Petrobras

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escveritas
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Petrobras

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Even in a challenging scenario such as the second quarter of 2020, Petrobras has managed to present solid results due to swift decisions taken shortly after the crisis' beginning. The company has ended the quarter with a recurring Ebitda of US$ 3,4 billion and free cash flow of US$ 3,0 billion. The numbers show that, even with a 42% reduction in the oil barrel price (Brent) and the period's lower internal demand, the company proceeded steadily in its operation, with sufficient balance to ensure its liquidity.


Both indicators are followed closely by the market as good indicatives of the company's financial health. Ebidta serves to analyse the operational result of the company through time. It is important as it takes away the effect of interest, taxes, depreciation and amortization of liquid revenue, making result comparisons among companies easier, as it is a fundamental information aiding in decision making by potential investors. As for the free cash flow, it is the balance results - resulting from the difference between operational revenue and period investments - used to meet financial obligations and potential dividends. In addition to it, it is crucial for deleveraging of any company.

The company's liquid result also reflects the crisis effects, of the indemnities from the Voluntary Offboarding Program (Programas de Desligamento Voluntário - PDVs) and Incentivized Retirement Program (Programa de Aposentadoria Incentivada - PAI) and the financial results, with recurring liquid loss of US$ 2,5 billion.


In this challenging scenario, Petrobras managed to end the quarter with a gross debt of US$ 91,2 billion, an increase of only US$ 2,0 billion in relation to the previous quarter. This movement was important in order to strengthen the reserves and ensure liquidity for facing this moment of higher volatility. From the second semester on, the company begins its pre-payment of rotative credit lines in order for the balance to come closer to pre-crisis levels. In the last 27th, for instance, it made a pre-payment of US$ 3,5 billion, from a total of US$ 8 billion committed credit lines.

"Our capacity for reaction and our strategy were shown to be effective in facing this crisis and the consequent global recession. We will keep on working and taking the necessary decisions in order for Petrobras to become an even more resilient and profitable company" - commented Andrea Almeida, financial executive and investor-relations manager, in a video published for investors.

The company's operational performance remains high despite the pandemic effects. Check the report with the quarter main operational results here, published in day 21/07.
More transparency in sustainability metrics

Some iniciatives granting more transparency to the company's goals in Environmental, Social, and Governance – ESG - factors were highlights in this trimester. Among them are Petrobras' support to the Task Force for Climate-related Financial Disclosures – TCFD, an initiative from the G20 Financial Stability Board, and the Climate Dossier update.
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Re: Petrobras

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MESSAGE FROM THE CEO

Dear Shareholders,

I am glad to be able to tell you that we are running the ship safely through uncharted waters. We are very proud of our team whose talent and professional dedication allowed us to overcome, so far, the enormous challenges faced by our company.

The outbreak of a major global health crisis caused a deep and synchronized global recession that hit severely the global oil and gas industry.
Prices of Brent oil of US$ 65 per barrel in February collapsed to US$ 19 in April 2020 due to a global demand contraction of 25%, threatening to generate a sudden stop of cashflow. A liquidity shock has an effect similar to a heart stroke, as it has the potential to stop the continuity of companies’ operations. Amidst deep uncertainty, the prospect for continuous cash burn was very real.

As in a war, the unprecedented scale and speed of the global pandemic compelled us to move swiftly, as we know that serious crises produce winners and losers and the winners tend to be those who respond faster. And we do aim at being a winner. We are working hard, fast and efficiently to engineer a J-shaped recovery, ending up better than we were in the pre-COVID era. Of course, the safety of our operations and our employees as well as respect for the environment continue to be one of the pillars of our strategy.

The world was moving fast but now is moving even faster inspiring creativity and innovation and requiring stronger resiliency. We see the crisis as an inflection point, from which we must accelerate the execution of our transformational agenda – including digital transformation – to allow Petrobras to make a turnaround in its long history of value destruction, becoming an effective value creator to you and to the Brazilian economy. In the short-term, our number one priority was to protect health - the physical health of our employees and the financial health of our company.

