巴西石油 (PBR.A) 2015 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Petrobras conference call with analysts and investors for the presentation of third-quarter 2015 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 a simultaneous translation into English. Following the presentation, a Q&A session will begin in both Portuguese and English at which time the instructions on how to participate will be provided. (Operator Instructions).

Present with us today are Mr. Ivan de Souza Monteiro, Petrobras Chief Financial Investor Relations Officer; Mw. Solange Da Silva Guedes, Chief Exploration Production Officer; Mr. Jorge Celestono Ramos, Chief Downstream Officer; Mr. Hugo Repsold, Chief Gas and Power Officer; Mr. Roberto Moro, Chief Engineering, Technology and Procurement Officer; Mr. Joao Adalberto Elek, Chief Governance, Risk and Compliance Officer, as well as other Company executives.

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

To begin, we will hear Mr. Lucas Mello, Executive Manager of Investor Relations. Then there will be the presentation of the results for the third quarter 2015. Subsequently the questions from the participants will be answered. Please, Mr. Lucas?

Good afternoon, everyone. I would like to call your attention to slide number two with a disclaimer on slide number three about the exchange rates we see that between the first nine months of 2015 and the first period in 2014 the real was depreciated by 62% concerning the third quarter of 2014 and 2015, this depreciation of the real was equivalent to 28%.

Now on slide number four, Brent prices dropped in Brent of 48% and when compared to the first nine months of 2015 with the first nine months of 2014 comparing the first and the second quarters, the Brent dropped by 19%.

Slide number five highlights the results, the first nine months of 2015 higher oil production including NGL and natural gas amounting to 2,790,000 barrels of oil equivalent per day or 6% of growth versus 2014. Free cash flow of BRL8.3 billion in improvement and the trade balance that went from minus 424,000 barrels per day to minus 89,000 barrels per day in 2015. Lower import and government take expenses and a pre-salt daily production record of 1,120,000 barrels per day on September including our partners.

Highlights for the third quarter of 2015 are higher oil production as well as NGL and natural gas 1% of growth versus the second quarter with a 35 million barrels of oil a day. Free cash flow of BRL3.8 billion, higher domestic oil product demands and an improvement in the trade balance from minus 27 million to minus 21 million per day.

Slide number six, speaking about the net results for the nine months of 2015 which achieved BRL2.1 billion in sales revenues. We see drop due to a decrease in oil product sales volume and in the domestic market, lower oil products exports and lower export prices. In terms of cost of sales, we also see a drop in the costs especially due to lower oil and oil product imports and lower government take expenses. With that the gross profit was BRL71.7 billion, 23% above the same period in 2014. In terms of operational expenses, we see a drop in the expenses reminding you that in 2014 we had a write-off of payments and correctly capitalized impairment in trade receivables from the electricity sector, a write-off of premium one and two and the voluntary separation incentive plan.

In 2015, we had lower dry/subcommercial well expenses which compensated for REFIS agreements, provisions for legal contingencies, higher expenses with pension and medical plans due to actuarial revision and impairments. With that, the operating income was BRL28.6 billion, 149% above what we achieved in 2014.

Concerning the financial results, that is a quite negative line, negative BRL23.1 billion when compared to 2014 which was minus BRL2.1 billion. That was due to higher exchange rate loss over foreign-currency debt and higher financial expenses due to the increase in debt and lower interest capitalization.

With that, the net income was BRL2.1 billion in the period versus BRL5 billion in 2014. The adjusted EBITDA was BRL56.8 billion, 45% higher than BRL39.1 billion from 2014. BRL55.5 billion were the investments in 2015, 11% lower than the BRL62.5 billion in 2014 and the free cash flow was BRL8.3 billion versus a negative of BRL12.3 billion in 2014.

Now slide number seven. Operating expenses without special items on the left-hand side you see that there is a decrease in the income of 8%. That went from BRL46.9 billion to BRL43.1 billion. And on the right-hand side of the slide, you can see this operating expense without special items and there you see an increase of 6% in those expenses and this increase is lower than inflation in the period and aligned with the Company's activities.

