QGEP Participações S.A.

Transcription

1 QGEP Participações S.A. Individual and Consolidated Interim Financial Information for the period ended September 30, 2018 (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 practices adopted in Brazil, rules of the CVM and of the International Financial Reporting Standards - IFRS)

2 Management Commentary This was an eventful and productive quarter for QGEP, putting us on track for a future growth. Strong operating results positively contributed to the Company s financial performance and we made progress on our exploratory assets. Our third quarter production levels were in-line with our expectations, reaching 1,736 thousand barrels of oil equivalent in the period 1, equivalent to 18,9 thousand boe per day reflecting the addition of Atlanta Field production. Increased production represented a key driver of higher revenue and operating cash flow performance in the period. Additionally, we moved ahead with plans to drill a third well in the Atlanta Field, and we continued to optimize our exploration portfolio, while completing the acquisition of 3D seismic for our high potential exploration blocks in the Sergipe-Alagoas Basin. As we reported in early October, Manati Field average daily natural gas production reached 5.2MMm³ per day in the third quarter, relatively stable with the 5.3MMm³ we produced last year and considerably ahead of the 4.9MMm³ we reported in this year s second quarter. Thus, the Consortium is on track for annual production of 5.0MMm³ per day for 2018, inline with our guidance. Our 45% interest in the Manati Field has been a major driver of QGEP s strong operating cash flow and will continue to be an important cash generator for the Company as it enters its 13 th year of production in For next year, our daily production guidance for Manati is of approximately 4.3MMm³, plus or minus 5%, taking into account its natural decline. We expect to continue to achieve high operating margins on our Manati production, despite lower production levels. Our 2019 production guidance assumes similar demand factors to those observed in Importantly, we expect that production from the Atlanta Field, where QGEP is the operator, will compensate for lower expected production at Manati next year. Third quarter average daily production from two producing wells was 12.9 thousand barrels of oil, in line with our expectations, and that production rate should remain relatively constant until production commences at the third well in the second quarter of In mid-september, subsequent to the approval by the Consortium, we announced that we contracted the drillship Laguna Star to drill the third well in Atlanta s Early Production System (EPS) and then proceed with interventions in the two wells already in production. We plan to replace the submersible pumps located inside the wells that have malfunctioned, which will considerably increase their production levels. Once these actions are complete, likely by the end of the 2019 third quarter, we expect the Atlanta EPS production to range from 25,000 to 27,000 barrels per day. The consortium will then decide whether to move ahead with a Full Development System (FD) in the second half of 2019, which would involve the drilling of nine additional wells in our base case. The price of oil will be a key determinant of the consortium s decision on this expansion. One factor that may influence Atlanta s oil sales prices is the International Maritime Organization s recent change to bunker fuel regulation, imposing a lower global limit for sulfur in fuel oil used on board ships. The new standard goes into effect on January 1, 2020 and should benefit demand and pricing for our production, given 1 Includes production of gas, oil and condensate.

3 QGEP PARTICIPAÇÕES November 12, 2018 that our Atlanta Field oil has very low sulfur content. Thus, the Atlanta Field is becoming an increasingly important asset for QGEP, due to the revenue generated from oil sales that act as a natural hedge against fluctuations of the Brazilian Real. On September 26, 2018 QGEP announced that it had been informed that Barra Energia s request for Dommo Energia s compulsory withdrawal from the BS-4 Consortium had been declared valid and effective in an award issued by the London Court of Appeals. As a consequence, Dommo s share in Block BS-4 results in a 50% ownership for each company, QGEP and Barra, in the Block. The award is subject to clarification as requested by the parties to the court. QGEP is in the process of implementing the decision before the arbitral court and will seek the transfer of the concession in accordance with procedures applicable to the relevant Brazilian authorities. With respect to exploration activities, the shooting of 3D seismic on our six contiguous blocks in the Sergipe-Alagoas Basin has been completed. Currently, the seismic information is being processed, and we expect to receive the preliminary data at the end of first quarter of Following receipt, we will be working with our partners to map out a drilling program, which is expected to commence as early as These blocks, in which we have a 30% interest and are together with partners ExxonMobil and Murphy Oil, represent the cornerstone of our exploratory portfolio. Their positioning adjacent to relevant discoveries has led us to designate them as medium to low risk prospects with high potential volume. As part of our portfolio optimization strategy, we recently relinquished two blocks in the Pernambuco-Paraiba Basin and began the relinquishment process for the Camarão Norte Discovery, charges for which are reflected in this year s third quarter earnings. Additionally, in exploration, we have an ongoing farm-out process underway for our Pará-Maranhão Basin blocks, in which we have a 100% interest, and expect to conclude the process next year. We continually review and evaluate our asset portfolio to optimize the economic viability of exploratory projects and to maintain our focus on offshore blocks in deep waters. Year-to-date financial results have put QGEP firmly on track for positive year-on-year comparisons in Looking ahead to 2019, we will have a full year of volumes and revenues from two producing assets. Costs related to replacing the pumps in our two initial Atlanta Field wells will be quickly offset by higher production once we have all three wells on line and we benefit from a higher ownership position in the Block. Additionally, we will enter 2019 with a strong balance sheet and the financial flexibility to support our future growth. Finally, we would like to highlight that we recently were privileged to be invited to participate in a panel on sustainable development objectives in Brazil the role of the private sector, of the United Nations during the General Assembly held in New York City. The Company presented the Project entitled "Partnerships and Knowledge to Preserve the Brazilian Coast", that represented information on gathered on projects focused on p. 2

