Ladies and gentlemen, thank you for standing by and welcome to the Petrobras Conference Call to discuss the Third Quarter 2011 results. At this time, all lines are in listen-only mode. Later, there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded. Today with us we have Mr. Almir Guilherme Barbassa, Petrobras CFO and Investor Relations Officer and his staff. At this time I would like to turn the conference over to Mr. Theodore Helms, Investor Relations Executive Manager of Petrobras, who has some additional comments. Please go ahead, Mr. Helms.

Good morning, ladies and gentlemen. Welcome to our conference call to discuss third quarter 2011 results. We have a simultaneous webcast on the internet that could be accessed at the site www.petrobras.com.br/ri/english. Before proceeding, I would like to draw your attention to the slide two. We may make forward-looking statements which are identified by the use of the words, will, expect, and similar that are based on the beliefs and assumptions of the Petrobras management and on information currently available to the company. Finally, let me mention that this conference call will discuss Petrobras results prepared in accordance with International Financial Reporting Standards, IFRS, and Brazilian legislation. At this moment, we are unable to discuss any issues relating to U.S. GAAP results. The conference call will be conducted by our CFO, Mr. Almir Guilherme Barbassa. He will comment on the company's operating and financial highlights and the main events during this quarter, and he will be available to answer any questions you may have. Mr. Barbassa, please begin.

Thank you for joining our conference call to discuss third quarter results. We have in this slide number three, the highlights of this quarter. And I will call your attention to this fact that operating income and the EBITDA were stable when compared with the second quarter. And this is very important for the company that has a large investment program. We can say also that net income of R$6.3 billion in the quarter were effected heavily by the 19% devaluation of the real. But cash, in terms of cash generation there were no impact. And this is really what matters. As the real value appreciates again then we recover all these results. The start up of P-56 in the quarter was the second important event for helping increasing the production for the remaining of the year and beginning of next year. In pre-salt we have a very important event, that was Lula-Mexilhão gas pipeline start-up. The conclusion of this pipeline will allow to produce more oil and ship the gas onshore for supply in the Brazilian market. The conclusion of extended well test of Guará and the start-up of Carioca North East extended well test is another event in the pre-salts. We are near the conclusion of the second well in the Franco area, that gave us a good information on the potential of the area that confirms we will have the volume to be produced from that area, that is about 60% of the transfer rights we acquired last year, of 3 billion barrels of oil. It’s important to state also that Petrobras was included in the Dow Jones Sustainability Index for the sixth consecutive year, this year. This shows how Petrobras is performing. Next slide, we have the main indicators, and confirming what I have said. EBITDA…

(Operator Instructions) The first question comes from Emerson Leite of Credit Suisse.

Thank you. Good afternoon, everybody. I have three quick questions. First is related to the block BMS-9, you recently requested to ANP an extension of the evaluation period before declaration of commerciality. I would like to understand what were the reasons for such extension and how this will affect your plans? I know from the release that the company suggested this won’t have any impact on the pre-salt development, but I would like to get a sense how come change in this part of the production -- of the commercial production, of almost two years has no impact in the overall plans for the pre-salt. That’s question number one. Question number two is related to your comment that the decline in production from Campos has to do with the equipment availability and nothing to do with geological reasons. Could you provide to us what are the percentage of water cuts in the Marlim field at the moment and what’s the average percentage of water cuts in the Campos Basin overall. That will be the second question. And the third one is related to this spill in the Frade fields experienced by Chevron as operator but Petrobras is a partner there. Do you believe these events or this incident could have any impact in terms of future drilling plans in the area or in the basin with ANP changing the procedures or something along those lines? Thank you very much.

Lots of question, Emerson, but let’s try to answer all of them. The expansion of BMS commercialization.

Yes, I can help with that, Emerson. Due to the results so far we had in these block, we ask them extension, as we’ve said in the declaration of commercial feasibility of the area to the end of 2015. And they said that there will be no impact in the production there and that is true. If you see our project until 2015, there is no platform in the Carioca area. So, it was planned already after 2015. So there will be no impact in the production and development of Carioca. The other areas are more advanced and that’s why we are developing fast in Guara, Lula Northeast. That is the reason why there will be no impact in our development plan. Regarding the BMS-9, I don’t have the number right now. You asked in the Marlim field, I think it’s more than 50%, but I don’t have the exact number right now.

