Annual Report on Form 20-F 2008 - Petrobras

in cash flows does not exceed our past success
ratiosindevelopingprobablereserves.
Weperformassetvaluationanalysesonan
ongoing basis as a part of our management
program. These analyses monitor the performance
of assets against corporate objectives.They also
assistusinreviewingwhetherthecarryingamounts
of any of our assets may not be recoverable.In
addition to estimating oil and gas reserve volumes
inconductingtheseanalyses,itisalsonecessaryto
estimatefutureoilandgasprices.
Ingeneral,wedonotviewtemporarilylow
oil prices as a trigger event for conducting
impairment tests.The markets for crude oil and
natural gas have a history of significant price
volatility. Although prices will occasionally drop
precipitously,industrypricesoverthelongtermwill
continuetobedrivenbymarketsupplyanddemand
fundamentals. Accordingly, any impairment tests
that we perform make use of our longterm price
assumptions for the crude oil and natural gas
markets. These are the same price assumptions
that are used in our planning and budgeting
processesandourcapitalinvestmentdecisions,and
theyareconsideredtobereasonable,conservative
estimates given market indicators and past
experience.Significantly lower future oil and gas
prices could lead to impairments in the future, if
suchdecreaseswereconsideredtobeindicativeof
longtermtrends.Inaddition,significantchangesin
production curve expectation, discount and/or
required production and lifting costs, could affect
impairment analysis.While such uncertainties are
inherent to this estimationprocess, the amount of
impairment charges in past years has been small
relative to the total value of oil and gas producing
properties: U.S.$519 million in 2008, U.S.$271
millionin2007andU.S.$21millionin2006.Based
onourexperience,webelievethatfuturevariability
inestimateswillhaveasmallimpactonbothassets
andexpense.
PensionandOtherPostRetirementBenefits
The determination of the expense and
liability relating to our pension and other post
retirementbenefitsinvolvestheuseofjudgmentin
the determination of actuarialassumptions.These
include estimates of future mortality, withdrawal,
changes in compensation and discount rate to
reflectthetimevalueofmoneyaswellastherate
of return on plan assets.These assumptions are
reviewedatleastannuallyandmaydiffermaterially
from actual results due to changing market and
economic conditions, regulatory events, judicial
rulings, higher or lower withdrawal rates or longer
orshorterlifespansofparticipants.
We account for our Employees' Post
Retirement Benefits and Other Benefits, according
toFASBStatementsNo.87,88,106,132(R)and158.
Thesestandardsrequirethatwerecognizetheover
funded or underfunded status of each of our
defined benefit pension and other postretirement
benefit plans as an asset or liability and to reflect
changesinthefundedstatusthrough“Accumulated
other comprehensive income,” as a separate
componentofstockholder'sequity.
AccordingtotherequirementsofSFAS87,
and subsequent interpretations, the discount rate
should be based on present value for settling the
pensionobligation.TheuseofthepreceptsofSFAS
87inBrazil,whichhasbeensubjecttoinflationfrom
time to time, creates certain issues to the extent
that the ability for a company to settle a pension
obligation at a future point in time may not exist
becauselongtermfinancialinstrumentsofsuitable
grademaynotexistlocally.
Although the Brazilian market has been
demonstrating signs of stabilization as reflected in
market interest rates, interest rates may be
unstable.
We adopt a mortality table relating to
actuarialassumptionsofourpensionandhealthcare
plans inBrazil, which reflectschanges withrespect
totheprofileofemployees,retireesandpensioners,
based on longevity, age of invalidity and invalid
mortalitytables.
The progressive increase in longevity has
direct impact on the plan's estimated and
provisioned volume of commitments and
obligations and in our liabilities under the line
“Employees' postretirement benefits obligation–
Pension” and our shareholders' equity under the
line “Postretirement benefit reserves adjustments
netoftax—pensioncost.”
Thechangeofthemortalitytablehasbeen
affecting the results for the years subsequent to
2004 due to increased expenses related to the
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