Good day, ladies and gentlemen. Welcome to Petrobras conference call with analysts and investors for the presentation of the first quarter 2018 results. We would like to inform you the participants will be in listen-only mode during the conference call. During the Company's presentation which will be conducted in Portuguese with simultaneous translation into English. Following the presentation a Q&A session will begin in Portuguese and in English and further instructions will be provided [Operator Instructions]. Present with us today are: Mr. Ivan de Souza Monteiro, Petrobras Chief Financial and Investor Relations Officer; Ms. Solange da Silva Guedes, Chief Exploration and Production Officer; Mr. Jorge Celestino Ramos, Chief Refining and Natural Gas Officer; Mr. Nelson Luiz Costa Silva, Chief Strategy, Organization and Performance Officer; Mr. Hugo Repsold, Jr., Chief Technology and Production Development Officer; Mr. Eberaldo de Almeida, Chief Human Resources, HSE and Services Officer, as well as other company executives. I would like to remind you that this meeting is being recorded, and please be mindful of Slide 2, which contains a notice to shareholders and investors. The words believe, expects and similar ones related to projections and targets of the company are mere forecasts based on the expectations of executives regarding the future of Petrobras. To begin, we will hear Ms. Isabela Carneiro da Rocha, Executive Manager of Investor Relations, who will start with a presentation about the first quarter 2018 results. Subsequently, questions from the participants will be answered. Please, Ms. Rocha, you may begin.

Good day, everyone. Thank you for joining us for the presentation of the first quarter 2018 earnings. We would like to begin with Slide 3 showing the main highlights for first quarter. In the first place, solid results were achieved. We continue the focus on our top metrics to come back our shareholders remuneration and partnership as a driver of competitiveness and value. In terms of the results, our net debt was BRL6,960,000,000 in the quarter, up 56% vis-à-vis the first quarter '17, the highest net income since the first quarter of 2013. In terms of operating profit, it grew 25%, reaching 17.8 billion. Regarding the continuous focus on top metrics, our recordable injury per million man hours rate was 0.95, therefore below what we have established as an acceptable threshold for the end of this year of one. And this places at the same level of our peer companies in terms of safety. The other metric, net debt over adjusted EBITDA ratio reached 3.52. It increased a level in the last quarter of last year because of the class action settlement, but it came down again to 3.52. We are maintaining the target of 2.5 by year-end. In terms of remuneration to shareholders, our Board of Directors approved a change in the bylaws and, therefore, the new policy for the remuneration shareholders, which allows the distribution of dividend. The dividend payout policy now is called Shareholders Remuneration policy, and it allows a quarterly distribution or paying out of dividend or interest on equity. This was approved by the board at the level of BRL0.05 per share for both classes of shares. Since we'll focus on -- the focus on partnerships as the value drivers. Again, the goal is to replicate the good experience and partnerships that we have in…

[Operator Instructions] Our first question comes from Luiz Carvalho with UBS.

I would like to ask three questions. The first one, for Ivan, as usual. Now you have the approval of the new dividend payout policy and that you call remuneration to shareholders, now I would like to understand how this is going to happen over the quarters? In the first quarter, you have already announced interest on equity and for common and preferred shares. I would like to know if the adjustments will be made, let's say, preferred shares will receive more, could this happen over the year? Or is this is going to happen right at the beginning? And the second to Solange. In relation to the transfer of rights, I understand your limitation. You cannot talk about negotiations, so on and so forth, but I would like to understand the process better. Supposing that the company breaches an agreement with the government, as was mentioned by Parente during his press conference on the 17th, I would like to know more about the internal approval by the company. Does this have to be brought to the Board of Directors and then to the minority group? How long does it take? And Celestino, the other question to you, could you give us some more color regarding the negotiation of contracts, the distribution companies? We saw that imports were not what we seem to have at the beginning because there were many traders that had long-term contracts. And I would like to know if you can give us some color about that. And what about the recovery of margins and the use of your refining capacity from now on? What is your estimate?

We are going to evaluate the company's results over the year. This happened in the last quarter. And if the adjustment happens, it will be only in the last quarter. So Solange is going to talk about the other questions.

