Ladies and gentlemen, thank you for standing by, and welcome to the Petrobras conference call to discuss the fourth quarter 2011 results. At this time, all lines are in a 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 fourth quarter 2011 and year end results. We have a simultaneous webcast on the Internet that can be accessed at the site www.petrobras.com.br/ir. Before proceeding, I’d like to draw your attention to the slide number 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 Petrobras management and on information currently available to the company. The conference call will be conducted by our CFO, Mr. Almir 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. Almir, please begin.

Good morning or good afternoon for everyone. Thank you for being with us in one more conference on our results of 2011 and the fourth quarter of 2011. Starting with the highlights of the company, we can read in the spots, in the numbers and figures, we have here what is the performance of the company. We keep growing our reserves. We have a reserve replacement ratio of 148%, keeping our higher, long life of production year 18, 19 years, increasing the production of oil in Brazil. In total, the oil equivalent and mainly gas, we have increased by 18% mainly from Brazil because we finished the construction of some important pipeline that allowed for delivering this gas to the market. Curaçao is contributing heavily to the increase of production. Our share of the production increase out today is 133,000 barrels per day, not including our partners here. With the partners we reach production near 200,000. And we have some new platforms and units that will come to production during 2012, including the new pilot on the Sapinhoá. Sapinhoá is the new name given to the field of Guará. Where we used to say Guará Area, now we have Sapinhoá. That was declared as commercially viable with proved reserves of 2.1 billion barrels of oil. We keep selling more and more to the Brazilian market. That is growing and presented a 9% increase on 2011 over 2010. And in 2010 we had an increase of about 10% in average, so two exceptional years for the market. And our investment is kept in the range of R$70 billion, what allows for the growth of the company as projected. In dollars, this is near $45 billion, what means the R$224 billion as programmed for the five years plan. Next, looking at the…

Thank you. The floor is now open for questions from Investors and Analysts. (Operator Instructions) Our first question comes from Frank McGann of Bank of America. Frank McGann – Bank of America: Okay. Good morning, everyone. Just two questions. One, the tax rate. I know you touched on it briefly when you were going through the fourth quarter numbers, but it was quite high and I was wondering if maybe you could give a little bit more detail. Was there anything special that caused that to be high? And what kind of an average tax rate, perhaps, would you expect going forward from here if perhaps the deconsolidation of some subsidiaries has changed that in some way, perhaps? And then in terms of importation, obviously a major factor, and it has been a growing factor over the last couple of years and likely to continue to be a factor. What are you seeing in the first quarter versus the fourth quarter? And what are your expectations in terms of the effects of importation on profitability in 2012 versus both the fourth quarter and the full year 2011?

Good morning, Frank. We have in terms of tax rate the main reason here is what I said regarding Nigeria. The contribution to the government in Nigeria were given in oil. So the oil produced, we’re taking a part of it and giving to development as their contribution. But from the beginning of 2011, and we did this correction in the fourth quarter, we start – we reviewed that procedure and we adopt a more common procedure in the area where we take the oil as ours and we sell and we give the proceeds to the government. This didn’t affect our net income, but it does affect our revenues and as well as tax paid, so there is really a high increase in that moment because of that reason. The other, we are estimating that this was about R$ 700 million in the total of the tax expenses of R$ 1.5 billion. And this is – maybe the consolidation has some impact as well because now we are taking only our share in the net income that is added to the equity of our subsidiaries. But we did not calculate on how much this was, taking into consideration that the operational income for that deconsolidation was about R$ 700 million. Yes, there might be some impact as well, but much lower level than the case of Nigeria. Frank McGann – Bank of America: Okay. Which should continue, and we could assume that would be spread out over a year as opposed to just one quarter in the future, so that the manufacturer would be spreading it out versus the absolute amount.

