2. “Petrobras is committed to the
Renato Menezes FeRReiRa development of technology for the
expansion of its activities and the
Maintenance technician (Cenpes
– Petrobras Research Center)
outlook: To make a professional ongoing enhancement of the quality
of its products.”
contribution to society’s future and
that of the generations to come.
3. Contents
02 Profile, Mission, Vision and Values
Petrobras Activities 04
Highlights 06
Message from the CEO 10
Oil Market 14
Corporate Strategy 16
02
18
Business areas
Exploration and Production 20
Refining and Commercialization 26
Petrochemicals 30
Transportation 34
Distribution 38
Natural Gas 40
44
Energy 42
international expansion
South America 50
North America 53
Africa 54
56
Asia 55
social and environmental
Responsibility
Sustainability Indices 58
Human Resources 60
Health, Safety and the Environment 65
76
Sponsorship 72
intangible assets
Technological Capital 78
Organizational Capital 80
Human Capital 82
Relationship Capital 83
86
Business Management
Business Performance 88
Capital Markets 91
Risk Management 96
Corporate Governance 99
4. Profile
Petrobras is a publicly listed company
that operates on an integrated and
specialized basis in the following
segments of the oil, gas and energy
sector: exploration and production;
refining, commercialization,
transportation and petrochemicals;
distribution of oil products; natural gas
and energy. Founded in 1953, Petrobras
is now the world’s 14th largest oil
company, according to the publication
Petroleum Intelligence Weekly. Leader in the
Brazilian hydrocarbons sector, Petrobras
has been expanding, in order to become
an integrated energy company with
international operations, and the leader
in Latin America.
Duque de Caxias refinery
– Rio de Janeiro
| ANNuAl REPORT 2006 | PETROBRAS
5. Mission
Operate in a safe and profitable
Profile | MISSION | VISION
manner in the oil, gas and energy
sector in Brazil and abroad,
with social and environmental
responsibility, providing products
and services that meet clients’
needs and that contribute to
the development of Brazil and
the other countries in which it
operates.
Vision
Petrobras will be an integrated
energy company with a strong
presence in the international
market and as a leading force
in Latin America, focusing on
profitability and social and
environmental responsibility.
Values
k Giving importance to the company’s
principal stakeholders: shareholders, clients,
employees, society, government, partners,
suppliers and the communities within which
the company operates;
k A spirit of enterprise and the ability to
meet challenges;
k A focus on quality in the results;
k An innovative and competitive spirit,
focused on providing outstanding services
and maintaining the highest technological
standards;
k Quality and leadership in the issues
of health, safety and environmental
preservation;
k A constant quest for business leadership.
8. Highlights
oPERATIoNAL summARY 2006
00 00
PROVEN RESERVES – SPE criteria - (billions of barrels of oil equivalent – boe) (1)(2) 1.9 1.0
Oil and condensate (billion barrels) 12.3 12.3
Natural gas (billion boe) 2.6 2.7
AVERAGE DAILY PRODUCTION (thousand boe) (1) ,17 ,98
Oil and NGL (thousands of barrels per day - bpd) 1,847 1,920
Onshore 396 367
Offshore 1,451 1,552
Natural gas (thousands of boed) 370 378
Onshore 213 206
Offshore 157 172
PRODUCING WELLS (oil and natural gas) – december 31st (1) 1,7 1,89
Onshore 11,860 12,170
Offshore 697 725
DRILLING RIGS – december 31st 3
Onshore 22 19
Offshore 42 44
PRODUCING PLATFORMS – december 31st 97 103
Fixed 73 76
Floating 24 27
PIPELINES (km) – december 31 (1) 30,33 31,089
Oil and oil products 12,857 12,913
Natural gas 17,486 18,176
SHIPPING FLEET – december 31st
Vessels – company operated 50 51
– operated by third parties 75 104
Tonnage (million deadweight tons – dwt) 8.2 11.1
TERMINALS – december 31st
Number 66 66
Storage capacity (million m3) (3 ) 10.4 10.4
(1) Includes information from abroad, corresponding to Petrobras’ stake in each partnership
(2) Proven reserves are calculated according to SPE (Society of Petroleum Engineers) criteria
(3) Only includes Transpetro’s terminals
(4) Excludes flare off, own EP consumption, liquefaction and reinjection
(5) Only includes assets in which Petrobras has an equity stake of 50% or more
(6) Only includes natural gas powered thermoelectric plants
| ANNuAl REPORT 2006 | PETROBRAS
9. Average daily production of
2,298
thousand boe
00 00
REFINERIES – december 31st (1)(5)
Number 15 16
Nominal installed capacity (thousand bpd) 2,114 2,227
Average throughput (thousand bpd) 1,830 1,872
Brazil 1,727 1,746
Abroad 103 126
Average daily production of oil products (thousand bpd) 1,839 1,892
IMPORTS (thousand bpd)
Oil 352 370
Oil products 94 118
EXPORTS (thousand bpd)
Oil 263 335
Oil products 260 246
COMMERCIALIZATION OF OIL PRODUCTS (thousand bpd)
Brazil 1,644 1,697
INTERNATIONAL SALES (thousand bpd)
Oil, gas and oil products 385 503
NATURAL GAS SOURCES (million m3 per day) (4 )
Domestic gas 23 23
Bolivian gas 22 24
NATURAL GAS MARKET DISTRIBUTION (million m3 per day) (4 )
Distributors 31 33
Thermoelectric plants 7 6