4 QGEP PARTICIPAÇÕES November 12, 2018 sustainability, socio environment development and scientific knowledge creation on the offshore and coastal environment. These scientific finding not only contribute to specific activities for QGEP, but also are for the benefit of the development of coastal communities, providing positive results for society as a whole. This was important recognition for our Company s ongoing commitment to working responsibly and prioritizing the safety and the well-being of our partners, communities and the environment. QGEP s Assets Basin Block/ Concession Field/ Prospect QGEP Working Interest Resource Category Fluid Camamu BCAM-40 Manati 45% Reserve CAL-M-372 CAM#01 20% Prospective Atlanta Reserve Santos BS-4 Oliva 30%* Contingent Piapara Prospective Espírito Santo ES-M % Prospective ES-M % Prospective Foz do Amazonas FZA-M % Prospective Pará-Maranhão PAMA-M % Prospective PAMA-M % Prospective Ceará CE-M % Prospective Sergipe-Alagoas SEAL-M % Prospective SEAL-M % Prospective SEAL-M % Prospective SEAL-M % Prospective SEAL-M % Prospective SEAL-M % Prospective Oil Gas *Additional stake of 20% in relation to the arbitration process, as disclosed by the Company p. 3

5 QGEP PARTICIPAÇÕES November 12, 2018 QGEP s Assets Production and Development MANATI Block BCAM-40; Working interest: 45% Average daily gas production at the Manati Field, one of the main gas suppliers in the Northeast Brazilian region, was 5.2MMm³ in the third quarter of 2018, slightly below the 5.3MMm³ produced in the same period of By contrast, when compared to 2Q18, production was up 7.6% from the 4.9MMm³ reported during that period. This increase reflects higher natural gas usage to fuel power generation attributable to a lack of rainfall. Year-to-date average daily production was 4.9MMm³, up by 6.1% from the similar period in 2017, putting the Consortium on track for full year 2018 average daily production of approximately 5.0MMm³, in line with previous guidance. For 2019, the Company currently expects average daily production of 4.3MMm³, give or take 5%. This decline compared to the volume produced in 2018 reflects the natural decline of the Field. A scheduled maintenance is expected for 2Q19 at the Field s processing plant which will interrupt production for about 20 days, with a cost approximately of US$6 million to the consortium. The reserve certification for the Manati Field prepared by GCA updated on December 31, 2017 indicated that 2P reserves for 100% of the Field totaled 7.6 billion m³ of natural gas and 0.8 million barrels of condensed gas, corresponding to approximately 48.4 million boe of gas, in line with the previous certification, considering the reduction of produced volume. ATLANTA Block BS-4; Working Interest: 30%*; Operator With two producing wells, total third quarter production, net to QGEP, was kbbl of oil, equivalent to average daily production for the period of 12.9 kbbl per day. As previously reported, the Consortium has elected to drill a third well in the Atlanta Field, which is expected to increase production by 8-9 kbpd without a significant increase in operating costs. In September 2018, QGEP, as operator of the Field, and with approval by the Consortium, contracted the rig Laguna Star to drill this well, which is scheduled to begin in the first quarter 2019, as well as to undertake intervention activities in the two current producing wells. Upon completion of the drilling and start of production of the third well, the rig will be moved to one of the current wells to replace the pump from the well, an activity that should last approximately 45 days. At the end of this intervention, the rig will be moved to the last well to perform similar activities. The total cost is expected to reach $45 million for the Consortium. As a result, we will have continuous production from at least two wells throughout the entire year in Once the third well is on line and the pumps are repaired, which is likely to be in the third quarter of 2019, average production from the three wells in the Field is expected to reach thousand barrels per day. p. 4

6 QGEP PARTICIPAÇÕES November 12, 2018 In 3Q18, lifting cost reached US$401 thousand/day, equivalent to US$31.1/bbl. This amount is much lower than US$41.8/bbl registered in 2Q18, when the field was in its stabilization period. After the first 18 months of production, operating costs are expected to be US$480 thousand/day, and will fluctuate with variables, largely tied to the Brent oil price. Atlanta Field (100%) 2Q18 3Q18 % Lifting cost (US$ million) % Lifting cost (US$ thousand/day) % Lifting cost (US$/bbl) % Production (Thousand bbl) , % The Company has a crude oil sales agreement with Shell Oil, for all of the Atlanta Field EPS oil production. Regarding the arbitration proceeding related to Block BS-4, where the Atlanta Field is located, as previously-disclosed by the Company, the first phase was concluded in September This first phase was a partial arbitration ruling confirming the validity and effectiveness of the expulsion of Dommo Energia effective October 11, This ruling is subject to the deadline for clarification requests due this week. This result calls for QGEP s stake in Block BS-4 to be increased to 50%, including all economic and ownership impacts related to the additional 20% share. QGEP is in process of implementing the decision before the arbitral court and will seek the transfer of concession in accordance with procedures applicable to the relevant Brazilian authorities. A second and third phases are still planned for arbitration. In the second phase, QGEP will seek its rights to recover the cash calls due and not paid by Dommo up through the date of the expulsion in October 2017, in addition to all arbitration costs that should be reimbursed to QGEP and to the Consortium in its entirety by Dommo and as determined by the arbitration ruling of September A third phase is reserved for all possible requests by the parties. *Additional stake of 20% in relation to the arbitration process, as disclosed by the Company Exploration SEAL-M-351, SEAL-M-428, SEAL-M-501, SEAL-M-503, SEAL-M-430 E SEAL-M-573 Working Interest: 30% The Sergipe-Alagoas Basin represents an important exploratory play for QGEP, where the Company now has a 30% ownership in six blocks located in ultra-deep waters, 80 to 100 km away from the coast, in partnership with ExxonMobil, operator with 50% working interest and with Murphy Oil, with the remaining 20%. The ultra-deep water region of this Basin is considered by QGEP to have high exploratory potential and medium-low risk, with six significant discoveries already registered by Petrobras in adjacent areas. The main oil system in this region of the Basin is similar to p. 5

