Petrobras Global Finance

May 12, 2023

08:47a 05/12/2023 | 10:07am EDT Message : 1 49 PETROBRAS As of March 31, 2023 and December 31, 2022 (Expressed in millions of US Dollars, unless otherwise indicated) Assets 22 17 22 25.1 1,144 79,144 3 PETROBRAS Three-month periods ended March 31, 2023 and 2022 (Expressed in millions of US Dollars, unless otherwise indicated) Note 6 11,553 (243) 10,966 7,370 7,341 29 25.3 4 PETROBRAS Three-month periods ended March 31, 2023 and 2022 (Expressed in millions of US Dollars, unless otherwise indicated) Note 7,370 Actuarial losses on post-employment defined benefit plans 13.3 Unrealized gains (losses) on cash flow hedge - highly probable future exports 26.3 1,154 21 9,652 34 The notes form an integral part of these unaudited consolidated interim financial statements. 5 PETROBRAS Three-month periods ended March 31, 2023 and 2022 (Expressed in millions of US Dollars, unless otherwise indicated) Note Net income for the period 7,370 13 10 24 (496) 656 15 (28) (167) 6 10,347 Acquisition of PP&E and intangible assets (2,423) 1,855 391 (1,104) Changes in non-controlling interest 23.3 23.3 (4,192) (48) (6,973) 24 2,294 7,996 10,290 6 PETROBRAS Three-month periods ended March 31, 2023, and 2022 (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 Cumulative translation adjustments Actuarial gains (losses) on defined benefit pension plans Other comprehensive income (loss) and deemed cost Legal Non-controlling interests 107,380 107,380 107,380 107,380 7 PETROBRAS 1. Statement of compliance and authorization of unaudited condensed consolidated interim financial statements These unaudited condensed consolidated interim financial statements of Petróleo Brasileiro S.A. ("Petrobras" or "Company") have been prepared and presented in accordance with IAS 34 - "Interim Financial Reporting" as issued by the International Accounting Standards Board (IASB). They present the significant changes in the period, avoiding repetition of certain notes to the annual consolidated financial statements previously reported. Hence, they should be read together with the Company's audited annual consolidated financial statements for the year ended December 31, 2022, which include the full set of notes. These unaudited condensed consolidated interim financial statements were approved and authorized for issue by the Company's Board of Directors in a meeting held on May 11, 2023. 2. Summary of significant accounting policies The accounting policies and methods of computation followed in these unaudited condensed consolidated interim financial statements are the same as those followed in the preparation of the annual financial statements of the Company for the year ended December 31, 2022. Regarding the IFRS standards that became effective on January 1, 2023, their initial application did not result in material effects on these unaudited condensed consolidated interim financial statements. 3. 3.1. Cash and cash equivalents They include cash, available bank deposits and short-term financial investments with high liquidity, which meet the definition of cash equivalents. 03.31.2023 8. Information by operating segment In 2022, Petrobras implemented changes to its financial reporting system, according to the metric approved by the Executive Board. These changes did not change the allocation of Petrobras' reportable operating segments (E&P, RT&M and G&P). However, the measurement of certain components of the operating segments and of Corporate and other businesses was changed as following: · trade and other receivables, recoverable income taxes and other recoverable taxes, previously allocated to operating segments, are now presented in Corporate and other businesses. Expected credit losses are now also presented in Corporate and other businesses; 11 · losses with commodity derivatives (within other income and expenses, net), previously presented in Corporate and other businesses, are now presented in operating segments; · general and administrative expenses related to logistics and fuel sales, previously presented in Corporate and other businesses, are now disclosed in the RT&M segment. This information reflects the Company's current management model and is used by the Board of Executive Officers (Chief Operating Decision Maker - CODM) to make decisions regarding resource allocation and performance evaluation. In this context, the information by operating segment of the first quarter of 2022 has been reclassified for comparative purposes, as follows: Consolidated Statement of Income by operating segment - Jan-Mar/2022 Reclassified Exploration and Production (E&P) Refining, Transportation & Marketing (RT&M) Gas 8,779 In the three-month period ended March 31, 2023, the Company recognized a US$ 8 reversal of cost of sales, adjusting inventories to net realizable value (a US$ 7 reversal of cost of sales in the three month period ended March 31, 2022), primarily due to changes in international prices of crude oil and oil products. At March 31, 2023, the Company had pledged crude oil and oil products volumes as collateral for the Term of Financial Commitment (TFC) related to plans PPSP-R, PPSP-R Pre-70 and PPSP-NR Pre-70 signed by Petrobras and Petros Foundation in 2008, in the estimated amount of US$ 931, after deducting the partial early settlement, made in February 2022. 