     45  
22.  

Sales revenues

     47  
23.  

Other income and expenses

     48  
24.  

Costs and Expenses by nature

     49  
25.  

Net finance income (expense)

     50  
26.  

Supplemental information on statement of cash flows

     50  
27.  

Segment information

     51  
28.  

Provisions for legal proceedings

     56  
29.  

Collateral for crude oil exploration concession agreements

     65  
30.  

Risk management

     65  
31.  

Fair value of financial assets and liabilities

     71  
32.  

Subsequent events

     72  
33.  

Information related to guaranteed securities issued by subsidiaries

     72  

 

2


Table of Contents

LOGO

KPMG Auditores Independentes

Rua do Passeio, 38, setor 2, 17º andar - Centro/RJ

Edifĺcio Passeio Corporate

20021-290 - Rio de Janeiro/RJ - Brasil

Telefone +55 (21) 2207-9400, Fax +55 (21) 2207-9000

www.kpmg.com.br

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Petróleo Brasileiro S.A. - Petrobras

Results of Review of Interim Financial Information

We have reviewed the interim consolidated statement of financial position of Petróleo Brasileiro S.A. - Petrobras and subsidiaries (the “Company”) as of June 30, 2018, the related interim consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2018 and 2017, the related interim consolidated statements of changes in shareholders’ equity and cash flows for the six-month periods ended June 30, 2018 and 2017 and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with IAS 34 – Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB).

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of December 31, 2017, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 14, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial position as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

Estimates related to overpayments on the acquisition of property plant and equipment

As discussed in Note 3 to the consolidated interim financial information, on September 30, 2014, the Company wrote off US$2,527 million of overpayments on the acquisition of property plant and equipment incorrectly capitalized according to testimony obtained from Brazilian criminal investigations. The note also describes that no additional information has been identified through this date which could materially impact the estimation methodology adopted for the write off previously recorded.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG Auditores Independentes

Rio de Janeiro, August 2, 2018.

 

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.

 

3


Table of Contents

Petróleo Brasileiro S.A. – Petrobras

Unaudited Consolidated Statement of Financial Position

June 30, 2018 and December 31, 2017

(Expressed in millions of US Dollars, unless otherwise indicated)

   LOGO

 

 

 

     Note      06.30.2018      12.31.2017  

Assets

        

Current assets

        

Cash and cash equivalents

     6.1        16,997        22,519  

Marketable securities

     6.2        1,053        1,885  

Trade and other receivables, net

     7.1        5,027        4,972  

Inventories, net

     8        9,216        8,489  

Recoverable income taxes

     19.1        471        479  

Other recoverable taxes

     19.1        1,865        1,958  

Advances to suppliers

        50        78  

Others

        2,334        1,433  
     

 

 

    

 

 

 
        37,013        41,813  

Assets classified as held for sale

        400        5,318  
     

 

 

    

 

 

 
        37,413        47,131  
     

 

 

    

 

 

 

Non-current assets

        

Long-term receivables

        

Trade and other receivables, net

     7.1        4,951        5,175  

Marketable securities

     6        52        64  

Judicial deposits

     28.2        5,847        5,582  

Deferred income taxes

     19.5        4,047        3,438  

Other tax assets

     19.1        2,596        3,075  

Advances to suppliers

        797        1,032  

Others

        2,595        3,084  
     

 

 

    

 

 

 
        20,885        21,450  

Investments

     10        3,187        3,795  

Property, plant and equipment

     11        157,032        176,650  

Intangible assets

     12        2,004        2,340  
     

 

 

    

 

 

 
        183,108        204,235  
     

 

 

    

 

 

 

Total assets

        220,521        251,366  
     

 

 

    

 

 

 

The notes form an integral part of these financial statements.

 

4


Table of Contents

Petróleo Brasileiro S.A. – Petrobras

Unaudited Consolidated Statement of Financial Position

June 30, 2018 and December 31, 2017

(Expressed in millions of US Dollars, unless otherwise indicated)

   LOGO

 

 

 

     Note      06.30.2018     12.31.2017  

Liabilities

       

Current liabilities

       

Trade payables

     14        5,386       5,767  

Finance debt

     15.2        3,959       7,001  

Finance lease obligations

     16.1        23       25  

Income taxes payable

     19.1        427       299  

Other taxes payable

     19.1        4,091       4,548  

Payroll and related charges

        1,559       1,309  

Pension and medical benefits

     20.1        727       844  

Provisions for legal proceedings

     28.1        3,215       2,256  

Others

        2,524       2,508  
     

 

 

   

 

 

 
        21,911       24,557  

Liabilities related to assets classified as held for sale

        43       391  
     

 

 

   

 

 

 
        21,954       24,948  
     

 

 

   

 

 

 

Non-current liabilities

       

Finance debt

     15.2        87,557       102,045  

Finance lease obligations

     16.1        173       204  

Income taxes payable

     19.1        565       671  

Deferred income taxes

     19.5        425       1,196  

Pension and medical benefits

     20.1        18,549       20,986  

Provisions for legal proceedings

     28.1        3,469       4,770  

Provision for decommissioning costs

     18        12,276       14,143  

Others

        1,003       901  
     

 

 

   

 

 

 
        124,017       144,916  
     

 

 

   

 

 

 

Total liabilities

        145,971       169,864  
     

 

 

   

 

 

 

Equity

       

Share capital (net of share issuance costs)

     21.1        107,101       107,101  

Capital transactions

        1,067       1,067  

Profit reserves

        57,517       53,056  

Accumulated other comprehensive (deficit)

     21.2        (92,512     (81,422
     

 

 

   

 

 

 

Attributable to the shareholders of Petrobras

        73,173       79,802  

Non-controlling interests

        1,377       1,700  
     

 

 

   

 

 

 
        74,550       81,502  
     

 

 

   

 

 

 

Total liabilities and equity

        220,521       251,366  
     

 

 

   

 

 

 

The notes form an integral part of these financial statements.

 

5


Table of Contents

Petróleo Brasileiro S.A. – Petrobras

Unaudited Consolidated Statement of Income

June 30, 2018 and 2017

(Expressed in millions of US Dollars, unless otherwise indicated)

   LOGO

 

 

 

     Note      Jan-Jun/2018     Jan-Jun/2017     2Q-2018     2Q-2017  

Sales revenues

     22        46,365       42,560       23,407       20,823  

Cost of sales

        (29,340     (28,355     (14,636     (14,181
     

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

        17,025       14,205       8,771       6,642  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income (expenses)

           

Selling expenses

        (2,590     (1,969     (1,317     (1,209

General and administrative expenses

        (1,272     (1,424     (612     (691

Exploration costs

     13        (298     (281     (162     (187

Research and development expenses

        (317     (278     (164     (171

Other taxes

        (248     (1,046     (100     (954

Other income and expenses

     23        (2,186     (11     (1,794     1,228  
     

 

 

   

 

 

   

 

 

   

 

 

 
        (6,911     (5,009     (4,149     (1,984
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before finance income, results in equity-accounted investments and income taxes

        10,114       9,196       4,622       4,658  
     

 

 

   

 

 

   

 

 

   

 

 

 

Finance income

        1,614       623       1,275       326  

Finance expenses

        (3,287     (4,025     (1,483     (2,135

Foreign exchange gains (losses) and inflation indexation charges

        (1,296     (1,810     (526     (938
     

 

 

   

 

 

   

 

 

   

 

 

 

Net finance income (expense)

     25        (2,969     (5,212     (734     (2,747

Results in equity-accounted investments

     10        244       386       86       191  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income before income taxes

        7,389       4,370       3,974       2,102  

Income taxes

     19.6        (2,505     (2,751     (1,286     (2,014

Net income for the period

        4,884       1,619       2,688       88  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to:

           

Shareholders of Petrobras

        4,939       1,513       2,794       96  

Non-controlling interests

        (55     106       (106     (8

Net income for the period

        4,884       1,619       2,688       88  
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per weighted-average of common and preferred share—in U.S. dollars

     21.3        0.38       0.12       0.22       0.01  

The notes form an integral part of these financial statements.

 

6


Table of Contents

Petróleo Brasileiro S.A. – Petrobras

Unaudited Consolidated Statement of Comprehensive Income

June 30, 2018 and 2017

(Expressed in millions of US Dollars, unless otherwise indicated)

   LOGO

 

 

 

     Jan-Jun/2018     Jan-Jun/2017     2Q-2018     2Q-2017  

Net income for the period

     4,884       1,619       2,688       88  

Items that will not be reclassified to the statement of income:

        

Unrealized gains / (losses) on equity instruments measured at fair value through other comprehensive income—Recognized in equity

     (5     —         (4     —    

Items that may be reclassified subsequently to the statement of income:

        

Unrealized gains / (losses) on equity instruments measured at fair value through other comprehensive income—Recognized in equity

     —         (14     —         (1

Unrealized gains / (losses) on cash flow hedge—highly probable future exports

        

Recognized in equity

     (8,822     (670     (8,484     (2,406

Reclassified to the statement of income

     1,609       1,511       789       737  

Deferred income tax

     2,453       (286     2,617       567  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (4,760     555       (5,078     (1,102

Unrealized gains on cash flow hedge—others

        

Recognized in equity

     —         1       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     —         1       —         —    

Cumulative translation adjustments (*)

        

Recognized in equity

     (6,255     (842     (6,076     (2,203

Reclassified to the statement of income

     —         37       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     (6,255     (805     (6,076     (2,203

Share of other comprehensive income in equity-accounted investments

        

Recognized in equity

     (178     115       (238     (3

Reclassified to the statement of income

     —         22       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     (178     137       (238     (3

Total other comprehensive income:

     (11,198     (126     (11,396     (3,309
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     (6,314     1,493       (8,708     (3,221
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to:

        

Shareholders of Petrobras

     (6,129     1,397       (8,469     (3,196

Non-controlling interests

     (185     96       (239     (25
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     (6,314     1,493       (8,708     (3,221
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

Includes a US$ 213 loss (a US$ 68 loss in the first half of 2017) of cumulative translation adjustments in associates and joint ventures.

The notes form an integral part of these financial statements.

 

7


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Petróleo Brasileiro S.A. – Petrobras

Unaudited Consolidated Statement of Cash Flows

June 30, 2018 and 2017

(Expressed in millions of US Dollars, unless otherwise indicated)

   LOGO

 

 

 

     Jan-Jun/2018     Jan-Jun/2017  

Cash flows from Operating activities

    

Net income for the period

     4,884       1,619  

Adjustments for:

    

Pension and medical benefits (actuarial expense)

     1,137       1,368  

Results in equity-accounted investments

     (244     (386

Depreciation, depletion and amortization

     6,450       6,650  

Impairment of assets (reversal)

     (31     64  

Allowance (reversals) for expected credit loss on trade and others receivables

     425       453  

Exploratory expenditures write-offs

     65       101  

Gains and losses on disposals/write-offs of assets

     (689     (1,766

Foreign exchange, indexation and finance charges

     4,380       5,077  

Deferred income taxes, net

     342       1,689  

Revision and unwinding of discount on the provision for decommissioning costs

     349       379  

Reclassification of cumulative translation adjustment and other comprehensive income

     —         59  

Inventory write-down to net realizable value

     17       78  

Gain on remeasurement of investment retained with loss of control

     —         (217

Decrease (Increase) in assets

    

Trade and other receivables, net

     (1,340     130  

Inventories

     (1,845     265  

Judicial deposits

     (1,155     (507

Other assets

     22       (330

Increase (Decrease) in liabilities

    

Trade payables

     248       (764

Other taxes payable

     1,804       1,216  

Pension and medical benefits

     (542     (428

Other liabilities

     747       (1,062

Income taxes paid

     (1,076     (196
  

 

 

   

 

 

 

Net cash provided by operating activities

     13,948       13,492  
  

 

 

   

 

 

 

Cash flows from Investing activities

    

Acquisition of PP&E and intangibles assets

     (5,860     (6,499

Investments in investees

     (28     (16

Proceeds from disposal of assets—Divestment

     4,914       2,952  

Divestment (Investment) in marketable securities

     692       (192

Dividends received

     486       180  
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     204       (3,575
  

 

 

   

 

 

 

Cash flows from Financing activities

    

Investments by non-controlling interest

     (3     (45

Proceeds from financing

     8,149       13,765  

Repayment of principal

     (23,965     (17,409

Repayment of interest

     (3,107     (3,808

Dividends paid to Shareholders of Petrobras

     (165     —    

Dividends paid to non-controlling interests

     (85     (127
  

 

 

   

 

 

 

Net cash used in financing activities

     (19,176     (7,624
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (498     71  

Net increase (decrease) in cash and cash equivalents

     (5,522     2,364  
  

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     22,519       21,205  
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     16,997       23,569  
  

 

 

   

 

 

 

The notes form an integral part of these financial statements.

