巴西石油 (PBR.A) 2014 Q4 法說會逐字稿

Welcome to the conference call with analysts and investors for the presentation of 2014 results.

We would like to inform you that participants will only be listening to the conference call during the Company's presentation, which will be conducted in Portuguese with simultaneous translation into English. Following the presentation, a Q&A session will begin in Portuguese and in English, at which time instructions and how to participate will be provided. (Operator Instructions). This broadcast is being recorded.

Present with us today are Mr. Ivan de Souza Monteiro, Petrobras' Chief Financial and Investor Relations Officer; Ms. Solange da Silva Guedes, Chief Exploration and Production Officer; Mr. Jorge Celestino Ramos, Chief Downstream Officer; Mr. Hugo Repsold Jr., Chief Gas and Power Officer; Mr. Joao Adalberto Elek Jr., Chief Governance, Risk and Compliance Officer; Mr. Roberto Moro, Chief Engineering Technology and Procurement officer; Mr. Antonio Sergio Oliveira Santana, Chief Corporate and Services Officer, as well as other Company executives.

We would like to remind you that this meeting is being recorded and please be mindful of slide number 2, which contains the notice to shareholders and investors. The words, believe, expect and other similar ones related to projections and targets are mere forecasts, based on the expectations of executives regarding the future of Petrobras.

We will now listen to Mr. Ivan de Souza Monteiro, next Executive Director of Corporate Performance, Mr. Mario Jorge da Silva, will present the information regarding the results of 2014. After that, we will be answering questions from participants. Sir, you may begin.

Good morning, everyone. Thank you for joining Petrobras. I want to thank my colleagues and all of you participating in this call. Let me now give the floor to executive officer, Mario Jorge.

Good morning, everyone.

Now, I am looking at slide number 3 showing our net results of 2014, a result of minus BRL21.6 billion. I would like to talk about the main drivers of this result. First, we had a growth of 15% in gross profit, which reached BRL80.4 billion in 2014. This is the consequence of higher sales volume, higher market volume and more favorable costs and prices. However, our result of minus BRL21.6 billion can be explained by our line of operational expenses, BRL101.8 billion, in 2014 driven by write-offs of plant -- PP&E, plant, property and equipment.

Now, if we move onto slide number 4, you can see the results of the third quarter. This is the reviewed result compared to the not-reviewed results we presented last January. The main difference is here in operational expenses where we now have a write-off of plant, property and equipment specifically because of overpayments. We are speaking about Lava Jato or car wash investigations. The net result of the third quarter of 2014 is minus BRL5.3 billion.

Now, the main highlights of 2014 are shown in slide number 5. First financial highlights. Sales revenues, BRL337 billion; net result, minus BRL21.6 billion; adjusted EBITDA, BRL59.1 billion, and investments BRL87.1 billion. Operational results. We had a 5% growth in total oil and natural gas production, reaching 2,669,000 barrels of oil equivalent per day in 2014, proven reserves of 16.6 billion barrels of oil equivalent and refining throughput including Brazil and our units abroad, 2,269,000 barrels -- bbl per day, which positions Petrobras as the sixth largest oil refiner in the world.

Now, slide number 6. We'll go into details in the main adjustments in our plant, property and equipment posted in 2014 totaling BRL50.8 billion. Broken down into two main portions. The first referring to overpayments incorrectly capitalized as a consequence of car wash investigations, totaling BRL6.2 billion. And the second portion provisions due to the impairment of assets. This was the result of the impairment tests and it totals BRL44.6 billion.

Let's just give you some more details now in slide 7, speaking about the overpayments incorrectly capitalized as a consequence of car wash investigations. The amount is 3% over contracts signed between Petrobras and the 27 companies which are alleged members of the cartel. These contracts were signed between 2004 and 2012 and this is the result of the investigations from the federal prosecutor. Now, they were the result of investigations and denouncements of companies outside the cartel where we have specific amounts mentioned in these depositions of plea bargaining.

If we look at slide number 8, you see how the BRL6.2 billion are broken down into different business areas. BRL3.4 billion, downstream; BRL2 billion in exploration and production; BRL0.7 billion in gas and power. As I mentioned before, this methodology is based on the contents of Lava Jato prosecutor's office investigations, which make us feel certain that we have depositions consistent, all of them are consistent in relation to the existence of a cartel in the time period of the investigations. We have the percentages involved as well as the amounts.

Now, if we move on to slide [8], we still see adjustments in PP&E. They were the result of impairment tests especially in refining assets, exploration and production and petrochemical units. Refining, because we had to postpone projects; exploration and production, because we had a decline in oil prices and a reduction in demand and margins of petrochemical products.

