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Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR)

Q3 2011 Earnings Call

November 16, 2011 9:00 a.m. ET

Executives

Theodore Helms - Executive Manager, IR

Almir Guilherme Barbassa - Chief Financial Officer, IR Officer

Analysts

Emerson Leite - Credit Suisse

Paula Kovarsky - Itaú Corretora de Valores S.A

Christian Audi - Santander

Denis Parisien - Deutsche Bank

Gustavo Gattass - BTG Pactual

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Petrobras Conference Call to discuss the Third Quarter 2011 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 at that time. (Operator Instructions) As a reminder, this conference is being recorded.

Today with us we have Mr. Almir Guilherme Barbassa, Petrobras CFO and Investor Relations 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.

Theodore Helms

Good morning, ladies and gentlemen. Welcome to our conference call to discuss third quarter 2011 results. We have a simultaneous webcast on the internet that could be accessed at the site www.petrobras.com.br/ri/english.

Before proceeding, I would like to draw your attention to the 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 the Petrobras management and on information currently available to the company.

Finally, let me mention that this conference call will discuss Petrobras results prepared in accordance with International Financial Reporting Standards, IFRS, and Brazilian legislation. At this moment, we are unable to discuss any issues relating to U.S. GAAP results.

The conference call will be conducted by our CFO, 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, please begin.

Almir Guilherme Barbassa

Thank you for joining our conference call to discuss third quarter results. We have in this slide number three, the highlights of this quarter. And I will call your attention to this fact that operating income and the EBITDA were stable when compared with the second quarter. And this is very important for the company that has a large investment program. We can say also that net income of R$6.3 billion in the quarter were effected heavily by the 19% devaluation of the real. But cash, in terms of cash generation there were no impact. And this is really what matters. As the real value appreciates again then we recover all these results.

The start up of P-56 in the quarter was the second important event for helping increasing the production for the remaining of the year and beginning of next year. In pre-salt we have a very important event, that was Lula-Mexilhão gas pipeline start-up. The conclusion of this pipeline will allow to produce more oil and ship the gas onshore for supply in the Brazilian market. The conclusion of extended well test of Guará and the start-up of Carioca North East extended well test is another event in the pre-salts.

We are near the conclusion of the second well in the Franco area, that gave us a good information on the potential of the area that confirms we will have the volume to be produced from that area, that is about 60% of the transfer rights we acquired last year, of 3 billion barrels of oil. It’s important to state also that Petrobras was included in the Dow Jones Sustainability Index for the sixth consecutive year, this year. This shows how Petrobras is performing.

Next slide, we have the main indicators, and confirming what I have said. EBITDA and operating income were stable. Net income fell 0.2% when compared with the second quarter is due to the depreciation of real, but the average price we are selling the products that generates in fact the net income and the cash flow for the company, was only R$1 below due to the adjustment of the Brent that was about 3% in the quarter. And the production of the company was stable and domestic market grew. We are going to analyze these in more detail in the next slide.

The production was up -- the total production up 1.2%, when compared with 2010. And this was due to the installation of many system that is indicated in the slide. And these systems are not in the full -- in the peak production yet. So it will increase production for some time for the rest of the year and some of them will grow over the year to be completed and reaching the peak production in the beginning of next year.

The following slide, please. Internationally we have a decline in the production, mainly to Nigeria. That’s where we have the main contribution to the production of Petrobras as we were collecting our cost like investment we have done. We have already collected all we were allowed for. So now we are going to take part of the profit of that production, so we start paying tax oil in Nigeria that reduced the production, as well as in Ecuador where we left. So we had a small production from one year to the other, but the most uplift was caused by the un-programmed stoppage that we had in Brazil. We are going to discuss this more in details in the slides to come.

