Petrobras Distribuidora S.A. Financial Statements

Petrobras Distribuidora S.A. Financial statements

At December 31, 2017 and independent auditors’ report

KPDS 217535

Petrobras Distribuidora S.A Financial Statements at December 31,2017

Contents

Annual Report 2017 ...... 4 Independent auditors’ report on the individual company and consolidated financial statements...... 21 Statements of financial position...... 29 Statements of income ...... 31 Statements of comprehensive income...... 32 Statements of changes in equity...... 33 Statements of cash flows...... 34 Statements of added value...... 35

Notes to the financial statements

1 General considerations ...... 37 2 Basis of presentation of the financial statements ...... 41 3 Use of judgements and estimates ...... 42 4 Significant accounting policies ...... 43 5 New standards and interpretations ...... 55 6 Cash and cash equivalents ...... 57 7 Net accounts receivable ...... 58 8 Inventory ...... 65 9 Taxes and contributions recoverable ...... 65 10 Deferred income and social contribution taxes ...... 66 11 Advanced bonuses awarded to clients ...... 68 12 Judicial deposits ...... 69 13 Investments ...... 70 14 Property, plant and equipment ...... 76 15 Intangible assets ...... 78 16 Trade payables ...... 81 17 Financing ...... 81 18 Leases ...... 86 19 Customer advances ...... 88 20 Taxes and contributions payable ...... 88 21 Employee benefits ...... 90 22 Shareholders' equity ...... 101 23 Sales revenue ...... 105 24 Other net revenue (expenses) ...... 106

2 Petrobras Distribuidora S.A Financial Statements at December 31,2017

25 Expenses by nature ...... 107 26 Net financial income ...... 109 27 Segment reporting ...... 110 28 Judicial and administrative proceedings and contingencies ...... 114 29 Contractual commitments ...... 124 30 Financial instruments and risk management ...... 124 31 Related-party transactions ...... 132 32 Insurance ...... 140 33 Subsequent events ...... 140 Representation of the Officers about the Financial Statements and Independent Auditors' Report...... 141

Members of the Board of Directors and Executive Board...... 142 Summarized Annual Report of the Statutory Audit Committee 143

Audit Committee Report 150

Annual Report 2017

Dear Shareholders,

The Management of Petrobras Distribuidora S.A. (B3: BRDT3) is pleased to submit to shareholders its Annual Report and Financial Statements for the year 2017 and the, unqualified, independent auditors’ report, which has been discussed and reviewed by Management.

PROFILE

Petrobras Distribuidora (“BR” or “Company”) is Brazil’s largest fuel and lubricant distributor and marketer by sales volume.

BR was created in 1971 to operate the petroleum product distribution and marketing business of parent company Petróleo Brasileiro S.A. (Petrobras). The Company has the most extensive footprint in Brazil’s fuel and lubricant distribution and marketing segment, serving more than 8,000 BR-branded service stations and around 14,000 customers in the Bulk Customer, aviation products and other segments, as described below. We operate the largest downstream logistics network in Brazil (according to data from Brazil’s oil industry regulator, ANP), including 91 fuel storage bases, 15 lubricant storage facilities and 109 airport fueling facilities, all strategically located throughout Brazil’s five major regions. From this platform, we are able to efficiently meet customer demand in any municipality in Brazil.

We are Brazilian market leaders by sales volume for fuel and lubricant distribution and marketing, and believe we deliver superior quality and excellence in products and services in each of our businesses, including:

 Retail

Our Retail business markets fuels, lubricants, compressed natural gas, ethanol, Arla 32 and convenience store products to retail service stations. Retail network prices are largely affected by the cost of products purchased from Petrobras, our primary supplier. To the extent possible, and provided our margins are not affected, any increase or decrease in the cost of sourced products are passed on to our customers.

 Bulk Customers

Our Bulk Customers business supplies fuels, lubricants, Arla 32 and related services to large customers. Bulk Customer prices are largely affected by the cost of products purchased from Petrobras, our primary supplier. To the extent possible, and provided our margins are not affected, any increase or decrease in the cost of sourced products are passed on to our customers.

 Aviation

The Aviation business supplies jet fuels (JET-A1), aviation gasoline and aviation services at Brazilian airports to airliners, military aircraft and executive jets operating domestically and internationally. Prices in the Aviation business are largely affected by the cost of products purchased from Petrobras, our primary supplier, which vary with global market prices and foreign exchange rates. To the extent possible, and provided our margins are not affected, any increase or decrease in the cost of sourced products are passed on to our customers.

 Other Businesses (Chemicals, Energy, and Asphalt Business Segments).

In Chemicals Business, we process and market chemicals such as sulfur, hydrocarbon solvents and chemical specialties to industries that include the oil and gas, fine chemicals, agribusiness, coatings, adhesives, home care products and rubber industries. In Energy Market, we are Brazil’s largest distributors of green petroleum coke (GPC). In addition, we operate the Espírito Santo state piped gas supply concession, supplying gas to around 47,000 homes. In Asphalt Business, BR produces and markets asphalt products, such as including asphalt cement, asphalt emulsion, rubberized asphalt and diluted asphalt through wholly owned subsidiary Stratura Asfaltos S.A. We are Brazil’s largest asphalt distributor according to data published by the Brazilian Association of Asphalt Distributors - ABEDA.

MESSAGE FROM THE CEO

In 2017 our company successfully recovered from the losses reported in previous financial years. Net income was R$ 1,151 million, compared with a net loss of R$ 315 million in 2016.

Indebtedness was also reduced as a result of the corporate reorganization and related capital contribution of R$ 6.3 billion by Petrobras and the early repayment of export credit notes (NCEs) to Banco do Brasil and Bradesco. Our net debt at December 31, 2017 was R$ 3.9 billion, 59% less than in the previous year. As a result, our adjusted net debt to EBITDA ratio at year-end 2017 was 1.3x.

Within our safety culture, our operations have consistently delivered on our commitment to making BR an increasingly safe place to work. We remain continually alert and intent on reducing injuries to zero. Our Recordable Injury Rate (RIR) in 2017 (0.86) fell 12% compared with 2016 (0.98). The continued downward trend in injury rates is a testament to the effectiveness of our accident prevention programs and our senior leaders’ commitment to workers’ safety.

We had a workforce of 3,240 employees at year-end, a decrease of 474, or -13%, compared with 2016. This decline was a result of a Voluntary Severance Incentive Program (PIDV BR 2016) aimed at resizing our workforce to achieve operating and cost efficiency. The initiative demonstrates our continued commitment to balancing workforce and costs.

These results were achieved in a challenging business environment. The fuel distribution market showed marginal recovery in marketed volumes, reflecting early signs of economic recovery in Brazil. However, sales volumes in some important segments - such as industrial customers and thermal power stations - have yet to return to pre-crisis levels. New market entrants also intensified competition during the year.

In response to these challenges, BR implemented a range of initiatives throughout 2017 to improve our competitive position. We identified the need to encourage behaviors and mindsets that are aligned with the principles outlined in our Business Plan and the values by which Petrobras Group operates. Accordingly, we developed a broad program portfolio to align our organizational culture with our business plan and create the conditions needed for implementation.

InovaBR is one example of the initiatives being developed within this major organizational culture transformation program. It is our innovation programa, an initiative that intend to develop an integrated process for organizing, prioritizing, accelerating and delivering innovation within our Company as we face the daily challenge of reinventing ourselves to meet society’s and our customers’ changing needs.

We also strengthened our governance, risk management and compliance framework during the year as an additional step in the reorganization that began in 2016. Transforma BR, as the program is called, is implementing a new organizational structure to optimize processes, drive further cost efficiencies and make the Company a more agile organization, enhancing our sustainability as a business. We approved a reformulation of our Bylaws to ensure BR exceeds the legal requirements applicable to publicly traded companies and the listing rules for the Novo Mercado segment, reaffirming our vision to be industry leaders in our market.

We continued to enhance our efforts to prevent, detect and investigate fraud and corruption violations and, in doing so, reinforcing an integrated understanding of corporate risks and developed compliance and internal controls activities that have strengthened our business integrity at BR. We have also appointed compliance officers whose job it is to disseminate our compliance culture, foster discussions and provide advice on the practical application of applicable laws and internal standards.

In addiction, Br participates as member of Plural - National Association of Fuel, Lubricants, Logistics and Service Station - and supports the program Legal Fuel Movement and endorse actions that stop anticompetitive and fraudulent activities such as tax evasion, defaults and frauds in the pumps.

On December 14, 2017 the Brazilian Securities Commission (CVM) approved a secondary public offering of BR shares on Novo Mercado, a special listing segment on B3 S.A., with trading commencing the following day. Since the IPO, our stock value has increased by more than 40%, growing the Company’s market value from R$17 billion at the start of trading on B3 to approximately R$26 billion in March 1st, 2018. We are now poised for growth with a renewed focus on increasing returns, improving safety, empowering our people, and enhancing our brand, image and reputation. We will continue on this journey, working harder and better, to enhance our efficiency and market focus, fulfilling our purpose of offering and delivering products and services that help people and businesses realize their full potential. Let’s keep the wheels turning!

Ivan de Sá

CEO

SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

Sustainability is among the pillars of our Strategic Plan, alongside value creation, brand equity and innovation.

In 2017 we developed a Sustainability Agenda comprising seven commitments (reducing greenhouse gas emissions; mitigating the social and environmental impacts from our infrastructure; generating positive impact on mobility; expanding the use of renewable energy in our operations; promoting conscientious consumption; promoting an ethical business environment; and developing partnerships to create shared value) and initiatives to improve our management approach to sustainability. In developing the agenda we considered the themes included in our materiality matrix, the Business Sustainability Index (ISE) and the Sustainable Development Goals (SDGs).

We also continued to revitalize Cidadão Capaz, our program to bring BR-branded service stations in conformity with NBR-9050/2004 so that people with disabilities can be employed in our retail network. In the last quarter of 2017, the Niteroi Association of People with Disabilities (ANDEF) supported our retailers in hiring and training employees with special needs.

HEALTH, SAFETY AND ENVIRONMENT

Through our Health, Safety and Environment Policy, we have committed to achieving sustainability in our operations and processes, implementing industry best practices, seeking continual improvement and minimizing adverse impacts from our business, in alignment with our Strategic Plan and Business Plan.

Our Recordable Injury Rate (RIR) fell by 13% from 0.98 in 2016 to 0.86 in 2017. This represents a 21% decrease in workers sustaining injuries and 6 fewer accidents occurring than in 2016, a testament to the effectiveness of our accident prevention programs and our senior leaders’ commitment to workers’ safety.

In our approach to safety management and emergency response, we work to prevent accidents, reduce injury rates, mitigate risks and increase our emergency preparedness. Jointly with Petrobras, we have implemented a safety program called Compromisso com a Vida. The program is designed to enhance process safety by implementing risk analyses, to-do requirements, integrated initiatives and consequences system. Besides, we have implemented the 10 Golden Rules, with the overarching goal of preventing harm to people and strengthening our safety culture.

Other initiatives continuing in the year include: our Safe Works Program, which focuses on construction accidents at our operations units; emergency drills; our Transportation Risk Management Program, with a focus on full-fleet safety monitoring; and our Motorista DEZtaque program, which recognizes drivers for superior performance against safety and social and environmental sustainability indicators.

Environmental management at BR is supported by information systems and systematic efforts to drive continual improvement in resource efficiency, eco-efficiency and regulatory compliance.

MANAGEMENT AND ORGANIZATION

Human Resources

BR is currently at a relevant period in its trajectory, marked by events that affect, among other aspects, our image and reputation, our performance and our workforce, and which require us to take a number of steps to ensure our sustainability as a business.

The market is changing and reshaping the way people interact with organizations and the workplace. The increasing adoption of more horizontal and flexible organizational models that foster open dialogue, respect for individuality and provide effective learning and development opportunities means companies now need to reinvent themselves. In this context, in 2017 we implemented significant organizational changes and redesigned our processes to reflect market trends. Significant changes included providing tools to enhance dialogue, ideation and innovation, and improving performance management in support of merit-based opportunity.

We launched a Voluntary Severance Incentive Program (PIDV BR 2016) to adjust the size of our workforce as outlined in our divestment plan and Business Plan 2017-2021 and in a way that would meet the expectations of employees while also retaining the expertise and talents needed to ensure our business continuity.

The program was voluntary and covered all employees, in any position, who had completed at least 10 years of employment with the Company as of 12/30/2016. Terminations began on 1/17/2017, with 712 out of 1,105 subscribing employees terminating their employment with the Company.

We ended 2017 with a workforce of 3,240 employees, a decrease of 474 employees, or 12.8%, compared with 2016. Currently 1.5% of our employees are people with special needs. The chart below shows a history of our workforce figures by profile.

In 2017 we invested R$ 6.6 million in training and development programs. Across be different types of training available - internal, external, distance learning and on-the-job training - we provided more than 166,000 hours of training in the year, averaging 50 hours per employee.

In order to retain the valuable knowledge needed to ensure our operational continuity, we continued to advance BR’s knowledge management culture through initiatives to further mainstream the use of minhaBR, a collaboration platform that allows people to interact and share knowledge either directly or through technical communities.

A mobile version of the platform was launched in the year, allowing users to access and interact with their communities as well as other features available on minhaBR. We also created 147 new communities, for a current total of 348 communities.

One of the ways we have disseminated knowledge is through distance-learning, through an offering, as of 2017, of more than 12,600 training courses. A total of 16 new distance-learning titles were launched in the year, including Being Innovative, Relationship Marketing, BR Products and Services - Lubricants and Learning to Learn, which focuses on the need and the methods available for continued learning to enhance creativity and productivity. We also trained our entire workforce on the Golden Rules, raising awareness about good occupational safety practices. This is reflected in improved Reportable Injury Rates, a top priority across Petrobras Group.

We further advanced our succession process, filling 100% of managerial positions in accordance with our Corporate Succession Model, which includes manager rotation and an assessment center for job profile analysis. BR filled 74 positions through our assessment center, an increase of 825% from 8 positions in the previous year.

Our potential leadership talent pool, initially numbering 83 employees, was given first consideration in filling leadership positions (team coordinators and managers), resulting in 9 promotions: 8 to manager and 1 to coordinator.

Enhanced Corporate Governance

In 2017 BR approved a reformulation of its bylaws for conformity to Act 13.303 of June 30, 2016 (which raises the standards of governance applying to government-owned companies and their subsidiaries - “Act 13.303”) and to the listing requirements for Novo Mercado. This involved the creation of several statutory committees under the Board of Directors (Audit Committee; Risk & Financial Committee; Nomination, Compensation & Succession Committee; Minority Shareholders Committee, the first two of which have already been put into place).

BR’s Board of Directors will consist of ten members, of which at least 50% must be independent members: two appointed by Petrobras from a short list of three names prepared by a specialized firm, and three appointed directly by minority shareholders. Members are now also required to serve a unified term of two years in accordance with Act 13.303 and the Novo Mercado Listing Rules. The number of reappointments has now been limited to three, with the same requirements applying to the members of the Executive Board. The independent members of the Board of Directors will be appointed during the first Annual General Meeting held in 2018, as set out in our bylaws.

A new policy was also approved for the appointment of members to the Audit Committee, Board of Directors and Executive Board, and our Related Party Transactions Policy was revised. The Minority Shareholders Committee will now evaluate all transactions with the Government, its agencies, Petrobras and other Federal Government-owned companies that are within the decision-making scope of the Board of Directors. Transactions with Petrobras and other Federal Government-owned companies that are out of the ordinary course of business must be approved by two thirds of the Board of Directors.

The mechanisms in place at BR for preventing, detecting and responding to fraud and corruption events have been further improved. Enhancements in the year included integrity assessment for all new appointed senior management and middle-management personnel (background check) and training for employees with focus on ethical standards.

Importantly, our Executive Board and executive managers are all professionals with extensive expertise in their relevant fields and markets. All members of the Executive Board, for example, have more than 20 years of experience as professionals, and substancial experience in the fuel distribution and marketing segment.

CAPITAL MARKET

Listing

On December 15, 2017 BR shares were listed on B3’s “Novo Mercado”, a special listing segment with highly differentiated standard in corporate governance.

In a secondary public offering, our parent company, Petróleo Brasileiro S.A. (Petrobras), sold 28.75% of its holdings in the Company, raising more than R$5 billion in one of the largest public offerings since 2013.

The shares, initially priced at R$15, have since appreciated by more than 46,6% on March 1st, 2018, making the IPO a resounding success.

Interest on Equity and Dividends

In a meeting held on January 26, 2018, the Board of Directors approved interest on equity of R$ 659 or R$ 0,56527346761767 centavos per share, to be computed towards the minimum mandatory dividend, but without limiting any further payment of dividends, for 2017.

Payment of the above interest on equity for shares traded on B3 S.A. - Brasil, Bolsa, Balcão and other shares registered with Banco Bradesco S. A. will be made no later than July 31, 2018 based on shareholdings as of February 1, 2018.

Payments will be adjusted for inflation at the SELIC interest rate from December 31, 2017 to the date on which payment is made.

Additionally, the Directors will send to approval on Annual General Meeting, that wil be held on April 25th, 2018, the propose of R$433 millions for additional dividends. The final portion of interest on equity together with the dividends is the amount of R$ 1,092 million (R$0,94/per share), equal to 95% of the net income in fiscal year.

RELATIONS WITH INDEPENDENT AUDITORS

Our management approach is based on our Code of Ethics, Code of Best Practice and Corporate Governance Guidelines.

Article 24 of our Bylaws establishes that independent auditors are prohibited from providing consulting or advisory services for the duration of the audit engagement.

During financial year 2017 we and our associates and joint operations incurred the following expenses on audit services:

Independent auditor services R$ thousand Accounting Audit 827 Tax Audit 62 Previously agreed procedures 12 Tot al services 901

KPMG Auditores Independentes initiated their engagement as independent auditors for Petrobras Distribuidora in 2017. Between 2012 and 2016, independent audit services had been provided by PricewaterhouseCoopers Auditores Independentes.

RESULTS OF OPERATIONS

Downstream Market Overview

Brazil’s fuel and lubricant distribution market grew by 0.5% in 2017, reversing a decline lasting two consecutive years.

An improving macroeconomic environment - with household consumption increasing, particularly in the second half of the year, as a result of lower inflation and interest rates as well as slight improvement in wage income driven by a modest retreat in unemployment - led to a recovery in fuel demand in May 2017.

Fuel and lubricant sales totaled 125.9 million cubic meters in 2017.

Gasoline consumption rose by 2017, increasing its share in total fuel and lubricant consumption by 0.7 p.p. to 35.1%.

Conversely, a decline in ethanol and aviation fuel consumption resulted in a reduced share in the energy mix as shown below.

Diesel consumption, growing slightly by 0.9%, marginally improved its share in fuel and lubricant consumption.

Product Share in Global Market

The slight, 0.6%, increase in fuel and lubricant consumption was driven by improving gasoline, diesel, compressed natural gas and fuel oil sales, which rose by respectively 2.6%, 0.9%, 5.5% and 1.6%. Otto Cycle fuel (gasoline C, ethanol H and natural gas) consumption increased by 1.1% despite a 6,5% decrease in consumption of hydrous ethanol, which was offset by higher gasoline consumption.

