IESA ÓLEO & GÁS S.A. Financial Statements Business years ending on December 31 st 2011 and 2010

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1 Financial Statements Business years

2 Financial Statements Business years Content Administration Report Balance Sheets Financial Statements Statement of Comprehensive Income Statement of Shareholders Equity Cashflow Statement Indirect Method Value Added Statement Explanatory Notes to the Financial Statements Auditors Report

3 MANAGEMENT REPORT Business Year 2011 Introduction This report is intended to show the main activities of IESA Óleo & Gás S/A in the period from January 1 st to December 31 st, It also intends to show the Company s strong commitment to sustainability in its projects and actions. The financial statements included herein have been prepared in full compliance with the Corporate Law and include the Independent Auditors report. The content of this publication is available on Company s Profile IESA Óleo & Gás S/A is one of the most acknowledged and respected Brazilian companies in the sector for implementation of projects in Brazil s oil market not only due to the great expertise of its engineering, procurement, construction and assembly staff, but also due to the ability in managing integrated solutions for the clients in Oil, Gas, Petrochemical and Thermal Generation industries. As a member of a Group with strong presence in the market for over four decades, IESA Óleo & Gás S/A has participated in the largest recent projects in the Brazilian Oil and Gas sector. Headquartered in the city of Rio de Janeiro, IESA Óleo & Gás S/A has strongly performed under EPC (Engineering, Procurement and Construction) contracts, being supported by the synergy existing with industrial units of the Group in the State of Sao Paulo and with its two industrial bases one located in Macaé in the State of Rio de Janeiro, and another in Santos lowland, in São Paulo, both specialized in the activities of maintenance, renovation and modernization of oil and gas platforms. The Company will escalate its activities due to the purchase in 2010 of a land measuring 360 thousand m 2 in Charqueadas, Rio Grande do Sul, to build an industrial unity with capacity for assembling up to 20 modules for oil platforms simultaneously. The construction of such facilities in the city of Charqueadas was decided due to the logistic items offered by this Southern city, specially the possibility of navigation to the city of Rio Grande, where there is already an oil platform production pole.

4 MANAGEMENT REPORT Business Year 2011 IESA Óleo & Gás S/A/is duly prepared to develop projects of operational partnerships with national and foreign financing agents, companies in the oil and techonolgy industries, in Built, Operate and Transfer (BOT), Built, Operate and Owns (BOO) and Built, Leasing and Transfer (BLT) forms, for energy industries, specially thermal generation, refining and petrochemical. The principles of IESA Óleo & Gás S/A determine that quality, safety, environment and health in work and social accountability must be remarkable factors and make a difference in the market, therefore, each product or service supplied must bring all technical and managerial competence of the company and of its staff. The basic principles required from all the professionals of IESA Óleo & Gás are commitment to quality, to professional respect and to the image of the company. Such principles orient the relationship of its staff with clients, shareholders and the whole market. The various certifications of IESA Óleo & Gás S/A OHSAS 18001, ISO 9001, ISO 14001, SA 8000 and ISO/TS enlarges its capabilities level and its concerns with clients, workforce and environment. To improve social conditions, IESA Óleo & Gás S/A fosters a number of cultural and charity actions to the benefit of dwellers in the communities in which it operates, developing educational programs aimed at including young people and adults in the labor market, thus reducing social and economic differences. The Best Company to Work For Rio de Janeiro and Brazil, Best Companies in Personnel management and SESI Quality in Work awards received in 2011, confirm that IESA Óleo & Gás is always looking for providing its workers with the best quality of life and welfare, keeping a pleasant working environment and a cohesive, motivated and trained team. Comment on Operational Performance The year of 2011 was characterized by the startup of the Gas Treatment Unit in Caraguatatuba, a project performed under EPC contract by the Consortium Queiroz Galvão Camargo Correa IESA Óleo & Gás for the client PETROBRAS. This unit will process 18 million m³/day of gas from

5 MANAGEMENT REPORT Business Year 2011 the fields of Santos Basin. The operation of the Hydrodesulphurization Unit of REDUC, constructed under EPC form by the consortium Queiroz Galvão-IESA Óleo & Gás, also started. In 2011, QUIP, a jointly controlled society, completed the work of preparation of its headquarters construction site in Rio Grande RS and consolidated the process of P-63 construction of modules. In China, the process of construction of some P-63 modules and the conversion of the BW Nisa vessel into hull to sustain the modules are in final stage. The final step of modules integration in Rio Grande RS is scheduled to start in the middle of 2012, when the converted hull and the modules are expected to arrive from China. The work for P55, which is also being constructed by QUIP, is about 75% completed, and the highlight in 2011 is the arrival at Rio Grande shipyard of the hull to allow the integration to the deck box and provide Brazil with the first Mating of the country. This process is scheduled for the first quarter of The final backlog for 2011 was R$ 1,6 billion (R$ 2,4 billion in 2010). Such backlog lower level is a result of some investments of PETROBRAS being postponed for 2012, mainly the contract for the modules for 8 replicant FPSO that are being built by Engevix and are a priority in PETROBRAS strategic planning. Based on such purchase orders and on the market perspectives projects for construction of new refineries, fertilizer plant, as well as platforms and modules that will be necessary for presalt, which will certainly generate new businesses a solid performance is estimated, thus keeping the positive expectations in the years to come. Gross operating income was R$ 960 million, amount 18,4% higher than 2010, maintaining a growth vertex in the annual sales thus evidencing the correct strategic targeting adopted and the competency of delivering products and services within the deadlines stipulated and with the quality set out by the industry.

