1. 2005
2005
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. Contents
Contents
FINANCIAL ANALYSIS
F I N A N C I A L S TAT E M E N T S
19 Report of independent auditors
20 Balance Sheet
22 Statement of Income
23 Statement of Changes in Financial Position
24 Statement of Changes in Shareholders' Equity (Parent Company)
26 Statement of Cash Flows
27 Statement of Value Added
28 Statement Segmentation of Business
35 Social Balance Sheet
38 Notes to the financial statements
38 1. Consolidation principles
43 2. Summary of significant accounting policies
46 3. Cash and cash equivalents
47 4. Accounts receivable, net
47 5. Related parties
52 6. Inventories
53 7. Petroleum and alcohol account - National Treasury Secretariat (STN)
52 8. Marketable securities
54 9. Project financings
60 10. Judicial deposits
61 11. Investments
75 12. Property, plant and equipment
80 13. Financings
84 14. Financial income (expenses), net and other operating income (expenses), net
85 15. Other operational income (expenses)
85 16. Taxes, contributions and participations
90 17. Employee benefits
98 18. Profit sharing for employees and management
98 19. Shareholders' equity
101 20. Commitments and contingencies
106 21. Commitments undertaken by the energy segment
108 22. Guarantees on concession contracts for oil exploration
109 23. Segment information
110 24. Derivative instruments, hedging and risk management activities
115 25. Safety, environment and health
115 26. Remuneration of parent company directors and employees (in reais)
115 27. Subsequent events
116 Corporate Information

3. FINANCIAL ANALYSIS
FINANCIAL ANALYSIS
1. Economic and Financial Summary(1) PETROBRAS and its subsidiary companies reported consolidated net income of R$ 23.725 million in fiscal year 2005,
after the elimination of intercompany operations and deduction of minority interests. This amount is practically the
CONSOLIDATED(6) PETROBRAS
2005 2004 2005 2004
same as last year's (R$ 16.887 million).
Gross Operating Revenue (R$ million) 179.065 150.440 143.666 120.025 The main aspects that contributed to consolidated net income for 2005 over 2004 were as follows:
Net Operating Revenue (R$ million) 136.605 111.128 105.823 85.575
Increase of R$ 13.438 million in gross profit due to the performance of oil and oil products in the local and
Income:
Company's own activities 24.551 17.065 22.161 16.438 foreign markets, to increased oil and LNG production in the country (13%), to increased production (2%)
Subsidiary and affiliated companies (250) (145) 1.782 1.350
and to the quality of oil products.
24.301 16.920 23.943 17.788
Increase in selling expenses (R$ 725 million) to cover sales made and increased sea freight costs, in view
Extraordinary items (2)
(576) (33) (493) (34)
of the hike in export operations.
Net income (R$ million) 23.725 16.887 23.450 17.754
Increase in General and Administrative expenses (R$ 1.287 million), due to higher personnel, network
Net indebtedness (R$ million) (3)
24.825 35.816 – (5)
1.217 maintenance and software license costs.
EBITDA (R$ million) (4)
47.808 36.798 36.518 28.554 Increase in pension and health care costs for retirees and pensioners due to a change in the related
Net debt /EBITDA (3) (4)
0,52 0,97 – (5)
0,04
assumptions as a result of the actuarial review of December 2004 (R$ 690 million).
Stockholders' equity (R$ million) 78.785 62.130 80.703 64.254
Increase in prospecting and exploration costs (R$ 561 million) due to increased geological and geophysical
Permanent assets (R$ million) 109.184 96.972 71.717 57.065
Equity to debt ratio (3)
48/52 42/58 59/41 51/49
activities, to the write-off of dry holes and/or uneconomical wells and to the effect of supplementary
abandonment provision.
Notes: Increase in research and development costs (R$ 239 million) to cover research activities and seismic data
1. The figures expressed in Reais (R$) in this financial analysis were determined in accordance with accounting practices prescribed by Brazilian Corporate Law
exploration license obtained.
and the rules established by the Brazilian Securities Commission - CVM.
2. Extraordinary items include amounts referring to unexpected or unusual events to the Company's operations, and are therefore nonrecurring. Increase in other operating expenses (R$ 403 million) referring mainly to expenses with institutional relations and
3. Includes indebtedness relating to leasing contracts.
4. Earnings before income tax and social contribution, minority interests, net financial income and expenses, equity adjustments, and depreciation, amortization cultural projects (R$ 221 million) and net losses in the Gas and Energy segment (93 million).
and abandonment costs.
Decrease in tax expenses (R$ 360 million) due to a change in legislation (Decree Nº 5.164/04), effective
5. Cash and cash equivalents exceed total indebtedness.
6. As of January 1, 2005, th Special Purpose Companies either directly or indirectly controlled by Petrobras have been included in the consolidated financial August 2004, which reduced to zero PIS/PASEP and COFINS rates applicable to financial income.
statements as determined by CVM Instruction Nº 408/2004. For comparability purposes, these Special Purpose Companies have also been included in the
financial statements for te year ended December 31, 2004.