We have created a crisis committee, composed by the company´s executive committee with daily meetings. We have established two teams reporting directly to the crisis committee, one to deal with the health crisis (EOR) and the other in charge of liquidity and cost cutting (liquidity team). To minimize the impact of COVID-19 on our workforce we decided to put in place a combination of social distancing with a strategy of screening, testing, tracing and quarantining, which is performing very well. Until this week we have applied more than 120,000 tests on our employees and the service supplier’s employees, within a universe of 135,000 people.

Working at home has been successful, even contributing to increase productivity. For the future we plan to keep around 50% of the personnel working at corporate activities in home office. However, it will be limited to three days per week in order to leave room for more effective culture preservation, team building and mentoring of younger professionals.

The operational personnel will be gradually returning to their normal work shifts, with the exception of those older than 60 and/or with co-morbidities. This will be implemented very carefully at metered pace to minimize the risk of new infections. Our capex budget for 2020 was reduced to US$ 8.5 billion from US$ 12 billion and we have already launched initiatives to cut costs by more than US$ 2 billion, in addition to the postponement of cash disbursements, including executive salaries and annual bonuses, the last tranche of the 2019 dividend and part of the payments due to large suppliers.

In addition to the withdrawal of US$ 8 billion in revolving credit lines, we issued 10 and 30-year bonds amounting to US$ 3.25 billion and took almost US$ 2.0 billion in bank loans, in order to build a liquidity buffer to survive a worst case scenario of average oil prices of US$ 25 per barrel from April 2020 until year end.

Integrated actions of the logistics and sales teams were able to maximize exports of crude oil and low-sulphur fuel oil, which reached all-time high volumes. This move was instrumental to offset the effect of the strong contraction of the Brazilian demand for fuels, especially in April - a month to remember in the history of the oil business – and to preserve liquidity.

More than 10,000 employees enlisted for the voluntary dismissal program (PDV), about 22% of our labor force, and will be leaving the company mostly this year and the remainder in 2021. This will imply cost savings of almost US$ 800 million per year. The rationalization of the executive structure is estimated to lower costs by more than US$ 200 million per year.

Each of the 45 departments was required by the crisis committee to submit plans involving cost cutting. The company is carrying out several other initiatives to diminish costs and to realize efficiency gains.

As a consequence of the decrease in headcount and adoption of home office, we plan to reduce the current occupation of 17 administrative buildings – 23 in 2018 - to only 8 by 1Q21, implying cost savings of almost US$ 30 million in 2021.

Jointly with the elimination of several inefficiencies and logistics cost, we are working to minimize inventories and to rationalize storage space, reducing the number of warehouses to 25 from the current 45.

Like its parent company, our wholly owned subsidiary Transpetro is engaged in a program to strengthen resiliency and service quality. In spite of the strong global recession the divestment program is well and alive. In 2020 we have already launched 20 processes of asset divestitures and sales concluded up to now generated almost US$ 1 billion in cash receipts for Petrobras. At the moment, we are discussing with the winning bidder for RLAM the final details to formalize a sales and purchase agreement.

We expect the approval for the conclusion of sale of Liquigás – a LPG distribution company - to be given by CADE, the Brazilian anti-trust agency, in the following months. Oil and gas production is running smoothly and the E&P business obtained several achievements.

Búzios is beating new records: on July 13th production reached 844,000 boed. The FPSO P-70 started operations at the Atapu field and the first oil came on June 25th.

The TOTUS (True one trip ultra slender) technology was successfully utilized for the construction of a well in the Golfinho field in the post salt. Drilling and completion took only 44 days, contributing to reduce costs by 50%.

Our main innovation projects dedicated to E&P, such as EXP-100, PROD-1000, PEP-70 and HISEP, are showing progress. If successful they have the
potential to create significant value through a dramatic decrease of breakeven prices.

The company is ordering the construction of 3 FPSOs to operate in the second phase of Búzios, the first order in 8 years. Two of them will have a capacity of 180,000 bpd and the third one of 225,000 bpd. This will be the biggest FPSO operating in Brazilian seas and one of the biggest in the world.

Average lifting costs, on a cash basis, decreased to U$ 4.9/boe in 2Q20 from US$ 8.4/boe in 2Q19, a 41% year-on-year fall. At the pre-salt fields it reached US$ 2.4/boe in 2Q20.

