FINANCIAL ANALYSIS
    AND FINANCIAL
       STATEMENTS
NET INCOME                                         PRODUCTION OF OIL AND GAS
(R$ MILLION)                                 ...
INVESTIMENTS CONSOLIDATED                                                                                                 ...
Contents


                                                                                      Notes to the
            ...
The Company’s market value
    increased by 87% in 2007 achieving
   R$ 429,9 billions, generating total returns
  of 131....
Financial
Analysis and
   Financial
 Statements
1 FINANCIAL SUMMARY 1

                                                                                                   ...
Permitting absorption of:
        More imports of oil and oil products (R$ 2.484 million) and acquisitions of
        non-...
3 RESULTS BY BUSINESS AREA
Petrobras is a company that operates in an integrated manner, with the greater
part of oil and ...
c) GAS & ENERGY
                                                               The increase in the average transfer cost o...
In 2007, the following extraordinary items influenced the individual and consoli-
dated result of the Petrobras System:


3...
The volume of international sales increased by 17% due to the inclusion of the
    operations of the Pasadena Refinery, as ...
5 INVENTORIES
The consolidated inventories of oil, oil products, a raw materials and alcohol
reached an amount of R$ 17.83...
7 INDEBTEDNESS
                                                                                  Indebtedness, relating to...
8 EXCHANGE RISK
The exchange exposure of the Petrobras System is measured as follows:

ASSETS
R$ MILLION                  ...
10 SHAREHOLDERS EQUITY AND DIVIDEND

                                                                     a) CAPITAL
     ...
INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of
Petróleo Brasileiro S.A. - Petrobras
Rio de Ja...
Balance sheet
December 31, 2007 and 2006
(In thousands of Reais)


                                                       ...
CONSOLIDATED                  PARENT COMPANY
LIABILITIES                                                     NOTE         ...
Statement of Income
December 31, 2007 and 2006
(In thousands of Reais, except net income per share at paid-up capital)


 ...
Statement of Changes in Financial Position
December 31, 2007 and 2006
(In thousands of Reais)


                          ...
Statement of Changes in Shareholders’ Equity
December 31, 2007 and 2006
(In thousands of Reais)


                        ...
REVENUE RESERVES
          REVALUATION                                                           RETENTION       RETAINED ...
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Financial analysis 2007 ing

  1. 1. FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS
  2. 2. NET INCOME PRODUCTION OF OIL AND GAS (R$ MILLION) (TH. BARRELS/DAY) 25.919 23.725 2.301 21.512 2.297 2.217 16.887 17.795 2.020 2.036 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 PROVEN RESERVES (BILLION/BOE) 15,0 14,9 14,9 15,1 14,5 11,8 11,9 11,7 11,6 11,5 2003 2004 2005 2006 2007 SPE SEC
  3. 3. INVESTIMENTS CONSOLIDATED TOTAL SHAREHOLDER’S RETURN: PETR4 E IBOVESPA (R$ MILLION) (CONSIDERING REINVESTIMENT OF DIVIDENDS) 45.285 99,0% 83,9% 6,4% 78,4% 33.686 18.418 13,7% 58,6% 22.549 25.710 15.314 5,4% 21.089 5.337 3.153 3.286 13.934 3.870 2.331 3.907 12.441 8.772 40,9% 9.632 34,9% 47,2% 7.161 4.181 5.645 1.967 4.705 7,1% 37,8% 7,7% 6.574 30,7% 77,5% 64,7% 10.661 33,8% 53,2% 27,2% 7.030 18,6% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Exploration & Production International Price Ibovespa* Source: Bloomberg Supply Others Dividends * Includes dividends for comparison MARKET VALUE (R$ MILLION) 429.923 230.372 173.584 112.458 87.459 2003 2004 2005 2006 2007
  4. 4. Contents Notes to the Financial Statements 1 Presentation of the financial statements 28 2 Consolidation principles 29 3 Summary of the significant accounting policies 31 4 Cash and cash equivalents 34 5 Accounts receivable, net 35 Financial Finan ial Analysis 6 Related parties 36 1 Financial Summary 03 7 Inventories 42 2 Consolidated Income 03 8 Petroleum and alcohol account - STN 42 9 Marketable securities 43 3 Results by Business Area 05 10 Project financings 43 4 Operating Revenue of the Petrobras System 07 11 Judicial deposits 47 5 Inventories 09 12 Investments 48 6 Investments 09 13 Property, plant and equipment 64 7 Indebtedness 10 14 Intangible 69 15 Financings 70 8 Exchange Risk 11 16 Financial income and expenses 75 9 Value Added 11 17 Other operating expenses, net 75 10 Shareholders Equity and Dividend 12 18 Taxes, contributions and participations 76 Independent Independent Auditor’s Report 13 19 Employee benefits 80 20 Profit sharing for employees and management 88 21 Shareholders’ equity 89 Financial Statements Statement 22 Commitments and contingencies 92 Balance Sheet 14 23 Commitments undertaken by the energy segment 95 24 Guarantees on concession contracts Statement of Income 16 for oil exploration 98 Statement of Changes in 25 Segment information 98 Shareholders’ Equity 17 26 Derivative instruments, hedging and Statement of Changes risk management activities 99 in Financial Position 18 27 Insurance 101 10 Statement of Cash Flows 20 28 Health, safety and environmental 102 10 29 Remuneration of Parent Company directors Statement of Added Value 21 and employees (in Reais) 102 10 Statement of Segmentation 30 Other information 103 10 of Business (Consolidated) 22 31 Subsequent events 104 10 Statement of Segmentation Report of Fiscal Council 107 10 of Business (Consolidated) 24 Board of Directors 108 10 Social Balance Sheet 26 Executive Board 108 10
  5. 5. The Company’s market value increased by 87% in 2007 achieving R$ 429,9 billions, generating total returns of 131.4% for ADR-holders (PBR) and 83.9% for preferred shareholders whose shares are traded in Brazil, outperforming the Ibovespa by 37 percentage point. The discovery of excellent oil and gas finds in new exploratory frontiers (pre-salt layers) in the Espírito Santo and Santos Basins, coupled with potential production growth due to the start-up of five major platforms in 2007, plus three more scheduled for 2008, have underlined Petrobras’ position as an outstanding company in its sector.