[Molinari], sorry, just a follow-up on what you said about Carioca. So, the declaration of commerciality would expire at end of this year, so the fact that you didn’t have any system anticipated for the area, and through 2013 in the first place, means that you were already counting on this extension or it means that in case you didn’t get the extension it wouldn’t make much of a difference because you were not so confident in Carioca anyway?

It’s not that we are not so confident in Carioca. It’s only that we are doing, we proposed additional drilling in the area, to drill up to three wells and doing an extended well test in the area. So, it’s not that we are not confident in Carioca.

Okay. Thank you.

Regarding to the [BSM], you believe you can check that information?

Yeah, I can check that information. Yes, (inaudible) the Marlim field, yes.

Okay. And regarding Frade, Emerson. If I recall, the question was regarding what would be the impact on the operation in general?

Yes. If you anticipate that this could spark a broader, say, reactions from ANP becoming more strict or delaying drilling somehow. Obviously, a lot of people are looking at it. It is a much smaller scale of an event, but the recent Macondo situation in the U.S. brings about memories and then people start to wonder if this would have an impact in the Brazilian activities somehow. Since you’re closer to the development, I’m just asking if you anticipate or if you are seeing any such reaction up until now?

Emerson, from the point of view, my point of view and as you might know it’s too early to draw any conclusion on that. This is a very different case as far as I know. I don’t know if Molinari has more to say about it, but it is a situation due to operational conditions that apply to that specific region. I don’t see a reason to take that and apply to all the other, but Molinari?

Yes. Well, after Macondo accident, I think all the national agencies around the world have increased concerns about deepwater drilling and they have raised the requirements. And we also, we had discussions by the national agencies, especially this year in the third quarter, we have not stopped the platforms, unplanned platform stoppages. And I believe the requirements really state what we are working on right now is to have more eligibility in the inspections that they are making so we can reduce the unplanned stoppages.

The next question comes from Diego Mendes from Itau. Paula Kovarsky - Itaú Corretora de Valores S.A: This is Paula here. My question is just wanted to follow-up a little bit on this issue about the salaries increase. You mentioned in the previous call that you have provisioned R$600 million. Was it for the third or for the fourth quarter? And then based on the -- you mentioned R$15 billion is the year-to-date cost with salaries, total cost with salaries. What will be the estimate number for the year and then if we assume the 10% salaries increase that has been talked about in the local press, would it make sense to just apply that to the total salary number and assume this will be the recurring expense for next year?

Well, I don’t have these figures, so we don’t work on them. We don’t have, but maybe we have spent R$15 billion, including R$600 million up to September. The remaining of the year we will not have the extra. Only the increase in normal salaries, that is in this R$600 million bonus that is paid in this period that is one-off. Paula Kovarsky - Itaú Corretora de Valores S.A: Yeah, but if you assume 15 as average, 20 would be the year average, right? And then it contradicts the bonus?

Yes. Still take 5 per quarter, you’re not going to miss too much. Paula Kovarsky - Itaú Corretora de Valores S.A: Okay, but then if it’s a 10% increase, do we apply the 10% to the year number or this is...?

No. Paula Kovarsky - Itaú Corretora de Valores S.A: Total wage including outsources?

No, because the part of this 10% is in the R$600 million that is paid as bonus. It does not happen every month. Paula Kovarsky - Itaú Corretora de Valores S.A: But are they talking about a 10% salary increase in average?

Yeah. The average they have I think is about 10% -- close to 11%. Paula Kovarsky - Itaú Corretora de Valores S.A: Okay. Thank you. And then just quickly on back to the -- stream next year? Can you hear me?

There were a problem in the line, but could you repeat please? Paula Kovarsky - Itaú Corretora de Valores S.A: Yeah. About the production increase for next year or about the platforms that are expected to come on stream to four platforms. Can we expect them to ramp up like the P-56, so doing well in six months, or do you expect the ramp up of those platforms to be slower?

Let’s have [Molinari] here.

Yes, Paula, that’s a very good question. The ramp up of those platforms will certainly be faster, like P-56 because we have now the drilling rigs arriving and we’ve learnt to drill the wells before the platform arrives. So, when we install the platform, we’ll have more wells already ready to be connected.

The next question comes from [Terry Hoy of Linam].

