巴西石油 (PBR.A) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Petrobras conference call with analysts and investors for the presentation concerning the second quarter of 2016 results. We would like to inform you that participants will only be listening to the conference during the Company's presentation which will be conducted in Portuguese with simultaneous translation into English.

Following the presentation, the Q&A session will begin when further instructions will be provided. (Operator Instructions).

Present here with us today are Mr. Ivan de Souza Monteiro, Petrobras CFO and Investor Relations Officer; Ms. Solange da Silva Guedes, Chief Exploration and Production Officer; Mr. Jorge Celestino Ramos, Chief Refining and Natural Gas Officer; Mr. Hugo Repsold Jr., Chief Human Resources, HSC and Services Officer; Mr. Roberto Moro, Chief Technology and Production Development Officer; Mr. Joao Adalberto Elek Jr., Chief Governance, Risk and Compliance Officer; Mr. Nelson Luiz Costa Silva, Chief Strategy, Organization and Management System Officer and other executives of the Company.

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 the expectations of executives regarding the future of Petrobras.

To begin, we will hear Mrs. Isabela Carneiro da Rocha, Executive Manager of Investor Relations, who will start the presentation related to the second-quarter 2016 results. After that, we will then answer the questions from participants. Mrs. Isabela, you may take the floor.

Good morning or good afternoon everyone. I would like to thank you all for participating and I would like to start by presenting our second-quarter results highlighting a change in terms of elaborating more of each business segment so as to help you to understand and model the Company better related to transparency. These improvements take into account the quarterly results breakdown per segment with more information and better results per segment and also the results for Brazil and abroad in addition to data related to imports of products, sales volume, downstream and distribution.

Also the Excel tables, the spreadsheets, are available on the website for investor relations.

To start the presentation, we start by highlighting the exchange rate environment in the first quarter was BRL3.51 lower than in the first quarter but yet higher when we compare the same period of the year before. In terms of Brent, there was an increase in the second quarter vis-a-vis the first quarter amounting to $46 per barrel on average and lower when compared to the first year or the year before.

Now looking at the growth results, we start with BRL22.2 billion increase and the main factors that impacted this increase was mainly the higher production of oil and gas, 7% higher from Petrobras and as a consequence, there was a 14% increase in the number of exports of crude oil and oil products associated to lower costs of imports of gas or LNG because of higher domestic production and higher demand. And by the same token, there was a reduction in the sales of gasoline even though the total sales increased reductions in gasoline and also power because of lower power generation. And increased expenses with production taxes and imports because of imports and the price of Brent when compared to the first quarter.

In terms of operating results, it was BRL7.2 billion. There was a 12% reduction vis-a-vis the first quarter of the year mainly due to some nonrecurring expenses and expenses with the new voluntary incentive plan that was BRL1.2 billion. Also impairment from Converj due to the reevaluation of this project, BRL1.2 million and higher expenses in exploratory blocks due to low economies and we are downsizing and it is an evolution of BRL2.2 million in higher SG&A expenses amounting to BRL200 million with consulting services.

Now looking at the financial results, there was a 38% reduction in finance expenses due to the US dollar appreciation vis-a-vis euro and today our highest net exposure is in dollar terms vis-a-vis euro and therefore there was a significant reduction in finance expenses.

When we compare this to the first half of the year before, the depreciation brought about increases in finance expenses. Net results, we saw a reversal in gross losses in terms of last half year, BRL370 million and this was due to lower expenses and better net financial results which more than offset this drop in operating results.

Now going on to the next slide, we have EBITDA and adjusted EBITDA BRL20.3 billion and comparing it to the previous quarter, there was a 4% reduction and if we exclude some special items like contingencies, indebtedness which brought about increases, the EBITDA margin is around 28% which is in keeping with the last results.

Now speaking about operating cash results, there was a 27% increase, BRL21.9 billion, this was the amount for the second quarter.

Now investments. Looking at a cash view, we have a CapEx view BRL11.8 billion which was down when compared to the previous quarter in the same period of the year before. There was E&P, there was also -- it was also stable and that results in a free cash flow which was very positive, was BRL10.8 billion. There was a 3.5 times increase vis-a-vis the previous quarter and this has been the case for the fifth quarter in a row. This is a very important aspect because it reduces leverage of the Company and this also brings about reductions in CapEx and better results.

Now we will take a look at the debt level. There was an important move towards the reduction of our debt position. It was BRL397 billion accounting for a 19% reduction or BRL9.5 billion when compared to December of 2015. In net terms, there was also a 15% reduction reaching BRL372 billion but now if we look at the dollar amount, there was also a reduction when comparing the second quarter of 2015 and this quarter, there was a reduction of 7.5% and our net debt denominated in dollars at the end of the second quarter was $103.6 billion.

