1Q18. Release. 1Q18 Conference Call. Investor Relations. Portuguese 15:00 p.m. (BRA) Phone: +55 (11) (11) Password: PetroRio

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1 Conference Call May 10, 2018 Webcast: Portuguese 15:00 p.m. (BRA) Phone: +55 (11) (11) Password: PetroRio Inglês 14:00 p.m. (NYC) Phone: +1 (786) Toll Free (USA): +1 (888) Password: PetroRio The conference call will be held in Portuguese with simultaneous translation into English Investor Relations 1Q Earnings Release

2 mai-15 jul-15 set-15 nov-15 jan-16 mar-16 mai-16 jul-16 set-16 nov-16 jan-17 mar-17 mai-17 jul-17 set-17 nov-17 jan-18 mar-18 1Q18 Rio de Janeiro, May 10, 2018 Petro Rio S.A. ( PetroRio or Company ) (B3: PRIO3) announces its results for first quarter of 2018 ( 1Q18 ). The financial and operational information below, except if otherwise indicated, is presented on a consolidated basis and stated in Brazilian Reais (R$) according to International Financial Reporting Standards (IFRS), including our direct subsidiaries: Petro Rio O&G Exploração e Produção de Petróleo Ltda., Petro Rio Internacional S.A., HRT América Inc. and their respective subsidiaries and branches. Ticker (B3) Informações sobre a ação Stock Information PRIO3 Market Cap (05/08/18) R$ 934,259,582 Shares Outstanding (#) 13,337,039 Last Price (05/08/18) R$ week Low - High R$ 34,24 - R$ 102,28 12M Average volume R$ 4,011, % 350% 300% 250% 200% 150% 100% 50% 0% -50% -100% Evolução PRIO3 x Ibovespa 12 meses 12M Stock Price: PRIO3 x Ibovespa PRIO3 IBOVESPA Highlights Net revenue of R$ 117 million, 56% higher than 1Q17 Gross selling price of US$ 64.7 in 1Q18, against US$ 52.5 in 1Q17 EBITDA of R$ 14.8 million in 1Q18 (R$ 0.4 million in 1Q17) Operating Efficiency in Polvo of 84.8% (excluding the scheduled shutdown: 94.6%) MESSAGE FROM MANAGEMENT The first quarter of 2018 once again illustrates the Company's strong commitment to results, as well as a continuous search for operational excellence. Polvo is again in the spotlight with the beginning of the drilling campaign including three new wells, while the Brent price recovers, reaching the highest price in almost four years. The campaign began in April and is part of a larger plan for Polvo and has the potential to be transformational for the asset, bringing confidence and optimism for the next steps. We will continue to focus on safety as we exceeded 2,150 days without lost time incidents - in health and in the environment. In Manati, we have reached one year since the acquisition of the asset. We are very pleased with its returns, seeing that its free cash flow in the first 12 months reached R$ 63 million and the estimated project payback is of approximately 2.7 years. We also see our M&A agenda as positive, with an increasingly robust pipeline as negotiations move to advanced phases. Finally, we would like to thank our employees for the results so far, confident that the company will reach even greater achievements in Página 2

3 OPERATING RESULTS POLVO FIELD 100% PETRORIO In 1Q18, the asset produced 553,800 barrels with a daily average of 6,153 barrels. The reduced volume compared to the same period last year is attributed to the scheduled shutdown of the platform in January-18, the lower operational efficiency and the natural decline of the Field during the period. Excluding the scheduled shutdown, the average daily production of the quarter would have reached 6,807 barrels/day. PetroRio's trading team continued its successful strategy during the first quarter of The gross selling price was 23% higher than the annual comparative, due to efficient offtake planning, leveraging over the Brent's price recovery during March. OFFTAKES Quarter 1Q17 2Q17 3Q17 4Q Q18 Month March April May June August October December Total March Volume (kbbl) Gross selling price (US$/bbl) % of sale in 1Q18 18% 11% 13% 8% 21% 15% 15% 100% 100% The first quarter of the year was marked by the continued strengthening of the Brent price, ending march at US$70.27/bbl. This trend is supported by good fundamentals, both on the supply and demand side, and by geopolitical factors, consistently balancing the market. On the supply side, OPEC's compliance has been strong, maintaining high compliance of production cuts, largely due to Saudi Arabia's commitment to the agreement and a declining production capacity coming from Venezuela. The demand for oil also expresses resilience, with the International Energy Agency estimating growth of 1.5Mbb/d for These events have impact on the balance of global oil inventories. According to the EIA, oil stocks in OECD members reduced by approximately 30 million barrels over the first quarter reaching the 5-year moving average, the main goal of the OPEC agreement signed at the end of US shale oil production has also been very strong, reaching the 10Mbbl/d mark in February. This is one of the biggest threats to oil prices, since a production increase from American producers above the expected volumes - could quickly be reflected in oil prices. However, given the strong increase in Shale production over the last two years, these regions are beginning to suffer from infrastructure and logistics issues limiting, for the time being, a largerthan-expected output by the market. Allied to good economic fundamentals are geopolitical tensions that remain on the radar of market agents, which help embed risk premiums over the prices we see today. Página 3