Now on slide number eight, EBITDA without special items, EBITDA in the nine months of 2014 achieved BRL39.1 billion and achieved BRL56.8 billion. Without special items in 2014, the EBITDA was BRL45.8 billion and BRL62.9 billion in 2015. With an increase in 2015 without special items on the right-hand side of the slide you can see the margin, the EBITDA margin that was a 15% in 2014, 24% in 2015 and without special items, it was 18% in 2014 and 27% in the first nine months of 2015.

Now slide number nine, the net results of the third quarter of 2015 was negative BRL3.8 billion. The sales revenues went up in 2015 especially due to the higher demand for domestic oil products and due to higher export prices. The costs also went up due to higher oil import costs and due to higher oil product sales. With that we achieved a gross profit of BRL23.8 billion on third quarter 2015 versus BRL25.6 billion for the second quarter of 2015.

In terms of operational expenses, they went up for the third quarter due to legal contingencies and higher dry/subcommercial well expenses. With that we achieved an operating income of BRL5.8 billion in the third quarter versus BRL9.5 billion in the second quarter. The financial results are much lower in the third quarter at BRL11.4 billion. The second quarter was negative BRL6 billion due to higher exchange rate losses over foreign exchange denominated debt. With that we had a loss of BRL3.8 billion versus BRL500 million in the second quarter of 2015. The adjusted EBITDA was BRL15.5 billion versus BRL19.8 billion in the second quarter. Investments, BRL19.3 billion versus BRL18.3 million in the second quarter and the free cash flow was BRL3.8 billion versus BRL5.7 billion in the second quarter.

Slide number 10 now talking about exploration and production in Brazil. The total production of Petrobras during the first nine months of 2015 achieved 2,270,000 barrels per day, a growth of 6% versus the first nine months of 2014.

It is important to highlight that the pre-salt represented almost 24% of the total production of the first nine months of 2015. On the right-hand side of the slide, we see the results without the production in Brazil of oil and gas growing by 8% between the first nine months of 2015 and the first nine months of 2014.

Slide number 11 moving on with exploration and production now pre-salt production it has been growing steadily since 2008 achieving a monthly record in August this year with 859,000 barrels per day. The daily production record was on September 15 this year with a 901,000 barrels per day and the record including oil was 1,120,000 barrels per day also on that day. It is important to highlight that this production includes Petrobras Partners.

Slide number 12 now speaking about the connection of new wells in Brazil. For the first nine months in 2015, we connected 52 wells of which 35 were production wells, 17 injector wells and we expect to connect another 20 wells offshore with a total of 72 wells for the year.

Slide number 13, about downstream and the oil products output in Brazil. When we compare the first nine months of 2015 versus the same period in 2014 we see a decrease of 6% in the production of oil products and when we compare the third quarter of 2015 versus the second quarter of 2015, we see a drop of 1 in the production of oil products.

Slide number 14, still on downstream now speaking about sales volume in Brazil, we see a drop of 8% between the first nine months of 2015 versus the first nine months of 2014 and when we compare the third quarter of 2015 versus the second quarter of 2015 we see a growth of 1% in sales products and that is due to seasonal variation.

Slide number 15 still speaking about downstream now about the trade balance of oil and oil products and at the top of the slide you see that exports of oil and oil products went up in the first nine months of 2015 reaching 501,000 barrels per day versus 389,000 barrels per day in 2014. There was a decline in imports to 590,000 barrels per day versus 813,000 barrels per day in 2014 and therefore the balance went from minus 424,000 to minus 89,000 barrels per day in the first nine months of 2015.

At the bottom of the slide, we see that there is a quarter trend towards an improvement in the trade balance evolution of oil and oil products and in the third quarter of this year we achieved minus 21,000 barrels per day versus minus 27,000 barrels per day in the second quarter of 2015.

Slide number 16, we have the net income evolution between the first nine months of 2015 with the first nine months of 2014. We started the graph with net results in 2014 with BRL5 billion and we observed a drop in the sales revenue due to less volume of sales products, less price of exports and fewer exports of products. We can also see an improvement in the cost line due to fewer imports of oil and products and lower government take.

