Introduction

Vision 2015 Petrobras will be an integrated energy company with a strong Annual Report international presence and leader in Latin America, operating with its focus on proﬁ tability and on social and environmental responsibility. Introduction

Transparency is key to the disclosure of information on Petrobras to all its stakeholders. This principle is integral to the best practices of corporate governance adopted by Petrobras and underlies the content of this Annual Report, the objective Annual Report being to provide shareholders, clients, employees, government and society with a comprehensive knowledge of the businesses. Additional information can be found in the web site www.petrobras.com.br

www.petrobras.com.br Areas of operation Petrobras in Brazil and in the World

Venezuela

UUnitednited KingdomKingdom Colombia BELA VISTA

MACAPÁ NNetherlandsetherlands JJapanapan REMAN BELÉM CChinahina Ecuador MANAUS FORTALEZA IIranran SÃO LUÍS Mucuripe NNewew YYorkork Coari LUBNOR Guamaré NATAL UUSASA - HoustonHouston TEREZINA Dunas JOÃO PESSOA Cabedelo

PORTO RECIFE RIO BRANCO Suape MMexicoexico Siingaporengapore VELHO PALMAS MACEIÓ Brazil Candeias NNigeriaigeria ARACAJU RLAM VVenezuelaenezuela Peru DTBAS SALVADOR Credits Brasília t CUIABÁ CColombiaolombia TTanzaniaanzania La Paz Jequié Itabuna AAngolangola Sen. Canedo Preparation, Editing and General Coordination: Cochabamba GOIÂNIA Gualberto EEcuadorcuador Villarroel Santa Cruz BBrazilrazil Investor Relations and Institutional Communication de la Sierrra Guillermo BELO HORIZONTE Elder Bell Bolivia Uberlândia Betim PPerueru Corumbá HHeadead OOffiffi ccee Revision of Content: Uberaba REGAP CAMPO GRANDE Ribeirão VITÓRIA Refi nor The Global Consulting Group / Global RI Campinas Preto BBoliviaolivia Campos RECAP PParaguaaraguay REVAP REDUC Paraguay SÃO PAULO RIO DE JANEIRO Graphic Project: REPLAN São Sebastião REPAR RPBC CorpGroup CChilehile AArgentinargentina CURITIBA Paranaguá UUrurugguauay São Francisco do Sul (DTSUL) FLORIANÓPOLIS Photographs: Criciúma

REFAP Bruno Veiga, Claudia Martins, Cris Isidoro, Fábio Corrêa,

Uruguaiana COPESUL Tramandaí Capital Exploration and Production Felipe Goifman, Geraldo Falcão, Giovani Sérgio, José Caldas,

Argentina Alegrete PORTO ALEGRE Juarez Cavalcanti, J. Valpereiro, Maurício Simonetti, Rogério Reis,

Uruguay Terminal de Rio Grande Existing gas pipelines Trading Walter Firmo e Banco de Imagens Petrobras. Montevideo Refi nery Refi ning Graphic Design: Buenos Aires CorpGroup - Alexandre Dian Terminal Distribution Bahía Blanca Printing: Ricardo Eliçabe Fertilizer plant Merchandizing of lubricants Gráfi ca Santa Marta Representation Paper: This report was printed on Reciclato paper.

Cover Photograph: Castor Oil Plant Leaf – Petrobras Images Bank The Castor Oil Biodiesel Pilot Plant in Guamaré (RN) has a capacity to produce 5,000 liters/day on a continuous basis as from 2005. With technology developed by Petrobras, Brazil is the only country able to extract biodiesel from the castor oil seed.

Cover Photograph of the Financial Statements: Petrobras Images Bank - LNG / Liquefied Natural Gas Areas of operation Petrobras in Brazil and in the World

Venezuela

UUnitednited KingdomKingdom Colombia BELA VISTA

REFAP Bruno Veiga, Claudia Martins, Cris Isidoro, Fábio Corrêa,

Uruguaiana COPESUL Tramandaí Capital Exploration and Production Felipe Goifman, Geraldo Falcão, Giovani Sérgio, José Caldas,

Argentina Alegrete PORTO ALEGRE Juarez Cavalcanti, J. Valpereiro, Maurício Simonetti, Rogério Reis,

Cover Photograph of the Financial Statements: Petrobras Images Bank - LNG / Liquefied Natural Gas Vision 2015 Petrobras will be an integrated energy company with a strong Annual Report international presence and leader in Latin America, operating with its focus on proﬁ tability and on social and environmental responsibility. Introduction

www.petrobras.com.br Annual Report

Contents Our energy Proﬁ le 02 Highlights 04 Message from the President 10 Tendencies in the oil and natural gas market 14 Strategy 18

Our businesses Exploration and Production in Brazil 24 Reﬁ ning, Commercialization, Petrochemicals and Transportation 30 Distribution 38 Natural Gas 42 Electric Energy 50 International 54

Our company Business performance 64 Risk Management 67 Capital markets 72 Intangible Assets 76 Social and environmental responsibility 88 Corporate governance 106

Glossary 116 Corporate information 126 2 Annual Report 2004 Petrobras

Profile ...... Highlights ...... Message from the President ...... Tendencies in the oil and natural gas market ...... Our Strategy ...... Energy Profile Mission Values

Petrobras is a publicly listed company To operate safely and proﬁ tably in • Focus on the Company’s principal which operates on an integrated and the oil, gas and energy domestic and stakeholders: shareholders, clients, specialized basis in the following segments international markets in a socially and employees, society, government, of the oil, gas and energy industry: environmentally responsible manner, partners, suppliers and the communities exploration and production; reﬁ ning, supplying products and services to meet in which the Company operates; commercialization, transportation and the needs of its clients and contributing petrochemicals; distribution of oil products; to the development of Brazil and the • A spirit of entrepreneurship and an natural gas and energy. Founded in 1953, countries in which it operates. ability to meet challenges; the Company is the world’s 15th largest oil company according to the periodical • A permanent quest for business leadership; Petroleum Intelligence Weekly. Leader in the Brazilian hydrocarbons sector, Petrobras has • Excellence and leadership in questions been expanding its operations to become of health, safety and preservation of an international energy company and a the environment; leader in Latin America. • Innovative and competitive spirit with a focus on providing services with a competitive edge and technological competence;

• Achieving excellence in results. Petrobras Annual Report 2004 3

...... 02 ...... 04 ...... 10 ...... 14 ...... 18

Conduct Vision 2015

• Ethics in business; Petrobras will be an integrated

• Leadership by example; energy company with a strong

• Emphasis on integration and the international presence and leader development of team work; in Latin America, operating with its • Focus on development and the sustainability of competitive focus on profitability and social and advantages; environmental responsibility. • Rigorous monitoring of results with recognition and accountability by performance;

• Transparency in the relations with the shareholders, employees, communities and the other stakeholders. 4 Annual Report 2004 Petrobras

Highlights

Operational summary – 2004

PROVED RESERVES (billions of barrels of oil equivalent – boe)(1)(4) 11.8 Oil and condensate (billions of barrels) 9.9 Natural gas (billions of boe) 1.9 AVERAGE DAILY PRODUCTION (th. boed)(1)(3) 2,020 • Oil and NGL (th. bpd) 1,661 Onshore 407 Offshore 1,254 • Natural gas (th. boed) 359 Onshore 217 Offshore 142 PRODUCING WELLS (oil and natural gas) – 12/31/2004(1) 13,821 Onshore 13,156 Offshore 665 DRILLING RIGS – 12/31/2004(7) 50 Onshore 19 Offshore 31 OPERATING PRODUCTION PLATFORMS – 12/31/2004 95 Fixed 72 Floating 23 PIPELINES (km) – 12/31/2004(4) Oil and oil products(5) 11,317 Natural gas(2) 19,001 TANKER FLEET – 12/31/2004 Vessels – company owned 46 – chartered 74 Tons (millions of deadweight tons - dwt) 7.7 TERMINALS – 12/31/2004 Private maritime(1) 19 Private ﬂ uvial(1) 5 Third party maritime, ﬂ uvial and lake ports(1) 1 Onshore 29 Storage capacity (million barrels)(8) 63.3 REFINERIES – 12/31/2004(1) Number(6) 15 Nominal installed capacity (th. bpd)(6) 2,125 Average throughput processed (th. bpd) 1,847 Brazil 1,728 Overseas 119 Average daily production of oil products (th. bpd) 1,797 Petrobras Annual Report 2004 5

IMPORTS (th. bpd) Oil 450 Oil products 109 EXPORTS (th. bpd) Oil 181 Oil products 228 COMMERCIALIZATION OF OIL PRODUCTS (th. bpd) Brazil 1,637 INTERNATIONAL SALES (th. bpd) Oil, Gas and Oil Products 416 ORIGIN OF NATURAL GAS (million m3/day) 65.3 Domestic gas 45.8 Bolivian gas 19.5 NATURAL GAS MARKET DISTRIBUTION (million m3/day) 65.3 Distributors 30.4 Thermoelectric power plants 7.2 Domestic consumption 27.7 ENERGY(1) Number of thermoelectric power plants 10 Installed capacity (MW)(6) 1.912 Energy sales (GWh) 11.32 Number of hydroelectric power plants 2 Installed capacity (MW) 1,685 Transmission lines (km) 15,414 Energy distribution (TWh/year) 13 FERTILIZERS (number of plants – 2)(1) Average daily amonia production (tons) 1,852 Average daily urea production (tons) 1,598 Notes: (1) Includes overseas data, corresponding to Petrobras’ stake in each partnership. (2) Includes the Brazilian stretch of the Bolivia–Brazil Gas Pipeline . (3) NGL is not included under natural gas production. (4) Proved reserves are calculated according to Securities and Exchange Commission (SEC) criteria. (5) Includes ﬂ ow lines. (6) Includes assets with a stake equal or larger than 50% only. (7) Includes Company and third-party drillings rigs. (8) Includes Transpetro port terminals only. 6 Annual Report 2004 Petrobras

Voting Capital – Common Shares Non–voting capital – Preferred Shares

7.5% 2.8% 15.8% 4.9% 55.7% 32.3%

27.1%

37.6%

14.4% 1.9%

Federal Government BNDESPar BNDESPar ADR Level 3 ADR Level 3 Foreign Investors (Resolution nº 2,689 C.M.N.) FMP – FGTS Petrobras Other private individuals and corporates(1) Foreign Investors (Resolution nº 2,689 C.M.N.) (1) Covers Bovespa custody and other entities. Other private individuals and corporates(1) (1) Covers Bovespa custody and other entities.

Capital Stock Production of Oil, NGL, Condensate and Natural Gas (Consolidated) 7.7% (th. boed) 32.2%

18.0% 2,020 2,036 1,810

1,639 359 1,565 335 2.8% 275 242 258 1,701 1,661 7.7% 1,535 15.8% 1,323 1,381 15.7%

Federal Government BNDESPar ADR (ON shares) 01 02 00 03 04 ADR (PN shares) FMP – FGTS Petrobras Oil, NGL and Condensate Foreign Investors (Resolution nº 2,689 C.M.N.) Natural Gas Other private individuals and corporates(1) (1) Covers Bovespa custody and other entities. Petrobras Annual Report 2004 7

Evolution in Proved Reserves of Oil, NGL, Processed Throughput Condensate and Natural Gas Consolidated (million bpd) (SEC criteria) (billions boed) 11.80 11.60 1.83 10.50

9.80 1.90 1.72 9.30 1.68 1.69 1.80 1.63 1.60 1.40 1.50

9.80 9.90 8.40 8.90 7.80 01 01 02 02 00 03 00 03 04 04

Oil, NGL and Condensate Natural Gas

Oil and Oil Products Spills (m3) Lost Time Injury Frequency Rate - LTIFR/TFCA

5,983 3.60

2.89

2,619 1.53 1.23 1.04

530 197 276 01 02 03 00 01 02 03 00 04 04

Spills of more than 1 barrel (0,159 m3) impacting the Number of lost time injuries per million men–hours of exposure environment outside installation perimeter to risk. Note: TFCA covers employees and outsourced workers. 8 Annual Report 2004 Petrobras

Gross and Net Margin US GAAP criteria – Consolidated

50% 49% 50% 48% 46%

20% 21% 16% 14% 10% 01 02 00 03 04

Gross Margin Net Margin

Net Income – US GAAP criteria Gross Debt – US GAAP criteria Consolidated (US$ million) Consolidated (US$ billion)

18.2 17.6 6,559 6,190

5,342 12.7 11.0 8.2

3,491

2,311

4.9 3.7 3.0 3.3 2.0 01 02 03 00 01 02 03 00 04 04

Short–Term Long–Term (1) Includes Project Finance and leasing Petrobras Annual Report 2004 9

Earnings/Share – US GAAP criteria Consolidated (US$/share)

6.0 5.6

4.9

3.2

2.1 01 02 00 03 04

Petrobras Debt Ratio

55%

44%

37% 38% 33% 33%

22% 17% 16% 14% 01 02 00 03 04

Short term debt/Total debt Net debt/Net capitalization 10 Annual Report 2004 Petrobras

Message from the President

The year saw a combination of recovery in consumption following three challenges and important progress in years of lackluster demand. Petrobras’ strategy of leading the oil, natural gas and oil products markets Net revenues reached US$ 37.4 billion, in Latin America on the basis of 22% higher than the preceding year, growth, profi tability and social and driven by domestic sales and in spite environmental responsibility. of the reduction in exports. Net income was US$ 6.2 billion, the same level While we experienced a decline in as the excellent result posted for the domestic oil production of 3.1% – due to previous year (of US$ 6.5 billion), delays in the start–up of new platforms refl ecting our long–term strategy of –, at the same time, we recorded major signifi cant investments for increasing sustainable progress in exploration competitiveness, production capacity activities in Brazil and overseas, in and reserves. In this context, during refi ning, petrochemicals, distribution, the year, the Company invested US$ natural gas and transportation. With 7.7 billion, 18% more than in 2003, the reduction in domestic output, the the larger portion of which – US$ 5.2 Company imported more oil and exported billion – dedicated to increasing both less to ensure the market was fully production and also oil and gas reserves supplied. To offset the cost, the Company in Brazil and overseas. adopted a strategy of processing more imported oil through its refi neries thus The progress in exploration activities and adding more value to the product. The the results of the National Petroleum outcome was a 4% increase in the output Agency’s (ANP) sixth bidding round of oil products over the previous year to – disputed by major international 1,797 thousand barrels per day (bpd). competitors – has made the target in our Strategic Plan of reaching 17.3 The international scenario was marked billion barrels of oil equivalent in proved by a much tighter relationship between domestic reserves by 2010, a perfectly demand and production capacity, driving oil achievable one. This compares with the prices to record nominal levels. Signifi cant current 13.02 billion boe based on Society domestic economic growth resulted in a of Petroleum Engineers (SPE) criteria. Petrobras Annual Report 2004 11

We recorded sustained advances in our activities of exploration, refining, petrochemicals, distribution, natural gas and transportation.

At the last ANP bidding round, the with a reduced environmental impact. part of our ongoing policy of upgrading Company bid for 113 blocks, and was In addition, other important initiatives quality. The delayed coking and diesel successful in 107, thus ensuring its were our debut in the Uruguayan hydrotreatment units were also continued momentum in exploration and natural gas distribution market and commissioned at the Paulínia Refi nery, resulting in important fi nds. A highlight in the export of Bolivian gas to Argentina in line with the strategy of processing a this respect is the beginning of production – both important in strengthening greater volume of heavy domestic crude of more commercially valuable light oil, Petrobras’ role as an integrated energy and adding value to the Brazilian product. and the detection of reserves representing company in the Southern Cone. a daily output of 150 thousand barrels of Our international presence has been this type of oil with the start–up of the Another step forward was the further expanded with the beginning fi rst producing systems in Espírito Santo acquisition of 100% of Agip do of deepwater exploration in Colombia, and Sergipe in 2006. Brasil’s capital stock, resulting in the E&P in Tanzania and Iran and gas incorporation of the Liquigás brand distribution in Uruguay. In June, we We proceeded apace with our expansion name and the distribution of Liquefi ed signed a contract with the National program, which provides for 16 new heavy Petroleum Gas (LPG) to 21.2% of the Iranian Oil Company (NIOC), marking duty platforms by 2008 in the Campos domestic market, in addition to taking the Company’s return to the Middle Basin as well as P–52, the construction over a 1,550 service station network and East after 20 years. Moreover, the good contract for which was signed in December 5,000 lubricant points of sale. results from oil and gas exploration in 2003. The contract for building the P–34, the US sector of the Gulf of Mexico and P–54 and P–51 platforms was signed in The Company was also able to the acquisition of further exploration June, representing a total capacity of 420 consolidate its strategy of selectively rights have enhanced the Company’s thousand barrels per day (bpd). Not only expanding its activity in the Brazilian business in that area. will this new platform complex contribute and Southern Cone petrochemical to Brazilian self–suffi ciency in 2006, but market. In this respect, we increased In 2004 we approved the merger of it will also pave the way for hitting our Petroquisa’s stake in Petroquímica EG3, Petrolera Santa Fé and Petrobras domestic production target of 2.3 million Triunfo’s voting and total capital to Argentina with Petrobras Energía S.A. bpd in 2010. 70.45% and 85.04%, respectively. This will simplify business operations and will capture operational and fi scal The Company also made steady progress In the downstream area, we began synergies for these companies. in natural gas production. This is a fuel operating diesel hydrotreatment units at of growing importance in the domestic the Presidente Getúlio Vargas, Duque de From the fi nancial point of view, the energy matrix, combining lower costs Caxias and Gabriel Passos refi neries as Company’s improved international risk 12 Annual Report 2004 Petrobras

agency rating was one of the major achievements of 2004. In December, Petrobras’ rating reached one notch below investment grade, the best classiﬁ cation on the international scale, placing it in an even more favorable Our capital expenditures were position to raise funds in the market at more competitive costs. Petrobras’ concentrated on increasing robust cash generation reduced the need for third party funding. Total lines of our competitiveness, production only US$ 600 million were arranged in the international capital markets during capacity and reserves. the year, 60% less than 2003, and at lower costs for funding at a ten–year maturity. The net debt to equity ratio declined from 41% to 35%.

The equity market has given due During 2004, capital recognition to the Company’s performance and outlook. While oil USexpenditures amounted to: $industry share prices rose7 an average Petrobras Annual Report 2004 13

of 28% on the international market, Responsibility Management Committee and proactive teams for dealing with Petrobras stock appreciated 36% for coordinating its initiatives for emergencies and a permanent quest (PBR) and 35.8% (PBRA) on the New sustainable growth. for improving production processes York Stock Exchange. During the year, to ensure that the business model has Petrobras’ ON and PN shares rallied by We believe that Petrobras also has a sustainable development as its bedrock. 26.6% and 27.2% respectively on the social and environmental responsibility São Paulo Stock Exchange compared dimension which must be integrated These results and the progress achieved with 17.5% for the Bovespa Index. with our commitment to the growth and could only have been made possible with profi tability of the business. Not only the talent, dedication and exceptional We also improved our corporate does the Company have a tradition of performance of the thousands of governance practices for which we were supporting and sponsoring social, cultural employees at all Petrobras’ units. To all, awarded the Transparency Trophy by and sporting projects but also in 2004, we wish to extend a vote of thanks and the Institute for Accounting, Actuarial it adopted initiatives in parallel with recognition for their dedication and and Financial Research Foundation the Brazilian government’s campaign to professionalism. We would also like to (Fipecafi ) of the Universidade de combat hunger and poverty through the thank our shareholders for their support São Paulo (USP), Anefac and Serasa. Petrobras Zero Hunger Program. in implementing the Company’s strategy, We made important progress in our As part of this program, we selected 73 the partnership of the suppliers and the commitment to the best corporate development projects for fostering the preference of our clients who in our governance practices with the creation dignifi ed social inclusion of the poorest day–to–day activities are constantly of a Committee for Management of communities in Brazilian society. challenging us to exceed our quality and Internal Controls to coordinate the performance targets. groundwork for complying with the We also believe that it is Petrobras’ duty strictest regulatory standards, controls to contribute to the improvement of the José Eduardo Dutra and procedures. The Company also environment through the prevention of President and CEO set up a Social and Environmental accidents, the maintenance of trained 7.7 billions 14 Annual Report 2004 Petrobras

Tendencies in the oil and natural gas market

Oil prices rose sharply during the year, driven by such market factors as major growth in demand for oil products and pressure on production and refining capacity.

In relation to its recent history, the year The narrowing gap between growth in capacity has yet to recover to pre–strike was an atypical one for the oil industry. demand and production capacity saw levels while in Iraq, the forecasted For the fi rst time since the oil shocks of OPEC’s idle capacity dwindle resulting in increase in production from 2 to 3 million the seventies, the market experienced the risk that even a small interruption to bpd was abandoned due to sabotage to a vertiginous price spiral driven by supplies could lead to a world oil shortage. the petroleum infrastructure and the market fundamentals and not only by The risk premium was further exacerbated growing instability of the country. geopolitical factors as in the crises of by political instability in the Middle East 1973, 1979 and 1990. and at the end of the year, by climatic The year began with oil inventories at factors in the United States substantially their lowest level in the United States for There was a record nominal rise in oil reducing output in the Gulf of Mexico due three decades. On the other hand, growth reference prices from US$ 29.14 to a peak to a series of hurricane strikes. in demand was also the highest in the of US$ 52.09 (Brent) and from last 30 years, particularly infl uenced by US$ 32.46 to a maximum of US$ 56.30 Opec oil consumption in China, which climbed (WTI), together with substantial volatility. Various members of Opec were unable 14%, and by relatively inelastic demand The robust prices refl ected a combination to ramp up output to maximum capacity in important consuming centers. of factors, notably the strong growth in or even fulfi ll their quotas. Security demand for oil products and the pressure problems in Nigeria cut capacity by 200 The dollar’s depreciation was another on oil production and refi ning capacity. thousand bpd. In Venezuela, production factor driving prices higher in 2004. Petrobras Annual Report 2004 15

With export revenues in dollars and of heavy oils while the extraordinary Consequently, 2004 may well be seen as imports denominated in Euros and Yen, growth in world demand in 2004 was a transitional year towards prices at a Opec apparently abandoned its offi cial largely concentrated in medium and light higher plateau for a prolonged period. price target (between US$ 22 and 28/bbl oil products. Thus, increased refi nery In an environment of major uncertainties for the Opec basket price) and began to utilization in the principal consuming in which the market tends to react sharply pursue an informal target of over US$ 30/ markets and the consequent increase to changes in fundamentals, the events of bbl to sustain its effective buying power. in fuel oil production has led to a 2004 indicate that the focus should be on sharp widening in price differentials tendencies in the international oil industry The combination of production factors between light and heavy oils. Since the in the coming years. and high prices resulted in record oil Opec basket is made up of some heavy revenues for Opec, estimated at about oils, the price differential with Brent The increase in the difference between US$ 323 billion. With output close to 30 and WTI (light oils) also increased. As light and heavy oils and refi neries million bpd, the largest volume since the the Organization sets its price target working at or close to capacity also oil shocks, Opec has exhausted its excess based on its basket benchmark price, resulted in record refi ning margins in the capacity to satisfy global demand. the increase in the differential between international market. Opec boosted its light and heavy oils similarly explains production of heavy oils thus increasing The productive capacity, which the higher Brent and WTI prices with greater the supply of fuel oil in the market. Organization holds idle, is typically international market visibility. Given the strong demand for medium 16 Annual Report 2004 Petrobras

to light oil products, refi ners with It is clear from the events of the year that compared with 2003, a rise from 1,700 the technical capability of processing some fundamentals which resulted in thousand to 1,761 thousand bpd. heavy oils for production of products higher oil prices are structural or, at least, The decline in the average real price of oil at the lighter end of the spectrum, saw will be long lasting, examples being the products (despite higher oil prices on the healthy gains in a segment historically increase in exploration and development international market) and the signifi cant characterized by slim margins. Margins costs, the expansion in demand due economic growth both contributed to were also enhanced by the introduction to world economic growth and Opec’s this expansion. of new environmental specifi cations for decline in spare production capacity automotive oil products in the North compared to the nineties. Demand for LPG grew 2.7% during the year American and European markets at driven largely by residential consumption, a time of reduced oil and oil product Brazil a consequence of higher disposable inventories and refi nery capacity nearing After a three–year period of falling incomes and the effective decline in its ceiling. demand for oil products, 2004 recorded consumer prices. In turn, the automotive an increased consumption of 3.5% gasoline market saw a recovery after

Domestic demand for oil products increased 3.5%, driven by economic growth and the fall in average prices in Reais.

Monthly Oil Prices (nominal values) (US$/bbl)

55 50 45 40 35 30 25 20 15 Jul–01 Jul–02 Jul–03 Jul–04 Jul–00 Jan–01 Jan–02 Jan–03 Jan–04 Jan–00 Jan–05

WTI Brent Opec Basket Petrobras Annual Report 2004 17

fi ve consecutive years of falling sales. strong economic growth in general and world energy matrix in 2002. In line with This principally refl ected the recovery in agricultural production in particular. In spite global tendencies, the share of natural gas disposable incomes with a consequent of a decline of more than 8.2% in 2004, fuel in Brazil’s total energy requirements has growth in sales, an expanded vehicle fl eet oil posted the lowest falls in the last four risen from 2.7% in 1987 to 7.5% in 2002, and the fall in average real prices to the years and again attenuated by the sharp according to the National Energy Balance consumer (more than 6% if compared to improvement in industrial activity. published by the Ministry of Mines and the average for 2003). Likewise, the demand Energy. Petrobras has contributed to for aviation fuel jumped 6.5% in line Natural Gas the development of this market with a with the economic recovery as domestic Over the past twenty years, natural gas growth of 32% in natural gas sales volume tourism improved while the substantially has increased its share of global energy between 2002 and 2004. appreciated exchange rate also brought supplies from 20.1% in 1982 to 24.3% in overseas tourism back to life. Demand for 2002. Over the same period, oil’s share of The increasing importance of this diesel also reported strong growth of 5.9% the cake fell approximately fi ve percentage primary energy source is due to the (higher than GDP growth) on the back of points, accounting for about 37.5% of the enhanced level of natural gas reserves,

as well as the expansion in the natural gas distribution infrastructure and growing pressures for the use of more environmentally friendly fuels. Industrial deregulation and restructuring have also been contributing to the global push in natural gas sales, principally in the form of liqueﬁ ed natural gas (LNG), and to encouraging integration of energy ﬂ ows among neighboring countries. Working in the same direction, natural gas is increasingly used for the chemical transformation into liquid fuels – gas to liquids (GTL), methanol and fertilizers. 18 Annual Report 2004 Petrobras Strategy

Petrobras’ strategy is to lead the oil, The Strategic Plan, announced in May Production natural gas and oil products market in 2004, provides for investments of (th. boed) Latin America, acting as an integrated US$ 53.6 billion between 2004 and 3,421

energy company with a selected expansion 2010 in order to reach these objectives. 2,020 2,036 in the petrochemicals industry and in Out of this total, US$ 46.1 billion 1,810 134 1,636 1,564 94 85 479 international activities. The implementation will be invested in Brazil and US$ 7.5 23 20 25 161 169 508 of the strategy involves ﬁ ve objectives: billion overseas. Third party funding of 35 52 43 2,300 US$ 16.1 billion during the period is 252 250 262 221 232 • Consolidate and expand the competitive forecasted to top up this investment, 1,500 1,540 1,493 1,271 1,336 advantages on in the Brazilian and South representing a leverage of between American markets for oil and oil products; 25% and 35%.

10 01 02 00 03 04 • Develop and lead the Brazilian natural Petrobras estimates that in 2010 it gas market and act on an integrated will be producing 3,421 thousand Oil + NGL Brazil basis in the gas and electric energy boed in Brazil and internationally, at a Natural Gas Brazil markets in the Southern Cone; lifting cost of US$ 3.00/bbl and Oil + NGL International US$ 2.4/bbl respectively. From 2006, Natural Gas International • Selectively expand the international light oil production from new projects is activity on an integrated basis with the forecasted to reach 150 thousand bpd. Company’s business; Overseas, the larger part of the growth • Selectively expand activities in will come from assets in Argentina and the Brazilian and Southern Cone Nigeria. petrochemicals’ markets;

• Operate selectively in the market for renewable energies. Petrobras Annual Report 2004 19

Latin America is a target region for Petrobras, its strategy being to become the leader in the regional oil, natural gas and oil products markets.

Distribution of Investments by Distribution of Investments by Funding Scheduled Location (2004 – 2010) Businesses (2004 – 2010) Net of Funding Amortizations 3.5 US$ 7.5 bi 14% 60% 21% 4.1 4.0

2.1 5.9 11% 5.9 3% 3% 2.7 US$ 46.1 bi 2% -0.7 86%

2001–2003 2004–2010 E&P Downstream Brazil Gas and Energy Distribution BNDES Others Overseas Corporate Areas Petrochemicals Project Finance Bonds 20 Annual Report 2004 Petrobras

Evolution of Proven Reserves in Brazil The Company will have to add a further Processed throughput at overseas reﬁ neries SPE criteria (billion boe) 10.7 billion boe to proved reserves between will remain at the current 100 thousand 2004 and 2010 in Brazil to achieve the bpd, with a reﬁ ning cost of US$ 1.20/bbl. target of 17.3 billion boe at the end of the period – based on Society of Petroleum Investments in the Transportation

17.3 Engineers (SPE) criteria. segment of US$ 1.2 billion will be used to 10.7 renew the tanker fl eet with a total of 53 Incorporation of With investments in the downstream area in vessels on order from Brazilian shipyards. probable and proved 12.6 reserves of volumes Brazil estimated at US$ 7.9 billion, Petrobras About US$ 1 billion will be used to already discovered and being appraised and new fi nds will be able to increase throughput of expand and improve operating and safety Volume Brazilian crude at its refi neries by 320 conditions of the terminals and pipelines. produced in 6.6 2004 – 2010: 6 billion boe Remainder of proved thousand bpd, reaching 1,700 thousand reserves 2003 bpd by 2010. By the end of the period, oil Growth in the Distribution area will come imports will have been reduced to about from the supply of new products, services 170 thousand bpd and exports will be and innovative solutions to enhance BR 03 Target 2010 running at 550 thousand bpd. brand loyalty.

The Company’s target in 2010 is to be The Company will invest US$ 6.1 billion reﬁ ning 1,870 thousand bpd in Brazil at in Gas and Energy, of which more than a cost of US$ 1.58/bbl. In this context, US$ 3.0 billion for the development of installed reﬁ nery capacity will stand at the natural gas market in Brazil, boosting about 2 million bpd in 2007. gross sales to 77.6 million m3 day by 2010.

Processed Throughput Production X Demand X Processed Throughput (th. barrels/day) (th. bpd)

2,300 2,000 1,800 1,600 2,023 Imported oil 1,400 1,870 1,200

1,000 1,700 800 1,613 600 Domestic Oil 1,500 400 200 0 07 10 01 03 02 03 05 06 08 09 97 98 99 00 10 04

Oil Products Demand Processed Throughput Oil and NGL Production Petrobras Annual Report 2004 21

Energy from thermo–electric power facilitate the implementation of the • Conduct the businesses and activities plants and co–generation will reach strategies, objectives and targets: with social and environmental 5,044 MW in 2010, while energy from responsibility in the context of the renewable sources will amount to 96 • Conduct the businesses and activities Company’s commitments to sustainable MW. Production of biodiesel is forecast at on the basis of ethics and transparency development and the Global Pact; 2,300 bpd. to ensure the Company’s credibility among its shareholders, investors, • Offer clients better products, services and Corporate policies employees, clients, suppliers, authorities, conditions of supply than the competition; Guideline policies have been established communities where the Company for all levels of the corporation to operates and society in general; • Develop a long–term relationship with the suppliers of vital goods and services;

For more information, access: www.petrobras.com.br 22 Annual Report 2004 Petrobras

Corporate policies guide all areas in complying with the strategy and meeting targets and objectives.

