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Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 

Form 20-F ___X___ Form 40-F _______

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes _______ No___X____

 

This report on Form 6-K is incorporated by reference in the Registration
Statement on Form F-3 of Petróleo Brasileiro -- Petrobras (No. 333-163665).

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

3 Consolidation basis

The consolidated interim accounting information include the quarterly information of Petrobras and its subsidiaries, jointly controlled subsidiaries and specific purpose entities.

The Company did not present material changes in interests in consolidated companies in the period ended June 30, 2011.

3.1 Reconciliation of the net equity and net income of consolidated with that of the parent company

 

4 Accounting policies

The accounting practices and calculation methods used in the preparation of this individual and consolidated quarterly information are the same as those adopted in the preparation of the Company’s annual financial statements for the year ended December 31, 2010.

PAGE : 59 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

 

(*) As from 2011, business dealings with biofuels are presented in their own segment. Previously this information was allocated in the corporate agencies group. To facilitate comparison, we reclassified the information from the previous year.

PAGE : 89 of 120

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(*) As from 2011, business dealings with biofuels are presented in their own segment. Previously this information was allocated in the corporate agencies group. To facilitate comparison, we reclassified the information from the previous period.

PAGE : 90 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Consolidated Statement of Income per Business Area - 2010

 

(*) As from 2011, business dealings with biofuels are presented in their own segment. Previously this information was allocated in the corporate agencies group. To facilitate comparison, we reclassified the information from the previous period.

PAGE : 91 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Consolidated Statement per International Business Area

 

PAGE : 92 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

29 Legal proceedings and contingencies 29.1 Provisions for legal proceedings

 

(*) Net of deposits in court, when applicable.

 

Triunfo Agro Industrial S.A and others

During the year 2000, Triunfo Agro Industrial and others filed a suit against Petrobras, claiming losses and damages as a result of the annulling of a credit assignment transaction – excise tax (IPI) premium. The hearing by the Superior Court of Rio de Janeiro, in the second instance, was unfavorable to Petrobras and approval was denied for the appeal lodged by the Company. Petrobras filed special and extraordinary appeals against this decision, which were not admitted, which generated the filing of interlocutory appeals to the Superior Court of Justice and the Federal Supreme Court, respectively, which are awaiting a hearing. Parallelly to the filing of the aforementioned appeals, on September 28, 2010 Petrobras filed a motion for annulling judgment before the full bench of the Court of Rio de Janeiro, where it obtained an injunction that prohibits any withdrawal of values on the part of the plaintiffs of the suit.

PAGE : 93 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

The amount of the claim by the plaintiffs, estimated at R$ 526, is under attachment through a blocked deposit in court.

Fishermen’s Federation of Rio de Janeiro (FEPERJ)

On behalf of its members, FEPERJ is making a number of claims for indemnification as a result of an oil spill in Guanabara Bay which occurred on January 18, 2000. At the time, Petrobras paid out extrajudicial indemnification to all those that proved they were fishermen when the accident happened. According to the records of the national fishermen’s registry, only 3,339 people were eligible to claim indemnification.

On February 2, 2007, a decision, partially accepting the expert report, was published and, on the pretext of quantifying the amount of the conviction, it established the parameters for the respective calculations, which, based on these criteria, would result in an amount of R$ 1,102. Petrobras appealed against this decision before the Superior Court of Rio de Janeiro, as the parameters stipulated in the decision are contrary to those specified by the Superior Court of Rio de Janeiro, itself. The appeal was accepted. On June 29, 2007, a decision was published by the First Civil Chamber of the Superior Court of the State of Rio de Janeiro denying approval to the appeal by Petrobras and granting approval to the appeal by FEPERJ. Special appeals were lodged by Petrobras against this decision, which in a decision handed down on November 19, 2009 by the Superior Court of Justice, were considered fit to annul the court decision of the First Civil Chamber of the Superior Court of Rio de Janeiro. Requests for resolution of a split decision lodged by FEPERJ are awaiting a hearing.

Based on the calculations prepared by the Company’s experts, the amount of R$ 55, updated to June 30, 2011, was maintained as representing the amount that the Company understands as a maximum limit to be established by the higher courts at the end of the proceedings.

Companhia Locadora de Equipamentos Petrolíferos (CLEP)

On July 16, 2009, CLEP received a notice of infraction, referring to questioning with respect to the rate for income tax withheld at source, applicable to the issuing of securities abroad. There is the possibility of applying the treaty between Brazil and Japan. On August 14, 2009, CLEP filed a refutation of this tax assessment notice in the Regional Federal Revenue Office of Rio de Janeiro. On September 3, 2009 the process was remitted to the Control and Hearing Service – DRJ. The request for an injunction, presented by CLEP, for renewal of the notification regarding the decision handed down in the administrative process and suspension of the demandability of the debt for income tax withheld at source was dismissed, which gave rise to the filing of an interlocutory appeal on November 19, 2010. On December 2, 2010, the request for advance relief was partially granted, suspending the acts for collection of the debt until the new notification of the aforementioned court decision at the administrative level is made.

The estimated maximum exposure as of June of 30, 2011 is R$ 427, which is recorded in non-current liabilities of the consolidated balance sheet.

PAGE : 94 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

29.2 Main legal proceedings with a probability of possible loss:

a) Processes included in the period

Description		Current situation
Plaintiff: State Treasury of São Paulo Nature: Tax Withdrawal of collection of ICMS and fine on imports (Temporary admission - Drilling Rig -Admission in São Paulo - Clearance in Rio de Janeiro).		The lower court considered the assessment to have grounds and this decision was maintained in the second instance. Special appeal by the company not recognized. An annulment action of tax debt was filed, where advance relief was granted to suspend the demandability of the tax credit, without an offer of collateral. Estimated maximum exposure: R$ 1,493.
Plaintiff: National Petroleum Agency (ANP) Nature: Civil Differences in payment for special participation in the Albacora, Carapeba, Cherne, Espadarte, Marimba, Marlim, Marlim Sul, Namorado, Pampo and Roncador Fields – Campos Basin.		On February 7, 2011, Petrobras received notice from ANP, which instituted an administrative process and established payment of new sums of money considered to be owed for the period between the 1st quarter of 2005 and the 1st quarter of 2010, referring to amounts that would have been underpaid by the concessionaire. On February 22, 2011, Petrobras presented a defense for the administrative process, requesting that the notice of infraction be considered invalid, since the facts which ANP used as a basis for concluding on the irregularity of the payment of the Special Participation do not correspond to the reality. If ANP’s administrative decision is maintained, Petrobras shall assess the possibility of a court suit to suspend and annul the collection of the differences of the Special Participation Estimated maximum exposure: R$ 574.

