pbr-6k_20181106.htm

 

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 November, 2018

 

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____

 

 

 

 

 

FINANCIAL REPORT

Rio de Janeiro

November 6th, 2018

9M-2018 Results*:

Derived from unaudited consolidated interim financial information reviewed by independent auditors, stated in millions of U.S. dollars, prepared in accordance with International Financial Reporting Standards - IFRS issued by the International Accounting Standards Board - IASB.

The main functional currency of the Petrobras Group is the Brazilian real, which is the functional currency of the parent company and its Brazilian subsidiaries, and the presentation currency of the Petrobras Group is the U.S. dollar. Therefore, financial records are maintained in Brazilian reais and income and expenses are translated into U.S. dollars using the average exchange rates prevailing during the period, as set out in IAS 21 – “The effects of foreign exchanges rates”.

When the Brazilian real appreciates relative to the U.S. dollar, the effect is to generally increase both revenues and expenses when expressed in U.S. dollars. When the Brazilian real depreciates relative to the U.S. dollar, the effect is to generally decrease revenues and expenses when expressed in U.S. dollars. In 9M-2018, the average Brazilian real depreciated by 13% in relation to the U.S. dollar when compared to 9M-2017. The foreign exchange translation effects on the Company’s results are shown in item VII - Foreign exchange translation effects on results of operations in 9M-2018.

Gross Profit

Gross profit was US$ 25,795 million in 9M-2018, a 23% increase compared to US$ 20,917 million in 9M-2017, mainly due to higher margins of oil exports, as a result of the increase in Brent prices, and to higher margin in the domestic sales of oil products. On the other hand, domestic sales volumes of oil products dropped (mainly gasoline). Gross Margin** was 36% in 9M-2018, compared to 32% in 9M-2017.

Operating income and expenses

Operating income was US$ 14,423 million in 9M-2018, a 24% increase from US$ 11,654 million in 9M-2017 mainly due to the rise in gross profit, negatively impacted by higher sale expenses, derived from the payment of tariffs to the third-party gas pipeline, by the foreign exchange losses on Class Action outstanding balance and by lower gains with divestments, when compared to 9M-2017. There was also reduction in general and administrative expenses.

Net Finance Income (Expense)

The net finance expense was US$ 4,447 million in 9M-2018, a 41% decrease compared to US$ 7,555 million in 9M-2017 mainly as a result of lower financing expenses, due to prepayment of debt and to the gain arising from the renegotiation of debts with Eletrobras System.

Net income (loss) attributable to the shareholders of Petrobras

Net income attributable to the shareholders of Petrobras was US$ 6,622 million in 9M-2018, a 315% increase compared to US$ 1,596 million in 9M-2017. The result improved mainly due to increase in domestic oil products and oil exports margins and to the drop in net finance expenses.

Adjusted EBITDA**

Adjusted EBITDA increased to US$ 23,844 million in 9M-2018, from US$ 20,039 million in 9M-2017. The Adjusted EBITDA Margin** reached 33% in 9M-2018 compared to 31% in 9M-2017.

Net cash provided by operating activities and Free Cash Flow **

Free cash flow was US$ 10,604 million in 9M-2018, a decrease of 10% when compared to US$ 11,814 million in 9M-2017, derived, primarily, from foreign exchange translation effects.

 

 

* Additional information about operating results of 9M-2018 x 9M-2017, see “Additional Information” item II.

** See definitions of Free Cash Flow, Gross Margin, Adjusted EBITDA and Adjusted EBITDA Margin in glossary and the respective reconciliations in Liquidity and Capital Resources and Reconciliation of Adjusted EBITDA.

1

 

 

 

 

Table of Contents

I. Summary of Financial Information and Consolidated Economic Indicators

3

II. Results of Operations of 9M-2018 compared to 9M-2017

4

III. Results by Business Segment

5

a) Exploration and Production

6

b) Refining, Transportation and Marketing

8

c) Gas & Power

10

d) Distribution

12

IV. Liquidity and Capital Resources

13

V. Consolidated Debt

14

VI. Reconciliation of Adjusted EBITDA

15

VII. Foreign Exchange Translation Effects on Results of Operations of 9M-2018

18

VIII. Summary of Unaudited Financial Statements

19

IX. Segment Information

22

X. Glossary

26

 

 

 

www.petrobras.com.br/ir*

Contacts:

PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Investor Relations Department

E-mail: petroinvest@petrobras.com.br / acionistas@petrobras.com.br

Av. República do Chile, 65 – 1002  – 20031-912 – Rio de Janeiro, RJ

Phone: 55 (21) 3324- 1510 / 9947 I 0800-282-1540

 

B3:  PETR3, PETR4

NYSE: PBR, PBRA

BCBA: APBR, APBRA

LATIBEX: XPBR, XPBRA

 

 

 

 

 

This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. The forward-looking statements, which address the Company’s expected business and financial performance, among other matters, contain words such as “believe,” “expect,” “estimate,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. There is no assurance that the expected events, trends or results will actually occur. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or for any other reason.

 

The Company’s actual results could differ materially from those expressed or forecast in any forward-looking statements as a result of a variety of assumptions and factors. These factors include, but are not limited to, the following: (i) failure to comply with laws or regulations, including fraudulent activity, corruption, and bribery; (ii) the outcome of ongoing corruption investigations and any new facts or information that may arise in relation to the “Lava Jato Operation”; (iii) the effectiveness of the Company’s risk management policies and procedures, including operational risk; and (iv) litigation, such as class actions or proceedings brought by governmental and regulatory agencies.  A description of other factors can be found in the Company’s Annual Report on Form 20-F for the year ended December 31, 2015, and the Company’s other filings with the U.S. Securities and Exchange Commission.

2

 

 

 

I. Summary financial information and Consolidated Economic Indicators

 

US$ million

 

Jan-Sep

 

2018

2017

(%)

Sales revenues

71,238

65,260

9

Gross profit

25,795

20,917

23

Operating expenses

(11,372)

(9,263)

(23)

Operating income (loss)

14,423

11,654

24

Net finance income (expense)

(4,447)

(7,555)

41

Consolidated net income (loss) attributable to the shareholders of Petrobras

6,622

1,596

315

Basic and diluted earnings (losses) per share attributable to the shareholders of Petrobras

0.51

0.12

325

Adjusted EBITDA *

23,844

20,039

19

Adjusted EBITDA margin* (%)

33

31

2

Gross margin* (%)

36

32

4

Operating margin* (%)

20

18

2

Net margin* (%)

9

2

7

 

 

 

 

Total capital expenditures *

10,113

10,528

(4)

Exploration & Production

8,892

8,454

5

Refining, Transportation and Marketing

732

944

(22)

Gas & Power

281

950

(70)

Distribution

90

73

23

Biofuel

16

16

−

Corporate

102

91

12

 

 

 

 

Average commercial selling rate for U.S. dollar (R$/U.S.$)

3.60

3.18

13

Period-end commercial selling rate for U.S. dollar (R$/U.S.$)

4.00

3.17

26

Variation of the period-end commercial selling rate for U.S. dollar (%)

26.40

(2.40)

29

 

 

 

 

Domestic basic oil products price (U.S.$/bbl)

81.23

69.40

17

Brent crude (U.S.$/bbl)

72.13

51.90

39

 

 

 

 

Domestic Sales price

 

 

 

Crude oil (U.S.$/bbl)

66.64

48.75

37

Natural gas (U.S.$/bbl)

40.84

37.49

9

 

 

 

 

International Sales price

 

 

 

Crude oil (U.S.$/bbl)

65.41

44.81

46

Natural gas (U.S.$/bbl)

24.70

20.47

21

 

 

 

 

Total sales volume (Mbbl/d)

 

 

 

Diesel

773

726

6

Gasoline

459

528

(13)

Fuel oil

46

58

(21)

Naphtha

97

141

(31)

LPG

232

237

(2)

Jet fuel

107

100

7

Others

166

169

(2)

Total oil products

1,880

1,959

(4)

Ethanol, nitrogen fertilizers, renewables and other products

68

109

(38)

Natural gas

352

353

−

Total domestic market

2,300

2,421

(5)

Crude oil, oil products and other exports

596

713

(16)

International sales **

238

241

(1)

Total international market

834

954

(13)

Total

3,134

3,375

(7)

*

 

* See definition of Capital Expenditures, Adjusted EBITDA, Adjusted EBITDA Margin, Gross Margin, Operating Margin and Net Margin in glossary and the reconciliation in Reconciliation of Adjusted EBITDA.