In slide number 10, we can see the main projects and assets which went through impairment tests. So you have Comperj, BRL21.8 billion; the second train of RNEST, BRL9.1 billion; assets of exploration and production in Brazil, which add up to BRL5.6 billion; Cascade and Chinook assets of exploration and production in the United States, BRL4.2 billion and assets in Suape petrochemical unit BRL3 billion. Now, as we look at refinancing assets, the impairment reflect the postponement of these projects for an extended period of time in a context where the Company is looking for new finance and protecting its cash flow. Because of this, we have a lower amount of investments. The postponement of these projects brings as a consequence also the postponement of these projects' cash flow. So if we bring that to net present value, we post a loss in both cases. Exploration and production, a recent reduction of oil prices in the last six months in the expectation that oil prices shall remain lower than the levels we had before. So we had this loss in exploration and production. Petrochemical, we had a reduction in demand and we also had a reduction in margins. This is something that happened worldwide and it reflects the future cash flow of these projects.

In slide 11, we can see the reconciliation of our net result as we compare year-on-year 2013 and 2014. 2013, BRL23.6 billion and in 2014, minus BRL21.6 billion. In the first columns, you see our revenue and our cost where it is clear to see that we had an increase in our gross profit. Our gross profit reached BRL80.4 billion in 2014 and immediately after that we see the write-off of assets, which impacted operational expenses; impairment of assets, overpayments unclosed by Lava Jato or car wash investigations. Then Premium I and Premium II project write-offs and losses also in demand and petrochemical prices. So, this is the explanation for the negative result, BRL21.6 billion. So our EBITDA in 2014 was BRL59.1 billion, 6% below BRL63 billion, which was our result in 2013, also driven by non-recurring items. For example, the incentive to voluntary termination or retirement and [PDV].

Now in slide 12, we have some highlights in exploration and production, beginning from proven reserves. At the end of 2014, proven reserves reached [BRL16.44 billion]. In the chart, you can see the green bars, they show oil and natural gas reserves abroad. We had a reduction because of the divestment program. We sold some of these reserves and therefore we advanced the monetization process. These sales were offset by the appropriation of reserves in Brazil, especially in the pre-salt layer in Brazil. So the reserves of [2014] cover the sales and also production in this period of time. So we closed 2014 with a reserve replacement ratio of 105% and reserve production, 18.5 years.

In slide 13, we see the evolution of oil and gas production in Brazil and abroad that reached [2,669,000] barrels of oil equivalent per day in 2014, a highlight for the units that started operations in the last two years. We mentioned their names in the bottom part of the slide. Nine units that contributed to increased production.

Next slide, slide 14, shows a comparison of oil production. This is oil production between 2006 and 2014 comparing ours to peer companies and showing the industry efforts to keep the same volume of production, and Petrobras is positioned among one of the largest oil producer in the world. Now, this increase in production was driven not only by new units, but also by the effort of new wells interconnection especially in these units as you can see in slide 15. In 2014, we had a total number of 87 wells interconnected; 61 are producers and 26 our injector wells. This is a big increase compared to previous years, driven by more availability of the PLSVs, the ships that do this interconnection. We had 11 ships in 2013 and 19 PLSVs in 2014, as well as more productivity 97 kilometers per year per PLSV compared to 90 kilometers in 2013.

Now in slide 16, we show oil products output from our downstream area. In 2014, we had 2,170,000 barrels per day, a growth of 2.2% year-on-year as compared to 2013. It shows a better operating performance, which is clear as we look at the utilization factor evolution, which attained 98% in 2014 and also with the right level of yield for diesel, gasoline and jet fuel.

In slide 17, we can see oil products sales evolution in Brazil. Sales of oil products account for almost 60% of the Company's revenues. As I said before, a sales growth in better price and cost conditions can explain this increase of 15% in the Company's gross profit in 2014.

Now, in slide 18, you can see our cost evolution. We are looking at lifting cost as well as refining cost showing the Company's efforts to improve productivity and have a slower growth of costs, reaching BRL34.26 per Boe and the refining cost BRL6.82 per barrel. We can tell you that these two indicators today position us in the industry average, both of these costs lifting and refining costs.

Now, in slide 19, you have another important indicator looking at general and administrative expenses. BRL11.2 billion in 2014, a growth of 4% compared to 2013. Again showing our efforts to improve efficiency and productivity.

Now, if we look at slide 20, our cash flow in 2014. We began the year with $20 billion in cash. We had operating activities, we generated $27 billion in 2014, then investments added up to $35 billion, that's CapEx investment needs were supplied by divestment and market funding during the year, also to pay for amortization, interest and to pay out dividends. We therefore closed 2014 with a final cash position of $26 billion.

Now, the new funding operations and the foreign exchange variation impacted our indebtedness. As you can see in slide 21, Company leverage was 39% in 2013 and closed 2014 at 48%. Now, the net debt over EBITDA was 3.52 times in 2013 and 4.77 times in 2014.

Now, if we look at slide 22, we can see financial ratios indebtedness. The total debt closed 2014 at BRL351 billion. The indebtedness evolution as compared to 2013 and 2013, the total debt was BRL267.8 billion, which can be explained partially because of a higher funding volume and also 45% is related to foreign exchange variation. The Company's net debt at year-end 2014, BRL106.2 billion, you can see in the end of slide 22.

