Financial analysis 2008

hiGhLiGhts
net income
(R$ mILLION)

32.998
25.919
23.725

21.512
13.887

2004 2005 2006 2007 2008

highlights of net oPerating revenues of
2004 2005 2006 2007 2008
main Products (R$ mILLION)
domestic market
Diesel 31.379 39.944 44.571 47.001 55.708
Gasoline 12.200 15.143 17.993 17.550 19.593
Fuel oil 3.301 3.543 3.823 4.146 5.162
nafta 7.109 7.386 8.290 8.658 8.886
GLP 6.325 5.660 5.744 5.890 6.567
QaV 4.139 5.237 5.358 4.733 6.740
natural gas 4.193 4.349 5.076 5.454 9.297
exports
oil 6.720 11.101 14.729 16.020 24.122
oil Products and other 7.690 10.638 9.987 12.132 11.753

2.020

2004
1.661 359

(R$ mILLION)

Oil and NGL
22.549

2004

(ThOUSAND BPD)
investments
2.217 12.441 3.907 2.331 3.870

2005
Exploration & Production

total Production
1.847 370

2.297

Natural Gas
2006
1.923 374

25.710

2005

Supply
2.301

2007
13.934 3.286 3.153 5.337
1.920 381

2.400

2008
1.980 420

33.686

2006
15.341 4.181 7.161 7.030

14,9

SPE
2004
11,9

International

(BILLION BOE)
14,9

2005
Proved reserves
11,8 45.285

2007
18.418 9.632 6.574 10.661

SEC
15,1

2006
15,5

Others

15,0

2007
11,7 53.349
2008

21.662 10.111 6.133 12.443

15,1

2008
11,2

PRoFiLE
Petrobras is a publicly listed company, based in Rio de Janeiro. Its shares and ADRs are
traded at the Bovespa, NYSE, Latibex and BCBA and it is classified as investment grade.
It operates on an integrated basis, specializing in the following segments of the oil, gas &
energy sector: exploration and production; refining, commercialization, transportation and
petrochemicals; distribution of oil products; natural gas, biofuels and electricity. Founded
in 1953, Petrobras is now the world’s 9th largest oil company, by market value, according
to the consulting firm PFC Energy. Leader in the Brazilian oil sector, Petrobras is also pre-
sent in 27 other countries, and its reserves amount to 15.1 billion boe, according to SPE
criteria. The Business Plan 2009-2013 provides for the investment of US$ 174.4 billion.

Mission
Operate in a safe and profitable manner in Brazil and abroad, with social and environ-
mental responsibility, providing products and services that meet clients’ needs and that
contribute to the development of Brazil and the countries in which it operates.

2020 Vision
We will be one of the five largest integrated energy companies in the world and the
preferred choice among our stakeholders.

2020 Vision ChaRaCtERistiCs
Our operations will be notable for:
> Strong international presence
> World prominence in biofuels
> Operational excellence in management, energy efficiency,
technology and human resources
> Profitability
> Setting a benchmark in social and environmental responsibility
> Commitment to sustainable development

CONTENTS 40 Notes to the
Financial Statements
1 Presentation of the financial statements 40
2 Consolidation procedures 41
3 Changes in accounting practices 44
4 Description of significant accounting policies 56
5 Cash and cash equivalents 61
6 Trade accounts receivable, net 62
7 Related party transactions 63
8 Invesntories 74
9 Oil and alcohol accounts - STN 75
10 Marketable securities 76
11 Project financing 77
12 Deposits in court 82

2 Financial Analysis 13 Investments 83
14 Property, plant and equipment 106
1 Economic and financial summary 2 15 Intangible assets 115
2 Results by business segment 4 16 Financing 118
3 Consolidated result 6 17 Contractual commitments 131
4 Effects of adoption of law 11.638/07 8 18 Financial income and expenses 132
and provisional measure 449/08 19 Other operating expenses, net 133
5 Result per company 10 20 Taxes and contributions 134
6 Sales volume 11 21 Employee benefits 140
7 Inventories 12 22 Employee and management 152
8 Indebtedness 13 profit-sharing
9 Return on capital expenditure (ROCE) 15 23 Tax incentives 153
and return on equity (ROE) 24 Shareholders’ equity 153
10 Shareholders’ equity, distribution 16 25 Legal proceedings and contingencies 157
of results and dividends 26 Commitments assumed by 164

18 Financial
the energy segment
27 Guarantees for concession agreements 164
for petroleum exploration
Statements 28 Segment reporting 165
Independent auditors’ report 18 29 Derivative financial instruments, economic 166
Balance sheets 20 hedge and risk management activities
Statements of income 22 30 Insurance 175
Statements of changes in 24 31 Security, environment and health 176
shareholders’equity 32 Subsequent events 177
Statements of cash flows 26
Statements of added value 28 Information about reserves 178
Statement of business 30 Board of directors 180
segmentation (Consolidated) Executive board 180
Social balance 37 Report of fiscal council 180

FINANCIAL ANALYSIS

1 ECoNomIC ANd FINANCIAL SummArY¹
hIghLIghtS
CoNSoLIdAtEd PEtroBrAS

2008 2008
2007 2007
LAw 11.638 LAw 6.404 LAw 11.638 LAw 6.404

Financial highlights(1) (r$ million)
Gross operating income (R$ million) 266.494 284.579 218.254 207.990 207.990 170.245
Net operating income (R$ million) 215.118 232.183 170.578 161.710 161.709 126.767
Income from operations 44.605 44.258 39.014 41.905 39.834 35.031
Net income (loss):
Own activities 37.324 37.422 23.778 37.110 37.197 23.570
Subsidiaries/affiliated companies (874) (399) (465) 2.252 2.231 (662)
36.450 37.023 23.313 39.362 39.428 22.908
Extraordinary items (2) (3.462) (3.108) (1.801) (2.892) (2.538) (879)
Net Profit (R$ million) 32.988 33.915 21.512 36.470 36.890 22.029
Net indeptedness(3) 48.824 48.824 26.670 (4) (4) (4)

EBITDA (R$ million) (4) 57.170 57.213 50.156 50.460 47.610 40.895
Indeptedness/EBITDA (%) (3) (4) 0,85 0,85 0,53 (4) (4) (4)

