petrobras contingent

DeGolyer and MacNaughton 5001 Spring Valley Road

Suite 800 East

Dallas, Texas 75244

This is a digital representation of a DeGolyer and MacNaughton report. This file is intended to be a manifestation of certain data in the subject report and as such are subject to the same conditions thereof. The information and data contained in this file may be subject to misinterpretation; therefore, the signed and bound copy of this report should be considered the only authoritative source of such information.


Suite 800 East Dallas, Texas 75244

REPORT as of

JULY 1, 2010 on the

CONTINGENT RESOURCES of

CERTAIN PROPERTIES located

OFFSHORE BRAZIL

DeGolyer and MacNaughton

TABLE of CONTENTS

Page

FOREWORD.............................................................................................................. 1 Scope of Investigation.............................................................................................. 1 Authority .................................................................................................................. 3 Source of Information.............................................................................................. 3

DEFINITION of CONTINGENT RESOURCES.................................................. 4 ESTIMATION of CONTINGENT RESOURCES................................................. 6

Iara Area .................................................................................................................. 8 Franco Area.............................................................................................................. 8

VALUATION of RESOURCES............................................................................. 10 SUMMARY and CONCLUSIONS ........................................................................ 12

TABLES Table 1 – Summary of Gross Contingent Resources Table 2 – Summary of Potential Present Worth Table 3 – Gross Potential Quantities, Expenses, and Costs – 1C, Franco Area Table 4 – Gross Potential Quantities, Expenses, and Costs – 2C, Iara Offblock

Area Table 5 – Gross Potential Quantities, Expenses, and Costs – 2C, Franco Area Table 6 – Gross Potential Quantities, Expenses, and Costs – 3C, Iara Offblock

Area Table 7 – Gross Potential Quantities, Expenses, and Costs – 3C, Franco Area Table 8 – Summary of Conceptual Development Plan Assumptions – 1C Table 9 – Summary of Conceptual Development Plan Assumptions – 2C Table 10 – Summary of Conceptual Development Plan Assumptions – 3C


Suite 800 East Dallas, Texas 75244

REPORT as of

JULY 1, 2010 on the

CONTINGENT RESOURCES of

CERTAIN PROPERTIES located

OFFSHORE BRAZIL

FOREWORD

Scope of Investigation This report presents estimates, as of July 1, 2010, of the extent of the oil,

condensate, and natural gas contingent resources and estimates of the potential value of the contingent resources of the petroleum interests evaluated herein. The contingent resources evaluated in this report are located in the Santos Basin offshore from Brazil. Petróleo Brasileiro S.A. (Petrobras) has represented that it may acquire these resources as part of a process known as transfer of rights with compensation, which is currently being undertaken between the Government of Brazil and Petrobras.

Estimates of contingent resources have

been prepared according to the Petroleum Resources Management System (PRMS) approved in March 2007 by the Society of Petroleum Engineers, the World Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers. The contingent resources definitions are discussed in detail in the Definition of Contingent Resources section of this report.

The contingent resources in this report

are expressed as gross contingent resources. Gross contingent resources are defined as the total estimated petroleum that is potentially recoverable from known accumulations after June 30, 2010.

2 DeGolyer and MacNaughton

The potential values of the projected contingent resources estimated herein are expressed in terms of potential present worth. Potential present worth is defined as potential future net revenue discounted at a specified arbitrary discount rate compounded monthly over the expected period of realization. Potential future net revenue is that net revenue remaining after deductions for royalties, costs, and taxes that might be derived from the sale of the total estimated contingent resources recoverable after June 30, 2010. In this report, potential present worth values were estimated using a 10 percent discount rate. Values of potential present worth at 10 percent have been estimated deterministically taking into account information related to field development plans (actual or conceptual), contract terms, product pricing, and marketing plans as provided by Petrobras.

The contingent resources estimated

herein are those volumes of petroleum that are potentially recoverable from known accumulations but which are not currently considered to be commercially recoverable. Because of the uncertainty of commerciality, the contingent resources estimated herein cannot be classified as reserves. The contingent resources estimates in this report are provided as a means of comparison to other contingent resources and do not provide a means of direct comparison to reserves. The contingent resources estimated in this report have an economic status of “Marginal” and “Sub-Marginal.”

Contingent resources quantities should

not be confused with those quantities that are associated with reserves due to the additional risks involved. The quantities that might actually be recovered should they be developed may differ significantly from the estimates presented herein. There is no certainty that it will be commercially viable to produce any portion of the contingent resources evaluated herein.

At the request of Petrobras, a model was

prepared to estimate potential values that might be realized from the resources estimated herein should these resources be successfully developed. A possibility exists that the accumulations will not result in successful development, in which case there could be no potential present worth.

