Consolidated net income totaled R$10,985 million in 1Q-2011, a new quarterly record, while EBITDA increased by 10% over 4Q-2010

Main Highlights

• Production increased by 3% over 1Q-2010, chiefly due to higher output in the Marlim Leste, Cachalote/Baleia Franca, Jubarte, Uruguá/Tambaú and Frade fields, the operational start-up of the Piloto de Lula and Marlim Sul fields and the Tiro, Sidon and Guará extended well tests.
  
  
• New pre-salt discoveries in the Santos Basin, including Carioca Nordeste and Macunaíma. Petrobras also began extended well tests in the Marlim Leste field and the Brava region of the Marlim field, both in the pre-salt area of the Campos Basin.
  
  
• Approval of the first lot of seven drilling rigs to be built in Brazil. Sete Brasil S.A. will be responsible for the construction contract with Estaleiro Atlântico Sul (EAS).
  
  
• The Company raised US$6 billion through international bond issues maturing in 5, 10 and 30 years.
  
  
• In 1Q-2011, Petrobras paid R$2,218 million in interest on equity to its shareholders on the amount of R$0.12 per share and will pay dividends of R$1,565 million by June 27, 2011, as resolved by the Annual Shareholders’ Meeting of April 28, 2011. On March 31, 2011, the Company provisioned R$2,609 million related to interest on equity on the amount of R$ 0.20 per share to be paid by July 30, 2011.

www.Petrobras.com.br/ri
     For further information: PETRÓLEO BRASILEIRO S. A. – PETROBRAS Investor Relations I E-mail: petroinvest@Petrobras.com.br / acionistas@Petrobras.com.br
Av. República do Chile, 65 - 2202 - B - 20031-912 - Rio de Janeiro, RJ I Tel.: 55 (21) 3224-1510 / 9947 I 0800-282-1540

			Index: Financial Performance Operating Performance Financial Statements Appendices	3 6 17 27
This document may contain forecasts that merely reflect the expectations of the Company’s management. Such terms as “anticipate”, “believe”, “expect”, “forecast”, “intend”, “plan”, “project”, “seek”, “should”, along with similar or analogous expressions, are used to identify such forecasts. These predictions evidently involve risks and uncertainties, whether foreseen or not by the Company. Therefore, the future results of operations may differ from current expectations, and readers should not base their expectations exclusively on the information presented herein.

Dear shareholders and investors,

We are pleased to announce our results for the first quarter of 2011, which was marked by continuing challenges and important operational and corporate achievements, leading to record net income of R$10,985 million.

Our operating performance improved substantially, particularly in the Exploration and Production segment. At the beginning of 2011, we announced that our proven oil and gas reserves had reached 15.986 billion barrels of oil equivalent (boe) in 2010, in accordance to SPE, 7.5% more than the previous year. This means that, for every boe extracted in 2010, we added 2.29, corresponding to a reserve replacement ratio of 229%. The reserve/production ratio (R/P) closed 2010 at 18.4 years, an exceptionally comfortable figure for our industry.

We continue to make progress in our development of the Santo pre-salt frontier, approving the chartering of two new FPSO platforms (oil and gas floating production, storage and offloading units) for the pilot projects in the Guará-Norte region and the Cernambi field.

Continuing with our strategy of ensuring key equipment for the development of our operations, we approved the construction of the first lot of seven drilling rigs to be built in Brazil. The rigs will be chartered from Sete Brasil S.A., which will be responsible for the construction contract with Estaleiro Atlântico Sul (EAS), in Pernambuco. This represents the first stage of a project involving up to 28 rigs, the first of which is scheduled for start-up by 2015. It is worth highlighting that the contracting of these rigs is fully compatible with a policy of local construction at internationally competitive costs.

Continuing with our exploration program, we announced several new and important discoveries, including the area known informally as Carioca Nordeste, where preliminary analyses indicate an accumulation of oil with an API gravity of 26° in a high-quality 200 meter reservoir, and the Macunaíma area, where the Company identified an oil accumulation also with an API gravity of 26° in the Santos Basin pre-salt reservoirs.

We began extended well tests (EWTs) in the Tracajá reservoir in the Marlim Leste field, and the Brava region of the Marlim field, both of which located in the pre-salt area of the Campos Basin, the latter being connected to the P-27 platform, avoiding the need for an additional production unit. The EWTs will provide us with more data on the characteristics of the reservoirs, thus helping to ensure the best means of developing production.

We entered into a Memorandum of Understanding and a General Technological Cooperation Agreement with the Chinese companies, Sinochem Corporation and Sinopec, respectively. These strategic alliances will ensure cooperation between the companies’ activities in Brazil and abroad in areas of common interest in the oil and gas industry.

On the corporate front, we undertook the largest ever international debt issue by a Brazilian company, placing US$6 billion in bonds maturing in 5, 10 and 30 years. The proceeds will be used to finance the investments scheduled in our Business Plan, thereby maintaining an appropriate capital structure and financial leverage in line with our objectives.

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In April, we announced the annual review of the Santos Basin Pre-Salt Integrated Development Plan (Plansal), incorporating the data from the new wells and the implementation of the various commercial strategies.

Finally, we cannot forget to mention the highly volatile international oil prices which, combined with the ethanol shortage in Brazil, have further underlined the correctness of Petrobras’ strategy which is primarily aimed at increasing oil production and actively participating in the biofuel segment, not only capturing growing demand in these markets, but also ensuring that all the Company’s human, financial and operational resources are put to the best possible use. We remain confident in our capacity to achieve the goals laid out in our Business Plan, thereby ensuring increasing returns for our shareholders and investors.

