6-K 1 pbraitr4q20rs_6k.htm PBRAITR4Q20RS_6K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

 

For the month of February, 2021

 

Commission File Number 1-15106

 

 

PETRÓLEO BRASILEIRO S.A. – PETROBRAS

(Exact name of registrant as specified in its charter)

 

Brazilian Petroleum Corporation – PETROBRAS

(Translation of Registrant's name into English)

 

Avenida República do Chile, 65 
20031-912 – Rio de Janeiro, RJ
Federative Republic of Brazil

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 

Form 20-F ___X___ Form 40-F _______

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes _______ No___X____

 

 

 
 

 

 

 

Financial

Statements

December 31, 2020

(A free translation of the original

in Portuguese)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

ÍNDICE

PETROBRAS

 

 

STATEMENT OF FINANCIAL POSITION 3
STATEMENT OF INCOME 4
STATEMENT OF COMPREHENSIVE INCOME 5
STATEMENT OF CASH FLOWS 6
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 7
STATEMENT OF ADDED VALUE 8
NOTES TO THE FINANCIAL STATEMENTS 9
1.   The Company and its operations 9
2.   Basis of preparation and presentation of financial statements 14
3.   Summary of significant accounting policies 15
4.   Critical accounting policies: key estimates and judgments 15
5.   New standards and interpretations 21
6.   Context, resilience measures and impacts of the COVID-19 pandemic 22
7.   Capital management 24
8.   Cash and cash equivalents and Marketable securities 25
9.   Sales revenues 27
10.   Costs and expenses by nature 29
11.   Other income and expenses 30
12.   Net finance income (expense) 31
13.   Segment information – Result 32
14.   Trade and other receivables 34
15.   Inventories 36
16.   Trade payables 36
17.   Taxes 37
18.   Short-term and other benefits 41
19.   Post-Employment benefits – Pension and health care plans 43
20.   Provisions for legal proceedings 52
21.   Provision for decommissioning costs 58
22.   Other assets and liabilities 59
23.   The “Lava Jato (Car Wash) Operation” and its effects on the Company 60
24.   Commitment to purchase natural gas 61
25.   Property, plant and equipment 62
26.   Intangible assets 65
27.   Impairment 66
28.   Exploration and evaluation of oil and gas reserves 73
29.   Collateral for crude oil exploration concession agreements 75
30.   Joint ventures in E&P activities 76
31.   Investments 78
32.   Disposal of assets and other changes in organizational structure 82
33.   Assets by operating segment 87
34.   Finance debt 88
35.   Lease liabilities 92
36.   Equity 93
37.   Fair value of financial assets and liabilities 96
38.   Risk management 97
39.   Related-party transactions 106
40.   Supplemental information on statement of cash flows 112
41.   Subsequent events 112
Supplementary information on oil and gas exploration and production (unaudited) 114
Social balance (unaudited) 124
Additional information of general public concern Law 13,303/16 (unaudited) 126
Board of directors and executive officers 127
Statement of directors on financial statements and auditors' report 128
Independent auditors' report 129
Report of the Fiscal Council 137
Summarized Annual Report of the Statutory Audit Committee 138

 

 

 

2 
 

STATEMENT OF FINANCIAL POSITION

PETROBRAS

December 31, 2020 and 2019 (In millions of reais, unless otherwise indicated)

 

 

 

Assets   Consolidated Parent Company Liabilities   Consolidated Parent Company
  Notes 2020 2019 2020 2019   Notes 2020 2019 2020 2019
                       
Current assets           Current liabilities          
Cash and cash equivalents 8.1 60,856 29,714 5,180 4,322 Trade payables 16 35,645 22,576 75,543 34,453
Marketable securities 8.2 3,424 3,580 2,963 3,200 Finance debt 34.1 21,751 18,013 76,783 150,931
Trade and other receivables 14.1 24,584 15,164 44,321 78,813 Lease liability 35 29,613 23,126 30,883 40,265
Inventories 15 29,500 33,009 25,452 28,206 Income taxes payable 17.1 1,029 1,114 225 218
Recoverable income taxes 17.1 2,170 10,050 1,566 9,456 Other taxes payable 17.1 13,696 13,800 13,270 13,538
Other recoverable taxes 17.1 11,313 4,237 10,226 3,785 Dividends payable 36.5 4,457 6,278 4,411 6,165
Others 22 6,395 6,014 7,573 6,617 Short-term benefits 18 10,150 6,632 9,418 6,056
    138,242 101,768 97,281 134,399 Pension and medical benefits 19 8,049 3,577 8,049 3,577
            Others 22 8,338 7,947 5,944 6,338
                132,728 103,063 224,526 261,541
Assets classified as held for sale 32 4,081 10,333 3,582 8,615 Liabilities related to assets classified as held for sale 32 3,559 13,084 3,369 12,506
    142,323 112,101 100,863 143,014     136,287 116,147 227,895 274,047
                       
Non-current assets           Non-current liabilities          
Long-term receivables           Finance debt 34.1 258,287 236,969 357,491 211,907
Trade and other receivables  14.1 13,675 10,345 11,369 8,490 Lease liability 35 82,897 73,053 90,404 147,939
Marketable securities 8.2 227 232 226 208 Income taxes payable 17.1 1,853 2,031 1,810 1,984
Judicial deposits 20.2 37,838 33,198 37,487 32,861 Deferred income taxes 17.4 1,015 7,095 9,974
Deferred income taxes 17.4 33,524 5,593 20,518 Pension and medical benefits 19 75,454 103,213 74,209 101,192
Other tax assets 17.1 16,411 15,877 15,833 15,363 Provision for legal proceedings 20.1 11,427 12,546 10,301 11,883
Others 22 3,299 6,061 3,083 5,796 Provision for decommissioning costs 21 97,595 70,377 97,194 70,127
    104,974 71,306 88,516 62,718 Others 22 11,454 5,443 10,886 4,524
                539,982 510,727 642,295 559,530
                676,269 626,874 870,190 833,577
                       
            Equity          
            Share capital 36.1 205,432 205,432 205,432 205,432
Investments 31 17,010 22,166 241,875 182,666 Capital reserve, capital transactions and shares in treasury   2,449 2,449 2,665 2,665
Property, plant and equipment 25 645,434 641,949 670,088 662,816 Profit reserves   127,512 124,829 127,296 124,613
Intangible assets 26 77,678 78,489 77,258 77,904 Accumulated other comprehensive (deficit)   (26,983) (37,169) (26,983) (37,169)
    845,096 813,910 1,077,737 986,104 Attributable to the shareholders of Petrobras   308,410 295,541 308,410 295,541
            Non-controlling interests 31.5 2,740 3,596
                311,150 299,137 308,410 295,541
                       
    987,419 926,011 1,178,600 1,129,118     987,419 926,011 1,178,600 1,129,118
The notes form an integral part of these financial statements.

 

 

 

3 
 

STATEMENT OF INCOME

PETROBRAS

December 31, 2020 and 2019 (In millions of reais, unless otherwise indicated)

 

 

    Consolidated Parent Company
  Notes 2020 2019 2020 2019
Continuing operations
Sales revenues 9 272.069 302.245 253.993 289.156
Cost of sales 10.1 (148.107) (180.140) (152.258) (183.161)
Gross profit   123.962 122.105 101.735 105.995
 
Income (expenses)
Selling expenses 10.2 (25,020) (17,746) (20,921) (18,472)
General and administrative expenses 10.3 (5,525) (8,368) (3,897) (6,680)
Exploration costs 28 (4,170) (3,197) (4,134) (3,174)
Research and development expenses   (1,819) (2,268) (1,818) (2,268)
Other taxes   (4,971) (2,484) (4,345) (2,108)
Impairment of assets 27 (34,259) (11,630) (43,342) (8,118)
Other income and expenses 11 4,695 4,742 40,845 5,659
    (71,069) (40,951) (37,612) (35,161)
 
Income before finance income (expenses), results in equity-accounted investments and income taxes 52,893 81,154 64,123 70,834
 
Net finance income (expense): 12 (49,584) (34,459) (79,789) (40,212)
Finance income   2,821 5,271 2,940 5,589
Finance expense   (31,108) (27,878) (35,692) (32,626)
Foreign exchange gains (losses) and inflation indexation   (21,297) (11,852) (47,037) (13,175)
Results in equity-accounted investments 31.3 (3,272) 547 17,663 13,707
Net income before income taxes   37 47,242 1,997 44,329
 
Income taxes 17.3 6,209 (16,400) 5,111 (14,057)
           
Net income from continuing operations   6,246 30,842 7,108 30,272
 
Net income from discontinued operations   10,128 9,865
           
Net income of the year   6,246 40,970 7,108 40,137
Attributable to:
   Shareholders of Petrobras 7,108 40,137 7,108 40,137
Net income from (loss) continuing operations 7,108 30,272 7,108 30,272
Net income from discontinued operations 9,865 9,865
   Non-controlling interests (862) 833
Net income from (loss) continuing operations (862) 570
Net income from discontinued operations 263
Net income of the year 6,246 40,970 7,108 40,137
Basic and diluted earnings per weighted-average of common and preferred share (in R$) 36.6 0.54 3.08 0.54 3.08
 
The Notes form an integral part of these Financial Statements.
4 
 

STATEMENT OF COMPREHENSIVE INCOME

PETROBRAS

December 31, 2020 and 2019 (In millions of reais, unless otherwise indicated)

 

 

  Consolidated Parent Company
  2020 2019 2020 2019
Net income for the year 6,246 40,970 7,108 40,137
 
Items that will not be reclassified to the statement of income:
 
Unrealized gains / (losses) on equity instruments measured at fair value through other comprehensive income
Recognized in equity (6) (1) (6) (1)
Deferred Income tax 2 2
  (4) (1) (4) (1)
 
Actuarial gains (losses) on post-employment defined benefit plans 12,853 (23,011) 11,970 (22,386)
Deferred Income tax (698) 6,135 (612) 6,046
  12,155 (16,876) 11,358 (16,340)
 
Share of other comprehensive income (losses) in equity-accounted investments 270 1,042 (527)
 
Items that may be reclassified subsequently to the statement of income:
Unrealized gains(losses) on cash flow hedge - highly probable future exports
Recognized in equity (99,467) (13,469) (99,467) (13,446)
Reclassified to the statement of income 24,308 12,397 23,480 11,170
Deferred income tax 25,554 365 25,835 774
  (49,605) (707) (50,152) (1,502)
Cumulative translation adjustments in investees (*)
Recognized in equity 49,553 6,159 48,664 6,172
Reclassified to the statement of income 127
  49,553 6,286 48,664 6,172
         
Equity-accounted investments over other comprehensive income in invested companies        
Recognized in equity (1.508) 272 (961) 1.068
Reclassified to the statement of income 225 225
  (1.283) 272 (736) 1.068
         
Other comprehensive income 11.086 (11.026) 10.172 (11.130)
 
Total comprehensive income 17,332 29,944 17,280 29,007
Attributable to:        
Shareholders of Petrobras 17,280 29,007 17,280 29,007
Non-controlling interests 52 937
Total comprehensive income 17,332 29,944 17,280 29,007
(*) Includes, in the Consolidated, effect of the amount of R$ 1,850, creditor (effect of R$ 191, creditor, as of December 31, 2019), referring to associates and joint ventures.

 

The notes form an integral part of these financial statements

 

 

5 
 

STATEMENT OF CASH FLOWS

PETROBRAS

December 31, 2020 and 2019 (In millions of reais, unless otherwise indicated)

 

 

  Consolidated Parent Company
  2020 2019 2020 2019
Cash flows from operating activities        
Net income (loss) for the year 6,246 40,970 7,108 40,137
Adjustments for:        
Net income from discontinued operations (10,128) (9,865)
Pension and medical benefits (actuarial expense) (5,010) 8,219 (5,118) 7,960
Results of equity-accounted investments 3,272 (547) (17,663) (13,707)
Depreciation, depletion and amortization 58,305 58,502 67,179 64,689
Impairment of assets (reversal) 34,259 11,630 43,342 8,118
Inventory write-down (write-back) to net realizable value 1,518 68 391
Allowance (reversals) for credit loss on trade and other receivables 722 343 348 226
Exploratory expenditure write-offs 2,379 1,250 2,379 1,250
Disposal/write-offs of assets and remeasurement of investment retained with loss of control (2,484) (23,670) (2,694) (23,443)
Foreign exchange, indexation and finance charges   57,422 33,259 86,528 40,586
Deferred income taxes, net (8,940) 11,036 (5,600) 11,924
Revision and unwinding of discount on the provision for decommissioning costs 5,021 3,765 5,005 3,765
PIS and COFINS recovery - exclusion of ICMS (VAT tax) from the basis of calculation (16,494) (16,141)
Early termination and cash outflows revision of lease agreements (1,389) (244) (37,778) (249)
Decrease (Increase) in assets        
Trade and other receivables, net (913) 8,578 (73,478) (43,255)
Inventories 4,309 (1,208) 2,363 1,437
Judicial deposits (4,228) (8,427) (4,226) (8,383)
Escrow account - Class action agreement 7,424 6,093
Other assets 1,105 (655) 338 (41)
Increase (Decrease) in liabilities        
Trade payables 2,178 (3,821) 9,636 (7,322)
Other taxes payable 18,161 870 17,456 (35)
Income taxes paid (1,656) (9,198) (943) (8,766)
Pension and medical benefits (5,459) (7,489) (5,423) (7,454)
Provisions for legal proceedings (1,209) (14,922) (1,582) (10,376)
Short-term benefits 4,111 681 3,968 580
Provision for decommissioning costs (2,459) (2,028) (2,453) (2,028)
Agreement with US authorities (2,892) (2,892)
Other liabilities (661) (824) 294 251
Net cash provided by operating activities from continuing operations 148,106 100,542 73,236 49,200
Net cash provided by operating activities - discontinued operations 1,224
Net cash provided by operating activities 148,106 101,766 73,236 49,200
Cash flows from investing activities        
Acquisition of PP&E and intangibles assets (except Bidding for oil surplus of Transfer of rights agreement) (29,974) (34,010) (116,331) (56,773)
Bidding for oil surplus of Transfer of rights agreement (63,141) (63,141)
Investments in investees (5,312) (29) 3,454 392
Proceeds from disposal of assets – Divestment 10,212 41,049 9,008 38,691
Reimbursement on the Transfer of rights agreement 34,414 34,414
Divestment (Investment) in marketable securities (*) 355 837 44,569 (38,886)
Dividends received (**) 1,264 5,732 2,552 8,033
Net cash used in investing activities from continuing operations (23,455) (15,148) (56,748) (77,270)
Net cash used in investing activities - discontinued operations 7,196 9,495
Net cash used in investing activities (23,455) (7,952) (56,748) (67,775)
Cash flows from financing activities        
Investments by non-controlling interest (457) (99)
Financings and lending operations, net:        
Proceeds from financing 85,523 29,156 165,511 174,453
Repayment of principal - finance debt (134,079) (107,090) (107,127) (97,373)
Repayment of  interest - finance debt (**) (15,828) (17,623) (20,581) (17,349)
Repayment of lease liability (30,275) (20,660) (47,224) (35,680)
Dividends paid to Shareholders of Petrobras (6,209) (7,488) (6,209) (7,488)
Dividends paid to non-controlling interests (448) (550)
Net cash used in financing activities from continuing operations (101,773) (124,354) (15,630) 16,563
Net cash used in financing activities - discontinued operations (1,982)
Net cash used in financing activities (101,773) (126,336) (15,630) 16,563
Effect of exchange rate changes on cash and cash equivalents 8,323 8,397
Net increase (decrease) in cash and cash equivalents 31,201 (24,125) 858 (2,012)
Cash and cash equivalents at the beginning of the period 29,729 53,854 4,322 6,334
Cash and cash equivalents at the end of the period 60,930 29,729 5,180 4,322
(*) At the Parent Company, includes amounts referring to the movement of the application in receivables of FIDC-NP.
(**) The company classifies dividends / interest received and interest paid as cash flow from investing activities and cash flow from financing activities, respectively.
The notes form an integral part of these financial statements

