pbradfifrs2q16uss_6k.htm - Generated by SEC Publisher for SEC Filing

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 August, 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____

 


 
 

 

 

 

 


 
 

Petróleo Brasileiro S.A. – Petrobras

Index

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

Report of Independent Registered Public Accounting Firm  3 
Consolidated Statement of Financial Position  4 
Consolidated Statement of Income  5 
Consolidated Statement of Comprehensive Income  6 
Consolidated Statement of Cash Flows  7 
Consolidated Statement of Changes in Shareholders’ Equity  8 
Notes to the financial statements  9 
1.  The Company and its operations  9 
2.  Basis of preparation of unaudited interim financial information  9 
3.  The “Lava Jato (Car Wash) Operation” and its effects on the Company  9 
4.  Basis of consolidation  10 
5.  Summary of significant accounting policies  10 
6.  Cash and cash equivalents and Marketable securities  11 
7.  Trade and other receivables  12 
8.  Inventories  15 
9.  Disposal of Assets  15 
10.  Investments  17 
11.  Property, plant and equipment  19 
12.  Intangible assets  21 
13.  Impairment  22 
14.  Exploration for and evaluation of oil and gas reserves  22 
15.  Trade payables  23 
16.  Finance debt  23 
17.  Leases  27 
18.  Related-party transactions  27 
19.  Provision for decommissioning costs  29 
20.  Taxes  29 
21.  Employee benefits (Post-Employment)  33 
22.  Shareholders’ equity  34 
23.  Sales revenues  35 
24.  Other expenses, net  36 
25.  Costs and Expenses by nature  36 
26.  Net finance income (expense)  37 
27.  Supplemental information on statement of cash flows  37 
28.  Segment information  38 
29.  Provisions for legal proceedings  41 
30.  Collateral for crude oil exploration concession agreements  48 
31.  Risk management  48 
32.  Fair value of financial assets and liabilities  54 
33.  Subsequent events  55 
34.  Information Related to Guaranteed Securities Issued by Subsidiaries  56 

 

2


 
 

Petróleo Brasileiro S.A. – Petrobras

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and Shareholders

Petróleo Brasileiro S.A. - Petrobras

We have reviewed the accompanying condensed consolidated statement of financial position of Petróleo Brasileiro S.A. - Petrobras and its subsidiaries as of June 30, 2016, and the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2016 and June 30, 2015 and the condensed consolidated statements of cash flows and changes in shareholders’ equity for the six-month periods ended June 30, 2016 and June 30, 2015. This interimfinancial information is the responsibility of the Company's management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial information for it to be in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

As discussed in Note 3 to the condensed consolidated interim financial information, during the third quarter of 2014, the Company wrote off US$ 2,527 million of overpayments on the acquisition of property plant and equipment incorrectly capitalized, according to testimony obtained from Brazilian criminal investigations.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position as of December 31, 2015, and the related consolidated statements of income, comprehensive income, cash flows (not presented herein) and changes in shareholders’ equity for the year then ended, and in our report dated March 21, 2016, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2015, is fairly stated in all material respects in relation to the consolidated statement of financial position from which it has been derived.

 

/s/

PricewaterhouseCoopers

Auditores Independentes

 

Rio de Janeiro, Brazil

August 11, 2016

3


 
 

Petróleo Brasileiro S.A. – Petrobras

Consolidated Statement of Financial Position

June 30, 2016 and December 31, 2015

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

Assets

Note

06.30.2016

12.31.2015

 

Liabilities

Note

06.30.2016

12.31.2015

Current assets

 

 

 

 

Current liabilities

 

 

 

Cash and cash equivalents

6

19,609

25,058

 

Trade payables

15

5,558

6,373

Marketable securities

6

757

780

 

Finance debt

16

11,351

14,683

Trade and other receivables, net

7

5,311

5,803

 

Finance lease obligations

17.1

25

19

Inventories

8

8,882

7,441

 

Income taxes payable

20.1

208

105

Recoverable income taxes

20.1

775

983

 

Other taxes payable

20.1

3,178

3,365

Other recoverable taxes

20.1

2,118

1,765

 

Payroll and related charges

 

1,895

1,302

Advances to suppliers

 

195

108

 

Pension and medical benefits

21

798

655

Other current assets

 

1,512

1,338

 

Others

 

2,013

1,946

 

 

39,159

43,276

 

 

 

25,026

28,448

Assets classified as held for sale

9.2

2,162

152

 

Liabilities on assets classified as held for sale

9.2

1,045

125

 

 

41,321

43,428

 

 

 

26,071

28,573

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

Non-current liabilities

 

 

 

Long-term receivables

 

 

 

 

Finance debt

16

112,448

111,482

Trade and other receivables, net

7

4,043

3,669

 

Finance lease obligations

17.1

98

78

Marketable securities

6

97

88

 

Deferred income taxes

20.3

244

232

Judicial deposits

29.2

3,431

2,499

 

Pension and medical benefits

21

15,652

12,195

Deferred income taxes

20.3

2,938

6,016

 

Provisions for legal proceedings

29.1

3,248

2,247

Other tax assets

20.1

3,406

2,821

 

Provision for decommissioning costs

19

10,975

9,150

Advances to suppliers

 

1,600

1,638

 

Others

 

448

509

Others

 

3,139

2,446

 

 

 

143,113

135,893

 

 

18,654

19,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

169,184

164,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

Investments

10

4,078

3,527

 

Share capital (net of share issuance costs)

22.1

107,101

107,101

Property, plant and equipment

11

187,291

161,297

 

Change in interest in subsidiaries

 

325

321

Intangible assets

12

3,607

3,092

 

Profit reserves

 

57,767

57,977

 

 

213,630

187,093

 

Accumulated other comprehensive (deficit)

22.2

(80,640)

(100,163)

 

 

 

 

 

Attributable to the shareholders of Petrobras

 

84,553

65,236

 

 

 

 

 

Non-controlling interests

 

1,214

819

 

 

 

 

 

Total equity

 

85,767

66,055

 

 

 

 

 

 

 

 

 

Total assets

 

254,951

230,521

 

Total liabilities and shareholder's equity

 

254,951

230,521

 

 

 

 

 

 

 

 

 

The notes form an integral part of these financial statements.

 

4


 
 

Petróleo Brasileiro S.A. – Petrobras

Consolidated Statement of Income

June 30, 2016 and 2015

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

Note

Jan-Jun/ 2016

Jan-Jun/ 2015

2Q-2016

2Q-2015

 

 

 

 

 

 

Sales revenues

23

38,309

51,988

20,320

26,021

Cost of sales

 

(26,434)

(35,841)

(13,818)

(17,701)

Gross profit

 

11,875

16,147

6,502

8,320

 

 

 

 

 

 

Income (expenses)

 

 

 

 

 

Selling expenses

 

(2,010)

(1,867)

(1,051)

(1,265)

General and administrative expenses

 

(1,488)

(1,846)

(810)

(900)

Exploration costs

14

(761)

(805)

(468)

(462)

Research and development expenses

 

(273)

(396)

(144)

(199)

Other taxes

 

(266)

(1,552)

(127)

(1,289)

Other expenses, net

24

(2,945)

(2,062)

(1,854)

(1,127)

 

 

(7,743)

(8,528)

(4,454)

(5,242)

 

 

 

 

 

 

Income before finance income (expense), share of earnings in equity-accounted investments and income taxes

 

4,132

7,619

2,048

3,078

 

 

 

 

 

 

Finance income

 

445

456

218

200

Finance expenses

 

(3,321)

(3,099)

(1,749)

(1,810)

Foreign exchange gains (losses) and inflation indexation charges

 

(1,074)

(1,289)

(196)

(359)

Net finance income (expense)

26

(3,950)

(3,932)

(1,727)

(1,969)

 

 

 

 

 

 

Share of results in equity-accounted investments

10.1

212

115

113

55

 

 

 

 

 

 

Income before income taxes

 

394

3,802

434

1,164

 

 

 

 

 

 

Income taxes

20.4

(234)

(1,926)

(177)

(870)

 

 

 

 

 

 

Net income

 

160

1,876

257

294

 

 

 

 

 

 

Net income (loss) attributable to:

 

 

 

 

 

Shareholders of Petrobras

 

(212)

2,033

106

171

Non-controlling interests

 

372

(157)

151

123

 

 

 

 

 

 

Net income

 

160

1,876

257

294

 

 

 

 

 

 

Basic and diluted earnings per common and preferred share - in U.S. dollars

22.3

(0.02)

0.16

0.02

 

 

 

 

 

 

The notes form an integral part of these financial statements.

 

 

 

 

 

 

5


 
 

Petróleo Brasileiro S.A. – Petrobras

Consolidated Statement of Comprehensive Income

June 30, 2016 and 2015

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

Jan-Jun/ 2016

Jan-Jun/ 2015

2Q-2016

2Q-2015

 

 

 

 

 

Net income

160

1,876

257

294

 

 

 

 

 

Items that may be reclassified subsequently to the statement of income:

 

 

 

 

Unrealized gains / (losses) on cash flow hedge - highly probable future exports

 

 

 

 

Recognized in shareholders' equity

11,746

(8,143)

6,116

1,741

Reclassified to the statement of income

1,453

779

711

491

Deferred income tax

(4,487)

2,505

(2,321)

(758)

 

8,712

(4,859)

4,506

1,474

Unrealized gains / (losses) on cash flow hedge - others

 

 

 

 

Recognized in shareholders' equity

2

1

2

2

 

2

1

2

2

 

 

 

 

 

Cumulative translation adjustments (*)

10,462

(14,095)

5,999

2,548

 

 

 

 

 

Share of other comprehensive income (losses) in equity-accounted investments

355

(300)

164

110

 

 

 

 

 

Total other comprehensive income (loss):

19,531

(19,253)

10,671

4,134

 

 

 

 

 

Total comprehensive income (loss)

19,691

(17,377)

10,928

4,428

 

 

 

 

 

Comprehensive income (loss) attributable to:

 

 

 

 

Shareholders of Petrobras

19,313

(17,251)

10,745

4,334

Non-controlling interests

378

(126)

183

94

Total comprehensive income (loss)

19,691

(17,377)

10,928

4,428

 

 

 

 

 

(*) Includes US$ 364 (US$ 344 as of June 30, 2015) of cumulative translation adjustments in associates and joint ventures.

The notes form an integral part of these financial statements.