The operating expenses also improved bearing in mind that in 2014 we had additional costs which were capitalized duly and losses with the electrical sector and also the voluntary incentive layoff program and in 2014, we had fewer expenses with dry wells.

The financial results has an impact due to exchange depreciation, debt, the financial expenses and an increase in the debt and also less interest rate which was capitalized. So that way we reached a net result of BRL2.1 billion in 2015 in the first nine months.

Slide 17, we have the operating income evolution between the first nine months in 2015 and 2014 per segment. We start with an operating income in 2014 of BRL11.5 billion. We notice an improvement in the downstream because of a better margin, trade margin of the products. The E&P segment had a worsening result due to the result of the lowering of Brent cost. The gas and power was an improvement because of the better treat margins of natural gas and electricity and the corporate segment we see it has dropped because of an increase in tax expenses.

At the end, our operating income in 2015 is BRL28.6 billion, 149% above the first nine months in 2014.

Slide 18 now, the operating income evolution first segment between the second quarter and the third quarter in 2015 per segment. The operating income in the second quarter is BRL9.5 billion and we observed a drop in the downstream because of the tax expenses. In the E&P segment, there is also a drop because of the price of Brent and the gas and power better trading margins of natural gas and electricity. And in the corporate there is an improvement because of less tax expenses in the quarter. So the final operating income at the end of the third quarter of 2015 was BRL5.8 billion in relation to BRL9.5 billion in the second quarter.

Slide 19, costs of lifting and refining, we have the lifting cost at the top part of the slide, we can see that the lifting cost in reals increased 17% but in dollars it dropped 16%. The reason for this increase in reals were costs with interventions in the wells and subsea engineering and maintenance in Campos Basin. So without the exchange rate this increase would have been 4% if we had included the impact of exchange rate.

The cost of refining costs, we have the same situation, an increase of these costs reals, 18% increase although in dollar terms it presents a 15% drop. The reason for the increase in reals was lower throughputs in the refineries and higher personnel expenses.

Slide 20 talking about the indebtedness of the Company, the net debt December 31, 2014 was BRL31.6 billion and in September 30, 2015, it was BRL402 million mainly because of the exchange rate which we had because most of our debt is in hard currency. Now this net debt measured in dollars presents a drop going from $106.2 billion to $101.3 billion in the period.

Slide 21, we are talking about the financial ratios between the second and third quarters, they increased because our debt in reals also increased as we saw in the previous slide. The leverage went to 58% before it was 51% in the second quarter and the net indebtedness EBITDA went from 15 to 4.2 times in the second quarter of 2015.

Slide 22, bear in mind the adjustments which were made in the business and management plans of 2015, 2019 on the left-hand side we have our assumptions. The Brent in 2015 in our plan was $60 a barrel, was updated to $54 in October. In 2016 it went from $70 to $55 and the exchange rate that in 2015 when we launched our plan was $3.10 and now it has been updated to $3.28 in October and in 2016, it was $3.26 and it was updated to $3.80 in October.

So investments, Cape measured in dollars also was updated in relation to the plan, the forecast of $28 billion for 2015 and that was updated to $25 billion in October and in 2016, it was $27 million when the plan was announced and it was updated to $18 billion in October this year.

Slide 23, we are talking up out the free cash flow in billions of dollars. We can see that between the first nine months of 2015 and nine months of 2014, we left 2014 with a negative cash flow of $5.3 billion and the first nine months of 2015 we have a positive cash flow of $2.5 billion. This is operating cash flow less investment and when we compare the second quarter with the third quarter of 2015, the second quarter we had $1.9 billion and in the third quarter, $1 billion in free cash flow.

Slide 24, we have an update of the cash flow for 2015 in billions of dollars. We start with an initial cash position of $26 billion in 2015, operating cash flow, our expectation is $25 billion. We have already achieved $21 billion, we have excluded of the $21 billion the tax contingencies which are in another line, the investments of $23 billion. We have already invested $17 billion. It is important to mention that we are not changing any assumption of the plan but we are following the best analysis for the 2015 cash flow.

