FIRST QUARTER OF 2015

RESULTS

Rio de Janeiro – May 15, 2015

Petrobras announces today its consolidated results for the 1Q-2015 reviewed by independent auditors, stated in millions of U.S. dollars, prepared in accordance with International Financial Reporting Standards - IFRS issued by the International Accounting Standards Board - IASB.

Consolidated net income attributable to the shareholders of Petrobras and Adjusted EBITDA in the 1Q-2015 were US$ 1,862 million and US$ 7,516 million, respectively.

Key events

The Company reported net income of US$ 1,862 million in the 1Q-2015 compared to a US$ 9,722 million loss in the 4Q-2014, mainly due to the following events:

·       Diesel (5%) and gasoline (3%) price increases on November 7, 2014;

·       Lower cost of sales due to decreased crude oil and oil product import costs and volumes;

·       Lower export revenues, affected by a decrease in international crude oil prices (average Brent prices decreased by 29% in the 1Q-2015 compared to the 4Q-2014);

·       Decreased domestic oil product sales (10%) due to the seasonal consumption in the 4Q-2014 and lower economic activity in Brazil;

·       US$ 1,963 million net finance expense in the 1Q-2015 compared to US$ 713 million in the 4Q-2014;

·       The Company reached a monthly average crude oil production record level of 672 thousand barrels per day in the pre-salt layer in the first quarter of 2015 (on April 11, 2015 the Company reached a crude oil production record level of 800 thousand barrels per day at the pre-salt layer); and

·       Production start-up of P-61 platform in Papa-Terra field in the Campos Basin and of the early production system in Búzios field (Santos Basin), as well as the production start-up of  Hadrian South field in ultra-deep waters of the Gulf of Mexico.

Comments from the CEO

Mr. Aldemir Bendine

Dear Shareholders and Investors,

During the first quarter of 2015 we reached an operating income of US$ 4.7 billion and an adjusted EBITDA of US$ 7.5 billion, an increase of 45% and 24%, respectively, when compared to the first quarter of 2014. This result is mainly explained by the higher oil production, higher fuel sales margins in Brazil and lower production taxes and imports. Our net income decreased 18% relative to the first quarter of 2014, mainly as a result of the exchange rate devaluation in the period.

We are working to maintain our financial and economic performances at high levels. In previous opportunities, I have mentioned that our goal is to develop a profitable Company, with excellence in Corporate Governance, and that is able to efficiently utilize its assets to generate the highest value to shareholders and investors. With that in mind, we are preparing a new business plan that will outline our vision for the future of Petrobras.

An important element of this plan is the deleveraging of the Company. We intend to accomplish it gradually, respecting the existing contracts and establishing a balance with the production growth.

Finally, I would like to once again congratulate the Company´s employees, the ones responsible for another “OTC Distinguished Achievement Award for Companies, Organizations, and Institutions”, the most important international offshore industry award. Such recognition proves that Petrobras has the necessary expertise, technology and resources for the construction of a company that aims at creating maximum value in its operations.

Aldemir Bendine, CEO.          

FINANCIAL AND OPERATING HIGHLIGHTS

Main Items and Consolidated Economic Indicators

FINANCIAL AND OPERATING HIGHLIGHTS

RESULTS OF OPERATIONS

1Q-2015 compared to the 1Q-2014:

Virtually all revenues and expenses of our Brazilian operations are denominated and payable in Brazilian Reais. When the Brazilian Real depreciates relative to the U.S. dollar, as it did during the first quarter of 2015 (a 21% depreciation), revenues and expenses decrease when translated into U.S. dollars. Nevertheless, the depreciation of the Brazilian Real against the U.S. dollar affects the line items discussed below in different ways.

