SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 February, 2019
Commission File Number 1-15106
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PETRÓLEO BRASILEIRO S.A. - PETROBRAS
(Exact name of registrant as specified in its charter)
Brazilian Petroleum Corporation - PETROBRAS
(Translation of Registrant's name into English)
Avenida República do Chile, 65
20031-912 - Rio de Janeiro, RJ
Federative Republic of Brazil
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ___X___ Form 40-F _______
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes _______ No___X____
Financial
Statements
December 31, 2018
(A free translation of the original
in Portuguese)
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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9 |
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9 |
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2. Basis of preparation and presentation of financial statements |
10 |
3. The “Lava Jato (Car Wash) investigation” and its effects on the Company |
13 |
16 |
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5. Critical accounting policies: key estimates and judgments |
25 |
30 |
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33 |
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34 |
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37 |
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10. Disposal of Assets and other changes in organizational structure |
38 |
44 |
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48 |
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51 |
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53 |
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58 |
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59 |
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59 |
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63 |
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63 |
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70 |
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71 |
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78 |
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80 |
|
88 |
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91 |
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93 |
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94 |
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95 |
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96 |
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97 |
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101 |
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108 |
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33. Collateral for crude oil exploration concession agreements |
109 |
109 |
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115 |
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116 |
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117 |
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STATEMENT OF DIRECTORS ON FINANCIAL STATEMENTS AND AUDITORS’ REPORT |
135 |
146 |
2
Statement of Financial Position December 31, 2018 and 2017 (In millions of reais, unless otherwise indicated)
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Consolidated |
Parent Company |
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Consolidated |
Parent Company |
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Note |
2018 |
2017 |
2018 |
2017 |
Liabilities |
Note |
2018 |
2017 |
2018 |
2017 |
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Current assets |
|
|
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Current liabilities |
|
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Cash and cash equivalents |
7.1 |
53,854 |
74,494 |
6,334 |
1,305 |
Trade payables |
16 |
24,516 |
19,077 |
29,140 |
22,179 |
Marketable securities |
7.2 |
4,198 |
6,237 |
3,974 |
3,531 |
Finance debt |
17.1 |
14,207 |
23,160 |
105,527 |
74,724 |
Trade and other receivables, net |
8.1 |
22,264 |
16,446 |
36,731 |
34,239 |
Finance lease obligations |
18.1 |
89 |
84 |
792 |
1,261 |
Inventories |
9 |
34,822 |
28,081 |
29,307 |
23,165 |
Income taxes payable |
21.1 |
817 |
990 |
207 |
243 |
Recoverable income taxes |
21.1 |
2,863 |
1,584 |
2,018 |
669 |
Other taxes payable |
21.1 |
13,778 |
15,046 |
13,101 |
14,485 |
Other recoverable taxes |
21.1 |
5,020 |
6,478 |
3,741 |
5,514 |
Dividends payable |
24.6 |
4,296 |
− |
3,894 |
− |
Escrow account - Class action agreement |
31.4 |
7,287 |
− |
6,093 |
− |
Short-term benefits |
22 |
6,426 |
4,331 |
5,477 |
3,662 |
Others |
|
5,758 |
4,997 |
5,738 |
3,940 |
Pension and medical benefits |
23 |
3,137 |
2,791 |
2,976 |
2,657 |
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136,066 |
138,317 |
93,936 |
72,363 |
Provisions for legal proceedings |
31.1 |
13,493 |
7,463 |
11,673 |
6,397 |
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Agreement with US Authorities |
3.3 |
3,034 |
− |
3,034 |
− |
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|
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Others |
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9,467 |
8,298 |
6,123 |
6,105 |
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93,260 |
81,240 |
181,944 |
131,713 |
Assets classified as held for sale |
10.2 |
7,540 |
17,592 |
2,605 |
9,520 |
Liabilities on assets classified as held for sale |
10.2 |
3,808 |
1,295 |
3,610 |
606 |
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|
143,606 |
155,909 |
96,541 |
81,883 |
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97,068 |
82,535 |
185,554 |
132,319 |
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|
|
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|
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Non-current assets |
|
|
|
|
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Non-current liabilities |
|
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Long-term receivables |
|
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Finance debt |
17.1 |
311,954 |
337,564 |
220,352 |
193,393 |
Trade and other receivables, net |
8.1 |
21,281 |
17,120 |
18,139 |
15,211 |
Finance lease obligations |
18.1 |
626 |
675 |
2,904 |
4,108 |
Marketable securities |
7.2 |
205 |
211 |
202 |
204 |
Income taxes payable |
21.1 |
2,139 |
2,219 |
2,090 |
2,169 |
Judicial deposits |
31.2 |
26,003 |
18,465 |
24,476 |
17,085 |
Deferred income taxes |
21.6 |
2,536 |
3,956 |
1,028 |
2,762 |
Deferred income taxes |
21.6 |
10,384 |
11,373 |
− |
− |
Pension and medical benefits |
23 |
85,012 |
69,421 |
78,901 |
64,519 |
Other tax assets |
21.1 |
13,717 |
10,171 |
12,498 |
8,999 |
Provisions for legal proceedings |
31.1 |
15,202 |
15,778 |
10,584 |
12,680 |
Advances to suppliers |
|
2,575 |
3,413 |
9,555 |
502 |
Provision for decommissioning costs |
20 |
58,637 |
46,785 |
58,332 |
45,677 |
Others |
|
11,313 |
10,202 |
9,836 |
8,815 |
Others |
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3,756 |
2,973 |
2,747 |
2,243 |
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85,478 |
70,955 |
74,706 |
50,816 |
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479,862 |
479,371 |
376,938 |
327,551 |
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576,930 |
561,906 |
562,492 |
459,870 |
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Shareholders' equity |
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Share capital (net of share issuance costs) |
24.1 |
205,432 |
205,432 |
205,432 |
205,432 |
Investments |
11 |
10,690 |
12,554 |
175,827 |
149,356 |
Capital reserve and capital transactions |
|
2,458 |
2,457 |
2,674 |
2,673 |
Property, plant and equipment |
12 |
609,829 |
584,357 |
483,375 |
435,536 |
Profit reserves |
|
95,364 |
77,364 |
95,148 |
77,148 |
Intangible assets |
13 |
10,870 |
7,740 |
9,268 |
6,264 |
Accumulated other comprehensive (deficit) |
24.5 |
(26,029) |
(21,268) |
(26,029) |
(21,268) |
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716,867 |
675,606 |
743,176 |
641,972 |
Attributable to the shareholders of Petrobras |
|
277,225 |
263,985 |
277,225 |
263,985 |
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Non-controlling interests |
|
6,318 |
5,624 |
− |
− |
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283,543 |
269,609 |
277,225 |
263,985 |
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860,473 |
831,515 |
839,717 |
723,855 |
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|
860,473 |
831,515 |
839,717 |
723,855 |
The Notes form an integral part of these Financial Statements.