4 Polvo s operation in the first quarter of 2018 was impacted by the scheduled shutdown, three failures in the FPSO leased by the Company, and repair workovers in four wells, which resulted in the modernization of the pumps. Due These events reduced average daily production to 6,153 barrels, significantly lower than the previous four quarters. In January, it is estimated that scheduled shutdown - lasting 10 days - impacted production by 64,000 barrels. In February and March, three failures in the FPSO leased by the Company and workovers in two wells generated an estimated impact of 22,000 barrels. Operating efficiency in 1Q18 reached 84.8%. Excluding the scheduled shutdown in January operational efficiency would have reached 94.6%, in line with 1Q17. In addition, after the quarter ended and the workovers were performed in the wells, the field recovered its high performance of 2017, reaching a daily average of 7,167 barrels and 98.6% of operating efficiency in April The chart below illustrates Polvo field's production and operational efficiency rates in recent quarters: Página 4

5 Average Daily Production and Operational Efficiency In 1Q18 the cost per barrel in Polvo Field reached US$ 44.2/bbl, above the US$ 30.9 recorded in 1Q17, mainly due to the lower volume produced (-25.1%) and the increase in FPSO s lease rates and fuel costs (-7.3%). The lower volume is the result of the shutdowns aforementioned, and the Field s natural decline rate. The increases in fuel and in the FPSO's lease rates were due to the increase in Brent price as indexed by the supplier s agreements. The operating costs of the Field, in absolute terms, increased when to the last year for the same reasons mentioned above. The cost of Polvo reached US$ 24.5 million in 1Q18, 7.3% higher than the annual comparative. In October 2017, a request for reduction in Royalties for Polvo was filed in ANP, to compensate for investments aimed at increasing the fields recovery factor. While subject to ANP s approval, the Company plans to unlock certain investments that would become economically attractive, such as drilling new exploratory wells in new reservoirs, as well as testing 2P and 3P reserves, as described in the DeGolyer and MacNaughton report from In April 2018, PetroRio announced to the market it commenced its drilling campaign, and which will span six months and cost between US$ 20M and US$ 50M, depending on the success of each of the three wells being drilled. The Company will disclose to the market any partial results obtained during the campaign. Página 5

6 The success of Polvo s operation reflects PetroRio's strong commitment to Health, Safety and Environment. The Field celebrates 10 years of operation and, most importantly, reached 2,000 days without lost time injuries, illustrating the Company's diligence towards its processes, policies and procedures regarding its operations. MANATI NATURAL GAS FIELD 10% PETRORIO Gross production in Manati reached 456 thousand cubic meters of gas per day, 9.1% above the annual comparison due to the client's increased demand for natural gas, despite the natural decline in the take-or-pay contract with Petrobras, year over year. The decrease when compared to the second half of 2017 is mainly due to the hydroelectric plants returning into production in the Northeast of the Country due to the heavy rain season at the beginning of the year. The chart below illustrates the Field's production in the quarter versus its capacity. Volume 800, Manati - Gas production (m3/d) Manati - Produção de Gás (m3/d) (Referente Referentes à Participação à (Relatedde tode 10% PetroRio's 10% da da PetroRio 10% W.I.) no no Consórcio) 700, Q18: 456 k m³d 1T18: 456mil m³d 600, , , , Blackout in the North and Northeast Boiler failure and Shutdown 200, jan-18 Jan-18 fev-18 Feb-18 mar-18 Mar-18 Volume Total Produzido no campo Quantidade Disponível (m³) Total Production Daily Capacity (m³) Página 6

