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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2007
 Commission File Number 001-15106
    
    Commission File Number: 001-33121Petróleo Brasileiro S.A.Petrobras
    
    Petrobras International Finance Company(Exact name of registrant as specified in its charter)
    
    (Exact name of registrant as specified in its charter)Brazilian Petroleum CorporationPetrobras(Translation of registrants name into English)The Federative Republic of Brazil
    
    Cayman Island(Jurisdiction of incorporation or organization)
    
    (Jurisdiction of incorporation or organization)
 
 Harbour Place103 South Church Street, 4th floorAvenida República do Chile, 65
    
    P.O. Box 1034GT  BWI20031-912  Rio de Janeiro  RJ
    
    George Town, Grand CaymanBrazil
    
    Cayman Islands(Address of principal executive offices)
    
    (Address of principal executive offices)Almir Guilherme Barbassa
    
    Sérvio Túlio da Rosa Tinoco(55 21) 3224-2040  barbassa@petrobras.com.br
    
    (55 21) 3224-1410  ttinoco@petrobras.com.brAvenida República do Chile, 65  23rdFloor
    
    Avenida República do Chile, 65  3rdFloor20031-912  Rio de Janeiro  RJ
    
    20031-912  Rio de Janeiro  RJBrazil
    
    Brazil
 (Name, telephone, e-mail and/or facsimile number and address of company contact person)
    
    (Name, telephone, e-mail and/or facsimile number and address of company contact person)
 
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of each class:
    
    Name of each exchange on which registered:Petrobras Common Shares, without par value 
Petrobras American Depositary Shares, or ADSs
(evidenced by American Depositary Receipts, or ADRs), 
each representing 2 Common Shares 
Petrobras Preferred Shares, without par value*
Petrobras American Depositary Shares
(as evidenced by American Depositary Receipts), 
each representing 2 Preferred Shares 
6.125% Global Notes due 2016, issued by PifCo 
5.875% Global Notes due 2018, issued by PifCo
    
    New York Stock Exchange*
New York Stock Exchange
New York Stock Exchange*
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
 *
    Not for trading, but only in connection with the registration of American Depositary Shares
pursuant to the requirements of the New York Stock Exchange.
 Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Title of each class:
 
 The number of outstanding shares of each class of stock of Petrobras and PifCo as of December 31,
2007 was:
 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of
the Securities Act.
 Yes þ No o
 If this report is an annual or transitional report, indicate by check mark if the registrant is not
required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.
 Yes o No þ
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
 Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer in Rule 12b-2 of the Exchange
Act. (Check one):
 Large accelerated filerþ [Petrobras]
    
    Accelerated filero
    
    Non-accelerated filerþ [PifCo]
 Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
 U.S. GAAPþ
    
    International Financial
Reporting Standards as issued by the International Accounting Standards Boardo
    
    Othero
 If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow.
 Item 17 o Item 18 o
 If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
 Yes o No þ




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TABLE OF CONTENTS
 PageForward-Looking Statements
    
    
    1Glossary of Petroleum Industry Terms
    
    
    3Conversion Table
    
    
    4Abbreviations
    
    
    5Presentation of Financial Information
    
    
    6Petrobras
    
    
    6PifCo
    
    
    6Recent Developments
    
    
    7Acquisition and Consolidation of Petrochemical Assets
    
    
    7Presentation of Information Concerning Reserves
    
    
    7PART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    8Item 2. Offer Statistics and Expected Timetable
    
    
    8Item 3. Key Information
    
    
    8Selected Financial Data
    
    
    8Exchange Rates
    
    
    11Risk Factors
    
    
    12Risks Relating to Our Operations
    
    
    12Risks Relating to PifCo
    
    
    16Risks Relating to Our Relationship with the Brazilian Government
    
    
    16Risks Relating to Brazil
    
    
    17Risks Relating to Our Equity and Debt Securities
    
    
    18Item 4. Information on the Company
    
    
    22History and Development
    
    
    22Overview of the Group
    
    
    22Exploration and Production
    
    
    25Supply
    
    
    32Distribution
    
    
    38Gas and Energy
    
    
    39International
    
    
    48PifCo
    
    
    53Organizational Structure
    
    
    56Property, Plants and Equipment
    
    
    57Regulation of the Oil and Gas Industry in Brazil
    
    
    58Health, Safety and Environmental Initiatives
    
    
    60Insurance
    
    
    61Item 4A. Unresolved Staff Comments
    
    
    61Item 5. Operating and Financial Review and Prospects
    
    
    61Managements Discussion and Analysis of Petrobras Financial Condition and Results of Operations
    
    
    61Overview
    
    
    61Sales Volumes and Prices
    
    
    62Effect of Taxes on Our Income
    
    
    63Inflation and Exchange Rate Variation
    
    
    63Results of Operations
    
    
    65Results of Operations 2007 compared to 2006
    
    
    65Results of Operations 2006 compared to 2005
    
    
    71Additional Business Segment Information
    
    
    78
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PageManagements Discussion and Analysis of PifCos Financial Condition and Results of Operations
    
    
    79Overview
    
    
    79Purchases and Sales of Crude Oil and Oil Products
    
    
    79Results of Operations2007 compared to 2006
    
    
    79Results of Operations2006 compared to 2005
    
    
    80Liquidity and Capital Resources
    
    
    81Petrobras
    
    
    81PifCo
    
    
    84Contractual obligations
    
    
    88Petrobras
    
    
    88PifCo
    
    
    88Critical Accounting Policies and Estimates
    
    
    88Impact of New Accounting Standards
    
    
    92Research and Development
    
    
    93Trends
    
    
    94Item 6. Directors, Senior Management and Employees
    
    
    94Directors and Senior Management
    
    
    94Compensation
    
    
    100Share Ownership
    
    
    101Fiscal Council
    
    
    101Petrobras Audit Committee
    
    
    102Other Advisory Committees
    
    
    102Petrobras Ombudsman
    
    
    102PifCo Advisory Committees
    
    
    102Employees and Labor Relations
    
    
    103Item 7. Major Shareholders and Related Party Transactions
    
    
    105Major Shareholders
    
    
    105Petrobras Related Party Transactions
    
    
    105PifCo Related Party Transactions
    
    
    106Item 8. Financial Information
    
    
    108Petrobras Consolidated Statements and Other Financial Information
    
    
    108PifCo Consolidated Statements and Other Financial Information
    
    
    108Legal Proceedings
    
    
    109Dividend Distribution
    
    
    113Item 9. The Offer and Listing
    
    
    113Petrobras
    
    
    113PifCo
    
    
    115Item 10. Additional Information
    
    
    115Memorandum and Articles of Incorporation of Petrobras
    
    
    115Restrictions on Non-Brazilian Holders
    
    
    122Transfer of Control
    
    
    122Disclosure of Shareholder Ownership
    
    
    122Memorandum and Articles of Association of PifCo
    
    
    122Material Contracts
    
    
    126Petrobras Exchange Controls
    
    
    126Taxation Relating to Our ADSs and Common and Preferred Shares
    
    
    127Taxation Relating to PifCos Notes
    
    
    133Documents on Display
    
    
    136Item 11. Qualitative and Quantitative Disclosures about Market Risk
    
    
    137Petrobras
    
    
    137PifCo
    
    
    140Item 12. Description of Securities other than Equity Securities
    
    
    141
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PagePART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    141Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    142Item 15. Controls and Procedures
    
    
    142Evaluation of Disclosure Controls and Procedures
    
    
    142Managements Report on Internal Control over Financial Reporting
    
    
    142Changes in Internal Controls
    
    
    143Item 16A. Audit Committee Financial Expert
    
    
    143Item 16B. Code of Ethics
    
    
    143Item 16C. Principal Accountant Fees and Services
    
    
    143Audit Committee Approval Policies and Procedures
    
    
    144Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    144Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    144PART IIIItem 17. Financial Statements
    
    
    144Item 18. Financial Statements
    
    
    144Item 19. Exhibits
    
    
    145Signatures
    
    
    151Signatures
    
    
    152Index to Audited Consolidated Financial StatementsPetrobras
    
    
    F-1Index to Audited Consolidated Financial StatementsPifCo
    
    
    F-1Exhibit 1.2Exhibit 2.44Exhibit 2.45Exhibit 2.46Exhibit 2.47Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2Exhibit 15.3Exhibit 15.4Exhibit 15.5
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FORWARD-LOOKING STATEMENTS
  
    
    regional marketing and expansion strategy;
 
    
    drilling and other exploration activities;
 
    
    import and export activities;
 
    
    projected and targeted capital expenditures and other costs, commitments and
revenues;
 
    
    liquidity; and
 
    
    development of additional revenue sources.
  
    
    general economic and business conditions, including crude oil and other commodity
prices, refining margins and prevailing exchange rates;
 
    
    international and Brazilian political, economic and social developments;
 
    
    our ability to find, acquire or gain access to additional reserves and to
successfully develop our current ones;
 
    
    uncertainties inherent in making estimates of our reserves;
 
    
    our ability to obtain financing;
 
    
    competition;
 
    
    technical difficulties in the operation of our equipment and the provision of our
services;
 
    
    changes in, or failure to comply with, governmental regulations;
 
    
    receipt of governmental approvals and licenses;
 
    
    military operations, acts of sabotage, wars or embargoes;
 
    
    the cost and availability of adequate insurance coverage; and
 
    
    other factors discussed below under Risk Factors.
   1




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GLOSSARY OF PETROLEUM INDUSTRY TERMS
  Barrels
    
    Barrels of crude oil.Catalytic cracking
    
    A process by which hydrocarbon molecules are broken down (cracked) into
lighter fractions by the action of a catalyst.Coker
    
    A vessel in which bitumen is cracked into its fractions.Condensate
    
    Light hydrocarbon substances produced with natural gas, which condense into
liquid at normal temperatures and pressures.Deep water
    
    Between 300 and 1,500 meters (984 and 4,921 feet) deep.Distillation
    
    A process by which liquids are separated or refined by vaporization followed
by condensation.FPSO
    
    Floating Production, Storage and Offloading Unit.FPU
    
    Floating Production Unit.FSO
    
    Floating Storage and Offloading Unit.FSRU
    
    Floating Storage and Regasification Unit, a vessel that receives liquefied
natural gas and converts it into gas suitable for use or transmission by
pipeline.Heavy crude oil
    
    Crude oil with API density less than or equal to 22°.Intermediate crude oil
    
    Crude oil with API density between 22° and 31°.Light crude oil
    
    Crude oil with API density higher than 31°.LNG
    
    Liquefied natural gas.LPG
    
    Liquefied petroleum gas, which is a mixture of

saturated and unsaturated hydrocarbons, with up to five carbon atoms, used as domestic fuel.National Petroleum Agency
(ANP)
    
    The Agência Nacional de Petróleo, Gás Natural e Biocombustíveis, or ANP, is
the federal agency that regulates the oil, natural gas and renewable fuels
industry in Brazil.NGLs
    
    Natural gas liquids, which are light hydrocarbon substances produced with
natural gas, which condense into liquid at normal temperatures and pressures.Oil
    
    Crude oil, including NGLs and condensates.Pre-salt section
    
    A sequence of rocks in a sedimentary basin located beneath an evaporitic layer.
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Proved reserves
    
    Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas and natural gas liquids that geological and engineering data demonstrate
with reasonable certainty are recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e., prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not
escalations based upon future conditions.Proved developed reserves
    
    Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of
fluid injection or other improved recovery techniques for supplementing the
natural forces and mechanisms of primary recovery are included as proved
developed reserves only after testing by a pilot project or after the
operation of an installed program has confirmed through production response
that increased recovery will be achieved.Proved undeveloped reserves
    
    Proved undeveloped reserves are reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion, but do not include reserves
attributable to any acreage for which an application of fluid injection or
other improved recovery technique is contemplated, unless such techniques have
been proved effective by actual tests in the area and in the same reservoir.
Reserves on undrilled acreage are limited to those undrilled units offsetting
productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units are claimed only where it is
demonstrated with certainty that there is continuity of production from the
existing productive formation.SS
    
    Semi-submersible Unit.Ultra deep water
    
    Over 1,500 meters (4,921 feet) deep.
 
 CONVERSION TABLE
 1 acre
    
    = 0.004047 km21 barrel
    
    = 42 U.S. gallons
    
    = Approximately 0.13 t of oil1 boe
    
    = 1 barrel of crude oil equivalent
    
    = 6,000 cf of natural gas1 m3 of natural gas
    
    = 35.315 cf
    
    = 0.0059 boe1 km
    
    = 0.6214 miles1 km2
    
    = 247 acres1 meter
    
    = 3.2808 feet1 t of crude oil
    
    = 1,000 kilograms of crude oil
    

=  Approximately 7.5 barrels
of crude oil (assuming an
atmospheric pressure index
gravity of 37° API)
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ABBREVIATIONS
 bbl
    
    Barrelsbn
    
    Billion (thousand million)bnbbl
    
    Billion barrelsbncf
    
    Billion cubic feetbnm3
    
    Billion cubic metersboe
    
    Barrels of oil equivalentbbl/d
    
    Barrels per daycf
    
    Cubic feetm3
    
    Cubic meterGOM
    
    Gulf of MexicoGW
    
    Gigawattskm
    
    Kilometerkm2
    
    Square kilometersmbbl
    
    Thousand barrelsmboe
    
    Thousand barrels of oil equivalentmboe/d
    
    Thousand barrels of oil equivalent per daymbbl/d
    
    Thousand barrels per daymcf
    
    Thousand cubic feetmm3
    
    Thousand cubic metersmm3/d
    
    Thousand cubic meters per daymmbbl
    
    Million barrelsmmboe
    
    Million barrels of oil equivalentmmboe/d
    
    Million barrels of oil equivalent per daymmbbl/d
    
    Million barrels per daymmbtu
    
    Million British thermal unitsmmcf
    
    Million cubic feetmmcf/d
    
    Million cubic feet per daymmm3
    
    Million cubic metersmmm3/d
    
    Million cubic meters per daymmt/a
    
    Million metric tons per annumMW
    
    MegawattsP$
    
    Argentine pesosR$
    
    Brazilian reaist
    
    Metric tontcf
    
    Trillion cubic feetU.S.$
    
    United States dollars/d
    
    Per day/y
    
    Per year
  5




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PRESENTATION OF FINANCIAL INFORMATION
 real reais reais
 
 Petrobras
 reais Comissão de Valores Mobiliários
  real real reais
  
    
    historical data contained in this annual report that were not derived from the
audited consolidated financial statements have been translated from reaison a similar
basis;
 
    
    forward-looking amounts, including estimated future capital expenditures, have all
been based on our Petrobras 2020 Strategic Plan, which covers the period from 2008 to
2020, and on our 2008-2012 Business Plan, and have been projected on a constant basis
and have been translated from reaisin 2008 at an estimated average exchange rate of
R$2.11 to U.S.$1.00, and future calculations involving an assumed price of crude oil
have been calculated using a Brent crude oil price of U.S.$55 per barrel for 2008,
U.S.$50 per barrel for 2009, U.S.$45 per barrel for 2010 and U.S.$35 per barrel
thereafter, adjusted for our quality and location differences, unless otherwise stated;
and
 
    
    estimated future capital expenditures are based on the most recently budgeted
amounts, which may not have been adjusted to reflect all factors that could affect such
amounts.
 
 PifCo
   6




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RECENT DEVELOPMENTS
 
 Acquisition and Consolidation of Petrochemical Assets
      
 PRESENTATION OF INFORMATION CONCERNING RESERVES
     7




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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 Selected Financial Data
 Petrobras
    8




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BALANCE SHEET DATAPETROBRAS
 As of December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(U.S.$ million)Assets:Total current assets
    
    
    29,140
    
    
    
    30,955
    
    
    
    25,784
    
    
    
    19,426
    
    
    
    17,434Property, plant and equipment, net
    
    
    84,523
    
    
    
    58,897
    
    
    
    45,920
    
    
    
    37,020
    
    
    
    30,805Investments in non-consolidated companies and other investments
    
    
    5,112
    
    
    
    3,262
    
    
    
    1,810
    
    
    
    1,862
    
    
    
    1,173Total other assets
    
    
    10,940
    
    
    
    5,566
    
    
    
    5,124
    
    
    
    4,774
    
    
    
    4,200Total assets
    
    
    129,715
    
    
    
    98,680
    
    
    
    78,638
    
    
    
    63,082
    
    
    
    53,612Liabilities and shareholders equity:Total current liabilities
    
    
    24,468
    
    
    
    21,976
    
    
    
    18,161
    
    
    
    13,328
    
    
    
    12,037Total long-term liabilities(1)
    
    
    25,588
    
    
    
    19,929
    
    
    
    14,983
    
    
    
    14,226
    
    
    
    12,984Long-term
debt (2)
    
    
    12,148
    
    
    
    10,510
    
    
    
    11,503
    
    
    
    12,145
    
    
    
    11,888Total liabilities
    
    
    62,204
    
    
    
    52,415
    
    
    
    44,647
    
    
    
    39,699
    
    
    
    36,909Minority interest
    
    
    2,332
    
    
    
    1,966
    
    
    
    1,074
    
    
    
    877
    
    
    
    367Shareholders equityShares authorized and issued:Preferred share
    
    
    8,620
    
    
    
    7,718
    
    
    
    4,772
    
    
    
    4,772
    
    
    
    2,973Common share
    
    
    12,196
    
    
    
    10,959
    
    
    
    6,929
    
    
    
    6,929
    
    
    
    4,289Capital reserve and other comprehensive income
    
    
    44,363
    
    
    
    25,622
    
    
    
    21,216
    
    
    
    10,805
    
    
    
    9,074Total shareholders equity
    
    
    65,179
    
    
    
    44,299
    
    
    
    32,917
    
    
    
    22,506
    
    
    
    16,336Total liabilities and shareholders equity
    
    
    129,715
    
    
    
    98,680
    
    
    
    78,638
    
    
    
    63,082
    
    
    
    53,612
 
 (1)
    
    Excludes long-term debt.(2)
    
    Excludes current portion of long-term debt. INCOME STATEMENT DATAPETROBRAS
 For the Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(U.S.$ million, except for share and per share data)Net operating revenues
    
    
    87,735
    
    
    
    72,347
    
    
    
    56,324
    
    
    
    38,428
    
    
    
    30,914Operating income
    
    
    21,441
    
    
    
    20,861
    
    
    
    16,079
    
    
    
    10,361
    
    
    
    10,396Net income
for the year (1)
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,344
    
    
    
    6,190
    
    
    
    6,559Weighted average number of shares
outstanding: (2)Common
    
    
    5,073,347,344
    
    
    
    5,073,347,344
    
    
    
    5,073,347,344
    
    
    
    5,073,347,344
    
    
    
    5,073,347,344Preferred
    
    
    3,700,729,396
    
    
    
    3,699,806,288
    
    
    
    3,698,956,056
    
    
    
    3,698,956,056
    
    
    
    3,698,956,056Operating income per: (2)Common and Preferred Shares
    
    
    2.44
    
    
    
    2.38
    
    
    
    1.83
    
    
    
    1.18
    
    
    
    1.19Common and
Preferred ADS (3)
    
    
    4.88
    
    
    
    4.76
    
    
    
    3.66
    
    
    
    2.36
    
    
    
    2.38Basic
and diluted earnings per: (1)(2)(4)Common and Preferred Shares
    
    
    1.50
    
    
    
    1.46
    
    
    
    1.18
    
    
    
    0.71
    
    
    
    0.75Common and Preferred ADS(3)
    
    
    3.00
    
    
    
    2.92
    
    
    
    2.36
    
    
    
    1.42
    
    
    
    1.50Cash dividends per: (2)(5)Common and Preferred shares
    
    
    0.35
    
    
    
    0.42
    
    
    
    0.34
    
    
    
    0.21
    
    
    
    0.19Common and Preferred ADS(3)
    
    
    0.70
    
    
    
    0.84
    
    
    
    0.68
    
    
    
    0.42
    
    
    
    0.38
 
 (1)
    
    Our net income equals our income from continuing operations.(2)
    
    We carried out a two-for-one stock split on April 25, 2008. Share and per share amounts for
all periods give effect to the stock split.(3)
    
    We carried out a four-for-one reverse stock split in July 2007 that changed the ratio of
underlying shares to American Depositary Shares from four shares for each ADS to two shares
for each ADS. Per share amounts for all periods give effect to the stock split.(4)
    
    Basic and diluted earnings per share for 2003 reflect our adoption of SFAS 143.(5)
    
    Represents dividends paid during the year.   9




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PifCo
  BALANCE SHEET DATAPifCo
 For the Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(U.S.$ million)Assets:Total current assets
    
    
    28,327.7
    
    
    
    19,241.3
    
    
    
    13,241.9
    
    
    
    11,056.7
    
    
    
    7,654.0Total other assets
    
    
    4,867.1
    
    
    
    2,079.3
    
    
    
    3,506.6
    
    
    
    3,613.0
    
    
    
    2,542.5Total assets
    
    
    33,196.1
    
    
    
    21,321.3
    
    
    
    16,748.9
    
    
    
    14,670.2
    
    
    
    10,196.6Liabilities and stockholders equity:Total current liabilities
    
    
    28,012.3
    
    
    
    9,264.3
    
    
    
    7,098.4
    
    
    
    4,929.2
    
    
    
    4,276.5Total long-term liabilities (1)
    
    
    
    
    
    
    7,441.7
    
    
    
    3,734.1
    
    
    
    3,553.5
    
    
    
    Long-term debt (2)
    
    
    5,186.8
    
    
    
    4,640.1
    
    
    
    5,908.4
    
    
    
    6,151.8
    
    
    
    5,825.3Total liabilities
    
    
    33,199.1
    
    
    
    21,346.1
    
    
    
    16,740.9
    
    
    
    14,634.5
    
    
    
    10,101.8Total stockholders (deficit) equity
    
    
    (3.0
    )
    
    
    (24.8
    )
    
    
    8.0
    
    
    
    35.7
    
    
    
    94.8Total liabilities and stockholders equity
    
    
    33,196.1
    
    
    
    21,321.3
    
    
    
    16,748.9
    
    
    
    14,670.2
    
    
    
    10,196.6
 
 (1)
    
    Excludes long-term debt.(2)
    
    Excludes current portion of long-term debt. INCOME STATEMENT DATAPifCo
 For the Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(U.S.$ million)Net operating revenue
    
    
    26,732.0
    
    
    
    22,069.8
    
    
    
    17,136.1
    
    
    
    12,355.6
    
    
    
    6,975.5Operating income (loss)
    
    
    126.5
    
    
    
    (38.1
    )
    
    
    (12.9
    )
    
    
    19.8
    
    
    
    36.8Net income (loss)
    
    
    29.0
    
    
    
    (210.5
    )
    
    
    (27.8
    )
    
    
    (59.1
    )
    
    
    (3.0
    )
  10




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Exchange Rates
 Conselho Monetário Nacional reais real
 real real real
 reais
 (R$ /U.S.$)High
    
    
    Low
    
    
    Average (1)
    
    
    Period EndYear ended December 31,2007
    
    
    2.156
    
    
    
    1.733
    
    
    
    1.947
    
    
    
    1.7712006
    
    
    2.371
    
    
    
    2.059
    
    
    
    2.175
    
    
    
    2.1382005
    
    
    2.762
    
    
    
    2.163
    
    
    
    2.435
    
    
    
    2.3412004
    
    
    3.205
    
    
    
    2.654
    
    
    
    2.926
    
    
    
    2.6542003
    
    
    3.662
    
    
    
    2.822
    
    
    
    3.075
    
    
    
    2.889Month:December 2007
    
    
    1.823
    
    
    
    1.762
    
    
    
    1.785
    
    
    
    1.771January 2008
    
    
    1.830
    
    
    
    1.741
    
    
    
    1.774
    
    
    
    1.760February 2008
    
    
    1.768
    
    
    
    1.672
    
    
    
    1.733
    
    
    
    1.683March 2008
    
    
    1.749
    
    
    
    1.670
    
    
    
    1.710
    
    
    
    1.749April 2008
    
    
    1.753
    
    
    
    1.658
    
    
    
    1.687
    
    
    
    1.687May 2008 (through May 14)
    
    
    1.695
    
    
    
    1.651
    
    
    
    1.672
    
    
    
    1.664
 
 Source: Central Bank of Brazil(1)
    
    Year-end figures stated for calendar years 2007, 2006, 2005, 2004 and 2003 represent the
average of the month-end exchange rates during the relevant period. The figures provided for
the months of calendar years 2007 and 2008, as well as for the month of May up to and
including May 14, 2008, represent the average of the exchange rates at the close of trading on
each business day during such period.   11




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##### Table of Contents



RISK FACTORS
 
 Risks Relating to Our Operations
 Substantial or extended declines in the international prices of crude oil and oil products may have
a material adverse effect on our income.
   
    
    global and regional economic and geopolitical developments in crude oil producing
regions, particularly in the Middle East;
 
    
    the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and
maintain crude oil production levels and defend prices;
 
    
    global and regional supply and demand for crude oil and oil products;
 
    
    competition from other energy sources;
 
    
    domestic and foreign government regulations; and
 
    
    weather conditions.
  Our ability to achieve our long-term growth objectives depends on our ability to discover
additional reserves and successfully develop them, and failure to do so could prevent us from
achieving our long-term goals for growth in production.
    12




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We do not own any of the crude oil and natural gas reserves in Brazil.
  Our crude oil and natural gas reserve estimates involve some degree of uncertainty, which could
adversely affect our ability to generate income.
  We may not have a sufficient number of drilling rigs to support future exploration, production and
development activities.
  We are subject to numerous environmental and health regulations that have become more stringent in
the recent past and may result in increased liabilities and increased capital expenditures.
 Instituto
Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis
   13




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We may incur losses and spend time and money defending pending litigations and arbitrations.
  We may also be subject to labor litigation in connection with recent changes in Brazilian laws
relating to retirement benefits affecting our employees.
  Our participation in the domestic power market has generated losses and may not become profitable.
     Currency fluctuations could have a material adverse effect on our financial condition and
results of operations, because most of our revenues are in reais and a large portion of our
liabilities are in foreign currencies.
 real reais
  14




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##### Table of Contents



real real
 We are exposed to increases in prevailing market interest rates, which leaves us vulnerable to
increased financing expenses.
  We are not insured against business interruption for our Brazilian operations and most of our
assets are not insured against war or sabotage.
  We are subject to substantial risks relating to our international operations, in particular in
Latin America, West Africa and the Middle East.
  
    
    the imposition of exchange or price controls;
 
    
    the imposition of restrictions on hydrocarbon exports;
 
    
    the fluctuation of local currencies;
 
    
    the nationalization of oil and gas reserves;
 
    
    increases in export tax / income tax rates for crude oil and oil products; and
 
    
    unilateral (governmental) institutional and contractual changes, including controls
on investments and limitations on new projects.
   15




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##### Table of Contents



3⁄4
 
 Risks Relating to PifCo
 PifCos operations and debt servicing capabilities are dependent on us.
    PifCo depends on its ability to pass on its financing costs to us.
  
 Risks Relating to Our Relationship with the Brazilian Government
 The Brazilian government, as our controlling shareholder, may cause us to pursue certain
macroeconomic and social objectives that may have an adverse effect on our results of operations
and financial condition.
   16




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##### Table of Contents



We may not be able to obtain financing for some of our planned investments, and failure to do so
could adversely affect our operating results and financial condition.
  If the Brazilian government reinstates controls over the prices we can charge for crude oil and oil
products, such price controls could affect our financial condition and results of operations.
  
 Risks Relating to Brazil
 The Brazilian government has historically exercised, and continues to exercise, significant
influence over the Brazilian economy. Brazilian political and economic conditions have a direct
impact on our business and may have a material adverse effect on our results of operations and
financial condition.
  
    
    devaluations and other exchange rate movements;
 
    
    inflation;
 
    
    exchange control policies;
 
    
    social instability;
 
    
    price instability;
 
    
    energy shortages;
 
    
    interest rates;
 
    
    liquidity of domestic capital and lending markets;
 
    
    tax policy; and
 
    
    other political, diplomatic, social and economic developments in or affecting
Brazil.
 Supremo Tribunal Federal
  17




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##### Table of Contents



Inflation and government measures to curb inflation may contribute significantly to economic
uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and,
consequently, may adversely affect the market value of our securities and financial condition.
 Índice
Nacional de Preços ao Consumidor Amplo real
 Access to international capital markets for Brazilian companies is influenced by the perception of
risk in Brazil and other emerging economies, which may hurt our ability to finance our operations
and the trading values of our securities.
  
 Risks Relating to Our Equity and Debt Securities
 The size, volatility, liquidity and/or regulation of the Brazilian securities markets may curb your
ability to sell the common or preferred shares underlying our ADSs.
  The market for PifCos notes may not be liquid.
   18




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##### Table of Contents



You may be unable to exercise preemptive rights with respect to the common or preferred shares
underlying the ADSs.
  You may not be able to sell your ADSs at the time or the price you desire because an active or
liquid market for our ADSs may not be sustained.
  Restrictions on the movement of capital out of Brazil may impair your ability to receive dividends
and distributions on, and the proceeds of any sale of, the common or preferred shares underlying
the ADSs and may impact our ability to service certain debt obligations, including standby purchase
agreements we have entered into in support of PifCos notes.
  reais reais reais
 reais
 If you exchange your ADSs for common or preferred shares, you risk losing the ability to remit
foreign currency abroad and forfeiting Brazilian tax advantages.
 Conselho Monetário Nacional
  19




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##### Table of Contents



Holders of ADSs may face difficulties in protecting their interests.
   Holders of our ADSs may encounter difficulties in the exercise of voting rights and preferred
shares and the ADSs representing preferred shares generally do not give you voting rights.
   Enforcement of our obligations under the standby purchase agreement might take longer than
expected.
    20




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##### Table of Contents



If Brazilian law restricts us from paying PifCo in U.S. dollars, PifCo may have insufficient U.S.
dollar funds to make payments on its debt obligations and we may not be able to pay our obligations
under the standby purchase agreement in U.S. Dollars.
 reais
 reais
 We would be required to pay judgments of Brazilian courts enforcing our obligations under the
standby purchase agreement only in reais.
 reais reais reais
 A finding that we are subject to U.S. bankruptcy laws and that the standby purchase agreement
executed by us was a fraudulent conveyance could result in PifCo noteholders losing their legal
claim against us.
  
    
    were or are insolvent or rendered insolvent by reason of our entry into the standby
purchase agreement;
 
    
    were or are engaged in business or transactions for which the assets remaining with
us constituted unreasonably small capital; or
 
    
    intended to incur or incurred, or believed or believe that we would incur, debts
beyond our ability to pay such debts as they mature; and
 
    
    in each case, intended to receive or received less than reasonably equivalent value
or fair consideration therefore,
   21




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##### Table of Contents



Item 4. Information on the Company
 
 History and Development
    
 Overview of the Group
      22




---



##### Table of Contents




    
    Exploration and Production: oil and gas exploration, development and production in
Brazil;
 
    
    Supply: refining, oil products and crude oil exports and imports, petrochemicals and
fertilizers in Brazil;
 
    
    Distribution: distribution of oil products to wholesalers and through our BR
retail network in Brazil;
 
    
    Gas and Energy: gas transmission and distribution, electric power generation using
natural gas and renewable energy sources and biofuels operations in Brazil; and
 
    
    International: exploration and production, supply (refining, petrochemicals and
fertilizers), distribution and natural gas and energy operations outside of Brazil.
  Exploration &
    
    
    
    
    
    
    
    
    
    
    Gas and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GroupProduction
    
    
    Supply
    
    
    Distribution
    
    
    Energy
    
    
    International
    
    
    Corporate
    
    
    Eliminations
    
    
    Total(U.S.$ million)Net operating revenues
    
    
    41,991
    
    
    
    69,549
    
    
    
    23,320
    
    
    
    4,912
    
    
    
    9,101
    
    
    
    
    
    
    
    (61,138
    )
    
    
    87,735Income before
minority interest and
income tax
    
    
    21,599
    
    
    
    4,171
    
    
    
    676
    
    
    
    (947
    )
    
    
    (237
    )
    
    
    (4,872
    )
    
    
    (1,091
    )
    
    
    19,299Total assets at
December 31
    
    
    53,175
    
    
    
    31,218
    
    
    
    5,652
    
    
    
    15,536
    
    
    
    11,717
    
    
    
    19,137
    
    
    
    (6,720
    )
    
    
    129,715Capital expenditures
    
    
    9,448
    
    
    
    4,488
    
    
    
    327
    
    
    
    3,223
    
    
    
    2,864
    
    
    
    628
    
    
    
    
    
    
    
    20,978
  2007
    
    
    2006
    
    
    2005Oil
    
    
    Nat. Gas
    
    
    Total
    
    
    Oil
    
    
    Nat. Gas
    
    
    Total
    
    
    Oil
    
    
    Nat. Gas
    
    
    Total(mbbl/d)
    
    
    (mmcf/d)
    
    
    (mboe/d)
    
    
    (mbbl/d)
    
    
    (mmcf/d)
    
    
    (mboe/d)
    
    
    (mbbl/d)
    
    
    (mmcf/d)
    
    
    (mboe/d)Brazil:Offshore:Campos Basin
    
    
    1,475.3
    
    
    
    750.0
    
    
    
    1,600.3
    
    
    
    1,468.3
    
    
    
    759.1
    
    
    
    1,594.9
    
    
    
    1,404.7
    
    
    
    752.4
    
    
    
    1,530.2Other
    
    
    87.8
    
    
    
    281.8
    
    
    
    134.8
    
    
    
    77.4
    
    
    
    256.5
    
    
    
    120.1
    
    
    
    35.9
    
    
    
    171.9
    
    
    
    64.5Total Offshore
    
    
    1,563.1
    
    
    
    1,031.8
    
    
    
    1,735.1
    
    
    
    1,545.7
    
    
    
    1,015.6
    
    
    
    1,715.0
    
    
    
    1,440.6
    
    
    
    924.3
    
    
    
    1,594.7Onshore
    
    
    229.0
    
    
    
    605.0
    
    
    
    329.8
    
    
    
    232.0
    
    
    
    644.0
    
    
    
    339.3
    
    
    
    243.5
    
    
    
    718.5
    
    
    
    363.2Total Brazil(1)
    
    
    1,792.1
    
    
    
    1,636.8
    
    
    
    2,064.9
    
    
    
    1,777.7
    
    
    
    1,659.6
    
    
    
    2,054.3
    
    
    
    1,684.1
    
    
    
    1,642.8
    
    
    
    1,957.9International:Argentina
    
    
    54.4
    
    
    
    287.3
    
    
    
    102.3
    
    
    
    62.1
    
    
    
    274.9
    
    
    
    107.9
    
    
    
    61.9
    
    
    
    253.1
    
    
    
    104.1Bolivia
    
    
    9.3
    
    
    
    308.8
    
    
    
    60.8
    
    
    
    8.9
    
    
    
    288.9
    
    
    
    57.0
    
    
    
    8.5
    
    
    
    273.8
    
    
    
    54.1Colombia
    
    
    16.6
    
    
    
    0.1
    
    
    
    16.6
    
    
    
    16.8
    
    
    
    0.2
    
    
    
    16.9
    
    
    
    16.5
    
    
    
    0.4
    
    
    
    16.6Ecuador
    
    
    10.4
    
    
    
    0.0
    
    
    
    10.4
    
    
    
    11.9
    
    
    
    0.0
    
    
    
    11.9
    
    
    
    9.1
    
    
    
    0.0
    
    
    
    9.1Peru
    
    
    13.3
    
    
    
    11.0
    
    
    
    15.1
    
    
    
    12.7
    
    
    
    10.9
    
    
    
    14.6
    
    
    
    12.6
    
    
    
    10.7
    
    
    
    14.3Venezuela
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    10.5
    
    
    
    4.3
    
    
    
    11.2
    
    
    
    44.2
    
    
    
    20.2
    
    
    
    47.6United States
    
    
    4.7
    
    
    
    40.8
    
    
    
    11.5
    
    
    
    1.4
    
    
    
    15.9
    
    
    
    4.0
    
    
    
    1.7
    
    
    
    17.2
    
    
    
    4.6Angola
    
    
    3.6
    
    
    
    0.0
    
    
    
    3.6
    
    
    
    5.3
    
    
    
    0.0
    
    
    
    5.3
    
    
    
    8.3
    
    
    
    0.0
    
    
    
    8.3Total International
    
    
    112.3
    
    
    
    648.0
    
    
    
    220.3
    
    
    
    129.6
    
    
    
    595.1
    
    
    
    228.8
    
    
    
    162.8
    
    
    
    575.4
    
    
    
    258.7Total consolidated
production
    
    
    1,904.4
    
    
    
    2,284.8
    
    
    
    2,285.2
    
    
    
    1,907.3
    
    
    
    2,254.7
    
    
    
    2,283.1
    
    
    
    1,846.9
    
    
    
    2,218.2
    
    
    
    2,216.6Equity and
non-consolidated
affiliates:(2)Venezuela
    
    
    13.9
    
    
    
    11.5
    
    
    
    15.9
    
    
    
    12.6
    
    
    
    11.5
    
    
    
    14.4
    
    
    
    
    
    
    
    
    
    
    
    Worldwide production
    
    
    1,918.3
    
    
    
    2,296.3
    
    
    
    2,301.1
    
    
    
    1,919.9
    
    
    
    2,266.2
    
    
    
    2,297.5
    
    
    
    1,846.9
    
    
    
    2,218.2
    
    
    
    2,216.6
 
 (1)
    
    Brazilian production figures include reinjected gas volumes, which are not included in our
proved reserves figures.(2)
    
    Companies in which Petrobras has a minority interest.  23




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##### Table of Contents



Developed
    
    
    Undeveloped
    
    
    Total(mmbbl)Brazil:Offshore:Campos Basin
    
    
    4,556.3
    
    
    
    3,494.0
    
    
    
    8,050.3Other
    
    
    187.5
    
    
    
    150.2
    
    
    
    337.7Total Offshore
    
    
    4,743.8
    
    
    
    3,644.2
    
    
    
    8,388.0Onshore
    
    
    505.9
    
    
    
    244.6
    
    
    
    750.5Total Brazil
    
    
    5,249.7
    
    
    
    3,888.8
    
    
    
    9,138.5International:Argentina
    
    
    86.9
    
    
    
    31.7
    
    
    
    118.6Bolivia
    
    
    29.3
    
    
    
    1.0
    
    
    
    30.3Colombia
    
    
    18.9
    
    
    
    11.4
    
    
    
    30.3Ecuador
    
    
    15.2
    
    
    
    28.6
    
    
    
    43.8Peru
    
    
    46.9
    
    
    
    51.4
    
    
    
    98.3United States
    
    
    9.0
    
    
    
    17.7
    
    
    
    26.7Angola
    
    
    3.4
    
    
    
    0.4
    
    
    
    3.8Nigeria
    
    
    0.0
    
    
    
    62.5
    
    
    
    62.5Total International
    
    
    209.6
    
    
    
    204.7
    
    
    
    414.3Group
    
    
    5,459.3
    
    
    
    4,093.5
    
    
    
    9,552.8Equity and non-consolidated affiliates(1)
    
    
    33.4
    
    
    
    26.7
    
    
    
    60.1
 
 (1)
    
    Companies in which Petrobras has a minority interest. Developed
    
    
    Undeveloped
    
    
    Total(bncf)Brazil:Offshore:Campos Basin
    
    
    2,354.4
    
    
    
    2,021.8
    
    
    
    4,376.2Other
    
    
    911.5
    
    
    
    2,609.7
    
    
    
    3,521.2Total Offshore
    
    
    3,265.9
    
    
    
    4,631.5
    
    
    
    7,897.4Onshore
    
    
    1,369.1
    
    
    
    811.8
    
    
    
    2,180.9Total Brazil
    
    
    4,635.0
    
    
    
    5,443.3
    
    
    
    10,078.3International:Argentina
    
    
    540.2
    
    
    
    517.3
    
    
    
    1,057.5Bolivia
    
    
    1,079.3
    
    
    
    41.4
    
    
    
    1,120.7Colombia
    
    
    0.6
    
    
    
    0.7
    
    
    
    1.3Ecuador
    
    
    1.6
    
    
    
    2.6
    
    
    
    4.2Peru
    
    
    35.3
    
    
    
    40.7
    
    
    
    76.0United States
    
    
    84.4
    
    
    
    57.4
    
    
    
    141.8Total International
    
    
    1,741.4
    
    
    
    660.1
    
    
    
    2,401.5Group
    
    
    6,376.4
    
    
    
    6,103.4
    
    
    
    12,479.8Equity and non-consolidated affiliates(1)
    
    
    44.2
    
    
    
    22.7
    
    
    
    66.9
 
 (1)
    
    Companies in which Petrobras has a minority interest.   24




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##### Table of Contents



Exploration and Production
 Oil and gas exploration and production activities in Brazil are the largest component of our
company portfolio. In 1970, we produced 164 mbbl/d of crude oil, condensate and natural gas
liquids in Brazil. We increased production to 181 mbbl/d in 1980, 654 mbbl/d in 1990, 1,271 mbbl/d
in 2000 and 1,792 mbbl/d in 2007. In 1974 we made our first discovery in the Campos Basin offshore
Brazil, which now accounts for over 81% of our proved reserves. We aim to grow oil and gas
reserves and production sustainably and be recognized for excellence in Exploration and Production
operations. Our primary goals are to:
 
    
    explore and develop oil resources in increasingly deep waters in the Campos Basin;
 
    
    explore and develop Brazils two other most promising offshore basins: Espírito
Santo (light oil, heavy oil and gas) and Santos (gas and light oil);
 
    
    develop gas resources in the Santos Basin and elsewhere to meet Brazils growing
demand for gas and increase the contribution of domestic gas production to meeting that
demand;
 
    
    explore and develop the potentially substantial pre-salt reservoirs that lie below
the Espírito Santo, Campos and Santos Basins; and
 
    
    sustain and increase production from onshore fields through drilling and enhanced
recovery operations.
 In new areas, our activities typically begin with geological research and seismic activities,
followed by exploratory drilling. When this yields encouraging results, we proceed with extended
well tests, development drilling and pilot production, which typically involve substantial
investments. It usually takes several years for successful exploration activity to be reflected in
increased reserves and production.
 During 2007, our oil and gas production from Brazil averaged 2,065 mboe/d, of which 87% was
oil and 13% was natural gas. On December 31, 2007, our estimated net proved crude oil and natural
gas reserves in Brazil were approximately 10.82 billion boe, of which 84% was crude oil and 16% was
natural gas. Brazil provided 90% of our worldwide production in 2007 and accounted for 92% of our
worldwide reserves at December 31, 2007 on a barrels of oil-equivalent basis. Historically,
approximately 85% of our total Brazilian production has been oil; in the future, we plan to
increase the share of natural gas to meet increasing domestic demand.
 Brazils richest oil fields are located offshore, most of them in deep waters. Since 1971,
when we started exploration in the Campos Basin, we have been active in these waters and we have
become globally recognized as innovators in the technology required to explore for and produce
hydrocarbons in deep and ultra deep water. We operate more production (on a boe basis) from fields
in deep and ultra deep water than any other company. 1 In 2007, offshore production
accounted for 87% of our production and deepwater production accounted for 75% of our production in
Brazil. At December 31, 2007, we operated 136 wells in water deeper than 1,000 meters (3,281
feet). By December 31, 2007, we had drilled around 300 exploratory wells in water deeper than
1,000 meters (3,281 feet), the deepest being the 1-RJS-567 exploration well in the BC-100 Block in
a water depth of 2,853 meters (9,360 feet). We continue to upgrade our deepwater technologies.
See Item 5. Operating and Financial Review and ProspectsResearch and Development.
 
 1
    
    Source: PFC Energy  25




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##### Table of Contents



On a per-well basis, offshore exploration, development and production costs are generally
higher than those onshore, but we are able to offset these higher costs by higher drilling success
ratios, larger discoveries and greater production volumes. We have historically been successful in
finding and developing significant oil reservoirs offshore, which has allowed us to achieve
economies of scale by spreading the total costs of exploration, development and production over a
large base. By focusing on opportunities that are close to existing production infrastructure, we
limit the incremental capital requirements of new field development.
 Our exploration and production activities outside Brazil are included in our International
business segment. See International.
 Exploration and Production Key Statistics
 2007
    
    
    2006
    
    
    2005(U.S.$ million)Net operating revenues
    
    
    41,991
    
    
    
    35,738
    
    
    
    28,824Income before minority interest and income tax
    
    
    21,599
    
    
    
    18,441
    
    
    
    14,453Total assets at December 31
    
    
    53,175
    
    
    
    38,366
    
    
    
    29,626Capital expenditures
    
    
    9,448
    
    
    
    7,329
    
    
    
    6,127
  26




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##### Table of Contents



Basin
    
    Fields
    
    Petrobras %
    
    Type
    

Fluid (1)Alagoas
    
    Pilar/Rio Remedio
    
    100%
    
    Onshore
    
    Light Oil/Natural GasCamamu
    
    Manati
    
    35%
    
    Shallow
    
    Natural GasCampos
    
    Albacora
    
    100%
    
    Shallow
    
    Intermediate OilDeep
    
    Intermediate OilAlbacora Leste
    
    90%
    
    Deep
    
    Intermediate OilBarracuda
    
    100%
    
    Deep
    
    Intermediate OilBicudo
    
    100%
    
    Shallow
    
    Intermediate OilBijupirá/Salema
    
    22.4%2
    
    Deep
    
    Intermediate OilBonito
    
    100%
    
    Shallow
    
    Intermediate OilCarapeba
    
    100%
    
    Shallow
    
    Intermediate OilCaratinga
    
    100%
    
    Deep
    
    Intermediate OilCherne
    
    100%
    
    Shallow
    
    Intermediate OilCorvina
    
    100%
    
    Shallow
    
    Intermediate OilEnchova
    
    100%
    
    Shallow
    
    Heavy OilEspadarte
    
    100%
    
    Deep
    
    Intermediate OilJubarte
    
    100%
    
    Deep
    
    Heavy OilMarimba
    
    100%
    
    Deep
    
    Intermediate OilMarlim
    
    100%
    
    Deep
    
    Heavy OilMarlim Sul
    
    100%
    
    Deep
    
    Intermediate OilNamorado
    
    100%
    
    Shallow
    
    Intermediate OilPampo
    
    100%
    
    Shallow
    
    Intermediate OilPargo
    
    100%
    
    Shallow
    
    Intermediate OilRoncador
    
    100%
    
    Ultra deep
    
    Intermediate OilVermelho
    
    100%
    
    Shallow
    
    Heavy OilVoador
    
    100%
    
    Deep
    
    Heavy OilEspírito Santo
    
    Fazenda Alegre
    
    100%
    
    Onshore
    
    Heavy OilPeroá
    
    100%
    
    Shallow
    
    Light OilGolfinho
    
    100%
    
    Deep
    
    Intermediate OilUltra deep
    
    Intermediate OilPotiguar
    
    Canto do Amaro/Alto daPedra/Cajazeira
    
    100%
    
    Onshore
    
    IntermediateOil/Natural GasEstreito/Rio Panon
    
    100%
    
    Onshore
    
    Heavy Oil/Natural GasRio Grande do Norte
    
    Jandaia
    
    100%
    
    Onshore
    
    Light OilMiranga
    
    100%
    
    Onshore
    
    Light Oil/Natural GasSantos
    
    Merluza
    
    100%
    
    Shallow
    
    Natural GasSergipe
    
    Carmopolis
    
    100%
    
    Onshore
    
    Intermediate OilSirirízinho
    
    100%
    
    Onshore
    
    Intermediate OilSolimões
    
    Leste do Urucu
    
    100%
    
    Onshore
    
    Light Oil/Natural GasRio Urucu
    
    100%
    
    Onshore
    
    Light Oil/Natural Gas
 
 (1)
    
    Heavy oil = up to 22° API; Intermediate oil = 22° API to 31° API; Light oil = greater than
31° API (2)
    
    Petrobras is not the operator in this field. 2
  27




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##### Table of Contents



Campos Basin
 2 3
  28




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##### Table of Contents



2
 Espírito Santo Basin
 2 2 3
 3 Cidade de Vitória 3
 2
 Santos Basin
 2 3
  
    
    Mexilhão, located in shallow water on Santos Basin Block BS-400, is scheduled to
come on stream in 2010 with initial production of approximately 6.5
mmm3/d (229.5 mmcf/d), potentially increasing to 8.0 mmm3/d
(282.5 mmcf/d) in 2012; and
 
    
    Urugua-Tambau to produce at an initial rate of 3.5 mmm3/d (123.6
mmcf/d) in 2010, potentially increasing to 7.0 mmm3/d (247.2 mmcf/d) of
gas and 30 mbbl/d of light oil in 2012.
 2
 Other Basins
   29




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##### Table of Contents




    
    Piranema field in the Sergipe Basin (FPSO-SSSP 300) with a capacity of 30 mbbl/d;
and
 
    
    Manati field in the Camamu Basin with a capacity of 8 mmm3/d (282.5
mmcf/d) of natural gas.
   Nominal
    
    
    NominalUnit
    
    
    Production
    
    
    Capacity
    
    
    Capacity
    
    
    Water Depth
    
    
    Start UpField
    
    Type
    
    
    Unit
    
    
    (bbl/d)
    
    
    (mcf/d)
    
    
    (meters)
    
    
    (year)
    
    
    NotesEspadarte  Module 2
    
    FPSO
    
    Cidade do Rio de Janeiro
    
    
    100,000
    
    
    
    88,285
    
    
    
    1,350
    
    
    
    2007
    
    
    Chartered from ModecGolfinho  Module 2
    
    FPSO
    
    Cidade de Vitoria
    
    
    100,000
    
    
    
    123,599
    
    
    
    1,360
    
    
    
    2007
    
    
    Chartered from SaipemPiranema
    
    FPSO
    
    Sevan Piranema
    
    
    30,000
    
    
    
    84,754
    
    
    
    1,090
    
    
    
    2007
    
    
    Chartered from Sevan MarineRoncador  Phase II
    
    SS
    
    P-52
    
    
    180,000
    
    
    
    264,855
    
    
    
    1,800
    
    
    
    2007Roncador  Module 2
    
    FPSO
    
    P-54
    
    
    180,000
    
    
    
    211,884
    
    
    
    1,400
    
    
    
    2007Marlim Leste  Module 2
    
    FPSO
    
    Cidade de Niteroi
    
    
    100,000
    
    
    
    123,599
    
    
    
    1,400
    
    
    
    2008
    
    
    Chartered from ModecMarlim Leste
    
    FPU
    

    P-53
    
    
    180,000
    
    
    
    211,884
    
    
    
    1,090
    
    
    
    2008Marlim Sul  Module 2
    
    SS
    
    P-51
    
    
    180,000
    
    
    
    211,884
    
    
    
    1,255
    
    
    
    2008Camarupim
    
    FPSO
    
    Cidade de São Mateus
    
    
    25,000
    
    
    
    353,140
    
    
    
    720
    
    
    
    2008
    
    
    Chartered from ProsafeFrade (1)
    
    FPSO
    
    
    n/a
    
    
    
    100,000
    
    
    
    81,222
    
    
    
    900
    
    
    
    2009Ostra (2)
    
    FPSO
    
    Espírito Santo
    
    
    100,000
    
    
    
    49,440
    
    
    
    1,600
    
    
    
    2009Mexilhão
    
    Fixed Platform
    
    PMXL-1
    
    
    0
    
    
    
    529,710
    
    
    
    172
    
    
    
    2010Urugua-Tambau
    
    FPSO
    
    Cidade de Santos
    
    
    35,000
    
    
    
    353,140
    
    
    
    1,300
    
    
    
    2010
    
    
    Chartered from ModecPiloto de Tupi
    
    
    n/a
    
    
    
    n/a
    
    
    
    100,000
    
    
    
    123,603
    
    
    
    2,200
    
    
    
    2010Cachalote and Baleia Franca
    
    FPSO
    
    Capixaba
    
    
    100,000
    
    
    
    123,599
    
    
    
    n/a
    
    
    
    2010Marlim Sul  Module 3
    
    SS
    

    P-56
    
    
    100,000
    
    
    
    211,884
    
    
    
    n/a
    
    
    
    2011Jubarte  Phase II
    
    FPSO
    
    P-57
    
    
    180,000
    
    
    
    70,628
    
    
    
    1,300
    
    
    
    2011Espadarte  Module 3
    
    
    n/a
    
    
    
    n/a
    
    
    
    100,000
    
    
    
    88,285
    
    
    
    n/a
    
    
    
    2012Roncador  Module 4
    
    FPSO
    
    P-62
    
    
    100,000
    
    
    
    211,884
    
    
    
    n/a
    
    
    
    2012
 
 (1)
    
    Petrobras 30%, Chevron (operator) 51.74%, Frade Japão 18.26%.(2)
    
    Petrobras 35%, Shell (operator) 50%, Oil and Natural Gas Company (ONGC) 15%. Exploration
    30




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##### Table of Contents



DRILLING UNITS IN USE BY EXPLORATION AND PRODUCTION
 On December 312007
    
    
    2006
    
    
    2005Leased
    
    
    Owned
    
    
    Leased
    
    
    Owned
    
    
    Leased
    
    
    OwnedOnshore
    
    
    14
    
    
    
    13
    
    
    
    6
    
    
    
    13
    
    
    
    9
    
    
    
    13Offshore, by Water Depth (WD)
    
    
    27
    
    
    
    8
    
    
    
    24
    
    
    
    9
    
    
    
    24
    
    
    
    10Jack-up Rigs
    
    
    1
    
    
    
    4
    
    
    
    1
    
    
    
    5
    
    
    
    1
    
    
    
    6Floating Rigs:500 to 1000 meter WD
    
    
    6
    
    
    
    2
    
    
    
    4
    
    
    
    2
    
    
    
    2
    
    
    
    21000 to 1500 meters WD
    
    
    10
    
    
    
    1
    
    
    
    10
    
    
    
    1
    
    
    
    11
    
    
    
    11500 to 2000 meters WD
    
    
    7
    
    
    
    1
    
    
    
    7
    
    
    
    1
    
    
    
    6
    
    
    
    12000 to 2500 meters WD
    
    
    2
    
    
    
    0
    
    
    
    1
    
    
    
    0
    
    
    
    1
    
    
    
    02500 to 3000 meters WD
    
    
    1
    
    
    
    0
    
    
    
    1
    
    
    
    0
    
    
    
    3
    
    
    
    0
   Reserves
 3
    31




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##### Table of Contents



Supply
 We are an integrated company with a dominant market share in our home market. Our domestic
refining capacity constitutes 98.4% of Brazils total refining capacity and we supply almost all of
the refined product needs of third-party wholesalers, exporters and petrochemical companies in
addition to the needs of our Distribution segment. We own and operate eleven refineries in Brazil,
with a total net distillation capacity of 1,986 mbbl/d, making us the worlds eighth largest
refiner among publicly traded companies.
 We operate a large and complex infrastructure of pipelines and terminals and a shipping fleet
to transport oil products and crude oil to domestic and export markets. Most of our refineries are
located near our crude oil pipelines, storage facilities, refined product pipelines and major
petrochemical facilities, facilitating access to crude oil supplies and end-users.
 We also import and export crude oil and oil products. We import certain oil products,
particularly diesel, for which Brazilian demand exceeds refining capacity. We expect the need for
imports to decline in the future as we build additional refining capacity and upgrade our
refineries to facilitate the conversion of heavier crudes.
 Our Supply segment also includes petrochemical and fertilizer operations that add value to the
hydrocarbons we produce and provide beneficial inputs to the growing Brazilian economy.
 Supply Key Statistics
 2007
    
    
    2006
    
    
    2005(U.S.$ million)Supply:Net operating revenues
    
    
    69,549
    
    
    
    57,959
    
    
    
    45,515Income before minority interest and income tax
    
    
    4,171
    
    
    
    3,850
    
    
    
    3,429Total assets at December 31
    
    
    31,218
    
    
    
    20,820
    
    
    
    17,432Capital expenditures
    
    
    4,488
    
    
    
    1,936
    
    
    
    1,749
 Refining
   32




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##### Table of Contents



CrudeDistillationCapacity atYear End
    
    
    Average ThroughputName (Alternative name)(1)
    
    Location
    
    2007
    
    
    2007
    
    
    2006
    
    
    2005(mbbl/d)
    
    
    (mbbl/d)LUBNOR
    
    Fortaleza (CE)
    
    
    7
    
    
    
    6
    
    
    
    7
    
    
    
    5RECAP (Capuava)
    
    Capuava (SP)
    
    
    53
    
    
    
    42
    
    
    
    40
    
    
    
    35REDUC (Duque de Caxias)
    
    Rio de Janeiro (RJ)
    
    
    242
    
    
    
    243
    
    
    
    254
    
    
    
    242REFAP (Alberto Pasqualini)
    
    Canoas (RS)
    
    
    189
    
    
    
    148
    
    
    
    114
    
    
    
    116REGAP (Gabriel Passos)
    
    Betim (MG)
    
    
    151
    
    
    
    132
    
    
    
    136
    
    
    
    131REMAN (Isaac Sabbá)
    
    Manaus (AM)
    
    
    46
    
    
    
    41
    
    
    
    36
    
    
    
    35REPAR (Presidente Getúlio Vargas)
    
    Araucária (PR)
    
    
    189
    
    
    
    169
    
    
    
    183
    
    
    
    186REPLAN (Paulínia)
    
    Paulinia (SP)
    
    
    365
    
    
    
    348
    
    
    
    341
    
    
    
    320REVAP (Henrique Lage)
    
    São Jose dos Campos (SP)
    
    
    251
    
    
    
    236
    
    
    
    211
    
    
    
    254RLAM (Landulpho Alves)
    
    Mataripe (BA)
    
    
    323
    
    
    
    261
    
    
    
    261
    
    
    
    249RPBC (Presidente Bernardes)
    
    Cubatão (SP)
    
    
    170
    
    
    
    153
    
    
    
    163
    
    
    
    157Total
    
    
    
    
    1,986
    
    
    
    1,779
    
    
    
    1,746
    
    
    
    1,730
 
 (1)
    
    We have a 100% interest in each of these refineries, with the exception of REFAP, in which we
have a 70% share. o
 
    
    enhance the value of Brazilian crude oil by increasing our capacity to refine
greater quantities of the heavier crude oil that is produced domestically;
 
    
    increase production of oil products that the Brazilian market demands but that we
must currently import, such as diesel;
 
    
    improve gasoline and diesel quality to comply with stricter environmental
regulations currently being implemented; and
 
    
    reduce emissions and pollutant streams.
  Planned investments 2008-2012
    
    (U.S.$ million)Quality (diesel and gasoline)
    
    
    8,064Cokers
    
    
    2,668Expansion and metallurgic adaptation
    
    
    4,089Total
    
    
    14,821
  33




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##### Table of Contents



Major Refinery Projects
  Refinery (Alternative name)
    
    ObjectiveLUBNOR (Lubrificantes e Derivados de Petróleo do Nordeste )
    
    Improve
quality and production of lube oilRECAP (Capuava)
    
    Upgrade diesel
and gasoline qualityREDUC (Duque de Caxias)
    
    Increase heavy oil processing, upgrade
diesel and gasoline quality and install
lube oil unit and cokerREFAP (Alberto Pasqualini)
    
    Upgrade diesel
and gasoline qualityREGAP (Gabriel Passos)
    
    Upgrade diesel
and gasoline qualityREMAN (Isaac Sabbá)
    
    Install mild thermal cracking units to
upgrade the quality of diesel and
gasolineREPAR (Presidente Getúlio Vargas)
    
    Expand refinery, increase heavy oil
processing, upgrade diesel and gasoline
quality, new propylene unitREPLAN (Paulínia)
    
    Expand refinery, increase heavy oil
processing, upgrade diesel and gasoline
quality, new propylene unitREVAP (Henrique Lage)
    
    Increase heavy oil processing, upgrade
diesel and gasoline quality, new
propylene unitRLAM (Landulpho Alves)
    
    Upgrade diesel
and gasoline qualityRPBC (Presidente Bernardes)
    
    Upgrade diesel
and gasoline quality
 Imports and Exports
   34




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005(mbbl/d)Exports(1)Crude Oil
    
    
    353
    
    
    
    335
    
    
    
    263Fuel Oil (including bunker fuel)
    
    
    160
    
    
    
    168
    
    
    
    174Gasoline
    
    
    59
    
    
    
    44
    
    
    
    47Other
    
    
    43
    
    
    
    34
    
    
    
    39Total Exports
    
    
    615
    
    
    
    581
    
    
    
    523ImportsCrude Oil
    
    
    390
    
    
    
    370
    
    
    
    352Diesel and Other Distillates
    
    
    83
    
    
    
    56
    
    
    
    47LPG
    
    
    29
    
    
    
    27
    
    
    
    17Naphtha
    
    
    17
    
    
    
    20
    
    
    
    22Other
    
    
    19
    
    
    
    15
    
    
    
    8Total Imports
    
    
    538
    
    
    
    488
    
    
    
    446
 
 (1)
    
    Includes sales made by PifCo to unaffiliated third parties, including sales of oil and oil
products purchased internationally. Logistics and Infrastructure
    
    
    ten Suezmax ships to be constructed by Atlantico Sul, in Suape, Pernambuco;
    
    five Aframax and four Panamax ships to be constructed by Rio Navalin Rio de Janeiro;
and
    
    four tankers to be constructed by the Mauáshipyard in Niterói.
   35




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##### Table of Contents



In Operation
    
    
    Under Construction000 Tons
    
    
    
    
    
    
    000 TonsDeadweight
    
    
    
    
    
    
    DeadweightNumber
    
    
    Capacity
    
    
    Number
    
    
    CapacityOwned Fleet:Tankers
    
    
    46
    
    
    
    2,721,149
    
    
    
    23
    
    
    
    2,620,450LPG Tankers
    
    
    6
    
    
    
    40,146
    
    
    
    0
    
    
    
    0Anchor Handling Tug Supply (AHTS)
    
    
    1
    
    
    
    1,920
    
    
    
    0
    
    
    
    0Floating, Storage and Offloading (FSO)
    
    
    1
    
    
    
    28,903
    
    
    
    0
    
    
    
    0Layed up vessel
    
    
    1
    
    
    
    143,929
    
    
    
    0
    
    
    
    0Total
    
    
    55
    
    
    
    2,936,047
    
    
    
    23
    
    
    
    2,620,450Chartered Vessels:Tankers
    
    
    87
    
    
    
    8,700,000
    
    
    
    0
    
    
    
    0LPG Tankers
    
    
    12
    
    
    
    300,000
    
    
    
    0
    
    
    
    0Anchor Handling Tug Supply (AHTS)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Floating, Storage and Offloading (FSO)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    99
    
    
    
    9,000,000
    
    
    
    0
    
    
    
    0
   
    
    converting the existing oil products pipeline between Guararema and Guanabara Bay to
transport 2.88 mmm3/y of ethanol by January of 2009, with a plan to expand to 4
mmm3/y by December of 2010;
 
    
    building a new ethanol pipeline from Paulínia to São Sebastião to transport 12.9
mmm3/y of ethanol, primarily for export; and
 
    
    conducting feasibility studies for an additional ethanol pipelinea Southern corridor
with capacity to transport 4 mmm3/y.
 Petrochemicals and Fertilizers
  
    
    expand first and second generation petrochemicals activities and capture synergies that
add value to our refining operations; and
 
    
    develop new petrochemicals technologies based on fluid catalytic cracking (FCC) and
biodegradable polymers and biopolymers.
   36




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##### Table of Contents



Petrochemical Materials
    

Average Annual Production(mmt/y)Companhia Petroquímica do SudesteCPSEthylene
    
    
    1.02Propylene
    
    
    0.32Cumene
    
    
    0.21Polyethylene
    
    
    0.81Polypropylene
    
    
    0.69BraskemEthylene
    
    
    2.48Propylene
    
    
    1.13Polyethylene
    
    
    1.98Polypropylene
    
    
    1.04
   
    
    Complexo Petroquímico do Rio de JaneiroComperj: a 150 mbbl/d petrochemical facility
that will use our innovative proprietary Petrochemical FCC technology to convert Brazilian
heavy crude into basic and intermediate petrochemicals, plastic resins, aromatics, coke,
diesel oil and naphtha. We are in the process of selecting strategic partners and planning
this project with a goal of starting up in 2012;
    
    Petroquímica Paulínia S.A.: a 300,000 t/y polypropylene plant to start up in the first
half of 2008. PPSA is a joint venture with Braskem, which holds 60% share of its share
capital;
    
    Companhia Petroquímica Pernambuco-PetroquímicaSuape: a 640,000 t/y purified terephthalic
acid plant to start up in 2009. PetroquímicaSuape is a joint venture with Companhia
Integrada Têxtil do NordesteCitene, which holds 50% of its share capital.
    
    Companhia Integrada Textil de PernambucoCitepe: a 240,000 t/y of polyester yarn
facility expected to start up 2009. Petroquisa will hold a 40% share in this plant; and
    
    Companhia de Coque Calcinado de PetróleoCoquepar: three calcined petroleum coke plants,
two in Rio de Janeiro and one in Paraná, with a combined capacity of 750,000 t/y. The
first of the three plants is expect to start up in 2011. Coquepar is a joint venture
between Petroquisa (40%), Unimetal (30%) and Brazil Energy (30%).
  
