Isabela Carneiro da Rocha - IR Executive Manager Ivan de Souza Monteiro - Financial and IR Director Solange da Silva Guedes - Exploration and Production Director Nelson Silva - ED of Strategy, Organization, and Management System Jorge Celestino Ramos - Refining and Natural Gas Director.

Andre Natal - Credit Suisse Osmar Camilo - Bradesco Luiz Carvalho - UBS Lilyanna Yang - HSBC.

Good afternoon, ladies and gentlemen. Welcome to Petrobras conference call with analysts and investors for the presentation of Third Quarter 2017 Results. We would like to inform you that participants will be in listen-only mode during the company's presentation which will be conducted in Portuguese with simultaneous translation into English.

After the presentation a Q&A session will follow, and further instructions will be provided. [Operator Instructions] Present with us today are; Mr. Ivan de Souza Monteiro, Chief Financial and Investor Relations Officer; Ms. Solange da Silva Guedes, Chief Exploration and Production Officer; Mr.

Jorge Celestino Ramos, Chief Refining and Natural Gas Officer; Mr. Nelson Luiz Costa Silva, Chief Strategy and Fulfillment Officer; Mr. Roberto Moro, Chief Technology and Production Development Officer; Mr. Joao Adalberto Elek Junior, Chief Governance Risk and Compliance Officer; as well as other company executives.

I would like to remind you that this meeting is being recorded and please be mindful of slide number two, which contains a notice to shareholders and the investors. The words believe, expect, and similar ones related to projections and targets are mere forecast based on the expectations of the company's executives regarding the future of Petrobras.

To begin, we will hear Petrobras Investor Relations Manager, Ms. Isabela Carneiro da Rocha, who will present information regarding the third quarter 2017 results. Subsequently questions from participants will be answered. Please go ahead, Ms. Rocha..

Good morning, welcome to Petrobras webcast relative to third quarter '17 results and thank you for joining us.

Let us begin and again please be mindful of slide two, which contains a notice that the presentation may have projections, estimates and expectations of the company that is mostly differ from these estimates because of several factors mentioned here and in the annual reports available on our website.

Let us begin with slide three, we will start by highlighting the main results achieved so far in 2017, afterwards we will come to the results that we committed to deliver in the 2017 to 2021 business and management plan. And then we will detail some operational highlights. Please go to slide four.

Starting with safety, which is one of the main metrics of the company. Our results have been better than expected, our TRIFR Total Recordable Injury Frequency Rates per million men hours reached to 1.09 well below the limit we established for 2018, which was 1.4.

For those results we have already come rather close to the market benchmark in terms of safety. In terms of financial performance, we achieved the net income of BRL5 billion in the nine months of '17 reversing the previous year's loss, or BRL266 million in the quarter in keeping with the previous quarter.

Free cash flow was positive for the 10th consecutive quarter amounting to BRL37.5 billion, up 26% year-on-year and up 58% quarter-on-quarter. Adjusted EBITDA was BRL63.6 billion stable in both annual and quarterly comparisons with an EBITDA margin of 31%.

There was a reduction in net debt over EBITDA ratio Q3, 2016 and a reduction in leverage to 51% at the end of the third quarter of 2017. In operational terms production remains stable at 2.67 million barrels of oil equivalent per day, but oil product sales volume fell by 6% compared to last year.

On the other hand, exports increased by 39%, and imports decreased by 19% with a net balance of 385,000 barrels per day considering crude oil and oil product.

Please go to slide five, in relation to external variables we observed an increase in Brent prices which reached $52 per barrel in both quarter and average for the year, and an appreciation of the Brazilian real, which was around BRL3.2 per dollar in both the quarter and nine months of '17.

For the fourth quarter, we already see a significant increase in Brent prices, which reached the highest value since mid-2015 due to geopolitical tension in the Middle East. Moving on, slide six will present the company's EBITDA and the breakdown for each business segment.

EBITDA was BRL19.2 billion in the quarter and BRL63.56 billion year-to-date, stable in relation to the third quarter and the previous year. The main highlights for business unit were in E&P higher Brent price and increase in production which resulted in a higher EBITDA of 32% despite higher production taxes.

There were also lower write-offs of dry and sub commercial holes and less idle equipment. In downstream, there was a reduction in sales margins and sales volume in both diesel and gasoline. On the other hand, there was an increase in oil net exports at higher price. As a result, EBITDA decreased by 47%.

