Updates on Brazilian Oil & Gas Industry Pablo Sorj psorj@mattosfilho.com.br June 2017
What is happening in Brazil?
What is happening in Brazil? • President Dilma impeached – August 31, 2016 • Economy improves: • Inflation under control • Privatization program in the right track • Approval of cap for public expenses • Over 100,000 jobs created in 2017 • President Temer faces corruption charges • House of Cards official twitter account remarks on the controversy: - “It is getting difficult to compete with Brazil.” Updates on Brazilian Oil & Gas Industry – Pablo Sorj 3
Entering Brazilian Oil & Gas Business
Next Bid Rounds (2017) • 3 Bid Rounds scheduled for this year: • 14 th Bid Round - Concession Regime - September 27, 2017 - 287 blocks in 5 offshore and 6 onshore basins. – tender documents released on May 18, 201 . • 2 nd Bid Round - Production Sharing Regime - October 27 2017 - 4 non contracted areas that may be subject to unitization - Santos and Campos basins. • 3 rd Bid Round - Production Sharing Regime - October 27 2017 - 4 areas - Santos and Campos basins. • Other opportunities in the next years: 6 Bid Rounds forecasted for 2018 and 2019. Updates on Brazilian Oil & Gas Industry – Pablo Sorj 5
Next Bid Rounds: What will change? • Qualification process will take place after the blocks are awarded , and not prior to the Bid Round, as happened in the past. • Local content policy for E&P projects was revised and requirements were reduced: • The average reduction on the local content percentages is of roughly 50% . • The overall penalties over Local Content non-compliances were also significantly reduced . • In the current context, these changes aim to increase attractiveness of future Bid Rounds. All changes are applicable for 2017 Bid Rounds . Updates on Brazilian Oil & Gas Industry – Pablo Sorj 6
Next Bid Rounds: What will change? • Petrobras’ participation and operatorship in Production Sharing Agreements are no longer mandatory. Now, Petrobras is entitled to decide if it will participate or not: • 2 nd Bidding Round – Petrobras exercised its preemptive rights for unitization areas adjacent to Sapinhoá field. • 3 rd Bidding Round – Petrobras exercised its preemptive rights for Peroba and Cabo Frio Central areas. • For every area, Petrobras shall hold a participating interest of at least 30% . • These percentages could be increased by partnership and bidding conditions with other interested companies. Updates on Brazilian Oil & Gas Industry – Pablo Sorj 7
Overview of Latin America’s scenario • Last Bids of hydrocarbon fields in Latin American: • Bolivia – last Bid Rounds in 2012 - 5 blocks were awarded; • Colombia - promoted two Bid Rounds: Open Round 2014 - 26 blocks awarded - and Ronda Campos 2016 - 6 blocks were awarded; • Ecuador – held its 11th Bid Round in 2013 - 13 blocks were awarded; • Peru - cancelled Bid Round 2013 - only one company expressed interest; and • Uruguay - held 2 Bid Rounds in 2009 and 2012 - 10 blocks were awarded; • Mexico - Ronda 1 included 5 bid rounds – in total, offered 55 blocks. • Comparing with Brazil: • Brazil in 2017 only: total of 295 blocks; and • All other Latin American countries in the last 5 years: total of 115 blocks. • Therefore: Brazil is by far the Latin American country with the largest number of opportunities . Updates on Brazilian Oil & Gas Industry – Pablo Sorj 8
Increase and Decrease of M&A Activities since 2010 Year No. of Farm-ins Foreign National Petrobras 2010 20 5 15 7 2011 43 28 15 2 2012 38 18 20 8 2013 8 2 6 2 2014 17 7 10 1 2015 3 3 0 3 2016 13 9 4 4 Updates on Brazilian Oil & Gas Industry – Pablo Sorj 9
Petrobras Divestment Plan: What you should know? • Petrobras will make a substantial divestment – target of USD 21 billion until 2017/ 2018 . • Divestment will include upstream , midstream and downstream assets – opportunity for foreign companies to enter into various sectors of the Brazilian oil and gas industry. • Examples of some of the divestments so far: – Petrobras sold 66% participating interest in Carcará to Statoil for USD 2.5 billion; – Petrobras sold the LNG distributor Liquigás to Ultra Group for BRL 2.8 billion; – Petrobras sold participating interest in the I ara and Lapa offshore fields and in Termobahia thermal power plant to Total E&P for USD 2.2 billion; and – Petrobras sold 90% of the gas pipelines of the gas transporation company NTS to a consortium led by Brookfield for USD 5.19 billion. Updates on Brazilian Oil & Gas Industry – Pablo Sorj 10
Some relevant M&A Transactions of the last years Total acquired 22,5% participating interest Statoil acquired 66% participating interest Shell and ONGC acquired 35% participating in I ara Field, 35% participating interest in in Carcará from Petrobras for USD 2.5 interest in Parque das Conchas from Lapa Field and 50% participation in billion (2016) Petrobras for USD 1.64 billion (2013) Termobahia from Petrobras for USD 2.5 billion (2016/2017) Sinopec acquired 30% of Petrogal Brasil , Sinopec acquired 40% of Repsol Brasil for Sinochem acquired 40% participating a subsidiary of Galp, for USD 3.54 billion USD 7.1 billion (2010) interest in Peregrino Field from Statoil for (2011) USD 3.07 billion (2011) Updates on Brazilian Oil & Gas Industry – Pablo Sorj 11
New Trends
New Trends • Dialogue with the industry : • CNPE - Working Groups and initiatives • Participation of market’s private agents • Reference price • Gas Market opportunities : • End of Petrobras’ de facto monopoly • “Gás Para Crescer” (“gas to grow”) • BNDES - privatization of natural gas distributing companies • Regasification market Updates on Brazilian Oil & Gas Industry – Pablo Sorj 13
New Trends • Litigation: • Largest litigation in the history of the industry • Reversal of few unfavorable decisions in higher courts • No litigation regarding change in terms and conditions or direct expropriation • Financing : • Companies still under stress • Petrobras has demonstrated better financial performance, deleveraging and access to capital markets • Petrobras more open to discussions re bankability of its contracts • Brazil on negative watch (S&P and Moody´ s) – impact on Petrobras ratings • Opportunities for acquisition finance Updates on Brazilian Oil & Gas Industry – Pablo Sorj 14
Takeaways
Takeaways • Political instability due to Temer’s corruption charges may affect the Oil & Gas business. • Many opportunities in sight: • In 2017 only, 295 blocks will be offered ( dates are set ); and • Petrobras’ divestment program intends to sell USD 21 billion in assets during 2017/ 18 . • Bid Rounds planned until 2019: there is no more uncertainty on the occurrence of the Rounds. • There is a lot of litigation , so far no final decisions had unfavorable outcomes . • Brazilian government is becoming more business oriented , with more dialogue with private players and recent attractive regulatory changes have been approved. Updates on Brazilian Oil & Gas Industry – Pablo Sorj 16
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