GRI 1.1 | 1.2

Demand from the residential and service sectors  pushed up electricity consumption in Brazil by 3.5% in 2012, which led to a 7% increase in domestic gas production. At QGEP, this higher demand translated into increased production at the Manati Field, where average daily production of 6.1 million cubic meters made it the country’s largest producing Field in 2012.

In 2012, QGEP focused primarily on preparing and structuring its projects in development, studying new market opportunities and working to meet the operational challenges of the coming years. The company has a healthy financial position, with zero debt  and robust cash flows, while a portion of the proceeds from the 2011 IPO remain available for strategic investments.

We use highly skilled professionals and the top technology available so that these new operations will be successful and take our company to the next level in Brazil’s oil and gas industry.

However, this sector always entails a certain level of risk. We offset this risk with our diversified asset portfolio, a focus on safety and dedication to evaluating new projects. Our transparency also strengthens the company’s relationship with the market by enhancing our credibility.

In 2012, we delivered excellent results for the year, thanks to the positive performance of the Manati Field, where natural gas production averaged 6.1Mm³ per day. For the full year, we posted net revenue of R$460 million, record operating cash flow of R$254 million and net income of R$82 million. The outlook is positive for 2013 and beyond.

One of the disappointments of the year was the Ilha do Macuco well, where drilling did not find any potentially productive zones. This type of situation is part  inevitable in our industry, and we look forward to developing other assets.

We also acquired a participating interest in Block BM-C-27 in the Campos Basin in 2012. This acquisition reinforces QGEP’s strategy to expand and diversify its exploration portfolio through high quality assets. The entry in the Campos Basin, which is Brazil’s largest oil producing area and whose blocks are operated by Petrobras, will leverage our operations considerably.

We also finished our drilling for the Carcará well, in Block BM-S-8 in the Santos Basin, and the results were promising. In 2013 we plan to start drilling wells in the Atlanta Field, where QGEP is the operator, with oil production expected to begin by early 2015. The volumes in place in this area, which includes the Oliva Field, are 2.1 billion barrels of oil equivalent. Its location in the pre-salt exclusion area demonstrates the success of QGEP’s strategy in acquiring this asset and consequently diluting our business risks.

We are also preparing to drill pre-salt targets in this zone, which is expected to begin in 2014. Our operational advancements, combined with the values of the Queiroz Galvão Group and the continued support of our Board of Directors, have allowed us to implement our growth strategy. This approach puts a constant focus on respect and transparency for all stakeholders, operational safety and environmentally sound operations, based on the ten principles of the Global Compact, to which we are a signatory.

We are confident that we are ready to continue to execute on our proven strategy, which creates value for all of society and contributes to the country's development. Best regards.