Gasoline consumption in 2017 rose by 2.6% from 2016, having risen by 4.6% in 2016 compared with 2015. Throughout the first half of 2017, gasoline prices were more competitively priced relative to hydrous ethanol, leading to increased consumption of gasoline. In the second half of 2017, however, gasoline lost part of its price edge over hydrous ethanol, slowing the increase in gasoline consumption compared with the same period in 2016. Ethanol consumption declined significantly throughout the first half of 2017, recovered slightly on the back of more competitive prices in the second half of the year, but ended the year at a decline of 6.5%, following a decrease of 18.3% in 2016.

Heavy fuel consumption rose 1.6% in 2017 compared with 2016, breaking a two-year cycle of dropping consumption. The higher consumption was driven by the dispatching of thermal power stations from August to November 2017 due to low hydroelectric reservoir levels.

The diesel market grew by 0.9% to recover from a two-year decline, helped by a record grain harvest in 2017, with estimated growth of 29.5% (according to IBGE). Trucking volumes, an important driver of diesel oil consumption, recovered throughout 2017 to end the year in growth compared with the previous year.

Aviation fuel consumption shrank for the third consecutive year. Volumes dropped by 1.1% in 2017, after contracting 8.0% in 2016 and 1.7% in 2015. Marginal economic growth in the second half of the year helped to slow the decline compared with 2016, but not so much as to reverse the downside trend in consumption. Fuel efficiency initiatives undertaken by airlines, such as optimizing routes, decommissioning aircraft and reducing ticket offerings, were also among the factors negatively affecting consumption.

Gasoline and diesel imports in 2017 by importers authorized to operate by the Brazilian oil industry regulator, ANP, showed an increase compared with the previous year.

The percentage of biodiesel in the diesel blend increased from 7% to 8% in March 2017. In March 2018 the percentage will increase to 10% (B10).

In July 2017, in a bid to increase tax revenues, the Federal Government raised the PIS/COFINS tax rate on gasoline (from R$ 0.3816 to R$ 0.7925 per liter), diesel (from R$ 0.2480 to R$ 0,4615 per liter) and hydrous ethanol (from R$ 0.12 to R$ 0.1309 per liter for producers and from zero to R$ 0.1109 for distributors).

In July 2017 Petrobras implemented a new pricing policy with prices adjusted daily to better reflect fluctuations in global prices.

Note: Market data are subject to revision to reflect any changes by ANP.

Financial performance in 2017

Non-GAAP financial measures - EBITDA, Adjusted EBITDA and adjusted EBITDA margin

Since January 1, 2013, the Company has calculated EBITDA in accordance with CVM Directive 527 of October 4, 2012.

EBITDA is a Non-GAAP financial measure used by the Company and reconciled with the financial statements in accordance with the guidance set out in CVM/SNC/SEP 01/2007. This measure expresses net income plus net financial income, income tax and social contributions, and depreciation and amortization expense (“EBITDA”).

Adjusted EBITDA is a measure of net income plus net financial income, income tax and social contributions, depreciation and amortization expense, prepaid service station bonuses, estimated losses on doubtful accounts in connection with the islanded and interconnected power grids, losses and provisions in connection with legal claims, impairment, voluntary severance incentive program (PIDV), expenses in connection with tax amnesty programs and taxes on financial income. A description of each of these adjustments is provided at note 26 to the Financial Statements.

Adjusted EBITDA Margin is a measure calculated by dividing Adjusted EBITDA by product volumes sold. The Company uses the Adjusted EBITDA Margin because we believe it is a good indicator of profitability in the business segments in which we operate.

EBITDA Reconciliation Consolidated R$ million 2017 2016 % EBITDA Composition Net Income (Loss) 1.151 (315) - 465,4% Net financial income 557 622 - 10,5% Income tax and social contribution 414 (322) - 228,6% Depreciation and amortization 452 454 - 0,4% EBI T DA 2.574 439 486,3% Estimated losses on doubtful accounts - Power Sector (Islanded and Interconnected Grid) (155) 411 - 137,7% Losses and provisions in connection with judicial and administrative proceedings 119 1.079 - 89,0% Amortization of prepaid bonuses 545 542 0,6% Voluntary Redundancy Incentive Program (PIDV) (144) 434 - 133,2% Tax Amnest y Program 80 6 1233,3% Tax expense on financial income 48 84 - 42,9% ADJUST ED EBI T DA 3.067 2.995 2,4% Volume of products sold (in millions of m3) 43,2 45,8 -5,7% ADJUST ED EBI T DA MARGI N ( R$/ m3) 71 65 9,2%

Performance by Business in 2017

Retail

In 2017, we expanded our service station network by 269 stations on a net basis, further delivering on our strategy of profitably expanding our branded network given the opportunity to franchise non-branded service stations as a result of the reduced arbitrage of product imports.

Highlights in Retail:

BR Mania Service Stations

In 2017, BR Mania reached out 1,348 units, with 485 BR Mania Café (Coffee Shops), 231 BR Mania Padaria (Bakeries) and 124 Sanduíche e Saladas (sandwich and saladas stations).

It was launched more 17 products in our menu of food service - own brand, wich has 170 itens. We launched at Expopostos in São Paulo other two services:: Burgueria and Pizzaria BR Mania.

With an expansion of commercial prices with the industry, which brought investments of partners in BR Mania, we provide promotional activities in network of franchisees in all the months of the year, in addition to the increase of profitability.

One of the milestones of 2017 was the achievement, for the 4th consecutive time, the Seal of Excellence in Franchising, granted by ABF (Brazilian Franchise Association). BR Mania is only convenience store in the fuel distribution segment that has the seal of excellence.

Lubrax+ - Lubrication Center

The Lubrax+ registered another expansion period in 2017, totaling 1,648 units. More than 2,500 lubricators have been trained since the start of the franchise in 2011.

In 2017 we expanded our partnerships with industry and held a diversified promotional calendar, attracting new consumers to the network.

Retail Performance

Sales revenue declined by 3.1% to R$50,999 million in 2017 from R$52,634 million in 2016. The decrease is primarily explained by a 4.4% reduction in product volumes sold (especially diesel volumes, which decreased by 4.6%, and Otto cycle fuel volumes, which declined by 1.9%) and was partly offset by a 1.4% increase in average cost of products sold.

Gross income decreased by 4.2% to R$3,772 million in 2017 from R$3,936 million in 2016. The decrease is largely explained by a 4.4% reduction in product volumes sold, and was partially offset by a 0.3% increase in average retail service station sales margins.

Total operating expenses increased by 3.2% to R$ 1,443 million in 2017 from R$ 1,398 million in 2016, consistent with official inflation rates in the period as measured by the IPCA index.

Adjusted EBITDA decreased by 8.2% to R$ 2,329 million in 2017 from R$ 2,538 million in 2016 due to a 4.2% decrease in gross income driven by a 3.2% increase in operating expenses. Adjusted EBITDA Margin per cubic meter sold decreased by 4% to R$ 102/m3 in 2017 from R$ 106/m3 in 2016.

The Retail business accounted for 60% of total Net Revenue and 75% of total Adjusted EBITDA.

Bulk Customers

In 2017 we served approximate 10,000 customers in the bulk market, selling 11.2 million cubic meters of products.

Despite the market downturn that began with the economic crisis in 2016 and the continued political instability, the consumer market showed signs of recovery in the second half of 2017.

In this context, sales revenue declined by 3.4% to R$22,450 million in 2017 from R$23,247 million in 2016. The decrease is primarily explained by a 5.1% reduction in product volumes sold (especially diesel volumes, which decreased by 7.7% due to lower sales volumes to thermal power stations resulting from reduced dispatching of interconnected grid generators) and was partly offset by a 1.8% increase in average Bulk prices (i.e. sales revenue divided by sales volume), largely reflecting a 1.6% increase in average cost of products sold (i.e. cost of products and services sold divided by sales volume).

Gross income decreased by 1.4% to R$1,701 million in 2017 from R$1,726 million in 2016. The decrease is largely explained by a 5.1% reduction in product volumes sold, and was partially offset by a 3.9% increase in average sales margins (i.e. gross income divided by sales volume.

Total operating expenses decreased 12.5% to R$ 930 million in 2017 from R$ 1,063 million in 2016, primarily explained by less costs with deliveries of products, general and personnel expenses.

Adjusted EBITDA increased by 16.3% to R$771 million in 2017 from R$663 million in 2016 due to a 12,5% reduction of operating expenses. Adjusted EBITDA Margin per cubic meter sold increased by 22.6% to R$69/m3 in 2017 from R$56/m3 in 2016.

The Bulk Customers business accounted for 26% of Net Revenue and 25% of total Adjusted EBITDA.

Aviation

In 2017, approximately 62,300 aircraft fueling operations were completed per month in 2017, serving around 1,500 customers nationwide.

The market shrank by approximately 1.7% compared with 2016. However, from the second half of the year, signs of recovery were apparent across customer segments.

Contracts with the main national and global airlines have a term extending to 2018, when a new round of commercial negotiations will take place.

We ended 2017 with a network of 108 airports distributed across all regions of Brazil. As part of our operations optimization efforts, we discontinued operations at 2 sites (Primavera do Leste/MT and Jundiaí/SP) and began operations at two new airports in the Northeast (Aracati/CE and Jericoacoara/CE).

In this context, sales revenue increased by 12.2% to R$6,947 million in 2017 from R$6,189 million in 2016. The increase is explained primarily by a 10.9% increase in average product prices in the Aviation segment (i.e. sales revenue divided by sales volume) due to higher average barrel prices in 2017 compared with 2016.

Gross income increased by 28.6% to R$723 million in 2017 from R$562 million in 2016. The increase is primarily explained by a 27,2% increase in average sales margins (i.e. gross income divided by sales volume). A better foreign exchange risk management improved the gross income performance in 2017 compared with 2016.

Total operating expenses decreased 9.6% to R$451 million in 2017 from R$ 499 million in 2016.

Adjusted EBITDA Margin was R$ 272 million in 2017 and adjusted EBITDA per cubic meter sold was R$72/m3.

The Aviation business accounted for 8% of Net Revenue and 9% of total Adjusted EBITDA.

Other Businesses (Chemicals, Energy, and Asphalt Business Segments)

On May 31, 2017 we completed a carve out of our asphalt business assets into Stratura Asfaltos, a wholly- owned subsidiary, effective from June 1, 2017.

Sales revenue declined by 8% to R$4.702 million in 2017 from R$5,109 million in 2016. The decrease is mainly explained by a 15.8% reduction in sales volumes, partly offset by a 9.3% increase in average sales prices (i.e. sales revenue divided by sales volume).

Gross income decreased by 7.6% to R$738 million in 2017 from R$799 million in 2016, reflecting the decline in net revenue. The decrease is primaly explained by a 15.8% in volume sold, and was partly offset by a 9.7% increase in average cost of products sold.

Total operating expenses decreased 20.4% to R$317 million in 2017 from R$ 398 million in 2016.

Adjusted EBITDA for 2017 increased 5% to R$ 421 million from R$ 401 million in 2016 and adjusted EBITDA Margin per cubic meter sold increased 24.6% to R$ 79/m3 in 2017 from R$ 63/m3 in 2016.

Other Businesses accounted for 6% of Net Revenue and 14% of total Adjusted EBITDA.

Consolidated Performance 2017

Sales revenue declined by 2.4% to R$84,567 million in 2017 from R$86,637 million in 2016. The decrease is mainly explained by a 5.7% reduction in sales volumes, partly offset by a 3.5% increase in average sales prices (i.e. sales revenue divided by sales volume).

Gross income decreased by 1.5% to R$ 6,367 million in 2017 from R$ 6,465 million in 2016 driven by a 5.7% decrease in volumes sold. The decrease in 2017 is a result of the reduction in retail sales and oil diesel sales, particularly to thermal power plants, and the progress of the regional players, partly offset by the increase of sales margins.

Total operating expenses decreased 34.5% to R$4,243 million in 2017 from R$6,479 million in 2016. Significantly, losses and provisions in connection with judicial and administrative proceedings decreased by R$960 million, estimated losses on doubtful accounts decreased by R$ 716 million, and the provision for Voluntary Severance Incentive Program (PIDV) compensations in order of R$443 million, occurred on 4T16.

Financial income was a net expense of R$ 557 million in 2017, a decrease of 10.5% from a net expense of R$622 million in 2016. This is mainly explained by the combined effect of lower interest expense on loans and financing and monetary variance gains on the adjustment of receivables from Eletrobras Group companies which were renegotiated in 2014 and receivables from customers Breitener Tambaqui and Breitener Jaraqui, both Petrobras Group companies, as a result of a reorganization of the Company's capital structure in August 2017.

Net income was R$ 1,151 million in 2017 compared with a loss of R$ 315 million in 2016, with BR again delivering the positive results of operations and profitability that have marked its successful history.

Adjusted EBITDA increased by 2.4% to R$ 3,067 million in 2017 from R$ 2,995 million in 2016, yielding an Adjusted EBITDA Margin of R$ 71/m3 in 2017, an increase of 8.6% compared with R$ 65/m3 in 2016.

Cash Flow

The Cash Flows from operating, investments and financing activities resulted in the stability of Free Cash Flow for Shareholders in 2017 when compared to 2016, which allowed maintaining the levels of remuneration to shareholders in the periods considered, confirming the good cash generation.

Debt

Consolidated gross debt was R$ 4,738 million in the period ended December 31, 2017, of which 5% was short- term debt. Gross debt at year-end 2017 was approximately 63.4% less than at December 31, 2016. Net debt at year-end 2017 was R$ 3,885 million, 59.1% less than in the previous year. Net debt was calculated considering the Receivables Investment Fund (FIDC) investment balance of R$ 370 million (R$ 2,776 million as of December 31, 2016), that remunerates 100% of the CDI.

It is important to note that the decrease in debt was primarily due to the capital contribution of R$ 6.313 billion from Petrobras and the subsequent early settlement of the total balance of R$ 7,708 million in Export Credit Notes with Banco do Brasil and Bradesco. Interest paid on the above debt balances was equivalent to 114.25% and 118%, respectively, of the CDI rate, and following settlement average debt maturity increased from 2.4 years to 2.9 years (3.2 years in 2016). As a result, our Adjusted Net Debt to EBITDA ratio at year-end 2017 was 1.3x EBITDA Ajustado (3,2 x EBITDA Adjusted in 2016). The Company debt is fully denominated in Brazilian currency (Reais).

The average cost of the Company's gross debt at December 31, 2017 is equivalent to 114.53% of CDI (112.16% of CDI at December 31, 2016).

CAPEX and franchising investment

Petrobras Distribuidora and its subsidiaries invested R$ 300 million in CAPEX, largely in maintaining our operational and retail hydrocarbon product distribution infrastructure. Investments in 2017 are listed in the following table.

Capex Investment R$ million 2017 % Expansion and improvements at terminals, bases and other operational facilities 123 41% Service station maintenance and expansion 61 20% Information Technology 53 18% Lubricant Plant expansion 12 4% Healt h, Saf et y & Environment 11 4% Terminal aut omat ion 9 3% Works and installations on customer premises 9 3% Other investments 22 7% Total 300 100%

BR invested R$905 million in 2017 towards the expansion of its service station network by 269 new service stations (on a net basis) and toward franchise contract renewals, including R$575 million in pre-paid bonuses, R$248 in performance bonuses and R$82 in in-kind financing to customers.

KPMG Auditores Independentes Rua do Passeio, 38 - Setor 2 - 17º andar - Centro 20021-290 - Rio de Janeiro/RJ - Brasil Caixa Postal 2888 - CEP 20001-970 - Rio de Janeiro/RJ - Brasil Telefone +55 (21) 2207-9400, Fax +55 (21) 2207-9000 www.kpmg.com.br

Independent auditors’ report on the individual company and consolidated financial statements

(A free translation of the original report in Portuguese, as filed with the Brazilian Securities and Exchange Commission (CVM), prepared in accordance with the accounting policies adopted in Brazil, CVM rules and the International Financial Reporting Standards - IFRS)

The Board of Directors and Shareholders of Petrobras Distribuidora S.A. Rio de Janeiro - RJ

Opinion

We have audited the individual company and consolidated financial statements of Petrobras Distribuidora S.A.("Company"), referred to as individual company and consolidated financial statements, respectively, which comprise the statement of Financial Position as of December 31, 2017, and the statement of income, the statement of comprehensive Income, Statement of Changes in Shareholders’ equity and Statement of Cash Flows for the year then ended, and notes to the financial statements, including significant accounting policies and other explanatory information.

Opinion for individual company financial statements In our opinion the accompanying individual company financial statements present fairly, in all material respects, the financial position of Petrobras Distribuidora S.A as at December 31, 2017, and its individual company financial performance and its individual company cash flows for the year then ended in accordance with Brazilian accounting policies.

KPMG Auditores Independentes, uma sociedade simples brasileira e firma- KPMG Auditores Independentes, a Brazilian entity and a member firm of the membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), uma entidade suíça. International Cooperative (“KPMG International”), a Swiss entity. 21

Opinion for consolidated financial statements In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of Petrobras Distribuidora S.A as at December 31, 2017, and its individual company and consolidated financial performance and its individual company and consolidated cash flows for the year then ended in accordance with Brazilian accounting policies and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board - IASB.

Basis for opinion

We conducted our audit in accordance with International and Brazilian Standards on Auditing. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Individual Company and Consolidated Financial Statements section of our report. We are independent from the Company and its subsidiaries in accordance with the ethical requirements that are relevant to our audit of the financial statements and are set forth on the Professional Code of Ethics for Accountants and on the professional standards issued by the Regional Association of Accountants, and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the individual company and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1 - “Operação Lava Jato” and its impacts on the Company

According to note [1.2] of the individual company and consolidated financial statements.

Key audit matter How the matter was addressed in our audit

With respect to the ongoing investigations Our audit procedures in this area included, conducted by public federal authorities known among others, evaluating the design, as "Operação Lava Jato" and its outcomes, the implementation and operating effectiveness of Company carried out an independent key internal controls adopted by the Company investigation, and based on the available and associated with the capture of processes, information at that moment recognized in risk assessment, measurement, accounting 2014 a write-off in the amount of R$ 23 recognition and disclosure of the information million. The amount consist of estimated about the ongoing investigations conducted by expenses that were improperly capitalized and the Company, testing the integrity of the additionally paid by the Company on the whistle-blowing reports and reporting results acquisition of property, plant and equipment in to the appropriate governance bodies. prior periods. That estimate was based on We evaluated the Company's main assumptions that the Company has been investigations carried out by the Internal monitoring ever since, as investigations Investigation Commissions and by independent continue and new facts come up. law firms. Based on this, we evaluated whether the Company's position about the estimates and assumptions it has adopted is adequate.

