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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 June, 2003

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 ANNOUNCES FIRST QUARTER OF 2003 RESULTS
(Rio de Janeiro – June 10, 2003) – PETRÓLEO BRASILEIRO S.A. – PETROBRAS today announced its consolidated results stated in U.S. Dollars, prepared in accordance with U.S. GAAP.

 

Comments from the President, MR. JOSÉ EDUARDO DE BARROS DUTRA

During the first quarter of 2003, the new board of directors and I participated in discussions with our employees, suppliers, clients, shareholders and investors to assess our progress in meeting our strategic objectives and to develop our business strategy going forward.

As a result of these discussions, we have begun adapting our business practices, procedures and strategies to effectively contend with the prevailing economic and social climate of Brazil, while maintaining profitability and sound environmental practices and contributing to the development of the communities where we operate.

Our operational and financial results for the first quarter of 2003 not only reflect a sensible pricing policy, but they are indicative of an improving outlook for the Brazilian economy. For example, the appreciation of the Brazilian Real against the U.S. dollar in the first quarter of the year, positively impacted our financial condition.

I would like to highlight our revised strategic plan for the period from 2003 to 2007. The plan contemplates capital expenditures of approximately U.S.$ 34.3 billion during the period, which are designed to maintain our continued leadership in the Brazilian oil and gas market. The revised plan also contemplates significant investments in our employees and in policies designed to promote fiscal discipline, social responsibility, effective corporate governance standards and occupational health, safety and environmental compliance.

Operating highlights

The increase in Brazilian production of crude oil, NGL and natural gas was primarily a result of the start-up of new wells in the Marlim field (P-35 and P-37) and the Espadarte field (ESPF) as well as the new wccccells comprising the P-38/P-40 system in the Marlim Sul field.

As a result of the increase in Brazilian production, our net imports of crude oil and oil products totaled 120,000 barrels per day during the first quarter of 2003, representing a 39% reduction from net imports of 195,000 barrels per day during the first quarter of 2002. These figures are in line with our goal of achieving a trade surplus in the medium term.

I would like to highlight three major operational achievements attained in the first quarter of 2003:

Financial and corporate highlights

In March 2003, through our subsidiary, Petrobras International Finance Company (PIFCo), we issued in the international capital markets U.S. $400 million of Global Step-Up Notes due 2008. We had originally targeted a U.S. $200 million issuance, but decided to increase the size of the offering as a result of increased investor demand. This transaction represented the first issuance under our shelf registration statement filed with the U.S. Securities and Exchange Commission in July 2002.

Events subsequent to the end of the quarter:

In accordance with the decision of the Annual General Shareholders’ Meeting on March 27, 2003, we began, on May 5, 2003, to pay dividends and interest on capital payments based on our results for the fiscal year ended December 31, 2002. These dividends and interest totaled U.S$ 0.55 per common and preferred shares, restated at the SELIC rate.

We also announced the largest natural gas discovery ever on the Brazilian continental shelf with estimated reserves of approximately 70 billion cubic meters of natural gas (approximately 440 million barrels of oil equivalent), which increased our Brazilian proved natural gas reserves by approximately 30%.

As previously mentioned, we recently announced our revised strategic plan. The revisions reflect objectives and targets adapted to the new international reality and focused on increased production but aligned to the recovery of Brazilian economic growth. The execution of the projects contemplated in the strategic plan will generate more jobs in Brazil through our direct activities as well as through our increased contracting of Brazilian firms during the period from 2003 to 2007.

Finally, on May 13, 2003, the Argentine Antitrust Committee (Comisión Nacional de Defensa de la Competencia), an agency reporting to the Argentine Secretariat of Competition, Deregulation and Consumer Protection (Secretaría de la Competencia, la Desregulación y la Defensa Del Consumidor), approved our purchase of 58.62% of the capital stock of Perez Companc S.A. and 39.67% of the capital stock of Petrolera Perez Companc S.A.. Upon approval of the transaction,we agreed to cause the divesture of Pecom Energia S.A.’s aggregate equity interest in Transener S.A. in accordance with Law Nº. 24,065 of the Argentine Electricity Regulatory framework. It is worth mentioning that this divestment is in line with Perez Companc S.A.’s strategic objectives and does not impact our own strategic objectives.

In May 2003, through our subsidiary, Petrobras International Finance Company (PIFCo), we issued additional Senior Trust Certificates Notes and Junior Trust Certificates, as follows: Series 2003-A of U.S. $ 550 million with annual interest due of 6.436 % maturing in June 2015 and Series 2003-B of U.S. $200 million with annual interest due of 3.478% maturing in June 2013. These two new issuances complement the initial Securitization Program commenced in December 2001.