So net debt over EBITDA adjusted for the last 12 months as we usually report on is 4.5 this quarter but I would like to remind you that it used to be 5.3 by December of 2015.

Now in terms of leverage, we went from 60% in December 2015 or 58% in the first quarter to 55% in the second quarter meaning a drop of 5% in leverage terms.

Now I would like to refer to our debt management. We are trying to elongate the debt. Our average term is 7.3 with an average cost of 3.6% and in terms of offering of bonds and buyback of notes from June until May, we issued $6.6 billion and we bought back [$6.3 billion] and the management was in July. It is not reflected in this chart but there was an equivalent operation amounting to $3 million.

Now next I have a summary of everything that has been explained thus far. We talked about the behavior of our results reaching BRL876 million. I would like to emphasize that this line of investment is different from the previous view that we showed in the previous slide.

Now when we look at the half-year comparison and if we compare half-year with another half-year, we look at the same numbers when it comes to investments.

In operating terms, I have here increasing production for oil and gas, there was an 8% increase in crude oil production, it was [8.73] thousand, 2,133 barrels a day because of stoppages in the first quarter and the ramp up of systems like Lula Alto and also FPSO Marica gas production. This experienced an increase of 5% because of reductions in imports of LNG in terms of production. There was increase in higher production because of the Nigeria field and a 9% increase due to the ramp up of a field in the Gulf of Mexico called [the waiting zone]. If we look at the half-year comparison, here we have all of the stoppages that occurred in the first quarter as we saw in the results from the previous quarter.

Now in the next slide we look at the pre-salt production and speaking about pre-salt, we announced the fact that we reached 1.06 million barrels per day and so we surpassed 1 million just for pre-salt. This production increase in pre-salt was due to the lifting cost which is below $8 dollars per barrel.

We also entered Lula Alto field and Cidade Marica early this year in February. In July 8 in the third quarter, we started up Lula Central FPSO Cidade De Saquarema and then in the third quarter we will start up FPSO Cidade de Caraguatatuba in the field of Lapa.

Now speaking about lifting costs, lifting costs even though it had a 5% increase in dollar terms it was down by 5% in BRL and if you exclude the exchange-rate variation that there was an effect on lifting costs because we had lower lifting costs. In terms of lifting costs abroad, there was a slight reduction due to lower expenses in Argentina with the sale of a few fields that occurred in the first quarter.

Next, we look at our oil product output in Brazil. This production or this output was down by 8% but feedstock process was stable by [1.790] million barrels a day refining 84% and yields were very high for oil products such as diesel, gasoline and jet fuel. So there was 5% decrease in terms of oil products. In the half-year comparison, processed feedstock were very much balanced or stable.

Now looking at oil products was 2.109 million. There was an increase of 3% in the sale of oil products but I would like to highlight higher demand. The demand for gasoline remained stable within the country and there was the placement of products by third parties. That is why the increase was not so significant. And in terms of diesel, the demand for diesel in the country increased but there were also placements by third parties and that is why we increased a little bit our sales of diesel.

Now when we compare the half-year, there was a drop in NAFTA demand, diesel demand also was down by 5% but gasoline was stable. Therefore from the first quarter to the second quarter, there was an improvement in the diesel market with a slight increase.

Now looking at the next slide, so our balance sheet for liquids was good because we became net exporters, we exported 359 barrels a day between crude oil and oil products and we exported 515 barrels a day. It is also important to highlight that this stems from growth of oil production in Brazil and the increase of domestic oil in processed feedstock and this also reflects lower needs to import crude oil and also there is less oil to export. So our trade balance was positive. There was a surplus of 156 barrels a day which offset the deficit that we had in our trade balance in the past.

Now looking at refining costs, refining costs increased 8% in dollar terms when you look at first quarter and the second quarter in BRL, it was down by 2%. This also impacts refining costs and personnel costs which accounts for about 60% of the total cost. When you compare the half-year periods there was an increase in reals, in BRL because of the collective bargaining agreement that occurred last year. And abroad, we look at refining costs and there was no cost increase half-year comparing both half-year periods.

Now the next slide gives us a general and administrative expenses overview. There was an increase of 7%, about BRL200 million and this was due to consulting expenses that were paid this second quarter.

Next, we take a quick view of all of our business units. In the second quarter, downstream had significant results and it was different when compared to other companies and this result is significant especially for refining and marketing or downstream. So BRL10.3 billion was the result for downstream in the first quarter. It was less impacted when you compare it to the previous quarter because of expenses with allowance for loan losses and others and now E&P BRL2.9 billion was better than the previous quarter because of increases in the oil prices and increases in production.

