Provided by MZ Data Products
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 6-K
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
 
For the month of February, 2004

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 REPORTS FOURTH QUARTER 2003 RESULTS
( Rio de Janeiro – February 13, 2004 ) – PETRÓLEO BRASILEIRO S.A. – PETROBRAS
today released its consolidated results expressed in millions of reais , according to
Brazilian Generally Accepted Accounting Principles.

PETROBRAS reported consolidated net income of R$ 3,021 million in the fourth quarter. For the full year 2003, PETROBRAS' consolidated net income was R$ 17,795 million, a 120% increase over full year 2002. Consolidated net operating revenues in 4Q03 were R$ 23,952 million and the Company's market value was R$ 87,459 million on December 31, 2003.

This document is separated into five sections:

 

PETROBRAS Index PETROBRAS Index
Financial Performance 3 Financial Statements 30
Operating Performance 5    
Financial Statements 13    
Appendices 21    

Sistema Petrobras

Remarks from the President, José Eduardo de Barros Dutra

We are finishing our first year of management at PETROBRAS. It was a year of successes but also of great challenges, considering our goals of transparency in our actions and innovations in the Company's administrative sphere. The year 2003 also marked PETROBRAS' 50-year anniversary, and we sought to remember the history of those who helped build what is today one of the world's largest oil companies.

It is within this context that we report our record net income of R$ 17,795 million for fiscal year 2003 to our shareholders and investors. In the fourth quarter of 2003, our net income was R$ 3,021 million, a 7% increase over the same period of 2002.

Investments during the year were more than R$ 21 billion in Brazil and abroad, mainly in the areas of oil and natural gas exploration and production. Our oil and gas production was 2,036,000 barrels of oil and oil equivalent per day. In addition, we made important oil and natural gas discoveries, which enabled us to register the important mark of 3.56 on the reserve replacement index in Brazil .

At the end of 2003, export volumes had increased 12% over 2002, which positioned us as the largest Brazilian exporter, with 6% of the value of the country's exports. For the first time PETROBRAS was a net exporter of oil and oil products, with export volume of 22,000 barrels per day.

The positive assessment of PETROBRAS allowed us to raise funds on the order of US$ 5.4 billion. In particular, investor demand for our global notes issues exceeded the placement on several occasions, and our papers sold in record time. Notwithstanding the fact that these issues do not have any additional guaranty or political risk insurance, they are an important milestone for the Company, not only for the reduction in costs and lengthening of the debt profile (the 15-year bond is the longest maturity ever issued by the Company), but also for the fact that these issues enabled the investor base to increase in size because a significant portion of these bonds were acquired by investors from the high grade and high yield markets, which are comprised of North American investors who are typically more interested in financing companies in the US.

Selecting the main areas in which we concentrated our efforts during the year is not an easy task, as we constantly seek to overcome challenges and improve our operating performance and commercial relationships. Among our principal activities we would like to highlight the revision of our strategic plan, implantation of a new human resources policy directive, improvement of the bidding process - particularly in relation to units P-51 and P-52 - and the ongoing efforts to increase our share in the natural gas and energy market. The intent of these efforts is to increase operating efficiency and obtain higher returns for our shareholders and society in general.

Transparency and ethics are the foundations of our activities. It was due to these initiatives that we received various awards throughout the year, including the Best Investor Relations website in Latin America on the POP 5 Top IR Websites of MZ Awards 2004, and the award for Bond of the Year from Euromoney Magazine, for the issue of US$ 500 million in June.

We would also like to mention PETROBRAS' important contribution to Brazil 's development as measured by generation of taxes, duties, contributions and governmental participation, in the amount of R$ 52,374 million in 2003. PETROBRAS also contributed significantly to social projects, particularly the Zero Hunger Program.

We arrived at the end of this first year with the inclination and will to overcome new challenges and with the very real concern of keeping the Company on its path of positive results, without losing sight of social and environmental responsibility.

Petrobras
Financial Performance

Net Income and Consolidated Economic Indicators

PETROBRAS, its subsidiaries and controlled companies reported consolidated net income of R$ 17,795 million in fiscal year 2003, and a 104% increase in operating profit (1) over operating profit in fiscal year 2002.

R$ Million
Fourth Quarter Fiscal Year
3Q-2003 2003 2002 D % 2003 2002 D %
 
32,857 33,199 29,429 13 Gross Operating Revenue 131,988 99,164 33
23,798 23,952 20,843 15 Net Operating Revenue 95,743 69,176 38
6,828 5,546 3,264 70 Operating Profit (1) 27,533 13,485 104
(463) (156) 1,382 (111) Financial Result 1,350 (3,447) (139)
5,361 3,021 2,829 7 Net Income for the Period 17,795 8,098 120
4.89 2.76 2.61 6 Net Income per Share 16.23 7.46 118
69,570 87,459 54,308 61 Market Value (Parent Company) 87,459 54,308 61
42 44 36 8 Gross Margin (%) 45 36 9
29 23 16 7 Operating Margin (%) 29 20 9
23 13 14 (1) Net Margin 19 12 7
8,234 6,877 4,527 52 EBITDA – R$ million (2) 32,615 18,283 78
N/A N/A N/A - ROE(%) 39 25 14
N/A N/A N/A - ROCE (%) 24 22 2
Financial and Economic Indicators
28.41 29.41 25.91 14 Brent (US$/bbl) 28.84 24.76 16
2.9324 2.9000 3.6714 (21) US Dollar Average Price - Sale 3.0745 2.9236 5
2.9234 2.8892 3.5333 (18) US Dollar Last Price - Sale 2.8892 3.5333 (18)
(1) Income before financial revenues and expenses, shareholders' equity and taxes.
(2) Operating profit before financial results and shareholders' equity + depreciation/amortization/ well abandonment.

The main factors contributing to consolidated net income in 2003 were:

Fourth Quarter Fiscal Year
3Q-2003 2003 2002 D % 2003 2002 D %
 
Exploration & Production - Thousands bpd
1,727  1,680  1,491  13  Oil and LNG Production 1,701  1,535  11 
1,562  1,513  1,455  4  Domestic 1,540  1,500  3 
165  167  36  364  International 161  35  360 
341  343  263  30  Natural Gas Production * 335  275  22 
254  256  236  8  Domestic 250  252  (1)
87  87  27  222  International 85  23  270 
   
2,068  2,023  1,754  15  Total Production 2,036  1,810  12 
   
* Does not include liquified gas. Includes reinjected gas
 
Average Sales Price - US$ per bbl / mcf
 
        Oil (US$/bbl)
26.16 26.79 22.81 17  Brazil 27.09 22.13 22 
20.08 26.75 23.62 13  International 23.63 23.00 3 
        Natural Gas (US$/mcf)
1.87 1.87 1.10 70  Brazil 1.75 1.28 37 
1.12 1.14 1.55 (26) International 1.14 1.34 (15)
 
Refining, Transport and Supply - Thousands bpd
 
360  310  298  4  Crude Oil Imports 319  326  (2)
125  57  213  (73) Oil Product Imports 105  216  (51)
91  102  72  42  Import of Gas, Alcohol and Others 89  64  39 
242  260  212  23  Crude Oil Exports 233  233  - 
214  184  182  1  Oil Product Exports 213  206  3 
13  2  4  (50) Fertilizer and Others Exports 6  10  (40)
   
107  23  189  (88) Net Imports 61  157  (61)
1,770  1,698  1,707  (1) Output of Oil Products 1,732  1,701  2 
1,674  1,604  1,647  (3) • Brazil 1,639  1,641  - 
96  94  60  57  • International 93  60  55 
2,085  2,085  2,022  3  Primary Processed Installed Capacity 2,085  2,022  3 
1,956  1,956  1,931  1  • Brazil 1,956  1,931  1 
129  129  91  42  • International 129  91  42 
        Use of Installed Capacity (%)
84  81  82  (1) • Brazil 82  84  (2)
75  73  71  2  • International 73  69  4 
80  79  77  2  Domestic Crude as % of Total Feedstock Processed 80  79  1 
 
** Includes pro forma PEPSA and PELSA information in the 1Q03.
 
Cost - US$/barrel
 
        Lifting Costs:
        • Brazil
3.50 3.98 2.93 36  • • without government participation 3.41 3.00 14 
8.58 9.12 7.38 24  • • with government participation 8.55 7.00 22 
2.43 2.74 2.48 10  • International 2.46 2.08 18 
        Refining Cost
1.07 1.53 0.92 66  • Brazil 1.14 0.94 21 
1.14 1.36 0.92 48  • International 1.17 0.94 24 
181  238  130  83  Overhead in US$ million (1) 711  558  27 
 
(1) In order to make the "Corporate Overhead" indicator more meaningful in its management model, the Company reviewed its components, and recalculated for previous periods.
 