The interest amortization tax contingencies and other lines was $26 billion. We have already realized $20 million divestments, $0.7 billion so far $200 million -- $500 million -- he corrects himself. Rollover is $5 billion, funding needs, $14 billion and we have realized $11 billion and we hope the final cash position for 2015 is to achieve $22 billion in cash.

That is my presentation and now I will go to the Q&A session.

Now we will have the Q&A session. We would ask that each participant ask a maximum of two questions in a clear manner and they can be asked consecutively. We kindly ask you not to use speaker phone. We inform that the questions in English will be translated into Portuguese for the executives of Petrobras and their answers will be translated into English.

Luis Carvalho, HSBC.

Good afternoon. I have two questions in relation to a comment that Ivan made yesterday during the press conference that there would be $25 billion or something around that as credit available for the Company that already been met. I would like to understand with the leverage that we have of 5.2 times and 58% of total leveraging, this might solve the problem of short-term liquidity. But in the terms of indebtedness and in the sight of the equity holder that could be very bad. If the cash generation doesn't offset this debt in the future, so I would like to see how you understand the effective availability of the debt on the market in relation to the capital structure of the Company.

My second question is also in relation to a comment made yesterday during the press conference that you mentioned a possible impairment in the fourth quarter. I would like to understand if you already have anything you can say about the size if it is related to the level of oil that we see today or something that is not related to impairment but the write-off due to corruption with the Federal Police and also how do you believe that this can impact the payment of dividends in 2015? Thank you.

Thank you for your question, Luiz. Just let me correct a few of your comments. First of all, the comment we made yesterday about the $25 million is options available for the Company which are being analyzed. The Company can consider this from 0 to 25 if it deems adequate. The Company concentrates its majority in the first quarter of 2016 and we expect to cover all the funding needs for 2016 up to the end of 2015. So it doesn't mean that the Company will use the $25 billion. It might use just to pay some of the existing debt if that improves its profile and the cost of its financing.

In relation to the impairment process, that is a natural process that occurs always at the end of the year. There was no declaration from the Company saying that the Company has planned or has defined something about this. It will have its normal impairment process at the end of the year and it will see if there is or not (inaudible). If the Company -- the Company will acknowledge it, if not, it won't acknowledge.

The comment about you mentioned the (inaudible) operation by territory, the company informs that the information that we have will we arrived here for this teleconference of the adjustment made for the third quarter, there is no alteration. Bear in mind that there are two types of adjustments. One is the specific cost of corruption and the other one is done through the impairment process of those additional values which were added artificially to the assets of the Company because of the cartel. Thank you very much.

(inaudible)

Good morning to all. I also have two questions. The first question is just to understand as Lucas mentioned, there is a difference of 2 billion in CapEx in this year and I would like to understand why there is this possible delay? And also looking towards next year, the 17 billion that were given in this guidance. So which are the cutoff lines that you have given in relation to the previous year? And also in relation to the managerial cost of $21 billion for next year, when you consider the exchange-rate that is also included in the assumption, there is great drop from one year to the other. So I would like to really understand which are the main line of costs because this will be a significant drop.

Speaking specifically about CapEx, the previous plan or the one that existed before the beginning of the administration the CapEx should be $45 billion. The plan, the CapEx was reviewed to $28 billion and then to $25 billion and what Lucas gave you was not a review. The plan is still in the $25 billion range. The execution showing us that the lowest numbers of the Company would achieve $23 billion so there are no revisions concerning the 2015 numbers but we are finishing the year with an expectation of achieving a CapEx of $23 billion for this year.

Concerning the costs, all opportunities that we have to reduce our costs is being pursued in many different ways. Yesterday, Director Solange Guedes was able to present several items showing that as we advance in the production of presalt and as the production of presalt advances towards the total production of the Company, there are objective gains in productivity and we are very happy about that and you can expect for the next quarters and next years in advance in terms of making Petrobras a much more efficient company.

