Consolidated net income attributable to the shareholders of Petrobras reached R$5,567 million in the 3Q-2012 and R$13,435 million in Jan-Sep/2012. The EBITDA reached R$14,375 million in the 3Q-2012, a 36 % increase compared to the previous quarter, and reached R$41,495 million in Jan-Sep/2012.

Highlights

The Company’s 3Q-2012 net income was R$5,567 million, mainly as a result of:

·         Upward adjustment in the domestic prices of gasoline and diesel in June and July 2012.

·         Improvement of refining performance indicators, reaching 98% of utilization of nominal capacity and 2% increase of feedstock processed, maximizing diesel production, with a view to decrease the need for imports.

·         The exchange variation did not impact our financial expenses significantly as in the previous quarter, since the exchange rate remained flat.

·         Lower expenses related to write-offs of dry or sub-commercial wells.

·         Crude oil production decreased primarily due to maintenance stoppages. This effect was partially offset by lower operational losses and by the benefits generated by the Operational Efficiency Increase Program (Programa de Aumento da  Eficiência Operacional – PROEF) in the Campos Basin operational unit.

·         Production start-up of the Chinook deep water field in the Gulf of Mexico in September 2012, and of the Baleia Azul field in the pre-salt layer of the Campos Basin.

·         Higher operational costs generated by personnel expenses arising from the 2012 Collective Bargaining Agreement as well as maintenance expenses.

Dear Shareholders and Investors,

We recorded net income of R$5,567 million in the 3Q-2012. The reversal over the previous quarter was due to the gasoline and diesel price increases in June and July, the upturn in diesel output in our refineries, reduced expenses from write-offs of dry or sub-commercial wells, and greater exchange rate stability. Although our results were, to a certain extent, an improvement, we continue working with persistence and focus to recover profitability and improve our performance. In this context, we presented the status of the Operating Costs Optimization Program (Procop). We have mapped opportunities in various operational macro-processes, which are currently being quantified and will be disclosed next December.

We are directing our best efforts towards developing production. Nevertheless, oil output fell this quarter due to longer-than-planned operational stoppages, especially in September. These stoppages are absolutely necessary to ensure operational safety and the sustainable recovery in production. However, we are confident that the results of the Increasing Operational Efficiency Program (PROEF) and the ramp-up of new production systems will help keep output stable in 2012 (variation of +/- 2%). PROEF’s first results in the Campos Basin Operating Unit (UO-BC) are highly encouraging – the program, launched in April this year, has already increased oil production by an average of 16,700 bpd  in the year. In November, we will launch PROEF in the Rio Operating Unit and we are confident the results will be as positive as they were in the UO-BC.

We continued to record excellent levels of operational efficiency in the refining segment, where capacity utilization reached 98% and diesel output moved up. We also reached an important milestone in the modernization of our refinery installations with the operational start-up of Repar’s coking unit and hydrotreater.  

We also continued with our funding program for the Business and Management Plan (PNG). In an operation concluded at the beginning of October and characterized by strong demand, we tapped into the EUR and GBP markets for the second time, raising the equivalent of U.S.$3.3 billion for up to 11 years, at extremely attractive rates. At this point, I would just like to reemphasize that I will be closely monitoring the liquidity and leverage limits established by our Board of Directors, which are essential vectors for ensuring the financeability of the PNG.

We are very proud to have been included in the world’s most important sustainability index, the Dow Jones Sustainability Index (DJSI), for the seventh consecutive year, reaffirming our commitment to aligning integrated growth and sustainable development. Finally, I would like to reiterate that we are acting in a very determined, objective and pragmatic manner and I am absolutely certain that Petrobras will achieve the high level of competitiveness needed to ensure consistent returns for our shareholders in the coming years.

Main Items and Consolidated Economic Indicators

The information of the period of Jan-Sep/2011 were adjusted by the adoption of the accounting practice under CPC 19 (R1), which allows the use of the equity method for evaluating and reporting investments in jointly controlled entities, from the fourth quarter of 2011 on. Despite the CPC 19 (R1) adoption has generated changes in assets, liabilities, revenues and expenses accounts and also in financial indicators, there was no effect on net income and on shareholders’ equity attributable to the shareholders of Petrobras.

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      ¹  Basic and diluted earnings per share calculated based on the weighted average number of shares.

      ² Calculated based on net income before financial results and income taxes.

      ³ Income before income taxes; financial income (expenses), net; equity in results of non-consolidated companies; and depreciation, depletion and amortization.

     ⁴ Average between exports and the internal transfer prices from Exploration & Production to Refining, Transportation and Marketing.

     ⁵ As of September 2011, we have reviewed natural gas realization prices previous values.

RESULTS OF OPERATIONS

3Q-2012 x 2Q-2012 Results:

Gross Profit

13% higher (R$2,071  million) compared to the 2Q-2012, mainly due to:

Ø 8% increase in sales revenues (R$5,746 million), reflecting the upward adjustments in the domestic prices of gasoline and diesel in June and July 2012 and the increase of domestic demand (4%).    

