Relatorio anual 2006_ing

ANNUAL REPORT 2006 | www.petrobras.com.br

AN

NU

AL R

EP

OR

T 2

00

6

ANNUAL REPORT 2006

05002.RAi_Capa1.indd 1 6/14/07 7:42:46 PM

Renato Menezes FeRReiRaMaintenance technician (Cenpes

– Petrobras Research Center)

outlook: To make a professional contribution to society’s future and

that of the generations to come.

“Petrobras is committed to the development of technology for the expansion of its activities and the ongoing enhancement of the quality of its products.”

Profile, Mission, Vision and Values 02 Petrobras Activities 04Highlights 06Message from the CEO 10Oil Market 14Corporate Strategy 16

Business areasExploration and Production 20Refining and Commercialization 26Petrochemicals 30Transportation 34Distribution 38Natural Gas 40Energy 42

international expansion South America 50North America 53Africa 54Asia 55

social and environmental ResponsibilitySustainability Indices 58Human Resources 60Health, Safety and the Environment 65Sponsorship 72

intangible assetsTechnological Capital 78Organizational Capital 80Human Capital 82Relationship Capital 83

Business ManagementBusiness Performance 88Capital Markets 91Risk Management 96Corporate Governance 99

Contents

4456

1802

8676

� | ANNuAl REPORT 2006 | PETROBRAS

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.

Profile

Duque de Caxias refinery – Rio de Janeiro

Pro

file

| M

ISS

ION

| V

ISIO

N

MissionOperate in a safe and profitable 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.

Valuesk 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.


Petrobras activitiesAN INTEGRATED ENERGY comPANY

www.petrobras.com.br | ANNuAl REPORT 2006 | �

Petrobras activitiesAN INTEGRATED ENERGY comPANY


Highlights

�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) 30,3�3 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 E&P 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

oPERATIoNAL summARY 2006

www.petrobras.com.br | ANNuAl REPORT 2006 | 7

�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

Average daily production of

2,298 thousand boe

8 | ANNuAl REPORT 2006 | PETROBRAS

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

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

Hig

hli

gh

ts

FINANcIAL summARY 2006

��.7%�.9%8.�%

�.�%Federal Government

BNDESpar

ADR Level 3

FMP-FGTS PetrobrasForeign Investors (CMN Resolution nº 2,689)Other individuals and legal entities

Voting CaPital 2006 COmmOn ShAreS

�7.0%

1.8%

BNDESpar

ADR Level 3 and Rule 144-AForeign Investors (CMN Resolution nº 2,689)Other individuals and legal entities

non-Voting CaPital 2006 Preferred ShAreS

3�.3%

8.3%

18.3%

�.�%

Federal Government

BNDESpar

ADR (Common shares)

ADR (Preferred shares)

FMP-FGTS Petrobras

Foreign Investors (CMN Resolution nº 2,689)Other individuals and legal entities

CaPiTal SToCk 2006

1�.�%

1�.�%

7.� %

3�.�%1�.�%

3�.1%

1�.8%

SToCk YeaR-end CloSing PRiCe (r$ / ShAre) (2)

2006

2005

2004

2003

2002

�9.80��.�9

Common shares

Preferred shares

41.3037.21

26.6224.28

21.0219.10

13.2011.60


Hig

hli

gh

ts

(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.

PRoduCTion of oil and naTuRal gaS (thOuSAnd BOed)

PRoven ReSeRveS of oil and naTuRal gaS(SPe CriteriA - BiLLiOn BOe)

ConSolidaTed neT inCoMe (r$ miLLiOn)(1)

eaRningS/ShaRe (r$/ShAre) (1)(2)

MaRkeT CaPiTalizaTion vs neT equiTY (r$ BiLLiOn)(1)

debT RaTioS (3)

2006

2005

2004

2003

2002

�,�983781,9�0

370 2,2171,847

359 2,0201,661

335 2,0361,701

1,8102751,535

2006

2005

2004

2003

2002

1�.01�.3 �.7

2.612.3 14.9

2.8 14.912.1

2.9 14.511.6

2.3 12.19.9

2006

2005

2004

2003

2002

16,887

��,919

23,725

17,795

8,098

2006

2005

2004

2003

2002

3.85

�.91

5.41

4.06

1.86

2002 2003 2004 2005 2006

54

87112

174

�30

977862

49

34

Market capitalization

Net equity

2006

2005

2004

2003

200254%

16%41%

18%

17%32%

24%23%

1�%�8%

Short Term Debt/Total Debt

Net Debt/Net Capitalization

gRoSS, oPeRaTing and neT MaRginS

Gross Margin

Operating Margin

Net Margin

�0%�7%

1�%

44%29%

17%

41%27%

15%

45%29%

19%

36%20%

12%

2006

2005

2004

2003

2002

Oil Natural Gas

Oil Natural Gas


José seRgio gaBRielli De azeVeDoPetrobras President and Ceo

outlook: leadership in oil, natural gas, oil products and biofuels in

latin america by 2015, with selective expansion in petrochemicals and

renewable energy.

“Petrobras is on the right path to becoming an integrated energy company with international reach, striving always for growth allied with profitability and social and environmental responsibility.”


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

Message from the cEo

1� | ANNuAl REPORT 2006 | PETROBRAS

includes projects for the processing and transportation of natural

gas, aims to increase the share of Brazilian gas supplying domestic

demand. Following the company’s strategy to guarantee safety and

flexibility in supplying the Brazilian market, Petrobras sanctioned

its entry into the liquefied natural gas (LNG) market as an importer

and continued with its expansion of the gas pipeline network. .

***other milestones in 2006 were the launching of Diesel

Podium and the development of H-Bio – a pioneering technol-

ogy from Petrobras that combines vegetable oil with fractions of

mineral oil in the production of diesel fuel. The company also

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

social and environmental commitments, Petrobras fortified its

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-

ment and income for family subsistence farmers, the product will

help to reduce imports of diesel fuel and light oil.

Despite the high prices and volatility of the oil market, the

company’s results were sustained by production growth, without

passing on the price instability to the domestic market. Brent oil

hit a peak of US$ 78.63 a barrel in August, but closed the year down

25%, back around the US$ 60 level, the same as when Petrobras

Me

ssa

ge

fro

m t

he c

Eo

The goals are ambitious, leading Petrobras, for the first time ever, to plan its production over the long term: 4 million 556 thousand barrels a day (bpd) of oil and natural gas in 2015. The anticipated investment to bring this about is compatible with the huge scale of the projects themselves: us$ 87.1 billion up to 2011.

announced its last readjustment in the price of gasoline and diesel

fuel, in September 2005.

***the company’s excellent results in Brazil are mirrored

by its performance abroad. In addition to strengthening activi-

ties in the countries where it is already established, Petrobras

augmented its involvement in focus areas such as Africa and the

American sector of the Gulf of Mexico. Furthermore, it expanded

its activities in international refining, with the acquisition of a 50%

stake in the Pasadena refinery, in the United States, and is looking

at other refining prospects abroad. The objective is to add value


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

Me

nsa

ge

m d

o P

rsid

ente

Castor bean plantation, Morro do Chapéu, BahiaRecord net

earnings of

25.9 billion reais in 2006


oil market

with an accumulation of inventories, and yet prices remained

high. Despite a slowing of the growth in world demand, influenced

by the high prices, oil continued to earn a risk premium, due to

the geopolitical instability provoked by events such as Israel’s

incursion into Lebanon and the nuclear issue in Iran. Aware that

geopolitical questions in the Middle East would keep prices high,

OPEC maintained its production quotas at the same level for most

The year 2006 saw a break in the continuous upward movement

of oil prices, which began in 2002. Although the price of Brent oil

reached a peak of US$ 78.63 a barrel in August, it had fallen back

25% by the year end. The average price, over the course of the

year, was US$ 11 higher than that of 2005, while the market has

become more volatile.

As in previous years, there was a supply surplus in 2006,

oil PRiCeS (noMinal) (uS$/BArreL)

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Dec

06

80.00

70.00

60.00

50.00

40.00

30.00

20.00

10.00

0.00

West Texas Intermediate

Brent

August 7, 2006 Brent peak price US$ 78.63/barrel

July 14, 2006WTI peak price US$ 77.03/barrel

January 2001 WTI US$ 27.21/barrel Brent US$ 22.97/barrel





www.petrobras.com.br | ANNuAl REPORT 2006 | 1�

of the year, thus favoring the building up of inventories.

The upward price trend began to be reversed when August

went by and fears that the Atlantic hurricane season would be as

devastating as that of 2005 were not realized. Amid controversy over

the influence of speculation on prices, the fact that there were no

major hurricanes obliged OPEC to announce cuts in production,

for the first time since December 2004 and the biggest reduction

since 2002. The first announcement was made in September and

the second came in December, effective as of February 2007.

Another factor pushing down prices, towards the end of

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

years may be coming to an end.

Ever since the August peak, the market has been char-

acterized by what analysts call a “correction movement” – with

prices oscillating downwards, as the market seeks a new balance

between supply and demand, against a backdrop of changing sen-

timent regarding potential shortages brought about by a disrup-

tion in supply. This downward movement in oil prices has, once

again, shown how susceptible prices are to the impact of unfore-

seeable events – something the world oil market has always had

to live with. +

transpetro fleet tanker “navion stavangar”

bRenT oil hiT

78.63 dollaRS a baRRel in auguST

oil

ma

rket


Petrobras has retained its aggressive growth targets in its Business

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

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

market or by expanding the export of oil products. Petrobras thus

seeks to strike a long term balance between production growth

and refining capacity. In the renewable energy market, the focus

is on biofuels, within a corporate strategy of leadership in the pro-

duction of biodiesel in Brazil and augmenting sales of ethanol.

Brazilian production of oil and natural gas will reach 2 million

925 thousand boed by 2011. Paralleling this increase, the country’s

refineries will be processing 1 million 877 thousand bpd and the

daily throughput of Brazilian oil will rise to 1 million 710 thousand

bpd. With this expansion, the company will raise the proportion

of domestic oil processed in the refineries from the current 80%

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.

Of the total planned investment for the period 2007-2011

— amounting to US$ 87.1 billion, an average of US$ 17.4 billion a

year —, US$ 75 billion (86%) is to be invested in Brazil, leading to

the creation of 838 thousand direct and indirect jobs. The greatest

investment will be in the areas of Exploration & Production and Gas

& Energy and in the Downstream area of Supplies. With US$ 12.1 bil-

lion (14%) earmarked for investment abroad, 65% will go into Latin

America, western Africa and the Gulf of Mexico — which are all a

priority within Petrobras’ strategy for international expansion.

Petrobras’ production abroad, which in 2006 amounted

to 243 thousand boed of oil and natural gas, will increase to 568

corporate strategy

1�%

Planned inveSTMenT 2007-2011(uS$ BiLLiOn)

8�%

Planned inveSTMenT PeR buSineSS aRea 2007-2011 (uS$ BiLLiOn)

BUSINESS AREAExploration & Production 40.7

Downstream 23.1

Gas & Energy 7.2

International 12.1

Distribution 2.2

Corporate Areas 1.8

Total 87.1

Own Resources

Third Party Resources

thousand boed by 2011, while the company’s throughput in refiner-

ies outside Brazil will reach 499 thousand bpd.

Growth in the production of oil and NGL and in the

finanCial ReSouRCeS: SouRCeS vs uSeS(2007-2011 fOreCASt, in uS$ BiLLiOn)

12.2

99,3

87.1

86.7 12.6

99,3

Investment

Debt Amortization

In Brazil

Abroad


87.1billion dollars to be invested during the period 2007-2011

PRoduCTion vs Refining (thOuSAnd BPd)

forecast 2015

target 2011

2006

3,554

3,201

1,9�01,87�

2,757

2,376

Total production of oil and NGL

Total primary throughput

Oil + NGL – Brazil

Oil + NGL – Abroad

PRoduCTion gRowTh (thOuSAnd BOed)

2003 2004 2005 2006 target forecast 2011 2015

2,036 2,0202,217

�,�98

3,493

4,556

1,540 1,493 1,684 1,7782,374

2,812

2007-2015 7.9% p.a.

2007-2011 8.7% p.a.

85161250

94168265

96163274

101142277

185383551

278

742

724

Natural Gas – Brazil

Natural Gas – Abroad

throughput of the refineries preserves the balance between

Exploration & Production, on the one hand, and the company’s

Downstream area, on the other, while opening up opportunities for

the integration of these activities in Brazil and abroad.

As part of its corporate strategy for consolidation as an inte-

grated energy company with international reach, Petrobras is placing

greater emphasis on its renewable energy goals. By 2011, the company

should be making available 855 thousand m3/year of biodiesel and

exporting 3.5 million m3 of ethanol. The capacity of the thermoelectric

and co-generation plants, meanwhile, will have reached 4,554 MW.

Petrobras maintains the policy of keeping its prices aligned

with those of the international market. The company’s forecast cash

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

funds in the financial markets and the amortization of debt will be

in alignment with the company’s policy of extending its debt profile

and reducing its financial leverage. The average Return on Capital

Employed (ROCE) for the period should be 16%.

In line with its commitment to social and environmental

responsibility and being at the technological cutting edge, the

company will invest a total of US$ 6.2 billion in Health, Safety and

the Environment (HSE), technology, telecommunications and

Information Technology (IT) during the period 2007 to 2011.

Petrobras is pursuing its endeavors to apply in the social and

environmental spheres the level of quality achieved in its business

performance, and remains committed to the principles of transpar-

ency and responsibility in its relations with all the stakeholders.

Already internationally recognized for its standard of excellence in

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

international reputation as a Brazilian business that is dedicated to

overcoming the challenges of producing energy.

co

rpo

rate

str

ate

gy


FRanCisCo De assis PeReiRaTruck driver, for a Petrobras client,

at the betim cargo terminal

outlook: The hope for a better life is what drives us on.

“Preservation of the environment has become urgent and is the responsibility of all of us, each one according to his role. Petrobras is doing its bit, but it is too much to handle on its own.”

www.petrobras.com.br | AnnuAl RepoRt 2006 | 19

Business Areas

exploRAtion & pRoduction 20Refining And commeRciAlizAtion 26

petRochemicAls 30tRAnspoRtAtion 34

distRibution 38

nAtuRAl gAs 40eneRgy 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.

20 | AnnuAl RepoRt 2006 | petRobRAs

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

contribution to these production peaks came from the Recage pro-

gram (Program for the Rejuvenation of Heavily Exploited Fields),

The FPSO P-50, in the Campos Basin (RJ), contributing to the country’s oil self-sufficiency

Business AreasExPLorATioN & ProdUcTioN


Bu

sin

ess

Are

as

| e

xp

loR

At

ion

& p

Ro

du

ct

ion

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 m3/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)

1,270

1,336

1,500

1,540

1,493

1,684

1,778

Oil, NGL and Condensate

Natural Gas

2,812

2,374 551 2,925

724 3,536forecast

2015

target 2011

2006

2005

2004

2003

2002

2001

2000 221

232

252

250

265

274

277 2,055

1,958

1,758

1,790

1,752

1,568

1,491

1.91 million

bPd Production record in october

(1) Average annual growth in oil production: 6.76% Average annual growth in natural gas production: 3.71%


operation on February 22nd: the Peroá platform (production of

around 1 million m3/day). In Rio Grande do Norte, the Guamaré

UPGN III (production of 1.5 million m3/day) came on-stream, fol-

lowing a pre-operational phase that kicked off in December 2005.

The average lifting cost in 2006, not including the government’s

take was US$ 6.59 per barrel of oil equivalent (boe) — an increase of

15% over the previous year’s figure. The increase was mainly due to

an 11% appreciation of the local currency (real) against the US dol-

lar and to contractual readjustments, particularly drilling contracts,

as well as the oil market heating up, enlargement of the workforce,

in line with the Business Plan forecast, and the coming on-stream of

the platforms P-50, FPSO Capixaba and P-34.

The Challenge OF gROwThThe targets set down in Petrobras’ latest business plan provide for 15

major oil and 10 natural gas production projects to come on-stream

by 2011, when the company’s average production of oil and natural

gas in Brazil is estimated to reach 2 million 925 thousand boed.

During 2007, the following platforms will come on-stream

in the Campos Basin: the FPSO Cidade do Rio de Janeiro (100

thousand bpd), in the Espadarte field; the P-52 and P-54 (180

thousand bpd, each), in the Roncador field; the SSP 300 (30 thou-

sand bpd), in the Piranema field; and the FPSO Cidade de Vitória

(100 thousand bpd), in module 2 of the Golfinho field. In Bahia,

the Manati platform (6 million m3/day) will come into operation

Bu

sin

ess

Are

as

| e

xp

loR

At

ion

& p

Ro

du

ct

ion

Petrobras declared to the ANP the commercial viability of 27 discoveries, some of which are classified as new oil and natural gas fields. estimates indicate a recoverable volume of 2 billion 440 million boe: 53 million onshore and the rest all offshore.

unit liftinG cost, excludinG Government take (us$/barrell)

5.60target 2011

2006

2005

2004

2003

2002 3.00

3.36

4.28

5.73

6.59

Production of natural Gasby water depth

39%

20%

3%

38%

Total Production: 43,975 thousand m3/day

Production of oil, nGl and condensate by water depth

69%

13%5%

13%

Total Production: 1,778 thousand bpd

Onshore

0 - 300

300 - 1,500

>1,500

Onshore

0 - 300

300 - 1,500

>1,500


in 2007, augmenting the company’s production of natural gas.

Two more platforms destined for the Campos Basin are cur-

rently under construction: the P-51 and P-53 (180 thousand bpd,

each), with operational start-up scheduled, respectively, for 2008

and 2009, in the Marlim Sul and Marlim Leste fields. Additionally,

an FPSO will be leased in 2008, for use in the Jabuti area of the

Marlim Leste field.

Looking ahead to 2009, production is scheduled to begin

under the Parque das Conchas Project (100 thousand bpd), oper-

ated by Shell. 2010 should see the Frade field (100 thousand

bpd) come into operation, in a partnership with Chevron, and in

2011 the P-57 platform (180 thousand bpd), under phase 2 of the

Jubarte field, and the P-55 (180 thousand bpd), in module III of the

Roncador field, will both come on-stream.

The exploration and production of natural gas is also being

intensified, under Plangás, which is fundamental to ensuring the

supply of natural gas to the markets in the south and southeast of

Brazil. In the southeast, the supply will rise from the present 15.8 mil-

lion m3/day to 40 million m3/day by the end of 2008. In the Espírito

Santo Basin, Plangás provides for the expansion of the Peroá proj-

ect to 9.4 million m3/day and the development of the Canapu and

Camarupim fields, in addition to expansion of the Cacimbas Gas

Processing Complex to 20 million m3/day. The first phase of this

expansion (5.4 thousand m3/day) will be completed in early 2007,

when the Peroá Gas Processing Plant comes into operation. In the

Campos Basin, Plangás gives priority to the production of non-associ-

ated gas from a variety of reservoirs located near the existing infra-

structure within the Albacora, Roncador and Marlim Sul fields, as

well as initial development of the Jabuti field. In the Santos Basin, the

Merluza platform’s output will be expanded to 2.5 million m3/day,

with increased production from the Merluza field and initial devel-

opment of the Lagosta field. Plangás foresees the expansion of gas

supplies in the southeast to a total of 55 million m3/day, by 2010, with

initiation of the Mexilhão (2009) and Uruguá and Tambaú (2010)

projects, located in the Santos Basin, in addition to the Caraguatatuba

Gas Processing Plant, whose first module will come on-stream in

2009, followed by the second module in 2010.

OnShORe and OFFShORe diSCOveRieSIn 2006, Petrobras reported the commercial viability of 27 discov-

eries to the ANP (National Oil, Natural Gas and Biofuels Agency).

Some of these areas — 18 of which are located offshore and 9

onshore — were classified as new oil and natural gas fields, while

others were incorporated within neighboring fields. The explora-

tion highlight was the discovery of light oil and gas in ultra-deep

waters in the Santos Basin block BM-S-11.

Estimates of Petrobras’ stake in the new commercially viable

areas indicate a total recoverable volume in the region of 2 bil-

lion 440 million boe, but this figure is subject to a more precise

assessment. Of this total, 2 billion 387 million boe lie in offshore

accumulations and 53 million boe are to be found onshore. Ten

of the 27 areas are located in the Campos Basin; four are in the

Santos Basin; seven are in the Espírito Santo Basin; and six are

located in basins in the north and northeast of Brazil.

In the Santos Basin, three areas operated by Petrobras were

declared commercially viable and reclassified as the oil and natu-

ral gas fields of Tambuatá, Pirapitanga and Carapiá. A fourth area

was incorporated within the Mexilhão field. The total volume

is estimated at 560 million boe. In addition to these four areas,

the company has a 40% stake in two other areas that were also

reported to the ANP as being commercially viable.

What is more, the discovery of light oil and gas in block BM-

S-11, in which Petrobras has a 65% stake, opens up promising new

Bu

sin

ess

Are

as

| e

xp

loR

At

ion

& p

Ro

du

ct

ion

Cacimbas gas treatment

plant, linhares, espírito Santo


prospects not only for operations in the Santos Basin but for opera-

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

more than two thousand meters thick, in waters with a depth of

two thousand meters.

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

million boe, two areas were reclassified as the Carapó and Camarupim

gas fields and two areas containing gas and light oil were incorporated

within the Golfinho and Canapu fields. The declaration of the onshore

areas resulted in the creation of three new fields — Saíra, Seriema and

Tabuiaiá —, with a total estimated volume of 7.4 million boe, which

will help to maintain the level of onshore production.

With regard to the Campos Basin, the commercial declara-

tions covered ten areas. Seven of these were classified as new fields:

Maromba, Carataí, Carapicu, Catuá, Caxaréu, Mangangá and Pirambu.

One area was incorporated within the Baleia Azul field and two others

into the Viola and Marlim Leste fields. The total estimated volume

comes to 1 billion 510 million boe. Another important discovery was

made in the Roncador field, in reservoirs below the productive seam.

Five declarations of commercial viability were made by

Petrobras for onshore areas within coastal basins in the northeast

of Brazil. Three were classified as fields: Tangará, in the Recôncavo

Bahiano; and Pintassilgo and Jaçanã, in the Potiguar Basin. The other

two areas were incorporated within the existing fields of Baixa do

Juazeiro and Canto do Amaro, also located in the Potiguar Basin.

In addition to those, three other onshore areas were discovered in

the Sergipe-Alagoas Basin and two in the Recôncavo Basin. In the

Solimões Basin, the company declared the commercial viability of

the Araracanga field — a natural gas discovery made in 1997.

During the year, a total of 331 wells were drilled and completed

for the development of production — 283 onshore and 48 offshore.

For exploratory purposes, 80 wells were drilled — 50 onshore and 30

offshore. The exploration success rate was 48.7%, as 39 of the 80 wild-

cat wells that achieved their geological objective show good prospects

of becoming discoveries or producers of oil or natural gas.

new COnCeSSiOnSAt the ANP’s Eighth Bidding Round, held in November, Petrobras

proceeded with restructuring and extending the profile of its portfo-

lio of exploration areas. The company acquired 21 of the 22 areas for

which it bid, covering a total of 7,841.21 km2. The new concessions

that have been added to its exploratory portfolio — 13 onshore, in

the Tucano Basin, and eight in the Santos Basin — will be important

to the attainment of the oil and gas production levels called for in

the company’s Business Plan 2007-2011.