 

6 
 

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

PETROBRAS

December 31, 2020 and 2019 (In millions of reais, unless otherwise indicated)

 
      Accumulated other comprehensive income Profit reserves        
  Share capital (net of share issuance costs) Capital reserve, capital transactions and treasury shares Cumulative translation adjustment Actuarial gains (losses) on defined benefit pension plans Cash flow hedge – highly probable future exports Other comprehensive income (loss) and deemed cost Legal Statutory Tax incentives Profit retention Proposed additional dividends Retained earnings Equity attributable to the shareholders of Petrobras Non-controlling interests Consolidated Shareholders’ Equity
  205,432 2,674 45,911 (35,832) (33,273) (2,835) 17,813 5,530 2,165 69,640 277,225 6,318 283,543
Balance at January 1, 2019 205,432 2,674 (26,029) 95,148 277,225 6,318 283,543
Realization of deemed cost (10) 10
Capital transactions (9) (9) (2,601) (2,610)
Net income (loss) 40,137 40,137 833 40,970
Other comprehensive income 6,172 (16,867) (707) 272 (11,130) 104 (11,026)
Appropriations:
Transfer to reserves 2,007 1,027 738 25,693 (29,465)
Dividends and interest on capital (10,682) (10,682) (1,058) (11,740)
Balance at December 31, 2019 205,432 2,665 52,083 (52,699) (33,980) (2,573) 19,820 6,557 2,903 95,333 295,541 3,596 299,137
  205,432 2,665 (37,169) 124,613 295,541 3,596 299,137
 
Balance at January 1, 2020 205,432 2,665 52,083 (52,699) (33,980) (2,573) 19,820 6,557 2,903 95,333 295,541 3,596 299,137
Capital increase through reserves (65) (65)
Realization of deemed cost 14 (14)
Capital transactions (410) (410)
Net income (loss) 7,108 7,108 (862) 6,246
Other comprehensive income 48,664 12,129 (49,605) (1,016) 10,172 914 11,086
Appropriations:
Transfer to reserves 356 1,027 (1,383)
Dividends (4,561) 5,861 (5,711) (4,411) (433) (4,844)
Balance at December 31, 2020 205,432 2,665 100,747 (40,570) (83,585) (3,575) 20,176 7,584 2,903 90,772 5,861 308,410 2,740 311,150
  205,432 2,665 (26,983) 127,296 308,410 2,740 311,150
The notes form an integral part of these financial statements

 

 

 

7 
 

STATEMENT OF ADDED VALUE

PETROBRAS

December 31, 2020 and 2019 (In millions of reais, unless otherwise indicated)

 

 

  Consolidated Parent Company
  2020 2019 Reclassified(*) 2020

2019

Reclassified (*)

Income
Sales of products, services provided and other revenues 370,084 502,387 384,286 418,461
Allowance (reversals) for credit loss on trade and other receivables (722) (375) (348) (226)
Revenues related to construction of assets for own use 31,337 31,932 30,436 30,531
  400,699 533,944 414,374 448,766
Inputs acquired from third parties
Materials consumed and products for resale (34,523) (108,662) (32,930) (51,032)
Materials, power, third-party services and other operating expenses (75,042) (57,430) (66,692) (53,939)
Tax credits on inputs acquired from third parties (23,968) (29,623) (26,374) (30,131)
Impairment (34,259) (11,630) (43,342) (8,118)
Inventory write-down to net realizable value (market value) (1,518) (68) (391)
  (169,310) (207,413) (169,729) (143,220)
Gross added value 231,389 326,531 244,645 305,546
Depreciation, depletion and amortization (63,349) (63,514) (72,223) (69,405)
Net added value produced by the Company 168,040 263,017 172,422 236,141
Transferred added value
PIS and COFINS recovery - exclusion of ICMS (VAT tax) from the basis of calculation 16,764 16,141
Share of profit of equity-accounted investments (3,272) 547 17,663 14,273
Finance income 2,821 6,127 2,940 5,589
Rents, royalties and others 1,244 1,196 1,688 1,723
  17,557 7,870 38,432 21,585
Total added value to be distributed 185,597 270,887 210,854 257,726
 
Distribution of added value
 
Personnel and officers
Direct compensation
Salaries 15,661 16,990 13,093 13,833
Profit sharing 31 185 6 9
Variable compensation 2,240 2,581 2,040 2,427
  17,932 19,756 15,139 16,269
Benefits
Short-term benefits 6,417 1,828 5,922 1,474
Pension plan 4,425 4,536 4,254 4,257
Medical plan (**) (8,063) 5,545 (8,207) 5,032
  2,779 11,909 1,969 10,763
FGTS 1,150 1,282 994 1,121
  21,861 32,947 18,102 28,153
Taxes
Federal (***) (****) 58,760 99,619 59,925 98,426
State 24,474 40,267 23,488 28,664
Municipal 816 703 344 260
Abroad (***) 2,734 4,962
  86,784 145,551 83,757 127,350
Financial institutions and suppliers
Interest, and exchange and indexation charges 66,088 45,327 96,180 50,999
Rental and leases 4,618 6,092 5,707 11,087
  70,706 51,419 101,887 62,086
Shareholders
Dividends 5,711 1,807 5,711 1,807
Interest on capital 8,875 8,875
Non-controlling interests (862) 833
Profit retention (absorbed losses) 1,397 29,455 1,397 29,455
  6,246 40,970 7,108 40,137
Added value distributed 185,597 270,887 210,854 257,726

(*) Includes the added value of the discontinued operation.

(**) In 2020, in the consolidated, it includes the effect of changes in the proportion of the cost of the AMS Plan, in the amount of R$ 13,062 (R$ 12,797 in the parent company).

(***) Includes production taxes.

(****) In 2020, it includes R$ 8,940 related to deferred income tax and deferred social contribution (R$ 5,600 at the parent company).

  The notes form an integral part of these financial statements                  

 

 

 

 

 

 

 

 

 

 

8 
 

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

NOTES TO THE FINANCIAL STATEMENTS

1.The Company and its operations

Petróleo Brasileiro S.A. (Petrobras), hereinafter referred to as “Petrobras” or “Company,” is a partially state-owned enterprise, controlled by the Brazilian Federal Government, of indefinite duration, governed by the terms and conditions under the Brazilian Corporate Law (Law 6,404 of December 15, 1976), Law 13,303 of June 30, 2016 and its Bylaws.

 

Petrobras’ shares are listed on the Brazilian stock exchange (B3) in the Level 2 Corporate Governance special listing segment and, therefore, the Company, its shareholders, its managers and fiscal council members are subject to provisions under its regulation (Level 2 Regulation - Regulamento de Listagem do Nível 2 de Governança Corporativa da Brasil Bolsa Balcão – B3). These Regulations shall prevail over the statutory provisions, in the event of prejudice to the rights of the recipients of public offerings provided for in the Company's Bylaws, except in certain cases, due to a specific rule. On February 13, 2020, the company had its request to be disassociated from the B3 State-Owned Governance Program, requested on January 29, 2020, answered.

 

The Company is dedicated to prospecting, drilling, refining, processing, trading and transporting crude oil from producing onshore and offshore oil fields and from shale or other rocks, as well as oil products, natural gas and other liquid hydrocarbons. In addition, Petrobras carries out energy related activities, such as research, development, production, transport, distribution and trading of all forms of energy, as well as other related or similar activities.

Petrobras may perform any of the activities related to its corporate purpose, directly, through its wholly-owned subsidiaries, controlled companies, alone or through joint ventures with third parties, in Brazil or abroad.

The economic activities linked to its business purpose shall be undertaken by the Company in free competition with other companies according to market conditions, in compliance with the other principles and guidelines of Laws no. 9,478/97 and 10,438/02 (oil & gas and electricity sector regulations, respectively). However, Petrobras may have its activities, provided they are in compliance with its corporate purpose, guided by the Brazilian Federal Government to contribute to the public interest that justified its creation, aiming to meet national energy policy objectives when:

I – established by law or regulation, as well as under agreements provisions with a public entity that is competent to establish such obligation, abiding with the broad publicly stated of such instruments; and

II – the cost and revenues thereof have been broken down and disseminated in a transparent manner.

In this case, the Company’s Investment Committee and Minority Shareholders Committee will evaluate and measure the difference between market conditions and the operating result or economic return of the obligation assumed by the company, in such a way that the Union compensates, for each fiscal year, the difference between market conditions and the operating result or economic return of the assumed obligation.

 

1.1 Highlights of the year

 

In a year of restrictions and uncertainties imposed by the COVID-19 pandemic, the company's quick response with a defined strategy allowed an improvement in the company's operational and financial performance, with the increase in oil and natural gas production and strong cash generation. The main strategies adopted by the company are presented in note 6.

 

Oil and gas production in 2020 was 2.84 million barrels of oil equivalent per day (boed), with the pre-salt representing 66% of the total (1.86 MMboed), which resulted in a record annual production. The performance mainly reflected the implementation of four platforms installed in the Búzios field, technological improvements related to combating corrosion and postponing production decline, as well as optimization of production stoppages on the platforms (note 25). In 2020, the company remained a net exporter of oil and oil products, with a balance of 743 thousand bpd.

 

In 2020, new reserves were incorporated due to the approval of new projects and the good performance of the reservoirs, with emphasis on the Santos Basin pre-salt, resulting in an appropriation equivalent to 101% of the year's production. This effect was dampened by the negative impact resulting from the 32% reduction in the oil price in 2020. Thus, disregarding the effect of assets sold in 2020, the replacement of reserves was 29% of that year's production. The sale of assets in 2020 is aligned with the maximization of the portfolio's value, with a focus on world-class assets in deep and ultra-deep waters, and the impact was not relevant in the total value of reserves. The 2020 reserves do not yet consider new projects to be implemented as a result of the acquisition of the Transfer of Rights Surplus. Such volumes will be incorporated after the signing of the co-participation agreements of Búzios and Itapu fields (Supplementary information on Oil and Gas Exploration and Production - unaudited).

 

 

 

9 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

The performance in 2020, aligned with our pillar of maximizing return on capital employed, resulted in a large operating cash generation, with a significant increase in exports (note 9) and a series of measures to reduce expenses and preserve cash in the face of uncertainty, in order to reinforce the financial strength and resilience of the company's business, in addition to receipts for the sale of assets and interests. These funds were used to reduce gross indebtedness and make investments.

In portfolio management, we highlight the sales of subsidiaries Liquigás and Petrobras Oil & Gas B.V and onshore fields and in shallow waters (note 32).

 

During 2020, the Company signed Expenses and Volume Equalization Agreements with its partners in the Tupi, Sépia, Atapu and Production Individualization Agreements for the Berbigão, Sururu, Albacora Leste and other fields , with an impact on other operating income (note 30).

 

Regarding the capital structure, the Company continues to prioritize debt reduction and financial deleveraging, through prepayment of financings in Brazil and abroad in the amount of R$ 70 billion (note 34 – Finance Debt). There was a decrease on the gross debt (Financings and Leases) translated into U.S. dollars.

 

 

10 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

During the year, some actions were part of the effort to reduce the liabilities of the post-employment pension and health benefit plans, with approvals of new equation plans, negotiation of new proportions of health care plan costs, approval of a new management model for the health care plan through an association and early settlement of the Financial Commitment Term (note 19 - Post-employment benefits - Pension and health care plans).

 

 

The impacts of the pandemic and the change in our long-term view of oil prices to US $ 50 / bbl generated recognition of impairment losses in the first quarter of 2020, partially reversed in the fourth quarter of 2020, considering the economic assumptions of the Strategic Plan 2021-2025, approved in November, as well as active portfolio management and new estimates of reserve volumes and dismantling of production areas, which underpinned the recoverability tests for the year 2020 (note 27).

 

As a result of the collaboration and leniency agreements entered into by other companies under “Lava Jato” Operation, the Company was reimbursed at R$ 797 throughout 2020 (note 23).

 

 

11 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

Throughout 2020, Petrobras, through its strategy of active management of its liabilities and considering the specificities of each process, as well as the analysis of the cost-benefit ratio, adhered to amnesty and state remission programs for payment in cash of VAT tax debts, with the benefit of an average reduction of 49% (note 17.2), in addition to addressing possible future risks associated with the matters for which adhesions were made (note 20).

 

 

In 2020, Petrobras and two subsidiaries obtained a favorable and definitive court decision on the exclusion of VAT Tax from the calculation base of PIS and Cofins contributions, referring to undue payments made between October 2001 and August 2020. The estimate generated recognition of credits of R$ 17,588 in current assets, net gain in profit and loss of R$ 11,608 and, in 2020, the company offset part of these credits for settlement of other federal taxes, in the amount of R$ 10,372 (note 17.1).

