UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 6-K

 

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

 

For the month of February, 2019

 

Commission File Number 1-15106

 

 

PETRÓLEO BRASILEIRO S.A. - PETROBRAS

(Exact name of registrant as specified in its charter)

Brazilian Petroleum Corporation - PETROBRAS

(Translation of Registrant's name into English)

Avenida República do Chile, 65 
20031-912 - Rio de Janeiro, RJ
Federative Republic of Brazil

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 

 

Form 20-F ___X___ Form 40-F _______

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes _______ No___X____

 

 

 

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FINANCIAL REPORT

2018 RESULTS

 

 

 

 

The agreements with the US Securities and Exchange Commission (SEC) and the US Department of Justice (DoJ) and the sale on January 30, 2019 of the Pasadena refinery - whose acquisition had become a symbol of corruption in Brazil - marks the end of a painful cycle for Petrobras, its shareholders, employees and Brazilian society, in which the company was the victim of prolonged looting perpetrated by a criminal organization.

Petrobras' performance over the past year was undoubtedly the best in many years, which includes achieving some historical records, involving free cash flow and adjusted EBITDA, and the interruption of four years of losses. An effective liability management process has extended the average debt maturity from 7.14 years in 2015 to 9.14 years in 2018, which helps to mitigate refinancing risks. In February 2019 our market capitalization surpassed US$ 100 billion, which puts us back in the position of the largest company in Latin America.

We are celebrating the good results of 2018, but we can not limit ourselves to the internal vision, the comparison with ourselves even in previous years. Broadening our horizon for the global oil industry we humbly acknowledge that we are far short of the desirable. We can not be satisfied with the current situation, with much to do and many challenges to overcome. Nonconformity forces us to focus on five strategic pillars.

We have to substantially improve the allocation of capital by focusing on the assets in which we are the natural owner and promoting healthy capital competition among our investment projects. A company operates at a loss until it manages to remunerate the capital employed in its operations, which we have not been able to do yet. Our proven oil and gas reserves reached 9.6 billion barrels of oil equivalent (boe), according to the SEC criteria. This implies a recovery of 125% of the volume produced (excluding the effect of fields divestments) and a ratio of proven reserves / production of 11.1 years. The important thing to note is that most of these reserves originate from world-class assets such as the pre-salt, the frontier of oil exploration in the world where Petrobras is the undisputed leader and natural owner. Focusing on these assets, low cost, high quality and productivity and long life, represents enormous potential for value creation over time. In the oil industry the exploration of world-class assets is one of the keys to a company's success.

The generation of economic profit requires greater agility in the decision-making process, which is being pursued in 2019 with the indispensable care to the high standards of corporate governance and the strict compliance standards implemented in Petrobras in recent years. In this context, it is worth mentioning that, for example, delays in project execution are generally the largest source of reduction of rates of return.

With the help of innovations we are developing initiatives to shorten the time interval between the beginning of the exploratory activity and the first oil and also the duration of the ramp-up phase of the E&P projects, which will contribute to the increase of their return rates. We must constantly seek the investment grade rating and the reduction of the cost of capital through financial deleveraging and transparent relationship with the global financial markets. The exposure of cash flow to the cyclical volatility of oil prices requires its producers to have low leverage. Our gross debt decreased significantly from US$ 126.3 billion in 2015 to US$ 84.4 billion at the end of 2018, but is still high compared to the current cash generation capacity: gross debt / operating cash flow of 3.2x and gross debt / Adjusted EBITDA of 2.7x. We will act simultaneously on the numerator and the denominator of these fractions: reduce the debt and work for the growth of the cash flow through increase of production and cost cuts.

In the same way we must permanently seek low costs, a basic condition in any company for the generation of value regardless of the economic cycle and most important still in the oil industry, typically with high exposure to the cycles of global economic activity. Digital transformation, employing massive digitization, data analytics, and artificial intelligence is essential for generating efficiency gains and lower costs.

Respecting people and the environment and preserving the safety of our operations should be a golden rule. Oil and gas exploration and production activity is exposed to a wide range of risks, including operational risks that once materialized have enormous potential for destruction of value and even threaten the survival of a company. We work tirelessly to minimize them and at the same time strengthen our ability to respond to any negative events.