In gas and power, we highlight increase in natural gas sales and an increase of the share of domestic natural gas and the sales mix, greatly increasing gas margin. On the other hand, there was the impact of the sale of NTS, which resulted in higher selling expenses because we have to pay the tariff to use the gas pipeline.

In distribution there was a significant EBITDA increase coming from higher margins and distribution volumes. Lower selling expenses due to lower provisions for receivables from the electricity sector and for legal claims.

Highlights in the quarterly comparison were reduction of refining margin, higher diesel sales driven by seasonality improvements in margins and volumes of distribution of oil products and power generation with higher PLD or spot price.

Slight seven here we highlight our financial results, financial interest-bearing expenses reduced due to debt reduction, but there was an impact of BRL2 billion when the company joined Federal tax settlement programs, the finance [ph] portion which we will detail later. Monitoring and exchange variation increased with depreciation of the U.S.

dollar over the net liability exposure in euro and sterling pound, and therefore the net financial results was higher by 10% in the period. On slide eight, we show you our net income.

Given all of the aforementioned factors coupled with a significant impairment reduction, the gain obtained from the sale of NTS expenses for joining Federal tax settlement progress, which we will also mentioned in more detail later. Net income was positive by BRL5 billion reversing with previous year's loss.

It's important to highlight that income was positive for the fourth consecutive quarter.

Slide nine, I would like to highlight free cash flow positive again for the 10th consecutive quarter and 26% higher in the nine months of 2017 compared to the previous year, with an upgrading generation of €66.9 billion in the year and an investment of BRL29.4 billion 19% lower than in 2016, which is a free cash flow of BRL37.5 billion sufficient to pay interest that we see on the next slide of BRL17.4 billion and resulting in a free cash flow to equity of BRL20.1 billion.

On slide 11, we see that in terms of liability management, we had amortization in the nine months period exceeding borrowings by BRL19 billion, BRL91 billion in amortizations and prepayment net of interest and BRL72 billion in borrowings.

And we extended that profile as we can see in the next slide moving from an average trend of 7.88 years to 8.36 years and with a reduction in the average cost of debt from 6.1% to 5.9%. Thus, we have been able to extend that maturity and reduce average cost of debt simultaneously.

This liability management enables the sum of amortizations in the 2018 to 2020 period to drop from BRL48.1 billion to BRL27.6 billion including the operation announced on November 6th. Moving on slide 13, we see the gross debt stands at $113 billion, net debt at $88.1 billion down 9% compared to December of 2016.

Net debt over EBITDA ratio fell to 3.16 and leverage to 51% in the third quarter of '17. On slide 14 please, we show that in terms of contingences we took advantage of tax settlement programs called PRD and part for the contingencies considered as probable loss.

With that we reduced debt from BRL1.7 billion adding these two contingencies to a real debt of BRL1.1 billion to be paid in installments, with the negative impact on the results of around BRL900 million. More information on these programs and other contingencies can be found in explanatory notes 20.2 and 29 in the financial statement.

On slide 15, we would like to show you our business and management plan and we make comments on the business when delivered starting with safety as mentioned before with the recordable injury frequency rate per million men hours reaching 1.09 well below the target established as acceptable, reflecting the results of a closer focus on safety.

We'll talk about four pillars one, competitive pricing; two, reduction and efficiency of CapEx in 2017; three, reduction of operating costs and for the partnerships and divestment programs of several competitive processes and strategic alliances underway. On slide 16, CapEx we reduced the annual projections of $17 billion down to $16 billion already.

And this is the result of the postponement of some FPSO construction activities from '17 to '18, postponement of activities in the Route 3 gas pipeline adjustments into the Tartaruga busy schedule.

And also, reduction of support vessel tariffs and efficiency impact on retrofit activities so that this CapEx of $16 billion includes all of these factors and also bonuses due to AMP bidding rounds adding BRL2.9 billion for this year.

Moving on to slide 17, let us talk about management operating costs, we highlight a reduction of 9% year-to-date and 2% in the quarter pretty much due to at 12% reduction in headcount, which totaled 62,528 at the end of the third quarter and a decrease in selling expenses by 2%.

And significant reduction in G&A expenses by 18% in annual comparison generalized reduction of G&A expenses. On slide 18, on divestments.

After completing the sale of $13.6 billion in assets in 2015-16 period with a cash inflow of $7.8 billion related to this program, we are maintaining the $21 billion target for the 2017-18 period highlighting several competitive processes in progress such as onshore and shallow water fields, distribution business in Paraguay, gas pipelines, fertilizers, production assets in Africa.

