Óleo e Gás Participações S.A.

Transcription

1 Óleo e Gás Participações S.A. and Independent Auditors Report on the Financial Statements (A free translation of the original report in Portuguese containing financial statements prepared in accordance with accounting practices adopted in Brazil) KPDS

2 Contents Management Report Independent auditor s report on the financial statements Statements of financial position Statements of income Statements of comprehensive income Statements of changes in equity (unsecured liabilities) Statements of cash flows Statements of value added Notes to the financial statements 15 2

3 Management Report Óleo e Gás Participações S.A. ( OGpar or Company ) announces its results for the year ended. The following financial information is presented in thousands of Brazilian Reais, except when indicated otherwise, and in accordance with the accounting practices adopted in Brazil and the International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board - IASB. Statement of Directors Pursuant to the provisions contained in Article 25 of Brazilian Securities Commission Instruction No. CVM nº 480/2009, the Company s Executive Committee hereby declares that it has discussed, reviewed and agreed with the Report of the Independent Auditor (KPMG Auditores Independentes), issued on March 07, 2018, and with the financial statements for the year ended. Rio de Janeiro, 07 de março de

4 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 Telephone number +55 (21) , Fax number +55 (21) Independent auditors report on the financial statements To the administrators and shareholders of Óleo e Gás Participações S.A. Rio de Janeiro - RJ Opinion We have audited the financial statements of Óleo e Gás Participações S.A. ("Company"), which comprise the balance sheet as of, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including significant accounting policies and other explanatory information. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Óleo e Gas Participações S.A., as at, and its financial performance and cash flows for the year then ended, in accordance with Brazilian accounting policies and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board - IASB. Basis for opinion We conducted our audit in accordance with International and Brazilian Standards on Auditing. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are independent from the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements and are set forth on the Professional Code of Ethics for Accountants and on the professional standards issued by the Regional Association of Accountants, and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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. 4

5 Emphasis - Arbitration procedure for exclusion of subsidiary of the Company in BS-4 Consortium We call attention to explanatory note 1 to the financial statements, that describes on October 20, 2017 the subsidiary of the Company, Dommo Energia S.A. ( Dommo ), was notified by one of the partners on exploration block BS-4 requesting the exclusion of the Dommo from the consortium. Dommo initiated an arbitration proceeding with inquiries related to this matter on October 23, Our opinion is not limited to this matter. Corporate restructuring and going concern We call attention to explanatory note 2 to the financial statements, which describes that on June 2, 2017, the Company and other recoveries filed with the court of the 4th Company Court of the District of Rio de Janeiro, request for closure of the Judicial Recovery, and the application was granted on August 2, 2017, without prejudice to the continuity of the judicial reorganization plans, which considers the incorporation of the Company by its investor Dommo Energia SA during the fiscal year of As a result of this future merger, the Company's financial statements have not been prepared under the assumption of continuity, and should be read in this context. Our opinion is not limited to this matter. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1 - Valuation of financial assets According to note 6 of the financial statements. Key audit matter How the matter was addressed in our audit The Company's investment portfolio represents 80% of its total assets, being the only source of operations and performance results. Said portfolio is composed of financial assets measured at fair value through profit or loss, based on the closing price of the BM & F Bovespa, which are actively traded and for which prices are observable. However, because these assets are considered the main factors influencing Net Assets and recognition of results in the context of the financial statements as a whole, we consider this matter to be significant in our audit. Our audit procedures included evaluating the classification of this short-term investment in the financial statements. We recalculated the fair value of this investment, based on available prices obtained from independent market sources or market observable information, as well as evaluating the accounting records of securities and other comprehensive income. We also consider the adequacy of the disclosures made in the financial statements. Based on the evidence obtained through the procedures described above, we consider it acceptable to measure and disclose financial assets in the context of the financial statements taken as a whole, for the year ended. 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. 5

6 Other matters Statements of value added The statements of value added for the year ended, prepared under the responsibility of the Company's management, and presented as supplementary information for IFRS purposes, were submitted to the same audit procedures followed together with the audit of the Company's financial statements. In order to form our opinion, we evaluated whether these statements are reconciled to the financial statements 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. In our opinion, these statements of value added have been adequately prepared, in all material respects, according to the criteria set on this Technical Pronouncement and are consistent with the financial statements taken as a whole. Other information that accompanies the financial statements and the independent auditors' report The Company's management is responsible for the other information. The other information comprises the Management Report. Our opinion on the financial statements does not cover the Management Report and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the Management Report and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work performed, we conclude that there is material misstatement in the Management Report, we are required to report on such fact. We have nothing to report on this respect. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting policies adopted in Brazil and with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company, or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s financial reporting process. 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. 6