    
    Bahia: 120,000 t/y nitric acid plant to supply Pólo Petroquímico de Camaçari; and
 
    
    South-Central Brazil: facility (UFN-3) to produce 1 million t/y of urea and 760,000
t/y of ammonia from natural gas.
  37




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##### Table of Contents



Distribution
 Our Distribution segment sells oil products that are primarily produced by our Supply
operations and works to expand the domestic market for these and other liquid and transportation
fuels. Our primary goals are to:
 
    
    create value by meeting growing customer needs for fuels, including both traditional
hydrocarbons and biofuels; and
 
    
    sustain and expand our market share by providing superior quality, service and
leadership in the growing biofuels sector.
 We supply and operate Brazils leading service station network, Petrobras Distribuidora
S.A.BR, which accounts for about 34% of the total Brazilian distribution market. 3 BR
distributes oil products, ethanol and biodiesel, and vehicular natural gas to retail, commercial
and industrial customers. In 2007, BR sold the equivalent of 630 mbbl/d of oil products to
wholesale and retail customers, of which the largest portion (39%) was diesel.
 Distribution Key Statistics
 2007
    
    
    2006
    
    
    2005(U.S.$ million)Distribution:Net operating revenues
    
    
    23,320
    
    
    
    18,681
    
    
    
    15,867Income before minority interest and income tax
    
    
    676
    
    
    
    451
    
    
    
    471Total assets at December 31
    
    
    5,652
    
    
    
    3,675
    
    
    
    3,568Capital expenditures
    
    
    327
    
    
    
    351
    
    
    
    207
 Conselho Administrativo de Defesa Econômica,
 4
   
 3
    
    Source: Sindicato Nacional das Empresas Distribuidoras
de Combustíveis Líquidos e LubrificantesSindicom.4
    
    Source: Sindicato Nacional das Empresas Distribuidoras
de Combustíveis Líquidos e LubrificantesSindicom.  38




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##### Table of Contents



5
  2007
    
    
    2006
    
    
    2005(mboe/d)By Product:Diesel, including Biodiesel
    
    
    670
    
    
    
    633
    
    
    
    625Gasoline(1)
    
    
    330
    
    
    
    329
    
    
    
    313Ethanol
    
    
    2
    
    
    
    2
    
    
    
    1Fuel Oil
    
    
    268
    
    
    
    258
    
    
    
    212Naphtha and Jet Fuel
    
    
    223
    
    
    
    225
    
    
    
    217Other, including LPG
    
    
    1,051
    
    
    
    989
    
    
    
    940Total
    
    
    2,544
    
    
    
    2,436
    
    
    
    2,308By Customer:BR Retail Distributors
    
    
    480
    
    
    
    437
    
    
    
    432Other Retail Distributors
    
    
    1,523
    
    
    
    1,501
    
    
    
    1,400Wholesalers
    
    
    541
    
    
    
    498
    
    
    
    476Total
    
    
    2,544
    
    
    
    2,436
    
    
    
    2,308
 
 (1)
    
    Includes Gasoline C, which
may be up to 25% ethanol.  
 Gas and Energy
 For many years, we have been simultaneously developing Brazils natural gas infrastructure and
its natural gas markets. As part of this process, we developed gas sources in Bolivia, the
Bolivia-Brazil gas pipeline, a domestic transportation system and gas-fired electric power
generation capacity. We believe these initiatives contributed to the growth of natural gas use in
Brazil from approximately 3.7% of Brazils primary energy use in 1998 to 10% today and a projected
13.4% by 2010, according to the 2030 National Energy Guidelines published by the Ministry of Mines
and Energy.
 The development plans of our Exploration and Production operations are expected to result in
substantial increases in gas production from the Espírito Santo and Santos Basins off the Brazilian
coast. We are investing in transportation infrastructure to deliver these new volumes to markets
in Northeastern and Southeastern Brazil and improve the flexibility of our distribution system. We
are also improving our commercial operations by creating a new suite of natural gas sales contracts
that better allow us to match supply and demand for gas and electric power.
 
 5
    
    Source: Sindicato Nacional das Empresas Distribuidoras
de Gás Liquefeito de PetróleoSindigás.  39




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##### Table of Contents



Our primary goals for our gas and energy segment are to:
 
    
    develop and consolidate the natural gas business in the Brazilian market, ensuring
flexibility and reliability of supply;
 
    
    create an integrated LNG business focused on meeting the demands of the Southern
Cone market;
 
    
    consolidate and optimize our thermoelectric power plant portfolio; and
 
    
    capitalize on opportunities to generate electricity from natural gas, oil products
and biomass.
 Gas and Energy Key Statistics
 2007
    
    
    2006
    
    
    2005(U.S.$ million)Gas and Energy:Net operating revenues
    
    
    4,912
    
    
    
    4,090
    
    
    
    3,164Income before minority interest and income tax
    
    
    (947
    )
    
    
    (414
    )
    
    
    (512
    )Total assets at December 31
    
    
    15,536
    
    
    
    9,597
    
    
    
    8,167Capital expenditures
    
    
    3,223
    
    
    
    1,664
    
    
    
    694
 Natural Gas
   3 3 3 3
   3
  40




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##### Table of Contents




    
    constructing the 946 km (588 mile) final section of the Southeast Northeast
Interconnection Gas Pipeline (GASENE), completing the link between Malha Sudeste and
Malha Nordeste. We expect to complete this pipeline, which will transport up to 20
mmm3/d (707 mmcf/d) from Cabiunas, the site of the gas processing facility
that handles gas produced from the Campos and other offshore basins, to the city of
Catu in Bahia in 2010 at an estimated cost of U.S.$3.0 billion;
 
    
    adding 1,065 km (662 miles) to the Malha Sudeste system;
 
    
    adding 416 km (259 miles) to the Malha Nordeste system;
 
    
    completing the Urucu  Manaus project with the 383 km (238 mile) Coari  Manaus
pipeline. When the Urucu  Manaus project becomes operational in the second half of
2009, it will supply up to 5.5 mmm3/d (194 mmcf/d) of natural gas from the
Solimões basin to the city of Manaus.
  41




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3
 3
  
  42




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##### Table of Contents



Average Gas Sales inName
    
    State
    
    Group Share %
    
    
    2007 (mmm3/d)
    
    
    CustomersCEG RIO
    
    Rio de Janeiro
    
    
    37.40
    
    
    
    4.33
    
    
    
    19,555BAHIAGAS
    
    Bahia
    
    
    41.50
    
    
    
    3.36
    
    
    
    252GASMIG
    
    Minas Gerais
    
    
    40.00
    
    
    
    1.78
    
    
    
    254BR
    
    Espirito Santo
    
    
    100.00
    
    
    
    1.22
    
    
    
    451
  Gas Sales Contracts and Pricing
  
    
    Firm Inflexible: the distributor assures payment for and we guarantee delivery of
the contracted volume.
 
    
    Firm Flexible: we may interrupt supplies in accordance with negotiated conditions,
in which case we agree to supply a substitute fuel and compensate the end user for
additional costs.
 
    
    Interruptible: we have the right to interrupt supplies in accordance with negotiated
conditions and the distributor is responsible for finding alternative fuels. The
distributor pays a lower price for gas under this type of contract.
 
    
    Preferential: we are obligated to provide natural gas as demanded, but the consumer
has the right to interrupt purchases at any time. We expect this type of contract to
be used predominantly by thermoelectric customers using LNG.
   Type of ContractBolivianLocal Distributor
    
    Imports (1)
    
    
    Firm-Inflexible
    
    
    Firm-Flexible
    
    
    Interruptible
    
    
    Total(mmm3/d)Comgás
    
    
    8.75
    
    
    
    3.50
    
    
    
    1.00
    
    
    
    1.50
    
    
    
    14.75Bahiagás
    
    
    
    
    
    
    3.50
    
    
    
    0.50
    
    
    
    1.10
    
    
    
    5.10PBgás
    
    
    
    
    
    
    0.37
    
    
    
    0.25
    
    
    
    
    
    
    
    0.62Total
    
    
    8.75
    
    
    
    7.37
    
    
    
    1.75
    
    
    
    2.60
    
    
    
    20.47
 
 (1)
    
    Contract signed in 1999.  Commitments and Sales Contracts
  
    
    Gas Supply Agreement (GSA) with the Bolivian state-owned company Yacimientos
Petrolíferos Fiscales Bolivianos (YPFB) to purchase certain minimum volumes of natural
gas at prices linked to the international fuel oil price. We expect to continue to
import the maximum 30 mmm3/d of natural gas
from Bolivia until 2019. In February 2007, we agreed to make additional payments to
YPFB for liquids contained in the natural gas purchased through the GSA, in the amount
of between U.S.$100 million and U.S.$180 million per year. The amendment to the GSA is
still under negotiation, and payment will be retroactive from May 2007;
  43




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##### Table of Contents




    
    Ship-or-Pay agreement with Gás Transboliviano (GTB), owner and operator of the
Bolivian portion of the pipeline to transport certain minimum volumes of natural gas.
This agreement will run until 2019;
 
    
    Ship-or-Pay agreement with Transportadora Brasileira Gasoduto Bolivia-Brasil (TBG),
owner and operator of the Brazilian portion of the pipeline to transport certain
minimum volumes of natural gas. This agreement will run until 2019.
  COMMITMENTS TO PURCHASE AND TRANSPORT NATURAL GAS
 2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012Purchase commitments to YPFBVolume Obligation (mmm3/d) (1)
    
    
    24.00
    
    
    
    24.00
    
    
    
    24.00
    
    
    
    24.00
    
    
    
    24.00Volume Obligation (mmcf/d) (1)
    
    
    850.00
    
    
    
    850.00
    
    
    
    850.00
    
    
    
    850.00
    
    
    
    850.00Brent Crude Oil Projection (U.S.$) (2)
    
    
    55.00
    
    
    
    50.00
    
    
    
    45.00
    
    
    
    35.00
    
    
    
    35.00Estimated Payments (U.S.$ million) (3)
    
    
    1,409.00
    
    
    
    1,094.00
    
    
    
    995.00
    
    
    
    860.00
    
    
    
    784.00Ship-or-Pay contract with GTBVolume Commitment (mmm3/d)
    
    
    30.00
    
    
    
    30.00
    
    
    
    30.00
    
    
    
    30.00
    
    
    
    30.00Volume Commitment (mmcf/d)
    
    
    1,059.00
    
    
    
    1,059.00
    
    
    
    1,059.00
    
    
    
    1,059.00
    
    
    
    1,059.00Estimated Payments (U.S.$ million) (4)
    
    
    58.79
    
    
    
    59.08
    
    
    
    59.37
    
    
    
    59.67
    
    
    
    59.67Ship-or-Pay contract with TBGVolume Commitment (mmm3/d)
    
    
    30.00
    
    
    
    30.00
    
    
    
    30.00
    
    
    
    30.00
    
    
    
    30.00Volume Commitment (mmcf/d)
    
    
    1,059.00
    
    
    
    1,059.00
    
    
    
    1,059.00
    
    
    
    1,059.00
    
    
    
    1,059.00Estimated Payments (U.S.$ million) (4)
    
    
    393.57
    
    
    
    398.21
    
    
    
    401.96
    
    
    
    404.11
    
    
    
    418.00
 
 (1)
    
    25.3% of contracted volume supplied by Petrobras Bolívia.(2)
    
    Brent price forecast based on our 2008-2012 Business Plan.(3)
    
    Current prices. Gas prices may be adjusted in the future based on contract clauses and
actual amounts may vary.(4)
    
    Amounts calculated based on current prices defined in natural gas transport contracts. 3
 NATURAL GAS SALES CONTRACTS
 2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012(mmm3/d)To Local Gas Distribution Companies:Related parties(1)
    
    
    16.36
    
    
    
    17.96
    
    
    
    18.59
    
    
    
    19.14
    
    
    
    19.66Third parties
    
    
    20.76
    
    
    
    21.57
    
    
    
    22.68
    
    
    
    21.26
    
    
    
    20.58To Gas-Fired Power Plants:Related parties(1)
    
    
    6.99
    
    
    
    3.72
    
    
    
    3.72
    
    
    
    3.72
    
    
    
    3.72Third parties
    
    
    2.59
    
    
    
    2.59
    
    
    
    6.99
    
    
    
    6.99
    
    
    
    7.79Total
    
    
    46.69
    
    
    
    45.84
    
    
    
    51.98
    
    
    
    51.11
    
    
    
    51.76Estimated Contract Revenues (U.S.$ billion)(2)(3)
    
    
    4.50
    
    
    
    4.40
    
    
    
    4.90
    
    
    
    4.70
    
    
    
    4.70
 
 (1)
    
    For purposes of this table, related parties include all local gas distribution companies
and power generation plants in which we have an equity interest and third parties refer to
those in which we do not have an equity interest.(2)
    
    Figures show revenues net of taxes. Estimates are based on outside sales and do not include
internal consumption or transfers. Estimated volumes are based on take or pay agreements in
our contracts, expected volumes and contracts under negotiation, not maximum sales.(3)
    
    Prices may be adjusted in the future and actual amounts may vary.  44




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##### Table of Contents



Power
   Electricity Sales
 Standby Availability
   Bilateral Contracts
 Operador Nacional do Sistema ElétricoONS Câmara de Comercialização de Energia ElétricaCCEE
   45




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##### Table of Contents



Increasing Our Commercial Capacity
 Agência Nacional de Energia ElétricaANEEL
  Available
    
    
    Committed
    
    
    CommercialInstalled
    
    
    Petrobras
    
    
    Capacity
    
    
    (ANEEL agreement)
    
    
    CapacityGas-Fired Thermoelectric Plants(1)
    
    Region
    
    capacity
    
    
    share
    
    
    2H 2007
    
    
    2H 2011
    
    
    2H 2011(7)(MW)
    
    
    (%)
    
    
    (MW)
    
    
    (MW)
    
    
    (MW)Euzébio Rocha (Cubatão)
    
    Southeast
    
    
    216.0
    
    
    
    100.00
    
    
    
    
    
    
    
    193.0
    
    
    
    182.4Barbosa Lima Sobrinho
(Eletrobolt)
    
    Southeast
    
    
    394.0
    
    
    
    100.00
    
    
    
    25.5
    
    
    
    325.0
    
    
    
    286.5Aureliano Chaves (Ibirité)
    
    Southeast
    
    
    234.0
    
    
    
    50.00
    (2)
    
    
    
    
    
    
    212.2
    
    
    
    178.9Juiz de Fora (3)
    
    Southeast
    
    
    84.0
    
    
    
    100.00
    
    
    
    
    
    
    
    79.0
    
    
    
    79.0Fernando Gasparian (Nova
Piratininga)
    
    Southeast
    
    
    403.0
    
    
    
    80.00
    (4)
    
    
    
    
    
    
    521.7
    
    
    
    345.4Gov. Leonel Brizola (TermoRio)
    
    Southeast
    
    
    1,036.0
    
    
    
    100.00
    
    
    
    409.3
    
    
    
    998.0
    
    
    
    913.9Mário Lago (Macaé)
    
    Southeast
    
    
    922.0
    
    
    
    100.00
    
    
    
    
    
    
    
    885.3
    
    
    
    653.6Luis Carlos Prestes (Três Lagoas)
    
    Center-west
    
    
    262.0
    
    
    
    100.00
    
    
    
    190.7
    
    
    
    190.7
    
    
    
    184.5Sepé Tiaraju (Canoas)
    
    South
    
    
    161.0
    
    
    
    100.00
    
    
    
    
    
    
    
    153.0
    
    
    
    76.7Rômulo Almeida (Fafen)
    
    Northeast
    
    
    138.0
    
    
    
    100.00
    
    
    
    125.0
    
    
    
    125.0
    
    
    
    115.3Celso Furtado (TermoBahia)
    
    Northeast
    
    
    191.0
    
    
    
    98.85
    (5)
    
    
    96.0
    
    
    
    150.0
    
    
    
    134.6TermoCeará
    
    Northeast
    
    
    222.0
    
    
    
    100.00
    
    
    
    
    
    
    
    217.0
    
    
    
    180.4Jesus Soares Pereira (TermoAçu)
    
    Northeast
    
    
    368.0
    
    
    
    79.50
    (6)
    
    
    
    
    
    
    285.1
    
    
    
    222.3Total
    
    
    
    
    4,631.0
    
    
    
    
    
    
    
    846.5
    
    
    
    4,335.0
    
    
    
    3,553.5
 
 Source: May 2007 agreement with ANEEL.(1)
    
    Table does not include our 10% stake in the Nortefluminense plant, or our 20% stake in the
leased Araucária plant. We do not control sales decisions at these plants.(2)
    
    50.0% share held by Edison SpA.(3)
    
    Acquired in December 2007.(4)
    
    20.0% share held by Empresa Metropolitana de Águas e Energia S.A.EMAE.(5)
    
    1.15% share held by PetrosFundação Petrobras de Seguridade Social.(6)
    
    20.5% share held by Grupo NeoEnergia.(7)
    
    Maximum that can be sold under contracts.  46




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##### Table of Contents



Renewables
        Energy Efficiency
   47




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##### Table of Contents



International
 We have operations in 23 countries outside Brazil that encompass all phases of the energy
business. Our primary goals for our international operations are to:
 
    
    use our technical expertise in deepwater exploration and production to participate
in high-potential and frontier offshore regions;
 
    
    add value to our crude oil produced in Brazil;
 
    
    assure natural gas supplies to the growing Brazilian market by developing reserves;
 
    
    expand integrated operations in refining, sales, commercialization, logistics and
distribution with a focus on the Atlantic basin; and
 
    
    build our brand on an international scale.
 International Key Statistics
 2007
    
    
    2006
    
    
    2005(U.S.$ million)International:Net operating revenues
    
    
    9,101
    
    
    
    6,071
    
    
    
    4,527Income before minority interest and income tax
    
    
    (237
    )
    
    
    571
    
    
    
    853Total assets at December 31
    
    
    11,717
    
    
    
    10,274
    
    
    
    7,347Capital expenditures
    
    
    2,864
    
    
    
    2,637
    
    
    
    1,175
  International Upstream Activities
      48




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2007
    
    
    2006
    
    
    2005Total Capex International Exploration (U.S.$ billion)
    
    
    1.17
    
    
    
    1.26
    
    
    
    0.42Of which:Argentina
    
    
    3.27
    %
    
    
    6.40
    %
    
    
    7.20
    %Bolivia
    
    
    0.01
    %
    
    
    0.60
    %
    
    
    4.40
    %Colombia
    
    
    6.67
    %
    
    
    3.60
    %
    
    
    4.60
    %Peru, Ecuador, Venezuela
    
    
    1.62
    %
    
    
    1.10
    %
    
    
    0.30
    %Subtotal South America
    
    
    11.57
    %
    
    
    11.70
    %
    
    
    16.50
    %West Coast of Africa
    
    
    5.76
    %
    
    
    43.70
    %
    
    
    47.80
    %Gulf of Mexico
    
    
    23.72
    %
    
    
    31.50
    %
    
    
    33.90
    %Drilling rigs and other(1)
    
    
    58.95
    %
    
    
    13.10
    %
    
    
    1.80
    %
 
 (1)
    
    In 2007, 54.90% of the 58.95% relates to investments in drilling rigs. 3
 2007
    
    
    2006
    
    
    2005Total Capex International Development (U.S.$ billion)
    
    
    1.39
    
    
    
    1.04
    
    
    
    0.65Of which:Argentina
    
    
    21.48
    %
    
    
    26.50
    %
    
    
    36.20
    %Bolivia
    
    
    1.60
    %
    
    
    1.30
    %
    
    
    1.70
    %Colombia
    
    
    5.55
    %
    
    
    2.80
    %
    
    
    4.60
    %Peru, Ecuador, Venezuela
    
    
    11.92
    %
    
    
    11.20
    %
    
    
    40.90
    %Subtotal South America
    
    
    40.55
    %
    
    
    41.80
    %
    
    
    83.40
    %West Coast of Africa
    
    
    36.05
    %
    
    
    41.00
    %
    
    
    15.00
    %Gulf of Mexico
    
    
    23.40
    %
    
    
    17.20
    %
    
    
    1.60
    %
 Latin America
  Argentina
 Bolivia
  49




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Colombia
 Ecuador
 Mexico
 Peru
 Venezuela
 North America
  United States 3
   50




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Europe
 Portugal
 Turkey
 Middle East
 Iran
 Africa
  Angola
 Nigeria
 Libya
 Mozambique
  51




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##### Table of Contents



Senegal
 Tanzania
 Equatorial Guinea
 Asia
  India
 Pakistan
 Other International Activities
  PETROBRAS INTERNATIONAL REFINING ASSETS AT DECEMBER 31, 2007
 Crude distillationRegion
    
    Refinery (Group Share %)
    
    Supplied by:
    
    capacityLatin AmericaArgentina (1)
    
    Bahia Blanca (100%)
    
    Oxy, Petroleum, Apco
    
    31 mbbl/dRefinor/Campo Duran (28.5%)
    
    Palmar Largo (AR), Bolivia
    
    26.4 mbbl/dSan Lorenzo (100%)
    
    Total, Chevron
    
    50 mbbl/dNorth AmericaUnited States
    
    Pasadena, TX (50%)
    
    Campos Basin, Brazil
    
    100 mbbl/d
 
 (1)
    
    All Argentine refining operations are held through our 67.2% share in PESA. PETROBRAS INTERNATIONAL PETROCHEMICAL ASSETS AT DECEMBER 31, 2007
 Region
    
    Plant(1)
    
    ProductsLatin AmericaArgentina
    
    Campana
    
    Ammonia, Urea, UANPuerto General San Martin
    
    Styrene and SBRZarate
    
    Polystyrene and BopsBrazil
    
    INNOVA
    
    Ethylbenzene, styrene, polystyrene
 
 (1)
    
    All international petrochemical operations held through our 67.2% share in PESA.  52




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Argentina
  Bolivia
 Colombia
 Chile
 Paraguay
 Uruguay
 United States
 Japan
 
 PifCo
    53




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PifCos Corporate Structure
   
    
    Petrobras Europe Limited (PEL):In May 2001, PifCo established PEL, a wholly owned
subsidiary incorporated and based in the United Kingdom, to consolidate our trade
activities in Europe, the Middle East, the Far East and North Africa. These activities
consist of advising on, and negotiating the terms and conditions for, crude oil and oil
products supplied to PifCo and us, as well as marketing Brazilian crude oil and crude
oil products exported to the geographic areas in which PEL operates. PEL plays an
advisory role in connection with these activities and undertakes no direct or
additional commercial or financial risk. PEL provides these advisory and marketing
services as an independent contractor, pursuant to a services agreement between PEL and
us. In exchange, we compensate PEL for all costs incurred in connection with these
activities, plus a margin.
 
    
    Petrobras Finance Limited (PFL):In December 2001, PifCo established PFL, a wholly
owned subsidiary incorporated and registered in the Cayman Islands. PFL primarily
purchases fuel oil from us and sells the products in the international market in order
to generate export receivables to cover its obligations to transfer these receivables
to a trust under an exports prepayment program. Until June 1, 2006, PFL also purchased
bunker fuel from us. The exports prepayment program helps provide PFL with the funding
necessary to purchase oil products from us, as described below.
 
    
    Bear Insurance Company Limited (BEAR):In January 2003, BEAR was transferred to
PifCo from Brasoil. This transaction took place as part of the restructuring of our
international business segment. BEAR currently serves as an intermediary for us,
advising on and negotiating the terms and conditions of, certain of our insurance
policies.
 
    
    Petrobras Singapore Private Limited (PSPL):In April 2006, PifCo created PSPL, a
company incorporated in Singapore to trade oil and derivatives in connection with our
trading activities in Asia. This company initiated operations on July 1, 2006.
 PifCos Principal Commercial Activities
    54




---



##### Table of Contents



Exports Prepayment Program
      55




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Millions of U.S.$
    
    
    2,205.9
    
    
    
    1,500.1
    
    
    
    1,077.6
    
    
    
    1,306.1
    
    
    
    967.3Millions of Barrels
    
    
    39.6
    
    
    
    67.3
    
    
    
    25.5
    
    
    
    47.5
    
    
    
    38.4
 
 Organizational Structure
   56




---



##### Table of Contents



Property, Plants and Equipment
 Petrobras
   57




---



##### Table of Contents



PifCo
  
 Regulation of the Oil and Gas Industry in Brazil
 Regulatory Framework
       Price Regulation
 Contribuição de Intervenção no Domínio
Econômico
  58




---



##### Table of Contents



Exploration and Development Regulation
  
    
    signature bonuses paid upon the execution of the concession agreement, which are
based on the amount of the winning bid, subject to the minimum signature bonuses
published in the relevant bidding guidelines (edital de licitação);
 
    
    annual retention bonuses for the occupation or retention of areas available for
exploration and production, at a rate established by the ANP in the relevant bidding
guidelines based on the size, location and geological characteristics of the concession
block;
 
    
    special participation charges at a rate ranging from 0 to 40% of the net operating
revenues derived from the production of the field. In 2007, we paid this tax on 20 of
our fields, including Marlim, Albacora, Roncador, Leste do Urucu, Rio Urucu, Canto do
Amaro, Marimbá, Marlim Sul, Namorado, Carapeba, Pampo, Albacora Leste, Barracuda,
Caratinga, Cherne, Fazenda Alegre, Miranga, Carmópolis, Espadarte and Jubarte. Net
revenues are gross revenues less royalties paid, investments in exploration,
operational costs and depreciation adjustments and applicable taxes. The Special
Participation Tax uses as a reference international oil prices converted to reaisat
the current exchange rate; and
 
    
    royalties, typically at 5% and 10% of the value of production, are based on
reference prices for crude oil or natural gas established in the relevant bidding
guidelines and concession contract. In calculating royalty rates, the ANP also takes
into account the geological risks and expected productivity levels for each concession.
Virtually all our crude oil production is currently taxed at the maximum royalty rate.
  Environmental Regulations
 Conselho Nacional do Meio Ambiente
  
    
    fines;
 
    
    partial or total suspension of activities;
 
    
    requirements to fund reclamation and environmental projects;
 
    
    forfeit or restriction of tax incentives or benefits;
 
    
    closing of the establishments or undertakings; and
 
    
    forfeiture or suspension of participation in credit lines with official credit
establishments.
  59




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##### Table of Contents



Health, Safety and Environmental Initiatives
    
    
    PEGASO program to upgrade pipelines and other equipment, implement new technologies,
improve our emergency response readiness, reduce emissions and residues and prevent
environmental accidents. From April 2000 to December 2007, we spent approximately
U.S.$4,648 million under this program, including the Programa de Integridade de Dutos
(Pipeline Integrity Program) through which we conduct inspections of, and improvements
to, our pipelines. In 2007, we spent approximately U.S.$567 million in connection with
the PEGASO program;
 
    
    new HSE policy and corporate guidelines, which focus on principles of sustainable
development, compliance with legislation and environmental performance indicators;
 
    
    ten environmental protection centers and thirteen advanced bases for oil spill
prevention, control and response, local and regional, onshore and offshore oil spill
contingency plans involving public services and communities, three dedicated oil spill
recovery vessels (OSRVs) fully equipped for oil spill control and fire fighting;
 
    
    ISO 14001 (environment) and OHSAS 18001 (health and safety) certification of our
operating units. As of December 2007, Petrobras held 40 certificates for its operating
units in Brazil and units abroad. Because some of those certificates cover more than
one site, the total number of certified sites is 182 in Brazil and 20 abroad. The
Frota Nacional de Petroleiros(National Fleet of Vessels) has been fully certified by
the IMO International Management Code for Safe Operation of Ships and for Pollution
Prevention (ISM Code) since December 1997;
 
    
    regular and active engagement with the Brazilian Ministry of Mines and Energy and
IBAMA, including negotiating new environmental compensation regulations and discussing
environmental issues connected with new gas pipelines, oil and gas production projects
and other aspects of our operations.
 
    
    a new Climate Change strategic program, which aims to implement the highest
standards in the energy industry regarding greenhouse gas management. By reducing the
environmental impact of our operations, we will contribute to our sustainability and
mitigate global climate change.
  60




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##### Table of Contents



Insurance
    
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
 
 Managements Discussion and Analysis of Petrobras Financial Condition and Results of Operations
  
 Overview
  
    
    domestic sales, which consist of sales of oil products (such as diesel oil,
gasoline, jet fuel, naphtha, fuel oil and liquefied petroleum gas), natural gas,
ethanol, electricity and petrochemical products;
  61




---



##### Table of Contents




    
    export sales, which consist primarily of sales of crude oil and oil products;
 
    
    international sales (excluding export sales), which consist of sales of crude oil,
natural gas and oil products that are purchased, produced and refined abroad; and
 
    
    other sources, including services, investment income and foreign exchange gains.
  
    
    costs of sales (which are composed of labor expenses, operating costs and purchases
of crude oil and oil products); maintaining and repairing property, plant and
equipment; depreciation and amortization of fixed assets; depletion of oil fields; and
exploration costs;
 
    
    selling (which include expenses for transportation and distribution of our
products), general and administrative expenses; and
 
    
    interest expense, monetary and foreign exchange losses.
  
    
    the volume of crude oil, oil products and natural gas we produce and sell;
 
    
    changes in international prices of crude oil and oil products, which are denominated
in U.S. dollars;
 
    
    related changes in the domestic prices of crude oil and oil products, which are
denominated in reais;
 
    
    fluctuations in the real/U.S. dollar and Argentine peso/U.S. dollar exchange rates;
and
 
    
    the amount of production taxes that we are required to pay with respect to our
operations.
 
 Sales Volumes and Prices
      62




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##### Table of Contents



For the Year Ended December 31,2007
    
    
    2006
    
    
    2005Net
    
    
    Net
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    
    
    
    
    Net
    
    
    NetAverage
    
    
    Operating
    
    
    
    
    
    
    Average
    
    
    Operating
    
    
    
    
    
    
    Average
    
    
    OperatingVolume
    
    
    Price
    
    
    Revenues
    
    
    Volume
    
    
    Price
    
    
    Revenues
    
    
    Volume
    
    
    Price
    
    
    Revenues(mbbl,
    
    
    
    
    
    
    
    
    
    
    (mbbl,
    
    
    
    
    
    
    
    
    
    
    (mbbl,except as
    
    
    
    
    
    
    
    
    
    
    except as
    
    
    
    
    
    
    
    
    
    
    except asotherwise
    
    
    (U.S.$)
    
    
    (U.S.$
    
    
    otherwise
    
    
    (U.S.$)
    
    
    (U.S.$
    
    
    otherwise
    
    
    (U.S.$)
    
    
    (U.S.$noted)
    
    
    (1)
    
    
    million)
    
    
    noted)
    
    
    (1)
    
    
    million)
    
    
    noted)
    
    
    (1)
    
    
    million)Energy products:Automotive gasoline
    
    
    109,654
    
    
    
    83.73
    
    
    
    9,181
    
    
    
    112,541
    
    
    
    73.86
    
    
    
    8,312
    
    
    
    104,901
    
    
    
    60.08
    
    
    
    6,302Diesel
    
    
    257,304
    
    
    
    96.42
    
    
    
    24,809
    
    
    
    245,159
    
    
    
    83.65
    
    
    
    20,507
    
    
    
    242,831
    
    
    
    68.20
    
    
    
    16,561Ethanol
    
    
    62
    
    
    
    80.65
    
    
    
    5
    
    
    
    59
    
    
    
    67.80
    
    
    
    4
    
    
    
    126
    
    
    
    23.79
    
    
    
    3Fuel oil (including bunker fuel)
    
    
    38,647
    
    
    
    55.89
    
    
    
    2,160
    
    
    
    36,340
    
    
    
    47.47
    
    
    
    1,725
    
    
    
    36,243
    
    
    
    40.81
    
    
    
    1,479Liquefied petroleum gas
    
    
    75,326
    
    
    
    40.36
    
    
    
    3,040
    
    
    
    73,382
    
    
    
    36.00
    
    
    
    2,642
    
    
    
    77,891
    
    
    
    34.55
    
    
    
    2,691Total energy products
    
    
    480,993
    
    
    
    
    
    
    
    39,195
    
    
    
    467,481
    
    
    
    
    
    
    
    33,190
    
    
    
    461,992
    
    
    
    
    
    
    
    27,036Non-energy products:Petrochemical naphtha
    
    
    60,609
    
    
    
    73.92
    
    
    
    4,480
    
    
    
    60,197
    
    
    
    63.31
    
    
    
    3,811
    
    
    
    57,281
    
    
    
    53.49
    
    
    
    3,064Others
    
    
    100,920
    
    
    
    84.91
    
    
    
    8,569
    
    
    
    96,369
    
    
    
    63.09
    
    
    
    6,080
    
    
    
    80,953
    
    
    
    58.36
    
    
    
    4,724Total non-energy products
    
    
    161,529
    
    
    
    
    
    
    
    13,049
    
    
    
    156,566
    
    
    
    
    
    
    
    9,891
    
    
    
    138,234
    
    
    
    
    
    
    
    7,788Natural gas (boe)
    
    
    90,520
    
    
    
    31.27
    
    
    
    2,831
    
    
    
    88,839
    
    
    
    26.27
    
    
    
    2,334
    
    
    
    83,090
    
    
    
    21.77
    
    
    
    1,809Sub-total
    
    
    733,042
    
    
    
    
    
    
    
    55,075
    
    
    
    712,886
    
    
    
    63.71
    
    
    
    45,415
    
    
    
    683,316
    
    
    
    53.61
    
    
    
    36,633Distribution net sales
    
    
    229,941
    
    
    
    99.56
    
    
    
    22,894
    
    
    
    204,649
    
    
    
    91.46
    
    
    
    18,718
    
    
    
    201,347
    
    
    
    78.53
    
    
    
    15,811Intercompany net sales
    
    
    (220,208
    )
    
    
    78.29
    
    
    
    (17,241
    )
    
    
    (195,903
    )
    
    
    69.89
    
    
    
    (13,692
    )
    
    
    (187,268
    )
    
    
    62.22
    
    
    
    (11,651
    )Total domestic market
    
    
    742,775
    
    
    
    81.76
    
    
    
    60,728
    
    
    
    721,632
    
    
    
    69.90
    
    
    
    50,441
    
    
    
    697,395
    
    
    
    58.49
    
    
    
    40,793Export net sales
    
    
    225,570
    
    
    
    73.20
    
    
    
    16,512
    
    
    
    259,630
    
    
    
    55.39
    
    
    
    14,381
    
    
    
    187,008
    
    
    
    47.80
    
    
    
    8,938International net sales
    
    
    134,949
    
    
    
    35.12
    
    
    
    4,739
    
    
    
    73,363
    
    
    
    62.72
    
    
    
    4,601
    
    
    
    64,860
    
    
    
    48.41
    
    
    
    3,140Others
    
    
    78,941
    
    
    
    65.67
    
    
    
    5,184
    
    
    
    50,098
    
    
    
    47.87
    
    
    
    2,398
    
    
    
    75,770
    
    
    
    40.09
    
    
    
    3,038Sub-total
    
    
    439,460
    
    
    
    60.15
    
    
    
    26,435
    
    
    
    383,091
    
    
    
    55.81
    
    
    
    21,380
    
    
    
    327,638
    
    
    
    46.14
    
    
    
    15,116Services
    
    
    
    
    
    
    
    
    
    
    572
    
    
    
    
    
    
    
    
    
    
    
    526
    
    
    
    
    
    
    
    
    
    
    
    415Consolidated net sales
    
    
    1,182,235
    
    
    
    
    
    
    
    87,735
    
    
    
    1,104,723
    
    
    
    
    
    
    
    72,347
    
    
    
    1,025,033
    
    
    
    
    
    
    
    56,324
 
 (1)
    
    Net average price calculated by dividing net sales by the volume for the year. 
 Effect of Taxes on Our Income
 Imposto sobre Circulação de Mercadorias e Serviços
  
 Inflation and Exchange Rate Variation
 Inflation
 real
  63




---



##### Table of Contents



Exchange Rate Variation
 real real
 reais reais real real reais real
 real
 reais real real
 real
  64




---



##### Table of Contents



Results of Operations
 real
 2007
    
    
    2006
    
    
    2005Crude Oil and NGL Production (mbbl/d):Brazil
    
    
    1,792
    
    
    
    1,778
    
    
    
    1,684International
    
    
    112
    
    
    
    130
    
    
    
    163Non-consolidated international production(1)
    
    
    14
    
    
    
    12
    
    
    
    Total Crude Oil and NGL Production
    
    
    1,918
    
    
    
    1,920
    
    
    
    1,847Change in Crude Oil and NGL Production
    
    
    -0.1
    %
    
    
    4.0
    %
    
    
    11.2
    %Average
Sales Price for Crude (U.S.$/barrel):Brazil
    
    
    61.57
    
    
    
    54.71
    
    
    
    45.42International
    
    
    50.46
    
    
    
    44.02
    
    
    
    34.91Natural Gas Production (mmcf/d):Brazil
    
    
    1,638
    
    
    
    1,660
    
    
    
    1,644International
    
    
    648
    
    
    
    595
    
    
    
    576Non-consolidated international production(1)
    
    
    12
    
    
    
    12
    
    
    
    Total Natural Gas Production
    
    
    2,298
    
    
    
    2,267
    
    
    
    2,220Change in Natural Gas Production (sold only)
    
    
    1.4
    %
    
    
    2.2
    %
    
    
    3.1
    %Average Sales Price for Natural Gas (U.S.$/mcf):Brazil
    
    
    5.86
    
    
    
    2.61
    
    
    
    2.17International
    
    
    2.68
    
    
    
    2.16
    
    
    
    1.64Year-end Exchange Rate (Reais/U.S.$)
    
    
    1.77
    
    
    
    2.14
    
    
    
    2.34Appreciation (Depreciation) during the year(2)
    
    
    17.2
    %
    
    
    8.7
    %
    
    
    11.8
    %Average Exchange Rate for the year (Reais/U.S.$)
    
    
    1.95
    
    
    
    2.18
    
    
    
    2.44Appreciation (Depreciation) during the year(3)
    
    
    10.5
    %
    
    
    10.7
    %
    
    
    16.8
    %Inflation Rate (IPCA)
    
    
    4.5
    %
    
    
    3.1
    %
    
    
    5.7
    %
 
 (1)
    
    Non-consolidated companies in Venezuela.(2)
    
    Based on year-end exchange rate.(3)
    
    Based on average exchange rate for the year. 
 Results of Operations2007 compared to 2006
 eais eal eal eal eal
  Revenues
    65




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##### Table of Contents




    
    Value-added taxes, social security contributions payable on sales and financial
revenues called PASEP and COFINS, and other taxes on sales and services and social
security contributions. These taxes increased 15.4% to U.S.$20,668 million for 2007,
compared to U.S.$17,906 million for 2006, primarily due to higher prices and sales
volumes; and
 
    
    CIDE, the per-transaction fee due to the Brazilian government, increased 10.5% to
U.S.$4,022 million for 2007, compared to U.S.$3,640 million for 2006, primarily due to
higher prices and sales volumes.
 Cost of Sales (Excluding Depreciation, Depletion and Amortization)
  
    
    a U.S.$2,472 million increase in the cost of imports due to higher volumes and
prices;
 
    
    a U.S.$2,443 million increase in costs associated with a 10.7% increase in our
international market prices, including costs related to Pasadena Refinery;
 
    
    a U.S.$1,567 million increase in costs associated with a 10.7% increase in our
international market sales volumes, including costs related to Pasadena Refinery;
 
    
    a U.S.$505 million increase in costs for our international trading activities, due
to increases in volume from offshore operations conducted by PifCo; and
 
    
    a U.S.$249 million increase in production taxes and charges imposed by the Brazilian
government totaling U.S.$7,692 million for 2007, compared to U.S.$7,443 million for
2006. This increase in production taxes and charges includes a special participation
charge (an extraordinary charge payable in the event of high production and/or
profitability from our fields) of U.S.$3,933 million for 2007, compared to U.S.$3,885
million for 2006.
 Depreciation, Depletion and Amortization
  Exploration (Including Exploratory Dry Holes)
  Impairment of Oil and Gas Properties
  Selling, General and Administrative Expenses
   66




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##### Table of Contents




    
    approximately U.S.$182 million in higher transportation costs due mainly to
increased exports; and
 
    
    approximately U.S.$75 million in higher personnel expenses.
  
    
    approximately U.S.$309 million in increased personnel expenses; and
 
    
    approximately U.S.$229 million in additional technical consulting services due to
increased outsourcing of selected non-core general activities.
 Research and Development Expenses
  Other Operating Expenses
   
    
    U.S.$498 million expense related to changes in Petros Pension Plan regulations;
 
    
    U.S.$235 million expense related to the implementation of our new salary plan;
 
    
    U.S.$211 million expense for losses resulting from legal proceedings and
contingencies related to pending lawsuits;
 
    
    U.S.$244 million expense for health, safety and environment (HSE);
 
    
    U.S.$649 million expense for institutional relations and cultural projects;
 
    
    U.S.$65 million expense for unscheduled stoppages of plant and equipment; and
 
    
    U.S.$176 million expense for idle capacity from thermoelectric power plants.
  
    
    U.S.$568 million expense for institutional relations and cultural projects;
 
    
    U.S.$238 million expense for idle capacity from thermoelectric power plants;
 
    
    U.S.$133 million expense for HSE;
 
    
    U.S.$75 million expense for losses resulting from legal proceedings and
contingencies related to pending lawsuits;
 
    
    U.S.$64 million expense for unscheduled stoppages of plant and equipment; and
 
    
    U.S.$32 million gain related to recovery of exploration expenses in Nigeria.
 Equity in Results of Non-Consolidated Companies
   67




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##### Table of Contents



Financial Income
   Financial Expenses
  Monetary and Exchange Variation on Monetary Assets and Liabilities, Net
  Employee Benefit Expense for Non-Active Participants
  Other Taxes
  Other Expenses, Net
  Income Tax (Expense) Benefit
   68




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##### Table of Contents



Net Income by Business Segment
  Year ended December 31,2007
    
    
    2006(U.S.$ million)Exploration and Production
    
    
    14,072
    
    
    
    11,942Supply
    
    
    2,785
    
    
    
    2,533Distribution
    
    
    446
    
    
    
    298Gas and Energy
    
    
    (834
    )
    
    
    (505
    )International
    
    
    (815
    )
    
    
    123Corporate
    
    
    (1,796
    )
    
    
    (1,436
    )Eliminations
    
    
    (720
    )
    
    
    (129
    )Net income
    
    
    13,138
    
    
    
    12,826
 Exploration and Production
     
    
    an increase of U.S.$1,492 million in cost of sales as a result of higher lifting
costs and production taxes when expressed in U.S. dollars, as well as slightly
increased production;
 
    
    an increase of U.S.$1,169 million in depreciation, depletion and amortization
primarily as result of increased capital expenditures, depletion expenses associated
with our increased crude oil and natural gas production; and
 
    
    an increase of U.S.$214 million in other operating expenses, mainly attributable to
a one-time charge of U.S.$104 million related to amendments in Petros Plan regulations.
 Supply
   reais real
  69




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##### Table of Contents




    
    an increase of U.S.$10,069 million in the cost of sales, mainly attributable to a
rise in the cost and volume of domestic and imported crude oil and an increase in the
cost and volume of imported oil products, primarily diesel. Higher refining costs also
contributed to the increased cost of sales;
 
    
    a 47.1% increase of U.S.$640 million in selling, general and administrative expenses
as a result of higher selling expenses, due to increased sales volumes and increased
personnel expenses;
 
    
    a 61.0% increase of U.S.$408 million in depreciation, depletion and amortization
primarily as result of higher capital expenditures to upgrade and modernize our
refineries; and
 
    
    an increase of U.S.$179 million in other operating expenses, mainly attributable to
a one-time charge of U.S.$61 million related to amendments in Petros Plan regulations
and a U.S.$69 million expense related to HSE.
 Distribution
    Gas and Energy
   
    
    a U.S.$890 million increase in cost of sales, primarily due to higher natural gas
costs; and
 
    
    an increase of U.S.$257 million in other operating expenses, mainly attributable to
a U.S.$240 million expense related to the payment of contractual fines related to gas
and electricity supply.
  International
  
    
    higher cost of sales in the amount of U.S.$2,954 million, primarily as a result of: (1)
the consolidation of the Pasadena refinery acquired in 2006; and (2) increased lifting
cost, primarily in Argentina;
 
    
    an increase of U.S.$342 million in exploration and drilling expenses, mainly in Turkey,
Angola, Iran, Argentina, Libya, and Venezuela;
 
    
    an increase of U.S.$225 million in impairment expenses, mainly in Ecuador, the United
States and Angola;
 
    
    an increase of U.S.$151 million in selling, general and administrative expenses, due to
increased operations by our foreign subsidiaries, corporate acquisitions and the formation
of new companies; and
 
    
    an increase of U.S.$150 million in depreciation, depletion and amortization primarily as
result of an increase in capital expenditures related to property, plant and equipment
associated with our crude oil and natural gas production.
  70




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
    
    an increase of U.S.$3,030 million in net operating revenues as a result of the
consolidation of the Pasadena refinery and an increase in petrochemical business revenues
in Argentina, partially offset by the exclusion of revenues from Venezuelan operations from
our consolidated results.
 Corporate
   
    
    a 38.2% increase in selling, general and administrative expenses, in the amount of
U.S.$436 million, mainly due to personnel expenses due to staffing for our planned
growth as well as increased activity in 2007, a new salary plan to make our salaries
more competitive with the Brazilian labor market and the renewal of a collective
bargaining agreement; and
 
    
    a one-time charge of U.S.$305 million included in other operating expenses related
to the amendments in Petros Pension Plan regulations.
  
 Results of Operations2006 compared to 2005
 eal eal
 reais
  Revenues
    
    
    Value-added, PASEP, COFINS and other taxes on sales and services and social security
contributions. These taxes increased 21.9% to U.S.$17,906 million for 2006, compared
to U.S.$14,694 million for 2005, primarily due to higher prices and sales volumes; and
 
    
    CIDE, the per-transaction fee, increased 19.5% to U.S.$3,640 million for 2006,
compared to U.S.$3,047 million for 2005, primarily due to higher sales volumes.
  71




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Cost of Sales (Excluding Depreciation, Depletion and Amortization)
  
    
    a U.S.$3,376 million increase in the cost of imports due to higher prices and
volumes;
 
    
    a U.S.$2,588 million increase in costs associated with a 19.4% increase in our
international market sales volumes;
 
    
    a U.S.$2,033 million increase in production taxes and charges imposed by the
Brazilian government totaling U.S.$7,443 million for 2006, compared to U.S.$5,410
million for 2005. This increase was due to higher international oil prices, a new
interpretation by the ANP prohibiting the deductibility of charges associated with
project financing for the Marlim field, and an increase in the special participation
charge (an extraordinary charge payable in the event of high production and/or
profitability from our fields) of U.S.$3,885 million for 2006, compared to U.S.$3,016
million for 2005, as a result of higher international oil prices and an increase of
U.S.$249 million due to the new interpretation by the ANP mentioned above;
 
    
    a U.S.$187 million expense related to gas produced and re-injected in reserves in
the Solimões, Campos and Espírito Santo basins; and
 
    
    a U.S.$156 million increase in PifCos international trading costs due to higher
volumes and prices from offshore operations.
 Depreciation, Depletion and Amortization
  Exploration (Including Exploratory Dry Holes)
  Impairment of Oil and Gas Properties
  Selling, General and Administrative Expenses
   
    
    approximately U.S.$43 million in higher material consumption costs;
 
    
    approximately U.S.$23 million in higher personnel expenses; and
 
    
    approximately U.S.$13 million in higher transportation costs.
  72




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##### Table of Contents



Research and Development Expenses
  
    
    a provision for investments in the amount of approximately U.S.$249 million related
to ANP regulations; and
 
    
    U.S.$31 million in environmental safety investments, including deepwater and
refining technologies.
 Other Operating Expenses
   
    
    U.S.$568 million expense for institutional relations and cultural projects;
 
    
    U.S.$133 million expense for HSE;
 
    
    U.S.$238 million expense for idle capacity from thermoelectric power plants;
 
    
    U.S.$75 million expense for losses resulting from legal proceedings and
contingencies related to pending lawsuits;
 
    
    U.S.$64 million expense for unscheduled stoppages of plant and equipment; and
 
    
    U.S.$32 million gain related to recovery of exploratory expenses in Nigeria.
  
    
    U.S.$457 million expense for idle capacity, penalties and contingencies related to
thermoelectric power plants;
 
    
    U.S.$397 million expense for institutional relations and cultural projects;
 
    
    U.S.$255 million loss related to the exchange of assets between us and Repsol that
occurred in 2001. See Note 10(b) to our audited consolidated financial statements for
the year ended December 31, 2006;
 
    
    U.S.$139 million expense for losses resulting from legal proceedings and
contingencies related to pending lawsuits;
 
    
    U.S.$64 million expense for unscheduled stoppages of plant and equipment; and
 
    
    U.S.$61 million expense related to contractual losses from compliance with our ship
or pay commitments with respect to our investments in the OCP pipeline in Ecuador.
 Equity in Results of Non-Consolidated Companies
   73




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Financial Income
   Financial Expenses
  Monetary and Exchange Variation on Monetary Assets and Liabilities, Net
 real real
 Employee Benefit Expense for Non-Active Participants
  Other Taxes
  
    
    U.S.$54 million in higher PASEP/COFINS tax related to the increase in financial
income;
 
    
    U.S.$49 million in higher CPMF, a tax payable in connection with certain bank
account transactions;
 
    
    U.S.$48 million in higher taxes related to the increase in operations with SPEs,
mainly with Companhia Locadora de Equipamentos PetrolíferosCLEP, Nova Transportadora
do SudesteNTS and Nova Transportadora do NordesteNTN; and
 
    
    U.S.$12 million in higher taxes in Colombia and Bolivia related to foreign
remittance accounts and dividends.
 Other Expenses, Net
   74




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##### Table of Contents



Income Tax (Expense) Benefit
  Extraordinary Gain, Net of Taxes
  Net Income by Business Segment
  Year ended December 31,2006
    
    
    2005(U.S.$ million)Exploration and Production
    
    
    11,942
    
    
    
    9,469Supply
    
    
    2,533
    
    
    
    2,245Distribution
    
    
    298
    
    
    
    311Gas and Energy
    
    
    (505
    )
    
    
    (342
    )International
    
    
    123
    
    
    
    526Corporate
    
    
    (1,436
    )
    
    
    (1,390
    )Eliminations
    
    
    (129
    )
    
    
    (475
    )Net income
    
    
    12,826
    
    
    
    10,344
 Exploration and Production
   
    
    U.S.$2,328 million in increased cost of sales as a result of higher production costs
and higher production taxes due to increased special governmental participation;
 
    
    a U.S.$595 million increase in depreciation, depletion and amortization as result of
higher capital expenditures; and
 
    
    U.S.$193 million in increased research and development expenses due primarily to ANP
regulations.
 Supply
   75




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##### Table of Contents




    
    U.S.$11,779 million increase in the cost of sales, mainly attributable to a rise
in the cost of the acquisition and transfer of oil and oil products caused by higher
international prices and a 9.4% increase in imports of oil and oil products; and
 
    
    U.S.$164 million increase in selling, general and administrative expenses as a
result of higher sales volumes and increased personnel expenses.
 Distribution
  
    
    U.S.$2,861 million increase in costs and expenses, primarily as result of a
U.S.$2,610 million increase in cost of sales, and higher commercial and distribution
expenses.
  
    
    U.S.$2,814 million increase in net operating revenues, resulting primarily from
higher average prices for oil products.
 Gas and Energy
   
    
    U.S.$1,140 million increase in cost of sales, primarily due to higher natural gas
costs and a 6.6% increase in natural gas sales volumes; and
 
    
    U.S.$56 million increase in research and development expenses due primarily to ANP
regulations.
  International
  
    
    U.S.$1,663 million increase in cost of sales, primarily due to higher production
costs in Bolivia, higher volumes of commercial electricity in Argentina, and an
increase in the volumes of Bolivian gas sold to Brazil and Argentina;
 
    
    U.S.$284 million increase in prospecting and drilling expenses due to write-offs of
exploratory costs due to dry holes identified during 2006 (U.S.$145 million in the U.S.
and U.S.$29 million in Bolivia), and higher seismic expenses, primarily in the U.S.;
and
 
    
    U.S.$117 million increase in selling, general and administrative expenses as a
result of a collective agreement in Argentina and the inclusion of costs associated
with corporate acquisitions in Uruguay, Paraguay, Colombia and the U.S.
  Corporate
   76




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##### Table of Contents




    
    U.S.$378 million increase in expenses related to derivatives instruments;
 
    
    U.S.$115 million increase in selling, general and administrative expenses, mainly
due to higher personnel expenses; and
 
    
    an extraordinary gain, net of taxes in the amount of U.S.$158 million due to the
Escalators Liquidation Agreement entered into on December 29, 2005, and effective as
from January 1, 2006, related to a contingent purchase price adjustment on the exchange
of assets between us and Repsol that occurred in 2001.
   77




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##### Table of Contents



Additional Business Segment Information
  For the Year Ended December 31,2007
    
    
    2006
    
    
    2005(U.S.$ million)Exploration and ProductionNet revenues to third parties (1)(2)
    
    
    2,455
    
    
    
    3,351
    
    
    
    1,874Intersegment net revenues
    
    
    39,536
    
    
    
    32,387
    
    
    
    26,950Total net operating revenues (2)
    
    
    41,991
    
    
    
    35,738
    
    
    
    28,824Depreciation, depletion and amortization
    
    
    (3,335
    )
    
    
    (2,166
    )
    
    
    (1,571
    )Net income (3)
    
    
    14,072
    
    
    
    11,942
    
    
    
    9,469Capital expenditures
    
    
    9,448
    
    
    
    7,329
    
    
    
    6,127Property, plant and equipment, net
    
    
    48,529
    
    
    
    33,979
    
    
    
    25,876SupplyNet revenues to third parties (1)(2)
    
    
    50,531
    
    
    
    42,831
    
    
    
    33,229Intersegment net revenues
    
    
    19,018
    
    
    
    15,128
    
    
    
    12,286Total net operating revenues(2)
    
    
    69,549
    
    
    
    57,959
    
    
    
    45,515Depreciation, depletion and amortization
    
    
    (1,077
    )
    
    
    (669
    )
    
    
    (644
    )Net income (3)
    
    
    2,785
    
    
    
    2,533
    
    
    
    2,245Capital expenditures
    
    
    4,488
    
    
    
    1,936
    
    
    
    1,749Property, plant and equipment, net
    
    
    14,480
    
    
    
    9,828
    
    
    
    8,098DistributionNet revenues to third parties (1)
    
    
    22,944
    
    
    
    18,394
    
    
    
    15,642Intersegment net revenues
    
    
    376
    
    
    
    287
    
    
    
    225Total net operating revenues
    
    
    23,320
    
    
    
    18,681
    
    
    
    15,867Depreciation, depletion and amortization
    
    
    (155
    )
    
    
    (143
    )
    
    
    (100
    )Net income (3)
    
    
    446
    
    
    
    298
    
    
    
    311Capital expenditures
    
    
    327
    
    
    
    351
    
    
    
    207Property, plant and equipment, net
    
    
    1,838
    
    
    
    1,468
    
    
    
    1,238Gas and EnergyNet revenues to third parties (1)
    
    
    3,673
    
    
    
    2,833
    
    
    
    1,932Intersegment net revenues
    
    
    1,239
    
    
    
    1,257
    
    
    
    1,232Total net operating revenues
    
    
    4,912
    
    
    
    4,090
    
    
    
    3,164Depreciation, depletion and amortization
    
    
    (259
    )
    
    
    (197
    )
    
    
    (105
    )Net loss (3)
    
    
    (834
    )
    
    
    (505
    )
    
    
    (342
    )Capital expenditures
    
    
    3,223
    
    
    
    1,664
    
    
    
    694Property, plant and equipment, net
    
    
    10,615
    
    
    
    6,828
    
    
    
    5,328InternationalNet revenues to third parties (1)
    
    
    8,132
    
    
    
    4,938
    
    
    
    3,647Intersegment net revenues
    
    
    969
    
    
    
    1,133
    
    
    
    880Total net operating revenues
    
    
    9,101
    
    
    
    6,071
    
    
    
    4,527Depreciation, depletion and amortization
    
    
    (567
    )
    
    
    (417
    )
    
    
    (461
    )Net income (3)
    
    
    (815
    )
    
    
    123
    
    
    
    526Capital expenditures
    
    
    2,864
    
    
    
    2,637
    
    
    
    1,175Property, plant and equipment, net
    
    
    7,596
    
    
    
    5,722
    
    
    
    4,655
 
 (1)
    
    As a vertically integrated company, not all of our segments have significant third-party
revenues. For example, our exploration and production segment accounts for a large part of our
economic activity and capital expenditures, but has little third party revenues.(2)
    
    Revenues from commercialization of oil to third parties are classified in accordance with the
points of sale, which could be either the Exploration and Production or Supply segments.(3)
    
    In order to align the financial statements of each business segment with the best practices
of companies in the oil and gas sector and to improve our managements understanding, since
the first quarter of 2006 we have switched to allocating all financial results and items of a
financial nature to the corporate level, including prior years.  78




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##### Table of Contents



Managements Discussion and Analysis of PifCos Financial Condition and Results of Operations
 
 Overview
  
    
    our financial condition and results of operations;
 
    
    the extent to which we continue to use PifCos services for market purchases of
crude oil and oil products;
 
    
    our willingness to continue to make loans to PifCo and provide PifCo with other
types of financial support;
 
    
    PifCos ability to access financing sources, including the international capital
markets and third-party credit facilities; and
 
    
    PifCos ability to transfer our financing costs to us.
  
    
    sales of crude oil and oil products to us;
 
    
    limited sales of crude oil and oil products to third parties; and
 
    
    the financing of sales to us, inter-company loans to us and investments in
marketable securities and other financial instruments.
  
    
    cost of sales, which is comprised mainly of purchases of crude oil and oil products;
 
    
    selling, general and administrative expenses; and
 
    
    financial expense, mainly from interest on its lines of credit and capital markets
indebtedness, sales of future receivables and inter-company loans from us.
 