Bruno (inaudible)

Good afternoon. Thank you. I have two quick questions. Concerning the fiscal provisions that we have been seeing for the last two quarters, should we expect a continuity of those agreements for the next quarters? That is my first question.

Secondly, maybe to Solange, could we have an update on the completion status of the platforms that will start 2017 with P66, 68 and 74? Just have an idea. Thank you.

Now starting with the fiscal contingencies, these processes are dynamic processes where our decisions are made both at the administratives here and the legals here or when there are problems such as the case that happened with debt being paid with very good discounts. The Company always looks at that and judge that for those two processes deserve to be dealt with the way we ended up dealing with them. We have no expectations regarding that subject but we have been monitoring constantly what occurs in terms of decisions both at the administrative and the legal levels. Now I would like to pass the floor to Director Solange.

Good afternoon. We have been making huge efforts to complete these platforms and these systems that you mentioned that are in our business plan for 2017. We have been making some negotiations especially in terms of platforms because you mentioned the platforms but there are also well construction factors as well as subsea equipment and installations.

Our adjustments that we are discussing now have been made after the adjustments already published concerning investments by the company can lead to an adjustment to be made to these systems in 2017. However, this is an ongoing work and so far our best efforts are being very effective in terms of completing these units by 2017.

Thank you very much, Solange.

Filipe (inaudible), JPMorgan.

Good morning, everyone. First question concerns the need for a provision as a result of the forecast of oil reserves for last year. The scenario was low during the year and the rules require the Company to annually review the reserves and see if that could cause an impact. Have you studied that and how much would you expect in terms of reduction and provision as a result of that?

The second question is about an update about Mitsui's operations and [Lisbak's] operations? Is there any chance that these operations will not be completed by the end of 2015 and carry over into 2016?

Thank you for your question. I will now give the floor to Director Solange about the reserves and then I will comment on Mitsui's operations and Lisbak.

Good afternoon. As occurs with other processes, the estimates of reserves are a regular process that companies execute at the end of the year and we have already done and Petrobras according to the (inaudible) criterion and also according to the local criterion of the countries where we operate, the (inaudible) criteria that are applied differently in different countries and this study has not yet been completed. It is still ongoing and we will publish the results at the end of January 2016.

Concerning the Mitsui and Lisbak processes, both processes are doing very well. Mitsui depends on regulatory authorizations especially by [CAGI] and other regulatory agencies. All of them are being monitored very closely by the company and I would tell you that our best expectations is that we are going to be completing that by the end of this year.

Concerning Lisbak, our expectation is that we will be completing all of the stages and the contractual stages by November.

[Lilyanna Yang].

Thank you for the opportunity about the asset sales we intend to gain $15 billion by the end of next year. I would like to know if you still think that this is feasible and could you illustrate -- could you talk about the biggest difficulties that you have come across in the sales process? Are they more related to regulatory aspects or more to a negotiation of prices?

And the second question is about the status of the contract for the rigs of (inaudible) Brazil with Petrobras. Could you give us an update about that? Thank you.

Speaking about the asset sales, the Company's goal is to have a cash result of 15.1 billion and we have realized $200 million and then in 2015, we will realize a difference of $470,000 and the difference to $15.1 billion will be left for 2016. We are still fully focused on achieving this goal and (inaudible) our best expectation is that we will be able to achieve at the end of 2015 this amount of $15.1 billion.

Concerning offset Brazil, the Company not always speaks about any relevant facts any additional information to be given about that will also be provided through relevant facts.

Could you comment on whether you see the negotiation from the perspective of prices as a challenge for the sales of assets? Thank you.

Concerning the regulatory aspects at the beginning, Petrobras defined which assets will comprise its divestment plan and obviously that involves the entire Board of Directors and once that has been defined which assets will be included in the process, all of these perspectives regulatory and pricing perspectives are taken into account but invariably when you look at the process from (inaudible) to valid and non-valid proposal at the end in spite of the previous contact and the previous analysis from a legal perspective of the impacts of that divestment and the regulatory agencies, you have a formal regulatory process but that has all been considered in that $15.1 billion number that the Company has been committed to and has published to the market. Thank you.