Sales Volume - Thousands bpd
 
624  627  664  (6) Diesel 602  638  (6)
252  267  280  (5) Gasoline 259  272  (5)
122  119  128  (7) Fuel Oil 119  136  (13)
160  151  171  (12) Naphtha 157  160  (2)
211  200  213  (6) LGP 202  212  (5)
173  173  187  (7) Others 171  191  (10)
   
1,542  1,537  1,643  (6) Total Oil Products 1,510  1,609  (6)
39  36  34  6  Alcohol, Nitrogen and Others 33  33  0 
194  190  178  7  Natural Gas 177  156  13 
   
1,775  1,763  1,855  (5) Total Domestic Market 1,720  1,798  (4)
469  446  398  12  Exports 452  449  1 
340  365  289  26  International Sales 383  208  84 
   
809  811  687  18  Total International Market 835  657  27 
   
2,584  2,574  2,542  1  Total 2,555  2,455  4 

Petrobras
Operating Performance

Exploration and Production –Thousand Barrels/Day

In 4Q03, domestic production of oil and NGL was 3% lower than in 3Q03 due to the stoppage on platform P-27 (Voador) from September 2003 through the end of November 2003.

International production of oil and gas in 4Q03 increased 1% over the previous quarter due to increased natural gas production in Bolivia , which reflected contracted demand. This was partially offset by the expected production decline in mature fields in Angola .

Domestic oil and NGL production in fiscal year 2003 increased 3% over fiscal year 2002 due to the start-up of new wells throughout the year in the Marlim field, Espadarte (ESPF) and Albacora. The start-up of FPSO Brasil in Roncador in December 2002, the Jubarte field in October 2002 and the Coral field in February 2003 also contributed to the increased production in the year.

In 2003, international production of oil and gas grew 324% over production in 2002, due mainly to inclusion of the production of the companies Petrolera Santa Fé and Petrolera Entre Lomas in Argentina , and PEPSA in Argentina , Venezuela , Ecuador and Bolivia . International production also increased because of higher production of Bolivian gas, which reflected the demand contracted in the period. Part of this increase was offset by reduced production in the fields in Angola , Colombia and the United States .

Refining, Transport and Supply – Thousands of Barrels/day

The 1% increase of domestic oil in the load processed in refineries in 2003, if compared with the previous year, indicates the search for higher profitability. This result is possible because of the continuous improvement in refinery performance as we seek operating excellence.

Costs – US$/barrel

The 14% rise in Brazil's unit lifting cost in 4Q03 (US$ 3.98/bbl) without governmental participation in comparison with 3Q03 is mainly due to higher expenses related to materials consumption and technical services, to restoration activities and well interventions, undersea operations, inspection and maintenance, combined with higher utilization of drilling rig services, principally in the Piraúna, Marimba, Enchova, Bicudo and Linguado fields. The rise was further due to higher expenses with salaries, benefits and charges that were linked to the 15.5% salary adjustment and to the larger workforce. These costs were offset by the reduced expenses for demurrage at coastal facilities.

In 2003, the country's lifting cost without governmental participation increased 14% over the previous year due essentially to expenses with sea and air transport in operating support of production, mainly in the Marlim, Albacora, Carapeba, Corvina, Garoupa, Namorado, Pampo, Enchova and Marimba fields. The lifting cost also increased because of consumption of materials and maintenance services at ocean terminals, oil transport lines, equipment and installation associated with operational support of these activities, as well as salaries, benefits and charges due to the salary readjustment, to the increased workforce and revision of actuarial calculations of health and future retirement benefits. Discounting the effect of the appreciation of the real against the U.S. dollar from operating costs, the lifting cost would be US$ 3.05/bbl, an average increase of 4%.

With inclusion of governmental participation, the country's lifting cost grew 22% in 2003 compared with the prior year. The transfer of the special participation tariff for the Marlim Sul field, inclusion of the Canto do Amaro and Roncador fields in the taxable range for payment of special participation and the increase in the average reference price for domestic petroleum explain the variation.

The international lifting cost in 2003 grew 18% over 2002, a function of the incorporation of unit costs of Petrolera Santa Fe, Petrolera Entre Lomas and Petrobras Energia Participaciones in Argentina . This increase was partially offset by reduced maintenance expenses in the Arauca field and by the exclusion of expenses in the Guepaje field after its sale in February 2003. Both of these fields are in Colombia . In comparison to 3Q03, the international lifting cost in 4Q03 increased 13% because of higher expenses related to repair of the electric system, “workovers”, water injection, sand cleaning, supply of fuel for wells in Colombia , increased expenses related to services in Venezuela , and tariffs related to gas compression in Santa Cruz , Argentina .

The unit refining cost in Brazil in 2003 increased 21% over the previous year due to increased costs for chemical products, catalyzers, personnel, provision for programmed stoppages and technical services related to improved operating processes. Discounting the effect of the appreciation of the real against the U.S. dollar, the average verified increase in this indicator is 8%. In comparison to 3Q03, the refining cost in Brazil in 4Q03 increased 43% because of personnel expenses and provisions for programmed stoppages at RPBC, RLAM and REPLAN.

In 2003, the international unit refining cost increased 24% over the previous year due to: inclusion of the unit costs of PEPSA; the effect of the 12.8% appreciation of the Argentine peso against the dollar on the exchange rate conversion of operating costs in 2003; and the higher maintenance expenses at the catalytic cracker units and boilers at EG3. In relation to 3Q03, the international unit refining cost in 4Q03 grew 19% due to the larger expenditures with maintenance stoppages at the catalytic cracker, boiler and distillation units in Argentina .

The 27% increase in overhead expenses (1) in 2003 in relation to the previous year is due to higher personnel expenses because of the salary adjustment in September 2003, the concession of benefits and the increased workforce, and to higher expenses related to publicity, institutional propaganda and cultural sponsorships. Discounting the effect of appreciation of the real against the U.S. dollar, the average verified increase in this indicator is 10%. The 31% increase in 4Q03 overhead, when compared with 3Q03, is due to higher expenses for publicity, institutional propaganda, sponsorships, expenses linked to celebration of the Company's 50th anniversary, and increased expenses with personnel because of the larger size of the workforce and the salary readjustment conceded as of September 2003.

Sales Volume – Thousand Barrels/day

Reduced economic activities in Brazil and the consequent loss of purchasing power among the population are reflected in the decreased oil products market, mainly in sales of diesel oil, gasoline, jet fuel, naphtha and fuel oil. Thus the sales volume in 2003 dropped by 4% in the domestic market in relation to 2002.

Consolidated Statement of Results by Business Area

Result by Segment Area R$ million (1)
Fourth Quarter Fiscal Year
3Q-2003 2003 2002 D % 2003 2002 D %
    (3)
3,230  2,727  2,932  (7) EXPLORATION & PRODUCTION 14,826  9,823  51 
1,521  942  405  133  SUPPLY 5,185  1,272  308 
(91) (710) (453) 57  GAS & ENERGY (1,259) (610) 106 
98  72  74  (3) DISTRIBUTION 353  250  41 
74  (79) 165  (148) INTERNATIONAL (2) 618  108  472 
404  (124) (170) (27) CORPORATE (1,515) (1,850) (18)
125  193  (124) 256  ELIMINATIONS AND ADJUSTMENTS (413) (895) (54)
   
5,361  3,021  2,829  7  CONSOLIDATED NET INCOME 17,795  8,098  120 
   
(1)
Financial statements by business area and respective comments are presented starting on page 17.
(2)
In the International business area, the comparability between periods is influenced by exchange rate variations as all operations are performed abroad in dollars or in the currency of origin of the countries in which each company is located, and significant variation can occur in reais due to exchange rate behavior.
(3)
In order to maintain comparability between fiscal years, results from the Gas and Energy business area, and the Corporate area relative to 4Q02 experienced some alterations because of the revision of criteria to allocate financial results.

Results by Business Area

PETROBRAS operates in an integrated manner, with the majority of oil and gas production in the Exploration and Production area transferred to other areas of PETROBRAS.

Highlighted below are the main criteria used to obtain results by business area:

a) Net operating revenues: the revenues related to sales made to external clients were considered, plus sales among business areas, with internal transfer prices defined between areas as a reference.

