UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 20122015

Securities registered or to be registered pursuant to Section 12(b) of the Act:

* Not for trading, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

TITLE OF EACH CLASS:

9.125% Global Notes due 2013, issued by PifCo

7.75% Global Notes due 2014, issued by PifCo

8.375% Global Notes due 2018, issued by PifCo

4.875% Global Notes due 2018, issued by PifCo

3.25% Global Notes due 2019, issued by PGF

5.875% Global Notes due 2022, issued by PifCo

4.25% Global Notes due 2023, issued by PGF

6.250% Global Notes due 2026, issued by PifCo

5.375% Global Notes due 2029, issued by PGF

The number of outstanding shares of each class of stock as of December 31, 20122015 was:

7,442,454,142 Petrobras Common Shares, without par value

5,602,042,788 Petrobras Preferred Shares, without par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.

Yesþ RNo¨ £

If this report is an annual or transitional report, indicate by check mark if the registrant is not required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes¨ £Noþ R

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ RNo¨ £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yesþ R No¨ £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

We are subject to a number of civil proceedings related to the Lava Jato investigation, including a putative securities class action lawsuit against us consolidated in the United States District Court for the Southern District of New York (“SDNY”) on February 17, 2015. See Item 8. “Financial Information—Legal Proceedings” and Note 30.4 to our audited consolidated financial statements contained therein for a description of the U.S. securities class action litigation. In addition to the Consolidated Securities Class Action, to date, 29 lawsuits have been filed by individual investors before the same judge in the SDNY (two of which have been stayed), and one has been filed in the United States District Court for the Eastern District of Pennsylvania, consisting of allegations similar to those in the Consolidated Securities Class Action. The plaintiffs have not specified an amount of alleged damages in the actions. Because these actions are in their early stages, the possible loss or range of losses, if any, arising from the litigation cannot be estimated and consequently we have made no provisions with respect to this litigation.  In the event that this litigation is denominated indecided against us, or indexed to. We cannot assure you thatwe enter into an agreement to settle such changes will notmatters, we may be required to pay substantial amounts. Depending on the outcome, such litigation could also result in increased financing expenses borne by us.restrictions on our operations and have a material adverse effect on our business.  Petrobras has engaged a U.S. firm as legal counsel and intends to defend vigorously against the allegations made in the context of these actions. In addition, EIG Management Company filed a complaint against us on February 23, 2016 in connection with their investment in Sete Brasil Participações, S.A., or Sete Brasil. It is possible that additional complaints or claims might be filed in the United States, Brazil or elsewhere against us relating to the Lava Jato investigation in the future. Our management may be required to direct its time and attention to defending these claims, which could prevent them from focusing on our core business.

We are not insured against business interruption for our Brazilian operations, and most of our assets are not insured against war or sabotage.

We generally do not maintain insurance coverage for business interruptions of any nature for our Brazilian operations, including business interruptions caused by labor action.  If, for instance, our workers or those of our key third-party suppliers, vendors and service providers were to strike, the resulting work stoppages could have an adverse effect on us.  In addition, we do not insure most of our assets against war or sabotage. See “—Risks Relating to Our Operations—Strikes, work stoppages or labor unrest by our employees or by the employees of our suppliers or contractors could adversely affect our results of operations and our business.”  Therefore, an attack or an operational incident causing an interruption of our business could have a material adverse effect on our results of operations and financial conditioncondition.

Developments in the oil and gas industry (such as the recent significant decline in international crude oil and gas prices) and other factors have resulted, and may result, in substantial write-downs of the carrying amount of certain of our assets, which could adversely affect our results of operations and financial condition.

We evaluate on an annual basis, or more frequently where the circumstances require, the carrying amount of our assets for possible impairment.  Our impairment tests are performed by a comparison of the carrying amount of an individual asset or a cash-generating unit with its recoverable amount. Whenever the recoverable amount of an individual asset or cash-generating unit is less than its carrying amount, an impairment loss is recognized to reduce the carrying amount to the recoverable amount.

Changes in the economic, regulatory, business or political environment in Brazil or other markets where we operate, such as the recent significant decline in international crude oil and gas prices, the devaluation of thereal and lower projected economic growth in Brazil, as well as changes in financing conditions for such projects, among other factors, may affect the original profitability estimates of our projects and result in (i) projects being delayed or cancelled and (ii) the recognition of impairment charges in certain of our assets.  For example, in 2015 and 2014, we recognized impairment charges of US$12,299 million and US$16,823 million, respectively, for certain of our property, plant and equipment, intangible assets and assets classified as held for sale.  See Item 5. “Operating and Financial Review and Prospects—Results of Operations—2015 compared to 2014” and Item 5. “Operating and Financial Review and Prospects—Results of Operations—2014 compared to 2013”, Item 5. “Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates” and Notes 5.2 and 14 to our audited consolidated financial statements for further information about the impairment of certain of our assets.