  6. 6. Financial Analysis and Financial Statements
  7. 7. 1 FINANCIAL SUMMARY 1 CONSOLIDATED PETROBRAS 2007 2006 2007 2006 Gross Operating Revenue (R$ million) 218.254 205.403 170.245 162.226 Operating Revenue (R$ million) 170.578 158.239 126.767 119.718 Income: Own activities 24.340 26.954 23.570 26.360 Subsidiaries/Affiliated (681) (233) (662) 424 23.659 26.721 22.908 26.784 Extraordinary items (2) (2.147) (802) (879) (721) Net income (R$ million) 21.512 25.919 22.029 26.063 Net Indebtedness (3) 26.670 18.776 (5) (5) EBITDA (R$ million) (4) 50.275 50.864 41.919 42.252 Net Indebtedness /EBITDA (%) (3) (4) 53 37 (5) (5) Shareholder’s Equity (R$ million) 113.854 97.531 116.013 99.382 Permanent Assets (6) (R$ million) 155.831 126.958 107.130 84.986 Ratio Shareholder’s Equity / Third parts (3) 52/48 53/47 59/41 62/38 Notes: 1. Amounts expressed in Reais (R$), mentioned in this financial analysis, were calculated in accordance with accounting practices derived from the Brazilian Corporation Law and rules of the Brazilian Securities Commission - CVM. 2. Amounts relating to unforeseen or unusual aspects of the Company’s business are regarded as Extraordinary Items and are, accordingly, not recurrent. 3. Includes indebtedness derived from leasing contracts. 4. Income before taxes, minority interests, net financial income (expense), equity pick-up, depreciation, amortization and cost of abandonment. 5. Cash and cash equivalents are greater than the total indebtedness. 6. Includes investment in subsidiaries, property, plant and equipment, intangible and deferred assets. 2 CONSOLIDATED INCOME The consolidated net income for 2007 was 17% lower than in 2006, mainly as a NET INCOME result of exchange variations due to the marked appreciation of the real in the period, R$ MILLION leading to a decrease in the value of assets held abroad, denominated in dollars, 25.919 and the cost relating to the agreement made with the employees to change the 23.725 Company’s pension plan. 21.512 The performance of the main components of the consolidated net income, in rela- 17.795 16.887 tion to 2006, are analyzed below: An increase in gross profit (R$ 2.875 million), taking the following factors into consideration: Higher volumes sold on the domestic and foreign markets (R$ 3.101 million); Increase in the selling price (R$ 1.473 million), principally for naphtha, natural gas and the oil exported; Lower expenditure on governmental participations, due to the effects of the appreciation of the Real on the reference prices for Brazilian oil, which are tied to the Brent indicator on the international market (R$ 1.924 million); 2003 2004 2005 2006 2007 Higher profitability of the distribution segment (R$ 490 million); WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 3
  8. 8. Permitting absorption of: More imports of oil and oil products (R$ 2.484 million) and acquisitions of non-oil products, including ethanol and biodiesel (R$ 515 million); Higher expense of materials, services and depreciation (R$ 1.736 million); Increase in the following expenses: Selling expenses (R$ 269 million), reflecting the increase in export volume and off-shore operations; General and administrative expenses (R$ 999 million), due to the growing com- plexity and volume of the Company’s operations, reflected in higher expenses from personnel in Brazil (R$ 379 million) as a result of the collective bargaining agreement and the increase in the workforce, and from third-party services (R$ 355 million), especially those related to IT and consulting; Exploration costs (R$ 533 million), related to the intensification of exploratory activities in Brazil (R$ 228 million) and abroad (R$ 440 million), especially in Turkey, Angola and Iran, offset by the reduction in provisions for well abandon- ment (R$ 121 million); Losses from the recovery of exploration and production assets (R$ 401 million) in Ecuador (R$ 309 million) due to the increase in the royalty rate (99%). Research and Development (R$ 126 million), as a result of research to develop production in the current reserves, expansion to new exploration frontiers and training of the technical workforce; The Pension and Health Plan (R$ 1.605 million), due to the amendments to the Petros Plan regulations; Other operating expenses (R$ 595 million), from the collective bargaining agreements (R$ 482 million) and fines and contractual charges related to natu- ral gas and electricity supply (R$ 449 million), offset by the recovery of ICMS tax credits following the agreement with the Ceará State Finance Department (R$ 101 million). A negative impact of R$ 2.600 million on the net financial result, due to: Increase in the appreciation of the real from 8% to 17% on resources invested abroad through subsidiaries, in the international segment, in E&P equipment for use in Brazil and in the commercial operations (R$ 1.972 million); Losses from hedge operations linked to commercial activities (R$ 288 million); Exchange regularization in 2006 in the amount of R$ 321 million, non- recurring; Offset by the reduction in expense of early settlement of financing (R$ 230 million). A reduction in relevant interests (R$ 448 million), primarily due to the increase in exchange losses from the conversion of foreign subsidiaries’ shareholders equity. A lower non-operating result (R$ 371 million), primarily from expenses from damage to third-party equipment installed in wells in the Campos Basin (R$ 139 million) and the write-off of E&P-related sunk costs (R$ 103 million). 4 FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 | WWW.PETROBRAS.COM.BR
