Edgar Filing: PETROBRAS - PETROLEO BRASILEIRO SA

6-K

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, 2016

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

Quarterly

Information – ITR

At September 30, 2016 and report on

review of Quarterly Information

(A free translation of the original in

Portuguese)

Index

(Expressed in millions of reais, unless otherwise indicated)


Company Data / Share Capital Composition		4
Parent Company Interim Accounting Information / Statement of Financial Position—Assets		5
Parent Company Interim Accounting Information / Statement of Financial Position—Liabilities		6
Parent Company Interim Accounting Information / Statement of Income		7
Parent Company Interim Accounting Information / Statement of Comprehensive Income		8
Parent Company Interim Accounting Information / Statement of Cash Flows – Indirect Method		9
Parent Company Interim Accounting Information / Statement of Changes in Shareholders’ Equity—01/01/2016 to 09/30/2016		10
Parent Company Interim Accounting Information / Statement of Changes in Shareholders’ Equity—01/01/2015 to 09/30/2015		11
Parent Company Interim Accounting Information / Statement of Added Value		12
Consolidated Interim Accounting Information / Statement of Financial Position—Assets		13
Consolidated Interim Accounting Information / Statement of Financial Position—Liabilities		14
Consolidated Interim Accounting Information / Statement of Income		15
Consolidated Interim Accounting Information / Statement of Comprehensive Income		16
Consolidated Interim Accounting Information / Statement of Cash Flows – Indirect Method		17
Consolidated Interim Accounting Information / Statement of Changes in Shareholders’ Equity—01/01/2016 to 09/30/2016		18
Consolidated Interim Accounting Information / Statement of Changes in Shareholders’ Equity—01/01/2015 to 09/30/2015		19
Consolidated Interim Accounting Information / Statement of Added Value		20
Notes to the financial statements		21
1.	The Company and its operations	21
2.	Basis of preparation of interim financial information	21
3.	The “Lava Jato (Car Wash) Operation” and its effects on the Company	21
4.	Basis of consolidation	22
5.	Summary of significant accounting policies	22
6.	Cash and cash equivalents and Marketable securities	23
7.	Trade and other receivables	24
8.	Inventories	27
9.	Disposal of Assets	28
10.	Investments	30
11.	Property, plant and equipment	32
12.	Intangible assets	34
13.	Impairment	35
14.	Exploration for and evaluation of oil and gas reserves	40
15.	Trade payables	41
16.	Finance debt	41
17.	Leases	44
18.	Related-party transactions	45
19.	Provision for decommissioning costs	49
20.	Taxes	50
21.	Employee benefits (Post-Employment)	53
22.	Shareholders’ equity	55
23.	Sales revenues	55
24.	Other expenses, net	56
25.	Costs and Expenses by nature	56
26.	Net finance income (expense)	57
27.	Supplemental information on statement of cash flows	57
28.	Segment information	58
29.	Provisions for legal proceedings	62
30.	Collateral for crude oil exploration concession agreements	67
31.	Risk management	68
32.	Fair value of financial assets and liabilities	72
33.	Subsequent events	73
34.	Correlation between the notes disclosed in the complete annual financial statements as of December 31, 2015 and the interim statements as of September 30, 2016	75

(A free translation of the original in Portuguese)

Report on review of Quarterly Information

Introduction

We have reviewed the accompanying parent company and consolidated interim accounting information of Petróleo Brasileiro S.A—Petrobras, included in the Quarterly Information Form (ITR) for the quarter ended September 30, 2016, comprising the balance sheet at that date and the statements of income and comprehensive income for the quarter and nine-month periods then ended, and the statements of changes in equity and cash flows for the nine-month period then ended, and a summary of significant accounting policies and other explanatory information.

Management is responsible for the preparation of the parent company and consolidated interim accounting information in accordance with the accounting standard CPC 21, Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC) and International Accounting Standard (IAS) 34, Interim Financial Reporting issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review.

Scope of review

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion on the interim information

Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM.

Emphasis – Impact of the Lava Jato Operation on the Company’s results

We draw attention to Note 3 of the interim financial information which describes that:

no additional information has been identified through the date of this accounting information which could materially impact the estimation methodology adopted for the write off recorded on September 30, 2014 ; and

ii)

the internal investigations being conducted by outside legal counsel under the supervision of a Special Committee created by the Company and the investigation conducted by the Securities and Exchange Commission are still on going.

We also draw attention to note 29.4 of the interim financial information which describes class actions filed against the Company, for which a possible loss, or range of possible losses, cannot be reasonably estimated as they are in their preliminary stages.

Our report is not modified as a result of these matters.

Other matters – Statements of Value Added

We have also reviewed the parent company and consolidated statements of value added for the nine-month period ended September 30, 2016. These statements are the responsibility of the Company’s management, and are required to be presented in accordance with standards issued by the CVM applicable to the preparation of Quarterly Information (ITR) and are considered supplementary information under IFRS, which do not require the presentation of the statement of value added. These statements have been submitted to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they have not been prepared, in all material respects, in a manner consistent with the parent company and consolidated interim accounting information taken as a whole.

Rio de Janeiro, November 10, 2016

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5 “F” RJ

Marcos Donizete Panassol

Contador CRC 1SP155975/O-8 “S” RJ

Company Data / Share Capital Composition


	Current Quarter
Number of Shares (Thousand)	09/30/2016
From Paid-in Capital
Common		7,442,454
Preferred		5,602,043

Total		13,044,497

Treasury Shares
Common		0
Preferred		0

Total		0

Parent Company Interim Accounting Information / Statement of Financial Position—Assets

(R$ Thousand)


		Current Quarter		Previous Fiscal Year
Account Code	Account Description	09/30/2016		12/31/2015
1	Total Assets		645,862,000		698,646,000
1.01	Current Assets		71,763,000		82,453,000
1.01.01	Cash and Cash Equivalents		5,276,000		16,553,000
1.01.02	Marketable Securities		9,495,000		10,794,000
1.01.03	Trade and Other Receivables		16,245,000		20,863,000
1.01.04	Inventories		23,599,000		24,015,000
1.01.06	Recoverable Taxes		6,303,000		6,506,000
1.01.06.01	Current Recoverable Taxes		6,303,000		6,506,000
1.01.06.01.01	Current Income Tax and Social Contribution		1,234,000		1,520,000
1.01.06.01.02	Other Recoverable Taxes		5,069,000		4,986,000
1.01.08	Other Current Assets		10,845,000		3,722,000
1.01.08.01	Non-Current Assets Held for Sale		5,430,000		535,000
1.01.08.03	Others		5,415,000		3,187,000
1.01.08.03.01	Advances to Suppliers		451,000		208,000
1.01.08.03.02	Others		4,964,000		2,979,000
1.02	Non-Current Assets		574,099,000		616,193,000
1.02.01	Long-Term Receivables		37,751,000		49,085,000
1.02.01.01	Marketable Securities Measured at Fair Value		1,000		2,000
1.02.01.02	Marketable Securities Measured at Amortized Cost		280,000		258,000
1.02.01.03	Trade and Other Receivables		4,662,000		6,361,000
1.02.01.06	Deferred Taxes		12,695,000		24,641,000
1.02.01.06.01	Deferred Income Tax and Social Contribution		3,362,000		15,156,000
1.02.01.06.02	Deferred Taxes and Contributions		9,333,000		9,485,000
1.02.01.09	Other Non-Current Assets		20,113,000		17,823,000
1.02.01.09.03	Advances to Suppliers		672,000		1,017,000
1.02.01.09.04	Judicial Deposits		10,192,000		8,590,000
1.02.01.09.05	Other Long-Term Assets		9,249,000		8,216,000
1.02.02	Investments		102,512,000		115,536,000
1.02.03	Property, Plant and Equipment		424,918,000		442,439,000
1.02.04	Intangible Assets		8,918,000		9,133,000

Parent Company Interim Accounting Information / Statement of Financial Position—Liabilities

(R$ Thousand)


		Current Quarter			Previous Fiscal Year
Account Code	Account Description	09/30/2016			12/31/2015
2	Total Liabilities		645,862,000			698,646,000
2.01	Current Liabilities		108,666,000			105,247,000
2.01.01	Payroll, Profit Sharing and Related Charges		7,442,000			4,212,000
2.01.02	Trade Payables		21,258,000			28,172,000
2.01.04	Current Debt and Finance Lease Obligations		64,260,000			54,481,000
2.01.04.01	Current Debt		63,053,000			52,913,000
2.01.04.03	Finance Lease Obligations		1,207,000			1,568,000
2.01.05	Other Liabilities		12,892,000			15,458,000
2.01.05.02	Others		12,892,000			15,458,000
2.01.05.02.04	Other Taxes and Contributions		9,046,000			11,762,000
2.01.05.02.05	Other Accounts Payable		3,846,000			3,696,000
2.01.06	Provisions		2,648,000			2,436,000
2.01.06.02	Other Provisions		2,648,000			2,436,000
2.01.06.02.04	Pension and Medical Benefits		2,648,000			2,436,000
2.01.07	Liabilities Associated with Non-Current Assets Held for Sale and Discontinued		166,000			488,000
2.02	Non-Current Liabilities		277,661,000			338,668,000
2.02.01	Non-Current Debt and Finance Lease Obligations		187,750,000			250,865,000
2.02.01.01	Non-Current Debt		182,742,000			245,439,000
2.02.01.03	Finance Lease Obligations		5,008,000			5,426,000
2.02.04	Provisions		89,911,000			87,803,000
2.02.04.01	Provisions for Tax Social Security, Labor and Civil Lawsuits		10,031,000			7,282,000
2.02.04.02	Other Provisions		79,880,000			80,521,000
2.02.04.02.04	Pension and Medical Benefits		48,285,000			44,546,000
2.02.04.02.05	Provision for Decommissioning Costs		29,957,000			34,641,000
2.02.04.02.06	Other Provisions		1,638,000			1,334,000
2.03	Shareholders’ Equity		259,535,000			254,731,000
2.03.01	Share Capital		205,432,000			205,432,000
2.03.02	Capital Reserves		261,000			237,000
2.03.04	Profit Reserves		92,396,000			92,396,000
2.03.05	Retained Earnings/Losses		(17,324,000	)		—
2.03.08	Other Comprehensive Income		(21,230,000	)		(43,334,000	)

Parent Company Interim Accounting Information / Statement of Income

(R$ thousand)


Account Code	Account Description	Current Quarter 07/01/2016 to 09/30/2016			Accumulated of the Current Year 01/01/2016 to 09/30/2016			Same Quarter of the Previous Year 07/01/2015 to 09/30/2015			Accumulated of the Previous Year 01/01/2015 to 09/30/2015
3.01	Sales Revenues		55,934,000			166,642,000			63,695,000			186,764,000
3.02	Cost of Sales		(36,895,000	)		(115,073,000	)		(44,872,000	)		(130,843,000	)
3.03	Gross Profit		19,039,000			51,569,000			18,823,000			55,921,000
3.04	Operating Expenses / Income		(31,676,000	)		(52,318,000	)		(13,915,000	)		(31,710,000	)
3.04.01	Selling Expenses		(4,237,000	)		(12,622,000	)		(3,910,000	)		(10,348,000	)
3.04.02	General and Administrative Expenses		(2,290,000	)		(6,148,000	)		(1,871,000	)		(5,742,000	)
3.04.05	Other Operating Expenses		(13,988,000	)		(27,717,000	)		(9,731,000	)		(24,366,000	)
3.04.05.01	Other Taxes		(366,000	)		(688,000	)		(2,669,000	)		(6,847,000	)
3.04.05.02	Research and Development Expenses		(490,000	)		(1,499,000	)		(556,000	)		(1,722,000	)
3.04.05.03	Exploration Costs		(1,472,000	)		(4,159,000	)		(1,996,000	)		(4,273,000	)
3.04.05.05	Other Operating Expenses, Net		(3,135,000	)		(11,381,000	)		(4,510,000	)		(10,350,000	)
3.04.05.07	Impairment of Assets Charges / Reversals		(8,525,000	)		(9,990,000	)		—			(1,174,000	)
3.04.06	Share of Profit / Gains on Interest in Equity-Accounted Investments		(11,161,000	)		(5,831,000	)		1,597,000			8,746,000
3.05	Net Income Before Financial Results, Profit Sharing and Income Taxes		(12,637,000	)		(749,000	)		4,908,000			24,211,000
3.06	Finance Income (Expenses), Net		(5,672,000	)		(19,793,000	)		(9,582,000	)		(19,760,000	)
3.06.01	Finance Income		632,000			1,773,000			606,000			2,475,000
3.06.01.01	Finance Income		632,000			1,773,000			606,000			2,475,000
3.06.02	Finance Expenses		(6,304,000	)		(21,566,000	)		(10,188,000	)		(22,235,000	)
3.06.02.01	Finance Expenses		(4,693,000	)		(14,601,000	)		(4,739,000	)		(12,854,000	)
3.06.02.02	Foreign Exchange and Inflation Indexation Charges, Net		(1,611,000	)		(6,965,000	)		(5,449,000	)		(9,381,000	)
3.07	Net Income Before Income Taxes		(18,309,000	)		(20,542,000	)		(4,674,000	)		4,451,000
3.08	Income Tax and Social Contribution		1,851,000			3,208,000			915,000			(2,349,000	)
3.08.02	Deferred		1,851,000			3,208,000			915,000			(2,349,000	)
3.09	Net Income from Continuing Operations		(16,458,000	)		(17,334,000	)		(3,759,000	)		2,102,000
3.11	Income / Loss for the Period		(16,458,000	)		(17,334,000	)		(3,759,000	)		2,102,000
3.99	Basic Income per Share (Reais / Share)
3.99.01	Basic Income per Share
3.99.01.01	Common		(1.26000	)		(1.33000	)		(0.29000	)		0.16000
3.99.01.02	Preferred		(1.26000	)		(1.33000	)		(0.29000	)		0.16000
3.99.02	Diluted Income per Share
3.99.02.01	Common		(1.26000	)		(1.33000	)		(0.29000	)		0.16000
3.99.02.02	Preferred		(1.26000	)		(1.33000	)		(0.29000	)		0.16000

Parent Company Interim Accounting Information / Statement of Comprehensive Income

(R$ thousand)


Account Code	Account Description	Current Quarter 07/01/2016 to 09/30/2016			Accumulated of the Current Year 01/01/2016 to 09/30/2016			Same Quarter of the Previous Year 07/01/2015 to 09/30/2015			Accumulated of the Previous Year 01/01/2015 to 09/30/2015
4.01	Net Income for the Period		(16,458,000	)		(17,334,000	)		(3,759,000	)		2,102,000
4.02	Other Comprehensive Income		4,590,000			22,114,000			(14,024,000	)		(21,512,000	)
4.02.03	Cumulative Translation Adjustments		4,638,000			(11,426,000	)		19,440,000			26,530,000
4.02.07	Unrealized Gains / (Losses) on Cash Flow Hedge —Recognized in Shareholders’ Equity		(1,946,000	)		37,210,000			(43,754,000	)		(64,055,000	)
4.02.08	Cash Flow Hedge—Reclassified to Profit or Loss		1,940,000			6,864,000			1,710,000			3,751,000
4.02.09	Deferred Income Tax and Social Contribution on Cash Flow Hedge		2,000			(14,985,000	)		14,295,000			20,503,000
4.02.10	Share of Other Comprehensive Income of Equity-Accounted Investments		(44,000	)		4,451,000			(5,715,000	)		(8,241,000	)
4.03	Total Comprehensive Income for the Period		(11,868,000	)		4,780,000			(17,783,000	)		(19,410,000	)

Parent Company Interim Accounting Information / Statement of Cash Flows – Indirect Method

(R$ Thousand)


Account Code	Account Description	Accumulated of the Current Year 01/01/2016 to 09/30/2016			Accumulated of the Previous Year 01/01/2015 to 09/30/2015
6.01	Net Cash—Operating Activities		30,357,000			36,822,000
6.01.01	Cash Provided by Operating Activities		53,297,000			43,176,000
6.01.01.01	Net Income (loss) for the Period		(17,334,000	)		2,102,000
6.01.01.03	Actuarial Expense with Pension and Medical Benefits		5,557,000			4,659,000
6.01.01.04	Share of Profit of Equity-Accounted Investments		5,831,000			(8,746,000	)
6.01.01.05	Depreciation, Depletion and Amortization		28,630,000			19,573,000
6.01.01.06	Impairment Charges on Property, Plant and Equipment and Other Assets		9,990,000			1,193,000
6.01.01.07	Exploration Expenditures Written Off		2,899,000			3,099,000
6.01.01.08	Gains / (losses) on disposal/write-offs of assets, areas returned and cancelled projects		370,000			1,422,000
6.01.01.09	Foreign Exchange Variation, Indexation and Finance Charges		19,525,000			17,889,000
6.01.01.10	Deferred Income Taxes, Net		(3,208,000	)		2,349,000
6.01.01.12	Allowance for Impairment of Trade Receivables		1,037,000			(364,000	)
6.01.02	Decrease / (Increase) in Assets / Increase/(Decrease) in Liabilities		(22,940,000	)		(6,354,000	)
6.01.02.01	Trade and Other Receivables		(11,244,000	)		602,000
6.01.02.02	Inventories		416,000			(2,021,000	)
6.01.02.03	Judicial deposits		(1,602,000	)		(1,717,000	)
6.01.02.04	Other Assets		(2,989,000	)		(2,712,000	)
6.01.02.05	Trade Payables		(5,990,000	)		(3,685,000	)
6.01.02.06	Taxes Payables		(2,290,000	)		3,901,000
6.01.02.07	Pension and Medical Benefits		(1,606,000	)		(1,491,000	)
6.01.02.08	Other Liabilities		2,365,000			769,000
6.02	Net Cash—Investing Activities		(22,218,000	)		(52,654,000	)
6.02.01	Capital Expenditures		(24,618,000	)		(38,648,000	)
6.02.02	(Additions)/reductions to Investments		(2,194,000	)		(18,900,000	)
6.02.03	Proceeds from Disposal of Assets (Divestment)		—			223,000
6.02.04	Investments in Marketable Securities		2,258,000			334,000
6.02.05	Dividends Received		2,336,000			4,337,000
6.03	Net Cash—Financing Activities		(19,416,000	)		13,578,000
6.03.02	Proceeds from Long-Term Financing		47,466,000			71,892,000
6.03.03	Repayment of Principal		(61,451,000	)		(53,748,000	)
6.03.04	Repayment of Interest		(5,431,000	)		(4,566,000	)
6.05	Net Increase/ (Decrease) in Cash and Cash Equivalents		(11,277,000	)		(2,254,000	)
6.05.01	Cash and Cash Equivalents at the Beginning of the Year		16,553,000			5,094,000
6.05.02	Cash and Cash equivalents at the End of the Period		5,276,000			2,840,000

Parent Company Interim Accounting Information / Statement of Changes in Shareholders’ Equity—01/01/2016 to 09/30/2016

(R$ thousand)


Account Code	Account Description	Share Capital		Capital Reserves, Granted Options and Treasury Shares		Profit Reserves		Retained Earnings (Losses)			Accumulated Other Comprehensive Income			Shareholders’ Equity
5.01	Balance at the Beginning of the Period		205,432,000		237,000		92,396,000		—			(43,334,000	)		254,731,000
5.03	Adjusted Opening Balance		205,432,000		237,000		92,396,000		—			(43,334,000	)		254,731,000
5.04	Capital Transactions with Owners		—		24,000		—		10,000			(10,000	)		24,000
5.04.08	Change in Interest in Subsidiaries		—		24,000		—		—			—			24,000
5.04.09	Realization of the Deemed Cost		—		—		—		10,000			(10,000	)		—
5.05	Total of Comprehensive Income		—		—		—		(17,334,000	)		22,114,000			4,780,000
5.05.01	Net Income for the Period		—		—		—		(17,334,000	)		—			(17,334,000	)
5.05.02	Other Comprehensive Income		—		—		—		—			22,114,000			22,114,000
5.07	Balance at the End of the Period		205,432,000		261,000		92,396,000		(17,324,000	)		(21,230,000	)		259,535,000

Parent Company Interim Accounting Information / Statement of Changes in Shareholders’ Equity—01/01/2015 to 09/30/2015

(R$ thousand)


Account Code	Account Description	Share Capital		Capital Reserves, Granted Options and Treasury Shares			Profit Reserves		Retained Earnings (Losses)		Accumulated Other Comprehensive Income			Shareholders’ Equity
5.01	Balance at the Beginning of the Period		205,432,000		(430,000	)		127,222,000		—		(23,376,000	)		308,848,000
5.03	Adjusted Opening Balance		205,432,000		(430,000	)		127,222,000		—		(23,376,000	)		308,848,000
5.04	Capital Transactions with Owners		—		1,000			—		8,000		(8,000	)		1,000
5.04.08	Change in Interest in Subsidiaries		—		1,000			—		—		—			1,000
5.04.09	Realization of the Deemed Cost		—		—			—		8,000		(8,000	)		—
5.05	Total of Comprehensive Income		—		—			—		2,102,000		(21,512,000	)		(19,410,000	)
5.05.01	Net Income for the Period		—		—			—		2,102,000		—			2,102,000
5.05.02	Other Comprehensive Income		—		—			—		—		(21,512,000	)		(21,512,000	)
5.07	Balance at the End of the Period		205,432,000		(429,000	)		127,222,000		2,110,000		(44,896,000	)		289,439,000

Parent Company Interim Accounting Information / Statement of Added Value

(R$ Thousand)


Account Code	Account Description	Accumulated of the Current Year 01/01/2016 to 09/30/2016			Accumulated of the Previous Year 01/01/2015 to 09/30/2015
7.01	Sales Revenues		253,661,000			291,838,000
7.01.01	Sales of Goods and Services		222,192,000			244,275,000
7.01.02	Other Revenues		5,439,000			6,789,000
7.01.03	Revenues Related to the Construction of Assets to be Used in Own Operations		27,067,000			40,410,000
7.01.04	Allowance / Reversal for Impairment of Trade Receivables		(1,037,000	)		364,000
7.02	Inputs Acquired from Third Parties		(97,003,000	)		(132,764,000	)
7.02.01	Cost of Sales		(32,455,000	)		(54,106,000	)
7.02.02	Materials, Power, Third-Party Services and Other Operating Expenses		(41,250,000	)		(62,550,000	)
7.02.03	Impairment Charges / Reversals of Assets		(9,990,000	)		(1,193,000	)
7.02.04	Others		(13,308,000	)		(14,915,000	)
7.02.04.01	Tax Credits on Inputs Acquired from Third Parties		(13,308,000	)		(14,915,000	)
7.03	Gross Added Value		156,658,000			159,074,000
7.04	Retentions		(28,630,000	)		(19,573,000	)
7.04.01	Depreciation, Amortization and Depletion		(28,630,000	)		(19,573,000	)
7.05	Net Added Value Produced		128,028,000			139,501,000
7.06	Transferred Added Value		(4,598,000	)		13,499,000
7.06.01	Share of Profit of Equity-Accounted Investments		(5,831,000	)		8,746,000
7.06.02	Finance Income		589,000			4,523,000
7.06.03	Others		644,000			230,000
7.07	Total Added Value to be Distributed		123,430,000			153,000,000
7.08	Distribution of Added Value		123,430,000			153,000,000
7.08.01	Employee Compensation		22,316,000			18,035,000
7.08.01.01	Salaries		10,820,000			10,952,000
7.08.01.02	Fringe Benefits		10,664,000			6,274,000
7.08.01.03	Unemployment Benefits (FGTS)		832,000			809,000
7.08.02	Taxes and Contributions		53,277,000			67,637,000
7.08.02.01	Federal		28,834,000			42,794,000
7.08.02.02	State		24,202,000			24,581,000
7.08.02.03	Municipal		241,000			262,000
7.08.03	Return on Third-Party Capital		65,171,000			65,226,000
7.08.03.01	Interest		23,771,000			27,864,000
7.08.03.02	Rental Expenses		41,400,000			37,362,000
7.08.04	Return on Shareholders’ Equity		(17,334,000	)		2,102,000
7.08.04.03	Retained Earnings / (Losses) for the Period		(17,334,000	)		2,102,000

Consolidated Interim Accounting Information / Statement of Financial Position—Assets

(R$ Thousand)