FINANCIAL DATA

Financial Highlights

    U.S. $ million
(except earnings per share or unless otherwise noted)
   
    For the first quarter of
4Q-2002 Income statement data 2003 2002
8,294  Sales of products and services 9,578  7,476 
5,930  Net operating revenues 7,043  4,729 
(578) Financial income (expense), net 156  120 
73  Net income 2,309  613 
   Basic and diluted earnings per common and preferred share      
0.07    Before effect of change in accounting principle 1.47  0.56 
0.07    After effect of change in accounting principle 2.11  0.56 
 
   Other data      
43.1  Gross margin (%) (1) 56.1  47.6 
25.9  Operating margin (%) (2) 42.1  26.7 
1.2  Net margin (%) (3) 32.8  13.0 
55  Net debt/(Net debt + Stockholders’equity)(%)(4) 48  37 
71  Debt to equity ratio (%)(5) 69  66 

(1) Gross margin is calculated as net operating revenues less cost of sales divided by net operating revenues.
(2) Operating margin is calculated as net operating revenues less costs and expenses divided by net operating revenues.
(3) Net margin is calculated as net income divided by net operating revenues.
(4) Net debt includes short-term debt, long-term debt, capital lease obligations and project financings, less cash and cash equivalents and Junior Notes in the amount of U.S.$ 150 million.
(5) Debt to equity ratio is calculated as current liabilities plus long-term liabilities divided by the sum of total liabilities and total stockholders’ equity.

U.S. $ million
 
Balance sheet data 03.31.2003 12.31.2002 D % 03.31.2002
Total assets 37,298  32,018  16.5 37,119 
Total debt (1) 15,309  14,680  4.3 14,124 
  Current 2,300  1,986  15.8 2,813 
  Long-term 13,009  12,694  2.5 11,311 
Net debt(2) 10,658  11,229  (5.1) 7,529 
Stockholders’ equity (3) 11,712  9,301  25.9 12,656 
Total capitalization (3) (4) 27,021  23,981  12.7 26,780 

(1) Total debt includes short-term debt, long-term debt, capital lease obligations and project financings.
(2) Net debt is calculated as total debt less cash and cash equivalents and Junior Notes in the amount of U.S.$ 150 million.
(3) Stockholders’ equity includes a loss in the amount of U.S.$ 1,434 million for the first quarter of 2003, U.S.$ 1,361 million for the year 2002 and U.S.$ 1,864 million for the first quarter of 2002, in each case
(4) Total capitalization means stockholders’ equity plus total debt

As of March 31, 2003, net debt totaled U.S. $ 10,658, a 5.1% decrease compared to net debt of U.S. $ 11,229 as of December 31, 2002, largely due to an increase in cash and cash equivalents.

Our debt to equity ratio was 69% on March 31, 2003, as compared to 66% at March 31, 2002.

OPERATING PERFORMANCE

For the first quarter of
4Q-2002   2003 2002
  Average daily crude oil and gas production    
1,491  Crude oil and NGLs (Mbpd) (1) 1,613  1,526 
1,455  Brazil 1,573  1,489 
36  International 40  37 
1,578  Natural gas (Mmcfpd) 1,698  1,686 
1,416  Brazil 1,494  1,572 
162  International 204  114 
  Crude oil and NGL average sales price (U.S. dollars per bbl)    
22.79  Brazil 29.68  17.46 
23.62  International 31.07  19.18 
  Natural gas average sales price (U.S. dollars per Mcf)    
1.06  Brazil 1.57  1.47 
1.55  International 1.72  1.66 
  Lifting costs (U.S. dollars per boe)    
  Crude oil and natural gas – Brazil    
7.50  Including government take (2) 8.45  6.72 
3.06  Excluding government take (2) 2.85  3.43 
2.48  Crude oil and natural gas – International 1.99  1.97 
  Refining costs (U.S. dollars per boe)    
0.81  Brazil 0.98  0.97 
0.92  International 1.07  1.17 
  Refining and marketing operations (Mbpd)    
  Brazil    
1,931  Installed capacity 1,956  1,931 
1,647  Primary throughput 1,623  1,662 
82% Utilization 83% 85%
  International    
91  Installed capacity 91  91 
60  Primary throughput 70  60 
65% Utilization 70% 66%
77  Domestic crude oil as % of total feedstock processed 80  81 
 
  Imports (Mbpd)    
298  Crude oil imports 388  281 
213  Oil product imports 183  215 
212  Crude oil exports 225  160 
178  Oil product exports 226  141 

 

121  Net imports 120  195 

(1) Includes production from shale oil reserves.
(2) Government take includes royalties, special government participation and rental of areas.

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Price Regulation and Other Government Policies

Our financial condition and results of operations have been, and most likely will continue to be, substantially impacted by International and Brazilian political and economic conditions.

– Pre-January 2, 2002

Until January 2, 2002, when price deregulation was fully implemented, our financial condition and results of operations reflected the effects of governmental policies that the Federal Government maintained, changed or implemented to address prevailing conditions in the Brazilian economy, including the level of inflation and the level of gross domestic product.

Because the regulation of crude oil and oil products prices was one of the tools available to the Federal Government for the control of inflation, the Federal Government periodically changed the prices at which we could sell our products based upon political and economic conditions in Brazil.

As part of the deregulation of the Brazilian oil and gas sector, effective July 29, 1998, the Federal Government changed its price regulation policies. Under these policies, the Federal Government continued to establish our sales prices until January 2, 2002, at which time all such price controls ended, in accordance with Law 9,990.