Frank, if I fully understood you, this is going to continue for the next time, for the next quarters. We are going to incorporate as income that will affect our operational income, EBITDA, and then adjusting to the tax at the end of the balance sheet building. Low impact on the net income, would increase somewhat in the other items. What in certain level of fuel compensate that part of the reduction caused by the deconsolidation that has an impact in the other direction. Regarding the import of fourth quarter 2011, first of 2012, I’ll ask Marcel from Downstream if he has some comments on that.

Okay. Good afternoon. First of all, talking about sales, we expect to have on the 2012 the sales on the domestic market a little bit higher than we had on the 2011. Of course, we’re going to increase a little bit the production, but the level of good that we’re going to import on 2012, I mean talking about the average of the 2012, it’s going to be very close to the average that we had on 2011. I can’t tell you right now about the quarter, but talking about year versus year, it’s going to be around the same level. It’s okay? Frank McGann – Bank of America: Yes, that’s perfect. Thank you very much.

And the next question comes from Emerson Leite of Credit Suisse. Emerson Leite – Credit Suisse: Thank you. Good morning, everyone. I have two questions and maybe if there’s time a third one. First one is related to this overall pressure in costs. Obviously we are seeing cost pressures from different sources. We had an important increase in labor costs by the end of last year given the wage negotiations, and service costs or contracted services are also going up meaningfully. My question is, what is the view of cost inflation in services? In your direct employees we kind of know what were the increases. But from elsewhere in the supply chain, what is your perceived cost inflation there and any hope that these could diminish going forward? That will be the first question, Almir. Second question is related to this recent contract for the conversion of four FPSO holes for the rights transfer areas. I understand that the winning bid was for a lump sum of $1.7 billion. And I wanted to understand better the scope of this contract, as it seems to be for the conversion of four holes and it seems to be a pretty higher number on a per-hole basis. Just to make a comparison, the company is paying $3.5 billion for the construction of eight holes, and the conversion of half of those holes is almost half of that contract. So the number really comes up it seems way too high. So I wanted to understand what is the scope there, what else is being provided that we might not be seeing at the surface? And finally, if there is time, I would like to see what is the company official opinion whether the current level of refined product prices is adequate or not for the current level of profitability. We had some comments yesterday from the incoming CEO, but I don’t know whether the press had the comments in the right context or not. So why don’t you give the official message whether prices are adequate or not at the current time? Thank you very much.

Emerson, starting from the pressure on costs, this is not new. When you look at labor sizes and other, we are seeing cost increase since the oil price start growing. What I have shown you is that the average cost, lifting cost, that is a very important cost, the average in relative terms has been lower than it used to be. Of course, we have every year one adjustment on salaries. We are growing. We have more employees working for the company, but we don’t have these on a day-to-day basis. We have long-term contracts. And they are adjusted every year by inflation. So we are reflecting the cost of inflation, but what has impacted us more was the exchange rate. Exchange rate is another price that moves dramatically somewhat, sometimes in the short term. And these reach all our costs, although in the long run we are perfectly hedged with that, taking into consideration the price of oil denominated in dollars. And that we follow in the long run. So this is what I can tell you regarding – I don’t see as a problem. This is what is happening for some time over that. Regarding the cost of conversion, really, I don’t have the figures. I cannot help you at this moment, but I’m going to see if I can give you an answer on that, mainly comparing the conversion costs of these four rules that we’ll be using in terms of rights and the eight ones that is being built for the other fields. And regarding refining the product price, Marcel, you have any information on that please? Additional to the one you have given already.

Well, I guess it’s just that that I said; I don’t have any additional information right now.

But let me add something here The question was if prices were up at a fair level or not, I can tell you that taking into consideration the price policy of the company, yes, the company keep generating high EBITDA, is being able to keep the liquidity of the company, and we are in line with our long-term plan. So I don’t see even if you look at the moment and take a picture at the moment, yes, you may have a different view in the short, very short field of time, but on the long run it’s all in line with our projections. Emerson Leite – Credit Suisse: Almir, thank you. Just a follow-up on the first, after the first question about the labor costs. On the service contracts that you have, you mentioned they have clauses for readjustments on a yearly basis. Most of them are inflation package only. So you don’t have like cost best rules for instance, if labor is going up for your suppliers of services on the day to day, your indirect employees. The inflation that you’re seeing from indirect employees is actually inflation based only; it’s like even less than the 10% or so that your employees got. That’s what you meant by yearly annual increases?