7 Auditors Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that the examination performed in accordance with Brazilian and international standards on auditing will always detect possible existing material misstatements. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of the examination performed in accordance with Brazilian and international standards on auditing, we exercised professional judgment and maintained professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting material misstatement resulting from fraud is greater than the one deriving from error, as fraud may involve the act of circumventing internal control, collusion, forgery, omission or deliberate false representations. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal controls. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are substantiated by the audit evidence obtained up to the date of our report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and contents of the financial statements, including the disclosures, and whether the financial statements represent the corresponding transactions and events in a compatible manner with the objective of a true and fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those responsible for governance regarding, among other aspects, the planned scope, timing of the audit, and significant audit findings, including any significant deficiencies in internal controls that we have identified during our work. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards. 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. 7

8 From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Rio de Janeiro, March 07, 2018 KPMG Auditores Independentes CRC SP /O-6 F-RJ Anderson C. V. Dutra Accountant CRC RJ /O-6 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. 8

9 (Publicly-held Company) Statements of financial position as at and 2016 (Amounts in thousands of Brazilian reais - R$) Note 12/31/ /31/2016 Assets Current assets Cash and cash equivalents Marketable securities 6 35,882 - Income tax, social contribution and other taxes recoverable 9 7,448 - Credits with related parties Other credits and prepaid expenses Total current assets 45, Non-current assets Income tax, social contribution and other taxes recoverable 9-9,960 Credits with related parties Liabilities Current liabilities Trade accounts payable ,236 Income tax, social contribution and other taxes payable Salaries and payroll charges Loans with related parties 10 93,017 81,261 Other accounts payable Total current liabilities 93,754 82,866 Non-current liabilities Provision for investment losses 8-349, ,820 Equity (unsecured liabilities) Capital stock 8,821,155 8,821,155 Capital reserves - 30,362 Currency translation adjustments 12 - (55,204) Other comprehensive income (9,316) - Accumulated losses (8,860,522) (9,217,694) Total equity (unsecured liabilities) (48,683) (421,381) Total liabilities and equity (unsecured liabilities) 45,071 11,305 The accompanying notes are an integral part of the financial statements. - 10,593 Investments Total non-current assets - 10,722 Total assets 45,071 11,305 9

10 (Publicly-held Company) Statements of income (operations) Years ended and 2016 (In thousands of reais, except for basic and diluted loss per share) Note 12/31/ /31/2016 Operating revenues (expenses) General and administrative expenses 13 (4,696) (5,384) Other operating expenses (2,491) - Gain from altering interest in associates 8 938,257 18,228 Realization of currency translation adjustments (51,024) (14,031) Equity in the earnings of subsidiaries 8 (517,063) (181,085) Results before financial result and taxes 362,983 (182,272) Financial result Financial revenue Financial expenses 14 (5,637) (6,411) Net exchange variation 14 (729) 8,653 (5,811) 3,213 Loss before taxes 357,172 (179,059) Income tax and social contribution Profit (loss) for the year 357,172 (179,059) Basic and Diluted Earnings (Loss) per Share - (In R$) ( ) The accompanying notes are an integral part of the financial statements. 10

11 (Publicly-held Company) Statements of comprehensive income Years ended and 2016 (Amounts in thousands of Brazilian reais - R$) 12/31/ /31/2016 Profit (loss) for the year 357,172 (179,059) Currency translation adjustments 55,204 99,262 Available-for-sale financial assets - net change in fair value (9,316) - Total comprehensive income 403,060 (79,797) The accompanying notes are an integral part of the financial statements. 11

12 (Publicly-held Company) Statements of changes in equity (unsecured liabilities) Years ended and 2016 (Amounts in thousands of Brazilian reais - R$) Note Capital stock Capital reserve Currency translation adjustments Other comprehensive income Accumulated (losses) Total Balances as of January 1, ,821,155 - (154,466) - (9,038,635) (371,946) Share issue premium of investee - 30, ,362 Conversion adjustment of foreign currency in investee , ,262 Net loss for the year (179,059) (179,059) Balances as of December 31, ,821,155 30,362 (55,204) - (9,217,694) (421,381) Share issue premium of investee - 20, ,523 Conversion adjustment of foreign currency in investee , ,180 Realization of currency translation adjustments , ,024 Reclassification adjustments in dilution of interest - (50,885) (50,885) Change in fair value - Available for sale (9,316) (9,316) Profit for the year , ,172 Balances as of 8,821, (9,316) (8,860,522) (48,683) The accompanying notes are an integral part of the financial statements. 12