The company's distribution of added value is as follows:

12 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

In October 2020, the revision of the Shareholder Remuneration Policy was approved in order to enable Management to propose the payment of dividends compatible with the company's cash generation, as long as the company's financial sustainability is preserved. With this change, the proposal for the fiscal year 2020, in the amount of R$ 10,272 (R$ 0.787446 per common and preferred share) will be forwarded to the 2021 Annual General Meeting (AGM) (note 36), of which R$ 5,711 through the profit sharing for the year and R$ 4,561 through the use of profit reserves.

In addition, our financial statements in U.S. dollars, which are translated based on CPC 02 - “Effects of changes in exchange rates and translation of financial statements”, equivalent to the international accounting standard IAS 21 - “Effects of changes in exchange rates” are also disclosed and filed. The table below shows the main information in millions of dollars:

  Consolidated
  2020 2019
Sales revenues 53,683 76,589  
Gross profit (29,195) (45,732)  
Income before finance income (expenses), results in equity-accounted investments and income taxes (14,425) (10,243)  
Net income (loss) for the year – Petrobras’ shareholders 1,141 10,151
Cash and cash equivalents 11,711 7,372
Property, plant and equipment 124,201 159,265
Finance debt and leases – current and non-current 75,538 87,121
Shareholders’ equity 59,876 74,215
Cash flow from operating activities 28,881 323
Cash flow from investing activities (4,510) (2,060)
Cash flow from financing activities (19,259) (508)
 
13 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
2.Basis of preparation and presentation of financial statements

The consolidated and individual (Parent Company) financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and with the pronouncements issued by the Brazilian Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis - CPC) and released by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM).

All relevant information related to financial statements, and only them, are presented and corresponds to the information used by the Company’s Management.

The consolidated and individual financial statements have been prepared under the historical cost convention, except when otherwise indicated. The summary of significant accounting policies used in the preparation of these financial statements is set out in their respective notes.

In preparing these financial statements, Management used judgments, estimates and assumptions that affect the application of accounting practices and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The relevant estimates and judgments that require a higher level of judgment and complexity are disclosed in note 4.

 

In July 2019, after the additional sale of its interest in Petrobras Distribuidora S/A (BR) through a secondary public offering (follow on), Petrobras' interest was reduced to 37.50% of the share capital, and BR ceased to be a Petrobras controlled company. This operation was a “discontinued operation”. Thus, the consolidated statements of income and cash flows, for the comparative period, present the results and cash flows from operating, investing and financing activities in separate lines, as a net income of discontinued operations. The comparative information related to the other statements does not present such segregation, including the statement of added value, whose values ​​for 2019 were reclassified in order to provide better comparability.

 

The Company's Board of Directors, at a meeting held on February 24, 2021, authorized the disclosure of these financial statements.

2.1.Statement of added value

The Brazilian corporate law requires the release of the Statement of added value as an integral part of the financial statements. This statement is presented as supplementary information under IFRS and was prepared in accordance with CPC 09 – Statement of Added Value, approved by CVM Resolution 557/08.

The purpose of the statement of added value is to present information relating to the wealth created by the Company and how it has been distributed.

2.2.Functional currency

The functional currency of Petrobras and all of its Brazilian subsidiaries is the Brazilian Real, which is the currency of its primary economic environment of operation. The functional currency of most of the direct controlled entities that operate in the international economic environment is the U.S. dollar.

The income statements and statement of cash flows of non-Brazilian Real functional currency subsidiaries, joint ventures and associates are translated into Brazilian Real using the monthly average exchange rates prevailing during the year. Assets and liabilities are translated into Brazilian Real at the closing rate at the date of the financial statements and the equity items are translated using the exchange rates prevailing at the dates of the transactions.

All exchange differences arising from the translation of the financial statements of non-Brazilian Real subsidiaries, joint ventures and associates are recognized as cumulative translation adjustments (CTA) within accumulated other comprehensive income in the shareholders’ equity and transferred to profit or loss in the periods at the disposal of the investments.

2.3. Order of presentation of the explanatory notes

As recommended in the Conceptual Framework for Financial Reporting CPC 00 R2 (Conceptual Framework), the expectations of users of financial statements regarding the company's returns depend on their assessment of the value, the time and the prospects for future net cash flows and their management's assessment of economic resources.

 

Thus, the order of the explanatory notes aligns the company's financial statements with the users' view, in addition to emphasizing the importance in terms of the company's strategic management.

 

14 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

Thus, after the explanatory notes that present the company and its operations, as well as the explanatory notes related to the conceptual structure applied in the preparation of the financial statements, it begins with the explanatory note on Capital Management, followed by the other notes, obeying primarily the groupings of cash flow statement activities.

 

3.Summary of significant accounting policies

The Company's accounting practices are consistent with those adopted and disclosed in the previous year. For a better understanding of the recognition and measurement basis applied in the preparation of the financial statements, these practices are presented in the respective explanatory notes that deal with the topics of their applications.

4.Critical accounting policies: key estimates and judgments

The preparation of the financial statements requires the use of estimates and judgments for certain transactions that reflect the recognition and measurement of assets, liabilities, income and expenses. The assumptions used are based on history and other factors considered relevant, and are periodically reviewed by Management. Actual results may differ from estimated values. The impacts of COVID-19 and the change in the economic environment were considered in the preparation of these financial statements and the results of the review of these assumptions, arising from COVID-19, are presented in note 6.

Information about those areas that require significant judgment or involve a higher degree of complexity in the application of the accounting policies and that could materially affect the Company’s financial condition and results of operations is set out as follows.

4.1.Oil and gas reserves

Oil and gas reserves are estimated based on economic, geological and engineering information, such as well logs, pressure data and drilling fluid sample data and are used as the basis for calculating unit-of-production depreciation, depletion and amortization rates, impairment testing, decommissioning costs estimates and for projections of high probable future exports subject to cash flow hedge.

These estimates require the application of judgment and are reviewed at least annually based on a re-evaluation of already available geological, reservoir or production data and new geological, reservoir or production data, as well as changes in prices and costs that are used in the estimation of reserves. Revisions can also result from significant changes in the Company’s development strategy or in the production capacity.

The Company determines its oil and gas reserves both pursuant to the U.S. Securities and Exchange Commission - SEC and the ANP/SPE (Brazilian Agency of Petroleum, Natural Gas and Biofuels / Society of Petroleum Engineers) criteria. The main differences between the two criteria are mainly associated with the use of different economic premises and the possibility of considering as reserves, under the ANP / SPE criterion, the volumes expected to be produced beyond the contractual term of concession in the fields of Brazil, according to the technical regulation of ANP reserves.

According to the definitions prescribed by the SEC, proved oil and gas reserves are those quantities of oil and gas which, by analysis of geoscientific and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods, and government regulation. Proved reserves are subdivided into developed and undeveloped reserves.

Proven developed reserves are those that can be expected to recover: (i) through existing wells, with existing equipment and operating methods, or in which the cost of necessary equipment is relatively lower when compared to the cost of a new well; or (ii) through the equipment and extraction infrastructure installed, in operation at the time of the reserve estimate, if the extraction is done by means that do not involve a well.

 

Although the Company understands that proved reserves will be produced, the timing and amount recovered can be affected by a number of factors including completion of development projects, reservoir performance, regulatory aspects and significant changes in long-term oil and gas price levels.

Other information about reserves is presented in the supplementary information about oil and natural gas exploration and production activities..

15 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
a)Impacts of oil and gas reserves on depreciation, depletion and amortization

Estimates of proven reserve volumes used in the calculation of depreciation, depletion and amortization rates, in the units produced method, are prepared by specialized company professionals, in accordance with the definitions established by the SEC. Reviews of developed and undeveloped proved reserves have a prospective impact on the depreciation, depletion and amortization amounts recognized in profit or loss and the book values ​​of oil and natural gas assets.

Therefore, considering all other variables being constant, a decrease in estimated proved reserves would increase, prospectively, depreciation, depletion and amortization expense, while an increase in reserves would reduce depreciation, depletion and amortization.

Notes 25 provides more detailed information on depreciation and depletion.

b)Impacts of oil and gas reserves on impairment testing

For the calculation of the recoverable value of assets linked to the exploration and development of oil and natural gas production, the estimated value in use is based on proven reserves and probable reserves in accordance with the criteria established by ANP / SPE.

Further information on impairment testing is presented in note 27.

c)Impacts of oil and gas reserves on decommissioning costs estimates

The estimate of the moment when decommissioning costs for are realized is based on the depletion period of proven reserves according to the criteria established by ANP / SPE. Revisions to reserve estimates that imply changes in the depletion period may affect the provision for dismantling areas.

d)Impacts of oil and gas reserves on highly probable future exports subject to cash flow hedge accounting

The Company estimates highly probable future exports in accordance with future exports forecasted in the scope of its Strategic Plan projections, which are driven by proved and probable reserves estimates. Changes in such estimates may impact future exports forecasts and, consequently, hedge relationship designations may also be impacted.

4.2.Main assumptions for impairment testing

Impairment testing involves uncertainties mainly related to its key assumptions: average Brent prices and Brazilian real/U.S. dollar average exchange rate. These assumptions are relevant to virtually all of the Company’s operating segments and a significant number of interdependent variables are derived from these key assumptions and there is a high degree of complexity in their application in determining value in use for impairment tests.

The markets for crude oil and natural gas have a history of significant price volatility and although prices can drop precipitously, industry prices over the long term tends to continue being driven by market supply and demand fundamentals.

Projections relating to the key assumptions are derived from the Business and Management Plan. These assumptions are consistent with market evidence, such as independent macro-economic forecasts, industry and experts’ evaluations. Back testing analysis and feedback process in order to continually improve forecast techniques are also performed.

The Company’s oil price forecast model is based on a nonlinear relationship between variables reflecting market supply and demand fundamentals. This model also takes into account other relevant factors, such as historical idle capacity, industry costs, oil and gas production forecasted by specialized firms, the relationship between the oil price and the U.S. dollar exchange rate, as well as the impact of OPEC on the oil market.

The Real/U.S. dollar exchange rate projections are based on econometric models that take into account long-term assumptions involving observable inputs, such as country risk, commodity prices, interest rates and the value of the U.S. Dollar relative to a basket of foreign currencies (U.S. Dollar Index – USDX).

Changes in the economic environment can generate changes in assumptions and, consequently, the recognition of losses due to devaluation (or reversals of loss) in certain assets or CGUs, since, for example, the price of Brent directly impacts sales revenues and refining margins of the company, while the exchange rate of the US Dollar against the Real essentially impacts investments and operating expenses.

16 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

Changes in the economic and political environment may also result in higher country risk projections that would increase discount rates for impairment testing.

Reductions in the future prices of oil and natural gas, which are considered to be a long-term trend, as well as negative effects resulting from significant changes in the volume of reserves, the expected production curve, lifting costs or discount rates, as well as decisions on investments that result in the postponement or interruption of projects may be indications of the need to perform asset impairment tests.

The recoverable amount of certain assets may not substantially exceed their book values ​​and, for this reason, it is reasonably possible that impairment losses will be recognized in these assets in the coming years due to the observation of a different reality in relation to the assumptions made, as explained in note 27.

4.3.Definition of cash-generating units for impairment testing

This definition involves judgments and evaluation by Management, based on its business and management model. Changes in CGUs may occur due to the review of investment, strategic or operational factors that may result in changes in the interdependencies between assets and, consequently, in the aggregation or disaggregation of assets that were part of certain CGUs, which may generate additional losses or reversals in assets recoveries. The level of asset breakdown in CGUs can reach the limit of assets being tested individually. The definitions adopted are as follows:

a)Exploration and Production CGUs:

i) Oil or gas production field or pole: composed of a set of assets linked to the exploration and development of the production of a field or a pole (set of two or more fields) in Brazil or abroad. As of December 31, 2020, the CGUs in the Exploration and Production segment in Brazil totaled 132 fields and 30 poles. Changes in the CGUs in the E&P segment are presented in note 27. The drilling rigs are not associated with any CGU and are individually tested for recoverability..

b)Refining, transportation and marketing CGUs:

i) Refining, transportation and marketing CGU: set of assets that comprise the refineries, terminals and pipelines, as well as the logistics assets operated by Transpetro, with the combined and centralized operation of the logistics and refining assets, with the common aim of serving the market at the lowest global cost and, above all, the preservation of the strategic value of the set of assets in the long term. The operational planning is done in a centralized way and the assets are not managed, measured or evaluated by their isolated individual economic and financial result. Refineries do not have the autonomy to choose the oil to be processed, the mix of oil products to be produced, the markets to which they are destined, which portion will be exported, which intermediaries will be received and the sales prices of the products. Operational decisions are analyzed using an integrated model of operational planning to serve the market, considering all production, import, export, logistics and inventory options and seeking to maximize the company's overall performance. The decision on new investments is not based on the individual assessment of the asset where the project will be installed, but on the additional result for the CGU as a whole. The model that supports all planning, used in the technical and economic feasibility studies of new investments in refining and logistics, seeks to allocate a certain type of oil, or mix of oil products, to define the service to markets (area of ​​influence), aiming at the best results for the integrated system. Pipelines and terminals are complementary and interdependent parts of refining assets, with the common aim of serving the market.

ii) CGU Comperj – assets related to Comperj First Refining Unit. Only the utilities module is under construction, the necessary infrastructure to meet the UPGN of the integrated route 3 project. Assets are tested separately;

iii) CGU Second Refining Unit of RNEST – assets of the second refining unit at the Abreu e Lima Refinery and associated infrastructure, tested separately;

iv) Transportation CGU: comprises assets relating to Transpetro’s fleet of vessels. In 2020, Cartola and Ataulfo ​​Alves vessels were excluded from the CGU due to the end of their operations. These vessels began to be tested separately;

v) PANAMAX CGU: comprises three Panamax class vessels under construction (EI-512, EI-513 and EI-514);

vi) Comboios - Hidrovia CGU: comprises the fleet of vessels of the Hidrovia project (transportation of ethanol along the Tietê River) that are under construction.

vii) SIX CGU: shale processing plant; and

viii) Other CGUs: assets abroad valued at the smallest identifiable group of assets that generates cash inflows independent of cash inflows from other assets or other groups of assets.