In the next slide we can show -- we present this slide to show how production behaves. And we have here two lines, one blue and one red. The blue line is there to show how one field is expected to perform when the equipment used in the field for production performs 100% in terms of efficiency, and there is a natural decline due to the reservoir performance. But in the case of what we are seeing in Brazil lately, we have the red line where the reservoir performance there were no larger decline then what was expected. But the difference between the two lines is exactly due to the performance of equipment. It’s not due to the reservoir and this has caused the production to reduce over time. But as we repair the equipment that was stopped on a un-programmed way, we will recover that production.

We can see these more details or more precisely in the next slide that shows the production of Marlim. Historically, you can see on the left hand upper side that historically the decline of Marlim is about 10% a year. But looking at the last six months to one year, one year -- from one year to now, you can see on the right hand side there were two valleys in the production. One in September-October last year due to the interdiction, the stoppage of one platform there, and again in this quarter where three platforms have been stopped for repair. That was P-20, P-25 and P-27.

You can see in the lower part of the slide that we lost due to these maintenance and operational problems we had in this field. We lost 79,000 barrels per day in average in the quarter. But due to the improvement in the other wells in the same area, we added another 27,000 barrels that brought us to a balance of 52,000 barrels per day of loss in the quarter. As this platform that I mentioned returned to production, we are going to see that the average production of the field will not change in time, if you follow the tendency you can see from 2002 up to now.

In the next slide, you can see more details not only to Marlim field but in general for all the fields that are producing in Petrobras. How much of un-programmed stoppage and programmed stoppage cost us in terms of oil production. First quarter, there were more losses of production due to unprogrammed than programmed. The second quarter we had a higher number of programmed stoppage, and the third quarter the unprogrammed grew again. That altogether in average, during the year, we lost 44,000 barrels per day.

And so we added new units to repair the production facilities because to do the repair that are needed when they are stopped. If it’s not programmed we are not prepared to start immediately. So there is an extra cost and extra time. So as we have seen in another program have been under control, the cost can reduce and the production loss can be reduced as well. And this is the goal, the main goal, we are aiming at as we discussed with ANP, the new standards we need to follow to do the repair required by the agency.

So, next slide, you can see how we expect production will perform here mainly due to new wells that shall be added to the production. You see that for the nine months of this year we added 35 wells, bringing 15 of them only in the third quarter and in the fourth quarter we have another 22 wells. Four of them has been already connected during October and there are 16 going on during November and December. So, 55 wells will be connected at the end of the year, and most of them or a good portion of them will contribute with more production from P-57 and P-56, the most recently equipments that has been installed by the company.

And adding to all that, we had three new flotels, that are floating hotels where we can accommodate people to do the repairs on the platforms. So this units are very important because of the limitation of room in the platforms when we need to operate them and at the same time to do some repairs. There is a limited space to work and to live, so as we have these accommodations in another unit, you can anticipate and accelerate all the repairs on the platforms. And remember, for FPSOs in production in Petrobras require us to develop this alternative and it seems that it’s going to add some new capacity for the company.

In the next slide, we can see what we are planning for next year in terms of new and potential production. We’ve worked with more than 400,000 barrels per day of new capacity, and this will come mainly in the second half of the year. But we hope all these new units as well as the ones that have still room to increase production will have ramping up more rightly than we have seen in the past. This is due to the fact that we have larger number of rigs; we start this year with 15.

Today, we are operating 23 rigs able to drill in the waters as deep as 3,000 meters and we are expecting to receive another 15 up to the end of next year. And this is a very critical equipment for the development of production, for the acceleration of production, for repairing of the units that are in production through workovers. So really important equipment and we are going to have more of them available in the company.

In the next slide, you can see a little bit of the effects of availability of these new number of rigs. 34 wells have been drilled in the pre-salt will ramp and the production is really growing in the second quarter. We have said we were producing by then about 130,000 barrels per day. Now we are near 180,000 and we hope in the future we can present you more and more of this production as we are seeing a very large productivity in the second well in the Lula Pilot at 25,000 barrels per day. We are going to have our third one up to the end of this month connect to the Lula Pilot, and the first one is still producing what was done previously in the second quarter. 28,000 barrels of oil plus that what leads to 35,000 of BOE. So, this is what we have for the pre-salt. Let’s see how prices are performing in the next slide.