11. Uncertain tax treatments On April 24, 2023, the Company received an additional charge from the Dutch tax authority, due to a final assessment on the calculation of the Corporate Income Tax (CIT) of subsidiaries in the Netherlands in 2018, arising from the valuation of platforms and equipment nationalized under the Repetro tax regime, in the amount of US$ 279, classified as a contingent liability (note 14.3). Tax treatments related to 2019 to 2022 have not yet been assessed by this tax authority. Any charges by the Dutch tax authority for these years, on a similar basis to 2018, could reach the amount of US$ 301. Thus, the total amount of these uncertain tax treatments, from 2018 to 2022, is US$ 580. The Company will continue to defend its position that the valuation of platforms and equipment was carried out in compliance with the relevant legislation, through the use of administrative appeals or by the Dutch judicial courts. Therefore, no provision was recorded in these unaudited condensed consolidated interim financial statements for the period ended March 31, 2023. 12.2. Performance award program (PPP) As of March 31, 2023, the Company had paid US$ 136 and, in April 2023, made the final payment of US$ 396, totalizing US$ 532 regarding the PPP for 2022, since the related metrics relating to the Company's and individual performance were achieved in 2022. Regarding the PPP for 2023, the Company is revising the model for this program. However, due to the expectation of maintaining the program with a similar nature of 2022, in the three-month period ended March 31, 2023, the Company provisioned US$ 139 referring to this program for 2023 (US$ 118 for the same period of 2022), recorded in other income and expenses. Profit Sharing (PLR) The Company made an advance of US$ 44 related to the PLR 2022, with final payment expected to occur on May 30, 2023, considering the current agreement for the PLR, approved by the Secretariat of Management and Governance of the State-owned Companies (SEST), which provides that only employees without managerial functions will be entitled to receive profit sharing with individual limits according to their remuneration. In the three-month period ended March 31, 2023, the Company provisioned US$ 35 referring to PLR for 2023 (US$ 31 for the same period of 2022), recorded in other income and expenses. 19 13.2. Termination benefits Termination benefits are employee benefits provided in exchange for the termination of labor contract as a result of either: i) the Company's decision to terminate the labor contract before the employee's normal retirement date; or ii) an employee's decision to accept an offer of benefits in exchange for the termination of their employment. The Company has voluntary severance programs (PDV), specific for employees of the corporate segment and of divestment assets, which provide for the same legal and indemnity advantages. For the current programs, there are 11,732 adhesions accumulated through March 31, 2023 (11,688 through December 31, 2022). Changes to the provisions for termination benefits are presented as follows: Jan-Mar/2023 Recognition of the provision for expenses occur as employees enroll to the programs. The Company disburse the severance payments in two installments, one at the time of termination and the remainder one year after the termination. As of March 31, 2023, from the balance of US$ 171, US$ 34 refers to the second installment of 590 retired employees and US$ 137 refers to 1,319 employees enrolled in voluntary severance programs with expected termination by September 2025. 13.3. Employee benefits (post-employment) The Company maintains a health care plan for its employees in Brazil (active and retiree) and their dependents (Saúde Petrobras), and five other major types of post-employment pension benefits (collectively referred to as "pension plans"). The following table presents the balance of post-employment benefits: 03.31.2023 Health Care Plan The health care plan is managed by Petrobras Health Association (Associação Petrobras de Saúde - APS), a nonprofit civil association, and includes prevention and health care programs. The plan covers all employees and retirees and is open to future employees. 