b) Processes disclosed previously and updated as of June 30, 2011

 

Description		Current situation
Plaintiff: Federal Revenue Department of Rio de Janeiro Nature: Tax Tax deficiency notice related to income tax withheld at source on remittances of payments for affreightment of vessels referring to the period from 1999 to 2002.		Petrobras submitted new administrative appeals to the Higher Chamber of Tax Appeals, which denied approval. The Company considers that it applied the prevailing tax legislation correctly, which is why it will resort to judicial means to pursue its defense. Estimated maximum exposure: R$ 4,602.
Plaintiff: SRP - Social Security Department Nature: Tax Tax deficiency notices related to social security charges arising from administrative proceedings brought by the INSS, which attributed joint liability to the company for the contracting of civil construction and other services.		Of the amounts the company disbursed to guarantee the filing of appeals and/or obtaining of the debt clearance certificate from the INSS, R$ 115 is recorded as deposited in court, which could be recovered in the proceedings in progress, related to 332 tax deficiency notices amounting to R$ 363 at June 30, 2011. The position of Petrobras’ legal department for these deficiency notices is minimal risk of future disbursement.

PAGE : 95 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Description		Current situation
Plaintiff: Federal Revenue Department of Rio de Janeiro Nature: Tax Tax deficiency notice referring to import duty (II) and excise tax (IPI), contesting the tax classification as Other Electrogenic Groups for the importing of equipment belonging to the thermoelectric power station, Termorio S.A.		On August 15, 2006, Termorio filed a refutation of this notice of infraction in the Federal Revenue Inspectorate of Rio de Janeiro as it considers that the tax classifications that were made were supported by a technical report from a renowned institute. On October 11, 2007, the 1st Panel of Judgment dismissed the assessment. The Federal Revenue Inspectorate filed an ex-officio appeal to the Taxpayers’ Council of Porto Alegre – RS. Notices heard on June 2, 2011, when the appeal was partially approved by majority and only the fine of administrative control was reduced. Awaiting publication of the court decision. Maximum updated exposure: R$ 555.
Plaintiff: Federal Revenue Department Nature: Tax CIDE – Fuels. Non-payment in the period from March 2002 to October 2003, pursuant to court orders obtained by distributors and petrol stations protecting them from levying this charge.		The lower court considered the assessment to have grounds. The Company filed a spontaneous appeal which was denied approval. As soon as it is summoned, Petrobras will examine the possibility of filing motions to stay the execution of the respective court decision, with requests for filing of a special appeal to the Superior Chamber of Tax Appeals. Estimated maximum exposure: R$ 1,211.
Plaintiff: Federal Revenue Department Nature: Tax Income tax withheld at source (IRRF) on remittances abroad for payment of petroleum imports.		The lower court considered the assessment to have grounds. There was an appeal by the Federal Revenue Department to the Taxpayers' Council that was approved. Petrobras filed a spontaneous appeal which is awaiting a hearing. Estimated maximum exposure: R$ 908.
Plaintiff: Federal Revenue Department of Rio de Janeiro Nature: Tax Corporate income tax (IRPJ) and social contribution (CSLL) 2003 - Fine on arrears on payment made through voluntary disclosure.		The lower court considered the assessment to have grounds. Petrobras filed a spontaneous appeal which is awaiting a hearing. Estimated maximum exposure: R$ 353.
Plaintiff: Federal Revenue Department Nature: Tax Non payment of CIDE by Petrobras on imports of naphtha sold to Braskem.		The lower court considered the assessment to have grounds. Petrobras filed a spontaneous appeal which was transformed into inspections in the Company’s establishments. Diligence attended. It is awaiting the hearing of the spontaneous appeal. Estimated maximum exposure: R$ 2,235.
Plaintiff: State Finance Department of Rio de Janeiro Nature: Tax ICMS – Notices of infraction on LNG transfer operations without issuing a tax document in the ambit of the centralizing establishment.		Unfavorable decision for Petrobras. Spontaneous appeal filed in the Taxpayers’ Council, which denied approval of the appeal. The Company filed a tax debt annulment action with a petition for advance relief which, through the presentation of guarantee insurance, was granted with suspension of demandability of the tax credit. Estimated maximum exposure: R$ 2,271.

PAGE : 96 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Description		Current situation
Plaintiff: State of São Paulo Nature: Tax Withdrawal of collection of ICMS on imports of natural gas from Bolivia.		The lower court considered the assessment to have grounds. In the second instance, approval of the ordinary appeal was denied. Petrobras filed a special appeal which was dismissed. Awaiting inscription as an executable tax debt for filing of a claim with the federal supreme court by the State of Mato Grosso do Sul, which considered that it was adversely affected by the decision of the Sao Paulo State Finance Department. Estimated maximum exposure: R$ 1,110.
Plaintiff: Municipal governments of Anchieta, Aracruz, Guarapari, Itapemirim, Jaguaré, Marataízes, Serra, Vila Velha and Vitória. Nature: Tax Not withholding and paying service tax (ISS) on offshore services. Some municipalities located in the State of Espírito Santo have filed notices of infraction against Petrobras for the supposed failure to withhold service tax of any nature (ISSQN) on offshore services. Petrobras withheld the ISSQN; however, it paid the tax to the municipalities where the respective service providers are established, in accordance with Complementary Law 116/03.		The Company presented administrative defenses with the aim of canceling the assessments and the majority are in the process of being heard. Of the municipalities with respect to those that have already exhausted the discussion, only the municipality of Itapemirim has filed tax collection proceedings. In this judicial case, the Company has offered a guarantee and filed an appeal. In the municipality of Linhares it was considered to have grounds in the first instance. Petrobras filed a spontaneous appeal, which was denied, thus upholding the official notification. The Company is evaluating the judicialization. Estimated maximum exposure: R$ 1,545.
Plaintiff: State Finance Departments of Rio de Janeiro and Sergipe Nature: Tax Incorrect use of ICMS credits from drilling bits and chemical products used in formulating drilling fluid. Notices of tax assessment as it is understood that they comprise material for use and consumption, for which use of the credit will only be permitted as from 2011.		Petrobras presented legal defenses with the aim of cancelling the assessments and the majority are still in the process of being heard. Estimated maximum exposure: R$ 685.

