We are making ad hoc adjustments now, without losing sight of our long-term goals.

The current scenario, of a sharp drop in Brent prices and a decline in demand for fuels, is causing the biggest crisis in the oil industry in the last 100 years. Due to the crisis, we are making timely adjustments to our strategy, without losing sight of our long-term goals. Below, we present five points that are important for the full understanding of our strategy.

Focus on increasing return on our asset base

The Petrobras that is being planned is a growing company, focused on exploration and production in deep and ultra-deep waters, with a sustainable debt and operational excellence in refining, gas, and energy, and positioned for greater creation of economic value. We need to focus on activities and assets that provide higher returns and lower risks. We seek this focus both through an active management of our portfolio and by means of adjustments in the way we conduct our business (e.g.: incessant pursuit of competitive costs).

The pre-salt discoveries are among the most important the industry has made in recent decades. The pre-salt is characterized by large accumulations of light oil, of excellent quality and with high commercial value. It is in this area that we have international recognition for our presence, technical capacity, and for the technology we have developed. This reality puts us in a privileged position in the face of the global energy demand. We need to take advantage of it. We will focus our efforts on these E&P assets, of which we are the natural owners.

The time to invest in E&P is now. In the future, other sources of energy may be more profitable than oil. So, to maximize the value of this production, we need to act today.

We have no preference for geographic location: We go where oil and the creation of value are. Our best opportunities are at sea, in deep and ultra-deep waters.

The graph below shows the potential for return on Exploration & Production assets.

Reducing debt, cost of capital, and increasing resilience

Our debt is much higher than that of other companies operating in the sector. This leads to high interest payments, which make low Brent price periods even more challenging for Petrobras. As a rule, commodity companies should not have high debt since they are more susceptible to economic cycles and to high volatility in their products' selling prices. We need to at least equalize our debt to that of other companies in the segment to reduce our cost of capital and compete on an equal footing.

The lower our debt, the more attractive our credit conditions will be be, thus increasing the potential return on our investment projects. We have already adopted a regulation for the selection of investments in which all projects must present the creation of value, even in the scenario of resilience. With this in mind, all of our planning was designed aiming to prepare us for the moments at which the Brent price was not favorable. Our projects are resilient.

Active management of our portfolio, enabling large investments

Active portfolio management with divestments is a tool for executing Petrobras' strategy. Divestment helps to reduce indebtedness and to finance investments in operations that generate more value. The main focus of the investments will be the pre-salt, which will get 85 percent of the $76 billion that the company planned to invest between 2020 and 2024. Petrobras will also continue holding relevant stakes in national refining (50%), in the industry's logistics operations, and in the production and trade of a significant portion of the national gas.

Our investment value will be more than double of that which the company expects to receive from divestments in the period (20-24).

Thus, we contribute to a new investment cycle in Brazil, one that is more competitive and challenging for all companies in the sector.

It should be noted that the divestments Petrobras has made do not imply a discontinuation of the divested activity. On the contrary: New investors will focus on assets, which will generate new opportunities. Petrobras applies strict criteria to select potential buyers to make sure that they have the technical, financial, and operational capacity to continue the divested business.

Adjustment of corporate costs

Like our debt, our corporate expenses are higher than those of our peers, as shown in the graph below.

Reducing our corporate expenses was a goal that we had already been pursuing. The voluntary termination program, cost cuts, such as in advertising and sponsorship, and the optimization of the use of administrative buildings are a few ongoing initiatives that have already contributed to cost savings in 2019. In 2020, we plan to reduce corporate expenses by 15 percent (costs and expenses, excluding raw materials) and general costs by 10 percent. We are also seizing opportunities to reduce costs resulting from the portfolio management process.

In view of the challenges imposed by the recent retraction in demand because of the pandemic, we have implemented new measures that will contribute to reducing costs and preserving cash. We have adjusted our production by hibernating a few platforms that do not have economic conditions to operate with low oil prices and that are assets in sales processes, we have postponed dividend and variable remuneration payments relative to 2019, we are renegotiating large contracts with suppliers, and adjusting the remuneration of our managers in positions for which there are bonuses. The purpose of all of this is to preserve our company in this scenario of extremely low global demand for fuels and oil.

Maintaining the long-term strategy of being the best in generating value

We will continue monitoring the scenario to ensure that we continue our activities in a sustainable manner. In this regard, the strategic plan is not expected to be changed substantially with respect to the long-term strategy.

In any storm, a boat must make adjustments to its route, but remain firm in its path to reach its destination. We continue to maintain our consistency. Petrobras has already overcome several crises and will overcome this one too. The five pillars that support our strategy remain maximizing the return on the portfolio, reducing the cost of capital, relentless pursuit of low costs, meritocracy and respect for people, the environment and safety.

Contact:

Tel: 55 (21) 3224-2312

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