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Main Items and Consolidated Economic Indicators

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1Q-2011 x 4Q-2010:

Gross profit

Gross profit⁶ totaled R$20,204 million in 1Q-2011, 7% up on the R$18,880 million posted in 4Q-2010, due to:

o Relatively stable sales revenue (R$54,800 million in 1Q-2011, versus R$54,492 million in 4Q-2010), due to:
• The impact of higher international prices on export prices and the price of oil products whose prices are pegged to the international market;
• The price increases were almost entirely offset by the reduction in domestic sales volume, especially diesel, due to the decline in industrial activity, and natural gas, reflecting the seasonality of the industrial and thermal power segments.

o A reduction of 3% in the cost of goods sold – COGS- (R$1,016 million), due to:
• The 7% decline in domestic sales volume (2,344 thousand barrels/day in 1Q-2011, versus 2,526 thousand barrels/day in 4Q-2010);
• The lower share of imports, especially diesel, in the COGS mix;

These effects were partially offset by the increase in extraction costs, which climbed by 17% in R$/bbl terms (including the government take).

Net Income

o First quarter net income (R$10,985 million) improved by 4% over the previous quarter (R$10,602 million), mostly reflecting:
• Higher sales revenue;
• Lower COGS;
• The 5% reduction in expenses (R$439 million), chiefly due to reduced write-offs of economically unviable wells, mostly abroad (R$321 million).

These effects were partially offset by the R$754 million reduction in tax benefits from the payment of interest of equity.

Cash and Cash Equivalents, Investments and Debt

o Cash and cash equivalents (including federal bonds maturing in more than 90 days) climbed by 13% (R$62,935 million in 1Q-2011, versus R$55,848 million in 4Q-2010).

o First-quarter investments totaled R$15,871 million, 45% of which allocated to Exploration & Production.

o Net debt stood at R$66,064 million, up by 6%, most of which in the long term, with a comfortable leverage of 17%, well below the Company’s established maximum of 35% .

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1Q-2011 x 1Q-2010.

Gross profit

Gross profit⁷ totaled R$20,204 million in 1Q-2011, 5% up on 1Q-2010 (R$19,310 million), thanks to:

o The 9% increase in revenue (R$4,388 million), basically due to:

• The 7% upturn in domestic sales volume (R$1,383 million), reflecting Brazil’s economic growth, led by jet fuel (+18%), natural gas (+13%), diesel (+9%) and gasoline (+7%)⁸.
• The increase in crude and oil product prices, chiefly oil exports (41% in US$), and the higher price of naphtha (+13%) and jet fuel (+20%);
• Increased revenue from the international market (R$1,094 million), due to higher prices abroad (R$1,077 million).

o COGS increased by 11% over 1Q-2010 (R$3,494 million), due to:

• Higher import expenditures, mainly with diesel;
• The 16% increase in extraction expenses (including the government take), due to higher international crude prices and increased output;
• The 16% upturn in R$/bbl refining costs, excluding the exchange variation, due to higher expenses with personnel, materials, third-party services and scheduled stoppages.

Net Income

o 1Q-2010, net income increased by 42% year-on-year, reaching a new quarterly record, mostly reflecting:

• The 29% increase in national oil prices in US$;
• The 4% upturn in LNG and natural gas production due to higher output in the Marlim Leste, Cachalote/Baleia Franca, Jubarte, Uruguá/Tambaú and Frade fields, the operational start-up of the Piloto de Lula and Marlim Sul fields and the extended well tests in Tiro, Sidon and Guará.
• Higher sales of natural gas, accompanying industrial growth and increased demand for power generation;
• The increase in the financial result (R$2,723 million), due to exchange gains on debt from the appreciation of the Real against the U.S. dollar, and higher returns on financial investments and federal bonds due to investment of the proceeds from the September 2010 capitalization.

Cash and Cash Equivalents, Investments and Debt

o Net cash from operating activities amounted to R$12,924 million in 1Q-2011, 34% up year-on-year, reflecting higher output, increased sales, and favorable crude and oil product prices.

o The Company has invested R$15,871 million to date, R$7,196 million of which in Exploration & Production and R$5,845 million in Refining, Transportation & Marketing.

o Following the September 2010 capitalization, the company’s leverage fell substantially and has been maintained at 17%, much lower than the Company’s established limit of 35%.

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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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Domestic sales volume increased by 7% over 1Q-2010, reflecting economic growth as well as the following factors:

• Diesel (increase of 9%) – due to the reduced market share of the other local players;

• Gasoline (increase of 7%) – reflecting the more advantageous gasoline prices compared to those of ethanol in most states, as well as the expansion of the vehicle fleet;

• Natural gas (increase of 13%) – accompanying industrial growth and greater demand for power generation;

• Jet fuel (increase of 18%) – due to the appreciation of the Real and the greater number of domestic and international flights.

The 19% reduction in fuel oil reflected the substitution of part of natural gas consumption, both in the thermal and industrial segments.

Exports declined by 14%, due to increased oil supply in 1Q-2010, reflecting the scheduled stoppage in the Replan refinery.

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Consolidated Investments

In line with its strategic objectives, Petrobras operates through joint ventures with other companies, in Brazil and abroad, as a concessionaire of oil and gas exploration, development and production rights. Currently the Company is a member of 105 consortiums in Brazil, of which it operates 72, and 155 joint ventures abroad, of which it operates 79.

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Consolidated Debt

The net debt of the Petrobras System increased by 6% over December 31, 2010, due to the raising of long-term funding abroad through bond issues, partially offset by financial investments in Brazil.

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Income Statement – Consolidated

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Balance Sheet – Consolidated

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Statement of Cash Flow – Consolidated

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Statement of Added Value – Consolidated