As a consequence of the gradual deregulation of the Brazilian oil and natural gas sector, the Company expects to be able to compete in all areas of its operations.

In the exploration and production segment, the Federal Government’s procedures for holding tender bids for the exploration of new areas allow various regional and multinational companies to begin prospecting for oil in Brazil. Should these companies be successful in discovering negotiable quantities of crude oil and have the capacity to process it on an economically viable basis, then this will increase the competition with the Company’s production activities.

In the downstream segment, the Company has faced little competition due to laws which when still in effect, granted a monopoly over this segment. With the termination of the monopoly and sector deregulation, other companies are free to transport and distribute oil products in Brazil. Consequently, the Company believes these companies in future will begin importing refined products, which will compete with those produced by domestic refineries as well as products currently being imported by Petrobras. From now on, the Company will be obliged to compete with global imports at international prices. This additional competition should affect the prices charged by the Company for its products, which in turn will impact reported revenues.

In addition, the Company expects growth in the competition faced in its distribution segment. Of all the Company’s operational segments, this is the one where it currently experiences the most competition. More particularly, the Company competes with small distributors, many of which avoid and may continue to avoid the payment of certain sales’ taxes. In addition, some distributors mix gasoline with cheaper solvents, allowing them to offer gasoline at prices lower than charged by the Company.

In the natural gas sector, the Company expects to compete with other sector players, which have been acquiring stakes in gas distribution companies and in thermoelectric energy generators or expanding their businesses in Brazil.

The Company plans to expand its operations in the international segment, despite its expectation of continuing to compete in regions where it is already present, including the Gulf of Mexico, Africa and the Southern Cone.