Good day, ladies and gentlemen. Welcome to Petrobras Conference Call with Analysts and Investors for the presentation concerning its Third Quarter 2018 Results. Now, I would like to inform you that participants will be in listen-only mode. 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 when further instructions will be provided. [Operator Instructions] Present with us today are Mr. Rafael Salvador Grisolia, 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 and Performance Officer; Mr. Hugo Repsold, Jr., Chief Technology and Production Development Officer; Mr. Rafael Mendes Gomes, Chief Governance and Compliance Officer; Mr. Eberaldo de Almeida, Chief Human Resources, HSE and Services Officer; as well as other company officers. 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, expect and similar ones related to projections and targets of the company are mere forecasts based on the expectations of Petrobras executives regarding the future of the company. To begin, we will hear Ms. Isabela Carneiro da Rocha, Executive Manager of Investor Relations, who will start with the presentation about the third quarter 2018 results. Subsequently, the questions from participants will be answered. Please, Ms. Rocha, you may begin.

Good day, everyone. I would like to thank all of you for joining us in this webcast to discuss third quarter 2018 results of Petrobras. After noticing shareholders on Slide 2 about forward-looking statements, we now begin presenting our results with our top metrics. We are on Slide 3. We can see our safety indicator measured by TRI, total recordable injuries frequency by million man hours. That rate remained at the same level of the prior quarter at 1.06. After a dramatic reduction since 2015, TRI has been maintained in the range between 0.95 and 1.09 in the last 12 months, and the company remains committed to safety. It's implementing efforts to comply always with the warning limit of 1.0. These efforts include continuous improvement in our safety conditions, adoption of practices of international benchmarks in addition to offering programs, seminars and training sessions, both for our workforce and our suppliers. On Slide 4, we have our second top metric. Our leverage metric measured by net debt over adjusted EBITDA. We noticed a dramatic reduction since 2015. And we achieved the value of 2.96 in the end of the third quarter 2018, excluding the effect of the Class Action settlement, because this is how it will be by year-end. When this effect will no longer impact our EBITDA, we would have reached the ratio of 2.66 in line to achieve our target of 2.5 net debt over EBITDA ratio. Moving on, we're going to the main highlights in 2018. Solid results, a lower debt level and shareholders' remuneration that is paid one more time. Regarding the constant improvement of our financial result, I'd like to highlight a net income of BRL 24 billion, up 371% compared to the same period of 2017 and the best result since 2011. Adjusted EBITDA…

The Q&A will now get underway. Each participant will be limited to at most two questions. Questions should be made consecutively so that executives may enter them afterwards. We kindly ask you not to use the speaker phone. The questions made in English will be heard in the original language by all participants and answered by the executives in Portuguese with simultaneous translations to English. [Operator Instructions] First question, Bruno Montanari, Morgan Stanley.

Good afternoon. My first question is for Solange. As a follow-up from the press conference, I found it very interesting the comments that some units are being tested to support the flow rate of up to 58,000 barrels per day. And seeing the numbers that you presented for flow line in other fields, should we expect, for the maxed FPSOs those 69, 75, 76, if we can see a flow rate more between 40,000 to 50,000 barrels a day? And the second question about the hedge policy. If you can tell us a little bit how your experience has been so far. And if we could may be see the company broadening the horizon of the hedge from 15 days to maybe 30 days, and also increase that for diesel may be as a solution for the end of the year. And very quickly, the third question about CapEx. Compared to the original budget of BRL 15 billion, this new value should be for 2019 or is it due to the efficiency or relocation of some projects? Thank you.

Bruno, this is Grisolia. Thank you for your question. Let me answer the two last questions and then I'll turn it over to Solange. About the gasoline hedge, we're going through a learning curve. Our first experience with hedging and gasoline and what we can offer to consumers, to our clients was adequate. We are able to do what we proposed for ourselves. So we are quite happy with the use of this option for the company of using the hedge. From everything we've seen until now, the maximum term in terms of the gasoline for 15 days. This has not change. So we had with the North Sea technical conditions to extend this term, and we're still analyzing possibly for oil products or diesel. Your third question about the CapEx for this year, the question of cash generation for this year, $13 billion. One, we're talking about the PNG. The plan for the next five years in the beginning of December. We will talk more about this. But certainly, it's not CapEx that will not be invested. There's relocations to be done, but we will give you more details when we present next year's plan. I'll turn over to Solange.