7 QGEP PARTICIPAÇÕES November 12, 2018 other discoveries made along the north coast of South America and comparable to important discoveries in the West African coast. The Company, and its partners, completed the acquisition of 3D seismic data for the six blocks in the third quarter of QGEP expects to have the first read of the data by the first quarter of Additionally, in 2019, the consortium will evaluate the seismic data, and develop a drilling program for the area, as it awaits an environmental license. Drilling is expected to commence as early as BLOCKS ACQUIRED IN THE 11 th ANP BIDDING ROUND Working Interest: Various QGEP s has 100% ownership interests in both the PAMA-M-265 and PAMA-M-337 blocks of the Pará-Maranhão Basin and the block FZA-M90 at the Foz do Amazonas Basin. 3D seismic data acquisition and processing have been completed for the three blocks and QGEP completed its evaluation during the first quarter of QGEP has opened a data room to a select group of potential partners for the farm-out of the Pará-Maranhão Basin blocks. The process is progressing at a good pace with several interested potential partners. The Company expects that this process will be completed in The oil system for the ultra-deep waters of these basins is similar to the one successfully tested in Sergipe-Alagoas, Guyana and the West African Margin, with reservoirs and contemporary generating sections. 3D Seismic data acquisition and processing for Ceará (CE-M-661) and Espírito Santo (ES- M-598 and ES-M-673) Basins have been completed. In Ceará Basin, consortium is forecasting exploratory well drilling at the end of CAL-M-372 Working Interest: 20% The concession of Block CAL-M-372 is suspended due to the lack of an environmental license from IBAMA. When the license is issued, the Consortium plans to drill a pioneer well targeting the CAM#01 prospect. During this period, the Consortium received the reprocessing of the seismic data and began its interpretation. Recent Corporate Events On April 10, 2017, the Board of Directors approved the closure of QGEP International GmbH, based in Vienna, which had no operating activity. On July 17, 2018, the Commercial Court of Vienna registered the winding-up of QGEP International GmbH, and its activities were officially closed on the reference date, not resulting in relevant accounting impact. On September 11, 2018 QGEP announced that it has informed the National Agency of Petroleum, Natural Gas and Biofuels (ANP) of its decision to relinquish the PEPB-M-896 and PEPB-M-894 Blocks in the Pernambuco-Paraíba Basin. The Company acquired a 30% p. 6

8 QGEP PARTICIPAÇÕES November 12, 2018 working interest in these blocks in the 11 th ANP Bidding Round and their exploratory periods ended in September This decision is aligned with the Company s strategy of continuous portfolio optimization. In other news, on October 11, 2018 QGEP announced that the Consortium of Block BCAM- 40 has begun the relinquishment process with the ANP of the Camarão Norte Discovery located south of the Manati Field, in the Camamu Almada Basin. QGEP holds a 45% interest in the Camarão Norte Discovery, which was declared commercial in After evaluating several development plans and potential unitization to the adjacent area, the Consortium concluded that the area is not economically viable and opted for its relinquishment. The carrying value of the Camarão Norte Discovery of R$13.4 million net to QGEP, and was taken as a charge in this third quarter earnings. Financial Performance Income Statement and Financial Highlights (R$ million) 3Q18 3Q17 % 9M18 9M17 % Net Revenue % % Costs (146.4) (59.3) 146.9% (276.6) (172.5) 60.4% Gross Profit % % Operating income (expenses): General and administrative expenses (15.6) (11.6) 34.1% (30.7) (36.6) -16.2% Equity Method 0.5 (0.2) n.a. (0.5) (1.3) -60.8% Exploration Expenditures (26.9) (6.0) n.a. (45.6) (24.4) 86.4% Other net operational expenses 1.2 (0.0) n.a (0.0) n.a. Operating income (Loss) % % Net Financial Result % % Income before income tax and social contribution Income tax and social contribution % % (8.0) (11.7) -31.4% (88.9) (36.7) 142.0% Net income (Loss) % % Net cash inflows from operating activities % % EBITDAX (1) % % Some percentages and other figures included in this report were rounded to facilitate presentation and therefore may present slight differences in relation to the tables and notes presented in the quarterly information. In addition, for the same reason, the totals presented in certain tables may not reflect the arithmetic sum of the preceding figures. (1) EBITDAX is a measure used by the oil and gas industry calculated as follows: EBITDA + exploration expenses with subcomercial and dry wells. The Company calculates EBITDA as profit before taxes and social contributions, net financial results and amortization expenses. EBITDA is not a financial measure according to Brazilian GAAP or IFRS. It should also not be considered in isolation or as a substitute for net income, as a measure of operating performance, or as an alternative to operating cash flow as a measure of liquidity. Other companies may calculate EBITDA differently than QGEP. Furthermore, EBITDA has limitations which inhibit its usefulness as a measure of the Company s profitability as it does not consider certain costs inherent in the business, which could significantly impact net results, such as financial expenses, taxes and amortization. EBITDA is utilized by the Company as an additional measure of its operating performance. p. 7