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

c) Assets: the assets identified by each area.

E&P – In 2003, net income in the Exploration and Production area was R$ 14,826 million, 51% higher than net income in the previous year (R$ 9,823 million), due to the R$ 8,031 million increase in gross income with the sale/transfer of oil, reflecting the increases in international prices of oil and the exchange rate, as well as the 3% increase in the volume of oil and NGL produced.

In 4Q03, net income in the Exploration and Production area was R$ 2,727 million, 16% less than net income reported in the previous quarter (R$ 3,230 million), mainly due to higher personnel expenses and to recognition of losses connected to the sale of offshore production systems in the approximate amount of R$ 300 million.

These items were partially offset by the R$ 120 million increase in gross income resulting from reduced production costs, particularly governmental participation and charges related to structured projects. The volume of oil sales/transfers dropped by 3%, while the average price of sales/transfers remained stable.

SUPPLY – In 2003, net income in the Supply area was R$ 5,185 million, 308% higher than net income in the previous year (R$ 1,272 million). This increase was due to the following factors:

These events were partially offset by the 6% reduction in volumes sold of oil products in the domestic market, mainly of gasoline, diesel, jet fuel and LPG and fuel oil.

In the 4Q03, net income for the Supply area was R$ 942 million, 38% less than net income in the previous quarter (R$ 1,521 million). This decline was mostly due to the R$ 440 million reduction in gross income which was affected by: the 3% decrease in total volumes sold of oil products, mainly oil products exports (18%), notably fuel oil and gasoline, the lower share of domestic oil in the load processed in 4Q03 compared with the previous quarter (79% and 80%, respectively), and increased personnel-related expenses and the freighting in the international market.

GAS AND ENERGY – In 2003, the Gas and Energy segment reported a R$ 1,259 million loss, which was 106% higher than the R$ 610 million loss incurred in the previous year.

Although the energy businesses generated R$ 293 million in gross income in 2003 (R$ 48 million in 2002), considering the start-up of some thermoelectric plants in 4Q02, the commercialization of energy as of 1Q03 (2,631,258 MWh commercialized in the year), as well as the consolidation process of two thermal plants controlled in conjunction with Petrobras Distribuidora (Breitener and Brasympe), the global result was negative, due mainly to the following factors:

• Provision for losses from financial exposure in energy businesses in the amount of R$ 2,123 million (R$ 1,552 million the previous year). See details on page 29.

• Recognition in 2Q03 of a provision for adjustment to market value of gas turbines without usage plans considering the current energy sector scenario. This resulted in a reduction of these assets and, consequently, a reduction of segment results in the amount of R$ 330 million.

The main reason behind the losses in the Energy business is the Company's frustrated expectations regarding the electricity market, which dropped after energy rationing in 2001 and made it difficult to obtain energy sales contracts under conditions that pay back investments.

Part of the loss from the energy business was offset by the R$ 286 million net income reported by the natural gas business, which reported a loss of R$ 328 million in 2002. The following were considered:

• Increase in the average realization value of natural gas, due to the increase in fuel oil prices in the international market and the average exchange rate;

• Increase of 13% in volumes sold of natural gas as a result of ongoing substitution to fuel oil by manufacturing industries, and substitution to gas for vehicle use, plus the growing supply to thermoelectric plants;

• Financial revenues resulting from the 18% appreciation of the real against the dollar in relation to the debt incurred for construction of the Bolivia-Brazil pipeline.

• Inclusion in the process of consolidation of Cias. Estaduais Distribuidoras de Gás controlled in conjunction with GASPETRO, which generated a R$ 54 million gain, net of the amortization of interest in the acquisition.

In the 4Q03, the loss in the Gas and Energy segment was R$ 710 million, much higher than the R$ 91 million loss incurred in the previous quarter, due to the provision for estimated losses in energy businesses for 2004, net of the R$ 64 million reversal related to the excess provision for estimated losses for 2003, which was R$ 1,415 million. See details on page 29.

This loss was partially offset by the R$ 345 million increase in gross income, principally because of inclusion in the consolidation process of two thermoelectric plants controlled in conjunction with Petrobras Distribuidora (Breitener and Brasympe), and the attainment of new energy sales contracts in spite of the retraction of the market.

DISTRIBUTION – In 2003, the Distribution area reported net income of R$ 353 million, 41% higher than the net income reported in the previous year (R$ 250 million), mainly from the R$ 287 million increase in gross income, which reflects the partial pass-through of increases in the acquisition price of oil products in refineries. The fuel market showed a 6.1% reduction while volumes sold decreased 6%, resulting in market share of 31.5% (32.9% in the previous year).

In the 4Q03, the Distribution area reported net income of R$ 72 million, 27% lower than the R$ 98 million in net income reported in the previous quarter. This decrease was a result of higher personnel expenses.

The decline was partially offset by the 4% increase in volumes sold, which contributed to a R$ 90 million rise in gross income.

INTERNATIONAL – Results from the International business area in 2003 included the operations of Petroleras Santa Fe and Entre Lomas S.A. – PELSA (ex-Petrolera Perez Companc S/A) and Petrobras Energia Participaciones S/A – PEPSA (ex-Perez Companc), which are indirectly controlled by PETROBRAS.

In 2003, the International business area had net income of R$ 618 million (equivalent to US$ 214 million), 472% higher than the net income of R$ 108 million (equivalent to US$ 31 million) reported in the previous year. This development was due to recognition of the results from the Argentine companies, with the following highlights:

• Increase of R$ 2,303 million in gross income because of the higher prices for international oil and oil products, and the rise in commercialized volumes, mainly as a consequence of the new Argentine companies.

This improvement was partly offset by the following:

• Increase of R$ 143 million in expenses related to exploration and drilling, a consequence of the Company's international exploratory activities that emphasizes the write-off of dry wells.

• A R$ 391 million increase in other operating expenses due to the R$ 293 million provision in December 2003 regarding a contractual loss on ship-or-pay tariffs charged for use of the oil pipeline in Ecuador .

• Loss of R$ 313 million in the results from company participations, with a highlight on losses from exchange rate conversions on investments, especially those of PEPSA and other companies abroad. This loss occurred because of the 13% appreciation of the Argentine peso against the dollar. The opposite occurred in 2002, when the Argentine peso devalued 237% against the dollar, generating a conversion gain on company investments in Argentina .

In the 4Q03, the International business area reported a R$ 79 million loss (equivalent to US$ 27 million), compared with net income of R$ 74 million (equivalent to US$ 25 million) reported in the previous quarter. The loss was mainly a result of the following:

• Increase of R$ 285 million in expenses related to exploration and drilling, and to the R$ 293 million provision for ship-or-pay expenses, as already mentioned;

• Loss of R$ 124 million in company participations, principally because of the exchange rate conversion on company investments abroad, namely the 1% appreciation of the Argentine peso against the dollar. In the previous quarter a gain of R$ 310 million was reported, due mainly to the 5% devaluation of the Argentine peso against the dollar.

These items were partially offset by the R$ 222 million increase in gross income, which occurred because of higher oil prices in the international market.

CORPORATE – The units that comprise PETROBRAS' Corporate area generated a loss of R$ 1,515 million in 2003, 18% lower than the loss reported during the prior year (R$ 1,850 million).

This loss was mainly a result of the following:

• Loss of R$ 940 million in exchange rate conversions on company investments abroad, following the 18% appreciation of the real against the dollar. The prior year saw a gain of R$ 1,504 million due to the 57% devaluation of the real against the dollar.

• Operating expenses increased by R$ 673 million because of the loss incurred in the hedge liquidation to cover yen-denominated operations in the amount of R$ 198 million, increased expenses related to employees, retirees and beneficiaries, and institutional propaganda, notably in 4Q03 with commemoration of the Company's fiftieth anniversary.

These items were partially offset by the following:

• Net financial income of R$ 1,442 million, reflecting the 18% appreciation of the real against the dollar on corporate debt and the lower cost of raising capital abroad, in continuation of the trend of recent years. In the previous year there was a net financial expense of R$ 1,893 million, which was a consequence of the 57% devaluation of the real against the dollar.

In the 4Q03, the Corporate area reported a loss of R$ 124 million, compared with net income of R$ 404 million reported in the previous quarter. The 3Q03 saw a positive impact from the fiscal savings of R$ 1,119 million due to the provision for interest on own capital. The impact of this savings following the additional interest on own capital was R$ 428 million in 4Q03.