– Post-January 2, 2002 regulations

Pursuant to the Oil Law and subsequent legislation, the crude oil and oil products markets in Brazil were opened in their entirety beginning January 2, 2002. As part of this action:

Pension Plan

The determination of expenses and liabilities for pensions and other post-retirement obligations requires us to make certain assumptions regarding discount rates, rates of increase in compensation levels and the expected long-term rate of return on assets. Each of these assumptions reflects estimates that are highly uncertain for a number of reasons, including uncertainty regarding long-term economic conditions in Brazil. Notwithstanding changes in inflation, interest rates and other economic variables, we have not changed the assumptions, because the uncertainty concerning long-term developments in the Brazilian economy makes it difficult to apply the principles set forth in U.S. GAAP and to agree on specific assumptions. We may change these assumptions in the future, and any such changes could have a material effect on reported liabilities and, to a lesser extent, on reported earnings.

In particular, we believe that the weighted average discount rate that we apply to determine the present value of our future obligations for pensions and other post-retirement obligations may be subject to revision to reflect changes in the Brazilian financial markets. U.S. GAAP require that the discount rate reflect the price at which the pension benefits could be effectively settled, and encourage the use of rates of return on high-quality fixed-income investments currently available and expected to be available in the market. In recent years, the Brazilian government has issued long-term inflation-indexed securities that are traded in an increasingly liquid market. We believe that the high rates of return on these securities suggest that it would be appropriate to increase the discount rate assumption, but there are interpretive problems under U.S. GAAP with this view and with increasing the spread between the discount rate assumption and the assumed rate of future increase in compensation. We are currently discussing these issues with our auditors, and these discussions could result in a change in assumptions in the near future. Such a change could have a significant effect on the amount of our pension liability and expense.

RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 2003 COMPARED TO THE FIRST QUARTER OF 2002

The comparison between our results of operations for the first quarter of 2003, as compared to the first quarter of 2002 has been significantly impacted by the fact that the average Real/U.S. dollar exchange rate in the first quarter of 2003 was 46.6% higher than the average Real/U.S. dollar exchange rate in the first quarter of 2002. For ease we refer to this change in average exchange rate as the “46.6% decrease in the value of the Real against the U.S. dollar in the first quarter of 2003, as compared to the first quarter of 2002.”

Revenues

Consolidated sales of products and services increased 28.1% to U.S.$ 9,578 million for the first quarter of 2003, as compared to U.S.$ 7,476 million for the first quarter of 2002, primarily as a result of the increase in the price of certain oil products in the international market.

Included in sales of products and services are the following amounts which we collected on behalf of the federal or state governments:

Cost of sales

Cost of sales for the first quarter of 2003 increased 24.9% to U.S.$ 3,092 million, as compared to U.S.$ 2,476 million for the first quarter of 2002. This increase was principally a result of:

These increases were partially offset by:

Depreciation, depletion and amortization

We calculate depreciation, depletion and amortization relating to exploration and production assets on the basis of the units of production method. Depreciation, depletion and amortization expenses increased 2.7% to U.S.$ 413 million for the first quarter of 2003, as compared to U.S.$ 402 million for the first quarter of 2002. This increase was primarily attributable to a 5% increase in production of crude oil, NGL and natural gas, primarily in the Campos Basin and was partially offset by the effect of the 46.6% decrease in the value of the Real against the U.S. dollar in the first quarter of 2003, as compared to the first quarter of 2002.

Exploration, including exploratory dry holes

Exploration costs, including exploratory dry holes decreased 32.3% to U.S. $ 67 million for the first quarter of 2003, as compared to U.S.$ 99 million for the first quarter of 2002. This decrease is primarily attributable to the effect of the 46.6% decrease in the value of the Real against the U.S. dollar in the first quarter of 2003, as compared to the first quarter of 2002.

Selling, general and administrative expenses

Selling, general and administrative expenses increased 1.5% to U.S.$ 460 million for the first quarter of 2003, as compared to U.S.$ 453 million for the first quarter of 2002.

Research and development expenses

Research and development expenses increased 18.4% to U.S.$ 45 million for the first quarter of 2003, as compared to U.S.$ 38 million for the first quarter of 2002. This increase was primarily related to the additional investments in programs for environmental safety and deepwater and refining technologies of approximately U.S.$ 19 million, which was partially offset by the effect of the 46.6% decrease in the value of the Real against the U.S. dollar in the first quarter of 2003, as compared to the first quarter of 2002.

Equity in results of non-consolidated companies

Equity in results of non-consolidated companies increased to a gain of U.S.$ 11 million for the first quarter of 2003, as compared to a loss of U.S.$ 76 million for the first quarter of 2002. This increase was mainly attributable to a gain of U.S.$ 19 million for the first quarter of 2003, as compared to a loss of U.S.$ 72 million for the first quarter of 2002, related to the result of our equity investments in Compañia Mega, an Argentine company that is engaged in natural gas activities, and which was adversely affected by the devaluation of the Argentine Peso against the U.S. dollar in the first quarter of 2002.