9 QGEP PARTICIPAÇÕES November 12, 2018 QGEP s third quarter 2018 financial results benefitted from a full quarter of production from the Atlanta Field and stable production from Manati, which resulted in substantial revenue growth compared to the similar period in EBITDAX, in turn, benefitted from the higher production, as well as an improved cost structure. As part of its portfolio optimization strategy, QGEP returned two blocks in the Pernambuco-Paraiba Basin and also began the relinquishment process for the Camarao Norte Discovery Block in BCAM-40. In the aggregate a charge of R$24.3 million related to these actions was recorded in the third quarter. The Company ended the period with a solid cash position of R$1.9 billion, which provides significant funds to support the investments and the capital allocation program. Third Quarter 2018 Financial Highlights: Net revenue was R$221.4 million, up 63.3% from 3Q17. Of the total, R$137.6 million was attributable to the Manati Field, value 1.5% above 3Q17. Revenue included a full quarter contribution from the Atlanta Field, which represented 38% of total revenue. Company also benefited from Brent price increase as well as Real depreciation. Exploration expenses were R$26.9 million, well above the same period of the prior year. The increase was primarily due to R$24.3 million write-off, as a result of the relinquish of Pernanbuco-Paraíba Basin blocks and Camarão do Norte discovery in the period. Total operating costs were R$146.4 million in the quarter, more than double 3Q17 levels, primarily attributable to costs associated with the start-up of production at the Atlanta Field. Manati Field operating costs were R$59.1 million, 0.3% lower than 3Q17. This reduction was mainly due to lower maintenance costs as 3Q17 results were impacted by R$4.0 million associated with repair of the damaged flow line, partially offset by the increase in depretiation due to the reduction of 1P reserves used as the base for calculation as well as exchange variation on the provision for abandonment. Operating expenses from the Atlanta Field were R$87.3 million with production costs of R$42.3 million. Depreciation and amortization costs were R$36.9 million. To calculate the amount of the investment recorded in property, plant and equipment, the Company used the developed reserve of 17 million barrels, while for the depreciation of the intangible, QGEP used the 1P reserve of 147 million barrels, according to the GCA certification issued in General and administrative expenses totaled R$15.6 million, up 34.1% from the same period of the prior year. The increase reflects stock options plan expenses and higher consultancy fees, partially offset by higher expenses allocation to partners, but as a percentage of total revenue improved by 160 basis points as the Company was able to leverage the costs over a higher revenue base. EBITDAX in the period was R$118.0 million, an increase of 55.6% from 3Q17, primarily reflecting higher operational results. Net financial income was R$29.6 million, more than twice the R$13.8 million registered in 3Q17 mainly due to the increase in cash position. p. 8

10 QGEP PARTICIPAÇÕES November 12, 2018 Net income decreased 8.0% to R$55.6 million, down from R$60.5 million in 3Q17, as higher non-cash amortization costs and non-recurring exploration expenses. Operating cash flow totaled R$150.3 million, compared to R$73.8 million in 3Q17. Manati Field 3Q18 3Q17 % 9M18 9M17 % Depreciation and amortization % % Production costs % (6.2) % Maintenance costs % % Royalties % % Special Participation % % R&D % % Other n.a % TOTAL % % Atlanta Field 3Q18 3Q17 % 9M18 9M17 % Production costs n.a n.a. Maintenance costs n.a n.a. Royalties n.a n.a. Depreciation and amortization n.a n.a. TOTAL n.a n.a. Nine Month 2018 Financial Highlights: Net revenue was R$498.5 million, up 39.8% from 9M17. This increase was driven by higher production from the Manati Field and the start of oil production at the Atlanta Field in May Exploration expenses were R$45.6 million, up 86.4% from the same period of the prior year. Funds were mainly expended on the relinquish of Pernanbuco-Paraíba Basin blocks and Camarão do Norte discovery as well as on the acquisition and/or processing of seismic for the six blocks located in Sergipe-Alagoas Basin and metaoceanographic studies for the Pará-Maranhão and Foz do Amazonas Basin blocks. Total expenses were partially offset by the 2Q18 reversal of R$6.8 million found by QGEP as a non-due amount after audit of BM-S-12 expenses, a block that already had been returned to the ANP. Total operating costs were R$276.6 million, 60.4% higher than the same period of the prior year, reflecting costs due to the start-up of the Atlanta Field, partially offset by the reduction in operating costs at Manati Field, resulting from lower maintenance costs in the period. Maintenance costs of Manati were a revenue R$6.2 million through September 2018 compared to R$18.0 million in the same period of 2017 which included the insurance reimbursement due to Manati incident. General and administrative expenses totaled R$30.7 million, 16.2% lower than the p. 9

