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PBR » Topics » (h) Change in accounting practices - abandonment of wells and demobilization of areas

This excerpt taken from the PBR 6-K filed Mar 18, 2005.

(h) Change in accounting practices – abandonment of wells and demobilization of areas

As of January 1, 2003, the Company has adopted a new accounting practice to recognize costs associated with well abandonment and the demobilization of areas and corresponding liabilities in connection with oil and gas production and exploration activities. The adjustments arising from this change resulted in a decrease in the abandonment provision recorded as liabilities against prior year adjustments in shareholders’ equity in 2003.

In accordance with the new accounting practice, based on Statement “SFAS 143 - Accounting for Asset Retirement Obligations” issued by the Financial Accounting Standards Boards – FASB, the future liability with well abandonment and demobilization of production areas at present value discounted at a free-risk rate, is fully recorded upon the start-up of production activities as part of the costs of the related assets (property, plant and equipment) against the provision supporting these costs, recorded in liabilities.

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