Petróleo Brasileiro S A Petrobras : Production & Sales Report 3Q19

P-68 platform - Berbigão and Sururu fields

Production & Sales Report 3Q19

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3Q19 Production and Sales Highlights

Rio de Janeiro, October 17, 2019 - We posted a solid operating performance in 3Q19, delivering significant growth in oil, NGL and natural gas production, which reached 2,878 kboed, 9.3% higher than 2Q19, led by the 17.0% increase in pre-salt production, which reached 1,367 kboed, representing 60.4% of oil production in Brazil. Pre-salt's performance is due to the ramp-up of the 6 platforms that started up in 2018 and 2019 (P-74,P-75,P-76 and P-77 in Buzios field and P-67 and P- 69 in Lula field), which contributed 441 kbpd in 3Q19. Adding up the contribution of FPSO Cidade Campos dos Goytacazes inTartaruga Verde field, in the post-salt, we totaled 555 kbpd, which represents an increase of c. 48% over 2Q19, with the start-up of nine producing wells. It is also worth mentioning that platforms P-69 and P-76, in Lula and Búzios fields, reached the production capacity of 150 kbpd with a ramp-up time of 10.3 and 7.7 months (a record in the pre-salt), respectively.

In 3Q19, production reached a new monthly record of 3.0 MMboed, in addition to a new daily record of 3.1 MMboed, both reached in August. The operated production reached the monthly record of 3.7 MMboed in the same month. With these results we maintain the trajectory to reach the annual production target, of 2.7 MMboed, with a variation of 2.5% up or down.

The P-68 platform, which will produce in the Berbigão and Sururu fields in the pre-salt, left the shipyard in September and is in the process of being moored. The project is expected to start operating in the fourth quarter of 2019. 11 wells have already been drilled, 8 producers and 3 injectors, and 5 of these wells are ready for interconnection.

Post-salt oil production was stable at 706 kbpd compared to 2Q19, while onshore and shallow water oil production increased 4.3% compared to 2Q19, reaching 192 kbpd.

In September, we celebrated 51 years of the first oil in the Brazilian continental shelf, eight kilometers off the coast of Aracaju, in a water depth of 33 meters, an event that marked the beginning of offshore production in Brazil. Nine years later, in August 1977, we produced the first oil at Enchova, in Campos Basin, four times deeper, marking the beginning of the success story that continued with the discovery of the giant fields in the following decades, until we reached the discovery of pre-salt, which today represents 60.4% of Brazil's oil production. Throughout our trajectory, we have been challenged to produce in ever-deeper depths of water, now exceeding 2,100 meters and 300 km offshore, safely and with successive offshore world records through innovative technologies.

In Campos Basin, we reinforced our commitment to invest in the acquisition of new exploration areas, complementary development, Marlim revitalization and strategic partnerships to increase the recovery factor. With this strategic vision, we participated in the 16th ANP concession bidding round, on October 10, 2019, in which we acquired, as an operator, in partnership with BP Energy do Brasil, block CM-477, where we identified a large geological potential.

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In the refining segment, following the higher demand in the quarter in the Brazilian market, we increased the production of oil products by 2.9% compared to the previous quarter - which also contributed to the reduction of imports, especially gasoline and LPG -, through the higher utilization of the refining system (which grew from 76% to 80%) and conversion units. Oil products sales increased 3.2% over the previous quarter, led by the increase in diesel sales, which grew by 5.2%, driven by agricultural and industrial activity. LPG sales increased 3.2% compared to 2Q19 mainly due to lower average temperatures. There was also an increase in exports, following the higher oil production, and a reduction in oil imports with greater domestic oil feedstock in the refineries.

We highlight the continuous optimization of the integrated refining plants, which has been improved through digital transformation technologies, such as the use of Digital Twins. This tool allows us to simulate replicates of our refineries to maximize profitability of the refining activity and aims to accelerate decision making. Process optimization using this tool generated a gain of about US$ 25 million in the quarter.

By reducing bunker sulfur content (marine fuel) according to IMO 2020, we are increasing bunker 0.5% production and low sulfur fuel oil streams, thereby capturing export opportunities and preparing to supply the market. The production of these streams amounted to 110 kbpd, an increase of 139% over 2Q19, which was 46 kbpd. It is worth mentioning that our refining system is well positioned to capture these opportunities due to the feedstock that favor the production of these streams.

In the gas and energy segment, thermoelectric generation stood out, with an increase of 124.6% over the previous quarter reflecting hydrological conditions and lower natural gas costs, and the increase in 9 MMm3/day of natural gas supply to meet thermoelectric demand.