• Contribute to the development and • Administer the activities of marketing, • Manage the Company’s assets to ensure competitiveness of the goods and commercialization, communication and that they meet the projected returns; services industry, to scientifi c and client relationships on an integrated basis; technological know–how and to • Manage the Company’s projects expanding the labor market; • Foster the operational and managerial portfolio on an integrated basis with competences, the harnessing of the focus on profi tability and fi nancial • Promote the effi cient use of energy in technology and technological feasibility; (Table: Client Satisfaction the community; innovation for the creation and Rate – Downstream (%); sustaining of competitive advantages; • Adopt a proactive attitude in the • Manage the inherent risks of the relationship with governments, • Ensure the internal dissemination of business on an integrated basis; regulatory and supervisory organs, and knowledge, seeking to promote the entities of importance to the interests competitive advantages; • Consider mergers, acquisitions and of Petrobras; the exchange of assets as options for • Ensure that strategic information accelerating growth and the feasibility • Manage the businesses of the Petrobras is handled with due discretion and of new businesses; Group on an integrated basis, seeking confi dentiality; to reduce costs and maximize synergies; • Use partnerships to leverage market • Promote the continual transformation share, dilute risks and attract investments; • Evaluate the performance of the of the Company, permanently aligning business units in terms of the its administration and organization to • Prioritize segments which promote the Company’s overall results and the Strategic Plan in a transparent and Company’s integration and core business. integrated to a system of accountability participative manner; and consequences;

• Manage the Petrobras brand as a strategic asset; For more information, access: www.petrobras.com.br Petrobras Annual Report 2004 23

Other Corporative Targets

Environmental and Operational Indicators 2005 2010

Maximum acceptable volume of spills (m3) 633 598

Total SOx emissions (Tons) 160,128 153,804

Carbon credits generated from renewable energy projects (thousand tons of CO2) 130 1,200

LTIFR/TFCA - Lost Time Injury Frequency Rate(1) 0.92 0.5

Client satisfation – Downstream (%) 78 85

Employee satisfation rate (%) 69 74

(1) TFCA – Number of lost time injuries per million men-hours exposed to risk. 24 Annual Report 2004 Petrobras

Exploration and Production in Brazil ...... Refining, Commercialization, Petrochemicals and Transportation ...... Distribution ...... Natural Gas ...... Electric Energy ...... Our International ...... Businesses Exploration and Production in Brazil

The annual production of oil, The production of natural gas (excluding natural gas liquids (NGL) and condensate NGL) was 42.1 million m3/day, 5.8% more declined year–on–year by 3.1%, to 1,493 than in 2003. Onshore production of oil thousand bpd. and NGL was 250.6 thousand bpd, 0.9% more than in 2003 (248.4 thousand bpd). The average lifting cost per barrel or equivalent was US$ 4.33. Lifting Cost (US$/bbl) Evolution in Production of Oil Production volume of oil, condensate NGL, Condensate and Natural Gas and natural gas liquids was less than (th. boed) 10.77 forecast, principally due to delays in commissioning two platforms (P–43, 8.62 6.44 in the Barracuda ﬁ eld, and P–48, in 7.05 7.04 6.51 5.14 the Caratinga ﬁ eld) and the submarine 1,758 1,790 1,752

1,568 3.74 4.00 production manifold in the eastern 1,491 265 3.29 252 250 section of the Marimbá ﬁ eld. 221 232

1,500 1,540 1,493 The start–up in two major production 1,270 1,336 4.33 3.48 projects – the FPSO–MLS (100 thousand 3.31 3.22 3.04 3.00 bpd) in the Marlim Sul ﬁ eld in June and the P–43 (150 thousand bpd) platform in the Caratinga ﬁ eld in December – resulted in a recovery in average 01 02 00 03 01 02 00 03 04 04 daily production growth over the last Oil, NGL and Condensate Lifting Cost few months of the year to reach 1,511 Natural Gas Government Participation 2010 Target thousand bpd in the last quarter.

CAGR of Oil 4.13% p.a. CAGR of Natural Gas 4.74% p.a. Petrobras Annual Report 2004 25

...... 24 ...... 30 ...... 38 ...... 42 ...... 50 ...... 54

In addition to the 20% increase in gas production between 2000 to 2004 – from Thanks to progress in exploration 35.1 million m3/d to 42.1 million m3/d – the Company succeeded in reducing activities and the performance gas ﬂ aring by an average of 12.4% annually during the same period as the in the ANP’s sixth bidding round, following graph shows: the target of reaching 17.3 billion Evolution of Natural Gas ﬂ aring in Brazil (th. m3/day) barrels of oil equivalent proved domestic reserves now appears

7,176 6,476 readily achievable. 5,869

4,411 3,816 01 02 00 03 04

CAGR of Natural Gas –12.38% p.a. 26 Annual Report 2004 Petrobras

On June 17, the Company signed Leste fi eld, with a processing capacity A total of 355 wells were drilled construction or conversion contracts of 180 thousand bpd; and P–48, in the and completed: 279 for production for three new platforms which will Caratinga fi eld with a nominal capacity of development and 76 exploratory. Of the be of major importance for growth 150 thousand bpd. development wells for production, 211 in production in Brazil: P–34 in the were onshore and 68 offshore. In the case Jubarte fi eld (Phase 1), with a processing Discoveries of the exploratory wells, 27 were onshore capacity of 60 thousand bpd; P–54 in During 2004, fi ve new onshore oil fi elds and 49 offshore. The success rate reached the Roncador fi eld (Module 2) which will were discovered: two in the Potiguar 50%, with 38 of the 76 wells either process 180 thousand bpd; and P–51 in Basin and three in the Recôncavo discovering oil or producing oil and gas. the Marlim Sul fi eld (Module 2), with a Baiano, Sergipe–Alagoas and Espírito production capacity of 180 thousand bpd. Santo basins. During the same period, In the light of the success of the This will be the fi rst semi–submersible substantial volumes of oil were discoveries in 2003, the Company’s platform built entirely in Brazil. incorporated into the Roncador, Marlim investments and efforts in general Leste, Albacora, Albacora Leste, Espadarte, focused predominantly on the Appraisal Two further platforms are at an advanced Jubarte and Golfi nho fi elds as well as the Plans in 2004, thereby optimizing the stage of conversion before going into Appraisal Plan area of 1–ESS–121 in the resources applied. With this, there was production: P–50 – arrived in Brazil in former BC–60 block to the north of the a relative increase in the percentage of September –, destined for the Albacora Campos Basin. extension and adjacent wildcat wells to

Exploration Success Rate Production of Oil, Condensate Production of Non–Liqueﬁ ed and NGL in Brazil – Distribution Natural Gas in Brazil – Distribution by Water Depth by Water Depth

6% 50% 19% 17% 29% 59%

33%

24% 23% 20% 18% 3% 49% 01 02 03 00 04 Onshore Onshore Offshore (0 to 300 m) Offshore (0 to 300 m) Offshore (300 to 1,500 m) Offshore (300 to 1,500 m) Offshore (+ 1,500 m) Offshore (+ 1,500 m)

Total produced – 1,492.6 thousand bpd Total produced – 42,146 thousand m3/d Petrobras Annual Report 2004 27

the detriment of isolated wildcat drilling, This well is important due to the major Petrobras’ share was US$ 165 million. especially in offshore areas. This, therefore, reservoir thicknesses and the presence of In 55 of the concessions for which it was above all a year for evaluating and excellent quality light oil, factors that could bid successfully, the Company retains delineating volume fi nds. It was not a year lead to increased recoverable volumes exclusive rights. In 52, it will operate on a of blockbuster discoveries: for instance, from the area. Prospects for oil volume partnership basis with other companies, only fi ve offshore wildcat wells were and quality are excellent although the fi nal being the operating company in 32. drilled during the year. appraisal must be awaited in December 2006 before precise quantifi cation of the In August 2004, Petrobras’ exploration At the end of 2004, during the fi nd can be announced. portfolio was made up of 58 blocks and delineation of the Golfi nho area – 35 areas covered by Discovery Appraisal discovered in 2003 in the former BES–100 New concessions Plans with a total area of about 126.4 block (the ANP’s Zero Bidding Round) in Of the 913 blocks offered by the National thousand km2. At the end of the year, after the Espírito Santo Basin – the Company Petroleum Agency in the August bidding further acquisitions, surrendering some drilled the 3–ESS–156A extension well. round, Petrobras bid for 113 and acquired, blocks to the ANP according to contractual, Drilling confi rmed the existence 90–meter either exclusively or in consortium, 107 requirements, and the successful outcome thick sandstone reservoirs saturated with new exploratory concessions with an to the latest bidding round, the Company excellent quality light oil, the discovery area of 36,157.60 km2. The total signature held 96 blocks and 33 areas covered by and commercial viability of which have bonus paid by the Company and its Discovery Appraisal Plans, a total exploratory already been disclosed. partners was US$ 215 million, of which area of about 148.1 thousand km2.

Equatorial Concession Areas Margin Ceará and Potiguar

The good results of the auction – in competition with some of the Solimões and Amazonas international majors – has minimized losses of arising from the surrender of Sergipe and areas in August (Bid Zero) and September Alagoas (50% of Bid 2) of 2003 and in August and Recôncavo September 2004 (Bid 3). The Company has and Bahia Sul replaced a substantial part of its portfolio and extended the proﬁ le of the exploratory concession periods. The concessions are Paraná geographically distributed as shown in the Espírito Santo, following map: Campos

100 -

m 0 0 and Santos 0 m 2 -

000

-3

Pelotas

Petrobras Other Companies 28 Annual Report 2004 Petrobras

2004 was an important year for evaluating and delineating volumes where discoveries had been made in preceding years, notably the Golfinho field in the Espírito Santo basin. This field has saturated reservoirs of light oil, indicative of excellent prospects both in terms of volume and quality.

Of the 107 concessions acquired, 46 are in the Pelotas Basin. The Minimum This achievement reﬂ ects the located in mature onshore basins and 61 Exploratory Program for the new frontier incorporation of 1.02 billion boe during in offshore basins. Of the offshore basins, areas provides for the acquisition of 6,083 the year against a production volume of 30 are in new frontier areas and 31 in km2 of 3D seismic imaging, 100 km of 0.60 billion boe. Consequently, the proved areas considered of high potential. 2D seismic data and the drilling of seven reserves replacement ratio (IRR) reached wildcat wells. 170%. In other words, the Company Mature Basins – From the exploratory incorporated a volume of oil equivalent to point of view, the objective of acquisitions High potential – The majority of high of 1.7 times more that than it produced in the mature basins was for the potential areas coincide with the Bid Zero during the year. The reserve/production short–term incorporation of volumes blocks, partially surrendered to the ANP in (R/P) ratio thus increased to 21.7 years. of oil in areas where Petrobras has an 2003 for contractual reasons. These areas infrastructure and where the quantity saw a substantial appreciation in value of hydrocarbons is sufﬁ cient to offset during 2003 due to Petrobras’ important Evolution of Proved Reserves of Oil, NGL, production declines. The onshore blocks discoveries of natural gas and light oil in Condensate and Natural Gas – SPE criteria are important regionally for maintaining that year. Acquisition of these areas was (billion boe) the production of the Business Units where of enormous strategic importance to the they are located. Under the Minimum Company. These areas were the most sought Exploratory Program (PEM), the Company after in the last auction and in which 13.02

will acquire 400 km of 2D seismic data and the majority of total funds was invested. 12.59

drill 25 wildcat wells in onshore areas. Petrobras and its partners offered a total 11.01 1.97 1.99 9.67 9.65 value of US$ 166 million, the Company’s 1.45 1.36 1.35 New frontiers – The new frontier areas contribution being US$ 126 million. 11.05 10.60 are normally little explored. While the 9.56 exploratory risk is high, these areas can The Minimum Exploratory Program for 8.29 8.32 also lead to major ﬁ nds. The Company has these areas provides for the acquisition of acquired 30 blocks in new frontier areas, 3,843 km2 of 3D seismic imaging and the 13 in the Brazilian Equatorial Margin – the drilling of 31 wildcat wells. shallow waters of the Amazon Estuary in 01 02 03 00 the deep waters of the Pará – Maranhão Proved reserves 04 and Barreirinhas areas; and 17 in the Petrobras’ proved reserves of oil, condensate Oil, NGL and Condensate Brazilian Eastern Margin – the Camamu– and natural gas in Brazil were 13.02 billion Natural Gas Almada and Jequitinhonha basins – and boe according to ANP/SPE criteria, a 3.3% CAGR of oil 7.49% p.a. the Brazilian South–Southeastern Margin increase compared with 2003. CAGR of Natural Gas 9.71% p.a. Petrobras Annual Report 2004 29

Discoveries made over the past few years SPE. According to the SEC criteria, the • Operate in onshore and in shallow water contributed to proved reserve volume calculation of proved reserves is limited areas that offer good profi tability; – with the commercial feasibility of new to the amounts to be produced for the fi elds being confi rmed recently resulting duration of the concession contracts for • Adopt practices and new technologies in the incorporation of a further 0.39 the areas in development and production in already heavily worked areas for billion boe. Also contributing to this result and to the amounts of natural gas relating optimizing the recovery factor; was the confi rmation of an additional to sales contracts signed up to the date 0.63 billion boe of proved reserves in reserves were calculated. The reserves • Develop exploration in new frontier existing fi elds in December 2003. replacement ratio was 128%, and the areas to ensure a sustainable reserve/production ratio 17.6 years. reserve/production ratio. The incorporation of additional reserves from existing fi elds refl ects the The targets in the Strategic Plan transformation of probable and possible require the incorporation of 9.7 billion Evolution of Proved Reserves of Oil, reserves into proved reserves, as a result of boe between 2005 and 2010 and the NGL, Condensate and Natural Gas – ongoing development. Incorporations have implementation of 15 major new oil SEC criteria (billion boe) also occurred due to reservoir management production development projects and a with the latest enhanced recovery further two large natural gas development techniques. These incorporations are shown projects. Oil and gas volumes to be 10.57

in the following chart. 10.40 incorporated will come from existing 10.05 9.27 8.80 1.33 probable and possible reserves, from 1.22 1.35 1.04 1.15 already discovered sources in the appraisal 9.24 phase, and from discoveries. Evolution of Proved Reserves in Brazil 8.83 9.05 8.23 7.65 SPE criteria (billion boe) The Company implemented the Mature Fields Recovery Enhancement Program–Recage in August. This, together with the development of existing reserves 13.02 01 02 03 00 04 and discoveries will contribute to reaching 0.63 Verifi cation of probable and possible reserves Oil, NGL and Condensate E&P targets through the use of enhanced 0.39 Incorporation of Natural Gas recovery methods in developed areas. probable and possible reserves CAGR of Oil 2.94 % p.a. The Recage Program focuses on three 12.6 12.0 CAGR of Natural Gas 6.34 % p.a. main objectives: cost optimization, Volume Remainder of proved produced in reserves 2003 risk management and the increase in 2004: 0.6 billion boe production. The principal objective is to Strategy retard, or even reverse, whenever possible, The growth in Exploration and the decline in the production of fi elds Production will be based on the which are already past their prime. Recage 03 04 following strategy: will focus especially on 199 oil fi elds accounting for about 30% of Petrobras’ According to SEC criteria, the Company’s • Augment production and reserves; reserves in Brazil and for more than 60% proved reserves increased by 1.6% in of domestic commercial production. relation to 2003 to a total of 10.57 • Strengthen corporate positioning in billion boe. The lesser volume is due to deepwater and ultra–deep water fi elds; different criteria used by the SEC and 30 Annual Report 2004 Petrobras

Reﬁ ning, Commercialization, Petrochemicals and Transportation

Capital expenditures of US$ 1.4 billion in the Downstream area are aimed at consolidating market share and competitiveness, the resources being applied in the maintenance and infrastructure of pipelines and terminals and expansion in refining activities.

In 2004, Petrobras’ Downstream The Strategic Plan for the Downstream • Add value to raw materials, adjusting business area – made up of refi ning, area examined the nature of this business the installed capacity for the Group’s commercialization, petrochemicals to determine the way forward as follows: oil and gas processing and pursuing and transportation – consolidated and increased quality in the production of expanded its competitive advantages in • Expand through enhancing the oil products; the Brazilian oil and oil products markets competitive advantages in the through the effective performance of national market for oil products and Investments totaled US$ 1.4 billion. In the its refi neries, the force of its integrated commercialization overseas; pipeline and terminal (oil and oil products logistics chain and the dynamism of its transportation) area, the Company spent US$ marketing and commercialization areas. • Diversify, consolidating alternatives 625 million, basically on the maintenance of for growth and maximizing potential infrastructure while the rest was dedicated The year was particularly signifi cant synergies in the petrochemical area and to refi ning activities. for the consolidation of the strategy the fertilizer business with the natural of selective expansion in the Brazilian gas and refi ning segments; Refi ning and the Southern Cone petrochemical During the year, the main feature of oil markets. The key event of the year in • Enhance effi ciency along the entire products output was the reduction in fuel this area was Petroquisa’s increased logistics chain to the end client with oil and a year–on–year 4% increase in stake in the voting and total capital of emphasis on operational excellence; diesel production. Incremental production Petroquímica Triunfo to 70.45% and in absolute values was 65 thousand bpd or 85.04%, respectively. 4% over 2003 due to greater throughput. Petrobras Annual Report 2004 31

Oil Products Output In 2004, the processed throughput was Unit Refi ning Cost (th. bpd) 1,728 thousand bpd, of which 1,293 (US$/bbl) thousand was domestic oil, or 76% of the total. Processing of domestic 1,696 246 oil was less than in 2003 due to 1.58 1,647 1,641 1,639 lower production and a refl ection of 224 242 239 1.36 commercial strategy. During the year, 220 1.17 1,14 242 processed throughput peaked at 1,881 213 220 0.95 0.91 thousand bpd on October 14. 280 294 278 266 The average unit refi ning cost was 293 US$ 1.36/bbl, 16% higher than in 317 311 291 2003 refl ecting a larger number of 657 maintenance stoppages. 570 597 623 01 02 03 00 04 target 2010 01 02 03 04

Diesel Naphtha Gasoline and jet fuel Fuel Oil Others

CAGR of Oil 7.49% p.a. CAGR of Natural Gas 9.71% p.a. 32 Annual Report 2004 Petrobras

Fortaleza

Manaus

Refineries Landulpho Alves Gualberto Villaroel

Guilhermo Elder Bell Gabriel Passos

RAILROAD PLATFORM

Paulínia Capuava Duque de Caxias Henrique Lage Presidente Vargas Presidente Bernardes

Alberto Pasquallini Ricardo Eliçabe San Lorenzo

Fortaleza – Lubnor (CE) 6

Manaus – Reman (AM) 46

Capuava – Recap (SP) 53

Gabriel Passos – Regap (MG) 151

Pres. Bernardes – RPBC (SP) 170 The Company has 11 refineries in Brazil. Alberto Pasquallini – Refap (RS) 189 Installed processing capacity increased Pres. Getúlio Vargas – Repar (PR) 189 from 1,956 thousand bpd in 2003 to 1,996 Duque de Caxias – Reduc (RJ) 242

Henrique Lage – Revap (SP) 251 thousand bpd in 2004 due to the expanded

Landulpho Alves – RIam (BA) 334 refining capacity at Landulpho Alves Refinery.

Paulínia – Replan (SP) 365

Guilhermo Elder Bell – Bolívia 20

Ricardo Eliçabe – Argentina 31

San Lorenzo – Argentina 38

Gualberto Villaroel – Bolívia 40

Total 2,125 th. bpd Petrobras Annual Report 2004 33

Capital Expenditures onwards. The project’s total capital reaching a total of 1,637 thousand bpd. In January, July and August 2004 expenditures amount to US$ 804 million. The improvement was achieved thanks to respectively, the diesel hydrotreatment the domestic economic recovery and lower units at the Paraná (Repar), Duque de In October, the delayed coking and diesel oil product imports by other companies. Caxias – RJ (Reduc) and Gabriel Passos hydrotreatment units at the Paulínia As a result the Company recorded a market – MG (Regap) refi neries came on stream. Refi nery – SP (Replan) came on stream. share of 92%, 1% more than in 2003. These units are part of the strategy of This will allow diesel production to continuously improving product quality, be ramped up through the enhanced Among the initiatives for increasing especially in the case of diesel , due to processing of heavy crude, diesel fuel market share, marketing activities were a reduction in sulfur content. These being the most consumed oil product particularly important and refl ected in the units have a total capacity of about 70 in Brazil. One of Petrobras’ strategic increase of the customer satisfaction index thousand bpd. Investments over three objectives is to maximize the use of from 84% in 2003 to 85% in 2004. years amounted to US$ 470 million, of the large volume of domestic heavy which US$ 74 million was spent in 2004. crude, thus adding value to Brazilian oil resources. The forecasted additional The new effl uent treatment system at the diesel output is about 10 thousand bpd. Alberto Pasqualini Refi nery – RS (Refap The total investment was worth US$ 394 S.A.) started operations in June at a total million of which US$ 158 million was Customer Satisfaction Index investment of US$ 23 million – part of the expended in 2004. refi nery’s ongoing modernization program, most of which will be concluded in 2005. 84% 85% COMMERCIALIZATION 80% This project will allow the refi nery to 74% operate at its total nominal capacity of The area’s activity provides fl exibility in 189 thousand bpd compared to current the commercialization of oil products throughput of about 126 thousand bpd. by exporting surpluses when production The construction of the fl uid catalytic exceeds domestic demand, a case in point cracker, coke and diesel hydrotreatment being gasoline. units, as well as complementary units for hydrogen production and treatment of The total volume of oil products sold gases, will all contribute to the optimizing by Petrobras to the Brazilian market of the refi nery’s production from 2005 increased by 6% compared with 2003, 01 02 03 04 34 Annual Report 2004 Petrobras

Foreign trade Production, Demand and Sale of Oil Oil and oil product exports diminished Products (th. bpd) 8% compared with 2003, recording a daily average of 409 thousand bpd. 1,800 1,761 Oil and oil product imports amounted to 1,750 1,749 1,712 1,700 559 thousand bpd. 1,696 1,696 1,641 1,639 1,647 1,637 Oil product demand 1,564 1,609 Sales volume of oil products to 1,510 the domestic market Output of oil products 01 02 03 00 04

Exports of Crude Oil Imports of Crude Oil Oil Products Exports and Imports (th. bbl) (th. bbl) (th. bpd)

10.4% 0.7% 19.8% 17.9% 390 326

228 18.7% 216 213 6.6% 203 12.5% 48.8% 159 206 105 109 7.4%

7.5% 12.4% 21.5% 7.7% 01 02 03 00 8.0% 04

United States China Nigeria Iraq Oil products imports Bahamas South Korea Algeria Others Oil products exports Chile Trinidad e Tobago Saudi Arabia Netherlands Antilles Others Portugal

Exports of Oil Products Imports of Oil Products Oil Exports and Imports (th bpd) (th. bbl) (th. bbl) 450

326 29.2% 302 319 24.7% 28.6% 34.5% 278 233 233 181

98 32 4.1% 5.8% 14.9% 4.8% 10.8% 5.1% 12.3% 01 02 03 14.6% 00 10.6% 04

Bahamas United States Argentina Nigeria Oil imports Singapore Netherlands Antilles Saudi Arabia Russia Oil exports Cayman Islands Others India Others United Arab Emirates Petrobras Annual Report 2004 35

PETROCHEMICALS the emphasis on new projects to satisfy reﬁ ning and natural gas production ﬂ ows. domestic market demand. The subsidiary Petrobras Química S.A. The strategy for the petrochemicals area Petrochemicals play an important role (Petroquisa) leads the Petrobras Group’s is to selectively expand the business in the in the Company’s strategy since they business in the petrochemical sector, Brazilian and Southern Cone markets, with add value and enhance returns to the holding stakes in sector companies.

VOTING TOTAL COMPANY PRODUCT CAPITAL CAPITAL %% Braskem S.A. Basic, intermediate and ﬁ nal petrochemicals 10.0 8.4 Cia. Petroquímica do Sul – Copesul Basic petrochemicals 15.6 15.6 Petroquímica União S.A. Basic petrochemicals 17.5 17.4 Metanol do Nordeste – Metanor S.A. Methanol 49.5 33.4 Deten Química S.A. Linear alkylbenzene 28.6 27.5 Fábrica Carioca de Catalisadores S.A. Catalyzers 50.0 50.0 Petrocoque S.A. Indústria e Comércio Calcinated petroleum coke 35.0 35.0 Petroquímica Triunfo S.A. Low density polyethylene 70.5 85.0 Companhia Alagoas Industrial – Cinal Utilities and services 16.6 13.7 Rio Polímeros S.A. (projeto) Polyethylene 16.7 16.7

Petroquímica Triunfo Rio de Janeiro Gas–Petrochemicals Other petrochemical projects In May, Petroquisa exercised its preemptive Complex In line with the Strategic Plan, right to acquire the shares held by Primera Rio Polímeros S.A. a company owned several business opportunities in the (part of the Dow–Química group) in by Suzano (33.3%), Unipar (33.3%), petrochemical industry are being Petroquímica Triunfo’s capital. On the Petroquisa (16.7%) and BNDESPar evaluated. These businesses include the conclusion of this operation, Petroquisa’s (16.7%), is concluding the construction of production of basic petrochemicals such stake in the voting capital was increased a new petrochemicals plant in Duque de as: polyethylene, polypropylene, acrylic from 45.22% to 60.63% and corresponding Caxias, state of Rio de Janeiro. acid, para–xylene and terephthalic acid. to 80.07% of Petroquímica Triunfo’s total With operations scheduled to come This portfolio of business opportunities capital. Petroquisa disbursed approximately on stream in the fi rst half of 2005, Rio marks the revamping of Petrobras’ US$ 25.5 million for this additional stake. Polímeros will have an annual production activities in the petrochemical industry, of 515 thousand tons of polyethylene driven by the growing demands of the Subsequently, Petroquisa acquired the with various specifi cations and 76 Brazilian market. remainder of Primera’s stake in the company thousand tons of propene, using as raw given that the other partner, Petroplastic, materials ethane and propane extracted Fertilizers decided not to exercise its preemptive rights. from Campos Basin natural gas. The total Petrobras’ nitrogenous fertilizer plants, As a result, Petroquisa’s fi nal participation investment is estimated at US$ 1 billion. located in Camaçari (BA) and Laranjeiras in the company was increased to 70.45% of (SE), increased their output by 16% in the voting capital and to 85.04% of the total total sales and 8% in domestic sales capital, the company disbursing a further compared with the preceding year. This US$ 32 million. was equivalent to an average monthly 36 Annual Report 2004 Petrobras output of 106 thousand tons, the result transportation capacity of 2.5 million vessels were chartered by Fronape from of a recovery in the agricultural sector. dwt. In addition to the vessels, the Ugland Nordic Shipping, part of the company operates a maritime support Teekay Navion Shuttle Tankers Group on vessel owned by Petrobras, and chartered a bareboat basis. Both vessels are modern TRANSPORTATION on a bareboat basis, and a fl oating and specialized in offl oading production storage and offl oading unit (FSO). from platforms and will operate in Through its wholly owned subsidiary, the Campos Basin. They are equipped Petrobras Transporte S.A. – Transpetro, The current fl eet consists of 40 vessels with dynamic positioning (DP) systems Petrobras operates in the competitive oil, oil owned by Transpetro; four Petrobras together with a bow loading system products and gas bulk transportation and vessels chartered on a bareboat basis; (BLS). They will add to the fl eet of four storage segments, operating port terminals, six chartered on a bareboat basis from other DP shuttle tankers that are already pipelines and ships, supplying integrated third parties; a maritime support vessel operating in the Campos Basin. logistics solutions and providing services in owned by Petrobras and chartered on South America. The company is supported a bareboat basis and a fl oating storage Fleet renewal and expansion overseas by its Fronape International and offl oading unit (FSO), the property of According to the Strategic Plan, the Company (FIC) subsidiary. Transpetro itself. Company’s target is to construct 42 tankers by 2015 at a total investment Maritime transportation As part of the Fleet Renewal Program, of US$ 1.2 billion, and fi nanced by Transpetro continued to be the largest two shuttle tankers, the Nordic Rio and the Brazilian Economic and Social shipping company in South America the Nordic Brasília with 151 thousand Development Bank (BNDES) with with a fl eet of 50 vessels and a total dwt each, have gone into service. The resources from the Merchant Marine

Fund. The principal objective of the fl eet according to the criteria set out in the • Phase 2 – building of a further 20 ships modernization and expansion is to serve Program for Mobilizing the Domestic of the Suezmax, Aframax, Products all Petrobras’ coastal shipping, and 50% Oil and Gas Industry (Prominp); and LPG types with deliveries to be of its ocean–going requirements. completed by 2015. • With the development of the program, The program also establishes the compete internationally on price and Phase 1 began on November 25 conditions for the development of delivery; 2004 with the publication of the sustainable shipbuilding industry in Brazil prequalifi cation notice for the companies by guaranteeing scale and adequate • Guarantee scale to the shipyards wishing to participate in the tender bid. size to compete in the international allowing them to invest in installations, The contracts are expected to be signed market. The program will also increase technology and training and in the second half of 2005. competition in the domestic steel consequently making for a viable industry for the supply of steel raw learning curve. The program will create about 20,000 materials as well as stabilizing the market direct and indirect jobs/year for the and inhibiting fl uctuations in prices. Phases and orders building of the fi rst 22 vessels alone.

