Consolidated net income totaled R$8,566 million in 3Q-2010 and R$24,588 million in 9M-2010

Main Highlights

·          Net income totaled R$8,566 million in 3Q-2010, 3% up on the previous quarter, due to higher domestic sales volume and the improved financial result.

·          Brazilian oil and natural gas production increased by 2% year-on-year in 9M-2010, reaching a new record level of 53,773,000 m³/day in September.

·          The Public Share Offering was concluded, increasing capital by R$ 120,249 million;

·          As a result, the funds generated allowed to execute the Transfer of Rights Agreement (R$ 74,808 million) and continue with the 2010-2014 Business Plan (R$ 45,440 million in cash and government securities).

·          The capitalization maintained the Company’s leverage indices at sustainable levels: net leverage fell from 34% to 16% (considering LFTs – treasury bills – maturing in more than 90 days).

·          Thanks to economic growth and the reduction in reservoir levels, together with increased logistics capacity, gas-powered thermal energy output in September (6,252 average-MW) and natural gas sales in 3Q-2010 (360,000 boed) reached record levels.

·          FPSO, Cidade de Angra dos Reis, began operations in October, the first definitive production system in the Tupi area, marking the initiation of commercial oil production in the Santos Basin pre-salt area.

Dear Shareholders and Investors,

With great satisfaction we announce our results for the third quarter of 2010, a quarter in which we successfully completed the biggest share offering in history. The success of the transaction was made possible by the market’s confidence in our ability to generate profitable growth over time, based on a remarkable opportunity set.  The success was also a recognition of the openness and transparency of our operations and financial results.

The total size of the equity offering was R$ 120.2 billion.  R$ 74.8 billion of the proceeds from the offering were used to purchase the right to produce up to 5 bbls of oil equivalent in previously unlicensed pre-salt areas. Access to these additional oil and gas volumes will allow us to improve our portfolio through sustainable production growth, while adding shareholder value through economies of scale, and efficiencies acquired with operating experience.

R$ 45.4 billion of the offering was retained as cash and cash equivalents and Brazilian Government securities.  The combination of an increase in our capital base, combined with the increase of cash and equivalents, lowered our net debt to net capital from 34% to 16%. These additional financial resources will enable the Company to continue investing to meeting the aggressive targets of our business plan, while maintaining leverage within targeted levels. In recognition of our continuing growth, Petrobras advanced from 6^th place to 4^th place in Platt´s most recent ranking of the world’s leading energy firms.

Net income grew by 10% year-on-year in the first nine months, primarily sustained by increased oil and gas production, higher commodity prices and greater oil product sales volume, the latter fueled by Brazil’s economic growth. Capital spending during the period totaled R$ 56.5 billion, of which the largest share was dedicated to Brazilian exploration and production. To maintain the integration of our businesses and capture operational synergies, we also continue to invest heavily to upgrade our existing refineries to produce cleaner fuels and to construct new refineries to meet growing market demand.

In October, we celebrated 57 years of successful operations. We also inaugurated the expansion of the Leopoldo Américo Miguez de Mello Research and Development Center (Cenpes), representing a landmark in the Company’s technological history. Latin America’s biggest R&D center, and Brazil’s leading source of patents in the last ten years, doubled in size, becoming one of the world’s largest applied research institutes. This expansion, together with our partnerships with universities and research centers around the country, has made Brazil a world leader in the field of energy. A clear result of increasing investments in research and technology has been our success at producing oil from ultra-deep waters, and discovering oil sealed under a layer of salt two kilometer thick.

On October 22, we concluded drilling the ninth pre-salt well in the Tupi area of the Santos Basin, confirming the light crude and gas potential. October also saw the start-up of the Tupi pilot project, the first definitive production system installed in the pre-salt belt. It will produce light crude with a high commercial value and collect vital technical data for the future development of the major reserves in this region.

Aiming at growth, innovation, profitability and social and environmental responsibility, we will continue to invest our funds in one of the oil and gas sector’s best project and opportunity portfolios, generating returns for our shareholders and investors, as well as benefiting society as a whole.

Main items and Consolidated Economic Indicators

3Q-2010 x 2Q-2010.

·         Net Income ⁴

In 3Q-2010, net income totaled R$8,566 million, 3% up on the quarter before, due to higher domestic sales volume and the improved financial result, thanks to gains from the impact of the exchange variation on the net debt, offset by the reduction in international prices, in turn caused by the variation in commodity prices.

