Report of Foreign Issuer (6-k)

Date : 11/14/2017 @ 1:42PM
Source : Edgar (US Regulatory)
Stock : Petroleo Brasileiro S.A.- Petrobras American Depositary Shares (PBR.A)
Quote : 9.74  -0.13 (-1.32%) @ 3:59PM
Petroleo Brasil share price Chart

Report of Foreign Issuer (6-k)

 

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 November, 2017

 

Commission File Number 1-15106

 

 

 

PETRÓLEO BRASILEIRO S.A. - PETROBRAS

(Exact name of registrant as specified in its charter)



Brazilian Petroleum Corporation - PETROBRAS

(Translation of Registrant's name into English)



Avenida República do Chile, 65 

20031-912 - Rio de Janeiro, RJ

Federative Republic of Brazil

(Address of principal executive office)


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

 

Form 20-F ___X___ Form 40-F _______

 

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

 

Yes _______ No___X____

 

 

 

 

 

 


FINANCIAL REPORT

JANUARY-SEPTEMBER OF 2017 RESULTS (9M-2017)

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

Rio de Janeiro – November 13 th , 2017

Main financial highlights

Net income of US$ 1,596 million and net margin of 2% in 9M-2017, compared to a net loss of US$ 5,592 million and a negative net margin of 9% in 9M-2016, as a result of:

 

higher domestic revenues, mainly reflecting higher prices when expressed in U.S. dollars;

 

higher export revenues, with higher average prices;

 

reduction in sales volumes of oil products in Brazil;

 

lower personnel expenses and write-offs of dry and/or sub commercial wells;

 

gain on the sale of the Company’s interest in Nova Transportadora do Sudeste (NTS) in 2Q-2017;

 

reduction of impairments; and

 

higher expenses with adherence to Brazilian Federal Settlement Programs.

Adjusted EBITDA* of US$ 20,039 million in 9M-2017, 11% higher than 9M-2016, reflecting increased domestic and export revenues and lower operational expenses. Adjusted EBITDA Margin* was 31% in 9M-2017 and 30% in 9M-2016.

The combination of improvement in net cash provided by operating activities, from US$ 18,952 million in 9M-2016 to US$ 21,085 million in 9M-2017, and the reduction in investments**, from US$ 10,157 million in 9M-2016 to US$ 9,271 million in 9M-2017, resulted in a 34% increase in Free Cash Flow*, which reached US$ 11,814 million in 9M-2017. Free Cash Flow* was positive for the tenth quarter in a row.

Gross debt decreased 4%, from US$ 118,370 million as of December 31, 2016 to US $ 113,451 million as of September 30, 2017, a reduction of US$ 4,919 million .

Net debt* decreased 9% (US$ 8,238 million), from US$ 96,381 million as of December 31, 2016 to US $ 88,143 million as of September 30, 2017. In addition, liquidity management led to a weighted average maturity of outstanding debt increase from 7.46 years as of December 31, 2016 to 8.36 years as of September 30, 2017.

Reduction of the ratio between net debt and Last Twelve Months (LTM) Adjusted EBITDA * , from 3.76 as of December 31, 2016 to 3.20 as of September 30, 2017. During the same period, Leverage* decreased from 55% to 51% and the ratio between net debt and LTM OCF* reduced from 3.69 to 3.12.

Petrobras employees, as of September 30, 2017, were 62,528, a decrease of 12% compared to September, 30, 2016, due to the voluntary separation incentive plan.

Main operating highlights

Total crude oil and natural gas production reached 2,776 thousand barrels of oil equivalent per day (boed) in 9M-2017, being 2,660 thousand boed in Brazil, 3% above 9M-2016.

In 9M-2017, output of domestic oil products decreased by 6% when compared to 9M-2016, to 1,802 thousand barrels per day (bpd). Domestic oil product sales decreased by 6% to 1,959 thousand bpd.

The Company sustained the position of net exporter, with a balance of 385 thousand bpd in 9M-2017 (vs. 111 thousand bpd in 9M-2016), due to the increase in exports of 39% and reduction in imports of 19%.

 

 

 

 

* See definitions of Free Cash Flow, Adjusted EBITDA, LTM Adjusted EBITDA, LTM OCF, Adjusted EBITDA Margin, Net Debt and Leverage in glossary and the respective reconciliations of such items in Liquidity and Capital Resources, Reconciliation of Adjusted EBI TDA, LTM Adjusted EBITDA, LTM OCF and Net Debt.

**capital expenditures, investments in investees and dividends received

 

1

 

 


 

www.petrobras.com.br/ir *

Contacts:

PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Investor Relations Department

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

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

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

 

 

B 3 : PETR3, PETR4

NYSE: PBR, PBRA

BCBA: APBR, APBRA

LATIBEX: XPBR, XPBRA

 

 

This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. The forward-looking statements, which address the Company’s expected business and financial performance, among other matters, contain words such as “believe,” “expect,” “estimate,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. There is no assurance that the expected events, trends or results will actually occur. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or for any other reason.

 

The Company’s actual results could differ materially from those expressed or forecast in any forward-looking statements as a result of a variety of assumptions and factors. These factors include, but are not limited to, the following: (i) failure to comply with laws or regulations, including fraudulent activity, corruption, and bribery; (ii) the outcome of ongoing corruption investigations and any new facts or information that may arise in relation to the “Lava Jato Operation”; (iii) the effectiveness of the Company’s risk management policies and procedures, including operational risk; and (iv) litigation, such as class actions or proceedings brought by governmental and regulatory agencies.  A description of other factors can be found in the Company’s Annual Report on Form 20-F for the year ended December 31, 2015, and the Company’s other filings with the U.S. Securities and Exchange Commission.

 

 

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

2

 

 


Main Items and Consolidated Economic Indicators

 

US$ million

 

Jan-Sep

 

 

 

 

 

2017

2016

2017 x

2016 (%)

3Q-2017

2Q-2017

3Q17 X

2Q17 (%)

3Q-2016

Sales revenues

65,260

60,002

9

22,700

20,823

9

21,693

Gross profit

20,917

19,062

10

6,712

6,642

1

7,187

Operating income (loss)

11,654

731

1,494

2,458

4,658

(47)

(3,401)

Net finance income (expense)

(7,555)

(6,143)

(23)

(2,343)

(2,747)

15

(2,193)

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

1,596

(5,592)

129

83

96

(14)

(5,380)

Basic and diluted earnings (losses) per share attributable to the shareholders of Petrobras

0.12

(0.43)

128

0.01

0.01

(0.41)

Adjusted EBITDA *

20,039

18,103

11

6,075

5,934

2

6,855

Adjusted EBITDA margin* (%)

31

30

1

27

28

(1)

32

Gross margin* (%)

32

32

30

32

(2)

33

Operating margin* (%)

18

1

17

11

22

(11)

(16)

Net margin* (%)

2

(9)

11

(25)

 

 

 

 

 

 

 

 

Total capital expenditures and investments

10,528

11,590

(9)

3,298

3,560

(7)

3,776

Exploration & Production

8,454

10,125

(17)

2,700

2,825

(4)

3,203

Refining, Transportation and Marketing

944

860

10

355

329

8

382

Gas & Power

950

280

239

183

346

(47)