Internal consumption 7 7
ENERGY (1 )
Number of thermoelectric plants (5)(6) 9 10
Installed capacity (MW) (5)(6) 3,203 4,126
Energy sales (TWh) 16.64 17.57
Number of hydroelectric plants 2 2
Installed capacity (MW) (5) 285 285
Transmission lines (km) 15,414 15,414
Energy distribution (TWh/year) 13 13
FERTILIZERS (1)
Production units 3 3
www.petrobras.com.br | ANNuAl REPORT 2006 | 7
10. FINANcIAL summARY 2006
CONSOLIDATED FINANCIAL INFORMATION (R$ million, unless otheRwise specified) 00 00 % change
Gross operating revenue 179,065 205,403 15
Net operating revenue 136,605 158,239 16
Operating income 39,773 42,237 6
Net financial income (expenses) (2,843) (1,332) -53
Net earnings 23,725 25,919 9
Net earnings per share (R$) 5.41 5.91 9
EBITDA 47,808 52,061 9
Gross debt 48,242 46,605 -3
Net debt 24,825 18,776 -24
Market capitalization 173,584 230,372 33
Gross margin (%) 44 40 -4 pp
Highlights
Operating margin (%) 29 27 -2pp
Net margin (%) 17 16 -1 pp
FINANCIAL - ECONOMIC INDICATORS
Brent oil (Us$ / baRRel) 54.38 65.14 20
Average exchange rate (R$ / Us$) 2.4350 2.1752 -11
Year-end exchange rate (R$ / Us$) 2.3407 2.1380 -9
INVESTMENT (R$ million) 00 00 % change
Direct investment 22,927 29,769 30
Exploration Production 13,934 15,314 10
Downstream 3,286 4,181 27
Gas Energy 1,527 1,566 3
International 3,153 7,161 127
Distribution 495 642 30
Corporate 532 905 70
Specific purpose companies (spCs) 2,385 3,507 47
Projects under negotiation 311 409 32
Structured projects 87 1 -99
Total investment ,710 33,8 31
Voting CaPital 2006 COmmOn ShAreS CaPiTal SToCk 2006
8.% Federal Government
.9% 18.3%
.7% 3.3%
Federal Government BNDESpar
.%
BNDESpar ADR (Common shares)
8.3%
ADR Level 3 ADR (Preferred shares)
7.0% .%
FMP-FGTS Petrobras FMP-FGTS Petrobras
Foreign Investors Foreign Investors
(CMN Resolution nº 2,689) 1.% 7. % (CMN Resolution nº 2,689)
1.8% Other individuals Other individuals
and legal entities 1.% and legal entities
non-Voting CaPital 2006 Preferred ShAreS SToCk YeaR-end CloSing PRiCe (r$ / ShAre) (2)
1.% 2006 .9
3.% 9.80
2005 41.30
37.21
BNDESpar 26.62
2004
3.1% 24.28
ADR Level 3 and Rule
144-A 21.02
2003
Foreign Investors 19.10
(CMN Resolution nº 2,689) Common shares
1.8% 13.20
Other individuals and 2002
legal entities 11.60 Preferred shares
8 | ANNuAl REPORT 2006 | PETROBRAS
11. PRoduCTion of oil and naTuRal gaS ConSolidaTed neT inCoMe (r$ miLLiOn)(1)
(thOuSAnd BOed)
2006 1,90 378 ,98 2006 ,919
2005 1,847 370 2,217 2005 23,725
2004 1,661 359 2,020 2004 16,887
2003 1,701 335 2,036 2003 17,795
2002
1,535 275 1,810 2002 8,098
Oil Natural Gas
Highlights
eaRningS/ShaRe (r$/ShAre) (1)(2)
PRoven ReSeRveS of oil and naTuRal gaS
(SPe CriteriA - BiLLiOn BOe) 2006 .91
2006
2005 5.41
1.3 .7 1.0
2005
2004 3.85
12.3 2.6 14.9
2004
2003 4.06
12.1 2.8 14.9
2002 1.86
2003 11.6 2.9 14.5
2002 9.9 2.3 12.1 MaRkeT CaPiTalizaTion vs neT equiTY
(r$ BiLLiOn)(1)
Oil Natural Gas
30
Market capitalization
174
gRoSS, oPeRaTing and neT MaRginS Net equity
0% 112
2006 7% 87 97
78
1% 62
54 49
44% 34
2005 29% 2002 2003 2004 2005 2006
17%
debT RaTioS (3)
41%
2004 27% 8%
2006
15% 1%
2005 23%
45% 24%
2003 29% 17%
2004
19% 32%
2003 18%
36% 41%
2002 20% 2002 16%
54%
12%
Short Term Debt/Total Debt
Gross Operating Net
Margin Margin Margin Net Debt/Net Capitalization
(1) The fiscal years 2004, 2005 and 2006 include the figures for Special Purpose Companies (SPCs) whose activities are controlled, directly or indirectly, by Petrobras.
(2) For the purpose of comparison, the Earnings per Share for the previous fiscal years have been recalculated, to reflect the share split approved at the EGM of July 22, 2005.
(3) The fiscal years 2002 and 2003 include debt incurred by the SPCs which Petrobras used to structure project finance and consortia. The fiscal years 2002 to 2006 include leasing contracts.
All indicators have been prepared in accordance with BR GAAP criteria.
www.petrobras.com.br | ANNuAl REPORT 2006 | 9
12. “Petrobras is on the right path to
becoming an integrated energy
company with international reach,
José seRgio gaBRielli De azeVeDo
Petrobras President and Ceo
outlook: leadership in oil, natural striving always for growth allied
with profitability and social and
gas, oil products and biofuels in
latin america by 2015, with selective
environmental responsibility.”
expansion in petrochemicals and
renewable energy.
10 | ANNuAl REPORT 2006 | PETROBRAS
13. Message
from the cEo
t
he year 2006 was one of achievement and new prospects
for Petrobras. In addition to the records attained — con-
solidated earnings of R$ 25.9 billion and investments of
R$ 33.7 billion — and a 4% increase in total production of oil and
natural gas, the company is girding itself for a new challenge, set
down in the Business Plan 2007-2011: to maintain its rapid growth
rate. The targets are ambitious ones, leading Petrobras, for the first
time, to plan its production over the long term: a total of 4 million
556 thousand barrels a day (bpd) of oil and natural gas will be
produced in Brazil and abroad in 2015. The planned investments
are in keeping with the grandeur of the projects, amounting to the
sum of US$ 87.1 billion by 2011.
