Petrobras (PBR)

Lifting Costs

Excluding the impact of the depreciation of the Real, our lifting costs in Brazil, excluding production taxes (consisting of royalties, special government participation and rental of areas) increased 4.0% compared to the first half of 2008 due to higher well interventions and equipment maintenance in platforms P-34 and Pargo and in wells in the Marlim field, in addition to increased personnel expenses.

Our production taxes in Brazil on a per bbl basis decreased 52.8% to U.S.$8.84 per bbl for the first half of 2009 compared to U.S.$18.71 for the first half of 2008. This decrease is attributable to a 51.3% reduction in the reference price for local oil, which averaged U.S.$43.62 in the first half of 2009 compared to U.S.$89.64 in the first half of 2008, reflecting the average Brent price on the international market. This effect was partially offset by increased special participation taxes due to higher output from new platforms.

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The upturn in our international unit lifting costs was due to higher costs from third-party services in Argentina and increased prices, partially offset by the start-up of production in Nigeria, where lifting costs are lower than the average in the Company´s International segment.

Lifting Costs

Excluding the impact of the depreciation of the Real, our lifting costs in Brazil, excluding production taxes (consisting of royalties, special government participation and rental of areas) increased 7.0% compared to the first quarter of 2008 due to the higher well interventions and equipment maintenance, the increased initial unit cost of the new production systems, which will gradually come down as production moves up, and the increase in personnel expenses related to 2008/09 collective bargaining agreement.

Our production taxes in Brazil on a per barrel basis decreased 57.5% to U.S.$6.87 per barrel for the first quarter of 2009 compared to U.S.$16.16 for the first quarter of 2008. This decrease is attributable to a 55.7% reduction in the reference price used to calculate royalties for our domestic production, which averaged U.S.$36.41 in the first quarter of 2009 compared to U.S.$82.12 in the first quarter of 2008, reflecting the average Brent price on the international market.

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The upturn in our international lifting costs was primarily due to decreased output attributable to the sale of part of Block 18 in Ecuador, where production costs are lower than the international average, and initial production costs in the Akpo field in Nigeria.

Lifting Costs

Excluding the impact of the appreciation of the Real and production taxes (consisting of royalties, special government participation and rental of areas), our lifting costs in Brazil increased 16.0% to U.S.$9.26 per barrel of oil equivalent for 2008 compared to U.S.$7.70 per barrel of oil equivalent for 2007. This increase was attributable to higher interventions in wells and work stoppages on certain production units, salary adjustments related to collective bargaining agreements, an increased workforce and higher initial unit cost for new production systems, which will gradually decrease as production increases.

Our production taxes in Brazil on a per barrel basis increased 43.9% to U.S.$16.82 per barrel in 2008 compared to U.S.$11.69 in 2007. This increase is attributable to a 35.0% rise in the average reference price used to calculate production taxes for our domestic production and higher taxes on the Roncador and Espadarte fields.

The upturn in our international lifting costs was attributable to higher costs for outsourced services, salary increases in Argentina and maintenance and security service costs in Colombia. These increases were partially offset by reduced transportation services costs in the United States.

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Our refinery output in Brazil decreased due to increased scheduled stoppages in production units.

Our international refinery output decreased due to a scheduled repair stoppage at a U.S. catalytic cracking plant, scheduled stoppages in Argentina and U.S. refineries and the effects of Hurricanes Gustav and Ike in September 2008. These declines were partially offset by the start-up of production from the Okinawa Refinery in Japan.

Lifting Costs

Excluding the impact of the appreciation of the Real, our lifting costs in Brazil, excluding production taxes (consisting of royalties, special government participation and rental of areas) increased 18.0% to U.S.$9.60 per barrel of oil equivalent in the nine-month period ended September 30, 2008, compared to U.S.$7.40 per barrel of oil equivalent for the same period last year. This increase was attributable to work stoppages on certain production units, salary adjustments related to collective bargaining agreements, an increased workforce and higher initial unit cost for new production systems, which will gradually decrease as production increases.

