Petrobras (PBR)

Cost of sales

Cost of sales for the nine-month period ended September 30, 2005 increased 45.9% to U.S.$ 21,337 million, as compared to U.S.$ 14,627 million for the nine-month period ended September 30, 2004. This increase was principally a result of:

• a U.S.$ 1,224 million increase in the cost of imports due to higher prices for the products imported;
  
  
• a U.S.$ 1,176 million increase in taxes and charges imposed by the Brazilian government totaling U.S.$ 3,545 million for the nine-month period ended September 30, 2005, as compared to U.S.$ 2,369 million for the nine-month period ended September 30, 2004, including an increase in the special participation charge (an extraordinary charge payable in the event of high production and/or profitability from our fields) to U.S.$ 2,034 million for the nine-month period ended September 30, 2005, as compared to U.S.$ 1,216 million for the nine-month period ended September 30, 2004, as a result of higher international oil prices and increased levels of production;

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• a U.S.$ 987 million increase in costs attributable to: (1) maintenance and technical services for well restoration, materials, support for vessels, undersea operations, freight with third parties (these prices are tied to international oil prices) consumption of chemical products to clear out and eliminate toxic gases – principally at Marlim; and (2) higher personnel expenses primarily related to: overtime payments as set forth in our collective bargaining agreement; an increase in our workforce; and a revision in the actuarial calculations relating to future health care and pension benefits;
  
  
• a U.S.$ 702 million increase in costs associated with our international trading activities, due to increases in volume and prices from offshore operations, conducted by PIFCo;
  
  
• a U.S.$ 245 million increase in costs associated with a 2.9% increase in our domestic sales volumes;
  
  
• a U.S.$ 158 million increase in costs in our Argentinean subsidiary PEPSA mainly due to oil products purchases as a result of total capacity utilization of its refineries and higher sales volume of petrochemical products;
  
  
• a U.S.$ 134 million increase in costs associated with a 3.2% increase in our international market sales volumes; and
  
  
• 16.0% increase in the value of the Real against the U.S. dollar in the nine-month period ended September 30, 2005, as compared to the nine-month period ended September 30, 2004.

Cost of sales

Cost of sales for the first half of 2005 increased 45.4% to U.S.$ 12,614 million, as compared to U.S.$ 8,675 million for the first half of 2004. This increase was principally a result of:

• a U.S.$ 842 million increase in costs attributable to: (1) maintenance and technical services for well restoration, materials, support for vessels, undersea operations, freight with third parties (these prices are tied to international oil prices) consumption of chemical products to clear out and eliminate toxic gases – principally at Marlim; and (2) higher personnel expenses primarily related to: overtime payments as set forth in our collective bargaining agreement; an increase in our workforce; and a revision in the actuarial calculations relating to future health care and pension benefits;
  
  
• a U.S.$ 834 million increase in the cost of imports due to higher prices for the volumes imported;
  
  
• a U.S.$ 598 million increase in taxes and charges imposed by the Brazilian government totaling U.S.$ 2,055 million for the first half of 2005, as compared to U.S.$ 1,457 million for the first half of 2004, including an increase in the special participation charge (an extraordinary charge payable in the event of high production and/or profitability from our fields) to U.S.$ 1,265 million for the first half of 2005, as compared to U.S.$ 743 million for the first half of 2004, as a result of higher international oil prices and increased levels of production;

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• a U.S.$ 363 million increase in costs in our Argentinean subsidiary PEPSA mainly due to oil products purchases as a result of total capacity utilization of its refineries;
  
  
• a U.S.$ 283 million increase in costs associated with our international trading activities, due to increases in volume and prices from offshore operations, conducted by PIFCo;
  
  
• a U.S.$ 187 million increase in costs associated with a 3.8% increase in our domestic sales volumes; and
  
  
• the 13.4% increase in the value of the Real against the U.S. dollar in the first half of 2005, as compared to the first half of 2004.

Cost of Sales

Cost of sales increased 8.6% to U.S.$6,920.1 million in 2003, from U.S.$6,371.5 million in 2002, primarily due to the 16.5% increase in the average price of Brent crude oil in 2003, as compared to 2002, and the 9.7% increase in sales made by PIFCo’s subsidiary PFL in connection with our exports prepayment program. The increase was partially offset by a reduction in the volume of oil products sold to us as a result of lower demand for such products in the Brazilian market.

Cost of sales

Cost of sales for the first quarter of 2005 increased 28.3% to U.S.$ 5,206 million, as compared to U.S.$ 4,058 million for the first quarter of 2004. This increase was principally a result of:

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Table of Contents

Cost of sales

Cost of sales for 2004 increased 31.7% to U.S.$ 20,303 million, as compared to U.S.$ 15,416 million for 2003. This increase was principally a result of:

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