Now gas and power BRL900 million and here what mattered most was the impact of LNG and also electricity costs, distribution, the result was BRL300 million which was better than the previous quarter. I would like to highlight that there were lower impairment in terms of distribution even though there was a reduction of sales volumes of gasoline, jet fuel and other fuel oils. Here we also highlight better results abroad. We had a good margin in Paraguay because of a better mix of products sold.

Fuel, it was down at a loss so in the second quarter we have BRL7.2 billion of operating income.

The next slide, we have the same view for the half-year and because of the low price of oil in the first quarter, we have differences in our downstream and the impact of downstream in the first half-year of BRL15.3 billion.

Now looking at our cash flow in 2016, operating generation expected of $26.7 billion, operating cash flow this chart is denominated in US dollars. The trend is that with improvements in Brent prices so the results may improve further.

Judicial guarantees amounted to $4.5 billion. This is a conservative position. The result in the first quarter which has been already posted in terms of judicial guarantees was $355 million but this is a conservative view for this year's cash position.

In terms of dividends, interest and amortization was $20.7 billion and this relates to the buyback, rollover so buyback $9.3 billion and dividend investment our best number was $17.5 billion. We still maintain our divestment goal of $7.3 billion, rollover $10.3 billion, $14.6 billion divestments, $10.3 billion rollover, borrowings $1.2 billion (sic slide 20, borrowings are $1.8 billion) and a final cash position $27.3 billion. Our liquidity position is such and this stems from a better operating management and divestments that have occurred therefore we do believe in this chart as being a significant result.

And with that I conclude my presentation. And I think now we are ready to take your questions. Once again, I would like to highlight that questions will be asked either in Portuguese or English and the officers will respond, we will answer the questions in Portuguese with simultaneous translation into English. Thank you very much.

We will now begin our Q&A session. (Operator Instructions). Luiz Carvalho, UBS.

Good afternoon and thank you. I have two questions. First, I would like to hear from Ivan, a little bit about the regulatory cost. I have had some conversations with the industry both upstream and downstream and we have seen a big disposition in terms of changes on the regulatory front both for pre-salt, local oil and oil and gas. So how is the Company communicating with the regulators concerning changes in regulatory measures? I just want to understand better what is the current status of Petrobras' communications with the government whether there is any improvement or relationship or whether we can anticipate changes?

The second question is that I want to understand whether there is any initial understanding in terms of the basic assumptions related to who should pay whom, who should collect from whom and whether you could give me some timing expectations?

My last question, Nelson probably talked about it but if Nelson can give me an overview of what could be expected of your next business plan, what can we expect in general in terms of leverage, asset sales, pricing policy? Please elaborate more on this regard.

Good afternoon and thank you for your questions. Now speaking about regulatory aspects, the Company is clearly defining the regulatory issue to make it easier for us to make interactions and to promote sales of assets. We are communicating more clearly with all stakeholders. Things are stable and we want the regulatory measures to allow us to make decisions in the best possible environment. I think this is really important because if that does not occur, investors will ask for higher remuneration rates just to cover for additional risks. And that happens when you don't have a stable regulation environment.

But I will give the floor to Solange because you mentioned four or five topics and I am sure that she can probably elaborate better on these topics than myself.

We are -- maybe I think in terms of your perception related to the regulatory environment that is due to a very strong effort of the Company in terms of communicating with the regulatory agencies or the government trying to solve issues like you mentioned, REPETRO which is something that has been mentioned by everyone. All of our, all of the industry's investment decisions consider the hypothesis of a nonexistent of REPETRO any more so this is what is being considered now by the association.

We from the industry are talking to the government and communicating to them about our adjustment issues so that we can initiate some tender offerings or some other kind of model that is also very competitive for next year. All of these are really important regulatory aspects like Ivan mentioned and they may bring about further investment or also increase the degree of confidence of current investments.

You also talk about the transfer of rights. We will repeat the same practice or the same answer that we mentioned in our last meeting and I said that both ourselves and the other part we are finalizing or concluding our evaluations that we will then produce the technical and economic report that will follow.

But then you also asked us about the basic assumptions that might have been discussed. Well, yes, we did talk about it, we talk about our vision with the public prosecutor's office and the government but we are now evaluating different opinions on both sides and in each area we use these assumptions in the most robust possible way in order to address the issues with our consulting representation.

Do you have any idea of timing? Could you expect something coming still this year or next year?

No, this is a very innovative process, it is a contract negotiation of which a very large magnitude and also very complex. Therefore it is difficult for me to give you any idea of timeline.