The processes you referred to in your question about the process here in the company is the following. It should be taken to -- it has to be approved by the committee that has to give support to the executive committee. Then the minority council and other councils as well, the Strategic Committee of the Board of Directors and the Board of Directors as well. So this is the ritual that we follow. This is the ritual that we follow to make other similar decisions to be made by the company, and that, we will continue to do with even more detail. And all these bodies have had over the years a lot of information about processes, et cetera. But we make strides in these discussions. They will be updated continuously because -- by the time the decisions have to be made so that everybody has all the necessary information to make their decision.

Regarding the contract with the distributors, we have just finished our negotiations, and the companies are now submitting this to the necessary approvers. And our commercial area with the distribution companies and the contract has some very interesting conditions from the viewpoint of performance bonds and the level of service. And with that, we expect to capture volumes, yes, and also improvement in margins. So on 1st of July, we have the beginning of 12-month contract, and these are new contracts in a new way of commercializing the product over the year in order to further improve our actions.

Is there any difference, not about prices but commercial conditions depending on volumes, for instance, or the target?

Not really the target but the volume that, that distribution company acquired from you.

So how can we think about that from now on?

Yes, the volume is agreed, and the distributors will have targets. And having reached the targets, then there would be a different price.

Our next question, Regis Cardoso from Crédit Suisse.

Could you go back to the interim dividend? Is there any room to establish that? Or how did you get to this prepaid interest on equity? For instance, you have 25% on the net income. So could you describe the room for the interim dividends? And now about export market share and what Petrobras can do on the commercial side of the operation in order to recover both volumes and margins. So how do you see the import dynamics in the second quarter? You talked about market share, but the market was a little bit weaker as well. The economy has not recovered. So in a nutshell, what did you expect in terms of market share and also volume? Was it lower because of these factors? And if you could talk about the characteristics of the contract, we would like to better understand what are the extraction points for distributors. You mentioned performance bond and the supply with the different level of service and a bonus to be paid in terms of reaching the target for the volume and if you have different prices, let's say, per truckload or -- could you give us more details because we would like to know in practice how this is going to work.

Thank you, Regis. In terms of dividends, there was a very broad discussion with the information that the management of the company have in hand. You know that we have a very high volatility in commodity prices, and this is also a year in Brazil where you have an even higher volatility because of elections. And also, we have the information about Argentina, which brings a degree of concern from the last week on. So we had already established this proposal. We have already handed this to the Board of Directors, and the shareholders' meeting approved that for the quarters. And we will continue to monitor this. What we can expect is the reevaluation at every quarter as we advance and as we have the results for each quarter. But right now, the best information that the management had led to this decision, and this has to do with the perception on the part of management regarding the annual result. But it would be really very rash to say that we are just establishing a figure for the result of the company for the whole year because, as I said before, there is a lot of volatility. And now I give the floor to that.

The first part of your question. The first part of your question has to do with imports and what about market share of Petrobras vis-à-vis imports, really, in the first quarter. Compared to the first quarter of 2017, the market was really going sideways. That is to say, no, nothing up or down in these, with more competition regarding imports. But in spite of that, in the last quarter of 2017, especially at the end of November, we still cruised on some points. In the -- if [indiscernible]. We focused on these points, and we were able to increase our market share to 79% in diesel. In May, it was slightly lower, and it is quite normal because the market at the beginning of the year is usually weaker, and it becomes stronger in gasoline, in fact. But as ethanol was very competitive this year, there were advancements of ethanol in the O2 cycle in the first quarter around 5%. So this was the first quarter and competition as I have just described. Now we are checking new ways of selling it, not only based in commodity prices, because the level of service comes into play. And we have good logistics, a good position in logistics and on coasting operations and in our supply, in general. So these are the actions that we have been adopting, combining commodity prices with the level of service. And all of these actions will be represented in the contract, so part of the contract that we are proposing has to do with the volume committed for the half year with the companies and also volumes vis-à-vis performance bonds. And in general, this is what we are proposing, but we cannot say anything more about that.

You talked about the first quarter quite a lot, and I would like to know about that dynamic. What about the second? What is your estimates in terms of ethanol?

Could you repeat because the question was not very clear to the company?

I said that your comments were excellent, all based in the first quarter. I would like to know if you could make similar comments in what you expect for the second quarter that is ongoing now.