The rate of recordable injury rate reached 1.01 accidents per million man-hours, with a decrease of 6.5% over 2017. Despite the progress in this indicator, the occurrence of six fatalities saddens and embarrasses us. The loss of human life, whatever its explanation, is unacceptable. Our permanent goal is zero fatalities.

The objective of maximizing value for shareholders can under no circumstances dispense with attention to the safety of people and operations and the preservation of the environment nor result in underestimation of risks for which goals are achieved.

We believe that our transformational change agenda is capable of creating considerable value for shareholders and for Brazil in the future. We can say then that the best days of Petrobras are still ahead of us.

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2018 Highlights

Highlights of the 4Q18

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Top Goals

We have met our security metrics and exceeded our financial metrics. The net debt to Adjusted EBITDA * ratio decreased to 2.34, lower than the target of 2.5 established for 2018, and net debt * reached $69.4 billion, a reduction of 18% over 2017. In addition, the active management of debt made it possible to lengthen the average term to 9.14 years, with an average rate of 6.1%.

 

Perspectives ^**

In 2019, we projected an increase in oil and natural gas production to 2.8 million boed, with 2.3 million bpd of oil in Brazil. This growth will be made possible by the ramp-up of the newly installed platforms and the start-up of the P-77 and P-68. We will continue to divest and reduce financial leverage, maintaining capital discipline and optimizing portfolio, debt and cash management.

 

 

 

 

 

 

 

 

 

 

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*See definition of Adjusted EBITDA, Gross Margin, Total capital expenditures and investments in glossary and the respective reconciliation in Reconciliation of Adjusted EBITDA.

 

4

 

 

 

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* Table 01 - Main Items and Consolidated Economic Indicators

 

 

5

 

 

 

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Results 2018 x 2017*:

Sales revenue increased by 23% to R$ 349,836 million, reflecting higher domestic oil products prices, mainly diesel, gasoline and exports, accompanied by a 31% increase in the Brent price and a depreciation of 14% of the real. In spite of the higher volume of diesel sales, there was a drop in the domestic sales volume of oil products by 3% and exports by 10% due to lower production of oil.

There was an increase in selling expenses, mainly due to the payment of tariffs for the use of gas pipelines, higher expenses with government participation, imports and special itens. There was also a reduction of general and administrative expenses.

Adjusted EBITDA reached R$ 114,852 million, an increase of 50%, because of higher margins in domestic and export sales, in line with the increase in Brent and the reduction in operating expenses. The Adjusted EBITDA margin increased significantly, from 27% to 33%.

Special items amounted to R$ 10,034 million, including:

(a) gains from agreements signed with the electric sector (R$ 5,259 million),

(b) positive results with dismantling of areas (R$ 2,365 million), due to a longer date of abandonment

(c) impairment losses (R$ 7,583 million), with emphasis on oil and gas production fields in Brazil and abroad and Transpetro ships (see Appendix 5)

(d) losses with contingencies (R$ 7,415 million), mainly due to the agreement with ANP regarding the unification of Parque das Baleias and Vantage arbitrage, and

(e) negative exchange rate effect on contingencies (R$ 1,646 million).

Net income in 2018 was R$ 25,779 million, equivalent to R$ 1.98 per share, reflecting the higher operating income and the improvement in the financial result, due to lower interest expenses, as a result of lower indebtedness and higher financial income due to gains from the renegotiation of debts of the electric sector.

Excluding the impact of special items, net income would be R$ 35,974 million and Adjusted EBITDA of R$ 122,002 million.

Free cash flow of R$ 54,600 billion was 24% higher than in 2017, reflecting the 11% increase in operating cash generation and maintaining the same level of investments as the previous year.

Investments totaled R$ 41,246 million, lower than estimated for the year due to delays in activities related to the construction of platforms, which led to the postponement in a few months of start-up and delays in drilling and completion of wells in mature fields and reconciling with the schedule of improvement of the plataforms.