3
Statement of Income December 31, 2018 and 2017 (in millions of reais, unless otherwise indicated)
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Parent Company |
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Note |
2018 |
2017 |
2018 |
2017 |
Sales revenues |
25 |
349,836 |
283,695 |
281,099 |
227,964 |
Cost of sales |
|
(225,293) |
(192,100) |
(180,852) |
(156,109) |
Gross profit |
|
124,543 |
91,595 |
100,247 |
71,855 |
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|
|
|
|
|
Income (expenses) |
|
|
|
|
|
Selling expenses |
|
(16,861) |
(14,510) |
(18,312) |
(18,490) |
General and administrative expenses |
|
(8,932) |
(9,314) |
(6,215) |
(6,465) |
Exploration costs |
15 |
(1,904) |
(2,563) |
(1,875) |
(2,199) |
Research and development expenses |
|
(2,349) |
(1,831) |
(2,343) |
(1,828) |
Other taxes |
|
(2,790) |
(5,921) |
(2,106) |
(4,657) |
Impairment of assets |
|
(7,689) |
(3,862) |
(3,403) |
(3,220) |
Other income and expenses |
26 |
(21,061) |
(17,970) |
(18,128) |
(14,731) |
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(61,586) |
(55,971) |
(52,382) |
(51,590) |
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Income before finance income (expenses), results in equity-accounted investments and income taxes |
|
62,957 |
35,624 |
47,865 |
20,265 |
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Net finance income (expense): |
28 |
(21,100) |
(31,599) |
(18,333) |
(21,860) |
Finance income |
|
11,647 |
3,337 |
5,948 |
2,917 |
Finance expense |
|
(20,898) |
(23,612) |
(14,826) |
(17,521) |
Foreign exchange gains (losses) and inflation indexation |
|
(11,849) |
(11,324) |
(9,455) |
(7,256) |
Results in equity-accounted investments |
11 |
1,919 |
2,149 |
7,850 |
6,714 |
Net income before income taxes |
|
43,776 |
6,174 |
37,382 |
5,119 |
|
|
|
|
|
|
Income taxes |
21.5 |
(17,078) |
(5,797) |
(11,603) |
(5,565) |
|
|
|
|
|
|
Net income (loss) for the year |
|
26,698 |
377 |
25,779 |
(446) |
Attributable to: |
|
|
|
|
|
Shareholders of Petrobras |
|
25,779 |
(446) |
25,779 |
(446) |
Non-controlling interests |
|
919 |
823 |
− |
− |
Net income (loss) for the year |
|
26,698 |
377 |
25,779 |
(446) |
Basic and diluted earnings per weighted-average of common and preferred share (in R$) |
24.7 |
1.98 |
(0.03) |
1.98 |
(0.03) |
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The Notes form an integral part of these Financial Statements.
4
Statement of Comprehensive Income December 31, 2018 and 2017 (in millions of reais, unless otherwise indicated)
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|
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Consolidated |
Parent Company |
|||
|
2018 |
2017 |
2018 |
2017 |
26,698 |
377 |
25,779 |
(446) |
|
|
|
|
|
|
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 |
(12) |
− |
(12) |
− |
Deferred Income tax |
4 |
− |
4 |
− |
|
(8) |
− |
(8) |
− |
|
|
|
|
|
Actuarial gains (losses) on post-employment defined benefit plans |
(11,920) |
6,199 |
(11,223) |
5,458 |
Deferred Income tax |
(455) |
(887) |
(566) |
(850) |
|
(12,375) |
5,312 |
(11,789) |
4,608 |
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|
|
|
Share of other comprehensive income (losses) in equity-accounted investments |
(1) |
(3) |
(431) |
536 |
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|
|
|
|
Items that may be reclassified subsequently to the statement of income: |
|
|
|
|
|
|
|
|
|
Unrealized gains(losses) on cash flow hedge - highly probable future exports |
|
|
|
|
Recognized in equity |
(32,471) |
(2,073) |
(32,063) |
(2,208) |
Reclassified to the statement of income |
12,121 |
10,067 |
10,967 |
8,282 |
Deferred income tax |
6,919 |
(2,718) |
7,173 |
(2,065) |
|
(13,431) |
5,276 |
(13,923) |
4,009 |
|
|
|
|
|
Unrealized gains(losses) on cash flow hedge - others |
|
|
|
|
Recognized in equity |
− |
(17) |
− |
− |
|
− |
(17) |
− |
− |
|
|
|
|
|
Unrealized gains on equity instruments measured at fair value through other comprehensive income |
|
|
|
|
Recognized in equity |
− |
49 |
− |
41 |
Deferred income tax |
− |
(14) |
− |
(14) |
|
− |
35 |
− |
27 |
|
|
|
|
|
Cumulative translation adjustments in investees (*) |
|
|
|
|
Recognized in equity |
21,887 |
1,782 |
21,481 |
1,854 |
Reclassified to the statement of income |
− |
116 |
− |
− |
|
21,887 |
1,898 |
21,481 |
1,854 |
|
|
|
|
|
Share of other comprehensive income in equity-accounted investments |
|
|
|
|
Recognized in equity |
(504) |
418 |
(14) |
1,745 |
Reclassified to the statement of income |
− |
69 |
− |
− |
|
(504) |
487 |
(14) |
1,745 |
Total other comprehensive income (loss) |
(4,432) |
12,988 |
(4,684) |
12,779 |
|
|
|
|
|
Total comprehensive income |
22,266 |
13,365 |
21,095 |
12,333 |
Attributable to: |
|
|
|
|
Shareholders of Petrobras |
21,095 |
12,333 |
21,095 |
12,333 |
Non-controlling interests |
1,171 |
1,032 |
− |
− |
Total comprehensive income |
22,266 |
13,365 |
21,095 |
12,333 |
(*) It includes a gain of R$ 1,083 (a gain of R$ 79 in 2017) of cumulative translation adjustments in associates and joint ventures. |
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The notes form an integral part of these financial statements.