The most significant of these assumptions are We have also engaged forensic experts to the following: (i) contract terms and payments evaluate the scope, including the completeness made to the companies involved; (ii) names of and the immersion of the independent the companies and people involved, as well as investigation, particularly with respect to the direct and indirect relationships with them; and projects considered to have the greatest (iii) percentages on illegal payments in exposure to the risk of connection with the contracts. illegal acts investigated by the Lava Jato task force. Also have we engaged the forensic This assumption due to new information experts to make a critical evaluation of the revealed by the investigations currently procedures and methods used by the conducted by the Company was considered independent investigators, including significant in our audit. Such information can procedures followed for collecting and influence the assumptions that led to the analyzing critical documents and/or information, recognition of a write-off of the expenses selecting the most critical aspects to apply capitalized in an improper manner in the additional procedures, following up on financial statements. significant information reported by the media and using the relevant information obtained from the state's evidence and the plea agreements approved by authorities to adjust the estimate of the expenses capitalized in an improper manner. According to the evidence obtained by applying the procedures summarized above, we considered acceptable the estimating of illegal payments recognized in the context of the individual company and consolidated financial statements for the year ended December 31, 2017, taken as a whole.

2 - Legal proceedings and contingencies

According to note [27] of the individual company and consolidated financial statements.

Key audit matter How the matter was addressed in our audit

The Company is involved in labor, civil and tax – Our audit procedures included, among lawsuits over the normal course of its activities. others, the evaluation of the design, implementation and effectiveness of key The Company's evaluation of the likelihood of internal controls adopted by the Company loss is supported by criteria and assumptions and associated with the capture of that involve a high level of complexity and that processes, risk assessment, measurement, are influenced by theses and/or judgments accounting recognition and disclosure of resulting from interpretations of complex legal provisions for contingencies. matters that are sometimes polemical at several judicial courts. We evaluated the significant estimates and judgments made by the Company by analyzing

the criteria and assumptions used for

measuring the accrued and/or disclosed amounts that considering the assessment prepared by the Company's internal and external legal counselors.

We considered this to be a key audit matter We evaluated the information about the due to the fact that the recognition and nature, date, amount and chance of losses for measurement of provisions and contingent the main proceedings and claims involving the liabilities requires the Company to exercise Company according to the confirmation significant judgment to determine the received from internal and external legal existence of a current obligation r, the counselors and other documents produced by likelihood of an outflow of funds and the the Company. estimation of the amount of the obligation, the We analyze whether the disclosures made in likelihood of an outflow of funds resulting from the financial statements are in accordance with the legal proceedings in which the Company is applicable rules and provide information on the involved. nature, disclosure and amounts provisioned or disclosed relating to the main lawsuits in which the Company is involved. According to the evidence obtained by applying the procedures described above, we considered that the balances related to contingencies, as well as related disclosures, are acceptable in the context of the individual company and consolidated financial statements for the year ended December 31, 2017, taken as a whole.

3 - Corporate Restructuring

According to note [1.3] of the individual company and consolidated financial statements.

Key audit matter How the matter was addressed in our audit

The Company's corporate restructuring was Our audit procedures included, among others, approved on August 25, 2017 by the Board of the reading and analysis of the minutes of the Directors of parent company Petróleo Brasileiro meeting held by the top management and the S.A. - Petrobras and on August 31, 2017 by Board of Directors for the approval of all shareholders gathered at a special meeting, transactions, all debt acknowledgment leading to the following transactions to be agreements, debt prepayment agreements, carried out: (i) capital contribution in the amount and documents settling these agreements. We of R$6,313 million; and (ii) partial spin-off of also tested samples to check for the integrity receivables held by the Company arising from and accuracy of spun-off assets and we debt acknowledgment agreements with requested external sources to confirm the Sistema Eletrobras worth R$6,339 million that outstanding balances with Eletrobrás are collateralized by security interest (pledge of companies, and we obtained that confirmation. receivables originating from the Energy Moreover, we checked whether disclosures in Development Account-CDE) and the the notes to the financial statements are Company's receivables from other companies consistent with the results of the Company's belonging to the Petrobras system; (iii) pre- restructuring and corporate books. payment of debts incurred previously by the

Company and guaranteed by Petrobras in the amount of R$7,708 million.

This matter was considered to be a key audit According to the evidence obtained by applying matter because it is about complex and the procedures summarized above, we significant transactions carried out not in considered that the accounting recognition and accordance with the ordinary course of disclosure of the corporate restructuring are business, to the risk and complexity of the acceptable in the context of the individual segregation of the asset that was transferred company and consolidated financial statements to a wholly-owned subsidiary of the Company's taken as a whole for the year ended December parent company and of the separation of these 31, 2017. amounts for spin-off purposes, as well as to the materiality of the balances and the consequent change in the Company's equity position.

4 - Benefits granted to employees

According to note [21] of the individual company and consolidated financial statements.

Key audit matter How the matter was addressed in our audit

The Company sponsors pension and health Our audit procedures included, among others, care plans that provide supplementary an evaluation of the design, implementation retirement benefits and medical care to its and effectiveness of key internal controls employees. adopted by the Company and associated with the measurement and disclosure of actuarial Actuarial liabilities are determined according to liabilities. an actuarial calculation annually made by an independent actuary, according to the We performed sample techniques to assess projected unit credit method, by reference to the information used to calculate the liabilities, actuarial assumptions that comprise and we obtained information about the demographic and economic estimates, technical expertise and experience of the estimates of medical costs, historical data independent actuary in charge of the actuarial about expenses and employee contributions. calculation. Due to the high level of judgment exercised by We involved an actuarial specialist to assist us the Company to make estimations and the on evaluated the assumptions and methods extent of historical data about the employees' used by the Company to calculate the actuarial expenses and contributions used, we liabilities. Besides, we compared the figures considered this a key audit matter. used with data obtained from external sources, when available, such as discount rate, salary

growth, turnover of the pension and health care plans, mortality and disability table and medical costs.

Moreover, with the involvement of valuation specialist, we assessed the estimate of the fair value of the related assets. We also assessed the disclosures in the individual company and consolidated financial statements.

According the evidence obtained from performing the procedures summarized above, we considered acceptable the balances of actuarial liabilities and other amounts recognized in the income statement of individual company and consolidated financial statements for the year ended December 31 2017, taken as a whole.

Other matters

Statements of value added The individual company and consolidated statements of value added for the year ended December 31, 2017, prepared under the responsibility of the Company's management, and presented as supplementary information for IFRS purposes, were submitted to the same audit procedures followed together with the audit of the Company's financial statements. In order to form our opinion, we evaluated whether these statements are reconciled to the financial statements and to the accounting records, as applicable, and whether their form and content are in accordance with the criteria set on Technical Pronouncement CPC 09 - Statement of Value Added. In our opinion, these statements of value added have been adequately prepared, in all material respects, according to the criteria set on this Technical Pronouncement and are consistent with the individual company and consolidated financial statements taken as a whole. Corresponding figures The figures for the year ended December 31, 2016, presented for comparison purposes, were audited by another independent auditors, who issued an unqualified audit report dated November 21, 2017.

Other information that accompanies the individual company and consolidated financial statements and the independent auditors' report

The Company's management is responsible for the other information comprises the Report of the Administration. Our opinion on the individual company and consolidated financial statements does not cover the Report of the Administration and we do not express any form of assurance conclusion thereon. In connection with our audit of the individual company and consolidated financial statements, our responsibility is to read the Report of the Administration and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work performed, we conclude that there is material misstatement in the Report of the Administration, we are required to report on such fact. We have nothing to report on this respect.

Responsibilities of Management and Those Charged with Governance for the Individual Company and Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these individual company and consolidated financial statements in accordance with accounting policies adopted in Brazil and with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the individual company and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries, or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s and its subsidiaries' financial reporting process.

Auditors’ Responsibilities for the Audit of the Individual Company and Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the individual company and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that the examination performed in accordance with Brazilian and international standards on auditing will always detect possible existing material misstatements. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of the examination performed in accordance with Brazilian and international standards on auditing, we exercised professional judgment and maintained professional skepticism throughout the audit. We also:

– Identify and assess the risks of material misstatement of the individual company and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting material misstatement resulting from fraud is greater than the one deriving from error, as fraud may involve the act of circumventing internal control, collusion, forgery, omission or deliberate false representations. – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and its subsidiaries' internal controls. – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. – Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s and its subsidiaries' ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors’ report to the related disclosures in the individual company and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are substantiated by the audit evidence obtained up to the date of our report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern.

– Evaluate the overall presentation, structure and contents of the financial statements, including the disclosures, and whether the individual company and consolidated financial statements represent the corresponding transactions and events in a compatible manner with the objective of a true and fair presentation. – Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the individual company and consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Rio de Janeiro, March 13, 2018

KPMG Auditores Independentes CRC SP-014428/O-6 F-RJ Original report in Portuguese signed by Carla Bellangero Accountant CRC 1SP196751/O-4

See the accompanying notes to the financial statements.

Petrobras Distribuidora S.A. Statements of financial position Years ended December 31, 2017 and 2016 (In millions of reais)

See the accompanying notes to the financial statements.

Petrobras Distribuidora S.A. Statements of income Years ended December 31, 2017 and 2016 (In millions of reais, except for net income per share)

See the accompanying notes to the financial statements.

Petrobras Distribuidora S.A. Statements of comprehensive income Years ended December 31, 2017 and 2016 (In millions of reais)

See the accompanying notes to the financial statements.

Petrobras Distribuidora S.A. Statements of changes in equity Years ended December 31, 2017 and 2016 (In millions of reais)

See the accompanying notes to the financial statements.

Petrobras Distribuidora S.A. Statements of cash flows Years ended December 31, 2017 and 2016 (In millions of reais)

See the accompanying notes to the financial statements.

Petrobras Distribuidora S.A. Statements of added value Years ended December 31, 2017 and 2016 (In millions of reais)

See the accompanying notes to the financial statements.

Petrobras Distribuidora S.A. Statements of added value Years ended December 31, 2017 and 2016 (In millions of reais)

See the accompanying notes to the financial statements.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

1 General considerations

1.1 Reporting Entity

Petrobras Distribuidora S.A. (“Company” or “BR”) is a mixed-capital company domiciled in Brazil. It was incorporated on November 12, 1971 and is a subsidiary of Petróleo Brasileiro S.A. - “Petrobras”. Its core activities are the distribution, transportation, trading, processing and manufacturing of oil-based products and other fuels, the production, transportation, distribution and trading of all energy forms, chemical products and asphalt, the provision of related services and the importing and exporting of items related to said products and activities. The company's head office is located in Rio de Janeiro, Rio de Janeiro state.

On December 14, 2017 the CVM approved the listing of the Company’s secondary public share distribution offering in the special listing segment called Novo Mercado, at B3 S.A. (B3). The listing was settled financially on December 19, 2017.

1.2 Operation Car Wash and its impacts on the Company

In 2009, Brazil's Federal Police commenced the investigation codenamed “Operation Car Wash” (Operação Lava Jato), looking into money laundering and racketeering by criminal organizations in several Brazilian states. Operation Car Wash is a wide-reaching investigation into a host of criminal activities on multiple fronts, embracing crimes committed by agents acting throughout Brazil in a range of economic sectors.

In 2014 the Public Prosecutor’s Office focused part of the investigations on irregularities involving Petrobras contractors and suppliers, discovering a massive web of corruption used to make illegal payments, involving a large number of participants, including former Petrobras and Company employees. Based on the information provided to Petrobras, this scheme involved a group of companies which set up a cartel between 2004 and April 2012 to secure contracts from Petrobras Group, increasing the value of these contracts and using the additional funds to finance kickbacks to political parties, politicians or other political agents, the employees of contractors and suppliers, former Petrobras and Company employees and other people involved in the web of corruption. This scheme was deemed to be for making illegal payments and said companies considered to be “cartel members”.

In addition to the aforementioned corruption scheme, the investigations uncovered specific cases where other companies had also overcharged and supposedly used these funds to finance payments to certain former Petrobras and Company employees. These companies are not members of the cartel and acted of their own volition. These specific cases were referred to as payments not related to the cartel.

Certain former Petrobras and Company executives were arrested and/or charged for crimes including money laundering and racketeering in previous years. Other former Petrobras Group executives and executives of Petrobras’ goods and services suppliers were or may be charged as the investigation unfolds.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

All of the amounts paid by Petrobras and the Company under the contracts with the suppliers and contractors involved in the aforementioned scheme were included in the cost history of the respective property, plant and equipment assets. However, as required by IAS 16 (Property, plant and equipment), Management understood that the portion of payments these companies received and used to make the illegal payments should not have been capitalized, as it consisted of additional expenditure incurred as a result of the kickbacks scheme. The Company accordingly wrote off capitalized expenditure of R$ 23 in the third quarter of 2014, related to additional amounts the Company paid to acquire property, plant and equipment assets in previous years.

The Company and its controlling shareholder (Petrobras) will keep abreast of developments in the investigations and further information related to the kickbacks scheme. Should further reliable information emerge indicating that the estimates described above need to be adjusted, the Company will assess the need to make the respective accounting entries.

1.2.1 The Company’s response to the issues arising from the ongoing investigations

By way of its controlling shareholder, the Company has been following the investigations and fully cooperating with the investigations of the Federal Police, Public Prosecutor’s Office, the Judiciary Branch, the Federal Audit Court (TCU) and the Ministry of Transparency, Oversight and Control, so that all the crimes and irregularities can be examined, promptly meeting requests for documents and information made by the investigators.

The Company is unwavering in its commitment to continue cooperating to clarify the facts and report them to the general public on a regular basis.

The Company and its controlling shareholder do not tolerate corruption in any form or any illegal acts involving our employees. Since 2015 we take therefore been implementing a range of measures to combat fraud and corruption, as mentioned below.

The Company continues to implement measures to bolster its corporate governance and compliance systems in order to enhance its internal control framework.

Among other measures, in 2016 we included the Company into Petrobras’ independent hotline; we provided training to our employees and executives on ethics, information security, competitive compliance and corruption prevention; we introduced the “Compliance Officers” initiative; we implemented Due Diligence processes for employee integrity and to assess the need to impose sanctions on our suppliers; we performed an integrity Background Check before making the decision to appoint people to key positions in the Company.

The Company established Internal Investigation Commissions (CIA) to look into signs or incidents that may be characterized as breaches of corporate standards, procedures or regulations, the results of which are reported to the respective Brazilian authorities.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

We have also taken the measures necessary to reverse the damage caused by the corruption scheme, including the damage to our corporate repute.

The Company and its controlling shareholder may be entitled to receive part of any funds agreed to be returned by individuals entering into plea bargaining or cooperation agreements under Operation Car Wash. However, the Company cannot reliably estimate any recoverable amount at this time. These amounts will be credited to profit or loss for the year upon receipt or when the realization thereof is basically a foregone conclusion.

By the end of the financial year ended December 31, 2017 the Company had accordingly recognized the reimbursement of Operation Car Wash expenses in the accumulated amount of R$ 5.

1.2.2 Approach used to adjust assets affected by the additional expenditure

It is not possible to specifically identify the amounts of each payment made under the contracts with the contractors and suppliers subject to the scheme or the periods in which such overpayments were made. The Company consequently created a methodology to estimate the total amount of additional expenditure incurred as a result of the corruption scheme to quantify the write-offs made, convey the extent to which its assets have been overstated as a result of additional amounts charged by suppliers and contractors and used to make illegal payments.

As it is impractical to quantify the additional expenses incurred by the Company and the periods they were made in, the methodology involves the following five steps:

1) Identifying the contract’s counterparty: all companies cited as members of the cartel were listed, and this information was used to survey the companies involved and the entities related thereto.

2) Identifying the period: based on statements made, it was concluded that corruption scheme was in force between 2004 and April 2012.

3) Identifying the contracts: all contracts signed with the counterparties mentioned in step (1) during the period of step (2) were identified, including any amendments to contracts originally signed between 2004 and April 2012. The property, plant and equipment underlying these contracts were subsequently identified.

4) Identifying payments: the total value of the contracts referred to in step (3) was calculated.

5) Applying a fixed percentage to the total value of the contracts defined in step (4): the percentage of 3% cited in the testimonies was used to estimate the additional expenditure imposed on the total value of the identified contracts.

The Company also identified amounts recorded in its accounting records for specific contracts and projects with companies that were not members of the cartel to account for the additional expenditure imposed by these companies to finance the illegal overpaid payments made, unrelated to the corruption scheme or the cartel.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

In the specific case of extra amounts charged by companies not comprising the cartel, the Company considered the write-off of additional unduly capitalized expenditure to include the percentage of the contracts signed with companies mentioned in the testimonies given in plea bargains, as they were also used by these companies to make illegal payments.

Note 2.3 to the financial statements as of December 31, 2014 presents the complete approach used to adjust the assets affected by the additional expenditure.

The Company used all available information in the preparation of the financial statements for the period ended December 31, 2017, there being no further information in its possession that might have affected the calculation methodology used and, consequently, the recording of supplementary write-offs.

The Company and its controlling shareholder (Petrobras) monitored the Operation Car Wash investigations conducted by the Brazilian authorities, and Petrobras is also conducting an internal investigation using independent law firms. No new information has been identified which would change the write-off of additional unduly capitalized expenditure recognized in third quarter of 2014 or that materially impacts the Company's methodology. The Company will continue to monitor the investigations to obtain any additional information and assess its impact on the adjustments made.

1.3 Material events in the year

The Extraordinary General Meeting held August 31, 2017 approved the Company's split-off, consisting of the receivables held by the company under the debt acknowledgement agreements (CCDs) with Eletrobras group which have real security (pledges on credits deriving from the Energy Development Account-CDE) and receivables held by the company against other Petrobras group companies. The split-off portion was merged into Downstream Participações Ltda. (“Downstream”), a Petrobras wholly- owned subsidiary, in the amount of R$ 6,339 million. (Note 7.3).

As this entails a restructuring between companies whose entire capital is owned by Petrobras, the operations were conducted at carrying amounts based on the appraisal and do not impact the profit and loss of the companies involved. The operation did not have a material impact on the Company’s equity either.

This meeting resolved to increase Petrobras’ capital in the company by R$ 6,313 million. The entire funds generated by the capital contribution were used to prepay debts taken out previously by the Company and secured by Petrobras in the amount of R$ 7,708 million. (Note 22.1)

As this entails a restructuring between companies whose entire capital is owned by Petrobras, the operations were conducted at carrying amounts based on the appraisal, and do not impact the profit and loss of the companies involved. The operation did not have a material impact on the Company’s equity either.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

2 Basis of presentation of the financial statements

The consolidated financial statements have been prepared in accordance with Brazilian accounting practices, including the pronouncements issued by the Accounting Pronouncements Committee (CPCs) and International Financial Reporting Standards issued by the International Accounting Standards Board (IASB).

The individual financial statements have been prepared in accordance with Brazilian generally accepted accounting principles.

All material information related to the financial statements and that alone, is being presented, which corresponds to that used by it in its management.

The Company's Board of Directors approved the disclosure of these financial statements at a meeting held on March 13, 2018.

As a result of the management´s decision to grouping the shares, which took place on November 14, 2017, the Board of Directors of the Company, at a meeting held on November 21, 2017, authorized the disclosure and consequent re-issuance of the financial statements for 2016, superseding those previously approved and issued on March 20, 2017 and October 16, 2017.

