Oil price hedging to shield operating cash generation

03/28/2018

Rio de Janeiro, March 28, 2018 – Petróleo Brasileiro S.A. – Petrobras informs that it has deployed a hedging strategy for part of its expected oil production in 2018. The transactions were carried out over the months of February and March, in a volume equivalent to 128 million barrels of oil. Put options have been purchased with exercise price referenced to the average price of Brent oil from said months through the end of 2018, with an average cost of US$3.48 per barrel and average exercise price of around $65/barrel. The maturity of the options will occur at the end of the year.

The transaction aims to shield part of the operating cash generation projected by the company for 2018, ensuring a minimum price level for the production volume under the transaction without, however, locking the price, should the average price of Brent in the year exceed the reference value. Thus, hedging is achieved in low price scenarios, yet profit from higher prices is nevertheless earned from hike scenarios in the price of Brent.

As reported in the 2017 Financial Statements, Petrobras upholds the preference for exposure to price cycle, but the execution of the occasional hedging strategy with derivatives may be applicable according to the business environment and the achievement prospects for the Business and Management Plan. As such, the transaction executed aims to reduce the negative impact on the company's cash generation in the most adverse price scenarios, increasing the degree of confidence in the deleveraging strategy.