** Sales from operations outside of Brazil, including trading and excluding exports.

3

 

 

 

II. Results of Operations of Jan-Sep/2018  compared to Jan-Sep/2017

The main functional currency of the Petrobras Group is the Brazilian real, which is the functional currency of the parent company and its Brazilian subsidiaries. As the presentation currency of the Petrobras Group is the U.S. dollar, the results of operations in Brazilian reais are translated into U.S. dollars using the average exchange rates prevailing during the period, as set out in IAS 21 – “The effects of foreign exchanges rates”. For detailed information about foreign exchange translation effects on the Company’s income statement, see item VII “Foreign exchange translation effects on results of operations of Jan-Sep/2018”.

Sales revenues were US$ 71,238 million in Jan-Sep/2018, a 9% increase (US$ 5,978 million) when compared to US$ 65,260 million in Jan-Sep/2017, mainly due to:

•

Higher domestic revenues (US$ 2,979 million), mainly as a result of:

 

 

✓

Higher oil products revenues (US$ 4,143 million), primarily reflecting an increase in average realization prices of diesel, gasoline and liquefied petroleum gas in accordance with our pricing policies for these products, higher prices of other oil products following the increase in international prices, as well as an increase in diesel sales volume due to lower imports from competitors. These effects were partially offset by the decrease in oil products sales volume, mainly for gasoline due to a higher portion of ethanol in fuel market, as well as lower sales of naphtha to Braskem.

 

✓

Higher revenues of natural gas (US$ 347 million), due to increase in prices; and

 

✓

Decreased electricity revenues when expressed in U.S. dollars (US$ 618 million), following lower prices.

 

•

Higher export revenues (US$ 1,728 million), driven by an increase in international prices of crude oil and oil products, partially offset by the decrease in crude oil volume exported due to lower production;

 

•

Higher revenues from operations abroad (US$ 1,271 million) following higher international prices.

Cost of sales was US$ 45,443 million in Jan-Sep/2018, a  2% increase (US$ 1,100 million) compared to US$  44,343 million in Jan-Sep/2017, mainly due to:

•

Higher production taxes expenses and import costs of crude oil, oil products and natural gas, due to higher international prices;

•

Increased costs from operations abroad, following higher international prices; and

•

Higher share of crude oil imports on feedstock processed and of LNG on sales mix.

•

Foreign exchange translation effects partially offset the aforementioned issues due to the decrease of the average cost of sales when expressed in U.S. dollars, reflecting the depreciation of the average Brazilian real;

 

Selling expenses were US$ 4,083 million in Jan-Sep/2018, a 23%  increase (US$ 775 million) compared to US$ 3,308 million in Jan-Sep/2017, mainly due to:

 

•

Increased impairment of trade and other receivables, primarily relating to companies from the electricity sector; and

•

Higher transportation charges, due to the payment of tariffs for the use of third party gas pipelines, following the sale of Nova Transportadora do Sudeste (NTS) in  April 2017.

General and administrative expenses were US$ 1,832 million in Jan-Sep/2018, a 17% decrease (US$ 366  million) compared to US$ 2,198 million in Jan-Sep/2017, mainly due to lower expenses with outsourced consulting, IT and administrative services, following financial discipline of controlling expenses.

Exploration costs were US$ 402 million in Jan-Sep/2018, a 19% decrease (US$ 92 million) compared to US$ 494 million in Jan-Sep/2017, mainly due to lower exploration expenditures written off with projects without economic viability (US$ 153 million), partially offset by higher provisions related to contractual penalties arising from local content requirements (US$ 70 million).

 

Other taxes were US$ 448 million in Jan-Sep/2018, a US$ 919 million decrease compared to US$ 1,367 million in Jan-Sep/2017, mainly as a result of the Company’s decision, in Jan-Sep/2017, to benefit from the Tax Settlement Programs (US$ 799 million) and from the State Tax Amnesty Program (US$ 56 million).

Other income and expenses totaled US$ 4,131 million in expenses in Jan-Sep/2018, a US$ 2,647 million increase compared to the US$ 1,484 million in expenses in Jan-Sep/2017, mainly due to:

•

Lower net gain on the sale and write-off of assets (US$ 1,009 million), mainly driven by the US$ 1,952 million gain on sale of interests in NTS recognized in Jan-Sep/2017; partially offset by the gains, in Jan-Sep/2018, on sale of Lapa and Iara fields (US$ 689 million) and by the contingent payment received for the sale of Carcará area (US$ 300 million);

•

Agreement to settle Lava Jato Investigations with U.S. Authorities (US$ 895 million) in 2018;

•

Lower fair value of commodities put options related to the hedge of part of crude oil production (US$ 608 million), considering its nature of insurance and protection against the variation of the commodity.

•

Foreign exchange losses in 2018 related to the Class Action Settlement provision (US$ 539 million);

•

Increased impairment of assets (US$ 239 million), mainly related to E&P assets of PAI;

•

Higher amounts recovered from Lava Jato Investigations (US$ 392 million); and

•

Reversal of provision for losses and contingencies with judicial proceedings related to the extrajudicial agreement of BR Distribuidora for the settlement of tax debts with the State of Mato Grosso (US$ 347 million).

 

Net finance expense (income) was US$ 4,447 million in Jan-Sep/2018, a 41% decrease (US$ 3,108 million) when compared to US$ 7,555 million in Jan-Sep/2017, mainly due to:

 

 

•

Lower debt interest and charges (US$ 1,019 million) due to lower interest expenses following pre-payment of debts;

 

•

Decreased foreign exchange losses mainly reflecting a US$ 651 million loss in Jan-Sep/2017 driven by the impact of 12% depreciation of the U.S. dollar on the Company’s net debt in Euro, compared to US$ 2 million gain in Jan-Sep/2018 following a 3.1% appreciation of the U.S. dollar on the Company’s net debt in Euro. This effect was partially offset by a higher reclassification of foreign exchange losses from equity to net income derived from occurred exports designated for cash flow hedge accounting (US$ 88 million).

 

•

Gains arising from the renegotiation of debts from Eletrobras Group in 2Q-2018 (US$ 580 million); and

 

•

Finance charges due to the Company’s decision to benefit from the Tax Settlement Programs (Programas de Regularização de Tributos Federais) in Jan-Sep/2017 (US$ 630 million).

Income taxes expenses were US$ 3,834 million in Jan-Sep/2018, a 37% increase (US$ 1,034 million) compared to US$ 2,800 million in Jan-Sep/2017, as a result of higher taxable income (before taxes) of the period, partially offset by the Company’s decision, in Jan-Sep/2017, to benefit from the Tax Settlement Programs (Programas de Regularização de Tributos Federais). For more information about income taxes expenses, see Note 19.6 to the Company´s unaudited interim consolidated financial statements.

Result attributable to non-controlling interests were US$ 11 million in Jan-Sep/2018, a US$ 216 million decrease compared to the US$ 227 million in Jan-Sep/2017, mainly reflecting the impact of the foreign exchange depreciation of the Brazilian real on debt of structured entities in U.S. dollars, partially offset by the positive result of BR Distribuidora, which has not been a wholly-owned subsidiary since December 2017.

 

 

* For detailed information about foreign exchange translation effects on the Company’s income statement, see item VII “Foreign exchange translation effects on results of operations of Jan-Sep/2018”.

 

 

 

4

 

 

 

III. RESULT BY BUSINESS SEGMENT*

 

Exploration & Production Summary financial information and Main Indicators

 

US$ million

 

Jan-Sep

 

2018

2017

(%)

Sales revenues

39,049

30,739

27

Brazil

38,147

30,078

27

Abroad

902

661

36

Gross profit

16,891

10,179

66

Brazil

16,432

9,953

65

Abroad

459

226

103

Operating expenses

(2,007)

(2,813)

29

Brazil

(1,371)

(2,386)

43

Abroad

(636)

(427)

(49)

Operating income (loss)

14,884

7,366

102

Brazil

15,060

7,567

99

Abroad

(176)

(201)

12

Net income (Loss) attributable to the shareholders of Petrobras

9,899

4,931

101

Brazil

9,941

4,982

100

Abroad

(42)

(51)

18

Adjusted EBITDA of the segment **

21,509

14,952

44

Brazil

21,024

14,873

41

Abroad

485

79

514

EBITDA margin of the segment (%)**

55

49

6

Capital expenditures ** of the segment

8,892

8,454

5

 

 

 

 

Average Brent crude (US$/bbl)

72.13

51.90

39

 

 

 

 

Sales price - Brazil

 

 

 

Crude oil (US$/bbl)

66.64

48.75

37

Sales price - Abroad

 

 

 

Crude oil (US$/bbl)

65.41

44.81

46

Natural gas (US$/bbl)

24.70

20.47

21

Crude oil and NGL production  (Mbbl/d)***

2,094

2,223

(6)

Brazil

2,028

2,158

(6)

Abroad

45

42

7

Non-consolidated production abroad

21

23

(9)

Natural gas production (Mbbl/d)***

523

553

(5)

Brazil

486

502

(3)

Abroad

37

51

(27)

Total production

2,617

2,776

(6)

 

 

 

 

Lifting cost - Brazil (US$/barrel)

 

 

 

excluding production taxes

11.12

11.26

(1)

including production taxes

24.59

19.96

23

 

 

 

 

Lifting cost – abroad without production taxes (US$/barrel)

5.33

5.06

5

 

 

 

 

Production taxes - Brazil

8,254

5,547

49

Royalties

3,675

2,810

31

Special participation charges

4,541

2,693

69

Rental of areas

38

44

(14)

Production taxes - Abroad

16

19

(16)

 

*

***

 

 

*Biofuels and Corporate segments are disclosed only in segment information tables.

