(Outperform) Petrobras PN

Flash News Oil & Gas

September 17, 2009

De-risking Capitalization
Ticker (local) PETR4 Estimates and Valuation
Fair Value (10) R$45.1
Years 2008a 2009e 2010e 2011e 2012e 2013e
Ticker (ADR) PBR/A
Revenues (R$ mm) 232,183 174,112 166,673 174,906 191,147 202,307
Fair Value (10) US$53.1
EBITDA (R$ mm) 56,098 55,401 52,446 58,542 71,047 86,317
EBITDAX (R$ mm) 58,872 58,922 55,239 61,399 74,102 88,900
Earnings (R$ mm) 33,914 24,080 22,887 25,270 30,167 37,196
Stock Data EPS 3.87 2.74 2.61 2.88 3.44 4.24
Current Price R$ 34.35 EV/EBITDA 6.2 6.7 7.4 6.9 6.0 5.1
Current Price US$ 38.35 EV/EBITDAX 5.9 6.3 7.0 6.6 5.7 4.9
Total Return (YE10) % 33.6% P/E 8.9 12.5 13.2 11.9 10.0 8.1
52 week high/low R$ 36.0/16.9 Net Debt (R$ mm) 47,434 70,049 86,040 103,352 124,019 137,830
Shares Outstanding m 8,774 Source: Itaú Securities

Market Capitalization R$m 301,390

Petrobras has safeguarded the right to buy an additional five billion boe
Market Capitalization US$ 168,243
Free-float % 60.1% under the current concession system, which, in principle, is a good deal.
3-mth avg daily vol. R$m 529.99 However, there is no free lunch, and the company will need massive
Performance (%) 1m 12m capitalization to buy those barrels!
Absolute 6.2% 9.7%
Vs. Ibovespa -0.2% 24.6%
Before we can reach any conclusion on the subject, we need to know: i)
the valuation of the barrels; ii) the amount of the capitalization
required; iii) what the potential dilution is; iv) the proposed ratio of ONs
and PNs; and v) how long it will take to obtain the capitalization. All
easy questions… But do we need to have black and white answers to
those five questions to be able to believe that Petrobras has room to
outperform?

The end of the road is not really exciting, as minorities will be diluted
anyway and the final size of the capitalization remains a big question
mark. Nevertheless, this report presents some interesting conclusions,
Black Diamond

which, in our view, demystify some of the market’s concerns while

potentially creating a positive short-term momentum for the stock.
Moreover, the end of the road might be far enough for investors to relax a bit
and enjoy the trip.

Paula Kovarsky, CNPI
+55-11-3073-3027
paula.kovarsky@itau.com.br
Diego Mendes, CNPI
+55-11-3073-3029
diego.mendes@itau.com.br
Giovana Araujo, CNPI
+55-11-3073-3036
giovana.araujo@itau.com.br
Our main conclusion is that a higher valuation for the barrels does not
necessarily impose a higher dilution. Assuming the market is reasonably
fair, most of the elements that can be used to increase the valuation of the
barrels, such as capex or the long-term oil scenario, will likely affect the existing
concessions’ valuation (embedded in Petrobras’ shares valuation), ultimately
limiting the dilution effects. In the meantime, the company will possibly: i) make
additional reserve announcements, pointing to the unitization requirements that
will support the choice of location for the exploration rights of the five billion
barrels; ii) announce good results regarding flow rates from the Tupi EWT, which
will likely reduce capex estimates; and iii) talk about the viability of the pre-salt
at US$45/boe; all supportive to the stock performance.

Please refer to page 8 of this report for important disclosures, analyst certifications and additional information.
Itaú Corretora does and seeks to do business with Companies covered in this research report. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should not consider this report as the single factor in making their investment decision.

Itaú Corretora de Valores S.A. is the securities arm of Itaú Unibanco Group. Itaú Securities is a brand name of Itaú Corretora de Valores S.A.
Petrobras – September 17, 2009

Furthermore, the enforceable dilution imposed by the Brazilian government on

minorities, assuming that none of them subscribe, will not be greater than the
budget to buy the barrels. In the conference call held by the company right after the
announcement on September 2, some were left with the impression that the
government’s stake in the capitalization (in proportion to its 32% stake in Petrobras’
capital), excluding minorities, would have to match the budget to buy the barrels. In
other words, the proposed capitalization would have to be roughly 3 times the budget to
buy the barrels which, we believe, is not correct. Alternatively, even if none of the
minorities decide to subscribe, the government can only subscribe up to the budget limit.

Therefore, we reiterate our outperform recommendation with a YE10 fair value

of R$45.1/PETR4 (US$53.1/PBR/A). We anticipate a de-risking of the capitalization
process, proportional to a better understanding of the implications and increasing
perceptions that the capitalization will likely take a while to happen.

PSCs are not a Short-Term Issue

The industry strongly believes that choosing Petrobras as the sole-operator and granting
it a 30% stake in the non-awarded pre-salt blocks is the “Achilles’ heel” of new oil bill
proposal. The preference given to Petrobras violates the constitutional principles that
guide the relationship between public and private companies, which require a formal
auction process so as to allow for equal treatment and fair competition. In this context,
we reiterate our view that implementing the PSC system in Brazil will be far more difficult
than the Brazilian government seems to believe, so we would leave that issue aside for
the time being.

Capitalization Likely to be the Focus Now!

Petrobras has safeguarded the right to buy an additional five billion boe under
the current concession system, which, in principle, is a good deal. However, there
is no free lunch, and the company will need massive capitalization to buy those
barrels! Hence, before we can reach any conclusion on the subject, we need to know:
i) the valuation of the barrels; ii) the amount of the capitalization required; iii)
what the potential dilution is; iv) the proposed ratio of ONs and PNs; and v) how
long it will take to obtain the capitalization. All easy questions… But do we need
to have black and white answers to those five questions to be able to believe
that Petrobras has room to outperform?

We discuss the five questions in detail below.

The Valuation of the Barrels

While we don’t know the valuation of the barrels, Petrobras’ management has
stated more than once that the company intends to follow the industry’s best
practices. Even taking that for granted, there are some important risks to
consider in making this valuation, such as capex and the long-term oil curve, as well
as the expected development risks related to the development of a new oil exploration
frontier such as the pre-salt.