PAGE : 97 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Description		Current situation
Plaintiff: State Finance Department of São Paulo Nature: Tax Notice of tax assessment related to the absence of payment of ICMS and a fine for non-compliance with an accessory obligation on importing. Temporary admission of a drilling rig in São Paulo and clearance in Rio de Janeiro (ICMS Agreement 58/99).		The lower court considered the assessment to have grounds. The decision was upheld at the second instance. Awaiting a hearing at the second administrative level of the ordinary appeal filed by the Company. Estimated maximum exposure: R$ 1,957.
Plaintiff: Finance and Planning Department of the Federal District. Nature: Tax Payment of ICMS due to omission on exit (Inventories)		The lower court considered the assessment to have grounds. Petrobras filed a spontaneous appeal, which was considered void. It is awaiting the publication of the decision in order to assess eventual judicialization. Estimated maximum exposure: R$ 152.
Plaintiff: State Finance Department of Bahia Nature: Tax Incorrect allocation of credit, difference in the ICMS rate for material for use and consumption.		The lower court considered the assessment to have grounds. Petrobras filed a spontaneous appeal which is awaiting a hearing. Estimated maximum exposure: R$ 239.
Plaintiff: Federal Revenue Department Nature: Tax Social contribution and corporate income tax -collection of a fine for dismissal of a voluntary disclosure.		The lower court considered the assessment to have grounds. The Federal Revenue Department withdrew the process from its outstanding positions. The Company is awaiting a new position from the Federal Revenue Department. Estimated maximum exposure: R$ 199.
Plaintiff: Federal Revenue Department Nature: Tax Underpayment of corporate income tax (IRPJ) and social contribution on net income (CSLL) on income earned abroad in the period from 2005 to 2006, through affiliated companies and subsidiaries.		The lower court considered the assessment to have grounds. The Company filed a spontaneous appeal which is awaiting a hearing. Estimated maximum exposure: R$ 1,441.

 

PAGE : 98 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Description		Current situation
Plaintiff: Federal Revenue Office Nature: Tax Tax assessment notice for non payment of income tax and social contribution on the financial incentive to employees for the renegotiation of the Petros Plan, in 2007.		The lower court considered the assessment to have grounds. There was an ex officio appeal by the National Treasury, which was upheld. As soon as it is summoned, Petrobras will examine the possibility of filing motions to stay the execution of the respective court decision, with requests for filing of a special appeal to the Superior Chamber of Tax Appeals. Estimated maximum exposure: R$ 339.
Plaintiff: Federal Revenue Department of Brazil Nature: Tax Notice of infraction for non-deductibility of IRPJ – CSLL and a fine on the re negotiation of the Petro Plan. Financial obligations assumed in the financial commitment agreement, resulting from the execution of the Reciprocal Obligations Agreement.		The lower court considered the assessment partially to have grounds. The Company filed a spontaneous appeal which is awaiting a hearing. Estimated maximum exposure: R$ 3,041.

 

Description		Current situation
Plaintiff: Porto Seguro Imóveis Ltda. Nature: Civil Porto Seguro, a minority shareholder of Petroquisa, filed a lawsuit against Petrobras, related to alleged losses arising from the sale of the shareholding interests of Petroquisa in various petrochemical companies included in the National Privatization Program. The plaintiff filed the aforesaid lawsuit to obtain an order obliging Petrobras, as the majority shareholder of Petroquisa, to compensate for the “loss” inflicted on the equity of Petroquisa, through the acts which approved the minimum sales price of its shareholding interest in the capital of the privatized companies.		On March 30, 2004 the Superior Court of Rio de Janeiro unanimously granted the new appeal lodged by Porto Seguro, ordering Petrobras to indemnify an amount equal to US$ 2,370 million, plus 5% as a premium and 20% as lawyers’ fees. Petrobras filed a special and an extraordinary appeal before the Superior Court of Justice (STJ) and the Federal Supreme Court (STF), which were rejected. Petrobras then filed an interlocutory appeal against the decision before the Superior Court of Justice and the Federal Supreme Court. The special appeal offered by Porto Seguro, which sought to bar the processing of the special appeal by Petrobras, was heard and dismissed in December 2009. Motions to clarify were then invoked by Porto Seguro, which were denied in a hearing in December 2010. The publication of this decision and judgment of the aforementioned special appeal through which Petrobras seeks to totally reverse the sentence is being awaited. Based on the opinion of its legal counsel, the Company does not expect an unfavorable outcome to these proceedings. If the situation is not reversed, the estimated indemnity to Petroquisa, including monetary correction and interest, would be R$ 20,775 as of June 30, 2011. As Petrobras owns 100% of the capital of Petroquisa, part of the indemnity to Petroquisa, estimated at R$ 13,711, will not represent an actual disbursement from the Petrobras System. Additionally, Petrobras would have to indemnify Porto Seguro, the plaintive, R$ 1,039 as a premium and pay R$ 4,155 thousand as lawyers’ fees to Lobo & Ibeas Advogados.

PAGE : 99 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Environmental questions

The Company is subject to various environmental laws and regulations that regulate activities involving the unloading of oil, gas and other materials and that establish that the effects on the environment caused by the Company's operations must be remedied or mitigated by the Company. We present below the updated situation of the main environmental proceedings with chances of possible loss.