Our production taxes in Brazil on a per barrel basis increased 78.8% to U.S.$19.17 per barrel in the nine-month period ended September 30, 2008, compared to U.S.$10.72 in the nine-month period ended September 30, 2007. This increase is attributable to a 70.0% rise in the average reference price used to calculate production taxes for our domestic production and higher taxes on the Roncador and Espadarte fields.

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The upturn in our international lifting costs was attributable to higher costs from outsourced services, salary increases in Argentina and maintenance and security service costs in Colombia. These increases were partially offset by reduced transportation services costs in the United States.

Lifting Costs

Our lifting costs in Brazil, excluding production taxes (consisting of royalties, special government participation and rental of areas), increased 27.6% to U.S.$9.28 per barrel of oil equivalent in the first half of 2008, from U.S.$7.27 per barrel of oil equivalent in the first half of 2007. Excluding the impact of the appreciation of the Real, our lifting costs per barrel of oil equivalent increased 15.0% from one period to the next, due to the increase in costs with drilling rigs and vessels, the higher number of scheduled maintenance stoppages of certain production units, salary adjustments and the increase in the workforce, associated with higher initial unit cost of the new production systems that started-up operations in the fourth quarter of 2007, which we believe will gradually decrease as production increases.

Our production taxes in Brazil, on a per barrel basis, increased 90.3% to U.S.$18.71 per barrel of oil equivalent in the first half of 2008 from U.S.$9.83 per barrel of oil equivalent in the first half of 2007. This increase was the result of an increase in the average reference price used to calculate production taxes for our domestic production to U.S.$88.00 in the first half of 2008 from U.S.$50.61 in the first half of 2007 and the higher production taxes on the production from the new FPSO-Cidade do Rio de Janeiro, P-52 and P-54 systems.

Our lifting costs in Brazil, including production taxes, increased 63.7% to U.S.$27.99 per barrel of oil equivalent in the first half of 2008 from U.S.$17.10 per barrel of oil equivalent in the first half of 2007, due to the reasons described above.

Our international lifting costs increased 3.5% to U.S.$4.19 per barrel of oil equivalent in the first half of 2008, as compared to U.S.$4.05 per barrel of oil equivalent in the first half of 2007. This increase was primarily due to the price increase of third-party services and salary increase in Argentina, mainly associated with the price adjustment of the maintenance and vigilance services in Colômbia. Such increases were partially offset by the reduction in the transportation services costs in United States.

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Lifting Costs

Our lifting costs in Brazil, excluding production taxes (consisting of royalties, special government participation and rental of areas), increased 20.3% to U.S.$8.66 per barrel of oil equivalent for the first quarter of 2008, from U.S.$7.20 per barrel of oil equivalent for the first quarter of 2007. Excluding the impact of the appreciation of the Real, our lifting costs per barrel of oil equivalent climbed by 8.0% from one period to the next, due to salary adjustments and the increase in the workforce associated with higher initial unit cost of the new production system, which we believe will gradually decrease as production increases.

Our production taxes in Brazil, on a per barrel basis, increased 78.8% to U.S.$16.16 per barrel to the first quarter of 2008 from U.S.$9.04 per barrel in the first quarter of 2007. This increase was the result of an increase in the average reference price used to calculate production taxes for our domestic production to U.S.$80.45 in the first quarter of 2008 from U.S.$46.62 in the first quarter of 2007.

Our lifting costs in Brazil, including production taxes, increased 52.8% to U.S.$24.82 per barrel of oil equivalent for the first quarter of 2008 from U.S.$16.24 per barrel of oil equivalent for the first quarter of 2007, as a result of higher extraction costs, an increase in international prices on government participation and the start-up of the platforms P-34, FPSO-Cidade de Rio de Janeiro (Espadarte), Cidade de Vitória (Golfinho), P-52 (Roncador) and P-54 (Roncador) platforms.