It is Ivan again. Officer Nelson is now leading at an important meeting but tomorrow all of the officers will be together in the third phase of the review of the plan so he is not here at the moment. But we would rather that all information related to the main metrics of the Company can be discussed after the conclusion of this work because tomorrow we will have another meeting. Thank you very much.

Christian Audi, Santander.

My question has to do with CapEx. There is very positive progress in terms of lowering CapEx for incentive purposes so we would like to better understand the levels that were posted in the second quarter around BRL11 billion. So is this the new level that we might consider for the next two quarters or not? Is there any trend that might take place in the second half of the year?

Secondly, could you elaborate more on what leads to this drop or reduction and the [actually] process for E&P? That would help us with our vision for the future.

The second question is more related to the sale or disposal of assets NTS to Brookfield. What about a sale of these assets? Are you waiting for any regulatory process to have the process concluded? I wonder if you can confirm about CapEx and disposal of assets?

So are you going to go back to this unless you find a partner to the project?

Christian, thank you. Ivan speaking. I am going to talk a little bit about CapEx. In the flow projection we had an amount in the budget which is higher than what we are actually performing. We believe there is a slight recovery in the second half of the year vis-a-vis the first half of the year performance but clearly we will be performing investment wise below the CapEx initially expected. And because we are concentrating and focusing those CapEx in production, Solange is going to make some comments.

Christian, good morning. Solange speaking. Most of the difference that you mentioned or that we posted here like Ivan said, will have an outlook to improve the numbers in the budget in the second half of the year. Perhaps there is a significant share that might not be recovered this year and this is most precisely related to the performance of contracted projects, mid- to long-term projects which will not have a significant impact in 2016 and I would say that there won't be an impact in our output for 2017 either.

So we are considering if CapEx, there is this perception of an impact in production but it doesn't happen actually precisely because our short-term output is very much related to the availability of critical resources and it is fully available in order to deliver.

Christian, coming back to the point about a sale of assets, the discussion with Brookfield is okay. We don't have any problem, any regulatory issue that prevents us from moving forward in our discussions. Our operators are usually submitted to regulatory authorities but there is no impediment. We only have natural conversations about big and complex deals. As to your question about Comperj, Jerome (inaudible) is going to answer your question.

Christian, good afternoon. For Comperj, what we are doing is the following. In the business plan and based on seasonal demands in our portfolio this project doesn't make so much sense. However, we keep on pursuing it and talking to partners in order to look for a partner to go on this venture. That is precisely what we are doing right now.

Thank you. My last follow-up question, Ivan, going back to the strategic plan, do you already have an outlook of when you expect to announce the plan or not?

The answer is yes. We will be announcing this plan within the schedule set by (inaudible). This will happen in September. Thank you.

Bruno Montanari, Morgan Stanley.

Thank you for taking my question. Good afternoon. First of all, I would like to congratulate the team for making our lives easier with the new release and the new charts and tables, thank you.

The first question is to Ivan about the [bonus] buyback strategy to improve the debt profile. In your cash position I saw the numbers but how much would the Company be willing to do or to further reduce payments for 2019? What about the equation? Extend the debt versus increasing the debt service on a temporary basis?

Secondly, Solange, the production pace is very interesting, the ramp up of these new units. Do you have a range about the numbers for production in December this year? And Solange, you have been working extensively to renew the rig contract. Do you think you will achieve the ideal number or should we still decrease the fleet particularly for deep waters? And in a more positive scenario, what do we still need to see in order to add more rigs to Petrobras fleet? Thank you.

Thank you very much for your questions. The operation precisely has the goal that you mention, to deconcentrate maturities. We had increasing maturity from 2015 to 2020. I have to admit we were very happy with our first response of the market vis-a-vis the first operation. Demand was greater than $20 million. We contracted $6.75 million and because the performance of the bond was excellent, we had a new operation of $3 million. If you check the curve it is very positive, very strongly particularly over the last 45 days.

At the end of the day, you improve and enhance the scenario of Brazil as a whole, the country, the economy and Petrobras. So by and large we believe that we have the right amount according to our expectation and the outlook in the future we will be watching closely new opportunities.

I have to tell you that we have had a lot of spontaneous offerings now in terms of ideas and new possible operations but whenever we make decisions we disclose it to the market and we are very happy with what we have achieved so far. We don't intend to go for new operations right now but we will be careful and keeping an eye on new opportunities. Solange is going to add to the comment.