Toatal assets 292.164 294.514 231.228 311.011 293.223 211.233
Permanent assets (R$ million) (6) 207.334 208.830 155.831 152.135 134.009 107.130
Shareholders’ equity (R$ million) 138.365 138.358 113.854 144.051 143.602 116.012
Own capital / Third-party capital ratio (3) 50/50 49/51 52/48 48/52 51/49 57/43

2 F I N A N C I A L A N A LY S I S

(r$ mILLIoN)

BrEAkdowN oF EBItdA YEAr
2008
2008 2007 ∆%
LAw 11.638
operating profit according to Corporation Law 48.205 49.226 35.540 39
(-) Financial Result (3.129) (4.022) 4.021 (200)
(-) Stakeholding in investiments 874 399 465 (14)
Provision for Employees Profit Sharing (1.345) (1.345) (1.012) 33
operating profit 44.605 44.258 39.014 13
Depreciation/Amortization 11.632 12.030 10.696 12
Loss on recovery of assets 933 925 446 107
EBItdA 57.170 57.213 50.156 14
EBItdA margin (%) 27 25 29 (4)
(1) The amounts expressed in reais (R$), mentioned in this financial analysis, were calculated in accordance with accounting practices derived from the corporation law and rules
and regulations of the Brazilian Securities Commission (CVM).
(2) It includes indebtedness contracted through leasing agreements.
(3) Income before taxes, minority interests, net financial income, interests in significant investments, and depreciation, amortization and abandonment cost.
EBITDA is not an indicator calculated in accordance with accounting principles generally accepted in Brazil and possibly it may not serve as a basis for comparison with
indicators with the same name, presented by other companies. EBITDA should not be considered as a substitute indicator to measure operating income, or even as a better
form for measuring the liquidity and cash flow of the operating activities. EBITDA is additional information on the ability to pay debts, to maintain investments and to be able
to cover working capital needs.
(4) The cash and cash equivalents are higher than the total indebtedness.
(5) It includes corporate investments, property, plant and equipment, intangible assets and deferred charges.

The comparison of the Consolidated Shareholders’ Equity and Net Income with the cor-
responding Shareholders’ Equity and Net Income of Petrobras (Parent company) may be
presented as follows:

(r$ mILLIoN)
SAhErEhoLdErS’ EquItY NEt INComE
LAw 11.638 LAw 11.638
According to information from Petrobras at 12.31.2008 144.051 36.470
Profit on sale of products in inventories of subsidiaries (660) (660)
Reversion of profits on inventories for prior years capitalized interest 686
Capitalized interest (460) 38
Absorption of negative net equity of subsidiary* (4.160) (3.507)
Other eliminations (406) (39)
According to consolidated information at 12.31.2008 138.365 32.988
* In accordance with CVM Instruction 247/96, losses that are considered to be of a non permanent (temporary) nature on investments valued by the equity accounting method,
whose invested companies do not present signs of stoppage or a need for financial support from the investor, must be limited to the amount of the investment by the parent
company. Therefore, the losses caused by unsecured liabilities (negative net equity) of subsidiaries did not influence the results and shareholders’ equity of Petrobras in
2007, but generated an item for reconciliation between the financial statements of Petrobras and the consolidated financial statements.

F I N A N C I A L A N A LY S I S A N d F I N A N C I A L S tAt E m E N t S 2 0 0 8
3

SEgmENt rESuLtS E&P
(R$ MIllIon)
2 rESuLtS BY BuSINESS SEgmENt
Petrobras is an operationally integrated Company and the major part of the production
of petroleum and gas from the Exploration and Production Department is transferred to

36.661
other departments of Petrobras.
26.828

We highlight below the main criteria used in the calculation of the results per
business segment:

a. Net operating income: the revenues related to the sales made to clients abroad, plus
the billings and transfers between the business departments, which have as a refer-
ence the internal transfer prices defined between the departments, with calculation
methodologies based on market parameters, are considered;

b. In addition to net operating income, the costs of products and services sold, which
2007 2008
are calculated per business area, considering the internal transfer price and the other
operating costs, as well as the operating expenses effectively incurred in each depart-
ment, are computed in operating income;
SEgmENt rESuLtS SuPPLY
(R$ MIllIon)
c. The financial result is all allocated to the corporate agencies group;

d. Assets: include the assets identified for each department. The equity accounts of a
5.985

financial nature are allocated to the corporate agencies group.

e. The comments on the economic performance of the business segments were prepared
based on accounting criteria of Law 6.404/76.
(4.032)

EXPLorAtIoN ANd ProduCtIoN
The increase in the results occurred due to the higher average prices of Brazilian petro-
leum and the 4% increase in the daily production of oil and LNG.
Part of these effects were offset by the increase in expenses with government inter-
2007 2008 ests, with the estimated loss on recovery of assets – due to the decrease in the quotation of
petroleum at the end of the year, which affected future projections – and with exploration
costs, arising mainly from the write-off of dry wells or wells that were not economically
SEgmENt rESuLtS gAS & ENErgY viable.
(R$ MIllIon)
The spread between the average price of Brazilian petrol sold/transferred and the aver-
age quotation for Brent increased from US$ 10,95/bbl in 2007, to US$ 15,44/bbl in 2008.
(1.381)

(282)

SuPPLY
The decrease in the results occurred due to the increase in the purchase/transfer costs of
petroleum and of imports of oil products, together with the following factors:
› Higher freight costs – due to the greater volume sold;
› Losses on investments in petrochemical companies, reflecting the devaluation of the
Real against the US dollar in indebtedness and the increase in the purchase cost of
naphtha;
› Losses with devaluation of inventories
2007 2008 Part of these effects was offset by the increase in the average realization price of oil products
on the domestic and foreign markets, and by the gain through the change in the stakeholding
interest due to the corporate restructuring of Quattor, petrochemical company.


gAS ANd ENErgY SEgmENt rESuLtS dIStrIButIoN
(R$ MIllIon)
The better results occurred due to the increase in the trading margins for natural gas and
electric power – influenced by better realization prices – and due to the increase in the

1.233
sales volumes of electric power and natural gas.
Part of these effects was offset by the provision for a decrease in the market value of
the stocks of liquefied natural gas (LNG) in the amount of R$ 122 million.