Potential present worth estimates are

provided as a means of comparison to the potential present worth estimates of other resources and do not provide a means of direct comparison to the present worth


estimates attributable to reserves. These potential present worth estimates do not take into consideration the uncertainties associated with market and political conditions. The estimates are expressed in terms of potential present worth discounted at 10 percent. All potential present worth estimates presented in this report are expressed in United States dollars (U.S.$).

Estimates of oil and gas contingent

resources should be regarded only as estimates that may change as further production history and additional information become available. Not only are such contingent resources estimates based on that information which is currently available, but such estimates are also subject to the uncertainties inherent in the application of judgmental factors in interpreting such information.

Authority This report was authorized by Mr. Jose Jorge de Moraes Junior, Manager E&P, Petrobras.

Source of Information In the preparation of this report we have relied, without independent verification,

upon information furnished by or on behalf of Petrobras with respect to the property interests to be evaluated, subsurface data as they pertain to the target objectives and prospects, and various other information and technical data that were accepted as represented. This report was based on data available as of July 1, 2010.


DEFINITION of CONTINGENT RESOURCES

Petroleum resources included in this report are classified as contingent resources and have been prepared in accordance with the PRMS approved in March 2007 by the Society of Petroleum Engineers, the World Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers. Because of the lack of commerciality or sufficient development drilling, the contingent resources estimated herein cannot be classified as reserves. The petroleum resources are classified as follows:

Contingent Resources – Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies. Based on assumptions regarding future conditions and their impact on ultimate economic viability, projects currently classified as Contingent Resources may be broadly divided into three economic status groups:

Marginal Contingent Resources – Those quantities associated with technically feasible projects that are either currently economic or projected to be economic under reasonably forecasted improvements in commercial conditions but are not committed for development because of one or more contingencies. Sub-Marginal Contingent Resources – Those quantities associated with discoveries for which analysis indicates that technically feasible development projects would not be economic and/or other contingencies would not be satisfied under current or reasonably forecasted improvements in commercial conditions. These projects nonetheless should be retained in the inventory of discovered resources pending unforeseen major changes in commercial conditions. Undetermined Contingent Resources – Where evaluations are incomplete such that it is premature to clearly define ultimate


chance of commerciality, it is acceptable to note that project economic status is “undetermined.”

The estimation of resources quantities for

an accumulation is subject to both technical and commercial uncertainties and, in general, may be quoted as a range. The range of uncertainty reflects a reasonable range of estimated potentially recoverable volumes. In all cases, the range of uncertainty is dependent on the amount and quality of both technical and commercial data that are available and may change as more data become available.

1C (Low), 2C (Best), and 3C (High) Estimates – Estimates of petroleum resources in this report are expressed using the terms 1C (low) estimate, 2C (best) estimate, and 3C (high) estimate to reflect the range of uncertainty.


ESTIMATION of CONTINGENT RESOURCES

Estimates of contingent resources were prepared by the use of standard geological and engineering methods generally accepted by the petroleum industry. The method or combination of methods used in the analysis of each reservoir was tempered by experience with similar reservoirs, stage of development, quality and completeness of basic data, and production history.

The volumetric method was used to

estimate the original oil in place (OOIP) or original gas in place (OGIP). Structure maps were prepared to delineate each reservoir, and isopach maps were constructed to estimate reservoir volume. Electrical logs, radioactivity logs, core analyses, and other available data were used to prepare these maps as well as to estimate representative values for porosity and water saturation.

Estimates of ultimate recovery were

obtained after applying recovery factors to OOIP and OGIP. These recovery factors were based on consideration of the type of energy inherent in the reservoirs, analyses of the petroleum, the structural positions of the properties, and the production histories.

In certain cases, when the previously

named methods could not be used, contingent resources were estimated by analogy with similar wells or reservoirs for which more complete data were available.

Gas quantities estimated herein are

expressed as sales gas. Sales gas is defined as the gas remaining to be produced after June 30, 2010, after field separation and delivered to a pipeline inlet after deductions for fuel usage and flare and the removal of nonhydrocarbon components to meet gas sales specifications. All gas quantities are expressed at a temperature base of 60 degrees Fahrenheit (°F) and a pressure base of 14.7 pounds per square inch absolute (psia).

The contingent oil resources estimated in

this report are expressed in terms of 42 United States gallons per barrel. Crude oil and condensate resources are to be recovered by conventional field operations.


Data available from wells drilled on the evaluated properties, as of July 1, 2010, are included herein. Contingent oil and gas resources have been estimated for each of the discoveries based on evaluation of the in-place volumes and the potential recoverable volumes.