13 (Publicly-held Company) Statement of cash flows Years ended and 2016 (Amounts in thousands of Brazilian reais - R$) Note 12/31/ /31/2016 Cash flows from operating activities: Profit (loss) for the year 357,172 (179,059) Adjustments to reconcile loss to cash flows from operating activities: Equity in the earnings in investee 8 517, ,085 Gain from altering interest in associate 8 (938,257) (18,228) Realization of currency translation adjustments 51,024 14,031 Unrealized exchange variation on loans and financings (8,743) Interest/ charges on financing - provisioned liabilities 10 4,714 5,242 Cash provided by (used in) operating activities (7,556) (5,672) Changes in assets and liabilities Other credits and related parties 308 (15) Income tax, social contribution and other taxes recoverable 9 2,512 12,807 Trade accounts payable 11 (774) (917) Salaries and payroll charges 40 5 Income tax, social contribution and other taxes payable 9 (11) 4 Other accounts payable ,075 12,007 Net cash provided by (used in) operating activities (5,481) 6,335 Cash flows from financing activities: Loans and financing 10 6,314 8,593 Amortization of principal 10 - (14,922) Net cash provided by (used in) financing activities 6,314 (6,329) Variation in cash and cash equivalents Variation in cash and cash equivalents Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents Variation in cash and cash equivalents The accompanying notes are an integral part of the financial statements. 13

14 (Publicly-held Company) Statements of value added Years ended and 2016 (Amounts in thousands of Brazilian reais - R$) Note 12/31/ /31/2016 Inputs acquired from third parties Materials, energy, outsourced services and others (5,175) (3,297) Gross value added (5,175) (3,297) Net value added produced by the Company (5,175) (3,297) Value added received in transfer Equity in the earnings investee 8 (517,063) (181,085) Gain from altering interest in investee 8 938,257 18,228 Realization of currency translation adjustment (51,024) (14,031) Financial revenue and net exchange variation 14 (174) 9, ,996 (167,264) Total value added to distribute 364,821 (170,561) Distribution of value added Employees 1, Taxes Taxes, fees and contributions 439 1,273 Financial expenses 14 5,637 6,411 Value distributed to shareholders Profit (loss) for the year 357,172 (179,059) Total value added distributed 364,821 (170,561) The accompanying notes are an integral part of the financial statements. 14

15 Notes to the financial statements (Amounts expressed in thousands of Brazilian Reais, except when indicated otherwise) 1 Operations 1.1 Corporate Structure Óleo e Gás Participações S.A. ( OGpar or Company ) was founded on April 10, 2006, under the name Centennial Asset Participação Corumbá S.A. After a spinoff of the net assets associated to businesses other than oil and gas, on September 3, 2007 the name was changed to OGX Petróleo e Gás Participações S.A. and subsequently, on December 6, 2013, to the current name. Headquartered in the city of Rio de Janeiro, the Company s purpose is to hold interests in other companies operating in the oil and gas segment, both Brazilian and foreign and organized in any business format. As of, the Company had 1.29% interest in the Dommo Energia Group (investee). 1.2 Portfolio of the investee Dommo Energia Fields under development and operating fields As of, the Company s investee Dommo Energia held interests in the following fields: No. Country Basin Blocks Field Operator % Dommo Energia Contractual period 1 Brazil Campos BMC 41 Tubarão Azul Dommo Energia 100% 2 Brazil Campos BMC 39 / 40 Tubarão Martelo Dommo Energia 100% 3 Brazil Santos BS-4 Atlanta Queiroz Galvão E&P 40% 4 Brazil Santos BS-4 Oliva Queiroz Galvão E&P 40% 05/09/2012 to 05/09/2039 (i) 04/19/2012 to 04/19/2039 (ii) 12/27/2006 to 12/27/2033 (iii) 12/27/2006 to 12/27/2033 (iii) (i) (ii) (i) In the process of definitive ARO. As per material fact of January 22, 2016, we concluded the decommissioning of production ship FPSO OSX-1, which operated in the field. The TBMT field is currently operational. The Atlanta and Oliva fields are currently in the development phase, with Atlanta field s first oil expected for the beginning of The Company's Dommo Energia SA ("Dommo") was notified by one of the partners of the exploratory block BS-4 requesting the exclusion of Dommo from the consortium. Dommo initiated an arbitration proceeding with inquiries related to this matter on October 23,