 Purchases and Sales of Crude Oil and Oil Products
  
 Results of Operations2007 compared to 2006
 Net Income (Loss)
  Sales of Crude Oil and Oil Products and Services
   79




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##### Table of Contents



Cost of Sales
  Selling, General and Administrative Expenses
  Financial Income
  Financial Expense
  
 Results of Operations2006 compared to 2005
 Net Loss
  Sales of Crude Oil and Oil Products and Services
  Cost of Sales
  Selling, General and Administrative Expenses
   80




---



##### Table of Contents



Financial Income
  Financial Expense
  
 Liquidity and Capital Resources
 
 Petrobras
 Overview
  Financing Strategy
   81




---



##### Table of Contents



Government Regulation
 Plano de Dispêndio Global
   Sources of Funds
 Our Cash Flow
      Short-Term Debt
   82




---



##### Table of Contents



Long-Term Debt
   Notes
    
    Principal amountPifCos 9.875% Notes due 2008
    
    U.S.$
    
    450 millionPifCos 9.750% Notes due 2011
    
    U.S.$
    
    600 millionPifCos 12.375% Global Step-up Notes due 2008
    
    U.S.$
    
    400 millionPifCos 9.125% Global Notes due 2013
    
    U.S.$
    
    750 millionPifCos 8.375% Global Notes due 2018
    
    U.S.$
    
    750 millionPifCos 3.748% Senior Trust Certificates due 2013 (1)
    
    U.S.$
    
    200 millionPifCos 6.436% Senior Trust Certificates due 2015 (1)
    
    U.S.$
    
    550 millionPifCos 7.75% Global Notes due 2014
    
    U.S.$
    
    600 millionPifCos 6.125% Global Notes due 2016
    
    U.S.$
    
    899 millionPifCos 2.15% Japanese Yen Bonds due 2016
    
    U.S.$
    
    313 millionPEPSAs 9.00% Notes due 2009
    
    U.S.$
    
    181 millionPEPSAs 8.13% Notes due 2010
    
    U.S.$
    
    349 millionPEPSAs 5.93% Notes due 2011
    
    U.S.$
    
    87 millionPEPSAs 9.38% Notes due 2013
    
    U.S.$
    
    200 millionPEPSAs 6.66% Notes due 2017 (2)
    
    U.S.$
    
    300 millionPifCos 5.875% Global Notes due 2018 (3)
    
    U.S.$
    
    1,000 million
 
 Unless otherwise noted, all debt is issued by PifCo, with support from us through a standby
purchase agreement.(1)
    
    Issued in connection with our export prepayment program. Unless otherwise noted, all debt is
issued by PifCo with support from us through a standby purchase agreement.(2)
    
    Issued by PESA, with support from us through a standby purchase agreement.(3)
    
    Issued by PifCo, with support from us through a standby purchase agreement. Interest will be
paid on March 1 and September 1 of each year, with the first payout due March 1, 2008. These
notes were reopened in an amount of U.S.$750 million in January 2008. Project Financing
     83




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##### Table of Contents



Amount Due(U.S.$ million)2009
    
    
    2,2362010
    
    
    1,2422011
    
    
    1012012
    
    
    1492013
    
    
    4482014 and thereafter
    
    
    4104,586
 
 PifCo
 Overview
  Sources of Funds
 PifCos Cash Flow
  PifCos Accounts Receivable
  PifCos Short-Term Borrowings
   84




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##### Table of Contents



PifCos Long-Term Borrowings
    Principal outstandingPifCo old Notes
    
    Interest rate
    
    
    Maturity
    
    
    after Exchange
    
    
    Total amount tendered(U.S.$ million)Global Step-Up Notes
    
    
    12.375
    %
    
    
    2008
    
    
    
    126.9
    
    
    
    7.8Senior Notes
    
    
    9.875
    %
    
    
    2008
    
    
    
    224.2
    
    
    
    14.0Senior Notes
    
    
    9.750
    %
    
    
    2011
    
    
    
    235.4
    
    
    
    51.0Global Notes
    
    
    9.125
    %
    
    
    2013
    
    
    
    374.2
    
    
    
    124.1Global Notes
    
    
    7.750
    %
    
    
    2014
    
    
    
    397.9
    
    
    
    202.21,358.6
    
    
    
    399.1
 Principal outstandingPifCo new Notes
    
    Interest rate
    
    
    Maturity
    
    
    after Exchange
    
    

Total amount tendered(U.S.$ million)Global Notes
    
    
    6.125
    %
    
    
    2016
    
    
    
    899.1
    
    
    
    399.1899.1
    
    
    
    399.1
   
    
    U.S.$224.2 million in Senior Notes due 2008 (current portion) and U.S.$235.4 million
in Senior Notes due 2011. The notes bear interest at the rate of 9.875% and 9.75%,
respectively;
 
    
    U.S.$126.9 million (current portion) in Global Step-up Notes due April 2008 that
bear interest at a rate of 12.375% per year from April 1, 2006, with interest payable
semi-annually;
  85




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##### Table of Contents




    
    U.S.$398.4 million (U.S.$66.0 million current portion) in connection with our
exports prepayment program and related to the following outstanding Series: U.S.$550
million in 6.436% Senior Trust Certificates due 2015 and U.S.$200 million in 3.748%
Senior Trust Certificates due 2013;
 
    
    U.S.$3,200.2 million in Global Notes, consisting of U.S.$374 million of Global Notes
due July 2013 that bear interest at the rate of 9.125% per year; U.S.$577 million of
Global Notes due December 2018 that bear interest at the rate of 8.375% per year;
U.S.$398 million of Global Notes due 2014 that bear interest at the rate of 7.75% per
year; U.S.$899 million of Global Notes due October 2016 that bear interest at the rate
of 6.125% per year; U.S.$1 billion of Global Notes due March 2018 that bear interest at
the rate of 5.875% per year. Interest on these notes is paid semi-annually and the
proceeds were used for general corporate purposes, including the financing of the
purchase of oil product imports and the repayment of existing trade-related debt and
inter-company loans; and
 
    
    U.S.$312.8 million (¥35 billion) in Japanese Yen Bonds issued in September 2006 and
due September 2016. The issue was a private placement in the Japanese market with a
partial guarantee from the Japan Bank for International Cooperation (JBIC) and its main
purposes were to tap the Japanese market, access a new investor base and achieve a
competitive cost. The bonds bear interest at the rate of 2.15% per year, payable
semi-annually. On the same date, PifCo entered into a swap agreement with Citibank,
swapping the total amount of this debt to a U.S. dollar-denominated debt.
   December 31, 2007
    
    
    December 31, 2006Current
    
    
    Long-term
    
    
    Current
    
    
    Long-term(U.S.$ million)Financing institutions
    
    
    311.5
    
    
    
    1,040.0
    
    
    
    329.2
    
    
    
    1,041.2Senior notes
    
    
    238.5
    
    
    
    235.4
    
    
    
    533.9
    
    
    
    524.6Global step-up notes
    
    
    130.8
    
    
    
    
    
    
    
    4.2
    
    
    
    134.6Sale of right to future receivables
    
    
    69.0
    
    
    
    548.4
    
    
    
    68.4
    
    
    
    614.4Assets related to export
prepayment to be offset against
sales of rights to future
receivables
    
    
    
    
    
    
    (150.0
    )
    
    
    
    
    
    
    (150.0
    )Global notes
    
    
    37.3
    
    
    
    3,200.2
    
    
    
    32.7
    
    
    
    2,181.4Japanese yen bonds
    
    
    1.7
    
    
    
    312.8
    
    
    
    1.7
    
    
    
    293.9Senior exchangeable notes
    
    
    
    
    
    
    
    
    
    
    333.7
    
    
    
    Total Debt
    
    
    788.8
    
    
    
    5,186.8
    
    
    
    1,303.8
    
    
    
    4,640.1
 Extinguished securities
  Off Balance Sheet Arrangements
   86




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##### Table of Contents



Uses of Funds
 Capital Expenditures
   For the Year Ended December 312007
    
    
    2006
    
    
    2005(U.S.$ million)Exploration and Production
    
    
    9,448
    
    
    
    7,329
    
    
    
    6,127Supply
    
    
    4,488
    
    
    
    1,936
    
    
    
    1,749Distribution
    
    
    327
    
    
    
    351
    
    
    
    207Gas and Energy
    
    
    3,223
    
    
    
    1,664
    
    
    
    694InternationalExploration and Production
    
    
    2,555
    
    
    
    2,304
    
    
    
    1,067Supply
    
    
    247
    
    
    
    202
    
    
    
    79Distribution
    
    
    37
    
    
    
    77
    
    
    
    16Gas and Energy
    
    
    25
    
    
    
    54
    
    
    
    13Corporate
    
    
    628
    
    
    
    726
    
    
    
    413Total
    
    
    20,978
    
    
    
    14,643
    
    
    
    10,365
     Dividends
    87




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##### Table of Contents



Contractual obligations
 
 Petrobras
  Payments Due by PeriodTotal
    
    
    < 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    > 5 years(U.S.$ million)Contractual ObligationsBalance Sheet Items:Long-Term Debt Obligations
    
    
    13,421
    
    
    
    1,273
    
    
    
    3,452
    
    
    
    2,898
    
    
    
    5,798Pension Fund Obligations (1)
    
    
    23,591
    
    
    
    1,135
    
    
    
    2,605
    
    
    
    3,114
    
    
    
    16,737Project Financings Obligations
    
    
    6,278
    
    
    
    1,692
    
    
    
    3,478
    
    
    
    250
    
    
    
    858Capital (Finance) Lease obligations
    
    
    738
    
    
    
    227
    
    
    
    414
    
    
    
    97
    
    
    
    Total Balance Sheet Items
    
    
    44,028
    
    
    
    4,327
    
    
    
    9,949
    
    
    
    6,359
    
    
    
    23,393Other Long-Term Contractual CommitmentsNatural Gas Ship-or-Pay
    
    
    5,545
    
    
    
    452
    
    
    
    919
    
    
    
    928
    
    
    
    3,246Contract Service
    
    
    23,713
    
    
    
    10,094
    
    
    
    10,446
    
    
    
    2,193
    
    
    
    980Natural Gas Supply Agreements
    
    
    6,754
    
    
    
    660
    
    
    
    1,119
    
    
    
    1,106
    
    
    
    3,869Operating Lease
    
    
    15,063
    
    
    
    4,271
    
    
    
    6,589
    
    
    
    3,081
    
    
    
    1,122Purchase Commitments
    
    
    2,055
    
    
    
    732
    
    
    
    887
    
    
    
    436
    
    
    
    International Purchase Commitments
    
    
    4,021
    
    
    
    704
    
    
    
    933
    
    
    
    783
    
    
    
    1,601Total Other Long-Term Commitments
    
    
    57,151
    
    
    
    16,913
    
    
    
    20,893
    
    
    
    8,527
    
    
    
    10,818Total
    
    
    101,179
    
    
    
    21,240
    
    
    
    30,842
    
    
    
    14,886
    
    
    
    34,211
 
 (1)
    
    There are plan assets in the amount of U.S.$18,549 million that guarantee the pension plan
obligations. These assets are presented as a reduction to the net actuarial liabilities. See
Note 16 to our audited consolidated financial statements for the year ended December 31, 2007. 
 PifCo
  Payments Due by PeriodTotal
    
    
    < 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    > 5 years(U.S.$ million)Contractual ObligationsLong-term debt
    
    
    5,891.7
    
    
    
    704.9
    
    
    
    593.9
    
    
    
    555.4
    
    
    
    4,037.5Purchase obligationsLong-term
    
    
    5,261.9
    
    
    
    2,213.3
    
    
    
    1,708.9
    
    
    
    441.1
    
    
    
    898.6Total
    
    
    11,153.6
    
    
    
    2,918.2
    
    
    
    2,302.8
    
    
    
    996.5
    
    
    
    4,936.1
 
 Critical Accounting Policies and Estimates
   88




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Oil and Gas Reserves
    Impact of Oil and Gas Reserves on Depreciation and Depletion
  Impact of Oil and Gas Reserves and Prices on Testing for Impairment
   89




---



##### Table of Contents



Pension and Other Post-Retirement Benefits
         90




---



##### Table of Contents



Litigation, Tax Assessments and Other Contingencies
  Asset Retirement Obligations and Environmental Remediation
   Derivative transactions
   91




---



##### Table of Contents



Impact of New Accounting Standards
 Brazilian GAAP adopts IFRS principles
  SFAS No. 157
  FSP 157-1
  FSP 157-2
  SFAS No. 159
   92




---



##### Table of Contents



SFAS No. 141-R
  SFAS No. 160
  FIN 48
 " "
 
 Research and Development
   93




---



##### Table of Contents



Trends
  6
    
 Item 6. Directors, Senior Management and Employees
 
 Directors and Senior Management
 Directors of Petrobras
   
 6
    
    Source: IEA World Energy Outlook 2007  94




---



##### Table of Contents



95




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##### Table of Contents



Name
    
    Date of Birth
    
    Position
    
    Current Term Expires
    
    Business AddressDilma Vana Rousseff (1)
    
    Dec. 14, 1947
    
    Chair
    
    April 2009
    
    Casa Civil  Praça dos Três Poderes
Palácio do Planalto  4o andar  sala 57
Brasília  DF
Cep 70.150-900Silas Rondeau Cavalcanti Silva (1)
    
    Dec. 15, 1952
    
    Member
    
    April 2009
    
    Avenida República do Chile, no. 65
24o andar
Rio de Janeiro  RJ
Cep 20.031-912Guido Mantega (1)
    
    Apr. 7, 1949
    
    Member
    
    April 2009
    
    Ministério da Fazenda
Esplanada dos Ministérios Bloco P
5o andar
Brasília  DF
Cep 70.048-900J.S. Gabrielli de Azevedo (1)
    
    Oct. 3, 1949
    
    Member
    
    April 2009
    
    Avenida República do Chile, no. 65
23o andar
Rio de Janeiro  RJ
Cep 20.031-912Francisco Roberto de Albuquerque (1)
    
    May 17, 1937
    
    Member
    
    April 2009
    
    Alameda Carolina, 594
ItúSão Paulo
Cep 13.306-410Arthur Antonio Sendas (1)
    
    Jun. 16, 1935
    
    Member
    
    April 2009
    
    Rodovia Presidente Dutra, 4.674
São João de Meriti  RJ
Cep 25.565-350Fabio Colletti Barbosa (2)
    
    Oct. 3, 1954
    
    Member
    
    April 2009
    
    Av. Paulista, 1.374  3o andar
Cerqueira César
São Paulo  SP
Cep 01310-916Jorge Gerdau Johannpeter (3)
    
    Dec. 8, 1936
    
    Member
    
    April 2009
    
    Av. Farrapos, 1.811
Porto Alegre  RS
Cep 90.220-005Luciano Galvão Coutinho (1)
    
    Sep. 29, 1946
    
    Member
    
    April 2009
    
    Av. República do Chile, no. 100
19o andar
Rio de Janeiro  RJ
Cep 20.031-917
 
 (1)
    
    Appointed by the controlling shareholder.(2)
    
    Appointed by the minority common shareholders.(3)
    
    Appointed by the minority preferred shareholders. Dilma Vana Rousseff
 Silas Rondeau Cavalcante Silva
 Guido Mantega Conselho de Desenvolvimento Econômico e SocialCDES
  96




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##### Table of Contents



J.S. Gabrielli de Azevedo
 Francisco Roberto de Albuquerque
 Arthur Antonio Sendas 
 Fabio Colletti Barbosa Federação Brasileira de
BancosFEBRABAN
 Jorge Gerdau Johannpeter Conselho de Desenvolvimento Econômico e SocialCDES .
 Luciano Coutinho 
  97




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##### Table of Contents



Directors of PifCo
   Name
    
    Date of Birth
    
    Position
    
    Year of AppointmentDaniel Lima de Oliveira
    
    December 29, 1951
    
    Chairman
    
    2005Marcos Antonio Silva Menezes
    
    March 24, 1952
    
    Director
    
    2003Nilo Carvalho Vieira Filho
    
    October 26, 1954
    
    Director
    
    2004
 Daniel Lima de Oliveira
 Marcos Antonio Silva Menezes Instituto Brasileiro de Petróleo e GásIBP Organização Nacional das
Indústras de PetróleoONIP
 Nilo Carvalho Vieira Filho
 Executive Officers of Petrobras
   98




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##### Table of Contents



Name
    
    Date of Birth
    
    Position
    
    Current TermJ.S. Gabrielli de Azevedo
    
    October 3, 1949
    
    President and Chief Executive Officer
    
    April 2011Almir Guilherme Barbassa
    
    May 19, 1947
    
    Chief Financial Officer and Investor Relations Officer
    
    April 2011Renato de Souza Duque
    
    September 29, 1955
    
    Service Officer
    
    April 2011Guilherme de Oliveira Estrella
    
    April 18, 1942
    
    Exploration and Production Officer
    
    April 2011Paulo Roberto Costa
    
    January 1, 1954
    
    Downstream Officer
    
    April 2011María das Graças Silva Foster
    
    August 26, 1953
    
    Gas and Energy Officer
    
    April 2011Jorge Luiz Zelada
    
    January 20, 1957
    
    International Officer
    
    April 2011
 J. S. Gabrielli de Azevedo
 Almir Guilherme Barbassa
 Renato de Souza Duque
 Guilherme de Oliveira Estrella Instituto Brasileiro de Petróleo e
Gás
 Paulo Roberto Costa
 Maria
das Graças Silva Foster
 Jorge Luiz Zelada
 Executive Officers of PifCo
   99




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##### Table of Contents



Name
    
    Date of Birth
    
    Position
    
    Year of AppointmentDaniel Lima de Oliveira
    
    December 29, 1951
    
    Chairman
    
    2005Guilherme Pontes Galvão França
    
    January 18, 1959
    
    Commercial Manager
    
    2005Sérvio Túlio da Rosa Tinoco
    
    June 21, 1955
    
    Financial Manager
    
    2005Mariângela Monteiro Tizatto
    
    August 9, 1960
    
    Accounting Manager
    
    1998Nilton Antônio de Almeida Maia
    
    June 21, 1957
    
    Legal Manager
    
    2000Gérson Luiz Gonçalves
    
    September 29, 1953
    
    Auditor Manager
    
    2000Ana Claudia Medeiros Borges
    
    December 27, 1967
    
    Secretary
    
    2006
 Daniel Lima de Oliveira
 Guilherme Pontes Galvão França
 Sérvio Túlio da Rosa Tinoco
 Mariângela Monteiro Tizatto Associação Brasileira das Companhias Abertas ABRASCA
 Nilton Antônio de Almeida Maia
 Gerson Luiz Gonçalves
 Ana Claudia Medeiros Borges
 
 Compensation
 Petrobras
     100




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##### Table of Contents



PifCo
  
 Share Ownership
 Petrobras
  PifCo
  
 Fiscal Council
 conselho fiscal)
  Year of FirstName
    
    AppointmentMarcus Pereira Aucélio
    
    
    2005César Acosta Rech
    
    
    2008Túlio Luiz Zamin
    
    
    2003Nelson Rocha Augusto
    
    
    2003Maria Lúcia de Oliveira Falcón
    
    
    2003
  101




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##### Table of Contents



Year of FirstName
    
    AppointmentEduardo Coutinho Guerra
    
    
    2005Ricardo de Paula Monteiro
    
    
    2008Edson Freitas de Oliveira
    
    
    2002Maria Auxiliadora Alves da Silva
    
    
    2003Celso Barreto Neto
    
    
    2002
 
 Petrobras Audit Committee
     
 Other Advisory Committees
 Comitê de Remuneração e
Sucessão Comitê de Meio Ambiente Comissão de Governança
Corporativa Comitê de Gestão da Petrobras
 
 Petrobras Ombudsman
  
 PifCo Advisory Committees
   102




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##### Table of Contents



Employees and Labor Relations
    As of December 31,2007
    
    
    2006
    
    
    2005Petrobras Employees:Parent Company
    
    
    50,207
    
    
    
    47,955
    
    
    
    40,541Subsidiaries
    
    
    11,941
    
    
    
    7,454
    
    
    
    7,197Abroad
    
    
    6,783
    
    
    
    6,857
    
    
    
    6,166Total Petrobras Group
    
    
    68,931
    
    
    
    62,266
    
    
    
    53,904Parent Company by Level:Mid-Level
    
    
    33,114
    
    
    
    32,265
    
    
    
    28,070Upper-Level
    
    
    16,234
    
    
    
    14,809
    
    
    
    11,561Maritime Employees
    
    
    859
    
    
    
    881
    
    
    
    910Total Parent Company
    
    
    50,207
    
    
    
    47,955
    
    
    
    40,541Parent Company by Region:Southeastern Brazil
    
    
    34,910
    
    
    
    33,057
    
    
    
    27,493Northeastern Brazil
    
    
    12,243
    
    
    
    11,978
    
    
    
    10,610Other locations
    
    
    3,054
    
    
    
    2,920
    
    
    
    2,438Total Parent Company
    
    
    50,207
    
    
    
    47,955
    
    
    
    40,541
  2007
    
    
    2006
    
    
    2005(U.S.$ million)Salaries
    
    
    3,625.7
    
    
    
    2,736.5
    
    
    
    2,129.9Employee training
    
    
    198.4
    
    
    
    151.1
    
    
    
    128.1Profit sharing distributions
    
    
    519.7
    
    
    
    550.3
    
    
    
    413.0
 Índice Nacional de Preços ao Consumidor Amplo
 Pension and Health Care Plan
   103




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##### Table of Contents



2007
    
    
    2006
    
    
    2005(U.S.$ million)Total benefits paid
    
    
    835
    
    
    
    713
    
    
    
    570Total contributions
    
    
    282
    
    
    
    187
    
    
    
    155Petros liabilities (1)
    
    
    5,042
    
    
    
    4,843
    
    
    
    3,833
 
 (1)
    
    The excess of the actuarial value of our obligation to provide future benefits over the fair
value of the plan assets used to satisfy that obligation. See Note 16 to our audited
consolidated financial statements for the year ended December 31, 2007.       PifCo
   104




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##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions
 
 Major Shareholders
 Petrobras
     Shareholder
    
    Common Shares
    
    
    %
    
    
    Preferred Shares
    
    
    %
    
    
    Total Shares
    
    
    %Brazilian government
    
    
    2,826,516,456
    
    
    
    55.7
    
    
    
    
    
    
    
    
    
    
    
    2,826,516,456
    
    
    
    32.2BNDES Participações S.A.BNDESPar
    
    
    94,492,328
    
    
    
    1.9
    
    
    
    574,047,334
    
    
    
    15.5
    
    
    
    668,539,662
    
    
    
    7.6Other Brazilian public sector entities
    
    
    3,446,968
    
    
    
    0.1
    
    
    
    1,513,488
    
    
    
    0.04
    
    
    
    4,960,456
    
    
    
    0.1All
directors and executiveofficers
as a Group (15 persons)
    
    
    19,802
    
    
    
    
    
    
    
    56,144
    
    
    
    
    
    
    
    75,946
    
    
    
    Others
    
    
    2,148,871,790
    
    
    
    42.3
    
    
    
    3,125,112,430
    
    
    
    84.5
    
    
    
    5,273,984,220
    
    
    
    60.1Total
    
    
    5,073,347,344
    
    
    
    100.0
    
    
    
    3,700,729,396
    
    
    
    100.0
    
    
    
    8,774,076,740
    
    
    
    100.0
  PifCo
  
 Petrobras Related Party Transactions
 Board of Directors
   105




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##### Table of Contents



Brazilian government and Petros
       
 PifCo Related Party Transactions
    106




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##### Table of Contents



December 31, 2007
    
    
    December 31, 2006Assets
    
    
    Liabilities
    
    
    Assets
    
    
    Liabilities(U.S.$ million)AssetsCurrent:Accounts receivable
    
    
    15,211.9
    
    
    
    
    
    
    
    10,658.9
    
    
    
    Notes receivable (1)
    
    
    9,673.3
    
    
    
    
    
    
    
    6,114.7
    
    
    
    Marketable securities
    
    
    407.6
    
    
    
    
    
    
    
    627.3
    
    
    
    Exports prepayment
    
    
    72.5
    
    
    
    
    
    
    
    67.8
    
    
    
    Others
    
    
    1.5
    
    
    
    
    
    
    
    1.5
    
    
    
    Other non current:Marketable securities
    
    
    3,568.1
    
    
    
    
    
    
    
    1,151.6
    
    
    
    Notes receivable
    
    
    279.6
    
    
    
    
    
    
    
    239.7
    
    
    
    Exports prepayment
    
    
    710.9
    
    
    
    
    
    
    
    464.4
    
    
    
    LiabilitiesCurrent:Trade accounts payable
    
    
    
    
    
    
    1,686.5
    
    
    
    
    
    
    
    1,142.9Notes
payable (1)
    
    
    
    
    
    
    23,977.7
    
    
    
    
    
    
    
    5,386.8Unearned income
    
    
    
    
    
    
    326.3
    
    
    
    
    
    
    
    248.7Longterm liabilities:Notes payable (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,441.7Total
    
    
    29,925.4
    
    
    
    25,990.5
    
    
    
    19,325.9
    
    
    
    14,220.1Current
    
    
    25,366.8
    
    
    
    25,990.5
    
    
    
    17,470.2
    
    
    
    6,778.4Longterm
    
    
    4,558.6
    
    
    
    
    
    
    
    1,855.7
    
    
    
    7,441.7
 
 (1)
    
    PifCos notes receivable from and payable to us for the majority of the loans bear interest
at LIBOR plus 3.0% per year.  107




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##### Table of Contents



Year ended December 31,2007
    
    
    2006
    
    
    2005Income
    
    
    Expense
    
    
    Income
    
    
    Expense
    
    
    Income
    
    
    Expense(U.S.$ million)Sales of crude oil and oil products and
servicesPetrobras
    
    
    12,230.7
    
    
    
    
    
    
    
    9,729.9
    
    
    
    
    
    
    
    7,025.7
    
    
    
    REFAP S.A.
    
    
    1,744.6
    
    
    
    
    
    
    
    1,484.1
    
    
    
    
    
    
    
    1,405.1
    
    
    
    Petrobras America, Inc.PAI
    
    
    390.8
    
    
    
    
    
    
    
    2,967.8
    
    
    
    
    
    
    
    5,487.9
    
    
    
    BR Distribuidora
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    PESA
    
    
    139.8
    
    
    
    
    
    
    
    47.4
    
    
    
    
    
    
    
    49.5
    
    
    
    Petrobras Bolívia
    
    
    
    
    
    
    
    
    
    
    5.8
    
    
    
    
    
    
    
    4.4
    
    
    
    Petrobras Paraguay Distribución
    
    
    13.4
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    PRSI Trading
    
    
    159.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cost of salesPetrobras
    
    
    
    
    
    
    (6,873.2
    )
    
    
    
    
    
    
    (6,044.3
    )
    
    
    
    
    
    
    (5,931.6
    )Petrobras America, Inc.PAI
    
    
    
    
    
    
    (13.6
    )
    
    
    
    
    
    
    (227.2
    )
    
    
    
    
    
    
    (459.4
    )Companhia MEGA S.A.
    
    
    
    
    
    
    (487.2
    )
    
    
    
    
    
    
    (505.8
    )
    
    
    
    
    
    
    (367.5
    )PESA
    
    
    
    
    
    
    (343.3
    )
    
    
    
    
    
    
    (257.5
    )
    
    
    
    
    
    
    (187.8
    )PIB B.V.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.1
    )
    
    
    
    
    
    
    (152.0
    )PEBIS
    
    
    
    
    
    
    (61.0
    )
    
    
    
    
    
    
    (226.0
    )
    
    
    
    
    
    
    (164.3
    )REFAP
    
    
    
    
    
    
    (622.8
    )
    
    
    
    
    
    
    (206.1
    )
    
    
    
    
    
    
    (109.9
    )Ecuadortlc S.A.
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    (252.6
    )
    
    
    
    
    
    
    (211.8
    )Petrobras Colombia
    
    
    
    
    
    
    (347.0
    )
    
    
    
    
    
    
    (271.5
    )
    
    
    
    
    
    
    (196.0
    )Others
    
    
    
    
    
    
    (129.0
    )
    
    
    
    
    
    
    (116.9
    )
    
    
    
    
    
    
    Selling, general and administrative expensePetrobras
    
    
    
    
    
    
    (166.4
    )
    
    
    
    
    
    
    (176.4
    )
    
    
    
    
    
    
    (158.0
    )Others
    
    
    
    
    
    
    (16.0
    )
    
    
    
    
    
    
    (13.3
    )
    
    
    
    
    
    
    (0.1
    )Financial incomePetrobras
    
    
    997.4
    
    
    
    
    
    
    
    623.8
    
    
    
    
    
    
    
    580.9
    
    
    
    REFAP S.A.
    
    
    15.8
    
    
    
    
    
    
    
    28.3
    
    
    
    
    
    
    
    24.2
    
    
    
    Braspetro
Oil CompanyBOC
    
    
    6.7
    
    
    
    
    
    
    
    4.9
    
    
    
    
    
    
    
    15.6
    
    
    
    Braspetro Oil Services CompanyBrasoil
    
    
    3.2
    
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    11.5
    
    
    
    PIB B.V.
    
    
    390.5
    
    
    
    
    
    
    
    161.7
    
    
    
    
    
    
    
    82.8
    
    
    
    PNBV
    
    
    193.6
    
    
    
    
    
    
    
    118.3
    
    
    
    
    
    
    
    29.9
    
    
    
    Agri
Development B.V.AGRI B.V.
    
    
    74.1
    
    
    
    
    
    
    
    56.1
    
    
    
    
    
    
    
    17.1Others
    
    
    18.0
    
    
    
    
    
    
    
    3.8
    
    
    
    
    
    
    
    3.5
    
    
    
    Financial expensePetrobras
    
    
    
    
    
    
    (1,588.2
    )
    
    
    
    
    
    
    (722.4
    )
    
    
    
    
    
    
    (409.5
    )Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Total
    
    
    16,378.7
    
    
    
    (10,645.4
    )
    
    
    15,235.7
    
    
    
    (9,034.1
    )
    
    
    14,739.9
    
    
    
    (8,348.2
    )
 
 Item 8. Financial Information
 
 Petrobras Consolidated Statements and Other Financial Information
  
 PifCo Consolidated Statements and Other Financial Information
   108




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##### Table of Contents



Legal Proceedings
 Petrobras
 (1)
 As of December 31,2007
    
    
    2006(U.S.$ million)Labor claims
    
    
    58
    
    
    
    38Tax claims
    
    
    149
    
    
    
    47Civil claims
    
    
    155
    
    
    
    97Commercial claims and other contingencies
    
    
    20
    
    
    
    51Total
    
    
    382
    
    
    
    233
 
 (1)
    
    Excludes provisions for contractual contingencies and tax assessments by the Instituto
Nacional do Seguro Social, or INSS.   Civil Claims
 Programa Nacional de Desestatização
    109




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##### Table of Contents



ação popular
 agravos de instrumento Superior Tribunal
de Justiça
 Tax Claims
  auto de infração
  Environmental Claims
   110




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##### Table of Contents



January 2000 spillGuanabara Bay
  July 2000 spillCuritiba
  
    
    IBAMA fined us R$168 million, which we are contesting;
 
    
    three public civil actions (ações civis públicas) have been filed against us, the
most important of which was filed on January 1, 2001, by the Federal Public Ministry
and the Paraná State Public Ministry seeking damages of approximately R$2,300 million.
We are in the process of settling these claims; and
 
    
    the Federal Public Ministry instituted a criminal action against us, our former
president and our former superintendent of the REPAR refinery. This action has been
suspended.
 February 2001 spillRivers in the State of Paraná
  
    
    the Instituto Ambiental do Paraná, or IAP, fined us approximately R$150 million,
which was subsequently reduced to R$90 million, which we are contesting; and
 
    
    the Federal Public Ministry and the Paraná State Public Ministry filed public civil
actions against us seeking approximately R$3.7 billion in damages. In addition, the
IAP filed a class action against us seeking damages of approximately R$150 million.
Both legal proceedings have been suspended.
 March 2001 gas explosion and spillRoncador field
 P-36
 
    
    the Federal Public Ministry filed a lawsuit in 2002 seeking the payment of R$100
million as environmental damages, among other demands. We have presented our defense to
these claims and are awaiting a decision; and
 
    
    IBAMA fined us approximately R$7 million. We are contesting these fines through
administrative proceedings. One of these proceedings has ended and the fine (in the
amount of R$2 million) has been upheld by IBAMA. We obtained an injunction and are
awaiting a final decision.
  111




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October 2002 FPSO accident
 P-34 Programa de Excelência Operacional, Termo de
Ajustamento de Conduta
 Campos Basin Drilling Operations
 Termo de Ajustamento de Conduta
 Pollution
 União dos
Defensores da Terra
 PifCo
   112




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##### Table of Contents



Dividend Distribution
 Petrobras
  For the Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(U.S.$ million)Dividends paid to shareholders
    
    
    3,860
    
    
    
    3,144
    
    
    
    2,104
    
    
    
    1,785
    
    
    
    941Dividends paid to minority interests
    
    
    143
    
    
    
    69
    
    
    
    6
    
    
    
    24
    
    
    
    24,003
    
    
    
    3,213
    
    
    
    2,110
    
    
    
    1,809
    
    
    
    943
  PifCo
  
 Item 9. The Offer and Listing
 
 Petrobras
 Trading Markets
  Common Shares
    
    São Paulo Stock Exchange
(Bovespa) São Paulo (ticker symbol
PETR3); Mercado de Valores Latinoamericanos en Euros
(Latibex)Madrid, Spain (ticker symbol XPBR)Preferred Shares
    
    São Paulo Stock Exchange (Bovespa)São Paulo (ticker symbol
PETR4); Mercado de Valores Latinoamericanos en Euros
(Latibex)Madrid, Spain (ticker symbol XPBRA)Common ADSs
    
    New York Stock Exchange (NYSE)New York (ticker symbol PBR)Preferred ADSs
    
    New York Stock Exchange (NYSE)New York (ticker symbol PBRA)Common Shares
    
    Bolsa de Comercio de Buenos Aires (BCBA)Buenos Aires,
Argentina (ticker symbol APBR)Preferred Shares
    
    Bolsa de Comercio de Buenos Aires (BCBA)Buenos Aires,
Argentina (ticker symbol APBRA)
   113




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##### Table of Contents



Bolsa de Comercio de Buenos Aires
 Share Price History
  Reais per common
    
    
    Reais per preferred
    
    
    U.S. dollars per common
    
    
    U.S. dollars per preferredshare
    
    
    share
    
    
    American Depositary Share
    
    
    American Depositary ShareHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    Low2003
    
    
    10.56
    
    
    
    5.75
    
    
    
    9.69
    
    
    
    5.20
    
    
    
    7.32
    
    
    
    3.24
    
    
    
    6.70
    
    
    
    2.912004
    
    
    13.46
    
    
    
    9.57
    
    
    
    12.24
    
    
    
    8.40
    
    
    
    10.09
    
    
    
    6.09
    
    
    
    9.18
    
    
    
    5.212005
    
    
    20.90
    
    
    
    12.70
    
    
    
    18.61
    
    
    
    11.37
    
    
    
    18.35
    
    
    
    9.35
    
    
    
    16.55
    
    
    
    8.362006:
    
    
    27.70
    
    
    
    20.33
    
    
    
    24.90
    
    
    
    18.25
    
    
    
    26.73
    
    
    
    17.55
    
    
    
    23.39
    
    
    
    15.78First Quarter
    
    
    25.85
    
    
    
    21.15
    
    
    
    23.50
    
    
    
    19.05
    
    
    
    23.63
    
    
    
    18.68
    
    
    
    21.55
    
    
    
    16.94Second Quarter
    
    
    27.70
    
    
    
    20.33
    
    
    
    24.08
    
    
    
    18.25
    
    
    
    26.73
    
    
    
    17.55
    
    
    
    23.39
    
    
    
    15.78Third Quarter
    
    
    25.90
    
    
    
    21.08
    
    
    
    23.13
    
    
    
    19.07
    
    
    
    23.74
    
    
    
    19.17
    
    
    
    21.27
    
    
    
    17.29Fourth Quarter
    
    
    27.25
    
    
    
    21.35
    
    
    
    24.90
    
    
    
    19.40
    
    
    
    25.75
    
    
    
    19.63
    
    
    
    23.32
    
    
    
    17.882007:
    
    
    52.50
    
    
    
    22.43
    
    
    
    44.20
    
    
    
    20.09
    
    
    
    58.81
    
    
    
    21.13
    
    
    
    49.83
    
    
    
    18.88First Quarter
    
    
    27.88
    
    
    
    22.43
    
    
    
    25.23
    
    
    
    20.09
    
    
    
    25.33
    
    
    
    21.13
    
    
    
    22.72
    
    
    
    18.88Second Quarter
    
    
    29.39
    
    
    
    25.15
    
    
    
    25.82
    
    
    
    22.18
    
    
    
    30.86
    
    
    
    24.83
    
    
    
    27.02
    
    
    
    21.93Third Quarter
    
    
    35.39
    
    
    
    27.13
    
    
    
    30.18
    
    
    
    23.09
    
    
    
    38.46
    
    
    
    26.78
    
    
    
    32.88
    
    
    
    22.71Fourth Quarter
    
    
    52.50
    
    
    
    34.28
    
    
    
    44.20
    
    
    
    29.35
    
    
    
    58.81
    
    
    
    37.37
    
    
    
    49.83
    
    
    
    31.92November 2007
    
    
    47.96
    
    
    
    39.09
    
    
    
    40.83
    
    
    
    34.05
    
    
    
    58.39
    
    
    
    45.13
    
    
    
    49.83
    
    
    
    39.25December 2007
    
    
    52.50
    
    
    
    43.00
    
    
    
    44.20
    
    
    
    36.60
    
    
    
    58.81
    
    
    
    48.13
    
    
    
    49.34
    
    
    
    41.022008:First Quarter
    
    
    52.16
    
    
    
    39.00
    
    
    
    43.50
    
    
    
    33.24
    
    
    
    62.51
    
    
    
    46.28
    
    
    
    51.50
    
    
    
    39.06January 2008
    
    
    52.16
    
    
    
    39.00
    
    
    
    43.50
    
    
    
    33.24
    
    
    
    59.41
    
    
    
    46.28
    
    
    
    49.25
    
    
    
    39.06February 2008
    
    
    52.03
    
    
    
    47.12
    
    
    
    43.08
    
    
    
    39.40
    
    
    
    62.51
    
    
    
    53.01
    
    
    
    51.50
    
    
    
    44.01March 2008
    
    
    49.10
    
    
    
    41.63
    
    
    
    40.45
    
    
    
    34.70
    
    
    
    58.77
    
    
    
    47.92
    
    
    
    48.60
    
    
    
    40.00April 2008
    
    
    52.81
    
    
    
    45.66
    
    
    
    43.10
    
    
    
    37.88
    
    
    
    64.41
    
    
    
    52.28
    
    
    
    52.80
    
    
    
    43.38
 The São Paulo Stock Exchange
    114




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##### Table of Contents



PifCo
  
 Item 10. Additional Information
 
 Memorandum and Articles of Incorporation of Petrobras
 General
  Qualification of Directors
  Allocation of Net Income
     115




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##### Table of Contents




    
    first, a percentage of net profits may be allocated to a contingency reserve for
anticipated losses that are deemed probable in future years. Any amount so allocated
in a prior year must be either reversed in the fiscal year in which the reasons
justifying the reserve cease to exist, or written off in the event that the anticipated
loss occurs;
 
    
    second, if the mandatory distributable amount exceeds the sum of realized net
profits in a given year, this excess may be allocated to an unrealized revenue reserve.
The Brazilian Corporate Law defines realized net profits as the amount of net profits
that exceeds the sum of the net positive result of equity adjustments and profits or
revenues from operations whose financial results take place after the end of the next
succeeding fiscal year; and
 
    
    third, a portion of our net profits that exceeds the minimum mandatory distribution
may be allocated to fund working capital needs and investment projects, as long as such
allocation is based on a capital budget previously approved by our shareholders.
Capital budgets for more than one year must be reviewed at each annual shareholders
meeting.
 Mandatory Distribution
   Payment of Dividends and Interest on Shareholders Equity
  pro rata
  
    
    50% of net income (before taking into account such distribution and any deductions
for income taxes and after taking into account any deductions for social contributions
on net profits) for the period in respect of which the payment is made; or
 
    
    50% of retained earnings.
   116




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##### Table of Contents



Shareholders Meetings
  Diário Oficial da União Jornal do Commercio Gazeta Mercantil Valor Econômico
   Voting Rights
   
    
    amend our bylaws;
 
    
    approve any capital increase beyond the amount of the authorized capital;
 
    
    approve any capital reduction;
  117




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##### Table of Contents




    
    approve the appraisal of any assets used by a shareholder to subscribe for our
 shares;
    
    elect or dismiss members of our board of directors and Fiscal Council, subject to
the right of our preferred shareholders to elect or dismiss one member of our board of
directors and to elect one member of our Fiscal Council;
    
    receive the yearly financial statements prepared by our management and accept or
reject managements financial statements, including the allocation of net profits for
payment of the mandatory dividend and allocation to the various reserve accounts;
    
    authorize the issuance of debentures, except for the issuance of non-convertible
unsecured debentures, which may be approved by our board of directors;
    
    suspend the rights of a shareholder who has not fulfilled the obligations imposed by
law or by our bylaws;
    
    accept or reject the valuation of assets contributed by a shareholder in
consideration for issuance of capital stock;
    
    pass resolutions to approve corporate restructurings, such as mergers, spin-offs and
transformation into another type of company;
    
    participate in a centralized group of companies;
    
    approve the disposal of the control of our subsidiaries;
    
    approve the disposal of convertible debentures issued by our subsidiaries and held
by us;
    
    establish the compensation of our senior management;
    
    approve the cancellation of our registration as a publicly-traded company;
    
    decide on our dissolution or liquidation;
    
    waive the right to subscribe to shares or convertible debentures issued by our
subsidiaries or affiliates; and
    
    choose a specialized company to work out the appraisal of our shares by economic
value, in cases of the canceling of our registry as a publicly-traded company or
deviation from the standard rules of corporate governance defined by a stock exchange
or an entity in charge of maintaining an organized over-the-counter market registered
with the CVM, in order to comply with such corporate governance rules and with
contracts that may be executed by us and such entities.
   
    
    reduction of the mandatory dividend distribution;
    
    merger into another company or consolidation with another company, subject to the
conditions set forth in the Brazilian Corporate Law;
    
    participation in a group of companies subject to the conditions set forth in the
Brazilian Corporate Law;
    
    change of our corporate purpose, which must be preceded by an amendment in our
bylaws by federal law as we are controlled by the government and our corporate purpose
is established by law;
    
    cessation of the state of liquidation;
  118




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##### Table of Contents




    
    spin-off of a portion of our company, subject to the conditions set forth in the
Brazilian Corporate Law;
    
    transfer of all our shares to another company or receipt of shares of another
company in order to make the company whose shares are transferred a wholly owned
subsidiary of such company, known as incorporação de ações; and
    
    approval of our liquidation.
  
    
    creation of preferred shares or increase in the existing classes of preferred
 shares, without preserving the proportions to any other class of preferred shares,
except as set forth in or authorized by the companys bylaws;
    
    change in the preferences, privileges or redemption or amortization conditions of
any class of preferred shares; and
    
    creation of a new class of preferred shares entitled to more favorable conditions
than the existing classes.
      Preemptive Rights
    119




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##### Table of Contents



Redemption and Rights of Withdrawal
   
    
    to create preferred shares or to increase the existing classes of preferred shares,
without preserving the proportions to any other class of preferred shares, except as
set forth in or authorized by our bylaws; or
    
    to change the preferences, privileges or redemption or amortization conditions of
any class of preferred shares or to create a new class of preferred shares entitled to
more favorable conditions than the existing classes.
  
    
    to merge into another company or to consolidate with another company, subject to the
conditions set forth in the Brazilian Corporate Law; or
    
    to participate in a centralized group of companies as defined under the Brazilian
Corporate Law and subject to the conditions set forth therein.
  
    
    to reduce the mandatory distribution of dividends;
    
    to change our corporate purposes;
    
    to spin-off a portion of our company, subject to the conditions set forth in the
Brazilian Corporate Law;
    
    to transfer all of our shares to another company or to receive shares of another
company in order to make the company whose shares are transferred a wholly owned
subsidiary of our company, known as incorporação de ações; or
    
    to acquire control of another company at a price, which exceeds the limits set forth
in the Brazilian Corporate Law, subject to, the conditions set forth in the Brazilian
Corporate Law.
 incorporação de ações
   120




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Other Shareholders Rights
  
    
    the right to participate in the distribution of profits;
    
    the right to participate equally and ratably in any remaining residual assets in the
event of liquidation of the company;
    
    the right to supervise the management of the corporate business as specified in the
Brazilian Corporate Law;
    
    the right to preemptive rights in the event of a subscription of shares, debentures
convertible into shares or subscription bonuses (other than with respect to a public
offering of such securities, as may be set out in the bylaws); and
    
    the right to withdraw from the company in the cases specified in the Brazilian
Corporate Law.
 Liquidation
  Conversion Rights
  Liability of Our Shareholders for Further Capital Calls
  Form and Transfer
  Companhia Brasileira de Liquidação e Custódia
 Dispute Resolution
 Câmara de Arbitragem do Mercado
  121




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##### Table of Contents



Self-dealing Restrictions
  
    
    refrain from dealing with our securities either in the one-month period prior to any
fiscal year-end, up to the date when our financials are published, or in the period
between any corporate decision to raise or reduce our stock capital, to distribute
dividends or stock, and to issue any security, up to the date when the respective
public releases are published; and
    
    communicate to us and to the stock exchange their periodical dealing plans with
respect to our securities, if any, including any change or default in these plans. If
the communication is an investment or divestment plan, the frequency and planned
quantities must be included.
 
 Restrictions on Non-Brazilian Holders
    
 Transfer of Control
  
 Disclosure of Shareholder Ownership
  
 Memorandum and Articles of Association of PifCo
 Register
   122




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Objects and Purposes
  (i)
    
    conduct marketing, sales, financing, purchase, storage and transportation of
petroleum, natural gas and all other hydrocarbons and by-products thereof, including
ethanol and other biofuels, as well as the businesses of purchase, sale, leasing and
rental of platforms, equipment and drilling units employed in the activities of
exploration and production of petroleum and gas, and any business incidental thereto;(ii)
    
    to conduct and carry on in any and all parts of the world, through or by means
of creating or subscribing for or otherwise acquiring securities in companies,
associations, partnerships or trust estates and to exercise all voting and other rights
arising in respect of such securities (including without limitation to effect the
liquidation or dissolution of such entities) and to dispose of such securities, any of
the objects noted above and any of the objects of communicating with investors
(including discussions with analysts, securities firms and rating agencies) and to
furnish information about PifCo in relation thereto, analyzing the capital market and
identifying prospective investors, promoting PifCos image in the market, coordinating
with the SEC and assisting with the preparation of disclosure documents, engaging in
other activities that relate to relations with third party investors and engaging in
any other activities incidental thereto;(iii)
    
    to acquire, hold and dispose of securities for hedging, investment or
speculative purposes and to exercise all voting and other rights arising in respect of
such securities; and(iv)
    
    to borrow or raise money for any of the above referenced purposes of PifCo and,
from time to time, to do or make, accept, endorse, execute and issue promissory notes,
drafts, bills of exchange, warrants, bonds, debentures and to secure the payment of any
thereof, and of the interest thereon, by the creation of security interests over of the
property of PifCo, whether at the time owned or thereafter acquired and to sell, pledge
or otherwise dispose of such bonds or other obligations of PifCo for its corporate
purposes.
  Directors
    Rights and Obligations of Shareholders
 Dividends
   123




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Voting Rights
   Redemption
  Shareholder Rights Upon Liquidation
  
    
    set a fair value on PifCos assets, divide all or part of PifCos assets among the
shareholders and determine how the assets will be divided among shareholders or classes
of shareholders; and
    
    vest all or part of PifCos assets in trustees.
  Calls on Shares
  Change to Rights of Shareholders
  
    
    getting the written consent of two-thirds of the shareholders of that class; or
    
    passing a special resolution at a meeting of the shareholders of that class.
  General Meetings
  
    
    by the directors at any time; or
    
    by any two shareholders holding not less than 10% of the paid-up voting share
capital of PifCo, by written request.
   
    
    sanctioning a dividend;
    
    consideration of the accounts, balance sheets, and ordinary report of the directors
and auditors;
    
    appointment and removal of directors; and
    
    fixing of remuneration of the auditors.
  124




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Liability of Shareholders
  Changes in Capital
   
    
    consolidate and divide all or any of its share capital into shares of a larger
amount than its existing shares;
    
    convert all or any part of its paid-up shares into stock and reconvert that stock
into paid-up shares of any denomination;
    
    split existing shares into shares of a smaller amount, subject to the provisions of
Section 13 of the Companies Law; and
    
    cancel any shares, which, at the date of the resolution, are not held or agreed to
be held by any person and diminish the amount of its share capital by the amount of the
 shares so cancelled.
  Indemnity
  Accounts
  Amendment of the Articles
  Transfer out of Jurisdiction
   125




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Material Contracts
 Petrobras
  PifCo
   
 Petrobras Exchange Controls
  Companhia Brasileira de liquidação e
Custódia
    
    
    appoint at least one representative in Brazil, with powers to perform actions
relating to its investment;
    
    appoint an authorized custodian in Brazil for its investments;
    
    register as a foreign investor with the CVM; and
    
    register its foreign investment with the Central Bank of Brazil.
  reais
  126




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##### Table of Contents



PifCo
  
    
    no governmental laws, decrees or regulations in Cayman Islands that restrict the
export or import of capital, including dividend and other payments to holders of notes
who are not residents of the Cayman Islands, provided that such holders are not
resident in countries subject to certain sanctions by the United Nations or the
European Union, and
    
    no limitations on the right of nonresident or foreign owners imposed by Cayman
Island law or PifCos Memorandum of Association to hold or vote PifCos shares.
 
 Taxation Relating to Our ADSs and Common and Preferred Shares
   Prospective purchasers of common or preferred shares or ADSs
should consult their own tax advisors as to the tax consequences of the acquisition, ownership and
disposition of common or preferred shares or ADSs.
   127




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Brazilian Tax Considerations
 General
     Taxation of Dividends
   Taxation on Interest on Shareholders Equity
   128




---



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Taxation of Gains
       reais
   129




---



##### Table of Contents



reais reais reais reais
   Taxation of Foreign Exchange Transactions (IOF/Câmbio)
  Taxation on Bonds and Securities Transactions (IOF/Títulos)
  Other Brazilian Taxes
   130




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Beneficiaries Resident or Domiciled in Tax Havens or Low Tax Jurisdictions
  Registered Capital
  
    
    the average price of a preferred or common share on the Brazilian stock exchange on
which the greatest number of such shares were sold on the day of withdrawal; or
    
    if no preferred or common shares were sold on that day, the average price on the
Brazilian stock exchange on which the greatest number of preferred or common shares
were sold in the 15 trading sessions immediately preceding such withdrawal.
 real
  U.S. Federal Income Tax Considerations
   131




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EACH HOLDER SHOULD CONSULT SUCH HOLDERS OWN TAX ADVISOR CONCERNING THE OVERALL TAX CONSEQUENCES TO
IT, INCLUDING THE CONSEQUENCES UNDER LAWS OTHER THAN U.S. FEDERAL INCOME TAX LAWS, OF AN INVESTMENT
IN COMMON OR PREFERRED SHARES OR ADSs.
   
    
    is a citizen or resident of the United States of America,
    
    is a corporation organized under the laws of the United States of America or any
state thereof; or
    
    is otherwise subject to U.S. federal income taxation on a net basis with respect to
the shares or the ADS.
 Taxation of Distributions
 reais reais reais reais
    132




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Taxation of Capital Gains
   
    
    such gain is effectively connected with the conduct by the holder of a trade or
business in the United States; or
 
    
    such holder is an individual who is present in the United States of America for 183
days or more in the taxable year of the sale and certain other conditions are met.
 Backup Withholding and Information Reporting
   
 Taxation Relating to PifCos Notes
  Prospective purchasers of notes should consult their own tax
advisors as to the tax consequences of the acquisition, ownership and disposition of notes.
  133




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Cayman Islands Taxation
     Brazilian Taxation
  INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE CONSEQUENCES OF PURCHASING THE NOTES,
INCLUDING, WITHOUT LIMITATION, THE CONSEQUENCES OF THE RECEIPT OF INTEREST AND THE SALE, REDEMPTION
OR REPAYMENT OF THE NOTES OR COUPONS.
     134




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U.S. Federal Income Taxation
   EACH HOLDER SHOULD CONSULT SUCH HOLDERS OWN TAX ADVISOR CONCERNING THE OVERALL TAX CONSEQUENCES TO
IT, INCLUDING THE CONSEQUENCES UNDER LAWS OTHER THAN U.S. FEDERAL INCOME TAX LAWS, OF AN INVESTMENT
IN THE NOTES.
 Payments of Interest
 de minimis
   135




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Sale or Disposition of Notes
  Backup Withholding and Information Reporting
  Non-U.S. Holder
  
 Documents on Display
    136




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##### Table of Contents



Item 11. Qualitative and Quantitative Disclosures about Market Risk
 
 Petrobras
 Risk Management
    Commodity Price Risk
     137




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##### Table of Contents



Petrobras
    
    
    PifCo
    
    
    TotalOutstanding as of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    +10%December 2007
    
    Quantity
    
    
    Fair Value(1)
    
    
    Quantity
    
    
    Fair Value(1)
    
    
    Quantity
    
    
    Fair Value(1)
    
    
    Sensitivity(mbbl)
    
    
    (U.S.$ million)
    
    
    (mbbl)
    
    
    (U.S.$ million)
    
    
    (mbbl)
    
    
    (U.S.$ million)
    
    
    (U.S.$ million)Options:Buy contracts
    
    
    1,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,110Sell contracts
    
    
    9,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,200(1,274
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,182
    )Futures:Buy contracts
    
    
    7,978
    
    
    
    
    
    
    
    1,500
    
    
    
    
    
    
    
    9,478Sell contracts
    
    
    3,248
    
    
    
    
    
    
    
    7,950
    
    
    
    
    
    
    
    11,19818,097
    
    
    
    
    
    
    
    (23,613
    )
    
    
    
    
    
    
    (5,516
    )
    
    
    45,408Swaps:Receive variable/
pay fixed
    
    
    3,025
    
    
    
    
    
    
    
    4,228
    
    
    
    
    
    
    
    7,253Receive fixed/
pay variable
    
    
    4,965
    
    
    
    
    
    
    
    3,889
    
    
    
    
    
    
    
    8,861(13,772
    )
    
    
    
    
    
    
    (4,186
    )
    
    
    
    
    
    
    (17,957
    )
    
    
    (18,624
    )
 
 (1)
    
    Fair value represents an estimate of gain or loss that would be realized if contracts were
settled at the balance sheet date. Interest Rate and Exchange Rate Risk
 reais Taxa de Juros de Longo Prazo
  real
  138




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##### Table of Contents



Total Debt Portfolio2007
    
    
    2006(%)Realdenominated:Fixed rate
    
    
    0.0
    
    
    
    0.0Floating rate
    
    
    23.8
    
    
    
    17.9Sub-total
    
    
    23.8
    
    
    
    17.9Dollar denominated:Fixed rate
    
    
    31.4
    
    
    
    37.4Floating rate (includes short-term debt)
    
    
    41.8
    
    
    
    40.7Sub-total
    
    
    73.2
    
    
    
    78.1Other currencies (primarily Yen):Fixed rate
    
    
    2.6
    
    
    
    3.6Floating rate
    
    
    0.4
    
    
    
    0.4Sub-total
    
    
    3.0
    
    
    
    4.0Total
    
    
    100.0
    
    
    
    100.0
 Total Debt Portfolio2007
    
    
    2006(%)Floating rate debt:Realdenominated
    
    
    23.8
    
    
    
    17.8Foreign currency denominated
    
    
    42.2
    
    
    
    41.2Fixed rate debt:Realdenominated
    
    
    0.0
    
    
    
    0.0Foreign currency denominated
    
    
    34.0
    
    
    
    41.0Total
    
    
    100.0
    
    
    
    100.0
 Total Debt Portfolio2007
    
    
    2006(%)U.S. dollars
    
    
    73.22
    
    
    
    78.12Euro
    
    
    0.30
    
    
    
    1.08Japanese Yen
    
    
    2.73
    
    
    
    2.93Brazilian reais
    
    
    23.75
    
    
    
    17.87Total
    
    
    100.0
    
    
    
    100.0
  139




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##### Table of Contents



Certificado de Depósito Interbancário
 Fair Valueas ofDecember 31,2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013-2024
    
    
    Total
    
    
    2007(U.S.$ million, except for percentages)Debt in EURO:Fixed rate debt
    
    
    2.1
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    3.0Average interest rate
    
    
    5.6
    %
    
    
    5.7
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable rate debt
    
    
    7.9
    
    
    
    7.7
    
    
    
    7.9
    
    
    
    7.9
    
    
    
    7.9
    
    
    
    23.8
    
    
    
    63.2
    
    
    
    63.0Average interest rate
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %Debt in Japanese Yen:Fixed rate debt
    
    
    92.5
    
    
    
    49.5
    
    
    
    28.3
    
    
    
    26.5
    
    
    
    26.5
    
    
    
    339.3
    
    
    
    562.7
    
    
    
    565.5Average interest rate
    
    
    2.4
    %
    
    
    2.2
    %
    
    
    1.8
    %
    
    
    1.7
    %
    
    
    1.7
    %
    
    
    2.1
    %Variable rate debt
    
    
    2.1
    
    
    
    9.1
    
    
    
    16.5
    
    
    
    8.2
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    36.0
    
    
    
    36.0Average interest rate
    
    
    8.0
    %
    
    
    8.6
    %
    
    
    8.7
    %
    
    
    8.7
    %
    
    
    
    
    
    
    Debt in U.S. dollars:Fixed rate debt
    
    
    993.9
    
    
    
    425.3
    
    
    
    635.0
    
    
    
    406.1
    
    
    
    165.4
    
    
    
    4,251.5
    
    
    
    6,877.3
    
    
    
    7,097.5Average interest rate
    
    
    8.3
    %
    
    
    8.2
    %
    
    
    8.6
    %
    
    
    8.2
    %
    
    
    6.2
    %
    
    
    7.1
    %Variable rate debt
    
    
    2,269.6
    
    
    
    2,449.4
    
    
    
    1,146.0
    
    
    
    886.7
    
    
    
    789.1
    
    
    
    1,613.2
    
    
    
    9,154.1
    
    
    
    9,195.2Average interest rate
    
    
    5.6
    %
    
    
    5.8
    %
    
    
    6.2
    %
    
    
    5.8
    %
    
    
    5.7
    %
    
    
    6.1
    %Debt in Brazilianreais:Variable rate debt
    
    
    1,281.8
    
    
    
    1,001.7
    
    
    
    1,549.7
    
    
    
    118.4
    
    
    
    810.0
    
    
    
    436.9
    
    
    
    5,198.6
    
    
    
    5,299.1Average interest rate
    
    
    9.3
    %
    
    
    10.3
    %
    
    
    9.9
    %
    
    
    11.7
    %
    
    
    11.1
    %
    
    
    11.5
    %Total debt obligations
    
    
    4,650.0
    
    
    
    3,943.5
    
    
    
    3,383.5
    
    
    
    1,453.9
    
    
    
    1,799.0
    
    
    
    6,664.8
    
    
    
    21,894.6
    
    
    
    22,259.3
  
 PifCo
  Commodity Price Risk
  Interest Rate and Exchange Rate Risk
   140




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##### Table of Contents



Fair Value atDebt Obligations
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014-2019
    
    
    Total
    
    
    Year End 2007(U.S.$ million, except for percentages)Debt in U.S. Dollars:Fixed rate debt
    
    
    67.7
    
    
    
    68.8
    
    
    
    305.2
    
    
    
    70.9
    
    
    
    432.3
    
    
    
    2,889.1
    
    
    
    3,834.0
    
    
    
    3,904.8Average interest rate
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    8.8
    %
    
    
    5.5
    %
    
    
    8.7
    %
    
    
    6.7
    %Variable rate debt
    
    
    130.8
    
    
    
    326.6
    
    
    
    87.6
    
    
    
    91.7
    
    
    
    101.6
    
    
    
    301.7
    
    
    
    1,040.0
    
    
    
    1,035.0Average interest rate
    
    
    6.1
    %
    
    
    5.9
    %
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    6.2
    %Debt in Japanese Yen:Fixed rate debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312.8
    
    
    
    312.8
    
    
    
    314.1Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2
    %Total debt obligations
    
    
    198.5
    
    
    
    395.4
    
    
    
    392.8
    
    
    
    162.6
    
    
    
    533.9
    
    
    
    3,503.6
    
    
    
    5,186.8
    
    
    
    5,253.9
 December 31,
    
    
    December 31,Total Debt Portfolio
    
    2007
    
    
    2006Debt in U.S. Dollars:Fixed rate debt
    
    
    72.4
    %
    
    
    74.5
    %Floating rate debt
    
    
    22.3
    %
    
    
    20.5
    %Debt in Japanese Yen:Fixed rate debt
    
    
    5.3
    %
    
    
    5.0
    %Floating rate debt
    
    
    0.0
    %
    
    
    0.0
    %Total debt portfolio
    
    
    100.0
    %
    
    
    100.0
    %
   Fair ValueCross Currency Swaps
    
    Interest
    
    
    
    
    
    
    December 31,
    
    
    December 31,Maturing in 2016
    
    Rate
    
    
    Notional Amount
    
    
    2007
    
    
    2006(%)
    
    
    (Japanese Yen million)
    
    
    (U.S.$ million)Fixed to fixed
    
    
    
    
    
    
    35,000
    
    
    
    3
    
    
    
    (9
    )Average pay rate (U.S.$)
    
    
    5.69Average receive rate (Japanese Yen)
    
    
    2.15Total cross currency swaps
    
    
    
    
    
    
    35,000
    
    
    
    3
    
    
    
    (9
    )
 
 Item 12. Description of Securities other than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
   141




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##### Table of Contents



Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  
 Managements Report on Internal Control Over Financial Reporting
       142




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##### Table of Contents



Changes in Internal Controls
  
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
 Audit and Non-Audit Fees
 Petrobras
  Year ended December 31,2007
    
    
    2006(thousand reais)Audit fees
    
    
    23,328
    
    
    
    17,254Audit-related fees
    
    
    2,136
    
    
    
    3,939Tax fees
    
    
    603
    
    
    
    1,467Total fees
    
    
    26,067
    
    
    
    22,660
    143




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##### Table of Contents



PifCo
  Year ended December 31,2007
    
    
    2006(thousand reais)Audit fees
    
    
    763.8
    
    
    
    252.8Audit-related fees
    
    
    29.0
    
    
    
    39.8Total fees
    
    
    792.8
    
    
    
    292.6
  
 Audit Committee Approval Policies and Procedures
  
 Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 Petrobras
  
 PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
   144




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##### Table of Contents



Item 19. Exhibits
 No.
    
    Description1.1
    
    

Amended Bylaws of Petróleo Brasileiro S.A.-Petrobras (together with an English
version) (incorporated by reference to the Annual Report on Form 20-F of Petróleo
Brasileiro S.A.Petrobras, filed with the Securities and Exchange Commission on
June 30, 2004 (File No. 1-15106)).1.2
    
    
    Memorandum and Articles of Association of Petrobras International Finance Company
(incorporated by reference to Exhibit 1 to the Annual Report on Form 20-F of
Petrobras International Finance Company, filed with the Securities and Exchange
Commission on July 1, 2002, and amendments to which were filed on December 13,
2002, March 20, 2003 (File No. 333-14168) and June 26, 2007 (File No. 001-331121).
PifCos Memorandum and Articles of Association were last amended on February 23,
2008.2.1
    
    
    Deposit Agreement dated as of July 14, 2000, among Petrobras and Citibank, N.A., as
depositary, and registered holders and beneficial owners from time to time of the
American Depositary Shares, representing the common shares of Petrobras
(incorporated by reference to exhibit of Petrobras Registration Statement on Form
F-6 filed with the Securities and Exchange Commission on July 17, 2000 (File No.
333-123000)).2.2
    
    
    Amended and Restated Deposit Agreement dated as of February 21, 2001, among
Petrobras and Citibank, N.A., as depositary, and the registered holders and
beneficial owners from time to time of the American Depositary Shares, representing
the preferred shares of Petrobras (incorporated by reference to exhibit 4.1 of
Amendment No. 1 to Petrobras Registration Statement on Form F-1 filed with the
Securities and Exchange Commission on July 3, 2001 (File No. 333-13660)).2.3
    
    
    Amendment No. 1, dated as of March 23, 2001, to the Amended and Restated Deposit
Agreement, dated as of February 21, 2001, among Petrobras, Citibank N.A., as
depositary, and the registered holders and beneficial owners from time to time of
the American Depositary Shares representing the preferred shares of Petrobras
(incorporated by reference to Exhibit 4.2 of Amendment No. 1 to Petrobras
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission on July 3, 2001 (File No. 333-13660)).2.4
    
    
    Indenture, dated as of July 19, 2002, between Petrobras and JPMorgan Chase Bank, as
Trustee (incorporated by reference to exhibit 4.4 of the Registration Statement of
Petrobras International Finance Company and Petrobras on Form F-3, filed with the
Securities and Exchange Commission on July 5, 2002, and amendments to which were
filed on July 19, 2002 and August 14, 2002 (File No. 333-92044-01)).2.5
    
    
    Indenture, dated as of July 19, 2002, between Petrobras International Finance
Company and JPMorgan Chase Bank, as Trustee (incorporated by reference to exhibit
4.5 of the Registration Statement of Petrobras International Finance Company and
Petrobras on Form F-3, filed with the Securities and Exchange Commission on July 5,
2002, and amendments to which were filed on July 19, 2002 and August 14, 2002 (File
No. 333-92044-01)).2.6
    
    
    First Supplemental Indenture, dated as of March 31, 2003, between Petrobras
International Finance Company (PifCo) and JPMorgan Chase Bank, as Trustee, relating
to the 9.00% Global Step-Up Notes due 2008 (incorporated by reference to exhibit
2.6 of Petrobras annual report on Form 20-F for the fiscal year ended December 31,
2002, filed with the Securities and Exchange Commission on June 19, 2002 (File No.
1-15106)).2.7
    
    
    Second Supplemental Indenture, dated as of July 2, 2003, between Petrobras
International Finance Company (PifCo) and JPMorgan Chase Bank, as Trustee, relating
to the 9.125% Global Notes due 2013 (incorporated by reference to the Annual Report
on Form 20-F of Petróleo Brasileiro S.A.Petrobras, filed with the Securities and
Exchange Commission on June 30, 2004 (File No. 1-15106)).
  145




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##### Table of Contents



No.
    
    Description2.8
    
    
    Amended and Restated Second Supplemental Indenture, initially dated as of July 2,
2003, as amended and restated as of September 18, 2003, between Petrobras
International Finance Company (PifCo) and JPMorgan Chase Bank, as Trustee, relating
to the 9.125% Global Notes due 2013 (incorporated by reference to the Annual Report
on Form 20-F of Petróleo Brasileiro S.A.Petrobras, filed with the Securities and
Exchange Commission on June 30, 2004 (File No. 1-15106)).2.9
    
    
    Third Supplemental Indenture, dated as of December 10, 2003, between Petrobras
International Finance Company (PifCo) and JPMorgan Chase Bank, as Trustee, relating
to the 8.375% Global Notes due 2018 (incorporated by reference to the Annual Report
on Form 20-F of Petróleo Brasileiro S.A.Petrobras, filed with the Securities and
Exchange Commission on June 30, 2004 (File No. 1-15106)).2.10
    
    
    Indenture, dated as of May 9, 2001, between Petrobras International Finance Company
and The Bank of New York, as Trustee, relating to the 9 7/8% Senior Notes due 2008
(incorporated by reference to Exhibit 4.1 to the Registration Statement of
Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on
Form F-4, filed with the Securities and Exchange Commission on December 6, 2001
(File No. 333-14168)).2.11
    
    
    Supplemental Indenture, dated as of November 26, 2001, between Petrobras
International Finance Company and The Bank of New York, as Trustee, relating to the
9 7/8% Senior Notes due 2008 (incorporated by reference to Exhibit 4.2 to the
Registration Statement of Petrobras International Finance Company and Petróleo
Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange
Commission on December 6, 2001 (File No. 333-14168)).2.12
    
    
    Indenture, dated as of July 6, 2001, between Petrobras International Finance
Company and The Bank of New York, as Trustee, relating to the 9 3/4% Senior Notes
due 2011 (incorporated by reference to Exhibit 4.1 to the Registration Statement of
Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on
Form F-4, filed with the Securities and Exchange Commission on December 6, 2001
(File No. 333-14170)).2.13
    
    
    Supplemental Indenture, dated as of November 26, 2001, between Petrobras
International Finance Company and The Bank of New York, as Trustee, relating to the
9 3/4% Senior Notes due 2011 (incorporated by reference to Exhibit 4.2 to the
Registration Statement of Petrobras International Finance Company and Petróleo
Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange
Commission on December 6, 2001 (File No. 333-14170)).2.14
    
    
    Indenture, initially dated as of February 4, 2002, as amended and restated as of
February 28, 2002, between Petrobras International Finance Company and The Bank of
New York, as Trustee, relating to the 9 1/8% Senior Notes due 2007 (incorporated by
reference to Exhibit 2.19 to the amended Annual Report on Form 20-F of Petrobras
International Finance Company, filed with the Securities and Exchange Commission on
December 13, 2002 (File No. 333-14168)).2.15
    
    
    Registration Rights Agreement, dated as of May 9, 2001, among Petrobras
International Finance Company, Petróleo Brasileiro S.A.Petrobras, and USB Warburg
LLC, Banc of America Securities LLC, J.P. Morgan Securities Inc., RBC Dominion
Securities Corporation and Santander Central Hispano Investment Securities Inc.
(incorporated by reference to Exhibit 4.4 to the Registration Statement of
Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on
Form F-4 filed with the Securities and Exchange Commission on December 6, 2001
(File No. 333-14168)).2.16
    
    
    Registration Rights Agreement, dated as of July 6, 2001, among Petrobras
International Finance Company, Petróleo Brasileiro S.A.Petrobras, and USB Warburg
LLC, Banc of America Securities LLC, J.P. Morgan Securities Inc., RBC Dominion
Securities Corporation and Santander Central Hispano Investment Securities Inc.
(incorporated by reference to Exhibit 4.4 to the Registration Statement of
Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on
Form F-4, filed with the Securities and Exchange Commission on December 6, 2001
(File No. 333-14170)).2.17
    
    
    Registration Rights Agreement, initially dated as of February 4, 2002, as amended
and restated as of February 28, 2002, among Petrobras International Finance
Company, Petróleo Brasileiro S.A.Petrobras, UBS Warburg LLC and Morgan Stanley &
Co. Incorporated (incorporated by reference to Exhibit 2.20 to the amended Annual
Report on Form 20-F of Petrobras International Finance Company, filed with the
Securities and Exchange Commission on December 13, 2002 (File No. 333-14168)).
  146




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##### Table of Contents



No.
    
    Description2.18
    
    
    Standby Purchase Agreement, dated as of May 9, 2001, between Petróleo Brasileiro
S.A.Petrobras and The Bank of New York (incorporated by reference to Exhibit 4.5
to the Registration Statement of Petrobras International Finance Company and
Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and
Exchange Commission on December 6, 2001 (File No. 333-14168)).2.19
    
    
    Amendment No. 1 to the Standby Purchase Agreement, dated as of November 26, 2001,
between Petróleo Brasileiro S.A.Petrobras and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.6 to the Registration Statement of
Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on
Form F-4, filed with the Securities and Exchange Commission on December 6, 2001
(File No. 333-14168)).2.20
    
    
    Standby Purchase Agreement, dated as of July 6, 2001, between Petróleo Brasileiro
S.A.Petrobras and The Bank of New York (incorporated by reference to Exhibit 4.5
to the Registration Statement of Petrobras International Finance Company and
Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and
Exchange Commission on December 6, 2001 (File No. 333-14170)).2.21
    
    
    Standby Purchase Agreement, initially dated as of February 4, 2002, as amended and
restated as of February 28, 2002, between Petróleo Brasileiro S.A.Petrobras and
The Bank of New York, as Trustee (incorporated by reference to Exhibit 2.21 to the
amended Annual Report on Form 20-F of Petrobras International Finance Company,
filed with the Securities and Exchange Commission on December 13, 2002 (File No.
333-14168)).2.22
    
    
    Standby Purchase Agreement dated as of March 31, 2003, between Petróleo Brasileiro
S.A.Petrobras and JPMorgan Chase Bank, as Trustee (incorporated by reference to
Exhibit 2.15 to the Annual Report on Form 20-F of Petrobras International Finance
Company, filed with the Securities and Exchange Commission on June 19, 2003 (File
No. 333-14168)).2.23
    
    
    Standby Purchase Agreement dated as of July 2, 2003, between Petróleo Brasileiro
S.A.Petrobras and JPMorgan Chase Bank, as Trustee (incorporated by reference to
the Annual Report on Form 20-F of Petrobras International Finance Company, filed
with the Securities and Exchange Commission on June 30, 2004 and amendment filed on
July 26, 2004 (File No. 333-14168)).2.24
    
    
    Amended and Restated Standby Purchase Agreement initially dated as of July 2, 2003,
as amended and restated as of September 18, 2003, between Petróleo Brasileiro
S.A.Petrobras and JPMorgan Chase Bank, as Trustee (incorporated by reference to
the Annual Report on Form 20-F of Petrobras International Finance Company, filed
with the Securities and Exchange Commission on June 30, 2004 and amendment filed on
July 26, 2004 (File No. 333-14168)).2.25
    
    
    Standby Purchase Agreement dated as of December 10, 2003, between Petróleo
Brasileiro S.A.Petrobras and JPMorgan Chase Bank, as Trustee (incorporated by
reference to the Annual Report on Form 20-F of Petrobras International Finance
Company, filed with the Securities and Exchange Commission on June 30, 2004 and
amendment filed on July 26, 2004 (File No. 333-14168)).2.26
    
    
    Notes Purchase Agreement, dated as of January 29, 2002, between Petrobras
International Finance Company and UBS Warburg LLC and Morgan Stanley & Co.
Incorporated (incorporated by reference to Exhibit 2.13 to the Annual Report on
Form 20-F of Petrobras International Finance Company, filed with the Securities and
Exchange Commission on July 1, 2002, and amendments to which were filed on December
13, 2002 and March 20, 2003 (File No. 333-14168)).2.27
    
    
    Master Export Contract, dated as of December 21, 2001, between Petróleo Brasileiro
S.A.Petrobras and Petrobras Finance Ltd. (incorporated by reference to Exhibit
2.14 to the Annual Report on Form 20-F of Petrobras International Finance Company,
filed with the Securities and Exchange Commission on July 1, 2002, and amendments
to which were filed on December 13, 2002 and March 20, 2003 (File No. 333-14168)).
  147




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No.
    
