PBR Petroleo Brasileiro ADR

TABLE OF CONTENTS

Key Financial Information

Sales Revenues

Sales revenues were US$ 59,935 million for the period Jan-Sep/2021, a 50.7% increase (US$ 20,163 million) when compared to US$ 39,772 million for the period Jan-Sep/2020, mainly due to:

* It includes short-term leases and inventory turnover.

Cost of sales was US$ 29,712 million for the period Jan-Sep/2021, an 30.3% increase (US$ 6,901 million) when compared to US$ 22,811 million for the period Jan-Sep/2020, mainly due to:

Selling expenses were US$ 3,137 million for the period Jan-Sep/2021, a 16.5% decrease (US$ 619 million) compared to US$ 3,756 million for the period Jan-Sep/2020, led by lower shipping costs and lower exported volume, partially offset by an increase in logistics expenses related to natural gas, whose contracts were readjusted at the end of the last quarter of 2020.

General and administrative expenses were US$ 870 million for the period Jan-Sep/2021, a 13.9% decrease (US$ 141 million) compared to US$ 1,011 million for the period Jan-Sep/2020, mainly due to the depreciation of Brazilian reais against the US dollars, lower employee expenses due to reduction of headcount, optimization and lower expenses with consulting services.

Impairment reversal of US$ 2,918 million for the period Jan-Sep/2021 represent an increase of US$ 16,276 million over the expenses of US$ 13,358 million for the period Jan-Sep/2020, mainly due to brent price increase in the current period as compared to the prior period which had resulted in a revision in the Brent price assumptions at the outbreak of the Covid-19 pandemic.

Net finance income (expense)

* Includes PIS and COFINS inflation indexation income - exclusion of ICMS (VAT tax) from the basis of calculation.

Net finance expenses were US$ 8,482 million for the period Jan-Sep/2021, a 22.8% decrease (US$ 2,512 million) compared to the expense of US$ 10,994 million for the period Jan-Sep/2020, due a decrease in foreign exchange losses mainly due to fluctuations of the Brazilian real over the US dollar (US$ 3,171 million), and lower interest on finance debt (US$ 500 million). This movement was partially offset by lower inflation indexation income on recoverable taxes (US$ 1,372 million decrease), and higher premium on repurchase of debt securities (US$ 315 million increase).

Income tax expenses

Income tax presented a US$ 5,970 million expense for the period Jan-Sep/2021, a US$ 9,869 million increase compared to a US$ 3,899 million net benefit for the period Jan-Sep/2020, mainly due to the net income before income taxes in the period Jan-Sep/2021 compared to the loss before income taxes in the comparative period.

Net Income (loss) attributable to shareholders of Petrobras

Net income (loss) attributable to shareholders of Petrobras presented a US$ 14,310 million net income for the period Jan-Sep/2021, a US$ 24,979 million increase compared to a US$ 10,669 million net loss for the period Jan-Sep/2020, mainly due to the impairment losses recognized in Jan-Sep/2020, impairment reversal in Jan-Sep/2021, and business performance improvement, led by higher oil prices, increased margins and sales volumes.

CAPITAL EXPENDITURES (CAPEX)

Capital expenditures, or CAPEX, based on the cost assumptions and financial methodology adopted in our strategic plans, which includes acquisition of intangible assets and property, plant and equipment, investment in investees and other items that do not necessarily qualify as cash flows used in investing activities, comprising geological and geophysical expenses, research and development expenses, pre-operating charges, purchase of property, plant and equipment on credit and borrowing costs directly attributable to works in progress.

We invested a total of US$ 6,140 million in the period Jan-Sep/2021, of which 81.9% was in the E&P segment, a 2.2% increase when compared to our Capital Expenditures of US$ 6,008 million in the period Jan-Sep/2020. In line with our Strategic Plan, our Capital Expenditures were primarily directed toward investment projects in which Management believes are most profitable, relating to oil and gas production.

In Jan-Sep/2021, investments in the E&P segment totaled US$ 5.0 billion, mainly concentrated on: (i) the development of ultra-deep water production in the Santos Basin pre-salt complex (US$ 0.6 billion); (ii) development of new projects in deep water (US$ 0.1 billion); and (iii) exploratory investments (US$ 0.2 billion).

* Includes short-term government bonds and time deposits and cash and cash equivalents of companies classified as held for sale.

