巴西石油 (PBR.A) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Petrobras' conference call to discuss the first-quarter 2008 results. At this time all lines are in listen-only mode. Later there will be a question-and-answer session, and instructions will be given that the time. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded. Today with us, we have Mr. Almir Guilherme Barbassa, CFO and IR officer, and his staff. At this time I would like to turn the conference over to Mr. Theodore Helms, Investor Relations, executive manager of Petrobras, who has some additional comments. Please go ahead, Mr. Helms.

That afternoon, ladies and gentlemen. Welcome to our conference call to discuss first-quarter 2008 results. We have a simultaneous webcast on the Internet that can be accessed at the site www.prepress.com.br/ri/english.

Before proceeding, I would like to draw your attention to slide two. We may make forward-looking statements which are identified by the use of the words will, expect and similar that are based on the beliefs and assumptions of Petrobras' management and information currently available to the Company.

Finally, let me mention that this conference call will discuss Petrobras' results prepared in accordance with Brazilian GAAP. At this moment we're unable to discuss any issues related to US GAAP results. The conference call will be conducted by our CFO and Investor Relations Officer, Mr. Almir Guilherme Barbassa. He will comment on the Company's operating and financial highlights and the main events during this quarter, and he will be available to answer any questions you may have. Mr. Barbassa, you may begin.

Good afternoon to everybody. It is a pleasure to be here to discuss the first quarter results of this year. But first, let's go back to the first slide, please. I'd like to begin with a few words about the cover sheet. This is the deck mating of the top sides and [who] of the P-51 which occurred in April 19th, in Brazil. This is the first platform where [forced who] and the top sides were built in Brazil. Total Brazilian content is around 70%. We expect P-51 will be anchored and the to Marlim Sul field sometime during the first quarter of this year.

We have already begun the construction of P-56, a clone of P-51, using the same shipyards and design of P-51. This approach will help us to control costs and accelerate our project for the future of production.

Going to slide two, let's begin by looking at some of the principal drivers of our operating results. In this slide you can see that domestic oil and gas production increased by about 33% quarter over quarter and about 2% year over year, with the ramp-up of four new units that began producing in the fourth quarter of '07. New production systems added 91,000 barrels of oil during the quarter.

Production increases were constrained during the first quarter by reduced availability of support vessels that connect wells to the P-52 and P-54. Additionally, FPSO Cidade de Vitoria is producing more water than expected, limiting production from this platform and the Golfinho Field. With respect to the existing fields, this is worth mentioning, that we have been allocating a greater amount of rig time to developmental and exploratory drilling at the expense of less time for workover and maintenance. These have temporarily resulted in reduced production at some of our existing [units].

Our investment in the production for [casting] and transportation of natural gas are beginning to show results, with an increase of 10% in the quarter. Production was boosted by non-associated gas from Espirito Santo Basin, mainly the Peroa field. This gas is now flowing through the southern leg of the [Garzin] pipeline to thermal-powered plant in [Northern] of (inaudible) [state].

Factoring in the delays that have already occurred this year, we are reducing our target for oil produced in Brazil from 2 million barrels per day to 1,000,950 barrels, plus or minus 2.5%. We are introducing the concept of a branch to reflect the [in event of] certainty of predicting average production for the year. Determining the average production for a year is an exercise in probability and establishing a range more accurately reflect this reality.

Reaching our target will require increasing production from the first-quarter level by an average of more than 150,000 barrels per day during the rest of the year. The continued ramp-up of P-52 and P-54, which only contributed 96,000 barrels per day of the combined capacity of 360,000 barrels per day will be primarily responsible for this increase.

In slide three, we can see the growth in domestic natural gas supply and markets for the natural gas. Year over year, Brazilian gas supply available to the market increased by 7 million cubic meters per day, approximately 45,000 barrels of oil equivalent per day while total demand for natural gas in Brazil increased by 14 million cubic meters a day, approximately 90,000 barrels of oil equivalent. In addition to the 7 million cubic meters of domestic supply, another 7 million cubic meters of supply came from increases in Bolivian production.