 

 

 

 

 

 

 

6


 
 

Petróleo Brasileiro S.A. – Petrobras

Consolidated Statement of Cash Flows

June 30, 2016 and 2015

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

Jan-Jun/ 2016

Jan-Jun/ 2015

Cash flows from Operating activities

 

 

Net income (loss)

160

1,876

 

 

 

Adjustments for:

 

 

Pension and medical benefits (actuarial expense)

1,088

1,136

Share of results in equity-accounted investments

(212)

(115)

Depreciation, depletion and amortization

6,639

5,913

Impairment of property, plant and equipment, intangible and other assets

412

421

Exploration expenditures written off

499

555

(Gains) losses on disposal of assets, write-offs of assets, E&P areas returned and cancelled projects, net

65

(71)

Foreign exchange, indexation and finance charges

3,903

4,013

Deferred income taxes, net

(728)

1,289

Allowance (reversals) for impairment of trade receivables

338

(12)

Inventory write-down to net realizable value

322

20

 

 

 

Decrease (Increase) in assets

 

 

Trade and other receivables, net

746

(110)

Inventories

(561)

(889)

Judicial deposits

(355)

(643)

Other assets

(396)

(569)

 

 

 

Increase (Decrease) in liabilities

 

 

Trade payables

(1,306)

(854)

Other taxes payable

13

2,356

Pension and medical benefits

(338)

(375)

Income taxes paid

(157)

(398)

Other liabilities

547

(354)

Net cash provided by operating activities

10,679

13,189

Cash flows from Investing activities

 

 

Capital expenditures

(7,128)

(11,831)

Investment in investees

(83)

(79)

Proceeds from disposal of assets

4

211

Divestment in marketable securities

213

5,807

Dividends received

215

152

Net cash used in investing activities

(6,779)

(5,740)

 

 

 

Cash flows from Financing activities

 

 

Investments by non-controlling interest

49

173

Financing and loans, net:

 

 

Proceeds from financing

9,100

12,285

Repayment of principal

(15,510)

(6,530)

Repayment of interest

(3,649)

(3,208)

Net cash used in financing activities

(10,010)

2,720

 

 

 

Effect of exchange rate changes on cash and cash equivalents

661

(663)

 

 

 

Net decrease in cash and cash equivalents

(5,449)

9,506

 

 

 

Cash and cash equivalents at the beginning of the year

25,058

16,655

 

 

 

Cash and cash equivalents at the end of the period

19,609

26,161

 

 

 

The notes form an integral part of these financial statements.

 

 

 

 

 

 

 

7


 
 

Petróleo Brasileiro S.A. – Petrobras

Consolidated Statement of Changes in Shareholders’ Equity

June 30, 2016 and 2015

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

Share capital (net of share issuance costs)

 

Accumulated other comprehensive income (deficit) and deemed cost

Profit Reserves

 

 

 

 

Share Capital

Share issuance costs

Change in interest in subsidiaries

Cumulative translation adjustment

Actuarial gains (losses) on defined benefit pension plans

Cash flow hedge - highly probable future exports

Other comprehensive income (loss) and deemed cost

Legal

Statutory

Tax incentives

Profit retention

Retained earnings

Shareholders' equity attributable to shareholders of Petrobras

Non-controlling interests

Total consolidated shareholders' equity

 

107,380

(279)

148

(41,968)

(7,295)

(7,699)

(438)

7,919

2,182

720

55,602

-

116,272

706

116,978

Balance at January 1, 2015

 

107,101

148

 

 

 

(57,400)

 

 

 

 

66,423

116,272

706

116,978

Realization of deemed cost

-

-

-

-

-

-

(2)

-

-

-

-

2

-

-

-

Change in interest in subsidiaries

-

-

-

-

-

-

-

-

-

-

-

-

-

173

173

Net income (loss)

-

-

-

-

-

-

-

-

-

-

-

2,033

2,033

(157)

1,876

Other comprehensive income (loss)

-

-

-

(14,126)

-

(4,859)

(299)

-

-

-

-

-

(19,284)

31

(19,253)

 

107,380

(279)

148

(56,094)

(7,295)

(12,558)

(739)

7,919

2,182

720

55,602

2,035

99,021

704

99,725

Balance at June 30, 2015

 

107,101

148

 

 

 

(76,686)

 

 

 

 

68,458

99,021

704

99,725

 

107,380

(279)

321

(71,220)

(7,362)

(20,288)

(1,293)

7,919

2,182

720

47,156

-

65,236

819

66,055

Balance at January 1, 2016

 

107,101

321

 

 

 

(100,163)

 

 

 

 

57,977

65,236

819

66,055

Realization of deemed cost

-

-

-

-

-

-

(2)

-

-

-

-

2

-

-

-

Change in interest in subsidiaries

-

-

4

-

-

-

-

-

-

-

-

-

4

46

50

Net income (loss)

-

-

-

-

-

-

-

-

-

-

-

(212)

(212)

372

160

Other comprehensive income (loss)

-

-

-

10,456

-

8,712

357

-

-

-

-

-

19,525

6

19,531

Appropriations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

-

-

-

-

-

-

-

-

-

-

-

-

-

(29)

(29)

 

107,380

(279)

325

(60,764)

(7,362)

(11,576)

(938)

7,919

2,182

720

47,156

(210)

84,553

1,214

85,767

Balance at June 30, 2016

 

107,101

325

 

 

 

(80,640)

 

 

 

 

57,767

84,553

1,214

85,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes form an integral part of these financial statements.

 

 

8


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, 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 unaudited interim financial information

The unaudited consolidated interim financial 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). The information is presented in U.S. dollars.

This unaudited interim financial information presents the significant changes in the period, avoiding repetition of certain notes to the financial statements previously reported. Hence it 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.

Petrobras has selected the U.S. Dollar as its presentation currency. The financial statements have been translated from the functional currency (Brazilian Real) into the presentation currency (U.S. Dollar) in accordance with IAS 21 – “The effects of changes in foreign exchange rates”. All assets and liabilities are translated into U.S. dollars at the closing exchange rate at the date of the financial statements; income and expenses, as well as cash flows are translated into U.S. dollars using the average exchange rates prevailing during the year. All exchange differences arising from the translation of the consolidated financial statements from the functional currency into the presentation currency are recognized as cumulative translation adjustments (CTA) within accumulated other comprehensive income in the consolidated statements of changes in shareholders’ equity.

Brazilian Real x U.S. Dollar

Mar 2016

Jun 2016

Mar 2015

Jun 2015

Sep 2015

Dec 2015

Quarterly average exchange rate

3.91

3.51

2.86

3.07

3.55

3.84

Period-end exchange rate

3.56

3.21

3.21

3.10

3.97

3.90

 

 

The Company’s Board of Directors in a meeting held on August 11, 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 US$ 2,527 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 June 30, 2016, the Company considered all available information and did not identify any additional information in the investigations related to the “Lava Jato” (Car

9


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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. The Company will continuously monitor the investigations for additional information and will review its potential impacts on the adjustment made.

As of June 30, 2016, the Company has recovered US$ 106 through leniency agreements, of which US$ 83 were received in 2015. The amounts recovered were recognized as other income (amounts recovered – “overpayments incorrectly capitalized”).

Additionally, 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 the Dutch company will pay compensation of US$ 342 , of which US$ 328  will be reimbursed to Petrobras as follows: (i) the first installment of US$ 129  will be paid as soon as the agreement becomes effective; (ii) the second and third installments will be paid 12 and 24 months after the signature of the agreement  in the amount of US$ 10  each; (iii) the remaining US$ 179 will be deducted from future payments owed by the Company to SBM pursuant to existing contracts.

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 consolidated entities in the six-month period ended June 30, 2016, except for the assets and liabilities of the subsidiary Petrobras Argentina S.A. – PESA, which are classified as held for sale, as set out in note 9.1.

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.

 

10


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

6.            Cash and cash equivalents and Marketable securities

Cash and cash equivalents

 

06.30.2016

12.31.2015

Cash at bank and in hand

517

808

 

 

 

Short-term financial investments

 

 

- In Brazil

 

 

Single-member funds (Interbank Deposit) and other short-term deposits

639

922

Other investment funds

12

11

 

651

933

- Abroad

 

 

Time deposits

11,257

13,276

Automatic investing accounts and interest checking accounts

5,938

8,828

Other financial investments

1,246

1,213

 

18,441

23,317

Total short-term financial investments

19,092

24,250

Total cash and cash equivalents

19,609

25,058

 

 

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

Marketable securities

 

 

 

06.30.2016

 

 

12.31.2015

 

In Brazil

Abroad

Total

In Brazil

Abroad

Total

Trading securities

757

757

779

779

Available-for-sale securities

7

7

5

1

6

Held-to-maturity securities

90

90

69

14

83

Total

854

854

853

15

868

Current

757

757

779

1

780

Non-current

97

97

74

14

88

 

 

 

 

 

 

 

 

 

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.

 

11


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

7.            Trade and other receivables

7.1.       Trade and other receivables, net

 

06.30.2016

12.31.2015

Trade receivables

 

 

Third parties

6,282

7,262

Related parties

 

 

Investees (note 18.1)

498

533

Receivables from the electricity sector (note 7.4)

4,879

3,415

Petroleum and alcohol accounts -receivables from Federal Government

269

219

Other receivables

2,142

1,699

 

14,070

13,128

Allowance for impairment of trade receivables

(4,716)

(3,656)

Total

9,354

9,472

Current

5,311

5,803

Non-current

4,043

3,669

 

 

7.2.       Trade receivables overdue - Third parties

 

06.30.2016

12.31.2015

Up to 3 months

316

315

From 3 to 6 months

88

180

From 6 to 12 months

318

803

More than 12 months

2,453

1,735

Total

3,175

3,033

 

 

7.3.       Changes in the allowance for impairment of trade receivables

 

06.30.2016

12.31.2015

Opening balance

3,656

3,372

Additions

430

2,060

Write-offs

(1)

(17)

Reversals

(69)

(788)

Cumulative translation adjustment

700

(971)

Closing balance

4,716

3,656

 

 

 

Current

2,121

1,690

Non-current

2,595

1,966

 

 

 

 

 

12


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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

 

 

 

 

 

Allowance for

impairment of

trade receivables

 

 

 

 

As of 12.31.2015

Sales

Amounts received

Transfers (*)

Recognition

Reversals

Transfers (*)

Inflation indexation

CTA

As of 06.30.2016

Related parties (Eletrobras Group)

 

 

 

 

 

 

 

 

 

 

AME (**)

1,996

233

(255)

546

(210)

20

(358)

118

438

2,528

Ceron(***)

285

41

(49)

20

63

360

Others

76

50

(57)

(10)

8

8

19

94

Subtotal

2,357

324

(361)

546

(220)

28

(358)

146

520

2,982

Third parties

 

 

 

 

 

 

 

 

 

 

Cigás

143

311

(111)

(546)

(39)

358

30

146

Others

43

154

(187)

(43)

21

16

1

5

Subtotal

186

465

(298)

(546)

(82)

21

358

16

31

151

Trade receivables, net

2,543

789

(659)

(302)

49

162

551

3,133

 

 

 

 

 

 

 

 

 

 

 

Trade receivables - Eletrobras Group

3,415

324

(361)

546

146

809

4,879

(-) Allowance for impairment of trade receivables

(1,058)

(220)

28

(358)

(289)

(1,897)

Subtotal

2,357

324

(361)

546

(220)

28

(358)

146

520

2,982

Trade receivables - Third parties

773

465

(298)

(546)

16

138

548

(-) Allowance for impairment of trade receivables

(587)

(82)

21

358

(107)

(397)

Subtotal

186

465

(298)

(546)

(82)

21

358

16

31

151

Trade receivables -

Total

4,188

789

(659)

162

947

5,427

(-) Allowance for impairment of trade receivables

(1,645)

(302)

49

(396)

(2,294)

Trade receivables, net

2,543

789

(659)

(302)

49

162

551

3,133

 

 

 

 

 

 

 

 

 

 

 

(*) Cigás assigned 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

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2016, US$ 2,130 of the Company’s net trade receivables from the isolated electricity system in the northern region of Brazil related to the sale of fuel oil, natural gas, electricity and other products to thermoelectric power plants (which are subsidiaries of Eletrobras), state-owned natural gas distribution companies and independent electricity producers (Produtores Independentes de Energia – PIE) operating in that region, were classified as non-current assets. The balance of those receivables was US$ 3,133 as of June 30, 2016 (US$ 2,543 as of December 31, 2015).