 

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Petróleo Brasileiro S.A. – Petrobras

Unaudited Consolidated Statement of Changes in Shareholders’ Equity

June 30, 2018 and 2017

(Expressed in millions of US Dollars, unless otherwise indicated)

   LOGO

 

 

 

     Share capital (net of
share issuance costs)
           Accumulated other comprehensive income (deficit) and deemed
cost
    Profit Reserves                           
     Share
Capital
     Share
issuance
costs
    Capital
Transactions
     Cumulative
translation
adjustment
    Cash flow
hedge—highly
probable
future exports
    Actuarial gains
(losses) on
defined benefit
pension plans
    Other
comprehensive
income (loss) and
deemed cost
    Legal      Statutory      Tax
incentives
     Profit
retention
     Retained
earnings
    Equity
attributable to
shareholders
of Petrobras
    Non-controlling
interests
    Total
consolidated
equity
 
     107,380        (279     628        (60,248     (11,297     (11,600     (948     7,919        2,182        720        42,322        —         76,779       771       77,550  

Balance at January 1, 2017

        107,101       628              (84,093              53,143        —         76,779       771       77,550  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Realization of deemed cost

     —          —         —          —         —         —         (2     —          —          —          —          2       —         —         —    

Capital transactions

     —          —         4        —         —         —         —         —          —          —          —          —         4       (45     (41

Net income

     —          —         —          —         —         —         —         —          —          —          —          1,513       1,513       106       1,619  

Other comprehensive income

     —          —         —          (795     555       —         124       —          —          —          —          —         (116     (10     (126

Appropriations:

                                    

Dividends

     —          —         —          —         —         —         —         —          —          —          —          —         —         (64     (64
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     107,380        (279     632        (61,043     (10,742     (11,600     (826     7,919        2,182        720        42,322        1,515       78,180       758       78,938  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2017

        107,101       632              (84,211              53,143        1,515       78,180       758       78,938  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     107,380        (279     1,067        (61,043     (9,573     (10,015     (791     7,919        2,182        720        42,235        —         79,802       1,700       81,502  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

        107,101       1,067              (81,422              53,056        —         79,802       1,700       81,502  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Initial application of IFRS 9

     —          —         —          —         —         —         (20     —          —          —          —          (299     (319     (15     (334

Balance at January 1, 2018

     107,380        (279     1,067        (61,043     (9,573     (10,015     (811     7,919        2,182        720        42,235        (299     79,483       1,685       81,168  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Realization of deemed cost

     —          —         —          —         —         —         (2     —          —          —          —          2       —         —         —    

Capital transactions

     —          —         —          —         —         —         —         —          —          —          —          —         —         (3     (3

Net income

     —          —         —          —         —         —         —         —          —          —          —          4,939       4,939       (55     4,884  

Other comprehensive income

     —          —         —          (6,125     (4,760     —         (183     —          —          —          —          —         (11,068     (130     (11,198

Appropriations:

                                    

Dividends

     —          —         —          —         —         —         —         —          —          —          —          (181     (181     (120     (301
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     107,380        (279     1,067        (67,168     (14,333     (10,015     (996     7,919        2,182        720        42,235        4,461       73,173       1,377       74,550  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

        107,101       1,067              (92,512              53,056        4,461       73,173       1,377       74,550  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The notes form an integral part of these financial statements.

 

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Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements - unaudited

(Expressed in millions of US Dollars, unless otherwise indicated)

   LOGO

 

 

 

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.

Following the adherence to the market tier called Level 2 at the Brazilian stock exchange (B3), a market tier that requires a high level of corporate governance standards, the Company, its managers and fiscal council members also became subject to provisions set out in the Level 2 Regulation (Regulamento de Listagem do Nível 2 de Governança Corporativa da Brasil Bolsa Balcão – B3).

The provisions of the Level 2 Regulation shall prevail over statutory provisions, in the event of damage to the rights of investors of public offers provided for in the Company’s Bylaws, except in cases of: (i) prior notice to shareholders made by the Minority Shareholders’ Committee and eventual dissenting opinion of the controlling shareholder as to the prevalence of said Level 2 Regulation (article 30, paragraphs 4 and 5 and article 40, paragraphs 3 and 4 of the Company’s Bylaws); (ii) disputes or controversies that refer to Petrobras’ activities based on art. 1 of Law 9,478/97, observing the provisions of the Bylaws, regarding the public interest that justified the Company’s creation; and (iii) disputes or controversies involving inalienable rights, as provided for in the sole paragraph of article 58 of the Bylaws.

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.

The economic activities linked to its business purpose shall be undertaken by the Company as 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).

Petrobras may perform any of the activities related to its corporate purpose, directly, through its wholly owned subsidiaries, controlled companies, alone or through joint venture with third parties, in Brazil or abroad.

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 the objectives of the national energy policy outlined in the Annual Letter of Public Policies and Corporate Governance approved by the Board of Directors.

The Brazilian Federal Government may only guide the Company to assume obligations or responsibilities, including the implementation of investment projects and the assumption of specific operating costs/results, such as those relating to the sale of fuels, as well as any other related activities, under conditions different from those of any other private sector company operating in the same market, when:

 

I–

established by law or regulation, as well as under provisions of agreements with a public entity that is competent to establish such obligation, abiding by the broad publicity of such instruments; and

 

II–

the cost and revenues thereof have been broken down and disseminated in a transparent manner, including in the accounting plan.

Moreover, as set out in the Company’s Bylaws, the terms of which were amended to conform to provisions under law 13,303/2016, Decree 8,945/2016 and the B3 market tier named New Market (Novo Mercado—the main governance market tier of B3), in the event the Brazilian Federal Government guides the Company to meet the public interest under conditions different from market conditions, the Company’s Finance Committee and Minority Shareholders Committee, exercising their advisory role to the Board of Directors, shall assess and measure the difference between such market conditions and the operating result or economic return of the transaction, based on technical and economic criteria for investment valuation and specific operating costs and results under the Company’s operations, In this case, for every financial year, the Federal Government shall compensate the Company.

 

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2.

Basis of preparation

 

2.1.

Statement of compliance and authorization of unaudited consolidated interim financial statements

These unaudited consolidated interim financial statements have been prepared and presented in accordance with IAS 34 – “Interim Financial Reporting” as issued by the International Accounting Standards Board (IASB). They present the significant changes in the period, avoiding repetition of certain notes to the financial statements previously reported. Hence, it should be read together with the Company’s audited annual financial statements for the year ended December 31, 2017, which include the full set of notes.

These unaudited consolidated interim financial statements were approved and authorized for issue by the Company’s Board of Directors in a meeting held on August 2, 2018.

 

2.2.

Functional and presentation currency

The functional currency of Petrobras and all of its Brazilian subsidiaries is the Brazilian Real. The functional currency of most of the Petrobras entities 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

   Jun 2018      Mar 2018      Dec 2017      Sep 2017      Jun 2017      Mar 2017  

Quarterly average exchange rate

     3.61        3.24        3.25        3.16        3.22        3.15  

Period-end exchange rate

     3.86        3.32        3.31        3.17        3.31        3.17  

 

3.

The “Lava Jato (Car Wash) Operation” and its effects on the Company

In the third quarter of 2014, the Company wrote off US$2,527 of capitalized costs representing amounts that Petrobras overpaid for the acquisition of property, plant and equipment in prior years. For additional information about this write off and its approach to estimate amounts overpaid by the Company, see note 3 to the audited consolidated financial statements ended December 31, 2017.

In the preparation of these unaudited interim financial statements ended June 30, 2018, the Company has not identified any additional information that would affect the adopted calculation methodology to write off the amounts overpaid. The Company has monitored the progress of investigations by Brazilian authorities under the Lava Jato Operation, as well as an internal investigation carried out by independent law firms. The Company will continue to monitor these investigations for additional information and will review their potential impact on the adjustment made.

We have been formally recognized as a victim of the crimes identified under the Lava Jato investigation by the Brazilian Federal Prosecutor’s Office, the lower court hearing the case and by the Brazilian Supreme Court. As a result, we have entered into 49 criminal proceedings as an assistant to the prosecutor. In addition, we have entered into four criminal proceedings as an interested party. We have also renewed our commitment to continue cooperating with authorities to clarify the issues and report them regularly to our investors and to the public in general.

In addition, the Company has been taking the necessary procedural steps to seek compensation for damages suffered from the improper payments scheme, including those related to its reputation.

Accordingly, the Company joined 15 public civil suits addressing acts of administrative misconduct filed by the Brazilian Public Prosecutor’s Office and the Federal Government, including demands for compensation for reputation damages.

To the extent that any of the proceedings resulting from the Lava Jato investigation involve leniency agreements or plea agreements for return of funds, the Company may be entitled to receive a portion of such funds. Nevertheless, the Company is unable to reliably estimate further recoverable amounts at this moment. Any future recoverable amount will be recognized as income when received or when its economic benefits become virtually certain.

The total funds collected through June 30, 2018 under the Lava Jato investigation amounted to US$ 456 (US$ 455 through December 31, 2017).

 

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3.1.

Investigations involving the Company

Petrobras is not a target of the Lava Jato investigation and is formally recognized as a victim of the improper payments scheme by the Brazilian Authorities.

On November 21, 2014, Petrobras received a subpoena from the U.S. Securities and Exchange Commission (SEC) requesting certain documents and information about the Company with respect to, among other things, the Lava Jato investigation and any allegations regarding a violation of the U.S. Foreign Corrupt Practices Act. The U.S. Department of Justice (DoJ) is conducting a similar inquiry, and the Company is cooperating with both investigations and intends to continue to do so, working with the independent Brazilian and U.S. law firms that were hired to conduct an independent internal investigation. The investigations carried out by the SEC and DoJ may require the Company to pay penalties or provide other financial relief, or consent to injunctions or orders on future conduct or suffer other penalties.

The inquiries carried out by these authorities remain ongoing, and to date it is not possible to estimate their duration, scope or results. Accordingly, the Company is unable to make a reliable estimate about amounts and probability of penalties that may be required or if other financial relief may be provided in connection with any SEC or DoJ investigation.

On December 15, 2015, the State of São Paulo Public Prosecutor’s Office issued the Order of Civil Inquiry 01/2015, establishing a civil proceeding to investigate the existence of potential damages caused by Petrobras to investors in the stock market. The Company has provided all relevant information required by the authorities.

 

4.

Summary of significant accounting policies

The same accounting policies and methods of computation were followed in these consolidated interim financial statements as those followed in the preparation of the annual financial statements of the Company for the year ended December 31, 2017, except for the changes arising from the adoption of IFRS 9—Financial Instruments, IFRS 15—Revenue from Contracts with Customers and IFRIC 22 Foreign Currency Transactions and Advance Consideration. The provisions under these standards and interpretation became effective on January 1, 2018.

