巴西石油 (PBR.A) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Petrobras' conference call and webcast with analysts and investors for the presentation of information regarding the results of the fourth quarter of 2016 and the full-year of 2016. (Operator Instructions) Today with us we have Mr. Ivan de Souza Monteiro, CFO and Investor Relations Officer; Mrs. Solange da Silva Guedes, Chief Exploration and Production Officer; Mr. Jorge Celestino Ramos, Chief Refining and Natural Gas 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 2, which contains a notice to shareholders and investors. The words believe, expect, and similar ones related to projections and targets are mere assumptions based on the expectations of the Company management regarding the future of Petrobras. In order to start we will listen to the Executive Investor Relations Manager, Isabela Carneiro da Rocha, who will make a presentation about the results of the fourth quarter and the full year of 2016. Afterwards, we will have a Q&A session. And now, Mrs. Isabela Carneiro da Rocha will take the floor.

Good afternoon. I would like to thank you very much for your attention and we will start with the highlights of the period and then we will get into the full-year results. Starting on slide number 4, we start with the highlights of last year, with important information about the reduction of total recordable injury frequency rate, and we reached 1.63 at the end of the year, and this is the main highlight, emphasizing the safety of our processes and our facilities.

In relation to the financial and economic results, we would like to highlight net income in the fourth quarter of BRL2.5 billion, representing a reversal of the loss that we posted in the third quarter of 2016 in terms of operating income. Also a reversal vis-a-vis the loss that we posted in 2015. We reached BRL17 billion in operating income compared to BRL12 billion loss that we had in 2015. So these two reversals were very important, highlighting the effects of the fourth quarter especially.

In terms of EBITDA, it was a big highlight as well, with an increase of 16% in the adjusted EBITDA and then we will be talking about that in detail and about its impact. And the EBITDA margin, the first 31%, which is very high if we compare to the other companies in the sector. Free cash flow -- a positive free cash flow for the second consecutive year and the seventh quarter in a row and much higher in a comparison with the previous year. All this having an impact on the Company's deleveraging, which is a clear objective in our strategic plan.

And we can talk about the 6% decrease in the gross debt in US dollars. And the reduction was even higher, 22% in reais, because of the exchange rate defect, but it was also very important in dollars because of the prepayment and debt amortization that we made using the proceeds from divestments as well as proceeds from the operating cash flow. And with that, we were able to reduce by 31% our net debt/EBITDA ratio, that dropped from 5.1 at the end of 2015 to 3.54 at the end of 2016.

Going to the next slide, we talk about the records in our operating performance -- production records. We reached our target for the second consecutive year of production of oil in Brazil, 2.144 (sic - see slide 5, "2,144") thousand barrels per day. And the performance of the fourth quarter was especially important. In December, we reached a record of production reaching to 2.9 million barrels of oil equivalent per day. If we consider oil and gas, Petrobras with this increase in production became a net exporter, with exports growing by 12% in the last quarter. In terms of efficiency of investments and costs, we can see also a reduction of 32% in investments, a reduction of 6% in manageable operating costs, 6% in SG&A, and also a reduction of 22% in our workforce, being 12% our own employees.

These are the highlights -- summarized highlights of our results, and I would like now to better explain the operating highlights on slide number 7 about our production, the behavior of our production curve in 2016, highlighting the start-up of three large units, two in the Lula field and the other one in Lapa field, an increase of 10% in production between the first quarter and the fourth quarter of this year. If we consider Brazil only, this was 13% increase in production. So we reached 2.94 million barrels per day in December, breaking many different records as we said before, both production of oil in Brazil as well as the production of oil and gas in Brazil and abroad.

In pre-salt, I would like to talk about the performance of pre-salt. We reached two important landmarks in pre-salt this year, which was 1 million barrels per day in production of oil operated by Petrobras, [lifting] at 1 billion barrels already recovered in the pre-salt layer. For this year, 2017, we expect the start up of three large systems, two in the Lula field and the other one in Tartaruga Verde. That's also the -- about the EWT, the extended well tests, in Libra. And also new area being drilled in Libra and we continue with our activity in this field, and we are also reaching important landmarks, both in time and completion of wells.

On the next slide we talk about the increase in production, accompanied by a cost efficiency, a reduction in the lifting costs. We reached then for [six oil] by BOE and beat 10.6 in Brazil and 5.4 per barrel abroad, highlighting the lifting cost that was lower than $8 per barrel in the pre-salt. And this shows our competitiveness and high productivity in this layer. This reduction is also driven by the efforts that we made in cost reduction regarding reducing our helicopter fleet 21%; vessels, 26%; rigs, 24%. And we continue to reduce the time for the well construction, having reached 94 days in 2016.

Now going to the next slide, I would like to mention the higher integration among the areas and the synergy that we have in the whole chain of Petrobras, also due to the higher production of pre-salt and our oil profile was lighter. That is to say our production of medium oil has increased and this matches our refineries, because it allows for an increase in the participation of oil processed in the refineries and 92% on average of domestic oil in our throughput and 94% in the fourth quarter alone. With that, we were able to reduce the import of oil at a minimum level, very important for the production of lubricants. And we also reduced the logistics cost by doing that for the Company and increasing the yield of the more noble oil products that are diesel, gasoline, and also jet fuel. So we had 70% conversion which matches the profile of the Brazilian consumption.