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, 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 for the products supplied by Petrobras.

In 2012, a new legislation (Provisional Measure 579 of September 11, 2012, revoked by Law No. 12.783/2013) significantly changed the sources of funds that were used to cover the cost of electricity generated in the Isolated Electricity System and the Brazilian Federal Government started to provide funds to cover costs that in the past

13


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

were only borne by the CCC. This assistance from the Federal Government would be made available through funds deposited in the Energy Development Account (Conta de Desenvolvimento Energético CDE) by the Brazilian National Treasury. Those funds, however, proved to be insufficient to cover the operational costs of the isolated electricity system in the northern region of Brazil.

The funds available in the CCC, which were already insufficient to cover the costs related to fuel supplied by the Company, decreased significantly. Following an increase in the amounts owed by the thermoelectric power plants operating in the Isolated Electricity System, the Company put pressure on the negotiations with the state-owned natural gas distribution companies, the independent electricity producers (PIEs), subsidiaries of Eletrobras and other private companies. 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 US$ 2,202 to the Company. This amount is being adjusted monthly based on the Selic interest rate (Brazilian short-term interest rate). Under this agreement, the first of 120 monthly installments was paid in February 2015 and these payments have continued. As of May 7, 2015, US$ 1,889 had been guaranteed by the collateralization of certain amounts payable by the CDE to the CCC.

In early 2015, the Brazilian government reviewed its electricity price regulations and implemented a new pricing policy for the electricity sector, which has resulted in increases in the tariffs charged to end-customers since the first quarter of 2015. The Company had expected that this new policy would have strengthened the financial situation of the companies in the electricity sector and, consequently to reduce the balance of their accounts payable with respect to fuel oil and other products supplied by the Company, which has not occurred. Despite the increase in amount of electricity tariffs to end-users of electricity distributors in order to provide financial stability to these companies, the recovery flow of CCC funds has occurred slowly, delaying the reimbursements for fuel acquisition costs provided by Petrobras and deteriorating the default of those customers to the Company.

Pursuant to the issuance of Normative Instruction 679 on September 1, 2015 by the Brazilian National Electricity Agency (Agência Nacional de Energia Elétrica - ANEEL), the Company expected that the flow of funds it would receive from the CCC would accelerate. This is because 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. However, it has not occurred and, therefore, the insolvency of these receivables increased and these receivables continue to be delinquent.

In 2015, the Company recognized US$ 564 as allowance for impairment of trade receivables (net of reversals) due to frustrated negotiations to enter into additional debt acknowledgement agreements and new pledges of receivables from the CDE.

In the six-month period ended June 30, 2016, the Company recognized an allowance for impairment of trade receivables (net of reversals) in the amount of US$ 253, 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 quarter of 2016. In July 2016, the AME paid part of receivables maturing in May and June 2016 in amount of US$ 58, therefore no allowance for impairment was recognized concerning this amount.

Accordingly, the Company adopted the following measures:

·      judicial collection of overdue receivables with respect to natural gas supplied to AME, Eletrobras and Cigás;

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

·      partial suspension of gas supply;

14


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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

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

8.            Inventories

 

06.30.2016

12.31.2015

Crude oil

3,209

2,895

Oil products

3,073

2,206

Intermediate products

783

612

Natural gas and LNG (*)

137

253

Biofuels

176

158

Fertilizers

52

61

Total products

7,430

6,185

Materials, supplies and others

1,466

1,272

Total

8,896

7,457

Current

8,882

7,441

Non-current

14

16

 

 

 

(*) Liquid Natural Gas

 

 

 

 

 

 

 

Inventories are presented net of a US$ 36 allowance reducing inventories to net realizable value (US$ 155 as of December 31, 2015), mainly due to changes in international prices of crude oil and oil products. In the six-month period ended June 30, 2016, the Company recognized as cost of sales a US$ 322 allowance charge reducing inventories to net realizable value (US$ 19 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 US$ 1,951 (US$ 1,719 as of December 31, 2015), as set out in note 21.1.

 

9.            Disposal of Assets

The Company’s 2015-2019 Business and Management Plan forecasts a dynamic portfolio of partnerships and divestments during the two years period of 2015-2016, subject to market and business conditions during the negotiations, which can change in accordance with the ongoing Company’s business analysis and also with the external environment. Accordingly, the conditions to recognize assets and liabilities as held for sale are achieved only when the Board of Directors approves a disposal.

9.1.       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, in the amount of US$ 892, without taking into account the effect of price adjustments and tax impact. This transaction was concluded (still subject to adjustments) on July 27. 2016, as set out in note 33.3.

9.2.       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 a 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 (US$ 148) and to provision for decommissioning costs (US$ 126), respectively, plus interest.

15


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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 an impairment loss as set out in note 13.

9.3.       Assets classified as held for sale

 

 

 

 

 

06.30.2016

12.31.2015

 

E&P

RTM

Gas

&

Power

Others

Total

Total

Assets classified as held for sale (*)

 

 

 

 

 

 

Cash and Cash Equivalents

20

1

69

90

3

Trade receivables

26

55

185

46

312

11

Inventories

33

151

8

10

202

Investments

228

16

34

30

308

Property, plant and equipment

828

112

49

53

1,042

139

Others

136

12

51

9

208

(1)

Total

1,271

346

328

217

2,162

152

Liabilities on assets classified as held for sale (*)

 

 

 

 

 

 

Trade Payables

24

26

17

5

72

Finance debt

315

315

125

Provision for decommissioning costs

106

106

Others

269

80

30

173

552

Total

399

106

47

493

1,045

125

 

 

 

 

 

 

 

(*) As of June 30, 2016, the amounts mainly refer to assets and liabilities transferred by the disposal of the entire interest in PPSL, which owns 67.19% of PESA.

 

 

 

 

 

 

 

 

 

16


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

10.        Investments

10.1.   Investments in associates and joint ventures

 

Balance at 12.31.2015

Investments

Share of results in investments (*)

CTA

OCI

Dividends

Restructu

ring, capital decrease and others

Balance at

06.30.2016

Petrobras Oil & Gas B.V. - PO&G

1,545

-

3

(1)

-

(50)

-

1,497

Braskem

805

-

117

214

291

(26)

-

1,401

State-controlled natural gas distributors

251

-

26

55

-

(21)

-

311

Investees in Venezuela

218

-

(2)

2

-

-

(218)

-

Guarani S.A.G

194

71

3

40

66

-

(26)

348

Nova Fronteira Bionergia

119

-

14

29

-

-

-

162

Other petrochemical investees

45

-

8

11

-

-

-

64

Compañia Mega S.A. - MEGA

45

-

15

(2)

-

(31)

-

27

Compañia de Inversiones de Energia S.A. - CIESA

44

-

3

(4)

-

(1)

(42)

-

UEG Araucária

43

-

(3)

10

-

(7)

-

43

Other associates

206

12

28

9

(2)

(14)

(26)

213

Other investees

12

-

-

1

-

-

(1)

12

Total

3,527

83

212

364

355

(150)

(313)

4,078

 

 

 

 

 

 

 

 

 

(*) The amount of US$ 3 related to PESA investees classified as assets held for sale is not included.

 

 

 

10.2.   Investments in listed companies

 

Thousand-share lot

 

Quoted stock exchange prices (US$  per share)

Market value

 

06.30.2016

12.31.2015

Type

06.30.2016

12.31.2015

06.30.2016

12.31.2015

Company

 

 

 

 

 

 

 

Indirect subsidiary

 

 

 

 

 

 

 

Petrobras Argentina S.A. (*)

1,356,792

Common

0.61

827

 

 

 

 

 

 

 

827

 

 

 

 

 

 

 

 

Associate

 

 

 

 

 

 

 

Braskem S.A.

212,427

212,427

Common

4.98

4.07

1,059

866

Braskem S.A.

75,762

75,762

Preferred A

5.93

7.07

450

536

 

 

 

 

 

 

1,509

1,402

 

 

 

 

 

 

 

 

(*) Transferred to assets classified as held for sale in May 2016 as set out in note 9.1.

 

 

 

 

 

 

 

 

 

 

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 June 30, 2016 the quoted market value of the Company’s investment in Braskem was US$ 1,509 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

17


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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, on 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.

 

18


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

11.        Property, plant and equipment

11.1.        By class of assets

 

Land, buildings

and

improvement

Equipment and other assets

Assets under construction (*)

Exploration and development costs (oil and gas producing properties)

Total

Balance at January 1, 2015

8,035

97,996

52,943

59,756

218,730

Additions

210

1,296

18,349

512

20,367

Additions to / review of estimates of decommissioning costs

-

-

-

4,147

4,147

Capitalized borrowing costs

-

-

1,768

-

1,768

Write-offs              

(8)

(56)

(1,797)

(407)

(2,268)

Transfers

1,153

8,726

(16,477)

8,468

1,870

Depreciation, amortization and depletion

(468)

(6,374)

-

(4,596)

(11,438)

Impairment recognition

(238)

(3,837)

(3,008)

(5,220)

(12,303)

Impairment reversal

-

11

5

23

39

Cumulative translation adjustment

(2,584)

(23,869)

(14,173)

(18,989)

(59,615)

Balance at December 31, 2015

6,100

73,893

37,610

43,694

161,297

Cost

8,595

112,307

37,610

67,220

225,732

Accumulated depreciation, amortization and depletion

(2,495)

(38,414)

-

(23,526)

(64,435)

Balance at December 31, 2015

6,100

73,893

37,610

43,694

161,297

Additions

1

526

5,758

100

6,385

Additions to / review of estimates of decommissioning costs

-

-

-

9

9

Capitalized borrowing costs

-

-

794

-

794

Write-offs

(1)

(9)

(553)

(36)

(599)

Transfers (***)

390

4,378

(7,595)

2,444

(383)

Depreciation, amortization and depletion

(184)

(3,526)

-

(2,855)

(6,565)

Impairment recognition

-

(8)

(321)

(80)

(409)

Impairment reversal

-

6

-

-

6

Cumulative translation adjustment

1,304

11,112

5,496

8,844

26,756

Balance at June 30, 2016

7,610

86,372

41,189

52,120

187,291

Cost

10,724

133,544

41,189

81,952

267,409

Accumulated depreciation, amortization and depletion

(3,114)

(47,172)

-

(29,832)

(80,118)

Balance at June 30, 2016

7,610

86,372

41,189

52,120

187,291

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 US$ 1,073 transferred to assets classified as held for sale due to the disposal of PESA, as set out in note 9.1.

 

 

 

 

 

 

 

 

As of June 30, 2016, property, plant and equipment include assets under finance leases of US$ 58 (US$ 48 as of December 31, 2015).

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 June 30, 2016, the Company’s

19


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

property, plant and equipment includes the amount of US$ 23,306 related to the Assignment Agreement (US$ 19,158 as of December 31, 2015).

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 independent technical appraisal reports. The review of the Assignment Agreement will be concluded after the review of all the areas. However, no specific date has been established for the review procedures to be concluded.

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 technical appraisal 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.

The appraisal assumptions for the blocks in the scope of the Assignment Agreement are still under negotiation with the Brazilian Federal Government and the final amount to be established for this Agreement still lacks: (i) assumptions validation; (ii) independent technical appraisal reports and (iii) the outcome of the negotiations.