  9. 9. 3 RESULTS BY BUSINESS AREA Petrobras is a company that operates in an integrated manner, with the greater part of oil and gas production in the Exploration and Production area being sold or transferred to other Company areas. The main criteria used to report results per business area are as follows: a. Net operating revenues: revenues from sales to external clients, plus intra- Company sales and transfers, using internal transfer prices established between the various areas as a benchmark, with assessment methodologies based on market parameters; b. Operating income: net operating revenues, plus the cost of goods and services sold, which are reported per business area considering the internal transfer price and other operating costs for each area, plus the operating expenses effectively incurred by each area; c. The entire financial result is allocated to the corporate group; d. Assets: refers to the assets as identified by each area. Equity accounts of a finan- cial nature are allocated to the corporate group. a) EXPLORATION AND PRODUCTION In 2007, E&P recorded net income 8% higher than that recorded in the previous SEGMENT RESULTS E&P year, due to the increase in the average prices of Brazilian oil, the increase of 1% in R$ MILLION the daily production of oil and LNG, the reduction in governmental participations and the higher average natural gas transfer prices. 24.728 Part of these effects were offset by expenses from the amendments to the Petros 2006 Plan regulations and the collective bargaining agreements. 26.828 The spread between the average domestic oil sale/transfer price and the average 2007 Brent price widened from US$ 10.43/bbl in 2006 to US$ 10.95/bbl in 2007. b) SUPPLY In 2007, net income recorded for Supply was 3% lower than in the previous year as SEGMENT RESULTS SUPPLY a result of the following factors: R$ MILLION Higher oil prices; Increased oil product import volume; 6.091 More scheduled maintenance stoppages; 2006 Increased expenses from personnel and third-party services; the amend- 5.909 ments to the Petros Plan regulations; and safety, the environment and health. 2007 Selling expenses also moved up due to higher offshore oil sales volume and oil exports. These effects were partially offset by the upturn in oil product sales volume and higher average oil product prices in Brazil and abroad. WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 5
  10. 10. c) GAS & ENERGY The increase in the average transfer cost of Brazilian natural gas and the contractual SEGMENT RESULTS GAS & ENERGY R$ MILLION fines and charges linked to the supply of natural gas and electric power, amounting to R$ 449 million, affected the 2007 result. (1.190 ) These effects were partially offset by the upturn in electricity sales volume, espe- 2006 cially energy exports to Argentina, and the increase in natural gas sales volume. (1.381) 2007 d) DISTRIBUTION The net income for Distribution was 36% higher than in the previous year, largely SEGMENT RESULTS DISTRIBUTION R$ MILLION due to the increase of 13% in the volume sold. The share of the fuel distribution market, in accordance with the new criteria 585 that revised the volume of the ethanol market, was 34.3%, compared to 32.3% in 2006 2006 (equivalent to 33.6% in accordance with the previous criteria). 794 2007 e) INTERNATIONAL The intensification of the exploration and prospecting operations abroad and SEGMENT RESULTS INTERNATIONAL R$ MILLION the regulatory changes in the oil and gas operations in Ecuador, which raised the royalty rates on production, were the main reasons for the lower income recorded 350 in 2007. 2006 The above facts resulted in an increase of R$ 440 million in exploration expenses, including data and seismic acquisition, particularly in Turkey, Angola, (1.023) 2007 Iran and Argentina, and of R$ 399 million, due to the decrease in the recoverable value of the assets in Ecuador, the USA and Angola. f) CORPORATE The result of the corporate activities in 2007 was due to the following factors: SEGMENT RESULTS CORPORATE R$ MILLION The R$ 2.600 million increase in net financial expenses; Increase in the health and pension plan expenses (R$ 1.196 million) as a result (4.128) of the amendments to the Petros Plan; 2006 The R$ 631 million increase in general and administrative expenses resulting from higher third-party services and personnel expenses, the latter due to the (8.154) 2007 expansion of the workforce in 2006 and the collective bargaining agreement. 6 FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 | WWW.PETROBRAS.COM.BR