16 1.3 Court-supervised reorganization Court-supervised reorganization of the Group On October 30, 2013, Óleo e Gás Participações S.A. ( OGPar ), in view of the unfavorable financial situation facing it and the series of losses, as well as the then recently and shortly due maturity of most of its indebtedness, filed for court-supervised reorganization, under No , in the Fourth Judicial Corporate District of the Capital of the State of Rio de Janeiro. This petition was filed by OGPar together with similar petitions for its subsidiaries, Dommo Energia S.A. ( Dommo Energia ) former OGX Petróleo e Gás S.A.), OGX International GmbH and OGX Austria GmbH (jointly, companies under reorganization ), as provided by Article 51 and subsequent articles of Law 11,101/05 ( LFR ), as an urgent measure, as decided by its Board of Directors on October 30, 2013 ( Courtsupervised reorganization ). On November 21, 2013, the Reorganization Judge rendered a decision (i) granting the processing of the court-supervised reorganization of OGPar and Dommo Energia, as well as (ii) not granting the processing of the court-supervised reorganization of OGX International and OGX Austria, since the judge believed that his court had no jurisdiction over the latter two companies. An interlocutory appeal (No ) was filed against the latter decision, which was unanimously granted on February 19, On July 23, 2014, the appeal for clarification of the cited decision filed by the prosecution office was denied. The special appeal filed by the prosecution office against the decision in the appeal was not admitted by the Court of Justice of Rio de Janeiro by decision published on July 2, On February 14, 2014, each company filed an individual Court-supervised Reorganization Plan ( Plan ), detailing the reorganization means to be employed, demonstrating their economic feasibility, and appraisal reports of their assets. The companies further submitted the list of creditors that are being paid under the terms and conditions indicated in each Plan. The notice containing the list of creditors was published on March 6, 2014 and the interested parties submitted to the court-appointed administrator ( Deloitte ) their qualifications or disagreements as regards the credits listed. The Plan was approved by approximately 90% of the creditors of the companies in the general meetings held on June 3, 2014 and ratified by the Reorganization Court, according to the decision published in the Diário Oficial de Justiça of June 26, 2014 ( Confirmatory Decision ). On October 16, 2014, Dommo Energia carried out a capital increase that converted the pre-petition and post-petition debts into shares and was an important milestone in the companies restructuring. On September 30, 2014, in order to optimize the operating costs of the OGPar Group (and enable the Company to continue as a going concern), the interests that OGPar held in OGX International and OGX R-11 were transferred to Dommo Energia, former OGX Petróleo e Gás S.A. On June 2, 2017, believing there were no more obstacles and unresolved matters that could prevent the conclusion of the Court-supervised reorganization, the companies under reorganization filed with the 4th Business Court of the Judicial District of the Capital of Rio de Janeiro a request for termination of the court-supervised reorganization process, given the fulfillment of all the obligations provided for in their respective plans expiring up to two (2) years following the granting of the court-supervised reorganization, pursuant to section 63 of Law 11101/05. 16

17 On August 2, 2017, the Judge of the 4th Business Court of the Judicial District of the Capital of Rio de Janeiro declared the termination of the court-supervised reorganization of the companies under reorganization. In addition, pursuant to this court order, the conclusion of the judicial phase of the reorganization will comply with the legal requirements, without prejudice to the continuity of compliance with the court-supervised reorganization plans and to the resolution of the incidents still pending judgment, which will remain awaiting the decision of the Court-Supervised Reorganization Judge. Additionally, the companies announce that there are appeals pending judgment against the decision that approved the court-supervised reorganization plans. These do not, however, stay the execution of the judgment and, therefore, do not prevent the conclusion of the courtsupervised reorganization process nor the continuity of compliance with the related restructuring plans approved by the creditors. 2 Presentation of the financial statements Basis of preparation a. Statement of compliance with international (IFRS) and the Accounting Pronouncements Committee (CPC) The financial statements have been prepared pursuant to the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and pursuant to the accounting practices adopted in Brazil (BR GAAP). The financial statements of OGpar were not elaborated with a continuity assumption, due to the intention of the administration to comply with the process of incorporation of OGPar by Dommo Energia, foreseen in the Judicial Recovery Plan of both companies. The accounting practices used are described in the paragraphs below. All significant information pertaining to financial statements information, and this information alone, is being evidenced and corresponds to that used by Management in its activities. b. Basis of measurement The financial statements have been prepared based on historic cost. c. Functional and reporting currency These financial statements are being presented in thousands of Brazilian Reais, which is the Company s functional currency. All financial information shown in Reais has been rounded to the nearest thousand, except as indicated otherwise. d. Use of estimates and judgments The preparation of financial statements in accordance with IFRS and CPC standards requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from such estimates. Management s estimates and assumptions are reviewed on an ongoing basis. Reviews with respect to accounting estimates are recognized in 17

