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PETROBRAS
7th Annual ConferenceSantander Banespa Brazil
Campos do Jordão – São PauloAugust 2006
Petrobras Overview and 2Q Results
Almir BarbassaCFO
2 2
The presentation may contain forecasts about future events. Such forecasts merely reflect the expectations of the Company's management. Such terms as "anticipate", "believe", "expect", "forecast", "intend", "plan", "project", "seek", "should", along with similar or analogous expressions, are used to identify such forecasts. These predictions evidently involve risks and uncertainties, whether foreseen or not by the Company. Therefore, the future results of operations may differ from current expectations, and readers must not base their expectations exclusively on the information presented herein. The Company is not obliged to update the presentation/such forecasts in light of new information or future developments.
Cautionary Statement for US investors
The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as oil and gas resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC.
Disclosure
3 3
Drivers Business StrategiesE&P• Focus on light oil and natural gas
production and reserve growthDownstream• Expand conversion capacity and improve
quality of refined products• Increase bio-refining capacity, biomass,
petrochemical and fertilizers businesses• Promote Brazilian biodiesel production and
export ethanolDistribution• Increase market-share in Brazil for oil
products and biofuelsGas & Energy• Develop and establish a profitable and
reliable natural gas market including LNGInternational• Expand E&P in Gulf of Mexico and Africa• Undertake investments in refining
conversion capacity and quality
Develop market and monetize natural gas reserves in Brazil
Reduce dependence on light oil and oil product imports
Improve oil product quality in Brazil and abroad
Reduce carbon intensity of operations and products
Drivers & Strategies
Exploit competitive advantage from deep water exploration technology abroad
Assure future demand and add value to heavy oil exports
4 4
At current levelsCosts
2006 – 62.002007 – 55.002008 – 40.00
2009-2011 – 35.00
Brent for funding (US$/bbl)
Linked to international market
pricesDomestic sales prices
23.00Robustness Brent (US$/bbl)
4.2GDP – World (% p.a.) –PPP*
3.7GDP – Latin America (% p.a.) – PPP
2.50FX rate (R$/US$)4.0GDP – Brazil (% p.a.)
2007-2011Assumptions
* PPP – purchase power parity
FundamentalsMacroeconomic assumptions
• Market developments indicate an appreciation of the FX rate (R$/US$).
• Petrobras robustness Brent price below the low end of market’s forecast band.
• Costs are projected at current levels, with no adjustment for future price reductions.
• Petrobras products prices follow international prices in the medium term.
• Natural gas prices to accompany international differentials to oil products.
5 5
315 368237 282
777935
128
211
201 224
10897
0
500
1000
1500
2000
2500
2005 2011
LPG Gasoline A NaphtaDiesel* + Jet Fuel Fuel Oil Coke + Others
Thou
sand
bpd 1,766
2,1173.1% p.a.
*Includes Biodiesel (2%)
Fundamentals Domestic oil products market
Oil products demand
• Increasing demand for middle distillates.
8,7% p.a.
-1,8% p.a.
3,1% p.a.
2,9% p.a.
2,6% p.a.
1,8% p.a.
6 6
Fundamentals Domestic natural gas market
Mill
ion
m3 /d
ay
48.4
7.124.8
38.6
13.5
34.0
up to 71.0
up to 30.0
up to 20.0
0
20
40
60
80
100
120
140
Consumed in 2005 Maximum Demand2011(*)
Potential Supply 2011
Thermoplants Industry OtherNational Production Bolivian Imports LNG
* Considers maximal dispatch for every thermoelectric power plant
121.0
17.7% p.a.
121.0
45.4
Natural gas market
7 7
Note: Includes International
31.0
12.41.0
1.0
49.3
23.07.5
3.32.31.8
E&P Downstream G&EPetrochemical Distribution Corporate
9%4%
3% 26%
56%
3%
Business Plan 2007-2011US$ 87.1 billion
86%
14%
Brazil International
US$ 12.1 bi
US$ 75.0 bi
Investment Plan
49,3
23,0
7,53,32,21,8
8 8
Sources
(*)86.7
12.6
2004-2010Financing
Cash Flow
(US$ 99.3 billion)
87.1
12.2
2004-2010Debt Amortization
Capex
(US$ 99.3 billion)
• Accrued Economic Profit (2006-2015): US$ 83.4 billion (US$ 53.9 until 2011).