Domestic production grew by 5% in 2006, due to a 340 thou-
sand barrels a day increase in production capacity, as a result of the
P-34, FPSO-Capixaba and P-50 platforms all coming on-stream.
A new production record was set in October, with the company
achieving an output of 1.91 million barrels per day.
As a guarantee of a solid foundation for future growth, for
every barrel that was produced during the year 1.739 barrels
were added to the reserves. This was bolstered by the 27 new
areas that had their commercial viability confirmed, with the
total volume of recoverable oil estimated at 2.5 billion barrels of
oil equivalent (boe). New exploration prospects arose with the
discovery of light oil below a layer of salt in the Santos Basin.
***
on top of the strong performance in oil, progress was also
made in the area of natural gas. Along with a 1.5% increase in
domestic production, Petrobras announced its Plan to Advance
the Production of Natural Gas (Plangás), which will raise the sup-
ply of natural gas in the southeast of Brazil from the present 15.8
million m3 to 40 million m3 a day by 2008. The plan, which also
www.petrobras.com.br | ANNuAl REPORT 2006 | 11
14. Message from the cEo
The goals are
ambitious, leading
Petrobras, for the
first time ever, to
plan its production
over the long term:
4 million 556
includes projects for the processing and transportation of natural thousand barrels
gas, aims to increase the share of Brazilian gas supplying domestic a day (bpd) of
demand. Following the company’s strategy to guarantee safety and oil and natural
flexibility in supplying the Brazilian market, Petrobras sanctioned gas in 2015.
its entry into the liquefied natural gas (LNG) market as an importer The anticipated
and continued with its expansion of the gas pipeline network. . investment to
bring this about is
*** compatible with the
other milestones in 2006 were the launching of Diesel huge scale of the
Podium and the development of H-Bio – a pioneering technol- projects themselves:
ogy from Petrobras that combines vegetable oil with fractions of us$ 87.1 billion up
mineral oil in the production of diesel fuel. The company also to 2011.
augmented the supply of diesel S500, with its reduced sulfur
content, to eight metropolitan areas. In order to further raise the
quality of its fuels, Petrobras continued to make improvements
at its refineries, with the installation of new hydrotreatment and
conversion units, which reduce the sulfur content in the oil prod-
ucts and optimize the output of diesel fuel from Brazilian oil.
In this way, the company enhances the value of domestic oil
and meets the most rigorous environmental specifications, while
at the same time opening up new export markets. In line with its announced its last readjustment in the price of gasoline and diesel
social and environmental commitments, Petrobras fortified its fuel, in September 2005.
biodiesel program, beginning the construction of three plants,
which will produce 171 million liters annually, thus meeting 20% ***
of the country’s demand in 2008. As well as generating employ- the company’s excellent results in Brazil are mirrored
ment and income for family subsistence farmers, the product will by its performance abroad. In addition to strengthening activi-
help to reduce imports of diesel fuel and light oil. ties in the countries where it is already established, Petrobras
Despite the high prices and volatility of the oil market, the augmented its involvement in focus areas such as Africa and the
company’s results were sustained by production growth, without American sector of the Gulf of Mexico. Furthermore, it expanded
passing on the price instability to the domestic market. Brent oil its activities in international refining, with the acquisition of a 50%
hit a peak of US$ 78.63 a barrel in August, but closed the year down stake in the Pasadena refinery, in the United States, and is looking
25%, back around the US$ 60 level, the same as when Petrobras at other refining prospects abroad. The objective is to add value
1 | ANNuAl REPORT 2006 | PETROBRAS
15. Castor bean
Record net plantation, Morro
do Chapéu, Bahia
25.9
earnings of
Mensagem do Prsidente
billion reais in 2006
to the heavy oil the company produces, offering a mix of more
esteemed and higher quality products to the market.
The investors’ confidence was reflected in the 34% appre-
ciation of Petrobras’ shares and the lower cost of securing fund-
ing. As a result, the company’s market capitalization, for the first
time, attained a monthly average of more than US$ 100 billion,
in December, and its first global securities issue since becom-
ing investment grade was at the lowest ever funding cost for a
10-year maturity.
Petrobras’ good results are also the fruit of its investment in
its human resources, who are considered essential to the imple-
mentation of the strategies that have been delineated. In addition
to heavy investment in training and skills development, the com-
pany hired 8,539 new employees during 2006, to help sustain its
growth. That the company’s measures in this area have been spot
on is reflected in the increase in the staff satisfaction index, from
66% to 68%, and the reduction in accidents, leaks and spills and
pollution emissions, which resulted in improved HSE (Health,
Safety the Environment) indicators.
These successes alone would be ample reward for the
endeavors of the employees and the confidence of the share-
holders, but Petrobras also won further important recognition
of its performance: its selection for the Dow Jones Sustainability
Index and the ISE (Bovespa Corporate Sustainability Index), and
the classification of its shares as investment grade by the rating
agency Standard Poor’s.
These accomplishments all strengthen our faith that
Petrobras is on the right path and will continue to grow, profit-
ably and showing social and environmental responsibility.