18 the year in which the estimates are reviewed and in any subsequent period affected. Information on assumptions and estimates that may result in adjustments within the next financial year is included in Note 8 - Investment - Fair value in the Dommo Energia investee. e. Financial Statements of Dommo Energia: Given the materiality of the Company s associate Dommo Energia investee in the results and financial position of OGpar, Management suggests the joint reading of the financial statements of both companies. f. Approval of the financial statements Management examined the financial statements and authorized its disclosure on march 02, Summary of Significant Accounting Practices The accounting policies described below have been applied consistently to all fiscal years presented in these financial statements. a. Accrual of results The results of operations are recorded in compliance with the accrual basis of accounting. b. Financial instruments Types of financial instruments Financial assets can be classified as: Loans and receivables. Measured at fair value through profit or loss. Held for sale. Held to maturity. Financial liabilities can be classified as: Measured at fair value through profit or loss. Other financial liabilities. Classification Loans and receivables The Company initially recognizes loans and receivables as well as debt instruments on the date they were originated. All other financial assets and liabilities are recognized on the date of the negotiation when the entity becomes a party to the instrument s contractual provisions. Available-for-sale financial assets These assets are initially measured at fair value plus any directly attributable transactions. After initial recognition, they are measured at fair value and the changes, other than impairment losses, financial income and foreign currency differences on debt instruments, are recognized in other comprehensive income and accumulated within equity as equity valuation adjustments. When these assets are derecognised, the accumulated gains and losses maintained as equity valuation adjustments are reclassified to the income statement. 18

19 The Company's financial assets classified as available for sale are exemplified by: Marketable securities: include securities acquired by the Company and its subsidiaries for sale or repurchase, and do not comply with the definition of cash and cash equivalents; Financial assets and liabilities measured at fair value through profit and loss. Included in this category are financial assets and liabilities that meet any one of the following conditions: They are held for trading: cases of financial instruments contracted for the purpose of short-term sale or repurchase and derivatives, except in any situations of hedge accounting, which is not adopted by the Company at present. They are designated upon initial recognition as being measured at air value through profit or loss, as the documented investment and risk management strategy for such instrument is based on fair value. The Company s financial assets measured at fair value through profit or loss are exemplified by: Financial investments classified as cash equivalents: these are highly liquid short-term financial investments readily convertible into a known amount of cash and subject to an insignificant risk of change in value. Other financial liabilities. Financial liabilities that are not classified as measured at fair value through profit or loss are classified as other financial liabilities. The Company s other financial liabilities are exemplified by: Trade accounts payable. Loans with related parties Recognition and measurement All financial instruments that have been recognized in the Company s statements of financial position, both under assets and liabilities, are initially measured at fair value. After initial recognition, loans and receivables and other financial liabilities are measured at their amortized cost using the effective interest rate method, excluding impairment losses. c. Foreign currency The Company s Management has defined that its functional currency is the Brazilian Real (R$). Transactions in foreign currency are translated to the functional currency at the exchange rate in effect on the date of each transaction. On the reporting dates, monetary assets and liabilities in foreign currency are translated to the functional currency at the closing exchange rate and the exchange variation gains and losses are recognized in the Statement of Income. Non-monetary assets and liabilities acquired or contracted in foreign currency are translated on the reporting dates based on the exchange rates in effect on the transaction dates and thus do not generate exchange variations. The assets and liabilities of foreign associates operating in stable economic environments with functional currencies other than that of the Company are translated to Reais for equity 19