The upturn in operating expenses was due to expenses from the financial structuring of the Barracuda project, now concluded, and additional expenses arising from the 2010/2011collective bargaining agreement and incentives for employees to purchase shares in the Public Offering.

·         EBITDA

Third-quarter EBITDA came to R$14,736 million, down by 7% due to the above-mentioned increase in operating expenses.

·         Net Debt /EBITDA Ratio 5

The net debt of the Petrobras System closed the third quarter 39% down on June 30, 2010, reflecting the increase in the cash position following the Public Offering, while average indebtedness, measured by the net debt/EBITDA ratio, fell from 1.52 to 0.94 in the same period.

4 For further details, see Appendix 2.

5For further details, see page 16.

9M-2010 x 9M-2009.

·         Net Income 6

Net income totaled R$24,588 million in the first nine months, 10% up year-on-year, due to higher domestic sales volume, as well as higher export prices and international sales, which more than offset the reduction in domestic diesel and gasoline prices and the upturn in unit costs, chiefly from imports and the government take, which were also affected by international prices.

Selling expenses were pressured by higher sales volume and freight costs, while other operating expenses were pushed up by provisions for impairment losses in the San Lorenzo refinery and the Breitener thermal plant, additional expenses from the 2010/2011 collective bargaining agreement and the reduction in tax benefits.

The record financial result (R$910 million) was due to the impact of the exchange variation on net liabilities, given that, in 2009, the average balance of assets exposed to the exchange rate was higher than the Company’s debt.

Minority interests generated a positive impact of R$3,088 million, thanks to the effect of the exchange rate variation on SPE debt, the exercise of stock options in certain structured projects and the revision of future receivables flows related to financial leasing operations, both at the end of 2009.

·         EBITDA

EBITDA moved up by 1% over 9M-2009, reflecting higher domestic sales volume, the increase in international prices, and higher costs and expenses related to commodity prices and sales volume.

6 For further details, see Appendix 3

RESULTS BY BUSINESS AREA

Petrobras operates in an integrated manner, with the greater part of oil and gas production in the exploration and production area being transferred to other Company areas.

When reporting results per business area, transactions with third parties and transfers between business areas are valued in accordance with the internal transfer prices established between the various areas and assessment methodologies based on market parameters.

EXPLORATION AND PRODUCTION (E&P)

(3Q-2010 x 2Q-2010): The reduction in net income was caused by lower domestic oil sale/transfer prices, due to international oil prices and the appreciation of the Brazilian Real against the U.S. dollar, the 2010/2011 collective bargaining agreement, and non-recurring expenses from the financial structuring of the Barracuda project, now concluded.

These effects were partially offset by the 4.7% increase in the volume of oil sold/transferred.

The spread between the average domestic oil price and the average Brent price widened from US$4.51/bbl in 2Q-2010 to US$4.76/bbl in 3Q-2010.

(9M-2010 x 9M-2009): The increase in net income reflected higher domestic oil prices (50% in US$/bbl), in turn due to the international market appreciation of "heavy” versus “light” crudes and the 2% upturn in daily oil and LNG production.

The spread between the average domestic oil sale/transfer price and the average Brent price fell from US$8.67/bbl in 9M-2009 to US$4.21/bbl in 9M-2010.

(3Q-2010 x 2Q-2010): The downturn was due to maintenance stoppages in various platforms in the Campos Basin throughout the third quarter, partially offset by higher output from the new production units.

(9M-2010 x 9M-2009):  Increased output from the P-54 (Roncador), P-53 (Marlim Leste), FPSO-Cidade de Niterói (Marlim Leste), P-51 (Marlim Sul), P-34 (Jubarte), FPSO-Cidade de Vitória (Golfinho), FPSO-Cidade de Santos (Uruguá), FPSO-Espírito Santo (Parque das Conchas) and FPSO-Frade (Frade) platforms, as well as from the extended well tests (EWT) in Tiro (SS-11) and Tupi (FPSO-Cidade de São Vicente), offset the natural decline in the remaining fields.

 Lifting Cost Excluding Government Take – US$/barrel

(3Q-2010 x 2Q-2010): The upturn in the lifting cost was due to the increase in personnel expenses as a result of the 2010/2011 collective bargaining agreement and the use of maintenance materials for the Campos Basin platforms.

(9M-2010 x 9M-2009):  Excluding the exchange variation, the lifting cost climbed by 6% over 9M-2009 due to the increased number of interventions in the Albacora Leste, Marlim Sul, Marlim, Albacora and Bicudo fields, as well as higher personnel expenses.