(inaudible), Citigroup.

Good morning, everyone. Thank you for taking my question. I actually have three questions.

The first question is a follow-up on the goal of reducing manageable costs and the CapEx reduction for 2016. Ivan, could you give us an estimate on how much of that goal has been reached in your opinion in terms of manageable costs and have you delivered part of it in the third quarter?

Concerning CapEx, when we look at your numbers, the CapEx numbers in the federal budget where the numbers are published monthly, the numbers for August, I know that this methodology is wrong but it seems to point toward the $19 billion having been reached to keep the same expenditure rate. Does that information apply or do you think you still require additional efforts in terms of efficiency and cutting costs versus what you are doing today to deliver these $19 billion?

The second question is speaking a little bit about PDD, we had an important change in the power sector in the third quarter and the replacement of (inaudible) distributor. The impression I had was that your PDD is a little bit higher than the PDD of the electricity sector, the reversal of our allowance for impairment trade receivables. Is there anything specific in the third quarter that you can comment on that and if this mess that is securing in spite of it, is there any promise of reversal for the fourth quarter?

The third question is usually in the third quarter we see the Company provisioning the collective agreement with the unions. I know that you are negotiating with them and we usually see an amortization rate that is usually stronger or higher than the one that you have been reporting. Vis-a-vis what you are negotiating and the results that you are seeing, is it possible for us to have a provision level much higher during the fourth quarter? Thank you. Those are my questions.

Thank you Pedro. I will give the floor to Director Solange to speak about manageable expenditures and then I will comment on the electricity sector and on the provisions that you spoke of. Thank you.

Good afternoon, Pedro. Concerning the manageable costs, the Company's E&P sector is an area that gives an important contribution to the Company as a whole and that is an area where there are some ongoing actions. You referred to our plans for 2016 for instance. Initially we already have a forecast for this process of cost optimization. We have been doing very intense tasks in 2015 that will be seen in the 2015 results and some other aspects will be included in the 2016 results.

We have been working in several aspects and optimizing processes as a whole wherever we have the opportunity to do more with less, we did something good in that we worked in renegotiating contracts where we dealt with the major contracts of the E&P area with significant progress and cost reduction that will in turn have an important impact that will allow us in turn to meet the operational expenditures goal for 2016.

In addition to that process of hibernation of our own systems so to speak, that are not in line with our strategy of cost optimization so these are the ongoing activities that I can use an example to you.

Pedro, concerning the PDD of the electrical sector, there was no news at all. We believe that as the bills for consumers are becoming higher and higher, the liquidity is higher in the sector so there is no perspective of worsening in the sector and no facts caught our attention in this quarter.

Concerning the negotiations with the unions, we had a provision in the third quarter for that and if there is any (inaudible) it will be residual for the fourth quarter. So the biggest amount has already been provisioned.

Thank you. As a quick follow-up, Solange, thank you very much for the information and for commenting on the other initiatives but objectively is there any information on how much the Company has been able to achieve vis-a-vis the 2016 goal? Can you give us a number or a range?

We prefer not to give you any ranges or numbers but what I can tell you is as Solange explained to you, several initiatives in several areas of the Company are being undertaken to help us achieve the goal that we published to the market and we are confident that we are going to achieve the goal. Thank you.

[Mr. Gustavo], Santander.

Good afternoon. I have two questions. The first one is in relation to the funding that you mentioned yesterday during the press conference. I would like to understand if you can give me some additional information. Which of these options and at what cost would it be aligned with the Petrobras bonds or at a lower cost?

My second question is linked to the reduction of CapEx of the company. I would like to understand what is the impact especially as from 2017 in the production curve of the Company if you have this target of 2.8 billion barrels by 2018 even with the reduction of the CapEx? Thank you.

