巴西石油 (PBR.A) 2016 Q3 法說會逐字稿

(interpreted) Good afternoon, ladies and gentlemen. Welcome to Petrobras conference call with analysts and investors for the presentation concerning (technical difficulty) 2016. (Operator Instructions)

Presenting with us today are Mr. Ivan de Souza Monteiro, Petrobras Chief Financial and Investor Relations Officer; Mrs. Solange da Silva Guedes, Chief Exploration and Production Officer; Mr. Jorge Celestino Ramos, Chief Refining and Natural Gas Officer; Mr. Roberto Moro, Chief Technology and Production Development Officer; as well as other officers or executives from the Company.

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

To begin, we will hear Ms. Isabela Carneiro da Rocha, Executive Manager of Investor Relations, who will start with a presentation about the third-quarter 2016. Subsequently, the questions from the participants will be answered. Please. Ms. Isabela.

(interpreted) Good afternoon, everyone. Thank you for joining us. I will start the presentation reminding you that slide 2 is quite important, but contains only something that we do expect.

Let us watch the macro view, the external view, considering what happened, the exchange and the appreciation of the Brazilian real against the dollar vis-a-vis the same period of last year and related to the second quarter. In this slide I would dare to draw your attention for the fourth semester of -- last semester the difference between the dollar, BRL3.17 or BRL3.55, will give another result for the Company.

Going to the Brent, there was a drop if compared to former or previous period, although it's flat, the curve, and stable, but at a low level. If you compare even with 2014 that the Brent was in a higher price per barrel and this will pressure the results of the Company.

Going on, if we can see some results and positive free cash flow, the EBITDA, adjusted EBITDA had a better cash flow. This increase is due to the oil production and exports and smaller expenses or lower expenses of LNG. If we compare with the same period of last year, we have more margins of the prices practiced in Brazil and lower expenses with participation of the government due to the Brent price. This happened.

Besides we did not have a very big amount on sales considering oil products. Considering the free cash flow, we have an increase of BRL26.7 billion and in the year BRL66.0 billion a positive free cash flow, and reduced or adjusted EBITDA BRL10.3 and the cash (inaudible) that will be the equivalent of BRL12.3 billion and they accumulate around BRL30 billion.

And with the adjusted EBITDA and the sum we have cumulative adjustments and a positive free cash flow BRL16 million and BRL29.6 million. This cash flow is very positive. For the sixth consecutive quarter in a row we were able to maintain and to keep the positive free cash flow for the six months.

We also have the results affected by other items. Around BRL67.2 billion in the accumulated with the gross income, with the reserves net financial results of last year and the operating income less than BRL 10 billion.

Nonrecurring items, some assets that we have around BRL3.15 and negative income because we have sales around BRL3.6 billion, the voluntary dismissal planning (inaudible) BRL47 billion in losses that we had by the suppliers BRL1.13 billion and expenses, operating expenses in New York, BRL1.2 million. These nonrecurring items explain this negative result. Considering the next negative net income, we have BRL3.16 billion. It is due to the depreciation of dollar vis-a-vis euro and libra.

So we had a loss of BRL17.3 billion by the year basically considering share of earnings and equity accounted BRL[15.5] that has impacted in a very big way the net liquid results. Petrobras would reach in this semester around BRL10 billion, but the net income around BRL7 million. Well, we have a negative net income that we have already shown here the results for you to have as a consultation paper.

Going to explain the nonrecurring factors I would like to start. For the last test it was on the fourth quarter of 2015 and we had the approval this year for the business plan 2017-2021 that was approved in September this year.

With the approval of these years with the new portfolio for investments foreseen in the planning and this change in the discount factor and appreciation of the real had improved on average 1 point, showing Brazil's risk. The discount rate is considering the last 12 months and in this sector we capture 12,000 investment grade with a higher investment. The exchange rate that is more appreciated.