777
dIStrIButIoN
The increase in the results was generated by the 10% increase in the volume of sales and by
the decrease in the operating expenses – reflecting mainly the extinguishment of CPMF,
and the revision of the amount involved in legal proceedings, which occurred in 2007.
The increase in the volume of sales contributed to the increase in the market share for
distribution of fuels from 34,3% in 2007 to 34,9% in 2008. 2007 2008

INtErNAtIoNAL
The main events that influenced the decrease in the results for 2008 were: the losses with SEgmENt rESuLtS INtErNAtIoNAL
(R$ MIllIon)
devaluation of the inventories in the USA, Japan and Argentina, due to the change in level
of the prices for oil and oil products as from September 2008 (R$ 699 million), the provi-

(1.023)

(1.661)
sion for litigation for royalties of R$ 220 million, the loss from the devolution of Block 31 in
Ecuador (R$ 178 million), the total amortization of the goodwill verified in the acquisi-
tion of the Pasadena (USA) refinery of R$ 374 million and the gains obtained in 2007 from
the sale of the refineries in Bolivia and the companies in Argentina (R$ 111 million). This
decrease partially offset by the effects of the exchange devaluation of the real against the
US dollar in the translation of the financial statements (R$ 1.002 million).

CorPorAtE
The decrease in the negative result occurred due to the following factors:
› Decrease in the net financial expenses (R$ 8.043 million); 2007 2008

› Reversion of the results of minority interests, reflecting the devaluation of the Real
against the US dollar in the indebtedness of the Special Purpose Entities and subsid-
iaries – where Petrobras and its subsidiaries do not have a full interest; SEgmENt rESuLtS CorPorAtE
› Lower expenses with the pension and healthcare plans (R$ 1.196 million) as a result of
(R$ MIllIon)

the renegotiation of the regulations of the Petros Plan, which occurred in 2007;
1.588
(8.213)

2007 2008

5

3 CoNSoLIdAtEd rESuLt
In order to permit comparability, the comments analyzing the results below were pre-
pared based on Law 6.404/76 before the adjustments of Law 11.638/07 and complemented
with reconciliation with the new criteria.
Petrobras and its subsidiaries presented a consolidated net profit of R$ 33.915 million in the
year ended December 31, 2008, after eliminating intercompany transactions and deducting the
minority interest, which is a 53% increase in relation to the previous year (R$ 21.512 million).
The following factors contributed towards this performance:
› Increase in gross profit of R$ 8.504 million, due to:
» The growth in the average realization prices of oil and oil products on the domestic
market and exports (R$ 26.289 million), particularly for naphtha, aviation kero-
sene and fuel oils, reflecting the behavior of international quotations, and for die-
sel and gasoline, related to the readjustments of 15% and 10%, respectively, applied
as from May, in addition to the quarterly readjustments of imported natural gas,
which contributed to correct the contracts for supply of gas, and to the higher
prices of electric power traded, due to the emergency operation of the thermoelec-
tric power stations at the beginning of the year;
» Surpassing the greater expenditures with importing oil, oil products and gas
(R$ 12.301 million), government interests (R$ 6.011 million), maritime transport
and transport via pipelines (R$ 553 million) and non-oil products, basically biod-
iesel (R$ 728 million), offset by the lower expenditures with materials, services and
depreciation (R$ 124 million).
› Increase in operating expenses (R$ 2.927 million), highlighting:
» Sales (R$ 1.579 million), as a result of the volume of sales on the domestic and for-
eign markets, reflecting the increase in the afreightment of ships, as well as in the
quotation of freights on the international market (R$ 1.157 million), including the
effect of the appreciation of the US dollar during the year (32%) and higher record-
ing of allowances for doubtful accounts (R$ 103 million);
» Administrative and general (R$ 1.066 million), resulting from the increase in expen-
ditures with personnel, due to the increase in the workforce and collective bargain-
ing agreements in Brazil (R$ 233 million) and abroad (R$ 479 million), including
the effect of the appreciation of the US dollar in the year, in addition to third party
services, on consulting, auditing and data-processing, in Brazil (R$ 164 million);
» Exploration costs (R$ 1.084 million), related to the write-off of dry wells or wells
that were not economically viable in Brazil (R$ 971 million) due to the continual
increase in the wells drilled in recent years, a reflection of the intensification of the
Company’s investment program and the rise in unit costs for drilling wells caused
by the pressure of the industry’s pickup on inputs;
» Loss on the recovery of Exploration and Production assets (R$ 479 million), re-
flecting the low in the quotation for petroleum;
» Other Operating Expenses (R$ 148 million), due to losses with devaluation of in-
ventories (R$ 1.381 million), due to the fall in prices of commodities, offset by the
extraordinary expenditure with the Petros Plan (R$ 1.050 million) in 2007 and
other decreases in expenses, such as: Safety, Environment and Health (SMS) and
charges and contractual fines (R$ 106 million).


Surpassing the decrease occurring in expenses related to:
› Pension and Healthcare Plans (R$ 1.068 million), due to the commitments assumed
with the Reciprocal Obligations Agreement (R$ 697 million) in 2007, in addition to the
decrease, in 2008, of the actuarial expenditure due to the good results of the Plan’s as-
sets in 2007 (R$ 185 million) and the implementation of the pharmacy benefit in 2007
(R$ 97 million);
› Tax (R$ 355 million), due to the extinguishment of CPMF (Provisional Contribution
on Financial Activities), offset by the increase in the rate for IOF (Tax on Financial
Operations) as from January 2008 and by the increase in taxes abroad, especially those
levied on dividends and loans.
Higher financial income (R$ 8.043 million), due to the gains with exchange varia-
tions on net assets in US dollars, as described below:

(r$ mILLIoN)

JAN-dEC/2008 JAN-dEC/2007 ChANgE

FX Effect on Net Debt (1.315) (688) (627)
Monetary Variation in Financing (321) (110) (211)
Net Financial Expenses (2.566) (1.805) (761)
Financial result on Net debt (4.202) (2.603) (1.599)
FX Variation - International Subsidiaries 6.418 (2.254) 8.672
Hedge for comercial and financial operations
Comercial 665 (410) 1.075
Financial (22) (19) (3)
total hedge 642 (429) 1.071
Marketable Securities 248 417 (169)
Other Net Financial Income (Expenses) 584 941 (357)
Other Net FX and Monetary Variation 330 (95) 425
Net Financial results - law 6.404/76 4.020 (4.023) 8.043

Greater gain in the results from investments in significant corporate interests (R$ 66 mil-
lion), effect of the exchange variation on the translation of the financial statements of
the subsidiaries abroad (R$ 1.315 million), a reflection of the appreciation of the US dol-
lar in the year (32%) and gain through the change in stakeholding, due to the corporate
restructuring of Quattor Participações (R$ 409 million), offset by the performance of the
stakeholdings in the petrochemical sector (R$ 878 million) and amortization of goodwill
(R$ 273 million).