Slide number 10 now. We would like to highlight the reduction in the sales volume. There was a lower demand in the domestic market to present in the year, and our sales were reduced by 8% because we had the effect of imports by third parties. Now, slide number 11, with the lower volume of sales, our profile of imports of -- and exports -- imports -- exports 634,000 exports barrels in the fourth quarter, with a net balance of 329,000 between oil products and oil. On the next slide, our perspective is that we will continue to be net exporters with the increase of production that we will achieve in a few years' time.

Now let's talk about the results for the indicators. In spite of a lower Brent, 17% lower than 2015, and lower sales volume, in spite of all that, we can see a gross income undergoing a reduction because of the lower sales of oil products and lower generation of power as well due to the hydrologic system that was more favorable in Brazil during this period. And we reduced the sales of gas and fuel oil. However, there was an increase in exports on the other hand with a lower Brent price, and this caused a drop in the gross income. If we look at the operating income, we can see the reverse of both from the third to the fourth quarter and from one year to the other.

And this is due to many different factors. The first one are the higher margins, the oil and gasoline and diesel that we saw during the year, stemming from the pricing policy that was set by the Company. And another important point was the lower expenses with impairment, much lower in 2016. We still have a large amount in impairment but this was concentrated on the third quarter. And another point was the sale of assets, mainly Carcara, which contributed to the operating income and also lower expenses in -- with imports and government take. And with a higher participation of domestic oil in our feedstock, which allowed us to reduce our imports and increase our exports.

In terms of net financial results, although we saw an improvement, this figure is a very high still because of our interest expenses, because the Company debt is so high. Nevertheless, we see that in the fourth quarter the operating income was enough to exceed this, so we had a net income in the third quarter. But if we consider the year, this was not enough to off-balance -- offset all that. So we had BRL14.8 billion in our net income as a loss for the year.

On the next slide we would like to talk about EBITDA. And there is a big highlight here, a consistent increase in our EBITDA figure, reaching BRL24.8 billion in the fourth quarter and BRL88.7 billion in the year. The 16% growth vis-a-vis 2015 and the EBITDA margin of 31% are driven by the higher margins for gasoline and diesel, less expenses in imports and government take, and higher participation of the domestic oil in our processed feedstock, and also increase in exports as we said during the operating highlights.

Now, going to the next slide, we would like to mention the free cash flow. Positive free cash flow for the seventh consecutive quarter, stemming from the higher operating cash generation and reduction in investment because of our capital discipline that the Company has been adopting. And you can see a very impressive increase in free cash flow. In 2016, it was enough to cover our interest expenses and still be used to deleverage the Company.

On the next slide we can see the behavior of our debt. We had prepayment and debt amortization which allowed us to reduce our indebtedness -- our net indebtedness in dollars. We also reduced below $100 billion and we had $96.4 billion. I would like also to mention the behavior of the average debt cost. The small reduction in the fourth quarter and also an extension of the debt, 7.46 years; 55% leverage.

And on the next slide you can see that this stems from the liability management -- active liability management. So the blue bar shows our current position in terms of maturities for the next few years. And as we said before, without an increase in the average cost of debt, if we look at the third quarter, the last quarter only. Now, our projection regarding cash flow for this year, with an operating cash generation of $15 billion expected. Judicial guarantees, about $3 billion. Amortizations and interest, $16 billion. And $6 billion in the tender offer already carried out. $2.8 billion expected; around $20 billion investments; divestments, $8 billion; cash flow borrowings that have already been done at the beginning of the year, $4 billion. And we should close the year with a cash position around $20 billion or $19 billion. So, a good projection as well in terms of our liquidity.

Now, regarding our EBITDA management plans, our BMP, we would like to track the results from the plan, going back to the four pillars. First of all, as we said, the total recordable injury frequency rate, that is being consistently reduced and reaching the target that was established for 2017. We reached it in fact in 2016. The next pillar of the plan are the competitive prices, and we would like to inform you that in October 2016, Petrobras disclosed its pricing policy or the beginning of a natural pricing policy, and we have already made six reviews since then for the prices of diesel and gasoline, both upwards and downwards. And this is being done by observing the level of imports and also the commitment of never having prices below the international parity, and the behavior of imports of diesel and gasoline by third parties.

In case of diesel we saw a reduction over the last three months of last year. And in the case of gasoline, it was not possible yet. And we would like to mention that there is a gap of about two months between the decision to import and the effective import. This analysis in the quarter is not really conclusive. It will be more conclusive over time. It's important to mention that we made available for the first time a report about our pricing policy, both for gasoline and diesel, and this is available on our website as promised and it will be made available on a quarterly basis, [pending] the rationale for the changes in prices of gasoline and diesel.

On the next slide we have another pillar, which is CapEx or CapEx efficiency. And we have announced $74.1 billion in the five years of the plan, and we adjusted that to $74.5 billion due to what we achieved in 2016. In 2017, the investment will be $19.8 billion expected, in partnerships and investments, as we said. We are adjusting to $21 billion between 2017 and 2018 because we had $13.6 billion in the 2015-2016 period. And so we have $1.5 billion still remaining vis-a-vis the target that was announced.

We reduced our expenses manageable operating costs. This is another pillar of the plan, which is our efficiency in OpEx. And we were able to reduce our SG&A by 6% in the year with a reduction -- the number of employees in the system, our own 12%, and we closed of the year with 68,829 people in our workforce. This site's work was set regarding the reduction in the lifting and logistic costs and we reached a reduction of 6% in operating -- manageable operating costs.