Thank you, Bruno. As we said before in the first quarter and now in the second quarter, according to our schedule our output has increased just as we had previously announced very strongly particularly in Q2. We are working very close to the downstream and upstream areas involving several aspects of our operations and to maximize the Company's results. So we've been concentrating our scheduled maintenance in the first quarter.

Now with the new events of the second quarter, I would say that I wouldn't give you a range but maybe some periods and a couple of days in which we will be around 2,300,000 barrels per day by year-end. But we don't have any significant stoppages and all systems will be interconnected.

In terms of rig contracts, we did and we are strongly focusing to optimize our expenses with this kind of service. We have idle resources due to the reduction of the business plan and successive optimization of well construction. The response is very good from our project team and we have an ideal approach.

And like you said what we actually have to do is to go for incremental reductions of our expenditure in terms of the number of rigs available in the fleet, 2,000 meters, and also by daily rate. So we are doing this and as we speak, the performance is very positive, conditions are very positive for the kind of work.

In terms of additional rigs to the fleet, this depends on how our strategies will be in the business plan. We don't feel any immediate need to add any rigs to the fleet but it will depend on announcements in September related to the business plan.

Perfect, thank you.

Diego Mendes, Itau BBA.

Good morning. I also have two questions. The first question has to do with the refining facility. Maintenance involved 85% and in the past, the rate was higher. Considering the domestic market there was also a difference. Could you give us some color about the behavior going forward?

And also in the same question, we can see an increased percentage of domestic oil processed at the refineries possibly due to pre-salt production which has better oil. What about going forward, most growth of production comes from pre-salt in the industry. Do you believe we will have 100% domestic oil at refineries or is there any constraint? Not technological but in terms of equipment in order not to use 100% of our oil?

The second question is about production. There is a little table that is shown in the presentation to journalists showing the number of wells already connected to each one of the platforms of pre-salt installed this year. Could you tell us the maximum of each one of the platforms, the maximum number of wells to get to the estimated data ramp up? Thank you.

Thank you. (inaudible) is going to answer the question and then Solange will answer.

Good afternoon, Diego. With regards to the utilization factor of the refining facility, our planning model when fully integrated naturally considering constraints for maintenance stoppages of our assets both refining and other assets and also economic assets and factors. The higher profitability of the complex and this takes into account imports of crude oil, imports of oil products, exports of crude oil and exports of oil products. So this is the look and feel of the refineries running this model and with the best economic value possible.

So if you look at the utilization factor comparing previous years with a current year, this was below not only due to stoppages at refineries but also out of market reasons because the market is smaller particularly the diesel market and diesel is the product that provides the higher profitability to refineries in dollars per barrel oil.

So once we deplete the capacity of the diesel market, you begin to have options to export crude oil and import some oil products. So we have more stoppages it is true if you compare January to July 2016 and the same period in 2015, we had REPLAN general stoppage and lower feedstock at REFAP. We also had stoppages there and also at REFAP but on a global basis, the concept of stoppage was not as strong as the problems in the economic factors so that is the first point.

The second point about 100% domestic oil, the answer is probably not. Due to the hardware as refineries, that is the first point. You always need more or lighter oil to have adequate conditions in our refineries but also for lubricant production in the industry for REDUC that are to lubricant structures, trains and we will always have some imports of this type of crude oil to be used in the refining complex.

Good afternoon. With regards to your question about wells, we have different productivities, we don't have a fixed number for each one of the plants. I don't have information right now on these wells but by and large and as we have discussed previously with all of you when we explained what we did in order to reduce our investments with a long-term impact for our new clients, we shared before with you that we are in the process of dual pumps and average four to eight in the platform depending on where they are.

It doesn't apply to all platforms but five or six wells becomes our forecast for the first wave. And the remaining wells of the project have a gap of ramp up process and will come later on in a second wave that might even happen a year later. We don't have a basic rule for each one of these units, Diego.

Just a follow-up question about the drop in CapEx this year. Is this mostly related to this change in the well interconnection strategy or due to any delay in the construction of the platforms that will start up after 2017?

This year we are reporting results of the first quarter of 2016 and it was not affected yet by this strategy. What I mentioned about the first and second wave, this is within the framework of that discussion, the previous announcement of the business plan 2015-2019 when it had have had a strong investment reduction for E&P without the impact on production. That was the explanation of the apparent result explaining why you reduce CapEx from 2015-2019 without lowering production in 2020. This is not related to investments in the first half of 2016.

Okay, great. Thank you very much.

Luana Siegfried, Raymond James.

Good afternoon. Thank you for taking my question and for the conference call. I have a very brief question about the sale of volume, sale of all your products in Brazil. This volume is lagging behind levels of 2012 and 2014 where we had a peak. I would like to better understand to what extent in terms of barrels per day Petrobras will be comfortable with a future and possible increased demand of oil products in Brazil?