And going back to the first slide, where we had an exchange of BRL3.90 and now with BRL3.25, so projects which cash flow are in dollars, whenever you use an exchange rate more appreciated the resulting reais will be lower. And if it's controlled, if it's compared with the (inaudible) capital or the steady capital the net present value will be smaller or lower.

Here we highlight four items for these nonrecurring items or results, BRL6.7 billion in the oil fields, pressured by the exchange rate, plus the deduction -- appreciation of the dollar. And some equipment, the delivery of hulls, for instance, 70 to 73, BRL2.8 billion. And I would like to highlight that this does not impact the portfolio forecast of the PNG planning.

Other assets in the second train that was postponed in Suape Petrochemical Complex, because due to the forecast of our planning a lower use of the refined oil products. These factors turned this value 15.7. A sensitivity analysis was accomplished for the main assets responsible for 10 million on terminal and the other figures that varied due to the exchange rate. We could go on to adjust.

When we talked about PESA in July that we have an alienation. We had sold BRL1.7 million, but due to the accountability whenever you have two currencies, two different currencies -- we work in reais and peso -- is using a negotiation in other currency. So during the transactions all the numbers that varied are considered into the net asset and what we call this, whenever we sell we recognize in the results. That's why we have BRL3.6 billion negative considering PESA sale.

Individual shareholder shares of stocks, we had a revision. We had four shares and we had provisioned. And the results, not only of this agreement but with the revisions that we are still negotiating, BRL1.2 billion during the quarter that collective action was not considered because the issues are still there with a degree of uncertainty and it's not possible to evaluate this at the moment.

One nonrecurring item that was positive, a kind of the reversal, it was the revision of the areas abandoned the commissioning cost with a high depreciation of the real, reduction in provision. And net impact BRL3.2 billion as a result. These factors were the main nonrecurrencings that are here explained throughout the slides.

Going on we would like to highlight another factor that was the voluntary planning or dismissal voluntary plan. You have on the right of the transparency and this will be positive for the future because we are going to spend less money than the personnel.

We have (technical difficulty) we are going to have a reduction of 10%, around 8,000 (technical difficulty). But considering those who are in the program wishing to go out of the Company, we will have 10% in the reduction of the expenses and the projection of costs.

As we are showing you in the slide, where we are showing you the expenditures with the sales general and administrative one. And although the wages that are going to be corrected, readjustment due to the collective bargaining agreement, the reduction on refining, on lifting will be very reduced even with having new operations units entering. And with new fields the cost of the Company are going to be better; we expect that.

We would like to highlight some operational area. In E&P, we had 2.857 million barrels in the quarter, even after selling PESA. We have some records, production records. We would like to highlight that we surpassed 3 million barrels per day. If you consider all the production of Petrobras and all the areas and even the partners' contribution, seven of the eight Pre-Salt platforms have reached full capacity. We have only one in ramp up and we are following the trend of its contribution for the goal on production.

While the lifting cost keeps the trend and dropped 14%, we see an improvement. We reduced around manageable operating costs, even with the production group. And Pre-Salt lifting costs it's very low, below $8 per barrel. This is one of the responsibles for the low lifting costs and low expenses with transport offshore. Petrobras uses a lease each time less vessels and less airplane, air carriers as well.

We would like to highlight the Campos Basin that currently we have an average decline rate of 6%, but this will represent what we want through our partnerships to reduce these decline rates with new technological issues.

And within Campos Basin, we would like to highlight Marlim Field that produces since three years 50% recovery capability. And the reservoir here, because we have a better water injection and drilling new wells, we had reduced the decline of these: 10% in 2010 and 3% in 2016. And in parallel to Pre-Salt, Campos Basin is quite important for us.

Going to refining and natural gas, we would like to highlight our pricing policy for diesel and gasoline that was announced this year where Petrobras considered this -- the competitiveness we should be a margin volatility of the market and we want to accomplish our financial objectives. We are above the margin considering the margin and the risk, and this policy is being practiced.