Now, moving on to slide 23, we can see the nominal cash flow principal and interest broken down by maturity dates. We can clearly see the volume is intense or becomes more intense after 2018. Now, our current projections for 2015 can be seen in slide 24, the cash flow for 2015, we began the year with initial cash position of $26 billion, then our operating cash flow for 2015 is planned for $23 billion. We will have to pay interest, amortization and other in the amount of $18 billion, investments of $29 billion for 2015, divestments $3 billion in 2015, rollovers $1 billion and with that our funding need to close 2015 with a final cash position of $20 billion. We will have $13 billion in terms of funding needs in 2015. This cash flow has a few assumptions, Brent $60 per barrel; foreign exchange in 2015, BRL3.10 per US dollar and total production of oil and natural gas in Brazil and abroad, 2,796,000 barrels of oil equivalent per day, a growth of 4.7% as compared to 2014.

Now, if we look at slide 25, we have a few assumptions for 2016. So, regarding oil and natural gas production in Brazil and abroad, we have a target of 2,886,000 barrels of oil equivalent per day, approximately 2 percentage points higher than in 2015. We will have five new production units, which will ramp up production until then. They have all been freighted yet and they have a lower risk of delays, which makes this target more certain. Divestment of $10 billion in 2016; investments of $25 billion next year, this is the number we're working on. 82% of this investment will be in exploration and production. So the focus of the Company in the next few years is therefore very clear and this investment level is 37% below the investment level we had established for 2016, in our business and management plan between 2014 and 2018. At the time when we presented the business plan, we spoke about $39.5 billion investment and now we point at $25 billion in investments. Also for 2016, we work with a oil price, $70 per barrel, that's the Brent oil product and the exchange rate, BRL3.30 per US dollar on average.

Now, this is the information we had to share with you. One more time, I wish to thank you for your time. Let me now give the floor to Mr. Ivan Monteiro.

And we will go right on to our questions-and-answers session.

We would like to ask each participant to ask, at the most, two questions and speak slowly and questions should be made consecutively, so executives may answer them afterwards. We kindly ask you to not use the speaker phone. We inform you that the questions in English will be translated into Portuguese for the executives of Petrobras. Their answers we will be translated to English. (Operator Instructions).

Mr. Pedro Medeiros, Citigroup.

I have two questions and if necessary, I'll come back. Could you break down the CapEx changes and tell me about the capitalized interest. And if it's cut, is there any initiative of changing the CapEx, I think you're spending $2.5 million, $2.6 million of CapEx in building platforms.

And my second question has to do with the assumptions for 2016. Could you break this down about your expectations for margins and as far as refining is concerned, regarding the oil prices and the fuel prices of the Company for 2015 and 2016 and the leverage of Petrobras for this?

Pedro, thank you for your question. The first part, I will ask Solange to answer and the second I will ask Jorge to take. Solange?

More objectively about the question of investments and you asked me to break down the CapEx reduction in exploration and production. First of all, I would like to inform you that the action we are undertaking is focused on those assets, that have a net cash generation short-term and these exercises also have with the -- do with the allocation of resources based on marginal investments, so we can have the optimization of our returns short-term. And in this way to exemplify the results of this strategy, we are postponing projects that have a low return or which demand in the short-term an initial delayed -- initial investment and we are focusing on low-risk assets in our exploration portfolio. So we're doing this since we have a set of reserves which are significant and in this way, this set of arrangements that I'm explaining to you focus on pre-salt assets in Brazil, reducing our exposure or this investment and assets in Brazil, which are less -- that have less return or even abroad in exploration and production.

And just a follow-up, regarding this change when you talk about investment in new pre-salt capacity, is there an expectation that part of this projections might be delayed because of the restrictions on the downstream. Is this flexible or do you have a number or is this number dynamic and will we see a change still in 2015?

This reality, which you are describing is totally reflected in the 2015 and 2016 numbers. The progress or the advance and I think also you have this information, we are here, we don't have this -- the figures of 2016. But units which suffered from this effect that you mentioned and they are already being made ready and we are exactly detailing this completion and the sequence that our units will be finished for 2017 on. And this will be the consequence of our business plan as soon as it is disclosed.

Thank you. And does it take into any consideration, the new platform or leasing of platforms?

Nothing that has not yet been announced. This exercise has been done and announced and we don't have this in our assumptions for 2015 and 2016.

Thank you, Solange. Now, Director -- Officer, Jorge?

Regarding the margin assumptions, what we are predicting and it could not be different is that we're going to operate regarding imparity of imports. We are looking for predictors adjusting provisions and adapting imports as we have already been doing in this first half of the year, in the month of April.

And I'm not sure in this, these numbers of 2015 and 2016 and the write-offs of assets under construction, is there any special change regarding capitalized interest in the CapEx numbers?

Pedro, could you elaborate please?