103

Distribution

73

94

(22)

26

24

8

34

Biofuel

16

91

(82)

5

5

7

Corporate

91

140

(35)

29

31

(6)

47

 

 

 

 

 

 

 

 

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

3.18

3.55

(10)

3.16

3.22

(2)

3.25

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

3.17

3.25

(2)

3.17

3.31

(4)

3.25

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

(2.4)

(16.9)

15

(4.2)

4.4

(9)

1.1

 

 

 

 

 

 

 

 

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

69.40

65.05

7

67.48

68.35

(1)

70.46

Brent crude (U.S.$/bbl)

51.90

41.77

24

52.08

49.83

5

45.85

 

 

 

 

 

 

 

 

Domestic Sales price

 

 

 

 

 

 

 

Crude oil (U.S.$/bbl)

48.75

37.16

31

48.30

47.25

2

41.77

Natural gas (U.S.$/bbl)

37.49

32.26

16

37.28

38.90

(4)

32.21

 

 

 

 

 

 

 

 

International Sales price

 

 

 

 

 

 

 

Crude oil (U.S.$/bbl)

44.81

43.76

2

44.32

43.77

1

42.38

Natural gas (U.S.$/bbl)

20.47

21.98

(7)

21.90

20.17

9

20.51

 

 

 

 

 

 

 

 

Total sales volume (Mbbl/d)

 

 

 

 

 

 

 

Diesel

726

804

(10)

754

721

5

804

Gasoline

528

542

(3)

512

533

(4)

521

Fuel oil

58

67

(13)

68

50

36

57

Naphtha

141

146

(3)

133

125

6

156

LPG

237

234

1

249

238

5

248

Jet fuel

100

102

(2)

102

96

6

101

Others

169

189

(11)

172

170

1

201

Total oil products

1,959

2,084

(6)

1,990

1,933

3

2,088

Ethanol, nitrogen fertilizers, renewables and other products

109

114

(4)

115

112

3

121

Natural gas

353

334

6

389

350

11

325

Total domestic market

2,421

2,532

(4)

2,494

2,395

4

2,534

Crude oil, oil products and other exports

713

522

37

699

659

6

579

International sales

241

435

(45)

244

237

3

360

Total international market

954

957

943

896

5

939

Total

3,375

3,489

(3)

3,437

3,291

4

3,473

*

 

* See definition of Adjusted EBITDA, Adjusted EBITDA Margin, Gross Margin, Operating Margin and Net Margin in glossary and the reconciliation in Reconciliation of Adjusted EBITDA.

3

 

 


9M-2017 x 9M-2016 Results * :

The main functional currency of the Petrobras Group is the Brazilian Real, which is the functional currency of the parent company and its Brazilian subsidiaries, and the presentation currency of the Petrobras Group is the U.S. dollar. Therefore, financial records are maintained in Brazilian reais and income and expenses are translated into U.S. dollars using the average exchange rates prevailing during the period, as set out in IAS 21 – “The effects of foreign exchanges rates”.

Although the fluctuation of the Brazilian Real affects revenues and expenses in different ways when translated into U.S. dollars, we have only included it in the results of operations discussion when it was a contributing factor to changes in our results of operations as compared to previous periods. In 9M-2017, the average Brazilian Real appreciated by 10% in relation to U.S. dollar when compared to 9M-2016.

Gross Profit

Gross profit increased by 10%, from US$ 19,062 million in 9M-2016 to US$ 20,917  million in 9M-2017, when compared to 9M-2016, mainly due to the effect of foreign exchange translation (the appreciation of the Brazilian Real against the U.S. dollar), which led to higher average prices of oil products in the domestic market. The increase in oil exports, at higher prices and rise in the domestic natural gas production and of its participation in the sales mix also contributed to the result. On the other hand, sales volumes of oil products decreased in the domestic market. Gross margin reached 32% in 9M-2017, in line with 9M-2016.

Operating income

Operating income increased 1,494%, from US$ 731 million in 9M-2016 to US$ 11,654 million in 9M-2017, reflecting foreign exchange translation effects, lower personnel expenses, reduced costs attributable to write-offs of dry and/or subcommercial wells and the decrease in drilling rigs idleness, as well as the gain with the sale of Company’s interest in Nova Transportadora do Sudeste (NTS). Additionally, there was a significant decrease in impairment.

Net Finance Expense

Net finance expense increased 23%, from US$ 6,143 million in 9M-2016 to US$ 7,555 million in 9M-2017, as a result of higher depreciation of the U.S. dollar against the Euro and the Pound and of the increased finance charges arisen from the adherence to the Brazilian Federal Settlement Programs established during the 9M17, despite the lower finance expenses, due to the decreased debt.

Net income (loss) attributable to the shareholders of Petrobras

Net income attributable to the shareholders of Petrobras was US$ 1,596 million in 9M-2017, compared to a net loss of US$ 5,592 million in 9M-2016. Net margin was 2% in 9M-2017, compared to a negative margin of 9% in 9M-2016.

Adjusted EBITDA**

Adjusted EBITDA increased by 11%, from US$ 18,103 million in 9M-2016 to US$ 20,039 million in 9M-2017, reflecting increased domestic and export revenues, lower operational expenses and foreign exchange translation effects. The Adjusted EBITDA Margin* reached 31% in 9M-2017 compared to 30% in 9M-2016.

Net cash provided by operating activities and Free Cash Flow **

The higher net cash provided by operating activities, which increased from US$ 18,952 million in 9M-2016 to US$ 21,085 million in 9M-2017, and lower investments (from US$ 10,157 million in 9M-2016 to US$ 9,271 million in 9M-2017) resulted in a positive Free Cash Flow* of US$ 11,814 million, 34% higher than 9M-2016.

 

 

* Additional information about operating results of 9M-2017 x 9M-2016, see “Additional Information” item 4.

* * See definitions of Free Cash Flow, Adjusted EBITDA and Adjusted EBITDA Margin in glossary and the respective reconciliations in Liquidity and Capital Resources and Reconciliation of Adjusted EBITDA.

 

 

4

 

 


Exploration & Production Main Indicators

 

US$ million

 

Jan-Sep

 

2017

2016

2017 x 2016 (%)

Sales revenues

30,739

23,758

29

Brazil

30,078

22,680

33

Abroad

661

1,078

(39)

Gross profit

10,179

5,446

87

Brazil

9,953

5,093

95

Abroad

226

353

(36)

Operating expenses

(2,813)

(6,224)

55

Brazil

(2,386)

(5,794)

59

Abroad

(427)

(430)

1

Operating income (loss)

7,366

(778)

1047

Brazil

7,567

(698)

1184

Abroad

(201)

(80)

(151)

Net income (Loss) attributable to the shareholders of Petrobras

4,931

(419)

1277

Brazil

4,982

(348)

1532

Abroad

(51)

(71)

28

Adjusted EBITDA of the segment *

14,952

10,336

45

Brazil

14,873

10,010

49

Abroad

79

326

(76)

EBITDA margin of the segment (%)*

49

44

5

Capital expenditures of the segment

8,454

10,125

(17)

 

 

 

 

Average Brent crude (US$/bbl)