20 PETROBRAS (Expressed in millions of US Dollars, unless otherwise indicated) Benefits are paid by the Company based on the costs incurred by the participants. The financial participation of the Company and the beneficiaries on the expenses are provided for in the Collective Bargaining Agreement (ACT), being 60% by the Company and 40% by the participants. Pension plans The management of the supplementary pension plans sponsored by the Company is under the responsibility of Fundação Petrobras de Seguridade Social - Petros, which was established by Petrobras as a non-profit, private legal entity with administrative and financial autonomy. The net obligation with pension plans recorded by the Company is measured in accordance with the requirements of IFRS which has a different measurement methodology to that applicable to pension funds, regulated by the Conselho Nacional de Previdência Complementar - CNPC. The table below presents the reconciliation of the deficit of Petros Plan registered by Petros Foundation as of December 31, 2022 with the net actuarial liability registered by the Company: PPSP-R (*) (*) It includes the balance of PPSP-R pre-70 and PPSP-NR pre-70. On March 29, 2023, the Deliberative Council of Petros approved the financial statements of the pension plans sponsored by the Company for the year ended December 31, 2022. Deficit Settlement Plan 2021 referring to the PPSP-R plan On November 10, 2022, Petros' Foundation Deliberative Council approved a plan to settle the deficit registered by the PPSP-R in 2021. On April 1, 2023, this plan was implemented, following a favorable decision held on March 17, 2023 by the SEST. This deficit, amounting to US$ 1,676 (R$ 8,515 million) as of March 31, 2023, must be settled on an equal basis between sponsors and participants, of which US$ 790 (R$ 4,012 million) will be paid by Petrobras, during the lifetime of the plan. The deduction from the payroll of participants, relating to these extraordinary payments, began in April 2023. 21 13.3.2. Contributions In the three-month period ended March 31, 2023, the Company contributed with US$ 178 (US$ 1,477 in the same period of 2022 , including US$ 1,324 related to Term of financial commitment) the defined benefit plans (reducing the balance of obligations of these plans, as presented in note 13.3.1), and with US$ 54 and US$ 0.4, respectively, to the defined contribution portions of PP-2 and PP-3 plans (US$ 46 for PP-2 and US$ 0.4 for PP-3 in the same period of 2022). The contribution to the defined benefit portion of the PP-2, which had been suspended in July 2012, was restored in April 2023, pursuant to a decision by the Petros Foundation's Deliberative Council. Thus, a portion of the monthly contribution will be destined to risk coverage (payment of sickness allowance, reclusion allowance, lump sum death benefit and minimum guarantees) to reduce the balance of the actuarial liability. 14. 14.1. Provisions for legal proceedings The Company recognizes provisions for legal, administrative and arbitral proceedings based on the best estimate of the costs 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) several individual and collective labor claims; (ii) opt-out claims related to 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; and (iii) actions of outsourced employees. · Tax claims including: (i) tax notices for alleged non-compliance with ancillary obligations; (ii) claims relating to benefits previously taken for Brazilian federal tax credits applied that were subsequently alleged to be disallowable; and (iii) claims for alleged non-payment of CIDE on imports of propane and butane. · Civil claims, in particular: (i) lawsuits related to contracts; (ii) penalties applied by ANP, mainly relating to production measurement systems; and (iii) litigation involving corporate conflicts. · Environmental claims, specially: (i) fines relating to an environmental accident in the State of Paraná in 2000; (ii) fines relating to the Company's offshore operation; and (iii) public civil action for oil spill in 2004 in Serra do Mar-São Paulo State Park. Provisions for legal proceedings are set out as follows: Non-current liabilities 14.4. Minimum Compensation Based on Employee's Position and Work Schedule (Remuneração Mínima por Nível e Regime - RMNR) As of March 31, 2023, there are lawsuits related to the Minimum Compensation Based on Employee's Position and Work Schedule (RMNR), with the objective of reviewing its calculation