Unibanco- Investor Meeting

Petrobras’ Capital Market Strategy

Petroleo Brasileiro S.A. – Petrobras

João P. Nogueira Batista

Chief Financial Officer
December 3rd, 2002
Outline
! Deregulation in Brazil’s Oil and Gas Industry
! Changing the Financing Strategy
! Transition to a new model
! Diversifying shareholder base
! Enhancing Corporate Governance
! NY and Madrid listing
! Growing International Presence
! Becoming a frequent issuer
! Abroad
! Brazil
! Focus on shareholder value
! Current Market Situation
! The world credibility crisis
! The Latin America contagion
! Concluding Remarks
Deregulation in Brazil’s Oil & Gas Industry

! The 1995 constitutional amendment ended Petrobras’

monopoly in the oil and gas industry in Brazil
! The 1997 Oil Law established the regulatory framework
and granted Petrobras the exclusive rights to its existing
proven reserves

Market Based Petrobras’ First Public Petrobras’

Pricing for Corporate Auction of Oil N YSE Market
Crude Oil Reorganization Exploration Areas Listing Fully Deregulated

July 1998 March 1999 June 1999 August 2000 January 2002

! The latest legislation completed the opening of the

Brazilian oil and gas industry
! open access and free market prices for all products
Changing the Financing Strategy

Funding Ensure Capital

End of Domestic and requirements permanent Reduction Markets as a
legal internacional for capex and access to the and primary
monopoly competition international the primary lengthening of source of
expansion equity debt profile financing
markets

!Cash Flow generation, through a competitive pricing policy,

and access to the Capital Markets are the key elements to
ensure Petrobras’ financing needs
Changing the Financing Strategy: breakdown of investment
Petrobras Capital Expenditures 2001-5: US$31.7 billion
Corporate
2% International
Distribution
4% 23%
Gas & Energy
5% E&P *
69%

Dow nstream * Domes tic

20%
77%

*includes international area

Cash Flow and

corporate debt
93% Project finance
7%

! Aggressive CAPEX needs adequate funding

Changing the Financing Strategy: the challenge
Capital Markets Debt/ Total Debt
98%
89%
84%
72% 68%
64% 66%
! Need to line up
with the industry
standard
34% 33%

To talFinaElf Chev ro n She ll Exxo n M o bil Occide ntal P etro b ra s Amerada Reps o l M édia
Texaco

Source: JP Morgan
Cost of capital 16,0%

11,8%

! Petrobras less 6,6% 7,0% 7,3%

competitive than
its peers

TotalFinaElf Shell ENI Repsol Petrobras

Source: Morgan Stanley

Transition to a new model: diversifying shareholder base

Gove rnment (1) (%) Brazil (%) Intern ational (2) (%)

20,4
32,9 36,1 40,5 !More than 450,000
18,7 investors in Brazil and
22,7
abroad, 60% of total
23,3
21,5 economic value of
Petrobras in private
60,9
44,4
hands, 1/3 international
40,6 38,0
investor

July/2000 After After Sept/2002

Aug/2000 July/2001
offeri ng offeri ng
Free
Float 39,1 55,6 59,4 59,5
(%)
(1) Includes BNDES / BNDESPAR with 11,8 %, 12,1 % e 8,0 %
(2) Includes ADRs and Foreigners in BOVESPA (Res. Nº 2689 C.M.N)
Transition to a new model: enhancing Corporate Governance

New Practices

to rs
fac
a t ing ! New By-Laws
tiv
Mo ! Corporate
Governance
Guidelines
Best Corporate ! Code of Good
Governance Practices
practices ! Internal Regulations
Old Practices Legal and Market
requirements
− New Corporate Law

! Old By-Laws Board of Directors − Bovespa’s Level 2

− Market Arbitration
− Responsibilities
Chamber
− Accountability
− Corporate Governance
practices
Transition to a new model: NY and Madrid Listing

• Access to the • Increase

European capital shareholder’s base
markets LATIBEX • Becoming more
• More visibility and international
transparency in the
• Cotation in Euros
capital markets

Average traded volume

until November 2002 (in Average traded volume
US$)
until November 2002 (in
ON – 7.8 Million US$)
PN – 18.3 Million
% of total Bovespa trading
volume
Petrobras ADR III ON 22.4 Million
ADR III PN 11.0 Million
ON - 4.6% 14th most traded ADR in
PN - 11.1%
Total - 15.7% NYSE (volume)