We also intent to go through the IPO of BR Distribuidora and there are several strategic alliances under negotiation with Total, Statoil, CNPC and BP. On slide 19, we show our projection for 2017 and operating cash flow of $29 billion considering average Brent price of $53 per barrel this year.

Judicial guarantees of approximately $4 billion in a conservative approach because since until third quarter we've had around BRL500 million deposited.

Amortizations and prepayments of $31 billion already executed, interest of $7 billion, CapEx of $16 billion as we've seen divestment of $7 billion considering $4.8 billion already cash-in and the completion of the sale or other assets by year-end.

It's important to highlight that number one, BR Distribuidora's IPO was not included in this projection although it may still occur this year. Number two, borrowings total $22 billion and the final cash position should exceed $20 billion.

In terms of operational highlights on slide 21, we show an increased production in Brazil by around 3% vis-à-vis last year with a concentration on presold where the operative production increased by 32% and we point out the acceleration of the production ramp up with a reduction from approximately 20 months for the FPSO Angra dos Reis in 2010 to 10 months in the FPSO Cidade de Marica in 2016.

On slide 22, gas production had similar behavior, up 9% in operated production and with production records and use of domestic gas in the quarter. On the next slide, operating expenses and E&P reduced by BRL6 billion and lifting cost remain at the same level between $10 billion and $11 billion per barrel of oil equivalent. The slight increase in U.S.

dollar was due to the exchange rate effect and Pre-Salt Lifting Cost remained below $7 of boe. Next, we highlight reorganization of our exploration portfolio by acquiring 10 blocks in the pre-E&P bidding rounds with 11.4 thousand square kilometers and BRL2.9 billion in signature bonuses Petrobras's share.

We highlight in this process the selectiveness of Petrobras's participation and the partnership approach maintaining the same contortion in the Sapinhoá area and relationships with important partners like Exxon in the blocks of Campos Basin, BP in the areas of Peroba and Cabo Frio Central and CNPC alternative Peroba area.

Now we also highlight the excellent exploration result in the pre-salt of Campos Basin with a 196 meter volume in areas with an existing structure such as Marlim. This kind of discovery makes the revitalization of these mature area even more attracted not only Marlim, but other mature areas.

On slide 26, in the trading area we exported 708,000 bpd of crude oil and oil products, and import a 323,000 barrels per day and continue being net exporters with the balance of 385,000 barrels per day mainly crude oil. Next, we show sales volume of oil products, 3% higher in the quarter and 7% lower year-to-date.

In the quarter there was an increase in diesel demand driven by seasonality, the share of domestic oil in the processed feedstock remains high at 93%, with final availability is also high at 96%. And the refinery utilization factor remains at 78%, while the utilization factor for conversion units such as catalytic cracking is higher at 84%.

Last but not least as for the balance of demand and supply of natural gas there was an increase in demand and a significant increase in the production of domestic gas like we saw before allowing to reduce imports from Bolivia and also imports of LNG. Thank you for your attention and we can move on to question-and-answer session..

[Operator Instruction] Our first question comes from Andre Natal with Credit Suisse..

Good morning everyone, and thank you for opportunity. I have a couple of questions, one about lifting costs 11.2% to 11.7% in the quarter, when we try to do the math of the impact caused by tax supplement program on this costs it seems like that that would explain only half of that increase.

I would like to understand whether the rest of the increase is due to lower production exchange rate or if there was any extraordinary effect explaining this increase in costs? Another question has to do with G&A, you saw that in the nine months of the year versus 2016 G&A dropped substantially, but on the other hand when we look at the quarter, quarter-on-quarter comparison we see a 12% increase.

So, I would like to understand if there is any explanation for that? And you think that would account for that you will lift [ph] this increase? My third question, I would like to go back to a point that we talked about in the prior call for the second quarter regarding selling expenses for gas and energy.

We saw that there was an increase because of NTF tariff we understand that, but in this quarter, it seems that again there is a recurrence something between $1.5 billion and close to $2 billion.

So, I would like to some could breakdown how much of that was related to NTF and how much of that is recurring? And finally, if it's possible if you could share us more - give more color on the prospects and the discovery at Marlim?.

Thanks, you Andre, thank you for the questions. I will start with the lifting costs I will turn the Solange Guedes and then for G&A with Nelson and as for selling expenses with Jorge Celestino. And then Solange will talk about Marlim. Perhaps you can talk about the second and fourth question in one go..

Good morning, Andre. This is Solange, you mentioned the lifting costs, but at the same time you mentioned that there is value of those lifting costs.