5
Statement of Cash Flows December 31, 2018 and 2017 (in millions of reais, unless otherwise indicated)
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Consolidated |
Parent Company |
|||
|
2018 |
2017 |
2018 |
2017 |
|
|
|
|
|
Loss |
26,698 |
377 |
25,779 |
(446) |
|
|
|
|
|
Adjustments for: |
|
|
|
|
Pension and medical benefits (actuarial expense) |
7,770 |
8,705 |
7,129 |
7,991 |
Results in equity-accounted investments |
(1,919) |
(2,149) |
(7,850) |
(6,714) |
Depreciation, depletion and amortization |
43,646 |
42,478 |
33,325 |
32,159 |
Impairment assets (reversal) |
7,689 |
3,862 |
3,403 |
3,220 |
Inventory write-down to net realizable value |
1,595 |
211 |
− |
− |
Allowance (reversals) for impairment of trade and other receivables |
324 |
2,271 |
288 |
1,306 |
Exploratory expenditures write-offs |
317 |
893 |
317 |
561 |
Gains and losses on disposals/write-offs of assets |
(1,085) |
(4,825) |
(1,416) |
(4,564) |
Foreign exchange, indexation and finance charges |
26,219 |
30,653 |
23,056 |
20,943 |
Deferred income taxes, net |
2,787 |
1,452 |
398 |
4,071 |
Reclassification of cumulative translation adjustment and other comprehensive income |
− |
185 |
− |
− |
Revision and unwinding of discount on the provision for decommissioning costs
|
1 |
1,339 |
(61) |
1,272 |
Gain on remeasurement of investment retained with loss of control |
− |
(698) |
− |
(698) |
Provision for the class action agreement |
− |
11,198 |
− |
9,599 |
Decrease (Increase) in assets |
|
|
|
|
Trade and other receivables, net |
(4,631) |
(3,140) |
(42,045) |
(26,711) |
Inventories |
(7,206) |
(1,130) |
(5,931) |
(82) |
Judicial deposits |
(7,418) |
(5,383) |
(7,394) |
(5,351) |
Escrow account - Class action agreement |
(7,238) |
− |
(6,093) |
− |
Other assets |
1,604 |
(723) |
1,082 |
(990) |
|
|
|
|
|
Increase (Decrease) in liabilities |
|
|
|
|
Trade payables |
3,343 |
(160) |
3,653 |
(2,695) |
Other taxes payable |
8,142 |
9,455 |
7,092 |
7,715 |
Income taxes paid |
(9,531) |
(2,544) |
(8,156) |
(1,429) |
Pension and medical benefits |
(3,864) |
(2,944) |
(3,651) |
(2,793) |
Provisions for legal proceedings |
5,143 |
981 |
3,180 |
1,088 |
Short-term benefits |
2,036 |
(2,865) |
1,815 |
(2,497) |
Other liabilities |
1,424 |
(1,032) |
1,581 |
(1,653) |
Net cash provided by operating activities |
95,846 |
86,467 |
29,501 |
33,302 |
|
|
|
|
|
Cash flows from Investing activities |
|
|
|
|
Capital expenditures |
(43,987) |
(43,614) |
(76,471) |
(29,977) |
Investments in investees |
(161) |
(239) |
(5,077) |
(26,783) |
Proceeds from disposal of assets - Divestment |
20,218 |
9,907 |
9,190 |
8,303 |
Divestment (Investment) in marketable securities (*) |
2,276 |
(2,722) |
5,006 |
(2,475) |
Dividends received (**) |
2,902 |
1,450 |
5,934 |
6,040 |
Net cash used in investing activities |
(18,752) |
(35,218) |
(61,418) |
(44,892) |
|
|
|
|
|
Cash flows from Financing activities |
|
|
|
|
Investments by non-controlling interest |
430 |
69 |
− |
− |
Financing and loans, net: |
|
|
|
|
Proceeds from financing |
38,023 |
86,467 |
144,846 |
114,008 |
Repayment of principal |
(120,524) |
(115,091) |
(76,750) |
(98,907) |
Repayment of interest (**) |
(20,959) |
(22,295) |
(28,782) |
(13,379) |
Dividends paid to Shareholders of Petrobras |
(2,368) |
− |
(2,368) |
− |
Dividends paid to non-controlling interests |
(678) |
(538) |
− |
− |
Proceeds from sale of interest without loss of control |
− |
4,906 |
− |
4,906 |
Net cash used in financing activities |
(106,076) |
(46,482) |
36,946 |
6,628 |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
8,342 |
619 |
− |
− |
|
|
|
|
|
Net increase / (decrease) in cash and cash equivalents |
(20,640) |
5,386 |
5,029 |
(4,962) |
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
74,494 |
69,108 |
1,305 |
6,267 |
|
|
|
|
|
Cash and cash equivalents at the end of the period |
53,854 |
74,494 |
6,334 |
1,305 |
(*) In the Parent Company, includes amounts relating to changes in the investment in FIDC-NP (receivables investment fund). |
||||
(**) The Company classifies dividends/interests received and interests paid as investing activities and operating activities, respectively. |
||||
|
The Notes form an integral part of these Financial Statements.
6
Statement of Changes in Shareholders’ Equity December 31, 2018 and 2017 (in millions of reais, unless otherwise indicated)
|
|
|
|
|
Profit reserves |
|
|
|
|
||||||||
|
Share capital (net of share issuance costs) |
Capital reserve, Capital Transactions and Treasury shares |
Cumulative translation adjustment |
Actuarial gains (losses) on defined benefit pension plans |
Cash flow hedge - highly probable future exports |
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 |
|
205,432 |
1,251 |
22,576 |
(28,758) |
(25,118) |
(2,737) |
16,524 |
4,503 |
1,393 |
55,164 |
− |
250,230 |
2,513 |
252,743 |
Balance at January 1, 2017 |
205,432 |
1,251 |
|
|
|
(34,037) |
|
|
|
77,584 |
− |
250,230 |
2,513 |
252,743 |
Realization of deemed cost |
− |
− |
− |
− |
− |
(10) |
− |
− |
− |
− |
10 |
− |
− |
− |
Capital transactions |
|
1,422 |
|
− |
− |
− |
− |
− |
− |
− |
− |
1,422 |
2,577 |
3,999 |
Net income (loss) |
− |
− |
− |
− |
− |
− |
− |
− |
− |
− |
(446) |
(446) |
823 |
377 |
Other comprehensive income |
− |
− |
1,854 |
5,147 |
5,276 |
502 |
− |
− |
− |
− |
− |
12,779 |
209 |
12,988 |
Appropriations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to reserves |
− |
− |
− |
− |
− |
− |
− |
− |
− |
(436) |
436 |
− |
|
− |
Dividends |
− |
− |
− |
− |
− |
− |
− |
− |
− |
− |
− |
− |
(498) |
(498) |
Balance at December 31, 2017 |
205,432 |
2,673 |
24,430 |
(23,611) |
(19,842) |
(2,245) |
16,524 |
4,503 |
1,393 |
54,728 |
− |
263,985 |
5,624 |
269,609 |
|
205,432 |
2,673 |
|
|
|
(21,268) |
|
|
|
77,148 |
− |
263,985 |
5,624 |
269,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
205,432 |
2,673 |
24,430 |
(23,611) |
(19,842) |
(2,245) |
16,524 |
4,503 |
1,393 |
54,728 |
− |
263,985 |
5,624 |
269,609 |
|
205,432 |
2,673 |
|
|
|
(21,268) |
|
|
|
77,148 |
− |
263,985 |
5,624 |
269,609 |
|
− |
− |
− |
− |
− |
(67) |
− |