You can see that prices we are selling the oil produced in Brazil has reduced a little more than the Brent price and this is a reflection of the market. We produced a heavier oil in the market that is slowing down the heavy crude can lose price, in terms of price can have a higher reduction of price than the more light oil. And looking at the domestic prices in dollars. We have a big reduction in price in the last month because of the exchange rate, but when you see in reais, we’re only R$1 per barrel of reduction in terms of average realization price domestically. We have adjusted in the beginning of November gasoline by 10% and diesel by 2%, and this is not in this graph yet. The graph goes to the end of September.

In the next slide, you can see the cost performance. We have seen along this year an increase in the cost, lifting cost of the company, and this is largely due to unprogrammed stoppage that cost us more in terms of material equipment, (inaudible) issues, but it reflects on the total cost of the production is reduced as well. The number of new platforms that were installed last year is in the ramp up process and some extra cost up to the moment that they will reach the full production. So, we hope with the return of the platforms that will stop this loss. The reaching of -- the ramping up production, the total production, we hope we are going to reduce cost to a level more close to R$18 per barrel. The government take is a function of the international price, as international prices reduced we had the effect in Brazil, in the amount we have paid.

In the next slide we have the production of oil products in Brazil as well as the market performance. Although we have a very good performance in terms of production by our refineries in Brazil, mainly diesel and gasoline, where we have increased substantially when compared with last year. The market has grown even more. A 4% total production increase against 9% in the market and these two oil products diesel and gasoline were the most -- the one that contributed most to the total demand of Brazil. This is good for Petrobras that is the supplier, but at this moment we are importing most of what we are supplying to the market, and this does not add much to our margin. What we have produced here yes, this is one way to add more margin to our total sales but the import fraction is very small or no margin to the company.

The next slide shows the natural gas market and production. There were 2% growth in production and the supply was mainly from domestic production. We have an increase on the non-thermoelectrical sector. Mainly the industrial sector and here is not included the gas that is consumed by our activities. Our refineries has increased the volume of gas used in the production and the production of fertilizer were higher in this period than previously and this has demanded more gas, and this gas was supplied, as you can see on the right hand side, for the national production that grow from 30 million to 38 million cubic meters a day when compared with last year.

Next slide, we can see the operating income and we sold more as we have shown you and this has produced more income to the company, but the cost of goods sold has increased because -- and almost take all the extra revenue we collect in the period -- mainly because of the need to import almost all the or a good amount of what we have sold. There are other items that did not contribute much except for other expenses that has helped to increase a little bit our operating income.

Next slide shows the net income. And then, yes, here you can see the financial results. How big it was in the periods. And most of that was due to the depreciation, devaluation of the real. About 6.6 billion, it’s not dollar, this is R$6.6 billion, there is a mistake on the first bullet. And this is what the depreciation caused to the company due to the recognition in the balance sheet that the debt we have that is indexed to dollar has increased when we have a new exchange rate. But that is the gross amount. If we take out of that 6.6, about 1.5, 1.6, that is due to minority rate variation, and then we come to a gross amount to Petrobras of R$5 billion. And after matching it with taxes, that’s the R$5 billion extra cost increase or reduced tax, we have a net final effect of exchange rate of about R$3.5 billion.

That is the difference we can see in the financial results impact. And the minority is there, 1.53, that is added back to the results, lead us to the 6.3 that is 42% below the last quarter. But if the exchange rate recovers and if real appreciates again we are going to see these results coming back to the company, but the cash flow were not affected by this movement.

Looking to the E&P results, operating income of E&P and comparing with last quarter, you see a very small difference. While prices have reduced because international price has fallen in the period, there were R$1 billion of reduction in the operating income, and the cost of goods sold were increased as we’ve shown in the total cost of the period, and it has reduced the operating income as well. The area, the E&P has sold or transferred more oil in the quarter. You can ask why this has happened because production was 1% down, but we have extra volume that were produced and not transferred in the previous quarter that has happened to be transferred during this quarter.