In 2000, an oil spill at the São Francisco do Sul Terminal of the Presidente Getúlio Vargas Refinery (Repar) discharged approximately 1.06 million gallons of crude oil into the surrounding area. At that time approximately R$ 74 was spent to clean up the affected area and to cover the fines applied by the environmental authorities. There is the following lawsuit with respect to this spill:

Description		Current situation
Plaintiff: AMAR - Association for Environmental Defense of Araucária Nature: Environmental Claim for indemnification for moral and property damages to the environment.		No decision handed down in the lower court. It is awaiting the start of the expert investigation to quantify the amount. Estimated maximum exposure: R$ 166. The court determined that this suit and the suit brought by the Paraná Environmental Institute (IAP) are heard together.
Plaintiff: Federal Public Attorney’s Office and Public Attorney’s Office of the State of Paraná Nature: Environmental Claim for indemnification for moral and financial damages and environmental restoration.		No decision handed down in the lower court. Estimated maximum exposure: R$ 6,324.

In 2001, the Araucária - Paranaguá oil pipeline ruptured as a result of an earthquake, causing a spill of approximately 15,059 gallons of fuel oil into a number of rivers in the State of Paraná. At that time, services to clean the river surfaces were performed, recovering approximately 13,738 gallons of oil. As a result of the accident the following suit was filed against the Company:

Description		Current situation
Plaintiff: Paraná Environmental Institute (IAP) Nature: Environmental Fine applied for alleged environmental damages.		Appeal by Petrobras dismissed at the 2nd administrative level. As it understands that the statute has run on the administrative fine, an annulment action was filed as a result of having received a “notice of federal debts payable”, dated October 22, 2009. Maximum updated exposure: R$ 170. The judge determined that this suit and the suit brought by AMAR are heard together.

PAGE : 101 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

On March 20, 2001, platform P-36 sank in the Campos Basin. As a result of the accident the following suit was filed against the Company:

Description		Current situation
Plaintiff: Federal Public Attorney's Office -Rio de Janeiro Nature: Civil Indemnification for environmental damages –P-36.		As published on May 23, 2007 the claim was considered partially to have grounds and Petrobras was ordered to pay damages in the amount of R$ 100, for the damage caused to the environment, to be restated monthly with 1% interest on arrears as from the date on which the event occurred. Petrobras filed a civil appeal against this decision which is awaiting a hearing. Estimated maximum exposure: R$ 324.

 

Processes for small amounts

The Company is party to a number of legal and administrative proceedings with expectations of possible losses, whose total per legal nature is R$ 139 in civil actions, R$ 916 in labor actions, R$ 1,402 in tax actions and R$ 187 in environmental actions.

29.3 Assets contingencies

29.3.1 Recovery of PIS and COFINS

Petrobras and its subsidiaries Gaspetro, Transpetro and Refap filed a civil suit against the Federal government before the judiciary of Rio de Janeiro, referring to recovery, through offsetting, of the amounts paid as PIS on financial revenue and exchange gains in the period between February 1999 and November 2002 and COFINS between February 1999 and January 2004, in light of the ruling that paragraph 1 of article 3 of Law 9718/98 is unconstitutional.

On November 9, 2005, the Federal Supreme Court considered that the aforementioned paragraph 1 of article 3 of Law 9718/98 is unconstitutional. On January 9, 2006, in view of the final decision by the Federal Supreme Court, Petrobras filed a new suit aiming at recovering the COFINS related to the period from January 2003 to January 2004.

At June 30, 2011, the amount of R$ 2,357 for Petrobras, R$ 77 for Gaspetro, R$ 29 for Transpetro and R$ 14 for Refap, with respect to the aforementioned suits, are not reflected in the financial statements due to the absence of a definitive favorable decision.

29.3.2 Litigations abroad a) In the United States - P-19 and P-31

On July 25, 2002, Braspetro Oil Service Company (Brasoil) and Petrobras won related lawsuits filed with the US lower courts by the insurance companies United States Fidelity & Guaranty Company and American Home Assurance Company in which they were trying to obtain, since 1997, with respect to the first company (Brasoil), a legal declaration that exempted them from the obligation of paying the performance bond of the P-19 and P-31 platforms, and, with respect to the second company (Petrobras), they were seeking reimbursement of any quantities for which they might happen to be condemned in the execution proceedings of the performance bond.

PAGE : 102 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

A court decision by the Federal Court of the Southern District of New York recognized the right of Brasoil and Petrobras to receive indemnity for losses and damages in the amount of US$ 237 million, plus interest and reimbursement of legal expenses on the date of effective receipt related to the performance bond, totaling approximately US$ 370 million.

The insurance companies filed an appeal against this decision before the Court of Appeals for the Second Circuit. On May 20, 2004, the Court handed down a decision that partially confirmed the sentence with respect to the responsibility of the insurance companies for payment of the performance bonds. However, it removed the obligation of the insurance companies with respect to payment of the fine, legal fees and costs, thus reducing the amount of the indemnity to US$ 245 million. The insurance companies appealed against these decisions in the Full Court, which was not accepted, and the judgment above remains definitive.

In April 2005 the parties (the insurance companies and Brasoil) initiated negotiation procedures aimed at the effective settlement of Brasoil’s credit, seeking the signing of a heads of agreement, the operationalization of which, however, resulted in new doubts and questions to be remedied in court. On July 21, 2006, the US court handed down an executive decision, defining the points of difference, such as interest due, however, conditioning the payment of the amounts owed to Brasoil to the permanent closing of legal proceedings involving identical claims in progress before the Brazilian courts, which the parties proceeded to do.

b) In London - P-36

Through a decision handed down on February 2, 2004, Petromec Inc (Petromec) and Marítima Petróleo e Engenharia Ltda. (Marítima) were sentenced to reimburse Brasoil the amount of US$ 58 million, plus interest, for the loan made by Brasoil to Petromec through a Deed of Payment and Indemnity, dated May 21, 1999 and guaranteed by Marítima in accordance with the Keepwell Agreement dated May 21, 1999. The payment of these amounts is halted until pending questions are decided.

In the current stage of the litigation, Petromec is upholding its request for additional costs for the upgrade based on the Supervision Agreement, dated June 20, 1997.

A preliminary hearing related to the method through which the eventual right of Petromec occurred took place on June 26 and 27, 2007. On June 6, 2007, the Court handed down a decision, upholding the methodology defended by Petrobras and Brasoil. Petromec appealed against this decision and the Appeals Court considered this appeal on November 27, 2007. On December 21, 2007 the Court of Appeals substantially rejected Petromec’s appeal.