Talking about the options, all the options are only attractive if they are below to our secondary of our 10-year bonds. So you can have as [options] the price of these secondary and these operations would be lower than that price. The first option that we considered was a he lease back that sought $2 million. The best expectation is that we will finalize this operation still in November. We are working towards that and other options, the first that we discussed was to reduce the need of resources that Petrobras needs so we have to review the CapEx, reduce costs, all this follows that line.

And also trying to find operations which are not linked to any risk of increasing the cost of client financing because of the loss of the grading by the agencies. So everything is following these lines of this lease back of $2 million.

In relation to the CapEx and its association to the oil production, I will give the floor to Mr. Solange.

As I mentioned before when I was asked about some platforms which are being built and would start operating in 2017, the reference is the same. Today we are discussing this optimization, this balance between revenue and our business plan. Our assumptions of our business plan is the same. So we are doing these updates with our capacities and also with the success of our investment plans so that is how we are adjusting these projections.

In the terms of E&P, 2017 can be considered today. It is not something that is too far because the measures which are underway to deliver the production in 2017 is already underway. It is not something that we can change because they are already being done. Some fine-tuning will not bring any significant changes or relevance in a period of less than two years ahead of us.

Okay, Solange. But the target of 22.8 million barrels is maintained?

That is being assessed. Our target I always draw attention because of our assumptions and business plan. Our assumptions and business plan is deleveraging our income and our remuneratory shareholders. So our adjustments will be done always with these assumptions.

2020 is different to what I mentioned about 2017. Some adjustments can be made in our future during 2018, 2019 and we might make some adjustments for the projection in 2020. I was referring to only the year of 2017. Thank you very much.

(inaudible)

Good morning to all. I apologize if you have already mentioned this in the call. I would like to know if you gave any information in relation the volume of oil that was sold but not acknowledged in this quarter so that I just have an idea of the volume and value? And especially if you can tell me the price that this will acknowledge, will it be the September price as you indicated or the October price as if it is in the fourth quarter? That is my first question.

It is a very specific question so I think (inaudible) will contact you. But is important to see what is going to happen in the fourth quarter if it is positive and to see how much we can estimate. I will speak with people of investor relations about that.

My second question, I have other things to ask but when talking about the production of 2017 obviously I understand that 2020 is some way ahead of and I understand that the production of 2016 is consistent and that 2015 I think we will have some interesting figures. My question is very specific, Solange, can we run a risk of having a reduction even though it might be a small reduction in 2017 or is it too early to talk about that?

Good afternoon. I believe that it is a bit early. The only thing that I can anticipate and I will repeat this because I tried to detail it before is that the variations increase as we get further and further away from 2015. You mentioned it and I am very happy that is understandings and 2015 is almost over, there are a few variables but very few in relation to 2016.

2017, there might be a variation but it won't be significant and the adjustments and possible comments for the other years are still being analyzed. We are studying this because of the margins and adjustments can still be done in the years 2018, 2019 and 2020 but I insist if you have a look at the projects that we listed as those that guide our production in 2017, they are projects which are already being executed and we have a margin of changes which isn't very big for 2017.

Thank you very much. If you allow me a third question because the first one I'm going to clarify later, I would like to know about the other funding options. I know that the sales leaseback seems like an excellent option for the Company especially when there is an implicit rate less than the collateral but do you have other options? Are you considering securitization of reserves or is this something that maybe yes, maybe no, it is totally ruled out? How do you see this possibility, Ivan?

It is totally ruled out any reserve securitization but what the Company might explore are securitization of export flows, securitization of any reserve transactions is ruled out. Thank you very much.

(Operator Instructions). Pavel Molchanov, Raymond James.

Thank you for taking the question. When you talk about the $15 billion of asset sale proceeds, can you give a sense of what specific assets upstream, downstream, domestic or international you are most in favor of selling?

Thank you for your question. It is not profit, it is cash effect. This is cash, it is not profit and in relation to the assets, the Company publishes a relevant aspect with the business and the percentage that they want to discuss with the market in relation to this divestment but the Company does not supply the relevant fact in relation to a specific asset.