But assuming the market is reasonably fair, all those elements are also likely to
affect Petrobras’ shares valuation. In other words, there is a reasonable chance that
Petrobras’ shares valuation would benefit from the same elements that could drive the
valuation of the barrels up, which will likely bring some compensation for the dilutive
effects of capitalization in case the valuation of the barrels does go up. Take capex as an
example: if the Tupi EWT confirms the company’s optimism towards potential flow rates,
valuation of existing concessions will go up, thereby helping the shares’ performance. It
would be the same for oil if the market points to a higher long-term forecast supporting
the industry’s best practice for valuation.

In the tables below, we show the potential impacts of improved flow rates and long-term
oil assumptions on the valuation of the five billion barrels. In addition, we show the same
effects on our YE10 fair value for Petrobras. However, in order to compare both effects

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Petrobras – September 17, 2009

with regard to dilution, we need to discuss the size of the capitalization.

The Size of the Capitalization

The size of the capitalization is arguably a wider question. But we make two
important assumptions here, based on our more recent conversations with the company:
i) the Brazilian government’s funds necessary to subscribe to Petrobras shares are
equivalent to the budget required to acquire the five billion boe; and ii) the Brazilian
government would like to increase its stake in Petrobras’ capital.

In other words, the enforceable dilution imposed by the Brazilian government

on minorities, assuming that none of them subscribe, will not be greater than
the budget to buy the barrels, in our opinion. In the conference call held by the
company right after the announcement on September 2, some were left with the
impression that the government’s stake in the capitalization (in proportion to its 32%
stake in Petrobras’ capital), excluding minorities, would have to match the budget to buy
the barrels. In other words, the proposed capitalization would have to be roughly 3 times
the budget to buy the barrels (budget/32% government stake) which, we believe, is not
correct. Alternatively, even if none of the minorities decide to subscribe, the government
can only subscribe up to the budget limit.

The following is a hypothetical example to help clarify this point.

Enforceable Dilution

a Pre-salt NAV/bbl 5.0

b Volume to be bought (million bbl) 5,000
c =a*b Government budget to increase PBR's capital 25,000
d Total Capital Increase (for example) 50,000

e 1st step
f Government exercises its current 32% stake
g Government's current stake 32.2%
h =d*g Government's initial subscription in US$ mm 16,100

i Minority Shareholders' stake to be exercised...

j in % 67.8%
k =d*j in US$ mm 33,900

l =30%*k ...Let's assume only 30% of the minorites exercise (US$ mm) 10,170

m =l+h Capital increase in the 1st step (US$ mm) 26,270

n 2nd Step
o =d-m Unsubscribed shares (US$ mm) 23,730
p =c-h Government's remaining Budget for subscription (US$ mm) 8,900

q =m+p TOTAL CAPITAL INCREASE (US$ mm) 35,170

r =q*1.7 TOTAL CAPITAL INCREASE (R$ mm) 59,789
s Dilution 18.5%
t Government's new stake 38.3%
Source: Itaú Securities

The enforceable dilution imposed by the Brazilian government on minorities will

be proportional to the budget to buy the five billion barrels. In other words, it will
be proportional to the valuation of such barrels. The additional dilution, up to the
proposed size of the capitalization, will depend upon minorities’ willingness to subscribe.
Currently, the minorities’ subscription is likely to be proportional to the attractiveness of
the deal, meaning the valuation of the barrels and the stock price embedded in the offer.
While some may argue against this, we find it hard to believe that the Brazilian
government would propose a capital increase in the largest-cap Brazilian company based
on anything other than the average market price for the stock in a certain period
preceding the deal. So we are left with the valuation of the barrels again, which we have
already discussed.

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Petrobras – September 17, 2009

The Pre-Salt Valuation

We have based our pre-salt valuation on a set of assumptions that seem to be

reasonable, in spite of acknowledging all the uncertainties regarding: i) the effective size
of the reservoirs; ii) the exact model that will be ultimately used to build the overall
production system; iii) the productivity per well and consequent number of wells required
to reach the aspired production levels; and iv) the overall technical difficulties related to
producing oil at a depth of 7km. (for further details please refer to our report Petrobras –
More Than Ever a Sector Perform, June 4, 2009)

Main Assumption:

Long-Term Oil Price: US$75/bbl

Capex: US$11/bbl detailed in the table below

Lifting Costs: US$6/bbl, assuming higher operational leverage than current

producing fields.

Production Curve: we expect production to reach its plateau towards the 5th year
after its beginning. The reserve life is 33 years.

Taxation Assumptions: current tax regime (Royalties + SPT + Income taxes)

It is worth noting that we assumed a 15 kbpd floe rate in our base–case scenario,
whereas Petrobras announced a potential 50 kbpd flow rate for the Guara prospect for
instance. In our view, the results of the Tupi EWT could bring additional visibility and
potential upside to the flow rates.

Pre-Salt Capex Assumption

Unit Cost # Total Cost

Capacity Comment
US$mm US$mm

FPSO 120 1,000 1 1,000 - Each FPSO has a capacity of 120kbpd

Production Wells 15 120 10 1,218 - Each production well has a capacity of 15kbpd

Injection Wells 120 6 696 - App. 30% of all wells connected to a FPSO are injection wells

Maintenance Wells 120 16 1,914 New wells are needed to maintain production due to depletion

Subsea 800 800 - 20 wells at US$40 million per well

Infrastructure 1,000 1,000 - 300Km 24'' pipe to delivery production at beach
TOTAL 6,629
Per bbl (US$) 11.0 - Each system can produce around 600 million boe
Source: Itaú Securities

Pre-Salt Capex/bbl Sensitivity Pre-Salt NAV/bbl Sensitivity

Flow per well (kbpd) Flow per well (kbpd)

11.05 10 15 25 30 50 10 15 25 30 50
160 17.4 13.2 9.8 8.9 7.2 160 2.9 3.3 3.9 5.0 5.5
Cost per Well

Cost per Well

140 15.8 12.1 9.1 8.4 6.9 140 3.3 3.6 4.2 5.2 5.6
(US$ mm)

(US$ mm)

120 14.2 11.0 8.5 7.9 6.6 120 3.7 4.0 4.5 5.3 5.6
100 12.6 10.0 7.9 7.3 6.3 100 4.1 4.3 4.8 5.4 5.7
80 11.0 8.9 7.2 6.8 5.9 80 4.5 4.7 5.0 5.6 5.8
Source: Itaú Securities Source: Itaú Securities

In our base-case scenario, embedded in Petrobras valuation is US$4/boe NAV on average

for pre-salt projects. For Tupi and Iara, though, the NAV is higher (US$5/boe), since they
are the first comers in our DCF.