The divestments resulted in a cash inflow of R$ 20,218 million, especially the partnership projects with Equinor in the Roncador field, Total in Lapa and Iara and Murphy in the Gulf of Mexico.

Petrobras reached the net debt target, of US $ 69,378 million at the end of 2018, and exceeded the net debt / adjusted EBITDA metric, reaching 2.34, below the target of 2.5.

 

 

 

 

 

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Results 4Q-2018 x 3Q-2018**:

Sales revenue was R$ 92,720 million, 6% lower, reflecting lower domestic and export prices, in line with the 10% reduction in Brent and the 4% appreciation of the Real, as well as lower price of energy sales. In terms of volumes, the 6% growth in oil production in Brazil contributed to the 45% increase in oil exports, offsetting the 5% drop in oil products sales in the country.

Despite the 4% reduction in costs, the higher share of imported oil products in the sales mix and the creation of inventories at higher costs contributed to the reduction of the gross margin. There was also a greater impairment of assets.

Operating Income reached R$ 11,457 million, 33% lower and Adjusted EBITDA R$ 29,160 million with 31% margin.

Special items amounted to R$ 6,336 million, of which:

(a) gains from agreements signed with the electric sector (R$ 3,191 million),

(b) reversal of expected credit losses related to the electric sector (R$ 2,502 million),

(c) positive results with dismantling of areas (R$ 2,366 million), due to late abandonment.

(d) losses with contingencies (R$ 4,990 million) mainly due to the agreement with ANP regarding the unification of Parque das Baleias and Vantage arbitrage, and

(e) impairment losses (R$ 6,432 million), with emphasis on oil and gas production fields in Brazil and abroad and Transpetro ships (see Appendix 5)

Net income in 4Q-2018 was R$ 2,102 million, down 68%, due to lower margins in oil products sales and the impact of special items.

Excluding the impact of special items, net income would be R$ 8,035 million billion and Adjusted EBITDA of R$ 31,020 million.

Free Cash Flow of R$ 17,119 million was 2 times higher than 3Q-2018, reflecting the improvement in cash generation due to the receipt of the diesel subsidy program and the payment of the Class Action Agreement in 3Q-2018, together with the reduction of investments in the period, which totaled R$ 8,989 million.

 

 

 

 

 

** Additional information about operating results of 4Q-2018 x 3Q-2018, see item 7.

 

 

7

 

 

 

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Table 02 - Exploration & Production Main Indicators

 

*

8

 

 

 

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EXPLORATION & PRODUCTION

2018 x 2017

The production of oil, NGL and natural gas was 2,628 thousand barrels of oil equivalent per day (boed), 5% below the previous year, mainly due to disinvestments in the fields of Lapa and Roncador, at the end of the Early Production Systems of Tartaruga Verde and Itapu and the natural decline of production. As a highlight, four new systems went into operation throughout the year: P-74, FPSO City of Campos dos Goytacazes, P-69 and P-75.

Government participation costs increased because of higher oil prices in the international market and increased production in fields with high special participation rates. The lifting cost per barrel with no government participation in Brazil, in US dollars, decreased by 4%, mainly due to lower expenses with interventions in wells.

Operating income increased primarily as a result of higher Brent prices and the reversal of area dismantling expenses, which were partially offset by higher government holding costs, asset impairment losses and judicial contingencies.

Adjusted EBITDA reached a strong performance in 2018, resulting in R$ 103,206 million, 58% higher and margin of 54%.

 

4Q-2018 x 3Q-2018

The production of oil, NGL and natural gas increased by 6%, mainly due to the higher volume in the new units, the interconnection of wells in the P-74 and FPSO Cidade de Campos dos Goytacazes, as well as the start- 69 and P-75.

There was an 11% reduction in the lifting cost, mainly due to lower expenses with well interventions and the impact of increased production. In addition, there was a reduction in government participation expenses because of the drop in international oil prices.

Despite the increase in production and the reversal of abandonment expenses, operating income reduced due to lower Brent prices and appreciation of the real, greater impairment and recognition of judicial contingencies, mainly the agreement to unify the Parque das Baleias and the arbitration brought by Vantage.