Financial income

We derive financial income from several sources, including:

Financial income decreased 20.9% to U.S.$ 227 million for the first quarter of 2003 as compared to U.S.$ 287 million for the first quarter of 2002. This decrease was primarily attributable to:

Financial expense

Financial expense increased 18.9% to U.S.$ 252 million for the first quarter of 2003, as compared to U.S.$ 212 million for the first quarter of 2002.This increase was primarily attributable to the increase in our debt.

Monetary and exchange variation on monetary assets and liabilities, net

Monetary and exchange variation on monetary assets and liabilities, net generated a gain of U.S.$ 181 million for the first quarter of 2003, as compared to a gain of U.S.$ 45 million for the first quarter of 2002. Approximately 86% of our indebtedness was denominated in foreign currencies during each of the first quarter of 2003 and the first quarter of 2002. The increase in monetary and exchange variation on monetary assets and liabilities, net is primarily attributable to the effect of a 5.1% appreciation of the Real against the U.S. dollar during the first quarter of 2003, as compared to a 0.1% devaluation of the Real against the U.S. dollar during the first quarter of 2002.

Employee benefit expense

Employee benefit expense consists of financial costs relating to pension and other post-retirement benefits. Employee benefit expense decreased 23.2% to U.S.$ 116 million for the first quarter of 2003, as compared to U.S.$ 151 million for the first quarter of 2002.

This decrease was primarily attributable to 46.6% decrease in the value of the Real against the U.S. dollar in the first quarter of 2003, as compared to the first quarter of 2002.

This decrease was partially offset by an increase in the provision of U.S.$13 million resulting from the annual actuarial calculation of the pension plan liability.

Other taxes

Other taxes, consisting of miscellaneous value-added, transaction and sales taxes, decreased 8.2% to U.S.$ 67 million for the first quarter of 2003, as compared to U.S.$ 73 million for the first quarter of 2002. This decrease was primarily attributable to the 46.6% decrease in the value of the Real against the U.S. dollar in the first quarter of 2003, as compared to the first quarter of 2002. This decrease was partially offset by an increase of U.S.$ 8 million in the CPMF, a tax payable in connection with certain financial transactions.

Other expenses, net

Other expenses, net are primarily composed of gains and losses recorded on sales of fixed assets, general advertising and marketing expenses and certain other non-recurring charges. Other expenses, net for the first quarter of 2003 increased to U.S.$ 296 million, as compared to an expense of U.S.$ 60 million for the first quarter of 2002. The most significant charges for the first quarter of 2003 were:

The most significant charges for the first quarter of 2002 were:

Income tax (expense) benefit

Income before income taxes, minority interest and accounting changes increased 159.9% from U.S.$ 1,021 million for the first quarter of 2002, to U.S.$ 2,654 million for the first quarter of 2003. As a result, we recorded an income tax expense of U.S.$ 983 million for the first quarter of 2003, an 175.4% increase from an expense of U.S.$ 357 million for the first quarter of 2002.

The reconciliation between the tax calculated based upon statutory tax rates to income tax expense and effective rates is shown in Note 5 to our unaudited consolidated financial statements as of March 31, 2003.

Cumulative effect of change in accounting principle

In the first quarter of 2003, we generated a gain of U.S.$697 million (net of U.S.$359 million of taxes) resulting from the adoption of SFAS No. 143 – Accounting for Asset Retirement Obligations. The adjustment was due to the difference in the method of accruing site restoration costs under SFAS 143, as compared with the method required by SFAS 19 – Financial Accounting and Reporting by Oil and Gas Producing Companies. Under SFAS 19, we had accrued upstream site restoration costs ratably over the productive lives of the assets. Under SFAS 143, we record the fair value of asset retirement obligations as liabilities on a discounted basis when they are incurred, which is typically at the time the related assets are installed. The income adjustment described above resulted from reversing the higher liability accumulated under SFAS 19 in order to adjust it to a lower present value amount resulting from transition to SFAS 143. Please see Note 3 to our unaudited consolidated financial statements as of March 31, 2003.

THE PETROLEUM AND ALCOHOL ACCOUNT

The Petroleum and Alcohol Account - Receivable from the Federal Government has been used to accumulate the impact on us of the Federal Government's regulatory policies for the Brazilian oil and gas industry.

According to legislation applicable to the Petroleum and Alcohol Account until December 31, 2001, we had the right to offset amounts owed to the Federal Government relating to the regulatory policies of the Brazilian oil and gas industry against the receivable that increased and decreased the Petroleum and Alcohol Account.

On June 30, 1998, the Federal Government issued National Treasury Bonds - Series H in our name, which were placed with a federal depositary to support the balance of this account. The value of the outstanding Series H bonds as of March 31, 2003 was U.S.$ 49 million.

The Federal Government certified the balance of the Petroleum and Alcohol Account as of June 30, 1998. The changes in the Petroleum and Alcohol Account in the period from July 1, 1998 to December 20, 2002, are subject to audits by the National Petroleum Agency - ANP, and the results of the audit will be the basis for the settlement of the account with the Federal Government. The settlement of accounts with the Federal Government, should have been completed by December 31, 2002, according to the provisions of Law No. 10453 of May 13, 2002, amended by Decree No. 4491 of November 29, 2002. We are in constant contact with the ANP and STN in order to effect settlement of the account, but settlement has not yet been achieved.