 

20


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

12.        Intangible assets

12.1.   By class of assets

 

 

 

 

 

 

 

 

 

Software

 

 

 

Rights and Concessions

Acquired

Developed

in-house

Goodwill

Total

Balance at January 1, 2015

3,592

119

432

366

4,509

Addition

17

22

78

-

117

Capitalized borrowing costs

-

-

5

-

5

Write-offs

(163)

-

(2)

-

(165)

Transfers

71

6

11

-

88

Amortization

(23)

(33)

(97)

-

(153)

Impairment recognition

(32)

-

-

-

(32)

Cumulative translation adjustment

(1,024)

(34)

(137)

(82)

(1,277)

Balance at December 31, 2015

2,438

80

290

284

3,092

Cost

2,696

435

963

284

4,378

Accumulated amortization

(258)

(355)

(673)

-

(1,286)

Balance at December 31, 2015

2,438

80

290

284

3,092

Addition

4

7

25

-

36

Capitalized borrowing costs

-

-

2

-

2

Write-offs

(5)

-

(1)

-

(6)

Transfers

5

1

3

(25)

(16)

Amortization

(11)

(15)

(48)

-

(74)

Cumulative translation adjustment

464

12

58

39

573

Balance at June 30, 2016

2,895

85

329

298

3,607

Cost

3,113

529

1,196

298

5,136

Accumulated amortization

(218)

(444)

(867)

-

(1,529)

Balance at June 30, 2016

2,895

85

329

298

3,607

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.

 

 

 

 

 

 

 

 

21


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, 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.

In the first half of 2016, impairment losses (net of reversals) were recognized as other expenses, net, in the amount of US$ 412, mainly due to:

a) COMPERJ – Reassessment of this project that confirmed its postponement until December 2020 (first refining unit) with continuous efforts to seek new partnerships to its resumption. The construction of Comperj facilities related to natural gas processing plant (UPGN) will be continued, since they are part of the transport and processing of natural gas from the pre-salt layer in Santos Basin infrastructure. However, the estimated costs and period of time to complete these facilities constructions were revised and, therefore, the Company recognized an impairment charge of the project remaining balance (US$ 320) as of June 30, 2016.

b) Bijupirá and Salema –due to the termination of the sale contract of these fields on February 26, 2016, their related assets and liabilities, previously classified as held for sale, were reclassified, triggering reassessments of the respective recoverable amounts. Accordingly, an impairment charge of US$ 82 was recognized.

In the first half of 2015, considering changes in circumstances and projections, projects removed from the 2015-2019 Business and Management Plan were also removed from their cash-generating units as previously set out in the Company’s financial statements for the year ended December 31, 2014 (when those assets had not suffered impairment losses).

Based on the assessment of the recoverable amount of such assets (tested for impairment individually), an impairment charge of US$ 419 was recognized as other expenses in the second quarter of 2015, mainly for: (i) Nitrogen Fertilizer Plant - UFN-V (US$ 190); (ii) RTM assets (US$ 118) and (iii) E&P producing properties in Brazil (several CGUs) and assets held for sale (US$ 81).

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.

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:

Capitalized Exploratory Well Costs / Capitalized Acquisition Costs (*)

06.30.2016

12.31.2015

Property plant and equipment

 

 

Opening Balance

5,201

7,000

Additions to capitalized costs pending determination of proved reserves

555

2,282

Capitalized exploratory costs charged to expense

(453)

(882)

Transfers upon recognition of proved reserves

(476)

(960)

Cumulative translation adjustment

1,015

(2,239)

Closing Balance

5,842

5,201

Intangible Assets

2,435

2,048

Capitalized Exploratory Well Costs / Capitalized Acquisition Costs

8,277

7,249

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

 

 

 

 

 

 

 

22


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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:

Exploration costs recognized in the statement of income

Jan-Jun/2016

Jan-Jun/2015

Geological and geophysical expenses

191

230

Exploration expenditures written off (includes dry wells and signature bonuses)

499

555

Other exploration expenses

71

20

Total expenses

761

805

 

 

 

Cash used in :

Jan-Jun/2016

Jan-Jun/2015

Operating activities

215

250

Investment activities

597

1,665

Total cash used

812

1,915

 

 

 

 

 

15.        Trade payables

 

06.30.2016

12.31.2015

Third parties in Brazil

3,080

3,331

Third parties abroad

2,095

2,566

Related parties

383

476

Balance on current liabilities

5,558

6,373

 

 

 

 

 

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 on June, 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).

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

23


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

Export

Credit

Agencies

Banking Market

Capital Market

Others

Total

Non-current

 

 

 

 

 

In Brazil

 

 

 

 

 

Opening balance at January 1, 2015

29,288

1,301

28

30,617

Additions (new funding obtained)

4,918

989

5,907

Interest incurred during the period

289

289

Foreign exchange/inflation indexation charges

3,001

80

2

3,083

Transfer from long-term to short-term

(2,389)

(149)

(4)

(2,542)

Cumulative translation adjustment (CTA)

(10,410)

(496)

(9)

(10,915)

Balance as of December 31, 2015

24,697

1,725

17

26,439

Abroad

 

 

 

 

 

Opening balance at January 1, 2015

5,244

29,898

53,810

649

89,601

Additions (new funding obtained)

163

5,753

2,045

7,961

Interest incurred during the period

5

34

48

8

95

Foreign exchange/inflation indexation charges

442

1,342

(1,092)

56

748

Transfer from long-term to short-term

(767)

(4,183)

(5,770)

(45)

(10,765)

Cumulative translation adjustment (CTA)

(442)

(1,877)

(222)

(56)

(2,597)

Balance as of December 31, 2015

4,645

30,967

48,819

612

85,043

Total Balance as of December 31, 2015

4,645

55,664

50,544

629

111,482

Non-current

 

 

 

 

 

In Brazil

 

 

 

 

 

Opening balance at January 1, 2016

24,697

1,725

17

26,439

Additions (new funding obtained)

169

169

Interest incurred during the period

138

138

Foreign exchange/inflation indexation charges

(1,508)

34

1

(1,473)

Transfer from long-term to short-term

(1,407)

(57)

(1)

(1,465)

Cumulative translation adjustment (CTA)

4,836

368

4

5,208

Balance as of June 30, 2016

26,925

2,070

21

29,016

Abroad

 

 

 

 

 

Opening balance at January 1, 2016

4,645

30,967

48,819

612

85,043

Additions (new funding obtained)

1,004

6,706

7,710

Interest incurred during the period

2

8

25

4

39

Foreign exchange/inflation indexation charges

(173)

(1,078)

(170)

(24)

(1,445)

Transfer from long-term to short-term

(359)

(901)

(7,094)

(24)

(8,378)

Transfer to liabilities associated with assets classified as held for sale

(302)

(302)

Cumulative translation adjustment (CTA)

180

777

(218)

26

765

Balance as of June 30, 2016

4,295

30,777

47,766

594

83,432

Total Balance as of June 30, 2016

4,295

57,702

49,836

615

112,448

 

 

 

 

 

 

Current

 

 

 

06.30.2016

12.31.2015

Short-term debt

 

 

 

300

1,523

Current portion of long-term debt

 

 

 

9,553

11,500

Accrued interest

 

 

 

1,498

1,660

Total

 

 

 

11,351

14,683

 

 

 

 

 

 

 

24


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

16.1.   Summarized information on current and non-current finance debt

Maturity in

2016

2017

2018

2019

2020

2021 and onwards

Total (*)

Fair value

 

 

 

 

 

 

 

 

 

Financing in Brazilian Reais (R$):

2,179

2,002

2,471

4,170

5,849

8,009

24,680

22,576

Floating rate debt

1,789

1,559

2,007

3,718

5,417

6,048

20,538

 

Fixed rate debt

390

443

464

452

432

1,961

4,142

 

Average interest rate

14.4%

14.3%

12.4%

11.6%

10.7%

9.9%

11.4%

 

 

 

 

 

 

 

 

 

 

Financing in U.S.Dollars (US$):

3,371

5,216

9,259

17,038

9,681

35,575

80,140

72,501

Floating rate debt

1,917

3,993

7,879

12,229

5,697

9,107

40,822

 

Fixed rate debt

1,454

1,223

1,380

4,809

3,984

26,468

39,318

 

Average interest rate

4.3%

3.7%

3.4%

4.0%

4.5%

5.9%

4.8%

 

 

 

 

 

 

 

 

 

 

Financing in R$ indexed to US$:

530

705

704

701

701

5,422

8,763

8,335

Floating rate debt

12

23

22

19

19

35

130

 

Fixed rate debt

518

682

682

682

682

5,387

8,633

 

Average interest rate

8.5%

7.0%

7.1%

7.0%

7.1%

7.0%

7.1%

 

 

 

 

 

 

 

 

 

 

Financing in Pound Sterling (£):

79

2,268

2,347

1,851

Fixed rate debt

79

2,268

2,347

 

Average interest rate

5.9%

6.1%

6.1%

 

 

 

 

 

 

 

 

 

 

Financing in Japanese Yen (¥):

458

101

100

659

656

Floating rate debt

50

100

100

250

 

Fixed rate debt

408

1

409

 

Average interest rate

1.8%

0.5%

0.4%

1.4%

 

 

 

 

 

 

 

 

 

 

Financing in Euro (€):

128

12

1,595

1,441

210

3,817

7,203

6,455

Floating rate debt

13

12

12

12

167

216

 

Fixed rate debt

115

1,583

1,429

43

3,817

6,987

 

Average interest rate

2.9%

1.7%

3.8%

3.9%

4.2%

4.4%

4.1%

 

 

 

 

 

 

 

 

 

 

Financing in other currencies:

7

7

7

Fixed rate debt

7

7

 

Average interest rate

14.0%

14.0%

 

 

 

 

 

 

 

 

 

 

Total as of June 30, 2016

6,745

8,043

14,129

23,350

16,441

55,091

123,799

112,381

Average interest rate

7.7%

6.6%

5.2%

5.4%

6.8%

6.5%

6.3%

 

 

 

 

 

 

 

 

 

 

Total as of December 31, 2015

14,683

11,397

16,091

22,596

15,537

45,861

126,165

98,600

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 June 30, 2016 is 7.30 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 US$ 46,430 as of June 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 US$ 65,951 as of June 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. In the first half of 2016 the capitalization rate was 5.38% p.a. (4.93% p.a. in the first half of 2015).

25


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

16.3.   Lines of credit

 

 

 

 

 

 

Amount

Company

Financial

institution

Date

Maturity

Available

(Lines of Credit)

Used

Balance

Abroad

 

 

 

 

 

 

Petrobras

JBIC

7/16/2013

12/31/2018

1,500

-

1,500

PGT BV

UKEF - JPMORGAN

12/17/2015

12/22/2016

500

238

262

Total

 

 

 

2,000

238

1,762

 

 

 

 

 

 

 

In Brazil

 

 

 

 

 

 

Petrobras

BNDES

7/31/2013

7/15/2016

156

153

3

Petrobras

FINEP

4/16/2014

12/26/2017

79

55

24

PNBV

BNDES

9/3/2013

3/26/2018

3,077

629

2,448

Transpetro

BNDES

1/31/2007

Not defined

1,599

185

1,414

Transpetro

Banco do Brasil

7/9/2010

4/10/2038

110

50

60

Transpetro

Caixa Econômica Federal

11/23/2010

Not defined

109

109

Total

 

 

 

5,130

1,072

4,058

 

 

 

 

 

 

 

 

 

16.4.   Collateral

Most of the Company’s debt is unsecured, however, collateral is granted to financial institutions if required. There are also certain debts agreements of the subsidiary Petrobras Distribuidora are based on the Company’s future exports.

