PROXY PAPER PETROLEO BRASILEIRO S.A. - PETROBRAS BOVESPA: PETR3 ISIN: BRPETRACNPR6 MEETING DATE: 02 APRIL 2014 DJSI WORLD; BRAZIL MID-LARGE CAP; INDEX MEMBERSHIP: BRAZIL IBOVESPA; BRAZIL IBRX; BRAZIL RECORD DATE: 02 APRIL 2014 IBRX 50 PUBLISH DATE: 20 MARCH 2014 SECTOR: ENERGY INDUSTRY: OIL, GAS AND CONSUMABLE FUELS COMPANY DESCRIPTION COUNTRY OF TRADE: BRAZIL Petróleo Brasileiro S.A. - Petrobras operates as an integrated oil and gas company in Brazil and COUNTRY OF INCORPORATION: BRAZIL internationally. VOTING IMPEDIMENT: POA REFER TO APPENDIX REGARDING DISCLOSURES: VOTING INSTRUCTIONS and EXPLANATION FOR REPUBLICATION OWNERSHIP COMPANY PROFILE REMUNERATION PREVIOUS BOARD VOTE RESULTS APPENDIX 2014 ANNUAL GENERAL MEETING PROPOSAL ISSUE BOARD GLASS LEWIS CONCERNS 1.00 Accounts and Reports FOR ABSTAIN See proposal 2.00 Capital Expenditure Budget FOR FOR 3.00 Allocation of Profits/Dividends FOR FOR 4.00 Election of Directors FOR ABSTAIN See proposal 4.01 Elect Guido Mantega FOR FOR 4.02 Elect Maria das Graças Silva Foster FOR FOR 4.03 Elect Luciano Galvão Coutinho FOR FOR 4.04 Elect Francisco Roberto de Albuquerque FOR FOR 4.05 Elect Márcio Pereira Zimmermann FOR FOR 4.06 Elect Sérgio Franklin Quintella FOR FOR 4.07 Elect Miriam Aparecida Belchior FOR FOR 5.00 Election of Board Member Representative of Minority Shareholders UNDETERMINED FOR 6.00 Election of Board Member Representative of Preferred Shareholders UNDETERMINED SPLIT 6.01 Elect José Guimarães Monforte UNDETERMINED FOR Nominee 6.02 Elect Jorge Gerdau Johannpeter UNDETERMINED ABSTAIN independence issues 7.00 Election of the Chairman of the Board FOR FOR 8.00 Election of Supervisory Council FOR ABSTAIN See proposal 8.01 Elect César Acosta Rech FOR FOR 8.02 Elect Paulo José dos Reis Souza FOR FOR 8.03 Elect Marisete Fátima Dadald Pereira FOR FOR 9.00 Election of Supervisory Council Member Representative of Minority UNDETERMINED FOR Shareholders 10.00 Election of Supervisory Council Member Representative of Preferred UNDETERMINED FOR Shareholders 2014 EXTRAORDINARY GENERAL MEETING PROPOSAL ISSUE BOARD GLASS LEWIS CONCERNS 1.00 Remuneration Policy FOR FOR 2.00 Capitalization of Reserves w/o Share Issuance FOR FOR 3.00 Merger by Absorption (Termoaçu) FOR FOR 3.01 Ratification of Appointment of Appraiser (Termoaçu) FOR FOR 3.02 Valuation Report (Termoaçu) FOR FOR 3.03 Merger Agreement (Termoaçu) FOR FOR 3.04 Merger by Absorption (Termoaçu) FOR FOR 3.05 Authority to Carry Out Merger by Absorption FOR FOR Formalities (Termoaçu) 4.00 Merger by Absorption (Termoceará) FOR FOR 4.01 Ratification of Appointment of Appraiser (Termoceará) FOR FOR 4.02 Valuation Report (Termoceará) FOR FOR 4.03 Merger Agreement (Termoceará) FOR FOR 4.04 Merger by Absorption (Termoceará) FOR FOR 4.05 Authority to Carry Out Merger by Absorption FOR FOR Formalities 5.00 Merger by Absorption (CLEP) FOR FOR 5.01 Ratification of Appointment of Appraiser (CLEP) FOR FOR 5.02 Valuation Report (CLEP) FOR FOR 5.03 Merger Agreement (CLEP) FOR FOR 5.04 Merger by Absorption (CLEP) FOR FOR 5.05 Authority to Carry Out Merger by Absorption FOR FOR Formalities PETR3 April 02, 2014 Annual Meeting 2 Glass, Lewis & Co., LLC SHARE OWNERSHIP PROFILE SHARE BREAKDOWN 1 2 SHARE CLASS Preferred Shares Common Shares SHARES OUTSTANDING 5,602.0 M 7,442.5 M VOTES PER SHARE 0 1 SOURCE CAPITAL IQ AND GLASS LEWIS. AS OF 12-FEB-2014 TOP 16 SHAREHOLDERS HOLDER OWNED* COUNTRY INVESTOR TYPE 1. Government of the Federative Republic of Brazil 28.68% Brazil State Owned Shares 2. BNDES Participações S/A - BNDESPAR 17.29% Brazil VC/PE Firm 3. Caixa De Previdencia Dos Funcionarios Do Banco Do Brasil 2.79% Brazil Traditional Investment Manager 4. Aberdeen Asset Management PLC 2.28% United Kingdom Traditional Investment Manager 5. BlackRock, Inc. 2.11% United States Traditional Investment Manager 6. The Vanguard Group, Inc. 1.91% United States Traditional Investment Manager 7. Dimensional Fund Advisors LP 1.56% United States Traditional Investment Manager 8. Franklin Resources Inc. 1.07% United States Traditional Investment Manager 9. BNY Mellon Asset Management 0.94% United States Traditional Investment Manager 10. T. Rowe Price Group, Inc. 0.90% United States Traditional Investment Manager 11. Capital Research and Management Company 0.85% United States Traditional Investment Manager 12. Caixa Economica Federal, Asset Management Arm 0.84% Brazil Traditional Investment Manager 13. Norges Bank Investment Management 0.71% Norway Traditional Investment Manager 14. BTG Pactual, Asset Management Arm 0.64% Brazil Traditional Investment Manager 15. Dodge & Cox 0.64% United States Traditional Investment Manager 16. OppenheimerFunds, Inc. 0.57% United States Traditional Investment Manager *COMMON STOCK EQUIVALENTS (AGGREGATE ECONOMIC