6 MANAGEMENT REPORT Business Year ,2 590,0 632,7 701,9 727,0 810,7 732,1 741, Controlling Company Consolidated In million s R$ Sales expenses amounted to R$ 17,7 million, which is an increase compared to 2010, when the amount was R$ 7 million, especially due to the increase in expenses with proposals delivered in 2011 that could not be allocated in the pertinent projects. General and administrative expenses amounted to R$ 70,2 million, representing an increase of 27% in absolute values in relation to 2010 (R$ 56,1 million). When compared as net income percentage, general and administrative expenses kept in the same level of the previous year, 7,7% in 2011 against 7,5% in The infrastructure working sector for oil and gas industry have been through the shortage of qualified workforce and in this consideration the Company maintains an aggressive policy to retain and attract new talents required for the new investments demanded by the industry. Shareholders equity showed a profit of R$ 50,4 million in 2011 against R$ 5 million in This remarkable result is a consequence of the construction projects for the oil and gas platforms P- 55, P-62 and P-63, performed by the jointly controlled companies QUIP, CCI and RIG, respectively.

7 MANAGEMENT REPORT Business Year 2011 IESA Óleo & Gás gross cash generation measured by EBITDA (Earnings Before Interests, Taxes, Depreciation and Amortization) in 2011 was R$ 94,6 million against R$ 76 million in 2010, with a margin of 10%. 100,0 76,8 82,9 76,0 94,6 100,00% 10,0 14% 13% 10% 10% 10,00% 1, ,00% EBITDA EBITDA Margin In millions of R$ At the end of business year 2011 indebtedness was R$ 297,7 million mostly represented by working capital operations and proper schedule of payment to the Company s cash generation. Social Management in 2011 Aiming at the development of the society, the company nurtures several cultural and beneficial actions in its neighborhoods, developing educational programs with the purpose of including young people and adults in the labor market, thus reducing social and economic differences. Among such social programs developed in 2011, we highlight the following:

8 MANAGEMENT REPORT Business Year ,842 assistances offered at Providencia UPP (Peace Police Unit) (elementary and high school teaching, complementary courses, improvement of professional abilities, sport and Knowledge Industry in partnership with Firjan System. Solidary June Party, with more than 5 thousand people, in benefit of seven institutions. Pedagogic actions on STD, AIDS, Drugs and Alcoholism in public schools in the cities of Rio de Janeiro and Macae, in partnership with NGO Pela Vidda, Social Diversity Movement and with the Municipal Secretary of Education, benefiting more than 750 teachers and students; Continuing Education courses for Barra de Macae and neighborhood dwellers, in partnership with Barra de Macae Resident Association and Firjan System; Maintenance of graduation scholarships for IESA s workers and their children, from daycare to university graduation, within Inepar Scholarship Program Probein. In 2011 IESA Óleo & Gás was offered the several awards such as: February 2011 SESI Quality in Work Award as Medium Company in Rio Grande do Sul 2 nd place March 2011 SESI Quality in Work Award in the category Personnel management - 2 nd place in Brazil August 2011 Great Place to Work Award Best Companies to Work for 5 th place in Rio de Janeiro August 2011 Great Place to Work Award Best Company to Work for in Rio de Janeiro, in the categories thank, develop and care August 2011 Great Place to Work Award Best Companies to Work for in Brazil, category small and medium companies 10 th place August 2011 Great Place to Work Award Best Companies to Work for in Brazil, category quality of life 4 th place August 2011 Fifth place in the category Mechanical and Electrical Construction in the Brazilian engineering ranking prepared by O Empreiteiro (the Entrepreneur) Magazine. September Best Companies to Work for Award given by Você S/A and Exame Magazines

9 MANAGEMENT REPORT Business Year 2011 October 2011 The Best in Personnel Management Award, category 100 to 500 employees, developed by AON Hewitt and Valor Econômico newspaper 2 th place. Acknowledgements IESA Óleo & Gás S/A Management thanks its shareholders, suppliers, partners, clients and financial institutions for their support enabling us to reach a quick process of corporate consolidation. We thank especially our employees for their efforts and full dedication. Executive Board of Officers