Adjusted EBITDA reached R$ 25,754 million, a reduction of 8% and a margin of 51%.

 

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*Table 03 - Refining, Transportation and Marketing Main Indicators

 

10

 

 

 

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REFINING, TRANSPORTATION AND MARKETING

 

2018 x 2017

There was an increase in diesel sales (+13%), and a reduction in gasoline sales due to the greater competitiveness of hydrated ethanol, hence oil products sales was stable. Following the demand, the production of oil products was at the same level of the previous year, reaching 1,764 thousand barrels per day, particularly with a higher production of diesel (3%).

There was a reduction in the net exports of petroleum due to the lower production and greater participation of imported petroleum in the processed cargo. Net exports of oil products increased due to reduced imports of naphtha to Braskem and increased gasoline exports, partially offset by higher imports of diesel and jet fuel.

Operating income reduced due to the lower oil products margin, mainly gasoline, diesel and LPG, and higher selling expenses, partially offset by the lower cost of inventories formed at lower prices and lower impairment.

The implementation of cost optimization measures resulted in a reduction in the refining unit cost.

Adjusted EBITDA reached R$ 20,331 million, with a reduction of 29% and a margin of 8%.

 

4Q-2018 x 3Q-2018

Oil products production was 1,736 thousand barrels per day, down 4% from the previous quarter, mainly due to the accident at the Paulínia Refinery (Replan).

Sales volume decreased 5% due to seasonality in diesel consumption in 3Q-2018, lower fuel oil demand for thermoelectric plants and lower LPG demand due to lower economic activity. These factors were partially offset by higher gasoline sales in the period due to seasonal growth.

The net exports of oil increased due to higher production and lower oil processing. The increase in oil products net imports was mainly due to higher imports of gasoline and naphtha and lower exports of fuel oil.

The refining cost was impacted by the lower processed load.

The operating loss reflects the lower margins of sale due to the realization of inventories formed at higher prices. There was also a higher share of imported oil products in the domestic market, mainly diesel and gasoline, higher tax expenses and impairment related mainly to Transpetro's ships.

Adjusted EBITDA showed a negative result of R$ 1,062 million.

 

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Table 04 - Gas & Power Main Indicators

 

*

 

 

 

 

12

 

 

 

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GAS & POWER

 

2018 x 2017

Natural gas sales to the non-thermoelectric market increased due to the improvement in industrial activity, while sales to the thermoelectric market fell with regard to energy, the highest volume of sales in the Free Contracting Environment resulted from opportunities for new sales in the short-term market.

The reduction of PLD is a reflection of the higher affluence at the beginning of the rainy period. Due to this favorable hydrological scenario, power generation was lower than the previous year.

Despite the positive effect of higher margins on gas sales, operating income was reduced because of higher sales expenses with the payment of tariffs for the use of gas pipelines in the southeast grid. The increase in operating expenses is due to the gain from the sale of the NTS in 2017.

Adjusted EBITDA reached R$ 5,830 million, with a 10% reduction and a margin of 13%.

 

4Q-2018 x 3Q-2018

The reduction in natural gas sales is due to the impact of the seasonality of the industrial market in the non-thermoelectric segment and the decrease in the thermoelectric dispatch due to the higher affluence at the beginning of the rainy period in the 4Q-2018.

Operating income reflects the higher gas margins due to the combination of lower thermoelectric demand and return of Mexilhão production, increasing the availability of domestic gas, reducing the import of Bolivian gas and LNG. In addition, the reversal of expected credit losses also contributed to the result.

Adjusted EBITDA reached R$ 3,891 million, with a margin of 33%.

 

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Table 05 - Distribution Main Indicators

 

*

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DISTRIBUTION

 

2018 x 2017

The increase in operating income reflects the reversal of losses due to the Settlement Agreement signed with the State of Mato Grosso, partially offset by the reduction in average selling margins and volumes sold. These same factors explain the Adjusted EBITDA.

 

4Q-2018 x 3Q-2018

The reduction in operating income reflects the reversal of losses from lawsuits in 3Q-2018 and the lower sales volume, partially offset by the increase in average selling margins.

