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. 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.
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.
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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. 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.
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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. 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