		Current Quarter		Previous Fiscal Year
Account Code	Account Description	09/30/2016		12/31/2015
1	Total Assets		803,206,000		900,135,000
1.01	Current Assets		144,753,000		169,581,000
1.01.01	Cash and Cash Equivalents		70,060,000		97,845,000
1.01.02	Marketable Securities		2,542,000		3,047,000
1.01.03	Trade and Other Receivables		16,953,000		22,659,000
1.01.04	Inventories		27,627,000		29,057,000
1.01.06	Recoverable Taxes		8,709,000		10,732,000
1.01.06.01	Current Recoverable Taxes		8,709,000		10,732,000
1.01.06.01.01	Current Income Tax and Social Contribution		2,039,000		3,839,000
1.01.06.01.02	Other Recoverable Taxes		6,670,000		6,893,000
1.01.08	Other Current Assets		18,862,000		6,241,000
1.01.08.01	Non-Current Assets Held for Sale		12,623,000		595,000
1.01.08.03	Others		6,239,000		5,646,000
1.01.08.03.01	Advances to Suppliers		610,000		421,000
1.01.08.03.02	Others		5,629,000		5,225,000
1.02	Non-Current Assets		658,453,000		730,554,000
1.02.01	Long-Term Receivables		61,226,000		74,879,000
1.02.01.01	Marketable Securities Measured at Fair Value		8,000		21,000
1.02.01.02	Marketable Securities Measured at Amortized Cost		289,000		321,000
1.02.01.03	Trade and Other Receivables		11,959,000		14,327,000
1.02.01.06	Deferred Taxes		22,388,000		34,507,000
1.02.01.06.01	Deferred Income Tax and Social Contribution		11,543,000		23,490,000
1.02.01.06.02	Deferred Taxes and Contributions		10,845,000		11,017,000
1.02.01.09	Other Non-Current Assets		26,582,000		25,703,000
1.02.01.09.03	Advances to Suppliers		4,655,000		6,395,000
1.02.01.09.04	Judicial Deposits		11,474,000		9,758,000
1.02.01.09.05	Other Long-Term Assets		10,453,000		9,550,000
1.02.02	Investments		12,955,000		13,772,000
1.02.03	Property, Plant and Equipment		573,386,000		629,831,000
1.02.04	Intangible Assets		10,886,000		12,072,000

Consolidated Interim Accounting Information / Statement of Financial Position—Liabilities

(R$ Thousand)


		Current Quarter			Previous Fiscal Year
Account Code	Account Description	09/30/2016			12/31/2015
2	Total Liabilities		803,206,000			900,135,000
2.01	Current Liabilities		82,830,000			111,572,000
2.01.01	Payroll, Profit Sharing and Related Charges		8,261,000			5,085,000
2.01.02	Trade Payables		17,334,000			24,888,000
2.01.03	Taxes Obligations		647,000			410,000
2.01.03.01	Federal Taxes Obligations		647,000			410,000
2.01.03.01.01	Income Tax and Social Contribution Payable		647,000			410,000
2.01.04	Current Debt and Finance Lease Obligations		37,101,000			57,407,000
2.01.04.01	Current Debt		37,045,000			57,334,000
2.01.04.03	Finance Lease Obligations		56,000			73,000
2.01.05	Other Liabilities		16,262,000			20,738,000
2.01.05.02	Others		16,262,000			20,738,000
2.01.05.02.04	Other Taxes and Contributions		9,629,000			13,139,000
2.01.05.02.05	Other Accounts Payable		6,633,000			7,599,000
2.01.06	Provisions		2,753,000			2,556,000
2.01.06.02	Other Provisions		2,753,000			2,556,000
2.01.06.02.04	Pension and Medical Benefits		2,753,000			2,556,000
2.01.07	Liabilities Associated with Non-Current Assets Held for Sale and Discontinued		472,000			488,000
2.01.07.01	Liabilities Associated with Non-Current Assets Held for Sale		472,000			488,000
2.02	Non-Current Liabilities		458,360,000			530,633,000
2.02.01	Non-Current Debt and Finance Lease Obligations		361,064,000			435,616,000
2.02.01.01	Non-Current Debt		360,749,000			435,313,000
2.02.01.03	Finance Lease Obligations		315,000			303,000
2.02.03	Deferred Taxes		888,000			906,000
2.02.03.01	Deferred Income Tax and Social Contribution		888,000			906,000
2.02.04	Provisions		96,408,000			94,111,000
2.02.04.01	Provisions for Tax Social Security, Labor and Civil Lawsuits		12,787,000			8,776,000
2.02.04.02	Other Provisions		83,621,000			85,335,000
2.02.04.02.04	Pension and Medical Benefits		51,527,000			47,618,000
2.02.04.02.05	Provision for Decommissioning Costs		30,533,000			35,728,000
2.02.04.02.06	Other Provisions		1,561,000			1,989,000
2.03	Shareholders’ Equity		262,016,000			257,930,000
2.03.01	Share Capital		205,432,000			205,432,000
2.03.02	Capital Reserves		45,000			21,000
2.03.04	Profit Reserves		92,612,000			92,612,000
2.03.05	Retained Earnings/Losses		(17,324,000	)		—
2.03.08	Other Comprehensive Income		(21,230,000	)		(43,334,000	)
2.03.09	Non-Controlling Interests		2,481,000			3,199,000

Consolidated Interim Accounting Information / Statement of Income

(R$ Thousand)


Account Code	Account Description	Current Quarter 07/01/2016 to 09/30/2016			Accumulated of the Current Year 01/01/2016 to 09/30/2016			Same Quarter of the Previous Year 07/01/2015 to 09/30/2015			Accumulated of the Previous Year 01/01/2015 to 09/30/2015
3.01	Sales Revenues		70,443,000			212,100,000			82,239,000			236,535,000
3.02	Cost of Sales		(47,106,000	)		(144,934,000	)		(58,484,000	)		(164,808,000	)
3.03	Gross Profit		23,337,000			67,166,000			23,755,000			71,727,000
3.04	Operating Expenses / Income		(33,509,000	)		(61,220,000	)		(17,510,000	)		(42,681,000	)
3.04.01	Selling Expenses		(3,333,000	)		(10,774,000	)		(3,855,000	)		(9,465,000	)
3.04.02	General and Administrative Expenses		(3,041,000	)		(8,537,000	)		(2,754,000	)		(8,228,000	)
3.04.05	Other Operating Expenses		(26,995,000	)		(42,555,000	)		(11,101,000	)		(25,530,000	)
3.04.05.01	Other Taxes		(612,000	)		(1,600,000	)		(3,055,000	)		(7,768,000	)
3.04.05.02	Research and Development Expenses		(491,000	)		(1,501,000	)		(556,000	)		(1,730,000	)
3.04.05.03	Exploration Costs		(1,859,000	)		(4,647,000	)		(2,234,000	)		(4,637,000	)
3.04.05.05	Other Operating Expenses, Net		(8,741,000	)		(18,037,000	)		(5,256,000	)		(10,109,000	)
3.04.05.07	Impairment of Assets Charges / Reversals		(15,292,000	)		(16,770,000	)		—			(1,286,000	)
3.04.06	Share of Profit / Gains on Interest in Equity-Accounted Investments		(140,000	)		646,000			200,000			542,000
3.05	Net Income Before Financial Results, Profit Sharing and Income Taxes		(10,172,000	)		5,946,000			6,245,000			29,046,000
3.06	Finance Income (Expenses), Net		(7,122,000	)		(21,876,000	)		(11,444,000	)		(23,113,000	)
3.06.01	Finance Income		1,191,000			2,841,000			1,866,000			3,215,000
3.06.01.01	Finance Income		1,191,000			2,841,000			1,866,000			3,215,000
3.06.02	Finance Expenses		(8,313,000	)		(24,717,000	)		(13,310,000	)		(26,328,000	)
3.06.02.01	Finance Expenses		(6,171,000	)		(18,455,000	)		(6,403,000	)		(15,655,000	)
3.06.02.02	Foreign Exchange and Inflation Indexation Charges, Net		(2,142,000	)		(6,262,000	)		(6,907,000	)		(10,673,000	)
3.07	Net Income Before Income Taxes		(17,294,000	)		(15,930,000	)		(5,199,000	)		5,933,000
3.08	Income Tax and Social Contribution		971,000			125,000			174,000			(5,522,000	)
3.08.01	Current		(1,009,000	)		(4,557,000	)		(814,000	)		(2,698,000	)
3.08.02	Deferred		1,980,000			4,682,000			988,000			(2,824,000	)
3.09	Net Income from Continuing Operations		(16,323,000	)		(15,805,000	)		(5,025,000	)		411,000
3.11	Income / Loss for the Period		(16,323,000	)		(15,805,000	)		(5,025,000	)		411,000
3.11.01	Attributable to Shareholders of Petrobras		(16,458,000	)		(17,334,000	)		(3,759,000	)		2,102,000
3.11.02	Attributable to Non-Controlling Interests		135,000			1,529,000			(1,266,000	)		(1,691,000	)
3.99	Basic Income per Share (Reais / Share)
3.99.01	Basic Income per Share
3.99.01.01	Common		(1.26000	)		(1.33000	)		(0.29000	)		0.16000
3.99.01.02	Preferred		(1.26000	)		(1.33000	)		(0.29000	)		0.16000
3.99.02	Diluted Income per Share
3.99.02.01	Common		(1.26000	)		(1.33000	)		(0.29000	)		0.16000
3.99.02.02	Preferred		(1.26000	)		(1.33000	)		(0.29000	)		0.16000

Consolidated Interim Accounting Information / Statement of Comprehensive Income

(R$ Thousand)


Account Code	Account Description	Current Quarter 07/01/2016 to 09/30/2016			Accumulated of the Current Year 01/01/2016 to 09/30/2016			Same Quarter of the Previous Year 07/01/2015 to 09/30/2015			Accumulated of the Previous Year 01/01/2015 to 09/30/2015
4.01	Consolidated Net Income for the Period		(16,323,000	)		(15,805,000	)		(5,025,000	)		411,000
4.02	Other Comprehensive Income		4,642,000			21,414,000			(13,209,000	)		(20,324,000	)
4.02.03	Cumulative Translation Adjustments		4,690,000			(12,126,000	)		20,021,000			27,361,000
4.02.07	Unrealized Gains / (Losses) on Cash Flow Hedge —Recognized in Shareholders’ Equity		(2,174,000	)		41,313,000			(49,628,000	)		(72,576,000	)
4.02.08	Cash Flow Hedge—Reclassified to Profit or Loss		2,137,000			7,534,000			1,862,000			4,193,000
4.02.09	Deferred Income Tax and Social Contribution on Cash Flow Hedge		16,000			(16,602,000	)		16,241,000			23,253,000
4.02.10	Share of Other Comprehensive Income of Equity-Accounted Investments		(27,000	)		1,295,000			(1,705,000	)		(2,555,000	)
4.03	Total Consolidated Comprehensive Income for the Period		(11,681,000	)		5,609,000			(18,234,000	)		(19,913,000	)
4.03.01	Attributable to Shareholders of Petrobras		(11,869,000	)		4,780,000			(17,781,000	)		(19,410,000	)
4.03.02	Attributable to Non-Controlling Interests		188,000			829,000			(453,000	)		(503,000	)

Consolidated Interim Accounting Information / Statement of Cash Flows – Indirect Method

(R$ Thousand)


Account Code	Account Description	Accumulated of the Current Year 01/01/2016 to 09/30/2016			Accumulated of the Previous Year 01/01/2015 to 09/30/2015
6.01	Net Cash—Operating Activities		65,965,000			61,133,000
6.01.01	Cash Provided by Operating Activities		71,901,000			64,763,000
6.01.01.01	Net Income (loss) for the Period		(15,805,000	)		411,000
6.01.01.02	Actuarial Expense with Pension and Medical Benefits		6,010,000			5,055,000
6.01.01.03	Share of Profit of Equity-Accounted Investments		(646,000	)		(542,000	)
6.01.01.04	Depreciation, Depletion and Amortization		37,314,000			27,005,000
6.01.01.05	Impairment Charges on Property, Plant and Equipment and Other Assets		16,770,000			1,286,000
6.01.01.06	Exploration Expenditures Written Off		3,325,000			3,418,000
6.01.01.07	Gains / (losses) on disposal/write-offs of assets, areas returned and cancelled projects		894,000			1,034,000
6.01.01.08	Foreign Exchange Variation, Indexation and Finance Charges		22,204,000			22,823,000
6.01.01.09	Deferred Income Taxes, Net		(4,682,000	)		2,824,000
6.01.01.11	Allowance for Impairment of Trade Receivables		1,695,000			566,000
6.01.01.12	Inventory Write-Down to Net Realizable Value (Market Value)		1,195,000			883,000
6.01.01.13	Reclassification of cumulative translation adjustment		3,627,000			—
6.01.02	Decrease / (Increase) in Assets / Increase/(Decrease) in Liabilities		(5,936,000	)		(3,630,000	)
6.01.02.01	Trade and Other Receivables		3,165,000			273,000
6.01.02.02	Inventories		(1,293,000	)		(843,000	)
6.01.02.03	Judicial Deposits		(1,734,000	)		(1,678,000	)
6.01.02.04	Other Assets		(1,992,000	)		(2,096,000	)
6.01.02.05	Trade Payables		(5,312,000	)		(2,402,000	)
6.01.02.06	Taxes Payables		308,000			5,515,000
6.01.02.07	Pension and Medical Benefits		(1,728,000	)		(1,601,000	)
6.01.02.08	Income Tax and Social Contribution Paid		(895,000	)		(1,581,000	)
6.01.02.09	Other Liabilities		3,545,000			783,000
6.02	Net Cash—Investing Activities		(33,168,000	)		(27,644,000	)
6.02.01	Capital Expenditures		(36,713,000	)		(53,106,000	)
6.02.02	(Additions)/reductions to Investments		(439,000	)		(239,000	)
6.02.03	Proceeds from Disposal of Assets (Divestment)		2,402,000			625,000
6.02.04	Investments in Marketable Securities		776,000			24,541,000
6.02.05	Dividends Received		806,000			535,000
6.03	Net Cash—Financing Activities		(49,007,000	)		(2,772,000	)
6.03.01	Non-Controlling Interest		34,000			315,000
6.03.02	Proceeds from Long-Term Financing		43,707,000			50,049,000
6.03.03	Repayment of Principal		(73,772,000	)		(37,727,000	)
6.03.04	Repayment of Interest		(18,976,000	)		(15,409,000	)
6.04	Effect of Exchange Rate Changes on Cash and Cash Equivalents		(11,575,000	)		24,914,000
6.05	Net Increase/ (Decrease) in Cash and Cash Equivalents		(27,785,000	)		55,631,000
6.05.01	Cash and Cash Equivalents at the Beginning of the Year		97,845,000			44,239,000
6.05.02	Cash and Cash equivalents at the End of the Period		70,060,000			99,870,000

Consolidated Interim Accounting Information / Statement of Changes in Shareholders’ Equity—01/01/2016 to 09/30/2016

(R$ Thousand)


Account Code	Account Description	Share Capital		Capital Reserves, Granted Options and Treasury Shares		Profit Reserves		Retained Earnings / Accumulated Losses			Other Comprehensive Income			Shareholders’ Equity			Non-controlling interest			Shareholders’ Equity Consolidated
5.01	Balance at the Beginning of the Period		205,432,000		21,000		92,612,000		—			(43,334,000	)		254,731,000			3,199,000			257,930,000
5.03	Adjusted Opening Balance		205,432,000		21,000		92,612,000		—			(43,334,000	)		254,731,000			3,199,000			257,930,000
5.04	Capital Transactions with Owners		—		24,000		—		10,000			(10,000	)		24,000			(1,547,000	)		(1,523,000	)
5.04.06	Dividends		—		—		—		—			—			—			(97,000	)		(97,000	)
5.04.08	Change in Interest in Subsidiaries		—		24,000		—		—			—			24,000			(1,450,000	)		(1,426,000	)
5.04.09	Realization of the Deemed Cost		—		—		—		10,000			(10,000	)		—			—			—
5.05	Total of Comprehensive Income		—		—		—		(17,334,000	)		22,114,000			4,780,000			829,000			5,609,000
5.05.01	Net Income for the Period		—		—		—		(17,334,000	)		—			(17,334,000	)		1,529,000			(15,805,000	)
5.05.02	Other Comprehensive Income		—		—		—		—			22,114,000			22,114,000			(700,000	)		21,414,000
5.07	Balance at the End of the Period		205,432,000		45,000		92,612,000		(17,324,000	)		(21,230,000	)		259,535,000			2,481,000			262,016,000

Consolidated Interim Accounting Information / Statement of Changes in Shareholders’ Equity—01/01/2015 to 09/30/2015

(R$ Thousand)


Account Code	Account Description	Share Capital		Capital Reserves, Granted Options and Treasury Shares			Profit Reserves		Retained Earnings / Accumulated Losses		Other Comprehensive Income			Shareholders’ Equity			Non-controlling interest			Shareholders’ Equity Consolidated
5.01	Balance at the Beginning of the Period		205,432,000		(646,000	)		127,438,000		—		(23,376,000	)		308,848,000			1,874,000			310,722,000
5.03	Adjusted Opening Balance		205,432,000		(646,000	)		127,438,000		—		(23,376,000	)		308,848,000			1,874,000			310,722,000
5.04	Capital Transactions with Owners		—		1,000			—		8,000		(8,000	)		1,000			172,000			173,000
5.04.06	Dividends		—		—			—		—		—			—			(143,000	)		(143,000	)
5.04.08	Change in Interest in Subsidiaries		—		1,000			—		—		—			1,000			315,000			316,000
5.04.09	Realization of the Deemed Cost		—		—			—		8,000		(8,000	)		—			—			—
5.05	Total of Comprehensive Income		—		—			—		2,102,000		(21,512,000	)		(19,410,000	)		(503,000	)		(19,913,000	)
5.05.01	Net Income for the Period		—		—			—		2,102,000		—			2,102,000			(1,691,000	)		411,000
5.05.02	Other Comprehensive Income		—		—			—		—		(21,512,000	)		(21,512,000	)		1,188,000			(20,324,000	)
5.07	Balance at the End of the Period		205,432,000		(645,000	)		127,438,000		2,110,000		(44,896,000	)		289,439,000			1,543,000			290,982,000

Consolidated Interim Accounting Information / Statement of Added Value

(R$ Thousand)


Account Code	Account Description	Accumulated of the Current Year 01/01/2016 to 09/30/2016			Accumulated of the Previous Year 01/01/2015 to 09/30/2015
7.01	Sales Revenues		312,231,000			356,634,000
7.01.01	Sales of Goods and Services		269,086,000			296,366,000
7.01.02	Other Revenues		7,952,000			9,919,000
7.01.03	Revenues Related to the Construction of Assets to be Used in Own Operations		36,888,000			50,915,000
7.01.04	Allowance / Reversal for Impairment of Trade Receivables		(1,695,000	)		(566,000	)
7.02	Inputs Acquired from Third Parties		(139,765,000	)		(168,662,000	)
7.02.01	Cost of Sales		(49,832,000	)		(77,428,000	)
7.02.02	Materials, Power, Third-Party Services and Other Operating Expenses		(57,326,000	)		(76,144,000	)
7.02.03	Impairment Charges / Reversals of Assets		(16,770,000	)		(1,290,000	)
7.02.04	Others		(15,837,000	)		(13,800,000	)
7.02.04.01	Tax Credits on Inputs Acquired from Third Parties		(14,642,000	)		(12,917,000	)
7.02.04.02	Inventory Write-Down to Net Realizable Value (Market Value)		(1,195,000	)		(883,000	)
7.03	Gross Added Value		172,466,000			187,972,000
7.04	Retentions		(37,314,000	)		(27,005,000	)
7.04.01	Depreciation, Amortization and Depletion		(37,314,000	)		(27,005,000	)
7.05	Net Added Value Produced		135,152,000			160,967,000
7.06	Transferred Added Value		3,769,000			4,037,000
7.06.01	Share of Profit of Equity-Accounted Investments		646,000			542,000
7.06.02	Finance Income		2,841,000			3,215,000
7.06.03	Others		282,000			280,000
7.07	Total Added Value to be Distributed		138,921,000			165,004,000
7.08	Distribution of Added Value		138,921,000			165,004,000
7.08.01	Employee Compensation		26,499,000			22,657,000
7.08.01.01	Salaries		14,075,000			14,569,000
7.08.01.02	Fringe Benefits		11,479,000			7,167,000
7.08.01.03	Unemployment Benefits (FGTS)		945,000			921,000
7.08.02	Taxes and Contributions		76,674,000			91,955,000
7.08.02.01	Federal		38,337,000			53,121,000
7.08.02.02	State		37,802,000			38,323,000
7.08.02.03	Municipal		535,000			511,000
7.08.03	Return on Third-Party Capital		51,553,000			49,981,000
7.08.03.01	Interest		29,242,000			30,664,000
7.08.03.02	Rental Expenses		22,311,000			19,317,000
7.08.04	Return on Shareholders’ Equity		(15,805,000	)		411,000
7.08.04.03	Retained Earnings / (Losses) for the Period		(17,334,000	)		2,102,000
7.08.04.04	Non-controlling Interests on Retained Earnings / (Losses)		1,529,000			(1,691,000	)

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

1.	The Company and its operations

Petróleo Brasileiro S.A.—Petrobras is dedicated, directly or through its subsidiaries (referred to jointly as “Petrobras”, “the Company”, or “Petrobras Group”) to prospecting, drilling, refining, processing, trading and transporting crude oil from producing onshore and offshore oil fields and from shale or other rocks, as well as oil products, natural gas and other liquid hydrocarbons. In addition, Petrobras carries out energy related activities, such as research, development, production, transport, distribution and trading of all forms of energy, as well as other related or similar activities. The Company’s head office is located in Rio de Janeiro – RJ, Brazil.

2.	Basis of preparation of interim financial information

The consolidated interim accounting information has been prepared and is being presented in accordance with IAS 34—Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB) and also in accordance with the accounting practices adopted in Brazil for interim financial reporting (CPC 21—R1).

The parent company interim accounting information has been prepared and is being presented in accordance with the accounting practices adopted in Brazil for interim financial reporting (CPC 21—R1) and does not differ from the consolidated information.

This interim accounting information presents the significant changes in the period, avoiding repetition of certain notes to the financial statements previously reported in notes to the Company’s financial statements, and presents the consolidated information, considering Management’s understanding that the consolidated financial information provides a comprehensive view of the Company’s financial position and operational performance. Certain information about the parent company are also included. Hence, this interim financial information should be read together with the Company’s annual financial statements for the year ended December 31, 2015, which include the full set of notes.

The Company’s Board of Directors in a meeting held on November 10, 2016 authorized the issuance of these consolidated interim financial information.

2.1.

Accounting estimates

The preparation of interim financial information requires the use of estimates and assumptions for certain assets, liabilities and other transactions. These estimates include: oil and gas reserves, depreciation, depletion and amortization, impairment of assets, pension and medical benefits liabilities, provisions for legal proceedings, dismantling of areas and environmental remediation, deferred income taxes, cash flow hedge accounting and allowance for impairment of trade receivables. Although our management uses assumptions and judgments that are periodically reviewed, the actual results could differ from these estimates.

3.	The “Lava Jato (Car Wash) Operation” and its effects on the Company

In the third quarter of 2014, the Company wrote off R$ 6,194 (R$ 4,788 in the Parent Company) of capitalized costs representing amounts that Petrobras overpaid for the acquisition of property, plant and equipment in prior years. For further information see note 3 to the Company’s December 31, 2015 audited consolidated financial statements.

In preparing its financial statements for the period ended September 30, 2016, the Company considered all available information and did not identify any additional information in the investigations related to the “Lava Jato” (Car Wash) Operation by the Brazilian authorities or by the independent law firms conducting an internal investigation that could materially impact or change the methodology adopted to recognize the write-off taken in the third quarter of 2014. The Company will continuously monitor the investigations for additional information and will review its potential impacts on the adjustment made.