The winning bids made by Petrobras and its partners in the

eighth round came to a total of R$ 276,924,361, of which the com-

pany’s share was R$ 248,227,933.50. Petrobras has exclusive rights

to seven of the 21 blocks acquired, and is the operator in two of

them, in partnership with other companies. In the other 12 blocks,

the operations will be carried out by partners.

Bu

sin

ess

Are

as

| e

xp

loR

At

ion

& p

Ro

du

ct

ion

exPloration success rate

20%24%

23%

55%

49%39%

50%

Fazenda alegre oil treatment

and transfer unit, Jaguaré,

espírito Santo

2003 2004 2005 2006200220012000


The offshore concessions acquired in the Santos Basin, covering

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

km2, are in new frontier areas, with potential for the discovery of deep

accumulations of natural gas. When the contracts are signed, these

concessions will probably be grouped by the ANP in various blocks.

With the various acquisitions and areas handed back over

the course of the year, the company’s portfolio of exploratory

concessions comprises 144 blocks, covering a total area of 149.2

thousand km2. Adding to this the ten areas with discovery evalu-

ation plans (3.6 thousand km2) in operation, Petrobras’ present

exploration area covers a total of 152.8 thousand km2.

PROven ReSeRveSPetrobras’ proven reserves of oil, condensate and natural gas in

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

added to the reserves over the course of 2006, against an accumu-

lated production volume of 705 million boe, generating a Reserve

Replacement Index (RRI) of 174%. This means that for every barrel

of oil equivalent produced during the year, 1.74 barrels were added

to the company’s reserves. Meanwhile, the reserves/production

(R/P) ratio is at 19.5 years.

Two factors underlie the increase in proven reserves — one

being due to the appropriation of amounts discovered in fields

declared commercially viable during the course of 2006. Some of

these declared areas are close to fields that are in the development

phase and were, therefore, included within the figures for those

fields. The other contributing factor arises from reservoir manage-

ment practices in discovered fields that are already in the develop-

ment or production phase. +

Bu

sin

ess

Are

as

| e

xp

loR

At

ion

& p

Ro

du

ct

ion

Proven reserves of oil and natural Gas(spe Criteria - billion boe)

2006

2005

2004

2003

2002

2001

2000 8.29

8.32

9.56

10.60

11.05

11.36

11.67

1.36 9.65

1.35 9.67

1.45 11.01

1.99 12.59

1.97 13.02

1.87 13.23

2.08 13.75

Oil, NGL and Condensate

Natural Gas

chanGe in level of Proven reserves (spe Criteria - billion boe)

2006

2005 13.23

0.24

0.98

13.75

Remaining 2005 reserves

Addition of new discoveries

Additions from existing fields

Production in 2006: 0.71 billion boe

12.52

reserve replacement index of

174%


increased sales, both in Brazil and abroada new refining record and a 3% increase in domes-

Tic oil producT sales were oTher highlighTs of

The year’s resulTs. The 11 peTrobras refineries saw

Their primary processing of oil and producTion

of oil producTs boTh rise in comparison wiTh 2005.

The sTrong domesTic oil producTion and com-

pany logisTical sTrucTure, TogeTher wiTh The

opening up of new markeTs, enabled peTrobras To

also seT new foreign sales records, and Thereby

consolidaTe iTs posiTion as The counTry’s lead-

ing exporTer.

ReFiningIn 2006, Petrobras set new records for refining and the production of

oil products in Brazil. The average processed throughput (primary

processing) of the company’s 11 Brazilian refineries amounted to

1 million 746 thousand bpd of oil, while the production of oil prod-

ucts totaled 1 million 764 thousand bpd — representing increases

of 1% and 2%, respectively, in relation to the previous year. The

80 % share of domestic oil in the total 2006 processed throughput

is a reflection of the operational reliability of the units, which were

working at an average of 89 % of their refining capacity.

The company proceeded with its investments to adapt the

country’s refineries to process the heavy oils that are produced

in Brazil. New catalytic cracking and retarded coking units came

on-stream at the Alberto Pasqualini Refinery (Refap) and a new

coking unit will start operating at the Duque de Caxias Refinery

unit cost of refininG(us$ /barrel)

target 2011

2006

2005

2004

2003

2002 0.94

1.14

1.38

1.90

2.29

2.90

Business AreasrEfiNiNG & commErciALizATioN

oil Products market(thousand bpd)

2003 2004 2005 2006

1,749

2002

1,7001,755 1,766

1,821

1,641

1,639

1,6961,735

1,764

1,609

1,510

1,637 1,644

1,697

Demand for Oil Products

Production of Oil Products

Sales of Oil Products


(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-

ucts, thus making the most of any Brazilian oil surpluses. +

Bu

sin

ess

Are

as

| R

efi

nin

g &

co

mm

eR

ciA

liz

At

ion

isaac Sabbá refinery (Reman),

Manaus, amazonas

sales of

1.70 million

bPd of oil Products in the brazilian market


COMMeRCializaTiOnIn 2006, Petrobras sold an average of 1 million 697 thousand bpd

of oil products in the Brazilian market – a 3% increase in relation

to 2005. The leading products, in terms of sales volume, were

gasoline, naphtha, fuel oil, diesel fuel, liquefied petroleum gas

(LPG) and aviation fuel.

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

25% to 20%. In November, it was raised to 23%. Another factor

was the expansion of the gasoline powered vehicle fleet, including

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

price and the growing use of natural gas to power vehicles.

There was a 5% increase in sales of naphtha. Faced with

growing demand from the petrochemical centers, Petrobras

expanded its production and partially substituted imports, thereby

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

response to new consumers. Among the sectors showing strong

demand were manufacturing in the state of Pará and the new ther-

moelectric power plants in the state of Amazonas.

Sales of diesel fuel were also up 1%, lagging behind the

country’s GDP growth. The principal reason was the poor per-

formance of the agribusiness sector, which is still recovering from

crisis in 2005/2006 and the appreciation of the real against other

important currencies.

LPG saw an increase of 1.5% in sales, in response to a grow-

ing population and their improved purchasing power, brought

about by a higher minimum wage and broad government measures

to safeguard household incomes. Sales of aviation fuel remained

Bu

sin

ess

Are

as

| R

efi

nin

g &

co

mm

eR

ciA

liz

At

ion

The hydrodesulfurization unit at the getúlio

vargas refinery (Repar), araucária, Paraná

oil imPorts and exPorts(thousand bpd)

Imports

Exports

2003 2004 2005 20062002

326 319

450 352 370

233 233181 263

335

oil Product imPorts and exPorts(thousand bpd)

2003 2004 2005 20062002

216

213

228 260246

206

105

109

94

118

stable in relation to those of 2005.

The increase in domestic oil production, the optimization

of the company’s logistical structure and the opening up of new

commercial opportunities enabled Petrobras to set new records

Imports

Exports


Bu

sin

ess

Are

as

| R

efi

nin

g &

co

mm

eR

ciA

liz

At

ion

oil Product exPorts Per tyPe(volume)

66%12%

6%

16%

Aviation Fuel

Gasoline

Fuel Oil & Bunker Fuel

Others

destination of oil Product exPorts(volume)

oil Product imPorts Per tyPe(volume)

17%

43%

17%23%

Naphtha

Diesel Fuel

LPG

Others

oriGin of oil Product imPorts(volume)

22%

6%

2%

8%

3%4%

12%

22%

Argentina

Aruba

Belgium

UAE

USA

India

Nigeria

Venezuela

Others

21% Dutch Antilles

Argentina

Bahamas

Cyprus

Singapore

USA

Italy

Nigeria

Uruguay

Others

21%

7%

3%

8%

4%

5%

11% 12%

18%

11%

destination of oil exPorts(volume)

31%

8%

4%

12%

Aruba

Bahamas

Chile

China

S. Korea

USA

France

Portugal

Others

11%

10%

4%

4%

16%

oriGin of oil imPorts(volume)

Angola

Saudi Arabia

Algeria

Congo

Iraq

Nigeria

Others

43%

4% 4%

6%

10%

11%

22%

in international sales and consolidate its position as the country’s

leading exporter. Oil exports hit a record 484 thousand bpd in

November and closed the year at an average of 335 thousand bpd,

an increase of 27% in relation to the previous year. Exports of oil

products were down 5.4% compared with 2005, at an average of

246 thousand bpd. Imports averaged 370 thousand bpd of oil and

118 thousand bpd of oil products. The company recorded a trade

surplus of US$ 421 million in 2006. +


Strategically important products for the company’s businessespeTrochemicals are of sTraTegic imporTance To

peTrobras, providing diversificaTion of The prod-

ucT porTfolio and adding value To The oil and

naTural gas, in synergy wiTh The company’s oTher

operaTions. peTrobras’ acTiviTies in The secTor,

under The aegis of iTs subsidiary peTrobras química

s.a. (peTroquisa), have been selecTively builT up for

The producTion, in associaTion wiTh parTners, of

basic inpuTs and ThermoplasTic resins.

Petroquisa, which in 2006 became a wholly-owned sub-

sidiary of Petrobras, has a stake in all the country’s petrochemi-

cal hubs, whose products, such as calcined petroleum coke and

catalytic agent for cracking oil, are of strategic interest to Petrobras.

Petroquisa’s net earnings for the year came to R$ 133.5 million.

Notable among the various units that are being planned is

the Rio de Janeiro Petrochemical Complex (Comperj), to be con-

structed in the municipalities of Itaboraí and São Gonçalo, in part-

nership with the Ultra Group and the Brazilian Development Bank

(BNDES), at an estimated cost of US$ 8.3 billion. The technical and

economic studies for the project were completed in March.

This complex will process up to 150 thousand bpd of heavy

oil, for the production of petrochemical raw materials and oil prod-

ucts, with an annual output of 1.3 million tons of ethylene, 880

thousand tons of propylene, 600 thousand tons of benzene and 700

thousand tons of paraxylene, as well as other oil products, especially

Campos elíseos petrochemical complex, duque de Caxias, Rio de Janeiro

Business AreasPETrochEmicALs


coke. In addition to the basic petrochemical unit (UPB), the utilities

center and the second generation units, Comperj will be equipped

with a business and employee training center and a distribution

center for channeling liquid products to loading terminals on the

shores of Guanabara Bay. The operational start-up is scheduled for

the beginning of 2012.

The second generation units will use as raw material the basic

petrochemicals produced at the UPB, for the annual production of

880 thousand tons of polyethylenes, 850 thousand tons of polypro-

pylene, 500 thousand tons of styrene, 600 thousand tons of ethylene

glycol and 600 thousand tons of purified terephthalic acid (PTA).

Another important undertaking that is under way is the indus-

trial unit of Petroquímica Paulínia S.A., in an association between

Petroquisa, which holds a 40% equity stake, and Braskem, at an

estimated cost of US$ 328 million. Located in the municipality of

Paulínia (SP), next to the Paulínia Refinery (Replan), this unit will

produce 300 thousand tons per year of polypropylene, using propyl-

ene supplied by the neighboring refinery and by the Henrique Lage

Refinery (Revap). With an environmental license granted towards

the end of 2006, construction of the production plant is going ahead

and the unit is scheduled to go into operation in 2008.

Petrobras is proceeding with the technical, economic and

environmental evaluation of the Minas Gerais integrated acrylic

complex — a US$ 540 million undertaking for the annual pro-

duction of 160 thousand tons of raw acrylic acid and certain by-

products. The complex, a pioneering initiative in Latin America, is

scheduled for operational start-up in 2011.

Petroquisa has taken further steps to set up a purified tere-

phthalic acid (PTA) unit in Pernambuco, with the founding of

Companhia Petroquímica de Pernambuco — PetroquímicaSuape. The

industrial unit, involving the investment of US$ 514 million, will have

a production capacity of 640 thousand tons per year, and is scheduled

Bu

sin

ess

Are

as

| p

et

Ro

ch

em

icA

ls

net earninGs of

133.5 million

reais in 2006


to start operations in 2009. The raw material for the process will be

paraxylene, which at first will be imported, but will subsequently be

supplied by the Rio de Janeiro Petrochemical Complex.

Within the production chain to be created by the activities

of PetroquímicaSuape, some of the PTA will serve as raw mate-

rial for Companhia Integrada Têxtil de Pernambuco — CITEPE.

This company, in which Petroquisa has a 40% stake, was founded

in 2006, with a view to setting up an industrial plant to produce

polyester fiber (POY). The unit, budgeted at US$ 273 million,

will produce 215 thousand tons of the product annually, and is

scheduled to go into production in 2009. +

Bu

sin

ess

Are

as

| p

et

Ro

ch

em

icA

ls

The rio de Janeiro petrochemical complex is one of Petrobras’ most important projects in the petrochemical area. involving an investment of Us$ 8.3 billion, the complex will produce raw materials for the petrochemical processes, as well as oil products, all deriving from heavy oils.

Petroquisa equity Holdings

Company Product Voting Capital (%)

Total Capital (%)

Braskem S.A. Basic, intermediate and final petrochemicals 9.8 8.3

Copesul - Companhia Petroquímica do Sul Basic petrochemicals 15.6 15.6

Petroquímica União S.A. Basic petrochemicals 17.5 17.4

Riopol - Rio Polímeros S.A. Polyethylenes, ethylene and propylene 16.7 16.7

Metanor S.A. Metanol do Nordeste Methanol and by-products 49.5 34.3

Deten Química S.A. Linear alkyl benzene and sulfonated linear alkyl benzene 28.6 27.7

Fábrica Carioca de Catalisadores S.A. Catalysts 50.0 50.0

Petrocoque S.A. Indústria e Comércio Calcined petroleum coke 40.0 40.0

Petroquímica Triunfo S.A. Low density polyethylene, ethylene copolymer and vinyl acetate (EVA) 70.5 85.0

Petroquímica Paulínia S.A. Polypropylene 40.0 40.0

Companhia Petroquímica de Pernambuco - Petroquímica Suape Purified terephthalic acid (PTA) 50.0 50.0

Companhia Integrada Têxtil de Pernambuco - Citepe Polyester fibers (POY) 40.0 40.0

Nitroclor Produtos Químicos Ltda. In the process of being wound up 38.8 38.8


Bu

sin

ess

Are

as

| p

et

Ro

ch

em

icA

ls

investment in fertilizer Plants boosts Production

Petrobras pushed ahead with the modernization of its fertilizer production plants and the development of new projects to expand the production of nitrogen compounds, in line with the strategy of increasing its activities in the seg-ment. In 2006, sales of ammonia and urea generated US$ 350 million in gross revenue for the company – an increase of 6% in relation to the previous year.

The company’s fertilizer plants, located in the states of Bahia and Sergipe, received R$ 92 million of investment in projects to improve their operational reliability, logistics and product quality, as well as in Health, Safety and the Environment (HSE). In Sergipe, completion of the new urea warehouse, with a capacity of 30 thousand tons, doubled the unit’s storage capacity and brought additional flexibility to the logistical operations.

In a fifth successive year of sales growth, the two plants sold 213 thousand tons of ammonia in the domestic mar-ket. In the urea fertilizer segment, Petrobras retained its leadership in the Brazilian market, with 710 thousand tons sold in 2006. As a result of the investment in reliability, the Bahia plant achieved its highest production figure in the last seven years, of 285 thousand tons.

A new urea granulation unit will come on-stream at the Sergipe plant in 2007, with an output of 600 tons a day. In order to substitute imports of nitrogenated fertilizers, Petrobras went ahead with the conceptual design of a new industrial plant — the UFN-3, which will use natural gas as a raw material. At an estimated cost of US$ 822 million, this unit should produce 1 million tons of urea and 760 thou-sand tons of ammonia a year, as from 2012.

Another project that is being studied is the construc-tion, at the Bahia plant, of an industrial unit with the capacity to produce 120 thousand tons of nitric acid a year for the Camaçari Petrochemical Complex. The unit would come on-stream in 2009.

Production of urea at the nitrogenous Fertilizer Plant (FaFen), laranjeiras, Sergipe


logistics yield competitive advantagesfor The TransporTaTion and sTorage of oil, oil

producTs, eThanol and naTural gas, peTrobras

works Through iTs fully-owned subsidiary

peTrobras TransporTe s.a. — TranspeTro, which

operaTes 53 ships, 44 Terminals and 9,958 kilome-

Ters of pipeline. This company fulfills a sTraTe-

gic role, providing The inTegraTed logisTical

soluTions and operaTional flexibiliTy ThaT give

peTrobras a compeTiTive edge.

FleeT OF 46 TankeRSTranspetro is the largest shipowner in South America, with a total

deadweight capacity of 2.6 million tons (dwt). The company has a

fleet of 46 oil tankers and leases the rest from third parties on bareboat

charters. On this basis, contracts were signed in 2006 for the Navion

Stavanger (Suezmax) and two other vessels, which will be received in

2007. The fleet also includes a Floating Storage and Offloading unit

(FSO) and an Anchor Handling Towing Supply vessel(AHTS).

Transpetro operates at a high level of reliability, providing

quality services at competitive prices and an excellent level of

compliance with Health, Safety and the Environment (HSE) stan-

dards. The vessels are regularly inspected under the Navio 1000

Program, which evaluates the fleet management, operating condi-

tions and safety, in accordance with international regulations.

As part of its strategy to expand the services it provides to

Petrobras, in line with the increasing domestic oil production,

Business AreasTrANsPorTATioN

The ilha d’Água maritime terminal, guanabara Bay,

Rio de Janeiro


Bu

sin

ess

Are

as

| t

RA

ns

po

RtA

tio

n

Transpetro proceeded in 2006 with its Fleet Modernization and

Expansion Program. Having completed the first phase tender-

ing process, 26 vessels have been ordered from shipyards with

Brazilian operations. Under the second phase of the program, a

further 16 tankers will be built.

The first 26 vessels, divided into five tendering lots, rep-

resent a total investment of US$ 2.5 billion, and comprise ten

vessels of the Suezmax type; five Aframax; four Panamax; four oil

product carriers and three liquefied-gas tankers. In the negotia-

tions with the shipyards, the company managed to obtain a 14%

price reduction, bringing the average price to around the level it

would have paid if the orders had been placed abroad. Having

the vessels built in Brazil aids the recovery of the country’s large-

scale shipbuilding industry, as well as developing a new supply

center for Petrobras.

TeRMinalS and Oil PiPelineSThe operator of the majority of Petrobras’ oil pipelines, land-based

and waterway terminals, Transpetro transported 654 million m3 of

oil, oil products and ethanol in 2006. During the year, the water-

way terminals handled an average of 350 vessels a month.

The network operated by Transpetro comprises 7 thousand

kilometers of oil and multi-product pipelines. The 44 terminals

have storage capacity for 65 million boe (10.3 million m3).

In order to modernize and extend the network, adjusting it

to the future requirements of both Petrobras and the country as a

whole, the company is engaged in a number of initiatives. One of

these is the Master Plan for Pipelines in São Paulo, covering a total of

27 municipalities, under which the network will be redesigned, keep-

ing it away from more densely populated areas and thus improving

operational safety. The new logistical infrastructure will be inte-

grated with the expansion of Petrobras’ petrochemicals, thermo-

electric generation, refining capacity and natural gas supplies.

With planned investments totaling more than R$ 2 billion,

the plan includes the establishing of new pipeline courses and

the extension of existing ones, the construction of 500 kilometers

of pipeline and the deactivating of 110 kilometers of pipeline

courses and 280 kilometers of pipelines in the Greater São Paulo

metropolitan area. The Guararema terminal is to be expanded and

a new one will be built in Mauá. A total of 28 thousand direct and

indirect jobs will be created by these investments.

The company completed the studies for implementation of

the Ethanol Export Corridor, which will raise the ethanol transpor-

tation potential from the present 1.2 million m3/year to 4 million

m3/year in 2010. The first three projects — part of the plan to invest

US$ 600 million over six years — will connect Replan by pipeline to

Guararema and the Triângulo Mineiro, via Ribeirão Preto, as well as

establishing integration with the Tietê-Paraná waterway, connecting

São Paulo with the country’s mid-western region.

The Transpetro Ethanol Program has aroused the interest

of other countries in Brazil’s experience with the transportation

of ethanol, creating opportunities for developing partnerships in

Latin America, the United States, Europe, Africa and Asia. In 2006,

more than 80 thousand m3 of ethanol were exported to Venezuela,

as a result of a bilateral agreement.

Yet another initiative is the Underground Water Treatment

Program, which provides a logistical response to the growing quan-

tity of water produced by Petrobras’ fields, due to the increased

production, together with the maturing of reservoirs and the tech-

nical methods used to recover the oil. In the area of tank storage, in

order to eliminate logistical bottlenecks, Transpetro is augment-

ing its storage capacity by 500 thousand m3. +

a monthly averaGe of

350 vessels

are handled at the terminals


Bu

sin

ess

Are

as

| t

RA

ns

po

RtA

tio

n

The admiral Maximiano Fonseca terminal, angra dos Reis, Rio de Janeiro

natural Gas: more Gas PiPelines in 2007

In the natural gas segment, Transpetro transported an average of 34 million m3 per day in 2006. In addition to expanding the system, with the integration of two new delivery points and a new gas pipeline (Dow-Camaçari), the company transferred the operation of its Espírito Santo and Bahia networks to the National Operational Control Center, which operates all the pipelines by remote control.

The company is preparing the way for the integration into the system, in 2007, of 1.8 thousand kilometers of gas pipelines that are under construction. A further 1.6 thousand kilometers of gas pipeline that is on the draw-ing board should come into operation between 2008 and 2011, when the volume of natural gas transported by Transpetro will reach the milestone of 100 million m3 a day, including imported liquefied natural gas (LNG).

The Cabiúnas Terminal (RJ), Brazil’s largest center for the processing of natural gas, will also see its capacity augmented in 2007, from the current 14.9 million m3 to 17 million m3 a day. Two new projects under way at the center will further raise the processing capacity, to 22.4 million m3 a day.


Petrobras in Brazil


The country’s largest network of service stationspeTrobras operaTes in The fuel disTribuTion markeT

Through iTs subsidiary peTrobras disTribuidora,

The markeT leader, wiTh The counTry’s largesT

neTwork of service sTaTions. of The 5,870 peTrobras

service sTaTions locaTed ThroughouT brazil, 638

belong To The company and The oTher 5,232 are run

by dealers represenTing The peTrobras brand.

The revenues of Petrobras Distribuidora in 2006 from prod-

ucts and services came to a total of R$ 47.1 billion — up 8.0% in

relation to the previous year, due to higher sales, which established

a new record in October. The company’s share of the distribution

market reached 33.6% — 0.2 percentage points below the figure

for 2005, as a result of fierce competition in 2006. In the second

half of the year, Petrobras Distribuidora managed to regain market

share and in December accounted for 34.9% of sales.

The leading position in sales of vehicular natural gas (VNG)

is also held by Petrobras Distribuidora. Its market share in 2006

was 23.7%, with the product available at 355 service stations. In

the liquefied petroleum gas (LPG) market, operating through

Liquigás Distribuidora, Petrobras had a market share of 21.7%

— a dip of 0.1% in comparison with 2005.