Assumptions • Phase 1 – building of 22 vessels of the Pipelines and Terminals Suezmax (6), Panamax (4), Aframax (5), As the operator of the larger part of the • Construct ships; Products (4) and LPG (3) types with Company’s oil and gas pipelines, onshore deliveries to be completed by 2010; terminals, waterway terminals and • Achieve up to 65% of national content natural gas processing units, Transpetro Petrobras Annual Report 2004 37 was responsible for the monthly conditions for their operation and safety. gas, in co–generation projects and for transportation of about 50 million m3 of As part of this objective, the company residential or industrial heating and oil and oil products and 1 billion m3 of invests in the Pipeline Integrity and the refrigeration processes. The project gas during 2004. Installations and Systems Reliability will place Transpetro in the position of programs in addition to work on carrier of choice for existing and future The company operates a pipeline eliminating operational bottlenecks. The installations and expand the supply of network of 10,050 kilometers of which, company also carries out systematic gas to 9 million m3/day to the Northeast 7,007 kilometers are oil and oil product inspections of the domestic pipeline Region (14 million by 2012) and 13 pipelines and 3,043 kilometers are gas network to identify and correct any million m3/day to the Southeast Region. pipelines (excluding the Brazil–Bolivia weaknesses that could impair the pipeline), of which 148 kilometers were quality of the operations as well as Still in the gas segment, the company added in the network in 2004 with the the operational safety, environmental concluded a further phase of the commissioning of three E&P gas pipelines preservation and personal health. Cabiúnas Project, with the commissioning (known as the Malha Bahia). In addition, of a further liquid gas recovery unit. Transpetro operates 43 land–based Gas Pipelines The project is designed to increase the and maritime terminals with a tankage Signed in 2004, the Networks Project supply of processed natural gas from capacity of 63.3 million barrels or the (Projeto Malhas) will guarantee the the Campos Basin to 20 million m3/day equivalent of about 10 million m3. supply of demand from the industrial to meet demand from the Rio de Janeiro sector in the Northeast and Southeast Gas–Petrochemical Complex. The subsidiary is also responsible for regions. It will also stimulate the maintaining the installations in suitable dissemination of the use of natural 38 Annual Report 2004 Petrobras

Distribution

The Agip do Brasil acquisition in August boosted Petrobras’ business in LPG distribution to 27% of the nationwide demand while consolidating its leadership in fuel distribution with a 32.8% market share and increasing its presence in some regions of Brazil. Petrobras Annual Report 2004 39

In the distribution segment, Petrobras In 2004, the company invested US$ Brasil S.A. and, for a short transitional operates through its Petrobras 120 million, principally for expanding period, Sophia do Brasil S.A. Liquigás Distribuidora (BR) subsidiary – the and modernization its service station Distribuidora S.A. will operate exclusively company with the most comprehensive network, in the support of its industrial in the LPG segment, including the bulk coverage in its sector in the Brazilian and commercial clients, and in Safety, commercialization of this product – an market with a network of 6,785 service Environmental and Health programs. operation previously carried out on a small stations. The company’s own network Further capital expenditures of US$ 161 scale by Petrobras Distribuidora S.A. In the numbers 631 service stations, the million are slated for 2005. four months following the acquisition, remaining 6,154 being run on a franchise BR’s market share averaged 22.1%. basis under the BR fl ag. Entry in to the LPG market On August 9, 2004, Petrobras Distibuidora Leadership The strategy for sector operations is acquired Agip do Brasil S.A. for expanding Petrobras’ share in the Brazilian fuel based on two principal objectives: its participation in the LPG distribution distribution market in 2004 was 32.8% segment as well as consolidating market (31.5% in 2003), the result of an 8.1% • With a multi–business retail network, to be share in the distribution of automotive growth in sales volume. The company the preferred fl ag for consumers, offering fuels in certain regions of Brazil. The total continues to lead the Vehicular Natural excellence in the quality of products and value of the acquisition was worth Gas (VNG) market – with a 27% share services, enhancing its leadership, and US$ 511 million, adjusted according to and a network of 245 VNG outlets in ensuring the expected profi tability; the company balance sheet on the date Brazil. The Company also continues to the acquisition was concluded. be the leading supplier to the direct • Add value to the Petrobras Group by consumer market represented by large leading all the segments of the consumer Since January 1, 2005, the LPG distributor, industrial clients, trucking fl eets, airlines market through the supply of new controlled by Petrobras Distribuidora, has and public authorities. products, services and solutions, at the adopted the corporate name of Liquigás same time consolidating brand loyalty. Distribuidora S.A., succeeding Agip do

Market Share of Fuel Distribution Companies in Brazil

35% 32.8 32.9 32 31.5 32.8 30%

25% 22.1 22.7 21.8 21.5 21.1 20% 16.3 17.2 14.4 15.1 15.4 15% 14.4 13.5 12.8 12.8 12.9 10% 9 8.8 8.7 8.4 8.4 8.8 8.4 8.2 8.3 5% 7.7

0% 2000 2001 2002 2003 2004

BR Competitor 1 Competitor 2 Competitor 3 Competitor 4 Competitor 5 40 Annual Report 2004 Petrobras

Automotive Segment with the objective of providing greater Petrobras was the ﬁ rst Brazilian company consumer convenience and advantages to distribute VNG, which among other in the purchase of fuels and products advantages, is characterized by lower prices from Petrobras service stations and from to the consumer – compared to gasoline accredited BR Mania convenience stores. and alcohol – and lower emissions. The company has also implemented a In addition to fuel sales, BR’s outlets are series of channels for communicating being transformed into full–service stations, with its retailers, principally through the geared towards maintaining an excellent ‘Retailer’s Journal’ and periodic meetings standard of service. Customers have access for strategy and action plan presentations. to convenience stores (BR Mania), carwash facilities (Lava Mania), advanced lubrication centers (Lubrax Center), video rentals and 24–hour service ATMs, among other services.

In 2004, BR’s loyalty programs were given a major boost with the launching of the Petrobras private label card

RR=3 AP=23

PA=112

TO=76 PI=97 AM=150 MA=79 CE=287

RN=113

PB=101

Service Station Network Units PE=239 BR outlets 6,785 AL=49 SE=67 Urban 5,151 AC=2 RO=43 Highway 1,593 BA=461

Maritime 41 MG=905 MT=114 DF=137 Active outlets 5,047 ES=113

Own outlets 631 GO=200 Third–party outlets 6,154 MS=145 SP=1,638 RJ=389 Convenience stores 507 PR=433 VNG outlets 245 SC=254

RS=555 Petrobras Annual Report 2004 41

In 2004, the sales growth in hybrid fuel Consumer segment One of the company’s principal (fl ex–fuel) vehicles surpassed forecasts. Petrobras is also the leader in the competitive advantages is the technical This, together with the reduction in segment, representing large industrial support provided to clients, a factor which ICMS fuel tax in the state of São Paulo, clients, trucking fl eets, retail delivery undoubtedly increases customer loyalty. increased nationwide sales of the product fl eets (TRR), airlines and public In this context, the loyalty programs in the formal market by more than 30% authorities. The company has a 45% had a major impact in 2004, particularly in 2004 compared with about a 6% market share, in turn breaking down into through the Total Fleet Control Program increase in gasoline sales. 57% in aviation fuel products, 40% in designed to retain the loyalty of trucking Prospects for an accelerated expansion asphalt and 36% in the TRR sector. companies to the BR brand. This program in the hybrid vehicle fl eet should be saw contracted volumes expanding 69% in refl ected from 2005 in lower growth BR has the largest fuel and lubricants relation to 2003. and higher volatility in gasoline demand. distribution network in Brazil, with This may have possible impacts on the 115 strategically located operational distribution logistics of the product installations, guaranteeing excellent as well as a signifi cant increase in the market penetration of its products. formal alcohol market, an aspect, which This network is also conducive to the is being reinforced by the crackdown on integration of transportation and the informal fuel market. inventory solutions. 42 Annual Report 2004 Petrobras

Natural Gas

The strategy for this business area will day of natural gas. This volume corresponds • UTE Camaçari – 2,8 million m3/day; be: to develop the natural gas industry to 41% of total Brazilian imports. so as to guarantee the placement of • Gasmig – non-thermal market – up to the product, operating on an integrated 5.0 million m3/day; basis with the other units of the Brazilian Sales by Segment in 2004 Company along the entire production • Sulgás, co-generation for Ulbra – 25 chain both in Brazil and other Southern thousand m3/day. Cone countries. Price structure for city public 29% Petrobras has been posting strong growth 56% transportation services in this segment with sales volume up As a contribution to market stability, 19% in 2004, reaching 33 million m3/ Petrobras has guaranteed that the price day. The Brazilian market as a whole of natural gas for urban passenger 1% performed well during the year due to the 2% transportation will not surpass the ceiling expansion of the logistics infrastructure 12% of 55% of diesel oil prices over the next ten and growing pressures for the use of years. With this formal commitment, the more environmentally friendly fuels. Company is sending a clear message to the market that natural gas is an economically Industrial Commercial In 2004, Brazilian production reached an viable fuel. Automotive Generation average of 42.2 million m3/day, a Residential year-on-year growth of 6%. Meanwhile, The decision is in line with practices the supply of domestic and imported gas prevailing in more developed countries for sale increased 23%, reaching 37.7 where natural gas is recognized as superior million m3/day. In 2004, the following gas supply to other vehicular fuels in preserving the contracts were signed (UTE = quality of the air. Production of natural gas relates to Thermoelectric Power Plants): gas volumes, which are lifted from the Transportation reservoirs through producing wells and • UTE Norte Fluminense – 3.4 million Petrobras has established a new concept delivered for sale once certain quality m3/day; in the market with the setting up of the speciﬁ cations have been satisﬁ ed Basic Natural Gas Transportation Network (methane, sulfur, water content, etc.). • UTE Termorio – 5.1 million m3/day; (RBTGN). This is a four thousand kilometer pipeline network running from Fortaleza to To meet the growing demand during the • UTE Nova Piratininga – 2.76 million Porto Alegre and from São Paulo to Bolivia. year, Petrobras imported 19.5 million m3/ m3/day; The Network is vital for supplying gas to Petrobras Annual Report 2004 43

Expansion in infrastructure and growing pressure for the use of more environmentally friendly fuels saw natural gas sales grow by 19%, in line with the strategic objective of developing this industry in Brazil and being a integrated company that acts in all the production chain.

solve the energy defi cit in the Northeast in the Santos basin and expanding activity The implementation of the over the long term and for developing the in the 48 offshore blocks along the route Southeast–Northeast Interconnection natural gas market throughout Brazil. of the RBTGN, since this will permit the (Gasene) project was seen as the best off–take from future discoveries of fi elds alternative for meeting demand from the In 2004, the conclusion of the with associated or non–associated natural Northeast Region in the short to medium environmental licensing process and the gas reserves. term and providing a defi nitive solution to start of work on the Basic Gas Pipeline the problem in the long term (completer). Network are of particular importance in The fi rst phase in the integration of the In addition to the Cacimbas (ES)–Vitória expanding the infrastructure for natural gas Basic Gas Pipeline Network was begun (ES) pipeline, the Gasene project consists of transportation and distribution in Brazil. in September with work starting on two further stretches, Cabiúnas (RJ)–Vitória Investments of US$ 3.9 billion in building the Campinas–Rio Gas Pipeline at an (ES) and Cacimbas (ES)–Catu (BA), which the Network are forecast up to the end of investment of US$ 308 million and a are in the early environmental licensing the decade. length of 453 kilometers, for conclusion in approval stages, the negotiation of the October 2005. This project integrates the Engineering, Procurement and Construction The network will bring the production fi elds Southeastern network, and will link into the (EPC) package and the legal and fi nancial closer to the end consumer, ensuring gas Northeastern network and the structuring. Capital expenditures are supplies to the main consuming centers, Southeast–Northeast Pipeline (Gasene) as estimated at US$ 1.1 billion. and an annual domestic market growth rate well as existing pipelines, thus expanding of 14.2% up to 2010. The project is in line today’s network in operation (8,860 with the strategy of developing production kilometers) by a further 4,200 kilometers. 44 Annual Report 2004 Petrobras

Trinidad y Tobago Maracaibo Caracas

Sta. Bárbara

VENEZUELA

COLOMBIA Boa Vista Gas pipelines in Macapá

ECUADOR Manaus Belém South America Fortaleza São Luiz Coari Juruá Urucu Mossoró Guamaré

Teresina Natal João Pessoa

Recife Rio Branco Porto velho

PERU Feira de Santana Aracaju Camisea BRAZIL Salvador Boomerang Brasília

BOLIVIA Cuiabá Goiânia Santa Cruz B. Horizonte Rio Grande S.Antônio Corumbá Betim V.Grande Campo Grande Vitória

S.Alberto Campinas REDUC Dourados Campos

São Paulo CHILE PARAGUAY Londrina Itu Rio de Maringá Janeiro Ramos Curitiba

Florianópolis Criciúma

Porto Santiago Uruguaiana Alegre Alegrete

Concepción ARGENTINA URUGUAY Gas Reserves Montevideo In Operation

Cuenca Neuquina Under Study

Being Implemented

International

Other Companies’ Gas Pipelines

Processing Units

Maintenance Bases

Stakes in natural gas transportation providers Through its subsidiary Gaspetro, Petrobras also has stakes in pipeline transmission companies. The Company has a contract with TBG (Transportadora TBG – Ownership Breakdown GTB – This company owns the Bolivian Brasileira Gasoduto Bolívia–Brasil S.A.), section of the pipeline, a distance of owner of the Brazilian stretch of the 557 kilometers. It has contracted gas Bolivia Brazil Pipeline, and with GTB (Gás 4% 4% transportation out to three carriers: Transboliviano S.A.), owner of the Bolivian YPFB/Petrobras, BG Bolívia Corporation 12% 51% stretch for importing Bolivian gas. and Transborder Gas Services Ltda. (TBS). In March 2003, the company began TBG – This company operates the Brazilian invoicing its maximum transportation section of the longest gas pipeline in Latin capacity – 30 million m3/day – based on America (3,150 kilometers), linking Santa 29% contracts signed with Petrobras/YPFB. Cruz de La Sierra in Bolivia to Canoas In addition, GTB has transportation in the Brazilian state of Rio Grande do contracts with BG Bolívia Corporation Sul. On July 2003, the Bolivia–Brazil Gas and Transborder Gas Services Ltda. (TBS) Pipeline attained its full capacity of 30 Gaspetro Shell to carry smaller volumes. million m3/day of natural gas. BBPP Holding ESAE Transredes Petrobras Annual Report 2004 45

GTB – Ownership Breakdown TSB – Transportadora Sulbrasileira de Gás TSB – Ownership Breakdown S.A. is a Special Purpose Company (SPC), based in Porto Alegre and constituted for

2%2% constructing, operating and owning the 11% 15% Uruguaiana–Porto Alegre Gas Pipeline (615 25% 51% kilometers). At present, only two extremities of the pipeline are ready and operating, 15% 17% supplying approximately 3 million m3/ day of natural gas to the Uruguaiana Thermoelectric Power Plant and the Triunfo 25% 17% Petrochemical Complex (RS). 20%

Transredes Gaspetro Gaspetro Repsol–YPF Enron British Gas Total TecGas Shell Gas El Paso Ipiranga 46 Annual Report 2004 Petrobras

TMN – This company owns the Urucu–Porto Velho Pipeline and Coari–Manaus Pipeline. The pipeline links Meio–Norte Pipeline (1,616 kilometers), associated installations. The pipeline, the municipalities of Coari and Manaus which is to be constructed from the which will carry natural gas from the in the state of Amazonas, has a length state of Ceará to the states of Piauí and Urucu region in the state of Amazonas of 397 kilometers and a capacity of 7.5 Maranhão. The project is to be funded to Porto Velho in the state of Rondônia, million m3/day. Capital expenditures are from the Energy Development Account runs a distance of 516 kilometers with a estimated at US$ 407 million. (CDE), created by Law 10,438 of April 26, capacity of 2.2 million m3/day. When complete the pipeline will meet 2002 and regulated by Decree 4,541 of Work scheduled to begin on construction demand from Manaus and neighboring December 23, 2002, the purpose of which in April 2005, is contingent on the issue markets for natural gas. Construction is is the development of feasible power of the environmental license. The pipeline to begin in April 2005. projects in the states. On July 9, 2004, will allow Petrobras to supply gas to the Gaspetro’s Board approved a 45% stake states of Rondônia and Acre as well as TCG – Transportadora Capixaba de Gás in the company’s capital. ensuring the operational feasibility of the S.A. – Gaspetro controls 100% of the thermoelectric power plants in the region. company. Its purpose is to prepare the TNG – Transportadora Norte Brasileira feasibility studies, the project, design, de Gás S.A. – The company was set up TAG – TransportadoraAmazonense de planning, the construction, installation, for designing, engineering, construction, Gás S.A. – Gaspetro controls 100% of operation and maintenance of a gas installation, ownership, use, ﬁ nancing, the company, the objective of which pipeline (127 kilometers) for linking the operation and maintenance of the is to build, operate and maintain the gas treatment station at Cacimbas in

The Basic Natural Gas Transportation Network will link four thousand kilometers of gas pipelines and is crucial to the development of the domestic market.

TMN – Ownership Breakdown TNG – Ownership Breakdown

5% 5% 45% 50%

45% 50%

Gaspetro Gaspetro Gaspisa Duto Norte Termogás Gasmar Petrobras Annual Report 2004 47

the state of Espírito Santo to the cities S.A.). The latter two are owners of the new Petrobras (40%) and White Martins (60%) of Linhares and Vitória as well as other assets of the Northeastern Network and with Petrobras supplying the natural gas pipelines and feeder lines that may the Southeastern Network, respectively. and White Martins building and operating eventually be built in the state, plus The consortium will be responsible for the the LNG production unit. The plant will respective complementary installations. transportation, operation and maintenance begin operations in January 2006 and will of all existing and future installations to be serve the states of Paraná, Mato Grosso TNS – Transportadora Nordeste–Sudeste built between 2006 and 2007. do Sul, Goiás, Minas Gerais and the – The company is wholly owned by Federal District. Gaspetro and has been constituted for Gemini Project transportation of natural gas in the The purpose of the project is to supply The unit will have a capacity to liquefy 380 Northeast of Brazil (2,057.1 kilometers) liqueﬁ ed natural gas (LNG) to regions not thousand m3/day and store 2.7 million m3 and the Southeast (1,453.2 kilometers). served by the pipeline system. In this way, of natural gas, corresponding to 4,500 m3 Petrobras transferred the existing market reach can be expanded, and in of LNG. Production will be sold to piped pipeline network assets to the company parallel, an anticipated demand promoted for gas distributors, industrial and commercial as a capital injection. TNS is the leader the product in areas located within a radius customers and VNG service stations. of a consortium made up of TNS itself, of 800 kilometers from the production unit A ﬂ eet of purpose built tractor–trailers Transpetro (which will be the operator), NTN in Paulínia, state of São Paulo. and/or cryogenic tankers will be (Nova Transportadora do Nordeste S.A.) responsible for carrying the product. and NTS (Nova Transportadora do Sudeste The project is a joint venture between 48 Annual Report 2004 Petrobras

Distribution of piped gas Through the intermediary of its Petrobras’ stakes in gas distributors via Gaspetro

Gaspetro subsidiary, Petrobras has a % Stake of stake in 19 piped gas companies. These Company Acronym Total Capital companies have a total gas pipeline Gás de Alagoas S.A. Algás 41.5 network of 2,900 kilometers, responsible Companhia de Gás da Bahia Bahiagás 41.5 in 2004 for selling an average of 16.4 Companhia Brasiliense de Gás CEBGás(*) 32.0 million m3/day of natural gas, with net CEG RIO S.A. CEG RIO 37.4 revenues of about US$ 890 million, Companhia de Gás do Ceará Cegás 41.5 against US$ 780 million in 2003. Companhia Paranaense de Gás Compagás 24.5 Companhia Pernambucana de Gás Copergás 41.5 Companhia de Gás do Amapá Gasap(*) 37.3 Companhia Maranhense de Gás Gasmar(*) 23.5 Companhia de Gás do Piauí Gaspisa(*) 37.3 Agência Goiana de Gás Canalizado S.A. Goiasgás(*) 34.8 Companhia de Gás do Estado do Mato Grosso do Sul MSGás 49.0 Companhia Rondoniense de Gás Rongás(*) 41.5 Companhia Paraibana de Gás PBGás 41.5 Companhia Potiguar de Gás Potigás 83.0 Companhia de Gás de Santa Catarina SCGás 41.0 Empresa Sergipana de Gás S.A. Sergás 41.5 Companhia de Gás do Estado do Rio Grande do Sul Sulgás 49.0 Companhia de Gás de Minas Gerais Gasmig 40.0 (*) Companies not operational.

Gasmig stake volume could grow at an annual rate of company’s natural gas and to increase On December 15 2004, Gasmig and 15% over the next ten years. its grip on the distribution market in the Petrobras concluded an agreement with Southeast Region. Cemig in which the latter sold 40% of the CEG–Rio stake capital stock in Gasmig to Gaspetro for Gaspetro increased its stake in the natural Commercial performance US$ 54 million. Petrobras has committed gas distributor, CEG–Rio by acquiring Gaspetro’s gas distribution affi liates to building the pipelines while Gaspetro 65.58 million common shares (9.86% of reported signifi cant growth in average and Cemig will provide the necessary the total common shares) and 181.92 sales volume during the period from construction funding. The immediate million preferred shares (13.68% of the 2001 to 2004 increasing from 7.4 million effect will be an expansion of Gasmig’s total preferred shares) worth US$ 16.54 m3/day to 16.4 million m3/day. pipeline network in the state of Minas million. As a result, Gaspetro now holds a Gerais. Gasmig distributes about 1.6 26.19% stake of the common and 43.01% The thermoelectric segment’s natural million m3 of natural gas on a daily basis of the preferred shares. gas consumption grew by 54% in along its 130–kilometer network. The relation to 2003. The increase refl ects larger part of the investment will be used The increased shareholding in CEG–Rio, Brazilian economic expansion, which for building feeder distribution lines in the which operates in the interior of the in turn increased the thermoelectric Vale do Aço and Triângulo Mineiro regions, state of Rio de Janeiro, is in line with power plant’s dispatch of power to the the larger part of which will be completed the company’s strategic plan – namely transmission grid at the behest of the by 2008. Forecasts are that Gasmig’s sales to develop assured markets for the National System Operator (ONS). Petrobras Annual Report 2004 49

Stakes in Distribution

Gasap Petrobras (37.3%) Gasmar Petrobras (23.5%) Gaspisa Petrobras (37.3%) Cegás Petrobras (41.5%) Potigás Petrobras (83%) Cigás

Rongás Copergás Petrobras (41.5%) PBGás Petrobras (41.5%) Petrobras (41.5%) Algás CEBGás Petrobras (41.5%) Petrobras (32.0%) Goiasgás Sergás Petrobras (34.8%) Petrobras (41.5%) Bahiagás Petrobras (41.5%) MSGás Gasmig Petrobras (49.0%) Petrobras (40.0%) Petrobras 100%

ENI CEG–Rio Petrobras (37.4%) Comgás CEG Compagás gasNatural Petrobras (24.5%)

Sulgás Petrobras (49.0%) SCGás Petrobras ( 41.0%)

Increased demand from the automotive segments which together account for vehicle motor, co–generation systems and segment exceeded the 22.3% expansion 91.8% of distributors’ sales volume. small compressors, among others. in the number of vehicles converted to VNG according to data from the Technology The Gas Technology Center is a Brazilian Petroleum Institute. This may Investments in technology aim to partnership with Senai (National Service be because of incomplete state traffi c stimulate the growth of the natural for Industrial Apprenticeship) for authority controls on the number of gas market in Brazil based on two disseminating the use of natural gas. The conversions or the fact that data is only initiatives: the GasEnergy Network and Center was responsible for developing supplied by VNG conversion companies the Gas Technology Center. the Natural Gas Quality Project for ratifi ed by the National Institute analyzing the characteristics of gas of Metrology, Standardization and The GasEnergy Network is designed to throughout Brazil as well as several Industrial Quality – Inmetro. coordinate work involving universities and initiatives for the vocational training of research institutes with the natural gas specialized labor in this segment. The increase in co–generation has little distributors, equipment manufacturers impact on overall results since this and commercial associations as well segment still plays an insignifi cant role as governmental representatives. It is in the distributors’ sales mix. Natural gas currently responsible for more than 90 consumption is still largely focused on the ongoing projects for expanding the use of For more information, access: industrial, thermoelectric and automotive natural gas, examples being a natural gas www.petrobras.com.br 50 Annual Report 2004 Petrobras

Electric Energy

Petrobras’ strategy in this segment is to: Petrobras operates in the electricity sector through its stake in nine • Participate in the electric energy thermoelectric generating plants. business to guarantee a market for the The changing circumstances of the Company’s natural gas and oil products; electric power sector with demand being largely satisﬁ ed from hydro plants, In 2004, Brazil’s installed generation • Develop, coordinate and implement have to a degree eliminated the need capacity was approximately 83 thousand activities related to energy for recourse to dispatching electricity MW. Of this total, 97.5% is hooked into efficiency and renewable energy from alternative sources to the Brazilian to the National Interlinked System (SIN), in the Petrobras Group and its market. However, this overcapacity is which receives 83% of its power supplies final consumers considering the strategic. It is designed to avoid the risk from hydroelectric sources. Company’s interests, the demands of of future energy rationing similar to Plentiful rainfall during the greater part society and sustainable development 2001 and contributes to the reliability of of the year has increased reservoir levels, in Brazil. the National Interlinked System. which in most regions reported the Petrobras Annual Report 2004 51

highest volumes in fi ve years. This has of this type is scheduled for March 2005. Thermoelectric Power Plants meant that the thermoelectric plants In 2004, UTE Norte Fluminense (780 MW) have been dispatching less electricity than The fi rst electric energy auction for new started commercial operations, Petrobras contemplated in the original projects. power plants is scheduled for the middle having a 10% stake in the business. of 2005. Those thermoelectric power In November, the two turbo–generators The new Brazilian electricity sector plants, in which Petrobras has a stake (208 MW) at the TermoRio plant (1,040 MW model sees the coexistence of two and where the electricity produced was in total) began operating commercially. contractual commercialization not totally contracted up to March 2004, environments: Regulated (ACR), through are eligible to participate. These auctions During the year, the principal events the medium of auctions and Free (ACL), are expected to produce long–term involving the thermoelectric plants in which under which commercialization between contracts, which will assure improved the Company has a stake were as follows: market participants will be freely agreed returns for plants successful in the and governed by bilateral purchase and bidding process. • UEG Araucária – Petrobras and El Paso sale contracts. continued in litigation with Copel Performance (Companhia Paranaense de Energia) The fi rst auction of electric power from Electricity sold by Petrobras in 2004 to ensure the latter’s compliance with existing power plants occurred in early increased by about 126% (in MWh) contractual obligations; December 2004 with the sale of 16 compared to 2003 due to contracts thousand average MW, being 9 thousand signed in 2002/2003 with delivery • UTE Canoas – In February and March average MW for the 2005/2012 period at scheduled to begin in 2004. the ONS dispatched supplies form an average price of R$ 57.51/MWh, 5,800 During the year, Petrobras’ Units from the plant to satisfy demand in average MW for 2006/2013 at an average increased their participation by 137%. the Porto Alegre area and between price of R$ 67.33/MWh and 1,200 This led to considerable cost savings May and August, exported electricity average MW for 2007/2014 at an average for the Company amounting to US$ 23 to Uruguay and Argentina; price of R$ 75.46/MWh. A further auction million in 2004.

The stake in nine thermoelectric power plants combines the strategy of expanding the natural gas market as well as ensuring the development of renewable energy and energy efficiency. 52 Annual Report 2004 Petrobras

Petrobras promotes and coordinates projects for upgrading energy efﬁ ciency and supports studies and initiatives for developing renewable energy sources based on wind power, small hydroelectric power plants and biomass.

• UTE Cubatão (CCBS) – The revamping • UTE Fafen – Phase II plant performance of this thermoelectric power plant tests being undertaken. In December, project was approved for meeting approval was given for the acquisition demand for steam and electric energy of EDP’s (Eletricidade de Portugal) 80% two turbo–generators with a capacity from the Presidente Bernardes Reﬁ nery stake, with Petrobras acquiring the of 208 MW. With the conclusion of in Cubatão (SP). Petrobras also began totality of the plant’s shares; arbitration proceedings for the complete basic engineering activities, the revision acquisition of TermoRio, PRS Energia of the project in conjunction with • UTE Ibirité – This plant dispatched energy Ltda.’s shares and rights (7%) were Aneel (the National Electricity Energy to the system in August and September transferred to Petrobras, the Company Agency) and negotiations with the in view of the need for improving the taking over management control. environmental agencies (State of São reliability of local electricity supplies; Paulo Environmental Secretariat – and • UTE Três Lagoas – The contract with Cetesb – São Paulo Environmental • UTE Norte Fluminense – In December, PIC Energy to provide operational and Sanitation Technology Company); Aneel authorized the commercial maintenance services was terminated and start–up of the last generator unit (the these functions transferred to Petrobras, • UTE Eletrobolt – In August, Petrobras’ fourth) with a capacity of 291 MW, representing savings of US$ 181 Board approved the ﬁ nancial conditions thus increasing installed capacity to thousand/month for the Company. for the acquisition of this thermoelectric 800 MW; power plant, to be concluded in early 2005. The Association of Rio de Janeiro • Termoaçu – Approval of terms with Banks is the current owner of Sociedade the joint venture partner, Guaraniana Fluminense de Energia (SFE), Eletrobolt’s S.A. and the resumption of the project; controlling shareholder. This acquisition the Commitment Agreement was will automatically cancel the Eletrobolt signed in September; Consortium’s contracts, the related contingency payments of which were • TermoRio – Aneel authorized the generating losses for Petrobras; commercial start–up of number one and Petrobras Annual Report 2004 53 54 Annual Report 2004 Petrobras

International

The international growth of the Company • Add value to Petrobras’ output of of natural gas was 94 thousand boed, a will be based on the following strategy: heavy oil; total of 262 thousand boed. The Company’s average lifting cost was US$ 2.60/boe. • Achieve leadership as an integrated • Accelerate the monetization of the energy company in Latin America; natural gas reserves; The Company’s proved foreign reserves amount to 1.87 billion boe according to SPE • Expand operations in the United States • Internationalize and increase the criteria and 1.25 billion boe according to sector of the Gulf of Mexico and in visibility of the Petrobras brand. SEC criteria. West Africa; Exploration and Production • Expand Petrobras’ focus areas through In 2004, the average daily production of businesses which contribute to portfolio oil and natural gas liquids (NGL) reached growth and diversiﬁ cation; 168 thousand bpd, while the production

Evolution in Foreign Prodution of Petrobras Energía Production Evolution of Proved Foreign Reserves of Oil, Oil NGL, Condensate and Natural Gas (th. boed) NGL, Condensate and Natural Gas (th. boed) SPE criteria (million boe) 114.5 262 246 1,870 94 1,904 85 891 860 1,123 979 74 71

51.3 717 58 803 168 753 21 26 161 23 540 1,013 1,010 53 45 35 12.8 7.6 6.2 320 177 226 01 02 03 00 01 Peru 02 03 00 04 04 Bolivia Ecuador Argentina Oil, NGL and Condensate Venezuela Oil, NGL and Condensate Natural Gas Natural Gas

CAGR of Oil 45% p.a. CAGR of Oil 55% p.a CAGR of Natural Gas 47% p.a. CAGR of Natural Gas 12% p.a Petrobras Annual Report 2004 55

Evolution of Proved Foreign Reserves of Oil, Unit Lifting Cost of Foreign Production The international Exploration and NGL, Condensate and Natural Gas (US$/bbl) Production area ended 2004 with SEC criteria operations in 12 countries (Angola, (million boe) Argentina, Bolivia, Colombia, Ecuador, 2.61 2.6 United States, Iran, Mexico, Nigeria, Peru, 2.46 2.4 2.58 Tanzania and Venezuela). Petrobras is 2.08 associated with 70 oil companies and owns the rights to 296 blocks, of which it 1,250 1,236 is the operating company in 145. 548

491 515 479 456 In 2004, together with associated 362 360 357 721 702 companies, Petrobras drilled 13 exploratory wells, between wildcat and appraisal wells, 129 96 122 of which ﬁ ve were considered productive, a 38% success rate. Exploratory 01 02 03 00 01 02 03 00 04 04 investments in the international area Oil, NGL and Condensate amounted to US$ 191 million. Natural Gas target 2010 .