Future developments in the economic environment, in the oil and gas industry and other factors could result in further substantial impairment charges, adversely affecting our operating results and financial condition.

Our commitment to meet the obligations of our pension plan (“Petros”) and health care benefits (“AMS”) may be higher than what is currently anticipated, and we may be required to make additional contributions of resources to Petros.

The criteria used for determining commitments relating to pension and health care plan benefits are based on actuarial and financial estimates and assumptions with respect to (i) the calculation of projected short-term and long-term cash flows and (ii) the application of internal and external regulatory rules. Therefore, there are uncertainties inherent in the use of estimates that may result in differences between the predicted value and the actual realized value.

In addition, the financial assets held by Petros to cover pension obligations are subject to risks inherent to investment management and such assets may not generate the necessary returns to cover the relevant liabilities. Further, Petros may be required to assume the payment of additional obligations arising from court decisions unfavorable to the plan. With respect to the results of Petros, under current Brazilian law, in the event of actuarial deficits in specific circumstances, an equalization plan may be necessary and, therefore, extraordinary contributions from us, as sponsor, and our employees, may be required. An eventual equalization plan for Petros that would require contributions from us may have a material adverse effect on our results of operations and financial condition.

With respect toAMS, the projected cash flows, as well as payments and actuarial liabilities, may also be impacted by (i) substantial increases in medical costs, (ii) additional demands for better benefits and (iii) the difficulty of adjusting the contributions of participants proportionally to medical cost increases.

These risks may result in an increase in our liabilities and adversely affect our results of operations and our business. See Note 22 to our audited consolidated financial statements for further information about our employee benefits, including pension and health care plans.

Strikes, work stoppages or labor unrest by our employees or by the employees of our suppliers or contractors, as well as potential shortages of skilled personnel, could adversely affect our results of operations and our business.

Approximately 45% of our employees are represented by labor unions. Disagreements on issues involving divestments or changes in our business strategy, reductions in our personnel, as well as potential employee contributions to a Petros shortfall, could lead to labor unrest. In 2015, oil workers unions organized a series of protests, culminating in a strike lasting 27 days, which impacted our production levels in November 2015. This strike took place during negotiations over the social clauses of the collective bargaining agreement for 2015-2017. We cannot ensure that such strikes affecting our production levels will not occur during future negotiations. Strikes, work stoppages or other forms of labor unrest at any of our major suppliers, contractors or their facilities could impair our ability to complete major projects and impact our ability to achieve our long-term objectives.

In addition, we could experience potential shortages of skilled personnel. We recently announced a new voluntary separation incentive program open to all of our employees, and we estimate that approximately 12,000 employees will enroll in such program.  If this voluntary separation incentive program is successfully implemented, and we are unable to timely replace key skilled personnel that decide to enroll in such program, this could adversely affect our results of operations and our business. See Item 6. “Directors, Senior Management and Employees—Employees and Labor Relations—Voluntary Separation Incentive Program-PIDV.” Our success also depends on our ability to continue to successfully train and qualify our personnel so they can assume qualified senior positions in the future.   We cannot assure you that we will be able to properly train, qualify or retain senior management personnel, or do so without costs or delays, nor can we assure you that we will be able to find new qualified senior managers, should the need arise.  Any such failure could adversely affect our results of operations and our business.

Compliance and Control Risks

We are exposed to behaviors incompatible with our ethics and compliance standards, and failure to timely detect or remedy any such behavior may have a material adverse effect on our results of operations and financial condition.

Our business, including relationships with third parties, is guided by ethical principles. We have adopted a Code of Ethics, a Conduct Guide and a number of internal policies designed to guide our management, employees and contractors and reinforce our principles and rules for ethical behavior and professional conduct.  We offer an  external whistleblower channel overseen by our General Ombudsman Office for employees, contractors and other third parties. See Item 6. “Directors, Senior Management and Employees—Ombudsman.”

We are subject to the risk that our employees, contractors or any person doing business with us may engage in fraudulent activity, corruption or bribery, circumvent or override our internal controls and procedures or misappropriate or manipulate our assets for their personal or business advantage to our detriment.  This risk is heightened by the fact that we have a large number of complex, valuable contracts with local and foreign suppliers, as well as the geographic distribution of our operations and the wide variety of counterparties involved in our business.  We have in place a number of systems for identifying, monitoring and mitigating these risks, but our systems may not be effective.

It is difficult for us to ensure that all of our employees and contractors, totaling over 236,000, will comply with our ethical principles. Any failure – real or perceived – to follow these principles or to comply with applicable governance or regulatory obligations could harm our reputation, limit our ability to obtain financing and otherwise have a material adverse effect on our results of operations and financial condition.