The increased expenses reflect higher expenses related to employees, retirees and beneficiaries, and institutional propaganda, particularly those related to commemoration of the Company's fiftieth anniversary.

Consolidated Debt

  R$ Million
  Dec. 31, 2003 Dec. 31, 2002 D %
 
Short-term Debt (1) 10,880  8,130  34 
Long-term Debt (1) 49,618  44,236  12 
 
Subtotal 60,498  52,366  16 
Financial resources raised but still not applied to projects (4) 3,293  1,275  158 
 
Total Debt 63,791  53,641  19 
Net Debt (3) 34,684  39,961  (13)
Net Debt/(Net Debt + Equity Ratio) (1) 41% 54% (13)
Total Net Liabilities (1) (2) 126,094  103,334  22 
Capital Structure
(Third Parties Net / Total Liabilities Net) 61% 67% (6)
(1)
Includes debt contracted by Specific Purpose Companies with which PETROBRAS structured Project Finance projects (R$ 9,975 million on December 31, 2003, and R$ 10,921 million on December 31, 2002), as well as acceleration of undertakings in consortiums (R$ 3,438 million on December 31, 2003, and R$ 3,615 million on December 31, 2002), and debt contracted through Leasing contracts (R$ 4,837 million on December 31, 2003, and R$ 7,028 million on December 31, 2002).
(2)
Total liabilities net of cash and cash equivalents.
(3)
Debt net of Junior Notes raised by PIFCo (R$ 861 million, equivalent to US$ 298 million in 2003, and R$ 530 million, equivalent to US$ 150 million in 2002).
(4)
Includes consolidation of financing transactions contracted by the SPCs that are still not earmarked for specific investment projects.

PETROBRAS' net debt on December 31, 2003 decreased 13% in relation to December 31, 2002 , mainly because of the higher amounts of resources available within PETROBRAS due to higher generation of operating cash in the period.

The Company has been working on lengthening its debt profile, contracting long-term operations and simultaneously liquidating short-term operations. The debt/equity capital structure was 61% on December 31, 2003 , a 6% reduction over December 31, 2002 .

Consolidated Investments

In continuation of the goals outlined in its strategic plan PETROBRAS continues to prioritize its investments in developing its oil and natural gas production capacity through its own investments and through structured undertakings with partners. Total investments in 2003 were R$ 18,485 million (excluding amounts invested via off-balance sheet SPCs, which were approximately R$ 2,604 million, equivalent to US$ 847 million in 2003). This amount is a 2% reduction from investments made in 2002.

R$ Million
Fiscal Year
2003 % 2002 % D%
 
• Own Investments 17,354 94 17,371 91 (0)
 
Exploration & Production 8,772 47 7,438 39 18
Supply 4,705 25 2,514 13 87
Gas and Energy 1,118 6 796 4 40
International 1,967 11 5,887 31 (67)
Distribution 332 2 439 2 (24)
Corporate 460 3 297 2 55
• Ventures under Negotiation 615 3 523 3 18
 
• Structured Projects 516 3 970 6 (47)
 
Exploration & Production 516 3 970 6 (47)
Albacora 3 - 132 1 (98)
Espadarte/Marimbá/Voador 57 - 301 2 (81)
Cabiúnas 111 1 75 - 48
Marlim / Nova Marlim Petróleo 254 1 316 2 (20)
Others 91 1 146 1 (38)
 
Total Investments 18,485 * 100 18,864 100 (2)
 
*
In addition to this amount, approximately R$2.604 million equivalent to (US$847million) was invested through SPC's as mentioned above. (R$3.295 million equivalent to US$1.127 million in 2002).
R$ Million
Fiscal Year
2003 % 2002 % D%
 
International 1,967 100 5,887 100 (67)
 
Exploration & Production 1,721 87 776 13 122
Supply 31 2 35 1 (11)
Gas and Energy 78 4 628 11 (88)
Distribution 72 4 2 - -
Capital Contribution in Controlled Companies - - 4,442 75 -
Others 65 2 4 - -
 
Total Investments 1,967 100 5,887 100 (67)
 

Consolidated Income Statement

R$ Million
Fourth Quarter Fiscal Year
3Q-2003 2003 2002 2003 2002
 
32,857  33,199  29,429  Gross Operating Revenues 131,988  99,164 
(9,059) (9,247) (8,586) Sales Deductions (36,245) (29,988)
 
23,798  23,952  20,843  Net Operating Revenues 95,743  69,176 
(13,837) (13,326) (13,400) Cost of Goods Sold (52,893) (44,205)
 
9,961  10,626  7,443  Gross Profit 42,850  24,971 
      Operating Expenses
(1,565) (1,807) (1,502) Sales, General & Administrative (6,534) (5,137)
(329) (675) (522) Cost of Prospecting, Drilling & Lifting (1,638) (1,359)
(127) (178) (153) Research & Development (571) (421)
(229) (281) (152) Taxes (983) (1,042)
(883) (2,139) (1,849) Other (5,591) (3,527)
      Net Financial Expenses
586  603  857  Income 1,817  3,629 
(537) (1,029) (668) Expenses (3,195) (2,463)
172  73  (248) Monetary & FX Correction - Assets (1,185) 3,183 
(684) 197  1,441  Monetary & FX Correction - Liabilities 3,913  (7,796)
 
(463) (156) 1,382    1,350  (3,447)
 
(3,596) (5,236) (2,796)   (13,967) (14,933)
169  (171) (403) Gains from Investments in Subsidiaries (1,009) 1,426 
 
6,534  5,219  4,244  Operating Profit 27,874  11,464 
139  68  606  Balance Sheet Monetary Correction   606 
(45) (207) (61) Non-operating Income (Expenses) (485) (170)
(1,235) (1,121) (1,036) Income Tax & Social Contribution (7,816) (4,009)
(32) (44) (480) Minority Interest (884) 651 
  (894) (444) Employee Profit Sharing Plan (894) (444)
 
5,361  3,021  2,829  Net Income 17,795  8,098 
 

Petrobras
Financial Statement

Consolidated Balance Sheet

Assets R$ Million
  Dec. 31, 2003 Sep. 30, 2003
Current Assets 51,869  47,681 
Cash and Cash Equivalents 24,953  20,983 
Accounts Receivable 8,135  7,880 
Inventories 10,395  11,097 
Other 8,386  7,721 
Non-current Assets 16,949  16,560 
Petroleum & Alcohol Account 689  685 
Ventures under Negotiation 850  2,122 
Advances to Suppliers 1,022  1,048 
Marketable Securities 639  704 
Investments in Companies to be Privatized 245  259 
Deferred Taxes and Social Contribution 1,949  1,595 
Advance for Pension Plan Migration 1,193  1,170 
Prepaid Expenses 1,174  794 
Accounts Receivable 2,812  2,903 
Judicial Deposits 1,335  1,368 
Other 5,041  3,912 
Fixed Assets 67,416  64,231 
Investments 2,022  2,229 
Property, Plant & Equipment 64,779  61,166 
Deferred 615  836 
Total Assets 136,234  128,472 

Liabilities R$ Million
  Dec. 31, 2003 Sep. 30, 2003
Current Liabilities 36,899  33,245 
Short-term Debt 8,132  8,121 
Suppliers 6,965  6,254 
Taxes and Social Contribution Payable 7,324  7,770 
Project Finance and Joint Ventures 1,725  1,535 
Pension Fund Obligations 462  305 
Dividends 5,659  3,292 
Other 6,632  5,968 
Long-term Liabilities 48,038  44,644 
Long-term Debt 34,116  31,840 
Pension Fund Obligations 345  504 
Health Care Benefits 4,564  4,360 
Deferred Taxes and Social Contribution 6,044  5,772 
Other 2,969  2,168 
Provision for Future Earnings 312  314 
Minority Interest 1,619  1,542 
 
Shareholders’ Equity 49,367  48,727 
Capital Stock 20,202  20,202 
Reserves 11,371  13,751 
Net Income 17,795  14,774 
Total Liabilities 136,234  128,472 

Consolidated Cash Flow Statement

R$ Million
Fourth Quarter Fiscal Year
3Q-2003 2003 2002 2003 2002
 
5,361  3,021  2,829  Net Income (Loss) 17,795  8,098 
2,180  3,092  (2,044) (+) Adjustments 8,704  4,464 
 