Positive effect of R$ 478 million on net financial income (expenses), due mainly to:
Decrease of R$ 691 million in financial expenses due to a decrease in interest on loans and financing,
reflecting the appreciation of the Brazilian real in relation to the U.S. dollar during the year (12%), in spite of
an increase in the Libor rate applicable thereto;
2. Consolidated Result Negative monetary and foreign exchange variation (effect of R$ 213 million) as a result of the lower exchange
variation (R$ 419 million), reflecting the appreciation of the Brazilian real in relation to the U.S. dollar during
(R$ Million)
23.725 the year (12%) when compared to the prior year's appreciation (8%), together with the fact that the parent
20.237 company's relationship with foreign subsidiaries and affiliated companies has turned from debtor to creditor.
17.795 17.848
16.887
Increase of R$ 3.898 million in the provision for income tax and social contribution in view of the increase
in taxable income, in spite of a higher tax benefit arising from the provision for interest on capital in 2005
(R$ 5.483 million) over 2004 (R$ 4.386 million).
2003 2004 2005
HISTORIC VALUES VALUES ADJUSTED BY IPCA
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4. 3. Result by Business Area b. Supply
Result per Business Area
PETROBRAS operates in an integrated manner, and most of its oil and gas production in the Exploration and Supply
Production area is transferred to other areas of the Company. (R$ million)
The main criteria used to determine the income by business area are highlighted below: 5.556
a. Net operating revenues include revenues related to sales made to external clients and billings and transfers
among business areas, the reference price is the internal transfer price defined among the areas, using computation 2.553
methodologies based on market parameters.
b. Operating profit includes net operating revenues, costs of goods and services sold (which are reported by 2005 2004
business area considering the internal transfer price), and other operating costs incurred by each area, as well
as operating expenses, which include the expenses actually incurred by each area. In 2005, net income recorded by the Supply area was R$ 5.556 million, 118% lower than net income recorded in 2004
c. Assets: include the assets identified by each area. (R$ 2.553 million), as a result of the increase of R$ 4.859 million in gross profits, with the following aspects to be highlighted:
Increase in the average realization value of oil products traded in the domestic market and the other markets;
a. Exploration and production Improved refinery production performance, reducing the need for importing oil products with greater added value;
4% increase in volumes of oil products sold in the domestic market, a demand met by increased refinery processing.
Result per Business Area
E&P 2% increase in the production of oil products.
(R$ million) These effects were partially offset by the following:
22.699 Increase in the acquisition/transfer cost of oil and oil products, forced by higher international prices, in spite
18.083
of the 17% appreciation in the average rate of the real against the U.S. dollar, increased spread between heavy
and light crude oil;
Increase in depreciation costs due to investments in refining facilities, resulting in increased refinery capacity
2005 2004 and complexity.
In 2005, net income recorded by the exploration and production area was R$ 22.699 million, 26% higher than c. Gas and Energy
net income for 2004 (R$ 18.083 million), due to the R$ 8.401 million increase in gross profits with oil sales and
Result per Business Area
transfers, reflected by the increase in international prices, reflecting the 13% increase in oil and LNG production Gas and Energy
and the 3% increase in natural gas production, as well as higher international prices, in spite of the 17% (R$ million)
appreciation of the average real rate to the U.S. dollar and of the lower appreciation of heavy crude oil prices in (624)
(517)
relation to light crude oil prices in the international market.
The spread between the average national oil price sold/transferred and the average Brent price increased from
US$ 4,72/bbl in 2004 to US$ 8,96/bbl in 2005.
Increase in gross profit was partially offset by the R$ 731 million increase in prospecting and drilling costs due 2005 2004
the write-off of dry holes and/or uneconomical wells, and the restatement of the abandonment provision.
2005 reported improved energy sales, considering the new agreements entered into. Operating revenues from
natural gas sales remained positive, in view of the 9% increase in the sales volume and the natural gas sale price
realignment, in spite of increased operating expenses.
However, the sales performance was not sufficient to offset losses on energy generation considering continuous
low prices in the local market, as well as expenses recorded in 2005 relating to negotiated contractual issues and
to the acquisition of thermoelectric plants, aimed at reducing contingent risks.
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5. These combined aspects led the Gas and Energy segment to record losses of R$ 624 million in 2005, 21% In 2005, the International business area reported net income of R$ 567 million, 63% greater than net income
higher than the losses of R$ 517 million reported in the prior year. of R$ 347 million recorded in 2004.
Excluding the extraordinary expenses, the Energy and Gás business area would have reached in 2005 This increase in net income was due to the following aspects:
an operational income of R$ 38 million (operational income of R$ 111 million in 2004) and a loss net of tax Increase of R$ 355 million in gross profit due to higher international oil prices, to increased gas sales from
effects, of R$ 223 million (loss of R$ 471 million in 2004). Bolivia to Brazil, and to the agreement for the sale of Bolivian gas to Argentina initiated in June 2004.
These effects were partially offset by: i) decreasing production in Argentine and Angolan mature fields;
d. Distribution ii) production cost increase in Bolivia due to an increase in the hydrocarbon tax rate from 18% to 50%, effective
May 2005; iii) lower trading margins for diesel oil and gasoline in Argentina due to restrictions imposed by the
Result per Business Area
Distribution local government on sale prices; and iv) 12% appreciation of the Brazilian real in relation to the U.S. dollar in
(R$ million) the financial statements translation process;
784 Increase of R$ 79 million in gains from equity pickup due mainly to earnings resulting from operations
623 developed by PEPSA's related parties, especially with regard to the electric energy segment in Argentina.