INTEREST) SOURCE: CAPITAL IQ. AS OF 12-FEB-2014 **CAPITAL IQ DEFINES STRATEGIC SHAREHOLDER AS A PUBLIC OR PRIVATE CORPORATION, INDIVIDUAL/INSIDER, COMPANY CONTROLLED FOUNDATION, ESOP OR STATE OWNED SHARES OR ANY HEDGE FUND MANAGERS, VC/PE FIRMS OR SOVEREIGN WEALTH FUNDS WITH A STAKE GREATER THAN 5%. SHAREHOLDER RIGHTS MARKET THRESHOLD COMPANY THRESHOLD1 VOTING POWER REQUIRED TO CALL A SPECIAL MEETING 5% 5% VOTING POWER REQUIRED TO ADD AGENDA ITEM N/A N/A 1N/A INDICATES THAT THE COMPANY DOES NOT PROVIDE THE CORRESPONDING SHAREHOLDER RIGHT. PETR3 April 02, 2014 Annual Meeting 3 Glass, Lewis & Co., LLC 1.00: ACCOUNTS AND REPORTS PROPOSAL REQUEST: Approval of financial statements and related reports for RECOMMENDATIONS & CONCERNS: the past fiscal year. PRIOR YEAR VOTE RESULT: N/A ABSTAIN- The Company's director and supervisory council reservations regarding the financial statements are absent from BINDING/ADVISORY: Binding independent auditor's report. REQUIRED TO APPROVE: Majority of votes cast PROPOSAL SUMMARY Shareholders will be presented with the Company's financial statements, management report and supervisory council's report. MARKET PRACTICE In Brazil, unanimous shareholder approval of a company's financial statements exempts management and supervisory council members from liability for their actions during the corresponding fiscal year, with exceptions in instances of error, bad faith, fraud or misrepresentations of accounting, as explained in article 134 of Brazilian Corporations Law 6.404. GLASS LEWIS ANALYSIS We believe that all of the necessary financial statements and reports are present in the Company's annual report. We note that in the opinion of PricewaterhouseCoopers, the Company's independent auditor, the financial statements have been properly prepared in accordance with generally accepted accounting principles in Brazil and International Financial Reporting Standards. We note that in its unqualified opinion, PricewaterhouseCoopers places an emphasis of matter on the accounting standards which were used to prepare the Company's individual financial statements, generally accepted accounting principles in Brazil, which differ from IFRS in the manner investments in subsidiaries are valued. However, we highlight that the Company has electronically disclosed through BM&FBOVESPA that director Mauro Rodrigues da Cunha (representative of minority shareholders), voted against the approval of the aforementioned financial statements during a board meeting, held on February 25, 2014. Mr. Cunha highlighted the following reasons for his objection: (i) lack of timely distribution of financial statements for analysis; (ii) disagreement about the hedge accounting policy; (iii) lack of information and the apparent inadequacy of accounting investments in refineries. Further, in a meeting held on the same day, the supervisory council expressed concerns regarding the possible deterioration of the Company's credit rating, which may affect volumes and costs for future borrowings to finance the investment plans of the Company. We believe shareholders should exercise caution in evaluating the Company's financial statements given Mr. Cunha's objection. However, in the absence of an auditor's qualified opinion regarding these concerns, we do not believe that shareholders have sufficient information to make a well-informed judgment regarding this matter at this time. Although it is unusual for Glass Lewis to recommend that shareholders abstain from voting on a company's accounts in Brazil, the uncertainty regarding the integrity of the Company's financial statements does not warrant support for this proposal at this time. Accordingly, we recommend that shareholders ABSTAIN from voting on this proposal. PETR3 April 02, 2014 Annual Meeting 4 Glass, Lewis & Co., LLC 2.00: CAPITAL EXPENDITURE BUDGET PROPOSAL REQUEST: Approval of capital expenditure budget for the current RECOMMENDATIONS & CONCERNS: fiscal year. PRIOR YEAR VOTE RESULT: N/A FOR- NO CONCERNS BINDING/ADVISORY: Binding REQUIRED TO APPROVE: Majority of votes cast PROPOSAL SUMMARY If approved, the capital expenditure budget will be set at R$69,726,000,000 and will be allocated as follows: FINANCINGS/INFLOWS AMOUNT (R$ MILLIONS) EXPENDITURES/OUTFLOWS AMOUNT(R$ MILLIONS) Direct Investments 69,545.0 Exploration/Production 43,697.3 Third Party Funds 181.0 Downstream 18,428.6 - - Energy/Gas 6,366.0 - - Corporate Segment 1,234.2 GLASS LEWIS ANALYSIS Glass Lewis will generally support a company's decisions regarding capital expenditures, absent a showing of egregious conduct that might threaten shareholder value. It is our opinion that management and the board are in the best position to determine what operational decisions are best in the context of a company's business. We believe