1,406  1,332  1,262  Depreciation & Amortization 5,082  4,798 
(8) (5) 145  Petroleum & Alcohol Account (15) (456)
3,820  652  (442) Charges on Financing and Connected Companies 259  6,134 
    (606) Balance Sheet Monetary Correction   (606)
(3,038) 1,113  (2,403) Other Adjustments 3,378  (5,406)
7,541  6,113  785  (=) Net Cash Generated by Operating Activities 26,499  12,562 
4,581  5,032  5,114  (-) Cash used for Cap.Expend. 18,260  15,730 
 
2,667  2,455  1,156  Investment in E&P 10,303  7,840 
1,109  1,558  1,360  Investment in Refining & Transport 4,675  2,831 
82  926  (20) Investment in Gas and Energy 1,213  891 
411  (48) 542  Project Finance 1,041  1,538 
-  (60) (7) Dividends (91) (67)
312  201  2,083  Other Investments 1,119  2,697 
 
2,960  1,081  (4,329) (=) Free Cash Flow 8,239  (3,168)
(1,701) (2,889) (2,053) (-) Cash used in Financing Activities (4,839) 2,007 
 
4,661  3,970  (2,276) (=) Net cash generated in the period 13,078  (5,175)
 
16,322  20,983  14,151  Cash at the Beginning of Period 11,875  17,050 
20,983  24,953  11,875  Cash at the End of Period 24,953  11,875 

Consolidated Statement of Added Value

R$ Million
Fiscal Year
  2003 2002
Description
Gross Operating Revenue from Sales & Services 131,907  98,937 
Raw Materials Used (6,683) (8,000)
Products for Resale (18,044) (16,159)
Materials, Energy, Services & Others (20,937) (13,025)
 
Value Added 86,243  61,753 
 
Depreciation & Amortization (5,082) (4,798)
Participation in Associated Companies (1,009) 1,343 
Financial Income 844  6,811 
Balance Sheet Monetary Correction -  606 
 
Total Distributable Value Added 80,996  65,715 
 
Distribution of Value Added
Personnel
Salaries, Benefits and Charges 4,273  3,057 
Participation 894  444 
 
  5,167  3,501 
 
Government Entities
Taxes, Fees and Contributions 42,938  32,847 
Government Participation 9,774  6,961 
Deferred Income Tax & Social Contribution (338) 67 
 
  52,374  39,875 
 
Financial Institutions and Suppliers
Financial Expenses, Interest, Rent & Freight 4,776  14,892 
 
Shareholders
Dividends 5,650  2,807 
Net Income 12,145  5,291 
 
  17,795  8,098 
Minority Interest 884  (651)
 
  18,679  7,447 
 

Consolidated Result by Business Area - December 31, 2003

R$ Million
E&P SUPPLY GAS
&
ENERGY 		DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
INCOME STATEMENTS
Net Operating Revenues 48,299 72,021 4,759 24,547 9,463 - (63,346) 95,743
Intersegments 40,931 20,628 727 421 639 - (63,346) -
Third Parties 7,368 51,393 4,032 24,126 8,824 - - 95,743
Cost of Goods Sold (22,404) (61,049) (3,416) (22,230) (6,468) - 62,674 (52,893)
Gross Profit 25,895 10,972 1,343 2,317 2,995 - (672) 42,850
Operating Expenses (2,317) (2,952) (3,121) (1,468) (1,705) (4,035) 281 (15,317)
Sales, General & Administrative (370) (2,316) (418) (1,267) (910) (1,534) 281 (6,534)
Taxes - (73) (30) (147) (94) (639) - (983)
Exploration, Drilling and Lifting Costs (1,279) - - - (359) - - (1,638)
Research & Development (261) (134) (18) - (2) (156) - (571)
Others (407) (429) (2,655) (54) (340) (1,706) - (5,591)
Operating Profit (Loss) 23,578 8,020 (1,778) 849 1,290 (4,035) (391) 27,533
Interest Income (Expenses) (13) 116 157 (190) 27 1,442 (189) 1,350
Gains from Investment in Subsidiaries - 188 56 - (313) (940) - (1,009)
Balance Sheet Monetary Correction - - - - - - - -
Non-operating Income (Expense) (384) (69) (5) (3) (35) 11 - (485)
Income before Taxes and Minority Interests 23,181 8,255 (1,570) 656 969 (3,522) (580) 27,389
Income Tax & Social Contribution (7,979) (2,740) 972 (221) (210) 2,195 167 (7,816)
Minority Interests - (97) (656) - (131) - - (884)
Employee Profit Sharing Plan (376) (233) (5) (82) (10) (188) - (894)
Net Income (Loss) 14,826 5,185 (1,259) 353 618 (1,515) (413) 17,795

Consolidated Result by Business Area - December 31, 2002

R$ Million
E&P SUPPLY GAS
&
ENERGY 		DISTRIB. INTERN. CORPOR. ELIMIN. TOTAL
INCOME STATEMENTS                
 
Net Operating Revenues 36,816  54,539  2,684  19,131  4,226  -  (48,220) 69,176 
Intersegments 30,697  16,174  527  294  528    (48,220)  
Third Parties 6,119  38,365  2,157  18,837  3,698       69,176 
Cost of Goods Sold (18,952) (49,694) (1,782) (17,101) (3,534)    46,858 (44,205)
Gross Profit 17,864  4,845  902  2,030  692  -  (1,362) 24,971 
Operating Expenses (2,120) (2,054) (1,836) (1,468) (581) (3,363) (64) (11,486)
Sales, General & Administrative (520) (1,760) (171) (1,245) (372) (1,069)   (5,137)
Taxes    (50) (25) (104) (43) (820)   (1,042)
Exploration, Drilling and Lifting Costs (1,143)          (216)      (1,359)
Research & Development (211) (105) (14) (1) (1) (89)   (421)
Others (246) (139) (1,626) (118) 51  (1,385) (64) (3,527)
Operating Profit (Loss) 15,744  2,791  (934) 562  111  (3,363) (1,426) 13,485 
Interest Income (Expenses) (651) (361) (417) 1  (126) (1,893)   (3,447)
Gains from Investment in Subsidiaries 105  (168) (7)    (7) 1,503    1,426 
Balance Sheet Monetary Correction             606       606 
Non-operating Income (Expense) (18) 8     (14) (134) (12)   (170)
Income before Taxes and Minority Interests 15,180  2,270  (1,358) 549  450  (3,765) (1,426) 11,900 
Income Tax & Social Contribution (5,165) (861) (108) (165) (326) 2,085  531 (4,009)
Minority Interests    (16) 858  (91) (13) (87)   651 
Employee Profit Sharing Plan (192) (121) (2) (43) (3) (83)   (444)
Net Income (Loss) 9,823  1,272  (610) 250  108  (1,850) (895) 8,098 

Other Operating Expenses/Revenues - Consolidated December 31, 2003

Fiscal Year - R$ Million
E&P
SUPPLY
GAS & ENERGY
DISTRIB.
INTERN.
CORPOR.
ELIMIN.
TOTAL
Contractual Losses and Contingencies with Energy Businesses
(2,123)
(2,123)
Adjustment to Market Value of Turbines for Thermal Plants
(330)
(330)
Expense for Health and Pension Plan - Retirees and Pension Holders
(7)
(30)
(776)
(813)
Institutional Relations and Cultural Projects
(7)
(80)
(507)
(594)
Stoppages on Installations and Production Equipment
(354)
(202)
(556)
Losses and Contingencies with Lawsuits
(29)
(102)
(48)
(216)
(395)
Contractual Losses with Transport Services (Ship-or-Pay)
(293)
(293)
Social Security Contingencies (INSS)
(152)
(5)
(3)
(160)
Result from Hedge Operations
(7)
55
(191)
(143)
Expense for Oil and Oil By-product Transport - Previous Years
(88)
(88)
Losses from Alcohol Stock - Previous Years
(73)
(73)
Production Costs - Previous Years
(33)
(33)
Regularization of Petroleum and Alcohol Accounts
0
Revenues from Rents
39
39
Others
161
62
(257)
17
1
(13)
(29)
 
 
 
(407)
(429)
(2,655)
(54)
(340)
(1,706)
0
(5,591)
 