CAGR of Oil 53% p.a CAGR of Natural Gas 11% p.a

For more information, access: www.petrobras.com.br 56 Annual Report 2004 Petrobras

Petrobras Energía’s output was particularly as well as the commercial, environmental important with 192.4 thousand boed, and operational safety areas. divided between Argentina (114.5 thousand boed), Bolivia (7.6 thousand Argentina – In 2004, three wildcat wells boed), Ecuador (6.2 thousand boed), were drilled in the Austral Basin situated Peru (12.8 thousand boed) and Venezuela in Santa Cruz Province. Two wells proved making a grand total of 45.5 thousand (51.3 thousand boed). productive. A further 167 production wells boed. In 2004, the fl oor of the Bolivian were drilled. In Argentina, Petrobras is a parliament began debating the new For more information, access: partner in 55 blocks being the operator Hydrocarbons Law. www.petrobras.com.br in 46. Average production was 114.5 thousand boed. In November, the merger Colombia – Petrobras has a stake in 14 Angola – Petrobras has a 15% stake in of EG3, Petroleira Santa Fé and Petrobras contracts, seven of them producing and Block 34, currently in the exploratory Argentina with Petrobras Energia S.A. seven exploratory, and is the operator in phase in water depths from 1,500 to was approved. This will simplify business 12 of them. One wildcat well was drilled 2,500 meters. In 2004, there was no operations, capture operational and tax but was commercially uneconomic. drilling activity although the third and synergies as well as create the basis for A further 42 production wells were last contractually committed well may a single business culture, facilitating completed, 33 of them in the Guando be drilled in 2005. In the Block 2 fi elds Petrobras’ growth in the Southern Cone. fi eld. In 2004, average production was where Petrobras has a 27.5% stake, 16.8 thousand boed. The highlight the Company’s average production Bolivia – The Company is a partner of the year was the signature of the was 10.4 thousand bpd. The Company in eight blocks, and is the operator in Tayrona contract. This marks Petrobras’ signed a Protocol of Intentions with the seven of them. In 2004, no wildcat wells fi rst venture in offshore exploration Angolan state oil company, Sonangol, were drilled. The average daily oil and in Colombia, the Company’s partners covering the areas of joint deep–water natural gas liquids (NGL) output was being ExxonMobil (40%) and Ecopetrol development, training of Angolan 7.5 thousand bpd while natural gas (20%). As operator, Petrobras holds the technicians and technological exchanges, production was 38.0 thousand boed, remaining 40%. The exploratory phase Petrobras Annual Report 2004 57

The international business covers 12 countries and in 2004, was marked by renewed operations in the Middle East after a 20-year interlude with the signing of a contract with the state-owned National Iranian Oil Company.

of the block of about 44,600 square In addition, the Company successfully bid Ecuador – Petrobras Energia operates kilometers could take as long as ten the third largest number of exploratory two blocks with fi elds already at a years. Petrobras also negotiated a 30% blocks in the 192nd bidding round for production development stage. A wildcat stake in the Achira, La Hocha Profundo, exploratory concession areas. The well was also sunk (results of which San Jacinto and Rio Paez blocks and a Company obtained 37 blocks, the majority are still being assessed) together with 25% share in the Upar block, all with being in the Corpus Christi quadrant, in a further fi ve production development Hocol as the operator. which at least three prospects with major wells. In 2004, average production was reserve potential were identifi ed. 6.2 thousand boed. USA – Petrobras America Inc. continued the strategy of consolidating its position in Mexico – In 2004, Petrobras began Peru – Petrobras Energia is a partner the new exploratory frontiers in the Gulf development and production operations in two blocks, one of them exploratory of Mexico, principally in ultra–deep water in Mexico, in consortium with Pemex, the and one production, the company being blocks, investing approximately US$ 130 Company’s share being 45%. During the responsible for operating the latter. million during the year. The discovery of year, eight producing wells were drilled. A further 20 production development the Coulomb North fi eld was particularly wells were drilled during the year. signifi cant with production beginning only Nigeria – The Company has a partnership A more favorable royalty agreement 78 days after its discovery and establishing in four blocks, being the operator in was successfully negotiated with the a new deep–water world production one. In 2004, an appraisal well was Peruvian government resulting in new record at 2,301 meters. Promising results successfully drilled in the Egina fi eld investments in production development. were also obtained from the fi rst appraisal operated by the French company, Total. Average production in Peru was 12.8 well in the St. Malo fi eld in ultra–deep A further two wildcat wells were drilled, thousand boed. waters. The Company is a partner in 222 one of them the fi rst to be operated by blocks, 65 of which, as operator. In 2004, Petrobras in deep waters outside Brazil. Venezuela – Petrobras operates six average production was 5.1 thousand This well broke the record for both total blocks, of which four are in production boed. Petrobras acquired a stake in the depth and water–depth in Nigerian and two are exploratory. In 2004, two Treasure Bay project, which is made up operations. Four production wells were wildcat wells were drilled, the results of of 60 concession blocks in the US sector successfully drilled in the Agbami fi eld, which are still being assessed. of the Gulf of Mexico. Treasure Bay operated by ChevronTexaco – one of the A further 24 production development represents a project to test ultra–deep two mega fi elds in which Petrobras is a wells were also drilled. Average exploration in the shallow waters of the partner and due to go into production production of oil and NGL in Venezuela area. This project represents a new from 2008. was 47.0 thousand boed as well as 4.3 high–potential frontier where production thousand boed of natural gas, a grand infrastructure is already on site. total of 51.3 thousand boed. 58 Annual Report 2004 Petrobras

Tanzania – Petrobras signed a Production provides for the study and development block and will use this new relationship Sharing Contract with the Government of business opportunities in partnership, as a bridgehead for identifying new of Tanzania and Tanzania Petroleum including joint deep–water oil opportunities in other countries of the Development Corporation (TPDC), the exploration and the future production, region in addition to Iran itself. state oil company, for the exploration of commercialization and supply of oil as The contract will be managed by the Block 5 with 9,250 square kilometers in well as the supply of infrastructure for Iranian branch of Petrobras Middle East waters between 300 and 3,000 meters oil and gas transportation and to the B.V., constituted in Tehran in October 2004. deep in the Maﬁ a Basin. The exploration reﬁ ning and petrochemical areas. contract could run for up to 11 years. In 2005, further seismic surveys are to be Iran – Petrobras signed a contract with PETROCHEMICALS AND FERTILIZERS made. Should interest still remain, the the Iranian state oil company, National contract can be extended for two more Iranian Oil Company (NIOC), for the Argentina stages with a commitment to drill a exploration of the Tusan Block in the These operations are concentrated on four wildcat well during each stage. shallow waters of the Iranian section operational units of Petrobras Energia. of the Persian Gulf. This contract marks The company is the only producer in the China – In May 2004, Petrobras signed the Company’s return to the Middle East country of styrene butadiene rubber (SBR), a Strategic Cooperation Agreement after 20 years, and to Iran itself, where polystyrene and urea + ammonium nitrate with Sinopec, one of the three state it operated previously in the seventies. – UAN. oil companies in China. The Agreement The Company holds a 100% stake in the

Refi ning There are fi ve refi neries in Argentina and In 2004, the combined throughput of The consolidated operational cost of Bolivia with a nominal capacity of 136.4 these plants was about 63% of nominal foreign refi ning was US$ 1.21/bbl, thousand bpd and an average throughput capacity. The low Utilization Factor excluding Refi nor. of 106 thousand bpd. refl ects the characteristics of Bolivian oil.

In Argentina, the Company operates two refi neries: Ricardo Eliçabe, in Bahía Blanca Unit Cost of Foreign Refi ning Processed Throughput (Buenos Aires Province), and San Lorenzo (US$/bbl) (th. bpd) (Santa Fé Province); it also holds a 28.5% 100 shareholding in the Del Norte Refi nery 1.21 1.2 1.15 1.17 94 (Refi nor) in conjunction with Pluspetrol

(21.5%) and YPF (50%). 0.94

In Bolivia, Empresa Boliviana de Reﬁ nación 62 (EBR) – in which Petrobras’ stake was increased to 100% with the acquisition of Perez Companc – is the owner of the 30 30 Gualberto Villaroel (Cochabamba) and Guillermo Elder Bell (Santa Cruz) reﬁ neries. 01 02 03 00 01 02 04 03 04 target 2010 Petrobras Annual Report 2004 59

It is also the only manufacturer of bioriented was commissioned, thus expanding the was US$ 7 million, including the polystyrene – BOPS – in South America. company’s range of liquid fertilizers. necessary infrastructural adaptations and The investment was US$ 7 million. the construction of two pipelines. • Puerto General San Martin – integrated units for the production of ethylene • Petroquímica Cuyo – a polypropylene Brazil (30,000 t/year), ethylbenzene (140,000 plant (90,000 t/year). This is a very ﬂ exible Innova, a wholly owned subsidiary of t/year), styrene (110,000 t/year) and unit, which is being used to increasingly Petrobras Energia, located in the Rio SBR rubber (58,000 t/year) and nutrile produce special grade higher value added Grande do Sul Petrochemical Complex, rubber – NBR (3,000 t/year). polypropylene. Petrobras holds a 40% has integrated units for the production stake in this business. of ethylbenzene (190,000 t/y) styrene • Zárate – integrated units for the (180,000 t/y) and polystyrene (120,000 t/y). production of polystyrene (65,000 t/year) An ethylene unit with a 20,000 t/y The company accounts for 42% of Brazil’s and BOPS (14,000 t/year). capacity was acquired from ICI. installed styrene capacity (the largest Production is transferred along a new producer) and 19% of its polystyrene. • Campana – integrated units for the pipeline to the Puerto General San Martin production of ammonia (two plants Unit allowing ethylbenzene output to with capacities of 280 t/d and 90 be increased to 190,000 t/y, 80,000 t/y t/d), urea (580 t/d) and UAN (1,500 of which is exported to Innova, in turn t/d). In November, the ammonium allowing styrene production to be ramped thiosulfate unit (capacity for 370 t/y) up to 250,000 t/y. The total investment

Installed Capacity Processed throughput Reﬁ nery Feedstock (th. bpd) (th. bpd)

Argentina Bahía Blanca 30.5 Medanito and Maria Inês 29.8 San Lorenzo 37.7 Medanito and Maria Inês 33.4 Salta/Del Norte (*) 28.0 Condensates and Palmar Largo 17.4 Bolivia Santa Cruz 20 Bolivian blend 15.9 Cochabamba 40 Bolivian blend 21.9 (*) Petrobras’ shareholding is 28.5% (equivalent to 7.9 thousand bpd installed capacity and 4.96 thousand bpd processed throughput). 60 Annual Report 2004 Petrobras

DISTRIBUTION

Argentina

Number of Controlled networks service stations

Petrobras 330 EG3 337 SL –San Lorenzo 60 TOTAL 727 Note: In addition, there are service stations exclusively for CNG (Compressed Natural Gas ) sales, 19 with the EG3 ﬂ ag and 5 with the Petrobras ﬂ ag.

The most important investment in the In June, the Company launched the The fi rst wind–powered service station in distribution area in Argentina was the Petrobras Podium gasoline, the fi rst the Company’s international operations continued project for consolidating the RON 100 octane fuel in the market. was opened in the city of Comodoro Petrobras brand at the service stations The fuel was developed with the same Rivadavia. In August 2002, the Company previously operating under the EG3 and technology used for fuel supplied to the had already begun operating a solar SL–San Lorenzo fl ags. During the year, BMW Williams racing team. The launch energy–powered service station in total sales volume was 43 thousand ceremony was at the Buenos Aires Race Buenos Aires. Both are symptomatic bpd, with the service station network Track in the presence of Formula 1 of the concern for developing projects, accounting for 21.8 thousand bpd. driver, Juan Pablo Montoya. The fuel is which combine profi tability with the Petrobras’ share of the automotive produced at the San Lorenzo refi nery and commitment to social responsibility, fuel market was 14.7%. Sales of Lubrax was developed by both Argentine and preserving the environment and health. lubricants were 22,534 m3, 20% more Brazilian technicians. than 2003, and representing an 8.1% market share.

Overseas refining and distribution activities, comprising five refineries with a nominal capacity of 135,400 bpd and 830 service stations in Argentina and Bolivia, enhance the strategy of seeking leadership in Latin America as an integrated energy company. In 2004, sales of Lubrax lubricants to these two markets increased while Petrobras Podium gasoline was launched in Argentina, the first 100 RON octane fuel in the country. Petrobras Annual Report 2004 61

In 2004, the average sales volume in At the end of 2004, the Universitário supplying thermoelectric power plants. Bolivia was 6.46 thousand bpd. service station was opened – owned By contrast, in Bolivia, sales are almost The Company operates 103 service and operated by Petrobras – and entirely in the form of exports to Brazil stations (40 under the Empresa Boliviana recommended for ISO 14001 and OSHAS along the Bolivia–Brazil Gas Pipeline de Refi nación – EBR fl ag and 17 under 18001 certifi cation, thus becoming the (Gasbol). A further development has the Petrobras brand). During the year, fi rst in the international area to adhere been the start of Bolivian gas exports to seven Spacio 1 convenience stores were to the criteria of excellence in safety and Argentina in June 2004. Initial volume opened. environmental preservation. amounted to about 1.0 million m3/day – considering the Petrobras portion only. The Company proceeded apace with the Gas and Energy strategy of differentiating its service In 2004, Petrobras sold an average of stations through the opening of Spacio 14.8 million m3/day through its foreign 1 stores and Lubrax Center units, operations. In Venezuela and Peru, sales Commercialization of natural gas consolidating its position as the leading were of gas produced from Petrobras (volume carried) in millions of m3/day distributor in the Bolivian market with a Energia’s own oil production facilities. 25% share. Bolivia 6.1 Sales in Argentina are conducted through Argentina 7.8 The year also saw sales of Lubrax, short and medium term contracts with Venezuela 0.7 lubricants increasing their market industries and regional distributors Peru 0.2 penetration from 4% in 2003 to 12%. in Argentina and Chile, as well as for

Bolivia

Networks controlled Number of by Petrobras service stations

Petrobras 17 EBR 40 Unbranded 46 TOTAL 103 62 Annual Report 2004 Petrobras

In 2004, exports of Bolivian gas to Argentina began, the San Marcos gas pipeline was concluded in Bolivia, built entirely with Petrobras capital, and Conecta, a natural gas distribution company in Uruguay, was acquired.

Argentina 2.9 million m3/day along a 495–kilometer Bolivia Petrobras has a 34% stake in the capital section in 2005 to meet growing demand In Bolivia, the Company’s most of Companhia Mega, which operates a from the Argentine market. important enterprise is the Yacuíba natural gas separation unit in Loma La to Rio Grande pipeline, a 32–inch Lata (Neuquén province), a 600 kilometer Petrobras’ electricity assets in Argentina diameter gas pipeline, 431 kilometers oil products pipeline, a fractionation unit encompass the entire production chain. in length. The pipeline, which began in Bahía Blanca (Buenos Aires province), Petrobras has 6.5% of the country’s operating in April 2003, is owned and as well as tankage and export shipping generation capacity through its stake operated by Transierra S.A., a company facilities. In 2004, the company sold in three power plants, two of which are in which Petrobras has a 44.5% stake. 1,429 thousand tons of products (ethane, hydroelectric (Piedra Del Águila and The pipeline serves production from butane, propane and gasoline), with gross Pichi Picún Leufú) and one, a the San Alberto and Sábalo fields sales revenue of US$ 539 million. gas–fired thermoelectric plant and currently has a capacity to carry (Genelba). Transener is the principal up to 17 million m3/day, ramping up Petrobras also has a stake in electricity transmission company in to 23 million m3/day once one more Transportadora de Gás del Sur (TGS), Argentina, representing 95% of the compressor station is concluded. which owns 7.4 thousand kilometers of high–tension transmission lines. On the gas pipelines with a capacity of 62 million distribution front, Petrobras’ stake in In 2004, the San Marcos pipeline was m3/day. The company has a natural gas Edesur gives it a presence in the central concluded with construction costs processing plant in Bahía Blanca with region of Buenos Aires, an area with totally funded by Petrobras. a 42 million m3/day capacity. Plans are more than 2.1 million clients and more The pipeline began its activities in underway for expanding TGS’s capacity by than 6 million inhabitants. 2004, carrying gas to industrial clients Petrobras Annual Report 2004 63

in the city of Puerto Suárez. Petrobras a length of 300 kilometers and exclusive the remaining 45% of Conecta’s capital. also has a stake in the Rio Grande agreements to supply small and medium– At present, Conecta has 4,200 clients, Compressor Station, located at the size consumers (up to 5,000 cubic meters of which 4,100 are residential. It is head of the Bolivia–Brazil gas pipeline, daily) to the upcountry areas of Uruguay, estimated that this number represents with a capacity of 43.8 million m3/day, excluding the capital, Montevideo. no more than 10% of the market and two gas processing units in the San potential adjacent to the company’s Alberto and Sábalo ﬁ elds, each with a This acquisition, worth US$ 3.2 million distribution network in the cities of processing capacity of 13 million m3/day. was negotiated with the Spanish group Paysandu and Ciudad de la Costa. Unión Fenosa through the purchase Annual sales are currently running at Uruguay of the participation of the latter’s about US$ 2.7 million. The Company began activities in Uruguay subsidiaries, Gaufil and Lufirel of 30% with the acquisition in December of the and 25%, respectively, in the voting shareholding control (55%) of Conecta S.A., capital of Conecta. Administración a natural gas, LPG and manufactured gas Nacional de Combustibles Alcohol y distribution concessionaire. The company Portland (Ancap), a Uruguayan state operates a pipeline network, presently with controlled company, continues to hold 64 Annual Report 2004 Petrobras

Business Performance ...... Risk Management ...... Capital Markets ...... Intangible Assets ...... Social and Environmental Responsibility ...... our Corporate Governance ...... company Business Performance

The growth in Brazilian Gross Increased revenue Net operating revenue from the Gas and Domestic Product in 2004 was 5.2%, much The Company’s gross operating revenue Energy area reported an especially strong above the fi gure for previous years. This reached US$ 51.9 billion, 22% higher performance, increasing by 37%, the result refl ected positively in Petrobras’ domestic than reported in 2003. Increased oil and of higher volumes of natural gas sales sales volume with an increase of 19% in oil product prices in the domestic and and increased energy generated by the natural gas sales and 6% in oil products. overseas markets together with a 6% hike thermoelectric plants in which Petrobras in domestic sales volume, both contributed has a stake. Crude oil prices were very volatile in 2004, to this result. with Brent rising to an average of Operational results US$ 38.21, and impacting directly on costs Net operating revenue reached US$ 37.4 Oil and natural gas production reported of raw materials, of lifting of domestic billion, a year–on–year growth of 22%. a fall of 1% compared with 2003, oil and on imported oil, which This result refl ected higher sales volume principally the result of operational represented an average of 24% of in the domestic market; higher realization problems depressing production below processed crude throughput. prices in the domestic and overseas market; 2003 levels for the greater part of the the offshore sales of Petrobras International year. These problems were occasioned by The Company adopted a policy of Finance Co. (Pifco); increased foreign oil the delay in the start–up of operations avoiding an immediate pass–through and gas production; positive sales trends of of the P–43 and P–48 platforms and of price volatility to the consumer, as a Petroquisa’s subsidiaries; and an enhanced the Marimbá Field sub–sea production result, operating income remaining at the LPG market share following the acquisition manifold system. similar levels to 2003. of Liquigás Distribuidora. Petrobras Annual Report 2004 65

...... 64 ...... 67 ...... 72 ...... 76 ...... 88 ...... 106

Foreign oil and gas production grew Consolidated net operating revenues by 7% in relation to 2003, reaching an average of 263 thousand boe/day. grew 22%, reaching US$ 37.4 billion,

In 2004, processed throughput of crude reflecting a 6% increase in domestic in Brazil and overseas amounted to 1,804 thousand bpd, 7% more than in the sales volume and an increase in oil preceding year. This improvement can be ascribed largely to the modernization and oil product prices both in Brazil and expansion of the Rlam, Revap, Regap and Replan reﬁ neries in 2003 leading to and overseas. Increases in overseas a better operating performance in 2004. It also enabled oil product inventory to be sales and production, revenues from replenished and used during programmed stoppages, as well as providing buffer companies controlled by Petroquisa stock for meeting demand during future stoppages. Increased domestic consumption and a higher share of the LPG market in Brazil further contributed to this growth. with the acquisition of Liquigás Distribuidora, all further contributed to this performance. 66 Annual Report 2004 Petrobras

The Company’s pricing policy during the year of avoiding the immediate pass-through of international oil price volatility to the domestic consumer, kept operating profits at the same level as the 2003 fiscal year.

Financial–economic results commercialization, petrochemicals and Operating income was US$ 10.6 billion, transportation as part of the process of 4% more than in 2003 due to the adding value to the Petrobras Group’s raw increase in net operating revenue (22%), materials (oil and gas), the focus being on despite a growth of 32% in the cost of a higher value–added and better quality goods and services sold. product mix. Petrobras dedicated a further US$ 727 million to the international area, The ﬁ nancial result was a negative in line with its objective of achieving US$372 compared to US$136 million in leadership as a Latin American integrated 2003, mainly due to Increase in ﬁ nancial energy company. expense resulting from PEPSA's hedge operations (US$233 million), as well as a loss on repurchases of our own Capital Expenditures (US$ million) securities (US$137 million).

5,000 Capital expenditures Petrobras invested US$ 7.7 billion, in 4,000 accordance with its Strategic Plan and

18% more than 2003. 3,000

The Company allocated US$4.6 billion 2,000 of investment to the Exploration and Production (E&P) business area, largely 1,000 applied in increased production and for augmenting oil and gas reserves. A further 0 US$1.4 billion was directed to reﬁ ning, 01 02 03 04

E&P Downstream G&E International Distribution Others Petrobras Annual Report 2004 67

Risk Management

• Produce cheaply – capital discipline In 2004, the Company instituted a communication with the Board of ensures competitive costs for all Risk Management Committee made up Executive Offi cers and the Board products sold in the market; of representatives of management from of Directors on aspects relating to all areas of the business and the various requirements of the Sarbanes–Oxley Act • Future investments are decided on corporate areas. The objective of the and best corporate governance practices. a realistic basis by seeking a balance Committee is to ensure the integrated between profi tability, growth and the administration of risk exposure and For more information, access: strategic compliance of the project to formalize the principal guidelines www.petrobras.com.br portfolio on the one hand, while for managing the uncertainties of the preserving the liquidity and solvency Company’s activities and see that growth of the Company’s balance sheet and opportunities can be maximized even Policy for managing fi nancial risks creating the essential conditions for under external adverse conditions. The philosophy behind the policy on sustainable growth, on the other; managing fi nancial risk is to guide The purpose of the committee is to decisions on risk transfer and is sustained focus information and discussion of by actions based on capital discipline and risk management initiatives, facilitating debt management. These actions are: 68 Annual Report 2004 Petrobras

• Prudent management of debt, seeking isolated initiatives on the part of the • The highest standards of transparency to match the operational cash fl ows Business Units that do not contribute to in disclosing the Company’s potential with debt amortizations, taking into the optimization of corporate risks; exposure. account amounts, currencies, maturities and indexes, and consequently reducing • Respect for the concepts of market the risk of insolvency. effi ciency and diversifi cation. Petrobras is aware that it operates in some of Other important characteristics in risk the most liquid markets in the world management are: where the possibility of systematically predicting prices is very limited. As a • Integrated management of market result, the Company’s risk management risks that quantifi es total exposure, is focused on avoiding extremely identifi es natural hedges and acts on adverse events rather than minimizing net Company exposure, while avoiding oscillations in results, cash fl ow, etc.;

Risk assessment derivatives, additional funding and options. These mechanisms are always The risk assessment of the fi nancial optimization of the disbursement profi le. linked to effective transactions in the feasibility of the Company’s strategic physical market and are not held or plan is based on probability analysis Transactions using derivatives are not issued purely for trading purposes. of projected cash fl ows for a two–year limited to the processes described above, period. The economic–fi nancial projections but are also important tools for protecting In 2004, hedging operations accounted are up–dated annually in conjunction with transactions and in the matching of assets for 33.06% (40.5% in fi scal year 2003) the review of the strategic plan. and liabilities. of the total volume transacted (imports and exports). The model used for quantifying risk Specifi c treasury exposure to fi nancial (Cash Flow at Risk) considers the variations investments is assessed using value at risk In line with specifi c business conditions, in key factors that have the most impact (VaR). The economic results of projects Petrobras may exceptionally transact on cash generation – namely, prices, worth more than US$ 25 million are long–term hedge operations. A case in amounts (production and markets), foreign examined on the basis of evaluation models point involves the sale of put options exchange and interest rates. appropriate to each business segment using on 52 million barrels of West Texas Monte Carlo Simulation methods. Intermediate (WTI) oil for the period In essence, cash balances are projected 2004 – 2007. The puts were written to under an infi nite number of scenarios Oil and oil product market risks – establish a price protection mechanism involving the principal risk factors using As with all its peers, Petrobras is subject for this quantity of oil to ensure that the Monte Carlo Simulation analysis. The cash to the international price volatility of fi nancial institutions participating in the balance is estimated for the intended the energy market (principally oil), which fi nance of the Barracuda/Caratinga project confi dence level and then periods in can materially affect cash generation. receive the price required to generate the which the balance may be lower than the minimum debt service coverage. minimum, analyzed. Petrobras’ policy consists basically in protecting import and export margins Petrobras Energia Participaciones S.A. Among the alternatives that could be for specifi c short–term positions (Pepsa), a crude oil producer has recourse adopted for preserving the minimum (six months at the most) using hedging to several fi nancial derivative instruments predetermined cash balance are fi nancial mechanisms such as futures, swaps and using WTI prices as their benchmark. Petrobras Annual Report 2004 69

The Risk Management Committee, instituted in 2004, centralizes information and discussion of risk management actions as well as implementing guidelines for managing uncertainty and ensuring that growth opportunities are to be fully maximized even under unfavorable conditions.

In 2004, hedge operations were Interest rate risks – The interest rate market risk. Credit risk is the failure of the transacted for a volume of oil risk that the Company runs depends counterparty to perform under the terms sold to third parties amounting to on its long–term debt and, to a lesser of the derivative contract. Market risk is approximately 8 million boe. degree, short–term debt as well. the adverse effect on the value of the Floating rate debt in foreign currency fi nancial instrument that results from a Foreign Exchange Risk – A considerable is subject principally to fluctuations in change in interest rates, foreign exchange part of the Company’s total debt and Libor, and debt in Reais at fluctuating rates or commodity prices. Petrobras future operational cash fl ow is in dollars rates of interest is subject principally addresses credit risk by limiting its or strongly indexed to the dollar. to the long term interest rate (TJLP), counterparties in such fi nancial derivative For this reason, Petrobras does not have periodically announced by the Brazilian instruments to fi rst class fi nancial an excessively large exposure to foreign Central Bank. Currently, the Company institutions. Market risk is managed by the exchange risk. does not employ derivative instruments Company’s executive offi cers. to manage its exposure to fluctuations The Company does not hold or issue Depending on a case–by– case basis, the in interest rates. The only exception fi nancial instruments for trading purposes. use of derivatives is limited to mitigating is the Company’s indirect subsidiary exposure in relation to other currencies Petrobras Energía Participaciones S.A. Credit risk such as the Euro and the Yen. (Pepsa), which uses various financial In 2004, Petrobras implemented a new derivative instruments to reduce certain system of credit analysis called In 2000, Petrobras contracted hedge exposure to interest rate volatility. Credit Flow as well as instituting two operations to cover Notes issued abroad Credit Committees: Downstream in Italian lira and Austrian schillings as a Derivative instruments and Natural Gas and Energy. These means of offsetting the appreciation of The Company uses derivative and committees are forums for discussing these currencies against the US dollar. non–derivative instruments to implement various aspects relating to the concession its overall risk management strategy. and management of credit. The transaction related to the loan in However, by using these instruments, schillings expired in December. Petrobras exposes itself to credit and 70 Annual Report 2004 Petrobras

A new credit analysis system was introduced to support two credit committees created during the year.

Insurance market. Additionally, pertinent information, international freight movement is In 2004, the Company was able to such as losses, their causes and covered by national and international successfully reduce the fi nal premium improvements made, are promptly passed transportation policies. Petrobras’ fl eet paid on its principal policies: major onto the insurance market, providing total is covered by hull and engine insurance fi re/operational risk and petroleum risk. transparency to Company risk. policies. Civil liability and environmental The premium fell from US$ 31.9 million risks, as the case may be, are covered by in 2003 to US$ 25.2 million in 2004, a In the light of the commitments one or more policies with limits compatible nominal reduction of 21% under similar and investments made in the Safety, with companies of a similar size. coverage conditions. Over the same Environment and Health (SMS) and period, the insured value went up 28%, Quality areas, Petrobras, like other oil Projects and installations are insured from US$ 20.8 billion to US$ 26.6 billion. companies of a similar size, has opted to against construction risks through a retain a signifi cant portion of the risk, policy taken out by Petrobras or the The larger part of Petrobras’ risk is laid which includes increasing deductibles to contractor, as appropriate. off in the international reinsurance as much as US$ 20 million. market. For this purpose, the Company For insurance purposes, the Company’s maintains a permanent policy of As part of this policy, the Company does assets are valued at replacement cost, disclosing the quality and practices of its not insure against lost profi ts neither evaluated by the Company and/or risk management through road shows does it insure wellhead controls nor the appraisal companies depending on each and periodic contacts with the market pipeline network. individual situation. In order to calculate in Brazil and overseas. The Company’s the maximum probable damages at each installations are regularly inspected by All installations – including refi neries, installation (under various hypotheses independent companies and the results platforms and terminals – are insured and scenarios) in the case of a claim, and remedial actions taken to meet any against major fi re/operational and Petrobras uses a proprietary program or recommendations are disclosed to the petroleum risk. Both national and appraisals by outside consultants. Petrobras Annual Report 2004 71

The assessment of the maximum probable Environmental matters damages sets a base for the Maximum Petrobras is subject to various Indemnity Risk (LMI) for major fi re/ environmental laws and regulations operational risk policies of US$ 600 million. which discipline the movement of oil, gas and other materials. These laws and Overseas activities are insured or regulations establish that the Company reinsured almost entirely by the captive must correct or mitigate the impact insurance company, Bear Insurance Co. of its operations on the environment. Ltd., domiciled in Bermuda. Bear retains Management believes that eventual none of the risk, laying it off completely expenses for correcting or mitigating in the market. possible environmental impacts should Operational Risk and not have a signifi cant effect on Company Petroleum Risk Policy Legal actions and contingencies operations or its cash fl ow. Given the dimension of its activities, Petrobras is subject to different legal 50.5 actions of a commercial, labor and fi scal 38.7 nature. Petrobras minimizes these risks 31.9 26.6 by complying rigorously with all the legal 20.4 20.8 19.4 17.9 provisions of the various aspects involved 25.2 8.1 with its businesses. In the case of legal actions in progress, the Company has recourse to the courts to defend itself and reverse unfavorable decisions. 01 02 03 00 04

Final Premium (US$ Million) Insured Value (US$ Billion) 72 Annual Report 2004 Petrobras

Capital Markets

Share performance Effective Accumulated Appreciation (*) While oil company share prices rallied strongly in 2004, according to the Amex 1,165% Oil Index (XOI) increasing by an average 1.200 of 28%, Petrobras’ ADRs (PBR and PBRA) 1.000 – traded on the New York Stock Exchange – appreciated more sharply still at 36% 800 692% and 35.8%, respectively. The Dow Jones 600 Industrial Index rose only 3.15% during 480% the year. 400 262% 240% In Brazil, the São Paulo Stock Exchange 200 97% (Bovespa) recorded an average 48% 13% 5% 13% 12% -17% appreciation of 17.8%, while Petrobras 0 common ON and preferred PN shares 15 years 10 years 5 years 1 year rose 26.6% and 27.2%, respectively. The Company’s market capitalization at Ibovespa Petrobras PN Petrobras ON the end of the year was US$ 42 billion. (*) The IGP–DI was used as a deﬂ ator.