Moving to refinery and sales volumes, you will see that quarter over quarter production of refined products declined slightly from 1.78 million barrels per day during the first quarter to 1.77 million barrels per day in the first quarter. This was largely the result of a program stoppage at the Replan refinery, the largest refinery in Brazil. In February, prior to the stoppage, the refining sector set a new monthly record for processing oil of 1.84 million barrels per day.

Product sales during the quarter were down from the prior quarter, generally due to seasonality. Year over year, sales continued to increase at a rate of about 60,000 barrels per day or 3.5%, largely from increased sales of diesel and jet fuel for agricultural, transportation, electricity generation and higher air per line [truck]. Despite the growing competition from ethanol, gasoline sales have remained flat.

In slide five you will see that be net trade balance has been declining as a result of growing consumption in Brazil and the use of diesel for some thermal-powered plants, which was not fully offset in by ramp-up in the production of our new unit. The first quarter was also affected by a substantial build-up in inventory, as a precautionary move related to the programmed stoppage of the Replan refinery.

Let me now turn to some highlights of the first quarter that are important for our long-term future. I will begin by reviewing current activity in the pre-salt cluster of Santos Basin. Currently, we are working three blocks -- BM-S-8, Bem-te-Vi; BM-S-9, Carioca; and BM-S-24, Jupiter. In BM-S-8, we are in the process of testing a well recently drilled. In the BM-S- 9, we have just started the second well in the saltiest extension, known as Guara, and expect to test the well after the target depth is reached. In BM-S-24, the rig is being moved into place. For this block, we expect continued drilling begun last year with the hope of reaching oil layers in addition to the natural gas we found. We also plan to test the well.

We have also made important decisions at the Board level to fast-track the expanded well test and the pilot system for Tupi. In the next two slides you can see key figures for this project. For the extended well test we will charter a small production [unit here] of 30,000 barrels per day production capacity from BW Offshore to start testing in March 2009. During the testing, which will last through much of 2009, we will drill three wells and test each individually. This will improve our understanding not only of the reserve well characteristics and well productivity but also the optimal well design. For the pilot system, we are in the market for a 100,000 barrels per day unit to start in December 2010.

In addition to continuing our understanding of the [reservoir] and the most economic production methods, we will also be testing the ideal way to maintain reserve oil pressure and maximize the recovery factor, either through water, natural gas or CO2 injection. The gas from this well will have to be transported via pipeline to the gas gathering facility of (inaudible), some 200 kilometers away.

We currently have just three rigs that are working the pre-salt cluster. This is not enough to meet our drilling means for the testing and pilot phase for Tupi and the continued further exploratory work in the pre-salt. As a result, we have recently announced the contracting of three drill ships from SeaDrill. These rigs will help in the development and appraisal of Tupi, as well as expand our exploration and appraisal activity in Carioca.

Turning to results, they were strongly influenced by the market (inaudible) of our [crude oil]. As you can see in the slide 10, price has nearly doubled since the first quarter of last year. This was the principal factor contributing to the earnings from our E&P sectors. As you can also see, our crude oil continued to trade at roughly $10 to $11 per barrel discount to Brent, due to the quality differentials.

In slide 11 you will see that lifting costs have stabilized. Despite the near doubling of oil price and the introduction of a number of platforms still ramping up, we have managed a lower lifting costs when expressed in reais. Year-over-year lifting costs expressed in dollars have increased by $[1.40] per barrel, even as Brent increased by nearly $40 per barrel. Year over year government production parts have increased by $7 per barrel due to the higher income subject to the special participation [tax] and higher royalty. Despite higher lifting costs and government [take], the margin between the lifting cost and the price of Brent has increased from $40 to $72 during the past year.

The comparison of Brazilian production pricing and the international markets can be found in slide 12. The trend we saw in the fourth quarter of last year continued into the first quarter of 2008. In other words, our [practice] of holding local price for diesel and gasoline cost (inaudible) as the stronger real compensate for higher international price no longer worked. Consequently, we have announced as of May 2nd a price increase of 10% for gasoline and 15% for diesel. The positive impact of these adjustments will only be felt in the second quarter.