Other Operating Expenses/Revenues - Consolidated December 31, 2002

Fiscal Year - R$ Million
E&P
SUPPLY
GAS & ENERGY
DISTRIB.
INTERN.
CORPOR.
ELIMIN.
TOTAL
Contractual Losses and Contingencies with Energy Businesses
(1,552)
(1,552)
Adjustment to Market Value of Turbines for Thermal Plants
0
Expense for Health and Pension Plan - Retirees and Pension Holders
(29)
(638)
(667)
Institutional Relations and Cultural Projects
(63)
(279)
(342)
Stoppages on Installations and Production Equipment
(246)
(71)
(317)
Losses and Contingencies with Lawsuits
(60)
(28)
(70)
(158)
Contractual Losses with Transport Services (Ship-or-Pay)
0
Social Security Contingencies (INSS)
(141)
(108)
(150)
(399)
Result from Hedge Operations
0
Expense for Oil and Oil By-product Transport - Previous Years
0
Losses from Alcohol Stock - Previous Years
0
Production Costs - Previous Years
0
Regularization of Petroleum and Alcohol Accounts
(105)
(105)
Revenues from Rents
0
Others
201
68
(74)
(26)
51
(143)
(64)
13
 
 
(246)
(139)
(1,626)
(118)
51
(1,385)
(64)
(3,527)
 

Consolidated Assets by Business Segment - December 31, 2003

R$ Million
E&P
SUPPLY
GAS & ENERGY
DISTRIB.
INTERN.
CORPOR.
ELIMIN.
TOTAL
ASSETS
38,102
28,928
11,834
5,664
22,603
44,006
(14,903)
136,234
 
CURRENT ASSETS
4,764
14,152
1,750
3,497
5,574
28,111
(5,979)
51,869
CASH AND CASH EQUIVALENTS
28
1,672
379
97
1,338
21,439
-
24,953
OTHERS
4,736
12,480
1,371
3,400
4,236
6,672
(5,979)
26,916
NON-CURRENT ASSETS
5,169
1,340
2,879
802
837
14,433
(8,511)
16,949
PETROLEUM AND ALCOHOL ACCT.
-
-
-
-
-
689
-
689
MARKETABLE SECURITIES
518
5
-
1
-
115
-
639
OTHERS
4,651
1,335
2,879
801
837
13,629
(8,511)
15,621
FIXED ASSETS
28,169
13,436
7,205
1,365
16,192
1,462
(413)
67,416

Consolidated Assets by Business Segment - September 30, 2003

R$ Million
E&P
SUPPLY
GAS & ENERGY
DISTRIB.
INTERN.
CORPOR.
ELIMIN.
TOTAL
ASSETS
35,261
29,549
10,827
5,591
22,374
40,776
(15,906)
128,472
 
CURRENT ASSETS
3,659
16,341
1,609
3,498
5,354
25,067
(7,847)
47,681
CASH AND CASH EQUIVALENTS
4
1,375
482
101
1,474
17,547
-
20,983
OTHERS
3,655
14,966
1,127
3,397
3,880
7,520
(7,847)
26,698
NON-CURRENT ASSETS
3,879
1,159
4,041
788
514
14,168
(7,989)
16,560
PETROLEUM AND ALCOHOL ACCT.
-
-
-
-
-
685
-
685
MARKETABLE SECURITIES
441
5
-
1
7
250
-
704
OTHERS
3,438
1,154
4,041
787
507
13,233
(7,989)
15,171
FIXED ASSETS
27,723
12,049
5,177
1,305
16,506
1,541
(70)
64,231

Consolidated Results – International Business Area – December 31, 2003

 
R$ Million
INTERNATIONAL
 
E&P
SUPPLY
DISTRIB.
G&E
CORPOR.
ELIMIN.
TOTAL
INTERNATIONAL AREA
ASSETS
13,534
3,465
551
4,358
6,540
(5,845)
22,603
Income Statement
Net Operating Revenues
4,290
5,600
1,881
1,315
42
(3,665)
9,463
Intersegments
2,069
1,997
19
219
-
(3,665)
639
Third Parties
2,221
3,603
1,862
1,096
42
-
8,824
 
Operating Revenues
1,177
197
(29)
292
(334)
(13)
1,290
Net Income (Loss)
391
97
(82)
356
(121)
(23)
618

Consolidated Results – International Business Area

R$ Million
INTERNATIONAL
 
E&P
SUPPLY
DISTRIB.
G&E
CORPOR.
ELIMIN.
TOTAL
INTERNATIONAL AREA
ASSETS as of 9.30.03
13,116
3,434
554
4,138
7,238
(6,106)
22,374
Income Statement (as of 12.31.02)
Net Operating Revenues
996
3,380
1,433
398
13
(1,994)
4,226
Intersegments
666
1,665
191
(1,994)
528
Third Parties
330
1,715
1,433
207
13
3,698
Operating Revenues
139
165
(186)
100
(107)
111
Net Income (Loss)
(173)
357
(32)
(127)
83
108

1. Changes in the Petroleum and Alcohol Accounts

In 2003, the amount in the Petroleum, Oil Products and Alcohol Account rose by R$ 45 million, for a total of R$ 689 million.

R$ Million
 
Fourth Quarter
 
Fiscal Year
3Q-2003
2003
2002
 
2003
2002
677
685
789
Initial Balance
644
187
-
-
1
PPE Adjustments
-
(13)
(1)
-
37
Reimbursement to 3rd Parties
15
617
-
-
(81)
Reimbursement to PETROBRAS
-
(49)
9
4
3
Intercompany Lending Charges
30
7
-
(105)
Regularization - GTI*
(105)
 
685
689
644
Final Balance
689
644
* INTER-MINISTERIAL WORKING PARTY

In accordance with the Company's ongoing notes in annual and quarterly financial statements, the Governmental Audit that is currently underway will certify the regularity and exactness of the amount due in relation to the Petroleum and Alcohol Accounts in reference to the period from July 1, 1998 to December 31, 2001. This will allow PETROBRAS to close these accounts with the government of Brazil .

Petrobras
Appendices

2. Analysis of Consolidated Gross Margin

NET OPERATING REVENUES – 4Q03/3Q03
MAIN IMPACTS

R$ Million
Holding
Consolidated
   
Effect of FX conversion on net operating revenues relative to international businesses, after elimination from Consolidated results
-
(361)
Effect of sales prices on the domestic market
163
179
Effect of volumes sold on the domestic market
20
(28)
Effect of prices on export revenues
(110)
(110)
Effect of volumes sold on export revenues
(176)
(176)
Effect of including controlled companies in conjunction with BR & Rio Polímeros on Petroquisa
-
120
Others
-
530
Total
(103)
154
 

CPV - 4Q03/3Q03 VARIATION
MAIN IMPACTS

R$ Million
Holding
Consolidated
Effect of FX conversion on cost of sales relative to international businesses, after elimination from consolidated results
-
(305)
Effect of the exchange rate, international prices and petroleum production on third-party participation in consortiums and project finance on the CPV of PETROBRAS
(93)
(93)
Effect of the exchange rate, international prices and petroleum production on Government Participation on the CPV of PETROBRAS
179
179
Impact on the CPV of imports of oil and oil by-products (volume x price)
325
213
Impact of volumes sold (domestic and export markets) on the CPV
(104)
(104)
Effect of including controlled companies in conjunction with BR & Rio Polímeros on Petroquisa
-
34
Others
(524)
(435)
Total
(217)
(511)

3. Consolidated Taxes and Contributions

PETROBRAS' economic contribution to the country ( Brazil ) as measured by generation of taxes, duties and social contributions, totaled R$ 40,868 million in 2003, growth of 28% over 2002.

R$ Million
 
Fourth Quarter
 
Fiscal Year
3Q-2003
2003
2002
D %
2003
2002
D %
        Economic Contribution - Country      
3,572
3,165
3,178
-
Value Added Tax (ICMS)
12,844
10,226
26
1,983
2,023
1,970
3
CIDE (1)
7,432
7,955
(7)
3,006
2,875
2,502
15
PASEP/COFINS
11,253
8,758
28
865
1,209
765
58
Income Tax & Social Contribution
7,701
3,944
95
1,046
107
473
(77)
Others
1,638
1,021
60
567
496
85
484
Economic Contribution - Foreign
2,070
943
120
11,039
9,875
8,973
10
Total
42,938
32,847
31
(1)
CIDE – INTERVENTION CONTRIBUTION OF THE ECONOMIC DOMAIN (CONTRIBUIÇÃO DE INTERVENÇÃO DO DOMÍNIO ECONÔMICO ) .