These effects were partially offset by an increase of R$ 106 million in operating expenses due to the write-off
of tax credits in Ecuador and to the increase in general and administrative expenses.
2005 2004
f. Corporate
In 2005, the distribution business area recorded net income of R$ 784 million, 26% higher than net income
Result per Business Area
reported in the previous year (R$ 623 million), as a result of the R$ 636 million increase in gross profit, especially Corporate
due to the consolidation of Liquigás (company acquired in August 2004), favorably impacting the sales volume, (R$ million)
10% higher than that of 2004. (4.096)
(3.677)
These impacts were partially offset by the R$ 226 million increase in selling and general and administrative
expenses, which consider in commercialization, distribution and payroll expenses.
The Company's share in the fuel distribution market in 2005 was 33,8% (552 thousand bbl/day), including the
company Liquigás, while in 2004 this share was 31,6% (500 thousand bbl/day). 2005 2004
In 2005, Liquigás contributed gross profit and net income of R$ 548 million and R$ 111 million, respectively.
From August to December 2004, Liquigás' share in gross profit and net income was R$ 319 million and R$ 155 Corporate activities of the PETROBRAS Group generated losses of R$ 4.096 million in 2005, an 11% increase over
million, respectively. losses reported in 2004 (R$ 3.677 million), relating especially to personnel, publicity and institutional advertising
costs, and to the change in assumptions as a result of the actuarial review of Health Care (AMS) and Pension
e. International (Petros) plans for retirees and pensioners.
Part of these effects was offset by the R$ 767 million decrease in net financial expenses, mainly resulting from
Result per Business Area
International the higher appreciation of the Brazilian real in relation to the U.S. dollar during the year (12%) as compared to the
(R$ million) previous year (8%) on loans and financing.
567
347
2005 2004
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6. In 2005, the following extraordinary items impacted net income (consolidated and by segment) recorded by Statement of Extraordinary Items as of December 31, 2004
PETROBRAS Group:
Year - R$ Million
E & P SUPPLY GAS & ENERGY DISTRIB. INTERN. CORPOR ELIMIN. TOTAL
3.1. Extraordinary Items Net Income (Loss)
per business area 29.101 3.604 42 828 1.938 (4.796) (787) 29.930
Extraordinary Items December 31, 2005 Extraordinary Items:
Contractual losses on
Year - R$ Million transportation services (Ship or Pay) - - - - 169 - - 169
E & P SUPPLY GAS & ENERGY DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
Social Security Contingencies (INSS) 135 - - - - - - 135
Net Income (Loss)
per business area 36.518 8.482 (456) 1.238 2.187 (6.427) (1.769) 39.773 Estimated costs for future abandonment
Extraordinary Items: and dismantling of áreas (412) - - - - - - (412)
Contractual losses on
transportation services (Ship or Pay) - - - - 147 - - 147
Write off of subscription bônus in Angola - - - - 192 - - 192
Net gains on assets exchange - - - - - (146) - (146)
Tax Credit at PEPSA - - - - (239) - - (239)
Loss on fiscal claims related to ICMS tax - 286 - - - - - 286
Social Security credits recovered - - - - - 165 - 165
Effect of changes in the regulatory enviroment - - - - 23 - - 23 Taxes unduly paid - 94 - - - - - 94
Reinstatement of termoeletrics Expenses related to pending contractual
output capacity in Northeast - - 118 - - - - 118 obligations with thermoeletrics - - 69 - - - - 69
Expenses related to pending contractual Subtotal Extraordinary Items (277) 94 69 - 122 165 - 173
obligations with thermoeletrics - - 376 - - - - 376
Operacional result without
Subtotal Extraordinary Items - 286 494 - 170 (146) - 804 the extraordinary itens effects 28.824 3.698 111 828 2.060 (4.631) (787) 30.103
Operacional result without Net Income (Loss)
the extraordinary itens effects 36.518 8.768 38 1.238 2.357 (6.573) (1.769) 40.577 per business area 18.083 2.553 (517) 623 347 (3.677) (525) 16.887
Net Income (Loss) per Extraordinary Items (277) 94 69 - 122 165 - 173
business area 22.699 5.556 (624) 784 567 (4.096) (1.161) 23.725
Tax Effects 94 (32) (23) - (123) (56) - (140)
Extraordinary Items - 286 494 - 170 (146) - 804
Net income (Loss) per business
Tax Effects - (98) (93) - (87) 50 - (228) área excluding extraordinary items 17.900 2.615 (471) 623 346 (3.568) (525) 16.920
Net income (Loss) per business
área excluding extraordinary items 22.699 5.744 (223) 784 650 (4.192) (1.161) 24.301
4. Operating Revenues - PETROBRAS System
Gross operating revenues recorded by Petrobras and its subsidiary companies amounted to R$ 179.065 million,
a 19% increase over the prior year. The Company's consolidated net operating revenues, excluding taxes and other
financial charges due on billings, were R$ 136.605 million in 2005 (R$ 111.128 million in 2004).