Our management has identified material weaknesses in our internal control over financial reporting, and has concluded that our internal control over financial reporting was not effective at December 31, 2015, which may have a material adverse result on our results of operation and financial condition.

Our management identified a number of material weaknesses in our internal control over financial reporting in 2015, related to (i) management override of controls,  (ii) controls related to property, plant and equipment (including deficiencies related to the review of changes in certain groupings ofexploration and production assets as cash generating units  and their compliance with IFRS, reclassification of certain assets for projects under construction to operating assets and the timely write-off of projects, need to write down payments advanced to contractors and suppliers that will not result in future economic benefits and recognition of termination costs of our contracts), (iii) the review and approval of manual journal entries, (iv) system access management and segregation of duties in business and information technology process, (v) provisions and contingent liabilities for legal proceedings and (vi) the calculation of actuarial liabilities.  As a result , due to the identified material weaknesses, our management concluded that our internal control over financial reporting was not effective at December 31, 2015.  A number of our current material weaknesses in our internal control over financial reporting were identified and reported by management at December 31, 2014. Although we have developed and implemented several measures to remedy these material weaknesses, we cannot be certain that there will be no other material weaknesses in our internal control over financial reporting in the future. For more information about these matters, see Item 15. “Controls and Procedures—Management’s Report on Internal Control over Financial Reporting.”

If our efforts to remediate the material weaknesses are not successful, we may be unable to report our results of operations for future periods accurately and in a timely manner and make our required filings with government authorities, including the SEC. There is also a risk that there could be accounting errors in our financial reporting, and we cannot be certain that in the future additional material weaknesses will not exist or otherwise be discovered.  Any of these occurrences could adversely affect our business and operating results and could generate negative market reactions, potentially leading to a decline in the price of our shares, ADSs and debt securities.

Ongoing SEC and DoJ investigations regarding the possibility of non-compliance with the U.S. Foreign Corrupt Practices Act could adversely affect us.  Violations of this or other laws may require us to pay fines and expose us and our employees to criminal sanctions and civil suits.

In November 2014, we received a subpoena from the SEC requesting certain documents and information about us relating to, among other things, the Lava Jato investigation and any allegations regarding a violation of the U.S. Foreign Corrupt Practices Act.  The DoJ is conducting a similar inquiry, and we are voluntarily cooperating with both investigations.  The internal investigation and related government inquiries concerning these matters remain ongoing, and it is still not possible to estimate the duration, scope or results of the internal investigation or related inquiries by relevant authorities.  While we are cooperating fully with both investigations, adverse developments in connection with these investigations, including any expansion of the scope of the investigations, could negatively impact us and could divert the efforts and attention of our management team from our ordinary business operations. In connection with any SEC or DoJ investigation or any other investigation carried out by any other authority, there can be no assurance that we will not be required to pay penalties or provide other financial relief, or consent to injunctions or orders on future conduct or suffer other penalties, any of which could have a material adverse effect on us.  See “Item 8. –Financial Information—Legal Proceedings.”

Our methodology to estimate the overpayments incorrectly capitalized, uncovered in the context of the Lava Jato investigation, involves some degree of uncertainty.  If substantive additional information comes to light in the future that would make our estimate for the overstatements of our assets appear, in retrospect, to have been materially underestimated or overestimated, this could require a restatement of our financial statements and may have a material adverse effect on our results of operations and financial condition and affect the market value of our securities. 

As a result of the findings of the Lava Jato investigation, in the third quarter of 2014, we wrote off US$2,527 million of capitalized costs representing amounts that Petrobras overpaid for the acquisition of property, plant and equipment in prior years.

Beginning in 2014, and over the course of 2015, the Brazilian Federal Prosecutor’s Office focused part of its investigation on irregularities involving our contractors and suppliers and uncovered a broad payment scheme that involved a wide range of participants, including former Petrobras personnel. Based on the information available to us, the payment scheme involved a group of companies that, between 2004 and April 2012, colluded to obtain contracts with us, overcharging us under those contracts and using the overpayment received under the contracts to fund improper payments to political parties, elected officials or other public officials, individual contractor personnel, former Petrobras personnel and other individuals involved in the payment scheme. In addition to the payment scheme, the investigations identified several specific instances of other contractors and suppliers that allegedly overcharged Petrobras and used the overpayment received from their contracts with us to fund improper payments, unrelated to the payment scheme, to certain former Petrobras personnel. See Note 3 to our audited consolidated financial statements for further information about the Lava Jato investigation, the overpayments charged by certain contractors and suppliers to Petrobras and our methodology to estimate the overstatement of our assets. 