51.90

41.77

24

 

 

 

 

Sales price - Brazil

 

 

 

Crude oil (US$/bbl)

48.75

37.16

31

Sales price - Abroad

 

 

 

Crude oil (US$/bbl)

44.81

43.76

2

Natural gas (US$/bbl)

20.47

21.98

(7)

Crude oil and NGL production  (Mbbl/d)

2,223

2,196

1

Brazil

2,158

2,111

2

Abroad

42

59

(29)

Non-consolidated production abroad

23

26

(12)

Natural gas production (Mbbl/d)

553

567

(2)

Brazil

502

479

5

Abroad

51

88

(42)

Total production

2,776

2,763

 

 

 

 

Lifting cost - Brazil (US$/barrel)

 

 

 

excluding production taxes

11.26

10.78

5

including production taxes

19.96

15.58

28

 

 

 

 

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

5.06

5.43

(7)

 

 

 

 

Production taxes - Brazil

5,547

2,913

90

Royalties

2,810

2,032

38

Special participation charges

2,693

843

219

Rental of areas

44

38

16

Production taxes - Abroad

92

190

(52)

 

*

 

 

* See definition of Adjusted Ebitda and Adjusted Ebitda Margin in Glossary a nd  reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

5

 

 


RESULT BY BUSINESS SEGMENT*

 

 

 

EXPLORATION & PRODUCTION (E&P)

 

 

9M-2017 x 9M-2016

 

Gross Profit

 

Gross profit increased due to higher oil prices and higher production in Brazil, partially offset by increase in production taxes.

 

Operating income

 

Operating income was higher due to increase in gross profit, lower impairments expenses, decreased write-offs of dry and/or sub commercial wells and drilling rigs idleness.

 

Operating Performance

 

Production

Domestic crude oil, NGL and natural gas production increased mainly due to the start-up of production on new systems: FPSOs Cid. de Caraguatatuba (Lapa), and P-66 (Lula) and the ramp-up of FPSOs  Cid. de Saquarema and Cidade de Maricá, both in the Lula field.

The production of crude oil and NGL abroad declined due to PESA’s sale, in 2016, which was partially offset by the start-up of Saint Malo and Lucius fields, in the United States.

Natural gas production abroad decreased due to the sale of PESA in 2016 and to the lower demand of Bolivian gas from Brazil.

 

Lifting Cost

 

Lifting cost increased mainly due to the foreign exchange effects related to expenses denominated in Brazilian Real, partially offset by production increase.

Additionally, higher production taxes were caused by higher oil prices, increased pre-salt production and the impact of the Company’s adherence to the Brazilian Federal Settlement Programs related to production taxes (PRD).

Lifting cost abroad decreased due to the sale of PESA in 2016.

 

 

 

 

 

 

 

 

 

 

 

 

* Biofuels and Corporate segments are disclosed only in segment information tables.

 

 

6

 

 


Refining, Transportation and Marketing Main Indicators

 

US$ million

 

Jan-Sep

 

2017

2016

2017 x 2016 (%)

Sales revenues

49,722

46,141

8

Brazil (includes trading operations abroad)

50,892

46,573

9

Abroad

1,363

2,325

(41)

Eliminations

(2,533)

(2,757)

8

Gross profit

6,395

11,066

(42)

Brazil

6,403

11,009

(42)

Abroad

(8)

57

(114)

Operating expenses

(2,149)

(4,056)

47

Brazil

(2,113)

(3,990)

47

Abroad

(36)

(66)

45

Operating income (loss)

4,246

7,010

(39)

Brazil

4,290

7,017

(39)

Abroad

(44)

(7)

(529)

Net income (loss) attributable to the shareholders of Petrobras

3,205

4,836

(34)

Brazil

3,235

4,843

(33)

Abroad

(30)

(7)

(329)

Adjusted EBITDA of the segment *

6,239

10,549

(41)

Brazil

6,238

10,509

(41)

Abroad

1

40

(98)

EBITDA margin of the segment (%)*

13

23

(10)

Capital expenditures of the segment

944

860

10

Domestic basic oil products price  (US$/bbl)

69.40

65.05

7

Imports (Mbbl/d)

323

399

(19)

Crude oil import

123

158

(22)

Diesel import

15

16

(6)

Gasoline import

11

33

(67)

Other oil product import

174

192

(9)

Exports (Mbbl/d)

708

510

39

Crude oil export

550

356

54

Oil product export

158

154

3

Exports (imports), net

385

111

247

Refining Operations - Brazil (Mbbl/d)

 

 

 

Output of oil products

1,802

1,913

(6)

Reference feedstock  

2,176

2,176

Refining plants utilization factor (%)  

77

83

(6)

Feedstock processed (excluding NGL)

1,686

1,800

(6)

Feedstock processed

1,734

1,846

(6)

Domestic crude oil as % of total feedstock processed

94

91

3

Refining Operations - Abroad (Mbbl/d)

 

 

 

Total feedstock processed

86

132

(35)

Output of oil products

87

134

(35)

Reference feedstock  

100

200

(50)

Refining plants utilization factor (%)  

82

57

25

Refining cost - Brazil

 

 

 

Refining cost (US$/barrel)

2.95

2.47

19

Refining cost - Abroad (US$/barrel)

4.63

3.96

17

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

 

 

 

Diesel

661

760

(13)

Gasoline

460

486

(5)

Fuel oil

63

62

2

Naphtha

141

146

(4)

LPG

238

235

1

Jet fuel

113

116

(2)

Others

185

204

(10)

Total domestic oil products (Mbbl/d)

1,861

2,010

(7)

*

 

 

* See definition of Adjusted Ebitda and Adjusted Ebitda Margin in Glossary and  reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segmen t.

7

 

 


REFINING, TRANSPORTATION AND MARKETING (RTM)

 

 

9M-2017 x 9M-2016

 

Gross Profit

 

Gross profit decreased mainly due to higher cost of sale, influenced by higher Brent and domestic oil prices, as well as reduction in oil products sales volume in the domestic market, partially offset by higher prices of sales revenues when expressed in U.S. dollar.

 

Operating Income

 

Operating income decreased due to the lower gross profit, partially offset by reduction in expenses associated with sales, the voluntary separation plan and impairment.

 

 

Operating Performance

 

Imports and Exports of Crude Oil and Oil Products

 

Net crude oil exports increased as a result of domestic production growth and of decrease in volume processed in refineries, both domestic and imported.

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

 

Refining Operations

 

Processed feedstock was lower, mainly due to increase in imports by third parties.

 

Refining Cost

 

Refining cost was higher mainly reflecting a decrease in processed feedstock.