7

4 EFFECtS oF AdoPtIoN oF LAw 11.638/07 ANd
ProVISIoNAL mEASurE 449/08
After the adjustments resulting from the implementation of Law 11.638/07, described in
detail below, the net profit for 2008 was R$ 32.988 million in the Petrobras System (Con-
solidated) and R$ 36.470 million in Petrobras (Parent company).
(r$ mILLIoN)

CoNSoLIdAtEd PArENt ComPANY
ShArE- ShArE-
rESuLtS hoLdErS’ rESuLtS hoLdErS’
EquItY EquItY
Balance according to the financial statements at December 31, 2008: 32.988 138.365 36.470 144.051
› In fiscal year 2008:
Government subsidies and assistance (557) 76 (557) 76
Financial instruments available for sale (205) 201 (205) 131
Contractual commitments with the transfer of benefits, risks and control of assets 740 740 740 740
Effects of the changes in the exchange rates and translation of financial statements 635 451
Derivative financial instruments 314 314 (9) (9)
927 1.331 420 938
› Pela adoção inicial em 1º de janeiro de 2008:
Derivative financial instruments 49
Contractual commitments with the transfer of benefits, risks and control of assets (1.387) (1.387)
(1.338) (1.387)
Balances prior to the application of Law 11638/07 and Provisional measure 449/08 33.915 138.358 36.890 143.602

Description of new accounting practices

a. Government subsidies and assistance
The Pronouncement 07, issued by Accounting Pronouncements Committee – CPC, es-
tablishes that the tax incentives resulting from government donations or subsidiaries
for investments, received as from January 1, 2008, are recognized as revenue during
the period, compared with the expenses that it intends to offset on a systematic basis,
which is applied in Petrobras in the following way:
» Subsidies with re-investments: in the same proportion as the depreciation of the asset;
» Direct subsidies related to the operating profit: directly in the Profit and Loss accounts.
The amounts allocated in the statement of income in 2008 will be distributed to the
Tax Incentive Reserve.
The balances of the capital reserves referring to donations and subsidies for invest-
ments at December 31, 2007 will be held in shareholders’ equity until their total use, as
established in Law 6.404/76.

b. Financial instruments
The CPC 14 establishes principles for the recognition and valuation of financial assets
and liabilities and some purchase and sales agreements for non-financial items and
for the disclosure of derivative financial instruments.
With the adoption of CPC 14 the cash flow hedges are now recorded in the balance
sheet at their fair value, when they are classified as effective hedge, with effects on
shareholders’ equity, and later reclassified to the statement of income when the trans-
action that is hedged has an impact on the results. Previously, these operations were


recorded in the statement of income upon their financial settlement.
The derivative financial instruments used for hedge against changes in prices of oil
and oil products are now marked to market during their periods of effectiveness, with
impacts in the financial results. Previously, these adjustments were also recorded in
the statement of income only upon their financial settlement. The adjustment to mar-
ket value of the securities available for sale is now presented in shareholders’ equity
until their settlement, when it will be transferred to the statement of income. Previ-
ously, these adjustments impacted the results for the year.

c. Contracts with transfer of benefits, risks and control of assets
The CPC 06 establishes procedures for accounting and disclosure of transactions
where there are contractual commitments, with and without transfer of benefits, risks
and control of assets.
The Company now records the rights that have as their objects tangible assets in-
tended for the maintenance of the company’s activities resulting from operations that
transferred the benefits, risks and control of these assets, as well as their correlated
liability, in its property, plant and equipment at their fair value or, if lower, at the pres-
ent value of the minimum payments of the contract,
Previously, these operations were addressed as costs/expenses for affreightments,
leasing or providing services.

d. Effects of the changes in the exchange rates and translation of the financial
statements
The CPC 02 establishes criteria for defining the functional currency and translating
the financial statements of subsidiaries, affiliated companies and branches with a
functional currency different from the functional currency of the parent company.
The adoption of CPC 02 changed the following procedures:
» The exchange variations on investments in subsidiaries and affiliated companies
with a functional currency different from the parent company are now recorded
in shareholders’ equity, as an accumulated translation adjustment and are trans-
ferred to the statement of income upon realization of the investments. Until fis-
cal year 2007, this exchange variation affected the results for the year, as gains or
losses in equity accounting.
» The income statements of invested companies in a stable economic environment
with a functional currency different from the parent company are now translated
by the monthly average exchange rate, and the other items of shareholders’ equity
are now translated at the historic rate. Previously, the exchange rate at year-end
was used for translation of these items.
With respect to the suitability of the functional currency, after internal analyses, the
current understanding was maintained, i.e. the functional currency of Petrobras, as
well as for all its Brazilian subsidiaries, is the Real (R$). The functional currency of
some subsidiaries and special purpose entities that operate in the international eco-
nomic environment is the US dollar and the functional currency of Petrobras Energía
Participaciones S.A. (PEPSA) is the Argentine peso.
In addition to the effects presented previously, Law 11638/07 includes other changes
that do not impact the results and shareholders’ equity of the companies of the Petro-
bras System and they are listed in the accompanying notes to the financial statements.