(Dec/89 to Dec/04) (Dec/94 to Dec/04) (Dec/99 to Dec/04) (Dec/03 to Dec/04) Effective Appreciation 15 years 10 years 5 years 1 year Petrobras ON 1,165.7% or 18.4% p.a. 480.2% or 19.2% p.a. 48.0% or 8.2% p.a. 12.9% Petrobras PN 692.6% or 14.8% p.a. 240.1% or 13.0% p.a. 13.8% or 2.6% p.a. 13.4% Ibovespa 262.0% or 9.0% p.a. 97.6% or 7.0% p.a. -17.1% or -3.7% p.a. 5.1%

PETROBRAS shares and ADR indicators

ON PN PBR PBRA 12/31/2004 R$ 106.50 R$ 97.15 US$ 39.78 US$ 36.21 Closing price on 12/31/2003 R$ 84.10 R$ 76.40 US$ 29.24 US$ 26.66 2004 30.50 99.61 42.85 23.33 Daily average volume (*) 2003 19.59 63.81 20.82 12.05 2004 R$ 92.95 R$ 83.88 US$ 32.01 US$ 28.82 Average price 2003 R$ 60.83 R$ 56.19 US$ 20.11 US$ 18.57

Average number of 2004 396 1,401 daily transactions 2003 262 974 2.68 9.28 Participation in IBOVESPA 2.46 8.36 (*) Average daily volumes of ON and PN share are expressed in R$ million and ADRs in US$ million.

For more information, access: www.petrobras.com.br Petrobras Annual Report 2004 73

Economic Context – Shares 12/31/2002 06/30/2003 12/31/2003 06/30/2004 10/31/2004 12/31/2004 MV: R$ 54.5 bi MV: R$ 58.8 bi MV: R$ 88.7 bi MV: R$ 90.0 bi MV: R$ 109.6 bi MV: R$ 112.5 bi PETR3: R$ 52.8 PETR3: R$ 55.6 PETR3: R$ 84.1 PETR3: R$ 85.7 PETR3: R$ 103.4 PETR3: R$ 106.5

Effects of increases in international oil prices, uncertainty on investments in Brazil, possibility of strike, negative repercussions of diesel and gasoline Diesel and gasoline price increases Reduction in infl ation FPSO Brasil–Marlin price increases forecasts and improvement begins operations 132% Corporate fi nancing (06/14) Increase in Selic in balance of payments rate: 0.5% (10/20) One of the principal events of 2004 was 109% the increase in Petrobras’ rating by the Merger AMBEV/ international risk rating agencies. Interbrew 102% In December, the Company was classifi ed

Further diesel and at only one notch below investment gasoline price grade, leaving it well placed to raise future increases (11/26) funding in the international markets under New external funding Diesel and gasoline with lower spreads than price increases Substantial shortfall in prices more advantageous conditions. sovereign bond issues (10/14) of oil products in Brazil as compared with international Announcement of prices. Divergence between Increase in Selic In 2004, Petrobras renewed its strategy of new oil discoveries Company shares and Ibovespa rate: 0.25% (09/15) using a combination of funding sources to ﬁ nance its activities. With the quality of its credit recognized by banks, capital 10/31/04 10/31/03 12/31/02 08/31/04 08/31/03 12/31/03 02/29/04 02/28/03 04/30/04 06/30/04 04/30/03 06/30/03

12/31/04 markets investors and rating agencies Petrobras PN Petrobras ON Ibovespa alike, the Company was able to obtain

Market Value calculated on the basis of prices of common (PETR3) and preferred (PETR4) shares listed on Bovespa. more competitive conditions than had been the case in previous years. Source: Bloomberg

Economic Context – Shares The Company’s strong cash position 12/31/2002 06/31/2003 12/31/2003 06/30/2004 10/31/2004 12/31/2004 reduced the need to go to the market and MV: US$ 15.5 bi MV: US$ 20.7 bi MV: US$ 30.9 bi MV: US$ 29.3 bi MV: US$ 38.8 bi MV: US$ 42.0 bi PBR: US$ 14.9 PBR: US$ 19.8 PBR: US$ 29.2 PBR: US$ 27.8 PBR: US$ 36.6 PBR: US$ 39.8 the total of new funding during the ﬁ scal year – US$1,873 billion – was 29% less Speculation on the beginning Speculation on Country risk and duration of the war increase in US and dollar fall; than in 2003 but at more attractive costs Announcement of primary interest rates and speculation as to surplus, positive trade balance slower growth in higher growth in the and maturities. and economic acceleration. Fall China. Increase in Brazilian GDP in Brazil country risk Brazilian risk 166% 03/18/2003 Beginning of Reduction in inﬂ ation the war in Iraq forecasts and improvement in balance of payments Announcement of increase in gasoline and diesel prices Russia is increased to 61% Investment Grade 29%

382 10/31/03 10/31/04 12/31/02 08/31/03 12/31/03 08/31/04 02/29/04 02/28/03 04/30/04 06/30/04 04/30/03 06/30/03 12/31/04 Amex Oil Index PBR Dow Jones Industrial Brazil Risk (JP Morgan’s EMBI)

Source: Bloomberg 74 Annual Report 2004 Petrobras

Transactions with the offi cial EDC for US$ 125 million to fi nance Commercial credit lines credit agencies Canadian goods and services. Petrobras, Pifco, Brasoil, PEB and EBR During the year, Petrobras drew down raised a total of US$ 650 million in the US$ 129 million of fi nancing guaranteed BNDES operations international markets, 37% less than in by export credit agencies (ECAs) against During the year, Petrobras Netherlands 2003, when funding amounted to US$ 1,028 contracts signed in previous years. B.V. signed buyer’s credit worth billion. This reduction is once again a refl ection US$ 378.5 million from the BNDES, to of the Company’s favorable cash position. Petrobras Netherlands B.V. (PNBV) signed a fi nance Brazilian goods and services for European Multi–source Facility Agreement the construction of the P–52 platform. In 2004, Petrobras continued its policy of with BNP Paribas and guaranteed by the extending the debt maturity profi le. export credit agencies of Norway, United Bank guarantees Of the total fi nance raised, US$ 535 Kingdom and Italy (GIEK – Garanti– Bank guarantees contracted by Petrobras, million (82%) was for maturities from Instituttet for Eksportkdreditt, ECGD and Petrobras International Finance Company two to seven years and the remainder of Sace Servizi Assicurativi del Commercio (Pifco) and Brasoil amounted to US$ 115 million (18%) at terms of up Estéreo, respectively) for US$ 280 million to US$ 1,926 billion in 2004, against to 360 days. In 2003, these percentages fi nance the purchase of goods and services US$ 1,176 billion in 2003. These bank were 25% and 75%, respectively. from those countries for the construction guarantees supported oil and oil product of the P–51 and P–52 platforms. imports and exports (58%), as well as Out of the total new funding of performance and bid bonds (42%) for US$ 650 million in 2004, US$ 590 The Company also signed a credit line various areas of the Company. million (91%) was used to support the with the Canadian export credit agency commercialization of oil and oil products. The remaining US$ 60 million (9%) was for specifi c operations at the subsidiaries.

Structured Projects

Projects Year Structured Value USD Million Marlim 1998 1,500 Albacora 2000 410 Barracuda Caratinga 2000 3,100 Cabiúnas 2000 850 Espadarte, Voador and Marimbá (EVM) 2000 1,078 Novamarlim 2001 834 Pargo, Congo, Garoupa, Cherne and Carapeba (PCGC) 2001 92 Malhas 2003 1,000

Note: The CLEP project, structured in 2003, worth USD 1,760 million was not included since funds were raised through PIFCO.

New Projects Currently being Structured

Projects Value USD Million Master Plan for Delivery and Treatment of Oil from the Campos Basin 900 Malhas Expansion Project 900 Urucu–Coari–Manaus Gas Pipeline and the Manaus Thermoelectric Power 1,000 Expansion of Revap Reﬁ nery 800 Construction of P–53 Platform 1,000 Gasene 1,300 Petrobras Annual Report 2004 75

Structured operations international market maturing in 2014 Since 1997, Petrobras has used this form Financing – Continuing the trend in with a coupon of 7.75% p.a. and with of funding to fi nance major projects in 2003, the capital markets continued good investor acceptance. the Exploration and Production area. to be among the principal channels of Among these is the complementary fi nance for Petrobras, the so–called high Structured Projects – Petrobras obtains development of oil production in the grade, high yield and emerging markets’ additional fi nancial resources in the Marlim fi eld and more recently, projects global investors being particularly domestic and international market for the lifting and transportation of important sources. Once more, this is through project fi nance operations, thus natural gas. At the end of 2003, the indicative of the recognition of the credit complementing its corporate funding sources. Company concluded the structuring quality and the broad–based acceptance of the Malhas Project (Projeto Malhas) of the Company by the international Using fi nancial engineering based on for fi nancing the construction of a capital markets. future cash fl ow, the Company arranges network of pipelines and citygates for the funding for the projects from investors delivery of natural gas to the Southeast In September, Petrobras International and fi nanciers through the medium Finance Company (Pifco) issued of Special Purpose Companies (SPCs), US$ 600 million in Global Notes in the specifi cally set up for each project.

The increase in credit rating to just one notch below investment grade, places the Company in an advantageous position for future funding operations.

and Northeast Regions. The Project’s be spent on optimizing the delivery of oil harnessed on an economically viable increased scope is currently being produced in the Campos Basin totaling basis. In addition, the project for the negotiated and will involve additional 630 thousand bpd. construction of the Gasoduto fi nance of US$ 900 million over and Sudeste–Nordeste (Gasene), responsible above the US$ 1 billion fi nancial package In 2004, the Company also began for connecting the pipeline systems of already concluded. negotiations for the structured fi nancing the Southeast with the Northeast regions, of the Urucu–Coari–Manaus Gas Pipeline will involve fi nance of approximately The structuring of the Master Plan for Project and the Manaus Thermoelectric US$ 1.3 billion. Delivery and Treatment of Campos Basin Power Plant. Investments will be Oil (PDET) is in its fi nal stages. Funding approximately US$ 1 billion and will All the projects are structured in for implementing the Plan is worth allow natural gas from the Solimões compliance with Brazilian accounting approximately US$ 900 million and will Basin in the Amazon Region to be rules and legislation, Petrobras always seeking to minimize the company resources used and guarantees required. 76 Annual Report 2004 Petrobras

Intangible Assets

Competitive advantages give Petrobras an outstanding position in its chosen markets and allow it to compete effectively in the domestic oil and gas sector. Petrobras Annual Report 2004 77

Its successful consolidation as an recently discovered indigenous supplies in processing capacity plus the recent international energy company is due to a of lighter crude; and discoveries of non–associated gas, series of competitive advantages in which principally in the Santos Basin; Petrobras invests continuously: • Control future costs as greater economies of scale are achieved. • Planned investments in the gas • Dominant market position in the transportation network throughout production, refi ning and transportation Over the past 35 years, Petrobras has Brazil; and of crude oil and oil products in Brazil; acquired know–how in deep–water drilling techniques and technology, • Investments in thermoelectric power • Reserve base and comparatively long and development and production plants, which are a source of demand reserve life; – a specialization, which allows the for the Company’s natural gas. Company to achieve high production • Technological specialization in deep volumes at low lifting costs (excluding In view of its experience, expertise and water operations; royalties, government participation the comprehensiveness of its Brazilian and leasing of areas, denominated the infrastructure, Petrobras has been able to • Cost effi ciency due to large scale “government parcel”). attract such joint–venture partners for its operations combined with vertical exploration, development, refi ning and integration in each one of the business Among other factors, the Company is energy activities as Repsol–YPF, ExxonMobil, segments; cost–effi cient due to: Shell, British Petroleum, Chevron–Texaco and Total. This joint approach has • Major position in the growing markets • More than 80% of its proved reserves allowed the Company to spread the risks, for natural gas in Brazil; and being located in large adjacent, highly technology and capital requirements. productive fi elds in the Campos Basin, • Success in attracting international allowing the Company to concentrate Trademarks partners in all its activities. its operational infrastructure and In its Strategic Plan 2015, Petrobras thus reduce the costs of exploration, has approved the management of its Our legacy as Brazil's former sole supplier development and production; and trademarks as strategic assets, recognizing of crude oil and oil products has provided them as having fi nancial value. The us with a fully developed operational • The location of most of its refi ning objective is to segment products and infrastructure throughout Brazil and capacity in the Southeast Region, in the services in the various markets, adding a large proved reserve base. These vicinity of the Campos Basin, and situated value to the business and maximizing the advantages allow Petrobras to compete in the most densely populated and results. This policy becomes of enhanced effectively in the recently deregulated industrialized markets of the country. importance as the Company expands domestic oil and gas sector. Its proved its activities internationally, with a reserves provide it with signifi cant The advantages of the natural gas sector are: correspondingly greater visibility to the opportunities to: Petrobras trademark. • Increased production of non–associated • Sustain and increase production growth; natural gas and of natural gas associated Patents with the production of domestic crude , Petrobras is currently the company • Substitute imported light crude for together with the necessary investments that fi les the most patents in Brazil. It 78 Annual Report 2004 Petrobras

is also the Brazilian company that has Research and development registered the largest number of patents The harnessing of technology is part in the United States. During 2004, the of the bedrock of corporate strategy in Company fi led 70 patent applications the Petrobras Plan 2015. The role of the in Brazil and 10 overseas while 22 were Leopoldo A. Miguez de Mello Research approved in Brazil and 37 in other and Development Center (Cenpes) is countries. Particularly important were to harness all technologies, which are the registration of patents for refi ning of material to the needs of the Exploration heavy oils, the improvement in oil product and Production, Refi ning, Transportation, include laboratories and quality and deep–water exploration. Distribution and Energy and the purpose–built plants for new areas Sustainable Development areas. of research, especially related to the In addition, 15 trademarks were Environment and Gas and Energy areas. registered in Brazil and a further 19 Cenpes was set up in 1966 and currently overseas, together with the registration has a team of 1,560, of whom 509 are The existing installations also include of four computer programs and college graduates, 255 have master’s two rooms for 3D visualization used in another four copyrights. The Company’s degrees and 87, PhD qualifi cations. the study of oil reservoir properties as strategy is to seek defensive patents by Petrobras’ expenditure on Research, well as other applications. This facility registering key technologies as soon Development and Basic Engineering is also used in the development and as they are developed. In this way the (PD&E RD&E) amounted to US$ 235 application of instruments for 3D Company is not prevented from using million in 2004, thus once more meeting geological visualization, collaboration the solutions due to the existence of a the target of investing at least 1% of net and modeling. third party domain. sales revenue for the previous year in the area. Of this total, R$ 203.7 million was In 2004, 112 affi liations and multi–client injected directly into Cenpes. projects were developed in partnership with other overseas oil companies Located in the “Cidade Universitária”, and RD&E centers involving contracts Number of Petrobras Ilha do Fundão district of the city of amounting to US$ 2 million. A further Patent Applications Filed Rio de Janeiro, Cenpes occupies a total US$ 51 million was invested in 420 2 70 area of 122 thousand m of which 47 contracts in partnerships with 79 Brazilian thousand m2 is constructed area with RD&E institutions and universities. 150 laboratories and 30 pilot plants. 53 The Center is currently undergoing Technological programs 44 modernization. New installations are Since 1993, the Company has been 35 33 33 to be constructed to incorporate the running a series of structured latest concepts in ecological effi ciency programs in a portfolio of Research with effl uent treatment and recycling and Development (R&D) and Basic plants and cost–benefi cial systems for Engineering (BE) projects, the purpose of energy generation and utilization. These which is to anticipate and meet the needs installations will occupy an area facing of the various areas in the Petrobras the existing RD&E complex and will Group. These encompass research 01 02 99 00 03 04 Petrobras Annual Report 2004 79

into exploratory frontiers, deep–water • Technological evaluation for the Carmópolis fi eld (SE) and preventing technology, oil fi eld rehabilitation, fuel treatment of solid waste and the use of discharge into local water bodies; innovation, refi ning and the environment, charcoal generated in the process as an among others. aid to the elimination of heavy metals and • Evaluation of advanced effl uent treatment other contaminants in aqueous effl uent; technologies for recycling water at the During 2004, the Company reported Gabriel Passos Refi nery (Regap); signifi cant advances in the development • Identifi cation and quantifi cation of of technological programs, among them: pollutants discharged from drainage • Development of interpretative basin rivers fl owing into the Guanabara techniques for reading satellite images Bay region; allowing improved distinguishing of For more information, access: www.petrobras.com.br discoloring caused by oil spills and by • Creation of cognitive tools for identifying the proliferation of algae, biological the aesthetic and logical standards in the oils, the infl ow of fresh water into the Preservation and Environmental Solimões River alluvial plain; sea, and others; control • Identifi cation and development • Installation in the Sergipe • Development of a process for of vegetal biocides based on the – Alagoas Business Unit of the fi rst improving soil quality through the use biodiversity of the Amazon region for contaminated soil treatment center of landtreatment technique, in the controlling the bacterial corrosion in using soil microorganisms; form of paraffi n–based gravel, which metallic tubes subject to exposure to results in the creation of an organic sea water; • Specifi cation of effl uent pre–treatment arable soil and in the increase of the allowing the injection of water into the paraffi n content. 80 Annual Report 2004 Petrobras

Exploration and production • Adaptation of the Atalaia natural • Development of methodologies for gas processing unit for increasing using advanced numerical simulation processed gas ﬂ ows and the installation techniques in the characterization of of a natural gas condensate processing reservoir properties; unit for the stabilization of condensate and production of liqueﬁ ed petroleum • Appraisal of the potential for biogenic

• Improvement and development of gas (LPG); H2S generation in the Marlin fi eld, computer tools for 3D simulation of resulting in fuller data on the prevention geological processes in sedimentary • Appraisal and review of the or minimization of the problem; basins, which reproduce details of the hydrocarbons systems in the Sergipe Brazilian basins more accurately; – Alagoas Basin; • Tests on the riser mooring buoy model in LabOceano – UFRJ experimental tank • Development of less environmentally • Development of a specialist system – for substituting fl exible fl ow lines damaging drilling fl uids than those for classifi cation of oil types in the with more economical rigid lines; available on the market and which Brazilian sedimentary basins; can be used under high pressure and • Conclusion of basic fl oating production temperature conditions; • Development of the concept for a unit (FPU) P–53 (Marlim Leste),

new oil production platform with preparing it to receive produced H2S • Development of software (GeoCenpes) greater stability and cost beneﬁ ts as and adapting it to the recently acquired for the geochemical classiﬁ cation of an alternative interconnection with the vessel, the Setebello, the production oils in Brazilian sedimentary basins; offshore wells; capacity of which will be 180 thousand Petrobras Annual Report 2004 81

barrels/day of oil and 6 million m3/day gas and hydrocarbon generating rocks for roads with heavy traffi c fl ows; of natural gas; with notable results for the knowledge of sedimentary basin hydrocarbon • Process study for increasing the • Certifi cation of the anchoring method systems and the assessment of production of diesel by transforming low known as the torpedo stake, a concept exploratory risk; grade unstable fractions and residues with a low manufacturing and originated from off-spec streams, installation cost; • Simulated drilling of wells which considering 2009 diesel specifi cation; penetrate great thicknesses of • Development of methodology for salt – a high risk operation in • Ratifi cation of additives for low sulfur evaluating the useful life of oil fl ow the hydrocarbons industry – the content Formula 1 gasoline; lines for offl oading fl uids containing conceptual advances of which have

H2S, providing additional input on been reflected in the operational • Development of diesel oil and lubricants an eventual decision to substitute success of the Campos Basin wells with low sulfur content tested under production fl ow lines; and in the Innovation in Science and extreme conditions during Amyr Klink’s Technology award presented by the Antarctic expedition; • First remote operation for inhibiting government of the state of São Paulo incrustations in offshore wells, carried to Cenpes; • Adaptation of additives for reducing out in the Campos Basin; attrition in Supra gasoline, resulting • Conclusion of the stage of feasibility in the reduction of fuel consumption • Geological 3D modeling in the analysis and decision on the confi guration without affecting the performance Magdalena Basin in Colombia for of the risers for the P–53 platform in the of other additives used for inhibiting analyzing the factors infl uencing the Marlim Leste fi eld; P–54 in the Roncador deposits in valves and fuel injectors; occurrence of hydrocarbon bearing fi eld and P–34 in the Jubarte fi eld; rock formations in that area and for the • Experimental application at the Regap improvement of exploration techniques; • Development and application of refi nery of the refi nery separator high–resolution bio–stratigraphy for the improvement project, with plans to • Structuring of the Geochronos, Network adequate surveying of the active well extend this to another six units; through an agreement between network of producing oilfi elds thereby Brazilian universities and companies, the increasing the recovery enhancement • Project for expanding the diesel unit at the purpose of which is the incorporation of factors in the economic results. Repar refi nery for making use of domestic advanced technologies in the study and oil and increasing the unit’s production; dating of rock formations; Downstream • Development of technologies for • Development of Heuristic Optimization • Adoption of high resolution analytical obtaining special asphalt mixtures Systems in real time, increasing the geochemical techniques applied to oil, with greater durability and resistance return from the process units through the 82 Annual Report 2004 Petrobras

Technological programs structured around a portfolio of Research and Development and Basic Engineering projects, enable the Company to anticipate and meet the needs of its various business areas.

calculation of optimum variable values; natural gas into liquid fuels with a high of the fuel produced based on the fl uid purity content; catalytic cracking method (FCC); • Development of Podium gasoline for the Argentine market, this product • Training of Cenpes technicians in • Development of technologies for producing posting a 100% sales increase in the processes for producing liquefi ed natural diesel oil with specifi cations that comply fi rst month of commercialization; gas (LNG processes) for supporting the with international quality standards; Company’s business areas; • New diesel specifi cation for Petrobras • Development of a hull of the FPSO Bolivia, which resulted in a 22% increase • Creation and implementation of – Floating Production, Storage and in production; methodology for evaluating bioaerosols Offl oading type –, with specifi cations under different environmental for operating in ultra–deep waters; • Industrial testing of a new concept for conditions and the training of cracking naphtha, resulting in a 10% Petrobras’ technical personnel; • Development of technologies for and 3% increase in the production of processing and delivering heavy oils; propylene and ethylene, respectively. • Creation of a unit for removing ammonia in accordance with the • Development of technologies for Energy and Sustainable Development legislation and also representing rehabilitating pipelines; • Production on a pilot plant scale of savings in capital expenditures; biodiesel from castor oil, a renewable fuel • Development of technologies for with a lower environmental impact; • Development of economically viable handling produced water;

technologies for the sequester of CO2, • Production of diesel/biodiesel mixtures a method for mitigating the effects • Development of technology for obtained from Brazilian native oil of climatic change and allowing the detecting leakages from gas pipelines; plants and the monitoring of their continued use of fossil fuels. performance with a view to reduced • Qualifi cation of domestic suppliers of environmental impacts; Projects in progress epoxy paint for offshore use; • Adaptation of the refi nery area for • Evaluation of the quality of natural gas processing heavy domestic crude; • Evaluation of secondary and tertiary and vehicular natural gas distributed treatment for recycling refi nery effl uent in Brazil, contributing to the increased • Evaluation of technologies for for use in cooling towers; percentage use of both in the Brazilian substituting diesel oil for natural gas in energy matrix; urban transportation fl eets; • Study of a self–sustaining hybrid riser for use in production system projects and • Development of a catalyst for converting • Improvement in performance and quality Petrobras Annual Report 2004 83

at depths of over 1,000 meters in West consultancy and other partner companies Well Engineering Safety and Production African operations; were brought in to coordinate the Installation Risk and Reliability Analysis collective use of the SAP platform and areas. The purpose is to provide short– • Evaluation of biodiesel production train the users. In addition, the Company term solutions for some of the challenges technology based on castor oil seeds employed the services of 100 local the oil and gas industry is facing, such as for adoption in fuel projects; coordinators, 1,400 support staff and 470 how to accelerate the learning process instructors involving 500 training courses of the employees and capture and retain • Contributions to expanding and 200 classrooms. part of the accumulated employee stratigraphic resolution through the knowledge, enhance the innovation integration of various tools that allow a The migration to the new system involved process and replicate the best practices better understanding of the dating and about 2,200 managers from all levels as well to reduce time spent in looking for new distribution over time, and the spatial as coordinators and supervisors. Additionally, solutions to old problems. origin of generating rocks and reservoirs. the project employed a structured communication program as a basis for The Company’s tacit knowledge bank was Information Technology several initiatives for mobilizing staff and given special attention in 2004. Based on In October, Petrobras concluded one of the disseminating the solution at all the units. the Petrobras Workers’ Memory project, out biggest undertakings for implementing an of which the Workers’ Memory Almanac integrated management system anywhere The global adoption of the SAP system was originated, the Company also began the in the world: the SAP R/3. This combines spread over fi ve years, the fi rst companies Memory of Knowledge project, which Company data and operational information in the Petrobras System to install it being seeks to collate and register the Company’s in a single database. Alberto Pasqualini Refap S.A. in the state knowledge bank. This initiative will focus on of Rio Grande do Sul and Petrobras deep–water oil exploration and production In adopting the SAP R/3, all operational Distribuidora (BR) – considered to be one technology and is aligned with the strategic activities were taken into account: of the largest users in Latin America. plan, which points to the need to “guarantee production, refi ning, sales and the in–house dissemination of knowledge, distribution, procurement and contracting, Knowledge management seeking to leverage competitive advantages”. inventory management, fi nance and The Company’s intangible assets have been accounting, project management and identifi ed and classifi ed according to the In 2004, the focus was on recording the maintenance, in all involving a total of Intellectual Capital Model proposed in 2003. technical and managerial knowledge in 24,000 users of the system. The categories of Intellectual Capital are geophysics as a way of commemorating considered to be Human, Organizational, fi fty years of Company activities in this The integrated system will improve Relationship and Technological Know–how area. This project proved to be a successful responsiveness, facilitate ongoing business Capital. The methodology has provided way of registering the events of the past analyses and allow greater safety and a broad vision of the initiatives that the and will be extended to other areas. The control over the Company’s processes. various areas and the Business Units are idea is to disseminate the knowledge in The database is continually updated adopting to protect, maintain, acquire and a natural manner through sentiments, according to the single source concept, increment the Company’s intangible assets. thoughts and experiences expressed in which is a used in all the processes. words, without the formality of a lecture. During the year, the Exploration and Coordinated action Production segment set up the Practical Management Practice About 800 professionals from the Communities pilot project for the Since the Company implemented the Company, SAP itself, the BearingPoint Reservoir Properties Characterization, Management Quality Evaluation Program 84 Annual Report 2004 Petrobras

in 1993, four evaluation cycles have been implemented as part of the Company’s National community for quality completed encompassing all the units. drive to reach international standards. management This focuses on the integration and In exercising socially responsible actions, In 2004, Petrobras began a new round of capture of synergies, excellence in the Company is encouraging a process of evaluations, this time involving the units in all dimensions and the treatment of strategic reﬂ ection on quality, productivity the International Area. The evaluations of duplication in management activities and competitiveness themes. This initiative the Units in Brazil are scheduled for 2005. and of administrative vacuums. has as its partners, the leading players Armed with the results of each cycle, the in this area: for example, MBC (Brazil units organize programs for implementing An organization that learns Competitive Movement), the Public improvements. Many of the management In line with world tendencies in learning Service Quality Program, the Forum for practices widely used by Petrobras today, organizations, the Company has adopted State Quality and Productivity Programs, have originated from this program or the guideline of sharing management Inmetro (National Institute of Metrology, improvements have been made as a practices with domestic public and private Standardization and Industrial Quality), result of it. companies and with multinationals from Sebrae (Brazilian Service for the Support various sectors of the industry. of the Micro and Small Business), MCT The best practices observed at the units This relationship has led to improvements (Ministry of Science and Technology), are disseminated as part of the process of in Petrobras’ own management model. Furnas Centrais Elétricas S.A. and ABNT consolidating an integrated management (Brazilian Association of Technical Norms). model. In 2004, the second edition of In addition to business partnerships, the “Petrobras’ Best Practices” was published. Corporate Management area fosters In addition to providing further support for a closer relationship with other oil integration and synergies among all the Strategic project companies in the Southern Cone as a parties fostering quality, productivity and The Petrobras Strategic Plan 2015 means of sharing best practices. One of competitiveness, the process has contributed introduces innovations by emphasizing the objectives of the 2004 South American to a more focused stance on the part of the search for operational excellence, Quality Congress for the oil industry area domestic industry in relation to foreign management and the mastering was to share information and experiences competitors. It has also been an important of technology as part of corporate in relation to quality in the Latin American instrument in introducing improvements at strategy. The Excellence in Business oil and gas industry. suppliers and service providers. Management Project is being Petrobras Annual Report 2004 85

Transparency Trophy 2004, awarded by Fipecafi, Anefac and Serasa, recognizes quality and consistency in the Company’s relationship with the market.

Telecommunications outstanding achievements in the business elected the best in the oil, gas and Petrobras invested US$ 38 million in fi eld (management, technology, social petrochemicals sector in the world telecommunications during the year. and environmental) and publicity. according to analysts from MZ Consult This was principally for the implementation (Top 1). The website was also chosen as of infrastructure for supporting automation Business highlights the best in Latin America (Top 5); of operational processes, data security, • Petrobras won the Transparency integration of new units into the Company Trophy 2004, as the most transparent • For the second consecutive year, the and the adaptation of telecommunications company in Brazil based on Petrobras Investor Relations website networks for supporting new corporate the criteria of the Institute for was elected the best in the world and applications such as SAP/R3 and video links. Accounting, Actuarial and Financial was also chosen as the best IR website Research Foundation (Fipecafi ), from in Latin America for the fourth time in Signifi cant resources were also dedicated the University of São Paulo (USP), succession following a direct vote by to fi ber optic networks along the various together with Anefac and Serasa. The investors, analysts and other capital oil and gas pipelines such as Osbra selection of the companies considers, markets’ entities (POP+); (Oleoduto São Paulo–Brasília), Gaspal among other items, the quality, (Gasoduto Rio de Janeiro/(Volta Redonda) consistency and transparency of the • The national IR campaign was elected –São Paulo), Gasbel (Gasoduto Rio de information and fi nancial statements; the best in the printed media for 2004 Janeiro/(Reduc)–Belo Horizonte (Regap)), compliance with accounting by About magazine; Orduc (Oleoduto Cabiúnas/(Reduc)– principles; absence of qualifi cations Macaé (RJ)) and Gasbol (Gasoduto in the independent auditor’s report; • The Company was elected the third Bolívia–Brasil). All these investments legibility and clarity of presentation most admired company in Brazil, this complement the integration of the and the disclosure of material aspects award presented by Carta Capital and Petrobras Group’s private networks not legally mandatory but important Interscience. In 2003, Petrobras was by improving their reliability, security, to understanding the business. The placed ninth and in 2002, 15th in the enhanced data transmission capability as adjudicating commission is made up same award scheme; well as optimizing costs. of professors and consultants from the accounting area; • Respect for the Individual Investor Market recognition award from Tradenetwork, the Petrobras received several awards • For the second consecutive year, organizer of the Expomoney event. and recognition from the market for the Investor Relations website was Petrobras won this award thanks to the 86 Annual Report 2004 Petrobras

outstanding treatment it provides to • State Fiesp 2004 Award – Presented • Best Practice – The Reduc refinery the individual shareholders; to Recap for the Conservation and gasoline portfolio project was Rational Use of Energy – Oil Products classified as best practice based • The Company was classifi ed among the and Natural Gas category. on the FEL index according to the ten leading oil and gas companies that The prize was awarded to the project, assessment of Independent Project most effectively apply their knowledge Increased Efficiency of the Recap Analysis, a consultancy that carries in their business activities and in the Co–generation System. Thanks to out benchmarking studies of development of their products and the installation of energy recovery company projects around the world; services. Petrobras was the only Latin equipment, the refinery’s energy American company to be selected for efficiency increased by 6%; • Safety, Health and Environment (SMS) the Make (Most Admired Knowledge Pole Award – 2003 Edition – For the Enterprises) prize sponsored by Teleos, • The Chico Mendes Social second consecutive year, Fabrica de a British company specialized in Environmental International Prize Fertilizantes Nitrogenados – Fafen Knowledge Management; – Awarded to SIX (Shale Industrial was one of the winners for the best Division) for two projects: SER + Adult SMS practices, obtaining 72% in the • International Refi ner of the Year Education (social responsibility) and audit report and being classified with awarded by World Refi ning Magazine the Lago Sul Project (environmental four stars. The prize is an initiative of and delivered during the 22nd World management). The award is sponsored the Camaçari Industrial Development Fuels Conference, held in San Antonio, by the International Quality Service, Committee (Cofic); Texas for outstanding performance which for 26 years has recognized in three categories: the environment, companies that stand out in the • The Best Company in the Chemical and growth and profi tability, and vision; culture of quality; Petrochemical Sector – for the second consecutive time, Refap S.A. won the • The V ABML Logistics Prize – Awarded • The Amazonas Quality Award 2004 prize awarded by Exame magazine; to the Canal Cliente (Customer – The Manaus Refi nery was the Channel) by the Brazilian Association champion of the 11th edition of this • Quality in Work Award – Reduc won the for Movement and Logistics. prize in the Management category, Sesi Award for Quality in Work 2003; The award was created in 1999 promoted by the Federation of for recognizing and fostering new Industries for the State of Amazonas • Top Social Prize – The Special Lives projects in logistics–related areas and for recognizing endeavor by project, supported by RPBC, won the among companies which are users organizations in the State to improve Top Social 2004 prize; of systems, equipment, software, quality, productivity, competitiveness hardware and logistic concepts; and excellence; • Social Merit – Revap won the Social Merit medal awarded by São José dos Campos city council; Petrobras Annual Report 2004 87

• Quality Standard in B2B Award – For • Marketing Best 2004, Brazil’s most the second year running, Petrobras won prestigious marketing award, a joint this award – Petrochemical category. initiative of Editora Referência, the São Paulo Business Management School of Highlights in the publicity ﬁ eld the Getúlio Vargas Foundation (FGV– The Company’s marketing activities Eaesp) and Madiamundomarketing; were awarded various prizes during the year. Among these were: • Outstanding Name in Marketing Award – The Brazilian Marketing and • Top of Marketing Rio 2004 Business Association (ABMN) elected (Association of Sales and Marketing the Customer Channel (Canal Cliente) Directors of Brazil); as the Highlight in Marketing. 88 Annual Report 2004 Petrobras

Social and Environmental Responsibility

The Company’s initiatives reflect its concern with sustainable development and commitment to the improvement in the life of the population and to social inclusion.

Consolidating the changes. That is how projects and volunteer work as well as and principles of social and environmental 2004 can be viewed for Petrobras in relation initiatives in the fi elds of environmental responsibility in the management and to its employees, the community and in the responsibility, support for culture and administration of its companies. initiatives for preserving the environment. sporting sponsorships provide additional vigor to the Company’s purpose: the The participants were selected by the During the year, the Company progressed Development with Citizenship. European Foundation for Management further following the decisive steps Development (EFMD), in association with taken in 2003 with the signing of the Global Compact the Global Compact/UNO. Petrobras was United Nations Global Compact and the Petrobras’ management approved the fi rst company to be chosen in the launching of the Zero Hunger Program, adherence to the Global Compact light of its involvement and professional a veritable milestone in the area of Social in October 2003, thus assuming a handling of questions of corporate social Responsibility. Initiatives in this area are commitment to comply with the Pact’s responsibility involving the Company’s driven by a concern for the sustainable principles and disseminate them among projects in both Brazil and also overseas. development of the environment and the its employees, shareholders, consumers, communities where the Company operates, suppliers and other stakeholders. The Global Compact was originally mooted the commitment to improving the living at the World Economic Forum in Davos conditions of the population and the As a result of this, Petrobras was invited to in 1999. Its offi cial launch came in 2000, promotion of social inclusion. The result has take part in a selection process involving when companies from all over the world been the implementation of innumerable 1,200 companies and 350 business schools were invited to adopt nine principles, actions throughout Brazil with the direct from throughout the world. At the end of organized around three major themes: participation of the communities. the process, 24 institutions (12 companies respect for human rights, labor rights and 12 schools) were chosen. This group and the environment. A tenth principle The development of educational facilities is developing a pioneer methodology to has since been added: transparency and and professional qualifi cations, creation of be adopted by the United Nations as the combating corruption. The Global Compact jobs and income, guarantee of the rights basis for a new form of world business involves 1,500 companies from more than of the child and the adolescent, social leadership, trained in the use of the concepts 50 countries. Petrobras Annual Report 2004 89

Outreach sponsorship protecting the rights of the child and settled small farmers in sustainable Petrobras’ corporate strategy supports adolescent, volunteer work, among others. organic agriculture; “Solidarity Action federal government efforts for combating for Combating Hunger in the Semi–arid hunger and misery. The Petrobras Zero In 2004, the Company also held its Region of the Brazilian Northeast”, for Hunger Program, with investments fi rst Public Selection of Petrobras Zero combating malnutrition and misery among slated for US$ 104 million up to 2006, Hunger Projects. The chosen theme about 3,200 children and adolescents in allows the Company to play an active was “Development with Citizenship”. 26 communities in the semi–arid sertão role in social projects throughout the Out of the 5,884 projects chosen, 73 of the state of Ceará; “Qualifi cation and country, the results of which bring were selected – small, medium and Generation of Income in the Countryside”, improvements to the poorest segments of large–size projects covering all states for providing training in the cultivation of the community. In September 2004, the in the Brazilian Federation. Each project vegetables, breeding of free range chickens program was able to commemorate its is to receive up to US$ 188,000 a year, and beekeeping in the state of Pará; fi rst year’s results on the back of US$ 33 representing a total company investment “Professional Qualifi cation Program – from million invested in several actions. of US$ 6 million. the First Job to Reinsertion in the Labor Market”, in Rio de Janeiro; “Ecological These actions are focused on the Among the selected projects are: “Agrarian Agriculture and Nutritional Sovereignty”, creation of jobs and income, professional Reform and Social Inclusion in the Far along the northern coastal strip of the qualifi cation of youngsters and adults, South of Bahia”, for training 50 newly state of Rio Grande do Sul. 90 Annual Report 2004 Petrobras

Other outreach initiatives Jovens Voluntários); Vila Restinga Olímpica, municipality. A further initiative is the Petrobras also encourages social which uses sport as a basis for keeping educational “Legal no Mar” campaign responsibility at its subsidiaries. students motivated in their school activities for raising the awareness of the need for as well as for social inclusion reasons; safe navigation and run together with the In the Gas area, SCgás (SC) runs the a training and vocational qualifi cation state of Bahia Port Authority. Intelligent Garbage project, paying a project in partnership with Senai (National wage to the inmates of the Florianópolis Service for Industrial Training), responsible Environmental sponsorship Penitentiary to correctly dispose waste for training more than a thousand In 2004, Petrobras announced the paper. Compagás (PR) also operates a professionals in 2004. results of its fi rst public selection of wide–ranging environmental education projects under the auspices of the program for the local population. In Transportation, Transpetro runs Petrobras Environmental Program several social and community programs with the theme “Water”, classifi ed as In the Downstream area, US$ 9 million in partnership with city governments bodies of fresh and sea water and their was spent on various socio–cultural and local entities for developing a closer respective biodiversities. projects, such as: “Dancing so as not relationship with the communities to lose out”, BR Mangueira Cultural surrounding the installations, principally The projects presented in the selection Center, Cinema BR in Movement, Dance those living in the vicinity of the pipelines comply with the Program’s guidelines as and Social Action, as well as sponsoring and maritime port terminals. defi ned in the pre–qualifying regulations. several events related to the cinema, Of the 1,681 projects submitted, 30 were theater and dancing. A good example of Transpetro’s social chosen for sponsorship. action is the “Fio da Meada” program run In the Refi ning area, Refap S.A. invested in conjunction with the Casa da Cultura The actions proposed were evaluated by US$ 1.3 million in social, sporting, cultural in the city of Araquari (SC). This program a Selection Committee and a Deliberative and environmental projects, notable among is designed to prepare the community for Council made up of representatives these being the Human Tissue Bank for developing handicrafts through learning from several areas of Petrobras as well treating children suffering from burn to use manual looms, work which is the as outside professionals of recognized injuries; Young Volunteer Partners (Parceiros principal cultural characteristic of the competence in the environmental area.

In parallel with government policy, the Company committed US$ 104 million in investments through 2006 to the Petrobras Zero Hunger Program for combating hunger and misery, as well as to the support of hundreds of social projects throughout Brazil. Petrobras Annual Report 2004 91

The initiatives selected comprise the projects, Petrobras continued to be the an additional sponsorship cost of US$ rehabilitation of fresh water bodies, largest sponsor of culture in Brazil. 5 million. A new round in the Program, the dissemination of good practices for This is a reﬂ ection of the Company’s announced in November maintained an reducing water wastage, the reduction commitment to Brazilian society as well allocation of 75% of total investments of of the impacts and the improvement as an expression of its values and identity. US$ 21 million to projects chosen by public in the management of marine life selection such as bands, choral groups environments, the preservation of While Petrobras’ cultural sponsorship and youth orchestras from all over Brazil. the species of the biodiversity and goes back to the eighties, it was only The new edition has a conscious focus on the recovery of vegetation cover in 2003 that the multitude of isolated attracting expressions of regional culture, surrounding water bodies. initiatives in the areas of cinema, the the Company making presentations in 15 scenic and visual arts, and music were state capitals to this end. In addition to the recent public selection integrated under the Petrobras Cultural process, the Petrobras Environmental Program. The program is now based on Petrobras Cultural has a fundamental Program continues to be involved in a system in which projects are selected commitment to guaranteeing the projects previously sponsored by the publicly, an innovation introduced for the democratic access to sponsorship and Company as well as local Business Unit ﬁ rst time in 2004. supporting projects of public interest initiatives in accordance with the new covering the complete spectrum of guidelines for sponsorship policy. Out of 3,736 entries from the length Brazil’s ethnic and regional diversity. and breadth of Brazil, 141 projects were The Program is structured in coordination Cultural sponsorship selected at a total investment of US$ 15 with public policies for culture and With annual investments of about million. A further 48 projects were invited according to federal government US$ 38 million and more than 450 active to participate in the Program directly at priorities for the area. 92 Annual Report 2004 Petrobras

This coordination is refl ected in the direct national heritage buildings and some of and applied in Formula 1, have participation of representatives of the the more important museums such as the immediate applications in the Ministry for Culture and the Presidential National Museum, the National Fine Arts development of commercial gasoline as Secretariat for Communication and Museum and the Inconfi dência Museum. well as directly and indirectly infl uencing Strategic Affairs (Secom) in the Petrobras fuels to be used commercially. As Cultural Committee, the ultimate authority Sports sponsorship a socially and environmentally for the program, together with members In 2004 Petrobras consolidated its responsible Company, Petrobras of the Parent Company and Petrobras position as one of the largest sponsors focuses its development activities on Distribuidora, as well as outside consultants. of Brazilian sport. During the year, environmentally friendly products; The Committee decides on the areas to be it invested US$ 12 million in several included in the public selection process, as sporting activities. As well as traditional • Stock Car – The underlying purpose of well as the projects that are to be supported. investments in Formula 1 motor this sponsorship is aimed at upgrading racing, the Petrobras Lubrax team and gear oil and self blocking gear systems; In addition to the Petrobras Cultural yachting, the Company increased its Program’s selected projects, the Company support for sports where the potential • Petrobras Lubrax Team – This is the maintains ongoing sponsorship of various for social inclusion is greater, handball Company’s longest running sponsorship activities. Among these are the Petrobras being an example. The purpose is to of a motor sport. Over ten years, it has Pró–Música Orchestra, the Corpo Group, transform this category into a sport contributed to the testing of lubricants and the Deborah Colker Company, the Galpão with Olympic pretensions. fuels. The Lubrax Team competes in some Group, the Clube do Choro of Brasília, as of the major Brazilian and world rallies; well as several fi lm and audiovisual, music • Formula 1 (BMW WilliamsF1) – The and scenic arts festivals throughout Brazil. contract signed in 1998 represented an • Formula Truck – Petrobras has been the The Company also supports archeological enormous challenge: to develop a high sole supplier of fuels and lubricants parks such as the Serra da Capivara in technology fuel for the English BMW to this category since 1996. Like the state of Piauí, and the Xingó Museum WilliamsF1 Racing Team to ensure the all the categories it sponsors, the in the state of Sergipe, as well as the motor’s optimum performance in both Company transforms the race tracks Wajãpi Documentation Center in Amapá. training sessions and offi cial races. into laboratories for developing and Petrobras contributes to the restoration of The new technologies, both projected improving the products it sells; Petrobras Annual Report 2004 93

• Pick–Up Racing – The Petrobras organizational climate, starting with the The newly structured virtual campus Pick–Up Racing GNV Cup has gone into diagnosis of the corporate culture. This will played a fundamental role during 2004, the annals of motor–sport as the fi rst produce a survey of Petrobras’ main cultural in particular for implementing the SAP/R3 category to use vehicular natural gas features, allowing among other aspects, a project. The e–learning project now has (VNG) as a fuel. Before being used on better match between the corporate culture more than 30,000 students and monthly the race tracks, the fuel undergoes strict and the practices and instruments proposed enrollment is averaging about 6,000. testing at the Petrobras Research Center; for the area. The Automatic Organizational TV Universitária’s visual network also Climate Monitoring System (SMAO) has continued to expand and is now installed • Mini–Baja – Involves about a thousand been implemented with the same objective in the international units in Colombia and engineering students from all in mind. Bolivia. The number of domestic locations over Brazil as well as some foreign with access via workstations through the universities. The challenge is to design The process for managing employee intermediary of WebTV has grown further. and build an off–road vehicle according performance in the Brazilian and overseas to strict specifi cations (such as safety, units has also been fully installed, Educational benefi ts driveability, acceleration, braking, helping to develop a single business The benefi ts provided to the employees ascending a 45° ramp, for example) and culture. A closer relationship with the are essentially of a supplementary using a standard engine; labor unions has been achieved thanks nature and complement the benefi ciary’s to the committees set up for monitoring contribution to the overall cost. In January, • Formula SAE – An initiative unveiled the Collective Wage Agreement and the a Supplementary Secondary Education in 2004 in São Paulo, is a tradition in improved mechanism for conducting, course was added as a further fringe overseas universities. The Formula SAE negotiating and preparing this agreement. benefi t with 7,294 employees and 8,219 competition is to conceive, design, employees’ children currently registered fabricate and compete with a small Professional skill building under the scheme. The amount disbursed formula–style racing car using engines The Petrobras University’s courses and to the employees was US$ 5.8 million, of up to 610 cc, in compliance with the events are slanted according to the while the cost to the Company including standards and regulations established requirements of an international energy taxes was approximately US$ 8 million. by SAE International; company. The teaching staff consists of 56 professors, 13 of them with PhD’s, 28 Petrobras continued to offer other • Motorcycle Speedway Racing with master’s degree qualifi cations and educational benefi ts: daycare facilities, – Petrobras participates in this as part 15 specialists. supervision, pre–school, basic education of the technological development of GP and complementary education. Lubrax lubricants. In 2004, a total of 1,762 new employees, During the year, including Supplementary including professionals from Petrobras Secondary Education, amounts disbursed Human Resources Bolivia and Transpetro participated directly to employees amounted to In the human resource management in the training programs. Of the total US$ 23.8 million with a total cost to the area, 2004 was dedicated to improving participants, 1,043 concluded vocational Company of about, US$ 32.7 million. the administration of the Company’s training programs. 94 Annual Report 2004 Petrobras

Hiring Career – specialist function activities with the ability to meet challenges The Company held a public selection In March, the Company introduced a and ensure Petrobras’ technological process to fi ll management and new scheme for career progression and supremacy. technical positions at several Units. professional recognition through the During the course of 2004, Petrobras appointment of more than 300 senior Collective Wage Agreement hired 2,949 professionals, 1,266 of consultants, one of the categories in the Petrobras negotiates two Collective Wage them college-educated and 1,683 high specialist function. The objective is to Agreements annually with the labor school educated, to fi ll positions at retain technical staff with knowledge, skills unions: with the land–based employees the Company. or with capabilities in technologies and in September and the offshore employees methods relating to processes essential and in November. The Collective Wage In parallel to this, the Company strategic to Petrobras’ businesses. Agreements are the result of ongoing has completed a survey of staffi ng negotiations with periodic monitoring. requirements for the 2004–2006 period, The specialist function is aimed at They have resulted in some important with the focus on the expansion of the increasing the importance of technological advances in employee conditions, business, replacement of existing staff know–how and a technical career in the consolidating and governing the labor and reduction in outsourced labor. These Company by creating opportunities for relations with the Company. new staff requirements will be taken up growth and development. By implementing by using the manpower register and, this initiative, the Company believes that if necessary, through further public it can always count on motivated and selection processes. prepared groups in various segments of its

Petrobras will be able to identify the principal cultural traits of the Company and adjust its personnel management practices and instruments, thanks to the improvement in the process of managing the organizational climate.

Evolution in Petrobras Group’s Labor Force over the past 5 years

2000 2001 2002 2003 2004 Subsidiaries 4,588 5,674 5,875 6,625 7,007 Overseas - - 6,328 5,810 5,939 Holding 34,320 32,809 34,520 36,363 39,091 GROUP 38,908 38,483 46,723 48,798 52,037

For more information, access: www.petrobras.com.br Petrobras Annual Report 2004 95

Key results from the last negotiations were: of ideas and discussion of the results Pension plan of the studies; The Petros Plan is a defi ned benefi t plan • A 7.81% increase and the concession of a and no longer admits new members. wage level for each employee; • The setting up of joint commissions New employees are currently covered by a with the labor unions to monitor life insurance policy, the cost of which will • Elimination of different compensation specifi c matters. be entirely underwritten by the Company rules for new and long–standing until such time that a complementary employees with newly hired employees Compensation policy pension plan can be implemented. now to receive the Years of Service Petrobras has a fi xed and variable Premium and Vacation Gratuity; compensation policy. The former includes The working party – made up of wages, extras, bonuses, promotion representatives of the Company, Petros, the • Rules for overtime payment in employee increases, etc. The variable element (profi t Petroleum Workers Federation (FUP) and the standby situations; and results sharing – PLR), links business labor unions – set up to examine and propose results to meeting Strategic Plan targets. alternatives for the new pension plan, has • Improved reimbursement scheme of already sent the result of its fi ndings to educational benefi ts; Payroll expenses in 2004 amounted to Senior Management. Given the importance US$ 1,779 million. As in previous years, and complexity of the matter, additional • Career Progression Plan – preparation the Company paid out a share in results studies on some topics are underway for of technical study and creation of a based on 2003 profi ts, equivalent to an closer examination of some questions and to corporate forum for the presentation average of 4.7 wages per employee. enable a fi nal solution to be reached.

Labor Force by Activity Labor Force by Subsidiary Labor Force by Education

1%1% 2%1% 2% 2% 14% 9% 1% 3% 33% 54% 49% 1%

13%

35% 36% 11% 1% 22% 2% 7%

Exploration & Production BR Basic – incomplete Downstream Area Transpetro Basic Gas and Energy Refap S.A. Secondary – incomplete International Area Brazil Petroquisa Secondary International Area Overseas College – incomplete Subsidiaries College Support to Senior Management Post–graduate Research & Development Master’s Degree Corporate Advisory & Support PhD 96 Annual Report 2004 Petrobras

Multidisciplinary Health improvements at the Company as well Care Scheme as the living and working conditions of The Multidisciplinary Health Care Scheme the employees. The response level to (AMS) is provided to employees, retirees the survey was high – 70% – principally and pensioners and their dependents. It bearing in mind that it is voluntary and is offered through a network of 20,128 was completed in December, traditionally accredited healthcare establishments a peak vacation period and in the midst of throughout Brazil, including hospitals, year–end festivities. clinics, laboratories and healthcare specialists. Under the free choice option, One of the survey’s fi ndings showed the benefi ciary may choose professionals that employee satisfaction continues to who are not part of the accredited network. grow. All the items in the questionnaire During the 2004 fi scal year, a monthly got high ratings. In 2004, the Employee average of 244,791 people benefi ted from Satisfaction Index (ISE) reached 70% the scheme at a cost of US$ 150,017 against 68% in 2003. thousand in medical appointments, examinations and hospitalization. One of the variables which most contributed to this result was the Clubs Recognition and Reward item which Employees, retirees, pensioners, members scored nine percentage points more of the local community and dependents than in 2003. The employee is signaling can enjoy the membership of more than that he has a better appreciation of the 30 Petrobras recreational clubs located Company’s practices and believes that his around the country. These clubs offer a performance is being appraised correctly leisure infrastructure, which helps towards and duly rewarded. This largely refl ects the integration and wellbeing of the a greater understanding of the basic Employee satisfaction index family. The clubs are also used as venues criteria used for moving up the wage/ for running social inclusion projects – an salary scale and for promotion. 70% example being a program for children 68% 62% residing in a socially vulnerable area and There was also a year–on–year increase 60% sponsored by Cepe Pernambuco with from 76% to 79% in the Commitment fi nancial support from Petrobras. Level to the Company (NCE) indicator, which was measured for the second Organizational climate time in the survey. The results show Once again in 2004, the Company commitment to the Company, above all conducted its Organizational Climate when the employee states that he/she is Survey in line with the practice of previous “motivated to contribute actively to the years. The aim of the survey is to obtain development and success of Petrobras”. the necessary information for ongoing 02 00 03 04 Petrobras Annual Report 2004 97

Operational Safety, Environment objective is to improve and integrate Pegaso Program and Health the health, safety and environment The Program for Excellence in Petrobras’ Corporate Health, Safety management system so that it reaches Environmental Management and and Environmental (SMS) Policy is laid international levels of excellence. The Operational Safety (Pegaso), was created out in the 2015 Strategic Plan. SMS Program has been instrumental in in April 2000, and up to 2004 has management in the Company's is based training 25,000 participants between invested about US$ 3 billion in the areas on 15 Corporate Guidelines, approved 2002 and 2004. of emissions, efﬂ uents and solid waste, by the Executive Board on December 27, contingency plans, automation, inspection 2001. For each Guideline, the Company Another essential aspect of PSP is and repair of pipeline, among others. has created a Management Standard the need for a visible commitment to comprising a SMS Management Manual SMS on the part of Company's Upper The program’s success was corroborated – also approved by the Executive Board. Management, in line with the concept of by an external audit concluded in leadership by example. In this context, December 2003. Among other questions, The SMS Management Committee the CEO and members of the Executive the report noted that more than 90% performs a fundamental role in the Board take part in periodic audits of the of Transpetro’s major pipeline network corporate governance of questions units, directly interacting with the labor stretching an estimated 7,300 kilometers relating to health, safety and force. In 2004, the Company carried out was already equipped with automatic environment. The Committee is chaired 18 audits involving Upper Management supervisory systems. by the corporate SMS executive manager at various Business Units. and includes representatives from the Expenditures Business and Service areas and directors The SMS Management Evaluation Petrobras’ expenditures in environmental from the subsidiaries. The Committee’s Process evaluates compliance of the SMS responsibility actions and initiatives objective is to ensure that questions management process practiced by each in 2004 were US$ 527 million. of health, safety and environment are unit with the Corporate Guidelines. In These initiatives include the evaluation integral to all the Company’s activities 2004, ten such evaluations were carried and monitoring of ecosystems, and businesses. out in Petrobras Units. The evaluations management and control of also cover requirements under ISO 14001 emissions, efﬂ uents and solid wastes, Process Safety Program (PSP) and OHSAS 18001 or BS 8800 standards, decommissioning of installations, The SMS Corporate Guidelines are which certify the health, safety and rehabilitation of contaminated areas, being implemented through the Process environment management systems at all emergency response to accidents Safety Program (PSP), which received the 33 Brazilian Business Units as well as and payment of environmental investments of US$ 48 million. PSP’s 24 overseas Units. compensations. 98 Annual Report 2004 Petrobras

Environmentally responsible actions and initiatives are a priority for the Company, which in 2004, allocated US$ 527 million to investments and operations in this area.

Emissions Direct Emissions of Greenhouse Gases

The Company implemented the Air (Million tons of CO2 Equivalent) Emissions Management System – developed in partnership with an international consultancy – in all its South 44.5

American installations. 38.7

By the end of 2004, US$ 2.3 million had 30.5 30.4 29.7 • Identify mechanisms for leveraging been invested in the System allowing it projects for mitigating emissions: to establish an inventory of atmospheric carbon reduction and sequestration, pollutants, including those contributing and the carbon credits market; to the greenhouse effect (carbon dioxide, methane and nitrous oxide) as well • Establish general criteria for developing as local pollutants (carbon monoxide, projects appropriate to the rules and sulfur and nitrogen oxides, volatile standards of the various emission organic compounds and particulate regimes and markets; 01 02 00 03 04 matter). The inventory uses a bottom–up methodology, consolidating emissions • Periodically monitor and report on from the sources in each installation and purposes and are subject to alteration. Company’s results and management of then gathering the data and classifying it The Air Emissions Management System and emissions. at various organizational levels starting the consolidated values it has compiled are from Business Units and Areas and being verifi ed by a specialized international Effl uents eventually arriving at a picture of the company, specifi cally hired for the purpose. Petrobras adopts several initiatives for Company as a whole. promoting excellence in the management Additionally, Petrobras created an of effl uents and hydrological resources. 2000 and 2001 – Emissions related only Emissions and Climatic Change One of the most notable is a survey of to the consumption of fuels in Petrobras’ Subcommittee made up of river water resources from which the installations in Brazil, based on a representatives from various business and Petrobras units draw. This work was top–down methodology; service areas and from the subsidiaries, completed on behalf of the refi neries its principal functions being to: located in the Southeastern Region, the 2002 and 2003 – Inventory results production and exploration units in the collated using the Air Emissions • Identify threats and opportunities Campos Basin and Transpetro’s Cabiúnas Management System; relating to the so called "carbon risk"; Port Terminal. During a second phase in 2005, a similar study will be completed 2004 – The value is still of a preliminary • Propose performance objectives, for the units in the Northeastern and nature. The values for 2002–2004 are being indicators and targets; Southern Regions. The Business Units reviewed for methodological standardization Petrobras Annual Report 2004 99

are developing several projects for • Expansion of the Revap effl uent effl uent treatment plants are to be optimizing effl uent management and treatment plant, improving the quality concluded in 2006; hydrological resources: of effl uent discharged into the Paraíba River and the recycling of 300 m3/h of • Cenpes is running a research project into • Partial closure in January 2004 of the this effl uent using advanced generation Refi nery Effl uent Reuse for selecting Reduc cooling system – which was technology based on membrane and assessing technologies for effl uent drawing water from Guanabara Bay – as bioreactors. The system is expected to treatment by maximizing the reuse of an anti–pollution measure. This initiative go into operation in 2006. A similar water contained in this waste material. is due to be concluded in April 2006; system will also be commissioned in Based on these fi ndings, membrane 2006 at the Lubnor plant for recycling bioreactor units have been installed at • Over the past fi ve years, Replan 50 m3/h of effl uent; Revap and Lubnor, and another, based on has reduced effl uent disposal by reverse electro–dialysis, at Regap; approximately 360 m3/h, consequently • Between 2001 and 2004, Refap S.A. and using less fresh water, a scarce the Revap, Reman and Repar refi neries • The SMS area, together with the commodity in the region. The Business installed effl uent segregation projects Company’s business areas, is fi nalizing Unit is also developing a project for for increasing the reliability of drainage the preparation of a Petrobras recycling about 80 m3/h of water used systems and optimizing operations Standard for the Management of in the vacuum distillation units for reuse at their respective Industrial Sewage Hydrological Resources and Effl uents in the cooling towers. This project is Treatment Plants; similar projects are and the implementation of a Corporate forecast to be commissioned in 2006; being implemented at SIX and Rlam with Hydrological Resources and Effl uent completion scheduled for 2005; Data System (Data Hidro), representing • Refap S.A. and the Regap, RPBC, Reduc an important tool in the management and Reman refi neries have installed • Transpetro is installing or improving of these processes. tertiary systems for reducing the Effl uent Treatment Plants at the port ammonium content in effl uent based terminals in Cabiúnas (RJ), Angra dos on biological systems using biodisk Reis (RJ), São Francisco (SC) and Osório or biodrum technology, thus ensuring (RS) for treatment of oil–water mixtures compliance with the legislation on the prior to discharge into the sea from pollutant concentration; sewage outfalls. The new and modifi ed 100 Annual Report 2004 Petrobras

2004 Volume of effl uent discharge (million m3) 129.3a Oil and grease in effl uent (tonnes) 1,040.68a Ammonia in effl uent (tonnes) 357.89b a – The data comprises information from E&P, Downstream/Refi ning, Transpetro and International Area, and includes production water; b – The data comprises information from Downstream/Refi ning (except fertilizer plants) and the International Area.

Water Intake During the year, Petrobras invested representing civil society. The Company (Millions m3) US$ 5 million in partnerships with also supports the Brazil das Águas project, universities, research institutes and which has collected 5,900 water samples 124.4 119.1 consultancies for raising environmental from rivers, lakes and reservoirs throughout data. The data provides the basis the country. The results will produce a 94.4 for applying the correct actions for contemporary and unique picture of

76.3 preserving the biodiversity in areas the conditions of Brazilian hydrological subject to the Company’s activities and resources. In addition, Petrobras sponsors will also be instrumental in speeding up various projects for protecting threatened environmental licensing approvals. species such as the Tamar Marine Turtle, Humpback Whale, Southern Right Whale, Among the principal projects in this area are: Spinner Dolphin and the Manatee Projects.