  11. 11. In 2007, the following extraordinary items influenced the individual and consoli- dated result of the Petrobras System: 3.1 EXTRAORDINARY ITEMS STATEMENT OF EXTRAORDINARY ITEMS - 2007 GAS & R$ MILLION E&P SUPPLY ENERGY DISTRIB INTER CORP ELIMIN TOTAL Net Income (Loss) by Business Segment 42.678 9.168 (1.630) 1.324 (127) (8.607) (2.215) 40.591 Extraordinary Items: Expenses with Renegotiation of Petros Fund Plan 220 129 12 40 8 1.339 1.748 Contractual fines 449 449 Impairment 401 401 Ship or Pay 90 90 Extraordinary Items Subtotal 220 129 461 40 499 1.339 2.688 Operating Income (Loss) by Business Segment before Extraordinary items 42.898 9.297 (1.169) 1.364 372 (7.268) (2.215) 43.279 Net Income (Loss) by Business Segment 26.828 5.909 (1.381) 794 (1.023) (8.154) (1.461) 21.512 Extraordinary Items 220 129 461 40 499 1.339 - 2.688 Tax Effects (75) (44) (157) (14) (33) (218) - (541) Operating Income (Loss) by Business Segment before Extraordinary Items 26.973 5.994 (1.077) 820 (557) (7.033) (1.461) 23.659 STATEMENT OF EXTRAORDINARY ITEMS - 2006 GAS & R$ MILLION E&P SUPPLY ENERGY DISTRIB. INTERN. CORP. ELIMIN. TOTAL Operating Income (Loss) by Business Segment 39.331 9.444 (1.023) 947 1.232 (6.909) (785) 42.237 Extraordinary Items: New ANP Interpretation (Project Finance Expense Deducibility 426 426 Adjustment of the Expenses with Natural Gas Re-injection 408 408 Effect of the negotiated Hedge Operation termination with Andina 167 167 Ship or Pay 122 122 Tax Expenses - PIS/COFINS on other Revenues 22 73 15 24 134 Lawsuit Loss Related to ICMS Tax (129) (129) Extraordinary Items Subtotal 856 (56) 182 122 24 1.128 Operating Income (Loss) by Business Segment before Extraordinary items 40.187 9.388 (841) 947 1.354 (6.885) (785) 43.365 Net Income (Loss) by Business Segment 24.728 6.091 (1.190) 585 350 (4.128) (517) 25.919 Extraordinary Items 856 (56) 182 122 24 1.128 Taxes Effects (291) 19 (5) (41) (8) (326) Operating Income (Loss) by Business Segment before Extraordinary Items 25.293 6.054 (1.013) 585 431 (4.112) (517) 26.721 4 OPERATING REVENUE OF THE PETROBRAS SYSTEM The gross operating revenues of Petrobras, its Subsidiaries and Affiliates reached R$ 218.254 million, an increase of 6% in relation to the previous year. After taxes and other charges on billing, the Company determined consolidated net operating revenue of R$ 170.578 million in 2007 (R$ 158.239 million in 2006). The increase in sales relates mainly to the larger volumes of diesel (5%), QAV (10%), fuel oil (7%) and LNG (3%) sold in Brazil and a higher volume of oil exports, boosted by the increase in domestic production. The increase in diesel sales reflect the improved performance of the agricultural harvest and industrial operations. The increase in the GNP and the expansion of tourism, driven by the apprecia- tion of the real against the dollar, contributed to higher sales of QAV. Sailed the fuel oil were boosted by the operational start-up of five thermal plants in the Manaus region and the increased demand of the transformation industry. WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 7
  12. 12. The volume of international sales increased by 17% due to the inclusion of the operations of the Pasadena Refinery, as from October 2006, the increased produc- tion in the USA and the offshore operations, with the objective of taking advantage of commercial opportunities abroad, offset against the elimination of the operations in Venezuela and the sale of the Bolivian Refinery. SALES VOLUME TH. BARRELS/DAY 2007 2006 % Diesel 705 672 5 Gasoline 300 308 (3) Fuel Oil 106 100 6 Naphtha 166 165 1 LPG 206 201 2 QAV 70 64 9 Others 172 167 3 Total Oil Produtcs 1.725 1.677 3 Alcohol, Nitrogens and others 62 44 41 Natural Gas 248 243 2 Total domestic market 2.035 1.964 4 Exports 618 585 6 International Sales 586 503 17 Total international market 1.204 1.088 11 Total 3.239 3.052 6 SALES VOLUME DOMESTIC MARKET 35% 15% 5% 8% 10% 3% 9% 3% 12% Diesel Gasoline Fuel Oil Naphtha LPG QAV Others Alcohol, Natural Nitro- Gas gens 2.035 th. Barrels/day 8 FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 | WWW.PETROBRAS.COM.BR
  13. 13. 5 INVENTORIES The consolidated inventories of oil, oil products, a raw materials and alcohol reached an amount of R$ 17.836 million as at December 31, 2007, 9% higher than as at December 31, 2006, due to the increase in oil inventories as a result of the higher prices on the international market, influenced by imports. INVENTORIES / CONSOLIDATED - 12.31.2007 INVENTORIES / CONSOLIDATED - 12.31.2006 R$ MILLION R$ MILLION 8.132 4.824 4.179 701 5.968 4.349 5.227 862 Raw materials Oil products Maintenance Other Raw materials Oil products Maintenance Other materials* materials* * Includes advanced to suppliers * Includes advanced to suppliers 6 INVESTMENTS The investments of the Petrobras System amounted to R$ 45.285 million, 34% higher than in 2006, of which R$ 18.418 million was applied to increase Brazil’s INVESTIMENTS CONSOLIDATED R$ MILLION future oil and natural gas production capacity, in line with the Company’s growth targets disclosed in its 2008-2012 Business Plan. 45.285 Of the investments made in Brazil by the Petrobras System in 2007, 41% were allocated to exploration and production development, and R$ 7.351 million was 9.632 18.418 33.686 invested in the Campos alone. The main investments in production development in 2007 were made in the 25.710 Roncador (R$ 2.138 million); Marlim Sul (R$ 658 million), Espadarte (R$ 617 mil- 22.549 15.314 21.089 lion), Marlim Leste (R$ 524 million), Fase 2 de Marlim (R$ 258 million), Albacora 4.705 8.772 5.337 3.153 3.286 13.934 3.870 2.331 3.907 12.441 Leste (R$ 219 million), Integração Albacora (R$ 165 million) fields and in Jubarte/ 6.574 Cachalote (R$ 106 million), located in the Campos Basin. 7.161 4.181 Investments were also made in Exploration (R$ 811 million) and Safety, 5.645 1.967 Environment, Infrastructure, Information Technology and R&D (R$ 676 million). 10.661 7.030 2003 2004 2005 2006 2007 Exploration & Production International Supply Others WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 9