As a result of the deregulation of the Brazilian oil and gas market and applicable legislation, effective January 2, 2002, the Petroleum and Alcohol Account is no longer be used to reimburse expenses related to the supply of oil products and alcohol to us and third parties.

The balance of the Petroleum and Alcohol Account at March 31, 2003 represents a credit to us against the Federal Government in the amount of U.S.$ 199 million, an increase of 9.3% or U.S.$ 17 million when compared with December 31, 2002.

The following summarizes the changes in the Petroleum and Alcohol Account for the first quarter of 2003:

  U.S.$ million
  March 31, 2003
Beginning balance 182 
Reimbursements to third parties
Translation Loss 12 
 
Ending balance 199 
 

BUSINESS SEGMENTS

Segment Information

The following segment information has been prepared in accordance with SFAS Nº 131 - Disclosure about Segments of an Enterprise and Related information ("SFAS 131"). We operate under the following business segments, which are described as follows:

The functions that cannot be attributed to these business segments are allocated to our corporate segment, especially those linked with corporate financial management, overhead related to central administration and other expenses, including actuarial expenses related to the pension and health-care plans.

In preparing the financial information by business segment, we attributed to each business segment only those functions over which the particular business segment has effective control.

The main criteria used to record the results and assets by business segment are summarized as follows:

RESULTS BY BUSINESS SEGMENTS U.S. $ million
For the first quarter of
  2003 2002
Exploration and Production 2,404  617 
Supply 392  222 
Distribution 44  15 
Gas and Energy (142) (34)
International (1) 48  (47)
Corporate (114) (98)
Eliminations (323) (62)
 

Net income 2,309  613 
 

(1) As of December 31, 2002, the international business segment includes the Argentine operations of Petrolera Santa Fe, which we acquired in October 2002, but excludes those of Perez Companc S.A. and Petrolera Perez Companc S.A., as the transfer of control of these entities was still contingent on approval by the Argentine regulatory authorities at March 31, 2002.

The comparison between our results of operations has been significantly impacted by the Real’s devaluation against the U.S. dollar, due to the fact that the average exchange rate in the first quarter of 2003 was 46.6% higher than the average exchange rate in the first quarter of 2002.

Exploration and Production

Consolidated net income for our exploration and production segment increased 289.6% to U.S.$ 2,404 million for the first quarter of 2003, as compared to U.S.$ 617 million for the first quarter of 2002.

This increase was primarily attributable to a U.S.$2,066 million increase in net operating revenues, as a result of:

These effects were partially offset by a U.S.$ 402 million increase in cost of sales, primarily composed of:

Supply – Consolidated net income for our supply segment increased 76.6% to U.S.$392 million for the first quarter of 2003, as compared to U.S.$222 million for the first quarter of 2002. This increase is primarily attributable to the increase of approximately U.S.$1,759 million in net operating revenues resulting from the increase of oil products prices in the international market.

This increase was partially offset by a U.S.$1,487 million increase in cost of sales, mainly due to the increase in import prices of crude oil and oil products and increases in prices of products transferred from others segments.

Gas and Energy – Consolidated net income for our Gas and Energy segment registered a net loss of U.S .$142 million for the first quarter of 2003, as compared to a net loss of U.S.$ 34 million for the first quarter of 2002, principally due to a U.S.$ 205 million provision for non-reimbursable contractual contingency payments, related to our investments in thermoelectric power plants that will come due during the remaining months of 2003.

This increase was partially offset by a U.S.$ 61 million increase in net operating revenues as a result of the 6.8% increase in the average price of natural gas and the 5% increase in natural gas sales volume in the first quarter of 2003, in each case, as compared to the first quarter of 2002.

Distribution – Consolidated net income for our distribution segment increased 193.3% to U.S.$ 44 million for the first quarter of 2003, as compared to consolidated net income of U.S.$ 15 million for the first quarter of 2002. This increase is primarily attributable to:

These increases were partially offset by the U.S.$ 211 million increase in cost of sales, reflecting the increase of oil products prices to refineries.

International – Consolidated net income for our international segment increased to U.S.$48 million for the first quarter of 2003, as compared to a net loss of U.S.$47 million for the first quarter of 2002. This increase was primarily attributable to:

This increase was partially offset by a U.S.$64 million increase in cost of sales, mainly due to the increase in sales volumes.

Corporate – Consolidated net income for the units that make up our corporate segment increased 16.3% to a net loss of U.S.$114 million during the first quarter of 2003, as compared to a net loss of U.S.$98 million during the first quarter of 2002. This increase in net loss was primarily attributable to the increase in income tax expenses during the first quarter of 2003.

CAPITAL EXPENDITURES

In the first quarter of 2003, we continued to prioritize capital expenditures directed towards the development of crude oil and natural gas production. Total capital expenditures were U.S.$ 875 million in the first quarter of 2003, representing a 20% decrease from capital expenditures made in the first quarter of 2002. Of the capital expenditures incurred during the first quarter of 2003, U.S.$ 501 million (57%) were directed towards domestic exploration and production activities, which includes our exploration and production segment and our project financings.