In slide 13, you can see the impact of our net income of the fourth quarter of 2007 versus the first quarter of 2008. Higher oil and natural gas production, relatively stable producing price and lower operating and financial expenses were the principal factors behind the improvement. Revenue increased by R$1.475 billion as a result of modestly higher production and sales volume. Costs for production sold increased as a result of higher cost of importing oil and oil products, partially stabilized by the flat lifting and refining costs.

Operating expenses were sequentially lower by R$1.365 billion as a result of lower SG&A, exploratory cost and absence of any impairment charge during the first quarter. Net financial expense were reduced, due to our lower rate and the strengthening of the real; and, combined with better results in our average income like to our sequential improvement of R$1.090 billion.

Minority interest also showed an improvement of R$240 million. After higher taxation for the period of R$1.613 billion because of higher income and low (inaudible) for interest on capital, net income increased by 37% quarter over quarter.

Turning now to our (inaudible) segment, you will see in slide 14 that operating earnings in our E&P segment increased by 13% quarter over quarter, mainly as a result of higher price of oil and a 3% increase in the production of oil and natural gas.

Slide 15 illustrates that our Downstream segment was affected by the absence of a price increase in gasoline and diesel in Brazil during the first quarter. Volumes were down sequentially through seasonality related to diesel. Higher price for our other oil products were more than offset by the rising cost in crude oil and imported products, leading to a loss in our Brazilian Downstream segment. The price increase announced effective May 2nd would accrue directly to the Downstream segment.

For the International segment, on slide 16, you will see that the segment shifted from a loss in the first quarter to an income of R$166 million in the first quarter of 2008. Production was flat quarter over quarter, while the segment enjoyed somewhat higher oil and gas price. Volume and costs were down because of the down time in the Pasadena refinery. Operating expenses were substantially less quarter over quarter, due to the reduction in [seismic] acquisition, lack of write-offs of dry holes and an absence of impairment charge.

Turning to the Gas and Energy segment in slide 17, the [first Q] effect on revenue from higher gas price and volumes as well as the greater dispatch of electricity from our gas-fired [thermal] (inaudible) capacity reduced the quarterly loss. Quarter over quarter, gas sale increased by 11%. We also signed new contracts with some of the local gas distribution [companies] last year that have improved our price and allowed us to pass through the higher cost of gas charged to gas and energy by our E&P segment. Higher gas prices were the leading cause of increase in the cost of goods sold.

In our Energy segment, higher market price and (inaudible) increase in generated electricity to the specially increased [residence]. In January we also started receiving income from the capacity sold under the new energy models 2005 auction. Some of these gains were offset by [analysis] of R$253 million related to the noncompliance of contracts to provide natural gas. As we increased our supply of domestic gas, our capacity to enforce liquefied natural gas and our increased structure to deliver gas, this [analysis] should not recur.

Let me turn now to our cash flow generation. Our capital expenditure and impact of this measure on our balance sheet. As you'll see, during the period our cash generation -- cash generation was roughly equal to our capital expenditure, which are about 24% higher than the period of one year ago. Fourth-quarter investments were increased by our payment for the Suzano acquisition. It is worth noting that, during the first quarter, we paid most of our interest on capital, which contributed to a small financing debt during the quarter. We have partially funded that debt with incremental financing as well as reducing our cash balance.

To meet our investment spending plan, we will continue to raise capital through the year from a variety of sources available to us. As you can see in slide 19, our net debt to net total capital increased from 19% to 21% to well below our target rate of between 25% and 35%. The recent upgrade of the [republic] to investment grade has been useful. Also, Petrobras achieved an investment grade from each of the three rating agents for more than one year. Standard & Poor's recently put Petrobras on positive outlook for an upgrade, partially as a result of its auction-only [republic].

Thank you very much. At this time we will be happy to respond to any questions you may have.

(OPERATOR INSTRUCTIONS). Prabu Kumaran, Lusight Research.

I have a couple of questions. One is on the Tupi. Can you give us some guidance when the estimated reserves of about 5 to 8 billion will be booked? When do you expect them to be booked under the reserves?