 

4.1.

IFRS 9—Financial Instruments

IFRS 9 establishes, among others, new requirements for classification and measurement of financial assets, measurement and recognition of impairment of financial assets, changes in the terms of financial assets and liabilities, hedge accounting and disclosure.

As permitted by IFRS 9, the company did not restate prior periods with respect to classification and measurement (including impairment and modification of financial assets and liabilities) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 were recognized at January 1, 2018 in retained earnings within equity. Information on the consolidated impacts is presented below:

 

Item of Consolidated Statement of Financial Position

   Balance at
12.31.2017
  Adjustment by initial
application of IFRS 9
  Note    Balance at
01.01.2018

Current assets

                 

Trade and other receivables, net

       4,972       (103 )       4.1.3        4,869

Non-current assets

                 

Trade and other receivables, net

       5,175       (19 )       4.1.3        5,156

Deferred income taxes

       3,438       146            3,584

Others

       3,084       (2 )       4.1.3        3,082

Current liabilities

                 

Finance debt

       7,001       1       4.1.2        7,002

Non-current liabilities

                 

Finance debt

       102,045       355       4.1.2        102,400

Equity

                 

Accumulated other comprehensive (deficit)

       (81,422 )       (20 )       4.1.1        (81,442 )

Retained earnings

       —         (299 )            (299 )

Non-controlling interests

       1,700       (15 )            1,685

The new hedge accounting requirements were applied prospectively. The cash flow hedge relationships of highly probable future exports for the purposes of IAS 39 were considered as hedges for IFRS 9 purposes, since they also qualify for hedge accounting in accordance with the new standard.

 

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The main accounting policies following the adoption of IFRS 9 at January 1, 2018 are shown below:

 

4.1.1.

Classification and measurement of financial assets

Financial assets are generally classified and subsequently measured based on the business model in which assets are managed and their contractual cash flow characteristics, as follows:

 

 

Amortised cost: when the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and the business model’s objective is to hold financial assets in order to collect contractual cash flows;

 

 

Fair value through other comprehensive income: i) when the contractual terms of a debt instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding and the business model’s objective to collect contractual cash flows and sell financial assets; and ii) 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, and

 

 

Fair value through profit or loss: if the financial asset does not meet the criteria for the two aforementioned categories.

The table below presents comparative information of marketable securities between the former classification and measurement in accordance with IAS 39 and the current requirements following the effectiveness of IFRS 9:

 

Classification according to IAS 39

   Carrying amount according
to IAS 39 at December 31, 2017
            Carrying amount according
to IFRS 9 at January 1, 2018
 
   In Brazil      Abroad      Total      Classification according to IFRS 9      In Brazil      Abroad      Total  

Trading securities

     1,067        —          1,067        Fair value through profit or loss        1,276        —          1,276  

Available-for-sale securities

     153        609        762        Fair value through other comprehensive income        13        609        622  

Held-to-maturity securities

     120        —          120        Amortised cost        51        —          51  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

    

 

 

 
     1,340        609        1,949           1,340        609        1,949  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

    

 

 

 

 

4.1.2.

Modification of contractual cash flows

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 should 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 profit or loss.

 

4.1.3.

Impairment of financial assets

An allowance for expected credit losses is recognized on a financial asset that is measured at amortized cost, including lease receivables, and on financial assets measured at fair value through other comprehensive income.

The Company measures expected credit losses for short-term trade receivables using a provision matrix based on unadjusted historical observed default rates when such information represents the best estimate, or such information adjusted by current and forward-looking information available without undue cost or effort.

The Company measures the allowance for expected credit losses of other financial assets based on their 12-month expected credit losses. However, whenever their credit risks have increased significantly since their initial recognition, the allowance for expected credit losses is based on their lifetime expected credit losses.

Significant increase in credit risk since initial recognition

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 by using certain indicators, such as the actual or expected significant change in the financial instrument’s external credit rating and information on payment delays.

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 sustainable information.

 

 

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The Company assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is considered to have low credit risk at the reporting date. The financial instrument has a low credit risk in case of low risk of default, the counterparty has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Company determines if a financial instrument has low credit risk based on external credit ratings or internal methodologies.

Definition of default

The Company assumes that a default occurs whenever financial assets are at least 90 days past due and or the counterparty does not comply with the legal obligation to pay its debts when due.

Measurement of expected credit losses

The measurement of 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.

The probability of default, losses (the magnitude of the loss if a default occurs) and exposure to default are factored into the measurement of the expected credit loss.

The evaluation of default probability takes into account data of the main credit rating agencies, as well as internal valuation methodologies. The loss due to a default also takes into account the probability of expected cash flows from collateral (collateral assets) and other credit enhancements that are part of the contractual terms, less the costs of obtaining and selling that collateral. Exposure to default comprises the gross carrying amount of the financial asset at the reporting date.

Disclosure

The Company recognizes in profit or loss the impairment on financial assets measured at amortized cost.

 

4.1.4.

Hedge Accounting

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. The hedge relationship meets all of the hedge effectiveness requirements when:

 

 

An economic relationship exists between the hedged item and the hedging instrument;

 

 

The effect of credit risk does not dominate the value changes that result from the economic relationship; and

 

 

The hedge ratio is the same as that resulting from the quantity of the hedged item that the Company actually hedges and the quantity of the hedging instrument that the Company uses to hedge that quantity of hedged item.

The Company applies cash flow hedge accounting for certain transactions. Hedging relationships qualify for cash flow hedges when they involve the hedging of exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that may impact the statement of income.

Gains or losses relating to the effective portion of such hedges are recognized in other comprehensive income within equity and recycled to the statement of income in finance income (expense) in the periods when the hedged item affects the statement of income. The gains or losses relating to the ineffective portion are immediately recognized in finance income (expense).

When the hedging instrument expires or settled in advance or no longer meets the criteria for hedge accounting, the cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income from the period when the hedge was effective is recorded separately in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is immediately reclassified from equity to the statement of income.

In addition, when a financial instrument designated as a hedging instrument expires or settled, the Company may replace it with another financial instrument in a manner such that the hedge relationship continues to occur. Likewise, whenever a hedged transaction effectively occurs, its financial instrument previously designated as a hedging instrument may be designate for a new hedge relationship.

 

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4.2.

IFRS 15—Revenue from Contracts with Customers

The company has determined when and by what amounts revenue from contracts with customer should be recognized according to the following five step approach: 1) identify the contract with a customer; 2) identify the separate performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the separate performance obligations in the contract, 5) recognize revenue when the entity satisfies a performance obligation. A performance obligation is satisfied when the customer obtains control of that good or service.

For the purposes of the transition requirements, the Company applied this standard retrospectively with the cumulative effect of its application recognized at its effective date within retained earnings. However, the changes arising from the adoption of IFRS 15 only affected the way certain revenues from contracts with customers are disclosed within the statement of income and did not affect net income. Accordingly, there were no impacts within retained earnings (equity).

The following table presents the impacts of adoption of this standard for the first half of 2018:

 

           Initial application of IRFS 15        
     Jan-Jun 2018     Agent     Breakage     Others     Amount without effects of
initial application of
IRFS 15—06.30.2018
 

Sales revenues

     46,365       1,201       (132     (24     47,410  

Cost of sales

     (29,340     (1,201     13       —         (30,528
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     17,025       —         (119     (24     16,882  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income and expenses

     (6,911     —         119       24       (6,768
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before finance income, results in equity-accounted investments and income taxes

     10,114       —         —         —         10,114  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company acting as an agent

In accordance with accounting policies at December 31, 2017, the Company was regarded as the principal in certain transactions. Therefore, the revenues from these sales, cost of the product sold and sales expenses were presented separately in the statement of income. However, under the new standard’s requirements, the Company acts as an agent because it does not obtain control of goods or services provided by another party before it is transferred to the customer. From January 1, 2018, revenues from these sales have been presented in the statement of income net of their cost of sales and sales expenses.

Non-exercised right Income (breakage)

In accordance with accounting policies at December 31, 2017, the Company regarded the income from rights not exercised by customers in certain take or pay and ship or pay contracts as penalties revenue and presented it as other income and expenses in the statement of income. However, according to the new standard’s requirements, the Company has accounted for and presented its income from rights not exercised by customers as sales revenues in the statement of income, as from January 1, 2018.

 

4.3.

IFRIC 22 Foreign Currency Transactions and Advance Consideration

Based on the transition provisions of IFRIC 22, the Company has applied the new requirements prospectively from January 1, 2018. IFRIC 22 clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.

 

5.

Accounting estimates

The preparation of interim financial statements requires the use of estimates and assumptions for certain assets, liabilities and other transactions. These estimates and assumptions include oil and gas reserves and their impacts to other parts of the financial statements, the main assumptions and cash-generating units identified for impairment testing of assets, pension and medical benefits liabilities, provisions for legal proceedings, dismantling of areas and environmental remediation, deferred income taxes, cash flow hedge accounting and impairment of trade receivables. Although our management uses assumptions and judgments that are periodically reviewed, the actual results could differ from these estimates.

 

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Except for the impairment of trade receivables estimate, which has been based on the expected credit losses model since the effectiveness of IFRS 9 at January 1, 2018 (see note 4.1.3), information on those accounting estimates is presented in note 5 to the Company’s annual financial statements for the year ended December 31, 2017.

The Company uses judgment for inputs and assumptions, such as risk of default, the determination of whether or not there has been a significant increase in credit risk and expectation of recovery, that are factored into the estimate of expected credit losses.

 

6.

Cash and cash equivalents and Marketable securities

Cash and cash equivalents

 

     06.30.2018      12.31.2017  

Cash at bank and in hand

     453        1,570  

Short-term financial investments

     

- In Brazil

     

Brazilian interbank deposit rate investment funds and other short-term deposits

     2,283        1,176  

Other investment funds

     3        17  
  

 

 

    

 

 

 
     2,286        1,193  

- Abroad

     

Time deposits

     5,276        6,237  

Automatic investing accounts and interest checking accounts

     8,121        11,287  

Other financial investments

     861        2,232  
  

 

 

    

 

 

 
     14,258        19,756  

Total short-term financial investments

     16,544        20,949  
  

 

 

    

 

 

 

Total cash and cash equivalents

     16,997        22,519  
  

 

 

    

 

 

 

The principal uses of funds in the first half of 2018 were for debt service obligations (US$ 27,072), including pre-payment of debts, and acquisition of PP&E and intangibles assets (US$ 5,860). The uses of funds were principally provided by operating activities (US$ 13,948), proceeds from financing (US$ 8,149) and disposal of assets (US$ 4,914).

Short-term financial investments in Brazil primarily consist of investments in funds holding Brazilian Federal Government Bonds and related repo investments 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.

Expected credit losses on cash and cash equivalents were not material at June 30, 2018.

Marketable securities

 

            06.30.2018                    01.01.2018  
     In Brazil      Total      In Brazil      Abroad      Total  

Fair value through profit or loss

     1,053        1,053        1,276        —          1,276  

Fair value through other comprehensive income

     7        7        13        609        622  

Amortised cost

     45        45        51        —          51  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,105        1,105        1,340        609        1,949  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Current

     1,053        1,053        1,276        609        1,885  

Non-current

     52        52        64        —          64  

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 mostly classified as current assets due to their maturity or the expectation of their realization in the short term.

At June 30, 2018, expected credit losses on marketable securities measured at amortised cost or fair value through other comprehensive income were immaterial. In addition, the amounts of marketable securities at December 31, 2017 classified by categories in accordance with the former accounting practice (IAS 39) are presented in note 4.1.

 

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7.

Trade and other receivables

 

7.1.

