Total vs Petrobras

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A N A L Y S I S O F T O T A L V S P E T R O B R A S

Preparedfor:ProfessorHeriRAKOTOVOLOLONA

Preparedby: ADITYA TIBREWAL, GOVIND BHOTIKA,GAURAV SENGUPTA,ZHANG

LI&ZHANGYUO

Date: 14th

November2011



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TotalCorporation

IntroductionofTotal:

Total is the fifth largest publicly-traded integrated international oil and gas

company and a world-class chemicals manufacturer, with production of 2.38

million barrels of oil equivalent per day and proved reserves of 10.7 billion

barrels of oil equivalent as of end-2010.Total operates in more than 130

countries and has 92,855 employees.

Customer-focusedbrands:

With nearly 17,490 service stations worldwide, Total is No 1 in Western

European refining/marketing and No. 1 in African marketing. They also have a

strong presence in the Mediterranean Basin and are moving into growing

markets in Southeast Asia.

Total marketing operations leverage not only TOTAL, the flagship brand,

whose solid reputation is based on quality service and local presence, but also

their strategically positioned Elf, Elan and AS24 brands.

Shareholderbase:

Total S.A. is a French société anonyme (limited company) created in France in

March 1924, listed on Paris, London, Brussels and New York Exchanges.

Total is listed on the CAC 40, Dow Jones Stoxx 50, Dow Jones Euro Stoxx 50

and Dow Jones Global Titans indices and the FTSE4Good, DJSI World, DJ

STOXX SI, and ASPI Sustainable Development and Governance indices.

Predominantly European (67%), held in particular by investors from France

(34%), the United Kingdom, Belgium and Germany,with a strong number of Dutch, Swiss and Irish shareholders. Strong shareholder base in North

America (26.5%). Institutional shareholders (88%), employees (4%) and other

individual shareholders (8%).



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CorporateGovernance:

The total corporate governance including the Board of Directors, rules of

Procedure of the Board of Directors, the Audit Committee, the StrategyCommittee, the Compensation Committee, the Nominating and Governance

Committee, by laws, group Organization. Directors are appointed by the

shareholders for a 3-years term and 80% of the directors are independent.

At its meeting on November 4, 2008, the Board of Directors confirmed its

decision to use the Corporate Governance Code for Listed Companies

published by the principal French business confederations, the Association

Française des Entreprises Privées (AFEP) and the Mouvement des

Entreprises de France (MEDEF) ("AFEP-MEDEF Code") as its reference for

corporate governance matters.

The AFEP-MEDEF Code was amended in April 2010 to make

recommendations related to the balanced number of men and women sitting in

Board and Committees’ meetings. The code recommends that a target of at

least 20% of women be reached before April 2013 and at least 40% before

April 2016.

Strategy:

Total’s strategy, the implementation of which is based on a model for

sustainable growth combining the acceptability of operations with a sustained,

profitable investment program, aims at:

• Expanding hydrocarbon exploration and production activities throughout

the world,

• Strengthening its position as one of the global leaders in the natural gas

and LNG markets.

• Progressively expanding Total’s energy offerings and developing

complementary next generation energy activities (solar, biomass,

nuclear).

• Adapting its refining system to market changes and consolidating its

position in the marketing segment in Europe, while expanding its

positions in the Mediterranean basin, Africa and Asia.

• Developing its chemicals activities, particularly in Asia and the Middle East,

while improving the competitiveness of its operations in mature areas;

• Pursuing research and development to develop “clean” sources of energy,

contributing to the moderation of the demand for energy, andparticipating in the effort against climate change.



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PRODUCTIONOFTOTAL:

Upstream : Exploration & Production;Gas & Power; Natural Gas;

Liquefied Natural Gas (LNG);Liquefied Petroleum Gas (LPG);Electricity

and Cogeneration; Renewable Energy; Coal

Total Produces oil and gas in 30 countries. In 2010, investors invested 13.2

Billion Euros into Upstream product .On December 31, 2010; there were 10.7

BBOE of proved reserves. Total could produce 2.38 MBOE per day in 2010.It

has exploration and production activities in more than 40 countries

TotalExploration&Production:Combininglong-termgrowthandprofitability.

In a context of very volatile oil prices, 2010 was an eventful year for Total's

Upstream segment, with several good exploration successes, production

start-ups and the launch of new projects. The Group is confident in the solidity

of its portfolio and is pursuing its strategy of long-term investments.

Explorationanddevelopment:Anactiveprogramin2010

Total continued to follow an active exploration program in 2010, with

exploration investments of consolidated subsidiaries amounting to 1.5 B Euros

(including unproved property acquisition costs). The main exploration

investments were made in Angola, Norway, Brazil, the United-Kingdom, theUnited States, Indonesia, Nigeria and Brunei.

The Group's consolidated Exploration & Production subsidiaries' development

expenditures amounted to 8 B Euros in 2009, primarily in Angola, Nigeria,

Kazakhstan, Norway, Indonesia, the Republic of the Congo, the United

Kingdom, the United States, Canada, Thailand, Gabon and Australia.

Gas&Power:Optimizinggasresourcesandcomplementingthe

Group'senergyoffer:The Gas & Power division is focused on the commercial development of the

Group’s gas resources as well as the research and development related to

alternative energies as complementary energy resources to oil and gas.

The Gas & Power division is mainly focused on the optimization of the Group’s

gas resources through marketing, trading, transport of natural gas and

liquefied natural gas (LNG), LNG re-gasification and natural gas storage.

The division also contributes to the development of Group’s operations in the

areas of liquefied petroleum gas (LPG) shipping and trading; power generationfrom gas-fired power plants or renewable energies; solar power systems and



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technology (notably through its subsidiaries Tenesol and Photovoltech); coal

production, trading and marketing.

The Gas & Power division also conducts research and development related to

new energies that will be increasingly necessary to complement hydrocarbons,in particular solar and biomass.