We can watch a lower sales volume due to reduced soil product demand, only [2,282] barrels per day, but this reduce the demand is due to the domestic market and other actors in the market that import diesel. These lower oil product output will decrease in sales volumes and this factor will have an impact of the refinery. 80% of the third quarter; very good if compared to last year, but this impacts our refineries due to the decrease in sales volumes.

And we would like to highlight the increase in yield of our oil products imported in diesel, gasoline, and jet fuel. 80% comes by this oil products, around 80%, and our capability is around 100 barrels per day. So we can fit the production profile to the demand, the participation, the domestic oil share in processed feedstock. We have reached 93% in this quarter and we considered a mid crude oil increase Pre-Salt, but we have reduced the imports of crude oil.

This is a favorable impact because we are optimizing the logistic assets and the refining plans of Petrobras. These factors, as we are going to see an improve of -- an increase of our balance, our trade balance. We are exporting 210 kbpd in this third quarter, like a nat export and in import country for oil products.

Going to natural gas supply and demand balance, considering the thermal electrical plants, this higher demand and natural gas demand as well to substitute. So we had a better margin for Petrobras.

Some highlights, financial highlights. We have a partnership on investments where the transactions went to $1 billion in here we can see some investments that already were announced as the development plan with the partnership that we are having with important partners on strategy and other ongoing divestments already announced to you.

In regard on the indebtedness of the Company, it's lower considering reais. We are keeping it in US dollars and we highlight the total debt and the net debt to extend, to elongate without increasing the cost of the debt. We have good management and a critical one for keeping these figures.

Regarding the 2016 cash flow, we can notice that our forecast for this year we expect $26.5 billion associated with the debt management. As we have told we had investments, we expect to have more investments. This is a cash flow view; it's a cash view and we consider $6.5 billion divestments and closing the year with a balance of $22.5 billion.

Talking about the values, the Company's value and the reduce of a five-year bond issuance around BRL221 billion and with our share of stocks more appreciated in the market.

And to conclude, I would like to go back to our metrics announced in the business plan, when we had -- we were working through the convergence of the announced targets, so we had a reduction. We have reached 1.6 in EBITDA, adjusted is 4.1 in this semester. I'm showing you the conversion trends in our business plan.

Thank you very much indeed. Now we're going to have a Q&A session, please. I would like you -- each participant will be limited to, at most, two questions. Questions should be made consecutively so that executives may answer them afterwards.

(interpreted) (Operator Instructions) Bruno Montanari.

(interpreted) Thank you for taking my questions. My question is related to pricing policies. Now we have these two readjustments in a row and it shows a very encouraging policy and it's important that it's a two-way policy. So my question is when I look at the chart and I see the dislocation in the rate exchange, even if it's flat, stabilized for some months, is it to be expected an increase in the price of fuel?

My second question is about the negotiation of the transfer of rights. The Company is about to -- is going to negotiate, discuss more. I know that it's difficult to talk about evaluation, but I would like to know if you could talk in two points, the price of the oil and also the timing of the process, so that we can make -- do our maps and take advantage of this.

One of the things I would like to talk about the transfer of rights is the potential reimbursement of Petrobras and if it's going to be transferred to the government through taxes, for instance. I would like to know if it is funded in anything. Thank you so much.

(interpreted) Thank you, Ivan speaking. I'm going to pass it on to Celestino, the director, to talk about the transfer of rights. And your next question I will be answering.

(interpreted) Bruno, thank you. Concerning the expectation, actually you have other variables that influence the price of the commodity. If we look at the seasonable thing, what we have to look at is not only the Brent and the exchange rate, but also the volatility of the spread.

Last year, for instance, in the winter we have a very hard winter in the US and stocks -- diesel stocks they went up and the spread did not open so much as in the previous year, 2015. Of course, we are looking at these variables and we are seeking to reevaluate the margins of our business.

(interpreted) Good afternoon, Bruno. Concerning the first part of your question on the transfer of rights, we are right now in the same position. As of our last talk, there is not an underway negotiation.