Our international lifting costs increased 11.1% to U.S.$4.32 per barrel of oil equivalent for the first quarter of 2008, as compared to U.S.$3.89 per barrel of oil equivalent for the first quarter of 2007. This increase was primarily due to the price adjustment of third-party services and materials in Argentina.

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Lifting Costs

Our lifting costs in Brazil, excluding production taxes (consisting of royalties, special government participation and rental of areas), increased 16.8% to U.S.$7.70 per barrel of oil equivalent for 2007, from U.S.$6.59 per barrel of oil equivalent for 2006. Higher lifting costs were due to higher expenditure for drilling and production units, salary adjustments, an increased workforce and higher than anticipated unit costs related to start-up for the FPSO-Seillan, FPSO-Capixaba and FPSO-Cidade de Vitória (Golfinho), FPSO-Cidade Rio de Janeiro (Espadarte) and FPSO-Piranema.

Our production taxes in Brazil, on a per barrel basis, increased 5.8% from U.S.$11.05 per barrel in 2006 to U.S.$11.69 per barrel in 2007, as a result of an increase in the average reference price used to calculate production taxes for our domestic production from U.S.$53.26 in 2006 to U.S.$59.55 in 2007. The higher reference price was partially offset by a lower Special Participation tax bracket for some of our offshore mature fields with declining production.

As a result of higher lifting costs and an increase in production taxes, our lifting costs in Brazil, including production taxes, increased to U.S.$19.39 per barrel of oil equivalent for 2007 from U.S.$17.64 per barrel of oil equivalent for 2006.

Our international lifting costs increased 24.1% to U.S.$4.17 per barrel of oil equivalent for 2007, as compared to U.S.$3.36 per barrel of oil equivalent for 2006. This increase was primarily due to a decline in production internationally.

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Lifting Costs

Our lifting costs in Brazil, excluding government take (consisting of royalties, special government participation and rental of areas), increased 16.4% to U.S.$ 7.40 per barrel of oil equivalent for the nine-month period ended September 30, 2007, from U.S.$ 6.36 per barrel of oil equivalent for the nine-month period ended September 30, 2006. Excluding the impact of the 8.3% appreciation of the Real, our lifting costs per barrel of oil equivalent climbed by 10.0% pushed by higher operating expenses due to the upturn in industrial activity and the increase in the workforce needed to operate new projects.

Our lifting costs in Brazil, including government take, increased 2.6% to U.S.$ 18.12 per barrel of oil equivalent for the nine-month period ended September 30, 2007, from U.S.$ 17.66 per barrel of oil equivalent for the nine-month period ended September 30, 2006, due to the upturn in the domestic oil reference price. Excluding the impact of the appreciation of the Real, the unit lifting cost dipped by 0.4% .

Our international lifting costs increased 34.4% to U.S.$ 4.10 per barrel of oil equivalent for the nine-month period ended September 30, 2007, as compared to U.S.$ 3.05 per barrel of oil equivalent for the nine-month period ended September 30, 2006. This increase was primarily due to: (1) higher oil industry costs; (2) the return to normal operations, which had been jeopardized by the partial production stoppage in 2006; (3) the operational start-up of the deepwater Cottonwood field with a higher average cost; and (4) higher expenses in Angola from the recovery of mature wells and installation maintenance.

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Lifting Costs

Our lifting costs in Brazil, excluding government take (consisting of royalties, special government participation and rental of areas), increased 16.9% to U.S.$ 7.27 per barrel of oil equivalent for the first half of 2007, from U.S.$ 6.22 per barrel of oil equivalent for the first half of 2006. Excluding the impact of the 6.6% appreciation of the Real, our lifting costs per barrel of oil equivalent climbed by 12.0% due to higher service and material costs, caused by the upturn in industrial activity and the increase in personnel expenses as a result of wage hikes and the increase in the workforce to operate the new production units.

Our lifting costs in Brazil, including government take, decreased 1.9% to U.S.$ 17.10 per barrel of oil equivalent for the first half of 2007, from U.S.$ 17.44 per barrel of oil equivalent for the first half of 2006, due to the decrease in the average Brazilian oil price used as a reference to assess the government take (which is tied to international prices) and the reduction in the tax rate in those fields with a natural decline in production.