**See definition of Capital Expenditures, Adjusted Ebitda and Adjusted Ebitda Margin in Glossary and reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

 

5

 

 

 

a) EXPLORATION & PRODUCTION (E&P)

 

 

9M-2018 x 9M-2017

 

Gross Profit

The growth in gross profit reflects the increase in Brent, partially offset by the reduction in production.

 

Operating Income and Expense

 

The increase in operating income is due, in addition to the increase in gross profit, to the result of the assignment of rights in the areas of Lapa, Iara and Carcará, and the provision for write-down of the receivable related to Vitória 10,000 drilling rig, driven by the termination of the finance lease agreement.

 

 

Operating Performance

 

Production

Oil, NGL and natural gas production decreased compared to the same period last year, mainly due to divestments of Lapa and Roncador fields, to the end of the early production system in Itapu field in the Santos Basin, and to the natural decline in production, partially offset by the production startup of FPSO Cidade de Campos dos Goytacazes in the Tartaruga Verde field, and of the P-74 in Búzios field.

 

 

Lifting Cost

 

The indicator decreased due to the impact of the appreciation of U.S. dollar over  expenses denominated in reais, in addition to the lower expenses with interventions in wells. This effect was partially offset by the reduction in production.

In addition, there was higher government participation expenses as a result of higher international oil prices.

 

6

 

 

 

Refining, Transportation and Marketing Summary financial information and Main Indicators

 

 

 

US$ million

 

Jan-Sep

 

2018

2017

(%)

Sales revenues

54,519

49,722

10

Brazil (includes trading operations abroad)

56,526

50,892

11

Abroad

2,348

1,363

72

Eliminations

(4,355)

(2,533)

(72)

Gross profit

6,396

6,395

−

Brazil

6,337

6,403

(1)

Abroad

59

(8)

838

Operating expenses

(2,055)

(2,149)

4

Brazil

(2,041)

(2,113)

3

Abroad

(14)

(36)

61

Operating income (loss)

4,341

4,246

2

Brazil

4,298

4,290

−

Abroad

43

(44)

198

Net income (loss) attributable to the shareholders of Petrobras

3,266

3,205

2

Brazil

3,237

3,235

−

Abroad

29

(30)

197

Adjusted EBITDA of the segment *

5,955

6,239

(5)

Brazil

5,868

6,238

(6)

Abroad

87

1

8600

EBITDA margin of the segment (%)*

11

13

(2)

Capital expenditures * of the segment

732

944

(22)

Domestic basic oil products price  (US$/bbl)

81.23

69.40

17

Imports (Mbbl/d)**

324

323

−

Crude oil import

157

123

28

Diesel import

47

15

213

Gasoline import

9

11

(18)

Other oil product import

111

174

(36)

Exports (Mbbl/d)**

596

708

(16)

Crude oil export

415

550

(25)

Oil product export

181

158

15

Exports (imports), net

272

385

(29)

 

 

 

 

Refining Operations - Brazil (Mbbl/d)**

 

 

 

Output of oil products

1,773

1,802

(2)

Reference feedstock 

2,176

2,176

−

Refining plants utilization factor (%) 

77

77

−

Feedstock processed (excluding NGL)

1,672

1,686

(1)

Feedstock processed

1,726

1,734

−

Domestic crude oil as % of total feedstock processed

92

94

(2)

Refining Operations - Abroad (Mbbl/d)**

 

 

 

Total feedstock processed

109

86

27

Output of oil products

107

87

23

Reference feedstock 

100

100

−

Refining plants utilization factor (%) 

101

82

19

Refining cost - Brazil

 

 

 

Refining cost (US$/barrel)

2.52

2.95

(15)

 

 

 

 

Refining cost - Abroad (US$/barrel)

4.55

4.63

(2)

 

 

 

 

Sales volume** (includes sales to BR Distribuidora and third-parties)

 

 

 

Diesel

714

661

8

Gasoline

401

460

(13)

Fuel oil

47

63

(25)

Naphtha

97

141

(31)

LPG

232

238

(2)

Jet fuel

122

113

8

Others

182

185

(2)

Total domestic oil products (Mbbl/d)

1,795

1,861

(4)

* **

**

 

 

* See definition of Capital Expenditures, Adjusted Ebitda and Adjusted Ebitda Margin in Glossary and reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

7

 

 

 

b) REFINING, TRANSPORTATION AND MARKETING (RTM)

 

 

9M-2018 x 9M-2017

 

Operating Income and expense

 

The increase in operating income was a result of higher margin of oil products and crude oil, due to the realization of inventories formed at lower prices. This result was partially compensated by lower sales volumes and foreign exchange translation effects.

 

Operating Performance

 

Imports and Exports of Crude Oil and Oil Products

 

There was a reduction in net export of oil due to lower production.

The increase in net export of oil products is due to the loss of market share from gasoline to ethanol and a reduction in sales of naphtha to Braskem.

The company maintained its position as a net exporter, with a balance of 272 thousand bpd.

 

Refining Operations

 

Processed feedstock remained at the same level as 2017.

 

Refining Cost

 

Refining cost dropped mainly reflecting cost efficiencies.

 

8

 

 

 

Gas & Power Summary financial information and Main Indicators

 

 

US$ million

 

Jan-Sep

 

2018

2017

(%)

Sales revenues

9,141

8,844

3

Brazil

9,094

8,812

3

Abroad

47

32

47

Gross profit

2,371

2,477

(4)

Brazil

2,364

2,473

(4)

Abroad

7

4

75

Operating expenses

(2,298)

494

(565)

Brazil

(2,289)

510

(549)

Abroad

(9)

(16)

44

Operating income (loss)

73

2,971

(98)

Brazil

75

2,981

(97)

Abroad

(2)

(10)

80

Net income (Loss) attributable to the shareholders of Petrobras

16

1,962

(99)

Brazil

21

1,945

(99)

Abroad

(5)

17

(129)

Adjusted EBITDA of the segment *

593

1,491

(60)

Brazil

594

1,493

(60)

Abroad

(1)

(2)

50

EBITDA margin of the segment (%) *

6

17

(11)

 

 

 

 

Capital expenditures * of the segment

281

950

(70)

 

 

 

 

Physical and financial indicators**

 

 

 

Electricity sales (Free contracting market - ACL) - average MW

843

792

6

Electricity sales (Regulated contracting market - ACR) - average MW

2,788

3,058

(9)

Generation of electricity - average MW

2,533

2,930

(14)

Electricity price in the spot market - Differences settlement price (PLD) - US$/MWh

90

92

(3)

Domestic natural gas available (Mbbl/d)

302

335

(10)

Imports of LNG (Mbbl/d)***

54

28

93

Imports of natural gas (Mbbl/d)

145

147

(1)

 

 

 

 

 

 

*88

 

 

 

 

 

* See definition of Capital Expenditures, Adjusted Ebitda and Adjusted Ebitda Margin in Glossary and reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

** Imports of regasified LNG have been considered as from the RMF 2Q-2018. Until the RMF 1Q-2018, it considered imports of LNG, regardless of its regasification within the analyzed period.

 

 

9

 

 

 

c) GAS & POWER (G&P)

 

 

 

9M-2018 x 9M-2017

 

Gross Profit

 

Gross profit was lower due to foreign exchange translation effects, since the US dollar denominated portion of the costs is higher than in the revenues.

 

 

Operating income and expense

 

Operating income decreased as a result of higher sales expenses with the payment of tariffs for the use of gas pipelines in the Southeast grid, and expected credit losses (ECL) related to the supply of natural gas to the thermoelectric segment in the Northern Region, in addition to gains on the sale of NTS in 2Q17.

 

 

Operating Performance

 

Physical and Financial Indicators

 

Increased imports of LNG due to lower availability of domestic gas, as a result of stoppage at Mexilhão platform.

The higher volume of sales in the Free Contracting Market (ACL) was due to new sales opportunities in the short-term market. The volume reduction in the Regulated Contracting Market (RCA) resulted from the expiration of contracts.