The volume by selling more oil or transferring more oil has increased the cost of goods sold as well, and the operational expenses, there are cases like exploration expense that was reduced by R$400 million and indemnification from an arbitration dispute that added almost R$340 million to the results of E&P and this adds to R$15.68 billion of result in the period.

The downstream is not so bright, not because of the performance of the area as we shown, we produced more oil products but that were affected by the price that has fallen R$1 per barrel. And this is due to the adjustment of the items that is adjusted currently with international price. The area of downstream has reduced in the quarter their refining costs and so it has improved the results, but they sold more and they collect more revenue from the sales that -- due to the fact that they have sold more, they have to pay more for those goods sold. And this has reduced the income by R$2 billion, almost a little more than the revenue they collect for the extra sales. Operating expenses was a small reduction due mainly to the adjustment of worker agreement in the September. So led finally to more than R$ 4 billion of loss in the third quarter for the downstream.

Next slide we look at gas & power, international and distribution. Gas & power, the main effect was gas sold for the industry that has increased the demand as well the recognition of some fiscal credits in the period. Operating income of international were affected heavily by the price being reduced by the adjustment of inventory to market due to the price adjustment as well. As well as the case of Nigeria that is the main producer of international area, that were reduced due to the fact that the cost value has ended there. In distribution, there were some higher income due to the 7% increase in the market and this lead them to have better results in the quarter.

Next slide; we have the investments. And the total CapEx in the quarter was almost R$51 billion, about 10% less than last year, but let’s look in detail. You can see that E&P did exactly the same amount of investments in this year than in the last year. Downstream is about R$2.1 billion less this year, mainly because of the acquisition of Braskem that has happened at the beginning of last year. And gas and energy reduced substantially, but this was expected because the main CapEx investment of gas and energy has been the main project has been completed, and there were no programmed CapEx for the year. It’s according to the programmed total and the others ones are small, very small, variation out there.

Let’s go to the next that shows our leverage and liquidity. What’s important here is that liquidity is about the same. We reduced from June to September, about R$4.5 billion reais in terms of liquidity. It’s according to the planned volume as well. But when you see the net debt, it has increased a lot. The net debt in June 30 -- this is wrong, it’s not 6.8 -- it might be 60 or something like that, 61, that has grown to 91. This is an increase mainly due to the depreciation of reais -- from 69 to 91. So there is still very large, more than R$20 billion reais in terms of debt that has increased in the period net debt, but this is depreciation of the real against dollar. The leverage, net debt to EBITDA has increased as a consequence, and the other -- the net debt in dollars is about R$5 billion more than previously.

So with that, we have ended our presentation and we are ready to, if you have any question, to answer you together with our colleagues that are present here. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Emerson Leite of Credit Suisse.

Emerson Leite - Credit Suisse

Thank you. Good afternoon, everybody. I have three quick questions. First is related to the block BMS-9, you recently requested to ANP an extension of the evaluation period before declaration of commerciality. I would like to understand what were the reasons for such extension and how this will affect your plans? I know from the release that the company suggested this won’t have any impact on the pre-salt development, but I would like to get a sense how come change in this part of the production -- of the commercial production, of almost two years has no impact in the overall plans for the pre-salt. That’s question number one.

Question number two is related to your comment that the decline in production from Campos has to do with the equipment availability and nothing to do with geological reasons. Could you provide to us what are the percentage of water cuts in the Marlim field at the moment and what’s the average percentage of water cuts in the Campos Basin overall. That will be the second question. And the third one is related to this spill in the Frade fields experienced by Chevron as operator but Petrobras is a partner there. Do you believe these events or this incident could have any impact in terms of future drilling plans in the area or in the basin with ANP changing the procedures or something along those lines? Thank you very much.