Sales volumes in the domestic market grew 2% in 2005 over 2004, especially as a result of increased gasoline
sales (4%), increased demand due to the growing fleet of urban and gas-powered vehicles (9%), increased
industrial demand and the number of vehicle conversions into the natural gas system. The increase in sales of
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7. these products was partially offset by a decrease in sales of fuel oil (8%) due to fierce competition of replacement 5. Financial Income and Expenses
products such as coal, coke, biomass, firewood and natural gas. Demand for diesel oil remained practically stable
when compared to 2004, especially because of agricultural performance and increased product prices, which also In 2005, financial the consolidated financial result was negative in R$ 2.843 million (R$ 1.061 million - Parent
contributed to the market downturn. Company), while the year before, R$ 3.321 million (R$ 564 million - Parent Company). Foreign exchange variation
is impacted by the effects of the appreciation of the Brazilian real in relation to the U.S. dollar during the year (12%)
YEAR
when compared to the prior year's appreciation (8%), together with the fact that the parent company's relationship
2005 2004 ∆%
Sales volume - thousand barrels per day with foreign subsidiaries and affiliated companies has turned from debtor to creditor.
Diesel 665 656 1
NET FINANCIAL EXPENSES (IN R$ MILLION)
Gasoline 287 275 4
CONSOLIDATED PETROBRAS
Fuel oil 99 108 (8) 2005 2004 2005 2004
Financial expenses
Naphtha 157 157 -
Loans and financing (3.509) (3.647) (658) (710)
LPG 213 210 1
Suppliers (44) (22) (1.515) (1.441)
QAV 78 74 5
Other (1.011) (1.511) (70) (102)
Other 156 157 (1)
(4.564) (5.180) (2.243) (2.253)
Total oil products 1.655 1.637 1
Financial income
Alcohol, Nitrogen and others 28 32 (13)
Short-term investments 358 468 (188) 30
Natural gas 228 210 9
Subsidiaries and affiliated companies - - 2.043 1.141
Total local market 1.911 1.879 2
Advances to suppliers 79 93 79 93
Exports 512 416 23
Advances to Petros 73 74 73 74
International sales 385 416 (7)
Loans granted 93 106 - -
Total international market 897 832 8
Other 748 535 362 273
Total 2.808 2.711 4
1.351 1.276 2.369 1.611
Monetary and exchange variations
Monetary variation - gains 131 307 116 606
Monetary variation - losses (209) (590) (174) (454)
Sales Volume - Internal Market - 2005
Exchange variation - gains (1.243) (122) (4.185) (3.020)
(1.911 thousands barrels/day)
4% QAV Exchange variation - losses 1.691 988 3.056 2.946
Fuel Oil 5%
370 583 (1.187) 78
Naphtha 8%
Net financial expenses (2.843) (3.321) (1.061) (564)
LPG 11% 35% Diesel
Others 10%
Natural Gas 12% 15% Gasoline
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8. 5.1. Foreign Exchange Exposure Inventories - Consolidated - 12.31.2005
(R$ millions)
PETROBRAS foreign exchange exposure is measured as follows:
R$ million
CONSOLIDATED 1.909
12.31.2005 12.31.2004
Assets
Current assets 17.531 18.765 1.939 5.400
Cash and cash equivalents 4.658 9.843 Row Materials
Other current assets 12.873 8.922 Oil Products
Noncurrent assets 3.009 2.499 Materials ans Suppliers
4.359
Others
Permanent assets 29.097 25.747
Investments (272) 145
Property, plant and equipment 28.777 24.806
Other permanent assets 592 796
Inventories - Consolidated - 12.31.2004
Total assets 49.637 47.011
(R$ millions)
Liabilities 1.572
Current liabilities 15.141 13.874
Financing 7.393 7.560 1.855
Suppliers 4.583 3.587 6.447
Other current liabilities 3.165 2.727
Row Materials
Noncurrent liabilities 30.082 37.000
Oil Products
Financing 28.498 35.177 Materials and Suppliers
4.390
Other noncurrent liabilities 1.584 1.823 Others
Total liabilities 45.223 50.874
Net liabilities in Reais 4.414 (3.863)
7. Petroleum and Alcohol Account
(+) Financial Investment Funds - Foreign exchange 11.469 8.349
(-) FINAME loans - in reais indexed to the dollar 627 870 R$ Million
Net assets in Reais 15.256 3.616 2005 2004
(5)
Opening balance 749 689
Net assets in U.S. dollars 6.518 1.362
Reimbursements to PETROBRAS - 4
(5) Considers the translation of amounts expressed in reais using the U.S. dollar selling rate at the balance sheet date (2005 - R$ 2,3407 and 2004 - R$ 2,6544).
Intercompany loan charges 21 14
Partial settlement - (8)
Regularization – GTI* - 50
6. Inventories Closing balance 770 749
The consolidated inventories of crude oil, oil products, raw materials and alcohol amounted to R$ 13.607 million (*) Governmental Audit Work Group
at December 31, 2005, 5% lower than the figure for December 31, 2004, while inventory balances at the
parent company decreased by 11% over the prior year. As defined by Law Nº 10.742 dated October 6, 2003, the settlement of accounts should have been completed
by June 30, 2004. After having provided all information required by the National Treasury Secretariat (STN),
PETROBRAS has been in contact with the Ministry of Energy and Mines (MME) with a view to resolving the
differences between the parties in order to conclude the settlement process as established by Provisional Measure
Nº 2.181-45, of August 24, 2001.