The loans obtained by structured entities are collateralized based on the projects’ assets, as well as liens on receivables of the structured entities. Certain wholly-owned subsidiaries issue securities that are fully and unconditionally guaranteed by Petrobras ( as set out in note 34).

The global notes issued by the Company in the international capital market through its wholly-owned subsidiary Petrobras Global Trading – PGF are unsecured global notes, 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 May 2016.

 

26


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

17.        Leases

17.1.   Future minimum lease payments / receipts – finance leases

 

 

 

Receipts

 

 

Payments

Estimated lease payments / receivable

Future

value

Annual interest

Present

value

Future

value

Annual interest

Present

value

2016

122

(76)

46

25

(8)

17

2017 - 2020

786

(451)

335

111

(46)

65

2021 and thereafter

1,566

(446)

1,120

240

(199)

41

As of June 30, 2016

2,474

(973)

1,501

376

(253)

123

Current

 

 

81

 

 

25

Non-current

 

 

1,420

 

 

98

As of June 30, 2016

 

 

1,501

 

 

123

Current (*)

 

 

66

 

 

19

Non-current (*)

 

 

1,393

 

 

78

As of December 31, 2015

 

 

1,459

 

 

97

 

 

 

 

 

 

 

(*) For comparative purposes, the present value of payments in the amount of US$ 7 was reclassified from trade payables in current liabilities and the amount of US$ 46 was reclassified from others in non-current liabilities.

 

 

 

 

 

 

 

 

 

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.

2016

 

 

 

 

 

6,649

2017 - 2020

 

 

 

 

 

33,424

2021 and thereafter

 

 

 

 

 

60,615

As of June 30, 2016

 

 

 

 

 

100,688

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

99,194

 

 

 

 

 

 

 

 

 

As of June 30, 2016, the balance of estimated future minimum lease payments under operating leases includes US$ 56,438 (US$ 60,628 as of December 31, 2015) with respect to assets under construction, for which the lease term has not commenced.

In the first half of 2016, the Company recognized expenditures of US$ 4,856 (US$ 5,233 in the first half of 2015) for operating leases installments.

18.        Related-party 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.

27


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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

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

 

Jan-Jun/2016

 

06.30.2016

Jan-Jun/2015

 

12.31.2015

 

Income

(expense)

Assets

Liabilities

Income

(expense)

Assets

Liabilities

Joint ventures and associates

 

 

 

 

 

 

State-controlled gas distributors

870

234

72

1,763

255

72

Petrochemical companies

1,582

141

34

2,118

144

45

Other associates and joint ventures

214

123

377

308

134

453

Subtotal

2,666

498

483

4,189

533

570

Government entities

 

 

 

 

 

 

Government bonds

60

898

-

213

1,115

-

Banks controlled by the Federal Government

(1,634)

3,665

27,429

(1,871)

2,607

24,336

Receivables from the Electricity sector (note 7.4)

470

4,879

7

1,016

3,415

-

Petroleum and alcohol account - receivables Fed. government

2

269

-

2

219

-

Others

72

397

312

23

306

316

Subtotal

(1,030)

10,108

27,748

(617)

7,662

24,652

Pension plans

-

75

55

-

36

110

Total

1,636

10,681

28,286

3,572

8,231

25,332

Revenues, mainly sales revenues

2,986

-

-

5,064

-

-

Foreign exchange and inflation indexation charges, net

(242)

-

-

(670)

-

-

Finance income (expenses), net

(1,108)

-

-

(822)

-

-

Current assets

-

2,907

-

-

2,255

-

Non-current assets

-

7,774

-

-

5,976

-

Current liabilities

-

-

4,556

-

-

3,248

Non-current liabilities

-

-

23,730

-

-

22,084

Total

1,636

10,681

28,286

3,572

8,231

25,332

 

 

18.2.   Compensation of employees and officers

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

 

 

Jan-Jun/ 2016

 

Jan-Jun/ 2015

 

 

Board

 

 

 

 

 

Officers

(members

and alternates)

Total

Officers

Board

Total

Wages and short-term benefits

1.6

0.2

1.8

2.3

0.2

2.5

Social security and other employee-related taxes

0.5

0.5

0.6

0.6

Post-employment benefits (pension plan)

0.2

0.2

0.2

0.2

Total compensation recognized in the statement of income

2.3

0.2

2.5

3.1

0.2

3.3

Total compensation paid

2.3

0.2

2.5

3.1

0.2

3.3

Average number of members in the period (*)

7.50

13.00

20.50

8.00

9.83

17.83

Average number of paid members in the period (**)

7.50

10.67

18.17

8.00

8.83

16.83

 

 

 

 

 

 

 

(*) Monthly average number of members.

 

 

 

 

 

 

(**) Monthly average number of paid members.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the first half of 2016 the board members and officers of the Petrobras group received US$ 10.3 as compensation (US$ 10.5 in the first half of 2015).

28


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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.

The alternates of Board members, who were also members of these committees up to April 2016, received the amount of US$ 14 thousand as compensation in 2016 (US$ 17 thousand including related charges).

19.        Provision for decommissioning costs

Non-current liabilities

06.30.2016

12.31.2015

Opening balance

9,150

8,267

Adjustment to provision

9

4,493

Transfers related to liabilities held for sale (*)

17

(125)

Payments made

(431)

(1,242)

Interest accrued

308

231

Others

(43)

121

Cumulative translation adjustment

1,965

(2,595)

Closing balance

10,975

9,150

 

 

 

(*) Includes US$ 126 related to the termination of sales contract of Bijupira and Salema fields in February 2016 and US$ 109 transferred pursuant to the sale of the subsidiary PESA.

 

 

 

 

 

20.        Taxes

20.1.   Income taxes and other taxes

Income taxes

Current assets

Current liabilities

 

06.30.2016

12.31.2015

06.30.2016

12.31.2015

Taxes in Brazil

769

959

196

62

Taxes abroad

6

24

12

43

Total

775

983

208

105

 

 

 

 

 

 

 

Other taxes

Current assets

Non-current assets

Current liabilities

Non-current liabilities (*)

 

06.30.2016

12.31.2015

06.30.2016

12.31.2015

06.30.2016

12.31.2015

06.30.2016

12.31.2015

Taxes in Brazil

 

 

 

 

 

 

 

 

Current / Deferred ICMS (VAT)

1,031

807

741

605

1,122

1,045

Current / Deferred PIS and COFINS (taxes on revenues)

864

746

2,486

2,026

391

487

CIDE

18

114

115

Production taxes

761

622

Withholding income taxes

379

435

15

REFIS and PRORELIT

274

11

Others

203

150

168

184

362

244

Total in Brazil

2,098

1,721

3,395

2,815

3,129

3,222

26

Taxes abroad

20

44

11

6

49

143

Total

2,118

1,765

3,406

2,821

3,178

3,365

26

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29


 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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 as of 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 sustainable, 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, aiming to avoid the respective tax burden on it.

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

30


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, 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:

 

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

(13,647)

(224)

3,823

(592)

526

5,718

490

2,022

(141)

(2,025)

Recognized in the statement of income for the year

(1,284)

1,382

(525)

44

471

2,166

42

(157)

(96)

2,043

Recognized in shareholders’ equity

14

6,490

(14)

(152)

(14)

65

6,389

Cumulative translation adjustment

4,608

223

(2,275)

206

(204)

(2,019)

(182)

(645)

180

(108)

Use of tax credits - REFIS and PRORELIT

(521)

(521)

Others

(104)

100

6

(1)

23

3

(7)

(14)

6

Balance at December 31, 2015

(10,323)

1,291

7,613

(350)

792

5,215

353

1,199

(6)

5,784

Recognized in the statement of income for the period

618

(819)

209

23

140

582

(85)

110

(50)

728

Recognized in shareholders’ equity

(4,487)

(3)

(4,490)

Cumulative translation adjustment

(2,139)

112

981

(78)

198

1,201

59

264

(4)

594

Others (**)

53

4

10

(12)

23

78

Balance at June 30, 2016

(11,844)

637

4,320

(405)

1,140

6,995

327

1,561

(37)

2,694

Deferred tax assets

 

 

 

 

 

 

 

 

 

6,016

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

(232)

Balance at December 31, 2015

 

 

 

 

 

 

 

 

 

5,784

Deferred tax assets

 

 

 

 

 

 

 

 

 

2,938

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

(244)

Balance at June 30, 2016

 

 

 

 

 

 

 

 

 

2,694

 

 

 

 

 

 

 

 

 

 

 

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

(**) Includes US$ 82 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.

 

31


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

20.4.   Reconciliation between statutory tax rate and effective tax expense rate

A reconciliation between tax expense and the product of “income before income taxes” multiplied by the Brazilian statutory corporate tax rates is set out in the table below:

 

Jan-Jun/2016

Jan-Jun/2015

Income before income taxes

394

3,802

Nominal income taxes computed based on Brazilian statutory corporate tax rates (34%)

(133)

(1,293)

Adjustments to arrive at the effective tax rate:

·    Different jurisdictional tax rates for companies abroad

270

399

. Brazilian income taxes on income of companies incorporated outside Brazil (*)

(131)

(357)

·    Tax incentives

23

4

·    Tax loss carryforwards (unrecognized tax losses)

(101)

(145)

·    Non-taxable income (non-deductible expenses), net (**)

(143)

(510)

·    Others

(19)

(24)

Income taxes benefit (expense)

(234)

(1,926)

Deferred income taxes

728

(1,289)

Current income taxes

(962)

(637)

 

(234)

(1,926)

 

 

 

Effective tax rate of income taxes

59.4%

50.7%

 

 

 

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

(**) Includes results in equity-accounted investments.

 

 

 

 

 

 

 

 

32


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, 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:

 

Pension Plans

Medical Plan

 

 

 

Petros

Petros 2

AMS

Other

Plans

Total

Balance at January 1, 2015

7,874

287

9,019

107

17,287

(+) Remeasurement effects recognized in OCI

152

(180)

92

(11)

53

(+) Costs incurred in the year

878

64

991

27

1,960

(-) Contributions paid

(193)

(349)

(7)

(549)

(-) Payments related to the Term of Financial Commitment (TFC)

(165)

(165)

Others

10

10

Cumulative translation adjustment

(2,609)

(100)

(3,000)

(37)

(5,746)

Balance at December 31, 2015

5,937

71

6,753

89

12,850

Current

368

285

2

655

Non-current

5,569

71

6,468

87

12,195

Balance at December 31, 2015

5,937

71

6,753

89

12,850

(+)Costs incurred in the period

482

16

573

17

1,088

(-) Contributions paid

(83)

(154)

(5)

(242)

(-) Payments related to the Term of Financial Commitment (TFC)

(95)

(95)

Others

(46)

(46)

Cumulative translation adjustment

1,338

17

1,526

14

2,895

Balance at June 30, 2016

7,579

104

8,698

69

16,450

Current

451

345

2

798

Non-current

7,128

104

8,353

67

15,652

Balance at June 30, 2016

7,579

104

8,698

69

16,450

 

 

 

 

 

 

 

 

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

 

Pension Plans

Medical Plan

 

 

 

Petros

Petros 2

AMS

Other

Plans

Total

Current service cost

39

10

61

4

114

Net interest cost over net liabilities / (assets)

443

6

512

13

974

Net costs for Jan-Jun/2016

482

16

573

17

1,088

Related to active employees:

 

 

 

 

 

Included in the cost of sales

119

8

131

1

259

Included in operating expenses

61

6

76

16

159

Related to retired employees

302

2

366

670

Net costs for Jan-Jun/2016

482

16

573

17

1,088

Net costs for Jan-Jun/2015

489

42

591

14

1,136

 

 

 

 

 

 

 

 

As of June 30, 2016, the Company had pledged crude oil and/or oil products totaling US$ 1,951, which have been reviewed, as collateral for the Terms of Financial Commitment (TFC) signed by Petrobras and Petros in 2008 (US$ 1,719 as of December 31, 2015).