 

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Liquidity and Capital Resources

Table 06 - Liquidity and Capital Resources

 

At December 31, 2018, the balance of cash and cash equivalents was R$ 53,854 million and adjusted cash and cash equivalents totaled R$ 58,052 million, observing the methodology for establishing minimum cash level and access to revolving credit facilities. Funds provided by operating activities of R$ 95,846 million, funding of R$ 38,023 million and receipts from the sale of assets of R$ 20,218 million were allocated to prepayments of debts, interest and principal payments due in the period and the financing of investments in the business areas. It should be noted that the disinvestments below planned, affected by judicial decisions.

Operating cash generation was R$ 95,846 million, 11% higher than 2017, due to the increase in oil export margins and the sale of oil products in the domestic market, partially offset by lower sales volumes and the payment of two portions of the Class Action settlement agreement. Investments in the company's businesses totaled R$ 41,246 million in 2018, 87% of which were invested in exploration and production. These same factors resulted in positive Free Cash Flow for the fifteenth consecutive quarter, R$ 54,600 million in 2018 and R$ 17,119 million in 4Q-2018, an increase of 24% and 111%, respectively.

At December 31, 2018, the company raised R$ 38,023 million, of which: (i) funding in the national and international banking market, maturing between 4.5 years and 6.5 years, in the total amount of R$ 26,227 million; (ii) offer of securities in the international capital market (Global Notes) maturing in 2029, in the amount of R$ 6,359 million, (US$ 1,962 million); and (iii) funding of R$ 3,774 million, in financing with export credit agencies.

In addition, the Company prepaid several loans and financing, of which: (i) the repurchase and / or redemption of R$ 49,719 million, (US$ 13,943 million) of securities in the international capital market, with the payment of a net premium to holders of securities that delivered their securities in the transaction in the amount of R$ 1,015 million; (ii) the prepayment of R$ 55,116 million of loans in the domestic and international banking market; and (iii) prepayment of R$ 4,932 million of financing from the BNDES.

Principal and interest amortizations in 2018 were R$ 120,524 million and R$ 20,959 million, respectively, and amounted to R$ 141,483 million, and the nominal (cash vision) flow of principal and interest on financing, by maturity, is presented in millions of reais:

Table 07 - Nominal cash flow including principal and interest payments

 

*

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Consolidated debt

 

In 2018, gross debt in reais decreased 10%, mainly as a result of debt repayment. Net debt decreased by 4% and the average maturity of debt was 9.14 years (8.62 years as of December 31, 2017). The average rate of funding increased from 6.1% in 2017 to 6.2%.

 

Short-term and long-term indebtedness includes Financial Leases in the amount of R$ 89 million and R$ 626 million, respectively (R$ 84 million and R$ 675 million at December 31, 2017).

 

The net debt to Adjusted EBITDA * ratio decreased from 3.67 in 2017 to 2.25 in 2018, mainly due to cash from divestments and positive free cash flow.

 

Table 08 - Consolidated debt in reais

 

Table 09 - Consolidated debt in dollar

*

Table 10 - Consolidated debt by rate, currency and maturity

 

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The IASB issued IFRS 16 - Leases (IFRS 16), which became effective as of January 1, 2019 and contains principles for the identification, recognition, measurement and disclosure of market leases.

With the adoption of IFRS 16, the company no longer recognizes operating costs and expenses arising from operating leases, and recognizes in its income statement: (i) the effects of the depreciation of the rights to use leased assets; and (ii) the financial expenses and the exchange variation determined based on the financial liabilities of the lease agreements. As a result, an increase of approximately R$ 110 billion in Fixed Assets and in Financing and 0.5x in the Adjusted Net Debt / Adjusted EBITDA ratio is expected. "

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ADDITIONAL INFORMATION

 

Our Adjusted EBITDA is a performance measure computed by using the EBITDA (net income before net finance income (expense), income taxes, depreciation, depletion and amortization). Petrobras presents the EBITDA according to Instrução CVM nº 527 of October 4, 2012, adjusted by items not considered as part of Company’s primary business, which include results in equity-accounted investments, results from disposal and write-offs of assets, impairment, cumulative foreign exchange adjustments reclassified to the income statement and foreign exchange gains or losses on material provisions for legal proceedings.