Petrophysical, geophysical, and geological

interpretations have been performed in estimating the net rock volume used in estimating in-place volumes. Seismic amplitude data were used extensively to estimate the distribution of sands for the discoveries. OOIP and OGIP were estimated using the rock and fluid properties of each accumulation combined with the geological interpretation of the net rock distribution.

Initial pressures and temperatures for the

reservoirs were based on wireline pressure data, drill-stem test data, and trends that could be developed from that information to apply to fields where that type of data was unavailable.

All oil, condensate, and gas quantities

estimated in these areas were classified as contingent resources, primarily because of uncertain economic viability. The economic status of the contingent resources is “Marginal” and “Sub-Marginal.” These classifications are appropriate because of the uncertainty relating to commitment to develop, development costs, gas-sales agreements, existence of production infrastructure, and timing.

Contingent resources quantities for the

reservoir intervals in each resources area were estimated using geological structure maps constructed from seismic depth structure maps. All contingent resources quantities evaluated in this report are located on unlicensed acreage. Contingent resources quantities of each reservoir interval were estimated volumetrically. A gross interval isopach map was drawn for each reservoir using the structure map and petrophysical analysis. Net rock volumes were estimated by applying a net-to-gross ratio (NGR) to rock volumes from the gross interval isopach map.

The Iara and Franco contingent resources

areas, located in the Santos Basin, were evaluated for this report.


Iara Area The Iara area is located offshore from Brazil about 230 kilometers from Rio de

Janeiro. The area is within the BM-S-11 offshore block and the water depth over the field is about 2,230 meters. The area was discovered in 2008 by the 1-RJS-656 well. Drill-stem tests confirmed that the Cretaceous-age carbonate sediments were oil bearing.

The productive reservoirs discovered in

the 1-RJS-656 well are interpreted to extend beyond the boundaries of the BM-S-11 block. Contingent resources quantities were estimated only for the areas outside the limits of the BM-S-11 block (termed the Iara offblock area). These quantities were classified as 2C and 3C contingent resources. No 1C contingent resources quantities were estimated for the Iara offblock area in this report. Quantities classified as 1C are associated only with reservoir areas near the Iara well and inside the boundaries of the BM-S-11 block and are not included in this report. For the Iara area, the development plan calls for leasing floating production, storage, and offloading vessels (FPSOs) and the related subsea equipment. The 2C development plan for the Iara offblock area considered the use of one FPSO with a processing capacity of 30 thousand barrels of oil per day (103BOPD). The 3C development plan for the Iara offblock area considered four FPSOs (three with 100 103BOPD processing capacity and one with 70 103BOPD processing capacity).

Franco Area The Franco area is located offshore from Brazil about 45 kilometers north from the

Iara area. The discovery well, 2-ANP-1, was drilled in May 2010 by Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP), Brazil’s national hydrocarbons agency. Drill-stem testing confirmed that the Cretaceous-age carbonate sediments were oil bearing. The offshore acreage associated with the well is not leased to any company and is controlled by ANP. Water depth over the discovery is about 1,900 meters. The 1C development plan for Franco considered one FPSO with a 125 103BOPD processing capacity. The 2C and 3C plans considered three and seven FPSOs, respectively, each with 150 103BOPD processing capacity.


The estimated gross contingent resources, as of July 1, 2010, evaluated herein are summarized as follows, expressed in thousands of barrels (103bbl) and millions of cubic feet (106ft3):

Gross Contingent Resources 1C 2C 3C

Area Classification

Oil and Condensate

(103bbl)

Sales Gas

(106ft3)

Oil and Condensate

(103bbl)

Sales Gas

(106ft3)

Oil and Condensate

(103bbl)

Sales Gas

(106ft3)

Iara Marginal 0 0 71,660 58,470 866,600 707,146 Submarginal 0 0 4,540 3,713 40,034 32,673Franco Marginal 334,960 341,659 1,576,210 1,607,736 4,721,560 4,815,999 Submarginal 16,010 16,331 56,090 57,217 123,390 125,858

Total 350,970 357,990 1,708,500 1,727,136 5,751,584 5,681,676

Notes: 1. Application of any risk factor to contingent resources quantities does not equate contingent resources

with reserves. 2. There is no certainty that it will be commercially viable to produce any portion of the resources

evaluated. 3. Contingent resources have an economic status of “Marginal” and “Sub-Marginal.” 4. No 1C contingent resources quantities were estimated for Iara in this report. Quantities classified as

1C are associated only with reservoir areas near the Iara well and inside the boundaries of the BM-S-11 block and are not included in this report.