Petromec filed its Particulars of Claim on September 29, 2008, where it claimed the amount of US$ 154 million, plus interest. Brasoil and Petrobras presented their defense on January 29, 2010. There was a hearing with respect to certain preliminary questions that took place between May 9 and May 24, 2011. It is awaiting a ruling.

The final outcome of the suit remains uncertain.

PAGE : 103 of 120

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

P-38 and P-40

After the hearing of the litigation related to P-38 and P-40, which took place in London during April and May 2007, the English Court handed down a decision on June 12, 2007 in favor of Brasoil in the following terms:

1) With respect to the litigation for P-38, a sentence for payment of the amount of US$ 83 million with respect to the principal, plus interest in the amount of US$ 31 million, and costs to be calculated; and

2) With respect to the litigation for P-40, a sentence for payment of the amount of US$ 171 million with respect to the principal, plus interest in the amount of US$ 66 million, and costs to be calculated.

The total amount awarded, excluding costs, in favor of Brasoil, is approximately 98.5% (in the case of P-38) and 96.4% (in the case of P-40) of the full amount of the sums claimed by Brasoil in the hearing.

In addition to the granting of the costs in favor of Brasoil, established in the decision of June 12, 2007, as mentioned above, a new decision was petitioned with respect to these costs. This decision was granted in the amount of US$ 6.3 million.

c) Other litigation for indemnification

In the construction/conversion of ships into vessels for Floating Production, Storage and Offloading (FPSO) and Floating, Storage and Offloading (FSO), Brasoil transferred financial resources in the amount of US$ 646 million, equivalent to R$ 1,009 at June 30, 2011 directly to its suppliers and subcontractors, with the aim of avoiding delays in the construction/conversion of vessels and, consequently, losses to Brasoil.

Based on the opinions of Brasoil’s legal advisers, these expenditures are liable for reimbursement by the builders, which is the reason why litigations for financial indemnification were filed in international courts. However, conservatively, the portion of this balance not covered by real guarantees, in the amount of US$ 574 million, equivalent to R$ 896 at June 30, 2011 is recorded as an allowance for doubtful accounts.

30 Guarantees for concession agreements for petroleum exploration

Petrobras gave guarantees to the National Petroleum Agency (ANP) in the total amount of R$ 5,621 for the Minimum Exploration Programs established in the concession agreements for exploration areas, with R$ 5,003, net of commitments already undertaken, remaining in force. Of this amount, R$ 3,354 corresponds to a lien on the oil from previously identified fields already in production, and R$ 1,649 refers to bank guarantees.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

31 Derivative financial instruments, hedge and risk management activities

The Company is exposed to a series of market risks resulting from its operations. These risks mainly involve the fact that eventual variations in the prices of oil and oil products, in exchange rates or in interest rates may negatively affect the value of the Company’s financial assets and liabilities or future cash flows and profits.

31.1 Risk management objectives and strategies

The risk management policy of the Petrobras System aims at contributing towards an appropriate balance between its objectives for growth and return and its risk exposure level, whether inherent to the exercise of its activities or arising from the context within which it operates, so that, through effective allocation of its physical, financial and human resources, the company may attain its strategic goals.

Petrobras’ risk management is conducted by its officers, following a corporate risk management policy. In March 2010 the Executive Committee established the Financial Integration Committee, which is composed of all the executive managers of the financial department, and the executive managers of the business departments are called upon for discussions of specific themes. One of the responsibilities of the Financial Integration Committee is to assess exposures to risks and to establish guidelines for measuring, monitoring and managing the risk related to the activities of Petrobras and it is the Executive Committee’s responsibility to decide on the topics.

The Company adopts a philosophy of integrated risk management, according to which the focus of the management is not on individual risks – the operations or the business units – but on the broader, consolidated perspective of the corporation, making use of possible natural hedges. For the management of market/financial risks, structural actions, created as a result of appropriate management of the company’s capital and indebtedness, are adopted as a preference in detriment to the use of derivative financial instruments.

31.2 Risk of change in the prices of oil and oil products

a) Risk management of prices of oil and oil products

Petrobras maintains, as a preference, exposure to the price cycle, not using derivatives for hedging systematic operations (purchase or sale of commodities with the aim of attending the operating requirements of the Petrobras System).

Nevertheless, the decisions referring to this issue are reviewed periodically and recommended to the Financial Integration Committee. If hedge is indicated, in scenarios with a significant probability of adverse events, the hedge strategy should be carried out with the aim of protecting the Company’s solvency and liquidity, considering an integrated analysis of all the Company’s risk exposures and assuring the execution of the corporate investment plan.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

b) Main transactions and future commitments hedged by derivative operations

The main operations are earmarked for hedging the expected results of the transactions carried out abroad.

Accordingly, the operations with derivative financial instruments are usually short-term operations and accompany the terms of the commercial transactions. The instruments used are futures, forward, swap and options contracts. The operations are carried out on the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE), as well as on the international over-the-counter market.

The main counterparties of operations for derivatives for oil and oil products are the New York Stock Exchange (NYMEX), Intercontinental Exchange, Morgan Stanley, BNP Paribas, BP North America Chicago, Shell (Stasco) and Vitol Inc.

c) Parameters used for risk management

The main parameters used in risk management for changes in the prices of Petrobras’ oil and oil products are the operating cash flow at risk (CFAR), Value at Risk (VAR) and Stop Loss.

At June 30, 2011, the portfolio for commercial operations carried out abroad, as well as the hedges for their protection through derivatives for oil and oil products, presented a maximum estimated loss per day (VAR – Value at Risk), calculated at a reliability level of 95%, of approximately US$ 5 million.

d) Notional and fair value of the derivative instruments

Derivatives for oil and oil products

 

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* A negative notional value represents a short position

** Negative fair values were recorded in liabilities and positive fair values in assets. The positions indicated by a hyphen represent amounts lower than R$ 500 thousand.

e) Gains and losses in the period

 

f) Value and type of margins given in guarantee

The guarantees given as collateral generally consist of deposits.