In calculating Adjusted EBITDA, we adjusted our EBITDA for the periods of 2018 by adding foreign exchange gains and losses resulting from provisions for legal proceedings denominated in foreign currencies. Legal provisions in foreign currencies primarily consist of Petrobras’s portion of the class action settlement provision created in December 2017. The foreign exchange gains or losses on legal provisions are presented in other income and expenses for accounting purposes but management does not consider them to be part of the Company’s primary business, as well as they are substantially similar to the foreign exchange effects presented within net finance income. No adjustments have been made to the comparative measures presented as amounts were not significant in these periods.

The LTM Adjusted EBITDA reflects the sum of the last twelve months of Adjusted EBITDA and represents an alternative measure to our net cash provided by operating activities. This measure is used to calculate the metric Net Debt/LTM Adjusted EBITDA, which is established in the Business Plan 2019-2023, to support management’s assessment of liquidity and leverage.

EBITDA, Adjusted EBITDA and LTM Adjusted EBITDA are not defined in the International Financial Reporting Standards – IFRS. Our calculation may not be comparable to the calculation of Adjusted EBITDA by other companies and it should not be considered as a substitute for any measure calculated in accordance with IFRS. These measures must be considered in conjunction with other measures and indicators for a better understanding of the Company's operational performance and financial conditions.

Table 11 - Reconciliation of Adjusted EBITDA

 

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ADDITIONAL INFORMATION

^*

 

 

Table 12 - Impact of our Cash Flow Hedge policy

 

 

The reclassification of foreign exchange variation expenses from shareholders' equity to 2018 results totaled R$ 12,121 million, an increase of 20% compared to the same period in 2017, mainly due to the behavior of the R$/US$ exchange rate.

Changes in the expectations of realization of prices and export volumes in future revisions of the business plans may determine the need for additional reclassifications of exchange variation accumulated in stockholders' equity to income. A sensitivity analysis with an average Brent oil price lower by US$ 10 / barrel than that considered in the last revision of PNG 2019-2023 would not indicate the need to reclassify foreign exchange variation in shareholders' equity to income.

The annual expectation of realizing the balance of exchange variation accumulated in shareholders' equity on 12.31.2018 is show below:

 

Table 13 - Expectation of exports volumes realization

 

 

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ADDITIONAL INFORMATION

 

The Company has assets and liabilities subject to variations in foreign currencies, for which the main gross exposures are the Brazilian Real against the U.S. Dollar and the U.S. Dollar against the Euro. As of mid-May 2013, the Company extended the use of hedge accounting to hedge highly probable future exports.

The Company designates hedge relationships between exports and U.S. Dollar-denominated debt obligations so that the effects of the natural foreign exchange hedge between these transactions are recognized simultaneously in the financial statements. With the extension of hedge accounting, gains or losses caused by foreign exchange variations are accrued in shareholders' equity, only affecting the result as the exports are realized.

Petrobras, through its indirect subsidiary Petrobras Global Trading B.V., entered into a derivative operation denominated non delivery forward, in order to hedge against the Euro versus U.S. Dollar exposure, due to the issue of bonds. The company has no intention to settle such contracts before the maturity date.

The balances of assets and liabilities in foreign currency of subsidiaries abroad are not included in the exposure below, when realized in currencies equivalent to their respective functional currencies.

As of 12.31.2018, the Company had net liability exposure to foreign exchange rates, of which the main was the U.S. Dollar in relation to the Brazilian Real.

Table 14 - Assets and Liabilities subject to exchange variation

Table 15 - Assets and Liabilities subject to exchange variation by currency

Table 16 - Foreign exchange and inflation indexation charges

 

 

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ADDITIONAL INFORMATION

 

Table 17 – Special itens

 

In 4Q-2018, the negative impact of special items on Adjusted EBITDA was R$ 1,860 million, mainly due to: (a) losses with contingencies (R$ 4,990 million), (b) expenses with state amnesties programs (R$ 649 million). (c) reversal of expected credit losses related to the electric sector (R$ 2,502 million), (d) a positive result with dismantling of areas (R$ 2,366 million). If excluded, Adjusted EBITDA would be R$ 31,020 million.