The Company has been capitalizing interest at about $3.5 million, $3.7 million a year, as had been relevant to write-off of assets and the impairment about BRL50 billion, BRL53 billion, lot of assets under construction. So I'd like to know the capacity of capitalizing interest changes and if this would change the capitalized interest and CapEx?

I'd like to leave this question to later. There is a certain debate here among us. So I would ask if you allow us to come back later to answer your question.

[Cardoso], Credit Suisse.

This is Andres Obrero from Credit Suisse. Thank you for taking my question. I have two questions.

The first is in 30 days time when you will announce your strategic five year plan, is there any assumption that you can work in the next 30 days, which will significantly change the guidance for 2015 and 2016, which you are announcing today or CapEx or divestments or any other item? That's first question.

Second question, yesterday at the press conference, it was mentioned that there might be a possibility of new capitalization and the conversion of debt into equity. So I'd like to clarify, what management in the Board's positions are regarding these subjects?

I'll start by the second. There has been a question from one of the journalists yesterday on this subject and the Company has answered that there are no project plans or any initiative of the Company regarding capitalization or debt conversion. So there is nothing along these lines.

Regarding your first question, I don't see any relevant data which will alter the guidance in such a short period. You talk about divestment. Divestment is a long-term process and we have to have an assumption for the years of 2015 and 2016, but there is nothing that changes this short-term or no other relevant variable regarding the data which we have already disclosed.

Gustavo Gattass, BTG Pactual.

I have two questions. I have more, but let's keep it to two.

One is simple. I just like to understand from the accounting point of view, you have a very important moment in the provision of abandonment at the end of the year. This hasn't been mentioned in the release or have an impact on the result. Is this a number which has to be altered or adjusted and looking forward, even on your side, I'd like to understand we have a message of investment of the Company which is still very strong, powerful and the message of production growth, which doesn't seem to be so powerful as the rating agencies were imagining? So how do you see this process?

If there is any risk, perceived risk, greater risk for you of any rating event, since it seems that the leverage is not as strong as they are imagining and from the point of view of the question of dividends etcetera, I'd like to know this conceptually. The management has said that there were zero dividends, but you have a balance sheet of [BRL1 billion, BRL2 billion]. So, are you going to keep this the PE very high or not? So?

They are three questions in fact here. I would like to ask Solange, who is going to talk about the abandonment.

Provision for abandonment is in line with the reply -- my first reply when I answered Pedro about strategies. At the moment, when we do -- when we focus on generation as we are now, something which presents itself. If this is an exercise of giving up some assets of products in the Campos Basin, shallow waters, and shorter time than which we had been planning. This is a reality and also a new budgeting of this has brought these amounts to our accounts. So Gustavo --.

My greatest -- my question was whether this had been projected in the results, any adjustments that we should've made, because the amount should be more than BRL4 billion as this had not been mentioned. I'm asking if it was straight into equity or what happened to it. So I'm just like to see if we are looking at things incorrectly.

This is a very specific themes. I'll ask the IR people to get in touch with you.

I would like to talk about growth and growth of production. Investment when you compare it to the previous plan has already been reduced and the numbers that I have announced for 2016. Just with investment, there is an inertia. The Company came from a very high CapEx and it is not economic for the Company to reduce this CapEx, since it has several commitments already taken. So the number that we have disclosed to you is a number which already takes into account.

This consideration of stopping the investment, which is already ready or stop the investment when there are already commitments taken especially with partners of the Company, which could not be discontinued, because this would lead to suites in the courts and also non-compliance of Petrobras. So we have prioritized the investment for exploration and production and you will see a clear trend of reduction regarding the old plan. In the new plan, it will integrate all these premises in the assumption of deleveraging and giving priority to those projects of greater profitability.

The third topic has to do with dividends and dividends was a preservation of the cash of the Company and this was the most important question because of the result. This is why the Company decided not to pay dividends. The question of the [PLR], the profit sharing program, there is an agreement between the Company and the unions and in this agreement, the payment of profit sharing program has to do with the performance in operating activities and they have either been reached or surpassed. So basically, it is a subject which has to do (technical difficulty) which the Company will have to comply with and will comply as Petrobras always does.

Paula Kovarsky, Itau BBA.

I'd like to go back to two subjects to the one of production and dividends. About production, we in fact are seeing a significant reduction of CapEx, but as you said, Ivan, there is a certain inertia of commitments that the Company must meet and I think the main question is, if this is the situation of these commencements and so, why is there a growth in production when we look 2016 against 2015 and here I'm referring to the numbers that you mentioned yesterday at the press interview, [275 barrels] in 2016 of the domestic production compared to 225 in 2005, in spite of this CapEx inertia.

So I think that the main question of everybody here is what from now on will be the point of balance, so that we can better understand what would be the recurring CapEx especially in the gas and power, which will allow us to keep this balance because this is very important to the model, when we are looking to cash generation, when we are looking to the prospects of leverage of this Company, and I think it would be very good for us to understand this.

