FOURTH QUARTER OF 2015 RESULTS

Audited 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.

Rio de Janeiro – March 21, 2016

·  Consolidated net loss was US$ 8,450 million in 2015 and US$ 9,421 million in the 4Q-2015, due to:

i)       impairment of assets and investments, generated by decreased crude oil prices and by higher discount rate, attributable to an increase in Brazil’s risk premium, resulting from a credit risk downgrade (losing its investment grade status) (US$ 12,849 million); and

ii)      interest expenses and foreign exchange loss (US$ 9,853 million).

·  Operating loss decreased US$ 5,833 million in 2015 (US$ 6,963 million in 2014 and US$ 1,130 million in 2015).

·  Adjusted EBITDA was US$ 22,760 million in 2015, 9% lower than in 2014, due to the appreciation of the U.S. dollar against the Real. Excluding exchange variation effects, adjusted EBITDA increased 25% in Reais, due to higher diesel and gasoline prices, lower production taxes and crude oil and oil products imports.

·  Positive free cash flow of US$ 4,411 million in 2015, compared to negative free cash flow of US$ 8,118 million in 2014.

·  Net debt was US$ 100,379 million as of December 31, 2015, a 5% decrease when compared to December 31, 2014.

·  The average maturity of outstanding debt increased from 6.10 years as of December 31, 2014 to 7.14 years as of December 31, 2015.

·  Capital expenditures and investments of US$ 23,058 million, 38% lower compared to 2014 (US$ 37,004 million).

Key events in 2015:

·       4% increase in crude oil and natural gas production (in Brazil and abroad);

·       Lower crude oil and oil product import costs;

·       Decreased production taxes;

·       9% decrease in domestic demand for oil products (224 thousand barrels/day); and

·       55% increase in crude oil exports (128 thousand barrels/day).

Key events in the 4Q-2015, when compared to the 3Q-2015:

·       Impairment of assets, mainly of the Exploration & Production segment (US$ 11,880 million);

·       1% decrease in crude oil and natural gas production (in Brazil and abroad);

·       5% decrease in domestic demand for oil products (111 thousand barrels/day);

·       6% increase in crude oil export volumes (22 thousand barrels/day); and

·       Decreased net finance expenses, as a result of foreign exchange losses (US$ 1,943 million).

FINANCIAL AND OPERATING HIGHLIGHTS

Main Items and Consolidated Economic Indicators

FINANCIAL AND OPERATING HIGHLIGHTS

RESULTS OF OPERATIONS - 2015 compared to 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 from January to December 2015 (a 42% 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 13% (US$ 4,351 million) in 2015 compared to 2014 mainly due to the depreciation of the Brazilian Real against the U.S. dollar.

Ø  Sales revenues of US$ 97,314 million in 2015, a 32% decrease (US$ 46,343 million) compared to US$ 143,657 million in 2014, as a result of:

·          Decreased domestic demand for oil products (9%), reflecting lower economic activity in Brazil;

·          Lower crude oil and oil product export prices;

·          Decreased domestic prices of naphtha, jet fuel and fuel oil;

·          Higher diesel and gasoline prices, following prices increases in November 2014 and September 2015; and

·          Higher crude oil export volumes (55%) attributable to an increase in domestic crude oil production (5%) and to a decrease in feedstock processed by our domestic refineries (6%).

Ø  Cost of sales of US$ 67,485 million in 2015, a 38% decrease (US$ 41,992 million) compared to US$ 109,477 million in 2014, due to:

·          Lower crude oil and oil product import unit costs, as well as lower production taxes;

·          Decreased domestic demand for oil products that generated lower share of crude oil imports on feedstock processing and a lower share of oil product imports in the sales mix; and

·          Higher depreciation expenses.

Gross profit increased 23% when expressed in Brazilian Reais due to higher decrease of costs compared to sales revenues reduction (due to a 5% decrease on sales revenues compared to a 13% decrease in cost of sales). Foreign currency translation effects (depreciation of the Brazilian Real against the U.S. dollar) reduced gross profit when expressed in U.S. dollars.