Uses
Financial TargetsSources & Uses
PETROBRAS
999
Sensitivity to Brent in 2007-2011(annual average)Every US$ 5.00 Brent price change will result in:
• 3 pp change in ROCE;
• US$ 3.5 billion change in the operational cash generation;
• 10 pp change in leverage.
1.5
8.6x
28
4.4
2.9
15
2006-2010Average
1.5
13.7x
25
3.5
3.1
16
2007-2011 Average
Oper. Cash Flow before interest and taxes / interest
Free Operating Cash Flow (US$ billion)
Cash Balance (end of the year) (US$ billion)
Net Debt/ Net Debt + Shareholders’ Equity (Leverage) (%)
Long Term Funding (US$ billion per year)
Return on Capital Employed (ROCE) (%)
Indicators
Financial TargetsMain Financial Indicators
PETROBRAS
101010
2 , 3 7 42 , 8 1 2
5 5 1
7 2 4
7 4 2
1 8 5
2 7 8
3 8 3
2 0 1 5
F o r e c a s t
1 , 6 8 4 1 , 8 8 01 , 5 4 0 1 , 4 9 3
2 5 0 2 6 5 2 7 4
2 8 9
1 3 3
1 6 1 1 6 81 6 3
8 5
1 0 1
9 49 6
2 0 0 3 2 0 0 4 2 0 0 5 T a r g e t 2 0 0 6
O i l a n d N G L - B r a z i l N a t u r a l G a s - B r a z i l
O i l a n d N G L - I n t e r n a c i o n a l N a t u r a l G a s - I n t e r n a c i o n a l
2,036 2,020 2,217 2,403
3,493
4,556Thousand boed
7.8% p.a.
7.5% p.a.
T a r g e t 2 0 1 1
E&PProduction targets – Oil & NGL and Natural Gas
PETROBRAS
111111
1,880
1,684
2005A 2006E
Crude oil in Brazil∆ 11.6%
P - 50Albacora Leste
Capacity 180,000 bpdApril 2006
P - 50Albacora Leste
Capacity 180,000 bpdApril 2006
P - 34 Jubarte Phase 1
Capacity 60,000 bpdOctober 2006
P - 34 Jubarte Phase 1
Capacity 60,000 bpdOctober 2006
FPSO CapixabaGolfinho Mod. 1
Capactiy 100,000 bpdMay 2006
FPSO CapixabaGolfinho Mod. 1
Capactiy 100,000 bpdMay 2006
PiranemaCapacity 20.000 bpd
October 2006
PiranemaCapacity 20.000 bpd
October 2006
• P-50 is currently producing 75.000 bpd and should reach its production peak by the end of the year.• FPSO Capixaba is producing 50.000 bpd (half of its capacity) and should also reach its peak by the end of the year.• P-34 is being adapted in the Vitória shipyard and should start-up operation late September.• Piranema was constructed in China (Yantai Raffles shipyard) and is currently in the Netherlands (Keppel Verolme shipyard) concluding its conversion. Production should begin in October.
E&P Main projects that will contribute to the production growth in 2006
PETROBRAS
121212
2,374
2,195
2,0611,979
1,880
1,684
2,368
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2005 2006 2007 2008 2009 2010 2011
Parque dasConchas*** 100.000 bpd
2011
Parque dasConchas*** 100.000 bpd
2011
Albacora LesteP-50
180,000 bpdApril/2006
Albacora LesteP-50
180,000 bpdApril/2006
JubarteFase 1P-34
60,000 bpdOct/2006
JubarteFase 1P-34
60,000 bpdOct/2006
Marlim LesteP-53*
180,000 bpd2009
Marlim LesteP-53*
180,000 bpd2009
FPSO CapixabaGolfinho Mod. 1
100,000 bpdMay 2006
FPSO CapixabaGolfinho Mod. 1
100,000 bpdMay 2006
Frade100,000 bpd
2009
Frade100,000 bpd
2009
RoncadorP-52
180,000 bpd2007
RoncadorP-52
180,000 bpd2007
RoncadorP-54
180,000 bpd2007
RoncadorP-54
180,000 bpd2007
Marlim SulModule 2
P-51180,000 bpd
2008
Marlim SulModule 2
P-51180,000 bpd
2008
Piranema20.000 bpdOct 2006
Piranema20.000 bpdOct 2006
JubartePhase 2
P-57180,000 bpd
2010
JubartePhase 2
P-57180,000 bpd
2010
Rio de JaneiroEspadarte Mod II
100,000 bpd2007
Rio de JaneiroEspadarte Mod II
100,000 bpd2007
ESS-130Golfinho Mod III ****
(FPSO)100,000 bpd
2008
ESS-130Golfinho Mod III ****
(FPSO)100,000 bpd
2008
PostponedCidade de VitóriaGolfinho Mod. 2
100,000 bpd2007
Cidade de VitóriaGolfinho Mod. 2
100,000 bpd2007
New
* In the previous plan, P-53 was scheduled to 2008** In the previous plan, P-55 was scheduled to 2010*** Abalone, Ostra, Argonauta and Nautilus (former BC10): Petrobras share 35%**** In the previous plan, Golfinho Mod. 3 was scheduled to 2010
RoncadorP-55**
180.000 bpd2011
RoncadorP-55**
180.000 bpd2011
Thous. bpd
Antecipated
E&P Main Brazilian Oil & NGL production projects
PETROBRAS
131313
4 new platforms will provide additional production capacity of 560,000 bpdFPSO Cidade VitóriaThis leased FPSO with capacity of 100,000 bpd is currently being constructed by Saipem in Dubai. It is scheduled to start operation May/2007 in the Golfinho Field.