Despite the foreign translation effects from the depreciation of Real against the U.S. dollar, the electricity price in the spot market increased due to the lower affluence at the beginning of the dry season and the fact that the reservoirs started the year at levels lower than in 2017. However, energy generation was lower than the previous year due to higher gas costs.

 

10

 

 

 

Distribution Summary financial information and Main Indicators

 

 

US$ million

 

Jan-Sep

 

2018

2017

(%)

Sales revenues

21,052

20,133

5

Brazil

19,949

19,122

4

Abroad

1,103

1,011

9

Gross profit

1,266

1,493

(15)

Brazil

1,186

1,407

(16)

Abroad

80

86

(7)

Operating expenses

(640)

(914)

30

Brazil

(589)

(868)

32

Abroad

(51)

(46)

(11)

Operating income (loss)

626

579

8

Brazil

601

538

12

Abroad

25

41

(39)

Net Income (Loss) attributable to the shareholders of Petrobras

297

382

(22)

Brazil

281

356

(21)

Abroad

16

26

(38)

Adjusted EBITDA of the segment*

717

690

4

Brazil

684

645

6

Abroad

33

45

(27)

EBITDA margin of the segment (%)*

3

3

−

 

 

 

 

Capital expenditures* of the segment

90

73

23

 

 

 

 

Sales Volumes - Brazil (Mbbl/d)

 

 

 

Diesel

301

298

1

Gasoline

162

188

(14)

Fuel oil

37

49

(26)

Jet fuel

53

51

5

Others

78

85

(8)

Total domestic oil products

631

672

(6)

 

 

***

 

 

 

 

 

 

* See definition of Capital Expenditures, Adjusted Ebitda and Adjusted Ebitda Margin in Glossary and reconciliation in Reconciliation of Consolidated Adjusted EBITDA Statement by Segment.

 

11

 

 

 

d) DISTRIBUTION

 

 

9M-2018 x 9M-2017

 

Gross Profit

 

The decrease in gross profit reflected the reduction in the volume sold of gasoline and fuel oil.

 

Operating income and expense

 

Operating income increased primarily as a result of the reversal of the provision for losses on lawsuits arising from the Extraordinary Settlement Agreement signed with the State of Mato Grosso.

 

 

12

 

 

 

 

IV. Liquidity and Capital Resources

 

U.S.$ million

 

Jan-Sep

 

2018

2017

Adjusted cash and cash equivalents* at the beginning of period

24,404

21,989

Government bonds and time deposits with maturities of more than 3 months at the beginning of period

(1,885)

(784)

Cash and cash equivalents at the beginning of period

22,519

21,205

Net cash provided by (used in) operating activities

19,501

21,085

Net cash provided by (used in) investing activities

(3,313)

(7,241)

Acquisition of PP&E and intangibles assets

(9,388)

(9,481)

Investments in investees

(30)

(43)

Proceeds from disposal of assets - Divestment

4,915

2,953

Divestment (Investment) in marketable securities

669

(923)

Dividends received

521

253

(=) Net cash provided by operating and investing activities

16,188

13,844

Net financings

(23,446)

(11,389)

Proceeds from financing

9,008

22,644

Repayments

(32,454)

(34,033)

Dividends paid to shareholders of Petrobras

(316)

−

Dividends paid to non-controlling interest

(168)

(149)

Investments by non-controlling interest

33

(61)

Effect of exchange rate changes on cash and cash equivalents

(623)

45

Cash and cash equivalents at the end of period 

14,187

23,495

Government bonds and time deposits with maturities of more than 3 months at the end of period

1,040

1,813

Adjusted cash and cash equivalents* at the end of period

15,227

25,308

 

 

 

Reconciliation of Free cash flow

 

 

Net cash provided by (used in) operating activities

19,501

21,085

Acquisition of PP&E and intangibles assets, investments in investees and dividends received

(8,897)

(9,271)

Free cash flow*

10,604

11,814

As of September 30, 2018, the balance of cash and cash equivalents was US$ 14,187 million and the balance of adjusted cash and cash equivalents was US$ 15,227 million. The resources from cash provided by operating activities of US$ 19,501 million, proceeds from financing of US$ 9,008 million, proceeds from divestments of US$ 4,915 million were used for repayment of financing (and interest payments) and for capital expenditures.

Net cash provided by operating activities decreased to US$ 19,501 million, as a result of foreign exchange translation effects, payment of two installments of the agreement to settle Class Action and lower sales volumes, partially offset by higher margins in domestic sales of oil products and oil exports.

Acquisition of PP&E and intangibles assets, investments in investees and dividends received totaled US$ 8,897 million in 9M-2018, a reduction of 4%.

The above mentioned factors led to a decrease of 10% in Free cash flow, which totaled US$ 10,604 million in 9M-2018.

From January to September 2018, proceeds from financing amounted to US$ 9,008 million, in part as a result of: (i) funds raised from the domestic and international banking market in the amount of US$ 5,643 million with average term of 6.19 years; (ii) global notes issued in the capital market in the amount of US$ 1,962 million and maturing in 2029; and (iii) proceeds from Export Credit Agency amounting to US$ 1,041 million.

In addition, the Company paid debts: (i) US$ 12,816 million relating to repurchase of global bonds previously issued by the Company in the capital market, with net premium paid to bond holders amounting to US$ 305 million; and (ii) pre-payment of banking loans in the domestic and international market totaling US$ 11,974 million; and (iii) pre-payment of US$ 687 million with respect to financings with BNDES.

The nominal cash flow (cash view), including principal and interest payments, by maturity, is set out in US$ million, below:

 

 

 

Maturity

2018

2019

2020

2021

2022

2023 and thereafter

Balance on September 30, 2018

Balance on December 31, 2017

Principal

734

2,555

5,473

7,800

11,798

60,504

88,864

110,530

Interest

1,384

5,090

4,916

4,583

4,089

32,669

52,730

60,728

Total

2,118

7,645

10,389

12,383

15,887

93,173

141,594

171,258

 

*

 

 

* See reconciliation of Adjusted Cash and Cash Equivalents in Net Debt and definitions of Adjusted Cash and Cash Equivalents and Free Cash Flow in Glossary.

13

 

 

 

V. Consolidated debt

As of September 30, 2018, the total debt in U.S. dollars decreased 19% when compared to December 31, 2017. The net debt in U.S. dollars decreased by 14% when compared to December 31, 2017, mainly as a result of repayments of principal and interest.

Current debt and non-current debt include finance lease obligations of US$ 22 million and US$ 166 million as of September 30, 2018, respectively (US$ 25 million and US$ 204 million on December 31, 2017).

The weighted average maturity of outstanding debt reached 9.05 years as of September 30, 2018 (compared to 8.62 years as of December 31, 2017).The Average interest rate increased to 6.2% in September, 2018 from 6.1% in December 31, 2017.

The ratio between net debt and the Adjusted EBITDA* decreased to 2.62 as of September 30, 2018 from 3.53 as of December 31, 2017. The ratio between net debt and the OCF decreased to 2.90 as of September 30, 2018 from 3.20 as of December 31, 2017.

 

 

U.S.$ million

 

 

 

 

 

09.30.2018

12.31.2017

    Δ%

Current debt

4,055

7,026

(42)

Non-current debt

84,060

102,249

(18)

Total

88,115

109,275

(19)

  Cash and cash equivalents

14,187

22,519

(37)

  Government securities and time deposits (maturity of more than 3 months)

1,040

1,885

(45)

Adjusted cash and cash equivalents *

15,227

24,404

(38)

Net debt *

72,888

84,871

(14)

Net debt/(net debt+shareholders' equity) - Leverage *

50%

51%

(1)

Total net liabilities *

201,251

226,962

(11)

(Net third parties capital / total net liabilities)

63%

64%

(1)

Net debt/LTM Adjusted EBITDA ratio *

2.62

3.53

(26)

Average interest rate (% p.a.)

6.2

6.1

1

Total debt net of cash and cash equivalents/ LTM OCF ratio*

2.90

3.20

(9)

Weighted average maturity of outstanding debt (years)

9.05

8.62

0.43

 

 

 

 

 

 

 

US$ million

 

 

 

 

 

09.30.2018

12.31.2017

    Δ%

Summarized information on financing

 

 

 

Floating rate or fixed rate

 

 

 

Floating rate debt

44,310

53,492

(17)

Fixed rate debt

43,617

55,554

(21)

Total

87,927

109,046

(19)

 

 

 

 

Currency

 

 

 

Reais

16,813

21,505

(22)

US Dollars

65,190

79,687

(18)

Euro

3,549

5,373

(34)

Other currencies

2,375

2,481

(4)

Total

87,927

109,046

(19)

 

 

 

 

By maturity

 

 

 

2018

1,983

7,001

(72)

2019

2,657

6,476

(59)

2020

5,339

9,641

(45)

2021

7,669

12,745

(40)

2022

11,718

18,014

(35)

2023 years on

58,561

55,169

6

Total

87,927

109,046

(19)

 

 

**

 

* See definition of Adjusted Cash and Cash Equivalents, Net Debt, Total Net Liabilities, LTM Adjusted EBITDA, LTM OCF and Leverage in Glossary and reconciliation in Reconciliation of Adjusted EBITDA and LTM OCF.