José seRgio gaBRielli De azeVeDo
President and CEO
www.petrobras.com.br | ANNuAl REPORT 2006 | 13
16. oil market
The year 2006 saw a break in the continuous upward movement with an accumulation of inventories, and yet prices remained
of oil prices, which began in 2002. Although the price of Brent oil high. Despite a slowing of the growth in world demand, influenced
reached a peak of US$ 78.63 a barrel in August, it had fallen back by the high prices, oil continued to earn a risk premium, due to
25% by the year end. The average price, over the course of the the geopolitical instability provoked by events such as Israel’s
year, was US$ 11 higher than that of 2005, while the market has incursion into Lebanon and the nuclear issue in Iran. Aware that
become more volatile. geopolitical questions in the Middle East would keep prices high,
As in previous years, there was a supply surplus in 2006, OPEC maintained its production quotas at the same level for most
oil PRiCeS (noMinal)
(uS$/BArreL) August 7, 2006
Brent peak price
US$ 78.63/barrel
80.00
July 14, 2006
WTI peak price
US$ 77.03/barrel
70.00
60.00
January 2003
50.00 WTI US$ 31.85/barrel
Brent US$ 30.77/barrel West Texas
January 2001 Intermediate
WTI US$ 27.21/barrel
Brent US$ 22.97/barrel Brent
40.00
30.00 January 2005
WTI US$ 42.12/barrel
Brent US$ 40.36/barrel
20.00 January 2004
WTI US$ 33.78/barrel
Brent US$ 31.16/barrel
January 2002
10.00 WTI US$ 21.01/barrel
Brent US$ 20.40/barrel
0.00
Dec 06
Jan 00
Jan 01
Jan 02
Jan 03
Jan 04
Jan 05
Jan 06
1 | ANNuAl REPORT 2006 | PETROBRAS
17. bRenT oil hiT
78.63
oil market
dollaRS a baRRel in auguST
of the year, thus favoring the building up of inventories. years may be coming to an end.
The upward price trend began to be reversed when August Ever since the August peak, the market has been char-
went by and fears that the Atlantic hurricane season would be as acterized by what analysts call a “correction movement” – with
devastating as that of 2005 were not realized. Amid controversy over prices oscillating downwards, as the market seeks a new balance
the influence of speculation on prices, the fact that there were no between supply and demand, against a backdrop of changing sen-
major hurricanes obliged OPEC to announce cuts in production, timent regarding potential shortages brought about by a disrup-
for the first time since December 2004 and the biggest reduction tion in supply. This downward movement in oil prices has, once
since 2002. The first announcement was made in September and again, shown how susceptible prices are to the impact of unfore-
the second came in December, effective as of February 2007. seeable events – something the world oil market has always had
Another factor pushing down prices, towards the end of to live with. +
2006, was the abnormally mild winter temperatures in the north-
ern hemisphere, with a consequent reduction in oil consumption.
This led the market to feel the supply surplus more acutely, and
could be another sign that the upward price spiral of the last four
transpetro fleet
tanker “navion
stavangar”
www.petrobras.com.br | ANNuAl REPORT 2006 | 1
18. corporate strategy
Petrobras has retained its aggressive growth targets in its Business Planned inveSTMenT 2007-2011
(uS$ BiLLiOn)
Plan 2007-2011. For the first time, the company has released esti-
mates of its oil and natural gas production for 2015 and listed the 1%
main projects that will buttress its growth after 2011. The com-
pany’s strategic positioning places emphasis on the expansion of
refining in Brazil, so as to add value to the country’s increasing oil
production – whether by augmenting sales to the growing Brazilian
In Brazil
market or by expanding the export of oil products. Petrobras thus
8%
seeks to strike a long term balance between production growth Abroad
and refining capacity. In the renewable energy market, the focus
Planned inveSTMenT PeR buSineSS aRea
is on biofuels, within a corporate strategy of leadership in the pro-
2007-2011 (uS$ BiLLiOn)
duction of biodiesel in Brazil and augmenting sales of ethanol.
Brazilian production of oil and natural gas will reach 2 million BUSINESS AREA
Exploration Production 40.7
925 thousand boed by 2011. Paralleling this increase, the country’s
Downstream 23.1
refineries will be processing 1 million 877 thousand bpd and the Gas Energy 7.2
daily throughput of Brazilian oil will rise to 1 million 710 thousand International 12.1
bpd. With this expansion, the company will raise the proportion Distribution 2.2
of domestic oil processed in the refineries from the current 80% Corporate Areas 1.8
Total 87.1
to 91%, thereby consolidating the country’s self-sufficiency. Sales
of the surplus, which in 2006 amounted to 335 thousand bpd, will
reach 584 thousand bpd by 2011. finanCial ReSouRCeS: SouRCeS vs uSeS
(2007-2011 fOreCASt, in uS$ BiLLiOn)
Of the total planned investment for the period 2007-2011
— amounting to US$ 87.1 billion, an average of US$ 17.4 billion a
86.7 12.6 99,3
year —, US$ 75 billion (86%) is to be invested in Brazil, leading to
the creation of 838 thousand direct and indirect jobs. The greatest 87.1 12.2 99,3
investment will be in the areas of Exploration Production and Gas
Own Resources Investment
Energy and in the Downstream area of Supplies. With US$ 12.1 bil-
lion (14%) earmarked for investment abroad, 65% will go into Latin Third Party Resources Debt Amortization
America, western Africa and the Gulf of Mexico — which are all a
priority within Petrobras’ strategy for international expansion. thousand boed by 2011, while the company’s throughput in refiner-
Petrobras’ production abroad, which in 2006 amounted ies outside Brazil will reach 499 thousand bpd.
to 243 thousand boed of oil and natural gas, will increase to 568 Growth in the production of oil and NGL and in the
1 | ANNuAl REPORT 2006 | PETROBRAS
19. 87.1
billion dollars to be
invested during the
corporate strategy
period 2007-2011
PRoduCTion vs Refining throughput of the refineries preserves the balance between
(thOuSAnd BPd)
Exploration Production, on the one hand, and the company’s
Downstream area, on the other, while opening up opportunities for
forecast 3,554 the integration of these activities in Brazil and abroad.
2015
3,201 As part of its corporate strategy for consolidation as an inte-
grated energy company with international reach, Petrobras is placing
2,757 greater emphasis on its renewable energy goals. By 2011, the company
target
2011 2,376 should be making available 855 thousand m3/year of biodiesel and
exporting 3.5 million m3 of ethanol. The capacity of the thermoelectric
1,90
2006
1,87 and co-generation plants, meanwhile, will have reached 4,554 MW.
Petrobras maintains the policy of keeping its prices aligned
Total production of oil and NGL with those of the international market. The company’s forecast cash
Total primary throughput flow generation for the period 2007 to 2011, of US$ 86.7 billion, will
be sufficient to meet almost all its investment needs. The raising of
PRoduCTion gRowTh funds in the financial markets and the amortization of debt will be
(thOuSAnd BOed) in alignment with the company’s policy of extending its debt profile
4,556
2007-2015 and reducing its financial leverage. The average Return on Capital
7.9% p.a.