  14. 14. 7 INDEBTEDNESS Indebtedness, relating to loans and financing in Brazil and abroad, amounted to R$ 39.741 million, consolidated, as shown below: R$ MILLION 31.12.2007 31.12.2006 % Short-term Debt (1) 8.960 13.074 (31) Long-term Debt (1) 30.781 33.531 (8) Total 39.741 46.605 (15) Cash and cash equivalents 13.071 27.829 (53) Net Debt (2) 26.670 18.776 42 Net Debt/ (Net Debt + Shareholder’s equity) (1) 19% 16% 3 Total Net Liabilities (1) (3) 219.590 185.249 19 Capital Structure (third parties net/total liabilities net) 48% 47% 1 1. Includes debt from leasing contracts (R$ 1.433 million on December 31,.2007 and R$ 2.540 million on December 31, 2006). 2. Total debt less cash and cash equivalents. 3. Total liabilities net of cash/financial investments. The net indebtedness of the Petrobras System as at December 31, 2007 increased GROSS DEBT R$ MILLION by 42% due to the decrease in the cash and cash equivalents invested in long-term securities, the acquisition of investments and renegotiation of the Petros Plan. This 46.605 effect was partially offset by a reduction in indebtedness, due to amortization of 2006 27.829 18.776 financing and the appreciation of the Real against the dollar. The indebtedness level, measured by the ratio of the net indebtedness/EBITDA 39.741 2007 increased by 0.37 as at December 31, 2006 to 0.53 as at of December 31, 2007. 13.071 26.670 The capital structure comprises 48% equity interest on third part, an increase of 1 Cash/Cash Equivalents Net Debt percentage point compared to December 31, 2006. TOTAL GROSS DEBT BY INDEX 31.12.2007 39% 31% 17% 11% 2% Up to 6% From 6 to 8% From 8 to 10% From 10 to 12% Others BY CURRENCY 75% 3% 21% 1% Long Term Leasing LP Short Term Leasing Financing Financing CP 71% 24% 3% 2% Dollar Real Yen Others BY INDEX TYPE 58% 42% Floating Fixed BY CATEGORY 38% 31% 12% 13% 6% Financial Institutions “Notes” Debentures BNDES Others BY MATURITY 22% 18% 9% 11% 40% 2009 2010 2011 2012 after 2013 10 FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 | WWW.PETROBRAS.COM.BR
  15. 15. 8 EXCHANGE RISK The exchange exposure of the Petrobras System is measured as follows: ASSETS R$ MILLION 31.12.2007 31.12.2006 Current assets 9.368 14.139 Cash and cash equivalents 4.037 11.113 Other current assets 5.331 3.026 Non-Current assets 21.178 12.450 Long-term receivable subsidiaries, international, in E&P equipement for use in Brazil and commercial activities 20.362 10.440 Other long-term receivable 480 1.919 Property, plant and equipment 336 91 Total assets 30.546 26.589 LIABILITIES R$ MILLION 31.12.2007 31.12.2006 Current assets (7.601) (7.586) Financing (3.183) (4.937) Suppliers (2.122) (1.853) Other current liablities (2.296) (796) Non-Current liabilities (12.199) (10.284) Financing (11.062) (8.765) Other long term liabilities (1.137) (1.519) Total liabilities (19.800) (17.870) Net assets (liabilities) in Reais 10.746 8.719 (+) Exchange funds 41 3.475 (-) FINAME loans - in reais indexed to the dollar (339) (499) Net assets (liabilities) - in Reais 10.448 11.695 * Income (expenses) of investments in exchange funds is shown in financial income DISTRIBUTION OF ADDED VALUE (R$ MILLION) 9 VALUE ADDED 120.695 120.138 The Petrobras System generated resources of R$ 120.138 million (R$ 120.695 115.311 10.395 million in 2006), in terms of value added, a distributed to the interested parties 12.812 9.643 95.404 as follows: 80.996 7.516 5.167 72.041 70.605 56.015 52.374 17.110 63.810 10.884 13.467 18.570 13.303 18.679 4.776 23.254 24.748 27.375 2003 2004 2005 2006 2007 Personal Financial Int. and Supply Governamental Ent Shareholder’s WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 11
  16. 16. 10 SHAREHOLDERS EQUITY AND DIVIDEND a) CAPITAL A proposal will be made the Extraordinary General Meeting to be held on April 04, 2008 to incorporate into capital part of the revenue reserves recorded in prior years, comprising a statutory reserve surplus of R$ 4.380 million and a retained earnings reserve surplus of R$ 3.372 million, increasing the capital from R$ 48.264 million to R$ 52.644 million, without changing the number of shares issued. b) INTEREST ON SHAREHOLDERS’ EQUITY The Board of Directors of Petrobras, in accordance with the by-laws, will propose to the Ordinary General Meeting to be held on April 04, 2008, distribution of a 2007 dividend of R$ 6.581 million, equivalent to 31.44% of net income and R$ 1,50 per ordinary and preferred share. The amount of the dividends, including the interest on shareholders, will be restated from December 31, 2007 until the late payment starts, in accordance with the variation of the SELIC rate. DIVIDENDS TO BE DECIDED BY THE ORDINARY GENERAL MEETING AMOUNT PER SHARE AMOUNT ON AND PN R$ MILLION Interest on Shareholders’ Equity - Approved by the Board of Directors on July 25, 2007 - Paid on January 23, 2008, on the share position as of Aug 17, 2007. 