7 The net volume of gas sold was 428,000 m³/d. Operating costs, consisting of direct costs excluding depreciation, reached R$ 4.8 million. Other R$ 2.2 million were paid as royalties for the asset's exploration rights. Through its experience as an operator in Oil & Gas fields, PetroRio actively participated in the renegotiations of contracts with suppliers and was a leading player in reducing costs for Manati during the year. PetroRio holds a 10% interest in the consortium responsible for operating the Manati field. The asset contributes to the dilution of the Group s G&A expenses and allows for more leverage for future acquisitions. In addition, there are operational and tax synergies under study by our corporate team. FINANCIAL PERFORMANCE R$ thousand Proforma Income Statement 1Q17 1Q18 D Sales Volume - Oil (bbl) 503, , % Sales Volume - Gas (Mm³)* 4,505 38, % Revenues 74, ,155 57% Cost of products/services (47,599) (66,566) 40% Royalties (7,996) (10,762) 35% Cost of products/services 19,190 39, % G&A, G&G and Project expenses (18,859) (28,553) 51% Other revenues/expenses 106 3, % EBITDA , % EBITDA Margin 0.6% 12.6% 12 p.p. Depreciation and Amortization (12,716) (16,922) 33% Financial results 21,602 4,493-79% Income Tax and Social Contibuition (5,304) Profit (loss) for the period 4,019 2,694-33% * Manati's Net Gas Volume refers to PetroRio s 10% W.I. in the consortium as of the asset s acquisition on March 20, 2017 The Net Revenue of R$ million represents an increase of 56.7% over 1Q18. Of this amount, R$ 91.7 million originated from Polvo s offtakes, an increase of 27.8% compared to the previous year. Despite lower volumes sold, the growth in Revenue was caused by the increase in Brent price and the efficient planning of the offtake by PetroRio s Trading team. Manati in turn, contributed with Revenues of R$ 25.5 million, related to PetroRio's 10% W.I. in the natural gas consortium. In the annual comparison, the strong growth in volumes sold is mainly attributed to the inclusion of the asset and its results, concluded at the end of 1Q17. In the Polvo Field the sale totaled 463,000 barrels, 7.9% lower than annual comparative due to the lower production, caused by the scheduled shutdown in January, and workovers in the pumps of three wells. The sale of gas from Manati totaled 38.5 million m³ in the year. Cost of Goods Sold (COGS) increased compared to the annual comparison and is attributed to the increase in the costs of Polvo (32.8% higher), in addition to incorporation of Manati. General and administrative expenses, projects and geology and geophysics, closed the quarter at R$ 28.5 million, an increase of 51%, due to provisions and Página 7

8 expenses with Company personnel and other expenses such as severance costs, and other administrative and tax expenses with the incorporations. When added revenues and expenses, which include non-recurring items, the Company's total expenses reached R$ 25 million, 33% higher than 1Q17. EBITDA in 1Q18 was driven by strong operating results and the incorporation of Manati's results the previous year. EBITDA totaled R$ 14.8 million in the quarter, reaching a 12.6% margin. When compared to 1Q17, the higher number is related to a higher gross selling price - due to the increase in Brent - and the incorporation of Manati s results. The Company recorded net income of R$ 2.7 million in the first quarter of the year. The lower result is attributed mainly to the strong financial result recognized in 1Q17. TOTAL CASH, CASH EQUIVALENTS AND INVESTMENTS The Company ended the quarter with a strong cash position of R$ 622 million. The change in cash position in the year is justified by the following factors: Inflow of R$ 130 million related to Polvo offtake and natural gas from Manati; Outflow from production costs and operating and administrative expenses of R$ 141 million; R$ 13 million related to Royalties; Financial results of -R$ 23 million. This line item refers to the repayment of Brasoil s Debentures. It also includes minor outflows including the results of Hedges, interest payments of debentures, interest on financial investments, exchange variation and mark-to-market of investments; M&A & CAPEX consists of CAPEX with the commencement of the drilling campaign and maintenance in Polvo and Manati fields, totaling R$ 12 million. Página 8