One of the distinctive features of the network in 2006 was the

increased supply of biodiesel. In line with the company’s strategy of

retaining its position as the consumer’s favorite brand and adding

value for the Petrobras System, the distributor made the product

available at 3,740 service stations all over Brazil. Biodiesel should

Business AreasdisTriBUTioN

Petrobras service station,

Rio de Janeiro


fuel distribution market share in brazil

be available throughout the entire network by June 2007.

The arrival of biodiesel at the pumps reinforced the public

association of Petrobras Distribuidora with virtues such as inno-

vation, quality and social and environmental responsibility. Also

launched in 2006 were Diesel Podium, with its low sulfur content;

the Evolua line of cleaning and protective products; and new lubri-

cants. The distributor also invested in the expansion and modern-

ization of the service stations, bringing them into compliance with

the latest safety and environmental protection standards.

To further please its customers, Petrobras Distribuidora

extended projects such as the “Cartão Petrobras” card, carried

out promotions and trained its attendants, under the “Capacidade

Máxima” program. In terms of its relationship with dealers and

end consumers, the company organized regular visits by commer-

cial representatives and gatherings for the presentation of plans

and strategies, as well as distributing the “Jornal do Revendedor”

newsletter.

Petrobras Distribuidora has a 45.5% share of the direct con-

sumer market, with notable participation in the segments of avia-

tion products (53.5%), asphalt (29.4%) and retail road transporta-

tion (40.4%). During 2006, the company developed new services

to gain customer loyalty in the transport sector.

Since 2005, Petrobras Distribuidora has been investing in

the adaptation of the installations of its distribution network – the

largest in Brazil – to handle biodiesel. Its 56 strategically posi-

tioned bases and terminals ensure ample reach for the placing

of Petrobras products. The network also allows the integration

of transport and storage solutions with service quality, thereby

giving the company a competitive edge. +

network of active service stations

total 5,870

Urban 4,560

Highway 1,282

Maritime 28

own outlets 638

third-party outlets 5,232

convenience stores 740

vng outlets 355

Petrobras distribuidora earns

47.1billion dollars in sales revenues

Bu

sin

ess

Are

as

| d

ist

Rib

ut

ion

30%

20%

10%

0

Petrobras Ipiranga Shell Esso Texaco Othersdistribuidora

2002

2003

2004

2005

2006


Rising consumption is a reflection of the product’s qualityThe naTural gas markeT conTinues To grow, wiTh

average sales To disTribuTors reaching 38.7 mil-

lion m3/day in 2006 — 7% more Than in The previous

year. This increased consumpTion is driven by fac-

Tors such as The expansion of The logisTics infra-

sTrucTure, The enTry of new large-scale consum-

ers inTo The markeT and a sharp increase in The

naTural gas powered vehicle fleeT. The increase

also reflecTs The consumer’s growing recog-

niTion of The producT’s Technological, opera-

Tional, environmenTal and economic qualiTies.

To supplement domestic production, in order to meet the level

of demand, Petrobras imported an average of 24.7 million m3/day of

natural gas — an increase of 9% in relation to the volume in 2005.

Following its strategy of developing and consolidating the

market, Petrobras set in motion its Plan to Advance the Production of

Natural Gas (Plangás). The supply of domestic gas to the southeast

of Brazil will be augmented in two stages — in the first, up to 2008,

from the current 15.8 million m3/day to 40 million m3/day; in the

second, up to 2010, the volume will reach 55 million m3/day.

To ensure that the increasing level of consumption in the coun-

try is sustainable, Petrobras is preparing the way for its entry into

the global liquefied natural gas (LNG) market as an importer. The

company will set up two floating regasification terminals, one in the

state of Ceará and one in Rio de Janeiro, with respective capacities

of 7 and 14 million m3/day.

a natural gas powered bus, São Caetano do Sul, São Paulo

Business AreasNATUrAL GAs


TRanSPORTaTiOnImplementation of the Natural Gas Basic Transportation Network

(RBTGN) proceeded through 2006. The putting together of a sup-

ply system that is flexible, safe and competitive — a network of

interconnected gas pipelines extending from Fortaleza to Porto

Alegre and from São Paulo to Bolivia — is in alignment with the

development of production in the Campos Basin and the explo-

ration of the company’s offshore blocks, allowing the immediate

channeling of production from new discoveries.

One of the leading RBTGN projects that is under way is the

Northeast-Southwest Interconnection Gas Pipeline (Gasene) —

comprising three stretches of pipeline: Cabiúnas–Vitória

(Gascav), Cacimbas–Vitória and Cacimbas–Catu (Gascac). In

2006, Petrobras closed two financing deals with the Brazilian

Development Bank (BNDES), for the specific purpose company

Transportadora Gasene S.A., which is responsible for the project,

for the total sum of R$ 1.36 billion.

The 131-kilometer stretch in the state of Espírito Santo

(Cacimbas–Vitória) will be operational in early 2007. Work

on the stretch connecting Rio de Janeiro and Espírito Santo

(Cabiúnas–Vitória) began in June and is scheduled to be com-

pleted in October 2007. The Cacimbas–Catu stretch, between

Espírito Santo and Bahia, is at the tendering stage and should be

ready in the second half of 2009.

In the north, construction of the 670-kilometer Urucu–Manaus

Gas Pipeline was started in June and is scheduled for completion in

the first quarter of 2008. In the northeast, the Atalaia–Itaporanga

pipeline, in the state of Sergipe, and the Dow–Aratu–Camaçari pipe-

line, in Bahia, both came into operation. Another three pipelines

– the Carmópolis–Pilar, between Sergipe and Alagoas, Itaporanga–

Carmópolis (SE) and Catu–Itaporanga, connecting Bahia and Sergipe

– should start up in 2008. +

Bu

sin

ess

Are

as

| n

At

uR

Al

gA

saveraGe sales of

38.7 million

cubic meters a day


Thermoelectric generation augments integrationpeTrobras has increased iTs parTicipaTion in The

ThermoelecTric energy segmenT, following

a sTraTegy of consolidaTion as an inTegraTed

energy company. The company is involved in The

enTire ThermoelecTric energy generaTing chain,

as well as in The process of commercializaTion.

At an energy auction organized by the National Electricity

Agency (Aneel) in October, Petrobras sold 205 MW produced by its

plants. As a result, the company has secured a stable revenue stream

of R$ 103 million/year, for a period of 15 years, beginning in 2011.

In 2006, Petrobras completed its acquisition of the merchant

power plants, with the purchase of the UTE Mário Lago (formerly

Macaé Merchant). This takeover, along with the acquisitions of

the MPX Termoceará and Eletrobolt power plants, puts an end

to the legal controversy surrounding the consortium contracts

signed in 2001 and 2002, under which the company was obliged

to make contingency payments in regard to taxes, fees, tariffs,

operating expenses, maintenance and investment in the event

that the plants did not earn sufficient revenue. These acquisitions

have reduced expenses and guarantee full receipt of the revenue

from power generation, in accordance with Petrobras’ guidelines

for its participation in the electricity sector.

Petrobras also purchased the UTE Bahia I (31MW), a fuel oil

powered thermoelectric plant, to serve as a generation back-up. With

the same intent, the company closed a contract for the provision of

services by the UEG Araucária (428MW), which also allows for the

efficient allocation of the natural gas, due to its adjusted cycle.

Two thermoelectric plants are under construction —

Termoaçu (RN) and Cubatão (SP) —, within co-generation pro-

jects that are in synergy with Petrobras’ activities in these regions.

Projects are also under way for cycle closure and the conversion of

thermoelectric plants to dual fuel (natural gas and diesel), bring-

ing enhanced efficiency and reliability in the supply of fuel to the

power plants. +

Business AreasENErGY

855 million

liters a yearis the Production tarGet

for biodiesel


Bu

sin

ess

Are

as

| e

ne

Rg

y

renewable enerGy: PursuinG market leadershiP

Attaining leadership in the domestic production of biodiesel and expanding its ethanol business have become priorities for Petrobras. To this end, the company has developed a variety of activities in the field of renewable energy, with a view to hitting the audacious targets set down in the Business Plan 2007-2011 — during this period a total of US$ 700 million will be invested in renewable sources of energy.

The generation of electricity by wind farms and small-scale hydroelectric plants are other areas in which Petrobras is investing in the field of renewable energy. According to the goals defined in 2006, by 2011 the company will be producing 855 million liters of biodiesel, exporting 3.5 billion liters of ethanol and generating 240 MW of electricity through renew-able sources.Biodiesel In order to attain leadership in Brazilian biodie-sel production and strengthen its position as an integrated energy company, Petrobras threw itself into large-scale production in 2006, by beginning the construction of three plants. Representing a total investment of R$ 227 million, the units, located in Candeias (BA), Montes Claros (MG) and Quixadá (CE), will have a combined annual production capac-ity of around 57 million liters of biodiesel and will be inaugu-rated before the end of 2007.

These undertakings are in alignment with the National Program for the Production and Use of Biodiesel. As from January 2008, it will become compulsory for diesel fuel to have a 2% biodiesel content. In order to obtain the necessary ingredients — soybeans, cotton, castor beans and oil palm fruit, as well as animal fat —, the company is entering into partnerships with entities formed by small-scale farmers, thereby gaining the tax benefits allowed under the “Selo Combustível Social (Seal of Approval for Socially Responsible Fuels)”, granted to biodiesel companies that generate work and income for subsistence farmers.

Petrobras aims to produce 855 million liters of biodiesel a year by 2011. In order to attain this level of production, the company is analyzing some fifteen other projects in various parts of the country, in partnerships with investors ranging from large corporate groups to rural workers’ cooperatives.

Biodiesel provides reduced emissions of greenhouse gases, sulfur and particulates, as well as improving engine per-formance. In addition to the environmental and social benefits, in harmony with the growing use of sustainable sources of energy, this product will hasten the end of diesel imports.etHanol Petrobras’ strategy for its ethanol business is focused on exports, with a view to opening up new markets and developing long-term relationships with the clients, in increasing synergy with the company’s International area. In 2006, earnings from foreign sales of ethanol exceeded US$ 14 million. The volume sold, amounting to more than 80 million liters, helped to consolidate the logistical corridor for the exporting of ethanol from the south-central region, through the Ilha D´Água Maritime Terminal, via the Paulínia Refinery.

Concern over the imbalance between supplies and the growing demand for the product in the first few months of the year led the company, out of a sense of responsibility and commitment to sustaining domestic supplies, to export ethanol only in the second half of the year, when the situa-tion had stabilized and domestic demand was being met. This meant that the export volume was lower than had initially been forecast for the year.

To encourage the consolidation of the international etha-nol market, Petrobras joined the board of the recently formed International Ethanol Trading Association (IETHA) and set up a joint-venture, Brazil-Japan Ethanol (BJE), based in Tokyo, devoted to developing the Japanese market for the product. The company also reached agreements with the Central Energy Fund (CEF), of South Africa, and with Mitsui, of Japan, for exporting ethanol.

Barbados nut cultivation under the “Molhar a Terra”

project, Ceará Mirim, Rio grande do norte


aguSTina hulJiCh in the Quality and hse area at the Puerto General san martín petrochemical plant

– santa fé, argentina

OuTlOOk: i hope to keep on learning, so that i can use this knowledge in my work

as an environmental engineer.

“Petrobras is very concerned about health, safety and the environment and this guides its actions. it is a company that helps to improve the quality of life, not only of its employees, but of the general population.”


international Expansion

With a business presence in 19 foreign countries, Petrobras is consolidating its position as an integrated energy company with international presence and leadership in Latin America. The company is involved in the entire chain of activities in the Latin American oil, natural gas and electricity sector, while at the same time augmenting its stake in undertakings in North America, Africa and Asia. The sum of US$ 12.1 billion has been earmarked for investment abroad, representing 14% of the total investment under the Business Plan 2007-2011. Of that amount, 65% will go into Latin America, western Africa and the Gulf of Mexico, all priority areas for Petrobras expansion.

south AmeRicA 50noRth AmeRicA 53

AfRicA 54AsiA 55


new business in foreign marketsThe acTiviTies in The inTernaTional Business

area encompass oil and gas exploraTion and pro-

ducTion in 16 foreign counTries — argenTina,

Bolivia, colomBia, ecuador, peru, venezuel a,

mexico, The uniTed sTaTes, angola, equaTorial

guinea, mozamBique, nigeria, Tanzania, iran, liBya

and Turkey. peTroBras is also developing oTher

acTiviTies, including refining and disTriBuTion,

as well as mainTaining represenTaTive offices in

cerTain sTraTegic locaTions.

The strategy for growth abroad provides for the bolstering of

the company’s activities in countries where it is already present,

such as Argentina, while opening up new business fronts in other

markets, such as refining in the USA. In the areas of exploration

and production, the priority regions are the Gulf of Mexico and

Africa, where Petrobras is girding itself to produce oil in deep

and ultra-deep waters off the Niger River Delta, in Nigeria, and

is pursuing exploration opportunities in frontier regions, such as

the ultra-deep waters off the coast of Tanzania.

In refining, the goal is to augment the company’s activi-

ties through investments in the expansion and conversion of the

Pasadena refinery, in the United States, and seeking opportunities

for new refineries abroad. The objective is to add value to the

heavy oil produced by the company, providing the market with a

product mix combining enhanced value and improved quality. To

this end, investments will be focused on the adoption of technol-

ogy that will enable refineries that were originally built to handle

light oil to be able to process heavier throughput.

international Expansion

Fertilizer plant at campana, in the province of Buenos Aires, Argentina


1.27 billion

boE In ProvEn ForEIGn rESErvES, In 2006

inte

rna

tio

na

l Exp

ans

ion

IntErnAtIonAl lIFtInG And rEFInInG coSt(US$ / barrel)

target 2011

2006

2005

2004

2003

2002

cHAnGE In IntErnAtIonAl ProvEn rESErvES (SPe Criteria – million boe)

1,681

2006

2005

352

1,240

89

30

IntErnAtIonAl ProductIon oF oIl, nGl, condEnSAtE And nAturAl GAS (thoUSand boed)

target 2011

2006

2005

2004

2003

2002

Oil, NGL and Condensate Natural Gas

85 246

94 263

96 259

101 243

185383 568

161

169

163

142

3558

23

IntErnAtIonAl ProvEn rESErvES oF oIl, nGl, condEnSAtE And nAturAl GAS(SPe Criteria – million boe)

Oil, NGL and Condensate Natural Gas

803320 1,123

8911,013 1,904

8651,007 1,872

726955 1,681

613657 1,2702006

2005

2004

2003

2002

3.36

Lifting Refining

1.80

1.73

2.901.30

2.601.09

2.461.17

2.080.94

Remaining 2005 reserves

Appropriations

Production in 2006

Contractual revisions, etc.

1,270


100%

100%

100%

100%

KH

AK

I 01

KH

AK

I 02

KH

AK

I 03

KH

AK

I 04

Petrobras around the world

Exploration & Production

Refining

Gas

Petrochemicals

Power

Distribution

Representative office

angola

equatorial guinea

nigeria

libya

usa

mexico

venezuela

chile

peru

ecuador

paraguay

colombia

bolivia

uruguay

argentina

great britain


inte

rna

tio

na

l Exp

ans

ion

100%

100%

100%

100%

KH

AK

I 01

KH

AK

I 02

KH

AK

I 03

KH

AK

I 04

equatorial guinea

tanzania

mozambique

turkey

iran

china

singapore

japan

IntErnAtIonAl ProvEn rESErvES oF oIl And condEnSAtE PEr country (SPe Criteria)

22%12%

10%

25.6%

Angola

Argentina

Bolivia

Colombia

Ecuador

USA

Nigeria

Peru

Venezuela

3.8%11.7%

6.4%

7.4%

1.1%

IntErnAtIonAl ProvEn rESErvES oF nAturAl GAS PEr country (SPe Criteria)

5.2%1.5%

64.1%

Argentina

Bolivia

USA

Peru

Venezuela

27.1%

2.1%


sOutH AmericAArgentinA As an integrated energy company, Petrobras par-

ticipates throughout the entire value chain for oil and natural gas,

along with electricity generation. The company’s 2006 produc-

tion in Argentina – its highest outside Brazil – attained an average

of 62.1 thousand bpd of oil and NGL and 45.8 thousand boed of

natural gas, making a total of 107.9 thousand boed. Petrobras had

a stake and operated in 17 blocks that are in production and in

10 that are in the exploration phase, and initiated its exploration

of deep waters off the Argentinean coast. The lifting cost was

US$ 4.4 per boe.

In the areas of petrochemicals and fertilizers, Petrobras

owns the Puerto General San Martin, Zarate and Campana plants

and has a 40% stake in Petroquímica Cuyo. The operations in

Argentina are tied in with the southern Brazilian state of Rio

Grande do Sul, where its subsidiary Innova turns out products

such as styrene, polystyrene and UAN.

Petrobras distributes oil products through a network of 719

service stations, which sold 48 thousand bpd of fuels and lubricants

in 2006 and has a 13.8% share of the gasoline and diesel market

and 11.1% of the lubricants market. The number of service sta-

tions operating under the Petrobras banner increased from 457 to

492 during the year. Reflecting the growing brand presence, sales

increased by an average of 2.7%. The company has a 50% stake in

the parent company of Transportadora de Gás Del Sur (TGS), which

owns the country’s largest network of gas pipelines.

In the area of electricity generation, Petrobras owns the

Genelba thermoelectric plant, which uses natural gas, and the Pichi

Picún Leufú hydroelectric plant. It also has a 27.3% stake in Edesur,

the distributor for the central area of Buenos Aires. Petrobras is

negotiating the sale of its equity stake in Transener, the country’s

leading electricity transmission company.

Petrobras has a 34% equity stake in Cia. Mega, which works

with oil products and logistical services. In 2006, this company

sold 1 million 433 thousand tons of ethane, propane, butane

and natural gasoline.

BOliviA The Bolivian production of natural gas for export is

essential to sustaining the growing consumption in Brazil, which

in 2006 imported 24.7 million m3/day. Petrobras sold 7.27 million

m3/day of Bolivian natural gas, representing 23.4% of the total

exported by that country.

In 2006, as a result of the Hydrocarbons Law, introduced

the previous year, the nationalization of foreign assets imposed

significant changes on the sector, with taxation, operational and

financial impacts. Even with the new regulatory framework estab-

lished by the nationalization decree, signed in May 2006, Petrobras

remains the largest oil and natural gas company in Bolivia, and

contributed 22% of the country’s taxation revenue for the year.

The decree tied companies’ continuation in Bolivia to the

signing of new contracts. In its negotiations with the govern-

ment regarding exploration and production activities, Petrobras

reached the following agreements: contracts will be for shared

production, and not for the provision of services; the company

will bear the full cost and risk of all oil operations; payment of

royalties and other government quotas is to be made through

Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), through

which the production is channeled, and amounts to some 80%

of revenue; compensation will be paid by YPFB, to be calculated

based on the recovery of costs, prices, volumes and investments,

net of due taxes.

Moreover, Petrobras retains responsibility for operations in

the San Alberto, Rio Hondo, Ingre and Irenda blocks, ownership

of the assets and rights to the reserves that are to be booked by

inte

rna

tio

na

l Exp

ans

ion

492service stations in Argentina under the Petrobras banner


inte

rna

tio

na

l Exp

ans

ion

the company. The contracts, which are still pending approval by

the Bolivian Congress, are valid for 30 years.

The new regulations reduce to 49.9% the proportion

of Petrobras’ stake in the refineries of Gualberto Villaroel, in

Cochabamba, and Guillermo Elder Bell, in Santa Cruz de La

Sierra, which process a total of 39.9 thousand bpd. The company’s

refining activities are now performed as a provision of services.

Negotiations are still under way with the Bolivian government

over the amount of compensation to be paid to Petrobras.

In the area of oil product sales, YPFB has become the only

wholesale distributor. Petrobras has fully withdrawn its EBR

(Empresa Boliviana de Refinación) brand and currently retains

just 26 service stations under the Petrobras name.

With regard to natural gas, in February 2007 it was decided

that no changes would be made in the volumes or in the formula for

calculating the purchase price of natural gas from Bolivia contained

in the present contract between YPFB and Petrobras (GSA). The

company agreed to pay YPFB, at the prevailing international market

prices, for the net hydrocarbon fractions (ethane, butane, propane

and natural gasoline) present in the natural gas effectively delivered

that raise its calorific value to over 8,900 kilocalories (kcal) per m3,

equivalent to 1,000 BTU per cubic foot. YPFB will ensure that the

minimum calorific value of 9,200 kcal/m3 is met, and Petrobras will

study the best way to exploit these components in the future.

In the area of transportation, in addition to its stake in GTB,

operator of the Bolivian stretch of the Bolivia–Brazil gas pipeline,

Petrobras retains its stakes in the Yacuiba–Rio Grande (Transierra)

gas pipeline, as operator, and in the San Marcos gas pipeline.

natural gas plant in san

Alberto, Bolivia


inte

rna

tio

na

l Exp

ans

ion

cOlOmBiA In the area of exploration and production, Petrobras has

a stake in 16 contracts — 7 for production and 9 for exploration —,

and is the operator in ten of these. In 2006, the average production

amounted to 16,843 bpd of oil and NGL and 6.25 thousand m3/day of

natural gas, making a combined total of 16,880 boed. One of the high-

lights is the company’s involvement as operator of the Tayrona block,

the country’s only offshore block, in partnership with Exxon and

the state-owned company Ecopetrol. Following a 50% contractual

devolution, the block still covers an area of more than 22,000 km2.

The first wildcat well is to be drilled in 2007. The company has also

formed a consortium with Ecopetrol for the revitalization of the Tibu

field. The investment, which will raise the production from 2,000

bpd to 15,000 bpd, is estimated at US$ 500 million over the next six

years, with the consortium members having the option to withdraw

from the contract at the end of the first or second year, having made

investments of US$ 20 or US$ 40 million, respectively.

cHile Petrobras continues to seek business opportunities in

this country, through a representative office in Santiago that was

opened in 2005. The company sells the lubricant Lubrax here,

with sales amounting to 848 m3 in 2006.

ecuAdOr Petrobras, operating in two blocks, produced 11.9

thousand boed of oil and NGL in the country in 2006. At the begin-

ning of 2007, the company received government approval for the

sale of 40% of its stakes in Block 18, which is in production, and

Block 31, which is in the exploration phase, to the Japanese com-

pany Teikoku. Petrobras is also negotiating with the government

for EIA approval of the development of Block 31.

PArAguAy In 2006, Petrobras entered the segment of oil product

distribution. The company presently owns 131 service stations and

gas plant in the guando field, colombia


45 convenience stores. The network has annual sales of 317 thou-

sand m3 of oil products. Among the assets acquired are installations

for the sale of LPG and the marketing of aviation products.