Trade and other receivables, net

 

     06.30.2018     12.31.2017  

Receivables from contracts with customers

    

Third parties

     6,887       6,995  

Related parties

     —      

Investees (note 17.1)

     467       530  

Receivables from the electricity sector (note 7.4) (*)

     4,190       5,247  
  

 

 

   

 

 

 

Subtotal

     11,544       12,772  
  

 

 

   

 

 

 

Other trade receivables

    

Third parties

    

Receivables from divestments (**)

     1,273       872  

Finance lease receivables

     534       550  

Other receivables

     1,036       1,647  

Related parties

    

Diesel subsidy (note 17.1)

     153       —    

Petroleum and alcohol accounts -receivables from Brazilian Government

     215       251  
  

 

 

   

 

 

 

Subtotal

     3,211       3,320  
  

 

 

   

 

 

 

Total trade receivables

     14,755       16,092  
  

 

 

   

 

 

 

Expected credit losses (ECL)—Third parties

     (3,525     (3,686

Expected credit losses (ECL)—Related parties

     (1,252     (2,259
  

 

 

   

 

 

 

Total trade receivables, net

     9,978       10,147  
  

 

 

   

 

 

 

Current

     5,027       4,972  

Non-current

     4,951       5,175  
  

 

 

   

 

 

 

 

(*)

Includes the amount of US$ 200 at June 30, 2018 (US$ 239 at December 31, 2017) regarding finance lease receivable from Amazonas Distribuidora de Energia.

(**)

It comprises receivable from the divestment of the NTS and contingent payments from the sale of interest in Roncador field.

Trade and other receivables were previously classified as loans and receivables in accordance with former IAS 39. As set out in note 4.1.3, following the adoption of IFRS 9, such assets are currently classified as measured at amortised cost, except for certain 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 and loss and amounts to US$ 39 as of June 30, 2018.

 

7.2.

Aging of trade and other receivables – third parties

 

     06.30.2018     12.31.2017  
     Trade
receivables
     ECL     Trade
receivables
     ECL  

Current

     6,114        (365     5,760        (274

Overdue:

          

1-90 days

     178        (12     596        (73

91-180 days

     34        (15     52        (36

181-365 days

     88        (64     83        (47

More than 365 days

     3,317        (3,069     3,573        (3,256
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

     9,731        (3,525     10,064        (3,686
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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7.3.

Changes in allowance for expected credit losses

 

     Jan-Jun/2018     Jan-Dec/2017  

Opening balance

     5,945       5,426  

Initial application of IFRS 9

     122       —    

Additions

     444       708  

Write-offs

     (1,112     (110

Transfer of assets held for sale

     6       —    

Cumulative translation adjustment

     (628     (79
  

 

 

   

 

 

 

Closing balance

     4,777       5,945  
  

 

 

   

 

 

 

Current

     1,879       2,068  

Non-current

     2,898       3,877  

For the first half of 2017, the Company had impairment of trade receivables in the amount of US$ 454.

 

7.4.

Trade receivables – electricity sector (isolated electricity system in the northern region of Brazil)

 

Receivables from electricity sector

   Receivables outside the
scope of DAAs
    DAA
2014
    DAA
2018
    Finance
lease
    Others     Total  

Receivables

     2,381       3,107       —         233       4       5,725  

ECL

     (2,187     (332     —         —         (4     (2,523
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

     194       2,775       —         233       —         3,202  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sales

     653       —         —         —         —         653  

Amounts received

     (411     (141     (53     (22     (3     (630

Interest

     25       70       3       24       —         122  

Derecognition of receivables

     (1,094     —         —         (1     —         (1,095

Agreement on 04/30/2018

     —         127       453       —         —         580  

Fair value adjustment

     —         —         84       —         —         84  

(Additions)/reversals of ECL

     (293     (103     —         —         3       (393

Derecognition of receivables—ECL

     1,094       —         —         —         —         1,094  

CTA

     (26     (394     (31     (34     —         (485
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

     142       2,334       456       200       —         3,132  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Receivables

     1,257       2,715       456       200       1       4,629  

ECL

     (1,115     (381     —         —         (1     (1,497
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

     142       2,334       456       200       —         3,132  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Receivables      ECL     Total  

Related parties—Eletrobras Group

       

Amazonas Energia—AME

     3,733        (1,031     2,702  

Centrais Elétricas de Rondônia—CERON

     336        (137     199  

Others

     121        (26     95  
  

 

 

    

 

 

   

 

 

 

Total

     4,190        (1,194     2,996  
  

 

 

    

 

 

   

 

 

 

Third parties

       

Cia de Gás do Amazonas—CIGÁS

     155        (28     127  

Cia de Eletricidade do Amapá—CEA

     214        (214     —    

Others

     70        (61     9  
  

 

 

    

 

 

   

 

 

 

Total

     439        (303     136  
  

 

 

    

 

 

   

 

 

 

Balance at June 30, 2018

     4,629        (1,497     3,132  
  

 

 

    

 

 

   

 

 

 

Balance at December 31, 2017

     5,725        (2,523     3,202  
  

 

 

    

 

 

   

 

 

 

The Company supplies fuel oil, natural gas, and other products to power distributors controlled by Eletrobras and to independent power producers (Produtores Independentes de Energia – PIE) that operate in the isolated electricity system in the northern region of Brazil. This isolated system comprises electricity generation and distribution systems not connected to the Brazilian National Interconnected Power Grid (Sistema Interligado Nacional).

 

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The costs of the isolated electricity system is substantially covered by the Fuel Consumption Account (Conta de Consumo de Combustível – CCC), a fund regulated and oversaw by the Brazilian National Electricity Agency (Agência Nacional de Energia Elétrica—ANEEL), that receives funds from the Brazilian Energy Development Account (Conta de Desenvolvimento Energético - CDE). The CDE is a fund created by the Brazilian Federal Government to promote power development in Brazil and its transfers of funds to CCC are based on fees paid by all of concessionaires of electricity distribution and transmission in Brazil. However, regulatory and administrative issues have impacted funds flows from CCC to the companies operating in the isolated system since 2013, which also affected the payments of distributors controlled by Eletrobras for products supplied by the Company.

As a result, on December 31, 2014, the Company (Petrobras parent company and its subsidiary BR Distribuidora) entered into debt acknowledgement agreements (DAAs 2014) concerning the balance of its receivables as of November 30, 2014 with distributors controlled by Eletrobras, to be settled in 120 monthly installments updated by the Selic interest rate (Brazilian short-term interest rate). The balance of DAAs 2014 was 89% collateralized by payables from the CDE to the CCC and, despite some periodic delays, these payments have continued. At December 31, 2017, the amounts of DAAs 2014 totaled US$ 3,107.

The Company continued to sell its products to the isolated electricity system but took several measures to safeguard its interests arising from sales after the signing of the DAAs 2014, including judicial collection of all overdue receivables, as well as suspension of fuel supply on credit. Thus, the allowance for credit losses on receivables from electricity sector amounted US$ 2,522 at December 31, 2017, primarily reflected the historical defaults of companies operating in the isolated electricity system in the northern region of Brazil relating to receivables not under DAAs 2014.

Following the inclusion of the power distributors controlled by Eletrobras within the Investments Partnership Program, a Brazilian Federal program that foresees new infrastructure investments and privatizations, along with the process of privatization of the distributors controlled by Eletrobras, the Company intensified negotiations with the Eletrobras group aiming at reaching an agreement that would resolve disputes and mitigate future defaults.

Accordingly, both parties reached an agreement on April 30, 2018 under which the structure of collateralization under the DAAs 2014 was recomposed and new debt acknowledgement agreements comprising a portion of receivables under judicial disputes were signed (DAAs 2018). In addition, parties also entered into debt assumption agreements in which Eletrobras will assume a significant portion of overdue receivables in case of power distributors privatization.

Following improvements in Eletrobras credit risk, the new collateralization structure under DAAs 2014 provides for replacement of original collateral by guaranties provided by Eletrobras (54%), collateral based on credits from Brazilian Treasury (34%) and new payables from the CDE (12%).

However, the replacement with credits from Brazilian Treasury, expected to be in place by the end of June 2018, has not occurred as the Provisional Measure 814/2017 lost its effectiveness since June 1, 2018. In addition, the Bill 10,332/18 that outlines the previous condition for such collateralization was approved by the Brazilian House of Representatives on July 11, 2018 but is awaiting Brazilian Senate approval and will only be effective after signed into law. Regarding the collateralization based on new payables from the CDE, Eletrobras and relevant authorities are still discussing alternatives to document such pledge.

Due to extended period necessary for changes in collateralization structure of DAAs 2014 with respect to credits from Brazilian Treasury and payables from the CDE, the Company recognized US$ 103 as allowance for expected credit losses over such receivables due the lower effectiveness of their collateral. Amendments to the April 30, 2018 agreement are under discussion in order to reflect the new conditions and to provide legal security to both parties. At June 30, 2018, the outstanding amount of the DAAs 2014 was US$ 2,334, net of expected credit losses.

The DAAs 2018 comprise receivables from sales of fuel oil and natural gas, which had been past due since December 2014 and under judicial collection, in the gross nominal value of US$ 1,752. These agreements outline the settlement of this amount in 36 monthly instalments bearing interest at 124.75% of the Brazilian interbank deposit rate (CDI). Of this amount, US$ 1,293 relates to BR Distribuidora which is guaranteed by Eletrobras but only until the effective privatization of the power distributors and is nullified if privatization does not occur. The remaining US$ 459 relates to Petrobras parent company and Eletrobras also guarantees these receivables until the privatization, however, in this case, an unsuccessful privatization process will not lead to the cancellation of the guarantee. Considering the conditions attached to these guarantees, the Company recognized an asset of US$ 453 in the second quarter of 2018. At June 30, 2018, the outstanding amount of DAAs 2018 was US$ 456.

Based on the agreement reached on April 30, the Company recognized US$ 580 as finance income in the second quarter of 2018 primarily reflecting receivables under the DAAs 2018 recognized at their fair value due to the material changes in their contractual terms.

 

 

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For the six-month period ended June 30, 2018, the Company accounted for allowance for expected credit losses amounting to US$ 393 (US$ 23 in the first half of 2017), primarily regarding receivables from sale of gas outside the scope of DAAs and due to the current lower collateralization of DAAs 2014.

 

8.

Inventories

 

     06.30.2018      12.31.2017  

Crude oil

     4,407        3,647  

Oil products

     2,686        2,814  

Intermediate products

     710        613  

Natural gas and LNG (*)

     128        67  

Biofuels

     155        173  

Fertilizers

     39        25  
  

 

 

    

 

 

 

Total products

     8,125        7,339  

Materials, supplies and others

     1,091        1,150  
  

 

 

    

 

 

 

Total

     9,216        8,489  
  

 

 

    

 

 

 

 

(*)

Liquefied Natural Gas

At June 30, 2018, 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$ 4,336 (US$ 4,067 as of December 31, 2017), as set out in note 20.1.

 

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9.

Disposal of Assets and other changes in organizational structure

The Company has an active partnership and divestment program, which takes into account opportunities for divestments in several areas in which it operates. The divestment portfolio is dynamic, meaning that market conditions, legal matters and negotiations may affect the Company’s evaluation of ongoing and potential transactions. This program is an essential initiative in the Company’s 2018-2022 Business and Management Plan (2018-2022 BMP) and its decision-making methodology was reviewed and approved by the Brazilian Federal Auditor’s Office (Tribunal de Contas da União – TCU). Along with other initiatives, the partnership and divestment program will enable the Company to reduce and improve its indebtedness and debt profile, respectively. For the 2017-2018 period, the target of proceeds from divestments is US$ 21 billion.