9 CASH FLOW 1Q18 (R$ MILLION) * Includes cash, cash equivalents and oil inventory Página 9

10 Balance Sheet (in thousands of R$) Assets Liabilities and shareholders' equity Current assets 31-dec mar-2018 Current liabilities 31-dec mar-2018 Cash and cash equivalents 92,445 86,663 Suppliers 70,535 72,888 Securities 511, ,776 Labor obligations 9,979 7,074 Restricted cash 17,965 - Taxes and social contributions 20,076 24,418 Accounts receivable 62,046 63,713 Loans and financing 75,011 75,437 Oil inventories 41,174 60,054 Debentures 21, Recoverable taxes 59,492 54,721 Derivative financial instruments 7,129 6,607 Advances to suppliers 28,781 28,822 Advances from partners - - Advances to partners 3,639 4,007 Other liabilities 12, Prepaid expenses 3,106 4,201 Total current liabilities 216, ,516 Other receivables Total Current assets 821, ,696 Non-current liabilities Suppliers 13,456 13,161 Non-current assets available for sale 28,316 28,452 Debentures 31,391 31, , ,148 Provision for abandonment (ARO) 74,119 75,298 Provision for contingencies 15,120 14,643 Non-current assets Deferred taxes and social contributi 36,177 25,447 Advances to suppliers 12,596 12,596 Others - - Deposits and pledges 16,010 16,464 Total non-current liabilities 170, ,794 Recoverable taxes 51,669 54,449 Deferred taxes 18,480 18,422 Shareholders' equity Property, plant and equipment 61,286 58,108 Realized capital 3,265,256 3,273,110 Intangible assets 260, ,239 Capital reserves 73,852 72,997 Total non-current assets 420, ,278 Other comprehensive income 91,800 80,092 Accumulated losses (2,598,629) (2,547,777) Income (loss) for the period 50,851 2,694 Total shareholders equity 883, ,116 Total assets 1,270,244 1,228,426 Total liabilities and shareholders eq 1,270,244 1,228,426 Página 10

11 INCOME STATEMENT (em milhares de R$) 1Q17 1Q18 D Net revenues 74, ,155 57% Cost of products/services (47,599) (66,566) 40% Depreciation and amortization (12,644) (16,364) 29% Royalties (7,996) (10,762) 35% Gross profit 6,546 23, % Operating income (expenses) Geology and geophysics expenses (203) (203) 0.1% Personnel expenses (5,330) (13,042) 145% General and administrative expenses (2,704) (3,784) 40% Expenses with third party services (10,198) (10,720) 5% Taxes and fees (424) (804) 90% Depreciation and amortization expenses (72) (558) 673% Income from transactions with permanent assets Other operating income (expenses), net 106 3, % Financial results 21,602 4,493-79% Income before income and social contribution taxes 9,323 2,378-74% Income and social contribution taxes Current (650) (8,975) 1282% Deferred (4,654) 9, % (5,304) Income (loss) from continuing operations 4,019 2,694-33% Income from discontinued operation Loss for the year 4,019 2,694-33% Página 11

12 CASH FLOW STATEMENT (in thousands of R$) Página 12

13 ABOUT PETRORIO PetroRio is one of the largest independent oil and gas production companies in Brazil. It is the operator of the Polvo Field, located in the Campos Basin, Rio de Janeiro, which has Brazil's seventh largest daily production of barrels of oil equivalent (boe). PetroRio is the owner of "Polvo A" fixed platform and a HP drilling rig, currently in operation in this Field, being the platform connected to the "Polvo FPSO" vessel, with capacity to segregate hydrocarbons and water treatment, oil storage and offloading. Polvo Field license covers an area of approximately 134,000,000 sqm, with several prospects with potential for further explorations. The Company s corporate culture seeks to increase production through the acquisition of new production assets, the re-exploration of assets, increased operational efficiency and reduction of production costs and corporate expenses. PetroRio s main objective is to create value for its shareholders with growing financial discipline and preserving its liquidity, with full respect for safety and the environment. For further information, please visit the Company's website: Disclaimer This news release contains forward-looking statements. All statements other than statements of historical fact contained in this news release are forwardlooking statements, including, without limitation, statements regarding our drilling and seismic plans, operating costs, acquisitions of equipment, expectations of finding oil, the quality of oil we expect to produce and our other plans and objectives. Readers can identify these statements by reading several words such as "estimate, "believe", "expect" and "will" and similar words or their negative. Although management believes that the expectations represented in such statements are reasonable, it cannot ensure that such expectations will be confirmed. By their nature, forward-looking statements require us to make assumptions and, accordingly, said forward-looking statements are subject to inherent risks and uncertainties. We caution readers of this news release not to place undue reliance on our forward-looking statements because a number of factors may cause actual future circumstances, results, conditions, actions or events to differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements and the assumptions underlying the forward-looking statements. The forward-looking statements herein are made based on the assumption that our plans and operations will not be affected by such risks, but that, if our plans and operations are affected by such risks, the forward-looking statements may become inaccurate. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. Such declarations were made on the date hereof. We do not undertake to update such forward-looking statements regarding future events, except as required by applicable securities legislation. Página 13