    Description2.28
    
    
    Amendment to the Master Export Contract, dated as of May 21, 2003, among Petróleo
Brasileiro S.A.Petrobras and Petrobras Finance Ltd. (incorporated by reference to
Exhibit 2.18 to the Annual Report on Form 20-F of Petrobras International Finance
Company, filed with the Securities and Exchange Commission on June 19, 2003 (File
No. 333-14168)).2.29
    
    
    Depositary Agreement, dated as of December 21, 2001, among U.S. Bank, National
Association, Cayman Islands Branch, in capacity as Trustee of the PF Export
Receivables Master Trust, Citibank, N.A., in capacity as Securities Intermediary,
and Petrobras Finance Ltd. (incorporated by reference to Exhibit 2.15 to the Annual
Report on Form 20-F of Petrobras International Finance Company, filed with the
Securities and Exchange Commission on July 1, 2002, and amendments to which were
filed on December 13, 2002 and March 20, 2003 (File No. 333-14168)).2.30
    
    
    Letter Agreement relating to the Depositary Agreement, dated as of May 16, 2003
(incorporated by reference to Exhibit 2.20 to the Annual Report on Form 20-F of
Petrobras International Finance Company, filed with the Securities and Exchange
Commission on June 19, 2003 (File No. 333-14168)).2.31
    
    
    Administrative Services Agreement, dated as of December 21, 2001, between Petróleo
Brasileiro S.A.Petrobras, as Delivery and Sales Agent, and Petrobras Finance Ltd.
(incorporated by reference to Exhibit 2.16 to the Annual Report on Form 20-F of
Petrobras International Finance Company, filed with the Securities and Exchange
Commission on July 1, 2002, and amendments to which were filed on December 13, 2002
and March 20, 2003 (File No. 333-14168)).2.32
    
    
    Letter Agreement relating to the Administrative Services Agreement, dated as of May
16, 2003 (incorporated by reference to Exhibit 2.22 to the Annual Report on Form
20-F of Petrobras International Finance Company, filed with the Securities and
Exchange Commission on June 19, 2003 (File No. 333-14168)).2.33
    
    
    Amended and Restated Trust Deed, dated as of December 21, 2001, among U.S. Bank,
National Association, Cayman Islands Branch, in capacity as Trustee of the PF
Export Receivables Master Trust, Citibank, N.A., in capacity as Paying Agent,
Transfer Agent, Registrar and Depositary Bank, and Petrobras International Finance
Company, as Servicer (incorporated by reference to Exhibit 2.17 to the Annual
Report on Form 20-F of Petrobras International Finance Company, filed with the
Securities and Exchange Commission on July 1, 2002, and amendments to which were
filed on December 13, 2002 and March 20, 2003 (File No. 333-14168)).2.34
    
    
    Receivables Purchase Agreement, dated as of December 21, 2001, among Petrobras
Finance Ltd., Petróleo Brasileiro S.A.Petrobras and U.S. Bank, National
Association, Cayman Islands Branch, solely in capacity as Trustee of the PF Export
Receivables Master Trust (incorporated by reference to Exhibit 2.18 to the Annual
Report on Form 20-F of Petrobras International Finance Company, filed with the
Securities and Exchange Commission on July 1, 2002, and amendments to which were
filed on December 13, 2002 and March 20, 2003 (File No. 333-14168)).2.35
    
    
    Amended and Restated Receivables Purchase Agreement, dated as of May 21, 2003,
among Petrobras Finance Ltd., Petróleo Brasileiro S.A.Petrobras and U.S. Bank,
National Association, Cayman Islands Branch, solely in capacity as Trustee of the
PF Export Receivables Master Trust (incorporated by reference to Exhibit 2.25 to
the Annual Report on Form 20-F of Petrobras International Finance Company, filed
with the Securities and Exchange Commission on June 19, 2003 (File No. 333-14168)).2.36
    
    
    Prepayment Agreement, dated as of December 21, 2001, between Petróleo Brasileiro
S.A.Petrobras and Petrobras Finance Ltd. (incorporated by reference to Exhibit
2.26 to the Annual Report on Form 20-F of Petrobras International Finance Company,
filed with the Securities and Exchange Commission on June 19, 2003 (File No.
333-14168)).
  148




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No.
    
    Description2.37
    
    
    Amended and Restated Prepayment Agreement, dated as of May 2, 2003, between
Petróleo Brasileiro S.A.Petrobras and Petrobras Finance Ltd. (incorporated by
reference to Exhibit 2.27 to the Annual Report on Form 20-F of Petrobras
International Finance Company, filed with the Securities and Exchange Commission on
June 19, 2003 (File No. 333-14168)).2.38
    
    
    Fourth Supplemental Indenture, dated as of September 15, 2004, between Petrobras
International Finance Company (PifCo) and JPMorgan Chase Bank, as Trustee, and
Petróleo Brasileiro S.A.Petrobras relating to the 7.75% Global Notes due 2014
(incorporated by reference to Exhibit 2.38 to the Annual Report on Form 20-F of
Petrobras and Petrobras International Finance Company, filed with the Securities
and Exchange Commission on June 30, 2005 (File No. 333-14168)).2.39
    
    
    Standby Purchase Agreement dated as of September 15, 2004, between Petróleo
Brasileiro S.A.Petrobras and JPMorgan Chase Bank, as Trustee (incorporated by
reference to Exhibit 2.39 to the Annual Report on Form 20-F of Petrobras and
Petrobras International Finance Company, filed with the Securities and Exchange
Commission on June 30, 2005 (File No. 333-14168)).2.40
    
    
    Fifth Supplemental Indenture, dated as of October 6, 2006, between Petrobras
International Finance Company (PifCo) and JPMorgan Chase Bank, as Trustee, and
Petróleo Brasileiro S.A.Petrobras relating to the 6.125% Global Notes due 2016
(incorporated by reference to the Annual Report on Form 20-F of Petrobras
International Finance Company, filed with the Securities and Exchange Commission on
June 26, 2007, and amendment filed on June 28, 2007 (File No. 001-33121)).2.41
    
    
    Standby Purchase Agreement dated as of October 6, 2006, between Petróleo Brasileiro
S.A.Petrobras and JPMorgan Chase Bank, as Trustee (incorporated by reference to
the Annual Report on Form 20-F of Petrobras International Finance Company, filed
with the Securities and Exchange Commission on June 26, 2007, and amendment filed
on June 28, 2007 (File No. 001-33121)).2.42
    
    
    Amended and Restated Fifth Supplemental Indenture, initially dated as of October 6,
2006, as amended and restated as of February 7, 2007, between Petrobras
International Finance Company (PifCo) and the Bank of New York, as successor to
JPMorgan Chase Bank, N.A., as Trustee, and Petróleo Brasileiro S.A.Petrobras
relating to the 6.125% Global Notes due 2016 (incorporated by reference to the
Annual Report on Form 20-F of Petrobras International Finance Company, filed with
the Securities and Exchange Commission on June 26, 2007, and amendment filed on
June 28, 2007 (File No. 001-33121)).2.43
    
    
    Standby Purchase Agreement, initially dated as of October 6, 2006, as amended and
restated as of February 7, 2007, between Petróleo Brasileiro S.A.Petrobras and the
Bank of New York, as successor to JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to the Annual Report on Form 20-F of Petrobras
International Finance Company, filed with the Securities and Exchange Commission on
June 26, 2007, and amendment filed on June 28, 2007 (File No. 001-33121)).2.44
    
    
    First Supplemental Indenture, dated as of November 1, 2007, between Petrobras
International Finance Company (PifCo) and The Bank of New York, as Trustee, and
Petróleo Brasileiro S.A.Petrobras relating to the 5.875% Global Notes due 2018.2.45
    
    
    Standby Purchase Agreement dated as of November 1, 2007, between Petróleo
Brasileiro S.A.Petrobras and The Bank of New York, as Trustee.2.46
    
    
    Amended and Restated First Supplemental Indenture, initially dated as of November
1, 2007, as amended and restated as of January 11, 2008 between Petrobras
International Finance Company (PifCo) and The Bank of New York, as Trustee, and
Petróleo Brasileiro S.A.Petrobras relating to the 5.875% Global Notes due 2018.2.47
    
    
    Amended and Restated Standby Purchase Agreement, initially dated as of November 1,
2007, as amended and restated as of January 11, 2008 between Petróleo Brasileiro
S.A.Petrobras and The Bank of New York, as Trustee.
  149




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No.
    
    DescriptionThe amount of long-term debt securities of Petrobras authorized under any given
instrument does not exceed 10% of its total assets on a consolidated basis.
Petrobras hereby agrees to furnish to the SEC, upon its request, a copy of any
instrument defining the rights of holders of its long-term debt or of its
subsidiaries for which consolidated or unconsolidated financial statements are
required to be filed.4.1
    
    
    Form of Concession Agreement for Exploration, Development and Production of crude
oil and natural gas executed between Petrobras and ANP (incorporated by reference
to Exhibit 10.1 of Petrobras Registration Statement on Form F-1 filed with the
Securities and Exchange Commission on July 14, 2000 (File No. 333-12298)).4.2
    
    
    Purchase and Sale Agreement of natural gas, executed between Petrobras and
Yacimientos Petrolíferos Fiscales Bolivianos-YPFB (together with and English
version) (incorporated by reference to Exhibit 10.2 to Petrobras Registration
Statement on Form F-1 filed with the Securities and Exchange Commission on July 14,
2000 (File No. 333-12298)).8.1
    
    
    List of subsidiaries.12.1
    
    
    Petrobras Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    
    PifCos Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.13.1
    
    
    Petrobras Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.13.2
    
    
    PifCos Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.15.1
    
    
    Consent letter of KPMG.15.2
    
    
    Consent letter of KPMG15.3
    
    
    Consent letter of Ernst & Young.15.4
    
    
    Consent letter of DeGolyer and MacNaughton.15.5
    
    
    Consent letter of DeGolyer and MacNaughton.
  150




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SIGNATURES
  Petróleo Brasileiro S.A.PetrobrasBy:
    /s/ José Sérgio Gabrielli de AzevedoName:
    José Sérgio Gabrielli de AzevedoTitle:
    Chairman and Chief Executive OfficerBy:
    /s/ Almir Guilherme BarbassaName:
    Almir Guilherme BarbassaTitle:
    Chief Financial Officer  151




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##### Table of Contents



SIGNATURES
  Petrobras International Finance CompanyPifCoBy:
    /s/ Daniel Lima de OliveiraName:
    Daniel Lima de OliveiraTitle:
    Chairman and Chief Executive OfficerBy:
    /s/ Sérvio Túlio da Rosa TinocoName:
    Sérvio Túlio da Rosa TinocoTitle:
    Chief Financial Officer  152




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.PETROBRAS
 
 INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm, KPMG
    
    
    F-5Report of Independent Registered Public Accounting Firm, Ernst & Young
    
    
    F-7Consolidated Balance Sheets
    
    
    F-8Consolidated Statements of Income
    
    
    F-10Consolidated Statements of Cash Flows
    
    
    F-12Consolidated Statements of Changes in Shareholders Equity
    
    
    F-14Notes to the Consolidated Financial Statements
    
    
    F-16Supplementary Information on Oil and Gas Exploration and Production (Unaudited)
    
    
    F-140
 PETROBRAS INTERNATIONAL FINANCE COMPANY
 
 INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm, KPMG
    
    
    F-153Report of Independent Registered Public Accounting Firm, Ernst & Young
    
    
    F-155Consolidated Balance Sheets
    
    
    F-156Consolidated Statements of Operations
    
    
    F-158Consolidated Statements of Changes in Stockholders (Deficit)/Equity
    
    
    F-159Consolidated Statements of Cash Flows
    
    
    F-160Notes to the Consolidated Financial Statements
    
    
    F-161
  F-1




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Petróleo Brasileiro S.A.   Petrobras and subsidiaries




---



##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
      José Sergio Gabrielli de Azevedo
    
    
    
    Almir Guilherme BarbassaChief Executive Officer
    
    
    
    Chief Financial OfficerMarch 14, 2008
    
    
    
    March 14, 2008
  F-3




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
   Report of Independent Registered Public Accounting Firm, KPMG
    
    
    F-5Report of Independent Registered Public Accounting Firm, Ernst & Young
    
    
    F-7Consolidated Balance Sheets
    
    
    F-8Consolidated Statements of Income
    
    
    F-10Consolidated Statements of Cash Flows
    
    
    F-12Consolidated Statements of Changes in Shareholders Equity
    
    
    F-14Notes to the Consolidated Financial Statements1. The Company and its Operations
    
    
    F-162. Summary of Significant Accounting Policies
    
    
    F-163. Income Taxes
    
    
    F-284. Cash and Cash Equivalents
    
    
    F-355. Marketable Securities
    
    
    F-366. Accounts Receivable, Net
    
    
    F-377. Inventories
    
    
    F-398. Recoverable Taxes
    
    
    F-409. Property, Plant and Equipment, Net
    
    
    F-4110. Investments in Non-Consolidated Companies and Other Investments
    
    
    F-4711. Petroleum and Alcohol Account  Receivable from Federal Government
    
    
    F-5112. Financings
    
    
    F-5213. Financial Income (Expenses), Net
    
    
    F-6414. Project Financings
    
    
    F-6515. Capital Lease Obligations
    
    
    F-7116. Employees Postretirement Benefits and Other Benefits
    
    
    F-7217. Shareholders Equity
    
    
    F-8518. Domestic and International Acquisitions
    
    
    F-9319. Commitments and Contingencies
    
    
    F-10120. Derivative Instruments, Hedging and Risk Management Activities
    
    
    F-11521. Financial Instruments
    
    
    F-11822. Segment Information
    
    
    F-11923. Related Party Transactions
    
    
    F-13224. Accounting for Suspended Exploratory Wells
    
    
    F-13425. Special Participation in the Marlim Field
    
    
    F-13726. Subsequent Events
    
    
    F-138Supplementary Information on Oil and Gas Exploration and Production
    
    
    F-140
  F-4




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F-5




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##### Table of Contents



F-6




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
 
 
  F-7




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
Expressed in Millions of United States Dollars
 As of December 31,2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents (Note 4)
    
    
    6,987
    
    
    
    12,688Marketable securities (Note 5)
    
    
    267
    
    
    
    346Accounts receivable, net (Note 6)
    
    
    6,538
    
    
    
    6,311Inventories (Note 7)
    
    
    9,231
    
    
    
    6,573Deferred income taxes (Note 3)
    
    
    498
    
    
    
    653Recoverable taxes (Note 8)
    
    
    3,488
    
    
    
    2,593Advances to suppliers
    
    
    683
    
    
    
    948Other current assets
    
    
    1,448
    
    
    
    84329,140
    
    
    
    30,955Property, plant and equipment, net (Note 9)
    
    
    84,523
    
    
    
    58,897Investments in non-consolidated companies and other investments (Note 10)
    
    
    5,112
    
    
    
    3,262Other assetsAccounts receivable, net (Note 6)
    
    
    1,467
    
    
    
    513Advances to suppliers
    
    
    1,658
    
    
    
    852Petroleum and alcohol account  receivable
from Federal Government (Note 11)
    
    
    450
    
    
    
    368Government securities
    
    
    670
    
    
    
    479Marketable securities (Note 5)
    
    
    2,144
    
    
    
    94Restricted deposits for legal proceedings and guarantees (Note 19 (a))
    
    
    977
    
    
    
    816Recoverable taxes (Note 8)
    
    
    2,477
    
    
    
    1,292Deferred income taxes (Note 3)
    
    
    15
    
    
    
    61Goodwill (Note 18)
    
    
    313
    
    
    
    243Prepaid expenses
    
    
    232
    
    
    
    244Inventories (Note 7)
    
    
    52
    
    
    
    210Other assets
    
    
    485
    
    
    
    39410,940
    
    
    
    5,566Total assets
    
    
    129,715
    
    
    
    98,680
   F-8




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2007 and 2006
Expressed in Millions of United States Dollars
 As of December 31,2007
    
    
    2006Liabilities and shareholders equityCurrent liabilitiesTrade accounts payable
    
    
    7,816
    
    
    
    5,418Short-term debt (Note 12)
    
    
    1,458
    
    
    
    1,293Current portion of long-term debt (Note 12)
    
    
    1,273
    
    
    
    2,106Current portion of project financings (Note 14)
    
    
    1,692
    
    
    
    2,182Current portion of capital lease obligations (Note 15)
    
    
    227
    
    
    
    231Accrued interest
    
    
    239
    
    
    
    247Income taxes payable
    
    
    560
    
    
    
    235Taxes payable, other than income taxes
    
    
    3,950
    
    
    
    3,122Deferred income taxes (Note 3)
    
    
    7
    
    
    
    8Payroll and related charges
    
    
    1,549
    
    
    
    1,192Dividends and interest on capital payable (Note 17 (b))
    
    
    3,220
    
    
    
    3,693Contingencies (Note 19 (a))
    
    
    30
    
    
    
    25Advances from customers
    
    
    276
    
    
    
    880Employees postretirement benefits obligation  Pension (Note 16 (a))
    
    
    364
    
    
    
    198Employees postretirement benefits obligation  Health care (Note 16 (a))
    
    
    259
    
    
    
    190Other payables and accruals
    
    
    1,548
    
    
    
    95624,468
    
    
    
    21,976Long-term liabilitiesLong-term debt (Note 12)
    
    
    12,148
    
    
    
    10,510Project financings (Note 14)
    
    
    4,586
    
    
    
    4,192Capital lease obligations (Note 15)
    
    
    511
    
    
    
    824Employees postretirement benefits obligation  Pension (Note 16 (a))
    
    
    4,678
    
    
    
    4,645Employees postretirement benefits obligation  Health care (Note 16 (a))
    
    
    6,639
    
    
    
    5,243Deferred income taxes (Note 3)
    
    
    4,802
    
    
    
    2,916Provision for abandonment (Note 9 (c))
    
    
    3,462
    
    
    
    1,473Contingencies (Note 19 (a))
    
    
    352
    
    
    
    208Other liabilities
    
    
    558
    
    
    
    42837,736
    
    
    
    30,439Minority interest
    
    
    2,332
    
    
    
    1,966Shareholders equityShares authorized and issued (Note 17 (a))Preferred share - 2007 and 2006 - 3,700,729,396 shares (*)
    
    
    8,620
    
    
    
    7,718Common share - 2007 and 2006 - 5,073,347,344 shares (*)
    
    
    12,196
    
    
    
    10,959Capital reserve  fiscal incentive
    
    
    877
    
    
    
    174Retained earningsAppropriated
    
    
    34,863
    
    
    
    23,704Unappropriated
    
    
    6,618
    
    
    
    10,541Accumulated other comprehensive incomeCumulative translation adjustments
    
    
    4,155
    
    
    
    (6,202
    )Postretirement benefit reserves adjustments net of tax (US$795 and
US$1,058 for December 31, 2007 and 2006, respectively)  pension cost
(Note 16 (a))
    
    
    (1,544
    )
    
    
    (2,052
    )Postretirement benefit reserves adjustments net of tax (US$478 and
US$508 for December 31, 2007 and 2006, respectively)  health care cost
(Note 16 (a))
    
    
    (928
    )
    
    
    (987
    )Unrealized gains on available-for-sale securities, net of tax
    
    
    331
    
    
    
    446Unrecognized loss on cash flow hedge, net of tax
    
    
    (9
    )
    
    
    (2
    )65,179
    
    
    
    44,299Total liabilities and shareholders equity
    
    
    129,715
    
    
    
    98,680
 (*)
    
    Considers effect of 2 for 1 stock split that occurred on April 25, 2008 (see Note 26 (b)).   F-9




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
December 31, 2007, 2006 and 2005
Expressed in Millions of United States Dollars
(except number of shares and earnings per share)
 Year ended December 31,2007
    
    
    2006
    
    
    2005Sales of products and services
    
    
    112,425
    
    
    
    93,893
    
    
    
    74,065Less:Value-added and other taxes on sales and services
    
    
    (20,668
    )
    
    
    (17,906
    )
    
    
    (14,694
    )Contribution of Intervention in the Economic Domain Charge  CIDE
    
    
    (4,022
    )
    
    
    (3,640
    )
    
    
    (3,047
    )Net operating revenues
    
    
    87,735
    
    
    
    72,347
    
    
    
    56,324Cost of sales
    
    
    49,789
    
    
    
    40,184
    
    
    
    29,828Depreciation, depletion and amortization
    
    
    5,544
    
    
    
    3,673
    
    
    
    2,926Exploration, including exploratory dry holes
    
    
    1,423
    
    
    
    934
    
    
    
    1,009Selling, general and administrative expenses
    
    
    6,250
    
    
    
    4,824
    
    
    
    4,474Impairment (Note 9 (d))
    
    
    271
    
    
    
    21
    
    
    
    156Research and development expenses
    
    
    881
    
    
    
    730
    
    
    
    399Other operating expenses
    
    
    2,136
    
    
    
    1,120
    
    
    
    1,453Total costs and expenses
    
    
    66,294
    
    
    
    51,486
    
    
    
    40,245Operating income
    
    
    21,441
    
    
    
    20,861
    
    
    
    16,079Equity in results of non-consolidated companies (Note 10)
    
    
    235
    
    
    
    28
    
    
    
    139Financial income (Note 13)
    
    
    1,427
    
    
    
    1,165
    
    
    
    710Financial expenses (Note 13)
    
    
    (554
    )
    
    
    (1,340
    )
    
    
    (1,189
    )Monetary and exchange variation on monetary assets and liabilities, net (Note 13)
    
    
    (1,455
    )
    
    
    75
    
    
    
    248Employee benefit expense for non-active participants
    
    
    (990
    )
    
    
    (1,017
    )
    
    
    (994
    )Other taxes
    
    
    (662
    )
    
    
    (594
    )
    
    
    (373
    )Other expenses, net
    
    
    (143
    )
    
    
    (17
    )
    
    
    (28
    )(2,142
    )
    
    
    (1,700
    )
    
    
    (1,487
    )Income before income taxes, minority interest and extraordinary item
    
    
    19,299
    
    
    
    19,161
    
    
    
    14,592
   F-10




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME (Continued)
December 31, 2007, 2006 and 2005
Expressed in Millions of United States Dollars
(except number of shares and earnings per share)
 Year ended December 31,2007
    
    
    2006
    
    
    2005Income tax expense (Note 3)Current
    
    
    (4,826
    )
    
    
    (5,011
    )
    
    
    (4,223
    )Deferred
    
    
    (1,062
    )
    
    
    (680
    )
    
    
    (218
    )(5,888
    )
    
    
    (5,691
    )
    
    
    (4,441
    )Minority interest in results of consolidated subsidiaries
    
    
    (273
    )
    
    
    (644
    )
    
    
    35Income before extraordinary item
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,186Extraordinary gain net of tax (Note 10 (a))
    
    
    
    
    
    
    
    
    
    
    158Net income for the year
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,344Net income applicable to each class of sharesCommon
    
    
    7,597
    
    
    
    7,417
    
    
    
    5,982Preferred
    
    
    5,541
    
    
    
    5,409
    
    
    
    4,362Net income for the year
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,344Basic and diluted earnings per share (Note 17 (c))Common and preferredBefore effect of extraordinary item
    
    
    1.50
    (*)
    
    
    1.46
    (*)
    
    
    1.16
    (*)After effect of extraordinary item
    
    
    1.50
    (*)
    
    
    1.46
    (*)
    
    
    1.18
    (*)Basic and diluted earnings per ADSBefore effect of extraordinary item
    
    
    3.00
    (*)
    
    
    2.92
    (*)
    
    
    2.32
    (*)After effect of extraordinary item
    
    
    3.00
    (*)
    
    
    2.92
    (*)
    
    
    2.36
    (*)Weighted average number of shares outstandingCommon
    
    
    5,073,347,344
    (*)
    
    
    5,073,347,344
    (*)
    
    
    5,073,347,344
    (*)Preferred
    
    
    3,700,729,396
    (*)
    
    
    3,699,806,288
    (*)
    
    
    3,698,956,056
    (*)
 (*)
    
    Considers effect of 2 for 1 stock split that occurred on April 25, 2008 (see Note 26 (b)).   F-11




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 2007, 2006 and 2005
Expressed in Millions of United States Dollars
 Year ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income for the year
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,344Adjustments to reconcile net income to net cash provided by
operating activitiesDepreciation, depletion and amortization
    
    
    5,544
    
    
    
    3,673
    
    
    
    2,926Dry hole costs
    
    
    549
    
    
    
    493
    
    
    
    597Loss on property, plant and equipment
    
    
    247
    
    
    
    225
    
    
    
    292Minority interest in results of consolidated subsidiaries
    
    
    273
    
    
    
    644
    
    
    
    (35
    )Deferred income taxes
    
    
    1,062
    
    
    
    680
    
    
    
    218Foreign exchange and monetary loss
    
    
    641
    
    
    
    465
    
    
    
    140Accretion expense  asset retirement obligation
    
    
    147
    
    
    
    32
    
    
    
    51Impairment of oil and gas properties
    
    
    271
    
    
    
    21
    
    
    
    156Provision for uncollectible accounts
    
    
    215
    
    
    
    78
    
    
    
    118Equity in the results of non-consolidated companies
    
    
    (234
    )
    
    
    (28
    )
    
    
    (139
    )Financial income (loss) on hedge operations
    
    
    
    
    
    
    434
    
    
    
    170Other
    
    
    
    
    
    
    
    
    
    
    (8
    )Decrease (increase) in operating assetsAccounts receivable
    
    
    (460
    )
    
    
    308
    
    
    
    (1,510
    )Petroleum and alcohol account
    
    
    (6
    )
    
    
    (7
    )
    
    
    (9
    )Interest receivable on government securities
    
    
    56
    
    
    
    4
    
    
    
    3Inventories
    
    
    (1,619
    )
    
    
    (533
    )
    
    
    38Advances to suppliers
    
    
    787
    
    
    
    (552
    )
    
    
    (167
    )Prepaid expenses
    
    
    105
    
    
    
    32
    
    
    
    38Recoverable taxes
    
    
    (1,132
    )
    
    
    (552
    )
    
    
    (540
    )Other
    
    
    288
    
    
    
    261
    
    
    
    82Increase (decrease) in operating liabilitiesTrade accounts payable
    
    
    1,709
    
    
    
    1,385
    
    
    
    275Payroll and related charges
    
    
    113
    
    
    
    200
    
    
    
    215Taxes payable, other than income taxes
    
    
    135
    
    
    
    (133
    )
    
    
    566Income taxes payable
    
    
    325
    
    
    
    (190
    )
    
    
    (56
    )Employees postretirement benefits obligation  Pension
    
    
    422
    
    
    
    489
    
    
    
    647Employees postretirement benefits obligation  Health care
    
    
    616
    
    
    
    656
    
    
    
    557Accrued interest
    
    
    
    
    
    
    21
    
    
    
    8Contingencies
    
    
    121
    
    
    
    (79
    )
    
    
    (65
    )Provision for abandonment
    
    
    (211
    )
    
    
    (57
    )
    
    
    325Other liabilities
    
    
    (438
    )
    
    
    281
    
    
    
    (122
    )Net cash provided by operating activities
    
    
    22,664
    
    
    
    21,077
    
    
    
    15,115
   F-12




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
December 31, 2007, 2006 and 2005
Expressed in Millions of United States Dollars
 Year ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from investing activitiesAdditions to property, plant and equipment
    
    
    (20,978
    )
    
    
    (14,643
    )
    
    
    (10,365
    )Investment in non-consolidated companies
    
    
    (25
    )
    
    
    (187
    )
    
    
    (71
    )Investment in marketable securities (see Note 5)
    
    
    (1,707
    )
    
    
    205
    
    
    
    169Acquisition of Pasadena Refinery (see Note 18 (d))
    
    
    
    
    
    
    (416
    )
    
    
    Acquisition of Suzano (see Note 18 (c))
    
    
    (1,186
    )
    
    
    
    
    
    
    Acquisition of Ipiranga (see Note 18 (b))
    
    
    (365
    )
    
    
    
    
    
    
    Received cash related to investment in Nigeria
    
    
    
    
    
    
    199
    
    
    
    Dividends received from non-consolidated companies
    
    
    229
    
    
    
    130
    
    
    
    60Restricted deposits for legal proceedings
    
    
    6
    
    
    
    31
    
    
    
    Net cash used in investing activities
    
    
    (24,026
    )
    
    
    (14,681
    )
    
    
    (10,207
    )Cash flows from financing activitiesShort-term debt, net issuances and repayments
    
    
    (6
    )
    
    
    228
    
    
    
    (1,058
    )Proceeds from issuance and draw-down of long-term debt
    
    
    2,980
    
    
    
    2,251
    
    
    
    1,697Principal payments of long-term debt
    
    
    (3,561
    )
    
    
    (2,555
    )
    
    
    (1,120
    )Repurchase of securities  Notes (see Note 12 (c))
    
    
    
    
    
    
    (1,046
    )
    
    
    Proceeds from project financings
    
    
    1,568
    
    
    
    1,524
    
    
    
    1,492Payments of project financings
    
    
    (2,599
    )
    
    
    (1,209
    )
    
    
    (1,392
    )Payment of capital lease obligations
    
    
    (367
    )
    
    
    (334
    )
    
    
    (134
    )Dividends paid to shareholders
    
    
    (3,860
    )
    
    
    (3,144
    )
    
    
    (2,104
    )Dividends paid to minority interests
    
    
    (143
    )
    
    
    (69
    )
    
    
    (6
    )Net cash used in financing activities
    
    
    (5,988
    )
    
    
    (4,354
    )
    
    
    (2,625
    )Increase (decrease) in cash and cash equivalents
    
    
    (7,350
    )
    
    
    2,042
    
    
    
    2,283Effect of exchange rate changes on cash and cash equivalents
    
    
    1,649
    
    
    
    775
    
    
    
    732Cash and cash equivalents at beginning of year
    
    
    12,688
    
    
    
    9,871
    
    
    
    6,856Cash and cash equivalents at end of year
    
    
    6,987
    
    
    
    12,688
    
    
    
    9,871Supplemental cash flow information:Cash paid during the year forInterest, net of amount capitalized
    
    
    1,684
    
    
    
    877
    
    
    
    1,083Income taxes
    
    
    5,146
    
    
    
    4,686
    
    
    
    3,843Withholding income tax on financial investments
    
    
    65
    
    
    
    26
    
    
    
    29Non-cash investing and financing transactions during the yearRecognition of asset retirement obligation  SFAS 143
    
    
    1,836
    
    
    
    632
    
    
    
    356
   F-13




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
December 31, 2007, 2006 and 2005
Expressed in Millions of United States Dollars 
(except per-share amounts)
 Year ended December 31,2007
    
    
    2006
    
    
    2005Preferred sharesBalance at January 1,
    
    
    7,718
    
    
    
    4,772
    
    
    
    4,772Capital increase from undistributed earnings reserve (Note 17 (a))
    
    
    902
    
    
    
    2,939
    
    
    
    Capital increase from issue of preferred shares
    
    
    
    
    
    
    7
    
    
    
    Balance at December 31,
    
    
    8,620
    
    
    
    7,718
    
    
    
    4,772Common sharesBalance at January 1,
    
    
    10,959
    
    
    
    6,929
    
    
    
    6,929Capital increase from undistributed earnings reserve (Note 17 (a))
    
    
    1,237
    
    
    
    4,030
    
    
    
    Balance at December 31,
    
    
    12,196
    
    
    
    10,959
    
    
    
    6,929Capital reserve  fiscal incentiveBalance at January 1,
    
    
    174
    
    
    
    159
    
    
    
    134Transfer from unappropriated retained earnings
    
    
    703
    
    
    
    15
    
    
    
    25Balance at December 31,
    
    
    877
    
    
    
    174
    
    
    
    159Accumulated other comprehensive lossCumulative translation adjustmentsBalance at January 1,
    
    
    (6,202
    )
    
    
    (9,432
    )
    
    
    (12,539
    )Change in the year
    
    
    10,357
    
    
    
    3,230
    
    
    
    3,107Balance at December 31,
    
    
    4,155
    
    
    
    (6,202
    )
    
    
    (9,432
    )Postretirement benefit reserves adjustments net of tax   pension costBalance at January 1,
    
    
    (2,052
    )
    
    
    (1,930
    )
    
    
    (1,975
    )Accounting change  SFAS 158
    
    
    
    
    
    
    (131
    )
    
    
    Other decreases (increases)
    
    
    771
    
    
    
    (38
    )
    
    
    68Tax effect on above
    
    
    (263
    )
    
    
    47
    
    
    
    (23
    )Balance at December 31,
    
    
    (1,544
    )
    
    
    (2,052
    )
    
    
    (1,930
    )Postretirement benefit reserves adjustments net of tax  health care costBalance at January 1,
    
    
    (987
    )
    
    
    
    
    
    
    Accounting change  SFAS 158
    
    
    
    
    
    
    (987
    )
    
    
    Other decreases (increases)
    
    
    89
    
    
    
    
    
    
    
    Tax effect on above
    
    
    (30
    )
    
    
    
    
    
    
    Balance at December 31,
    
    
    (928
    )
    
    
    (987
    )
    
    
    
   F-14




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Continued)
December 31, 2007, 2006 and 2005
Expressed in Millions of United States Dollars 
(except per-share amounts)
 Year ended December 31,2007
    
    
    2006
    
    
    2005Unrecognized gains (losses) on available-for-sale securities, net of taxBalance at January 1,
    
    
    446
    
    
    
    356
    
    
    
    460Unrealized gains (losses)
    
    
    (174
    )
    
    
    137
    
    
    
    (158
    )Tax effect on above
    
    
    59
    
    
    
    (47
    )
    
    
    54Balance at December 31,
    
    
    331
    
    
    
    446
    
    
    
    356Unrecognized loss on cash flow hedge, net of taxBalance at January 1
    
    
    (2
    )
    
    
    
    
    
    
    Unrealized losses
    
    
    (7
    )
    
    
    (3
    )
    
    
    Tax effect on above
    
    
    
    
    
    
    1
    
    
    
    Balance at December 31,
    
    
    (9
    )
    
    
    (2
    )
    
    
    Appropriated retained earningsLegal reserveBalance at January 1,
    
    
    3,045
    
    
    
    2,225
    
    
    
    1,520Transfer from unappropriated retained earnings, net of gain or loss on translation
    
    
    1,252
    
    
    
    820
    
    
    
    705Balance at December 31,
    
    
    4,297
    
    
    
    3,045
    
    
    
    2,225Undistributed earnings reserveBalance at January 1,
    
    
    20,074
    
    
    
    17,439
    
    
    
    9,688Capital increase
    
    
    (1,647
    )
    
    
    (6,969
    )
    
    
    Transfer from unappropriated retained earnings, net of gain or loss on translation
    
    
    11,853
    
    
    
    9,604
    
    
    
    7,751Balance at December 31,
    
    
    30,280
    
    
    
    20,074
    
    
    
    17,439Statutory reserveBalance at January 1,
    
    
    585
    
    
    
    431
    
    
    
    318Capital increase
    
    
    (492
    )
    
    
    
    
    
    
    Transfer from unappropriated retained earnings, net of gain or loss on translation
    
    
    193
    
    
    
    154
    
    
    
    113Balance at December 31,
    
    
    286
    
    
    
    585
    
    
    
    431Total appropriated retained earnings
    
    
    34,863
    
    
    
    23,704
    
    
    
    20,095Unappropriated retained earningsBalance at January 1,
    
    
    10,541
    
    
    
    11,968
    
    
    
    13,199Net income for the year
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,344Dividends and interest on shareholders equity (per share: 2007  US$0.35 (*) to
common and preferred share; 2006 - US$0.42 (*) to common and preferred shares; 2005 -
US$0.34 (*) to common and preferred shares)
    
    
    (3,060
    )
    
    
    (3,660
    )
    
    
    (2,982
    )Appropriation to fiscal incentive reserve
    
    
    (703
    )
    
    
    (15
    )
    
    
    (24
    )Appropriation to reserves
    
    
    (13,298
    )
    
    
    (10,578
    )
    
    
    (8,569
    )Balance at December 31,
    
    
    6,618
    
    
    
    10,541
    
    
    
    11,968Total shareholders equity
    
    
    65,179
    
    
    
    44,299
    
    
    
    32,917Comprehensive income (loss) is comprised as follows:Net income for the year
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,344Cumulative translation adjustments
    
    
    10,357
    
    
    
    3,230
    
    
    
    3,107Postretirements benefit reserves adjustments net of tax   pension cost
    
    
    508
    
    
    
    (25
    )
    
    
    45Postretirements benefit reserves adjustments net of tax   health care
    
    
    59
    
    
    
    
    
    
    
    Unrealized gains (losses) on available-for-sale securities
    
    
    (115
    )
    
    
    90
    
    
    
    (104
    )Unrecognized loss on cash flow hedge
    
    
    (9
    )
    
    
    (2
    )
    
    
    Total comprehensive income
    
    
    23,938
    
    
    
    16,119
    
    
    
    13,392
 (*)
    
    Considers effect of 2 for 1 stock split that occurred on April 25, 2008 (see Note 26 (b)).   F-15




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 1.
    
    The Company and its OperationsPetróleo Brasileiro S.A.  Petrobras is Brazils national oil company and, directly or through
its subsidiaries (collectively, Petrobras or the Company), is engaged in the exploration,
exploitation and production of oil from reservoir wells, shale and other rocks, and in the
refining, processing, trade and transport of oil and oil products, natural gas and other fluid
hydrocarbons, in addition to other energy related activities. Additionally, Petrobras may
promote the research, development, production, transport, distribution and marketing of all
sectors of energy, as well as other related or similar activities.
 
 2.
    
    Summary of Significant Accounting PoliciesIn preparing these consolidated financial statements, the Company has followed accounting
policies that are in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP). The preparation of these financial statements requires the use
of estimates and assumptions that affect the assets, liabilities, revenues and expenses
reported in the financial statements, as well as amounts included in the notes thereto.Estimates adopted by management include: oil and gas reserves, pension and health care
liabilities, environmental obligations, depreciation, depletion and amortization, abandonment
costs, contingencies and income taxes. While the Company uses its best estimates and judgments,
actual results could differ from those estimates as future confirming events occur.Certain prior years amounts have been reclassified to conform to current year presentation
standards. These reclassifications are not significant to the consolidated financial statements
and had no impact on the Companys net income.
 (a)
    
    Basis of financial statements preparationThe accompanying consolidated financial statements of Petróleo Brasileiro S.A.  Petrobras
(the Company) have been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP) and the rules and regulations of the
Securities and Exchange Commission (SEC). U.S. GAAP differs in certain respects from
Brazilian accounting practice as applied by Petrobras in its statutory financial statements
prepared in accordance with Brazilian Corporate Law and regulations promulgated by the Brazilian Securities and Exchange
Commission (CVM).
  F-16




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (a)
    
    Basis of financial
statements preparation (Continued)The U.S. dollar amounts for the years presented have been translated from the Brazilian
Real amounts in accordance with Statement of Financial Accounting Standards SFAS No. 52  Foreign Currency Translation (SFAS 52) as applicable to entities
operating in non-hyperinflationary economies. Transactions occurring in foreign currencies
are first remeasured to the Brazilian Real and then translated to the U.S. dollar, with
remeasurement gains and losses being recognized in the statements of income. While
Petrobras has selected the U.S. Dollar as its reporting currency, the functional currency
of Petrobras and all Brazilian subsidiaries is the Brazilian Real. The functional currency
of PifCo and certain of the special purpose companies is the U.S. dollar, and the
functional currency of Petrobras Energía Participaciones S.A.  PEPSA is the Argentine
Peso.The Company has translated all assets and liabilities into U.S. dollars at the current
exchange rate (R$1.771 and R$2.138 to US$1.00 at December 31, 2007 and 2006, respectively),
and all accounts in the statements of income and cash flows (including amounts relative to
local currency indexation and exchange variances on assets and liabilities denominated in
foreign currency) at the average rates prevailing during the year. The net translation gain
in the amount of US$10,357 in 2007 (2006  US$3,230 and 2005  US$3,107) resulting from
this remeasurement process was excluded from income and presented as a cumulative
translation adjustment (CTA) within Accumulated other comprehensive income in the
consolidated statements of changes in shareholders equity.(b)
    
    Basis of consolidationThe consolidated financial statements include the accounts of the Company and all
majority-owned subsidiaries in which (a) the Company directly or indirectly has either a
majority of the equity of the subsidiary or otherwise has management control, or (b) the
Company has determined itself to be the primary beneficiary of a variable interest entity
in accordance with FIN 46(R).
  F-17




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (b)
    
    Basis of consolidation (Continued)The following majority-owned subsidiaries and variable interest entities are consolidated:
 Subsidiary companies
    
    ActivityPetrobras Química S.A.  Petroquisa and subsidiaries
    
    PetrochemicalPetrobras Distribuidora S.A.  BR and subsidiaries
    
    DistributionBraspetro Oil Services Company  Brasoil and subsidiaries
    
    International operationsBraspetro Oil Company  BOC and subsidiaries (1)
    
    International operationsPetrobras International Braspetro B.V.  PIBBV and subsidiaries
    
    International operationsPetrobras Gás S.A.  Gaspetro and subsidiaries
    
    Gas transportationPetrobras International Finance Company  PifCo and subsidiaries
    
    FinancingPetrobras Transporte S.A.  Transpetro and subsidiaries
    
    TransportationDownstream Participações Ltda. and subsidiaries
    
    Refining and distributionPetrobras Netherlands BV  PNBV and subsidiaries
    
    Exploration and ProductionPetrobras Comercializadora de Energia Ltda.  PCEL
    
    EnergyPetrobras Negócios Eletrônicos S.A.  E-Petro and subsidiaries
    
    Corporate5283 Participações Ltda.
    
    CorporateFundo de Investimento Imobiliário RB Logística  FII
    
    CorporateFAFEN Energia S.A.
    
    EnergyBaixada Santista Energia Ltda.
    
    EnergySociedade Fluminense de Energia Ltda.  SFE
    
    EnergyTermoaçu S.A.
    
    EnergyTermobahia S.A.
    
    EnergyTermoceará Ltda.
    
    EnergyTermorio S.A.
    
    EnergyTermomacaé Ltda.
    
    EnergyTermomacaé Comercialização de Energia Ltda.
    
    EnergyIbiritermo S.A.
    
    EnergyUsina Termelétrica de Juiz de Fora S.A.
    
    Energy
  F-18




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (b)
    
    Basis of consolidation (Continued)
 Special purpose entities consolidated according to FIN 46(R)
    
    ActivityAlbacora Japão Petróleo Ltda.
    
    Exploration and
ProductionBarracuda & Caratinga Leasing Company B.V.
    
    Exploration and
ProductionCompanhia Petrolífera Marlim
    
    Exploration and
ProductionNovaMarlim Petróleo S.A.
    
    Exploration and
ProductionCayman Cabiunas Investments Co.
    
    Exploration and
ProductionCia. de Desenvimento e Modernização de Plantas
Industriais  CDMPI
    
    Exploration and
ProductionCompanhia Locadora de Equipamentos Petrolíferos
S.A.  CLEP
    
    Exploration and
ProductionPDET Offshore S.A.
    
    Exploration and
ProductionCompanhia de Recuperação Secundária S.A.
    
    Exploration and
ProductionNova Transportadora do Nordeste S.A.
    
    TransportationNova Transportadora do Sudeste S.A.
    
    TransportationGasene Participações Ltda.
    
    TransportationManaus Geração Termelétrica Participações Ltda.
    
    EnergyBlade Securities Limited.
    
    CorporateCodajás Coari Participações Ltda.
    
    TransportationCharter Development LLC- CDC
    
    Exploration and
ProductionCompanhia Mexilhão do Brasil
    
    Exploration and
ProductionFundo de Investimento em Direitos Creditórios
não-padronizados do Sistema Petrobras (2)
    
    Corporate
 (1)
    
    Braspetro Oil Company (BOC) exercised its option to purchase all the shares
of EVM Leasing Co on June 18, 2007 (see Note 14). EVM Leasing Co. has been
consolidated according to ARB 51, commencing June 2007. Consolidated according to FIN
46(R), commencing December 31, 2003 until May 2007.(2)
    
    At December 31, 2007, the Company had amounts invested in the Petrobras
Groups Non-Standardized Credit Rights Investment Fund (Fundo de Investimento em
Direitos Creditórios não-padronizados do Sistema Petrobras  FIDC-NP). This
investment fund is predominantly intended for acquiring credit rights, performed
and/or non-performed, of operations carried out by companies in the Petrobras System,
and aims to optimize the financial management of the funds of the Company.(*)
    
    The articles of dissolution were produced for Usina Termelétrica Nova
Piratininga Ltda. in consequence of the extinguishment of the Piratininga Consortium -
São Paulo, so Termelétrica Nova Piratininga Ltda. was not included in the consolidated
financial statements of December 31, 2007.  F-19




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (c)
    
    Cash and cash equivalentsCash and cash equivalents consist of highly liquid investments that are readily convertible
into cash and have an original maturity of three months or less at date of acquisition.(d)
    
    Marketable securitiesMarketable securities have been classified by the Company as available-for-sale,
held-to-maturity or trading based upon intended strategies with respect to such securities.Trading securities are marked-to-market through current period earnings, available-for-sale
securities are marked-to-market through other comprehensive income, and held-to-maturity
securities are recorded at amortized cost.There were no material transfers between categories.(e)
    
    InventoriesInventories are stated as follows:
 
    
    Raw materials are comprised principally of crude oil inventories, which are stated
at the lower of average cost or market value;
    
    Oil products and fuel alcohol are stated, respectively, at average refining and
purchase cost, adjusted when applicable to their realizable value;
    
    Materials and supplies are stated at average purchase cost, not exceeding
replacement value and imports in transit are stated at identified cost.
 (f)
    
    Investments in non-consolidated companiesThe Company uses the equity method of accounting for all long-term investments for which it
owns between 20% and 50% of the investees outstanding voting stock or has the ability to exercise significant influence over operating and financial
policies of the investee without controlling it. The equity method requires periodic
adjustments to the investment account to recognize the Companys proportionate share in
the investees results, reduced by receipt of investees dividends.
  F-20




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (g)
    
    Property, plant and equipment
 
    
    Costs incurred in oil and gas producing activitiesThe costs incurred in connection with the exploration, development and production of
oil and gas are recorded in accordance with the successful efforts method. This
method requires that costs the Company incurs in connection with the drilling of
developmental wells and facilities in proved reserve production areas and successful
exploratory wells be capitalized. In addition, costs the Company incurs in connection
with geological and geophysical activities are charged to the statements of income in
the year incurred, and the costs relating to exploratory dry wells on unproved reserve
properties are charged to the statements of income when determined as dry or
uneconomical.
    
    Capitalized costsThe capitalized costs are depreciated based on the unit-of-production method using
proved developed reserves. These reserves are estimated by the Companys geologists and
petroleum engineers in accordance with SEC standards and are reviewed annually, or more
frequently when there are indications of significant changes.
    
    Property acquisition costsCosts of acquiring developed or undeveloped leaseholds including lease bonus,
brokerage, and other fees are capitalized. The costs of undeveloped properties that
become productive are transferred to a producing property account.
  F-21




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (g)
    
    Property, plant and equipment(Continued)
 
    
    Exploratory costsExploratory wells that find oil and gas in an area requiring a major capital
expenditure before production begins are evaluated annually to assure that commercial
quantities of reserves have been found or that additional exploration work is underway
or planned. Exploratory costs related to areas where commercial quantities have been
found are capitalized, and exploratory costs where additional work is underway or
planned continue to be capitalized pending final evaluation. Exploratory well costs not
meeting either of these tests are charged to expense. All other exploratory costs
(including geological and geophysical costs) are expensed as incurred. Exploratory dry
holes are expensed.
    
    Development costsCosts of development wells including wells, platforms, well equipment and attendant
production facilities are capitalized.
    
    Production costsCosts incurred with producing wells are recorded as inventories and are expensed when
the products are sold.
    
    Abandonment costsThe Company makes its annual reviews and revision of its estimated costs associated
with well abandonment and the demobilization of oil and gas production areas,
considering new information about date of expected abandonment and revised cost
estimates to abandon. The changes in estimated asset retirement obligation are
principally related to the commercial declaration of new fields, certain changes in
cost estimates, and revisions to abandonment information provided for non-operated
joint ventures.
  F-22




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (g)
    
    Property, plant and equipment(Continued)
 
    
    Depreciation, depletion and amortizationDepreciation, depletion and amortization of leasehold costs of producing properties are
recorded using the unit-of-production method applied on a field by field basis as a
ratio of proved developed reserves. Production platform under capital lease which is
not tied to the respective wells, are depreciated on a straight-line basis over the
estimated useful lives of the platforms. Depreciation, depletion and amortization of
all other capitalized costs (both tangible and intangible) of proved oil and gas
producing properties is recorded using the unit-of-production method applied on a field
by field basis as a ratio of proved developed reserves produced. The straight-line
method is used for assets with a useful life shorted than the life of
the field.Other plant and equipment are depreciated on a straight-line basis over the following
estimated useful lives:
 Building and improvements
    
    25-40 yearsEquipment and other assets
    
    3-30 yearsPlatforms
    
    15-25 yearsPipelines
    
    30 years
 
    
    ImpairmentIn accordance with SFAS No. 144  Impairment of Long-Lived Assets (SFAS 144),
management reviews long-lived assets, primarily property, plant and equipment to be
used in the business and capitalized costs relating to oil and gas producing
activities, whenever events or changes in circumstances indicate that the carrying
value of an asset or group of assets may not be recoverable on the bases of
undiscounted future cash flows. The reviews are carried out at the lowest level of
assets to which the Company is able to attribute identifiable future cash flows. The
net book value of the underlying assets is adjusted to their fair value using a
discounted future cash flows model, if the sum of the expected undiscounted future cash
flows is less than the book value.
  F-23




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (g)
    
    Property, plant and equipment(Continued)
 
    
    Maintenance and repairsThe actual costs of major maintenance, including turnarounds at refineries and vessels,
as well as other expenditures for maintenance and repairs, are expensed as incurred.
    
    Capitalized interestInterest is capitalized in accordance with SFAS No. 34  Capitalization of Interest
Cost (SFAS 34). Interest is capitalized on specific projects when a construction
process involves considerable time and involves major capital expenditures. Capitalized
interest is allocated to property, plant and equipment and amortized over the estimated
useful lives or unit-of-production method of the related assets. Interest is
capitalized at the Companys weighted average cost of borrowings.
 (h)
    
    Revenues, costs and expensesRevenues from sales of crude oil and oil products, petrochemical products and others are
recognized on an accrual basis when the title is transferred to the customer. Revenues
from sales of natural gas are accounted for when the natural gas is transferred to the
customer. Subsequent adjustments to revenues based on production sharing agreements or
volumetric delivery differences are not significant. Costs and expenses are accounted for
on an accrual basis.(i)
    
    Income taxesThe Company accounts for income taxes in accordance with SFAS No. 109 - Accounting for
Income Taxes (SFAS 109), which requires an asset and liability approach to recording
current and deferred taxes. The effects of differences between the tax bases of assets and
liabilities and the amounts recognized in the financial statements have been treated as
temporary differences for the purpose of recording deferred income taxes.
  F-24




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 The Company records the tax benefit of all net operating losses as a deferred tax asset
and recognizes a valuation allowance for any part of this benefit which management
believes will not be recovered against future taxable income using a more likely than
not criterion.(j)
    
    Employees postretirement benefitsThe Company sponsors a contributory defined-benefit pension plan covering substantially
all of its employees, which is accounted for by the Company in accordance with SFAS No. 87
  Employers Accounting for Pensions (SFAS 87) and SFAS 158  Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans  an Amendment of FASB Statements
No. 87, 88, 106 and 132(R) (SFAS 158). Disclosures related to the plan are in
accordance with FASB Statement No. 132-R, Employers Disclosures about Pensions and Other
Postretirement Benefits (SFAS No. 132-R).In addition, the Company provides certain health care benefits for retired employees and
their dependents. The cost of such benefits is recognized in accordance with
SFAS No. 106 - Postretirement Benefits Other Than Pensions (SFAS 106) and SFAS 158.The Company also contributes to the Brazilian pension and government sponsored pensions of
international subsidiaries, social security and redundancy plans at rates based on
payroll, and such contributions are expensed as incurred. Further indemnities may be
payable upon involuntary severance of employees but, based on current operating plans,
management does not believe that any amounts payable under this plan will be significant.(k)
    
    Earnings per shareEarnings per share are computed using the two-class method, which is an earnings
allocation formula that determines earnings per share for both preferred shares, which are
participating securities and common shares as if all of the net income for each year had
been distributed in accordance with a predetermined formula described in Note 17(b).
  F-25




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant
Accounting Policies (Continued)
 (l)
    
    Accounting for derivatives and hedging activitiesThe Company applies SFAS No. 133  Accounting for Derivative Instruments and Hedging
Activities, together with its amendments and interpretations, referred to collectively
herein as SFAS 133. SFAS 133 requires that all derivative instruments be recorded in the
balance sheet of the Company as either an asset or a liability and measured at fair value.
SFAS 133 requires that changes in the derivatives fair value be recognized in the income
statement unless specific hedge accounting criteria are met; and the Company designates.
For derivatives designated as accounting hedges, fair value adjustments are recorded
either in the income statements or Accumulated other comprehensive income, a component
of shareholders equity, depending upon the type of accounting hedge and the degree of
hedge effectiveness.The Company uses derivative financial instruments for economic hedging purposes to
mitigate the risk of unfavorable price movements for crude oil purchases. These
instruments are marked-to-market with the associated gains or losses recognized as
Financial income or Financial expenses.The Company may also use derivative financial
instruments for economic hedging purposes to mitigate the risk of unfavorable
exchange-rate movements on its foreign currency-denominated funding. Gains and losses from
changes in the fair value of these contracts are recognized as Financial income or
Financial expenses.For cash flow hedges, the gains and losses associated with the derivative instruments are
deferred and recorded in Accumulated other comprehensive income until such time as the
hedged transaction impacts earnings, with the exception of any hedge ineffectiveness;
which is recorded directly in the financial statements of income.(m)
    
    Recently issued accounting pronouncements
 
    
    FASB Statement No. 157, Fair Value Measurements (SFAS 157)In September 2006, the FASB issued SFAS 157, which became effective for the Company on
January 1, 2008. This standard defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS 157
does not require any new fair value measurements but would apply to assets and
liabilities that are
required to be recorded at fair value under other accounting standards. The Company
does not expect any significant impact to its consolidated financial statements, other
than additional disclosures.
  F-26




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (m)
    
    Recently issued accounting pronouncements(Continued)
 
    
    FASB Staff Position FAS No. 157-1, Application of SFAS 157 to FASB Statement No. 13
and Its Related Interpretive Accounting Pronouncements That Address Leasing
Transactions (FSP 157-1)In February 2008, the FASB issued FSP 157-1, which became effective for the Company on
January 1, 2008. This FSP excludes FASB Statement No. 13, Accounting for Leases, and
its related interpretive accounting pronouncements from the provisions of SFAS 157,
except for leasing transactions arising from business combinations. The Company does
not expect any significant impact to its consolidated financial statements.
    
    FASB Staff Position FAS No. 157-2, Effective Date of SFAS 157 (FSP 157-2)In February 2008, the FASB issued FSP 157-2, which delays the companys January 1,
2008, effective date of FAS 157 for all non financial assets and non financial
liabilities, except those recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), until January 1, 2009. The Company
does not expect any significant impact to its consolidated financial statements.
    
    FASB Statement 159 The Fair Value Option for Financial Assets and Financial
Liabilities. (SFAS 159)In February 2007, the FASB issued SFAS 159, that permits the measurement of certain
financial instruments at fair value. Entities may choose to measure eligible items at
fair value at specified election dates, reporting unrealized gains and losses on such
items at each subsequent reporting period. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company does not expect any significant impact
to its consolidated financial statements.
  F-27




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 2.
    
    Summary of Significant Accounting Policies(Continued)
 (m)
    
    Recently issued accounting pronouncements(Continued)
 
    
    FASB Statement No. 141 (revised 2007), Business Combinations (SFAS 141-R)In December 2007, the FASB issued SFAS 141-R, which will become effective for business
combination transactions having an acquisition date on or after January 1, 2009. This
standard requires the acquiring entity in a business combination to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date to be measured at their respective fair values. SFAS
141-R changes the accounting treatment for the following items: acquisition-related
costs and restructuring costs to be generally expensed when incurred; in-process
research and development to be recorded at fair value as an indefinite-lived intangible
asset at the acquisition date; changes in deferred tax asset valuation allowances and
income tax uncertainties after the acquisition to be generally recognized in income tax
expense; acquired contingent liabilities to be recorded at fair value at the
acquisition date and subsequently measured at either the higher of such amount or the
amount determined under existing guidance for non-acquired
contingencies. SFAS 141-R also includes a substantial number of new disclosures requirements. The impact on the
application of SFAS 141-R in the consolidation financial statements will depend on the
business combinations arising during 2009 and thereafter.
    
    FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial
statements, an amendment of ARB No. 51 (SFAS 160)In December 2007, the FASB issued SFAS 160, that establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 requires the recognition of a noncontrolling
interest (minority interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face of the
income statement. Certain changes in a parents ownership interest are to be accounted
for as equity transactions and when a subsidiary is deconsolidated, any noncontrolling
equity investment in the former subsidiary is to be initially measured at fair value.
SFAS 160 also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest and is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
Companys disclosure of income statement and balance sheet will be significantly
changed by the application of SFAS 160.
 (n)
    
    Recently adopted accounting pronouncements
 
    
    FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, An
Interpretation of FASB Statement 109 (FIN 48)In July 2006, the FASB issued FIN 48, which became effective on January 1, 2007 (see
Note 3).
 
 3.
    
    Income Taxes
 Income taxes in Brazil comprise federal income tax and social contribution, which is an
additional federal income tax. The statutory enacted tax rates for income tax and social
contribution have been 25% and 9%, respectively for the years ended December 31, 2007, 2006 and
2005.The Companys taxable income is substantially generated in Brazil and is therefore subject to
the Brazilian statutory tax rate.
  F-28




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 3.
    
    Income Taxes(Continued)The following table reconciles the tax calculated based upon the Brazilian statutory tax rate
of 34% to the income tax expense recorded in these consolidated statements of income.
 Year ended December 31,2007
    
    
    2006
    
    
    2005Income before income taxes, minority interest and
extraordinary item:Brazil
    
    
    19,536
    
    
    
    18,590
    
    
    
    13,739International
    
    
    (237
    )
    
    
    571
    
    
    
    85319,299
    
    
    
    19,161
    
    
    
    14,592Tax expense at statutory rate
    
    
    (6,562
    )
    
    
    (6,515
    )
    
    
    (4,961
    )Adjustments to derive effective tax rate:Non-deductible postretirement and health-benefits
    
    
    (315
    )
    
    
    (277
    )
    
    
    (244
    )Change in valuation allowance
    
    
    (309
    )
    
    
    101
    
    
    
    76Foreign income subject to different tax rates
    
    
    (199
    )
    
    
    (147
    )
    
    
    (57
    )Tax credits of companies abroad
    
    
    (266
    )
    
    
    (27
    )
    
    
    (24
    )Tax benefit on interest on shareholders equity (see Note 17 (b))
    
    
    998
    
    
    
    994
    
    
    
    791Tax incentive (1)
    
    
    712
    
    
    
    138
    
    
    
    126Other
    
    
    53
    
    
    
    42
    
    
    
    (148
    )Income tax expense
    
    
    (5,888
    )
    
    
    (5,691
    )
    
    
    (4,441
    )
 (1)
    
    On May 10, 2007, the Brazilian Federal Revenue Office recognized Petrobras right to
deduct certain tax incentives from income tax payable, covering the tax years of 2006
until 2015, and Petrobras recognized a tax benefit in the amount of US$601 related to
these incentives in the Northeast, within the region covered by the Northeast Development
Agency (ADENE), granting a 75% reduction in income tax payable, calculated on the profits
of the exploration of the incentive activities and these have been accounted for under the
flow through method. The remaining amount refers to other incentives such as cultural,
employee incentive for meal programs, among others.  F-29




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 3.
    
    Income Taxes(Continued)The following table shows a breakdown between domestic and international income tax benefit
(expense) attributable to income from continuing operations:
 Year ended December 31,2007
    
    
    2006
    
    
    2005Brazil:Current
    
    
    (4,473
    )
    
    
    (4,758
    )
    
    
    (3,973
    )Deferred
    
    
    (991
    )
    
    
    (679
    )
    
    
    (179
    )(5,464
    )
    
    
    (5,437
    )
    
    
    (4,152
    )International:Current
    
    
    (353
    )
    
    
    (253
    )
    
    
    (250
    )Deferred
    
    
    (71
    )
    
    
    (1
    )
    
    
    (39
    )(424
    )
    
    
    (254
    )
    
    
    (289
    )Income tax expense
    
    
    (5,888
    )
    
    
    (5,691
    )
    
    
    (4,441
    )
 Transportadora Brasileira Gasoduto Bolívia-Brasil S.A.  TBG, a subsidiary of Gaspetro, has
accumulated tax loss carryforwards amounting to US$354 as of December 31, 2007, which are
available to offset future taxable income, limited to 30% of taxable income in any individual
year. These tax loss carryforwards were accumulated between 1999 and 2002 and can be carried
forward indefinitely in Brazil. Based on the level of recent taxable income and projections for
future taxable income over the periods for which the deferred tax assets are deductible,
management believes that it is more likely than not that it will realize these tax benefits
within ten years at the maximum.Petrobras America Inc. has tax loss carryforwards amounting to US$669 as of December 31, 2007,
which are available to offset future taxable income, if any, through 2027.
  F-30




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 3.
    
    Income Taxes(Continued)PEPSA also has tax loss carryforwards amounting to US$7 as of December 31, 2007, which are
available to offset future taxable income. These tax loss carryforwards were generated mainly
due to operating losses arose during the Argentinean crisis in 2001 and 2002.All the deferred tax assets and liabilities recorded are principally related to Brazil and
there are no significant deferred tax assets and liabilities from international locations.
There is no netting of deferred taxes between jurisdictions.The major components of the deferred income tax accounts in the consolidated balance sheet are
as follows:
 As of December 31,2007
    
    
    2006Current assetsInventories
    
    
    (4
    )
    
    
    101Lease obligations
    
    
    (33
    )
    
    
    53Provision for profit sharing
    
    
    177
    
    
    
    159Employees postretirement benefits
    
    
    130
    
    
    
    65Other temporary differences
    
    
    228
    
    
    
    295498
    
    
    
    673Current liabilitiesOther temporary differences
    
    
    (7
    )
    
    
    (28
    )(7
    )
    
    
    (28
    )Net current deferred tax assets
    
    
    491
    
    
    
    645Current deferred tax liabilities
    
    
    (7
    )
    
    
    (8
    )Current deferred tax assets
    
    
    498
    
    
    
    653
  F-31




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 3.
    
    Income Taxes(Continued)
 As of December 31,2007
    
    
    2006Non-current assetsEmployees postretirement benefits, net of Accumulated
postretirements benefit reserves adjustments
    
    
    2,065
    
    
    
    2,101Deferred charges
    
    
    141
    
    
    
    159Tax loss carryforwards
    
    
    335
    
    
    
    514Investments
    
    
    66
    
    
    
    53Lease obligations
    
    
    42
    
    
    
    51Inventories revaluation
    
    
    22
    
    
    
    37Derivatives
    
    
    (1
    )
    
    
    11Allowance for doubtful accounts
    
    
    76
    
    
    
    47Provision for contingencies
    
    
    104
    
    
    
    67Project financings
    
    
    (100
    )
    
    
    95Other temporary differences, not significant individually
    
    
    250
    
    
    
    328Valuation allowance
    
    
    (373
    )
    
    
    (426
    )2,627
    
    
    
    3,037Non-current liabilitiesCapitalized exploration and development costs
    
    
    (5,810
    )
    
    
    (4,041
    )Property, plant and equipment
    
    
    (1,494
    )
    
    
    (1,140
    )Hedge
    
    
    (4
    )
    
    
    (21
    )Investments
    
    
    (190
    )
    
    
    (88
    )Tax effect on unrealized loss on investments available-for-sale
    
    
    (78
    )
    
    
    (186
    )Other temporary differences, not significant individually
    
    
    162
    
    
    
    (416
    )(7,414
    )
    
    
    (5,892
    )Net non-current deferred tax liabilities
    
    
    (4,787
    )
    
    
    (2,855
    )Non-current deferred tax assets
    
    
    15
    
    
    
    61Non-current deferred tax liabilities
    
    
    (4,802
    )
    
    
    (2,916
    )Net deferred tax liabilities
    
    
    (4,296
    )
    
    
    (2,210
    )
  F-32




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 3.
    
    Income Taxes(Continued)Annually management evaluates the realizability of its deferred tax assets taking into
consideration, among other elements, the projected future taxable income, tax-planning
strategies, expiration dates of the tax loss carryforwards, scheduled reversal of the existing
temporary differences and the level of historical taxable income. All the available evidence,
both positive and negative, are duly weighted and considered in the analysis. Based on the
Companys analysis, management believes that it is more likely than not that the Company will
realize the benefits of these deductible differences, net of the existing valuation allowance
at December 31, 2007. The amount of the deferred tax asset considered realizable could,
however, be reduced if estimates of future taxable income are reduced. The following presents
the net change in the valuation allowance for the years ended December 31, 2007, 2006 and 2005:
 Year ended December 31,2007
    
    
    2006
    
    
    2005Balance at January 1,
    
    
    (426
    )
    
    
    (524
    )
    
    
    (596
    )Additions
    
    
    (320
    )
    
    
    
    
    
    
    Reductions allocated to income tax expense
    
    
    12
    
    
    
    101
    
    
    
    76Reductions allocated to goodwill
    
    
    168
    
    
    
    
    
    
    
    Reductions due to expiration
    
    
    209
    
    
    
    
    
    
    
    Cumulative translation adjustments
    
    
    (16
    )
    
    
    (3
    )
    
    
    (4
    )Balance at December 31,
    
    
    (373
    )
    
    
    (426
    )
    
    
    (524
    )
 The reduction in valuation allowance in 2007 was primarily related to PEPSA, of which a tax
benefit of US$168 was allocated to reduce goodwill for the deferred asset that was not
previously recognized at the acquisition date. The majority of the remaining amount was related
to the reduction in both gross deferred tax asset and related valuation allowance due to the
expiration of the unutilized tax loss carryforwards in PEPSA.Subsequently recognized tax benefits related to the valuation allowance for deferred tax assets
as of December 31, 2007, will be substantially allocated to income tax benefit that would be
reported in the consolidated statements of income.
  F-33




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 3.
    
    Income Taxes(Continued)The Company has not recognized a deferred tax liability of approximately US$117 for the
undistributed earnings of its foreign operations that arose in 2007 and prior years as the
Company considers these earnings to be indefinitely reinvested. A deferred tax liability will
be recognized when the Company no longer demonstrates that it plans to indefinitely reinvest
the undistributed earnings. As of December 31, 2007, the undistributed earnings of these
subsidiaries were approximately US$779.In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
(FIN 48). FIN 48 provides guidance on recognition, classification and disclosure concerning
uncertain income tax liabilities. The evaluation of a tax position requires recognition of a
tax benefit if it is more likely than not it will be sustained upon examination. The Company
adopted FIN 48 on January 1, 2007. The adoption did not have a material impact on Petrobras
consolidated financial statements.As on January 1, 2007, and for the twelve-month ended December 31, 2007, the Company did not
have any unrecognized tax benefits. In addition, the Company does not expect that the amount of
unrecognized tax benefits will change significantly within the next twelve months.The Company and its subsidiaries file income tax returns in Brazil and in many foreign
jurisdictions. The Brazilian and Argentinean tax returns are open to examination by the
respective tax authorities for the years beginning in 2002. The Company records interest
related to unrecognized tax benefits in financial expenses and penalties in other operating
expenses. As of January 1, 2007, and for the twelve-month ended December 31, 2007, the Company
has not accrued interest and penalties related to unrecognized tax benefits.
  F-34




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 4.
    
