GRI G4-2

QGEP uses strategic risk management to monitor the risks inherent to its activities as well as those that are not inherent to it.

Management of risks at QGEP is done according to the guidelines in the Market Risk Management Policy, approved by the Board of Directors in 2011. This policy formalizes measures that are subject to mitigation of market risks that are not inherent to the operational activity of oil and gas exploration and production.

Through a multidisciplinary work group, the Company monitors risks to its activities and business continually and seeks the most appropriate mechanisms for protection. The main risks monitored by QGEP are:

Exchange rate risk | This is a result of the effects of the exchange rate on items denominated in USD or whose value in BRL is indexed on or strongly influenced by the USD exchange rate. Notable among these items are exploration and production development investments. According to the Market Risk Management Policy, the Company uses derivative financial and/or natural hedge instruments via investment of cash in USD to mitigate exposure to exchange rate risks.

Risk from variation in the price of oil and oil derivatives | Volatility in oil prices currently has a limited impact on QGEP’s bottom line, since operating revenue mostly comes from the sale of natural gas from the Manati Field to Petróleo Brasileiro S.A. – Petrobras, using a price denominated in BRL that is restated on annual bases according to a contractual index connected to inflation. Exposure to the price of oil and its derivatives tends to increase insofar as the Company’s oil production and condensation activities grow. In the future, QGEP may contract derivative financial instruments to mitigate risk arising from variation in the price of oil and oil derivatives.

Interest rate risk | Variation in market interest rates may influence the cost of loans and the profitability of financial investments. In order to reduce this risk, QGEP may contract derivative instruments on occasion.

A protective (hedging) strategy is used by the Company with respect to the Market Risk Management Policy, which was approved by the Board of Directors on December 21, 2011, with the aim of protecting QGEP’s solvency and liquidity, considering an integrated analysis of all exposure to financial risk, while also ensuring execution of the corporate investment plan.

Operational risks | QGEP uses methodologies recognized within the industry, such as Preliminary Risk Analysis (Análise Preliminar de Riscos – APR), Hazard Identification (Hazid), Hazard and Operability Study (Hazop) and Quantitative Risk Analysis (Análise Quantitativa de Riscos – AQR), to monitor and mitigate the risks in its exploration and production activities. Additionally, periodic audits are done on service provider companies, including verification of the No. 12 Management practice of the Technical Regulation in ANP Resolution No. 43/07 (Operational Safety Management System – SGSO), which establishes requirements for identifying and assessing risks that could result in incidents. GRI G4-14

Environmental risks | Emissions from burning fuels (oil or gas) are monitored so that projects are not at any risk of being stopped because of a ruling by ANP or Ibama. There are also mechanisms to prevent risks of oil spilling into the sea. These risks may impact the timeline and cost of projects. Other physical risks, such as currents, winds and waves, could result in temporary stoppage of activities. In these situations, the Company waits for improvement in climate conditions in order to guarantee operational safety. QGEP only operates in safe conditions and under those conditions established in national and international standards. The Company has mechanisms to measure financial impacts and impacts on well drilling timelines. Mitigation measures are established using risks analyses in every project phase, always seeking to anticipate and prevent causes. GRI G4-EC2 Global Compact 7

Risk to intellectual capital | The loss or termination of members of upper management, the technical team and other key positions could compromise the Company’s growth and longevity. QGEP monitors these professionals and relies on a knowledge retention plan and continual training. In addition, teams are multidisciplinary, optimizing results and facilitating the transfer of knowledge.

Precautionary principle | QGEP recognizes some aspects of risk in its exploration and production activities:

  • Future drilling may not be executed or may not produce oil and gas of a viable quantity or quality from a commercial standpoint.
  • Exploration and production of oil and gas involves risks such as leaks, explosions in pipelines and exploratory wells, and environmental and geological disasters.
  • The fact that it is not the operator in most of its Blocks limits QGEP’s capacity to control exploration activities, the development timeline, associated costs, and the rate of production coming from any discovery of hydrocarbons.
  • Projects are subject to delays and increases in budgeted costs, which may negatively affect operations and current and future results.
  • International benchmark prices and the demand for oil and natural gas may oscillate due to factors beyond the Company’s control.
  • The oil and natural gas industry is subject to intense regulation and intervention by the Federal Government.

To learn more about the processes for mitigating and managing risks that QGEP has adopted, access the Company’s Reference Form on the Investor Relations website.