10 IESA Óleo & Gás S/A C.N.P.J. M.F - Nº / Balance sheets Business years ending December 31 st 2011 and 2010 (In thousand of reais) CONTROLLING COMPANY CONSOLIDATED Assets Note 12/31/ /31/ /31/ /31/2010 Current Assets Cash and Cash Equivalent Clients Note Receivables Inventories Tax Credits Dividend Receivables Asset Kept for Sale Prepaid Expenses Other Credits Total of Current Assets Non-Current Assets Long Term Receivables Associated Companies Note Receivable Deferred Taxes Other Credits Investments Premises and Equipment Intangible Total of Non-Current Assets Total of Assets The Explanatory Notes are part of the Financial Statements

11 IESA Óleo & Gás S/A C.N.P.J. M.F - Nº / Balance sheets Business years ending December 31st 2011 and 2010 (In thousand of reais) CONTROLLING COMPANY CONSOLIDATED Liabilities Note 12/31/ /31/ /31/ /31/2010 Current Liabilities Suppliers Funding and Loans Social Liabilities Tax and Contribution Payable Proposed Dividends Cost and Charges Provision Advances on Purchases Debentures Other Accounts Payable Total of Current Liabilities Non-Current Liabilities Funding and Loans Tax and Contribution Payable Loan with Associated Companies Deferred Taxes Debentures Contingency Provisions Other Accounts Payable Total of Non-Current Liabilities Shareholders' Equity Capital Stock Profit Reserves Shareholders' Equity Adjustment (4) (41) (4) (41) Total of Shareholders' Equity Total of Liabilities The Explanatory Notes are part of the Financial Statements

12 IESA Óleo & Gás S/A C.N.P.J. M.F - Nº / Financial Statements Business years ending December 31st 2011 and 2010 (In thousand of reais) CONTROLLING COMPANY CONSOLIDATED Note 12/31/ /31/ /31/ /31/2010 Gross Operating Income Deductions and Taxes on Sales (44.601) (62.987) (44.601) (62.987) Net Operating Income Costs of Products and Services ( ) ( ) ( ) ( ) Gross Profit Operating Income (Expenses) (49.226) (55.805) (62.120) Sale Expenses (17.715) (7.098) (17.715) (7.098) General and Administrative (55.236) (48.641) (70.289) (56.184) Other Income (Expenses) Equity Profit/Loss (4) (236) Income before Financial Expenses and Revenue Financial Expenses 23 (68.293) (43.768) (70.265) (45.145) Financial Revenues Income before Tax on Profit Deferred Income Tax and Contribution 16.2 (10.512) (383) (10.512) (335) Current Income Tax and Contribution 16.2 (3.281) (7.504) (10.463) (10.492) Income before Interests Employees' Interest (11.670) (10.612) (11.670) (10.612) Business Year Net Profit Amount of shares at the end of the business year Basic and diluted earnings per lot of a thousand shares - R$ 578,13 451,82 569,50 493,47 The Explanatory Notes are part of the Financial Statements

13 IESA ÓLEO & GÁS S/A C.N.P.J. M.F - Nº / Statement of Shareholders' Equity Business years ending December 31st 2011 and 2010 (In thousand of reais) Surplus Reserve Profits Equity Capital Profits available Retained Evaluation Shareholders' Stock Legal Withheld for Shareholders Earnings Adjustment Equity Balances on December 31 st (10.582) Business Year Net Profit Other Comprehensive Income - Exchange Adjustment of Associated Company Abroad (41) (41) Total of Comprehensive Income Capital Increase - 14 th ESGM dated 12/17/ Capital Increase - 15 th ESGM dated 12/20/ Dividends (28.560) (28.560) Capital Transactions with Partners (22.990) Legal Reserve 962 (962) Statutory Reserve (18.274) Balances on December 31 st (41) Business Year Net Profit Other Comprehensive Income - Exchange Adjustment of Associated Company Abroad Total of Comprehensive Income Dividends (14.162) (14.162) Capital Transactions with Partners (14.162) Legal Reserve (530) (1.907) Withholding of Profit for Investment (1.547) Statutory Reserve (36.247) Balances on December 31 th (4) As Notas Explicativas são parte integrante das demonstrações financeiras

14 IESA ÓLEO & GÁS S/A C.N.P.J. M.F - Nº / Statement of Comprehensive Income Business years ending December 31st 2011 and /31/ /31/2010 BUSINESS YEAR NET PROFIT Other Comprehensive Income Exchange Adjustments of Associated Company Abroad 37 (41) BUSINESS YEAR COMPREHENSIVE INCOME The Explanatory Notes are part of the Financial Statements