On the last slide we have all these still [lurs] converging to the metric that was established in our BMP of net debt/EBITDA for 2017-2021, 2.5 in 2018. So we reached 3.54 already in 2016. And this is evidence of the behavior over all the quarters last year in which we can see a consistent drop. Thank you very much and now we will start the Q&A session.

(Operator Instructions) Luiz Carvalho, UBS Bank.

I have two questions and one follow-up question. My first question, perhaps to Ivan or Celestino, now that the GCU, the federal accounting court, has approved the sale of assets, I'd like to understand what is your rationale? And which of the process has evolved? AMP, how the workshop in Rio in the beginning of March about the Brazil fuel program launched by the federal government. And the perception -- the perception we had in terms of the monopoly of Petrobras in refining will depend on how Petrobras sees that it should perhaps lead the segment. So let's understand what is the model you have in your minds. How is this evolving?

My second question is perhaps geared to Ivan. I'd like to know your opinion, your take regarding the transfer of rights with the government. The government has been saying that the AMP value should be ready in the coming weeks, and I just want to understand the time horizon you are considering for that. And secondly, how is Petrobras -- which form of payment Petrobras feels is the most adequate at this point. And my follow-up question has to do with the leverage that you presented in the third and fourth quarters. When we look at net debt over EBITDA ratio, apparently you're not including liabilities related to pension funds. And I would like to know whether the 2018 target takes these liabilities of pension funds into account or not. Thank you.

Thank you, Luiz. This is Ivan speaking. Well, starting with the last question, it does not consider liabilities of pension funds. As for the first question, our strategy regarding refining, I will turn the floor to Jorge Celestino for the transfer of rights. Solange will answer your question.

Hello, Luiz. Regarding a program of partnerships in refining, this has been our business and management plan for 2017-2021 horizon. It is one of the strategies. This makes sense when you look at the whole oil chain, looking at the upstream, E&P, downstream. I always like to highlight this aspect, which is extremely relevant. We had the participation of 78 companies in Brazil in upstream, also in retail. There are companies operating more than 150 distributors. Some distributors participating in partnership with Ipiranga and other companies.

Hence Petrobras is very concentrated on refining, so our strategic plan has been clear. We will be seeking partners for refining. From the business standpoint, this is very good. We see that this will bring great advantages. What we are doing at this point is cascading down the models. There are some regulatory impacts, (technical difficulty) impacts, and we need to factor in all of the restrictions and we have to approve the model by the management and with the Board so that we can move ahead.

This is Solange. Hello, Luiz. As for the transfer of rights, it is indeed a concern, and we have a great interest. And the government and the market are all interested regarding the events for 2017. So, yes, as far as we know, report from ANP, National Petroleum Agency, might be made available in the end of March, beginning of April. And this is going to be an extremely relevant landmark. As soon as it is disclosed, the parties involved in the signing of the contract will be sitting at the table to discuss the values. As you probably know, in the contract it is of course best if there is any credit on the part of Petrobras.

The forms of payment that the government has in the contract are payment in cash, payment in federal bonds, and also the possibility that we can agree on a different form of payment. Petrobras will definitely explore all of these possibilities that are enforcing the contract so that this will be not only a good negotiation in terms of amounts. We believe strongly that we are entitled to a credit in this renegotiation, but also we can perhaps tap into another possibility. This would depend on legal adjustment and perhaps this other form agreed by the parties could be some additional volumes to those already contracted.

Thank you. Just a quick question, if I may, in regarding the timing, Celestino, when do you think the management would be able to approve the new model? And Solange, do you expect that this negotiation to happen this year in the second half of the year? Do you think it's feasible?

This is Celestino. Luiz, I cannot give you a precise date because we are still closing the model, fine-tuning the model, taking into account regulatory impact factors. This doesn't depend only on us. We do need some fine-tuning here. We want to do this as quickly as possible. We took on the commitment to do this as fast as possible and we are sparing no effort to do this as fast as possible.

This is Solange. Regarding the renegotiation of the transfer of rights, as I said before, we haven't got anything defined yet. There is no definition regarding amounts, credit, or debit, nothing of that sort. But in our assessment, we believe it is possible and we will try to finish this discussion along 2017.

So thank you Solange, Ivan, and Celestino.

Caio Carvalhal, Brasil Plural.

I'll ask a question and a follow-up question on the transfer of rights. My first question has to do with the discussion at CBM, the Brazilian SEC. Is Petrobras eligible or not to use the accounting hedging mechanism? Could you share with us perhaps the timing of that process? I mentioned that Petrobras has filed an appeal and this appeal is being assessed by CBM. I'd like to understand the timing for this to be completed at CBM, and if possible, if you could give us some color on the part of Petrobras, if Petrobras loses in CBM's position, if there is any expectation of appeal to higher instances. And when would this be finalized?

The second part of this question. Is there a deadline for a retroactive impact on the 2016 results? Because CBM, as I understood, requested Petrobras to resubmit their results for 2013, 2014 and 2015. So, what was done in the past -- but what was done in the past would not change. So my question is, to what extent can this impact the 2016 results? And I mean a real impact, and not just a simple resubmission of the figures. Is there a deadline? And any expectation that this could happen? So, this is one question.