Peru The company has a stake in six blocks — one of them in

production (Lot X) and the others in the exploration phase. In 2006,

the average production amounted to 12.7 thousand bpd of oil and

1.8 thousand boed of gas, making a total of 14.6 thousand boed.

uruguAy Petrobras entered the oil product distribution seg-

ment, taking over 89 service stations racking up annual sales of

330 thousand m3 of oil products, in addition to maritime prod-

ucts, asphalt and aviation products. The company is also involved

in the distribution of natural gas, in the province of Montevidéu

and in the interior of the country, selling a total of 120 thousand

m3/day of gas.

venezuelA The new legal framework for the country’s oil

industry introduced a new contractual model for the activities

of companies operating mature fields under a provision of services

contract. As from April 2006, the fields in this country operated

by private national or foreign companies under this type of con-

tract will be operated by mixed companies under the control of

Petróleos de Venezuela S.A (PDVSA), which will have a 60% stake.

Petrobras, which operated the Oritupano-Leona, Acema, Mata

and La Concepción fields, became a partner in the corresponding

mixed companies, with stakes ranging between 22% and 36 %.

Petrobras continues to operate the Moruy II block, in the Gulf

of Venezuela, for the exploration of natural gas. Moreover, the com-

pany is studying a partnership with Petróleos de Venezuela (PDVSA)

for the production of extra-heavy oil from Carabobo I, in the Orinoco

Strip; and for the production of natural gas in Mariscal Sucre, in the

Venezuelan sector of the Caribbean. The agreements also embrace

studies for the setting up of a mixed company to produce oil from five

mature fields, onshore, in the Oriente and Maracaibo basins.

nOrtH AmericAunited stAtes The company has stakes in 302 blocks within

the American sector of the Gulf of Mexico, and is the operator in

149 of them. In an auction held in September, Petrobras secured

the greatest number of blocks – 34 –, at a cost of US$ 45 million.

The company has begun exploratory work, in the extreme

west of the Gulf of Mexico, to test new geological possibilities.

The first well drilled indicated the presence of natural gas, but the

thickness of the reservoir was not sufficient to make it commer-

cially viable. Nevertheless, the result demonstrated the potential

of the area, where at least one more well will be drilled in 2007.

Petrobras’ average production in the Gulf was 4.0 thousand

boed, below the forecast for the year, largely due to the effects of

the hurricane season, towards the end of 2005. Normal production

was restored only in August 2006.

In ultra-deep waters, the company managed to obtain a

larger stake in the discoveries of Cascade and Chinook, becom-

ing the operator for the two projects. The production, with start-

up scheduled for 2009, will make use of a Floating Production,

Storage and Offloading (FPSO) platform ship. Putting into effect

a project of this kind, embracing new technology, represents a

landmark in the American oil industry.

In deep waters, in the Garden Banks Quadrant, Petrobras

pushed ahead with the development of the Cottonwood field, in

which it has assumed full control, having bought out its partner’s

20% stake. Production began in February 2007.

At the Pasadena Refinery, in Texas, in which the company

has a 50% equity stake, studies are proceeding for the doubling

In Texas, the company has a 50% equity stake in the Pasadena refinery and is conducting studies for the doubling of its present 100 thousand bpd capacity and the installation of units for the processing of heavy oils, at an estimated investment of US$ 2 billion.

inte

rna

tio

na

l Exp

ans

ion


of the processing capacity, from the present 100 thousand bpd,

and the installation of units for the processing of heavy oils. The

investment is estimated at US$ 2 billion.

mexicO Petrobras is participating, in partnership with Teikoku, of

Japan, and Diasvaz, of Mexico, in two contracts for the provision of

multiple services to Pemex, in the Cuervito and Fronterizo blocks.

The services include exploration, production development and

production. Petrobras has a 45% stake in each of these contracts.

During 2006, 12 wells were drilled and the company

obtained ISO 14001 and OHSAS 18001 certification of the process

of “development, infrastructure and maintenance in the operation

of fields for the production of non-associated gas”.

AFricAnigeriA The Agbami and Akpo projects — giant fields in the

Niger Delta — continue to be implemented, with start-up sched-

uled for 2008. Production at Agbami should attain 250 thousand

bpd, the company’s part being 37 thousand bpd. Akpo will pro-

duce 185 thousand bpd, with Petrobras’ share amounting to 36

thousand bpd. The company has already invested US$ 930 million

in the projects, of a forecast total of US$ 1.9 billion.

In Block OML 130, in which it has a 16% stake, Petrobras

received an indemnity of US$ 354 million from the Nigerian com-

pany South Atlantic Petroleum (Sapetro), which sold its stake

(45%) to China National Offshore Oil Company (CNOOC). This

compensation, provided for in the contract, corresponds to 50%

of the investments made by the company, which will be respon-

sible for 20% of the future investment. The existence of significant

accumulations of oil in the block has been confirmed, following

the drilling of four wells at the Egina hub. Testing of the field’s

commercial viability will be carried out in 2007.

As the operator of Block OPL 324, in the Gulf of Guinea,

Petrobras drilled a 6,091 meter well in 2,670 meters of water

— a new record for the Gulf of Guinea — , but without finding

hydrocarbons. The company expanded its activities in the Gulf

of Guinea, strengthening its presence in deep waters off the

inte

rna

tio

na

l Exp

ans

ion

17%PetrOBrAs’ stAke in

the Zambezi Delta block, the company’s first investment

in mozambique.

6,091 meters, A lOcAl recOrd.

that is the depth of the well drilledby petrobras in the Gulf of Guinea,

in 2,670 meters of water.


tAnzAniA Petrobras completed the seismic surveying of blocks

5 and 6, in ultra-deep waters of the Máfia Basin, having signed the

contract for Block 6 in December. The company has full rights over

the blocks and, depending on the seismic analysis and technical

and economic evaluation, could take on partners, while working

as the operator. The company’s presence in Tanzania reinforces its

position at the frontier of exploration off the east coast of Africa.

Petrobras has 20.2 thousand km2, in ultra-deep waters, under full

concession and operation rights.

mOzAmBique Petrobras bought a 17% stake in the Zambezi

Delta block, off the coast of Mozambique, in its first opportunity

for investment in this African nation. The commitments under-

taken provide for the acquisition of 2D seismic data and the drill-

ing of a well in 2007. Petrobras’ effective entry into the consortium

is still awaiting local government authorization, which ought to

be granted in 2007.

AsiAirAn In November, the company started drilling the first of

two exploration wells in the Tusan block, in shallow waters in

the south of the Persian Gulf. Petrobras is the operator, holding

a 100% stake, according to a contract closed in 2004 with the

National Iranian Oil Company (Nioc).

turkey Petrobras is in a partnership with the Turkish state-

owned company TPAO for exploration and production in two

Black Sea blocks with potential for holding large reserves — the

Kirklarelli block, in the western part of the Turkish sector, under

1,200 meters of water; and the Sinop block, to the east, with a

depth of 2,200 meters. +

Petrobras’ office in nigeria

inte

rna

tio

na

l Exp

ans

ion

West African coast. With a 45% stake, Petrobras is the operator

of Block OPL 315, along with partners Statoil, of Norway, and

Ask Petroleum, of Nigeria. Studies are in progress to place the

block in its regional geological context, with a view to drilling

the first exploration wells.

In support of the use of ethanol as a fuel in this country,

Petrobras continued its negotiations with the Nigerian National

Petroleum Corporation (NNPC) to supply the product. The

accords include the providing of technical support for adding

the product to the country’s gasoline.

AngOlA Taking a stake in four more contracts, Petrobras

brought its total assets in this country at the end of 2006 to six —

among them, Block 2 of the Lower Congo Basin, where the com-

pany produced 5.4 thousand bpd. In Block 34, despite not finding

oil in two wells that have been drilled, technical analyses have led

to the conclusion that deeper geological layers present good pros-

pects, and therefore the exploration deadline has been extended,

with the drilling of another well planned for 2007. Petrobras is the

operator, for the first time in Angola, in the new exploration blocks

6, 18/06 and 26, and is a partner in Block 15/06.

equAtOriAl guineA In negotiations with the government,

Petrobras has extended for another two years the contract to

explore Block L, with no obligation to drill an exploration well.

liByA The company proceeded with its exploration of Area 18 in

the Libyan sector of the Mediterranean. Partnered by Oil Search

Limited, of Papua New Guinea, Petrobras is the operator, with a 70%

stake, and has a contract for the sharing of the production with the

state-owned company National Oil Company (NOC). In the event

of exploration success, NOC will assume 51% of the investment.


FáBiO lugAtO de sOuzAEquipment operator at the Guanabara

bay center for environmental protection.

OutlOOk: My future is already determined; I’m going to give my 10-year

old daughter a better life.

“Information about preserving the environment should be made available to everybody from an early age, at school. this is the biggest environmental problem today. Petrobras invests heavily in technology and environmental protection.”


Social and Environmental Responsibility

Petrobras has broadened its commitment to the reduction of social inequality, envi-ronmental conservation and ecological efficiency. The first Latin American company to join the UN Global Compact, in 2003, Petrobras made further advances in its alignment with the ten principles of the compact — which address issues such as human rights, working conditions, the environment and fighting corruption — when in 2006 it joined the Council of the Global Compact and assumed the vice-presidency of the Brazilian arm. Other triumphs in the area of Social and Environmental Responsibility were the company’s inclusion in the Dow Jones Sustainability Index (DJSI) and Bovespa’s Corporate Sustainability Index (ISE). Under the former, Petrobras has been recognized as one of the world’s most sustainable companies, among 13 oil and gas companies worldwide and just 6 Brazilian companies. Inclusion in the ISE, in addition to emphasizing the company’s commitment to sustainability, also expanded its investor base, by attracting those that place a premium on the criteria of social and environmental responsibility when compil-ing their investment portfolios.

sustAinAbility indices 58HumAn ResouRces 60

HeAltH, sAfety And tHe enviRonment 65sponsoRsHip 72


global Compact, dJSi (NYSe) and iSe (bovespa)Because of its socially and environmentally

responsiBle performance, petroBras was selected

in septemBer for the dow Jones sustainaBility

index (dJsi) – a yardstick for investors who are

concerned aBout social and environmental

responsiBility, provided By the new york stock

exchange. in Brazil, since decemBer, the compa-

ny’s shares have Been included in the corporate

sustainaBility index (ise) of the são paulo stock

exchange (Bovespa). the company’s inclusion in

these indices is recognition of petroBras’ com-

mitment to ideals such as environmental equi-

liBrium, social Justice, economic efficiency and

good corporate governance.

Petrobras made further advances in its alignment with

the ten principles of the United Nations (UN) Global Compact,

addressing themes such as human rights, working conditions, the

environment and fighting corruption. In 2006, the company joined

the Compact’s Council and assumed the vice-presidency of the

Brazilian arm of this initiative. This participation is an extension

of the company’s pioneering attitude, in voluntarily signing up to

this global agreement, back in 2003, driven by its commitment to

the reduction of social inequality, environmental conservation

and ecological efficiency.

In December, the Executive Board gave approval to sup-

porting the Extractive Industry Transparency Initiative (Eiti), as

Social and environmental ResponsibilitySUSTAINABILITy INDICES


Petrobras has been a member of the Eiti International Advisory

Group since 2005. In January 2007, the company joined the World

Business Council for Sustainable Development (WBCSD), a coali-

tion of 180 international corporations that are dedicated to sus-

tainable development.

Petrobras’ international involvement also extended into

other forums. The company joined the ISO 26000 committee,

as the representative of Brazil, which is leading, together with

Sweden, the preparation of international rules for social respon-

sibility, to be issued in 2008. Within Arpel (Regional Association

of Oil and Natural Gas Companies in Latin America and the

Caribbean), where it already presides over the Corporate Social

Responsibility Committee, the company has joined the working

group for Relations with Indigenous Peoples.

Another accomplishment by Petrobras was to pick up three

of the five prizes awarded at the International Pipeline Conference

& Exhibition (IPCE), one of the most important global events in

the area of pipeline transportation, held in Canada. Winner of the

main prize, the “Agricultura Familiar em Faixa de Dutos (Family

Subsistence Farming in the Pipeline Strip)” project has become a

model around the world in terms of community relations.

The company was also awarded the “Selo Pró-Eqüidade de

Gênero (Pro Gender Equality Seal)” 2007 by the federal govern-

ment’s Special Secretariat for Women’s Issues (SPM), for promot-

ing gender equality. The Petrobras Gender Commission saw its

mandate extended, becoming the Commission for Diversity.

At the international level, the company chose as the focus

of its social activities the issues of the Rights of Children and

Adolescents. In addition to this principal line of support, the

Business Units are able to define other priorities abroad, in accor-

dance with local needs in a regional context. +

So

cia

l an

d e

nv

iro

nm

en

tal

| s

us

tAin

Ab

ilit

y

InclusIon In ThE DJsI sPoTlIGhTs

PETroBras as onE of ThE worlD’s

13 MosT susTaInaBlE

oIl & Gas coMPanIEs

the hybrid environmental robot “Chico Mendes”, developed by the Cenpes

Robotics Lab, performs environmental monitoring of the strip of land in

the amazon region where the Coari-Manaus gas pipeline is to be installed


extra staff taken on to sustain company expansionthe most recent version of the strategic plan

2015 singles out human resources as one of the

key factors in the implementation of the compa-

ny’s strategies. 2006 saw the consolidation of the

hr strategic proJect, which will contriBute to

attainment of the corporate targets for 2011. the

challenge is “to Be an international Benchmark

for the energy sector in personnel management,

with the employees as its most precious asset.”

Code oF ethiCSThe Petrobras System’s Code of Ethics has been revised, by means

of a transparent and participative process that involved the clients,

suppliers, executive board, board of directors and workforce of

the company’s various organizational units, with the aim of bring-

ing it into alignment with the values specified in the Strategic

Plan, the prevailing business context and the requirements of the

Sarbanes-Oxley Law. The adopted themes were those of the Ethos

Institute’s Corporate Social Responsibility Indicators.

adMiSSioNSIn order to sustain the increasing expansion of the company’s activi-

ties and areas of operation, public selection processes have been

systematically carried out, in order to build the right permanent

staff to meet the needs of the Strategic Plan. During 2006, a total

of 8,539 new employees were taken on. As a result, the company’s

Social and environmental ResponsibilityHUmAN RESOURCES

Schist processing unit at São Mateus do Sul, Paraná


So

cia

l an

d e

nv

iro

nm

en

tal

| H

um

An

Re

so

uR

ce

s

PETroBras sTaff PEr BusInEss arEa

Downstream

International Business area abroad

International Business area Brazil

Subsidiaries

Senior Management support

Corporate support

R&D

Gas & Energy

E&P

363

12,999

6,857

515

7,454

20,585

1,3121,814

10,367

aDMIssIons In 2006

PETroBras sTaff

2006

2005

2004

2003

2002

suBsIDIarIEs – nuMBEr of EMPloyEEs

Transpetro

Petroquisa

Petrobras Distribuidora

Refap S.A.

2,910

111

3,691

742

8,006

Parent company

Transpetro

Petrobras Distribuidora

Refap S.A.

Petroquisa7

31

44

451

47,955

6,857 7,454

40,541

6,166 7,197

39,091

5,939 7,007

36,363

5,810 6,625

34,520

6,328 5,875

Parent company

Petrobras abroad Subsidiaries

8,539new hirings through public selection processes


So

cia

l an

d e

nv

iro

nm

en

tal

| H

um

An

Re

so

uR

ce

s

permanent staff has steadily increased, from 46,723 in 2002 to

62,266 at the end of 2006. The total number of employees, including

the subsidiaries in Brazil and the companies abroad, grew by 15% in

2006. Among the companies abroad, the increase was 11%.

ReMuNeRatioN PoLiCYThe personnel expenses at the parent company amounted to

R$ 7,337 million, based on the fixed remuneration, which com-

prises salaries, extras, bonuses and the respective payroll taxes.

The variable remuneration includes profit and results shar-

ing schemes, which are linked to the achievement of corporate

targets, so as to stimulate the employees’ commitment to the goals

of the Strategic Plan. As in previous years, the employees received

their allocations in relation to the 2005 profits and results, divided

in two payments, one in January and the other in July.

1.0 0.4 0.71.0 0.4 0.6

Basic education Secondary education

Kindergarten Child supervision Day-care centers

54.054.5 59.2

24.025.2 29.7

20.019.5

16.8

nuMBEr of EMPloyEEs aBroaD

Angola

Argentina

Bolivia

Colombia

USA

Libya

Nigeria

Paraguay

Uruguay

5,128 2114164274

84115

284116

EDucaTIonal allowancE(R$ million)

2006

2005

2004


eduCatioNaL beNeFitSThe educational benefits paid by the company are of a supple-

mentary nature, in the form of an allowance to complement the

beneficiary’s own payments for these services, which comprise

day-care centers or child supervision, kindergarten, basic educa-

tion and secondary education. The corresponding cost amounted

to R$ 107 million, including taxes.

heaLth CaReThe Multidisciplinary Health Care Scheme, covering current and

retired employees and their dependents, made a total of 112 thou-

sand attendances, through a network of 21 thousand accredited

establishments throughout Brazil, including hospitals, laborato-

ries and dental and medical offices and clinics, including special-

ized areas such as psychology and phonoaudiology. The net cost

to the company of the medical appointments, examinations and

internments was R$ 510 million.

Under the Collective Labor Agreement, Petrobras has taken on

the commitment to implement a Pharmacy Benefit, which is to be

added to the range of benefits already provided by the company.

PeNSioN FuNdIn 2006, Petrobras presented a proposed new Supplementary

Pension Model, the fruit of the combined efforts of the company,

Petros and the employee representatives. The proposal aims to

stabilize the financial situation of the existing Petros Plan, solv-

ing the structural problems and providing it with a sustainable

future, as well as providing a new supplementary pension scheme

to employees who do not have one.

The new supplementary pension scheme, which is close to

approval by the official bodies, is of the variable or mixed con-

tribution kind, purely for pension purposes, with defined risk,

So

cia

l an

d e

nv

iro

nm

en

tal

| H

um

An

Re

so

uR

ce

s

302millionrEaIs was InvEsTED In

TraInInG In 2006

health promotion center at the Petrobras headquarters, Rio de Janeiro


guaranteed minimum benefit, a lifetime income option and con-

tribution defined annually by the participant.

CoLLeCtive LaboR agReeMeNt The ongoing process of negotiations with the union bodies aims to

align the employees’ expectations with those of the company, thus

facilitating the putting together of a Collective Labor Agreement

that is satisfactory to all parties.

In 2006, this process took as its basis the Collective

Agreement signed in 2005, which is valid for two years, with the

exception of the economic clauses. These were the focus of the

negotiations between Petrobras and the employee representatives,

which led to an adjustment of 2.80%, making up for losses due to

inflation, as measured by the ICV-Dieese index, plus a collective

increase of one level on the salary scale and a gratuity payment

equivalent to 80% of monthly remuneration.

CaReeR PLaNAs part of the process of adjusting the career plan structure to meet

the challenges of the Strategic Plan 2015, the company approved

the new structure for middle level employees. Technical stud-

ies are proceeding regarding the plan for upper level employees,

as well as for defining job descriptions and values and the rules

governing career progress.

PRoFeSSioNaL tRaiNiNgThe Petrobras University, devoted to the education and training

of the company’s technical and administrative staff, had a total

of 2,469 new employees enrolled in its training program during

2006. Based on the results it has achieved, the Petrobras Training

Program was chosen as one of the five finalists in the Petroleum

Economist Awards 2006, in the category Best Educational Program

So

cia

l an

d e

nv

iro

nm

en

tal

| H

um

An

Re

so

uR

ce

s

for Young People in the Energy Industry.

During the year, the Petrobras University had 2,275 people

enrolled on its project management development and special-

ization courses, which, added to all the other courses on offer,

brought total enrollments to more than 50 thousand.

Petrobras invested R$ 302 million, over the course of 2006,

in human resources development, and the total amount of training

provided came to 5.7 million man-hours.

CoRPoRate CuLtuReAlignment between the corporate values laid down in the

Strategic Plan and those embedded within the culture of the

organization is extremely important to the attainment of the

company’s objectives.

To this end, discussions were initiated to disseminate

and expand upon the results of the cultural analysis carried out

during the period 2004/2005. This study identified the charac-

teristic traits of the Petrobras corporate culture — its essential

values, as well as tracing newly emerging values within the com-

pany environment. +


a quality agenda through to 2015the management of health, safety and the

environment (hse) at petroBras aims to consoli-

date hse considerations as values that are intrin-

sic to the company’s planning and management

processes. the company’s hse policy, laid out in the

strategic plan, contains 15 corporate guidelines,

approved By the executive Board, which have Been

expanded into standards at various different lev-

els, all compiled in a management handBook.

These guidelines orientate the development and implementa-

tion of corporate action plans and specific plans for the Business and

Service Units, so that the HSE policy objectives will be met at all levels

of the company. The visible commitment of the senior management

and professional training are also among the issues addressed by the

corporate guidelines. The senior management, executive managers or

general managers participated in 1,143 HSE audits during 2006. This

involved field trips to the operational front lines in order to observe the

activities and correct any errors or omissions. The CEO or directors

participated in 28 of these visits.

Petrobras’ strategic agenda includes the Strategic Project

for HSE Quality, which aims to ensure that, by 2015, the company

has attained performance levels equivalent to those of the best

companies in the world’s oil and gas sector, by means of corpo-

rate action across six focus areas: Integrated HSE Management;

Ecological Efficiency in Operations and Products; Prevention of

Accidents, Incidents and Failures; Health of the Workers; Readiness

for Emergencies; and Minimizing Remaining Risks and Exposure.

Petrobras invested R$ 3.21 billion in HSE during 2006.

Social and environmental ResponsibilityHEALTH, SAfETy AND THE ENvIRONmENT

Community vegetable gardens along the strip of land covering pipelines in Nova iguaçu, Rio de Janeiro


Of this total, R$ 1.77 billion was directed to programs, projects and

other activities in the area of safety; R$ 1.20 billion to the environ-

mental area, and R$ 238 million into health. These amounts do not

include spending on the Multidisciplinary Health Care Scheme

nor the sponsorship of environmental programs and projects

developed by third sector organizations.

Part of this spending — R$ 850 million — was channeled

through the Program for Quality in Environmental Management

and Operational Safety (Pegaso), for the purpose of eliminating

the risks and exposure in the company’s installations and activi-

ties. This initiative — one of the most important of its kind in the

industry — has absorbed investments and operating expenses

amounting to R$ 10.49 billion since 2000.

Pegaso also includes expenditure of R$ 373 million by

Transpetro, of which R$ 90 million was allocated to the Pipeline

Integrity Program and invested in the inspection, testing, appraisal,

repair and restoration of oil and gas pipelines.

The implementation of HSE policy at Petrobras is overseen

by the HSE Management Evaluation Program. In 2006, apprais-

als were conducted at 27 operational units in Brazil, Argentina,

Bolivia, Venezuela and Colombia, representing 96% of the total

appraisals scheduled for the period.