Good afternoon Bruno. Regarding your question about the productivity of wells that I talked about this morning. Our history shows that we are making advances in engineering new flows at this project. What we do is sometimes we have leaps. We're going now from the conception where the diameters of common wells is six inches, and now we're moving to an eight-inch conception. Some projects have this design in some wells. And we'll be testing that as the projects are implemented. The solution needs to be tested, some measurements need to be taken as regards how the units and our equipments behave with such high flow rates. And from there, we'll extend it to entire project with these designs, and in the future, we will certainly seek to maintain whole projects with this new rate. This was tested in Libra, as I mentioned, in the extended test that was concluded in October. And we have the beginning of the application [Technical Difficulty].

Excuse me, ladies and gentlemen, please hold. Mr. and Ms. speakers, you may continue. Thank you.

I apologize for this issue. Let's continue. We can move on to the next question please.

Gustavo Allevato from Santander.

Good afternoon. I think that the call was cut off for everybody. Just to try and understand the costs. I wanted to understand from Solange if there's a target for cost reductions to 2019, considering the start up of this new asset sales with a higher productivity as you were explaining in the previous question. And if you could repeat your answer, I think it was – it dropped for everyone. And the second about divestments, Ivan talked about it in the press conference this morning, considering the suspension of the processes that won't be for this year. But will this be taken to 2019 forward or is it on hold? I wanted to understand a little bit better.

Gustavo, it's Rafael Grisolia again. Thank you for your question. I'll turn over to Solange and give it some time for everybody to reconnect. About this divestment, it's a little bit of what we've been talking about, considering the projects that have been announced, they remain. The projects that are announced and suspended, as we have already communicated with this review that we're doing due to the Supreme Court's decision. All these projects continue both as suspended and we're working on the legal aspects as well as the others that we have announced at the different phases. Again, we'll be discussing at PNG about the timing and how do we foresee this and the cash inflow, but none of them will be out – or left out of portfolios and the management – active management.

Gustavo good afternoon. Let's see if I can give my answer until the end this time. You referred to the costs and the expectation for 2019. What we're seeing in a larger scale in the second half of 2018 that will also occur in 2019 and the first half are the entry of many units. And when they start up until the end of the ramp up, we don't see a significant cost reduction because they come in at full costs and the revenue is progressive. So yes, we will try what you talked about, a significant reduction in our lifting costs, but at the end of the ramp up for this units. But I think it will be more towards the end of 2019 and more completely in 2020. This is our best expectation. I'll repeat a little bit of the rationale that I was answering to Bruno before when the line was cut. I think part of the – listeners didn't hear all my comments about what we're engineering, and better characterizing our reservoirs, and our conception of wells and subsea systems. So that we have the productivity of the pre-salt, we have a new generation of wells now in 2018, which are a result of this new equipment that has been qualified. And we're testing them in some projects, monitoring their performance so that later we can extend them to the large scale and new projects. And of course, we'll continue to seek this effectiveness of maximizing productivity of those pre-salt wells in future projects.

It was very clear, Solange. If I can just add a follow up to director Celestino. I'd like to understand about the stoppage at Replan. Can you quantify how much Petrobras had to spend in imports and how much of these additional costs can be carried to the fourth quarter?

Gustavo, about the downtime at Replan. At Replan, we have two sides of units, the crackling – catalytic cracking unit and the atmospheric unit. Each one with capacity of 33,000 cubic meters per day. These units – one of these plants is what suffered the damage from the accident with distilling and crackling outside. And the crackling unit that produces gasoline will be up again until the end of November and the distilling will be by the end of January. That's our best expectation. The next quarter, considering that the market is close to 1.8 million barrels at the peak in November, what we did was to rearrange the other refineries and the feedstock of the other refineries, especially Sao Paulo, using with that occurrence at Replan in order to try to minimize the impact of the imports. And we did that especially in October, which is the peak month for imports, and we'll see that the market starts to decrease in the import numbers or the need for imports already starts to decrease. And with that, we've been able to mitigate import costs.

Next question from Regis Cardoso with Crédit Suisse.

