Rio de Janeiro, April 7, 2016 – Petróleo Brasileiro S.A. – Petrobras hereby responds to Official Letter 148/2016/CVM/SEP/GEA-1, which requests the following clarifications:

Official Letter 148/2016/CVM/SEP/GEA-1

“Dear Officer,

We refer to the news item published today in the Empresas (Companies) section of the newspaper Valor Econômico, entitled: Petrobras superestimou em US$ 45 bi o retorno de 59 grandes projetos (Petrobras overestimated returns from 59 major projects by US$45 billion), which contains the following affirmations:

Petrobras’ Executive Board knew as early as 2014 that the profitability of its 59 biggest ongoing projects would fall short of expectations by US$45 billion, or R$165 billion at today’s exchange rate, due to the over-optimistic projections used in the calculations on which the approval of these investments was based.

This information appears in top secret internal reports which were sent to the Board of Directors and Fiscal Council last week in the form of an anonymous denunciation by employees. Valor is in exclusive possession of all the documents.

This loss of profitability had nothing to do with oil price swings and everything to do with a lack of planning and execution efficiency.

The projects which, when approved, were expected to generate returns of US$109 billion, in fact generated 40% less than estimated due to negative variations in the assumptions used for terms, production, operating costs and investments. In other words, none of the initial evaluation projections panned out.

All these factors are classified as “manageable”, i.e. under the control of the company. The 2014 study reduced the expected returns from these projects to US$64 billion.

“If the projects’ terms, operating costs, investments, scope and production estimated at the basic project approval stage had been maintained, returns would have come to US$109 billion instead of US$64.1 billion”, claimed the report.

Given the above, we would like you to confirm if the content of this news item is in fact true and, if so, why such information was not deemed to constitute a material fact, We also request that you comment on any other relevant information on this topic.”

Clarification

Petrobras clarifies that periodically conducts analysis of the economic performance of its projects.  The results are consolidated in a corporate document entitled Post-Technical and Economic Feasibility Study (Post-EVTE), which details the integrated economic impact of the Company’s projects, using well-defined assumptions and methodological guidelines.

This process is designed to gauge the economic effectiveness of the project portfolio and assess and improve term and cost estimates by measuring their deviations, thereby contributing to capital discipline, as well as to survey and organize the lessons learned.

The Post-EVTE assessment is a tool aimed at continuous improvement of the project management process and have been contributing to:

• improve of the Corporate Investment Project Systematics, a document establishing the rules governing project planning, approval, monitoring and reassessment, incorporating best management practices;
• adopt of sensitivity analyses and scenarios in order to assess the robustness of the projects in more unfavorable conditions;
• improve cost and term contingencies.

Eventual significant deviations in the manageable variables do not necessarily indicate excessive optimism in the projects planning phase given that these variables are influenced by external factors, such as the capacity of the supply chain to meet deadlines, quality and expected costs in regard to required national content, the ability of available labor, and the greater complexity of the environments in which the projects are inserted, among others.

It is worth noting that the 2014 World Economic Forum (WEF) examined the complexities of investment projects in the E&P segment worldwide and observed the following factors in a sample of 100 projects implemented by 35 companies in 28 countries:

• 82% of the projects exceeded their budgets, with an average deviation of 52%;
• 56% exceeded their envisaged terms, with an average delay of 39.5%.

Also, in relation to possible investment project deviations, Petrobras adopts the criteria issued by the ANSI Standard Z94.0 and AACE International Recommended Practice in the basic project approval phase, in which estimate errors typically vary between -5% and +15% after application of the contingencies.

Please be advised that the same Post-EVTE study found an overall increase in the Net Present Value (NPV) of the project analyzed of 135%, or US$ 36.9 billion (from US$ 27.2 billion to US$ 64.1 billion) to consider all the factors deviation, demonstrating that the added value was higher than expected when the approvals of projects.

It is worth reaffirming that Petrobras has confronted the complexities related to the implementation of oil and gas industry projects, always seeking to improve the management of its projects while acting with social and environmental responsibility and with capital discipline.

Finally, it is worth clarifying that economic performance analysis of the Company’s projects is covered in its regular activity management.