Message from the CEO

Three major accomplishments marked 2010: the start-up of operations at the Lula field Pilot System, in the accumulation area known as Tupi, in the Santos Basin Pre-Salt layer; the raising of R$120.2 billion through the world's largest ever equity issuance; and the signing of the Transfer of Rights Agreement, guaranteeing the company the right to produce 5 billion barrels of oil equivalent (boe) in Pre-Salt areas that are not under concession.

Petrobras' dedication to exploring new business frontiers has allowed the company to make these achievements, which have strengthened it. Petrobras has a robust portfolio in the Santos Basin Pre-Salt layer, the most promising exploration region along the Brazilian coast. The capitalization operation provided the resources needed not only for the Transfer of Rights Agreement, but also to support Petrobras 2010-2014 Business Plan, which calls for investments in the order of $224 billion.

The company's net revenue reached R$35.2 billion, 17% more than in 2009. This is a result of the expanding Brazilian economy, of the increased oil and natural gas production, higher oil trade volumes on the Brazilian market, and of the international oil price recovery. Domestic oil and natural gas liquids output added up to 2.004 million barrels of oil per day (bpd), up 1.7% over the previous year due mainly to new platforms going on stream. Natural gas production in Brazil, meanwhile, rose to 56.6 million cubic meters per day, 5.6% more than in the previous year. The total volume of oil and natural gas produced by Petrobras in 2010 was 2.583 million boed, 245,000 of which coming from units abroad.

The company's proved oil and natural gas reserves, according to the ANP/SPE criteria, climbed to 15.986 billion boe in late 2010, a 7.5% increase over 2009 thanks to the addition of new discoveries, particularly in the Lula and Cernambi fields. The rate of reserve replacement was 229%, meaning that for each barrel of oil equivalent produced, Petrobras added 2.29 barrels to its reserves.

The excellent results achieved in 2010 confirmed Petrobras' strategic direction is on the right track. Investments amounted to R$76.4 billion, 8% more than in 2009. These investments were mainly directed to increase oil and natural gas production, to improve and enhance refining facilities, to hire new vessels to transport company products, and to complete the construction work for the pipeline network that interconnects all of the main Brazilian markets. The large investments made in each of the segments in which the company operates underpin Petrobras' position as an integrated energy company.

Most of the investments (43%) were earmarked for Exploration and Production, which received R$32.7 billion, 6% more than a year earlier. The goal of the investments was to boost oil and natural gas output and reserves. In the Pre-Salt area, the highlight was the start-up of operations of the Lula Pilot System, with nominal capacity of 100 thousand barrels of oil and 3.5 million cubic meters of natural gas per day.

The Downstream area investments were R$28.5 billion, 73% more than in the previous year. The company advanced the construction work of the Abreu e Lima Refinery and the Rio de Janeiro Petrochemical Complex (Comperj), and set the two Premium refinery projects. The goal is twofold: add value to domestic oil and supply the Brazilian oil product market.

The Gas & Power area invested R$6.9 billion, equivalent to 9% of the total and up 5% compared with the previous year. These resources were directed mainly to integrate the Southeast-Northeast pipeline network, primarily via Gasene, in order to enable natural gas supply source diversification and flexibilization.

Seeking to increase its stakes in the biodiesel and ethanol business, Petrobras invested R$1.2 billion in this area, a sum equivalent to 2% of the total investments. In Distribution, Petrobras continued growing its market share, maintaining its leading position in the domestic fuel market, of which it holds a 38.8% share. To this end, it invested R$900 million, equivalent to 1% of the total, mainly in automotive market projects and in logistics and operations.

Our performance is the end result of massive investments in technology development and in qualifying employees, this combined with our relentless commitment to adopting good corporate governance practices. Year after year, Petrobras stands out worldwide for its pioneering technology in oil exploration and production. Petrobras is the Brazilian company that invests the most in R&D. In 2010, it invested R$1.8 billion in this area, with special emphasis on the doubling of the Research Center, one of the world's biggest and key to the development of new technologies for all segments the company has operations in, particularly oil production in the Pre-Salt area.

To address both the corporate challenges it faces and the company's ever-growing business expansion, the Petrobras System increased its staff by 4.65% compared to 2009, ending the year with 80,492 employees. Two selection entry processes were held for Petrobras Holding alone. Approximately 336,000 candidates signed-up for the process and 2,687 were hired.

With activities on all continents and operations in 25 countries besides Brazil, Petrobras ended 2010 ranked third among the global energy companies in market value. We were listed on the Dow Jones Sustainability Index, the world's most important in this regard, for the fifth year in a row, evidence of our commitment to the environment and to sustainable development.

Petrobras' Sustainability Report brings together, under a single cover, not only the company's main achievements, but also the challenges it faced in 2010. The information contained herein is part of our strategy to conduct business and activities with social and environmental responsibility, aligned with the ten principles of the UN Global Compact. This is why we reaffirm our commitment to continue taking part in this initiative, of which the company has been a signatory since 2003, fulfilling and reporting our activities under the ten principles relating to Labor, Human Rights, Environment, and Transparency.

In 2010, Petrobras once again has proven its competence to overcome challenges. Technological accomplishments, increased reserves and output, refining plant enhancements and modernizations, and a record equity issuance ensured the sustainability the company needed and guaranteed continuity in the implementation of its Business Plan.