And my follow-up question has to do with the transfer of rights. Supposing that Petrobras is entitled to a credit, the credit will be paid in cash or perhaps another form of payment? You said barrels would be the most natural alternative. So my question is what kind of control does Petrobras have? Can you demand the payments be made in cash or in barrels? I understand Petrobras likes the alternative of being paid in barrels, but perhaps cash would be more interesting, particularly for Petrobras's balance sheet. To what extent does Petrobras have control over the solution? And more importantly, if it's barrels, what would be the legal implication? Would this be going back to Congress or in Petrobras' understanding, Petrobras could have additional barrels unilaterally without involving the legislative power?

This is Ivan, Caio. Well, to answer the question on the hedge, Petrobras has filed an appeal to the technical area of CBM. And we will be awaiting their reply, and their decision would not have a deadline. As this is CBM's internal procedure, we have no control over these internal deadlines that CBM will be using.

Caio, this is Solange. Well, to try to give you a little bit more color on what may be coming ahead, we still have very little definition regarding the forms of payment. I told you what is in the contract. So what we did in recent months was to create at the Board a committee of minority shareholders. And the moment we have the recourse, we will try to validate this form of reimbursement, if any. Again, I am limiting myself to what is written in the contract. We will try to tap into all of these possibilities as set forth in the contract. The payment in cash with either bonds or even barrels, as we mentioned. If we were to be reimbursed in barrels, this will require some legal adjustments, yes.

Thank you, Solange. One final follow-up regarding the accounting hedge. I understand that now the ball is in CBM's court. From what I understood, you have no deadline to get a response -- but no deadline? Don't they have, like, 30 or 60 days to reply or can they take as long as they want to reply? And the second part of my question is, is there any risk that CBM's decision will be applied retroactively? What is Petrobras's take on this? I mean, again, Petrobras could always appeal to higher courts if an unfavorable decision is reached. So, can we have a retroactive impact on the 2016 results?

This is Ivan again, Caio. We filed an appeal last Friday. The file was -- the appeal was addressed to the technical area of CBM. We have to await their response to see what other measures Petrobras will adopt. While we do respect CBM's technical department, we will wait for their reply. I cannot tell you anything regarding what their reply will be. We have to wait and see what will be the measures to be adopted by Petrobras, but first we have to hear from them.

Okay, it's clear now. Thank you.

Bruno Montanari, Morgan Stanley.

My first question is about SG&A. The fourth quarter reduction was quite interesting. Do you think that this was the effect of the manageable cost reduction? And looking at this 11% reduction in the quarter, can this pace be maintained in 2017? My second question to Solange. What is the schedule for first oil for P-66 and -67? And in the case of P-64, -65, -66, could you give us an update on the physical progress of these units for 2017? Thank you very much.

Bruno, I'll turn the floor to Solange first.

Bruno, hello. Well, as Isabella shared with all of you, P-66 is already in position. First production well is already interconnected and we are waiting for the coming days. The completion of the assessments that are being made by IBAMA environmental agency regarding the process itself, the common licensing process. And we are ready; just waiting for the license. P-67 for the year-end, it will leave China in the second half and our target is to accelerate the works so that it will be practically ready. All of the wells are ready, so that -- I mean this is going to be a challenge, but we are going to pursue the start up of the second replicant still in 2017. I haven't got the figures here with me in terms of the physical progress for our units for 2018, but the progress of all of them, particularly Buzios 1, Buzios 2 and Buzios 3, those are -- the expectations, particularly for Buzios 1 and Buzios 3 -- the expectation is that we'll be able to interconnect the platforms in the first half of 2018.

Bruno, this is Ivan speaking. The expectation is not having the same order of magnitude, but this is one of the pillars of the plan. In our business plan I'd like to remind you we have competitive prices, discipline in CapEx, efficiency, in partnerships and divestments. So this OpEx addition came; we had the goals. We applied the zero-based budget approach. All of our goals and targets were cascaded down to all employees, down to supervision levels. They all know what the targets are to the pursued for 2017, and you can count that this pursuit of SG&A and efficiency will continue.

Thank you, perfect.

Rodolfo Angele, JPMorgan.

Perhaps if I could elaborate a little more on TCU's decision, the federal accounting court decision, what were the more relevant facts agreed with TCU? You are obviously continuing with these divestment approach for the next two years. Perhaps is this going to be back-loaded for 2019? This is my first question. And my second question has to do with costs. Quarter after quarter we the Company's lifting costs reducing, and I'd like to know from you, what is your expectation for this year? Is there any more room to reduce these costs even further? Thank you.

Rodolfo, good morning and thank you. Thank you for the question. I think that we had a great lesson learned in 2016 regarding the partnerships and divestment program. We have a specialized team in the financial area and a specialized team in the legal department, and in every process you have lessons learned. What TCU will approve now, or the change in the system approved by Petrobras as a response to demand by TCU. TCU asked Petrobras to make changes and Petrobras understood that these changes would be beneficial to the process. Made in the request of TCU. Whenever we have an asset or a company in the partnerships or divestment, this has to be approved by the management, executive management of the Company. And the management follows the process all the way to the end. And whenever necessary, we submit approval to the Board or to the General Meeting.