Yes, my question’s already been answered. Thanks.

And the next question comes from Christian Audi of Santander.

Thanks. A couple of questions. The first one, can you share with us your outlook, specifically in terms of costs, lifting costs and refining costs going into the fourth quarter as well as the beginning of the year. You see an environment where you can -- you have the capability to reduce them or they will be more flattish any color on those please?

Let me have [Molinari] and [Marshall] help me in this answer.

Yeah, the lifting cost, Christian, it will -- there are some movements like production and we will benefit if more production grows in the fourth quarter. And it will depend also in the exchange rate and the Brent price which is our reference. When we have increase in the Brent price we have also increase in the cost, specialized services in the oil industry. So it’s a combination of all those aspects that will lead the lifting cost of the fourth quarter. But I should take that it will be in line with what we have in this third quarter.

Talking about the refining cost, we’re expecting to have on the fourth quarter about the same that we had on the third quarter, that is $5.2 per barrel. We are expecting to have a flat level. Okay.

And as we look into 2012 from a refining cost point of view, given all that’s happening in terms of upgrades and the new refineries, do you see a trend in 2012, not ‘13, 2012, where these costs could come down or they’re going to be more flattish and really only begin to come down more into 2013 or 2014.

Yeah, probably it’s going come down ’13,’14 when we have the new refineries because right now we are investing in quality. So we are increasing costs but we are not increasing the amount of production. So basically it’s going to be flat or a little bit high than we are today. I am saying a little bit high because of (inaudible), but basically it’s going to be flat.

Also, we are going to have many new equipment running up -- to begin up next year. You have [(Marshall] the number of new cokers and...

Actually for now till beginning of next year, basically we’re investing just in (inaudible). We don’t have a coker till the beginning of next year. So, I don’t have all the units right here with me. I can return to you or I can give you the information on the wire. But, basically we’re going to have, especially on the last quarter, a large amount of units, I guess, fixed, but I don’t have exactly the number right now, I can give you to them later.

But there is a number of them being concluded during the course of this year and beginning of next year.

Yes. We had some of them concluded right now in this quarter and some of them the last month, we are going to have a large amount of them being concluded. So, let me see if I can find information right now. If I can get information right now, I can return to you. If not possible I can give it to you on the wire.

And a follow-up on that, on the topic of refining margins given the price increases that you announced recently, do you estimate that refining margins in the fourth quarter or even in the first quarter, if we assume oil prices remaining flattish, do you see your refining margins turning positive at all in the fourth or first quarter of next year or are we still in a breakeven, kind of a negative territory?

Well, I can tell you that the market that are going to be a little bit better but on the third quarter -- on the fourth quarter, but probably we’re going to have to import a little bit more, especially gasoline. So I can tell you that--

(Inaudible) the International price.

Yeah. So, it’s going to be about the same.

About the same. But do you see it being positive or still in negative territory, negative refining margins until we can really get maybe a bigger increase in diesel prices, for example into next year?

We will not give you guidance on that, Christian. We expected to produce the better results, but whichever they will be depends on lot of variables, and it is difficult to say at this moment.

Okay. And the last question on production. Has your -- if we rewind to the second quarter conference call, your outlook then and now with respect to this ramp up in the October, November, December production, has it changed at all? Have things improved or gotten worse in terms of your expectations of this last quarter really showing a ramp up in production and now versus what you expected three months ago?

We do not.

Yes. I think I said we had the 10 or 11 wells to start production and we did so. The problem lay in the production drills in the third quarter was more on the non-planned platform stoppage. And P-56 and P-57 I said that in the year-end we will be producing 80% of the capacity of those platforms and we are still maintaining this indication. So on the projects, everything is going well. The only aspect was more non-planned maintenance in the period.

And do you still expect to finish the year, last day the year, with 2250 for production [Molinari]?

Yeah, well, 2,200,000 is a peak, daily peak production in the year. And if everything goes well and if we don’t have any further non-planned stoppages and if we connect all the wells we have to connect until the end of year, for the average of December I feel that we will be producing more than 2,100,000 barrels per day as average for December.

The next question from Gustavo Gattass of BTG.