After a sharp fall to levels lower than 60%, driven by demand weakness for fuels, the average utilization factor of our refineries is hovering around a range of 75-80%.

The Digital Twin project is already being implemented at the refineries with excellent results. We expect it to generate an additional revenue of US$ 154 million in a yearly basis through efficiency gains.

Our ESG agenda continues to move ahead steadily. Total emissions and their intensity are in a downward trend since 2015. Petrobras became a supporter of the Task Force for Climate-related Financial Disclosure (TCFD) and is strongly committed to the goals of the Oil and Gas Climate Initiative (OGCI).

Renewable diesel was successfully tested and is waiting for ANP’s approval, the Brazilian oil and gas regulatory agency, to begin production. The product proved to reduce GHG emissions by 70%, when compared to regular diesel oil and adds 15% more motor efficiency than the traditional biodiesel.

Our low-sulphur oil, compliant to IMO 2020 rule, gave us an edge as a supplier of marine oil. Some global investors recognized the tremendous efforts of Petrobras to eliminate corruption as well as to strengthen corporate governance. The company was invited to return to be a member of PACI (Partnering Against Corruption Initiative). Petrobras had left in the wake of the Lava Jato scandal.

TRI, the rate of recordable injuries, at 0.67, continue its downward trend, setting a new global benchmark for the oil and gas industry. As a good corporate citizen, we have been acting to mitigate the effects of the global pandemic on the Brazilian population, donating clinical tests, medical
and hygiene materials, diesel and gasoline to fuel vehicles of public hospitals and using scientific capacity – scientists and high performance computing – to help innovations in the health field. In addition, food and LPG bottles are being donated to low-income communities.

Digital transformation is key to the future of Petrobras as an agile and successful company. It has been accelerated and deployed on a company wide basis.

Projects are addressing costs, efficiency, GHG emissions and safety. Among other initiatives, we are implementing 94 RPAs (robotic process automation) to replace workers allocated to perform manual and repetitive processes.

To support digital transformation and artificial intelligence high performance computing capacity was multiplied almost 7 times relatively to 2018.
As mentioned before, the global shock forced us to interrupt the deleveraging, and total debt ended the first half of 2020 at US$ 91.2 billion, US$ 4.0 billion higher than at December 31st, 2019

However, net debt decreased by US$8.0 billion in the first half of year, evidencing that there was no cash burn. Operational cash flow was strong enough to increase our cash holdings.

Given the recessionary scenario and drop in Brent oil prices of approximately 40% against 1H19 average, this was a major achievement.

Operational cash flow totaled US$ 13.2 billion in 1H20 – US$5.5 billion in 2Q20 – against US$ 9.9 billion in 1H19. Free cash flow reached US$ 8.9 billion in 1H20 against US$ 6.3 billion a year ago.

Therefore, we were able to make this week a US$ 3.5 billion partial pre-payment of the US$ 8.0 billion revolving credit lines. This reduces debt, improves risk perception while preserving liquidity as the revolving lines remain available.

The global economy is showing signals of recovery boosted by the US$ 15 trillion injection – about 12% of global GDP - derived from monetary and fiscal policy actions. Although on a more moderated level, uncertainty remains.

Petrobras still faces many challenges in its journey to sustainable value creation. Therefore, we must continue to develop initiatives to cut costs and to promote efficiency gains at fast pace.

As Sir Winston Churchill once said: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”. At Petrobras there is no room for pessimism. And we strongly believe that with courage, optimism and hard work we will win.

Last but not least, I would like to thank for the strong support of our Board of Directors.

Roberto Castello Branco
Chief Executive Officer
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Re: Petrobras releases highlights on production and sales in 3Q20

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Petrobras' operational performance in 3Q20 was very good, considering the challenging scenario imposed by the COVID-19 pandemic. Our oil and gas production in Brazil grew by 9.0% in the first nine months of this year compared to last year. The production of the pre-salt fields increased by 32%, while in the other areas, post-salt, shallow waters and onshore, there was a contraction.

We estimate that the average production in 2020 will reach 2.84 MMboed, of which 2.28 MMbpd of oil, with a variation of 1.5% upwards or downwards, exceeding the upper limit (2.5%) of the targets originally announced for the year (2.7 MMboed and 2.2 MMboed).