Renewableresources:

Total announced an agreement with the Abu Dhabi Emirate for the launch of

Shames-----one of the world’s largest solar concentration projects. The cost of

the project is 600 million dollars. It is intended to supply over 30,000 people

with electricity from 2012. This solar power plant will be operated using solar

concentration technology, a relatively recent development that shows great

promise.

Downstream:Refining;Marketing;Trading & Shipping;Downstream

Operations:

2.3 billion Euros is invested into downstream part in 2010, and 17490 retail

stations .2.4 Mb/d of refining capacity at year end of 2010.

Refining:

As of December 31, 2010, Total’s worldwide refining capacity was 2,363 kb/d.

In 2010, the Group’s worldwide refined products sales were 3,776 kb/d

(including trading operations), compared to 3,616 kb/d in 2009 and 3,658 kb/d

in 2008. Total is the largest refiner/marketer in Western Europe 1, and the

largest marketer in Africa. As of December 31, 2010, Total’s worldwide

marketing network consisted of 17,490 service stations in 2010, compared to

16,299 in 2009 and 16,425 in 2008, more than 50% of which are owned by the

Group. In addition, Total’s refining operations allow the Group to produce a

broad range of specialty products, such as lubricants,liquefied petroleum gas(LPG), jet fuel, special fluids, bitumen, marine fuels and petrochemical

feedstock.

The Group is adapting its Refining business to an environment that is

depressed due to weaker demand for refined products. Total continues to

improve its positions by focusing on three key areas:adapting its European

refining system to market changes;modernizing its Port Arthur refinery in the

United States and building a refinery in Jubail in Saudi Arabia.

Total held interests in twenty-four refineries (including twelve that it operates),



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located in Europe, the United States, the French West Indies, Africa and China.

In 2010, Total continued its program of selective investments in Refining

focused on three areas: pursuing major ongoing projects (deep conversion at

Port Arthur, Jubail refinery), adapting the European refining system tostructural market changes, and strengthening safety and energy efficiency.

Marketing:Increasingtheattractivenessandefficiency:

Total is one of the leading marketers in Western Europe. The Group is also the

largest marketer in Africa, with a market share of nearly 14%.

Total markets a wide range of specialty products, which it produces from its

refineries and other facilities. Total is among the leading companies in the

specialty products market, in particular for lubricants, LPG, jet fuel, special

fluids, bitumen and marine fuels, with products marketed in approximately 150countries.

TradingandShipping:Flexible,securesupply:

Trading operations range from selling crude oil produced by Total to

purchasing most of the crude oil used as feedstock in their refineries. The

Shipping business supplies refineries with crude oil and transports refined

products to consumer markets.The Trading & Shipping division:

Sells and markets the Group’s crude oil production;

Provides a supply of crude oil for the Group’s refineries;

Imports and exports the appropriate petroleum products for the Group’s

refineries to be able to adjust their production to the needs of local

markets;

Charters appropriate ships for these activities;

Undertakes trading on various derivatives markets.

Although the Trading & Shipping division’s main focus is serving the Group, its

know-how and expertise also allow this division to extend its scope of

operations beyond meeting the strict needs of the Group.



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Chemical:

The products of Total’s Chemicals branch serve numerous markets:commodity plastics for various industries, fertilizers, adhesives, resins, rubber

for tyres, hygiene and household products.

In 2010, the sales of total chemical product is 17.5 billion Euros and 631 million

Euro has been invested into this part.Also, in the Total company, 41,658

employees are working for this part.

CSRofTotal&ethicprocess:

In recognition for its commitment to advance CSR policies and practices, Total

joined the United Nations Global Compact LEAD , a new platform for

corporate sustainability leadership, in late 2010. The initiative was officially

launched in Davos in January 2011.

ExtractiveIndustriesTransparencyInitiative(EITI)

In line with their ethical commitment, the Group joined the EITI on its creation

in 2002, at the World Summit on Sustainable Development, known as the

Johannesburg Summit.The Extractive Industries Transparency Initiative (EITI) promotes greater

transparency in the management of oil revenues. It calls for all private and

national extractive companies to publish what they pay governments, for an

independent aggregator to consolidate and publish the data, for the

confidentiality of existing contracts to be maintained, and for prior government

approval.

After being elected to the EITI Board as an alternate member in September

2007, they were elected a permanent member in February 2009 in recognition

of their deep commitment to the initiative. Our representative on the Board is

Jean-François Lassalle. The Board comprises 20 permanent members



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representing implementing countries, supporting countries, civil society

organizations, industry, and investment companies .

VoluntaryPrinciplesonSecurityandHumanRights(VPSHR)

The presence or intervention of either public or private armed forces can

amplify the risk of human rights violations. U.K. Foreign Office.The Voluntary

Principles guide companies in maintaining the safety and security of their

operations while ensuring respect for human rights and fundamental freedoms.

Total fully recognizes the importance of the initiative and has adopted its

recommendations.The VPSHR are referenced in our Corporate Security Policy

Statement, a document that shapes our approach, which is grounded in

preventing risks, anticipating crises, training and dialogue.

InternationalChamberofCommerce(ICC)

The ICC is a recognized voice for the business community, speaking on behalf

of all sectors and in every part of the world.Its basic mission is to promote

international trade and investment and help businesses meet the challenges

and embrace the opportunities of globalization. The ICC focuses on three

areas: rules and standards, arbitration and general policy. Though reliant

solely on self-regulation, these rules are followed daily in thousands of

transactions and are an integral part of the edifice of international trade.

Total is an active member of ICC’s French National and International

Anti-Corruption Commissions, a logical extension of their business integrity

reflection and discussion process.

InternationalPetroleumIndustryEnvironmentalConservation

Association(IPIECA)

IPIECA is the sole global association representing both the upstream and

downstream oil and gas industry on key global environmental and social

issues, including oil spill preparedness and response, climate change, health,transportation fuel quality, biodiversity and corporate social responsibility.