Our international lifting costs increased 33.7% to U.S.$ 4.05 per barrel of oil equivalent for the first half of 2007, as compared to U.S.$ 3.03 per barrel of oil equivalent for the first half of 2006. This increase was primarily due to: (1) higher expenditures associated with third-party services and materials in Argentina; (2) increased expenditures in the United States following the return to normal operations, after the partial production stoppage in 2006 due to the hurricanes; (3) the operational start-up of the deepwater Cottonwood field with a higher average cost; and (4) higher expenses in Angola from the recovery of mature wells and installation maintenance.

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Lifting Costs

Our lifting costs in Brazil, excluding government take (consisting of royalties, special government participation and rental of areas), increased 13.9% to U.S.$ 7.20 per barrel of oil equivalent for the first quarter of 2007, from U.S.$ 6.32 per barrel of oil equivalent for the first quarter of 2006. Excluding the impact of the 3.9% appreciation of the Real on lifting costs denominated in Reais, unit lifting costs increased 9.4% . This increase was primarily due to: (1) increased expenditure on interventions in wells; (2) preventive and corrective maintenance; (3) the chartering costs of drilling and associated support ships; (4) higher personnel expenses due to wage hikes and the increase in the workforce; and (5) the higher unitary costs of new platforms FPSO-Capixaba (Golfinho), P-34 (Jubarte) and FPSO-Cidade do Rio de Janeiro (Espadarte), which are expected to trend down as they utilize their full capacity.

Our lifting costs in Brazil, including government take, decreased 6.3% to U.S.$ 16.24 per barrel of oil equivalent for the first quarter of 2007, from U.S.$ 17.34 per barrel of oil equivalent for the first quarter of 2006, due to: (1) the decline in the reference price used to calculate government take (tied to the international price); and (2) the lower tax bracket used to calculate Special Participation, particularly in the Marlim and Marlim Sul fields, caused by reduced production related to natural declines, as well as January’s scheduled maintenance stoppage in the P-37 platform.

Our international lifting costs increased 31.4% to U.S.$ 3.89 per barrel of oil equivalent for the first quarter of 2007, as compared to U.S.$ 2.96 per barrel of oil equivalent for the first quarter of 2006. This increase was primarily due to: (1) increased expenditures in the United States following the return to normal operations of operations which had been affected by hurricanes Rita and Katrina in 2006; (2) the operational start-up of the Cottonwood field in February of 2007; and (3) higher expenditure in Angola on restructuring, maintenance and recovery of mature wells.

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Lifting Costs

Our lifting costs in Brazil, excluding government take (comprised of royalties, special government participation and rental of areas), increased 15.0% to U.S.$ 6.59 per barrel of oil equivalent for 2006, from U.S.$ 5.73 per barrel of oil equivalent for 2005. This increase was primarily due to: (1) higher rig chartering fees for rigs linked to the increases in international oil prices; (2) the effects of the 10.7% appreciation of the Real against the U.S. dollar in 2006, which caused the local currency component of lifting costs to increase when expressed in U.S dollars; (3) higher expenses related to maintenance and well intervention; (4) higher personnel expenses primarily related to: (a)salary adjustments as set forth in our collective bargaining agreement; and (b) an increase in our workforce; and (5) higher unit costs in the FPSO-Capixaba in Golfinho and P- 34 in Jubarte projects, which will decline as their production increases. Those increases were partially offset by the 5.6% increase in oil and gas production.

Our lifting costs in Brazil, including government take, increased 19.8% to U.S.$ 17.64 per barrel of oil equivalent for 2006, from U.S.$ 14.73 per barrel of oil equivalent for 2005, due primarily to: (1) the higher operating expenses mentioned above; (2) the higher average reference price used to calculate government take for domestic oil, due to the increase in international oil prices and due to increased production at the Barracuda and Caratinga fields after achieving production stability in June 2005 (which increased royalties and special participation charges); and (3) the start of operation in the Albacora Leste and Golfinho fields.