Lifting Cost Including Government Take – US$/barrel

(3Q-2010 x 2Q-2010): Excluding the exchange variation, the unit lifting cost remained virtually flat.

(9M-2010 x 9M-2009): Excluding the exchange variation, the unit lifting cost increased by 22% as a result of the higher reference price for local oil and the higher tax rate applied to the Marlim Sul and Marlim Leste fields due to the upturn in production.

REFINING, TRANSPORTATION & MARKETING

(3Q-2010 x 2Q-2010): The improved result was due to lower oil acquisition/transfer and oil product import costs, in turn caused by international prices, the appreciation of the Brazilian Real against the U.S. dollar and the increase in domestic oil product sales volume, especially diesel (+7%).

These effects were partially offset by the reduction in the domestic price of those oil products whose prices are directly pegged to international prices.

(9M-2010 x 9M-2009):  The reduction in net income reflected higher oil acquisition/transfer and oil product import costs (Brent, up by 35% in US$/bbl).

These effects were partially offset by the increase in domestic oil product sales volume, chiefly gasoline (18%), diesel (10%) and jet fuel (16%), higher average export prices and the upturn in the domestic price of those oil products whose prices are directly pegged to international prices, despite the reduction in the price of diesel (15%) and gasoline (4.5%) in June 2009.

(3Q-2010 x 2Q-2010): The reduction in oil exports was due to higher processed volume following the resumption of operations in Replan.

The upturn in oil product imports, chiefly diesel, reflected the seasonal impact of planting for the summer grain harvest and the increase in industrial activity.

(9M-2010 x 9M-2009): The upturn in oil exports was caused by higher output and increased supply, due to lengthier scheduled stoppages in distillation units, especially in Replan.

The increase in oil product imports reflected growing demand, especially for diesel, thanks to the improved grain harvest in 2010 and the intensification of infrastructure works, and gasoline, due to the ethanol shortage at the beginning of 2010.

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(3Q-2010 x 2Q-2010):  Daily processed crude moved up by 4%, as a result of the scheduled stoppage in the Replan refinery’s distillation unit in 2Q-2010.

(9M-2010 x 9M-2009):  Daily processed crude remained flat over the over the first nine months of 2009.

(3Q-2010 x 2Q-2010): Excluding the exchange variation, refining costs climbed by 22%, due to higher expenses from scheduled stoppages; personnel, following the 2010/2011 collective bargaining agreement; and catalysts and other chemical products, caused by lower consumption in the second quarter as a result of the scheduled stoppages in Recap and Replan.

(9M-2010 x 9M-2009): Excluding the exchange variation, these costs increased by 22%, due to higher expenses from scheduled stoppages, personnel and third-party services, chiefly as a result of equipment maintenance.

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GAS & POWER

(3Q-2010 x 2Q-2010): The reduction in net income was due to the following factors:

• Lower energy trading margins due to the higher average spot market acquisition cost;

• The reduction in the average natural gas sales price, reflecting the increased sales share of the thermal market.

• Non-recurrig items (ICMS tax credit write-off and R&D expenses).

These factors were partially offset by higher electric generation and by increase in natural gas sales.

(9M-2010 x 9M-2009):  The year-on-year improvement was due to the following factors:

• Higher sales of natural gas to the non-thermal generation segment, accompanying industrial growth, as well as to the thermal segment, thanks to greater demand for power generation;

• Increased fixed revenue from energy auctions (regulated market);

• The reduction in natural gas import/transfer costs, accompanying the behavior of international prices and the appreciation of the Brazilian Real against the U.S. dollar.

These factors were partially offset by higher selling expenses from LNG regasification vessels.

(3Q-2010 x 2Q-2010): Upturn in imports due to the increased volume of imported gas to meet growing demand (which reached record levels in 3Q-2010).

In comparison with 2Q-2010, electric power sales fell by 11% due to the anticipation of sales in 1Q-2010 and 2Q-2010 as a result of commercial opportunities that arose in the first half of the year.

Thermal generation jumped by 224% over the previous quarter due higher output as a result of low reservoir levels in the period. Exports (to Argentina) also contributed to the upturn.

(9M-2010 x 9M-2009): Sales climbed by 25% due to higher energy reserves, allowing the company to take advantage of market opportunities.

Higher output as of July was due to low reservoir levels in the period and increased demand for electric power.