IPIECA aims to develop and promote scientifically sound, cost-effective,

practical, socially and economically acceptable solutions to global

environmental and social issues pertaining to the oil and gas industry. IPIECA

is not a lobbying organization, but provides a forum for encouraging

continuous improvement of industry performance.

Total is especially active in IPIECA through the Social Responsibility Working

Group, which published the Human Rights Training Toolkit, an awareness

and training program covering human rights issues in the extractive industries.

Its work is now being expanded through the addition of information about more



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specific human rights topics, such as indigenous peoples and theVoluntary

Principles on Security and Human Rights.

InstituteofBusinessEthics(IBE)

Total joined the U.K.’s Institute of Business Ethics (IBE) in 2002. As a partner

of the IBE, they have priority access to their assessments and

recommendations concerning business ethics. Total also calls on IBE as

needed for advice about the best policies or specific presentations. A

representative of the Institute spoke at the ethics seminar in the United

Kingdom, for instance, and at our senior management seminar.

GlobalBusinessInitiativeonHumanRights(GBI)

The Global Business Initiative on Human Rights is an international initiativecreated in June 2009 to promote respect for human rights in the business

world. This forum for discussion has member companies based all over the

world working in a variety of sectors and aims to share examples of best

human rights practices and tools. Regional and national forums are organized

regularly, to initiate dialogue with as many stakeholders — businesses,

contractors, customers — as possible. The GBI works closely with international

agencies specializing in human rights, such as the Global Compact and the

team of United Nations Secretary-General’s Special Representative John

Ruggie.

Total joined the GBI on its creation, making us a founding company. As such,

we participate in topical and regional working groups.

Totalchallenges:

Meeting energy demand; preserving the environment; protecting Human

Safety and Health; Driving share development; Ethical Business business

conduct; Attracting and Retaining Talents.



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PETROBRAS

Profile:

Petrobras, headquartered in Rio de Janeiro, is a Brazilian multinational energy

corporation with a presence in 28 countries, on 5 continents, performing in an

integrated manner in exploration and production; downstream; trade,

transportation and petrochemicals; derivative distribution; natural gas; biofuels,

and electric energy.

• 3rd biggest energy company in the world

(Source: PFC Energy (January/2011)

• 4th place among the world's most respected companies(Source: Reputation Institute (May/2009)

• 8th biggest global company in market value and the biggest in Brazil:

$164.8 billion

(Source: Ernst & Young (July/2009)

Values:

Brand value: $1.2 billion

Net Earnings: R$182,71 billion

Net Profit: R$28,98 billion

Investment: R$71 billion

Shareholders: 463.870

Energy:

Biofuels: 5 plants (3 for production; 2 experimental)

Thermoelectric Plants: 18 plants

Wind Energy: 1 pilot

Production:

Daily Production: 2.526.000 barrels of oil and liquefied natural gas per day;

413,000 barrels of natural gas

Reserves: 14,90 billion barrels of oil and gas equivalent

Yield of the Refineries: 2.034.000 barrels of oil products per day

Structure:

Service Stations: Nearly 8,000



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Vessel Fleet: 172(52 belonging to Petrobras)

Pipelines: 25.966km

Refineries: 16

Fertilizers: 2 plants

History:

Petrobras was created in 1953 by president Getúlio Vargas.From 1954 to

1997,Petrobras became the leader in derivative marketing in Brazil.The oil

exploration and production operations, as well as the remaining activities

connected to the oil, natural gas, and derivative sector, except for wholesale

distribution and retail via service stations, were a monopoly Petrobras held

during this period.

After 40 years of exploration, production, refining and transportation of Brazil's

oil, Petrobras started to compete with other foreign and domestic companies in1997.

In 2006, Petrobras achieved Brazilian self-sufficiency in oil.In 2009, Petrobras

announced a market capitalization plan to finance its future investments in

ultra-deep oil exploration. The share offering in the BM&F Bovespa Stock

Exchange took place in September 2010, becoming the largest market

capitalization in history, with R$ 120,4 billion (US$ 69,97 billion) in shares

issued.

CorporateGovernance:

Petrobras is subject to the rules set forth by the Securities and Exchange

Commission (CVM) and by the Stock Exchange and Mercantile & Futures

Exchange (BM&FBovespa). Abroad, it meets the Securities and Exchange

Commission (SEC) and the New York Stock Exchange (NYSE) rules, in the

United States; the rules set forth by the Latibex, of the Madrid Stock Exchange,

in Spain; as well as those of the Buenos Aires Stock Exchange and of the

Comisión Nacional de Valores (CNV), in Argentina.

The Company is composed of a Board of Directors and associated advisorycommittees, an Executive Board, a Fiscal Council, an Internal Audit, an

Ombudsman, a Business Committee and Integration Committees.

ShareholderBase:

Capital Stock 13,044,496,930.00 100

Federal Government 3,775,067,100.00 28.9

BNDESPAR 1,514,749,158.00 11.6

BNDES 425,898,159.00 3.3



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Fundo de Participação Social - FPS 8,433,460.00 0.1

FFIE (Fundo Soberano) 505,652,285.00 3.9

American Depositary Receipts (Common

Shares)1,605,636,142.00 12.3

American Depositary Receipts (PreferredShares) 1,593,532,702.00 12.2

FMP - FGTS Petrobras 177,014,107.00 1.4

Foreigners (RES. No 2689 C.M.N) 1,168,313,368.00 9

Other entities 2,270,200,449.00 17.4

CORPORATESOCIALRESPONSIBILITY:

Health, safety, environment and energy efficiency.Petrobras invested R$4.56

billion in safety, health and environmental initiatives (SHE). In order to increasesynergies, in 2010 the area also incorporated activities related to energy

efficiency and support for the National Program for the Rationalization of Oil

and Natural Gas Product Use (Conpet). The Company made additional

investments of R$112 million in the rationalization of energy use and the

promotion of solar energy.

The Company concluded planning Phase II (2011-15) of the Excellence in

Safety, Health and Environmental Activities Project, thereby ensuring its

alignment with the growth and diversification of its businesses in the coming

years. The project is part of Petrobras’ strategic agenda and includes the

Company’s most important initiatives in this area.