15 IESA Óleo & Gás S/A C.N.P.J. M.F - Nº / Cash Flow Statement Business Years Ending December 31 st 2011 and 2010 (In thousands of reais) CONTROLLING COMPANY CONSOLIDATED 12/31/ /31/ /31/ /31/2010 OPERATING ACTIVITIES Business Year Net Income Expenses (income) that do not affect cash and cash equivalent Depreciations and amortizations Gain on permanent asset disposal (22.423) - (22.423) - Loss on permanent asset disposal Shareholders' equity (50.407) (5.019) Monetary and exchange variance Deferred taxes (1.163) (1.211) Provisions (Reversals) (32.884) (32.883) Fair Value Settlement (12.165) (8.817) (12.165) (8.817) Adjusted Net Income for the Business Year Asset (increase) reduction Clients Inventories (10.446) (32.449) (885) Tax Credits Prepaid expenses Other credits (493) (1.159) (4.859) (1.131) (10.634) Liability (increase) reduction Suppliers (2.502) Social liabilities Tax and contribution payable (2.034) (1.207) Advances on purchases (150) Other account payable CASH ARISING FROM OPERATING ACTIVITIES INVESTMENT ACTIVITIES Asset kept for selling - (38.734) - (38.734) Notes receivvable (13.310) - (13.310) - Dividend received from associated companies New investiment purchase (1.529) Payments for premises and equipment purchase (30.399) (21.055) (39.271) (23.055) Collection arising from investment sale Loan operations with associated companies (16.599) - (19.749) - Exchange accumulated adjustments (41) (57.062) (57.427) (72.293) (59.468) FINANCING ACTIVITIES Collection from shares issuance Dividends payment (13.950) (29.423) (13.950) (29.987) Funding and Loan Funding and loan amortization - principal ( ) ( ) ( ) ( ) Funding and loan amortization - interests (41.830) (23.877) (41.830) (23.877) Loan with associated companies (2.284) INCREASE (REDUCTION) IN CASH AND CASH EQUIVALENT Cash and cash equivalents beginning balance Cash and cash equivalents ending balance INCREASE (REDUCTION) IN CASH AND CASH EQUIVALENT The Explanatory Notes are part of the financial statements

16 IESA Óleo & Gás S/A C.N.P.J. M.F - Nº / Value Added Statement Business Years (In thousand of reais) CONTROLLING COMPANY CONSOLIDATED 12/31/ /31/ /31/ /31/2010 INCOME Sales of goods, products and services Other income (expenses) Doubtful credits provision (15) - (15) - INPUT PURCHASED FROM THIRD PARTIES ( ) ( ) ( ) ( ) Costs of products, goods and services sold ( ) ( ) ( ) ( ) Materials, energy, third-party services and other ( ) ( ) ( ) ( ) GROSS VALUE ADDED Depreciation and amortization (2.784) (689) (4.617) (1.597) NET VALUE ADDED VALUE ADDED RECEIVED ON TRANSFER Equity Accounting Income (4) (236) Financing Income TOTAL VALUE ADDED AVAILABLE FOR DISTRIBUTION VALUE ADDED DISTRIBUTION PERSONNEL Payroll Benefits FGTS (Government Severance Indemnity Fund for Employees) TAXES, LEVIES AND CONTRIBUTIONS Federal State Local THIRD PARTIES CAPITAL REMUNERATION Interests Rentals OWN CAPITAL REMUNERATION Profits Available for Shareholders TOTAL VALUE ADDED DISTRIBUTION The Explanatory Notes are part of the financial statements

17 NOTE 1 OPERATIONAL CONTEXT IESA Óleo & Gás S.A. is a close company, which acts of incorporation dated 03/04/2005 are filed with JUCERJ under n.º It is registered with CNPJ Roll of Corporate Taxpayers under n.º / and headquartered in the city of Rio de Janeiro RJ, at Rua Mayrink Veiga, 09, 14 th floor, part, zip code The main business of the Society is the rendering of services and the supply of materials to oil, gas, chemical and petrochemical industries, with the purpose of giving complete solutions by means of EPC (Engineering, Procurement and Construction) projects, developing from the engineering and consultancy studies and projects to the performance of maintenance, construction and assembling services and technical assistance. NOTE 2 GROUNDS FOR THE PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Society as well as of its associated company comprise: a) Individual Financial Statements of the Controlling Company The individual financial statements of the controlling company were carried out and are submitted pursuant the accounting practices in force in Brazil, in full compliance with Act nº /07 and Act nº /09, and statements issued by CPC - Comitê de Pronunciamentos Contábeis (Accounting Standards Committee) and approved by CFC - Conselho Federal de Contabilidade (Brazilian self-regulating body of the accountancy profession) and by CVM (Brazilian Securities Commission). The individual financial statements show the evaluation of the investments on associated companies using the equity method, according to the Brazilian law in force. Thus, they are not in accordance with the IFRS, which request such evaluations in the separate financial statements of the controlling company by the cost or by the fair value. b) Consolidated Financial Statements The consolidated financial statements were prepared and are being submitted in accordance with the accounting international standards (IFRS) issued by International Accounting Standard Board - IASB and also according to the accounting practices in force in Brazil, in full compliance with Act nº /07 and Act nº /09, and statements issued by CPC - Comitê de Pronunciamentos Contábeis (Accounting Standards Committee) and approved by CFC - Conselho Federal de Contabilidade (Brazilian self-regulating body of the accountancy profession) and by CVM (Brazilian Securities Commission).