2.1 Statement of added value

Brazilian corporate legislation requires listed companies prepare Statements of Added Value - DVAs and disclose them as an integral part of their financial reporting package. These statements have been prepared in accordance with CPC 09 - Statement of Added Value, as approved by CVM Resolution 557/08. The presentation of this statement is not mandatory under IFRS, and said statement is being presented as additional information for the purpose of IFRS.

This statement aims to present information about the wealth created by the Company and the way in which this wealth was distributed.

2.2 Basis of measurement

The financial statements have been prepared on the historical cost basis, except for financial statements at fair value through profit or loss and the defined-benefit actuarial liability, recognized as the fair value of the plan’s assets, deducted from the present value of the defined-benefit obligation.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

3 Use of judgements and estimates

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies.

The assumptions used are periodically reviewed and are based on the historical figures and on other factors considered relevant, including expectations of future events that are believed to be reasonable under the circumstances. The actual results may differ from the estimated values, and material impacts may be seen in the Company’s results and financial situation if there are significant changes to the circumstances on which the estimates relied.

The effects resulting from the reviews conducted of accounting estimates are recognized in the period the estimates are reviewed in, and also in subsequent periods, if the review affects both the present period and future periods.

Estimates that require substantial judgment or complexity in their application are presented in the following notes:

 Estimated allowances for doubtful accounts - note 4.3.3.2  Use life of property, plant and equipment and intangible assets - note 4.10  Impairment of property, plant and equipment and intangible assets - note 4.11  Deferred income and social contribution taxes - note 4.12  Pension benefits and other retirement benefits - note 4.14  Judicial and administrative proceedings and contingencies - note 4.15

3.1 Write-off of additional expenses incorrectly capitalized

As stated in note 1.2, in the third quarter of 2014 the Company wrote off R$ 23 of capitalized costs, representing the amounts the Company paid for the acquisition of property, plant and equipment in prior years.

To account for these adjustments, the Company created the methodology described in note 1.2. The Company acknowledges the degree of uncertainty involved in the estimation methodology and will keep abreast of developments in the investigations in progress and further information related to the kickbacks scheme. Should further reliable information emerge indicating that the estimates the Company used need to be adjusted, the Company will assess whether the adjustment is material and, if so, recognize it.

However, as mentioned earlier, the Company believes it has used the most appropriate methodology to determine the value of payments incorrectly capitalized, and there is no evidence that would indicate the possibility of material changes in the amounts written-off.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

4 Significant accounting policies

The Company has applied the accounting policies consistently in the individual and consolidated financial statements presented.

Certain figures relating to the foreign currency hedge results were reclassified in the previous year’s income statement from finance income to net exchange and monetary variance, to facilitate a comparison with the current year. The amounts reclassified were R$ 6 in consolidated and R$ 11 in the parent company statement, which did not affect the net finance income.

Assets and liabilities with a term of receipt or maturity of less than 12 months are presented as current assets and liabilities, and other assets and liabilities as non-current.

4.1 Functional currency

The functional and presentation currency of the Company and its investees is the Brazilian Real, which is the currency of its core market.

4.2 Basis of consolidation and corporate investments

The consolidated financial statements, which include the information of the Company, its subsidiaries and their joint operation, have been prepared using consistent accounting practices and, when necessary, changes are made to these investees’ statements to ensure compliance with the accounting policies adopted by the Company.

All intercompany transactions, balances, revenue and expenses are completely eliminated in the consolidated financial statements.

The following equity interests are included in the consolidation process:

(*) Brasil Carbonos is consolidated at the percentage of 49%.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Subsidiaries

Subsidiaries are consolidated from the date on which control is obtained until the date when this control ceases to exist.

The Company controls the investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the entity.

The equity income method is used to recognize the financial information of subsidiaries in the parent company's individual financial statements.

Joint arrangements

A joint arrangement is when two or more parties have contractually established joint control, being either a joint operation or a joint venture, depending on the rights and obligations of the parties

In a joint operation, the participating parties have rights and obligations related to the underlying assets and liabilities, and in a joint venture, the parties have rights over the business’ net assets.

The Company recognizes its interest in the revenue, expenses, assets and liabilities relating to the joint operation in its consolidated statements. In the individual financial statements, the joint operation, formed through the entity with its own legal status, is recognized based on the equity method.

Investments in joint ventures are recognized using the equity method in the individual and consolidated financial statements.

Associate

An Associate is an entity over which the Company exerts significant influence, defined as the power to participate in decisions regarding the financial and operating policies of an investee, but without individual or joint control of these policies.

Investments in associates are recognized using the equity method in the individual and consolidated financial statements.

4.3 Non-derivative financial assets

The Company initially recognizes loans and receivables on the date when they are originated. All other financial assets are initially recognized on the trade date when the entity becomes a party to the contractual provisions of the instrument.

The Company derecognizes a financial asset when the contractual rights to the asset's cash flows expire or when the Company transfers the rights to receive the contractual cash flows of a financial asset in a transaction where essentially all the risks and rewards of ownership of financial assets are transferred to the buyer.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The Company classifies its financial assets as financial instruments measured at fair value through profit or loss, held-to-maturity investments and loans and receivables.

4.3.1 Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are stated at fair value, and any gains or losses resulting from their remeasurement are recognized in profit or loss.

4.3.2 Held-to-maturity financial assets

Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.

4.3.3 Loans and receivables

They are recognized initially at fair value plus any attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables held by the Company are represented by cash and cash equivalents, accounts receivable and judicial deposits.

4.3.3.1 Cash and cash equivalents

These consist of cash on hand, available bank deposits and short term financial investments with high liquidity, subject to an insignificant risk of impairment, which are readily convertible into cash.

4.3.3.2 Accounts receivable

Trade receivables are amounts due from customers for property sold or services performed in the ordinary course of the Company's business.

The Company recognizes the adjustment to present value, mainly for sales with a DSO of between 180 and 360 days, with interest embedded in customer prices, deducted from revenue (note 23).

When the Company is a lessor under a finance lease, a trade receivable is recorded at an amount equal to the net investment in the lease. Financial income is appropriated during the term of the agreement, reflecting the constant periodic rate of return on the net investment under the lease.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Estimated allowances for doubtful accounts - Impairment of financial assets

The Company recognizes an estimated allowance for doubtful accounts when there is objective evidence of impairment as a result of one or more events that occurred after the asset’s initial recognition that can be reliably estimated. Evidence of impairment includes: cases of significant financial difficulties and a significant likelihood of the customer filing for bankruptcy or judicial reorganization. The losses are recognized in profit or loss as a selling expense.

When an event indicates an impairment reduction, this reduction is reversed in profit or loss for the period during which the event occurs. The reversal charged to selling expenses.

The Company expects to receive past-due amounts without any loss, based on the collection policy actions carried out and also the guarantees presented by the customers.

Estimated losses in electric sector credits

All amounts relating to product supplies and acknowledgments agreements for debt without security are provisioned for (notes 7.2 and 7.3).

4.3.3.3 Judicial deposits

Judicial deposits are presented and restated according to the nature of the underlying proceedings. Deposits relating to federal taxes are restated according to the referential rate of the Special System for Settlement and Custody (SELIC). Labor claim appeal deposits were restated at the Referential Rate (TR) plus interest of 3% per year through November 10, 2017. They are then restated by the TR plus interest of 6% per year from this date onwards. Other labor deposits and other deposits are restated by TR plus interest of 6% per year.

4.4 Non-derivative financial liabilities

Financial liabilities are recognized on the trade date when the Company becomes a party to the instrument's contractual provisions and are written off only when the obligations cease to exist.

Financial liabilities are initially recognized at their fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost.

4.4.1 Trade Payables

Trade payables are obligations payable to suppliers for goods and services acquired in the normal course of business.

They are initially recorded at the fair value of the products or services acquired and subsequently measured at amortized cost using the effective interest rate method.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

4.4.2 Borrowing

They are recognized at fair value less transaction costs incurred and, subsequent to initial recognition, are stated at amortized cost using the effective interest rate method.

Borrowing costs directly attributable to the acquisition or construction of qualifying assets are capitalized as part of the costs of these assets. Borrowing costs are added to the cost of assets until such assets are ready for use. A qualifying asset is an asset that necessarily requires a substantial period of time to become ready for use.

The borrowing costs of eligible capitalization loans represent the costs effectively incurred, less any financial revenue resulting from the temporary investment of funds raised and not yet used in the acquisition or construction of qualifying assets.

All other loan costs are recorded in profit or loss in the year they are incurred in.

The interest paid are classified as financing activities in the statement of cash flows.

4.4.3 Finance leases

The obligations under lease agreements with the substantial transfer of rewards, risks and control of assets are recognized in liabilities as finance leases. The liability is initially recognized at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The discount rate used is the interest rate embedded in the contracts.

Financial charges are appropriated over the term of the lease, producing a constant periodic rate of interest on the liability’s remaining balance.

The Company’s main finance lease contracts entail the leasing of fuel distribution bases signed with the subsidiary Fundo de Investimento Imobiliário (FCM).

4.5 Derivative financial instruments and hedge operations

The Company maintains currency and commodity hedge derivative instruments. These financial instruments are valued at fair value through profit and loss.

No contracts with features that indicate the existence of embedded derivatives were found.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

4.6 Inventories

Inventory is stated as follows:

 oil products, biofuels and raw materials are stated at the lower of the average acquisition cost and the net realizable value;

 the materials and supplies consist of production inputs and operating and consumption materials that will be used in the Company's activities and are stated at the average purchase cost, which does not exceed the replacement value.

The balance of biofuels includes ethanol and biodiesel inventory balances. Net realizable value is the estimated selling price in the ordinary course of business, less the costs necessary to make the sale.

The cost of inventory includes all acquisition and transformation costs, as well as other costs required to bring them to the current location and conditions.

4.7 Early bonuses awarded to clients

Early bonuses awarded to clients are subject to terms and targets to be performed, especially the consumption of volumes established in supply contracts. Bonuses are appropriated to profit or loss as a gross revenue reduction as the terms of the contracts are performed (note 23).

4.8 Property, plant and equipment

Stated at the historic cost of acquisition or construction, less accumulated depreciation and impairment, when applicable.

Cost includes expenditure that is directly attributable to the acquisition of the asset The cost of self- constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, and loan costs on qualifying assets. Loan costs for construction in progress are capitalized until these assets are ready for use.

Subsequent expenditure is capitalized only when it can be reliably measured and when it is probable that the future economic benefits associated with the expenditure will flow to the Company. Other repair and maintenance work expenses are directly recognized in profit or loss when incurred.

Any gain or loss on disposal of an item of property, plant and equipment is recognized in other operating revenue/expense.

The Company's property, plant and equipment includes equipment, substantially tanks, pumps and aircraft refueling units, as well as a lubricant plant and fuel distribution sites.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Depreciation is recorded using the straight-line method, based on the rates determined using the estimated useful lives of the assets, reported in note 4.10. Land is not depreciated.

Leased assets are initially measured at an amount equal to the lower of the fair value and the present value of the minimum lease payments. Subsequent to initial recognition, assets are depreciated over their useful lives, considering the reasonable certainty of obtaining ownership of these assets at the end of the lease.

4.9 Intangible assets

Intangible assets are represented by expenditure on rights and concessions, goodwill and software.

Goodwill, resulting from the acquisition of fuel distribution subsidiaries, is measured at cost, less accumulated impairment losses, if applicable.

Intangible assets with defined useful lives are recorded at cost, less accumulated amortization and any impairment losses, when applicable.

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognized in profit or loss as incurred.

Amortization is recognized in profit or loss by the straight-line method and takes into account the assets' estimated useful lives. The useful life of an intangible service concession asset is the period from which the Company can charge public consumers for use of the infrastructure until the end of the concession period.

The intangible asset consisting of the natural gas concession in Espírito Santo state is amortized over the term of the agreement, maturing in 2043 (note 15.2).

Development costs directly attributable to software are recorded as intangible assets if all of the recognition criteria are met, which include, but are not limited to: expenditure measured reliably, intent, technical and financial capacity for asset completion and the generation of probable future economic benefits for the Company.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

4.10 Useful lives of property, plant and equipment and intangible assets

The Company recognizes the depreciation and amortization of its assets using rates determined based on their estimated useful lives. Depreciation and amortization methods are reviewed annually and any adjustments are recognized prospectively, as changes in accounting estimates.

4.11 Asset impairment

The Company assesses its property, plant and equipment and intangible assets with a defined useful life when there are signs of impairment. The recoverable value of an asset is the higher of: (a) its fair value less costs to sell and (b) its value in use. These assessments are carried out at the lowest level of assets for which identifiable cash flows exist. Based on Management's judgment, no signs of impairment was identified for these assets in 2017.

Goodwill is tested for impairment annually, regardless of whether there are any signs. To determine whether the goodwill has incurred impairment, the value in use has to be estimated of the cash generating units to which the goodwill has been allocated. In this case, the Company is considered to be a cash generating unit according to management’s evaluation, based on its business model.

The value in use is estimated based on the present value of future cash flows, using assumptions related to the Company's strategic plan, projected for the years 2018 to 2030, with the latter being projected forward, considering a real discount rate of 6.8%.

The main assumptions are:

 Price: price curve derived from the Petrobras Business and Management Plan, considering transactions between independent parties;  Volume: derivative demand curves from the Petrobras Business and Management Plan; and  Operating costs, which can be determined at historic rates presented or projected costs in the Company's budget.

The cash flows were adjusted to meet the assumptions of Technical Pronouncement CPC 01 - Asset Impairment, i.e., financing activities, finance income/costs unrelated to the Company's normal activity, capital contributions, dividend payments and loan payments/receipts were disregarded. Cash flows resulting from the ongoing use of related assets is adjusted to reflect the specific risks and use the pre- tax discount rate. This rate is derived from the post-tax rate structured as part of the Weighted Average Cost of Capital (WACC).

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

No impairment losses were identified in the goodwill test.

4.12 Income and social contribution taxes

Management periodically evaluates the positions taken in income tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

The current income and social contribution taxes are calculated based on taxable earnings, applying current rates at the end of the reporting period.

Deferred income and social contribution taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax liabilities are generally recognized on all of the taxable temporary differences, and deferred tax assets are recognized only in proportion to the probability that the future taxable profit will be available, and against which temporary differences can be used.

The balance of deferred tax assets is reviewed at the end of each year, and when it is no longer probable that future taxable income will be available to enable the recovery of all or part of the asset, the asset balance is adjusted by the amount expected to be recovered.

Income and social contribution taxes are recognized in profit or loss, except in proportion as they relate to items directly recognized in equity (comprehensive income). In this case, the taxes are also recognized in equity (comprehensive income).

The Company presents deferred income tax and social contribution on a net basis, when the deferred tax assets and liabilities are related to the tax expenses of the same tax authority and the same legal entity.

4.13 Customer advances

Customer advances correspond to contractual obligations resulting from advance payments received from customers for the future delivery of products and for establishing marketing funds.

Customer advances are recognized as revenue at the time when the products are actually delivered.

The marketing fund involves establishing a fund formed by the contribution of the reseller points, where each reseller benefits from all advertising and promotion actions carried out by the Company.

The value of the fund is established through payments for the marketing actions, which are not recorded in profit or loss.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

4.13.1 Petrobras Premmia Program

Petrobras Premmia - The Company’s loyalty program is one of the main programs funded by the resources available in the marketing fund.

These resources are used to purchase different types of promotional items (airmiles, events and products, among others) that are made available to plan participants, subject to availability.

Under the program, the Company may also enter into partnerships with other companies, by which participants may obtain discounts to purchase goods and/or services offered by them.

Under no circumstances is Company liable to participants for the performance of the obligations undertaken by such companies in the partnerships mentioned in the previous item.

The Petrobras Premmia Program partnerships may be terminated or suspended by the Company, at its sole discretion, where participants are not entitled to prior notice.

Program partners are responsible for the products and/or services they provide for redemption.

4.14 Pension and other post-employment benefits

Actuarial commitments for pension and retirement benefit plans and medical assistance plans are provisioned for based on the actuarial calculations prepared annually by an independent actuary, according to the projected unit credit method, net of the plan’s guarantor assets, when applicable.

Actuarial assumptions include: demographic and economic estimates, estimates of medical costs, as well as historical data on employee expenses and contributions. Principle uses include:

- discount rate - comprises the projected inflation curve based on the market plus real interest calculated at an equivalent rate that combines the maturity profile of pension and health obligations and the future yield curve of the Brazilian government's longer term securities; and

- variation rate for medical and hospital costs - an assumption represented by the projected growth rates of medical and hospital costs, based on the Company's disbursement history for each individual (per capita) over the last five years, which equals the overall inflation rate of the economy over 30 years.

The projected unit of credit method considers each term of employment to be an event that generates an additional unit of benefit, which are accrued to calculate the final obligation.

Changes in the net defined benefit obligation are recognized when they are incurred, as follows: i) service costs and net interest in profit or loss for the year; and ii) reassessments in other comprehensive income.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The cost of the service is comprised of: i) the current service cost, which is the increase in the present value of the defined benefit obligation resulting from the service provided by the employee in the current period; (ii) the past service cost, which is the change in the present value of the defined benefit obligation arising from services provided by employees in previous periods, resulting from the change (introduction, change or cancellation of a defined benefit plan) or reduction (a significant reduction by the entity in the number of employees covered by a plan); and iii) any settlement gain or loss .

The net interest on the net amount of the defined benefit liability is the change in the net amount of the defined benefit liability during the period, resulting from the passage of time.

Reassessments of the net amount of defined benefit liability recognized in equity, in other comprehensive income, comprised of: i) actuarial gains and losses; and ii) return on the plan’s assets, less the interest revenue earned by these assets.

The Company contributes to the defined contribution plans, the percentages of which are based on the payroll, and these contributions are recorded in profit or loss when incurred.

4.15 Judicial and administrative proceedings and contingencies

The Company is party to various judicial and administrative proceedings involving civil, tax, labor and environmental issues arising from the normal course of operations. The estimates used for determining the amounts of the obligations and the probability of an outflow of resources are made by the Company, based on reports from its legal advisers and Management's judgement.

A provision is recognized when:

(i) the Company has a legal or constructive obligation as a result of past events; (ii) it is not probable that an outflow of resources will be required to settle the obligation; and (iii) the amount can be estimated with reasonable certainty.

Contingent liabilities (unlikely losses) are not recognized, but are disclosed in notes when the likelihood of an outflow of resources is possible.

4.16 Share capital and shareholder compensation

The capital is comprised of common shares.

When proposed by the Company, shareholders are compensated in the form of dividends and/or interest on shareholders’ equity, subject to the limits set out in the Company's Bylaws and existing legislation.

Interest on shareholders' equity is recognized in liabilities and treated in the same way as dividends.

The tax incentive for interest on shareholders' equity is recognized in profit or loss for the year.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

4.17 Operating leases

Leases in which a significant portion of the risks and rewards of ownership remain with the lessor are classified as operating leases, and the payments are recognized as expenses in profit or loss using the straight-line method over the term of the contract. Contingent payments arising from operating leases are recognized as an expense in the period in which they are incurred.

In cases in which the Company is the lessor, the rental income is recognized in profit or loss, in other operating income, using the straight-line method over the term of the lease.

