PETROBRAS




                 7th Annual Conference
                Santander Banespa Brazil



      Petrobras Overview ...
Disclosure


    The presentation may contain forecasts about future events. Such forecasts merely
    reflect the expecta...
Drivers & Strategies
             Drivers                          Business Strategies
    Develop market and monetize    ...
Fundamentals
    Macroeconomic assumptions


    Assumptions                          2007-2011          • Market developm...
Fundamentals
     Domestic oil products market


                   • Increasing demand for middle distillates.

         ...
Fundamentals
    Domestic natural gas market

                  140
                            Natural gas market        ...
Investment Plan

                                     Business Plan 2007-2011
                                            ...
Financial Targets
    Sources & Uses

                   Sources                                       Uses
              ...
PETROBRAS
Financial Targets
Main Financial Indicators


                                                           2006-20...
PETROBRAS
  E&P
  Production targets – Oil & NGL and Natural Gas


            Thousand boed                              ...
PETROBRAS
E&P
Main projects that will contribute to the production growth in 2006




                                    ...
PETROBRAS
 E&P
 Main Brazilian Oil & NGL production projects

2,600
                Albacora Leste
                Albacor...
PETROBRAS
E&P
Projects for 2007


4 new platforms will provide additional production capacity of 560,000 bpd
FPSO Cidade V...
PETROBRAS
E&P
2011-2015 main Brazilian projects


• To sustain production growth, 15 large projects will be implemented be...
PETROBRAS
 E&P Investments
 Brazilian production curve



             2.600                                              ...
E&P Investments

     • Strong investments in production will optimize the development of Petrobras’ proven
       reserve...
E&P Investments
     Petrobras CAPEX vs. Peers CAPEX


                                     E&P CAPEX to production 2005-2...
PETROBRAS
Downstream Investments

 US$ 23.1 billion in the downstream segment…        ...of which US$ 14.2 billion in refi...
PETROBRAS
Business Strategies - Downstream
New Refinery in Pernambuco
                                     • Investment: U...
PETROBRAS
Downstream Investments
Petrochemical investments


                                              Advantages:
   ...
PETROBRAS
        Vertical Integration Comparison
                                                          Majors Average...
PETROBRAS
Downstream Investments
Liquid products flow


• In 2011 international sales will amount to 967 Thous. bpd.
Inter...
PETROBRAS
Natural Gas Investments


             Challenges                  Business Plan 2007-2011 Targets

Over 75% of ...
PETROBRAS
Natural Gas Investments


 New investments will reduce the country’s dependence on imported gas.
               ...
PETROBRAS
Natural Gas Investments
Delivery Curve
 Million m3/day
                                                         ...
PETROBRAS
Flexible LNG Project


Facilitates the adjustment of the offer to the market’s characteristic:
     Flexible Off...
PETROBRAS
Distribution Investments

  Market Share of Fuel Distribution      • Lead the Brazilian market for oil products
...
PETROBRAS
International Investments

                 Total CAPEX: US$ 12.1 billion                                 Target...
PETROBRAS
Situation in Bolivia

• As a consequence to the measures adopted by the Bolivian Government, Petrobras
  will ac...
PETROBRAS
                Situation in Venezuela

                                                               Internati...
PETROBRAS
       Biofuel Production
• H-Bio: refining process that utilizes vegetable oils as an input, in order to obtain...
PETROBRAS
Future Markets for biodiesel

Law 11.097/2005 – established minimal percentage for biodiesel mix in diesel
     ...
PETROBRAS
Ethanol Market

• Ethanol global market is 46.5 Billion Liters (2005)
• Ethanol as a Fuel is 30.6 Billion Liters...
PETROBRAS
Flex-Fuel Vehicles

 •        Consumer wants to decide the fuel at the gas station
 •        Fuel price is one t...
2nd Quarter 2006 Results
     (Brazilian Corporate Law)




35
PETROBRAS
Income Statement 2Q06 vs 1Q06

                                      1Q06       2Q06
                           ...
PETROBRAS
E&P – Oil Prices




                                                                                           ...
PETROBRAS
Domestic Lifting Costs w/o Gov. Part.