17 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

c)Gas & Power CGUs:

i) Natural gas CGU: comprises natural gas pipelines, natural gas processing plants, consolidating the purchase, transportation and treatment of natural gas segments, in order to enable the commercialization of natural gas and its liquids (LPG, NGL and ethanol). During 2020, management decided to stop the operations of UPGN Atalaia, which will be tested separately;

ii) Nitrogenated Fertilizer Units CGUs: fertilizer and nitrogen plants, tested separately.

iii) Power CGU: comprises the thermoelectric power generation plants.

iv) Termocamaçari CGU: assets of UTE Termocamaçari, tested separately due to the lack of prospects for future operations.

v) Other CGUs: assets abroad valued at the smallest identifiable group of assets that generates cash inflows independent of cash inflows from other assets or other groups of assets.

d)Biofuels CGUs:

i) Biodiesel CGU: set of assets that make up the biodiesel plants. The definition of the CGU, with joint assessment of the plants, reflects the process of planning and carrying out production, considering the conditions of the national market and the supply capacity of each plant, as well as the results achieved in auctions and the supply of raw materials; and

ii) Quixadá CGU: Quixadá-CE Biodiesel Plant, tested separately, due to the decision to close its operations.

Further information on impairment of assets is presented in note 27.

4.4.Pension and other post-retirement benefits

The actuarial obligations and costs related to defined benefit pension and health care post-retirement plans are computed based on several economic and demographic assumptions, of which the most significant are:

·Discount rate: comprises the projected inflation curve based on the market plus real interest calculated through an equivalent rate that combines the maturity profile of pension and health obligations with the future return curve of the Brazilian government's longer-term bonds; and
·Rate of change in medical and hospital costs - premise represented by the projected growth rate of medical and hospital costs, based on the history of disbursements for each individual (per capita) of the company in the last five years, which is equal to the rate of inflation of the economy within 30 years.

These and other estimates are reviewed annually and may differ from actual results due to changing market and financial conditions, as well as actual results of actuarial assumptions.

The sensitivity analysis of discount rates and changes in medical costs as well as additional information about actuarial assumptions are set out in note 19.

4.5.Estimates related to contingencies and legal proceedings

The Company is defendant in arbitrations and in legal and administrative proceedings involving civil, tax, labor and environmental issues arising from the normal course of its business, and makes use of estimates to recognize the amounts and the probability of outflow of resources, based on reports and technical assessments from legal advisors and on the management’s assessment.

These estimates are performed individually, or aggregated if there are cases with similar characteristics, primarily considering factors such as assessment of the plaintiff’s demands, consistency of the existing evidence, jurisprudence on similar cases and doctrine on the subject. Specifically for actions of outsourced employees, the Company estimates the expected loss based on a statistical procedure, due to the number of actions with similar characteristics.

Arbitral, legal and administrative decisions against the Company, new jurisprudence and changes on the existing evidences can result in changes regarding the probability of outflow of resources and on the estimated amounts, according to the assessment of the legal basis.

Note 20 provides further detailed information about contingencies and legal proceedings.

18 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
4.6.Decommissioning costs estimates

The Company has legal obligations to remove equipment and restore onshore and offshore areas at the end of operations, the latter being the most significant. Estimates of costs for future environmental cleanup and remediation activities are based on current information about costs and expected plans for remediation. The accounting recognition of these obligations must be at present value, using a risk-free discount rate, adjusted to the company's credit risk. Due to the long periods until the abandonment date, variations in the discount rate, however small they may be, can cause large variations in the recognized amount.

These estimates require performing complex calculations that involve significant judgment since: i) the obligations are long-term; ii)the contracts and regulations contain subjective definitions of the removal and remediation practices and criteria involved when the events actually occur; and iii) technologies and asset removal costs are constantly changing, along with environmental and safety regulations.

The Company is constantly conducting studies to incorporate technologies and procedures to optimize the process of abandonment, considering industry best practices. However, the timing and amounts of future cash flows are subject to significant uncertainty.

Note 21 provides further detailed information about the decommissioning provisions.

4.7.Deferred income taxes

The Company makes judgments to determine the recognition and the amount of deferred taxes in the financial statements. Deferred tax assets are recognized if it is probable that future taxable profits will exist. The determination of the recognition of deferred tax assets requires the use of estimates contained in the Strategic Plan for the Petrobras Group, which is annually approved by the Board of Directors. This plan contains the main assumptions that support the measurement of future taxable profits, which are: i) brent oil price; ii) exchange rate; iii) net financial result.

Changes in deferred tax assets and liabilities are presented in note 17.

4.8.Cash flow hedge accounting involving the Company’s future exports

The calculation of “highly probable future exports” is based on the exports provided for in the current Strategic Plan, representing a portion of the projected values ​​for export revenue. The value estimated as highly probable is obtained considering the future uncertainty about the price of oil, oil production and demand for products in a model of optimization of the company's operations and investments, in addition to respecting the historical profile of exported volume in relation to total oil production. The values ​​of future exports are recalculated for each change of premise in the projection of the Strategic Plan (PE). The methodology used for its calculation and the respective parameters are reassessed at least once a year.

Other information and sensitivity analysis of cash flow hedge accounting involving the Company’s future exports is disclosed in note 38.

4.9.Write-off – overpayments incorrectly capitalized

As described in note 23, in the third quarter of 2014, the Company developed an estimation methodology and wrote off R$ 6,194 of capitalized costs representing the estimated amounts that Petrobras had overpaid for the acquisition of property, plant and equipment.

The Company has continuously monitored the results of the Lava Jato investigation and the availability of other information related to the scheme of improper payments. In preparing the financial statements for the year ended December 31, 2020, the Company has not identified any additional information that would impact the adopted calculation methodology and consequently require additional write-offs.

4.10.Expected credit losses on financial assets

The provision for expected credit losses (PCE) for financial assets is based on assumptions of default risk, determination of the occurrence or not of a significant increase in credit risk, a recovery factor, among others. To this end, the company uses judgments on these premises, in addition to information on late payments and assessments of the financial instrument based on external risk classifications and internal assessment methodologies.

19 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
4.11.Leases

The company uses incremental rates on company loans to discount cash flows from lease payments whose implied rates cannot be determined immediately. Incremental rates are estimated based on corporate funding rates (obtained from the yields - yields - of securities issued by Petrobras), which take into account the company's risk-free rate and credit risk premium, adjusted to reflect the specific conditions and characteristics of the lease, such as the risk of the country's economic environment, the impact of guarantees, the currency, the term and the start date of each contract.

4.12.Uncertainty over Income Tax Treatments

Uncertainties over income tax treatments represent the risks that the tax authority does not accept a certain tax treatment applied by the Company. The Company estimates the probability of acceptance of an uncertain tax treatment by the tax authority based on technical assessments by its legal advisors, considering precedent jurisprudence applicable to current tax legislation, which may be impacted mainly by changes in tax rules or court decisions which may affect the analysis of the fundamentals of uncertainty.

20 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
5.New standards and interpretations
5.1.International Accounting Standards Board (IASB)

The main standards issued by the IASB that have not yet come into force and have not been adopted by the company before December 31, 2020.

 

Standard Description Effective on
Interest Rate Benchmark Reform – Phase 2. Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. The regulatory changes are related to the reform of the benchmark interest rates (IBOR) resulting from the recommendations established in the report of the Financial Stability Board (FSB). The amendments establish new requirements on: basis for determining the contractual cash flows of financial assets and liabilities measured at amortized cost under the scope of IFRS 9, lease liabilities; hedge accounting; and disclosures.

January 1, 2021, retrospective application with certain exceptions.

.

Annual Improvements to IFRS® Standards 2018–2020. The amendments change requirements related to: subsidiary as an initial IFRS adopter (IFRS 1-First-time Adoption of International Financial Reporting Standards); rates to be considered to assess the derecognition of a financial liability (IFRS 9-Financial Instruments); and cash flows for taxation when measuring fair value (IAS 41-Agriculture). Additionally, the amendments change a certain illustrative example contained in IFRS 16-Leases.. January 1, 2022, prospective application.
Reference to the Conceptual Framework - Amendments to IFRS 3 The amendments update a certain reference in IFRS 3 to the most recent conceptual framework, as well as include additional requirements related to obligations under the scope of pronouncements IAS 37 - Provisions, Contingent Liabilities and Contingent Assets and IFRIC 21-Levies. In addition, the amendments provide that the buyer should not recognize contingent assets acquired in a business combination. January 1, 2022, prospective application.
Onerous Contracts—Cost of Fulfilling a Contract - Amendments to IAS 37 Establishes changes in IAS 37-Provisions, Contingent Liabilities and Contingent Assets to clarify what comprises the costs of fulfilling a contract to assess whether a contract is onerous. January 1, 2022.
Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16

Amendments to IAS 16-Property, Plant and Equipment prohibit deducting from the cost of property, plant and equipment the amounts received for the sale of items produced prior to placing the asset in the location and condition necessary for it to be able to function as intended by management

.

 

January 1, 2022, retrospective application with certain exceptions.

 

Classification of Liabilities as Current or Non-current - Amendments to IAS 1 The amendments in IAS 1-Presentation of Financial establish requirements for the classification of a liability as current or non-current January 1, 2023, retrospective application
IFRS 17 – Insurance Contracts e Amendments to IFRS 17 Insurance Contracts IFRS 17 replaces IFRS 4-Insurance Contracts and establishes the requirements that must be applied in the recognition and disclosure related to insurance and reinsurance contracts. January 1, 2023, retrospective application, with certain exceptions

 

 

 

Petrobras and its subsidiaries have debts indexed to Libor, the value of which corresponds to approximately 32% of their total financial indebtedness.

In order to be prepared for the transition of the IBORs, the company is monitoring the authorities' statements, as well as the measures that have been adopted, aiming at the adaptation of the various financial instruments to the new benchmarks.

In this way, Petrobras anticipates regulatory and financial market changes, in addition to preparing to make any adjustments to contracts, processes and systems that may be necessary.

As for the amendments and regulations listed above, which will come into effect as of January 1, 2022, the company is evaluating the effects of the initial application on its consolidated financial statements.

5.2.Accounting Pronouncement Committee - Comitê de Pronunciamentos Contábeis (CPC)

The CPC issues pronouncements and interpretations considered to be analogous to IFRS, issued by the IASB. The IFRS amendments contained in item 5.1 were not issued by the CPC until December 31, 2020.

 

 

 

21 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
6.Context, resilience measures and impacts of the COVID-19 pandemic

6.1 Context

In January 2020, China reported having identified a new variant of coronavirus, causing the disease COVID-19, which was spreading quickly in its population. On March 11, 2020, COVID-19 was a declared a pandemic by the World Health Organization (WHO). Social isolation measures arising from this pandemic affected the global economic environment, reducing the demand for oil and its oil products and triggering a shock in the oil and gas industry.

In early April, member countries and non-members of the Organization of Petroleum Exporting Countries and their allies (OPEC +) announced a new agreement whereby the combined production of the participants would be reduced by 9.7 MM bpd (barrels of oil day) for the months of May and June, after oil prices, in March and April, showed a sharp reduction in quotations, reaching the lowest price of the year in mid-April (US$ 19.33/bpd). In July 2020, at a new meeting, OPEC decided not to change the planned schedule for implementing the combined production cuts, maintaining for July the reduction of 9.7 MM bpd (barrels of oil day) and 7.7 MM bpd as of August, remaining at this level until December 2020. On December 3, 2020, the entity decided that the member countries of the organization increase their production by 500 thousand barrels per day per month starting in January 2021. In addition, successive and gradual increases in oil production may occur in the months later. With the new agreement, the production cut will be 7.2 million bpd from January 2021.

The adversity in the global scenario caused the company to revise its top metric of indebtedness contained in the Strategic Plan 2020-2024, replacing the indicator of net debt / EBITDA by the indicator of gross debt. The approved gross debt target for 2020 was US$ 87 billion, the same level as that of 2019, being overtaken in the third quarter of 2020, mainly by prepaying loans and repurchasing and redeeming securities in the international capital market.

Aware of the global crisis, the company also revised some key assumptions such as price, exchange rate and demand, because the short, medium and long term planning scenarios for these assumptions were no longer compatible with those approved in the Strategic Plan 2020-2024, reflecting directly in the financial statements of the first quarter of 2020.

The regular monitoring of projections of its reference price assumptions throughout 2020, in view of realized prices and the external environment, signaled changes in market conditions, such as the recovery in the price of Brent oil and the strong devaluation of the Real against the Dollar , leading the company to incorporate in its Strategic Plan 2021-2025, approved in November 2020, a review of the short and medium term trajectory, but maintaining the convergence of Brent oil price to US$ 50 per barrel in the long term, such as the projections made for the preparation of the financial statements for the first three quarters of 2020.

6.2Resilience measures

The company, in line with the recommendations of the WHO and the Ministry of Health, announced measures to preserve the health of its employees and support in the prevention of contagion in its operational and administrative areas, including work in the home office, for all activities that can be carried out remotely, temporary change of work shifts in face-to-face operations aiming to reduce the number of professionals circulating, strict cleaning of workplaces, distribution of face protection masks, massive testing, tracking of suspected and confirmed cases, pre-shipment isolation , pre-shipment health monitoring and before shifts start, health assessment with body temperature measurement and pre-shipment testing for oil platforms and periodically at land units, in addition to health monitoring, access to telemedicine services for employees, continuous risk assessment and cooperation with society.

The Brazilian governmental authorities, in turn, implemented a series of measures to face the collateral economic effects imposed by the current pandemic, highlighting: Federal Government measures - (i) PIS and Cofins and Social Security-Companies’ Contribution - had the due amounts of competencies from March to May 2020 deferred for collection in August, October and November 2020, respectively; (ii) FGTS - had the collection of the amounts from March to May deferred in six equal installments to be paid from July to December 2020; (iii) System S - 50% reduction in rates from April to June 2020; and (iv) IOF Credit - reduction from 3% to zero in certain operations carried out from April to November and the second half of December 2020; and State of Pernambuco - (v) VAT tax rate on import of fuel (from April to December 2020) - deferral of up to 30 days.