We are working to book this reserve, but it depends on a lot of work. The extended tests we are going to run, and afterwards the pilot plant will give us information to better plan the development. And the wells we are going to drill will help us to better evaluate how much is the reserve and how much we can extract from the reserve (inaudible). So it's going to take some time yet.

Do you have any estimate on the CapEx spend for Tupi alone, to develop these reserves alone, at this point?

No, we don't have. We are working, as I said, this information we're going to collect is going to be very, very important for these evaluations, and to decide on which way we are going to develop which kind of well, which kind of platform, how we're going to exploit the gas. All this is under questioning. All this is being (inaudible) started to (inaudible) to establish the model we are going to produce. And then, we will have price. At this moment, we don't have either price nor the volume of CapEx.

We are working our business plan right now to cover the period of '09 through '13, and we will have, when we deliver this information to you, we will have some of the information. But this shall not approve before September this year.

With regard to supply division, do you expect the same trend to continue, or do you expect there will be additional price increases for the supply divisions in the next quarter? Because I noticed the losses for the supply division in Q1 2008, which you mentioned, that it's because of the importation of the oil products. So do you expect the trend to continue for '08, or it will reverse in the next quarters?

This all depends on the trend of the international oil price. [For] us, we can read the market. We are now -- with the price increase we announced, effective from May 2nd, we are in line with the average price that is (inaudible) in the international market. But one never knows if the price is going to be $140 or $90 in the next month. We think it will be in the average of the last three, four months, will be -- the supply shall reverse the price increase we announced, they shall reverse the (inaudible).

(OPERATOR INSTRUCTIONS). Paul Cheng, Lehman Brothers.

Wondering, can you give us an update if there's any change to the 2008 capital spending, given where is the oil and gas play in your (inaudible) and your [sub-salt]? And also, what's the preliminary outlook for 2009?

2008, we are expecting to spend about R$55 billion, and this includes the work we are going to do in the [free South]. At this point we don't have much expenditure [of that] to pre-salt, except the drilling of new wells. As I said, at this point we have only three rigs working the pre-salt cluster. More rigs will come next year that is able to drill in this water depth. So we shall not have much impact for the pre-salt during the year, during 2008.

In 2009, maybe we will be increasing the volume. But we are going to know this better when we release the new business plan by September. By now, we cannot give you an [opinion].

I just wanted to make sure I got it right. So you say, for the full year, it's R$53 billion. In the first-quarter you spend a little bit less than R$11 million. So that means that, for the remaining nine months, you're going to spend about R$14 billion a quarter?

Yes. This is the normal trend of Petrobras in terms of -- we are growing considerably our CapEx, and the fourth quarter of last year, we had a higher CapEx than the first quarter of this year because Suzano at December last year -- November of last year.

Sure. And is that number going to be impacted by -- [as the US] dollar continue to depreciate? Is that number going to come down, or that the (inaudible) [of your causes] really that in the reais, so that fluctuation in the dollar doesn't really impact on the reais' [term]?

It somewhat helps the real because part of our costs are paid in dollars. When we have the price established and the real [value] -- appreciates, we have lower cost in reais.

And any rough idea, then, how big is the portion of your costs as being dollar?

(inaudible) in dollars?

Yes.

We are -- depends. In the downstream, for example, we have much more reais cost than dollars cost.

I'm sorry; I'm talking about the capital cost, that R$53 billion then, roughly what's the percentage of that [is] in the US dollar term? It's based on the US dollar denominator?

Yes, I understood -- how much? It's about 50-50. We are trying to increase the national content on our CapEx. As you know, as I mentioned, we (inaudible) P-51, and we are going to build P-56 in Brazil. We are working to increase the CapEx.

But the rigs, even if they are built in Brazil, there are parts that have to be imported. We import a lot of things, even rigs [or accept] most of these and [search] (inaudible) a different cash provider, are all international supplied. So we are above 50 -- roughly, above 50% in dollar expenditure compared with reais, that is below 50%.

I think you guys have just filed something to the ANP on the BS-500. Is there any data or any insight you can provide or have to resell on that?