Regarding the dividends, it seems very clear to not pay them since your main priority now is to preserve cash. So I'd like to ask for two clarifications. First of all, is the decision not to pay and not declare this especially in the preferred stock case and how do you analyze the question of the minimum priority dividend of (inaudible). And when you read the corporate law, it tells very clear about how many years of the non-payment of the preferred stock would allow them to have a vote, how long they -- this non-payment could go on for? Do you have anything to say about that? Do you understand this as some sort of a risk to the Company?

I will make an introduction and then we'll go back to the dividends. I would like to remind you that when we disclosed the divestment plan, I think from now on as you have already said, Paula, the priority of the Company is its deleverage and the plans will reflect this very clearly, the plan that has been reviewed. Whenever we focus divestment, we have a very important component, which is the separation or the same time as we divest, we reduce the mandatory nature of the CapEx into that asset. So this is a very important component.

So to look isolatedly, the former CapEx set an inertia, it will be reduced significantly, 37%. But you should also look to the divestment program, because there you will find priority given to assets which seek to relieve the Company of the associated CapEx. The divestment program is difficult to understand that we disclose it by business segment and not per asset. But unfortunately, this is a process -- these are processes, which are developed confidentially until they are released by the governance. But this is a very important premise which can help in your analysis and the analysis of all towards the leverage and deleverage.

Now, Solange is going to answer about production.

Before getting into the numbers subjectively that you mentioned, I'm going to go back to the introduction here about the profitability of the segment in such a way that we are dealing with the profitability of the segment and once again, giving you this a better idea of the utilization or maximization of the generation and use of cash.

In this planning exercise, you're quite right. When you say that there is an association, will the CapEx reduction and the existence of a delay between this reduction and predictions for short-term provisions, you are right, when you make this association regarding surface equipment, which is what we generally disclose. And in this idea of leverage that you talk about, the exercise which we are doing, besides reducing CapEx and operating expenses, the focus on low-risk exploration assets. This is also -- we have also dealt with the ramp up of new units. This is a different aspect from when we had another parameter of information regarding our operational plan for the next few years.

I'd just like to draw your attention going back to your numbers. When we inform you that there has been a growth or a prospect of growth of numbers for 2016 of [2,816,000, about 2%], I will break Brazil down. When we did this, we applied this same metrics to a number of -- for the number of Brazil, which we will close this year of 2015 with [2,125,000]. We might have a growth of 4.5%, which I do not consider to be conservative, considering that we will be coming in with three units into operation and especially a very important fact that is going to be part of our accounts. I will have to do the exercise for 2015 and we have a level of production, Paula, where we have to take into account decline, we have assets or declining at 10% a year. So if we do this sum for 2015, we will see that we are declining at 200,000 barrels.

We reached [2,135,000] target at the end of this year. So we are declining 280,000 barrels per day in these exercises of ramp up and they're coming into operation on certain units. So, these exercises which focus especially this cash generation and the balance between the recline of CapEx and the slower ramp up, then that which we were expecting lead to these numbers, which lead to a growth which might be even 4.5% in Brazil, if we consider the cap of this prediction.

Paula, about the final topic about dividends payout. Not paying and not declaring and looking at the legal aspect, I would ask our Investor Relations area to talk to you later on. But we feel very comfortable with our decision.

Now, if I may ask a follow up question about pricing policies. You said you are working with imports parity or price parity imports. It means that your business plan is using this assumption that 100% of your sales of diesel and gasoline will have imports parity or is that only for the imported portion. Can you please give us some more details on that?

This is Jorge Celestino. This is considering 100% of our diesel and gasoline sales and the imports portion. So this assumption, it implies that we are going to apply a formula from now onwards. Yes, we already have -- I mean, we already apply a imports parity principal in the first quarter of 2015.

Bruno Montanari, Morgan Stanley.

Most of my questions have been answered, but I still have two more questions.

Solange mentioned the abandonment of assets. Now, your production target for 2015/2016 is that also considering shutting down production wells in shallow waters, and would you give us some more details about the sales and leaseback of platform, the [BRL3 billion] if announced, which units are involved in this transaction? And I'd like to have an idea of the day rate and the leasing cost of these platforms that will now become an expense.

About the first part of your question, officer Solange will answer and then I'll tackle the second part of your question.

About your question on the abandonment of these assets, assets in Campos Basin in the beginning of 2015, we had a system stoppage and in 2016, we are planning for another downtime, it's going to be a production unit that has a very low production, it's now close to its economic threshold of operation and this is one of the units considered for abandonment.

Now, the Standard Chartered sales and leaseback of platforms, I'd like to use your question to explain our funding policy from now onwards. The Company has used this option a few years ago and which is attractive for us and any kind of funding transaction is the comparison to the OTC market like for instance, this morning the Eurobond market -- the market opened with a decline in its rates, price improvement, and we look at the most liquid securities and this becomes our funding target that is we want to have funding transactions below these numbers and we've always used this assumption.

Now, regarding specific details, these are bilateral negotiations. We disclose data as we publish our quarterly financial information and we provide some more details about the assets later on. I will ask our Investor Relations officers to contact you to provide further information.