We are now ready to translate the valuation of the barrels into dilution effects. In each
scenario we consider the size of the offering being equal, 25% and 50% higher than the
valuation of the barrels. We also assumed the current ON/PN ratio for now, calculating
the Brazilian government’s final stake in Petrobras in each scenario.

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Petrobras – September 17, 2009

Dilution and Government’s Final Stake

NAV/US$ bbl
Flow per well (kbpd)
10.0 15.0 25.0 30.0 50.0
160 1.9 3.3 4.4 4.7 5.3

Cost per Well

140 2.4 3.6 4.6 4.9 5.4

(US$ mm)
120 2.9 4.0 4.8 5.1 5.5
100 3.5 4.3 5.1 5.2 5.6
80 4.0 4.7 5.3 5.4 5.7

Valuation of the Barrels (VotB) (R$ mm)

Flow per well (kbpd)
10.0 15.0 25.0 30.0 50.0
160 15,821 27,899 37,561 39,977 44,808

Cost per Well

140 20,350 30,919 39,373 41,487 45,714

(US$ mm)
120 24,880 33,938 41,185 42,997 46,620
100 29,409 36,958 42,997 44,506 47,526
80 33,938 39,977 44,808 46,016 48,432

CAPITAL INCREASE = 1 x (VotB) CAPITAL INCREASE = 1.25 x (VotB) CAPITAL INCREASE = 1.5 x (VotB)

Dilution

Flow per well (kbpd) Flow per well (kbpd) Flow per well (kbpd)
10.0 15.0 25.0 30.0 50.0 10.0 15.0 25.0 30.0 50.0 10.0 15.0 25.0 30.0 50.0
160 6.1% 9.2% 11.1% 11.5% 12.2% 160 7.6% 11.2% 13.5% 14.0% 14.8% 160 8.9% 13.2% 15.7% 16.3% 17.3%
Cost per Well

Cost per Well

Cost per Well

140 7.4% 9.8% 11.4% 11.7% 12.4% 140 9.1% 12.0% 13.8% 14.2% 15.0% 140 10.7% 14.1% 16.2% 16.6% 17.5%
(US$ mm)

(US$ mm)

(US$ mm)
120 8.5% 10.4% 11.7% 12.0% 12.5% 120 10.4% 12.7% 14.2% 14.5% 15.2% 120 12.3% 14.9% 16.6% 16.9% 17.6%
100 9.5% 11.0% 12.0% 12.2% 12.6% 100 11.6% 13.3% 14.5% 14.8% 15.3% 100 13.6% 15.6% 16.9% 17.2% 17.8%
80 10.4% 11.5% 12.2% 12.4% 12.8% 80 12.7% 14.0% 14.8% 15.0% 15.5% 80 14.9% 16.3% 17.3% 17.5% 18.0%

Government's Final Stake

Flow per well (kbpd) Flow per well (kbpd) Flow per well (kbpd)
10.0 15.0 25.0 30.0 50.0 10.0 15.0 25.0 30.0 50.0 10.0 15.0 25.0 30.0 50.0
160 36.5% 38.5% 39.8% 40.1% 40.6% 160 35.9% 37.7% 38.7% 39.0% 39.4% 160 35.4% 36.8% 37.7% 37.9% 38.2%
Cost per Well

Cost per Well

Cost per Well

140 37.3% 39.0% 40.0% 40.2% 40.7% 140 36.6% 38.0% 38.9% 39.1% 39.5% 140 36.0% 37.1% 37.9% 38.0% 38.3%
(US$ mm)

(US$ mm)

(US$ mm)

120 38.1% 39.4% 40.2% 40.4% 40.8% 120 37.3% 38.4% 39.1% 39.2% 39.5% 120 36.5% 37.4% 38.0% 38.1% 38.4%
100 38.8% 39.7% 40.4% 40.6% 40.8% 100 37.8% 38.7% 39.2% 39.4% 39.6% 100 37.0% 37.7% 38.1% 38.2% 38.4%
80 39.4% 40.1% 40.6% 40.7% 40.9% 80 38.4% 39.0% 39.4% 39.5% 39.7% 80 37.4% 37.9% 38.2% 38.3% 38.5%
Source: Itaú Securities
Note: In all cases we assume the government capital increase will be equal to the amount required to buy the reserves, regardless of the size of the offer.

If we exclude the special participation tax from the barrels to be acquired by Petrobras,
the NAV of these barrels increases by US$3/bbl on average, when compared with our
base-case scenario. In other words, by increasing the NAV, the budget to buy the five
billion barrels increases and, consequently, the size of the capitalization. This causes a
stronger dilution for minorities and further increases the government’s stake in the
company. The tables below show the sensitivity analysis excluding the SPT.