BS-500, a little less (multiple speakers) Let me get [Molinari] here to help me with this information.

Yes, on the BS-500, we have a little (inaudible) that we are (inaudible) have to [stop] production. In 2010 we [paid cash], both of them are gas fields. (inaudible).

We are drilling there more for these [development fields] or for the (inaudible). We had already, in this development phase.

So, what is the discovery there? What kind of size we may be talking about, the potential in that discovery?

[We don't] (inaudible) reserves [by fuel there]. But in (inaudible), he (inaudible) will have capacity to produce 7 million cubic meters a day, (inaudible) in 2010.

Can you give us a rough idea how long the Jupiter well, the second well that you're drilling in the VMS-9, that is going to take to finish? And also that if you already have a firm date between you and your partner, when you're going to drill on the B-MS-22?

Yes. On the BM-S [number] (inaudible), we are drilling there with the extent of [drill backs], and it will take -- after this, there are 60 days to drill these wells.

For both Jupiter and BM-S-9? 60 days or more? (multiple speakers) in both cases?

Yes. Jupiter, also, we are coming back to that well, and it will take more [than] 60 days to finish (inaudible).

How about in the BM-S-22? Have you guys decided when you're going to drill, or do you have a date yet?

This is operated by Exxon. They have a (inaudible) rig to start the drilling there in second half of the year.

I think it's mid 2008.

I think they were talking about third-quarter or fourth quarter, so wondering if you and your partner have discussed that and confirmed whether it will be the actual date, or that you're still not confirmed yet?

Yes. Well, the information that I have is that they are starting drilling middle of 2008, maybe beginning of second half.

Marcus Sequeira, Deutsche Bank.

I just have a quick question on -- you have a number of E&P concessions that will expire in 2008. So what is your strategy for those? And that is one of the reasons why you guys are much more focused on exploration right now?

Yes, that's why we are driving our effort to the exploratory wells. We have a period left, we have a (inaudible) exploratory program towards the (inaudible) that we must complete, and so we are paying attention to all these (inaudible) that we have. So we have planned our exploration activity according to the concession contracts, to fulfill all of the obligations that we have.

Regarding the level of imports of refined products, you guys probably expect this level to come down in the second quarter and the rest of the year, right, on lower thermal generation and seasonality?

Yes. There were three factors that influenced the higher volume of (inaudible) imports. We [have to import] more than 100,000 barrels per day during the first quarter of diesel, only diesel. And this [shall reduced] because, in the first quarter, we [forced] to increase the stock of diesel to comply with the stoppage of the [rate plan], and to supply the market that was using more diesel for [a lot of] power generation and the natural increase in consumption, due to the economic growth in Brazil. So at least two of these three factors is not going to happen again in the second quarter.

What about refining costs? Should they continue to be at the level that was saw in the last two quarters, or could we assume that they will go down from now on?

Refining costs should go down because it [does have] any coverage (inaudible) the next quarters.

This second quarter we had no [program] to stop it. So we expect to be refining more and reducing the average of the cost, the refining costs.

Ricardo Cavanagh, Raymond James.

I have two questions. The first one is related to BM-S-8. You mentioned that you're on advanced stage of -- for the test phase there. My question would be, when is that ending?

And secondly, if there is any recognition on the tax rate that would be applied to the pre-salt clusters?

I can tell you the tax rate is not under our decision. This depends on [other levels, the government]. The BM-S-8, when do we expect it? Molinari?

We are (inaudible) concluding (inaudible) the drilling of this well, and in the coming days we are finish, maybe [five and 10] days more.

Regarding the tax issue, do you have an idea when the government might be communicating this tax regime or tax status?

We're not part of this kind of decision, so we don't know what is going on. If there is going to be any change or not, what we know is that what has been announced, that the contract that has been awarded is not going to be changed. So, if there is any change, we will see in the future.

Rebecca Gutierrez, Petrodata.

My question is regarding the long duration Tupi FPSO that's going to be placed on there next year, in March. How long do you suspect it will remain working on Tupi, considering the contract is for 10 years?