As a result of the abrupt reduction on the demand and prices of oil and fuel, the Company adopted a set of measures aiming at reducing costs, postponing cash outflows and optimizing its working capital, in order to ensure its financial strength and resilience of its businesses. The main measures are:

·disbursement of committed credit lines (Revolving Credit Lines) in the total amount of US$ 8 billion, as well as two new lines of R$ 3.5 billion. In the third quarter of 2020, there was a total prepayment of credit lines committed abroad in the amount of US$ 7.6 billion (note 34). With the prepayment, these resources were available for new withdrawals;
·postponement of the payment of the remaining dividends, calculated based on the annual result of 2019, paid on December 15, 2020, updated by SELIC;

22 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
·postponement of judicial deposits to 2021, in particular of a tax nature;
·reduction and postponement of expenses with human resources, with emphasis on: (i) postponement of payment for the 2019 Performance Award Program, the payment of which occurred in December 2020; (ii) postponement of the payment of 30% of the total monthly remuneration from April to June 2020 of the Board of Directors, President, Directors, Executive Managers and General Managers and between 10% to 30%, of the monthly remuneration of other employees with a bonus function. These remunerations were paid in September 2020; and (iii) temporary change from shift and alert systems to administrative regime until December 31, 2020, being reassessed monthly or at an earlier date depending on the return to operational work;
·reduction of capital expenditures scheduled for 2020 from US$ 12 billion to US$ 8.1 billion, mainly due to the postponement of exploratory activities of interconnection of wells and construction of production, refining facilities and the depreciation of the Brazilian real against the U.S. dollar;
·reduction of 200 thousand bpd (barrels of oil per day) of oil production from April 2020 (included the reduction of 100 thousands bpd announced in the end of March 2020), and a reduction in the utilization factor of refineries from 79% to 60% that contributed to the maintenance of reasonable clearance in the storage capacity, consequently avoiding the adoption of costly measures such as the chartering of ships to store liquids. However, with the evolution of the demand for our products performing better than expected, the Company opted for the gradual return to the previous level of average oil production, accompanied by an increase in the utilization factor of the refining facilities;
·reduction in operating expenses with an additional decrease of US $ 2 billion, highlighting: (i) hibernation of platforms operating in shallow water fields, with higher extraction costs per barrel, which, due to the fall in oil prices, started to have negative cash flow; (ii) lower expenses with interventions in wells and optimization of production logistics; and (iii) postponement of new relevant contracts for a period of 90 days, from April to June 2020;
·negotiation efforts with suppliers resulted in a postponement of disbursements and reductions in the order of R$ 7.3 billion in 2020, including contract / order cancellations, scope reduction and price reduction. Deferred payments will be paid over the course of 2021 and may include financial charges, according to individual negotiations with suppliers.

Due to the structural reduction in the demand for natural gas in the entire Brazilian market due to the pandemic and the consequent declaration of Force Majeure by its customers (local natural gas distributors), Petrobras notified Force Majeure in the contracts for the purchase of natural gas related to the Manati field (GSA) and the purchase of Bolivian imported natural gas with YPFB (GSA Bolivia), as provided for in the contract. With this, the company mitigated the effects of the Force Majeure on this contract (GSA) and reduced potential controversies, as well as avoided payments related to the take-or-pay obligation. From September 2020, with the resumption of consumption in the non-thermoelectric market, for contracts that no longer met the legal and contractual requirements for the characterization of the Force Majeure, their normal supply conditions were resumed;

Despite the challenging context imposed by COVID-19, the company achieved the following results in the year ended December 31, 2020: (i) increase in the average production of oil, NGL and natural gas; (ii) reaching monthly production records in Búzios; (iii) record exports of oil and fuel oil with low sulfur content; (iv) record production and sale of low-sulfur S-10 diesel; (v) production of new gasoline with higher octane; and (vi) reduction in dollar indebtedness, in addition to improved risk perception, with the issue of 10-year bonds with the lowest yield in Petrobras' history.

As a consequence of the implementation of the measures described above and of the results achieved, the company believes that it has adequate resources to continue its operations in the short term and, therefore, the going concern assumption was applied in the preparation of these financial statements.

6.3Effects on financial statements

The impacts of COVID-19 and the change in the economic environment were considered in the preparation of these financial statements. Information on the relevant estimates and judgments, which require a high level of judgment and complexity in their applications and which may materially affect the company's financial situation and results, are disclosed in note 4.

The result of the review of the premises, whether the review is applied to the financial statements of the first quarter of 2020, such as that resulting from the Strategic Plan 2021-2025, approved in November 2020, and others arising from COVID-19, are presented below:

·the price of oil and expectations about the growth of the world economy, notably from the end of the 1st quarter of 2020, suffered a consistent decline, as well as the global demand for derivatives was also severely affected in this period, leading the company to anticipate the approval of a new set of assumptions compared to those approved in the Strategic Plan (PE) of 2020-2024, as well as taking the decision to hibernate non-resilient mature fields in the face of this new scenario. As a result, impairment losses on assets were recognized in the first quarter of 2020 in the amount of R$ 65 billion. At the end of 2020, the company approved its Strategic Plan 2021-2025, revised its reserves by incorporating and updating new production curves, reviewed its project portfolio, made updated estimates on economic assumptions, among others. In this context, losses in the recoverability of assets, recorded in the first quarter, were partially offset, totaling a net loss in fiscal year 2020 of R$ 34 billion (note 27);

23 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
·the expected export values and consequently the highly probable export values ​were impacted by the effects arising from the oil price war and by COVID-19. Thus, the values of exports, whose exchange variations were designated in hedge relationships for the months of April to December 2020 and August to December 2021, were no longer foreseen and there was a significant increase in the company's dollar x Real exchange exposure on March 31, 2020. During the review of the Strategic Plan 2021-2025, approved in November 2020, there was an increase in expected exports, and consequently in highly probable exports, but not in an amount equal to or higher than the debt instruments and lease liabilities subject to designation as protection instruments. Thus, the significant increase in foreign exchange exposure (Dollar x Real), verified over the quarters, remained on December 31, 2020, ending the year with a negative position. In 2020, the amount of R$ 2,554 was reclassified from shareholders’ equity to the statement of income, mainly in the first quarter of 2020 (note 38.3);
·inventories adjusted to net realizable value, mainly from the first quarter of 2020, of R$ 1.5 billion (note 15);
·the recognition of expected credit losses (PCE) in financial assets, which are not measured at fair value through profit or loss, followed the consistent criterion throughout the year based on the company's expectations of a prolongation of the current economic effects generated for combating COVID-19. For financial assets whose counterparties had ratings published by risk agencies, where the notes already reflected the effects of the pandemic, the information disclosed by such agencies was used to calculate the PCE. For other financial assets, in general, the expected effects of COVID-19 were incorporated into the PCE by identifying the deterioration in the probability of default based on observable data that considered the debtor's stratification by area of operation, type of product and region. No relevant effects were identified that would impact the financial statements for the year 2020 (note 14.3);
·deferred tax credits were recognized based on the projected taxable profit for subsequent years (note 17);
·with the approval of the Strategic Plan 2021-2025, new estimates of reserve volumes were incorporated, reflecting the review over portfolio projects, the technical uncertainties and the price and cost assumptions adjusted in the new Plan compared to those revised in the previous planning. Thus, the estimates for the provision for the dismantling of the company's areas generated an increase of R$ 29.3 billion on December 31, 2020 (note 21);
·there were no changes in assumptions in the recognition of revenue contracts with customers. The expectation of the customer's completion of the obligation remains at the maturity of each transaction, classified as highly probable. The clients did not indicate their intention to breach or revise the signed contractual terms and conditions;
·in the scope of the company's legal litigation, there are no cases related to COVID-19 with a risk of financial disbursement that directly impact the financial statements as of December 31, 2020. However, the company became aware of some public civil actions in the labor field brought by unions, whose objects are related to the crisis of the new coronavirus and the Resilience Plan to reduce expenses. Such actions represent obligations to do and are divided into three groups, basically questioning: (i) two temporary measures to contain personnel expenses contained in the Resilience Plan; (ii) sufficiency of the preventive measures against the spread of COVID-19 and the criterion for removing people from the risk group; and (iii) the union's participation in the Organizational Response Structure (EOR). The company is taking the appropriate legal measures for each case and the best estimate at the moment, when there is still no merit decision at first instance, is that the likelihood of loss is not probable.
·the reduction in the company's activity level, especially in the first semester of 2020, resulted in expenses of R$ 1,595 in 2020, recorded in other operating expenses, being R$ 495 related to the lower processing in the refineries and effect in the Gas and Energy plants, and R$ 1,100 due to rigs and platforms without schedule.

7.Capital management

The company's capital management aims to return its capital structure to adequate levels, aiming at the continuity of its business and the increase in value for shareholders and investors. The company's main sources of funds have been its operating cash generation and divestments.

 

One of the five pillars of the 2021-2025 Strategic Plan is the reduction of the cost of capital through debt management and with a trajectory of reduced leverage. The financial strategy also aims to mitigate risks by actively managing liabilities, maximizing shareholder return and optimizing working capital.

24 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

Gross debt (composed of financial debt and lease liabilities, current and non-current) is one of the main metrics for the company, allowing Petrobras to monitor its indebtedness, which management considers essential to increase competitiveness with peers, reducing our cost of capital. The company's goal for 2021 is to reduce gross indebtedness to US$ 67 billion and the Shareholder Remuneration Policy states that, if gross indebtedness is less than US$ 60 billion, the amount planned for 2022, the company may distribute to its shareholders 60% of the difference between operating cash flow and investments in capital goods, according to note 36.

 

In 2020, the company reduced its gross debt by US$ 11,583 million, ending the year with US$ 75,538 million and US$ 12,370 million in cash, exceeding the target of US$ 87.1 billion. In addition, it reduced net debt by US$ 15,693 million, reaching US$ 63,168 million and extended the average debt maturity from 10.8 years in 2019 to 11.71 years in 2020. However, gross and net debt in Reais increased 12% and 3%, respectively, due to the devaluation of the Real against the dollar, as shown in the following table:

 

 

 

  Consolidated
  In millions of US$  
  12.31.2020 12.31.2019 12.31.2020 12.31.2019
Total debt (Financings and Leases) 75,538 87,121 392,548 351,161
Cash and cash equivalents + Government securities and time deposits (maturity of more than 3 months) 12,370 8,260 64,280 33,294
Net debt 63,168 78,861 328,268 317,867

 

The strong generation of operating cash of R$ 148,106 (US$ 28,890 million) was fundamental to the reduction of indebtedness in the year, in addition to the divestments of R$ 10,212 (US$ 1,997 million).

These measures are not defined according to international accounting standards - IFRS and should not be considered in isolation or as a substitute for the metrics of income, indebtedness and operating cash flow under IFRS, nor be a basis for comparison with other companies' indicators.

8.Cash and cash equivalents and Marketable securities

 

8.1.Cash and cash equivalents

Include cash at bank and in hand, available bank deposits and highly liquid short-term investments, maturing in up to three months, counting from the date of the original contract, readily convertible into a known cash amount and with an insignificant risk of change in value.

 

  Consolidated Parent Company
  12.31.2020 12.31.2019 12.31.2020 12.31.2019
Cash at bank and in hand 2,868 2,306 29 82
Short-term financial investments        
   - In Brazil        
Brazilian interbank deposit rate investment funds and other short-term deposits 13,469 6,849 3,206 1,738
Other investment funds 143 16 4 5
  13,612 6,865 3,210 1,743
   - Abroad        
Time deposits 13,376 27
Automatic investing accounts and interest checking accounts 29,274 18,622 1,941 2,497
Other financial investments 1,726 1,894
  44,376 20,543 1,941 2,497
Total short-term financial investments 57,988 27,408 5,151 4,240
Total cash and cash equivalents 60,856 29,714 5,180 4,322
 

 

 

Short-term financial investments in Brazil primarily consist of investments in funds holding Brazilian Federal Government Bonds that can be redeemed immediately, as well as reverse repurchase agreements that mature within three months as of the date of their acquisition. Short-term financial investments abroad comprise time deposits that mature in three months or less from the date of their acquisition, highly-liquid automatic investment accounts, interest checking accounts and other short-term fixed income instruments.

The main funds generated were substantially provided by cash from operating activities of R$ 148,106, proceeds from divestments of R$ 10,212 and a set of measures to reduce cash outflows and preserve cash in this scenario of uncertainty of the pandemic, in order to reinforce its financial strength and resilience of the company’s businesses. The exchange rate effect on the balances of cash and cash equivalents resulting from investments abroad was R$ 8,323.

25 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

The main use of these funds in the period ended December 31, 2020 were for debt service obligations, net of proceeds from financing through the offering of securities in the international market, including pre-payment of debts in the national and international banking market, repurchase and redemption of securities in the international capital market and lease payments totaling R$ 94,659 and realization of investments in the amount of R$ 35,286.

 

Accounting Policy

They represent cash at bank and in hand, bank deposits available and short-term investments with high liquidity, maturing in up to three months, counting from the date of the original contract, readily convertible into a known amount of cash and with an insignificant risk of change in value.

 

8.2.Marketable securities
            Consolidated   Parent Company
      12.31.2020     12.31.2019 12.31.2020 12.31.2019
  Brazil Abroad Total Brazil Abroad Total Total Total
Fair value through profit or loss 3,388 3,388 3,528 3,528 2,963 3,200
Fair value through other comprehensive income 28 28 28
Amortized cost 227 36 263 180 76 256 226 180
Total 3,615 36 3,651 3,736 76 3,812 3,189 3,408
Current 3,388 36 3,424 3,528 52 3,580 2,963 3,200
Non-current 227 227 208 24 232 226 208

 

Marketable securities classified as fair value through profit or loss refer mainly to investments in Brazilian Federal Government Bonds. These financial investments have maturities of more than three months and are mostly classified as current assets due to their maturity or the expectation of their realization in the short term.

 

Accounting Policy

They are initially measured at fair value and subsequently according to their respective classifications:

Amortized cost: cash flows that constitute the receipt, on specified dates, of principal and interest on the principal amount outstanding and the business model aims to maintain the asset in order to receive its contractual cash flows. Interest income is calculated using the effective interest method.

Fair value through other comprehensive income: securities in which the company has irrevocably elected due to subsequent changes in the fair value of the investment in other comprehensive income;

Fair value through profit or loss: all other securities.

26 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
9.Sales revenues
9.1.Revenues from contracts with customers

As an integrated energy company, revenues from contracts with customers derive from different products sold according to our operating segments, taking into consideration specific characteristics of the markets where it operates. For additional information about the operating segments of the Company, its activities and its respective products sold, see note 13.

The determination of transaction prices derives from methodologies and policies based on the parameters of these markets, reflecting operating risks, level of market share, changes in exchange rates and international commodity prices, including Brent oil prices, oil products such as diesel and gasoline, and the Henry Hub Index.