0,50 2.194 Interest on Shareholders’ Equity - Approved by the Board of Directors on 21.09.2007, to be made available by March 31, 2008, on the share position as of October 05, 2007. 0,50 2.193 Interest on Shareholders’ Equity - Approved by the Board of Directors on Dec. 27, 2007, to be made available by April 30, 2008, on the share position as of January 11, 2008. 0,30 1.316 Interest on Shareholders’ Equity - Approved by the Board of Directors on March. 03, 2008. Payment date will be fixed by the Ordinary General Meeting that will decide On the matter, to be held on April 04, 2008, on the share position asof that date. 0,15 658 Dividends – Proposed by the Board of Directors on February 28, 2008. The Payment date will be fixed by the Ordinary General Meeting that will decide on the matter, to be held on April 04, 2008, on the share position as of that date. 0,05 220 Total Dividends 1,50 6.581 c) RETAINED EARNINGS RESERVE It is planned to record a retained earnings reserve of R$ 14.088 million, partly intended to cover the annual investment program established in the 2008 Capital Budget, to be decided at the General Shareholders Meeting on April 04, 2008. 12 FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 | WWW.PETROBRAS.COM.BR
  17. 17. INDEPENDENT AUDITORS’ REPORT To the Board of Directors and Shareholders of Petróleo Brasileiro S.A. - Petrobras Rio de Janeiro - RJ We have examined the accompanying balance sheet of Petróleo Brasileiro S.A. - Petrobras and the consolidated balance sheet of Petróleo Brasileiro S.A. - Petrobras and its subsidiaries as of December 31, 2007 and 2006 and the related statements of income, changes in shareholders’ equity and changes in financial position for the years then ended, which are the responsibility of its management. Our responsibility is to express an opinion on these financial statements. Our examinations were conducted in accordance with auditing standards generally accepted in Brazil and included: (a) planning of the audit work, consider- ing the materiality of the balances, the volume of transactions and the accounting systems and internal accounting controls of the Company and its subsidiaries; (b) verification, on a test basis, of the evidence and records which support the amounts and accounting information disclosed; and (c) evaluation of the most significant accounting policies and estimates adopted by Company management and its sub- sidiaries, as well as the presentation of the financial statements taken as a whole. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Petróleo Brasileiro S.A. - Petrobras and the consolidated financial position of Petróleo Brasileiro S.A. - Petrobras and its subsidiaries as of December 31, 2007 and 2006, and the results of its operations, changes in its shareholders’ equity and changes in its financial position for the years then ended, in conformity with accounting practices adopted in Brazil. Our examinations were performed with the objective of expressing an opinion on the aforementioned financial statements taken as a whole. The statements of cash flows, added value, segmentation of business, and the social balance sheet, for the years ended December 31, 2007 and 2006, are supplementary to the aforemen- tioned financial statements, are not required by the accounting practices adopted in Brazil and have been included to facilitate additional analysis. These supplementary information were subject to the same audit procedures as applied to the financial statements referred to in the first paragraph and, in our opinion, are presented fairly, in all material respects, in relation to the financial statements taken as a whole. March 3, 2008 KPMG Auditores Independentes CRC-SP-14.428/O-6-F-RJ Manuel Fernandes Rodrigues de Sousa Bernardo Moreira Peixoto Neto Accountant CRC-RJ-052.428/O-2 Accountant CRC-RJ-064.887/O-8 WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 13
  18. 18. Balance sheet December 31, 2007 and 2006 (In thousands of Reais) CONSOLIDATED PARENT COMPANY ASSETS NOTE 2007 2006 2007 2006 Current assets Cash and cash equivalents 4 13.070.849 27.829.105 7.847.949 20.098.892 Accounts receivable, net 5 11.328.967 13.432.524 12.036.476 10.376.356 Dividends receivable 6.1 80.596 47.462 668.501 777.593 Inventories 7 17.599.001 15.941.033 12.800.138 12.968.740 Taxes, contributions and participations 18.1 7.781.536 6.825.757 5.125.217 4.381.752 Prepaid expenses 1.429.829 998.477 1.095.815 669.892 Other current assets 2.082.988 2.145.065 579.999 170.573 53.373.766 67.219.423 40.154.095 49.443.798 Non-current assets Long-term assets Accounts receivable, net 5 2.901.902 1.776.430 48.203.621 34.906.272 Petroleum and Alcohol Account - STN 8 797.851 785.791 797.851 785.791 Marketable securities 9 3.922.370 409.531 3.386.999 8.062 