14

 

 

 

 

VI. Reconciliation of Adjusted EBITDA and Net Debt/Adjusted EBITDA Metric

 

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 and is computed by using the EBITDA (net income before net finance income (expense), income taxes, depreciation, depletion and amortization) adjusted by items not considered part of Company’s primary business, which include results in equity-accounted investments, impairment, cumulative foreign exchange adjustments reclassified to the income statement and results from disposal and write-offs of assets.

In calculating Adjusted EBITDA for Jan-Sep/2018, we adjusted our EBITDA for the period by adding foreign exchange gains and losses resulting from provisions for legal proceedings denominated in foreign currencies. Legal provisions in foreign currencies primarily consist 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. In addition, 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.

This measure is used to calculate the metric Net Debt/ LTM Adjusted EBITDA, which is established in the business plan 2018-2022, to support management’s assessment of liquidity and leverage.

Net Debt reflects the gross debt net of cash and cash equivalents, government bonds and time deposits from highly rated financial institutions abroad with maturities of more than 3 months from the date of acquisition, considering the expected realization of those financial investments in the short-term.

The Adjusted EBITDA is an alternative performance measure for the Company. This measure is being presented as a supplementary information to readers.

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

Adjusted EBITDA

 

U.S.$ million

 

Jan-Sep

 

2018

2017

(%)

 

 

 

 

Net income (loss)

6,633

1,823

264

Net finance income (expenses)

4,447

7,555

(41)

Income taxes

3,834

2,800

37

Depreciation, depletion and amortization

9,159

10,090

(9)

EBITDA

24,073

22,268

8

Results in equity-accounted investments

(491)

(524)

6

Impairment

349

110

217

Reclassification of cumulative translation adjustment - CTA

−

37

(100)

Gains and losses on disposal/write-offs of assets (*)

(626)

(1,852)

66

Foreign exchange gains or losses on provisions for legal proceedings

539

−

 

Adjusted EBITDA

23,844

20,039

19

Adjusted EBITDA margin (%)

33

31

2

 


15

 

 

 

LTM Adjusted EBITDA

 

 

 

US$ million

 

Last twelve months (LTM) at

 

 

 

 

 

09.30.2018

12.31.2017

4Q-2017

1Q-2018

2Q-2018

3Q-2018

Net income (loss)

4,979

169

(1,654)

2,196

2,688

1,749

Net finance income (expenses)

6,787

9,895

2,340

2,235

734

1,478

Income taxes

2,862

1,828

(972)

1,219

1,286

1,329

Depreciation, depletion and amortization

12,376

13,307

3,217

3,409

3,041

2,709

EBITDA

27,004

25,199

2,931

9,059

7,749

7,265

Results in equity-accounted investments

(640)

(673)

(149)

(158)

(86)

(247)

Impairment

1,430

1,191

1,081

18

(49)

380

Reclassification of cumulative translation adjustment - CTA

−

37

−

−

−

−

Gains and losses on disposal/write-offs of assets *

(489)

(1,715)

137

(1,005)

316

63

Foreign exchange gains or losses on provisions for legal proceedings

539

−

−

31

410

98

Adjusted EBITDA

27,844

24,039

4,000

7,945

8,340

7,559

Income taxes

(2,862)

(1,828)

972

(1,219)

(1,286)

(1,329)

Allowance (reversals) for impairment of trade and others receivables

995

708

73

137

288

497

Trade and other receivables, net

(2,711)

(978)

(204)

558

(1,898)

(1,167)

Inventories

(3,289)

(336)

(649)

(352)

(1,493)

(795)

Trade payables

1,516

(62)

20

(418)

666

1,248

Deferred income taxes, net

(559)

467

(1,001)

195

147

100

Taxes payable

1,291

2,153

561

143

585

2

Others

3,303

2,949

2,255

(140)

1,750

(562)

Net cash provided by operating activities  -OCF

25,528

27,112

6,027

6,849

7,099

5,553

 

Net Debt/Adjusted EBITDA Metric

 

The Net debt/Adjusted EBITDA ratio is an important metric used in our 2018-2022 Plan that supports our management in assessing the liquidity and leverage of Petrobras Group.

In order to translate the items comprising this metric into the presentation currency of the Company’s financial statements (U.S. dollars), the Company applied the same foreign exchange translation method as set out IAS 21 - The effects of changes in foreign exchanges rates (see note 2.2 to the interim financial statements for September 30, 2018). Accordingly, assets and liabilities items were translated into U.S. dollars at the exchange rate as of the date of the statement of financial position, and all items pertaining to the statement of income and statement of cash flows were translated at the average rates prevailing at each quarter of the years.

The Company has pursued a 2.5 target ratio based on our net debt and Adjusted EBITDA computed in reais and, depending on the foreign translation effects on items that comprise this metric, the Net Debt/Adjusted EBITDA may significantly differ or even present a different trend when calculated in USD.

The following table presents, in both currencies, the reconciliation for this metric to the most directly comparable GAAP measure in accordance with IFRS, which is in this case the Gross Debt Net of Cash and Cash Equivalents / Net Cash provided by operating activities ratio:

 

 

 

* Includes results with disposal and write-offs of assets and re-measurement of remaining interests at fair value.

 

 

16

 

 

 

 

R$ million

 

US$ million

 

 

 

 

 

 

 

09.30.2018

12.31.2017

 

09.30.2018

12.31.2017

Cash and cash equivalents

56,803

74,494

 

14,187

22,519

Government securities and time deposits (maturity of more than three months)

4,164

6,237

 

1,040

1,885

Adjusted cash and cash equivalents

60,967

80,731

 

15,227

24,404

Current and non-current debt - Gross Debt

352,801

361,483

 

88,115

109,275

Net debt

291,834

280,752

 

72,888

84,871

Net cash provided by operating activities  -OCF

89,305

86,467

 

25,528

27,112

Income taxes

(10,686)

(5,797)

 

(2,862)

(1,828)

Impairment of trade and others receivables

3,683

2,271

 

995

708

Trade and other receivables, net

(10,308)

(3,140)

 

(2,711)

(978)

Inventories

(11,774)

(1,130)

 

(3,289)

(336)

Trade payables

6,043

(160)

 

1,516

(62)

Deferred income taxes, net

(1,689)

1,452

 

(559)

467

Taxes payable

4,401

6,911

 

1,291

2,153

Others

10,958

9,503

 

3,303

2,949

Adjusted EBITDA

98,677

76,557

 

27,844

24,039

Gross debt net of cash and cash equivalents/OCF ratio

3.27

3.25

 

2.90

3.20

Net debt/Adjusted EBITDA ratio

2.96

3.67

 

2.62

3.53

 

17

 

 

 

VII. Foreign Exchange Translation Effects on Results of Operations of Jan-Sep/2018

The main functional currency of the Petrobras Group is the Brazilian real, which is the functional currency of the parent company and its Brazilian subsidiaries. However, the presentation currency of this financial report is the U.S. Dollar to facilitate the comparison with other oil and gas companies. Therefore, the results of operations in Brazilian real were translated into U.S. dollars using the average exchange rates prevailing during the period, as set out in IAS 21 – “The effects of foreign exchanges rates”.

When the Brazilian real appreciates against the U.S. dollar, the effect is to generally increase both revenues and expenses when expressed in U.S. dollars. When the Brazilian real depreciates against the U.S. dollar, as it did in Jan-Sep/2018, the effect is to generally decrease both revenues and expenses when expressed in U.S. dollars.

In order to isolate the foreign exchange translation effect on results of operations, the table below presents a reconciliation of income statement to financial information on a constant currency basis, assuming the same exchange rates between each quarter for translation. In 2018, the results on a constant currency basis were computed by converting the 1Q-2018, 2Q-2018 and 3Q-2018 results from Brazilian real into U.S. dollars based on the same average exchange rates used in 1Q-2017, 2Q-2017 and 3Q-2017 (3.1451, 3.2174 and 3.1640, respectively).

The amounts and respective variations presented in constant currency are not measures defined in the International Financial Reporting Standards – IFRS. Our calculation may not be comparable to the calculation of other companies and it should not be considered as a substitute for any measure calculated in accordance with IFRS.