Higher than expected production growth did not result in excessive inventories, which would be possible given the significant reduction in global oil demand. On the contrary, we have been working with lower inventories than in the pre-COVID period thanks to the greater integration between production, refining, logistics and marketing.

Protecting the health of our employees has been the company's number one priority. Home office, reduction of personnel on board and in industrial plants, continuous cleaning, medical assistance with access to telemedicine and adoption of a massive testing strategy with selection, testing, tracking and quarantining have been our main actions. To date, we have applied more than 270,000 tests, and companies providing services to Petrobras around 110,000, which has allowed us to reduce COVID's transmission rate by identifying many cases of asymptomatic patients.

The contingency scenario for COVID-19 continues to limit the number of personnel aboard our offshore production facilities, leading us to postpone part of the scheduled shutdowns in 4Q20 to the beginning of 2021. However, we were able to carry out maintenance activities, which contributed to increase operational efficiency, operate safely and maintain optimum performance. Another highlight was the success achieved in the inspection campaign for pipelines susceptible to corrosion under tension by CO2 carried out with new technologies and tools, the results of which enabled the operational continuity of gas injection pipelines, reducing production expenses and losses.

The average production of oil, NGL and natural gas in 3Q20 reached 2.95 MMboed, 5.4% above 2Q20. Contributed to this result the growth in production in the Atapu field, with the start-up of the FPSO P-70 and first oil at the end of June, alongside the greater operational efficiency of P-74, P-75, P-76 and P-77, in the Buzios field. The performance of these platforms was supported by the temporary expansion of the oil and gas processing capacity of the units, using spare capacity in power generation and gas compression available until the beginning of gas exports, and by the high production potential of the wells and the reservoir. This enabled the achievement of monthly production records in Búzios, of 615 kbpd of oil and 765 kboed in July and the highest monthly production achieved by a well in Brazil, with the mark of 69.6 kboed from the BUZ-10 well registered in September. In that month, we also had 2 Búzios wells that exceeded the 65 thousand boed mark (BUZ-12 and BUZ-24, respectively with 67.4 and 65.8 kboed). In August, we started the gas flow from P-74.

The Tupi field reached the historic milestone of accumulated production of 2 billion barrels of oil equivalent, 20 years after the signing of the concession contract and 10 years after installing the first definitive production system. It is currently the deep waters field with the highest production worldwide and accounted for 28% of our production in 3Q20. In July, we reached the 150 kbpd production capacity on the P-67 platform, operating in this field. Tupi was also a pioneer in the development of the pre-salt layer and revealed the existence of a new exploratory model, previously unknown in the world.

We also progressed in the ramp-up of the P-68 platform, in Berbigão and Sururu fields, and P-70, in Atapu field, and we highlight the beginning of gas flow from P-70, on October 15, 2020.

Continuing with active portfolio management, concentrating resources on world-class assets in deep and ultra-deep waters, in 3Q20 we signed a contract to sell all of our stake in 3 shallow water fields and 37 onshore fields. Additionally, we completed the sale of our entire stake in the Pampo and Enchova clusters (Campos Basin), Lagoa Parda cluster (Espírito Santo Basin) and in the Ponta do Mel and Redonda fields (Potiguar Basin), for US$ 437 million in cash* and US$ 650 million in earn-outs that are expected to have a positive impact on the company's cash generation in the coming years. These fields produced 21.9 kbpd in the first six months of 2020, equivalent to 0.9% of our production.

In this quarter we carried out the additional mothballing of the Merluza platform, located in the Santos Basin, totaling 63 platforms in shallow water mothballed since March 2020. It should be noted that the Merluza cluster, composed of the Merluza and Lagosta fields, continues in the process of divestment, as disclosed on March 31, 2020.

In refining, the resumption of demand in the domestic market resulted in a recovery in sales and production of oil by-products. Consequently, the utilization factor (FUT) of the refineries started to fluctuate around 80% in 3Q20, after reaching 55% in April. Thus, fuel production was 17.8% higher than in 2Q20 and in 9M20 it was 1.7% higher than in the same period last year.