Yes, we have the index adjustments, not cost relayed, transferred to us from other sources. And depending on the contract, there is more than one index that is tied to the adjustment of price. Even for index, it’s on costs of construction of the oil industry in other countries that have – where we used to supply or the supplier used to source the goods. So it’s not only one index; there are many methods. They are all indexes. Emerson Leite – Credit Suisse: Okay. Thank you. I will then wait for the follow-up on the conversion costs. Thank you very much.

Welcome.

And the next question comes from Gustavo Gattass of BTG. Gustavo Gattass – BTG: Yes. Hello, Almir?

I can hear Gustavo. Gustavo Gattass – BTG: Okay. Sorry, guys, I was confused here with the telephone. I just had a couple of questions on your slide 20, coming back to the point that you mentioned about going from the third quarter to the fourth quarter. Some of that I just wanted to understand a little bit better. The first question that I had, Almir, had to do with CPC 19 and the comments there. Because when we initially did the math on your filings, looking at the restated amounts for the third quarter, the impression we had was that you effectively had an impact of about R$ 100 million or so per quarter on your operational results and not really something very, very big. I just wanted to understand, is that something that changes or did change a lot between first, second and third and then fourth quarter in such a way that the fourth quarter number is a lot bigger? Or I just really want to understand how that number was calculated because I’m a little bit puzzled by it. So that’s actually the first question. And effectively, the second question, just with regards to the inventory build in – okay, abroad, my question here is, I was doing the math and just assuming that this inventory is E&P inventory so that it’s crude that you effectively sold. It would imply something like 10 million barrels of oil that effectively were outside of Brazil but not yet booked. So there’s two things that I wanted to just understand on that number. The first one is when you report your export numbers in your press release, are you reporting a number that is consistent with the sales or are you reporting a number that basically is the amount that left Brazil, whether or not it was sold? So that’s the first part. And the second part is when you calculate the R$ 738 million, did you calculate it as a delta of what was in transit in the third quarter relative to what was in transit in the fourth quarter? Because I would assume that you have oil in transit at all times and not only in the fourth quarter of 2011. Those are the two questions. Sorry for being nitty-gritty, but I’m still trying to understand the results. That’s all.

Okay, Emerson. I will have the obvious from our accounting department. Gustavo Gattass – BTG: Okay. Okay.

Yes. Gustavo Gattass – BTG: Just before we go there, (inaudible), again, please no. It’s a lapse but it is actually the sixth time now, but that’s okay.

Sorry. Sorry. But Gustavo got tired, so let’s have (inaudible) helping us in this answer. Thank you.

Hi, Gustavo. The effect of the changes related to CPC 19 was almost R$ 700 million for all the years that we adjusted in the fourth quarter. For the order required, first, second and third, the effect is almost to – we estimated I think like R$ 200 million per quarter in terms of operational results. In our financial report, we restated the fourth quarter of last year and the third quarter without the effects, okay, but the average per quarter was almost R$ 200 million. Gustavo Gattass – BTG: Okay, just so that I understand, so when you’re saying this, is if I have looked at your numbers and said, okay, this is the reported full year number and subtracted what you had reported before for the nine months, you would have an effect of 738, but the numbers that we actually saw in the press release, they don’t have that big an adjustment, is that – that’s what I understood from what you said. Just wanted to confirm it. Is that it?

Yes. You’re right. Gustavo Gattass – BTG: Okay. Thanks.

And the next question comes from Felipe Santos with JPMorgan.

Yes, what’s your question?

Almir, I guess you had another question from Gustavo before.