Almir Guilherme Barbassa

Lots of question, Emerson, but let’s try to answer all of them. The expansion of BMS commercialization.

Unidentified Corporate Participant

Yes, I can help with that, Emerson. Due to the results so far we had in these block, we ask them extension, as we’ve said in the declaration of commercial feasibility of the area to the end of 2015. And they said that there will be no impact in the production there and that is true. If you see our project until 2015, there is no platform in the Carioca area. So, it was planned already after 2015. So there will be no impact in the production and development of Carioca. The other areas are more advanced and that’s why we are developing fast in Guara, Lula Northeast. That is the reason why there will be no impact in our development plan. Regarding the BMS-9, I don’t have the number right now. You asked in the Marlim field, I think it’s more than 50%, but I don’t have the exact number right now.

Emerson Leite - Credit Suisse

[Molinari], sorry, just a follow-up on what you said about Carioca. So, the declaration of commerciality would expire at end of this year, so the fact that you didn’t have any system anticipated for the area, and through 2013 in the first place, means that you were already counting on this extension or it means that in case you didn’t get the extension it wouldn’t make much of a difference because you were not so confident in Carioca anyway?

Unidentified Corporate Participant

It’s not that we are not so confident in Carioca. It’s only that we are doing, we proposed additional drilling in the area, to drill up to three wells and doing an extended well test in the area. So, it’s not that we are not confident in Carioca.

Emerson Leite - Credit Suisse

Okay. Thank you.

Almir Guilherme Barbassa

Regarding to the [BSM], you believe you can check that information?

Unidentified Corporate Participant

Yeah, I can check that information. Yes, (inaudible) the Marlim field, yes.

Almir Guilherme Barbassa

Okay. And regarding Frade, Emerson. If I recall, the question was regarding what would be the impact on the operation in general?

Emerson Leite - Credit Suisse

Yes. If you anticipate that this could spark a broader, say, reactions from ANP becoming more strict or delaying drilling somehow. Obviously, a lot of people are looking at it. It is a much smaller scale of an event, but the recent Macondo situation in the U.S. brings about memories and then people start to wonder if this would have an impact in the Brazilian activities somehow. Since you’re closer to the development, I’m just asking if you anticipate or if you are seeing any such reaction up until now?

Almir Guilherme Barbassa

Emerson, from the point of view, my point of view and as you might know it’s too early to draw any conclusion on that. This is a very different case as far as I know. I don’t know if Molinari has more to say about it, but it is a situation due to operational conditions that apply to that specific region. I don’t see a reason to take that and apply to all the other, but Molinari?

Unidentified Corporate Participant

Yes. Well, after Macondo accident, I think all the national agencies around the world have increased concerns about deepwater drilling and they have raised the requirements. And we also, we had discussions by the national agencies, especially this year in the third quarter, we have not stopped the platforms, unplanned platform stoppages. And I believe the requirements really state what we are working on right now is to have more eligibility in the inspections that they are making so we can reduce the unplanned stoppages.

Operator

The next question comes from Diego Mendes from Itau.

Paula Kovarsky - Itaú Corretora de Valores S.A

This is Paula here. My question is just wanted to follow-up a little bit on this issue about the salaries increase. You mentioned in the previous call that you have provisioned R$600 million. Was it for the third or for the fourth quarter? And then based on the -- you mentioned R$15 billion is the year-to-date cost with salaries, total cost with salaries. What will be the estimate number for the year and then if we assume the 10% salaries increase that has been talked about in the local press, would it make sense to just apply that to the total salary number and assume this will be the recurring expense for next year?

Almir Guilherme Barbassa

Well, I don’t have these figures, so we don’t work on them. We don’t have, but maybe we have spent R$15 billion, including R$600 million up to September. The remaining of the year we will not have the extra. Only the increase in normal salaries, that is in this R$600 million bonus that is paid in this period that is one-off.