On July 15, 2016, the Ministry of Transparency, Oversight and Control (Ministério da Transparência, Fiscalização e Controle – MTFC), the Public Prosecutor’s Office (Ministério Público Federal – MPF), the General Counsel for the Republic (Advocacia Geral da União – AGU) and SBM Offshore, signed a leniency agreement through which SBM Offshore would pay compensation of US$ 342 million, of which US$ 328 million will be reimbursed to Petrobras. Pursuant to the terms of this agreement, the Public Prosecutor’s Office submitted the latter to the Fifth Chamber for Coordination and Review and Anti-Corruption of the Public Prosecutor’s Office , which in turn decided on September 01, 2016 to request adjustments in certain clauses of this leniency agreement. The General Counsel for the Republic and the Public Prosecutor’s Office has filed complaints challenging this decision, which are still under assessment.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

Pursuant to a new leniency agreement, the Company recognized the amount of R$ 227 as compensation for damages relating to “Lava Jato” Operation (R$ 230 in 2015), of which R$ 81 has been transferred to the Company and R$ 146 were accounted for as receivable as of September 30, 2016 (received on November 07, 2016). These amounts were accounted for as other expenses, net.

To the extent that any of the proceedings resulting from the Lava Jato investigation involve new leniency agreements with cartel members or plea agreements with individuals pursuant to which they agree to return funds, Petrobras may be entitled to receive a portion of such funds and will recognize them as other income when received.

4.	Basis of consolidation

The consolidated interim financial information includes the interim information of Petrobras, its subsidiaries, joint operations and consolidated structured entities.

There were no significant changes in the Company’s basis of consolidation of entities in the nine-month period ended September 30, 2016, except for the disposal of the subsidiary Petrobras Argentina S.A. – PESA, on July 27, 2016 as set out in note 9.2.

5.	Summary of significant accounting policies

The same accounting policies and methods of computation were followed in these consolidated interim financial statements as those followed in the preparation of the annual financial statements of the Company for the year ended December 31, 2015.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

6.	Cash and cash equivalents and Marketable securities

Cash and cash equivalents


	Consolidated
	09.30.2016		12.31.2015
Cash at bank and in hand		1,320		3,157
Short-term financial investments
—In Brazil
Single-member funds (Interbank Deposit) and other short-term deposits		8,322		3,599
Other investment funds		57		42

		8,379		3,641
—Abroad
Time deposits		13,751		51,842
Automatic investing accounts and interest checking accounts		32,210		34,471
Treasury bonds		10,060		—
Other financial investments		4,340		4,734

		60,361		91,047
Total short-term financial investments		68,740		94,688

Total cash and cash equivalents		70,060		97,845

Short-term financial investments in Brazil comprise investment in funds, maturities of three months or less, with ma holding Brazilian Federal Government Bonds. Short-term financial investments abroad comprise time deposits with maturities of three months or less, highly-liquid automatic investing accounts, interest checking accounts and other short-term fixed income instruments, including U.S. Treasury bonds.

Marketable securities


	Consolidated
	09.30.2016						12.31.2015
	In Brazil		Abroad		Total		In Brazil		Abroad		Total
Trading securities		2,542		—		2,542		3,042		—		3,042
Available-for-sale securities		8		—		8		21		5		26
Held-to-maturity securities		289		—		289		271		50		321

Total		2,839		—		2,839		3,334		55		3,389

Current		2,542		—		2,542		3,042		5		3,047
Non-current		297		—		297		292		50		342

Trading securities refer mainly to investments in Brazilian Federal Government Bonds. These financial investments have maturities of more than three months and are mostly classified as current assets due to their maturity or the expectation of their realization in the short term.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

7.	Trade and other receivables

7.1.

Trade and other receivables, net


	Consolidated
	09.30.2016			12.31.2015
Trade receivables
Third parties		20,707			28,358
Related parties
Investees (note 18.5)		1,736			2,085
Receivables from the electricity sector (note 7.4)		15,835			13,335
Petroleum and alcohol accounts—receivables from Brazilian Government		871			857
Other receivables		5,365			6,625

		44,514			51,260
Allowance for impairment of trade receivables		(15,602	)		(14,274	)

Total		28,912			36,986

Current		16,953			22,659
Non-current		11,959			14,327

7.2.

Trade receivables overdue—Third parties


	Consolidated
	09.30.2016		12.31.2015
Up to 3 months		555		1,229
From 3 to 6 months		300		701
From 6 to 12 months		1,404		3,135
More than 12 months		8,434		6,775

Total		10,693		11,840

7.3.

Changes in the allowance for impairment of trade receivables


	Consolidated
	09.30.2016			12.31.2015
Opening balance		14,274			8,956
Additions		2,207			7,133
Write-offs		(10	)		(41	)
Reversals		(418	)		(2,476	)
Cumulative translation adjustment		(451	)		702

Closing balance		15,602			14,274

Current		6,437			6,599
Non-current		9,165			7,675

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

7.4.

Trade receivables – electricity sector (isolated electricity system in the northern region of Brazil)


	Consolidated
												Allowance for impairment of trade receivables
	As of 12.31.2015			Sales		Amounts received			Transfers (*)			Recognition			Reversals		Transfers (*)			Inflation indexation		As of 09.30.2016
Related parties (Eletrobras Group)
AME(**)		7,793			1,294		(1,910	)		2,316			(1,090	)		83		(1,255	)		709		7,940
Ceron(***)		1,111			172		(218	)		—			—			—		—			114		1,179
Others		302			257		(267	)		—			(57	)		40		—			33		308

Subtotal		9,206			1,723		(2,395	)		2,316			(1,147	)		123		(1,255	)		856		9,427

Third parties
Cigás		558			1,751		(623	)		(2,316	)		(153	)		—		1,255			1		473
Others		168			843		(963	)		—			(193	)		155		—			8		18

Subtotal		726			2,594		(1,586	)		(2,316	)		(346	)		155		1,255			9		491

Trade receivables, net		9,932			4,317		(3,981	)		—			(1,493	)		278		—			865		9,918

Trade receivables—Eletrobras Group		13,335			1,723		(2,395	)		2,316			—			—		—			856		15,835
(-) Allowance for impairment of trade receivables		(4,129	)		—		—			—			(1,147	)		123		(1,255	)		—		(6,408	)

Subtotal		9,206			1,723		(2,395	)		2,316			(1,147	)		123		(1,255	)		856		9,427

Trade receivables—Third parties		3,018			2,594		(1,586	)		(2,316	)		—			—		—			9		1,719
(-) Allowance for impairment of trade receivables		(2,292	)		—		—			—			(346	)		155		1,255			—		(1,228	)

Subtotal		726			2,594		(1,586	)		(2,316	)		(346	)		155		1,255			9		491

Trade receivables—Total		16,353			4,317		(3,981	)		—			—			—		—			865		17,554
(-) Allowance for impairment of trade receivables		(6,421	)		—		—			—			(1,493	)		278		—			—		(7,636	)

Trade receivables, net		9,932			4,317		(3,981	)		—			(1,493	)		278		—			865		9,918

(*)	Cigás assigned overdue receivables from Amazonas Distribuidora de Energia to Petrobras, pursuant to the purchase and sale agreement of natural gas (upstream and downstream) entered into by Petrobras, Cigás and AME

(**)	Amazonas Distribuidora de Energia

(***)

Centrais Elétricas do Norte

The Company supplies fuel oil, natural gas, and other products to entities that operate in the isolated electricity system in the northern region of Brazil, such as thermoelectric power plants controlled by Eletrobras, state-owned natural gas distribution companies and independent electricity producers (Produtores Independentes de Energia – PIE). The isolated electricity system in the northern region of Brazil provides electricity distribution in areas not connected to the Brazilian National Interconnected Power Grid (Sistema Interligado Nacional) due to technical or economic reasons.

A significant portion of the funds used by those companies to pay for products supplied by the Company came from the Fuel Consumption Account (Conta de Consumo de Combustível – CCC), which provides funds to cover a portion of the costs related to the supply of fuel to thermoelectric power plants located in the northern region of Brazil (operating in the isolated electricity system). However, as a result of changes in the CCC regulations over time, principally relating to the Provisional Measure 579/2012 which significantly changed the sources of funds that were used to cover the cost of electricity generated in the Isolated Electricity System, funds transferred from the CCC to these electricity companies have not been sufficient for them to meet their financial obligations and, as a result, some have not been able to pay the total amount for the products supplied by the Company, increasing the default rate of those customers to the Company.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

The Company put pressure on the negotiations with the state-owned natural gas distribution companies, the independent electricity producers (PIEs), other private companies and entities controlled by Eletrobras. As a result, on December 31, 2014, the Company entered into a debt acknowledgement agreement with subsidiaries of Eletrobras with respect to the balance of its receivables as of November 30, 2014. Eletrobras acknowledged it owed R$ 8,601 to the Company, of which R$ 7,380 were collateralized. This amount has been adjusted by the Selic interest rate (Brazilian short-term interest rate) on a monthly basis. Under this agreement, the first of 120 monthly installments was paid in February 2015 and these payments have continued.

In order to reduce the level of the defaults, which were deteriorating, on September 1, 2015 the Brazilian National Electricity Agency (Agência Nacional de Energia Elétrica—ANEEL) enacted the Normative Instruction 679 enabling the Company to receive funds directly from the CCC, as these funds would be paid directly from the CCC for products supplied in the prior month with a limit of 75% of the average payments made by the CCC in the previous three months.

The Company had expected that the abovementioned rule would have strengthened the financial situation of the companies in the electricity sector. However, this has not occurred and the level of these defaults increased. Accordingly, in 2015 the Company recognized R$ 1,876 as allowance for impairment of trade receivables (net of reversals) with respect to uncollateralized receivables outstanding as of December 31, 2015.

In the nine-month period ended September 30, 2016, the Company recognized an allowance for impairment of trade receivables (net of reversals) in the amount of R$ 1,215, mainly related to new supplies of: (i) fuel oil by legal enforcement (injunction) in the first quarter of 2016; and (ii) natural gas, mainly in the second and third quarter of 2016. Accordingly, the Company has adopted the following measures:

•

judicial collection of overdue receivables with respect to natural gas supplied to Amazonas Distribuidora de Energia (AME), Eletrobras and Cigás;

•

judicial collection of overdue receivables with respect to fuel oil supplied by the wholly owned subsidiary BR Distribuidora to companies of Eletrobras Group (Amazonas, Acre, Rondônia and Roraima);

•

partial suspension of gas supply;

•

suspension of fuel oil supply in installments, except when legally enforced; and

•

registration of entities controlled by Eletrobras as delinquent companies in the Brazilian Central Bank files and registration of AME as a delinquent company in ANEEL files.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

8.	Inventories


	Consolidated
	09.30.2016		12.31.2015
Crude oil		10,974		11,305
Oil products		8,757		8,613
Intermediate products		2,353		2,390
Natural gas and LNG^(*)		314		989
Biofuels		611		616
Fertilizers		84		239

Total products		23,093		24,152
Materials, supplies and others		4,579		4,967

Total		27,672		29,119

Current		27,627		29,057
Non-current		45		62

(*)	Liquid Natural Gas

Inventories are presented net of a R$ 63 allowance reducing inventories to net realizable value (R$ 607 as of December 31, 2015), mainly due to changes in international prices of crude oil and oil products. In the nine-month period ended September 30, 2016 the Company recognized as cost of sales a R$ 1,195 allowance charge (net of reversals) reducing inventories to net realizable value (R$ 883 in the same period of 2015).

A portion of the crude oil and/or oil products inventories have been pledged as security for the Terms of Financial Commitment (TFC) signed by Petrobras and Petros in the amount of R$ 6,419 (R$ 6,711 as of December 31, 2015), as set out in note 21.1.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

9.	Disposal of Assets

The Company’s Business and Management Plan forecasts a dynamic portfolio of partnerships and divestments subject to market and business conditions during the negotiations, which can change in accordance with the ongoing Company’s business analysis and also due to the external environment. Accordingly, the conditions to recognize assets and liabilities as held for sale are achieved only when the Board of Directors approves the disposal.

9.1.

Termination of the contract for the sale of Bijupirá and Salema fields (BJS)

On February 26, 2016, Petro Rio S.A. terminated the contracts signed with the Company on July 1, 2015, for the sale of 20% interest in Bijupirá and Salema concessions (BJS) and in the Dutch joint operation BJS Oil Operations B.V. (BJSOO BV). Accordingly, the amounts related to these fields were reclassified from assets and liabilities held for sale back to property, plant and equipment (R$ 527) and to provision for decommissioning costs (R$ 493), respectively, plus interest.

Due to the aforementioned reclassification, the respective assets were depreciated based on their historical data and their recoverable amounts were reassessed. As a result, the Company recognized, in the first quarter of 2016, an impairment loss as set out in note 13.

9.2.

Sale of Petrobras Argentina

On May 12, 2016, the Board of Directors approved the disposal of the Company’s entire 67.19% interest in Petrobras Argentina—PESA, owned through the subsidiary Petrobras Participaciones S.L. (“PPSL”), to Pampa Energía.

On July 27, 2016, pursuant to the disbursement of US$ 897 million (still subject to price adjustments) the Company recognized a gain of R$ 673 on this sale, as other expenses, net. In addition, the amount of R$ 3,627 was reclassified from shareholders equity to the other expenses within income statement, reflecting the reclassification of cumulative translation adjustment resulting from the depreciation of Argentinian Peso against the U.S Dollar from the acquisition of this investment to its disposal (see note 22.2).

On October 28, 2016, as expected, the Company concluded this transaction with the acquisition of 33.6% of the concession of Rio Neuquén in Argentina and 100% of Colpa Caranda asset in Bolivia for the amount of US$ 56 million, after adjustments relating to Colpa Caranda asset.

9.3.

Disposal of distribution assets in Chile

On July 22, 2016, the Company signed a sale and purchase agreement with the Southern Cross Group for the sale of 100% of Petrobras Chile Distribución Ltda (PCD), held through Petrobras Caribe Ltda.

The estimated proceed from this deal is US$ 464 million, considering funds from distribution of cash surplus before the transaction closing, payments to be made by Southern Cross on the closing day and estimated price adjustments within 65 working days after closing.

Pursuant to this disposal approval by the Board of Directors, the respective assets were reclassified as held for sale and measured at their estimated exit price and, as a result, the Company recognized impairment charges as set out in note 13.1.1 (j).

The deal’s completion is subject to certain customary conditions precedent established in the agreement and expected to occur in three or four months.

9.4.

Disposal of interest in exploratory block BM-S-8

On July 28, 2016 the Board of Directors of Petrobras approved the disposal of the Company’s 66% interest in the exploratory block BM – S-8 to Statoil Brasil Óleo e Gás Ltda., which includes the Carará area located in the pre-salt of Santos Basin, for the amount of US$ 2.5 billion. The amount of US$ 1.25 billion (50%) will be received at the closing of this transaction and the remaining amount through contingent payments related to future events, such as the unitization agreement signing. The Brazilian Antitrust Regulator (Conselho Administrativo de Defesa Econômica – CADE) and the Brazilian Agency of Petroleum, Natural Gas and Biofuels (Agência Nacional de Petróleo, Gás Natural e Biocombustíveis) – ANP approved this transaction on September 8, 2016 and November 10, 2016, respectively.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

9.5.

Disposal of interest in Nova Transportadora do Sudeste (NTS)

On September 22, 2016, the Company’s Board of Directors approved the sale of 90% interest in Nova Transportadora do Sudeste (NTS), after a corporate restructuring intended to concentrate the transportation assets of the southeastern region in NTS (Rio de Janeiro, Minas Gerais and São Paulo), to Brookfield Infrastructure Partners (BIP) and its affiliates, through a Private Equity Investment Fund (FIP) whose other shareholders are British Columbia Investment Management Corporation (BCIMC), CIC Capital Corporation (wholly-owned subsidiary of China Investment Corporation—CIC) and GIC Private Limited (GIC).

This deal amounted to US$ 5.19 billion, of which US$ 3.55 billion correspond to a 90% interest in NTS and US$ 1.64 billion correspond to the NTS debt settlement with the Company’s wholly-owned subsidiary PGT. FIP will subscribe convertible debentures issued by NTS to the replacement of this debt. The first installment, in the amount of US$ 4.34 billion (84% of the total amount), will be paid at the closing of the transaction, and the remaining amount (US$ 850 million) will be paid in the fifth year, bearing annual interests at a fixed rate, as established in the purchase and sale agreement.

The completion of the transaction is subject to Shareholder´s General Meeting approval and to certain usual conditions precedent, including approval by relevant regulators.

9.6.

Assets classified as held for sale


	Consolidated
	09.30.2016								12.31.2015
	E&P		Distribution		Gas & Power		Total		Total
*Assets classified as held for sale^()**
Cash and Cash Equivalents		—		641		—		641		11
Trade receivables		—		221		—		221		43
Inventories		—		204		—		204		—
Investments		—		87		—		87		—
Property, plant and equipment		1,350		603		9,315		11,268		541
Others		—		81		121		202		—

Total		1,350		1,837		9,436		12,623		595

*Liabilities on assets classified as held for sale^()**
Trade Payables		—		225		—		225		—
Finance debt		—		—		—		—		488
Provision for decommissioning costs		—		28		—		28		—
Others		—		75		144		219		—

Total		—		328		144		472		488

(*)	As of September 30, 2016, the amounts mainly refer to assets and liabilities transferred by the disposal of Petrobras Chile Distribución LTDA (PCD), Nova Transportadora do Sudeste and Block BM-S-8.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

10.

Investments

10.1.

Changes in investments (Parent Company)


	Balance at 12.31.2015		Investments		Capital transactions		Share of results of investments (*)			Cumulative translation adjustments (CTA)			Other comprehensive results			Dividends			Restructuring, capital decrease and others (**)			Balance at 09.30.2016
Subsidiaries
PNBV		76,324		1,505		33		(897	)		(13,716	)		—			—			—			63,249
BR Distribuidora		9,703		—		—		(273	)		—			—			—			—			9,430
TAG		2,832		538		—		3,088			—			3,137			—			(2,799	)		6,796
Transpetro		5,095		—		—		414			(245	)		—			(948	)		—			4,316
PB-LOG		3,093		—		—		363			—			—			(214	)		—			3,242
PIB BV		6,491		—		—		(6,438	)		2,546			19			—			—			2,618
PBIO		1,124		686		—		(507	)		(34	)		261			—			—			1,530
Logigás		1,100		—		—		360			—			—			(148	)		—			1,312
Liquigás		1,051		—		—		155			—			—			(89	)		—			1,117
Gaspetro		950		—		—		82			—			—			(21	)		31			1,042
Termomacaé Ltda		717		—		—		25			—			—			(36	)		—			706
Breitner		609		—		—		14			—			—			12			—			635
Citepe		562		554		—		(1,116	)		—			—			—			—			—
Petroquímica Suape		378		433		—		(811	)		—			—			—			—			—
Other subsidiaries		1,517		6		—		(350	)		55			—			(25	)		(34	)		1,169
Joint operations		223		—		—		48			—			—			(17	)		—			254
Joint ventures		280		—		—		68			—			(4	)		(25	)		—			319
Associates
Braskem S.A.		3,142		—		—		371			(31	)		1,038			(90	)		—			4,430
Other associates		325		—		—		58			—			—			(55	)		—			328

Subsidiaries, joint operations/joint ventures and associates		115,516		3,722		33		(5,346	)		(11,425	)		4,451			(1,656	)		(2,802	)		102,493

Other investments		20		—		—		—						—			—			(1	)		19

Total investments		115,536		3,722		33		(5,346	)		(11,425	)		4,451			(1,656	)		(2,803	)		102,512

Provision for losses in subsidiaries								(485	)		—			—
Equity in earnings of investments and other comprehensive income								(5,831	)		(11,425	)		4,451

(*)	Includes unrealized profits from transactions between companies.

10.2.

Changes in investments (Consolidated)


	Balance at 12.31.2015		Investments		Share of results in investments (*)			Cumulative translation adjustments (CTA)			Other comprehensive income		Dividends			Restructuring, capital decrease and others			Balance at 09.30.2016
Petrobras Oil & Gas B.V.— PO&G		6,031		—		132			(993	)		—		(177	)		—			4,993
Braskem S.A.		3,142		—		371			(31	)		1,038		(90	)		—			4,430
State-controlled natural gas distributors		980		—		176			—			—		(75	)		—			1,081
Investees in Venezuela		851		—		(6	)		(80	)		—		—			(765	)		—
Guarani S.A.		759		268		(325	)		(34	)		257		—			(92	)		833
Nova Fronteira Bionergia		465		—		80			—			—		—			—			545
Other petrochemical investees		176		—		42			—			—		(21	)		—			197
Compañia Mega S.A.—MEGA		174		—		60			(35	)		—		(109	)		—			90
Compañia de Inversiones de Energia S.A.—CIESA		170		—		9			(25	)		—		(5	)		(149	)		—
UEG Araucária		169		—		13			—			—		(23	)		—			159
Other associates		810		74		65			(134	)		—		(74	)		(165	)		576
Other investees		45		—		—			2			—		—			4			51

Total		13,772		342		617			(1,330	)		1,295		(574	)		(1,167	)		12,955

(*)	Not include the amount of R$ 29 related to PESA investees classified as assets held for sale.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

10.3.

Investments in listed companies


	Thousand-share lot						Quoted stock exchange prices (R$ per share)				Market value
Company	09.30.2016		12.31.2015		Type		09.30.2016		12.31.2015		09.30.2016		12.31.2015
Indirect subsidiary
Petrobras Argentina S.A. ^(*)		—		1,356,792		Common		—		2,38		—		3,229

												—		3,229

Associate
Braskem S.A.		212,427		212,427		Common		22.99		15.91		4,884		3,380
Braskem S.A.		75,762		75,762		Preferred A		25.11		27.62		1,902		2,093

												6,786		5,473

(*)	Investment disposed of as set out in note 9.2.

The market value of these shares does not necessarily reflect the realizable value upon sale of a large block of shares.

Braskem S.A.—Investment in publicly traded associate:

Braskem’s shares are publicly traded on stock exchanges in Brazil and abroad. As of September 30, 2016, the quoted market value of the Company’s investment in Braskem was R$ 6,786, based on the quoted values of both Petrobras’ interest in Braskem’s common stock (47% of the outstanding shares), and preferred stock (22% of the outstanding shares). However, there is extremely limited trading of the common shares, since non-signatories of the shareholders’ agreement hold only approximately 3% of the common shares.

Given the operational relationship between Petrobras and Braskem, at December 31, 2015, the recoverable amount of the investment for impairment testing purposes was determined based on value in use, considering future cash flow projections and the manner in which the Company can derive value from this investment via dividends and other distributions to arrive at its value in use. As the recoverable amount was higher than the carrying amount, no impairment losses were recognized for this investment.

The main assumptions on which cash flow projections were based to determine Braskem’s value in use are set out in note 14 to the Company’s consolidated financial statements for the year ended December 31, 2015.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

11.

Property, plant and equipment

11.1.

By class of assets


	Consolidated															Parent Company
	Land, buildings and improvement			Equipment and other assets			Assets under construction (*)			Exploration and development costs (oil and gas producing properties)			Total			Total
Balance at January 1, 2015		21,341			260,297			140,627			158,725			580,990			437,150

Additions		657			4,396			60,263			1,745			67,061			50,464
Additions to / review of estimates of decommissioning costs		—			—			—			15,932			15,932			16,511
Capitalized borrowing costs		—			—			5,842			—			5,842			4,767
Write-offs		(27	)		(192	)		(6,184	)		(1,455	)		(7,858	)		(5,994	)
Transfers		4,006			28,814			(54,132	)		27,668			6,356			664
Depreciation, amortization and depletion		(1,528	)		(21,241	)		—			(15,296	)		(38,065	)		(27,642	)
Impairment recognition		(928	)		(14,981	)		(11,489	)		(20,324	)		(47,722	)		(33,597	)
Impairment reversal		1			42			21			90			154			116
Cumulative translation adjustment		299			31,404			11,913			3,525			47,141			—

Balance at December 31, 2015		23,821			288,539			146,861			170,610			629,831			442,439

Cost		33,561			438,533			146,861			262,480			881,435			617,596
Accumulated depreciation, amortization and depletion		(9,740	)		(149,994	)		—			(91,870	)		(251,604	)		(175,157	)

Balance at December 31, 2015		23,821			288,539			146,861			170,610			629,831			442,439

Additions		64			2,598			30,086			407			33,155			24,413
Additions to / review of estimates of decommissioning costs		—			—			—			(1,514	)		(1,514	)		(1,558	)
Capitalized borrowing costs		—			—			4,515			—			4,515			3,379
Write-offs		(7	)		(60	)		(3,185	)		(184	)		(3,436	)		(3,190	)
Transfers (***)		2,065			12,516			(40,278	)		14,846			(10,851	)		(2,249	)
Depreciation, amortization and depletion		(1,023	)		(19,761	)		—			(16,128	)		(36,912	)		(28,325	)
Impairment recognition		(1,107	)		(11,735	)		(1,406	)		(4,385	)		(18,633	)		(11,623	)
Impairment reversal		—			1,608			—			470			2,078			1,632
Cumulative translation adjustment		(187	)		(15,409	)		(7,419	)		(1,832	)		(24,847	)		—

Balance at September 30, 2016		23,626			258,296			129,174			162,290			573,386			424,918

Cost		33,789			413,569			129,174			254,014			830,546			618,095
Accumulated depreciation, amortization and depletion		(10,163	)		(155,273	)		—			(91,724	)		(257,160	)		(193,177	)

Balance at September 30, 2016		23,626			258,296			129,174			162,290			573,386			424,918

Weighted average of useful life in years		40 (25 to 50 (except land	) )		20 (3 to 31) (**)						Units of production method

(*)	See note 28 for assets under construction by business area.