278 Employed (ROCE) for the period should be 16%.
2007-2011
8.7% p.a.
742 In line with its commitment to social and environmental
3,493
724 responsibility and being at the technological cutting edge, the
185 company will invest a total of US$ 6.2 billion in Health, Safety and
,98 383
2,217 2,812 the Environment (HSE), technology, telecommunications and
2,036 2,020 101 551
85 94 96
142 Information Technology (IT) during the period 2007 to 2011.
161 168 163
274 277 Petrobras is pursuing its endeavors to apply in the social and
250 265 2,374
1,493 1,684 1,778 environmental spheres the level of quality achieved in its business
1,540
performance, and remains committed to the principles of transpar-
ency and responsibility in its relations with all the stakeholders.
2003 2004 2005 2006 target forecast Already internationally recognized for its standard of excellence in
2011 2015 the production of oil, natural gas and oil products, the company con-
tinues to strive to raise those standards higher still and to enhance its
Oil + NGL – Brazil Natural Gas – Brazil
international reputation as a Brazilian business that is dedicated to
Oil + NGL – Abroad Natural Gas – Abroad overcoming the challenges of producing energy.
www.petrobras.com.br | ANNuAl REPORT 2006 | 17
20. “Preservation of the environment has
become urgent and is the responsibility
of all of us, each one according to his
FRanCisCo De assis PeReiRa
Truck driver, for a Petrobras client,
role. Petrobras is doing its bit, but it is
at the betim cargo terminal
too much to handle on its own.”
outlook: The hope for a
better life is what drives us on.
18 | ANNuAl REPORT 2006 | PETROBRAS
21. Business
Areas
exploRAtion pRoduction 20
Refining And commeRciAlizAtion 26
petRochemicAls 30
tRAnspoRtAtion 34
distRibution 38
nAtuRAl gAs 40
eneRgy 42
The intensification of the company’s oil exploration and production led Petrobras to
establish new records in 2006. With new platforms coming on-stream — notably the
P-50 — output continued to grow, reaching almost 2 million barrels a day. Natural
gas production also expanded and, in the southeast, should increase to 40 million m3
daily by 2008, from the present level of 15.8 million m3, according to the provisions of
Plangás (Plan to Advance the Production of Natural Gas), drawn up to augment the
production and supply of natural gas in that region. Under its strategy for the sustain-
able growth of Brazilian consumption, Petrobras is preparing to become an importer
in the global market for liquefied natural gas (LNG). The goals set out in the Business
Plan 2007-2011, aimed at sustaining the country’s self-sufficiency and maintaining the
rapid growth rate, take into account the coming on-stream, during this period, of 15
major oil and 10 natural gas projects.
www.petrobras.com.br | AnnuAl RepoRt 2006 | 19
22. Business Areas
ExPLorATioN ProdUcTioN
Sustained growth
in production
The increase in domesTic oil producTion in 2006
represenTed anoTher advance in peTrobras’
growTh sTraTegy. The company’s brazilian ouTpuT
ToTalled 1 million 778 Thousand barrels per day
(bpd) of oil, naTural gas liquids (ngl) and conden-
saTe — up 5.6% in relaTion To The 2005 producTion
figure, of 1 million 684 Thousand bpd.
Two of the three major new projects contributing to the pro-
duction increase are located in the Campos Basin: platform P-50,
in operation since April 21st, and the FPSO P-34, in operation since
December 17th. In the Espírito Santo Basin, the FPSO Capixaba
came into operation on May 6th. With the addition of these new
projects, Petrobras’ production capacity was raised by 340 thou-
sand bpd. The P-50, operating in the Albacora Leste field, has a
production capacity of 180 thousand bpd; the FPSO Capixaba, in
the Golfinho field, and the P-34, in the Jubarte field, can process
100 thousand bpd and 60 thousand bpd, respectively.
Despite the higher production in 2006, the annual average
was 5.4% lower than the target, of 1 million 880 thousand bpd,
that had been set for the year. This shortfall was due to delays in
the operational start-up of the P-50 and P-34.
However, new production records have brought Petrobras to
the threshold of the 2 million barrels per day mark. On October 23rd,
the company produced 1,912,733 barrels — 31 thousand more than
the previous record, set on May 29th. In addition to the good perfor-
mance of the P-50 and the other platforms in the Campos Basin, a The FPSO P-50, in the Campos
Basin (RJ), contributing to the
contribution to these production peaks came from the Recage pro- country’s oil self-sufficiency
gram (Program for the Rejuvenation of Heavily Exploited Fields),
20 | AnnuAl RepoRt 2006 | petRobRAs
23. Business Areas | exploRAtion pRoduction
1.91
millionbPd Production
record in october
which helps to minimize the decline of mature production areas.
The company’s production of natural gas (excluding NGL)
also increased in 2006, attaining an average of 44 million m3/day,
a 1% rise in relation to the 43.5 million m 3/day of the previ-
ous year. This growth was maintained as a result of continued
efforts to expand the supply of domestic gas, in line with the
corporate strategy of ensuring a reliable supply of the product
to the Brazilian market.
In the Espírito Santo Basin, a major gas project came into
Production of oil and natural Gas
(thousand boed)(1)
forecast
2015 2,812 724 3,536
target 2,374 551 2,925
2011
2006 1,778 277 2,055
2005 1,684 274 1,958
2004 1,493 265 1,758
2003 1,540 250 1,790
2002 1,500 252 1,752
2001 1,336 232 1,568
2000 1,270 221 1,491
Oil, NGL and Condensate
Natural Gas
(1) Average annual growth in oil production: 6.76%
Average annual growth in natural gas production: 3.71%
www.petrobras.com.br | AnnuAl RepoRt 2006 | 21
24. Petrobras declared to the ANP the
commercial viability of 27 discoveries,
some of which are classified as new
Business Areas | exploRAtion pRoduction
oil and natural gas fields. estimates
indicate a recoverable volume of
2 billion 440 million boe: 53 million
onshore and the rest all offshore.