33


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

In the first half of 2016, the Company's contribution to the defined contribution portion of the Petros Plan 2 was US$ 113 (US$ 145 in the first half of 2015) recognized in the results of the period.

21.2.   Voluntary Separation Incentive Plan

Since February 2014, the Company has implemented voluntary separation incentive plans aiming to adjust the size of the workforce and to achieve cost optimization as set out in the Business and Management Plan, as described below:

·      Petrobras (PIDV 2014) – the enrollment period occurred from February 12 to March 31, 2014. This plan was re-opened for eligible employees from November 30 to December 18, 2015 and, as a result, 6,779 separations of 7,219 total enrollments were made up to June 30, 2016.

·      Petrobras Distribuidora S.A. (PIDV BR 2014) – the enrollment period occurred from February 12 to March 31, 2014 and, as a result, 656 separations of 658 total enrollments were made up to June 30, 2016.

·      Petrobras Distribuidora S.A. (PIDV BR 2015) – the enrollment period occurred from October 13 to December 31, 2015 and, as a result, 316 separations of 317 total enrollments were made up to June 30, 2016.

·      Petrobras PIDV 2016 – the enrollment period is from April 1, 2016 to August 31, 2016. The PIDV 2016 is open to all employees and the recognition of the provision for expenditure on this plan will occur proportionally to the enrollment of the workforce. As of June 30, 4,087 employees have enrolled to this program and 662 separations were made.

Therefore, 8,413 voluntary separations of employees who enrolled in these plans were made as of June 30, 2016.

Changes in the provision during the first half of 2016 are set out as follows:

Balance as of December 31,2015

199

New enrolments PIDV Petrobras 2016

346

Revision of provisions

(2)

Separations in the period

(148)

Cumulative translation adjustment

(8)

Balance as of June 30, 2016

387

Current

387

Non-current

 

 

 

 

22.        Shareholders’ equity

22.1.   Share capital (net of share issuance costs)

As of June 30, 2016 subscribed and fully paid share capital was US$ 107,380 and share issuance costs were US$ 279, 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 first half of 2016 the Company recognized the following charges, mainly as a result of a 17.8% appreciation of the Brazilian Real against the U.S. dollar:

34


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

-       Cumulative translation adjustment of US$ 10,462; and

-       Foreign exchange variation gains of US$ 13,199 (US$ 8,712 after taxes and amounts reclassified to the statement of income) recognized in the Company's shareholders' equity during the first half of 2016, as a result of its cash flow hedge accounting policy. The cumulative balance of foreign exchange variation losses as of June 30, 2016 was US$ 17,539 (US$ 11,576 after taxes), as set out in note 31.2.

22.3.   Earnings (losses) per share

 

Jan-Jun/2016

Jan-Jun/2015

Net income (loss) attributable to shareholders of Petrobras

(212)

2,033

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 (US$ per share)

(0.02)

0.16

 

 

 

 

 

23.        Sales revenues

 

Jan-Jun/2016

Jan-Jun/2015

Gross sales

48,750

65,124

Sales taxes (*)

(10,441)

(13,136)

Sales revenues (**)

38,309

51,988

Diesel

12,411

16,391

Automotive gasoline

7,721

8,790

Jet fuel

1,177

1,796

Liquefied petroleum gas

1,395

1,515

Naphtha

1,086

1,431

Fuel oil (including bunker fuel)

555

1,408

Other oil products

1,534

1,924

Subtotal oil products

25,879

33,255

Natural gas

1,937

3,215

Ethanol, nitrogen products and renewables

1,785

1,947

Electricity, services and others

1,318

2,731

Domestic market

30,919

41,148

Exports

3,239

5,080

Sales abroad(***)

4,151

5,760

Foreign market

7,390

10,840

Sales revenues (**)

38,309

51,988

 

 

 

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

 

 

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

 

 

(***) Sales revenues from operations outside of Brazil, other than exports.

 

 

 

 

35


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

24.        Other expenses, net

 

Jan-Jun/ 2016

Jan-Jun/ 2015

Unscheduled stoppages and pre-operating expenses

(1,130)

(603)

Pension and medical benefits - retirees

(670)

(638)

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

(700)

(260)

Impairment (losses) / reversals

(412)

(419)

Voluntary Separation Incentive Plan - PIDV

(346)

(27)

Institutional relations and cultural projects

(116)

(243)

Gains / (losses) on disposal/write-offs of assets, areas returned and cancelled projects

(65)

71

Operating expenses with thermoelectric power plants

(59)

(64)

Health, safety and environment

(42)

(51)

Losses on fines

(40)

(251)

Amounts recovered – “overpayments incorrectly capitalized”

23

51

Government grants

77

6

Agreement of Ship/Take or Pay (SOP) with gas distributors

102

93

Reimbursements from E&P partnership operations

302

160

Others

131

113

Total

(2,945)

(2,062)

 

 

 

 

 

25.        Costs and Expenses by nature

 

Jan-Jun/2016

Jan-Jun/2015

Raw material and products for resale

(9,537)

(17,469)

Materials, third-party services, freight, rent and other related costs

(7,894)

(9,839)

Depreciation, depletion and amortization

(6,639)

(5,913)

Employee compensation

(4,440)

(5,167)

Production taxes

(1,960)

(3,530)

Unscheduled stoppages and pre-operating expenses

(1,130)

(603)

(Losses) /Gains on legal, administrative and arbitration proceedings

(700)

(260)

Exploration expenditures written off (includes dry wells and signature bonuses)

(499)

(555)

Allowance for impairment of trade receivables

(338)

12

Other taxes

(266)

(1,552)

Impairment (losses) / reversals

(412)

(419)

Institutional relations and cultural projects

(116)

(243)

Health, safety and environment

(42)

(51)

Gains / (losses) on disposal/write-offs of assets, areas returned and cancelled projects

(65)

71

Changes in inventories

(162)

1,098

Amounts recovered – “overpayments incorrectly capitalized”

23

51

Total

(34,177)

(44,369)

In the Statement of income

 

 

Cost of sales

(26,434)

(35,841)

Selling expenses

(2,010)

(1,867)

General and administrative expenses

(1,488)

(1,846)

Exploration costs

(761)

(805)

Research and development expenses

(273)

(396)

Other taxes

(266)

(1,552)

Other expenses, net

(2,945)

(2,062)

Total

(34,177)

(44,369)

 

 

 

 

 

36


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

26.        Net finance income (expense)

 

Jan-Jun/2016

Jan-Jun/2015

Debt interest and charges

(3,653)

(3,316)

Foreign exchange gains (losses) and inflation indexation charges on net debt (*)

(1,523)

(1,564)

Income from investments and marketable securities (Brazilian Government Bonds)

247

320

Financial result on net debt

(4,929)

(4,560)

Capitalized borrowing costs

796

923

Gains (losses) on derivatives

(67)

(94)

Interest income from marketable securities

5

25

Other foreign exchange gains (losses) and indexation charges, net

466

261

Other finance expenses and income, net

(221)

(487)

Net finance income (expenses)

(3,950)

(3,932)

Income

445

456

Expenses

(3,321)

(3,099)

Foreign exchange gains (losses) and inflation indexation charges

(1,074)

(1,289)

Total

(3,950)

(3,932)

 

 

 

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

 

 

 

 

 

 

 

27.        Supplemental information on statement of cash flows

 

Jan-Jun/2016

Jan-Jun/2015

Additional information on cash flows:

 

 

Amounts paid/received during the period:

 

 

Withholding income tax paid on behalf of third-parties

536

613

 

 

 

Capital expenditures and financing activities not involving cash

 

 

Purchase of property, plant and equipment on credit

22

58

Provision/(reversals) for decommissioning costs

9

(18)

Use of deferred tax and judicial deposit for the payment of contingency

44

53

 

 

 

 

 

37


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, 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.

 

Exploration

and

Production

Refining,

Transportation

& Marketing

Gas

&

Power

Biofuels

Distribution

Corporate

Eliminations

Total

 

 

 

 

 

 

 

 

 

Consolidated assets by Business Area - 06.30.2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

6,037

11,176

1,674

56

2,695

24,792

(5,109)

41,321

Non-current assets

137,723

43,785

19,512

656

3,592

8,821

(459)

213,630

Long-term receivables

7,563

3,144

1,181

4

1,119

6,051

(408)

18,654

Investments

1,532

1,481

480

541

37

7

4,078

Property, plant and equipment

126,063

38,951

17,515

111

2,194

2,508

(51)

187,291

Operating assets

92,227

34,330

15,578

99

1,866

2,053

(51)

146,102

Under construction

33,836

4,621

1,937

12

328

455

41,189

Intangible assets

2,565

209

336

242

255

3,607

Total Assets

143,760

54,961

21,186

712

6,287

33,613

(5,568)

254,951

 

 

 

 

 

 

 

 

 

Consolidated assets by Business Area - 12.31.2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

3,639

9,027

2,663

45

2,299

28,866

(3,111)

43,428

Non-current assets

120,157

36,465

16,806

437

2,972

10,589

(333)

187,093

Long-term receivables

6,467

2,384

1,358

3

859

8,398

(292)

19,177

Investments

1,807

879

456

343

34

8

3,527

Property, plant and equipment

109,724

33,032

14,674

91

1,868

1,949

(41)

161,297

Operating assets

79,585

28,803

12,193

81

1,581

1,485

(41)

123,687

Under construction

30,139

4,229

2,481

10

287

464

37,610

Intangible assets

2,159

170

318

211

234

3,092

Total Assets

123,796

45,492

19,469

482

5,271

39,455

(3,444)

230,521

 

 

 

 

 

 

 

 

 

 

 

 

38


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

Consolidated Statement of Income by Business Area

 

 

 

 

 

 

 

 

 

Jan-Jun/2016

 

Exploration

and

Production

Refining,

Transportation

& Marketing

Gas

&

Power

Biofuels

Distribution

Corporate

Eliminations

Total

 

 

 

 

 

 

 

 

 

Sales revenues

14,495

29,517

4,613

120

13,353

(23,789)

38,309

Intersegments

13,772

8,556

1,143

115

203

(23,789)

Third parties

723

20,961

3,470

5

13,150

38,309

Cost of sales

(11,483)

(21,928)

(3,533)

(133)

(12,343)

22,986

(26,434)

Gross profit (loss)

3,012

7,589

1,080

(13)

1,010

(803)

11,875

Income (expenses)

(2,384)

(1,702)

(543)

(38)

(947)

(2,183)