11 QGEP PARTICIPAÇÕES November 12, 2018 same period of the prior year. The decrease was primarily due to the reversal of expenses related to stock option plans earlier in the year. Year-to-date EBITDAX was R$415.1 million, more than twice the R$168.1 million reported in 9M17, primarily reflecting increased operational result as well as the gain on the sale of Block BM-S-8. Net financial income was R$97.0 million positive, compared to R$79.3 million in 9M17. The is primarily due to higher cash position. Net income in 9M18 was R$299.9 million compared to R$164.3 million in 9M17, reflecting higher operating income as well as the gain on sale of the Company s interest in Block BM-S-8. Operating cash flow totaled R$428.9 million, compared to R$211.9 million in 9M17. Credit with Partners Of the total amount of R$181.5 million recorded as of September 30, 2018, R$ million related to 40% of the participation rights in Block BS-4, whose ownership by Dommo Energia S.A ( Dommo ), has been adjudicated by the London Court of Arbitration as being transferred proportionally to QGEP and to Barra Energia, effective October 11, 2017, in its final decision on September 25, 2018 by the Brazilian authorities. The difference of the total amount relates to other consortium members. Balances with Partners These reflect expenses incurred with E&P activities which are charged ( Cash Calls ) or to be charged from non-operator partners in respective consortia, or allocated by operator partners to the Company in the blocks not operated by QGEP. Of the amounts mentioned above: R$23.0 million refer to 40% owed by Dommo and not paid on September 30, In addition, payments made by QGEP Netherlands honoring OGX Netherlands B.V s default in Atlanta Field BV totaled R$24.4 million on September 30, Other non due credits related to the period of September 30, 2018, referring to other consortium members, total R$36.1 million. BS-4 Rights of Participation in Dispute These reflect expenses incurred by QGEP referring to its stake in the Block BS-4 in dispute. As previously announced by the Company, and in view of Dommo s historical default of its financial obligations in the consortium of Block BS-4, in October 2017, Barra Energia exercised its rights to expel Dommo as provided for in the consortium documents. Dommo objected to the validity of its expulsion from consortium BS-4 in an arbitration proceeding before the London Court of International Arbitration. The rights of participation p. 10

12 QGEP PARTICIPAÇÕES November 12, 2018 referring to the partner expelled from consortium reflect 40% of the concession ( Rights of Participation in Dispute ). On September 25, 2018, the Arbitral Tribunal declared the expulsion validity as from October 11, 2017 and confirmed Dommo s loss of Rights of Participation in Dispute. As a result, each of the remaining members of the Consortium now holds 50% interest in the block. Payments made since October 11, 2017 referring to the pro rata share under dispute total, up to that date, were R$122.7 million. QGEP will implement this decision before the Arbitral Tribunal and appropriate Brazilian authorities. As a result of BS-4 operation and the trading of oil deriving from BS-4 related to the Rights of Participation in Dispute, the Company recorded as of September 30, 2018 the amount of R$55.4 million under Other Accounts Receivable and R$55.4 million under Consortia Obligations. Capex and Other Exploratory Expenses QGEP has funded its required capital expenditures from internally generated funds. Capital expenditures are also being supported with resources received from the sale of Block BM- S-8 and the farm-out agreements. The Company maintains a cash position sufficient to support its funding requirements for the next several years. Investment decisions are planned at the Consortium level for the different assets of the QGEP portfolio, and QGEP accounts for the portion corresponding to its participation in the respective asset. Capital expenditures in 3Q18 were US$7.1 million of which 81% were invested in the Atlanta Field. CAPEX for the year already totaled US$46.6 million. The Company estimates that the total investment for 2018 will be US$60 million, including US$40 million for the Atlanta Field and US$15 million for exploration activities, of which US$10 million is associated with activities in the Sergipe-Alagoas Basin, and US$5 million relates to seismic acquisition for the blocks acquired in the 11 th ANP Bidding Round total CAPEX is taking in consideration QGEP 30% share of Atlanta Field. In 2019, total capital expenditures are planned at US$70 million. QGEP plans to invest US$38 million in in Atlanta Field, which corresponds to 54% of total capex planned for the year. The remaining funds will be utilized, mainly, for the beginning of exploratory drilling in Block CAL-M-372 and for the beginning of well drilling in Ceará Basin (blocks acquired in the 11 th Bidding Round) total CAPEX is taking in consideration QGEP 30% share of Atlanta Field. p. 11

13 QGEP PARTICIPAÇÕES November 12, 2018 CAPEX net to QGEP (US$ million) Production Exploration Others BS-4 SEAL Blocks 11th Round Manati CAL-M-372 Others Cash Position (Cash, Cash Equivalents and Marketable Securities) and Debt As of September 30, 2018, QGEP had a cash balance of R$1.9 billion, up 33% from R$1.4 billion on September 30, Currently, 99% of the Company s funds are invested in Brazilian real-denominated instruments considered as of a conservative profile and 1% in instruments denominated in US dollars. As of September 30,2018 the average annual return of these investments was 99.9% of the CDI, and 65% of the funds had daily liquidity. QGEP s debt is comprised of financing raised with FINEP (Financing Agency for Studies and Projects) and credit facilities from Banco do Nordeste do Brasil. As of September 30, 2018, QGEP s total debt was R$298.5 million, compared to R$325.2 million at year-end of 2017 and R$333.9 million on September 30, 2017, reflecting the ongoing repayment of the FINEP debt that commenced in September Funds from FINEP are part of a financing package aimed at supporting the development of the Atlanta Field EPS, and consists of two credit lines, one at a fixed rate of 3.5% per year, and another at a floating rate linked to TJLP. Both have a grace period of three years and a repayment period of seven years, being the disbursed balance of R$266.0 million. The BNB financing is directed to exploration investments of two of the Company's assets in Northeast Brazil. The loan, which carries an interest rate of 4.71% per year with a grace period of five years. In July 2017, the Company announced that it had received and accepted an unsolicited offer from Equinor to purchase its 10% working interest in Block BM-S-8 for US$379 million. Under the terms of the sale, fifty percent of the total purchase price was paid at closing upon receipt of ANP and other regulatory approvals. Through end of September, 2018, QGEP had received R$234.5 million from Equinor for the first and second p. 12