Since July, the production of S-10 diesel, with low sulfur content, has broken records, reflecting commercial actions implemented by the company to expand the offer of S-10 diesel to replace the S-500, consistent with the strategy of producing more environment-friendly fuels. In September, we reached the mark of 396 kbpd. The growth in the production of S-10 diesel reflects the greater demand for the product in Brazil, following the evolution of engines for heavy-duty and utility vehicles powered by diesel, responsible for most of the circulation of goods in Brazil. In relation to total sales, there was a recovery in demand and market share for diesel and gasoline compared to 2Q20, a period in which the demand was highly impacted by social distancing measures.

In September 2020, we launched the Biorefino 2030 program, targeting projects for the production of a new generation of fuels, more modern and sustainable than the current ones, such as renewable diesel and aviation biokerosene (BioQAv). Renewable diesel is an advanced biofuel, produced from vegetable oils and with the same structure as conventional diesel oil, capable of reducing greenhouse gas emissions by 70% when compared to regular diesel and by 15% when compared to biodiesel. We have successfully completed industrial scale tests and await authorization from the National Energy Policy Council for marketing renewable diesel in Brazil. BioQAv, on the other hand, will become mandatory in Brazil from 2027 and its hydrogenation process uses the same raw materials necessary for the production of renewable diesel. The industrial units that produce BioQAv have renewable diesel as a co-product.

Asphalt sales also hit a record in July, reaching 227 thousand tons, the highest monthly volume since September 2016.

In August 2020, bunker deliveries at the Port of Santos were 190 thousand tons, 46% of the Brazilian market, the largest quantity delivered since April 2009, driven by grain exports in the period and the resumption of container handling.

In 3Q20, exports of oil and oil by-products totaled 983 Kbpd. In September, we reached a new oil export record of 1,066 kbpd. Exports of fuel oil streams increased 5% compared to 2Q20.

In the Gas and Power segment, the recovery in demand was observed mainly in sales to the non-thermoelectric market and intensified in 3Q20, and the highlight was the volume of 36 MM m³/day sold in September, approaching pre-crisis levels, as a result of the gradual resumption of the industry and loosening of the social distancing measures, with higher consumption of compressed natural gas and recovery of commercial consumption.
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Re: Petrobras

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Petrobras closes 2020 with a net profit of US$ 1,1 billion

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In a year marked by countless challenges arising from the Covid-19 pandemic and the subsequent decline of the global demand for fuel, Petrobras has managed to revert its accounting performance's trajectory in the year's first nine months and reached a net profit of US$ 11,6 billions in 2020's fourth trimester.

In the year's consolidated financial statement, the company had a net profit of US$ 1,1 billion, ending 2020 with a solid operational and financial performance.

Letter from Petrobras's president, Roberto Castello Branco, and the financial results from 2020.


Dear Shareholders,

I am very happy to present the report on Petrobras financial performance in 2020, a superb performance in a very challenging environment.
Amidst a severe global recession and the effects of a major global shock to the oil industry, we promised to engineer a J-shaped recovery. The goal was to emerge better than before. We delivered on our promises.

Costs were reduced and are set to remain on a downward path, productivity is growing, the company is laser focused on investing in world-class assets and has a large pipeline of non-core assets to divest. We are very proud of our team for the fast and efficient response to the oil crisis. Our employees worked relentlessly to win, corporate people at their homes and operations people at the refineries, plants and oil and gas platforms in
the sea.

The execution of the strategy launched in January 2019 was accelerated as well as digital transformation to support the efforts to lower costs and to boost efficiency and operational safety. The work of multidisciplinary agile teams was instrumental to leverage our key resources and to enhance resiliency.

Oil and oil & gas production reached all-time highs at 2.28 MMbpd and 2.84 MMboed, respectively, while most of our global competitors showed output reduction. A major part of our production - about 66% - came from the pre salt fields at an average lifting cost of US$2.5 per boe. This means also higher oil quality sold at a premium on the Brent price as well as less greenhouse gases (GHG) emissions.

Total average lifting cost, at US$ 5.2 per boe in 2020, dropped 42.2% relatively to the 2015-2019 average of US$9.0 per boe.

Petrobras oil and fuel oil exports also reached historical records. Crude oil sales increased 33% and our Tupi and Buzios brand names were consolidated with Asian clients.