20 accounting method purposes at the exchange rate in effect on the reporting dates, while their equity is translated at the historical rate and results at the average monthly exchange rate. The difference generated by translating currencies at such distinct rates is recognized in Equity under Other comprehensive income, as Currency translation adjustments (CTA) and recognized in the Statements of Income when such investments are disposed of either in whole or in part. The foreign associates have defined their functional currency as the United States Dollar (US$). Brazilian associates use the Real as their functional currency. As a consequence of the dilution in the Company's interest in the associates existing during the year, as of, the Company has only investments classified as available-for-sale financial assets and no longer records the effects of CTA mentioned above. d. Income tax and social contribution The corporate income tax (IRPJ) and social contribution on net income (CSLL) of the Company and its investees are calculated based on the IRPJ rate of 15% plus a 10% surtax on taxable income in excess of R$240 per year, and 9% for CSLL, and IRPJ tax loss and negative CSLL base carryforwards are limited to 30% of taxable income. e. Earnings (Loss) per Share The basic earnings per share are calculated by dividing the results for the period attributable to the controlling shareholders by the weighted average number of common shares outstanding during the period, since OGPar does not have preferred shares. The diluted earnings (loss) per share are calculated using the above-mentioned average number of shares outstanding adjusted by the instruments potentially convertible into shares as a diluting effect in the years reported. f. Financial revenues and expenses These basically encompass interest on loans, financings and financial investments. Exchange gains and losses are also recognized as financial revenues or expenses. Interest paid is presented as financing activities in the statement of cash flows. g. Capital reserve In the event of a capital increase, only R$0.01 per share is allocated to the Company s capital stock account, in light of its negative equity. The remaining amount per share, if applicable, is allocated to the capital reserve. h. New accounting standards and interpretations not yet effective A series of new accounting standards, alterations to standards and interpretations were to have taken effect for reporting periods beginning after January 1, 2018, but have not been adopted for the preparation of these financial statements. The only one we expect to be relevant to the Company is mentioned below. The Company does not plan to adopt these standards on an early basis. IFRS 9 Financial Instruments (CPC 48 Financial Instruments) IFRS 9, published in July 2014, replaces the guidelines existing in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines regarding the classification and measurement of financial instruments, including a new model for expected credit losses for calculation of the impairment of financial assets, as well as new requirements for hedge accounting. The standard maintains the existing guidelines regarding the recognition and de-recognition of financial instruments under IAS 39. IFRS 9 is effective for reporting periods beginning on or after January 1, 2018, with early adoption being permitted. The 20

21 Company assessed that the impacts of the application of the respective norm will not be relevant in the Financial Statements. Other amendments The following new or amended standards are not expected to have a significant impact on the financial statements. Amendments to CPC 10 (IFRS 2) Share-based payment regarding the classification and measurement of certain share-based payment transactions. Amendments to CPC 36 Consolidated Financial Statements (IFRS 10) and CPC 18 Investments in Associates (IAS 28) regarding asset contributions or sales between an investor and its associate or its joint venture. IAS 7 / CPC 26: Disclosure Initiative IAS 12 / CPC 32: Recognition of Deferred Tax Assets for Unrealized Losses IFRS 16 Leases IFRS 15 Revenue from Contracts with Customers (CPC 47 Revenue from Contracts with Customers) The Brazilian Accounting Pronouncements Committee (CPC) has not yet issued any accounting pronouncements or alterations in currently effective pronouncements corresponding to all these new IFRS. As a result, the early adoption of these IFRS is not permitted for entities that disclose their financial statements pursuant to the accounting practices adopted in Brazil. 4 Preparation of the financial statements Equity in the earnings of subsidiaries in the financial statements, recorded until September 29, 2017, includes the information on its investees listed below: % interest 12/31/ /31/2016 Direct investee: Dommo Energia (i) Indirect investee: OGX R-11 (iv) OGX International (iv) OGX Austria (iv) OGX Netherlands Holding (iv) OGX Netherlands (iv) Atlanta Field (ii) Jointly-owned subsidiaries (joint venture): OGMP Transporte Aéreo (iii) (i) (ii) In the third quarter of 2017, the investee Dommo Energia settled its financial debt through capitalization of credits, within the limit of authorized capital, pursuant to article 6 of Dommo Energia's Bylaws. As a result of the capital increase, which was not accompanied by OGpar, OGpar s interest in Dommo Energia was diluted from 25.89% to 1.29%. Additionally, as a result of the aforementioned dilution, its interest in Dommo Energia S.A. is now classified as available for sale financial asset, under marketable securities, measured at fair value. Jointly owned ( jointly controlled arrangement ) with Queiroz Galvão Exploração e Produção and Barra Energia. 21