We concluded that a portion of our costs incurred to build property, plant and equipment that resulted from contractors and suppliers in the cartel overcharging us to make improper payments should not have been capitalized in our historical costs of property, plant and equipment.  As it is impracticable to identify the specific periods and amounts for the overpayments made by us, we considered all the available information to determine the impact of the overpayments charged to us.  As a result, to account for these overpayments, we developed a methodology to estimate the aggregate amount that we overpaid under the payment scheme, in order to determine the amount of the write-off representing the overstatement of our assets resulting from overpayments used to fund improper payments.

The Lava Jato investigation is still ongoing and it could be a significant amount of time before the Brazilian federal prosecutors conclude their investigation.  As a result of this investigation, substantive additional information might come to light in the future that would make our estimate for overpayments appear, in retrospect, to have been materially low or high, which may require us to restate our financial statements to further adjust the write-offs representing the overstatement of our assets recognized in our interim consolidated financial statements for the nine-month period ended September 30, 2014.

We believe that we have used the most appropriate methodology and assumptions to determine the amounts of overpayments incorrectly capitalized based on the information available to us, but our estimation methodology involves some degree of uncertainty.  There can be no assurance that the write-offs representing the overstatement of our assets, determined using our estimation methodology, and recognized in our interim consolidated financial statements for the nine-month period ended September 30, 2014, are not underestimated or overestimated.  In the event that we are required to write-off additional historical costs from our property, plant and equipment or to reverse write-offs previously recognized in our financial statements, this might impact the total value of our assets and we may be subject to negative publicity, credit rating downgrades, or other negative material events, which may have a material adverse effect on our results of operations and financial condition and affect the market value of our securities.

Risks Relating to Our Relationship with the Brazilian Federal Government

The Brazilian federal government, as our controlling shareholder, may cause us to pursue certain macroeconomic and social objectives through us that may have a material adverse effect on us.

As our controlling shareholder, the Brazilian federal government has pursued, and may pursue in the future, certain of its macroeconomic and social objectives through us, as permitted by law.us. Brazilian law requires that the Brazilian federal government to own a majority of our voting stock, and so long as it does, the Brazilian federal government will have the power to elect a majority of the members of our board of directors and, through them, a majority of the executive officers who are responsible for our day-to-day management.  As a result, we may engage in activities that give preference to the objectives of the Brazilian federal government rather than to our own economic and business objectives.

Accordingly, we may make investments, incur costs and engage in sales with parties or on terms that may have an adverse effect on our results of operations and financial condition.  In particular, we continue to assist the Brazilian federal government to ensurein ensuring that the supply and pricing of crude oil and oil products in Brazil meets Brazilian consumption requirements.  Accordingly, we may make investments, incur costs and engage in sales on terms that may have an adverse effect on our results of operations and financial condition.  Prior to January 2002, prices for crude oil and oil products were regulated by the Brazilian federal government, occasionally set below prices prevailing in the world oil markets.  We cannot assure you that price controls will not be reinstated in Brazil.

·        tax policy;

·        regulatory policy for the oil and gas industry, including pricing policy;

·allegations of corruption against political parties, elected officials or other public officials, including allegations made in relation to the Lava Jato investigation; and

·        other political, diplomatic, social and economic developments in or affecting Brazil.

Uncertainty over whether the Brazilian federal government will implement changes in policy or regulations that may affect any of the factors mentioned above or other factors in the future may lead to economic uncertainty in Brazil and increase the volatility of the Brazilian securities market and securities issued abroad by Brazilian companies, which may have a material adverse effect on our results of operations and financial condition.

Historically, the country’s political scenario has influenced the performance of the Brazilian economy and political crises have affected the confidence of investors and the general public, which resulted in economic downturn and heightened volatility in the securities issued abroad by Brazilian companies.  Currently, Brazilian markets are experiencing heightened volatility attributable to (i) Brazil’s loss of its investment-grade credit rating, (ii) political uncertainty and instability (as result of, among other factors, the ongoing impeachment proceeding  against the President of Brazil) and (iii) the uncertainties derived from the ongoing Lava Jato investigation and its impacts on the Brazilian economy and political environment.  Although Brazilian authorities have publicly described Petrobras as a victim of the alleged illegal conduct identified during the Lava Jato investigation, at this stage of the investigation, any developments in the Lava Jato investigation (foreseeable and unforeseeable) could have a material adverse effect on the Brazilian economy and on our results of operations and financial condition.

Additionally, since 2011, Brazil has been experiencing an economic slowdown culminating in a Gross Domestic Product, or GDP, decrease of 3.8% in 2015. GDP growth rates were, 0.1% in 2014, 2.7% in 2013, 1.8% in 2012 and 3.9% in 2011.  Our results of operations and financial condition have been, and will continue to be, affected by the growth rate of GDP in Brazil because a substantial portion of our oil products are sold in Brazil.  We cannot ensure that GDP will increase or remain stable in the future.  Future developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the consumption of our oil products. As a result, these developments could impair our results of operations and financial condition.