criteria. The RMNR consists of a minimum remuneration guaranteed to employees, based on salary level, work schedule and geographic location. This policy was created and implemented by Petrobras in 2007 through collective bargaining with union representatives, and was approved at employee meetings, and started being the subject of lawsuits three years after its implementation. In 2018, the Brazilian Superior Labor Court (TST) ruled against the Company, which filed extraordinary appeals against its decision. Therefore, the Brazilian Supreme Federal Court (STF) suspended the effects of the decision issued by the TST and determined the national suspension of the ongoing proceedings related to the RMNR. On July 29, 2021, a monocratic decision was published in which the STF's Judge-Rapporteur granted an extraordinary appeal filed, accepting the Company's thesis and recognizing the validity of the collective bargaining agreement freely signed between Petrobras and the unions, reversing the decision of the TST. In February 2022, the judgment of the appeals filed by the plaintiff and several amicus curiae was started. The judgment is currently underway in the First Panel of the Supreme Federal Court, with 3 votes in favor of the Company, confirming that there is an understanding of recognizing the merit of the collective bargaining agreement signed between Petrobras and the unions. Considering that the last minister to vote requested additional time for analysis, the trial was suspended, and is pending the presentation of the vote by this last minister. As of March 31, 2023, the balance of provisioned proceedings regarding RMNR amounts to US$ 169, while the contingent liabilities amount to US$ 7,223. 14.5. Class actions and related proceedings On January 23, 2017, Stichting Petrobras Compensation Foundation ("Foundation") filed a class action in the Netherlands, at the District Court of Rotterdam, against Petróleo Brasileiro S.A. - Petrobras, Petrobras International Braspetro B.V. (PIB BV), Petrobras Global Finance B.V. (PGF), Petrobras Oil & Gas B.V. (PO&G) and some former Petrobras managers. The Foundation alleges that it represents the interests of an unidentified group of investors and claims that, based on the facts revealed by Operation Lava-Jato, the defendants acted illegally before investors. On 26 May 2021, the District Court of Rotterdam decided that the class action must proceed and that the arbitration clause of Petrobras' bylaws does not prevent the Company's shareholders from having access to the Dutch Judiciary and being represented by the Stichting Petrobras Compensation Foundation ("Foundation"). However, investors who have already started arbitration against Petrobras or who are parties to legal proceedings in which the applicability of the arbitration clause has been definitively recognized are excluded from the action. The class action is in the merit discussion stage and a decision is expected for July 26, 2023, but it may be brought forward or postponed by the Court. In relation to the arbitration in Argentina, the Argentine Supreme Court denied the appeal, but the Consumidores Damnificados Asociación Civil para su Defensa ("Association") filed a new appeal, which has not yet been judged. This arbitration discusses Petrobras' liability for an alleged loss of market value of Petrobras' shares in Argentina, as a result of the Lava Jato Operation. 25 PETROBRAS (Expressed in millions of US Dollars, unless otherwise indicated) At the same time, the Association also filed a class action before the Civil and Commercial Court of Buenos Aires, Argentina, where Petrobras spontaneously appeared on April 10, 2023. The Association claims Petrobras' responsibility for an alleged loss of market value of its securities in Argentina, as a result of allegations made within the scope of the Lava Jato Operation and its effects on the Company's financial statements prior to 2015. Such demand does not generate immediate financial and economic effects for Petrobras. The Company denies such allegations and will vigorously defend itself against the accusations made by the author of the collective action. Regarding criminal proceeding in Argentina related to an alleged fraudulent offer of securities, aggravated by the fact that Petrobras allegedly declared false data in its financial statements prior to 2015, the Court of Appeals revoked on October 21, 2021, the lower court decision that had recognized Petrobras' immunity from jurisdiction and recommended that the lower court judge take steps to certify whether the Company could be considered criminally immune in Argentina for further reassessment of the issue. Petrobras appealed against