Our international lifting costs increased 15.9% to U.S.$ 3.36 per barrel of oil equivalent for 2006, as compared to U.S.$ 2.90 per barrel of oil equivalent for 2005. This increase was primarily due to: (1) the lower volume produced; (2) higher third party expenses due to higher costs of services contracted; and of materials for the Argentina operations, including pipeline and equipment and well repairs; (3) higher personnel expenses related to salary adjustments as a result of labor negotiations; and (4) the increased expenses in Angola due to the restructuring and interventions in Block 2 in order to maintain the installations and recover mature wells.

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Lifting Costs

Our lifting costs in Brazil, excluding government take (comprised of royalties, special government participation and rental of areas), increased 13.4% to U.S.$ 6.36 per barrel of oil equivalent for the nine-month period ended September 30, 2006, from U.S.$ 5.61 per barrel of oil equivalent for the nine-month period ended September 30, 2005. After discounting the effects of the 12.6% appreciation of the Real against the U.S. dollar in the nine-month period ended September 30, 2006, which caused the local currency component of lifting costs to increase when expressed in U.S dollars, the lifting costs remained stable with higher costs for well interventions for preventive and corrective maintenance, and contractual increases in day rates for drilling rigs, offset by the increase in production at the P-43, P-48, P-50 and FPSO-Capixaba platforms.

Our lifting costs in Brazil, including government take, increased 23.9% to U.S.$ 17.66 per barrel of oil equivalent for the nine-month period ended September 30, 2006, from U.S.$ 14.25 per barrel of oil equivalent for the nine-month period ended September 30, 2005, due primarily to the aforementioned increase in extraction costs, as well as the average reference price used to calculate government take for domestic oil, as a result of the increase in international oil prices and due to increased production at the Barracuda and Caratinga fields after achieving production stability in June 2005, which increased royalties and special participation charges.

Our international lifting costs increased 13.0% to U.S.$ 3.05 per barrel of oil equivalent for the nine-month period ended September 30, 2006, as compared to U.S.$ 2.70 per barrel of oil equivalent for the nine-month period ended September 30, 2005. This increase was primarily due to the lower volume produced, higher third party expenses and materials for the Argentina operations, including pipeline and equipment and well repairs.

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Lifting Costs

Our lifting costs in Brazil, excluding government take (comprised of royalties, special government participation and rental of areas), increased 9.1% to U.S.$ 6.22 per barrel of oil equivalent for the first half of 2006, from U.S.$ 5.70 per barrel of oil equivalent for the first half of 2005. After discounting the effects of the 15.0% appreciation of the Real against the U.S. dollars in the first half of 2006, which caused the local currency component of lifting costs to increase when expressed in U.S dollars, the lifting costs declined 8.0% as compared to the first half of 2005. The decline was mainly due to increased production of oil and gas, primarily at the Barracuda, Caratinga, Albacora Leste and Golfinho fields.

Our lifting costs in Brazil, including government take, increased 26.6% to U.S.$ 17.37 per barrel of oil equivalent for the first half of 2006, from U.S.$ 13.72 per barrel of oil equivalent for the first half of 2005, due primarily to the increase in the average reference price used to calculate government take for domestic oil, as a result of the increase in international oil prices; and due to increased production at the Barracuda and Caratinga fields, which increased royalties and special participation charges because of the higher tax bracket associated with these fields.

Our international lifting costs increased 14.7% to U.S.$ 3.04 per barrel of oil equivalent for the first half of 2006, as compared to U.S.$ 2.65 per barrel of oil equivalent for the first half of 2005. This increase was primarily due to greater third party expenses and materials for the Argentina operations.