Good afternoon. We have been running our facilities with utilization factors of 84 and 85 or 2 or 2.5 million barrels or 1.9 million or 2 million for the second half but usually in the second half, the numbers are stronger. Our projections did not show that the market will have a dramatic drop or affect our operations. It is our understanding that we even have a trend for the second half of the year, a trend to improve the fuel market.

So we are pretty comfortable with our operations. We are very competitive, both share and pricewise. So that is not a concern or something that is on our radar based on the projections we currently have.

Just adding to my question, what about the other way around? I understand economic scenario is still idle but if we assume improvement in the economy and improved oil product use, how would you feel comfortable 2.5 or barrels of oil what about oil products?

This market is very dynamic. We already have 2.5 million, 2.6 million so we do have assets not only refinery but logistics assets in Brazil that have already supported these levels in the market. In this horizon, or in our analysis 2017, 2021 for the next business plan, we will be discussing this again 2017 onwards. But there are no big changes that may have an impact on facilities at least according to what we have already planned in the complex maintenance or improvement in a couple of assets. So we don't understand or we don't believe that market changes may really affect our refining and logistics activities.

Okay, great. Thank you very much.

Caio Carvalhal, Brasil Plural.

Good afternoon, everyone. In fact I would like to go back to something that has been mentioned before related to changes in regulatory aspects. And in particular, I think that something is very critical for the entire industry in Petrobras which has to do with the gas regulatory framework and the pipeline of Southeast or sudeste and for Brookfield there is nothing pending in that regard in the sales process. But about that topic, I would like to ask two things.

What about the other assets in the logistics change of Petrobras and NGL and TPPs or thermological power plants? What I understand is that the Company does not want to get into further divestment while they wait for the regulatory process but there are some issues that are really important because they can also impact not only the approval by the regulatory agencies but also the appreciation of assets.

Does the Company take that into consideration? I know there is also a matter of time because of the balance sheet so the sooner the starts the better. But there is also the issue of having a more stable and robust regulatory framework because the framework, the regulatory framework could have happened even before the divestment.

How do you understand these regulatory framework issues and I know also there are issues related to timing. In the IBT conference a few weeks ago this debate brought about anxieties in the market. I think you do not have a definition, I know but whether you have some idea of timing or when that would be tendered or what would be the impact that would have in government in terms of defining the regulatory framework?

The second question addressed to Solange speaking about production and comparing it with the last half year. And I was quite concerned with the production in the past, but in the second quarter things were like a one-off situation when compared to what happened in the first quarter of this year and when we monitor production in 2016, it is pretty much in keeping with the guidance.

Can you give us an idea or related to production or E&P in 2017? Many foreign analysts were questioning the production in Brazil because it pointed to a significant growth in production from Brazil in 2017. I know that your strategic plan is still underway and you may not have any specific answer to give me. But what about the systems that are coming in? Can we expect a one digit growth or a high digit growth for 2017 or whether we believe that this will be a stabilization year looking for further growth in the future?

Good afternoon, thank you. Your question was very good and I think we have a very good example to give you just to put away your fear. I mean we do not sell anything without looking at the value of the asset. The Company motivates, and we have been doing that, we motivate competitiveness in all of our processes and as you said it correctly, several of these markets of Petrobras, Petrobras is a single operating company and certainly there is a debate about the regulation and the Company has been very forward in terms of that process.

I will give the floor to my colleague who will talk a little bit more about the regulatory framework but I would like to talk about the process of -- the BR Distribuidora. The market was not very welcoming, not even abroad or domestically and then we started publicly thinking about selling a minority stake but the proposal that we received from BR Distribuidora were not in keeping with what we wanted. It didn't reach the levels that we were looking for. So now we are discussing a shared control of BR.

But timing will not pressure the loss of market cap. We have to be very careful especially when it comes to any divestments in Petrobras and we did some operations and that is why we are operating in such a way not to put pressure in the Company. We do not want to sell any asset at a value that is not aligned with the current value and that should not affect our evaluation process.

Now I will give the floor to [Jorge].

In terms of the gas regulatory framework, this has to do with the South pipeline, I think we talked about changes that have to be done to the regulatory framework so there is the government, there are the agencies for the industry. This is this topic that has to be discussed in depth, it is not an easy task to do it, it is not an easy topic.

And I noticed that during your presentation at IBP that Petrobras will play a crucial role in discussing those models given the fact that most assets belong to Petrobras.