(**)	Includes exploration and production assets depreciated based on the units of production method.

(***)

Includes amounts transferred to assets held for sale as set out in note 9.

As of September 30, 2016, the consolidated and the parent company’s property, plant and equipment include assets under finance leases of R$ 187 and R$ 7,644, respectively (R$ 189 and R$ 9,248 at December 31, 2015).

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

11.2.

Concession for exploration of oil and natural gas—Assignment Agreement (“Cessão Onerosa”)

Petrobras and the Brazilian Federal Government entered into the Assignment Agreement in 2010, which grants the Company the right to carry out prospection and drilling activities for oil, natural gas and other liquid hydrocarbons located in the pre-salt area limited to the production of five billion barrels of oil equivalent in up to 40 years and renewable for a further five years subject to certain conditions. As of September 30, 2016, the Company’s property, plant and equipment includes the amount of R$ 74,808 related to the Assignment Agreement.

Petrobras has already declared commerciality in fields of all six blocks in the scope of this agreement: Franco (Búzios), Florim (Itapu), Nordeste de Tupi (Sépia), Entorno de Iara (Norte de Berbigão, Sul de Berbigão, Norte de Sururu, Sul de Sururu, Atapu), Sul de Guará (Sul de Sapinhoá) and Sul de Tupi (Sul de Lula).

The agreement establishes that the review procedures of the agreement will commence immediately after the declaration of commerciality for each area and must be based on reports by independent experts engaged by Petrobras and by the ANP. The review of the Assignment Agreement will be concluded after the assessment of all the areas.

If the review of the Assignment Agreement determines that the value of acquired rights is greater than initially paid, the Company may be required to pay the difference to the Federal Government, or may proportionally reduce the total volume of barrels acquired under the agreement. If the review determines that the value of the acquired rights is lower than initially paid by the Company, the Federal Government will reimburse the Company for the difference by delivering cash or bonds or equivalent means of payment, subject to budgetary regulations.

The formal review procedures for each block are based on costs incurred through the exploration stage and estimated costs and production levels included in the independent experts reports. The review of the Assignment Agreement may result in changes in: (i) the amount of the agreement; (ii) the total volume (in barrels of oil) to be produced; (iii) the term of the agreement; and (iv) the minimum percentages of local content.

Currently, the settlement form and the final amount to be established for this agreement are not defined. The beginning of negotiation with the Brazilian Federal Government still depends on the conclusion of the appraisals by independent experts engaged by both parties, and the issuance of the respective reports.

With respect to the negotiation with the Brazilian Federal Government, on October 21, 2016, the Company’s Board of Directors approved the creation of the minority shareholders committee responsible for monitoring the agreement review process and providing support to the board decisions through opinions about related matters. This committee will be composed of two members nominated by the minority shareholders and an independent member with recognized expertise in technical-financial analysis of investment projects.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

12.

Intangible assets

12.1.

By class of assets


	Consolidated															Parent Company
				Software
	Rights and Concessions			Acquired			Developed in-house			Goodwill			Total			Total
Balance at January 1, 2015		9,542			315			1,148			971			11,976			9,108

Addition		59			73			259			—			391			299
Capitalized borrowing costs		—			—			18			—			18			18
Write-offs		(589	)		—			(7	)		—			(596	)		(169	)
Transfers		273			21			36			—			330			273
Amortization		(75	)		(109	)		(325	)		—			(509	)		(396	)
Impairment recognition		(98	)		—			—			—			(98	)		—
Cumulative translation adjustment		404			8			2			146			560			—

Balance at December 31, 2015		9,516			308			1,131			1,117			12,072			9,133

Cost		10,526			1,699			3,762			1,117			17,104			12,442
Accumulated amortization		(1,010	)		(1,391	)		(2,631	)		—			(5,032	)		(3,309	)

Balance at December 31, 2015		9,516			308			1,131			1,117			12,072			9,133

Addition		22			37			150			—			209			155
Capitalized borrowing costs		—			—			10			—			10			10
Write-offs		(423	)		—			(3	)		—			(426	)		(43	)
Transfers		(9	)		3			—			(88	)		(94	)		(32	)
Amortization		(62	)		(83	)		(257	)		—			(402	)		(305	)
Impairment recognition		(58	)		(13	)		—			(159	)		(230	)		—
Cumulative translation adjustment		(178	)		(3	)		(4	)		(68	)		(253	)		—

Balance at September 30, 2016		8,808			249			1,027			802			10,886			8,918

Cost		9,484			1,699			3,883			802			15,868			12,511
Accumulated amortization		(676	)		(1,450	)		(2,856	)		—			(4,982	)		(3,593	)

Balance at September 30, 2016		8,808			249			1,027			802			10,886			8,918

Estimated useful life in years		⁽	^*)		5			5			Indefinite

^(*)	Mainly comprised of assets with indefinite useful lives, which are reviewed annually to determine whether events and circumstances continue to support an indefinite useful life assessment.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

13.

Impairment

The Company’s assets are tested for impairment on December 31, annually, or when there is an indication that their carrying amount may not be recoverable. During September 2016, such indication was identified for some assets due to changes in the Company’s Business and Management Plan (2017-2021 BMP) which was finalized and approved during the third quarter. These changes included: decreased future capital expenditures which was driven by the company’s desire to reduce current debt levels and optimize their investment portfolio, as well as adjustments in mid and long term assumptions, which are the basis of cash flow projections, mainly caused by changes in the Brazilian political/economic scenarios and a slower recovery of oil prices.

Additionally, the changes in the Brazilian economic and political environment also resulted in increases in discount rates as of September 30, 2016.

For 2015, impairment losses were mainly recognized in its fourth quarter pursuant to the annual tests based on the macroeconomic assumptions in the former 2015-2019 Business and Management Plan. Therefore, the Company is presenting the impairment losses for the year ended December 31, 2015 for comparative purposes.

13.1.

Property, plant and equipment and intangible assets

For impairment testing purposes, the Company uses the value in use of its property, plant and equipment and intangible assets (individually or grouped into cash-generating units—CGUs) as their recoverable amount. In measuring value in use the Company bases its cash flow projections on:

•

The estimated useful life of the asset or assets grouped into the CGU, based on the expected use of those assets and, considering the Company’s maintenance policy;

•

Assumptions and financial budgets/forecasts approved by Management for the period corresponding to the expected life cycle of each different business; and

•

A pre-tax discount rate, which is derived from the Company’s post-tax weighted average cost of capital (WACC).

The cash flow projections used to measure the value in use of the CGUs were mainly based on the following assumptions:


	2017		Long term average
Average Brent (US$/bbl)		48		68
Average Brazilian Real (excluding inflation )—Real /U.S. dollar exchange rate		3.46		3.36

As set out in note 5.2 to the Company’s audited consolidated financial statements ended December 31, 2015, identifying cash-generating units (CGUs) requires management assumptions and judgment, based on the Company’s business and management model.

Some events occurred in the third quarter of 2016, such as (i) changes in investment portfolio projections, concluded in the context of the 2017-2021 BMP, (ii) the approval of the disposal of 90% interest in subsidiary NTS, (iii) the decision to discontinue operations of Quixadá Biofuel Plant in the state of Ceará and (iv) the removal of support vessels relating to Hidrovias project from the Transportation CGU due to postponement and suspensions, which triggered the review of CGUs relating to Exploration and Production, Gas & Power, Biofuels and Transpetro’s fleet of vessels, respectively. Accordingly, certain assets that were aggregated for these CGUs have changed as described below:

a)	Exploration and Production CGUs

Crude oil and natural gas producing properties CGU: comprised of exploration and development assets related to crude oil and natural gas fields and groups of fields in Brazil and abroad. In September 2016, the aggregations of assets for Fazenda Cedro and Lagoa Suruaca groups, both located in Espírito Santo, were reviewed and impairment tests were run separately for those individual fields due to the discontinuation of a relevant shared infrastructure shared in the production process, as approved in 2017-2021 BMP. Despite the change in aggregation of assets for these CGUs, there were no material impairment losses or reversals recognized regarding these fields, amounting to R$ 12.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

b)	Gas & Power CGUs

Natural gas CGU: comprises natural gas pipelines and natural gas processing plants, except for Unidade de Fertilizantes Nitrogenados III (UFN III) and Unidade de Fertilizantes Nitrogenados V (UFN V) which are assessed for impairment separately. In September 2016 the Board of Directors approved the disposal of interest in the subsidiary NTS and, as a consequence, its pipelines part were removed from of this CGU since then and no impairment losses or reversals attributable to this change were recognized. For further information on disposal of NTS see note 9.5.

c)	Biofuels CGU

Biodiesel CGU: an integrated unit of biodiesel plants defined based on the production planning and operation process, considering domestic market conditions, the production capacity of each plant, as well as the results of biofuels auctions and raw materials supply. Due to the decision to discontinue operations of Quixadá Biofuel Plant, as approved by the Board of Directors of the subsidiary Petrobras Biocombustível in September 2016, impairment test for this Biofuel Plant was run separately and the Company wrote-off R$ 90 as a result.

d)	Transportation CGU

Transportation CGU: comprises assets relating to Transpetro’s fleet of vessels. Recurrent delays in the construction of support vessels for transporting ethanol over the Tietê River led the management of the wholly-owned subsidiary Transpetro, in the third quarter of 2016, to terminate the construction contracts for a new group of support vessels in the scope of Hidrovias project. As a result, this project was postponed and its completed assets were reviewed and tested for impairment separately, and no impairment charges were recognized for them. However, impairment losses were recognized for the Transportation CGU as set out in note 13.1.1 (i).

13.1.1.

Impairment of property, plant and equipment and intangible assets

In September 2016, the Company tested certain assets and CGUs for impairment and impairment losses and reversals were recognized in the statement of income as follows:


	Consolidated
Assets or CGUs, by nature	Carrying amount		Recoverable amount		Impairment () / (*)		Business segment		Comments
	Jan-Sep 2016
Producing properties: assets related to Oil and gas activities in Brazil (several CGUs)		36,591		30,406		5,936		E&P—Brazil		item (a1)
Oil and gas production and drilling equipment in Brazil		2,976		208		2,768		E&P—Brazil		item (b1)
Second refining unit in RNEST		8,077		5,546		2,531		RTM—Brazil		item(c)
Suape Petrochemical Complex		3,569		1,558		2,011		RTM—Brazil		item(d1)
Comperj		1,186		—		1,186		RTM—Brazil		item(e1)
Fertilizer Plant—UFN III		1,699		1,202		497		Gas & Power—Brazil		item (f1)
Thermoelectric power generation plants		8,750		8,280		470		Gas & Power—Brazil		item (g)
Araucária		638		185		453		Gas & Power—Brazil		item (h)
Transpetro’s fleet of vessels		5,685		5,340		345		RTM—Brazil		item (i)
Distribution assets in Chile		1,825		1,507		318		Distribution—Abroad		item (j)
Usina de Quixada—CE		90		—		90		Biofuel, Brazil
Others		999		822		177		Several Segments

Total		72,085		55,054		16,782

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)


	Consolidated
Assets or CGUs, by nature	Carrying amount		Recoverable amount		Impairment () / (*)		Business segment		Comments
	2015()*
Producing properties: assets related to E&P activities in Brazil (several CGUs)		82,982		47,402		33,722		E&P—Brazil		item (a2)
Comperj		6,193		912		5,281		RTM—Brazil		item (e2)
Oil and gas producing properties abroad		6,045		3,583		2,462		E&P—Abroad		item (k)
Oil and gas production and drilling equipment		2,927		949		1,978		E&P—Brazil		item (b2)
UFN III		3,651		1,696		1,955		Gas & Power— Brazil		item (f2)
Suape Petrochemical Complex		4,463		3,681		782		RTM—Brazil		item (d2)
Nitrogen Fertilizer Plant—UFN-V		585		—		585		Gas & Power
Biodiesel plants		524		343		181		Biofuel—Brazil
Others		1,331		611		720		Several segments

Total		108,701		59,177		47,666

(*)	Impairment losses and reversals.

(**)	Does not include impairment reversal on assets classified as held for sale of R$ 12 in 2016 (Impairment losses R$ 10 in 2015).

(***)

For the nine-month period ended September 30, 2015, the Company recognized impairment losses in the amount of R$ 1,286. See note 13.1 to the interim financial information at September 30, 2015.

a1) Producing properties in Brazil – Jan-Sep 2016

Impairment losses of R$ 5,936 were recognized in the nine-month period ended September 30, 2016 for certain oil and gas fields in Brazil under E&P concessions. Cash flow projections were based on: financial budgets/forecasts approved by Management; and a 9.1% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the E&P business. The impairment losses were related primarily to the following fields and groups of fields: North group (R$ 3,965), Uruguá group (R$ 553), Maromba (R$ 280), Bijupirá and Salema (R$ 317), Dourado (R$ 249), Papa-Terra (R$ 234) and Pampo (R$ 216). These impairment losses were mainly due to the appreciation of Brazilian Real against U.S. Dollar, price assumptions review, as well a higher discount rate following the increase in Brazil’s risk premium. In addition, an impairment reversal relating to Centro Sul group, amounting to R$ 1,347, was recognized due to lower operating expenses estimates based on a review of its fields operations, as set forth in 2017-2021 BMP, considering the decommissioning of a unit and replacing another unit with a new processing plant.

a2)

Producing properties in Brazil—2015

In 2015, impairment losses of R$ 33,722 were recognized for certain oil and gas fields in Brazil under E&P concessions. Cash flow projections were based on: financial budgets/forecasts approved by Management; and an 8.3% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the E&P business. The impairment losses were related primarily to the following fields: Papa-Terra (R$ 8,723), Centro Sul group (R$ 4,605), Uruguá group (R$ 3,849), Espadarte (R$ 2,315), Linguado (R$ 1,911), CVIT – Espírito Santo group (R$ 1,463), Piranema (R$ 1,333) Lapa (R$ 1,238), Bicudo (R$ 937), Frade (R$ 773), Badejo (R$ 740), Pampo (R$ 355) and Trilha (R$ 327). These impairment losses are mainly due to the impact of the decline in international crude oil prices on the Company’s price assumptions, the use of a higher discount rate, as well as the geological revision of Papa-Terra reservoir.

b1)

Oil and gas production and drilling equipment in Brazil—Jan-Sep 2016

Impairment losses of R$ 2,768 were recognized in the nine-month period ended September 30, 2016 for oil and gas production and drilling equipment which were not directly related to oil and gas producing properties. Cash flow projections were based on: financial budgets/forecasts approved by Management; and an 11.9% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the oil and gas services and equipment industry. These impairment losses were mainly related to uncertainties over the ongoing hulls construction of the FPSOs P-71, P-72 and P-73, amounting to R$ 1,925 as set out in note 13.3.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

b2)

Oil and gas production and drilling equipment in Brazil—2015

In 2015, impairment losses of R$ 1,978 were recognized for oil and gas production and drilling equipment which were not directly related to oil and gas producing properties. Cash flow projections were based on: financial budgets/forecasts approved by Management; and a 9.2% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the oil and gas services and equipment industry. The impairment losses were mainly related to the planned idle capacity of two drilling rigs in the future and the use of a higher discount rate.

c)	Second refining unit in RNEST—Jan-Sep 2016

An impairment loss of R$ 2,531 was recognized in the nine-month period ended September 30, 2016 for the second refining unit in RNEST. Cash flow projections were based on: financial budgets/forecasts approved by Management; and an 8.7% p.a. (8.1% p.a. in 2015) post-tax discount rate (excluding inflation) derived from the WACC for the refining business, reflecting a specific risk premium for the postponed project. The impairment loss was mainly attributable to: (i) the use of a higher discount rate and (ii) a delay in expected future cash inflows to 2023 resulting from postponing the project, considering the completion of this project with the Company’s owns capital resources as set forth in 2017-2021 Business and Management Plan.

d1)

Suape Petrochemical Complex—Jan-Sep 2016

An impairment loss of R$ 2,011 was recognized in the nine-month period ended September 30, 2016 for Companhia Integrada Têxtil de Pernambuco S.A.—CITEPE and Companhia Petroquímica de Pernambuco S.A. – PetroquímicaSuape. Cash flow projections were based on: financial budgets/forecasts approved by Management; and a 7.5% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the petrochemical business. The impairment loss was mainly attributable to lower market projections and the appreciation of Brazilian real against the U.S. dollar.

d2)

Suape Petrochemical Complex—2015

In 2015, an impairment loss of R$ 782 was recognized for Companhia Integrada Têxtil de Pernambuco S.A.—CITEPE and Companhia Petroquímica de Pernambuco S.A. – PetroquímicaSuape. Cash flow projections were based on: financial budgets/forecasts approved by Management; and a 7.2% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the petrochemical business. The impairment loss was mainly attributable to changes in market and prices assumptions resulting from a decrease in economic activity in Brazil, a reduction in the spread for petrochemical products in the international market and the use of a higher discount rate.

e1)

Comperj—Jan-Sep 2016

In the second quarter of 2016, a reassessment of this project confirmed its postponement until December 2020 (first refining unit), with continuous efforts to seek new partnerships to resumption the project. The construction of Comperj facilities related to natural gas processing plant (UPGN) will be continued, since they are part of the infrastructure for transporting and processing natural gas from the pre-salt layer in Santos Basin. The estimated costs and period of time to complete these facilities constructions were revised and, therefore, the Company recognized R$ 1,186 as impairment charge of the project remaining balance as of September 30, 2016.

e2)

Comperj—2015

In 2015, an impairment loss of R$ 5,281 was recognized for refining assets of Comperj. Cash flow projections were based on: financial budgets/forecasts approved by Management, and; an 8.1% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the refining business reflecting a specific risk premium for the postponed projects. This impairment loss was mainly attributable to: (i) the use of a higher discount rate; (ii) the delay in expected future cash inflows resulting from postponing construction.

f1)

Fertilizer Plant—UFN III—Jan-Sep 2016

An impairment loss of R$ 497 was recognized in the nine-month period ended September 30, 2016 for the fertilizer plant UFN III (Unidade de Fertilizantes e Nitrogenados III), located on Três Lagoas (state of Mato Grosso do Sul). Cash flow projections were based on: financial budgets/forecasts approved by Management; and an 8.3% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the fertilizer business, reflecting a specific risk premium for the postponed projects. This impairment loss mainly relates to: (i) the use of a higher discount rate, (ii) the appreciation of Brazilian Real against the US Dollar.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

f2)

Fertilizer Plant—UFN III—2015

In 2015, an impairment loss of R$ 1,955 was recognized for the fertilizer plant UFN III (Unidade de Fertilizantes e Nitrogenados III), located on Três Lagoas (state of Mato Grosso do Sul). Cash flow projections were based on: financial budgets/forecasts approved by Management; and a 7.1% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the Gas & Power business, reflecting a specific risk premium for the postponed projects. The impairment losses were mainly related to: (i) the use of a higher discount rate; and (ii) the delay in expected future cash inflows resulting from postponing the project.

g)	Thermoelectric power generation plants—Jan-Sep 2016

An impairment loss of R$ 470 was recognized in the nine-month period ended September 30, 2016 for thermoelectric power generation plants. Cash flow projections were based on: financial budgets/forecasts approved by Management; and an 5.5% p.a. (5.0% p.a. in 2015) post-tax discount rate (excluding inflation) derived from the WACC for the electricity industry. This impairment loss mainly relates to: (i) the use of a higher discount rate, (ii) a decrease in electricity dispatch projections and (iii) increase in estimated production costs in the long run.

h)	Araucaria—Jan-Sep 2016

An impairment loss of R$ 453 was recognized in the nine-month period ended September 30, 2016 for Araucária Nitrogenados S.A. Cash flow projections were based on: financial budgets/forecasts approved by Management; and a 7.8% p.a. post-tax discount rate (excluding inflation) derived from the WACC for the fertilizer business (6.6% p.a. in 2015). The impairment loss was mainly attributable to (i) the use of a higher discount rate, (ii) the appreciation of Brazilian Real against the U.S. Dollar and (iii) an increase in estimated production costs.

i)	Transpetro’s fleet of vessels—Jan-Sep 2016

An impairment loss of R$ 345 was recognized in the nine-month period ended September 30, 2016 for the fleet of vessels. Cash flow projections were based on: financial budgets/forecasts approved by Management; and ) post-tax discount rates (excluding inflation) ranging from 4.3% p.a. to 9.05% p.a. (3.92% p.a. to 8.92% p.a. in 2015) derived from the WACC for the transportation industry, considering financial leverage and the respective tax benefits. This impairment loss mainly relates to: (i) group of support vessels of Hidrovias project that were moved from this CGU due to postponements and suspension of constructions projects and (ii) the use of a higher discount rate.

j)	Distribution assets in Chile—Jan-Sep 2016

Impairment loss of R$ 318 was recognized in the nine-month period ended September 30, 2016 for distribution assets in Chile, as the exit price (less costs to sell) of this disposal was lower than the respective carrying amount when reclassified as held for sale. For further information on disposal of distribution assets in Chile see note 9.3.

k)	Producing properties abroad – 2015

In 2015, impairment losses of R$ 2,462 were recognized in E&P assets abroad. Cash flow projections were based on: financial budgets/forecasts approved by Management; and 5.6% p.a. to 10.4% p.a. post-tax discount rates (excluding inflation) derived from the WACC for the E&P business in different countries. The impairment losses were mainly in producing properties located in the United States (R$ 1,750) and Bolivia (R$ 614), attributable to the decline in international crude oil prices.

13.2.

Impairment losses on equity-method investments

An impairment loss on equity-method investments in the amount of R$ 417 (R$ 2,072 in 2015) was recognized in the statement of income as share of earnings in equity-accounted investments, substantially attributable to the biofuels segment, mainly relating to the associated Guarani S.A. (R$ 359) and the joint venture BSBIOS (R$ 46). This loss was primarily due to: (i) an increase in post-tax discount rate (excluding inflation) from 9.3% p.a. in 2015 to 10.2% p.a. in September 2016; and (ii) lower sugar prices forecasts. This loss partially comprises goodwill relating to the BSBIOS S.A. investee (R$ 46).

13.3.

Construction of platform hulls by Ecovix and Enseada shipyards

The Company entered into contracts with the suppliers Ecovix-Engevix Construções Oceânicas S.A and Enseada Industria Naval S.A. for supplying eight hulls for the FPSOs P-66 to P-73 and for hulls conversion of four FPSOs (P-74 to P-77), respectively.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

Considering the relevance of these assets in the context of the Business and Management Plan and due to the financial difficulties faced by the suppliers, escrow accounts relating to these projects were created in the last quarter of 2015 in order to ensure the ongoing services hired.

These escrow accounts comprised funds transferred in advance for payments to be made by the shipyards, restricted to the scope of the contracts and limited to their total balance. The deposits would be offset to the extent that services rendered or equipment delivered, with the remaining balance being reimbursed. At September 30, 2016, the Company had advances to these suppliers amounting to R$ 1,128.

This strategy was considered effective as the projects achieved significant progress up to September 2016, enabling the delivery of P-67 hull to shipyard in China for integration services, the recommence of the work in progress of P-69 hull also in China, the continuity of the work in progress of P-68 hull in Rio Grande shipyard, as well as the progress on priority activities for the conclusion of minimum scope of P-74 and P-76 hulls, delivering these units to shipyards in China for integration services and for setting up topsides.