Lifting Costs

Our lifting costs in Brazil, excluding government take (comprised of royalties, special government participation and rental of areas), increased 5.5% to U.S.$ 6.32 per barrel of oil equivalent for the first quarter of 2006, from U.S.$ 5.99 per barrel of oil equivalent for the first quarter of 2005. After discounting the effects of the 17.7% appreciation of the Real against the U.S. dollars in the first quarter of 2006, which caused the local currency component of lifting costs to increase when expressed in U.S dollars, the lifting costs declined 13.2% compared to the first quarter of 2005. The decline was mainly due to increased production of oil and gas, primarily at the Barracuda and Caratinga fields.

Our lifting costs in Brazil, including government take, increased 27.3% to U.S.$ 17.28 per barrel of oil equivalent for the first quarter of 2006, from U.S.$ 13.57 per barrel of oil equivalent for the first quarter of 2005, due primarily to the increase in the average reference price used to calculate government take for domestic oil, as a result of the increase in international oil prices.

Our international lifting costs increased 17.9% to U.S.$ 2.96 per barrel of oil equivalent for the first quarter of 2006, as compared to U.S.$ 2.51 per barrel of oil equivalent for the first quarter of 2005. This increase was primarily due to greater third party expenses and materials for the Argentina operations, and materials consumption for maintenance in Colombia.

Lifting Costs

Our lifting costs in Brazil, excluding government take (comprised of royalties, special government participation and rental of areas), increased 32.5% to U.S.$ 5.54 per barrel of oil equivalent for the nine-month period ended September 30, 2005, from U.S.$ 4.18 per barrel of oil equivalent for the nine-month period ended September 30, 2004. This increase was primarily due to: (1) higher service costs linked to the increase in international oil prices; (2) higher expenses for maintenance and chemical products for unblocking and elimination of toxic gases; and (3) increased personnel expenses primarily related to: (a) overtime payments as set forth in our collective bargaining agreement; (b) an increase in our workforce; and (c) a revision in the actuarial calculations relating to future health care and pension benefits.

Our lifting costs in Brazil, including government take increased 38.7% to U.S.$ 14.12 per barrel of oil equivalent for the nine-month period ended September 30, 2005, from U.S.$ 10.18 per barrel of oil equivalent for the nine-month period ended September 30, 2004, due primarily to: (1) the increased operating expenses mentioned above; (2) increased expenses from special governmental participation due to the higher average reference price for domestic oil, which is based on international market prices; and (3) the 16.0% decrease in the average Real/U.S. dollar exchange rate for the nine-month period ended September 30, 2005 as compared to the average Real/U.S. dollar exchange rate for the nine-month period ended September 30, 2004.

Our international lifting costs increased 8.0% to U.S.$ 2.69 per barrel of oil equivalent for the nine-month period ended September 30, 2005, as compared to U.S.$ 2.49 per barrel of oil equivalent for the nine-month period ended September 30, 2004. This increase was primarily due to higher expenses with contractors, personnel, and equipment maintenance in Argentina.

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Lifting Costs

Our lifting costs in Brazil, excluding government take (comprised of royalties, special government participation and rental of areas), increased 27.7% to U.S.$ 5.39 per barrel of oil equivalent for the first half of 2005, from U.S.$ 4.22 per barrel of oil equivalent for the first half of 2004. This increase was primarily due to: (1) greater consumption of chemical products for the removal of obstructions and elimination of toxic gases, principally at Marlim; (2) increased expenses for specialized technical services for restoration and maintenance, mobilization of building structures and equipment; (3) additional costs for personnel transport, vessel support; undersea operations, platform freight with third-parties; and (4) increased personnel expenses primarily related to: (a) overtime payments as set forth in our collective bargaining agreement, (b) an increase in our workforce, and (c) a revision in the actuarial calculations relating to future health care and pension benefits.

Our lifting costs in Brazil, including government take increased 35.4% to U.S.$ 13.40 per barrel of oil equivalent for the first half of 2005, from U.S.$ 9.90 per barrel of oil equivalent for the first half of 2004, due primarily to: (1) the increased operating expenses mentioned above; (2) increased expenses from special governmental participation due to the higher average reference price for domestic oil, which is based on international market prices; and (3) the 13.4% decrease in the average Real/U.S. dollar exchange rate for the first half of 2005 as compared to the average Real/U.S. dollar exchange rate for the first half of 2004.