22 (iii) (iv) Jointly owned ( jointly controlled arrangement ) with Eneva S.A. Given that OGMP was no longer developing its core activity, OGpar and Eneva S.A. unanimously resolved on its dissolution, which was concluded in the first quarter of On and 2016, the associate Dommo Energia has 100% interest, either directly or indirectly, in such companies. The accounting policies have been applied in a uniform manner between the companies and are consistent with those used in the presentation of the figures as of the previous reporting date. 5 Cash and cash equivalents 12/31/ /31/2016 Current Cash and current bank accounts Investment fund Itaú Top DI Referenciado (*) (*) TOP DI FI REFERENCIADO investment fund The objective of this fund is to invest its resources in quotas (ownership units) of investment funds classified as being referenced to interbank deposits (DI), which in turn invest in financial assets that seek to keep pace with the variation in the Certificate of Interbank Deposit (CDI) or SELIC rate, such that at least ninety-five per cent (95%) of the financial assets comprising their respective portfolios are directly or indirectly pegged to this parameter, it being further noted that the fund s profitability will be impacted owing to the fund s costs and expenses, including any administration fee. This fund is considered to have immediate liquidity and guarantees the repurchase of the securities. Classification and measurement The fair values of the balances maintained in current bank accounts are equivalent to the carrying values and are classified as loans and receivables. 6 Marketable securities Refers to the 34,502,394 shares held by the Company in Dommo Energia S.A. 7 Other credits 12/31/ /31/2016 Insurance premiums Advances to suppliers 23 - Advances to employees

23 8 Investments Investment 12/31/ /31/2016 Dommo Energia Carrying value of investment (% of equity) - (241,110) Adjustment due to loss of control - negative goodwill - (818,361) Subtotal - (1,059,471) Realization of negative goodwill - 709,651 Total (*) - (349,820) OGMP Transporte Aéreo Carrying value of investment (% of equity) (349,691) (*) As of September 30, 2017, the Company s 1.29% interest in Dommo Energia S.A. has been classified as financial assets, under marketable securities, measured at fair value through profit or loss. Changes in Investments a. Balance as of January 1, 2016 (302,427) Currency translation adjustments 85,231 Equity in the earnings of subsidiaries (181,085) Gain from altering interest in associate 18,228 Equity income on share issue premium 30,362 Balance as of December 31, 2016 (349,691) Currency translation adjustments 4,180 Equity in the earnings of investee (517,063) Equity income on share issue premium (30,362) Gain from altering interest in investee 938,257 Effect of reclassification of Dommo Energia interest to financial assets (45,198) OGMP dissolution effect (123) Balance as of - 9 Income tax, social contribution and other taxes and contributions 12/31/ /31/2016 Current and non-current assets Withholding tax (IRRF) on financial investments 5 2,491 Income tax (IRPJ) offsettable 7,429 7,455 Other taxes offsettable Total taxes and contributions recoverable 7,448 9,960 Current liabilities IRRF - 2 COFINS payable 1 3 Other 1 8 Total taxes and contributions payable

24 Reconciliation of the IRPJ and CSLL is as follows: 12/31/ /31/2016 IRPJ CSLL IRPJ CSLL Loss for the year prior to IRPJ and CSLL 357, ,172 (179,059) (179,059) Permanent additions/exclusions: Equity in the earnings of subsidiaries (See (Note 8 (a)) 517, , , ,085 Gain from altering interest in investee (938,257) (938,257) (18,228) (18,228) Realization of currency translation adjustments 51,024 51,024 14,031 14,031 Other net additions/ exclusions Taxable income for IRPJ and CSLL purposes (12,998) (12,998) (2,126) (2,126) Tax rates (%) 15% + 10% surtax 9% 15% + 10% surtax 9% IRPJ and CSLL - deferred 3,250 1, Reversal of current and deferred IRPJ and CSLL (3,250) (1,170) (532) (191) Total IRPJ and CSLL Effective tax rates Related parties The balances relating to the Company s operations with its related parties are as follows: Credits with related parties Loans and financing (liabilities) 12/31/ /31/ /31/ /31/2016 Dommo Energia - - (93,017) (81,261) OGX International (93,017) (81,261) The liability balances presented above refer to intercompany loans remunerated at the CDI rate or 6 month Libor + 2.5%. The companies have flexibility to roll over maturity of this intercompany loan. Changes in loans and financing Liabilities Balance as of December 31, 2016 (81,261) New funding (6,314) Interest incurred (4,714) Exchange variation (728) Balance as of (93,017) Management compensation The compensation of OGPar s Management is detailed in Note

