Petrobras – Investor Relations

Petrobras

Investor Relations

Petrobras finalizes the transfer of refineries to YPFB

(Rio de Janeiro, June 26, 2007). – PETRÓLEO BRASILEIRO S/A - PETROBRAS, [Bovespa: PETR3/PETR4, NYSE: PBR/PBRA, Latibex: XPBR/XPBRA, BCBA: APBR/APBRA], a Brazilian international energy company, announces that this morning in Santa Cruz de La Sierra, Bolivia, it concluded the transfer to YPFB of the total shares of Petrobras Bolivia Refinación S.A. (PBR), the owner of the refineries in Santa Cruz and Cochabamba. YPFB now assumes control of all the shares of Petrobras Bolivia Refinación S.A., the name of which will be changed to reflect the new controlling shareholder, responsible for all the company’s assets and liabilities including the supply of oil products to the Bolivian market.   
 
PBR was incorporated in 1999 as Empresa Boliviana de Refinación S.A. with the purpose of operating the refineries, Guilhermo Elder Bell in Santa Cruz de la Sierra and Gualberto Villaroel, in Cochabamba. These assets were acquired for US$ 102 million by the consortium made up of Petrobras and Perez Companc, the latter subsequently purchased by Petrobras.

As from the Bolivian government’s decision of May 1 2006 to nationalize 50% plus one of PBR’s shares, the company initiated a process of negotiating an upfront and fair indemnity with the local authorities. Petrobras adopted the position that its continued presence in the corporation would depend upon the maintenance of its occupational safety, health, and environmental and human resources policies in the operation of the refineries.

At the same time, Petrobras hired an investment bank to undertake an independent appraisal of the value of the shares based on commonly accepted criteria for this type of business transaction, particularly discounted cash flow, the most usual and best known of these criteria.

As negotiations progressed it became increasingly apparent to Petrobras and YPFB that the sale of the totality of the PBR’s shares to YPFB would be the best solution for meeting the interests of both parties.

On May 11 2007, with this objective in mind, Petrobras submitted its final proposal worth US$ 112 million, for the sale of the shares. This amount is compatible with the independent valuation undertaken and is based on the discounted cash flow criterion.

The valuation did not take into consideration the decision taken by the Bolivian authorities to prohibit PBR from exporting hydrocarbons.

On YPFB’s acceptance of the offer, the first tranche of US$ 56 million was deposited on June 11, the Bolivian state oil company at the same time delivering a bank surety guaranteeing the payment of the remaining amount within a period of 60 days.

Over the seven years that it was responsible for running the refineries, Petrobras continuously increased fuel output, reducing existing deficits in some cases and generating export surpluses in others. The refineries were made safer  and more efficient and productive employing additional technology and introducing modern management methods. With the operation of the Bolivian refineries, Petrobras established its first significant overseas activities in the refining and distribution areas, this helping to consolidate the brand, today recognized in several countries.

Under Petrobras’  responsibility, the labor force at the two refineries has received continuous training and skills upgrading. On the transfer of refineries to YPFB, Petrobras obtained a commitment from the Bolivian authorities that existing jobs and labor conditions would be maintained, the new insurance policy only remaining valid as long a no material changes are made in the configuration of the labor force.

During the period that they were controlled by Petrobras, the Bolivian refineries recorded an accumulated net income of US$ 139 million, of which US$ 126 million was paid out to shareholders in the form of dividends. With the sale of the stake for US$ 112 million, Petrobras concludes its refining activities in Bolivia with an adequate return on invested capital.

Following the change in control of the two refineries, Petrobras is no longer able to control the quality of products supplied to end consumers in Bolivia. The Company has thus taken the decision to withdraw its company brand from the 26 service stations that bear the corporate logo in different regions of the country.

The Petrobras brand, launched in Bolivia in 2001, revolutionized the marketing of fuels in the country by incorporating the innovative concepts of the Integrated Service Station and the systematic control of quality of the products sold. Similarly, the line in Lubrax-branded lubricants, which in 2006 had a domestic market share of 27%, will cease to be manufactured and commercialized by Petrobras in Bolivia.

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