Petrobras (PBR)

b) Incorporation of the PETROQUISA Stocks

The Administration Boards of PETRÓLEO BRASILEIRO S/A – PETROBRAS and PETROBRAS QU¥MICA S/A – PETROQUISA, approved the operational conditions for the incorporation of the capital stock of PETROBRAS QU¥MICA S/A – PETROQUISA by PETRÓLEO BRASILEIRO S/A – PETROBRAS, and authorized the call for the Extraordinary General Meeting (AGE) of the Shareholders of both Companies to deliberate on the subject on May 22, 2006.

Presently, minority shareholders hold around 1% of the social capital stock of PETROQUISA, and PETROBRAS holds the other 99%. Therefore, the main objective of the incorporation of the shares is to allow the alignment of the strategic interests of both Companies, preventing potential conflicts and fomenting the rationalization and optimization of the investment plans.

The Companies expect the following benefits are reached with the incorporation of the shares:

(i) Unification of the capital structure;

(ii) Larger financial capacity by the increase of alternate capital sources; and

(iii) More flexibility for new investment, better efficiency of the corporate structure and in the performance of strategic decisions.

In relation to the actual stockholders of PETROQUISA, who will continue, indirectly, to benefit from the results of that company, the Companies expect the following benefits:

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(i) Access to the dividend policy directed by the financial flexibility, transparence and minimization of risks for the stockholders;

(ii) More liquidity of investments, since the shares of PETROBRAS are negotiated in the São Paulo stock exchange – BOVESPA, where they hold a leading position and in the New York Stock Exchange, where its American Depositary Receipts (ADRs) are among the most negotiated of the ADRs listed in the exchange market; and

(iii) Entering the shareholder listing of a company that is already consider to be in the investment level.

The incorporation of the shares shall result in an increase in the social capital of PETROBRAS, by the granting to its capital of all the shares issued by PETROQUISA presently circulating, based on its book value, in accordance with the balance sheet dated December 31, 2005.