Regarding the second quarter, I can talk about the month of April. We're in a good position. Market share of 79% of diesel, 86% for gasoline. For May, we see the position was a little better. And for June, well, the numbers are not closed yet. But we tend to be very competitive in the second quarter of the year as well.

Our next question comes from Andre Hachem with Itau Bank.

My question has to do with CapEx. There was a reduction of CapEx of about $3 billion. What is expectation for the rest of the year? My second question is, we have higher oil prices, more auction, do you see any difference in services in Brazil? And the third question, recently, in an interview office operation for the Petrobras could go back to having Petrobras own platforms in future projects, could you comment on that position?

Andre, we understood your first and your last question, but the second one, the sound quality wasn't very good. So the first question was regarding the behavior of CapEx. And then you asked the second question that was not clear. And then the third question was regarding possible owned or attracted platform. So I -- perhaps you could repeat the second question.

It was regarding to the development increase in oil prices, and a lot of auctions, facilities. Do you see higher demand for services for drills and other services?

Okay, clear now. So the first one -- so the second question will be answered by Mr. Solange and then we'll answer the third question.

Andre, your first question had to do with our CapEx in 2018. We haven't got our CapEx position yet, and we don't think the CapEx most of the year will be exceeded. We focused on paying some obligations, but these do not impact our speed to start a project. This is linked to the payment of suppliers that are working in our project to develop production. And some of the payments will be postponed and they will be made along the year. The second question was -- well, okay. We are doing strong work internally. Specifically, officers that are going to areas, working strongly on how we relate with our audience, the balance of services and how to approach them. We seek a new way to capture value for the company. So considering the low demand that we had recently, in terms of our services, we are preparing ourselves through a market strategy group to offer competitive and innovative services, so that we can have an offering of services. You will remember that, that happens whenever oil prices increase. So Andre, for your third question, I think that this is basically a comment I made regarding the contracting of our own unit or attracted one. If you look at our business plan, we've gone to market and all of the units contracted. Until 2022, there are two units that will need to be contracted. And as of 2023, we still cannot disclose -- we don't have disclosure of that in our business plan. So depending on how the company evolves, the technology evolves and depending on new opportunities that arise linked to new equipment, new ways to build the units, that's when we started considering having our own Petrobras project. So we would have time to work on that. And in this project, we would introduce innovation and changes, trying to reduce CapEx and to drive performance. But this was not a statement that -- something that we are going to do. As I said there was an option, we have an opportunity to have our own unit in order to introduce improvements, innovations and changes. That would be for beyond 2023. Now the final decision regarding having our own units or chartering one will always be based on achieving the best economic results for Petrobras.

One last question regarding P-74. Go ahead about the standard of operation, at what level? And is it operating? And any results within the second quarter?

Andre, please repeat.

Regarding P-74 standard operations last night, can you comment on its level of operations? And what we can expect?

P-74 started operating a little earlier than planned, two days before. And a good news, we managed to have very adequate commissioning. The all of the systems are tested and lessened [indiscernible] when we interconnected the first well, it immediately reached to a stable production level and it continued to operate in a stable way. There were normalized in the process. It's operating with high efficiency and our expectation is one that if with this production will continue to commission other systems -- the gas systems, then we'll have the injection well so that we can continue to inject. And then, we will continue to connect production wells to take this platform to its top-production level. This is the sequence. We should interconnect the 5 wells this year, and we will follow them up one by one to see how the whole system will perform. But we are very confident because this is well commissioned and started operating really well.

[Operator Instructions] Next question, Christian Audi with Santander.

My first question has to do with refining. What capacity level has the refineries achieved in the first quarter? It's just about gain of market share. Could you tell us more about refining margins? What would be the ideal or optimal point in terms of market share with a high margin? I just want to understand how you see this evolution. If you're happy with your goals, with your market share capacity utilization. This is my first question. My second question is geared to costs, we have reduction in general and administrative expenses, I would just like to understand if there's more to come or have we reached the limit. And somewhat increasing the lifting costs, and even reduced the production, what can you expect for lifting costs along the first half of the year?

This is Ivan, Christian. Thank you for the question. Officer Celestino will talk about FUT utilization factor at our facility and then we'll answer about G&A.