Our sales and marketing team is developing initiatives to diversify by geographies and clients. In 2020 they were able to add 14 new clients to the clientele.

Exports of fuel oil climbed 45,9%, primarily due to the successful exploration of low sulphur grade to the Singaporean market, a global shipping hub.

New and successful inroads were made in the sales of naphta, propane, ethane and coke.

Whereas oil prices plunged 35%, our operational cashflow (CFFO) went up 13% and free cash flow (FCF) 20%. CFFO reached US$ 28.9 billion, the highest of the last 10 years, even comparing with a period of oil prices around US$ 100 per bbl, more than double of last year’s average price of US$42/bbl. When compared to major oil companies, Petrobras was the only one to show an increase in a very challenging environment.

FCF of US$22.1 billion (US$ 24.1 billion if divestments are included) was an all-time high figure for our company. It was also the highest among major oil companies, and almost eight times the average number for the group, at US$2.8 billion.

Consistently with the focus on meritocracy and value creation, we started the implementation of EVA® as a management system in 2019.

The strength of cashflow generation and a more efficient capital allocation were the main factors underlying the EVA® increase of US$2.3 billion in relation to 2019.

The strong cashflow allowed us to continue to deleverage the balance sheet. Total debt was reduced by US$11.6 billion, to US$ 75.5 billion, from US$87.1 billion as of December 31, 2019, another great achievement.

Net debt of US$63.2 billion at the end of 2020 dropped US$15.7 billion against the position of December 31, 2019.

Cash holdings of US$ 12.4 billion are still greater than optimal. They should be reduced over time to improve the efficiency of capital allocation as attractive opportunities for debt pre-payment arise.

Debt reduction and lower costs of debt contributed to a substantial decline in interest burden. For instance, the interest paid to barrel of oil produced ratio was US$3.80 in 2020 against US$7.80 in 2015 – a 51% drop – and the average of US$7.70 for 2015-2019.

Total interest payment of US$3.2 billion in 2020, represents a sea change when compared to large payments of over US$7.0 billion per year in the recent past, equivalent to more than the CAPEX required to build an offshore oil production system with capacity of 150-180,000 bpd.

Lower debt and interest payments are key to improve risk perception and to free funds to be invested in world-class assets, particularly in a capital- intensive business such as oil.

Petrobras´ total shareholders return have been very poor over the last few years. Given the strong cash flow performance and continued debt reduction, we are proposing to the Board of Directors a dividend distribution of R$ 10.3 billion – R$0,787446 per common and preferred shares –still relatively modest but more than twice the mandatory for the 2020 calendar year. Dividends are scheduled to be paid on April 29.

Manageable operating expenses fell to US$16.9 billion against US$21.8 billion in 2019 and general and administrative expenses went down by US1.0 billion, to US$1.1 billion against US$2.1 billion.

Lifting costs declined 33% on year-on-year basis to US$5.2 from US$7.8/boe. 63 oil platforms were mothballed given low productivity and high operational costs.

We managed to cut costs with air, storage, maritime and port operations. At the same time, the ship-to-ship operations performed by our wholly owned subsidiary Transpetro increased by 66% relative to 2019 and ship availability was raised to 99.2% in 2H20, against 90% in December, 2019. Transpetro sold 11 ships, most of which with 30 or more years, demanding much higher costs of maintenance.

The company is taking steps to optimize inventory management. The inventory was reduced, reaching the lowest level since 2011, and the inventory of oil declined 8 million barrels in a move to eliminate inefficiency and to reallocate capital to better uses.

By the same token, we put for sale some 50,000 tons of scrap and 550 real estate assets.

More than 11,000 employees of Petrobras and its subsidiaries enlisted for the various voluntary dismissal programs, out of which 6,100 left Petrobras in 2019 and 2020 and 5,000 as of 2021. Almost 1,500 managerial positions were eliminated, in-sourcing was adopted to save costs and use of digital transformation and automation cut the demand for outsourced services.

The health plan, previously a source of high costs and poor services, is being restructured to pursue efficiency gains, lower costs and much better services.