You were asking if it's ongoing; there are -- have been talks about perimeters, which are going to influence this evaluation, and Petrobras since the beginning of 2015 has been discussing with the Treasury Ministry and other areas about the [premises]. I cannot state that there were convergency in the items, as you have mentioned. And much less I cannot mention and say anything about the timing, because still the two parts have not reached an agreement and we don't have the documents in hand so that we formally begin the negotiations.

(interpreted) Bruno, if I understood you correctly, there is no old arguments to the divergences in the companies. They have been taken care by a committee in the companies and we are about to see the adequate forecast.

As for your question, as if there was an explicit thing about it as it was in a report in the media, the Company doesn't know anything about linking the results of the transfer of rights, as Director Solange has said. There are no perimeters or nothing has started, nothing is ongoing; much less with the tax-related.

(interpreted) Thank you.

(interpreted) Christian Audi, Santander.

(interpreted) Thank you, Ivan, Solange, Isabela, and Petrobras team. My first question is related to the thermals. I know that historical you have a tendency of making more adjustments, so my question is related to impairments.

But we had changes; so what happens is that the level of adjustments of the quarter is going to be lower than in this third one. And since it has been adjusted because of the strategic plan we can probably expect a lower level for next year. So I would like you to talk about that.

The second question is related to your continued success with the CapEx, keeping it low, if you still view it the same way; if it's going to be in the third quarter or if it's going to be moving on.

(interpreted) Christian, thank you so much for your question. As we have already mentioned yesterday, the trigger, the test is mandatory. The test is mandatory, as you said, so the Company always did this test in the fourth quarter, but with the approval of the new plan and the alteration of some important variables -- long-term exchange, Brent price -- we decided to do this test in the third quarter and the results of the test was taken to the balance statement of the Company.

As I mentioned, yes, the company, with data that we have today now as I speak with you, there is no expectation that there are going to be imparities for the third quarter. Not even for the next quarters. So with the data that the Company made available today we do not have any indication that there are going to be anything happening of this magnitude.

As for your question related to CapEx, I don't know which of the directors are going to make any comments on that. Christian said that the CapEx has been behaving in the lower levels and the production has been captive on the same level.

(interpreted) Well, Christian, along this trajectory of investments in these areas, these characteristics is very particular. These investments, they return in the midterm and three, four years ahead. So as we suffered an important impact of delay of some platforms, we have today in our portfolio some anticipated investments, so it is possible, of course.

We looked at that very attentively because we are working emphatically looking for a good forecast of the production. This is very important for our financial management and we look at the forecast of midterm and long term, so it is as if we had an anticipated investment. It's possible to signal.

With this level of production, of course, there is a profit margin. This level of production with the investments finalized, too, because part of these investments were already anticipated. An example that I mentioned is that -- a practical example of what I'm saying is for the projects of 2017 on almost for all of them, we have the first well ready, finished. So this is already anticipation of investment that makes this relationship that we present this is made in a very [gratuitous] way.

(interpreted) Thank you, Solange. Only a quick follow-up. In the strategic plan, you mentioned in detail all the efforts related to cutting costs. Could you comment on that; how these new initiatives are going to develop that Nelson has discussed since the beginning of the announcement of the plan?

(interpreted) Christian, what we have done so far, we have been evolving, radiating throughout the Company the plan and how these things are going to take place. We have several initiatives. Our director Solange has already mentioned about that.

We have a third wave of negotiations with suppliers. There are several initiatives identified in the Company and we're going to apply these -- we are going to apply to these initiatives the methodologies accordingly. So we're going to enter the next year with all of us knowing exactly what our challenges are going to be related to the goals that the Company has disclosed, both the finance security and all the other goals.

So I would like to insist that we are seeking to have a company that is resilient, even in a brand environment lower. Solange said that as the Pre-Salt production continues, so this higher competitiveness is going to reflect in the indicators of the Company in the next quarters.

(interpreted) Excellent. Last question is on -- thank you so much for the sales of assets explanation, which shows in a clear way where you are heading.