Our international lifting costs increased 7.3% to U.S.$ 2.65 per barrel of oil equivalent for the first half of 2005, as compared to U.S.$ 2.47 per barrel of oil equivalent for the first half of 2004. This increase was primarily due to: (1) higher expenses for third-party services, materials, personnel and electricity consumption at the fields in Argentina and Venezuela; and (2) higher expenses related to third-party services for equipment maintenance, expenses for chemical treatment of water and vehicle leasing in Colombia.

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Lifting Costs

Our lifting costs in Brazil, excluding government take (comprised of royalties, special government participation and rental of areas), increased 38.4% to U.S.$ 5.95 per barrel of oil equivalent for the first quarter of 2005, from U.S.$ 4.30 per barrel of oil equivalent for the first quarter of 2004. This increase was primarily due to: (1) greater consumption of chemical products for the removal of obstructions and elimination of toxic gases, principally at Marlim; (2) increased expenses for specialized technical services for restoration and maintenance, mobilization of building structures and equipment; (3) additional costs for personnel transport, vessel support and undersea operations; and (4) increased personnel expenses primarily related to: (a) overtime payments as set forth in our collective bargaining agreement, (b) an increase in our workforce, and (c) a revision in the actuarial calculations relating to future health care and pension benefits.

Our lifting costs in Brazil, including government take, increased 39.2% to U.S.$ 13.54 per barrel of oil equivalent for the first quarter of 2005, from U.S.$ 9.73 per barrel of oil equivalent for the first quarter of 2004, due primarily to: (1) the increased operating expenses mentioned above; (2) increased expenses from special governmental participation due to the higher average reference price for domestic oil, which is based on international market prices; and (3) the 8.0% decrease in the average Real/U.S. dollar exchange rate for the first quarter of 2005 as compared to the average Real/U.S. dollar exchange rate for the first quarter of 2004.

Our international lifting costs increased 4.1% to U.S.$ 2.55 per barrel of oil equivalent for the first quarter of 2005, as compared to U.S.$ 2.45 per barrel of oil equivalent for the first quarter of 2004. This increase was primarily due to increased maintenance and third-party services expenses in Argentina and the United States.

Lifting Costs

Our lifting costs in Brazil, excluding government take (comprised of royalties, special government participation and rental of areas), increased 24.4% to U.S.$ 4.33 per barrel of oil equivalent for 2004, from U.S.$ 3.48 per barrel of oil equivalent for 2003. This increase was primarily due to: (1) maintenance and technical services for well restoration, drilling rigs and special ships (these prices are tied to international oil prices); (2) additional maintenance materials and services at ocean terminals, transport lines and facilities associated with our health, safety and environmental program; (3) additional sea and aerial transport costs related to operational support of production; and (4) higher personnel expenses primarily related to: (a) overtime payments as set forth in our collective bargaining agreement; (b) an increase in our workforce; and (c) a revision in the actuarial calculations relating to future health care and pension benefits.

Our lifting costs in Brazil, including government take, increased 24.9% to U.S.$ 10.77 per barrel of oil equivalent for 2004, from U.S.$ 8.62 per barrel of oil equivalent for 2003, due primarily to the higher operating expenses mentioned above, and increased expenses from special governmental participation due to the higher average reference price for domestic oil. The increase in these costs was partially offset by the 5.0% reduction in production from certain fields, primarily the Marlim and Marlim Sul oil fields, which have a higher special participation rate.

Our international lifting costs increased 5.7% to U.S.$ 2.60 per barrel of oil equivalent for 2004, as compared to U.S.$ 2.46 per barrel of oil equivalent for 2003. This increase was primarily due to increased expenses for personnel, materials and third party services contracted at Block 18 in Ecuador and increased maintenance expenses in Angola and in the United States.