18 As there is no difference between the consolidated shareholders equity and the consolidated income to be assigned to the shareholders of the controlling company, both in the consolidated financial statements prepared according to the IFRS and the accounting practices in use in Brazil, and between the shareholders equity and the income of the controlling company showed on the individual financial statements prepared according to the accounting practices in use in Brazil, the Society chose to submit both the individual and consolidated financial statements in a single set of documents. NOTE 3 SUMMARY OF THE MAIN ACCOUNTING POLICIES 3.1 Grounds for Consolidation The consolidated financial statements include the financial statements of IESA Óleo & Gás S.A. and its associated companies, where the control is shared with the other shareholders, described below: Associated Companies % Participating Interest 12/31/ /31/2010 QUIP S.A. 13,25% 13,25% RIG OIL & GAS INC. 16,66% - CCI OIL & GAS CONTRACTORS INC. 30,00% - The criteria used in the consolidation are those provided by Act Lei Nº 6.404/76 with the amendments provided by Act nº /07 and Act nº /09, from which we emphasize the following: a) Elimination of the balances of the asset and liability accounts deriving from the transactions between the societies included in the consolidation; b) Elimination of the investments on the associated societies in the proportion of their respective assets. c) Elimination of revenues and expenses deriving from businesses with the societies included in the consolidation; and d) Standardization of the accounting policies and procedures used by the societies included in these consolidated financial statements to meet the controlling company standards, aiming at a presentation in a uniform classification and measurement basis. 3.2 Classification of Current and Non Current Items In Balance Sheets, assets and liabilities not yet due or expected to occur within the next 12 months are classified as current items and those with due date or expected to occur after 12 months are classified as non current items.

19 3.3 Compensation among Accounts As a general rule, in financial statements, neither assets and liabilities nor income and expenses are compensated one with another, except if such compensation is requested or allowed by any Brazilian accounting statement or rule and it reflects the essence of the transaction. 3.4 Transactions in Foreign Currencies The items in these financial statements are measured in Real (R$) functional currency, which is the currency of the main economic environment of the society s business and in which currency most of its transactions is made, and they are presented in that same currency. Transactions in other currencies are converted to the functional currency as per CPC 02 instructions Effects of Changes in Exchange Rate and Financial Statements Conversion. Financial items are converted at the closing rates and non financial items at the rates at the date of the transaction Cash and Cash Equivalent Cash and cash equivalent include cash with the company, demand bank deposits and short term high liquidity cash investments with original three month maturity or less. 3.6 Financial Assets The financial assets of the company are classified under the following categories: measured at fair value through profit or loss, loans and receivables and available for sale. The classification depends on what the financial assets were purchased for. The classification of the financial assets is defined by the administration in their initial recognition. (a) Financial assets measured at fair value through profit or loss The financial assets measured at fair value through profit or loss are those that are kept for negotiation. A financial asset is classified under this category if it was mainly purchased for a short term sale. Assets in this category are classified as current assets. (b) Loans and receivables Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included as current assets, except for those with maturity term over 12 months after the issuing of the balance sheets (that are classified as non current assets). The loans and receivables of the Group include trade receivables and other account receivables and cash and cash equivalent.

20 (c) Financial assets available for sale Financial assets available for sale are non derivative assets, which are designated in this category or that are not classified in any other category. They are included in non current assets, unless the board of directors intend to dispose the investment within 12 months after the date of the balance sheets. Recognition and measurement: Regular purchases and sales of the financial assets are recognized in the date of the negotiation that is, when the Company undertakes to purchase or to sell the asset. Investments are at first recognized at fair value, plus the costs of the transaction for all financial assets that are not measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss are, initially, recognized at fair value and the costs of the transaction are charged to the financial statement. The financial assets are retired when the rights to receive investment cash flows on maturity or have been transferred; in this last case, once the Group has significantly transferred all the risks and benefits of the ownership. Financial assets available for sale and financial assets measured at fair value through profit or loss are then recorded by the amortizated cost, using the effective interest rate method. Gains or losses arising from variations in the fair value of the financial assets measured at fair value through profit or loss are showed in the financial statements in the period they happen. Variations in the value of the securities classified as available for sale are separated into variations in the amortizated cost and the variations in the fair value of the security. Variations in the amortizated cost are recognized in the evaluation of profit/loss. Variations in the fair value are recognized in assets. When securities classified as available for sale are sold or suffer loss (impairment), the accumulated adjustments of the fair value, recognized in the assets, are included in the financial statements. Company evaluates, at the balance sheets date, if there is any actual evidence that a financial asset or a Group of financial assets is devaluated (impairment). In the case of securities available for sale, a significant or drawn-out decrease of their fair value below their cost value is considered an indication that such securities are devaluated. If there is any of these evidences regarding the financial assets available for sale, the cumulative loss is retired from the assets and is recognized in the financial statements.