Good day everyone. Thank you very much for taking my question. When the new management took over, Petrobras was in the eye of the hurricane of operation Car Wash. The balance sheet was not published, you faced a liquidity issue and among those several achievements, including pricing policy, a change in corporate governance. There is one in particular that drew my attention, which is diligence in terms of deciding on investments, and this impacted the liquidity of the company. So the question is, do you see any risk and opportunity maybe to substantially increase your CapEx level in the future? And the exact accurate numbers are not very important, you're going to discuss this in the business and management plan. But I'd like to know about investing and allocating capital in refining with the Comperj project, and perhaps in the natural gas chain and NGL projects. So this is my first question, about CapEx. And my second question has to do with the pricing policy. I would like to understand, it seems with Rafael's prior question, it seems that you are happy with the gasoline hedge policy. Petrobras, for a long time, stayed above the import parity price because you had applied a hedge policy. Aren't you afraid that perhaps if you will apply this in a recurring, repeated fashion, this could be used in an opportunistic way? Isn't there a way to transfer this beyond refiners and importers?

[Foreign Language] Regis, thank you for the question. Your first question – this is Rafael Grisolia. And then afterwards, Jorge will compliment regarding the pricing policy.

Regis, this is Nelson. Thank you for the question. Regarding the plan that we are finalizing soon or we will disclose it in November is, you can expect a greater cash availability. As Isabela mentioned in the introductory remarks, we have an ascending trend in our cash generation and a declining cost trajectory, so we can expect greater availability to invest in the future, but I cannot give you any more details on that for now. And this is the thing across the oil and gas industry that is restructuring itself after the dramatic reduction in oil prices. We are showing very good and positive financial discipline in these restructuring efforts. Petrobras is not an exception in the industry. So in the future, yes, the point will be our choices and how we will make our choices maintaining our capital discipline and of course, our economic rationale. I will quickly comment on natural gas that you referred to, and then Jorge Celestino will speak about refining. One of the things in our strategic plan is the company increasing its share of natural gas in our portfolio. We know that we have limitations in Brazil because of the geology. And we will probably have to look into other alternatives, not exclusively in Brazil in terms of the integrated gas chain but, yes, this is in our radar. And this will be addressed in the new strategic plan and in the 2019, 2023 business and management plan. I will turn the floor to Jorge Celestino.

Regis, regarding divestment in refining. In the prior business management plan, we have said that investments in refining, because of RNEST, would happen through partnerships. So yes, we are seeking partners to – for the investments in refining. We recently signed a partnership with CNPC. For the Comperj project, also considering the demand curve for oil products in Brazil, the interfaces with RenovaBio project. So we're looking into this and we will be finalizing this along the 2019, 2023 business and management plan. Regarding our pricing policy and our hedge policy. I think Rafa addressed the big question of fixing the hedge period for a little longer period. You have stability and then you have – you can have arbitration. So this is something that we have been taking into account in our commercial policy mechanisms so that our prices will always be competitive and to bring the best result for the company. So this analysis of hedging duration and how to deal with these instruments to reduce volatility. Everything is taken into account considering the possibility of arbitration.

Thank you, Celestino. If I may, want to ask a follow-up question regarding Comperj. Is it possible that Petrobras will allocate more capital as part of this partnership with CNPC? And the reason I ask is because the percentage in the material fact that you disclosed of 20%, I think it sounded very little.

Regis, this is Rafa Grisolia speaking. Again, it's a joint project. The CNPC project involves CNPC participating its share in our Marlim area and consequently, in parallel to that, concomitantly, their share at Comperj. So the problem is that most likely we will have an inflow of capital to Petrobras with that arrangement.

Next question with Andre Hachem with Itaú BBA.

Thank you for taking my question. My first question has to do with P-74. It had its first oil in April, and until now you're running with two interconnected wells and a production of, more or less, 35 barrels. Could you speak about the dynamic of ramp of this platform? Why is it taking longer than expected? I remember that you discussed the average ramped up – ramp up time was 12 months, so why are you falling a little below the expectation? My second question has to do with the subsidy program. It is expected to end on December 31. And as of January 1, given the current situation, this would mean a relevant increase in the diesel price. How are you dealing with this? What are you thinking about this? Are you going to adjust these prices gradually because I mentioned that the government will have a say on this? Are you discussing with the government the end of the subsidy program?