Revenues from sales are recognized at the moment the control is transferred to the client, that occurs upon product delivery or when the service is provided. Billing takes place in periods very close to the delivery and rendering of services, therefore, significant changes in transaction prices are not expected to be recognized in revenue from periods after the satisfaction of the performance obligation, except for some exports in which final price formation occurs after the transfer of control of the products and is subject to variation in the value of the commodity. Sales are made on short receipt terms, so there are no financing components.

In addition, the company acts as an agent mainly in the biofuels business, where there is no control of the biodiesel sold to the distributors at any time during the sale operation. Agency revenues in 2020 totaled R$ 192 (R$ 183 in 2019).

9.2.Net sales revenues
  Consolidated Parent Company
  2020 2019 2020 2019
Gross sales 352,660 392,015 333,965 378,389
Sales taxes (*) (80,591) (89,770) (79,972) (89,233)
Sales revenues 272,069 302,245 253,993 289,156
Diesel 70,984 90,770 70,987 90,770
Automotive gasoline 32,074 38,710 32,074 38,710
Liquefied petroleum gas 17,347 16,400 15,429 14,634
Jet fuel 6,965 15,113 6,965 15,113
Naphtha 8,470 6,579 8,470 6,579
Fuel oil (including bunker fuel) 4,016 4,038 4,024 4,038
Other oil products 13,945 13,453 14,021 13,843
Subtotal oil products 153,801 185,063 151,970 183,687
Natural gas 18,485 23,379 18,337 23,294
Ethanol, nitrogen products and renewables 296 960 174 319
Breakage 2,283 2,539 2,290 2,552
Electricity 5,635 5,196 5,622 5,110
Services, agency and others 4,182 3,692 4,662 4,454
Domestic market 184,682 220,829 183,055 219,416
Exports 80,229 71,612 70,938 69,740
Crude oil 58,692 52,186 47,201 48,986
Fuel oil (including bunker fuel) 17,982 13,161 20,076 14,320
Other oil products and other products 3,555 6,265 3,661 6,434
Sales abroad (**) 7,158 9,804
Foreign Market 87,387 81,416 70,938 69,740
Sales revenues 272,069 302,245 253,993 289,156
 (*) Includes, mainly, CIDE, PIS, COFINS and ICMS (VAT).
(**) Sales revenues from operations outside of Brazil, including trading and excluding exports.

 

Reduction of sales revenues in the domestic market, mainly by:

·reduction in the average prices of oil products, especially diesel, gasoline, naphtha and jet fuel, following the reduction in international prices;
·lower sales volume of oil products (R$ 12,106), with emphasis on:

- jet fuel, due to the restrictions imposed by the pandemic;

- diesel, due to increased sales by importers and restrictions on the transportation of passengers and cargo due to the pandemic, partially offset by commercial actions carried out in 2020;

- gasoline, due to the restrictions on mobility imposed by the pandemic, and the loss of market share, partially offset by commercial actions carried out in 2020; and

27 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

- effects partially offset by higher volumes of naphtha, due to the reduction in direct imports from Braskem, and LPG, due to social isolation, increasing residential consumption of the derivative, and lower temperatures, promoting greater consumption.

·lower natural gas revenue, due to the reduction in demand from the thermoelectric and non-thermoelectric segments; and
·lower revenue from fertilizers, influenced by the hibernation of Araucária Nitrogenados S.A. in January 2020.

The higher export revenue reflects the higher volumes of oil exports, due in large part to the greater oil production in Brazil and the retraction of the domestic market, as well as higher volumes of oil products, mainly low sulfur fuel oil. These effects were partially offset by lower prices, following the reduction in international prices.

The reduction in sales revenue abroad mainly reflects the sale of distribution companies in Paraguay and the Pasadena Refinery and the lower volumes sold due to the impact of the pandemic, as well as the lower prices realized, due to the devaluation of international prices.

With the reduction of participation in the share capital of Petrobras Distribuidora - BR, which occurred on July 25, 2019, the company is no longer consolidated. Sales to Petrobras Distribuidora - BR represent more than 10% of the company's total sales, mainly impacting the Refining, Transport and Marketing (RTM) segment.

9.3.Remaining performance obligations

The company has sales contracts for products or services in force and signed until December 31, 2020, with terms greater than 1 year, where there is established a quantity of goods or services for sales in the next years with their respective payment terms.

The following are the remaining amounts of these contracts at the end of 2020 based on their quantities of goods and services for future sales, as well as prices on the base date of December 31, 2020 or practiced in recent sales when they reflect the information more directly observable:

  Consolidated
  Expected realization within 1 year Expected realization after 1 year Total of the contracts
Domestic Market      
Gasoline 34,093 34,093
Diesel 77,993 77,993
Natural gas 22,779 40,872 63,651
Services and others 21,359 22,500 43,859
Naphtha 4,917 19,241 24,158
Electricity 3,703 12,945 16,648
Other oil products 92 92
Jet fuel 2,100 2,100
Foreign Market    
Exports 10,002 49,573 59,575
Total 177,038 145,131 322,169
 

Revenues will be recognized through transfers of goods and services to the respective customers, their values ​​and period of recognition being subject to future demands, variations in the value of commodities, exchange rates and other market factors.

The table above does not include information on contracts with customers with a duration of less than one year, such as sales in the spot market, as well as estimated amounts of variable payments that are restricted, in addition to contracts that only establish general terms and conditions (Master Agreements), for which volumes and prices will only be defined in subsequent contracts.

Additionally, electricity revenues are substantially due to demands for the generation of thermoelectric energy as required by the National System Operator (ONS), which are impacted by hydrological conditions in Brazil. Thus, the amounts shown in the table above represent mainly fixed amounts receivable due to the availability promised to customers in these operations.

9.4.Contract liabilities

As of December 31, 2020, the company has R$ 356 (R$ 514 in 2019) in advances related mainly to take and ship or pay contracts, to be offset against future sales of natural gas or the non-exercise of the right by customer, classified as other accounts and expenses payable in current liabilities.

Accounting policy

The Company evaluates contracts with customers that will be subject to revenue recognition and identifies the distinct goods and services promised in each of them.

28 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

Performance obligations are promises to transfer to the customer goods or services (or a bundle of goods or services) that are distinct, or series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

Revenues are measured based on the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. Transaction prices are based on contractually stated prices, reflecting the Company's pricing methodologies and policies based on market parameters.

When transferring a good, that is, when the customer obtains its control, the company satisfies the performance obligation and recognizes the respective revenue, which usually occurs at a point in time upon delivery.

10.Costs and expenses by nature

10.1.       Cost of sales

  Consolidated Parent Company
  2020 2019   2020 2019
Raw material, products for resale, materials and third-party services (*) (64,602) (81,481) (62,047) (80,393)
Depreciation, depletion and amortization (44,823) (47,398) (53,772) (53,785)
Production taxes (29,923) (38,418) (29,904) (38,387)
Employee compensation (8,759) (12,843) (6,535) (10,596)
Total (148,107) (180,140) (152,258) (183,161)
(*) It Includes short-term leases and inventory turnover.

 

 

Cost of sales of R$ 148,107, R$ 32,033 less than in 2019 (R$ 180,140), with emphasis on the following factors:

 

·actuarial review of the AMS health care plan regarding the benefit change, with a positive impact in 2020;
·lower costs with imported products and with government participation, following the reduction in international prices;
·lower share of imported oil in the feedstock processed at refineries and imported derivatives in the sales mix, with emphasis on diesel and gasoline;
·lower costs for the acquisition of Bolivian gas, due to the variation in the oil basket, and partners, following the reduction in prices; and;
·lower costs with operations abroad, due to sales of distribution companies in Paraguay, the sale of Pasadena Refinery and lower international prices.

 

10.2.       Selling expenses

  Consolidated Parent Company
  2020 2019   2020 2019  
Materials, third-party services, freight, rent and other related costs (21,297) (14,549) (17,647) (15,855)
Depreciation, depletion and amortization (2,924) (2,160) (2,907) (2,079)
Allowance for expected credit losses 20 (192) 34 (103)
Employee compensation (819) (845) (401) (435)
Total (25,020) (17,746) (20,921) (18,472)
 

 

 

Selling expenses of R$ 25,020, of which R$ 7,274 are higher, reflecting the higher expenses for the use of the gas pipelines of Transportadora Associada de Gás SA (TAG) from the sale in June 2019, an increase in logistics expenses due to the higher volume of exports of oil and oil products, average devaluation of the real against the dollar and the higher cost of the freight tariff, partially offset by the actuarial review of the AMS health care plan regarding the change in benefit, with a positive impact in 2020.

 

10.3.       General and administrative expenses

  Consolidated Parent Company
  2020 2019 2020 2019
Employee compensation (3,813) (5,621) (2,720) (4,603)
Materials, third-party services, rent and other related costs (1,264) (2,119) (787) (1,518)
Depreciation, depletion and amortization (448) (628) (390) (559)
Total (5,525) (8,368) (3,897) (6,680)

 

 

29 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

General and administrative expenses of R$ 5,525, of which R$ 2,843 were lower, mainly reflecting the actuarial review of the AMS health care plan regarding the change in benefit co-participation, with a positive impact in 2020, and the lower expenses with salaries and labor charges due to the reduction in the workforce, as well as lower expenses with third-party services.

 

11.Other income and expenses
  Consolidated Parent Company
  2020 2019 2020 2019
PIS and Cofins recovered - VAT tax exclusion from PIS and Cofins tax basis 7,878 7,444
Results with reimbursements from E&P partnership operations 4,646 1,922 4,646 1,922
Pension and medical benefits – retirees 4,630 (5,391) 4,630 (5,374)
Equalization of expenses - Production Individualization Agreements 3,701 3 3,701 3
Results on disposal/write-offs of assets and on remeasurement of investment retained with loss of control 2,709 23,798 2,918 23,443
Early termination and change on payments of lease agreements (**) 1,389 244 37,778 249
Amounts recovered from Lava Jato investigation 797 874 796 874
Fines imposed on suppliers 475 1,025 456 990
Reclassification of comprehensive income (loss) due to the disposal of equity-accounted investments (225) (127) (225)
Gains / (losses) on decommissioning of returned/abandoned areas (1,770) (637) (1,770) (637)
Gains/(losses) with Commodities Derivatives (1,974) (1,427) (1,142) (890)
Employee Career and Compensation Plan – PCR (*) (2,240) (2,550) (2,040) (2,427)
Losses related to legal, administrative and arbitration proceedings (2,627) (5,953) (2,189) (5,719)
Voluntary Separation Incentive Plan – PDV (5,408) (791) (5,250) (791)
Unscheduled stoppages and pre-operating expenses (7,436) (5,208) (7,154) (5,044)
Others 150 (1,040) (1,754) (940)
Total 4,695 4,742 40,845 5,659
(*) In 2020, in the consolidated, includes a reversal of R$ 434 of the provision constituted in 2019 and R$ 15 referring to the Management Performance Award Program (R$ 429 and R$ 12, respectively, at the parent company).
(**) In 2020, at the parent company, mainly due to the result of contract termination, resulting from the nationalization of PNBV group platforms.

 

 

The main factors of the variation in relation to 2019 were:

 

 

·gain arising from the favorable and definitive decision to exclude VAT Tax from the PIS / COFINS tax base in 2020;
·greater gains from reimbursement with operations in E&P partnerships;
·actuarial review of the AMS health care plan regarding the change in benefit, mainly inactive employees;
·higher revenue from equalization of expenses with Volume and Expenses Equalization Agreements (AEGV) of the shared deposits of Tupi, Sépia and Atapu;
·lower net gains on disposal and write-off of assets, basically due to the sale of TAG in 2019;
·greater gain from early termination and changes in lease payments;
·lower provision for losses and contingencies with lawsuits, mainly due to: i) lower loss related to the arbitration of quota holders of Sete Brasil, compared to the provision for loss in 2019; ii) lower provision for loss related to environmental damage occurred in the State of Paraná - OSPAR (Oleoduto Santa Catarina - Paraná); iii) reversal of provision for loss related to the SERGAS concessionaire in the first quarter of 2020, due to the agreement approved between the company, SERGAS and the state of SE related to lost profits claimed by SERGAS; iv) partially offset by provisions for losses realized in 2020, with emphasis on: i) fine related to the accessory obligation of VAT tax; ii) provision related to the agreement with Technip agreement related to the engineering contract signed for the execution of the RPBC diesel portfolio;
·higher provisions related to the Voluntary Termination Plan (PDV), due to the greater number of subscribers and updating of the provisions resulting from the increase in the indemnity amount; and
·higher expenses with unscheduled stoppages and pre-operating expenses.

 

 

30 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
12.Net finance income (expense)
  Consolidated Parent Company
  2020 2019 2020 2019
Finance income 2,821 5,271 2,940 5,589
Income from investments  and marketable securities (Government Bonds) 1,017 2,212 313 611
Gains from signed agreements (electric sector) 310 310
Interests on oil and alcohol accounts 417 35 417 35
Finance income FIDC-NP 1,802 2,705
Others 1,387 2,714 408 1,928
Finance expenses (31,108) (27,878) (35,692) (32,626)
Interest on finance debt (18,507) (19,060) (23,655) (20,514)
Unwinding of discount on lease liabilities (6,806) (5,973) (12,543) (12,670)
Discount and premium on repurchase of debt securities (6,139) (3,380)
Capitalized borrowing costs 4,805 5,250 4,754 5,193
Unwinding of discount on the provision for decommissioning costs (3,251) (3,128) (3,235) (3,127)
Others (1,210) (1,587) (1,013) (1,508)
Foreign exchange gains (losses) and indexation charges (21,297) (11,852) (47,037) (13,175)
Foreign Exchange  (*) (6,834) (253) (33,460) (2,819)
Expenses (*) (24,308) (12,397) (23,480) (11,170)
Pis and Cofins inflation indexation income -  exclusion of ICMS (VAT tax) from the basis of calculation 8,886 8,697
Others 959 798 1,206 814
Total (49,584) (34,459) (79,789) (40,212)
(*) For more information, see notes 38.3.c and 38.3.a.