Allegations of political corruption against the Brazilian federal government and the Brazilian legislative branch could create economic and political instability.

In the past, members of the Brazilian federal government and the Brazilian legislative branch have faced allegations of political corruption. As a result, a number of politicians, including senior federal officials and congressmen, resigned or have been arrested.  Currently, elected officials and other public officials in Brazil are being investigated for allegations of unethical and illegal conduct identified during the Lava Jato investigation being conducted by the Office of the Brazilian Federal Prosecutor. The potential outcome of these investigations is unknown, but they have already had an adverse impact on the image and reputation of the implicated companies (including Petrobras), in addition to the adverse impact on general market perception of the Brazilian economy.   These proceedings, their conclusions or further allegations of illicit conduct could have additional adverse effects on the Brazilian economy. We cannot predict whether such allegations will lead to further instability or whether new allegations against Brazilian government officials will arise in the future.  In addition, we cannot predict the outcome of any such allegations nor their effect on the Brazilian economy.

Inflation, and the Brazilian government’s measures to combat inflation, may contribute significantly to economic uncertainty in Brazil, and may have a material adverse effect on us.

Brazil has historically experienced high rates of inflation, particularly prior to 1995. Inflation, as well as government efforts to combat inflation, had significant negative effects on the Brazilian economy. More recently, inflation rates were 10.67% in 2015, 6.41% in 2014 and 5.91% in 2013, as measured by the IPCA, the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), compiled by IBGE (Brazilian Institute of Geography and Statistics).

Brazil may experience high levels of inflation in the future.  The Brazilian government may introduce policies to reduce inflationary pressures, which could have the effect of reducing the overall performance of the Brazilian economy.  Some of these policies may have an effect on our ability to access foreign capital or reduce our ability to execute our future business and management plans, particularly for those projects that rely on foreign partners.

The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high real interest rates.  These policies have contributed to limiting the size and attractiveness of the local debt markets, requiring borrowers like us to seek foreign currency funding in the international capital markets.  To the extent that there is economic uncertainty in Brazil, which weakens our ability to obtain external financing on favorable terms, the local Brazilian market may be insufficient to meet our financing needs, which in turn may have a material adverse effect on us.

Risks Relating to Our Equity and Debt Securities

The size, volatility, liquidity and/or regulation of the Brazilian securities markets may curb the ability of holders of ADSs to sell the common or preferred shares underlying our ADSs.

Petrobras shares are among the most liquid intraded on the São Paulo Stock Exchange, or BM&FBOVESPA, but overall, the Brazilian securities markets are smaller, more volatile and less liquid than the major securities markets in the United States and other jurisdictions, and may be regulated differently from the way in which U.S. investors are accustomed.  Factors that may specifically affect the Brazilian equity markets may limit the ability of holders of ADSs to sell the common or preferred shares underlying our ADSs at the price and time they desire.

The market for PifCo’s and PGF’s notesdebt securities may not be liquid.

Some of PifCo’sPGF’s notes are not listed on any securities exchange and are not quoted through an automated quotation system.  Most of PGF’s notes are currently only listed both on the New York Stock Exchange and the Luxembourg Stock Exchange and trade on the NYSE Euronext and Euro MTF market.market, respectively, although most trading in PGF’s notes occurs over-the-counter.  PGF can issue new notes whichthat can be listed in markets other than the New York Stock Exchange and the Luxembourg Stock Exchange and traded in markets other than the NYSE Euronext and the Euro MTF market.  We can make no assurance as to the liquidity of or trading markets for PifCo’s notes or PGF’s notes.  We cannot guarantee that the holders of PifCo’s notes or PGF’s notes will be able to sell their notes in the future.  If a market for PifCo’s notes or PGF’s notes does not develop, holders of PifCo’s notes or PGF’s notes may not be able to resell the notes for an extended period of time, if at all.

Holders of our ADSs may be unable to exercise preemptive rights with respect to the common or preferred shares underlying the ADSs. 

Holders of ADSs who are residents of the United States may not be able to exercise the preemptive rights relating to the common or preferred shares underlying our ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available.  We are not obligated to file a registration statement with respect to the common or preferred shares relating to these preemptive rights, and therefore we may not file any such registration statement.  If a registration statement is not filed and an exemption from registration does not exist, The Bank of New York Mellon, as depositary, will attempt to sell the preemptive rights, and holders of ADSs will be entitled to receive the proceeds of the sale.  However, the preemptive rights will expire if the depositary cannot sell them.  For a more complete description of preemptive rights with respect to the common or preferred shares, see Item 10. “Additional Information—Memorandum and Articles ofIncorporation— Incorporation—Preemptive Rights.”