We understand that the model where you look for divestment and the search for partnerships or partners maybe is not aligned with the way that the thing was modeled but we need to also probably look at other agents. Are there other agents in the market not only for gas molecules but are there other stakeholders looking for participation in those areas? Are they looking for a higher stake in this area?

What about the government stake in terms of taxes and everything else?

I think the debate is very serious. Now about timing for that model, do you have anything to say?

I was pleased to hear your reference to the fact that you recognize the enormous efforts that we are undertaking. As we said before, that result was a one-off result and we have and we do have still a good outlook in terms of reaching our target so that is why we speak out of a very sound base. We indeed have to go through the first cycle which is strategic planning in terms of the restructuring and we will work on it and report the numbers in September.

But there is another concept that there has to be well understood in your evaluations and that is about the E&P segment because this segment focuses on the results that are set up much before it is calculated. I mean any change in investments today does not have an immediate impact now in 2016 or even in 2017.

These investments have long-term returns. The business structure it is hard to maneuver quickly because it is a different industry and so after all, we made important adjustments last year in 2015. And we are now evaluating the impact for 2017 and all of the major decisions of 2017 are already aligned. I mean they have been taken and this is what we have to do especially when you make some very strong adjustments as we did in 2016.

But Caio, we do not review all of the final numbers because there are still some decisions being made and so we will probably be able to tell you more by the end of September when we meet again. Thank you very much.

Andre Natal, Credit Suisse.

Good afternoon and thank you very much. Thank you for answering our questions.

My first question has to do with the market share you are losing. Even the current Brent prices in Mexico and this is for downstream and also the entry of third parties and the imports, you have been able to maneuver well in terms of third-party participation. You are operating at a lower utilization level and eventually you may at the same time lose share.

So my question is how far this can go or maybe this could reopen a debate about lower prices or maybe low prices not to stimulate such a delicate position in volumetric terms. This is my first question.

The second question maybe addressed to Director (inaudible). It has to do about the Comperj asset. You already did something in 2014 and now 5.3 billion and one of the generating factors of that write off in addition to some others related took off of capital, etc. had to do with the postponement of the project to 2023. So given the fact that this already happened so currently we do not expect to conduct a major margin review.

We were taken by surprise when you had another write off or another sale of that project. What generated that write off? Is that probably related to costs of OPGM or cost of CapEx to build a refinery? And maybe that is why you have a BPL of zero even negative? Is that true or any of that is true?

If you do not see any good values of the project so my question is what other business model you want to use given the fact that the project is posting negative productivity, close to zero.

The next question goes to Solange if you can tell me a bit about the new platforms for 2017?

Thank you. This is Ivan. Two questions goes to Jorge, and the others to (inaudible)

Good afternoon. In terms of paid off of market share and profitability with impact in the utilization factor of the refineries, I would say that we've been conducting constant analysis and our projections are not representing any cause of concern. We are very comfortable with the situation and the profitability of the integrated operation of Petrobras. We were able to bring about good profitable levels. We have also been able to increase the stake of domestic oil in the entire oil basket. Therefore I would say that in the horizon of our planning this has not bothered us, we are very comfortable with that operation.

I just want to understand what is the criteria you look at when you make your judgment whether you will look at a comfortable processing level or 50% which may not be feasible, what is the criteria taken into account for that decision?

In fact, our model is the one that brings the best profitable margins to the Company. Petrobras is an integrated company and as such, it tries to integrate its markets to its assets and crude oil production and this has to make the best economic sense to the Company and its shareholders. Therefore we do not have a physical metric or using a certain factor. If we find in 50 a best profitable margin than 60 that is what we will do so our business model aims at achieving the best profitability possible to the Company so this is what we have been using.

In terms of impairment of Comperj, our reading of this or our predictions or our forecast indicates that the long-term demand changes and so do long-term margins. All of our forecasts and our project portfolio indicates that we would have to postpone or delay that undertaking and to that end, we did the impairment of the asset. But we are still looking for partners because there are opportunities and this project can make sense to some partner. Therefore we are still looking for prospective partners.

In terms of transfer of rights as of last year we have been working to improve the execution plan of the project. We encounter a very poor landscape in 2015 and therefore it made improvements for our execution plan, we made contractual adjustments or even we chose the buyback of shares. There are some instances where when some of the contracts were nonperforming and so we review the contracts we are now receiving equipment from these new contracts. We were able to escalate the phases of projects from one phase through integration and it is everything is within the margins that we allocated for the project. Thank you.

(inaudible), Bradesco.

Good afternoon, everyone. I would just like to talk about the distributing companies. In the north of the country, do you think that this will be an impediment for other investments and whether you could to talk about increases in trade receivables. So my question is about how do you see the impact of this in a large client?