                                                   ∆ = -3% or US$ 0.20
  ...
PETROBRAS
          Lifting Costs including Gov. Participation

          26
                        % 2002 – 2Q06        ...
PETROBRAS
E&P
Royalties
 • Monthly payment due from concessionaires for the exploration and production of oil
 and natural...
PETROBRAS
                 E&P
                 Special Participation – Progressive Tax

                             • Sp...
PETROBRAS
Refining and Sales in the Domestic Market

                                                                     ...
PETROBRAS
 Average Realization Price - ARP
100
                                    2Q05                               4Q05...
PETROBRAS
Domestic Refining Costs (US$/bbl)

                                                                     2,07
   ...
Santander campos jordao
Santander campos jordao
Santander campos jordao
Santander campos jordao
Santander campos jordao
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Santander campos jordao

  1. 1. PETROBRAS 7th Annual Conference Santander Banespa Brazil Petrobras Overview and 2Q Results Almir Barbassa CFO Campos do Jordão – São Paulo August 2006 1
  2. 2. Disclosure 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. 2 2
  3. 3. Drivers & Strategies Drivers Business Strategies Develop market and monetize E&P natural gas reserves in Brazil • Focus on light oil and natural gas production and reserve growth Reduce dependence on light oil Downstream and oil product imports • Expand conversion capacity and improve quality of refined products • Increase bio-refining capacity, biomass, Improve oil product quality in petrochemical and fertilizers businesses Brazil and abroad • Promote Brazilian biodiesel production and export ethanol Reduce carbon intensity of Distribution operations and products • Increase market-share in Brazil for oil products and biofuels Assure future demand and add Gas & Energy value to heavy oil exports • Develop and establish a profitable and reliable natural gas market including LNG Exploit competitive advantage International from deep water exploration • Expand E&P in Gulf of Mexico and Africa technology abroad • Undertake investments in refining conversion capacity and quality 3 3
  4. 4. Fundamentals Macroeconomic assumptions Assumptions 2007-2011 • Market developments indicate an appreciation of the FX rate GDP – World (% p.a.) – 4.2 (R$/US$). PPP* GDP – Latin America (% 3.7 • Petrobras robustness Brent price p.a.) – PPP below the low end of market’s GDP – Brazil (% p.a.) 4.0 forecast band. FX rate (R$/US$) 2.50 Robustness Brent • Costs are projected at current 23.00 (US$/bbl) levels, with no adjustment for 2006 – 62.00 future price reductions. Brent for funding 2007 – 55.00 (US$/bbl) • Petrobras products prices follow 2008 – 40.00 2009-2011 – 35.00 international prices in the medium term. Costs At current levels Linked to • Natural gas prices to accompany Domestic sales prices international market international differentials to oil prices products. * PPP – purchase power parity 4 4
  5. 5. Fundamentals Domestic oil products market • Increasing demand for middle distillates. 2500 Oil products demand 3.1% p.a. 2,117 211 8,7% p.a. 2000 1,766 97 Thousand bpd -1,8% p.a. 128 1500 108 935 3,1% p.a. 777 1000 282 2,9% p.a. 237 500 2,6% p.a. 315 368 201 224 1,8% p.a. 0 2005 2011 LPG Gasoline A Naphta Diesel* + Jet Fuel Fuel Oil Coke + Others *Includes Biodiesel (2%) 5 5
  6. 6. Fundamentals Domestic natural gas market 140 Natural gas market 121.0 121.0 120 up to 20.0 100 34.0 17.7% p.a. up to 30.0 80 Million m3/day 38.6 60 45.4 40 13.5 up to 71.0 20 24.8 48.4 0 7.1 Consumed in 2005 Maximum Demand Potential Supply 2011 2011(*) Thermoplants Industry Other National Production Bolivian Imports LNG * Considers maximal dispatch for every thermoelectric power plant 6 6
