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R$ million
2nd quarter										First half
						2Q11 X								2011 X
1Q-2011		2011		2010		1Q11				2011		2010		2010
						(%)								(%)
10,985		10,942		8,295				Consolidated net income attributable to Petrobras shareholders		21,928		16,021		37
2,627		2,598		2,587		(1)		Total oil and natural gas production (th. barrel/day)		2,613		2,568		2
16,093		16,139		15,927				EBITDA		32,233		31,003		4
402,487		328,245		256,675		(18)		Market capitalization (parent company)		328,245		256,675		28

Dear shareholders and investors,

We are pleased to announce our results for the first half of 2011, in which we posted record net income of R$ 21.9 billion, 37% higher than in the same period last year, accompanied by a 4% increase in cash flow (measured by EBITDA) to R$ 32.2 billion.

During the second quarter, we announced important discoveries in the Gávea exploratory well, the pre-salt areas of the Campos Basin and the cretaceous reservoirs in the Espírito Santo Basin. The ongoing exploratory operations in the pre-salt area of the Santos Basin also brought encouraging results, reinforcing the excellent productivity experienced with the the Lula Pilot and the extended well test in Guará. The first Lula Pilot well was responsible for the highest ever output from a single Petrobras well (more than 36,000 boe in May).

We initiated three new extended well tests in the second quarter: Lula Nordeste (Santos Basin), whose data will contribute to the study of that area’s definitive system; Aruanã (Campos Basin post-salt area), which will last for approximately six months; and Brava (Marlim pre-salt field), whose duration is estimated at two years and whose data will provide input for the area’s definitive production development project. Together, these systems will contribute up to 32,000 bpd in this phase.

In relation to Refining, Transportation & Marketing, we used 92% of our nominal refining capacity and our installed primary processing capacity exceeded 2 million bpd. We continued to invest heavily in expansion and quality improvements, which will allow us to increase production of oil products required by the Brazilian market. The expansion of our refineries will ensure that we are equipped to meet the growth in domestic demand, which climbed by 9% this quarter over the same period last year.

Following ample analysis, in July we published our 2011-2015 Business Plan, with total investments of US$ 224.7 billion, virtually identical to the figure in the previous period. Essentially the plan calls for higher investments in exploration and production (with an emphasis on the pre-salt discoveries and, for the first time, the Transfer of Rights); the expansion, improvement and modernization of refining facilities, most of which scheduled for conclusion by the end of 2014; continuing investments in the gas, energy and fertilizer chain; and increased production of ethanol and biofuels. Certain assets will also be divested, as part of our ongoing effort to improve our returns on capital. And we are committed no additionally equity issuance in the period, as well as maintaining our investment-grade status conferred by the leading rating agencies.

We do not expect the uncertainty of the global economic scenario to have an adverse impact upon our plans. The company’s integration in Brazil, with our access to abundant and economically viable reserves directly adjacent to a growing market, provides stable and robust cash flow. The recent Moody’s upgrade of our foreign-currency debt rating to A3, based on the strength of our financial ratios and cash flow generation in relation to our plan, reaffirms this outlook.

In July, the Board of Directors approved the second interest on equity installment to our shareholders. The total amount is R$ 2,609 million, equivalent to R$ 0.20 per share, to be paid until the end of October.

We believe our positive results are an accurate reflection of our entrepreneurial spirit and confirm our capacity for transforming challenges into achievements. We will continue to invest in order to reach our goals, working harder every day to grow and exceed our limits. These fundamentals, together with the profitable projects we are continuing to develop, will generate higher returns for our investors and shareholders, while continually increasing our strength as a company.

2

Main Items and Consolidated Economic Indicators

R$ million
2nd quarter										First half
						2Q11 X								2011 X
1Q-2011		2011		2010		1Q11				2011		2010		2010
						(%)								(%)
54,800		61,469		53,631		12		Revenue from sales		116,269		104,043		12
20,204		20,243		19,387		-		Gross profit		40,447		38,697		5
12,536		12,047		12,303		(4)		Income before financial results, participations and taxes		24,584		23,920		3
2,022		2,895		(630)		43		Net financial result		4,918		(1,331)		-
10,985		10,942		8,295		-		Net income attributable to Petrobras shareholders		21,928		16,021		37
0.84		0.84		0.95		-		Earnings per share1		1.68		1.83		(8)
								Net Result by business area
9,327		10,593		7,649		14		. Exploration & Production		19,920		14,961		33
(95)		(2,280)		(108)		-		. Refining, Transportation & Marketing		(2,375)		1,008		-
515		747		349		45		. Gas & Power		1,262		672		88
(13)		(37)		(18)		185		. Biofuels		(50)		(40)		25
369		221		268		(40)		. Distribution		590		630		(6)
843		615		533		(27)		. International		1,458		980		49
880		1,252		(902)		42		. Corporate		2,132		(2,140)		-
15,871		16,133		20,348		2		Consolidated investments		32,004		38,101		(16)
37		33		36		(11)		Gross margin (%)		35		37		(2)
23		20		23		(13)		Operating margin (%) 2		21		23		(2)
20		18		15		(10)		Net margin (%)		19		15		4
16,093		16,139		15,927		-		EBITDA – R$ million 3		32,233		31,003		4
104.97		117.36		78.30		12		Brent (US$/bbl)		111.16		77.27		44
1.67		1.60		1.79		(4)		US Dollar average sell price (R$)		1.63		1.80		(9)
1.63		1.56		1.80		(4)		US Dollar final sell price (R$)		1.56		1.80		(13)
								Average price indicators
163.72		167.15		158.72		2		Average Oil Products Realization Prices (R$/bbl)		165.51		158.20		5
								Sale price - Brazil
94.04		108.97		73.79		16		. Oil (US$/bbl) 4		101.49		73.35		38
8.83		11.47		19.73		30		. Natural gas (US$/bbl) 5		10.28		17.26		(40)
								Sale price - International
87.39		91.09		66.20		4		. Oil (US$/bbl)		89.08		64.24		39
16.36		15.32		14.82		(6)		. Natural gas (US$/bbl)		15.84		14.82		7

