Petrobras (PBR)

The increase in consolidated net income in the 1H-2006 was mainly due to the realization of higher domestic and international market prices, as well as other factors detailed below:

• Increase of gross profit of R$ 5,163 million:

• reduction in spending on contractual contingencies that occurred in 2005 (R$ 261 million), due to thermoelectric Merchant type acquisitions;
  
  
• Lower expenses from judicial fiscal contingencies (R$ 183 million), basically by the effect of the extrajudicial settlement in March 2005 with the Public Treasury for the State of São Paulo.

These reductions in expenses were partially offset by the following increases:

• Exploration and Production (R$ 104 million) mainly due to exploratory costs (assets write-offs/ dry holes)
  
  
• Research and development costs (R$ 321 million) mainly due to a charge of R$ 203 million in respect of a regulatory agreement with the ANP;
  
  
• Tax expenses (R$ 227 million) in relation to the increase of operations and the PASEP/COFINS on other revenues (R$ 101 million), of which R$ 73 million is related to the regularization of prior periods.

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• General and administrative expenses for salaries, bonuses, and benefits for personnel (R$ 73 million) and third party services (R$ 57 million), including information services, consulting services connected with the implementation of information solutions systems for projects and services in the area of new businesses and environmental management.

Financial income increased R$ 1.140 million as a result of the following factors:

       Non-operating expenses declined with platforms idleness (R$ 126 million).

Higher income tax and social contribution expense in the 1H06 resulted from the effect of the provisioning of Interest on own capital in June 2005, which improved 1H05 profitability in R$ 746 million.

Net income for the 2Q-2006 increased 4% when compared to the 1Q-2006, reaching R$ 6,959 million. The principal explanation for the variation between 1Q-2006 and 2Q-2006 was the increase in average prices of oil and oil products in the domestic and international markets, largely offset by a reduction in exported volumes and an increase in average unit costs (due to generally higher costs throughout the oil industry). The table below details the variations:

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