 

 

As reported

 

Financial information in a constant currency basis

 

Jan-Sep

 

 

 

Jan-Sep 2018

 

 

 

 

 

Variation

 

 

 

Variation *

 

 

 

 

 

 

 

 

 

 

 

U.S.$ million

 

 

U.S.$ million

 

 

2018

2017

Δ

Δ (%)

 

Foreign exchange translation effects

Results on a constant currency basis

Δ

Δ (%)

Sales revenues

71,238

65,260

5,978

9

 

(9,724)

80,962

15,702

24

Cost of sales

(45,443)

(44,343)

(1,100)

(2)

 

6,228

(51,671)

(7,328)

(17)

Gross profit

25,795

20,917

4,878

23

 

(3,496)

29,291

8,374

40

Selling expenses

(4,083)

(3,308)

(775)

(23)

 

570

(4,653)

(1,345)

(41)

General and administrative expenses

(1,832)

(2,198)

366

17

 

234

(2,066)

132

6

Exploration costs

(402)

(494)

92

19

 

51

(453)

41

8

Research and development expenses

(476)

(412)

(64)

(16)

 

63

(539)

(127)

(31)

Other taxes

(448)

(1,367)

919

67

 

67

(515)

852

62

Other income and expenses

(4,131)

(1,484)

(2,647)

(178)

 

711

(4,842)

(3,358)

(226)

Operating income

14,423

11,654

2,769

24

 

(1,800)

16,223

4,569

39

Net finance income (expense)

(4,447)

(7,555)

3,108

41

 

526

(4,973)

2,582

34

Results in equity-accounted investments

491

524

(33)

(6)

 

(75)

566

42

8

Income before income taxes

10,467

4,623

5,844

126

 

(1,351)

11,818

7,195

156

Income taxes

(3,834)

(2,800)

(1,034)

(37)

 

525

(4,359)

(1,559)

(56)

Net income  

6,633

1,823

4,810

264

 

(826)

7,459

5,636

309

 

 

 

 

 

 

 

 

 

 

* Variation after isolating foreign exchange translation effects between periods used for translation.

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

VIII. SUMMARY OF UNAUDITED INTERIM FINANCIAL STATEMENTS

Income Statement - Consolidated

 

U.S.$ million

 

Jan-Sep

 

2018

2017

Sales revenues

71,238

65,260

Cost of sales

(45,443)

(44,343)

Gross profit

25,795

20,917

 

 

 

Selling expenses

(4,083)

(3,308)

General and administrative expenses

(1,832)

(2,198)

Exploration costs

(402)

(494)

Research and development expenses

(476)

(412)

Other taxes

(448)

(1,367)

Other income and expenses

(4,131)

(1,484)

 

(11,372)

(9,263)

Operating income (loss)

14,423

11,654

Finance income

2,185

857

Finance expenses

(4,490)

(5,678)

Foreign exchange gains (losses) and inflation indexation charges

(2,142)

(2,734)

Net finance income (expense)

(4,447)

(7,555)

Results in equity-accounted investments

491

524

Income (loss) before income taxes

10,467

4,623

Income taxes

(3,834)

(2,800)

Net income (loss)  

6,633

1,823

Net income (loss) attributable to:

 

 

Non-controlling interests

11

227

Shareholders of Petrobras

6,622

1,596

 

19

 

 

 

Statement of Financial Position – Consolidated

ASSETS

U.S.$ million

 

09.30.2018

12.31.2017

 

 

 

Current assets

37,514

47,131

Cash and cash equivalents

14,187

22,519

Marketable securities

1,040

1,885

Trade and other receivables, net

6,409

4,972

Inventories

9,707

8,489

Recoverable taxes

2,357

2,437

Assets classified as held for sale

377

5,318

Other current assets

3,437

1,511

Non-current assets

178,964

204,235

Long-term receivables

20,374

21,450

           Trade and other receivables, net

4,452

5,175

           Marketable securities

50

64

           Judicial deposits

6,040

5,582

           Deferred taxes

3,990

3,438

           Other tax assets

2,425

3,075

           Advances to suppliers

745

1,032

           Other non-current assets

2,672

3,084

Investments

3,346

3,795

Property, plant and equipment

152,533

176,650

Intangible assets

2,711

2,340

Total assets

216,478

251,366

 

 

 

LIABILITIES

U.S.$ million

 

09.30.2018

12.31.2017

Current liabilities

23,495

24,948

Trade payables

6,858

5,767

Finance debt and Finance lease obligations

4,055

7,026

Taxes payable

4,068

4,847

Payroll and related charges

1,694

1,309

Pension and medical benefits

748

844

Provisions for legal proceedings

3,016

2,256

Liabilities related to assets classified as held for sale

38

391

Agreement with US Authorities

883

−

Other current liabilities

2,135

2,508

Non-current liabilities

119,011

144,916

Finance debt and Finance lease obligations

84,060

102,249

Income taxes payable

540

671

Deferred taxes

436

1,196

Pension and medical benefits

18,111

20,986

Provisions for legal proceedings

3,041

4,770

Provision for decommissioning costs

11,896

14,143

Other non-current liabilities

927

901

Shareholders' equity

73,972

81,502

Share capital  (net of share issuance costs) 

107,101

107,101

Profit reserves and others

(34,580)

(27,299)

Non-controlling interests

1,451

1,700

Total liabilities and shareholders' equity

216,478

251,366

 

 

 

 

20

 

 

 

Statement of Cash Flows – Consolidated

 

US$ million

 

Jan-Sep

 

2018

2017

Cash flows from Operating activities

 

 

Net income for the period

6,633

1,823

Adjustments for:

 

 

Pension and medical benefits (actuarial expense)

1,630

2,056

Results in equity-accounted investments

(491)

(524)

Depreciation, depletion and amortization

9,159

10,090

Impairment of assets (reversal)

349

110

Inventory write-down to net realizable value

36

67

Allowance (reversals) for expected credit loss on trade and others receivables

922

635

Exploratory expenditures write-offs

72

225

Gains and losses on disposals/write-offs of assets

(626)

(1,635)

Foreign exchange, indexation and finance charges  

6,120

7,397

Deferred income taxes, net

442

1,468

Reclassification of cumulative translation adjustment and other comprehensive income

−

59

Revision and unwinding of discount on the provision for decommissioning costs

500

573

Gain on remeasurement of investment retained with loss of control  

−

(217)

Decrease (Increase) in assets

 

 

Trade and other receivables, net

(2,507)

(774)

Inventories

(2,640)

313

Judicial deposits

(1,568)

(580)

Other assets

(1,320)

(164)

Increase (Decrease) in liabilities

 

 

Trade payables

1,496

(82)

Other taxes payable

2,615

2,263

Income taxes paid

(1,885)

(727)

Pension and medical benefits

(736)

(620)

Other liabilities

1,300

(671)

Net cash provided by operating activities

19,501

21,085

Cash flows from Investing activities

 

 

Acquisition of PP&E and intangibles assets

(9,388)

(9,481)

Investments in investees

(30)

(43)

Proceeds from disposal of assets - Divestment

4,915

2,953

Divestment (Investment) in marketable securities

669

(923)

Dividends received

521

253

Net cash provided by (used in) investing activities

(3,313)

(7,241)

Cash flows from Financing activities

 

 

Investments by non-controlling interest

33

(61)

Loans and financing, net:

 

 

Proceeds from financing

9,008

22,644

Repayment of principal

(27,914)

(28,565)

Repayment of interest

(4,540)

(5,468)

Dividends paid to Shareholders of Petrobras

(316)

−

Dividends paid to non-controlling interests

(168)

(149)

Net cash used in financing activities

(23,897)

(11,599)

 

 

 

Effect of exchange rate changes on cash and cash equivalents

(623)

45

 

 

 

Net increase (decrease) in cash and cash equivalents

(8,332)

2,290

 

 

 

Cash and cash equivalents at the beginning of the period

22,519

21,205

 

 

 

Cash and cash equivalents at the end of the period

14,187

23,495

 

 

 

 

21

 

 

 

IX. SEGMENT INFORMATION

Consolidated Income by Segment – Jan-Sep/2018

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Sales revenues

39,049

54,519

9,141

187

21,052

−

(52,710)

71,238

Intersegments

37,369

12,440

2,463

174

264

−

(52,710)

−

Third parties

1,680

42,079

6,678

13

20,788

−

−

71,238

Cost of sales

(22,158)

(48,123)

(6,770)

(175)

(19,786)

−

51,569

(45,443)

Gross profit

16,891

6,396

2,371

12

1,266

−

(1,141)

25,795

Expenses

(2,007)

(2,055)

(2,298)

(18)

(640)

(4,326)

(28)

(11,372)

Selling expenses

(63)

(1,278)

(1,916)

(2)

(662)

(142)

(20)

(4,083)