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Petrobras – September 17, 2009

Dilution and Government’s final stake (Excluding SPT)

NAV/US$ bbl
Flow per well (kbpd)
10.0 15.0 25.0 30.0 50.0
160 5.0 6.4 7.5 7.8 8.4

Cost per Well

140 5.5 6.8 7.7 8.0 8.5

(US$ mm)
120 6.0 7.1 8.0 8.2 8.6
100 6.6 7.5 8.2 8.3 8.7
80 7.1 7.8 8.4 8.5 8.8

Valuation of the Barrels (VotB) (R$ mm)

Flow per well (kbpd)
10.0 15.0 25.0 30.0 50.0
160 42,284 54,362 64,024 66,440 71,271

Cost per Well

140 46,813 57,381 65,836 67,950 72,177

(US$ mm)
120 51,342 60,401 67,648 69,459 73,083
100 55,872 63,420 69,459 70,969 73,989
80 60,401 66,440 71,271 72,479 74,895

CAPITAL INCREASE = 1 x (VotB) CAPITAL INCREASE = 1.25 x (VotB) CAPITAL INCREASE = 1.5 x (VotB)

Dilution

Flow per well (kbpd) Flow per well (kbpd) Flow per well (kbpd)
10.0 15.0 25.0 30.0 50.0 10.0 15.0 25.0 30.0 50.0 10.0 15.0 25.0 30.0 50.0
160 14.9% 16.5% 17.5% 17.7% 18.2% 160 17.9% 19.8% 21.0% 21.2% 21.7% 160 20.8% 22.9% 24.2% 24.4% 25.0%
Cost per Well

Cost per Well

Cost per Well

140 15.5% 16.8% 17.7% 17.9% 18.2% 140 18.7% 20.2% 21.2% 21.4% 21.8% 140 21.6% 23.3% 24.4% 24.6% 25.1%
(US$ mm)

(US$ mm)

(US$ mm)
120 16.1% 17.2% 17.8% 18.0% 18.3% 120 19.4% 20.6% 21.4% 21.5% 21.9% 120 22.4% 23.7% 24.6% 24.8% 25.1%
100 16.7% 17.5% 18.0% 18.1% 18.4% 100 20.0% 20.9% 21.5% 21.7% 22.0% 100 23.1% 24.1% 24.8% 24.9% 25.2%
80 17.2% 17.7% 18.2% 18.2% 18.4% 80 20.6% 21.2% 21.7% 21.8% 22.0% 80 23.7% 24.4% 25.0% 25.1% 25.3%

Government's Final Stake

Flow per well (kbpd) Flow per well (kbpd) Flow per well (kbpd)
10.0 15.0 25.0 30.0 50.0 10.0 15.0 25.0 30.0 50.0 10.0 15.0 25.0 30.0 50.0
160 42.4% 43.5% 44.2% 44.3% 44.6% 160 40.8% 41.7% 42.3% 42.4% 42.7% 160 39.4% 40.2% 40.6% 40.7% 40.9%
Cost per Well

Cost per Well

Cost per Well

140 42.8% 43.7% 44.3% 44.4% 44.6% 140 41.2% 41.9% 42.4% 42.5% 42.7% 140 39.7% 40.3% 40.7% 40.8% 40.9%
(US$ mm)

(US$ mm)

(US$ mm)

120 43.2% 43.9% 44.4% 44.5% 44.7% 120 41.5% 42.1% 42.5% 42.6% 42.7% 120 40.0% 40.4% 40.7% 40.8% 40.9%
100 43.6% 44.1% 44.5% 44.6% 44.7% 100 41.8% 42.3% 42.6% 42.6% 42.8% 100 40.2% 40.6% 40.8% 40.9% 41.0%
80 43.9% 44.3% 44.6% 44.7% 44.8% 80 42.1% 42.4% 42.7% 42.7% 42.8% 80 40.4% 40.7% 40.9% 40.9% 41.0%
Source: Itaú Securities
Note: In all cases we assume the government capital increase will be equal to the amount required to buy the reserves, regardless of the size of the offer.

The massive amount of number crunching behind those tables basically confirms our
theory. The valuation of the five billion barrels is very sensitive to underlying technical
assumptions. However, these will likely be the same technical assumptions guiding the
pre-salt barrels already awarded to Petrobras.

The ON/PN Dilemma

The proposed ratio of ON/PN is an interesting theme and has also been causing
some confusion in the market. Some believe that the government would prefer to use
ONs for 100% of the capital increase for two reasons: i) it only holds ONs, so that is the
only way to guarantee 100% subscription rights; and ii) the majority of the ONs’ free
float is held by foreign investors, who would face problems in subscribing unless the
company also decides to file the capital increase with the SEC. While Brazilian corporate
law allows for a capital increase in a single class of shares, ONs are currently some 20%
more expensive than PNs, meaning that the government would have to spend an extra
20% to increase its stake in Petrobras. With regard to the ADR ON holders, the company
stated its intentions of listing the offer in the SEC if needed, which, by the way, translates
into a longer timetable.

In other words, we see no reason to bet on an ON-only capital increase. On the

other hand, the argument for a PN-only deal is also questionable, as it would expose the
government to a dilution, which would be undesirable. There is no legal limit for an ON-
only offering, while for PNs the limit would be the 50/50 ON/PN ratio established by the
new Brazilian corporate law. In our view, the company will take the easiest route with to
respect the current ON/PN ratio. But most importantly, whatever the ratio chosen, both

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Petrobras – September 17, 2009

ON and PN holders would be diluted in proportion to their share of the company’s capital.

The ON/PN ratio narrowed significantly right after the announcement, later
returning to the level of 1.2. We see no reason to attribute these fluctuations to
anything other than money flows. While locals were exposed to the many statements
on the new bill that preceded the final announcement, foreign investors were more
surprised, and had a stronger negative reaction in the first moment. This caused the ONs
to under perform the PNs. Later on, with the clarifications provided by the company in its
conference calls and by analysts, the level of understanding improved, consequently
reducing the risk perception. In our view, the confirmation that minorities would not vote
on the valuation of the barrels was not the reason behind the narrowing of the spreads,
which reduced the appetite for ON shares. Voting rights in a state-owned company
controlled by the government should have never added any value to ON shares.

The Timing Question

We are left, then, with the timing question. The approval of the 4th law project is
the first bottleneck for the timetable. While the approval of this particular project
seems to be less complicated than, for instance, the approval of the PSC, we see two
issues that could potentially delay the approval, mainly in the Senate. The first issue
relates to the exclusion of the SPT payments for the five billion barrels. We view this as
another effort to concentrate the pre-salt revenues in the hands of the federal
government. Without the SPT, valuation of the barrels goes up, meaning that Petrobras
can buy the barrels from the federal government at a higher price in exchange for
reducing the states’ and municipalities’ revenues from the SPT in the future. We expect
the producing states to question that idea. The second issue relates to the sale of
exploration rights without an auction, which arguably goes against Brazil’s Federal
Constitution. We believe that the government will overcome that issue, but the
questioning will likely delay the process. We find it hard to believe that anything will
be approved within a year.