54

(7,743)

Selling

(79)

(901)

(410)

(1)

(663)

(14)

58

(2,010)

General and administrative

(175)

(194)

(103)

(12)

(119)

(885)

(1,488)

Exploration costs

(761)

(761)

Research and development

(119)

(27)

(8)

(1)

(118)

(273)

Other taxes

(33)

(35)

(106)

(2)

(23)

(67)

(266)

Other expenses, net

(1,217)

(545)

84

(22)

(142)

(1,099)

(4)

(2,945)

Net income / (loss) before financial results and income taxes

628

5,887

537

(51)

63

(2,183)

(749)

4,132

Net finance income (expenses)

(3,950)

(3,950)

Share of earnings in equity-accounted investments

4

149

56

(2)

5

212

Net income / (loss) before income taxes

632

6,036

593

(53)

68

(6,133)

(749)

394

Income taxes

(211)

(2,001)

(182)

17

(22)

1,911

254

(234)

Net income (loss)

421

4,035

411

(36)

46

(4,222)

(495)

160

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

Shareholders of Petrobras

464

4,094

350

(36)

46

(4,635)

(495)

(212)

Non-controlling interests

(43)

(59)

61

413

372

Net income (loss)

421

4,035

411

(36)

46

(4,222)

(495)

160

 

 

 

 

 

 

 

 

 

 

 

 

 

39


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

Consolidated Statement of Income by Business Area (*)

 

 

 

 

 

 

 

 

 

Jan-Jun/2015

 

Exploration

and

Production

Refining,

Transportation

& Marketing

Gas

&

Power

Biofuels

Distribution

Corporate

Eliminations

Total

 

 

 

 

 

 

 

 

 

Sales revenues

20,306

39,737

7,288

103

18,271

(33,717)

51,988

Intersegments

19,577

12,603

1,127

98

312

(33,717)

Third parties

729

27,134

6,161

5

17,959

51,988

Cost of sales

(13,791)

(32,148)

(6,020)

(114)

(16,844)

33,076

(35,841)

Gross profit (loss)

6,515

7,589

1,268

(11)

1,427

(641)

16,147

Income (expenses)

(1,733)

(1,712)

(662)

(27)

(992)

(3,517)

115

(8,528)

Selling

(124)

(1,023)

(16)

(2)

(839)

20

117

(1,867)

General and administrative

(218)

(214)

(128)

(17)

(147)

(1,121)

(1)

(1,846)

Exploration costs

(805)

(805)

Research and development

(153)

(64)

(41)

(6)

(132)

(396)

Other taxes

(48)

(85)

(285)

(20)

(1,114)

(1,552)

Other expenses, net

(385)

(326)

(192)

(2)

14

(1,170)

(1)

(2,062)

Net income / (loss) before financial results and income taxes

4,782

5,877

606

(38)

435

(3,517)

(526)

7,619

Net finance income (expenses)

(3,932)

(3,932)

Share of earnings in equity-accounted investments

(32)

160

74

(91)

5

(1)

115

Net income / (loss) before income taxes

4,750

6,037

680

(129)

440

(7,450)

(526)

3,802

Income taxes

(1,628)

(1,998)

(206)

13

(147)

1,862

178

(1,926)

Net income (loss)

3,122

4,039

474

(116)

293

(5,588)

(348)

1,876

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

Shareholders of Petrobras

3,115

4,039

424

(116)

293

(5,374)

(348)

2,033

Non-controlling interests

7

50

(214)

(157)

Net income (loss)

3,122

4,039

474

(116)

293

(5,588)

(348)

1,876

 

 

 

 

 

 

 

 

 

(*) For comparative purposes consolidated statement of income by segment for the first half of 2015 is adjusted in accordance with note 4.2 of the consolidated financial statements as of December 31, 2015.

 

 

 

 

 

 

 

 

 

 

 

40


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

Breakdown of the activities abroad

 

 

 

 

 

 

 

 

 

 

Exploration

and

Production

Refining,

Transportation

&Marketing

Gas

&

Power

Distribution

 

 

 

 

 

Assets as of 06.30.2016

8,067

1,322

432

806

 

 

 

 

 

Statement of income - Jan-Jun/2016

 

 

 

 

 

 

 

 

 

Sales revenues

784

1,680

314

1,721

Intersegments

430

1,360

17

2

Third parties

354

320

297

1,719

Gross profit (loss)

258

51

49

186

Net income (loss) before financial results and income taxes

45

(9)

37

56

Net income (loss) attributable to shareholders of Petrobras

15

(9)

61

53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration

and

Production

Refining,

Transportation

&Marketing

Gas

&

Power

Distribution

 

 

 

 

 

Assets as of 12.31.2015

8,114

1,398

404

783

 

 

 

 

 

Statement of income - Jan-Jun/2015

 

 

 

 

 

 

 

 

 

Sales revenues

967

2,322

243

2,166

Intersegments

492

670

17

2

Third parties

475

1,652

226

2,164

Gross profit (loss)

337

168

37

205

Net income (loss) before financial results and income taxes

304

82

23

51

Net income (loss) attributable to shareholders of Petrobras

298

68

43

44

 

 

 

 

 

 

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; (iii) individual actions of outsourced employees;

·      Tax claims including claims relating to Brazilian federal and state tax credits applied that were disallowed  and demands relating to the VAT (ICMS) tax collection on jet fuel sales;

 


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

·      Civil claims relating to losses and damages proceedings resulting from the cancellation of an assignment of excise tax (IPI) credits to a third party, royalties collection over the shale extraction and alleged noncompliance with contractual terms relating to oil rig construction; and

·      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:

 

06.30.2016

12.31.2015

Non-current liabilities

 

 

Labor claims

1,189

851

Tax claims

1,183

791

Civil claims

762

530

Environmental claims

72

72

Other claims

42

3

Total

3,248

2,247

 

 

 

 

 

 

06.30.2016

12.31.2015

Opening Balance

2,247

1,540

Additions

466

1,490

Use of provision

(198)

(272)

Accruals and charges

195

100

Others

(24)

(13)

Cumulative translation adjustment

562

(598)

Closing Balance

3,248

2,247

 

 

 

 

 

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:

 

06.30.2016

12.31.2015

Non-current assets

 

 

Tax

1,500

1,044

Civil

890

690

Labor

935

684

Environmental

99

78

Others

7

3

Total

3,431

2,499

 

 

 

 

 

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 June 30, 2016, for which the possibility of loss is not considered remote are set out in the following table:

42


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

Nature

 

Tax

37,261

Labor

7,486

Civil - General

8,084

Civil - Environmental

1,905

Others

2

Total

54,738

 

 

 

 

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.

10,456

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 2008 and 2009.

 

Current status: Awaiting the hearing of an appeal at the administrative level.

3,849

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.

2,942

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.

2,425

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.

2,138

6) Incidence of social security contributions over contingent bonuses paid to employees.

 

Current status: Awaiting the hearing of an appeal at the administrative level.

787

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.

646

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.

1,668

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.

799

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.

1,316

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.

1,116

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.

817

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.

727

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.

1,033

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.

557

Plaintiff: States of RJ, SP, ES and BA Finance Departments

 

16) 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.

543

Plaintiff: State of Pernambuco Finance Department

 

17) 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.

435

Plaintiff: States of RJ, SP, SE and BA Finance Departments

 

18) 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.

402

Plaintiff: States of SP, CE, PB, RJ, BA and PA Finance Departments

 

19) 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.

365

20) Other tax matters

4,240

Total for tax matters

37,261

 

 

43


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, 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.

3,950

Plaintiff : Sindipetro of ES, RJ, BA, MG, SP, PR, CE, SC,SE, PE and RS

 

2) 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. The Company has filed an appeal in the TST to overturn a decision with respect to the claim filed by Sindipetro Norte Fluminense (NF) and awaits judgment.

1,482

Plaintiff : Sindipetro of Norte Fluminense – SINDIPETRO/NF

 

3) 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.

358

4) Other labor matters

1,696

Total for labor matters

7,486

 

 

 

 

 

 

 

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.

1,758

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.

1,616

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. On the lawsuit filed by EIG and affiliates, alleging that the Company had committed fraud by inducing plaintiffs to invest in Sete Brasil Participações SA ("Sete"), through communications that failed to disclose the alleged corruption scheme. The period allowed to the Company to present its initial position before the federal court in Washington, DC is ongoing.

1,509

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.

551

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 process is in phase of discovery and choice of the chairman of the arbitration panel, where the Company seeks its rights and presents documents to prove the author delinquent in contractual obligations.

400

6) Other civil matters

2,250

Total for civil matters

8,084

 

 

44


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

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.

815

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.

368

3) Other environmental matters

722

Total for environmental matters

1,905

 

 

45


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, 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 1st 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

46


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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 will continue 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 granted Petrobras’ motion requesting interlocutory appellate review of the class certification. Defendants filed their opening briefs on July 21, 2016.  Plaintiffs opposition brief is due on August 25, 2016, and replies are due on September 8, 2016.  Oral argument is scheduled to occur no sooner than September 26, 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.  On June 24, 2016, the judge denied the motion. On June 28, 2016, Petrobras and other defendants moved the Second Circuit for a stay of the district court proceedings pending that Court’s decision on the merits of the appeal. On August 2, 2016, the United States Court of Appeals for the Second Circuit granted Defendants’ motion to stay all district court proceedings pending a decision on the appeal of the class certification.

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

In addition to the Consolidated Securities Class Action, to date, 29 lawsuits have been filed by individual investors before the same judge in the SDNY (two 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 individual lawsuits, 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 will continue with respect to other claims brought by these class plaintiffs.

On October 31, 2015, the judge ordered that the individual lawsuits 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 above-mentioned Second Circuit decision of August 2, 2016, staying all district court proceedings. On November 18, 2015, the judge ordered that any individual action filed after December 31, 2015 will be stayed in all respects until after the completion of the trial.

These actions 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 the individual additional actions 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 litigation.

47


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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 US$ 2,373 of which US$ 1,022 were still in force as of June 30, 2016, net of commitments undertaken. The collateral comprises crude oil from previously identified producing fields, pledged as collateral, amounting to US$ 848 and bank guarantees of US$ 174.

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 June 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:

48


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

 

 

Statement of Financial Position

 

 

 

 

 

 

 

Notional value

Fair value

Asset Position (Liability)

Maturity

 

 

 

 

 

 

 

06.30.2016

12.31.2015

06.30.2016

12.31.2015

 

Derivatives not designated for hedge accounting

 

 

 

 

 

Future contracts - total (*)

(5,517)

(5,694)

(5)

38

 

Long position/Crude oil and oil products

58,175

53,735

2016

Short position/Crude oil and oil products

(63,692)

(59,429)

2016

Options - total (*)

470

123

10

 

Call/Crude oil and oil products

510

2016

Put/Crude oil and oil products

(40)

123

2016

Forward contracts - total

 

 

(2)

6.3

 

Long position/Foreign currency forwards (BRL/USD)(**)

US$ 85

US$ 217

(4)

6

2016

Short position/Foreign currency forwards (BRL/USD)(**)

US$ 24

US$ 50

2

0.3

2016

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated for hedge accounting

 

 

 

 

 

Swap - total

 

 

18

(33)

 

Foreign currency / Cross-currency Swap (**)

US$ 298

US$ 298

39

(16)

2016

Interest – Libor / Fixed rate (**)

US$ 384

US$ 396

(21)

(17)

2017

 

 

 

 

 

 

Total recognized in the Statement of Financial Position

 

 

11

21.3

 

(*) Notional value in thousands of bbl.