Andrea, this is Rafa Grisolia again. Thank you very much for your questions. I'll start with the last one and then I'll turn the floor to Hugo who will speak about the ramp up. Regarding the subsidy program. I'd like to stress that Petrobras continues its pricing policy that presupposes that we will maintain competitive prices for all of our products, vis-à-vis, exported products. This remains our primary goal, and this is what drives the profitability of the company and that is dictating the company's profitability as it has been in the recent times. At Petrobras, we understood that the subsidy translates exactly that. It that translates into profitability in terms of exports parity, so we will continue as we have done. Once the subsidy ends, again, we will have to look for the parity and we have to look for the right margin. And we will be managing our pricing policy accordingly even when the subsidies are not there anymore. Of course, Petrobras is participating in the discussion regarding imports and mentioning our experience regarding the management of that topic. We were collaborating with the government before and we are collaborating with the transition team of the government to see how we can address other components in fuel prices, which is not generated by Petrobras, but which is driven by all of the taxes on fuels. So we're contributing to this discussion, and we expect that we're going to have more information before the end of the subsidy program. I will turn the floor to Hugo, who will address your first question regarding P-74 ramp-up curve.

Hello Andre. Your question was actually very good big, because if we analyze the start up of production, the start of the ramp-up curve is the most delicate period. For us to go through the full ramp up, the first stage, before we even connect first oil, is to have a gas injection well and to have the whole gas system for the platform commissioned so that we can inject gas, then we start burning. And we can proceed with the ramp up connecting all of the other wells, the oil wells and perhaps another gas injection well. At P-74, in particular, during the commissioning of the gas system, which is not entirely related to this project, during the operation, we had to carry a little bit of liquid to the gas system. So we needed to clean it all up so that we could, again, inject gas. In resuming, when we resumed the gas injection, we will resume interconnecting all of the wells. So this was a delay because of an operational issue, but it didn't interfere with the ramp up as a whole. We expect to catch up, but this is part of this process of commissioning in our pre-operation. We have to test all of the possibilities. And we can only do things when everything is 100% perfect, which is the case of P-74.

Perfect. Thank you very much.

Next question, Vicente Falanga, Bradesco.

Good afternoon. I had two questions. Is it possible to see what are the next gas processes for Petrobras to be able to move on with E&P and sale? We saw there was a jurisprudence of a sale of a majority stake of Petrobras. I would like to know if there is any detail about that. And a second question in asset sales, sale of assets. Can you give us any idea of any process of the sale of other large assets? Any expectations for concluding those processes?

Vicente, Rafa Grisolia. Thank you for your question. There's a whole legal strategy about this processes that are suspended involving TAG and our complex refineries which we are following. There has been a public hearing and the minister that made that decision on that – there is a legal strategy. There's a step-by-step ritual that we are following, that I think we will soon have a position on that. So that's why definitely the processes are suspended. We'll bring the subject also when we come to the announcement of our business management plan in the beginning of December, and we'll be able to give you more details with the new information we'll have by then. But as soon as we have more information and more definition in our legal strategy, we will communicate the market. About the other processes that are not suspended, they continue on their regular stages of negotiation. So we have important phases for the shallow water and offshore fields that we are in different stages of negotiation. We may have some development soon. There's the aspect of the negotiation that the public negotiation that Lyondell's offered to Odebrecht about this stake at Braskem. But as we said this morning, we are waiting for the official determination and the conclusion of the negotiation between the parties so that we can communicate this and for them to make a decision in an analysis of what Petrobras' position will be. So it is on hold and expecting definitions. And we understand that all these issues will develop soon or in the weeks, maybe even before the end of the year with some of the projects will may be able to have some announcements to make before year-end.

Excellent, thank you.

Next question, Gabriel Barra, UBS.

Thank you. The first question is about one of the top metrics. One is about indebtedness and the other is about the accident rate. I wanted to know if we can expect for the next business plan, a metric about or the target about possibility of return? And the second, a follow up on Andre's question. The diesel subsidy will, in theory, end in December, and we don't know how this transition period will unfold. So my question would be, how is Petrobras looking at that? And if there's any possibility of replicating the hedge for gasoline in the diesel policy? Thank you.