Production of oil, nGl and condensate unit liftinG cost, excludinG
by water depth Government take
(us$/barrell)
5%
target 5.60
13% 2011
69% 2006 6.59
13% Onshore 2005 5.73
0 - 300
2004 4.28
300 - 1,500
Total Production: 1,778 thousand bpd 1,500 2003 3.36
2002 3.00
Production of natural Gas
by water depth
an 11% appreciation of the local currency (real) against the US dol-
3% lar and to contractual readjustments, particularly drilling contracts,
as well as the oil market heating up, enlargement of the workforce,
39% in line with the Business Plan forecast, and the coming on-stream of
the platforms P-50, FPSO Capixaba and P-34.
38%
Onshore
The Challenge OF gROwTh
0 - 300
The targets set down in Petrobras’ latest business plan provide for 15
20% 300 - 1,500 major oil and 10 natural gas production projects to come on-stream
Total Production: 43,975 thousand m3/day 1,500 by 2011, when the company’s average production of oil and natural
gas in Brazil is estimated to reach 2 million 925 thousand boed.
operation on February 22nd: the Peroá platform (production of During 2007, the following platforms will come on-stream
around 1 million m3/day). In Rio Grande do Norte, the Guamaré in the Campos Basin: the FPSO Cidade do Rio de Janeiro (100
UPGN III (production of 1.5 million m3/day) came on-stream, fol- thousand bpd), in the Espadarte field; the P-52 and P-54 (180
lowing a pre-operational phase that kicked off in December 2005. thousand bpd, each), in the Roncador field; the SSP 300 (30 thou-
The average lifting cost in 2006, not including the government’s sand bpd), in the Piranema field; and the FPSO Cidade de Vitória
take was US$ 6.59 per barrel of oil equivalent (boe) — an increase of (100 thousand bpd), in module 2 of the Golfinho field. In Bahia,
15% over the previous year’s figure. The increase was mainly due to the Manati platform (6 million m3/day) will come into operation
22 | AnnuAl RepoRt 2006 | petRobRAs
25. Business Areas | exploRAtion pRoduction
Cacimbas gas
treatment
plant, linhares,
espírito Santo
in 2007, augmenting the company’s production of natural gas. supplies in the southeast to a total of 55 million m3/day, by 2010, with
Two more platforms destined for the Campos Basin are cur- initiation of the Mexilhão (2009) and Uruguá and Tambaú (2010)
rently under construction: the P-51 and P-53 (180 thousand bpd, projects, located in the Santos Basin, in addition to the Caraguatatuba
each), with operational start-up scheduled, respectively, for 2008 Gas Processing Plant, whose first module will come on-stream in
and 2009, in the Marlim Sul and Marlim Leste fields. Additionally, 2009, followed by the second module in 2010.
an FPSO will be leased in 2008, for use in the Jabuti area of the
Marlim Leste field. OnShORe and OFFShORe
Looking ahead to 2009, production is scheduled to begin diSCOveRieS
under the Parque das Conchas Project (100 thousand bpd), oper- In 2006, Petrobras reported the commercial viability of 27 discov-
ated by Shell. 2010 should see the Frade field (100 thousand eries to the ANP (National Oil, Natural Gas and Biofuels Agency).
bpd) come into operation, in a partnership with Chevron, and in Some of these areas — 18 of which are located offshore and 9
2011 the P-57 platform (180 thousand bpd), under phase 2 of the onshore — were classified as new oil and natural gas fields, while
Jubarte field, and the P-55 (180 thousand bpd), in module III of the others were incorporated within neighboring fields. The explora-
Roncador field, will both come on-stream. tion highlight was the discovery of light oil and gas in ultra-deep
The exploration and production of natural gas is also being waters in the Santos Basin block BM-S-11.
intensified, under Plangás, which is fundamental to ensuring the Estimates of Petrobras’ stake in the new commercially viable
supply of natural gas to the markets in the south and southeast of areas indicate a total recoverable volume in the region of 2 bil-
Brazil. In the southeast, the supply will rise from the present 15.8 mil- lion 440 million boe, but this figure is subject to a more precise
lion m3/day to 40 million m3/day by the end of 2008. In the Espírito assessment. Of this total, 2 billion 387 million boe lie in offshore
Santo Basin, Plangás provides for the expansion of the Peroá proj- accumulations and 53 million boe are to be found onshore. Ten
ect to 9.4 million m3/day and the development of the Canapu and of the 27 areas are located in the Campos Basin; four are in the
Camarupim fields, in addition to expansion of the Cacimbas Gas Santos Basin; seven are in the Espírito Santo Basin; and six are
Processing Complex to 20 million m3/day. The first phase of this located in basins in the north and northeast of Brazil.
expansion (5.4 thousand m3/day) will be completed in early 2007, In the Santos Basin, three areas operated by Petrobras were
when the Peroá Gas Processing Plant comes into operation. In the declared commercially viable and reclassified as the oil and natu-
Campos Basin, Plangás gives priority to the production of non-associ- ral gas fields of Tambuatá, Pirapitanga and Carapiá. A fourth area
ated gas from a variety of reservoirs located near the existing infra- was incorporated within the Mexilhão field. The total volume
structure within the Albacora, Roncador and Marlim Sul fields, as is estimated at 560 million boe. In addition to these four areas,
well as initial development of the Jabuti field. In the Santos Basin, the the company has a 40% stake in two other areas that were also
Merluza platform’s output will be expanded to 2.5 million m3/day, reported to the ANP as being commercially viable.