 

 

 

 

 

(**) Amounts in USD are presented in million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains/ (losses) recognized in the statement of income (*)

Gains/(losses) recognized in the Shareholders’ Equity (**)

Guarantees given as collateral

 

Jan-Jun/2016

Jan-Jun/2015

Jan-Jun/2016

Jan-Jun/2015

06.30.2016

12.31.2015

Commodity derivatives

(48)

(103)

65

9

Foreign currency derivatives

(15)

13

4

3

Interest rate derivatives

(4)

(4)

(2)

(1)

 

(67)

(94)

2

2

65

9

Cash flow hedge on exports (***)

(1,453)

(779)

13,199

(7,364)

Total

(1,520)

(873)

13,201

(7,362)

65

9

 

 

 

 

 

 

 

(*) 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.

 

 

 

 

 

 

 

 

 

A sensitivity analysis for the different types of market risks, to which the Company is exposed, based on the derivative financial instruments held as of June 30, 2016 is set out following:

49


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

Financial Instruments

Risk

Probable Scenario*

Stressed

Scenario

(∆ of 25%)

Stressed

Scenario

(∆ of 50%)

Derivatives not designated for hedge accounting

 

 

 

 

Future contracts

Crude oil and oil products - price changes

-

(135)

(270)

Forward contracts

Foreign currency - depreciation BRL x USD

(3)

(15)

(31)

Options

Crude oil and oil products - price changes

(0.6)

(1.2)

 

 

(3)

(150.6)

(302.2)

Derivatives designated for hedge accounting

 

 

 

 

Swap

 

(14)

(69)

(115)

Debt

Foreign currency - appreciation JPY x USD

14

69

115

Net effect

 

-

-

-

 

 

 

 

 

Swap

 

-

(2)

(2)

Debt

Interest - LIBOR increase

-

2

2

Net effect

 

-

-

-

 

 

 

 

 

(*) The probable scenario was computed based on the following risks: oil and oil products prices: fair value on June 30, 2016; R$ x U.S. Dollar - a 4.4% depreciation of the Real; Japanese Yen x U.S. Dollar - a 0.2% depreciation of the Japanese Yen; Peso x U.S. Dollar - a 0.3% depreciation of the Peso; LIBOR Forward Curve - a 0.02% 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.

50


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

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.

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 first half of 2016. Therefore, hedging relationship was revoked and a portion was reclassified to the statement of income in amount of US$ 292 in the first half of 2016.

The carrying amounts, the fair value as of June 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$ 3.2098 exchange rate are set out below:

Hedging Instrument

Hedged Transactions

Nature

of the

Risk

Maturity

Date

Principal Amount

(US$ million)

Carrying amount as of

June 30, 2016 (R$ million)

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

July 2016 to March 2027

61,050

195,957

 

 

 

 

 

 

 

 

 

Changes in the reference value (principal and interest)

US$

R$ million

Amounts designated as of December 31, 2015

61,520

240,222

Additional hedging relationships designated, designations revoked and hedging instruments re-designated

5,287

19,982

Exports affecting the statement of income

(1,286)

(4,757)

Principal repayments / amortization

(4,471)

(16,012)

Foreign exchange variation

(43,478)

Amounts designated as of June 30, 2016

61,050

195,957

 

 

 

 

 

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:

 

2016

2017

2018

2019

2020

2021

2022

2023

2024 to 2027

Average

Hedging instruments designated / Highly probable

future exports (%)

 

 

 

 

 

 

 

 

 

 

55

66

85

86

76

67

60

54

47

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

51


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

Exchange rate

Tax effect

Total

Balance at December 31, 2015

(30,738)

10,450

(20,288)

Recognized in shareholders' equity

11,746

(3,994)

7,752

Reclassified to the statement of income - occurred exports

1,182

(402)

780

Reclassified to the statement of income - exports no longer expected or not occurred

271

(91)

180

Balance at June 30, 2016

(17,539)

5,963

(11,576)

 

 

 

 

 

 

 

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 2015-2019 Business and Management Plan (Plano de Negócios e Gestão PNG), a US$ 302 reclassification adjustment from equity to the statement of income would occur.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

2017

2018

2019

2020

2021

2022

2023

2024 to

2027

Total

Expected

realization

(1,967)

(4,460)

(4,612)

(3,087)

(2,237)

(1,857)

(2,136)

(961)

3,778

(17,539)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

The Company has a cross currency swap to fix in U.S. dollars the payments related to bonds denominated in Japanese yen and does not intend to settle these contracts before the maturity. 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.

52


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

Financial Instruments

Exposure at 06.30.2016

Risk

Probable Scenario (*)

Stressed

Scenario

(∆ of 25%)

Stressed

Scenario

(∆ of 50%)

 

 

 

 

 

 

Assets

3,977

Dollar/Real

174

994

1,989

Liabilities

(65,101)

 

(2,843)

(16,275)

(32,550)

Cash flow hedge on exports

61,050

 

2,667

15,262

30,525

 

(74)

 

(2)

(19)

(36)

Liabilities (**)

(603)

Yen/Dollar

1

(150)

(301)

 

(603)

 

1

(150)

(301)

Assets

11

Euro/Real

3

5

Liabilities

(53)

 

(2)

(13)

(26)

 

(42)

 

(2)

(10)

(21)

Assets

7,338

Euro/Dollar

(92)

1,835

3,669

Liabilities

(14,532)

 

183

(3,633)

(7,266)

 

(7,194)

Pound Sterling/Real

91

(1,798)

(3,597)

Assets

3

1

2

Liabilities

(22)

(6)

(11)

 

(19)

Pound Sterling

/Dollar

(5)

(9)

Assets

2,447

(86)

612

1,223

Liabilities

(4,809)

168

(1,202)

(2,405)

 

(2,362)

 

82

(590)

(1,182)

Assets

609

Dollar/Peso

2

152

305

Liabilities

(599)

 

(2)

(150)

(300)

 

10

 

2

5

 

(10,284)

 

170

(2,570)

(5,141)

 

 

 

 

 

 

(*) On June 30, 2016, the probable scenario was computed based on the following risks: R$ x U.S. Dollar - a 4.4% depreciation of the Real/ Japanese Yen x U.S. Dollar - a 0.2% depreciation of the Japanese Yen/ Peso x U.S. Dollar - a 0.3% depreciation of the Peso / Euro x U.S. Dollar: an 1.2% depreciation of the Euro / Pound Sterling x U.S. Dollar: a 3.4% depreciation of the Pound Sterling/ Real x Euro - a 3.1 depreciation of the Real / Real x Pound Sterling - 0.9% depreciation of the Real. Source: Focus and Bloomberg.

(**) A portion of the foreign currency exposure is hedged by a cross-currency swap.

 

 

 

 

 

 

 

 

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.

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.

53


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

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, in order to optimize the level of cash and cash equivalents held and to reduce working capital; a minimum cash level to ensure that cash needed for investments and short-term obligations is met even in adverse market conditions; increasing the number of investors in the domestic and international markets through funding opportunities, preserving a strong presence in the international capital markets and searching for new funding sources, including new markets and financial products, as well as funds under the divestment program.

During 2015, 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. In the first half of 2016, the Company raised approximately US$ 8 billion through proceeds from long-term financing (mainly international capital market), of which US$ 5.98 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:

Maturity

2016

2017

2018

2019

2020

2021 and thereafter

Balance at June 30, 2016

Balance at December 31, 2015

Principal

5,176

8,146

14,312

23,539

16,656

57,636

125,465

127,354

Interest

3,681

6,991

6,607

5,645

4,260

34,166

61,349

59,038

Total

8,857

15,137

20,919

29,184

20,916

91,802

186,814

186,392

 

 

 

 

 

 

 

 

 

 

 

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

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.

54


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

 

 

 

Fair value measured based on

 

Level I

Level II

Level III

Total fair

value

recorded

Assets

 

 

 

 

Marketable securities

764

764

Foreign currency derivatives

39

39

Balance at June 30, 2016

764

39

803

Balance at December 31, 2015

833

6.3

839.3

 

 

 

 

 

Liabilities

 

 

 

 

Foreign currency derivatives

(2)

(2)

Commodity derivatives

(5)

(5)

Interest derivatives

(21)

(21)

Balance at June 30, 2016

(5)

(23)

(28)

Balance at December 31, 2015

(33)

(33)

 

 

 

 

 

 

 

There are no material transfers between levels.

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

33.        Subsequent events

33.1.   Global notes issued in international capital markets

On July 13, 2016, the Company, through its subsidiary Petrobras Global Trading – PGF, completed the US$3 billion bond sale on the international capital markets (global notes), of which US$1.75 billion will mature in 5 years and US$1.25 billion will mature in 10 years. This sale constituted a reopening of a series of securities maturing in 2021 and 2026, originally issued on May 23, 2016, in the amount of US$ 6.75 billion.

The Company used the net proceeds from this sale to repurchase global notes previously issued, maturing from February 3, 2017 to March 15, 2019, and for corporate purposes in general.

33.2.   Disposal of distribution assets in Chile

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

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

The deal’s completion is subject to certain precedent conditions, as established in the agreement and customary for this kind of operation, expected to occur in up to three or four months.

33.3.   Disposal of Petrobras Argentina

On July 27, 2016, the Company concluded the disposal of its entire 67.19% interest in Petrobras Argentina (PESA), owned through the subsidiary Petrobras Participaciones S.L. (“PPSL”), to Pampa Energia in amount of US$ 897. This amount is still subject to adjustments.

55


 
 

Petróleo Brasileiro S.A. – Petrobras

Notes to the financial statements

(Expressed in millions of US Dollars, unless otherwise indicated)

 

 

As part of this transaction, the Company intends to acquire 33.6% of the concession of Rio Neuquén in Argentina and 100% of Colpa Caranda asset in Bolivia for an amount of US$ 52, both subject to approvals from PESA’s Board of Directors and Bolivia Federal Government, respectively.

33.4.   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% interests in the exploratory block BM – S-8 to Statoil, which includes the Carará area located in the pre-sal of Santos Basin, for an amount of US$ 2.5 billion. The other current partners in this block can exercise their right of preference in this transaction, allowing them to acquire the Company’s interest by the same amount offered by Statoil, at least.

34.        Information Related to Guaranteed Securities Issued by Subsidiaries

34.1.   Petrobras Global Finance B.V. (PGF)

Petróleo Brasileiro S.A. - Petrobras fully and unconditionally guarantees the debt securities issued by Petrobras Global Finance B.V. (PGF), a 100-percent-owned finance subsidiary of Petrobras. There are no significant restrictions on the ability of Petrobras to obtain funds from PGF.

 

56

 

 

SIGNATURE
 
 
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: August 12, 2016
PETRÓLEO BRASILEIRO S.A--PETROBRAS
By:
/S/  Ivan de Souza Monteiro

 
Ivan de Souza Monteiro
Chief Financial Officer and Investor Relations Officer
 
 

 

 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act) that are not based on historical facts and are not assurances of future results.  These forward-looking statements are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results o f operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations. 
All forward-looking statements are expressly qualified in their entirety by this cautionary statement, and you should not place reliance on any forward-looking statement contained in this press release. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or for any other reason.