Brazil: Petrobras Q3 Net Income Slides

November 13, 2011

Petrobras’ Chief Financial and Investor Relations Officer, Almir Barbassa, announced this Friday, Nov. 11, the Company’s financial and operating results for the third quarter of 2011 at Petrobras’ headquarters, in Rio de Janeiro.

Some of the items highlighted during the press conference were:

• Net income of $28.264 billion, up 15% compared to first nine months of 2010, with an increased cash flow of 7% as measured by the EBITDA

• Net income of R$6.336 billion in 3Q11, and EBITDA up 3% compared to 2Q11;

• The year-to-date oil and gas output averaged 2.363 million boed (barrels of oil equivalent per day), up 2% for the year compared to the same period in 2010;

• 7% increase in sales on the domestic market compared with the first nine months of 2010, driven by economic growth;

• The Lula-Mexilhão gas pipeline went on stream, in September, with capacity to transport up to 10 million cubic meters of pre-salt natural gas per day;

• The Franco area potential was confirmed, with the drilling of the second well in the area;

• Operations of P-56 started on August 15th, currently producing 38.5 thousand bpd (barrels per day) with two production wells. Forecasted to reach approximately 80% of its 100 thousand bpd capacity by year-end;

• Adjustment of gasoline prices (+10%) and diesel (+2%) effective as of November 1st;

• The Company was listed on the Dow Jones Sustainability Index, the world’s most important index of its sort, for the sixth year in a row.

Year-to-date net income up 15% – In the first three quarters of 2011, the Company had a net income of R$28.264 billion, up 15% compared to the same period in 2010.

Sales revenues rose 14%, driven mainly by the increased oil product and natural gas sales on the domestic market (+7%) and by the higher trade prices. In 9M11, the average oil product realization price was up 5%. The average Brent crude price soared 45% ($77.13/barrel to $111.93/barrel), boosting income from exports, international sales and trading transactions. These were, in part, offset by lower oil exports due to enhanced domestic oil processing at the refineries.

This increase in income was partially offset by the 19% rise in the cost of goods sold (COGS), as a result of increase in prices and volumes that were imported to supply the domestic market and the larger government take due to the more expensive international oil prices.

The operating expenses remained stable, and the Company posted a profit increase of 7% before the financial result, take and taxes. EBITDA was also up 7%.

The R$367 million in net financial expenses include losses from monetary and exchange rate variations of R$4.230 billion resulting from the 11% less expensive Real compared with the Dollar. This was partly offset by the R$5.475 billion in revenues obtained from the financial earnings on cash.

Net income for 3Q11 reaches R$6.336 billion – The higher income from sales (+4%) for the quarter was due to the increase in oil product (+4%) and natural gas (+8%) sales in the domestic market. This increase was offset by greater imports required to meet domestic demand.

Despite the stable operating profit, net income was down 42% compared with 2Q11, mainly due to the exchange rate on the indebtedness in US Dollars. The 19% depreciation of the Real compared with the Dollar in the period was the outcome of a negative monetary and exchange rate variation that added up to R$6.579 billion. Nonetheless, cash generation, measured by the EBITDA, was up 3%, closing at R$16.672 billion.

On 9/30/2011, Petrobras had R$49.686 billion in net liabilities subject to exchange rate fluctuations. When the Dollar goes up compared with the local currency, the value of these liabilities in Reais is reassessed, causing a financial expense. However, this expense does not cause relevant cash losses, since most of this liability is made up of long-term debt (with average terms of 7 years).