On the topic of -- eventually, if you are able to talk about refinery figures, would you be analyzing anything along the lines as you did with (inaudible) potentially, even selling a major part of refinery to a company which is interested? Would it be something that you are looking at potentially as these processes develop?

(interpreted) Christian, we still don't have a definition of the final model that we are going to discuss with the market, because first of all, we have to have an internal discussion led by Celestino, our director; then after with the executive director and with the council of the Company.

We still don't have those definitions, but I call your attention that the new pricing policy that was implemented and has been practiced opens the way to this process, so that this process is better welcome. In our view, this new policy brings great benefits to the Company. People are going to know that there is predictability of the Company and this is going to have a positive impact. Thank you.

(interpreted) Caio Carvalhal, Banco do Brasil.

(interpreted) Good afternoon, everyone. Maybe it was already mentioned before, but I would like to ask it in a different way.

When I look at the chart impairments, I know that they are excluding the sales of PESA Argentina. I know that there were two major groups and they were related to assets that were already in the final chart. And also -- so the impairments which were related to the revision of new premises, exchange rates, and oil prices.

Ivan, you've already answered that, but I would like to confirm. Related to the first group of write-offs which are related to assets that were built, we should wait -- shouldn't wait anything else from this group. So this was a comprehensive answer or it was just about the two premises?

And also the two groups of impairments, can we imagine that this could be in a positive way, the outcome would be positive? The situation of exchange, the oil prices improving we could have a reversal of this loss? Or no, these were assets that were already depreciated and premises different from reality and that wouldn't get back to -- the Company wouldn't get back to them in midterm?

(interpreted) Caio, if I got it right, your question, let's break it into parts.

So the policies from outside the Company we have no control and they are applied and we left it very clear since yesterday. And the influence that they have is (inaudible) broad data. If you take -- 80% of it is linked to rate exchanges.

So specifically you mentioned refineries. I would like to remind you that we have already done that since February 2015 a revision of the plan, then a second revision, and now a completely new plan covering 2017-2021. Basically refinery is Comperj Complex. When completely off the horizon of investment, the decision of the Company was we are not going to do any investment in Comperj Complex because of the restrictions, financial restrictions of the Company.

So you have to take this complex. This is exactly what happens with the trains. They were forecast for the next plan, 2017-2021, but you have to realize the test and then you exclude this asset because it's not in the horizon of the plan.

With relation to the second part of your question, I'm going to pass it on to the launch Solange Guedes.

(interpreted) Good afternoon, Caio. The second group that you mentioned of the impacts that took place because of new premises, you are correct in your evaluation and I think there is something which is very positive about what you are mentioning and that we can talk about here.

Obviously, we are working with premises that -- and we are looking for premises for our business which are strong premises. Petrobras has to be very wholesome in this new recovery process, so this brings consequences. But I would like to highlight an example that we report here in our ITR, which is of an action that was very important in the case of IT assets, which is this intensive work of the [base zero]. All kind of work related to cost reductions and optimization reflects in all the areas, even if the premises are the same.

We intend to keep this premises. In areas that in 2015 when we did all the adjustments of EBITDA with this drop of prices, we had several IP assets. And now in the year 2016 we have a reversal of this provisioning and this is very typical that there was a revision in these assets. So we can see all the opportunities of reductions of costs.

This way in which we are going to work in a very intense way of generation the value of this asset, this is going to make this provision -- in some cases there might be some reversion. Thank you.

(interpreted) I have three questions. First with relation with the platforms (inaudible) and when they were -- the forecast of they coming into operation? What are you doing in relation to that potential delay in the construction of these rigs or are they coming into operation?

Also, the sales of assets. Can we assume about the GAAP the latest assets? What about the goals or is there anything else that hasn't been disclosed? Unless (technical difficulty) to the stocks, New York stock, we can't detail that too much, but I have heard some shareholders that have left, that (technical difficulty).

(interpreted) Thank you very much. I will pass the floor to Moro.