BusinessArea:

Petrobras' most important assets are petroleum reserves in Brazil. Its oil field

in the Campos Basin accounts more than 80% of the Brazilian oil production.

The company also works on developing the "green energy", including biodiesel

fuel. Petrobras recently opened its business to the ethanol fuel, facing great

competition against the North American ethanol. However, investment in

biofuels will represent only 1% of the company's profit between 2008 and2012.

Petrobrasisinvolvedinthefollowingareasofbusiness:

Domestic sales: Domestic sales represent the majority of the company's profit

and include the extraction and distribution of oil, natural gas, derivatives,

electricity and petrochemical products.

The Company sold 2,378,000 bpd in 2010, 13% more than in 2009. Sales

were led by diesel, gasoline, LPG, naphtha and natural gas.



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Export: The company started to export oil in large quantities after it began to

explore the Jupiter and the Tupi fields.

In 2010, oil exports totaled 497,000 bpd, 4% up on 2009, chiefly due to higher

output, while oil product shipments fell by 12% to 200,000 bpd.

Foreign exchange gains: The company imports natural gas from other South

American countries, mostly from Bolivia.

In 2010, because of the upturn in domestic consumption, oil product imports,

led by diesel and jet fuel, climbed by a hefty 97% to 299,000 bpd. The oil

imports stood at 316,000 bpd, down by 20% on 2009.

Exploration&Production:

Exploration:

Petrobras consolidated its successful exploration of the pre-salt and post-salt

areas of the sedimentary basins in the South and Southeast of Brazil, and

opened up a new exploration frontier off the coast of Sergipe, thereby ensuring

that Brazilian oil production continues its sustainable growth trajectory in the

coming decades.

Exploratorysuccessrate：

The Company drilled 116 wells in 2010, 67 of which onshore and 49 offshore

(31 post-salt and 18 pre-salt), with a success rate of 57%.

Sources: Petrobras 2010 Annual Report

Production

Newprojectsin2010:

• The extended well test (EWT) in the Tiro and Sidon areas

• Production in the Cachalote field and the Baleia Franca field

• Four new platforms began operations

These projects, allied to the production increase after the interconnection of



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new wells to various platforms (P-53, P-51, P-34, FPSO Cidade de Vitória,

FPSO Espírito Santo and FPSO Frade), more than offset the natural decline in

production by providing the Company with a 1.7% increase in domestic oil and

LNG output to 2,004,000 bpd.


Products

Forindividuals

On the streets: Automotive Gasoline，Diesel Fuel，Ethanol，Evolua，Lubrax，

Vehicular Natural Gas

at home: Liquefied Petroleum Gas (LPG), Residential Natural Gas in the boat:

Maritime Diesel Fuel，Verana Dieselin the aircraft: Aviation Fuels，Aviation

Lubrax

ForBusiness

Road transportation: Automotive Gasoline，Diesel Fuel，Lubrax，Natural

Vehicular Gas

Agricultureandcattleraising: Ammonium，Reforce N，Urea

Industrial: Asphaltic Products，Base Oils，Fuel Oils，Greases，Green Petroleum

Coke，Industrial Lubrax，Industrial Natural Gas，Liquefied Petroleum Gas

(LPG), Paraffins，Solvents，Sulfur, Aviation: Aviation Fuels，Aviation Lubrax

Water transportation: Bunker ，Marbrax

Railroadtransportation: Ferbrax，Railroad Diesel Fuel



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Sources of Energy:

Oil

Most of Petrobras’ reserves are in offshore fields, buried at great depths, and

this requires knowledge and technology. It produces over 2 million barrels per day from about 15,000 wells. This oil is transported in our 172 vessels and

26,000 km of pipelines. Petrobras has 15 refineries which, together, are

capable of refining more than 2 million barrels of oil per day.

NaturalGas

The cleanest of all fossil fuels, natural gas has characteristics that help the

devices that run on it last longer and that reduce its environmental impacts.

Petrobras produces 415,000 barrels of oil equivalent of natural gas per day

that are destined to Distributors, Power Plants, Refineries and Fertilizer Plants.

Biofuels

Petrobras’ investments in biofuels reassert the commitment to attaining

development associated to socio environmental responsibility. Brazil's best

known biofuel is ethanol: it has been marketed at service stations since the

1970's. And recently, Petrobras kicked-off biodiesel production, and currently

has three plants already in operation.

WindEnergy

The Wind Power Plant in Macao, in Northeastern Brazil, produces 1.8 MW of electricity and was the company's first project to be granted registration as a

Clean Development Mechanism, issued by the UN. The plant completed six

years of operations in 2009. Since its deployment, it has produced 28,164

MWh and avoided the emissions of approximately 1,200 t/year of CO2 to the

atmosphere.

Hydropower

Petrobras holds stakes in 15 small hydroelectric plants (SHP) and eight

oil-fueled thermoelectric plants in Brazil. The assets in commercial operationand those under construction will total an installed capacity of 1,471 MW. In

Argentina, the company holds stakes in the Pichi Picún Leufú hydroelectric

plant, which has a capacity of 285 MW, and in the Genelba and Genelba Plus

gas-fired thermoelectric plants.

ThermoelectricEnergy

In 2009, Petrobras' own and leased thermoelectric plants (TEP) generated an

average of 525 MW of power. Our thermoelectric generation park has an

installed capacity of 5,476 MW.



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Refining:

Refining is one of the downstream activities. The integrated performance of the

downstream activities is a fundamental premise to consolidate the strategic

objectives. This term encompasses, essentially, oil refining, natural gastreatment, and derivatives transportation and trading/distribution.

Proprietary technology has been developed to process the domestic oil, which

is heavier. The outcome of this is that company obtains a higher percentage of

noble products coming from the refineries. The company has reduced the

dependency on imports and increased profitability.