FPSO Cidade Rio de JaneiroWith a capacity of 100,000 bpd, this leased unit is being converted by Modec in Singapore. Production will begin May/2007in the Espadarte field.
P-54Petrobras constructed this platform in the Jurong shipyard, in Singapore, and is currently transporting it to the Mauá-Jurongshipyard, in Niterói (RJ). It should be operating by October/2007 in the Roncador field with a capacity of 180,000 bpd.
P-52This platform was constructed by Petrobras, in Singapore (KeppelFels shipyard) and will have the capacity to produce 180,000 bpd. Currently it is in Angra dos Reis (RJ) concluding its construction to operate in the Roncador field (December/2007).
P-52
Cidade Rio de Janeiro
E&P Projects for 2007
PETROBRAS
141414
• To sustain production growth, 15 large projects will be implemented between 2011 to 2015. The highlights are:
2,812
2,374
2100
2200
2300
2400
2500
2600
2700
2800
2900
2011 2015
• Marlim Sul P-56• Roncador P-55• Papa-Terra Mód. 1 e 2• Marlim Sul Mód. 4• Roncador Mód. 4• Cachalote and Baleia Franca• Baleia Azul
E&P 2011-2015 main Brazilian projects
Oil Production in Brazil (Thous. bbl)
PETROBRAS
151515
(154) (326) (508) (697)(154)
(172)(181)
(189)(201)
(217)
(897)
(1.400)
(900)
(400)
100
600
1.100
1.600
2.100
2.600
2005 2006 2007 2008 2009 2010 2011
Total Production Accumulated Decline Annual Decline
2,0612,195
2,368 2,374
1,6841,880
1,979
E&P InvestmentsBrazilian production curve
1,114Accumulated
Natural Decline
690
Net Increase
+
1,804
Gross Increase
Thou
s. b
pd
16 16
54,3% 53,1% 51,5% 50,5%
43,8%40,5% 39,7%
34,3%30,0% 29,7%
25,0%20,3%
12,9%
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
Petr
obras
She
ll
T
otal
CNOOC
Stat
oil
BP
Exx
onMob
il
L
ukoil
Chev
ron
Conoco
Phillips
Reps
ol-YPF
Petr
oChina
Sinop
ec
Undeveloped Reserves / Total Reserves* (2005)
• Strong investments in production will optimize the development of Petrobras’ proven reserves, aiming light oil production and a minimum reserve/production ratio of 15 years.
• Petrobras had a 55% success ratio for our exploration wells during 2005, with 38 wells classified as discovery or producing wells.
* Source: Evaluate Energy
E&P Investments
17
17 17
E&P InvestmentsPetrobras CAPEX vs. Peers CAPEX
Mur
phy
Oil:
27,
75
Shel
l Can
ada:
26,
86
Sunc
or: 2
1,65 Pe
tro-
Can
ada:
14,
17
Con
ocoP
hilli
ps: 1
2,5
Mar
atho
n O
il: 1
2,31
Che
vron
: 11,
32
Impe
rial
Oil:
10,
2 1
Petr
ochi
na: 1
0,2
Sino
pec:
10,
02
Stat
oil:
9,89
Exxo
n M
obil:
9,5
4
Tota
l: 9,
41
Petr
obra
s*: 8
,56
BP:
7,0
3CN
OO
C: 1
3,19
0
5
10
15
20
25
30
Global Oils E&P CAPEX to production 2005-2008E AverageSource: Merrill Lynch estimates based on available data for the companies.