** In accordance with the Shareholders’ remuneration policy, the additions (reductions) in investments shall not be considered in the calculation.

As of September 30, 2021, the balance of Cash and cash equivalents was US$ 10,925 million and Adjusted Cash and Cash Equivalents totaled US$ 11,462 million.

The nine-month period ended September 30, 2021 had net cash provided by operating activities of US$ 28,595 million, proceeds from disposal of assets (divestments) of US$ 2,906 million, financial compensation for the Búzios co-participation agreement of US$ 2,938 million and proceeds from financing of US$ 1,754 million. Those resources were allocated to debt prepayments and to amortizations of principal and interest due in the period of US$ 22,360 million, repayment of lease liability of US$ 4,381 million and to acquisition of PP&E and intangibles assets of US$ 4,640 million.

The Company repaid several finance debts, in the amount of US$ 22,360 million notably: (i) prepayment of banking loans in the domestic and international market totaling US$ 6,344 million; (ii) US$ 9,617 million to repurchase and withdraw global bonds previously issued by the Company in the capital market, with net premium paid to bond holders amounting to US$ 1,095 million; and (iii) total prepayment of US$ 593 million for loans from development agencies.

The Company raised US$ 1,442 million through bonds issued in the international capital market (Global Notes) maturing in 2051.

The cash flow generation and continuous liability management allowed a significant reduction in our indebtedness. Gross debt decreased 21.1% (US$ 15,950 million) to US$ 59,588 million on September 30, 2021 from US$ 75,538 million on December 31, 2020. Gross debt was lower than the US$ 60,000 target established for 2021 and 2022, mainly due to debt prepayments.

Net debt was reduced by 23.8% (US$ 15,036 million), reaching US$ 48,132 million on September 30, 2021, compared to US$ 63,168 million on December 31, 2020.

In addition, our liability management strategy, which involved the issuance of new long-term debt and the payment of debt due in the shorter term, helped increase the weighted average maturity of outstanding debt to 13.50 years as of September 30, 2021 from 11.71 years as of December 31, 2020.

RECONCILIATION OF LTM ADJUSTED EBITDA, GROSS DEBT/ LTM ADJUSTED EBITDA AND NET DEBT/LTM ADJUSTED EBITDA METRICS

LTM Adjusted EBITDA reflects the sum of the last twelve months of Adjusted EBITDA, which is computed by using the EBITDA (net income before net finance income (expense), income taxes, depreciation, depletion and amortization) adjusted by items not considered part of the Company’s primary business, which include results in equity-accounted investments, reclassification of comprehensive income (loss) due to the disposal of equity-accounted investments, results from disposal and write-offs of assets and on remeasurement of investment retained with loss of control, impairment and results from co-participation agreements in bid areas.

LTM Adjusted EBITDA represents an alternative to the company's operating cash generation. This measure is used to calculate the metrics Gross Debt/LTM Adjusted EBITDA and Net Debt/LTM Adjusted EBITDA, to support management’s assessment of liquidity and leverage.

Gross Debt/LTM Adjusted EBITDA and Net Debt/LTM Adjusted EBITDA Metrics

The Gross Debt/LTM Adjusted EBITDA ratio and Net debt/LTM Adjusted EBITDA ratio are important metrics that support our management in assessing the liquidity and leverage of Petrobras Group. These ratios are important measures for management to assess the Company’s ability to pay off its debt, mainly because Gross Debt became a Top Metric as identified in our Strategic Plan 2021-2025.

The following table presents the reconciliation for those metrics to the most directly comparable measure derived from IFRS captions, which is in this case the Gross Debt Net of Cash and Cash Equivalents/Net Cash provided by operating activities ratio:

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In the period Jan-Sep/2021, the gross profit of E&P segment was US$ 22,661 million, an increase of 100.0% in relation to the period Jan-Sep/2020, due to higher sales revenues, which reflect higher Brent prices.

The operating income of US$25,389 million in the period Jan-Sep/2021 was mainly due to the increase in Brent prices and the lower expenses, reflecting the reversal of impairment losses as a result of the revision of average short-term Brent price projections.

In the period Jan-Sep/2021, the increase in production taxes was caused by the rise in Brent prices, in relation to the Jan-Sep/2020 period.