On July 3, 2018, the Brazilian Supreme Court issued a preliminary injunction in the context of a direct action of unconstitutionality (ADI 5624 MC/DF) that challenges certain provisions under the State-Owned Companies Law (Law 13.303/2016). According to this injunction, competitive processes related to partnerships in refining business that would result in transfer of control are suspended, including the following divestments projects:

 

 

Araucária Nitrogenados S.A.;

 

 

Transportadora Associada de Gás (TAG). This process has been suspended since the beginning of June, following a judicial decision of the Federal Regional Court; and

 

 

Partnerships in the following refineries: Landulpho Alves (RLAM), Abreu e Lima (RNEST), Alberto Pasqualini (REFAP) and Presidente Getúlio Vargas (REPAR).

 

9.1.

Disposal of assets

Second 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 Carcará area located in the pre-salt of Santos Basin, for the amount of US$ 2.5 billion.

The first installment of US $ 1.25 billion, corresponding to 50% of the transaction value, was received on November 22, 2016, and the remaining amount relates to two contingent payments.

The production sharing agreement with respect to the Norte de Carcará area, entered into by the Brazilian Federal Government, Statoil, Petrogal and Exxon, was made official on February 2, 2018 through the Brazilian Federal Register (official gazette). This fact completed the conditions precedent for the second payment of the exploratory block BMS-8. Accordingly, the Company received US$ 300 on March 21, 2018 and accounted it for within other income and expenses.

The third installment of this sale, in the amount of US$ 950, is still pending of certain future events related to the signing of a unitization agreement.

Disposal of Liquigás

On November 17, 2016 the Company’s Board of Directors approved the disposal of its wholly-owned subsidiary Liquigás Distribuidora S.A, a group entity from the RT&M business segment (Refining, Transportation and Marketing), to Companhia Ultragaz S.A., a subsidiary of Ultrapar Participações S.A. In January 2017, this sale was approved at Ultrapar’s and Petrobras’ Shareholders’ Meetings in the amount of US$ 828.

According to an official statement released by the General Superintendence of CADE (SG) on June 30, 2017, additional diligence was required in order to make a decision regarding on market concentration aspects of this sale. On August 28, 2017, the SG reported some concerns about market concentration that may result from this transaction and submitted its opinion to the CADE court.

Based on pending conditions precedent to the transaction at December 31, 2017, including CADE approval, the related assets and liabilities remained classified as held for sale at that date.

On February 28, 2018, the CADE court ruled on this matter and dismissed this sale. The sales and purchase agreement was subject to a termination clause providing for compensation to the Company in case of such decision. Accordingly, the Company received US$ 88 on March 13, 2018 and the related assets and liabilities are no longer classified as held for sale.

 

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Disposal of Suape and Citepe petrochemical plants

On December 28, 2016, the Company’s Board of Directors approved the disposal of the interests in the wholly-owned subsidiaries Companhia Petroquímica de Pernambuco (PetroquímicaSuape) and Companhia Integrada Têxtil de Pernambuco (Citepe), both from the RT&M business segment, to Grupo Petrotemex S.A. de C.V. and to Dak Americas Exterior, S.L., both subsidiaries of Alpek, S.A.B. de C.V., which is a company from Grupo Alfa S.A.B. de C.V. (a Mexican public company), in the amount of US$ 385, to be disbursed at the transaction closing and subject to adjustments relating to working capital, net debt and recoverable taxes.

This transaction was approved at Petrobras’ Shareholders’ Meeting on March 27, 2017.

On February 7, 2018, the CADE approved this transaction provided the execution of an Agreement on Concentration of Control (Acordo de Controle de Concentração – ACC).

On April 30, 2018, this transaction was completed with the payment of US$ 435 after adjustments and the fulfillment of all conditions precedent established in the purchase and sale agreement.

Following price adjustments in the transaction closing, reversals of impairment in the amount of US$ 77 were accounted for within other income and expenses.

Strategic alliance with Total

On December 21, 2016, the Company entered into a master agreement with Total, in connection with the Strategic Alliance established in the Memorandum of Understanding signed on October 24, 2016. Accordingly, certain E&P assets were classified as held for sale at December 31, 2016 due to the share of interests established in this agreement, as described below:

 

 

Transfer of the Company’s 22.5% stake in the concession area named as Iara, comprising Sururu, Berbigão and West of Atapu fields, which are subject to unitization agreements with Entorno de Iara (an area under the Assignment Agreement in which the Company holds 100% and is located in the Block BM-S-11). The Company will continue to operate the block;

 

 

Transfer of the Company’s 35% stake in the concession area of Lapa field, located in the Block BM-S-9. Total will also become the operator and the Company will retain a 10% interest in this area; and

 

 

Transfer of the Company’s 50% interests in Termobahia S.A, including the power plants Celso Furtado and Rômulo Almeida. In 2016, the Company recognized an impairment loss on this transaction in the amount of US$ 47.

On February 28, 2017, the Company and Total signed purchase and sale agreements with respect to the aforementioned assets. Total will pay to the Company the amount of US$ 1,675 in cash for assets and services, subject to price adjustments, as well as contingent payments in the amount of US$ 150, associated with the production volume in Lapa field. In addition, a long-term line of credit in the amount of US$ 400 will be provided by Total, which may be used to fund the Company’s investments in the Iara fields.

The aforementioned agreements supplement the ones already executed on December 21, 2016, such as: (i) the Company’s preemptive right to purchase a 20% interest in block 2 of the Perdido Foldbelt area, in the Mexican sector of the Gulf of Mexico, (ii) the joint exploration studies in the exploratory areas of Equatorial Margin and in Santos Basin; and (iii) the Technological partnership agreement in the areas of digital petrophysics, geological processing and subsea production systems.

On January 15, 2018, Petrobras and Total closed the aforementioned transfers of interests of Iara and Lapa fields, after performing all conditions precedent to this transaction.

This transaction totaled US$ 1.95 billion, including price adjustments, but not including the long-term line of credit and the contingent payments. Accordingly, the Company recognized US$ 689 as other income and expenses in the first quarter of 2018.

The negotiations relating to the power plants deal is ongoing and the assets and liabilities thereof remained classified as held for sale at June 30, 2018.

Sale of Azulão field

On November 22, 2017, the Company entered into an agreement with Parnaíba Gás Natural S.A., a subsidiary of Eneva S.A, concerning the assignment of its entire participation in the Azulão Field (Concession BA-3), located in the state of Amazonas, in the amount of US$ 55.

 

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This transaction was concluded on April 30, 2018 upon fulfillment of the conditions precedent, adjustments set forth in the agreement and payment of US$ 57 to the Company, resulting in a US$ 45 gain accounted for as other income and expenses.

Strategic alliance with Equinor (formerly Statoil)

On December 18, 2017, the Company entered into agreements with the Norwegian company Equinor relating to the assets of the strategic partnership, in continuity with the Heads of Agreement (“HoA”) signed and disclosed on September 29, 2017. The main signed contracts are:

(i) Strategic Alliance Agreement (“SAA”)—agreement describing all documents related to the strategic partnership, covering all negotiated initiatives;

(ii) Sale and Purchase Agreement (“SPA”)—sale of 25% of Petrobras’ interest in the Roncador field to Equinor.

(iii) Strategic Technical Alliance Agreement (“STAA”)—strategic agreement for technical cooperation aiming at maximizing the value of the asset and focusing on increasing the recoverable oil volume (recovery factor), including the extension of the useful life of the field;

(iv) Gas Term Sheet—Equinor may hire a certain processing capacity of natural gas at the Cabiúnas Terminal (TECAB) for the development of the BM-C-33 area, where the companies already are partners and Equinor is the operator.

The strategic alliance, among other goals, aims at applying the Equinor’s expertise in mature fields in the North Sea towards increasing the recovery factor of Roncador field. Accordingly, the parties signed the STAA for technical cooperation and the joint development of projects.

The SPA has a total amount of US$ 2.9 billion, made up of US$ 118 paid at the signature date of the agreement, contingent payments relating to investments in projects to increase the recovery factor of the field, limited to US$ 550, and the remaining amount will be paid at the transaction closing.

On June 14, 2018, this transaction was completed upon receipt of US$ 2 billion, including price adjustments at its closing amounting to US$ 14, in addition to the US$ 118 received as an advance on the signing date. Additionally, Equinor will make payments, limited to US$ 550, to the extent investments in projects for improvement of the recovery factor occur. The present value of such payments was recognized as account receivables in the amount of US$ 386, net of the aforementioned advance.

Following the closing of this transaction, the Company recognized a US$ 222 as loss within other income and expenses.

All the conditions precedent to the closing were fulfilled, including approval by the ANP and CADE, as well as the negotiation of contracts for the use of production facilities and of the purchase of associated gas by Petrobras. The final price adjustment of this transaction will occur in up to 120 day after the closing.

Sale of Petrobras Paraguay Distribución Limited (PPDL UK)

On June 26, 2018 the Board of Directors approved the sale to Copetrol Group of its entire interest held through its wholly-owned subsidiary Petrobras International Braspetro B.V. (PIB BV)in Petrobras Paraguay Distribución Limited (PPDL UK), Petrobras Paraguay Operaciones y Logistics SRL (PPOL) and Petrobras Paraguay Gas SRL (PPG).

The proceeds estimated from this sale is US$ 384, of which US$ 49 was deposited in an escrow account at the signing date, and the remaining amount will be disbursed to the Company on the transaction closing, including US$ 55 related to cash balance of these companies. The sale amount is still subject to adjustments due to changes in working capital until the conclusion of the transaction.

The corresponding assets and liabilities of this transaction are classified as held for sale as of June 30, 2018 as the conclusion of the transaction is still subject to approval procedures according to the Paraguay regulation.

 

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9.2.

Assets classified as held for sale

The major classes of assets and liabilities classified as held for sale are shown in the following table:

 

     06.30.2018      12.31.2017  
     E&P      Distribution      RT&M      Gas
&
Power
     Total      Total  

Assets classified as held for sale

                 

Cash and Cash Equivalents

     —          38        —          —          38        8  

Trade receivables

     —          36        —          —          36        117  

Inventories

     —          60        —          —          60        128  

Investments

     —          1        —          —          1        5  

Property, plant and equipment

     3        68        —          81        152        4,751  

Others

     —          113        —          —          113        309  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3        316        —          81        400        5,318  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities on assets classified as held for sale

                 

Trade Payables

     —          18        —          —          18        102  

Finance debt

     —          —          —          —          —          —    

Provision for decommissioning costs

     —          —          —          —          —          170  

Others

     —          25        —          —          25        119  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —          43        —          —          43        391  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2018, the amounts refer to assets and liabilities classified as held for sale following the approvals of sale of interests in Rômulo Almeida and Celso Furtado thermoelectric power generation plants, PPDL UK, PPOL and PPG. At December 31, 2017, the amounts also comprise assets and liabilities pertained to Liquigás, Suape and Citepe petrochemical plants, the concession areas named as Iara and Lapa, the entire interest in Azulão field and 25% interest in Roncador field.

 

9.3.

Other changes in organizational structure

Sale and merger of Nova Fronteira Bioenergia

On December 15, 2016, the Company’s wholly-owned subsidiary PBIO (biofuels business segment) entered into an agreement with the São Martinho group to merge PBIO’s interests in Nova Fronteira Bioenergia S.A. (49%) into São Martinho.

On February 23, 2017, São Martinho granted to PBIO additional 24 million of its common shares, corresponding to 6.593% of its total capital. These shares were accounted for as available-for-sale securities.

On December 27, 2017, the Extraordinary General Shareholder’s Meeting of PBIO approved the sale of these shares through a block trade.

On February 16, 2018, PBIO disposed, through a public auction held in the Brazilian stock exchange (B3), these 24 million of shares, at the share price of US$ 5.72 dollars. The settlement of the transaction occurred on February 21, 2018, closing the complete disposal of PBIO’s interests in São Martinho’s capital.

