Petroleo Brasileiro SA- Petrobras (PBR) Risk Analysis

Our activities are subject to regulation and supervision by regulatory agencies, such as ANEEL, ANP, ANTAQ and CADE. Issues such as market concentration across the natural gas and downstream value chains, local content requirements, procedures for the unification of areas, definition of reference prices for the calculation of royalties and governmental participation, oil products specifications, rules related to the temporary and definitive abandonment of wells, among others, are subject to a regulatory regime overseen by Brazilian regulatory agencies. Any regulatory change, as well as change or differences of interpretation between us and regulatory agencies may materially impact our results, since such newly enacted or revised pronouncements or interpretations may directly affect the economic and technical assumptions that guide our investment decisions.

We are subject to tax rules and regulation that may be interpreted differently over time, or that may be interpreted differently by us and Brazilian tax authorities (including the federal, state and municipal authorities), which could have a financial impact on our business. In some cases, when we have exhausted all administrative appeals relating to a tax contingency, further appeals must be made in the judicial courts, which may require that, in order to appeal, we provide collateral to judicial courts, such as the deposit of amounts equal to the potential tax liability in addition to accrued interest and penalties. In certain of these cases, settlement of the matter may be a more favorable option for us. We may face similar situations in which our interpretation of a tax regulation may differ from that of tax authorities, or tax authorities may dispute our interpretation and we may eventually take unanticipated provisions and charges. In addition, the eventual settlement of one tax dispute may have a broader impact on other tax disputes. Any of these occurrences could have a material adverse effect on our financial condition and results.

Although we have significantly reduced our participation abroad, we still operate and have businesses in several countries, particularly in South America in areas where there may be political, economic and social instabilities. In such regions, external factors may adversely affect the results and the financial condition of our subsidiaries in these countries, for example: (i) the imposition of price controls; (ii) the imposition of restrictions on hydrocarbon exports; (iii) the fluctuation of local currencies against the real; (iv) nationalization of our oil and gas reserves and our assets; (v) increases in export tax and income tax rates for oil and oil products; and (vi) unilateral (governmental) and contractual institutional changes, including controls on investments and limitations on new projects. If one or more of the risks described above occurs, we may lose part or all of our reserves in the affected country and may also fail to achieve our strategic objectives in these countries, or in our international operations as a whole, which may negatively impact our results and financial resources.

Climate change poses new challenges and opportunities for our business. With the aggravation of climate change and advances in agreements and regulations, if we do not prepare for the new global challenges we may incur fines and/or higher taxes, impacting our cash flow, and lose competitiveness, diminishing shareholder value. Changes in environmental conditions could potentially impact some of the conditions more crucial to our assets, such as water availability for our refineries and thermoelectric plants and wave, wind and ocean current patterns for our offshore platforms. More stringent environmental regulations, including policy-driven responses to climate change such as regulated greenhouse gas (GHG) emission and others mitigation responses, can result in a potential increase in our operating costs and reduce production. The Brazilian federal legislature is in the final stages of considering the establishment of a regulatory framework for the adoption of a carbon-pricing instrument to reduce GHG in Brazil. Recent increases in numbers of climate litigation around the world highlight this risk. Environmental laws that may be implemented in the future could increase litigation risks and have a material adverse effect on us. A growing number of investors seek to align their investments with medium and long-term climate policies. The increased perception of climate risks by investors, together with greater regulatory restrictions related to carbon intensive sectors, can lead to greater difficulty in accessing capital and increased costs. Investors based in countries that have committed to the Paris Agreement with stronger decarbonization targets tend to experience even stronger pressures in their investment decisions. Society's increasing concerns over climate change may have negative impacts on the demand for our products and services, such as a reduction in fossil fuel consumption due to the energy transition. The global energy matrix may accelerate towards a more renewable profile, with the inclusion of products that substitute fossil fuels and the increased use of electricity for urban mobility. We foresee increasing pressure to develop and utilize technological options to improve the operational emissions performance in order to keep pace with the demands of a low-carbon world. Risk arises from the lack of investment and insufficient performance in technologies and products that could be applied to our business. If we are not able to reduce our carbon emissions and demonstrate this commitment, we could be exposed to a material adverse effect on our earnings and financial condition. These factors may have a negative impact on the demand for our products and services and may jeopardize or even impair the implementation and operation of our businesses, adversely impacting our results and financial condition and limiting some of our growth opportunities.