4.18 Revenue recognition

Revenue is recognized when the amount of revenue can be measured reliably; significant risks and rewards of ownership have been transferred to the buyer; and it is probable that future economic benefits will flow to the Company.

Sales revenue is measured at the fair value of the return received or receivable from the sale of products and services in the ordinary course of the Company’s business. It is presented net of taxes, returns, discounts, interest embedded in the prices of products, appropriations of bonuses granted to customers and performance bonuses.

The Company markets fuels such as gasoline, diesel, aviation fuel, ethanol, natural gas, fuel oil and lubricants, among others. These products are mainly purchased from the parent company Petrobras, and are resold to service stations, industries, airlines, governments, transportation companies, thermal power plants and retail dealers, among other consumers.

4.19 Financial, monetary and exchange revenue and expenses

These are recognized on the accrual basis and consist of interest on loans to customers, short-term investments, monetary restatements of loans, monetary restatements of operations with Petrobras, exchange variance and other financial operations. Finance costs exclude loan costs that are capitalized as part of the asset’s cost.

4.20 Segment reporting

Operating segments are reported consistently with the internal reports provided to the main operating decision takers. The main taker of operating decisions, responsible for allocating funds and evaluating the performance of operating segments, is the Executive Board.

The accounting information by operating segment (business area) of the Company is prepared based on the items directly attributable to the segment, as well as those that can be allocated to it on a reasonable basis.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Transactions with third parties are included in the calculation of the segment results.

There are no transfers between the business areas.

The Company’s business information is segmented into the following areas:

Service Stations

This chain markets the Company’s oil products, lubricants, compressed natural gas, biofuels and convenience store products for the purpose of achieving established market and profitability goals, as well as creating favorable conditions for sustainable growth.

Corporate Consumers

This area markets fuels and lubricants and provides associated services to all operating segments of the Company’s major consumers market.

Aviation products

This area markets aviation products and services at the country's airport facilities for airlines operating transportation services abroad and the domestic market.

Items that cannot be attributed to other areas are allocated to the Corporate Bodies group, especially those related to corporate financial management, overheads related to Central Management and other expenses, including actuarial expenses related to pension and health plans for retirees and beneficiaries.

5 New standards and interpretations

The main standards issued by IASB that have not yet become effective and whose adoption had not been anticipated by the Company as of December 31, 2017 are as follows:

IFRS 9 - Financial Instruments

The International Financial Reporting Standard 9 - Financial Instruments (IFRS 9), issued by IASB as a replacement for IAS 39 - Financial Instruments: Recognition and Measurement is effective from January 01, 2018.

Amongst other requirements, IFRS 9 introduces new requirements for: the classification and measurement of financial assets, the measurement and recognition of financial asset impairment, changes to the terms of financial assets and liabilities, hedge accounting and reporting.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

IFRS 9 will generally be applied retrospectively, pursuant to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. However, there are exceptions to this initial form of application in the transitory provisions of IFRS 9, meaning the re-presentation of prior periods is not mandatory upon initial adoption of the proposal. The Company does not intend to make re-presentations for prior periods as a result of the initial application of IFRS 9.

Classification and measurement

IFRS 9 introduces a new model for classifying financial assets that reflects the contractual cash flow features and the business model used to manage the asset.

There were no changes to the classification and measurement of its financial assets upon the initial adoption of IFRS 9.

Impairment

The model established by IFRS 9 for recognizing impairment is based on expected credit loss, replacing the ‘incurred loss’ model in IAS 39. The Company applied the new methodology as of December 31, 2017 and identified additional impairment losses in financial assets as of January 01, 2018, especially accounts receivable under client contracts of R$ 269. The impact on the shareholders' equity is R$178, net of taxes effects.

There were no other financial impacts.

IFRS 15 — Revenue from Contracts with Customers

This standard establishes a comprehensive framework for recognizing, measuring and reporting revenue from customers. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods or services sold, instead of when the risks and rewards are transferred, as is the case in the current model. In addition, the new standard provides further clarification on revenue recognition in complex cases. It is effective from January 01, 2018.

Based on studies conducted, the Company has concluded there no impacts on its financial statements.

IFRS 16 - Leases

The IASB issued IFRS 16 “Leases” on January 13, 2016, effective for annual periods beginning on or after 1 January 2019 and replaces IAS 17 "Leases” and related interpretations.

IFRS 16 sets out principles for the identification, recognition, measurement, presentation and disclosure of leases, by both lessees and lessors.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Among the changes for lessees, IFRS 16 will eliminate the classification between the finance and operating leases required by IAS 17. Thus, there will be a single model under which all leases will result in the recognition of assets related to the rights to use of the leased assets. If the payments established under commercial leases are due over time, financial liabilities should also be recognized.

IFRS 16 will maintain the classification for lessors between finance and operating leases required by IAS 17. As such, IFRS 16 should not substantially change the way leases will be accounted for by lessors compared to IAS 17.

The Company has a large number of lease agreements as lessee for several assets, such as equipment, real estate and land (mainly where fueling stations are located).

The Company is currently in the process of estimating the impact of this new standard on such contracts. The estimated lease term is included in this analysis, considering the non-cancellable period and the additional periods covered if the option to extend the lease is exercised, in those cases in which there is reasonable certainty regarding the option to extend the term, which will mostly depend on the expected use of the Company's assets installed on the leased assets.

In addition to the lease term, assumptions will be used to calculate the discount rate, which will mainly depend on the incremental financing rate for the estimated periods.

Due to the complexity of the estimates and the large number of contracts, the Company has not yet completed the implementation process, meaning that at the end of the fiscal year on December 31, 2017, it was not possible reasonably to estimate the impact of this standard’s application. However, considering the volume of existing contracts, the Company estimates that the impacts of the implementation of IFRS 16 on its financial statements will be significant, including the recognition of the right to use the assets and the corresponding obligations under the contracts that are classified as operating leases according to the current standard. In addition, amortizations of the right to use the assets and the recognition of interest on the lease obligation will replace a significant portion of the amount recognized as expenses in the statement of income for operating leases.

6 Cash and cash equivalents

The financial investments corresponding to the country’s investment funds have their resources invested in Brazilian federal public securities and are immediately redeemable. If redemption occurs within the first 30 days of the investment, the IOF tax shall apply at the regressive rate.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

7 Net accounts receivable

(a) This includes the balance of tax credit rights with the State Governments of Rio de Janeiro and São Paulo (R$ 24 in 2017 and 2016) - note 30.

The additions and reversals of estimated losses for doubtful accounts in the year in the net amount of R$ 40 consolidated and R$ 43 at the parent company (R$ 676 consolidated and R$ 641 parent company in 2016) were recognized in selling expenses (note 25).

The Company has R$ 5,714 in trade accounts receivable undergoing judicial recovery (R$ 4,391 in 2016), with R$ 1,882 in current assets (R$ 1,732 in 2016) and R$ 3,832 (R$ 2,659 in 2016) in non- current assets.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

7.1 Breakdown of the accounts receivable balances - past due and not yet due

R$ 108 (R$ 159 in 2016) of the balance of R$ 110 not yet due (R$ 281 in 2016) derives from debt acknowledgement agreements (CCD) of the electric sector without security, entered into in 2013 and 2014.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

7.2 Breakdown - Electric sector (islanded system)

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

7.3 Changes in trade accounts receivable - Electric sector (Islanded system)

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The Company provides fuel oil and diesel oil to thermal power plants (Eletrobras subsidiaries), state concession operators and Independent Power Producers (PIEs), which make up the isolated power system in North Brazil. This system provides public electricity distribution services to areas that are not normally electrically connected to the Brazilian National Interconnected Grid (SIN), for technical or economic reasons.

A significant portion of the resources used to financially settle such assets comes from the sector fund called the Fuel Consumption Account (CCC), the main purpose of which includes the partial reimbursement of the acquisition costs for fuels used to generate power in the isolated power system. However, several legal changes made over time, especially provisional law (MP) 579/2012 have introduced material adjustments to the sources of resources used to subsidize power generation in isolated systems plants. The restrictions imposed caused a reduction in the values reimbursed by the CCC to the isolated system’s thermoelectric power plants, which in turn started to make smaller payments than those due to the Company for the supply of fuels for electricity generation, therefore leading to increased defaults by distributors operating in this sector.

In order to address the situation, the Company ramped up negotiations with the state concession operators, PIEs, private companies and Eletrobras subsidiaries and on December 31, 2014 debt acknowledgement agreements (CCD) were entered into in the amount of R$ 5,344 (R$ 5,194 denotes the Company’s portion and R$ 150 denotes Petrobras’ portion), embracing debts overdue on or before November 30, 2014, restated by the Selic base interest rate, for payment over 120 monthly successive instalments commencing February 2015, of which R$ 5,233 (R$ 126 consisting of bonds endorsed by Petrobras) have real security consisting of pledges on credits deriving from the Energy Development Account (CDE).

The debt established in the CCDs is being amortized over two stages, the first with the amortization of 15% of the renegotiated amount in the first 36 months and the remaining 85% in 84 instalments commencing January 2018. The instalments are therefore expected to increase in 2018 to amortize and progressively pay down the debt balance, as the instalments will be greater than the finance income from restating the acknowledgement agreement. Eletrobras Group has honored the payments of the CCDs signed in 2014, despite occasional delays.

To mitigate the effects of worsening defaults by companies in the sector, the Brazilian Electricity Regulatory Agency (ANEEL) published Normative Resolution No. 679 on September 1, 2015. This Resolution was intended to expedite the release of resources to fuel suppliers, due to the possibility of a preliminary reimbursement of up to 75% of the average value of invoices for the last three months directly by the CCC to creditor agents.

As a result of the change proposed above, greater financial equilibrium was expected in the islanded system's distribution companies, which did not actually arise, resulting in higher default.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The Company accordingly adopted the following measures:

 suspension of any forward sale, except in situations when such supply is required due to a court decision;

 legal collection of default debts in sale and purchase agreements with companies of the Eletrobras Group (Amazonas, Acre, Rondônia and Roraima), and the debt acknowledgement agreement signed by CEA Companhia de Eletricidade do Amapá); and

 registration of the Eletrobras Group companies (Amazonas, Acre, Rondônia and Roraima) in the CADIN (Federal Internal Revenue Department’s Default Register)

In the financial year ended December 31, 2017, the Company reversed the amount of R$ 150, net of constitution, primarily due to payments made by the client Centrais Elétricas do Pará - CELPA (R$ 110).

The Extraordinary General Meeting held August 31, 2017 approved the split-off of the Company, with the split-off portion being merged into Downstream Participações Ltda. (a Petrobras subsidiary), in the amount of R$ 6,339, consisting of the credits with the companies comprising Eletrobras group renegotiated in 2014 and the receivables from the clients Breitener Tambaqui and Breitener Jaraqui, both comprising Petrobras group.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

8 Inventory

(*) Essentially consists of imports in progress of products like diesel and gasoline.

No net realizable value reduction in inventory was recorded in 2017 and 2016.

9 Taxes and contributions recoverable

The Company’s tax credits are mainly composed of: (i) ICMS Tax Substitution to be reimbursed by the States in interstate transactions involving oil products, on which tax was withheld in the State of origin and transferred to the State of sale at a lower value, mainly the States of Maranhão (R$ 120 in 2017 and R$ 79 in 2016), Bahia (R$ 106 in 2017 and R$ 88 in 2016) and Pernambuco (R$ 98 in 2017 and R$ 22 in 2016); (ii) credits to be returned by the State of Mato Grosso, through the administrative proceeding, due to the overpayment of prepayments (R$ 95 in 2017 and R$ 78 in 2016); (iii) ICMS credit balance to be recovered in the state of Bahia (R$ 68 in 2017, which did not exist in 2016); and (iv) ICMS to be refunded by the State of Espírito Santo, regarding the purchase of natural gas with Tax Substitution in the state of origin (R$ 97 in 2017 and R$ 94 in 2016).

The Company expects to receive the amounts presented.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

10 Deferred income and social contribution taxes

(a) Change

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(b) Estimated period of realization

(*) Primarily consists of the realization of estimated losses in doubtful accounts recorded on receivables from clients operating in the electric sector - Eletrobras group.

The reconciliation of taxes determined at the statutory rates and the amount of taxes recognized in FYs 2017 and 2016 are shown below:

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

11 Advanced bonuses awarded to clients

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

12 Judicial deposits

The Company has R$ 203 (R$ 192 in 2016) in judicial deposits for provisioned lawsuits (note 28.1.1); R$ 441 (R$ 366 in 2016) associated with possible contingencies; R$ 82 (R$ 22 in 2016) associated with remote contingencies; R$ 227 (R$ 324 in 2016) consists of deposits related to proceedings in which the Company is plaintiff and R$ 24 (R$ 24 in 2016) consists of other.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

13 Investments

13.1 Summary financials on subsidiaries, joint arrangements and associates

The table below presents the total assets, liabilities and results of the investees, not in proportion to the Company’s interest.

(a) Period: 11/30/2017 (b) Period: 10/31/2017

The shareholdings held by the Company do not include shares traded on the stock exchange.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

13.2 Description of the subsidiaries’ activities

a) Fundo de Investimento Imobiliário - FII FCM

This entity was founded to acquire and/or to build, through purchase and sale agreements, real estate including terminals, bases, fueling stations and a lubricants plant owned by the Company. Fundo de Investimento Imobiliário FCM - FII is managed by Rio Bravo Investimentos S.A. Distribuidora de Títulos e Valores Mobiliários. The assets under construction by FII relate to the Lubrax Expansion Project.

Under the applicable regulations, FII FCM cannot grant loans or advances to its quotaholders.

The Company must provide funding in the event that FII FCM is unable to bear the costs and expenses related to any payment or indemnification due under the terms of its founding instruments and prospectuses for the issuance of Real Estate Receivable Certificates (CRIs).

b) Stratura Asfaltos S.A.

This entity's core activities are the production and sale of emulsions and asphalt products in general, chemicals, lubricating oils and grease, as well as the provision of administrative and technical services, including those related to road surfacing and other services correlated. Its registered office is located in the city of São Paulo.

The raw materials used in the production process are mainly acquired from the parent company Petrobras.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

13.3 Description of the joint operation

Brasil Carbonos S.A.

Its core activity is the construction and/or operation of plants for the storage and processing of green petroleum coke, and it can process, mix and benefit all forms of carbonaceous and solid fuel products of national or foreign origin. It is domiciled in the city of Cosmópolis, São Paulo.

The interest in Brasil Carbonos allows the Company to play the role of logistics operator for green petroleum coke for the Petrobras Group. The product processed and stored by Brasil Carbonos is distributed to the refineries of the Petrobras Group.

13.4 Description of the activities of joint ventures

a) CDGN Logística S.A.

Its core activities are the provision of transportation, compression and sales services for compressed or liquefied natural gas and biogas and the transportation, loading and delivery of oil and natural gas products throughout Brazil. Its registered office is in Rio de Janeiro.

b) Brasil Supply S.A.

The Company's, with registered office is in Rio de Janeiro, core activity is the provision of logistics services, imports and exports, handling of cargo, fuel, lubricants and chemical products; the storage and dispatch of other related products, issuing bonds under decree 1102 dated 11/21/1903 for goods under its care and responsibility; the storage, processing and reprocessing of fluids; port operations; provision of activities using its own or third-party vessels to provide marine support to the drilling and production of oil and gas, port support services and cabotage; management and disposal of waste and operation of emergency response centers; services that can be proceeded by works of any form, including the construction of buildings, warehouses and deposits, landscaping work, electrical facilities, hydraulic facilities, sanitary and gas facilities, ventilation facilities and cooling facilities; consultancy in the commercial and industrial, sanitary and environmental engineering fields; leasing of equipment and/or establishments; commercial agency, except for products derived from shale oil and other sources, also subject to the provisions in the sole paragraph; sale of chemical products; and may also acquire interests in other companies as a partner or shareholder, in Brazil or elsewhere.

On February 2, 2017, the Extraordinary General Meeting of Brasil Supply approved the starting of a process to file for judicial reorganization. The Company's equity interest in Brasil Supply is 0.38%.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

c) Energética Camaçari Muricy II S.A.

This entity’s core activity is to build, install, operate, explore, maintain and sell the electricity generated by the Muricy II Thermoelectric Power Plant, which will be built in the city of Dias D'Ávila - BA, and headquartered in Salvador - Bahia. Energética Camaçari Muricy II S.A. is presently preoperational.

d) Pecém Energética S.A.

This entity’s core activity is to build, install, operate, explore, maintain and sell the electricity generated by the Pecém II Thermoelectric Power Plant, which will be built in the city of Dias D'Ávila - BA, and headquartered in Salvador - Bahia. Pecém Energia S.A. is presently preoperational.

13.5 Description of the associate’s activities

BRF Biorefino de Lubrificantes S.A.

This entity’s core activity is to build and operate a used or contaminated lubricating oil (OLUC) re- refining plant in the state of Rio de Janeiro, operate and sell the OLUC collected to supply the re- refining plant, acquire OLUC and other consumables required to operate the re-refining plant and the purchase and sale of re-refined basic oil (OBR). BRF is presently preoperational.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

13.6 Changes to investments made in subsidiaries, joint arrangements and associates

(a) To enhance its operation in the asphalt sector, the activities in this segment were centralized at Stratura Asfaltos S.A., a wholly-owned subsidiary of the Company, resulting in a contribution of R$ 124 (R$ 86 in cash and R$ 38 through asset transfers).

(b) Asset appreciation of R$ 28 was determined on the acquisition of an interest in Brasil Carbonos S.A. in December 2010, which is being amortized over the assets’ useful lives. In December 2017, the balance of R$ 22 (R$ 23 in 2016) is classified in consolidated property, plant and equipment.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

On December 31, 2017, the balance of the equity interest in the subsidiary FII FCM is zero, due to the unsecured liabilities held by this subsidiary. Losses greater than the investment value were recorded under liabilities, as a provision.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

14 Property, plant and equipment

14.1 By asset type

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(a) This mainly refers to transfers between other equity groups, such as equipment used as payment of accounts receivable (payment in kind) in the consolidated statements. The parent company statements include the transfer of property, plant and equipment from the asphalt segment for contribution to Stratura Asfalto S.A.

(b) In 2017, the balance of consolidated land is R$ 389 (R$ 392 in 2016) and R$ 384 at the parent company (R$ 388 in 2016).

Assets under construction recorded in the consolidated statements mainly comprise the expansion, modernization and improvements of terminals and fuel distribution bases, airports and the lubricant plant.

The Company’s property, plant and equipment includes assets resulting from finance lease agreements, amounting to R$ 382 (R$ 390 in 2016).

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

14.2 Breakdown by estimated useful life

15 Intangible assets

15.1 By asset type

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(a) This mainly denotes transfers between other equity groups, such as property, plant and equipment according to the nature of the investment.

(b) The Company has a balance of software under development of R$ 40 (R$ 68 in 2016).

(c) Goodwill on fuel distribution assets, originated under the acquisition of Liquigás S.A., the liquefied petroleum gas (LPG) distribution company. This investee was transferred to Petrobras, in 2012, although the operation related to the goodwill remained at the Company.