What is going to happen is that in the beginning of the process, approval by the management for an asset or a company to participate in the program, and its completion when divestment is approved, these things happen with intermediary phases. These phases would be reported to the management and to the advisors to the Board. Now, we will require formal approvals, which to us is not a problem at all. Because instead of being just a report it will be a formal approval. Now, obviously there will be greater administrative work, but we understood -- the Company understood the request of TCU. TCU understood our allegations. For example, the choice of advisors, the criteria we used to change the advisors, the criteria we used to prepare the [procedures in home] we invite. And all of this is debated with TCU, the federal accounting court.

And now we have a process which was validated by TCU. They corroborated the proposal by Petrobras and I think the lesson learned from last year will speed up what we will need to do again this year for some of the processes that are already underway. Another example, if we had a process where we had the seizures, we had the NDAs approved. If we have to include different proof of potential candidates, just the new potential candidates will need to sign a disclosure agreements that normally require internal approvals by Petrobras and the prospect candidates. But for those who have already signed an NDA, we won't need to make them show the whole process again. So I think that we can speed up the process. And now I turn the floor to Solange.

Your question regarding our lifting costs. As presented by Isabella, we are working strongly on our logistics costs, offshore logistics, E&P logistics, because that's where we have room to work better with even more competitive costs. In terms of forecasts, I think that we are going to have some improvements in the area. In the startup of new systems, as it happened in the end of 2016, as FPSOs, Cidade de Caraguatatuba and some other events, it is only natural to have a [flight] to rebound when the unit starts operating, because there's all costs and little production. But this reduces overtime with a ramp up. This is what happened with all of our units and it will happen again. But at the moment, when we have a large concentration of new units starting up, this can happen. In the midterm, however, we intend and we announced it in our business and management plan, 2017 to 2021, that we would be operating with lifting costs under $10 a barrel.

Thank you, Solange. A follow-up question to Ivan. Ivan, regarding still the federal accounting court process. Is it different if we have a complete sale of an asset or a partnership? I mean, how do you see this? Does it go through the same kind of -- the same type of formality, or is it different?

No, this is different. A partnership involves a long-term project and process and not simply a sale of assets. It involves a lot more than that. It involves technological differentials. The Sao Paulo example is very clear about this. And there will be mutual benefits to be captured by both companies, including Petrobras, for a very, very long time. So it's different than simply selling an asset, for example. We sold our redistribution in Chile; simply different. The partnership has a common long-term vision of investments made in Brazil with a fundamental characteristic to have a differential that gave up Total. It was quite substantial in terms of technology to reduce the future costs and exploration costs for both companies in Brazil.

Thank you.

Lilyanna Yang, HSBC.

I have two questions. One about the partnership with Total. This $2.5 billion in the partnership seems to be quite low. What is the value of the reserves and how much will this partnership impact your production cut for 2021? And in this partnership, you [just] have a carry of CapEx in the areas in this partnership where Petrobras has a participation? What about the access of Total to the gas pipeline and LNG? And the second question is about your contingencies. BRL31 billion in the quarter, much higher beside the expenses with the pension funds. So could you give us some color about that? Are you concerned with the contingencies? Because I understand that you don't have a high probability of becoming provisions or generating provisions, but how are you managing that? Have you been changing anything in your legal area in this regard? Thank you.

I will give the floor to Solange and then Jorge, and I will answer about the contingencies. Thank you.

Good morning. The agreement with Total that Ivan has already explained to you very well is as follows. What we value is the fact that those companies are very happy with the deal, with the [illustrated] agreement. Because of the potential of very high synergies between the two companies in any aspect in the exploration activity and the -- both companies share very similar portfolios in Brazil and in Africa (technical difficulty) and this allows us to explore synergies and tap into synergies for this business in which we are partners. There is no assessment yet regarding palpable, concrete benefit or visible benefit, and this is just starting.

This is something very recent. It's a very recent fact, so we still don't have the -- this assessment. And anyway, we wouldn't be able to share some of them right now. And I would like to stress the strategic importance of the partnership because partnerships make things happen. Things like risk reduction in our activity in upstream and the delivery of value that, only when we really go into these synergies and study them, we will be able to define.

So, could I say that the partnership or the delivery of the control in some assets are not included in the curve that you deliver to us in 2021?

No. No, we remodeled. Some other divestments are included, however these partnerships are not included.

Now, regarding the participation in the access of the regasification terminal and the gas pipelines and the thermal power plant, there is an estimate for a certain period of time. That is to say, they should be done by means of a contract with a payment of rate, with the right to participate in the assets as we consolidate our studies about this partnership. So it starts with a tariff and afterwards we have a partnership in assets.

You don't have this in the $2.5 billion?

No, no. It's already factored in, in this amount.

Now, regarding contingencies, we have a very clear criterion of being transparent and a very rigorous analysis of any contingency regarding establishing, or not, some level of guarantee or the probability of success. You can see that when growth occurs, it occurs not in new events. They are exactly the same events in different years. So, we have some amount that we provision for and some others that we don't. So, what you can read in our report today is a total transparency regarding liability and the constant tracking of each one of them. There are always administrative decisions and of course afterwards you have judicial decisions to be made, and you have changes in the jurisprudence as well. Everything is taken into account quarter by quarter, and there is a very detailed study by the area.