From the date of the approval, the 4th law project gives Petrobras a year to
reach a deal with the Brazilian government for the acquisition of the exploration
rights. The company can start working on the valuation of the barrels now, which means
that, in theory, one year would be more than enough for a first assessment. Two years
later, the valuation can be revised and the volumes fine tuned. But possible questions
related to, for example, minorities’ voting rights (since this is a transaction between
related parties) could further delay the process.

While Petrobras and the government seem to be pretty much aligned with
regard to the four law projects, the valuation of the barrels arguably puts them
on opposite sides of the negotiation table. That is actually what we should expect
from an arm’s-length transaction. Each party is supposed to contract an independent
valuation. Yet, most of the technical assumptions behind the valuation will likely come
from Petrobras’ headquarters anyway; long-term oil prices or discount rate assumptions,
for instance, could bring a significant deviation to the respective valuations. While
acknowledging that it would be naïve to assume a major misalignment between the
parties, we would expect some disputes, which could potentially delay the process.

Another possible delay to the capitalization could be caused by the need to list
the offer with the SEC to grant ADR holders the right to subscribe. The company is
already looking into the legal requirements to make that listing, as the idea is to grant
pre-emptive subscription rights to all minorities. In recent follow-ons by companies such
as Gerdau and CVRD, the solution used to overcome the burden of listing (time and
costs) was to grant ADR holders matching subscription rights as part of the book building
in the local market.

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Petrobras – September 17, 2009

DISCLAIMER

Itaú Securities is a brand name of Itaú Corretora de Valores S.A.

Ratings: Definitions, Dispersion and Banking Relationships (3)

Banking
(1) (2) (3)
Ratings Definition Coverage Relationship
(4)

The analyst expects the stock to perform

Outperform 36% 25%
better than the sector average.

The analyst expects the stock to perform in

Sector Perform 48% 34%
line with the sector average.

The analyst expects the stock to perform

Underperform 17% 12%
below the sector average.

1. Ratings reflect the analyst’s assessment of the stock price performance in the medium term compared
with the sector average. Recommendations will be valid until the analyst changes the rating, which
may happen as a result of news or simply due to a change in the stock price (there is not a defined
time horizon).
2. Companies are grouped, according to their similarities, into sectors. The sectors are: (i) Banking &
Financial Services, (ii) Consumer Goods & Retail + Food & Beverage, (iii) Industrials + Healthcare +
Education, (iv) Steel & Mining + Pulp & Paper, (v) Oil, Gas & Petrochemicals + Agribusiness, (vi) Real
Estate, (vii) Telecommunications, Media and Technology, (viii) Transportation & Logistic, (ix) Utilities
(x) Equity Strategy.
3. Percentage of companies under coverage by Itaú Corretora de Valores S.A. within this rating category.
The ratings used herein (Outperform, Sector Perform and Underperform) for purposes of the ratings
distribution disclosure requirements of FINRA and the NYSE, correspond most closely, respectively, to
Buy, Hold and Sell.
4. Percentage of companies within this rating category for which Banco Itaú S.A. or any of its affiliated
companies provided investment banking services within the past 12 (twelve) months, or may provide
investment banking services during the next 3 (three) months.
Third Party Disclosures
Disclosure Items
Companies Mentioned Ticker Recent Price
1 2 3 4 5
Petrobras PETR4 34.35 X
1. Itaú Corretora de Valores S.A. and/or its affiliates have managed or co-managed a public offering for
the companies analyzed in this report in the past 12 (twelve) months, for which they have received
compensation.
2. Itaú Corretora de Valores S.A. and/or its affiliates have received compensation for investment banking
services provided to the companies analyzed in this report in the past 12 (twelve) months, and expect
to receive or intend to seek compensation for investment banking services provided to the companies
analyzed in this report in the next 3 (three) months.
3. Itaú Corretora de Valores S.A. and/or its affiliates were making a market in the companies analyzed in
this report at the time this report was issued.
4. Itaú Corretora de Valores S.A. and/or its affiliates have acted as an underwriter of securities issued by
the companies analyzed in this report within the past 5 (five) years.
5. Itaú Corretora de Valores S.A. and/or its affiliates, funds, portfolios and securities investment clubs
managed by Itaú Corretora beneficially own, directly or indirectly, 1% (one percent) or more of any
class of common equity securities issued by the companies analyzed in this report as of the end of the
last month.
Petrobras PN
4-Sep
11-Sep

50.0
8-Jun

2-Jul
30-Apr
5-Jan

5-Mar

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

Underperform Sector Perform Outperform

UR Stock Price Fair Value
Source: Itaú Securities

Itaú Securities
-8-
Petrobras – September 17, 2009

Relevant Information

1. This report has been produced by Itaú Corretora de Valores S.A (“Itaú Corretora”), a subsidiary of Banco Itaú S.A.
and distributed by Itaú Corretora or one of its affiliates (altogether, “Itaú Unibanco Group”).

2. This report is provided for informational purposes only and does not constitute or should not be construed as an
offer to buy or sell or solicitation of an offer to buy or sell any financial instrument or to participate in any particular
trading strategy in any jurisdiction. The information herein is believed to be reliable as of the date in which this
report was issued and has been obtained from public sources believed to be reliable. Itaú Unibanco Group does not
make any representation or warranty, express or implied, as to the completeness, reliability or accuracy of such
information, nor is this report intended to be a complete statement or summary of the investment strategies,
markets or developments referred to herein. Opinions, estimates, and projections expressed herein constitute the
current judgment of the analyst responsible for the substance of this report as of the date on which it was issued
and are therefore subject to change without notice. Prices and availability of financial instruments are indicative
only and subject to change without notice. Itaú Unibanco Group has no obligation to update, modify or amend this
report and inform the reader accordingly, except when terminating coverage of the issuer of the securities
discussed in this report.