We have a lot of opportunity to have this FPSO (multiple speakers) different opportunity. And the pre-salt (inaudible) other areas as well. So we obviously do not anticipate where we are going to have drilling rigs operating. We do not anticipate our extended test as well. But for sure, we're going to have opportunity for it, and it is going to help us a lot in terms of information that we're going to collect from the different fields that we have before planning the development.

So other opportunities, possibly Jupiter, possibly Carioca -- those are all possibilities, then, that you might be working on?

No doubt. It's all possibility.

As far as the Cachalote field, can you give us an update on that? I think I had heard that the [Chelan] at TSO might be used for a pilot phase some Cachalote later this year.

Yes. Cachalote and Baleia Franca is in the blocks off Campos Basin, in Espirito Santo (inaudible) and they are starting that -- the possibility of bringing (technical difficulty) (inaudible) historically big produced in the Golfinho Field, but (inaudible) only 1000 barrels per day. So we are planning -- we are starting to bring into the [Gulf] Cachalote and Baleia Franca, is the FPSO Capixaba.

And the wells [cast] are accordingly producing to FPSO Capixaba, we are going to direct them to FPSO (inaudible) in the [Golfinho Field].

Okay, so Cachalote won't be receiving its own permanent unit? It will be a tie-back to (multiple speakers)?

Yes. It may have a pilot, yes, off (inaudible) but not this time of year. [This definite system] is scheduled for 2010.

Prabu Kumaran, Lusight Research.

Just a follow-up on the international refining. Can you comment; is it the trend on the utilization rate to continue on international? It looks like your utilization rates are around 60% for 1Q. Is it like -- was there a shutdown, or can you comment vis-a-vis the domestic utilization is high at 89% to 90%?

Yes. The international refining capacity was very much a factor during the first quarter by the stoppage we had in the Pasadena refinery as we sold our refineries in Bolivia. Now, internationally, we have in Argentina and in the United States, and the United States stopped for a long period during the first quarter. This was the cause of this low activity.

But we do not expect this to keep occurring for the rest of the year.

With regards to the -- on the follow-up on the refinery, the refinery you're going to build in Venezuela -- the crude for that refinery will be supplied domestically?

You mean the refinery in partnership with PDVSA that we're building in Pernambuco, northeast of Brazil?

Yes.

It's going to be supplied, that refinery, is going to be supplied by heavy crude in Brazil and heavy crude that is going to come from Venezuela.

One last question on Gas and Energy. It looks like Gas and Energy division seems to be still making operating losses. Is this still related to those thermoelectric investments? Or, what is the number which shows up as other operating expense that seems to be the number which is making the division earnings from maybe zero to a negative number? That's the number which [pressures] all the time. So what does the other line generally include in this? And the trend seems to be the same; [it has never] break even or so far, in the past few years. Can you comment on the operating losses?

As you can see, we had [diminished our loss] in relation of next quarters, or the last quarter. This seems to be improving our operational revenue. But I didn't understand exactly what you are saying about operational expense. Would you be more specific?

It says other operating expense, which shows up as minus R$417 million. It's on page number 28 of the earnings release.

Okay. So, you're talking about penalties? Natural gas contracts with some powerplant, [third-class] powerplant. These penalties are extremely influenced by the price of the energy in the stockmarket. Okay? So as we can see the price of energy coming back to lower (inaudible) millions and we expect that this [losses] are going through the (inaudible) [lowers] and near to zero as we can improve our supply of natural gas. Okay?

Is there -- how long these contracts -- if these are 20-, 25-year long-term contracts or --

These contracts, they are very long-term contracts, and we are talking about 20 years contracts -- long.

They are supply -- gas supply contracts.

Yes. [But it's] powerplant (inaudible).

But you see, we are working in building after the [gasoline] (inaudible). As we have the [gasoline], we can deliver the gas for such a thermal powerplant. And we are near to receive GNL in the [CRI] stage in northeast of Brazil that will be able also to supply gas for such thermal plant.

So we will be able to supply very soon in order to comply with our contract (inaudible) in terms of delivering gas.

Is there any target to make this division profitable, or at least breakeven? Is there any deadline like by '09 you will make this? Is there any target deadline for this division?