Paula Kovarsky - Itaú Corretora de Valores S.A

Yeah, but if you assume 15 as average, 20 would be the year average, right? And then it contradicts the bonus?

Almir Guilherme Barbassa

Yes. Still take 5 per quarter, you’re not going to miss too much.

Paula Kovarsky - Itaú Corretora de Valores S.A

Okay, but then if it’s a 10% increase, do we apply the 10% to the year number or this is...?

Almir Guilherme Barbassa

No.

Paula Kovarsky - Itaú Corretora de Valores S.A

Total wage including outsources?

Almir Guilherme Barbassa

No, because the part of this 10% is in the R$600 million that is paid as bonus. It does not happen every month.

Paula Kovarsky - Itaú Corretora de Valores S.A

But are they talking about a 10% salary increase in average?

Almir Guilherme Barbassa

Yeah. The average they have I think is about 10% -- close to 11%.

Paula Kovarsky - Itaú Corretora de Valores S.A

Okay. Thank you. And then just quickly on back to the -- stream next year? Can you hear me?

Almir Guilherme Barbassa

There were a problem in the line, but could you repeat please?

Paula Kovarsky - Itaú Corretora de Valores S.A

Yeah. About the production increase for next year or about the platforms that are expected to come on stream to four platforms. Can we expect them to ramp up like the P-56, so doing well in six months, or do you expect the ramp up of those platforms to be slower?

Almir Guilherme Barbassa

Let’s have [Molinari] here.

Unidentified Corporate Participant

Yes, Paula, that’s a very good question. The ramp up of those platforms will certainly be faster, like P-56 because we have now the drilling rigs arriving and we’ve learnt to drill the wells before the platform arrives. So, when we install the platform, we’ll have more wells already ready to be connected.

Operator

The next question comes from [Terry Hoy of Linam].

Unidentified Analyst

Yes, my question’s already been answered. Thanks.

Operator

And the next question comes from Christian Audi of Santander.

Christian Audi - Santander

Thanks. A couple of questions. The first one, can you share with us your outlook, specifically in terms of costs, lifting costs and refining costs going into the fourth quarter as well as the beginning of the year. You see an environment where you can -- you have the capability to reduce them or they will be more flattish any color on those please?

Almir Guilherme Barbassa

Let me have [Molinari] and [Marshall] help me in this answer.

Unidentified Corporate Participant

Yeah, the lifting cost, Christian, it will -- there are some movements like production and we will benefit if more production grows in the fourth quarter. And it will depend also in the exchange rate and the Brent price which is our reference. When we have increase in the Brent price we have also increase in the cost, specialized services in the oil industry. So it’s a combination of all those aspects that will lead the lifting cost of the fourth quarter. But I should take that it will be in line with what we have in this third quarter.

Unidentified Corporate Participant

Talking about the refining cost, we’re expecting to have on the fourth quarter about the same that we had on the third quarter, that is $5.2 per barrel. We are expecting to have a flat level. Okay.

Christian Audi - Santander

And as we look into 2012 from a refining cost point of view, given all that’s happening in terms of upgrades and the new refineries, do you see a trend in 2012, not ‘13, 2012, where these costs could come down or they’re going to be more flattish and really only begin to come down more into 2013 or 2014.

Unidentified Corporate Participant

Yeah, probably it’s going come down ’13,’14 when we have the new refineries because right now we are investing in quality. So we are increasing costs but we are not increasing the amount of production. So basically it’s going to be flat or a little bit high than we are today. I am saying a little bit high because of (inaudible), but basically it’s going to be flat.

Almir Guilherme Barbassa

Also, we are going to have many new equipment running up -- to begin up next year. You have [(Marshall] the number of new cokers and...

Unidentified Corporate Participant

Actually for now till beginning of next year, basically we’re investing just in (inaudible). We don’t have a coker till the beginning of next year. So, I don’t have all the units right here with me. I can return to you or I can give you the information on the wire. But, basically we’re going to have, especially on the last quarter, a large amount of units, I guess, fixed, but I don’t have exactly the number right now, I can give you to them later.