14 QGEP PARTICIPAÇÕES November 12, 2018 installments of the transaction. The remaining payment, accounting for 38% of the sale value is due to QGEP upon the signing of the Production Individualization Agreement, or Unitization, of areas. The Company s net cash position as of September 30, 2018 was R$1.6 billion. With the start of production at the Atlanta Field, the Company's Market Risk Management Policy was revised to incorporate, in addition to the currency risk already monitored, the oil price risk and the interaction between these two components. The main objectives of the Market Risk Management Policy are: to hedge the Company s cash flows; to mitigate events that may adversely affect its financial flexibility or its access to sources of capital; and to preserve the company s financial solvency. The Policy currently identifies the exchange US Dollar rate and the price of Brent as relevant market risks. The Exchange Rate Risk is relevant when there is an imbalance between QGEP s rights and obligations in dollars, taking into consideration that the Company's functional currency is the Real and that most of its cash and a relevant part its revenue today is in Reais. The Company considers that its rights and obligations in foreign currency are currently balanced. In addition, the Company constantly evaluates the possibility of hedging future oil production to increase its cash flow predictability and set the foreign exchange assets it will need to cover its investment plan and operating expenses in foreign currency, minimizing the need to hedge foreign exchange with derivatives. The Company currently has an option to sell a part of its estimated 12-month oil production, equivalent to 439 kbbl at a price of US$70 per barrel. The average cost of buying these put options (Quarterly Asian PUT) was US$2.0 per barrel. p. 13

15 KPMG Auditores Independentes Rua do Passeio, 38 - Setor 2-17º andar - Centro Rio de Janeiro/RJ - Brasil Caixa Postal CEP Rio de Janeiro/RJ - Brasil Telefone +55 (21) , Fax +55 (21) Report on the review of quarterly information - ITR (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 practices adopted in Brazil, rules of the CVM and of the International Financial Reporting Standards - IFRS) To the Board of Directors, Stockholders and Directors of QGEP Participações S.A. Rio de Janeiro - RJ Introduction We have reviewed the individual and consolidated interim accounting information of QGEP Participações S.A. ( the Company ), identified as Parent Company and Consolidated, respectively, included in the quarterly information form - ITR for the quarter ended September 30, 2018, which comprises the balance sheet as of September 30, 2018 and the respective statements of income and comprehensive income for the three and nine months period ended September 30, 2018, and statements of changes in stockholders equity and cash flows for the nine-month period then ended, including the explanatory notes. The Company`s Management is responsible for the preparation of these interim accounting information in accordance with the CPC 21(R1) - Demonstração Intermediária and the IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board IASB, as well as the presentation of these information in accordance with the standards issued by the Brazilian Securities and Exchange Commission, applicable to the preparation of quarterly information - ITR. Our responsibility is to express our conclusion on this interim accounting information based on our review. Scope of the review We conducted our review in accordance with Brazilian and International Interim Information Review Standards (NBC TR Revisão de Informações Intermediárias Executada pelo Auditor da Entidade and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries primarily of the management responsible for financial and accounting matters and applying analytical procedures and other review procedures. The scope of a review is significantly less than an audit conducted in accordance with auditing standards and, accordingly, it did not enable us to obtain assurance that we were aware of all the material matters that would have been identified in an audit. Therefore, we do not express an audit opinion. KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. 1

16 Conclusion on the individual and consolidated interim accounting information Based on our review, we are not aware of any fact that might lead us to believe that the individual and consolidated interim accounting information included in the aforementioned quarterly information was not prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34, issued by the IASB, applicable to the preparation of the quarterly review - ITR, and presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission. Other matters Statements of added value The individual and consolidated statements of value added for the nine-month period ended September 30, 2018, prepared under the responsibility of the Company's management, and presented as supplementary information, were submitted to the same review procedures followed together with the review of the Company's interim financial information. In order to form our conclusion, we evaluated whether these statements were reconciliated to the interim financial information 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. Based on our review, nothing has come to our attention that causes us to believe that the accompanying statements of value added were not prepared, in all material respects, in accordance with the individual and consolidated interim financial information taken as a whole. Rio de Janeiro, November 5, 2018 KPMG Auditores Independentes CRC SP /O-6 F-RJ Original report in Portuguese signed by Bernardo Moreira Peixoto Neto Accountant CRC RJ /O-8 KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. 2

