Integrated Resilience Quantification: Assumptions Aligned with the Paris Agreement

We carried out simulations of the net present value of our portfolio in the Base scenario, using sensitivity to the Brent price and the carbon price of the external reference scenarios (STEPS, APS and NZE). As further discussed, the total impact on each scenario is the sum of the two outcomes.

Our Growth scenario considers the support of higher prices, converging to US$75/bbl in the long term.

68% 27% -5%

STEPS (+68%) APS (+22%) Brent Brent Carbon Carbon Brent (US$/bbl)

Considers the impact of the price of Brent only in the E&P segment. Pre-tax carbon price effect. Note: The STEPS scenario considers carbon prices only for already regulated markets, without defining this price for Brazil and, consequently, without impacts of this variable on the portfolio value. Petrobras Base Scenario IEA’s NZE Scenario IEA’s APS Scenario IEA’s STEPS Scenario carbon taxation for countries not yet regulated, such as Brazil, and the balance with higher oil prices, there would be a positive impact (22%) on the portfolio value calculated with the internal assumptions.

The oil price sensitivity calculation considers the impact of the Brent price only on the E&P segment and similar margins in the other segments. To calculate the effect of the carbon price, we considered a future regulated market for carbon credits based on international references of markets already in operation (Europe, USA, and China), since there are still many uncertainties regarding the operation of a future carbon market in Brazil.

To test the resilience of our assumptions, we performed simulations of the impact of the International Energy Agency’s scenarios on the value of our portfolio, in compliance with TCFD recommendations.

The results reflect the conservative price assumptions of our internal scenarios adopted in the 2023-2027 Strategic Plan and our strategic choice of the portfolio with high resilience to price volatility in the face of the energy transition.

Adopting more conservative price assumptions aims to direct investments toward assets that are resilient to the economy aligned with the goals of the Paris Agreement. As an external reference for our resilience assessment, we use the NZE scenario. This normative scenario models significant changes in the energy demand profile to reach neutrality in 2050 (50% probability limiting the temperature increase to 1.5ºC). If we compare the quantification of our Base scenario with the assumptions of the NZE scenario, there would be a negative impact of 68% on the net present value (NPV) of our portfolio due to the incidence of carbon prices and the price of oil. However, when compared to our Resilience scenario, the negative impact is about 39%, due to the combined effect of the difference between the Brent price curves and the premises regarding a carbon price.

We emphasize that, despite the long-term price of oil in our Resilience scenario having a similar trajectory to that of the NZE scenario, our forecast for oil demand is higher (57 million bpd against 23 million bpd, in 2050).

There are many uncertainties regarding the functioning of a future carbon market in Brazil, and there is not sufficient and reliable information about the future intentions of regulators to allow us to consider the impact of the carbon price on the valuation of our portfolio for accounting estimates purposes. However, we use carbon price curves associated with internal scenarios in portfolio risk analyses, sensitivity analyses of investment projects, and assessing eligibility for using the Decarbonization Fund.

The International Energy Agency uses a bottom-up optimization model of energy supply and demand, considering in the analysis a mix of fuels and technologies from a cost-minimization perspective, while taking into account technical, economic, and regulatory constraints.

To model the oil supply, production for each country or group of countries is projected according to the type of asset in which investments are made: mature fields, new fields, and unconventional projects. The profitability of each type of project is based on assumptions about the cost of capital and operating cost of the different projects.

Projects are prioritized based on the present value of their respective cash flows, and the most profitable ones are developed to meet the projected production supply gap in different scenarios.

The results published in WEO 2022 indicate that new projects in ultra-deep waters in Brazil play an important role in meeting energy demand (IEA, 2022). They project a 45% increase in the country’s production by 2030 compared to 2021, in the APS scenario (aligned with the Paris Agreement), indicating the region’s competitiveness reflected by low costs and high production efficiency.

Despite the lower predicted consumption of oil and gas in all scenarios, due to the natural decline of existing oil fields, new investments are needed to meet expected demand in order to avoid supply shortages and consequently, price shocks. We use data from the International Energy Agency and S&P Global to test our projects’ alignment with the Paris Agreement’s goals. According to the Least Cost Methodology (LCM), the potential supply of oil and gas is compared to the projected demand for a given scenario, where new projects are ranked according to their breakeven cost, and then grouped to meet demand at the lowest supply cost.

The analysis indicated that our sanctioned projects, but not yet in operation, and unsanctioned projects, are aligned with a projection of declining demand compatible with the IEA’s APS scenario in 2030. According to global data from S&P Global, our projects are resilient and show a breakeven average below US$ 40 per barrel. S&P’s breakeven calculation includes exploration, development, and field operation costs, in a point-forward view. Decommissioning costs are not considered, nor are residual values. The breakeven value calculated internally by Petrobras is lower than the value estimated by the S&P methodology.