RESULTS BY BUSINESS SEGMENT

Petrobras is an operationally integrated Company and the major part of the production of petroleum and gas from the Exploration and Production Department is transferred to other departments of Petrobras.

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

  1. a. Net operating income: the revenues related to the sales made to clients abroad, plus the billings and transfers between the business departments, which have as a reference the internal transfer prices defined between the departments, with calculation methodologies based on market parameters, are considered;
  2. b. In addition to net operating income, the costs of products and services sold, which are calculated per business area, considering the internal transfer price and the other operating costs, as well as the operating expenses effectively incurred in each department, are computed in operating income;
  3. c.The financial result is all allocated to the corporate agencies group;
  4. d. Assets: include the assets identified for each department. The equity accounts of a financial nature are allocated to the corporate agencies group.
  5. e. The comments on the economic performance of the business segments were prepared based on accounting criteria of Law 6.404/76.

EXPLORATION AND PRODUCTION

The increase in the results occurred due to the higher average prices of Brazilian petroleum and the 4% increase in the daily production of oil and LNG.

Part of these effects were offset by the increase in expenses with government interests, with the estimated loss on recovery of assets – due to the decrease in the quotation of petroleum at the end of the year, which affected future projections – and with exploration costs, arising mainly from the write-off of dry wells or wells that were not economically viable.

The spread between the average price of Brazilian petrol sold/transferred and the average quotation for Brent increased from US$ 10,95/bbl in 2007, to US$ 15,44/bbl in 2008.

SUPPLY

The decrease in the results occurred due to the increase in the purchase/transfer costs of petroleum and of imports of oil products, together with the following factors:

  • >> Higher freight costs – due to the greater volume sold;
  • >> Losses on investments in petrochemical companies, reflecting the devaluation of the Real against the US dollar in indebtedness and the increase in the purchase cost of naphtha;
  • >> Losses with devaluation of inventories Part of these effects was offset by the increase in the average realization price of oil products on the domestic and foreign markets, and by the gain through the change in the stakeholding interest due to the corporate restructuring of Quattor, petrochemical company.

GAS AND ENERGY

The better results occurred due to the increase in the trading margins for natural gas and electric power – influenced by better realization prices – and due to the increase in the sales volumes of electric power and natural gas.

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

DISTRIBUTION

The increase in the results was generated by the 10% increase in the volume of sales and by the decrease in the operating expenses – reflecting mainly the extinguishment of CPMF, and the revision of the amount involved in legal proceedings, which occurred in 2007.

The increase in the volume of sales contributed to the increase in the market share for distribution of fuels from 34,3% in 2007 to 34,9% in 2008.

INTERNATIONAL

The main events that influenced the decrease in the results for 2008 were: the losses with devaluation of the inventories in the USA, Japan and Argentina, due to the change in level of the prices for oil and oil products as from September 2008 (R$ 699 million), the provision for litigation for royalties of R$ 220 million, the loss from the devolution of Block 31 in Ecuador (R$ 178 million), the total amortization of the goodwill verified in the acquisition of the Pasadena (USA) refinery of R$ 374 million and the gains obtained in 2007 from the sale of the refineries in Bolivia and the companies in Argentina (R$ 111 million). This decrease partially offset by the effects of the exchange devaluation of the real against the US dollar in the translation of the financial statements (R$ 1.002 million).

CORPORATE

The decrease in the negative result occurred due to the following factors:

  • >> Decrease in the net financial expenses (R$ 8.043 million);
  • >> Reversion of the results of minority interests, reflecting the devaluation of the Real against the US dollar in the indebtedness of the Special Purpose Entities and subsidiaries – where Petrobras and its subsidiaries do not have a full interest;
  • >> Lower expenses with the pension and healthcare plans (R$ 1.196 million) as a result of the renegotiation of the regulations of the Petros Plan, which occurred in 2007;