Okay. I suppose -- (technical difficulty)

Thank you for taking my question. I had two parts to the question and they are both related to previous questions. One is about the financing options that you have talked about particularly the ones that you are going to be pursuing in the short term. And I wanted to know what your thoughts about issuing secured debt might be? We have seen some headlines about that so any guidance regarding volume or sources about secured financing would be helpful.

And the second is regarding your CapEx. You talked a little bit about what some of the implications of that reduction in CapEx might be going forward and I was specifically wondering what the implications for your drilling fleet would be? What the current rig fleet looks like and what your anticipations for future developments would be?

And if you can include in that also sort of how you would optimize your costs regarding renegotiating some of those day rates or terminating some of those contracts that would be helpful. Thank you.

Answering your question in relation to securitization, what we mentioned is that one of the options that the Company might explore in the future would be the securitization of commercial contracts of oil exports. We rule out any possibility of securitization of its reserves.

The second part of your question I will give the floor to Ms. Solange Guedes.

Good afternoon, Sarah. With regard to the association between the adjustments in CapEx in our investment projection and the consequence in the drilling fleet, this adjustment is something that is being done by the Company since 2013. So we have successfully been reducing the CapEx in our CapEx of annual expenses and consequently the nonrenewal of contracts. So in practice what we are doing is our drilling fleet has been reduced by the nonrenewal of the contracts which have matured and there is no opportunity within our business plan of renewing these contracts and also not going to the market to obtain new opportunities.

So we had some specific and unique cases where there was a reduction of contracts which was supported by contractual clauses. Petrobras doesn't sign unilateral contracts. We do a continual adjustment of our fleet as these contracts are maturing. If in the future there is a return of the projects or a need, the market today has a lot to offer and the prices are very interesting and Petrobras has restricted access to this market of services for drilling wells and we all do that when necessary.

(Operator Instructions). (inaudible)

A couple of questions please. The first one relates to your CapEx. I was wondering if you could explain where you have cut your CapEx in 2016 and what the impact will be on your 2016 production target of 2.2 million barrels today of oil. So just trying to find out what impact that CapEx cut is having on maintenance type drilling and if you are going to see acceleration of decline rates in mature areas like Campos Basin and onshore oil?

The second question relates to the Libra appraisal wells. It seemed to me like the second and third Libra appraisal wells were somewhat disappointing and just wondering if you can give your expectations for the discovery given the second appraisal well contains high amounts of CO2 and the third appraisal well found poor quality reservoir? Thank you.

Good afternoon. Thank you for the question. The first part of your question refers to the impact of CapEx on some activities. And according to what we have is, our reduction was the elimination or the postponing of some projects that we had approved or started or approved for a start in 2016.

Yes, it assumes a reduction in the drilling activities with consequences that I mentioned before when I spoke about the drilling fleet.

Concerning the maintenance, since the business plan defined that we are going to maintain in our portfolio the assets that it is comprised of today, the maintenance remains in line with what we planned before, we don't forecast any reduction or delay in our maintenance activities given what has been happening in 2015 where all of our downtimes for maintenance of production systems were executed absolutely in line with our plans and that will also be the situation in 2016.

Concerning the decline rate, yesterday I had the opportunity to talk about a very interesting situation where the decline of the Campos Basin is being well-managed. It is one of our most productive areas and there is no short-term impact being forecast for our results.

Now speaking about the Libra assessments, we have published our assessments of our Libra wells and I must remind you that Libra is still starting its exploratory campaign. We are still beginning our activities in terms of knowing more about the field and it is too early to say that the results are higher or lower than expected. These are the typical exploration results and we and our partners are looking to implement and execute the tasks planned for this stage and we are fully aligned with the plans.

Thank you, everyone. With that we are now finishing the Q&A session for the Petrobras conference call. Mr. Ivan Monteiro will now make his final remarks. Please, Mr. Ivan?

Once again I would like to thank you for your participation and I wish everybody a great day.

Thank you, ladies and gentlemen. The audio of this conference call for replay and slides presentation will be available at the Petrobras IR website at www.Petrobras.com.br/IR. This concludes today's conference call. Thank you for your participation. Please hang up your telephones and have a great day.