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9. The remaining balance may be paid with National Treasury Bonds issued at the same amount as the final 9. Indebtedness
balance determined as a result of the process for the settlement of accounts, or other amounts that might be owed
by PETROBRAS to the Federal Government, including taxes due, or a combination of the foregoing. At December 31, 2005, consolidated indebtedness for local and foreign loans and financing totaled R$ 48.242
million, as shown below:
8. Investments R$ Million
CONSOLIDATED
DETAILS 2005 2004
In Brazil, PETROBRAS invested primarily in developing its oil and natural gas production capacity, through its own Short term:
investments and through structured undertakings with partners. In 2005, total consolidated investments reached Financing 10.503 8.805
R$ 25.710 million (R$ 22.549 million in 2004). Leasing 613 770
Subtotal 11.116 9.575
Consolidated Investiments
(R$ million) Long term:
Financing 34.439 42.977
14.000 13.934
Leasing 2.687 3.251
13.000 12.441
12.000 Subtotal 37.126 46.228
11.000
Total indebtedness 48.242 55.803
10.000
(-) Cash and cash equivalents (23.417) (19.987)
9.000
8.000 Net indebtedness 24.825 35.816
7.000
6.000
5.000
PETROBRAS' net indebtedness at December 31, 2005 amounted to R$ 24.825 million, a 31% decrease over
4.000 3.907
3.286 3.153
3.000
December 31, 2004. Appreciation of the Brazilian real in relation to the U.S. dollar has contributed to lower
2.331 2.385
2.000 1.527 indebtedness. We can also mention a better indebtedness level as measured by the Net indebtedness/EBITDA
1.223
1.000 624 775
625 495 532 ratio, which decreased from 0,97 as of December 31, 2004 to 0,52 as of December 31, 2005. Capital structure
311 454 169
87
0
Exploration Supply Gas and International Distribution Corporate SPE Ventures Project is represented by a 52% sharer in the capital of third parties as of December 31, 2005, a decrease of 6 percentage
and Energy under Financings
Production Negotiation points when compared to December 31, 2004.
JAN/DEC - 2005 JAN/DEC - 2004
Of total own investments made in the country by PETROBRAS System in 2005, 54% were employed to exploration 10. Value Added
and production development activities, of which were invested in the Campos Basin alone R$ 4.486 million.
The principal investments made in 2005 in the Exploration and Production area were in the following fields: The value added by PETROBRAS in 2005 was R$ 115.311 million (R$ 95.404 million in 2004), as shown below:
Marlim Sul (R$ 764 million), Roncador (R$ 579 million), Albacora Leste (R$ 745 million), Jubarte/Cachalote
(R$ 234 million), Marlim Leste (R$ 82 million) and Barracuda/ Caratinga (R$ 138 million), located in the Campos Basin.
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10. Value Added Distributed in 2005 At an Extraordinary General Meeting held on April 3, 2006, the shareholders of PETROBRAS approved an
(R$ million)
increase in the Company's capital R$ 32.896 to R$ 48.248, through the capitalization of revenue reserves accrued
9.643
during previous financial years, in the amount of R$ 15.013 million, R$ 844 million to statutory reserve and
8%
R$ 14.169 million to retained earnings, and the reserve for restatement of realized capital in the amount of R$ 339
17.110
15% million and without the issuance of new shares.
63.810
56%
Government Entities b. Retention of earnings
Shereholders
24.748
Financial Institutions and Suppliers
The proposal for appropriation of net income for the year ended December 31, 2005 includes retained earnings
21%
Personnel in the amount of R$ 15.104 million, R$ 15.095 million of which relate to net income from the year and R$ 9 million
R$ 115.311 million from the remaining balance of retained earnings, intended to cover part of the annual investment program defined
in the 2006 Capital Budget, to be approved at the General Shareholders' Meeting of April 3, 2006.
Value Added Distributed in 2004 c. Stockholders' Remuneration
(R$ million) Based on the Company's by-laws, the Board of Directors of PETROBRAS proposed to the Ordinary General Meeting
7.516 to be held on April 3, 2006 the distribution of dividends for 2005 in the amount of R$ 7.018 million, equivalent
8%
to 31,80% of the basic income for dividend purposes. The dividend is equivalent to R$ 1,60 per common or
13.303
14%
preferred share and represents dividend yields of 3,9% and 4,3% (4,3% and 4,7% in 2004) of common and
56.015
preferred shares, respectively.