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

Loss before finance income (expense), share of earnings in equity-accounted investments, profit sharing and income taxes was US$ 1,130 million in 2015, an 84% decrease (US$ 5,833 million) compared to an operating loss of US$ 6,963 million in 2014, resulting from:

·          Higher tax expenses attributable to the Company’s decision to benefit from the Tax Amnesty and Refinancing Program (Programa de Recuperação Fiscal – REFIS) and to State Tax Amnesty Programs (US$ 2,036 million);

·          Higher legal proceedings expenses, mainly related to tax and labour claims (US$ 1,375 million);

·          Higher pension and medical benefits expenses in 2015 attributable to an increase in the Company’s net actuarial liability in 2014, as a result of a decrease in real interest rates, following the Company’s valuation review of its pension and medical benefits (US$ 121 million).

Net finance expense

Net finance expense was US$ 8,441 million in 2015, US$ 6,806 million higher than in 2014 (US$ 1,635 million), resulting from:

·          Higher interest expenses (US$ 2,514 million) attributable to:

i) an increase in the net debt (US$ 124 million);

ii) a decrease in the level of capitalized borrowing costs due to a lower balance of assets under construction, reflecting the relevant projects concluded during 2014, as well as write-offs of assets and impairment losses recognized in December 2014 (US$ 1,827 million); and

iii) interest expenses related to tax expenses arised from the adhesion to REFIS of Imposto sobre Operações Financeiras – IOF and withholding income tax (US$ 768 million).

·          Foreign exchange losses caused by the impact of a 47.0% depreciation of the Brazilian Real against the U.S. dollar in 2015 on the Company’s net debt (compared to a 13.4% depreciation in 2014), partially offset by the application of cash flow hedge accounting; and

·          Foreign exchange losses caused by the impact of a 31.7% depreciation of the Brazilian Real against the Euro on the Company’s net debt (compared to a 0.02% depreciation in 2014).

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 prices defined through methodologies based on market parameters.

As a result of changes in the Company’s internal organization, the international department was extinguished and the composition of the business segments was changed to reflect the allocation of the international activities to E&P, RTM and Gas & Power, according to the nature of those activities.

For comparison purposes, the consolidated results for the year 2014 are presented herein based on the current business model.

EXPLORATION & PRODUCTION

Net loss was US$ 2,480 million in 2015 compared to a net income of US$ 14,151 million in 2014. The net loss is attributable to lower crude oil sales/transfer prices and to the impairment of production fields in Brazil and abroad, due to the review of price assumptions generated by decreased projections of international crude oil prices, which decreased crude oil and gas reservoirs and cash flow projects, as well as higher discount rate and geological review of Papa-Terra reservoir.

These effects were partially offset by higher crude oil volume transferred due to increased production and by the appreciation of the U.S. dollar against the Real (42%).

Crude oil and NGL production increased by 5% in 2015 compared to 2014 due to the ramp-ups of P-55 and P-62 (both in the Roncador field), P-58 (Parque das Baleias), and of FPSOs Cidade de Paraty (Lula NE), Cidade de São Paulo (Sapinhoá), Cidade de Mangaratiba (Iracema Sul, Lula field) and Cidade de Ilhabela (Sapinhoá), besides the start-ups of FPSO Cidade de Itaguaí (Iracema Norte, Lula field) and P-61 (Papa-Terra). This production increase was partially offset by the natural decline of production in mature fields.

The 10% increase in natural gas production is attributable to the production start-up of the systems above mentioned and to higher productivity of the Mexilhão platform and of FPSO Cidade de Santos (Uruguá-Tambaú), partially offset by the natural decline of production in mature fields.

FINANCIAL AND OPERATING HIGHLIGHTS

 Lifting Cost - Excluding production taxes

Lifting cost excluding production taxes was 18% lower in 2015 compared to 2014. Excluding foreign exchange variation effects, lifting cost excluding production taxes increased by 3% due to higher well intervention expenses and higher engineering and subsea maintenance costs in Campos Basin, partially offset by increased production.