So, I omission some expects, but extraction costs remained in keeping just like production in the - if you consider the first nine months of the year 2017, these costs remained in keeping year-on-year and there was an impact only of the foreign exchange.

Net of the exchange rate we had a lifting cost of 10.3 which is slightly lower than the same value in the prior year. So, this increase is basically due to a foreign exchange variation when we compare both periods. Next for the extraction cost, for lifting costs there are two other factors involved here.

An increase in production taxes given Brent prices had increased and that increased proportionally more than the 14% that we saw in terms of appreciation of Brent oil prices. And essentially because we are now picking ownership of a greater production in the presold, and that is where we have higher production taxes.

Now talking about your second question, we are very happy and very proud to announce these results in terms of Marlim that was a spectacular result. If you imagine the discovery there was a column of 196 meters in a reservoir that we master completely. We know all of the information about it.

But the next step Andre after this realization well the rig remains in the well and we are running a number of production tests now. This is a region where we already have other information coming from another well.

And we expect that in the coming months, maybe by mid-2018 we will have defined that discovery and we'll submit that to ANP so that we can put together a plan to explore that area. But we can say with some certainty that the impact will be very positive in the project that we are redesigning for Marlim field.

So again, the good news about this it uses that we think that this is such an important result because it is in an area where we are designing revitalization, revitalization for Marlim field. So, it's almost like we are moving ahead with the exploration of this discovery..

Good morning, Andre. Basically, what justify the G&A increase is consulting services, but this is nonrecurring. I draw your attention to the total, consolidated total. If you look at the first quarter of '16 and following until the third quarter of '17 you can see that we have a clear downward trend in G&A expenses, so this is non-recurring.

This downward trend will continue, we will just [indiscernible]..

Good morning, Andre. As for the gas and energy expenses, these are due to NTS sale. And looking at the outlook, we are proceeding according to the plan. So basically, NTS sales account for the difference. And we are talking about meeting those performance targets that we had in our business and management plan right..

Well, thank you very much.

But going back to G&A that 12% increase in the quarter is only due to consulting services? Could you repeat that please?.

Of course, I just want to check whether I understood this correctly, the 12% G&A expenses increase is due to consulting services..

It sounds a little high, I just want to confirm..

Yes, we did have a nonrecurring accumulation of payments relatively high payment for consulting services, you understood it correctly..

Okay, thank you very much..

Our next question comes from Osmar Camilo with Bradesco..

Good morning. Thank you for the opportunity. I have two questions. This morning it was announced that some pension funds joined in arbitration process or claim against Petrobras. What is the defense strategy of the company? Will you follow what was done in the U.S.

with a focus on the individual agreement? And my second question is just want to confirm information that you presented during the presentation, do you expect to disburse signature bonuses of the September and October bidding round still this year?.

Thank you for the question. Yes, there was a note - an advisory by the company about that point, of arbitration but I cannot give you any more on that. The company hasn't been notified yet. So, I can only stress what we already said in the advisory. And as for the signature bonuses, we expect to pay them this year in the month of December..

Okay, thank you very much..

[Operator instructions] Luiz Carvalho from UBS..

Good morning. There are couple of questions here. Ivan a question that always come to mind, and I try to address with you is about dividend payout.

Naturally, we cannot anticipate anything, but considering year-to-date income approximately BRL5 billion and a possible IPO for BR Distribuidora would just like to understand if there is any type of significant impairment for Q4, which might show to speak significantly well considering the considering the current visibility that might have as a significant impact on results, non-recurrent over the fourth quarter.

Second question also to you Ivan, the company has been working with a cash level, cash position much higher than what we understand to be necessary or perhaps even compared to the track record or historical levels? I would like to understand the reason why the cash position is more conservative maybe some possible disbursement, class action or maybe uncertainty about the debt market down the road? And the third question, I don't know if this is to Ivan or maybe to Solange, it has to do about transfer of rights.

So, you've made public that we have a sense of urgency to try and solve the negotiation of the transfer of rights for the company by year-end, in order to have the surplus auctions in the first half of next year.

So, what is the sense of urgency at the company? Is it in line with this discourse of really trying to have it settled within 2017? And what about the dynamics of these meetings, is it weekly, monthly just to better understand your dynamics and how you are moving it forward? Thank you..

Thank you for your question. Addressing the first question about impairment, the company has never expectation in the sense of substantial impairments, just as we had in 2016. We constantly provide the same information, so the expectation remains the same about impairment. You also talk about cash position.