Operational information

Production of crude oil, NGL and natural gas was 2,798 mboed in the period Jan-Sep/2021, representing a 3.1% reduction compared to Jan-Sep/2020, due to platform hibernation in shallow water, divestments of fields concluded over 2020 and early 2021, in addition to the natural decline in production, partially compensated by the start-up of the FPSO Carioca (Sépia field) and ramp up of platforms P-67 (Tupi field), P-68 (Berbigão and Sururu field) and P-70 (Atapu field).

For the period Jan-Sep/2021, Refining, Transportation and Marketing gross profit was US$ 4,105 million higher than in the period Jan-Sep/2020. In Jan-Sep/2021 Brent prices appreciated which resulted in a higher gross profit margin as inventory was purchased at earlier, lower prices. This effect was negative in Jan-Sep/2020 because of the strong reduction in Brent prices following the impact of the covid pandemic on global demand.

The operating income for the period Jan-Sep/2021 reflects higher gross profit and lower selling expenses, due to reduced international freight prices and to reduced personnel expenses, due to the indemnity expenses related to the voluntary severance program recorded in 2020.

The refining cost in the period Jan-Sep/2021 was US$ 1.64/bbl, 7.9% lower than in the period Jan-Sep/2020, due to the exchange rate variation and to a reduction of personnel costs due to the indemnity expenses related to the voluntary severance program recorded in 2020.

Operational information

Domestic sales in the period Jan-Sep/2021 were 1,792 mbbl/d, an increase of 9.9% compared to Jan-Sep/2020, mainly due to the 21.2% growth in diesel sales between periods due to the increase in demand for diesel following the economic recovery. Gasoline sales increased 18.7% between the periods due to greater mobility in the period Jan-Sep/21 compared to the period Jan-Sep/2020, which included the start of the COVID-19 pandemic. Fuel oil sales increased by 67.6% driven by the increase in the thermoelectric demand.

Naphtha had a 45.6 % reduction in sales volume in Jan-Sep/2021 compared to Jan-Sep/2020, due to the new contracts in force with Braskem, with smaller committed amounts compared to the previous contract.

Total production of oil products for the period Jan-Sep/2021 was 1,832 mbbl/d, 1.5% above Jan-Sep/2020. The main increases in volumes were in diesel and gasoline production.

Processed feedstock for the period Jan-Sep/2021 was 1,758 mbbl/d, with a utilization factor of 81%, 2.0% above Jan-Sep/2020.

For the period Jan-Sep/2021, the gross profit of the Gas and Power segment was US$ 2,648 million, a decrease of 3.8% when compared to the period Jan-Sep/2020, mainly due to the increase in the gas acquisition costs, partially offset by higher power generation. 

For the period Jan-Sep/2021, the operating income was US$ 465 million, 49.1% lower than for the period Jan-Sep/2020, mainly due to lower gross profit, higher sales expenses, despite the divestment made (remaining portion of NTS and sale of wind farms). 

Operational information

For the period Jan-Sep/2021, the ACR sales increased by 2.2% when compared to the period Jan-Sep/2020, mainly due to the start of the new contract for Ibirité Thermoelectric Power Plant (UTE Ibirité) in January 2021, whose sale took place in the 2019 A-2 auction.

The volume of electricity generation increased by 183.8% due to the decrease in the levels of hydroelectric plants reservoirs, which increases the market demand for electricity from other sources, such as thermoelectric. 

Higher volume of natural gas sold to the thermoelectric sector, due to the increase in demand from our thermoelectric plants and other players, resulted in higher need for supply through LNG regasification. 