15.2 Concession for the exploration and marketing of natural gas in the state of Espírito Santo

The Company is a concession operator for the exclusive exploration of piped gas distribution in the state of Espírito Santo, through the concession agreement signed with the state government for a term of 50 years, through 2043.

The concession entails the provision of distribution services to users in the industrial, individual and collective residential, commercial, vehicle, air conditioning, cogeneration, raw materials and thermal segments. The Espírito Santo state government monitors compliance with the concession agreement through the regulatory agency (Public Services Regulatory Agency of Espírito Santo State - ARSP).

The agreement states that at the end of the concession the Company shall be indemnified for investments made in reversible assets, as per the surveys, assessments and settlements to be performed for the purpose of determining said indemnity.

The Company's compensation is the value of the rates charged for the volume of gas distributed, which are subject to the adjustments and revisions specified in the concession agreement.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The assets, net of amortization, related to the gas concession and recorded as intangible assets in 2017 are worth R$ 270 (R$ 274 in 2016).

Law 10493/2016 was published in the Official State Gazette of Espírito Santo on February 2, 2016, recognizing the extinction/nullity of the concession agreement for piped gas distribution, due to the application of Article 43 of Federal Law 8987, dated February 13, 1995.

This law states a procurement shall be held for the concession or a state company created to take over the services, where the concession operator shall pay out the legal indemnification, which BR contested in the courts.

On August 12, 2016, the Company signed a Memorandum of Understanding with the Government of Espírito Santo State in order to look into the creation of a State-owned company to carry out the public distribution of piped natural gas.

As stipulated in the MoU, over the course of 2017 the business plan and modelling were created that apply to the new company’s studies, and a specialist firm appraised the concession assets. As of December 31, 2017, the state’s audit is in progress into the asset appraisal and the negotiations in order to complete the studies and appraisals to create the state natural gas distribution company.

The Company made no provisions for loss, as to date the carrying amount as at December 31, 2017 is guaranteed by the indemnification established in said Law.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

16 Trade payables

The balance of Trade payables - Companies of the Petrobras Group is mainly comprised of invoices payable to Petrobras for the acquisition of oil products and services (including freight).

17 Financing

17.1 By Financial Institution

Banco do Brasil

On April 14, 2015, the Company signed a financing agreement with Banco do Brasil in the amount of R$ 4,500, maturing in March 2021.

On August 31, 2017 the Company settled early the entire debit balance of the Export Credit Note issued to Banco do Brasil.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Bradesco

On June 1, 2015, the Company signed a financing agreement with Banco Bradesco consisting of Export Credit Notes amounting to R$ 3,000 for a five-year term.

On August 31, 2017 the Company settled early the entire debit balance of the Export Credit Note issued to Banco Bradesco.

Banco Itaú

On August 10, 2015, the Company signed a non-convertible debentures agreement with Banco Itaú BBA in the amount of R$ 3,500, for a five-year term.

Interest is amortized semi-annually, and the principal will be amortized in a lump sum at the end of the agreement on April 15, 2020.

The charges on the compensation payable by the debentures stand at 111.57% of the CDI rate.

The underlying collateral is ethanol purchases. The transaction is exempt from the IOF tax, pursuant to Law 6313/75 and Petrobras is the guarantor.

17.2 Contractual obligations (covenants)

The Company's financing agreements contain covenants (nonfinancial), all of which had been fully met as of December 31, 2017. These include the requirement to present financial statements by the deadlines agreed with the institutions; the requirement not to incur protests for payables in previously determined amounts; the requirement not to default to any lender or any financial or credit institution, as per the agreed amounts; and other clauses.

17.3 Nominal flow of principal and interest on financing

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

17.4 Transactions

Financing interest was amortized in 2017 for loans from Bradesco (R$ 564), Banco do Brasil (R$ 410), Itaú (R$ 434), Banco da Amazônia (R$ 62) and CRIs (R$ 58), among others.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

17.4.1 Reconciliation of financing with cash flows arising from financing activities

(*) Includes principal and interest payments and prepayments.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

17.5 Summarized information on financing maturities

(a) Only Real Estate Receivables Certificates - CRI

The fair values of financing are mainly determined using derivatives from observable market prices (Level 2). The fair value of financing in 2017 is R$ 3,853 (R$ 3,077 in the Parent Company report).

The financial instruments sensitivity analysis can be seen in note 30.2.1.1.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

18 Leases

18.1 Finance leases

The Company has financial commitments towards FII FCM, managed by Rio Bravo Investimentos DTVM Ltda., due to receivables arising from leasing transactions for real estate and equipment and the construction of bases and terminals, restated by the IPCA price index. The balance payable in 2017 amounts to R$ 600 (note 18.1.1).

Real estate credits originating from Private Purchase and Sale Agreements secured the issuance of Real Estate Receivables Certificates (CRI) by RB Capital Securitizadora S.A.

The Company leases equipment from the investee CDGN, and leases this equipment to the customers Suzano Papel e Celulose S.A. and Fiat Automóveis Ltda. The balance receivable under these leases amounts to R$ 25 (note 18.1.1).

18.1.1 Flow of payments and receipts under finance leases

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

18.1.2 Reconciliation of financial leases with cash flows arising from financing activities

18.2 Operating leases

In 2017, the Company paid R$ 286 (R$ 285 in 2016) to honor contractual commitments under operating leases, of which R$ 186 consists of fixed installments and R$ 100 of variable installments. These leases mature on various dates through 2040.

Operating leases primarily comprise land, administrative offices and buildings used as fueling stations and power supply equipment.

The Company has contractual commitments towards Confidere OGB Imobiliária e Incorporadora regarding the leasing of the Edifício Lubrax building for the period 2018 to 2031, for a total estimated remaining amount of R$ 919.

The estimated minimum lease payments to be made by the Company in the years ahead are as follows:

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

19 Customer advances

(a) Advances received from accredited customers, such as retailers, franchisees and business partners, for advertising and promotional initiatives carried out by the Company.

20 Taxes and contributions payable

The ICMS debits essentially consist of: ICMS tax and ICMS Tax Substitution recorded in the Tax Journals mainly payable to the states of São Paulo (R$ 51 in 2017 and R$ 45 in 2016), Minas Gerais (R$ 22 in 2017 and R$ 14 in 2016), Rio de Janeiro (R$ 17 in 2017 and R$ 9 in 2016) and Paraná (R$ 11 in 2017 and R$ 10 in 2016).

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

20.1 State Amnesty Programs

On December 31, 2017 and 2016, the Company settled various state ICMS tax debts, through Amnesty Programs.

20.2 Special Tax Regularization Program - PERT

In 2017 the Company entered the Special Tax Regularization Program (PERT) introduced by Law 13496 on October 24, 2017, for PIS/COFINS, IPI and INSS debts demanded by the government amounting to R$ 20.

20.2.1 Effects of PERT on profit or loss for the period

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

21 Employee benefits

The Company's obligations regarding pension and health plans are as follows:

21.1 National pension plans - Defined-benefit and variable-contribution

Fundação Petrobras de Seguridade Social - Petros is charged with managing the Company's supplementary pension plans. Petrobras founded Petros as a private nonprofit company, with administrative and financial independence.

(a) Petros Plan - Fundação Petrobras de Seguridade Social

The Petros Plan is a defined-benefit pension plan created by Petrobras in July 1970 to ensure participants a supplement to the benefit granted by Social Security, and is currently intended for Petrobras and Company employees. The plan is closed to employees joining the company after September 2002.

The Petros funding plan is assessed by independent actuaries, on a capitalization basis, for most of the benefits. The sponsors make regular contributions in amounts equal to the contributions made by the participants (employees, assisted participants and pensioners), i.e. on an equal footing.

On December 31, 2017, the balances of the Financial Commitments (TCF) signed in 2008 by the Company and Petros to cover plan obligations amounted to R$ 411 (R$ 411 at the Parent Company). The TCF commitments have a maturity of 20 years, with semi-annual interest payments of 6% p.a. on the restated payable balance. On this date, Petrobras had an inventory of oil and/or derivatives pledged as security for the TCFs in the amount of R$ 13,454, reviewed and restated in the 3rd quarter of 2017 to reflect the increase in the commitments undertaken in the TCF.

For FY 2018, contributions to the plan are projected to amount to R$ 36 (R$ 36 in the Parent Company) and interest payments on TCF to R$ 24 (R$ 24 in the Parent Company).

The average duration of the plan's actuarial liability as of December 31, 2017 is 13.07 years.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Plan to repair the deficit of the Petrobras Group Petros Plan (PPSP)

On May 26, 2017 Fundação Petros’ Governing Board approved the financial statements for FY 2016 with an accumulated deficit of R$ 26.7 billion (deficit of R$ 22.6 billion through FY 2015) for the Petrobras Group Petros Plan, in accordance with the accounting practices adopted in Brazil that apply to entities regulated by the National Council for Pension Plans (CNPC).

Petros’ deficit been calculated annually by an independent actuary and has now been recognized in the Company’s financial statements in accordance with the technical pronouncements issued by the Accounting Pronouncements Committee (CPC), approved by the Brazilian Securities Commission (CVM).

On June 19, 2017 the National Pension Plans Oversight Board (Superintendência Nacional de Previdência Complementar - PREVIC) published the Settlement Agreement (TAC) for Fundação Petros establishing timeframes to implement the plan to repair the deficit accumulated in 2015.

On September 12, 2017 the Governing Board of Fundação Petrobras de Seguridade Social (Petros) approved the Deficit Repair Plan (PED) of the Petrobras Group Petros Plan (PPSP) for the total deficit recorded in 2015 of R$ 22.6 billion. The amount restated through December 2017 is R$ 27.7 billion.

The PED was examined by the Petrobras Board of Directors and referred to the Office for Management and Governance of Government-Owned Companies (Sest). Petros will accordingly begin collecting the amount as from paychecks in March 2018, so that participants can be fully informed that deductions will start.

Pursuant to Supplementary Laws 108/2001 and 109/2001 and the Resolution issued by the Supplementary Pensions Management Council - CGPC 26/2008, the deficit should be equally repaired among the sponsors (Petrobras, Petrobras Distribuidora and Petros) and participants and assisted participants of PPSP. Petrobras is therefore entitled to a total of R$ 12.8 billion and the Company R$ 0.9 billion.

The outlay by the sponsors will rise over the course of 18 years. In the first year it is estimated at R$ 1.4 billion for Petrobras and R$ 89 for the Company.

Extraordinary contributions from participants during the working and assisted period were included in the 2017 actuarial appraisal and charged to the present value of the obligation in the amount of R$ 23, while extraordinary contributions from the Sponsor will reduce the actuarial obligation at the time of the outlay, without impacting profit or loss.

(b) Petros Plan 2 - Fundação Petrobras de Seguridade Social

Petros Plan 2 was introduced in July 2007 in the form of variable contributions by Petrobras and certain subsidiaries that assumed the past service contributions for the period in which the participants had no plan, from August 2002, or subsequent recruitment up to August 29, 2007. The plan is open to new recruits, but there will be no past service payments.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The defined-benefit portion of this plan covers the risk of disability and death, guarantees a minimum benefit and life annuity, and related actuarial commitments are recorded according to the projected unit credit method. The defined-contribution portion of the plan is intended to form a reserve for scheduled retirement, contributions to which are recognized in profit or loss according to their payments. In 2017, the Company's contribution to the defined-contribution portion amounted to R$ 48 (R$ 48 in the Parent Company).

The defined-benefit portion of the contribution has been suspended between July 1, 2012 and June 30, 2018, by ruling of the Petros Governing Board, and based on the recommendation of Petros’ actuarial consultants. As such, all contributions for this period are being allocated to the participant’s individual account.

The average duration of the plan's actuarial liability as of December 31, 2017 is 43.53 years.

21.2 Pension plan assets

The investment strategy for benefit plan assets is founded on a long-term vision, an assessment of the risks inherent to the various asset classes, as well as diversification as a mechanism for reducing portfolio risk. The plan's asset portfolio shall comply with the standards established by the National Monetary Council.

Petros prepares Investment Policies for the purpose of guiding investment management over five-year periods, which are reviewed annually. The Asset and Liability Management model (ALM) is used to rectify liquid cash flow mismatches for the benefit plans it manages, considering liquidity and solvency parameters, adopting a 30-year timeframe in the simulations.

The asset allocation limits determined in the Petrobras Group Petros Plan Investment Policy for the period 2018 to 2022 are as follows: 45% to 75% in fixed income, 10% to 35% in variable income, 4% to 8% in real estate, 2% to 8% in loans to participants and 0% to 5% in structured investments. The allocation limits for Petros Plan 2 for the same period are: 65% to 90% in fixed income, 5% to 20% in variable income, 0% to 5% in real estate, 2% to 8% in loans to participants, 0% to 5% in structured investments and 0% to 2% in offshore investments.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The pension plans’ assets segregated by category are as follows:

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

21.3 Health Care Benefits - Multidisciplinary Health Assistance (AMS)

The Company, Petrobras, Petrobras Transporte S.A. - Transpetro, Petrobras Biocombustível, Transportadora Brasileira Gasoduto Brasil-Bolívia S.A. - TBG, Araucária Nitrogenados and Termobahia maintain a medical assistance plan (AMS), which covers all employees of companies in Brazil (active and inactive) and their dependents. Its management is based on the principles of benefit self- sustainability and includes health prevention and awareness programs. The main risk posed by health benefits relates to the rate by which medical costs rise, due to the use of new technologies and the inclusion of extra coverage, as well as increased health consumption. Petrobras accordingly seeks to mitigate this risk by continuously enhancing its technical and administrative procedures and enhancing several different programs offered to the beneficiaries.

Employees contribute a pre-defined monthly portion for high-risk coverage and a portion of the expenditure incurred for other coverage, both established according to participation tables based on certain parameters, including wage levels and age, in addition to the pharmacy benefit that offers special terms for the acquisition of certain medication from accredited pharmacies distributed throughout Brazil. The medical assistance plan is not covered by the guaranteeing assets. The benefit payment made by the Company is based on the costs incurred by the participants.

The average duration of the plan's actuarial liability as at December 31, 2017 is 22.03 years.

CGPAR Resolutions

By way of CGPAR Resolutions 22 and 23 issued January 18, 2018, the Joint Commission for Corporate Governance and Management of Government Equity Interests (CGPAR) established minimum governance and funding parameters and guidelines for federal and state companies in respect of assistance benefits on the self-management basis.

The resolutions’ prime aim is to further the economic, financial and actuarial equilibrium and sustainability of the state companies’ health plans.

The Company has up to 48 months to bring the AMS health plan in line with the new rules.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

21.4 Net actuarial obligations and expenses, calculated by independent actuaries, and the fair value of the plans’ assets

The information for all defined-benefit plans has been combined, since it contains similar assumptions.

(a) Changes in actuarial liabilities, fair value of assets and amounts recorded in the statement of financial position

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(b) Components of the defined benefit

A change of 1% in the assumed discount rate and medical costs would have the following effects:

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(d) Actuarial assumptions used in the calculation

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(e) Obligation maturity profile

21.5 Profit sharing

Employee profit sharing (PLR) is based on current legal provisions, as well as the guidelines established by the Office for Management and Governance of Government-Owned Companies - Sest, of the Ministry of Planning, Budget and Management, by the Ministry of Mines and Energy, by Petrobras and the performance of corporate indicators.

The Collective Bargaining Agreement - ACT, which addresses profit sharing, sets out corporate indicators defining the amount to be paid as PLR, based on the calculation base of Petrobras Group's net income. The ACT also stipulates the rules for paying out profit shares in the event the Company does not make a profit but its corporate indicators are achieved.

Under article 46 of the Bylaws, Law 10101/2000 and other normative regulations in force as of December 31, 2017, the Company has provisioned for R$ 26 to be distributed to its employees equal to 2.3% of the profit before profit shares, subject to the limits established by Resolution 10/95 issued by the State Company Control and Management Board - CCE.

21.6 Voluntary Redundancy Incentivization Program (PIDV)

In October 2016, the Company implemented the 2016 BR Voluntary Redundancy Incentivization Program (PIDV), in order to adjust the Company’s headcount to the divestment plan implemented by the Parent Company Petróleo Brasileiro S.A. and the performance goals set out in the 2017-2021 Business and Management Plan.

The program closed the enrollment period on December 30, 2016 with 1,105 enrollments. The redundancy period for the program’s employees ran from January 17 to July 31, 2017, as per the action plan for the management of knowledge or managerial succession inherent to each employee’s processes and activities. Employees who signed up to the PIDV program had been working at the Company for at least 10 years as of December 30, 2016, regardless of their position or function. The 2016 BR PIDV regulations state that employees may withdraw at any time, in which case they would forfeit the financial incentive.

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The program was reactivated on January 29, 2018 for employees who cancelled their enrolment during the enrolment period or who had formerly withdrawn from the program. Enrolment is voluntary for withdrawing employees and is available until March 02.

The financial incentive offered to employees electing for voluntary redundancy under the PIDV program was capped at R$ 800 thousand (eight hundred thousand reais) with a minimum of R$ 250 thousand (two hundred and fifty thousand reais), in addition to legal and corporate advantages.

The program was reactivated on January 29, 2018, as stated in note 33.

The Company recorded the provision on December 31, 2016 for the compensation payable to employees choosing redundancy, subject to the periodic review of possible withdrawals, restated compensation due to collective bargaining agreements up to the employees’ effective redundancy date and the restatement of minimum and maximum compensation packages by the IPCA price index.

In 2017, the Company recorded 704 dismissals, 383 withdrawals and one elimination from the PIDV BR - 2016 program and 1 dismissal in PIDV BR - 2014.

The provision for PIDV was classified under current liabilities.

The remaining balance as of December 31, 2017 relates to PIDV BR - 2016, as the sole remaining participant of PIDV BR - 2014 was dismissed in April 2017.

Employees who remained enrolled in the program after the last dismissal date of July 31, 2017 come under the rules set out in PIDV BR - 2016, which address cases of employees who had their employment agreements suspended or who even after their effective dismissal are awaiting the findings of the investigation conducted by the Internal Investigations Commission - CIA or the General Controllership - CGU in which their names are involved. The indemnification established in the remaining balance of the provision will be paid as and when these cases are concluded. People in the second group could be eliminated from the program, in which case they will not be entitled to the compensation.

100

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The regulations of PIDV BR - 2016 state that the deadline for compensation payments in any situation is January 17, 2019. After this date, PIDV BR- 2016 will be discontinued for good.

22 Shareholders' equity

22.1 Paid-in capital

On August 31, 2017 the Extraordinary General Meeting approved the Company's capital increase in cash of R$ 6,313, which will result in administrative and economic benefits, making it possible to improve its financial indicators such as liquidity and solvency.

The Extraordinary General Meeting held August 31, 2017 approved the split-off of the Company, with the split-off portion being merged into Downstream Participações Ltda. (a Petrobras subsidiary), consisting of the credits with the companies comprising Eletrobras group renegotiated in 2014 and the receivables from the clients Breitener Tambaqui and Breitener Jaraqui (note 7.3), both comprising Petrobras group, with the aim of enhancing the capital structure management of said companies’ corporate group.