  7. 7. Investment Plan Business Plan 2007-2011 US$ 87.1 billion 56% 14% 49.3 U S$ 12 49,3 .1 bi 31.0 23,0 US$ 75.0 bi 1.8 1,8 2.3 3.3 23.0 3% 2,2 3,3 7,5 26% 7.5 1.0 3% 1.0 4% 12.4 9% 86% E&P Downstream G&E Brazil International Petrochemical Distribution Corporate Note: Includes International 7 7
  8. 8. Financial Targets Sources & Uses Sources Uses (US$ 99.3 billion) (US$ 99.3 billion) 12.6 12.2 86.7 (*) 87.1 2004-2010 2004-2010 Financing Debt Amortization Cash Flow Capex • Accrued Economic Profit (2006-2015): US$ 83.4 billion (US$ 53.9 until 2011). 8 8
  9. 9. PETROBRAS Financial Targets Main Financial Indicators 2006-2010 2007-2011 Indicators Average Average Return on Capital Employed (ROCE) (%) 15 16 Long Term Funding (US$ billion per year) 2.9 3.1 Cash Balance (end of the year) (US$ billion) 4.4 3.5 Net Debt/ Net Debt + Shareholders’ Equity (Leverage) (%) 28 25 Oper. Cash Flow before interest and taxes / interest 8.6x 13.7x Free Operating Cash Flow (US$ billion) 1.5 1.5 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. 9 99
  10. 10. PETROBRAS E&P Production targets – Oil & NGL and Natural Gas Thousand boed 7.5% p.a. 4,556 278 7.8% p.a. 3,493 742 185 383 724 2,403 2,036 2,020 2,217 101 96 551 85 94 133 163 289 161 168 274 250 265 2, 812 2, 374 1, 880 1, 540 1, 684 1, 493 2003 2004 2005 T a r get 2 006 T a rg e t 2 0 1 1 2015 For ecast Oi l and N GL - B r az i l N at ur al Gas - B r az i l 10 Oi l and N GL - I nt er naci ona l N at ur al Gas - I nt e r naci onal 10 10
  11. 11. PETROBRAS E&P Main projects that will contribute to the production growth in 2006 P -- 34 P 34 Piranema Piranema FPSO Capixaba FPSO Capixaba Jubarte Phase 1 Jubarte Phase 1 Capacity 20.000 bpd Capacity 20.000 bpd Golfinho Mod. 1 Golfinho Mod. 1 Capacity 60,000 bpd Capacity 60,000 bpd October 2006 October 2006 P -- 50 P 50 October 2006 Capactiy 100,000 bpd Capactiy 100,000 bpd October 2006 Albacora Leste Albacora Leste 1,880 May 2006 May 2006 Capacity 180,000 bpd Capacity 180,000 bpd April 2006 April 2006 1,684 ∆ 11.6% Crude oil in Brazil 2005A 2006E • 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. 11 11 11
  12. 12. PETROBRAS E&P Main Brazilian Oil & NGL production projects 2,600 Albacora Leste Albacora Leste P-50 P-50 Thous. bpd 180,000 bpd 180,000 bpd ESS-130 April/2006 April/2006 Roncador Roncador P-52 P-52 ESS-130 Golfinho Mod III **** Golfinho Mod III **** 2,374 2,400 (FPSO) (FPSO) 180,000 bpd 180,000 bpd Jubarte Jubarte 100,000 bpd 2007 2007 100,000 bpd Fase 1 Fase 1 P-34 2008 2008 2,368 Parque das Parque das P-34 Conchas*** 60,000 bpd Rio de Janeiro Rio de Janeiro Conchas*** 60,000 bpd 100.000 bpd 2,200 Oct/2006 Espadarte Mod II Espadarte Mod II 100.000 bpd Oct/2006 100,000 bpd 100,000 bpd 2,195 2011 2011 FPSO Capixaba FPSO Capixaba 2007 2007 Roncador Frade Roncador Golfinho Mod. 1 Golfinho Mod. 1 Frade P-55** P-55** 2,000 100,000 bpd 100,000 bpd 2,061 100,000 bpd 100,000 bpd 2009 180.000 bpd 180.000 bpd May 2006 May 2006 2009 1,979 Marlim Sul Marlim Sul 2011 2011 Module 2 Jubarte Jubarte Module 2 Roncador Roncador P-51 Phase 2 Phase 2 P-51 P-54 P-54 180,000 bpd P-57 P-57 180,000 bpd 1,800 1,880 180,000 bpd 180,000 bpd 2008 2008 180,000 bpd 180,000 bpd 2007 2007 2010 2010 Piranema Piranema Marlim Leste 1,600 1,684 20.000 bpd 20.000 bpd Cidade de Vitória Cidade de Vitória Golfinho Mod. 2 Golfinho Mod. 2 Marlim Leste P-53* P-53* Postponed Oct 2006 Oct 2006 100,000 bpd 100,000 bpd 180,000 bpd 180,000 bpd New 2007 2009 2009 2007 Antecipated 1,400 2005 2006 2007 2008 2009 2010 2011 * In the previous plan, P-53 was scheduled to 2008 ** In the previous plan, P-55 was scheduled to 2010 12 *** Abalone, Ostra, Argonauta and Nautilus (former BC10): Petrobras share 35% **** In the previous plan, Golfinho Mod. 3 was scheduled to 2010 12 12