Almir Guilherme Barbassa

But there is a number of them being concluded during the course of this year and beginning of next year.

Unidentified Corporate Participant

Yes. We had some of them concluded right now in this quarter and some of them the last month, we are going to have a large amount of them being concluded. So, let me see if I can find information right now. If I can get information right now, I can return to you. If not possible I can give it to you on the wire.

Christian Audi - Santander

And a follow-up on that, on the topic of refining margins given the price increases that you announced recently, do you estimate that refining margins in the fourth quarter or even in the first quarter, if we assume oil prices remaining flattish, do you see your refining margins turning positive at all in the fourth or first quarter of next year or are we still in a breakeven, kind of a negative territory?

Unidentified Corporate Participant

Well, I can tell you that the market that are going to be a little bit better but on the third quarter -- on the fourth quarter, but probably we’re going to have to import a little bit more, especially gasoline. So I can tell you that--

Almir Guilherme Barbassa

(Inaudible) the International price.

Unidentified Corporate Participant

Yeah. So, it’s going to be about the same.

Christian Audi - Santander

About the same. But do you see it being positive or still in negative territory, negative refining margins until we can really get maybe a bigger increase in diesel prices, for example into next year?

Almir Guilherme Barbassa

We will not give you guidance on that, Christian. We expected to produce the better results, but whichever they will be depends on lot of variables, and it is difficult to say at this moment.

Christian Audi - Santander

Okay. And the last question on production. Has your -- if we rewind to the second quarter conference call, your outlook then and now with respect to this ramp up in the October, November, December production, has it changed at all? Have things improved or gotten worse in terms of your expectations of this last quarter really showing a ramp up in production and now versus what you expected three months ago?

Almir Guilherme Barbassa

We do not.

Unidentified Corporate Participant

Yes. I think I said we had the 10 or 11 wells to start production and we did so. The problem lay in the production drills in the third quarter was more on the non-planned platform stoppage. And P-56 and P-57 I said that in the year-end we will be producing 80% of the capacity of those platforms and we are still maintaining this indication. So on the projects, everything is going well. The only aspect was more non-planned maintenance in the period.

Christian Audi - Santander

And do you still expect to finish the year, last day the year, with 2250 for production [Molinari]?

Unidentified Corporate Participant

Yeah, well, 2,200,000 is a peak, daily peak production in the year. And if everything goes well and if we don’t have any further non-planned stoppages and if we connect all the wells we have to connect until the end of year, for the average of December I feel that we will be producing more than 2,100,000 barrels per day as average for December.

Operator

The next question from Gustavo Gattass of BTG.

Gustavo Gattass - BTG Pactual

I have a couple of questions here. I just wanted to start on just the accounting of the quarter. There were a couple of one offs that hit you and I just wanted to check one of them. There is a post package adjustment of more than 600 million that you guys booked on gas and power. And I wanted to know if you guys could actually give us some kind of clarity on where that comes from as a starter? The second thing I wanted to check, on your chart on page eight of your presentation, I just wanted to double check. Is the scale correct in that graph, is that graph really going up to only something like 25,000 barrels or is it different than that because the text on the slide doesn’t really seem to jive with the graph.

Almir Guilherme Barbassa

Yes, it is 25 the total in the quarter. It is the analyzed effect of the quarter.

Gustavo Gattass - BTG Pactual

Okay. Sorry, now I saw the title. So for the quarter itself, it’s about four times that much?

Almir Guilherme Barbassa

Yes.

Gustavo Gattass - BTG Pactual

Okay. So, this is contribution to full annual production figure?

Almir Guilherme Barbassa

Yes. As said in the talks. The other questions are regarding to the one-offs?

Gustavo Gattass - BTG Pactual

Yes.