9

5 rESuLt PEr ComPANY
(r$ mILLIoN)
rESuLt PEr ComPANY 2008
2007
LAw 11.638
Petróleo Brasileiro S.A. - Petrobras - Parent company 36.470 22.029
Petrobras Química S.A. - Petroquisa - Consolidated (478) 149
Petrobras Distribuidora S.A. - Consolidated 1.317 839
Petrobras Gás S.A. – Gaspetro – Consolidated 750 303
Downstream Participações S.A. – Consolidated (996) 86
Petrobras Transporte S.A. – Transpetro – Consolidated 381 343
Petrobras International Finance Company – PifCo – Consolidated (1.289) (22)
Petrobras International S.A. – PIB BV – Consolidated (2.617) (1.838)
Braspetro Oil Service Company – Brasoil – Consolidated 41 (44)
Braspetro Oil Company – BOC – Consolidated 144 14
Petrobras Netherlands B.V. – PNBV – Consolidated 1.294 651
Petrobras Comercializadora de Energia Ltda. 46 (23)
Petrobras Negócios Eletrônicos - E-Petro - Consolidated 3 3
Non-standard Credit Assignment Investment Fund - Petrobras System * 1.312
5283 (114) (488)
Thermoelectric power plants ** 446 (92)
Fafen Energia (3) 12
FII RB Logística (73) 18
Refinaria Ipiranga S.A. - RPI (Proportional consolidation as from June 2007) (10)
IASA 10
17 de Maio Participações 44
SPE*** (672) 984
Less: Eliminations and adjustments (4.425) (184)
Minority interest 1.407 (1.228)
32.988 21.512
* Consolidated until March/2008 under SPEs.
** UTE norte Fluminense, UTE nova Piratininga, Termorio, Termobahia, Soc.Fluminense de Energia - SFE, Termoceará, Ibiritermo, Termomacaé, UTE Juiz de Fora, Baixada
Santista, Brasil PCH, Breitener e Brasympe.
*** Cia Petrolífera Marlim - CPM, novamarlim Petróleo, Cayman Cabiunas Invest., Barracuda e Caratinga leasing Company, Albacora Japão Petróleo, Cia. de Recuperação
Secundária - CRSec, nova Transportadora do Sudeste, nova Transportadora do nordeste e Cia.locadora de Equipamentos Petrolíferos - Clep.


6 SALES VoLumE VoLumE oF SALES domEStIC mArkEt 2008
(2.146 THoUSAnD BARRElS/DAy)
The volume of sales on the domestic market was 5% higher than in 2007, with an emphasis
on diesel, gasoline, aviation kerosene and natural gas. The 6% increase in the sales of die-
34%
sel reflects the increase in the GDP, the use of emergency diesel powered thermoelectric Diesel

power stations, the investment in infrastructure works, mining and civil construction, as 15%
well as the decrease in the production and imports of other players. The 4% increase in Gasoline

the sales of gasoline was influenced by the increase in the consumption of families and 5%
by the smaller share of other players. The 7% increase in the sales of aviation kerosene is Fuel oil

a result of the expansion of tourism, the entry of new aircraft and new routes, increasing 7%
the number of flights available. The 26% increase in the sales of natural gas results from naphtha

the sales of non-thermal gas to the distributors in the State of São Paulo and the 150% 10%
increase in the sales to the thermal market, caused by the greater offer of gas, mainly due lPG

to the increase in production of the Manati field, off the coast of Bahia, and the entry into 3%
operation of the Cabiúnas-Vitória and Vitória-Cacimbas gas pipelines. Aviation Kerosene

International sales were 6% lower compared to 2007, due to the stoppages for main- 7%
tenance in the Pasadena refinery, the sale of the refinery in Bolivia in 2007, a decrease in other oil Products

production in the USA (loss of pressure in Cottonwood and hurricane Ike) and Argentina 4%
(mature fields) and a decrease in the volumes of oil and gas sold in Bolivia with the new Alcohol, nitrogenous, Biodiesel and others

operating agreements, attenuated by the consolidation of the sales of the refinery in Japan, 15%
as from 2Q-2008 and by the start-up of production of petrol in Nigeria in 3Q-2008. natural Gas

11

7 INVENtorIES
The consolidated inventories of oil, oil products, raw materials and alcohol reached the
amount of R$ 20.122 million, 14% higher than at December 31, 2007, a reflection of the
higher quotations for raw materials at the time when the inventories were formed, allied
to the increase in the volume of diesel in stock, generated by the seasonal decrease in
domestic demand.

INVENtorIES - CoNSoLIdAtEd - 12.31.2008
(R$ MIllIon)
lAw 11.638/07

5.587

8.363

5.017
1.314

oil products other
Suplies for maintenance* Raw materials
* InClUDES ADVAnCE To SUPPlIERS

INVENtorIES - CoNSoLIdAtEd 12.31.2007
(R$ MIllIon)

4.824

8.132

4.179

701

oil products other
Suplies for maintenance* Raw materials
* InClUDES ADVAnCE To SUPPlIERS


8 INdEBtEdNESS
The indebtedness, referring to loans and financing in Brazil and abroad, was R$ 64.713
million in Consolidated, as shown below:

(r$ mILLIoN)
12.31.2008
12.31.2007 ∆%
LAw 11.638
Short-term indebtedness (1) 13.859 8.960 55
Long-term indebtedness (1) 50.854 30.781 65
Total 64.713 39.741 63
Cash and cash equivalents 15.889 13.071 22
Net indebtedness (2)
48.824 26.670 83
Indebtedness/(Net indebtedness+Shareholders’ equity) (1) 26% 19% 7
Total liabilities, net (1) (3)
277.665 219.590 26
Capital structure (net thrid-party capital / net total liabilities) 50% 48% 2
(1) Includes commitments with the transfer of benefits, riscs and controls of assets.
(2) Total debt less cash and cash equivalents.
(3) Total liabilities net of cash / financial investments.

(uS$ mILLIoN)
12.31.2008
31.12.2007 ∆%
LAw 11.638
Short-term indebtedness (1)
5.930 5.058 17
Long-term indebtedness (1)
21.760 17.378 25
Total 27.691 22.436 23

The net indebtedness of the Petrobras System increased 83% in relation to 2007, as a result
of the depreciation of the Real in the year, as well as raising of funds on the domestic and
foreign markets, associated with the use of funds in an intensive investment program.
The level of indebtedness, measured through the net debt/EBITDA index increased
from 0,53 at December 31, 2007 to 0.85 at December 31, 2008. The capital structure is
represented by a 50% third party capital interest, an increase of 2 percentile points when
compared to December 31, 2007.