Gross Profit

Gross profit decreased by 3% (US$ 279 million) in the 1Q-2015 compared to the 1Q-2014, mainly due to:

Ø  Sales revenues of US$ 25,967 million, a decrease of 25% compared to the 1Q-2014 (US$ 34,494 million), resulting from:

·          Lower export prices and a decrease in the price of oil products sold in the Brazilian market that were adjusted to reflect a decrease in international crude oil and oil product prices (Brent prices decreased by 50%). These effects were partially offset by the positive impact of the depreciation of the Real (21%) on the price (in reais) of oil products that were adjusted to reflect international prices, along with higher diesel and gasoline prices following a price increase on November 7, 2014; and

·          Decreased domestic oil product demand (6%), mainly of naphtha (30%), diesel (4%) and gasoline (5%), due to a decrease in economic activity in Brazil.

·          Foreign currency translation effects (depreciation of the Brazilian Real against the U.S. dollar) reduced sales revenues expressed in U.S. dollars. Sales revenues were 9% lower in Reais.

These effects were partially offset by higher crude oil export volumes (44%).

Ø  Cost of sales was US$ 18,140 million in the 1Q-2015, a decrease of 31% compared to the 1Q-2014 (US$ 26,388 million), due to:

·          Lower import costs and production taxes attributable to a decrease in international crude oil prices (50%), partially offset by the impact of the depreciation of the Brazilian Real against the U.S. dollar (21%) on those costs;

·          Decreased domestic oil product sales volumes, lower share of crude oil imports on feedstock processing and a lower share of oil product imports in the sales mix; and.

·          Foreign currency translation effects. Cost of sales was 17% lower in reais.

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

Net income before finance income (expense), share of earnings in equity-accounted investments, profit sharing and income taxes reached US$ 4,658 million in the 1Q-2015, US$ 1,455 million higher compared to US$ 3,203 million in the 1Q-2014 (a 45% increase), despite a lower gross profit, due to a gain resulting from the reversal of an allowance for impairment of trade receivables from companies in the isolated electricity system in the northern region of Brazil (US$ 452 million) and to the negative impact in the 1Q-2014 of the Company’s Voluntary Separation Incentive Plan - PIDV (US$ 1,014 million).

Net finance expense

Net finance expense reached US$ 1,963 million in the 1Q-2015, US$ 1,890 million higher when compared to the 1Q-2014, resulting from:

·       Exchange rate variation charges on our liabilities in U.S. dollars attributable to a 20.8% depreciation of the Brazilian Real against the U.S. dollar in the 1Q-2015 (compared to a 3.4% appreciation of the Real in the 1Q-2014). This effect was partially offset by our cash flow hedge of highly probable future exports; and

·       Higher interest expenses due to an increase in our net debt and a decrease in capitalized borrowing costs resulting from a decrease in the balance of assets under construction.

These effects were partially offset by an exchange rate variation gain due to the appreciation of the U.S. dollar against the Euro (appreciation of 11.6% in the 1Q-2015 compared to a flat exchange rate during the 1Q-2014).

Net income attributable to the shareholders of Petrobras

Net income attributable to the shareholders of Petrobras reached US$ 1,862 million in the 1Q-2015, compared to US$ 2,280 million in the 1Q-2014. This 18% decrease mainly results from higher net finance expenses, lower gross profit and an increase in income taxes, partially offset by lower operating expenses.

FINANCIAL AND OPERATING HIGHLIGHTS

NET INCOME BY BUSINESS SEGMENT

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

EXPLORATION & PRODUCTION

Net income was US$ 1,097 million in Jan-Mar/2015, a 76% decrease when compared to Jan-Mar/2014 (US$4,505 million), mainly due to lower crude oil sales/transfer prices resulting from a 50% decrease of international crude oil prices, partially offset by an increase in crude oil and NGL production in Brazil (12%), lower write-offs of dry and subcommercial wells and by the negative impact of the Company’s Voluntary Separation Incentive Plan (PIDV) in 2014.