25 11 Trade accounts payable 12/31/ /31/2016 Domestic suppliers Foreign suppliers ,236 Balances on and 2016 basically refer to costs to be paid in up to 48 monthly installments under the court-supervised reorganization. 12 Equity (unsecured liabilities) a. Capital stock During the years ended and 2016, there was no paying in of Company capital. Shareholders 12/31/ /31/2016 Number of Interest Number of Interest common common shares % shares % Centennial Asset Funds (i) 16,233, ,233, Other shareholders (with individual interest of less than 5%) 16,126, ,126, ,360, ,360, (i) Centennial Asset Mining Fund LLC and Centennial Asset Brazilian Equity Fund, both controlled by Eike Fuhrken Batista. Cost of issuing shares The IPO distribution costs, in the amount of R$236,951, are recorded in a counter entry of the capital stock. These costs refer to the commission and the services of registering and listing the IPO, as well as attorneys, auditors, advertising and other such fees. b. Dividends The Company s Bylaws call for distribution of minimum mandatory dividends of 0.001% of profit for the year, adjusted pursuant to Article 202 of Law No /1976 (as amended by Law No /2001). At Management s discretion, the Company may pay interest on equity, the net amount of which is to be imputed to minimum mandatory dividends, in compliance with Article 9 of Law No /1995. Due to the unrealized profit recorded on, no dividend distribution was proposed for the year. c. Currency translation adjustments Due to conversion of currency relating to indirect investments in companies using functional currencies other than the one adopted by the Company (and the presentation currency in these financial statements), cumulative translation adjustments have been recognized under comprehensive income. 25

26 Changes in currency translation adjustments Balance as of December 31, 2016 (55,204) Realization of currency translation adjustments 208 Realization of currency translation adjustments 54,996 Balance as of - 13 General and administrative expenses 12/31/ /31/2016 Personnel expenses 1, Outsourced services 951 1,570 Insurance 790 1,129 Other 979 1,708 4,696 5, Financial result 12/31/ /31/2016 Financial expenses Interest on intercompany loans (4,714) (5,242) Sundry interest - (1) Other (923) (1,168) (5,637) (6,411) Financial revenue Tax credit update Yields from financial investments 40 9 Other Net exchange variation (729) 8,653 Net financial result (5,811) 3, Management compensation The members of management presented herein are members of the Board of Directors and the Board of Executive Officers. The impact of the compensation paid to the Company s Management on profit or loss for the year ended is shown in the following table: 12/31/ /31/2016 Board of Executive Officers 55 - Board of Directors 1, Effect on profit or loss 1,

27 16 Financial instruments and risk management OGpar is a holding company with a direct non-controlling interest in Dommo Energia, and a non-controlling indirect interest in other entities (see Note 8). Individually OGpar does not have financial instruments in material amounts, but its investee company has operations with financial instruments. These instruments are managed by means of operating strategies and internal controls aimed at ensuring liquidity, security and profitability. The control policy consists of permanently monitoring the contractual terms versus those prevailing in the market and future expectations. The Company does not make any investments of a speculative nature in derivatives. The results obtained from operations are in compliance with the policies and strategies defined by the Company s Management. The estimated realizable amounts of the Company s financial assets and liabilities have been determined by means of information available on the market and appropriate appraisal methodologies. However, considerable judgment has been required in interpreting market data in order to produce the most appropriate estimate of realizable amounts. As a result, the following estimates do not necessarily indicate the amounts that could be realized on the current market. The use of different market methodologies can have a material effect on the estimated realizable amounts. a. Risk management objectives and strategies The Company has a formal risk management policy. Financial instruments for hedge purposes are contracted by conducting a periodic analysis of the exposure to the risk that Management wishes to hedge against, as approved by the Board of Directors. The hedge guidelines are applied according to the type of exposure. Whenever risk factors related to foreign currencies, interest rates and inflation arising from assets and liabilities acquired are deemed to be material, they may be neutralized in accordance with Management s appraisal of the economic and operational context. The contracting of instruments to hedge against oil price swings is subject to the limits of physical exposure and volatility set forth in the Company s Sales Policy. b. Market risk Risk of swings in the prices of commodities, exchange rates and interest rates. b.1 Risk of change in price: oil Risk management The Company s investee Dommo Energia has a formal policy for sales and inventory management that defines the levels of decision-making for oil sales and the criteria for management of oil sale prices. The guidelines for hedging the price of this commodity call for the use of derivative instruments to set the sale price in order to assure enhanced stability and predictability for the Company s flow of revenues. Operations hedged by derivative instruments against changes in prices Pursuant to its Sales Policy, the Company s associate Dommo Energia can use derivative instruments to establish the sale price of the oil produced, and may also set the price for up to three months of production or occasionally any other horizon that is approved by the Board of Directors. The derivative instruments used in such hedge operations could involve oil futures, swaps, collars and options. The operations may be carried out on the following exchanges: the NYMEX - New York Mercantile Exchange and the ICE - Intercontinental Exchange, as well as on the over-the-counter (OTC) market. There were no operations with derivative instruments in 2017 and