The pension fund (PETROS) of our employees had a deficit of more than R$30 billion due to mismanagement in the past. A professional management was hired and a new deficit coverage plan was approved and implemented in 2019. In January 2021 a defined contribution plan was approved by regulatory authorities. Therefore, PETROS is now much healthier than it was in the recent past.

Several administrative buildings were shutdown, totaling 14 out of the 23 occupied in early 2019. The number of offices abroad decreased to four from 18 in 2018. Simultaneously, the number of expatriates per office was reduced significantly.

The rationalization of the office space to reduce costs is being facilitated by headcount reduction and adoption of a hybrid regime of home office when we are confident to return to the office. New ways of working are needed to survive and thrive in a technology-driven world.

As in many companies in the world, the adoption of home office for corporate activities, made feasible by the digital revolution, contributed to mitigate the transmission of the coronavirus among our employees and to a significant productivity increase and cost savings.

For instance, travel costs were down by US$40 million in comparison to 2019. A large part of these savings is permanent in a post-COVID world.

Our corporate university was restructured to become leaner, with training programs aligned to the company´s strategic priorities. A program of succession of leaders has commenced, supported by the formation of a new generation of leaders and mentorship.

Expenditure with oil extraction declined US$2.0 billion to US$4.7 billion in 2020 from US$6.7 billion the year before. Refining costs were also reduced to US$1.1 billion from US$1.5 billion.

To address the goal of reducing working capital, we launched Mais Valor program in November last year. This program will benefit both suppliers - through bank financing at lower interest rates - and Petrobras – with longer terms to pay for the purchase of goods and services.

Since January 2019 we concluded 21 transactions and have other 13 signed, involving asset divestitures amounting to some US$17 billion of cash-in, being US$14.4 billion in that year. BR Distribuidora was the first case of privatization of a state-owned company through capital markets.

Divestment revenue was key to finance the acquisition of Búzios (transfer of rights surplus), the largest offshore oil field in the world, in November 2019.

Two fertilizer plants were leased to a chemical company under a long-term contract, our subsidiary ANSA was shut down and our two natural gas distribution companies in Uruguay had their operating licenses returned to the Uruguayan government allowing Petrobras to leave the business.

Currently, we still have more than 50 assets on sale at different stages in their processes of divestment. Five refineries, Gaspetro and several mature oil fields have reached the final stage for the signing of a sales and purchase agreement.

The divestment program aims to optimize our portfolio, allowing for the reallocation of resources from low-return to high-return assets, to reduce debt and to de-risk the company.

In the last couple of years Petrobras invested US$35 billion, the majority of it in the exploration and production of oil and natural gas in deep and ultradeep waters, our core business.

In 2020 P-70 came on stream for operation in the Atapu field and P-77 (Buzios) and P-67 (Tupi) concluded rampups.

Over the last two years costs of well drilling and completion were reduced by 36%. We started to use new tools for inspection of subsea pipelines to make feasible to lower costs and increase oil output.

The basic project for a new generation of FPSOs was finalized.Thirteen new FPSOs will come on stream from this year to 2025, eight of them are already being built.

Several innovation projects are being developed aiming to minimize exploratory risk, to shorten dramatically the time period between discovery and first oil and to minimize costs of well drilling and completion, among others.

HISEP® is one of these projects in advanced stage. It allows the separation and reinjection of CO2 in the seabed, contributing to cut capex and opex costs and GHG emissions.

If successful, these projects will enhance the resiliency of our portfolio to very low prices of oil, to allow for the exploitation of new pre-salt fields with high CO2 concentration and to create a cleaner oil and natural gas operation.

The digital twins technology was successfully implemented in our refineries and a program is being executed to reach a significant increase in energy efficiency. Energy is a major component of the operational cost of refining and our goal is to reduce costs and GHG emissions.

Reflecting our client focus, a new type of gasoline with higher performance (RON 93) was launched. Production and sales of S10 low-sulphur diesel oil were boosted last year and we are waiting for government license to start the production and sales of renewable diesel.

This product decreases greenhouse gas emissions by 70% relatively to regular diesel, 15% when compared to biodiesel and it is much more friendly to motors. It will be the first product of a new line of biofuels, which includes bio aviation kerosene.