 

8

 

 


Gas & Power Main Indicators

 

US$ million

 

Jan-Sep

 

2017

2016

2017 x 2016 (%)

Sales revenues

8,844

7,032

26

Brazil

8,812

6,641

33

Abroad

32

391

(92)

Gross profit

2,477

1,856

33

Brazil

2,473

1,795

38

Abroad

4

61

(93)

Operating expenses

494

(1,365)

136

Brazil

510

(1,341)

138

Abroad

(16)

(24)

33

Operating income (loss)

2,971

491

505

Brazil

2,981

454

557

Abroad

(10)

37

(127)

Net income (Loss) attributable to the shareholders of Petrobras

1,962

331

493

Brazil

1,945

264

637

Abroad

17

67

(75)

Adjusted EBITDA of the segment *

1,491

1,568

(5)

Brazil

1,493

1,515

(1)

Abroad

(2)

53

(104)

EBITDA margin of the segment (%) *

17

22

(5)

 

 

 

 

Capital expenditures of the segment **

950

280

239

 

 

 

 

Physical and financial indicators

 

 

 

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

792

845

(6)

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

3,058

3,172

(4)

Generation of electricity - average MW

2,930

2,106

39

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

92

25

273

Imports of LNG (Mbbl/d)

28

42

(33)

Imports of natural gas (Mbbl/d)

145

183

(21)

 

 

* 8 8

 

 

 

 

 

* See definition of Adjusted Ebitda and Adjusted Ebitda Margin in Glossary and  reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

** The higher capital expenditure on Gas & Power segment is due to the implementation of Rota 3 Pipeline Project and to the reclassification of investments in the Pre-Salt pipelines, which were considered in the E&P segment until 2016.

9

 

 


GAS & POWER (G&P)

 

 

 

9M-2017 x 9M-2016

 

Gross Profit

 

Gross profit was higher due to higher natural gas sales and the increase in the participation of national gas in the sales mix.

 

 

Operating income

 

Operating income increased due to the higher gross profit, as well as the gain with the sale of Company’s interest in NTS and lower impairment.

 

 

Operating Performance

 

Physical and Financial Indicators

 

The increase in the national gas supply led to reduction in imports of natural gas from Bolivia and of LNG.

Electric generation rose due to the reduction in hydrologic volume, which led to higher prices in the spot market.

 

 

 

10

 

 


Distribution Main Indicators

 

US$ million

 

Jan-Sep

 

2017

2016

2017 x 2016 (%)

Sales revenues

20,133

20,836

(3)

Brazil

19,122

18,343

4

Abroad

1,011

2,493

(59)

Gross profit

1,493

1,556

(4)

Brazil

1,407

1,291

9

Abroad

86

265

(68)

Operating expenses

(914)

(1,509)

39

Brazil

(868)

(1,225)

29

Abroad

(46)

(284)

84

Operating income (loss)

579

47

1132

Brazil

538

66

715

Abroad

41

(19)

316

Net Income (Loss) attributable to the shareholders of Petrobras

382

39

879

Brazil

356

63

465

Abroad

26

(24)

208

Adjusted EBITDA of the segment *

689

260

165

Brazil

645

158

308

Abroad

44

102

(57)

EBITDA margin of the segment (%)*

3

1

2

 

 

 

 

Capital expenditures of the segment

73

94

(22)

 

 

 

 

Market share - Brazil

30.0%

31.3%

(1.3)%

 

 

 

 

Sales Volumes - Brazil (Mbbl/d)

 

 

 

Diesel

298

320

(7)

Gasoline

188

190

(2)

Fuel oil

49

52

(6)

Jet fuel

51

50

2

Others

86

104

(17)

Total domestic oil products

672

716

(6)

 

 

* * *

 

 

 

 

 

 

* See definition of Adjusted Ebitda and Adjusted Ebitda Margin in Glossary and  reconciliation in Reconc iliation of Consolidated Adjusted EBITDA Statement by Segment.

 

11

 

 


DISTRIBUTION

 

 

9M-2017 x 9M-2016

 

Gross Profit

 

The decrease in gross profit reflected lower sales volumes, caused by a reduction in sales to thermoelectric plants, as well as by higher participation of third parties in the oil product sales market.

 

Operating income

 

Operating income increased, reflecting the reduction in expenses compared to 2016, related to receivables from the electricity sector and with administrative and judicial claims.

 

 

Operating Performance

 

The market share reduction in the period ending at August, 31 st , 2017, compared to the same period of last year, is mainly due to the decrease of 25.2% in the sales volume to thermoelectric plants, due to lower demand for oil in the period. Besides that, there was an increase in competition in the oil products market with increase in imports from third parties.

 

 

 

12

 

 


Liquidity and Capital Resources

 

U.S.$ million

 

Jan-Sep

 

 

 

 

2017

2016

3Q-2017

2Q-2017

3Q-2016

Adjusted cash and cash equivalents* at the beginning of period

21,989

25,837

24,571

20,131

20,366

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

(784)

(779)

(1,002)

(918)

(757)

Cash and cash equivalents at the beginning of period

21,205

25,058

23,569

19,213

19,609

Net cash provided by (used in) operating activities

21,085

18,952

7,593

6,108

8,226

Net cash provided by (used in) investing activities

(7,241)

(9,209)

(3,666)

(949)

(2,430)

Capital expenditures, investments in investees and dividends received

(9,271)

(10,157)

(2,936)

(3,201)

(3,161)

Proceeds from disposal of assets (divestment)

2,953

739

1

2,356

735

Investments in marketable securities

(923)

209

(731)

(104)

(4)

(=) Net cash provided by operating and investing activities

13,844

9,743

3,927

5,159

5,796

Net financings

(11,389)

(13,737)

(3,937)

(701)

(3,678)

Proceeds from financing

22,644

12,496

8,879

9,623

3,396

Repayments

(34,033)

(26,233)

(12,816)

(10,324)

(7,074)

Dividends paid to non-controlling interest

(149)

(47)

(22)

(127)

Investments by non-controlling interest

(61)

2

(16)

(4)

(47)

Effect of exchange rate changes on cash and cash equivalents

45

563

(26)

29

(98)

Cash and cash equivalents at the end of period  

23,495

21,582

23,495

23,569

21,582

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

1,813

783

1,813

1,002

783

Adjusted cash and cash equivalents* at the end of period

25,308

22,365

25,308

24,571

22,365

Reconciliation of Free cash flow

 

 

 

 

 

Net cash provided by (used in) operating activities

21,085

18,952

7,593

6,108

8,226

Capital expenditures, investments in investees and dividends received

(9,271)

(10,157)

(2,936)

(3,201)

(3,161)

Free cash flow*

11,814

8,795

4,657

2,907

5,065

As of September 30, 2017, the balance of cash and cash equivalents was US$ 23,495 million and the balance of adjusted cash and cash equivalents was US$ 25,308 million. Our principal uses of funds in 9M-2017 were for repayment of financing (and interest payments) and for capital expenditures. We met these requirements with cash provided by operating activities of US$ 21,085 million, proceeds from financing of US$ 22,644 million and proceeds from divestments of US$ 2,953 million. The balance of adjusted cash and cash equivalents was positively impacted, in the period jan-sep/2017, by the investment in British Treasury bonds (US$ 651 million).

Net cash provided by operating activities of US$ 21,085 million were mainly generated by: (i) the reduction in import costs, reflecting the decrease in domestic sales and the higher share of national oil in the processed feedstock and of the domestic gas in the sales mix and (ii) the increase in oil and oil products exports, with higher prices. Those factors were partially offset by higher production taxes.