− |
− |
− |
(734) |
(801) |
(51) |
(852) |
Balance at January 1, 2018 |
205,432 |
2,673 |
24,430 |
(23,611) |
(19,842) |
(2,312) |
16,524 |
4,503 |
1,393 |
54,728 |
(734) |
263,184 |
5,573 |
268,757 |
Realization of deemed cost |
− |
− |
− |
− |
− |
(10) |
− |
− |
− |
− |
10 |
− |
− |
− |
Treasury shares |
− |
(7) |
− |
− |
− |
− |
− |
− |
− |
− |
− |
(7) |
− |
(7) |
Capital transactions |
− |
8 |
− |
− |
− |
− |
− |
− |
− |
− |
− |
8 |
430 |
438 |
Net income (loss) |
− |
− |
− |
− |
− |
− |
− |
− |
− |
− |
25,779 |
25,779 |
919 |
26,698 |
Other comprehensive income |
− |
− |
21,481 |
(12,221) |
(13,431) |
(513) |
− |
− |
− |
− |
− |
(4,684) |
252 |
(4,432) |
Appropriations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to reserves |
− |
− |
− |
− |
− |
− |
1,289 |
1,027 |
772 |
14,912 |
(18,000) |
− |
− |
− |
Dividends |
− |
− |
− |
− |
− |
− |
− |
− |
− |
− |
(7,055) |
(7,055) |
(856) |
(7,911) |
Balance at December 31, 2018 |
205,432 |
2,674 |
45,911 |
(35,832) |
(33,273) |
(2,835) |
17,813 |
5,530 |
2,165 |
69,640 |
− |
277,225 |
6,318 |
283,543 |
|
205,432 |
2,674 |
|
|
|
(26,029) |
|
|
|
95,148 |
− |
277,225 |
6,318 |
283,543 |
The Notes form an integral part of these financial statements. |
7
Statement of Added Value December 31, 2018 and 2017 (in millions of reais, unless otherwise indicated)
|
|
|
Parent Company |
||||
|
2018 |
2017 |
2018 |
2017 |
Income |
|
|
|
|
Sales of products, services provided and other revenues |
453,553 |
378,852 |
384,670 |
320,584 |
Gains and losses on impairment of trade receivables |
(324) |
(2,271) |
(288) |
(1,306) |
Revenues related to construction of assets for own use |
34,924 |
34,753 |
30,593 |
31,235 |
|
488,153 |
411,334 |
414,975 |
350,513 |
Inputs acquired from third parties |
|
|
|
|
Materials consumed and products for resale |
(81,448) |
(64,102) |
(53,772) |
(43,470) |
Materials, power, third-party services and other operating expenses |
(57,742) |
(68,389) |
(52,465) |
(65,289) |
Tax credits on inputs acquired from third parties |
(29,595) |
(22,193) |
(27,389) |
(20,474) |
Impairment of property, plant and equipment, intangible and other assets |
(7,689) |
(3,862) |
(3,403) |
(3,220) |
Inventory write-down to net realizable value (market value) |
(1,595) |
(211) |
− |
− |
|
(178,069) |
(158,757) |
(137,029) |
(132,453) |
|
|
|
|
|
Gross added value |
310,084 |
252,577 |
277,946 |
218,060 |
|
|
|
|
|
Depreciation, depletion and amortization |
(43,646) |
(42,478) |
(33,325) |
(32,159) |
|
|
|
|
|
Net added value produced by the Company |
266,438 |
210,099 |
244,621 |
185,901 |
|
|
|
|
|
Transferred added value |
|
|
|
|
Share of profit of equity-accounted investments |
1,919 |
2,149 |
7,850 |
6,714 |
Finance income |
11,647 |
3,337 |
5,948 |
2,917 |
Rents, royalties and others |
1,093 |
429 |
1,627 |
893 |
|
14,659 |
5,915 |
15,425 |
10,524 |
|
|
|
|
|
Total added value to be distributed |
281,097 |
216,014 |
260,046 |
196,425 |
|
|
|
|
|
Distribution of added value |
|
|
|
|
|
|
|
|
|
Personnel and officers |
|
|
|
|
Direct compensation |
|
|
|
|
Salaries |
16,661 |
16,673 |
12,904 |
12,726 |
Profit sharing |
2,763 |
487 |
2,421 |
393 |
|
19,424 |
17,160 |
15,325 |
13,119 |
Benefits |
|
|
|
|
Short-term benefits |
2,166 |
332 |
1,822 |
(51) |
Pension plan |
4,936 |
5,117 |
4,462 |
4,880 |
Medical plan |
4,544 |
5,013 |
3,998 |
4,428 |
|
11,646 |
10,462 |
10,282 |
9,257 |
FGTS |
1,219 |
1,244 |
1,059 |
1,077 |
|
32,289 |
28,866 |
26,666 |
23,453 |
Taxes |
|
|
|
|
Federal (*) |
100,566 |
72,411 |
94,171 |
66,407 |
State |
50,230 |
45,608 |
29,786 |
27,160 |
Municipal |
732 |
576 |
293 |
202 |
Abroad (*) |
2,994 |
(1,282) |
− |
− |
|
154,522 |
117,313 |
124,250 |
93,769 |
|
|
|
|
|
Financial institutions and suppliers |
|
|
|
|
Interest, and exchange and indexation charges |
39,331 |
41,249 |
29,630 |
29,384 |
Rental and affreightment expenses |
28,257 |
28,209 |
53,721 |
50,265 |
|
67,588 |
69,458 |
83,351 |
79,649 |
Shareholders |
|
|
|
|
Dividends |
153 |
− |
153 |
− |
Interest on capital |
6,902 |
− |
6,902 |
− |
Non-controlling interests |
919 |
823 |
− |
− |
Profit retention (absorbed losses) |
18,724 |
(446) |
18,724 |
(446) |
|
26,698 |
377 |
25,779 |
(446) |
|
|
|
|
|
Added value distributed |
281,097 |
216,014 |
260,046 |
196,425 |
(*) Includes government holdings. |
||||
|
The Notes form an integral part of these Financial Statements.
8
Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
|
|
|
Petróleo Brasileiro S.A. (Petrobras), hereinafter referred to as “Petrobras” or “Company,” is a partially state-owned enterprise, controlled by the Brazilian Federal Government, of indefinite duration, governed by the terms and conditions under the Brazilian Corporate Law (Law 6,404 of December 15, 1976), Law 13,303 of June 30, 2016 and its Bylaws.
Petrobras’ shares are listed on the Brazilian stock exchange (B3) in the Level 2 Corporate Governance special listing segment and, therefore, the Company, its shareholders, its managers and fiscal council members are subject to provisions under its regulation (Level 2 Regulation - Regulamento de Listagem do Nível 2 de Governança Corporativa da Brasil Bolsa Balcão – B3). The provisions of the Level 2 Regulation, the terms of which follow high level corporate governance standards, 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 when otherwise determined by other regulation.
The Company is dedicated to prospecting, drilling, refining, processing, trading and transporting crude oil from producing onshore and offshore oil fields and from shale or other rocks, as well as oil products, natural gas and other liquid hydrocarbons. In addition, Petrobras carries out energy related activities, such as research, development, production, transport, distribution and trading of all forms of energy, as well as other related or similar activities.
Petrobras may perform any of the activities related to its corporate purpose, directly, through its wholly-owned subsidiaries, controlled companies, alone or through joint venture with third parties, in Brazil or abroad.