with increased production from the Merluza field and initial devel- What is more, the discovery of light oil and gas in block BM-
opment of the Lagosta field. Plangás foresees the expansion of gas S-11, in which Petrobras has a 65% stake, opens up promising new
www.petrobras.com.br | AnnuAl RepoRt 2006 | 23
26. Business Areas | exploRAtion pRoduction
Fazenda alegre
oil treatment
and transfer
unit, Jaguaré,
espírito Santo
prospects not only for operations in the Santos Basin but for opera- exPloration success rate
tions in ultra-deep waters in other regions. In order to reach the oil
and gas, the company had to bore through a layer of salt that was 50%
55%
more than two thousand meters thick, in waters with a depth of
two thousand meters. 39% 49%
In the Espírito Santo Basin, four offshore and three onshore
areas operated by Petrobras were declared commercially viable. On
the continental shelf, where the new discoveries are estimated at 168 24%
20%
million boe, two areas were reclassified as the Carapó and Camarupim 23%
gas fields and two areas containing gas and light oil were incorporated 2000 2001 2002 2003 2004 2005 2006
within the Golfinho and Canapu fields. The declaration of the onshore
areas resulted in the creation of three new fields — Saíra, Seriema and for the development of production — 283 onshore and 48 offshore.
Tabuiaiá —, with a total estimated volume of 7.4 million boe, which For exploratory purposes, 80 wells were drilled — 50 onshore and 30
will help to maintain the level of onshore production. offshore. The exploration success rate was 48.7%, as 39 of the 80 wild-
With regard to the Campos Basin, the commercial declara- cat wells that achieved their geological objective show good prospects
tions covered ten areas. Seven of these were classified as new fields: of becoming discoveries or producers of oil or natural gas.
Maromba, Carataí, Carapicu, Catuá, Caxaréu, Mangangá and Pirambu.
One area was incorporated within the Baleia Azul field and two others new COnCeSSiOnS
into the Viola and Marlim Leste fields. The total estimated volume At the ANP’s Eighth Bidding Round, held in November, Petrobras
comes to 1 billion 510 million boe. Another important discovery was proceeded with restructuring and extending the profile of its portfo-
made in the Roncador field, in reservoirs below the productive seam. lio of exploration areas. The company acquired 21 of the 22 areas for
Five declarations of commercial viability were made by which it bid, covering a total of 7,841.21 km2. The new concessions
Petrobras for onshore areas within coastal basins in the northeast that have been added to its exploratory portfolio — 13 onshore, in
of Brazil. Three were classified as fields: Tangará, in the Recôncavo the Tucano Basin, and eight in the Santos Basin — will be important
Bahiano; and Pintassilgo and Jaçanã, in the Potiguar Basin. The other to the attainment of the oil and gas production levels called for in
two areas were incorporated within the existing fields of Baixa do the company’s Business Plan 2007-2011.
Juazeiro and Canto do Amaro, also located in the Potiguar Basin. The winning bids made by Petrobras and its partners in the
In addition to those, three other onshore areas were discovered in eighth round came to a total of R$ 276,924,361, of which the com-
the Sergipe-Alagoas Basin and two in the Recôncavo Basin. In the pany’s share was R$ 248,227,933.50. Petrobras has exclusive rights
Solimões Basin, the company declared the commercial viability of to seven of the 21 blocks acquired, and is the operator in two of
the Araracanga field — a natural gas discovery made in 1997. them, in partnership with other companies. In the other 12 blocks,
During the year, a total of 331 wells were drilled and completed the operations will be carried out by partners.
24 | AnnuAl RepoRt 2006 | petRobRAs
27. reserve
Business Areas | exploRAtion pRoduction
replacement index of
174%
chanGe in level of Proven reserves
The offshore concessions acquired in the Santos Basin, covering (spe Criteria - billion boe)
a total area of 5,553.03 km2, are considered to offer great potential. The
onshore concessions in the Tucano Basin, covering a total of 2,288.15
2006 12.52 13.75
km2, are in new frontier areas, with potential for the discovery of deep
Production in 2006: 0.71 billion boe
accumulations of natural gas. When the contracts are signed, these 0.24
concessions will probably be grouped by the ANP in various blocks.
0.98
With the various acquisitions and areas handed back over
the course of the year, the company’s portfolio of exploratory
2005 13.23
concessions comprises 144 blocks, covering a total area of 149.2
thousand km2. Adding to this the ten areas with discovery evalu- Remaining 2005 reserves
ation plans (3.6 thousand km2) in operation, Petrobras’ present Addition of new discoveries
exploration area covers a total of 152.8 thousand km2. Additions from existing fields
PROven ReSeRveS
Petrobras’ proven reserves of oil, condensate and natural gas in Proven reserves of oil and natural Gas
(spe Criteria - billion boe)
Brazil amounted, at the end of 2006, to 13 billion 753 million boe,
following ANP/SPE criteria — representing an increase of 3.9% in
relation to the previous year. A total of 1 billion 226 million boe was 2006 11.67 2.08 13.75
added to the reserves over the course of 2006, against an accumu-
2005 11.36 1.87 13.23
lated production volume of 705 million boe, generating a Reserve
Replacement Index (RRI) of 174%. This means that for every barrel
2004 11.05 1.97 13.02
of oil equivalent produced during the year, 1.74 barrels were added
to the company’s reserves. Meanwhile, the reserves/production 2003 10.60 1.99 12.59
(R/P) ratio is at 19.5 years.
