Petrobras (PBR)

International

The International segment comprises our activities in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

The decrease in net income from the International segment in the first half of 2009 compared to the first half of 2008 was due to declining margins as a result of lower international oil prices, lower equity in results of non-consolidated companies and losses from the acquisition of the remaining 49.13% of the Pasadena Refinery.

International

The International segment comprises our activities in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

The decrease in net income from the International segment in the first quarter of 2009 compared to the first quarter of 2008 was due to reduced margins reflecting the decline in international oil prices, decreased results from non-consolidated companies in Venezuela and Argentina and to provision for losses in Pasadena Investments.

Theses effects were offset by a reduction in income tax and minority interest expenses.

International

In fiscal year 2008, losses through devaluation of assets were recognized in the International segment in the amount of R$ 330.413, verified mainly in the exploration expenses in the Cottonwood field in the United States (R$ 307.784), as a result of the low forecast prices for petroleum and the high rates practiced, effects of the new worldwide economic scenario.

International

The International segment comprises our activities in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Net loss for our International segment decreased primarily as a result of slightly increased margins related to higher oil prices in the first nine months of 2008. These effects were offset by: (1) marking inventory to market value in the United States, Japan and Argentina; (2) accrued royalty expenses; (3) the write-off of Block 31 in Ecuador; (4) the complete amortization of goodwill on the Pasadena Refinery; and (5) non-recurring profits on the sale of Bolivian refineries and Argentine companies in 2007.

International

The International segment comprises our activities in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy activities.

The increase in net income for our International segment in the nine-month period ended September 30, 2008, compared to the same period of 2007, was due primarily to higher sales prices, reduced exploration costs in Turkey, the United States and Argentina, the start-up of production in Nigeria, the acquisition of Okinawa Refinery and improved contractual terms in Bolivia.

These effects were partially offset by lower sale volumes and margins in the United States, the provision for contingencies related to royalties, allowance for inventory to market value and lower capital gain as a result of the sale of assets in Bolivia and Argentina in 2007.

International

The International segment comprises our activities in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy activities.

The increase in the net income of the International segment in the first half of 2008 as compared to the first half of 2007 was due to higher prices and the reduction in oil extraction exploration costs in Turkey, Angola, United States and Libya.

These effects were partially offset by lower sale volume and margin in the United States and the provision for contingencies related to royalties.

International

The International segment comprises our activities in other countries outside of Brazil, which include Exploration and Production, Supply, Distribution and Gas and Energy activities.

The improvement in the net income of the International segment in the first quarter of 2008 was due to a US$79 million increase in operating income, due to higher prices and the reduction in oil extraction exploration costs in Turkey, Angola, the US, Libya and Venezuela, plus lower write-offs of dry wells in Argentina, Colombia and the US.

International

The International segment comprises our activities in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy. Our International segment generated a net loss of U.S.$815 million in 2007, compared to net income of U.S.$123 million in 2006. This decrease was primarily attributable to:

• higher cost of sales in the amount of U.S.$2,954 million, primarily as a result of: (1) the consolidation of the Pasadena refinery we acquired in 2006 in the U.S.; and (2) increased lifting cost, primarily in Argentina;

• an increase of U.S.$342 million in exploration and drilling expenses, mainly in Turkey, Angola, Iran, Argentina, Libya, and Venezuela;

• an increase of U.S.$225 million in impairment expenses, mainly in Ecuador, the United States and Angola;

• an increase of U.S.$151 million in selling, general and administrative expenses, due to increased operations by our foreign subsidiaries, corporate acquisitions and the formation of new companies; and

• an increase of U.S.$150 million in depreciation, depletion and amortization primarily as result of an increase in capital expenditures related to property, plant and equipment associated with our crude oil and natural gas production.

These increases were partially offset by:

• an increase of U.S.$3,030 million in net operating revenues as a result of the consolidation of the Pasadena refinery and an increase in the petrochemical business revenues in Argentina, partially offset by the exclusion of revenues from Venezuelan operations from our consolidated results.

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International

The International segment represents our international activities conducted in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy. Our International segment generated a net loss of U.S.$ 41 million in the nine-month period ended September 30, 2007, as compared to a net income of U.S.$ 244 million in the nine-month period ended September 30, 2006. This decrease was primarily attributable to:

• increases in costs of sales in the amount of U.S.$ 2,464 million, primarily as a result of: (1) the consolidation of Pasadena, a refinery we acquired in 2006 in the U.S.; and (2) an increase in production costs in Argentina due to lifting cost and depreciation increases;
  
  
• an increase of U.S.$ 155 million in exploration and drilling expenses, mainly in Turkey, Angola, Iran, the United States, Libya, and Venezuela; and
  
  
• an increase of U.S.$ 99 million in sales and general and administrative expenses, due to increased operations by our foreign subsidiaries, corporate acquisitions and the constitution of new companies.