Oh, Gustavo (inaudible) . Sorry, sorry. Missing a lot of things. I don’t know what’s happening today. Gustavo Gattass – BTG: No. Just remind you, the second question was on the inventory build outside of Brazil, I just wanted to check if that is the delta on the inventory build calculation or if that’s just the number for the quarter. Again, I would assume that you’re always building inventory outside of Brazil and not fully exporting. So that’s the question there.

Can you help us please?

(Inaudible) speaking. This is the effect of R$ 700 million that recognizing the stock of abroad and don’t book as revenue and this is impacting the fourth quarter. And the first quarter, about our operations, we book in our revenue in the first quarter of 2011 – 2012, sorry.

But this fourth quarter presented an inventory higher than the third one by 700. Is this the...

Recognizing the inventory and based on our operation, we will recognize as revenue in the first quarter of 2011 – 2012, sorry. Okay?

Did you get the... Gustavo Gattass – BTG: Okay. Thank you, guys. Yes, yes, I did. So later on I’ll follow up just with how you book the volumes, but we can do that later. The financial numbers were more important. Thanks, guys.

Okay.

And the next question is from Felipe dos Santos of JP Morgan. Felipe dos Santos – JP Morgan: Just one quick question. For the (inaudible) reviews, you mentioned that the long-term oil that you are using now is $75 per barrel; before you had $85 per barrel. I would just first just confirm this. And second, would this new forecast change your long-term CapEx? How are you going to do this or it was just for the calculation of an impairment? Thank you.

Yes. In fact, we have reduced from $80 to $75. This is a reduction on projected oil price by the period beyond 2016 that has an impact on our impairment calculation at the end of last year. But we have no impact on our CapEx because the average, we have, as average cost for the company, is below $40 a barrel. So there is no – the impact we had were only marginal to the secondary recovery fields that were in place of secondary recovery, marginal fields, not the main ones, that is a help in terms of cost and recovery. Felipe dos Santos – JP Morgan: Okay, great. Thank you.

And the next question comes from Christian Audi of Santander. Christian Audi – Santander: Thanks. Hi, Barbassa. A few questions related to the costs. First one, in the past when you disclosed lifting and refining costs in your press release you used to show the impact that FX had caused or how much of the change quarter over quarter was due to the FX. And I didn’t see it this time around. So could you provide us, for example, the lifting costs quarter over quarter has decreased – how much of it was related to FX versus actual operational development?

Hi, Christian. I can give you the numbers for comparing year over year. The ones for quarter over quarter, I would have to come back to you on that. But year-over-year comparison, the exchange rate effect was $0.45 of $1. Christian Audi – Santander: $0.45. And on the refining, I know that’s mostly real based, but is there any FX issue there as well or no? From the refining costs for that?

Marcel, do you have this information?

Yes, comparing quarter to quarter on the refining cost, the effect was $0.02 on the difference that we had on the third quarter to fourth quarter. Christian Audi – Santander: Okay. And the other thing that I was confused, Barbassa, was in the last conference call when we talked about these two important costs lifting and refining, the sense that I got was that it would be difficult for these costs to go down at least in the short term, yet we did see a drop in both of them. So going forward, how should we read that? Do you see the beginning of the year space for these costs to fall more or this was a one-time event that we shouldn’t put into our expectations for lifting any refining costs in 2012 to be substantially lower than 2011? Could you provide us some color in terms of how you’re looking at those two please?

We don’t expect in the long run to have a reduction on costs because of inflation, because of oil prices, because of this pressure that mounts on the oil industry. Of course, there are moments where we have more impact than others, when you compare quarter to quarter, for example. If we are installing new equipment mainly in the production area, where you have all the team prepared to produce the top production or platform and all the fixed costs of the platform will be there regardless the volume it’s producing. So this sometimes contributes to have a higher cost in the moment than the other. In average, we are reducing the cost when compared with price, and this is what I think is very important for the company, looking at the costs regarding prices. The price is a pressure of course to the cost and we have other sources of cost as well. But increasing positivity, becoming more efficient in our operation in downstream, increasing our average utilization of the refineries and all of that is contributing to if not reducing, at least keeping price costs increasing. Christian Audi – Santander: Okay, thanks. And then last question is in the past you had released production guidance for the coming year in this fourth quarter results. So how come you were not able to do that this time around in terms of the production target for 2012?