Marcos Severine, JP Morgan.

I have a follow-up question on CapEx. You presented this guidance of $29 billion, $25 billion for 2016. Now, do you believe there is any space to reduce CapEx, to further reduce CapEx in 2015 and 2016 or is this the minimum threshold, so that it still is economically feasible and there is no more margin for further reductions?

Second question about slide 24. When you talk about $13 billion in funding -- operations of finding transactions, I'd like to know how the negotiations stand as we speak regarding these funding transactions? These would be my two questions.

Now, about CapEx, this is the CapEx that we consider appropriate considering the context that we already described during this call, but of course, this number still depends on our divestment program. So you may expect some change if we have relevant differences, different from what we said, [$3 million in 2015 and $10 billion] in 2016 in the divestment program.

I'm sorry, Marcos. The second part of your question, can you please repeat?

Yes. About the $13 billion.

Okay, fine. Thank you. Now the funding needs for 2015 are fully covered as we informed when we disclosed the last four funding transactions and we are already working on funding for 2016, which does not prevent the Company from continuing to study the OTC market and trying to obtain funding transactions below these numbers. However, as I said, our funding needs in 2015 are fully covered and we're now working on 2016.

May I ask one final question about this number $13 billion. What is the cost of this $13 billion you have already considered?

As I said before, if you look at the most liquid bonds of Petrobras, its cost is below the OTC cost of the same bond.

Auro Rozenbaum, Bradesco BBI.

First of all, I'd like to congratulate the management for the punctuality and efficiency of this call.

First question regards the Company's leverage. Today we know that net debt/EBITDA is 4.77 as it has been published. In the past, your target was 2.5 times. Now, when you look at international peers, the big majors, we see numbers between 0.5, 0.4 and 1. Now could you please comment on this, what would be the most appropriate level and what is the route towards this target level?

Now, the Company has informed this in the past already, but let me remind you. The Company has enjoyed a significant organic growth, officer Solange will talk further about this. Now, what happened to the Company's indebtedness? And today, the targets we have will be made very clear as soon as we can disclose our new business and management plan. Leverage reduction will become a priority. I mean this is when we had the publication of Basel III for the banking industry. Basel III is a very rigorous standard that all banks must follow and this became a determining factor to determine banks' solvency levels. Now all the budgets and business plans prepared after Basel III had as a priority the compliance with Basel III with the items determined by the world regulators for banks.

Now here, we can use this as an analogy. The Company's leverage is high and as you said it is above the big majors. However, they did not have the same opportunities of investment that Petrobras had and that Petrobras actually used. But we will conduct a process to try and reduce the Company's leverage as we already mentioned. So we want to gain more operational efficiency, we will reduce CapEx, we will prioritize investments focusing on those that have a higher return and many other items we already mentioned.

Let me now give the floor to officer, Solange.

Now, Director Ivan mentioned our organic growth, and this is relevant information. These are references we used to focus our business and management plan, that is we considered Wood Mackenzie's audit in the end of 2014, where they made a comparative analysis between the exploration and production portfolio of the big majors and it showed that Petrobras -- along the years, Petrobras has built a portfolio in an organic way, that is Petrobras does not have a tradition in mergers and acquisitions. Our portfolio when compared to other majors has 10 points advantage in terms of rate of return.

Now, this fact shows our capacity to generate high quality assets when our exploration is focused and considering that we have competence to do that. Our discovery cost in the pre-salt layer is about 30% of the discovery cost in other areas that is not in the pre-salt layer and these are very relevant facts for us to evaluate our portfolio. Now that we have to prioritize our investments, we will focus on higher return assets and this is also a beacon for us to identify divestment opportunities.

Solange, my second question goes to you about production guidance, 4.5%. When we look at the final number of December 2014, if that number were maintained during the full year 2015, the average production increase would reach 8.8% compared to the average production of 2014.

Now, we follow all Petrobras wells currently in production and this 4.5% they show in fact an acceleration of the production decline that is, if we made a linear chart to December 2015, we would have a decline of 9% compared to December 2014, I mean for this target of 4.5% to be achieved, average growth of 4.5% in production. We've observed that in the pre-salt, everything is fine. You have growth actually. So the decline would be in the post-salt that is not in pre-salt assets.

Now, could you further elaborate on this, what is the reason why we had this faster decline in 2015?

I mean this methodology to which you refer this, well by well evaluation is extremely important for us to assess the facts. Now, I will refer to some data we have shared with you during the webcast of the third quarter 2014. So I will repeat some information we disclosed then, because this is going to help you complete your analysis of the post-salt or non-presalt assets.

What prevents us to conduct this exercise as you did comparing the production of 2014 to the production of 2015, we deactivated the FPSO Marlim Sul that stopped that had its operations interrupted. We did not renew their contract with [SPN] at that time. So in the third quarter of 2014, we reported a review of Roncador potential modules, three P-55 and P-62. So we did have an impact in the third quarter of 2014, because of this, that is because of technical issues in the Roncador reserves. And today, we have this guidance for post-salt wells.

