REPORT ON THE PRICING POLICY FOR GASOLINE AND DIESEL 1st QUARTER 2017 BACKGROUND

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1 BACKGROUND The new pricing policy for gasoline and diesel was announced by Petrobras on material fact disclosed on 10/14/2016, and one of its principles is to never charge prices lower than international parity. The purpose of this Report is to analyze the price movements that occurred in the first quarter of 2017, checking their compliance to the pricing policy and the Business Plan of the company. METHODOLOGY The assessment of adjustment needs on fuel values at Petrobras refineries is carried out by the Executive Group of Market and Prices (GEMP) composed of the President of the Company, the Financial and Investor Relations Executive Officer, and the Refining and Natural Gas Executive Officer, who meet at least once a month. The GEMP members continuously monitor oil and derivates prices in Brazil and in the world, as well as their progress vis-à-vis the expectations of results included in the current Business Plan. The assessments on any price movements are made based on analysis of the Marketing and Trading Executive management, which organizes market data taking into account factors such as international quotes, maritime freight, import costs and exchange rate. These assessments also consider the risks inherent to import activity, as for example: volatility in exchange rate and international prices of oil and derivates, demurrage and loss of quality specification. It should be noted that all values used to compose international parity prices (PPI) reflect market costs, such as quotes, freight costs, and import costs. Based on these assessments, the GEMP is responsible for outlining the strategy to be implemented for any price movements, further considering expectations of increases or reductions in Petrobras market shares and the margin to be practiced by the Company in the period. This implies that strategic decisions can mean, for example, the adoption of margins eventually below or above the forecast in the Business Plan, in order to adjust the Company's competitiveness and, consequently, its market shares. Published on June 1 st,

2 ANALYSIS OF ADJUSTMENTS MADE IN THE The practice of price fixing never below international parity, as defined in the new pricing policy for gasoline and diesel, implies the monitoring of the international oil and derivate market, which will be reflected in internal pricing of derivatives, seeking a shorter-term adjustment to these fluctuations. The graph below shows the evolution of international prices of Brent Dated, Diesel (ULSD USG Pipe) and Gasoline (Eurobob) over the first quarter of 2017, which were the main references for Petrobras in the analysis period. 70,0 Prices 1Q 2017(US$/bbl) 60,0 50,0 40,0 30,0 ULSD Average: US$ 64,6/bbl Brent Dated Average: US$ 53,7/bbl Eurobob Average: US$ 62,5/bbl 3-Jan 10-Jan 17-Jan 24-Jan 31-Jan 7-Feb 14-Feb 21-Feb 28-Feb 7-Mar 14-Mar 21-Mar 28-Mar Brent Dated ULSD USG Pipe Eurobob Source: Platts and Argus What was observed was a lateral behavior of quotes in the first months in the quarter, driven mainly by the joint effect of increased oil production in the USA and production cut by the OPEC. During this period, the prices in the international market were near US$67/bbl and US$64/bbl for diesel and gasoline, respectively. In March, the market proved to be more volatile with larger variation in quotes due to the distrust towards the maintenance of the reduction level of OPEC's production, especially because this reduction was largely due to the isolated contribution by Saudi Arabia, compensating for the other members of the organization. In addition, the lack of a clear position by OPEC about your intention to extend the production cut agreement for 6 more months contributed to weakening quotes for part of the period. This effect caused diesel to close the month close to US$65/bbl and gasoline, which was priced at US$57/bbl in the second 10-day period of March, recovered at the end of the month and closed the quarter back at around US$64/bbl. Published on June 1 st,

3 The exchange rate fell in the first two months of the year, fluctuating laterally in March. In the period, the Brazilian currency accrued a -3.2% variation (appreciation of the Real), going from R$3.27 in early January to R$3.17 the end of the quarter. 3,30 Exchange Rate 2017(R$/US$) 3,25 3,20 3,15 3,10 3,05 3,00 2-Jan 9-Jan 16-Jan 23-Jan 30-Jan 6-Feb 13-Feb 20-Feb 27-Feb 6-Mar 13-Mar 20-Mar 27-Mar Source: Central Bank of Brazil PTAX Sell Linear (PTAX Sell) The new pricing policy for gasoline and diesel also considers the behavior of imports as a relevant factor in market analysis and, therefore, in the definition of derivative prices in the country. This has involved variations in Petrobras market share, which are considered by the GEMP. During the first quarter of 2017, the aggregate behavior of third-party imports is diverse when diesel and gasoline are observed. In the case of diesel, imports recorded a reduction until February, and began to rise in March. In the case of gasoline, imports in the first quarter of 2017 showed a reduction in the period, as per the internal monitoring presented below: Diesel Third-Party Imports (million m³/month Gasoline Third-Party Imports (million m³/months) 1,00 1,00 0,80 0,60 0,73 0,78 0,80 0,60 0,40 0,56 0,40 0,20 0,20 0,32 0,24 0,23 0,00 1-Jan 1-Feb 1-Mar 0,00 1-Jan 1-Feb 1-Mar Source: Petrobras Published on June 1 st,

4 This result indicates that price movements carried out by Petrobras in the fourth quarter of 2016 were an influence factor on the behavior of the other players in the country s derivatives market. They too followed the pattern of expected temporal lag between changes in domestic market prices and their possible impact on the behavior of importing agents, estimated at around 2 (two) months. In March, diesel imports returned to the level of January/2017, probably due to inventory adjustments by distributors and expectations of behavior for product price in the international market, with the end of winter in the northern hemisphere. Regarding import logistics, approximately 90% of the volume of purchases by third parties, in the first quarter of 2017, were concentrated in 5 (five) ports, as detailed in the charts below: Diesel Discharge Ports 1Q 2017 Gasoline Discharge Ports 1Q % 9% 17% 14% 10% 38% 3% 11% 16% 34% 20% 19% Paranaguá Santos Itaqui Suape Aratu Outros Paranaguá Santos Itaqui Suape Aratu Outros Source: Petrobras During the first quarter of 2017, Petrobras also put into practice the disclosed policy of individual discounts in distribution poles. This practice adjusts prices taking into account the need for greater flexibility in trading management and to stimulate increased sales. As shown in the chart above, the busiest discharge point was Paranaguá/PR, accounting for 38% of diesel discharges. In this context, during the first quarter of 2017, discounts have been applied at the following points of sale: Month Diesel Gasoline January - - February - - March Araucária/PR - Published on June 1 st,

5 Over the period under analysis, Petrobras held three price movements, two of which in January and one in February. In the month of March, GEMP decided not to carry out adjustments, as shown in table below: Period of Force Diesel Gasoline 1/6/ % 0.0% 1/27/ % -1.4% 2/25/ % -5.4% It should be noted that the maintenance of prices in the month of March has mirrored the movement of derivatives, foreign exchange and market share considered by GEMP in the comparison between the adjustment made in February and the conditions in force at the end of March. The volatility within the month, therefore, was not timely captured on the pricing policy in force. The Executive Committee assessed that adjustments on at least a monthly basis to prices, although a significant improvement over the previous system, have not shown to be the best instrument to accommodate this kind of volatility especially in the international price of commodities and foreign exchange. This observation was noted by the GEMP members and, if confirmed, it might justify increases in the frequency of price adjustments. Pursuant to the new pricing policy for gasoline and diesel, the prices charged by Petrobras over first quarter of 2017 were always above international parity and aligned to the Company s Business Plan, which provides for a margin above PPI, practiced as a reference to increase its revenue, seeking to maximize its results through optimization of sales volume and practiced margin. Published on June 1 st,