(interpreted) Well, P-72, -73, I don't know whether the Chief Executive Officer knows about this or is going to talk about this, but divestment is something that you really point out.

(interpreted) Okay, Diego. Well, P-71, -72, and -73, it was in the horizon of the plan. It's still there, but we have reduced our expectation for [2001] to receive the whole of the drilling rigs or the platform.

But considering the lower situation and the reaction, because it was for 2021, so we have low accountancy and it's still in the plan with no impact for the outputs because we have time for doing an alternative way of behaving. In accordance to the other drilling rigs or in the platforms, they do not impact the plan. We simply lowered the cost and the outputs of these other platforms.

Well, Solange considers that it was already answered and the information we released they are in the level that we have to reach the market, but some items we could not release because it was not mature. But this is a goal of the Company, around 15,000 till the end of the year, 2016. We are preparing the Company, we are discussing it, internal discussion how to reach the goal of almost 20,000 millions.

We don't know anything about individual behaviors from the United States. Well, is there anyone at (inaudible) that migrated to the individual because of quicker agreements? As I've told you, we didn't have any growth, so we can't have individual actions or individual behaviors.

Next question, please.

(interpreted) (inaudible), Credit Suisse.

(interpreted) Good afternoon. Thank you for taking. I would like to tackle the way of management of the Company in areas of oil, crude oil in accordance to the last result, generation of a cash flow, a positive cash flow. Well, there is a concern on cash flow generation in the future, for the future as you have to low down your prices because the commodity in the external market is down.

My question goes in the very sense that whether you have an expectation considering timing and figures that could implement the budget and how the market could follow this downsizing or these lower prices if you were practicing or the world is practicing?

(interpreted) We know that we have a surplus volume. This is conceptual. We understood that this is a review process and we can't have any reference in full for that. But the idea is more strategical in the way that we have viewed areas with very big reserves, obviously in accordance to the industry in Brazil to develop or to have a development plan.

Just taking into account one or two variables, maybe we have to discuss with us the difficulties to invest in the same area. And I don't want to enter in your reasons, but I propose that maybe the government should tackle area per area, maybe in a different way of approaching it.

(interpreted) Thank you. I will try to answer your question and then I will give it to Solange. Well, the controlling plan or the management plan follows the methodology incorporated to the metrics that we had released in the business plan. A strong operating generation as a result of several initiatives within the Company. Looking for a better effectiveness; preparing the Company to be resilient in the results, even if in a non-favorable scenario as we have today.

So our expectation is that we have gains for the next years; not only due to the implementing of new tools, but everything we do in the best way of having good results. This is the way the Board thinks. Now Solange will answer you the next question.

(interpreted) Well, okay. I do understand that this is a conceptual question linked on how we explore and the outputs in existing volumes in any area because we have a different operator. So in accordance to each operator, the results are different.

In a general way, in the oil industry as a whole, what we look for -- and there are equivalent processes. That is there are different processes that we have throughout the contract's mitigation. We try to do that -- useful life could be managed in agreement with the best practices.

We know that is a nonrenewable resource that we have to take very good care and agencies do it. So it's a little bit complex to answer to the international practices without mentioning restrictions, juridical or legal restrictions, to insert that environment in the second operator with different practices of the first and operating the same way. I can't find the parallel of this in any other industry, so I can't find this as an alternative.

I am quite sure that your question is very well-settled, but at the moment we are talking or re-dealing, renegotiation of contract. So my evaluation is that this new hiring, this new model will be dealt in a suitable way by the regulatory agencies, by the ministries involved, because there is something very, very rich, wealthy that could be changed or transformed into value. Turned into value.

So the contracts will be well dealt, well negotiated I guess. This will be the rational way of doing that.

(interpreted) It's quite clear thank you very much indeed.

(interpreted) Filipe Gouveia, Bradesco.

(interpreted) Well, at first, which is the position of the Company when we talk about the sales? By the end of the year you are going to be updating or something, but the volatility of the spread will affect these sales.