Projects financings 10.1 1.503.713 927.830 Judicial deposits 11 1.693.495 1.750.119 1.445.658 1.438.384 Prepaid expenses 1.514.301 1.838.778 809.332 818.953 Advance for migration - pension plan 19 1.296.810 1.242.268 1.296.810 1.242.268 Deferred income tax and social contribution 18.3 8.333.490 6.398.532 5.557.483 3.762.457 Inventories 7 236.753 464.783 236.753 464.783 Other long-term assets 1.325.865 1.694.279 711.399 829.876 22.022.837 16.360.511 63.949.619 45.184.676 Investments 12 7.822.074 4.755.148 26.068.789 22.776.506 Property, plant and equipment 13 139.940.726 114.103.091 77.252.144 58.682.236 Intangible 14 5.532.053 5.651.646 3.074.677 2.778.773 Deferred charges 2.536.344 2.448.310 733.686 748.565 177.854.034 143.318.706 171.078.915 130.170.756 231.227.800 210.538.129 211.233.010 179.614.554 See the accompanying notes to the financial statements. 14 FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 | WWW.PETROBRAS.COM.BR
  19. 19. CONSOLIDATED PARENT COMPANY LIABILITIES NOTE 2007 2006 2007 2006 Current liabilities Financings 15 7.853.781 11.932.301 625.922 1.141.352 Interest on financings 15 647.449 589.975 122.596 138.093 Suppliers 13.791.198 11.510.166 36.456.554 28.900.459 Taxes, contribution and participation 18.2 10.006.272 8.413.040 8.493.492 6.854.934 Dividends proposed 21 6.580.557 7.896.669 6.580.557 7.896.669 Projects financings 10.3 41.470 34.163 408.234 1.565.296 Provision for pension plan 19 424.259 414.821 386.091 391.783 Provision for healthcare plan 19 455.736 406.827 429.666 386.428 Payroll and related charges 1.688.960 1.451.660 1.375.912 1.137.832 Provision for contingencies 22 54.000 54.000 54.000 54.000 Advances from customers 3.6 493.217 1.991.177 120.326 1.119.891 Provision for employee and management profit sharing 1.011.914 1.196.918 844.412 993.000 Other payables 4.506.198 2.672.533 4.488.096 603.720 47.555.011 48.564.250 60.385.858 51.183.457 Non-current liabilities Financings 15 29.806.589 31.542.849 4.811.988 5.094.223 Subsidiaries and affiliated companies 6.2 94.664 46.555 2.374.256 2.506.957 Deferred income tax and social contribution 18.3 10.418.754 9.116.271 8.433.677 7.522.436 Provision for pension plan 19 4.520.145 3.047.789 4.138.672 2.777.184 Provision for healthcare plan 19 9.272.183 8.012.344 8.554.276 7.382.761 Provision for contingencies 22 613.969 513.880 208.415 190.671 Provision for dismantling of areas 3.6 6.132.359 3.148.398 5.854.072 2.979.031 Other payables 1.262.114 1.126.368 459.561 595.500 62.120.777 56.554.454 34.834.917 29.048.763 Deferred income 1.391.788 413.378 Minority interest 6.306.097 7.475.399 Shareholders’ equity 21 Capital 52.644.460 48.263.983 52.644.460 48.263.983 Capital reserves 1.553.831 372.064 1.553.831 372.064 Revaluation reserve 61.520 66.423 61.520 66.423 Revenue reserve 59.594.316 48.828.178 61.752.424 50.679.864 113.854.127 97.530.648 116.012.235 99.382.334 231.227.800 210.538.129 211.233.010 179.614.554 WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 15
  20. 20. Statement of Income December 31, 2007 and 2006 (In thousands of Reais, except net income per share at paid-up capital) CONSOLIDATED PARENT COMPANY NOTE 2007 2006 2007 2006 Gross operating revenues Sales Products 218.050.202 205.181.776 169.965.711 161.868.048 Services, mainly freight 203.972 221.261 279.243 357.925 218.254.174 205.403.037 170.244.954 162.225.973 Sales deductions (47.676.449) (47.164.218) (43.477.953) (42.508.173) Net operating revenues 170.577.725 158.238.819 126.767.001 119.717.800 Cost of products and services sold (104.398.043) (94.933.511) (70.444.686) (65.942.183) Gross profit 66.179.682 63.305.308 56.322.315 53.775.617 Operating expenses Selling (6.059.734) (5.790.648) (5.314.132) (4.975.402) Financial Expenses 16 (3.292.002) (3.720.347) (2.983.518) (2.226.462) Income 16 2.506.543 2.378.793 4.662.159 3.038.657 Net monetary and exchange variation 16 (3.146.547) 9.359 (4.713.938) (778.277) General and administrative Management and board of directors remuneration (29.259) (31.035) (4.034) (3.898) Administrative (6.398.633) (5.398.261) (4.484.176) (3.604.093) Taxes (1.255.511) (1.262.936) (717.092) (679.756) Cost of research and technological development (1.712.338) (1.586.489) (1.700.342) (1.575.723) Impairment (446.129) (45.063) (45.248) (40.395) Exploratory costs for the extraction of oil and gas (2.569.724) (2.036.838) (1.211.923) (1.118.839) Pension and healthcare plans 19 (2.494.510) (1.940.582) (2.359.108) (1.823.391) Other operating expenses, net 17 (4.623.379) (2.975.554) (4.365.710) (2.636.474) (29.521.223) (22.399.601) (23.237.062) (16.424.053) Participation in subsidiaries and affiliated companies Equity pickup 12 (680.655) (233.215) (661.581) 423.995 Operating income 35.977.804 40.672.492 32.423.672 37.775.559 Nonoperating expenses (438.517) (66.950) (340.701) (111.650) Income before social contributions, income tax, profit sharing for employees and management and minority interest 35.539.287 40.605.542 32.082.971 37.663.909 Social contribution 18.5 (2.876.775) (3.104.576) (2.492.591) (2.883.191) Income tax 18.5 (8.395.983) (8.791.825) (6.717.277) (7.724.545) Income before profit sharing for employees and management and minority interest 24.266.529 28.709.141 22.873.103 27.056.173 Profit sharing for employees and management 20 (1.011.914) (1.196.918) (844.412) (993.000) Income before minority interest 23.254.615 27.512.223 22.028.691 26.063.173 Minority interest (1.742.826) (1.593.303) Net income for the year 21.511.789 25.918.920 22.028.691 26.063.173 Net income per share of paid-up capital at year end - R$ 4,90 5,91 5,03 5,94 See the accompanying notes to the financial statements. 16 FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 | WWW.PETROBRAS.COM.BR