21 3.7 Trade Receivables Trade receivables correspond to amounts to be received from clients due to sales of products or performance or services during the ordinary activities of the Company. Trade receivables are initially recognized at their fair value and then measured by the amortizated cost using the effective interest rate method minus the impairment provision (loss in credit collection). Generally in practice they are recognized at the billed value adjusted to present value and adjusted by impairment provision, if necessary. 3.8 Inventories Inventories are reported at the purchasing cost of services in progress, net of recovered taxes and at no higher prices than those of the market prices. 3.9 Investments Permanent investments on associated companies and under joint control are evaluated by equity method Premises and Equipment Reported by their historical purchasing, formation or construction cost, less their accumulated depreciation. Subsequent costs are included in the asset accounting value or recognized as a separate asset, as appropriate, only when it is likely to flow future economic benefits associated to the item and that the cost of the item can be safely measured. Accounting value of replaced items or parts is retired. All other repairs and maintenance are recorded in contra account to the result of the business year, when incurred. Land is not depreciated. Depreciation of other assets is calculated using the straight-line method during the estimated service life. As provided in CPC 27, approved by CVM Deliberation nº. 583/09, the society hired a specialized company to revise the estimated terms of service life, of the residual value and of the depreciation methods of all its assets. The company based this analysis on the expectation on the use of the goods, and an estimate regarding the service life of the assets, as well as their residual value, according to previous experience with assets, with no change in the practices used so far.

22 3.11 Intangible Intangible assets purchased are measured by their cost at the moment of its initial recognition. After the initial recognition, the intangible assets are shown by their cost, less the accumulated amortization and losses of recoverable value. Intangible assets are amortized during the economic service life time and evaluated in relation to loss by reduction in the recoverable value whenever there is an indication of loss in the economic value of the asset Non Financial Assets Impairment Assets that have an undefined service life are not subject to amortization and are tested yearly for impairment. Assets subject to depreciation or amortization are revised to check impairment whenever events or changes in the circumstances indicate that the accounting value may not be recoverable. A loss by impairment is recognized by the value to which the accounting value surpass its recoverable value. This last one is the higher value between the fair value of an asset minus the sale costs and the value in use. For purposes of impairment evaluation, assets are grouped in the lowest levels for which there are cash flows that can be separately identified (Cash-Generating Units). Non financial assets that have suffered impairment are revised to check a possible reversion of the impairment at the date of submitttal of the financial statements Accounts Payable to Suppliers Accounts payable to suppliers are liabilities to be paid for goods or services that were purchased from suppliers in the ordinary course of business and that are, initially, recognized at fair value and then measured by the amortizated cost using the effective interest rate method. In practice, they are generally recognized at the value of the corresponding invoice, adjusted to present value, when relevant Funding and Loans Funding and loans are recognized initially at fair value, net from the incurred costs of the transaction and then they are demonstrated by the amortizated cost. Any difference between the obtained values (net from the costs of the transaction) and the redemption value (payments) is recognized in the financial statements during the period in which the loans are in force, using the effective interest rate method.

23 3.15 Provisions Provisions are recognized when the Company has a constructive obligation, safely estimated, as a result of previous events; it is possible that resource liberation is necessary to settle the obligation. The probability that the Company will settle a series of similar obligations is determined taking into account the class of the obligations as a whole. A provision is recognized even if the probability to settle related to any individual item included in the same class of obligations is small. The provisions are measured by the present value of the expenditures necessary to settle the obligation, using a rate before tax, which reflects the current evaluations of the market about the time value of money and the specific risks of the obligation. The increase in the amount of the obligation due to the time elapsed is recognized as financial expense Income Tax and Social Contribution Fiscal expenses during the period comprise current and deferred income tax. The tax is recognized in the financial statements, except for the proportion related to items directly recognized in assets. In this case, tax is also recognized in assets. The charge of current income tax is calculated based on the fiscal law promulgated, at the balance sheets date. The board of directors from time to time evaluate the positions taken by the Company in the income tax returns in what concerns such situations in which the relevant fiscal regulations allow interpretation. Provisions are made, when appropriate, based on the amounts to be paid to fiscal authorities. Deferred income tax and social contribution recorded in non current assets or in non current liabilities derive from temporary differences originated from revenues and expenses recorded in the profit/loss statement, however, temporarily added or removed in the taxable income and social contribution determination Leasing Financial leasing is a type of lease in which substantial transfer of the risks and benefits related to the ownership of an asset occurs. The ownership title may be transferred or not. Operational leasing is a leasing that does not conform to financial leasing. Financial leasing are recorded as assets and liabilities similarly to financing operations in amounts equal to the fair value of the leased asset or, if lower, to the present value of the minimum payments of the leasing, each of them determined in the beginning of the leasing. The payments of the leasing are separated between financial charge recorded in the loss/profit statement and reduction of the outstanding liability.