Is there any possibility to have an increase in one month or you have to consider the term of 30 days? And what was proposed on the tender of 2014? We wanted to know how this is this strategy going --.

(interpreted) We couldn't listen because the audio didn't come in.

(interpreted) Concerning Carcara, there is no update updating. The Company has fulfilled all the conditions, but we have no new information or relevant one.

Considering volatility of the spread solution we will answer you, but we had a lot of difficult to hear and to listen your third question. The audio was not good for your third question, so please repeat in a slow motion. Filipe, what are you asking?

(interpreted) We are asking the analysis and possibly due to our engineering way the policies foresee that at least once a month we could see it and discuss these items.

(interpreted) For sure, there is a management of the Company that analyzes the performance of the waves economical results -- economic results and subsidize the executive group that works with prices in such a way that they can go on with their analysis volatility. Yes, we may have it much more than rebuilding the price within one month, within less than 30 days.

(interpreted) Well, the executive group has no linkage with the Board. Isn't that --?

(interpreted) Well the executive group, or the officers group, is composed by Pedro, the Chief Officer, CEO; CFO Ivan; refining and natural gas officer. These are the three elements that compose the pricing unit.

The third question was not heard by a problem with the audio. At Petrobras -- we can't hear, we can't hear.

(interpreted) Just is there any updating if it was signed so please we would like to know the position of the Company considering transfer of rights?

(interpreted) Well, this is a decision that was taken by CNPE, but there was no further development. There is no contracts, nothing signed from that resolution of CNPE onwards.

(interpreted) Thank you, very much indeed.

(interpreted) Pedro Medeiros, Citibank.

(interpreted) Good afternoon, all of you. Thank you very much indeed for the questions. I have three questions. Maybe they are more objectives, because they have to deal with results.

I would like to know the share participation, because in the third quarter we have a drop on figures. It's very relevant despite a growth on outputs. No maintenance on big systems during the quarter, so could you tell us what was the driver of this share or participation or the drop?

Also a lower on provisioning on diesel for the distributors, distributor companies; why the lower volume of sales? Do they have to do with the payment conditions? Can you talk to us about a better scenario?

And so for guidance, if we have a vision over the PDV, the dismissal voluntary plan, and the provisions that could impact those two quarters that reflected and impacted cash flow.

(interpreted) Thank you, Pedro. I will answer your second question. Solange will and I will talk about provisioning and then Marco will tell you about PDV.

(interpreted) Good afternoon, Pedro. (technical difficulty)

Please, dear participants, you have to wait a minute.

What happened with this credit by (inaudible) concerning provisioning what happened that do in the commercial relations?

(interpreted) So they started they made with anticipated payments. So with anticipated you can't have any kind of provision, so I'm going to have our director to talk about more updated results.

(interpreted) Summing up the two PDVs, 2014 and 2016, we already have 10,400 and so dismissals, so PDV of 2014-2015 and 3,985 in 2014; 360% pending the dismissals and according to what I have mentioned around 1,000 or 7,000 people or so potential dismissals. Also, several more dismissals.

(interpreted) Thank you. I would like to ask a question, Ivan. As for your question, is it possible to say that the next quarter this kind of positioning is going to be the same? I'm going to ask you a couple of times, but I guess this operator interrupted the answer of Solange and I wasn't able to hear the answer.

(interpreted) Pedro, as for provisioning, this kind of provisioning, commercial provisioning is going to continue. I'm not -- I don't know how to anticipate that; this is going to depend on the level of volume. This kind of commercial relation established that situations of delinquency, companies does all the provisioning, the changes and changes to pay ahead. You have to expect that from Petrobras and subsidiaries. Petrobras itself, it wants to receive at the right schedule. I'm going to pass it on to Solange.

(interpreted) Pedro, what I was trying to clarify to you is that, yes, we had an interesting effect in our lifting cost, especially because of the drop of --. What happened was the main result was the uses of some exploratory credits that we did encompass and they were highly relevant in our payment of special participation.