During the third quarter of 2016, the Company reassessed the progress of the hulls project and the continuity of the specific accounts related to the projects. Consequently, the Company concluded that this strategy, which in its beginning avoided the work in progress discontinuation, was not effective as it was previously.

Accordingly, based on management judgement the Company wrote-off R$ 1,128 in the third quarter of 2016 regarding the remaining balance of advances to these suppliers in the context of the escrow accounts, and legal procedures to recover these receivables are being assessed.

Negotiations with Enseada

As part of strategy of ensuring the continuity of FPSOs P-75 and P-77 hulls construction, the Company approved the transfer of the contract entered into Enseada and the Chinese shipyard COSCO (Dalian) Shipyard Co., Ltd to its wholly-owned subsidiary Petrobras Netherlands B.V. (PNBV), resulting in the recognition of payables in the scope of this contract. As a result, the Company recognized a provision in the amount of R$ 333 within other expenses in the third quarter of 2016.

Considering the escrow accounts and the aforementioned payments, the Company eliminated any risk of P-74 to P-77 hulls non-deliver.

Negotiations with Ecovix

The Company is also negotiating debt acknowledgments relating to Ecovix debts with Chinese shipyards, with respect to P-69 and P-70 hulls. As a result, a provision in the amount of R$ 598 within other expenses was recognized in the third quarter of 2016.

Regarding the negotiations with Ecovix for delivering hulls of some platforms, there are risks related to the term of their transfer to the Company, despites the significant physical progress and the current continuity scenario of their constructions, and of topsides integration and set up. The Company is taking into account all measures in order to mitigate these risks.

Due to uncertainties regarding the FPSOs P-71, P-72 and P-73 hulls construction, the Company also recognized impairment charges amounting to R$ 1,925 as set out in note 13.1.1 (b1). Impacts in the Company’s production curve are not expected in case of the discontinuation of this work in progress, as the 2017-2021 Business and Management Plan includes other options and additional budget funds.

14.

Exploration for and evaluation of oil and gas reserves

The exploration and evaluation activities include the search for oil and gas reserves from obtaining the legal rights to explore a specific area to the declaration of the technical and commercial viability of the reserves.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

Changes in the balances of capitalized costs directly associated with exploratory wells pending determination of proved reserves and the balance of amounts paid for obtaining rights and concessions for exploration of oil and natural gas (capitalized acquisition costs) are set out in the following table:


	Consolidated
*Capitalized Exploratory Well Costs / Capitalized Acquisition Costs ^()**	09.30.2016			12.31.2015
Property, plant and equipment
Opening Balance		20,310			18,594
Additions to capitalized costs pending determination of proved reserves		2,800			7,310
Capitalized exploratory costs charged to expense		(3,076	)		(2,874	)
Transfers upon recognition of proved reserves		(3,171	)		(3,423	)
Cumulative translation adjustment		177			703

Closing Balance		17,040			20,310

Intangible Assets		7,773			7,996

Capitalized Exploratory Well Costs / Capitalized Acquisition Costs		24,813			28,306

(*)	Amounts capitalized and subsequently expensed in the same period have been excluded from this table.

Exploration costs recognized in the statement of income and cash used in oil and gas exploration and evaluation activities are set out in the following table:


	Consolidated
Exploration costs recognized in the statement of income	Jan-Sep/2016		Jan-Sep/2015
Geological and geophysical expenses		1,053		1,046
Exploration expenditures written off (includes dry wells and signature bonuses)		3,325		3,418
Other exploration expenses		269		173

Total expenses		4,647		4,637

Cash used in:
Operating activities		1,164		1,219
Investment activities		3,020		6,752

Total cash used		4,184		7,971

15.

Trade payables


	Consolidated
	09.30.2016		12.31.2015
Third parties in Brazil		9,670		13,005
Third parties abroad		6,552		10,020
Related parties		1,112		1,863

Balance on current liabilities		17,334		24,888

16.

Finance debt

The Company obtains funding through debt financing for capital expenditures to develop crude oil and natural gas producing properties, construct vessels and pipelines, construct and expand industrial plants, among other uses.

The Company has covenants that were not in default at September, 30 2016 in its loan agreements and notes issued in the capital markets requiring, among other obligations, the presentation of interim financial statements within 90 days of the end of each quarter (not reviewed by independent auditors) and audited financial statements within 120 days of the end of each fiscal year. Non-compliance with these obligations do not represent immediate events of default and the grace period in which the Company has to deliver these financial statements ranges from 30 to 60 days, depending on the agreement. The Company also has covenants with respect to debt level in some of its loan agreements with the Brazilian Development Bank (Banco Nacional de Desenvolvimento—BNDES).

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

A roll-forward schedule of non-current debt is set out as follows:


	Consolidated
	Export Credit Agencies			Banking Market			Capital Market			Others			Total
Non-current
In Brazil
Opening balance at January 1, 2015		—			77,795			3,456			74			81,325
Cumulative translation adjustment (CTA)		—			482			—			—			482
Additions (new funding obtained)		—			15,962			3,510			—			19,472
Interest incurred during the period		—			951			1			—			952
Foreign exchange/inflation indexation charges		—			9,662			257			7			9,926
Transfer from long-term to short-term		—			(8,416	)		(490	)		(13	)		(8,919	)

Balance as of December 31, 2015		—			96,436			6,734			68			103,238

Abroad
Opening balance at January 1, 2015		13,930			79,414			142,930			1,723			237,997
Cumulative translation adjustment (CTA)		4,772			33,669			62,702			607			101,750
Additions (new funding obtained)		501			18,285			6,283			—			25,069
Interest incurred during the period		13			110			161			26			310
Foreign exchange/inflation indexation charges		1,439			4,112			(3,350	)		181			2,382
Transfer from long-term to short-term		(2,517	)		(14,671	)		(18,098	)		(147	)		(35,433	)

Balance as of December 31, 2015		18,138			120,919			190,628			2,390			332,075

Total Balance as of December 31, 2015		18,138			217,355			197,362			2,458			435,313

Non-current
In Brazil
Opening balance at January 1, 2016		—			96,436			6,734			68			103,238
Cumulative translation adjustment (CTA)		—			(356	)		—			—			(356	)
Additions (new funding obtained)		—			1,280			—			—			1,280
Interest incurred during the period		—			771			1			—			772
Foreign exchange/inflation indexation charges		—			(5,642	)		166			5			(5,471	)
Transfer from long-term to short-term		—			(7,091	)		(236	)		(6	)		(7,333	)

Balance as of September 30, 2016		—			85,398			6,665			67			92,130

Abroad
Opening balance at January 1, 2016		18,138			120,919			190,628			2,390			332,075
Cumulative translation adjustment (CTA)		(2,252	)		(17,945	)		(30,914	)		(309	)		(51,420	)
Additions (new funding obtained)		—			4,378			33,450			—			37,828
Interest incurred during the period		10			45			161			23			239
Foreign exchange/inflation indexation charges		(636	)		(3,802	)		(201	)		(84	)		(4,723	)
Transfer from long-term to short-term		(2,501	)		(5,029	)		(36,655	)		(134	)		(44,319	)
Transfer to liabilities associated with assets classified as held for sale		—			—			(1,061	)		—			(1,061	)

Balance as of September 30, 2016		12,759			98,566			155,408			1,886			268,619

Total Balance as of September 30, 2016		12,759			183,964			162,073			1,953			360,749


	Consolidated
Current	09.30.2016		12.31.2015
Short-term debt		1,258		5,946
Current portion of long-term debt		29,936		44,907
Accrued interest		5,851		6,481

Total		37,045		57,334

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

16.1.

Summarized information on current and non-current finance debt


	Consolidated
Maturity in	2016		2017		2018		2019		2020		2021 and onwards		*Total ^()**		Fair value
Financing in Brazilian Reais (R$):		7,010		6,556		7,941		13,408		18,801		26,362		80,078		76,156

Floating rate debt		6,015		5,147		6,455		11,961		17,418		19,254		66,250
Fixed rate debt		995		1,409		1,486		1,447		1,383		7,108		13,828
Average interest rate		12.5%		14.5%		12.1%		11.3%		10.5%		9.7%		11.1%
Financing in U.S. Dollars (US$):		9,135		16,935		28,173		48,372		31,480		125,579		259,674		252,272

Floating rate debt		4,546		12,179		25,110		37,320		18,542		29,832		127,529
Fixed rate debt		4,589		4,756		3,063		11,052		12,938		95,747		132,145
Average interest rate		4.0%		3.8%		3.5%		4.0%		4.6%		5.9%		5.0%
Financing in R$ indexed to US$:		179		2,317		2,284		2,276		2,276		17,602		26,934		27,428

Floating rate debt		20		75		71		63		63		115		407
Fixed rate debt		159		2,242		2,213		2,213		2,213		17,487		26,527
Average interest rate		7.1%		7.0%		7.1%		7.0%		7.1%		7.0%		7.0%
Financing in Pound Sterling (£):		147		118		—		—		—		7,236		7,501		6,862

Fixed rate debt		147		118		—		—		—		7,236		7,501
Average interest rate		5.7%		5.5%		—		—		—		6.0%		6.0%
Financing in Japanese Yen (¥):		170		331		330		—		—		—		831		843

Floating rate debt		170		331		330		—		—		—		831
Average interest rate		0.6%		0.5%		0.4%		—		—		—		0.4%
Financing in Euro (€):		20		523		4,094		4,768		716		12,633		22,754		22,194

Floating rate debt		19		38		38		38		571		—		704
Fixed rate debt		1		485		4,056		4,730		145		12,633		22,050
Average interest rate		1.6%		3.5%		3.8%		3.8%		4.1%		4.4%		4.1%
Financing in other currencies:		—		22		—		—		—		—		22		22

Fixed rate debt		—		22		—		—		—		—		22
Average interest rate		—		14.0%		—		—		—		—		14.0%
Total as of September 30, 2016		16,661		26,802		42,822		68,824		53,273		189,412		397,794		385,777

Average interest rate		7.6%		6.7%		5.3%		5.5%		6.8%		6.5%		6.3%
Total as of December 31, 2015		57,333		44,505		62,827		88,231		60,670		179,081		492,647		385,017

Average interest rate		5.9%		6.4%		5.6%		5.8%		6.9%		6.7%		6.3%

*	The average maturity of outstanding debt as of September 30, 2016 is 7.33 years (7.14 years as of December 31, 2015).

The fair value of the Company’s finance debt is determined primarily by quoted prices in active markets for identical liabilities (level 1), when applicable, amounting to R$ 161,515 as of September 30, 2016. When a quoted price for an identical liability is not available, the finance debt is fair valued by a discounted cash flow based on a theoretical curve derived from the yield curve of the Company’s most liquid bonds (level 2), amounting to R$ 224,262, as of September 30, 2016.

The sensitivity analysis for financial instruments subject to foreign exchange variation is set out in note 31.2.

16.2.

Capitalization rate used to determine the amount of borrowing costs eligible for capitalization

The capitalization rate used to determine the amount of borrowing costs eligible for capitalization was the weighted average of the borrowing costs applicable to the borrowings that were outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. For the nine-month period ended September 30, 2016 the capitalization rate was 5.67% p.a. (4.99% p.a. for the same period in 2015).

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

16.3.

Lines of credit

Amount

Company

Financial institution

Date

Maturity

Available (Lines
of Credit)

Used

Balance

Abroad (Amounts in US$ million)

Petrobras

JBIC

7/16/2013

12/31/2018

1,500

—

1,500

PGT BV

UKEF—JPMORGAN

12/17/2015

12/22/2016

500

409

Total

2,000

409

1,591

In Brazil

Petrobras

FINEP

4/16/2014

12/26/2017

255

177

PNBV

BNDES

9/3/2013

3/26/2018

9,878

2,128

7,750

Transpetro

BNDES

1/31/2007

Not defined

4,881

545

4,336

Transpetro

Banco do Brasil

7/9/2010

4/10/2038

159

Transpetro

Caixa Econômica Federal

11/23/2010

Not defined

329

—

329

Total

15,502

2,919

12,583

16.4.

Collateral

Most of the Company’s debt is unsecured, however, collaterals are granted to financial institutions if required.

The loans obtained by structured entities are collateralized based on the projects’ assets, as well as liens on receivables of the structured entities.

The global notes issued by the Company in the capital market through its wholly-owned subsidiary Petrobras Global Finance B.V. – PGF are unsecured. However, Petrobras fully, unconditionally and irrevocably guarantees these notes. In addition, there were no changes in the structure of collateralization with respect to the last global notes offering in the international capital market occurred in July 2016.

17.

Leases

17.1.

Future minimum lease payments / receipts – finance leases


	Consolidated
	Receipts							Payments
Estimated lease payments / receivable	Future value		Annual interest			Present value		Future value		Annual interest			Present value
2016		289		(185	)		104		36		(14	)		22
2017—2020		2,548		(1,460	)		1,088		358		(144	)		214
2021 and thereafter		5,077		(1,446	)		3,631		776		(641	)		135

As of September 30, 2016		7,914		(3,091	)		4,823		1,170		(799	)		371

Current							266							56
Non-current							4,557							315

As of September 30, 2016							4,823							371

Current^(*)							256							73
Non-current ^(*)							5,441							303

As of December 31, 2015							5,697							376

(*)	For comparative purposes, the present value of payments in the amount of R$ 25 was reclassified from trade payables in current liabilities and the amount of R$ 149 was reclassified from others in non-current liabilities.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

17.2.

Future minimum lease payments – operating leases

Operating leases mainly include oil and gas production units, drilling rigs and other exploration and production equipment, vessels and support vessels, helicopters, land and building leases.


	Consolidated
2016		10,838
2017—2020		108,832
2021 and thereafter		200,101

As of September 30, 2016		319,771

As of December 31, 2015		387,332

As of September 30, 2016, the balance of estimated future minimum lease payments under operating leases includes R$ 169,637 in the Consolidated (R$ 236,739 on December 31, 2015) with respect to assets under construction, for which the lease term has not commenced.

In the nine-month period ended September 30, 2016, the Company recognized expenditures of R$ 25,553 (R$ 24,611 in the same period of 2015) for operating leases installments.

18.

Related-party transactions

18.1.

Commercial and other transactions

The Company has a related-party transactions policy, approved by its Board of Directors, which establishes rules to ensure that all decisions involving related parties and potential conflicts of interest take into account applicable laws in the countries in which the Company operates and the parties involved in negotiations.

18.1.1.

By transaction (parent company)


	09.30.2016									12.31.2015
	Current			Non-current			Total			Current			Non-current			Total
Assets
Trade and other receivables
Trade and other receivables, mainly from sales		7,359			—			7,359			8,916			—			8,916
Dividends receivable		1,051			—			1,051			1,595			—			1,595
Intercompany loans		—			229			229			—			266			266
Capital increase (advance)		—			370			370			—			1,364			1,364
Amounts related to construction of natural gas pipeline		—			1,295			1,295			—			1,050			1,050
Finance leases		57			915			972			61			873			934
Other operations		527			441			968			637			414			1,051

Total		8,994			3,250			12,244			11,209			3,967			15,176

Liabilities
Finance leases		(1,207	)		(4,935	)		(6,142	)		(1,568	)		(5,354	)		(6,922	)
Intercompany loans		—			(28,924	)		(28,924	)		—			(51,465	)		(51,465	)
Prepayment of exports		(25,758	)		(83,550	)		(109,308	)		(18,346	)		(109,607	)		(127,953	)
Accounts payable to suppliers		(10,876	)		—			(10,876	)		(13,541	)		—			(13,541	)

Purchases of crude oil, oil products and others		(6,710	)		—			(6,710	)		(7,251	)		—			(7,251	)
Affreightment of platforms		(3,903	)		—			(3,903	)		(5,778	)		—			(5,778	)
Advances from clients		(263	)		—			(263	)		(512	)		—			(512	)
Other operations		—			(84	)		(84	)		—			(99	)		(99	)

Total		(37,841	)		(117,493	)		(155,334	)		(33,455	)		(166,525	)		(199,980	)


Profit or Loss														Jan-Sep/2016			Jan-Sep/2015

Revenues, mainly sales revenues														95,038			111,327
Foreign exchange and inflation indexation charges														(5,577	)		(10,215	)
Financial income (expenses), net														(9,372	)		(6,900	)

Total														80,089			94,212

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

18.1.2.

By company (parent company)


	Income (expense)						09.30.2016						12.31.2015		09.30.2016									12.31.2015
	Jan-Sep/2016			Jan-Sep/2015			Current Assets		Non-current Assets		Total Assets		Total Assets		Current Liabilities			Non-current Liabilities			Total Liabilities			Total Liabilities
*Subsidiaries ^()**
BR		57,660			67,806			2,001		—		2,001		2,608		(179	)		—			(179	)		(282	)
Gaspetro		4,857			8,116			760		97		857		1,074		(298	)		—			(298	)		(307	)
PIB-BV		5,284			5,413			2,464		115		2,579		2,287		(26,370	)		(112,474	)		(138,844	)		(180,718	)
PNBV		2,214			630			1,638		28		1,666		2,236		(5,892	)		—			(5,892	)		(7,632	)
Transpetro		736			665			738		206		944		786		(1,376	)		—			(1,376	)		(1,125	)
Logigas		(118	)		—			29		1,295		1,324		1,078		(487	)		—			(487	)		(445	)
Thermoelectrics		(171	)		(141	)		9		301		310		455		(125	)		(969	)		(1,094	)		(1,127	)
Fundo de Investimento Imobiliário		(213	)		(222	)		73		—		73		158		(247	)		(1,699	)		(1,946	)		(1,830	)
TAG		(1,202	)		(864	)		190		915		1,105		1,075		(1,622	)		—			(1,622	)		(1,990	)
Other subsidiaries		2,367			3,486			605		289		894		2,788		(557	)		—			(557	)		(967	)

Total Subsidiaries		71,414			84,889			8,507		3,246		11,753		14,545		(37,153	)		(115,142	)		(152,295	)		(196,423	)
Structured Entities
PDET Off Shore		(92	)		(170	)		—		—		—		—		(327	)		(540	)		(867	)		(1,161	)
CDMPI		(151	)		(43	)		—		—		—		—		(339	)		(1,727	)		(2,066	)		(2,172	)

Total Structured Entities		(243	)		(213	)		—		—		—		—		(666	)		(2,267	)		(2,933	)		(3,333	)
Associates
Companies from the petrochemical sector		8,882			9,533			407		—		407		559		(11	)		(84	)		(95	)		(172	)
Other associates		36			3			80		4		84		72		(11	)		—			(11	)		(52	)

Total Associates		8,918			9,536			487		4		491		631		(22	)		(84	)		(106	)		(224	)

Total		80,089			94,212			8,994		3,250		12,244		15,176		(37,841	)		(117,493	)		(155,334	)		(199,980	)

^(*)	Includes its subsidiaries and joint ventures.

18.1.3.

Annual rates for intercompany loans


	Parent Company
	Assets				Liabilities
	09.30.2016		12.31.2015		09.30.2016			12.31.2015
Up to 5%		—		—		—			(5,623	)
From 5.01% to 7%		78		81		(28,924	)		(45,842	)
From 7.01% to 9%		101		128		—			—
More than 9.01%		50		57		—			—

Total		229		266		(28,924	)		(51,465	)

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

18.2.

Non standardized receivables investment fund

The Parent Company invests in the receivables investment fund FIDC-NP (FIDC-NP and FIDC-P, as of December 31, 2015), which comprises mainly receivables and non-performing receivables arising from the operations performed by subsidiaries of the Petrobras Group. Investments in FIDC-NP and FIDC-P are recognized as marketable securities.

The assignment of performing and non-performing receivables is recognized as current debt within current liabilities.


	Parent Company
	09.30.2016			12.31.2015
Marketable securities		7,017			7,812
Assignments of non-performing receivables		(21,257	)		(20,779	)

	Jan-Sep/2016			Jan-Sep/2015
Finance income FIDC P and NP		702			589
Finance expense FIDC P and NP		(1,966	)		(1,475	)

Net finance income (expense)		(1,264	)		(886	)

18.3.

Collateral Granted

Petrobras collateralizes certain financial transactions carried out by its foreign subsidiaries.

Petrobras, based on contractual clauses that support the financial transactions between foreign subsidiaries and third parties, collateralizes the payment of debt service in the event that a subsidiary defaults on a financing agreement.

The outstanding balances of financial transactions carried out by these subsidiaries and collateralized by Petrobras are set out below:


	09.30.2016												12.31.2015
Maturity date of the loans	*PGF^()**		PGT ^()**		PNBV		TAG		Others		Total		Total
2016		2,919		—		463		—		—		3,382		29,089
2017		3,404		—		1,323		—		15		4,742		22,132
2018		6,733		8,116		9,788		—		1,621		26,258		45,479
2019		17,783		19,153		7,677		—		1,116		45,729		63,241
2020		15,305		17,302		1,744		—		6,962		41,313		48,680
2021		41,757		—		730		—		5,637		48,124		30,753
2022 and thereafter		76,032		29,391		8,098		14,295		3,955		131,771		148,579

Total		163,933		73,962		29,823		14,295		19,306		301,319		387,953

^(*)	Petrobras Global Finance B.V., subsidiary of PIBBV.

^(**)

Petrobras Global Trading B.V., subsidiary of PIBBV.

18.4.

Investment in an investment fund by subsidiaries abroad

As of September 30, 2016, a subsidiary of PIB BV had R$ 13,517 (R$ 15,623 as of December 31, 2015) invested in an investment fund abroad that held debt securities of TAG (a subsidiary of Petrobras) and its subsidiaries, PGF and of consolidated structured entities, mainly with respect to the following projects: Gasene, Malhas, CDMPI, Charter and PDET.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

18.5.

Transactions with joint ventures, associates, government entities and pension funds

The balances of significant transactions are set out in the following table:


	Consolidated
	Jan-Sep/2016			09.30.2016				Jan-Sep/2015			12.31.2015
	Income (expense)			Assets		Liabilities		Income (expense)			Assets		Liabilities
Joint ventures and associates
State-controlled gas distributors		4,669			765		236		7,630			996		281
Petrochemical companies		8,865			421		106		9,580			565		174
Other associates and joint ventures		1,208			550		906		1,311			524		1,768

Subtotal		14,742			1,736		1,248		18,521			2,085		2,223

Government entities
Government bonds		361			3,199		—		994			4,352		—
Banks controlled by the Federal Government		(8,398	)		12,020		87,088		(11,213	)		10,181		95,034
Receivables from the Electricity sector (note 7.4)		2,579			15,835		25		4,579			13,335		—
Petroleum and alcohol account—receivables from Federal government		14			871		—		—			857		—
Others		682			945		1,020		102			1,190		1,230

Subtotal		(4,762	)		32,870		88,133		(5,538	)		29,915		96,264

Pension plans		—			318		200		—			141		431

Total		9,980			34,924		89,581		12,983			32,141		98,918

Revenues, mainly sales revenues		16,994							22,731
Foreign exchange and inflation indexation charges, net		(993	)						(5,143	)
Finance income (expenses), net		(6,021	)						(4,605	)
Current assets					9,419							8,806
Non-current assets					25,505							23,335
Current liabilities							14,672							12,683
Non-current liabilities							74,909							86,235

Total		9,980			34,924		89,581		12,983			32,141		98,918

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

18.6.

Compensation of key management personnel

The total compensation of Petrobras’ key management personnel is set out as follows:


	Jan-Sep/2016						Jan-Sep/2015
	Officers		Board (members and alternates)		Total		Officers		Board (members and alternates)		Total
Wages and short-term benefits		8.5		1.0		9.5		9.4		1.0		10.4
Social security and other employee-related taxes		2.4		0.2		2.6		2.5		0.2		2.7
Post-employment benefits (pension plan)		0.8		—		0.8		0.6		—		0.6
Benefits due to termination of tenure		0.4		—		0.4		—		—		—

Total compensation recognized in the statement of income		12.1		1.2		13.3		12.5		1.2		13.7

Total compensation paid		12.1		1.2		13.3		12.5		1.2		13.7
Average number of members in the period ^(*)		7.56		11.67		19.23		8.00		12.56		20.56
Average number of paid members in the period ^(**)		7.56		9.78		17.34		8.00		10.89		18.89

(*)	Monthly average number of members.

(**)	Monthly average number of paid members.

In the nine-month period ended September 30, 2016, the board members and executive officers of the Petrobras group received R$ 55 as compensation (R$ 50 in the nine-month period ended September 30, 2015).