Bovespa NYSE
Transition to a new model: growing international presence

! Risk diversification

! Becoming the regional leading integrated company

! Repsol-YPF Swap of Assets
! Santa Fe acquisition
! Perez Companc (PECOM) acquisition

! GoM increasing participation in deepwater prospects

! UK: Sold with US$ 85 MM profit
! USA: Divestment of non-core assets
Transition to a new model: becoming a frequent issuer

! Building the yield curve with issuances in the domestic and

international markets

! SEC Shelf Registration providing agility

Optimizing the required debt Greater flexibility and speed

and equity offering in accessing the
documentation international capital markets

! PETROBRAS may issue equity, quasi-equity and debt

securities up to US$ 8 billion
Transition to a new model: frequent issuer abroad

International issuances

PIFCo I (9,875%Senior Notes - May 2001)

! US$ 450 Milhões • Term: 7 years
! Political Risk Insurance

PIFCo II (9,750% Senior Notes - Jul 2001)

! US$ 600 Milhões • Term: 10 years
! Cancelable Insurance

PIFCo III (9,125% Senior Notes - Fev 2002)

! US$ 500 Milhões • Term: 5 years
! L/C Coverage
Transition to a new model: frequent issuer in Brazil
Domestic issuances

2nd issuance of debentures (August 2002)

! R$ 750 million Term: 10 Years
! Remuneration: IGP-M + 11.0 % p.a.

3rd issuance of debentures (October 2002)

! R$ 775 Million Term: 8 Years
! Remuneration: IGP-M + 10.30 % p.a.
Transition to a new model: focus on shareholder value
! New polices are reflected by positive performance since 1998
! In spite of market volatility cash generation and net income for the first
three quarters/2002 were R$ 13.8 billion and R$ 5.3 billion, respectively

R$ million
18.270 17.250

10.040 9.942 9.867 Ebitda

Net Income
3.403
1.389 1.757

1998 1999 2000 2001

39,9%
32,3% 34,8%
ROE 29,3%
ROCE 13,7%
10,0%
6,6% 4,9%

1998 1999 2000 2001

Transition to a new model: focus on shareholder value

!Payouts of dividend and interest on equity averaged 38% in the last four
years as a result of the company reshaping

Payout
Yield ON Yield PN
54,30% 6,3 6,5
49,80%
4,9
40,30% 4,6 4,6
34,80%
3,4
24,90% 25,33%
2,3
2,0 1,8
1,0

1996 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001

!Aggressive CAPEX program has kept payouts below that of our

international peers (53%) but in line with the average for the Brazilian
companies
Current Market Situation: the world credibility crisis
!The crisis in confidence in Corporate America was triggered by the two
largest scandals in U.S. history:
! Enron (2001) and WorldCom (2002), stem from corporate mismanagement
and symbolize the broader crisis in corporate governance
! Currently over 700 corporations are under investigation by SEC
! Public debate on corporate governance has focused on the inadequacy of
accounting rules and their enforcement
...the credibility crisis has adversely impacted investors’ risk appetite
! SP 500 down 28% so far this year, experiencing the longest bear market in
60 years
! Risk aversion and credit crunch
! Increasingly discriminating international investors
! Receding pool of liquidity for the great mass of sub-investment grade
issuers
! Higher cost of capital
... capital markets will take some time to recover
Current Market Situation: the Latin America contagion
! A confluence of the central market crisis and regional specific
events has contributed to a severe liquidity crisis
Emergent Market Risk and Sovereign Risk Perception
8,000
7,000 6541 (*)
6,000
5,000
4,000
3,000 1916
2,000
1,000 918
0
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No

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Ja

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Fe

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EMBI + EMBI+ Bra zil EMBI+ Argentina

...despite longer-term positive view of regional

economics, risk aversion is expected to remain high
 Concluding Remarks

! World class integrated oil & gas and energy company

! Well positioned to remain dominant in Brazil and growing
its international presence
! High quality cash flow from diversified revenue portfolio,
strong credit ratios and committed to capital discipline
! Taking advantage of the global crisis to develop local
capital markets and strengthen corporate governance

... from the crisis emerge stronger players