  13. 13. PETROBRAS E&P Projects for 2007 4 new platforms will provide additional production capacity of 560,000 bpd FPSO Cidade Vitória This 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 Janeiro With a capacity of 100,000 bpd, this leased unit is being converted by Modec in Singapore. Production will begin May/2007 in the Espadarte field. P-54 Petrobras constructed this platform in the Jurong shipyard, in Cidade Rio de Janeiro Singapore, and is currently transporting it to the Mauá-Jurong shipyard, in Niterói (RJ). It should be operating by October/2007 in the Roncador field with a capacity of 180,000 bpd. P-52 This platform was constructed by Petrobras, in Singapore (Keppel Fels 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 13 13 13
  14. 14. PETROBRAS E&P 2011-2015 main Brazilian projects • To sustain production growth, 15 large projects will be implemented between 2011 to 2015. The highlights are: Oil Production in Brazil (Thous. bbl) 2900 2,812 2800 • Marlim Sul P-56 2700 • Roncador P-55 2600 • Papa-Terra Mód. 1 e 2 • Marlim Sul Mód. 4 2500 • Roncador Mód. 4 2,374 • Cachalote and Baleia Franca 2400 • Baleia Azul 2300 2200 2100 2011 2015 14 14 14
  15. 15. PETROBRAS E&P Investments Brazilian production curve 2.600 2,368 2,374 2,195 690 1,979 2,061 2.100 1,880 Net Increase 1,684 1.600 Thous. bpd 1.100 600 + 100 (154) (154) (326) (172) (508) (697) (400) (181) (897) 1,114 (189) (201) Accumulated (900) (217) Natural Decline (1.400) 2005 2006 2007 2008 2009 2010 2011 1,804 Total Production Accumulated Decline Annual Decline Gross Increase 15 15 15
  16. 16. E&P Investments • 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. Undeveloped Reserves / Total Reserves* (2005) 60,0% 54,3% 53,1% 51,5% 50,5% 50,0% 43,8% 40,5% 39,7% 40,0% 34,3% 30,0% 29,7% 30,0% 25,0% 20,3% 20,0% 12,9% 10,0% 0,0% n C na l as il c BP l s PF l il ta el oi ro ko pe ob llip O i To Sh at br ev Ch -Y O Lu no nM i 16 St tr o Ph CN ol Ch tr o Si 16 xo ps Pe co Pe Ex Re no 17 Co * Source: Evaluate Energy
  17. 17. E&P Investments Petrobras CAPEX vs. Peers CAPEX E&P CAPEX to production 2005-2008E Average (US$/bbl) 30 Petro-Canada: 14,17 ConocoPhillips: 12,5 Marathon Oil: 12,31 25 CNOOC: 13,19 Imperial Oil: 10,21 Exxon Mobil: 9,54 Chevron: 11,32 Petrochina: 10,2 Sinopec: 10,02 Petrobras*: 8,56 Shell Canada: 26,86 20 Murphy Oil: 27,75 Statoil: 9,89 Total: 9,41 Suncor: 21,65 15 BP: 7,03 10 5 0 * CAPEX and production over 2006-2011 Global Oils E&P CAPEX to production 2005-2008E Average Source: Merrill Lynch estimates based on available data for the companies. • Per barrel CAPEX* for Petrobras (2006-2011) of US$ 8.56 vs. Global Oils average (2005-08) of US$ 13.74 (ex-PBR). 17 17
  18. 18. PETROBRAS Downstream Investments US$ 23.1 billion in the downstream segment… ...of which US$ 14.2 billion in refining 6% 14% US$ 0.9 19% 26% US$ 3.2 US$ 2.7 US$ 3.7 12% US$ 2.8 61% 8% US$ 1.1 US$ 0.7 US US$ 14.2 US$ 1.7 $0 5% .7 0 US$ 2.7 3. $ 12% 5% US 13% 19% Refining Pipelines & Terminals Transport Gasoline Quality Diesel Quality Ship Transport Infraestructure Maintenance Expansion Petrochemical HSE Conversion Others Special • Aggregating value to our heavy oil and producing diesel and gasoline according to international standards. 18 18 18
  19. 19. PETROBRAS Business Strategies - Downstream 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. 19 19 19