The main products that come out of our refineries are diesel fuel, liquefied

petroleum gas, gasoline, lubricants, naphtha, fuel oil, and aviation fuel.

Distribution:

Petrobras Distribuidora, the largest fuel distributor in Brazil, closed 2010 with

sales of 48,690,000 m³, 8.2% up on the previous year. For the first time the

distributor surpassed the 4 million m3 mark, establishing a new sales record of

4,058,000 m3/month and maintaining its leadership of the local fuel market,

with an annual share of 38.8%, 0.8 p.p. higher than in 2009.

With a network of 7,306 gas stations and approximately 11,000 direct

consumers, Petrobras Distribuidora posted net operating revenue of R$66

billion and net income of R$1.41 billion in 2010.


Petrochemicals

The Company’s petrochemical activities are integrated with its other business segments in order to increase production of petrochemicals and



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biopolymers, preferably through acquiring stakes in Brazilian and foreign

companies.

Projects:

Rio de Janeiro Petrochemical Complex (Comperj)The 2010-14 Business Plan calls for petrochemical investments of US$5.1

billion, equivalent to 2% of the total.

Transportation

Petrobras Transporte S.A. (Transpetro), a Petrobras subsidiary in the

petroleum, oil product, ethanol and natural gas transportation and storage

segment, operates 7,179 km of oil pipelines, 7,193 km of gas pipelines and 48

terminals – 20 onshore and 28 offshore, in addition to 52 vessels.

In 2010, it transported 48.9 million tonnes of oil and oil products by ship, 15%

down on 2009, while its port terminals handled 704 million m³ of liquids, 4%

more than the year before, and an average of 57 million m³/day of natural gas,

up by 62% due to higher demand from thermal power plants and the recovery

of other markets. The natural gas daily handling record was 69 million m³.

Globaloperations

Petrobras operates in another 25 countries apart from Brazil, with projects in

five continents. It also maintains cooperation agreements with other countries

to develop knowledge and businesses, helping energy technology and energy

projects become viable. Petrobras also has representative offices in New York,

London, Tokyo, Beijing, Singapore, Lisbon and Tehran.

The main strategic pillars for the Company’s international operations are:

• To apply the technical and geo-scientific knowledge acquired by

Petrobras’ E&P operations off the Brazilian coast to areas with similar

characteristics and high potential oil reserves, with a current focus on the West

African coast and the Gulf of Mexico;• To open new markets, ensure downstream growth and align the portfolio

with the domestic segments in order to increase profitability and integrate

product chains. The investments in refining, distribution and petrochemicals

are designed to ensure complementarity through the integration of the various

projects’ production chains

• To expand natural gas businesses, complementing the Brazilian market and

meeting its commitment to energetic responsibility in Brazil.



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Petrobrasisamemberofthefollowinginternationalassociations:

ARPEL(AsociaciónRegionaldeEmpresasdePetroleoyGasNaturalenLatinoamérica

yelCaribe)

IPIECA(InternationalPetroleumIndustryEnvironmentalConservationAssociation)

OGP(InternationalAssociationofOilandGasProducers)

WBCSD(WorldBusinessCouncilforSustainableDevelopment)

FINANCIALANALYSISOFPETROBRAS(EXHIBITAANDB)

The first step in conducting a common-size analysis is to review both the

common-size income statements and common-size balance sheets to look for

changes and trends that warrant further review. Once the trends are identified,

explanations should be sought. Management’s discussion of financial

performance and the financial statement footnotes are good starting points,

provided the reader maintains a healthy skepticism of management’s

explanations. These internal perspectives should be balanced by external

sources such as industry reports, economic data, peer company financialstatements and news reports. We present a common-size analysis of Total

below including an initial assessment, income statement analysis and balance

sheet analysis.

Income Statement:(Refer to Exhibit A)

Petrobras’s horizontal common-size income statement is presented in Exhibit

A. In the year 2009 there is a sharp decrease in revenues by a little over 30%

but rises by 1.52% cumulative between 2008 and 2010 which shows a

significant improvement as well as recovery which was caused by the global



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downturn. The Gross Profit shows a similar trend - a cumulative increase by

8.74% in 2010.The Company was profitable the entire time though the net

profit margin declined steadily by 18% it recovered back to a cumulative

increase of 1.62%. Investors would be aware of the fact that this was only due

to the global downturn, which lead to a decrease in the year 2009.When wetake into consideration the components such as taxes, it shows a positive sign

from the company as it decreases continuously by 42.94% in 2009 and

cumulative decrease of 31.35% in 2010.For oil companies expenses in R&D is

basically oil exploration and new sources which goes hand in hand to any oil

companies success. Therefore the R&D expenses shows a stable cumulative

increase in 2010 by 1% even during the toughest years for business houses as

crude oil prices rose to new heights which hurt the operating expenses

showing a good increase of 8% in 2010.This has a direct effect upon the EBIT

(Earnings before Interest and Taxes) that shows a continuous decrease from

2008 to 2010 of 4.5%. As described earlier, due to the company being able tosave in taxes the net profits doesn’t let the trend follow but a sharp increase in

2010, which keeps the investors happy. The company has done a

commendable job in keeping down the Cost Of Goods Sold since it is still

lower in 2010 compared to 2008 by close to 3%. One more drastic change in

the exhibit raises eyes as the non-operating income falls by a staggering

88.69% in 2009 but it steadies back to a cumulative decrease of just 1.47% in

2010 which can be considered due to the crude oil prices during those years.

Overall Petro bras would be happy for one important fact that the Gross Profit

or the Net profit of the company didn’t decrease in the way the revenues had

slumped by over 30% in 2009 which as never in the case of either of the two.

Balance Sheet:(Refer to Exhibit B)

Assets:

The balance sheet of Petro bras shows a positive trend as far as the total

assets are concerned as it shows an increase of 59.33% in 2009 and a

cumulative increase of 145.58% in 2010, which is huge boost to the total

assets. We should remember that it did not show the same trend in revenues.