 

Higher negative net financial result compared to 2019, mainly due to:

 

·Increase in net financial expenses, with emphasis on: (i) higher costs with goodwill on the repurchase of debt securities in the capital market; (ii) lower gains from financial investments and government bonds; (iii) reduction in interest income from accounts receivable from the electricity sector, due to the sale of receivables; (iv) lower revenues from financial updates on judicial deposits; (v) lower capitalized financial charges, reflecting the lower average capitalization rate, partially offset by the slight increase in the average balance of assets under construction; (vi) gains with agreements signed related to the electricity sector in 2019; and (vii) negative goodwill expenses related to prepayment of receivables from the electricity sector.
·Larger negative monetary and exchange variation caused by: (i) greater reclassification of the accumulated negative exchange variation in shareholders’ equity to the statement of income from the realization of hedged accounting exports, including an additional loss, recorded mainly in the first quarter of 2020, on account exports that are no longer expected; (ii) higher expenses with exchange variation of Real x U.S. dollar, largely reflecting the 28.9% devaluation of the real in 2020 against the dollar on the company's foreign exchange exposure; and (iii) higher expenses with U.S. dollar x Euro exchange variation, due to the 9.2% devaluation of the dollar against the euro on a passive exposure in 2020, compared to the 1.9% appreciation in the previous year, partially offset by the lower loss resulting from derivative transactions (NDF). These effects were offset by: (i) gain from monetary restatement arising from the favorable and final (unappealable) judicial decision of the exclusion of VAT Tax from the PIS / COFINS calculation base at Petrobras and controlled companies; and (ii) gain from monetary restatement of accounts receivable referring to the oil and alcohol account, resulting from a favorable and unappealable court decision, on the action of the monetary restatement index used on the value of accounts receivable.

 

 

.

 

 

 

31 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
13.Segment information – Result
Consolidated Statement of Income by operating segment - 12.31.2020
  Exploration and Production Refining, Transportation & Marketing

Gas

&

Power

Corporate and other business Eliminations Total
Continuing operations            
Sales revenues 174,085 241,966 39,275 4,439 (187,696) 272,069
    Intersegments 169,593 4,368 12,502 1,233 (187,696)
    Third parties 4,492 237,598 26,773 3,206 272,069
Cost of sales (92,057) (222,215) (20,131) (4,207) 190,503 (148,107)
Gross profit (loss) 82,028 19,751 19,144 232 2,807 123,962
Income (expenses) (44,221) (15,455) (13,259) 1,978 (112) (71,069)
   Selling (4) (12,955) (11,839) (110) (112) (25,020)
   General and administrative (797) (811) (432) (3,485) (5,525)
   Exploration costs (4,170) (4,170)
   Research and development (1,194) (46) (56) (523) (1,819)
   Other taxes (2,567) (714) (158) (1,532) (4,971)
   Impairment of assets (34,448) 859 192 (862) (34,259)
   Other income and expenses (1,041) (1,788) (966) 8,490 4,695
Net income / (loss) before financial results and income taxes 37,807 4,296 5,885 2,210 2,695 52,893
  Net finance income (expenses) (49,584) (49,584)
  Results in equity-accounted investments (893) (2,132) 682 (929) (3,272)
Net income / (loss) before income taxes 36,914 2,164 6,567 (48,303) 2,695 37
  Income taxes (12,854) (1,461) (2,001) 23,441 (916) 6,209
Net income from continuing operations for the year 24,060 703 4,566 (24,862) 1,779 6,246
Attributable to:            
Shareholders of Petrobras 24,083 862 4,188 (23,804) 1,779 7,108
    Net income from continuing operations 24,083 862 4,188 (23,804) 1,779 7,108
Non-controlling interests (23) (159) 378 (1,058) (862)
    Net income from continuing operations (23) (159) 378 (1,058) (862)
  24,060 703 4,566 (24,862) 1,779 6,246

 

 

The balance of depreciation, depletion and amortization by business segment are as follows:

  Exploration and Production Refining, Transportation & Marketing

Gas

&

Power

Corporate and other business Eliminations Total
2020 44,043 10,838 2,409 1,015 58,305
2019 45,299 9,691 2,573 939 58,502

 

 

 

 

 

 

 
  Exploration and Production Refining, Transportation & Marketing

Gas

&

Power

Corporate and other business Eliminations Total
Continuing operations            
Sales revenues 199,429 266,613 45,252 4,802 (213,851) 302,245
    Intersegments 195,245 36,561 13,002 895 (213,851) 31,852
    Third parties 4,184 230,052 32,250 3,907 270,393
Cost of sales (107,694) (242,990) (30,338) (4,588) 205,470 (180,140)
Gross profit (loss) 91,735 23,623 14,914 214 (8,381) 122,105
Income (expenses) (16,700) (17,258) 9,926 (16,806) (113) (40,951)
   Selling (4) (8,568) (8,971) (121) (82) (17,746)
   General and administrative (990) (1,329) (530) (5,519) (8,368)
   Exploration costs (3,197) (3,197)
   Research and development (1,549) (43) (58) (618) (2,268)
   Other taxes (507) (606) (617) (754) (2,484)
   Impairment of assets (8,027) (2,802) (801) (11,630)
   Other income and expenses (2,426) (3,910) 20,903 (9,794) (31) 4,742
Net income / (loss) before financial results and income taxes 75,035 6,365 24,840 (16,592) (8,494) 81,154
  Net finance income (expenses) (34,459) (34,459)
  Results in equity-accounted investments 330 (653) 407 463 547
Net income / (loss) before income taxes 75,365 5,712 25,247 (50,588) (8,494) 47,242
  Income taxes (25,511) (2,164) (8,446) 16,833 2,888 (16,400)
Net income from continuing operations for the year 49,854 3,548 16,801 (33,755) (5,606) 30,842
Net income from discontinued operations 12 10,116 10,128
Net income (loss) 49,854 3,548 16,813 (23,639) (5,606) 40,970
Attributable to:            
Shareholders of Petrobras 49,905 3,945 16,331 (24,438) (5,606) 40,137
    Net income from continuing operations 49,905 3,945 16,331 (34,303) (5,606) 30,272
    Net income from discontinued operations 9,865 9,865
Non-controlling interests (51) (397) 482 799 833
    Net income from continuing operations (51) (397) 470 548 570
    Net income from discontinued operations 12 251 263
  49,854 3,548 16,813 (23,639) (5,606) 40,970
 

 

 

32 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

 

Accounting policy

The information by business segment of the company is prepared based on available financial information that is directly attributable to the segment or that can be allocated on a reasonable basis, being presented by business activities used by the Executive Board to make resource allocation decisions and performance evaluation.

When calculating segmented results, transactions with third parties, including jointly controlled and associated companies, and transfers between business segments are considered. Transactions between business segments are valued at internal transfer prices calculated based on methodologies that take into account market parameters, and these transactions are eliminated, outside the business segments, for the purpose of reconciling the segmented information with the consolidated financial statements of the company.

The company's business segments disclosed separately are:

a) Exploration and Production (E&P): covers the activities of exploration, development of production and production of oil, LGN (net of natural gas) and natural gas in Brazil and abroad, aiming to serve, primarily, the domestic refineries and acting also associated with other companies in partnerships, in addition to results in equity-accounted investments in companies in this segment abroad.

As an energy company, with a focus on oil and gas, revenue from inter-segment sales refers mainly to oil transfers to the Refining, Transportation and Marketing segment, which aim to supply the company's refineries in response to national demand for oil products. These transactions are measured at internal transfer prices based on international oil prices and their respective exchange rate impacts, taking into account the specific characteristics of the transferred oil chain.

In addition, the E&P segment obtains sales revenue from transfers of natural gas to the Gas and Power segment to carry out processing at its industrial units. These transactions are measured at internal transfer prices, based on the international prices practiced for this commodity.

Revenue from sales to third parties mainly reflects the rendering of services related to exploration and production activities, the sales made by the E&P UPGNs, in addition to the oil and natural gas operations carried out by subsidiaries abroad.

b) Refining, Transportation and Marketing: includes the activities of refining, logistics, transport, acquisition and export of crude oil, as well as the purchase and sale of products derived from petroleum and ethanol, in Brazil and abroad. Additionally, this segment includes the petrochemical area, which comprises investments in companies in the petrochemical sector, shale exploration and processing.

This segment purchases crude oil from the E&P segment, imports oil to mix with the company's domestic oil, as well as acquires oil products in international markets taking advantage of the price differentials that exist between the cost of processing oil in Brazil and the cost of importing oil products.

The revenue from inter-segment sales mainly reflects oil products trading operations for the market-based distribution business, and operations for the G&E and E&P segments at the internal transfer price.

Revenue from sales to third parties mainly reflects the operations for the sale of oil products in Brazil and the export and sale of oil and oil products by subsidiaries abroad.

c) Gas and Power: includes the activities of logistics, commercialization of natural gas and electric energy, transport and commercialization of liquefied natural gas (LNG), generation of energy through thermoelectric plants, as well as participation in natural gas transport and distribution companies in Brazil and abroad. In this segment, the results of the company's natural gas processing and fertilizer production operations are also included.

Revenue from intersegment sales comes mainly from the transfer of processed natural gas, LPG and LNG to the Refining, Transportation and Marketing segment, measured at the internal transfer price.

This segment purchases national natural gas from the E&P segment, from partners and third parties, imports natural gas from Bolivia and LNG to complement national demand.

Revenue from sales to third parties mainly reflects the sale of processed natural gas to gas distributors and the generation and sale of electricity.

33 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

d) Corporate and other businesses, items that cannot be assigned to the business segments are allocated, comprising those with corporate characteristics, in addition to the distribution and biofuels businesses. Corporate items mainly include those related to corporate financial management, overhead related to central administration and other expenses, including actuarial expenses related to pension and health care plans for the beneficiaries. The distribution businesses reflect the equity interest in the affiliate Petrobras Distribuidora –BR (Investments and Results from Equity-Accounted Investments), the oil product distribution businesses abroad (South America), in addition to the discontinued operation in 2019. The biofuels businesses reflect the activities of production of biodiesel, its co-products and ethanol.

14.Trade and other receivables

14.1.       Trade and other receivables, net

  Consolidated Parent Company
  12.31.2020 12.31.2019 12.31.2020 12.31.2019
Receivables from contracts with customers
Third parties 16,013 18,057 10,102 9,179
Related parties        
Investees (note 39.1) 3,450 3,201 17,753 20,385
Receivables from the electricity sector 1,064 1,347 107 436
Subtotal 20,527 22,605 27,962 30,000
Other trade  receivables        
Third parties        
Receivables from divestments (*) 7,916 5,781 7,669 5,781
Lease receivables 2,427 1,941 102
Other receivables (**) 13,179 3,348 11,563 1,973
Related parties        
Investments in the Credit Rights Investment Fund - FIDC-NP (Note 39.5) 10,121 52,550
Petroleum and alcohol accounts - receivables from Brazilian Government (note 39.9) 2,503 1,226 2,503 1,226
Subtotal 26,025 12,296 31,958 61,530
Total trade receivables 46,552 34,901 59,920 91,530
Expected credit losses (ECL) - Third parties (7,939) (9,214) (4,072) (4,227)
Expected credit losses (ECL) - Related parties (354) (178) (158)
Total trade receivables, net 38,259 25,509 55,690 87,303
Current 24,584 15,164 44,321 78,813
Non-current 13,675 10,345 11,369 8,490
 

 

(*) Refers to amounts receivable from the divestment in Nova Transportadora do Sudeste and contingent portion of Roncador

(**) includes amounts related to the purchase and sale of production platforms and equipment from our partners in E&P consortia.

 

Accounts receivable are classified in the amortized cost category, except for certain receivables with final price formation after the transfer of control of the products depending on the variation in the value of the commodity, classified in the fair value through profit or loss category, whose value at 31 December 2020 totaled R$ 2,635.

 

On December 31, 2020, the average term for receiving receivables from contracts with third parties, referring to the sale of derivatives in the domestic market is approximately 1.5 days. Exports of fuel oil and petroleum have an average collection period of approximately 13 days and 8 days, respectively.

The increase in the balance of other accounts receivable from third parties refers mainly to amounts receivable from partners in E&P consortia. These values ​​are related to the nationalization of the platforms P-52, P-54, P-55 and P-62, acquired by Petrobras in the context of the migration of assets previously owned by companies based in the Netherlands, due to the changes introduced by Law 13,586 2017, described in note 16.4 of December 31, 2019.

14.2.       Aging of trade and other receivables – third parties

 

  Consolidated Parent Company
  12.31.2020 12.31.2019 12.31.2020 12.31.2019
  Trade receivables Expected Credit Losses Trade receivables Expected Credit Losses Trade receivables Expected Credit Losses Trade receivables Expected Credit Losses
Current 30,402 (677) 18,776 (567) 24,935 (155) 11,974 (260)
Overdue:                

 

Up to 3 months

1,066 (42) 1,011 (154) 118 (38) 626 (152)
From 3 to 6 months 77 (46) 98 (33) 47 (46) 64 (21)
From 6 to 12 months 219 (147) 197 (51) 148 (130) 90 (50)
Over 12 months 7,771 (7,027) 9,045 (8,409) 4,186 (3,704) 4,179 (3,744)
Total 39,535 (7,939) 29,127 (9,214) 29,434 (4,073) 16,933 (4,227)

 

34 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

14.3.       Changes in provision for expected credit losses

  Consolidated Parent Company
  12.31.2020 12.31.2019 12.31.2020 12.31.2019
Opening balance 9,392 16,682 4,227 7,541
Additions 1,024 867 724 488
Write-offs (3,762) (4,964) (721) (3,802)
Transfer of assets held for sale (15) (3,412)
Cumulative translation adjustment 1,654 219
Closing balance 8,293 9,392 4,230 4,227
Current 1,135 4,443 788 4,127
Non-current 7,158 4,949 3,442 100
 

 

 

As of December 31, 2020, the additions include a provision of R$ 276 on receivables in foreign currency, basically due to the 29% exchange rate devaluation in fiscal year 2020, as well as the recording of a supplementary provision in view of the effects imposed by COVID-19 (R$ 89).

In 2020, write-offs of R$ 3,762 basically reflect the write-off of receivables from foreign subsidiary, related to the construction and renovation of platforms, which were already fully provisioned and refer to receivables from suppliers. In 2019, the write-offs of R$ 4,964 basically reflect the end of the electric sector collection lawsuit, according to note 13.4 to the financial statements of December 31, 2019.

Accounting policy

Accounts receivable are generally classified at amortized cost, except for certain receivables classified as fair value through profit or loss, whose cash flows are not characterized as receipt of principal and interest, including receivables where the formation of final prices after transfer control of products depends on the variation in the value of the commodity.

When the company leases an asset under a finance lease, constitutes a receivable for an amount equal to the net investment in the lease, consisting of lease payments receivable and any unsecured residual value under the company's responsibility, discounted at the interest rate the operation.