Activities

U.S.$ million
First quarter of
  2003 2002
•   Exploration and Production 501  711 
•   Supply 223  165 
•   Distribution 22  29 
•   Gas and Energy 39  81 
•   International 67  66 
•   Corporate 23  48 
 

Total capital expenditures 875  1,100 
 

Many of our capital expenditures for the first quarter of 2003 and 2002 were made in connection with exploration and development projects in the Campos Basin, a number of which are being financed through project financings. Our capital expenditure budget for 2003 provided in our 2003 Annual Business Plan 2003, including project finance, is U.S.$ 7.2 billion. Below are our material project financing expenditures by project for the first quarter of 2003 and 2002:

Activities

U.S.$ million
First quarter of
Field 2003 2002
Albacora   32 
Espadarte / Voador / Marimbá – EVM 40 
Cabiúnas
Pargo / Carapeba / Garoupa / Cherne – PCGC  
Nova Marlim 27   
Companhia Petrolífera Marlim   34 
Others   10 
 

  37  124 
 

In line with our objective of increasing production, we have signed 46 agreements to invest in exploration and production development areas where we have already made commercial discoveries.

Selected Balance Sheet Data
(in millions of U.S. dollars, except for share data)

  As of As of
  March 31, December 31,
  2003

2002

  ( Unaudited )
Assets
Current assets
Cash and cash equivalents 4,501  3,301 
Accounts receivable, net 2,555  2,267 
Inventories 3,059  2,540 
Other current assets
 
2,474 

2,089 

Total current assets 12,589  10,197 
Property, plant and equipment, net 20,939  18,224 
Investments in non-consolidated companies and
other investments 364  334 
Other assets    
Petroleum and Alcohol Account - Receivable from
Federal Government 199  182 
Government securities 200  176 
Unrecognized pension obligation 49  61 
Advances to suppliers 442  450 
Investment in Perez Companc S.A. 1,073  1,073 
Others
 
1,443 

1,321 

Total other assets 3,406  3,263 
Total assets
 
37,298 

32,018 

Liabilities and stockholders' equity    
Current liabilities
Trade accounts payable 1,675  1,702 
Short-term debt 810  671 
Current portion of long-term debt 722  727 
Current portion of project financings 418  239 
Capital lease obligations 350  349 
Other current liabilities
 
4,518 

3,257 

Total current liabilities 8,493  6,945 
Long-term liabilities    
Employees postretirement benefitsbenefits 2,645  2,423 
Project financings 3,918  3,800 
Long-term debt 7,330  6,987 
Capital lease obligationsobligations 1,761  1,907 
Other liabilities
 
1,532 

791 

Total long-term liabilities 17,186  15,908 
       
Minority interest (93) (136)
Stockholders' equity    
Shares authorized and issued:
Preferred stock -2003 - 461,802,497 (2002 -451,935,669 shares) 2,965  2,459 
Common stock - 2003 and 2002 - 634,168,418 shares 4,289  3,761 
Reserves and others
 
4,458 

3,081 

Total stockholders' equity
 
11,712 

9,301 

Total liabilities and stockholders’ equity
 
37,298 

32,018 

Income Statement
(Unaudited)
(in millions of U.S. dollars, except for share and per share data)

    First quarter of
   
4Q-2002

  2003 

2002 

8,294    Sales of products and services 9,578  7,476 
    Less:
(1,354)   Value-added and other taxes on sales and services (1,387) (1,230)
(1,010)

  CIDE
 
(1,148)

(1,517)

5,930    Net operating revenues 7,043  4,729 
(3,375)   Cost of sales (3,092) (2,476)
(402)   Depreciation, depletion and amortization (413) (402)
(134)   Exploration, including exploratory dry holes (67) (99)
(75)   Impairment
(365)   Selling, general and administrative expenses (460) (453)
(44)

  Research and development expenses
 
(45)

(38)

(4,395)   Total costs and expenses (4,077) (3,468)
(169)   Equity in results of non-consolidated companies 11  (76)
228    Financial income 227  287 
(252)   Financial expense (252) (212)
    Monetary and exchange variation on monetary
(554)   assets and liabilities, net 181  45 
(106)   Employee benefit expense (116) (151)
(43)   Other taxes (67) (73)
(621)

  Other expenses, net
 
(296)

(60)

(1,517)   (312) (240)
    Income before taxes and minority
18 

  interests and accounting change
 
2,654 

1,021 

    Income tax expense:
(130)   Current (916) (334)
327 

  Deferred
 
(67)

(23)

197    Total income tax expense (983) (357)
(142)

  Minority interest in results of consolidated subsidiaries
 
(59)

(51)

73

  Net income before accounting change effect
 
1,612 

613 

 

  Cumulative effect of accounting change, net of income tax
 
697

73 

  Net income for the period
 
2,309 

613 

    Weighted average number of shares outstanding
634,168,418    Common/ADS 634,168,418  634,168,418 
451,935,669    Preferred/ADS 461,802,497  451,935,669 
    Basic and diluted earning per share
    Common/ADS and Preferred/ADS
0.07    Before effect of change in accounting principle 1.47  0.56 
0.07 