  21. 21. Statement of Changes in Financial Position December 31, 2007 and 2006 (In thousands of Reais) CONSOLIDATED PARENT COMPANY 2007 2006 2007 2006 Sources of funds Operations Net income for the year 21.511.789 25.918.920 22.028.691 26.063.173 Items that not affect working capital: Minority interest 1.742.826 1.593.303 Equity pickup 582.742 189.936 641.238 (411.993) Goodwill/discount - amortization 97.913 43.279 20.343 (12.002) Dividends 70.872 101.509 975.508 954.437 Depreciation and amortization 10.695.825 9.823.557 5.798.802 4.934.119 Monetary and exchange variation of fixed assets 6.923.023 2.252.194 Residual value of PPEE asset written off 1.760.875 2.292.040 517.487 452.160 Monetary and exchange variation and net earnings on non-current assets and long-term liabilities (1.542.245) (698.938) 2.977.147 (6.067) Employee benefits and other provisions 3.699.957 3.456.550 3.606.021 3.077.259 Deferred income tax and social contribution, net 618.323 608.173 735.740 968.490 Other items (207.686) (211.085) 174.011 45.954.214 45.369.438 37.300.977 36.193.587 From shareholders Capital increase 16.314 From other sources Financings 8.452.955 5.930.698 500.000 Credits and subventions for investments 1.189.844 1.181.767 Other 51.406 48.736 56.554 48.736 9.694.205 5.979.434 1.738.321 48.736 Resources from operations 55.648.419 51.348.872 39.039.298 36.258.637 Applications of funds Investments 5.314.688 3.126.484 5.720.941 2.101.870 Cost of exploration and developing production of oil and gas 17.141.568 12.750.790 6.772.990 6.474.880 Other immobilizations 23.142.731 13.427.136 14.843.318 8.665.635 Intangible 849.453 1.568.699 559.378 392.249 Deferred charges 665.913 763.810 302.242 265.624 Transactions with subsidiaries and affiliated companies 16.046.737 6.559.580 Increase in ventures under negotiation 638.250 354.212 Transfer of financing and suppliers to current liabilities 4.789.112 7.541.273 663.226 1.152.061 Decrease in other non-current liabilities 5.730.307 2.623.416 1.432.674 888.263 Increase (decrease) in other long-term assets 825.388 523.997 659.870 (123.635) Marketable Securities 3.445.120 (42.994) 3.311.219 Proposed dividends 6.580.557 7.896.669 6.580.557 7.896.669 Total applications of funds 68.484.837 50.179.280 57.531.402 34.627.408 Increase/(decrease) in working capital (12.836.418) 1.169.592 (18.492.104) 1.631.229 Changes in working capital: Current assets At end of year 53.373.766 67.219.423 40.154.095 49.443.798 At beginning of year 67.219.423 60.235.190 49.443.798 44.694.731 (13.845.657) 6.984.233 (9.289.703) 4.749.067 Current liabilities At end of year 47.555.011 48.564.250 60.385.858 51.183.457 At beginning of year 48.564.250 42.749.609 51.183.457 48.065.619 (1.009.239) 5.814.641 9.202.401 3.117.838 Increase/(decrease) in working capital (12.836.418) 1.169.592 (18.492.104) 1.631.229 See the accompanying notes to the financial statements. WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 17
  22. 22. Statement of Changes in Shareholders’ Equity December 31, 2007 and 2006 (In thousands of Reais) CAPITAL CAPITAL RESERVES PAID-UP MONETARY AFRMM TAX CAPITAL RESTATEMENT SUBVENTIONS INCENTIVES Balances at January 1, 2006 32.896.138 339.307 158.298 213.766 Prior year adjustment Capital increase on April 03, 2006 15.351.531 (339.307) Capital increase on June 30, 2006 16.314 Constitution of reserve Realization of reserve Net income for the year Destinations: Appropriation to reserves Proposed dividends Balances at December 31, 2006 48.263.983 158.298 213.766 Capital increase on April 02, 2007 4.380.477 Funds from AFRMM 10.844 Tax incentives - SUDENE 1.170.923 Realization of reserve Net income for the year Destinations: Appropriation to reserves Proposed dividends 52.644.460 169.142 1.384.689 Balances at December 31, 2007 52.644.460 1.553.831 See the accompanying notes to the financial statements. 18 FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 | WWW.PETROBRAS.COM.BR
  23. 23. REVENUE RESERVES REVALUATION RETENTION RETAINED TOTAL SHAREHOLDERS RESERVE LEGAL STATUTORY OF EARNINGS EARNINGS EQUITY 60.120 5.207.914 1.008.119 40.819.604 80.703.266 480.366 480.366 (15.012.224) 16.314 15.884 15.884 (9.581) 9.581 26.063.173 26.063.173 1.303.159 241.320 17.111.972 (18.656.451) (7.896.669) (7.896.669) 66.423 6.511.073 1.249.439 42.919.352 99.382.334 (1.008.119) (3.372.358) 10.844 1.170.923 (4.903) 4.903 22.028.691 22.028.691 1.101.435 263.222 14.088.380 (15.453.037) (6.580.557) (6.580.557) 7.612.508 504.542 53.635.374 61.520 61.752.424 116.012.235 WWW.PETROBRAS.COM.BR | FINANCIAL ANALYSIS AND FINANCIAL STATEMENTS 2007 19

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