Statements of cash flows – Indirect method

December 31, 2008 and 2007
(In thousands of reais)

Statements of cash flows
Statements of cash flows – Indirect method Consolidated Parent company
2008 2007 2008 2007
Operating activity        
Net income for the year 32.987.792 21.511.789 36.469.549 22.028.691
Adjustments:        
Minority interest (2.089.497) 1.742.826    
Equity in earnings (losses) of significant investments 115.790 367.361 (2.494.234) 641.238
Goodwill/discount - amortization 758.428 97.913 241.854 20.343
Depreciation, exhaustion and amortization 11.631.984 10.695.826 7.952.428 5.798.802
Loss on recovery of assets 2.658.224 446.130 891.258 87.146
Write-off of dry wells 1.524.143 916.080 1.291.395 320.502
Residual value of permanent assets written off 597.001 398.666 5.817 151.737
Exchange and monetary variations and financial charges on financing and loans and other operations 4.033.176 (1.786.249) (21.581.932) 3.503.919
Deferred income tax, net 4.769.951 477.234 5.736.892 619.148
Increase / decrease in assets and liabilities        
Decrease/(increase) in accounts receivable (210.111) 1.394.042 (1.079.071) 1.109.284
Decrease/(increase) in inventories (1.413.136) (1.429.937) (1.205.349) 354.734
Increase in petroleum and alcohol account - STN (11.822) (12.060) (11.822) (12.060)
Exchange variation allocated in permanent assets *   6.802.836    
Increase in other assets (528.823) (1.272.217) (145.209) (684.729)
Increase in accounts payable to suppliers 648.394 1.549.778 3.272.052 1.985.843
Increase/(decrease) in taxes, rates and contributions (3.642.293) 382.622 (4.523.328) 264.880
Increase/(decrease) in obligations with structured projects 147.389 (934.163) 147.389 (934.163)
Increase in healthcare benefit and pension plans 1.546.437 2.790.542 1.336.498 2.570.549
Increase/(decrease) in other liabilities (3.543.081) (1.532.439) 919.651 (274.134)
Increase/(decrease) in short term operations with subsidiaries and affiliated companies        
Decrease/(increase) in accounts receivable 17.214 (415.956) (4.143.736) (2.915.985)
Decrease/(increase) in accounts payable (45.375) 48.109 857.428 1.690.674
Increase with operation for supply of oil and oil products foreign     31.838.213 3.879.698
Net cash provided by operating activities 49.951.785 42.238.733 55.775.743 40.206.117
Investment activities        
Investments in exploration and production of oil and gas (26.008.454) (20.405.267) (18.982.305) (14.696.321)
Investments in refining and transport (13.349.577) (9.647.338) (10.621.340) (8.760.817)
Investments in gas and energy (6.140.887) (5.198.627) (3.364.336) (2.248.784)
Investment in international statement (5.439.543) (5.237.981) (75.069) (27.028)
Investments in distribution (1.179.204) (915.517) (705.811) (389.644)
Investments in securities (273.726) (3.122.991) (95.543) (3.259.628)
Other investments (1.266.037) (776.109) (1.256.367) (775.571)
Dividends received 232.055 70.872 1.272.481 929.126
Venture under negotiation     (1.326.338) (681.360)
Net cash used in investment activities (53.425.373) (45.232.958) (35.154.628) (29.910.027)
Financing activities        
Financing and loans, net 11.836.832 (3.947.929) (14.774.380) (17.051.010)
Non Standard Credit Rights Investment Fund     3.786.197 1.978.332
Dividends paid to shareholders (6.212.568) (7.474.355) (6.212.568) (7.474.355)
Net cash used in financing activities 5.624.264 (11.422.284) (17.200.751) (22.547.033)
Effect of exchange variation on cash and cash equivalents 667.071 (341.747)    
Net change in cash and cash equivalents in the year 2.817.747 (14.758.256) 3.420.365 (12.250.943)
Cash and cash equivalents at the beginning of the year 13.070.849 27.829.105 7.847.949 20.098.892
Cash and cash equivalents at the end of the year 15.888.596 13.070.849 11.268.314 7.847.949
Additional information on cash flows:        
Amounts paid and received during the year        
Interest paid, net of the capitalized amount 4.012.109 2.852.752 1.785.459 469.002
Interest received on loans     3.122.428 2.836.884
Income and social contribution taxes 10.918.489 7.713.424 9.271.464 6.250.675
Third party income tax withheld at source 2.047.224 1.753.766 1.696.689 1.573.548
Investment and financing transactions not involving cash        
Acquisition of property, plant and equipment on contract with the transfer of benefits, risks and control of assets 9.972   6.686.914  
Assets received through donation 3 82    
Capitalization of dividends receivable from affiliated companies or subsidiaries       183.586
Provision for abandonment of wells 131.438 3.008.545 70.698 2.999.026

* In 2008, with the adoption of the new translation criteria, the exchange effects on the permanent assets of the Companies headquartered abroad are compensated by the accumulated translation adjustment, in shareholders’ equity, and does not affect the statement of cash flows