The split-off amount R$ 6,339, with R$ 6,313 of share capital and R$ 26 of retained earnings relating to equity changes between the appraisal date (June 30, 2017) and the Extraordinary General Meeting date (August 31, 2017).

Pursuant to articles 12 and 122 of Law 6404/76, the Extraordinary General Meeting held November 14, 2017 approved the Company's proposed reverse stock split, at the ratio of 29.8521666575107:1, whereby each batch of 29.8521666575107 shares would be consolidated into a single share. It also approved the amendment to article 4 of the Bylaws to reflect the change in the number of the Company’s shares, from 34,777,774,156 shares (unchanged since 2013) to 1,165,000,000 bookentered common shares with no par value.

The fully subscribed and paid-in share capital as of December 31, 2017 and 2016 amounts to R$ 6,352.

22.2 - Profit reserves

(a) Legal reserve

The Company creates a legal reserve at the rate of 5% of the net income for the year, up to the limit of 20% of the capital in accordance with article 193 of Brazilian corporation law.

101

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(b) Statutory reserve

Created with the technical justification and approval of the Board of Directors and Audit Committee in respect of amounts and allocation, to ensure investments compatible with the development of the Company’s business, consisting of up to 100% (one hundred percent) of the balance of net income, after funds have been allocated to the Legal Reserve, the Contingencies Reserve, the Mandatory Dividend, the Unrealized Earnings Reserve and the Profit Retention Reserve, up to 80% (eighty percent) of the capital, in accordance with article 48 of the Company's Bylaws.

This reserve is used to make the investments established in the capital budget, mainly in the distribution of oil products, ethanol, support infrastructure, capital contributions and financing for customers, in accordance with article 196 of Brazilian Corporation Law.

(d) Tax incentive reserve

This reserve receives part of the net income for the year, equal to tax incentives deriving from government subsidies or donations, in due accordance with article 195-A of Brazilian Corporation Law. This reserve can only be used to absorb losses or capital increases.

As a result of the losses recorded in FYs 2015 and 2016 and pursuant to chapter I of Law 12973/14, the accumulated investment subsidies from the North-East Development Agency (SUDENE) deriving from net income in the last three financial years used to create the incentive reserve is R$ 1.

The reserve created will be referred to the Extraordinary General Meeting to be held on April 25, 2018 for approval of the Company’s share capital increase without the issuance of new shares, in accordance with article 169 (1) of Law 6404/76 via capitalization of the tax incentive profit reserves recorded in 2017, in the amount of R$ 1, pursuant to article 35 (1) of Ordinance 283/13 issued by the State Ministry of National Integration.

102

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

22.3 Dividends and interest on shareholders’ equity

Shareholders are entitled to a mandatory dividend of 25% of adjusted net income for the year, under Article 48 of the Company's Bylaws and article 202 of Brazilian Corporation Law.

At a meeting held January 26, 2018, the Company's Board of Directors approved the distribution of interest on shareholders' equity to be included in the minimum mandatory dividend for 2017, without prejudice to any other distributions, in the amount of R$ 659.

The interest on shareholders' equity will be monetarily restated from December 31, 2017 to the date of payment, according to the Selic base interest rate.

103

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

22.3.1 Changes in dividends and interest on shareholders’ equity

22.4 Equity appraisal adjustments

Actuarial gains or losses net of income taxes, determined by independent actuaries at the end of each financial year.

22.5 Earnings per share

104

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

23 Sales revenue

(a) This derives from the sale of chemical products and services to the exploration and production sector, supplying platforms, drill rigs, FPSOs and onshore facilities with the essential products required by operations and other activities, with the main client being Petrobras.

(b) Amounts awarded to customers in exchange for meeting contractually agreed deadline and performance targets.

105

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

24 Other net revenue (expenses)

106

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

25 Expenses by nature

107

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

108

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

26 Net financial income

Financing charges (interest and monetary variance) amounted to R$ 1,179 (note 17.4) in the year (R$ 1,910 in 2016), with R$ 1,174 recognized in profit or loss (R$ 1,899 in 2016) and R$ 5 as capitalized interest (R$ 11 in 2016).

109

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

27 Segment reporting

Responsible for making operating decisions, the Executive Board views the business from the perspective of the profile/market of its customers with respect to Gas Stations. In terms of client profile, Management considers separately the activities of the Gas Stations, Corporate Customers and Aviation.

Other segments related to the sale of chemicals, asphalt and power generation were classified under “other”, as reportable operating segments, since they did not achieve the quantitative criteria required by the IFRS/CPC for individual reportable segments.

The Company's consolidated revenue from Brazilian customers is R$ 83,194 (R$ 85,340 in 2016), and total revenue from foreign customers, based on the country where the sale was made, is R$ 1,373 (R$ 1,297 in 2016).

The Company’s assets, notably the bases, terminals and other fixed assets, are not reported by segment to the Executive Board, since they are used by all of the business units without segmentation. Similarly, liabilities are not reported by segment, since they are managed by the central treasury.

See below the core financial information assessed by the Executive Board:

110

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

111

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

112

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

113

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

28 Judicial and administrative proceedings and contingencies

28.1 Judicial and administrative proceedings provisioned for

The Company and its investees establish sufficient provisions to cover reliably estimated probable losses. The main proceedings are as follows:

Tax Claims (i) related to the transfer of ICMS credits of haulers and builders from the Mato Grosso state, compensated by the Company (R$ 1,229 in 2017 and R$ 1,176 in 2016).

Civil Proceedings (i) a lawsuit filed by Valpar claiming that the Company failed to comply with the Transportation and Loan Agreement, resulting in losses and impairing the operations of the plaintiff's fueling stations (R$ 86 in 2017 and R$ 84 in 2016); (ii) lawsuit filed by the company Dislub, due to the alleged unilateral interruption of the distribution contract by the Company; The plaintiff is requesting the contract’s, including the release of guarantees and the payment of the contractual fine, indemnification for losses and damages and moral damages (R$76 in 2017 and R$ 70 in 2016); and (iii) lawsuit filed by Único Combustíveis Ltda., requesting the Company be ordered to pay a fine agreed in a Commercial Purchase and Sale agreement, as well as compensation for moral damages due to the interrupted fuel supply (R$ 69 in 2017 and R$ 44 in 2016).

114

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The provisions are presented according to the nature of the underlying proceedings:

Expenses related to judicial and administrative proceedings, including restatements, are classified under other net expenses.

115

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

In 2016, additional provisions were made of R$ 621 related to several assessment notices resulting from the deductions made with respect to the monthly ICMS-ST payments, mainly due to the use of ICMS credits acquired from haulers located in the state of Mato Grosso (State Decree 2683/2010), as well as purchase and sale agreements for credits granted to building companies, in compliance with the agreements made between the state of Mato Grosso, the Company and the construction firms, which took place through official letters issued by said state of Mato Grosso to the Company (ICMS Arrangement 85/2011).

In the preparation of the financial statements for the period ended December 31, 2017, the Company took into account all the information available regarding the proceedings to which it is party in order to estimate the obligations and the probability of an outflow of funds. However, given the nature of long- term legal provisions, we cannot estimate when these funds will be disbursed.

116

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

28.1.1 Provisioned for judicial proceedings and judicial deposits

117

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

28.1.2 Guarantees

A portion of the Company’s inventory and property, plant and equipment has been pledged as guarantees for judicial proceedings in which the Company is a defendant.

28.2 Proceedings not provisioned for (possible losses)

See below the main proceedings not provisioned for:

118

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

a) Tax proceedings

119

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(a) R$ 401 of the R$ 632 classified in item 13 in 2016 was reclassified to item 6 and R$ 116 was reclassified to item 9 in 2017.

120

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

b) Civil proceedings

121

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

122

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

c) Labor proceedings

(a) Changed from a possible loss to remote loss in August 2017. In September 2017 the case amount changed from R$ 128 to R$ 13,758.01 (thirteen thousand seven hundred and fifty-eight reais and one cent).

123

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

29 Contractual commitments

a) Commitments to Petrobras

The Company has unconditional purchase commitments to Petrobras for the period December 31, 2017 to 2025 of approximately 4.1 billion m³ of natural gas, equal to a total estimated remaining value of R$ 2,222.

b) Take or pay agreements

The Company has take-or-pay agreements for the purchase of oil products and services, as shown below:

Purchase of oil products for the period of 5 years, amounting to an estimated total of R$ 983 with Petrobras, R$ 92 with Braskem and R$ 63 with Refinaria de Petróleo Riograndense;

Purchase of natural gas for the period of 5 years, worth an estimated R$ 83 from SULGAS, R$ 37 from POTIGAS and R$ 37 from COMPAGAS;

Services provided by Brasil Carbonos at the Taubaté/SP and Cosmópolis plants. The agreement stipulates the provision of processing services for 21,080,000 tons of green petroleum coke, with an estimated value of R$ 580 through October 2033; and

Storage services for the period of 3 years, worth an estimated R$ 110 from Terminal Químico de Aratu and R$ 80 from AGEO Terminais.

c) Transportation contracts

The Company has contractual commitments towards Logum Logística S.A. for the transportation by pipeline of ethanol, worth an estimated total of R$ 428 through March 2029. The contract involves supplies for the bases in São Paulo and Rio de Janeiro and establishes a take-or-pay volume for each section.

30 Financial instruments and risk management

Financial instruments held by the Company are managed through internal controls and operational strategies, focusing on liquidity, regarding the choice of counterparties, the profitability and security of commercial areas for which such transactions are made.

124

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The control policy consists of continuous monitoring of contracted rates versus current market rates, with the ultimate goal of preserving the margins obtained through the hedging policy jointly established with the commercial areas. The Company does not invest in derivatives or any other risky assets on a speculative basis.

Due to the nature of its business, the Company is primarily exposed to credit risk, with part of this exposure restated by applying interest rates to customer financing. The Company is also subject to risks related to liquidity, market and exchange rate variance.

See below the main financial instruments included in the statement of financial position:

125

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

30.1 Risk management objectives and strategies

The main forum to discuss the Company’s credit risk management is the Credit Committee, which sets the main parameters and guidelines for the credit policy. Credit application analyses have specific procedures and growing requirements depending on the level of exposure and the amount of credit requested, and certain cases are referred to the decision of the Executive Board.

The policy for managing foreign exchange exposure is set by the Executive Board, with joint management of the financial and commercial departments responsible for international billing.

30.2 Market risk

30.2.1 Interest rate risk

The Company’s interest rate risk on liabilities is mainly associated with the CDI rate, the index for the financing agreements with Itaú (note 17), and the IPCA price index, which underlies Real Estate Receivables Certificates.

30.2.1.1 Interest rate risk management

The Company is not currently using derivative financial agreements to manage its exposure to interest rate fluctuations.

See below the sensitivity analysis on the interest on the main financial assets and liabilities as of December 31, 2017.

126

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

(*) Scenario I denotes the effect recorded in profit or loss for the year, as of December 31, 2017.

127

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

30.2.2 Exchange risk

The foreign exchange risk is one of the risks to which the Company is exposed as result of making sales to overseas customers.

30.2.2.1 Exchange risk management

The Company uses forex hedges to cover commercial margins on aviation fuel sales made to foreign customers. It also uses hedges to protect against exchange variance on fuel imports. In the former case the hedge is used to ensure the commercial margins agreed with customers are maintained while the negotiated prices are in force and during the commercial payment term. In the latter case, the hedge is used to protect the cost of the imported products.

In 2017 hedges were taken out for exports amounting to USD 325.7 million and USD 333.1 million for imports. The hedges procured accounted for 71% of the US dollar export revenue grossed from the aviation segment in the same period of 2017. The hedges procured for imports accounted for 72% in 2017 for the cargo on the on behalf and by order basis - which presents foreign exchange exposure.

The Company's financial risk management policy stipulates the procurement of forex hedges to cover a maximum of 100% of both exports and imports.

The settlement of all forex hedges in 2017 led to a loss for the Company of R$ 1.

Note that the Company did not use any other derivative instruments in relation to forex hedges besides NDFs, pursuant to article 2 of CVM Resolution 550 issued in 2008.

None of these hedges required guarantee margin deposits.

The foreign exchange hedge, recorded at fair value, is classified as Level 2.

128

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

The following sensitivity analysis was conducted for the fair value of the foreign currency derivatives. The probable scenario is the fair value as of December 31, 2017 and the possible and remote scenarios consider the deterioration in the risk variable of 25% and 50%, respectively, with respect to the same date.

(*) R$ 151 thousand (one hundred and fifty-one thousand reais)

30.2.3 Price risk management

In July 2017 Petrobras published a new price policy for diesel and gasoline. In addition to taking into account factors such as productive refining capacity, this policy intended to bring oil product prices in line with international prices. As a result, domestic fuel prices have experienced daily changes ever since.

International oil and oil products sale prices are influenced by several factors related to the macroeconomy, geopolitics, OPEC production levels, environmental impacts and the development of new technologies and alternative energy sources, amongst others. On account of these various factors which are beyond the Company’s control and in order to mitigate the commodity risk and avoid revenue and expense mismatches, the Company began hedging international purchases. The company therefore believes that its costs and revenue are more aligned with its plans, thereby preserving cash flow and profitability.

In accordance with the risk management policy, all commodity derivative transactions are secured by commercial supply dividends.

Hedge transactions were taken out for approximately 1.1 million m³ of gasoline and diesel between July 01 and December 31, 2017.

129

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

See below the sensitivity analysis:

The fair value of the commodity derivative is classified as level 1.

30.3 Liquidity risk

The Company predominantly uses its funds for operating expenditure. The conditions are usually met by using internal funding. Financing is occasionally used in light of opportunities in the financial market to finance projects or as a response to a specific liquidity event.

30.3.1 Liquidity risk management

The compilation of cash flow projections is centralized at the Company’s financial department. The department uses an annual cash flow, which is monitored through monthly projection reviews discussed in representative forums and executive committees.

It intends to ensure sufficient cash flow to meet the Company’s operating, funding and investment requirements, whilst always maintaining a minimum cash balance sufficient to cover the daily cash flow.

Surplus cash is invested in quotas of FIDC-NP, an exclusive corporate fund of Petrobras Group that yields interest. Events that place a strain on cash generation, up to the limit of cash flow, are remedied with corporate funds.

Moreover, there is always room for financial structuring to enhance capital structure and cost, in addition to bolstering cash flow in specific situations.

The nominal flow of financing principal and interest is presented in note 17.3 and the flow of financial lease payments and receipts is presented in note 18.1.1.

130

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

30.4 Credit risk

The Company’s exposure to credit risk arises from the forward sale of products, resulting from usual commercial transactions. This risk is caused by the possibility of not receiving payment for sales made.

30.4.1 Credit risk management

The Company’s Credit and Collection Policy establishes approval limits for each customer based on the amount requested, and establishes limit terms, thereby enabling the periodic reassessment of each customer’s status in terms of the risk they may pose.

The analysis includes the customer’s track record and market constraints, guarantees (mortgages), personal guarantees (sureties) and balance sheet analyses. The Company uses the competence limit table, approved by Management, to grant credit.

Credit granted to financial institutions in relation to hedging activities is distributed among the main international banks rated by international risk rating agencies as Investment Grade, and all major Brazilian banks.

The Company’s commercial loans portfolio is highly diversified, serving customers from the automotive sector and major consumers, consisting mainly of industries and government clients. Risk exposure is mainly represented by the balance of accounts receivable.

The Company's portfolio amounted to approximately R$ 9.9 billion as of December 31, 2017.

30.5 Capital management

Capital management is the set of procedures that aims to ensure an adequate capital base for the Company to operate, allowing it to honor all of its financial commitments and risks.

Capital management and monitoring entail:

• daily cash flow control • projection and monitoring of the Company’s short- and medium-term cash flow realization, structuring the Financial Plan that will support the budget processes; • monitoring the balance, maturity and cost of the Company’s debt and the variables impacting the leverage thereof; • analysis of the cash flow cycle and working capital requirement; and • monitoring the variables that affect working capital, integrating the initiatives related to managing the working capital requirement.

131

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

30.6 - Fair value measurement

Fair value measurements are classified at different levels in a hierarchy, as described below, based on the degree to which the fair value measurement information can be observed:

• Level 1 - quoted prices (without adjustments) in active markets for identical assets or liabilities to which the entity could have access at the measurement date;

• Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly;

• Level 3 - inputs for the asset or liability that are not based on observable market data.

As of December 31, 2017 the estimated fair value for the Company’s financing calculated at market rates in force is presented in note 17.5.

The fair values of cash and cash equivalents and other financial assets and liabilities are equal to or closely approximate their carrying amounts.

31 Related-party transactions

The Company has a policy for related-party transactions, approved by the Board of Directors, which establishes rules to ensure that all decisions involving related parties and potential conflict of interest situations comply with the law, including the laws of the countries where the Company operates and the parties involved in the transactions.

132

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

31.1 Commercial transactions and other transactions

31.1.1 By transaction

133

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

134

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Purchases made amounted to R$ 58,690 (R$ 63,150 in 2016), with R$ 57,622 (R$ 62,347 in 2016) from Petrobras, R$ 591 (R$ 273 in 2016) from Braskem and R$ 477 (R$ 530 in 2016) from Refinaria de Petróleo Riograndense.

Petrobras guarantees a number of the Company’s financing loans, as stated in note 17.1.

The Company has 5-year contracts with Petrobras for the purchase of oil products, equal to a total estimated value of R$ 29,530.

On March 01, 2016 the Company entered into a new 5-year contract with Petrobras for the acquisition of 3.5 million tonnes of green petroleum coke per year, commencing on the date it was signed, that can be extended for equal term, for the estimated amount of R$ 5,500, for the first contractual period.

The second amendment to the CVP purchase and sale agreement with Petrobras was approved on June 27, 2017, which was signed on June 30. Once again this amendment intends to enable the Company to continue its CVP sale and distribution activity, on conditions more aligned with current market conditions. Contractual conditions were changed regarding the price formula, definition of the coke sale for the calcination segment, invoicing/payment conditions and changing financial compensation items by amounts and penalties for reducing the refinery cargo.

135

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

31.1.2 By company

136

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

Transactions with state-controlled banks were mainly performed with Banco do Brasil.

137

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

31.2 Non-standard credit receivables investment fund - FIDC-NP

Performed and non-performed assignments of receivables are classified in current liabilities.

Non-performed means credits whose receipts still rely on some form of payment or provision from the originator or assignment, i.e. on the future delivery of products and services. Performed means invoice credits, where the assignor has performed their obligations (services provided for goods delivered and in any case accepted), their simply remaining the obligation on the debtor to make the payment.

The discount rate on the assignment of Petrobras FIDC-NP receivables is 100.5% of the CDI rate; IOF and income taxes are not due.

Investments in FIDC-NP shares are classified under current assets, in accounts receivable. The interest rate used is 100% CDI. If redemption occurs within the first 30 days of the investment, the IOF tax shall apply at the regressive rate.

Petrobras Group subsidiaries hold 100% of the senior FIDC-NP shares. Historically, all redemption requests by subsidiaries have been met.