  20. 20. PETROBRAS Downstream Investments Petrochemical investments Advantages: Main Projects • Proximity to Petrobras’ installations in Rio de Janeiro; Rio de Janeiro Petrochemical • Availability of labor for both the construction Complex and operational phase; • Proximity to port installations. Acrylic Complex /SAP • Products: Diesel, LPG, Ethylene, Propylene, PX, Benzene and Coke. PTA Pernambuco •The Complex will add value to 150,000 barrels/day of heavy oil form the Campos Nitrogenated Fertilizers Unit III Basin. Fafen BA • Investments of US$ 3.3 billion in Petrochemicals; Petrochemical • Reducing the Brazilian deficit and adding São Gonçalo Complex – value to Downstream production. Liquids Itaboraí Outflow Unit 20 20 20
  21. 21. PETROBRAS Vertical Integration Comparison Majors Average * 4,793 3,176 2,735 National Oil Companies Average ** 1,579 1,630 4,329 2011: Petrobras New Refinery will add 200 thous. bpd capacity 2,296 2010: Pasadena Refinery revamp concluded – processing 70 2,114 thous. bpd of heavy oil Product Sales (thous. bpd) 2,217 Refining (thous. bpd) 3,400 Production (thous. boed) Year 2011 *** 2004 figures, except for Petrobras (2005) 21 * Majors: BP, Exxon, Total, Royal Dutch Shell, Chevron, Conoco and Repsol-YPF Source: PIW Intelligence and Petrobras 21 21 ** NOIC: PEMEX, PDVSA, Saudi Amraco, KPC, Pertamina and Sonatrach
  22. 22. PETROBRAS Downstream Investments Liquid products flow • In 2011 international sales will amount to 967 Thous. bpd. International Production Brazilian Production 80 Oil products consumption 383 2,374 in Brazil (**) 2,099 584 1,710 Throughput in Brazil 1,877 Oil Oil Products (*) 167 142 Imports 383 + 584 309 International oil sales In Thous. bpd 967 (*) National imports and private refineries (**) Biodiesel portion not included 22 22 22
  23. 23. PETROBRAS Natural Gas Investments Challenges Business Plan 2007-2011 Targets Over 75% of Petrobras’ current natural Investments to develop production of gas production is associated gas non-associated gas Risk of gas supply failure due to LNG to provide flexibility to mitigate abnormalities such risk Lack of infrastructure to develop Total investment (Petrobras and Brazilian market partners) in Brazilian natural gas chain adds up to US$ 22.1 billion 23 23 23
  24. 24. PETROBRAS Natural Gas Investments New investments will reduce the country’s dependence on imported gas. • 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 Espírito Santo • Refineries, Distributors and flex-fuel Campos thermoelectric plants ( LNG, diesel and Santos alcohol) •Investments of US$ 6.5 billion in infrastructure from 2007 – 2011 to integrated and develop the natural gas market TOTAL INVESTMENTS OF US$ 22,1 BIILION IN THE BRAZILIAN NATURAL GAS CHAIN FROM 2007 – 2011 (Petrobras and Partners) 24 24 24
  25. 25. PETROBRAS Natural Gas Investments Delivery Curve Million m3/day Roncador SPS25 RJS633 Cavalo (P-55) 80 ESS164 2008 2009 2010 Marinho 2010 2011 Urucu Natural gas Mexilhão 70 70 sales 2009 2007 70.6 Roncador Golfinho 65.2 Parque das 60 (P-54) 2007 Mod 2 2007 Canapu 2008 Tambaú/Uruguá Conchas 2011 2010 50 Peroá- Cangoa Frade 2009 Jubarte Fase 2 NG non associated NG associated (P-57) Phase 1 49.4 Marlim Leste (P-53) 2010 2006 Marlim Sul 40 Manati ESS130 Mod 2 2009 2008 (P-51) 2006 2008 34.1 30 Piranema Peroá- Cangoa 27.5 2006 Roncador Phase 2 20 Jubarte (P-52) 2007 2007 Albacora Albacora (P-34) Complemental Leste 2006 Espadarte 10 (P-50) Mod. 2 2007 2007 2006 Golfinho Mod 1 2006 0 2006 2007 2008 2009 2010 2011 25 25 25
  26. 26. PETROBRAS Flexible LNG Project 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) FSRU Floating Storage and Regasification Unit 26 26 26