Capital expenditures, investments in investees and dividends received totaled US$ 9,271 million in 9M-2017 (85% in E&P business segment), a 9% decrease when compared to 9M-2016. Free Cash Flow* was positive, amounting to US$ 11,814 million in 9M-2017, 34% higher than 9M-2016 due to higher net cash provided by operating activities and lower investments.

In the nine-month period ended September 2017, proceeds from financing amounted to US$ 22,644 million, with highlights to: (i) Global notes issued in international capital markets in the amount of US$ 10,256 million, with maturities at 2022, 2025, 2027, 2028 and 2044; (ii) debentures issued in the domestic capital markets in the amount of US$ 1,577 million, with maturities at 2022 and 2024; and (iii) funds raised from the domestic and international banking market, with 5 years average terms, in the total amount of US$ 8,682 million .

In addition, the Company paid debts (principal and interest) in the total amount of US$ 34,033 million, mainly attributable to: (i) repurchase of US$7,569 billion of Petrobras’s existing series of global notes with maturities between 2018 and 2021; (ii) pre-payment of banking loans in the amount of US$ 12,488 million with national and international banks; and (iii) pre-payment of financing with BNDES (US$ 1,567 million).

The Company also rolled-over debts, especially through non-cash transactions, including:  (i) exchange of US$ 6,768 million in Global notes issued in international capital markets, with maturities between 2019 and 2021 to new Global notes in the amount of US$ 7,597 million with maturities at 2025 and 2028; and (ii) exchange of some debts in the international banking market maturing from 2018 to 2020, to new similar financings amounting US$ 1,750 million, with maturities ranging from 2020 to 2022.

Repayments of principal and interest totaled US$ 34,033 million in 9M-2017 and the nominal cash flow ( cash view ), including principal and interest payments, by maturity, is set out in US$ million, below:

Maturity

2017

2018

2019

2020

2021

2022 and thereafter

Balance at September 30, 2017

Balance at December 31, 2016

Principal

1,753

6,483

12,443

11,406

13,153

69,304

114,542

119,734

Interest

1,646

6,315

6,028

5,331

4,594

37,979

61,891

58,406

Total

3,399

12,798

18,471

16,737

17,747

107,283

176,433

178,140

*

 

 

 

* See reconciliation of Adjusted Cash and Cash Equivalents in Net Debt and definitions of Adjusted Cash and Cash Equivalents and Free Cash Flow in Glossary.

13

 

 


Consolidated debt

As of September 30, 2017, the total debt in U.S. dollars decreased 4% when compared to December 31, 2016. The net debt in U.S. dollars reduced 9% when compared to December 31, 2016, mainly as a result of repayments of principal and interest.

Current debt and non-current debt include finance lease obligations of US$ 26 million and US$ 223 million as of September 30, 2017, respectively (US$ 18 million and US$ 226 million on December 31, 2016).

The weighted average maturity of outstanding debt reached 8.36 years as of September 30, 2017 (compared to 7.46 years as of December 31, 2016).

The ratio between net debt and the LTM Adjusted EBITDA* decreased from 3.76 as of December 31, 2016 to 3.20 as of September 30, 2017. The ratio between net debt and the LTM OCF reduced from 3.69 as of December 31, 2016 to 3.12 as of September 30, 2017.

 

 

U.S.$ million

 

09.30.2017

12.31.2016

    Δ%

Current debt

7,395

9,773

(24)

Non-current debt

106,056

108,597

(2)

Total

113,451

118,370

(4)

  Cash and cash equivalents

23,495

21,205

11

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

1,813

784

131

Adjusted cash and cash equivalents *

25,308

21,989

15

Net debt  *

88,143

96,381

(9)

Net debt/(net debt+shareholders' equity) - Leverage *

51%

55%

(4)

Total net liabilities *

228,439

224,994

2

(Net third parties capital / total net liabilities)

63%

66%

(3)

Net debt/LTM Adjusted EBITDA ratio  *

3.20

3.76

(15)

Average interest rate (% p.a.)

5.9

6.2

(3)

Net debt/LTM OFC ratio*

3.12

3.69

(15)

Weighted average maturity of outstanding debt (years)

8.36

7.46

0.90

 

 

 

US$ million

 

09.30.2017

12.31.2016

    Δ%

Summarized information on financing

 

 

 

Floating rate or fixed rate

 

 

 

Floating rate debt

57,785

63,978

(10)

Fixed rate debt

55,417

54,148

2

Total

113,202

118,126

(4)

Currency

 

 

 

Reais

24,273

24,175

US Dollars

81,131

84,951

(4)

Euro

5,268

6,640

(21)

Other currencies

2,530

2,360

7

Total

113,202

118,126

(4)

By maturity

 

 

 

2017

2,818

9,755

(71)

2018

6,817

11,216

(39)

2019

12,283

20,898

(41)

2020

11,385

16,313

(30)

2021

12,996

18,777

(31)

2022 years on

66,903

41,167

63

Total

113,202

118,126

(4)

 

* *

 

* See definition of Adjusted Cas h and Cash Equivalents, Net Debt, Total Net Liabilities, LTM Adjusted EBITDA, LTM OCF and Leverage in Glossary and reconciliation in Reconciliation of Adjusted EBITDA and LTM OCF.

14

 

 


ADDITIONAL INFORMATION

 

1.

Reconciliation of Adjusted EBITDA and LTM Adjusted EBITDA

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

The LTM Adjusted EBITDA reflects the sum of the last twelve months of Adjusted EBITDA and represents an alternative measure to our net cash provided by operating activities. This measure is used to calculate the metric Net Debt/LTM Adjusted EBITDA, which is established in the Business Plan 2017-2021, to support management’s assessment of liquidity and leverage.

EBITDA, Adjusted EBITDA and LTM Adjusted EBITDA are not defined in the International Financial Reporting Standards – IFRS. Our calculation may not be comparable to the calculation of Adjusted EBITDA by other companies and it should not be considered as a substitute for any measure calculated in accordance with IFRS. These measures must be considered in conjunction with other measures and indicators for a better understanding of the Company's operational performance and financial conditions.

Adjusted EBITDA

 

U.S.$ million

 

Jan-Sep

 

 

 

 

 

2017

2016

2017 x 2016 (%)

3Q-2017

2Q-2017

3Q17 X 2Q17 (%)

3Q-2016

Net income (loss)

1,823

(5,179)

135

204

88

132

(5,339)

Net finance income (expenses)

7,555

6,143

23

2,343

2,747

(15)

2,193

Income taxes

2,800

(64)

4,475

49

2,014

(98)

(298)

Depreciation, depletion and amortization

10,090

10,555

(4)

3,440

3,227

7

3,916

EBITDA

22,268

11,455

94

6,036

8,076

(25)

472

Results in equity-accounted investments

(524)

(169)

(210)

(138)

(191)

28

43

Impairment

110

5,122

(98)

46

71

(35)

4,710

Reclassification of cumulative translation adjustment - CTA

37

1,428

(97)

1,428

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

(1,852)

267

(794)

131

(2,022)

106

202

Adjusted EBITDA

20,039

18,103

11

6,075

5,934

2

6,855

Adjusted EBITDA margin (%)

31

30

1

27

28

(1)

32

 

LTM Adjusted EBITDA

 

US$ million

 

 

 

 