this decision, but the higher courts upheld the decision of the Court of Appeals, thus the immunity will have to be reassessed by the lower court. The Court of Appeals recognized that the Association could not act as a representative of financial consumers, due to the loss of its registration with the competent Argentine bodies, which was also the subject of an appeal upheld by the Court of Appeals on September 15, 2022, recognizing the Association the right to represent financial consumers. Petrobras presented other procedural defenses, still subject to assessment by the Argentine Court of Appeals. This criminal action is being processed before the Economic Criminal Court No. 2 of the City of Buenos Aires. As for the other criminal action for alleged non-compliance with the obligation to publish "press release" in the Argentine market about the existence of a class action filed by Consumidores Damnificados Asociación Civil para su Defensa before the Commercial Court, there are no developments during the three-month period ended March 31, 2023. The EIG Energy Fund XIV, L.P. and affiliates ("EIG") filed a lawsuit against Petrobras, before the District Court of Columbia, United States, to recover alleged losses related to its investment in Sete Brasil Participações S.A. On August 8, 2022, the judge upheld EIG's claim as to Petrobras' responsibility for the alleged losses, which are recorded as provisions for legal proceedings, but denied the motion for summary judgment with respect to damages, whereby the award of compensation will be subject to the proof of damages by EIG at a hearing and to the consideration of the defenses by the Company. In the same decision, the judge denied the request to dismiss the case based on Petrobras' immunity from jurisdiction, which is why an appeal was filed with the Federal Court of Appeals for the District of Columbia. Considering the filing of the appeal, Petrobras requested the suspension of the process, which was granted by the lower court judge on October 26, 2022. On August 26, 2022, the District Court of Amsterdam granted a precautionary measure to block certain Petrobras assets in the Netherlands, at the request of EIG. This granting was based on the decision of the District Court of Columbia, on August 8, 2022, and was intended to ensure the satisfaction of EIG's claims contained in the aforementioned US lawsuit. For the purpose of this injunction, the District Court of Amsterdam limited EIG's claims to a total of US$ 297.2, although the US Court ruled that any award of damages would depend on evidence of damages by EIG at a trial hearing. There are some discussions about the scope of the assets blocked by EIG, but there is no related lawsuit pending in the Netherlands. This precautionary block does not prevent Petrobras and its subsidiaries from complying with their obligations to third parties. 14.6. Arbitrations proposed by non-controlling Shareholders in Brazil In the three-month period ended March 31, 2023, there were no events that changed the assessment and information on arbitrations in Brazil. For more information, see explanatory note 18.5 to the financial statements for the year ended December 31, 2022. 14.7. Legal proceedings - Compulsory Loan - Eletrobrás In the three-month period ended March 31, 2023, there were no events that changed the assessment on this proceeding. For more information, see explanatory note 18.6 to the financial statements for the year ended December 31, 2022. 14.8. Lawsuits brought by natural gas distributors and others In the three-month period ended March 31, 2023, there were no events that changed the assessment and information on lawsuits and arbitrations. For more information, see explanatory note 18.7 to the financial statements for the year ended December 31, 2022. 26 (106,683) (*) It is composed of production platforms, refineries, thermoelectric power plants, natural gas processing plants, pipelines, and other operating, storage and production plants, including subsea equipment for the production and flow of oil and gas, depreciated based on the units of production method. (**) See note 8 for assets under construction by operating segment. (***) It is composed of exploration and production assets related to wells, abandonment and dismantling of areas, signature bonuses associated with proved reserves and other costs directly associated with the exploration and production of oil and gas (oil and gas production properties). (****) In the case of land and assets under construction, it refers only to impairment losses. (*****) It includes mainly transfers between classes of assets and transfers from advances to suppliers. Attachments