  27. 27. PETROBRAS Distribution Investments Market Share of Fuel Distribution • Lead the Brazilian market for oil products Companies in Brazil (%) and bio-fuels; 34% • Expand domestic market-share and client 21% portfolio; 8% • Internationalize and add value to Petrobras’ brand. 7% 13% 17% BR Ipiranga Shell Esso Texaco Outras US$ 2.2 billion to be invested between 2007-2011 27 27 27
  28. 28. PETROBRAS International Investments Total CAPEX: US$ 12.1 billion Targets 0,8% 1,7% 0,8% 568 1,7% Thous. boed E&P 185 Refining and Marketing 259 262 Petrochemical 24,8% 94 96 Gas & Energy 383 70,2% 168 163 Distribution Corporate 2004 2005 2011 Target Oil and NGL Natural Gas 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 28 28 28
  29. 29. PETROBRAS Situation in Bolivia • 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); 120 Natural Gas Offer - Million m3/day Substitution of additional imports from Bolivia 11.0 100 11.0 4.0 80 30.0 30.0 30.0 60 30.0 30.0 30.0 40 61.5 69.6 54.3 20 43.0 26.5 31.4 0 2005 2006 2007 2008 2009 2010 Domestic Production Imports from Bolivia as of existing GSA National Production Increase or LNG 29 29 29
  30. 30. PETROBRAS Situation in Venezuela International Production 2006 Oil, NGL and Gas (boed) 300.000 250.000 Nationalization 200.000 Decree Effect 150.000 Fall in production as a 100.000 result of the decrease of Petrobras Energia 50.000 Venezuela participation; - jan/06 Feb/06 mar/06 Apr/06 ANGOLA ARGENTINA BOLIVIA COLOMBIA ECUADOR PERU USA VENEZUELA 2005 Production (%) 18% 3% ANGOLA • Venezuela was responsible for 18% (47,632 boed) of 2005 ARGENTINA Petrobras international production – this amount has BOLIVIA 2% decreased to 8.4% (18,629 boed) in April/06; COLOMBIA 6% 40% ECUADOR • Negotiations about the compensation are still running; 4% PERU 6% USA • Possible outcome: extension of the current exploration VENEZUELA agreements. 21% 30 30 30
  31. 31. PETROBRAS Biofuel Production • 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 Hydrogen Diesel Agribusiness Fractions Processed Seeds Oil Farming Crushing Refinery or Diesel or Transerestification Biodiesel Ethanol Distributors or or B2 or B5 Diesel Methanol mixture Stations Glycerin + Others 31 Complementary and not competitive processes 31 31
  32. 32. PETROBRAS Future Markets for biodiesel Law 11.097/2005 – established minimal percentage for biodiesel mix in diesel 2008 2005 to From 2012 to 2012 on 2007 (2% demanding) (5% demanding) (2% allowable) (5% allowable) Brazilian market Brazilian market Brazilian market 0 – 5.2 million barrels 5.2 – 15.7 million barrels 15.7 million barrels Petrobras market share Petrobras market share Petrobras market share 0 – 1.3 million barrels 1.3 -3.8 million barrels 3.8 million barrels • 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. 32 32
  33. 33. PETROBRAS Ethanol Market • 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 Brazil-Japan Ethanol Inc. • 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. 33 33 33
  34. 34. PETROBRAS Flex-Fuel Vehicles • 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 LIGHT VEHICLES TOTAL SALES units 150,000 Ethanol Gasoline FFV 140,000 130,000 120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Nov-05 Feb-06 Nov-03 Nov-04 Aug-05 Feb-03 Feb-05 Aug-03 Feb-04 Aug-04 Dec-05 Apr-03 May-03 Apr-04 Apr-05 Sep-05 Jun-03 May-04 Jun-04 May-05 Oct-05 Mar-06 Jan-06 Jun-05 Dec-03 Dec-04 Sep-03 Sep-04 Jan-04 Jul-03 Jul-04 Jul-05 Jan-03 Jan-05 Mar-03 Oct-03 Oct-04 Mar-05 Mar-04 34 34 34
  35. 35. 2nd Quarter 2006 Results (Brazilian Corporate Law) 35
  36. 36. PETROBRAS Income Statement 2Q06 vs 1Q06 1Q06 2Q06 37.948 5.7% Net Revenues 35.886 R$ Million 21.260 COGS 8.2% 19.644 13.614 EBITDA -3.5% 14.113 11.267 Operating Profit -6.2% 12.010 6.958 4.2% Net Income 6.675 • 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. 36 36 36