If holders of our ADSs exchange their ADSs for common or preferred shares, they risk losing the ability to timely remit foreign currency abroad and forfeiting Brazilian tax advantages.

The Brazilian custodian for our common or preferred shares underlying our ADSs must obtain a certificate of registration from the Central Bank of Brazil to be entitled to remit U.S. dollars abroad for payments of dividends and other distributions relating to our preferred and common shares or upon the disposition of the common or preferred shares.  If holders of ADSs decideSuch remittances under an ADR program are subject to a specific tax treatment in Brazil that may be more favorable to a foreign investor if compared to remitting gains originated from securities directly acquired by the investor in the Brazilian regulated stock markets. Therefore, an investor who opts to exchange their ADSs for the underlying common or preferred shares, they will be entitled to continue to rely, for five Brazilian business days from the date of exchange, on the custodian’s certificate of registration.  After that period, such holders may not be able to obtain and remit U.S. dollars abroad upon the disposition of the common or preferred shares, or distributions relating to the common or preferred shares, unless they obtain their own certificate of registration or register under Resolution No. 2,689, of January 26, 2000, of the National Monetary Council (Conselho Monetário Nacional, or CMN), which entitles registered foreign investors to buy and sell on the BM&FBOVESPA.  In addition, if such holders do not obtain a certificate of registration or register under Resolution No. 2,689, theyshare may be subject to less favorable tax treatment on gains with respect to these investments.

The conversion of ADSs directly into ownership of the underlying common or preferred shares.

Holders of our ADSs may face difficulties in protecting their interests.

Our corporate affairs are governed by our bylaws and Brazilian Corporate Law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or elsewhere outside Brazil.  In addition, the rights of an ADS holder, which are derivative of the rights of holders of our common or preferred shares, as the case may be, to protect their interests against actions by our board of directors are different under Brazilian Corporate Law than under the laws of other jurisdictions.  Rules against insider trading and self-dealing and the preservation of shareholder interests may also be different in Brazil than in the United States.  In addition, the structure of a class action in Brazil is different from that in the US, and under Brazilian law, shareholders in Brazilian companies ordinarily do not have standing to bring a class action.action, and under Petrobras’s by-laws must, generally with respect to disputes concerning rules regarding the operation of the capital markets, arbitrate any such disputes.  See Item 10. “Additional Information—Memorandum and Articles of Incorporation—Dispute Resolution.”

We are a state-controlled company organized under the laws of Brazil, and all of our directors and officers reside in Brazil.  Substantially all of our assets and those of our directors and officers are located in Brazil.  As a result, it may not be possible for holders of ADSs to effect service of process upon us or our directors and officers within the United States or other jurisdictions outside Brazil or to enforce against us or our directors and officers judgments obtained in the United States or other jurisdictions outside Brazil.  Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain requirements are met, holders of ADSs may face greater difficulties in protecting their interest in actions against us or our directors and officers than would shareholders of a corporation incorporated in a state or other jurisdiction of the United States.

Holders of our ADSs do not have the same voting rights as our shareholders. In addition, holders of ADSs representing preferred shares generally do not have voting rights.

Holders of our ADSs do not have the same voting rights as holders of our shares.  Holders of our ADSs are entitled to the contractual rights set forth for their benefit under the deposit agreements. ADS holders exercise voting rights by providing instructions to the depositary, as opposed to attending shareholders meetings or voting by other means available to shareholders.  In practice, the ability of a holder of ADSs to instruct the depositary as to voting will depend on the timing and procedures for providing instructions to the depositary, either directly or through the holder’s custodian and clearing system.

In addition, a portion of our ADSs represents our preferred shares.  Under Brazilian law and our bylaws, holders of preferred shares generally do not have the right to vote in meetings of our stockholders.shareholders’ meetings.  This means, among other things, that holders of ADSs representing preferred shares are not entitled to vote on important corporate transactions or decisions. See Item 10. “Additional Information—Memorandum and Articles of Incorporation—Voting Rights” for a discussion of the limited voting rights of our preferred shares.Rights.”

We would be required to pay judgments of Brazilian courts enforcing our obligations under the guaranty relating to PifCo’s notes or PGF’s notes only in reais.reais.

If proceedings were brought in Brazil seeking to enforce our obligations in respect of the guaranty relating to PifCo’s notes or PGF’s notes, we would be required to discharge our obligations only inreais.  Under the Brazilian exchange control rules,controls, an obligation to pay amounts denominated in a currency other thanreais, which is payable in Brazil pursuant to a decision of a Brazilian court, may be satisfied inreaisat the rate of exchange, as determined by the Central Bank of Brazil, in effect on the date of payment.

A finding that we are subject to U.S. bankruptcy laws and that the guaranty executed by us werewas a fraudulent conveyance could result in PifCo noteholders or PGF noteholders losing their legal claim against us.