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). However, Petrobras may have its activities, provided they are in compliance with its corporate purpose, guided by the Brazilian Federal Government to contribute to the public interest that justified its creation, aiming to meet the objectives of the national energy policy 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.
In this case, 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.
1.1. |
Highlights of the period |
The production of oil and gas in 2018 was 2.63 million barrels of oil equivalent per day (boed), 2.53 million boed produced in Brazil and 0.1 million boed abroad, reflecting the divestments in the fields of Lapa, Sururu , Berbigão, Oeste de Atapu and Roncador, the formation of the joint venture of Petrobras América Inc. with Murphy Exploration & Production Co., the end of the Early Production Systems of Tartaruga Verde and Itapu fields, as well as the natural decline of their production, offset by the start-up of four new production systems (Note 12 - Property, Plant and Equipment), as well as the continuous development of the pre-salt production and gas utilization of Petrobras in Brazil, as a consequence of the Gas Optimization Program. In 2018, the Company remained a net exporter of oil and oil products, with a balance of 257 thousand bpd.
The new discoveries and absorption of the production have a direct impact on proved reserves that reached 9,606 billion barrels of oil equivalent - SEC criteria - with reserve replenishment index of 125% of the volume produced (see Additional information on oil exploration and production activities and natural gas - unaudited).
The Company maintained its pricing policy in line with international prices, including between June and December 2018, when an economic subsidy program was established for the commercialization of diesel oil in the Brazilian territory, with compensation being estimated between the price practiced by the Company and established values by the National Petroleum Agency - ANP (see note 19.7.1).
We adopted the hedging for part of the oil export, wuth the intention to protect from the fluctuation of Brent and exchange rates. In addition, the Company adopted the strategy of contracting commodity derivative and foreign exchange derivative financial instruments, in order to allow for the spacing of gasoline price adjustments, guaranteeing the same financial effect of daily adjustments (note 34.1 - Risk management prices of oil and oil products). The same practice will be adopted in 2019 for diesel prices.
9
Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
|
|
|
Renegotiations of the Debt Confession Contracts (Contratos de Confissão de Dívida - CCD) of the electricity sector (Isolated Energy System) signed in 2018 and the conclusion of the privatization process of three distributors of Eletrobrás generated an improvement in the credit risk of these receivables, with a gain in the finance income (see note 8.4).
Operational cash generation is reflecting the higher margins of export sales of oil and oil products in the domestic market, accompanying the appreciation of international prices and devaluation of the real against the US dollar, partially offset by payments related to the Class Action agreement and lower sales volumes in the domestic market and oil exports.
The resources provided by a growing operational cash generation, new funding and receipts from the disposal of assets and participations (see note 10) were allocated to the repayment of debt service, prepayment of debt (note 17), as well as investments in the business segments and in the acquisition of exploration blocks (note 13).
As a result of the collaboration and leniency agreements entered into by other companies in the scope of Lava Jato operation, the Company was reimbursed in the amount of R$ 1,801 in 2018. Additionally, it ceased the uncertainties and costs related to the investigations by the US authorities with an agreement with the Securities and Exchange Commission - SEC and Department of Justice - DoJ (see note 3).
Petrobras adhered to amnesties and state settlement programs for cash payment of debts with an average deduction benefit of 68% (note 21.3). In addition, the Company accounted for a provision following the progress made in negotiating an agreement with the ANP, with the unification of some of the Parque das Baleias fields, starting in the last quarter of 2016, and also provisioned amounts for which the expectation of loss became probable, mainly of civil nature (note 31).
Impairment losses and reversals were recognized, mainly in the fourth quarter, due to higher cost of abandonment of areas (note 20), review of portfolio management and updating of medium and long-term economic assumptions in the scope of the new Business and Management Plan 2019-2023 (note 14).
Petrobras has entered into Production Individualization Agreements (AIPs) with the Brazilian Petroleum and Natural Gas Administration Company - Pre-Sal Petróleo (PPSA) and with other partners in E&P consortiums, which provide for cost equalization and production volumes referring to the fields of Sapinhoá, Lula, Tartaruga Verde, Berbigão and Sururu (note 12.3).
The Board of Directors is submitting the proposal for total compensation to shareholders for the 2018 fiscal year, in the amount of R$ 7,055 (note 24), for the approval of the Shareholders General Meeting.
As detailed in note 22, among other initiatives, we implemented a new Employee Career and Compensation Plan (Plano de Carreiras e Remuneração – PCR), in 2018.
In addition, the Company issues its consolidated financial statements in US dollars , which are converted based on CPC 02 - "Effects of changes in exchange rates and translation of financial statements", equivalent to international accounting standards IAS 21 - "Effects of Changes in Exchange ". The table below presents the key information in millions of dollars:
|
Consolidated |
|
|
2018 |
2017 |
Sales revenues |
95,584 |
88,827 |
Gross profit |
34,067 |
28,680 |
Income before finance income (expense), results in equity-accounted investments and income taxes |
17,432 |
11,219 |
Net income /(loss) attributable to shareholders of Petrobras |
7,173 |
(91) |
Cash and cash equivalentes |
13,899 |
22,519 |
Property, plant and equipment |
157,383 |
176,650 |
Finance debt – short and long terms |
84,175 |
109,046 |
Equity |
73,175 |
81,502 |
|
The consolidated and individual (Parent Company) financial statements have been prepared and are presented in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and with the pronouncements issued by the Brazilian Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis - CPC) and released by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM).
10
Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
|
|
|
All relevant information related to financial statements, and only them, are presented and corresponds to the information used by the Company’s Management.
The consolidated and individual financial statements have been prepared under the historical cost convention, except when otherwise indicated. The summary of significant accounting policies used in the preparation of these financial statements is set out in note 4.
The preparation of the financial statements requires the use of estimates and assumptions which may affect the application of accounting policies and reported amounts of assets, liabilities revenues and expenses. Although our management periodically reviews these assumptions and judgments, the actual results could differ from these estimates. For further information on accounting estimates, see note 5.
The annual consolidated and individual financial statements were approved and authorized for issue by the Company’s Board of Directors in a meeting held on February 27, 2019.
2.1. |
Statement of added value |
The Brazilian corporate law requires the release of the Statement of added value as an integral part of the financial statements. This statement is presented as supplementary information under IFRS and was prepared in accordance with CPC 09 – Statement of Added Value, released by the CVM.
The purpose of the statement of added value is to present information relating to the wealth created by the Company and how it has been distributed.
2.2. |
Functional currency |
The functional currency of Petrobras and all of its Brazilian subsidiaries is the Brazilian Real, which is the currency of its primary economic environment of operation. The functional currency of most of the entities that operate in the international economic environment is the U.S. dollar.
The income statements and statement of cash flows of non-Brazilian Real functional currency subsidiaries, joint ventures and associates in stable economies are translated into Brazilian Real using the monthly average exchange rates prevailing during the year. Assets and liabilities are translated into Brazilian Real at the closing rate at the date of the financial statements and the equity items are translated using the exchange rates prevailing at the dates of the transactions.