So you have not changed the methodology. In fact, the disputes that you still have are because contingencies have increased. But what normally occurs -- and this is what you can see -- are some events or some discussions in which you have situations that repeat themselves and repeat themselves for some years. So, what we have is a certain year you have a certain decision, and then you have another one in another year regarding that same one that was incorporated in the audit that was made. But you do have a diversity of themes and you continue to have this tracking. It's important to say that you have to track from the administrative viewpoint at the curve and then from the judicial viewpoint as well. If a decision occurs, a judicial decision occurs, and that changes the jurisprudence [over] with the understanding about this doesn't matter. The legal area is the first one to express itself regarding that and guidance regarding provisioning or not for that situation.

One clarification about this increase. Could you put this into context? Because there will be a reclassification now, and where does this amount come from? And how can you assure that there will be no future negative amount?

What happened was the following. There was an increase in the actuarial liability because of the discount rate, the difference in the discount rate. This is the only reason.

Okay, thank you.

Diego Mendes, Itau BBA.

I have two questions. The first one to Celestino regarding the use of the capacity of your refineries. We have been seeing utilization rate drop inconsistently, and how much does it have to do with maintenance stoppages? And how much do you intend to have in 2017 in terms of stoppages, program stoppages? And what is due to a lower market share in the domestic market? And the second question is to Solange about production in 2017. With the target that was disclosed in your plan for 2017-2021, you considered the divestment of assets, and now probably because we might see a delay in that, but could you tell us which is your target, including the disposal of assets? And also another question, in the cash flow that you have on slide 19, you are considering all $48 and exchange rate BRL3.55, or has any of these assumptions changed?

Jorge, please.

Regarding the use of refinery capacity, it does not have anything to do with an increase in stoppages. Of course, as the market is bigger now, there are two ways you can do maintenance outages or schedule stoppages based on time or cost. When you have a higher market or a bigger market, you use the stoppages of the refineries to have a trade-off. But the biggest effect is the market effect. It has nothing to do with an increase in maintenance stoppages or corrective maintenance of scheduled maintenance, which is different from preventive maintenance.

Good morning, Diego. We closed our business plan with a very firm premise of use of the divestments analyses [2.07] target of oil -- reduced to 0.6 total production Brazil abroad. And we are addressing -- I don't have the precise answer to give you now because of the recent moment of the TCU, of the federal court of accounts, but this event has already happened and it was not included here. And this is the reason why we have to review our production, but we maintained our forecast according to the divestment point that I talked about before.

Diego, the values, both of Brent and exchange rate, are different from the plan. You are correct in this regard. So we have a Brent which is higher, $55 to $58 range, and the exchange rate is lower, between BRL3.25 and BRL3.30. So this is what we use for these projections.

Thank you very much.

Regis Cardoso, Credit Suisse.

Thank you for receiving my questions. I have two questions. The first one has to do with deleveraging and the second one the construction side -- for the wells in Libra. About deleveraging, it seems to me that the Company is really going toward deleveraging with the net debt/EBITDA indicator, which reached 3.5 times in reais and higher in dollars. But part of that is due to a cleaner EBITDA. But looking ahead, how do you see the possibility of reaching 2.5 times net debt/EBITDA ratio before 2018 because of the cash inflow that you already have contracted because of the divestments that were announced over 2016? And also because of the current pipeline of your asset disposal.

And what about the renegotiation of the transfer of rights? Could that play in your favor? And also regarding achieving the target or net debt/EBITDA ratio, there -- is there a level of oil price that you believe will help you reach this? And the second question is about the construction of wells in Libra. The one that was drilled and completed seemed in 45 days is rather impressive. And a doubt that we have is how this compares to the average of the other wells built in other pre-salt areas. As Isabella mentioned, 94 days on average in 2016. Thank you.

There are many variables that lead Petrobras to place at the target 2.5 in December 2018. We do not have any indication right now, and we wouldn't like to speculate about that, about reaching this before the target, but the target is December 2018. It's a -- you have the four pillars of the plan that help us reach this target, and what you can expect to see is our resolve in the sense. Always looking up to that and always reminding you that our safety target is much higher and much more important than anything. There is no amount of the transfer of rights in this. Nothing is considered regarding the final result of the negotiation because we don't have this result, so there would be no way for us to place in this indicator any contribution coming from this renegotiation.

Good morning, Regis. I apologize because maybe our materials aren't quite clear in this regard, but there are two ways we use to refer to the construction of wells. For instance, we are talking about two activities: the activity of drilling the well and also of equipping the wells. That is to say, leaving it ready to produce. As Isabella said, in our increases in productivity from the previous year to this one, we saw a reduction in the construction time for the pre-salt wells, 128 to 94 days. 27% reduction in this time, the time spent to carry out both things. And when we refer to Libra specifically, that was a highlight that happened in the second half of 2016.

We refer only to the second stage, which is equipping the well for production. They had already been drilled before. They were not drilled in 2016, but we only equipped them now. So it take us 65 days plus 53 in the other and 47 in the third. So these are the figures that we shared with you because in a short span of time, in a few months between the second half of 2016 and February 2017, in only a few months in pre-operations alone, we were able to reduce by 28%, carrying out the same activity in three different wells. So we had different metrics. So we are not drilling and equipping wells in 45 days. We are doing this in 94 days, which is our metric for 2016.

Very good, thank you very much. Very clear. Just a follow-up question, Ivan. Let's say there is a situation in which the Company reaches the deleveraging target before December 2018. Does it change your business plan? Because you had some activities, like going back to petrochemical activities, and you had this in a time frame. Would you consider maybe shrinking the divestment plans or maybe resuming these activities sooner than expected?