24 Payments of the operational leasing installments are recognized as expenses on a linear basis during the term of the leasing Benefits to Employees The company recognizes a liability and an expense deriving from profit-sharing program duly approved by the trade union and that takes into account quality and productivity goals and the profit to be determined to the Company s shareholders after certain adjustments Income Determination Income is determined under the accrual basis and includes the recognition of the profit/loss of the turnkey and supply, construction contracts, taking into consideration the percentage of the stages of project performance based on the relation existing between the updated estimated income and the estimated costs and incurred costs, according to the rules applicable to CPC 17 (IAS 11). Expenses and costs are recognized when there is an asset reduction or a liability record and they can be reasonably measured Sales Income Recognition Sales income includes the fair value of the consideration received or to be received for the trading of products and services in the ordinary course of the Company activities. Income is shown net from taxes, returns, discounts and abatements and also after exclusion of the sales between companies of the Society. Company recognizes income when: (i) income value can be measured safely; (ii) future economic benefits are likely to flow for the society; and (iii) when specific criteria have been met for each of the Company activities. The amount of the income is not considered as safely measurable until all contingencies related to the sale are solved. The company bases its estimates on historical experiences, taking into account the type of client, the type of transaction and the specifications of each sale Dividends Dividends distribution for the Company s shareholders is only provided as liability in the date it is approved by shareholders in a General Meeting.

25 3.22 Accounting Estimates and Judgment The preparation of financial statements requires the board of directors to base on estimates to record certain transactions that affect assets and liabilities, revenues and expenses, as well as the disclosure of information on data of the financial statements of the Company. The final result of such transactions and information, when actually realized, may differ from theses estimates. The accounting policies and areas that require a higher degree of judgment and use of estimates in the preparation of the financial statements are: a) doubtful credits that are initially provided and then recorded as loss after all the possibilities of recovery are exhausted; b) service life and residual value of premises and equipment and intangible; c) impairment of the premises and equipment and intangible; d) expectation for realization of tax credits for deferred income tax and social contribution; e) contingent liabilities that are provisioned according to the expectation of realization, obtained and measured together with the counseling of the Society. The company revises the estimates and assumptions at least quarterly and/or annually. NOTE 4 FINANCIAL INSTRUMENT RISK MANAGEMENT To comply with CVM Deliberation n.º 604, dated November 19 th 2009 that approved CPC Technical Statements n.ºs. 38, 39 e 40, and CVM Instruction 475, dated December 17 th 2008, the Company revises the main asset and liabilities financial instruments, as well as the criteria for their valuation, assessment, classification and risks related to them, as shown below: (a) (b) Receivables: Cash and cash equivalent, accounts receivable and other current assets, which amounts approach those realized at the balance sheets date, are classified as receivables. Measured at fair value through profit or loss: Investments are classified as cash equivalent due to their high liquidity and to the fact that they can be immediately converted to a known amount of cash, being measured at fair value through profit or loss. (c) Derivatives: The Company has operations with derivative instruments called Swap Contracts recorded at the financing and loan account. The counterparty of such swaps is the institution

26 providing the loan and is referred to in 100% of the CDI (Interbank Deposit Certificate) combined with pre-established interest rates, varying from 10% to 10,50%. These contracts amounts a reference value of R$ on December 31 st 2011 and the effects of the gains and losses realized on these contracts, in the amount of R$ 519 in losses, were recorded in the net loss/income. (d) (e) (f) Other financial liabilities: Funding and loans, balances kept with suppliers and other current liabilities are classified in this group. Funding and loans are not indexed with subsidized rates; all operations were made using market rates. Fair value: Fair values of the financial instruments are equal to the accounting values. Financial instrument management risk: The Company performs the management of rate, Exchange, credit and liquidity exposure risks in its operations with financial instruments that are within the policies of its business. Interest rate risks The purpose of the interest rate management policy is to minimize possible impacts caused by fluctuations of interest rates indexed to the financial instruments of the society. For this, the Company uses the strategy of diversifying its operations, supporting its financial instruments with fixed and variable rates. The Company performed sensitivity analysis for adverse scenes, deteriorating the variable rates (CDI) in up to 25% (Julgamento da Administração), which would result in an increase of the financial expenses during the period in an amount of about R$ Exchange rate risks On December 31 st 2011 the Company had an exchange exposure of US$ 10,9 million, which is detailed in the table Sensitivity Analysis of the Exchange Rate Exposure of this Explanatory Note. Credit and price formation risks The characteristic of the services and supplies performed by IESA Óleo & Gás S.A. is that of major projects, most of them with medium and long term construction stages, paid according to events performed, thus reducing the credit risks. All prices are adjusted annually, according to a contractual formula. Sensitivity Analysis of the Financial Instruments

27 In order to show the risks that may generate significant losses to the company, we submit herein, as determined by CVM in its instructions nºs 475 and 550/08, a demonstration of the sensitivity analysis of the financial instruments with associated risk to the exchange rate variation (high dollar risk). Liabilities Demonstrative Table for Exchange Rate Variation Exposure Description 12/31/2011 Scene I Scene II Scene III R$ Thousand R$ Thousand R$ Thousand R$ Thous. Bank Debts Net Exposure- R$ Thousand Net Exposure - US$ Thousand Dollar Rate 1,88 1,52 2,31 2,75 NOTE 5 CASH AND CASH EQUIVALENT CASH AND CASH EQUIVALENT Controlling Company Consolidated 12/31/ /31/ /31/ /31/2010 C ash Banks Demand Deposit Banks Demand Deposit-Foreign C urrency Inv estments T otal of Cash and Cash Equivalents The investments are supported by bank deposit certificates (CDB) and Compromised Operations, and their income is pegged to Interbank Deposit Certificate (CDI). NOTE 6 CLIENTS AND OTHER CREDITS