We do not give this information, but we are working hard. And as you can see from the last quarters, we are improving. We hope to keep improving the next quarters or so. As I said during the presentation, we sold more gas to Brazilian market, and this has increased the results of the segment. We generated more energy as well. And Brazil is going to demand more energy as the Brazilian economy is going to grow.

So all this will help -- our gas production is increasing in Brazil. We expect to be delivering by the end of this year about 40 million cubic meters from the domestic production. This is going to go to the grid of pipelines and delivering to the different customers. And we expect to improve and make this segment profitable sometime in the future.

(OPERATOR INSTRUCTIONS) Paul Cheng, Lehman Brothers.

Just a follow-up. I think there has been a long rumor that you guys are going to acquire the Aruba refinery (inaudible) [from] Valero. I'm wondering that you can make any comment on that, whether that is a done deal? And how important is Aruba to your overall strategy, and what kind of valuation metrics that you are willing to share with us? (inaudible) is going to be very expensive to upgrade it into a finished product refinery. So if that is the intention of the company, if indeed you are going to acquire it.

We have no decision there. As you know, our strategy is to buy refining capacity outside Brazil. And this is not only yesterday; we have been working (inaudible) target is -- from a long time. If we do not feel that the moment or the price or the condition are right, we are not going to acquire the refinery. So we have no decision at this point. I cannot tell you much than this.

We are evaluating all the opportunities we have. We evaluated many others, and what I have for sure now is no decision.

I mean, I'm sorry, that on this one, if indeed that you guys decide to buy the refinery, is that the intention that you will fully upgrade it into a full-blown, finished product refinery, given that it's currently only producing the [intermediate], or that if you are going to purchase it, you will be happy with the current configuration already?

Just a moment, please, Paul. I'm consulting with [Alexander] about this, (multiple speakers)

I'm sorry; I thought I was lost.

As I said, we have no decision. Since we have no decision, we don't know what we are going to do or, in fact, we don't have any defined line approach, if we are going to acquire. All this is under consideration at this point, and no decision has been [made]. So everything can move from one point to the other, to one decision to another. This is going to add up information to take the final decision. At this point, I cannot tell much on that. What I can tell is that we are analyzing, but nothing has been done so far.

Can you tell us that when you guys are going to make a decision whether you're going to pursue or not, or that you can't even share that?

We have no target.

So you do not have a timeframe, either?

Our target is to find the right refinery for the right price in the right spot. We have no target [in time]. If we don't find refineries, we are building new ones in Brazil. We are working hard to improve our refinery in Brazil to improve the quality of our products to process more heavy crude in Brazil, and this is the main target for us.

(OPERATOR INSTRUCTIONS). Ladies and gentlemen, there are no further questions at this time. Mr. [Barbassa], please proceed with your closing remarks.

I have two questions on the -- by Internet. One is -- if you were to lose the recent price of gas and diesel increases to the first quarter 2008 numbers, would the division downstream swing from an operating loss to profitability?

We did not made this calculation, so it is difficult to say. I don't think -- we have any of our (inaudible) this information. (inaudible) no one did this calculation (inaudible). You can have a rough idea, take the percentage of these two oil products in our revenue and adding the average of the increase, probably you are going to find that (inaudible) but I don't have this information.

And the second one is -- how many more structures like the Carioca do you expect to find in the coast of Brazil? Do you have any information on any other fuel being explored around that area?

I give you the most difficult, maybe the $1 billion question, [if we should know] the big structures. (inaudible). It's really difficult to say. We have a big expectation, a big -- take into consideration the expansion of the pre-salt layer that extends for about 800 kilometers long (inaudible) by 200 wide, but we have to drill. This area is relatively unexplored. So there is a lot of opportunity, but we do not have this rough idea of depth.

Thank you very much. I have no more information. I want to thank (inaudible) you want to say anything?

No, other than thank you very much for attending, and we look forward to work with you all.

Okay, I thank you for your patience and your time to follow this information on the first quarter. And we hope we can achieve good results, as we have in the first quarter, during the remaining of the year. Thank you very much. Bye-bye.

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