The compensation of the Advisory Committees to the Board of Directors is apart from the fixed compensation set for the Board members and, therefore, has not been classified under compensation of Petrobras’ key management personnel.

The alternates of Board members, who were also members of these committees, up to April 2016, received the amount of R$ 54 thousand as compensation in 2016 (R$ 65 thousand including related charges).

19.

Provision for decommissioning costs


Non-current liabilities	09.30.2016			12.31.2015
Opening balance		35,728			21,958
Adjustment to provision		(4,767	)		17,300
Transfers related to liabilities held for sale ^(*)		110			(488	)
Payments made		(2,089	)		(4,149	)
Interest accrued		1,705			753
Others		(154	)		354

Closing balance		30,533			35,728

(*)	Includes R$ 493 related to the termination of sales contract of Bijupira and Salema fields in February 2016 and R$ 383 transferred pursuant to the sale of the subsidiary PESA.

The estimates for abandonment and dismantling of oil and natural gas producing properties areas are revised annually, simultaneously with the annual certification process of oil and gas reserves.

However, due to the review of assumptions related to foreign exchange rate, discount rate and economic feasibility of E&P projects, based on the 2017-2021 Business and Management Plan, the Company reassessed its provision for decommissioning costs in order to reflect its best estimate at the end of this quarter.

The main impacts in this reassessment, when compared to December 31, 2015, are attributable to a higher risk-adjusted discount rate and the appreciation of the Brazilian Real against the U.S. Dollar.

The adjustment made to the provision for decommissioning at September 30, 2016 in the amount of R$ 4,800 deducted the cost of assets of the respective fields (R$ 1,600) and positively impacted the income statement (R$ 3,200 within other expenses, net) as this adjustment exceeded the carrying amount of some of these fields.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

20.

Taxes

20.1.

Income taxes and other taxes

Income tax and social contribution

Consolidated

Current assets

Current liabilities

09.30.2016

12.31.2015

09.30.2016

12.31.2015

Taxes in Brazil

2,020

3,743

607

242

Taxes abroad

168

Total

2,039

3,839

647

410


	Consolidated
Other taxes and contributions	Current assets				Non-current assets				Current liabilities				Non-current liabilities (*)
	09.30.2016		12.31.2015		09.30.2016		12.31.2015		09.30.2016		12.31.2015		09.30.2016		12.31.2015
Taxes In Brazil:
Current / Deferred ICMS (VAT)		3,169		3,151		2,315		2,364		3,455		4,081		—		—
Current / Deferred PIS and COFINS (taxes on revenues)		2,827		2,913		7,941		7,913		1,597		1,902		—		—
CIDE		48		72		—		—		382		449		—		—
Production Taxes (Special participation / Royalties)		—		—		—		—		1,902		2,428		—		—
Withholding income tax and social contribution		—		—		—		—		1,261		1,698		—		60
REFIS and PRORELIT		—		—		—		—		—		1,068		—		43
Others		558		585		551		718		924		956		—		—

Total in Brazil		6,602		6,721		10,807		10,995		9,521		12,582		—		103
Taxes abroad		68		172		38		22		108		557		—		—

Total		6,670		6,893		10,845		11,017		9,629		13,139		—		103

(*)	Other non-current taxes are classified as other non-current liabilities.

20.2.

Brazilian Tax Law

On December 30, 2015, the state of Rio de Janeiro enacted two laws that increased the tax burden on the oil industry from March 2016, as follows:

•

Law No. 7,182 – establishes a Rate Control, Monitoring and Supervision of Research, Mining, Oil and Gas Exploration and Utilization Activities tax (Taxa de Controle, Monitoramento e Fiscalização das Atividades de Pesquisa, Lavra, Exploração e Aproveitamento de Petróleo e Gás – TFPG) over each barrel of crude oil or equivalent unit of natural gas extracted in the State of Rio de Janeiro, and

•

Law No. 7,183 – establishes a VAT (ICMS) tax over transactions involving crude oil operations.

The Company believes that the taxation established by both laws is not legally justifiable, and therefore, the Company has supported the Brazilian Association of Companies for the Exploration and Production of Oil and Gas (ABEP—Associação Brasileira de Empresas de Exploração e Produção de Petróleo e Gás), which has filed complaints challenging the constitutionality of such laws before the Brazilian Supreme Court.

The Brazilian Federal Attorney has expressed favorable opinions regarding the basis of the ABEP complaints and the granting of judicial injunctions in favor of the oil and gas industry, to avoid the associated tax burden on it.

The Brazilian Supreme Court is currently analyzing the ABEP request for formal injunctions in both actions.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

20.3.

Deferred income taxes—non-current

Income taxes in Brazil comprise corporate income tax (IRPJ) and social contribution on net income (CSLL). Brazilian statutory corporate tax rates are 25% and 9%, respectively. The changes in the deferred income taxes are presented as follows:


	Consolidated
	Property, Plant and Equipment
	Oil and gas exploration costs			*Others ()**			Loans, trade and other receivables / payables and financing			Finance leases			Provision for legal proceedings			Tax losses			Inventories			Employee benefits			Others			Total
Balance at January 1, 2015		(36,249	)		(595	)		10,155			(1,573	)		1,397			15,191			1,302			5,371			(378	)		(5,379	)

Recognized in the statement of income for the year		(4,061	)		5,894			(1,687	)		186			1,712			6,789			74			(612	)		616			8,911
Recognized in shareholders’ equity		—			—			20,961			—			—			(336	)		—			(54	)		—			20,571
Cumulative translation adjustment		—			106			2			—			(14	)		501			(4	)		3			(276	)		318
Use of tax credits—REFIS and PRORELIT		—			—			—			—			—			(1,853	)					—			—			(1,853	)
Others		—			(362	)		296			21			(3	)		73			7			(27	)		11			16

Balance at December 31, 2015		(40,310	)		5,043			29,727			(1,366	)		3,092			20,365			1,379			4,681			(27	)		22,584

Recognized in the statement of income for the period		3,523			(2,543	)		868			69			932			968			(228	)		1,119			(26	)		4,682
Recognized in shareholders’ equity		—			—			(16,602	)		—			—			(10	)		—			—			—			(16,612	)
Cumulative translation adjustment		—			(78	)		12			—			5			(185	)		—			(13	)		(9	)		(268	)
Others (**)		—			138			64			—			32			(7	)		—			(46	)		88			269

Balance at September 30, 2016		(36,787	)		2,560			14,069			(1,297	)		4,061			21,131			1,151			5,741			26			10,655

Deferred tax assets																													23,490
Deferred tax liabilities																													(906	)

Balance at December 31, 2015																													22,584

Deferred tax assets																													11,543
Deferred tax liabilities																													(888	)

Balance at September 30, 2016																													10,655

(*)	Mainly includes impairment adjustments and capitalized borrowing costs.

(**)	Includes R$ 264 transferred to liabilities associated with assets held for sale due to the disposal of subsidiary PESA.

The Company recognizes the deferred tax assets based on projections of taxable profits in future periods that are revised annually. The deferred tax assets will be realized in a ten years perspective to the extent of provisions realization and final resolution of future events, both based on Business and Management Plan – BMP assumptions.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

20.4.

Reconciliation between statutory tax rate and effective tax expense rate

The following table provides the reconciliation of Brazilian statutory tax rate to the Company’s effective rate on income before income taxes:


	Consolidated
	Jan-Sep/2016			Jan-Sep/2015
Income before income taxes		(15,930	)		5,933
Nominal income taxes computed based on Brazilian statutory corporate tax rates (34%)		5,416			(2,017	)
Adjustments to arrive at the effective tax rate:
Different jurisdictional tax rates for companies abroad		(698	)		2,034
Brazilian income taxes on income of companies incorporated outside Brazil (*)		(448	)		(2,061	)
Tax incentives		126			18
Tax loss carryforwards (unrecognized tax losses)		(1,512	)		(1,571	)
Non-taxable income (non-deductible expenses), net (**)		(2,374	)		(1,807	)
Others		(385	)		(118	)

Income taxes benefit (expense)		125			(5,522	)

Deferred income taxes		4,682			(2,824	)
Current income taxes		(4,557	)		(2,698	)

Total		125			(5,522	)

Effective tax rate of income taxes		0.8	%		93.1	%

(*)	Relates to Brazilian income taxes on earnings of offshore investees generated up to September 30, 2016, as established by Law No. 12,973/2014.

(**)	Includes results in equity-accounted investments and CTA transferred to income statement due to the disposal of Pesa as set out in note 9.2.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

21.

Employee benefits (Post-Employment)

21.1.

Pension and medical benefits

The Company sponsors defined benefit and variable contribution pension plans in Brazil and abroad, as well as defined-benefit medical plans for employees in Brazil (active and retirees) and their dependents. See note 22 to the consolidated financial statement for the year ended December 31, 2015 for detailed information about pension and medical benefits sponsored by the Company.

Changes in the pension and medical defined benefits to employees are set out as follows:


	Consolidated
	Pension Plans						Medical Plan			Other Plans			Total
	Petros			Petros 2			AMS			Other Plans			Total
Balance at January 1, 2015		20,916			762			23,957			283			45,918
(+) Remeasurement effects recognized in OCI		584			(692	)		354			(44	)		202
(+) Costs incurred in the year		2,879			207			3,213			89			6,388
(-) Contributions paid		(644	)		—			(1,155	)		(18	)		(1,817	)
(-) Payments related to the Term of Financial Commitment (TFC)		(550	)		—			—			—			(550	)
Others		—			—			—			33			33

Balance at December 31, 2015		23,185			277			26,369			343			50,174

Current		1,438			—			1,111			7			2,556
Non-current		21,747			277			25,258			336			47,618

Balance at December 31, 2015		23,185			277			26,369			343			50,174

(+) Costs incurred in the period		2,674			87			3,180			69			6,010
(-) Contributions paid		(461	)		—			(905	)		(30	)		(1,396	)
(-) Payments related to the Term of Financial Commitment (TFC)		(332	)		—			—			—			(332	)
Others		—			—			—			(176	)		(176	)

Balance at September 30, 2016		25,066			364			28,644			206			54,280

Current		1,637			—			1,111			5			2,753
Non-current		23,429			364			27,533			201			51,527

Balance at September 30, 2016		25,066			364			28,644			206			54,280

Pension and medical benefit expenses, net recognized in the statement of income are set out as follows:


	Consolidated
	Pension Plans				Medical Plan		Other Plans		Total
	Petros		Petros 2		AMS		Other Plans		Total
Current service cost		217		57		338		20		632
Net interest cost over net liabilities / (assets)		2,457		30		2,842		49		5,378

Net costs for Jan-Sep/2016		2,674		87		3,180		69		6,010

Related to active employees:
Included in the cost of sales		665		45		746		6		1,462
Included in operating expenses		335		30		406		60		831
Related to retired employees		1,674		12		2,028		3		3,717

Net costs for Jan-Sep/2016		2,674		87		3,180		69		6,010

Net costs for Jan-Sep/2015		2,176		187		2,626		66		5,055

As of September 30, 2016, the Company had pledged crude oil and/or oil products totaling R$ 6,419 (still under review) as collateral for the Terms of Financial Commitment (TFC) signed by Petrobras and Petros in 2008 (R$ 6,711 as of December 31, 2015).

In the nine-month period ended September 30, 2016, the Company’s contribution to the defined contribution portion of the Petros Plan 2 was R$ 619 (R$ 636 in the nine-month period ended September 2015) recognized in the results of the period.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

21.2.

Voluntary Separation Incentive Plan

From February 2014 to September 30, 2016 the Company implemented voluntary separation incentive plans (PIDV) as described below:

•

Petrobras (PIDV 2014) – the enrollment period lasted from February 12 to March 31, 2014. This plan was re-opened for eligible employees from November 30 to December 18, 2015, resulting in 6,829 separations of 7,219 total enrollments up to September 30, 2016;

•

Petrobras Distribuidora S.A. (PIDV BR 2014) – the enrollment period lasted from February 12 to March 31, 2014 resulting in 656 separations of 658 total enrollments up to September 30, 2016;

•

Petrobras Distribuidora S.A. (PIDV BR 2015) – the enrollment period lasted from October 13 to December 31, 2015 resulting in 316 separations of 317 total enrollments up to September 30 2016; and

•

Petrobras PIDV 2016 – the enrollment period lasted from April 1, 2016 to August 31, 2016 resulting in 3,199 separations of 11,720 total enrollments as of September 30, 2016.

Accordingly, 11,000 voluntary separations of employees who enrolled in these plans were made.

Changes in the provision during the nine-month period ended September 30, 2016 are set out as follows:


	Consolidated
Balance as of December 31, 2015		777
New enrolments PIDV Petrobras 2016		3,672
Revision of provisions		13
Separations in the period		(1,526	)

Balance as of September 30, 2016		2,936

Current		2,936
Non-current		—

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

22.

Shareholders’ equity

22.1.

Share capital (net of share issuance costs)

As of September 30, 2016, subscribed and fully paid share capital was R$ 205,432, represented by 7,442,454,142 outstanding common shares and 5,602,042,788 outstanding preferred shares, all of which are registered, book-entry shares with no par value.

Preferred shares have priority on returns of capital, do not grant any voting rights and are non-convertible into common shares.

22.2.

Other comprehensive income

In the nine-month period ended September,30 2016 the Company principally recognized as other comprehensive income the following effects:

•

Cumulative translation adjustment of R$ 15,753. As set out in note 9.2, this amount was impacted by the disposal of the Company’s interests in the subsidiary Petrobras Participaciones S.L. (“PPSL”) that triggered the reclassification of R$ 3,627 to income statement within other expenses, net of the cumulative translation adjustment resulted from the depreciation of Argentinian Peso against the U.S Dollar since the acquisition of this investment to its disposal.

•

Foreign exchange variation gains of R$ 32,226 (R$ 26,065 after taxes and amounts reclassified to the statement of income) recognized in the Company’s shareholders’ equity during the nine-month period ended September 30, 2016, as a result of its cash flow hedge accounting policy, as set out in note 31.2.

22.3.

Earnings (losses) per share


	Consolidated
	Jan-Sep/2016			Jan-Sep/2015
Net income (loss) attributable to shareholders of Petrobras		(17,334	)		2,102
Weighted average number of common and preferred shares outstanding		13,044,496,930			13,044,496,930
Basic and diluted earnings (losses) per common and preferred share (R$ per share)		(1.33	)		0.16

23.

Sales revenues


	Consolidated
	Jan-Sep/2016			Jan-Sep/2015
Gross sales		269,086			296,366
Sales taxes^(*)		(56,986	)		(59,831	)

Sales revenues ()**		212,100			236,535

Diesel		69,068			74,431
Automotive gasoline		42,162			38,854
Jet fuel		6,631			8,166
Liquefied petroleum gas		7,959			6,988
Naphtha		6,133			6,748
Fuel oil (including bunker fuel)		2,943			5,748
Other oil products		8,815			8,607

Subtotal oil products		143,711			149,542

Natural gas		10,494			14,465
Ethanol, nitrogen products and renewables		9,875			9,197
Electricity, services and others		7,093			11,780

Domestic market		171,173			184,984

Exports		19,576			24,030
Sales abroad ^(***)		21,351			27,521

Foreign market		40,927			51,551

Sales revenues ^()**		212,100			236,535

(*)	Includes, mainly, CIDE, PIS, COFINS and ICMS (VAT).

(**)	Sales revenues by business segment are set out in note 28

(***)

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

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

24.

Other expenses, net


	Consolidated
	Jan-Sep/2016			Jan-Sep/2015
Unscheduled stoppages and pre-operating expenses		(5,472	)		(2,634	)
Gains / (losses) related to legal, administrative and arbitration proceedings		(5,240	)		(2,986	)
Pension and medical benefits (retirees)		(3,717	)		(2,842	)
Voluntary Separation Incentive Plan—PIDV		(3,685	)		(110	)
Reclassification of cumulative translation adjustments—CTA		(3,627	)		—
Provision for debt acknowledgments of suppliers with subcontractors		(931	)		—
Gains / (losses) on disposal/write-offs of assets, areas returned and cancelled projects^(*)		(894	)		(1,034	)
Institutional relations and cultural projects		(637	)		(1,051	)
Operating expenses with thermoelectric power plants		(275	)		(301	)
Health, safety and environment		(213	)		(237	)
Allowance on losses on fines		(155	)		(904	)
Amounts recovered relating to Lava Jato Operation		227			230
Government grants		413			38
Agreement of Ship/Take or Pay with gas distributors		657			476
Expenses / Reimbursements from E&P partnership operations		1,645			989
Gains / (losses) on decommissioning of returned/abandoned areas		3,242			(153	)
Others		625			410

Total		(18,037	)		(10,109	)

(*)	Includes the write-off related to advances to suppliers in the amount of R$ 1,128, as set out note 13.3.

25.

Costs and Expenses by nature


	Consolidated
	Jan-Sep/2016			Jan-Sep/2015
Raw material and products for resale		(49,832	)		(77,428	)
Materials, third-party services, freight, rent and other related costs		(40,692	)		(46,459	)
Depreciation, depletion and amortization		(37,314	)		(27,005	)
Employee compensation		(26,499	)		(22,657	)
Impairment (losses) / reversals		(16,770	)		(1,286	)
Production taxes		(10,840	)		(15,811	)
Unscheduled stoppages and pre-operating expenses		(5,472	)		(2,634	)
(Losses) / Gains on legal, administrative and arbitration proceedings		(5,240	)		(2,986	)
Reclassification of cumulative translation adjustment—CTA		(3,627	)		—
Exploration expenditures written-off (includes dry wells and signature bonuses)		(3,325	)		(3,418	)
Allowance for impairment of trade receivables		(1,695	)		(566	)
Other taxes		(1,600	)		(7,768	)
Changes in inventories		(1,446	)		2,079
Provision for debt acknowledgments of suppliers with subcontractors		(931	)		—
Gains / (losses) on disposal/write-offs of assets, areas returned and cancelled projects		(894	)		(1,034	)
Institutional relations and cultural projects		(637	)		(1,051	)
Health, safety and environment		(213	)		(237	)
Amounts recovered relating to Lava Jato Operation		227			230

Total		(206,800	)		(208,031	)

In the Statement of income
Cost of sales		(144,934	)		(164,808	)
Selling expenses		(10,774	)		(9,465	)
General and administrative expenses		(8,537	)		(8,228	)
Exploration costs		(4,647	)		(4,637	)
Research and development expenses		(1,501	)		(1,730	)
Other taxes		(1,600	)		(7,768	)
Impairment		(16,770	)		(1,286	)
Other expenses, net		(18,037	)		(10,109	)

Total		(206,800	)		(208,031	)

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

26.

Net finance income (expense)


	Consolidated
	Jan-Sep/2016			Jan-Sep/2015
Debt interest and charges		(20,486	)		(16,195	)
Foreign exchange gains (losses) and inflation indexation charges on net debt ^(*)		(8,292	)		(11,424	)
Income from investments and marketable securities (Brazilian Government Bonds)		1,433			1,663

Financial result on net debt		(27,345	)		(25,956	)

Capitalized borrowing costs		4,525			4,336
Gains (losses) on derivatives		(295	)		578
Interest income from marketable securities		17			78
Other foreign exchange gains (losses) and indexation charges, net		2,216			682
Other finance expenses and income, net		(994	)		(2,831	)

Net finance income (expenses)		(21,876	)		(23,113	)

Income		2,841			3,215
Expenses		(18,455	)		(15,655	)
Foreign exchange gains (losses) and inflation indexation charges		(6,262	)		(10,673	)

Total		(21,876	)		(23,113	)

(*)	Includes debt raised in Brazil (in Brazilian reais) indexed to the U.S. dollar.

27.

Supplemental information on statement of cash flows


	Consolidated
	Jan- Sep/ 2016			Jan- Sep/ 2015
Amounts paid/received during the period
Withholding income tax paid on behalf of third-parties		2,687			2,596
Capital expenditures and financing activities not involving cash
Purchase of property, plant and equipment on credit		246			414
Provision/(reversals) for decommissioning costs		(1,514	)		(48	)
Use of deferred tax and judicial deposit for the payment of contingency		283			340

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

28.

Segment information

The Extraordinary General Meeting held on April 28, 2016 approved adjustments to the Company’s organization structure and governance and management model, aiming to align the organization with the new conditions faced by the oil and gas industry and to prioritize profitability and capital discipline. The new model does not propose discontinuing operations, however, it does consider merge of operations.

The current business segment information is reported in a manner in which the Company’s senior management assesses business performances, as well as makes decisions regarding investments and resources allocation. Due to adjustments in the organization structure and governance and management model, the Company may reassess its business segment report in order to improve management business analysis.


Consolidated assets by Business Area—09.30.2016
	Exploration and Production		Refining, Transportation & Marketing		Gas & Power		Biofuels		Distribution		Corporate		Eliminations			Total
Current assets		16,131		33,040		13,958		191		9,682		86,125		(14,374	)		144,753
Non-current assets		432,201		136,850		51,324		1,764		10,552		30,125		(4,363	)		658,453

Long-term receivables		24,170		10,593		3,345		12		3,454		23,853		(4,201	)		61,226
Investments		5,110		4,696		1,654		1,424		50		21		—			12,955
Property, plant and equipment		395,117		120,845		45,272		328		6,320		5,666		(162	)		573,386
Operating assets		289,118		106,233		38,833		318		5,396		4,476		(162	)		444,212
Under construction		105,999		14,612		6,439		10		924		1,190		—			129,174
Intangible assets		7,804		716		1,053		—		728		585		—			10,886

Total Assets		448,332		169,890		65,282		1,955		20,234		116,250		(18,737	)		803,206


Consolidated assets by Business Area—12.31.2015	Exploration and Production		Refining, Transportation & Marketing		Gas & Power		Biofuels		Distribution		Corporate		Eliminations			Total
Current assets		14,215		35,247		10,398		176		8,979		112,715		(12,149	)		169,581
Non-current assets		469,181		142,384		65,625		1,709		11,609		41,350		(1,304	)		730,554

Long-term receivables		25,250		9,309		5,303		12		3,355		32,792		(1,142	)		74,879
Investments		7,054		3,431		1,781		1,339		134		33		—			13,772
Property, plant and equipment		428,447		128,982		57,300		358		7,296		7,610		(162	)		629,831
Operating assets		310,761		112,470		47,611		317		6,175		5,798		(162	)		482,970
Under construction		117,686		16,512		9,689		41		1,121		1,812		—			146,861
Intangible assets		8,430		662		1,241		—		824		915		—			12,072

Total Assets		483,396		177,631		76,023		1,885		20,588		154,065		(13,453	)		900,135

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

Consolidated Statement of Income by Business Area


Consolidated Statement of Income per Business Area—09.30.2016
	Jan-Sep/2016
	Exploration and Production			Refining, Transportation & Marketing			Gas & Power			Biofuels			Distribution			Corporate			Eliminations			Total
Sales revenues		83,370			163,016			25,007			612			73,749			—			(133,654	)		212,100

Intersegments		79,530			46,033			6,404			587			1,100			—			(133,654	)		—
Third parties		3,840			116,983			18,603			25			72,649			—			—			212,100
Cost of sales		(64,610	)		(123,657	)		(18,513	)		(683	)		(68,232	)		—			130,761			(144,934	)

Gross profit (loss)		18,760			39,359			6,494			(71	)		5,517			—			(2,893	)		67,166
Income (Expenses)		(21,226	)		(13,867	)		(4,650	)		(186	)		(5,351	)		(16,818	)		232			(61,866	)
Selling		(397	)		(4,863	)		(2,208	)		(4	)		(3,569	)		13			254			(10,774	)
General and administrative		(952	)		(1,076	)		(567	)		(61	)		(663	)		(5,217	)		(1	)		(8,537	)
Exploration costs		(4,647	)		—			—			—			—			—			—			(4,647	)
Research and technological development		(652	)		(144	)		(46	)		(2	)		(1	)		(656	)		—			(1,501	)
Other taxes		(259	)		(169	)		(585	)		(7	)		(91	)		(489	)		—			(1,600	)
Impairment		(8.909	)		(6.073	)		(1.446	)		(24	)		(318	)		—			—			(16.770	)
Other expenses, net		(5,410	)		(1,542	)		202			(88	)		(709	)		(10,469	)		(21	)		(18,037	)