3. The analyst responsible for the production of this report hereby certifies that the views expressed
herein accurately and exclusively reflect his or her personal views and opinions about any and all of the
subject issuers or securities and were prepared independently and autonomously, including from Itaú
Corretora . Because personal views of analysts may differ from one another, Itaú Corretora, its
subsidiaries and affiliates may have issued or may issue reports that are inconsistent with, and/or
reach different conclusions from, the information presented herein. The analyst responsible for the
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FINRA, and is not associated with Itaú USA Securities Inc. and, therefore, may not be subject to Rule
2711 restrictions on communications with a subject company, public appearances and trading
securities held by a research analyst account.

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securities discussed herein. The analyst declares that (s)he does not maintain any relationship with any individual
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household do not hold, directly or indirectly, any securities issued by the companies analyzed in this report in
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into account the investment objectives, financial situation or particular needs of any particular investor. Any
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performances. Itaú-Unibanco Group does not accept any liability whatsoever for any direct or consequential loss
arising from any use of this report or its content.

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without the prior written consent of Itaú Corretora de Valores S.A. . Additional information on the financial
instruments discussed in this report is available upon request.

Additional Note to reports distributed in: (i)U.K. and European: Banco Itaú Europa, S.A., London Branch, that is
authorized by Banco de Portugal and authorized and subject to limited regulation by the Financial Services Authority
(FSA), is distributing this report to investors who are Eligible Counterparties and Professional Clients, pursuant to FSA
rules and regulations. If you do not, or cease to, fall within the definition of Eligible Counterparty or Professional Client,
you should not rely upon the information contained herein and should notify Banco Itaú Europa S.A. London Branch
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SP, CEP 03162-971.

* Local call cost

Itaú Securities
-9-
 Equities
Roberto M. Nishikawa, Global Head of Equities

Research
Carlos Constantini, CNPI - Head +55-11-3073-3001 carlos.constantini@itau.com.br Steel & Mining + Pulp & Paper
Marcos Assumpção, CFA - Sector Head +55-11-3073-3021 marcos.assumpcao@itau.com.br
Equity Strategy Alexandre Miguel, CNPI +55-11-3073-3020 alexandre.miguel@itau-unibanco.com.br
Carlos Constantini, CNPI - Head +55-11-3073-3001 carlos.constantini@itau.com.br Rodrigo Fonseca +55-11-3073-3018 rodrigo.fonseca-fernandes@itau.com.br
Marcelo Brisac, CFA +55-11-3073-3023 marcelo.brisac@itau.com.br
Susana Salaru, CNPI +55-11-3073-3009 susana.salaru@itau.com.br Telecommunications, Media & Technology
Cida Souza, CNPI +55-11-3073-3038 cida.souza@itau.com.br Valder Nogueira, CNPI - Sector Head +55-11-3073-3008 valder.nogueira@itau.com.br
Enrico Grimaldi +55-11-3073-3012 enrico.grimaldi@itau.com.br Bruno Mendonça, CNPI +55-11-3073-3010 bruno.mendonca@itau.com.br
Renan Compagnoli +55-11-3073-3064 renan.compagnoli@itau-unibanco.com.br
Banking & Financial Services
Alcir Freitas, CNPI - Sector Head +55-11-3073-3042 alcir.freitas@itau.com.br Transportation & Logistic
Wesley Okada, CNPI +55-11-3073-3043 wesley.okada@itau.com.br Victor Mizusaki, CNPI - Sector Head +55-11-3073-3030 victor.mizusaki@itau.com.br
Alexandre Spada, CNPI +55-11-3073-3004 alexandre.spada@itau.com.br Fernando Abdalla, CNPI +55-11-3073-3019 fernando.abdalla@itau.com.br

Consumer Goods & Retail + Food & Beverage Utilities

Juliana Rozenbaum, CFA - Sector Head +55-11-3073-3035 juliana.rozenbaum@itau.com.br Marcos Severine, CNPI - Sector Head +55-11-3073-3011 marcos.severine@itau-unibanco.com.br
Francine Martins, CNPI +55-11-3073-3039 francine.martins@itau.com.br Eduardo Cancian, CNPI +55-11-3073-3014 eduardo.cancian@itau.com.br
Marcelo F. Cintra +55-11-3073-3016 marcelo.f.cintra@itau-unibanco.com.br Mariana Coelho, CNPI +55-11-3073-3024 mariana.coelho@itau.com.br

Industrials + Healthcare + Education Economics

Renata Faber, CNPI - Sector Head +55-11-3073-3017 renata.faber@itau.com.br Guilherme da Nóbrega, CNPI - Head +55-11-3708-2715 guilherme.nobrega@itau.com.br
Marcio Osako, CFA +55-11-3073-3040 marcio.osako@itau.com.br Mauricio Oreng +55-11-3708-2807 mauricio.oreng@itau.com.br
Marcos Matsutani +55-11-3073-3041 marcos.matsutani@itau.com.br Luiz Gustavo Cherman +55-11-3708-2712 luiz.cherman@itau.com.br
Rodolfo Araujo Oliveira +55-11-3708-2713 rodolfo.oliveira@itau.com.br
Oil, Gas & Petrochemicals + Agribusiness
Paula Kovarsky, CNPI - Sector Head +55-11-3073-3027 paula.kovarsky@itau.com.br Quantitative Research
Diego Mendes, CNPI +55-11-3073-3029 diego.mendes@itau.com.br Marcus Moldes, MSc, CNPI - Head +55-11-3073-3066 marcus.moldes@itau.com.br
Giovana Araújo, CNPI +55-11-3073-3036 giovana.araujo@itau.com.br Pedro Maia +55-11-3073-3065 pedro.maia@itau-unibanco.com.br

Real Estate Technical Analysis

David Lawant, CNPI - Sector Head +55-11-3073-3037 david.lawant@itau.com.br Marcio Lacerda, CNPI - Head +55-11-3073-3005 marcio.lacerda-ferreira@itau.com.br
Cecilia Viriato, CNPI +55-11-3073-3007 cecilia.viriato@itau.com.br Marcello Rossi, CNPI +55-11-3073-3006 marcello.nogueira@itau.com.br
Renan Compagnoli +55-11-3073-3064 renan.compagnoli@itau-unibanco.com.br