These increases were partially offset by:

• an increase of U.S.$ 2,456 million in net operating revenues as a result of the consolidation of the Pasadena refinery despite the reduced revenues from Venezuelan operations; and
  
  
• a gain of U.S.$ 40 million recorded in other expenses, net, due to the sale of the Bolivian refineries and the Hydroneuquen plant of PESA-Argentina.

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International

The International segment represents our international activities conducted in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Our International segment generated a net loss of U.S.$ 21 million in the first half of 2007, as compared to a net income of U.S.$ 210 million in the first half of 2006. This decrease was primarily attributable to:

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International

The International segment represents our international activities conducted in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Our International segment generated a net loss of U.S.$ 137 million in the first quarter of 2007, as compared to a net income of U.S.$ 82 million in the first quarter of 2006. This decrease was primarily attributable to:

• increases in costs of sales in the amount of U.S.$ 1,077 million, primarily as a result of: (1) the consolidation of Pasadena, a refinery we acquired in 2006 in the U.S.; and (2) an increase in production costs in Bolivia due to taxes increases as a result of the new Hydrocarbons Law of Bolivia; and

• an increase of U.S.$ 111 million in prospecting and drilling expenses due to write-offs of exploratory costs due to dry holes and to the higher seismic expenses, mainly in the Argentina and Colombia.

These increases were partially offset by the increase of U.S.$ 994 million in net operating revenues as a result of the consolidation of the Pasadena refinery; despite the reduced income from Venezuelan operations.

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International

The international segment represents our international activities conducted in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Consolidated net income for our international segment decreased to U.S.$ 123 million in 2006, as compared to U.S.$ 526 million in 2005. This decrease was primarily attributable to:

• increases in costs of sales in the amount of U.S.$ 1,663 million, primarily as a result of: (1) an increase in production costs in Bolivia; (2) the higher volume of commercial electricity in Argentina; and (3) an increase in the volumes of Bolivian gas sold to Brazil and Argentina;
  
  
• an increase of U.S.$ 284 million in prospecting and drilling expenses due to write-offs of exploratory costs due to dry holes identified during 2006 (U.S.$ 145 million in the U.S. and U.S.$ 29 million in Bolivia), and to the higher seismic expenses, mainly in the U.S. and other countries; and
  
  
• an increase of U.S.$ 116 million in selling, general and administrative expenses as a result of higher employee costs due to the collective agreement in Argentina and the inclusion of costs associated with the company acquisitions in Uruguay, Paraguay, Colombia and the U.S.

These increases were partially offset by: (1) the increase of U.S.$ 1,544 million in net operating revenues as a result of an increase in the international prices of oil; (2) by the higher volumes for commercial electricity in Argentina; (3) by the higher export prices for oil products in Bolivia; and (4) by the increase in the volumes of Bolivian gas sold to Brazil and Argentina.

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International

The international segment represents our international activities conducted in other countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Consolidated net income for our international segment decreased to U.S.$ 244 million in the nine-month period ended September 30, 2006, as compared to U.S.$ 413 million in the nine-month period ended September 30, 2005. This decrease was primarily attributable to:

• increases in costs of sales in the amount of U.S.$ 635 million, primarily as result of: (1) an increase in production costs in Bolivia due to an increase in the tax rate for hydrocarbons from 18.0% to 50.0% as of May 2005, and from 50.0% to 82.0% as of May 2006; (2) production interruptions from the main fields in the United States after hurricanes Rita and Katrina; (3) the higher volume for commercial electricity in Argentina; and (4) an increase in the volumes of Bolivian gas sold to Brazil and Argentina; and
  
• an increase of U.S.$ 164 million in prospecting and drilling expenses due to exploration spending write-offs in the U.S.(U.S.$ 96 million) and Bolivia (U.S.$ 29 million), and to the higher seismic expenses, mainly in the U.S., Tanzania, Iran and Colombia.

These increases were partially offset by the increase of U.S.$ 593 million in net operating revenues as a result of an increase in the international prices of oil, by the higher volumes for commercial electricity in Argentina and by the increase in the volumes of Bolivian gas sold to Brazil and Argentina.

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International

The international segment represents our international activities conducted in 15 countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Consolidated net income for our international segment decreased to U.S.$ 210 million in the first half of 2006, as compared to U.S.$ 320 million in the first half of 2005. This decrease was primarily attributable to:

These increases were partially offset by the increase of U.S.$ 374 million in net operating revenues as a result of an increase in the international prices of oil, by the higher volumes and prices for commercial electricity in Argentina and by the increase in the volumes of Bolivian gas sold to Brazil and Argentina.