Lifting Cost - Including production taxes

Lifting cost including production taxes was 39% lower in 2015 compared to 2014, as a result of lower production taxes (royalties and special participation charges) attributable to a lower domestic crude oil prices in U.S. dollar.

FINANCIAL AND OPERATING HIGHLIGHTS

 REFINING, TRANSPORTATION AND MARKETING

Net income of US$ 5,727 million in 2015, compared to a US$ 15,761 million net loss in 2014. Earnings in 2015 were attributable to:

·       A decrease in crude oil purchase/transfer costs due to lower crude oil international prices;

·       Lower shares of crude oil imports on feedstock processing and lower share of oil product imports in our sales mix; and

·       Diesel and gasoline price increases in November 2014 and  in September 2015.

The decreased oil product domestic demand as a result of lower economic activity in Brazil, the impairment on COMPERJ and also the appreciation of the U.S. dollar against the Real (42%) partially offset these effects.

Crude oil exports were higher and imports were lower due to increased crude oil production and decreased feedstock processed, mainly of imported crude oil.

Oil product imports decreased due to lower economic activity.

Oil product exports were lower due to a decrease in feedstock processed and to lower fuel oil production.

FINANCIAL AND OPERATING HIGHLIGHTS

Daily feedstock processed was 6% lower, reflecting a scheduled stoppage mainly in the distillation unit of Landulpho Alves Refinery (RLAM) and an unscheduled stoppage in REDUC, partially offset by the production start-up of RNEST in November 2014.

Refining cost, in US$/barrel, decreased by 15% in 2015 when compared to 2014. Excluding foreign exchange variation effects, refining cost, in R$/barrel, increased by 20%, mainly reflecting higher employee compensation costs attributable to the 2014/2015 and 2015/2016 Collective Bargaining Agreements, along with a decrease in feedstock processed.

FINANCIAL AND OPERATING HIGHLIGHTS

GAS & POWER

Earnings were a US$ 237 million gain in 2015 compared to a US$ 347 million loss in 2014. Earnings in 2015 was generated by:

i)       Lower  natural gas import acquisition costs (LNG and Bolivian gas);

ii)      An increase in natural gas sales margins, resulting from higher natural gas average prices; and

iii)     Lower impairment of trade receivables from companies in the isolated electricity sector.

These effects were partially offset by:

i)       The appreciation of the U.S. dollar against the Real (42%);

ii)      The decreased electricity sales margins (due to the 70% decrease of electricity prices in the spot market);

iii)     Impairment losses recognized for Nitrogen Fertilizers Plants III and V (Unidades de Fertilizantes Nitrogenados – UFNs III and V); and

iv)     Tax expenses related to deferred VAT tax on natural gas purchase and reversal of VAT tax credit on natural gas transportations.

Electricity sales to the Brazilian free contracting market (Ambiente de Contratação Livre – ACL) were 27% lower, attributable to the shift of a portion of our available capacity (1,049 average MW) to the Brazilian regulated market (Ambiente de Contratação Regulada – ACR).

Electricity generation remained relatively flat in the period.

Electricity prices in the spot market decreased by 70%, as a result of changes in the spot market price regulation set by the Brazilian National Electricity Agency (Agência Nacional de Energia Elétrica – ANEEL), which reduced the maximum spot price after December 27, 2014 and also due to decreased planned feedstock thermoelectric generation as a result of relative improved hydrological conditions.

LNG imports decreased by 27% and natural gas imports from Bolivia were 2% lower, reflecting an increase in domestic natural gas supply resulting from a 10% increase in production.

^15]

FINANCIAL AND OPERATING HIGHLIGHTS

DISTRIBUTION

Net loss was US$ 142 million in 2015 compared to a net income of US$ 565 million in 2014, mainly due to the appreciation of the U.S. dollar against the Real (42%), to lower domestic sales volumes (7%), increased losses with trade receivables from companies in the isolated electricity sector and impairment of assets.

Market share decreased mainly due to:

i)       A general increase of the hydrated ethanol market (36.5%), in which Petrobras Distribuidora has a lower market share;

ii)      Lower sales to the thermoelectric industry; and

iii)     Higher gasoline/diesel imports and acquisition of formulated gasoline by other players.

BIOFUEL

Biofuel losses were higher in 2015, when compared to 2014, mainly due to further impairment charges recognized for ethanol and biodiesel investees and to impairment charges in biodiesel plants, as a result of the worsening in market conditions and of higher discount rate due to higher oil industry risk premium and Brazilian risk.

FINANCIAL AND OPERATING HIGHLIGHTS

Sales Volumes – (Mbbl/d) ^(*)

Our domestic sales volumes decreased by 7%, primarily due to:

·           Diesel (an 8% decrease):

i) a lower consumption by infrastructure construction projects in Brazil;

ii) a higher share of diesel sales from other market players (based on diesel imports); and

iii) an increased 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).

·           Gasoline (an 11% decrease):

i) an increase in the anhydrous ethanol content requirement for Type C gasoline (from 25% to 27%);

ii) a higher share of gasoline sales from other market players;

iii) a higher demand of hydrous ethanol in flex vehicles; and

iv) a decrease in the automotive gasoline-moved fleet.

·           Naphtha (an 18% decrease): due to a lower demand from domestic customers, mainly Braskem;

·           Fuel oil (a 13% decrease): due to lower demand from thermoelectric and industrial sectors in several Brazilian states; and

·           Natural Gas (a 3% decrease): lower demand from electric sector.

  ^{(*) [17] [18]}

FINANCIAL AND OPERATING HIGHLIGHTS

As of December 31, 2015, the balance of cash and cash equivalents increased by 50% when compared to the balance as of December 31, 2014 and the balance of adjusted cash and cash equivalents¹⁹ remained relatively flat for the same period. Our principal uses of funds in 2015 were for repayment of long-term financing (and interest payments) and for capital expenditures. We met these requirements with cash provided by operating activities of US$ 25,913 million and with proceeds from long-term financing of US$ 17,420 million.

Net cash provided by operating activities decreased by 3%  in 2015 when compared to 2014, mainly due to a depreciation of the Brazilian Real against the U.S. dollar. Excluding foreign currency translation effects, net cash provided by operating activities increased by 39% when expressed in Brazilian Reais, reflecting higher diesel and gasoline prices, increased crude oil export volumes, lower production taxes and lower crude oil and oil product imports costs, along with a higher share of domestic crude oil on feedstock processing.

Capital expenditures and investments in operating segments were 38% lower in 2015 compared to 2014, mainly due to a 68% decrease in capital expenditures in our Refining, Transportation and Marketing (RTM) segment.

The US$ 7,982 million of divestments in marketable securities relates to proceeds from the maturity of financial investments with maturities longer than three months, most of which were invested in other financial investments, with maturities of less than three months (classified as cash and cash equivalents).

Free cash flow²⁰ was positive in US$ 4,411 million in 2015, compared to a negative free cash flow of US$ 8,118 million in 2014.

The Company raised long-term financing of US$ 17,420 million in 2015, mainly through a US$ 5 billion funding agreement with the Chinese Development Bank (CDB), US$ 2 billion raised through the issuance of Global Notes maturing in 2115, and also through bilateral credit agreements with Brazilian banks. The average maturity of outstanding debt was 7.14 years as of December 31, 2015 and 6.10 years as of December 31, 2014.

Repayments of interest and principal were US$ 21,114 million in 2015, 32% higher than US$ 16,026 million in 2014 and the nominal cash flow (undiscounted), including face value and interest payments, by maturity, is set out as follows:

FINANCIAL AND OPERATING HIGHLIGHTS

Consolidated debt

As of December 31, 2015, net debt in U.S. dollars was 5% lower when compared to December 31, 2014.

FINANCIAL AND OPERATING HIGHLIGHTS

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 – 2015