GLOSSARY

ACL - Ambiente de Contratação Livre (Free contracting market) in the electricity system. ACR - Ambiente de Contratação Regulada (Regulated contracting market) in the electricity system. Adjusted Cash and Cash equivalents - Sum of cash and cash equivalents, government bonds and time deposits from highly rated financial institutions abroad with maturities of more than 3 months from the date of acquisition, considering the expected realization of those financial investments in the short-term. This measure is not defined under the International Financial Reporting Standards – IFRS and should not be considered in isolation or as a substitute for cash and cash equivalents computed in accordance with IFRS. It may not be comparable to adjusted cash and cash equivalents of other companies, however management believes that it is an appropriate supplemental measure to assess our liquidity and supports leverage management. Adjusted EBITDA Net income plus net finance income (expense); income taxes; depreciation, depletion and amortization; results in equity-accounted investments; impairment; reclassification of comprehensive income (loss) due to the disposal of equity-accounted investments; results on disposal/write-offs of assets and on remeasurement of investment retained with loss of control; and results from co-participation agreements in bid areas. Adjusted EBITDA is not a measure defined by IFRS and it is possible that it may not be comparable to similar measures reported by other companies. However, management believes that it is an appropriate supplemental measure to assess our liquidity and supports leverage management. Adjusted EBITDA Margin – Adjusted EBITDA divided by Sales revenues. ANP - Brazilian National Petroleum, Natural Gas and Biofuels Agency. Capital Expenditures – Capital expenditures based on the cost assumptions and financial methodology adopted in our Business and Management Plan, which include acquisition of PP&E, including expenses with leasing, intangibles assets, investment in investees and other items that do not necessarily qualify as cash flows used in investing activities, primarily geological and geophysical expenses, research and development expenses, pre-operating charges, purchase of property, plant and equipment on credit and borrowing costs directly attributable to works in progress. CTA – Cumulative translation adjustment – The cumulative amount of exchange variation arising on translation of foreign operations that is recognized in Shareholders’ Equity and will be transferred to profit or loss on the disposal of the investment. EBITDA - net income before net finance income (expense), income taxes, depreciation, depletion and amortization. EBITDA is not a measure defined by IFRS and it is possible that it may not be comparable to similar measures reported by other companies. However, management believes that it is an appropriate supplemental measure to assess our liquidity and supports leverage management. Effect of average cost in the Cost of Sales – In view of the average inventory term of 60 days, the crude oil and oil products international prices movement, as well as foreign exchange effect over imports, production taxes and other factors that impact costs, do not entirely influence the cost of sales in the current period, having their total effects only in the following period.

Free Cash Flow - Net cash provided by operating activities less acquisition of PP&E, intangibles assets (except for signature bonus, including the bidding for oil surplus of the Transfer of Rights Agreement, paid for obtaining concessions for exploration of crude oil and natural gas) and investments in investees. Free cash flow is not defined under the IFRS and should not be considered in isolation or as a substitute for cash and cash equivalents calculated in accordance with IFRS. It may not be comparable to free cash flow of other companies. However, management believes that it is an appropriate supplemental measure to assess our liquidity and supports leverage management. Gross Debt – Sum of current and non-current finance debt and lease liability, this measure is not defined under the IFRS. The global adverse scenario encouraged the Company to revise its top metric relating to indebtedness, contained in the Strategic Plan 2020-2024, replacing the Net debt / Adjusted EBITDA ratio with the Gross debt. The target approved for the Gross debt, in the scope of the Strategic Plan 2021-2025, is US$ 67 billion for 2021 and is US$ 60 billion for 2022. Leverage – Ratio between the Net Debt and the sum of Net Debt and Shareholders’ Equity. Leverage is not a measure defined in the IFRS and it is possible that it may not be comparable to similar measures reported by other companies, however management believes that it is an appropriate supplemental measure to assess our liquidity. Lifting Cost - Crude oil and natural gas lifting cost indicator, which considers expenditures occurred in the period. LTM Adjusted EBITDA – Adjusted EBITDA for the last twelve months. OCF - Net Cash provided by (used in) operating activities (operating cash flow) Operating income (loss) - Net income (loss) before finance income (expense), results in equity-accounted investments and income taxes. Net Debt – Gross Debt less Adjusted Cash and Cash Equivalents. Net debt is not a measure defined in the IFRS and should not be considered in isolation or as a substitute for total long-term debt calculated in accordance with IFRS. Our calculation of net debt may not be comparable to the calculation of net debt by other companies. Management believes that net debt is an appropriate supplemental measure that helps investors assess our liquidity and supports leverage management. Results by Business Segment – The information by the company's business segment is prepared based on available financial information that is directly attributable to the segment or that can be allocated on a reasonable basis, being presented by business activities used by the Executive Board to make resource allocation decisions and performance evaluation. When calculating segmented results, transactions with third parties, including jointly controlled and associated companies, and transfers between business segments are considered. Transactions between business segments are valued at internal transfer prices calculated based on methodologies that take into account market parameters, and these transactions are eliminated, outside the business segments, for the purpose of reconciling the segmented information with the consolidated financial statements of the company.

 

 

 

16

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 26, 2021

 

PETRÓLEO BRASILEIRO S.A–PETROBRAS

By: /s/ Rodrigo Araujo Alves

______________________________

Rodrigo Araujo Alves

Chief Financial Officer and Investor Relations Officer

 

 

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