* CAPEX and production over 2006-2011
• Per barrel CAPEX* for Petrobras (2006-2011) of US$ 8.56 vs. Global Oils average (2005-08) of US$ 13.74 (ex-PBR).
E&P CAPEX to production 2005-2008E Average (US$/bbl)
PETROBRAS
181818
61%
13%
12%
14%
RefiningPipelines & Terminals TransportShip TransportPetrochemical
US$ 14.2
US$ 3.2
US$ 3.0
US$ 2.8
19%
12%
8%
19%
6%
26%
5%
5%
Gasoline Quality Diesel QualityInfraestructure Maintenance ExpansionHSE ConversionOthers Special
US$ 2.7
US$
0.9
US$ 3.7
US$ 1.1
US$ 1.7US$ 2.7
US$ 0.7US$ 0.7
US$ 23.1 billion in the downstream segment… ...of which US$ 14.2 billion in refining
• Aggregating value to our heavy oil and producing diesel and gasoline according to international standards.
Downstream Investments
PETROBRAS
191919
New Refinery in Pernambuco• Investment: US$ 2,5 billion;
• Throughput capacity: 200 thousand heavy oil barrels (50% Petrobras oil / 50% PDVSA oil);
• Focusing diesel and LPG production maximization, the new refinery will aim the growth of oil products demand in the Northeast.
• The Northeast Region, which responds for 19% of oil products demand and holds only one refinery in Bahia, will no longer be a fuel importer (either from refineries in Brazil or abroad);
• Costs reduction: oil products transportation are more expensive than for crude oil.
New Refinery in the USA• Petrobras has acquired 50% of the Passadena Refinery System Inc. (PRSI), located in Texas, USA;
• Total Investment: US$ 370 million;
• The refinery, which already has a capacity of 100,000 bbl/day, will be upgraded to handle 70,000 bbl/day of heavy oil and feedstock (including Marlim field’s production);
• The upgraded refinery will be ready in four years. After the revamp project all products will match USA highest standards.
Business Strategies - Downstream
PETROBRAS
202020
Nitrogenated Fertilizers Unit III
PTA Pernambuco
Fafen BA
Acrylic Complex /SAP
Rio de Janeiro Petrochemical Complex
Main ProjectsAdvantages: • Proximity to Petrobras’ installations in Rio de Janeiro; • Availability of labor for both the construction and operational phase; • Proximity to port installations.• Products: Diesel, LPG, Ethylene, Propylene, PX, Benzene and Coke.
•The Complex will add value to 150,000 barrels/day of heavy oil form the Campos Basin.
Downstream InvestmentsPetrochemical investments
• Investments of US$ 3.3 billion in Petrochemicals;
• Reducing the Brazilian deficit and adding value to Downstream production.
São GonçaloLiquids
Outflow Unit
Petrochemical Complex –
Itaboraí
PETROBRAS
212121
Majors Average *
2,735
3,176
4,793
4,329
1,630
1,579
National Oil Companies Average **
Petrobras2,296
2,114
Product Sales (thous. bpd)
Refining (thous. bpd)Production (thous. boed)
* Majors: BP, Exxon, Total, Royal Dutch Shell, Chevron, Conoco and Repsol-YPF ** NOIC: PEMEX, PDVSA, Saudi Amraco, KPC, Pertamina and Sonatrach
*** 2004 figures, except for Petrobras (2005)Source: PIW Intelligence and Petrobras
2,217
3,400Year 2011
2011: New Refinery will add 200
thous. bpd capacity2010:
Pasadena Refinery revamp concluded – processing 70
thous. bpd of heavy oil
Vertical Integration Comparison
PETROBRAS
222222
In Thous. bpd(*) National imports and private refineries(**) Biodiesel portion not included
International Production383
Brazilian Production2,374
383 584+
1,710
Imports309
584
Throughput inBrazil 1,877
Oil products consumptionin Brazil (**) 2,099
Oil 167
Oil Products (*)142
International oil sales967
80
• In 2011 international sales will amount to 967 Thous. bpd.