We also reported a larger number of stoppage. So these are -- these numbers we have already shared with you. We will have an impact of 50,000 barrels per day in terms of planned downtime and compared to the average figures of 2014, in 2014, we had 30,000. In December, which is this month you mentioned, we had zero downtime. So all of these facts are relevant and they prevent us from concluding that we have a faster decline, this is not the case. Our decline is still between 9% and 10% in our most mature assets. However, we had a lower result in Roncador and we also had these issues with downtime that I have just mentioned.

Luiz Carvalho, HSBC.

I have two questions. The first goes to Ivan. Yesterday, Mr. Bendine during the press conference, he mentioned that the Company was not going to sell production assets or exploration and production assets in production, especially pre-salt assets. However, the Company could consider partnerships in exploration assets or perhaps sales of stakes. Now, I believe this is already being considered in your investment plan, but is there a possibility that you would have a farm down operation with CapEx carryover or the investment plan will really require more cash flow in the Company?

And the second question, Ivan, perhaps goes to you or to Jorge Celestino because he spoke about this, the question is about pricing policy. Yesterday, the Company mentioned that fuel pricing is healthy today, you actually have a premium against the international market, if we do not consider the import cost, and today you mentioned imports parity. I would like to understand if you -- I mean if your premium is high so perhaps you could cut down on prices at the refinery? This is the first part of my question and the second part of my question, considering your assumptions for 2016, 3.30 foreign exchange and $70 the price of oil barrels, you would certainly need higher prices. Now in terms of timing, how long do you need to bear a discount before you increase prices?

Now, talking about the divestment plan and then I'll give the floor to officer, Solange.

The divestment portfolio is extremely dynamic, why? Because Petrobras -- I mean our assets, they are modeled. What do we call modeling assets? We try to identify the highest possible value in the interaction of these assets. So we look at the possibility of partnerships, transfer of assets or other strategies to explore the asset. So as I said, this modeling exercise is dynamic. So, half way through the process, we may reach the conclusion that we have to find a different way or different asset to complete our portfolio.

What I'd like to make clear is that this is an important component for assets to be in the divestment program, because we want to deleverage the CapEx allocated to this asset to comply with our business and management plan and this is something important for us.

Let me now give the floor to officer, Solange and then I'll go back to answer about pricing.

Let me initially refer to what you reported about yesterday's press conference regarding divestment in pre-salt assets. I shall confirm, we will not conduct divestment in pre-salt production assets. However, we are considering some assets as our CEO mentioned yesterday and it does not really matter if these are pre-salt or post-salt assets. We're looking at assets where we can perhaps share risk. This is important, we are talking about different kinds of risk and something I have repeated from the beginning of this conference call, we are looking at our strengths and our competitive edge.

I mean sometimes we have similar and standardized projects and this provides a very relevant business benefit especially in pre-salt assets. So if we find -- if we identify the possibility of a project that is in the early stages and which will demand growing investment and perhaps we will not be able to generate cash in the short-term, these are the assets that we are seriously considering and evaluating the possibility of divestment, why because we want to add value to the assets where we have scale gains and standardization benefits.

You mentioned the possibility of CapEx carryover, this is something we always study. There are different companies who would like to partner with Petrobras in areas where we are currently conducting exploration activities and where we've identified opportunities which the market has evaluated as good opportunities and so they come to talk to Petrobras about the possibility of working with Petrobras in these assets. So we are actually talking to some of these companies and looking at our assets to be able to reduce the CapEx burden. So perhaps, we can have this kind of investment decisions.

We are not closed two looking at different exercises that may allow for us to generate net cash in the short term and we truly want to devote our resources to projects that have a higher return in the short-term.

Now, the last part of your question, the pricing policy doesn't -- over this next three minutes or one month or whatever, it tries to get away from volatility and generate not only the predictability for the Company, but for the market. What I just wanted to make clear and complementing in the same way as President Bendine said yesterday is that the assumptions of the business plan that we are working on clearly incorporate competitive market prices. The assumption of the business plan is based on this information. Petrobras, just as our CEO Bendine yesterday said, will work with competitive markets prices.

Thank you. Ivan, just more -- a broader question. As you have said, you have a history as a one company and now you're more of an oil and gas company. So, could you say what is different that you have found in the Company in latter times?

It's a very broad question. President Bendine yesterday underlined some guidelines that are guidelines not of one sole company, but of a set up a company. First of all, it's an honor to be here in Petrobras. It's a wonderful company and we have a wonderful technical staff. Our major contribution will be regarding processes. People go, but the processes remain. The Company must reinforce its processes especially of governance and as it has taken many steps to do this. I would say that the creation and the contracting of Joao Elek have -- showing how the quality of these processes will improve.