We are better placing what will be the conditions and how far we can see with more certainty. But it’s not going to take too much, I believe, to release a new figure for this year. Christian Audi – Santander: Okay, thank you.

And the next question comes from Denis Parisien of Deutsche Bank. Denis Parisien – Deutsche Bank: Hi, thanks for taking my question. I wasn’t able to see your bond roadshow, so I was wondering if you could give a little bit of clarity on your financing plans for 2012. Are you going to do as last year only the one multi-tranche jumbo in the dollar market and seek financing in other markets this year as last year? If not, what would we expect in the dollar market going forward? And if so, or in either case, what would we expect in other markets this year? Thanks.

We have not changed our financial policy translation. We keep looking for the best opportunities for the company in terms of (inaudible) and cost. And in terms of the dollar market, we’ve been saying for some years what is our policy very clearly and we have said this year again that we do not intend – we have no plan to come back to that market along of the year again. And the other markets we will be looking at and seeing if there is an opportunity to access or not. And we have enough liquidity to maintain the company operating. We are generating that income cash by the operation of the company in volumes that give us the comfort to keep maintaining our CapEx and our financial policy as announced. Denis Parisien – Deutsche Bank: Thanks very much for that. Did you also give any CapEx guidance for this year and whether or not you expect to execute closer to the guidance?

Our guidance is 87.5 more than we had done last year. We will be trying to deliver that, but of course, being the company on the size of Petrobras, we are a lot dependent on the performance of many different suppliers, not only in Brazil but abroad. Our drill ships, for example, they – 15 we are going to receive this year, but we expect in former years and they were built in other countries, so just to say that we began from help from suppliers. We do our best to keep all under control, but sometimes it’s not possible to achieve, and so we are aiming to reach the target. Although to fulfill $224 billion in five years, we do not need to make, to reach a CapEx of 87 this year. Lower, 10% lower would be enough. Denis Parisien – Deutsche Bank: Great. Thanks very much.

And the next question comes from Pedro Medeiros from Citigroup. Pedro Medeiros – Citigroup: Hi, guys. I think most of my questions towards the results have been already cleared. I just have two other questions, one more related to strategy and the other to the refining bid. The first one, Barbassa, I would like to understand how is the progress of the divestment program announced last year? We can see that during the fourth quarter there was an asset sale on the international E&P front from Africa, but the numbers that the company had been guiding for were materially bigger than what this initial asset represented. Can you comment a little bit more about how this plan is evolving through this year? There had been talks about potentially selling international refineries as well. What can we expect to see for the year on that front?

Yes, this is a new program for Petrobras. As you may know, following the history of Petrobras, we built, we grew organically. We are not a company that do too much of acquisition and very few divestments too. So we are working on this process and getting prepared. First, we are working on identifying the assets we are going to sell, although we had done a first exercise before announcing the volume. We did count much more than we announced. We were conservative in expressing the numbers because not all comes to be true at the end. So we are now doing a more specific design on the strategy, on the asset and to start bringing them to the market. We have done very small ones, as you said, in Africa, but it is not material. We have to bring assets with higher value. And we hope by the first half of this year, we’ll have the opportunity to present a few of them. But there is one that is being announced that is the Japanese refinery we hold, we have today. But in terms of E&P domestic and international, it will take a few times more, some times more. And, but, you are going to see some news on the first half of this year. Pedro Medeiros – Citigroup: Okay. Just as a follow-up, I recall that on the last plan you were estimating a divestment that would total from $13 billion to $15 billion. And out of that metric or that estimate, the amount of asset sales itself were close to $5 billion, whereas nearly $10 billion were supposed to come from working capital improvements. From what I heard now, you think that this estimate of $13 billion to $15 billion would increase, and specifically on the $5 billion, do you expect that the bulk of this comes from the market in the first half of this year or in 2012 at all? Or it’s just a small percentage of it still?