Ø 7% increase in cost of sales (R$3,675 million), due to the increase of the domestic sales volume, to higher import costs, primarily diesel and gasoline, as well as to higher operational costs with interventions and maintenances in crude oil wells.

Net income before financial results and income taxes

63% increase (R$3,318 million) compared to the 2Q-2012, due to the higher gross profit and to lower write-offs of dry or sub-commercial wells (R$1,893 million), partially offset by the recognition of personnel expenses arising from the 2012 Collective Bargaining Agreement (R$875 million).

Financial Income (Expenses), Net

Net financial expense of R$569 million, 91% lower compared to the 2Q-2012 (R$6,407 million), due to the lower effect of the appreciation of the U.S. dollar (0.5%) on our debt in the 3Q-2012.

Net income attributable to the shareholders of Petrobras

Net income attributable to the shareholders of Petrobras reached R$5,567 million reflecting the flat exchange rate that did not impact significantly our financial expenses, as well as the lower write-offs of dry or sub-commercial wells and the upward adjustment in the prices of gasoline and diesel.

RESULTS OF OPERATIONS

Jan-Sep/2012 x Jan-Sep/2011 Results:

Gross Profit

 9% lower (R$5,586 million) compared to Jan-Sep/2011, mainly due to:

Ø 16% increase in sales revenues (R$29,055 million), reflecting:

·    Higher export prices and domestic prices for oil products that were adjusted to reflect exchange variation effects (18%);

·    Increase of domestic demand (7%), mainly gasoline (19% increase in sales volume), reflecting its higher competitive advantage relative to ethanol, diesel (6%) and jet fuel (6%), partially offset by lower export volumes due to the higher feedstock processed and to the decreased crude oil production;  

·    Upward adjustment in the prices of gasoline and diesel for the domestic market in November 2011, June 2012 and July 2012.

Ø 29% increase in the cost of sales (R$34,641 million), due to:

·    The 7% increase in the domestic oil products sales volume, the greater part of which was met by imports; 

·    The impact of exchange depreciation effects on imports of crude oil and oil products, as well as on production taxes;

·    Higher depreciation, depletion and amortization costs due to the operational start-up of new plants.

Net income before financial results and income taxes

Net income before financial results and income taxes reached R$25,653 million, a 29% decrease compared to Jan-Sep/2011 (R$36,353 million), due to the lower gross profit and to the 22% increase in operating expenses, mainly as a result of:

·    An increase in selling expenses (R$683 million), due to increased freight expenses as a result of higher sales volumes and also by higher personnel expenses arising from the 2011 and 2012 Collective Bargaining Agreements;

·    An increase in administrative and general expenses (R$997 million), reflecting higher personnel expenses arising from the 2011 and 2012 Collective Bargaining Agreements, larger workforce and increased third-party technical services;

·    Higher exploration costs (R$2,793 million), reflecting higher write-offs of dry or sub-commercial wells occurred in the 2Q- 2012;

·    Higher other operating expenses (R$825 million), due to losses from legal and administrative proceedings provided for as well as allowances for marking inventories to market value.

Financial Income (Expenses), Net

Net financial expense of R$6,511 million (R$ 278 million in Jan-Sep/2011), reflecting exchange and monetary losses on higher net debt.

Consolidated net income/(loss) attributable to the shareholders of Petrobras

Net income attributable to the shareholders of Petrobras reached R$13,435 million, a 52% decrease compared to Jan-Sep/2011 (R$28,264 million), reflecting higher financial expenses and lower net income before financial results and income taxes.

NET INCOME BY BUSINESS SEGMENT

Petrobras is an integrated energy company, with the greater part of its oil and gas production in the Exploration & Production segment being transferred to other business segments of the Company.

In the computation of the results by business segment, transactions carried out with third parties and the transfers between the business departments are considered and valued by internal transfer prices defined between the departments using calculation methodologies based on market parameters.

EXPLORATION & PRODUCTION
(R$ million)

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(*)  Not revised.

⁶  Does not include LNG. Includes gas reinjection.

Lifting Cost - Excluding production taxes – U.S.$/barrel

Lifting Cost - Including production taxes – U.S.$/barrel

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(*)  Not revised.

REFINING, TRANSPORTATION AND MARKETING

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(*) Not revised.

7  Include crude oil exports volumes of Refining, Transportation and Marketing and Exploration & Production segments.

8   Starting from the second quarter of 2012, this number only includes volumes delivered to third parties. We have adjusted the 2011 numbers for comparison purposes.

^(*)Not revised.

⁹ As registered by the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis  (ANP).

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 (*)  Not revised.                                                               

10 Weekly weighed prices per output level (light, medium and heavy), number of hours and submarket capacity.

BIOFUEL

^(*) Not revised.

¹¹  Some of the countries that comprise the international production, such as Nigeria and Angola, are operating under the production-sharing model, with the production taxes charged in crude oil barrels.

¹²  Values for Nigeria were reviewed for previous periods.