 

Last twelve months (LTM) at

 

4Q-2016

1Q-2017

2Q-2017

3Q-2017

09.30.2017

12.31.2016

Net income (loss)

830

1,531

88

204

2,653

(4,349)

Net finance income (expenses)

1,612

2,465

2,747

2,343

9,167

7,755

Income taxes

748

737

2,014

49

3,548

684

Depreciation, depletion and amortization

3,410

3,423

3,227

3,440

13,500

13,965

EBITDA

6,600

8,156

8,076

6,036

28,868

18,055

Results in equity-accounted investments

387

(195)

(191)

(138)

(137)

218

Impairment

1,071

(7)

71

46

1,181

6,193

Reclassification of cumulative translation adjustment - CTA

29

37

66

1,457

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

(560)

39

(2,022)

131

(2,412)

(293)

Adjusted EBITDA

7,527

8,030

5,934

6,075

27,566

25,630

Income taxes

(748)

(737)

(2,014)

(49)

(3,548)

(684)

Allowance (reversals) for impairment of trade and others receivables

652

(2)

455

182

1,287

1,131

Trade and other receivables, net

(840)

481

(351)

(904)

(1,614)

(39)

Inventories

(218)

386

(121)

48

95

(518)

Trade payables

351

(1,046)

282

682

269

(1,060)

Deferred income taxes, net

425

475

1,214

(221)

1,893

(913)

Taxes payable

765

11

1,009

572

2,357

675

Others

(704)

(214)

(300)

1,208

(10)

1,892

Net cash provided by operating activities  -OCF

7,210

7,384

6,108

7,593

28,295

26,114

*

 

* Includes results with disposal and write-offs of assets and re-measuremen t of remaining interests at fair value.

15

 

 


ADDITIONAL INFORMATION

 

2.

Impact of our Cash Flow Hedge policy

 

US$ million

 

Jan-Sep

 

 

 

 

 

2017

2016

2017 x 2016 (%)

3Q-2017

2Q-2017

3Q17 X 2Q17 (%)

3Q-2016

Total inflation indexation and foreign exchange variation

1,376

11,450

(88)

2,345

(2,607)

190

(675)

Deferred Foreign Exchange Variation recognized in other comprehensive income (OCI)

(1,787)

(11,072)

84

(2,457)

2,406

(202)

674

Reclassification from OCI to the Statement of Income

(2,323)

(2,111)

(10)

(812)

(737)

(10)

(658)

Net Inflation indexation and foreign exchange variation

(2,734)

(1,733)

(58)

(924)

(938)

1

(659)

 

The reclassification of foreign exchange variation expense from Other Comprehensive Income (OCI) to the Statement of Income in 9M-2017 was US$ 2,323 million, a 10% increase compared to 9M-2016 in U.S. dollars, mainly due to foreign exchange translation effects.

The reclassification of foreign exchange variation expense from OCI to the Statement of Income in the 3Q-2017 was US$ 812 million, a 10% increase compared to the 2Q-2017 (US$ 737 million), mainly as a result of the occurrence of hedged transactions (exports hedged by debt denominated in U.S. dollars), with higher spread of foreign exchange rate (R$/US$) between the date the cash flow hedge relationship was designated and the date the export transactions were made.

Additional hedging relationships may be revoked or additional reclassification adjustments from OCI to the statement of income may occur as a result of changes in forecast export prices and export volumes following a review of the Company’s business plan. Based on a sensitivity analysis considering a US$ 10/barrel decrease in Brent prices stress scenario, when compared to the Brent price projections in our most recent update of the 2017-2021 Business and Management Plan ( Plano de Negócios e Gestão – PNG), a US$ 1 million reclassification adjustment from equity to the statement of income would occur.

The expected annual realization of the foreign exchange variation balance in OCI, on September 30, 2017, is set out below:

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

2017

2018

2019

2020

2021

2022

2023

2024 to 2027

Total

Expected

realization

(1,357)

(5,354)

(3,586)

(2,483)

(1,994)

(2,279)

(903)

4,947

(13,009)

 

 

16

 

 


ADDITIONAL INFORMATION

 

3.

Special Items

US$ million

Jan-Sep

 

 

 

 

 

2017

2016

 

Items of Income Statement

3Q-2017

2Q-2017

3Q-2016

 

 

 

 

 

 

 

1,882

207

Gains (losses) on Disposal of Assets

Other income and expenses

(237)

2,118

207

237

(1,107)

Voluntary Separation Incentive Plan – PIDV

Other income and expenses

27

123

(761)

48

69

Amounts recovered relating to Lava Jato Operation

Other income and expenses

20

28

46

998

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

Other income and expenses

998

(37)

(1,428)

Cumulative translation adjustment  - CTA

Other income and expenses

(1,428)

(56)

(13)

State Tax Amnesty Program

Other taxes

(16)

(40)

(94)

(338)

Impairment of trade receivables from companies in the isolated electricity system

Selling

expenses

(73)

(56)

(55)

(128)

(5,250)

Impairment of assets and investments

Several

(71)

(44)

(4,838)

(278)

Vitoria 10,000 drilling rig

Other income and expenses

(24)

(254)

(310)

(916)

(Losses)/Gains on legal proceedings

Other income and expenses

(335)

230

(678)

(1,374)

Impacts of Brazilian federal settlement programs on Income Taxes

Income tax expenses

(27)

(1,347)

(1,560)

Brazilian federal settlement programs

Several

(326)

(1,234)

(1,670)

(7,778)

Total

 

(1,062)

(476)

(6,509)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

(110)

(5,122)

Impairment

 

(46)

(71)

(4,710)

(18)

(128)

Results in equity-accounted investments

 

(25)

27

(128)

(128)

(5,250)

Impairment of assets and investments

 

(71)

(44)

(4,838)

 

 

 

 

 

 

 

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

 

 

3.1

Impacts of Brazilian Federal Settlement Programs (PRT, PERT and PRD) within statement of income

                                                                                                                                                               US$ million

 

PRT *

PERT

PRD

Total

Cost of sales

0

0

(131)

(131)

Other taxes

(169)

(605)

(25)

(799)

Finance expenses

(249)

(310)

(71)

(630)

Income taxes - notice of deficiency

(98)

(565)

(663)

Total - after reliefs

(516)

(1,480)

(227)

(2,223)

Impacts of PIS/COFINS on amnesty settlement programs

(46)

(7)

(53)

Income taxes - deductible expenses

(51)

254

70

273

Other income and expenses - reversal of provision (*)

485

8

493

Total with tax effects

(82)

(1,264)

(164)

(1,510)

Income taxes -  reversal of unused tax losses from 2012 to 2017

(711)

(711)

Impacts within the statement of income

(82)

(1,975)

(164)

(2,221)

(*) A portion of this provision was recognized within the statement of income in the first quarter 2017 in the amount of US$ 199 million.