 

g) Sensitivity analysis of derivatives of oil and oil products

The probable scenario is the fair value at June 30, 2011, the possible and remote scenarios consider a deterioration in the prices in the risk variable of 25% and 50%, respectively, with respect to the same date.

 

The positions indicated by a hyphen represent amounts lower than R$ 500 thousand.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

h) Embedded derivatives

The procedures for identifying derivative instruments in contracts aim at timely recognition, control and adequate accounting handling to be employed, and are applicable to the units of Petrobras and its subsidiaries.

The contracts with possible clauses for derivative financial instruments or securities to be realized are reported, so that there is orientation with respect to the eventual performance of effectivity tests, the establishment of the accounting policy to be adopted and the methodology for calculation of the fair value.

The embedded derivatives identified in the quarter were:

Sale of ethanol

An agreement for a sale of hydrous ethanol entered into between Petrobras International Finance (PifCo), controlled by Petróleo Brasileiro S.A (Petrobras), and Toyota Tsusho Corporation.

The agreement consists of sale of hydrous ethanol through a price formula defined at the time of signing the agreement. The definition of price for each shipment of hydrous ethanol delivered in this agreement involves two quotations of distinct references: ethanol and naphtha.

The agreement establishes the beginning of delivery of shipments of alcohol in 2012 for a period of 10 years. However, as there is a contractual clause that permits renegotiation of prices and termination by any one of the parties after five years, if a new agreement is not reached, we consider the term of only five years as a firm contractual commitment for purposes of calculating the value of the embedded derivative financial instrument.

The basic defined contractual quantity is 143,000 m³ per year.

The price formula in question uses as one of its references the quotation of a commodity that does not maintain a strict cost or market value relationship with the product transacted in the contract, according to the criteria of technical announcement CPC 38 – Financial Instruments: Recognition and Valuation. Accordingly, pursuant to the orientations for this standard, the portion referring to the embedded derivative should be separated from the original contract and recorded in the financial statements following the same rules applicable to the other derivative financial instruments.

The table below presents the fair value of the embedded derivative for June 30, 2011:

 

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The derivative was valued at fair value through profit and loss and classified at level 3 in the hierarchy for valuation of the fair value.

The Company determined the fair value of this agreement based on practices used on the market, where the difference between the spreads for naphtha and ethanol is calculated. The selling price of the ethanol in the agreement refers to the Brazilian market (ESALQ). The values of the parameters used in the calculation were obtained from market price quotations for ethanol and naphtha on the CBOT (Chicago Board of Trade) future market on the last working day of the period of the financial statements.

The gains obtained are presented in the income statement as financial income.

31.3Exchange risk

Exchange risk is one of the financial risks that the company is exposed to and it originates from changes in the levels or volatility of the exchange rates that are a reference for asset and liability positions. Fluctuations in exchange rates may have a negative affect on Petrobras’ financial situation and operating results, since the majority of the Company’s revenues are mainly in reais while the major part of its liabilities are in foreign currency.

a) Exchange risk management

With respect to exchange risk management, Petrobras seeks to identify and address the risks in an integrated manner, aiming at assuring efficient allocation of the resources earmarked for the hedge.

Taking advantage of operating in an integrated manner in the energy segment, the company seeks, primarily, to identify or create natural hedges, i.e. to benefit from the correlation between its income and expenses. In the specific case of exchange variation inherent to contracts where the cost and remuneration involve different currencies, this hedge is provided through allocating the cash investments between the Real and the US dollar or another currency.

The risk management is performed for the net exposure. Periodic analyses of the exchange risk are prepared, assisting the decisions of the executive committee. The exchange risk management strategy may involve the use of derivative financial instruments to minimize the exchange exposure of certain liabilities of the Company.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

b) Main transactions and future commitments hedged by derivative operations

Petrobras International Finance Company (PIFCo)

In September 2006, the Company, through its subsidiary PifCo, contracted hedge known as a cross currency swap for coverage of the bonds issued in Yens in order to fix the company’s costs in this operation in US dollars. In a cross currency swap there is an exchange of interest rates in different currencies. The exchange rate of the Yen for the US dollar is fixed at the beginning of the transaction and remains fixed during its existence. The Company does not intend to settle these contracts before the end of the term. For this relationship between the derivative and the loan, the Company adopted hedge accounting.

The Company decided to qualify its cash flow cross currency swap hedging. Upon the contracting of hedge and during its term, it is expected that the cash flow hedge will be highly effective in offsetting the cash flows attributable to the hedge risk during the term of the operation. The changes in the fair value, in the measure of the effectiveness of the hedge, tested quarterly, are stated in other comprehensive retained earnings, until the result of the hedged item is realized.

Petrobras Distribuidora

Petrobras Distribuidora is in a short position in exchange futures rates through NDFs on the Brazilian over-the-counter market. For the aviation segment, which represents 100 % of the operations contracted for the period, the term of exposure is 3 months on average and the hedge is contracted concomitantly with the definition of the cost of the exported aviation kerosene, thus fixing and assuring the trading margin. In the accumulated total for the year operations were contracted in the amount of US$ 292 million.

The volume of hedge contracted for international billing between January and June 2011 represented 55.84% of all the volume exported by Petrobras Distribuidora in the period. The settlements of all the operations that matured between January 1 and June 30, 2011 generated a positive result for the Company of R$ 16. None of the operations in question required margin deposits in guarantee.

Usina Termelétrica Norte Fluminense (UTE Norte Fluminense)

The Company, aiming at assuring that significant fluctuations in the quotation of the US dollar do not affect its results and cash flows, contracted a currency swap with a face value of US$ 22 million, representing 50% of its total indebtedness in foreign currency. It is important to point out that UTE Norte Fluminense is managed jointly, consolidated by Petrobras in proportion to its capital interest (10%).

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

c) Notional and fair value of derivative instruments

The table below summarizes the information on the derivative contracts in force:

 

** Negative values were recorded in liabilities and positive values in assets.
Main counterparties of the operations: Citibank, HSBC and Bradesco.

d) Gains and losses in the period

 

e) Value and type of margins given in guarantee

The existing foreign currency derivative operations do not require a guarantee margin deposit.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

f) Sensitivity analysis of foreign currency: derivatives, loans and financial investments

The probable scenario is the fair value at June 30, 2011. The possible and remote scenarios consider a deterioration in the prices in the risk variable of 25% and 50%, respectively, with respect to the same date.