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International

The international segment represents our international activities conducted in 15 countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Consolidated net income for our international segment decreased to U.S.$ 82 million in the first quarter of 2006, as compared to U.S.$ 230 million in the first quarter of 2005. This decrease was primarily attributable to increases in costs and expenses in the amount of U.S.$ 263 million, as result of: (1) an increase in productions costs in Bolivia due to an increase in the tax rate for hydrocarbons from 18% to 50% as of May 2005; (2) production interruptions from the main fields in the United States after hurricanes Rita and Katrina; and (3) an increase of U.S.$ 72 million in expenses related to exploration and drilling as a result of a rise in exploration costs in the U.S. and Bolivia, considering dry wells and the ending of the concession period, respectively

These reductions were partially offset by the increase of U.S.$ 154 million in net operating revenues as a result of an increase in the international price of oil and by the increase in the volumes of Bolivian gas sold to Brazil and Argentina.

International

The international segment represents our international activities conducted in 15 countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Consolidated net income for our international segment was U.S.$ 225 million in the nine-month period ended September 30, 2005, as compared to U.S.$ 142 million in the nine-month period ended September 30, 2004. This increase was primarily a result of:

• an increase of U.S.$ 695 million of net operating revenues, which primarily reflects the effects of increased international oil prices, increased gas sales from Bolivia to Brazil, and sales of natural gas from Bolivia to Argentina that began in mid-2004.

These effects were partially offset by the following items:

• an increase of U.S.$ 392 million in cost of sales, principally related to the increased sales volume and an increase in the refining costs; and

• an increase of U.S.$ 165 million in income tax expense, mainly attributable in 2005, to the increase in the taxable income, and in 2004, to the impact of foreign equity investments in the deferred income tax registration of Petrobras Energia; and

• an increase of U.S.$ 62 million in operating expenses, mainly due to the provision for losses in PEPSA investments, and by the loss from the write-off of the tax credit in Ecuador.

International

The international segment represents our international activities conducted in 13 countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Consolidated net income for our international segment was U.S.$ 184 million in the first half of 2005, as compared to U.S.$ 133 million in the first half of 2004. This increase was primarily a result of:

• an increase of U.S.$ 473 million of net operating revenues, which primarily reflects the effects of increased international oil prices, increased gas sales from Bolivia to Brazil, and sales of natural gas from Bolivia to Argentina that began in mid-2004.

These effects were partially offset by the following items:

• an increase of U.S.$ 232 million in cost of sales, principally related to the increased sales volume and an increase in the refining costs; and

• an increase of U.S.$ 112 million in income tax expense, mainly attributable in 2005, to the increase in the taxable income, and in 2004, to the impact of foreign equity investments in the deferred income tax registration of Petrobras Energia.

International

Summary and Strategy

In 2004, approximately 10.9% of our net revenues were generated outside Brazil. We seek to evolve from an integrated oil and gas company in Brazil to an energy industry leader in Latin America and a strong international player. Currently, we plan to focus our non-Brazilian exploration, development and production activities regionally, in areas where we can successfully exploit our competitive advantages, such as deepwater drilling. We particularly intend to drill off the west coast of Africa and the Gulf of Mexico and onshore in South America. Additionally, we are integrating our natural gas activities in Brazil with the natural gas network in Bolivia and Argentina. We are also increasing our downstream operations in South America and have acquired refineries and service stations in Argentina and Bolivia.

We have budgeted U.S.$7.5 billion in capital expenditures for the period from 2004 to 2010 for all of our international investments.

Our main strategies in the international segment are to:

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Our international results are reflected in the “International” segment in our audited consolidated financial statements.

Exploration and Production

During 2004 we conducted significant international exploration activities in Angola, Argentina, Bolivia, Colombia, Nigeria, the United States and Venezuela. In addition, we are currently performing studies to evaluate blocks where we hold interests in Angola, Argentina, Colombia, Mexico, Nigeria and the United States. Production activities were conducted in Angola, Argentina, Bolivia, Colombia, Ecuador, Peru, the United States and Venezuela. Collectively, these activities represented approximately 12.7% of our total capital expenditures for crude oil and natural gas exploration and production. Our capital expenditures for international exploration and development were U.S.$666 million for 2004, U.S.$428 million for 2003 and U.S. $224 million for 2002. The following table provides information about the allocation of such expenditures for each of 2004, 2003 and 2002:

International

The international segment represents our international activities conducted in 13 countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Consolidated net income for our international segment was U.S.$ 122 million in the first quarter of 2005, as compared to U.S.$ 35 million in the first quarter of 2004. This increase was primarily a result of:

These effects were partially offset by the following items:

International

The international segment represents our international activities conducted in 13 countries, which include Exploration and Production, Supply, Distribution and Gas and Energy.

Consolidated net income for our international segment was U.S.$ 243 million in 2004, as compared to U.S.$ 96 million in 2003. The increase in net income was primarily attributable to the following effects, most of them associated with the consolidation of PEPSA and PELSA: