Provided By MZ Data Products
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 6-K
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
 
For the month of February, 2005

Commission File Number 1-15106
 
 
PETRÓLEO BRASILEIRO S.A. - PETROBRAS
(Exact name of registrant as specified in its charter)
 

Brazilian Petroleum Corporation - PETROBRAS
(Translation of Registrant's name into English)
 

Avenida República do Chile, 65
20035-900 - Rio de Janeiro, RJ
Federative Republic of Brazil
(Address of principal executive office)
 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 

Form 20-F ___X___ Form 40-F _______

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No___X____

 


PETROBRAS reported consolidated net income of R$ 4.566 million in the fourth quarter of 2004 (4Q04). For the full year 2004, PETROBRAS’ consolidated net income was R$ 17.861 million. Consolidated net operating revenues in 4Q04 were R$ 28.692 million and R$108.202 million for the full year 2004. The Company’s market value was R$ 112.458 million on December 31, 2004, 29% increase over the previous year.

This document is separated into 5 sections:
 
PETROBRAS SYSTEM Index PETROBRAS Index
Financial Performance 3 Financial Statements 33
Operating Performance 4
Financial Statements 18
Appendices 26

PETROBRAS SYSTEM Operating Performance

A Word from the President, Mr. José Eduardo de Barros Dutra

It is with great pleasure that we present you, our shareholders, with the results of fiscal year 2004. It was a year marked by important events, consolidation of strategies, and development of new businesses and markets.

Throughout the year we invested R$ 21.774 million in Brazil and abroad, not counting our project finance investments. This significant volume of investments was made possible by our own cash generation, through a policy of realistic pricing, and by access to the capital markets, which guaranteed not only the feasibility of our operations, but also generated excellent results. Our net income was R$ 17.861 million in fiscal year 2004, comparable to the excellent result obtained in 2003 (R$ 17.795 million). In the fourth quarter of 2004, our profit reached R$ 4.566 million, an increase of 51% over the same period of last year.

The excellent result and strong cash generation in fiscal year 2004 are allowing the Board of Directors to propose a distribution of dividends in the amount of R$ 5.044 million (R$ 4,60 per share) at the next Shareholders’ Meeting on March 31, 2005. Included in this dividend is interest on own capital in the amount of R$ 4.386 million (R$ 4,00 per share).

In operations, the successes obtained throughout the course of the year were many. Following are a few highlights:

The transparent and ethical management of the Company’s businesses, our ongoing goal to treat our market analysts, investors, shareholders and interested public parties in an equitable and trustworthy manner, and the quality and reliable information we furnish, led to our second consecutive annual award for the best “site in the oil, gas and petrochemical sector” in the world, according to the technical criteria of specialized companies in the sector.

It is noteworthy that the search for positive results and return for our shareholders, the best use of company and commercial practices has also brought us great challenges. Pending issues from the past that need to be resolved with courage and determination are being discussed and brought to the forefront. In this context, we are seeking to negotiate a solution that will guarantee the interests of our shareholders and investors regarding Merchant thermoelectric plants (TermoCeará and Macaé Merchant). In addition, we are streamlining our models of additional health and social security, seeking to provide our employees with tranquility, and total transparency for our shareholders and investors.

Overcoming these challenges has always been part of Petrobras’ story, and with creativity and determination the Company is consolidating its bases for sustainable growth, with social and environmental responsibility being one of the foundations for building its future, and combining the entrepreneur interests with those who share in its development and growth.

Consolidated Net Income and Economic Indicators

Petrobras, its subsidiaries and assigns, reported consolidated net income of R$ 17.861 million in fiscal year 2004, which was stable in relation to fiscal year 2003.

R$ Million
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003 D % 2004 2003 D %
40,510  39,637  33,199  19  Gross Operating Revenue 150,403  131,988  14 
29,075  28,692  23,952  20  Net Operating Revenue 108,202  95,743  13 
7,459  8,023  5,546  45  Operating Profit(1) 29,815  27,533  8 
(22) (451) (156) 189  Financial Result (2,418) 1,350  (279)
5,488  4,566  3,021  51  Net Income 17,861  17,795  0 
5.01  4.16  2.76  51  Net Income per Share 16.29  16.23  0 
109,152  112,458  87,459  29  Market Value (Parent Company) 112,458  87,459  29 
 
41  41  44  (3) Gross Margin (%) 42  45  (3)
26  28  23  5  Operating Margin (%) 28  29  (1)
19  16  13  3  Net Margin (%) 17  19  (2)
9,018  9,609  6,877  40  EBITDA – R$ million 35,988  32,615  10 
N/A N/A N/A - ROE (%)  31  39  (8)
N/A N/A N/A - ROCE (%)  23  24  (1)
 
  Financial and Economic Indicators
41.54 44.00 29.41 50 Brent (US$/bbl) 38.21  28.84  32 
2.9773 2.7862 2.9000 (4) US Dollar Average Price - Sale (R$) 2.9262  3.0745  (5)
2.8586 2.6544 2.8892 (8) US Dollar Last Price - Sale (R$) 2.6544  2.8892  (8)

(1)

Earnings before financial revenues and expenses, net equity and taxes.
(2)

Operating income before financial results and net equity + depreciation, amortization, abandoned wells.

The main factors that contributed to consolidated net income in fiscal year 2004 in relation to fiscal year 2003 were:

R$ Million
  Net Revenues Cost of Goods
Sold 		Gross Income
Increase in volumes sold in the domestic market 4,452  (2,314) 2,138 
Increase in domestic market price 4,160  -  4,160 
Reduced export volume (1,144) 569  (575)
Increased export price 1,420  -  1,420 
 
Increased import cost, mainly oil -  (5,820) (5,820)
Increased expenses re: government participation in the country -  (957) (957)
Reduced third-party, consortium and structured project expenses -  784  784 
Increased refining cost -  (606) (606)
Effect of exchange rate on revenues and costs of controlled companies abroad (1,477) 1,129  (348)
Increased offshore operations 1,633  (1,606) 27 
Increased gross income of BR 736  -  736 
Increased of cost and sales of International Area 3,380  (2,250) 1,130 

The effects of lower appreciation of the real in 2004 in relation to 2003, and the behavior of the Argentine peso against a basket of foreign currencies that comprise consolidated net debt and other monetary items (R$ 1.796 million);

A reduction in revenues over financial income (R$ 329 million), a function of lower amounts, as well as profitability of the funds in Brazil, predominantly linked to securities notes;

Exchange rates effect on the balance related to the Petrobras System that is indexed to the US dollar (R$ 403 million);

Financial losses in hedge operations at Petrobras’ controlled companies in Argentina (R$ 461 million); and

Recognition of financial expenses by the repurchase of notes issued by subsidiaries (R$ 337 million);
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003 D % 2004 2003 D %
 
Exploration & Production - Thousands bpd
 
1,692  1,680  1,680  -  Oil and LNG production  1,661  1,701  (2)
1,523  1,511  1,513  -      Domestic 1,493  1,540  (3)
169  169  167  1      International 168  161  4 
368  360  343  5  Natural Gas production(1) 359  335  7 
270  267  256  4      Domestic 265  250  6 
98  93  87  7      International 94  85  11 
   
 
2,060  2,040  2,023  1  Total production 2,020  2,036  (1)
   
 
(1)

Does not include liquified gas and includes reinjected gas


Average Sales Price - US$ per bbl
        Oil (US$/bbl)
36.14  35.11  26.79  31      Brazil(2) 33.49  27.09  24 
28.03  27.48  25.88  6      International 26.36  22.71  16 
        Natural Gas (US$/mcf)
10.62  12.81  11.22  14      Brazil(3) 11.56  10.50  10 
6.60  7.39  6.82  8      International 6.96  6.84  2 
(2)

Average of the exports and internal transfer prices from E&P to Supply.


Refining, Transport and Supply - Thousands bpd
 
439  452  310  46  Crude oil imports 450  319  41 
166  132  57  132  Oil product imports 109  105  4 
137  126  102  24  Import of gas, alcohol and others 124  89  39 
208  137  260  (47) Crude oil exports 181  233  (22)
258  193  184  5  Oil product exports 228  213  7 
5  10  2  400  Fertilizer and Others Exports 6  6  - 
271  370  23  1,509  Net imports 268  61  339 
1,763  1,833  1,698  8  Output of oil products 1,797  1,732  4 
1,659  1,727  1,604  8  • Brazil 1,696  1,639  3 
104  106  94  13  • International 101  93  9 
2,125  2,125  2,085  2  Primary Processed Installed Capacity 2,125  2,085  2 
1,996  1,996  1,956  2  • Brazil 1,996  1,956  2 
129  129  129  -  • International 129  129  - 
        Use of Capacity
86  89  81  8  • Brazil 87  82  5 
79  83  73  10  • International 78  73  5 
77  77  79  (2) Domestic crude as % of total feedstock processed 76  80  (4)

Cost - US$/barrel
        Lifting Costs:
        • Brazil
4.03  4.69  3.96  18      • • without government participation 4.26  3.36  27 
10.65  12.43  9.10  37      • • with government participation 10.70  8.50  26 
2.53  2.90  2.74  6  • International 2.60  2.46  6 
        Refining cost
1.27  1.58  1.53  3  • Brazil 1.34  1.14  18 
1.22  1.22  1.29  (5) • International 1.21  1.17  3 
237  300  238  26  Overhead in US$ million (4) 957  711  35 

(4)

In order to make the Corporate Overhead indicator better fit its management model, the Company reviewed the concepts of this indicator and recalculated for previous periods.


Sales Volume - Thousands bpd
 
707  684  627  9  Diesel 656  602  9 
286  287  267  7  Gasoline 275  259  6 
111  100  119  (16) Fuel Oil 108  119  (9)
158  154  151  2  Naphtha 157  157  - 
220  209  200  5  LPG 210  202  4 
194  191  173  10  Others 183  171  7 
   
 
1,676  1,625  1,537  6  Total Oil Products 1,589  1,510  5 
38  34  36  (6) Alcohol, Nitrogen and others 32  33  (3)
218  227  190  19  Natural Gas 210  177  19 
   
 
1,932  1,886  1,763  7  SubTotal domestic market 1,831  1,720  6 
497  614  457  34  Distribution 498  434  15 
(469) (548) (424) 29  Inter-company Sales (450) (393) 15 
   
 
1,960  1,952  1,796  9  Total domestic market 1,879  1,761  7 
471  341  446  (24) Exports 416  452  (8)
417  386  365  6  International Sales 416  383  9 
   
 
888  727  811  (10) Total international market 832  835  (0)
   
 
2,848  2,679  2,607  3  Total 2,815  2,596  4 
         
 

Exploration and Production – Thous. barrels/day

In 4Q04, production of domestic oil and NGL fell 1% in relation to production in 3Q04, due to stops on platforms P-25 (Albacora), P-26 and P-35 (Marlim) and FPSO-MLS (Marlim Sul).

Production of domestic oil and NGL in fiscal year 2004 fell 3% in relation to fiscal year 2003, due to production interruptions at DP-Seillean in the Jubarte field for scheduled inspections, the stop of FPSO-Brasil, the closure of wells in the Marlim Sul fields, the partial production stop at P-40 (Marlim Sul) because of elevated water production and limited oil processing at the plant, the closure of some wells at Albacora for maintenance of turbo-compressors, the scheduled stop at platforms at Linguado, Pampo and Enchova, and to the potential reduction in opening productive wells at the Marlim field. This last was due mainly to increased water production associated with oil and the high production of associated gas. The delay, due to contractual reasons, in deliveries of platforms P-43, P-48 and P-50 to the fields at Barracuda, Caratinga and Albacora Leste, also contributed to the fact that the 2003 production level was not surpassed.

International oil production remained stable in 4Q04 in relation to 3Q04, while gas production fell 5% due to lower demand for Bolivian gas in the Brazilian and Argentine markets.

In fiscal year 2004, international oil and gas production grew 4% and 11%, respectively, in relation to fiscal year 2003, due to regularization of production at PEPSA in Venezuela, which was compromised in January and February of 2003 because of strikes in that country, and to the increased production of Bolivian gas, which reflected the demand in the Brazilian market and the start of the sales contract, in June 2004, of Bolivian gas to Argentina.

Refining, Transport and Supply – Thous. barrels/day

The load processed (primary processing) by refineries in Brazil increased 7% in fiscal year 2004 in relation to the previous year, due to the modernization and expansion of the refining facilities at RLAM, REVAP, REGAP and REPLAN in 2003, reflecting better operating performance in 2004 and allowing the renewal of by-product stock levels that were used during the scheduled stops in the period, in addition to bringing them up to adequate levels for future stops. The 5% increase in internal consumption of by-products in Brazil also contributed to growth in load processed.

Costs

Lifting Cost (US$/barrel)

The 16% increase in the unit lifting cost in Brazil without government participation in 4Q04 in relation to 3Q04, is largely due to higher expenses for specialized technical services in well restoration, oil transport, collection systems, water injection, inspection and maintenance of surface facilities, utility systems, underwater operations and ocean terminals, and to the higher expenses for salaries and benefits linked to the salary adjustments projected in the collective bargaining agreement.

The unit lifting cost in the country without government participation in fiscal year 2004 increased 27% in relation to fiscal year 2003, largely due to higher expenses for technical services for well restoration and maintenance, exploratory drilling rigs and special boats in the Campos Basin, whose prices are limited by the international price of oil. It also increased because of the higher expenses for materials due to greater consumption of chemical products, and to the expenses for maintenance services at ocean terminals, transport lines and installations associated with the Company’s environmental program, and sea and aerial transport related to operational support of production. Other contributing factors were the higher personnel expenses related to salary adjustments conceded in collective bargaining agreements in September 2003 and 2004, to payment of differences in overtime shift hours set forth in the collective bargaining agreement, to growth in the workforce, and revision of the actuarial calculations for health benefits and future retirements.

In fiscal year 2004, the unit lifting cost in the country with government participation, grew 26% over fiscal year 2003, a result of the already-mentioned increased operating expenses, the higher expenses with government participation due to the increase in the average reference price for domestic oil (24%), and appreciation of the real against the dollar in the period. This is reflected in the larger number of dollars in the conversion of costs in reais (5%), and offset by reduced domestic production of oil and gas in the fields with the largest incidences of government participation, mainly Marlim Sul. In comparison with 3Q04, the lifting cost in the country in 4Q04, considering government participation, grew 17%, caused by the increased reference price for domestic oil and the appreciation of the real against the dollar in the period (6%).

In 4Q04, the international lifting cost increased 15% over 3Q04, a function of the higher expenses for materials and maintenance services for wells in Argentina and Colombia, and operating expenses in the United States.

In fiscal year 2004, the international unit lifting cost increased 6% over fiscal year 2003, due to increased expenses for personnel, materials and third-party services, the operations at Block 18 at PEPSA-Equador, and intervention in wells in Argentina, as well as maintenance expenses in Angola and the United States.

Refining Cost (US$/barrel)

In comparison to 3Q04, the unit refining cost in the country in 4Q04 rose 24%, a function of the increase in personnel expenses due to the salary adjustments conceded in collective bargaining agreements and to the higher number of employees, as well as to higher corrective operational maintenance expenses, mainly at REPLAN and RLAM.

The unit refining cost in the country in fiscal year 2004 rose 18% over the prior year because of the growth in personnel expenses, which reflected the salary adjustment conceded in the collective bargaining agreement, the larger workforce, the revision in actuarial calculations incident on the expenses provisioned for the health plan and the pension plan, and payment of the difference of overtime shift hours set forth in the collective bargaining agreement. In addition, the scheduled costs for future stops at the industrial units RPBC, REDUC, RECAP and REPAR, and for corrective maintenance at RPBC, RLAM, REDUC and REVAP increased.

The average international refining cost in 4Q04 remained stable in relation to 3Q04.

In fiscal year 2004, the average international unit refining cost rose 3% in relation to fiscal year 2003, due to higher expenses with personnel, materials, maintenance and third-party services, mainly environmental consulting and quality control in Argentina.

Overhead (US$ million)

Corporate overhead in 4Q04 rose 26% compared to 3Q04, largely due to higher expenses for contracted services related to advertising, institutional propaganda and other agreements related to institutional projects.

In comparison to fiscal year 2003, corporate overhead in fiscal year 2004 rose 35%, due to higher personnel expenses from the concession of a salary adjustment in the collective bargaining agreements of September 2003 and 2004, and to the revision in the actuarial calculation of the health benefits for retirees and pensioners, plus higher expenses for advertising, institutional publicity and cultural sponsorships.

Sales Volume – Thous. barrels/day

The sales volume of by-products fell 3% in the domestic market in 4Q04, mainly due to reduced sales of diesel oil, fuel oil and LPG, which reflected lower consumption of these derivatives, as industrial production is less intense in this period.

The volumes of by-products sold rose 5% in the domestic market in fiscal year 2004 when compared to fiscal year 2003, particularly the increased sales of gasoline, diesel oil and LPG, which essentially reflected the heating up of the economy in 2004. These increases were partially offset by lower sales of fuel oil, due to the expansion of substitute products such as imported coke, coal (domestic and imported) wood, biomass, and in greater proportion, natural gas.

Consolidated Statement of Results by Business Area

Result by Segment Area R$ million (1)
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003 D %   2004 2003 D %
(4)   (3) (4)       (3) (4)
5,728  4,506  2,727  65  EXPLORATION & PRODUCTION 18,083  14,826  22 
274  838  947  (12) SUPPLY 2,553  5,199  (51)
270  252  (710) 135  GAS & ENERGY 460  (1,259) 137 
109  267  72  271  DISTRIBUTION 623  353  76 
(34) 119  (50) 338  INTERNATIONAL(2) 347  746  (53)
(404) (1,313) (158) 731  CORPORATE (3,677) (1,657) (122)
(455) (103) 193  (153) ELIMINATIONS AND ADJUSTMENTS (528) (413) (28)
   
 
5,488  4,566  3,021    CONSOLIDATED NET INCOME 17,861  17,795 
   
 
(1)

The financial statements by business area and their respective commentaries are presented starting on page 22.

(2)

In the international business area, comparability between the periods is influenced by the variation in the exchange rate, considering that all operations are carried out abroad, in dollars or in the currency of the country in which each company is headquartered, and there may be significant variations in reais due mainly to exchange rate behavior.

(3)

Net Equity relative to 2003 was reclassified between the International segment and the group of Corporate organizations, from being an exchange rate gain or loss in the conversion of company investments abroad, to being treated exclusively as a corporate result as of 2004.

(4)

Net Operating Revenues and the CPV relative to the periods prior to 3Q04 were reclassified between the International segment and the Supply segment relating to offshore operations that were being allocated to the International segment. Considering that the margins obtained in these operations are normally very low, there was not a significant impact on the results reported for these segments.

(5)

In the Distribution business area, comparability between the periods is influenced by the Liquigás (ex-Agip), business, acquired by Petrobras Distribuidora – BR, on August 09, 2004, and included in the consolidation of PETROBRAS System as of 3Q-2004

Results by Business Area

Petrobras is a company that operates in an integrated manner, with the largest part of oil and gas production from the Exploration and Production Area being transferred to other areas of the Company.

The principle criteria used in determining results by business area are highlighted below:

a) Net operating revenues includes revenues related to sales to external clients, plus the sales and transfers among the business areas, using the internal transfer prices defined between the areas as reference.

b) Included in operating profit are net operating revenues and the cost of goods and services sold, which are reported by business area considering the internal transfer price, and the other operating costs of each area, as well as the operating expenses, in which the expenses effectively incurred in each area are considered.

c) Assets include the assets identified in each area.

E&P – In fiscal year 2004, net income reported by the Exploration & Production business area was R$ 18.083 million, 22% higher than net income in fiscal year (R$ 14.826 million), due to the R$ 4.383 million increase in gross income reported on oil sales and transfers. This reflected the increase in international prices in spite of the increase in the unit production cost, the 3% reduction in oil and NGL, the 5% appreciation in the average rate of the real against the U.S. dollar, and the lower valuation of heavy crude in the international market in comparison to lighter crude.

The spread between the average price of domestic oil sold/transferred and the average Brent price increased from US$ 1.75/bbl in fiscal year 2003, to US$ 4.72 in fiscal year 2004.

In 4Q04, net income reported by the Exploration & Production business area was R$ 4.506 million, 21% lower than the net income reported in the previous quarter (R$ 5.728 million), due to the R$ 1.526 million reduction in gross income. This reflected the devaluation of heavy crude in the international market over the sale and transfer prices of domestic oil, the 1% reduction in oil and NGL production, the increased unit production cost, and the 6% appreciation in the average rate of the real against the U.S. dollar.

The spread between the average price of domestic oil sold and transferred, and the average Brent price increased from US$ 5.41/bbl in 3Q04 to US$ 8.89 in 4Q04.

SUPPLY – In fiscal year 2004, net income reported by the Supply area was R$ 2.553 million, 51% lower than net income reported in fiscal year 2003 (R$ 5.199 million). This reflected the R$ 3.698 million reduction in gross income, with the following noteworthy highlights:

• Increase in the oil and by-product acquisition and transfer cost, pressured by higher international prices, in spite of the 5% appreciation in the average rate of the real against the U.S. dollar;

• Increased sea freight costs;

• Elevated unit refining cost;

• Increased depreciation costs due to investments in refining facilities, with increased capacity and complexity at the refineries;

• Reduction in the export prices for fuel oil, reflecting the reduction in international prices for the product, and the 5% appreciation of the average rate of the real against the U.S. dollar.

Another factor that contributed to reducing net income was the R$ 732 million increase in operating expenses, mainly a function of the R$ 429 million increase in sales expenses.

These effects were partially offset by the following:

• 5% increase in the volume of by-products sold in the domestic market, as well as growth in refinery processing;

• Growth in the average realization value of commercialized by-products in the domestic market;

• Improved refinery production profile, decreasing the need to import higher value-added by-products;

• Increased spread between heavy and light crude.

In 4Q04, the Supply business area had net income of R$ 838 million, 206% higher than the net income reported in the previous quarter (R$ 274 million), due to the R$ 1.029 million increase in gross income, which in turn was impacted by the following factors:

• Increase in the average realization value of by-products in the domestic market, particularly the sales price increases for gasoline and diesel, which were conceded on October 15, 2004, and on November 26, 2004;

• Reduction in the cost for acquisition and transfer of oil and by-products, reflecting the 6% appreciation of the average rate of the real against the dollar and the increase in the spread of heavy and light crudes.

These increases in gross income were partially offset by the following:

• Reduction of 3% in the volume of by-products sold in the domestic market;

• Reduction of 23% in the volume of by-products exported.

• Increase in the unit refining cost.

GAS AND ENERGY – In fiscal year 2004, the Gas and Energy business area reported income of R$ 460 million, compared to the R$ 1.259 million loss reported in fiscal year 2003. This was mainly due to the R$ 2.123 million provision in 2003 for losses related to financial exposure in energy businesses, as well as the recognition of a R$ 330 million provision to adjust the market value of gas-powered turbines.

Of the total of R$ 2.123 million, R$ 1.479 million was provisioned in December 2003 as losses related to financial exposure in energy businesses estimated for 2004, with nearly 97% (R$ 1.439 million) realized in fiscal year 2004.

Gross income rose R$ 164 million, particularly due to:

• 19% growth in the volume of natural gas sold, which is a result of continued expansion in the Brazilian market, mainly in the thermal generation segment, plus the industrial and automotive segments;

• Revenues from commercialization of energy rose 126%. This increase is due to the following factors: i) contracts signed throughout 2002 and 2003, with the start of supply projected for 2004; ii) remuneration of the Canoas thermoelectric plant during the period, due to the technical dispatch to guarantee energy supply in Rio Grande do Sul; iii) electricity exports to Uruguay (70 MW average) and to Argentina (500 MW average); and iv) dispatch of the Ibirité thermoelectric plant for reasons of reliability of the electricity system from August to November of 2004;

• Reduction in the unit import cost of Bolivian gas, due to the 5% appreciation in the average rate of the real against the U.S. dollar, and to the decrease in international fuel oil prices;

• Reduction in the average realization value of natural gas, due to the effects of the lower fuel oil prices in the international market and the 5% appreciation in the average rate of the real against the U.S. dollar on resale prices for Bolivian gas;

• Increased share of Bolivian gas – which is more expensive than domestic gas - in the sales mix, from 39% in fiscal year 2003, to 46% in fiscal year 2004;

Also contributing to the improved results are the results of the R$ 250 million gain from hedge operations related to natural gas imports. In the same period of the prior year, the gain from these operations was R$ 55 million.

In 4Q04, net income reported by the Gas and Energy area was R$ 252 million, 7% lower than the net income reported in 3Q04 (R$ 270 million), due to the R$ 82 million increase in general and administrative expenses. This was offset by the R$ 70 million increase in gross income, due to the 4% increase in volumes of natural gas sold, plus the increased share of Fafen Energia S/A from 20% to 100% as of December 2004.

DISTRIBUTION – In line with the strategic objectives of increasing participation in the LPG distribution segment and consolidation of the distribution market for automotive fuel in certain regions throughout the country, the distribution businesses include the operations of the company Liquigás Distribuidora S.A. as of its acquisition in August 2004 from Agip do Brasil S.A.

In fiscal year 2004, the Distribution business area reported net income of R$ 623 million, 76% higher than the net income reported in the same period of the prior year (R$ 353 million). This was due to the R$ 736 million increase in gross income, particularly noting the consolidation as of August 2004 of Liquigás do Brasil, and had positive impacts on volumes sold, which increased 12% in relation to the prior year, as well as on the gross commercialization margin, (10.0% in fiscal year 2004 and 9.4% in fiscal year 2003).

This impact was partially offset by the R$ 551 million increase in sales and general and administrative expenses which, in addition to including the effect of the consolidation of Liquigás, include the additional provision for doubtful debtors and growth in expenses related to the commercialization and distribution of products.

Distribution market share from January to December 2004 was 35.6%, including Liquigás (2.8%), while it was 31.5% in the same period of the previous year.

The effects of consolidation of Liquigás as of August 2004 represent growth of R$ 319 million in gross income and R$ 155 million in net income in the segment.

In 4Q04 the Distribution business area reported net income of R$ 267 million, 145% higher than net income reported in the previous quarter (R$ 109 million), due to the R$ 279 million increase in gross income, mainly a reflection of the Liquigás consolidation.

This impact was partially offset by the R$ 150 million increase in sales, and general and administrative expenses, which in addition to the effect of the Liquigás consolidation, include an additional provision for doubtful debtors and a rise in expenses related to the commercialization and distribution of products.

Market share in fuel oil was 36.3% in 4Q04, including the company Liquigás (2.6%), and 35.9%, in 3Q04.

The impact of the consolidation of Liquigás in 4Q04 generated a R$ 248 million increase in gross income and R$ 131 million in the segment’s net income. The fourth quarter of 2004 included Liquigás’ results from September to December, in order to eliminate the one-month gap from the previous quarter for consolidation purposes. If the consolidation had only included the months of October to December, the increase in 4Q04 results would have been R$ 180 million in gross income and R$ 112 million in net income.

INTERNATIONAL – In fiscal year 2004, the International business area reported net income of R$ 347 million, 53% lower than net income of R$ 746 million reported in fiscal year 2003.

This drop in net income was due to the following:

• Net financial expenses of R$ 1.239 million in the year 2004, largely due to losses in derivative operations (R$ 654 million) and interest on PEPSA’s various loans (R$ 495 million). In 2003, a positive net financial result of R$ 27 million was reported, mainly because of the exchange rate variation on net liabilities arising from the 13% appreciation of the Argentine peso against the U.S. dollar (R$ 733 million). This was offset by losses from derivative operations (R$ 193 million) and interest on several of PEPSA’s loans (R$ 588 million).

• Increase of R$ 120 million in operating expenses, mainly because of the write-off of the signature bonus for Block 34 in Angola relative to wells identified as being dry (R$ 192 million).

These impacts were partially offset by the R$ 782 million increase in gross income, mainly arising from higher international oil prices and the increase in sales of oil and gas in Bolivia and Argentina, despite the 5% appreciation in the average rate of the real against the U.S. dollar and the increased unit cost of oil and gas production.

In 4Q04, the International business area reported net income of R$ 119 million, compared to a R$ 34 million loss in the previous quarter, mainly due to the following factors:

• Reduction of R$ 133 million in operating expenses, largely in exploratory expenses, considering the recognition in the previous quarter of the write-off of the acquisition bonus in Block 34 in Angola.

• Positive variation of R$ 189 million in income tax (deferred), due mainly to the possibility of recovering tax credits as a consequence of approval of the process of incorporation of companies of the Petrobras System in Argentina.

These effects were partially offset by the R$ 241 million reduction in gross income, arising from the decreased volume of commercialization at facilities in Colombia, Angola, Argentina and Bolivia, the 6% appreciation of the real against the U.S. dollar, and the higher unit cost of oil and gas production.

CORPORATE – The units that comprise the Corporate business area in the Petrobras System generated a loss of R$ 3.677 million in fiscal year 2004, which was 122% greater than the loss reported in the same period of the prior year (R$ 1.657 million), as a function of the following:

• Financial loss of R$1.687 million in 2004, compared to positive financial results of R$1.442 million in the previous year, due to lower appreciation of the real against the US dollar (8.1% in 2004 and 18.2% in the year 2003), and lower revenues from financial investments, due to the reduction of the balance as well as the profitability of the funds in Brazil backed predominantly by securities notes;

• Increase of R$ 167 million in tax expenses, arising from the higher rates of PIS/PASEP and COFINS, instituted by Law No. 10,865;

• Increase in corporate overhead due to higher expenses for personnel, publicity and institutional advertising, and to the revised actuarial calculation for expenses provisioned for the Health Plan (AMS) of retirees and pensioners.

These impacts were partly offset by the R$707 million reduction in exchange rate losses on foreign investments, considering the lower appreciation rate of the real against the US dollar;

In 4Q04, the loss reported by the group of corporate organizations was R$ 1.313 million, 226% higher than the loss reported in the previous quarter (R$ 404 million) due to the following factors:

• Higher corporate overhead due to higher personnel expenses arising from the 2005/2004 Collective Bargaining Agreement, to the increase in the workforce of Petrobras, to the elevation in expenses for publicity and institutional advertising, and other agreements linked to institutional projects and increased expenses for maintenance and software licenses.

• Increase of R$ 495 million in net financial expenses, a function mainly of the lower appreciation of the final rate of the real against the dollar in 4Q04 (7%), compared with the rate in 3Q04 (8%).

PETROBRAS SYSTEM Financial Statements

Consolidated Debt

  R$ Million  
  12.31.2004 12.31.2003 D %
Short-term Debt(1) 7,151  10,880  (34)
Long-term Debt(1) 45,605  49,618  (8)
 
 
Subtotal 52,756  60,498  (13)
Financial Resources Raised, Not Yet Applied to Projects 2,655  3,293  (19)
 
 
Total 55,411  63,791  (13)
Net Debt(3) 33,813  34,684  (3)
Net Debt/(Net Debt + Equity Ratio)(1) 35% 41% (6)
Total Net Liabilities(1) (2) 141,378  126,094  12 
Capital Structure
(Third Parties Net / Total Liabilities Net) 56% 61% (5)

(1)

Includes debt contracted by Special Purpose Entities with which Petrobras structured project finance deals (R$ 9.265 million as of 12.31.2004 and R$ 9.975 million as of 12.31.2003), in addition to the anticipation of undertakings in consortiums (R$ 2.254 million as of 12.31.2004 and R$ 3.438 million as of 12.31.2003), and debt contracted through Leasing contracts (R$ 4.021 million as of 12.31.2004, and R$ 4.837 million as of 12.31.2003).
(2)

Total liabilities net of cash/cash equivalents.
(3)

Considers the consolidation of financing contracted by Special Purpose Entities that still do not represent resources applied in investment projects.

Net debt of the Petrobras System on 12.31.2004 was R$ 33.813 million, a 3% reduction in relation to 12.31.2003, due to the 8.1% appreciation of the real against the U.S. dollar on the amount of consolidated debt (US$ 1 = R$ 2,65 on 12.31.2004, against US$ 1 = R$ 2,89 on 12.31.2003). This was partially offset by less available cash in the period, resulting from lower cash generation due to operating activities and because of the use of resources to acquire Liquigás (ex-AGIP do Brasil), for R$ 1.371 million.

The Company has been working diligently to lengthen its debt profile, contracting long-term operations and simultaneously liquidating short-term operations. The capital structure represented by third parties reached 56% on December 31, 2004, a 5% reduction from December 31, 2003.

Consolidated Investments

In fulfillment of the goals established in its strategic plan, Petrobras continues to prioritize its investments in developing its oil and natural gas production capacity, through its own investments and structuring undertakings with partners. In fiscal year 2004, total investments were R$ 21.774 million (excluding amounts invested via off-balance sheet SPEs, which totaled approximately R$ 775 million, equal to US$ 292 million in fiscal year 2004), representing a 18% increase over the resources applied in fiscal year 2003.

R$ million
  Fiscal Year
  2004 % 2003 % D %
• Own Investments 21,151  97  17,354  94  22 
 
 
Exploration & Production 12,441  57  8,772  47  42 
Supply 3,907  18  4,705  25  (17)
Gas and Energy 625  3  1,118  6  (44)
Internacional 2,331  11  1,967  11  19 
Distribution 1,223  5  332  2  268 
Corporate 624  3  460  3  36 
• Ventures under Negotiation 454  2  615  3  (26)
 
 
• Structured Projects 169  1  516  3  (67)
 
 
Exploration & Production 169  1  516  3  (67)
Espadarte/Marimbá/Voador 32  -  57  -  (44)
Cabiúnas 45  -  111  1  (59)
Marlim / Nova Marlim Petróleo 17  -  254  1  (93)
PCGC 75  -  90  1  (17)
Others -  -  4  -  (100)
 
 
Total Investments 21,774*  100  18,485  100  18 
 
 
*

In addition to this amount, approximately R$ 775 million was invested, equivalent to US$ 292 million, through SPC's as mentioned above.

R$ million
  Fiscal Year
  2004 % 2003 % D %
 
International 2,331  100  1,967  100  19 
 
 
Exploration & Production 2,017  87  1,721  87  17 
Supply 41  2  31  2  32 
Gas and Energy 98  4  78  4  26 
Distribution 39  2  72  4  (46)
Others 136  5  65  3  109 
 
 
Total Investments 2,331  100  1,967  100  19 
 
 
SPE's Investment
R$ million
  Fiscal Year
  2004 % 2003 % D %
SPE 775  100  2,448  100  (68)
 
 
Barracuda & Caratinga 597  77  2,327  95  (74)
Malhas 153  20  -  -  - 
Cabiúnas 25  3  93  4  (73)
EVM -  -  28  1  (100)
 
 
Total Investments 775  100  2,448  100  (68)
 
 

Consolidated Statement of Results

R$ Million
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003 2004 2003
 
40,510  39,637  33,199  Gross Operating Revenues 150,403  131,988 
(11,435) (10,945) (9,247) Sales Deductions (42,201) (36,245)
 
29,075  28,692  23,952  Net Operating Revenues 108,202  95,743 
(17,057) (17,012) (13,326)     Cost of Goods Sold (63,100) (52,893)
 
12,018  11,680  10,626  Gross Profit 45,102  42,850 
      Operating Expenses
(1,512) (1,285) (885)     Sales (4,752) (3,364)
(936) (1,360) (922)     General & Administrative (4,033) (3,170)
(651) (460) (675)     Cost of Prospecting, Drilling & Lifting (1,736) (1,638)
(191) (187) (178)     Research & Development (696) (571)
(200) (220) (281)     Taxes (1,206) (983)
(1,069) (145) (2,139)     Other (2,864) (5,591)
          Net Financial Expenses
11  (561) 603          Income 931  1,817 
(838) (874) (1,029)         Expenses (4,102) (3,195)
40  (33) 73          Monetary & FX Correction - Assets 737  (1,185)
765  1,017  197          Monetary & FX Correction - Liabilities 16  3,913 
 
(22) (451) (156)   (2,418) 1,350 
 
(4,581) (4,108) (5,236)   (17,705) (13,967)
(332) (270) (171) Gains from Investments in Subsidiaries (145) (1,009)
 
7,105  7,302  5,219  Operating Profit 27,252  27,874 
-  -  68  Balance Sheet Monetary Correction -  - 
(44) (222) (207) Non-operating Income (Expenses) (531) (485)
(1,216) (1,325) (1,121) Income Tax & Social Contribution (7,250) (7,816)
(357) (406) (44) Minority Interest (827) (884)
-  (783) (894) Employee Profit Sharing Plan (783) (894)
 
5,488  4,566  3,021  Net Income 17,861  17,795 
 

Consolidated Balance Sheet

Assets R$ Million
  Dec. 31, 2004 Sep. 30, 2004 Dec. 31, 2003
 
Current Assets 51,287  50,770  50,701 
 
Cash and Cash Equivalents 18,943  17,692  24,953 
Accounts Receivable 10,609  11,445  8,135 
Inventories 14,419  14,480  10,395 
Other 7,316  7,153  7,218 
Non-Current Assets 16,217  17,203  16,949 
 
Petroleum & Alcohol Account 749  754  689 
Ventures under Negotiation 301  584  850 
Advances to Suppliers 959  963  1,022 
Marketable Securities 557  619  639 
Investments in Companies to be Privatized 332  313  245 
Deferred Taxes and Social Contribution 4,005  3,773  3,301 
Advance for Pension Plan Migration 1,218  1,316  1,193 
Prepaid Expenses 1,384  1,051  1,174 
Accounts Receivable 2,905  3,938  2,812 
Judicial Deposits 1,510  1,444  1,335 
Other 2,297  2,448  3,689 
Fixed Assets 79,531  76,772  68,584 
 
Investments 2,075  2,463  2,022 
Property, Plant & Equipment 76,745  73,343  65,947 
Deferred 711  966  615 
 
Total Assets 147,035  144,745  136,234 
 
Liabilities R$ Million
  Dec. 31, 2004 Sep. 30, 2004 Dec. 31, 2003
 
Current Liabilities 33,958  32,908  36,898 
 
Short-term Debt 5,495  5,964  8,132 
Suppliers 9,037  8,889  7,039 
Taxes and Social Contribution Payable 7,689  7,095  7,324 
Project Finance and Joint Ventures 1,237  1,464  1,725 
Pension Fund Obligations 441  354  462 
Dividends 5,062  3,292  5,659 
Other 4,997  5,850  6,557 
Long-term Liabilities 48,041  49,844  48,038 
 
Long-term Debt 31,721  34,149  34,116 
Pension Fund Obligations 696  718  345 
Health Care Benefits 5,674  5,368  4,564 
Deferred Taxes and Social Contribution 6,747  6,706  6,044 
Other 3,203  2,903  2,969 
Provision for Future Earnings 502  505  312 
Minority Interest 2,262  2,015  1,619 
Shareholders’ Equity 62,272  59,473  49,367 
 
Capital Stock 33,235  33,235  20,202 
Reserves 11,176  12,941  11,370 
Net Income 17,861  13,297  17,795 
 
Total Liabilities 147,035  144,745  136,234 
 

Consolidated Cash Flow Statement

R$ million
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003 2004 2003
5,488  4,566  3,021  Net Income (Loss) 17,861  17,795 
(1,633) 4,340  3,092  (+) Adjustments 6,802  8,704 
 
1,559  1,584  1,332          Depreciation & Amortization 6,171  5,082 
(5) 6  (5)         Petroleum & Alcohol Account (59) (15)
(1,462) (2,484) 652      Charges on Financing and Connected Companies (312) 259 
357  406  45      Minority Interest 827  884 
332  197  170      Result of Participation in Material Investments 72  1,009 
444  (538) (82)     Deferred Income Tax and Social Contribution 980  685 
(1,248) 62  702      Inventory Variation (4,023) 2,181 
780  176  750      Supplier Variation 2,055  (199)
(2,390) 4,931  (472)     Other Adjustments 1,091  (1,182)
3,855  8,906  6,113  (=) Net Cash Generated by Operating Activities 24,663  26,499 
5,627  7,592  5,032  (-) Cash used for Cap.Expend. 21,679  18,260 
 
3,512  4,512  2,455      Investment in E&P 13,518  10,303 
1,812  1,364  1,558      Investment in Refining & Transport 4,893  4,675 
240  352  926      Investment in Gas and Energy 959  1,213 
(74) 625  (48)     Project Finance 609  1,041 
12  (79) (60)     Dividends (134) (91)
125  818  201      Other investments 1,834  1,119 
 
(1,772) 1,314  1,081  (=) Free Cash Flow 2,984  8,239 
(478) 63  (2,889) (-) Cash used in Financing Activities 8,994  (4,839)
(508) 56  (2,898)     Financing 3,524  (7,572)
30  7  9      Dividends 5,470  2,733 
(1,294) 1,251  3,970  (=) Net Cash Generated in the Period (6,010) 13,078 
 
18,986  17,692  20,983      Cash at the Beginning of Period 24,953  11,875 
17,692  18,943  24,953      Cash at the End of Period 18,943  24,953 

Consolidated Statement of Added Value

  R$ Million
  Fiscal Year
  2004  2003 
Description
Gross Operating Revenues from Sales & Services 150,379  131,907 
Raw Materials Used (4,823) (6,683)
Products for Resale (28,694) (18,044)
Materials, Energy, Services & Others (15,088) (20,937)
 
Value Added Generated 101,774  86,243 
 
Depreciation & Amortization (6,171) (5,082)
Participation in Associated Companies (72) (1,009)
Financial Income 1,668  844 
Balance Sheet Monetary Correction -  - 
 
Total Distributable Value Added 97,199  80,996 
 
Distribution of Value Added
Personnel
Salaries, Benefits and Charges 5,490  4,273 
Participation 783  894 
 
  6,273  5,167 
 
Government Entities
Taxes, Fees and Contributions 46,895  42,938 
Government Participation 11,327  9,774 
Deferred Income Tax & Social Contribution 980  (338)
 
  59,202  52,374 
 
Financial Institutions and Suppliers
Financial Expenses, Interest, Rent & Freight 13,036  4,776 
 
 
Shareholders
    Dividends 5,045  5,650 
    Retained Earnings 12,816  12,145 
 
  17,861  17,795 
    Minority Interest 827  884 
 
Value Added Distributed 18,688  18,679 
 

Consolidated Result by Business Area - December 31, 2004

  R$ Million
 
  E&P SUPPLY GAS
&
ENERGY 		DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
 
INCOME STATEMENTS
 
Net Operating Revenues 55,219  82,891  5,817  30,507  10,593  -  (76,825) 108,202 
 
    Intersegments 47,966  25,674  1,036  508  1,641  -  (76,825) - 
    Third Parties 7,253  57,217  4,781  29,999  8,952  -  -  108,202 
Cost of Goods Sold (24,941) (75,603) (4,310) (27,454) (6,830) -  76,038  (63,100)
 
Gross Profit 30,278  7,288  1,507  3,053  3,763  -  (787) 45,102 
Operating Expenses (2,250) (3,684) (633) (2,225) (1,825) (4,670) -  (15,287)
Sales, General & Administrative (681) (2,889) (587) (1,818) (1,062) (1,748) -  (8,785)
Taxes -  (77) (32) (158) (133) (806) -  (1,206)
Exploration, Drilling and Lifting Costs (1,220) -  -  -  (516) -  -  (1,736)
Research & Development (305) (143) (23) (7) (4) (214) -  (696)
Others (44) (575) 9  (242) (110) (1,902) -  (2,864)
 
Operating Profit (Loss) 28,028  3,604  874  828  1,938  (4,670) (787) 29,815 
Interest Income (Expenses) (53) 161  425  (7) (1,239) (1,687) (18) (2,418)
Gains from Investment in Subsidiaries -  191  18  -  21  (375) -  (145)
Non-operating Income (Expense) (248) 119  (332) (6) (44) (20) -  (531)
 
Income before Taxes and Minority Interests 27,727  4,075  985  815  676  (6,752) (805) 26,721 
Income Tax & Social Contribution (9,312) (1,265) (95) (134) 50  3,229  277  (7,250)
Minority Interests -  (41) (426) -  (360) -  -  (827)
Employee Profit Sharing Plan (332) (216) (4) (58) (19) (154) -  (783)
 
Net Income (Loss) 18,083  2,553  460  623  347  (3,677) (528) 17,861 
 

Consolidated Result by Business Area - December 31, 2003

  R$ Million
 
  E&P SUPPLY GAS
&
ENERGY 		DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
 
INCOME STATEMENTS
 
Net Operating Revenues 48,299  72,794  4,759  24,547  8,690  -  (63,346) 95,743 
 
    Intersegments 40,931  20,628  727  421  639    (63,346)
    Third Parties 7,368  52,166  4,032  24,126  8,051      95,743 
Cost of Goods Sold (22,404) (61,808) (3,416) (22,230) (5,709)   62,674  (52,893)
 
Gross Profit 25,895  10,986  1,343  2,317  2,981  -  (672) 42,850 
Operating Expenses (2,317) (2,952) (3,121) (1,468) (1,705) (4,035) 281  (15,317)
Sales, General & Administrative (370) (2,316) (418) (1,267) (910) (1,534) 281  (6,534)
Taxes -  (73) (30) (147) (94) (639)   (983)
Exploration, Drilling and Lifting Costs (1,279) -  -  -  (359) -    (1,638)
Research & Development (261) (134) (18) -  (2) (156)   (571)
Others (407) (429) (2,655) (54) (340) (1,706)   (5,591)
 
Operating Profit (Loss) 23,578  8,034  (1,778) 849  1,276  (4,035) (391) 27,533 
Interest Income (Expenses) (13) 116  157  (190) 27  1,442  (189) 1,350 
Gains from Investment in Subsidiaries (1) -  188  56  -  (171) (1,082)   (1,009)
Non-operating Income (Expense) (384) (69) (5) (3) (35) 11    (485)
 
 
Income before Taxes and Minority Interests 23,181  8,269  (1,570) 656  1,097  (3,664) (580) 27,389 
Income Tax & Social Contribution (7,979) (2,740) 972  (221) (210) 2,195  167  (7,816)
Minority Interests -  (97) (656)   (131) -    (884)
Employee Profit Sharing Plan (376) (233) (5) (82) (10) (188)   (894)
 
Net Income (Loss) 14,826  5,199  (1,259) 353  746  (1,657) (413) 17,795 
 
(1)

The Net Equity Result relative to the year 2003 was reclassified among the International business area and the group of Corporate organizations, from being an exchange rate gain or loss in the conversion of company investments abroad, to being treated exclusively as a corporate result.

(2)

Net Operating Revenues and the CPV relative to the year 2003, were reclassified among the International business area and the Supply area in relation to the offshore operations that were being allocated in the International segment. Considering that the margins obtained in these operations are normally very low, there was no significant impact on the results reported by these segments.

Statement of Other Operating Revenues (Expenses) 12.13.2004

  Fiscal Year - R$ Million
 
  E&P SUPPLY GAS
&
ENERGY 		DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
 
Health and pension plan expenses - retirees and pensioners                (1,320)    (1,320)
Institutional relations and cultural projects    (9)    (102)    (646)    (757)
Unscheduled stops at installations and production equipment (118) (127)                (245)
Unscheduled stops at facilities and in production equipment             (169)       (169)
Losses and Contingencies related to Legal Procedures (43) (28) (2) (105)    (52)    (230)
Social Security tax contingencies (135)                   (135)
Tax credit write-off    (94)                (94)
Result from hedge operations    (272) 250              (22)
Rent revenues          45           45 
 
Others 252 (45) (239) (80) 59 116    63
 
 
  (44) (575) 9 (242) (110) (1,902)    (2,864)
 

Statement of Other Operating Revenues (Expenses) 12.13.2003

  Fiscal Year - R$ Million
 
  E&P SUPPLY GAS
&
ENERGY 		DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
 
Health and pension plan expenses - retirees and pensioners    (7)    (30)    (776)    (813)
Institutional relations and cultural projects    (7)    (80)    (507)    (594)
Unscheduled stops at facilities and in production equipment (354) (202)                (556)
Contractual losses from ship-or-pay transport services             (293)       (293)
Losses and Contingencies related to Legal Procedures (29) (102)       (48) (216)    (395)
Social Security tax contingencies (152) (5)          (3)    (160)
Result from hedge operations    (7) 55        (191)    (143)
Rent revenues          39           39 
Losses and contractual contingencies with energy businesses       (2,123)             (2,123)
Adjustment to market value of turbines for thermoelectric plants       (330)             (330)
Expenses related to oil and oil by-product transport - previous years    (88)                (88)
Losses from alcohol inventories - previous years    (73)                (73)
Production cost - previous years (33)                   (33)
                         
Others 161  62  (257) 17  1  (13)    (29)
 
 
  (407) (429) (2,655) (54) (340) (1,706)    (5,591)
 

Consolidated Assets by Business Segment - 12.31.2004

  R$ Million
 
  E&P SUPPLY GAS
&
ENERGY 		DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
 
ASSETS 45,620  37,161  12,992  8,173  21,286  40,091  (18,288) 147,035 
 
CURRENT ASSETS 4,269  19,564  2,799  4,610  5,751  19,000  (4,706) 51,287 
 
CASH AND CASH EQUIVALENTS 69  1,338  470  304  1,387  15,375  -  18,943 
OTHERS 4,200  18,226  2,329  4,306  4,364  3,625  (4,706) 32,344 
NON-CURRENT ASSETS 4,767  1,639  2,264  903  985  18,904  (13,245) 16,217 
 
PETROLEUM AND ALCOHOL ACCT. -  -  -  -  -  749  -  749 
MARKETABLE SECURITIES 425  5  -  3  12  699  (587) 557 
OTHERS 4,342  1,634  2,264  900  973  17,456  (12,658) 14,911 
FIXED ASSETS 36,584  15,958  7,929  2,660  14,550  2,187  (337) 79,531 
 

Consolidated Assets by Business Segment - 9.30.2004

  R$ Million
 
  E&P SUPPLY GAS
&
ENERGY 		DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
 
ASSETS 45,662  34,692  13,465  8,063  22,450  38,215  (17,802) 144,745 
 
CURRENT ASSETS 4,980  18,139  3,261  4,619  6,450  17,443  (4,122) 50,770 
 
CASH AND CASH EQUIVALENTS 20  1,494  594  258  1,388  13,938  -  17,692 
OTHERS 4,960  16,645  2,667  4,361  5,062  3,505  (4,122) 33,078 
NON-CURRENT ASSETS 5,927  1,464  2,707  856  716  18,699  (13,166) 17,203 
 
PETROLEUM AND ALCOHOL ACCT. -  -  -  -  -  754  -  754 
MARKETABLE SECURITIES 479  5  1  2  11  765  (644) 619 
OTHERS 5,448  1,459  2,706  854  705  17,180  (12,522) 15,830 
FIXED ASSETS 34,755  15,089  7,497  2,588  15,284  2,073  (514) 76,772 
 

Consolidated Results – International Business Area - December 31, 2004

  R$ Million
INTERNATIONAL
 
  E&P SUPPLY G&E DISTRIB. CORPOR. ELIMIN. TOTAL
 
INTERNATIONAL AREA
 
ASSETS 13,576  3,339  4,231  589  5,506  (5,955) 21,286 
 
 
Income Statement
 
Net Operating Revenues 4,779  5,833  2,061  2,428  47  (4,555) 10,593 
 
    Intersegments 2,872  2,962  323  39  -  (4,555) 1,641 
    Third Parties 1,907  2,871  1,738  2,389  47  -  8,952 
 
Operating Profit (Loss) 1,577  628  467  (388) (383) 37  1,938 
 
Net Income (Loss) 341  569  365  (276) (691) 39  347 

Consolidated Results - International Business Area

  R$ Million
INTERNATIONAL
 
  E&P SUPPLY G&E DISTRIB. CORPOR. ELIMIN. TOTAL
 
INTERNATIONAL AREA
 
ASSETS (09.30.2004) 14,188  3,682  4,511  594  6,738  (7,263) 22,450 
 
 
Income Statement (12.31.03)
 
Net Operating Revenues 4,290  4,827  1,315  1,881  42  (3,665) 8,690 
 
    Intersegments 2,069  1,997  219  19  -  (3,665) 639 
    Third Parties 2,221  2,830  1,096  1,862  42  -  8,051 
 
Operating Profit (Loss) 1,177  183  292  (29) (334) (13) 1,276 
 
Net Income (Loss)(1) 391  83  356  (82) 21  (23) 746 

(1)

The Net Equity Result relative to 2003 was reclassified between the International business area and the group of Corporate organizations, from being an exchange rate gain or loss in the conversion of company investments abroad, to being treated exclusively as a corporate result as of 2004.

(2)

Net Operating Revenues and the CPV relative to 2003 were reclassified between the International business area and the Supply area in relation to the offshore operations that were being allocated to the International segment. Considering that the margins obtained in these operations are normally very low, there was no significant impact on the results reported by these segments.

PETROBRAS SYSTEM Apendices

1. Change in the Oil and Alcohol Accounts

R$ Million
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003   2004  2003 
750  754  685  Initial Balance 689  644 
-  -  -  Reimbursement to 3rd Parties -  15 
-  -  -  Reimbursement to Petrobras 4  - 
4  3  4  Intercompany Lending Charges 14  30 
-  (8) -  Partial Settlement- STN (8) - 
-  -  -  Regularization - GTI* 50  - 
 
754  749  689  Final Balance 749  689 
 
*

GOVERNMENTAL AUDIT WORK GROUP

The Governmental Audit, constituted by ANP Decree No. 50, on April 19, 2002, in June of 2004 presented the final audit report confirming and certifying the amount due on the oil and alcohol accounts as R$ 748 million, referring to the period from July 1, 1998 to December 31, 2001. On December 31, 2004 the oil and alcohol balance accounts achieve R$749 million.

As defined in Law No. 10.742 dated October 6, 2003, the rectification of accounts with the government should have occurred by June 30, 2004. After having furnished all the information required by the National Treasury Secretary – STN, Petrobras is in discussion with the Ministry of Mines and Energy – MME, endeavoring to bridge the gap that still exists between the two parties with the objective of concluding the rectification of accounts with the government as per Provisional Measure No, 2,181-45, dated August 24, 2001.

With the intent of guaranteeing payment of the amount due on the oil, by-products and alcohol accounts, on June 30, 2004, there were 138,791 National Treasury Shares – Series H (NTN-H), in the amount of R$ 173 million issued in favor of Petrobras. These were, however, less than the value of the accounts. On July 2, 2004, the Government effected a deposit in the amount of R$ 173 million corresponding to the NTNs-H, as they had expired, in partial guarantee of the amount of the accounts, of which R$ 8 million was made available to PETROBRAS and the remaining amount of R$ 165 million is in an open account, in favor of the Company, as a blocked deposit linked to the STN order.

The value of the accounts may be paid by issuing National Treasury shares in an amount equal to the final value of the account rectification or other amounts that Petrobras may owe to the federal government, including for taxes or a combination of the foregoing options.


2. Analysis of Consolidated Gross Margin

NET OPERATING REVENUES - 4Q04/3Q04 VARIATION
MAIN IMPACTS

R$ Million
  Holding Consolidated
 
. Effect of FX conversion on net operating revenues relative to international businesses, after elimination from Consolidated results -  (294)
. Effect of commercial operations abroad -  (497)
. Effect of sales prices in the domestic market 1,091  1,381 
. Effect of volumes sold on the domestic market (805) (610)
. Effect of prices on export revenues (98) (98)
. Effect of volumes sold on export revenues (1,161) (1,161)
. Increase of BR Distribuidora's profit -  268 
Others (17) 628 
 
Total (990) (383)
 

COST OF GOODS SOLD (CPV) - 4Q04/3Q04 VARIATION
MAIN IMPACTS

R$ Million
  Holding Consolidated
 
Effect of FX conversion on cost of sales relative to international businesses, after elimination from consolidated results -  (336)
. Effect of commercial operations abroad -  489 
. Effect of the exchange rate, international prices and petroleum production on third-party participation in consortiums and project finance on the CPV of PETROBRAS (12) (12)
. Effect of the exchange rate, international prices and petroleum production on Government Participation on the CPV of PETROBRAS 643  643 
Impact of volumes sold (domestic and export markets) on the CPV (1,063) (1,063)
Others (17) 324 
 
Total (449) 45 
 

3. Consolidated Taxes and Contributions

Petrobras’ economic contribution to the country, measured by generation of taxes, duties and social contributions, in fiscal year 2004 totaled R$ 43.320 million, a 6% growth over fiscal year 2003.

R$ Million
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003 D %    2004  2003  D % 
         Economic Contribution - Country
3,552  3,746  3,165  18  Value Added Tax(ICMS) 14,054  12,844  9 
1,874  5,005  2,023  147  CIDE(1) 10,783  7,432  45 
3,725  494  2,875  (83) PASEP/COFINS 10,536  11,253  (6)
1,334  1,337  1,209  11  Incomet Tax & Social Contribution 5,881  7,701  (24)
23  1,292  107  1,107  Others 2,066  1,638  26 
10,508  11,874  9,379  27  Subtotal 43,320  40,868  6 
906  660  496  33  Economic Contribution - Foreign 3,575  2,070  73 
11,414  12,534  9,875  27  Total 46,895  42,938l 9 

(1)CIDE – CONTRIBUTION OF INTERVENTION IN ECONOMIC DOMAIN.


4. Government Participation

R$ Million
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003 D %    2004  2003  D % 
        Country
1,355  1,435  1,038  38  Royalties 5,020  4,372  15 
1,529  1,776  1,071  66  Special Participation 5,717  4,845  18 
24  20  22  (9) Surface Rental Fees 87  93  (6)
2,908  3,231  2,131  52  Subtotal 10,824  9,310  16 
112  105  118  (11) Foreign 503  464  8 
3,020  3,336  2,249  48  Total 11,327  9,774  16 

Government participation in the country increased 16% during fiscal year 2004 compared to fiscal year 2003, reflecting the increase in the reference price for oil (24%), despite reduced oil production.

In relation to 3Q04, government participation in 4Q04 increased 11%, due to the variation in the domestic reference price for oil, a function of legally bringing prices in line with the international price of oil.

5. Reconciliation of Consolidated Net Equity Result

  R$ Million
  Shareholders' Equity Result
. According to PETROBRAS information as of December 31, 2004 64,254  17,754 
. Profit in the sales of products in affiliated inventories (186) (186)
. Reversal of profits on inventory in previous years -  163 
. Capitalized interest (437) (68)
. Absorption of negative net worth in affiliated companies (*) (655) 308 
. Other eliminations (704) (110)
 
. According to consolidated information as of December 31, 2004 62,272  17,861 
 

* As per CVM Instruction No. 247/96 and OFFICIAL CIRCULAR/CVM/SNC/SEP/No. 04/96, the losses that are considered to be of a non-permanent type (temporary) on investments evaluated by the equity income method, whose invested amounts do not present signs of paralysis or need for financial help from the investor, should be limited to the value of the controlling company’s investment. Therefore, the losses occasioned by unfunded liabilities (negative net equity) of controlled companies did not affect the result and the net equity of Petrobras during 2004, generating a conciliatory item between the Financial Statements of Petrobras and the Consolidated Financial Statements.

6. Petrobras Share and ADR Activity

Nominal Valuation
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003   2004  2003 
21.00% 2.70% 27.71% Petrobras ON 26.63% 59.28%
21.38% 3.53% 25.97% Petrobras PN 27.16% 64.66%
25.58% 12.85% 27.52% ADR- Level III - ON 36.05% 95.72%
26.67% 13.44% 25.46% ADR- Level III - PN 35.82% 98.96%
9.91% 12.70% 38.88% IBOVESPA 17.81% 97.33%
-3.40%  6.97% 12.71% DOW JONES 3.15% 25.32%
-7.37%  14.69% 12.11% NASDAQ 8.59% 50.01%

The equity value of a Petrobras share on December 31, 2004, was R$ 58,60.

7. Statement of Holding Company’s Basic Income for Dividend Purposes

  R$ Million  
  Fiscal Year  
  2004   
Net Income in the Fiscal Year 17,754 
Appropriation:
    Legal Reserve (888)
 
 
  16,866 
(+) Reversal of Reserves/Adjustments:
    Re-evaluation Reserve 12 
 
 
(=) Basic Profit for Dividend Purposes 16,878 
 
Proposed dividend, equivalent to 29,88% of basic profit - R$4.60 per share
(29.65% in 2003, R$ 5.15 per share), comprised of:
    Interest on Own Capital 4,386 
    Dividend 658 
 
 
Total Dividends Proposed 5,044 
 
 

The proposed dividends referring to fiscal year 2004, in the amount of R$ 5.044 million (R$ 4,60 per share), are comprised as follows:

DIVIDENDS TO BE DELIBERATED AT THE GENERAL ORDINARY MEETING Value per Share
ON and PN 		Value
R$ Million
 
Interest on Own Capital - Approved by the Board of Directors on 09.17.2004 - Pay on 02.15.2005, on the shareholder position of 09.30.2004 3.00  3,290 
 
Interest on Own Capital - Proposed by the Board of Directors 02.25.2005 -The payment date will be established at the General Ordinary Meeting to be held on 03.31.2005, on the shareholder position of 03.31.2005 1.00  1,096 
 
Dividends - Proposed by the Board of Directors on 2/25/2005 - The payment date will be determined at the General Ordinary Meeting to be held 3/31/2005, on the shareholder position of 03.31.2005 0.60  658 
 
TOTAL DIVIDENDS 4.60  5,044 
 

The proposed dividends include interest on own capital in the amount of R$ 4.386 million (R$ 4,00 per share), subject to a 15% withholding tax, except for those exempt and immune shareholders, of which R$ 3.290 million was made available to shareholders on February 15, 2005. The dividend amount and the parcel of interest on own capital to be made available will be paid on a date to be determined at the General Ordinary Shareholders’ Meeting on the position at 03.31.2005, and its values will be monetarily corrected from 12.31.2004 until the payment date, in agreement with the variation in the SELIC rate.

8. Exchange Rate Exposure

Petrobras’ exchange rate exposure is measured as per the following table:

Assets R$ Million
 
31.12.2004 30.09.2004
 
 
Current Assets 16,745  15,109 
 
    Cash and Cash Equivalents 7,879  4,897 
    Others Current Assets 8,866  10,212 
 
Non-current Assets 2,893  3,026 
 
 
Fixed Assets 21,510  22,841 
 
    Investments 145  983 
    Property, Plant & Equipment 21,333  21,821 
    Others Fixed Assets 32  37 
 
 
Total Assets 41,148  40,976 
 
Liabilities R$ Million
 
31.12.2004 30.09.2004
 
 
Current Liabilities 12,818  13,563 
 
    Short-term Debt 5,093  5,588 
    Suppliers 5,080  6,313 
    Others Current Liabilities 2,645  1,662 
 
Long-term Liabilities 29,576  31,888 
 
    Long-term Debt 27,753  30,114 
    Others Long-term Liabilities 1,823  1,774 
 
 
Total Liabilities 42,394  45,451 
 
 
Net Liabilities in Reais (1,246) (4,475)
 
(+) Investment Funds - Exchange 8,165  9,060 
 
(-)FINAME Loans - dollar-indexed reais 820  951 
 
 
Net Assets in Reais 6,099  3,634 
 
 
 
Net Assets in Dollar 2,298  1,271 
 
 
Exchange rate (1) 2.6544 2.8586

(1) Considers the conversion of the value in reais by the dollar’s sell rate on the date of the end of the period (12.31.2004 – R$ 2,6544 and 9.30.2004 – R$ 2,8565).

PETROBRAS SYSTEM Financial Statements

Holding Company Statement of Results

R$ Million
  Fourth Quarter   Fiscal Year
3Q-2004 2004 2003   2004  2003 
33,332  32,225  26,578  Gross Operating Revenues 120,025  107,361 
(9,452) (9,335) (7,834) Sales Deductions (34,450) (30,488)
 
23,880  22,890  18,744  Net Operating Revenues 85,575  76,873 
(13,911) (13,462) (9,937)     Cost of Goods Sold (48,608) (40,580)
 
9,969  9,428  8,807  Gross Profit 36,967  36,293 
      Operating Expenses
(1,605) (1,516) (1,220)     Sales, General & Administrative (5,458) (4,283)
(373) (358) (380)     Cost of Prospecting, Drilling & Lifting (1,220) (1,279)
(187) (188) (178)     Research & Development (689) (571)
(117) (101) (162)     Taxes (808) (651)
(1,279) (715) (2,275)     Others (3,595) (5,948)
      Net Financial Expense
192  (497) 800          Income 1,233  2,292 
(576) (618) (552)         Expense (2,253) (1,981)
(2,367) (2,212) (311)         'Monetary & Foreign Exchange Correction - Assets (2,184) (4,889)
2,861  2,551  381          'Monetary & Foreign Exchange Correction - Liabilities 2,513  5,899 
 
110  (776) 318    (691) 1,321 
182  21  (94) Gains from Investment in Subsidiaries 1,350  706 
 
6,700  5,795  4,816  Operating Profit 25,856  25,588 
(134) (161) (229) Non-operating Income (Expense) (551) (320)
(1,097) (1,499) (1,033) Income Tax & Social Contribution (6,891) (6,966)
(182) (97) (251) Employee Profit Sharing Plan (660) (777)
 
5,287  4,038  3,303  Net Income (Loss) 17,754  17,525 
 

Holding Company Balance Sheet

Assets R$ Million
  Dec. 31, 2004 Sep. 30, 2004 Dec. 31, 2003
 
Current Assets 35,443  36,536  39,247 
 
Cash and Cash Equivalents 11,580  13,137  20,223 
Accounts Receivable 7,421  7,629  5,856 
Inventories 11,556  11,406  8,383 
Others 4,886  4,364  4,785 
 
Non-Current Assets 45,128  44,456  33,664 
 
Petroleum & Alcohol Account 749  754  689 
Subsidiaries, Controlled Companies and Affiliates 35,182  34,502  23,306 
Ventures under Negotiation 1,211  1,491  1,584 
Advances to Suppliers 959  963  1,022 
Advance for Pension Plan Migration 1,218  1,316  1,193 
Deferred Taxes and Social Contribution 860  840  863 
Others 4,949  4,590  5,007 
 
Fixed Assets 57,065  54,073  46,912 
 
Investments 14,049  13,437  11,817 
Property, Plant & Equipment 42,582  40,235  34,826 
Deferred 434  401  269 
 
Total Assets 137,636  135,065  119,823 
 

Assets R$ Million
  Dec. 31, 2004 Sep. 30, 2004 Dec. 31, 2003
 
Current Liabilities 47,937  47,444  43,542 
 
Short-Term Debt 1,310  1,712  1,532 
Suppliers 26,950  25,350  20,688 
Taxes & Social Contribution Payable 6,583  6,117  6,406 
Dividends 5,044  3,290  5,647 
Project Finance and Joint Ventures 4,652  6,607  3,744 
Pension Fund Obligations 415  325  435 
Others 2,983  4,043  5,090 
 
Long-Term Liabilities 25,445  25,652  24,761 
 
Long-Term Debt 8,589  9,039  9,723 
Subsidiaries & Controlled Companies 3,420  3,764  4,109 
Pension Fund Obligations 601  641  288 
Health Care Benefits 5,214  4,965  4,217 
Deferred Taxes & Social Contribution 5,264  5,203  4,445 
Others 2,357  2,040  1,979 
 
Shareholders’ Equity 64,254  61,969  51,520 
 
Capital Stock 33,235  33,235  20,202 
Reserves 13,265  15,018  13,793 
Net Income 17,754  13,716  17,525 
 
Total Liabilities 137,636  135,065  119,823 
 

Holding Company Cash Flow Statement

  R$ Million
  FourthQuarter   Fiscal Year
3Q-2004 2004 2003   2004  2003 
5,287  4,038  3,303  Net Income (Loss) 17,754  17,525 
2,524  3,520  5,574  (+) Adjustments 8,195  4,980 
 
1,098  1,063  804          Depreciation & Amortization 3,807  2,850 
(5) 6  (4)         Petroleum & Alcohol Account (59) (45)
2,512  (525) 1,681          Supply of Oil and Oil By-products Abroad 4,801  (1,653)
545  1,461  (105)     Charges on Financing and Affiliated Companies 1,154  743 
0  0  0      Minority Interest
(1,626) 1,515  3,198      Other Adjustments (1,508) 3,085 
7,811  7,558  8,877  (=) Net Cash Generated by Operating Activities 25,949  22,505 
4,188  5,045  3,543  (-) Cash used for Cap.Expend. 14,317  12,118 
 
2,298  2,988  1,532      Investment in E&P 9,126  6,652 
1,575  931  1,348      Investment in Refining & Transport 3,845  3,628 
94  372  744      Investment in Gas and Energy 508  855 
54  430  (54)     Structured Projects Net of Advance 586  1,019 
-  0  -      Dividends (560) (504)
167  324  (27)     Other Investments 812  468 
 
3,623  2,513  5,334  (=) Free Cash Flow 11,632  10,387 
6,082  4,070  1,133  (-) Cash used in Financing Activities 20,275  (1,915)
 
(2,459) (1,557) 4,201  (=) Cash Generated in the Period (8,643) 12,302 
 
15,596  13,137  16,022  Cash at the Beginning of Period 20,223  7,921 
13,137  11,580  20,223  Cash at the End of Period 11,580  20,223 

Holding Company Added Value Statement

  R$ Million
  Fiscal Year
Description 2004  2003 
Gross Operating Revenue from Sales & Services 120,087  107,357 
Raw Materials Used (14,428) (7,841)
Products for Resale (7,660) (4,595)
Materials, Energy, Services & Others (12,915) (18,563)
 
Value Added Generated 85,084  76,358 
 
Depreciation & Amortization (3,807) (2,850)
Participation in Subsidiaries, Amortization of Goodwill 1,350  706 
Financial Income Net of Associated Cos. 1,384  1,382 
 
Total Distributable Value Added 84,011  75,596 
 
 
Distribution of Value Added
Personnel
Salaries, Benefits and Charges 4,374  3,612 
Government Entities
Taxes, Fees and Contributions 41,912  39,244 
Government Participation 10,824  9,310 
Deferred Income Tax & Social Contribution 1,692  (86)
 
  54,428  48,468 
 
Financial Institutions and Suppliers
Financial Expenses, Interest, Rent & Freight 7,455  5,991 
Shareholders
    Dividends 5,044  5,647 
    Net Income in the Period 12,710  11,878 
 
  17,754  17,525 
 

PETROBRAS S.A  

http: //www.petrobras.com.br/ri/english

For more information, please contact:

PETRÓLEO BRASILEIRO S.A – Petrobras
Investor Relations
Raul Adalberto de Campos– Executive Manager
E-mail: petroinvest@petrobras.com.br
Av. República do Chile, 65 - 401-E
20031-912 – Rio de Janeiro, RJ
Telephone: (55-21) 2534-1510 / 9947
0800-282-1540



This document may contain forecasts that merely reflect the expectations of the Company’s management. Such terms as “anticipate”, “believe”, “expect”, “forecast”, “intend”, “plan”, “project”, “seek”, “should”, along with similar or analogous expressions, are used to identify such forecasts. These predictions involve risks and uncertainties, whether foreseen or not by the Company. Therefore, the future results of operations may differ from current expectations, and readers must not base their expectations exclusively on the information presented herein.

 

 
SIGNATURE
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 28, 2005

 
PETRÓLEO BRASILEIRO S.A--PETROBRAS
By:
/S/  José Sergio Gabrielli de Azevedo
 
José Sergio Gabrielli de Azevedo
Chief Financial Officer and Investor Relations Director
 

 

 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.