31.2.1 Transactions involving the non-standard credit receivables investment fund - FIDC-NP

138

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

31.3 Key executive compensation

Compensation paid to all members of the Company's board of directors and executive board was as follows:

In FY 2017 the consolidated expense on director and officer fees amounted to R$ 15 (R$ 13 in 2016).

At December 31, 2017 the Company had four members on the Executive Board and nine members on the Board of Directors.

139

Petrobras Distribuidora S.A. Notes to the financial statements (In millions of reais, unless stated otherwise)

32 Insurance

It is company policy to take out insurance coverage based on the concentration of risks, materiality and the asset replacement costs.

As at December 31, 2017, fire insurance coverage for facilities, equipment and products amounted to R$ 4,357. The coverage for civil liability amounted to R$ 4,134, including R$ 3,307 for aircraft supply operations and R$ 827 for operations and environmental pollution. The coverage for product transfers made between the Company's establishments, sales and products purchased from production sources, the transportation of which is the Company’s responsibility, amounted to R$ 82.

Given their nature, the risk assumptions adopted do not comprise the scope of a financial statements audit, and were not therefore examined by our independent auditors.

33 Subsequent events

Interest on shareholders' equity

At a meeting held January 26, 2018, the Company's Board of Directors approved the payment of interest on shareholders' equity to be included in the minimum mandatory dividend for 2017 in the amount of R$ 659, or R$ 0.56527346761767 per share.

The payment for shares traded om B3 S.A. - Brasil, Bolsa, Balcão, and the other shares registered by Banco Bradesco S. A., will be made on or before July 31, 2018, based on the share ownership position at February 01, 2018 (inclusive).

Voluntary Redundancy Incentivization Program (PIDV)

On January 29, 2018 the BR 2016 Voluntary Redundancy Incentivization Program (PIDV) (note 21.6) was reactivated for employees who had cancelled their enrolments or who had formerly withdrawn from the program. Enrolment is voluntary for withdrawing employees and closes on March 2, 2018.

Of the total of 407 eligible, 83 employees reactivated their enrollment in the program, whose date of dismissal will be April 6, 2018.

The Company estimates a provision of R$ 31 in the first quarter of 2018 corresponding to the indemnities due to the employees that reactivated their enrollment, subject to periodic review for the occurrence of possible waivers and the updating of the minimum and the ceiling amount by the IPCA price index.

140

Petrobras Distribuidora S.A. Representation of the Officers about the Financial Statements and Independent Auditors' Report

Pursuant to article 25 (V,VI) of CVM Directive 480 issued December 7, 2009, the CEO and officers of Petrobras Distribuidora S.A - BR, a listed company having its registered office at the address Rua Correia Vasques, 250, Rio de Janeiro, RJ, corporate taxpayer number (CNPJ) 34.274.233/0001-02, hereby represent that they have:

(i) reviewed, discussed and agree with the Company's financial statements for the financial year ended December 31, 2017;

(ii) reviewed, discussed and accept the opinions expressed in the report issued by KPMG Auditores Independentes relating to the Company’s financial statements for the financial year ended December 31, 2017.

Rio de Janeiro, March 13, 2018.

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BOARD OF DIRECTORS

AUGUSTO MARQUES DA CRUZ FILHO President

BRUNO CESAR DE PAIVA E CLEMIR CARLOS MAGRO DURVAL JOSÉ SOLEDADE SILVA Director SANTOS Director Director

FRANCISCO ARRUDA VIEIRA JERÔNIMO ANTUNES JORGE CELESTINO RAMOS DE MELO FILHO Director Director Director

REINALDO GUERREIRO SEGEN FARID ESTEFEN Director Director

EXECUTIVE BOARD

IVAN DE SÁ PEREIRA JUNIOR CEO

MARCELO FERNANDES BRAGANÇA GUSTAVO HENRIQUE BRAGA COUTO Executive Officer of the Chain of Gas Stations Executive Officer of the Consumer Market

RAFAEL SALVADOR GRISOLIA ALÍPIO FERREIRA PINTO JUNIOR CFO & Investor Relations Officer Executive Officer for Operations and Logistics

ACCOUNTING MANAGEMENT

VICENTE FIGUEIREDO SORIA Accountant - CRC - RJ - 087.997/O-0

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SUMMARIZED ANNUAL REPORT OF THE STATUTORY AUDIT COMMITTEE

To the Directors and Officers of Petrobras Distribuidora S.A.

1. PRESENTATION AND GENERAL INFORMATION

The Audit Committee was convened at Petrobras Distribuidora S.A. (“BR”) on August 3, 2016. Its duties and responsibilities are formally established in the Internal Regulations approved by the Board of Directors.

On August 31, 2017 this committee became the Statutory Audit Committee (“CAE”), in due accordance with article 24 of Law 13303 issued June 30, 2016 and article 38 of Decree 8945 issued December 27, 2016 (“Legal Bylaws of the State Companies”.

The Statutory Audit Committee operates permanently and directly reports to the Board of Directors, advising the latter on the performance of its duties, primarily in respect of: (i) the quality, transparency and integrity of the financial statements; (ii) the effectiveness of internal control processes for preparing financial reports; and (iii) the work, independence and quality of the services provided by the independent auditors and internal auditors.

The CAE's reach can be extended to the subsidiaries of BR, subject to the applicable legislation. The CAE’s attributions were accordingly extended to the wholly-owned subsidiary Stratura Asfaltos S.A.

Whilst performing its responsibilities, the CAE is not responsible for planning or conducting audits or any assertion that BR's individual and consolidated financial statements (hereinafter “financial statements”) are complete and accurate and are being presented in accordance with the accounting practices adopted in Brazil as issued by the Accounting Pronouncements Committee - CPC and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). This is the responsibility of management and the independent auditors. The CAE's members are not carrying out the roles of auditors or accountants when performing their responsibilities described in the Internal Regulations.

We therefore emphasize that BR's executives are responsible for preparing and ensuring the integrity of the financial statements, managing risks, maintaining effective internal control systems and ensuring activities comply with the legal and regulatory requirements.

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Directly subordinated to the Board of Directors and the technical oversight of the CAE, the Internal Audit is responsible for periodic engagements focusing on the core risks, broadly and independently assessing the management of these risks and the adequacy of governance and internal controls, embracing the departments and activities which are most sensitive to BR’s strategy and operations.

Also directly subordinated to the Board of Directors and the technical oversight of the CAE, the governance, risk and compliance division - GGRC has to prepare and monitor delivery of the governance model, bolster the integrated vision of corporate risks by identifying, assessing, monitoring and managing material risks, and planning, guiding, coordinating and assessing compliance and control activities. Important measures for enhancing the company’s corporate governance framework in the course of 2017 included transforming the Audit Committee into a Statutory Audit Committee (CAE); approving the policy for appointing members to BR's Audit Committee, Board of Directors and Executive Board; and approving the revision of the Related-party Transactions Policy.

Also responsible for receiving and handling complaints, the Ombudsman's Office is directly subordinated to the Board of Directors and overseen by CAE, by way of periodical meetings with reports and debates about its activities and the content, treatment and conclusion of complaints received in the period.

Conducted by KPMG Auditores Independentes (“KPMG”) since April 2017, the Independent Audit is performed in accordance with Brazilian auditing standards and ISAs. In the period between the financial year ended December 31, 2012 and April 2017, the Independent Audit was conducted by PricewaterhouseCoopers (“PwC”), which also complied with Brazilian auditing standards and ISAs.

The independent auditors’ report sets out the results of their examinations and opinions as to whether BR’s financial statements are being adequately presented, including all material issues, in accordance with the accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

2. COMMITTEE MEMBERS

On August 25, 2017 the Board of Directors approved the revision of the Audit Committee’s Internal Regulations, stating it could have between 3 (three) and 5 (five) members chosen from its directors, appointed and dismissible by this board.

Since its formation, the CAE has had the following directors as members: Jerônimo Antunes (Chairman), Clemir Carlos Magro and Durval José Soledade Santos. Mr. Jerônimo Antunes and Clemir Carlos Magro are the members who specialize in corporate accounting and finances. Mr. Durval José Soledade Santos is an attorney specializing in corporate law.

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We emphasize that all the current members of CAE meet the independence criteria set out in article 22 (1) of Law 13303/16 (State Company Law) and article 31-C (2) of CVM Directive 308/99, issued May 14, 1999, as amended by CVM Directive 509 issued November 16, 2011, in addition to the independence criteria established by the IBGC - Brazilian Institute of Corporate Governance.

3.SUMMARY OF THE STATUTORY AUDIT COMMITTEE'S ACTIVITIES IN 2017/2018

In the period March 01, 2017 to March 13, 2018, BR's CAE held 26 ordinary meetings, with 162 agendas, involving members of the Board of Directors, Audit Committee, Executive Board, Executive Managers, Ombudsman, Internal Auditors and Independent Auditors.

The resolutions taken and recommendations formulated by CAE were duly recorded in minutes.

The CAE Chairman reported monthly to the ordinary meetings of the Board of Directors and the main issues addressed at its meetings, detailing the activities and recommendations given to the various departments of BR, the debate and results of monitoring the activities of the Internal Auditors and Independent Auditors. These reports of issues addressed and recommendations were written up in summary form and attached to the Minutes from the Board of Directors’ meetings.

The CAE compiled the annual schedule of meeting agendas for FY 2018, including all relevant matters and those responsible for performing obligations and responsibilities.

3.1. INDEPENDENT AUDITORS

The CAE met with the independent auditors (“KPMG”) to address the following matters: (i) planning and carrying out the audit of the quarterly and annual financial statements for FY 2017; (ii) determining the scope of the main audit procedures and materiality adopted; (iii) analyzing audit risks; (iv) identified issues and (v) the conclusions of their audit examinations.

The main Audit Issues presented in the Independent Auditors' Report were also debated with the independent auditors, namely: (i) “Operation Car Wash (Lava Jato)” and its impacts on the company; (ii) Judicial proceedings and contingencies(iii) Corporate restructuring; and (iv) Employee benefits.

Joint meetings also took place with KPMG and PwC to analyze the audit engagements conducted to reissue the audit reports on the financial statements for the financial years ended December 31, 2014, 2015 and 2016 and the limited review reports for the quarters ended March 31, June 30 and September 30, 2017, in order to prepare for listing at B3 and the subsequent flotation with the Initial Public offering - IPO taking place on December 15, 2017.

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Information was also obtained to assure the independence of the auditors and that there were no conflicts of interest in other engagements other than auditing the financial statements.

3.2. TAX ACCOUNTING, ADMINISTRATION AND PLANNING

In the reporting period agendas were made for meetings with the accounts department regarding the quarterly and annual financial statements, addressing the main accounting policies adopted, the accounting estimates made and the presentations of the financial and equity situation, financial results, cash flows and added values and the notes to the financial statements. These agendas also involved the Independent Auditors and the Audit Committee, of both BR Distribuidora S.A. and Stratura Asfaltos S.A.

The rating of risks posed by judicial and administrative proceedings, estimated case amounts and consequent accounting records in liability provisions and/or disclosure in the notes to BR's financial statements were analyzed and discussed at CAE meetings with the Executive Legal Department, Tax Planning and Administration and Accounting.

The possible effects on the financial statements for the financial year ended December 31, 2017 and subsequent effects, the changes resulting from the new pronouncements IFRS 9 - Financial Instruments, IFRS 15 — Revenue from Contracts with Customers (both adoption on January 01, 2018) and IFRS 16 - Leases (adoption on January 01, 2019) were analyzed and debated by CAE with the accounting personnel.

3.3. INTERNAL AUDIT

In the various meetings held with the Internal Audit, the CAE was informed about the points of attention and recommendations deriving from the completion of their engagements, and performed a rigorous and detailed follow-up of the measures taken by Management to address and remedy the audit issues. The agendas also addressed the follow-up of the Activities Plan (PAINT), the quarterly and annual reports of the Internal Audits (RAINT), the actions necessary for the process in progress with a view to Quality Assessment of the Internal Audit, in accordance with international auditing standards (The Institute of Internal Auditors - IIA), in addition to monitoring the testing of SOx controls at BR.

To permit effective and adequate monitoring of the Internal Audit’s activities, the CAE determined that after the completion of each audit, the Internal Audit should request formal compulsory assessment from the Executive Manager or General Manager in charge of the audited department, in accordance with issues previously agreed with this Committee, as a way of maintaining an independent channel between the audited Executive Departments and the CAE, to report any criticalities and/or compliments regarding the Internal Audit.

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Note that the Internal Audit Executive Manager is permanently invited to attend all Audit Committee meetings.

3.4. GOVERNANCE, RISK AND COMPLIANCE

The meetings attended by the Governance, Risk and Compliance Department addressed the follow-up and recommendations by the CAE regarding the following key issues: monitoring the system of internal controls in terms of effectiveness and improvement processes; integrity due diligence process; intensive monitoring of the Material Weaknesses Remediation Plan; revising the Risk Management Policy and implementing the Internal Controls Policy.

3.5. OMBUDSPERSON’S OFFICE

The meeting agendas involving the Ombudsman addressed: (i) the organizational structure and control processes and working methodology of this department, (ii) the receipt, investigation and handling of low-risk complaints, which can be examined by BR, by way of the Complaint Investigation Coordinator, and (iii) suspected breaches of the Ethics Code, whilst respecting the confidentiality and independence of the process while guaranteeing appropriate levels of transparency.

3.6. RELATED-PARTY TRANSACTIONS

Performing its duties of assessing and monitoring the adequacy of related-party transactions conducted by BR and the respective supporting documents, the CAE met with the accounting, governance, risk and compliance and internal audit departments to examine: (i) the material issues in the report issued containing the details of such transactions; and (ii) the documents provided regarding the contracts to be entered between BR and related parties, with evidence about the independence and commutative condition of the transaction, in addition to mitigating any conflicts of interest posed by such transactions.

3.7. OTHER ACTIVITIES

In addition to the aforesaid activities, the CAE addressed several other agendas in periodical meetings with the main executives of BR Distribuidora and its wholly- owned subsidiary Stratura Asfaltos S.A., in order to learn about relevant business strategies and to follow up operational, organizational and systemic improvements to bolster the processing and security of the transactions.

The CAE also held joint meetings with the Audit Committee to analyze and approve the quarterly and annual financial statements and those reissued under the company’s IPO, in addition to meetings with the Risk and Finance Committees to address issues of interest to both committees.

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4. AUDIT COMMITTEE REPORTS

4.1. BOARD OF DIRECTORS

The CAE reports monthly to the ordinary meetings of the Board of Directors, presenting matters addressed, its position, recommendations and requests made to the various Company departments and the results of monitoring the activities of the Internal Audits, Independent Audits, Compliance, Governance, Internal Control Support and Corporate Risks Departments and the Ombudsman.

The CAE also issued specific recommendations to the Board of Directors regarding agendas submitted to the examination of this board, as part of its statutory attributions, in addition to issuing and presenting the summary report of its activities, which is disclosed in conjunction with BR’s financial statements. In this reporting period, the CAE introduced a self-assessment process and the results will be presented to the Board of Directors at its meeting in April 2018.

4.2. SENIOR MANAGEMENT - EXECUTIVE BOARD AND EXECUTIVE MANAGERS

For all the meetings held by the CAE, the Executive Boards involved in the matters to be discussed are invited and recommend the participation of Executive Managers from the departments responsible for the agendas to be addressed.

These Executive Managers also propose agendas for presentation to the CAE for issues of interest to this committee, primarily issues to be subject to the examination resolution of the Board of Directors, thereby permitting the analysis by this Committee and making of recommendations to the Board.

5. RECOMMENDATIONS TO THE EXECUTIVE BOARD

As a result of its aforesaid work, the CAE recommended the following actions to the Executive Board, amongst others:

(i) adoption of measures to eliminate significant deficiencies in internal controls reported by the independent auditors in the reports of the parent company Petróleo Brasileiro S.A. - Petrobras, filed with national and international oversight agencies; (ii) Periodical revision over the course of the financial year of the risk of losses - rated as probable, possible and remote chances of defeat - in the outcomes of judicial and administrative proceedings, in addition to estimating any future financial outlays, including attorneys’ fees; (iii) Creation of the complaint investigation coordination, making it possible to investigate low-risk complaints in respect of BR and bolstering the Governance, Risk and Compliance Management Team; (iv) Revision of the internal corporate risks management standard; (v) Adopting a structured plan to manage client default;

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(vi) Aligning corporate policies with the holding company, in respect of the operating standards and policies of BR’s various departments.

The CAE believes that all the items mentioned above, whose action plans have been implemented or are in progress, constitute sufficient procedures to mitigate the internal control risks and do not generate material impacts on the financial statements for the financial year ended December 31, 2017.

6. CONCLUSIONS AND RECOMMENDATIONS FOR THE BOARD OF DIRECTORS

In accordance with their legal responsibilities and duties, the members of the Statutory Audit Committee of Petrobras Distribuidora S.A. have proceeded to examine and analyze the Financial Statements for the financial year ended December 31, 2017, along with the Independent Auditors' Report. The Annual Management Reports accompanying the Financial Statements were also examined.

In view of all of the analyses, studies and debates taking place over the course of the meetings and the oversight and follow-up works conducted by CAE - as described briefly herein - and pursuant to the information provided by BR Management and KPMG Auditores Independentes, the members of the Statutory Audit Committee believe that all of the material events have been properly disclosed in the audited financial statements for the financial year ended December 31, 2017, and recommend they be approved by the Board of Directors.

Rio de Janeiro, March 13, 2018.

Jerônimo Antunes Clemir Carlos Magro Member and Chairman of the Audit Member of the Audit Committee Committee Corporate accounting and finances Corporate accounting and finances expert expert

______Durval José Soledade Santos Member of the Audit Committee

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AUDIT COMMITTEE REPORT

Pursuant to the responsibilities attributed to it by the law and bylaws, at a meeting held today the Audit Committee of PETROBRAS DISTRIBUIDORA S.A. examined its financial statements for the financial year ended December 31, 2017 along with the Independent Auditors' Report. It also examined the Annual Management Report that accompanied the Financial Statements for the financial year ended December 31, 2017.

The Audit Committee members examined the Statement of Financial Position, Statement of Income, Statement of Comprehensive Income, Statement of Changes in Shareholders’ Equity, Statement of Cash Flows, Statements of Added Value, the Notes to the Financial Statements, the allocation of earnings and Independent Auditors' Report and the proposed amendment to the Bylaws of Petrobras Distribuidora, in order to reflect the incorporation into the share capital of the balance of tax incentives reserve.

Based on our examinations and the unqualified opinion issued by KPMG Auditores Independentes for the individual and consolidated financial statements of Petrobras Distribuidora S.A. as of December 31, 2017, in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), also examining the individual and consolidated Statements of Added Value (DVA) prepared under the responsibility of Company Management, the Audit Committee is of the opinion that said documents are ready to be examined by the company’s Annual General Meeting.

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However, the Audit Committee emphasizes its concern about the following issue: (i) Operation Car Wash (Lava Jato) - note that the investigations currently in progress at the Company’s controlling shareholder, Petróleo Brasileiro S.A. - Petrobras, and external agencies, could impact the financial statements for subsequent periods, even if Management does not believe such impacts will be significant.

Rio de Janeiro, March 13, 2018.

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