It makes an interesting comparison to review particular items that are not inline with this trend. Beginning with the comparison of intangible assets with the

long-term assets (Property, land and equipment) the later shows an enormous

increase in the value by 60.73% in 2009 and a cumulative increase of 157.99%

in 2010 compared to a much lesser increase in intangible assets. The nature of

intangible assets is such that it is difficult to value and subjective judgment is

involved. Rapidly growing property and equipment against the slow-growing

intangible assets indicate the company may be pursuing a “build versus buy”

strategy. Overall, long-term tangible and intangible assets amounted to

67.49% of total assets in 2008, 68.06% in 2009 and 70.87% in 2010 – a fairly

positive as well as constant proportion. There has also been a positive trend in



20

case of ‘other long-term assets’ as it grows steadily from 2008 to 2010 for the

simple reason that the deferred tax also shows the same trend although the

former increases at a rapid pace of 12.47% in 2009 and 39.39% in 2010.

Hence these assets are not being used up, as there is no deficit in deferred

taxes at all.Turing to the current assets, the inventories and receivables show a positive

trend over the two-year entire period but the assets increased at a much faster

rate. The sales decreased contrary to the increase of inventories, which may

suggest that working capital was not efficiently managed in 2009 as sales are

made mostly out of the inventories. The other current assets category is one

where the investors have their eye on as it indicates a sudden increase in

earnings appearing more in the income statement than shown as cash

earnings. Since in this category the company shows a positive trend with

increase of 27.64% in 2009 and 48.45% cumulative in 2010.Short term

investment show a remarkable increase in 2010 by a staggering 12490.32%,which was a trend in the industry, as they had to invest a lot recovering from

the downturn for new explorations of oil sources. Cash and cash equivalents

had a boost in 2009 by 148.79% and 171.32% in 2010, which could suggest a

big investment or acquisition by the company as they are piling a lot of cash

reserves.

Liabilities:

Coming to the liabilities side, the current liabilities show an increasing trend

throughout. Current debt, taxes payable and accounts payable increase at a

much higher rate than current liabilities, which suggests the company’s short

term borrowings grower. The Long-term liabilities grow at 128.78% in 2009

and 187.33% in 2010 - shows that the company is borrowing for big future

investments and which would interest the investors as well. Moving on to the

shareholder’s equity it is very interesting that the common and preferred stock

don’t change in 2009 but increase by 203% each in 2010 hence the company

has issued both equity and preferred stock in that year. The retained earnings

of the company ahs decreased in every year by 41.82% in 2009 and 46.86% in

2010 suggest expenditures on the company’s part. This is also good news for

the investors. The component – ‘other stockholder equity’ was negative in2008 but increased in 2009 by 24292.53% and 33377.01% in 2010 clearly

indicating raising of capital by the company in form of other equity shares.

Hence the analysis of the common size balance sheet suggests positive signs

for the company as there is increase in assets and cash reserves and the

company is raising a lot for future expansion. From an investor point of view

the company looks in good financial health and one to be considered upon for

investment pertaining it’s future growth and plans.



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FINANCIALRATIOSOFPETROBRAS(EXHIBITC)

Profitability Ratios: A class of financial metrics that are used to assess abusiness's ability to generate earnings as compared to its expenses and other

relevant costs incurred during a specific period of time. For most of these ratios,

having a higher value relative to a competitor's ratio or the same ratio from a

previous period is indicative that the company is doing well.

As seen from Exhibit C ROC,ROE AND ROA has been decreasing over the

years which indicates that the company has not been able to generate much

earnings as compared to its expenses. The company has been generating less

profits over the years.

Efficiency Ratios: Ratios that are typically used to analyze how well acompany uses its assets and liabilities internally. Efficiency Ratios can

calculate the turnover of receivables, the repayment of liabilities, the quantity

and usage of equity and the general use of inventory and machinery.

As seen from the above table the management efficiency of the company has

been decreasing over the years. We can see that the accounts receivable and

inventory turnover ratios has been declining while the fixed assets turnover

and total assets turnover ratios has been more or less consistent.

Liquidity Ratios: A class of financial metrics that is used to determine a

company's ability to pay off its short-terms debts obligations.Generally, the

higher the value of the ratio, the larger the margin of safety that the company

possesses to cover short-term debts.

As seen from the above graph the liquidity position of the company has been

increasing over the years which is a positive sign because it means that the

company can meet its short-term obligations easily and is highly liquid.

Solvency Ratios: One of many ratios used to measure a company's ability to

meet long-term obligations. The solvency ratio measures the size of a

company's after-tax income, excluding non-cash depreciation expenses, ascompared to the firm's total debt obligations. It provides a measurement of how

likely a company will be to continue meeting its debt obligations.



22

FINANCIALANALYSISOFTOTAL(EXHIBITDANDEXHIBITE)

Total’s horizontal common size income statement shows that the revenues

has decreased by 30.05% in 2009 and by 12.38% cumulatively between 2008and 2010. Total’s horizontal common size balance sheet shows that the total

assets of the company increased by 7.98% in 2009 and we see that the assets

increased substantially by 21.48% cumulatively between 2008 and 2010.We

see that the assets of the company increased more than the sales of the

company which indicates that the company had been investing more in assets

in order add more value and also indicates that the company had been using

its assets more efficiently over the years.

Income Statement:(Refer to Exhibit D)

An examination of the company’s common-size income statement shows that

revenues were the highest in year 2008 but down the years the revenues

decreased. In the year 2009, the revenues were hit badly and it got down by

30.05% but in the year 2010 it made recovery but even then the cumulative

decrease in the revenues was registered at 12.38% between the years 2008

and 2010.The main reason for the reduction of the revenues was because of

the global financial crisis in 2008 and its effects were felt post 2008 and sales

of the company are still reeling under that effect.