 

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Table of Contents
10.

Investments

 

10.1.

Investments in associates and joint ventures

 

     Balance at
12.31.2017
     Investments      Restructuring,
capital
decrease and
others
    Results in
equity-
accounted
investments
    CTA     OCI     Dividends     Balance at
06.30.2018
 

Joint Ventures

                  

Petrobras Oil & Gas B.V.—PO&G

     1,410        —          —         5       —         —         (254     1,161  

State-controlled natural gas distributors

     345        —          —         40       (51     —         (41     293  

Compañia Mega S.A.—MEGA

     49        —          —         (13     41       —         —         77  

Petrochemical joint ventures

     29        —          (1     9       (6     —         (6     25  

Other joint ventures

     104        20        1       (1     (18     1       (11     96  

Associates

                  

Nova Transportadora do Sudeste

     331        —          —         27       (47     —         (30     281  

Petrochemical associates

     1,461        —          —         173       (123     (179     (151     1,181  

Other associates

     48        8        4       4       (8     —         —         56  

Other investments

     18        —          —         —         (1     —         —         17  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     3,795        28        4       244       (213     (178     (493     3,187  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

10.2.

Investments in non- consolidated listed companies

 

     Thousand-share lot             Quoted stock exchange
prices (US$ per share)
     Market value  
     06.30.2018      12.31.2017      Type      06.30.2018      12.31.2017      06.30.2018      12.31.2017  

Associate

                    

Braskem S.A.

     212,427        212,427        Common        12.65        13.15        2,687        2,794  

Braskem S.A.

     75,793        75,793        Preferred A        13.16        12.96        998        982  
  

 

 

    

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 
                    3,685        3,776  
                 

 

 

    

 

 

 

The market value of these shares does not necessarily reflect the realizable value upon sale of a large block of shares.

Braskem’s shares are publicly traded on stock exchanges in Brazil and abroad. As of June 30, 2018, the quoted market value of the Company’s investment in Braskem was US$ 3,685 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.

Since July 2017, the Company has been negotiating with Odebrecht S.A., the controlling shareholder of Braskem S.A, to revise the terms and conditions of the Braskem S.A. Shareholder’s Agreement, signed on February 8, 2010. This revision aims to improve Braskem’s corporate governance and the corporate relationship between the parties, with the purpose of creating value for all Braskem shareholders.

On June 14, 2018, the Company received a correspondence from Odebrecht S.A, in which it communicated that it has initiated negotiations with LyondellBasell, a public company headquartered in Rotterdam, for a potential transaction involving the transfer of Odebrecht’s entire interest in Braskem. The negotiation is in its preliminary stage and the parties entered into a confidentiality agreement.

This transaction is subject, among other conditions, to due diligence, negotiation of definitive agreements and all necessary approvals. There is no binding obligation between the parties to assure the conclusion of the transaction.

Depending on the outcome of this transaction, the Company will assess the terms and conditions of the LyondellBasell’s offer in the context of exercising its tag-along right as set forth in Braskem S.A. Shareholder’s Agreement.

 

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Table of Contents

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.

Information on the main estimates used in the cash flow projections to determine the value in use of Braskem is set out in Note 14 to the audited financial Statements for the year ended December 31, 2017.

 

11.

Property, plant and equipment

 

11.1.

By class of assets

 

     Land,
buildings

and
improvement
    Equipment
and other
assets (*)
    Assets under
construction (**)
    Exploration and
development
costs (oil and
gas producing
properties) (***)
    Total  

Balance at January 1, 2017

     6,982       78,724       38,569       51,195       175,470  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     2       1,167       11,031       31       12,231  

Additions to / review of estimates of decommissioning costs

     —         —         —         4,503       4,503  

Capitalized borrowing costs

     —         —         1,972       —         1,972  

Write-offs

     (14     (6     (545     (35     (600

Transfers (****)

     316       3,296       (7,631     3,079       (940

Depreciation, amortization and depletion

     (437     (7,320     —         (5,366     (13,123

Impairment recognition

     (145     (937     (568     (892     (2,542

Impairment reversal

     52       831       165       692       1,740  

Cumulative translation adjustment

     (91     (753     (472     (745     (2,061
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

     6,665       75,002       42,521       52,462       176,650  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost

     9,914       128,603       42,521       86,491       267,529  

Accumulated depreciation, amortization and depletion

     (3,249     (53,601     —         (34,029     (90,879
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

     6,665       75,002       42,521       52,462       176,650  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     2       625       4,924       3       5,554  

Additions to / review of estimates of decommissioning costs

     —         —         —         25       25  

Capitalized borrowing costs

     —         —         986       —         986  

Write-offs

     (44     (8     (130     (6     (188

Transfers (****)

     234       1,618       (5,140     3,878       590  

Depreciation, amortization and depletion

     (222     (3,265     —         (2,903     (6,390

Impairment recognition

     —         (1     (38     —         (39

Cumulative translation adjustment

     (924     (7,299     (4,623     (7,310     (20,156
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

     5,711       66,672       38,500       46,149       157,032  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost

     8,674       117,406       38,500       77,186       241,766  

Accumulated depreciation, amortization and depletion

     (2,963     (50,734     —         (31,037     (84,734
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

     5,711       66,672       38,500       46,149       157,032  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average useful life in years

    

40

(25 to 50

(except land

 

   

20

(3 to 31

 

     

Units of
production
method
 
 
 
 

 

(*)

It is composed of platforms, refineries, thermoelectric power plants, natural gas processing plants, pipelines, rights of use and other operating, storage and production plants, also including exploration and production assets depreciated based on the units of production method.

(**)

See note 27 for assets under construction by business area.

(***)

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 to the exploration and production of oil and gas.

(****)

It includes transfers to/from assets held for sale.

In the first half of 2018, additions to property, plant and equipment primarily relate to the development of oil and gas production in the pre-salt of Santos Basin, notably in Lula, Búzios and Atapu fields, as well as in Libra area.

At June 30, 2018, property, plant and equipment include assets under finance leases of US$ 99 (US$ 118 as of December 31, 2017).

 

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Table of Contents
11.2.

Concession for exploration of oil and natural gas—Assignment Agreement (“Cessão Onerosa”)

Petrobras and the Brazilian Federal Government entered into the Assignment Agreement in 2010, which grants the Company the right to carry out prospecting and drilling activities for oil, natural gas and other liquid hydrocarbons located in the pre-salt area, subject to a maximum production of five billion barrels of oil equivalent. The agreement has a term of forty years and is renewable for a further five years subject to certain conditions. As of June 30, 2018, the Company’s property, plant and equipment include the amount of US$ 19,401 related to the Assignment Agreement (US$ 22,614 as of December 31, 2017).

Petrobras has already declared commerciality in fields of all six blocks under this agreement: Franco (Búzios), Florim (Itapu), Nordeste de Tupi (Sépia), Entorno de Iara (Norte de Berbigão, Sul de Berbigão, Norte de Sururu, Sul de Sururu, Atapu), Sul de Guará (Sul de Sapinhoá) and Sul de Tupi (Sul de Lula).

The agreement establishes that its review procedures will commence immediately after the declaration of commerciality for each area and must be based on reports by independent experts engaged by Petrobras and the ANP.

If the review of the Assignment Agreement determines that the value of acquired rights is greater than the amount initially paid, the Company may be required to pay the difference to the Brazilian Federal Government, or may proportionally reduce the total volume of barrels acquired. If the review determines that the value of the acquired rights is lower than initially paid by the Company, the Brazilian Federal Government will reimburse the Company for the difference by delivering cash or bonds or equivalent means of payment, subject to budgetary regulations.

The formal review procedures for each block are based on costs incurred over the exploration phase, and estimated costs and production for the development period. The review of the Assignment Agreement may result in renegotiation of: (i) the amount of the agreement; (ii) the total volume (in barrels of oil) to be produced; (iii) the term of the agreement; and (iv) the minimum percentages of local content.

The information gathered after drilling over 50 exploratory wells and performing extended well tests in this area, as well as the extensive knowledge acquired on the pre-salt layer of Santos Basin, made possible the identification of volumes exceeding five million barrels of oil equivalent.

In November 2017, the Company set up an internal commission responsible for the negotiation with the Brazilian Federal Government, composed of representatives of the Chief Exploration and Production Officer and the Chief Financial Officer.

In January 2018, the Brazilian Federal Government established, through the Interministerial Ordinance No. 15/2018, the Interministerial Commission responsible for negotiating and concluding the terms of this review.

The negotiations are ongoing and have taken into account appraisals by independent experts engaged by both parties and their respective reports. As at the date of issue of these financial statements, the final amount to be established for this agreement is not defined.

The identification of the volume exceeding five million barrels of oil equivalent provides an opportunity for both parties to reach an agreement in case of compensation to the Company arising from the review. Therefore, aiming to support an eventual negotiation where this compensation would be paid through the right over exceeding volume, the Company is complementing its assessment based on reports issued by the independent experts it has engaged.

This review process of the Assignment Agreement has been monitored by the Minority Shareholders Committee, which is composed of two board members elected by the minority shareholders and by a third independent member with knowledge in technical-financial analysis of investment projects. This Committee provides support to the board’s decisions through opinions about related matters.

On July 5, 2018, the Brazilian House of Representatives approved a bill amending the Assignment Agreement, which may make possible, if approved by the Brazilian Senate and signed by the President, a review of the contract clauses, sale of rights to produce exceeding volume and partial transfers of areas under this regime to third parties.

 

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Table of Contents
12.

Intangible assets

 

12.1.

By class of assets

 

           Software              
     Rights and
Concessions
    Acquired     Developed
in-house
    Goodwill     Total  

Balance at January 1, 2017

     2,678       68       306       220       3,272  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Addition

     935       16       61       —         1,012  

Capitalized borrowing costs

     —         —         4       —         4  

Write-offs

     (81     —         (2     —         (83

Transfers

     (1,656     2       —         —         (1,654

Amortization

     (20     (29     (101     —         (150

Impairment recognition

     (33     —         —         —         (33

Cumulative translation adjustment

     (22     —         (4     (2     (28
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

     1,801       57       264       218       2,340  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost

     2,006       496       1,225       218       3,945  

Accumulated amortization

     (205     (439     (961     —         (1,605
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

     1,801       57       264       218       2,340  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Addition

     2       14       24       —         40  

Capitalized borrowing costs

     —         —         2       —         2  

Write-offs

     (12     —         —         —         (12

Transfers

     (1     6       (3     14       16  

Amortization

     (7     (13     (40     —         (60

Cumulative translation adjustment

     (249     (9     (36     (28     (322
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

     1,534       55       211       204       2,004  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost

     1,750       472       1,076       204       3,502  

Accumulated amortization

     (216     (417     (865     —         (1,498
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

     1,534       55       211       204       2,004  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Estimated useful life in years

     ( *)      5       5       Indefinite    

 

(*)

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.

On March 29, 2018, the Company acquired seven blocks in the fifteenth round of bids under the concession regime. The Company will be the operator in two blocks located in Campos basin, which were acquired in partnership with Exxon and Equinor. Another two blocks within Campos basin were acquired in partnership with Exxon and Qatar Petroleum and will be operated by Exxon. The other three blocks are located in Potiguar basin, of which two were acquired in partnership with Shell and will be operated by the Company, and one was totally acquired by Company.

The total amount of the signature bonus to be paid by the Company up to September 2018 is US$ 571.

 

13.