28 Controlling Company Consolidated 12/31/ /31/ /31/ /31/2010 Trade receiv ables Unbilled Trade Receiv ables (a) Credits w ith Consortia (b) Supplies (c) Trade receivables Div idend Receiv ables (d) Adv ances Current Portion Labor Appeals Judicial Deposits Other Credits Non Current Portion Total of Trade Receiv ables Total of Other Account Receiv ables General Total a) The balance of unbilled trade receivables refer to contracts in which the installments are recognized under accrual basis according to the work progress. This procedure does not change the receiving terms settled in the contracts with clients, which follow the expenditure progress schedules. b) Credits with consortia represent values receivable regarding the results deriving from the work in which the Society participates together with other partners in EPC (Engineering, Procurement and Construction) contracts related to platforms, refineries and gas plant industries. The realization of such values is as follows: Consortia pay the associated corporations a monthly central administration fee and from times to times they provide income distributions. The breakdown of the balance on 12/31/2011 is as follows:

29 % Profit/Loss Balance Consortia Assets Liability Equity Income Profit/Loss Interest Distribution Receiv. Consórcio CII - Ipojuca Rnest Interligações ,0% (261) Consórcio QI - Reduc HDS ,0% (56.182) Consórcio QI - Reduc Plangás (64.389) 35,0% (36.123) Consórcio QI - Rev ap (14.756) 35,0% (10.597) 242 Consórcio QGGI - Comperj HDT ,5% (111) Consórcio UTGCA - Caraguatatuba ,5% (24.832) Consórcio Odebei - Plangas ,0% (24.433) (186) Consórcio Odebei - Flare ,0% (6.877) 42 Consórcio Marlim Leste ,0% (27.639) 572 On December 31 st ( ) Consórcio CII - Ipojuca Rnest Interligações ,0% Consórcio QI - Reduc HDS (33.101) 35,0% (56.426) Consórcio QI - Reduc Plangás (2.956) 35,0% (39.340) Consórcio QI - Rev ap 745 (30.222) (3) 35,0% (10.596) 242 Consórcio QGGI - Comperj HDT (1.231) (7.100) 24,5% Consórcio UTGCA - Caraguatatuba ,5% (21.426) Consórcio Odebei - Plangas ,0% (24.433) (186) Consórcio Odebei - Flare ,0% (6.877) 42 Consórcio Marlim Leste (22) 15,0% On December 31 st ( ) c) Represent resource supplies to the consortia to make their financial and economic activities feasible, especially Consórcio CII Ipojuca Interligações Rnest, Consórcio QI Reduc Plangás, Consórcio QGGI Comperj HDT. d) Refer to dividends proposed by the associated company Rig Oil & Gas Inc. and that were received during January 2012.

30 NOTE 7 NOTE RECEIVABLES Controlling Company 12/31/ /31/2010 Sale of CBD shares (a) Real state sales (b) Alberto Dav i Matone Other inv estments Total of Note Receivables Current Portion Non Current Portion (a) Refer to the amounts receivable for the sale of ordinary shares of Companhia Brasileira de Diques to Inepar Administração e Participações, maturing up to 12 months. (b) Amounts receivable for the sales of Macae, Sao Vicente and Mage plants to Inepar S/A Ind. Construções, as part of the plan for centralization of real states in the controlling company. NOTE 8 - INVENTORIES Controlling Company Consolidated 12/31/ /31/ /31/ /31/2010 Services in progress Imports in progress Advances to suppliers Inputs and Materials Total of Inventories

31 NOTE 9 TAX CREDITS IMPOSTOS A RECUPERAR Controlling Company Consolidated 12/31/ /31/ /31/ /31/2010 ICMS (Value-added tax on sales&serv ices) PIS (Employ ees' Profit Participation Program) COFINS (Social Security Financing Tax ) IRRF (Withheld Income Tax ) CSLL (Social Contribution) IRPJ Income Tax Negative Balance CSLL Social Contrib. Negative Balance INSS Withheld NOTE 10 - INVESTIMENTS Controlling Company Consolidated 12/31/ /31/ /31/ /31/2010 Inv estments on Associated Societies Premises for inv estment Total of Investments Investments on Associated Societies The following investments on associated societies are recognized in the financial statements of the controlling company, where the control is shared, evaluated by the net asset of the invested societies, according to the participation in each company. 12/31/ /31/2010 Initial Balance Investment purchase Shareholders' equity Participation in Profits Comprehensive Income 37 (41) Received dividends (40.857) (1.811) Balance on December 31 st