All exchange differences arising from the translation of the financial statements of non-Brazilian Real subsidiaries, joint ventures and associates are recognized as cumulative translation adjustments (CTA) within accumulated other comprehensive income in the shareholders’ equity and transferred to profit or loss in the periods at the disposal of the investments.
2.3. |
Changes in accounting polices |
IFRS 9, IFRS 15 and IFRIC 22 have been effective since January 1, 2018. Accordingly, the Company changed, in 2018, accounting policies related to financial instruments, revenue recognition and transactions that include the receipt or payment of advance consideration in a foreign currency.
2.3.1. |
IFRS 9 - Financial Instruments (CPC 48 - Instrumentos Financeiros) |
IFRS 9 establishes, among others things, 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:
11
Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
|
|
|
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 |
16,446 |
(341) |
2.3.1 b |
16,105 |
Non-current assets |
|
|
|
|
Trade and other receivables, net |
17,120 |
(64) |
2.3.1 b |
17,056 |
Deferred income taxes |
11,373 |
405 |
|
11,778 |
Others |
10,202 |
(75) |
2.3.1 b |
10,127 |
Current liabilities |
|
|
|
|
Finance debt |
23,160 |
3 |
2.3.1 a |
23,163 |
Others |
8,298 |
(23) |
2.3.1 a |
8,275 |
Non-current liabilities |
|
|
|
|
Finance debt |
337,564 |
797 |
2.3.1 a |
338,361 |
Equity |
|
|
|
|
Accumulated other comprehensive deficit |
(21,268) |
(67) |
2.3.1 c |
(21,335) |
Retained earnings |
- |
(734) |
|
(734) |
Non-controlling interests |
5,624 |
(51) |
|
5,573 |
|
|
|
|
|
a) 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 will reflect the discounted present value of its cash flows under the new terms using the original effective interest rate. The difference between the book value immediately prior to such modification and the new gross carrying amount is recognized as gain or loss in the statement of income.
b) Impairment of financial assets
IFRS 9 replaced the incurred loss model stated in IAS 39 by the expected credit loss model for the recognition of impairment on financial assets measured at amortized cost, including lease receivables, and on financial assets measured at fair value through other comprehensive income.
c) Classification and measurement of financial assets
This new standard established 3 categories in which financial assets are generally classified: Amortized cost, Fair value through other comprehensive income and Fair value through profit or loss. The classification of a financial asset is based on the business model in which assets are managed and on their contractual cash flow characteristics.
The following table 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 CPC 38 / IAS 39 |
Carrying amount according to CPC 38 / IAS 39 at December 31, 2017 |
Classification according to CPC 48 / IFRS 9 |
Carrying amount according to CPC 48 / IFRS 9 at January 1, 2018 |
||||
In Brazil |
Abroad |
Total |
In Brazil |
Abroad |
Total |
||
Trading securities |
3,531 |
- |
3,531 |
Fair value through profit or loss |
4,222 |
-− |
4,222 |
Available-for-sale securities |
505 |
2,015 |
2,520 |
Fair value through other comprehensive income |
42 |
2,015 |
2,057 |
Held-to-maturity securities |
397 |
- |
397 |
Amortised cost |
169 |
- |
169 |
|
4,433 |
2,015 |
6,448 |
|
4,433 |
2,015 |
6,448 |
Information about accounting policies, key estimates and judgments related to financial instruments is presented in notes 4 and 5.
12
Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
|
|
|
For the purposes of the transition requirements, the Company applied CPC 47 (IFRS 15) 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 in 2018:
|
|
Initial application of IFRS 15 / CPC 47 |
|
||
|
Amount at 12.31.2018 |
Agent |
Breakage |
Others |
Amount without effects of initial application of IRFS 15 / CPC 47 at 12.31.2018 |
Sales revenues |
349,836 |
9,385 |
(993) |
(77) |
358,151 |
Cost of sales |
(225,293) |
(9,385) |
55 |
− |
(234,623) |
Gross profit |
124,543 |
− |
(938) |
(77) |
123,528 |
Income and expenses |
(61,586) |
− |
938 |
77 |
(60,571) |
Income before finance income, results in equity-accounted investments and income taxes |
62,957 |
− |
− |
− |
62,957 |
The Company acting as an agent
In accordance with accounting policies at December 31, 2017, the Company was regarded as the principal in the sale of biodiesel. Therefore, the revenues from these sales, cost of the products 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.
Information about accounting policies related to revenue from contract with customers is presented in note 4.
2.3.3. |
Foreign Currency Transactions and Advance Consideration |
Based on the transition provisions of ICPC 21(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.
In 2009, the Brazilian Federal Police (Polícia Federal) began an investigation known as “Lava Jato” (Car Wash) aimed at criminal organizations engaged in money laundering in several Brazilian states. Beginning in 2014, the Brazilian Federal Prosecutor’s Office focused part of its investigation on irregularities involving Petrobras’s contractors and suppliers and uncovered a broad payment scheme that involved a wide range of participants, including former Petrobras personnel. Based on the information available to Petrobras, the payment scheme involved a group of companies that, between 2004 and April 2012, colluded to obtain contracts with Petrobras, overcharge the Company under those contracts and use the overpayment received under the contracts to fund improper payments to political parties, elected officials or other public officials, individual contractors and suppliers, former Petrobras personnel and other individuals involved in the scheme. Petrobras refers to this scheme as the “payment scheme” and to the companies involved in the scheme as the “cartel members”. The Company did not make any improper payment.
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Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
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In addition to the payment scheme, the investigations identified specific instances of other contractors and suppliers that overcharged Petrobras and allegedly used the overpayment received from their contracts with the Company to fund improper payments, unrelated to the payment scheme, to certain former Petrobras personnel. Those contractors and suppliers are not cartel members and acted individually. Petrobras refers to these specific cases as the “unrelated payments.”
The amounts paid by Petrobras related to contracts with contractors and suppliers involved in the payment scheme were included in historical costs of its property, plant and equipment. However, the Company believes that, under International Accounting Standard IAS 16 – Property, Plant and Equipment, the portion of the payments made to these companies and used by them to make improper payments, which represents additional charges incurred as a result of the payments scheme, should not have been capitalized. Thus, in the third quarter of 2014, the Company wrote off R$ 6,194 (R$ 4,788 in the Parent Company) of capitalized costs representing amounts that Petrobras overpaid for the acquisition of property, plant and equipment in prior years.
3.1. |
Approach adopted by the Company to adjust its property, plant and equipment for overpayments |
As it was impracticable to identify the periods and amounts of overpayments incurred, the Company developed a methodology to estimate the adjustment incurred in property, plant and equipment in the third quarter of 2014 using the five steps described below:
(1) Identify contractual counterparties: the Company listed all the companies identified as cartel members, and using that information the Company identified all of the contractors and suppliers that were either so identified or were part of consortia that included entities so identified.
(2) Identify the period: the Company concluded from testimony that the payment scheme was operating from 2004 through April 2012.