I have a couple of questions here. I just wanted to start on just the accounting of the quarter. There were a couple of one offs that hit you and I just wanted to check one of them. There is a post package adjustment of more than 600 million that you guys booked on gas and power. And I wanted to know if you guys could actually give us some kind of clarity on where that comes from as a starter? The second thing I wanted to check, on your chart on page eight of your presentation, I just wanted to double check. Is the scale correct in that graph, is that graph really going up to only something like 25,000 barrels or is it different than that because the text on the slide doesn’t really seem to jive with the graph.

Yes, it is 25 the total in the quarter. It is the analyzed effect of the quarter.

Okay. Sorry, now I saw the title. So for the quarter itself, it’s about four times that much?

Yes.

Okay. So, this is contribution to full annual production figure?

Yes. As said in the talks. The other questions are regarding to the one-offs?

Yes.

The gas and power. We have a procedure revision here and we found that we were not crediting some tax credit we had in the operation and then we correct previous years and adjust in this current quarter. There is some to come yet, not on the same amount, but an extra adjustment will happen in the first quarter. That’s the reason for adjustment now. During our revision on the procedures, we found that we were not crediting for some taxes that were calculated previously, but now recognizing the -- retain as credit. And this is going to happen for the future. Will...

If I could ask, what is the recurring impact of that?

It is about R$30 million per month.

Per month, okay. So about -- perfect. And if I could ask just one last question. With regards to production, it was absolutely great that you guys put in a little bit more clarity on what’s going to happen in 2012. I was just wondering, I don’t know if this is predictable or not, but is there anything that you already have with visibility with regards to the Varredura project that would be starting up in 2012?

[Molinari], please.

No, we don’t have that in our production because it depends on the exploratory effort to connect more of the Varredura discoveries in the existing platforms. But we are doing very big steps on that which is the installation of subsea separation, water-oil in the Marlim field. As I mentioned the Marlim, the BSW of Marlim is high, and if we’re able to separate the water subsea we can release nice space on the platform to put more oil like in the Varredura project. That’s a technological development. Within the six months, we should start running the subsea separator, we would have the idea to apply that in several mature fields of the Campos Basin, and to put more oil from the Varredura and all the exploratory efforts. But I don’t have a number for you.

The next question comes from Denis Parisien of Deutsche Bank.

I’m wondering about your financing plans you. You so far have stuck to your guidance of not coming back to the dollar market after the 6 billion multi-tranche jumbo earlier this year. You’ve met with investors in Europe, looks like you were thinking about doing something there. What can we expect between now and end of the year and in 2012 in terms of tapping credit markets? Thank very much.

We have raised so far at the end of third quarter about R$28 billion of new debt. We did amortization of almost R$18 billion, so we added about R$10 billion of new cash to the company through debt. And this was done through many different ways. The largest transaction was the bonds we issued at the beginning of the year of 6 billion. And they are the ones bilateral with banks or with ECAs and development bank. We are always working and we are going to raise some extra amount during this quarter. We do not have a target for the quarter. It depends on many condition, the market condition. If market is there, we can do more. If not, we can delay and do another. There is some market and this -- the liquidity we have, provides us comfort to do and work as such. And having high liquidity as we ended the quarter with R$55 billion of liquidity is enough to provide us the cushion to keep our CapEx moving on and managing the opportunities we have or the market present to us. We have a target of five years to raise between $60 billion and $90 billion, in five years. The first of this five years we have raised up to the end of the quarter about $16 billion. So, we are being in line with what we have programmed.

Thanks very much. Do you have any idea in terms of your fourth quarter appetite for debt? As you said, you would be opportunistic of course. Do you have any inclination as to whether you would do one market or the other, banks, capital markets? If capital markets, in yen, in euros, in pounds, is there any particular market that you prefer?

I don’t have any preference. It depends on the market. If the market is there for us for the kind of debt we will be issuing, then we will be approaching that market, but it might be in good shape. We are not for any market and the only thing I can tell you is that we don’t go again to the dollar market.

Thank you. Ladies and gentlemen, there are no further questions at this time. Mr. Barbassa, please proceed with your closing remarks.

Thank you all for being with us in one more quarter and hope to have you again with us in the next quarter with even better results. Thank you.

Ladies and gentlemen, your host is making today’s conference available for replay starting one hour from now. You may access this replay at the company’s IR website at www.petrobras.com.br/ri/english. This concludes Petrobras conference call for today. Thank you very much for your participation, you may now disconnect.