Downstream InvestmentsLiquid products flow
PETROBRAS
232323
Natural Gas Investments
Over 75% of Petrobras’ current natural gas production is associated gas
Investments to develop production of non-associated gas
Lack of infrastructure to develop Brazilian market
Risk of gas supply failure due to abnormalities
Total investment (Petrobras and partners) in Brazilian natural gas chain
adds up to US$ 22.1 billion
LNG to provide flexibility to mitigate such risk
Challenges Business Plan 2007-2011 Targets
PETROBRAS
242424
• Production will raise from the current 15.8 million to 40 million m3 per day in 2008 in the Southeast.
• Development of two new oil and gas fields in Espírito Santo;
• Increase of natural gas supply from the Marlim field (Campos Basin);
• Expansion of gas production in the Merluza field (Santos Basin).
• Demand Flexibilization
• Refineries, Distributors and flex-fuel thermoelectric plants ( LNG, diesel and alcohol)
New investments will reduce the country’s dependence on imported gas.
Natural Gas Investments
Espírito Santo
Campos
Santos
TOTAL INVESTMENTS OF US$ 22,1 BIILION IN THE BRAZILIAN NATURAL GAS CHAIN FROM 2007 – 2011 (Petrobras and Partners)
•Investments of US$ 6.5 billion in infrastructure from 2007 – 2011 to integrated and develop the natural gas market
PETROBRAS
252525
7070.6
65.2
49.4
34.1
27.5
0
10
20
30
40
50
60
70
80
2006 2007 2008 2009 2010 2011
AlbacoraLeste(P-50)2006 Golfinho Mod 1
2006
Jubarte(P-34)2006
Manati2006
Piranema2006
UrucuNatural gas
sales2007
GolfinhoMod 22007
Roncador(P-54)2007
Peroá-CangoaPhase 2
2007Roncador
(P-52)2007
CavaloMarinho
2010
Marlim Leste(P-53)2009
Mexilhão2009
Marlim SulMod 2(P-51)2008
Frade2009
Roncador(P-55)2011
Jubarte Fase 2(P-57)2010
SPS252009
AlbacoraComplemental
2007
NG
associated
NG
non associated
Peroá-CangoaPhase 1
2006
EspadarteMod. 22007
ESS1642008
Canapu2008
ESS1302008
Tambaú/Uruguá2010
RJS6332010
Parque dasConchas
2011
Million m3/day
Natural Gas InvestmentsDelivery Curve
PETROBRAS
262626
Facilitates the adjustment of the offer to the market’s characteristic:Flexible Offer (with guarantee) to the thermoelectric plants.
More efficient than Diesel in the thermo plants;
Mitigates the risk of failing to supply the gas due to abnormalities;
Diversifies the sources of imported gas;
Projects under evaluation:Purchase or freight of floating storage and regasification units (FSRU);Maritime terminal in Pecém (Ceará) - 6 MM m³/day (estimate Jul/2008 ± 3 months)Maritime terminal in the Guanabara Bay (Rio de Janeiro)– 12/14 MM m³/day (estimate
Jul/2008 ± 3 months)
FSRUFSRUFloating Storage and Floating Storage and RegasificationRegasification UnitUnit
Flexible LNG Project
PETROBRAS
272727
34%
17%13%
7%
8%
21%
BR Ipiranga Shell
Esso Texaco Outras
Market Share of Fuel Distribution Companies in Brazil (%)
• Lead the Brazilian market for oil products and bio-fuels;
• Expand domestic market-share and client portfolio;
• Internationalize and add value to Petrobras’ brand.
US$ 2.2 billion to be invested between 2007-2011
Distribution Investments
PETROBRAS
282828
Core Areas:
• Refining
• Add value to Brazilian heavy oil exports
• E&P: West Africa (Nigeria and Angola) & Gulf of Mexico:
• Apply deep water and deep well drilling technology.