As seen in the above exhibit the gross profit was also affected. In the year

2009 the gross profit had dropped by 16.65% and 4.31% cumulatively between

2008 and 2010.The primary thing to notice is the cost of goods sold, in spite of

revenues going down the cost of the company had been consistent hovering

around 65% which is a big concern since the revenues had been going down

the company was not able to curb its expenses but in the year 2010 the

company made progress and the revenues had increased comparatively which

is a positive sign for the company.

From the exhibit it can be seen that in the year 2009 the revenues haddecreased by 30.05 % but the expenses did not go down in the same

proportion, the selling and administrative expenses decreased by 8.63%, other

operating expenses decreased by 3.88% i.e. a total of 11.74% expenses

decreased against a decrease in the revenues by 30.05%. There was a

substantial increase in the depreciation and amortization expenses in the

years 2009 and 2010, an increase of 12.78% and 25.58 % respectively.

As expected even the operating income took a huge blow it had decreased by

34.28 % in the year 2009 and 15.76 % cumulatively between 2008 and

2010.The positive sign is that the interest expenses had been going down over

the years it had gone down by 47% in the year 2009 and 53.50% cumulatively.



24

dollars from 63446.2 million dollars, an increment of 11.81%. In 2010 the

amount went upto 75576.6 million dollars which means an increment of

19.12% million dollars cumulatively between the years 2008 and 2010.

Intangibles and long-term assets has also increased substantially in the years

2009 and 2010. Intangibles increased from 5867.2 millon dollars to 11020.8million dollars an increment of 87.84% in the year 2010 while long-term assets

increased from 2094.2 million dollars to 5254 million dollars an increment of

150.88% in the year 2010.

Liabilities:(Refer to Exhibit E)

The liabilities of the company increased from 93996.4 million dollars in 2008 to

113366.3 million dollars in 2010 an increment of 20.61% cumulatively in total

liabilities of the company. The current liabilities of the company has increased

over the years in 2008 from 47200.3 million dollars to 55345.9 million dollars in2010 an increment of 17.26% cumulatively from the over the years. Accounts

Payable increased cumulatively at 24.54% over the years while the current

portion of the long-term debt has increased substantially from 2953.5 million

dollars to 5222.3 million dollars an increment of 76.82% cumulatively over the

years.

The amount of the leverage has increased over the years. In 2008 the debt of

the company was 21894.4 million dollars but in 2010 the debt of the company

increased to 28336.4 million dollars an increment of 29.42% cumulatively. The

company has borrowed money from the market over the years in order to fund

their assets and other operations. Even the non-current liabilities has

increased from 10804.9 million dollars to 12780.8 million dollars an increment

of 18.29% cumulatively.

Shareholders’ Equity:

The company has not issued any new shares in the market to raise money.

The common stock over the years is same there has been no increase in the

number of shares. But the company has issued some its shares from its

treasury stock. The treasury stock has decreased from 6887.5 million dollars in2008 to 4816.7 million dollars in 2010 a decrement of 30.07% cumulatively.

The Retained Earnings of the company has been increasing over the years

which is a very good sign of the company.In 2008 the company has a retained

earning of 33912.1 million dollars and in the year 2010 the company has a

retained earning of 45829.4 million dollars an increment of 35.14%

cumulatively between the years 2008 and 2010.The total equity of the

company has increased by 22.66% cumulatively between the years 2008 and

2010 which implies that the leverage of the company has increased.



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FINANCIALRATIOSOFTOTAL(EXHIBITF)

Profitability Ratios: As seen in graph of Exhibit F the profitability of the

company has decreased in the year 2009 substantially but it recovered a bit inthe year 2010.All the ROE,ROA and ROC tells us the return the company is

earning and the profits its generating.

Efficiency Ratios: From the graph of the Exhibit F we can see that the

management efficiency ratios had been decreasing over the years. It was

mainly because of the financial crisis globally which affected the sales of the

company worldwide which in turn affected the management efficiency of the

company.

Liquidity Ratios: The Liquidity ratios talks about the short-term obligationscapability of the company. It means to find out the amount of liquid assets in

the company and to test whether the company will be able to meet its

short-term obligations. As seen in the graph exhibit F the liquidity position of

the company has been consistent over the years.

Solvency Ratios: Solvency Ratios talks about the ability of the company to

pay its long–term obligations. It also measures the amount of leverage in the

company and tells us about the amount of debt in the company. As seen from

the graph the debt-equity ratio and the total debt/total assets ratio has been

consistent throughout the years.

INDUSTRIALCOMPARISONOFTOTALANDPETROBRAS(EXHIBITG)

Valuation Ratio:

A valuation ratio is a measure of how cheap or expensive a security (or

business) is, compared to some measure of profit or value. A valuation ratio iscalculated by dividing a measure of price by a measure of value, or vice-versa.

The point of a valuation ratio is to compare the cost of a security (or a

company, or a business) to the benefits of owning it.The most widely used

valuation ratio is the PE ratio which compares the cost of a share to the profits

made for shareholders per share. The PE ratio of both Total and Petrobras as

seen in the table are higher than the industry average, but as compared to the

sector and index chosen, it is relatively low. The high P/E ratios means that the

market is expecting big things over the next few months or years. A company

with a high P/E ratio will eventually have to live up to the high rating by

substantially increasing its earnings, or the stock price will need to drop.



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Dividend Ratio

The dividend yield ratio that’s seen in the table shows that both the companies

have a higher ratio as compared to the industry sector and the index. This ratio

shows us the cash flow that the company gets back for each dollar that is

invested in the equity position. The inference we may draw is that both these

companies have a higher cash flow per dollar invested as compared to their

other competitors in the Oil and Gas industry. From an investors point of view,

thus we may say that investing in the shares of Total is a better investment

with regard to this measure as the company has a higher dividend yield.

Growth Rate Ratios

If we are to analyze the growth rate by comparing the sales ratio, be it in termsof the most recent quarter, the TTM or a five year average, the general

inference we can draw is that Petrobras has shown good growth in terms of its

operations as compared to Tota,l both companies being compared to the

industry average. The apparent stagnancy in the growth of Total may be

associated with the slow-down of operations since the recession of 2008.