I will give the floor to Nelson now, but the answer is no. The short answer is no, but he will get into details with you.

This is Nelson, Regis. Just to remind you that we have variations in external factors, as you know: Brent, exchange rate. And in fact at the beginning of this year we benefited from a favorable exchange rate, more favorable than it was, the one in the plan. The average exchange rate, BRL3.48, and slightly better than we had in the plan. Better in the sense that the real appreciated. But we see many big oscillations in the price of oil. When we see $55, we see a strong reaction in the US, bringing the price down close to $50, $52. So, if we cannot waiver this effort that we make, mainly in terms of cost control. And the scorecard work that we do -- we had over 7,000 scorecards, over 30,000 targets and subtargets and target cascading; 1,100 action plans, and we are very firm with the execution of the same with a lot of discipline in the execution.

And in the first quarter, it maybe created a sensation of relief. That is [to say] very much related to the Brent price higher than we had, which was $48 I would like to remind you. So we must not waive our control in the execution. And in the first three months, when we compared to the plan, things are going very well both regarding OpEx and CapEx. And we are just beginning of the year, and it's too early to say anything. And we will continue to have a very strong focus, mainly on cost control.

Very clear, thank you very much.

Gustavo Allevato, Santander.

I have a couple of questions. The first is related to the partnership program. Given the development we had last week from TCU, perhaps Petrobras would be using more of this model. As the Company understands, then, might be easier than selling some assets but also because Petrobras might think partnerships are more interesting looking at the long run. My second question is related to the payment of dividends and PGR. Are you going to be paying for the employees, the profit-sharing? And my third question has to do with 2017 and CapEx. Given the oil prices, as Nelson mentioned, they are a little lower in the short term, will you be redoing your investments for 2017 at $19 billion? Or is it too early to review the CapEx plans? Thank you.

Okay, let's talk about sale of assets and partnerships, as these are two completely different universes. Sale of assets are related to Petrobras's need to reduce leverage. But also it is due to a strategic decision of the Company should focus on our main assets. We are an integrated company. We're going to focus on E&P and refining. These are the main drivers. So it's not petrochemical, biofuels, etc. the Company will be selling. In here there is a clear indication of what we intend to do. Partnerships are much more comprehensive, as you said it yourself. These are long-term deals.

Petrobras and partners with a common vision, but the partnerships are done very thoroughly, analyzed very thoroughly. In the case of Total, it seemed obvious. They have experience out of Brazil and the African coast. There is an effective gain, with a clear cost reduction in the future when we share these technologies and these prior track record of [touted], very different than just selling assets. We have two MOUs signed, one with Galp, one with Statoil. And we're so careful that we want to have a joint vision regarding the future of both companies in Brazil.

And if we get a consensus that we have a common situation, if we have common technological knowledge that can be generating higher value for both companies acting together, then I [belatedly] -- this is taken into account in our final decision. Okay? As well as their payment of profit-sharing and dividends. Dividends obviously not -- and as for profit-sharing, I will turn the floor to Officer Repsold.

Thank you for the question. Where a profit-sharing payment for employees is the result of attaining a set of indicators that are part of the economic clauses that the collective bargaining agreement, which is negotiated every two years, every odd year. And when we look at the set of [I sense] it would not match. And so, we will not be paying the profit-sharing plan to our employees.

Gustavo, as far your last question, it is too early to have discussion about CapEx revision. So this is not possible. We have estimated $19 billion. This is what we intend to invest at this year, okay?

Thank you. Thank you for the answers.

[Alsmar Camilla], Bradesco BBI.

I would like to have an update on the class action. What is the current status? What are the next steps? And what is the time frame?

Thank you for the question. The status remains the same. The appeal was accepted by the Court of Appeals. There is no deadline for a ruling. The oral statements have been made and now we are all waiting the ruling from the Court of Appeals. We have made agreements with A so-called opt out with individual plaintiffs that did not join the class action. And we haven't had an opportunity [the travess] always focusing on a risk reduction. We [couple], but at this point we are simply waiting for the ruling from the Court of Appeals, the appellate court.

All right, thank you.

Pedro Medeiros, Citigroup.

Congratulations on the results. I have a couple of questions. Some of them are follow-up of prior questions. The first, to Ivan or Solange, perhaps you could elaborate a little more about the CapEx guidance for 2017. Because in a comparison with what we had in 2016, we see an expectation of growth over 40%. Could you detail perhaps which segments will enjoy this kind of growth? And how much of the CapEx already factors in new investments and acquisition of new blocks, given that we have a vast agenda of auctions expected for Brazil?

Pedro, I will have Solange answer your first question and then you ask your other questions, okay?

All right.

This is Solange speaking. Pedro, we continue doing the same thing that we talked when we disclosed our business and management plan. Our investments are strongly focused on developing production at the pre-salt, if I could summarize everything in one sentence. And in the case of these investments, a little while ago I was asked about the platforms and transfer of rights and platforms starting operations in 2018. It will be a great moment for the Company and we'll have a lot of investments in anticipated wells. You will remember all of our budget today is geared to complete our platform, to complete all of the systems that we'll be starting up. There are some excellent exploration opportunities out there. This is the focus. You asked how much of the budget is linked to bids -- auctions, coming auctions. We haven't got a provisioning for this. If an opportunity arises, Petrobras will allocate capital accordingly.

Now you may continue with your other question.

