Petrobras (PBR)

The behavior of the main components of consolidated net income, in relation to 2006, was as follows:

• A R$ 2,875 million increase in gross profit:

(1) New ANP interpretation of the deductibility of projects financing expenses related to the Marlim field when calculating 2006 special participations.
(2) Adjustment, in 2006, of expenses from gas produced and reinjected in reservoirs in the Solimões, Campos and Espírito Santo Basins.
(3) CIF values.
(4) Expenditures on cabotage, terminals and pipelines.

6

PETROBRAS SYSTEM	Financial Performance

• An increase of R$ 4,521 million in the following operating expenses:

• Selling expenses (R$ 269 million), reflecting the increase in export volume (R$ 79 million) and off-shore operations (R$ 166 million);

• General and administrative expenses (R$ 999 million), due to the growing complexity and volume of the Company’s operations, reflected in higher expenses from personnel in Brazil (R$ 379 million) as a result of the collective bargaining agreement and the increase in the workforce, and from third-party services (R$ 355 million), especially those related to IT and consulting;

• Exploration costs (R$ 533 million), related to the intensification of exploratory activities in Brazil (R$ 228 million) and abroad (R$ 440 million), especially in Turkey, Angola and Iran, offset by the reduction in provisions for well abandonment (R$ 121 million);

• Losses from the recovery of exploration and production assets (R$ 401 million) in Ecuador (R$ 309 million) due to the increase in the royalty rate (99%).

• R&D (R$ 126 million), from research into increasing production from current reserves and expansion into new exploratory frontiers, plus the training of technical staff;

• The Pension and Health Plan (R$ 554 million), due to the amendments to the Petros Plan regulations;

• Other operating expenses (R$ 1,646 million), especially from the amendments to the Petros Plan (R$ 1,051 million), the collective bargaining agreements (R$ 482 million) and fines and contractual charges related to natural gas and electricity supply (R$ 449 million), offset by the recovery of ICMS tax credits following the agreement with the Ceará State Finance Department (R$ 101 million).

• A negative impact of R$ 2,600 million on the net financial result, due to:

• The impact of the increase in the appreciation of the Real from 8% to 17% on funds invested abroad via subsidiaries in the International segment, in E&P equipment for use in Brazil and in commercial activities (R$ 1.972 million);

• Exchange regularization in 2006 (R$ 321 million, non-recurring).

• Financial result from the increase in net debt (R$ 323 million);

• Losses from hedge operations linked to commercial and financial activities (R$ 288 million);

• Offset by the reduction in expenses from the prepayment of financing (R$ 230 million).

• A reduction in relevant interests (R$ 448 million), primarily due to the increase in exchange losses from the conversion of foreign subsidiaries’ shareholders equity.

• A lower non-operating result (R$ 371 million), primarily from expenses from damage to third-party equipment installed in wells in the Campos Basin (R$ 139 million) and the write-off of E&P-related sunk costs (R$ 103 million).

7

PETROBRAS SYSTEM	Financial Performance