These appraisals are based on the company’s corporate

guidelines and the ISO 14001 and OHSAS 18001 standards, which

have certified the health, safety and environmental management

systems at 160 installations in Brazil and a further 20 abroad,

representing approximately 85% of the certifiable installations

in Brazil and 91% of those located abroad.

oPeRatioNaL SaFetYPetrobras continues to cut down the Frequency Rate of Injuries

resulting in Time Off work (TFCA) and the Fatal Accident Rate

frEquEncy raTE of InJurIEs rEsulTInG In TIME off work (Tfca)(Compound TFCA)

1.53

1.23

1.04

0.97

2011

2006

2005

2004

2003

2002

average 2005 OGP

average 2005

API

average 2005

ARPEL

0.5

0.97

1.20

2.40

0.77

Number of accident victims requiring time off work per million man-hours of exposure to risk, covering the company’s own employees and outsourced workers.Sources: OGP – Oil and Gas Producers – Safety performance indicators – 2005 dataAPI – American Petroleum Institute – 2005 survey of petroleum industry occu-pational injuries, illnesses, and fatalities summary reportArpel – Association of Oil and Gas Companies in Latin America and the Caribbean – Accident statistics for the oil and gas industry in Latin America and the Caribbean 2005

training with oil containment and absorption equipment in the Campos basin, Rio de Janeiro

Maximum Limit

So

cia

l an

d e

nv

iro

nm

en

tal

| H

se

(TAF), to levels comparable with those of the international oil

and gas sector benchmarks. The TFCA of 0.77 recorded in 2006

is below the ceiling of 0.81 that had been set for the year.

The number of fatalities was down in relation to the previous


nuMBEr of faTalITIEs

2002 2003 2004 2005 2006

Employees

Outsourced Workers

Total

1

89

1515

0

1615

19

16

3

18

3

21

faTal accIDEnT raTE (TAF)

2006

2005

2004

2003

2002

average 2005 OGP

average 2005

ARPEL

6.29

4.57

3.30

2.81

3.50

4.50

1.60

Number of fatalities per 100 million man-hours of exposure to risk, covering the company’s own employees and outsourced workers.

year. The company gives special attention to this number, as the cor-

porate target for this type of incident is zero. This reduction in the

number of injuries and fatalities occurred at the same time as the

company’s activities are augmenting — the total number of man-

hours of exposure to risk increased from 533 million to 564 million.

eNviRoNMeNtActivities in 2006 in the area of environmental responsibility

were related mainly to controlling atmospheric emissions, water

resources, liquid effluents and waste; the appraisal and monitor-

ing of ecosystems; the recuperation of affected areas and ensuring

that the company’s installations and operations are in compliance

with the legal requirements.

eMiSSioNSThrough its System for Controlling Atmospheric Emissions

(Sigea), Petrobras monitors the principal greenhouse gases –

3.21 billion

rEaIs InvEsTED In hsE

1

So

cia

l an

d e

nv

iro

nm

en

tal

| H

se


carbon dioxide, methane and nitrogen monoxide – that are emit-

ted as a result of its activities. This monitoring is extended also

to carbon monoxide, sulfur and nitrogen oxides, volatile organic

compounds and particle matter.

In 2006, Petrobras introduced the indicator Prevented

Emissions of Greenhouse Gases, in order to monitor the results

of its efforts to reduce emissions of these gases in its operations.

The company is committed to the 2011 goal of preventing the

emission of 3.93 million tons (CO2 equivalent) of greenhouse

gases. Between 2006 and 2011, the emission of a total of 18.5

million tons of CO2 equivalent will have been prevented.

eNeRgY eFFiCieNCY

The In-House Energy Conservation Program is responsible for

the development, coordination and implementation of activities

related to energy efficiency, promoting a proportional reduction

in the flaring off of fossil fuels and, consequently, of the emission

So

cia

l an

d e

nv

iro

nm

en

tal

| H

se

of CO2, one of the principal greenhouse gases.

In order to meet the established targets for the reduction of

energy consumption and emissions, in addition to the projects

mentioned, energy analyses have been carried out at the company’s

industrial units, and this will be extended to the business units that

will operate future production platforms, so that the basic designs

can also be developed with a view to energy efficiency.

The program’s activities brought about a saving of approxi-

mately 2,500 barrels of oil equivalent a day in 2005. The gain is

not just economic, but also environmental, since the company

reduced its CO2 emissions, through a proportional decline in

electricity consumption and the flaring off of fossil fuels.

WateR ReSouRCeS aNd eFFLueNtSIn 2006, Petrobras approved the corporate standard for the man-

2011

2006

2005

2004

2003

2002

EMIssIons of sulfur oxIDE – sox (ThousAnd Tons)

156.7

148.5

140.1

135.7

137.2

131.0

Maximum Limit (not including chartered vessels)

n.a.

12.3

13.6

15.9

21.0

Chartered vessels

0.77TfCA; compatible with international quality benchmarks

GrEEnhousE Gas EMIssIons(million Tons oF Co2 equivAlenT)

30.43

39.09

44.41

51.56

2006

2005

2004

2003

2002

Total emissions directly or indirectly connected with Petrobras’ operations in Brazil and abroad.

50.43


agement of water resources and effluents, embracing the reutiliza-

tion and optimal use of water in its operations and the protection

of bodies of water within its areas of influence.

The drawing up of detailed statements of water resources for

the refineries and fertilizer plants is one of the activities aligned

with the requirements of the standard. The studies, which include

assessing the tolerance capacity of the water bodies that receive

effluents from these units, should be completed in 2007.

In the area of Exploration & Production, one project is aim-

ing to make the Campos Basin platforms self-sufficient in fresh

water, which will reduce the volume of water taken from the River

Macaé by 1.1 thousand m3/day. Another initiative, concluded in

2006, promotes the reinjection of the water from oil production

at the Fazenda Belém field, thus reducing by 2 thousand m3/day

the amount of water removed from the Açu aquifer, the principal

water reservoir serving that semi-arid region.

SoLid WaSteThe company produced 315 thousand tons of hazardous solid

waste, in Brazil and abroad, in 2006. During this period, 268 thou-

sand tons of hazardous waste was treated or disposed of in an

environmentally appropriate manner.

bioLogiCaL diveRSitYIn 2006, Petrobras approved the corporate standard for control-

ling the potential impact of the company’s activities on biological

diversity, based on the strategic commitment to apply the principles

of environmental responsibility in all stages of its projects, including

planning, construction, operation and decommissioning.

The standard envisages the definition of the protected or envi-

ronmentally sensitive areas that are influenced by the company’s

operations, with a view to protection, mitigating the impact on bio-

logical diversity and recuperation of these areas. To this end, backed

by an investment of around R$ 9 million, a study has been under way

since March 2005 to make an assessment of the various ecosystems of

the Guanabara Bay area, in Rio de Janeiro. Approximately 75% of the

work of characterizing the fauna around the bay, included in the study,

has already been completed. In the Amazon region, studies carried

out alongside universities and research institutes assess the potential

impact of Petrobras’ operations on the surrounding ecosystems.

eMeRgeNCY ReadiNeSSPetrobras’ strategy for dealing with emergencies is based upon the

integration of the contingency resources of its business units, with

vessels dedicated for this purpose operating along the Brazilian

coastline, and the company’s Environmental Protection Centers

(CDAs). The CDAs operate around the clock, staffed by trained

professionals and equipped to react quickly and effectively to any

situation. Their resources include special vessels, oil collectors

and contention and absorption barriers.

There are nine CDAs located in Brazil, comprising six out-

posts in the north, one in Natal, one at the Mocanguê naval base,

in Rio de Janeiro, and one in Uberaba. This network of protection

against the potential repercussions of accidents, which can also

count on the resources of public agencies and local communities,

has emergency contingency plans covering the whole country and

is regularly tested by means of simulated exercises. During 2006,

seven regional exercises were conducted, with the participation

of the Brazilian navy, the Civil Defense Corps, the fire brigade, the

police, environmental bodies, local governments and communi-

ties. Two exercises were also conducted at units in Argentina.

The company has three vessels for dealing with emergencies that

operate around the clock in the Guanabara Bay, off the coast of the state

of São Paulo and off the coast of the states of Sergipe and Alagoas.

So

cia

l an

d e

nv

iro

nm

en

tal

| H

se

Reforestation project at Pontal do Paranapanema, São Paulo


SPiLLSThe volume of oil and oil product spills in 2006 remained at the

same level as in 2005, an excellent result by the standards of the

world oil and gas industry. The volume was below the ceiling of

475 m3 that had been set for the year. The 2011 ceiling for oil and

oil product spills has been set at 601 m3, taking account of the

forecast increase in production and the addition to this indica-

tor of potential new sources of leakages, such as the tank trucks

working for Petrobras Distribuidora.

heaLthThe promotion by Petrobras of good health and the prevention

of illness among the workers is based on the concept of integral

health — inside and outside the workplace. The company’s pro-

grams and other endeavors in this area are guided by the epide-

miological analysis of information on, for example, mortality,

oIl anD oIl ProDucT sPIlls (m3)

197

276

530

269

2011

2006

2005

2004

2003

2002

601

Spills exceeding 1 barrel (0.159 m3) that have affected the environment beyond the installation perimeter.

293

Maximum Limit

Simulation drill at Repar; evacuation of the local community near the refinery in araucária, Paraná

So

cia

l an

d e

nv

iro

nm

en

tal

| H

se


morbidity and the prevalence of risk factors.

This systematic approach has yielded positive results. In

2006, the indicator Proportion of Time Lost (PTP), based on the

employees’ time off work due to illness or accidents, continued the

downward trend of recent years. The figure was below the ceiling

that had been established for the year, of 2.34. The ceiling for 2011

has been set at 2.18.

Non-occupational illness, unrelated to work activities, pre-

dominated among the reasons for employees’ time off work in

2006, as in previous years. This explains the emphasis given by the

company to the Program for Health Promotion, which encourages

employees to adopt healthy lifestyles. Petrobras also motivates and

monitors the participation of all its employees in the annual medical

check-ups and encourages them to follow the recommendations

of the doctors.

tiMe oFF WoRkThrough its Occupational Hygiene and Ergonomics Program, the

company is able to identify, control and eliminate occupational haz-

ards at all its units. The procedures to ensure the health of employ-

ees on trips, which include check-ups prior to traveling and medical

observation following their return, are also being standardized.

In order to provide a better standard of health for its workers

and their families, Petrobras has trained 500 health professionals,

through the São Caetano do Sul Center for the Study of Physical

Aptitude, to promote physical activities among its employees, fol-

lowing Health Ministry guidelines.

The company also has a corporate policy for addressing HIV/

aids. In trying to further the well-being of all its workers, without

distinction as to background, race, gender, creed or sexual prefer-

ence, Petrobras collaborates in an affirmative manner to promote

an appropriate attitude to this illness. Moreover, both in Brazil and

abroad, the company maintains relations with government and

non-government organizations devoted to monitoring, assistance

and research with regard to HIV/aids. +

At the São Caetano do Sul Center for the Study of Physical Aptitude, Petrobras trained 500 health professionals to help promote physical activities among its employees, following Health ministry guidelines.

ProPorTIon of TIME losT (pTp)

3.01

2.88

2.57

2.48

2011

2006

2005

2004

2003

2002

2.18

Percentage of the total potential working hours lost due to medically autho-rized time off (for illness, occupational or otherwise, or accidents in the work-place); counting only the company’s own employees.

2.06

Maximum Limit

rEason for TIME off work

91.89%

4.41%3.59%

0.06%0.04%

Non-occupational illness

Occupational illness

Workplace accident

Accident unrelated to work

Accident on the way to or from work

So

cia

l an

d e

nv

iro

nm

en

tal

| H

se


76 new projects were chosen for sponsorshipSoCiaL PRoJeCtS The Petrobras Zero Hunger Program has been running for three

years and during this time has invested a total of R$ 366 million

in projects devoted to generating employment and income, to

education and professional training, and to protecting the rights

of children and adolescents. In the 2006 public selection process,

76 projects were chosen for sponsorship, from a total of 4,517

registered. These initiatives, synchronized with public policies for

the eradication of poverty and hunger, also seek to promote racial

and gender equality and concern for the handicapped. During

2006, R$ 175.8 million was invested in the program.

One of the program’s projects is “Molhar a Terra (Irrigate the

Soil)”, under which inactive oil wells are used to supply drinking

water to communities in the country’s semi-arid region. Another

activity is “Mova Brasil (Mobilize Brazil)”, which, in a joint edu-

cational and work-related effort, in partnership with the Paulo

Freire Institute, the Oilworkers’ Federation (FUP) and the federal

government, has taught 46 thousand young people and adults how

to read and write. In stimulating cooperativism, in addition to the

Family Subsistence Farming in the Pipeline Strip project, men-

tioned earlier, the company helps some 10 thousand autonomous

collectors of recyclable materials in different parts of the country

to organize themselves, in an initiative that combines the goals of

social inclusion and environmental protection.

Through the Petrobras Zero Hunger Program, which, since

2003, has drawn corporate efforts together in the fight against hun-

Social and environmental ResponsibilitySPONSORSHIP

Sports training under the Mangueira Social Project, sponsored by Petrobras, Rio de Janeiro


ger and misery, Petrobras has accumulated a wealth of institutional

relationships covering more than 15 thousand governmental and

non-governmental partnerships. More than 10 million people have

been assisted by these sponsored projects, which are contributing

to the building of social justice in Brazil.

Another activity in the social area is passing on resources to

the Fund for Childhood and Adolescence (FIA). In 2006, a total of

R$ 48.6 million was provided to projects in more than 200 munici-

palities in almost every state. These actions, in partnership with the

Special Secretariat for Human Rights and the National Council for

the Rights of Children and Adolescents (Conanda), seek to prevent

the sexual exploitation of children and teenagers and put a stop to

child labor and the unlawful employment of teenagers. The spon-

sorships also include initiatives to reduce school drop out rates and

for the social inclusion of people with special needs.

eNviRoNMeNtaL PRoJeCtSDuring 2006, Petrobras invested R$ 44.6 million in environmental

projects. In its second public selection process, the Petrobras

Environmental program received 856 applications and chose to

sponsor 36 new projects, which will receive investments amount-

ing to R$ 48 million over the next two years. The program retained

the theme of “Water: bodies of fresh and salt water and their bio-

logical diversity”, to preserve the focus defined in the first selec-

tion process, in 2004, when the sum of R$ 40 million was invested.

The theme was chosen because Brazil, which accounts for 12% of

the volume of water in all the planet’s rivers, has a considerable

proportion of the world’s available fresh water.

Because it gives importance to sharing responsibility for the

protection of water resources, the company also supports initiatives

that develop awareness and promote the rational use of water, the

preservation and restoration of the vegetation bordering streams and

10million

PEoPlE havE BEEn assIsTED By ThE coMPany’s

socIal ProJEcTs

So

cia

l an

d e

nv

iro

nm

en

tal

| s

po

ns

oR

sH

ip


rivers and the protection of marine environments. The projects, which

embrace a variety of ecosystems, river basins and landscapes, are

developed in all the country’s biomes, notably the Amazon Rainforest,

the Caatinga, the Cerrado, the Atlantic Forest and the Pantanal.

The activities of the Petrobras Environmental program,

launched in 2003, cover more than 5 thousand species of Brazilian

fauna and flora. Sponsorship has enabled the setting up of 15 data-

bases and 12 Geographical Information Systems , as well as the pub-

lication of 70 specialized works, with 220 thousand copies distrib-

uted. The initiatives reach out to 250 municipalities, having an area

of influence of over 900 thousand hectares, and benefit 20 million

Brazilians — 3 million of them directly. The work involved in the

projects provides an income for more than 5 thousand people.

Other programs are also developed by Petrobras, which has

been investing in the environmental sphere for decades, with the

disbursement of R$ 103 million in environmental sponsorship since

2004. To help marine biological diversity, the company sponsors

projects and behavioral studies, as well as the protection of endan-

gered species, such as the manatee, the humpback and right whales,

the spinner dolphin and the marine turtle (the Tamar Project has

been active on Brazil’s coast for over 20 years). Under the “De Olho

no Ambiente (Keep an Eye on the Environment)” program, 335

communities neighboring the operational units are encouraged to

plan the area’s sustainable development, introducing at the local

level the global commitments of the UN’s Agenda 21.

CuLtuRaL PRoJeCtSPetrobras continues to be the country’s greatest cultural sponsor,

making an annual investment of R$ 288 million and with a portfo-

lio of more than one thousand ongoing projects. The company’s

policies and guidelines for this area emphasize the Brazilian cul-

ture and seek more opportunities for the creation, distribution and

So

cia

l an

d e

nv

iro

nm

en

tal

| s

po

ns

oR

sH

ip

The Petrobras Cultural Program has begun sponsoring education in the arts. Directly chosen projects in the areas of the cinema, theater, visual arts and music and maintaining archaeological sites such as those at Xingó and Serra da Capivara are also sponsored.

the Petrobras Cultural Program provides support for the National Circus School


Olympic Committee (COB), strengthening the association of the

Petrobras name with the ideals of the Olympic movement and with

sports promotion, recognizing the important role sport plays in the

development of young people. The Pan-American Games, attracting

athletes from 42 different countries, is the greatest sporting event in

the Americas.

In motor racing, Petrobras continues to support the Williams

Formula 1 team, the Petrobras Lubrax team in rallying, the Action

Power team in stock car racing, Team Scud Petrobras in motorcycle

racing, the Petrobras “Seletiva de Kart”, “Formula Truck” and the SAE

competitions “Baja” and “Fórmula”. The development of products

for motor racing is part of the company’s strategy to use the race

tracks as laboratories.

With its sponsorship of the 3rd edition of the Petrobras

Tennis Cup, held in Brazil, Argentina, Colombia, Uruguay and Chile,

Petrobras reinforced the dissemination of its brand name in Latin

America. The company also maintained its support for the Brazilian

Handball Confederation (CBH) and the Brazilian national team – this

sport is the one most widely played in the country’s state schools.

Support for surfing, associated with the characteristics of youth and

energy, has also been continued. Sponsorship of the Flamengo Soccer

team also kept the Petrobras name in the spotlight. +

fruition of projects, in addition to the preservation of a permanent

Brazilian cultural legacy.

Sponsorship is structured under the Petrobras Cultural pro-

gram, which earmarks 75% of its resources for projects by public

selection and 25% for those chosen directly. In 2006, of the 4,700

projects registered in the public selection process, just 230, in the

fields of the cinema, the scenic and visual arts, cultural heritage,

artistic legacy and music, received a total of R$ 46 million in spon-

sorship. The support to another hundred projects, chosen directly,

amounted to R$ 15 million.

The fourth edition of the Petrobras Cultural Program(2006-

2007) was launched in December, with R$ 80 million in funding and

a new feature, sponsorship directed at education in the arts. The

public selection process covered action for cultural preservation,

cinema production and dissemination, the sustaining of theater and

dance groups, and the recording and distribution of popular and

classical music. The projects chosen directly include the cinema,

scenic arts, visual arts, music and the maintenance of archeological

sites, such as those at Xingó (SE) and Serra da Capivara (PI).

The company stimulates the registration of projects from all

over the country, through the Petrobras Cultural Caravan, which

visits the state capitals between September and January. In 2005, a

project workshop was added to the caravan, to help the producers

of cultural activities in the development of their proposals. In this

way, Petrobras has managed to extend the reach of its sponsorship

to all parts of the country.

SPoRtS SPoNSoRShiPPetrobras is one of Brazilian sport’s greatest partners and is the

sponsor of the XV Pan-American Games, to be held in Rio in 2007.

A total of R$ 58,19 million went into supporting sporting activities

in 2006. The company bolstered its partnership with the Brazilian

So

cia

l an

d e

nv

iro

nm

en

tal

| s

po

ns

oR

sH

ip

5,000diFFeReNt SPeCieS

oF FLoRa aNd FauNa: that is the number embraced by the

activities of the petrobras environmental program, which was launched in 2003

58.19MiLLioN ReaiS

was directed into supporting sporting activities over the course of last year


áLvaRo heNRique aRouCa de CaStRo

Geophysicist / Manager of Geotechnology

outLook: To continue working for the company, helping to build a world that

offers a better quality of life.

“for everything that it represents, Petrobras is a fundamental agent for development in Brazil. nurturing Petrobras means nurturing the dream of a better country.”


Intangible Assets

The management of intangible assets is essential to the creation of value and devel-opment of a competitive edge for a business, as well as to the attainment of sustain-able results. At Petrobras, these assets are divided into four types of capital: human, organizational, relationship and technological. Petrobras took a pioneering step in the management of technological know-how, when, in 1963, it set up the Leopoldo Américo Miguez de Mello Research Center (Cenpes). The management of this asset is the basis of the company’s acknowledged technological excellence, which is reflected in its market capitalization and makes the company a sought after partner for the world’s major oil companies. The sustaining of technological quality is upheld by invest-ment in developing the employees’ technical and management skills. This constant process of up-grading, and also accelerating the learning curve of new workers, is all done at the Petrobras University. The management of organizational and relation-ship capital has gained ground in recent years. At the same time as it progresses in the control of systems and key processes, the company refines the management of its relations with clients, suppliers, partners, shareholders and the general public. The outside perception of the strength of the management of intangible assets opens up the possibility of partnerships, influences the decision making of investors and boosts the results of Petrobras.

technologicAl cApitAl 78oRgAnizAtionAl cApitAl 80

humAn cApitAl 82RelAtionship cApitAl 83


Cenpes: the pursuit of new technologyThe masTery of Technological know-how is a con-

sTanT challenge for PeTrobras, which has been

exPanding The insTallaTions of cenPes, on The ilha

do fundão camPus of The federal universiTy of

rio de Janeiro (ufrJ). wiTh over 1,800 emPloyees, 30

PiloT PlanTs and 137 laboraTories, in an area of

122 Thousand m2, The cenTer has been anTiciPaTing

and suPPlying The comPany’s Technological needs

since 1963. iT Plays a decisive role in The corPoraTe

sTraTegy of growTh allied wiTh social and envi-

ronmenTal resPonsibiliTy.

Research into biological fuels was the highlight of 2006. A

mixture of vegetable oils and mineral diesel oil, the H-Bio tech-

nology was tested on a pilot scale at the Gabriel Passos (Regap),

Alberto Pasqualini (Refap) and Presidente Getúlio Vargas (Repar)

refineries, with a view to starting commercial production in 2007.

Biodiesel, made with vegetable oils or oleaginous seeds, is being

produced at two experimental plants in the state of Rio Grande

do Norte, using innovative technology. Another new development

was the laboratory production of ethanol from sugar cane bagasse

(lignocellulose), which would enable an increase in the production

of alcohol without having to increase the planted area.

The technologies developed by Cenpes have also led to

improvements in the quality of the fuels. At the end of the year,

Petrobras launched Diesel Podium, a cleaner diesel fuel containing

only 200 parts per million (ppm) of sulfur, thus taking another step

forward in the innovations relating to this product, which began in

2005, with the commercialization of diesel with 500 ppm.

Intangible AssetsTeChnoLogiCAL CAPiTAL

H-Bio pilot plant at Cenpes, Rio de Janeiro


Another advance in the refining area was the development,

by Cenpes, of technology to optimize the use of the heavy oil from

the Campos Basin. One of these developments, which increases

the production of ethylene and propylene, will be utilized at the Rio

de Janeiro Petrochemical Complex; another, already tested on an

industrial scale, will be utilized at the Northeastern Refinery, increas-

ing the production of diesel fuel from heavy oil by 30%. The con-

ceptual designs for both the Rio de Janeiro Petrochemical Complex

and the Northeastern Refinery were completed by Cenpes.