The Company has world-class expertise regarding that which is to do and we can add to the processes always processes, governance, situations that we have experienced in our careers and can contribute to improve the processes in Petrobras. I would say our greatest contribution will be along these lines to work in a team, a word that President Bendine always uses, a union work together and this will be always in the technical groups, [in collegiates] as far as decisions go and segregating functions and Joao Elek would be essential and a tremendous contribution in the improvement of the Company's processes.

Christian Audi, Santander.

Just a clarification before the question. You mentioned several times the strategic plan you're going to announce. Will this plan be for two years or five years?

Five years as President Bendine has said, we expect to announce this in the next 30 days.

And two questions. First, regarding deleverage. Have you -- you have already helped us quite a lot regarding target for 2015 and 2016 production and CapEx, etcetera. Is it possible to break down little bit about your expectations regarding the targets of deleveraging and what level do you think they could hit in 2015 or 2016 and the net debt to EBITDA or net debt to capitalization?

As President Bendine suggested, we will have much more information on this when we disclose the new business plan.

Regarding pricing of gasoline and diesel, your comments have been very clear, Ivan. What I want to understand better is, if there is a discussion between the management and Petrobras internally or between management and the Board regarding a kind of formula or more specific policy of gasoline and diesel or will you continue to try and reach parity or is there any more specific which you are discussing today?

Nothing specific. I reiterate what President Bendine said and by ourselves today. When we draw up our new business plan in our work -- day-by-day, we'll work always seeking competitive market prices.

And Solange, and the growth of production and we have seen the dynamics and the target of 4.5% growth for this year, the level of two for next year. Can you comment a bit looking beyond 2016 the new reality of Petrobras? Will it be current growth of 3% or what do you think that we can consider perhaps for perhaps a longer periods, according to the new reality of Petrobras as a consequence of all the changes that you've been doing in the Company like CapEx for example?

These numbers which you have mentioned refer to objective and very sound events, which are ramp up this year and the four units mentioned and the [Cidade de Itajai] and the units mentioned for 2016, we will have later on the opportunity of bringing into production not only the chartered units, but as soon as our entry into production scheduled is published on the May 15, we will have this schedule for the new units, but on the average of the periods, the average growth will be in line with that which we have been carrying out up to now. But the detailing of this will only be disclosed when we disclose our business plan.

Frank Mcgann, Merrill Lynch.

If I could ask two questions. One, just a follow-up again on cash flow and given your commitment to CapEx cost and divestments, I was wondering if you can -- with those two elements CapEx cost and divestments together with an eventual pick-up in earnings would be sufficient to deleverage the Company over the medium and long-term to avoid an equity issuance, which you've also said at least near term you would like to avoid?

And then secondly in terms of dividend and obviously, if you decided not to pay dividends on 2014 earnings for 2015 given the loss, but if you have income in 2015, would the expectation be that you would pay dividends on both share classes in the beginning of next year?

Regarding the first question of cash flow, I want to go back to what has been mentioned already in this call. The new business plan has as an assumption that deleveraging of the Company. So all the processes, the CapEx process, the OpEx process, the divestment, all these processes and giving priority to greater return on assets and which divestment can be associated to the CapEx reduction will be a harmonious set of decisions, which will lead to the deleveraging of the Company.

Regarding the possibility of the Company increasing capital by issuing stock, this possibility does not exist. There is absolutely no discussion about this going on in the Company. So generally speaking, these -- your main questions, in the first part. Regarding the dividends, if the Company gets a positive result in 2015, we will pay dividends based on these results as we do normally.

Okay, thank you. If I could just follow up with one additional question. Just in terms of on production in Roncador on the P-55 and P-62 units were going to -- at least in the prior calls, you mentioned that the expectation was there would be some issues with reservoir pressure that would have to be resolved during this year and I was wondering, with the addition of work that's been done over the last couple of months, is now the expectation is that as you get into 2016 is the long-term expectations from Roncador, from those two units was still expected to lead to a substantial pickup in production or if they may in the end have a lower longer term level of output?

Regarding Roncador, as we have shared in the webcast of the third quarter of 2014, your reference is correct. At that time, we mentioned this where we would intensify injection of water and we are also remodeling the reservoir. At that time, we referred to the hiring of a specialized company to help us in this job to do the study. This study should be ready now by the middle of 2015. We have not yet found any differences below that which we have expected -- that we have published for 2015. But we hope that with this remodeling, we will be able to redesign this and we will have medium term, but not yet in 2015, some incremental opportunities for exporting from that field.

Thank you very much. And we would like to close our Q&A session of this webcast. I would like to ask Mr. Ivan De Souza Monteiro to now make his final remarks.

So, I would like to thank you for participating in this event and the questions, which were not answered, maybe consulted or you may speak to the IR team or they will get in touch with you. I would like to thank you very much for your participation and thank you all.

Thank you, ladies and gentlemen. The replay and slides presentations will be available at the Petrobras IR website at www.petrobras.com.br/ir. This concludes today's conference call. Thank you so much for your participation and please hang up your telephones and have a great day.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.