59%
Government Entities
18.570
19% Shereholders
Financial Institutions and Suppliers VALUE PER SHARE
Personnel DIVIDENDS TO BE DELIBERATED AT THE ORDINARY GENERAL MEETING ON AND PN R$ MILLION
Interest on Capital - Approved by the Board of Directors on Jun 17, 2005. 0,50 2.193
R$ 95.404 million
Interest on Capital - Approved by the Board of Directors on Dec 16, 2005. 0,50 2.193
Interest on Capital - Proposed by the Board of Directors on Feb 17, 2006. 0,25 1.097
Dividends - Proposed by the Board of Directors on Feb 17, 2006. 0,35 1.535
11. Stockholders Equity and Dividends TOTAL DIVIDENDS 1,60 7.018
a. Capital
The Extraordinary Shareholders' Meeting held on July 22, 2005 decided and approved a 300% share split, resulting Dividends proposed include interest on capital in the amount of R$ 5.483 million (R$ 1,25 per share), subject to
in the free distribution of the same type of shares on a three-for-one basis, considering the shareholding position 15% withholding income tax, except for immune and exempt stockholders. On January 5, 2006, the company
as of August 31, 2005. Accordingly, capital amounting to R$ 33.235 million, has been represented, as of prepaid interest on capital (R$ 2.193 million) to holders of common and preferred shares as of June 30, 2005.
September 1, 2005, by 4.386 million shares with no par value, 2.537 million of which are common and 1.849 The balance of dividends and the amount referring to interest on capital will be made available on a date to be
million are preferred; the ratio between American Depositary Receipts (ADR) and each share type has changed defined at the Ordinary General Meeting, being monetarily restated from December 31, 2004 to the date of payment,
from “one share per one ADR” to “four shares per one ADR”. based on the SELIC rate variation.
16 | PETR OBRA S 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 2005 PETR OBRA S 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 2005 17

11. Report of Auditors
To the Board of Directors and Shareholders of PETRÓLEO BRASILEIRO S.A. - PETROBRAS
1. We have audited the accompanying balance sheets of PETRÓLEO BRASILEIRO S.A. - PETROBRAS and the
consolidated balance sheets of PETRÓLEO BRASILEIRO S.A. - PETROBRAS and its subsidiaries, jointly-owned
subsidiaries and special purposes companies as of December 31, 2005 and 2004, and the related statements
of income, changes in shareholders' equity and changes in financial position for the years then ended. These
financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements.
2. We conducted our audits in accordance with auditing standards generally accepted in Brazil including: (a) the
planning of our work, taking into consideration the materiality of balances, the volume of transactions and the
accounting and internal control systems of the Company, (b) the examination, on a test basis, of the
documentary evidence and accounting records supporting the amounts and disclosures in the financial
statements, and (c) an assessment of the accounting practices used and significant estimates made by
management, as well as an evaluation of the overall financial statement presentation.
3. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
financial
financial statements
statements
position of PETRÓLEO BRASILEIRO S.A. - PETROBRAS and the consolidated financial position of PETRÓLEO
BRASILEIRO S.A. - PETROBRAS and its subsidiaries at December 31, 2005 and 2004, and the results of their
operations, the changes in their shareholders' equity and the changes in their financial position for the years then
ended, in accordance with the accounting practices adopted in Brazil.
4. Our audits were conducted for the purpose of forming an opinion on the financial statements referred to in the
first paragraph. The social balance sheet and the statements of cash flow (consolidated and parent company), of
value added (consolidated and parent company) and segmentation of business (consolidated), prepared in
accordance with the accounting practices adopted in Brazil, are presented for purposes of additional information
and are not a required part of the basic financial statements. Such information has been subjected to the auditing
procedures described in the second paragraph and, in our opinion, is fairly stated in all material respects in relation
to the basic financial statements taken as a whole.
5. As mentioned in Note 1, in compliance with CVM Instruction Nº 408, of August 18, 2004, the Company has
included as of January 1, 2005 the Special Purpose Companies (SPCs) in its consolidated financial statements.
For comparability purposes, these SPCs have also been included in the financial statements for the year ended
December 31, 2004.