PifCo’s and PGF’s obligation to make payments on the PifCo notes and the PGF notes respectively, is supported by our obligation under the corresponding guaranty.  We have been advised by our external U.S. counsel that the guaranty is valid and enforceable in accordance with the laws of the State of New York and the United States.  In addition, we have been advised by our general counsel that the laws of Brazil do not prevent the guaranty from being valid, binding and enforceable against us in accordance with its terms.  In the event that U.S. federal fraudulent conveyance or similar laws are applied to the guaranty, and we, at the time we entered into the relevant guaranty:

·        were or are insolvent or rendered insolvent by reason of our entry into such guaranty;

·        were or are engaged in business or transactions for which the assets remaining with us constituted unreasonably small capital; or

·        intended to incur or incurred, or believed or believe that we would incur, debts beyond our ability to pay such debts as they mature; and

·        in each case, intended to receive or received less than reasonably equivalent value or fair consideration therefor,

then our obligations under the guaranty could be avoided, or claims with respect to that agreement could be subordinated to the claims of other creditors.  Among other things, a legal challenge to the guaranty on fraudulent conveyance grounds may focus on the benefits, if any, realized by us as a result of PifCo’s or PGF’sthe issuance of thesethe PGF notes.  To the extent that the guaranty is held to be a fraudulent conveyance or unenforceable for any other reason, the holders of the PifCo notes or the PGF notes would not have a claim against us under the relevant guaranty and willwould solely have a claim against PifCo or PGF.  We cannot assure youensure that, after providing for all prior claims, there will be sufficient assets to satisfy the claims of the PifCo noteholders or the PGF noteholders relating to any avoided portion of the guaranty.

Holders resident in some jurisdictionsthe European Union may not receive payment of gross-up amounts for withholding in compliance withpursuant to the European Council Directive 2014/107 on the taxation of savings income.income.

Austria and Luxembourg havehas opted out of certain exchange of information provisions of the European Council Directive regarding2003/48/EC on the taxation of savings income (Directive)(which opt out has been confirmed by current applicable European Council Directive 2014/107 (the Directive) after repeal of Directive 2003/4860/EC) and areis instead, during a transitional period, applying a withholding tax on payments of interest, at a rate of up to 35%, unlessmade by a paying agent within Austria to, or collected by such a paying agent for, an individual beneficial owner resident in other member states of the holderEuropean Union (EU Member States) or to certain limited types of entities established in other Member Statesunless the beneficial owner of the interest payments opts for exchange of information as required under the Directive.  Neither we nor the paying agent (nor any other person) would be required to pay additional amounts in respect of the notes as a result of the imposition of such withholding tax by any member state of the European Union (Member State) or another country or territory which has opted for a withholding system.Austria. For more information, see “Taxation—Item 10. “Additional Information—Taxation Relating to PifCo’s and PGF’s Notes—European Union Tax Considerations.Council Directive 2014/107.”   An investor should consult a tax adviser to determine the tax consequences of holding thePGF’s notes for such investor.

Item 4.   Information on the Company

History and Development

Petróleo Brasileiro S.A.—Petrobras—Petrobras was incorporated in 1953 as the exclusive agent to conduct the Brazilian federal government’s hydrocarbon activities. We began operations in 1954 and since then have been carrying out crude oil and natural gas production and refining activities in Brazil on behalf of the government. As of December 31, 2012,2015, the Brazilianfederalgovernment owned 28.67% of our outstanding capital stock and 50.26% of our voting shares. See Item 7. “Major Shareholders and Related Party Transactions—Major Shareholders.” Our common and preferred shares have been traded on the BM&FBOVESPA since 1968 and on the NYSE in the form of ADSs since 2000. 

AsWe lost our exclusive right to carry out oil and gas activities in Brazil when the Brazilian Congress amended the Brazilian Constitution, and subsequently passed Law No. 9,478/1997 in 1997.  Enacted as part of a comprehensive reform of the oil and gas regulatory system, the Brazilian Congress amended the Brazilian Constitution in 1995 to authorizethis law authorized the Brazilian federal government to contract with any state or privately-owned company to carry out upstream, oil refining, cross-border commercialization and transportationall activities in Brazil ofrelated to  oil, natural gas and their respective products.  On August 6, 1997, Brazil enacted Law No. 9,478, whichThis new law established a concession-based regulatory framework, ended our exclusive right to carry out oil and gas activities, and allowed open competition in all aspects of the oil and gas industry in Brazil.  Law No. 9,478The law also created an independent regulatory agency, the ANP, to regulate the oil, natural gas and renewable fuel industry in Brazil and to create a competitive environment in the oil and gas sector.  See “RegulationItem 4. “Information on the Company—Regulation of the Oil and Gas Industry in Brazil—Price Regulation.” 