VALUATION of RESOURCES

The estimates of potential present worth of future net revenue discounted at 10 percent that could be realized for the contingent resources estimated in this report are dependent on the successful development of the accumulations evaluated herein. The estimated potential present worth of the contingent resources evaluated in this report is to be used for comparison and ranking of these contingent resources against other contingent resources only. The estimated potential present worth for the contingent resources cannot be compared directly to, equated with, or aggregated with the present worth estimates that could be realized from reserves, nor are these potential present worth estimates an assessment of the fair market value of the properties evaluated herein.

At the request of Petrobras, deterministic

methodologies were used to estimate potential present worth that could be realized should the contingent resources estimated herein be developed.

Deterministic models incorporated

various economic factors and development practices based on the potential contingent resources quantities estimated. The following were estimated deterministically: operating expenses, capital costs, potential production, depreciation, taxes, time value of money, field life, exploration well costs, development timing, and abandonment costs, with consideration of other factors. At the request of Petrobras, the following prices were used to estimate future net revenue: U.S.$79.23 per barrel for Brent crude, not escalated, in 2010 U.S.$; and U.S.$4.27 per thousand cubic feet for gas, not escalated, in 2010 U.S.$. The field prices for oil were adjusted to account for crude quality and transportation.

The gross contingent resources quantities,

expressed in thousands of barrels (103bbl) and millions of cubic feet (106ft3), are summarized in Table 1. The estimated potential present worth, discounted at 10 percent, expressed in millions of U.S.$ (106 U.S.$), of the contingent resources quantities attributable to the two license areas if the accumulations were successfully developed, are summarized in Table 2. Table 3 shows the gross potential quantities, operating expenses, and capital costs in detail for the 1C contingent resources for the Franco area. Tables 4 and 5 show the gross potential quantities, expenses, and costs in detail for each area for the 2C contingent resources. Tables 6 and 7 show the gross potential quantities, expenses, and costs in detail for each area for the 3C contingent resources. Tables 8 through 10 show the


conceptual development plan assumptions used for the 1C, 2C, and 3C cases, respectively. Future changes in the fiscal environment and/or the infrastructure of the area can change these values significantly. There is no certainty that it will be commercially viable to produce any portion of the contingent resources evaluated herein.

The economic status of the contingent

resources estimated herein is “Marginal” and “Sub-Marginal.” These classifications are appropriate because of the uncertainties relating to commitment to develop, development costs, gas-sales agreements, existence of production infrastructure, and timing. The “Sub-Marginal” contingent resources are related to those volumes that have negative potential future net revenue.


SUMMARY and CONCLUSIONS

Petrobras requested evaluations of certain properties located in unlicensed areas of the Santos Basin offshore from Brazil. The estimated gross contingent resources, as of July 1, 2010, are summarized as follows, expressed in thousands of barrels (103bbl) and millions of cubic feet (106ft3):

Gross Contingent Resources 1C 2C 3C

Area Classification

Oil and Condensate

(103bbl)

Sales Gas

(106ft3)

Oil and Condensate

(103bbl)

Sales Gas

(106ft3)

Oil and Condensate

(103bbl)

Sales Gas

(106ft3)

Iara Marginal 0 0 71,660 58,470 866,600 707,146 Submarginal 0 0 4,540 3,713 40,034 32,673Franco Marginal 334,960 341,659 1,576,210 1,607,736 4,721,560 4,815,999 Submarginal 16,010 16,331 56,090 57,217 123,390 125,858

Total 350,970 357,990 1,708,500 1,727,136 5,751,584 5,681,676

Notes: 1. Application of any risk factor to contingent resources quantities does not equate contingent resources

with reserves. 2. There is no certainty that it will be commercially viable to produce any portion of the resources

evaluated. 3. Contingent resources have an economic status of “Marginal” and “Sub-Marginal.” 4. No 1C contingent resources quantities were estimated for Iara in this report. Quantities classified as

1C are associated only with reservoir areas near the Iara well and inside the boundaries of the BM-S-11 block and are not included in this report.

All gas quantities are expressed at a

temperature base of 60 °F and a pressure base of 14.7 psia. For various reasons, including reservoir

uncertainty, lack of plans to develop the petroleum quantities in these areas, and the uncertain economic viability of such developments, the contingent resources estimated herein cannot be considered reserves. If the required commitment and approval were in place to exploit the oil and gas reservoirs and the development were economic, certain of these contingent resources could be reclassified as reserves. The economic status of the contingent resources estimated herein is “Marginal” and “Sub-Marginal.” These classifications are appropriate because of the uncertainties relating to commitment to develop, development costs, gas-sales agreements, existence of production infrastructure, and timing.

petrobras contingent

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