  37. 37. PETROBRAS E&P – Oil Prices US$ 11.42 bbl 69.62 61.75 61.53 56.90 57.59 64.74 US$/bbl 56.39 51.59 47.83 58.20 44.00 52.70 41.59 54.24 53.69 39.70 49.33 35.38 38.98 44.19 34.38 43.04 46.05 36.14 37.48 35.11 32.88 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 Brent (average) Average Sales Price OPEC Basket • The spread between Brazilian oil average price and Brent increased from US$ 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. 37 37 37
  38. 38. PETROBRAS Domestic Lifting Costs w/o Gov. Part. ∆ = -3% or US$ 0.20 6.07 6.32 6.12 5.99 5.45 5.44 1Q 05 2Q 05 3Q 05 4Q 05 1Q06 2Q06 -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. 38 38 38
  39. 39. PETROBRAS Lifting Costs including Gov. Participation 26 % 2002 – 2Q06 70 Brent = 181% 61.5 56.9 69.6 Lifting Cost = 103% 51.6 60 21 61.8 Gov. Participation = 185% 47.5 50 38.2 17,3 17,5 16,0 16 15,0 40 28.8 13,6 13,3 US$/boe 24.8 65% 63% 30 10,7 11.0 11.4 62% 59% 11 9.9 7.6 9.6 8,5 7.8 20 7,0 6.4 6 5.1 10 57% 4.0 6.0 5.5 5.4 6.1 6.3 6.1 0 3.0 3.4 4.3 1 -10 2002 2003 2004 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 -4 -20 Lifting Cost Gov. Participation Brent • Government Participation per barrel increased 4%, reflecting larger share in total production of fields that are currently in a highly productive phase (Barracuda and Caratinga) and a 9% increase in the reference price in reais for Brazilian oil. 39 39 39
  40. 40. PETROBRAS E&P Royalties • Monthly payment due from concessionaires for the exploration and production of oil and natural gas; • Rates vary, according to the area, from 5% to 10% (per producing field) and are established in each concession contract; • Production Volume x Reference Price (to be published by the regulator, the National Petroleum Agency - ANP), in relation to each field 7.000 6.366 6.000 R$ Million 5.020 5.000 4.372 4.000 3.739 3.509 3.000 2.000 1.000 0 2002 2003 2004 2005 1H2006 40 40 40
  41. 41. PETROBRAS E&P Special Participation – Progressive Tax • 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: 40% 30% 35% 10% 20% Tax Rates Daily production (thousand m3/day) First Year of 15 20 25 30 35 Production Second Year of 11.7 16.7 21.7 26.7 31.7 Production Third Year of 8.3 13.3 18.3 23.3 28.3 Production After the Third Year of 5 10 15 20 25 Production 41 41 41
  42. 42. PETROBRAS Refining and Sales in the Domestic Market 95 2,400 90 87 91 91 2,200 91 91 83 85 2,000 80 81 80 81 80 79 79 1,800 75 70 1,600 65 1,400 1,804 1,731 1,7951,684 1,708 1,589 1,668 1,665 1,761 1,647 1,812 1,649 60 1,200 55 1,000 50 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 Dom estic oil products production Oil products sales volum e Prim ary processed installed capacity - Brazil (%) Dom estic crude as % of total • Brazilian oil products production slightly lower than in the previous quarter due to more frequent scheduled stoppages in refineries; • Higher nominal capacity utilization. 42 42 42
  43. 43. PETROBRAS Average Realization Price - ARP 100 2Q05 4Q05 1Q06 Average Average Average 80 71.0 80.0 60.7 70.7 60 70.2 55.3 61.8 69,6 51.6 40 20 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 ARP Brazil (US$/bbl) Brent Average Price ARP USA (w/ volumes sold in Brazil) • Unraveling from US ARP due to the beginning of US summer, reduced gasoline inventories and Middle East conflicts that threaten supply; • Higher quality requirements in the American market (MTBE). 43 43 43
  44. 44. PETROBRAS Domestic Refining Costs (US$/bbl) 2,07 2,03 1,90 1,96 1,86 1,74 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06 • 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 44 44 44

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