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:

 

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Table of Contents
     Jan-Jun/2018     Jan-Dec/2017  

Capitalized Exploratory Well Costs / Capitalized Acquisition Costs (*)

    

Property plant and equipment

    

Opening Balance

     4,522       5,133  

Additions to capitalized costs pending determination of proved reserves

     338       797  

Capitalized exploratory costs charged to expense

     (4     (107

Transfers upon recognition of proved reserves

     (194     (1,227

Cumulative translation adjustment

     (644     (74
  

 

 

   

 

 

 

Closing Balance

     4,018       4,522  
  

 

 

   

 

 

 

Intangible Assets

     1,182       1,390  
  

 

 

   

 

 

 

Capitalized Exploratory Well Costs / Capitalized Acquisition Costs

     5,200       5,912  
  

 

 

   

 

 

 

 

(*)

Amounts capitalized and subsequently expensed in the same period have been excluded from this table.

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:

 

     2018      2017  
     Apr-Jun      Jan-Jun      Apr-Jun      Jan-Jun  

Exploration costs recognized in the statement of income

           

Geological and geophysical expenses

     75        166        93        178  

Exploration expenditures written off (includes dry wells and signature bonuses)

     57        65        93        101  

Contractual penalties

     24        60        0        —    

Other exploration expenses

     6        7        1        2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     162        298        187        281  
  

 

 

    

 

 

    

 

 

    

 

 

 
           
     Apr-Jun      Jan-Jun      Apr-Jun      Jan-Jun  

Cash used in :

           

Operating activities

     80        172        97        184  

Investment activities

     164        388        225        432  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash used

     244        560        322        616  
  

 

 

    

 

 

    

 

 

    

 

 

 

In the first half of 2018, the Company recognized a provision in the amount of US$ 60 arising from potential contractual penalties for non-compliance with minimum percentages of local content in 125 blocks for which the exploratory phases were concluded.

 

14.

Trade payables

 

     06.30.2018      12.31.2017  

Third parties in Brazil

     3,346        3,671  

Third parties abroad

     1,387        1,380  

Related parties

     653        716  
  

 

 

    

 

 

 

Balance in current liabilities

     5,386        5,767  
  

 

 

    

 

 

 

 

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15.

Finance debt

 

15.1.

Balance by type of finance debt

 

     06.30.2018      12.31.2017  

In Brazil

     

Banking Market

     10,126        12,672  

Capital Market

     3,122        3,649  

Development banks

     4,238        5,571  

Others

     37        38  
  

 

 

    

 

 

 

Total

     17,523        21,930  
  

 

 

    

 

 

 

Abroad

     

Banking Market

     27,440        31,265  

Capital Market

     42,165        51,912  

Export Credit Agency

     4,123        3,670  

Others

     265        269  
  

 

 

    

 

 

 

Total

     73,993        87,116  
  

 

 

    

 

 

 

Total finance debt

     91,516        109,046  
  

 

 

    

 

 

 

Current

     3,959        7,001  

Non-current

     87,557        102,045  

In order to reflect the changes in accounting practices arising from the application of IFRS 9, the Company remeasured its financing agreements in force at January 1, 2018 which previously had their contractual clauses renegotiated and the modifications thereof did not result in substantial changes, as set out in note 4.1. Accordingly, the balance of current and non-current debt increased by US$ 356 due to the initial application of IFRS 9, which were recognized within equity at January 1, 2018.

 

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15.2.

Changes in finance debt and reconciliation with cash flows from financing activities

 

     Balance at
12.31.2016
     Initial
application
of IFRS9
     Additions
(new
funding
obtained)
    Principal
amortization
(*)
    Interest
amortization
(*)
    Accrued
interest
(**)
     Foreign
exchange/
inflation
indexation
charges
    Cumulative
translation
adjustment
(CTA)
    Balance as of
December 31,
2017
 

In Brazil

     25,921        —          6,801       (10,641     (2,286     2,296        114       (275     21,930  

Abroad

     92,205        —          18,788       (25,489     (4,251     4,851        1,057       (45     87,116  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     118,126        —          25,589       (36,130     (6,537     7,147        1,171       (320     109,046  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
                     
     Balance as of
December 31,
2017
     Initial
application
of IFRS9
     Additions
(new
funding
obtained)
    Principal
amortization
(*)
    Interest
amortization
(*)
    Accrued
interest
(**)
     Foreign
exchange/
inflation
indexation
charges
    Cumulative
translation
adjustment
(CTA)
    Balance as of
June 30, 2018
 

In Brazil

     21,930        65        2,071       (3,820     (617     732        (10     (2,828     17,523  

Abroad

     87,116        291        6,118       (19,572     (2,393     2,251        1,510       (1,328     73,993  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     109,046        356        8,189       (23,392     (3,010     2,983        1,500       (4,156     91,516  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Reconciliation to the Statement of Cash Flows

                     

Purchase of property, plant and equipment on credit

           (40     —         —             

Expenses with debt restructuring

           —         (605     —             

Deposits linked to financing

           —         21       (97         

Finance leases

           —         11       —             
        

 

 

   

 

 

   

 

 

          

Net cash used in financing activities

           8,149       (23,965     (3,107         
        

 

 

   

 

 

   

 

 

          

 

(*)

It includes pre-payments.

(**)

It includes premium and discount over notional amounts and other related costs.

In line with the Company’s Business and Management Plan and following its liability management strategy, recent funds have been raised in order to settle older debts, as well as aiming at improving the debt repayment profile taking into account its alignment with investments returns over the long run.

In the first half of 2018, proceeds from financing amounted to US$ 8,149, principally reflecting: (i) global notes issued in the capital market in the amount of US$ 1,962 and maturing in 2029; (ii) funds raised from the domestic and international banking market in the amount of US$ 5,120 with average term of 6.5 years; and (iii) proceeds from Export Credit Agency amounting to US$ 984.

In addition, the Company repaid several finance debts, notably: (i) US$ 11,760 relating to repurchase of global bonds previously issued by the Company in the capital market, with net premium paid to bond holders amounting to US$ 362; and (ii) pre-payment of banking loans in the domestic and international market totaling US$ 9,454; and (iii) pre-payment of US$ 687 with respect to financings with BNDES.

 

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15.3.

Summarized information on current and non-current finance debt

 

Maturity in

   2018      2019      2020      2021      2022      2023
and
onwards
     Total
(**)
     Fair
value
 

Financing in U.S.Dollars (US$)(*):

     1,856        1,269        3,409        5,734        8,635        47,469        68,372        78,628  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Floating rate debt

     786        1,204        3,344        3,214        7,037        16,333        31,918     

Fixed rate debt

     1,070        65        65        2,520        1,598        31,136        36,454     

Average interest rate

     5.0%        6.0%        6.0%        6.0%        5.9%        6.5%        6.2%     

Financing in Brazilian Reais (R$):

     659        1,252        2,803        2,194        3,894        6,416        17,218        15,172  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Floating rate debt

     415        906        2,545        1,940        3,567        5,041        14,414     

Fixed rate debt

     244        346        258        254        327        1,375        2,804     

Average interest rate

     6.4%        6.8%        7.1%        7.9%        7.7%        6.4%        6.9%     

Financing in Euro (€):

     19        51        223        330        698        2,205        3,525        4,402  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Floating rate debt

     1        —          177        —          —          —          178     

Fixed rate debt

     18        51        46        330        698        2,205        3,347     

Average interest rate

     4.3%        4.5%        4.6%        4.8%        4.9%        4.6%        4.6%     

Financing in Pound Sterling (£):

     56        24        —          —          —          2,267        2,347        2,366  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Fixed rate debt

     56        24        —          —          —          2,267        2,347     

Average interest rate

     6.3%        6.2%        —          —          —          6.3%        6.3%     

Financing in other currencies:

     54        —          —          —          —          —          54        55  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Floating rate debt

     48        —          —          —          —          —          48        —    

Fixed rate debt

     6        —          —          —          —          —          6     

Average interest rate

     1.9%        —          —          —          —          —          1.9%     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total as of June 30, 2018

     2,644        2,596        6,435        8,258        13,227        58,357        91,516        100,623  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average interest rate

     5.2%        6.1%        6.2%        6.2%        6.1%        6.4%        6.2%     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total as of December 31, 2017

     7,001        6,476        9,641        12,745        18,014        55,169        109,046        116,621  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average interest rate

     5.6%        5.9%        5.9%        5.9%        5.7%        6.4%        6.1%     

 

(*)

Includes debt raised in Brazil (in Brazilian reais) indexed to the U.S. dollar.

(**)

The average maturity of outstanding debt as of June 30, 2018 is 9.11 years (8.62 years as of December 31, 2017).

The fair value of the Company’s finance debts 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$ 47,977 as of June 30, 2018 (US$ 54,248 as of December 31, 2017); 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 the Petrobras’ credit risk, amounting to US$ 52,646 as of June 30, 2018, 2018 (US$ 62,373 as of December 31, 2017).

The sensitivity analysis for financial instruments subject to foreign exchange variation is set out in note 30.2.

 

15.4.

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 first half of 2018 the capitalization rate was 6.36% p.a. (6.18% p.a. for the first half of 2017).

 

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Table of Contents
15.5.

Lines of credit

 

                          Amount  

Company

   Financial
institution
     Date      Maturity      Available
(Lines of
Credit)
     Used      Balance  

Abroad

                 

PGT BV

     CHINA EXIM        10/24/2016        5/23/2019        1,000        900        100  

PGT BV

     Syndicate of banks        3/7/2018        2/7/2023        4,350        —          4,350  

PGT BV

    
Credit Agricole
Corporate
 
 
     4/12/2018        6/20/2020        400        150        250  
           

 

 

    

 

 

    

 

 

 

Total

              5,750        1,050        4,700  
           

 

 

    

 

 

    

 

 

 

In Brazil

                 

PNBV

     BNDES        9/3/2013        1/31/2019        2,562        722        1,840  

Petrobras

     Banco do Brasil        3/23/2018        1/26/2023        519        —          519  

Petrobras

     Bradesco        6/1/2018        5/31/2023        519        —          519  

Transpetro

     BNDES        11/7/2008        8/12/2041        237        85        152  

Transpetro

     Banco do Brasil        7/9/2010        4/10/2038        20        10        10  

Transpetro

     Caixa Econômica Federal        11/23/2010       
Not
defined
 
 
     85        —          85  
           

 

 

    

 

 

    

 

 

 

Total

              3,942        817        3,125  
           

 

 

    

 

 

    

 

 

 

In the first half of 2018, the Company entered into a revolving credit facility (RCF) with a syndicate of 17 banks and also entered into two lines of credits with Banco do Brasil and Bradesco Bank. The Company can access these funds immediately at any moment until their maturities.

In addition, the Company signed a guaranteed financing agreement with Credit Agricole and UK export credit agency.

 

15.6.

Covenants and Collateral

 

15.6.1.

Covenants

The Company has covenants that were not in default at June 30, 2018 in its loan agreements and notes issued in the capital markets requiring, among other obligations i) the presentation of interim financial statements within 90 days of the end of each quarter (not reviewed by Independent Registered Public Accounting Firm) and audited financial statements within 120 days of the end of each fiscal year, with a grace period ranging from 30 to 60 days, depending on the agreement; ii) Negative Pledge / Permitted Liens clause; iii) clauses of compliance with the laws, rules and regulations applicable to the conduct of its business including (but not limited to) environmental laws; (iv) clauses in financing agreements that require both the borrower and the guarantor to conduct their business in compliance with anti-corruption laws and anti-money laundering laws and to institute and maintain policies necessary for such compliance; (v) clauses in financing agreements that restrict relations with entities or even countries sanctioned primarily by the United States (including, but not limited to, the Office of Foreign Assets Control (OFAC), Department of State and Department of Commerce), the European Union and United Nations; and vi) covenants with respect to debt level in some of its loan agreements with the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social—BNDES).

 

15.6.2.

Collateral

Most of the Company’s debt is unsecured, but certain specific funding instruments to promote economic development are collateralized.

