Petrobras (PBR)

Pag: 104

The year-on-year upturn in the first-half lifting cost was due to higher extraction costs, plus the impact of the increase in international oil prices and the higher tax on production from the new FPSO-Cidade do Rio de Janeiro, P-52 and P-54 systems.

The quarter-over-quarter increase was due to the upturn in the average Brazilian oil price used to calculate the government take, based on the international price, and the higher taxes on the Roncador Field, due to the increase in production triggered by the recently-installed platforms.

Pag: 104

(A free translation of the original report in Portuguese)

Petrobras also conducted a regional analysis of the potential of the pre-salt areas of the South and Southeast basins in Brazil. The estimated volumes of recoverable oil and gas of the pre-salt rocks, if confirmed, would significantly increase existing oil reserves in Brazilian basins.

These areas are currently in the exploration phase and more detailed studies and new wells are still needed to demarcate and evaluate the best means of developing the field. From the exploration phase to the end of the development of the proven reserves of the field, several years of research and investment are necessary before commercial production of oil and gas can begin.

Pag: 104

• A reduction in operating expenses (R$ 201 million) versus 4Q 2006 due to:

• Lower exploratory costs (R$ 163 million) when compared to the write-off from dry holes in the 4Q-2006 (R$ 125 million);

• Reduced selling expenses (R$ 135 million), most notably in the distribution and international segments;

• A decline in R&D expenses (R$ 97 million), especially from the adjustment to provisions for research and development expenses in compliance with ANP regulations (R$ 112 million) undertaken by CENPES (Petrobras Research Center);

• These decreases were offset by the increase in other operating expenses (R$ 416 million), largely as a result of the financial incentive paid to Petros Plan affiliates in exchange for accepting the amendments to the regulations (R$ 1.040 million), offset by reduced expenses on institutional relations and cultural projects (R$ 219 million).

• An increase of R$ 878 million versus 4Q 2006 for the net financial result, due to:

• Losses from monetary and exchange variations (R$ 581 million), given the higher appreciation of the Real (4.10% in the 1Q-2007, versus 1.66% in the 4Q-2006) and the monetary restatement of 2006 dividend payable;

• The premium paid to investors in the bond exchange that occurred in February/07 (R$ 112 million);

• Lower returns from financial investments (R$ 47 million), in Reais, due to the reduction in exchange gains and yields from Brazilian government bonds.

• Increase in income tax and social contribution (R$ 1.402 million), in contrast to the fiscal benefit from the interest on own capital payment declared in the 4Q-2006 (R$ 671 million).