Petrobras (PBR)

Uses of Funds

Capital expenditures

In 2004, we continued to prioritize capital expenditures for the development of crude oil and natural gas production projects through internal investments and through structured undertakings with partners. We invested a total of U.S.$7,718 million in 2004, a 17.8% increase from our investments in 2003. Our increased capital expenditures in 2004 were primarily directed towards increasing our production capabilities in the Campos Basin, modernizing our refineries and expanding our pipeline transportation and distribution system. We spent U.S.$4,574 million (59.3%) in 2004 in our domestic exploration and development projects mainly in the Campos Basin, which includes investments financed through our project financings. PIFCo primarily utilizes funds to finance its oil trading activities.

The following table sets forth our consolidated capital expenditures (including project financings and investment in thermoelectric power plants) for each of our business segments for 2004, 2003 and 2002:

On May 14, 2004, we announced our Strategic Plan, which contemplates total budgeted capital expenditures of U.S.$53.6 billion in the period from 2004 through 2010, approximately U.S.$46.1 billion of which will be directed towards our activities in Brazil, while U.S.$7.5 billion will be directed to our activities abroad. We expect that the majority of our capital expenditures from 2004 through 2010, approximately U.S.$32.1 billion, will be directed towards exploration and production, of which U.S.$26.2 billion is slated for our activities in Brazil.

Our Strategic Plan for 2004 to 2010 contemplates greater domestic expenditures in our construction activities and other projects. We estimate that of the U.S.$46.1 billion in domestic capital expenditures for 2004 to 2010, at least U.S.$31.7 billion (69%) will be utilized to pay for equipment and services provided by Brazilian contractors, suppliers and other service providers.

Our capital expenditures budget for the year 2005, including our project financings, is U.S.$9.8 billion, allocated among each of our business segments as follows: (i) Exploration and Production: U.S.$5.2 billion; (ii) Downstream: U.S.$1.2 billion; (iii) International: U.S.$1.7 billion; (iv) Gas and Energy: U.S.$1.2 billion; (v) Distribution: U.S.$0.2 billion; and (vi) Corporate: U.S.$0.3 billion.

We plan to meet our budgeted capital expenditures primarily through internally generated cash and issuances in the international capital markets. Our actual capital expenditures may vary substantially from the projected numbers set forth above as a result of market conditions and the cost and availability of the necessary funds.

Dividends

In 2004 we paid dividends of approximately U.S.$1,809 million (U.S.$1.65 per share). Approximately 80% of such amount was paid in the form of interest on capital.

At our general shareholders’ meeting held on March 31, 2005, our shareholders approved a distribution of dividends of U.S.$1,900 million (U.S.$1.73 per share) based on the year-end exchange rate as proposed by our Board of Directors. Of this amount, U.S.$1,239 million (U.S.$1.13 per share based on the year-end exchange rate) had previously been approved by our Board of Directors and was distributed to shareholders on February 15, 2005 in the form of interest on capital. The remaining U.S.$661 million, including U.S.$413 million of interest on capital,

109

Table of Contents

was paid to our shareholders on May 17, 2005. All such payments are made in Brazilian reais and are monetary restated as from December 31, 2004 up to the date of actual payment according to the variation of the SELIC rate. On June 17, 2005 our Board of Directors approved payment to shareholders in the form of interest on capital totaling R$2,194 million, to be distributed by January 2006 based on a record date of June 30, 2005.