• Latin America:
• Leadership as an integrated energy company
70,2%
24,8%
1,7%0,8%
1,7%
0,8%
E&P
Refining andMarketing Petrochemical
Gas & Energy
Distribution
Corporate
Total CAPEX: US$ 12.1 billion
168 163
38396
185
94
2004 2005 2011 Target
Oil and NGL Natural Gas
568
262 259
Thous. boed
Targets
International Investments
PETROBRAS
292929
• As a consequence to the measures adopted by the Bolivian Government, Petrobras will act to:
• Protect its interests through negotiations by all legal means;
• Suspend all new investments in Bolivia as well as those related to the Bolivia-Brazil Gas Pipeline (GASBOL);
• Immediately initiate studies to diversify supply sources, including LNG regasefication project(s);
26.5 31.4 43.0 54.3 61.5 69.630.0 30.030.0
30.030.0
30.0
11.011.04.0
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010
Domestic Production Imports from Bolivia as of existing GSA
National Production Increase or LNG
Natural Gas Offer - Million m3/day Substitution of additional imports from Bolivia
Situation in Bolivia
PETROBRAS
303030
-
50.000
100.000
150.000
200.000
250.000
300.000
jan/06 Feb/06 mar/06 Apr/06
ANGOLA ARGENTINA BOLIVIA COLOMBIA ECUADOR PERU USA VENEZUELA
Nationalization Decree Effect
Oil,
NG
L an
d G
as (b
oed)
3%
40%
21%
6%
4%
6%
2%
18%ANGOLA
ARGENTINA
BOLIVIA
COLOMBIA
ECUADOR
PERU
USA
VENEZUELA
• Venezuela was responsible for 18% (47,632 boed) of 2005 Petrobras international production – this amount has decreased to 8.4% (18,629 boed) in April/06;
• Negotiations about the compensation are still running;
• Possible outcome: extension of the current exploration agreements.
International Production 2006
2005 Production (%)
Fall in production as a result of the decrease of Petrobras EnergiaVenezuela participation;
Situation in Venezuela
PETROBRAS
313131
Agribusiness
Farming
Seeds
or
or
or
Ethanol
Methanol
Glycerin + Others
Biodiesel
B2 or B5mixture
orDiesel
Distributors
DieselRefinery
Hydrogen Diesel Fractions
Stations
ProcessedOil
Crushing
Transerestification
Complementary and not competitive processes
• H-Bio: refining process that utilizes vegetable oils as an input, in order to obtain diesel oil
• Hydrogenation of a blend of diesel and vegetable oils
Biofuel Production
PETROBRAS
3232
2005to
2007(2% allowable)
2008to
2012(2% demanding)
(5% allowable)
From 2012on
(5% demanding)
Brazilian market0 – 5.2 million barrels
Petrobras market share0 – 1.3 million barrels
Brazilian market5.2 – 15.7 million barrels
Petrobras market share1.3 -3.8 million barrels
Brazilian market15.7 million barrels
Petrobras market share3.8 million barrels
Law 11.097/2005 – established minimal percentage for biodiesel mix in diesel
• Petrobras target for 2010: Production of 8,200 bpd of Biodiesel• Two new experimental units of biodiesel (Guamaré – Rio Grande do Norte), which have received investments of R$ 19 million in research & development until now, will produce up to 300 bpd of biodiesel.
Future Markets for biodiesel
PETROBRAS
333333
• Ethanol global market is 46.5 Billion Liters (2005)
• Ethanol as a Fuel is 30.6 Billion Liters (67% of total ethanol production)
• Today the ethanol consumption is 2.6% of gasoline MKT
• 10% of ethanol in gasoline will represent 118 Billion Lt
• Recently, Petrobras incorporated Brazil-Japan Ethanol Inc.
• The company will import and distribute Brazilian-produced ethanol in Japan;
• Development of technical and commercial solutions for the reliable and long term supply of alcohol in the Japanese market;
• Petrobras will break into one of the most complex and important energy markets in the World:
• ethanol logistics distribution
• fuel distribution sector in Japan.
Brazil-Japan Ethanol Inc.
Ethanol Market
PETROBRAS
343434
• Consumer wants to decide the fuel at the gas station
• Fuel price is one the most important factor
• Consumer is aware of pollution and renewable fuels
• Today cars manufacturer is producing 80% of FFV in Brazil
010,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
140,000
150,000
units
Jan-
03
Feb-
03
Mar
-03
Apr
-03
May
-03
Jun-
03
Jul-0
3
Aug
-03
Sep-
03
Oct
-03
Nov
-03
Dec
-03
Jan-
04
Feb-
04
Mar
-04
Apr
-04
May
-04
Jun-
04
Jul-0
4
Aug
-04
Sep-
04
Oct
-04
Nov
-04
Dec
-04
Jan-
05
Feb-
05
Mar
-05
Apr
-05
May
-05
Jun-
05
Jul-0
5
Aug
-05
Sep-
05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb-
06
Mar
-06
LIGHT VEHICLES TOTAL SALES
Ethanol Gasoline FFV
Flex-Fuel Vehicles
35
2nd Quarter 2006 Results(Brazilian Corporate Law)
PETROBRAS
363636
6.675
12.010
14.113
19.644
6.958
11.267
13.614
21.260
35.88637.948
Net Income
Operating Profit
EBITDA
COGS
Net Revenues
1Q06 2Q06
Income Statement 2Q06 vs 1Q06R
$ M
illio
n
8.2%
4.2%
-3.5%
-6.2%
5.7%
• Reduced operating profit due to higher oil price and COGS including government participation;
• Lower operating profit reflects mainly increases in general and administrative expenses and others, as described in the next slide;
• Increase in Net Income due to Real depreciation (0.5%) over equity income of investments abroad.