Christian, regarding FUT utilization factor, our facility or refinery, what we have for the first half of the year. We have very few competition regarding import in ethanol. This led FUT to refinery to be 72% initially. We are in a large commercial condition, we try to improve our operation. And in April, FUT increased to 78%. So it's now at the same average of last year. And the market tend to rally. So with the right commercial condition, with right market conditions, we will operate within FUT that will be higher. What we all see here, and since we operate in the park, all of these variables are taken into account. And we always see good chance of bounce to operating results for Petrobras. Our [indiscernible] oil are using our refining income version capability primarily to export the oil products, maintaining a balance between external and domestic markets.

Celestino, what do you see as the range of utilization factor for the refineries that would make you happy for the rest of the year?

Our range is always difficult. The utilization factor above 90 is not expected for this year because of the opportunities of increasing efficiencies at the operation vis-à-vis the possibilities to export the oil, our refining capacity versus our conversion capacity. It's very hard to give you a range given the diesel spread. For example, what are we seeing now? Refining margins, we when we compare them with Brent oil crude, the diesel spread is a little wider. This can lead to other levels of recovery, different than what we had in the first quarter of the year. So regarding cost reduction and G&A, with a regular follow up, I have described this, we continue to look at it weekly, we have a routine, a follow up of all processes. We have still a lot to do, but we have some processes, we reduced third-party services and we are strict about controlling headcount which sort of a large part of our costs. So we are very thorough and aware of our headcount, always trying to keep below the budget. It's a very good novelty that more of the same but with a lot of executions discipline.

What about the operational side? Low expenses of equipment maybe? There was an increase in the lifting costs. What is your vision for the rest of the year regarding these costs?

This is Solange. Christian, well, these numbers that we shared referring to the first quarter of '18, as you've said it yourself, these numbers have two components. We reduced our total costs as shown in the materials that we disclosed. We also have the effect of lower production in the first quarter and there was a second event contributing, which was intense management that we've been doing for a while in terms of allocating our resources, our drills. So that we won't have idle drills. So we are ranging forward renewal of wells and that also impacted these numbers. There is one effect that has not appeared yet, but I want to keep you on the same page of another event that will happen this year. It has to do with the certain sale of our new units. As they start operating, the operational cost of these units will be full and production will have a natural ramp up until we reach full utilization of that cost for the different units. So this is something that we will see along 2018, but we will have visible benefits of this ramp up of production in 2019.

One clarification. When we talk about dividends, what was not clear to me is how much will be paid to common and preferred shares. Will there be any changes compared to what you used to do in the past? And also in terms of the amount that will be paid to common and preferred shares?

So there was no change. The only change to the bylaws approved in the shareholders meeting was that we can pay dividend every quarter. But all of the rest remains the same, and adjustments -- depending on the performance for the results of the company, adjustments -- the final adjustments will be made in the end of the year.

Pedro Medeiros with Citibank.

I have some follow ups of the previous question then I would like to go back to refining. Thank you very much for the information regarding the use of the refining hub or the areas during the first quarter, but when we look at the behavior of domestic prices, especially in April, we see that the fees apparently, they're lagging behind, and that is quite relevant in terms of the variations of international prices in the last few months. And based on our math -- on our calculations, for a month, the prices in Brazil are already below parity for gasoline and diesel. So could you confirm those? And what is the stand taken by the company? And what about the company's pricing policy in the light of international prices volatility? And my second question, and I think I would like to ask all the questions and then we go back. My second question, could you talk about CapEx a little bit more? Because over the last four years, there was a trend in terms of investments being lower by the end of the year, lower than the guidance for the year. And again, we see a first quarter with completion quite below. In fact, I would like you to confirm two things and what is going on in the company in this regard? For the second quarter, if I'm not mistaken, you have already decided $1.3 billion up to $1.5 billion signature bonds for the pre-salt rounds and the preemptive right of the company, and this is the first confirmation that I would like. This $1.5 billion, was this part of the $17 billion that you had estimated for the year? And second, we understand that the fleet of rigs of the company, mainly deepwater rigs, last renovation deepwater rigs, they had 8 to 10 contracts until the end of the year. So what kind of effect of renewal of these contracts for returning the rigs are affecting the guidance of the company for the year? And the third and last question, in fact, it's a very quick follow-up. In the first quarter, there was a reported cost regarding the hedge of the company, BRL 700 million, and if I would like to know -- I would like to know if this is the total cost of the hedge or whether we should expect more cost regarding hedge for the remainder of the year? Solange, what about the expectation? So in order for us to set up our curve, could you clarify about platform fleet?