17 BALANCE SHEET AT SEPTEMBER 30, 2018 AND DECEMBER 31, 2017 (In thousands of Brazilian reais - R$) Note Parent Company Consolidated ASSETS 09/30/ /31/ /30/ /31/2017 CURRENT ASSETS Cash and cash equivalents ,046 64,058 18,815 Short-term investments 4 38,487 65,855 1,739,665 1,874,376 Accounts receivable , ,539 Inventories , Recoverable taxes ,336 50,024 Related parties 8-2,081 24,520 20,028 Interest on equity 8-161, Credit to partners , ,005 Properties for sale ,003 Others 36 1,170 81,008 13,724 Total current assets 39, ,315 2,260,780 2,284,376 NONCURRENT ASSETS Restricted cash , ,270 Long-term investments , ,545 Recoverable taxes ,042 4,188 Deferred income tax and social contribution ,532 45,361 Others non current assets - - 4,320 1,009 Investments ,025,178 2,907, , ,397 Property, plant and equipment , ,191 Intangible , ,204 Total noncurrent assets 3,025,178 2,907,705 1,740,218 1,654,165 TOTAL ASSETS 3,064,421 3,139,020 4,000,998 3,938,541 LIABILITIES AND NET EQUITY CURRENT LIABILITIES Suppliers , ,646 Borrowings and financing ,816 36,813 Taxes payable ,581 33,635 62,455 Payroll and related taxes ,895 8,344 Related party transactions ,410 3,106 Provision for research and development - - 6,925 12,421 Advance from third parties ,922 57,922 Consortium obligation ,211 - Other obligations ,848 23,334 Total current liabilities , , ,041 NONCURRENT LIABILITIES Provision for retirement obligations - ARO , ,021 Borrowings and financing , ,369 Others Total noncurrent assets , ,390 SHAREHOLDERS' EQUITY Paid-in capital 26 2,078,116 2,078,116 2,078,116 2,078,116 Capital reserve 33,458 40,712 33,458 40,712 Investment reserve 643,712 1,043, ,712 1,043,708 Other comprehensive income 53,079 18,187 53,079 18,188 Shares held in treasury 27 (44,139) (70,614) (44,139) (70,614) Net profit for the year 299, ,897 - Total shareholders' equity 3,064,123 3,110,108 3,064,123 3,110,110 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,064,421 3,139,020 4,000,998 3,938,541 The accompanying notes are an integral part of the financial statements. 2,779,802 3,938,541 3,563,420

18 STATEMENT OF INCOME FOR AND 2017 (In thousands of Brazilian reais - R$) Note 07/01/2018 a 09/30/ /01/2018 a 09/30/2018 Parent company 07/01/2017 a 09/30/ /01/2017 a 09/30/ /01/2018 a 09/30/ /01/2018 a 09/30/2018 Consolidated 07/01/2017 a 09/30/ /01/2017 a 09/30/2017 NET REVENUE , , , ,598 COSTS (146,394) (276,638) (59,298) (172,507) GROSS PROFIT , ,832 76, ,091 OPERATING INCOME (EXPENSES) General and administrative expenditure 20 (1,188) (3,771) (1,237) (3,689) (15,616) (30,684) (11,648) (36,610) Equity method 12 56, ,852 60, , (499) (202) (1,272) Oil and gas exploration expenditure (26,945) (45,557) (6,035) (24,446) Others, net , ,653 (4) (9) 55, ,081 59, ,372 34, ,745 58, ,754 INCOME FROM OPERATIONS BEFORE FINANCIAL INCOME Yields from short-term investments ,976 1,405 2,026 29,918 91,687 18,103 84,089 Other financial revenues and expenses 22 (92) (160) (66) (85) (331) 5,341 (4,286) (4,799) FINANCIAL INCOME, NET 390 1,816 1,339 1,941 29,587 97,028 13,817 79,290 INCOME BEFORE INCOME TAX SOCIAL CONTRIBUTION 55, ,897 60, ,313 63, ,773 72, ,044 Deferred Income tax and social contribution ,642 (75,016) (12,338) (37,930) Current Income tax and social contribution (11,682) (13,860) 615 1,199 NET INCOME FOR THE PERIOD 55, ,897 60, ,313 55, ,897 60, ,313 NET INCOME PER SHARE - BASIC AND DILUTED The accompanying notes are an integral part of the financial statements.

19 STATEMENT OF COMPREHENSIVE INCOME FOR AND 2017 (In thousands of Brazilian reais - R$) Note 07/01/2018 a 09/30/ /01/2018 a 09/30/2018 Parent Company 07/01/2017 a 09/30/ /01/2017 a 09/30/ /01/2018 a 09/30/ /01/2018 a 09/30/2018 Consolidated 07/01/2017 a 09/30/ /01/2017 a 09/30/2017 Net income for the period 55, ,897 60, ,313 55, ,897 60, ,313 Other comprehensive income Comprehensive income of investees recognized by the equity method 12 7,503 34,892 (7,027) (4,555) 7,503 34,892 (7,027) (4,555) Total comprehensive income for the period 63, ,789 53, ,758 63, ,789 53, ,758 The accompanying notes are an integral part of the financial statements.

20 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS FOR AND 2017 (In thousands of Brazilian reais - R$) Capital reserves Income Reserve Other Aditional Acumulated Note Capital Stock Stock Legal Investment comprehensive dividends Shares held stock options options reserve reserve income proposed in treasury Profit/Loss Total BALANCE AT JANUARY 1, ,078,116 41,874-43, ,522 15,654 38,678 (81,007) - 2,779,647 Cumulative translation adjustments (4,555) (4,555) Dividends - payment (38,678) - - (38,678) Stock option ,854-2,712 Profit for the period , ,313 BALANCE AT SEPTEMBER 30, ,078,116 42,732-43, ,522 11,099 - (79,153) 164,313 2,903,439 BALANCE AT JANUARY 1, ,078,116 40,712-61, ,032 18, ,997 (70,614) - 3,110,110 Dividends - payment (399,997) - - (399,997) Cumulative translation adjustments , ,892 Stock option 26 - (7,254) ,475-19,222 Profit for the period , ,897 BALANCE AT SEPTEMBER 30, ,078,116 33,458-61, ,032 53,079 - (44,139) 299,896 3,064,123 The accompanying notes are an integral part of the financial statements.