Important technological advances helped to augment the

company’s proven reserves of oil and gas. In the Marlim field, in the

Campos Basin, the use of chemical tracers in the process of defin-

ing the reserves — the first time this has been done in deep waters

— added 500 million barrels of oil to the field’s reserves. Together

with suppliers, Cenpes also developed new equipment and new tech-

nology for separating the oil, gas and water at the maritime units.

Three basic platform designs were completed by Cenpes in

2006: Mexilhão 1 (PMXL1), to be installed in the Santos Basin;

and, for the Campos Basin, the P-55 (Roncador field) and the P-57

(Jubarte field). Another challenge that was overcome during the

year relates to the technology for drilling wells, in about 2 thou-

sand meters of water in the Santos Basin, through thick layers of

salt. The technique made it possible to identify accumulations of

light oil at a depth of over 6,400 meters.

In the area of environmental protection, Cenpes has com-

pleted the prototype of a hybrid robot, given the name Chico

Mendes, designed for environmental monitoring in the Amazon

region. A collaborator in the efforts to preserve the world’s largest

tropical forest, Petrobras, in liaison with other scientific and tech-

nological organizations, proposed to create a Petrobras Center of

Environmental Quality in the Amazon. Cenpes was also an active

participant in an international seminar on carbon sequestration

Inta

ng

ible

Ass

ets

| t

ec

hn

olo

gic

Al

cA

pit

Al

and climate change, which brought together specialists from 17

different countries in Rio de Janeiro.

Significant advances in the development of new technol-

ogy for the reutilization of effluents and the reduction of water

consumption to a minimum have made it possible to meet the

necessary environmental requirements for the new refining proj-

ects, with a saving, in terms of water catchment and the release of

effluents, equivalent to a city of 300 thousand inhabitants.

With a view to Cenpes and the operational units work-

ing more closely with one another, Petrobras inaugurated the

Experimental Center for Renewable Energy, in the state of Rio

Grande do Norte. Two more centers should start up in 2007, one

in Ceará and the other in Minas Gerais. As part of the company’s

strategy for relations with the Brazilian scientific community,

Cenpes launched a new partnership concept, in 2006. The new

model involves the participation of 76 institutions from 18 units

of the Brazilian federation, organized into 38 thematic networks

and 7 regional centers. By 2008, Petrobras should have invested

about R$ 1 billion in this new model.

Patents Petrobras is the company that files the most patents in Brazil and

is also the Brazilian company with the most patents filed in the

USA. In 2006, a total of 14 patents were granted to the company

in Brazil. Seventy-seven new patent applications were filed during

the course of the year — among them, the company’s thousandth,

for the process of producing ethanol from vegetable waste, devel-

oped at Cenpes. Outside Brazil, in 2006, a total of 81 applications

were filed and 69 patents were obtained.

With all these technological innovations, Petrobras is con-

stantly refining its processes, so as to be able to guarantee to meet

society’s demands in a sustainable manner. +

a total of

1,000Patent aPPlICatIons Have

Been fIled By tHe ComPany

(numBeR 1,000 was foR tHe PRoduCtIon of etHanol fRom

vegetaBle waste)


the Petrobras brand: a strategic assetThe PeTrobras brand is managed as a sTraTegic asseT,

due To iTs imPorTance and iTs PoTenTial To enhance

The value of ProducTs and services. The markeTing

and brand commiTTee, linked To The business

commiTTee, is resPonsible for devising a manage-

menT model wiTh guidelines for The uTilizaTion of

The brand ThroughouT The PeTrobras sysTem.

The defining of the rules, allied to the legal defense of this

asset in the various markets, provides even more protection for

the Petrobras brand. The global management of this asset follows

a strategy of giving the company a higher profile and strengthen-

ing the identity of its products and services. This management is

aligned, in the corporate sphere, with the uniform appearance of

the installations and the standardization of the company’s com-

munication activities.

A survey by the international consulting firm Interbrand dem-

onstrated the success of the company’s brand management, which

is associated with technological and quality leadership and social

and environmental responsibility. In 2003, the firm calculated the

value of the Petrobras brand at US$ 286 million, which surged to US$

485 million the following year and hit US$ 554 million in 2005, an

increase of 94% in just two years. The Petrobras brand was the one

whose value increased the most in Brazil between 2003 and 2005.

management PRaCtICesIn 2006, the Management Quality Assessment Program continued

to encourage the adoption of programs for improvements at the

operational units. The assessments are guided by the Petrobras

Intangible AssetsoRgAnizATionAL CAPiTAL

technological sponsorship: the cars of the at&t williams formula 1 team run on high-tech fuel developed by Petrobras


Management for Quality Handbook, which combines the criteria

of the National Quality Award with the specific requirements of

the company, derived from the policies of the Strategic Plan.

Petrobras entered into a formal agreement with the National

Quality Foundation for the dissemination of the corporate model

of management quality. Among the resources developed under this

partnership are ‘quality’ notebooks and a program that simplifies

the process of self-assessment by the units, stimulating improve-

ments to be made more quickly. Petrobras participates, both in

Brazil and abroad, in various movements and bodies devoted to

management quality, productivity and competitiveness. +

Inta

ng

ible

Ass

ets

| o

Rg

An

izA

tio

nA

l c

Ap

itA

lBetween 2003 and 2005, the value of the Petrobras brand appreciated by

94%

286 million

dollars: the brand value in 2003

554 million

dollars: the brand value in 2005

tHe PetRoBRas BRand aPPReCIated moRe tHan any otHeR In BRazIl

duRIng tHe PeRIod


Knowledge managementin 2006, PeTrobras consolidaTed The meThodol-

ogy for PreParing knowledge managemenT Pro-

grams for The business uniTs in brazil, based on The

inTernaTional area’s Program for The inTegraTion

of knowledge. This Program sTrengThens oPera-

Tional, managemenT and Technological exPerTise,

disseminaTing knowledge and acceleraTing The

develoPmenT of new emPloyees.

In the Exploration & Production area, the Communities of

Practice Program is disseminating knowledge and best practices

in four more fields of activity. Specialists in the ‘communities’ of

reservoir definition, well engineering, naval engineering, lifting and

off-loading, water management and operational practices are all

now sharing their experience. Overcoming organizational bound-

aries, the program embraces 2.5 thousand employees at units in

Brazil and abroad.

The participation of the employees in passing on techni-

cal, cultural and business know-how is showcased in the project

“Petrobras Stories”, which collects personal narratives and case

studies. The project systematically organizes information relating

to historical milestones, thereby spreading strategic know-how, as

well as an understanding of the company’s past. The first themes

to be tackled are the backgrounds of the oil producing area of

Urucu, in the Amazon, and the Guando field, in Colombia.

As part of the ongoing improvement of the company’s rela-

tionship with general society, it has set up the Communication

area’s Collaboration Network (ReCol). This initiative highlights

good practices developed at the units, reinforcing the understand-

ing and implications of the corporate communication guidelines.

Petrobras participates in two Knowledge Management study

groups coordinated by the American Productivity & Quality Center

(APQC), with a view to refining its own internal practices in the

light of the example of world-class corporations. In the 2006 edi-

tion of the Most Admired Knowledge Enterprise (Make), an award

presented by the British institution Know Network for outstanding

achievement in the area of business knowledge, Petrobras came

fourth, among the world’s 18 largest companies in the oil sector. It

was the only Latin American company among the 55 finalists. +

Intangible AssetshUMAn CAPiTAL

Construction of part of the P-52 platform


Intangible AssetsReLATionshiP CAPiTAL

surveys assess outside perceptionsPetrobras carries out wide ranging opinion surveys, in order to

learn how its practices and projects are viewed and assessed by the

stakeholders. These surveys, which have provided the company

with considerable insight into the socio-economic environment

in which it operates, are based upon 18 indicators that make it pos-

sible to evaluate the perceptions regarding its management, com-

petitiveness, growth, activities abroad, vision of the future, social

support, ethics, and social and environmental responsibility.

The weighted average of the points awarded for each indicator

in the public opinion segment provides a general indicator value.

The information from the surveys is consolidated in the Corporate

Image Monitoring System (Sísmico). Using this company reputation

monitoring tool, the management can follow changes in Petrobras’

image and appropriately adjust its communication policies and

actions, as well as its management practices, in different areas.

InvestoR RelatIons At the end of 2006, the company had more than 350 thousand

shareholders and investors in funds devoted to Petrobras shares.

In order to refine its relationship with these parties, the company

has an ongoing program directed at the investors, through road

shows, open meetings, conference calls, chats, a shareholders’

newsletter, telephone and e-mail response, specialized events,

website, and other means of communication.What is more, the

* Corporate Image Monitoring System


company conducts an annual survey which assesses the quality

of the service and the perception of Petrobras in terms of profit-

ability, competitiveness, management, vision of the future, cor-

porate governance, ethics, technology, transparency, and social

and environmental responsibility.

RelatIonsHIP wItH suPPlIeRsIn 2006, Petrobras retained the system of listing the companies that

provide outsourced materials and services all together in a single

register of suppliers, in alignment with the corporate Health, Safety

and the Environment (HSE) and Social Responsibility guidelines. In a

process of standardizing its methodology and rationalizing its efforts,

the company refined the technical, legal-fiscal and economic-finan-

cial criteria for registration, in addition to adopting new centralized

and regional procedures for evaluation and ratification.

The new registration form also contains questions relat-

ing to social responsibility, prepared by the Ethos Institute for

Companies and Social Responsibility. The purpose of this inquiry

is to form a picture of the practices developed in this area by the

suppliers and stimulate them to give due importance to such ini-

tiatives and to show appreciation of existing efforts, as well as to

make improvements in them.

The Registration Portal was set up by the company to use the

internet as a tool for developing closer relations with suppliers.

Petrobras currently has around 5 thousand companies registered

in its database for the acquisition of goods and services for its

operations or new projects. Moreover, there are approximately 40

thousand firms, located throughout the country, that supply goods

and services on a small scale to the company’s operating units.

For the acquisition of goods, the new Terms of Materials

Supply (CFM) apply to all contracts signed since November 1,

2005. The product of liaison between Petrobras and associations

Survey of Shareholder approval ratingS(points, from 0 to 100)

89

90

92

93

88

81

79

78

95Activities abroad

View of the future

Profitability

Technology

Feeling

Competitiveness

Working conditions

Management

Ethics

Alternative energy

Environmental responsibility

Communication with shareholders

Transparency

Social support

Corporate governance

General indicator

79

80

84

78

77

76

85

Inta

ng

ible

Ass

ets

| R

el

At

ion

sh

ip c

Ap

itA

l


representing suppliers, the CFM adapted the contractual clauses

to the prevailing legislation and market practices. The company

has also adopted new terms of payment for goods that have a long

manufacturing timeframe, supplied by Brazilian companies.

Petrobras continued its partnership with the Brazilian Service

for the Support of Small and Medium-Sized Enterprises (Sebrae),

to encourage the competitive insertion of small businesses in the

production chain for oil, natural gas and electricity. The agreement

covers the 12 states that have Petrobras business units and is worth

R$ 12 million over a period of three years — R$ 6 million of which is

invested by Sebrae. Due to the enthusiastic response to this initia-

tive, the investments of the participating companies, initially put

at R$ 3 million, have risen to R$ 16.7 million.

PRoCuRementPetrobras made direct purchases of goods and services to the

sum of US$ 20.8 billion in 2006, of which US$ 4 billion was for

the acquisition of materials and US$ 16.8 billion for the hiring of

services. Of these totals, 88% of the materials purchases and 70%

of the services were acquired from suppliers located in Brazil, who

thus had a 73% overall share of the purchases made in 2006.

Part of the procurement was carried out through the on-line

trading portal Petronect, which has a total of 22,719 registered

suppliers in Brazil, Argentina, Bolivia, Colombia, Ecuador, Peru,

Singapore, the USA and Venezuela. Since October 2003, the com-

panies of the Petrobras System have completed 216 thousand

purchases, 125 direct auctions and 274 reverse auctions using

the Petronect portal.+

16937

40,000companieS in Brazil provide goodS and

ServiceS on a Small Scale to the company’S

operational unitS

trading board at the são Paulo stock exchange (Bovespa)


mIguel Ângelo estePHanIoterminals and pipelines engineer /

Business consultant

outlooK: the company’s example should always inspire a striving for

progress and continual improvement.

“petrobras has the capability to develop projects in various areas of the energy sector, thereby generating wealth and employment and improving the people’s quality of life.”


Business Management

Prices in the international oil markets were high in 2006, yet Petrobras retained the policy it had adopted in the preceding year, of avoiding passing on the oscillations in international prices to the consumer. The increase in gasoline and diesel prices, in September 2005, and the readjustment of the other oil product prices, resulted in an average domestic sales price for oil products that was 8% higher than that of 2005. The company’s good results over the course of the year were recognized by the market, with a nominal increase in its stock market quotations. The price of the company’s common stock increased by 31.94% in the year, while that of the more liquid preferred stock was up by 33.83%. Risk management, taking into account the nature of the company’s activities, is carried out in an integrated manner, seeking a balance between the twin goals of growth and return, on the one hand, and the level of exposure, on the other. In the area of corporate governance, the company adopts procedures that are compatible with the standards of the markets in which it operates, and constantly monitors the implementation and application of the practices that have been determined.

Business peRfoRmAnce 88cApitAl mARkets 91

Risk mAnAgement 96coRpoRAte goveRnAnce 99

88 | AnnuAl RepoRt 2006 | petRoBRAs

Outstanding earnings and investments Oil prices in the internatiOnal market hit extrem-

ely high levels during 2006. the Brent average (us$

65.14/Barrel) was up 19.8% in relatiOn tO the previ-

Ous year, having hit a peak mOnthly average Of us$

73.66/Barrel in July. this rise had a direct impact On

the lifting cOst Of dOmestic Oil and the cOst Of

impOrted Oil, which represented, On average, 20.5%

Of the primary thrOughput at the refineries.

The pricing policy adopted in 2005 was maintained, so as to

avoid immediately passing on to the consumer the volatility of the

international prices. The average realization price of oil products

in the domestic market was R$ 154.45/barrel — 8% higher than

in the previous year.

The main underlying reasons were the increase in gasoline and

diesel prices, in September 2005; the commercialization of Diesel S500

— of superior quality — from the beginning of 2005; and the adjust-

ment of the prices for other oil products, notably naphtha, fuel oil and

aviation fuel, in line with the fluctuations in international prices.

Petrobras’ total sales — including natural gas, alcohols,

nitrogen compounds, exports and international sales — amounted

to 3 million 48 thousand boe, a 9% increase over the 2 million 808

thousand boe sold in 2005.

The company’s sales in the domestic market were up by 3%.

Sales of natural gas increased by 7%, driven by the growth of the

market in the south/southeast, while sales of oil products rose by

3%. Electricity sales grew 8.7%, due to contracts signed in previ-

ous years coming into effect, coupled with increased sales under

contracts already in effect.

Business ManagementBuSIneSS PeRfoRmance


HigHer revenuesThe consolidated gross operating revenue amounted to R$

205.4 billion, while the net operating revenue was R$ 158.2 bil-

lion — amounts that exceeded the 2005 figures by 15% and 16%,

respectively. Underlying the results were the higher prices in the

domestic and international markets and the increases of 3% in

domestic sales and 19% in international sales.

In the domestic market, net revenue was up by R$ 10.9 billion

(12.3%), due mainly to higher revenue from diesel fuel (11.6%),

gasoline (18.8%) and naphtha (12.2%). Gasoline sales increased

by 7.3% (21 thousand bpd) — stimulated, above all, by the reduc-

tion, in March, of the ethanol content —, outstripping the increase

in sales of diesel fuel, up 1.1% (7 thousand bpd), and of naphtha,

up 5.1% (8 thousand bpd). The impact of the price rises was great-

est for diesel fuel, which saw an increase of 11% (R$ 0.11/liter),

while gasoline and naphtha saw respective increases of 9.1% (R$

0.08/liter) and 6.5% (R$ 0.08/liter).

The net revenue in foreign markets was up by R$ 3 billion,

led by oil exports, which increased by 29% in relation to 2005,

while the revenue from oil products declined by 2.3%.

ecOnOMic and Financial resultsThe operating profit amounted to R$ 42.2 billion — 6% higher

than that obtained in the previous year, due to the increases in

net operating revenue, production and the processing of more

domestic oil, which pushed the cost of goods and services sold

by 23%, whereas the increase in the benchmark price of Brent oil

was 19.8%. Net earnings were R$ 25.9 billion, 9% higher than the

figure for 2005.

As a result, the EBITDA (earnings before deducting interest,

taxes, amortization and depreciation) was R$ 50.9 billion, 9% higher

than in 2005. The return on capital employed (ROCE) was 23% — a

Bus

ines

s M

an

ag

em

en

t |

Bu

sin

es

s p

eR

foR

mA

nc

e

Petrobras headquarters lit up to celebrate the self-sufficiency

milestone, rio de Janeiro

The average oil producT price in The domesTic

markeT was 154.45

reais a barrel

19%growTh in

inTernaTional sales


reduction of one percentage point. The financial result for 2006

was a net expense of R$ 1.3 billion, compared to a net expense

of R$ 2.8 billion in 2005. The result was affected by the much

greater appreciation of the real against the principal currencies

with which Petrobras works than was seen in 2005.

Petrobras’ total assets amounted to R$ 210.5 billion, an increase

of 15% over the figure for 2005. The value of the company’s fixed

assets increased by 14.4%, while current assets were up by 11.6% and

long term assets by 16%. Cash and short term financial investments

alone accounted for 63% of the variation in current assets.

The corresponding change in liabilities was accounted for

mainly by net equity, which increased by 23.8%, the principal

item being a 45% increase in realized capital. With regard to the

company’s debt, the leverage (net debt to net capitalization ratio)

was reduced to 16%, from 24% in 2005.

caPital exPenditurePetrobras made investments amounting to R$ 33.7 billion — 31%

more than in 2005 —, in line with the Strategic Plan 2015. Capital

expenditure in the area of Exploration & Production came to R$

15.3 billion, with priority being given to augmenting production

and reserves. In the Downstream area, a total of R$ 4.2 billion was

invested, with the aim of adding value to the company’s oil and

natural gas. The capital expenditure in the International area, of

R$ 7.2 billion, was invested in pursuing the strategy of leadership,

as an integrated business, of the Latin American energy market.

Of the total figure, R$ 3.5 billion was invested through spe-

cific purpose companies (SPCs), which was up 47% in compari-

son with the amount invested through SPCs in 2005. +

Bus

ines

s M

an

ag

em

en

t |

Bu

sin

es

s p

eR

foR

mA

nc

e

33.7billion

reais in capital expenditure during the year, 31% more than in 2005

15.3billion

reais went into the exploration & production area, with the prime aim of

augmenting production and reserves

7.2 billion

reais was invested in the international area, in order to attain leadership of the latin

American energy market

23%return on capital employed (Roce)


40% increase in share value abroadit was a gOOd year fOr petrOBras in the stOck mar-

kets. the nOminal appreciatiOn Of the cOmpany’s

shares — Of 31.94% fOr the cOmmOn stOck (petr3)

and 33.83% fOr the preferred stOck (petr4) — was

in line with the Overall perfOrmance Of the

iBOvespa (sãO paulO stOck exchange index), which

rOse By 33% in 2006. hOwever, taking intO accOunt

the dividends paid Out Over the cOurse Of the year

(in relatiOn tO the 2005 results), the appreciatiOn

Of petrOBras’ shares amOunted tO 38% (cOmmOn)

and 41% (preferred).

The company’s preferred stock showed the greatest liquid-

ity, in terms of volume traded and number of trades, with respec-

tive daily averages of R$ 282 million and 4,414. This performance

placed Petrobras at the top of the ranking, as the company with

the greatest weighting in the Ibovespa theoretical portfolio — with

13.80% for the period January-April 2007. Taking the combined

figures for common and preferred stock, the company had a daily

turnover of R$ 336 million, representing over 16% of the average

Bovespa trading volume in 2006.

At the New York Stock Exchange (NYSE), the return to

Petrobras shareholders was even greater, due to the apprecia-

tion of the real against the dollar. The receipts (ADRs) represent-

ing common shares (PBR) showed a nominal appreciation of

45%, while those for preferred shares (PBRA) were up 44%. The

Petrobras stock outperformed the major indices: the Dow Jones

(+ 16%), the US market’s leading benchmark; the Amex Oil Index

(20%), comprising major companies in the oil and gas sector; and

Business ManagementcaPITal maRkeTS

seminar promoting best practice in the disclosure of information


Trading volume aT The nYse (2006 daily average – US$ million)the NYSE’s International 100 (21%), which brings together the

100 most liquid ADRs.

Petrobras was the most heavily traded non-American company

on the New York Stock Exchange, taking the combined daily average

trading volume of the two classes of receipt. The average daily NYSE

turnover of the company’s common receipts came to US$ 227 mil-

lion, and for the preferred receipts it was US$ 99 million.

In 2006, for the first time, Petrobras’ monthly average market

capitalization passed US$ 100 billion (in December), closing the

year at US$ 108 billion. This is the largest amount of any publicly

traded Latin American company, and is up by 45% in relation to

the 2005 figure (US$ 74 billion) and by 155% compared to 2004

(US$ 42 billion). In reais, the company’s market capitalization

amounted to R$ 230 billion at the end of 2006, compared to R$

174 billion in 2005 and R$ 112 billion in 2004.

Over the course of the year, the company’s Bovespa share-

holder base grew by 20%, closing 2006 with a total of 168 thousand

shareholders. This is not only the outcome of the split carried out

in 2005, which made the shares more accessible to small inves-

tors, but also a reflection of the growing confidence of investors

in Petrobras’ management model.

In April, the company listed its common and preferred shares

at the Buenos Aires stock exchange, thereby opening up the pos-

sibility for Argentinean investors to have direct access to Petrobras

shares, as well as enabling the company to broaden its shareholder

base and strengthen its brand name among the local population.

The quality of Petrobras’ corporate governance, which is

fully committed to the principles of ethics, transparency and

social and environmental responsibility, secured the company a

place on the select Dow Jones Global Sustainability Index. This is

the world’s most important sustainability index, which serves as a

parameter for socially and environmentally responsible investors.

Bus

ines

s M

an

ag

em

en

t |

cA

pit

Al

mA

Rk

et

s

the trading desk at

Petrobras’ london office

212

227

232

242

172

153

105

99

326Petrobras*

BP

CVRD*

Petrobras (common)

Nokia

CVRD (common)

America Movil*

America Movil (series L)

BHP Billiton

Cemex

Total

Petrobras (preferred)

Taiwan Semiconductor

RD Shell

Elan

100

114

154

93

90

87

* Sum of all the company’s ADR programs Source: Bloomberg


In November, it was announced that Petrobras’ shares had also

been included in the Bovespa Corporate Sustainability Index.

sHare BuyBackA share buyback program was announced in December, which

will allow the company to repurchase up to 91.5 million preferred

shares — 4.9% of the total preferred shares in circulation — up to

December 2007. This decision reflects the management’s belief

that the company’s shares are undervalued, in view of Petrobras’

prospects for growth and profitability, and is aimed at reducing

the company’s short term financial costs.

dividendsDuring the year, Petrobras shareholders received dividends in rela-

tion to the 2005 base year equivalent to R$ 1.6562 per common or

preferred share. This represents an increase of 39% in comparison

with the dividends paid out in relation to the previous year, which

is in line with the 40% rise in the company’s net earnings. For the

2006 fiscal year, the Board of Directors proposes to pay out R$

7,897 million in dividends, equivalent to R$ 1.80 per share, which

is up 8.7%, in line with the profit increase.

cOrPOrate FinancePetrobras retained its high degree of liquidity in 2006 and obtained

more favorable terms in its fund raising, which received a boost

from the investment grade ratings assigned by Moody’s Investor

Services in October 2005 and Standard & Poor’s in January 2007.