    Cash and Cash Equivalents
 As of December 31,2007
    
    
    2006Cash
    
    
    1,241
    
    
    
    1,692Investments  Brazilian reais (1)
    
    
    2,279
    
    
    
    4,072Investments  U.S. dollars (2)
    
    
    3,467
    
    
    
    6,9246,987
    
    
    
    12,688
 (1)
    
    Comprised primarily federal public bonds with immediate liquidity and the securities
are tied to the American dollar quotation or to the remuneration of the Interbank Deposits
- DI.(2)
    
    Comprised primarily by Time Deposit and securities with fixed income.  F-35




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 5.
    
    Marketable Securities
 As of December 31,2007
    
    
    2006Marketable securities classification:Available-for-sale
    
    
    2,036
    
    
    
    185Trading
    
    
    127
    
    
    
    112Held-to-maturity
    
    
    248
    
    
    
    1432,411
    
    
    
    440Less: Current portion of marketable securities
    
    
    (267
    )
    
    
    (346
    )Long-term portion of marketable securities
    
    
    2,144
    
    
    
    94
 Marketable securities are comprised primarily of amounts that the Company has invested in an
exclusive fund, excluding the Companys own securities, which are considered repurchased. The
exclusive fund is consolidated, and the equity and debt securities within the portfolio are
classified as trading or available-for-sale under SFAS 115 based on managements intent.
Trading securities are principally Brazilian bonds, which are bought and sold frequently with
the objective of making short-term-profits on market price changes. Available-for-sale
securities are principally, LCN (Credit Liquid Note) agreements and certain other bonds for
which the Company does not have current expectations to trade actively. Trading securities are
presented as current assets, as they are expected to be used in the near term for cash funding
requirements. Available-for- sale securities are presented as Other assets, as they are not
expected to be sold or liquidated within the next twelve months.As of December 31, 2007 Petrobras had a balance of US$1,907 linked to B Series National
Treasury Notes, which are accounted for as available-for-sale securities in accordance with
SFAS 115. The B Series National Treasury Notes will be used in the future to guarantee future
long term agreements entered into with Petros, Petrobras pension plan (see Note 16 (b)). The
nominal value of the NTN-Bs is restated based on variations in the Amplified Consumer Price
Index (IPCA). The due dates of these notes are 2024 and 2035 and interest coupons will be paid
at half-yearly intervals based on the set rates for buy transactions and range from 6.12% to
7.20% p.a.
  F-36




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 5.
    
    Marketable Securities(Continued)Bank and corporate securities have maturity dates until 2014 and an interest yield of 5.81% to
8.50% p.a.The B certificates, which were received by Brasoil on account of the sale of platforms in 2000
and 2001, have semi-annual maturity dates until 2011 and yield interest equivalent to the Libor
rate plus 2.5% p.a. to 4.25% p.a.
 
 6.
    
    Accounts Receivable, NetAccounts receivable, net consisted of the following:
 As of December 31,2007
    
    
    2006Trade
    
    
    9,295
    
    
    
    7,944Less: Allowance for uncollectible accounts
    
    
    (1,290
    )
    
    
    (1,120
    )8,005
    
    
    
    6,824Less: Long-term accounts receivable, net
    
    
    (1,467
    )
    
    
    (513
    )Current accounts receivable, net
    
    
    6,538
    
    
    
    6,311
 As of December 31,2007
    
    
    2006
    
    
    2005Allowance for uncollectible accountsBalance at January 1,
    
    
    (1,120
    )
    
    
    (1,063
    )
    
    
    (904
    )Additions
    
    
    (215
    )
    
    
    (78
    )
    
    
    (118
    )Write-offs
    
    
    160
    
    
    
    60
    
    
    
    10Cumulative translation adjustments
    
    
    (115
    )
    
    
    (39
    )
    
    
    (51
    )Balance at December 31,
    
    
    (1,290
    )
    
    
    (1,120
    )
    
    
    (1,063
    )Allowance on short-term receivables
    
    
    (746
    )
    
    
    (584
    )
    
    
    (196
    )Allowance on long-term receivables
    
    
    (544
    )
    
    
    (536
    )
    
    
    (867
    )
  F-37




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 6.
    
    Accounts Receivable, Net (Continued)At December 31, 2007 and 2006, long-term receivables include US$616 and US$608, respectively
relating to payments made by the Company to suppliers and subcontractors on behalf of certain
contractors. These contractors had been hired by the subsidiary Brasoil for the
construction/conversion of vessels into FPSO (Floating Production, Storage and Offloading)
and FSO (Floating, Storage and Offloading) and failed to make the payments to their suppliers
and subcontractors. The Company made the payments to avoid further delays in the
construction/conversion of the vessels and consequent losses to Brasoil.The Companys management has determined that these payments can be reimbursed, since they
represent Brasoils rights with respect to the contractors, for which reason judicial action
was filed with international courts to seek reimbursement. However, as a result of the
uncertainties related to the realization of such receivables, the Company recorded an allowance
for all credits not backed by collateral. Such allowance amounted to US$544 and US$536 as of
December 31, 2007 and 2006, respectively.
  F-38




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 7.
    
    Inventories
 As of December 31,2007
    
    
    2006Products:Oil products
    
    
    2,493
    
    
    
    2,220Fuel alcohol
    
    
    181
    
    
    
    1602,674
    
    
    
    2,380Raw materials, mainly crude oil
    
    
    4,818
    
    
    
    2,989Materials and supplies
    
    
    1,681
    
    
    
    1,274Others
    
    
    110
    
    
    
    1409,283
    
    
    
    6,783Current inventories
    
    
    9,231
    
    
    
    6,573Long-term inventories
    
    
    52
    
    
    
    210
  F-39




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 8.
    
    Recoverable TaxesRecoverable taxes consisted of the following:
 As of December 31,2007
    
    
    2006Local:Domestic value-added tax (ICMS) (1)
    
    
    2,173
    
    
    
    1,980Income tax and social contribution
    
    
    527
    
    
    
    518PASEP/COFINS (2)
    
    
    2,772
    
    
    
    1,124Foreign value-added tax (IVA)
    
    
    243
    
    
    
    108Other recoverable taxes
    
    
    250
    
    
    
    1555,965
    
    
    
    3,885Less: Long-term recoverable taxes
    
    
    (2,477
    )
    
    
    (1,292
    )Current recoverable taxes
    
    
    3,488
    
    
    
    2,593
 (1)
    
    Domestic value-added sales tax is composed of credits generated by commercial
operations and by the acquisition of property, plant and equipment and can be offset with
taxes of the same nature.(2)
    
    Composed of credits arising from non-cumulative collection of PASEP and COFINS,
which can be compensated with other federal taxes payable. The income tax and social contribution recoverable will be offset against future income tax
payable.Petrobras plans to fully recover these taxes, and as such, no allowance has been provided.
  F-40




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 9.
    
    Property, Plant and Equipment, NetProperty, plant and equipment, at cost, are summarized as follows:
 As of December 31,2007
    
    
    2006Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    Depreciation
    
    
    Net
    
    
    Cost
    
    
    Depreciation
    
    
    NetBuildings and improvements
    
    
    3,492
    
    
    
    (1,151
    )
    
    
    2,341
    
    
    
    2,422
    
    
    
    (935
    )
    
    
    1,487Oil and gas assets
    
    
    37,224
    
    
    
    (14,357
    )
    
    
    22,867
    
    
    
    26,274
    
    
    
    (10,605
    )
    
    
    15,669Equipment and other assets
    
    
    44,947
    
    
    
    (21,809
    )
    
    
    23,138
    
    
    
    34,654
    
    
    
    (16,996
    )
    
    
    17,658Capital lease  platforms and vessels
    
    
    2,199
    
    
    
    (1,000
    )
    
    
    1,199
    
    
    
    2,660
    
    
    
    (1,322
    )
    
    
    1,338Rights and concessions
    
    
    2,655
    
    
    
    (619
    )
    
    
    2,036
    
    
    
    1,828
    
    
    
    (336
    )
    
    
    1,492Land
    
    
    390
    
    
    
    
    
    
    
    390
    
    
    
    262
    
    
    
    
    
    
    
    262Materials
    
    
    2,015
    
    
    
    
    
    
    
    2,015
    
    
    
    1,253
    
    
    
    
    
    
    
    1,253Expansion projects:Construction and installations in progress:Exploration and production
    
    
    13,558
    
    
    
    
    
    
    
    13,558
    
    
    
    10,457
    
    
    
    
    
    
    
    10,457Supply
    
    
    9,371
    
    
    
    
    
    
    
    9,371
    
    
    
    5,143
    
    
    
    
    
    
    
    5,143Gas and energy
    
    
    6,023
    
    
    
    
    
    
    
    6,023
    
    
    
    3,095
    
    
    
    
    
    
    
    3,095Distribution
    
    
    291
    
    
    
    
    
    
    
    291
    
    
    
    190
    
    
    
    
    
    
    
    190International
    
    
    1,144
    
    
    
    
    
    
    
    1,144
    
    
    
    549
    
    
    
    
    
    
    
    549Corporate
    
    
    150
    
    
    
    
    
    
    
    150
    
    
    
    304
    
    
    
    
    
    
    
    304123,459
    
    
    
    (38,936
    )
    
    
    84,523
    
    
    
    89,091
    
    
    
    (30,194
    )
    
    
    58,897
  F-41




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 9.
    
    Property, Plant and Equipment, Net(Continued)
 (a)
    
    Hydrocarbons Law of BoliviaAs of May 1, 2006, Supreme Decree 28,701 came into force in Bolivia, which nationalized all
natural hydrocarbon resources, obliging companies currently producing gas and oil to
transfer ownership of the entire hydrocarbon production to YPFB.In addition, by means of the above mentioned decree the Bolivian government nationalized
the shares required for YPFB to control, with a minimum of 50% plus one share, Petrobras
Bolívia Refinación S.A.  PBR, in which Petrobras had an indirect interest of 100%
(Petrobras International Braspetro B.V.  51% and Petrobras Energía S.A.  49%).On October 28, 2006, Petrobras Bolivia and its partners signed operating agreements with
YPFB for the operations of the San Alberto, San Antonio, Rio Hondo and Ingre blocks, that
are operated by Petrobras, which were registered and came into effect on May 02, 2007.
These contracts establish that the revenues, royalties, shareholdings, IDH, transportation
and compression will be absorbed by YPFB, reimbursing the production costs and investments
made by the Company to the titleholder (Petrobras), and paying remuneration calculated in
accordance with the variable participation table, specified in the contracts.On August 31, 2007, saw the enactment of Law No. 3,740 on Sustainable Development of the
Hydrocarbons Sector, revoking the Impuesto a las Utilidades Extraordinárias por Extracción
de Recursos Naturales no Renovablesand enabling YPFB to participate in the revenues
originated by the abovementioned operating contracts.On June 25, 2007, a share purchase agreement for the shares of PBR was signed, transferring
all the shares to YPFB for the amount of US$112 in 2 installments, which were settled on
June 11, 2007 and August 13, 2007. The capital gain made by Petrobras in the sale of the
 shares of PBR is recorded in Other expenses, net in the amount of US$37, on December 31,
2007.
  F-42




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 9.
    
    Property, Plant and Equipment, Net(Continued)
 (a)
    
    Hydrocarbons Law of Bolivia(Continued)In addition, the contract stipulates that the net income calculated by PBR for the period
from April 1, 2007 to June 25, 2007 is to be paid to the seller by May 31, 2008, a
receivable has been recorded in the approximate amount of US$21.Petrobras is currently in the process of closing down its distribution operations of oil
and gas products in Bolivia.On December 18, 2007, Petrobras and YPFB signed a joint announcement informing of new
investments to increase natural gas production in Bolivia. The joint announcement also
established the general lines for a series of projects to be carried out jointly, with the
possibility of the incorporation of a Semi-Public Corporation. By means of another
agreement, Petrobras and YPFB determined that for volumes delivered to the domestic market
above 18% of the production derived from new projects, there will be a 50% price guarantee
relative to the exports price. YPFB and Petrobras also reached an agreement regarding the
formula for the payment for the liquids contained in the natural gas purchased by Petrobras
through the GSA agreement, for an amount between US$100 and US$180 per year, pursuant to
the Brasília Minutes of the Meeting in Brasilia on February 14, 2007, which will be paid by
Petrobras from May 2007 onwards.(b)
    
    New Hydrocarbons Law in EcuadorIn April 2006, the Law which amended the Hydrocarbons Law (Ley de Hidrocarburos) was
enacted in Ecuador and regulated in July 2006, which establishes that the Government shall
hold a minimum interest of 50% in the extraordinary revenues generated by increases to the
sale price of Ecuadorian oil as compared to the monthly average oil sale price established
at the date the respective oil sale contracts were executed, stated in the currency of the
month of settlement.
  F-43




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 9.
    
    Property, Plant and Equipment, Net(Continued)
 (b)
    
    New Hydrocarbons Law in Ecuador(Continued)In January 2007, EcuadorTLC, a subsidiary of PESA, paid the amount equivalent to US$26
charged by Petroecuador, relating to the period from April to December 2006, and from this
date onwards, EcuadorTLC began making the payments based on the criteria established by
Petroecuador.In July 2007, Petroecuador notified EcuadorTLC of the differences in the value calculated
for the Palo Azul field relating to the period from January to June 2007 in the amount
equivalent to US$16 using a different method to calculate the shares. EcuadorTLC requested
that Petroecuador reconsider the criteria utilized for the calculation, as it maintains
that it had applied the criteria suggested by the Attorney General and the same method of
calculation used by Petroecuador in January and February 2007.On October 19, 2007, the Dirección Nacional de Hidrocarburos (DNH) notified EcuadorTLC of
a new charge, relating to the period from April 25, 2006 to December 31, 2006, including
interest, which implies an additional expense of US$30.On January 18, 2008, Petroecuador informed the existence of a single debt of US$66,
corresponding to the differences accumulated between April 2006 and December 2007.
Supported by legal arguments, EcuadorTLC S.A. considers Petroecuadors interpretation to be
without grounds and, therefore, no impact of the abovementioned charge was recorded in the
financial statements.On October 18, 2007 the Hydrocarbons Law was amended, increasing the States share in the
extraordinary surpluses in the price of the oil to 99%, thus reducing the share of the oil
companies to 1%. On December 28, Ecuadors Constituent Assembly passed the Ley de Equidad
Tributaria, which implements a major tax reform, including new taxes, as from January 01,
2008.
  F-44




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 9.
    
    Property, Plant and Equipment, Net(Continued)
 (b)
    
    New Hydrocarbons Law in Ecuador(Continued)The set of changes brought about the above-mentioned amendment, altered the terms
established by the parties with regard to the approval of the respective share contracts,
affecting projections of development of current business operations in Ecuador and the
ability to recoup the investments made. Consequently, an impairment charge was recognized
in the amount of US$174, based on the future cash flows derived from the continuous use of
the assets in order to adjust the book value of the assets to their estimated recovery
value.(c)
    
    SFAS No. 143  Accounting for asset retirement obligationsSince January 1, 2003, Petrobras adopted SFAS No. 143  Accounting for Asset Retirement
Obligations (SFAS 143). Under SFAS 143, the fair value of asset retirement obligations
are recorded as liabilities on a discounted basis when they are incurred, which is
typically at the time the related assets are installed. Amounts recorded for the related
assets will be increased by the amount of these obligations and depreciated over the
related useful lives of such assets. Over time, the amounts recognized as liabilities will
be accreted for the change in their present value until the related assets are retired or
sold.Measurement of asset retirement obligations is based on currently enacted laws and
regulations, existing technology and site-specific costs. There are no assets legally
restricted to be used in the settlement of asset retirement obligations.
  F-45




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 9.
    
    Property, Plant and Equipment, Net(Continued)
 (c)
    
    SFAS No. 143  Accounting for asset retirement obligations(Continued)A summary of the annual changes in the abandonment provision is presented as follows:
 LiabilitiesBalance as of December 31, 2005
    
    
    842Accretion expenses
    
    
    32Liabilities incurred
    
    
    632Liabilities settled
    
    
    (4
    )Revision of provision
    
    
    (112
    )Cumulative translation adjustment
    
    
    83Balance as of December 31, 2006
    
    
    1,473Accretion expenses
    
    
    147Liabilities incurred
    
    
    1,836Liabilities settled
    
    
    (29
    )Revision of provision
    
    
    (401
    )Cumulative translation adjustment
    
    
    436Balance as of December 31, 2007
    
    
    3,462
 (d)
    
    ImpairmentFor the years ended December 31, 2007, 2006 and 2005, the Company recorded impairment
charges of US$271, US$21 and US$156, respectively. During 2007, the impairment charge was
primarily related to international investments (US$226): in Ecuador (US$174), due to the
tax and legal changes implemented by the government of that country, previously mentioned
(see Note 9(b)); in the United States (US$39); and in Angola (US$13). During 2006, the
impairment charge was primarily related to producing properties in Brazil and principle
amounts were related to Petrobras Córrego de Pedras on-shore field. During 2005, the
impairment charge was primarily related to investments in Venezuela (US$134), due to the tax and legal changes implemented by the Ministry of Energy and
Petroleum of Venezuela (MEP) (see Note 10 (b)).
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 10.
    
    Investments in Non-Consolidated Companies and Other InvestmentsPetrobras conducts portions of its business through investments in companies accounted for
using the equity and cost methods. These non-consolidated companies are primarily engaged in
the petrochemicals and product transportation businesses.
 InvestmentsTotal ownership
    
    
    2007
    
    
    2006Equity method
    
    
    20 % - 50
    %(1)
    
    
    4,373
    (2)
    
    
    1,883
    (3)Investments available-for-sale
    
    
    8% - 17
    %
    
    
    400
    
    
    
    715Investments at cost
    
    
    
    
    
    
    339
    
    
    
    664Total
    
    
    
    
    
    
    5,112
    
    
    
    3,262
 (1)
    
    As described further in this Note, certain thermoelectrics with ownership of 10% to
50% are also accounted as equity investments due to particularities of significant
influence.(2)
    
    As described in Notes 18(a) and 18(b) it also includes investments in Ipiranga Group
in the amount of US$1,175 and in Suzano Petroquímica, in the amount of US$1,177.(3)
    
    Includes US$878 related to investments in Venezuela, excluded from consolidation in
2006 (see Note 10 (b)).   F-47




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 10.
    
    Investments in Non-Consolidated Companies and Other Investments(Continued)The Companys investments in the companies mentioned above, with publicly traded shares,
amounts to less than 20% of the investees total voting shares, are classified as
available-for-sale and have been recorded at market value. The
Company has recorded unrealized losses (gains) for the difference between the fair value and
the cost of the investment on these investments of
US$433 and US$548 as of December 31, 2007 and 2006, respectively. These holding gains are
reflected as a component of shareholders equity, net of tax, with changes in the unrealized
balance recorded as a component of comprehensive income.The Company also has investments in companies for the purpose of developing, constructing,
operating, maintaining and exploring thermoelectric plants included in the federal governments
Priority Thermoelectric Energy Program, with equity interests of between 10% and 50%. The
balance of these investments as of December 31, 2007 and 2006 includes US$95 and US$20
respectively, and are included as equity method investments due to the Companys ability to
exercise significant influence over such operations.The Companys investments in equity of non-consolidated companies generated equity gains in
results of non-consolidated companies of US$235 for the year ended December 31, 2007 (US$28 in
2006 and US$139 in 2005).
 (a)
    
    Exchange of assets  Petrobras and REPSOL  YPFOn December 28, 2000, Petrobras and Repsol YPF entered into a Contract for the Exchange of
Assets, which was subject to a price adjustment review over a period of eight years. On
January 1, 2006, the companies performed early and definitive settlement amount.The settlement amount due by Repsol YPF to Petrobras, related to EG3 share, amounted to
US$95 and was applied to reduce property, plant and equipment and US$158 was recorded as
extraordinary gain, net of US$82 of income tax on December 31, 2005.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 10.
    
    Investments in Non-Consolidated Companies and Other Investments(Continued)
 (a)
    
    Exchange of assets 
Petrobras and REPSOL  YPF(Continued)The final settlement amount due by Petrobras to Repsol YPF, related to the 30% shareholding
in REFAP, amounted to US$255 wich was recorded as component of other expenses, net.(b)
    
    Investments in VenezuelaIn March, 2006, through its subsidiaries and affiliated companies in Venezuela, PESA
executed with PDVSA and Corporación Venezolana del Petróleo S.A. (CVP), Memoranda of
Understanding (MOU) for the purpose of completing the migration of the operating
partnerships to the form of mixed capital companies. The MOU establish that the interest
held by the private partners in the mixed capital companies is 40%, with the Venezuelan
government holding an interest of 60%. According to the terms of the MOU, CVP recognized
divisible credits transferable to the private companies with an interest in the mixed
capital companies, which shall not be charged interest and may be used as payment of the
acquisition bonus for any new mixed capital company project, to develop oil exploration and
production activities or to license the development of gas exploration and production
operations in Venezuela. The credits assigned to PESA correspond to US$88.5, which were not
booked in the accounting records.The migration of the contracts produced economic effects as from April 01, 2006. In August
2006, the conversion contracts for Oritupano Leona, La Concepción, Acema and Mata had been
executed and the companies Petroritupano S.A., Petrowayú S.A., Petrovenbras S.A. and
Petrokariña S.A. were formed, which each operate in the abovementioned areas, respectively.According to the corporate and governance structure specified for the mixed capital
companies, as from April 01, 2006, PESA no longer recorded the assets, liabilities and
results referring to the aforesaid operations in consolidated statements, presenting them
as corporate investments in associated companies appraised according to the equity method.
Recovery of these investments is strongly tied to the volatility of oil prices, social,
economic and regulatory conditions in Venezuela and, in particular, to shareholders
interest in developing the oil reserves. Consequently a provision for loss on investments
has been made in the amount of US$61.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 10.
    
    Investments in Non-Consolidated Companies and Other Investments(Continued)
 (c)
    
    Sale of shareholding in a power company in Argentina  Compañia Inversora en
Transmisión Eléctrica S.A.  CitelecOn July 19, 2007, the Board of Directors of Petrobras Energia S.A.  PESA approved the sale
of its interest (50%) in Compañia Inversora en Transmisión Eléctrica S.A. (Citelec) to
Energía Argentina S.A. (ENARSA) and Electroingeniería
S.A., in equal parts.The transfer of the Citelec shares to ENARSA was approved by the regulatory organizations
and the competent authorities on December 14, 2007.Citelec has a 52.67% interest in Compañia de Transporte en Energia Eléctrica en Alta
Tensión -Transener S.A. The sale will be realized at a fixed price of US$54 plus an
additional amount relating to the result from the integral tariff review determined for
Transener and its subsidiary Empresa de Transporte de Energia Elétrica por Distribución
Troncal de la Provincia de Buenos Aires S.A. (Transba), if such tariff review is approved
up to June 30, 2008.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 11.
    
    Petroleum and Alcohol Account  Receivable from Federal GovernmentChanges in the Petroleum and Alcohol accountThe following summarizes the changes in the Petroleum and Alcohol account for the years ended
December 31, 2007 and 2006:
 Year ended December 31,2007
    
    
    2006Opening balance
    
    
    368
    
    
    
    329Financial income (Note 23)
    
    
    6
    
    
    
    7Translation gain
    
    
    76
    
    
    
    32Ending balance
    
    
    450
    
    
    
    368
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 12.
    
    Financings
 (a)
    
    Short-term debtThe Companys short-term borrowings are principally sourced from commercial banks and
include import and export financing denominated in United States dollars, as follows:
 As of December 31,2007
    
    
    2006Import  oil and equipment
    
    
    5
    
    
    
    148Working capital
    
    
    1,453
    
    
    
    1,1451,458
    
    
    
    1,293
 The weighted average annual interest rates on outstanding short-term borrowings were 4.71%
and 4.68% at December 31, 2007 and 2006, respectively.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings(Continued)
 (b)
    
    Long-term debt
 
    
    Composition
 As of December 31,2007
    
    
    2006Foreign currency:Notes
    
    
    4,140
    
    
    
    4,217Financial institutions
    
    
    4,256
    
    
    
    3,550Sale of future receivables
    
    
    615
    
    
    
    680Suppliers credits
    
    
    1,325
    
    
    
    1,215Senior exchangeable notes
    
    
    
    
    
    
    330Assets related to export program to be offset
against sales of future receivables
    
    
    (150
    )
    
    
    (150
    )Repurchased securities (1)
    
    
    
    
    
    
    (19
    )10,186
    
    
    
    9,823Local currency:National Economic and Social Development
Bank  BNDES (state-owned company, see Note 23)
    
    
    607
    
    
    
    865Debentures:BNDES (state-owned company, see Note 23)
    
    
    709
    
    
    
    626Other banks
    
    
    1,419
    
    
    
    1,093Other
    
    
    500
    
    
    
    2093,235
    
    
    
    2,793Total
    
    
    13,421
    
    
    
    12,616Current portion of long-term debt
    
    
    (1,273
    )
    
    
    (2,106
    )12,148
    
    
    
    10,510
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings(Continued)
 (b)
    
    Long-term debt(Continued)
 
    
    Composition (Continued)
 (1)
    
    At December 31, 2007 and 2006, the Company had amounts invested
abroad in an exclusive investment fund that held debt securities of some of the
Petrobras group companies and some of the SPEs that the Company consolidates
according to FIN 46(R), in the total amount of US$856 and US$982, respectively.
These securities are considered to be extinguished, and thus the related
amounts, together with applicable interest have been removed from the
presentation of marketable securities and long-term debt, of zero (US$19 for
December 31, 2006), and project financings, of US$856 (US$963 for December 31,
2006) (see also Note 14). Gains and losses on the extinguishment are recognized
as incurred. Subsequent reissuances of notes at amounts greater or lower than
face amount are recorded as premium or discounts and are amortized over the life
of the notes. Petrobras incurred in expenses in the total amount of US$160
during 2006. In connection with the Exchange Offer, occurred on February 7,
2007, (see Global Notes  PifCo), PifCo paid US$56 related to the amount above
the face amount of the old Notes exchanged. This amount was associated to the
new Notes and has been amortized in accordance with the effective interest
method. As of December 31, 2007 and 2006, the Company had an outstanding balance
of net premiums on reissuance that amounted to US$22 and US$45, respectively.
 
    
    Composition of foreign currency denominated debt by currency
 As of December 31,2007
    
    
    2006Currencies:United States dollars
    
    
    9,439
    
    
    
    8,928Japanese Yen
    
    
    598
    
    
    
    626Euro
    
    
    85
    
    
    
    269Other
    
    
    64
    
    
    
    10,186
    
    
    
    9,823
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings(Continued)
 (b)
    
    Long-term debt(Continued)
 
    
    Maturities of the principal of long-term debtThe long-term portion at December 31, 2007 becomes due in the following years:
 2009
    
    
    1,4862010
    
    
    1,9662011
    
    
    1,2762012
    
    
    1,6222013
    
    
    1,5052014 and thereafter
    
    
    4,29312,148
 
    
    Composition of long-term debt by annual interest rateInterest rates on long-term debt were as follows:
 As of December 31,2007
    
    
    2006Foreign currency6% or less
    
    
    4,280
    
    
    
    2,373Over 6% to 8%
    
    
    3,285
    
    
    
    3,805Over 8% to 10%
    
    
    2,410
    
    
    
    3,321Over 10% to 15%
    
    
    211
    
    
    
    32410,186
    
    
    
    9,823Local currency6% or less
    
    
    469
    
    
    
    470Over 6% to 8%
    
    
    
    
    
    
    167Over 8% to 10%
    
    
    995
    
    
    
    858Over 10% to 15%
    
    
    1,771
    
    
    
    1,2983,235
    
    
    
    2,79313,421
    
    
    
    12,616
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings(Continued)
 (b)
    
    Long-term debt(Continued)
 
    
    Structured finance of exportsPetrobras and Petrobras Finance Ltd.  PFL have certain contracts (Master Export
Contract and Prepayment Agreement) between themselves and a special purpose entity
not related to Petrobras, PF Export Receivables Master Trust (PF Export), relating
to the prepayment of export receivables to be generated by PFL by means of sales on
the international market of fuel oil and other products acquired from Petrobras,
which are comprised of Senior and Junior certificates.The assignment of rights to future export receivables represents a liability of PFL,
which will be settled by the transfer of the receivables to PF Export as and when
they are generated. This liability will bear interest on the same basis as the Senior
and Junior Trust Certificates, as described above. The Junior Trust Certificates form
a 20% guarantee to the Senior Trust Certificates.Junior certificatesIn May 2004, PFL and the PF Export Trust executed an amendment to the Trust Agreement
allowing the Junior Trust Certificates to be set-off against the related Notes,
rather than paid in full, after fulfillment of all obligations pursuant to the Senior
Trust Certificates. The effect of this amendment is that amounts related to the
Junior Trust Certificates are presented net, rather than gross in this financial
statement, and thus US$150 has been reduced from the long-term liabilities respective
to sales of right to future receivables.Junior Certificate Holders do not have any voting rights in respect of any action to
be taken by the Trustee or otherwise. The Junior Trust Certificates may only be held
by PFL or another wholly-owned direct or indirect subsidiary of Petrobras.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings(Continued)
 (b)
    
    Long-term debt(Continued)Structured finance of exports (Continued)On May 26, 2006, PFL has successfully completed a solicitation of consents from
holders of the Series 2003-A 6.4% Senior Trust Certificates due 2015 issued by PF
Export Receivables Master Trust. The amendments sought to eliminate exports of bunker
fuel from the transaction so that the securities have been collateralized only by
receivables from sales of fuel oil exported by Petrobras and to reduce the minimum
average daily gross exports of fuel oil for any rolling twelve-month period. PFL also
obtained the consent from the holders of Series 2003-B 3.75% due 2013. The amendments
became effective on June 1, 2006.As a result of these amendments, the premium rate of the guarantee of the Series
2003-B was reduced from 1.8% to 1.1%.Petrobras and PFL have contracts (Master Export Contract and Prepayment Agreement)
between themselves and a Special Purpose Company not related with Petrobras, named PF
Export Receivables Master Trust (PF Export), relating to the prepayment of export
receivables to be generated by PFL by means of sales on the international market of
fuel oil acquired from Petrobras.As at December 31, 2007, the balance of export prepayments amounted to US$398 in
non-current liabilities (US$532 as of December 31, 2006) and US$68 in current
liabilities (US$68 as of December 31, 2006).
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings (Continued)
 (b)
    
    Long-term debt(Continued)
 
    
    Financing for P-51 and P-52 platformsOn November 25, 2004, the Board of Directors of Petrobras approved the execution of a
contract in the amount of up to US$379 between the National Bank for Economic and
Social Development (BNDES) and the wholly-owned subsidiary Petrobras Netherlands B.V.
  PNBV for the financing of Brazilian assets and services to be used in the
construction of the P-52 production platform.On July 15, 2007 PNBV prepaid the balance of this loan in the amount of US$204.
    
    US$899 Global Notes issueOn October 06, 2006, PifCo issued Global Notes to the amount of US$500. The notes
have an effective rate of 6.185% per annum and a ten-year term. The Global Notes
were offered at 99.557% of the face value with a stated of 6.125% per annum. PifCo
used the proceeds from this issuance principally to repay trade-related debt.The subsidiary Petrobras International Finance Company  PifCo made a note exchange
offer, with the transaction being settled on February 07, 2007. PifCo consequently
received and accepted offers to the amount of US$399 (face value). The old securities
received under the exchange were cancelled on the same date and as a result PifCo
issued new securities on the transaction settlement date maturing in 2016 with a
coupon of 6.125% p.a. to the amount of US$399. The securities constitute a single,
fungible issuance with the US$500 issued on October 06, 2006, amounting to US$899 in
securities issued with maturity in 2016. PifCo also paid investors the amount equal
to US$56 as a result of the offering to exchange the securities. The transaction has
been treated as an exchange for financial reporting purposes and accordingly, the
US$56 will be amortized to interest expense over the life term of the notes in
accordance with the effective interest method.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings(Continued)
 (b)
    
    Long-term debt(Continued)
 
    
    US$1,000 Global Notes issueOn November 01, 2007 Petrobras, through its wholly-owned subsidiary Petrobras
International Finance Company (PifCo) concluded its bond issue of US$1,000 in senior
debt, unsecured Global Notes on the international market, due March 01, 2018, with
the following characteristics: (i) coupon of 5.875% p.a; and (ii) issue price of
98.612%. Interest will be paid on March 01 and September 01 of each year, with the
first payout due March 01, 2008.
 (c)
    
    Debt repurchase offer (Tender) of notesOn July 24, 2006, (PifCo), a wholly owned subsidiary of the Company, concluded its debt
repurchase offer (Tender) announced on July 18, 2006. The amount of notes tendered for five
series of notes was US$888. The repurchased securities related to 2006 amounted to
US$1,046. Including the notes previously repurchased by the Company and its affiliates,
also included in the tender, the total value reached US$1,215.  The transaction was settled
on July 27, 2006, and all the notes tendered were canceled from this date. Upon conclusion
of the Tender PifCo incurred expenses in the total amount of US$160.(d)
    
    Debentures issueOn August 02, 2006 the Extraordinary General Meeting held by Alberto Pasqualini  REFAP
S.A., a subsidiary of the Company, approved the value of the private issue of simple,
nominative and book-entered debentures in the amount of US$391. The debentures were issued
in order to expand and modernize REFAPs industrial facilities and to raise its oil
processing capacity from 20,000 m3/day to 30,000 m3/day, in addition to increasing the
portion of national oils being processed.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings (Continued)
 (d)
    
    Debentures issue (Continued)
 The issue was made under the following terms: up to December 30, 2006, amortization over 96
months plus a 6-month grace period; 90% of the debentures shall be subscribed by the BNDES
yielding interest at the Long-term Interest Rate +3.8% p.a.; and 10% of the debentures
shall be subscribed by BNDES Participações S.A. (BNDESPAR) at the interest rate of the
BNDES basket of currencies + 2.3% p.a..On September 08, 2006, the Financing Contract was executed and the first installment was
made available in the amount of US$278. On December 19, 2006 was made available the
remaining amount of US$113.
 (e)
    
    Japanese Yen BondsOn September 27, 2006, PifCo concluded a private placement of securities in the Japanese
capital market (Shibosai) for a total of ¥35 billion (US$298) due September 2016. The
issue was a private placement in Japanese market with a partial guarantee of Japan Bank for
International Cooperation (JBIC) and bears interest at the rate of 2.15% per annum, payable
semiannually. In the same date, PifCo entered into a swap agreement with Citibank,
swapping the total amount of this debt to a U.S. dollar denominated debt. PifCo used the
proceeds principally to finance PNBV, an affiliate, for construction of lines
interconnecting the P-51, P-52 and P-53 production platforms to the PRA-1 autonomous
repumping unit. See note 20(d).(f)
    
    Notes  PESAOn May 07, 2007, Petrobras Energía S.A. (PESA), a company indirectly controlled by
Petrobras, issued notes amounting to US$300 with a term of 10 years and 5.875% interest
p.a. Interest will be paid semiannually and the principal will be paid in a single
installment at maturity. The issuance was made both in the Argentinean and in the
International market.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings (Continued)
 (g)
    
    Loan to Petrobras Netherlands BV (PNBV)On September 12, 2007 the subsidiary Petrobras Netherlands BV (PNBV) signed a loan
agreement with Banco Bilbao Vizcaya Argentaria (BBVA) for the amount of US$200, with
interest of 5.94% p.a. and a term of four years.In addition, PNBV contracted a line of credit with Banco Santander Overseas Bank, Inc. -
Santander for up to US$300. The term is for one year and may be extended for up to two
years in the full amount, and partially, for the full term of six years. The rate of
interest charged is 5.30% p.a..(h)
    
    Platform P-56 construction projectOn October 30, 2007, Petrobras signed an agreement with FSTP Consortium (Keppel Fels and
Technip) for the construction of the P-56 semi-submersible platform to allow production to
be anticipated at Module 3 of the Marlim Sul field, worth
approximately US$1,200, including the platforms engineering, supply, construction and assembly (hull
and process plant) services.(i)
    
    Credit facility agreement to finance exportsOn October 03, 2007, Petrobras contracted a credit facility of US$282 with the Banco do
Brasil. The transaction was ensured by an Export Credit Note (NCE), the sole purpose of
which is to increase Petrobras exports of ethanol, in light of the future prospects for
growth of biofuel business, as highlighted in the Companys strategic plan.This transaction marks the return of Petrobras to credit facility contracting in the local
market and was negotiated with the following terms:
 
    
    Term: 2 years, with settlement of the principal and interest at the end of the
term;
    
    Interest rate: 96.2% of the CDI;
    
    Clause providing for early repayment as from 180 days of the withdrawal with no
penalties;
    
    Exemption of IOF tax; and
    
    Waiver of guarantees.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings (Continued)
 (j)
    
    Guarantees and covenantsFinancial institutions abroad do not require guarantees from the Company. The financing
granted by BNDES  National Bank for Social and Economic Development is guaranteed by a
lien on the assets being financed.In guarantee of the debentures issued, REFAP has a short-term investment account (bank
deposits indexed to credit operations), tied to variations of the Interbank Deposit
Certificate  CDI.REFAP has to maintain three times the value of the sum of the last installment due of the
amortization of the principal and related charges.The Companys debt agreements contain affirmative covenants regarding, among other things,
provision of information; financial reporting; conduct of business; maintenance of
corporate existence; maintenance of government approvals; compliance with applicable laws;
maintenance of books and records; maintenance of insurance; payment of taxes and claims;
and notice of certain events. The Companys debt agreements also contain negative
covenants, including, without limitation, limitations on the incurrence of indebtedness;
limitations on the incurrence of liens; limitations on transactions with affiliates;
limitations on the disposition of assets; limitation on consolidations, mergers, sales
and/or conveyances; negative pledge restrictions; change in ownership limitations; ranking;
use of proceeds limitations; and required receivables coverages. Petrobras management
affirms that the Company is in compliance with the covenants within debt agreements.At December 31, 2007 and 2006, Gaspetro had secured certain debentures issued to finance
the purchase of the transportation rights in the Bolivia/Brazil pipeline with 3,000 shares
of its interest in TBG, a subsidiary of Gaspetro responsible for the operation of the
pipeline.
  F-62




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 12.
    
    Financings(Continued)
 (j)
    
    Guarantees and covenants(Continued)The Federal Government guarantees TBGs Multilateral Credit Agency debt, which had an
outstanding balance of US$330 and US$367 at December 31, 2007 and 2006, respectively.
During 2000, the Federal Government, the Company, TBG, Petroquisa and Banco do Brasil S.A.
entered into an agreement whereby the revenues of TBG will serve as a counter-guarantee to
this debt until the debt has been extinguished.Petrobras entered into standby purchase agreements in support of the obligations of its
wholly-owned subsidiary, PifCo, under the note issuances in 2001, 2002 and 2003 and their
respective indentures. Petrobras has the obligation to purchase from the noteholders any
unpaid amounts of principal, interest or other amounts due under the notes and the
indenture applies, subject to certain limitations, irrespective of whether any such
amounts are due at maturity of the notes or otherwise.(k)
    
    Lines of creditAt December 31, 2007 and 2006, the Company had fully utilized all available lines of
credit for the purchase of imports. Outstanding lines of credit at December 31, 2007 and
2006 were US$1,351 and US$1,370, respectively. Lines of credit are included in short-term
debt and long-term debt.
  F-63




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 13.
    
    Financial Income (Expenses), NetFinancial expenses, financial income and monetary and exchange variation on monetary assets
and liabilities, net, allocated to income for the years ended at December 31, 2007, 2006 and
2005 are shown as follows:
 Year ended December 31,2007
    
    
    2006
    
    
    2005Financial expensesLoans and financings
    
    
    (1,258
    )
    
    
    (1,076
    )
    
    
    (1,135
    )Project financings
    
    
    (608
    )
    
    
    (370
    )
    
    
    (334
    )Capitalized interest
    
    
    1,703
    
    
    
    1,001
    
    
    
    612Leasing
    
    
    (79
    )
    
    
    (105
    )
    
    
    (98
    )Losses on derivative instruments
    
    
    (67
    )
    
    
    (481
    )
    
    
    (103
    )Repurchased securities losses
    
    
    (38
    )
    
    
    (160
    )
    
    
    (17
    )Other
    
    
    (207
    )
    
    
    (149
    )
    
    
    (114
    )(554
    )
    
    
    (1,340
    )
    
    
    (1,189
    )Financial incomeInvestments
    
    
    824
    
    
    
    566
    
    
    
    337Customers
    
    
    231
    
    
    
    231
    
    
    
    84Government securities
    
    
    70
    
    
    
    79
    
    
    
    90Advances to suppliers
    
    
    26
    
    
    
    27
    
    
    
    33Other
    
    
    276
    
    
    
    262
    
    
    
    1661,427
    
    
    
    1,165
    
    
    
    710Monetary and exchange variation on
monetary assets and liabilities, net
    
    
    (1,455
    )
    
    
    75
    
    
    
    248(582
    )
    
    
    (100
    )
    
    
    (231
    )
  F-64




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 14.
    
    Project FinancingsThe Company has utilized project financings to provide capital for the continued development of
the Companys exploration and production and related projects.The special purpose entities associated with the project finance projects are consolidated
based on FIN 46(R) and the project financing obligation represents the debt of the consolidated
SPEs with the third-party lender.The Companys responsibility under these contracts is to complete the development of the oil
and gas fields, operate the fields, pay for all operating expenses related to the projects and
remit a portion of the net proceeds generated from the fields to fund the special purpose
companies debt and return on equity payments. At the conclusion of the term of each financing
project, the Company will have the option to purchase the leased or transferred assets from the
consolidated special purpose company.The following summarizes the liabilities related to the projects that were in progress at
December 31, 2007 and 2006:
 As of December 31,2007
    
    
    2006Transportadora Gasene
    
    
    1,212
    
    
    
    617Codajás (1)
    
    
    1,008
    
    
    
    411Barracuda/Caratinga
    
    
    1,004
    
    
    
    1,405PDET Offshore S.A.
    
    
    889
    
    
    
    662Companhia
Locadora de Equipamentos Petrolíferos  CLEP
    
    
    859
    
    
    
    963Charter Development  CDC (2)
    
    
    760
    
    
    
    876Cabiúnas
    
    
    666
    
    
    
    683Cia. de Desenvolvimento e Modernização de Plantas
Industriais  CDMPI
    
    
    510
    
    
    
    175Nova Marlim
    
    
    95
    
    
    
    142Nova Transportadora do Sudeste  NTS (3)
    
    
    61
    
    
    
    543Nova Transportadora do Nordeste  NTN (3)
    
    
    19
    
    
    
    449Espadarte/Voador/Marimbá (EVM) (4)
    
    
    
    
    
    
    282Other
    
    
    51
    
    
    
    129Repurchased securities (5)
    
    
    (856
    )
    
    
    (963
    )6,278
    
    
    
    6,374Current portion of project financings
    
    
    (1,692
    )
    
    
    (2,182
    )4,586
    
    
    
    4,192
 (1)
    
    Codajás consolidates Transportadora Urucu  Manaus S.A. which is responsible for the
Amazonia Project.  F-65




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 14.
    
    Project Financings(Continued)
 (2)
    
    Charter Development  CDC is responsible for Marlim Leste (P-53 project).(3)
    
    On June 15, 2007, the Nova Transportadora Nordeste-NTN and Nova Transportadora
Sudeste-NTS Companies (two Special Purpose Companies of Petrobras related to Malhas
Project) transferred to PifCo a Loan Agreement with M-GIC (a Facility Agent of JBIC  Japan Bank for International Cooperation). The
outstanding amount of the loan is US$394 and it bears interest of Libor plus 0.8% p.a.,
payable semi-annualy. The principal amount will also be paid semi-annualy starting on
December 15, 2009, up to December 15, 2014. As a consequence of this transfer, the NTN and
NTS issued some Notes to PifCo with the same characteristics of the loan (principal amount,
interest rate and amortization schedule).(4)
    
    EVM Project was concluded during 2007 and the obligation was settled.(5)
    
    At December 31, 2007 and 2006, the Company had amounts invested abroad in an
exclusive investment fund. These securities are considered to be extinguished, and thus
the related amounts, together with applicable interest have been removed from the
presentation of marketable securities and project financings (see also Note 5).   2009
    
    
    2,2362010
    
    
    1,2422011
    
    
    1012012
    
    
    1492013
    
    
    4482014 and thereafter
    
    
    4104,586
  Codajás
    
    
    945Cia. de Desenvolvimento e Modernização de Plantas Industriais  CDMPI
    
    
    393Transportadora Gasene
    
    
    275PDET Offshore S.A.
    
    
    160Charter Development  CDC
    
    
    1491,922
  F-66




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 14.
    
    Project Financings(Continued)The following summarizes the projects, their purposes, the guarantees and estimates
investments of each project:
 Main
    
    InvestmentProject
    
    Purpose
    
    guarantees
    
    amountBarracuda and
Caratinga
    
    To allow
development of
production in the
fields of Barracuda
and Caratinga in
the Campos Basin.
The SPE Barracuda
and Caratinga
Leasing Company
B.V. (BCLC), is in
charge of building
all of the assets
(wells, submarine
equipment and
production units)
required by the
project, and is
also the owner of
them.
    
    Guarantee provided
by Brasoil to cover
BCLCs financial
requirements.
    
    US$      3,100Marlim
    
    Consortium with
Companhia
Petrolífera Marlim
(CPM), which
furnishes to
Petrobras submarine
equipment for oil
production at the
Marlim field.
    
    70% of the field
production limited
to 720 days.
    
    US$      1,500Nova Marlim
    
    Consortium with
NovaMarlim Petróleo
S.A. (NovaMarlim)
which supplies
submarine oil
production
equipment and
refunds Petrobras
for operating costs
resulting from the
operation and
maintenance of
field assets, by
way of an advance
already made to
Petrobras.
    
    30% of the field
production limited
to 720 days.
    
    US$         834CLEP
    
    Companhia Locadora
de Equipamentos
Petrolíferos 
CLEP, furnishes
assets related to
oil production
located in the
Campos Basin
through a lease
agreement for the
period of 10 years,
and at the end of
which period
Petrobras will have
the right to buy
shares of the SPE
or project assets.
    
    Lease prepayments
in case revenue is
not sufficient to
cover payables to
the lenders.
    
    US$      1,250PDET
    
    PDET Offshore S.A.
is the future owner
of the Project
assets whose
objective is to
improve the
infrastructure to
transfer oil
produced in the
Campos Basin to the
oil refineries in
the Southeast
Region and to
export. The assets
will later be
leased to Petrobras
for 12 years.
    
    All of the
projects assets
will be pledged as
collateral.
    
    US$      1,180
  F-67




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 14.
    
    Project Financings(Continued)
 Main
    
    InvestmentProject
    
    Purpose
    
    guarantees
    
    amountMalhas  (NTN/NTS)
    
    Consortium formed
by Transpetro,
Transportadora
Nordeste Sudeste
(TNS), Nova
Transportadora do
Sudeste (NTS) and
Nova Transportadora
do Nordeste (NTN).
NTS and NTN supply
assets related to
natural gas
transportation. TNS
(a 100% Gaspetro
subsidiary)
supplies assets
that have already
been previously set
up. Transpetro is
the gas pipelines
operator.
    
    Prepayments based on transportation
capacity to cover any consortium cash
insufficiencies.
    
    US$      1,110CDMPI
(Modernization of
Revap)
    
    The objective of
this project is to
raise the Henrique
Lage (Revap)
refinerys national
heavy oil
processing
capacity, bringing
the diesel it
produces into line
with the new
national
specifications and
reducing pollution
levels. To achieve
this, the SPE Cia.
de Desenvolvimento
e Modernização de
Plantas Industriais
- CDMPI was
founded, which will
construct and lease
to Petrobras a
Retarded Coking
plant, a Coke
Naphtha
Hydrotreatment
plant and related
plants to be
installed at this
refinery.
    
    Prepaid rental to cover any cash
deficiencies of CDMPI.
    
    US$         900Cabiúnas
    
    Project with the
objective of
increasing gas
production
transportation from
the Campos Basin.
Cayman Cabiunas
Investment Co. Ltd.
(CCIC), supplies
assets to Petrobras
under an
international lease
agreement.
    
    Pledge of 10.4 billion
m3 of gas.
    
    US$         850Gasene
    
    Transportadora
Gasene S.A. is
responsible for the
construction and
future ownership of
pipelines to
transport natural
gas with a total
length of 1.4
thousand km and
transportation
capacity of 20
million cubic
meters per day,
connecting the
Cabiúnas Terminal
in Rio de Janeiro
to the city of
Catu, in Bahia
state.
    
    Pledge of Credit Rights.Pledge of shares of the SPE.
    
    US$      2,960
  F-68




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 14.
    
    Project Financings(Continued)
 Main
    
    InvestmentProject
    
    Purpose
    
    guarantees
    
    amountMarlim Leste (P-53
Project  CDC)
    
    To develop
production in the
Marlim Leste field,
Petrobras will use
a Stationery
Production Unit
(UEP), P-53, to be
chartered from
Charter Development
LLC, a company
incorporated in the
state of Delaware,
U.S.A.. The Bare
Boat Charter
agreement will be
effective for a
15-year period
counted from the
date of signature.
    
    All assets of the project
will be given in guarantee.
    
    US$      1,590Amazônia
(Codajás)
    
    Development of a
project in the Gas
and Energy area
that includes the
construction of a
385 km gas pipeline
between Coari and
Manaus, and a 285
km GLP pipeline
between Urucu and
Coari, both under
the responsibility
of Transportadora
Urucu  Manaus
S.A.; and the
construction of a
thermoelectric
plant, in Manaus,
with capacity of
488 MW through
Companhia de
Geração
Termoelétrica
Manauara S.A.
    
    Pledge of Credit Rights.Pledge of shares of the SPE.
    
    US$      1,370Mexilhão
    
    Construction of a
platform (PMXL-1)
to produce natural
gas at Mexilhão and
Cedros fields,
located in the
Santos Basin, in
São Paulo State,
which shall be held
by Companhia
Mexilhão do Brasil
(CMB), responsible
for obtaining the
funds necessary to
build such
platform. Once
built, the PMXL-1
will be leased to
Petrobras, holder
of the exploration
and production
concession in the
aforementioned
fields.
    
    To be defined.
    
    US$         756Albacora
    
    Consortium between
Petrobras and
Albacora Japão
Petróleo Ltda.
(AJPL), which
furnishes to
Petrobras oil
production assets
of the Albacora
field in the Campos
Basin.
    
    Pledge of assets.
    
    US$        170
  F-69




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 14.
    
    Project Financings(Continued)
 Main
    
    InvestmentProject
    
    Purpose
    
    guarantees
    
    amountAlbacora/
Petros
    
    Consortium between
Petrobras and
Fundação Petros de
Seguridade Social,
which furnishes to
Petrobras oil
production assets of
the Albacora field
in the Campos Basin.
    
    Pledge of assets.
    
    US$        240PCGC
    
    Companhia de
Recuperação
Secundária (CRSec)
supplies assets to
be used by Petrobras
in the fields Pargo,
Carapeba, Garoupa,
Cherne and others
through a lease
agreement with
monthly payments.
    
    Additional lease
payment if revenue
is not sufficient to
cover payables to
lenders.
    
    US$         134Termobahia
    
    Acquisition of 49%
of the interest held
by ABB-EV-Equity
Venture (ABB-EV) in
Termobahia,
comprised of shares
and credits via the
financial
structuring agreed
with the
Interamerican
Development Bank. An
SPE was structured
called Blade
Securities Ltd
(Blade),
headquartered in
Ireland, which shall
be the successor of
the rights held by
ABB-EV until
Petrobras presents a
strategic partner.
    
    None given.
    
    US$       39.6
  F-70




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 14.
    
    Project Financings(Continued)Exercise of option to purchase shares of EVM Leasing Co.On June 18, 2007, Braspetro Oil Company (BOC), a wholly owned subsidiary of Petrobras,
exercised its option to purchase all the shares of EVM Leasing Co., for US$123, the owner of
the assets, financed by the investors and financiers of the EVM project financing, in light of
the conclusion of the financing structure and other contractual obligations of the project
settled by Petrobras.As the Companys previous variable interest in EVM Leasing Company was being accounted for in
accordance with FIN 46(R), the 2007 share acquisition had no material impact on Petrobras
consolidated accounting records.P-55 and P-57 ProjectAs of December 31, 2006 there was a project to develop production at Module 3 in the Roncador
field (P-55) and Phase 2 of Jubarte field (P-57). A Deepwater charter LLC and a Deepblue
Charter LLC were responsible for jointly contracting four SPCs to build the UEP: one for the
P-55 hull, another for the P-57 hull, as well as two other for Generation and Compression
Modules for both UEPs. In 2007, Petrobras decided not to share the project and to develop it
by itself.
 
 15.
    
    Capital Lease ObligationsThe Company leases certain offshore platforms and vessels, which are accounted for as capital
leases. At December 31, 2007, assets under capital leases had a net book value of US$875
(US$970 at December 31, 2006).The following is a schedule by year of the future minimum lease payments at December 31, 2007:
 2008
    
    
    2732009
    
    
    2542010
    
    
    2012011
    
    
    882012
    
    
    322013
    
    
    72014 and thereafter
    
    
    3Estimated future lease payments
    
    
    858Less amount representing interest at 6.2% to 12.0% annual
    
    
    (120
    )Present value of minimum lease payments
    
    
    738Less current portion of capital lease obligations
    
    
    (227
    )Long-term portion of capital lease obligations
    
    
    511
  F-71




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 16.
    
    Employees Postretirement Benefits and Other Benefits
 (a)
    
    Employees postretirement benefits balancesThe balances related to Employees Postretirement Benefits are represented as follows:
 As of December 31,2007
    
    
    2006Health
    
    
    
    
    
    
    HealthPension
    
    
    Care
    
    
    Pension
    
    
    CareBenefits
    
    

Benefits
    
    

Benefits
    
    
    BenefitsCurrent liabilitiesDefined-benefit plan
    
    
    230
    
    
    
    259
    
    
    
    198
    
    
    
    190Variable Contribution plan
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    Employees postretirement projected benefits obligation
    
    
    364
    
    
    
    259
    
    
    
    198
    
    
    
    190Long-term liabilities
    
    
    4,678
    
    
    
    6,639
    
    
    
    4,645
    
    
    
    5,243Defined-benefit planEmployees postretirement projected benefits obligation
    
    
    5,042
    
    
    
    6,898
    
    
    
    4,843
    
    
    
    5,433Shareholders equity  Accumulated other comprehensive incomeDefined-benefit plan
    
    
    2,177
    
    
    
    1,406
    
    
    
    3,110
    
    
    
    1,495Variable Contribution plan
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    Tax effect
    
    
    (795
    )
    
    
    (478
    )
    
    
    (1,058
    )
    
    
    (508
    )Net balance recorded in shareholders equity
    
    
    1,544
    
    
    
    928
    
    
    
    2,052
    
    
    
    987
 (b)
    
    Pension plan  Fundação Petrobras de Seguridade Social  PetrosThe Fundação Petrobras de Seguridade Social (Petros) was established by Petrobras as a
private, legally separate nonprofit pension entity with administrative and financial
autonomy.The Petros plan is a contributory defined-benefit pension plan introduced by Petrobras in
July of 1970, to supplement the social security pension benefits of employees of Petrobras
and its Brazilian subsidiaries and affiliated companies. The Petros Plan is now closed to
new employees of the Petrobras system since September 2002, and as from July 1, 2007, the
Company introduced a new private pension plan, Petros Plan 2.
  F-72




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits(Continued)
 (b)
    
    Pension plan  Fundação Petrobras de Seguridade Social  Petros(Continued)In order to fund its objectives, Petros receives monthly contributions from the sponsoring
companies of the Petros Plan amounting to 12.93% of the salaries of participants in the
plan. Additionally Petros is funded by income resulting from the investment of these
contributions. The Companys funding policy is to contribute to the plan annually the
amount determined by actuarial calculations. In the calendar 2007 year, benefits paid
totaled US$835 (US$713 in 2006).The Companys liability related to future benefits to plan participants is calculated on
an annual basis by an independent actuary, based on the Projected Unit Credit method. The
assets that guarantee the pension plan are presented as a reduction to the net actuarial
liabilities.The actuarial gains and losses generated by the differences between the values of the
obligation and assets determined based on projections and the actual figures, are
respectively included or excluded from the calculation of the net actuarial liability and
recorded as Postretirement benefit reserves adjustments net of tax  pension cost, in
shareholders equity. Actuarial gains and losses are amortized during the average
remaining service period of the active employees of approximately 10 years at December 31,
2007, in accordance with the procedure established by SFAS 87.The relation between contributions by the sponsors and participants of the Petros Plan,
considering only those attributable to the Company and subsidiaries in the 2007 and 2006
financial years was 1.00 to 1.00. The Companys best estimate of contributions expected to
be paid in 2008 respective to the pension plan approximates US$369, with total pension
benefit payments in 2008 expected to be US$1,135.According to Constitutional Amendment No. 20, the computation of any deficit in the
defined-benefit plan in accordance with the actuarial method of the current plan (which
differs from the method defined in SFAS 87), must be equally shared between the sponsor
and the participants, by an adjustment to the normal contributions.
  F-73




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits(Continued)
 (b)
    
    Pension plan  Fundação Petrobras de Seguridade Social  Petros(Continued)New model of suplementary pension planOn April 19, 2006, the Company, aiming to achieve an agreement regarding its Supplementary
Pension Plan, presented to employee participants and retirees a proposal to bring
equilibrium to the actual Petros Plan and to implement a new plan, denominated Petros Plan
2.Execution of the proposal presented by the Companys Executive Board was subject to a
number of conditions, including the renegotiation of the Petros Plan Regulations, in
relation to the means of readjusting the benefits and pensions.The proposal submitted by the Company changed two conditions of the plan: i) salary
increases of active employees will no longer be passed to retired employees, who will be
entitled to inflation indexation (IPCA); and ii) eventual decreases in pensions provided by
the governmental plan will no longer be absorbed by Petros Plan.In return for accepting the renegotiation, the participants, retired members and pensioners
received the financial incentive of US$523 that was recorded as component of Other
operating expenses.On August 17, 2007, the Companys Executive Board approved changes in Petros Plan
regulations in relation to the agreement presented on April 19, 2006, which did not
materially affect the projected benefit obligation. Also, the Executive Board approved
changes in the Plan regulations to include the assumptions related to the two judicial
proceedings taken by some participants against Petros, which are: i) the lowering of age
for employees who joined Petrobras in 1978/1979; and ii) same coverage of governmental
pension for widows, that increased Employees postretirement benefits obligations -
Pension in the amount of US$449 and Accumulated other comprehensive income,
Postretirement benefit reserves adjustments net of tax   pension cost, in the amount of
US$296.On September 12, 2007, Petrobras and the subsidiaries sponsoring the Petros Plan, trade
union organizations and Petros signed an Agreement that will cover commitments with
pension plans in the amount of US$2,380, which will be covered in installments over the
next 20 years, as previously agreed during the renegotiation process, also providing
guarantees to such amount.
  F-74




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits(Continued)
 (b)
    
    Pension plan  Fundação Petrobras de Seguridade Social  Petros(Continued)New model of suplementary pension plan(Continued)As of December 31, 2007, Petrobras had a balance of US$1,907 linked to B Series National
Treasury Notes, classified as non-current asset, which will be used in the future as a
guarantee for the above mentioned Settlement Agreement (see Note 5).New benefits planOn June 22, 2007, the Supplementary Pensions Office approved the introduction of Petros
Plan 2. On July 1, 2007, Petrobras offered this new pension plan to the new employees as
well as those who have joined the Company after September 2002, and had no Pension Plan.This Plan was formulated according to the Variable Contribution  VC, or mixed model, with
the resources capitalized through particular accounts, retirement pensions established
according to the account balances, in addition to the coverage for social security risks
(disability and mortality before retirement) and the benefit payment options in case of
perpetual assistance system, with estimated pension reversal for dependents after the death
of the holder, or the quotas receiving regiment, for an unlimited period, in addition to
the guarantee of a minimum benefit.The Petros Plan 2 also includes a minimum benefit for payment of annuities which guarantees
coverage of the benefit to ensure it does not have a monetary value of under 30% of the
average contribution salary.Petrobras and the other sponsors will fully assume the contributions corresponding to the
period in which the new participants had no plan. This past service shall consider the
period from August 2002 or the date of admission up to August 29, 2007.The disbursements will be conducted over the first months of contributions up to the total
months the participant had no plan, and shall cover the portion relating to the
participants and sponsor.
  F-75




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits (Continued)
 (b)
    
    Pension plan  Fundação Petrobras de Seguridade Social  Petros(Continued)New benefits plan(Continued)The impacts related to the Petros Plan 2 were calculated by independent actuaries and were
accounted for in accordance with the standards established in SFAS 87, 132 and 158, which
increased Employees postretirement benefit obligations  Pension in the amount of
US$136 and Accumulated other comprehensive income, Postretirement benefit reserves
adjustments, net of tax  pension cost, in the amount of US$90.Plan assetsPlan assets are invested primarily in government securities, investment funds, equity
instruments and properties.The table below describes the types of plan assets:
 As of December 31,2007
    
    
    2006Defined-
    
    
    Variable
    
    
    Defined-Benefits
    
    
    Contribution
    
    
    BenefitsGovernment securities
    
    
    41
    %
    
    
    
    
    
    
    44
    %Investments funds
    
    
    33
    %
    
    
    100
    %
    
    
    27
    %Equity instruments
    
    
    20
    %
    
    
    
    
    
    
    20
    %Other
    
    
    6
    %
    
    
    
    
    
    
    9
    %100
    %
    
    
    100
    %
    
    
    100
    %
  F-76




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits (Continued)
 (b)
    
    Pension plan  Fundação Petrobras de Seguridade Social  Petros(Continued)Plan assets include the following securities of related parties:
 As of December 31,2007
    
    
    2006Petrobras common shares
    
    
    405
    
    
    
    304Petrobras preferred shares
    
    
    602
    
    
    
    429Government controlled companies
    
    
    129
    
    
    
    54Government securities
    
    
    6,806
    
    
    
    4,952Securities of other related parties
    
    
    172
    
    
    
    1718,114
    
    
    
    5,910
 Petros provided certain financing for the continued development of the Albacora oil and
gas field located in the Campos basin, that is classified as securities of other related
parties (see Note 14).The Company uses 6.32% as the expected long-term rate of return over inflation on Petros
assets. The Petros portfolio of investments as of December 31, 2007 was comprised of 74%
securities, 41% of which were held-to-maturity government securities that earn interest at
6% annually plus the IPCA (Consumer Price Index) variation and 33% of which were
Investments Funds that earn interest approximate to the CDI (Certificado de Depósito
Interbancário, or Interbank Deposit Certificate), which has been yielding more than 6%
annually. Thus, the Company considers a 6.32% long term interest rate appropriate to
calculate the expected return on assets, as such aligns with the composition of the Petros
asset portfolio.
  F-77




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits (Continued)
 (b)
    
    Pension plan  Fundação Petrobras de Seguridade Social  Petros(Continued)Plan assets(Continued)Petros has a significant volume of investments in government securities, mainly NTN-B
bonds, which by an agreement with the Supplementary Social Security Department will be
held-to-maturity being recorded at fair value, for which a net present adjustment was
required. Thus, the percentage of assets allocated in this investment will remain the same
over the short term.(c)
    
    Petrobras Energía  PEPSA (including PESA)Defined contribution planSupplementary Pension Plan for PersonnelIn November 2005, the Board of Directors of Petrobras Energía approved the implementation
of a defined voluntary contributions plan which all of the Companys employees may elect to
join Petrobras Energía. Through this plan, Petrobras Energía will make contributions to a
trust equivalent to the contributions made by the employees that will subscript to the plan
to a mutual fund or AFJP, at their choice, in conformity with a scheme defined for each
salary level. The participating employees may make voluntary contributions exceeding those
established in the mentioned scheme, which will not be considered for purposes of the
contributions to be made by Petrobras Energía.In the fiscal years ended December 31, 2007 and 2006, Petrobras Energía recorded an expense
of US$2 and US$1, respectively, attributable to such benefits.Defined benefit planIndemnity PlanThis is a defined benefit plan for all the employees who fulfill certain conditions, and
consists of granting, upon retirement, a one-month salary per years of service at the
Company, in conformity with a decreasing scale considering the years of effectiveness of
the plan.Compensating FundThis is a defined benefit plan for all employees of Petrobras Energía who have joined the
Company prior to May 31, 1995, and have reached a certain number of years of service. The
employee benefit is based on the last computable salary and years of service of each
employee included in the fund.
  F-78




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits(Continued)
 (c)
    
    Petrobras Energía  PEPSA (including PESA)(Continued)Defined benefit plan(Continued)Compensating Fund (Continued)The plan is of a supplemental nature, that is to say the benefit to the employee is
represented by the amount determined under the provisions of this plan, after deducting
benefits payable to the employee under the contribution plan and the public retirement
system, in order that the aggregate benefit to each employee equals the one stipulated in
this plan.The plan calls for a contribution to a fund exclusively by Petrobras Energía and without
any contribution by the employees, provided that they should make contributions to the
retirement system for their whole salary. As provided in Petrobras Energías By-laws, the
Company makes contributions to the fund on the basis of a Board of Directors proposal to
the Shareholders Meeting up to 1.5% of net income for each year. The assets of the fund
were contributed to a trust. The goals with respect to asset investment are: (i) the
preservation of capital in US dollars; (ii) the maintenance of high levels of liquidity,
and (iii) the attainment of the highest yields possible on a 30-days basis. For this
reason, the assets are invested mainly in bonds, corporate bonds, mutual funds, and
certificates of deposits. The Bank of New York is the trustee and Watson Wyatt is the
managing agent. Should there be an excess (duly certified by an independent actuary) of the
funds under the trust agreement to be used to settle the benefits granted by the plan,
Petrobras Energía will be entitled to make a choice and use it, in which case it would have
to notify the trustee thereof.(d)
    