21 STATEMENTS OF CASH FLOW FOR AND 2017 (In thousands of Brazilian reais - R$) Note 01/01/2018 a 09/30/2018 Parent Company 01/01/2017 a 09/30/ /01/2018 a 09/30/2018 Consolidated 01/01/2017 a 09/30/2017 CASH FLOWS FROM OPERATING ACTIVITIES Net income for the period 299, , , ,313 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity method 12.2 (301,852) (166,061) 499 1,272 Equity - exchange variation (29,443) 595 Depreciation, amortization and depletion 13/ ,639 46,345 Deferred income tax and social contribution ,829 (1,199) Financial charges and exchange rate (gain) loss on borrowings and financing ,309 5,879 Capitalized borrowing charges ,135 7,148 Reduction of fixed assets and intangibles 13/ , Rights of stock option plan 26 26,475 1, Stock option plan (7,254) 1,485 Provision for income tax and social contribution ,016 37,930 Provision for research and development - - (5,496) (215) (Increase) decrease in operating assets: Trade accounts receivable (19,840) (7,154) Recoverable taxes 11.1 (391) 25 36,834 29,193 Related parties 2,081 - (4,492) - Interest on equty 8 161, Other assets 1,134 (427) (94,119) (1,865) Increase (decrease) in operating liabilities: Suppliers (28) 45 (96,780) (25,377) Taxes payable 11.2 (28,512) 25 (80,563) (5,717) Related parties ,304 4,677 Consortium obligation ,211 - Other liabilities (72) 8 80,111 (27,614) Interest paid (10,931) (11,809) Income tax and social contribution paid - - (23,273) (6,242) Net cash provided by (used in) operating activities 159,895 (218) 428, ,834 CASH FLOWS FROM INVESTING ACTIVITIES Restricted cash (78,932) (24,592) Short term investments 4 27,368 (60,350) 155,185 (97,969) Cash received - PP&E purchased ,323 - Payment of property, plant and equipment (79,750) (28,103) Payment of intangible (2,192) - Dividends receivable 212,017 99, Net cash provided by (used in) investing activities 239,385 38,900 8,634 (150,664) CASH FLOWS FROM FINANCING ACTIVITIES Payment of financing (27,200) (27,080) Payment of dividends 26 (399,997) (38,678) (399,997) (38,678) Net cash provided by (used in) financing activities (399,997) (38,678) (427,197) (65,758) Effect of exchange variation on cash and cash equivalents ,892 (4,555) Increase (decrease) in cash and cash equivalents (717) 4 45,243 (9,143) Statement of non-cash variation and cash equivalents in the period: Cash and cash equivalents at beginning of year 1, ,815 17,738 Cash and cash equivalents at end of year ,058 8,595 Increase (decrease) in cash and cash equivalents (717) 4 45,243 (9,143) The accompanying notes are an integral part of the financial statements.

22 STATEMENTS OF VALUE ADDED FOR AND 2017 (In thousands of Brazilian reais - R$) Note 01/01/2018 a 09/30/2018 Parent Company 01/01/2017 a 09/30/ /01/2018 a 09/30/2018 Consolidated 01/01/2017 a 09/30/2017 REVENUES , ,313 Oil and gas sales , ,401 Other revenues ,324 Revenues related to own assets of construction ,098 52,588 INPUTS ACQUIRED FROM THIRD PARTIES (123,621) 170,187 (including Tax - ICMS, IPI, PIS and COFINS) Gas production and service costs - - (168,521) 119,868 Material, energy and other service ,083 40,978 Others - - (10,183) 9,341 GROSS VALUE-ADDED (846) (812) 556, ,126 DEPRECIATION, AMORTIZATION AND DEPLETION 13/ ,207 46,427 NET VALUE-ADDED PRODUCED BY THE ENTITY (846) (812) 447, ,699 VALUE-ADDED RECEIVED IN TRANSFER 303, , ,232 91,685 Equity income and dividends , ,061 (499) (1,272) Financial income 22 1,888 1, ,936 91,780 Others ,795 1,177 TOTAL VALUE-ADDED TO BE DISTRIBUTED 302, , , ,384 VALUE-ADDED DISTRIBUTION PERSONEL: Personnel 2,344 2,314 30,882 30,620 Benefits ,175 4,630 Charges and fees - - 2,086 1,943 Others ,455 2,418 38,193 37,240 TAXES: Federal ,524 84,089 State ,506 41,527 Municipal ,345 31, , ,454 PAYMENT OF THIRD PARTY CAPITAL: Interest - (1) (9,798) 5,442 Rentals - - 1,318 1,709 Bank charges 8 4 7,361 5,946 Monetary restatement/exchange variation 63-6,544 2, ,425 15,377 SHAREHOLDERS Net income for the period 299, , , , , , , ,313 DISTRIBUTION OF VALUE ADDED 302, , , ,384 The accompanying notes are an integral part of the financial statements.

23 1. OPERATIONS Corporate structure QGEP Participações S.A. is a Brazilian corporation that maintains its registered offices at Almirante Barroso Avenue 52, room in the Central district of the City of Rio de Janeiro ( Company or QGEPP or Group). Its stated corporate object is to hold equity interests in companies primarily engaged in the exploration for and production and sale of oil, natural gas and their byproducts, either as a partner or shareholder, or through other forms of association, with or without separate legal personality. The Company's ownership structure for the periods below: September 30, 2018 December 31, 2017 The main corporate object of the Company s direct subsidiary Queiroz Galvão Exploração e Produção S.A. ( QGEP ) is the exploration of areas in the search for new oil and gas reserves, production, sale and industrial processing of oil, natural gas and by products, as well as holding stakes in companies that are substantially devoted to related activities, either as a partner or shareholder, or through other forms of association, with or without separate legal personality. 19