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PBR » Topics » The gains in consolidated net income during 2006 mainly stem from an increase in realized prices and volumes in both domestic and international markets, as well as other factors explained below:

This excerpt taken from the PBR 6-K filed Mar 12, 2007.

The gains in consolidated net income during 2006 mainly stem from an increase in realized prices and volumes in both domestic and international markets, as well as other factors explained below:

  • Increase in gross profit of R$ 4.076 million:
    R$ million 
    Changes 
    2006 X 2005 
Main Items         Net 
Revenues		   Cost of
Goods Sold 		   Gross 
Profit
             
. Domestic Market:          - Effect of Volumes Sold   3.336    (2.154)   1.182 
                                        - Effect of Prices    7.479    -    7.479 
. Intl. Market:                  - Effect of Export Volumes    1.736    (892)   844 
                                        - Effect of Export Price    1.240    -    1.240 
. Increase in expenses: (*)   -    (4.172)   (4.172)
. Extraordinary items:      - adjustment to special participations (**)   -    (426)   (426)
                                        - expenses with re-injected gas (***)   -    (406)   (406)
. Increase in Profitability of Distribution Segment    70    -    70 
. Increase (Decrease) in operations of commercialization abroad    2.903    (2.907)   (4)
. Increase (Decrease) in international sales    3.960    (4.164)   (204)
. FX effect on controlled companies abroad    (1.837)   1.149    (688)
. Others    2.747    (3.586)   (839)
       
    21.634    (17.558)   4.076 
       

(**) New interpretation by the ANP disallowing deductibility of charges associated with project finance expenses for the Marlim field.
(***) Expense adjustments with gas produced and re-injected in reservoirs in Solimões, Campos and Espírito Santo basins.

(*) Expenses Composition:    Value
- Import of gas. crude oil and oil products    (3.356)
- Domestic Government Take    (1.197)
- Third-Party Services    381 
   
    (4.172)
   

5

  • Exploration expenses decreased by R$ 186 million in 2006 as compared to the prior year. 2005 exploration expenses were impacted by higher write-offs of dry wells in Brazil, expenses for fields that were returned to ANP (R$ 466 million) and expenses associated with revisions for future well abandonment (R$ 148 million).
    In 2006 it should be noted the write-offs of international dry wells (R$ 382 million).

  • The following expenses increased from 2006 versus 2005:
•    
Selling expenses (R$ 314 million) increased as a result of higher expenses related to oil exports (R$ 239 million) and international trading (R$ 76 million), as well as expenses derived from company acquisitions in 2006;
 
•    
General and administrative expenses (R$ 357 million) grew as a result of salaries and benefits for employees (R$ 272 million); greater costs for third party services (R$ 52 million), special technical support for data processing and consultancy services;
 
•    
Tax expenses (R$ 368 million) increased given the regularization of tax payments from prior periods (R$ 117 million), CPMF expenses (R$ 35 million), taxes on dividend remittances from foreign controlled companies (R$ 15 million) and on remittances for interest payments (R$ 73 million);
 
•    
Research and technology development increased (R$ 645 million), as a result of the R$ 542 million ANP settlement;
 
•    
Other operational expenses (R$ 265 million) grew as a result of the decline in hedging operations (R$ 324 million) and the termination of the contract with Empresa Petrolera Andina S/A (R$ 167 million), in addition to expenses generate by institutional and cultural projects (R$ 255 million). Such expenses were partially compensated by the reduction of contingency expenses and other expenses related to state taxes agreements (R$ 118 million), the reduction of operational expenses with thermo-electrical plants (R$ 257 million), and the recovery of exploratory expenses in Nigeria (R$ 69 million) and fiscal credits in Ecuador (R$ 85 million).
  • Net financial income was positively impacted by R$ 1,511 million due to the following:
  •     Final maturity of two oil hedging contracts related to PESA, which in 2005 generated a loss of R$ 643 million; 
 
  •     Improved performance of financial investments when measured in Reais (R$ 647 million), lower appreciation of the Real – 8.66% for 2006 compared to 11.82% in 2005 (R$ 317 million) – and greater returns on funds invested abroad (R$ 199 million), as well as higher amount of funds in 2006 when compared to 2005; 
 
  •     Lower financial expenses (R$ 493 million) as a result of reduced borrowing costs and an increase in capitalized interest; 
 
  •     Lower financial expense related to loan renegotiations with the electric sector and other clients (R$ 202 million). 
 
  These effects were partially offset by the following factors: 
 
  •     Premiums paid to investors to tender high coupon bonds and to liquidate a fixed series of Senior Trust Certificates (R$ 344 million), as part of an exercise in liability management efforts to improve Petrobras’s debt its debt profile 
 
  •     Reduction of the monetary variation (R$ 360 million) as a result of a lower appreciation of the Real against the US dollar in 2006 (8.66%) when compared to the prior year (11.82%). 

  • Fiscal benefits for interest on own capital totaled R$ 2,163 million in 2006 when compared to R$ 1,864 million in 2005.

6

The reduction of the consolidated net income in 4Q06 compared to 3Q06 stems mainly from lower realized prices for exports and the sale of oil products in the domestic market, following the decline in international market prices, as well as other factors listed below:

  • Decrease in gross profit of R$ 1.952 million:
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