4. Government Participation

R$ Million
 
Fourth Quarter
 
Fiscal Year
3Q-2003
2003
2002
D %
2003
2002
D %
        Country      
1,080
1,038
1,101
(6)
Royalties
4,372
3,509
25
1,142
1,071
1,234
(13)
Special Participation
4,845
3,307
47
21
22
30
(27)
Surface Rental Fees
93
107
(13)
119
118
30
293
Foreign
464
38
1,120
2,362
2,249
2,395
(6)
Total
9,774
6,961
40

In 2003, governmental participation in Brazil increased 34% over 2002. This increase was a function of increased oil and gas production, the change in the tax rate charged on the Marlim Sul field, inclusion of the Canto do Amaro and Roncador fields in the taxation for payment of special participation, and the increase in the reference price for domestic petroleum based on international prices and the exchange rate.

5. Reconciliation of Results and Shareholders' Equity

 
R$ Million
 
Shareholders' Equity
Result
. According to PETROBRAS information as of December 31, 2003
51,520
17,525
. Profit in the sales of products in affiliated inventories
(163)
(163)
. Reversal of profits on inventory in previous years
164
. Capitalized interest
(516)
(219)
. Absorption of negative net worth in affiliated companies (*)
(1,103)
795
. Other eliminations
(371)
(307)
. According to consolidated information as of December 31, 2003
49,367
17,795

* In accordance with CVM Instruction No. 247/96 and CVM Official Circular No. 04/96 (OFÍCIO CIRCULAR/CVM/SNC/SEP/N° 04/96), losses that are considered to be of a non-permanent nature (temporary) on investments evaluated using the net equity method, which investments do not show signs of paralysis or the need for financial help from the investor, should be limited to the value of the investment of the controlling company. Therefore, the losses occasioned by undiscovered liabilities (negative net equity) of controlled companies did not influence the results and the net equity of PETROBRAS in the 4Q03, thus generating a conciliatory item between PETROBRAS' Financial Statements and the Consolidated Financial Statements.

6. Performance of PETROBRAS Shares and ADRs

Nominal Valuation
  Fourth Quarter   Fiscal Year
3Q-2003 2003 2002   2003 2002
18.44% 27.71% 31.34% Petrobras ON 59.28% 0.59%
19.16% 25.97% 25.75% Petrobras PN 64.66% -9.29%
16.04% 27.52% 39.24% ADR- Level III - ON 95.72% -35.88%
19.65% 25.46% 40.31% ADR- Level III - PN 98.96% -39.72%
23.42% 38.88% 30.69% IBOVESPA 97.33% -17.01%
3.22% 12.71% 9.87% DOW JONES 25.32% -16.76%
10.11% 12.11% 13.95% NASDAQ 50.01% -31.53%

The book value of PETROBRAS on December 31, 2003 was R$ 46.98 per share.

7.
Petrobras Energia Participaciones S.A. – PEPSA (ex-Perez Companc S.A. ) and Petrolera Entre Lomas – PELSA (ex-Petrolera Perez Companc S.A. )

On October 17, 2002, PETROBRAS, through an indirectly controlled company, acquired 58.62% of the capital of Perez Companc S.A. (actual Petrobras Energia Participaciones S.A. – PEPSA) and 39.67% of the capital of Petrolera Perez Companc S.A. (actual Petrolera Entre Lomas S.A. - PELSA), and assumed management of the companies on that date.

In order to facilitate comparison of PETROBRAS' economic performance, the following condensed financial statements (pro forma) show the reconciliation of PETROBRAS' consolidated result for the year ended December 31, 2002, without a period lag, as if consolidation of the indirect investments in PEPSA and PELSA had occurred in that fiscal year.

Consolidated Balance Sheet - Pro-forma - 12.31.2002

PETROBRAS and PEPSA/PELSA - CONSOLIDATED

Assets R$ Million
PETROBRAS System
PEPSA/PELSA
PETROBRAS and PEPSA/PELSA - CONSOLIDATED
Current Assets 38,431
3,077
41,479
Cash/ Cash Equivalents 11,875 819 12,694
Accounts Receivable 8,027 842 8,840
Inventories 12,209 406 12,615
Others 6,320 1,010 7,330
     
Non-current Assets 16,267
290
13,720
       
Fixed Assets 42,562
13,740
55,823
Investments 638 1,649 2,286
Property, Plant & Equipment 41,265 12,091 52,878
Deferred 659 - 659
Total Assets 97,260
17,107
111,022
Liabilities R$ Million
  PETROBRAS System
PEPSA/PELSA
PETROBRAS and PEPSA/PELSA - CONSOLIDATED
Current Liabilties 29,213
2,914
32,097
Short-term Debt 6,016 1,709 7,724
Suppliers 6,491 700 7,191
Others 16,706 505 17,182
       
Long-term Liabilities 33,923
8,044
41,967
Long-term Debt 24,786 6,496 31,283
Others 9,137 1,548 10,684
       
Result of Future Years 404   404
       
Participation of Minority Shareholders (605) 466 2,229
       
Shareholders' Equity 34,325
5,683
34,325
Capital Stock 16,631 4,964 16,631
Reserves 11,518 728 11,518
Net Income 6,176 (9) 6,176
 
Total Liabilities 97,260
17,107
111,022

Consolidated Income Statement - Pro-forma - Fiscal Year 2002

PETROBRAS and PEPSA/PELSA - CONSOLIDATED

R$ Million
PETROBRAS System
PEPSA/PELSA
PETROBRAS and PEPSA/PELSA - CONSOLIDATED
Gross Operating Revenues 99,164 1,380 100,491
Sales Deductions (29,988)
(51)
(30,039)
Net Operating Revenues 69,176 1,329 70,452
Cost of Goods Sold (44,205)
(836)
(44,988)
Gross Profit 24,971 493 25,464
       
Operating Expenses      
Net Financial Expenses (3,447) 215 (3,232)
Sales, General & Administrative (5,200) (177) (5,377)
Other (6,286)
(30)
(6,316)
  (14,933) 8 (14,925)
Participation in Subsidiaries and Associated Companies 1,426 33 1,454
 
Operating Profit 11,464 534 11,993
       
Balance Sheet Monetary Correction 606 - 606
       
Non-operating Income (Expenses) (170) (57) (227)
       
Income Tax & Social Contribution (4,009)
(35)
(4,044)
       
Profit before Employee Profit Sharing Plan and Minority Interest 7,891 442 8,328
       
Employee Profit Sharing Plan (444) - (444)
       
Minority Interest 651 (10) 465
 
Net Income 8,098
432
8,349

 

8. Controlling Company's Basic Net Income Statement for Dividend Distribution

  R$ Million
  Fiscal Year
  2003
Net Income in the Fiscal Year 17,525
Appropriation:  
Legal Reserve (876)
16,649
(+) Reversal of Reserves/Adjustments:  
Adjustment of previous years 2,374
Re-evaluation Reserve 22
(=) Basic Profit for Dividend Purposes 19,045
 
Proposed dividend, equivalent to 29.65% of basic profit - R$ 5.15 per share (29.61% in 2002, R$ 2.53 per share), comprised of:  
Interest on Own Capital 4,551
Dividend 1,096
Total Dividends Proposed 5,647

The dividends proposed in reference to fiscal year 2003 in the amount of R$ 5,647 million (R$ 5.15 per share), are comprised as follows:

DIVIDENDS TO BE DELIBERATED AT THE GENERAL ORDINARY MEETING Value per Share ON and PN Value R$ Million
Interest on Own Capital - Approved by the Board of Directors on 11.13.2003 - Pay on 2.13.04. on the shareholder position of 11.25.2003 3.00 3,290
   
Interest on Own Capital - Approved by the Board of Directors 2.13.2004 -The payment date will be established at the General Ordinary Meeting to he held on 3.29.2004 1.15 1,261
   
Dividends -The payment date will be established at the General Ordinary Meeting to be held on 3.29.2004 1.00 1,096
TOTAL DIVIDENDS 5.15
5,647

The proposed dividends include interest on own capital in the amount of R$ 4,551 million (R$ 4.15 per share), subject to 15% withholding tax, except for immune and exempt shareholders. Of this amount, R$ 3,290 million is being made available to shareholders on February 13, 2004 . The dividend balance and the parcel of interest on own capital to be made available will be paid on the date established at the General Ordinary Shareholders Meeting, and the values will be monetarily updated as of December 31, 2003 through the payment date, in accordance with variation of the SELIC rate.

The management of PETROBRAS will send a proposal to the General Extraordinary Meeting to be held in conjunction with the General Ordinary Meeting on March 29, 2004, to increase the Company's capital from R$ 19,863 million to R$ 32,896 million through capitalization of earnings retained in prior years, without the issue of new shares, and with the intent of aligning the Company's capital to investment levels in the petroleum industry, for intensive use of capital and an operating cycle with a long maturation period.