Almir Guilherme Barbassa

The gas and power. We have a procedure revision here and we found that we were not crediting some tax credit we had in the operation and then we correct previous years and adjust in this current quarter. There is some to come yet, not on the same amount, but an extra adjustment will happen in the first quarter. That’s the reason for adjustment now. During our revision on the procedures, we found that we were not crediting for some taxes that were calculated previously, but now recognizing the -- retain as credit. And this is going to happen for the future. Will...

Gustavo Gattass - BTG Pactual

If I could ask, what is the recurring impact of that?

Almir Guilherme Barbassa

It is about R$30 million per month.

Gustavo Gattass - BTG Pactual

Per month, okay. So about -- perfect. And if I could ask just one last question. With regards to production, it was absolutely great that you guys put in a little bit more clarity on what’s going to happen in 2012. I was just wondering, I don’t know if this is predictable or not, but is there anything that you already have with visibility with regards to the Varredura project that would be starting up in 2012?

Almir Guilherme Barbassa

[Molinari], please.

Unidentified Corporate Participant

No, we don’t have that in our production because it depends on the exploratory effort to connect more of the Varredura discoveries in the existing platforms. But we are doing very big steps on that which is the installation of subsea separation, water-oil in the Marlim field. As I mentioned the Marlim, the BSW of Marlim is high, and if we’re able to separate the water subsea we can release nice space on the platform to put more oil like in the Varredura project. That’s a technological development. Within the six months, we should start running the subsea separator, we would have the idea to apply that in several mature fields of the Campos Basin, and to put more oil from the Varredura and all the exploratory efforts. But I don’t have a number for you.

Operator

The next question comes from Denis Parisien of Deutsche Bank.

Denis Parisien - Deutsche Bank

I’m wondering about your financing plans you. You so far have stuck to your guidance of not coming back to the dollar market after the 6 billion multi-tranche jumbo earlier this year. You’ve met with investors in Europe, looks like you were thinking about doing something there. What can we expect between now and end of the year and in 2012 in terms of tapping credit markets? Thank very much.

Almir Guilherme Barbassa

We have raised so far at the end of third quarter about R$28 billion of new debt. We did amortization of almost R$18 billion, so we added about R$10 billion of new cash to the company through debt. And this was done through many different ways. The largest transaction was the bonds we issued at the beginning of the year of 6 billion. And they are the ones bilateral with banks or with ECAs and development bank. We are always working and we are going to raise some extra amount during this quarter. We do not have a target for the quarter. It depends on many condition, the market condition.

If market is there, we can do more. If not, we can delay and do another. There is some market and this -- the liquidity we have, provides us comfort to do and work as such. And having high liquidity as we ended the quarter with R$55 billion of liquidity is enough to provide us the cushion to keep our CapEx moving on and managing the opportunities we have or the market present to us. We have a target of five years to raise between $60 billion and $90 billion, in five years. The first of this five years we have raised up to the end of the quarter about $16 billion. So, we are being in line with what we have programmed.

Denis Parisien - Deutsche Bank

Thanks very much. Do you have any idea in terms of your fourth quarter appetite for debt? As you said, you would be opportunistic of course. Do you have any inclination as to whether you would do one market or the other, banks, capital markets? If capital markets, in yen, in euros, in pounds, is there any particular market that you prefer?

Almir Guilherme Barbassa

I don’t have any preference. It depends on the market. If the market is there for us for the kind of debt we will be issuing, then we will be approaching that market, but it might be in good shape. We are not for any market and the only thing I can tell you is that we don’t go again to the dollar market.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. Mr. Barbassa, please proceed with your closing remarks.

Almir Guilherme Barbassa

Thank you all for being with us in one more quarter and hope to have you again with us in the next quarter with even better results. Thank you.

Operator

Ladies and gentlemen, your host is making today’s conference available for replay starting one hour from now. You may access this replay at the company’s IR website at www.petrobras.com.br/ri/english. This concludes Petrobras conference call for today. Thank you very much for your participation, you may now disconnect.

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