Within this scenario, the company developed strategies for man-

aging its liabilities that included the prepayment of debt, the rene-

gotiation of contractual terms and strategic new fund raising.

With regard to the early repayment of debt, in March,

Petrobras prepaid two series of the Program for the Securitization

of Bunker Fuel and Fuel Oil, reducing the outstanding principal

to US$ 577.6 million. The company also obtained the consent of

the investors in the remaining series for the withdrawal of bun-

ker fuel from the program, a reduction in the insurance cost and

a reduction in the minimum daily average exports. The terms

of other financial contracts were also revised, resulting in lower

interest rates and the exclusion of certain insurance mechanisms

(political risk insurance and letters of credit).

In the international capital markets, operating through its

subsidiary PIFCo, the company repurchased securities in July with

a total value of US$ 888 million. Including the amount already

repurchased by Petrobras, this operation has led to the canceling

of US$ 1,215 million of the company’s debt. In February 2007, an

operation was carried out for the exchanging of five series of old

PIFCo securities for new securities maturing in 2016, with a total

face value of US$ 399,053,000.

In September, PIFCo carried out a private 10-year bond issue

in Japan, denominated in yen, for the equivalent of US$ 300 mil-

lion, at a rate of 2.15% p.a. and partially guaranteed by JBIC, with

Bus

ines

s M

an

ag

em

en

t |

cA

pit

Al

mA

Rk

et

s

for the first time, the monthly average market capitalization of Petrobras exceeded us$ 100 billion, in December, closing the year at uS$ 108 billion. This is the highest value for a publicly traded latin american company.

bovespa shareholder base

128,962

140,060

160,395

167,580Dec 31/06

Jun 30/06

Dec 31/05

Jun 30/05


the objective of reopening the Japanese market and diversifying

the company’s investor base.

In October 2006, PIFCo made its first issue of Global Notes

since the company obtained its investment grade, in order to

establish a new benchmark for the group’s funding costs. The issue

represented the lowest ever cost to PIFCo for a ten year maturity

(a rate of 6.125% p.a., with a return to investors of 6.185% p.a.)

and most of the demand was high grade. Moreover, the company

introduced improvements to its covenants.

In transactions with the Brazilian Development Bank

(BNDES), Petrobras drew down US$ 314 million, through its subsid-

iary PNBV, for the construction of the P-51 and P-52 platforms.

Under lines of credit in the international banking market,

the company raised a total of US$ 2,112 million, 20% more than in

2005, 97% of which was earmarked as support for the operations

of subsidiaries, with the remainder going into the commercializa-

tion of oil and oil products.

In order to provide the company with a liquidity cushion,

PIFCo has secured, since 2004, a total of US$ 675 million in

standby facilities. These allow the company to draw down any

amount, up to the contract limit, over a period of two years, and

gives the company a year to repay the principal.

With regard to bank guarantees, the total amount under

contract to Petrobras and its subsidiaries amounted to US$ 4,126

million — 107.86% more than at the end of 2005.

structured PrOJectsThrough structured project finance operations, the company

secured funding in the Brazilian and foreign financial markets for

its undertakings in the Downstream, Exploration & Production,

and Gas & Energy areas, using Specific Purpose Companies (SPCs)

set up for each project.

In the Downstream area, Petrobras closed the project

finance contracts, in May, for the modernization of the Henrique

Lage refinery (Revap), amounting to US$ 900 million.

The ABN AMRO bridge loan on the project for the construc-

tion of the P-53 platform, to go into production in the Campos

Basin’s Marlim Leste field, was renewed in August and the syn-

dicated loan was refinanced in September. The total amount of

these operations comes to US$ 1.1 billion, of which US$ 350 mil-

lion corresponds to the bridge loan and US$ 750 million to the

syndicated loan.

In the area of Exploration & Production, the refinancing of a

syndicated commercial bank loan in relation to the Master Plan for

the Delivery and Treatment of Oil from the Campos Basin (PDET)

was concluded in September. The improvement in Petrobras’

credit rating since the original structuring of the financing, in

March 2005, enabled the company to obtain a reduced spread

and the cancellation of the political and commercial risk insur-

ance on the transaction.

In the area of Gas & Energy, two additional bridge loans for

the Southeast–Northeast Gas Pipeline Interconnection (Gasene)

were arranged with the Brazilian Development Bank (BNDES) in

December. One of the loans, amounting to R$ 1.05 billion, will be

used to purchase pipeline for the stretch between Cacimbas (ES)

and Catu (BA); the other, for R$ 312 million, will be used for the

stretch between Cabiúnas (RJ) and Vitória (ES).

In November, Petrobras Netherlands BV (PNBV) signed

a financing contract (a Co-Financing Term Loan Facility

Agreement) with the Export-Import Bank of Korea — K-Exim

(the official credit institution for South Korea) and BNP Paribas.

The contract, for US$ 360 million over a term of eight years, is to

finance Petrobras’ investment in two oil production platforms to

be constructed by the South Korean shipyards of Hyundai Heavy

Bus

ines

s M

an

ag

em

en

t |

cA

pit

Al

mA

Rk

et

s 888million dollars: the value of the securities repurchased in the international market in June


Industries and Daewoo Shipyard & Marine Engineering. The plat-

forms will be used in foreign oilfields in which Petrobras has a

financial stake. +

Bus

ines

s M

an

ag

em

en

t |

cA

pit

Al

mA

Rk

et

s

P-52 platform deck-mating operation, angra dos reis, rio de Janeiro

Structured ProjectS

Year structured Amount (US$ million)

Marlim 1998 1,500

Albacora 2000 410

Barracuda / Caratinga 2000 3100

Cabiúnas 2000 850

Espadarte, Voador and Marimbá (EVM) 2000 1076

NovaMarlim 2001 834

Pargo, Congo, Garoupa, Cherne and Carapeba (PDCG) 2001 85,5

Pipeline networks 2003 1,000

CLEP (Oil Equipment Leasing Company) 2004 1,250

PDET (Master Plan for the Delivery & Processing of Oil from the Campos Basin) 2005 1,270 1

CRI Macaé (Certificate of Real Estate Receivables) 2005 200 2

Modernization of the REVAP refinery 2006 900Notes: 1 Due to increased costs, the total amount for the project went from US$ 910 million to US$ 1.27 billion. 2 Amount in reais (R$).

ProjectS being Structured

Amount (US$ million)

Urucu-Coari-Manaus gas pipeline and Manaus thermoelectric plant (Amazon region) 1,300

Construction of P-53 platform (Marlim Leste) 1,180

Gasene 2,000

Mexilhão 595


Management aligned with corporate goalspetrOBras manages its risks in an integrated man-

ner, taking advantage Of any pOssiBle natural

fOrms Of prOtectiOn. the cOmpany seeks tO attain

a suitaBle Balance Between its gOals Of grOwth

and return On investment, On the One hand, and

its level Of expOsure tO the risks inherent tO

its OperatiOns Or stemming frOm the cOntext in

which it Operates.

By the very nature of its activities, Petrobras is subject to a

whole series of market risks, such as variations in the prices of oil

and oil products, in foreign exchange rates and in interest rates.

Through its risk management policy, aligned with its corporate

goals and objectives, the company seeks the security of its opera-

tions and the execution of its planned investments, so as to be able

to maintain its profitability and grow in a sustainable manner.

Any proposals for the management of risk are put before the

Risk Management Committee, comprising executives from the

company’s business and corporate areas. This allows an integrated

view of the issues and makes it easier for the Executive Board and

the Board of Directors to comprehend the risk exposure and take

the appropriate decisions.

In the management of oil and oil product market risks, fol-

lowing the premise of regular and systematic evaluation of the

consolidated net exposure to price risk, operations using deriva-

tives have consequently been limited to specific short term trans-

actions (up to six months), involving futures contracts, swaps and

options and utilizing control methodologies in accordance with

specific risk management guidelines, in order to safeguard the

Business ManagementRISk managemenT

natural gas processing unit at the urucu industrial complex, amazonas


results of its physical operations.

credit riskIn line with the recent alterations in the country’s regulatory envi-

ronment, Petrobras has adapted its credit policy to the new market

circumstances. This has preserved the attractiveness of sales on

credit, without unnecessarily raising the company’s exposure to

credit risk.

In order to analyze these operations, in 2006, the company

set up the Petrochemicals Area Credit Committee, following the

model of the committees for the Downstream and Gas & Energy

areas, set up in 2004, when a system of credit flow analysis was

also introduced.

Outside Brazil, in line with Petrobras’ growing sales, the

processes for analyzing and conceding credit to clients (exports

and the provisioning of vessels) were standardized and central-

ized in 2006.

insuranceIn 2006, the final premium on the company’s principal insurance

policies — major fire/operational risk and petroleum risk — was

raised to US$ 34.5 million, from US$ 29.4 million in 2005, an increase

of 17%. On the other hand, the value of the company’s insured assets

increased by 32%, from US$ 32.7 billion to US$ 43.2 billion.

Most of Petrobras’ risk is reinsured in the international

market. The company has a fixed policy of publicizing its risk

management practices, in Brazil and abroad. Pertinent informa-

tion regarding losses and improvements made are promptly and

candidly passed on to the insurance market.

Like other large oil companies, Petrobras bears a significant

portion of the risk, with insurance exemptions as high as US$ 40 mil-

lion. The company does not insure against lost profits and wellhead

Bus

ines

s M

an

ag

em

en

t |

Ris

k m

An

Ag

em

en

t

The companY’s asseTs are

insured for

43.2 billion

dollars


controls in Brazil, nor does it insure its pipeline network.

Platforms, refineries and other installations have insurance

cover against major fire/operational risk and petroleum risk. The

movement of cargoes is covered by transportation insurance poli-

cies and the vessels are covered by hull and machinery insurance.

Civil liability and environmental risks are covered by one or more

policies, according to the circumstances. Projects and installations

under construction, where the maximum likely damages would

exceed US$ 40 million, are covered against engineering risks under

a policy taken out by Petrobras or by the contractors.

Bus

ines

s M

an

ag

em

en

t |

Ris

k m

An

Ag

em

en

t

For insurance purposes, the company’s assets are valued at

replacement cost. Based on the maximum likely damages at each

installation, the maximum indemnity in the major fire/operational

risks policy has been fixed at US$ 600 million.

Most of the company’s activities abroad are insured or rein-

sured by the Bear Insurance Co. Ltd., based in Bermuda. As a cap-

tive insurance company, Bear retains none of the risk, but passes

it on in full to the market. +

The greater part of Petrobras’ risk exposure is reinsured in the international market and the company has a policy of disclosing its risk management practices.

insurance

Amount Insured (US$ b) Premium (US$ m) Rate (%)

50

40

30

20

10

0

0.30%

0.25%

0.20%

0.15%

0.10%

0.05%

0 1999 2000 2001 2002 2003 2004 2005 2006


Practices are constantly reviewedpetrOBras is cOnstantly striving tO perfect its

cOrpOrate gOvernance practices and relatiOns

with sharehOlders, custOmers, suppliers, emplOy-

ees and Other stakehOlders. the cOmpany adOpts

management prOcedures that are cOmpatiBle

with the regulatiOns gOverning the markets in

which it Operates and cOntinually mOnitOrs the

applicatiOn Of these prOcedures.

In Brazil, Petrobras is subject to the rules of the Brazilian

Securities Commission (CVM) and the São Paulo stock exchange

(Bovespa). Outside Brazil, it obeys the rules of the Securities and

Exchange Commission (SEC) and the New York Stock Exchange

(NYSE), in the USA, and of the Madrid stock exchange (Latibex),

in Spain. As from 2006, with its listing in Argentina, the company is

also subject to the rules of the Argentinean Securities Commission

(CNV) and the Buenos Aires stock exchange.

Petrobras is studying the process for formally adhering to

the Bovespa’s differentiated levels of corporate governance and,

since changes were made to its by laws, in 2002, the company

has been in full compliance with the practices and regulations

defined therein.

The training program in corporate governance for executives

and staff whose functions are directly linked to relations with the

companies of the Petrobras System, which continued through

2006, fosters awareness of the importance of this topic and dis-

seminates the best practices adopted in Brazil and abroad.

The process of reviewing the Petrobras Code of Ethics, which

involved the participation of the employees, was concluded in 2006.

Business ManagementcoRPoRaTe goveRnance

The aim of the process was to update this instrument and bring it

into alignment with the requirements of the Sarbanes-Oxley Law

(SOX) regarding specific items in the Codes of Ethics of companies

listed with the New York Stock Exchange.

In compliance with SOX requirements, Petrobras discloses

in Form 20-F (the Annual Report, an SEC requirement) that one of

the nine members of its Board of Directors, elected at an Ordinary

General Shareholder’s Meeting held on April 3, 2006, is a financial

specialist. +

k in its annual report 2006, filed with the SeC, Petrobras attests

to the effectiveness of its internal controls, in compliance

with SoX section 404.

k a review of the Petrobras code of ethics has been

completed, with the participation of the employees, bringing it up to date and into line with most

recent legal requirements.


Bus

ines

s M

an

ag

em

en

t | c

oR

po

RA

te

go

ve

Rn

An

ce

corporaTe governance sTrucTure

Petrobras’ corporate governance structure comprises the Board of Directors and its advisory committees, the Executive Board, the Fiscal Council, the Internal Auditors, the General Ombudsman, the Business Committee and the Management Committees.

BOard OF directOrsAn independent collegial body with powers and responsibilities laid down in the law and in the company’s by laws, whose main duties are to define the company’s strategic guidelines and supervise the actions of the Executive Board. There are nine board members, elected at a General Shareholders’ Meeting for a term of one year, with the possibility of reelection. Seven of the board members represent the controlling shareholder; one represents the minority common shareholders; and one represents the preferred shareholders.

executive BOardThe Executive Board runs the business, in line with the mission, objectives, strategies and guidelines defined by the Board of Directors. The Executive Board consists of a CEO and six directors chosen by the Board of Directors for a term of three years, with the possibility of reelection, who may be removed at any time. Only the CEO is a member of the Board of Directors, but may not preside over that body.

Fiscal cOuncilA permanent body, independent of the company’s management, as laid down in Brazilian Corporate Law, the Fiscal Council com-prises five members, with terms of one year, with the possibil-ity of reelection. One of the members represents the minority shareholders; another represents the preferred shareholders; and three act in the name of the federal government — one of these is appointed by the Finance Minister, as the representative of the National Treasury. It is incumbent on the Fiscal Council to represent the shareholders in a supervisory capacity, monitoring the actions of the company’s management to verify compliance with their legal and statutory obligations, as well as defending the interests of the company and its shareholders.

internal auditOrsThe Internal Auditors plan, execute and evaluate the company’s internal auditing procedures and assist the senior management and external control bodies. The company also has outside audi-tors, appointed by the Board of Directors, who are restricted as to the consulting services they may provide. It is mandatory that the outside auditors be changed every five years, on a rotation basis.

general OMBudsManThe Ombudsman, directly linked to the Board of Directors, plans, guides, coordinates and evaluates activities aimed at gath-ering the opinions, suggestions, criticism, complaints and accu-sations of interested parties having some form of relationship with the company, and arranges for investigations to be carried out and appropriate steps to be taken. In compliance with the requirements of the Sarbanes-Oxley Law, this office must also serve as a channel to receive and process accusations regarding accounting, internal control and auditing issues, including confi-dential and anonymous tip-offs from employees.

BOard advisOry cOMMittees There are three Advisory Committees: for Auditing; the Environment; and Remuneration and Succession. Their mem-bers belong to the Board of Directors and assist the Board in carrying out its responsibility to provide the company with high level guidance and direction.

audit committee In full compliance with the requirements of the Sarbanes-Oxley Law, this committee comprises three independent Board mem-bers and its president needs to be a financial specialist — in accor-dance with SEC definitions. The committee’s function is to analyze questions regarding the integrity of the company’s US GAAP financial reports and the effectiveness of its internal controls, as well as supervising Petrobras’ outside and internal auditors.

Business cOMMitteeThis committee is a forum for integration, seeking to align busi-ness development, management of the company and the guide-lines of the Strategic Plan, in support of the senior management’s decision making process.

ManageMent cOMMitteesThese are forums for delving deeper into issues that are to be presented to the Business Committee, with which it liaises. Such integration also exists between the Management Committees themselves and in their relations with the Board Advisory Committees.

At present, the company has the following Management Committees: Exploration & Production; Downstream; Gas & Energy; Human Resources; Health, Safety & the Environment; Organization and Management Analysis; Information Technology; Internal Controls; Risk; Petrobras Technology; Social and Environmental Responsibility; and Marketing & Brands.

internal cOntrOlsThe Program of Integrated Internal Control Systems and Methods

(Prisma), included in Petrobras’ strategic agenda and currently

assimilated in the company’s General Management of Internal

Controls, concluded the work for compliance with the require-

ments of Section 404 of the Sarbanes-Oxley Law.

The activities carried out in 2006, under the guidance of

the Committee for the Management of Internal Controls and

monitored by the Audit Committee, consisted of completion of

the charting, documenting and maintenance of the internal con-

trol structure for the mitigation of risks relating to the Petrobras

System’s consolidated financial reports.

Petrobras’ General Management of Internal Controls, basi-

cally following the guidelines of the Public Company Accounting

O versight Board (PCAOB), the Committee of Sponsoring

Organizations of the Treadway Commission (Coso) and the

Control Objectives for Information and Related Technology

(Cobit), continued to implement the best practices in corporate

governance and the control over the business, service, financial

and information technology processes.

Petrobras, along with the independent auditors, endorsed

the design of the processes and controls that have a substantial

impact on the Consolidated Financial Reports. All shortcomings

that could significantly or materially jeopardize the certification

of the company’s internal controls were rectified. The System’s

Internal Auditors, directly linked to the Boards of Directors, con-

ducted further tests of the effectiveness of the controls, and no

problems were found that might compromise the evaluation of

the company’s control structure, both in terms of the whole entity

and in terms of processes and information technology.

Documentation of the design of the processes, controls and

tests is being regularly stored in an integrated system of internal


Bus

ines

s M

an

ag

em

en

t |

co

Rp

oR

At

e g

ov

eR

nA

nc

e

corporaTe governance sTrucTure

Petrobras’ corporate governance structure comprises the Board of Directors and its advisory committees, the Executive Board, the Fiscal Council, the Internal Auditors, the General Ombudsman, the Business Committee and the Management Committees.

BOard OF directOrsAn independent collegial body with powers and responsibilities laid down in the law and in the company’s by laws, whose main duties are to define the company’s strategic guidelines and supervise the actions of the Executive Board. There are nine board members, elected at a General Shareholders’ Meeting for a term of one year, with the possibility of reelection. Seven of the board members represent the controlling shareholder; one represents the minority common shareholders; and one represents the preferred shareholders.

executive BOardThe Executive Board runs the business, in line with the mission, objectives, strategies and guidelines defined by the Board of Directors. The Executive Board consists of a CEO and six directors chosen by the Board of Directors for a term of three years, with the possibility of reelection, who may be removed at any time. Only the CEO is a member of the Board of Directors, but may not preside over that body.

Fiscal cOuncilA permanent body, independent of the company’s management, as laid down in Brazilian Corporate Law, the Fiscal Council com-prises five members, with terms of one year, with the possibil-ity of reelection. One of the members represents the minority shareholders; another represents the preferred shareholders; and three act in the name of the federal government — one of these is appointed by the Finance Minister, as the representative of the National Treasury. It is incumbent on the Fiscal Council to represent the shareholders in a supervisory capacity, monitoring the actions of the company’s management to verify compliance with their legal and statutory obligations, as well as defending the interests of the company and its shareholders.

internal auditOrsThe Internal Auditors plan, execute and evaluate the company’s internal auditing procedures and assist the senior management and external control bodies. The company also has outside audi-tors, appointed by the Board of Directors, who are restricted as to the consulting services they may provide. It is mandatory that the outside auditors be changed every five years, on a rotation basis.

general OMBudsManThe Ombudsman, directly linked to the Board of Directors, plans, guides, coordinates and evaluates activities aimed at gath-ering the opinions, suggestions, criticism, complaints and accu-sations of interested parties having some form of relationship with the company, and arranges for investigations to be carried out and appropriate steps to be taken. In compliance with the requirements of the Sarbanes-Oxley Law, this office must also serve as a channel to receive and process accusations regarding accounting, internal control and auditing issues, including confi-dential and anonymous tip-offs from employees.

BOard advisOry cOMMittees There are three Advisory Committees: for Auditing; the Environment; and Remuneration and Succession. Their mem-bers belong to the Board of Directors and assist the Board in carrying out its responsibility to provide the company with high level guidance and direction.

audit committee In full compliance with the requirements of the Sarbanes-Oxley Law, this committee comprises three independent Board mem-bers and its president needs to be a financial specialist — in accor-dance with SEC definitions. The committee’s function is to analyze questions regarding the integrity of the company’s US GAAP financial reports and the effectiveness of its internal controls, as well as supervising Petrobras’ outside and internal auditors.

Business cOMMitteeThis committee is a forum for integration, seeking to align busi-ness development, management of the company and the guide-lines of the Strategic Plan, in support of the senior management’s decision making process.

ManageMent cOMMitteesThese are forums for delving deeper into issues that are to be presented to the Business Committee, with which it liaises. Such integration also exists between the Management Committees themselves and in their relations with the Board Advisory Committees.

At present, the company has the following Management Committees: Exploration & Production; Downstream; Gas & Energy; Human Resources; Health, Safety & the Environment; Organization and Management Analysis; Information Technology; Internal Controls; Risk; Petrobras Technology; Social and Environmental Responsibility; and Marketing & Brands.

asphalt emulsion plant in são José dos

campos, são Paulo


control management, which automatically monitors the chang-

ing roles and responsibilities, making it possible to visualize the

internal control structure, from the managers who are directly

responsible for the controls all the way up to the senior levels,

even to the CFO and the CEO of Petrobras. Hence, the manag-

ers, the General Management of Internal Controls, the Internal

Auditors, senior management and the Audit Committee can see,

at any given moment, an up-to-date analysis of the position of the

Petrobras System’s internal controls.

inFOrMatiOn disclOsureIn line with its policy of transparency in its relationship with the

capital markets, the company holds quarterly open meetings at

which it announces its results and releases its quarterly BR GAAP

and US GAAP balance sheets. Due to the listing of the company’s

shares in Argentina, as of the year end 2006, Petrobras will now

also disclose its annual US GAAP balance sheet reconciled to the

Argentinean standard.