  After effect of change in accounting principle
 
2.11 

0.56 

Statement of Cash Flows Data
(Unaudited)
(in millions of U.S. dollars)

    First quarter of
   
4Q-2002

  2003 

2002 

  Cash flows from operating activities
73    Net income for the period 2,309  613 
    Adjustment to reconcile net income to net cash provided by
    by operating activities
327    Depreciation, depletion and amortization 317  444 
107    Loss on property, plant and equipment 34  65 
869    Foreign exchange and monetary loss 92  98 
    Cumulative effect of accounting change, net of income tax (697)
149    Others 122  147 
       
    Decrease (increase) in assets
111    Accounts receivable, net (211) (240)
    Petroleum andAlcohol Account-Receivable from Federal
(68)   Government (7) 10 
209    Inventories (366) (229)
22    Advances to suppliers (90) (79)
196    Others (158) 88 
       
    Increase (decrease) in liabilities
180    Trade accounts payable (95) 25 
229    Taxes payable, other than income taxes 27  556 
27    Income taxes 729  (847)
211    Other liabilities 250  77 
 

   

 

2,642 

  Net cash provided by operating activities
 
2,256 

728 

    Cash flows from financing activities
(1,337)   Additions to property, plant and equipment (875) (1,100)
(1,073)   Investment in Perez Companc S.A.
(447)   Investments in thermoelectric plants (163)
(31)   Others (29) (65)
 

   

 

(2,888)

  Net cash used in investing activities
 
(1,067)

(1,165)

 

   

 

(279)

  Cash flows from financing activities
 
(186)

(292)

(525)

  Increase (decrease) in cash and cash equivalents
 
1,003 

(829)

214    Effect of exchange rate changes on cash and cash equivalents 197  (86)
3,612    Cash and cash equivalents at beginning of period 3,301  7,360 
 

   

 

3,301 

  Cash and cash equivalents at the end of period
 
4,501 

6,445 

Income Statement by Segment

  First quarter of 2003
U.S.$ million
E&P SUPPLY GAS
&
ENERGY
INTERN. DISTRIB. CORPOR. ELIMIN. TOTAL
STATEMENT OF INCOME
 
Net operating revenues to                
  third parties 654  4,045  245  315  1,784      7,043
Inter-segment net operating
  revenues 3,834  1,621  33  52  27    (5,567)
 







Net operating revenues 4,488  5,666  278  367  1,811    (5,567) 7,043
 
Cost of sales (1,344) (4,770) (148) (260) (1,649)   5,079 (3,092)
Depreciation, depletion and
  amortization (276) (71) (28) (27) (6) (5)   (413)
Exploration, including dry
  holes (63)     (4)       (67)
Selling, general and
  administrative expenses (20) (183) (33) (26) (86) (112)    (460)
Research and development
  expenses (24) (9) (2)       (10)    (45)
 







  (1,727) (5,033) (211) (317) (1,741) (127) 5,079  (4,077)
Cost and expenses
 
Results of non-consolidated
  companies   10 (18) 19       11
Debt expenses, net (86) (25) (8) 267    156
Employee benefit expense         (4) (112)   (116)
Other expenses, net (95) (29) (210) (7) 14  (36)   (363)
 







Income before income
  taxes and minority
  interest and accounting
  change 2,580  589  (158) 67  72  (8) (488) 2,654 
 
Income tax benefits
  (expense) (873) (188) 66  (20) (27) (106) 165  (983)
Minority interest   (9) (50) (1)     (59)
 







Income before accounting
  change 1,707  392  (142) 48  44  (114) (323) 1,612 
 
Cumulative effect of
  accounting change, net of
  income tax 697              697
 







Net income 2,404  392  (142) 48  44  (114) (323) 2,309 
 








  First quarter of 2003
U.S.$ million
E&P SUPPLY GAS
&
ENERGY
INTERN. DISTRIB. CORPOR. ELIMIN. TOTAL
STATEMENT OF INCOME
 
Net operating revenues to
  third parties 132  2,639  172  237  1,549        4,729 
Inter-segment net operating
  revenues 2,290  1,268  45  20  30     (3,653)   
 







Net operating revenues 2,422  3,907  217  257  1,579     (3,653) 4,729 
 
Cost of sales (942) (3,283) (150) (196) (1,438)    3,533  (2,476)
Depreciation, depletion
  and amortization (269) (79) (15) (29) (8) (2)    (402)
Exploration, including dry
  holes (97)       (2)          (99)
Selling, general and
  administrative expenses (21) (193) (13) (23) (100) (103)    (453)
Research and development
  expenses (17) (11) (1)     (9)   (38)
  (1,346) (3,566) (179) (250) (1,546) (114) 3,533  (3,468)
 







Cost and expenses
 
Results of non-consolidated
  companies    (4)    (72)          (76)
Debt expenses, net (93) 24  (19) 11  194     120 
Employee benefit expense                (151)    (151)
Other expenses, net (43) (13) (65) 22  (5) (43) 14  (133)
 







Income before income taxes
  and minority interest 940  348  (46) (32) 31  (114) (106) 1,021 
 