Financing agreements with China Development Bank (CDB) maturing in 2026 and 2027 are also collateralized based on future oil exports for specific buyers limited to 200 thousand barrels per day up to 2019, 300 thousand barrels per day from 2020 to 2026, and 100 thousand barrels per day in 2027. This collateral may not exceed the amount of the related debt (US$ 10,125 at June 30, 2018 and US$ 10,815 at December 31, 2017). On January 30, 2018, the Company pre-paid the balance of a financing agreement maturing in 2019 in the amount of US$ 2,800.

 

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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 33.

 

16.

Leases

 

16.1.

Future minimum lease payments / receipts – finance leases

 

     Receipts      Payments  

Estimated lease payments / receivable

   Future
value
     Annual
interest
    Present
value
     Future
value
     Annual
interest
    Present
value
 

2018

     60        (33     27        27        (13     14  

2019—2022

     578        (258     320        155        (81     74  

2023 and thereafter

     474        (87     387        325        (217     108  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

As of June 30, 2018

     1,112        (378     734        507        (311     196  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Current

          52             23  

Non-current

          682             173  
       

 

 

         

 

 

 

As of June 30, 2018

          734             196  
       

 

 

         

 

 

 

Current

          54             25  

Non-current

          735             204  
       

 

 

         

 

 

 

As of December 31, 2017

          789             229  
       

 

 

         

 

 

 

 

16.2.

Future minimum lease payments – operating leases

Operating leases mainly include oil and gas production units, drilling rigs and other exploration and production equipment, vessels and support vessels, helicopters, land and building leases.

 

2018

     6,206  

2019

     7,736  

2020

     6,783  

2021

     6,951  

2022

     6,127  

2023 and thereafter

     63,057  
  

 

 

 

As of June 30, 2018

     96,860  
  

 

 

 

As of December 31, 2017

     92,019  
  

 

 

 

As of June 30, 2018, the balance of estimated future minimum lease payments under operating leases includes US$ 50,603 (US$ 52,701 as of December 31, 2017) with respect to assets under construction, for which the lease term has not commenced.

In the first half of 2018, the Company recognized expenditures of US$ 4,288 (US$ 5,263 in the first half of 2017) for operating leases installments.

 

17.

Related-party transactions

The Company has a related-party transactions policy, which is annually revised and approved by the Board of Directors, and is applicable to all the Petrobras Group, in accordance with the Company’s by-laws.

 

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Table of Contents

In order to ensure the goals of the Company are achieved and align them with transparency of processes and corporate governance best practices, this policy guides Petrobras and its workforce while entering into related-party transactions and dealing with potential conflicts of interest on these transactions, based on the following assumptions and provisions:

 

 

Prioritization of the Company’s interests regardless of the counterparty;

 

 

Arm’s length basis;

 

 

Compliance with market conditions, especially concerning terms, prices and guarantees or with adequate compensatory payment;

 

 

Accurate and timely disclosure in accordance with applicable authorities.

The Audit Committee must approve in advance transactions between the Company and its associates, the Brazilian Federal Government, including its agencies or similar bodies and controlled entities, taking into account the materiality established by this policy. The Audit Committee reports monthly to the Board of Directors.

Transactions with entities controlled by key management personnel or by their close family members are also approved in advance by the Audit Committee regardless of the amount involved.

Transactions with the Brazilian Federal Government, including its agencies or similar bodies and controlled entities, which are under the scope of Board of Directors approval, must be preceded by the Audit Committee and Minority Shareholders Committee assessment and must have prior approval of, at least, 2/3 of the board members.

The related-party transactions policy also aims to ensure an adequate and diligent decision-making process for the Company’s key management.

 

17.1.

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 includes transactions with banks and other entities under its control, such as financing and banking, asset management and others.

The balances of significant transactions are set out in the following table:

 

     06.30.2018      12.31.2017  
     Assets      Liabilities      Assets      Liabilities  

Joint ventures and associates

           

State-controlled gas distributors (joint ventures)

     309        116        294        141  

Petrochemical companies (associates)

     40        22        59        16  

Other associates and

joint ventures

     118        631        177        691  
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     467        769        530        848  
  

 

 

    

 

 

    

 

 

    

 

 

 

Brazilian government – Parent and its controlled entities

           

Government bonds

     1,768        —          1,702        —    

Banks controlled by the Brazilian Government

     6,093        11,550        5,839        14,926  

Receivables from the Electricity sector (note 7.4)

     4,190        —          5,247        —    

Petroleum and alcohol account—receivables from

the Brazilian Government

     215        —          251        —    

Diesel Price Subsidy Program

     153        —          —          —    

Others

     34        79        45        217  
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     12,453        11,629        13,084        15,143  
  

 

 

    

 

 

    

 

 

    

 

 

 

Pension plans

     47        48        68        94  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     12,967        12,446        13,682        16,085  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

     3,122        1,524        2,521        2,013  

Non-Current

     9,845        10,922        11,161        14,072  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     12,967        12,446        13,682        16,085  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The income/expenses of significant transactions are set out in the following table:

 

     2018     2017  
     Apr-Jun     Jan-Jun     Apr-Jun     Jan-Jun  

Joint ventures and associates

        

State-controlled gas distributors (joint ventures)

     523       1,067       603       1,075  

Petrochemical companies (associates)

     828       1,764       832       2,030  

Other associates and

joint ventures

     (308     (502     (280     (139
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     1,043       2,329       1,155       2,966  
  

 

 

   

 

 

   

 

 

   

 

 

 

Brazilian government – Parent and its controlled entities

        

Government bonds

     21       52       36       71  

Banks controlled by the Brazilian Government

     (159     (502     (366     (815

Receivables from the Electricity sector (note 7.4)

     729       807       211       405  

Petroleum and alcohol account—receivables from the Brazilian Government

     —         —         —         1  

Diesel Price Subsidy Program

     164       164       —         —    

Others

     24       84       68       138  
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     779       605       (51     (200
  

 

 

   

 

 

   

 

 

   

 

 

 

Pension plans

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,822       2,934       1,104       2,766  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues, mainly sales revenues

     1,708       3,478       1,839       3,827  

Purchases and services

     (443     (863     (497     (497

Foreign exchange and inflation indexation charges, net

     (67     (151     113       179  

Finance income (expenses), net

     624       470       (351     (743
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,822       2,934       1,104       2,766  
  

 

 

   

 

 

   

 

 

   

 

 

 

In addition to the aforementioned transactions, Petrobras and the Brazilian Federal Government entered into the Assignment Agreement in 2010, which grants the Company the right to carry out prospecting and drilling activities for hydrocarbons located in the pre-salt area limited to the production of five billion barrels of oil equivalent.

For detailed information on Assignment Agreement, see note 11.2.

 

17.2.

Diesel Price Subsidy Program

In the second quarter of 2018, the Company joined the two first phases of the Diesel Price Subsidy Program established by the Brazilian Federal Government pursuant to Provisional Measure 838, Decree 9,392 and Decree 9,403 of 2018. This program grants reimbursements to diesel producers and importers to the extent that their selling prices to the domestic distributors are equal or lower than prices determined by relevant regulation. The amount of this government grant results from the following parameters:

 

 

US$ 0.02 dollars (R$0.07) per liter of diesel sold from June 1 to June 7, 2018; and

 

 

Difference between reference price provided for by ANP (Preço de Referência—PR) and the sales price to domestic distributors (Preço de Comercialização—PC), limited to US$ 0.08 dollars (R$ 0.30) per liter, for diesel sales from June 8 to July 31, 2018.

The PR is driven by diesel international prices and U.S. dollar exchange rates. Differences falling above US$ 0.08 dollars in the second phase of the program will be held in the next program phase, the parameters of which are still pending regulation. In case of a lower PR when compared to PC, the program foresees reimbursement to the Brazilian Federal Government.

The Brazilian Federal Government established a US$ 2,539 threshold for this program (R$ 9,500 million), meaning that the subsidy will be ceased if the total grants provided for by the government meets such amount before December 31, 2018.

The settlement of the subsidy occurs to the extent the Company provides all necessary information to ANP in order to prove its fiscal regularity and prices of diesel sold in accordance with the relevant regulation. The period of the subsidy computation is up to thirty days and ANP must confirm the grant within nine business days after receiving all the necessary documentation.

 

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Due to the complexity in meeting all the requirements in the first phase of the program, the company is seeking alternatives to prove to ANP that its sales prices were in accordance with relevant regulation during this phase, which will enable the recognition and collection of the subsidy in the amount of US$ 17.

Regarding the second phase of the program, the Company gathered and sent to ANP all information required to receive US$ 226 from sales from June 8 to July 7, 2018 and, at the date of the issue of these interim financial statements, the assessment of the documentation by this authority is ongoing. Such revenue recognition occurs when the diesel is sold and delivered to distributors and the right to the grant is recognized within current account receivables. Through June 30, 2018, the Company accounted for US$ 153 as accounting receivables from the program with respect to sales within the second phase (note 7.1).

On July 31, 2018, the Brazilian Federal Government enacted the Provisional Measure 847/2018 extending the program to December 31, 2018 with respect to sales of road diesel. In addition, the Decree 9,454 and ANP Resolution 738 enacted on July 31 and August 1, 2018, respectively, brought up new rules to govern the continuity of the program. The Company is assessing its adherence to the third phase of the program and, if it occurs until the fifth business day of the subsidy computation period, from August 1 to August 31, 2018, its effects will be applied retrospectively to August 1, 2018.

 

17.3.

Compensation of key management personnel

The total compensation of Executive Officers and Board Members of Petrobras parent company is set out as follows:

 

     Jan-Jun/2018      Jan-Jun/2017  
     Officers      Board
members
     Total      Officers      Board
members
     Total  

Wages and short-term benefits

     1.9        0.2        2.1        2.0        0.2        2.2  

Social security and other employee-related taxes

     0.5        —          0.5        0.5        —          0.5  

Post-employment benefits (pension plan)

     0.1        —          0.1        0.2        —          0.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total compensation recognized in the statement of income

     2.5        0.2        2.7        2.7        0.2        2.9  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average number of members in the period (*)

     7.83        9.50        17.33        8.00        9.00        17.00  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average number of paid members in the period (**)

     7.83        5.83        13.66        8.00        6.50        14.50  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Monthly average number of members.

(**)

Monthly average number of paid members.

In the first half of 2018, charges related to compensation of the board members and executive officers of the Petrobras group amounted to US$ 13 (US$ 12 in the first half of 2017).

The compensation of the Advisory Committees to the Board of Directors is apart from the fixed compensation set for the Board Members and, therefore, has not been classified under compensation of Petrobras’ key management personnel.

In accordance with Brazilian regulations applicable to companies controlled by the Brazilian Government, Board members who are also members of the Audit Committee are only compensated with respect to their Audit Committee duties. The total compensation concerning these members was US$ 57 thousand in the first half of 2018 (US$ 68 thousand with social security and related charges).

The monthly compensation of Audit Committee members is fixed at 10% of monthly average executive officers’ compensation, excluding certain social security benefits and paid vacation.

In the first half of 2018, the Board of Directors approved the variable compensation program (PRV) of the Board of Executive Officers for the year 2018. The amount of compensation to be paid varies according to the percentage of achievement of the financial and operational targets. The program foresees compensations being disbursed through 5 years and may also trigger other compensations to officers from 2019 provided the achievement of certain prerequisites.

The Company’s General Shareholder’s Meeting held on April 26, 2018 determined the amount of US$ 8 as the threshold of executive officers and board members compensation for the period from April 2018 to March 2019, as well as approved the increase in the number of board members to 11.

 

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18.

Provision for decommissioning costs

 

Non-current liabilities

   Jan-Jun/2018     Jan-Dec/2017  

Opening balance

     14,143