General and administrative expenses

(187)

(284)

(112)

(15)

(172)

(1,061)

(1)

(1,832)

Exploration costs

(402)

−

−

−

−

−

−

(402)

Research and development expenses

(330)

(8)

(18)

−

(1)

(119)

−

(476)

Other taxes

(96)

(86)

(33)

(3)

(63)

(167)

−

(448)

Other income and expenses

(929)

(399)

(219)

2

258

(2,837)

(7)

(4,131)

Operating income (loss)

14,884

4,341

73

(6)

626

(4,326)

(1,169)

14,423

Net finance income (expense)

−

−

−

−

−

(4,447)

−

(4,447)

Results in equity-accounted investments

67

358

72

(4)

(2)

−

−

491

Income (loss) before income taxes

14,951

4,699

145

(10)

624

(8,773)

(1,169)

10,467

Income taxes

(5,056)

(1,476)

(26)

2

(214)

2,539

397

(3,834)

Net income (loss)

9,895

3,223

119

(8)

410

(6,234)

(772)

6,633

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

Non-controlling interests

(4)

(43)

103

−

113

(158)

−

11

Shareholders of Petrobras

9,899

3,266

16

(8)

297

(6,076)

(772)

6,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Income by Segment – Jan-Sep/2017

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Sales revenues

30,739

49,722

8,844

156

20,133

−

(44,334)

65,260

Intersegments

29,721

11,958

2,201

148

306

−

(44,334)

−

Third parties

1,018

37,764

6,643

8

19,827

−

−

65,260

Cost of sales

(20,560)

(43,327)

(6,367)

(164)

(18,640)

−

44,715

(44,343)

Gross profit

10,179

6,395

2,477

(8)

1,493

−

381

20,917

Expenses

(2,813)

(2,149)

494

(11)

(914)

(3,924)

54

(9,263)

Selling expenses

(97)

(1,305)

(1,239)

(2)

(750)

25

60

(3,308)

General and administrative expenses

(240)

(345)

(130)

(18)

(204)

(1,261)

−

(2,198)

Exploration costs

(494)

−

−

−

−

−

−

(494)

Research and development expenses

(249)

(9)

(22)

−

−

(132)

−

(412)

Other taxes

(72)

(105)

(226)

(6)

(38)

(920)

−

(1,367)

Other income and expenses

(1,661)

(385)

2,111

15

78

(1,636)

(6)

(1,484)

 

 

 

 

 

 

 

 

 

Operating income (loss)

7,366

4,246

2,971

(19)

579

(3,924)

435

11,654

Net finance income (expense)

−

−

−

−

−

(7,555)

−

(7,555)

Results in equity-accounted investments

81

377

91

(25)

−

−

−

524

Income (loss) before income taxes

7,447

4,623

3,062

(44)

579

(11,479)

435

4,623

Income taxes

(2,502)

(1,444)

(1,011)

6

(197)

2,496

(148)

(2,800)

Net income (loss)

4,945

3,179

2,051

(38)

382

(8,983)

287

1,823

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

Non-controlling interests

14

(26)

89

−

−

150

−

227

Shareholders of Petrobras

4,931

3,205

1,962

(38)

382

(9,133)

287

1,596

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

Other Income and Expenses by Segment – Jan-Sep/2018

 

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Pension and medical benefits - retirees

−

−

−

−

−

(1,133)

−

(1,133)

Unscheduled stoppages and pre-operating expenses

(802)

(20)

(87)

−

−

(3)

−

(912)

Agreement with US Authorities

−

−

−

−

−

(895)

−

(895)

Gains / (losses) related to legal, administrative and arbitration proceedings

(129)

(102)

(146)

(1)

257

(628)

−

(749)

Gains/(losses) with Commodities Derivatives

−

−

−

−

−

(608)

−

(608)

Profit sharing

(167)

(102)

(17)

(1)

(17)

(134)

−

(438)

Employee Career and Compensation Plan - PCR

(138)

(52)

(10)

−

−

(89)

−

(289)

Institutional relations and cultural projects

−

(2)

−

−

(25)

(108)

−

(135)

Operating expenses with thermoelectric power plants

−

−

(68)

−

−

−

−

(68)

Health, safety and environment

(20)

(10)

−

−

−

(23)

−

(53)

Allowance for impairment of other receivables

3

(77)

7

−

−

39

−

(28)

Voluntary Separation Incentive Plan - PIDV

−

1

−

−

(5)

1

−

(3)

Impairment

(376)

47

(20)

−

−

−

−

(349)

Government grants

2

2

29

2

−

24

−

59

Ship/Take or Pay agreements

−

31

23

−

7

1

−

62

Expenses/Reimbursements from E&P partnership operations

222

−

−

−

−

−

−

222

Amounts recovered from Lava Jato investigation

−

−

−

−

−

440

−

440

Gains / (losses) on disposal/write-offs of assets (*)

610

(42)

(17)

−

6

69

−

626

Others

(134)

(73)

87

2

35

210

(7)

120

 

(929)

(399)

(219)

2

258

(2,837)

(7)

(4,131)

 

Other Income and Expenses by Segment – Jan-Sep/2017

 

 

 

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Pension and medical benefits - retirees

−

−

−

−

−

(1,445)

−

(1,445)

Unscheduled stoppages and pre-operating expenses

(1,089)

(30)

(75)

−

−

(1)

−

(1,195)

Gains / (losses) related to legal, administrative and arbitration proceedings

(423)

(136)

(149)

(1)

(32)

(119)

−

(860)

Profit sharing

(35)

(22)

(3)

−

(5)

(33)

−

(98)

Institutional relations and cultural projects

(1)

(2)

−

−

(31)

(118)

−

(152)

Operating expenses with thermoelectric power plants

−

−

(56)

−

−

−

−

(56)

Health, safety and environment

(9)

(6)

(2)

−

−

(33)

−

(50)

Allowance for impairment of other receivables

(469)

(8)

−

−

−

(19)

−

(496)

Voluntary Separation Incentive Plan - PIDV

52

(13)

44

−

45

109

−

237

Impairment

−

(36)

(74)

−

−

−

−

(110)

Government grants

3

10

54

3

−

−

−

70

Ship/Take or Pay agreements

1

48

371

−

6

−

−

426

Expenses/Reimbursements from E&P partnership operations

271

−

−

−

−

−

−

271

Amounts recovered from Lava Jato investigation

−

−

−

−

−

48

−

48

Gains / (losses) on disposal/write-offs of assets (*)

(189)

(128)

1,944

3

10

(5)

−

1,635

Reclassification of cumulative translation adjustments - CTA

−

−

−

−

−

(37)

−

(37)

Gain on remeasurement of investment retained with loss of control  

−

−

217

−

−

−

−

217

Others

227

(62)

(160)

10

85

17

(6)

111

 

(1,661)

(385)

2,111

15

78

(1,636)

(6)

(1,484)

 

* In 2018, it primarily comprises divestment results. In 2017, it primarily includes returned areas, canceled projects and the gain on the divestment of NTS.

 

23

 

 

 

 

Consolidated Assets by Segment – 09.30.2018

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Total assets

126,758

45,631

14,997

169

5,195

28,075

(4,347)

216,478

 

 

 

 

 

 

 

 

 

Current assets

3,914

13,747

2,040

55

2,715

19,392

(4,349)

37,514

Non-current assets

122,844

31,884

12,957

114

2,480

8,683

2

178,964

Long-term receivables

7,532

3,028

1,008

2

834

7,930

40

20,374

Investments

1,253

1,299

749

41

−

4

−

3,346

Property, plant and equipment

112,054

27,390

10,967

71

1,459

630

(38)

152,533

Operating assets

86,244

23,897

8,542

69

1,261

416

(38)

120,391

Assets under construction

25,810

3,493

2,425

2

198

214

−

32,142

Intangible assets

2,005

167

233

−

187

119

−

2,711

 

 

 

 

 

 

 

 

 

Consolidated Assets by Segment – 12.31.2017

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Total assets

144,619

51,066

18,555

190

6,121

36,746

(5,931)

251,366

 

 

 

 

 

 

 

 

 

Current assets

7,575

12,670

1,811

64

2,961

27,472

(5,422)

47,131

Non-current assets

137,044

38,396

16,744

126

3,160

9,274

(509)

204,235

Long-term receivables

7,619

3,330

2,395

4

1,074

7,489

(461)

21,450

Investments

1,429

1,492

830

33

5

6

−

3,795

Property, plant and equipment

126,487

33,400

13,231

89

1,862

1,629

(48)

176,650

Operating assets

91,386

29,217

10,580

85

1,603

1,306

(48)

134,129

Assets under construction

35,101

4,183

2,651

4

259

323

−

42,521

Intangible assets

1,509

174

288

−

219

150

−

2,340

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

The Adjusted EBITDA by Segment is an alternative performance measure of each segment of the Company. This measure is being presented as a supplementary information to the readers, may not be comparable to other companies and should not be considered in isolation or as a substitute for any measure calculated in accordance with IFRS.