    Other defined contribution plansSome Petrobras subsidiaries sponsor retirement plans for their employees, based on the
defined contribution model. These include Transpetro, Suzano Petroquímica S.A.,
Petroquímica Triunfo S.A. and TBG, the new plan of this company is currently being examined
by the Department of Coordination and Governance of State Companies (DEST), after which the
Regulations of the Plan will be sent to the Secretary for Supplementary Pension Funds
(SPC).(e)
    
    Health care benefits  Assistência Multidisciplinar de Saúde (AMS)Petrobras and its Brazilian subsidiaries maintain a health care benefit plan (AMS), which
offers defined benefits and covers all employees (active and inactive) together with their
dependents. Liquigás maintains and manage a separated health care benefit plan, which
offers defined benefits and covers LPG employees. Those plans are managed by the Company,
with the employees contributing fixed amounts to cover principal risks and a portion of the
costs relating to other types of coverage in accordance with participation tables defined
by certain parameters including salary levels.
  F-79




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits (Continued)
 (e)
    
    Health care benefits  Assistência Multidisciplinar de Saúde (AMS)(Continued)The Companys commitment related to future benefits to plan participants is calculated on
an annual basis by an independent actuary, based on the Projected Unit Credit method. The
health care plan is not funded or otherwise collateralized by assets. Instead, the Company
makes benefit payments based on costs incurred by plan participants.As from December 31, 2006, according to SFAS 158, the actuarial gains and losses generated
by the differences between the values of the obligation determined based on projections and
the actual figures, are respectively included or excluded from the calculation of the
actuarial obligation and recorded as Postretirement benefit reserves adjustments net of
tax  health care cost, as Accumulated other comprehensive income, in shareholders
equity.The gains and losses recorded as Accumulated other comprehensive income are amortized
over the average remaining service period of the active employees.On December 15, 2006, Petrobras implemented the Medicine Benefit, which provides special
terms on the acquisition of certain medicines by members of the AMS from participating
drugstores, located throughout Brazil.Following the introduction of this Benefit, the unrecognized prior service cost estimated
by independent actuary, as of December 31, 2006 was US$86, and is being amortized over the
average remaining service period of the active employees. The unrecognized prior service
cost was included in Accumulated other comprehensive income and presented in Change in
Benefit Obligations, as Plan Amendments.For measurement purposes, a 10% annual rate of increase in the per capita cost of covered
health care benefits was assumed upon adoption of SFAS 106. The annual rate was assumed to
decrease to 4.5% from 2007 to 2036.Assumed health care cost trend rates have a significant effect on the amounts reported for
the postretirement health care plans. A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
 One percentage
    
    
    One percentagepoint-increase
    
    
    point-decreaseEffect on total of services and interest cost
component
    
    
    140
    
    
    
    (112
    )Effect on postretirement benefit obligation
    
    
    1,068
    
    
    
    (870
    )
  F-80




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits (Continued)
 (f)
    
    Funded status of the plansThe funded status of the plans at December 31, 2007 and 2006, based on the report of the
independent actuary, and amounts recognized in the Companys balance sheets at those dates,
are as follows:
 2007
    
    
    2006Pension Plans
    
    
    Health
    
    
    
    
    
    HealthDefined-
    
    
    Variable
    
    
    Care
    
    
    Pension
    
    
    careBenefits (1)
    
    
    Contribution
    
    
    Benefits (2)
    
    
    Benefits (1)
    
    
    Benefits (2)Change in benefit obligation:Benefit obligation at beginning of year
    
    
    17,238
    
    
    
    
    
    
    
    5,433
    
    
    
    14,422
    
    
    
    4,974Service cost
    
    
    205
    
    
    
    31
    
    
    
    102
    
    
    
    174
    
    
    
    81Interest cost
    
    
    2,018
    
    
    
    7
    
    
    
    631
    
    
    
    1,712
    
    
    
    595Plan change
    
    
    449
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    519
    
    
    
    17
    
    
    
    (207
    )
    
    
    244
    
    
    
    (599
    )Benefits paid
    
    
    (835
    )
    
    
    
    
    
    
    (217
    )
    
    
    (713
    )
    
    
    (175
    )Variable contribution new pension plan
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    Plan amendments  Medicine benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86Other
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    Gain on translation
    
    
    3,802
    
    
    
    19
    
    
    
    1,156
    
    
    
    1,392
    
    
    
    471Benefit obligation at end of year
    
    
    23,381
    
    
    
    210
    
    
    
    6,898
    
    
    
    17,238
    
    
    
    5,433Change in plan assets:Fair value of plan assets at
beginning of year
    
    
    12,395
    
    
    
    
    
    
    
    
    
    
    
    9,413
    
    
    
    Actual return on plan assets
    
    
    3,680
    
    
    
    1
    
    
    
    
    
    
    
    2,447
    
    
    
    Companys contributions
    
    
    233
    
    
    
    49
    
    
    
    217
    
    
    
    187
    
    
    
    175Employees contributions
    
    
    166
    
    
    
    19
    
    
    
    
    
    
    
    135
    
    
    
    Benefits paid
    
    
    (835
    )
    
    
    
    
    
    
    (217
    )
    
    
    (713
    )
    
    
    (175
    )Other
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Gain on translation
    
    
    2,882
    
    
    
    7
    
    
    
    
    
    
    
    927
    
    
    
    Fair value of plan assets at end of year
    
    
    18,473
    
    
    
    76
    
    
    
    
    
    
    
    12,395
    
    
    
    Funded status
    
    
    (4,908
    )
    
    
    (134
    )
    
    
    (6,898
    )
    
    
    (4,843
    )
    
    
    (5,433
    )Amounts recognized in the balance sheet consist
of:Current liabilities
    
    
    (230
    )
    
    
    (134
    )
    
    
    (259
    )
    
    
    (198
    )
    
    
    (190
    )Long-term liabilities
    
    
    (4,678
    )
    
    
    
    
    
    
    (6,639
    )
    
    
    (4,645
    )
    
    
    (5,243
    )(4,908
    )
    
    
    (134
    )
    
    
    (6,898
    )
    
    
    (4,843
    )
    
    
    (5,433
    )Unrecognized net actuarial loss
    
    
    1,728
    
    
    
    16
    
    
    
    1,381
    
    
    
    3,097
    
    
    
    1,407Unrecognized prior service cost
    
    
    449
    
    
    
    146
    
    
    
    25
    
    
    
    13
    
    
    
    88Accumulated other comprehensive income
    
    
    2,177
    
    
    
    162
    
    
    
    1,406
    
    
    
    3,110
    
    
    
    1,495Net amount recognized
    
    
    (2,731
    )
    
    
    28
    
    
    
    (5,492
    )
    
    
    (1,733
    )
    
    
    (3,938
    )
 (1)
    
    Includes Petros (Petrobras group companies), PEPSA and PELSA pension benefits
obligations.(2)
    
    Includes AMS (Petrobras group companies) and Liquigás health care benefits
obligations.  F-81




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits(Continued)
 (f)
    
    Funded status of the plans(Continued)Net periodic benefit cost includes the following components:
 2007
    
    
    2006Pension Plans
    
    
    Health
    
    
    
    
    
    
    HealthDefined
    
    
    Variable
    
    
    Care
    
    
    Pension
    
    
    CareBenefits
    
    
    Contribution
    
    
    Benefits
    
    
    Benefits
    
    
    BenefitsService cost-benefits earned during the year
    
    
    205
    
    
    
    31
    
    
    
    102
    
    
    
    174
    
    
    
    81Interest cost on projected benefit obligation
    
    
    2,018
    
    
    
    7
    
    
    
    631
    
    
    
    1,712
    
    
    
    595Expected return on plan assets
    
    
    (1,497
    )
    
    
    (3
    )
    
    
    
    
    
    
    (1,157
    )
    
    
    Amortization actuarial loss
    
    
    169
    
    
    
    
    
    
    
    91
    
    
    
    322
    
    
    
    140Amortization prior service cost
    
    
    59
    
    
    
    4
    
    
    
    81
    
    
    
    
    
    
    
    Gain on translation
    
    
    56
    
    
    
    2
    
    
    
    73
    
    
    
    30
    
    
    
    111,010
    
    
    
    41
    
    
    
    978
    
    
    
    1,081
    
    
    
    827Employees contributions
    
    
    (163
    )
    
    
    (15
    )
    
    
    
    
    
    
    (133
    )
    
    
    Net periodic benefit cost
    
    
    847
    
    
    
    26
    
    
    
    978
    
    
    
    948
    
    
    
    827
 Changes in amounts recorded in accumulated other comprehensive income:
 Pension Plans
    
    
    HealthDefined
    
    
    Variable
    
    
    CareBenefits
    
    
    Contribution
    
    
    BenefitsAccumulated other comprehensive
income at beginning of year
    
    
    3,110
    
    
    
    
    
    
    
    1,495Net actuarial loss/(gain)
    
    
    (1,676
    )
    
    
    15
    
    
    
    (207
    )Amortization of actuarial
(loss)/gain
    
    
    (169
    )
    
    
    
    
    
    
    (91
    )Prior service cost
    
    
    449
    
    
    
    136
    
    
    
    Amortization of prior service cost
    
    
    (59
    )
    
    
    (4
    )
    
    
    (81
    )Gain on translation
    
    
    522
    
    
    
    5
    
    
    
    290Accumulated other comprehensive
income at end of year
    
    
    2,177
    
    
    
    162
    
    
    
    1,406
  F-82




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits(Continued)
 (f)
    
    Funded status of the plans(Continued)Components of Net Periodic Benefit Cost for next year:Amounts included in accumulated other comprehensive income at December 31, 2007, that are
expected to be amortized into net periodic postretirement cost during 2008 are provided
below:
 Pension Plans
    
    
    HealthDefined
    
    
    Variable
    
    
    CareBenefits
    
    
    Contribution
    
    
    BenefitsUnrecognized net actuarial loss
(gain)
    
    
    2
    
    
    
    
    
    
    
    59Unrecognized prior service cost
    
    
    58
    
    
    
    9
    
    
    
    2
 The main assumptions adopted in 2007 and 2006 for the actuarial calculation are summarized
as follows:
 2007
    
    2006Health Care
    
    
    
    Health CarePension Benefits
    
    Benefits
    
    Pension Benefits
    
    BenefitsDiscount rates
    
    Inflation:  4% + 6%
    
    Inflation:  4% + 6%
    
    Inflation:  4.5% + 6%
    
    Inflation:  4.5% + 6%Rates of increase
in compensation
levels
    
    Inflation: 4% + 2.4%
    
    Inflation: 4% + 2.4%
    
    Inflation: 4.5% + 2.02%
    
    Inflation: 4.5% + 2.02%Expected long-term
rate of return on
assets
    
    Inflation: 4% + 6.32%
    
    Not applicable
    
    Inflation: 4.5% + 6.19%
    
    Not applicableMortality table
    
    AT 2000*
    
    AT 2000*
    
    AT 2000*
    
    AT 2000*
 (*)
    
    Segregated by sex (male and female). Petrobras has aggregated information for all defined benefit pension plans. The domestic
benefit plans of Petrobras, BR Distribuidora, Petroquisa, and REFAP contain similar
assumptions and the benefit obligation related to PEPSA, the international plan, is not
significant to the total obligation and thus has also been aggregated. All Petrobras group
pension plans have accumulated benefit obligation in excess of plan assets.The determination of the expense and liability relating to the Companys pension plan
involves the use of judgment in the determination of actuarial assumptions. These include
estimates of future mortality, withdrawal, changes in compensation and discount rate to
reflect the time value of money as well as the rate of return on plan assets. These
assumptions are reviewed at least annually and may differ materially from actual results
due to changing market and economic conditions, regulatory events, judicial rulings, higher
or lower withdrawal rates or longer or shorter life spans of participants.
  F-83




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 16.
    
    Employees Postretirement Benefits and Other Benefits(Continued)
 (f)
    
    Funded status of the plans(Continued)According to the requirements of SFAS 87, and subsequent interpretations, the discount rate
should be based on current prices for settling the pension obligation. Applying the
precepts of SFAS 87 in historically inflationary environments such as Brazil creates
certain issues as the ability for a company to settle a pension obligation at a future
point in time may not exist as long-term financial instruments of suitable grade may not
exist locally as they do in the United States.Although the Brazilian market has been demonstrating signs of stabilization under the
present economic model, as reflected in market interest rates, it is not yet prudent to
conclude that market interest rates will be stable.(g)
    
    Cash contributions and benefit paymentsIn 2007, the Company contributed US$282 to its pension plans. In 2008, the Company expects
contributions to be approximately US$369. Actual contribution amounts are dependent upon
investment returns, changes in pension obligations and other economic factors. Additional
funding may ultimately be required if investment returns are insufficient to offset
increases in plan obligations.The following benefit payments, which include estimated future service, are expected to be
paid by the pension fund in the next 10 years:
 Pension Plans
    
    
    HealthDefined
    
    
    Variable
    
    
    CareBenefits
    
    
    Contribution
    
    
    Benefits2008
    
    
    1,133
    
    
    
    2
    
    
    
    2572009
    
    
    1,240
    
    
    
    4
    
    
    
    2922010
    
    
    1,355
    
    
    
    6
    
    
    
    3292011
    
    
    1,479
    
    
    
    8
    
    
    
    3712012
    
    
    1,617
    
    
    
    10
    
    
    
    416Subsequent five years
    
    
    10,430
    
    
    
    123
    
    
    
    2,837
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 17.
    
    Shareholders Equity
 (a)
    
    CapitalThe Companys subscribed and fully paid-in capital at December 31, 2007 and 2006 consisted
of 5,073,347,344 common shares and 3,700,729,396 preferred shares as retroactively restated
for the stock split mentioned in Note 26 (b). The preferred shares do not have any voting
rights and are not convertible into common shares and vice-versa. Preferred shares have
priority in the receipt of dividends and return of capital.On May 13, 2005, Petrobras management approved the proposed share split and the related
amendment to article 4 of the Companys by-laws. These issues were discussed by the
shareholders at the Extraordinary General Meeting (EGM) held on June 15, 2005.The Extraordinary General Meeting held on July 22, 2005, decided to effect a split of each
Companys share into four, resulting in a free distribution of 3 (three) new shares of the
same type for each original share, based on the shareholding structure at August 31, 2005.
At the same date, an amendment to article 4 of the Companys by-laws to cause capital be
divided into 4,386,151,700 shares, of which 2,536,673,672 are common shares and
1,849,478,028 are preferred shares, with no nominal value, was approved. This amendment to
the Companys bylaws is effective from September 1, 2005. The relation between the American
Depository Receipt (ADS) and shares of each class was changed from one to four shares for
one ADS.On May 11, 2007, the Board of Directors approved the change in the ratio of underlying
 shares issued in the Companys name and the American Depositary Shares (ADSs) from 4
(four) shares for each ADS to 2 (two) shares for each ADS. This change came into effect on
July 2, 2007. All per ADS information in the accompanying financial statements and notes
has been adjusted to reflect the result of the change in the ratio of underlying shares
issued in the Companys name and the ADSs.Current Brazilian law requires that the Federal Government retain ownership of 50% plus one
share of the Companys voting shares.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 17.
    
    Shareholders Equity(Continued)
 (a)
    
    Capital(Continued)Shareholders at the Extraordinary General Meeting held June 01, 2006, approved the
incorporation of shares in Petroquisa by Petrobras, pursuant to the re-ratification of the
Protocol of Merger and Incorporation on the share incorporation transaction executed by the
two companies. The Board of Directors of the Company approved the issue of 886,670
preferred shares of the Company in connection with the incorporation of shares in
Petroquisa by Petrobras.To implement the transaction, the exchange ratio for the shares to be used was based on the
net equity value of both companies at the base date of December 31, 2005, when 4,496
preferred shares issued by Petrobras were attributed to each batch of 1,000 common or
preferred shares issued by Petroquisa.No Petrobras shareholders had stated their intention to exercise the right to withdraw by
the legal deadline of July 07, 2006. Five Petroquisas shareholders with a total interest
of 1,015,910 shares exercised the right to withdraw by the established deadline (by July
05, 2006) and were reimbursed at the rate of R$153.47 (US$70.56) per batch of 1,000 shares,
using funds provided by Petroquisa, on July 10, 2006. Petrobras then acquired the shares
for the same price, thereby transferring ownership.On December 15, 2006, pursuant to article 29, section II of the Company By-laws, the Board
of Directors authorized the buyback of up to 91,500,000 of the preferred shares in
circulation for future cancellation, using funds from the profit reserves.The authorized timeframe for the repurchase expired in 2007 and the buyback option had not
been exercised.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 17.
    
    Shareholders Equity(Continued)
 (a)
    
    Capital(Continued)At an Extraordinary General Meeting held together with the General Ordinary Meeting, on
April 2, 2007, the shareholders of Petrobras approved an increase in the Companys capital
to US$24,623 (R$52,644 million) through the capitalization of revenue reserves accrued
during previous financial years, in the amount of US$1,647 (R$3,372 million), and of
statutory reserve, in the amount of US$492 (R$1,008 million), and without the issuance of
new shares, in accordance with article 169, paragraph 1, Law No. 6.404/76. This
capitalization aimed to bring the Companys capital in line with the investments of an oil
company given intensive use of capital and extended operating cycles.At an Extraordinary General Meeting held together with the General Ordinary Meeting, on
April 3, 2006, the shareholders of the Company approved an increase in the Companys
capital to US$22,397 (R$48,248 million) through the capitalization of retained earnings
accrued during previous financial years, in the amount of US$6,969 (R$15,012 million), and
without the issuance of new shares, in accordance with article 169, paragraph 1, Law no.
6,404/76. This capitalization aimed to bring the Companys capital in line with the
investments of an oil company given intensive use of capital and extended operating cycles.(b)
    
    Dividends and interest on shareholders equityIn accordance with the Companys by-laws, holders of preferred and common shares are
entitled to a minimum dividend of 25% of annual net income as adjusted under Brazilian
Corporate Law. In addition, the preferred shareholders have priority in the receipt of an
annual dividend of at least 3% of the book value of the shares or 5% of the paid-in capital
in respect of the preferred shares as stated in the statutory accounting records. As of
January 1, 1996, amounts attributed to shareholders as interest (see below) can be deducted
from the minimum dividend computation. Dividends are paid in Brazilian reais. The Company
paid US$778 in dividends during the year ended December 31, 2007 (2006  US$760, 2005 -
US$275). No withholding tax is payable on distributions of dividends made since January 1,
1996.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 17.
    
    Shareholders Equity(Continued)
 (b)
    
    Dividends and interest on shareholders equity(Continued)The Company provides either for its minimum dividends or for the total interest on
shareholders equity where the tax benefit has been recognized as of December 31.Brazilian corporations are permitted to attribute interest on shareholders equity, which
may either be paid in cash or be used to increase capital stock. The calculation is based
on shareholders equity amounts as stated in the statutory accounting records and the
interest rate applied may not exceed the Taxa de Juros de Longo Prazo (long-term interest
rate or the TJLP) as determined by the Brazilian Central Bank. Such interest may not
exceed the greatest of 50% of net income or 50% of retained earnings plus revenue reserves.
Interest on shareholders equity, is subject to withholding tax at the rate of 15%, except
for untaxed or exempt shareholders, as established by Law No. 9,249/95. The Company paid
US$3,225 in interest on shareholders equity during the year ended December 31, 2007 (2006
  US$2,453, 2005  US$1,835).Interest on shareholders equity was included with the proposed dividend for the year, as
established in the Companys by-laws, and generated an income tax and social contribution
credits of US$948 (US$994 in 2006, and US$791 in 2005) (see Note 3).The proposal for 2007 dividends that is being submitted by the Petrobras Board of Directors
for approval of the shareholders at the Ordinary General Meeting to be held on April 04,
2008, in the amount of US$3,715, conforms to the by-laws in regard to guaranteed rights of
preferred shares (article 5), include interest on capital, already approved by the Board of
Directors:
 
    
    on July 25, 2007, amounting to US$1,238, which was made available to shareholders
on January 23, 2008, based on the shareholding position of August 17, 2007, monetarily
restated in accordance with the SELIC rate variation as from December 31, 2007;
    
    on September 21, 2007, amounting to US$1,238, which will be made available to
shareholders by March 31, 2008, based on the shareholding position of October 05,
2007;
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 17.
    
    Shareholders Equity(Continued)
 (b)
    
    Dividends and interest on shareholders equity(Continued)
 
    
    on December 27, 2007, in the amount of US$744, which will be made available by
April 30, 2008, based on the shareholding position of January 11, 2008;
    
    on March 03, 2008, the final installment of interest on capital, in the amount of
US$371, together with the dividends of US$124, which will be made available based on
the shareholding position of April 04, 2008, the date of the Ordinary General Meeting
that will deliberate on the matter.
 Interest on shareholders equity is subject to withholding tax at the rate of 15%, except
for untaxed or exempt shareholders, as established by Law N° 9.249/95.The dividends and the final portion of the interest on shareholders equity will be paid on
a date to be established by the Ordinary General Meeting of Shareholders. These amounts
will be monetarily restated from December 31, 2007, to the initial date of payment,
according to the variation in the SELIC rate.Interest on shareholders equity was included with the proposed dividend for the year, as
established in the Companys By-laws.On April 02, 2007, the Ordinary General Meeting approved dividends referring to the year
end 2006, amounting to US$3,693, including interest on shareholders equity, for which
US$2,052 were made available to the shareholders on January 04, 2007, based on the share
position as of October 31, 2006, US$923 was provided on March 30, 2007, based on the share
position as of December 28, 2006, and the remaining balance of US$718, were provided within
the legal term on May 17, 2007, based on the share position as of April 02, 2007.Interest on capital amounts are subject to withholding tax at the rate of 15%, except for
untaxed or exempt shareholders, as established by Law No. 9,249/95. These dividends were
restated according to the Selic interest rate from December 31, 2006, to May 17, 2007, the
payment date.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 17.
    
    Shareholders Equity(Continued)
 (b)
    
    Dividends and interest on shareholders equity(Continued)The dividends related to the fiscal year ended December 31, 2005, approved at the General
Shareholders Meeting held April 3, 2006, in the amount of US$2,998, (including the
portions of interest on shareholders equity, in the amount of US$933, paid to the
shareholders on January 5, 2006, and in the amount of US$939, paid to the shareholders on March 22, 2006) were made available to
shareholders on May 23, 2006.Brazilian law permits the payment of dividends only from retained earnings as stated in the
statutory accounting records. At December 31, 2007, the Company had appropriated all such
retained earnings.In addition, at December 31, 2007, the undistributed reserve in appropriated retained
earnings, amounting to US$30,280, may be used for dividend distribution purposes, if so
approved by the shareholders, however, the Companys stated intent is to use such reserve
to fund working capital and capital expenditures.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 17.
    
    Shareholders Equity(Continued)
 (c)
    
    Basic and diluted earnings per shareBasic and diluted earnings per share amounts have been calculated as follows:
 Year ended December 31,2007
    
    
    2006
    
    
    2005Income before extraordinary item
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,186Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    158Net income for the year
    
    
    13,138
    
    
    
    12,826
    
    
    
    10,344Less priority preferred share dividends
    
    
    (813
    )
    
    
    (577
    )
    
    
    (426
    )Less common shares dividends, up to the
priority preferred shares dividends on a
per-share basis
    
    
    (1,115
    )
    
    
    (791
    )
    
    
    (584
    )Remaining net income to be equally allocated to
common and preferred shares
    
    
    11,210
    
    
    
    11,458
    
    
    
    9,334Weighted average number of shares outstandingCommon/ADS
    
    
    5,073,347,344
    (**)
    
    
    5,073,347,344
    (**)
    
    
    5,073,347,344
    (**)Preferred/ADS
    
    
    3,700,729,396
    (**)
    
    
    3,699,806,288
    (**)
    
    
    3,698,956,056
    (**)Basic and diluted earnings per shareCommon and preferred
    
    
    1.50
    (**)
    
    
    1.46
    (**)
    
    
    1.18
    (*)(**)Basic and diluted earnings per ADS
    
    
    3.00
    (**)
    
    
    2.92
    (**)
    
    
    2.36
    (*)(**)
 (*)
    
    Per share data is presented after extraordinary item .(**)
    
    Considers effect of 2 for 1 stock split that occurred on April 25, 2008 (see Note 26 (b)). (d)
    
    Capital reserves
 
    
    AFRMMRelates to the Merchant Marine (AFRMM) freight surcharges levied in accordance with
relevant legislation. These funds are used to purchase, enlarge or repair vessels of
the Companys transport fleet.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 17.
    
    Shareholders Equity(Continued)
 (d)
    
    Capital reserves(Continued)
 
    
    Fiscal incentive reserveThis reserve consists of investments in tax incentives in the Northeast Investment
Fund (FINOR), arising from allocations of part of the Companys income tax. It relates
to tax incentives in the Northeast, within the region covered by the Northeast
Development Agency (ADENE), granting a 75% reduction in income tax payable, calculated
on the profits of the exploration of the incentived activities. Up to December 31,
2007, this incentive amounted to US$601, which may only be utilized to offset losses
or for a capital increase, as provided for in Article 545 of the Income Tax
Regulations and has been accounted for under the flow through method.On May 10, 2007, the Brazilian Federal Revenue Office recognized Petrobras right to
deduct this incentive from income tax payable, covering the tax years of 2006 until
2015.
 (e)
    
    Appropriated retained earningsBrazilian Law and the Companys by-laws require that certain appropriations be made from
retained earnings to reserve accounts annually. The purpose and basis of appropriation to
such reserves are as follows:
 
    
    Legal reserveThis reserve is a requirement for all Brazilian corporations and represents the annual
appropriation of 5% of net income as stated in the statutory accounting records up to
a limit of 20% of capital stock. The reserve may be used to increase capital or to
compensate for losses, but may not be distributed as cash dividends.
    
    Undistributed earnings reserveThis reserve is established in accordance with Article 196 of Law No. 6,404/76 to fund
the Companys annual investment program. The destination of net income for the year
ended December 31, 2005 included retention of profits of US$6,453, with a US$6,449
amount, arising from net income for the year, and the US$4 retaining earnings
remaining balance. This retention was intended to cover partially the annual
investment program established in the 2006 capital budget, ad referendum of the
General Shareholders Meeting of April 3, 2006.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 17.
    
    Shareholders Equity(Continued)
 (e)
    
    Appropriated retained earnings(Continued)
 
    
    Undistributed earnings reserve (Continued)The destination of net income for the year ended December 31, 2006, includes retention
of profits of US$8,004 with a US$7,775 amount, arising from net income for the year,
and the US$229 retaining earnings remaining balance. This proposal is intended cover
to partially meet the annual investment program established in the 2007 capital
budget, ad referendum of the General Shareholders Meeting of April 2, 2007.The destination of net income for the year ended December 31, 2007, includes retention
of profits of US$7,954 with a US$7,951 amount, arising from net income for the year,
and the US$3 retaining earnings remaining balance. This proposal is intended cover to
partially meet the annual investment program established in the 2008 capital budget,
ad referendum of the General Shareholders Meeting to be held on April 4, 2008.
    
    Statutory reserveThis reserve is provided through an amount equivalent to a minimum of 0.5% of
subscribed and fully paid in capital at year-end. The reserve is used to fund the
costs incurred with research and technological development programs. The accumulated
balance of this reserve cannot exceed 5% of the capital stock, according to Article 55
of the Companys by-laws.
 
 18.
    
    Domestic and International Acquisitions
 (a)
    
    Change in the balance of goodwill for the years ended December 31, 2007 and 2006:
 Balance as of December 31, 2005
    
    
    237Cumulative translation adjustment
    
    
    6Balance as of December 31, 2006
    
    
    243USA trading and refining companies
    
    
    223Utilization of tax loss carryforwards
    
    
    (168
    )Cumulative translation adjustment
    
    
    15Balance as of December 31, 2007
    
    
    313
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 18.
    
    Domestic and International Acquisitions(Continued)
 (b)
    
    Ipiranga GroupOn April 18, 2007, Ultrapar (the Comissioner), having Braskem S.A. and Petróleo
Brasileiro S.A.  Petrobras (through a commission agreement) as intervening parties,
acquired control of companies comprising Ipiranga Group for the amount of US$2,694 (R$5,486
million) to be disbursed in three installments. On April 18, 2007, Ultrapar, Petrobras and
Braskem effected payment of the first installment, as established in the purchase and sale
agreement signed on March 18, 2007, in the amount of US$1,017 (R$2,071 million) relative to
the controlling shareholders portion of the Ipiranga Group, of which US$365 (R$743 million)
was paid by Petrobras.Under the agreement signed by Ultrapar, Braskem and Petrobras, Ultrapar took control over
the fuel and lubricant distribution businesses in the South and South-East regions
(Southern Distribution Assets), Petrobras will assume control over the fuel and lubricant
distribution businesses in the North, North-East and Central-West regions (Northern
Distribution Assets), and Braskem will obtain control over the petrochemical assets,
represented by Ipiranga Química S.A.(IQ), Ipiranga Petroquímica S.A. (IPQ) and over this
companys interests in Companhia Petroquímica do Sul (Copesul), with Petrobras also holding
an interest in the petrochemical assets. The oil refinery assets held by Refinaria de
Petróleo Ipiranga S.A (RPI) are shared equally by Petrobras, Ultrapar and Braskem.Ultrapar is responsible for the corporate reorganization of the companies acquired in order
to segregate the assets set aside for each company.The transaction was submitted to the approval of Brazilian antitrust authorities (the
Council for Economic Defense (CADE), the Office of Economic Law (SDE), the Economic
Monitoring Agency (SEAE)).A CADE document entitled Agreement to Preserve Reversibility of Transaction (APRO)
allowed Petrobras to select a manager and negotiate the implementation of a governance
policy that ensures the preservation of the assets and the rights of the minority
shareholders. With the APRO, the management of the distribution assets purchased by
Petrobras becomes separate from the management of the assets purchased by Ultrapar. The
APRO will be in the force until CADE aproves the acquisition of the Northern Distribution
Assets by Petrobras.With regard to the petrochemical businesses, on May 18, 2007, Petrobras and Braskem filed a
request to register a Tag-Along PO of IPQ, allowing private parties to purchase shares held
by the minority shareholders as at June 28, 2007. The value of the transaction was US$60
(R$118 million). On July 04, 2007, the CVM granted the application to waive this PO and, on
July 18, 2007, IPQs registration as a quoted company was cancelled.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 18.
    
    Domestic and International Acquisitions(Continued)
 (b)
    
    Ipiranga Group(Continued)The CVM granted the registration of the PO to close the capital of Copesul on August 10,
2007, and the auction to purchase common shares of Copesul was held on October 05, 2007.
The value of the operation was US$731 (R$1,294 million).In October and November of 2007, there were Public Offerings (PO) of the minority
shareholders of RPI, DPPI and CBPI. Petrobras paid out US$119 (R$211 million) for those
acquisitions.The RPI, DPPI, CBPI and Ultrapar Extraordinary General Meetings held on December 18, 2007,
decided in favor of the Incorporation of Shares and the Ipiranga Group preferred
shareholders received shares of Ultrapar in accordance with the pre-established ratio of
exchange.Ultrapar is carrying out the final stage of the process, implementing the corporate
reorganization of the Ipirangas Group companies with the objective of spinning-off and
transfer of the Petrochemical Assets, Northern Distribution Assets, Southern Distribution
Assets and Refinery Assets, according to the agreed by the parties. After the corporate
reorganization, Ultrapar will effect the transfer of the shareholdings as follows:(a) The shareholdings of the Petrochemical Assets to Braskem and Petrobras in the
proportion of 60% and 40%, respectively. Petrobras disbursement was US$233 (R$412 million);
and(b) Petrobras will receive 100% interest on the company created solely to receive the
Northern Distribution Assets (Alvo Distribuidora de Combustíveis Ltda.), Ipiranga Asfaltos
  IASA, and each one of the companies (Petrobras, Ultrapar and Braskem) will also receive
1/3 of RPI. These transfers, characterize the completion of the operation, with the
disbursement by Petrobras estimated in US$398 (R$706 million).Petrobras has not consolidated the Northern Distribution Assets, it in its financial
statements as the APROs agreement signed with CADE restricts the control over such assets,
including obtaining formal aproval for certain administrative, sales and operational
decisions.The purchase price of the Northern Distribution Assets has been allocated US$52, net of tax
to property, plant and equipment and US$229 to goodwill.The purchase price of the petrochemical assets has been allocated US$154, net of tax to
property, plant and equipment and US$194 to goodwill.The excess of allocation made to property, plant and equipment will be amortized over their
remaining useful life.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 18.
    
    Domestic and International Acquisitions(Continued)
 (b)
    
    Ipiranga Group(Continued)As of December 31, 2007, Petrobras had a balance of US$621 related to investments in
Northern Distribution Assets, recorded according equity method, based on October 31, 2007
financial statements, as defined by CADE through APRO, that establishes that Petrobras
only can receive Northern Distribution Assets, information with a lack of 60 days.As of December 31, 2007 Petrobras also had a balance of US$555 related to investments in
petrochemical assets, (represented by IQ and IPQ). Those investments were recorded
according to equity method, based on December 31, 2007 financial statements and Petrobras
interest of 40%.As of December 31, 2007, Petrobras had no balance related to investments in RPI, in which
Petrobras holds an interest of 33%, because the Company made a provision for loss in
investments in the amount of US$1.7.
 b.1)
    
    Braskem Investment AgreementOn November 30, 2007, an investment agreement was signed between Braskem, Odebrecht,
Petrobras, Petroquisa and Norquisa, by which it was agreed that the petrochemical
assets held by Petrobras and Petroquisa would be integrated in Braskem. With the
integration of these assets, expected to occur in 2008, the joint interest of
Petrobras and Petroquisa in the voting capital of Braskem will rise from 8.1% to 30%
and, in the total share capital, from 6.8% to 25%.The petrochemical assets that will be contributed by Petrobras and Petroquisa in
Braskem are: (i) 37.30% of the voting and total capital of Copesul; (ii) 40% of the
voting capital and total capital of IPQ; (iii) 40% of the voting and total capital
of IQ; (iv) 100% of the voting and total capital of Petroquímica Triunfo (Triunfo);
and (v) 40% of the voting and total capital of Petroquímica Paulínia (PPSA).Petrobras and Petroquisa will have the option to make a capital contribution in
Braskem up to 100% of the voting and total capital of Triunfo. In the event this
does not occur, Petrobras and Petroquisa may contribute by the amount in cash
related to the economic value of the assets.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 18.
    
    Domestic and International Acquisitions(Continued)
 (b)
    
    Ipiranga Group(Continued)
 b.1)
    
    Braskem Investment Agreement (Continued)Petrobras, Petroquisa, Odebrecht and Norquisa, with Braskem as the intermediary,
have already agreed the terms of the new shareholders agreement for Braskem
shareholders, which will be signed at the same time as the agreement on the
integration of the petrochemical assets, which will be effected at Extraordinary
General Meetings held by Braskem, IQ, IPQ, Copesul, PPSA and Triunfo, call
specifically for this purpose, within up to 6 (six) months as counted from November
30, 2007.The transaction was presented to the Brazilian antitrust authorities
((Administrative Board for Economic Defense (CADE), Office of Economic Law (SDE),
Secretary for Economic Monitoring (SEAE)), within the timeframes and in accordance
with the procedures specified in legislation in force.
 (c)
    
    Acquisition of Suzano Petroquímica S.A.On November 30, 2007, Petrobras acquired 76.58% of the total shares of Suzano Petroquímica
S.A, including 99.9% of the total common shares, for the amount of US$1,186 (US$7.49 per
common share and US$5.99 per preferred share). The purchase price has been allocated US$72,
net of tax to property, plant and equipment and US$5, net of tax, to inventories and the
remaining US$602 to goodwill.The allocation made to property, plant and equipment will be amortized over its remaining
useful life and the allocation to inventories has been fully amortized given the turn over.On the same date, Petrobras and Unipar entered into an Investment Agreement, in order to
create a new entity (CPS-Companhia Petroquímica do Sudeste). The creation of CPS
encompasses the transfer of the shares of Suzano Petroquímica S.A to CPS, and the transfer
of certain interest ownerships owned by Unipar to CPS. At the end of the structuring
process, Petrobras will hold 40% of interest in CPS and Unipar 60%.The Investment Agreement granted Unipar, during the structuring process of CPS, certain
veto rights that preclude Petrobras to govern the financial and operating policies of the
Suzano Petroquímica S.A.. The rights include rights to veto operating policies, expense
budgets, financing and investment plans, management compensation and termination and
distribution of dividends. Taking into consideration the lack of controlling power of
Petrobras during the structuring process, Suzano Petroquímica S.A was accounted for by the
equity method.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 18.
    
    Domestic and International Acquisitions(Continued)
 (c)
    
    Acquisition of Suzano Petroquímica S.A.(Continued)The transaction was presented to the Brazilian antitrust authorities (Administrative Board
for Economic Defense (CADE), Office of Economic Law (SDE), Secretary for Economic
Monitoring (SEAE)), within the timeframes and in accordance with the procedures specified
in legislation in force.(d)
    
    Acquisition of Pasadena RefineryOn September 1, 2006, the Company, through its wholly owned subsidiary Petrobras America
Inc., concluded the acquisition of 50% of the shares of Pasadena Refinery System, Inc., a
US based refining and trading company owned by the Belgian group Compagnie Nationale a
Portefeuille SA  CNP.  The purchase price was of approximately US$416 and was based on
economic valuation model of expected future earnings of the refinery.  Due to
immateriality, proforma information has not been presented.The acquisition was consumated principally to expand Petrobras international activities
according to the Strategic Plan.(e)
    
    Aquisition of Juiz de Fora Thermoelectric Power StationOn October 04, 2007, Petrobras purchased from Energisa S.A. 100% of the shares of the
Juiz de Fora Thermoelectric Power Station, a natural gas powered power station, with an
installed power-generation capacity of 87 MW, and which has supply contracts to sell
energy until 2022.In addition, Petrobras Comercializadora de Energia Ltda. and Energisa S.A. entered into a
contract for use of the rights to sell energy with the subsidiaries of Energisa in the
Northeast of Brazil. The purchase price was US$119 (R$210 million). Due to immateriality,
proforma information has not been presented.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 18.
    
    Domestic and International Acquisitions(Continued)
 (f)
    
    New International ProjectsOn November 09, 2007, Petrobras signed a share purchase agreement to buy 87.5% of the
 shares of the Japanese company Nansei Sekiyu Kabushiki Kaisha (NSS) from TonenGeneral
Sekiyu Kabushiki Kaisha (TGSK), a subsidiary of ExxonMobil for an amount of approximately
US$50. The acquisition includes a refinery with a capacity of 100,000 bpd, which refines
light oil and produces high quality oil products. It also comprises an oil and oil
products terminal with a storage capacity of 9.6 million barrels, three piers with a
capacity to receive ships laden with up to 97,000 deadweight tonnage (dwt) and a single
point mooring for Very Large Crude Carriers (VLCC) of up to 280,000 dwt. Due to
immateriality, proforma information has not been presented.The transfer of the share control is scheduled for April 2008.(g)
    
    Agreement for sale and association with Teikoku Oil Co. Ltd. in operations in EcuadorOn January 11, 2007, the Ministry of Energy and Mines of Ecuador approved the previous
agreement executed in January 2005 for the sale by Petrobras Energía S.A. (PESA), an
indirect subsidiary of Petrobras, to Teikoku of 40% of the rights and obligations of the
participation contracts in blocks 18 and 31, in Ecuador and the transfer of 40% of the oil
transportation contract with Oleoducto de Crudos Pesados Ltd. (OCP). As a result of this
approval, the parties are currently carrying out the necessary actions to obtain the
amendments to these participation contracts, which have to be approved by Petroecuador, to
incorporate Teikoku as a partner in these blocks. Once these amendments have been made, the
economic terms and conditions of this transaction will start to take effect.(h)
    
    Acquisition of businesses in Colombia, Paraguay and UruguayIn December 2005, Petrobras signed three Share Purchase Agreements for the acquisition of
fuel businesses (retail and trade markets) in Colombia and of total operations conducted by
Shell in Paraguay and Uruguay.In March 2006, Petrobras, through its controlled company Petrobras International Braspetro
B.V., acquired the business of commercialization and distribution of Shell in Paraguay,
related to fuel operations (retail and commercial market), including gas stations with
convenience stores in all Paraguayan territory; LPG commercialization assets; installations
for commercialization of aviation products for the airports in Asunción and Cidade Del
Este.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 18.
    
    Domestic and International Acquisitions(Continued)
 (h)
    
    Acquisition of businesses in Colombia, Paraguay and Uruguay(Continued)On April 28, 2006, Petrobras concluded the purchase of the assets of Shell in Colombia,
relating to the fuel distribution and commercialization. The acquisition comprises 39
service stations and convenience shops in Bogotá and surrounding areas, storage base and
lubricant mixing plant in Puente Aranda, and one terminal in Santa Marta.In June 2006, Petrobras acquired, via its subsidiary Petrobras International Braspetro B.V.
  PIB BV, Shells assets in Uruguay relating to the distribution and sale of fuel
throughout Uruguay.The Company paid US$116 for these acquisitions that are part of a package involving the
assets of Shell in Colombia, in Paraguay and in Uruguay.Due to immateriality, the Company has not prepared pro-forma information respective to this
business combination.(i)
    
    TermoMacaé Ltda. and TermoMacaé Comercializadora de Energia Ltda. (former Macaé
Merchant)In February 2005, the arbitration proceedings began related to the dispute between
Petrobras and El Paso arising from the economic and financial imbalance deemed to exist
relative to the construction and operation of the Macaé Merchant Thermoelectric Plant.
Petrobras claims such contract to be invalid and require re-negotiation as a result of
changed economics. Related to the disputes, Petrobras made a court ordered bank deposit
related to unpaid contingency the amounts, while awaiting final decision of the
Arbitration proceedings.In March 2006, Petrobras and El Paso agreed to settle certain disputes involving the Macaé
Merchant Consortium. Under this settlement, the capital participation contract was
terminated and El Paso finalized the sale of the plant to Petrobras, which in April 2006
paid US$357 to acquire the companies TermoMacaé Ltda (f.k.a. El Paso Rio Claro Ltda.) and
TermoMacaé Comercializadora de Energia Ltda. (f.k.a. El Paso Rio Grande Ltda.),
terminating the Macaé Merchant Consortium Contract and thereby settling the controversies.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 18.
    
    Domestic and International Acquisitions(Continued)
 (i)
    
    TermoMacaé Ltda. and TermoMacaé Comercializadora de Energia Ltda. (former Macaé
Merchant)(Continued)Under the acquisition process, El Paso gave guarantees to Petrobras relating to certain
liabilities, limited to US$120, including approximately US$78, referring to a federal tax
assessment, which El Paso believes it has excellent chances of successfully contesting,
and for which it has presented its defense to the Brazilian tax authorities. In respect of
the acquisition of the assets, any successes involving given tax benefits, tax receivables
and potential recoveries on financial revenues shall be prorated between Petrobras and El
Paso as mutually agreed.On July 05, 2006, Petrobras was reimbursed for the amounts deposited by virtue of the
preliminary decision pronounced by the Arbitral Tribunal, to the amount of US$259,
including financial yields, given the dismissal of the Arbitration Proceeding.The Companys previous variable interest in TermoMacaé was being accounted for in
accordance with FIN 46(R) and the 2006 share acquisition was accounted for as a business
combination but had no material impact on Petrobras consolidated accounting records. Due
to immateriality, proforma information has not been presented.
 
 19.
    
    Commitments and ContingenciesPetrobras is subject to a number of commitments and contingencies arising in the normal course
of its business. Additionally, the operations and earnings of the Company have been, and may be
in the future, affected from time to time in varying degrees by political developments and laws
and regulations, such as the Federal Governments continuing role as the controlling
shareholder of the Company, the status of the Brazilian economy, forced divestiture of assets,
tax increases and retroactive tax claims, and environmental regulations. The likelihood of such
occurrences and their overall effect upon the Company are not predictable.The Company currently has several contracts to purchase crude oil, diesel fuel and other oil
products, which require the Company to purchase a minimum of approximately 216,800 barrels per
day at respective current market prices.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)Petrobras provided guarantees to the ANP for the minimum exploration program defined in the
concession contracts for exploration areas, totaling US$2,984 (US$2,425 in 2006). Out of this
total, US$1,302 (US$1,137 in 2006) represents a pledge on the oil to be extracted from
previously identified fields already in production, for areas in which the Company had already
made commercial discoveries or investments. For areas whose concessions were obtained by
bidding from the ANP, Petrobras has given bank guarantees totaling US$506 through December 31,
2007 (US$372 in 2006).In 1993, the Company signed a long-term contract to buy natural gas (The Gas Supply Agreement
or GSA) with Yacimientos Petrolíferos Fiscales Bolivianos, the Bolivian state oil company for
the purchase of natural gas. Under this contract, with maturity in 2019, the Company is
required to purchase 80% of the natural gas transported through the Bolivia/Brazil natural gas
pipeline over a 20 year term at contract prices ranging from US$1.07 per MMBTU to US$1.17
MMBTU, based upon throughput. The pipeline achieved an average throughput of 26.3 million cubic
meters per day during 2007.The Company has exclusive supply contracts with certain service stations. These contracts are
typically for seven years and require the Company to sell product at market prices.
 (a)
    
    LitigationThe Company is a defendant in numerous legal actions involving civil, tax, labor, corporate
and environment issues arising in the normal course of its business. Based on the advice of
its internal legal counsel and managements best judgment, the Company has recorded
accruals in amounts sufficient to provide for losses that are considered probable and
reasonably estimable. At December 31, 2007 and 2006, the respective amounts accrued by type
of claims are as follows:
 As of December 31,2007
    
    
    2006Labor claims
    
    
    58
    
    
    
    38Tax claims
    
    
    149
    
    
    
    47Civil claims
    
    
    155
    
    
    
    97Commercials claims and other contingencies
    
    
    20
    
    
    
    51Total
    
    
    382
    
    
    
    233Current contingencies
    
    
    (30
    )
    
    
    (25
    )Long-term contingencies
    
    
    352
    
    
    
    208
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (a)
    
    Litigation(Continuation)As of December 31, 2007 and 2006, in accordance with Brazilian law, the Company had paid
US$977 and US$816, respectively, into federal depositories to provide collateral for these
and other claims until they are settled. These amounts are reflected in the balance sheet
as restricted deposits for legal proceedings and guarantees.The Company is a party to several contracts related to the acquisition and upgrade of
production Platform P-36, which was lost in its entirety in 2001. Pursuant to those
contracts, the Company had an obligation to pay the insurance proceeds to a Security Agent
for distribution according to specified clauses established in the contracts. The Company
contends that it is entitled to the insurance proceeds under the contractual arrangements,
and other parties contend that they are also entitled to such proceeds. The issue is
subject to international proceedings in a British court. Pending determination of the issue
by the international court, the Company committed to deposit cash collateral in the amount
of US$175, in order to facilitate the issuance of a guarantee by a Security Agent, for the
payment of creditors. Pursuant to the verdict handed down by the foreign Court on December
15, 2005, payments were made to the Company, on account of the bank guarantee, amounting to
US$171. On January 4, 2006, the guarantee provider confirmed that the guarantee was
cancelled.The trial was divided into two stages. The first stage was in October 2003, with a decision
being handed down on February 2, 2004. The terms of the decision are complex and subject to
appeal. In summary: (i) neither Petrobras nor Brasoil have been considered to have
defaulted on their obligations; (ii) Petromec and Marítima are subject to reimbursing
Brasoil for approximately US$58 plus interest; and (iii) Petromec and Marítima are not
liable for delays or unfinished work.On July 15, 2005, a verdict was handed down determining that the insurance indemnification
belongs to Brasoil, except the amount of US$0.629 plus interest that is to be paid to the
other parties in the litigation, as well as an additional amount of US$1.5 that is to be
held on deposit until the result of certain ending matters.Following the trial in February 2004, Petromec amended the legal suit claiming the amount
of US$131 plus interest and/or financial costs up to the date of the trial in additional
costs for upgrading work carried out and, alternatively, for damages for perjury, but
without stipulating the amount of damages. The perjury trial took place between January 16
and February 09, 2006 and the verdict delivered on June 16, 2006 ruled Petromecs claims to
be without merit. Petromec did not submit an appeal and this decision is final.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (a)
    
    Litigation(Continued)A preliminary judgment on the method to be used to calculate the Petromecs claim was held
on June 26 and 27, 2007. On July 6, 2007 the Court handed down its decision in favor of the
methodology defended by the Company. Petromec obtained permission to appeal the decision
and the Court decided to suspend the process until the appeal is judged. On November 27,
2007 the appeal was heard and, on December 21, 2007 the Court rejected almost all of
Petromecs appeal. Judgment of the claim for additional costs is scheduled to take place in
2009.Plaintiff: Porto Seguro Imóveis Ltda.On November 23, 1992, Porto Seguro Imóveis Ltda., a minority shareholder of Petroquisa,
filed a suit against Petrobras in the State Court of Rio de Janeiro related to alleged
losses resulting from the sale of a minority holding by Petroquisa in various petrochemical
companies included in the National Privatization Program introduced by Law No. 8,031/90.In this suit, the plaintiff claims that Petrobras, as the majority shareholder in
Petroquisa, should be obliged to reinstate the loss caused to the net worth of
Petroquisa, as a result of the acts that approved the minimum sale price of its holding in
the capital of privatized companies. A decision was handed down on January 14, 1997, that
considered Petrobras liable with respect to Petroquisa for losses and damages in an amount
equivalent to US$3,406.In addition to this amount, Petrobras was required to pay the plaintiff 5% of the value of
the compensation as a premium (see art. 246, paragraph 2 of Law No. 6,404/76), in addition
to attorneys fees of approximately 20% of the same amount. However, since the award would
be payable to Petroquisa and Petrobras holds 99.0% of its capital, the effective
disbursement if the ruling is not reversed will be restricted to 25% of the total award.
Petrobras filed an appeal with the State Court of Rio de Janeiro, and received a favorable
decision from the Third Civil Court on February 11, 2003, which, by a majority vote,
accepted Petrobras appeal to reverse the judgment and ruled the plaintiffs case to be
without grounds, the revising judges decision that held the case to be partially with
grounds to reduce the amount of compensation to US$1,538 being overruled. Against this
decision, Porto Seguro filed another appeal (motion to reverse or annul) with the State
Court of Rio de Janeiro, and the Fourth Civil Court handed down a unanimous decision on
March 30, 2004, requiring Petrobras to indemnify Petroquisa and Porto Seguro the amounts of
US$2,359 and US$590, respectively (the latter representing 5% in premium and 20% in
attorneys fees). Due to this result, Petrobras lodged appeal with high and supreme courts,
which was dismissed. In view of this decision, interlocutory appeal was filed with High
Court  STJ and Supreme Court  STF, which was converted into Special Appeal by STJ.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (a)
    
    Litigation(Continued)Plaintiff: Porto Seguro Imóveis Ltda. (Continued)On May 6, 2005, the Superior Court of Justice (STJ) accepted the interlocutory appeal and
determined that the special appeal was to be proceeded with. Porto Seguro lodged an appeal
against the interlocutory decision, which was accepted by a majority vote on December 15,
2005, and suspension of the special appeal filed by Petrobras was reinstated. The Company
filed an Interlocutory appeal against this latest decision, which was ruled on April 4,
2006, and which unanimously overturned a decision which restored the impediment on the
Special Appeal brought by Petrobras, due to an impediment on one of the justices,
determining another decision be pronounced. Special Appeal by Porto Seguro rejected under a
judgment delivered on September 05, 2006. In performance of the decision published on June
05, 2006, we are now awaiting assignment of the agenda to re-examine the matter relating to
the blocking of Petrobras Special Appeal. If the award is not reversed, the indemnity
estimated to Petroquisa, including monetary correction and interest, would be US$6,403. As
Petrobras owns 100% of Petroquisas share capital, a portion of the indemnity estimated at
US$4,226, will not represent a disbursement from Petrobras Group. In case of loss,
Petrobras would have to pay US$320 to Porto Seguro and US$1,281 to Lobo & Ibeas by means of
attorneys fees, however based on the opinion of its legal advisers, the Company does not
expect to obtain an unfavorable ruling in this case and considers the risk of loss with
respect to this lawsuit to be possible.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (a)
    
    Litigation(Continued)Plaintiff: The Fishermans Federation of the State of Rio de Janeiro (FEPERJ)The Fishermans Federation of the State of Rio de Janeiro (FEPERJ) filed a civil suit
against the Company with the Rio de Janeiro State Court for compensation of miscellaneous
damages amounting to US$224, which it is claiming in the name of its members, as a result
of the oil spill in Guanabara Bay on January 18, 2000. At that time, Petrobras paid out
extrajudicial indemnification to everyone who proved to be fishermen when the accident
occurred. According to the records of the national fishermens register, only 3,339 could
claim indemnification. On February 02, 2007, a decision, partly accepting the expert
report, was published. That expert report was prepared to establish the parameters for
calculating the award, which amounted to US$516 at that date. Petrobras appealed against
this decision before the Rio de Janeiro Court of Appeal, as the parameters stipulated in
the decision are different to those that had already been specified by the Rio de Janeiro
Court of Appeal itself. The appeal was accepted. The decision handed down by the First
Civil Chamber of the Court of Appeals of the State of Rio de Janeiro was published on June
29, 2007, denying approval of the appeal filed by Petrobras and approving the appeal filed
by FEPERJ, which represents a significant increase in the value of the damages to be
awarded, since in addition to having maintained the 10 years indemnification period, it
increased the number of fishermen included in the claim. In September 2007, Petrobras
obtained annulment of this decision, the court determining that the appeals be re-examined
by the original court. The Company is waiting further expert accounting audits to redefine
the amounts. In accordance with the Companys expert assistant calculation, the recorded
amount of US$17 represents the award that will be set by the court at the end of the
process. Based on its legal counsels opinion, the Companys Management believes it is
possible that the Company will not prevail in this case.Plaintiff: Distribution CompaniesThe Company was sued in court by certain small oil distribution companies under the
allegation that it does not pass on to state governments the State Value-Added Tax (ICMS)
collected according to the legislation upon fuel sales. These suits were filed in the
states of Goiás, Tocantins, Bahia, Pará, Maranhão and in the Federal District.Of the total amount related to legal actions of approximately US$412, up to December 31,
2007 some US$45 (US$38 in 2006) had been withdrawn from the Companys accounts as a result
of judicial rulings of advance relief, which were annulled as a result of an appeal filed
by the Company.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (a)
    
    Litigation(Continued)Plaintiff: Distribution Companies (Continued)The Company, with the support of the state and federal authorities, has succeeded in
stopping the execution of other withdrawals, and is making all possible efforts to obtain
reimbursement of the amounts that were previously withdrawn from its accounts.Plaintiff: IBAMA (Brazilian Institute for the Environment and Renewable Resources)Failure to comply with the Settlement and Commitment Agreement (TAC) clause relating to
Campos Basin of 08/11/2004 by continuing drilling without prior consent. The lower
administrative court sentenced Petrobras to pay for the non-compliance to the TAC. The
Company filed an administrative appeal which is awaiting judgment. The maximum exposure
including monetary restatement for Petrobras as at December 31, 2007, is US$149. Based on
its legal counsels advice, the Company has assessed risk of loss to be possible.(b)
    
    Notification from the INSS  joint liabilityThe Company received various tax assessments related to social security amounts payable as
a result of irregularities in presentation of documentation required by the INSS, to
eliminate its joint liability in contracting civil construction and other services,
stipulated in paragraphs 5 and 6 of article 219 and paragraphs 2 and 3 of article 220 of
Decree No. 3,048/99.In order to guarantee the appeals filing and/or the obtainment from INSS of Debt Clearance
Certificate, US$66 from the amounts disbursed by the Company is recorded as restricted
deposits for legal proceedings and guarantees and may be recovered under the respective
proceedings in progress, which are related to 339 assessments amounting to US$205.
Petrobras legal department expects a possible defeat regarding these assessments, as it
considers the risk of future disbursement to be possible.Petrobras had disbursed during 2007 US$0.242 (US$35 in 2006), referring to administrative
suits filed by the INSS claiming the Companys joint liability.Internally, procedures were revised to improve the inspection of contracts and require the
presentation of documents, as stipulated in the legislation, to substantiate the payment of
INSS amounts due by contractors. Petrobras continues to analyze each tax assessment
received in order to recover amounts, as permitted through administrative processes of the
INSS.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (c)
    
    Tax assessmentsPlaintiff: Internal Revenue Service of Rio de Janeiro  Withholding Income Tax related to
charter of vesselsThe Internal Revenue Service of Rio de Janeiro filed two Tax Assessments against the
Company in connection with Withholding Income Tax (IRRF) on foreign remittances of payments
related to charter of vessels of movable platform types for the years 1998 through 2002.The Internal Revenue Service, based on Law No. 9,537/97, Article 2, considers that drilling
and production platforms cannot be classified as sea-going vessels and therefore should not
be chartered but leased. Based on this interpretation, overseas remittances for servicing
chartering agreements would be subject to withholding tax at the rate of 15% or 25%.The Company disagrees with the Internal Revenue Services interpretation as to charter
contracts, given that the Federal Supreme Court has already ruled that, in the context of
its judgment with respect to the IPI (Federal VAT) tax, offshore platforms are to be
classified as sea-going vessels. Additionally, the 1994 and 1999 Income Tax Regulations
support the non-taxation (RIR/1994) and the zero tax rate (RIR/1999) for the
remittances in question.On June 27, 2003, the Internal Revenue Service served a tax assessment notice on the
Company amounting to R$3,064 million (US$1,066) covering the period from 1999 to 2002.
Using the same arguments, on February 17, 2003, another tax assessment notice had already
been issued for R$93 million (US$32) with respect to 1998, against which, on March 20,
2003, the Company filed an appeal. According to the fiscal authorities, the Company should
have withheld that tax, incident on remittances made to abroad for payment of the hiring of
vessels of the mobile platform type, used in oil exploration and production.Petrobras has defended itself against these tax assessments. Administrative appeals were
lodged with High Court of Appeals for Fiscal Matters, last administrative level, which
still await trial. The maximum exposure including monetary restatement for Petrobras as of
December 31, 2007, for the period 1998 is US$68 and for the period 1999 to 2002 is
US$2,303. Based on its legal counsels advice, the Company has assessed risk of loss to be
possible.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (c)
    
    Tax assessments(Continued)Plaintiff: Rio de Janeiro state finance authorities  II and IPI Tax related to the Sinking
of P-36 PlatformRio de Janeiro state finance authorities filed a Tax Assessment against the Company in
connection with II (Import Tax) and IPI (Federal VAT) related to the Sinking of P-36
Platform. Trial court ruling against Petrobras. An appeal was lodged, which is pending
judgment. Petrobras filed for a writ of mandamus and obtained an injunction that barred tax
collection until the investigations determining the reasons causing the sinking of the
platform have been concluded. The Federal Government / National Finance Office have filed
an appeal which is pending judgment. With the decision of the Maritime Court, the Company
filed a Tax Debt Annulment Lawsuit and obtained an injuction suspending the collection of
the tax. The maximum exposure including monetary restatement for Petrobras as of December
31, 2007, is US$101 of II and US$55 of IPI. Based on its legal counsels advice, the
Company has assessed risk of loss to be possible.Plaintiff: Rio de Janeiro state finance authorities  II and IPI Tax related to Termorio
equipmentsRio de Janeiro state finance authorities filed a Tax Assessment against the Company in
connection with II (Import Tax) and IPI (Federal VAT) contesting the tax classification as
Other Electricity Generation Groups for the import of the equipment belonging to the
thermoelectric power station Termorio S.A. On August 15, 2006, Termorio submitted a
contestation of the tax assessment to the Federal Revenue Department.On September 15, 2006, the case was referred to the Federal Revenue Service in
Florianópolis, where it is still being examined under administrative proceedings. The
maximum exposure including monetary restatement for Petrobras as of December 31, 2007, is
US$326. Based on its legal counsels advice, the Company has assessed risk of loss to be
possible.Plaintiff: Alagoas state finance authoritiesAlagoas state finance authorities filed a Tax Assessment against the Company in connection
with reversal of ICMS Credit. Petrobras is awaiting judgment of the appeal by the second
administrative level. The maximum exposure including monetary restatement for Petrobras as
of December 31, 2007, is US$45. Based on its legal counsels advice, the Company has
assessed risk of loss to be possible.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Expressed in Millions of United States Dollars  (except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (c)
    
    Tax assessments(Continued)Plaintiff: Federal Revenue Service  Contribution of Intervention in the Economic Domain -
CIDEThe Federal Revenue service filed a Tax Assessment against the Company due to non-payment
in the period of March 2002 to October 2003 of the Contribution of Intervention in the
Economic Domain  CIDE, the per-transaction tax payable to the Brazilian government,
required to be paid by producers, blenders and importers upon sales and purchases of
specified oil and fuel products at a set amount for different products based on the unit of
measurement typically used for such products, pursuant to court orders obtained by
Distributors and Fuel Stations, protecting them from levying of this charge. The lower
court ruled the charge was correct. Petrobras filed a Voluntary Appeal. The maximum
exposure for Petrobras, including monetary restatement, as at December 31, 2007 is US$597.
Based on its legal counsels advice, the Company has assessed risk of loss to be possible.Plaintiff: State Revenue Service of São PauloSão Paulo state finance authorities filed a Tax Assessment against the Company in
connection with the exclusion of the imports of natural gas from Bolívia from the ICMS
taxation. The lower court ruled the charge was correct. Petrobras filed a Voluntary Appeal.
The maximum exposure for Petrobras, including monetary restatement, as December 31, 2007 is
US$382. Based on its legal counsels advice, the Company has assessed risk of loss to be
possible.Plaintiff: Federal Revenue ServiceThe Federal Revenue Service filed a Tax Assessment against the Company related to IRRF -
Withholding Income Tax on remittances to pay for oil imports. The claim was accepted by the
lower court. An Appeal was filed by the Federal Revenue Office to the Council of Taxpayers,
which was accepted. Petrobras is awaiting notification in order to file a voluntary appeal.
The maximum exposure including monetary restatement for Petrobras as at December 31, 2007
is US$391. Based on its legal counsels advice, the Company has assessed risk of loss to be
possible.Plaintiff: State Revenue Service of Rio de JaneiroRio de Janeiro state finance authorities filed a Tax Assessment against the Company in
connection with 2003 late payment fine on payment made by voluntary admission of the
corporate income tax and social contribution on net income. The lower court ruled the
charge was correct. Petrobras filed a Voluntary Appeal. The maximum exposure including
monetary restatement for Petrobras as at December 31, 2007 is US$122. The Company assessed
that it is more likely than not on the technical merits that the Companys position will be
sustained.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (c)
    
    Tax assessments(Continued)Plaintiff: State Revenue Service of AlagoasAlagoas state finance authorities filed a Tax Assessment against the Company in connection
with alleged issue of invoices for transfer on unprocessed natural gas (called rich gas
by State Revenue Service of Alagoas) to the state of Sergipe at lower than market prices
between 2000 and 2004. The lower court ruled the charge was correct. Petrobras filed a
Voluntary Appeal which is awaiting judgment. The maximum exposure including monetary
restatement for Petrobras as at December 31, 2007, is US$140. Based on its legal counsels
advice, the Company has assessed risk of loss to be possible.Plaintiff: Federal Revenue Service  Contribution of Intervention in the Economic Domain Charge-CIDEThe Federal Revenue service filed a Tax Assessment against the Company in connection with
the failure by Petrobras to withhold CIDE (Contribution of Intervention in the Economic
Domain Charge) on naphtha import operations resold to Braskem. The lower court ruled, by a
majority decision, that the charge was correct. Petrobras filed a voluntary appeal which is
awaiting judgment. The maximum exposure for Petrobras, including monetary restatement, as
at December 31, 2007, is US$765. Based on its legal counsels advice, the Company has
assessed risk of loss to be possible.(d)
    
    Environmental mattersThe Company is subject to various environmental laws and regulations. These laws regulate
the discharge of oil, gas or other materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or release of such
materials at various sites.The Companys management considers that any expenses incurred to correct or mitigate
possible environmental impacts should not have a significant effect on operations or cash
flows.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (d)
    
    Environmental matters(Continued)PEGASO  (Programa de Excelência em Gestão Ambiental e Segurança Operacional)During 2000 the Company implemented an environmental excellence and operational safety
program  PEGASO  (Programa de Excelência em Gestão Ambiental e Segurança Operacional).
The Company made expenditures of approximately US$4,648 from 2000 to December 31, 2007
under this program. During the years ended December 31, 2007 and 2006 the Company made
expenditures of approximately US$567 and US$562, respectively. The Company believes that
future payments related to environmental clean-up activities resulting from these
incidents, if any, will not be material.Guanabara Bay pipeline ruptureOn January 18, 2000, a pipeline from one of the Companys terminals to a refinery in the
Guanabara Bay ruptured, causing a release of crude oil into the bay. On January 19, 2001,
the Rio de Janeiro State Prosecutor filed a criminal lawsuit against the Company. The
Company is contesting the legal basis for the criminal lawsuit. Additionally, the Federal
Prosecutor has filed criminal lawsuits against the former president of the Company (that
finished) and 9 other employees. The Company cannot predict if the outcome of these
proceedings will have a material adverse effect on the financial condition, results of
operations or cash flows of the Company.The local federal tribunal dismissed the complaint against the Companys former president,
and this dismissal is not subject to appeal.On April 30, 2002, the judge determined that the Company could not appear as a defendant in
this criminal proceeding as a result of an injunction the Company obtained from the court,
although the decision is still subject to appeal.On October of 2003, the judge determined that in regard to one of the employees the suit
would be suspended for the period of 2 years, under certain conditions that defendant would
have to observe.In addition, as a result of the spill, on January 27, 2000, the National Council for the
Environment enacted a resolution that obligated the IBAMA (Brazilian Institute for the
Environment and Renewable Resources), state environmental agencies and local environmental
agencies and non-governmental agencies to evaluate the control and prevention measures and
environmental licensing status of all industrial facilities for the production of oil and
oil products in Brazil. This resolution also mandated that the Company performed an
independent environmental audit of all of its industrial installations located in the State
of Rio de Janeiro.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (d)
    
    Environmental matters(Continued)Guanabara Bay pipeline rupture (Continued)Since 2000, the Company implemented independent environmental audits in all of the
Companys plants located in Brazil that was concluded during December of 2003. The Company
implemented almost all of the auditors recommendations.Presidente Getúlio Vargas refinery oil spillOn July 16, 2000, an oil spill occurred at the Presidente Getúlio Vargas refinery releasing
crude oil in the surrounding area. The Federal and State of Paraná Prosecutors have filed a
civil lawsuit against the Company seeking US$1,176 in damages, which have already been
contested by the Company. Additionally, there are two other actions pending, one by the
Instituto Ambiental do Paraná (Paraná Environmental Institute) and by another civil
association called AMAR that have already been contested by the Company. Awaiting
initiation of the expert investigation to quantify the amount. The maximum exposure
including monetary restatement for Petrobras as of December 31, 2007, is US$51. The court
determined that the suits brought by AMAR and the Federal and State Prosecutors be tried as
one. Based on its legal counsels advice, the Companys Administration has assessed risk of
loss to be possible.Cypriot flag vessel Vergina II collisionOn November 4, 2000, the Cypriot flag vessel Vergina II chartered by Petrobras collided
with the south pier at the Companys Almirante Barroso terminal in São Sebastião and
spilled oil in the São Sebastião canal. As a result of the accident, the Company was fined
by approximately US$30 by various local environmental agencies. The Company is currently
contesting these fines.Araucária-Paranaguá pipeline ruptureOn February 16, 2001, the Companys Araucária-Paranaguá pipeline ruptured and as a result
fuel oil was spilled into the Sagrado, Meio, Neves and Nhundiaquara Rivers located in the
state of Paraná. As a result of the accident, the Company was fined approximately US$80 by
the Instituto Ambiental do Paraná (Paraná Environmental Institute), which was contested by
the Company through administrative proceeding but the appeal was rejected. The court
determined that the suits brought by AMAR and the Federal and State Prosecutors be tried as
one. The maximum exposure including monetary restatement for Petrobras as of December 31,
2007, is US$53. Based on its legal counsels advice, the Companys Administration has
assessed risk of loss to be possible.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (d)
    
    Environmental matters(Continued)Oil spill related to the sinking of P-36 PlatformOn March 15, 2001, a spill resulting from the accident involving the P-36 platform
occurred, causing a release of diesel fuel and crude oil. The Company was fined by the
IBAMA in the amount of US$3 in April of 2001, for the spill and improper use of chemicals
to disperse the oil. The Company is currently contesting these fines. According to that
published on May 23, 2007, the claim was considered to have grounds, in part, to sentence
Petrobras to pay the amount of US$56 (R$100 million) in damages for the damage caused to
the environment, to be restated monthly and with 1% per month interest on arrears as
counted from the date on which the event took place. Petrobras filed a motion for
clarification, which is pending judgment. The maximum exposure including monetary
restatement for Petrobras as of December 31, 2007, is US$99. Based on its legal counsels
advice, the Company has assessed risk of loss to be possible.Rupture of production line at well on the Belém Farm fieldOn May 12, 2003, the rupture of a connection socket on a production line at well FZB-71, on
the Belém Farm field, in the city of Aracati-CE, resulted in the spill of approximately 7
(seven) thousand liters of oil at an area located far from any communities or water
sources. The Companys Contingency Plan was immediately activated and cleaning work for the
area was carried out. Petrobras was charged with a penalty of US$0.04 by the Environment
Superintendence of the State of Ceará (Semace) and up to 90% of this amount can be reduced
by compliance with a Commitment Term entered into with the referred environmental entity.Fault in the connection of arms of vessel Nordic Marita, anchored at the Maritime Terminal
Almirante Barroso (Tebar), in São Sebastião, on the North coast of São PauloOn June 3, 2003, a fault in the connection of one of the unloading arms of vessel Nordic
Marita, anchored at the Maritime Terminal Almirante Barroso (Tebar), in São Sebastião, on
the North coast of São Paulo, caused a spill of approximately 27 thousand liters of oil
from Campos basin. As a result of this accident, Petrobras was charged with a penalty of
US$0.17 by the IBAMA and of US$0.12 by Basic Sanitation, Technology and Environment
Protection Agency of the State of São Paulo (CETESB). An appeal was filed against both
charges based on the understanding that the Company acted in the most efficient possible
manner in order to minimize possible impacts on the environment.
  F-114




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 19.
    