13

8 INdEBtEdNESS - (CoNt.)

totAL groSS INdEBtEdNESS - 12.31.2008

1%
BrEAkdowN PEr rAtE BrEAkdowN PEr CurrENCY

20%
21% 32%
2%
77%
49%

17%
1% 1% 61%
6%
12%

Up to 6% From 10 to 12% Dollar other
From 6 to 8% other yen Reais
From 8 to 10%
long-term financing Short-term financing
Contractual commitments lT Contractual commitments ST

BrEAkdowN PEr CAtEgorY BrEAkdowN PEr tYPE oF rAtE

26%
35%
42%

7% 58%

15%
17%

groSS INdEBtEdNESS notes other Floating
(R$ MIllIon) Debentures Financial institutions Fixed
BDnES

BrEAkdowN PEr dAtE
64.713

oF mAturItY
48.824

15%
39.741

36%
26.670

22%
15.889
13.071

8%
7% 12%

31.12.2007 31.12.2008
2010 2013
2011 2014
2012 After 2014
Cash and cash equivalents net indebtedness


9 rEturN oN CAPItAL EXPENdIturE (roCE)
ANd rEturN oN EquItY (roE)

PErIod roCE roE

Fiscal year 2006 23% 28%

Fiscal year 2007 18% 20%

Fiscal year 2008 - Law 6.404 19% 26%

Fiscal year 2008 - Law 11.638 19% 25%

The Return on Capital Expenditure increased one percentile point in relation to December
2008, as a result of the increase in profitability already mentioned, surpassing the increase
in capital expenditure through raising of new financing and the exchange variation on
indebtedness.
The Return on Equity increased six percentile points as a result of the increase in rev-
enues and the better financial results.
The definition of the amounts recorded as provisions per company is based on the legal
rules established in Official Letter 31/2008/SE/MME, of January 9, 2008, and Official Letter
694/2007/MP/SE/DEST, of December 31, 2007, which establish the application of 4,17% of the
consolidated net income before employee and management profit-sharing, and minority in-
terests, observing the prevailing laws and regulations.
Management participation in the profits or results will be subject to approval at the Gen-
eral Shareholders’ Meeting to be held on April 8, 2009, in accordance with articles 41 and 56
of the Company’s bylaws and specific federal regulations.

15

10 ShArEhoLdErS’ EquItY, dIStrIButIoN
oF rESuLtS ANd dIVIdENdS
At December 31, 2008, after the adjustments of Law 11.638/07, the shareholders’ equity of
Petrobras (Parent company) was R$ 144.051 million, corresponding to R$ 16,41 per share.
The Company’s market value was R$ 223.991 million.

dIStrIButIoN oF rESuLtS For thE YEAr
The following distributions are being proposed for the Parent company’s net income of
R$ 36.470 million:

(r$ mILLIoN)

Net income for the year 36.470
Distributions:
› To reserves:
Legal reserve (art. 193 of Law 6.404/76) recorded at
1.824
the ratio of 5% of net income
Statutory reserve (art. 194 of Law 6.404/76) 395
Tax incentive reserves (art.195 - Law 6.404/76) 557
Profit retention (art.196 of Law 6.404/76) 23.779 26.555
› To reserves:
Interest on shareholders’ equity 7.019
Dividends 2.896 9.915

ProFIt rESErVE - tAX INCENtIVES - SudENE
It is formed through the allocation of the portion of income corresponding to the tax in-
centives resulting from government donations or subsidies, allocated to the results for the
year in conformity with article 195-A of the Corporation Law, included by Law 11.638/07,
as from January 1, 2008.
In 2008, the amount of R$ 557 million was allocated in the results, referring to the
incentive for investments in the Northeast, within the ambit of the Superintendency for
Development of the Northeast (SUDENE), and the retention of this portion of the profit in
a tax incentive reserve is being proposed.

ProPoSAL For ProFIt rEtENtIoN
In the General Shareholders’ Meeting to be held on April 8, 2009, a profit retention of
R$ 25.217 million is being proposed, and the portion of R$ 23.779 million resulting from
the income for 2008 and R$ 1.438 million from the remaining balance of income resulting
from prior years, which is earmarked to partially meet the Company’s annual investment
program, established in the Capital Budget for 2009, is also to be decided in the General
Shareholders’ Meeting.


ShArEhoLdErS’ rEmuNErAtIoN
The Board of Directors of Petrobras, based on statutory provisions, is proposing to the
General Shareholders’ Meeting to be held on April 8, 2009, the distribution of a dividend re-
lated to 2008 in the amount of R$ 9.915 million, corresponding to 29.4% of the basic profit
for purposes of a dividend equivalent to R$ 1,13 per common and preferred share, without
distinction, as presented below:

StAtEmENt oF thE BASIC ProFIt oF thE PArENt
(r$ mILLIoN)
ComPANY For dIVIdENd PurPoSES

Net income for the year 36.470
Appropriation:
Legal reserve (art. 193 of Law 6.404/76) (1.824)
Tax incentive reserves (557)
(+) Reversions/additions:
Revaluation reserve 51
(=) Basic income for calculation of the dividend 34.140
Proposed dividends, equivalent to 29,04 %
of the basic income - R$ 1,13 per share comprising:
Interest on shareholders’ equity 7.019
Dividends 2.896
Total proposed dividends 9.915

The dividends proposed for 2008 include the portion of interest on shareholders’ equity
in the amount of R$ 7.019 million (R$ 0,80 per share), which will be made available based
on the shareholding position at December 26, 2008, subject to the withholding of income
tax at the rate of 15%, except for the shareholders who are immune and exempt. The por-
tion of the dividends in the amount of R$ 2.896 million will be made available based on
the shareholding position at April 8, 2009, the date of the General Shareholders’ Meeting,
which will decide on the matter.
These amounts will be monetarily updated as from December 31, 2008 in accordance
with the variation of the SELIC rate until the date of the beginning of the payment to be
defined in the General Shareholders’ Meeting.

17

FINANCIAL STATEMENTS

INdEPENdENt AudItorS’ rEPort
To
The Board of Directors and Shareholders of
Petróleo Brasileiro S.A. - Petrobras
Rio de Janeiro - RJ

1. We have examined the accompanying balance sheet of Petróleo Brasileiro S.A. -
Petrobras (“the Company”) and the consolidated balance sheet of the Company and its
subsidiaries as of December 31, 2008, and the related statements of income, changes
in shareholders’ equity, cash flows and added value for the year then ended, which are
the responsibility of its management. Our responsibility is to express an opinion on
these financial statements.