 

 

17

 

 


ADDITIONAL INFORMATION

4. Results of Operations of 9M-2017 compared to 9M-2016

The main functional currency of the Petrobras Group is the Brazilian real, which is the functional currency of the parent company and its Brazilian subsidiaries. As the presentation currency of the Petrobras Group is the U.S. dollar, the results of operations in Brazilian reais are translated into U.S. dollars using the average exchange rates prevailing during the period, as set out in IAS 21 – “The effects of foreign exchanges rates”. Accordingly, foreign exchange translation effect in the results of operations discussion are mentioned whenever it was a significant contributing factor to changes in our results of operations as compared to previous periods. For detailed information about foreign exchange translation effects on the Company’s income statement, see item 5 “Foreign exchange translation effects on results of operations of 9M-2017”.

Sales revenues were US$ 65,260 million in 9M-2017, a 9% increase (US$ 5,258 million) when compared to US$ 60,002 million in 9M-2016 mainly due to:

Higher export revenues (US$ 4,366 million), mainly due to the increase in crude oil volume exported as a result of a higher domestic production along with the lower domestic demand. The higher international prices of crude oil and oil product were also a contributing factor to the increase in export revenues;

 

Higher domestic revenues (US$ 3,078 million), as a result of:

 

 

Higher oil products revenues (US$ 1,173 million), mainly reflecting higher average prices of diesel, gasoline and other oil products when expressed in U.S. dollars. These effects were partially offset by the decrease in oil products sales volume due to the higher portion of products from importers, mainly for diesel and gasoline markets;

 

Increased electricity revenues (US$ 1,071 million) due to higher thermoelectric dispatch with higher prices in the spot market, as a result of worsen hydrological conditions; and

 

Higher natural gas revenues (US$ 799 million) as a result of higher prices mainly when expressed in U.S. dollars.

 

Lower revenues from operations abroad (US$ 2,186 million), due to the sale of Petrobras Argentina S.A. (PESA) and Petrobras Chile Distribución Ltda (PCD).

 

Sales revenues were significantly affected when translated into U.S. dollars. In 9M-2017, foreign exchange translation effects* increased sales revenues by US$ 6,569 million and impacted each component in different ways.

Cost of sales was US$ 44,343 million in 9M-2017, a 8% increase (US$ 3,403 million) compared to US$ 40,940 million in 9M-2016, reflecting:

Foreign exchange translation effects which increased the average cost of sales when expressed in U.S. dollars, reflecting the appreciation of the average Brazilian Real;

Higher production taxes expenses due to the increase in international prices and higher crude oil export volume; and

Increased electricity expenses, as a result of higher prices in the spot market.

These effects were partially offset by:

Lower import costs of oil and oil products due to the increase in domestic crude oil share on the processed feedstock and the lower oil product sales volume in the domestic market;

Lower import costs of natural gas due to higher share of domestic natural gas on sales mix;

Decreased depreciation expenses, as a result of  impairment provision in 2016;

Decreased costs from operations abroad mainly attributable to the sale of PESA and PCD.

 

Cost of sales was significantly affected when translated into U.S. dollars. In 9M-2017, foreign exchange translation effects* increased cost of sales by US$ 4,364 million and impacted each component in different ways.

 

Selling expenses were US$ 3,308 million in 9M-2017, a 9% increase (US$ 271 million) compared to US$ 3,037 million in 9M-2016, mainly due to:

 

Foreign exchange translation effects which increased the average selling expenses when expressed in U.S. dollars, reflecting the appreciation of the average Brazilian Real;

Higher transportation charges by the use of third parties gas pipelines following the sale of Nova Transportadora Sudeste (NTS);

These effects were partially offset by:

The effect of the sale of PESA and PCD;

Lower freight expenses, due to the appreciation of the Brazilian Real against the U.S. dollar and to decreased domestic sales volume; and

Decreased allowance for impairment of trade and other receivables, primarily relating to companies from the electricity sector.

General and administrative expenses were US$ 2,198 million in 9M-2017, a 9% decrease (US$ 227 million) compared to US$ 2,425 million in 9M-2016, mainly due to lower personnel expenses, attributable to the separations of employees under the Voluntary Separation Incentive Plan 2014/2016 and to lower expenses with outsourced administrative services.

Other taxes were US$ 1,367 million in 9M-2017, a US$ 913 million increase compared to US$ 454 million in 9M-2016, mainly as a result of the Company’s decision to enter into the Brazilian Federal Settlement Programs ( Programas de Regularização de Débitos Federais ) (US$ 799 million) and from the State Tax Amnesty Program ( Programa de Anistias Estaduais ) (US$ 56 million).

 

Exploration costs were US$ 494 million in 9M-2017, a 63% decrease (US$ 839 million) compared to US$ 1,333 million in 9M-2016, mainly due to lower exploration expenditures written off as dry hole or sub-commercial wells (US$ 741 million).

Impairment of assets were US$ 110 million in 9M-2017, a 98% decrease (US$ 5,012 million) compared to US$ 5,122 million in 9M-2016, due to the review of assumptions, such as Brent prices, long term exchange rates, portfolio of investments, as well as changes in Brazilian political and economic scenario, that impacted the medium and long term assumptions used in the Company’s Business and Management Plan finalized and approved in 3Q -2016. For more information about impairment of assets, see Note 13 to the Company´s interim consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

* For detailed information about foreign exchange translation effects on the Company’s income statement, see item 5 “Foreign exchange translation effects on results of operations of 9M-2017”.

 


18

 

 


Other operating expenses of US$ 1,374 million in 9M-2017, compared to other operating expenses of US$ 5,536 million in 9M-2016, mainly due to:

Gain on sale and write-off of assets (US$ 1,902 million), mainly driven by the  sale of interests in NTS and on its remaining interests measured at fair value (US$ 217 million);

Lower foreign exchange losses reclassified from shareholders’ equity to results triggered by the sale of certain investees (US$ 1,391 million), mainly reflecting to the sale of PESA in the 3Q-2016 (US$ 1,428 million);

Reversal of provisions relating to the Voluntary Separation Incentive Plan (PIDV) due to cancellation of enrollments by some employees  in 9M-2017 (US$ 237 million), compared to the PIDV expenses in 9M-2016 (US$ 1,107 million);

Lower losses on legal proceedings (US$ 661 million), mainly impacted by the reversal of provision for legal proceedings in respect of tax claims, following the Company’s decision to enter into the Tax Settlement Programs ( Programas de Regularização de Tributos Federais ) in 2017 (US$ 294 million), as well as reflecting the agreements to settle Opt-Out Claims related to the Class Action in United States in 2016 (US$ 364 million); and

Gains on decommissioning of returned/abandoned areas of US$ 998 million in the 3Q-2016, as a result of higher discount rate and the appreciation of the Brazilian Real against the U.S. dollar;

 

Net finance expense was US$ 7,555 million in 9M-2017, a 23% increase (US$ 1,412 million) when compared to US$ 6,143 million in 9M-2016, mainly due to:

 

Higher foreign exchange and inflation indexation charges (US$ 1,001 million) generated by:

 

 

(i)

Foreign exchange losses of US$ 75 million driven by the impact of a 8.2% depreciation of the U.S. dollar against the Pound Sterling on the Company’s net debt in 9M-2017, compared to the foreign exchange gains of US$ 305 million due to the 12.2%  appreciation on the net debt in 9M-2016 (US$ 380 million);

 

(ii)

Higher depreciation of the U.S. dollar against the Euro on the Company’s net debt in 9M-2017, compared to 9M-2016 (US$  405 million);

 

(iii)

Foreign exchange losses of US$ 29 million driven by the impact of a 2.8% appreciation of the Brazilian Real against the U.S. dollar over the positive exposure in U.S. dollar in 9M-2017, compared to the foreign exchange gains of US$ 130 million due to the 16.9% appreciation of the Brazilian Real against the U.S. dollar on the net debt in 9M-2016 (US$ 159 million); and

 

(iv)

Foreign exchange gains due to lower Brazilian Real x Euro exposure (US$ 52 million).