• Deep Water Environmental SMS Contingency Plans 01 02 03 04 Characterization of the Campos Basin; With an investment of US$ 34 million, 2001 – Refi nery intake Petrobras has further boosted its capacity to 2002 to 2004 – Refi nery, Internacional Area and Transpetro intake • Environmental Monitoring of the Rio meet emergency situations by periodic audits Grande do Norte and Ceará Basins and and improvements to the infrastructure, the Sergipe and Alagoas Basins; equipment and personnel manning the nine Management of solid waste Environmental Protection Centers (CDAs) In 2001, Petrobras began the • Environmental Management of the operating around the country. Six Emergency implementation of the Corporate Waste Amazon Basin – Piatam II Project; Regional Plans have been structured, by and Contaminated Areas Management amalgamating and coordinating the actions System. At the end of 2004, the Company’s • Environmental Management of the of the emergency teams at the various units. hazardous solid waste inventory totaled Amazon Coast – Piatam Mar I Project; In addition, the Company has evaluated and approximately 502 thousand tonnes. updated 57 Individual Emergency Plans, • Preparation of maps showing the 56 Local Emergency Plans and Petrobras Biodiversity environmental sensitivity to oil spills for Distribuidora’s Emergency Highway Routes. Biodiversity conservation of the coastal and continental areas infl uenced ecosystems infl uenced by Petrobras by Petrobras’ activities. Petrobras operates CDAs in Guarulhos (SP), is an essential aspect of the Manaus (AM), São Luís (MA), Guamaré (RN), planning, installation, operation and The Petrobras Environmental Program is Madre de Deus (BA), Goiânia (GO), Macaé decommissioning of the installations dedicating an investment of US$ 14 million (RJ), Rio de Janeiro (RJ) and Itajaí (SC). and operations. It is a component of the over two years to 30 projects involving concept of social and environmental water as their central theme and chosen responsibility, one of the strategic pillars via public selection from more than 1,600 For more information, access: on which the Company’s business rests. proposals submitted by organizations www.petrobras.com.br Petrobras Annual Report 2004 101

Spills The start–up and optimization of sulfur in the country, of particular note is the While the volume of oil spills in 2004 recovery units has been instrumental in reforestation with native species and other was higher than the preceding year, it reducing sulfur dioxide emissions in 2004. trees adapted to the region in areas impacted continues well within the parameters by the building of oil and gas pipelines. of excellence in relation to the world oil International and gas industry. Volumes in 2004 were Overseas activities are aligned to the In Colombia, Petrobras was the fi rst company strongly impacted by a pipeline rupture Company’s Policy and Corporate Health, to obtain integrated quality certifi cation in São Sebastião (SP), on February 18, Safety and Environment Guidelines according to international standards. causing an oil spill of 274.8 m3. as well as the ISO 14001, OHSAS 18001 and BS 8800 international standards. Renewable energy sources On November 15, an exudation was The Company invests in studies and detected on the seabed close by the In Argentina, the Company’s operations projects for the use of renewable sources 7–MLS–107H well in the Marlim Sul are ISO 14001, ISO 9001 and OHSAS 18001 of energy under the Alternative Electric fi eld in the Campos Basin at a depth of certifi ed. All certifi cation was mantained Energy Sources Incentive Program 1,250 meters and 110 kilometers from in 2004, a refl ection of the improvement – Proinfa, based on initiatives involving Macaé. This seepage ceased completely and the way operational management wind power, small hydroelectric power on December 22. Currently the Company has developed. Petrobras invested plants and biomass. is conducting geological, geo–mechanical US$ 30 million in a series of Quality, Safety and fl ow studies to investigate the Environment and Health projects during In this context, Petrobras has negotiated possibility that the seepage may have been the year. joint ventures for the expansion and caused by oil escaping through fractures modernization of energy generation from in rock formations overlying the producing In Mexico, operations began in February sugar cane bagasse in sugar–alcohol mills reservoirs of the Marlim Sul fi eld. 2004 with a preliminary environmental for internal consumption and the sale of any study of the two blocks operated by surplus to the local power grid. In addition, Petrobras – Cuervito and Fronterizo – in the Company has entered associations with addition to process and environmental urban waste management and sanitation SOX Emissions (tonnes) risk studies. companies to generate energy from biogas produced from garbage and sewage. 179,107 172,010 In Bolivia, the active production fi elds of San Petrobras also has drawn up projects for Alberto and San Antonio were recommended prototype units for consolidating the 158,620 for SA 8000/2001 certifi cation (SA8000 is development of the biodiesel production 151,496 a Social Responsibility Standard). Among chain in the Brazilian Northeast based on Petrobras’ environmental control initiatives indigenous oil plants. Units are currently 01 02 03 04 102 Annual Report 2004 Petrobras

in the construction and assembly phase in provides free technical advice to the road Petrobras Group’s total energy Guamaré (RN), where energy is generated transportation sector for rationalizing consumption (millions GJ) from castor oil, and Candeias (BA), with a the consumption of diesel oil and the 487 daily capacity of 10 tonnes. consequent improvement in air quality; 479 479 463 469 the Transportar Project, for providing In 2004, the Petrobras Thermal Solar specialized technical advice to tanker Energy Program began operating a solar truck fl eets supplied by Petrobras; the water heating scheme for the restaurant Conpet nas Escolas project – Teaching at the Reduc refi nery as well as erecting Brazil to Save Energy, for creating an a 613 m2 solar collector system to supply awareness among students on the power to the restaurant and two employee need to preserve natural resources; changing rooms at the same refi nery. and the Petrobras Ônibus a Gás project 01 02 03 00 04 for assessing the use of natural gas Petrobras also inaugurated a system for as a substitute for diesel oil in road pumping oil using photovoltaic panels transportation. Health in Mossoró (RN) and the Company's Petrobras’ approach to health rests on two fi rst wind farm in Macau (RN), with an Results of Savings from Transportar and main pillars: promoting and restoring the installed generating potential of 1.8 MW. Economizar Projects: Reduction in Diesel Oil health of its employees, and preventive Consumption (m3) medicine, based on an integral health Energy effi ciency concept (occupational or otherwise). Petrobras has adopted two additional 300,000 initiatives for developing renewable 286,000 Using epidemiological analysis of health energy sources and to promote effi cient data (mortality and morbidity rates, risk energy use: the Energy Conservation prevalence factors, etc.), such as shown Program, developed internally and Conpet in the following tables and graphs, (National Program for the Rational Use of Petrobras decides the nature of the health Oil Products and Natural Gas). support structure to be implemented.

13,600 20,400 Among Conpet’s initiatives are On the basis of the epidemiological the Brazilian Labeling Program for information, Petrobras runs a series of 03 04 encouraging the use of gas powered programs and initiatives to encourage home appliances which are more efﬁ cient Economizar Project healthy life styles: and safer; the Economizar project, which Transportar Project

Principal causes of time off work in 2004 – Petrobras employees

Osteomuscular illnesses 24.28% Lesions and poisoning 18.60% Mental and behavioral disturbances 10.88% Cardiovascular problems 8.12%

Cause of death – Petrobras’ employees

2001 2002 2003 2004 Violent causes outside work 14 11 8 19 Cardiocirculatory diseases 16 7 9 10 Work–related accidents 12 3 3 1 Occupational diseases 0 0 0 0 Other causes – causes unknown 17 21 12 27 Total number of deaths 59 42 32 57 Petrobras Annual Report 2004 103

• Annual medical check–ups of an give up smoking. Petrobras also The number of fatalities has been on the occupational and preventive nature for provides treatment and supervision to decline but is still the focus of Company all employees, the main focus being those employees identiﬁ ed as being concern since the target for this kind of on cardiovascular disease, cancer and alcoholics or dependent on other drugs; incident is zero. The number of men–hours infectious–contagious and tropical exposed to risk has risen from about 415 diseases. For contractual reasons, • Adoption of programs for healthy million in 2003 to about 485 million in this check–up is also mandatory for nutrition at all units and the development 2004 due to increased Company activity. outsourced companies; of tailor–made individual nutritional education programs; Percentage of Time Lost (PTP) • Procedures are being prepared to guarantee the health of employees when

traveling: medical check–ups prior to • Corporate health education initiatives 3.01 traveling (including the family when implemented at all the Company’s units 2.90 2.88 2.57 the employee is to be accompanied on and subsidiaries on special dates overseas jobs) and medical supervision (World Health Day, World No–Tobacco on return. The procedure includes Day, International Day against Drug educative and informative themes Abuse, among others); appropriate to each traveler; • Occupational hygiene and ergonomics • Encouragement of physical activities, programs, involving procedures for including the installation of Health identifying, controlling and eliminating Promotion Centers (CPSs) in the occupational risks. 01 02 03 Company’s units for physical exercise, 04 programs for nutritional guidance Percentage of Time Lost (PTP) has developed and fostering more active life styles. satisfactorily with absence from work Lost Time Injury Frequency Rate (LTIFR/ CPSs have already been installed at the due to illness or accidents diminishing TFCA) Company’s head ofﬁ ces, the Cenpes consistently over the past three years. 3.60 R&D center and the Reduc reﬁ nery;

The Lost Time Injury Frequency Rate 2.89 • Programs for prevention and control (LTIFR/TFCA) has also fallen in the last of smoking, alcohol and other drugs: years and is now approaching levels of the Company bans smoking in its excellence prevailing in the international 1.53 installations and offers support and oil and gas industry. Petrobras’ goal is to 1.23 1.04 treatment to those employees wishing reach this excellence level in 2010. 0.50 01 02 03 00 04 target 2010 104 Annual Report 2004 Petrobras

Fatal accident rate The Fatal Accident Rate (TAF) 2000 2001 2002 2003 2004 corresponds to the number of fatalities Employees 4 12331 per 100 million men–hours of exposure Fatalities Outsourced Workes 14 18 18 16 15 to risk. The level of the TAF in 2004 Total 1830211916 – including both employees and outsourced workers – is less than the average for the world E&P industry. According to Oil and Gas Producers data, this was 4.9 in 2003. This puts Petrobras in the same class as the major also recommended that this guidance be Company began to integrate its supplier international oil companies. adopted by its overseas subsidiaries in the information registers to optimize its light of the legal provisions in the countries data and obtain a better idea of supplier where they operate. capacity to fulﬁ ll the needs laid out in the Strategic Plan. A project is currently Fatal Accident Rate The Board also approved the revision of in progress for improving the technical,

15.70 contractual Health, Safety and Environment legal and economic aspects of the (SMS) requirements for all stages in registration process. 13.76 the process of contracting outsourced services – defi nition of the scope of the In October, Petrobras signed an agreement services, tender bid or direct negotiation, with Sebrae (Brazilian Service for the formalization of the contract, management/ Support of the Micro and Small Business) 6.29 supervision, evaluation post–fi nalization for the inclusion of micro and small 4.57 3.30 – aligning the SMS requirements of the companies in the oil, gas and energy Company with those of its suppliers production chain on a competitive and as part of the process of achieving sustainable basis. The agreement covers excellence. These new requirements will be those states where Petrobras has its 01 02 03 00 04 incorporated into contractual agreements Business Units and is worth US$ 4 million, from December 2005. 40% of which to be contributed by Petrobras, 40% by Sebrae and 20% from Relationship with suppliers The Company has about four thousand participating companies. The agreement On December 16, 2004, the Executive Board medium and large registered suppliers will run for a period of three years. The approved the contractual requirement from which it acquires goods and resources will be applied in the qualifi cation that all companies providing outsourced services for its operating needs and of the companies to equip them with the services to Petrobras in Brazil must offer new investments. Petrobras also has capability of becoming effective suppliers their employees healthcare coverage, an additional list of more than 15,000 to Petrobras. The agreement will also be an extensive to spouse or partner and to their smaller companies from which it also incentive for the large suppliers to use these children under the age of 21. The Board acquires goods and services. In 2004, the companies in a role as local subcontractors. Petrobras Annual Report 2004 105

Program for Organizing Suppliers Materials procurement materials such as tubes and connections, (Progefe) The Materials Procurement System made electrical materials and instrumentation. This program was created in 2003 to direct purchases worth US$ 1.85 billion in This initiative helps reduce costs due provide a more detailed analysis of 2004, of which 83.1% were contracted from to poor quality materials, an important service providers with information on Brazilian companies. The high percentage consideration for the Company which capacity and results as well as monitoring of domestic purchases is the result of spends approximately US$ 34 millions/year the companies in the context of pursuing a policy of sustaining traditional excluding production losses. In addition, economic, legal, technical, managerial, markets of hydrocarbons products and the Program contributes to increased SMS (Safety, Environment and Health) service suppliers. This is combined with a reliability and diminished acquisition risks. and social responsibility. The Program’s strategy of developing domestic suppliers database will complement the Petrobras of materials – today imported by the With the support of the National Petroleum data by providing up–to–the–minute, Company – and on the cutting edge of and Natural Gas Industry Mobilization reliable information and a global analysis technology. However, at the same time, this Program (Prominp), Petrobras has of the suppliers. does imply that Petrobras will neglect its introduced a methodology for fostering the technological and commercial base, which sustainability of domestic manufacturers More than 400 companies are now allows it to continue competing effectively. based on the Agreement for Technological registered under Progefe, a program The Company employs a policy that enables Development. These domestic companies, set up for perfecting the engineering its operational needs to be served with which compete directly with the major goods and services selection process and quality, reliability, reduced costs during the international suppliers and are generally at encouraging continual improvements in entire life cycle of the equipment and under a disadvantage due to their smaller size, are the suppliers own operations. In 2004, guaranteed supply conditions. now able to ﬁ nalize long–term partnerships 70 of these companies were visited and and ensure their sustainability. assessments concluded based on the The Program for Guaranteeing Quality program’s criteria. of Materials and Associated Services is Petrobras has reduced its operational focused primarily on the domestic markets costs by using e–procurement to acquire A further selection criterion is a and has as its goal to foster guaranteed US$ 171 million in materials such as contractual clause prohibiting the quality by contributing to minimizing industrial equipment, IT hardware and employment of child labor by suppliers the risks inherent in the Company’s communication equipment, valves, tubes, along the entire production chain. This is investments and operations. In this connections and chemical products. The one of the commitments Petrobras signed context, during the year, the boiler, pumps e–trade portal, Petronet, includes more under the Abrinq Foundation’s Child and valves markets were researched and than 5,500 suppliers as well as 350 buyers Rights Charter Agreement allowing it to technically evaluated. Currently, a similar in Petrobras’ Business Units in Brazil, use the Company, Friend of the Child seal. exercise is in progress for speciﬁ c E&P Argentina, Bolivia and Colombia. Orders are delivered to suppliers via the B2B portal and numbered 55,000 transactions in 2004. 106 Annual Report 2004 Petrobras

Corporate Governance

Petrobras is evaluating formal compliance with the differentiated levels of corporate governance, one of its objectives in 2005 being to adhere to Bovespa’s Level 1 criteria as part of the process of permanently improving its governance practices.

Petrobras is always looking to improve adhesion to the Brazilian Stock Organizational Structure its corporate governance practices and Exchange’s Level 1 criteria. The corporate governance structure relationships with shareholders, clients, is made up of the Board of Directors, suppliers, employees and other stakeholders. During the year, Petrobras’ corporate Executive Board, Statutory Audit Given the markets where its securities are governance executive training program Committee, Internal Auditors and advisory traded, the Company is subject to the rules was improved and expanded with the committees. The latter play a fundamental of the Brazilian Securities and Exchange inclusion of key themes on management role in discussing and detailing questions Commission (CVM) and the São Paulo functions and debates on the relationship to be submitted to the Board of Directors Stock Exchange (Bovespa) in Brazil; the between the Company and other Group and/or Executive Board. Securities and Exchange Commission (SEC) subsidiaries. Internally, Petrobras has and the New York Stock Exchange (NYSE) sought to disseminate the best practices Board of Directors and in the United States; the Latibex market of corporate governance adopted in Brazil Executive Board of the Madrid Stock Exchange in Spain; and overseas and to promote awareness The Board of Directors is a collegiate and the Buenos Aires Stock Exchange, among members of Senior Management and autonomous body in accordance Argentina, through the intermediary of and the employees of its importance. with its legal powers and responsibilities Petrobras Energía. Trading in all these The conclusions and recommendations and the Company bylaws. The Board’s markets requires a continuous process of drawn from these initiatives will be used in principal functions are to establish the monitoring and implementation of each projects for improving corporate governance strategic guidelines of the Company and one’s individual practices. throughout the Petrobras Group. supervise the acts of the Executive Board. It is made up of nine members elected In 2004, Petrobras continued to In accordance with requirements for a by the Ordinary General Shareholders’ examine the process leading eventually listing on the New York Stock Exchange Meeting, seven members representing to the Company’s formal adhesion to for foreign private issuers, in March the controlling shareholder, one, the the differentiated levels of Bovespa’s 2004, the Company published a table minority common shareholders and one corporate governance criteria. Since the on its website with a description of the representing the preferred shareholders. changes in Petrobras’ bylaws in 2002, signiﬁ cant differences between its own the Company has been in compliance corporate governance practices and with current stock exchange practices. those of US companies. One of its objectives in 2005 is effective Petrobras Annual Report 2004 107

The Executive Board is responsible for the Federal Government representatives, one they can provide to the Company. It is management of the Company’s business of which is appointed by the Finance mandatory for the outside audit company in accordance with the mission, objectives, Minister as Treasury representative. It is to be rotated among the various audit strategies and guidelines set by the Board incumbent on the Audit Committee to companies every fi ve years. of Directors. It is made up of a president substitute and represent the shareholders and CEO, and six directors elected by the as part of its supervisory function, Management Advisory Committees Board of Directors. Among the members monitoring the actions of members of The Company has three Board Advisory of the Executive Board, only the president management to ensure compliance with Committees: Audit, Environment, and CEO is a member of the Board of their legal and statutory duties and to and Compensation and Succession. Directors, without however himself defend the interests of the Company and These committees are made up of presiding over the activities of this body. the shareholders. Board members and their purpose is to help the Board analyze and make Statutory Audit Committee Internal Auditors recommendations on specifi c issues that The committee is installed on a permanent The role of the Internal Auditors is to require more detailed study. Internal basis and is independent of management advise Senior Management in exercising corporate governance procedures and the external auditors as required by internal controls over the Petrobras have been reviewed by the Corporate Brazilian Corporate Law. It is made up of Group’s activities. The Company also Governance Commission, an internal fi ve members, one of whom represents the has outside auditors, appointed by the multi–functional group set up in 2003, minority shareholders, a representative Board of Directors. The outside auditors and are now being analyzed prior to of the preferred shareholders and three are restricted in the consultancy services approval by the Board of Directors. 108 Annual Report 2004 Petrobras

Business Committee and the According to section 301 of the and Procedures for Disclosing Existing Management Committees Sarbanes–Oxley Act and its relevant Company Information. This lays down The Business Committee is a forum for regulations, by July 31 2005, Petrobras the rules to be followed by Petrobras the integration of material and strategic must constitute an audit committee employees, such that information released matters, promoting synergies between made up of members independent of the to the market can be registered, processed, business development, Company Board of Directors, or appoint a Fiscal prepared and disseminated within the management and Strategic Plan guidelines. Council as the responsible corporate body appropriate period and in accordance with for performing the audit committee’s the prevailing legislation. The Management Committees are obligations, albeit respecting any confl icts forums for the discussion and detailing arising from provisions under Brazilian According to section 302 of the Sarbanes– of questions presented for their legislation. The Company is examining the Oxley Act and SEC Rule 13a–14, the fi lling consideration. Each committee operates best way to comply with this requirement of the Annual Report on Form 20–F must on a coordinated, integrated and within the allotted time. Whatever the be accompanied by certifi cations signed complementary basis with the Business fi nal decision, changes in the powers of by the Company’s president and CEO and Committee, the other management the relevant organs will have to be made. CFO. In these certifi cations, both must committees as well as the Board Advisory Currently, the Board of Directors carries affi rm that they are responsible for the committees. The Company currently has out the functions of the audit committee preparation and maintenance of the the following management committees: for the purposes of section 301. Controls and Procedures for Disclosing Downstream, E&P, Gas & Energy, HR, Company Information. SMS, Organization and Management Petrobras disclosed in the 2004 Form Analysis, IT, Internal Controls, Risk, 20–F (Annual Report, a document required The Investor Relations Department under Technology and Social and Environmental by the SEC) that in the fi scal year 2003, the supervision of the president and the CFO Responsibility, the last four of which among the nine members of the Board of is responsible for designing and up–dating were constituted in 2004. Directors elected by the Ordinary General these controls and disclosure procedures. Shareholders’ Meeting of March 29, 2004, Sarbanes–Oxley Act two are fi nancial specialists as called for The process delineated in the internal Petrobras has been working since 2002 to under section 407 of the Sarbanes–Oxley Act. document allows a large fl ow of adjust its procedures to the requirements information generated by the Company of the Sarbanes–Oxley Act (SOX), which Also as part of compliance with the to be collated, controlled, analyzed and introduced new standards of corporate dictates of SOX, in 2004, the Executive tracked. Compliance with the guidelines governance for companies listed on the Board approved the creation of formulated in the system permits the US stock exchanges and subject to SEC an Internal Controls Management identifi cation of all the information regulation. The Act introduces mandatory Committee subordinated to the Business periodically provided by Petrobras in controls and procedures, which increase Committee. Its functions are to monitor the form of the quarterly and annual the responsibilities of the senior executives and coordinate the procedures for reports required by the legislation, of companies listed in the United States adjusting the internal controls of the including the Annual Report in Form markets. During the year, the Corporate business and corporate processes of 20–F. The system enshrined in the CPDI Governance Commission intensifi ed its Petrobras, its subsidiaries and affi liates, to enables information to be identifi ed as analysis of SOX’s impacts on Petrobras’ comply with the Law. to origin or in what corporate system it corporate governance model as well as is recorded and those responsible for its the appropriate adjustments to be made. Controls and Procedures for processing, composition and registration The Company now complies with those Disclosing Information (CPDI) in the reports within the legal timeframe requirements in the Act that have already The Company has prepared an internal for doing so. become mandatory. document, which formalizes the Controls Petrobras Annual Report 2004 109

Controls and procedures for disclosing • Announcement of Material Facts as certifi cation with respect to the Financial information apply to the preparation of required; Statements of December 31, 2005 must the following documents: be fi led with the SEC by June 30, 2006 • Disclosure on the Company’s website; together with the annual report prepared • Annual Report; in accordance with the requirements of • Other communiqués and this institution (Form 20–F). • Annual Information Report to the CVM; announcements to the market. Section 404 has stricter requirement in • Annual Report to be submitted in Form Internal Controls that it becomes mandatory for companies 20–F to be fi led with the SEC; In addition to the Controls and to establish and maintain an internal Procedures for Disclosing Company control structure for adjusting the • Form 6–K reports; Information, Petrobras has been working relevant processes, which impact the on an integrated basis for adapting fi nancial reports. This assessment must be • Prospectuses for the issue of securities its business to other requirements of acknowledged by the company through fi led with the regulatory agencies for SOx. This is particularly the case with its CEO and CFO as well as being certifi ed each issue in Brazil and overseas; section 404, according to which, the fi rst by the Independent Auditors. 110 Annual Report 2004 Petrobras

Accordingly, section 404 requires that the of Sponsoring Organizations of the Control Activities or specifi c initiatives CEO and the CFO must formally declare Treadway Commission (Coso), the to attenuate each one of the identifi ed that they have assessed and monitored members of which are renowned names risks; Information and Communication, the effectiveness of the internal controls in the fi eld of Accounting and Auditing as a means of support for internal over these processes according to the in the United States. While there are controls, transmitting guidelines Sarbanes–Oxley Act and complemented alternative internal controls structure established at senior management level by the appropriate SEC regulations and methods, the Coso model is expected to the employees; and Monitoring or by the Public Company Accounting to predominate among SEC–registered the assessment and examination of the Oversight Board (PCAOB), a legally companies, having already been adopted internal controls. constituted council for regulating and by the majority of them. supervising the independent auditors of This work is being conducted and monitored listed US companies. The Coso framework is divided into fi ve internally at fi ve levels at Petrobras: interrelated components: the Control As part of the process of compliance Environment, representing the ethical • The president and CEO, and CFO, with section 404, and in line with the values and the competency of the who recognize the responsibility for majority of companies registered with Company’s employees; Risk Assessment, ensuring compliance with the rules and the SEC, Petrobras has been documenting which consists in the identifi cation and transmitting the information to Senior its internal controls structure based on analysis of risks which might inhibit Management and the employees; the recommendations of the Committee the achievement of business objectives;

Investor Relations these performance indicators are replicated minority shareholders which establishes Petrobras understands that it has two in the Financial Directorate’s panel. The a socio–economic profi le, assesses distinct market constituencies and perception surveys cover the various the quality of service and shareholder therefore conducts two different annual channels for disclosing information as well perception of the Company, touching on investors/shareholder surveys as part of as the entire IR program. In addition, at the the following aspects: competitiveness, the process of continually upgrading its end of each one of the Company’s quarterly technology, future vision, profi tability, relationship with these key stakeholders. results conference calls, a perception survey international activity, administration, the is made to evaluate the understanding of environment, diversifi cation/energy, social A perception survey of institutional the message conveyed by the IR director actions, transparency, ethics, corporate investors and market analysts evaluates and the other managers. governance, communication with society, the quality of the work of the IR area. The communication with the shareholders. results are performance indicators for the The IR area runs a quantitative and The results of this survey are also an area’s Balanced ScoreCard (BSC). Some of qualitative survey in the case of the indicator of performance in the BSC. Petrobras Annual Report 2004 111

• The Internal Controls Management The internal controls certifi cation process Transparency Index Committee, made up of executives of the Petrobras Group is being developed from all areas of the Company, for on the basis of careful planning, 80% coordinating the involvement of their defi nition of scope, design, assessment 76% units with the internal audit and and storage in an institutional portal. control organs of the Petrobras Group, The purpose of this is to ensure seeking to achieve the best risk and integrated and shared risk management control management practices; and continuous and monitored controls over business and service processes of • Managers of the units, who prepare material importance to the Company, self–evaluations of the risks and controls; subsidiaries and affi liates. 03 04 • Internal Auditing that tests the working of the internal controls;

• The Board of Directors, which supervises the commitment to the work.

Results of Survey of Information Disclosure Channels to Investors and Analysts

92% 93% 87% 87% 87% 82% 81% 77% 79% 80% 73% 60% Webcasts Webcasts telephone cations via cations Information Annual Report Financial Reports Investor Releases Conference Calls/ Quality of Disclosed Daily clariﬁ

2003 2004 112 Annual Report 2004 Petrobras

Results of the Image Survey Average Number of Accesses to Number of One–on–one with Minority Shareholders IR Website Meetings with Investors

85% 62,478 388 81% 84% 53,786

281 40,257 253 02 02 02 03 03 03 04 04 04

Number of Roadshows and Number of Telephone Calls for Presentations Clariﬁ cations

98 15,154

13,026 12,134

54 45 02 02 03 03 04 04 Petrobras Annual Report 2004 113

General Organization

Petrobras’ current organization model, changes in the general structure of its and Production, Gas and Energy and approved by the Board of Directors business areas – Downstream (Reﬁ ning, International to ensure the more effective in October 2000, is constantly being Commercialization, Petrochemicals implementation of their strategies. improved and in 2004, the Company made and Transportation), Exploration

Fiscal Council

Board of Directors Internal Auditors Executive Board

President & CEO

Business Management Strategy and System Performance Development Business Committee New Business Legal

Petrobras Human Institutional CEO’s Cabinet General Resources Communication Secretariat

E&P Finance Gas & Energy Downstream International Services (Upstream)

Safety, Accounting Corporate Corporate Corporate Corporate Environment & Health

Corporate Technical Marketing & Production Finance & Logistics Support for the Materials Trading Engineering Treasury Businesses

Research and Operations and Business Project Finance Services Reﬁ ning Development Holdings Development (Cenpes)

Investor Power Marketing & Exploration Southern Cone Engineering Relations Development Trading

Tax North-North Americas, Africa Information Petrochemicals Administration East & Eurasia Technology

Financial South-South Planning & Risk Shares Services East Management 114 Annual Report 2004 Petrobras

Basic Organization

José Eduardo de Barros Dutra DOWNSTREAM EXPLORATION AND GAS & ENERGY President and CEO PRODUCTION Paulo Roberto Costa Structure (01/01 to 11/11/2004) CORPORATE (from 05/14/2004) Guilherme de Oliveira Estrella Ildo Luís Sauer Director Director Director President’s Ofﬁ ce Diego Hernandes Rogério A. Manso da Costa Reis Corporate Exploration and Gas and Energy Advisor (01/01 to 05/13/2004) Production Henyo Trindade Barretto Petrobras General Secretary Director Francisco Nepomuceno Filho (01/01 to 11/11/2004) Hélio Shiguenobu Fujikawa Corporate Exploration and Production Energy Conservation, Renewable Internal Auditing Paulo Maurício Cavalcanti Gonçalves North–Northeast Energy and Conpet Advisor Gerson Luiz Gonçalves (new position from 05/08/2004) Solange da Silva Guedes Luís Fernando de Oliveira Gutman (01/01 to 07/02/2004) and Institutional Communications Logistics Exploration and Production Mozart Schmitt de Queiroz Wilson Santarosa Sergio Abramant Guerbatin South–Southeast (03/07 to 11/11/2004) (01/01 to 06/24/2004) and José Antonio de Figueiredo Administrative Systems Alípio Ferreira Pinto Júnior Energy Development (from 06/24/2004) Exploration and Production Rafael Mauro Comino Irani Carlos Varella – Production Engineering (01/01 to 11/11/2004) Marketing and Trading José Miranda Formigli Filho Strategy and Business Performance Carlos Ney Martin de Andrade (new position from 02/01/2004) Natural Gas Celso Fernando Lucchesi (01/01 to 06/24/2004) and Djalma Rodrigues de Souza Nilo Carvalho Vieira Filho Exploration and Production (01/01 to 11/11/2004) Legal Area (from 06/24/2004) – Exploration Nilton Antonio de Almeida Maia Paulo Manuel Mendes de Mendonça Structure (from 11/12/2004) Petrochemicals (new position from 08/01/2004) New Business Carlos Alberto de Meira Fontes Gas and Energy – Corporate José Lima de Andrade Neto (01/01 to 08/25/2004) and Exploration and Production Rafael Schettini Frazão Kuniyuki Terabe – Services Human Resources (from 08/26/2004) Erardo Gomes Barbosa Filho Gas and Energy – Energy Heitor Cordeiro Chagas de Oliveira (new position from 08/01/2004) Development Reﬁ ning Paulo Kazuo Tamura Amemiya Eider Castro Andrade Prudente de José Miranda Formigli Filho Aquino E&P Services Gas and Energy – Marketing and (01/01 to 06/24/2004) and (left position on 08/01/2004) Trading Alan Kardec Pinto Rogério Almeida Manso da Costa Reis (from 06/24/2004) Gas and Energy – Operations and Participations José Maria Carvalho Resende Petrobras Annual Report 2004 115

INTERNATIONAL FINANCE Services BOARD OF DIRECTORS

Nestor Cuñat Cerveró José Sergio Gabrielli de Azevedo Renato de Souza Duque Dilma Vana Rousseff Director Director Director Chairwoman

Structure (01/01/04 to 31/07/04) Tax Administration Engineering José Eduardo de Barros Dutra Maria Alice Ferreira Deschamps Pedro José Barusco Filho Cláudio Luiz da Silva Haddad International Downstream Supplies Cavalcanti Jorge Gerdau Johannpeter Abílio Paulo Pinheiro Ramos Materials Antonio Palocci Filho Accounting Armando Oscar Cavanha Filho Fábio Colletti Barbosa Exploration & Production Marcos Antonio Silva Menezes Gleuber Vieira International Research and Development Center Jaques Wagner João Carlos Araújo Figueira Corporate Finance and Treasury (Cenpes) Gerald Dinu Reiss Almir Guilherme Barbassa Leopoldo A. Miguez de Mello Board Member (up to 03/28/2004) International Gas, Energy & Carlos Tadeu da Costa Fraga Arthur Antônio Sendas Engineering Project Finance Board Member (from 03/29/2004) José Fernando de Freitas Pedro Augusto Bonesio Safety, Environment and Health Cláudio Fontes Nunes International Planning and Services Financial Planning and Risk FISCAL COUNCIL Cláudio Castejon Management Shared Services Luciana Bastos de Freitas Rachid Ricardo Antonio Abreu Ianda Eduardo Coutinho Guerra Structure (from 08/01/2004) (01/01 to 11/30/2004) and President Jorge José Nahas Neto Information Technology International: Corporate (from 12/01/2004) Washington Luiz Faria Salles Effective Members Cláudio Castejon Maria Lúcia de Oliveira Falcón Investor Relations Nelson Rocha Augusto International: Americas, Africa and Raul Adalberto de Campos Túlio Luiz Zamin Eurasia Ronaldo Jorge Araújo Vieira Júnior João Carlos Araújo Figueira (to 03/28/2004) Denise Maria Ayres de Abreu International: Southern Cone (from 03/29/2004) Décio Fabrício Oddone da Costa Alternates International: Business evelopment Celso Barreto Neto Luís Carlos Moreira da Silva Cláudia Rebello Massa Edison Freitas de Oliveira International: Technical Support to Maria Auxiliadora Alves da Silva the Businesses Oswaldo Petersen Filho Abílio Paulo Pinheiro Ramos