Net income (loss) before financial results, profit sharing and income taxes		(2,466	)		25,492			1,844			(257	)		166			(16,818	)		(2,661	)		5,300
Financial income (expenses), net		—			—			—			—			—			(21,876	)		—			(21,876	)
Share of earnings in equity-accounted investments		149			520			338			(386	)		25			—			—			646

Net Income (loss) before income taxes		(2,317	)		26,012			2,182			(643	)		191			(38,694	)		(2,661	)		(15,930	)
Income tax and social contribution		839			(8,667	)		(627	)		88			(57	)		7,644			905			125

Net income (loss)		(1,478	)		17,345			1,555			(555	)		134			(31,050	)		(1,756	)		(15,805	)

Net income (loss) attributable to:
Shareholders of Petrobras		(1,313	)		17,600			1,239			(555	)		131			(32,680	)		(1,756	)		(17,334	)
Non-controlling interests		(165	)		(255	)		316			—			3			1,630			—			1,529

Net income (loss)		(1,478	)		17,345			1,555			(555	)		134			(31,050	)		(1,756	)		(15,805	)

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

Consolidated Statement of Income per Business Area


*Consolidated Statement of Income per Business Area—09.30.2015 ()**
	*Jan-Sep/2015^()**
	Exploration and Production			Refining, Transportation & Marketing			Gas & Power			Biofuels			Distribution			Corporate			Eliminations			Total
Sales revenues		89,254			181,400			32,522			526			81,633			—			(148,800	)		236,535

Intersegments		85,713			56,153			5,088			488			1,358			—			(148,800	)		—
Third parties		3,541			125,247			27,434			38			80,275			—			—			236,535
Cost of sales		(61,811	)		(148,629	)		(26,168	)		(587	)		(75,587	)		—			147,974			(164,808	)

Gross profit		27,443			32,771			6,354			(61	)		6,046			—			(826	)		71,727
Expenses		(9,292	)		(10,621	)		(3,551	)		(116	)		(5,106	)		(15,048	)		511			(43,223	)
Selling		(525	)		(4,803	)		(547	)		(5	)		(4,125	)		23			517			(9,465	)
General and administrative		(1,018	)		(980	)		(585	)		(74	)		(674	)		(4,896	)		(1	)		(8,228	)
Exploration costs		(4,637	)		—			—			—			—			—			—			(4,637	)
Research and technological development		(683	)		(284	)		(138	)		(25	)		(3	)		(597	)		—			(1,730	)
Other taxes		(445	)		(2,162	)		(1,007	)		(3	)		(84	)		(4,067	)		—			(7,768	)
Impairment		(336	)		(365	)		(585	)		—			—			—			—			(1.286	)
Other expenses, net		(1,648	)		(2,027	)		(689	)		(9	)		(220	)		(5,511	)		(5	)		(10,109	)

Net income (loss) before financial results, profit sharing and income taxes		18,151			22,150			2,803			(177	)		940			(15,048	)		(315	)		28,504
Financial income (expenses), net		—			—			—			—			—			(23,113	)		—			(23,113	)
Share of earnings in equity-accounted investments		(349	)		1,085			305			(347	)		(22	)		(130	)		—			542

Net Income (loss) before income taxes		17,802			23,235			3,108			(524	)		918			(38,291	)		(315	)		5,933
Income tax and social contribution		(6,172	)		(7,532	)		(953	)		60			(320	)		9,287			108			(5,522	)

Net income (loss)		11,630			15,703			2,155			(464	)		598			(29,004	)		(207	)		411

Net income (loss) attributable to:
Shareholders of Petrobras		11,604			15,717			1,905			(464	)		595			(27,048	)		(207	)		2,102
Non-controlling interests		26			(14	)		250			—			3			(1,956	)		—			(1,691	)

Net income (loss)		11,630			15,703			2,155			(464	)		598			(29,004	)		(207	)		411

(*)	For comparative purposes consolidated statement of income by segment for the nine-month period ended September 30, 2015 is adjusted in accordance with note 4.2 of the consolidated financial statements as of December 31, 2015.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

Breakdown of the activities abroad


	Exploration and Production			Refining, Transportation & Marketing			Gas & Power		Distribution
Assets as of 09.30.2016		20,771			3,099			231		2,833
Statement of income—Jan-Sep/2016
Sales revenues		3,859			8,286			1,405		8,872
Intersegments		1,845			6,901			71		6
Third parties		2,014			1,385			1,334		8,866
Gross profit		1,264			184			221		943
Net income (loss) before financial results, profit sharing and income taxes		(222	)		(49	)		140		(36	)
Net income (loss) attributable to shareholders of Petrobras		(214	)		(46	)		244		(54	)


	Exploration and Production		Refining, Transportation & Marketing		Gas & Power		Distribution
Assets as of 12.31.2015		31,683		5,459		1,577		3,057
Statement of income—Jan-Sep/2015
Sales revenues		4,562		10,043		1,304		9,950
Intersegments		2,353		2,517		83		4
Third parties		2,209		7,526		1,221		9,946
Gross profit		1,549		676		227		908
Net income before financial results, profit sharing and income taxes		779		299		161		205
Net income attributable to shareholders of Petrobras		847		302		219		172

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

29.

Provisions for legal proceedings

29.1.

Provisions for legal proceedings, judicial deposits and contingent liabilities

The Company recognizes provisions based on the best estimate of the costs of proceedings for which it is probable that an outflow of resources embodying economic benefits will be required and that can be reliably estimated. These proceedings mainly include:

•

Labor claims, in particular: (i) a review of the methodology by which the minimum compensation based on an employee’s position and work schedule (Remuneração Mínima por Nível e Regime—RMNR) is calculated; (ii) lawsuits relating to overtime pay; and (iii) individual actions of outsourced employees;

•

Tax claims including: (i) claims relating to Brazilian federal and state tax credits applied that were disallowed; (ii) demands relating to the VAT (ICMS) tax collection on jet fuel sales; and (iii) alleged misappropriation of VAT (ICMS) tax credits on import of platforms;

•

Civil claims relating to: (i) losses and damages proceedings resulting from the cancellation of an assignment of excise tax (IPI) credits to a third party; (ii) royalties collection over the shale extraction; (iii) non-compliance with contractual terms relating to oil platform construction; (iv) reached and ongoing agreements to settle Opt-out Claims filed before the United States District Court for the Southern District of New York; and (v) compensation relating to an easement over a property.

•

Environmental claims regarding fishermen seeking indemnification from the Company for a January 2000 oil spill in the State of Rio de Janeiro.

Provisions for legal proceedings are set out as follows:


	Consolidated
Non-current liabilities	09.30.2016		12.31.2015
Labor claims		3,835		3,323
Tax claims		4,497		3,087
Civil claims		4,118		2,069
Environmental claims		196		282
Other claims		141		15

Total		12,787		8,776


	Consolidated
	09.30.2016			12.31.2015
Opening Balance		8,776			4,091
Additions		3,857			5,294
Use of provision		(710	)		(989	)
Accruals and charges		995			346
Others		(131	)		34

Closing Balance		12,787			8,776

29.2.

Judicial deposits

Judicial deposits made in connection with legal proceedings are set out in the table below according to the nature of the corresponding lawsuits:


	Consolidated
Non-current assets	09.30.2016		12.31.2015
Tax		4,974		4,076
Civil		2,914		2,693
Labor		3,220		2,670
Environmental		349		305
Others		17		14

Total		11,474		9,758

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

29.3.

Contingent liabilities

Contingent liabilities for which either the Company is unable to make a reliable estimate of the expected financial effect that might result from resolution of the proceeding, or a cash outflow is not probable, are not recognized as liabilities in the financial statements but are disclosed in the notes to the financial statements, unless the likelihood of any outflow of resources embodying economic benefits is considered remote.

The estimated contingent liabilities for legal proceedings as of September 30, 2016, for which the possibility of loss is not considered remote, are set out in the following table:


	Consolidated
Nature
Tax		130,108
Labor		21,583
Civil—General		26,556
Civil—Environmental		6,920
Others		31

Total		185,198

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

A brief description of the nature of the main contingent liabilities (tax, civil, environmental and labor) is set out in the following table:


Description of tax matters	Estimate
Plaintiff: Secretariat of the Federal Revenue of Brazil 1) Withholding income tax (IRRF), Contribution of Intervention in the Economic Domain (CIDE), Social Integration Program (PIS) and Contribution to Social Security Financing (COFINS) on remittances for payments of vessel charters. Current status: This claim involves lawsuits in different administrative and judicial stages.		34,291
2) Immediate deduction from the basis of calculation of taxable income (income tax—IRPJ and social contribution—CSLL) of crude oil production development costs in 2009, 2010 and 2011. Current status: This claim involves lawsuits in administrative stages.		20,169
3) Requests to compensate federal taxes disallowed by the Brazilian Federal Tax Authority. Current status: This claim involves lawsuits in different administrative and judicial stages.		9,574
4) Deduction from the basis of calculation of taxable income (income tax—IRPJ and social contribution—CSLL) of amounts payed to Petros Plan, as well as several expenses occurred in 2007 and 2008, related to employee benefits and Petros. Current status: This claim involves lawsuits in different administrative and judicial stages.		7,534
5) Income from subsidiaries and associates located outside Brazil, from 2005 to 2010, not included in the basis of calculation of taxable income (IRPJ and CSLL). Current status: Awaiting the hearing of an appeal at the administrative level.		6,922
6) Incidence of social security contributions over contingent bonuses paid to employees. Current status: Awaiting the hearing of an appeal at the administrative level.		2,583
7) Collection of Contribution of Intervention in the Economic Domain (CIDE) from March 2002 to October 2003 on transactions with fuel retailers and service stations protected by judicial injunctions determining that fuel sales were made without gross-up of such tax. Current status: This claim involves lawsuits in judicial stages.		2,107
Plaintiff: State of São Paulo Finance Department 8) Penalty for the absence of a tax document while relocating a rig to an exploratory block, and on the return of this vessel, as well as collection of the related VAT (ICMS), as a result of the temporary admission being unauthorized, because the customs clearance has been done in Rio de Janeiro instead of São Paulo. Current status: This claim involves lawsuits in judicial stages.		5,454
9) Deferral of payment of VAT (ICMS) taxes on B100 Biodiesel sales and the charge of a 7% VAT rate on B100 on Biodiesel inter-state sales, including states in the Midwest, North and Northeast regions of Brazil and the State of Espírito Santo. Current status: This claim involves lawsuits at administrative level.		2,642
Plaintiff: States of RJ and BA Finance Departments 10) VAT (ICMS) on dispatch of liquid natural gas (LNG) and C5+ (tax document not accepted by the tax authority), as well as challenges on the rights to this credit. Current status: This claim involves lawsuits in different administrative and judicial stages.		4,309
Plaintiff: Municipal governments of the cities of Anchieta, Aracruz, Guarapari, Itapemirim, Marataízes, Linhares, Vila Velha and Vitória 11) Alleged failure to withhold and pay tax on services provided offshore (ISSQN) in favor of some municipalities in the State of Espírito Santo, under the allegation that the service was performed in their “respective coastal waters”. Current status: This claim involves lawsuits in administrative and judicial stages.		3,624
Plaintiff: States of SP, RS and SC Finance Departments 12) Collection of VAT (ICMS) related to natural gas imports from Bolivia, alleging that these states were the final destination (consumers) of the imported gas. Current status: This claim involves lawsuits in different administrative and judicial stages, as well as three civil lawsuits in the Federal Supreme Court.		2,661
Plaintiff: States of RJ, RN, AL, AM, PA, BA, GO, MA and SP Finance Departments 13) Alleged failure to write-down VAT (ICMS) credits related to exemption or non-taxable sales made by the Company’s customers. Current status: This claim involves lawsuits in different administrative and judicial stages.		2,384
Plaintiff: States of RJ, SP, PR, RO and MG Finance Departments 14) Additional VAT (ICMS) due to differences in rates on jet fuel sales to airlines in the domestic market. Current status: This claim involves lawsuits in different administrative and judicial stages.		3,366
Plaintiff: States of PR, AM, BA, ES, PA, PE and PB Finance Departments 15) Incidence of VAT (ICMS) over alleged differences in the control of physical and fiscal inventories. Current status: This claim involves lawsuits in different administrative and judicial levels.		1,760
Plaintiff: States of SP, CE, PB, RJ, BA and PA Finance Departments 16) VAT (ICMS) and VAT credits on internal consumption of bunker fuel and marine diesel, destined to chartered vessels. Current status: This claim involves several tax notices from the states in different administrative and judicial stages.		1,471
Plaintiff: States of RJ, SP, SE and BA Finance Departments 17) Use of VAT (ICMS) credits on the purchase of drilling rig bits and chemical products used in formulating drilling fluid. Current status: This claim involves lawsuits in different administrative and judicial stages.		1,316
Plaintiff: States of RJ, SP, ES and BA Finance Departments 18) Misappropriation of VAT tax credit (ICMS) on the acquisitions of goods that, per the tax authorities, are not related to property, plant and equipment. Current status: This claim involves lawsuits in different administrative and judicial stages.		1,217
Plaintiff: States of MG, MT, GO, RJ, PA, CE, BA, PR, SE, AL AND RN Finance Departments 19) Misappropriation of VAT tax credit (ICMS) on the acquisitions of goods that, per the tax authorities, are not related to inventories. Current status: This claim involves lawsuits in different administrative and judicial stages.		1,000
Plaintiff: State of Pernambuco Finance Department 20) Alleged incorrect application of VAT (ICMS) tax base with respect to interstate sales of natural gas transport through city-gates in the State of Pernambuco destined to the distributors in that State. The Finance Department of the State of Pernambuco understands that activity as being an industrial activity which could not be characterized as an interstate sale transaction (considering that the Company has facilities located in Pernambuco), and consequently charging the difference on the tax levied on the sale and transfer transactions. Current status: This claim involves lawsuits in different administrative and judicial stages.		995
21) Other tax matters		14,729

Total for tax matters		130,108

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)


Description of labor matters	Estimate
Plaintiff : Sindipetro of ES, RJ, BA, MG, SP, PE, SE, RN, CE, PR, SC and RS. 1) Class actions requiring a review of the methodology by which the minimum compensation based on an employee’s position and work schedule (Remuneração Mínima por Nível e Regime—RMNR) is calculated. Current status: The Company filed its collective bargaining agreement with the Superior Labor Court and, on October 19, 2015, the Court ruled in favor of the Company and notified the Regional Labor Courts of its understanding of the matter.		13,622
Plaintiff : Sindipetro of Norte Fluminense – SINDIPETRO/NF 2) The plaintiff claims Petrobras failed to pay overtime for standby work exceeding 12-hours per day. It also demands that the Company respects a 12-hour limit per workday, subject to a daily fine. Current status: Awaiting the Superior Labor Court to judge appeals filed by both parties.		1,179
Plaintiff : Sindipetro of ES, RJ, BA, MG, SP, PR, CE, SC,SE, PE and RS 3) Class Actions regarding wage underpayments to certain employees due to alleged changes in the methodology used to factor overtime into the calculation of paid weekly rest, allegedly computed based on ratios that are higher than those established by Law No. 605/49. Current status: The Superior Labor Court (“Tribunal Superior do Trabalho—TST”) unified a favorable understanding to the Company’s opinion. There are TST decisions favorable to the plaintiffs on individual and collective proceedings judged before the mentioned unification. With respect to the claim filed by Sindipetro Norte Fluminense (NF): (i) the Company has filed an appeal in the TST to overturn a decision and is awaiting judgment; and (ii) The Regional Labor Court (“Tribunal Regional do Trabalho—TRT”) from the First Region issued an opinion favorable to the Company in its review appeal. The court stated that the enforceable title changed the factors used on the calculation of extra hour, increasing it and resulting in a considerable decrease in the estimated amount.		1,093
4) Other labor matters		5,689

Total for labor matters		21,583


Description of civil matters	Estimate
Plaintiff: Agência Nacional de Petróleo, Gás Natural e Biocombustíveis—ANP 1) Proceedings challenging an ANP order requiring Petrobras to unite Lula and Cernambi fields on the BM-S-11 joint venture; to unite Baúna and Piracicaba fields; to unite Tartaruga Verde and Mestiça fields; and to unite Baleia Anã, Baleia Azul, Baleia Franca, Cachalote, Caxaréu, Jubarte and Pirambu, in the Parque das Baleias complex, which would cause changes in the payment of special participation charges. Current status: The claims are being disputed in court and in arbitration proceedings. As a result of judicial decisions, the arbitrations have been suspended. On the Lula and Cernanbi proceeding, for the alleged differences on the special participation, the Company made judicial deposits. However, with the cancellation of the favorable injunction, currently the payment of these alleged differences have been made directly to ANP, until a final judicial decision is handed down. On the Baúna and Piracicaba proceeding, Petrobras made court-ordered judicial deposits. On the Baleia Anã, Baleia Azul, Baleia Franca, Cachalote, Caxaréu, Jubarte and Pirambu, in the Parque das Baleias complex proceeding, as a result of a judicial decision and of a Chamber of Arbitration ruling, the collection of the alleged differences has been suspended. On the Tartaruga Verde and Mestiça proceeding, the arbitration is suspended by judicial decision and, so far, there has been no additional collection of special participation due to the unification.		5,831
2) Administrative proceedings challenging an ANP order requiring Petrobras to pay special participation fees and royalties (government take) with respect to several fields and alleged failure to comply with the minimum exploration activities program, as well as alleged irregularities related to compliance with the oil and gas industry regulation. Current status: This claim involves lawsuits in different administrative and judicial stages.		5,361
Plaintiff: Several plaintiffs in Brazil and EIG Management Company in USA 3) Arbitration in Brazil and lawsuit in the USA regarding Sete Brasil. Current status: The arbitrations in Brazil are at an early stage and a Chamber of Arbitration has not yet been established. The lawsuit filed by EIG and affiliates alleges that the Company committed fraud by inducing plaintiffs to invest in Sete Brasil Participações SA (“Sete”) through communications that failed to disclose the alleged corruption scheme. The Company has been allowed a period to present its initial position before the federal court in Washington, DC.		5,060
Plaintiff: Refinaria de Petróleo de Manguinhos S.A. 4) Lawsuit seeking to recover damages for alleged anti-competitive practices with respect to gasoline, diesel and LPG sales in the domestic market. Current status: This claim is in the judicial stage and was ruled in favor of the plaintiff in the first stage. The Company is taking legal actions to ensure its rights. The Brazilian Antitrust regulator (CADE) has analyzed this claim and did not consider the Company’s practices to be anti-competitive.		1,831
Plaintiff: Vantage Deepwater Company e Vantage Deepwater Drilling Inc. 5) Arbitration in the United States for unilateral termination of the drilling service contract tied to ship-probe Titanium Explorer. Current status: The arbitration panel has been established and the parties will discuss the schedule of the proceeding.		1,298
6) Other civil matters		7,175

Total for civil matters		26,556


Description of environmental matters	Estimate
Plaintiff: Ministério Público Federal, Ministério Público Estadual do Paraná, AMAR—Associação de Defesa do Meio Ambiente de Araucária, IAP—Instituto Ambiental do Paraná and IBAMA—Instituto Brasileiro de Meio Ambiente e Recursos Naturais Renováveis. 1) Legal proceeding related to specific performance obligations, indemnification and compensation for damages related to an environmental accident that occurred in the State of Paraná on July 16, 2000. Current status: The court partially ruled in favor of the plaintiff, however both parties (the plaintiff and the Company) filed an appeal.		2,709
Plaintiff: Instituto Brasileiro de Meio Ambiente—IBAMA and Ministério Público Federal 2) Administrative proceedings arising from environmental fines related to exploration and production operations (Upstream) contested because of disagreement over the interpretation and application of standards by IBAMA, as well as a public civil action filed by the Ministério Público Federal for alleged environmental damage due to the accidental sinking of P-36 Platform. Current status: A number of defense trials and the administrative appeal regarding the fines are pending, and others are under judicial discussion. With respect to the civil action, the Company appealed the ruling that was unfavorable in the lower court and monitors the use of the procedure that will be judged by the Regional Federal Court.		1,240
3) Other environmental matters		2,971

Total for environmental matters		6,920

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

29.4.

Class action and related proceedings

Between December 8, 2014 and January 7, 2015, five putative securities class action complaints were filed against the Company in the United States District Court for the Southern District of New York (SDNY). These actions were consolidated on February 17, 2015 (the “Consolidated Securities Class Action”). The Court appointed a lead plaintiff, Universities Superannuation Scheme Limited (“USS”), on March 4, 2015. USS filed a consolidated amended complaint (“CAC”) on March 27, 2015 that purported to be on behalf of investors who:

a)	purchased or otherwise acquired Petrobras securities traded on the NYSE or pursuant to other transactions in the U.S. during the period January 22, 2010 and March 19, 2015, inclusive (the “Class Period”), and were damaged thereby;

b)	purchased or otherwise acquired during the Class Period certain notes issued in 2012 pursuant to a registration statement filed with the SEC filed in 2009 , or certain notes issued in 2013 or 2014 pursuant to a registration statement filed with the SEC in 2012 , and were damaged thereby; and

c)	purchased or otherwise acquired Petrobras securities on the Brazilian stock exchange during the Class Period, who also purchased or otherwise acquired Petrobras securities traded on the NYSE or pursuant to other transactions in the U.S. during the same period.

The CAC alleged, among other things, that in the Company’s press releases, filings with the SEC and other communications, the Company made materially false and misleading statements and omissions regarding the value of its assets, the amounts of the Company’s expenses and net income, the effectiveness of the Company’s internal controls over financial reporting, and the Company’s anti-corruption policies, due to alleged corruption purportedly in connection with certain contracts, which allegedly artificially inflated the market value of the Company’s securities.

On April 17, 2015, Petrobras, Petrobras Global Finance—PGF and the underwriters of notes issued by PGF (the “Underwriter Defendants”) filed a motion to dismiss the CAC.

On July 9, 2015, the judge presiding over the Consolidated Securities Class Action ruled on the motion to dismiss, partially granting the Company’s motion. Among other decisions, the judge dismissed claims relating to certain debt securities issued in 2012 under the Securities Act of 1933, as time barred by the Securities Act’s statute of repose and ruled claims relating to securities purchased on the Brazilian stock exchange must be arbitrated, as established in the Company’s bylaws. The judge rejected other arguments presented in the motion to dismiss the CAC and, as a result, the Consolidated Securities Class Action continued with respect to other claims.

As allowed by the judge, a second consolidated amended complaint was filed on July 16, 2015, a third consolidated amended complaint was filed on September 1, 2015, among other things extending the Class Period through July 28, 2015 and adding Petrobras America, Inc. as a defendant, and a fourth consolidated amended complaint (“FAC”) was filed on November 30, 2015. The FAC, brought by lead plaintiff and three other plaintiffs – Union Asset Management Holding AG (“Union”), Employees’ Retirement System of the State of Hawaii (“Hawaii”), and North Carolina Department of State Treasurer (“North Carolina”) (collectively, “class plaintiffs”) – brings those claims alleged in the CAC that were not dismissed or were allowed to be re-pleaded under the judge’s July 9, 2015 ruling.

On October 1 and December 7, 2015, Petrobras, PGF, Petrobras America, Inc. and the Underwriter Defendants filed a motion to dismiss the FAC.

On December 20, 2015, the judge ruled on the motion to dismiss the FAC, partially granting the motion. Among other decisions, the judge dismissed the claims of USS and Union based on their purchases of notes issued by PGF for failure to plead that they purchased the notes in U.S. transactions. The judge also dismissed claims under the Securities Act of 1933 for certain purchases for which class plaintiffs had failed to plead the element of reliance. The judge rejected other arguments presented in the motion to dismiss the FAC and, as a result, the Consolidated Securities Class Action continued with respect to the remaining claims.

On October 15, 2015, class plaintiffs filed a motion for class certification in the Consolidated Securities Class Action, and on November 6, 2015, Petrobras, PGF, Petrobras America, Inc. and the Underwriter Defendants opposed the motion. On February 2, 2016, the judge granted plaintiffs’ motion for class certification, certifying a Securities Act Class represented by Hawaii and North Carolina and an Exchange Act Class represented by USS. On June 15, 2016, the United States Court of Appeals for the Second Circuit (“Second Circuit”) granted Petrobras’s motion requesting interlocutory appellate review of the class certification decision. The parties completed briefing the appeal on September 8, 2016. Petrobras and the other defendants moved in district court for a stay of all district court proceedings pending the Second Circuit’s decision on the merits of the appeal of the class certification. While on June 24, 2016, the district judge denied the motion, on August 2, 2016, the Second Circuit granted Defendants’ motion before it to stay all district court proceedings pending a decision on the appeal of the class certification decision. Oral argument regarding the appeal was held before the Second Circuit on November 2, 2016.