However, the earnings per share has a different story to tell. The EPS of both

companies if compared on the same time frames and parameters as that of the

sales ratios shows that Total’s EPS far exceeds Petrobras. We can thus say

that even though Petrobras has growth in terms of sales , Total in terms of profitability scores higher than Petrobras

Financial Strength Ratios

These ratios may be know by many names ( liquidity, solvency and financial

leverage) but they all point in the same direction, the smooth functioning and

running of the company for the years to come. A value investor will first look at

these ratios in order to gauge obvious dangers that the firm may fall prey to.

The current and quick ratios are measures of liquidity and a standard ratio of

1.5:1 is considered to be sound for a company. From the table we can see that

Petrobras is in a better position in terms of liquidity as compared to Total

though both companies are ahead of the industry average.

The debt to equity ratios are a test of the solvency and shows what percentage

of a firms shares are provided by the owners versus provided by others. The

ratios in the table show that both Total and Petrobras have the same level of

long term debt but Total exceeds Petrobras in terms of its short term debt

obligations, which is why they have a higher ratio when their total debt is



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compared to their equity. Both firms have a much higher ratio than the industry

average in this regard and this may be a red signal for most investors.

Profitability Ratios

This is class of financial ratios that measures a business’s earnings as

compared to its expenses and other costs that are incurred for a specific

period of time. In most cases, having a higher value as compared to a

competitor means that the company is doing well

By looking at the table we see that in terms of the gross margin, the operation

margin , the pre tax margin and the net profit margin, both companies show a

reasonable amount of profitability as compared to the industry average. If we

were to compare the two then Petrobras is definitely ahead in terms of

profitability.

Efficiency Ratios

These ratios are typically used to analyze how well a company uses its assets

and liabilities internally. Efficiency Ratios can calculate the turnover of

receivables, the repayment of liabilities, the quantity and usage of equity and

the general use of inventory and machinery.

For the revenue/employee ratio we can say that both companies are efficientas compared to the industry average. However the net income/employees

ratio for both companies is lower than that of the industry. Thus even though

the company is generating revenue, their efficiency in terms of profitability is

questionable.

With regard to extending credit we may say that Petrobras is in a better

position than Total as the receivables ratio of Total is less than the industry

average and that of Petrobras is more .

The asset and inventory turnover ratios signify the sales that have beengenerated from every dollar worth of asset and inventory respectively and in

this regard Petrobras is better in terms of inventory turnover but Total is better

in terms of Asset turnover. In each case the better company has a ratio higher

than the industry average where as the other does not.



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Management Effectiveness Ratios:

The three main ratios that are found under this category are the ROI, ROA and

the ROE

ROI : It is a performance measure used to evaluate the efficiency of

an investment or to compare the efficiency of a number of

different investments. To calculate ROI, the benefit (return) of an investment is

divided by the cost of the investment; the result is expressed as a percentage

or a ratio. In this case both companies, ie , Petrobras and Total show a ROI

that is higher than the industry average.

ROA: An indicator of how profitable a company is relative to its total

assets. ROA gives an idea as to how efficient management is at using its

assets to generate earnings. Calculated by dividing a company's annualearnings by its total assets, ROA is displayed as a percentage. Sometimes this

is referred to as "return on investment". Even in this regard, we see that both

companies are better off than the industry average.

ROE: The amount of net income returned as a percentage of shareholders

equity. Return on equity measures a corporation's profitability by revealing

how much profit a company generates with the money shareholders have

invested. ROE is expressed as a percentage. In this case we see that the

ROE of both companies far exceeds the industry average.

Thus we may conclude that both companies have high management

effectiveness and they are superior in this regard to their competitors in the

industry. This is a definite green signal for prospective investors.



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RECOMMENDATIONS

• Why invest in Oil and Gas? :

Even though oil and gas is a volatile market in terms of its stock prices,

they offer higher rates of return and greater opportunities. Moreover

direct investment in this sector ensures a healthy monthly cash flow

return, tax benefits and a hedge option against rising prices on other

asset classes

Look out for overvalued stock :Its a potential threat and a bad image to

carry on the investment portfolio. Calculating the P/E ratio is the best

way of evaluating the current value of a stock. If the P/E ratio is decent,

then the company has either expanded drilling land or its increase inefficiency and productivity will result in higher operating profits for the

near future

• Check the Profitability ratios- This gives a direct indication of which

company has been profitable in its operations

• Check for company’s liquidity – A company that has excessive current

liabilities as compared to its current assets is automatically waving the

red flag

• Gauge the debt position of the company- If the company is in severe

amounts of debt, the investors automatically become cautious• ROA ROI and the ROE- These show the management effectiveness

and the favourability of the company’s future

• Cash flow estimate for the year – This gives an idea of the dividend that

will be paid to the investors

But Ratios aren’t all ……..There’s more ………..

• Do they have reserves or resources- Reserves are the most profitable

• Their current boepd and expansion plans for the next two years if they

are in production- More the expansion greater will be operating income

• Declining rate of the fields of producing companies- Higher declining

rates in certain cases is a warning sign

• History of management team- If the current management team has a

history of success or faliur.

• Licensing Terms and agreement- It varies the terms of the amount of

revenue that the company retains for itself and the amount that is in the

form of a share agreement. The ownership of the company is also

determined as singular or with buy in’s from its partners



REFERENCES

⇒

www.finance.yahoo.com ⇒ www.reuters.com

⇒ www.morningstar.co.uk

⇒ www.total.com

⇒ www.petrobras.com

⇒ www.investopedia.com

⇒ www.seekingalpha.com

⇒ www.bloomberg.com

⇒ www.folha.com

⇒ www.investerguide.com

⇒ www.hoovers.com ⇒ www.dailyfinance.com

⇒ www.moneycentral.msn.com

⇒ Annual Reports of Total for the year 2008,2009 and 2010.

⇒ Annual Reports of Petrobras for the year 2008,2009 and 2010.

Total vs Petrobras

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