Gabriel, this is Rafael Grisolia again. Thank you for your questions. As we have informed in the Investors Day, the top metrics of the company, certainly TRI is a metric, it's a value for the company, and this target remains. We are working very strongly on this since we're close to the threshold and we will maintain this metric in our plan. Definitely, the net debt adjusted EBITDA ratio is an important metric that will remain. The company needs to seek the optimization of its capital structure. And when we compare with our global direct competitors, so the size of the company also needs to have a lighter capital structure. And we will probably add a third metric, a top metric that would be the return on the capital invested. So that will help us manage our discipline in investment decision. And as we talked about this morning, we have an active portfolio management. And we'll continue with an investment management with investments that are not necessarily connected to a strategy and have a lower return on capital invested. About the subsidy, I don't know if I'm being repetitive, but again, we're working on this topic. We're learning from the option that we chose to use at specific points for that hedge policy or hedge and derivative instruments for all our products, to extend the stability to our clients. We're always depending on product. And there's different applicabilities and it might not be viable for some products. And there's another panel discussion about this in the end of subsidy, which is to have a clear, open agenda with a communication that may contribute to a possible government policy if the government determines that they want to maintain a policy in this sense or there may be a possibility of continuing with the subsidy, but it's more likely that it will not continue. So within the fuel price structure, the Petrobras share is smaller and regarding the price depending on the type of fuel. And there's an important share that is the tax adjustment, and we'll see how we can contribute to an analysis if the government wants to develop a government policy for that. So we will contribute to these discussions.

Thank you.

Next question, Fernanda Cunha, Citi.

I lost my connection with the call a few times, so I may be repeating someone else's question. But my first question about this agreement with CNPC and Comperj and the Marlim field. This transaction, does it expect any type of relevant cash? Or is Petrobras waiting for it to be carried? And is there room for other types of transactions with upstream and midstream in other assets? So that would be my first question. And the second is about the Transfer of Rights. I wanted to know if, in the event that it is approved in the tonnage, that proposal about the Transfer of Rights, what would be the next steps? Would it be the resolution of the renegotiation of the contract? If you can explain to us a little bit about the timing just to give us an idea of the next steps in that area. Thank you.

Fernanda it's Rafael Grisolia. Thank you for your question. About your question on the partnership with CNPC, as we announced, it involves two joint ventures, one to start in the Marlim area and the other is specific for the investment of Comperj. We also announced that we will validate with the detailed study to validate numbers behind the partnership. But the indications of the share of each one will always be in that range that we announced 80% of the money investment.

[Operator Instructions]

So 80% for Petrobras and 20% for CNPC. And within those numbers, if we put the figures behind it to validate, there will be an adjustment of contribution and rates. And a likely indication is that, in time, the capital allocation is for cash inflow to Petrobras, considering the dimensions of 80-20 for each one of these two large projects, Marlim and Comperj. For the Transfer of Rights, I'll pass on to Solange.

Good afternoon Fernanda. Regarding the renegotiation of the Transfer of Rights contract and the bill that you mentioned, there is another fact that's occurring simultaneously, that CNP, in a resolution, issued a resolution 12 of 2018, recommended the minutes of this contract, of this amendment, the draft of this contract, the CGU. And then with – so in order to continue in receiving the due approvals of this document, we need to wait for this year's pronouncement about the draft of – that have been submitted to that agency.

But what do we have any idea of a time line for that?

No, we do not have a time line for this.

Thank you.

Thank you very much. We are now ending the question-and-answer session of this conference call. I turn the floor to officer, Rafael Grisolia for his final statements. Mr. Grisolia, please go ahead.

Before anything, on my own behalf, on behalf of Ivan Monteiro and the whole management, I would like to thank the participation of all of you. We have to particularly apologize for the technical problem that some of you faced when trying to connect via webcast. We promise to improve the technical aspects for the next conference call. This was a significant issue. We apologize. As always, the presentation will be available at our website as well as the audio of this conference call in Portuguese and in English. So if you need further clarification, I will be available, and the IR officer and the whole IR team will be available to address any further questions you might have. Again, I would like to thank all of you for participating. We are very happy with the results achieved. The company remains on the right track. And in our next meeting, we will announce our five-year business and management plan. So thank you very much for joining us.

Thank you, ladies and gentlemen. The audio of this conference call for replay and slides presentation will be available at Petrobras IR website at www.petrobas.com.br/ir. This concludes today's conference call. Thank you very much for your participation. Please hang up your telephones and have a great day.