 

Reconciliation of Consolidated Adjusted EBITDA by Segment –  Jan-Sep/2018

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Net income (loss)

9,895

3,223

119

(8)

410

(6,234)

(772)

6,633

Net finance income (expenses)

−

−

−

−

−

4,447

−

4,447

Income taxes

5,056

1,476

26

(2)

214

(2,539)

(397)

3,834

Depreciation, depletion and amortization

6,859

1,619

483

4

97

97

−

9,159

EBITDA

21,810

6,318

628

(6)

721

(4,229)

(1,169)

24,073

Results in equity-accounted investments

(67)

(358)

(72)

4

2

−

−

(491)

Impairment

376

(47)

20

−

−

−

−

349

Reclassification of cumulative translation adjustment - CTA

−

−

−

−

−

−

−

−

Gains and losses on disposal/write-offs of assets **

(610)

42

17

−

(6)

(69)

−

(626)

Foreign exchange gains or losses on provisions for legal proceedings

−

−

−

−

−

539

−

539

Adjusted EBITDA *

21,509

5,955

593

(2)

717

(3,759)

(1,169)

23,844

 

Reconciliation of Consolidated Adjusted EBITDA by Segment – Jan-Sep/2017

*

 

U.S.$ million

 

 

 

 

 

 

 

 

 

 

E&P

RTM

GAS & POWER

BIOFUEL

DISTRIB.

CORP.

ELIMIN.

TOTAL

Net income (loss)

4,945

3,179

2,051

(38)

382

(8,983)

287

1,823

Net finance income (expenses)

−

−

−

−

−

7,555

−

7,555

Income taxes

2,502

1,444

1,011

(6)

197

(2,496)

148

2,800

Depreciation, depletion and amortization

7,397

1,829

606

4

121

133

−

10,090

EBITDA

14,844

6,452

3,668

(40)

700

(3,791)

435

22,268

Results in equity-accounted investments

(81)

(377)

(91)

25

−

−

−

(524)

Impairment

−

36

74

−

−

−

−

110

Reclassification of cumulative translation adjustment - CTA

−

−

−

−

−

37

−

37

Gains and losses on disposal/write-offs of assets **

189

128

(2,160)

(3)

(10)

4

−

(1,852)

Adjusted EBITDA *

14,952

6,239

1,491

(18)

690

(3,750)

435

20,039

 

 

* See definition of Adjusted EBITDA in glossary.

** Includes results with disposal and write-offs of assets and re-measurement of remaining interests at fair value.

25

 

 

 

X - Glossary

ACL - Ambiente de Contratação Livre (Free contracting market) in the electricity system.

ACR - Ambiente de Contratação Regulada (Regulated contracting market) in the electricity system.

Adjusted cash and cash equivalents - Sum of cash and cash equivalents, government bonds and time deposits from highly rated financial institutions abroad with maturities of more than 3 months from the date of acquisition, considering the expected realization of those financial investments in the short-term. This measure is not defined under the International Financial Reporting Standards – IFRS and should not be considered in isolation or as a substitute for cash and cash equivalents computed in accordance with IFRS. It may not be comparable to adjusted cash and cash equivalents of other companies, however management believes that it is an appropriate supplemental measure to assess our liquidity and supports leverage management.

Adjusted EBITDA – Net income plus net finance income (expense); income taxes; depreciation, depletion and amortization; results in equity-accounted investments; impairment, cumulative translation adjustment and gains/losses on disposal/write-offs of assets. Adjusted EBITDA is not a measure defined by IFRS and it is possible

that it may not be comparable to similar measures reported by other companies, however management believes that it is an appropriate supplemental measure to assess our profitability. Adjusted EBITDA shall be considered in conjunction with other metrics for a better understanding on our performance.

Adjusted EBITDA margin - Adjusted EBITDA divided by sales revenues.

ANP - Brazilian National Petroleum, Natural Gas and Biofuels Agency.

Basic and diluted earnings (losses) per share - Calculated based on the weighted average number of shares.

Capital Expenditures – Capital expenditures based on the cost assumptions and financial methodology adopted in our Business and Management Plan, which include acquisition of PP&E and intangibles assets, investment in investees and other items that do not necessarily qualify as cash flows used in investing activities, primarily geological and geophysical expenses, research and development expenses, pre-operating charges, purchase of property, plant and equipment on credit and borrowing costs directly attributable to works in progress.

Consolidated Structured Entities - Entities that have been designated so that voting or similar rights are not the determining factor that decides who controls the entity. Petrobras has no share of earnings in investments in certain structured entities that are consolidated in the financial statements, but the control is determined by the power it has over its relevant operating activities. As there are no interests, the result came from certain consolidated structured entities is attributable to non-controlling interests in the income statement, and it is not considered on net income attributable to shareholders of Petrobras.

CTA – Cumulative translation adjustment – The cumulative amount of exchange variation arising on translation of foreign operations that is recognized in Shareholders’ Equity and will be transferred to profit or loss on the disposal of the investment.

Domestic crude oil sales price - Average of the internal transfer prices from Exploration & Production to Refining, Transportation and Marketing.

Domestic natural gas production - Natural gas production in Brazil less LNG plus gas reinjection.

Effect of average cost in the Cost of Sales – In view of the average inventory term of 60 days, the crude oil and oil products international prices movement, as well as foreign exchange effect over imports,  production taxes and other factors that impact costs, do not entirely influence the cost of sales in the current period, having their total effects only in the following period.

Feedstock processed – Brazil - Daily volume of crude oil and NGL processed.

Feedstock processed (excluding NGL) - Daily volume of crude oil processed in the Company´s refineries in Brazil and is factored into the calculation of the Refining Plants Utilization Factor.

 

 

 

Free cash flow - Net cash provided by operating activities less acquisition of PP&E and intangibles assets, investments in investees and dividends received.. Free cash flow is not defined under the IFRS and should not be considered in isolation or as a substitute for cash and cash equivalents calculated in accordance with IFRS. It may not be comparable to free cash flow of other companies, however management believes that it is an appropriate supplemental measure to assess our liquidity and supports leverage management.

Gross Margin - Gross profit over sales revenues.

Jet fuel – Aviation fuel.

Leverage – Ratio between the Net Debt and the sum of Net Debt and Shareholders’ Equity. Leverage is not a measure defined in the IFRS and it is possible that it may not be comparable to similar measures reported by other companies, however management believes that it is an appropriate supplemental measure to assess our liquidity.

Lifting Cost - Crude oil and natural gas lifting cost indicator, which considers expenditures occurred in the period.

LNG - Liquified natural gas.

LPG - Liquified crude oil gas.

Net Debt – Gross debt less adjusted cash and cash equivalents. Net debt is not a measure defined in the IFRS and should not be considered in isolation or as a substitute for total long-term debt calculated in accordance with IFRS.  Our calculation of net debt may not be comparable to the calculation of net debt by other companies. Management believes that net debt is an appropriate supplemental measure that helps investors assess our liquidity and supports leverage management.

Net Income by Business Segment - Company’s segment results. Petrobras is an integrated energy company and most of the crude oil and natural gas production from the Exploration & Production segment is transferred to other business segments of the Company. Our results by business segment include transactions carried out with third parties, transactions between companies of Petrobras’s Group and transfers between Petrobras’s business segments that are calculated using internal prices defined through methodologies based on market parameters.

Net Margin - Net income (loss) over sales revenues.

NGL - Natural gas liquids.

OCF - Net Cash provided by (used in) operating activities (operating cash flow)

Operating indicators - Indicators used for businesses management and are not reviewed by independent auditor.

Operating Margin - Operating income (loss) over sales revenues.

PLD (differences settlement price) - Electricity price in the spot market.  Weekly weighed prices per output level (light, medium and heavy), number of hours and related market capacity.

 

Reference feedstock or installed capacity of primary processing - Maximum sustainable feedstock processing reached at the distillation units at the end of each period, respecting the project limits of equipment and the safety, environment and product quality requirements. It is lower than the authorized capacity set by ANP (including temporary authorizations) and by environmental protection agencies.

Refining plants utilization factor (%) - Feedstock processed (excluding NGL) divided by the reference feedstock.

Total net liabilities - Total liability less adjusted cash and cash equivalents.

 

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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: November 6, 2018.

PETRÓLEO BRASILEIRO S.A—PETROBRAS

By: /s/ Rafael Salvador Grisolia

______________________________

Rafael Salvador Grisolia

Chief Financial Officer and Investor Relations Officer