(3) Identify contracts: the Company identified all contracts entered into with the counterparties identified in step 1 during the period identified in step 2, which included supplemental contracts when the original contract was entered into between 2004 and April 2012. It identified all of the property, plant and equipment related to those contracts.
(4) Identify payments: the Company calculated the total contract values under the contracts mentioned in step 3.
(5) Apply a fixed percentage to the amount determined in Step 4: the Company estimated the aggregate overpayment by applying a percentage indicated in depositions (3%) to the total amounts for identified contracts.
For overpayments attributable to non-cartel members, unrelated to the payment scheme, the Company included in the write-off for incorrectly capitalized overpayments the specific amounts of improper payments or percentages of contract values, as described in the testimony, which were used by those suppliers and contractors to fund improper payments.
The Company has continuously monitored the Lava Jato investigation. In preparing the financial statements for the year ended December 31, 2018, the Company has not identified any additional information that would impact the adopted calculation methodology and consequently require additional write-offs.
3.2. |
The Company’s response to the facts uncovered in the investigation |
The Company has been closely monitoring the investigations and cooperating fully with the Brazilian Federal Police (Polícia Federal), the Brazilian Public Prosecutor’s Office (Ministério Público Federal), the Federal Auditor’s Office (Tribunal de Contas da União – TCU) and the General Federal Inspector’s Office (Controladoria Geral da União) in the investigation of all crimes and irregularities. We have responded to numerous requests for documents and information from these authorities.
We have been formally recognized as a victim of the crimes identified under the Lava Jato investigation by the Brazilian Federal Prosecutor’s Office, the lower court hearing the case and also by the Brazilian Supreme Court. As a result, we have entered into 54 criminal proceedings as an assistant to the prosecutor. In addition, we have entered into five criminal proceedings as an interested party. We have also renewed our commitment to continue cooperating with authorities to clarify the issues and report them regularly to our investors and to the public in general.
We do not tolerate corrupt practices and illegal acts perpetuated by any of our employees. Accordingly, since 2015, the Company continued to implement several measures as a response to the facts uncovered in the “Lava Jato” investigation.
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.
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Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
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Accordingly, the Company joined 17 public civil suits addressing acts of administrative misconduct filed by the Brazilian Public Prosecutor’s Office and the Brazilian 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 with cartel members or plea agreements with individuals pursuant to which they agree to return funds, the Company may be entitled to receive a portion of such funds. Nevertheless, the Company is unable to reliably estimate further recoverable amounts at this moment. Any recoverable amount will be recognized as income when received or when their economic benefits become virtually certain.
In addition to R$ 1,476 recovered from Lava Jato investigation through December 31, 2017, new leniency and plea agreements in 2018 entitled the Company to receive funds with respect to compensation for damages in the amount of R$ 1,801. This amount was accounted for as other income and expenses. Thus, the total amount recovered from Lava Jato investigation through December 31, 2018 was R$ 3,277.
On November 28, 2018, Petrobras’ Board of Directors approved the termination of the Special Committee, created in December 2014 to serve as an independent reporting line to the Board with respect to investigations carried out by the firms Trench, Rossi e Watanabe Advogados and Gibson, Dunn & Crutcher LLP. The Board also approved the termination the activities carried out by such independent firms. Since then, relevant departments of the Company have undertaken these duties.
3.3. |
Investigations involving the Company |
3.3.1. |
U.S. Securities and Exchange Commission and Department of Justice inquiries |
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) conducted a similar inquiry and the Company cooperated with both investigations working with independent Brazilian and U.S. law firms that were hired to conduct an independent internal investigation.
On September 27, 2018, the Company settled the open matters with the DoJ and the SEC investigation which encompassed the company’s internal controls, books and records, and financial statements from 2003 to 2012.
These agreements fully resolve the inquiries carried out by these authorities. Following this agreement, the Company paid US$ 85 million to the DOJ and will pay the same amount to the SEC in 2019. Additionally, the agreements also credit a remittance of US$ 683 million to the Brazilian authorities which Petrobras deposited on January 30, 2019 into a special fund for investments in Brazil, in accordance with the Commitment Assumption Agreement executed with the Brazilian Federal Prosecutor’s Office (Ministério Público Federal-MPF). The Company fully recognized the effects of these settlements as other income and expenses in the third quarter of 2018 (R$ 3,536).
This resolution meets the best interest of the Company and its shareholders, and eliminates uncertainties, risks, burdens and costs of potential litigations in the United States.
3.3.2. |
Order of civil inquiry - Brazilian Public Prosecutor’s Office |
On December 15, 2015, the State of São Paulo Public Prosecutor’s Office issued the Order of Civil Inquiry 01/2015, establishing a civil proceeding to investigate the existence of potential damages caused by Petrobras to investors in the Brazilian stock market. The Brazilian Attorney General’s Office (Procuradoria Geral da República) assessed this civil proceeding and determined that the São Paulo Public Prosecutor’s Office has no authority over this matter, which must be presided over by the Brazilian Public Prosecutor’s Office. The Company has provided all relevant information required by the authorities.
3.4. |
Legal proceedings involving the Company |
Note 31 provides information about class actions and other material legal proceedings.
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Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
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4.1. |
Basis of consolidation |
The consolidated financial statements include the financial information of Petrobras and the entities it controls (subsidiaries), joint operations and consolidated structured entities.
Control is achieved when Petrobras: i) has power over the investee; ii) is exposed, or has rights, to variable returns from involvement with the investee; and iii) has the ability to use its power to affect its returns.
Subsidiaries are consolidated from the date on which control is obtained until the date that such control no longer exists, by using accounting policies consistent with those adopted by Petrobras. Note 11 sets out the consolidated entities and other direct investees.
Investments structured through a separate vehicle are conceived so that the voting rights, or similar rights, are not the dominant factor to determine who controls the entity. At December 31, 2018, Petrobras controls and consolidates the following structured entities: Charter Development LLC - CDC (U.S.A., E&P); Companhia de Desenvolvimento e Modernização de Plantas Industriais - CDMPI (Brazil, RT&M) and, Fundo de Investimento em Direitos Creditórios Não-padronizados do Sistema Petrobras (Brazil, Corporate).
The consolidation procedures involve combining assets, liabilities, income and expenses, according to their function and eliminating all intragroup balances and transactions, including unrealized profits arising from intragroup transactions.
4.2. |
Reportable segments |
The information related to the Company’s operating segments is prepared based on available financial information directly attributable to each segment, or items that can be allocated to each segment on a reasonable basis. This information is presented by business activity, as used by the Company’s Board of Executive Officers (Chief Operating Decision Maker – CODM) on the decision-making process of resource allocation and performance evaluation.
The measurement of segment results includes transactions carried out with third parties, including associates and joint ventures, as well as transactions between operating segments. Transfers between operating segments are recognized at internal transfer prices derived from methodologies that take into account market parameters and are eliminated only to provide reconciliations to the consolidated financial statements.