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¹Earnings per share based on the weighted average of the number of share.
² Calculated based on operating income before financial result, profit sharing and taxes.
³ Operating income before financial result, equity balance and depreciation/amortization.
⁴ Average of exports and domestic transfer prices from E&P to Refining, Transportation & Marketing.
⁵ Domestic oil transfer price from E&P to Gas & Power.

3

2Q-2011 x 1Q-2011:

Gross profit

Gross profit⁶ totaled R$ 20,243 million, very close to the 1Q-2011 figure (R$20,204 million) chiefly due to:

• Sales revenue of R$61,469 million, 12% up on 1Q-2011 (R$54,800 million), due to:

• Higher prices of oil exports and products sold on the domestic market whose prices are pegged to international prices;
• Increase of 8% in total of oil product volume, led by naphtha (12%), gasoline (10%), diesel (9%) and LPG (9%).

• An increase of 19% in the cost of goods sold (R$41,226 million in 2Q-2011 versus R$34,596 million in 1Q-2011), due to:

• The upturn in oil product imports (volume effect), particularly diesel and gasoline, to meet greater seasonal demand in the domestic market; 
• Higher expenses from the government take on oil production (9%), reflecting the increase in international oil prices (Brent +12%); 
• The 15% and 10% increase in exploration costs, in Brazil, in U.S. dollars and Reais, respectively, due to the greater number of well interventions in blocks such as Marlim, Espadarte and Albacora fields.

Net Income

• Net income totaled R$10,942 million, also very close to the 1Q-2011 figure (R$10,985 million), reflecting:

• The 7% increase in expenses (R$528 million), due to higher SG&A expenses (R$220 million) and prospecting and exploration expenses (R$257 million), as well as provisions for adjusting inventories to market value (R$119 million); 
• The improved financial result (R$873 million), due to higher foreign exchange gains on dollar-denominated debt and improved returns from financial investments.

Cash and Cash Equivalents, Investments and Debt

• Net cash from operating activities came to R$14,248 million, 10% up on 1Q-2011, influenced by increased oil sales and prices. Petrobras closed 2Q11 with cash of R$34,673 million and federal bonds (maturing in more than 90 days) of R$24,788 million, giving a total of R$59,461 million.

• Second-quarter investments totaled R$16,133 million, 46% of which allocated to Exploration & Production.

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⁶ For further details, see Appendix 2.

4

1H-2011 x 1H-2010.

Gross profit

Gross profit⁷ totaled R$40,447 million in 1H-2011, 5% up on 1H-2010 (R$38,697 million), thanks to:

• Sales revenue of R$116,269 million, 12% more than in 1H-2010 (R$104,043 million), basically due to:

• Higher international crude and oil product prices (Brent +44%), reflected in the price of exports, international sales and oil products sold in the domestic market whose prices are pegged to international prices; 
• Increased domestic demand (8%), particularly for gasoline (17%), whose prices were more competitive than those of ethanol, diesel (9%), and jet fuel (17%).

• COGS increased by 16% (R$10,476 million) over 1H-2010, due to:

• The impact of higher volumes and international prices on crude and oil product imports; 
• The increase in the government take due to the 44% upturn in the price of Brent crude;
• The 28% and 16% increase in exploration costs in Brazil in U.S. dollars and Reais, respectively, due to the greater number of well interventions in fields such as Marlim, Marlim Sul and Marlim Leste.

Net Income

• Net income totaled R$21,928 million, 37% higher than in 1H-2010 (R$16,021 million), reflecting:

• The improved financial result (R$6,249 million), due to the impact of the 6.3% appreciation of the Real against the U.S. dollar on debt, and increased returns from financial investments due to higher cash and cash equivalents and the upturn in the country’s interest rates; 
• Higher equity results of non-consolidated companies (R$852 million), especially from the petrochemical sector; 
• Higher tax benefits (R$580 million), due to the provisioning of interest on equity.

