Petrobras (PBR)

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⁽¹⁾ Comments on the results by business area begin on page 18 and their respective financial statements on page 28.

⁽²⁾ In the international business segment, given that all operations are executed abroad, comparisons between the periods are influenced by foreign exchange variations in dollars or in the currency of those countries in which the companies in question are headquartered. As a result, there may be substantial variations in Reais, primarily arising from and reflecting changes in the exchange rate.

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The upturn was caused by higher oil prices plus reduced seismic acquisition costs in Turkey, Angola, the USA and Libya, offset by lower sales margins and volume in the USA and the constitution of provisions for royalty contingencies.

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(A free translation of the original report in Portuguese)

08.01 – COMMENTS ON THE CONSOLIDATED PERFORMANCE IN THE QUARTER

On September 30, 2007, the Company’s market capitalization totaled R$ 285,333 million. The Petrobras System invested R$30,606 million in the third quarter, 35% up year-on-year, with an emphasis on the expansion of future oil and natural gas production in Brazil (R$ 14,295 million). In order to sustain production growth, in the next three months three major production systems will begin operations through platforms P-52, P-54 and FPSO-Cidade de Vitória adding a joint production capacity of 460 thousand barrels per day. There is also the project to expand natural gas production in the Peroá field, in Espírito Santo, to 8 million m³ per day.

• Petrobras posted a 3Q-2007 consolidated net income of R$ 5,528 million, 22% down year-on-year due to the foreign exchange losses variation on net dollar-denominated assets, reflecting the appreciation of the Real against the US dollar, lower provisions for interest on equity and expenses arising from the amendments to the pension plan regulations.

• Domestic oil and NGL production averaged 1,797 thousand barrels/day in the third quarter, 1% up on the 3Q-2006. The P-50, FPSO-Capixaba, P-34 and FPSO-Cidade do Rio de Janeiro platforms produced 1.480 more than last year, which was partially offset by the natural decline from mature fields and the occurrence of operational problems.

• Domestic production of oil products increased by 3% over the 3Q-2006, thanks to Refap’s new converters and the greater operational reliability of the refineries.

• Distribution Segment recorded record sales of 9.4 million m³ in the 3Q-2007, 12% up year-on-year.

• On September 21, 2007, the Board of Directors approved the advance payment to shareholders of R$ 2,194 million in the form of interest on equity. The first installment of this amount, already provisioned in the 2Q-2007, will be available to shareholders until January 31, 2008, and the second installment until March 31, 2008, based on shareholding positions on August 17 and October 5, 2007, respectively.

• The acquisition of R$ 2,909 million in long-term securities to set against the liabilities with Petros recognized in the balance sheet, reduced cash and cash equivalents by 20% over the June 30, 2007 figure.

• Value added by the Petrobras System totaled R$ 90,358 million, R$ 52,340 million of which went to government participations and federal, state, and municipal taxes; R$ 10,084 million to suppliers and financial institutions for financial charges, rent and charters; R$ 17,914 million to shareholders; and R$ 10,020 million to salaries, bonuses and benefits.

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CORPORATE: Corporate activities generated a loss of R$ 2,616 million in 1Q-2007, versus a loss of R$ 1,862 million in 1Q-2006, as a result of:

• Expenses of R$ 632 million as financial incentive to pension plan participants in exchange for their acceptance of the amended plan;

• The R$ 506 million increase in net financial expenses, as detailed on page 6;

• The R$ 190 million increase in G&A expenses resulting from higher third-party services and personnel expenses, the latter due to the expansion of the workforce in 2006 and the collective bargaining agreement.

These effects were partially offset by the reduction in foreign exchange losses from the conversion of equity investments abroad due to the lower appreciation of the Real in relation to 1Q-2006;

The variation between 1Q2007 and 4Q-2006 quarter was even larger (loss of R$ 2,616 million, versus a loss of R$ 798 million in 4Q-2006) mainly due to:

• The R$ 878 million increase in net financial expenses (see page 8);

• Expenses of R$ 632 million from the financial incentive to pension plan participants in exchange for their acceptance of the amended plan;

• The higher tax burden caused by the non-recurrence of the fiscal benefit from provisioning of interest on equity, which totaled R$ 671 million in 4Q-2006.

These effects were partially offset by reduced expenses from institutional relations and cultural projects (R$ 161 million).