Our operations are highly dependent on information technology and communications systems and services. Interruption or malfunction affecting these systems and/ or their infrastructure, as a result of obsolescence, technical failures and/or deliberate acts, may harm or halt our business and adversely impact our operations and reputation. Moreover, information security failures, including automation systems, either due to external acts, deliberate or unintentional, such as malware, hacking and cyberterrorism, or internal ones, such as negligence and misuse of IT systems by employees or contractors, may also cause impacts on our business, our reputation, our relationship with stakeholders and external agents (government, regulatory bodies, partners, suppliers and others), our strategic positioning towards our competitors and our results. According to Brazilian Law No. 13,709/2018 – Lei Geral de Proteção de Dados Pessoais (“LGPD”), we will be subject to penalties in cases of disclosure or misuse of personal information. Personal data currently in our possession largely includes our employees’ data, such as health information, but also the data of clients and visitors to our facilities. Failure to comply with the requirements established by the LGPD may result in administrative sanctions, including warnings, fines, publication of the infraction, blocking access to personal data and elimination of personal data.

We are subject to the risk that our management, employees, contractors, or any person doing business with us may engage in fraudulent activity, corruption or bribery, circumvent or override our internal controls and procedures or misappropriate or manipulate our assets for their personal benefit or of third parties, against our interest. This risk is heightened by the fact that we have many complex, high value contracts with local and foreign suppliers, as well as the geographic distribution of our operations and the wide variety of counterparties involved in our business. We cannot guarantee that all our employees and contractors will comply with our principles and rules of ethical behavior and professional conduct aimed at guiding our management, employees and service providers. Any failure, whether actual or perceived, to abide by our ethical principles or to comply with applicable governance or regulatory obligations could harm our reputation, limit our ability to obtain financing and have a material adverse effect on our results and financial condition, if not detected in a timely manner.

We may face greater competitive forces in the downstream market in Brazil, with the emergence of new companies competing against us in this sector. If we are unable to maximize return on capital employed, reduce costs, sell our products competitively, and implement new technologies in our business, we may encounter adverse effects on our results and operations. Additionally, in the upstream market, we may not be successful in acquiring exploration blocks in future bidding rounds if our competitors are able to bid based on better cost and capital structures than us. In that case, we may therefore have difficulty in repositioning our portfolio towards upstream assets that offer higher profitability and competitive advantage, especially in the pre-salt layer, which could negatively affect our results. In addition, changes in the regulatory framework and inquiries regarding compliance with antitrust and competition laws may subject us to penalties, business restrictions and difficulties in renewing concessions, adversely affecting our operations, results and reputation. We have signed commitment agreements with the Administrative Council for Economic Defense (“CADE”) and the National Petroleum, Natural Gas and Biofuels Agency (“ANP”). Under the agreements, we committed to divesting some of our shareholding interests in companies and assets in the gas transportation and distribution segments and to renounce some of the contracted transportation network capacity (of injection and withdrawal volumes), in furtherance of creating more competitive conditions to encourage new economic agents to enter the downstream market. Failure to comply with these commitment agreements may result in negative impacts such as administrative proceedings and fines, as well as harm our image and reputation.

Some of our customers may experience financial constraints or liquidity issues that could have a significant negative effect on their creditworthiness. Severe financial issues encountered by our customers could limit our ability to collect amounts owed to us, or to enforce the performance of obligations owed to us under contractual arrangements. In addition, many of our customers finance their activities through their cash flows from operations, the incurrence of short and long-term debt. Declining economic conditions in Brazil, and resulting decreased cash flows, combined with a lack of debt or equity financing for our customers may affect us, since many of our customers are Brazilian and may have significantly reduced liquidity and limited ability to make payments or perform their obligations. This could result in a decrease in our cash flow and may also reduce or curtail our customers’ future demand for our products and services, which may have an adverse effect on our results and financial condition.

Our divestment plan includes the partial or total sale of our companies in the fuel distribution segment and some of these businesses involve licensing agreements for our brands. Once a licensee holds the right to display our brands in products, services and communications, it can be perceived by stakeholders as ourselves, our legitimate representative or spokesperson. Licensees’ actions or events related to their business, such as, failures, accidents, errors in business performance, environmental crises, corruption scandals and improper use of our brand, among other factors, may negatively impact our image and reputation, with possible financial losses.