(interpreted) Frank McGann, Bank of America.

Okay, good afternoon. Two questions, if I could one. One just in terms of cost for the -- on the lifting cost side have come down very sharply and pretty much across the business.

Just looking at future development costs, I was wondering if you could comment perhaps on the upstream business on how you are seeing the per-barrel costs for Pre-Salt for future developments, as well as for non-Pre-Salt developments. In what range would those be now as you look out towards bringing new products on stream in the future?

Then, secondly, I was wondering if you could give a quick update on how you are seeing the class-action suit process and what -- how you see the timetable in terms of when we could see some movement on that over the next six to 12 months?

(interpreted) Thank you, Frank, for your question. I'm going to pass it on to Director Solange and later on I'm going to make a comment on that.

(interpreted) Good afternoon. (technical difficulty) opportunities are evident, mostly in the construction of wealth, and there is also a long way to go and we are very focused on that in the area of subsidy costs.

Let's internalize for the next project the reduction of costs of the suppliers. And also, there is additional room to reducing unitary costs in the Pre-Salt, applying technologies that are going to be used for higher individual productivity per well. This is very clear and this is a great and excellent opportunity that we have ahead.

(interpreted) What happened in the United States about class action, on November 2 the investors and the attorneys at law that represented Petrobras in the class actions, they put, together with the higher court, the [RO] maintenance. And they wanted to suspend any procedures considering the trial and it was foreseen to happen in September.

After this, where we clarified both parties of their -- whether they are favor or pro or not for the certification of the class action, the court does not have a term defined so we have to wait. We don't know when, but we have to wait the decision, the court's decision over the arguments that were stated by both parties' attorneys at law. Thank you.

(interpreted) (technical difficulty) BPH.

(technical difficulty) My first question is on downstream. Yes, please. Can we expect stable downstream earnings and cash flow under the market-based pricing policy? And are you able to give an expected range on EBITDA, either on a quarterly or annual basis?

Secondly, on the Campos Basin, thank you for disclosing the 6% decline rate. Is it possible you could disclose any kind of level of investment that you are going to put into the basin to further reduce this decline rate?

Lastly, on Papa Terra, any update on the issues there and your production outlook for the next couple years? Thank you.

(interpreted) The interpreters do not hear any word. Now you may go on -- just a moment, please. There is a problem in the communication that is a telephony problem.

(interpreted) I will pass the floor to Jorge Celestino that will talk about downstream and then Solange Guedes will talk about the declining rates on Papa Terra and Campos Basin.

(interpreted) Good afternoon. Concerning downstream, we have been operating with a very consistent, sound margin within our expectations on variation, watching the market, the variables on spread, and our prices policies. We understand that in the short term these margins and EBITDAs they are very sound, very consistent.

(interpreted) Concerning the output declining on Campos Basin, we have a drop, but it's under control. Currently it's around 6% in our business plan and we are forecasting to have an average on 9% decline per year for the next years. But it's not present in our business planning.

We are looking for -- intensely with a big effort on new technologies, looking for partnerships with operators or with companies that have specific technologies to deliver a new field with a smaller drop than the -- different than this 9% that is within our business plan.

Concerning Papa Terra, we are just concluding four groups that are working so intensively in the new modeling of the reservoirs of Papa Terra in new projects, new wells for Papa Terra, increasing effectiveness -- efficient on outputs, production, or drilling. We are very optimistic because we guess that soon we are going to have a new project to evaluate the new projections for Papa Terra.

(interpreted) Thank you. We are closing this moment this Q&A questions, so Ivan Souza Monteiro for his final remarks.

(interpreted) I would like to thank the participation. I would like to thank the participation of all of you and thank you.

(interpreted) Ladies and gentlemen, thank you. The audio of this conference for replay and presentation on slides are going to be available at the site, [www.BR]. So this webcast is concluded and it will be all available at the website of the Company. Thank you. Good morning.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.