InFollowing the discovery of large pre-salt reservoirs offshore Brazil, Congress passed in 2010 newadditional laws were enactedintended to  regulate exploration and production activities in the pre-salt area, as well as other potentially strategic areas not subject to existing concessions.  Pursuant to thisalready under concession.  Under these new legislation,laws, we entered into an agreement withacquired from the Brazilian federal government on September 3, 2010, orthrough an Assignment Agreement under which the government assigned to us the right to activities for the explorationexplore and productionproduce up to five bnboe of oil, natural gas and other fluid hydrocarbons in specified pre-salt areas, subject to a maximum production of five bnbbl of oil equivalent.  The initial purchase price for our rights under the Assignment Agreement was R$74,807,616,407, which was equivalent to U.S.$42,533,327,500 as of September 1, 2010.  On September 29,areas. Additionally, on December 2, 2013, based on these laws enacted in 2010, we issued new shares (including shares inexecuted our first agreement with the form of ADSs) inBrazilian federal government under a global public offering consisting ofproduction sharing regime for the Libra field. Under the law governing production sharing regime for the pre-salt area, we are currently required to be operator, with a registered offering in Brazil and an international offering that included a registered offering inminimum 30% participation.  See Item 4. “Information on the United States.  We applied partCompany—Regulation of the net proceeds from the global offering to pay the initial purchase price under the Oil and Gas Industry in Brazil”, Item 10. “Additional Information—Material Contracts—Assignment Agreement” and Item 10. “Additional Information—Material Contracts—Production Sharing Agreement.” 

We operate through subsidiaries, joint ventures, joint operations and associated companies established in Brazil and many other countries.  Our principal executive office is located at Avenida República do Chile 65, 20031-912 Rio de Janeiro, RJ, Brazil, and our telephone number is (55-21) 3224-4477.3224-4477 and our web-site is www.petrobras.com.br.The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this annual report.

Overview of the Group

We are anone of the world’s largest integrated oil and gas company that is the largest corporationcompanies, operating principally in Brazil and one ofwhere we are the largest companies in Latin America in terms of revenues.dominant participant.  As a result of our legacy as Brazil’s former sole producer and supplier of crude oil and oil products and our ongoingstrong and continuous commitment to developmentfind and growth,develop oil fields in Brazil, we operate most of Brazil’s producing oil and gas fields and holdhave a large base of proved reserves and a fully developed operational infrastructure.operate and produce most of Brazil’s oil and gas production.  In 2012,2015, our average domestic daily oil production was 1,9802,128 mbbl/d, an estimated 96.1%which represents more than 90% of Brazil’s total.  Over 73.5%total oil production.  Most of our domestic proved reserves are in large, contiguous and highly productive fieldslocated in the adjacent offshore Campos Basin, whichand Santos Basins in southeast Brazil. Their proximity allows us to optimize our infrastructure and limit our costs of exploration, development and production.  In 44 years of developing Brazil’s offshore basinsproduction for our new discoveries. Additionally, we have developed special expertise in deepwaterdeep water exploration and production from 47 years of developing Brazil’s offshore basins. We are applying the technical expertise we gained through developing the Campos Basin to the Santos Basin, which we exploit bothis expected to be the principal source of our future growth in  Brazilproved reserves and in other offshore oil provinces. production.

As of December 31, 2012,2015, we had proved developed oil and gas reserves of 7,543.35,161.7 mmboe and proved undeveloped reserves of 4,730.64,988.9 mmboe in Brazil. The exploration and development of this large reserve base and the newexploration of pre-salt areas granted to us by the Brazilian federal government under the Assignment Agreement has demanded, and will continue to demand, significant investments and the rapid growth of our operations. To support this growth, we have ordered the construction of 22 new FPSOs and 28 drilling rigs and are also making necessary investments in infrastructure.

·Distribution:this business segment covers activities of Petrobras Distribuidora S.A., which operates through its own retail network and wholesale channels to sell oil products, ethanol and vehicle natural gas in Brazil to retail, commercial and industrial customers, as well as other fuel wholesalers. This segment also includes distribution of oil products operations abroad (South America); and

·        Biofuel: this business segment covers production of biodiesel and its co-products, andas well as ethanol-related activities such as equity investments, production and trading of ethanol, sugar and the excesssurplus electric power generated from sugarcane bagasse; andbagasse.

·International: exploration and production of oil and gas, refining, transportation and marketing, distribution and gas and power operations, outside of Brazil.

OurAdditionally, we have a Corporate segment comprisesthat has activities that cannot beare not attributed to the other segments, notably those related to corporate financial management, corporate overhead and other expenses, including actuarial expenses related to the pension and medical benefits for retired employees and their dependents. For further information regarding our business segments, see Note 4.2. to our audited consolidated financial statements.

Exploration and Production