Rio de Janeiro, February 17, 2006
ERNST & YOUNG Auditores Independentes S/S ACCOUNTANT Paulo José Machado
CRC – 2SP 015.199/O-6 – F - RJ CRC – 1RJ 061.469/O-4
PETR OBRA S 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 2005 19

12. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Balance Sheet
Years ended December 31, 2005 and 2004
(In thousands of reais)
CONSOLIDATED PARENT COMPANY CONSOLIDATED PARENT COMPANY
ASSETS 2005 2004 2005 2004 LIABILITIES AND SHAREHOLDERS' EQUITY 2005 2004 2005 2004
Current assets Current liabilities
Cash and cash equivalents (Note 3) 23.417.040 19.986.848 17.481.555 11.580.288 Financing (Note 13) 8.589.629 8.219.855 1.499.012 1.144.973
Restricted bank accounts 85.229 217.748 Interest on financing (Note 13) 1.913.369 585.374 156.709 165.265
Accounts receivable, net (Note 4) 14.148.064 10.977.519 10.676.578 7.421.319 Suppliers 8.976.359 9.054.723 24.865.115 26.949.707
Dividends receivable (Note 5a) 41.907 48.625 945.676 440.240 Taxes, contribution and participation (Note 16b) 8.931.341 7.854.014 7.292.508 6.583.563
Inventories (Note 6) 13.606.679 14.263.518 10.337.565 11.555.627 Dividends (Note 19c) 7.165.878 5.141.363 7.017.843 5.044.074
Taxes, contributions and participations (Note 16a) 6.550.997 4.842.714 4.037.175 2.966.007 Project financings (Note 9d) 28.135 64.106 2.421.806 4.652.469
Prepaid expenses (Note 11e) 941.016 490.366 680.787 735.261 Provision for pension plan (Note 17c) 482.942 441.374 461.848 414.865
Other current assets 1.444.258 1.958.862 535.395 744.528 Payroll and related charges 1.196.281 873.561 978.222 653.812
60.235.190 52.786.200 44.694.731 35.443.270 Contingency accrual (Note 20a) 167.645 339.612 167.645 333.111
Noncurrent assets Advances from customers 1.626.854 780.028 1.054.783 381.719
Accounts receivable, net (Note 4) 1.587.771 1.914.788 28.151.479 35.220.122 Other payables 3.281.717 3.371.877 1.780.189 1.613.792
Petroleum and Alcohol Account - STN (Note 7) 769.524 748.788 769.524 748.788 42.360.150 36.725.887 47.695.680 47.937.350
Marketable securities (Note 8) 618.091 858.873 7.601 4.840 Long-term liabilities
Project financings (Note 9a) 569.030 1.830.257 Financing (Note 13) 34.439.489 42.976.885 6.408.872 8.589.120
Advances to suppliers 684.235 958.692 684.235 958.692 Subsidiaries and affiliated companies (Note 5b) 39.954 276.328 1.925.046 3.420.119
Judicial deposits (Note 10) 1.818.185 1.815.104 1.443.834 1.068.657 Deferred income tax and social contribution (Note 16c) 8.461.721 7.474.135 6.270.290 5.263.660
Investments in privatization process (Note 11d) 3.454 331.589 1.475 1.476 Provision for pension plan (Note 17c) 1.898.360 696.273 1.749.036 601.347
Prepaid expenses (Note 12e) 1.362.800 1.513.045 1.060.967 1.076.077 Provision for health care benefits (Note 17c) 7.030.939 5.673.650 6.477.127 5.214.410
Advance for migration - pension plan (Note 17a) 1.205.358 1.217.612 1.205.358 1.217.612 Contingency accrual (Note 20a) 614.568 632.721 225.251 220.721
Deferred income tax and social contribution (Note 16c) 4.337.361 4.148.685 2.333.641 2.030.268 Other payables 3.228.563 2.766.832 2.558.578 2.135.582
Compulsory loans ELETROBRAS 117.811 117.488 117.811 117.488 55.713.594 60.496.824 25.614.200 25.444.959
Inventories (Note 6) 492.777 265.296 492.777 265.296 Deferred income 483.274 502.171
Other noncurrent assets 1.104.861 1.018.548 763.816 588.090 Minority interest 6.178.854 4.811.315
14.102.228 14.908.508 37.601.550 45.127.663 Shareholders' equity (Note 19)
Permanent assets Capital 33.235.445 33.235.445 33.235.445 33.235.445
Investments (Note 11b) 2.280.702 2.078.758 20.366.625 14.048.878 Capital reserves 372.064 354.673 372.064 354.673
Property, plant and equipment (Note 12) 105.429.354 93.323.224 50.772.065 42.582.076 Revaluation reserve 60.120 69.094 60.120 69.094
Deferred charges 1.473.634 1.569.676 578.175 434.058 Revenue reserves 45.117.607 28.470.957 47.035.637 30.594.424
109.183.690 96.971.658 71.716.865 57.065.012 78.785.236 62.130.169 80.703.266 64.253.636
Total assets 183.521.108 164.666.366 154.013.146 137.635.94 Total liabilities and shareholders' equity 183.521.108 164.666.366 154.013.146 137.635.945
The accompanying notes form an integral part of these financial statements.