    Commitments and Contingencies(Continued)
 (d)
    
    Environmental matters(Continued)Rupture of a pipeline between Cabiúnas and Duque de Caxias RefineryOn August 26, 2003, the rupture of a pipeline between Transpetros terminal in Cabiúnas
(Macaé) and Duque de Caxias Refinery caused the spill of 20 (twenty) liters of oil in an
area of the city of Cachoeiras de Macacu. The Company immediately determined that the oil
located in the service area of the pipeline should be removed, and took preventive measures
to protect a creek, near to the Soarinhos River, with checks and oil-absorbing materials.
In spite of the effective procedures adopted by Petrobras and the non-existence of
environmental damages, the Company received a fine from IBAMA in the amount of US$0.69, but
filed an administrative proceeding with this entity.(e)
    
    Minimum operating lease paymentsThe Company is committed to make the following minimum payments related to operating leases
as of December 31, 2007:
 2009
    
    
    3,6942010
    
    
    2,8952011
    
    
    2,0552012
    
    
    1,0262013
    
    
    4702014 and thereafter
    
    
    652Minimum operating lease payment commitments
    
    
    10,792
  
 20.
    
    Derivative Instruments, Hedging and Risk Management ActivitiesThe Company is exposed to a number of market risks arising from its normal course of business.
Such market risks principally involve the possibility that changes in interest rates, foreign
currency exchange rates or commodity prices will adversely affect the value of the Companys
financial assets and liabilities or future cash flows and earnings. The Company maintains a
corporate risk management policy that is executed under the direction of the Companys
executive officers.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 20.
    
    Derivative Instruments, Hedging and Risk Management Activities(Continued)The Company may use derivative and non-derivative instruments to implement its corporate risk
management strategy. However, by using derivative instruments, the Company exposes itself to
credit and market risk. Credit risk is the failure of a counterparty to perform under the terms
of the derivative contract. Market risk is the possible adverse effect on the value of an asset
or liability, including financial instruments that results from changes in interest rates,
currency exchange rates, or commodity prices. The Company addresses credit risk by restricting
the counterparties to such derivative financial instruments to major financial institutions.
Market risk is managed by the Companys executive officers. The Company does not hold or issue
financial instruments for trading purposes.
 (a)
    
    Foreign currency risk managementThe Companys foreign currency risk management strategy may involve the use of derivative
instruments to protect against foreign exchange rate volatility which may impact the value
of certain of the Companys obligations.The table below provides information about our foreign exchange derivative contracts.
 Fair valueForeign Currency
    
    
    
    
    
    Notional
    
    
    December 31,
    
    
    December 31,Maturing in 2008
    
    %
    
    
    Amount
    
    
    2007
    
    
    2006ForwardsSell USD / Pay BRL
    
    
    
    
    
    
    117
    
    
    
    2
    
    
    
    1Average Contractual Exchange rate
    
    
    1.8117
    
    
    
    2
    
    
    
    1
 The Companys zero cost foreign exchange collars were settled on November 5, 2007, with a
cash receipt of US$38. The forward sales of US dollars in exchange for Argentinean pesos
were settled on October 5, 2007, this transaction resulted in no profits.(b)
    
    Commodity price risk managementPetroleum and oil productsThe Company is exposed to commodity price risks as a result of the fluctuation of crude oil
and oil product prices. The Companys commodity risk management activities are primarily
undertaking through the uses of future contracts traded on stock exchanges; and options and
swaps entered into with major financial institutions. The futures contracts provide
economic hedges for anticipated crude oil purchases and sales, generally forecasted to
occur within a 30 to 360 day period, and reduce the Companys exposure to volatility of
such prices.
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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 20.
    
    Derivative Instruments, Hedging and Risk Management Activities(Continued)
 (b)
    
    Commodity price risk management(Continued)The Companys exposure from these contracts is limited to the difference between the
contract value and market value on the volumes contracted. Crude oil future contracts are
marked-to-market and related gains and losses are recognized in currently period earnings,
irrespective of when the physical crude sales occur. For the years ended December 31, 2007,
2006 and 2005, the Company entered into commodity derivative transactions for 56.59%,
26.42% and 26.79%, respectively, of its total import and export trade volumes.The open positions in the futures market, compared to spot market values, resulted in
recognized losses of US$25, US$2 and US$1 for the years ended December 31, 2007, 2006 and
2005, respectively.(c)
    
    Interest rate risk managementThe Companys interest rate risk is a function of the Companys long-term debt and to a
lesser extent, its short-term debt. The Companys foreign currency floating rate debt is
principally subject to fluctuations in LIBOR and the Companys floating rate debt
denominated in Reais is principally subject to fluctuations in the Brazilian long-term
interest rate (TJLP) as fixed by the National Monetary Counsel. The Company currently does
not utilize derivative financial instruments to manage its exposure to fluctuations in
interest rates.(d)
    
    Cash flow hedgeIn September, 2006, PifCo entered into cross currency swap under which it swaps principal
and interest payments on Yen denominated funding into U.S. dollar amounts. The assessment
of hedge effectiveness indicates that the change in fair value of the designated hedging
instrument is highly effective.
 Notional
    
    
    Fair valueCross Currency Swaps
    
    
    
    
    
    Amount
    
    
    December 31,
    
    
    December 31,Maturing in 2016
    
    %
    
    
    (MM JPY)
    
    
    2007
    
    
    2006Fixed to fixed
    
    
    
    
    
    
    35,000Average Pay Rate (USD)
    
    
    5.69
    
    
    
    
    
    
    
    3
    
    
    
    (9
    )Average Receive Rate (JPY)
    
    
    2.1535,000
    
    
    
    3
    
    
    
    (9
    )
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 20.
    
    Derivative Instruments, Hedging and Risk Management Activities(Continued)
 (e)
    
    Natural Gas Derivative ContractIn connection with the long-term contract to buy gas (The Gas Supply Agreement or GSA)
to supply thermoelectric plants and for other uses in Brazil, the Company entered into a
Natural Gas Price Volatility Reduction Contract (the PVRC), which was treated with the
company Empresa Petrolera ANDINA, a gas producer in Bolivia, that was treated as a
derivative financial instrument under SFAS 133. This contract, was executed with the
purpose of reducing the effects of price volatility under the GSA.The terms of the PVRC provided for a price collar for the period from 2005 to 2019.Due to the new Hydrocarbons Law of Bolivia (see Note 9(a)), the other party to the PVRC
contested the contract alleging among others, force majeure and excessive onus.
Consequently, on August 12, 2006, the parties agreed to cancel the PVRC.As a result, in 2006, the Company recognized a loss of US$499 by writing-off the fair value
of assets and liabilities related to this contract.
 
 21.
    
    Financial InstrumentsIn the normal course of its business activities, the Company acquires various types of
financial instruments.
 (a)
    
    Concentrations of credit riskSubstantial portions of the Companys assets including financial instruments are located in
Brazil while substantially all of the Companys revenues and net income are generated in
Brazil. The Companys financial instruments that are exposed to concentrations of credit
risk consist primarily of its cash and cash equivalents, government securities, the
Petroleum and Alcohol account, trade receivables and futures contracts.The Company takes several measures to reduce its credit risk to acceptable levels. All cash
and cash equivalents in Brazil are maintained with major banks. Time deposits in U.S.
dollars are placed with creditworthy institutions in the United States. Additionally, all
of the Companys available-for-sale securities and derivative contracts are either exchange
traded or maintained with creditworthy financial institutions. The Company monitors its
credit risk associated with trade receivables by routinely assessing the creditworthiness
of its customers. At December 31, 2007 and December 31, 2006, the Companys trade
receivables were primarily maintained with large distributors.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 21.
    
    Financial Instruments(Continued)
 (b)
    
    Fair valueFair values are derived either from quoted market prices where available, or, in their
absence, the present value of expected cash flows. Fair values reflect the cash that would
have been either received or paid if the instruments were settled at year end in an arms
length transaction between willing parties. Fair values of cash and cash equivalents, trade
receivables, the Petroleum and Alcohol account, short-term debt and trade payables
approximate their carrying values. The fair value for the Companys available-for-sale
government securities equals their carrying value.The fair values of other long-term receivables and payables do not differ materially from
their carrying values.The Companys debt including project financing obligations, resulting from FIN 46(R)
consolidation amounted to US$16,734 at December 31, 2007, and US$14,702 at December 31,
2006, and had estimated fair values of US$17,845 and US$13,984, respectively.
 
 22.
    
    Segment InformationThe following segment information has been prepared in accordance with SFAS No. 131 -
Disclosure about Segments of an Enterprise and Related information (SFAS 131). The Company
operates under the following segments, which are described as follows:
 
    
    Exploration and Production  This segment includes the Companys exploration,
production development and production activities of oil, liquefied natural gas and natural
gas in Brazil, for the purpose of supplying refineries in Brazil as well as selling
surplus Brazilian production in domestic and foreign markets and limited oil trading
activities and transfers of natural gas to the Companys Gas and Energy segment.
    
    Supply  This segment includes the Companys refining, logistic, transportation,
exportation and the purchase of crude oil, as well as the purchase and commercialization
activities for oil, oil products and fuel alcohol. Additionally, this segment includes
petrochemical and fertilizers division, which includes investments in domestic
petrochemical companies and the Companys two domestic fertilizer plants.
    
    Distribution  This segment represents the oil product and fuel alcohol distribution
activities conducted by the Companys majority owned subsidiary, Petrobras Distribuidora
S.A.  BR in Brazil.
    
    Gas and Energy  This segment currently encompasses the purchase, sale, transportation
and distribution of natural gas produced in or imported into Brazil. Additionally, this
segment includes the Companys participation in domestic electricity production, including
investments in domestic natural gas transportation companies, state owned natural gas
distributors and thermoelectric companies.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)
 
    
    International  This segment represents the Companys international Exploration and
Production, Supply, Distribution and Gas and Energy activities conducted in 15 countries
outside Brazil.
    
    
    Net operating revenues: these were considered to be the revenues from sales to third
parties, plus revenues between the business segments, based on the internal transfer
prices established by the areas;
    
    Costs and expenses includes the costs of products and services sold, calculated per
business segment, based on the internal transfer price and the other operating costs of
each segment, as well as operating expenses, based on the expenses actually incurred in
each segment;
    
    Financial results are allocated to the corporate group;
    
    Assets: covers the assets relating to each segment.
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PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)The following presents the Companys assets by segment:
 As of December 31, 2007Exploration
    
    
    
    
    
    
    
    
    
    
    Internationaland
    
    
    
    
    
    
    Gas and
    
    
    (see separateProduction
    
    
    Supply
    
    
    Energy
    
    
    disclosure)
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalCurrent assets
    
    
    3,180
    
    
    
    13,725
    
    
    
    2,864
    
    
    
    2,184
    
    
    
    2,848
    
    
    
    10,710
    
    
    
    (6,371
    )
    
    
    29,140Cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,987
    
    
    
    
    
    
    
    6,987Other current assets
    
    
    3,180
    
    
    
    13,725
    
    
    
    2,864
    
    
    
    2,184
    
    
    
    2,848
    
    
    
    3,723
    
    
    
    (6,371
    )
    
    
    22,153Investments in
non-consolidated
companies
and other investments
    
    
    85
    
    
    
    2,348
    
    
    
    550
    
    
    
    1,278
    
    
    
    640
    
    
    
    211
    
    
    
    
    
    
    
    5,112Property, plant and equipment, net
    
    
    48,529
    
    
    
    14,480
    
    
    
    10,615
    
    
    
    7,596
    
    
    
    1,838
    
    
    
    1,475
    
    
    
    (10
    )
    
    
    84,523Non current assets
    
    
    1,381
    
    
    
    665
    
    
    
    1,507
    
    
    
    659
    
    
    
    326
    
    
    
    6,741
    
    
    
    (339
    )
    
    
    10,940Petroleum and Alcohol account
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    450Government securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    670
    
    
    
    
    
    
    
    670Other assets
    
    
    1,381
    
    
    
    665
    
    
    
    1,507
    
    
    
    659
    
    
    
    326
    
    
    
    5,621
    
    
    
    (339
    )
    
    
    9,820Total assets
    
    
    53,175
    
    
    
    31,218
    
    
    
    15,536
    
    
    
    11,717
    
    
    
    5,652
    
    
    
    19,137
    
    
    
    (6,720
    )
    
    
    129,715
  F-121




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)
 As of December 31, 2007InternationalExplorationand
    
    
    
    
    
    
    Gas andProduction
    
    
    Supply
    
    
    Energy
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalCurrent assets
    
    
    843
    
    
    
    1,113
    
    
    
    157
    
    
    
    197
    
    
    
    217
    
    
    
    (343
    )
    
    
    2,184Other current assets
    
    
    843
    
    
    
    1,113
    
    
    
    157
    
    
    
    197
    
    
    
    217
    
    
    
    (343
    )
    
    
    2,184Investments
in non-consolidated companies and other investments
    
    
    889
    
    
    
    39
    
    
    
    309
    
    
    
    21
    
    
    
    20
    
    
    
    
    
    
    
    1,278Property, plant and equipment, net
    
    
    6,100
    
    
    
    1,070
    
    
    
    219
    
    
    
    182
    
    
    
    149
    
    
    
    (124
    )
    
    
    7,596Non current assets
    
    
    505
    
    
    
    292
    
    
    
    68
    
    
    
    14
    
    
    
    1,017
    
    
    
    (1,237
    )
    
    
    659Other assets
    
    
    505
    
    
    
    292
    
    
    
    68
    
    
    
    14
    
    
    
    1,017
    
    
    
    (1,237
    )
    
    
    659Total assets
    
    
    8,337
    
    
    
    2,514
    
    
    
    753
    
    
    
    414
    
    
    
    1,403
    
    
    
    (1,704
    )
    
    
    11,717
  F-122




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)
 As of December 31, 2006Exploration
    
    
    
    
    
    
    
    
    
    
    Internationaland
    
    
    
    
    
    
    Gas and
    
    
    (see separateProduction
    
    
    Supply
    
    
    Energy
    
    
    disclosure)
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalCurrent assets
    
    
    2,966
    
    
    
    9,668
    
    
    
    1,256
    
    
    
    2,371
    
    
    
    1,978
    
    
    
    15,413
    
    
    
    (2,697
    )
    
    
    30,955Cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,688
    
    
    
    
    
    
    
    12,688Other current assets
    
    
    2,966
    
    
    
    9,668
    
    
    
    1,256
    
    
    
    2,371
    
    
    
    1,978
    
    
    
    2,725
    
    
    
    (2,697
    )
    
    
    18,267Investments in
non-consolidated
companies and other investments
    
    
    33
    
    
    
    970
    
    
    
    394
    
    
    
    1,721
    
    
    
    20
    
    
    
    124
    
    
    
    
    
    
    
    3,262Property, plant and equipment, net
    
    
    33,979
    
    
    
    9,828
    
    
    
    6,828
    
    
    
    5,722
    
    
    
    1,468
    
    
    
    1,072
    
    
    
    
    
    
    
    58,897Non current assets
    
    
    1,388
    
    
    
    354
    
    
    
    1,119
    
    
    
    460
    
    
    
    209
    
    
    
    2,523
    
    
    
    (487
    )
    
    
    5,566Petroleum and Alcohol account
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    368Government securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    479Other assets
    
    
    1,388
    
    
    
    354
    
    
    
    1,119
    
    
    
    460
    
    
    
    209
    
    
    
    1,676
    
    
    
    (487
    )
    
    
    4,719Total assets
    
    
    38,366
    
    
    
    20,820
    
    
    
    9,597
    
    
    
    10,274
    
    
    
    3,675
    
    
    
    19,132
    
    
    
    (3,184
    )
    
    
    98,680
  F-123




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)
 As of December 31, 2006InternationalExplorationand
    
    
    
    
    
    
    Gas andProduction
    
    
    Supply
    
    
    Energy
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalCurrent assets
    
    
    1,486
    
    
    
    1,019
    
    
    
    954
    
    
    
    134
    
    
    
    219
    
    
    
    (1,441
    )
    
    
    2,371Other current assets
    
    
    1,486
    
    
    
    1,019
    
    
    
    954
    
    
    
    134
    
    
    
    219
    
    
    
    (1,441
    )
    
    
    2,371Investments
in non-consolidated companies and other investments
    
    
    990
    
    
    
    360
    
    
    
    280
    
    
    
    66
    
    
    
    25
    
    
    
    
    
    
    
    1,721Property, plant and equipment, net
    
    
    4,436
    
    
    
    834
    
    
    
    216
    
    
    
    162
    
    
    
    94
    
    
    
    (20
    )
    
    
    5,722Non current assets
    
    
    546
    
    
    
    36
    
    
    
    49
    
    
    
    13
    
    
    
    669
    
    
    
    (853
    )
    
    
    460Other assets
    
    
    546
    
    
    
    36
    
    
    
    49
    
    
    
    13
    
    
    
    669
    
    
    
    (853
    )
    
    
    460Total assets
    
    
    7,458
    
    
    
    2,249
    
    
    
    1,499
    
    
    
    375
    
    
    
    1,007
    
    
    
    (2,314
    )
    
    
    10,274
  F-124




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)Revenues and net income by segment are as follows:
 Year ended December 31, 2007Exploration
    
    
    
    
    
    
    
    
    
    
    Internationaland
    
    
    
    
    
    
    Gas and
    
    
    (see separateProduction
    
    
    Supply
    
    
    Energy
    
    
    disclosure)
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalNet operating revenues to third parties
    
    
    2,455
    
    
    
    50,531
    
    
    
    3,673
    
    
    
    8,132
    
    
    
    22,944
    
    
    
    
    
    
    
    
    
    
    
    87,735Inter-segment net operating revenues
    
    
    39,536
    
    
    
    19,018
    
    
    
    1,239
    
    
    
    969
    
    
    
    376
    
    
    
    
    
    
    
    (61,138
    )
    
    
    Net operating revenues
    
    
    41,991
    
    
    
    69,549
    
    
    
    4,912
    
    
    
    9,101
    
    
    
    23,320
    
    
    
    
    
    
    
    (61,138
    )
    
    
    87,735Cost of sales
    
    
    (15,147
    )
    
    
    (61,881
    )
    
    
    (4,514
    )
    
    
    (7,042
    )
    
    
    (21,124
    )
    
    
    
    
    
    
    59,919
    
    
    
    (49,789
    )Depreciation, depletion and amortization
    
    
    (3,335
    )
    
    
    (1,077
    )
    
    
    (259
    )
    
    
    (567
    )
    
    
    (155
    )
    
    
    (151
    )
    
    
    
    
    
    
    (5,544
    )Exploration, including exploratory dry holes
    
    
    (648
    )
    
    
    
    
    
    
    
    
    
    
    (775
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,423
    )Impairment
    
    
    (26
    )
    
    
    (19
    )
    
    
    
    
    
    
    (226
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )Selling, general and administrative expenses
    
    
    (305
    )
    
    
    (1,999
    )
    
    
    (597
    )
    
    
    (692
    )
    
    
    (1,198
    )
    
    
    (1,577
    )
    
    
    118
    
    
    
    (6,250
    )Research and development expenses
    
    
    (447
    )
    
    
    (171
    )
    
    
    (94
    )
    
    
    (2
    )
    
    
    (6
    )
    
    
    (161
    )
    
    
    
    
    
    
    (881
    )Other operating expenses
    
    
    (245
    )
    
    
    (219
    )
    
    
    (435
    )
    
    
    (108
    )
    
    
    (54
    )
    
    
    (1,085
    )
    
    
    10
    
    
    
    (2,136
    )Costs and expenses
    
    
    (20,153
    )
    
    
    (65,366
    )
    
    
    (5,899
    )
    
    
    (9,412
    )
    
    
    (22,537
    )
    
    
    (2,974
    )
    
    
    60,047
    
    
    
    (66,294
    )Equity in results of non-consolidated companies
    
    
    
    
    
    
    71
    
    
    
    104
    
    
    
    64
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    235Financial income (expenses), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (582
    )
    
    
    
    
    
    
    (582
    )Employee benefit expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (990
    )
    
    
    
    
    
    
    (990
    )Other taxes
    
    
    (43
    )
    
    
    (75
    )
    
    
    (36
    )
    
    
    (72
    )
    
    
    (90
    )
    
    
    (346
    )
    
    
    
    
    
    
    (662
    )Other expenses, net
    
    
    (196
    )
    
    
    (8
    )
    
    
    (28
    )
    
    
    82
    
    
    
    (17
    )
    
    
    24
    
    
    
    
    
    
    
    (143
    )Income (loss) before income taxes and minority interest
    
    
    21,599
    
    
    
    4,171
    
    
    
    (947
    )
    
    
    (237
    )
    
    
    676
    
    
    
    (4,872
    )
    
    
    (1,091
    )
    
    
    19,299Income tax benefits (expense)
    
    
    (7,343
    )
    
    
    (1,394
    )
    
    
    357
    
    
    
    (424
    )
    
    
    (230
    )
    
    
    2,775
    
    
    
    371
    
    
    
    (5,888
    )Minority interest in results of consolidated subsidiaries
    
    
    (184
    )
    
    
    8
    
    
    
    (244
    )
    
    
    (154
    )
    
    
    
    
    
    
    301
    
    
    
    
    
    
    
    (273
    )Net income (loss) for the year
    
    
    14,072
    
    
    
    2,785
    
    
    
    (834
    )
    
    
    (815
    )
    
    
    446
    
    
    
    (1,796
    )
    
    
    (720
    )
    
    
    13,138
    F-125




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)
 Year ended December 31, 2007InternationalExplorationand
    
    
    
    
    
    
    Gas andProduction
    
    
    Supply
    
    
    Energy
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalNet operating revenues to third parties
    
    
    1,136
    
    
    
    4,480
    
    
    
    480
    
    
    
    2,015
    
    
    
    14
    
    
    
    7
    
    
    
    8,132Inter-segment net operating revenues
    
    
    1,473
    
    
    
    1,606
    
    
    
    48
    
    
    
    23
    
    
    
    
    
    
    
    (2,181
    )
    
    
    969Net operating revenues
    
    
    2,609
    
    
    
    6,086
    
    
    
    528
    
    
    
    2,038
    
    
    
    14
    
    
    
    (2,174
    )
    
    
    9,101Cost of sales
    
    
    (933
    )
    
    
    (5,875
    )
    
    
    (424
    )
    
    
    (1,952
    )
    
    
    (15
    )
    
    
    2,157
    
    
    
    (7,042
    )Depreciation, depletion and amortization
    
    
    (432
    )
    
    
    (86
    )
    
    
    (15
    )
    
    
    (20
    )
    
    
    (14
    )
    
    
    
    
    
    
    (567
    )Exploration, including exploratory dry holes
    
    
    (775
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (775
    )Impairment
    
    
    (226
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (226
    )Selling, general and administrative expenses
    
    
    (179
    )
    
    
    (127
    )
    
    
    (19
    )
    
    
    (125
    )
    
    
    (242
    )
    
    
    
    
    
    
    (692
    )Research and development expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Other operating expenses
    
    
    (78
    )
    
    
    32
    
    
    
    10
    
    
    
    11
    
    
    
    (82
    )
    
    
    (1
    )
    
    
    (108
    )Costs and expenses
    
    
    (2,623
    )
    
    
    (6,056
    )
    
    
    (448
    )
    
    
    (2,086
    )
    
    
    (355
    )
    
    
    2,156
    
    
    
    (9,412
    )Equity in results of non-consolidated companies
    
    
    (63
    )
    
    
    27
    
    
    
    23
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    64Other taxes
    
    
    (7
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (59
    )
    
    
    
    
    
    
    (72
    )Other expenses, net
    
    
    (4
    )
    
    
    29
    
    
    
    42
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    82Income (loss) before income taxes and minority interest
    
    
    (88
    )
    
    
    84
    
    
    
    144
    
    
    
    (51
    )
    
    
    (308
    )
    
    
    (18
    )
    
    
    (237
    )Income tax benefits (expense)
    
    
    (242
    )
    
    
    
    
    
    
    1
    
    
    
    (3
    )
    
    
    (180
    )
    
    
    
    
    
    
    (424
    )Minority interest in results of consolidated subsidiaries
    
    
    (42
    )
    
    
    (14
    )
    
    
    (38
    )
    
    
    17
    
    
    
    (77
    )
    
    
    
    
    
    
    (154
    )Net income (loss) for the year
    
    
    (372
    )
    
    
    70
    
    
    
    107
    
    
    
    (37
    )
    
    
    (565
    )
    
    
    (18
    )
    
    
    (815
    )
 Expenditure related to the training of new Petrobras employees is now allocated in line with the
area of each employee and are no longer wholly allocated to corporate administrative expenses.In order to maintain comparability between the periods, we are presenting the previous statements
in accordance with the new criteria above.
  F-126




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)Revenues and net income by segment are as follows:
 Year ended December 31, 2006Exploration
    
    
    
    
    
    
    
    
    
    
    Internationaland
    
    
    
    
    
    
    Gas and
    
    
    (see separateProduction
    
    
    Supply
    
    
    Energy
    
    
    disclosure)
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalNet operating revenues to third parties
    
    
    3,351
    
    
    
    42,831
    
    
    
    2,833
    
    
    
    4,938
    
    
    
    18,394
    
    
    
    
    
    
    
    
    
    
    
    72,347Inter-segment net operating revenues
    
    
    32,387
    
    
    
    15,128
    
    
    
    1,257
    
    
    
    1,133
    
    
    
    287
    
    
    
    
    
    
    
    (50,192
    )
    
    
    Net operating revenues
    
    
    35,738
    
    
    
    57,959
    
    
    
    4,090
    
    
    
    6,071
    
    
    
    18,681
    
    
    
    
    
    
    
    (50,192
    )
    
    
    72,347Cost of sales
    
    
    (13,655
    )
    
    
    (51,812
    )
    
    
    (3,624
    )
    
    
    (4,088
    )
    
    
    (16,967
    )
    
    
    
    
    
    
    49,962
    
    
    
    (40,184
    )Depreciation, depletion and amortization
    
    
    (2,166
    )
    
    
    (669
    )
    
    
    (197
    )
    
    
    (417
    )
    
    
    (143
    )
    
    
    (81
    )
    
    
    
    
    
    
    (3,673
    )Exploration, including exploratory dry holes
    
    
    (501
    )
    
    
    
    
    
    
    
    
    
    
    (433
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (934
    )Impairment
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Selling, general and administrative expenses
    
    
    (460
    )
    
    
    (1,359
    )
    
    
    (362
    )
    
    
    (541
    )
    
    
    (982
    )
    
    
    (1,141
    )
    
    
    21
    
    
    
    (4,824
    )Research and development expenses
    
    
    (346
    )
    
    
    (141
    )
    
    
    (78
    )
    
    
    (2
    )
    
    
    (5
    )
    
    
    (158
    )
    
    
    
    
    
    
    (730
    )Other operating expenses
    
    
    (31
    )
    
    
    (40
    )
    
    
    (178
    )
    
    
    (22
    )
    
    
    (77
    )
    
    
    (785
    )
    
    
    13
    
    
    
    (1,120
    )Costs and expenses
    
    
    (17,179
    )
    
    
    (54,021
    )
    
    
    (4,439
    )
    
    
    (5,504
    )
    
    
    (18,174
    )
    
    
    (2,165
    )
    
    
    49,996
    
    
    
    (51,486
    )Equity in results of 
non-consolidated companies
    
    
    
    
    
    
    5
    
    
    
    (1
    )
    
    
    37
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    28Financial income (expenses), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    (100
    )Employee benefit expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,017
    )
    
    
    
    
    
    
    (1,017
    )Other taxes
    
    
    (45
    )
    
    
    (73
    )
    
    
    (49
    )
    
    
    (63
    )
    
    
    (79
    )
    
    
    (285
    )
    
    
    
    
    
    
    (594
    )Other expenses, net
    
    
    (73
    )
    
    
    (20
    )
    
    
    (15
    )
    
    
    30
    
    
    
    23
    
    
    
    38
    
    
    
    
    
    
    
    (17
    )Income (loss) before income taxes and minority interest
    
    
    18,441
    
    
    
    3,850
    
    
    
    (414
    )
    
    
    571
    
    
    
    451
    
    
    
    (3,542
    )
    
    
    (196
    )
    
    
    19,161Income tax benefits (expense)
    
    
    (6,270
    )
    
    
    (1,307
    )
    
    
    140
    
    
    
    (254
    )
    
    
    (153
    )
    
    
    2,086
    
    
    
    67
    
    
    
    (5,691
    )Minority interest in results of consolidated subsidiaries
    
    
    (229
    )
    
    
    (10
    )
    
    
    (231
    )
    
    
    (194
    )
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    (644
    )Net income (loss) for the year
    
    
    11,942
    
    
    
    2,533
    
    
    
    (505
    )
    
    
    123
    
    
    
    298
    
    
    
    (1,436
    )
    
    
    (129
    )
    
    
    12,826
 In order to unify the criterion for the allocation of safety, health an environment expenses, we
opted to allocate these expenses in their entirety to other operating expenses. Expenditure
related to the training of new Petrobras employees is now allocated in line with the area of
each employee and are no longer wholly allocated to corporate administrative expenses.In order to maintain comparability between the periods, we are presenting the previous statements
in accordance with the new criteria above.
  F-127




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22. Segment Information
 Year ended December 31, 2006InternationalExplorationand
    
    
    
    
    
    
    Gas andProduction
    
    
    Supply
    
    
    Energy
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalNet operating revenues to third parties
    
    
    685
    
    
    
    2,068
    
    
    
    719
    
    
    
    1,440
    
    
    
    26
    
    
    
    
    
    
    
    4,938Inter-segment net operating revenues
    
    
    1,831
    
    
    
    1,450
    
    
    
    41
    
    
    
    6
    
    
    
    
    
    
    
    (2,195
    )
    
    
    1,133Net operating revenues
    
    
    2,516
    
    
    
    3,518
    
    
    
    760
    
    
    
    1,446
    
    
    
    26
    
    
    
    (2,195
    )
    
    
    6,071Cost of sales
    
    
    (948
    )
    
    
    (3,307
    )
    
    
    (577
    )
    
    
    (1,433
    )
    
    
    (26
    )
    
    
    2,203
    
    
    
    (4,088
    )Depreciation, depletion and amortization
    
    
    (309
    )
    
    
    (65
    )
    
    
    (14
    )
    
    
    (16
    )
    
    
    (13
    )
    
    
    
    
    
    
    (417
    )Exploration, including exploratory dry holes
    
    
    (433
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (433
    )Impairment
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Selling, general and administrative expenses
    
    
    (154
    )
    
    
    (86
    )
    
    
    (17
    )
    
    
    (99
    )
    
    
    (185
    )
    
    
    
    
    
    
    (541
    )Research and development expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Other operating expenses
    
    
    (4
    )
    
    
    4
    
    
    
    13
    
    
    
    9
    
    
    
    (44
    )
    
    
    
    
    
    
    (22
    )Costs and expenses
    
    
    (1,849
    )
    
    
    (3,454
    )
    
    
    (595
    )
    
    
    (1,539
    )
    
    
    (270
    )
    
    
    2,203
    
    
    
    (5,504
    )Equity in results of 
non-consolidated companies
    
    
    20
    
    
    
    12
    
    
    
    2
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    37Other taxes
    
    
    (13
    )
    
    
    (8
    )
    
    
    
    
    
    
    (2
    )
    
    
    (40
    )
    
    
    
    
    
    
    (63
    )Other expenses, net
    
    
    29
    
    
    
    
    
    
    
    11
    
    
    
    33
    
    
    
    (43
    )
    
    
    
    
    
    
    30Income (loss) before income taxes and minority interest
    
    
    703
    
    
    
    68
    
    
    
    178
    
    
    
    (62
    )
    
    
    (324
    )
    
    
    8
    
    
    
    571Income tax benefits (expense)
    
    
    (305
    )
    
    
    (24
    )
    
    
    (79
    )
    
    
    28
    
    
    
    130
    
    
    
    (4
    )
    
    
    (254
    )Minority interest in results of consolidated subsidiaries
    
    
    (172
    )
    
    
    (14
    )
    
    
    (22
    )
    
    
    25
    
    
    
    (11
    )
    
    
    
    
    
    
    (194
    )Net income (loss) for the year
    
    
    226
    
    
    
    30
    
    
    
    77
    
    
    
    (9
    )
    
    
    (205
    )
    
    
    4
    
    
    
    123
 Expenditure related to the training of new Petrobras employees is now allocated in line with the
area of each employee and are no longer wholly allocated to corporate administrative expenses.In order to maintain comparability between the periods, we are presenting the previous statements
in accordance with the new criteria above.
  F-128




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)
 Year ended December 31, 2005Exploration
    
    
    
    
    
    
    
    
    
    
    Internationaland
    
    
    
    
    
    
    Gas and
    
    
    (see separateProduction
    
    
    Supply
    
    
    Energy
    
    
    disclosure)
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalNet operating revenues to third parties
    
    
    1,874
    
    
    
    33,229
    
    
    
    1,932
    
    
    
    3,647
    
    
    
    15,642
    
    
    
    
    
    
    
    
    
    
    
    56,324Inter-segment net operating revenues
    
    
    26,950
    
    
    
    12,286
    
    
    
    1,232
    
    
    
    880
    
    
    
    225
    
    
    
    
    
    
    
    (41,573
    )
    
    
    Net operating revenues
    
    
    28,824
    
    
    
    45,515
    
    
    
    3,164
    
    
    
    4,527
    
    
    
    15,867
    
    
    
    
    
    
    
    (41,573
    )
    
    
    56,324Cost of sales
    
    
    (11,327
    )
    
    
    (40,033
    )
    
    
    (2,484
    )
    
    
    (2,425
    )
    
    
    (14,357
    )
    
    
    
    
    
    
    40,798
    
    
    
    (29,828
    )Depreciation, depletion and amortization
    
    
    (1,571
    )
    
    
    (644
    )
    
    
    (105
    )
    
    
    (461
    )
    
    
    (100
    )
    
    
    (45
    )
    
    
    
    
    
    
    (2,926
    )Exploration, including exploratory dry holes
    
    
    (860
    )
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,009
    )Impairment
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (156
    )Selling, general and administrative expenses
    
    
    (358
    )
    
    
    (1,195
    )
    
    
    (612
    )
    
    
    (424
    )
    
    
    (914
    )
    
    
    (1,026
    )
    
    
    55
    
    
    
    (4,474
    )Research and development expenses
    
    
    (153
    )
    
    
    (55
    )
    
    
    (22
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (166
    )
    
    
    
    
    
    
    (399
    )Other operating expenses
    
    
    (45
    )
    
    
    (130
    )
    
    
    (475
    )
    
    
    (123
    )
    
    
    59
    
    
    
    (739
    )
    
    
    
    
    
    
    (1,453
    )Costs and expenses
    
    
    (14,336
    )
    
    
    (42,057
    )
    
    
    (3,698
    )
    
    
    (3,718
    )
    
    
    (15,313
    )
    
    
    (1,976
    )
    
    
    40,853
    
    
    
    (40,245
    )Equity in results of non-consolidated companies
    
    
    
    
    
    
    10
    
    
    
    56
    
    
    
    68
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    139Financial income (expenses), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (231
    )
    
    
    
    
    
    
    (231
    )Employee benefit expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (994
    )
    
    
    
    
    
    
    (994
    )Other taxes
    
    
    (20
    )
    
    
    (32
    )
    
    
    (23
    )
    
    
    (51
    )
    
    
    (68
    )
    
    
    (179
    )
    
    
    
    
    
    
    (373
    )Other expenses, net
    
    
    (15
    )
    
    
    (7
    )
    
    
    (11
    )
    
    
    27
    
    
    
    (15
    )
    
    
    (7
    )
    
    
    
    
    
    
    (28
    )Income (loss) before income taxes, minority
interest and
extraordinary item
    
    
    14,453
    
    
    
    3,429
    
    
    
    (512
    )
    
    
    853
    
    
    
    471
    
    
    
    (3,382
    )
    
    
    (720
    )
    
    
    14,592Income tax benefits (expense)
    
    
    (4,914
    )
    
    
    (1,163
    )
    
    
    193
    
    
    
    (289
    )
    
    
    (160
    )
    
    
    1,647
    
    
    
    245
    
    
    
    (4,441
    )Minority interest in results of consolidated
subsidiaries
    
    
    (70
    )
    
    
    (21
    )
    
    
    (23
    )
    
    
    (38
    )
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    35Income before extraordinary item
    
    
    9,469
    
    
    
    2,245
    
    
    
    (342
    )
    
    
    526
    
    
    
    311
    
    
    
    (1,548
    )
    
    
    (475
    )
    
    
    10,186Extraordinary gain net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    158Net income (loss) for the year
    
    
    9,469
    
    
    
    2,245
    
    
    
    (342
    )
    
    
    526
    
    
    
    311
    
    
    
    (1,390
    )
    
    
    (475
    )
    
    
    10,344
  F-129




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)
 Year ended December 31, 2005InternationalExplorationand
    
    
    
    
    
    
    Gas andProduction
    
    
    Supply
    
    
    Energy
    
    
    Distribution
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalNet operating revenues to third parties
    
    
    920
    
    
    
    1,079
    
    
    
    536
    
    
    
    1,090
    
    
    
    22
    
    
    
    
    
    
    
    3,647Inter-segment net operating revenues
    
    
    1,476
    
    
    
    1,279
    
    
    
    31
    
    
    
    4
    
    
    
    
    
    
    
    (1,910
    )
    
    
    880Net operating revenues
    
    
    2,396
    
    
    
    2,358
    
    
    
    567
    
    
    
    1,094
    
    
    
    22
    
    
    
    (1,910
    )
    
    
    4,527Cost of sales
    
    
    (665
    )
    
    
    (2,151
    )
    
    
    (452
    )
    
    
    (1,020
    )
    
    
    (22
    )
    
    
    1,885
    
    
    
    (2,425
    )Depreciation, depletion and amortization
    
    
    (360
    )
    
    
    (65
    )
    
    
    (13
    )
    
    
    (11
    )
    
    
    (12
    )
    
    
    
    
    
    
    (461
    )Exploration, including exploratory dry holes
    
    
    (142
    )
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    (149
    )Impairment
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (134
    )Selling, general and administrative expenses
    
    
    (123
    )
    
    
    (60
    )
    
    
    (7
    )
    
    
    (68
    )
    
    
    (166
    )
    
    
    
    
    
    
    (424
    )Research and development expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Other operating expenses
    
    
    (144
    )
    
    
    11
    
    
    
    8
    
    
    
    1
    
    
    
    (47
    )
    
    
    48
    
    
    
    (123
    )Costs and expenses
    
    
    (1,568
    )
    
    
    (2,265
    )
    
    
    (464
    )
    
    
    (1,105
    )
    
    
    (249
    )
    
    
    1,933
    
    
    
    (3,718
    )Equity in results of non-consolidated companies
    
    
    4
    
    
    
    18
    
    
    
    2
    
    
    
    
    
    
    
    40
    
    
    
    4
    
    
    
    68Other taxes
    
    
    (14
    )
    
    
    (5
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (30
    )
    
    
    
    
    
    
    (51
    )Other expenses, net
    
    
    (5
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    27Income (loss) before income taxes and minority interest
    
    
    813
    
    
    
    105
    
    
    
    104
    
    
    
    (12
    )
    
    
    (184
    )
    
    
    27
    
    
    
    853Income tax benefits (expense)
    
    
    (275
    )
    
    
    (36
    )
    
    
    (35
    )
    
    
    4
    
    
    
    62
    
    
    
    (9
    )
    
    
    (289
    )Minority interest in results of consolidated subsidiaries
    
    
    15
    
    
    
    (20
    )
    
    
    (10
    )
    
    
    3
    
    
    
    (26
    )
    
    
    
    
    
    
    (38
    )Net income (loss) for the year
    
    
    553
    
    
    
    49
    
    
    
    59
    
    
    
    (5
    )
    
    
    (148
    )
    
    
    18
    
    
    
    526
  F-130




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 22.
    
    Segment Information(Continued)Capital expenditures incurred by segment for the years ended December 31, 2007, 2006 and 2005
are as follows:
 Year ended December 31,2007
    
    
    2006
    
    
    2005Exploration and Production
    
    
    9,448
    
    
    
    7,329
    
    
    
    6,127Supply
    
    
    4,488
    
    
    
    1,936
    
    
    
    1,749Gas and Energy
    
    
    3,223
    
    
    
    1,664
    
    
    
    694InternationalExploration and Production
    
    
    2,555
    
    
    
    2,304
    
    
    
    1,067Supply
    
    
    247
    
    
    
    202
    
    
    
    79Distribution
    
    
    37
    
    
    
    77
    
    
    
    16Gas and Energy
    
    
    25
    
    
    
    54
    
    
    
    13Distribution
    
    
    327
    
    
    
    351
    
    
    
    207Corporate
    
    
    628
    
    
    
    726
    
    
    
    41320,978
    
    
    
    14,643
    
    
    
    10,365
 The Companys gross sales, classified by geographic destination, are as follows:
 Year ended December 31,2007
    
    
    2006
    
    
    2005Brazil
    
    
    83,022
    
    
    
    70,733
    
    
    
    57,669International
    
    
    29,403
    
    
    
    23,160
    
    
    
    16,396112,425
    
    
    
    93,893
    
    
    
    74,065
   F-131




---



##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 
 23.
    
    Related Party Transactions
   As of December 31,2007
    
    
    2006Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesPetros (pension fund)
    
    
    732
    
    
    
    913
    
    
    
    479
    
    
    
    71Banco do Brasil S.A.
    
    
    2,030
    
    
    
    337
    
    
    
    5,014
    
    
    
    517BNDES (Note 12 (b))
    
    
    
    
    
    
    1,316
    
    
    
    
    
    
    
    1,491BNDES (Project financing)
    
    
    
    
    
    
    2,322
    
    
    
    
    
    
    
    1,823Federal Government
    
    
    
    
    
    
    1,197
    
    
    
    
    
    
    
    1,190ANP
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Restricted deposits for legal
proceedings
    
    
    863
    
    
    
    88
    
    
    
    676
    
    
    
    Government securities
    
    
    2,156
    
    
    
    
    
    
    
    67
    
    
    
    Petroleum and Alcohol
account  receivable from
Federal Government (Note 11)
    
    
    450
    
    
    
    
    
    
    
    368
    
    
    
    Other
    
    
    1,689
    
    
    
    259
    
    
    
    786
    
    
    
    1497,921
    
    
    
    6,432
    
    
    
    7,390
    
    
    
    5,241Current
    
    
    2,705
    
    
    
    2,659
    
    
    
    5,382
    
    
    
    2,957Long-term
    
    
    5,216
    
    
    
    3,773
    
    
    
    2,008
    
    
    
    2,284
  F-132




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 23.
    
    Related Party Transactions(Continued)
  As of December 31,2007
    
    
    2006Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAssetsCurrentCash and cash equivalents
    
    
    2,127
    
    
    
    
    
    
    
    4,497
    
    
    
    Accounts receivable (Note 6)
    
    
    266
    
    
    
    
    
    
    
    653
    
    
    
    Other current assets
    
    
    312
    
    
    
    
    
    
    
    232
    
    
    
    OtherGovernment securities
    
    
    1,996
    
    
    
    
    
    
    
    67
    
    
    
    Petroleum and Alcohol account 
receivable from Federal Government
(Note 11)
    
    
    450
    
    
    
    
    
    
    
    368
    
    
    
    Restricted deposits for legal
proceedings
    
    
    864
    
    
    
    
    
    
    
    676
    
    
    
    Pension fund
    
    
    732
    
    
    
    
    
    
    
    479
    
    
    
    Other assets
    
    
    1,174
    
    
    
    
    
    
    
    418
    
    
    
    LiabilitiesCurrentCurrent portion of long-term debt
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    148Current liabilities
    
    
    
    
    
    
    431
    
    
    
    
    
    
    
    68Dividends and interest on capital payable
to Federal Government
    
    
    
    
    
    
    1,197
    
    
    
    
    
    
    
    1,743Current portion of project financings
    
    
    
    
    
    
    832
    
    
    
    
    
    
    
    998Long-termLong-term debt
    
    
    
    
    
    
    1,447
    
    
    
    
    
    
    
    1,342Project financings
    
    
    
    
    
    
    1,490
    
    
    
    
    
    
    
    825Other liabilities
    
    
    
    
    
    
    836
    
    
    
    
    
    
    
    1177,921
    
    
    
    6,432
    
    
    
    7,390
    
    
    
    5,241
  F-133




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 23.
    
    Related Party Transactions(Continued)
  Year ended December 31,2007
    
    
    2006
    
    
    2005Income
    
    
    Expense
    
    
    Income
    
    
    Expense
    
    
    Income
    
    
    ExpenseSales of products and servicesBraskem S.A.
    
    
    2,610
    
    
    
    
    
    
    
    1,788
    
    
    
    
    
    
    
    1,488
    
    
    
    Copesul S.A.
    
    
    1,680
    
    
    
    
    
    
    
    1,132
    
    
    
    
    
    
    
    373
    
    
    
    Petroquímica União S.A.
    
    
    562
    
    
    
    
    
    
    
    588
    
    
    
    
    
    
    
    885
    
    
    
    Other
    
    
    (917
    )
    
    
    
    
    
    
    315
    
    
    
    
    
    
    
    954
    
    
    
    Financial income
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Petroleum and Alcohol
account receivable from
Federal Government
(Note 11)
    
    
    6
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    9
    
    
    
    Government securities
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    46
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    47
    
    
    
    Financial expenses
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    11Other expenses, net
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (262
    )3,993
    
    
    
    (1
    )
    
    
    3,901
    
    
    
    6
    
    
    
    3,756
    
    
    
    (251
    )
 
 24.
    
    Accounting for Suspended Exploratory Wells
    F-134




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 24.
    
    Accounting for Suspended Exploratory Wells(Continued)
    F-135




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 24.
    
    Accounting for Suspended Exploratory Wells(Continued)
  Unproved oil and gas properties (*)Year ended December, 312007
    
    
    2006Beginning balance at January 1
    
    
    2,054
    
    
    
    2,061Additions to capitalized costs pending determination
of proved reserves
    
    
    1,885
    
    
    
    2,186Capitalized exploratory costs charged to expense
    
    
    (548
    )
    
    
    (493
    )Sales of reserves
    
    
    
    
    
    
    (199
    )Transfers to property, plant and equipment based
on the determination of the proved reserves
    
    
    (975
    )
    
    
    (1,614
    )Cumulative translation adjustment
    
    
    211
    
    
    
    113Ending balance at December 31,
    
    
    2,627
    
    
    
    2,054
 (*)
    
    Amounts capitalized and subsequently expensed in the same period have been excluded
from the above table.  Aging of capitalized exploratory well costsYear ended December 31,2007
    
    
    2006Capitalized exploratory well costs that have been capitalized for a period of one year or less
    
    
    1,186
    
    
    
    1,733Capitalized exploratory well costs that have been capitalized for a period greater than one year
    
    
    1,441
    
    
    
    321Ending balance
    
    
    2,627
    
    
    
    2,054Number of projects that have exploratory well costs that have been capitalized for a period
greater than one year
    
    
    195
    
    
    
    50
  F-136




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 24.
    
    Accounting for Suspended Exploratory Wells(Continued)
    Million of
    
    
    Number ofdollars
    
    
    wells2006
    
    
    1,006
    
    
    
    542005
    
    
    255
    
    
    
    512004
    
    
    84
    
    
    
    242003
    
    
    68
    
    
    
    232002
    
    
    28
    
    
    
    341,441
    
    
    
    186
 
 25.
    
    Special Participation in the Marlim Field
     F-137




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 25.
    
    Special Participation in the Marlim Field(Continued)
      
 26.
    
    Subsequent Events
 (a)
    
    FinancingOn January 11, 2008, PifCo issued Senior Global Notes of US$750, reopening this Notes in
the international capital market, that has constituted a single issue fungible with the
US$1,000 launched on November 1, 2007, totalizing US$1,750 in issued bonds due on March 1,
2018. The Notes bear interest at the rate of 5.875% per annum, payable semiannually,
beginning on March 1, 2008. The purpose of this issue was to access long-term debt capital
markets, refinance prepayments of maturing debt and reduce the cost of capital.
  F-138




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS
AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 26.
    
    Subsequent Events(Continued)
 (b)
    
    Share splitThe Extraordinary General Meeting held on March 24, 2008, decided to effect a split of each
Companys share into two, resulting: (a) in a free distribution of 1 (one) new share of the
same type for each original share and based on the shareholding structure at April 25,
2008; (b) in a free distribution of 1 (one) new American Depository Receipt (ADS) of the
same type for each original ADS and based on the shareholding structure at April 25, 2008.
At the same date, an amendment to article 4 of the Companys by-laws to cause capital be
divided into 8,774,076,740 shares, of which 5,073,347,344 are common shares and
3,700,729,396 are preferred shares, with no nominal value, was approved. This amendment to
the Companys bylaws is effective from April 25, 2008. The relation between the ADS and
 shares of each class remains of 2 (two) shares for one ADS. All share, ADS, per share and
per ADS information in the accompanying financial statements and notes have been restated
to reflect the result of the share split, as follows:
 Year ended December 31,2007
    
    
    2006
    
    
    2005Weighted average number of shares
outstandingCommon/ADS
    
    
    5,073,347,344
    
    
    
    5,073,347,344
    
    
    
    5,073,347,344Preferred/ADS
    
    
    3,700,729,396
    
    
    
    3,699,806,288
    
    
    
    3,698,956,056Basic and diluted earnings per shareCommon and preferred
    
    
    1.50
    
    
    
    1.46
    
    
    
    1.18
    (*)Basic and diluted earnings per ADS
    
    
    3.00
    
    
    
    2.92
    
    
    
    2.36
    (*)
 (*)
    
    Per share data is presented after extraordinary item. (c)
    
    Adaptation to the Law 11,638/2007Law 11,638/07 was enacted on December 28, 2007, and amends and repeals provisions of Laws
6,404 and 6,385, which governed financial statements preparation for Brazilian companies,
in order to adjust Brazilian Accounting Practices to the international financial reporting
standards (IFRS), affecting the Companys net income and shareholders equity, which are
basis for dividend and interest on equity payment.The Company is currently evaluating the potential impacts of this law.
  F-139




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (i)
    
    Capitalized costs relating to oil and gas producing activitiesIn accordance with SFAS 69  Disclosures About Oil and Gas Producing Activities (SFAS 69),
this section provides supplemental information on oil and gas exploration and producing
activities of the Company. The information included in items (i) through (iii) provides
historical cost information pertaining to costs incurred in exploration, property acquisitions
and development, capitalized costs and results of operations. The information included in items
(iv) and (v) present information on Petrobras estimated net proved reserve quantities,
standardized measure of estimated discounted future net cash flows related to proved reserves,
and changes in estimated discounted future net cash flows.Beginning in 1995, the Federal Government of Brazil undertook a comprehensive reform of the
countrys oil and gas regulatory system. On November 9, 1995, the Brazilian Constitution was
amended to authorize the Federal Government to contract with any state or privately-owned
company to carry out the activities related to the upstream and downstream segments of the
Brazilian oil and gas sector. This amendment eliminated Petrobras effective monopoly. The
amendment was implemented by the Petroleum Law, which liberated the fuel market in Brazil
beginning January 1, 2002.The Petroleum Law established a new regulatory framework ending Petrobras exclusive agency and
enabling competition in all aspects of the oil and gas industry in Brazil. As provided in the
Petroleum Law, Petrobras was granted the exclusive right for a period of 27 years to exploit the
petroleum reserves in all fields where the Company had previously commenced production. However,
the Petroleum Law established a procedural framework for Petrobras to claim exclusive
exploratory (and, in case of success, development) rights for a period of up to three years with
respect to areas where the Company could demonstrate that it had established prospects. To
perfect its claim to explore and develop these areas, the Company had to demonstrate that it had
the requisite financial capacity to carry out these activities, alone or through financing or
partnering arrangements.The International geographic area includes activities in Angola, Argentina, Bolivia, Colombia,
Ecuador, Mexico, Nigeria, Peru, the United States of America, Venezuela, Iran, Lybia and
Tanzania. The Company has immaterial non-consolidated companies involved in exploration and
production activities; the amounts related to such are in the line item titled Investments in
non-consolidated companies and other investments.
  F-140




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (i)
    
    Capitalized costs relating to oil and gas producing activities(Continued)The following table summarizes capitalized costs for oil and gas exploration and production
activities with the related accumulated depreciation, depletion and amortization, and asset
retirement obligation assets:
 As of December 31, 2007Brazil
    
    
    International
    
    
    WorldwideUnproved oil and gas properties
    
    
    1,585
    
    
    
    1,042
    
    
    
    2,627Proved oil and gas properties
    
    
    31,841
    
    
    
    5,674
    
    
    
    37,515Support equipment
    
    
    23,767
    
    
    
    803
    
    
    
    24,570Gross capitalized costs
    
    
    57,193
    
    
    
    7,519
    
    
    
    64,712Depreciation and depletion
    
    
    (22,222
    )
    
    
    (2,302
    )
    
    
    (24,524
    )34,971
    
    
    
    5,217
    
    
    
    40,188Construction and installations in progress
    
    
    13,558
    
    
    
    883
    
    
    
    14,44148,529
    
    
    
    6,100
    
    
    
    54,629Proportional interest of net capitalized
costs of non-consolidated companies
    
    
    
    
    
    
    726
    
    
    
    726Net capitalized costs
    
    
    48,529
    
    
    
    6,826
    
    
    
    55,355
 As of December 31, 2006Brazil
    
    
    International
    
    
    WorldwideUnproved oil and gas properties
    
    
    683
    
    
    
    1,371
    
    
    
    2,054Proved oil and gas properties
    
    
    23,967
    
    
    
    4,240
    
    
    
    28,207Support equipment
    
    
    13,851
    
    
    
    454
    
    
    
    14,305Gross capitalized costs
    
    
    38,501
    
    
    
    6,065
    
    
    
    44,566Depreciation and depletion
    
    
    (14,979
    )
    
    
    (1,902
    )
    
    
    (16,881
    )23,522
    
    
    
    4,163
    
    
    
    27,685Construction and installations in progress
    
    
    10,457
    
    
    
    273
    
    
    
    10,73033,979
    
    
    
    4,436
    
    
    
    38,415Proportional interest of net capitalized
costs of non-consolidated companies
    
    
    
    
    
    
    224
    
    
    
    224Net capitalized costs
    
    
    33,979
    
    
    
    4,660
    
    
    
    38,639
  F-141




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (ii)
    
    Costs incurred in oil and gas property acquisition, exploration and development activitiesCosts incurred are summarized below and include both amounts expensed and capitalized:
 Year ended December 31, 2007Brazil
    
    
    International
    
    
    WorldwideProperty acquisitionsProved
    
    
    
    
    
    
    59
    
    
    
    59Unproved
    
    
    119
    
    
    
    464
    
    
    
    583Exploration costs
    
    
    2,095
    
    
    
    309
    
    
    
    2,404Development costs
    
    
    7,928
    
    
    
    1,132
    
    
    
    9,06010,142
    
    
    
    1,964
    
    
    
    12,106Proportional interest of
costs incurred of
non-consolidated companies
    
    
    
    
    
    
    80
    
    
    
    8010,142
    
    
    
    2,044
    
    
    
    12,186
 Year ended December 31, 2006Brazil
    
    
    International
    
    
    WorldwideProperty acquisitionsProved
    
    
    
    
    
    
    86
    
    
    
    86Unproved
    
    
    38
    
    
    
    630
    
    
    
    668Exploration costs
    
    
    1,752
    
    
    
    430
    
    
    
    2,182Development costs
    
    
    6,022
    
    
    
    817
    
    
    
    6,8397,812
    
    
    
    1,963
    
    
    
    9,775Proportional interest of
costs incurred of
non-consolidated companies
    
    
    
    
    
    
    24
    
    
    
    247,812
    
    
    
    1,987
    
    
    
    9,799
 Year ended December 31, 2005Brazil
    
    
    International
    
    
    WorldwideProperty acquisitionsUnproved
    
    
    220
    
    
    
    126
    
    
    
    346Exploration costs
    
    
    1,741
    
    
    
    420
    
    
    
    2,161Development costs
    
    
    4,687
    
    
    
    647
    
    
    
    5,3346,648
    
    
    
    1,193
    
    
    
    7,841
  F-142




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (iii)
    
    Results of operations for oil and gas producing activitiesThe Companys results of operations from oil and gas producing activities for the years ending
December 31, 2007, 2006 and 2005 are shown in the following table. The Company transfers
substantially all of its Brazilian crude oil and gas production to the Supply segment in
Brazil. The prices calculated by the Companys model may not be indicative of the price the
Company would have realized had this production been sold in an unregulated spot market.
Additionally, the prices calculated by the Companys model may not be indicative of the future
prices to be realized by the Company. Gas prices used are contracted prices to third parties.Production costs are lifting costs incurred to operate and maintain productive wells and
related equipment and facilities, including such costs as operating labor, materials, supplies,
fuel consumed in operations and the costs of operating natural liquid gas plants. Production
costs also include administrative expenses and depreciation and amortization of equipment
associated with production activities.Exploration expenses include the costs of geological and geophysical activities and
non-productive exploratory wells. Depreciation and amortization expenses relate to assets
employed in exploration and development activities. In accordance with SFAS 69, income taxes
are based on statutory tax rates, reflecting allowable deductions. Interest income and expense
are excluded from the results reported in this table.
 Year ended December 31, 2007Brazil
    
    
    International
    
    
    WorldwideNet operating revenues:Sales to third parties
    
    
    2,455
    
    
    
    1,136
    
    
    
    3,591Intersegment (1)
    
    
    37,323
    
    
    
    1,473
    
    
    
    38,79639,778
    
    
    
    2,609
    
    
    
    42,387Production costs (2)
    
    
    (12,998
    )
    
    
    (933
    )
    
    
    (13,931
    )Exploration expenses
    
    
    (648
    )
    
    
    (775
    )
    
    
    (1,423
    )Depreciation, depletion and amortization
    
    
    (3,335
    )
    
    
    (432
    )
    
    
    (3,767
    )Impairment of oil and gas properties
    
    
    (26
    )
    
    
    (226
    )
    
    
    (252
    )Other operating expenses
    
    
    (245
    )
    
    
    (78
    )
    
    
    (323
    )Results before income taxes
    
    
    22,526
    
    
    
    165
    
    
    
    22,691Income tax expense
    
    
    (7,658
    )
    
    
    (242
    )
    
    
    (7,900
    )14,868
    
    
    
    (77
    )
    
    
    14,791Proportional interest in results of producing activities of
non-consolidated companies
    
    
    
    
    
    
    (38
    )
    
    
    (38
    )Results of operations (excluding corporate overhead and interest cost)
    
    
    14,868
    
    
    
    (115
    )
    
    
    14,753
  F-143




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (iii)
    
    Results of operations for oil and gas producing activities(Continued)
 Year ended December 31, 2006Brazil
    
    
    International
    
    
    WorldwideNet operating revenues:Sales to third parties
    
    
    3,351
    
    
    
    684
    
    
    
    4,035Intersegment (1)
    
    
    31,171
    
    
    
    1,830
    
    
    
    33,00134,522
    
    
    
    2,514
    
    
    
    37,036Production costs (2)
    
    
    (11,761
    )
    
    
    (949
    )
    
    
    (12,710
    )Exploration expenses
    
    
    (501
    )
    
    
    (434
    )
    
    
    (935
    )Depreciation, depletion and amortization
    
    
    (2,166
    )
    
    
    (309
    )
    
    
    (2,475
    )Impairment of oil and gas properties
    
    
    (20
    )
    
    
    (1
    )
    
    
    (21
    )Other operating expenses
    
    
    (22
    )
    
    
    (3
    )
    
    
    (25
    )Results before income taxes
    
    
    20,052
    
    
    
    818
    
    
    
    20,870Income tax expense
    
    
    (6,818
    )
    
    
    (279
    )
    
    
    (7,097
    )13,234
    
    
    
    539
    
    
    
    13,773Proportional interest in results of producing activities of
non-consolidated companies
    
    
    
    
    
    
    20
    
    
    
    20Results of operations (excluding corporate overhead and interest cost)
    
    
    13,234
    
    
    
    559
    
    
    
    13,793
 Year ended December 31, 2005Brazil
    
    
    International
    
    
    WorldwideNet operating revenues:Sales to third parties
    
    
    1,874
    
    
    
    920
    
    
    
    2,794Intersegment (1)
    
    
    25,997
    
    
    
    1,476
    
    
    
    27,47327,871
    
    
    
    2,396
    
    
    
    30,267Production costs (2)
    
    
    (10,342
    )
    
    
    (665
    )
    
    
    (11,007
    )Exploration expenses
    
    
    (871
    )
    
    
    (142
    )
    
    
    (1,013
    )Depreciation, depletion, amortization
    
    
    (1,571
    )
    
    
    (360
    )
    
    
    (1,931
    )Impairment of oil and gas properties
    
    
    (11
    )
    
    
    (134
    )
    
    
    (145
    )Other operating expenses
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )Results before income taxes
    
    
    15,047
    
    
    
    1,095
    
    
    
    16,142Income tax expense
    
    
    (5,116
    )
    
    
    (372
    )
    
    
    (5,488
    )Results of operations (excluding corporate overhead and interest cost)
    
    
    9,931
    
    
    
    723
    
    
    
    10,654
 (1)
    
    Does not consider US$2,213 (US$1,216 for 2006 and US$953 for 2005) related to field
processing activities, for which Petrobras has no attributable quantity of reserve. The
amount, which relates principally to dry gas volumes, is considered in Petrobras net
operating revenues of US$41,991 (US$35,738 for 2006 and US$28,824 for 2005) for the
segment of E&P Brazil (see Note 22).(2)
    
    Does not consider US$2,149 (US$1,873 for 2006 and US$985 for 2005) related to field
processing activities, for which Petrobras has no attributable quantity of reserve. The
amount, which relates principally to dry gas volumes, is considered in Petrobras cost of
sales of US$15,147 (US$13,634 for 2006 and US$11,327 for 2005) for the segment of E&P
Brazil (see Note 22).  F-144




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (iv)
    