For more information on the management proﬁ le, please access: www.petrobras.com.br 116 Annual Report 2004 Petrobras

Glossary

Absorption in activated charcoal – Associated gas – Natural gas produced feedstock by a process known as cracking. A physical–chemical process for removing together with oil. Crude petroleum is certain substances from liquids, such as made up of three states: oil, gas and water. Bioaerosol – The aerial dispersal of chlorine and dissolved organic substances, In this respect, gas is obtained after the organic or inorganic particles that contain whereby the liquid passes through fi nely physical separation of the liquid fraction of all or parts of biological entities, such as granulated activated charcoal, used in the petroleum. Gas can also be of a non– bacteria, viruses, fungus or spores. water and effl uent treatment. associated nature and produced from purely gas deposits. Under these circumstances, Biodisk – Type of biological reactor that Acuo Center – Car wash services at there is no need for physical separation operates with spinning disks covered service stations in Argentina. during production. However, in both cases, with a fi ne layer of bacteria, partially after production and/or separation, the gas immersed in the effl uent to be treated American Depositary Receipts (ADR) is processed to the required standards and – for reducing the concentration of – Negotiable certifi cates in the United quality before being sold. organic material or ammonia. States and representing one or more shares of a foreign company. A US Back Testing – Technique that consists Biodrum – A nitrifying bacteria depositary bank issues the ADRs against basically in using historical data in a model production unit added to effl uent to be a deposit of underlying shares, held by to test the precision of its past results. treated in biological reactors for reducing a custodial institution in the country of the concentration of ammonia. origin of the shares. Balanced scorecard – Described by

Kaplan and Norton, is more than a tactical Biogenic H2S – One of three known ways American Petroleum Institute API or operational measurement system. of generating hydrogen sulfi de gases o Degree ( API) – A measurement of the An explicit strategy and a vision form (H2S) in petroleum reservoirs. Biogenic relative density of an oil or oil product. the basis for four perspectives (fi nancial, H2S is produced by sulfate reducing The API scale, measured in degrees, varies customer, business process and learning bacteria (SRB). In general, the presence inversely with the relative density – in and growth). For each one, strategic of biogenic H2S is associated with the other words the greater the relative density, objectives, measurements, specifi c targets injection of seawater involved in the the lower the API degree. Conversely, the and action plans are formulated. secondary recovery of petroleum. lighter the oil, the higher the API degree. Oils with an API of more than 30 degrees Barium sulfate incrustation – (see Salt Block – A small portion of a sedimentary are considered light; between 22 and 30 precipitation). basin where oil and natural gas degrees API are medium; lower than 22 API exploration and production is carried out. degree are heavy while an API degree equal Basic petrochemicals – These are or lower than 10 indicates an extra–heavy divided into two groups: olefi ns (ethene Bottom–Up Methodology – Methodology oil. The higher the API degree, the greater or ethylene, propene or propylene, for developing an atmospheric emissions the product’s market value. butane) and aromatics (benzene, toluene, inventory which uses information on the xylene). They are produced from different consumption of energy and fuels from each issuing source of an installation, thereby Petrobras Annual Report 2004 117

allowing the individualized management of operations and results of the companies and freight. The exporter assumes each source. due to their contribution to the payment of cost and freight necessary for worsening in global climatic change due delivery to the fi nal port of destination. Bovespa Index (Ibovespa) – Indicator to greenhouse gas emissions. of the price changes of a variable share Co–generation – The simultaneous portfolio that is defi ned periodically by Catalyst – Any substance that speeds up generation of electricity and thermal the São Paulo Stock Exchange. or retards a chemical reaction but does energy (heat/steam from the process), not itself undergo any lasting chemical through the sequential and effi cient Brent Dated – Quotation published daily alteration during the process. use of quantities of energy from a by Platt’s Crude Oil Marketwire which single source. This increases the thermal refl ects the physical cargos of Brent oil Catalytic cracking unit – Refi ning effi ciency of the thermodynamic system shipped from 7 to 17 days after the date process whereby heavier distilled oils as a whole. of fi nalizing the business at the Sullom are converted into lighter fractions Voe terminal in the United Kingdom. of greater commercial values, such as Completion of well – A well is only gasoline, liquefi ed petroleum gas (LPG) complete once it has been lined with a Brent petroleum – A blend of petroleum and naphtha steel tube. A layer of cement is then placed produced in the North Sea from fi elds around the tube to prevent the infi ltration in the Brent and Ninian Systems with a CDE (Energy Development Account) of undesirable fl uids and to stop the walls 39.4 (thirty–nine and four tenths percent) –Created by Law 10,438 of April 26, from collapsing. Next, the bullet or jet degree API and a 0.34% (zero decimal 2002, and regulated by Decree 4,541 of perforator is lowered into the shaft and, point thirty–four per cent) sulfur content. December 23, 2002. Article 13 of this law activated from the surface, perforates the states: “With a view to developing energy steel and cement lining, penetrating the BS 8800 – British Standard for in the States and the competitiveness of oil and gas bearing rock formations and implementing a SMS Management System. energy produced from wind power, small allowing these fl uids to drain into the hydroelectric power plants, biomass, shaft. Another pipe of smaller diameter Bunker – Fuel for ships. natural gas and domestic mineral (the production column) is inserted coal, in areas served by the interlinked into the well to carry the fl uids to the Carbon market – Regulated trading systems, to promote universal access to surface. Finally, a set of valves known as system between companies or other the electric power service throughout a Christmas tree valve, is installed in the institutions of credits corresponding to Brazil and guarantee the resources for wellhead to control production. certifi ed reductions in the emission of supplying power at a subsidized tariff greenhouse gases, the objective being to fi nal consumers in the Low Income Condensate – Natural gas liquids to meet business, regional, national or Residential Sub–Category...” recovered in the normal oilfi eld global targets for reducing the emission separation process and maintained in of these gases. CIF (Cost Insurance and Freight) – liquid state under normal pressure and Cost of merchandize including insurance temperature conditions. Carbon risk – Possible impacts on the 118 Annual Report 2004 Petrobras

used as a hedge instrument. Ebitda margin – Informs how much net Conference call – A telephonic revenues contribute to the Ebitda. conference with market analysts, Dispatch – Functioning (bringing into institutional and individual investors operation) of a thermoelectric power ECA – Export Credit Agency. that takes place when the Company station (UTE), when this begins generating reports its most recent quarterly fi nancial electricity for supply to consumers/ ECGD – Export Credits Guarantee results. The conference call normally also grid – “to dispatch power from a Department (United Kingdom). includes information on the Company’s thermoelectric power station” – means future prospects. bringing it into operation for producing EDC – Export Development Canada. electric power. Currently, in Brazil with its Corporate governance – The relationship predominantly hydroelectric generating EPC (Engineering, procurement and between economic agents (shareholders, capacity, thermoelectric plants only construction). A company or series of executives, board members) that can dispatch electricity at certain peak demand companies responsible for the execution infl uence or determine the course and times (when hydro sources are insuffi cient of stages in a project(s), acquisition of performance of a company. Good corporate to supply demand), during hydrological material and contracting of services for governance assures stakeholders equitable shortfalls (low rainfall) or whenever the completion of construction work. treatment, transparency and responsibility the National System Operator (ONS) so for the results. determines to stabilize the system. Ethene or ethylene – A basic petrochemical

product of the light olefi n family (C2H4) Correlation – Statistical indicator, which Downstream – Collective term for produced from naphtha or ethane. shows to what point two variables are the activities of refi ning, crude oil, related. treating natural gas, transportation and Exploratory Success Rate – The number commercialization/distributing of oil of exploratory wells with commercially Crude petroleum (or crude oil) – The oil products. viable oil and/or gas, as a proportion of which fi rst enters a refi nery for processing. the total number of exploratory wells e–Commerce – Commercial transactions drilled and evaluated in any given year. Crude processed throughput – Total crude carried out electronically. The relationship oil processed in the distillation plants. is digital and therefore virtual. The sale Exudation – A natural seepage of of goods and services involve a digital hydrocarbons (petroleum and gas) from a Cryogenic wagons – Wagons (or tankers), communication medium – the multimedia rock formation. which maintain the temperature of the – the principal vehicles for this type of product transported – in the case of LNG transaction being: CD–Rom, kiosks, BBS Farm–in – The partial or total acquisition – at very low levels (about –160 degrees and the Internet. Also known as virtual of the concession rights held by another centigrade) to keep it in a liquid state. commerce or electronic commerce. company. Within the same negotiation, the company acquiring these rights is in Delayed coking unit – This is the most e–Procurement – Electronic negotiation the process of farm–in and the company extreme form of thermal cracking, and purchase of products and services. selling the rights is in the process of transforming vacuum residue into lighter farm–out. products, in addition to coke. E&P – Exploration and production of oil and natural gas. Feedstock – Refi nery input, the blend or Derivative – A contract or security, crude oil mix that a refi nery processes. the value of which is related to the EBITDA – Earnings before interest, taxes, price of another security, instrument or depreciation and amortization expenses. Field – An oil or natural gas producing underlying index. Consequently, it can be area from a continuous reservoir or more Petrobras Annual Report 2004 119

than one reservoir at variable depths, Interbank Deposit Certifi cate (CDI) including the associated production GTL (Gas to Liquids) – A chemical – A security that underlies loans between installations and equipment. transformation process that converts fi nancial institutions. natural gas into liquid fuels (diesel and Floating, Production, Storage & gasoline) and in other products such as ISO 14001 – An international Offl oading (FPSO) – A fl oating unit for petrochemical naphtha and high viscosity standard, prepared and managed the production, storage and transfer of lubricants. Under this conversion process, by the International Organization hydrocarbons using a ship as platform. the result is an extremely pure synthetic for Standardization, which specifi es petroleum, free of contaminants such as the requirements for environmental Fluid Catalytic Cracking (FCC) – sulfur, heavy metals and aromatics. management systems with a view to the A cracking process in which the catalyst certifi cation of these systems. is characterized by small solid particles Hedge – A fi nancial position or creating a fl uid base. The cracking process combination of positions for the purpose Liquefi ed Petroleum Gas (LPG) is the transformation that takes place of reducing some kind of risk. – A mixture of hydrocarbons and high through the rupture of large into small pressure steam obtained from natural gas molecules. Used to transform heavy oils Heuristic Optimization System – An at special processing units, which is kept of little value into lighter oil products optimization system in which the rules in a liquid state under special conditions such as LPG and naphtha, that is, higher obtained by testing are used. This is not for surface storage. value–added products. considered to be a rigorous method of analysis although its results are as good Liquifi ed Natural Gas (LNG) – Natural FOB (Free On Board) – Price of sale of as the knowledge available for solving the gas cooled to temperatures below 160oC merchandise plus all the exporter’s expenses problem in hand. for transfer and storage in a liquid state. up to its placement in the market. High Grade Bond – Bond classifi ed as high Local goods content – The percentage that FPU – Floating Production Unit. grade by Standard & Poor’s (Triple A) and is equivalent to the coeffi cient between: Moody’s (Double A) risk rating services. Fuel oil – The heavier fractions from the – The difference between the total sale atmospheric distillation of petroleum, High Yield Bond – Bond classifi ed as value of a good (excluding IPI and ICMS widely used as and industrial fuel in higher yield with a credit rating equal taxes) and the value of the associated boilers, ovens, etc. to or lower than BB (predominantly imported portion and; speculative) with a high yield to offset Gas lift – An artifi cial petroleum lifting the high risk. – Its total sale value (excluding IPI and method, in addition to several types of ICMS taxes). pumping. It consists in the injection of Ibama – The Brazilian Environmental Agency. gas under pressure into the production Market share – Percentage or train through valves located close to the IGP–DI (General Price Index) participation of the market. producing reservoir. The gas mixes with the – Domestic Supply concept, calculated petroleum, diminishing its average density, on a monthly basis by the Getúlio Vargas Membrane bioreactors – Advance making the reservoir pressure suffi cient to Foundation. It is one of Brazil’s most generation biological reactor for reducing lift the petroleum to the surface. important infl ation indicators. the concentration of organic material and ammonia in effl uent and where the GIEK – Garanti–Instituttet for Installed capacity – Project capacity of bacteria (activated sludge) is separated Eksportkdreditt (Norway) – An Export the unit authorized by the ANP. from the treated effl uent by microfi ltration Credit Guarantee Institution. and ultrafi ltration plastic membranes. 120 Annual Report 2004 Petrobras

industry to produce ethylene and exploration has occurred. Membrane fi ltration – Physical process propylene (or propene) together with of separating solids from liquids, also other liquid fractions such as benzene, Note – A written promise to pay a used in the treatment of wastewater and toluene and xylene. specifi c value to a given institution at effl uent, and able to remove particles sight or on a specifi c date. with a vast range of diameters from National Petroleum Agency (Agência ions to clays, the objective being the Nacional do Petróleo – ANP) – Octane rating – Property, which demineralization of water or the simple The Brazilian regulatory agency for the oil indicates how much a fuel can removal of suspended solids or turbidity. and natural gas sector. be compressed before it ignites spontaneously. A high octane rating Merchant power plant – In general, Natural gas – Any hydrocarbons or such as Podium gasoline allows higher merchant power plants sell their power mixture of hydrocarbons that remain in a levels of performance (torque, power and to the spot market. Under this form of gaseous state under normal atmospheric economy) in high–performance vehicles business structure, there are natural gas conditions, extracted directly from due to greater thermal effi ciency. supply contracts with clauses, which reservoirs of petroleum or gas, including govern the division of gains and losses moist, dry, residual and rare gases. Offshore – Located or operating in the sea. above those set from the outset of the agreement among the parties. Natural Gas Liquids (NGL) – Refers to OHSAS 18001 – A standard prepared the portion of natural gas that is found and managed by BSI Management Methanol – Also known as methyl in its liquid state under a given surface Systems, which specifi es the alcohol, produced from coking coal, pressure and temperature, obtained requirements for the health and naphtha and natural gas (methane). during natural gas production through occupational safety management systems fi eld separation processes, in natural with a view to certifying these systems Monte Carlo Simulation – A method gas processing units or in gas pipeline among other purposes. which generates a large number of transfer operations. scenarios on a random basis (prices for Oil – The portion of petroleum that exists example) for the purpose of determining Natural gasoline – Natural gas liquids in a liquid state under original reservoir statistical properties of the variables with a steam pressure halfway between conditions and remains liquid under surface infl uenced by the scenarios (for example, that of condensate and LPG, obtained pressure and temperature conditions. future cash fl ow). from natural gas through a process of compression, distillation and absorption. Onshore – Located or operated on land. Naphtha – A petroleum product, mainly used as feedstock in the petrochemical New frontiers – Areas of sedimentary Opacimeter – An instrument used to basins or sedimentary basins where little Petrobras Annual Report 2004 121

measure the k index (quantity of smoke Petroleum – Any liquid hydrocarbon in feasible operational methods and the issued per meter) and the opacity (the its natural state such as crude oil and Brazilian petroleum and tax regulations. darkening effect of smoke expressed as condensate. a percentage) of smoke exhaust fumes Rating – Classifi cation or rating of risk. resulting from fuel burning effi ciency of Pipeline extremities – A pipeline is made diesel engines. up of one extremity and various outlets. Realization price – Relates to the system established by Administrative Opec basket price – Saharan Blend Polyethylene – A petrochemical product Ruling 3/98 of the Ministry of Mines (Algeria), Minas (Indonesia), Bonny Light used to make casks, receptacles, fi lm and Energy/Ministry of Finance. This is (Nigeria), Arab Light (Saudi Arabia), Fateh canisters, plastic packaging for clothing Petrobras’ unit of net revenue for basic (Dubai), Tia Juana Light (Venezuela) and and lightweight objects. oil products sold in the domestic market Isthmus (Mexico). whether imported or produced by its own Polymer – The generic designation for refi neries, the prices of which follow a Opec countries – Algeria, Indonesia, Iran, some second generation petrochemicals parametric formula that keeps them in Iraq, Kuwait, Nigeria, Qatar, Saudi Arabia, such as plastics, rubber and synthetic fi bers. line with international market prices. United Arab Emirates and Venezuela. Polypropylene – A petrochemical Recoverable volume – Volume of Option – A type of derivative that gives product with uses similar to those of petroleum, expressed under basic the buyer the right to purchase (call high–density polyethylene, such as fi lm, conditions which can be obtained from the option) or sell (put option) an asset or beverage crates and packaging, etc. production of a reservoir from the time security for a given price (strike price) at of its initial conditions to the time of its a future date. Power Purchase Agreement (PPA) – abandonment using the best alternative A fi xed–term contract for the purchase indicated by technical–economic studies Osteomuscular illnesses – An illness and sale of power. carried out at the time of appraisal. involving debilitation of the bones, Formula: recoverable volume = original muscles or tendons; injuries caused by Processed crude – Total volume volume x recovery factor. repetitive movements are an example of processed in a refi nery. this type of illness. Reserve – Discovered oil and/or natural Propene or propylene – A basic gas resources that are commercially Overhead – The general fi xed costs of petrochemical product, produced from recoverable as of a given date. running a business. naphtha propane that serves as feedstock for making polypropylene. Reverse electro–dialysis – Process for P–Tax – The offi cial currency exchange rate water demineralization, in which ions, disclosed by the Brazilian Central Bank. Proved reserve – Reserves of petroleum attracted by electrodes under the effect and/or natural gas that, based upon of a difference in electric potential, are Payout – The ratio between the dividends analysis of geological and engineering separated by membranes. paid out and the net income for the data, are estimated to be commercially fi scal year. The payout ratio shows the recoverable from discovered and evaluated Reserve Replacement Index (IRR) percentage of net income to be distributed reservoirs, to a high degree of certainty, – Variation in the proved recoverable to the company’s shareholders. taking into account the prevailing volume of reserves in relation to economic circumstances, the usually aggregate production in a given year. 122 Annual Report 2004 Petrobras

worst–case scenarios for the Company. equivalent to the Brazilian Comissão Residue – There are two kinds of residue: de Valores Mobiliários (CVM). The SEC fi rstly the atmospheric (RAT) kind, the ROCE (Return on capital employed) – criteria used to establish proved reserves fraction of oil from an atmospheric Calculated by using the following formula: does not take into account: proved distillation unit, the distillation of which Net earnings – fi nancial results (net of volume of gas with, as yet, no signed varies from 420 degrees Celsius upwards; income tax (IR) and social contribution sales agreement; projects in the initial secondly – asphalt, the refi ned products (CSSL)) / average borrowings (loans and stages of production development. from de–asphalting residue, resulting fi nancing) + average shareholders equity from the extraction of light fractions – fi nancial investments. SPE – Society of Petroleum Engineers. from vacuum residue using a paraffi n solvent (propane or butane). Sace – Servizi Assicurativi del Commercio Specialist function (career in Y) – Estereo (Italy) – Italian export credits The objective of this position is to attract Riser – The vertical portion of a fl ow line insurance service. and principally, retain competencies. for carrying oil and natural gas from the It is designed to retain technically well to the platform. Flexible pipelines Sale leaseback – Sale of a good and the high–performing and skilled employees or which connect the undersea fl ow lines to subsequent leasing of the same good by experts in technologies and methods that the production platform. the seller with a repurchase option. are linked to processes that are essential and strategic for the Company. ROA – Return on Assets – Measures Salt precipitation – An insoluble The position is divided into two categories: the effi ciency of a company’s use of compound deposit found in equipment technical consultant or business resources by dividing the net earnings for and producing wells. This build–up can consultant / and senior consultant. the period by the total assets at the end be caused for several reasons during of the period. the lifting of oil and natural gas. For Swap – Contract between two parties example: pressure variation which to exchange payment fl ows. A typical oil Road show – Presentation or event leads to an accumulation of carbonates swap consists of a contract in which one held for the purpose of disclosing the (CaCO3); evaporation of the aqueous party buys at a certain price and sells at a company and/or its products in a variety phase in gas fi elds leading to the deposit future fl oating price. of locations. of carbonates and sulfates; and the mixture of sea water, rich in sulfates, with Thermoelectric Power Priority Program Robustness criteria – Conservative formation water, in turn, rich in barium (PPT) – A program instituted by the assumptions associated to the variables and strontium ions, causing barium and federal government on February 24, 2000. that most affect the economic return of strontium sulfate incrustations. a project (prices, volumes, etc.) in or of an Throughput capacity – Processing investment portfolio and used to evaluate SEC – Securities and Exchange capacity. Maximum obtainable and investment projects and business Commission – The regulatory body sustainable throughput in the processing plans, the purpose being to verify their that supervises the US capital markets plant of a raw material under usual profi tability and solidness under Petrobras Annual Report 2004 123

circumstances over a given period, activities of exploration and production. the price of a barrel of oil delivered in respecting the project limits of the Cushing, Oklahoma, in the United States. equipment and SMS requirements and US GAAP (Accounting Principles Product Quality. Due to changes in the oil Generally Accepted in United States of Work–related illness – Illness arising processed between the time of the project America) – The US accounting standard. from or triggered by special conditions of and its construction, and the present, the work and related directly to it. throughout capacity can be higher or Value at Risk (VaR) – Measurement of lower than the installed capacity. the maximum monetary loss expected Yield – Percentage rate of return paid under normal market conditions of the in the from of dividends on the market Top–Down Methodology – Methodology value of a position or series of fi nancial value of the common or preferred shares. for developing an atmospheric emissions positions considering a given confi dence inventory which uses consolidated level and timeline. information on the consumption of energy and fuels in an installation or a number of Vegetal biocide – A substance of installations; this methodology does not natural origin that inhibits the growth of allow the individualized management of microorganisms or which exterminates each emission source. them. In the hydrocarbons industry, vegetal biocides are used to combat Total processed throughput – Total corrosion in metal tubes. of crude oil, plus reprocessing and intermediate products processed in the Volatility – Statistical measure of distillation plants. variation of a price or rate over time. Normally calculated by variance or Turret – A buoy anchoring system standard deviation – the higher the price consisting of a tubular type structure with volatility, the more extensive its variation internal bearings moored to the seabed by above or below an average value. a cable and lines. This buoy system allows the vessel to rotate in line with the wind West Texas Intermediate (WTI) and the movement of the sea. – Petroleum with an API degree between 38 and 40 and approximately 0.3% of Upstream – Collective term for the sulfur, the daily price of which refl ects 124 Annual Report 2004 Petrobras

ABBREVIATIONS bbl Barrel. 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 cubic meters of gas to 1 cubic meter of oil. 1 cubic meter of oil = 6.289941 barrels of oil. As an international standard, one barrel of oil equivalent equals approximately 6,000 cubic feet of natural gas. boed Barrels of oil equivalent per day. bpd Barrels per day. dwt Deadweight tonnage. Unit that measures the freight transportation capacity of a ship. Petrobras Annual Report 2004 125

CONVERSION TABLE a) Cubic meters (m3) into barrels (b): f) Tons (t) into barrels (b): b = m3 b = t 0.158984 D x 0.158984

b) Barrels (b) into cubic meters (m3): g) 1 m3 = 1,000 liters = 6.28994113 b m3 = b x 0.158984

h) 1 b = 158.984 liters = 0.158984 m3 c) Cubic meters (m3) into tons (t): t = m3 x D i) 1,000 m3 natural gas = 1 m3 oil (approximately) d) Tons (t) into cubic meters (m3): m3 = t j) D = M , where D x 0.158984 V e) Barrels (b) into tons (t): D = Density t = b x 0.158984 x D M = Mass V = Volume 126 Annual Report 2004 Petrobras Corporate Information

SHAREHOLDER SERVICES INVESTOR SERVICES

Petróleo Brasileiro S.A. – Petrobras Citibank N.A. Petróleo Brasileiro S.A. – Petrobras Shareholder Assistance Tel.: 1 212 816–6545 Investor Relations Department Tel.: 55 (21) 3224–1524 or 3224–1550 Fax: 1 212 816–6865 Tel.: 55 (21) 3224–1510 or 3224–9947 0800–2821540 388 Greenwich Street 14th Floor Fax: 55 (21) 3224–6055 Fax: 55 (21) 2262–3678 New York – NY 10013 – USA Av. República do Chile, 65 – sala 401–E Av. República do Chile, 65 – sala 401–F e–mail: [email protected] 20031–912 – Centro 20031–912 – Centro site: www.citibanki.com/adr Rio de Janeiro/RJ Brazil Rio de Janeiro/RJ – Brazil e–mail: [email protected] e–mail: [email protected] ADR Department Tel.: 55 (11) 5576–1888 Banco do Brasil S.A. Fax: 55 (11) 5582-6824 WEBSITE Shareholder Services Av. Paulista, 1111 – 3º andar – sala 6 Tel.: 0800–78 5678 01311–920 – São Paulo/SP – Brazil The address of the Petrobras website Fax: 55 (21) 3808–3466 is www.petrobras.com.br. There you Capital Markets and Investments Companhia Brasileira de Liquidação e can fi nd general information about the Department Custódia – CBLC company including a section devoted Núcleo de Escrituração de Ativos ADR Sector specifi cally to investor relations, with Rua Lélio Gama, 105 – 26º andar Tel.: 55 (21) 2223–9606 or 2223–9636 details about the Company’s results, 20031–201 – Centro Fax: 55 (21) 2223–9637 fi nancial statements (Brazilian and US Rio de Janeiro/RJ – Brazil Praça XV de Novembro, 20 – GAAP), annual reports, recordings and e–mail: cqualifi [email protected] 8º andar – Centro transcripts of presentations to investors, Note: Shareholder assistance is 20010–010 – Rio de Janeiro/RJ – Brazil the bylaws, share prices, information for provided by the bank’s full branch e–mail: [email protected] shareholders, etc. network. e–mail: [email protected] Petrobras Annual Report 2004 127

ANNUAL GENERAL MEETING Salvador SUBSIDIARIES Av. Antônio Carlos Magalhães, 1113 The Annual General Meetings – AGMs are sala 112 – Pituba Petrobras Distribuidora S.A. – BR held within four months following the 41825–903 – Salvador/BA – Brazil Rua General Canabarro, 500 – 16º andar end of the fi scal year, at the Company’s Tel.: 55 (71) 350–3700 20271–900 –Maracanã head offi ce at Avenida República do Fax: 55 (71) 350–3080 Rio de Janeiro/RJ – Brazil Chile, 65, Centro, Rio de Janeiro in Tel.: (21) 3876–4001 accordance with Article 39 of the bylaws. Fax: (21) 3876–4977 OVERSEAS REPRESENTATIVE Addresses of head offi ce, representative Petrobras Transporte S.A. – Transpetro offi ces in Brazil and overseas and OFFICES Av. Presidente Vargas, 328 – 10º andar subsidiaries 20091–060 – Centro New York Rio de Janeiro/RJ – Brazil 570, Lexington Avenue 43rd Floor Tel.: 55 (21) 3211–9100 HEAD OFFICE 10022–6837 – New York – NY – USA Fax: 55 (21) 3211–9121 Tel.: (1) 212 829–1517 Fax: (1) 212 832–5300 Petrobras Química S.A. – Petroquisa Petróleo Brasileiro S.A. – Petrobras Av. República do Chile, 65 – 903 Av. República do Chile, 65 – Centro Tokyo 20031–912 – Centro 20031–912 – Rio de Janeiro/RJ – Brazil Togin Building 5th, Floor 508 4–2 Rio de Janeiro/RJ – Brazil Tel.: 55 (21) 3224–4477 Marunochi 1–Chome Tel.: 55 (21) 3224–1455 Chiyoda–Ku – Tokyo 100–0005 – Japan Fax: 55 (21) 3224–2722 Tel.: (81) 3 5208–5285 REPRESENTATIVE OFFICES IN BRAZIL Fax: (81) 3 5208–5288 Petrobras Gás S.A. – Gaspetro Av. República do Chile, 65 – 1201 Brasília China 20031–912 – Centro Autarchies Sector Level 12h Floor Units 21–25 Rio de Janeiro/RJ – Brazil Norte–SAN – Quadra 1, bloco D China World Tower 1 Tel.: 55 (21) 3224–2053 1º andar China World Trade Fax: 55 (21) 3224–6787 70040–901 – Brasília/DF – Brazil Nº 1 Jianguomenwai Avenue Tel.: 55 (61) 429-7131 Beijing 100004 China e–Petro – Petrobras Negócios Fax: 55 (61) 226–6341 Tel.: (86 -10) 65059837 Eletrônicos S.A. Fax: (86 –10) 65059850 Av. República do Chile, 65 – 16º andar São Paulo 20031–912 – Centro Av. Paulista, 901 – 11º andar – Cingapore Rio de Janeiro/RJ – Brazil Cerqueira César 435 Orchard Road # 19–05/06 Tel.: 55 (21) 3224–3990 01311–100 – São Paulo/SP – Brazil Wisma Atra Fax: 55 (21) 3224–2703 Tel.: 55 (11) 3523–6501 Singapore – 238877 Fax: 55 (11) 3523–6488 Tel.: 65–6735–1140 Fax: 65–6734–9081 128 Annual Report 2004 Petrobras

Petrobras Comercializadora Petrobras Netherlands B.V. – PNBV de Energia Ltda. Rokin 55 Av. República do Chile, 500 – 27º andar 1012 KK Amsterdam 20031–170 – Centro P.O. Box 990 Rio de Janeiro/RJ – Brazil 1000 AZ Amsterdam Tel.: 55 (21) 3212–6230 The Netherlands Fax: 55 (21) 3212–6205 Tel.: 0021–3120 521 4777 Fax: 0021–3120 521 4888 U.T.E. Nova Piratininga Ltda. Av. Brigadeiro Luis Antônio, 1089 – Petrobras International Braspetro B.V. 5º andar – PIB BV – Holanda 01317–001 – Bela Vista Rokin 55 São Paulo/SP – Brazil 1012 KK Amsterdam Tel.: 55 (11) 3116–5373 P.O. Box 990 Fax: 55 (11) 3116–5228 1000 AZ Amsterdam The Netherlands Downstream Participações Ltda. Tel.: 0021–3120 521 4805 Av. República do Chile, 65 – 22º andar Fax: 0021–3120 521 4827 20031–912 – Centro Rio de Janeiro/RJ – Brazil Braspetro Oil Company – BOC Tel.: 55 (21) 3224–3100 Second Floor, Anderson Square Building Fax: 55 (21) 3224–1246 Georgetown Grand Cayman Cayman Island (BWI) Braspetro Oil Services Company – Brasoil P.O. Box 714 Second Floor, Anderson Square Building Tel.: 0.0021–1(345) 949.8888/8889 Georgetown Grand Cayman Fax: 0.0021–1 (345) 949.8899 Cayman Island (BWI) P.O. Box 714 Termor Participações Ltda. Tel.: 0.0021–1 (345) 949.8888/8889 Av. República do Chile, 65 – 7º andar Fax: 0.0021–1 (345) 949.8899 sala 701 20031–912 – Centro Petrobras International Finance Rio de Janeiro/RJ – Brazil Company – PIFCo Tel.: (21) 3224–6861 Second Floor, Anderson Square Building Fax: (21) 3224–2591 Georgetown Grand Cayman Cayman Island (BWI) P.O. Box 714 Tel.: 0.0021–1 (345) 949.8888/8889 Fax: 0.0021–1 (345) 949.8899 Areas of operation Petrobras in Brazil and in the World

Venezuela

UUnitednited KingdomKingdom Colombia BELA VISTA

REFAP Bruno Veiga, Claudia Martins, Cris Isidoro, Fábio Corrêa,

Uruguaiana COPESUL Tramandaí Capital Exploration and Production Felipe Goifman, Geraldo Falcão, Giovani Sérgio, José Caldas,

Argentina Alegrete PORTO ALEGRE Juarez Cavalcanti, J. Valpereiro, Maurício Simonetti, Rogério Reis,