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1- Exploration & Production

																			Variation (%)
	Thousand barrels of oil equivalent per day			3Q19			2Q19			3Q18			9M19			9M18			3Q19 /			3Q19 /		9M19 /
	(Kboed)													2Q19			3Q18		9M18
	Crude oil, NGL and natural gas - Brazil			2,794			2,553			2,398			2,604			2,514			9.5			16.5		3.6
	Crude oil and NGLs (Kbpd)	2,264		2,052		1,937		2,097		2,028		10.3	16.9		3.4
	Onshore			123			122			131			125			136			0.7			(6.3)		(8.5)
	Shallow water	69		62		89		69		92		9.8	(22.7)		(24.9)
	Post-salt - deep and ultra deep			706			700			742			712			823			0.8			(4.9)		(13.5)
	Pre-salt	1,367		1,168		975		1,191		977		17.0	40.2		22.0
	Natural gas (Kboed)			530			500			462			507			486			5.9			14.8		4.3
	Crude oil, NGL and natural gas - abroad	84		81		114		81		103		4.7	(26.1)		(21.4)
	Total (Kboed)			2,878			2,633			2,513			2,685			2,617			9.3			14.6		2.6

Oil, NGL and natural gas production totaled 2,878 kboed in 3Q19, an increase of 9.3% over 2Q19 and 14.6% over 3Q18, mainly due to the ramp-up of the 7 new systems that went into production in 2018 and 2019 in the Búzios field (P-74,P-75,P-76 and P-77), Lula (P-67 and P-69) and Tartaruga Verde (FPSO Campos dos Goytacazes).

Compared to 2Q19, pre-salt oil production increased by 17.0%, led by Búzios field, which increased production by 64% in 3Q19, with the start-up of four producing wells. In 3Q19, pre-salt oil production increased by 40.2% over 3Q18, mainly reflecting the start-up of new producing wells in the Lula and Búzios fields and in line with our strategy of concentrating efforts in assets that generate the highest return for our shareholders.

Deep and ultra-deepwaterpost-salt oil production remained stable in 3Q19 compared to the previous quarter as a result of efforts to increase the productivity of the Campos Basin platforms and the start-up of new producing wells into the FPSO Cidade de Campos dos Goytacazes in Tartaruga Verde field, which compensated the natural production decline in this region. Compared to 3Q18, there was a 4.9% reduction, due to the decline in production, partially offset by the start-up of new wells in the Tartaruga Verde field.

Oil production in shallow waters, non core assets and subject to divestment, was 69 kbpd in 3Q19, an increase of 7 kbpd compared to 2Q19, due to the return to production of the PPM-1 and PCH-2 platforms, which had stopped for maintenance in the previous quarter. Compared to 3Q18, there was a decrease of 22.7%, due to the natural decline and the shutdown of the PCP-1,PCP-2 and P-9 platforms.

Oil production in the onshore fields totaled 123 kbpd in 3Q19, in line with 2Q19 and reducing by 8 kbpd compared to 3Q18. Onshore fields are included in the Company's portfolio optimization processes.

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2 - Refining

																			Variation (%)
	Thousand barrels per day (kbpd)			3Q19			2Q19			3Q18			9M19			9M18			3Q19 /			3Q19 /		9M19 /
													2Q19			3Q18		9M18
	Total production volume			1,816			1,765			1,801			1,774			1,774			2.9			0.8		−
	Total sales volume	1,805	1,745	1,941		1,763	1,794	3.4		(7.0)		(1.7)
	Reference feedstock			2,176			2,176			2,176			2,176			2,176			−			−		−
	Refining plants utilization factor (%)	80	76	78	77	77	5.3		2.6	−
	Processed feedstock (excluding LNG)			1,740			1,665			1,693			1,681			1,672			4.5			2.8		0.5
	Processed feedstock	1,791	1,707	1,743		1,724	1,726	4.9		2.8	(0.1)
	Domestic crude oil as % of total			90			89			88			90			92			1.1			2.3		(2.2)

Oil products output in 3Q19 reached 1,816 kbpd, an increase of 2.9% over 2Q19. This growth is mainly due to the demand expansion in the domestic market, which was met with a higher refining utilization factor, which reached 80% in 3Q19 against 76% in 2Q19. The refinery utilization factor is set on a monthly basis, being the result of the integrated refining system optimization, through a planning process that, based on the availability of oil and the assets, as well as demand forecasts, indicates the solution with the best economic result for the whole system.

The main production highlights were gasoline and LPG, as a result of the higher utilization factor of the catalytic cracking units, and bunker, due to its price appreciation in the international market. On the other hand, there was a drop in diesel production, and a consequent increase in imports to meet demand, due to the use of some of its streams for bunker production.

2.1- Diesel

																		Variation (%)
	Thousand barrels per day (kbpd)			3Q19			2Q19			3Q18			9M19			9M18		3Q19 /			3Q19 /		9M19 /
												2Q19			3Q18		9M18
	Production volume			710			720			750			703			708		(1.4)			(5.3)		(0.7)
	Sales volume for the Brazilian market	770	732	843		734	714	5.2		(8.7)		2.8

Diesel production in 3Q19 fell 1.4% and 5.3% compared to 2Q19 and 3Q18, respectively. The lower 3Q19 numbers were mainly due to the use of diesel streams for the production of bunker 0.5%, in line with IMO 2020 specifications. This was necessary in order to reduce the sulfur content of the final product and it proved to be economically advantageous.

Diesel sales increased 5.2% in 3Q19 compared to 2Q19 due to seasonality, with higher consumption in the third quarter due to the summer grain crop and to the industrial activity. As for mitigating factors, sales by competitors increased in 3Q19 and there was an increase in the average biodiesel content in diesel formulation between the periods, from 10.0%, the minimum percentage required since March 2018, to 11.0% from September1st, leading to a rise of diesel prices at the pump. Compared to 3Q18, sales fell mainly due to the increase in the competitors market share.

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