(3Q-2010 x 2Q-2010): The upturn in net income was due to the 10% increase in sales volume despite the 4% reduction in sales margins. This improvement was also caused by the fact that in 2Q-2010 the Company incurred non-recurring expenses from the settlement of ICMS tax debits with the state of Rio de Janeiro (R$ 110 million).

The segment recorded a 38.8% share of the fuel distribution market in 3Q-2010, versus 38% in the previous quarter.

(9M-2010 x 9M-2009): The year-on-year improvement in net income was due to the 3% increase in sales margins and the 9% upturn in sales volume, partially offset by expenses from the settlement of ICMS tax debits with the state of Rio de Janeiro (R$ 110 million).

The Company’s share of the fuel distribution market climbed from 38.5% in 9M-2009 to 38.7% in 9M-2010.

INTERNATIONAL MARKET

(3Q-2010 x 2Q-2010): The reduction in net income was due to higher exploration expenses (R$83 million) and the write-off of dry or economically unviable wells in Angola, Nigeria, the USA and Argentina (R$127 million).

(9M-2010 x 9M-2009): The improvement was caused by higher international commodity prices in 2010, increased E&P sales volume, and the operational start-up of the Akpo field in Nigeria in March 2009, which impacted gross profit (R$1,220 million).

(3Q-2010 x 2Q-2010):  Consolidated oil and LNG production fell due to unitization of the Agbami field, in Nigeria, reducing Petrobras’ share of this field.

Consolidated gas production moved up in 3Q-2010 due to increased Brazilian demand for Bolivian gas.

(9M-2010 x 9M-2009): Consolidated oil and LNG production increased due to the start-up of the Akpo field, in Nigeria, in March/09, more than offsetting the reduced interest in the Guando field, in Colombia, for contractual reasons, and the decline in output from mature wells in the Neuquina Basin, in Argentina.

The increase in gas production was fueled by increased Brazilian demand for Bolivian gas, partially offset by the decline in mature wells in the Neuquina Basin.

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(9M-2010 x 9M-2009): Increase in third-party services in Argentina, caused by contractual price adjustments and pay rises.

(3Q-2010 x 2Q-2010):  This upturn was caused by the scheduled stoppage in Japan refinery in the previous quarter.

(9M-2010 x 9M-2009):  Improved operational performance in the refinery in the USA, due to the plant’s better operational reliability and higher margins in Argentina, offset by the scheduled stoppage in Japan refinery between May and June 2010.

(3Q-2010 x 2Q-2010): Higher maintenance expenses in the Japanese refinery.

(9M-2010 x 9M-2009): The improved operational reliability of the Pasadena refinery led to a reduction in expenses with maintenance and repairs and an increase in the volume of processed crude.

Sales Volume – thousand barrels/day

Year-to-date domestic sales volume moved up by 13% over 9M-2009, chiefly due to sales of the following products:

·         Diesel (increase of 10%) – due to the economic recovery, higher grain production and increased investments in infrastructure.

·         Gasoline (increase of 18%) – due to increased use of flex-fuel vehicles as a result of the ethanol shortage at the beginning of 2010, the reduction in the ratio of anhydrous ethanol in the gasoline mix in February 2010, and higher urban consumption.

·         Natural gas (increase of 28%) – due to higher consumption by the non-thermal market, fueled by the industrial recovery, and by the thermal market to meet the demand for electricity and maintain the level of hydro plant reservoirs during the dry season.

Corporate Overhead (US$ million)

(3Q-2010 x 2Q-2010): Excluding the exchange variation, corporate overhead increased by 20% over the previous quarter, due to higher expenses with personnel and data-processing, partially offset by lower expenses from advertising, marketing and sponsorships.

(9M-2010 x 9M-2009): Excluding the exchange variation, corporate overhead climbed by 12% in the first nine months, due to higher expenses with personnel, rent, general services and data-processing.

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Consolidated Investments

In compliance with the goals outlined in its strategic plan, Petrobras continues to prioritize investments in the expansion of its oil and natural gas production capacity by investing its own funds and by structuring ventures with strategic partners.

In line with its strategic objectives, Petrobras acts in consortiums with other companies as a concessionaire of oil and gas exploration, development and production rights. Currently the Company is a member of 101 consortiums, of which it operates 69.

Petrobras entered into an Assignment Agreement with the federal government for the right to produce of 5 billion barrels of oil equivalent (boe) in areas not yet licensed in the pre-salt belt totaling R$74,808 million, paid with funds from the Public Offering.

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Consolidated Debt