PETROBRAS
373737
56.90
53.69
61.53
47.8351.59
35.38
44.0041.59
61.7569.62
37.4843.04
36.14 35.1132.88
54.24
46.05
58.20
49.3344.19
39.7038.98
34.38
56.39
52.70
57.59 64.74
2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06
US$
/bbl
Brent (average) Average Sales Price OPEC Basket
US$
11.
42 b
bl
E&P – Oil Prices
• The spread between Brazilian oil average price and Brent increased from US$ 8.07/bbl to US$ 11.42/bbl, due to reduced oil products inventory in the international market, which resulted in a higher value of light oil compared to heavy oil.
PETROBRAS
383838
5.995.45 5.44
6.07 6.32 6.12
1Q 05 2Q 05 3Q 05 4Q 05 1Q06 2Q06
∆ = -3% or US$ 0.20
Domestic Lifting Costs w/o Gov. Part.
-US$ 0,12/boe: higher expenditures with turbine maintenance, gas pipelines repair and P-32 collection and flowage line substitution, all in the 1Q06;
• -US$ 0,07/boe: higher oil and gas production • In reais, extraction cost decreased from R$ 13,84 in the 1Q06 to R$ 13,16
in the 2Q06.
PETROBRAS
393939
3.0 3.4 4.3 6.0 5.5 5.4 6.1 6.34.0 5.1
6.47.6 7.8 9.6 9.9 11.0
6.1
11.4
69.6
24.828.8
38.2
47.551.6
61.5 56.961.8
-4
1
6
11
16
21
26
2002 2003 2004 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06
US$
/boe
-20
-10
0
10
20
30
40
50
60
70
Lifting Cost Gov. Participation Brent
7,08,5
10,7
13,6 13,315,0 16,0 17,3 17,5
57%
63%
62% 65
%
Lifting Costs including Gov. Participation
• Government Participation per barrel increased 4%, reflecting larger share in total production of fields that are currently in a highly productive phase (Barracuda and Caratinga) and a 9% increase in the reference price in reais for Brazilian oil.
59%
% 2002 – 2Q06Brent = 181%Lifting Cost = 103%Gov. Participation = 185%
PETROBRAS
404040
• Monthly payment due from concessionaires for the exploration and production of oil and natural gas;
• Rates vary, according to the area, from 5% to 10% (per producing field) and are established in each concession contract;
• Production Volume x Reference Price (to be published by the regulator, the National Petroleum Agency - ANP), in relation to each field
3.739
6.366
5.0204.372
3.509
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
2002 2003 2004 2005 1H2006
R$
Mill
ion
E&PRoyalties
PETROBRAS
414141
10% 20%30% 35%
First Year of
Production
Second Year of
Production
Third Year of
Production
After the ThirdYear of
Production
40%
20 25 30 35
16.7 21.7 26.7 31.7
13.3 18.3 23.3 28.3
10 15 20 25Dai
ly p
rodu
ctio
n (th
ousa
nd m
3 /day
)
15
11.7
8.3
5
• Special Participation is the progressive tax applied over the net income from production.
• Tax depends on the year of production, daily production and location (Land, Offshore Shallow Water or Offshore Deep Water)
• Bellow, the characteristics of the special participation for deep water shelves:
Tax Rates
E&PSpecial Participation – Progressive Tax
PETROBRAS
424242
Refining and Sales in the Domestic Market
• Brazilian oil products production slightly lower than in the previous quarter dueto more frequent scheduled stoppages in refineries;
• Higher nominal capacity utilization.
1,7951,8121,708 1,668 1,804 1,7611,589 1,665 1,731 1,647 1,649 1,684
919183
87 91 91
817979 8081 80
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
1Q05 2Q05 3Q05 4Q05 1Q06 2Q0650
55
60
65
70
75
80
85
90
95
Domestic oil products production Oil products sales volume
Primary processed installed capacity - Brazil (%) Domestic crude as % of total
PETROBRAS
434343
20
40
60
80
100
Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06
ARP Brazil (US$/bbl) Brent Average Price ARP USA (w/ volumes sold in Brazil)
70.2
71.0
61.8
4Q05Average
70.769,6
80.0
1Q06Average
Average Realization Price - ARP
• Unraveling from US ARP due to the beginning of US summer, reduced gasoline inventories and Middle East conflicts that threaten supply;
• Higher quality requirements in the American market (MTBE).
