Offshore Opportunities in Brazil - What does the future hold? - Where are the most promising opportunities for partnership with international know-how and outside investment?
Presentation Summary Introduction to Brazilian Oil&Gas history Brazilian Oil&Gas legal framework Understanding the Pre-Salt Facts / Impressions /Inputs Conclusion
Introduction “Study the past if you would define the future. ” Confucius Let’s take a brief look into Brazilian Oil & Gas recent history…
Introduction Until 1995 – Monopoly (Petrobras – Risk Contracts) 1995 – Opening of the market to private OCs 1997 – Establishment of the Concession regime The Concession regime proved to be a success, helping to boost oil and gas production by 32.89% in the three Brazilian E&P Industry Growth years following the first bidding round (world production increased by only 2.9% during the same period). 2006 – Petrobras’s consortium discovers massive reservoirs in the pre-salt frontier
Introduction 2008 – After the first pre-salt surveys, Government removes 41 pre-salt sites from the 9 th Bid Round – Government creates task force to issue recommendations on the new E&P regulatory framework 2010 – Government enacts the new Regulatory Framework for Oil & Gas exploration and production 2013 – The First Pre-Salt Production Sharing Agreement bid round is expected to happen this year, as well as the 11 th Concession Bid Round Lula during pre-salt enactment event – source Governmental Agency
Presentation Summary Introduction to Brazilian Oil&Gas history Brazilian Oil&Gas legal framework Understanding the Pre-Salt Facts / Impressions /Inputs Conclusion
Brazilian Oil&Gas Legal Framework 100% Direct Assignment Production Pre-Salt Areas and Min. 30% Sharing “ Strategic ” Areas Agreement Bid winners Max. 70% Bidding Process* 2 * 2 Sole award Criterion: Share offered to Government in the profit oil distribution. P.S.: Local Content is no longer an award criterion, but is still a contractual obligation to be included in the PSA draft Remaining Areas and areas already * 3 No changes shall occur to Concessions already Concession* 3 awarded, even within the Pre-Salt area. auctioned in the Pre-Salt region
Brazilian Oil&Gas Legal Framework Production-Sharing Concession Agreement Agreement Areas Covered Pre- salt fields and “strategic” All the remaining areas areas Players Petrobras (as sole operator), Petrobras and IOC(s) PPSA and IOC(s) Minimum mandatory 30% 0% participation of Petrobras Selection criteria Share of oil production Signing bonus, work program, offered to the Federal Union. minimum amount of investment. Direct assignment to Petrobras Government take Fixed signing bonus; Non-fixed signing bonus; Royalties Royalties Income Tax = IRPJ + CSLL: Special Participation: 25 + 9%.* proportional to the Share of oil production production capacity; after deducting the Cost Income Tax = IRPJ + CSLL: Oil 25 + 9%.* * IRPJ (corporate income tax)and CSLL (Social Contribution on Net Profit) are levied on profit.
Brazilian Oil&Gas Legal Framework PLAYER’S MAJOR ROLES IN THE PSA FRAMEWORK ANP PETRO-SAL PETROBRAS OIL COMPANIES Participates in all Drafts the PSAs and Participation limited PSA Blocks by means of Operator in all PSA Blocks Bid Tender Protocols to 70% Consortium Analyses and approves Holds 50% of the seats Minimum participation of Participate solely Exploration and in the Operation 30% in all PSA Blocks as investors Development Plans Committees Elects the OPCOM’s Acts as the May be directly president, who has Little Participation Government’s contracted by the casting vote in OPCOM’s decisions Regulating Body Government and veto powers
Presentation Summary Introduction to Brazilian Oil&Gas history Brazilian Oil&Gas legal framework Understanding the Pre-Salt Facts / Impressions /Inputs Conclusion
Understanding the Pre-Salt Location and size of pre-salt area The Pre-Salt area stretches across the Campos and Santos basins Total Pre-Salt area is 149,000 km2 Area under concession: 45,600 km2 (31%) Area still NOT auctioned: 103,400 km2 (69%) Area with Petrobras’s participation: 36,600 km2 (25%) Conservative numbers point to 25% of the pre-salt area having as much as16 bn boe > less conservative forecasts mention over 120 bn boe in the whole of the pre-salt It is important to emphasise that in PSA regime Petrobras will be the sole operator for all Pre-Salt blocks, so its participation will boost with the upcoming PSA bid rounds.
Understanding the Pre-Salt Post-Salt Layer Most of Brazilian reservoirs discoveries are located at Post-Salt Layers. Salt Layer Unstable and irregular layer with depths varying from 1.000 to 2.000 meters. Pre-Salt Layer Due to its unique geological characteristics, poses as the next frontier in the oil exploration, requiring high technology equipment resistant to high pressure, temperature and corrosion.