The cash level is conservative, this is how the company address, considering the number of contingencies due pending and it's important to highlight that this is a critical component, it was a highlight in the improvement of the company's ratings and is always mentioned by the three credit or rating agencies the significant solidity and liquidity.

Just as a reminder, in 2018, we're going to have elections in Brazil, and it also brings some volatility to the market. So, if you followed operation we are trying for 2018 to 2019, we want to be compatible levels in terms of cash generation and cash flow, including the arrival of new production systems and startups. So that's the right approach.

It has proved to be very much discussed in-house, and we're comfortable with this level owing to the regions that we mentioned. As to transfer of right, Solange is going to answer your question..

Solange da Silva Guedes:.

Anyway, we are ready to have a formal process and we are very much interested in having a good view to the company as soon as possible..

Okay, thank you. If I may just a quick follow-up question, a question to Nelson, the question is about refining investment plan.

Do you intend to make anything public this year about the strategy on how you intend to work with this area for refining at the company level?.

Luiz, Jorge is going to answer your question..

Good morning, Luiz. We are still working on the model in order to submit it to the management and then the Board of Directors. So first we have to follow with a sequence of approvals..

Perfect, thank you..

Thank you, Luiz..

Next question in English. Sara [indiscernible]. Sara, your line is open..

Good morning, apologies. So, my technical problems, I wanted to see if you could give us any update on guidance, specifically on the divestment targets and the reduction of leverage in particularly in light of the fact that net leveraged stayed flat this quarter from last quarter.

So, you had mentioned in your Investor Day some of the strategies that you are going to use to reduce that leverage by the end of 2018 to the 2.5 times target. I just wanted to see if that remains intact and we clearly see some reactions being taken this quarter. But I'm just wondering how that might change or not? Thanks..

Thank you. The company maintains the target for net debt over EBITDA for the end of December 2018, 2.5 times several divestment processes have already been announced and are underway according to the systems with the better accounts quote. And perhaps majority will happen in the following months and contribute to it the target of the company deliver.

So, there is no change as to the target that we set in the past..

Perfect. Can I just ask a follow-up question on the divestments? Do you anticipate any kinds of challenges either legal challenges or valuation related challenges? And if that is the possibility, what sort of mitigations might you be taking in order to continue to achieve those divestment targets. Thanks..

We have a new law amended in Brazil setting for a set of rules. And they're expected to be followed up and complied with by state owned companies vis-à-vis processes of divestments related to assets or companies. And this law has very much related to Petrobras's investment legislation.

So, any legal aspects are expected to be relieved due to legal framework which confirms the whole processes adopted and rules followed by Petrobras when it comes to the divestment program..

Okay, thanks very much..

Our next question, Lilyanna Yang with HSBC..

Good morning, thank you for the opportunity. My question is about refining margin about $15.5 per barrel, it was almost $25 per barrel a year ago, however prices increased, but the company kind of lowered the average selling price for oil products.

My question is what if the competitive environment have been quite receptive of [ph] now? Do see players investing more, or is your imports capability at a limit and you don't expect an increase in the future? In other words, cost of internalization in your view are they falling - are they dropping or increasing.

We see that distribution companies such as that they are able to increase their margins, just like its peers; could you give us some color on that please?.

Thank you, Lilyanna, I am going to give the floor to Jorge Celestino..

Good morning. Regarding refining margins and competition landscape in the distribution area there is a learning curve and efficiency increase in operations both in our commercial policies adopted in the Brazilian market and regarding logistics efficiency and increase of capacity.

So, distribution companies and trading companies have improved the quality of their operations have increase efficiencies and with that the market becomes more competitive.

In terms of a guidance of what the future will bring, we are looking at the market and we do see some moves of new operations, but we cannot at this point in time give more accurate detail on the limits of each one of the players because this is all related to their operating ability and capability.

Objectively speaking we have experienced a greater competition and higher efficiency in our trading policy..

Thank you.

May I ask another question, at the current price of Braskem shares why not sell the shares in the market and cash it in? You are renegotiating with Ottobrask [ph] as well, could you give us some color on that?.

Well, Ileana again, we limit our subsidy advisory we are engaged with other bras regarding reviewing the shareholders' agreement and this is what engaging in at this point I cannot give you any more on that at this point..

Okay, thank you very much..

Thank you very much. We are now closing the question-and-answer session of Petrobras conference call. I now turn the floor to Officer, Ivan de Souza Monteiro for his final comments..

Well, I would like to thank you all for joining us any further question can be send to our Investor Relations department. Thank you very much..

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