Income tax benefits (expense) (323) (123) 19  (16) (10) 52  44  (357)
Minority interest    (3) (7) (6) (36)    (51)
 







Net income 617  222  (34) (47) 15  (98) (62) 613 
 







Other Expenses, Net By Segment

  First quarter of 2003
U.S.$ million
E&P SUPPLY GAS
&
ENERGY
INTERN. DISTRIB. CORPOR. ELIMIN. TOTAL
Provisions losses on financial                
  exposure-Thermoplant     (205)         (205)
Institution Relations and Culture
  Projects           (20)   (20)
Unscheduled stoppages – plant
  and equipment (39) (8)           (47)
The Listing of P-34 (11)             (11)
Losses as a result of Legal
  Proceedings (2) (2)           (4)
Gain from purchase of minority
  interest in BR’s Shares         24     24 
Other taxes   (5) (1) (4) (11) (46)   (67)
Others (43) (14) (4) (3) 1 30   (33)
 







  (95) (29) (210) (7) 14 (36)   (363)
 








  First quarter of 2003
U.S.$ million
E&P SUPPLY GAS
&
ENERGY
INTERN. DISTRIB. CORPOR. ELIMIN. TOTAL
Contractual Contingencies with
Thermoplants     (48)         (48)
Institution Relations and Culture
  Projects           (20)   (20)
Unscheduled stoppages – plant
and equipment (42) (8)           (50)
Losses as a result of Legal
  Proceedings (3) (2)           (5)
Petroleum & Alcohol Account
  Regularization           (7)   (7)
Other taxes   (8) (1) (3) (10) (51)   (73)
Others (16) 25 5 35  14 70 
 







  (43) (13) (65) 22 (5) (43) 14 (133)
 







Selected Balance Sheet Data by Segment

  First quarter of 2003
U.S.$ million
E&P SUPPLY GAS
&
ENERGY
INTERN. DISTRIB. CORPOR. ELIMIN. TOTAL
 
Current assets 1,100  5,359  1,016  760  1,178  4,641  (1,465) 12,589 
 







Cash and cash equivalents 416  44  119  51  3,870     4,501 
Other currents assets 1,099  4,943  972  641  1,127  771  (1,465) 8,088 
 
Property, plant and
  equipment, net 13,698  3,466  2,081  1,088  329  277     20.939 
 







Investments in non-
  consolidated companies
  and other investments 185  77  11  18  66     364 
 







 
Non-current assets 425  236  609  1,087  161  2,004  (1,116) 3,406 
 







Petroleum and Alcohol
  Account                199     199 
Government securities held-
  to-maturity             199     200 
Other assets 425  235  609  1,087  161  1,606  (1,116) 3,007 
 







Total assets 15,230  9,246  3,783  2,946  1,686  6,988  (2,581) 37,298 
 







Selected Data for International Segment

  First quarter of 2003
U.S.$ million
INTERNATIONAL
E&P SUPPLY GAS
&
ENERGY
DISTRIB. CORPOR. ELIMIN. TOTAL
INTERNATIONAL              
 
ASSETS 1,717  347  66  147  1,509  (840) 2,946 
 






STATEMENT OF INCOME
 
Net Operating Revenues 122  292  19  130  (198) 367 
 






Net operating revenues to third 48  116  19  130    315 
Inter-segment net operating revenues 74  176        (198) 52 
 






Net income 40  11  (11)   48 
 







  Year ended December 31, 2002
U.S.$ million
E&P SUPPLY GAS
&
ENERGY
INTERN. DISTRIB. CORPOR. ELIMIN. TOTAL
 
Current assets 1,181  4,323  819  736  973  3,124  (959) 10,197 
 







  Cash and cash equivalents 509  16  211  59  2,505     3,301 
  Other current assets 1,180  3,814  803  525  914  619  (959) 6,896 
 
Investments in non-
  consolidated companies
  and other investments 168  70  11  16  62     334 
 







Property, plant and
  equipment, net 11,611  3,186  1,881  1,024  296  226     18,224 
 







Non current assets 385  211  556  1,092  141  1,932  (1,054) 3,263 
 







  Petroleum and Alcohol
    Account                182     182 
  Government securities             206     208 
  Other assets 385  209  556  1,092  141  1,544  (1,054) 2,873 
 







Total assets 13,184  7,888  3,326  2,863  1,426  5,344  (2,013) 32,018 
 








  U.S.$ million
INTERNATIONAL
E&P SUPPLY GAS
&
ENERGY
DISTRIB. CORPOR. ELIMIN. TOTAL
 
INTERNATIONAL              
 
ASSETS (As of December 31, 2002) 1,638  349  39  160  1,479 (802) 2,863 
 






STATEMENT OF INCOME
(First quarter of 2002)
 
Net Operating Revenues 65  227  94    (130) 257 
 






Net operating revenues to third parties 23  119  94       237 
Inter-segment net operating revenues 42  108          (130) 20 
 






Net income 18     (8) (61)    (47)
 






This press release contains statements that constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and that may be incapable of being realized. Prospective investors are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements, which speak only as of the date made.

For further information, please contact:


 

 
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: June 11, 2003

 
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.