In 4Q-2018, the negative effect of special items on net income totaled R$ 6,336 million, mainly due to: (a) gains from agreements signed with the electric sector (R$ 3,191 million), (b) impairment (R$ 6,432 million), (c) reversal of expected credit losses related to the electric sector (R$ 2,502 million), (d) losses with contingencies (R$ 4,990 million), (e) a positive result with dismantling of areas (R $ 2,366 million). If excluded, net income would be R$ 8,035 million.

In Management's judgment, the special items presented above, although related to the company's business, were highlighted as complementary information for a better understanding and evaluation of the result. Such items do not necessarily occur in all periods, and are disclosed when relevant.

 

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ADDITIONAL INFORMATION

 

The evaluation of recoverability of fixed and intangible assets, tested individually or grouped in CGUs, resulted in the recognition of net losses of R$ 7,689 million, mainly in the oil and gas production fields in Brazil and abroad and in Transpetro's fleet of ships.

Abroad, the conclusion of the agreement between Petrobras America Inc. and Murphy Exploration & Production Company - USA resulted in an impairment loss of R$ 2,730 million due mainly to the updating of operating assumptions and discount rates associated with the reduction participation in the fields with the formation of the joint venture.

In Brazil, the revision of estimates of future expenses with abandonment of equipment in production fields and the increase of the exchange rate resulted in the recognition of net losses in the amount of R$ 1,994 million.

At Transpetro, the lower freight rates projected in PNG 2019-2023 resulted in the recognition of losses in the amount of R$ 1,630 million for a group of ships.

 

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ADDITIONAL INFORMATION

 

Sales revenue of R$ 349,836 million, R$ 66,141 million higher than in 2017 (R$ 283,695 million), due to:

 

Cost of goods sold was R$ 225,293 million, R$ 33,193 million higher than in 2017 (R$ 192,100 million), reflecting:

 

Selling expenses of R$ 16,861 million, R$ 2,351 million higher, due to increase in logistics costs due to the payment of tariffs for the use of gas pipelines after the sale of NTS in April 2017 (R$ 1,076 million), higher credit losses (R$ 82 million) and higher expenses with regasification terminals for LNG and cabotage, due to the devaluation of the real against the US dollar.

 

General and administrative expenses of R$ 8,932 million, R$ 382 million lower, reflecting lower expenses with consulting, IT and administrative services provided by third parties, following the financial discipline of expense control.

 

Exploration costs of R$ 1,904 million, R$ 659 million lower, due to lower expenses with projects without economic viability (R$ 576 million) and reduction of provisions related to contractual penalties of local content (R$ 162 millions).

 

Tax expenses of R$ 2,790 million, R$ 3,131 million lower, mainly due to the effects of joining the Federal Tax Regularization Programs in 2017 (R$ 2,841 million).

 

Loss on impairment of assets of R$ 7,689 million, R$ 3,827 million higher, mainly due to the higher losses in the oil and gas production fields in Brazil, reflecting the revision of estimates of future expenses with the dismantling of areas and the increase in the exchange rate, and the sale of PAI E&P assets in the Gulf of Mexico, as detailed in Note 14 to the Financial Statements.

 

Other operating expenses totaled R$ 21,061 million, R$ 3,091 million higher than in 2017:

 

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Net negative financial result of R$ 21,100 million, R$ 10,499 million lower than in 2017, due to:

Positive result of investment participation of R$ 1,919 million, R$ 230 million lower, reflecting the lower result in participations in the petrochemical sector, basically Braskem.

Income tax and social contribution expenses of R$ 17,078 million, R$ 11,281 million higher, mainly due to the higher pre-tax income and the non-deductibility of agreements to close investigations with US authorities, partially offset by the tax benefit of to the distribution of Interest on Own Capital and the effects of joining the Federal Tax Regularization Programs in 2017, see note 21.5 to the Financial Statements.