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13. Statement of Income Statement of Changes in Financial Position
Years ended December 31, 2005 and 2004 Years ended December 31, 2005 and 2004
(In thousands of reais, except per share amounts) (In thousands of reais)
CONSOLIDATED PARENT COMPANY CONSOLIDATED PARENT COMPANY
2005 2004 2005 2004 2005 2004 2005 2004
Gross operating revenues Financial resources were provided by
Sales Operations:
Products 177.595.324 149.973.540 143.276.549 119.709.723 Net income for the year 23.724.723 16.887.398 23.450.082 17.754.171
Services, mainly freight 1.469.960 466.619 389.181 315.004 Minority interest 1.022.923 1.683.100
179.065.284 150.440.159 143.665.730 120.024.727 Equity pickup 158.529 129.761 (1.816.395) (1.345.357)
Sales deductions (42.460.206) (39.312.400) (37.843.204) (34.450.292) Goodwill/discount - amortization 91.595 14.900 34.372 (4.522)
Net operating revenues 136.605.078 111.127.759 105.822.526 85.574.435 Dividends 172.977 202.545 990.935 546.885
Cost of products and services sold (77.107.946) (65.069.329) (57.512.113) (48.607.576) Depreciation and amortization 8.034.716 6.868.355 3.739.373 3.807.002
Gross profit 59.497.132 46.058.430 48.310.413 36.966.859 Transactions with subsidiaries and affiliated companies 3.277.858 (13.248.121)
Net book value of permanent assets written off 3.999.654 1.774.139
Operating expenses Proceeds from the sale of platforms and vessels 2.411.575 2.734.006 1.106.798 1.097.034
Selling (5.477.419) (4.751.890) (4.195.157) (2.858.630) Proceeds from the sale of equipment (6.453) (40.168)
Financial (Note 14) Monetary and exchange variation and net earnings
Expenses (4.564.773) (5.180.059) (2.242.658) (2.252.841) on noncurrent assets and long-term liabilities (4.083.087) (2.015.160) (768.921) 127.926
Income 1.351.410 1.276.134 2.369.097 1.611.385 Employee benefits and other provisions 3.306.932 2.555.545 2.928.199 2.195.396
Net monetary and exchange variation (Note 14) 370.536 583.346 (1.187.233) 77.243 Deferred income tax and social contribution, net 1.983.578 1.733.745 491.471 821.126
General and administrative Other 19.167 (70.291)
Directors' fees (28.845) (26.390) (4.089) (3.214) 40.824.117 32.568.334 33.446.486 11.641.081
Administrative (5.401.953) (4.117.811) (3.449.664) (2.596.338) Other sources:
Taxes (895.208) (1.255.033) (443.415) (807.547) Financing 5.747.298 4.573.214 373.199 369.624
Cost of research and technological development (934.600) (695.650) (932.627) (688.562) Credits and subventions for investments 17.391 14.808 17.391 14.808
Impairment (126.032) (55.205) (49.368) (55.205) Proceeds from the sale of equipment 506.187 2.516.454 2.488.610 2.662.895
Exploratory costs for the extraction of crude oil and gas (2.222.792) (1.682.664) (1.876.411) (1.164.741) 6.270.876 7.104.476 2.879.200 3.047.327
Benefits expenses (Note 17c) (2.011.016) (1.320.929) (1.888.903) (1.240.026) Total funds provided 47.094.993 39.672.810 36.325.686 14.688.408
Other operating expenses, net (Note 15) (2.626.419) (2.222.718) (2.692.062) (2.804.865)
(22.567.111) (19.448.869) (16.592.490) (12.783.341) Financial resources were used for
Increase in the Petroleum and Alcohol Account - STN 18.727 46.252 46.252
Participation in subsidiaries and affiliated companies Investments 910.167 3.041.246 1.214.962
Equity pickup (Note 11b) (250.124) (144.661) 1.782.023 1.349.879 Acquisition of minority interest 45.349
Operating income 36.679.897 26.464.900 33.499.946 25.533.397 Cost of exploration and developing
Nonoperating expenses (124.531) (207.309) (199.982) (227.772) production of oil and gas 11.385.451 10.222.766 5.041.315 5.813.253
Other 15.186.497 10.385.981 7.677.517 7.094.042
Income before social contributions, Deferred charges 360.839 388.900 204.812 169.453
income tax, profit sharing for employees Increase in ventures under negotiation 907.459 615.991
and management and minority interest 36.555.366 26.257.591 33.299.964 25.305.625 Transfer of financing and suppliers to current liabilities 9.879.227 5.706.659 1.719.940 1.394.149
Social contribution (Note 16e) (2.845.244) (1.940.903) (2.466.083) (1.830.978) Decrease in other noncurrent asset accounts 913.592 1.093.189 582.606 1.273.477
Income tax (Note 16e) (7.956.912) (4.962.966) (6.537.799) (5.060.476) Increase in noncurrent assets 370.055 811.011 639.817 221.784
Proposed dividends 7.165.878 5.470.124 7.017.843 5.044.074
Income before profit sharing for employees
Total funds used 45.280.266 35.080.398 26.832.555 22.887.437
and management and minority interest 25.753.210 19.353.722 24.296.082 18.414.171
Increase in working capital from subsidiary
Profit sharing for employees
merged and prior year adjustments 409.810
and management (Note 18) (1.005.564) (783.224) (846.000) (660.000)
Increase (decrease) in working capital 1.814.727 4.182.602 9.493.131 (8.199.029)
Income before minority interest 24.747.646 18.570.498 23.450.082 17.754.171
Minority interest (1.022.923) (1.683.100) Changes in working capital
Net income for the year 23.724.723 16.887.398 23.450.082 17.754.171 Current assets:
At end of year 60.235.190 52.786.200 44.694.731 35.443.270
Net income per share of paid-up At beginning of year 52.786.200 56.041.522 35.443.270 39.246.621
capital at year end - R$ 5,41 15,40 5,35 16,19 7.448.990 (3.255.322) 9.251.461 (3.803.351)
Net income per share after split, Current liabilities:
for comparison purpose – R$ 5,41 3,85 5,35 4,05 At end of year 42.360.150 36.725.887 47.695.680 47.937.350
At beginning of year 36.725.887 44.163.811 47.937.350 43.541.672
5.634.263 (7.437.924) (241.670) 4.395.678
The accompanying notes form an integral part of these financial statements.
Increase (decrease) in working capital 1.814.727 4.182.602 9.493.131 (8.199.029)
The accompanying notes form an integral part of these financial statements.
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