On June 27, 2016, the parties filed motions for summary judgment. Further summary judgment briefing is stayed pursuant to the Second Circuit’s Order.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

In addition to the Consolidated Securities Class Action, to date, 30 lawsuits (the “Opt-out Claims”) have been filed by individual investors before the same judge in the SDNY (three of which have been stayed), and one has been filed in the United States District Court for the Eastern District of Pennsylvania, consisting of allegations similar to those in the Consolidated Securities Class Action. On August 21, 2015, Petrobras, PGF and underwriters of notes issued by PGF filed a motion to dismiss certain of the Opt-out Claims, and on October 15, 2015, the judge ruled on the motion to dismiss, partially granting the motion. Among other decisions, the judge dismissed several Exchange Act, Securities Act and state law claims as barred by the relevant statutes of repose. The judge denied other portions of the motion to dismiss and, as a result, these actions continued with respect to other claims brought by these plaintiffs.

On October 31, 2015, the judge ordered that the Opt-out Claims before him in the SDNY and the Consolidated Securities Class Action shall be tried together in a single trial that will not exceed a total of eight weeks.

On November 5, 2015, the judge scheduled the trial to begin on September 19, 2016; however, the trial is now stayed due to the stay imposed by the Second Circuit decision on August 2, 2016. On November 18, 2015, the judge ordered that any Opt-out Claim filed after December 31, 2015 will be stayed in all respects until after the completion of the trial.

In October 2016, the Company reached agreements to settle Opt-out Claims in four cases: Dodge & Cox Int’l Stock Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-10111 (JSR), Janus Overseas Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-10086 (JSR),PIMCO Funds: PIMCO Total Return Fund, et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-08192 (JSR) and Al Shams Investments Ltd., et al. v. Petróleo Brasileiro S.A. – Petrobras, et al., No. 15-cv-6243 (JSR). The terms of the settlements are confidential. The Company is also in settlement discussions with certain plaintiffs in other Opt-out Claims. Based on the settlements reached, and the status of certain other Opt-out Claims, the Company recognized a provision of R$ 1,182 (US$ 364 million) at September 30, 2016.

The Consolidated Securities Class Action and certain Opt-out Claims involve highly complex issues that are subject to substantial uncertainties and depend on a number of factors such as the novelty of the legal theories, the information produced in discovery, the timing of court decisions, discovery from adverse parties or third parties, rulings by the court on key issues, analysis by retained experts, and the possibility that the parties negotiate in good faith toward a resolution.

In addition, the claims asserted are broad, span a multi-year period and involve a wide range of activities, and the contentions of the plaintiffs in the Consolidated Securities Class Action and certain Opt-out Claims concerning the amount of alleged damages are varied and, at this stage, their impact on the course of the litigation is complex and uncertain. The uncertainties inherent in all such matters affect the amount and timing of the ultimate resolution of these actions. As a result, the Company is unable to make a reliable estimate of eventual loss arising from the Consolidated Securities Class Action and certain Opt-out Claims.

Depending on the outcome of the litigation, we may be required to pay substantial amounts, which could have a material adverse effect on the Company’s financial condition, its consolidated results of operations or its consolidated cash flows for an individual reporting period.

The Company has engaged a U.S. firm as legal counsel and intends to defend these actions vigorously.

30.

Collateral for crude oil exploration concession agreements

The Company has granted collateral to the Brazilian Agency of Petroleum, Natural Gas and Biofuels (Agência Nacional de Petróleo, Gás Natural e Biocombustíveis—ANP) in connection with the performance of the Minimum Exploration Programs established in the concession agreements for petroleum exploration areas in the total amount of R$ 7,906, of which R$ 3,170 were still in force as of September 30, 2016, net of commitments undertaken. The collateral comprises crude oil from previously identified producing fields, pledged as collateral, amounting to R$ 2,597 and bank guarantees of R$ 573.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

31.

Risk management

The Company is exposed to a variety of risks arising from its operations, including price risk (related to crude oil and oil products prices), foreign exchange rates risk, interest rates risk, credit risk and liquidity risk. Corporate risk management is part of the Company’s commitment to act ethically and comply with the legal and regulatory requirements of the countries where it operates. To manage market and financial risks the Company preferably takes structuring measures through an adequate capital and leverage management. The Company takes account of risks in its business decisions and manages any such risk in an integrated manner in order to enjoy the benefits of diversification.

A summary of the derivative financial instruments positions held by the Company and recognized in other current assets and liabilities as of September 30, 2016, as well as the amounts recognized in the statement of income and other comprehensive income and the guarantees given is set out as follows:


	Statement of Financial Position
	Notional value						Fair value Asset Position (Liability)						Maturity
	09.30.2016			12.31.2015			09.30.2016			12.31.2015
Derivatives not designated for hedge accounting
Future contracts—total (*)		(808	)		(5,694	)		(79	)		149

Long position/Crude oil and oil products		91,027			53,735			—			—			2017
Short position/Crude oil and oil products		(91,835	)		(59,429	)		—			—			2017
Options—total (*)		(115	)		123			(2	)		38

Call/Crude oil and oil products		(70	)		—			—			—			2017
Put/Crude oil and oil products		(45	)		123			(2	)		38			2017
Forward contracts—total								8			24

Long position/Foreign currency forwards (BRL/USD) (**)		US$ 144			US$ 217			5			23			2016
Short position/Foreign currency forwards (BRL/USD) (**)		US$ 49			US$ 50			3			1			2016
Derivatives designated for hedge accounting
Swap—total								(49	)		(130	)

Foreign currency / Cross-currency Swap (**)		US$ 0			US$ 298			—			(62	)		2016
Interest—Libor / Fixed rate (**)		US$ 371			US$ 396			(49	)		(68	)		2019

Total recognized in the Statement of Financial Position								(122	)		81

(*)	Notional value in thousands of bbl.

(**)	Amounts in US$ are presented in million.


	Gains/(losses) recognized in the statement of income (*)						Gains/(losses) recognized in the Shareholders’ Equity (**)						Guarantees given as collateral
	Jan-Sep/2016			Jan-Sep/2015			Jan-Sep/2016			Jan-Sep/2015			09.30.2016		12.31.2015
Commodity derivatives		(110	)		531			—			—			241		36
Foreign currency derivatives		(166	)		70			21			17			—		—
Interest rate derivatives		(19	)		(23	)		(2	)		(8	)		—		—

		(295	)		578			19			9			241		36
Cash flow hedge on exports (***)		(7,534	)		(4,193	)		48,828			(68,393	)		—		—

Total		(7,829	)		(3,615	)		48,847			(68,384	)		241		36

(*)	Amounts recognized in finance income in the period.

(**)	Amounts recognized as other comprehensive income in the period.

(***)

Using non-derivative financial instruments as designated hedging instruments, as set out in note 31.2.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

A sensitivity analysis of the derivative financial instruments for the different types of market risks as of September 30, 2016 is set out following:


			Consolidated
Financial Instruments	Risk		Probable Scenario^(*)			Stressed Scenario (D of 25%)			Stressed Scenario (D of 50%)
Derivatives not designated for hedge accounting
Future contracts		Crude oil and oil products—price changes		—			(305	)		(611	)
Forward contracts		Foreign currency—depreciation BRL x USD		—			(77	)		(155	)
Options		Crude oil and oil products—price changes		—			(6	)		(12	)

				—			(388	)		(778	)
Derivatives designated for hedge accounting
Swap				2			(5	)		(8	)
Debt		Interest—LIBOR increase		(2	)		5			8

Net effect				—			—			—

(*)

The probable scenario was computed based on the following risks: oil and oil products prices: fair value on September 30, 2016; R$ x U.S. Dollar—a 0.1% depreciation of the Real; Japanese Yen x U.S. Dollar—a 2.7% depreciation of the Japanese Yen/LIBOR Forward Curve—a 0.07% increase throughout the curve. Source: Focus and Bloomberg.

31.1.

Risk management of price risk (related to crude oil and oil products prices)

Petrobras does not regularly use derivative instruments to hedge exposures to commodity price cycles related to products purchased and sold to fulfill operational needs. Derivatives are used as hedging instruments to manage the price risk of certain short-term commercial transactions.

31.2.

Foreign exchange risk management

Petrobras seeks to identify and manage foreign exchange rate risks based on an integrated analysis of its businesses with the benefits of diversification. The Company’s short-term risk management involves choosing the currency in which to hold cash, such as the Brazilian Real, U.S. dollar or other currency. The foreign exchange risk management strategy may involve the use of derivative financial instruments to hedge certain liabilities, minimizing foreign exchange rate risk exposure.

a)	Cash Flow Hedge involving the Company’s future exports

The Company designates hedging relationships to account for the effects of the existing hedge between a portion of its long-term debt obligations (denominated in U.S. dollars) and its highly probable U.S. dollar denominated future export revenues, so that gains or losses associated with the hedged transaction (the highly probable future exports) and the hedging instrument (debt obligations) are recognized in the statement of income in the same periods.

A portion of principal amounts and accrued interest (non-derivative financial instruments), as well as foreign exchange rate forward contracts (derivative financial instruments) have been designated as hedging instruments. Derivative financial instruments expired during the year were replaced by principal and interest amounts in the hedging relationships for which they had been designated.

Individual hedging relationships were designated in a one-to-one proportion, meaning that a portion of the highly probable future exports for each month will be the hedged transaction of an individual hedging relationship, hedged by a portion of the company’s long-term debt. Only a portion of the Company’s forecast exports are considered highly probable.

Whenever a portion of future exports for a certain period for which a hedging relationship has been designated is no longer highly probable, the Company revokes the designation and the cumulative foreign exchange gains or losses that have been recognized in other comprehensive income remain separately in equity until the forecast exports occur.

If a portion of future exports for which a hedging relationship has been designated is no longer expected to occur, any related cumulative foreign exchange gains or losses that have been recognized in other comprehensive income from the date the hedging relationship was designated to the date the Company revoked the designation is immediately recycled from equity to the statement of income.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

Mainly due to the decrease in international oil prices, a portion of future exports for which a hedging relationship had been designated was no longer expected to occur or did not occur in the nine-month period ended September 30, 2016. Therefore, hedging relationship was revoked and a portion was reclassified to the statement of income in the amount of R$ 1,024 in the nine-month period ended September 30, 2016.

The carrying amounts, the fair value as of September 30, 2016, and a schedule of expected reclassifications to the statement of income of cumulative losses recognized in other comprehensive income (shareholders’ equity) based on a US$ 1.00 / R$ 3.2462 exchange rate are set out below:

Hedging Instrument

Hedged
Transactions

Nature of the
Risk

Maturity Date

Principal
Amount
(US$ million)

Carrying amount
as of
September 30, 2016

Non-derivative financial instruments (debt: principal and interest)

Portion of
highly probable
future monthly
exports
revenues

Foreign
Currency

– Real vs U.S.
Dollar

Spot Rate

October 2016
to

March 2027

59,132

191,954


Changes in the reference value (principal and interest)	US$ million			R$
Amounts designated as of December 31, 2015		61,520			240,222

Additional hedging relationships designated, designations revoked and hedging instruments re-designated		7,945			28,636
Exports affecting the statement of income		(2,150	)		(7,548	)
Principal repayments / amortization		(8,183	)		(28,062	)
Foreign exchange variation		—			(41,294	)

Amounts designated as of September 30, 2016		59,132			191,954

The ratio of highly probable future exports to debt instruments for which a hedging relationship has been designated in future periods is set out below:


	Consolidated
	2016		2017		2018		2019		2020		2021		2022		2023		2024 to 2027		Average
Hedging instruments designated / Highly probable future exports (%)		38		42		85		93		84		85		80		73		80		78

A roll-forward schedule of cumulative foreign exchange losses recognized in other comprehensive income as of September 30, 2016 is set out below:


	Exchange rate			Tax effect			Total
Balance at December 31, 2015		(88,319	)		30,028			(58,291	)
Recognized in shareholders’ equity		41,294			(14,041	)		27,253
Reclassified to the statement of income—occurred exports		6,510			(2,213	)		4,297
Reclassified to the statement of income—exports no longer expected or not occurred		1,024			(348	)		676

Balance at September 30, 2016		(39,491	)		13,426			(26,065	)

Additional hedging relationships may be revoked or additional reclassification adjustments from equity to the statement of income may occur as a result of changes in forecast export prices and export volumes following a review in the Company’s business plan. Based on a sensitivity analysis considering a US$ 10/barrel decrease in Brent prices stress scenario, when compared to the Brent price projections in our most recent update of the 2017-2021 Business and Management Plan (Plano de Negócios e Gestão –PNG), a R$ 16 reclassification adjustment from equity to the statement of income would occur.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

A schedule of expected reclassification of cumulative foreign exchange losses recognized in other comprehensive income to the statement of income as of September 30, 2016 is set out below:


	Consolidated
	2016			2017			2018			2019			2020			2021			2022			2023			2024 to 2027		Total
Expected realization		(2,329	)		(10,106	)		(10,495	)		(7,187	)		(5,273	)		(4,423	)		(5,078	)		(2,393	)		7,793		(39,491	)

b)	Cash flow hedges involving swap contracts – Yen x Dollar

The Company had cross currency swap to fix in U.S. dollars the payments related to bonds denominated in Japanese yen, which matured on September 23, 2016. The relationship between the derivative and the bonds was designated for cash flow hedge accounting.

c)	Sensitivity analysis for foreign exchange risk on financial instruments

A sensitivity analysis is set out below, showing the probable scenario for foreign exchange risk on financial instruments, computed based on external data along with stressed scenarios (a 25% and a 50% change in the foreign exchange rates), except for assets and liabilities of foreign subsidiaries, when transacted in a currency equivalent to their respective functional currencies.


						Consolidated
Financial Instruments	Exposure at 09.30.2016			Risk		Probable Scenario (*)			Stressed Scenario (D of 25%)			Stressed Scenario (D of 50%)
Assets		12,121					14			3,030			6,061
Liabilities		(204,688	)		Dollar/ Real		(240	)		(51,172	)		(102,344	)
Cash flow hedge on exports		191,954					225			47,989			95,977

		(613	)				(1	)		(153	)		(306	)
Liabilities		(855	)		Yen/ Dollar		23			(213	)		(428	)

		(855	)				23			(213	)		(428	)
Assets		29					(1	)		7			15
Liabilities		(171	)		Euro/ Real		3			(43	)		(86	)

		(142	)				2			(36	)		(71	)
Assets		23,025			Euro/ Dollar		(490	)		5,756			11,513
Liabilities		(45,744	)				974			(11,436	)		(22,872	)

		(22,719	)				484			(5,680	)		(11,359	)
Assets		9			Pound Sterling/ Real		—			2			5
Liabilities		(69	)				1			(17	)		(35	)

		(60	)				1			(15	)		(30	)
Assets		7,815			Pound Sterling/ Dollar		(129	)		1,954			3,908
Liabilities		(15,427	)				255			(3,857	)		(7,714	)

		(7,612	)				126			(1,903	)		(3,806	)

Total		(32,001	)				635			(8,000	)		(16,000	)

(*)

On September 30, 2016, the probable scenario was computed based on the following risks: R$ x U.S. Dollar—a 0.1% depreciation of the Real / Japanese Yen x U.S. Dollar—a 2.7% depreciation of the Japanese Yen / Euro x U.S. Dollar: an 2.1% depreciation of the Euro / Pound Sterling x U.S. Dollar: a 1.7% depreciation of the Pound Sterling / Real x Euro—a 2% appreciation of the Real / Real x Pound Sterling— 1.5% appreciation of the Real. Source: Focus and Bloomberg.

31.3.

Interest rate risk management

The Company considers that interest rate risk does not create a significant exposure and therefore, preferably does not use derivative financial instruments to manage interest rate risk, except for specific situations encountered by certain subsidiaries of Petrobras.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

31.4.

Credit risk

Credit risk management in Petrobras aims at minimizing risk of not collecting receivables, financial deposits or collateral from third parties or financial institutions through efficient credit analysis, granting and management based on quantitative and qualitative parameters that are appropriate for each market segment in which the Company operates.

The commercial credit portfolio is broad and diversified and comprises clients from the domestic market and from foreign markets. Credit granted to financial institutions is related to collaterals received, cash surplus invested and derivative financial instruments. It is spread among “investment grade” international banks rated by international rating agencies and Brazilian banks.

31.5.

Liquidity risk

Liquidity risk is represented by the possibility of a shortage of cash or other financial assets in order to settle the Company’s obligations on the agreed dates and is managed by the Company based on policies such as: centralized cash management, optimization of the level of cash and cash equivalents held and reduction of the working capital; maintaining an adequate cash balance to ensure that cash needed for investments and short-term obligations is met even in adverse market conditions; increase in funding sources from domestic and international markets, developing a strong presence in the capital markets and also searching for new funding sources (new markets and financial products), as well as funds under the venture and divestment program.

In 2016, the Company used traditional funding sources (export credit agencies – ECAs, banking market, capital markets and development banks) to obtain the necessary funding to repay debt and fund its capital expenditures. The Company raised approximately US$ 11.3 billion through proceeds from long-term financing (mainly international capital market), of which US$ 9.3 billion were used to repurchase global notes previously issued.

A term sheet signed in first quarter of 2016 with the China Development Bank CDB to obtain US$ 10 billion through financing agreements is still being negotiated.

A maturity schedule of the Company’s finance debt (undiscounted), including face value and interest payments is set out following:


	Consolidated
Maturity	2016		2017		2018		2019		2020		2021 and thereafter		09.30.2016		12.31.2015
Principal		11,893		25,522		43,869		69,371		53,885		197,048		401,588		497,289
Interest		6,809		23,147		21,930		19,100		14,714		113,378		199,078		230,531

Total		18,702		48,669		65,799		88,471		68,599		310,426		600,666		727,820

32.

Fair value of financial assets and liabilities

Fair values are determined based on market prices, when available, or, in the absence thereof, on the present value of expected future cash flows.

The hierarchy of the fair values of the financial assets and liabilities, recorded on a recurring basis, is set out below:

-	Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

-	Level 2: inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

-	Level 3: inputs are unobservable inputs for the asset or liability.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)


	Fair value measured based on
	Level I			Level II			Level III		Total fair value recorded
Assets
Marketable securities		2,550			—			—		2,550
Foreign currency derivatives		—			8			—		8

Balance at September 30, 2016		2,550			8			—		2,558

Balance at December 31, 2015		3,255			24			—		3,279

Liabilities
Foreign currency derivatives		—			—			—		—
Commodity derivatives		(81	)		—			—		(81	)
Interest derivatives		—			(49	)		—		(49	)

Balance at September 30, 2016		(81	)		(49	)		—		(130	)

Balance at December 31, 2015		—			(130	)		—		(130	)

There are no material transfers between levels.

The estimated fair value for the Company’s long term debt as of September 30, 2016, computed based on the prevailing market rates is set out in note 16.1.

The fair values of cash and cash equivalents, short-term debt and other financial assets and liabilities are equivalent or do not differ significantly from their carrying amounts.

33.

Subsequent events

Voluntary Separation Incentive Plan (PIDV) – PIDV BR 2016

On October 11, 2016, the Company’s wholly-owned subsidiary Petrobras Distribuidora S.A. launched a new voluntary separation incentive plan (PIDV BR 2016) in order to adjust the size of its workforce taking into account the divestment program and also the 2017-2021 Business and Management Plan goals, also considering the expectation of the employees, safeguard of knowledge and the ability to continue as a going concern.

Irrespective of position or eligibility to retire under the Brazilian Social Security National Institute rules, the PIDV BR 2016 will be open from November 1^st, 2016 to December 31, 2016 for all employees of at least ten years in this subsidiary workforce by December 30, 2016. It is expected 499 employee enrollments in this program and its implementation will costs approximately R$ 207 due to this expectation.

New diesel and gasoline pricing policy

On October 14, 2016, the board of executive officers of the Company approved the implementation of a new pricing policy for diesel and gasoline commercialized in its refineries. This pricing policy considers the following principles: the alignment with international prices (Import Parity Price—IPP), a margin reflecting the risks related to the operations, and also related taxes.

This policy foresees prices reviews, at least once a month, following international prices trends. Accordingly, refinery gate prices may increase, decrease or even be maintained.

Disposal of Nansei Seikyu (NSS)

On October 17, 2016 the Company’s Board of Directors approved the disposal of the Company’s interest in Nansei Seikyu (NSS) to Taiyo Oil Company in the amount of US$ 129.3 million. This amount will be totally disbursed pursuant to the transaction closing expected to occur in December 2016.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

Share Capital increase in NTS

The Extraordinary General Meeting of NTS, held on October 21, 2016, approved the proposal of its share capital increase in the amount of R$ 2,309, based on independent expert report dated on October 14, 2016, through net assets of the Company’s subsidiary TAG. This capital increase approval depended on ANP permission through the issuance of Permissions of Provisional Operation (Autorizações de Operação Provisórias), as occurred on October 24, 2016.

Share capital reduction in TAG

The Extraordinary General Meeting of the TAG, held on October 21, 2016, approved its share capital reduction, via capital surplus, in the amount of its investment in NTS (R$ 2,599) and transfer of all its interest in NTS to Petrobras, as occurred on October 24, 2016 pursuant to Permissions of Provisional Operation (Autorizações de Operação Provisórias) issued by ANP.

Funding through banking market (Banco Santander Brasil S.A.)

On October 28, 2016, the wholly-owned subsidiary Petrobras Global Trading B.V. – PGT raised funds through an unsecured loan with Banco Santander (Brasil) S.A. in the amount of US$ 1.2 billion and maturing in 2023.

The proceeds will be used to pay an existing debt, maturing in 2017 and amounting to US$ 800, with this financial institution. The remaining amount has already been used to prepay other bank debts.

Notes to the financial statements

(Expressed in millions of Reais, unless otherwise indicated)

34.

Correlation between the notes disclosed in the complete annual financial statements as of December 31, 2015 and the interim statements as of September 30, 2016


	Number of notes
Notes to the Financial Statements	Annual for 2015			Quarterly information for 3Q-2016
The Company and its operations		1			1
Basis of preparation of interim financial statements		2			2
The “Lava Jato (Car Wash) Operation” and its effects on the Company		3			3
Basis of consolidation		⁽	^*)		4
Accounting policies		4			5
Cash and cash equivalents and Marketable securities		7			6
Trade receivables		8			7
Inventories		9			8
Disposal of assets		10			9
Investments		11			10
Property, plant and equipment		12			11
Intangible assets		13			12
Impairment		14			13
Exploration for and evaluation of oil and gas reserves		15			14
Trade payables		16			15
Finance debt		17			16
Leases		18			17
Related parties		19			18
Provision for decommissioning costs		20			19
Taxes		21			20
Employee benefits (Post-employment)		22			21
Shareholders’ equity		23			22
Sales revenues		24			23
Other expenses, net		25			24
Costs and Expenses by nature		26			25
Net finance income (expense)		27			26
Supplementary information on the statement of cash flows		28			27
Segment reporting		29			28
Provisions for legal proceedings, contingent liabilities and contingent assets		30			29
Guarantees for concession agreements for petroleum exploration		32			30
Risk management and derivative instruments		33			31
Fair value of financial assets and liabilities		34			32
Subsequent events		35			33

^(*)	Summary of significant accounting policies

The notes to the annual report 2015 that were suppressed in the 3Q-2016 because they do not have significant changes and / or may not be applicable to interim financial information are as follows:


Notes to the Financial Statements	Number of notes
Critical accounting policies: key estimates and judgments		5
New standards and interpretations		6
Petroleum and alcohol accounts—receivables from Federal Government		19.6
Tax amnesty programs – State Tax (Programas de Anistias Estaduais)		21.3
Contingent assets		30.5
Commitments to purchase natural gas		31
Capital management		33.4
Insurance		33.7

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 14, 2016


PETRÓLEO BRASILEIRO S.A—PETROBRAS

By:		/s/ Ivan de Souza Monteiro
		Name: Ivan de Souza Monteiro Title: Chief Financial Officer and Investor Relations Officer