These effects were partially offset by:

• The increase in prospecting and exploration expenses (R$512 million), due to more write-offs of dry or economically unviable wells; 
• Higher administrative expenses (R$448 million), fueled by the upturn in personnel expenses, in turn caused by the expansion of the workforce, training and workforce skills improvement.

Cash and Cash Equivalents, Investments and Debt

• Net cash from operating activities amounted to R$27,172 million in 1H-2011, 18% up year-on-year, reflecting higher output, increased sales and more favorable crude and oil product prices;

• The Company invested R$32,004 million in 1H-2011, 46% of which in Exploration & Production;

• Petrobras has maintained its leverage at 17%, considerably lower than established limit of 35%;

• Net debt in 1H-2011 came to R$68,837 million.

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⁷ For further details, see Appendix 3.

5

RESULTS BY BUSINESS AREA

Petrobras operates in an integrated manner, with the greater part of oil and gas production in the exploration and production area being transferred to other Company areas.

When reporting results per business area, transactions with third parties and transfers between business areas are valued in accordance with the internal transfer prices established between the various areas and assessment methodologies based on market parameters.

 

 

 

 

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^(*) Unaudited by Independent Auditors.
⁸ Excludes liquefied gas and includes re-injected gas.

6

 

Lifting Cost Excluding Government Take – US$/barrel

 

Lifting Cost Including Government Take – US$/barrel

 

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^(*) Unaudited by Independent Auditors.

7

 

 

 

 

 

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^(*) Unaudited by Independent Auditors.
⁹ Includes oil exports by the Refining, Transportation & Marketing and Exploration & Production business areas.
¹⁰ Includes ongoing exports.

8

 

 

 

 

 

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¹¹ According to the ownership recognized by the ANP.

9

 

 

 

 

 

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^(*) Unaudited by Independent Auditors.
¹² PLD – weekly prices weighted by load level (light, medium and heavy), number of hours and sub-market capacity.

10

BIOFUEL

Biodiesel operations are still being consolidated in Brazil, and current sales volume and auction price levels do not yet permit wider operating margins.

 

 

 

 

 

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^(*) Unaudited by Independent Auditors.

11

 

 

 

 

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^(*) Unaudited by Independent Auditors.
¹³ Some countries that contribute to international output, such as Nigeria and Angola, operate under the shared production regime through which the government take is paid in oil.

12

 

 

 

 

 

 

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^(*) Unaudited by Independent Auditors.
¹⁴ Revised lifting cost in the Nigerian unit.
¹⁵ Revised lifting cost in the units in Nigeria and Angola.

13

 

Domestic sales volume increased by 8% over 1H-2010, chiefly due to sales of the following products:

• Diesel (increase of 9%) – due to economic growth, the increase in the grain harvest and the reduced market share of the other local players;

• Gasoline (increase of 17%) – reflecting the more advantageous gasoline prices compared to those of ethanol in most states, the expansion of the flex-fuel vehicle fleet and the reduced market share of the other local players;

• Jet fuel (increase of 17%) – due to economic growth, the appreciation of the Real against the U.S. dollar, which helped increase demand for air travel, and the higher number of domestic and international flights;

• Natural gas (increase of 7%) – accompanying industrial growth and higher demand for power generation;

• Fuel oil (reduction of 19%) – reflecting the substitution of part of natural gas consumption, both in the thermal and industrial segments.

Exports declined by 12% over 1H-2010, due to the need to replenish Brazil’s oil inventories in 2011 and higher oil exports in 2010, due to the product’s greater availability as a result of the scheduled stoppages.

 

 

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^(*) Unaudited by Independent Auditors.
¹⁶ Altered in accordance with the revision of PESA’s volumes.

14

Consolidated Investments

 

In line with its strategic objectives, Petrobras operates associated with other companies, in Brazil and abroad, as a concessionaire of oil and gas exploration, development and oil and natural gas production rights. Currently the Company is a member of 100 consortiums in Brazil, of which it operates 67, and 148 partnerships abroad, of which it operates 75.

15

Consolidated Debt

 

The net debt of the Petrobras System increased by 11% over December 31, 2010, due to the raising of long-term funding abroad through bond issues (Global Notes), partially offset by higher cash and cash equivalents. (*)17181920

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^(*) Unaudited by Independent Auditors.
¹⁷ Includes financial leasings (R$114 million on June 30, 2011 and R$176 million on December 31, 2010).
¹⁸Includes financial leasings (R$181 million on June 30, 2011 and R$196 million on December 31, 2010).
¹⁹ Total debt less cash and cash equivalents.
²⁰ Total liabilities net of cash and financial investments.

16

Income Statement – Consolidated

 

17

 

 

Balance Sheet – Consolidated

 

18

Statement of Cash Flow – Consolidated

 

19

 

Statement of Added Value – Consolidated

 

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²¹ Net of provisions for doubtful debt.

20

Consolidated Income Statement by Business Area - First half/2011 ²²

 

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²² As of 2011 Biofuel results are presented separately. This information was previously included in the corporate group.For comparative purposes, the information from the previous period was reclassified.

21