The spread between the average domestic oil price (sale/transfer) and the average Brent price increased from US$10.20/bbl in Jan-Mar/2014 to U.S.$ 10.57/bbl in Jan-Mar/2015.

Crude oil and NGL production increased by 12% as a result of the start-up of P-62 platform (Roncador), Cidade de Mangaratiba (Iracema Sul area) and Cidade de Ilhabela (Sapinhoá) FPSOs, along with the ramp-up of P-55 (Roncador), P-58 (Parque das Baleias) and P-63 (Papa-Terra) production systems, as well as Cidade de Paraty (Lula NE) and Cidade de São Paulo (Sapinhoá) FPSOs. The natural decline of certain fields partially offset these effects.

The 17% increase in natural gas production is attributable to the production start-up of Cidade de Mangaratiba (Iracema Sul area) and Cidade de Ilhabela (Sapinhoá) FPSOs and to the higher productivity of P-58 (Parque das Baleias) and Mexilhão platforms and of Cidade de Paraty (Lula NE), Cidade de São Paulo (Sapinhoá), Cidade de Santos (Uruguá-Tambaú) and Cidade de Angra dos Reis (Lula) FPSOs. This increase was partially offset by the natural decline of certain fields.

FINANCIAL AND OPERATING HIGHLIGHTS

 Lifting Cost - Excluding production taxes

Lifting cost excluding production taxes was 6% lower in Jan-Mar/2015 compared to Jan-Mar/2014. Excluding the impact of the depreciation of the Brazilian Real against the U.S. dollar, it increased by 6% due to higher well intervention expenses and higher subsea engineering and subsea maintenance costs in the Campos Basin, along with the start-up of the FPSO Cidade de Ilhabela (Sapinhoá), which has higher costs per unit produced during the start-up period.

Lifting Cost - Including production taxes

The 39% decrease in lifting cost including production taxes in Jan-Mar/2015 compared to Jan-Mar/2014 is attributable to a lower average reference price for domestic crude oil in U.S. dollars (a 54% decrease), which is used as parameter to calculate production taxes in Brazil, as a result of lower international crude oil prices.

FINANCIAL AND OPERATING HIGHLIGHTS

 REFINING, TRANSPORTATION AND MARKETING

The US$ 2,159 million net income in the 1Q-2015 compared to a US$ 2,035 million loss in the 1Q-2014 was due to a decrease in crude oil acquisition/transfer costs resulting from lower international prices (a 50% decrease), to the lower share of crude oil imports on feedstock processed and of oil product imports on our sales mix, and also to diesel (5%) and gasoline (3%) price increases occurred on November 7, 2014.

Crude oil export volumes were higher and import volumes were lower due to an increase in crude oil production and a decrease in feedstock processing in our domestic refineries.

Oil product imports were lower due to a decrease in domestic demand. Oil product exports decreased due to lower feedstock processing in our domestic refineries.

FINANCIAL AND OPERATING HIGHLIGHTS

Daily feedstock processed was 7% lower, due to a scheduled stoppage in the distillation unit of the Landulpho Alves refinery (RLAM), partially offset by the full operational capacity of the Paulínia refinery (REPLAN), where a scheduled stoppage occurred in the 1Q-2014.

Refining cost per unit was 3% higher in Jan-Mar/2015 compared to Jan-Mar/2014 due to the depreciation of the Brazilian Real against the U.S. dollar. Excluding the impact of the depreciation of the Brazilian Real, our refining cost per unit increased by 26%, mainly resulting from higher employee compensation costs arising from the 2014 Collective Bargaining Agreement and to lower feedstock processing.

FINANCIAL AND OPERATING HIGHLIGHTS

GAS & POWER

Net income was US$ 481 million in Jan-Mar/2015, a 119% increase when compared to Jan-Mar/2014 (US$ 220 million), mainly due to a reversal of an allowance for impairment of trade receivables from electricity companies in the northern region of Brazil, an increase in average natural gas sales margins (due to lower LNG import costs and to the higher domestic natural gas supply), partially offset by the effect of a decrease in electricity average margins due to a reduction of electricity spot prices and the gain on disposal of 100% of our interest in Brasil PCH S.A. (US$ 274 million), recognized only in 2014.