Just to place the figure more in line with what we have announced, we announced that $13.6 billion of divestment and working capital, about half and half in the two projects. We are already working in the working capital, and we have achieved some gains already in the divestments. I believe a very considerable amount of what has been announced shall be in the market in the first half of this year, yes. Pedro Medeiros – Citigroup: Okay. Well, thank you. And my second question is on the refining side. I think the company had been expecting for a confirmation from PDVSA about its interest or its true participation on the northeast refinery, and there had been some investment contingencies aligned with that decision or not. I think the latest that I heard is that a participant can still confirm its participation to the start-up of the unit. But will there be any changes to the project or to the overall budget assigned to the northeast refinery since we don’t have this confirmation yet? And will the unit be able to process the Venezuelan crude that is a little heavier than the average in Brazil?

No. we did not start the unit that we will be processing the oil from Venezuela. And this is going probably to be one of the moments to take the final decision either to be a partner or not. But so far we did not start that construction. Pedro Medeiros – Citigroup: Okay. And just one final question, if I may, are you guys able to sell what was the contribution to your reserves for 2011 coming from Sapinhoá and if there were any contributions coming from the Varredura project at this point?

Yes. I’m going to have my colleagues from E&P to help me in this answer.

From everything we have found so far from a ring-fence exploration that occurred after the Varredura project, today we have roughly 350 billion barrels of oil equivalent in our proven reserves. And the contribution of Sapinhoá was not the biggest share in the pre-salt reserve booking for 2011. It was roughly 200 million barrels. The biggest contribution came from a revision in the Lula area of proven reserves.

And the next question comes from Robert Kessler of Tudor Pickering and Holt. Robert Kessler – Tudor Pickering Holt: Good morning. I wanted to see if I could get you to give some perspective on the downstream as you look forward to 2012. Clearly had a big loss on a full year basis for 2011, almost $6 billion in US dollar terms. And I recognize there’s always a lag effect on pricing, although crude prices were relatively stable. I know as you suggested the exchange rate of fluctuations influenced the loss in the quarter towards the back part of the year. But if you were to stabilize the crude price and the exchange rate, what would your expectations be for downstream profitability for 2012?

The best we can say regarding that is the stability. Of course, the fourth quarter, impacted mainly by the exchange rate, we have a high difference when compared with the previous quarter. But in a normal scenario of exchange rate and the international price, we don’t expect to move from the average we have in the year. Not different on that. Robert Kessler – Tudor Pickering Holt: Can I ask why – just looking at the – if I understand correctly ethanol was priced higher than what you were supplying petrol-based gasoline for in the quarter. And yet you’re increasing your market share, effectively buying product off the international market at a net negative gross margin. So why – that begs the question, why supply the domestic market, undercut the locally grown price and do so at a loss on the top line? Did I understand the dynamics there correctly? And why are you embarking on that near-term strategy?

I believe that the reason was the flexibility of ethanol producers. They can move their production from ethanol to sugar. And there were some impact on sugar price internationally, moving them to do that change and reducing the supply of ethanol to the market. These, associated with the fact that we have increase in the market, domestic market, an average of 9% taking all the oil products, it really makes a big difference. Of course gasoline on that participation has increased 24% in part due to this fact that we have a crop production reduction, ethanol production in this year due to the big reduction in the crop of sugarcane. But there were also some different mix on ethanol and sugar produced in the country. So that’s what leads to a higher import of gasoline to Brazil.

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

Thank you very much for being with us and I hope to see or to talk to you in the next quarter with good results that maybe then we are presenting. All is improving. Thank you very much.

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/ir. This concludes Petrobras’ conference call for today. Thank you very much for your participation. You may now disconnect.