Biggest challenges New technological frontiers Logistics Ultra Deep water rigs are very expensive – experts state approx. 50 are required The pre-salt will require over 9000 km of risers Over 2000 m water depth require complex mooring systems Wet christmas trees – exploring the pre-salt requires at least 2000 of them The pre-salt will require over 20000 km of completion steel pipes capable of holding extremly high pressures Experts point at the need to drill over 2000 wells – high demand for high tech drills Located 300 km offshore the coast of São Paulo, and 230 km offshore the coast of Rio de Janeiro, exploring the pre-salt is a logistics nightmare
Presentation Summary Introduction to Brazilian Oil&Gas history Brazilian Oil&Gas legal framework Understanding the Pre-Salt Facts / Impressions / Inputs Conclusion
Facts / Impressions / Inputs Petrobras’ 2012 -2016 Business plan, USD 236.5bn Petrobras ’ 5 year business plan account to USD 1,5 % 1,6 % 1,3 % 2,1 % 236.5bn over 2012-2016, corresponding to 47.3bn 5,8 % per year E&P 60% of total budget, USD 141.6bn, are to be used on Downstream E&P Gas & Energy 1/3 of proven reserves are still undeveloped Petrochemical 27,7 % 50 % of proven reserves at ultra-deep water (below 60,0 % Distribution 1,500m) Biofuels Corporate Brazilian Offshore Sector Brazilian Production OSVs Rigs Market Units
Brazilian Market KNOWN FACTS 47 Shipyards and 11 new under construction Petrobras ’ production in Brazil does not meet target Amazonas Ceará 4 910 Estaleiro BBI Estaleiro INACE 5 000 Pará Pernambuco 4 500 Estaleiro RIO Estaleiro ATLÂNTICO SUL 4 200 4 000 MAGUAR Estaleiro PROMAR 3 500 Alagoas 3 070 EISA Alagoas 3 000 Bahia 2 500 Consórcio Rio Paraguacu 2 377 2 500 2 338 2 288 2 176 2 000 (Odebrecht / Queiroz Galvão / UTC) 1 500 Rio de Janeiro BRASFELS 1 000 SRD Offshore 500 Empresa Brasilerra de Reparos Navais – RENAVE 0 2008 2009 2010 2011 2015 2016 2020 ENAVAL Engenharia Naval e Offshore Estaleiro MAUÁ MAC LAREN OIL Estaleiros • Source: www.sinaval.org.br Old production target (2011-2015 BP) New production target (2012-2016 BP) NITSHORE Engenharia e Servicos Navais e Manutencão São Paulo STX OSV Niterói CAMARGO CORRÊA Naval UTC Engenharia Construtora QUIROZ GALVÃO Complex Regulatory Framework: ALIANCA Indústria Naval RIO TIETE (Aracatuba) EISA Estaleiro Ilha SETAL Engenharia Construcões IESA Óleo e Gás e Perfuracões Complicated Tax Regime • Rio Grande do Sul RIO NAVE Servicos Navais VELLROY Estaleiros do Brasil EBR Estaleiros Brasil Strict Labor Law Superpesa Industrial • WILSON, SONS RG Estaleiros Navegacão SÃO MIGUEL Changing Regulation • QUIP Santa Catarina TRIUNFO Operadora Heavy Local Content requirements • WILSON, SONS DETROIT Brasil SERMETAL Estaleiro ITAJAÍ CASSINÚ Estaleiro NAVSHIP OSX Construcao Naval KEPPEL Singmarine Brasil DOCKSHORE Navegacão e Servicos
Brazilian Market MARKET IMPRESSIONS OUR INPUT Numbers indicate that Brazil’s economy is picking up on recent Brazil’s economy has slowed down years’ pace – Brazil is Investment Grade and is one of the world’s biggest economies Petrobras is the biggest offshore drilling contractor in the world Dangerous to have most of your portfolio in one place with 77 rigs under hire. (one country / one client -Petrobras) However, Petrobras is not the only big operators in Brazil. There are also companies such as Statoil, OGX, Repsol, ONGC, QGEP, among others. The Brazilian market is the biggest offshore market in the world. During the last 5 years, over 50% of the world’s findings were in deep waters - 63% of those findings happened in Brazil. For the first time, Petrobras has publicly questioned its ability to Local Content requirements are impossible to meet comply with the local content requirements imposed by the ANP – following this ANP has organized a public hearing in order to assess the market’s feeling on LC policy Although it might be seen as complex, the Brazilian legal Tax regime, changing regulation and strict labor law system is one of civil law, thus very stable. Once are a sign of legal uncertainty acknowledged and understood it is easier to deal with
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