2. Our examination was conducted in accordance with auditing standards generally
accepted in Brazil and included: a) planning of the audit work, considering the ma-
teriality of the balances, the volume of transactions and the accounting systems and
internal 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 subsidiaries, as well as the presentation of
financial statements taken as a whole.

3. In our opinion, the aforementioned financial statements present fairly, in all material
respects, the financial position of Petróleo Brasileiro S.A. – Petrobras and the consoli-
dated financial position of the Company and its subsidiaries as of December 31, 2008,
the results of its operations, changes in shareholders’ equity, cash flows and added
value in the operations for the year then ended, in conformity with accounting prac-
tices adopted in Brazil.

4. Our examination was performed with the object of expressing an opinion on the afore-
mentioned financial statements taken as a whole. The statements of segmentation of
business and social balance sheet for the year ended December 31, 2008, are supplemen-
tary to the aforementioned financial statements, are not required by accounting prac-
tices adopted in Brazil and have been included to facilitate additional analysis. These
supplementary information were subject to the same audit procedures applied to the
financial statements and in our opinion are presented fairly, in all material respects, in
relation to the financial statements referred to in the first paragraph, taken as a whole.

18 F I N A N C I A L S tAt E m E N t S

5. Previously, the financial statements of the Company and the consolidated financial
statements of the Company and its subsidiaries for the year ended December 31, 2007,
comprising the balance sheet, the statements of income, changes in shareholders’ eq-
uity and changes in financial position for the year then ended, as well as the supple-
mentary information which included the statements of cash flows and added value,
segmentation of business and the social balance sheet, examined by us, on which we
issued an unqualified opinion, dated March 3, 2008. As described in Note 3, the ac-
counting practices adopted in Brazil were changed as from January 1, 2008. The fi-
nancial statements for the year ended December 31, 2007, presented together with the
financial statements of 2008, were prepared in accordance with accounting practices
adopted in Brazil in force until December 31, 2007 and, as permitted by Technical
Pronouncement CPC 13 - Initial Adoption of Law 11.638/07 and Provisional Mea-
sure 449/08, are not being restated with the adjustments for purposes of comparison
between the years. In addition, in accordance with Law 11.638/07 the statement of
changes in the financial position, presented in the financial statements as of Decem-
ber 31, 2007, was replaced by the statement of cash flows.

March 6, 2009.

KPMG Auditores Independentes
CRC-SP-14.428/O-6-F-RJ

Manuel Fernandes Rodrigues de Sousa
Accountant CRC-RJ-052.428/O-2

19

BALANCE ShEEtS
December 31, 2008 and 2007
(In thousands of reais)

ASSEtS NotE
2008 2007 2008 2007

Current assets
Cash and cash equivalents 5 15.888.596 13.070.849 11.268.314 7.847.949
Marketable securities 10 288.751 589.788
Trade accounts receivable, net 6 14.903.732 11.328.967 17.370.050 12.036.476
Dividends receivable 7.1 20.101 80.596 987.986 668.501
Inventories 8 19.977.171 17.599.001 13.847.969 12.800.138
Taxes and contributions 20.1 9.641.247 7.781.536 6.273.161 5.125.217
Prepaid expenses 1.393.879 1.429.829 1.078.815 1.095.815
Other current assets 1.461.801 1.493.200 430.312 579.999
63.575.278 53.373.766 51.256.607 40.154.095

Non-current assets
Long-term receivables
Trade accounts receivable, net 6 1.326.522 2.901.902 91.626.391 48.203.621
Petroleum and alcohol account - STN 9 809.673 797.851 809.673 797.851
Marketable securities 10 4.066.280 3.922.370 3.597.762 3.386.999
Project financing 11.2 2.039.293 1.503.713
Deposits in court 12 1.853.092 1.693.495 1.542.378 1.445.658
Prepaid expenses 1.400.072 1.514.301 444.904 809.332
Advance for pension plan 21 1.296.810 1.296.810
Deferred income and social contribution taxes 20.3 10.238.308 8.333.490 6.614.741 5.557.483
Inventories 8 303.929 236.753 303.929 236.753
Other long-term receivables 1.256.967 1.325.865 640.177 711.399
21.254.843 22.022.837 107.619.248 63.949.619

Investments 13 5.106.495 7.822.074 28.306.947 26.068.789
Property, plant and equipment 14 190.754.167 139.940.726 119.207.092 77.252.144
Intangible assets 15 8.003.213 5.532.053 3.781.716 3.074.677
deferred charges 3.469.846 2.536.344 839.257 733.686
228.588.564 177.854.034 259.754.260 171.078.915

292.163.842 231.227.800 311.010.867 211.233.010
See the accompanying notes to the financial statements.


LIABILItIES NotE
2008 2007 2008 2007

Current liabilities
Financing 16 12.451.137 7.853.781 2.276.822 625.922
Interest on financing 16 823.330 647.449 229.334 122.596
Commitments with the transfer of benefits, risks and
17 585.045 5.052.563
controls of assets
Accounts payable to suppliers 17.027.579 13.791.198 72.032.402 36.456.554
Taxes and contributions 20.2 12.741.382 10.006.272 10.537.882 8.493.492
Proposed dividends 24 9.914.707 6.580.557 9.914.707 6.580.557
Project financing 11.4 188.858 41.470 401.148 408.234
Pension plan 21 627.988 424.259 579.051 386.091
Healthcare benefits plan 21 523.714 455.736 493.221 429.666
Accrued vacation pay and charges 2.016.430 1.688.960 1.561.017 1.375.912
Provision for contingencies 25 54.000 54.000 54.000 54.000
Advances from clients 666.107 493.217 298.032 120.326
Provision for profit-sharing for employees and
1.344.526 1.011.914 1.138.078 844.412
management
Deferred income 5.929
Other accounts and expenses payable 3.586.429 4.506.198 7.130.338 4.488.096
62.557.161 47.555.011 111.698.595 60.385.858
Non-current
Financing 16 50.049.441 29.806.589 11.456.564 4.811.988
Contractual commitments with the transfer of benefits,
17 804.998 12.701.708
risks and controls of assets
Subsidiaries and affiliated companies 7.2 49.289 94.664 1.100.528 2.374.256
Deferred income and social contribution taxes 20.4 13.165.132 10.418.754 10.821.894 8.433.677
Pension plan 21 3.475.581 4.520.145 2.966.084 4.138.672
Healthcare benefits plan 21 10.296.679 9.272.183 9.510.037 8.554.276
Provision for contingencies 25 890.326 613.969 203.285 208.415
Provision for dismantling of areas 4.8 6.581.618 6.132.359 5.975.787 5.854.072
Deferred income 1.292.906 1.391.788 76.574
Other accounts and expenses payable 1.982.355 1.262.114 448.672 459.561
88.588.325 63.512.565 55.261.133 34.834.917
minority interest 2.653.074 6.306.097
Shareholders' equity 23
Realized capital 78.966.691 52.644.460 78.966.691 52.644.460
Capital reserves 514.857 1.553.831 514.857 1.553.831
Revaluation reserve 10.284 61.520 10.284 61.520
Profit reserves 58.643.049 59.594.316 64.442.783 61.752.424
Equity valuation adjustments (405.863) (336.180)
Accumulated conversion adjustments 636.264 452.704
138.365.282 113.854.127 144.051.139 116.012.235
292.163.842 231.227.800 311.010.867 211.233.010