Electricity sales volumes were 27% lower resulting from a shift of the sale of a portion of our available capacity (1,049 average MW) towards the Brazilian electricity regulated market (Ambiente de Contratação Regulada – ACR).

Electricity generation was 24% higher due to an increase in thermoelectric demand in the domestic market and to an increase in our installed thermoelectric capacity (due to the execution of a lease agreement for UTE Cuiabá and to the conclusion of the cycle of UTE Baixada Fluminense).

Electricity prices in the spot market decreased by 51% due to a reduction in the maximum spot price authorized by the Brazilian National Electricity Agency (ANEEL) beginning on December 27, 2014.

The 5% decrease on LNG imports was due to higher domestic natural gas supply attributable to a higher production.

Natural gas imports from Bolivia were 2% higher to meet the higher thermoelectric demand in Brazil.

FINANCIAL AND OPERATING HIGHLIGHTS

BIOFUEL

Biofuel losses were lower in Jan-Mar/2015, when compared to Jan-Mar/2014, due to a decrease in the share of losses from biodiesel investees and to the improved biodiesel margins.

DISTRIBUTION

Net income was US$ 194 million in Jan-Mar/2015, a 5% decrease when compared to Jan-Mar/2014 (US$ 204 million), mainly due to foreign currency translation effects. Excluding foreign currency translation effects, net income was 15% higher in Reais, due to higher average fuel trading margins, to higher sales volumes (1%) and to the negative impact of the Company’s Voluntary Separation Incentive Plan (PIDV) in 2014.

The Company’s  market share was lower in 2015 mainly due to a 2% decrease in the market for diesel, in which BR Distribuidora has a significant share. Despite the increase of BR Distribuidora’s market share in diesel volumes,  the change in the sales mix of the Brazilian market led to an overall decrease in its market share.

FINANCIAL AND OPERATING HIGHLIGHTS

INTERNATIONAL

As an outcome of the creation of the position of Chief Governance, Risk and Compliance Officer, which replaced the position of Chief International Officer, the Company has recently approved the organizational structure adjustments in other business areas to allocate the international activities to other business segments. Considering the necessary steps to integrate the management of those activities, the Company is still presenting the results of international activities separately.

Net income was lower in the 1Q-2015 when compared to the 1Q-2014 due to a decrease in international crude oil prices and the lower share of earnings in African investees attributable to a decrease in international crude oil and oil product prices. Crude oil sales volumes were also lower, resulting from the disposal of onshore operations in Colombia and in Peru in 2014. The Company also recognized tax credits in the Netherlands in the 1Q-2014. These effects were partially offset by gains on the disposal of fields in the Austral Basin in Argentina in the 1Q-2015.

Consolidated crude oil and NGL production decreased by 21%, due to the disposal of onshore areas in Peru in November 2014 and in Colombia in April 2014. These effects were partially offset by an increase in production due to the start-up of Saint Malo field in December 2014 and Lucius in January 2015 in the United States.

Natural gas production decreased by 4%, mainly in Peru, due to the disposal of onshore assets.

FINANCIAL AND OPERATING HIGHLIGHTS

International lifting cost was 13% higher, mainly in Argentina, resulting from higher operation and maintenance service costs, partially offset by the disposal of assets in Peru and Colombia in 2014, which had higher-than-average operational costs.

Our total international feedstock processed was 23% lower due to a decrease in oil product production and lower capacity utilization, mainly in the United States, due to a scheduled stoppage in the distillation unit during March 2015.

International refining cost per unit was 7% higher, mainly in Argentina, due to higher employee compensation costs and in Japan due to lower feedstock processed attributable to decreased fuel oil demand.

