Petrobras (PBR)

Pag: 102

(A free translation of the original report in Portuguese)

Pag: 102

• An increase in the following expenses:

• General and administrative expenses (R$ 455 million) expenses from salaries, bonuses and benefits in Brazil (R$ 109 million) and abroad (R$ 29 million) and greater expenditure on third-party services (R$ 115 million), especially IT and consulting support services; personnel training and development programs (R$ 42 million); new companies abroad (R$ 16 million); and leasing, rent and travel (R$ 25 million);

• Exploratory costs (R$ 345 million), particularly those incurred abroad (R$ 235 million);

• Costs with technological research and development (R$ 134 million), primarily to comply with ANP regulations (R$ 116 million);

• Other operating expenses (R$ 1.416 million), largely as a result of amendments to the Petros Plan regulations (R$ 1.040 million), advertising and marketing (R$ 85 million) and the Ibiritermo, Termobahia and Três Lagoas thermoelectric plants being idled(R$ 86 million).

• A negative impact of R$ 506 million on the net financial result, due to:

• Losses from monetary and exchange variations (R$ 1.006 million), given the higher credit balances denominated in U.S. dollars, partially offset by the lower appreciation of the Real in 2007 (R$ 570 million), and the non-recurring adjustment of the exchange variation in the 1Q-2006, totaling R$ 321 million;

• The premium paid to investors in the bond exchange, which occurred in February/2007 (R$ 112 million).

These negative impacts were partially offset by the following:

• Higher returns from domestic financial investments (R$ 269 million), resulting from the reduction in the dollar-denominated portion and the lower appreciation of the Real (4.10% in the 1Q-2007, versus 7.19% in the 1Q-2006);

• The reduction in financial expenses (R$ 149 million), due to lower debt and reduced margins;

The above effects were offset by the following factors:

• An increase in equity income (R$ 342 million), primarily due to reduced foreign exchange losses on the conversion of foreign subsidiaries’ shareholders equity, in turn due to the lower appreciation of the Real against the dollar in 1Q-2007 in comparison to 1Q-2006.

• An improved non-operating result (R$ 120 million) due to the sale of investments abroad and gains from changes in shareholding positions (R$ 35 million), plus the losses in 2006 from the write-off of receivables related to the loss of the P-36 platform (R$ 60 million);