Equity Sales & Trading

Latin America Sales Trading - Latin America
Carlos Maggioli - Head +55-11-3073-3300 carlos.maggioli@itau.com.br Danuse Corradi +55-11-3073-3310 danuse.corradi@itau.com.br
Christian Lemos +55-11-3073-3310 christian.lemos@itau.com.br
Sales - Latin America Pedro Gimenez +55-11-3073-3310 pedro.gimenez@itau.com.br
Carlos Maggioli - Head +55-11-3073-3300 carlos.maggioli@itau.com.br Eduardo Santos +55-11-3073-3310 eduardo-guilherme.santos@itau.com.br
Regina Jordão +55-11-3073-3330 regina.jordao@itau.com.br Irenio I. S. Neto +55-11-3073-3310 irenio.silveira@itau.com.br
Rodrigo Pace +55-11-3073-3330 rodrigo.pace@itau.com.br Fernando Lasalvia +55-11-3073-3310 fernando.lasalvia@itau.com.br
Rogerio Storeli +55-11-3073-3330 rogerio.storeli@itau.com.br Lucas Gonçalves +55-11-3073-3310 lucas.goncalves@itau.com.br
Márcia Sadzevicius +55-11-3073-3330 marcia.sadzevicius@itau.com.br Carlos Faria +55-11-3073-3310 carlos.faria@itau.com.br
Fernando Diez Notarnicola +55-11-3073-3330 fernando.notarnicola@itau.com.br
Bento Antunes Mussnich +55-11-3073-3330 bento.antunes@itau.com.br Europe, Middle East & Asia
Mark Fenton - Head +44-20-7663-7845 mark.fenton@itau.com
North America
Thomas DeCoene - Head +1-212-710-6702 thomas.decoene@itausecurities.com Sales - Europe
André Luiz Dreicon +44-20-7663-7845 andre.dreicon@itau.com
Sales - North America Simone Rosito +44-20-7663-7845 simone.rosito@itau.com
Renato Lobo - Head +1-212-759-5627 renato.lobo@itausecurities.com
Flavia Stingelin, CFA +1-212-710-6768 flavia.stingelin@itausecurities.com Sales Trading - Europe
Marcello Spinelli +1-212-710-6767 marcello.spinelli@itausecurities.com Fabio Faraggi +44-20-7663-7839 fabio.faraggi@itau.com
Adam Cherry +1-212-710-6766 adam.cherry@itausecurities.com Duncan Ilsley +44-20-7663-7839 duncan.ilsley@itau.com

Sales Trading - North America Sales - Japan

Andre Soares - Head +1-212-759-5927 andre.soares@itausecurities.com Masayoshi Yazawa +813-3539-3850 masayoshi.yazawa@itau.com
Eric Krall +1-212-710-6748 eric.krall@itausecurities.com Gerson Konishi +813-3539-3852 gerson.konishi@itau.com
Gustavo Rosa +1-212-710-6747 gustavo.rosa@itausecurities.com
Sales - Hong Kong
Jack Xu - Head +852-3657-2388 jack.xu@itau.com
Caio Galvão +852-3657-2398 caio.galvao@itau.com
Charles Lin +852-3657-2379 charles.lin@itau.com

Hedge Funds, Futures, Derivatives & Stock Lending

Carlos Maggioli - Head +55-11-3073-3300 carlos.maggioli@itau.com.br Local Equity Derivatives
Cristiano Soares +55-11-3073-3300 cristiano.soares@itau.com.br Fabiano V. Romano - Head +55-11-3073-3310 fabiano.romano@itau.com.br
Thierry Decoene +55-11-3073-3300 thierry.decoene@itau.com.br Guilherme Bockmann +55-11-3073-3310 guilherme.bockmann@itau.com.br
Rafael Americo +55-11-3073-3310 rafael.americo@itau.com.br

Futures Desk FX Spot

Eduardo Borro - Head +55-11-3073-3350 eduardo.borro@itau.com.br Manoel Gimenez +55-11-3073-3340 manoel.gimenez-neto@itau.com.br
Gerson Panariello +55-11-3073-3350 gerson.panariello@itau.com.br Haroldo Vasconcellos +55-11-3073-3340 haraldo.vasconcellos@itau.com.br
Alexandre Rizzo +55-11-3073-3350 alexandre.rizzo@itau.com.br Marcio Jeronimo +55-11-3073-3340 marcio.jeronimo@itau.com.br
Denis Malvone +55-11-3073-3350 denis.malvone@itau.com.br
Celso Azem +55-11-3073-3350 celso.azem@itau.com.br Stock Lending
Luciana Eugenio +55-11-3073-3350 luciana.eugenio@itau.com.br Douglas Jacob +55-11-3073-3211 douglas.jacob@itau.com.br
José Dezene +55-11-3073-3350 jose.dezene@itau.com.br Marina Santos +55-11-3073-3211 marina.leite@itau-unibanco.com.br
Alan Eira +55-11-3073-3350 alan.eira@itau.com.br João Victor Caccese +55-11-3073-3211 joao.caccese@itau.com.br
Vinicius Cobo +55-11-3073-3350 vinicius.cobo@itau.com.br
Private Banking Desk