21

StAtEmENtS oF INComE
(In thousands of reais, except net income per share at paid-up capital)

StAtEmENtS oF INComE NotE

gross operating revenues
Selling expenses
Products
Services, mainly freight

Sales charges
Net operating revenues
Cost of products and services sold
gross profit
operating income (expenses)
Selling expenses
Financial
Expenses 18
Revenues 18
Exchange and monetary variations, net 18
Administrative and general expenses
Management and board of directors remuneration
Administrative
Taxes
Cost of research and technological development
Loss on recovery of assets
Exploratory costs for the extraction of crude oil and gas
Healthcare and pension plans 21
Other operating income and expenses, net 18

Equity in income of subsidiaries and associated companies
Equity in earnings (losses) of investments 13
Income from operations before income and social contribution taxes,
employee and management profit sharing and minority interest
Social contribution 20.5
Income tax 20.5
Income before employees’ and directors’ profit-sharing and minority interest
Employees’ and directors’ profit-sharing 22
Income before minority interest
Minority interest
Net income for the year
Net income per share at the end of the year - r$



2008 2007 2008 2007

266.217.208 218.050.202 207.484.566 169.965.711
276.872 203.972 505.883 279.243
266.494.080 218.254.174 207.990.449 170.244.954
(51.375.544) (47.676.449) (46.280.943) (43.477.953)
215.118.536 170.577.725 161.709.506 126.767.001
(141.623.359) (104.398.043) (97.343.992) (70.444.686)
73.495.177 66.179.682 64.365.514 56.322.315

(7.162.264) (6.059.734) (6.325.507) (5.314.132)

(4.193.135) (3.292.002) (7.050.686) (3.096.677)
3.494.430 2.417.659 5.991.531 4.662.159
3.827.489 (3.146.547) 8.256.134 (4.713.938)

(35.792) (29.259) (5.153) (4.034)
(7.211.566 (6.398.633) (5.012.193) (4.484.176)
(862.766) (1.255.511) (425.978) (717.092)
(1.705.572) (1.712.338) (1.690.702) (1.700.342)
(933.088) (446.129) (602.675) (45.248)
(3.494.258) (2.569.724) (2.550.569) (1.211.923)
(1.427.395) (2.494.510) (1.343.773) (2.359.108)
(4.712.243) (5.188.393) (3.366.678) (4.611.454)
(24.416.160) (30.175.121) (14.126.249) (23.595.965)

(874.218) (465.274) 2.252.380 (643.379)

48.204.799 35.539.287 52.491.645 32.082.971

(4.169.529) (2.876.775) (3.995.909) (2.492.591)
(11.792.449) (8.395.983) (10.888.109) (6.717.277)
32.242.821 24.266.529 37.607.627 22.873.103
(1.344.526) (1.011.914) (1.138.078) (844.412)
30.898.295 23.254.615 36.469.549 22.028.691
2.089.497 (1.742.826)
32.987.792 21.511.789 36.469.549 22.028.691
3,76 4,90 4,16 5,02

23

StAtEmENtS oF ChANgES IN ShArEhoLdErS’ EquItY
(In thousands of reais)

CAPItAL CAPItAL rESErVES
rEVALuAtIoN
StAtEmENtS oF ChANgES IN ShArEhoLdErS’ EquItY SuBSCrIBEd SuBSIdIES tAX rESErVE
ANd PAId IN AFrmm INCENtIVES
At January 1, 2007 48.263.983 158.298 213.766 66.423
Capital increase on April 2, 2007 4.380.477
Funds originating from AFRMM 10.844
Tax incentives - SUDENE 1.170.923
Realization of reserve (4.903)
Distributions:
Allocations in reserves
Proposed dividends
At december 31, 2007 52.644.460 169.142 1.384.689 61.520
Prior year adjustment - Adoption of Law 11.638/07
Capital increase on April 4, 2008 26.322.231 (169.142) (850.679)
Adjustment for tax incentives - SUDENE (19.153)
Translation adjustment
Realization of reserve (51.236)
Unrealized gains or losses in investment
available for sale
Distributions:
Allocations of net income in reserves
Proposed dividends
Profit retention
78.966.691 514.857 10.284
At december 31, 2008 78.966.691 514.857 10.284


ProFIt rESErVES ACCumuLAtEd EquItY totAL
rEtAINEd
rEtENtIoN CoNVErSIoN VALuAtIoN EquItY
LEgAL StAtutorY tAX INCENtIVES LoSSES
rESErVE AdJuStmENtS AdJuStmENtS INComE

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
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 53.635.374 116.012.235
1.386.691 1.386.691
(25.302.410)
(19.153)
452.704 452.704
51.236

(336.180) (336.180)

36.469.549 36.469.549

1.823.477 394.834 557.185 23.779.347 (26.554.843)
(9.914.707) (9.914.707)
1.437.926 (1.437.926)
9.435.985 899.376 557.185 53.550.237 (336.180) 452.704 144.051.139
64.442.783 (336.180) 452.704 144.051.139

25

Financial analysis 2008

Recommended

Recommended

More Related Content

What's hot

What's hot (16)

Viewers also liked

Viewers also liked (8)

Similar to Financial analysis 2008

Similar to Financial analysis 2008 (20)

More from Petrobras

More from Petrobras (20)

Financial analysis 2008