The Company’s operating segments comprises the following business areas:
Exploration and Production (E&P): this segment covers the activities of exploration, development and production of crude oil, NGL (natural gas liquid) and natural gas in Brazil and abroad, for the primary purpose of supplying its domestic refineries. The E&P segment also operates through partnerships with other companies and includes holding interest in foreign entities operating in this segment.
As an integrated energy company with a focus on oil and gas, intersegment sales revenue refers mainly to oil transfers to the Refining, Transportation and Marketing segment, aiming to supply the Company's refineries and meet the domestic demand for oil products. These transactions are measured by internal transfer prices based on international oil prices and their respective exchange rate impacts, taking into account the specific characteristics of the transferred oil stream.
In addition, the E&P segment revenues include transfers of natural gas to the natural gas processing plants within Gas and Power segment. These transactions are measured at internal transfer prices based on the international prices of this commodity.
Revenue from sales to third parties mainly reflects the oil and natural gas operations carried out by subsidiaries abroad, as well as services rendered under exploration and production operations.
Refining, Transportation and Marketing (RT&M): this segment covers the refining, logistics, transport and trading of crude oil and oil products activities in Brazil and abroad, as well as exports of ethanol. This segment also includes the petrochemical operations, such as extraction and processing of shale and holding interests in petrochemical companies in Brazil.
This segment carries out the acquisition of crude oil from the E&P segment, imports oil for refinery slate, and acquires oil products in international markets taking advantage of the existing price differentials between the cost of processing domestic oil and that of importing oil products.
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Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
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Intersegment revenues primarily reflect the sale of derivatives for the distribution segment at market prices and the operations for the Gas and Power and E&P segments at internal transfer price.
Revenues from sales to third parties primarily reflect the trading of oil products in Brazil and the export and trade of oil and oil products by foreign subsidiaries.
Gas and Power: this segment covers the activities of logistic and trading of natural gas and electricity, transportation and trading of LNG (liquefied natural gas), generation and electricity by means of thermoelectric power plants, as well as holding interests in transporters and distributors of natural gas in Brazil and abroad. It also includes fertilizer operations.
Intersegment revenues primarily reflect the transfers of natural gas processed, liquefied petroleum gas (LPG) and NGL to RT&M. These transactions are measured at internal transfer prices.
Revenues from sales to third parties primarily reflect natural gas processed to distributors, as well as the generation and trading of electricity.
Biofuels: this segment covers the activities of production of biodiesel and its co-products, as well as the ethanol-related activities through interest in entities producing and trading ethanol, sugar and surplus electric power generated from sugarcane bagasse.
Distribution: this segment covers the activities of Petrobras Distribuidora S.A, which sells oil products, including gasoline and diesel, ethanol and vehicle natural gas in Brazil. This segment also includes distribution of oil products operations abroad (South America).
Revenues from sales to third parties primarily reflect sales of oil products in Brazil.
The corporate segment comprises the items that cannot be attributed to the other segments, notably those related to corporate financial management, corporate overhead and other expenses, including actuarial expenses related to the pension and medical benefits for retired employees and their dependents.
4.3. |
Financial instruments |
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
4.3.1. |
Financial asset |
a) Initial recognition and measurement
A financial asset is initially recognized when the entity becomes party to the contractual provisions of the instrument. Except for the trade receivables that do not contain a significant financing component, financial assets are initially measured at their fair value and, if not classified as measured at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset add or reduce the amount of initial recognition.
b) Classification and subsequent measurement
Based on the business model in which assets are managed and on their contractual cash flow characteristics, financial assets are generally classified as follows:
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Amortized 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; |
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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 is 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 |
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Fair value through profit or loss: if the financial asset does not meet the criteria for the two aforementioned categories. Derivative financial instruments are generally classified in this category. |
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Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
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c) 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 historical observed default rates adjusted by current and forward-looking information when applicable and available without undue cost or effort.
The Company measures the allowance for expected credit losses of other financial assets based on their 12-month expected credit losses unless their credit risk has increased significantly since their initial recognition, in which case 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 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 supportable information.
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. Low credit risk is determined based on external credit ratings or internal methodologies.
Definition of default
The Company assumes that a default occurs whenever the counterparty does not comply with the legal obligation to pay its debts when due or, depending on the financial instrument, when it is at least 90 days past 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.
4.3.2. |
Financial liabilities |
a) Initial recognition and measurement
A financial liability is recognized when the entity becomes party to the contractual provisions of the instrument and initially measured at fair value. If it is not classified as fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial liability add or reduce the amount of its initial measurement.
b) Classification and subsequent measurement
Financial liabilities are classified as subsequently measured at amortized cost, except for certain financial liabilities, including those classified as fair value through profit or loss.
Loans and finance debt are measured at amortized cost using the effective interest method.
When the contractual cash flows of a financial liability measured at amortized cost are renegotiated or modified and this change is not substantial, its gross carrying amount will reflect the discounted present value of its cash flows under the new terms using the original effective interest rate. The difference between the book value immediately prior to such modification and the new gross carrying amount is recognized as gain or loss in statement of income.
Derivative financial instruments are subsequently measured at fair value through profit or loss, except when designated as hedging instruments.
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Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
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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:
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An economic relationship exists between the hedged item and the hedging instrument; |
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The effect of credit risk does not dominate the value changes that result from the economic relationship; and |
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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 and reclassified 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 is 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 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 is 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 designated for a new hedge relationship.
Inventories are determined by the weighted average cost method and mainly comprise crude oil, intermediate products and oil products, as well as natural gas, LNG, fertilizers and biofuels, adjusted to the net realizable value when it is lower than its carrying amount.
Net realizable value is the estimated selling price of inventory in the ordinary course of business, less estimated cost of completion and estimated expenses to complete its sale.
Crude oil and LNG inventories can be traded or used for production of oil products and/or electricity generation, respectively.
Intermediate products are those product streams that have been through at least one of the refining processes, but still need further treatment, processing or converting to be available for sale.
Biofuels mainly include ethanol and biodiesel inventories.
Materials, supplies and others mainly comprise production supplies and operating materials used in the operations of the Company, stated at the average purchase cost, not exceeding replacement cost.
An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not the ability to exercise control or joint control over those polices. The definition of control is set out in note 4.1.
A joint arrangement is an arrangement over which two or more parties have joint control (pursuant to contractual provisions). A joint arrangement is classified either as a joint operation or as a joint venture depending on the rights and obligations of the parties to the arrangement.
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Petróleo Brasileiro S.A. – Petrobras Notes to the financial statements (Expressed in millions of reais, unless otherwise indicated)
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In a joint operation, the parties have rights to the assets and obligations for the liabilities related to the arrangement, while in a joint venture the parties have rights to the net assets of the arrangement. Some of the Company's activities in the E&P segment are conducted through joint operations.
Profit or loss, assets and liabilities related to joint ventures and associates are accounted for by the equity method. In a joint operation the Company recognizes the amount of its assets, liabilities and related income and expenses.
Accounting policies of joint ventures and associates have been adjusted, where necessary, to ensure consistency with the policies adopted by Petrobras. Distributions received from an investee reduce the carrying amount of the investment.
4.6. |