Thank you. My second question is actually building up on what Solange said. I want to understand in this quarter there was a big revision in total provision to negotiate to the building of holes and platforms. So I would like to understand can you give us any guidance regarding how we should approach this topic looking forward? And these revisions, did they impact anything at the Company?

Pedro, what we have here is actually great news. Currently, we eliminated our risk that we had. And this was one of the most brilliant renegotiations by the Company, which now allows us to have control, have very good control regarding the finalizing of these vessels. And they are fundamental for our upcoming cash flow in the coming years. So we entered a new reality, I should say.

But this doesn't -- we are not considering now new bids or the ability of our suppliers that will be delivering the new vessels. Now we have some alternatives. We shared with you -- Isabella mentioned the FPSO of Tartaruga Verde and Mestica is -- had a final stage of its interconnection of modules here in Brazil. In the second half of the year, we are expecting the arrival of P-67 and we'll be completing the works there, too. In other words, there are no limits. Today we are not restricted in terms of completing our vessels. Neither are the chartering companies. And I stress that. That is very important. We have clarity. We have definition and control, which allow us to be very realistic regarding the deadlines that we are announcing. Do you have any additional questions?

Yes. Actually, I have two follow-up questions. The first, under the business and management plan for fiscal 2017, and do we expect an increase in the average price by ANP and any impact on the total taxes paid by the Company? And secondly, Ivan, perhaps you can characterize these strategic partnerships that you have with Galp and Statoil? Could you give us more detail, please?

Pedro, I will turn the floor to Jorge Celestino, who will speak about the business plan. And Solange will speak about the partnerships.

Pedro, regarding the PMR -- they are ARP, actually. We continue with our partners and other companies operating in Brazil with the government and ANP. At the moment, in the short term at least, according to the discussions that we are having, we don't see any relevant impact on the reference price ARP, but we are still discussing with all of the players. This is not finalized yet. Solange, over to you.

Pedro, actually thank you for the opportunity to share with you these strategies which I value so much, and that we're building with specific partners. As mentioned regarding Total, Statoil has a very specific strategy. It is a company recognized for recovering mature deals. We have a brilliant portfolio of offshore deals that are at an intermediate base of production and we have the true intent to look for synergies, competencies and financial capability to help us extend the useful life of these deals. And Statoil, it's part of this exercise. Galp has been a great partner for many years now. They are a true partner. They made several Petrobras projects feasible. And we want to use this integration with Galp to explore synergies to make some projects viable.

Thank you. Excellent, and congratulations on the results.

Eduardo Vieira, Deutsche Bank.

I have two questions. One has to do with the target of 2.5 times of leverage and another question about divestment. Could you confirm which Brent price is being used for your net debt over EBITDA ratio of 2.5 times? And as for your divestment, you have 8 billion to receive [along] 2017 and about $6 billion accounted in the current assets. And I believe that most has to do with the sale of NTS. So you are considering just 2 billion of cash coming in this year? In terms of announcements, [does this] company intend to announce other assets this year and the cash impact would be felt in 2018, perhaps due to the divestment reductions for 2017. And I would like to understand how much EBITDA should be lost with the assets sold so far and assets expected to be sold in the future? Thank you.

No, actually, the amounts we are posting are forecasts by the Company, subject to market conditions. But we are expecting cash flowing along 2017. A lot of it will come related to assets; [crude steel] were completed along 2016, but this is the amount, 8 million -- actually 8 billion, billion. There is nothing else expected in the balance sheet and this is cash that will be coming along 2018. As for being leveraged, we consider the data in our business management plan, the Brent price in the business plan and the exchange rates in the business plan. Now, what we did was an update. Since September we've gone a long way, so we updated our expectations. Nothing different than that.

And then for EBITDA, not only of assets sold or finalized but also for future ones, they will be incorporated as the deals come through. When we have an expectation, and this was taken into accounting the forecasts of our business plan. The EBITDA value of those project will be divested. For example, CapEx obligations will be removed. Cash coming in or flowing out will all be taken into account, but you have to remember, Eduardo, that this is all dynamic. It changes over time and it requires some updating. But all of that was considered, taken into account in our goal of deleveraging for 2018.

Perfect. Of the 19 billion that you still want to divest, how much is related to operations that generate EBITDA today in comparison to those that do not generate EBITDA? I just want to have a sense of it.

We work with our portfolio. The goal is not maintain it; it's 21 for 2017-2018. So let me give you one example. The sale of Carcara. Carcara did not have any EBITDA linked to it. First oil is expected for 2023, but there was a big CapEx linked to it. So the risk was taken into account the moment the deal [poked] through. So it's very hard to specify, because sometimes we have situations, such as the situation we had in the federal accounting court or in the judiciary brand, and other situations that we weren't imagining and that arose due to demand and things that were not in our radar and arose. So it's very hard to specify. The best information from the management at the moment of the business plan includes this forecast on slide 19.

All right, perfect. Thank you very much.

Thank you very much. We are now closing the question-and-answer session of this webcast and conference call. I now turn the floor to Mr. Ivan de Souza Monteiro to make his final statements. Please though ahead, Mr. Monteiro.

Again, I would like to thank you all for participating in this event. I'd like to thank my colleagues who joined me and all of your questions. If you have any further questions, please resort to our investor relations department. Thank you very much and have 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 very much for your participation. Please hang up your telephones and have a great day.

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