Two factors underlie the increase in proven reserves — one 2002 9.56 1.45 11.01
being due to the appropriation of amounts discovered in fields
declared commercially viable during the course of 2006. Some of
2001 8.32 1.35 9.67
these declared areas are close to fields that are in the development 2000 8.29 1.36 9.65
phase and were, therefore, included within the figures for those
fields. The other contributing factor arises from reservoir manage- Oil, NGL and Condensate
ment practices in discovered fields that are already in the develop-
Natural Gas
ment or production phase. +
www.petrobras.com.br | AnnuAl RepoRt 2006 | 25
28. Business Areas
rEfiNiNG commErciALizATioN
increased sales, both ReFining
In 2006, Petrobras set new records for refining and the production of
in Brazil and abroad oil products in Brazil. The average processed throughput (primary
processing) of the company’s 11 Brazilian refineries amounted to
a new refining record and a 3% increase in domes- 1 million 746 thousand bpd of oil, while the production of oil prod-
Tic oil producT sales were oTher highlighTs of ucts totaled 1 million 764 thousand bpd — representing increases
The year’s resulTs. The 11 peTrobras refineries saw of 1% and 2%, respectively, in relation to the previous year. The
Their primary processing of oil and producTion 80 % share of domestic oil in the total 2006 processed throughput
of oil producTs boTh rise in comparison wiTh 2005. is a reflection of the operational reliability of the units, which were
The sTrong domesTic oil producTion and com- working at an average of 89 % of their refining capacity.
pany logisTical sTrucTure, TogeTher wiTh The The company proceeded with its investments to adapt the
opening up of new markeTs, enabled peTrobras To country’s refineries to process the heavy oils that are produced
also seT new foreign sales records, and Thereby in Brazil. New catalytic cracking and retarded coking units came
consolidaTe iTs posiTion as The counTry’s lead- on-stream at the Alberto Pasqualini Refinery (Refap) and a new
ing exporTer. coking unit will start operating at the Duque de Caxias Refinery
unit cost of refininG oil Products market
(us$ /barrel) (thousand bpd)
target 1,821
2011 2.90
1,755 1,766
1,749
1,700 1,764
1,735
1,641 1,696 1,697
2006 2.29
1,639 1,637 1,644
2005 1,609
1.90
1,510
2004 1.38 2002 2003 2004 2005 2006
2003 1.14 Demand for Oil Products
2002 Production of Oil Products
0.94
Sales of Oil Products
26 | AnnuAl RepoRt 2006 | petRobRAs
29. Business Areas | Refining commeRciAlizAtion
sales of
1.70
million
bPd of oil Products
in the brazilian market
(Reduc) in 2007. With the coking units, Petrobras is able to opti-
mize the rendering of domestic oil into diesel fuel.
As part of the company’s strategy for improving the quality of
its fuels, Petrobras pressed ahead with the installation of hydrotreat-
ment units (HDTs) at nine refineries. The process of treatment with
hydrogen, which reduces the sulfur content of the oil products, will
meet the most stringent environmental specifications that are to
come into effect as from 2009. At the same time, this will open up
new export markets, such as the USA and the EU.
The launching of Podium Diesel and the development of
H-Bio were milestones for quality and environmental protection in
2006. As with Podium gasoline, the new diesel fuel offers improved
performance with less engine wear and lower sulfur content.
H-Bio, a pioneering process from Petrobras, blends vegetable
oil with mineral oil to produce diesel fuel. The company also
expanded the supply of diesel S500 to eight new metropolitan areas
— Curitiba, Salvador, Recife, Fortaleza, Belém, Vitória, Aracaju and
Porto Alegre. This product, launched in 2005, has a sulfur content
that is just one quarter that of ordinary diesel fuel.
Parallel with the growth in domestic oil production,
Petrobras is developing two major projects — the Abreu Lima
Refinery, in the state of Pernambuco, with a capacity of 200 thou-
sand bpd, is a US$ 4.0 billion undertaking that is being studied,
together with Petróleos de Venezuela (PDVSA); and the Premium
Refinery, at an as yet undefined location, with a capacity of 500
thousand bpd, will be the largest in the country. With operational
start-up scheduled for 2011 and 2014, respectively, these new
refineries will cope with the growing domestic demand, reduce
imports of diesel fuel and bolster the country’s exports of oil prod-
isaac Sabbá ucts, thus making the most of any Brazilian oil surpluses. +
refinery (Reman),
Manaus, amazonas
www.petrobras.com.br | AnnuAl RepoRt 2006 | 27
30. The hydrodesulfurization
unit at the getúlio
vargas refinery (Repar),
Business Areas | Refining commeRciAlizAtion
araucária, Paraná
COMMeRCializaTiOn stable in relation to those of 2005.
In 2006, Petrobras sold an average of 1 million 697 thousand bpd The increase in domestic oil production, the optimization
of oil products in the Brazilian market – a 3% increase in relation of the company’s logistical structure and the opening up of new
to 2005. The leading products, in terms of sales volume, were commercial opportunities enabled Petrobras to set new records
gasoline, naphtha, fuel oil, diesel fuel, liquefied petroleum gas
(LPG) and aviation fuel. oil imPorts and exPorts
(thousand bpd)
Gasoline registered the biggest increase in sales, by 7%,
mainly due to the reduction, in March, of the percentage of etha-
nol that is mixed with the gasoline sold at service stations, from
450 370
25% to 20%. In November, it was raised to 23%. Another factor 352
326 319
was the expansion of the gasoline powered vehicle fleet, including
335
the users of flex fuel vehicles who chose to use gasoline. Working
in the opposite direction were a 5.1% real increase in the pump 181 263
233 233
price and the growing use of natural gas to power vehicles.
2002 2003 2004 2005 2006
There was a 5% increase in sales of naphtha. Faced with
growing demand from the petrochemical centers, Petrobras
Imports
expanded its production and partially substituted imports, thereby
Exports
securing increased business.
After several years of declining business in the fuel oil seg-
ment, sales were up 1%, helped by gains in market share and the oil Product imPorts and exPorts
(thousand bpd)
response to new consumers. Among the sectors showing strong
demand were manufacturing in the state of Pará and the new ther-
228 260
moelectric power plants in the state of Amazonas. 216 246
Sales of diesel fuel were also up 1%, lagging behind the 213
country’s GDP growth. The principal reason was the poor per- 206
formance of the agribusiness sector, which is still recovering from 109 118
crisis in 2005/2006 and the appreciation of the real against other 105
important currencies. 94
2002 2003 2004 2005 2006
LPG saw an increase of 1.5% in sales, in response to a grow-
ing population and their improved purchasing power, brought Imports
about by a higher minimum wage and broad government measures
Exports
to safeguard household incomes. Sales of aviation fuel remained
28 | AnnuAl RepoRt 2006 | petRobRAs