Let us start with refining and prices. But what you said really does not exist. What you have just -- have started it. It does not exceed our prices, it's commodity prices, currently logistic costs plus margins. So this is the way that we have been managing our pricing policy and prices below parity, this does not exist. Nowhere. This is valid also for diesel and gasoline. A – Unidentified Company Representative: We are going to answer that other details of your questions with contracts, Solange?

What you said about CapEx, it reflects the previous years. And so far, we had the dynamic of these services that you mentioned differently from the ones that we had with our suppliers. And the events that led to the low evaluation of investments practically came to an end when we changed many of the contracts have come to an end and many were changed, which means that today, we have a higher evaluation. We have more predictability nowadays in terms of carrying out these investments -- realizing these investments. So our plan and our projections show that we are in a different dynamic, different from the previous years. Although this is not totally reflected due to other events that I mentioned before are realized payments to the first quarter. You talked about the noninclusion of the bonuses of the fourth round and what we can say is that they are included in this projection, yes. Now Hugo will answer the renewal of the new contract and also regarding the rigs.

Thank you for your question. In fact, we have many rigs contracted, and the contract for some of them are ending this year. And this is one of the reasons why we have been reducing idleness of this equipment because we are reaching the end of some contract, many [indiscernible] are not renewing, and this does not mean that we will not contract again. We do not have to -- well, the prices of some contracts are not realigned or aligned with the market. So we are going back to the market in order to contract other rigs based on the demand that we have ahead of us but with new market prices. So the sum of these two effect that is to say the adjustment of the fleet and also the cost of the same fleet, this is what has a very relevant impact on the utilization of our expenditures over the year. And also, in relation to investments and the new unit, we believe that there will be four units by the end of the year. Then the two last ones of the first phase of Campo de Lula, 67 and 69 which are the two extremes. That is to say the north and the south of the Lula field. And also, the next two because up to 334 in Búzios Field, which have 75 and 76. As Isabella said, considering the analysis that we are doing today regarding how things are developing, we do not see a high probability of putting in production 69 this year, but we continue to place our bets that there's still time for us to work. So we have given this information to the market already, but we have these four units in the pipeline and at 68, that will start production next year.

What about hedge? Oh, because of the increase in the commodity price. This has made [greater] reason. Okay.

Lilyanna Yang from HSBC.

Why is the 68 delayed? [Technical Difficulty]

The interpreters apologize. However, they are getting a very bad sound from this question.

Lilyanna, Hugo is going to answer.

There were events that happened simultaneously, Lilyanna, which were concluding the work that we had in terms of the haul so the haul could have the right condition. And at the same time, we had to do the interconnection. So it is useless to put more label, more people working there because it starts to have an interest here. So the reorganization of the labor front in the -- you'll have to correct because of the carryover of the haul. And this is why it has the impact on our parity. It's not a matter of putting more funds in the shipyard. Today, what we see is that there is a high probability of us only placing it in production at the beginning of next year. No, but we have not left it. We have every single month, every single week, we look at each work front, each labor front, so that we can see how much labor we can put in the same unit and adequate safety conditions and labor conditions in order to recover the time that was lost. And it's according or on schedule, we continue to have the same estimate. And you asked about 68 and 70?

Yes. Do you have visibility regarding that?

Yes, we are going to inject the gas. And this is why I said there's a second well has to be an injection well. After commissioning the whole system of gas in the platform, then we start to inject the gas. We will only be able to export the gas from the system, mainly Búzios, when we have about three totally interconnected, and this will happen in 2020. Before that, we will be injecting the gas produced. Thank you.

Thank you very much. We are now closing the question-and-answer session in this conference call. I will turn the floor to Mr. Ivan Monteiro for his final remarks.

Once again, I would like to thank you for participating in this event. Any further questions, please get in touch with the company's Investor Relations department. Thank you.