To widen the menu of options for clients, the sales and marketing team is carrying out auctions for future delivery of fuels in some specific places.
Safety of operations and our employees is one of our strategic priorities.

Total recordable injuries per million men hour continued on a downward trend, reaching 0.56 in 2020, establishing a new benchmark for the global oil industry. For the first time in many years, we had zero fatalities in our operations.

Since the outbreak of the COVID-19 pandemics we adopted strict protocols to protect the health of our employees, adoption of home office for corporate personnel until June 30, 2021, team reduction in the operations, massive testing (520,000 tests up to February), quarantining, use of PPE´s and availability of 24/7 medical services including telemedicine and air ambulances.

Petrobras also helped to fight the effects of the pandemics on the Brazilian society through the donation of tests, medical and hygiene materials, fuel for ambulances and medical vehicles, food for low income families and computing capacity to support research efforts.

Our social agenda acquired a focus on early childhood education, an investment with high expected social return. Currently, our programs are assisting about 25,000 children.

In January this year we took the first step of a new program, Digital Education for Prosperity, with a grant of 250 laptops to public schools in a low income community. The plan, in a partnership with a non-government organization and two large companies, has a wider scope, encompassing the grant of up to 15,000 computers with Internet access and training centers for teachers of elementary public schools and public high school students in low-income communities.

Digital transformation has been accelerated, supported by training, cultural transformation and a significant enhancement in infrastructure.

High power computing capacity is being raised to 60 Pflops in 2021 from only 3 Pflops in 2018, which is critical to the solving of more complex algorithms, machine learning and artificial intelligence.

Simultaneously, we are implementing the SAP S/4 Hana to simplify, digitalize and integrate process to make productivity gains feasible across the company.

Two excellence centers were created, one for agile excellence and the other for robotization and process digitalization. Alongside the two centers, we developed an Ecosystem for Innovation Corporate Lab to foster innovation through hackathons, design thinking, design sprint, lean startup. To stimulate entrepreneurship we created a program of internal startups, called “Santo de Casa faz milagres”.

Our research center, CENPES, the largest in Latin America, was revamped to become much more integrated with the company strategic goals through the optimization of the R&D project portfolio, partnership with start-up companies and the use of commercial readiness and other instruments.

Energy transition is something to be taken seriously. We strongly believe that, as the largest Latin American oil company, one of our duties is to help in a responsible process of transition. Oil and natural gas are still the backbone of modern economy and they will continue to be relevant for many years, although the global demand tends to grow at a slower and declining pace over time.

Petrobras launched ten commitments to sustainability aiming to minimize GHG emissions, to increase carbon capture and storage and water reutilization, while pursuing innovations to deal with scope 3 emissions and the research ofnew sources of energy.

The company managed to diminish total GHG emissions for the sixth consecutive year, totaling 56 million tCO2e, a reduction of 6% when compared to 2019, and compatible with our goal of reducing this total by 25% by 2030, compared to 2015. The E&P carbon intensity was 15.8 kgCO2e / boe, on track to reaching our medium-term target of 15 kgCO2e / boe in 2025.

Carbon intensity of the refining business was 40.2 kgCO2e / CWT, a 3.6% reduction when compared to 2019. It is still too high. We are working hard to converge to 30 kgCO2e/CWT until 2030.

The ultimate sources of economic development are companies. Once they create shareholder value, they have the resources to finance investment, to pay higher wages, to create jobs along the value chain, to invest in social projects and to protect the nature against climate change and to pay taxes.

Petrobras is the largest taxpayer in Brazil. In face of low oil prices and demand contraction we paid R$129 billion in 2020 to the government, totaling R$375 billion in the last couple of years.
Our goal is to become the best oil and gas company in the world by value creation with respect to people and the environment, focus on safety, and continuing to be a reliable supplier of high-quality products to our customers.

I would like to express our solidarity to those who suffered the terrible pain caused by the pandemics and to praise medical professionals and scientists who have been real heroes in the battle for the preservation of human lives.

My acknowledgement to our Board of Directors for its important role and continuous support to strategy execution in this journey.

Last but not least, people are the most valuable asset of Petrobras. Our executives and employees had no doubt to go for the extra mile in the dark hours of a deep recession to keep the ship running safely through rough waters.
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