55.3
51.6
60.7
2Q05Average
PETROBRAS
444444
1,741,96 1,86
2,03 1,902,07
1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06
Domestic Refining Costs (US$/bbl)
• 9% increase with respect to previous quarter due to:• +US$ 0,12/bbl: scheduled stoppages;• + US$ 0,04/bbl: Materials;• + US$ 0,04/bbl: FX Rate effect;• - US$ 0,04/bbl: Increase in the throughput.
• Refining cost raised from R$ 4.19 in the 1Q06, to R$ 4.55 in the 2Q06
PETROBRAS
454545
181263 262
257
267233
269213
241228
2003 2004 2005 1Q06 2Q06
Oil Oil Products
446536504 519
409
450352 344
115
354233
88
109
94105
2003 2004 2005 1Q06 2Q06
Oil Oil Products
338 446 442459
559
Imports (thousand bpd)Exports (thousand bpd)
Net exports of oil and oil products
• Net exports growth limited by:• Production stability due to scheduled stoppages;• Domestic gasoline consumption increase due to ethanol reduction (mix reduced
from 25% to 20%);• Oil inventories stored in new production units.
2006 includes ongoing exports
92 thous. bpd volume superavit in the 2Q06
PETROBRAS
464646
Leverage
Petrobras’ Leverage Ratio
(1)Includes debt contracted through leasing contracts of R$ 3.300 million on December 31, 2005, and R$ 4.021 million on December 31, 2004.(2)Total debt - cash and cash equivalents
18%
26%
32%
24%
20%
28%
19%19% 23%
26%
6/30/2005 9/30/2005 12/31/2005 3/31/2006 6/30/2006
Net Debt/Net CapitalizationShort-Term Debt/Total Debt
• R$ 710 million decrease in net debt due to financing amortization, resulting in a 2 b.p. reduction of the leverage.
R$ million 06/30/2006 03/31/2006
Short Term debt (1) 12.213 11.399
Long Term Debt (1) 31.306 33.100
Total Debt 43.519 44.499
Cash and Cash Equivalents 22.713 22.983
Net debt (2) 20.806 21.516
PETROBRAS
474747
2Q06 1Q06(=) Net Cash from Operating Activities 11.366 10.144 (-) Cash used in Cap. Expend. (6.641) (6.020) (=) Free Cash Flow 4.725 4.124 (-) Cash used in Financing and Dividends (4.995) (4.558) Financing (1.472) (499) Dividends (3.523) (4.059) (=) Net Cash Generated in the Period (270) (434) Cash at the Beginning of Period 22.983 23.417 Cash at the End of Period 22.713 22.983
R$ million
Consolidated Cash Flow Statement
As of January 1, 2005, the Special Purpose Companies whose activities are directly or indirectly controlled by Petrobras were included in the Consolidated Financial Statements, as per CVM Instruction No. 408/2004.
• R$ 600 million increase in Free Cash Flow.
PETROBRAS
484848
Investments
1H06 % 1H05 % %• Direct investments 12.345 91 9.790 89 26 Exploration & Production 7.195 53 5.786 53 24 Supply 1.538 11 1.350 12 14 Gas and Energy 1.041 8 940 9 11 International 1.889 14 1.231 11 53 Distribution 333 2 242 2 38 Corporate 349 3 241 2 45 • Special Purpose Companies 1.156 8 1.008 9 15 • Ventures under Negotiation 142 1 111 1 28 • Project Finance 1 - 81 1 - Exploration & Production 1 - 81 1 -
Espadarte/Marimbá/Voador 1 - 52 - - Others - - 29 - - Total Investments 13.644 100 10.990 100 24
PETROBRAS
494949
Visit our website: www.petrobras.com.br/ri/english
For further information please contact:
Petróleo Brasileiro S.A – PETROBRAS
Investor Relations Department
Raul Adalberto de Campos– Executive Manager
E-mail: [email protected]
Av. República do Chile, 65 - 22nd floor
20031-912 – Rio de Janeiro, RJ
(55-21) 3224-1510 / 3224-9947
Contacts