Petrobras (PBR)

Results of Operations

Results of operations for the year ended December 31, 2004 (“2004”) compared to the year ended December 31, 2003 (“2003”).

Net Loss

PIFCo had a net loss of U.S.$59.1 million in 2004, as compared to a net loss of U.S.$3.0 million in 2003.

Sales of Crude Oil and Oil Products and Services

PIFCo’s sales of crude oil and oil products and services increased 77.1% from U.S.$6,975.5 million in 2003 to U.S.$12,355.6 million in 2004. This increase was primarily due to (1) a 27.1 % increase in the volume of sales of crude oil and oil products to us, (2) an increase in exports of crude oil and oil products, principally to PETROBRAS AMERICA INC. – PAI (“PAI”), as a result of PIFCo’s new role as an intermediary for our exports that PIFCo assumed from another affiliate of ours beginning January 1, 2004, which increased sales volumes of crude oil and oil products by approximately 16.2% in 2004, (3) a 32.5% increase in the average price of Brent crude oil from U.S.$28.84 per barrel during 2003 to U.S.$38.21 per barrel during 2004 and (4) an increase in the volume of offshore sales of crude oil and oil products purchased from third parties and sold to third parties and affiliates.

Cost of Sales

Cost of sales increased 76.8% from U.S.$6,920.2 million in 2003 to U.S.$12,236.0 million in 2004. This increase was primarily due to a 27.1% increase in the volume of sales of crude oil and oil products to us, additional sales linked to PIFCo’s new export activities, principally to PAI, a 32.5% increase in the average price of Brent crude oil from U.S.$28.84 per barrel during 2003 to U.S.$38.21 per barrel during 2004, as well as an increase in the volume of offshore sales of crude oil and oil products purchased from third parties and sold to third parties and affiliates.

Selling, General and Administrative Expenses

PIFCo’s selling, general and administrative expenses consist primarily of shipping costs and fees for services, including accounting, legal and rating services. These expenses increased from U.S.$18.6 million in 2003 to U.S.$99.8 million in 2004, of which U.S.$96.8 million consisted of shipping expenses. In July 2003, our management decided to assign the responsibility for payment of shipping expenses previously paid by us, to PIFCo. PIFCo’s expects shipping costs to figure permanently as part of its selling, general and administrative expenses.

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Financial Income

PIFCo’s financial income consists of the financing of sales to us, inter-company loans to us and investments in marketplace securities and other financial instruments. PIFCo’s financial income increased 53.3% from U.S.$442.9 million in 2003 to U.S.$678.8 million in 2004, primarily due to an increase in the amount of sales to us, an increase in the interest component of the formula by which we reimburse PIFCo for its financing costs and for receipt of payments beyond the time periods previously agreed with us, and an increase in interest income from short-term investments.

Financial Expense

PIFCo’s financial expense consists of interest paid and accrued on its outstanding indebtedness and other fees associated with its issuance of debt. PIFCo’s financial expense increased 57.7% from U.S.$482.7 million in 2003 to U.S.$761.2 million in 2004, primarily due to a register of an expense in the amount of U.S.$64.2 million related to the difference between the face value and the market value of the repurchase of some of its outstanding securities.

Results of Operations for the year ended December 31, 2003 (“2003”) compared to the year ended December 31, 2002 (“2002”).

Net Loss

PIFCo had a net loss of U.S.$3.0 million in 2003, as compared to a net loss of U.S.$65.5 million in 2002.

Sales of Crude Oil and Oil Products and Services

PIFCo’s sales of crude oil and oil products and services increased 9.2% to U.S.$6,975.5 million in 2003, from U.S.$6,390.2 million in 2002, primarily due to a 16.5% increase in the average price of Brent crude oil from U.S.$24.76 per barrel in 2002 to U.S.$28.84 per barrel in 2003, a 9.7% increase in the volume of sales made by its subsidiary, PFL, in connection with our exports prepayment program and due to the favorable effects of the Iraq war and the effects, primarily in the first quarter, of the political and economic crisis in Venezuela on international prices and supplies of crude oil and oil products. The increase was partially offset by a reduction in the volume of oil products PIFCo sold to us as a result of the contraction in the Brazilian economy and the consequent loss of purchasing power among the population.

Lease income

As a result of PIFCo’s transfer of PNBV to us, PIFCo had no income from leases in 2003. In 2002, PIFCo’s lease income was U.S.$36.1 million.

Cost of Sales

Cost of sales increased 8.6% to U.S.$6,920.1 million in 2003, from U.S.$6,371.5 million in 2002, primarily due to the 16.5% increase in the average price of Brent crude oil in 2003, as compared to 2002, and the 9.7% increase in sales made by PIFCo’s subsidiary PFL in connection with our exports prepayment program. The increase was partially offset by a reduction in the volume of oil products sold to us as a result of lower demand for such products in the Brazilian market.

Lease Expense

As a result of PIFCo’s transfer of PNBV to us, PIFCo had no expense related to leases in 2003. In 2002, PIFCo’s lease expense was U.S.$24.0 million.

Selling, General and Administrative Expenses

PIFCo’s selling, general and administrative expenses consist primarily of shipping costs and fees for services, including accounting and legal services. These expenses increased to U.S.$18.6 million in 2003, as compared to

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U.S.$1.2 million in 2002, of which U.S.$17.1 million consisted of shipping expenses. In 2003, our management decided to assign to PIFCo the responsibility for payment of shipping expenses previously paid by us. From this point forward, PIFCo expects shipping costs to figure permanently as part of its selling, general and administrative expenses.

Gross Profit

PIFCo’s gross profit reflects profits from its third-party sales of crude oil and oil products and services (since PIFCo record profits from sales of crude oil and oil products to us as financial income). PIFCo’s gross profit increased 24.3% to U.S.$36.8 million in 2003, as compared to U.S.$29.6 million in 2002, as a result of the 16.5% increase in the average price of Brent crude oil from U.S.$24.76 per barrel in 2002 to U.S.$28.84 per barrel in 2003 and due to the favorable effects of the Iraq war and the effects, primarily in the first quarter, of the political and economic crisis in Venezuela on international prices and supplies of crude oil and oil products.

Financial Income

PIFCo’s financial income consists of the financing of sales to us and inter-company loans to us, investments in marketplace securities and other financial instruments. Our financial income increased to U.S.$442.9 million in 2003, from U.S.$219.6 million in 2002, primarily due to an increase in loans to related parties and interest received as a result of increases in the time period previously agreed with us for receipt of payments related to sales of crude oil and oil products to Petrobras from up to 120 days in early 2002 to up to 270 days beginning in May 2002 and continuing for the remainder of 2002 and throughout all of 2003, increases in the periods of time for receipt of payments beyond the time periods previously agreed with us and a modification of the interest component of the payment formula by which we reimburse PIFCo for its financing costs. In January 2003, this formula was adjusted in order to more fully pass on PIFCo’s average costs of capital to us.

Financial Expense

PIFCo’s financial expense consists of interest paid and accrued on its outstanding indebtedness and other fees associated with PIFCo’s issuance of debt. PIFCo’s financial expense increased 53.3% to U.S.$482.7 million in 2003, as compared to U.S.$314.7 million in 2002, primarily due to the increase in the amount of its long-term indebtedness. PIFCo’s long-term indebtedness increased to U.S.$5,825.3 million at December 31, 2003, as compared to U.S.$3,248.7 million at December 31, 2002. The increase in financial expense was partially offset by the lower average interest rate on its outstanding debt.