 

¹ – Financing in local currency parameterized to the variation of the dollar.

 

^(*) The isolated sensitivity analysis of the financial instruments does not represent the Company’s net exposure to exchange risk. Considering the balance between liabilities, assets, revenues and future commitments in foreign currency, the economic impact of possible exchange variations is not considered material.

31.4Interest rate risk

The interest rate risk that the Company is exposed to is due to its long-term debt and, to a lesser degree, its short-term debt. If the market interest rates (particularly LIBOR) rise, the Company’s financial expenses will increase, which may cause a negative impact on the operating results and financial position. The foreign currency debt at floating rates is subject, mainly, to the fluctuation of the Libor and the debt at floating rates expressed in reais is subject, mainly, to the fluctuation in the long-term interest rate (TJLP), published by the Central Bank of Brazil.

Interest rate risk management

Petrobras considers that the exposure to interest rate fluctuations will not have a material impact, and so, preferably, the Company does not use derivative financial instruments to manage this type of risk; except for specific situations presented by companies of the Petrobras system.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

a) Main transactions and future commitments protected by operations with derivatives

Petrobras & Mitsui Drilling International B.V. (P&M)

Petrobras & Mitsui (P&M), a specific purpose entity controlled by Petrobras, contracted an interest rate swap at a face value of US$ 487 million. The operation was used to transform a financing obligation indexed to a floating rate into a fixed rate, with the aim of eliminating the mismatch between P&M’s asset and liability cash flows. The company does not intend to settle the operation before its maturity. P&M adopted hedge accounting for the relationship between the financing and the derivative.

The table below presents the notional and fair values of the operation for June 30, 2011:

 

31.5 Credit risk

Petrobras is exposed to the credit risk of clients and financial institutions, resulting from its commercial operations and its cash management. These risks consist of the possibility of non-receipt of sales made and amounts invested, deposited or guaranteed by financial institutions.

Credit risk management objectives and strategies

Credit risk management in Petrobras is part of financial risk management, which is performed by the Company’s officers. The Credit Commissions, due to a decision by the Executive Board, are each composed of three members and chaired by the Executive Manager for Financial Planning and Risk Management and the other members are the Executive Manager for Finances and the Executive Manager for the commercial department in contact with the client or with the financial institution.

The purpose of the Credit Commissions is to analyze questions connected with credit management, not only with respect to granting credit but also with respect to its management; to encourage integration between the units that compose them; and to identify recommendations to be applied in the units involved or to be submitted to the appreciation of higher jurisdictions.

The credit risk management policy is part of the global risk management policy of the Petrobras System and aims at reconciling the need for minimizing exposure to credit risk and maximizing the result of sales and financial operations, through an efficient credit analysis, concession and management process.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Parameters used for credit risk management

In its management of credit risks, Petrobras uses quantitative and qualitative parameters that are appropriate for each of the market segments in which it operates.

The Company’s commercial credit portfolio, which surpasses US$ 43 billion, is very diversified and the credits granted are divided between clients on the Brazilian domestic market and foreign markets. Amongst the main clients there are large companies from the oil market, considered major companies. 

Financial institutions are beneficiaries of approximately US$ 45 billion, distributed between the main international banks, considered by international risk classifiers as Investment Grade, and the most important Brazilian banks.

Guarantees used in credit risk management

Only guarantees issued by financial institutions that have available credit, in accordance with the parameters adopted by the Company, are accepted.

Credit sales to clients considered as high risk are only made through receipt of guarantees. Accordingly, the Company accepts credit cards issued abroad, bank guarantees issued in Brazil, mortgages and collateral. For clients considered as medium risk, guarantees and endorsements of the partners of the companies, both individuals and legal entities, are also accepted.

The table below presents the maximum exposure to credit risk for:

 

31.6 Liquidity risk

Petrobras uses its funds mainly for capital expenses, payment of dividends and debt refinancing. Historically, the conditions are met with funds generated internally, short and long-term debts, project financing, sales transactions and leasing. These sources of funds, allied to the Company’s strong financial position, will continue to permit compliance with the established capital requirements.

Liquidity risk management

The liquidity risk management policy adopted by the Company establishes the continuity of rescheduling the term of maturity of our debts, exploiting the financing capacity of the domestic market and developing a strong presence on the international capital market, through broadening the investor base in fixed income.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Petrobras finances the working capital, assuming short-term debts normally related to our commercial flow, such as export credit notes and advances on exchange contracts. Investments in noncurrent assets are financed through long term debts such as issuing bonuses on the international market, credit agencies, export financing and prepayment, development banks in Brazil and abroad, and lines of credit with Brazilian and international commercial banks.

Nominal flow of principal and interest on financing

 

Government regulation

In addition, during the approval process of the annual budget, the Ministry of Planning, Budgeting and Management controls the total amount of debts that Petrobras and its subsidiaries may incur. The Company and its subsidiaries must also obtain the approval of the National Treasury before assuming medium and long term debts. Loans that exceed the budgeted amounts for each year must be approved by the Federal Senate.

31.7 Financial investments (operations with derivatives)

Operations with derivatives, both on the domestic market and the foreign market, are earmarked exclusively for the exchange of indexes of the assets that comprise the portfolios, and their purpose is to provide the managers with greater flexibility in their quest for efficiency in the management of available funds.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

The following table presents the market values of the operations with derivatives held in the exclusive investment funds as of June 30, 2011.

 

32 Fair value of financial assets and liabilities

Fair values are determined based on market price quotations, when available, or, in the absence thereof, on the present value of expected cash flows. The fair values of cash and cash equivalents, trade accounts receivable, short term debt and accounts payable to suppliers are the same as their carrying values. The fair values of other long-term assets and liabilities do not differ significantly from their carrying values.

The estimated fair values for long-term loans of the Parent Company and Consolidated at June 30, 2011 were, respectively, R$ 35,794 and R$ 113,593, calculated at the prevailing market rates, considering natures, terms and risks similar to the registered contracts, and may be compared to the carrying values of R$ 36,035 and R$ 111,380.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

The hierarchy of the fair values of the Company’s financial assets and liabilities, recorded at fair value on a recurring basis, is presented as follows:

 

33 Subsequent Events

BSBIOS Indústria e Comércio de Biodiesel Sul Brasil S.A.