We had a hard time understanding your question but I will try to answer the best possible way. Any obligation agreed in the past, our contracts foresee that any time there is any change in stake's control we have to be accommodating to accommodate for that change and this could be a factor of debt acceleration so any operation that implies any changes of control or stake holding and I don't think that this will occur but this could also decelerate the debt. The consisted of two components.

One component has been contracted which is the contract for debt and there is another contract that has been continuously delayed in terms of its payment. Thank you.

(inaudible) JPMorgan.

Good afternoon. My question is to Solange. Solange, is there any constraint in the well productivity at pre-salt? Is this the maximum level you assume you will get and what is the ideal limit you are working with within this possibility range?

Good afternoon. Well productivity or yield takes two aspects into account. First, the reservoir from which the output comes in terms of the right capacity or the volume to be flown at a high speed. And the second question has to do with well engineering. You have to design a well and that is a very complex engineering work. I would say that up until now our capacity to put together engineering and our best reservoir, our projection is that we might have 50,000 barrels per well. These are very special circumstances in which we need to put together high yield and also the right materials, diameters, facilities which enable us to resist environmental factors and promote the right outflow with the right speed.

Thank you. So up to 50, is this the average or the standard and if it reaches such a high level 35 million per day, if you get to 50 which is so high, do you already work with the assumption or having higher platforms compared to what you currently have?

I would just like to highlight that the statement that I made is basically due to the capacity, the production capacity of our reservoir. So if you consider the same engineering of (inaudible) in pre-salt for instance we wouldn't have this result. So I will highlight again that these opportunities are not found everywhere. Including pre-salt, it may vary a lot from a case-by-case basis and that is why I mentioned before the number of parts to be implemented but only in exceptional areas. I wouldn't say larger units but maybe fewer wells in the units. Maybe that will be more profitable in our cost-effectiveness. But if we analyze it well, I would say that we will be working with fewer wells and having midsize systems, many systems working fast for production purposes. We are very mindful that we are specifically talking about one well.

Perfect. Thank you.

Lillyanna Yang, HSBC.

Thank you for taking my question. I have a couple of questions. The first question is about the business plan and the transfer of rights. Wouldn't it make sense to revise the production plan for the barrels with a transfer of right regime? If I understood it correctly, possibly Petrobras is not going to build before (inaudible) starts to significantly contribute in the cash flow according to the current plan in three production platforms and the transfer of rights expected for next year.

The second question has to do with the local content. Could you quantify the penalties related to [AMP] and what about the number of plants that have already been audited. Could you give us some color about interpretation about what is compliant, local content? To what extent can you can have waivers to prevent penalties?

My third question is about disposal of assets. You had announced for [Cocora] and it was not if I am not mistaken in the original plan of $50 million. So what about the outlook of sales of assets after the announcement for Cocora in terms of achieving the goal or exceeding the goal or any delay or wouldn't that make a lot of difference for investors and the idea would be considering 2016 and CapEx for the sale of assets?

Good afternoon. The transfer of rights, we are still at a preliminary conversation stage. You mentioned many complex possibilities but we don't have a final statement to say right now. As to the local content, what the company has to share right now is that after so many processes, many audits have already taken place for exploratory blocks 2005, 2007. All of the waivers filed by Petrobras at the AMP apply to all cases and we have no response or further comment on it.

As to the investment plan, you particularly focused on Cocora. You are right, it has always been part of our plan. It was never announced but it was included in our investment plan in 2015 and we are working with this asset in this process for a while. There are several projects that are underway and it was part of it and we were successful with this investment and it is still part of our goal announced by our CFO.

Perfect. Just to clarify about the barrels of the transfer of rights, if we only focus on the operation and the transfer of rights without taking into account the final price, what about the flexibility of the start up of (inaudible)? Is it really flexible?

These discussions are only getting started. They are too preliminary. We are only considering the contractual aspects to address the discussion. We don't have anything else to share.

Okay, thank you.

Pedro Medeiros, Citigroup

Thank you. Good morning, everyone. Congratulations on the results. I have a couple of questions. First question is about the earnings of the second quarter and with the gradual comparison and the realization price of the domestic oil in E&P, could you comment more about it? We saw a lot of improvement in the difference of the realization price in domestic oil. Is this related to the scenario and volatility of oil prices or would it be something more structural with different prices, prices, realization prices due to the interaction and the level of use by different refineries in the country or the increase in the average quality of oil and the increased share of pre-salt?

Second question, Ivan, could you elaborate more about the stage and restrictions to conclude the deal with Chinese banks to release the credit agreement involving $10 million that you announced in the past as a potential balance.

And my third question is

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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.