The company recognizes a provision for expected credit losses for accounts receivable from short-term customers through the use of a matrix of provisions based on the experience of unadjusted historical credit loss, when such information represents the best reasonable and sustainable information, or adjusted, based on current observable data to reflect the effects of current and future conditions provided that such data are available without undue cost or effort.

In general, for other receivables, the company recognizes a provision for an amount equivalent to the expected credit loss for 12 months, however, when the credit risk of the financial instrument has increased significantly since its initial recognition, the provision is recognized for an equivalent amount. the expected credit loss (lifetime).

When assessing the significant increase in credit risk, the company compares the default risk that occurs in the financial instrument on the balance sheet date with the default risk that occurs in the financial instrument on the date of its initial recognition.

Regardless of the assessment of the significant increase in credit risk, the company assumes that the credit risk of a financial asset has increased significantly since its initial recognition when contractual payments have been due for more than 30 days, except when reasonable and sustainable information available demonstrates the opposite.

The company assumes that the credit risk of accounts receivable has not increased significantly since its initial recognition when accounts receivable have low credit risk at the balance sheet date. Low credit risk is determined based on external risk ratings and internal assessment methodologies.

In the absence of controversy or other issues that may result in the suspension of collection, the company considers default when the counterparty does not comply with the legal obligation to pay its debts when due or, depending on the instrument, when there is a delay in receiving payment due in the same term or more than 90 (ninety) days.

Expected credit loss is the weighted average of historical credit losses with the respective default risks, which may occur according to the weightings. Credit loss on a financial asset is measured by the difference between all contractual cash flows due to the company and all cash flows that the company expects to receive, discounted at the original effective rate.

 

35 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
15.Inventories

 

  Consolidated Parent Company
  12.31.2020 12.31.2019 12.31.2020 12.31.2019
 
Crude oil 11,653 15,738 10,470 12,261
Oil products 10,001 9,165 7,643 8,661
Intermediate products 2,060 2,362 2,060 2,362
Natural gas and Liquefied Natural Gas (LNG) (*) 631 699 630 340
Biofuels 157 114 14 65
Fertilizers 43 112 11 21
Total products 24,545 28,190 20,828 23,710
Materials, supplies and others 4,955 4,819 4,624 4,496
Total 29,500 33,009 25,452 28,206
(*) LNG -  Liquified Natural Gas

 

 

 

Consolidated inventories are presented net of losses to adjust to their net realizable value, these adjustments arising mainly from fluctuations in the international prices of oil and its oil products and, when constituted, are recognized in profit and loss for the year as costs of sales. As of December 31, 2020, a provision of R$ 1,518 was recorded (R$ 68 as of December 31, 2019). Adjustments to net realizable value mainly impacted the first and second quarters of 2020, due to the significant reduction in the prices of oil and its oil products in the market, resulting from COVID-19 and the shock of oil prices.

In 2020, the company had a volume of oil and / or oil products inventory given as a guarantee of the Terms of Financial Commitment - TCF, signed in 2008 with Petros, with no relevant changes in relation to the values ​​disclosed on December 31, 2019.

 

Accounting policy

Inventories are measured at their weighted average acquisition or production cost and are adjusted to their net realizable value, when this is less than the book value.

The net realization value comprises the estimated sale price in the normal course of business, less estimated completion costs and expenses to complete the sale. Changes in sales prices after the base date of the financial statements are considered in the calculation of the net realizable value, as they confirm the conditions existing on that base date.

The inventories of oil and LNG can be traded in a raw state, as well as consumed in the production process of its oil products.

The intermediaries are formed by chains of products that have already passed through at least one processing unit, but still need to be processed, treated or converted to be made available for sale.

Biofuels mainly comprise the balances of ethanol and biodiesel inventories.

Materials, supplies and others represent mainly production inputs and operating materials that will be used in the company's activities and are stated at the average purchase cost, when this does not exceed the replacement cost.

16.Trade payables
  Consolidated Parent Company
  12.31.2020 12.31.2019 12.31.2020 12.31.2019
Third parties in Brazil 14,697 10,320 13,453 8,775
Third parties abroad 18,724 8,243 6,159 2,492
Related parties 2,224 4,013 55,931 23,186
Balance in current liabilities 35,645 22,576 75,543 34,453

 

 

As of December 31, 2020, the average payment term in Brazil is 31 days, while for suppliers abroad the average term is 89 days for imported products and 21 days for other goods and services, approximately.

Third Parties in Brazil

The R$ 4,377 increase mainly refers to TAG's natural gas transportation tariff provisions, the term purchase of Biodiesel B100 and the provision of equalization agreements for unitization fields with Partners of P-68.

36 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

Third parties abroad

The increase of R$ 10,481 is mainly due to the amounts payable referring to the participation of partners in the E&P consortia for the nationalization of platforms, allocated to the Roncador and Tupi fields, acquired by Petrobras due to the changes introduced by Law No. 13,566 (Repetro- Sped), as well as the installment purchase of natural gas and the exchange variation due to the depreciation of the Real against the U.S. dollar.

17.Taxes
17.1.Income taxes and other taxes
Income taxes Consolidated
  Current Assets Current Liabilities Non-Current Liabilities
  12.31.2020 12.31.2019 12.31.2020 12.31.2019 12.31.2020 12.31.2019
Taxes in Brazil
    Income taxes 2,032 10,018 576 288
    Income taxes - Tax settlement programs 234 228 1,853 2,031
  2,032 10,018 810 516 1,853 2,031
Taxes abroad 138 32 219 598 0
Total 2,170 10,050 1,029 1,114 1,853 2,031

 

 

 

Consolidated

Other taxes Current assets Non-current assets Current liabilities Non-current liabilities (*)
  12.31.2020 12.31.2019 12.31.2020 12.31.2019 12.31.2020 12.31.2019 12.31.2020 12.31.2019
Taxes in Brazil:  
Current / Deferred VAT Rate (VAT) 2,635 2,237 1,522 1,469 3,334 3,058
Current / Deferred PIS and COFINS 1,768 1,681 10,680 10,442 2,829 1,014 191 176
PIS and COFINS – Exclusion of VAT tax rate from PIS and COFINS tax bases 6,392
PIS and COFINS - Law 9,718/98     3,537 3,304    
CIDE 19 123 214 182
Production taxes 6,094 7,775 487 1,071
Withholding income taxes 551 937
Others 453 129 621 617 608 761 1,430 905
Total in Brazil 11,267 4,170 16,360 15,832 13,630 13,727 2,108 2,152
Taxes abroad 46 67 51 45 66 73
Total 11,313 4,237 16,411 15,877 13,696 13,800 2,108 2,152

(*) Other non-current taxes are classified as other non-current liabilities.

 

 

The amounts on Current Assets as Taxes on Income refer basically to tax credits from the calculation process, in addition to the negative balance of IRPJ and CSLL related to the calendar years 2018 and 2019.

Deferred VAT tax / VAT tax credits are due to requests for untimely and undue credit, offset in accordance with the legislation of each State, and on average offset within 3 years. They also arise from credits originating from the acquisition of assets for property, plant and equipment, which are offset at the rate of 1/48 of the total amount, being fully amortized over 4 years.

Deferred PIS-COFINS credits refer mainly to the acquisition of goods and services for assets under construction “works in progress”, since the tax legislation only allows their use after the entry of these assets into production, as well as Electronic Orders Refund (PER) of extemporaneous credits with the Brazilian Federal Revenue.

Production taxes are financial compensation due to the Union by companies that produce oil and natural gas in Brazilian territory. Production taxes are made up of royalties, special participations, subscription bonuses and payment for occupation or retention of area.

Exclusion of VAT tax from PIS and COFINS tax basis

In 2020, Petrobras and subsidiaries obtained a favorable and definitive court decision regarding the exclusion of VAT Tax from the calculation basis of PIS and COFINS contributions and recognized the amount of R$ 16,764, recorded in current assets as taxes and contributions. The credits recognized in the assets refer to the exclusion of the VAT Tax effectively collected from the calculation base of the PIS and COFINS contributions, the amounts of which were paid improperly in competencies between the months of October 2001 and August 2020.

The recognition of credits as an asset complies with technical pronouncement CPC 25 - Provisions, Contingent Liabilities and Contingent Assets, since the entry of economic benefit for the company is practically certain, since: (i) the final and unappealable decision in 2020 is constituted a right that was no longer contingent on the date of that decision; and (ii) the measurement methodology adopted is uncontroversial because it is the one accepted by the Federal Revenue of Brazil.

37 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 

The company enabled these credits, of which it offset in 2020 with the payment of other federal taxes the amount of R$ 10,372.

As of December 31, 2020, the amount monetarily restated by the Brazilian basic interest rate (Selic) is R$ 6,392.

The net gain in the result recorded in 2020 was R$ 10,656, of which R$ 7,878 was recovered from taxes on other operating income, R$ 8,886 from monetary restatement in the financial result, partially offset by R$ 408 of tax expenses and R$ 5,700 expenses with income tax and social contribution.

PIS and COFINS Law 9,718/98

The company filed common lawsuits against the Federal Government regarding the recovery of amounts collected under PIS / COFINS on financial income and exchange rate variations, considering the unconstitutionality of paragraph 1° of art. 3° of Law 9,718/98, in the periods between February 1999 and January 2004.

All the actions were deemed valid and have the merits of a final decision. The request for restitution of values ​​requires prior approval by the Court of settlement reports and subsequently judicial enforcement of the right. In 2017, for the largest portion to be recovered, a favorable liquidation report was published for Petrobras. The process is still awaiting ratification by the Court.

As of December 31, 2020, the monetarily restated amount is R$ 3,537 (R$ 3,304 as of December 31, 2019).

17.2.Tax amnesty programs – State Tax (Programas de Anistias Estaduais)

In 2020, Petrobras joined state amnesty programs that resulted in the recognition of liabilities of R$ 2,026, of which R$ 1,873 in tax expense and R$ 153 in financial expense, as shown below:

State

State

Law/Decree n°

Benefits received Existing debts (*)

Reduction

Benefit

Amount

after

benefit

RJ Law 9,041/2020

90% reduction in interest and 90% in fines related to tax credits.

 

3,110 (1,298) 1,812
ES Decree 4,709-R/2020 Remission of 50% of the Tax due, 90% of the fine and interest due.                   783 (586) 197
AL

Decree 71,800/2020

Decree 72,199/2020

95% reduction in the fine and interest due

Remission of 50% of the tax and 90% of fine and interest due

32 (24) 8
SE Decree 40,691/2020 90% reduction in the fine and interest due 16 (10) 6
RN Law 10,784/2020 95% reduction in the fine and interest due 9 (6) 3
      3,950 (1,924) 2,026

 

(*) R$ 3,188 were classified as possible loss, and R$ 705 refers to spontaneous reporting (RJ).

Rio de Janeiro state

Petrobras, based on the management of risks associated with litigation and in line with the strategy of generating value through contingency management, decided to seek an agreement aiming at the payment of infraction notices and the carrying out of spontaneous denunciation with the state of Rio de Janeiro. The agreement, signed based on VAT tax Agreement 51/2020 and Law RJ 9,041 / 2020, allows for a 90% reduction in amounts due as a fine and interest, resulting in a disbursement of approximately R$ 1,803.

The aforementioned agreement allowed the termination of contingencies related to the collection of VAT tax and fines in the internal consumption operations of diesel oil used by the maritime units chartered by the company, considering the approval, in the same legal provision, with a reduction in the tax burden on internal supplies of marine diesel oil, instead of the previously required rate of 12%, thus reaching a definitive solution to the cause of these contingencies. The disbursement was made in installments, having been fully settled, in accordance with the Tax Conduct Adjustment Agreement signed with the State of Rio de Janeiro.

State of Espírito Santo

In the case of adherence to the remission and amnesty program with the State of Espírito Santo, entered into under the terms of the VAT tax Agreement 146/2019 and Decree 4,709-R / 2020, the payment of R$ 197 occurred in the month of October 2020, being closed tax debts arising from differences in the appropriation of VAT tax credits on property, plant and equipment and from differences in VAT tax on oil and oil products operations. Additionally, the presumed VAT tax credit system was implemented, based on the VAT tax Agreement 146/2019, providing a definitive solution to the cause of this type of contingency.

 

 

38 

NOTES TO THE FINANCIAL STATEMENTS

PETROBRAS

(In millions of reais, unless otherwise indicated)

 
17.3.Reconciliation between statutory tax rate and effective tax expense rate

The reconciliation of taxes calculated according to nominal rates and the amount of registered taxes are shown below:

 

 

  Consolidated Parent Company
  2020 2019 2020 2019
Net income before income taxes 37 47,242 1,997 44,329
Nominal income taxes computed based on Brazilian statutory corporate tax rates (34%) (13) (16,062) (679) (15,072)
      Adjustments to arrive at the effective tax rate:        
    Tax benefits from the deduction of interest on capital distribution (87) 2,944 (144) 2,936
    Different jurisdictional tax rates for companies abroad 10,140 4,193
     Brazilian income taxes on income of companies incorporated outside Brazil (*) (3,719) (692) (3,718) (692)
    Tax incentives 19 172 123
    Tax loss carryforwards (unrecognized tax losses) (2,208) (2,695)
    Non-taxable income (non-deductible expenses), net (**) (1,403) (3,055) (947) (4,691)
    Expenses with post-retirement benefit of health care plan (AMS) (***) 2,879 (1,645) 2,885 (1,585)
    Results in equity-accounted investments in Brazil and abroad 253 191 7,333 4,661
    Others 348 249 381 263
Income tax expenses 6,209 (16,400) 5,111 (14,057)
Deferred income taxes 8,940 (11,036) 5,600 (11,924)
Current income taxes (2,731) (5,364) (489) (2,133)
Total 6,209 (16,400) 5,111 (14,057)
Effective tax rate of income taxes (16,781.1)% 34.7% (255.9)% 31.7%

(*) Income tax and social contribution in Brazil referring to income earned in the years by investees abroad, according to provisions provided for in Law No. 12,973 / 2014.

(**) Includes effect on judicial agreements.

(***) Impacted by the revision of the regulation, according to note 19.5.

17.4.Deferred income taxes - non-current

Changes of deferred income tax and social contribution

  2020 2019
  Consolidated Parent Company Consolidated Parent Company
Balance at January 1st (1,502) (9,974) 7,848 (1,028)
Recognized in the statement of income for the year 8,940 5,600 (11,036) (11,924)
Recognized in the statement of income of discontinued operation