On July 1, 2011, Petrobras Biocombustível S.A. acquired 50% of the capital of the company BSBIOS Indústria e Comércio de Biodiesel Sul Brasil S.A. for the amount of R$ 200, which are subject to adjustments due to conducting a due diligence process.

Acquisition of Gás Brasiliano Distribuidora S.A.

On July 29, 2011, Petrobras Gás S.A. (Gaspetro) acquired 100% of the shares of Gas Brasiliano Distribuidora S.A. (GBD) for R$ 482 (equivalent to US$ 271 million). The transaction was authorized by the São Paulo regulatory agency in April 2011 and the addendum to GBD's concession agreement was signed in July 2011, complying with the conditions established in the agreement entered into with Ente Nazionale Idrocarburi S.p.A. (ENI) in 2010.

GBD holds the concession for the natural gas distribution service in the north west of the State of São Paulo. The concession agreement began in December 1999 with a duration of 30 years and may be renewed for another 20 years.

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

Raising of financing with BNDES

In July 2011, the Company signed long-term financing agreements with BNDES for financing the Mexilhao platform and implementing projects in Refap in the amount of R$ 2,123, as follows:

 

Petrobras withdrew R$ 870 of which R$ 604 was used to settle the bridge-loan entered into with BNDES in 2008. The first withdrawal of the credit contracted by Refap is forecast to occur later this year.

CVM Resolution 666/11 – Investments in joint ventures (CPC 19)

On August 4, 2011, the Brazilian Securities Commission (CVM) approved the revision of CPC 19 -Investments in joint ventures, through Resolution 666/11, permitting the use of the equity accounting method in the recognition of interests in jointly control entities, which is also permitted by international accounting standards (IAS 31).

The adoption of this resolution in the financial statements for the year ending December 31, 2011 are currently under Review by the Company's Management

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Notes to the interim accounting information

(Consolidated and Parent Company)

(In millions of reais, except when otherwise indicated)

34 Correlation between the notes disclosed in the complete annual financial statements as of December 31, 2010 and the interim accounting information as of June 30, 2011

 

^(*) Information included in the finincial statements for 2010.

The notes to the financial statements in the annual report for 2010 which were deleted in the Interim Financial Statements for 2Q-2011, due to the fact that they do not present material changes and/or are not applicable to the interim information are the following:

 

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ITR - Quarterly Information – 06/30/2011 - PETRÓLEO BRASILEIRO S.A. – PETROBRAS

Report’s and Statements / Special Review Report - Unqualified Review Opinion

(A free translation of the original report in Portuguese, as filed with the Brazilian Securities Commission (CVM), prepared in accordance with the accounting practices adopted in Brazil, rules of the CVM and the International Financial Reporting Standards - IFRS)

To
The Board of Directors and Shareholders of
Petróleo Brasileiro S.A. - Petrobras
Rio de Janeiro - RJ

Introduction

1.We have reviewed the individual and consolidated interim accounting information of Petróleo Brasileiro S.A. - Petrobras (“Company”), contained in the quarterly information form for the quarter ended June 30, 2011, which comprises the balance sheet as of June 30, 2011 and the respective statements of income and comprehensive income for the three and six-month periods ended at that date, changes in shareholders’ equity and cash flows for the six-month period ended at that date, as well as a summary of significant accounting policies and other notes to the financial statements.

2.Management is responsible for the preparation of the interim accounting information in accordance with Technical Pronouncement CPC 21 – Interim Statement and the consolidated interim accounting information in accordance with CPC 21 and IAS 34 – Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of Quarterly Information. Our responsibility is to express our conclusion on this interim accounting information based on our review.

Scope of the review

3.We conducted our review in accordance with Brazilian and international interim information review standards (NBC TR 2410 -Revisão de Informações Intermediárias Executada pelo Auditor da Entidade and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries primarily of the persons responsible for financial and accounting matters and applying analytical and other review procedures. The scope of a review is significantly less than that of an audit conducted in accordance with auditing standards and, accordingly, we were unable to obtain reasonable assurance that we were aware of all the material issues that would have been identified in an audit. Therefore, we do not express an audit opinion.

Conclusion on the individual interim accounting information

4.Based on our review, we are not aware of any fact that might lead us to believe that the individual interim accounting information included in the aforementioned quarterly information was not prepared, in all material respects, in accordance with CPC 21, applicable to the preparation of the interim information, and presented in accordance with the standards issued by the Brazilian Securities Commission applicable to the Quarterly Information.

Conclusion on the consolidated interim accounting information

5.Based on our review, we are not aware of any fact that might lead us to believe that the consolidated interim accounting information included in the aforementioned quarterly information was not prepared, in all material respects, in accordance with CPC 21 and IAS 34, applicable to the preparation of the interim information, and presented in accordance with the standards issued by the Brazilian Securities Commission applicable to the Quarterly Information.

Other issues

Interim statements of added value

6.We also reviewed the individual and consolidated interim statements of added value for the six-month period ended June 30, 2011, elaborated under the responsibility of the Company’s management, the presentation of which is required in the interim information in accordance with the standards issued by the Brazilian Securities Commission applicable to the preparation of Quarterly Information, and which are considered as supplementary information by IFRS, which do not require the presentation of the statements of added value. These statements were submitted to the same review procedures described previously and, based on our review, we are not aware of any fact that might lead us to believe that they were not prepared adequately, in all material respects, in relation to the individual and consolidated interim accounting information, taken as a whole.

Rio de Janeiro, August 15, 2011

KPMG Auditores Independentes
CRC SP-014428/O-6 F-RJ

Bernardo Moreira Peixoto Neto
Accountant CRC RJ-064887/O-8

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This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act) that are not based on historical facts and are not assurances of future results.  These forward-looking statements are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results o f operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations. 
All forward-looking statements are expressly qualified in their entirety by this cautionary statement, and you should not place reliance on any forward-looking statement contained in this press release. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or for any other reason.

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