9. Increase of Authorized Capital

On June 10, 2002 , the General Extraordinary Meeting approved a change on the by-law authorizing a capital increase for up to R$ 30 billion independent of by-law reform and by deliberation of the Board of Directors through issue of preferred shares and up to the quantitative limit of 200 million shares.

Considering the capital increases that have occurred since that date and the significant profit made in 2003, the current authorized capital is insufficient to support capitalization of the excess of profit reserves as of December 31, 2003, to the Company's capital, and also the Company's eventual need to issue new preferred shares to be included in cash, goods or capitalized credits.

Therefore, Management is submitting for deliberation at the General Extraordinary Shareholders Meeting, to be held in conjunction with the General Ordinary Meeting on March 29, 2004, a new limit of authorized capital, altering the value from R$ 30 billion to R$ 60 billion.

10. Summary of Losses from Energy Businesses

R$ Million
 
   RESULT PROVISION
  2003 2002 MOVEMENT AMOUNT
 
Losses realized in 2002    828       
Provision in Dec. 2002 for estimated losses in 2003    724  724  724 
Complement in March 2003 of estimated losses for 2003 708     708  1,432 
Realization of losses in 2003       (1,368) 64 
Reversal in Dec. 2003 of the excess provision estimated for 2003 (64)    (64) 0 
Provision in Dec. 2003 for estimated losses in 2004 1,479     1,479  1,479 
 
 
  2,123  1,552       
 

Statement of Results – Controlling Company

R$ Million
Fourth Quarter Fiscal Year
3Q-2003 2003 2002 2003 2002
 
26,476  26,578  25,724  Gross Operating Revenues 107,361  82,334 
(7,629) (7,834) (7,510) Sales Deductions (30,488) (26,014)
 
18,847  18,744  18,214  Net Operating Revenues 76,873  56,320 
(10,154) (9,937) (11,909)    Cost of Goods Sold (40,580) (35,215)
 
8,693  8,807  6,305  Gross Profit 36,293  21,105 
      Operating Expenses
(905) (1,220) (1,155)    Sales, General & Administrative (4,283) (3,404)
(316) (380) (463)    Cost of Exploration, Drilling & Lifting (1,279) (1,143)
(127) (178) (152)    Research & Development (571) (420)
(164) (162) (83)    Taxes (651) (800)
(1,291) (1,749) (1,993)    Others (5,948) (3,833)
      Net Financial Expense
723  800  790      Income 2,292  3,237 
(474) (552) (669)     Expense (1,981) (1,572)
614  (311) (2,455)     Monetary & Foreign Exchange Correction - Assets (4,889) 7,851 
(721) 381  2,914      Monetary & Foreign Exchange Correction - Liabilities 5,899  (10,050)
 
142  318  580    1,321  (534)
415  (94) 329  Gains from Investment in Subsidiaries 706  2,201 
 
6,447  5,342  3,368  Operating Profit 25,588  13,172 
(46) (229) 128  Non-operating Income (Expense) (320) 242 
(992) (1,033) (658) Income Tax & Social Contribution (6,966) (3,230)
-  (777) (380) Employee Profit Sharing Plan (777) (380)
 
5,409  3,303  2,458  Net Income (Loss) 17,525  9,804 
 

Balance Sheet – Controlling Company

Assets R$ Million
  Dec. 31, 2003 Sep. 30, 2003
 
Current Assets 39,222  35,120 
 
Cash and Cash Equivalents 20,223  16,022 
Accounts Receivable 5,832  5,287 
Inventories 8,383  9,011 
Others 4,784  4,800 
 
Non-current Assets 33,664  32,090 
 
Petroleum & Alcohol Account 689  685 
Subsidiaries, Controlled Companies and Affiliates 23,306  22,278 
Ventures under Negotiation 1,584  2,051 
Advances to Suppliers 1,022  1,048 
Advance for Pension Plan Migration 1,193  1,170 
Deferred Taxes and Social Contribution 863  736 
Others 5,007  4,122 
 
Fixed Assets 46,912  44,587 
 
Investments 11,817  12,059 
Property, Plant & Equipment 34,826  31,985 
Deferred 269  543 
 
Total Assets 119,798  111,797 
 
Liabilities R$ Million
  Dec. 31, 2003 Sep. 30, 2003
 
Current Liabilities 43,517  37,850 
 
Short-term Debt 1,532  1,093 
Suppliers 20,664  19,825 
Taxes & Social Contribution Payable 6,494  6,807 
Dividends 5,647  3,290 
Project Finance and Joint Ventures 3,744  1,535 
Pension Fund Obligations 435  272 
Others 5,001  5,028 
 
Long-term Liabilities 24,761  23,389 
 
Long-term Debt 9,723  9,157 
Subsidiaries & Controlled Companies 4,109  4,424 
Pension Fund Obligations 288  474 
Health Care Benefits 4,217  4,030 
Deferred Taxes & Social Contribution 4,445  4,157 
Others 1,979  1,147 
 
Shareholders' Equity 51,520  50,558 
 
Capital Stock 20,202  20,202 
Reserves 13,793  16,134 
Net Income 17,525  14,222 
 
Total Liabilities 119,798  111,797 
 

Cash Flow Statement – Controlling Company

R$ Million
Fourth Quarter Fiscal Year
3Q-2003 2003 2002 2003 2002
 
5,409  3,303  2,458  Net Income (Loss) 17,525  9,804 
(1,144) 5,604  4,838  (+) Adjustments 4,980  10,264 
 
748  804  1,009       Depreciation & Amortization 2,850  3,491 
(8) 26  145       Petroleum & Alcohol Account (15) (456)
(556) 1,681  1,809       Supply of Oil and Oil By-products Abroad (1,653) 9,577 
(362) (105) 2,331       Charges on Financing and Affiliated Companies 743  784 
(966) 3,198  (456)      Other Adjustments 3,055  (3,132)
4,265  8,907  7,296  (=) Net Cash Generated by Operating Activities 22,505  20,068 
3,198  3,543  3,688  (-) Cash used for Cap.Expend. 12,118  10,190 
 
1,678  1,532  2,073       Investment in E&P 6,652  5,930 
873  1,348  734       Investment in Refining & Transport 3,628  1,961 
65  744  51       Investment in Gas and Energy 855  224 
406  (54) 488       Structured Projects Net of Advance 1,019  1,484 
-  -  (40)      Dividends (504) (80)
176  (27) 382       Other Investments 468  671 
 
1,067  5,364  3,608  (=) Free Cash Flow 10,387  9,878 
(2,216) 1,133  5,427  (-) Cash Used in Financing Activities (1,915) 17,063 
 
3,283  4,231  (1,819) (=) Net Cash Generated in the Period 12,302  (7,185)
 
12,739  16,022  9,740  Cash at the Beginning of Period 7,921  15,106 
16,022  20,253  7,921  Cash at the End of Period 20,223  7,921 

Statement of Added Value – Controlling Company

  R$ Million
  Fiscal Year
Description 2003 2002
Gross Operating Revenue from Sales & Services 107,357  82,551 
Raw Materials Used (7,841) (7,081)
Products for Resale (4,595) (5,975)
Materials, Energy, Services & Others (18,563) (10,674)
 
Value Added Generated 76,358  58,821 
 
Depreciation & Amortization (2,850) (3,491)
Participation in Associated Co., Amort. of Premium/Discount 706  2,201 
Net Financial Income 1,382  5,486 
 
Total Distributable Value Added 75,596  63,017 
 
 
Distribution of Value Added
Personnel
Salaries, Benefits and Charges 3,612  2,595 
Government Entities
Taxes, Fees and Contributions 39,244  30,665 
Government Participation 9,310  6,923 
Deferred Income Tax & Social Contribution (86) 181 
 
  48,468  37,769 
Financial Institutions and Suppliers
Financial Expenses, Rent & Freight, Interests 5,991  12,849 
 
Shareholders
    Dividends 5,647  2,761 
    Net Income 11,878  7,043 
 
  17,525  9,804 
 

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

Contacts:

Petróleo Brasileiro S.A – PETROBRAS
Investor Relations Department
Raul Adalberto de Campos– Executive Manager
E-mail: petroinvest@petrobras.com.br
Av. República do Chile, 65 - 4 th floor
20031-912 – Rio de Janeiro, RJ
(55-21) 2534-1510 / 2534-9947

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

 

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

Date: February 17, 2004

 
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.