 

Higher finance expenses (US$ 457 million), mainly due to:

 

(i)

Finance charges arisen from the Company’s decision to enter into the Brazilian Federal Settlement Programs ( Programas de Regularização de Débitos Federais ) in 9M-2017 (US$ 630 million); and

 

(ii)

Lower financing expenses in Brazil, due to pre-payment of debts (US$ 77million), along with higher capitalized borrowing costs (US$ 184 million).

 

Net finance expense was significantly affected when translated into U.S. dollars. In 9M-2017, foreign exchange translation effects* increased net finance expense by US$ 773 million and impacted each component in different ways.

 

Results in equity-accounted investments were US$ 524 million in 9M-2017, a US$ 355 million increase compared to the 9M-2016 (US$ 169 million), mainly due to the higher income of associates.

Income taxes expenses were US$ 2,800 million in 9M-2017, compared to a credit of income taxes of US$ 64 million in 9M-2016, mainly as a result of the Company’s decision to enter into the Brazilian Federal Settlement Programs ( Programas de Regularização de Débitos Federais ) and also to the taxable income/(losses) of the periods. For more information about income taxes expenses, see Note 20.6 to the Company´s interim consolidated financial statements.

 

*

 

* For detailed information about foreign exchange translation effects on the Company’s income statement, see item 5 “Foreign exchange translation effects on results of operations of 9M-2017”.

19

 

 


. ADDITIONAL INFORMATION

5. Foreign exchange translation effects on results of operations of 9M-2017

The main functional currency of the Petrobras Group is the Brazilian Real, which is the functional currency of the parent company and its Brazilian subsidiaries. However, the presentation currency of this financial report is the U.S. Dollar to facilitate the comparison with other oil and gas companies. Therefore, the results of operations in Brazilian Real were translated into U.S. dollars using the average exchange rates prevailing during the period, as set out in IAS 21 – “The effects of foreign exchanges rates”.

When the Brazilian Real appreciates against the U.S. dollar, as it did in Jan-Sep/2017, the effect is to generally increase both revenues and expenses when expressed in U.S. dollars. When the Brazilian Real depreciates against the U.S. dollar, the effect is to generally decrease both revenues and expenses when expressed in U.S. dollars.

In order to isolate the foreign exchange translation effect on results of operations, the table below presents a reconciliation of income statement to financial information on a constant currency basis, assuming the same exchange rates between each quarter for translation. In Jan-Sep/2017, the results on a constant currency basis were computed by converting the 1Q-2017, 2Q-2017 and 3Q-2017 results from Brazilian Real into U.S. dollars based on the same average exchange rates used in 1Q-2016, 2Q-2016 and 3Q-2016 (3.91, 3.51 and 3.25, respectively).

The amounts and respective variations presented in constant currency are not measures defined in the International Financial Reporting Standards – IFRS. Our calculation may not be comparable to the calculation of other companies and it should not be considered as a substitute for any measure calculated in accordance with IFRS.

 

 

As reported

 

Financial information in a constant currency basis

 

Jan-Sep

 

 

 

Jan-Sep 2017

 

 

 

 

 

Variation

 

 

 

Variation *

 

 

 

 

 

 

 

 

 

 

 

U.S.$ million

 

 

U.S.$ million

 

 

2017

2016

Δ

Δ(%)

 

Foreign exchange translation effects

Results on a constant currency basis

Δ

Δ(%)

Sales revenues

65,260

60,002

5,258

9

 

6,569

58,691

(1,311)

(2)

Cost of sales

(44,343)

(40,940)

(3,403)

(8)

 

(4,364)

(39,979)

961

2

Gross profit

20,917

19,062

1,855

10

 

2,205

18,712

(350)

(2)

Selling expenses

(3,308)

(3,037)

(271)

(9)

 

(284)

(3,024)

13

General and administrative expenses

(2,198)

(2,425)

227

9

 

(220)

(1,978)

447

18

Exploration costs

(494)

(1,333)

839

63

 

(40)

(454)

879

66

Research and development expenses

(412)

(424)

12

3

 

(38)

(374)

50

12

Other taxes

(1,367)

(454)

(913)

(201)

 

(106)

(1,261)

(807)

(178)

Impairment of assets

(110)

(5,122)

5,012

98

 

(6)

(104)

5,018

98

Other income and expenses

(1,374)

(5,536)

4,162

75

 

(172)

(1,202)

4,334

78

Operating income

11,654

731

10,923

1,494

 

1,339

10,315

9,584

1,311

Net finance income (expense)

(7,555)

(6,143)

(1,412)

(23)

 

(773)

(6,782)

(639)

(10)

Results in equity-accounted investments

524

169

355

210

 

57

467

298

176

Income before income taxes

4,623

(5,243)

9,866

188

 

623

4,000

9,243

176

Income taxes

(2,800)

64

(2,864)

(4,475)

 

(313)

(2,487)

(2,551)

(3,986)

Net income  

1,823

(5,179)

7,002

135

 

310

1,513

6,692

129

 

 

 

 

 

 

 

 

 

 

* Variation after isolating foreign exchange translation effects between periods used for translation.

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 


FINANCIAL STATEMENTS

Interim Income Statement - Consolidated

 

U.S.$ million

 

Jan-Sep

 

 

 

 

2017

2016

3Q-2017

2Q-2017

3Q-2016

Sales revenues

65,260

60,002

22,700

20,823

21,693

Cost of sales

(44,343)

(40,940)

(15,988)

(14,181)

(14,506)

Gross profit

20,917

19,062

6,712

6,642

7,187

Selling expenses

(3,308)

(3,037)

(1,339)

(1,209)

(1,027)

General and administrative expenses

(2,198)

(2,425)

(774)

(691)

(937)

Exploration costs

(494)

(1,333)

(213)

(187)

(572)

Research and development expenses

(412)

(424)

(134)

(171)

(151)

Other taxes

(1,367)

(454)

(321)

(954)

(188)

Impairment of assets

(110)

(5,122)

(46)

(71)

(4,710)

Other income and expenses

(1,374)

(5,536)

(1,427)

1,299

(3,003)

 

(9,263)

(18,331)

(4,254)

(1,984)

(10,588)

Operating income (loss)

11,654

731

2,458

4,658

(3,401)

Finance income

857

811

234

326

366

Finance expenses

(5,678)

(5,221)

(1,653)

(2,135)

(1,900)

Foreign exchange gains (losses) and inflation indexation charges

(2,734)

(1,733)

(924)

(938)

(659)

Net finance income (expense)

(7,555)

(6,143)

(2,343)

(2,747)

(2,193)

Results in equity-accounted investments