 

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ADDITIONAL INFORMATION

7. Results of Operations of 4Q-2018 compared to 3Q-2018:

Sales revenue of R$ 92,720 million, lower R$ 5,540 million than in 3Q-2018 (R$ 98,260 million), reflecting:

 

Cost of goods sold was R$ 61,217 million, R$ 2,399 million lower than in 3Q-2018 (63,616 million), mainly due to:

 

Selling expenses of R$ 2,086 million, down R$ 3,813 million, basically due to reversals of expected credit losses related to the electric sector in 4Q-2018 (R$ 2,502 million), mainly due to the recomposition of guarantees, compared to the constitutions of expected credit losses recorded in the previous quarter (R$ 1,890 million).

 

General and administrative expenses of R$ 2,371 million, R$ 158 million higher, mainly reflecting the salary readjustment according to the collective bargaining agreement signed in 4Q-2018.

 

Tax expenses of R$ 1,159 million, R$ 368 million higher, due to the enrollment to state amnesty programs in the States of Rio de Janeiro and Bahia, partially offset by the out-of-court settlement of BR Distribuidora for the discharge of tax debts with the State of Mato Grosso in the 3Q-2018.

 

Loss on impairment of assets of R$ 6,307 million, R$ 4,806 higher, mainly due to the higher losses in the oil and gas production fields in Brazil, reflecting the revision of estimates of future expenses with the dismantling of areas and the increase in the exchange rate, and future price scenario of the revenues of Transpetro’s ships, as detailed in Note 14 to the Financial Statements.

 

Other operating expenses amounted to R$ 7,023 million, R$ 841 million higher:

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Net negative financial result of R$ 5,366 million, R$ 475 million lower, due to:

 

 

Positive results on investments of R$ 123 million, R$ 852 million lower, mainly due to the result in Braskem, and the maintenance for sale of the investment in Petrobras Oil & Gas BV (PO & G), see explanatory note 11.3 to the Financial Statements.

 

Income tax and social contribution expenses of R$ 3,236 million, R$ 2,013 million lower, mainly due to lower pre-tax income and higher tax benefit resulting from the higher amounts distributed on interest on equity, partially offset by the non-deductibility of the agreements for terminating investigations with US authorities in the previous quarter.

 

Non-controlling shareholders' income of R$ 876 million, R$ 616 million higher, basically reflecting the effect of the appreciation of the real on the dollar denominated debt of structured entities, compared to the devaluation in the previous quarter, and the higher positive result BR Distribuidora.

 

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FINANCIAL STATEMENTS

Income Statement - Consolidated

 

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Statement of Financial Position – Consolidated

 

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Statement of Cash Flows Data – Consolidated

 

 

 

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SEGMENT INFORMATION

Consolidated Income Statement by Segment –2018

 

Consolidated Income Statement by Segment – 2017

 

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Consolidated Income Statement by Segment –4Q-2018

 

Consolidated Income Statement by Segment – 3Q-2018

 

 

 

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Other Income (Expenses) by Segment – 2018

 

Other Income (Expenses) by Segment – 2017

 

 

 

 

 

 

 

* In 2018, includes basically the results with divestments. In 2017, includes basically returned areas, cancelled projects and the gain with NTS divestment.

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Other Income (Expenses) by Segment – 4Q-2018

 

Other Income (Expenses) by Segment – 3Q-2018

 

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Consolidated Assets by Segment – 12.31.2018

Consolidated Assets by Segment – 12.31.2017

 

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Reconciliation of Consolidated Adjusted EBITDA Statement by Segment – 2018¹¹

Reconciliation of Consolidated Adjusted EBITDA Statement by Segment – 2017

Reconciliation of Consolidated Adjusted EBITDA Statement by Segment – 4Q-2018

Reconciliation of Consolidated Adjusted EBITDA Statement by Segment – 3Q-2018

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: February 28, 2018.

PETRÓLEO BRASILEIRO S.A—PETROBRAS

By: /s/ Rafael Salvador Grisolia

______________________________

Rafael Salvador Grisolia

Chief Financial Officer and Investor Relations Officer