FINANCIAL AND OPERATING HIGHLIGHTS

Sales Volumes – (Mbbl/d) ^(*)

Our domestic sales volumes decreased by 4%, primarily due to:

·       Diesel (a 4% decrease) – lower consumption by infrastructure construction projects in Brazil and a higher percentage of mandatory biodiesel content requirement in diesel (diesel/biodiesel mix). These effects were partially offset by an increase in the Brazilian diesel-moved light vehicle fleet (vans, pick-ups and SUVs) and higher thermoelectric consumption by thermoelectric plants that complement the Brazilian Integrated Electricity System;

·       Gasoline (a 5% decrease) – an increase in the anhydrous ethanol content requirement for Type C gasoline (from 25% to 27%), a decrease in the automotive gasoline-moved fleet and higher share of gasoline sales from other market players;

·       Naphtha (a 30% decrease) – due to lower demand by domestic customers, mainly Braskem; and

·       Natural gas (a 5% increase) – due to a higher demand on the electricity sector.

FINANCIAL AND OPERATING HIGHLIGHTS

LIQUIDITY AND CAPITAL RESOURCES

Consolidated Statement of Cash Flows – Summary ¹⁷

As of March 31, 2015, the balance of cash and cash equivalents decreased by 36% when compared to the balance as of December 31, 2014 and the balance of adjusted cash and cash equivalents¹⁸ decreased by 18%. Our principal uses of funds in the 1Q-2015 were for capital expenditures and repayment of long-term financing. We met these requirements with cash provided by operating activities (amounting to US$ 5,739 million) and a decrease in our balance of adjusted cash and cash equivalents.

Net cash provided by operating activities increased by 44% in Jan-Mar/2015 when compared to Jan-Mar/2014 mainly due to a higher operating profit and a decrease in the level of inventories and trade receivables.

Capital expenditures and investments were lower in the 1Q-2015, mainly due to a decrease in capital expenditures in our Refining, Transportation and Marketing (RTM) segment. We also repaid long-term financings in the 1Q-2015, mainly because of our inability to access new sources in the international capital markets.

Due to the limitations on funding sources, complications due to contractor insolvency or to a lack of availability of qualified suppliers (mainly as a result of the Lava Jato investigation) the Company has recently decided to postpone certain projects for an extended period of time.

The Company intends to use different funding sources (banking markets, export credit agency - ECAs and capital markets) in 2015 to obtain the necessary funding to repay debt and fund its capital expenditures. In addition, the Company’s divestment program (of US$ 13.7 billion) will contribute to its funding needs.

FINANCIAL AND OPERATING HIGHLIGHTS

Capital expenditures and investments

Pursuant to the Company’s strategic objectives, it operates through joint ventures in Brazil and abroad, as a concessionaire of oil and gas exploration, development and production rights.

In the 1Q-2015, we invested a total of US$ 6,233 million, primarily aiming at increasing production capacity and modernizing and expanding our refineries.

FINANCIAL AND OPERATING HIGHLIGHTS

Consolidated debt

As of March 31, 2015, net debt in U.S. dollars was 2% lower when compared to December 31, 2014. Excluding the impact of the 20.8% depreciation of the Real against the U.S. dollar, net debt in Reais increased by 18% when compared to December 31, 2014.

FINANCIAL AND OPERATING HIGHLIGHTS

FINANCIAL STATEMENTS

Income Statement - Consolidated ²³

FINANCIAL AND OPERATING HIGHLIGHTS

Statement of Financial Position – Consolidated

FINANCIAL AND OPERATING HIGHLIGHTS

Statement of Cash Flows – Consolidated

FINANCIAL AND OPERATING HIGHLIGHTS

SEGMENT INFORMATION

Consolidated Income Statement by Segment – Jan/Mar-2015

 Consolidated Income Statement by Segment – Jan/Mar-2014 ²⁴