Petrobras has an internal document formally defining the

controls and procedures for the disclosing of information, that

is to be followed by all the company’s staff. This ensures that the

information released to the market has been recorded, processed,

developed and made available in compliance with the legal rules

and time limits. +

Bus

ines

s M

an

ag

em

en

t |

co

Rp

oR

At

e g

ov

eR

nA

nc

e

Worker at the duque de caxias refinery (reduc), rio de Janeiro


Bus

ines

s M

an

ag

em

en

t |

co

Rp

oR

At

e g

ov

eR

nA

nc

e

The Petrobras organization model, ratified by the Board of Directors

in October 2000, is constantly being refined in order to tailor it to

the Strategic Plan. Changes in the company’s organizational struc-

ture in 2006 resulted in, among other things, the reorganization of

the Gas & Energy business area and the setting up of the Santos

Petrobras Organization Model Basin Exploration & Production business unit. Furthermore,

reviews were carried out of the organization and management

model for the International business area and of some business

unit structures abroad, in addition to the implementation of a new

organizational structure for the Financial area. +


JOsé sergiO gaBrielli de azevedO ceo

coRpoRAte AReA

General Ombudsman Office Maria augusta carneirO riBeirO

Internal Auditors gersOn luiz gOnçalves

Petrobras General Secretary HéliO sHiguenOBu FuJikaWa

CEO’s Cabinet arMandO raMOs triPOdi

Business Strategy &Performance celsO FernandO luccHesi

Management System Development antOniO sergiO Oliveira santana

New Business rOgeriO gOncalves MattOs

Institutional Communications WilsOn santarOsa

Legal niltOn antOniO de alMeida Maia

Human Resources diegO Hernandes

finAnciAl AReA

alMir guilHerMe BarBassa cfo

Corporate daniel liMa de Oliveira

Finance PedrO augustO BOnésiO

Financial Planning & Risk Management JOrge JOsé naHas netO

Accounting MarcOs antOniO silva Menezes

Taxation Maria alice Ferreira descHaMPs cavalcanti

Investor Relations raul adalBertO de caMPOs

gAs & eneRgy AReA

ildO luís sauer Director

Corporate antOniO eduardO MOnteirO de castrO

Energy Development MOzart scHMitt de QueirOz Marketing & Sales luiz antOniO cOsta Pereira Energy Operations & Stakeholdings FernandO JOsé cunHa

Natural Gas Logistics & Stakeholdings sydney granJa aFFOnsO

Business ManagementexecuTIve BoaRD


Board of directors

ChairwomandilMa vana rOusseFF

Board Memberssilas rOndeau cavalcanti silvaguidO MantegaJOsé sergiO gaBrielli de azevedOgleuBer vieira*artHur antOniO sendasrOger agnelliFáBiO cOlletti BarBOsaJOrge gerdau JOHannPeter* Replaced by Francisco Roberto de Albuquerque as from April 2, 2007

Bus

ines

s M

an

ag

em

en

t |

ex

ec

ut

ive

Bo

AR

D

fiscal council

MembersMaria lúcia de Oliveira Falcón nelsOn rOcHa augustO túliO luiz zaMin erenice alves guerraMarcus Pereira aucéliO

Substitute memberscelsO BarretO netOMaria auxiliadOra alves da silvaMarcelO cruzedisOn Freitas de OliveiraeduardO cOutinHO guerra

exploRAtion & pRoDuction AReA

guilHerMe de Oliveira estrella Director

Corporate FranciscO nePOMucenO FilHO

North-Northeast sOlange da silva guedes

South-Southeast JOsé antOniO de FigueiredO

Production Engineering JOsé Miranda FOrMigli FilHO

Exploration PaulO Manuel Mendes de MendOnça

Services erardO gOMes BarBOsa FilHO

DoWnstReAm AReA

PaulO rOBertO cOsta Director

Corporate venina velOsa da FOnseca

Logistics PaulO MauríciO cavalcanti gOnçalves Refining alan kardec PintO

Marketing & Sales nilO carvalHO vieira FilHO

Petrochemicals & Fertilizers JOsé liMa de andrade netO

inteRnAtionAl AReA

nestOr cuñat cerveró Director

Corporate cláudiO casteJOn

Southern Cone Region déciO FaBríciO OddOne da cOsta

Business Development luís carlOs MOreira da silva

Business Technical Support aBíliO PaulO PinHeirO raMOs

Americas, Africa & Eurasia saMir PassOs aWad

seRvices AReA

renatO de sOuza duQue Director

Health, Safety, & the Environment ricardO santOs azevedO

Materials MarcO aureliO da rOsa raMOs

Cenpes carlOs tadeu da cOsta Fraga

Engineering PedrO JOsé BaruscO FilHO

Information Technology WasHingtOn luiz Faria salles

Shared Services ricardO antOniO aBreu ianda


gloSSaRY

adrs - aMerican dePOsitary receiPts | Certificates represent-

ing one or more shares in a foreign company, that are traded in the

United States. An American depositary bank will issue ADRs against

underlying shares deposited with a custodian in the country of

origin of those shares. In the case of Petrobras, in 2006, each ADR

represented four underlying shares.

anP - natiOnal agency FOr Oil, natural gas & BiOFuels | The

Brazilian regulatory body for the oil and gas sector.

aPi degree (0aPi) | A scale developed by the American Petroleum

Institute to indicate the relative density of an oil or a by-product.

The API scale, measured in degrees, varies inversely with differ-

ences in the relative density, i.e. the greater the relative density, the

lower the API degree. Conversely, the lighter the oil, the higher the

API degree. Oils with an API of more than 30o are considered light;

between 22o and 30o are medium; lower than 22o are heavy; while

an API equal to or lower than 10o indicates an extra-heavy oil. The

higher the API degree, the greater the product’s market value.

assOciated natural gas | Natural gas produced along with oil.

A petroleum reservoir usually contains oil, gas and water. This gas

is obtained once the liquid oil fraction has been separated. There

is also non-associated gas, produced from gas reservoirs without

the need for separation. In the case of both types, however, the gas

is processed before it is sold, in order to ensure that it meets the

required quality standards.

BiOdiesel | A renewable and biodegradable alternative to diesel

fuel, obtained from the chemical reaction of animal or vegetable

oils and alcohol in the presence of a catalyst, a process known as

transesterification. It can also be obtained through the processes

of cracking and esterification.

BlOck | A small portion of a sedimentary basin where oil and natural

gas exploration and production is carried out.

BOOk value | The value of a company’s net equity or sharehold-

ers’ equity.

Brent | Oils extracted from the Brent and Ninian systems, in the

North Sea, with an API of 39.4o and 0.34% sulfur content.

Br gaaP | The Generally Accepted Accounting Principles in Brazil.

Bunker Fuel | Fuel for a vessel. The bunker is the place where it

is stored.

catalytic cracking | Refining process whereby heavier distilled

oils are converted into lighter fractions of greater commercial value,

such as gasoline, liquefied petroleum gas (LPG) and naphtha.

cO-generatiOn | The simultaneous generation of electricity and

thermal energy (heat and steam from the process), through the

sequential and efficient use of quantities of energy from the same

source. This increases the thermal efficiency of the entire thermo-

dynamic system.

cOndensate | Usually produced with natural gas and recovered

from an underground reservoir in the normal process of separa-

tion. It is gaseous in its reservoir state but becomes liquid under

the normal surface pressure and temperature conditions at which

it is subsequently kept.


cOnFerence call | A telephone conference wherein company rep-

resentatives talk to analysts and institutional and individual inves-

tors, normally held when the company is disclosing its most recent

quarterly financial results. The company representatives will usually

also provide information relating to its outlook for the future.

cOrPOrate gOvernance | The relationship between economic

agents (shareholders, executives, board members), which can influ-

ence or determine the course and performance of a company. Good

corporate governance provides the shareholders with an assurance

of equitable treatment, transparency and responsibility for the

company’s results.

crude Oil | The primary feedstock at a processing plant.

derivative | A contract or security whose value is related to the

changes in the price of another security, financial instrument or

underlying index. Consequently, it can be used as a hedge.

dJsi | The Dow Jones Sustainability Index, which reflects the return

on a hypothetical portfolio of companies listed at the New York stock

exchange (NYSE) that have the best performance in all aspects of

business sustainability. Considered to be the world’s premier sus-

tainability index, it is used as a parameter by socially and environ-

mentally responsible investors.

dOWnstreaM | Collective term for the activities of refining crude

oil, treating natural gas and transporting and commercializing/dis-

tributing the oil products.

eBitda | Earnings before interest, taxes, depreciation & amortiza-

tion expenses.

eBitda Margin | Informs how much net revenues contribute

towards the EBITDA.

e&P | Exploration and production of oil and natural gas.

etHene Or etHylene | A basic petrochemical product (C2H4) of

the light olefin family, produced from naphtha or ethane.

exPlOratOry success rate | The number of exploratory wells with

commercially viable oil and/or gas, as a proportion of the total num-

ber of exploratory wells drilled and evaluated in that same year.

Field | A geographical area encompassing a group of one or more

underground oil or natural gas reservoirs, possibly at variable depths,

and the production infrastructure (facilities and equipment).

FPsO (FlOating, PrOductiOn, stOrage & OFFlOading) | A float-

ing unit for the production, storage and transfer of petroleum, using

a ship as a platform.

FrOntier areas | Basins or parts of basins in which there has been

little exploration.

Fuel Oil | The heavier fractions from the atmospheric distillation of

petroleum, widely used as an industrial fuel in boilers, furnaces, etc.

grOss Margin | Gross profit divided by net revenue.

Hedge | A financial position or combination of positions, taken out

for the purpose of reducing some kind of risk.

iBOvesPa (BOvesPa index) | Indicator of the price changes of a

hypothetical share portfolio that is defined periodically by the São

Paulo stock exchange (Bovespa).

installed caPacity | A plant’s processing capacity, as authorized

by the ANP.

investMent grade | A level of risk classification indicating that the

company is considered to be a low credit risk and that its shares may

therefore be acquired by more conservative investors.

ise (BOvesPa cOrPOrate sustainaBility index) | The Corporate

Sustainability Index reflects the return on a hypothetical portfolio of

companies listed at the São Paulo stock exchange (Bovespa) that have

the best performance in all aspects of business sustainability. The 34

companies, whose 43 shares (common and preferred) comprise the

index, were chosen for their policies, management practices, perfor-

mance and compliance with legal obligations regarding economic

efficiency, environmental equilibrium, social justice, product charac-

teristics and corporate governance. The ISE is a pioneering initiative in

Latin America that seeks to create an investment environment com-

patible with the demands of sustainable development in modern day

society, as well as to encourage corporate ethics and responsibility.

isO 14001 | Prepared and run by the International Organization for

Standardization, it specifies the requirements for the certification

of environmental management systems.

liQueFied natural gas (lng) | Supercooled natural gas that is

maintained as a liquid, at -160° Celsius or less, for the purpose of

storage and transportation.

liQueFied PetrOleuM gas (lPg) | A mixture of hydrocarbons and

high-pressure steam, obtained from natural gas at special process-


ing units, which is kept in a liquid state by pressure or cooling, to

facilitate storage, transport and handling.

Market sHare | The proportion of total market sales represented

by a specific company or product.

Market value | The value of a company, as measured by the market

price of its shares, multiplied by the number of shares issued.

MercHant POWer statiOn | A commercial power station that normally

produces power for the spot market. Petrobras’ contracts with three

merchant power stations were signed at the time of electricity rationing,

during the Brazilian energy crisis of 2001/2002, and provide for the pay-

ment of contingency contributions in the event that their sales revenues

are not sufficient to cover the costs of running the plants.

naPHtHa | A petroleum by-product, mainly used as a feedstock by

the petrochemical industry, to produce ethylene and propylene, along

with other liquid fractions such as benzene, toluene and xylene.

natural gas | Refers to all hydrocarbons or hydrocarbon mixtures

that remain in a gaseous state under normal atmospheric conditions,

extracted directly from reservoirs of petroleum or gas. The term

embraces moist, dry, residual and rare gases, predominantly methane

and ethane, used for industrial, domestic and automotive fuel.

natural gas liQuids (ngl) | Refers to the portion of natural gas

that is found in its liquid state under a determined surface pressure

and temperature, obtained during natural gas production through

field separation processes, in natural gas processing units or in gas

pipeline transfer operations.

natural gasOline | A liquid with a steam pressure halfway between

those of condensate and LPG, obtained from natural gas through a

process of compression, distillation and absorption.

net Margin | Net earnings divided by net revenue.

OFFsHOre/ OnsHOre | Located, respectively, at sea or on land.

OHsas 18001 | An international standard, prepared and run by BSI

Management Systems, it specifies the requirements for the certifica-

tion of health and work safety management systems.

Oil | The portion of petroleum that exists in a liquid state under

original reservoir conditions and remains liquid under surface pres-

sure and temperature conditions.

OPec Basket | A basket of oils representing the production of the

members of the Organization of Petroleum Exporting Countries:

Saharan Blend (Algeria); Minas (Indonesia); Iranian Heavy (Iran);

Basrah (Iraq); Kuwait Crude (Kuwait); Es Sider (Libya); Bonny Light

(Nigeria); Dukhan (Quatar); Arab Light (Saudi Arabia); Murban

(UAE) and BCF-17 (Venezuela), used as a base of reference.

OPerating Margin | Operating profit divided by net revenue.

PetrOleuM | Any liquid hydrocarbon in its natural state, such as

crude oil and condensate.

POlyetHylene | A petrochemical product used to make objects

such as casks, receptacles, film containers, plastic packaging for

clothing and lightweight objects.

POlyPrOPylene | A petrochemical product with uses similar to

those of high-density polyethylene, such as film, drink crates and

packaging.

PriMary PrOcessed tHrOugHPut | The quantity of crude oil

processed at the distillation plants.

PrOcessed tHrOugHPut | Total amount of crude oil plus reprocess-

ing and intermediate products processed at the distillation plants.

PrOPene Or PrOPylene | A basic petrochemical product, pro-

duced from naphtha or propane, that serves as feedstock for making

polypropylene.

PrOven reserves | Reserves of petroleum and/or natural gas that,

based upon analysis of geological and engineering data, are esti-

mated to be profitably recoverable from reservoirs discovered and

evaluated, to a high degree of certainty, taking into account the

prevailing economic circumstances, feasible operational methods

and petroleum and tax regulations.

rating | Classification or evaluation of risk.

recOveraBle vOluMe | The volume of petroleum that can be

removed from a reservoir, from start-up to abandonment, using the

best current technology, as determined through technical-economic

studies carried out up to the time of the evaluation. Recoverable

volume = original volume x recovery factor.

reserve | Discovered oil and/or natural gas resources that are com-

mercially recoverable as of a given date.

reserve rePlaceMent index (rri) | The ratio between the volume

of reserves incorporated during any given year and the total produc-


tion volume over the course of that same year.

retarded cOking | The most severe form of thermal cracking,

that transforms vacuum residue into lighter products, as well as

producing coke.

rOce – return On caPital eMPlOyed | Calculated using the equa-

tion: net earnings — financial income (net of income taxes) / aver-

age borrowing (loans and financing) + average stockholders’ equity

— financial investments.

sec – securities and excHange cOMMissiOn | The regulatory

body that oversees the US capital market. The Brazilian equivalent

is the CVM - Comissão de Valores Mobiliários.

sPe | Society of Petroleum Engineers.

sWaP | Contract between two parties to exchange flows of payments.

A typical oil swap consists of a contract in which one party buys at a

certain set price and sells at a future floating price.

uPstreaM | Collective term for the activities of exploration and

production.

us gaaP | The acronym for Generally Accepted Accounting Principles

in the United States of America. It is the US accounting standard.

vOlatility | Statistical measurement of the changes in a price or rate

over time, usually expressed as a standard deviation from a norm.

The greater the volatility, the wider is the variation from the mean.

WOrk-related illness | An illness acquired or caused as a result of

the special conditions under which a job is performed and to which

it is directly related.

Wti | West Texas Intermediate is an oil with an API of between

38º and 40º and a sulfur content of around 0.3%, whose daily spot

market quotation represents the price of barrels of oil in Cushing,

Oklahoma, in the USA.

cOnversiOn taBle

a) Cubic meters (m3) into barrels (b):

b = m3 0.158984

B) Barrels (b) into cubic meters (m3):

m3 = b x 0.158984

c) Cubic meters (m3) into tons (t):

t = m3 x D

d) Tons (t) into cubics meters (m3):

m3 =

t

D

e) Barrels (b) into tons (t):

t = b x 0.158984 x D

F) Tons (t) into barrels (b):

b = t D x 0.158984

g) 1 m3 = 1,000 liters = 6.28994113 b

H) 1 b = 158.984 liters = 0.158984 m3

i) 1,000 m3 natural gas = 1 m3 oil (approximately)

J) D = M , where V

D = Density, M = Mass, V = Volume

aBBreviatiOns

BOe | Barrels of oil equivalent. Normally used to express volumes of oil and

natural gas in the same unit of measurement (barrels) by converting Brazilian

gas at the rate of 1,000 m3 of gas to 1 m3 of oil. As an international standard,

one barrel of oil equivalent equals approximately 6,000 cubic feet of natural

gas (1 m3 = 35.31 ft3).

BOed | Barrels of oil equivalent per day.

BPd | Barrels per day.


Head OFFice

PetróleO BrasileirO s.a. – PetrOBras

Av. República do Chile, 65 – Centro

20031-912 – Rio de Janeiro – RJ

Tel.: (++55) 21 3224-4477

lOcal rePresentatiOn

Brasília

Setor de Autarquias Norte – SAN

Quadra 1, bloco D, Edifício PETROBRAS - 2º andar

70040-901 – Brasília – DF

Tel.: (++55) 61 3429-7131

Fax: (++55) 61 3226-6341

sãO PaulO

Avenida Paulista, nº 901 – 11º andar - Cerqueira César

01311-100 – São Paulo – SP

Tel.: (++55) 11 3523-6501

Fax: (++55) 11 3523-6488

salvadOr

Avenida Antônio Carlos Magalhães, nº 1113 - sala 112 - Pituba

41825-903 – Salvador – BA

Tel.: (++55) 71 3350-3700

Fax: (++55) 71 3350-3080

rePresentatiOn aBrOad

neW yOrk

570, Lexington Avenue – 43rd Floor

10022-6837 New York – NY – USA

Tel.: (++1) 212 829-1517

Fax: (++1) 212 832-5300

tOkyO

Togin Building – 5th Floor, Room 508

4-2 Marunouchi 1 – Chome – Chiyoda-Ku

Tokyo 100-0005 – Japan

Tel.: (++81) 3 5208-5285

Fax: (++81) 3 5208-5288

cHina

Petrobras Beijing Representative Office

China World Trade Center – Tower 1 – Units 1221-1225

No1, Jian Guo Men Wai Avenue – Chao Yang District

Beijing 100004 – P. R. China

Tel.: (++86) 10 6505-9838

Fax: (++86) 10 6505-9850

singaPOre

435 Orchard Road - Room 19-05/06 - Wisma Atra

Singapore – 238877

Tel.: (++65) 6550-5080

Fax: (++65) 6734-9081

aDDReSSeS


sHareHOlder services


Shareholder Support

Tel.: (++55) 21 3224-1524 or 3224-1550

0800-2821540

Fax: (++55) 2262-3678

Av. República do Chile, 65 – sala 2202-B

CEP 20031-912 – Centro – Rio de Janeiro – RJ

e-mail: [email protected]

dePOsitOry Banks

BancO dO Brasil s.a.

Shareholder Services

Tel.: (++55) 21 4004-0001 State capitals and metropolitan areas

0800 72 99 001 Other locations

Capital Market & Investment Area

Asset Accounting Department

Rua Lélio Gama, 105 - 260º andar



Obs.: Shareholder services are provided throughout the bank’s branch network.

adrs

JP Morgan Chase Bank

Tel.: (++1) 201 680-6630

Fax: (++1) 212 623-0079

PO BOX 3408

South Hackensack – 07606-3408 – NJ – USA


website: www.adr.com

dePartMent FOr latin aMerica relatiOns

Tel.: (++55) 3048-3507

Av. Brigadeiro Faria Lima, 3729 – 14º andar

04538-000 – São Paulo, SP

investOr services


Investor Relations Area

Tel.: (++55) 21 3224-1510 or 3224-9947

Fax: (++55) 21 3224-6055

Avenida República do Chile, 65 – sala 2202-B



WeBsite

The address of the Petrobras internet website is www.petrobras.

com.br. There you can find general information about the com-

pany and there is a section devoted specifically to investor rela-

tions, with details about the company’s results, financial state-

ments (BR GAAP and US GAAP), annual reports, recordings and

transcripts of presentations to investors, the bylaws, share prices,

information for shareholders, etc.

annual general Meeting

Annual General Meetings – AGMs are held within the first four

months immediately after the end of the financial year, in accordance

with article 39 of the bylaws, at the company’s head office, located

at Avenida República do Chile, 65 – Centro, Rio de Janeiro.


Overall cOOrdinatiOn, PrOductiOn and editing:

Investor Relations and Institutional Communication

design:

Tabaruba Design

editOrial cOOrdinatiOn:

Flávia Cavalcanti

text editing:

Vania Mezzonato

text:

Francisco Noel

englisH translatiOn and PrOOFreading:

Bruce L. Rodger

Printing:

RR Donnelley Moore

PHOtOgraPHs:

Petrobras Picture Database, Bruno Veiga, Estefano Lessa, Felipe Goifman, Geraldo Falcão, J. Valpereiro, José Caldas, Juarez Cavalcanti, Roberto Rosa, Rogério Reis, Segundo Luchia Puig, Thelma Vidalescover: P-52 platform deck-mating operation, Angra dos Reis, Rio de Janeiro (Felipe Goifman)Page 10: Petrobras president and CEO José Sergio Gabrielli at the company headquarters, Rio de Janeiro (Rogério Reis)Page 18: Supply terminal at Betim, Minas Gerais (Bruno Veiga) Page 44: Puerto General San Martin plant, Santa Fé province, Argentina (Segundo Luchia Puig)Page 56: Environmental Protection Center (CDA) at Reduc, Rio de Janeiro (Rogério Reis)Page 76: E&P Area Virtual Reality Center, Rio de Janeiro (Geraldo Falcão)Page 86: Downstream trading room, Rio de Janeiro (Geraldo Falcão)

PaPer:

This Petrobras Annual Report 2006 was printed on recycled paper (Reciclato, by Suzano)

nOte tO tHe reader

This document contains forward-looking statements that merely reflect the expectations of the company’s manage-ment. Such forward-looking statements clearly involve risks or uncertainties that may or may not have been fore-seen by the company. Consequently, the future results of the company’s operations may differ from current expecta-tions, and the reader is advised not to base his or her own expectations or investment decisions exclusively upon the information presented herein. The company is under no obligation to update these forecasts in the light of new information or future developments.

ANNUAL REPORT 2006 | www.petrobras.com.br

AN

NU

AL R

EP

OR

T 2

00

6

ANNUAL REPORT 2006

05002.RAi_Capa1.indd 1 6/14/07 7:42:46 PM

Relatorio anual 2006_ing

Business

Transcript of Relatorio anual 2006_ing