Alexandre Guedes - Head +55 11 3073-3110 alexandre-guedes.lopes@itau.com.br Private Banking - Trading Desk
Marcos Skistymas – Business Intelligence +55 11 3073-3110 marcos.skistymas-filho@itau.com.br Felipe Beltrami - Head +55 11 3073-3273 felipe.beltrami@itau.com.br
Caio Felipe Zanardo Val +55 11 3073-3292 caio.val@itau.com.br
Private Banking - Sales Edgard Claussen Vilela +55 11 3073-3291 edgard.vilela@itau.com.br
Carina Cassab Carreira +55 11 3073-3110 carina.carreira@itau.com.br Luiz Ricardo C. Lobo +55 11 3073-5880 luiz.lobo@itau.com.br
Lucas Tambellini +55 11 3073-3110 lucas.tambellini@itau.com.br Luis Fernando Kanashiro +55 11 3073-3210 luis.fernando.kanashiro@itau.com.br
Marcelo Ferri +55 11 3073-3110 marcelo.ferri@itau.com.br João Roberto A. de Souza +55 11 3073-3298 joao-afonso.souza@itau.com.br
Pedro H. Rocha Sauma +55 11 3073-3110 pedro.sauma@itau.com.br Joseana Requejo Amaral +55 11 3073-3293 joseana.amaral@itau.com.br
Sergio Fonseca Rosa +55 11 3073-3110 sergio.fonseca-rosa@itau.com.br Julio Pimentel Algodoal Neto +55 11 3073-3210 julio.algodoal@itau.com.br
Leonardo Mattiussi +55 11 3073-3290 leonardo.mattiussi@itau.com.br
Nicolas E. Balafas +55 11 3073-3299 nicolas.balafas@itau.com.br
Patrick Campos de Mello +55 11 3073-3292 patrick.mello@itau.com.br
Ricardo Julio Costa +55 11 3073-3297 ricardo.costa@itau.com.br
Robinson Minetto +55 11 3073-3290 robinson.minetto@itau.com.br
Rogerio M. Kurussu +55 11 3073-3291 rogerio.kurussu@itau.com.br
Sandra Steffen Brianti +55 11 3073-3297 sandra.brianti@itau.com.br
Natália Mônaco +55 11 3073-3297 natalia.monaco@itau.com.br

Fixed Income
Alexandre Aoude, Global Head of Fixed Income

Fixed Income Research Sales - North America

Ciro Matuo, CNPI - Sector Head +55-11-3073-3049 ciro.matuo@itau.com.br Douglas Chen +1 212 710-6782 douglas.chen@itausecurities.com
Boanerges Pereira, CNPI +55-11-3073-3050 boanerges.pereira@itau.com.br Augusto Castilho +1 212 710-6745 augusto.castilho@itausecurities.com
Sérgio Vailati, CNPI +55-11-3073-3067 sergio.vailati@itau.com.br Richard Cascais +1 212 710-6765 richard.cascais@itausecurities.com

Sales - Latin America Sales - Europe

Luis Fernando Guido +55-11-3708-8800 lcguido@itaubba.com.br Rodolfo Dejon +44 207 663-7843 rodolfo.dejon@itau.com
Andre Farkas +55-11-3708-8800 afarkas@itaubba.com.br Rodrigo Malizia +44 207 663-7843 rodrigo.malizia@itau.com
Mauricio Silveira +55-11-3708-8800 mcsilveira@itaubba.com.br
Rogério Cunha +55-11-3708-8800 rmcunha@itaubba.com.br Sales - Asia
Valter Luz +55-11-3708-8800 vmaluz@itaubba.com.br Gerson Konishi +813-3539-3852 gerson.konishi@itau.com
Felipe Almeida +55-11-3708-8800 fralmeida@itaubba.com.br
Vinicius Pinho +55-11-3708-8610 vapinho@itaubba.com.br

Alternative Investment Products

São Paulo Dubai
Marcelo Fatio - Head +55-11-3073-3505 marcelo.fatio@itau.com.br Adriano Cantreva - Head + 971 4 381 0650 adriano.cantreva@itau.com
Lizandro Arnoni +55-11-3073-3584 lizandro.arnoni@itau.com.br Ellie Shaw + 971 4 381 0656 ellie.shaw@itau.com
Eduardo Bernardes +55-11-3073-3545 eduardo.bernardes@itau.com
Hong Kong
New York Jack Xu - Head +852-3657-2388 jack.xu@itau.com
Thomas DeCoene - Head +1-212-710-6702 thomas.decoene@itausecurities.com Caio Galvão +852-3657-2398 caio.galvao@itau.com
Alex Mainero +1-212-710-6731 alex.mainero@itausecurities.com Charles Lin +852-3657-2379 charles.lin@itau.com
Roger Freitas +1-212-710-6778 roger.freitas@itausecurities.com
Tokyo
London Kenichi Noguchi - Head +81-3-3539-3847 kenichi.noguchi@itau.com
Mark Fenton - Head +44-20-7663-7845 mark.fenton@itau.com Hiroyuki Shimizu +81-3-3539-3848 hiroyuki.shimizu@itau.com
Julia Chen +44 207 663 7842 julia.chen@itau.com Hiroji Shimabucuro +81-3-3539-3849 hiroji.shimabucuro@itau.com
Raquel Franco +44-207-663-7838 raquel.franco@itau.com
Pedro Rafael +44-207-663-7841 pedro.rafael@itau.com

Itaú Securities' Global Offices

SÃO PAULO NEW YORK LONDON

Itaú Corretora de Valores S.A Itaú USA Securities Inc. Banco Itaú Europe London Branch
Av. Brigadeiro Faria Lima, 3400 - 9º Andar 540 Madison Avenue, 23rd floor 6th Floor - 17 Dominion Street
São Paulo, SP, Brazil, 04538-132 New York - NY 10022 London EC2M 2EF

HONG KONG TOKYO DUBAI

Itaú Asia Securities Itau Asia Securities Tokyo Branch Itaú Middle-East Securities
Regulated by the Securities and Futures Commission in Hong Kong Yamato Life Bldg. 5F Sheikh Zayed Road,
29/F, Two International Finance Centre 1-1-7 Uchisaiwai-cho, Chiyoda-ku Park Place Building,10th floor
8 Finance Street - Central, Hong Kong Tokyo, 100-0011, Japan P.O.Box 65073 Dubai U.A.E

Itaú´s Complaints Officer (Ouvidoria Corporativa Itaú) may be contacted at

0800 570 0011 (calls from Brazil), on business days, from 9a.m to 6p.m (São Paulo, Brazil time) or P.O. BOX 67.600, Zip Code 03162-971

The information herein is believed to be reliable but Itaú Corretora de Valores S.A. does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment and are subject to change without notice. Banco Itaú S.A. may have a position from time to time. Past performance is not indicative of

future results. This material is not intended as an offer or solicitation for purchase or sale of any financial instrument. This report is prepared by Itaú Corretora de Valores S.A. and distributed Itaú Securities, accepts responsibility for its contents accordingly. Any US persons receiving this research and wishing to effect

transactions in any security discussed herein should do so only with Analysts who are not CNPI only provide the team with technical support not issuing personal opinions.