    Reserve quantities informationThe Companys estimated net proved oil and gas reserves and changes thereto for the years 2007,
2006 and 2005 are shown in the following table. Proved reserves are estimated by the Companys
reservoir engineers in accordance with the reserve definitions prescribed by the Securities and
Exchange Commission.Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural
gas liquids which geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and operating
conditions. Proved reserves do not include additional quantities recoverable beyond the term of
the concession or contract, or that may result from extensions of currently proved areas, or
from application of secondary or tertiary recovery processes not yet tested and determined to
be economic.Proved developed reserves are the quantities expected to be recovered from existing wells with
existing equipment and operating methods. Proved undeveloped reserves are those volumes which
are expected to be recovered as a result of future investments in drilling, re-equipping
existing wells and installing facilities necessary to deliver the production from these
reserves.In some cases, substantial new investments in additional wells and related facilities will be
required to recover these proved reserves. Due to the inherent uncertainties and the limited
nature of reservoir data, estimates of reserves are subject to change as additional information
becomes available.
  F-145




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (iv)
    
    Reserve quantities information(Continued)A summary of the annual changes in the proved reserves of crude oil and natural gas follows:
 Oil (millions of barrels)
    
    
    Gas (billions of cubic feet)Brazil
    
    
    International
    
    
    Worldwide
    
    
    Brazil
    
    
    International
    
    
    WorldwideWorldwide net proved developed
and undeveloped reservesReserves at December 31, 2004
    
    
    9,243.4
    
    
    
    702.0
    (1)
    
    
    9,945.4
    
    
    
    7,954.3
    
    
    
    3,292.8
    (1)
    
    
    11,247.1Revisions of previous estimates
    
    
    123.0
    
    
    
    0.5
    
    
    
    123.5
    
    
    
    842.4
    
    
    
    (32.6
    )
    
    
    809.8Improved recovery
    
    
    1.1
    
    
    
    (9.4
    )
    
    
    (8.3
    )
    
    
    6.9
    
    
    
    0.2
    
    
    
    7.1Extensions and discoveries
    
    
    250.9
    
    
    
    47.8
    
    
    
    298.7
    
    
    
    990.0
    
    
    
    38.6
    
    
    
    1,028.6Production for the year
    
    
    (584.5
    )
    
    
    (58.8
    )
    
    
    (643.3
    )
    
    
    (529.8
    )
    
    
    (210.9
    )
    
    
    (740.7
    )Reserves at December 31, 2005
    
    
    9,033.9
    
    
    
    682.1
    (1)
    
    
    9,716.0
    
    
    
    9,263.8
    
    
    
    3,088.1
    (1)
    
    
    12,351.9Interest loss in Venezuela
    
    
    
    
    
    
    (240.5
    )
    
    
    (240.5
    )
    
    
    
    
    
    
    (171.2
    )
    
    
    (171.2
    )Revisions of previous estimates
    
    
    463.4
    
    
    
    (15.3
    )
    
    
    448.1
    
    
    
    322.1
    
    
    
    (459.2
    )
    
    
    (137.1
    )Improved recovery
    
    
    6.9
    
    
    
    6.7
    
    
    
    13.6
    
    
    
    7.6
    
    
    
    9.9
    
    
    
    17.5Acquisition of reserves
    
    
    0.9
    
    
    
    8.9
    
    
    
    9.8
    
    
    
    45.7
    
    
    
    16.0
    
    
    
    61.7Sale of reserves
    
    
    
    
    
    
    (4.5
    )
    
    
    (4.5
    )
    
    
    
    
    
    
    
    
    
    
    Extensions and discoveries
    
    
    112.8
    
    
    
    21.4
    
    
    
    134.2
    
    
    
    320.6
    
    
    
    65.2
    
    
    
    385.8Production for the year
    
    
    (616.0
    )
    
    
    (42.6
    )
    
    
    (658.6
    )
    
    
    (532.9
    )
    
    
    (209.8
    )
    
    
    (742.7
    )Reserves at December 31, 2006
    
    
    9,001.9
    
    
    
    416.2
    (1)
    
    
    9,418.1
    
    
    
    9,426.9
    
    
    
    2,339.0
    (1)
    
    
    11,765.9Interest loss in Venezuela
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revisions of previous estimates
    
    
    675.2
    
    
    
    (8.4
    )
    
    
    666.8
    
    
    
    470.7
    
    
    
    115.4
    
    
    
    586.1Improved recovery
    
    
    15.8
    
    
    
    9.5
    
    
    
    25.3
    
    
    
    7.7
    
    
    
    3.8
    
    
    
    11.5Acquisition of reserves
    
    
    
    
    
    
    1.2
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    Sale of reserves
    
    
    
    
    
    
    (1.2
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    
    
    
    
    Extensions and discoveries
    
    
    65.2
    
    
    
    37.1
    
    
    
    102.3
    
    
    
    683.0
    
    
    
    169.9
    
    
    
    852.9Production for the year
    
    
    (619.6
    )
    
    
    (40.1
    )
    
    
    (659.7
    )
    
    
    (510.0
    )
    
    
    (226.6
    )
    
    
    (736.6
    )Reserves at December 31, 2007
    
    
    9,138.5
    
    
    
    414.3
    
    
    
    9,552.8
    
    
    
    10,078.3
    
    
    
    2,401.5
    
    
    
    12,479.8Proportional interest in net proved
developed and undeveloped reserves of
non-consolidated companies at December
31, 2006
    
    
    
    
    
    
    65.7
    
    
    
    65.7
    
    
    
    
    
    
    
    77.3
    
    
    
    77.3Proportional interest in net proved
developed and undeveloped reserves of
non-consolidated companies at December
31, 2007
    
    
    
    
    
    
    60.1
    
    
    
    60.1
    
    
    
    
    
    
    
    66.9
    
    
    
    66.9Net proved developed reserves:At January 1, 2004
    
    
    3,629.5
    
    
    
    404.1
    
    
    
    4,033.6
    
    
    
    4,398.1
    
    
    
    2,548.4
    
    
    
    6,946.5At December 31, 2004
    
    
    4,129.8
    
    
    
    383.1
    
    
    
    4,512.9
    
    
    
    4,427.6
    
    
    
    2,495.2
    
    
    
    6,922.8At December 31, 2005
    
    
    4,071.7
    
    
    
    365.9
    
    
    
    4,437.6
    
    
    
    4,088.8
    
    
    
    2,333.7
    
    
    
    6,422.5At December 31, 2006
    
    
    3,987.7
    
    
    
    232.9
    
    
    
    4,220.6
    
    
    
    4,115.4
    
    
    
    1,758.0
    
    
    
    5,873.4At December 31, 2007
    
    
    5,249.7
    
    
    
    209.6
    
    
    
    5,459.3
    
    
    
    4,635.0
    
    
    
    1,741.4
    
    
    
    6,376.4Proportional interest in proved developed
reserves of equity companies at December
31, 2006
    
    
    
    
    
    
    36.7
    
    
    
    36.7
    
    
    
    
    
    
    
    43.1
    
    
    
    43.1Proportional interest in proved developed
reserves of equity companies at
December 31, 2007
    
    
    
    
    
    
    33.4
    
    
    
    33.4
    
    
    
    
    
    
    
    44.2
    
    
    
    44.2
 (1)
    
    Includes reserves of 110 million barrels of oil and 533 billions of cubic
feet of gas in 2007 (134.0 million barrels of oil and 504.8 billions of cubic feet of
gas in 2006; and 222.8 million barrels of oil and 550.6 billions of cubic feet of gas
in 2005) attributable to 41.38% minority interest in PEPSA, which is consolidated by
Petrobras.  F-146




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (iv)
    
    Reserve quantities information(Continued)During 2006, the decrease in reserves is related to revisions of previous estimates due to
Bolivia and Venezuela new nationalization measures. The new regulation in Venezuela reduced our
reserves as PDVSA became the main controller of the companies created to operate the fields
with private companies. In Bolivia, due to new government regulations, occurred a decrease in
the reserves. In Nigeria, the consortium in charge of Akpo field was constituted by Total,
Petrobras and a Nigerian private company called Sapetro. The agreement underwritten by these
companies established that Total and Petrobras carried the investment cost of the third part
and it would be compensated in the future with Sapetros production/reserves.Along 2006, Sapetro sold its participation to a Chinese oil company and, as part of this
agreement, Petrobras and Total were reimbursed for their past carrying investments.(v)
    
    Standardized measure of discounted future net cash flows relating to proved oil and gas
quantities and changes thereinThe standardized measure of discounted future net cash flows, related to the above proved oil
and gas reserves, is calculated in accordance with the requirements of SFAS 69. Estimated
future cash inflows from production in Brazil are computed by applying year-end prices based
upon the Companys internal pricing methodology for oil and gas to year-end quantities of
estimated net proved reserves. Estimated future cash inflows from production related to the
Companys International segment are computed by applying year-end prices for oil and gas to
year-end quantities of estimated net proved reserves. Future price changes are limited to those
provided by contractual arrangements in existence at the end of each reporting year. Future
development and production costs are those estimated future expenditures necessary to develop
and produce year-end estimated proved reserves based on year-end cost indicators, assuming
continuation of year-end economic conditions. Estimated future income taxes are calculated by
applying appropriate year-end statutory tax rates. These rates reflect allowable deductions and
are applied to estimated future pre-tax net cash flows, less the tax basis of related assets.
Discounted future net cash flows are calculated using 10% midperiod discount factors. This
discounting requires a year-by-year estimate of when the future expenditures will be incurred
and when the reserves will be produced.
  F-147




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (v)
    
    Standardized measure of discounted future net cash flows relating to proved oil and gas
quantities and changes therein(Continued)The information provided does not represent managements estimate of Petrobras expected future
cash flows or value of proved oil and gas reserves. Estimates of proved reserve quantities
involves uncertainty and change over time as new information becomes available. Moreover,
probable and possible reserves, which may become proved in the future, are excluded from the
calculations.The arbitrary valuation prescribed under SFAS 69 requires assumptions as to the timing and
amount of future development and production costs. The calculations are made as of December 31
each year and should not be relied upon as an indication of Petrobras future cash flows or the
value of its oil and gas reserves.
 Brazil
    
    
    International
    
    
    WorldwideAt December 31, 2007Future cash inflows
    
    
    797,689
    
    
    
    35,985
    
    
    
    833,674Future production costs
    
    
    (273,130
    )
    
    
    (8,563
    )
    
    
    (281,693
    )Future development costs
    
    
    (35,697
    )
    
    
    (3,265
    )
    
    
    (38,962
    )Future income tax expenses
    
    
    (167,865
    )
    
    
    (9,683
    )
    
    
    (177,548
    )Undiscounted future net cash flows
    
    
    320,997
    
    
    
    14,474
    
    
    
    335,47110 percent midyear annual discount for
timing of estimated cash flows
    
    
    (151,144
    )
    
    
    (5,335
    )
    
    
    (156,479
    )Standardized measure of discounted future net cash flows
    
    
    169,853
    
    
    
    9,139
    
    
    
    178,992Proportional interest in standardized measure of
discounted future net cash flows related to proved
reserves of non-consolidated companies
    
    
    
    
    
    
    792
    
    
    
    792At December 31, 2006Future cash inflows
    
    
    477,051
    
    
    
    24,691
    
    
    
    501,742Future production costs
    
    
    (175,483
    )
    
    
    (5,726
    )
    
    
    (181,209
    )Future development costs
    
    
    (30,185
    )
    
    
    (2,679
    )
    
    
    (32,864
    )Future income tax expenses
    
    
    (93,914
    )
    
    
    (7,051
    )
    
    
    (100,965
    )Undiscounted future net cash flows
    
    
    177,469
    
    
    
    9,235
    
    
    
    186,70410 percent midyear annual discount for
timing of estimated cash flows
    
    
    (83,582
    )
    
    
    (3,566
    )
    
    
    (87,148
    )Standardized measure of discounted future net cash flows
    
    
    93,887
    
    
    
    5,669
    
    
    
    99,556Proportional interest in standardized measure of
discounted future net cash flows related to proved
reserves of non-consolidated companies
    
    
    
    
    
    
    472
    
    
    
    472At December 31, 2005Future cash inflows
    
    
    496,355
    
    
    
    36,014
    
    
    
    532,369Future production costs
    
    
    (170,638
    )
    
    
    (7,339
    )
    
    
    (177,977
    )Future development costs
    
    
    (25,934
    )
    
    
    (2,946
    )
    
    
    (28,880
    )Future income tax expenses
    
    
    (103,726
    )
    
    
    (10,929
    )
    
    
    (114,655
    )Undiscounted future net cash flows
    
    
    196,057
    
    
    
    14,800
    
    
    
    210,85710 percent midyear annual discount for
timing of estimated cash flows
    
    
    (95,580
    )
    
    
    (5,962
    )
    
    
    (101,542
    )Companys share by unconsolidated affiliates
    
    
    
    
    
    
    61
    
    
    
    61Standardized measure of discounted future net cash flows
    
    
    100,477
    
    
    
    8,899
    *
    
    
    109,376
 (*)
    
    Includes US$1,462 in 2007 (US$1,338 in 2006 and US$2,379 in 2005) attributable to
41.38% minority interest in PEPSA, which is consolidated by Petrobras.  F-148




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##### Table of Contents



PETRÓLEO BRASILEIRO S.A.  PETROBRAS AND SUBSIDIARIES
 SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION (UNAUDITED)
Expressed in Millions of United States Dollars
(except when specifically indicated)
 (v)
    
    Standardized measure of discounted future net cash flows relating to proved oil and gas
quantities and changes therein(Continued)The following are the principal sources of change in the standardized measure of discounted net
cash flows:
 Brazil
    
    
    International
    
    
    Worldwide2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Balance at January 1
    
    
    93,887
    
    
    
    100,477
    
    
    
    71,485
    
    
    
    5,669
    
    
    
    8,899
    
    
    
    6,804
    
    
    
    99,556
    
    
    
    109,376
    
    
    
    78,289Sales and transfers of oil and gas, net of
production costs
    
    
    (26,780
    )
    
    
    (22,761
    )
    
    
    (17,529
    )
    
    
    (1,642
    )
    
    
    (1,505
    )
    
    
    (1,731
    )
    
    
    (28,422
    )
    
    
    (24,266
    )
    
    
    (19,260
    )Development costs incurred
    
    
    7,928
    
    
    
    6,022
    
    
    
    4,686
    
    
    
    1,132
    
    
    
    817
    
    
    
    647
    
    
    
    9,060
    
    
    
    6,839
    
    
    
    5,333Purchases of reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    101
    
    
    
    
    
    
    
    15
    
    
    
    101
    
    
    
    Sales of reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (105
    )
    
    
    
    
    
    
    (16
    )
    
    
    (105
    )
    
    
    Extensions, discoveries and improved less
related costs
    
    
    3,995
    
    
    
    2,509
    
    
    
    6,599
    
    
    
    1,902
    
    
    
    494
    
    
    
    554
    
    
    
    5,897
    
    
    
    3,003
    
    
    
    7,153Interest loss in Venezuela
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,305
    )
    
    
    
    
    
    
    
    
    
    
    (1,305
    )
    
    
    Revisions of previous quantity estimates
    
    
    15,356
    
    
    
    10,373
    
    
    
    4,156
    
    
    
    677
    
    
    
    (1,825
    )
    
    
    92
    
    
    
    16,033
    
    
    
    8,548
    
    
    
    4,248Net changes in prices and production costs
    
    
    113,403
    
    
    
    (12,698
    )
    
    
    48,525
    
    
    
    2,658
    
    
    
    (976
    )
    
    
    4,981
    
    
    
    116,061
    
    
    
    (13,674
    )
    
    
    53,506Changes in future development costs
    
    
    (6,524
    )
    
    
    (5,274
    )
    
    
    (9,405
    )
    
    
    (866
    )
    
    
    (749
    )
    
    
    (658
    )
    
    
    (7,390
    )
    
    
    (6,023
    )
    
    
    (10,063
    )Accretion of discount
    
    
    9,389
    
    
    
    10,048
    
    
    
    7,148
    
    
    
    867
    
    
    
    1,006
    
    
    
    994
    
    
    
    10,256
    
    
    
    11,054
    
    
    
    8,142Net change in income taxes
    
    
    (40,801
    )
    
    
    5,191
    
    
    
    (15,188
    )
    
    
    (1,257
    )
    
    
    817
    
    
    
    (2,784
    )
    
    
    (42,058
    )
    
    
    6,008
    
    
    
    (17,972
    )Balance at December 31
    
    
    169,853
    
    
    
    93,887
    
    
    
    100,477
    
    
    
    9,139
    
    
    
    5,669
    
    
    
    8,899
    
    
    
    178,992
    
    
    
    99,556
    
    
    
    109,376Proportional interest in standardized
measure of discounted future net cash
flows related to proved reserves of
non-consolidated companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    792
    
    
    
    472
    
    
    
    
    
    
    
    792
    
    
    
    472
    
    
    
    
  F-149




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Petrobras International Finance Company
(A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
      Daniel Lima de Oliveira
    
    Servio Túlio da Rosa TinocoChief Executive Officer
    
    Chief Financial OfficerFebruary 28, 2008
    
    February 28, 2008
  F-151




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PETROBRAS INTERNATIONAL FINANCE COMPANY
AND SUBSIDIARIES
   Report of Independent Registered Public Accounting Firm, KPMG
    
    
    F-153Report of Independent Registered Public Accounting Firm, Ernst & Young
    
    
    F-155Audited Financial StatementsConsolidated Balance Sheets
    
    
    F-156Consolidated Statements of Operations
    
    
    F-158Consolidated Statements of Changes in Stockholders (Deficit)/Equity
    
    
    F-159Consolidated Statements of Cash Flows
    
    
    F-160Notes to the Consolidated Financial Statements
    
    
    F-161
  F-152




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F-153




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F-154




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F-155




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Petrobras International Finance Company and Subsidiaries
(A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
    2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents (Note 3)
    
    
    674,915
    
    
    
    510,812Marketable securities (Note 4)
    
    
    489,077
    
    
    
    645,278Trade accounts receivableRelated parties (Note 5)
    
    
    15,211,914
    
    
    
    10,658,905Other
    
    
    902,329
    
    
    
    835,437Notes receivable  related parties (Note 5)
    
    
    9,673,301
    
    
    
    6,114,651Inventories (Note 6)
    
    
    1,224,635
    
    
    
    262,720Export prepayments  related parties (Note 5)
    
    
    72,496
    
    
    
    67,785Restricted deposits for guarantees and other (Note 7)
    
    
    79,030
    
    
    
    145,73228,327,697
    
    
    
    19,241,320Property and equipment
    
    
    1,232
    
    
    
    700Other assetsMarketable securities (Note 4)
    
    
    3,643,545
    
    
    
    1,151,588Notes receivable  related parties (Note 5)
    
    
    279,574
    
    
    
    239,709Export prepayment  related parties (Note 5)
    
    
    710,925
    
    
    
    464,380Restricted deposits for guarantees and prepaid expenses (Note 7)
    
    
    233,085
    
    
    
    223,6184,867,129
    
    
    
    2,079,295Total assets
    
    
    33,196,058
    
    
    
    21,321,315
   F-156




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Petrobras International Finance Company and Subsidiaries
(A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 2007
    
    
    2006Liabilities and stockholders deficitCurrent liabilitiesTrade accounts payableRelated parties (Note 5)
    
    
    1,686,479
    
    
    
    1,142,848Other
    
    
    1,180,955
    
    
    
    1,121,986Notes payable  related parties (Note 5)
    
    
    23,977,731
    
    
    
    5,386,759Short-term financings (Note 8)
    
    
    5,201
    
    
    
    148,447Current portion of long-term debt (Note 8)
    
    
    704,911
    
    
    
    1,057,438Accrued interests (Note 8)
    
    
    78,709
    
    
    
    97,865Unearned income  related parties (Note 5)
    
    
    326,339
    
    
    
    248,688Other current liabilities
    
    
    51,941
    
    
    
    60,19928,012,266
    
    
    
    9,264,230Long-term liabilitiesLong-term debt (Note 8)
    
    
    5,186,789
    
    
    
    4,640,134Notes payable  related parties (Note 5)
    
    
    
    
    
    
    7,441,7015,186,789
    
    
    
    12,081,835Stockholders deficitShares authorized and issuedCommon stock - 300,050,000 shares at par value US $1 (Note10)
    
    
    300,050
    
    
    
    300,050Additional paid in capital
    
    
    53,926
    
    
    
    53,926Accumulated deficit
    
    
    (347,549
    )
    
    
    (376,519
    )Other comprehensive incomeLoss on cash flow hedge
    
    
    (9,424
    )
    
    
    (2,207
    )(2,997
    )
    
    
    (24,750
    )Total liabilities and stockholders deficit
    
    
    33,196,058
    
    
    
    21,321,315
   F-157




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Petrobras International Finance Company and Subsidiaries
(A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
    Years ended December 31,2007
    
    
    2006
    
    
    2005Sales of crude oil, oil products and servicesRelated parties (Note 5)
    
    
    14,679,385
    
    
    
    14,236,511
    
    
    
    13,974,381Other
    
    
    12,052,646
    
    
    
    7,833,263
    
    
    
    3,161,76426,732,031
    
    
    
    22,069,774
    
    
    
    17,136,145Operating expenses:Cost of salesRelated parties (Note 5)
    
    
    (8,874,800
    )
    
    
    (8,121,994
    )
    
    
    (7,780,293
    )Other
    
    
    (17,435,987
    )
    
    
    (13,778,560
    )
    
    
    (9,203,008
    )Selling, general and administrative expensesRelated parties (Note 5)
    
    
    (182,424
    )
    
    
    (189,667
    )
    
    
    (158,075
    )Other
    
    
    (112,257
    )
    
    
    (17,678
    )
    
    
    (7,647
    )(26,605,468
    )
    
    
    (22,107,899
    )
    
    
    (17,149,023
    )Operating income/(loss)
    
    
    126,563
    
    
    
    (38,125
    )
    
    
    (12,878
    )Financial incomeRelated parties (Note 5)
    
    
    1,699,307
    
    
    
    999,204
    
    
    
    765,507Other
    
    
    370,630
    
    
    
    285,962
    
    
    
    218,4792,069,937
    
    
    
    1,285,166
    
    
    
    983,986Financial expenseRelated parties (Note 5)
    
    
    (1,588,246
    )
    
    
    (722,434
    )
    
    
    (409,822
    )Other
    
    
    (579,672
    )
    
    
    (735,332
    )
    
    
    (588,728
    )(2,167,918
    )
    
    
    (1,457,766
    )
    
    
    (998,550
    )Financial, net
    
    
    (97,981
    )
    
    
    (172,600
    )
    
    
    (14,564
    )Exchange variation, net
    
    
    (24
    )
    
    
    32
    
    
    
    (360
    )Other income, net
    
    
    412
    
    
    
    168
    
    
    
    46Net income/(loss) for the year
    
    
    28,970
    
    
    
    (210,525
    )
    
    
    (27,756
    )Net income/(loss) per share for the year -
US$
    
    
    0.10
    
    
    
    (2.72
    )
    
    
    (555.12
    )
   F-158




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Petrobras International Finance Company and Subsidiaries
(A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
    Years ended December 31,2007
    
    
    2006
    
    
    2005Common stockBalance at January 1
    
    
    300,050
    
    
    
    50
    
    
    
    50Capital increase
    
    
    
    
    
    
    300,000
    
    
    
    Balance at end of year
    
    
    300,050
    
    
    
    300,050
    
    
    
    50Additional paid in capitalBalance at January 1
    
    
    53,926
    
    
    
    173,926
    
    
    
    173,926Transfer to capital
    
    
    
    
    
    
    (120,000
    )
    
    
    Balance at end of year
    
    
    53,926
    
    
    
    53,926
    
    
    
    173,926Accumulated deficitBalance at January 1
    
    
    (376,519
    )
    
    
    (165,994
    )
    
    
    (138,238
    )Net income (loss) for the year
    
    
    28,970
    
    
    
    (210,525
    )
    
    
    (27,756
    )Balance at end of year
    
    
    (347,549
    )
    
    
    (376,519
    )
    
    
    (165,994
    )Other comprehensive incomeLoss on cash flow hedgeBalance at January 1
    
    
    (2,207
    )
    
    
    
    
    
    
    Change in the year
    
    
    (7,217
    )
    
    
    (2,207
    )
    
    
    Balance at end of year
    
    
    (9,424
    )
    
    
    (2,207
    )
    
    
    Total stockholders (deficit)/equity
    
    
    (2,997
    )
    
    
    (24,750
    )
    
    
    7,982
   F-159




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Petrobras International Finance Company and Subsidiaries
(A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
    Years ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income/(loss) for the year
    
    
    28,970
    
    
    
    (210,525
    )
    
    
    (27,756
    )Adjustments to reconcile net income/(loss) to net cash
used in operationsDepreciation, amortization of prepaid expenses and
debt amortization
    
    
    7,909
    
    
    
    20,725
    
    
    
    10,150Decrease (increase) in assetsTrade accounts receivableRelated parties
    
    
    (4,553,009
    )
    
    
    (1,977,830
    )
    
    
    (893,006
    )Other
    
    
    (66,892
    )
    
    
    (622,734
    )
    
    
    (59,079
    )Export prepayments  related parties
    
    
    (251,256
    )
    
    
    411,760
    
    
    
    470,754Other assets
    
    
    (903,409
    )
    
    
    (242,283
    )
    
    
    (221,863
    )Increase in liabilitiesTrade accounts payableRelated parties
    
    
    543,631
    
    
    
    192,116
    
    
    
    388,593Other
    
    
    58,969
    
    
    
    505,910
    
    
    
    48,999Other liabilities
    
    
    (74,896
    )
    
    
    (44,551
    )
    
    
    277,318Net cash used in operating activities
    
    
    (5,209,983
    )
    
    
    (1,967,412
    )
    
    
    (5,890
    )Cash flows from investing activitiesMarketable securities, net
    
    
    (2,335,756
    )
    
    
    451,775
    
    
    
    (383,826
    )Notes receivable  related parties, net
    
    
    (3,608,351
    )
    
    
    (2,342,359
    )
    
    
    (1,887,125
    )Property and equipment
    
    
    (904
    )
    
    
    (460
    )
    
    
    (19
    )Net cash used in investing activities
    
    
    (5,945,011
    )
    
    
    (1,891,044
    )
    
    
    (2,270,970
    )Cash flows from financing activitiesShort-term financing, net issuance and repayments
    
    
    (143,246
    )
    
    
    (191,056
    )
    
    
    (116,654
    )Proceeds from issuance of long-term debt
    
    
    1,737,162
    
    
    
    982,280
    
    
    
    695,000Principal payments of long-term debt
    
    
    (1,557,783
    )
    
    
    (1,731,726
    )
    
    
    (602,410
    )Short-term loans  related parties, net
    
    
    18,630,887
    
    
    
    (2,268,898
    )
    
    
    1,424,385Proceeds from long-term loans  related parties
    
    
    
    
    
    
    7,347,923
    
    
    
    Principal payments of long-term loans  related parties
    
    
    (7,347,923
    )
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    11,319,097
    
    
    
    4,138,523
    
    
    
    1,400,321Increase (decrease) in cash and cash equivalents
    
    
    164,103
    
    
    
    280,067
    
    
    
    (876,539
    )Cash and cash equivalents at beginning of year
    
    
    510,812
    
    
    
    230,745
    
    
    
    1,107,284Cash and cash equivalents at end of year
    
    
    674,915
    
    
    
    510,812
    
    
    
    230,745Supplemental disclosures of cash flow information:Cash paid during the year forInterest
    
    
    2,096,165
    
    
    
    1,371,169
    
    
    
    727,739Income taxes
    
    
    1,089
    
    
    
    113
    
    
    
    120Non-cash investing and financing transactionsIncrease of capital through conversion of loan payable
    
    
    
    
    
    
    180,000
    
    
    
    
   F-160




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Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 
 1.
    
    The Company and its OperationsPetrobras International Finance Company  (PifCo or the Company) was incorporated in the
Cayman Islands on September 24, 1997 and operates as a wholly-owned subsidiary of Petrobras.The primary objective of PifCo is to purchase crude oil and oil products from third parties and
sell them at a premium to Petrobras on a deferred payment basis. Accordingly, intercompany
activities and transactions, and therefore the Companys financial position and results of
operations, are affected by decisions made by Petrobras. Additionally, to a more limited
extent, the Company sells oil and oil products to third parties. PifCo also engages in
international capital market borrowings as a part of the Petrobras financial and operating
strategy.The following is a brief description of each of the Companys wholly-owned subsidiaries:Petrobras Singapore Private LimitedPetrobras Singapore Private Limited (PSPL), based in Singapore, was incorporated in April
2006 to trade crude oil and oil products in connection with the trading activities in Asia.
This company initiated its operations in July, 2006.Petrobras Finance LimitedPetrobras Finance Limited (PFL), based in the Cayman Islands, in connection with the
Companys structured finance export prepayment program, whereby PFL purchases fuel oil from
Petrobras and sells this product in the international market, including sales to designated
customers, in order to generate receivables to cover the sale of future receivables debt. Until
June 1, 2006, PFL also used to purchase bunker fuel from Petrobras. Certain sales were through
subsidiaries of Petrobras.Petrobras Europe LimitedPetrobras Europe Limited (PEL), based in the United Kingdom, consolidates Petrobras European
trade and finance activities.  These activities consist of advising on and negotiating the
terms and conditions for crude oil and oil products supplied to PifCo, PSPL, Petrobras Paraguay
and Petrobras, as well as marketing Brazilian crude oil and other derivative products exported
to the geographic areas in which the Company operates. PEL plays an advisory role in connection
with these activities and undertakes no commercial or financial risk.
  F-161




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Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 1.
    
    The Company and its Operations(Continued)Bear Insurance Company LimitedBear Insurance Company Limited (BEAR), based in Bermuda, contracts insurance for Petrobras
and its subsidiaries.
 2.
    
    Basis of Financial Statement PresentationThe consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP). The preparation of
these consolidated financial statements requires the use of estimates and assumptions that
affect the assets, liabilities, revenues and expenses reported in the consolidated financial
statements, as well as amounts included in the notes thereto.
 (a)
    
    Foreign currency translationThe Companys functional currency is the U.S. dollar. All monetary assets and liabilities
denominated in a currency other than the U.S. dollar are remeasured into the U.S. dollar
using the current exchange rates. The effect of variations in the foreign currencies is
recorded in the statement of operations as financial expense or income.(b)
    
    Cash and cash equivalentsCash equivalents consist of highly liquid investments that are readily convertible into
cash and have an original maturity of three months or less at their date of acquisition.(c)
    
    Marketable securitiesMarketable securities are accounted for under SFAS No. 115  Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115) and have been classified by the
Company as available for sale or trading based upon intended strategies with respect to
such securities. The marketable securities classified as trading are short-term in nature
as the investments are expected to be liquidated, sold, or used for current cash
requirements. The marketable securities classified as available for sale are long-term in
nature as the investments are not expected to be sold or otherwise liquidated in the next
twelve months.Trading securities are marked to market through current period earnings, available for sale
securities are marked to market through other comprehensive income, and held to maturity
securities are recorded at historical cost. There are no transfers between categories of
investments.
  F-162




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Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 2.
    
    Basis of Financial Statement Presentation(Continued)
 (d)
    
    Trade accounts receivableAccounts receivable is stated at estimated realizable values. An allowance for doubtful
accounts is provided in an amount considered by management to be sufficient to meet
probable future losses related to uncollectible accounts.(e)
    
    Notes receivableNotes receivable bears interest rates and is stated at estimated realizable values. Relate
to loans executed between the Company and subsidiaries of Petrobras.(f)
    
    InventoriesInventories are stated at the lower of weighted average cost or market value.(g)
    
    Restricted Deposit and GuaranteesRestricted Deposit and guarantees represent amounts placed in escrow as required by
contractual commitments of the Company. Deposits are made in cash and recorded at funded
amount.(h)
    
    Prepaid expensesPrepaid expenses are exclusively comprised of deferred financing costs associated with the
Companys debt issuance and are being amortized over the terms of the related debt. The
unamortized balance of deferred financing costs was US$ 60,486 and US$ 55,192 as of
December 31, 2007 and 2006, respectively.(i)
    
    Property and equipmentProperty and equipment are stated at cost and are depreciated according to their estimated
useful lives.(j)
    
    Current and long-term liabilitiesThese are stated at known or estimated amounts including, when applicable, accrued
interest.
  F-163




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 2.
    
    Basis of Financial Statement Presentation(Continued)
 (k)
    
    Unearned incomeUnearned income represents the unearned premium charged by the Company to Petrobras and
Alberto Pasqualini  Refap S.A. (Refap) to compensate for its financing costs. The
premium is billed to Petrobras and Refap at the same time the related product is sold, and
is deferred and recognized into earnings as a component of financial income on a
straight-line basis over the collection period, which ranges from 120 to 330 days, in order
to match the premium billed with the Companys financial expense.(l)
    
    Revenues, costs, income and expensesFor all third party and related party transactions, revenues are recognized in accordance
with the U.S. SECs Staff Accounting Bulletion 104  Revenue Recognition. Crude oil and oil
products revenues are recognized on an accrual basis when persuasive evidence of an
arrangement exists in the form of a valid contract, delivery has occurred or title has
transferred, the price is fixed or determinable and collectability is reasonably assured.
Costs are recognized when incurred. Income and expenses include financial interest and
charges, at official rates or indexes, relating current and non-current assets and
liabilities and, when applicable, the effects arising from the adjustment of assets to
market or realizable value.The principle commercial transactions of the Company consist of:Imports  the company buys from suppliers outside Brazil (mainly from third-parties) and
sells to Petrobras and its Brazilian subsidiaries.Exports  the Company buys from Petrobras and sells to customers outside Brazil.Off-shore  the Company buys and sells mainly outside of Brazil, in transactions with
third-parties and related parties.
  F-164




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Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 2.
    
    Basis of Financial Statement Presentation(Continued)
 (m)
    
    Income taxesThe Company accounts for income taxes using an asset and liability approach, which requires
the recognition of taxes payable or refundable for the current year and deferred tax
liabilities and assets representing the future tax consequences of events that have been
recognized in the Companys financial statements or tax return. The measurement of current
and deferred tax liabilities and assets is based on the provisions of the tax laws in the
countries in which the Company and its subsidiaries operate (the United Kingdom, Bermuda,
Singapore and the Cayman Islands in 2007 and 2006 and the United Kingdom, Bermuda and the
Cayman Islands in 2005). Deferred tax assets are reduced by the amount of any tax benefits
when, based on the available evidence, such benefit may not be realized. The Cayman Islands
and Bermuda have no corporate tax requirements, therefore the Company has no tax provision
from these locations and operations in the United Kingdom or Singapore generated no
deferred tax provisions for 2007 and 2006(n)
    
    Accounting for derivatives and hedging activitiesThe Company applies SFAS No. 133  Accounting for Derivative Instruments and Hedging
Activities, together with its amendments and interpretations, referred to collectively
herein as SFAS 133. SFAS 133 requires that all derivative instruments be recorded in the
balance sheet of the Company as either an asset or a liability and measured at fair value.
SFAS 133 requires that changes in the derivatives fair value be recognized in the income
statement unless specific hedge accounting criteria are met and the Company designates. For
derivatives designated as accounting hedges, fair value adjustments are recorded either in
the income statements or Accumulated Other Comprehensive Income, a component of
shareholders equity, depending upon the type of accounting hedge and the degree of hedge
effectiveness.The Company uses derivative financial instruments for economic hedging purposes to mitigate
the risk of unfavorable price movements for crude oil and oil products purchases. These
instruments are marked-to-market with the associated gains or losses recognized as
financial income or financial expense.The Company may also use derivative financial instruments for economic hedging purposes to
mitigate the risk of unfavorable exchange-rate movements on other currency-denominated
funding. Gains and losses from changes in the fair value of these contracts are recognized
as financial income or financial expense.
  F-165




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 2.
    
    Basis of Financial Statement Presentation(Continued)
 (n)
    
    Accounting for derivatives and hedging activities(Continued)For cash flow hedges, the gains and losses associated with the derivative instruments are
deferred and recorded in Accumulated Other Comprehensive Income until such time as the
hedged transaction impacts earnings, with the exception of any hedge ineffectiveness; which
is recorded directly in earnings.(o)
    
    Recently issued accounting pronouncements
 
    
    FASB Statement No. 157, Fair Value Measurements (SFAS 157)In September 2006, the FASB issued SFAS 157, which became effective for the Company on
January 1, 2008. This standard defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS 157
does not require any new fair value measurements but would apply to assets and
liabilities that are required to be recorded at fair value under other accounting
standards. The Company does not expect any significant impact to its consolidated
financial statements, other than additional disclosures
    
    FASB Staff Position FAS No. 157-2, Effective Date of SFAS 157 (FSP 157-2)In February 2008, the FASB issued FSP 157-2, which delays the companys January 1,
2008, effective date of FAS 157 for all nonfinancial assets and
nonfinancialliabilities, except those recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), until January 1, 2009.
The Company does not expect any significant impact to its consolidated financial
statements.
    
    FASB Statement 159 The Fair Value Option for Financial Assets and Financial
Liabilities. (SFAS 159)In February 2007, the FASB issued SFAS 159 The Fair Value Option for Financial Assets
and Financial Liabilities. SFAS 159, that permits the measurement of certain financial
instruments at fair value. Entities may choose to measure eligible items at fair value
at specified election dates, reporting unrealized gains and losses on such items at
each subsequent reporting period. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The Company does not expect any significant impact to its
consolidated financial statements.
  F-166




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 3.
    
    Cash and Cash Equivalents
 2007
    
    
    2006Cash and banks
    
    
    20,925
    
    
    
    461Time deposits and short-term investment
    
    
    653,990
    
    
    
    510,351674,915
    
    
    
    510,812
 4.
    
    Marketable Securities
 Interest rate
    
    TotalSecurity
    
    Maturity
    
    per annum
    
    2007 (i)
    
    
    2006 (i)Available for Sale (iii)
    
    Clep  (ii)
    
    2014
    
    8%
    
    
    867,794
    
    
    
    975,840Available for Sale (iii)
    
    Marlim (ii)
    
    2008-2011
    
    12.25%
    
    
    352,911
    
    
    
    295,588Held to Maturity
    
    Gasene (ii)
    
    2009
    
    5.45%
    
    
    224,142
    
    
    
    212,184Held to Maturity
    
    Charter (ii)
    
    2009
    
    5.09% up to 5.79%
    
    
    699,261
    
    
    
    Held to Maturity
    
    NTS (ii) and (iv)
    
    2009-2014
    
    5.77%/6.21%
    
    
    576,687
    
    
    
    Held to Maturity
    
    NTN (ii) and (iv)
    
    2009-2014
    
    5.77%/6.21%
    
    
    519,874
    
    
    
    Held to Maturity
    
    Mexilhão (ii)
    
    2009
    
    5.68%/5.72%
    
    
    255,371
    
    
    
    87,589Held to Maturity
    
    PDET (ii)
    
    2019
    
    7.12%
    
    
    204,986
    
    
    
    207,721Held to Maturity
    
    TUM (ii)
    
    2008
    
    5.69%/5.70%
    
    
    274,593
    
    
    
    Held to Maturity
    
    Third parties
    
    
    
    
    
    
    157,003
    
    
    
    Trading
    
    Third parties
    
    
    
    
    
    
    
    
    
    
    17,9444,132,622
    
    
    
    1,796,866Less: Current balances
    
    
    
    
    
    
    
    
    (489,077
    )
    
    
    (645,278
    )3,643,545
    
    
    
    1,151,588
 (i)
    
    The balances include interest and principal.(ii)
    
    Securities held by the fund respective to the special purposes companies, established
to support Petrobras infrastructure projects, which are not US exchange traded securities.(iii)
    
    Changes in fair value related to the securities classified as available for sale in
accordance with SFAS 115 are diminimus and were included in the Statement of Operations as
financial income or expense.(iv)
    
    Notes issued by Nova Transportadora Nordeste  NTN and Nova Transportadora Sudeste -
NTS Companies (two Special Purpose Companies of Petrobras related to Malhas Project) (see
Note 8 (ix)).   F-167




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 5.
    
    Related Parties


Petrobras International
    
    
    
    
    
    
    PetrobrasPetróleo Brasileiro
    
    
    Braspetro B.V.  PIB.B.V.
    
    
    Downstream Participações
    
    
    Netherlands B.V.  PNBVS.A.  Petrobras
    
    
    and its subsidiaries
    
    
    S.A.and its subsidiaries
    
    
    and its subsidiaries
    
    
    Termobahia (iv)
    
    
    Other
    
    
    2007
    
    
    2006Current assetsMarketable securities (v)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407,564
    
    
    
    407,564
    
    
    
    627,335Accounts receivable, principally for sales (i)
    
    
    14,585,258
    
    
    
    231,086
    
    
    
    395,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,211,914
    
    
    
    10,658,905Notes receivable
    
    
    
    
    
    
    5,805,572
    
    
    
    
    
    
    
    3,686,301
    
    
    
    40,894
    
    
    
    140,534
    
    
    
    9,673,301
    
    
    
    6,114,651Export prepayment
    
    
    68,396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    72,496
    
    
    
    67,785Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,453
    
    
    
    
    
    
    
    1,453
    
    
    
    1,453Other assetsMarketable securities (v)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,568,055
    
    
    
    3,568,055
    
    
    
    1,151,588Notes receivable
    
    
    
    
    
    
    279,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    279,574
    
    
    
    239,709Export prepayment
    
    
    398,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312,525
    
    
    
    710,925
    
    
    
    464,380Current liabilitiesTrade accounts payable
    
    
    1,497,814
    
    
    
    144,721
    
    
    
    43,944
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,686,479
    
    
    
    1,142,848Notes payable (ii)
    
    
    23,977,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,977,731
    
    
    
    5,386,759Unearned income
    
    
    321,668
    
    
    
    
    
    
    
    4,671
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    326,339
    
    
    
    248,688Long-term liabilitiesNotes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,441,7012005Statement of operationsSales of crude oil and oil products and services
    
    
    12,230,667
    
    
    
    704,088
    
    
    
    1,744,630
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,679,385
    
    
    
    14,236,511
    
    
    
    13,974,381Purchases (iii)
    
    
    (6,873,244
    )
    
    
    (891,535
    )
    
    
    (622,793
    )
    
    
    
    
    
    
    
    
    
    
    (487,228
    )
    
    
    (8,874,800
    )
    
    
    (8,121,994
    )
    
    
    (7,780,293
    )Selling, general and administrative expenses
    
    
    (166,399
    )
    
    
    (15,955
    )
    
    
    (88
    )
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    (182,424
    )
    
    
    (189,667
    )
    
    
    (158,075
    )Financial income
    
    
    997,400
    
    
    
    401,208
    
    
    
    15,771
    
    
    
    267,734
    
    
    
    3,164
    
    
    
    14,030
    
    
    
    1,699,307
    
    
    
    999,204
    
    
    
    765,507Financial expense
    
    
    (1,588,246
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,588,246
    )
    
    
    (722,434
    )
    
    
    (409,822
    )


(i)
    
    Accounts receivable from related parties relate principally to crude oil sales made by
the Company to Petrobras, with extended payment terms of up to 330 days.(ii)
    
    Current Liabilities  Notes payable relate to loans executed between the Company and
Petrobras, with annual interest rates ranging from 7.9% to 8.4%.(iii)
    
    Purchases from related parties are presented in the cost of sales section of the
statement of operations.(iv)
    
    On December 28, 2005, in order to lend support to Petrobras in its transactions related
to the Termobahia power plant, PifCo entered into a series of agreements with Blade
Securities Ltd , a special purpose company holding 49% of the equity shares of Termobahia
(consolidated by Petrobras). Under the agreements, PifCo paid to Blade US$ 1,453, and in
return, Blade transfers to PifCo the right of any dividends to be received from Termobahia
and the rights to the shares of Termobahia either for PifCo or a Petrobras subsidiary.
Additionally, PifCo paid to Blade US$ 38,185, and in return, Blade transfers to PifCo any
amounts received from Termobahia related to the subordinated loan recorded as notes
receivable, which has an interest rate of 8% p.a. and an expiry date of 2023, and the right
to the loans receivable for PifCo or a Petrobras subsidiary. .Petrobras has the intention of
purchasing the Termobahia equity interest and related loan in 2008.(v)
    
    See Note (4).  F-168




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 6.
    
    Inventories
 2007
    
    
    2006Crude oil
    
    
    816,127
    
    
    
    60,097Oil products
    
    
    408,508
    
    
    
    202,6231,224,635
    
    
    
    262,720
 7.
    
    Restricted Deposits and GuaranteesPifCo has restricted deposits with financial institutions that are required as a result of
contractual obligations in financing arrangements. The amount classified in non-current assets
is comprised of deposits: (i) US$ 33,441 related to issuances of senior notes in the total
amount of US$ 450,000, (ii) US$ 43,464 related to issuances of senior notes in the total amount
of US$ 600,000. The guarantees related to the financings will be maintained through maturity of
such financings (described in Note 10), and are required per the related debt agreement; and
(iii) in accordance with the Deposit, Pledge and Indemnity Agreement of April 29, 2005, PifCo
has guaranteed the debt of Sociedade Fluminense de Energia  SFE, a subsidiary of its parent.
In accordance with the terms of this guarantee, PifCo has deposited US$ 95,949 in an escrow
account, such amount to be used to satisfy Sociedade Fluminense de Energia debts in the event
of default.8.
    
    Financings
 Current
    
    
    Long-term2007
    
    
    2006
    
    
    2007
    
    
    2006Financial institutions (i) (ix)
    
    
    311,471
    
    
    
    329,180
    
    
    
    1,040,000
    
    
    
    1,041,250Senior notes (ii) (iv) (viii)
    
    
    238,474
    
    
    
    533,945
    
    
    
    235,350
    
    
    
    524,602Global step-up notes(ii) (v) (viii)
    
    
    130,772
    
    
    
    4,165
    
    
    
    
    
    
    
    134,622Sale of right to future receivables (iii) (iv)
    
    
    69,012
    
    
    
    68,393
    
    
    
    548,400
    
    
    
    614,380Assets related to export prepayment to be
offset against sale of right to future
receivables (iii)
    
    
    
    
    
    
    
    
    
    
    (150,000
    )
    
    
    (150,000
    )Global notes (ii) (v) (vii) (viii) (x)
    
    
    37,337
    
    
    
    32,725
    
    
    
    3,200,209
    
    
    
    2,181,420Japanese yen bonds (vi)
    
    
    1,755
    
    
    
    1,658
    
    
    
    312,830
    
    
    
    293,860Senior exchangeable notes
    
    
    
    
    
    
    333,684
    
    
    
    
    
    
    
    788,821
    
    
    
    1,303,750
    
    
    
    5,186,789
    
    
    
    4,640,134Financings
    
    
    5,201
    
    
    
    148,447
    
    
    
    5,186,789
    
    
    
    4,640,134Current portion of long-term debt
    
    
    704,911
    
    
    
    1,057,438
    
    
    
    
    
    
    
    Accrued interests
    
    
    78,709
    
    
    
    97,865
    
    
    
    
    
    
    
    788,821
    
    
    
    1,303,750
    
    
    
    5,186,789
    
    
    
    4,640,134
 (i)
    
    The Companys financings in US dollars are derived mainly from commercial banks and
include trade lines of credit, which are primarily intended for the purchase of crude oil
and oil products, and with interest rates ranging from 4.95% to 6.87% at December 31, 2007.
The weighted average borrowing for short-term debt at December 31, 2007 and 2006 was 5.59%
and 6.76%, respectively.At December 31, 2007 and 2006, the Company had fully utilized all available lines of credit
specifically designated for purchase of imported crude oil and oil products.  F-169




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 8.
    
    Financings(Continued)
 (ii)
    
    As of December 31, 2007 and 2006, the outstanding balance of net premiums on
reissuances amounted to US$ 2,082 and US$ 10,273, respectively. PifCo incurred expenses in
the total amount of US$ 160,048 on extinguishment of debt during the period ended December
31, 2006 (see Note 8(v)). In connection with the Exchange Offer (see Note 8(viii)) PifCo
paid US$ 54,812 related to the amount above the face amount of the old Notes exchanged.
This amount was associated to the new Notes and has been amortizated in acordance with the
effective interest method.(iii)
    
    In May 2004, PFL and the PF Export Trust (the Trust) executed an amendment to the
Trust Agreement allowing the Junior Trust Certificates to be set-off against the related
Notes, rather than paid in full, after fulfillment of all obligations pursuant to the
Senior Trust Certificates. The effect of this amendment is that amounts related to the
Junior Trust Certificates have been presented net, rather than gross in these consolidated
financial statements, and thus US$ 150,000 has been reduced from the long term debt
financing respective to sales of right to future receivables.(iv)
    
    On March 1, 2006, PFL prepaid the fixed rate Senior Trust Certificates (Series A1 and
B) in accordance with the applicable provisions of the governing agreements in the amount
of US$ 333,860. On prepayment of the fixed rate Senior Trust Certificates (Series A1 and B)
PFL paid a premium in 2006 in the total amount of US$ 13,650.On May 26, 2006, PFL has successfully completed a solicitation of consents from holders of
the Series 2003-A 6.436% Senior Trust Certificates due 2015 issued by PF Export Receivables
Master Trust. The amendments sought to eliminate exports of bunker fuel from the
transaction so that the securities have been collateralized only by receivables from sales
of fuel oil exported by Petrobras and to reduce the minimum average daily gross exports of
fuel oil for any rolling twelve-month period. PFL also obtained the consent from the
holders of Series 2003-B 3.748% due 2013. The amendments became effective on June 1, 2006.  F-170




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 8.
    
    Financings(Continued)
 As a result of these amendments, the premium rate of the guarantee of the Series 2003-B was
reduced from 1.8% to 1.1%.(v)
    
    On July 24, 2006, PifCo concluded its debt repurchase offer (Tender) announced on
July 18, 2006. The amount of notes tendered for five series of notes listed below was US$
888,260. Including the notes previously repurchased by Petrobras and its affiliates, also
included in the tender, the total value reached US$ 1,215,661. The purpose of this
initiative was to reduce total debt outstanding and simplify the debt profile, thus
benefiting from the Companys current strong cash generation. The transaction was settled
on July 27, 2006 and all the notes tendered were canceled from this date. Upon conclusion
of the debt repurchase offer (Tender), PifCo incurred in expenses in 2006 in the total
amount of US$ 160,048 (see Note 8 (ii)). Interest RateSecurities Repurchased
    
    per annum
    
    
    Maturity
    
    
    AmountGlobal Step-Up Notes
    
    
    12.375
    %
    
    
    2008
    
    
    
    265,378Senior Notes
    
    
    9.875
    %
    
    
    2008
    
    
    
    211,754Senior Notes
    
    
    9.750
    %
    
    
    2011
    
    
    
    313,644Global Notes
    
    
    9.125
    %
    
    
    2013
    
    
    
    251,665Global Notes
    
    
    8.375
    %
    
    
    2018
    
    
    
    173,2201,215,661
 (vi)
    
    On September 27, 2006, the Company concluded a private placement of securities in the
Japanese capital market (Shibosai) for a total of ¥ 35 billion (US$ 297,780) due
September 2016. The issue was a private placement in Japanese market with a partial
guarantee of Japan Bank for International Cooperation (JBIC) and bears interest at the rate
of 2.15% per annum, payable semiannually. In the same date, PifCo entered into a swap
agreement with Citibank, swapping the total amount of this debt to a U.S. dollar denominate
debt (see Note 11). PifCo used the proceeds principally to finance PNBV, an affiliate, for
construction of lines interconnecting the P-51, P-52 and P-53 production platforms to the
PRA-1 autonomous repumping unit.  F-171




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 8.
    
    Financings(Continued)
 In the same date, PifCo entered into cross currency swaps under which it swaps the
principal and interest payments on Yen denominated funding into U.S. dollars; and
designated the hedging relationship as a qualifying cash flow hedge under SFAS 133. The
hedged item is a ¥ 35 billion 10 year issued bond, with a semi-annual coupon of 2.15% p.a.
The hedging instrument is a series of cross currency swaps, whose notional amounts,
underlyings and maturities match the terms of the funding; in which U.S. dollars are paid
and Japanese Yen are received.The transaction gain or loss arising from the remeasurement of Yen denominated bonds is
offset by the reclassification relating to the remeasurement of the hedged item at spot
rates from other comprehensive income to earnings. The cross currency swap at December
31, 2007 and 2006 had a fair value of US$ 3,193 and US$ 8,754, respectively, due to the
valuation and devaluation, respectively, of the Japanese Yen when compared to U.S. dollar
since the inception of the instrument. No amounts were recognized in earnings during the
year as hedge ineffectivenesses. Accumulated other comprehensive income were reclassified
at the reporting date in order to offset the foreign currency exchange gain or losses on
the hedged item.(vii)
    
    On October 06, 2006, the Company issued Global Notes of US$ 500,000 due October, 2016.
The notes bear interest at the rate of 6.125% per annum, payable semiannually. The Company
used the proceeds from this issuance principally to repay trade-related debt and
inter-company loans.(viii)
    
    As a result of the settlement of the Exchange Offer occurred on February 7, 2007, PifCo
received and accepted a tender amount of US$ 399,053 (face value of the Notes). All the
Notes received were cancelled in the same day and as consequence, PifCo issued US$ 399,053
of Global Notes due 2016 that bear interest at the rate of 6.125% per annum, payable semi
annually. The new Notes constitute a single fungible series with the US$ 500,000 Global
Notes due 2016 issued in October 2006. In total, there are US$ 899,053 in outstanding bonds
due 2016. PifCo also paid to the investors a cash amount equivalent to US$ 56,056 as result
of the Exchange (see Note 8 (ii)). The table below presents the result of the Exchange.  F-172




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 8.
    
    Financings(Continued)
 PrincipalInterest rate
    
    
    
    
    
    
    outstanding
    
    
    Total amountPifCo old Notes
    
    per annum
    
    
    Maturity
    
    
    after exchange
    
    
    tenderedGlobal Step-Up Notes
    
    
    12.375
    %
    
    
    2008
    
    
    
    126,868
    
    
    
    7,754Senior Notes
    
    
    9.875
    %
    
    
    2008
    
    
    
    224,212
    
    
    
    14,034Senior Notes
    
    
    9.750
    %
    
    
    2011
    
    
    
    235,350
    
    
    
    51,006Global Notes
    
    
    9.125
    %
    
    
    2013
    
    
    
    374,211
    
    
    
    124,124Global Notes
    
    
    7.750
    %
    
    
    2014
    
    
    
    397,865
    
    
    
    202,1351,358,506
    
    
    
    399,053
 PrincipalInterest rate
    
    
    
    
    
    
    outstanding
    
    
    Total amountPifCo new Notes
    
    per annum
    
    
    Maturity
    
    
    after exchange
    
    
    reopenedGlobal Notes
    
    
    6.125
    %
    
    
    2016
    
    
    
    899,053
    
    
    
    399,053899,053
    
    
    
    399,053
 (ix)
    
    On June 15, 2007, the Nova Transportadora Nordeste-NTN and Nova Transportadora
Sudeste-NTS Companies (two Special Purpose Companies of Petrobras related to Malhas
Project) transfered to PifCo a Loan Agreement with M-GIC (a Facility Agent of JBIC  Japan
Bank for International Cooperation). The outstanding amount of the loan is US$ 394,000 and
it bears interest of Libor plus 0.8% p.a., payable semi-annualy. The principal amount will
also be paid semi-annualy starting on December 15, 2009 up to December 15, 2014. As a
consequence of this transfer, the NTN and NTS issued some Notes to PifCo with the same
characteristics of the Loan (principal amount, interest rate and amortization schedule)
(see Note 4 (iv)).(x)
    
    On November 1, 2007, the Company issued Global Notes of US$ 1,000,000 in the
international capital market, due March 2018. The Notes bear interest at the rate of 5.875%
per annum, payable semiannually, beginning on March 1, 2008. The purpose of this issuance
was to access long-term debt capital markets, refinance prepayments of maturing debt and
reduce the cost of capital.  F-173




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##### Table of Contents



Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 8.
    
    Financings(Continued)Long-term financings  additional information
 a)
    
    Long-term debt interest rates
 Payment periodDate of issuance
    
    Maturity
    
    Interest rate
    
    Amount
    
    
    Interest
    
    PrincipalSenior notesSenior notes
    
    January, 2002
    
    2011
    
    9.750%
    
    
    235,350
    
    
    semiannually
    
    bullet235,350Sale of right to future
receivablesJunior trust certificatesSerie 2003-B
    
    May, 2003
    
    2013
    
    3.748%
    
    
    40,000
    
    
    quarterly
    
    bulletSerie 2003-A
    
    May, 2003
    
    2015
    
    6.436%
    
    
    110,000
    
    
    quarterly
    
    bullet150,000Assets related to export
prepayment to be offset
against sale of right to
future receivablesSerie 2003-B
    
    May, 2003
    
    2013
    
    3.748%
    
    
    (40,000
    )
    
    quarterly
    
    bulletSerie 2003-A
    
    May, 2003
    
    2015
    
    6.436%
    
    
    (110,000
    )
    
    quarterly
    
    bullet(150,000
    )Senior trust certificatesSerie 2003-B
    
    May, 2003
    
    2013
    
    4.848%
    
    
    109,920
    
    
    quarterly
    
    quarterlySerie 2003-A
    
    May, 2003
    
    2015
    
    6.436%
    
    
    288,480
    
    
    quarterly
    
    quarterly398,400Japanese yen bonds
    
    September, 2006
    
    2016
    
    2.150%
    
    
    312,830
    
    
    semiannually
    
    bullet312,830Global notesGlobal notes
    
    July, 2003
    
    2013
    
    9.125%
    
    
    377,665
    
    
    semiannually
    
    bulletGlobal notes
    
    December, 2003
    
    2018
    
    8.375%
    
    
    576,780
    
    
    semiannually
    
    bulletGlobal notes
    
    September, 2004
    
    2014
    
    7.750%
    
    
    397,865
    
    
    semiannually
    
    bulletGlobal notes
    
    October, 2006
    
    2016
    
    6.125%
    
    
    847,899
    
    
    semiannually
    
    bulletGlobal notes
    
    November, 2007
    
    2018
    
    5.875%
    
    
    1,000,000
    
    
    semiannually
    
    bullet3,200,209Financial institutions
    
    from 2004
    
    up to 2017
    
    from 5.34% to 6.87%
    
    
    1,040,000
    
    
    various
    
    various1,040,0005,186,789
 b)
    
    Long-term debt maturity dates:
 2009
    
    
    198,5362010
    
    
    395,3762011
    
    
    392,7962012
    
    
    162,5662013
    
    
    533,933Thereafter
    
    
    3,503,5825,186,789
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Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 9.
    
    Commitments and Contingencies
 (a)
    
    Oil Purchase ContractIn an effort to ensure procurement of oil products for the Companys customers, the Company
currently has several short and long-term normal purchase contracts with maturity date up to
2017, which collectively obligate it to purchase a minimum of approximately 216,800 barrels
of crude oil and oil products per day at market prices.(b)
    
    Purchase Option  PlatformsThe Company has maintained the right to exercise the call option on the existing
Subchartered Asset Option Agreement granted by PNBV and has maintained the obligation to
purchase the vessels in case the Owners exercise the Put Option, on condition of an event of
default, under the same Option Agreement, for the Platforms P-8, P-15, P-32. PifCo also has
an obligation to purchase the platforms after the expiration of the Charter terms.In relation to Platform P-47, PifCo has maintained the right to exercise the call option on
the existing Subchartered Asset Option Agreement granted by PNBV and has maintained the
obligation to purchase the vessel in case the Owner exercise the Put Option, on condition of
an event of default or of the expiration of the Charter.PifCo may designate any affiliate or subsidiary to perform its obligations under this
agreement.(c)
    
    Loans AgreementThe Companys outstanding position at December 31, 2007 in irrevocable letters of credit was
US$ 730,045, as compared to US$ 552,087 at December 31, 2006, supporting crude oil and oil
products imports.Additionally, the Company had standby committed facilities available in the amount of US$
327,000, (US$ 675,000 at December 31, 2006) which are not committed to any specific use.
PifCo has no drawn down amounts related to these facilities and does not have a scheduled
date for the drawdown.
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Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 10.
    
    Stockholders (Deficit)/EquityIn September 2006, Petrobras changed the designation of US$ 120,000 in advances for future
capital and US$ 180,000 in notes receivable from PifCo into a capital increase.The subscribed and paid-up capital at December 31, 2007 and 2006 is US$ 300,050 (US$ 50 in 2005)
divided into 300,050,000 (50,000 in 2005) shares of US$ 1 each.11.
    
    Financial instruments and risk managementPifCo policy for the risk management of the price of oil and oil products consists basically in
protecting the margins in some specific short-term positions. Future contracts, swaps and
options are the instruments used in these economic hedge operations which are tied to actual
physical transactions. Positive and negative results are offset by the reverse results of the
actual physical market transaction and they are recorded in the statement of operations as
financial income and financial expense. The Companys derivative instruments are recorded in the
consolidated balance sheet at their fair value.For exchange-traded contracts, fair value is based on quoted market prices. For non-exchange
traded contracts, fair value is based on dealer quotes, pricing models or quoted prices for
instruments with similar characteristics. The transaction price is used as the initial fair
value of the contracts.PifCo designates at inception whether the derivative contract will be considered hedging or
non-hedging for SFAS 133 accounting purposes. Non-hedging derivatives that are considered
economic hedges, but not designated in a hedging relationship for accounting purposes, are
recorded as other current assets or liabilities, with changes in fair value recorded as
financial income or financial expense.For SFAS 133 hedges, PifCo formally documents at inception all relationships; identifying the
hedging instrument and hedged item, as well as its risk management objectives and strategies for
undertaking the hedge. The Company assesses at the hedges inception and for each reporting date
thereafter whether the derivative used in the hedging transaction is expected to be and has been
highly effective.
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Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 11.
    
    Financial instruments and risk management(Continued)As of December 31, 2007 and 2006, PifCo has designated one hedging relationship for accounting
purposes as a cash flow hedge in order to manage foreign currency exchange rate risk. Changes
in the fair value of the derivative hedging instrument are recorded in Accumulated OCI. Any
hedge ineffectiveness, as well as the excluded component of the derivative from the
effectiveness assessments, are recorded directly in earnings.PifCo had written put options in the past that allows the holder of the options to sell a
floating number of heavy fuel oil volumes at a minimum price of US$14/barrel. Such option had
served as an economic hedge on related future sales of receivables under the structured finance
export prepayment program; the intent of which was to ensure that physical barrels delivered
under the structured finance export prepayment program generate sufficient cash proceeds to
repay related financial obligations. Given the low strike price relative to the market the fair
value of these options is immaterial at December 31, 2007 and 2006.Fair ValueFair values are derived either from quoted market prices available, or, in their absence, the
present value of expected cash flows. The fair values reflect the cash that would have been
received or paid if the instruments were settled at year end. Fair values of cash and cash
equivalents, trade receivables, short-term debt and trade payables approximate their carrying
values.At December 31, 2007 and December 31, 2006 the Companys long-term debt was US$ 5,186,789 and
US$ 4,640,134 respectively, and had estimated fair values of approximately US$ 5,625,000 and
US$ 5,050,000, respectively.The Companys long-term asset related to the export prepayment program was US$ 710,925 and US$
464,380 at December 31, 2007 and 2006, and had fair values of US$ 714,400 and US$ 466,000,
respectively.12.
    
    InsurancePetrobras is responsible for contracting and maintaining cargo and civil liability insurance. On
December 31, 2007 and 2006 PifCo had insurance coverage for assets physical loss or damage
pursuit to Petrobras insurance policy and in accordance to its activities.
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Petrobras International Finance Company and Subsidiaries  (A wholly-owned subsidiary of Petróleo Brasileiro S.A.  Petrobras)
 
 12.
    
    Insurance(Continued)The assumptions of risk adopted, given their nature, are not part of the scope of an audit of
financial statements and, accordingly, they were not examined by our independent auditors.13.
    
    Subsequent Events
 (a)
    
    FinancingsOn January 11, 2008, PifCo issued Senior Global Notes of US$ 750,000, that constitute a
single issue fungible with the US$ 1,000,000 launched on November 1, 2007, amounting to US$
1,750,000 in issued bonds due on March 1, 2018. The Notes bear interest at the rate of
5.875% per annum, payable semiannually, beginning on March 1, 2008. The purpose of this
issue was to access long-term debt capital markets, refinance prepayments of maturing debt
and to reduce the cost of capital.(b)
    
    Loans  Related PartiesPifCo has authorized, in January 2008, to transfer to Braspetro Oil Services Company -
Brasoil its notes receivable contracts in the total amount of US$ 8,203,288 in which
Petrobras International Braspetro B.V.  PIB.B.V, Petrobras Netherlands B.V.  PNBV and Agri
Development B.V.  AGRI B.V. are counterparts. Accordingly, it was recommended to Brasoil
the assumption of obligations in the exact amount of the notes receivable contracts payment
that PifCo holds with Petrobras.
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EXHIBIT INDEX
 No.
    
    Description1.2
    
    
    Memorandum and Articles of Association of Petrobras International Finance Company
(incorporated by reference to Exhibit 1 to the Annual Report on Form 20-F of
Petrobras International Finance Company, filed with the Securities and Exchange
Commission on July 1, 2002, and amendments to which were filed on December 13,
2002, March 20, 2003 (File No. 333-14168) and June 26, 2007 (File No. 001-331121).
PifCos Memorandum and Articles of Association were last amended on February 23,
2008.2.44
    
    
    First Supplemental Indenture, dated as of November 1, 2007, between Petrobras
International Finance Company (PifCo) and The Bank of New York, as Trustee, and
Petróleo Brasileiro S.A.Petrobras relating to the 5.875% Global Notes due 2018.2.45
    
    
    Standby Purchase Agreement dated as of November 1, 2007, between Petróleo
Brasileiro S.A.Petrobras and The Bank of New York, as Trustee.2.46
    
    
    Amended and Restated First Supplemental Indenture, initially dated as of November
1, 2007, as amended and restated as of January 11, 2008 between Petrobras
International Finance Company (PifCo) and The Bank of New York, as Trustee, and
Petróleo Brasileiro S.A.Petrobras relating to the 5.875% Global Notes due 2018.2.47
    
    
    Amended and Restated Standby Purchase Agreement, initially dated as of November 1,
2007, as amended and restated as of January 11, 2008 between Petróleo Brasileiro
S.A.Petrobras and The Bank of New York, as Trustee.8.1
    
    
    List of subsidiaries.12.1
    
    
    Petrobras Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    
    PifCos Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.13.1
    
    
    Petrobras Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.13.2
    
    
    PifCos Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.15.1
    
    
    Consent letter of KPMG.15.2
    
    
    Consent letter of KPMG15.3
    
    
    Consent letter of Ernst & Young.15.4
    
    
    Consent letter of DeGolyer and MacNaughton.15.5
    
    
    Consent letter of DeGolyer and MacNaughton.