Best Practices in the Upstream Regulation

The Brazilian Experience The Brazilian Experience

Waldyr Barroso

Director

World Petroleum Congress – WPC 2014

June 18th, 2014

Agenda

ANP role 1

3

Bid Rounds2

Local Content and R, D&I4

Pre-Salt3

HSE5

Final comments62

Activity Before 1997 After 1997

Upstream(*)E&P Petrobras Competitive Market

Geological Survey PetrobrasProprietary surveys

SPEC surveys

Geological and Geophysical

DatabankPetrobras ANP´s E&P Shared National Databank

SShorthort introductionintroduction

* Union monopoly: concession and authorization granted by the State

Midstream(*)

RefiningPetrobras

(except article 43 -law 2.004/53)

Competitive Market under ANP authorization

Transportation Petrobras

Unbundling

Open access

New agents

Imports and Exports PetrobrasFree under ANP (petroleum) and

MME (gas) approval

Oil Products and CNG Downstream

Wholesale 208 distributors315 distributors under ANP

authorization

Retail

“Brand fidelity”

23,900 service stations

“Independent retailers” under ANP authorization

85,390 service stations

3

Establishing directives, ordinances, resolutions and normative Establishing directives, ordinances, resolutions and normative REGULATING

ANP is responsible for the implementation of the oil sector policy, in

accordance with Petroleum Law (Law 9.478/1997), Gas Law (Law 11.909/2009) and

Pre-Salt Laws (Laws 12.276/2010, 12.304/2010, 12.351/2010, 12.734/2012).

ANPInstitutional Framework

Establishing directives, ordinances, resolutions and normative

statements

Establishing directives, ordinances, resolutions and normative

statementsREGULATING

CONTRACTING

MONITORING

Promoting bidding rounds and entering into contracts with

petroleum companies on behalf of the Federal Government

Monitoring the activities of regulated industries, directly or

through agreements with other public agencies

4

Current scenario

and perspectives

Proven Reserves

Oil – ~15.6 billion bbl

Gas – ~458 billion m3

Near future: x225,0

30,0

35,0

40,0

Proven Reserves (B boe)

Production

Oil and NGL – 2.1 million bbl/day

Gas – 82.9 million m3/day

Near future: x2 *

* Considering discoveries already made,

mainly in the pre-salt area

0,0

5,0

10,0

15,0

20,0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Future

Petroleum Natural Gas

Forecast

2022

5

Oil Companies

in Brazil

Before 1999:

Now: > than 80 national and foreign oil companies

6

ANP bidding rounds

Royalties

Discussion

Pre-salt discoveries:

new paradigm

Creation of

Inter-ministerial GroupMP 592/12 & Law 12.734/12

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Pre-salt - new regulatory framework:

Higher potential

Petrobras CapitalizationBlocks in the

Pre-salt cluster

* Brazil attracted large part of data acquisition world fleet at the time of opening: from

1999 to 2001, 26 seismic data vessels came to the country.

* Acceleration of the knowledge of Brazilian basins and new discoveries, such as Pre-Salt.7

Onerous

assignment:

6 blocks

One Country,

three systems

7.5 million km2

~ 2% of sedimentary areas:Production Sharing Regime1st Pre-salt Bidding Round

All other areas:

Concession Regime

• Pre-Salt and strategic areas: low risk + huge reserves.

• PSC motivation: Expansion of fundraising potential on promising exploration areas.8

Pre-SaltA new paradigm

Area: 149.000 kmArea: 149.000 km22

Libra

9

≈ 192,000 linear 2D confidential post-

stack seismic data;

≈ 300,000 km linear

≈ 137,000 km2 3D confidential post-stack

seismic data;

≈ 21,000 km2 3D public post-stack

seismic data;

Pre-SaltData

seismic data;

323 exploratory wells: 70 reached pre-

salt layers.

10

1st Pre-Salt Bidding Round

Terms and Results

Contractual term: 35 years

Exploratory phase: 4 years

Minimum Exploratory Program:

1,547 km2 - 3D Seismic

2 wells with 1 long term test

Investment - R$ 611 (US$ 265) millions

Signature bonus: R$ 15 (US$ 6.5) billion

Local Content:

37% - exploratory phase

55% - development phase up 2021

59% - development phase after 2021

41.65 % - Profit Oil Production rate 10 to 12 thousand bbl/day

Brent price US$ 100 to 120 / bbl

BID PARAMETER

Winning Consortium

Petrobras – 40%*

Shell – 20% CNPC – 10%

Total – 20% CNOOC – 10%

*30% Minimum Mandatory + 10% in Consortium11

Institutional Framework for the Framework for the

Local Content PolicyLocal Content Policy

Government

ANP

• Policy

• Incentives (e.g. Brazilian Program for

Increasing Nationalization - PNP)*

• Regulating

• Supervising

ONIP > suppliers list and

suppliers identification

ANP

IOC

• Supervising

• Auditing

• Accrediting

NOC

Fulfill LC requirements and development of

suppliers

* Financing line for foreign industries coming to Brazil and reaching 60% of local content in products weight or value in three to five years.

12

The Development of Oil & Gas

Activities

Increase Best practiceSelf- ��Boost development

What are we Looking for ?

Increase Local Content

Best practiceHSE

Self-Sufficiency

��Boost developmentReduce social and

regional inequalities

Improve Human Life and Environment

Protection

Boost the Brazilian Industry

Research & Development as an important leading factor

13

Local Content

Commitments

Local Content offers - Average (%)

60%

70%

80%

90%

100%

PSC and Onerous Assigment also have local content

commitments.

Exp

lora

ção

De

sen

vo

lvim

en

to

0%

10%

20%

30%

40%

50%

60%

Bid 1 Bid 2 Bid 3 Bid 4 Bid 5 Bid 6 Bid 7 Bid 9 Bid 10 Bid 11 Bid 12 Pre-Salt

1

Exploration Development

Exp

loa

rati

on

De

ve

lop

me

nt

14

28 drilling rigs6 in PE, 6 in BA, 7 in ES, 6 in RJ and 3 in RS

Atlântico Sul Shipyard6 rigs

P-62; p-55 - hull

São Roque ShipyardP-59

P60

Enseada do Paraguaçu Shipyard 6 rigs

Jurong Aracruz Shipyard

7 rigs

P-68 - modules and topside

P-71 - modules and topside

OSX Shipyard P-67 and P-70 - modules and topside

InhaúmaShipyard

P-74, P-75, P-76, P-77 - hulls

Naval Industry

Source: Adapted from the 9th balance of PAC 2, 2014 (http://www.pac.gov.br/pub/up/pac/9/PAC_9_completo.pdf)

Action completed/operation

Running

Already auctioned

ShipyardP-74, P-75, P-76, P-77 - hulls

BrasfelsShipyard

P-57 (Jubarte)

P-56 (Marlim Sul)

P-61 (Papa-Terra)

6 rigs

P-66 and P-69 - modules and topside

Techint P-76 - modules and topside

Rio Grande Shipyard

P-55 – modules and topside

P-66, P-67,P-68, P-69 - hulls

P-70, P-71, P-72, P-73 – hulls

3 rigs

Honório BicalhoShipyard

P-63

P-58

P75, P77 – modules and topside

Brasil Shipyard P-74 - modules and topside

15

Brazil: Political stability and reliable rules

Huge demand for

goods and services

Finding the Way for Investments

in Brazilian O&G Sector

The gain of scale from

the Pre-Salt

R&D investments

policy

goods and services

Well-settled local

content policy

Technological

challenges

the Pre-Salt

16

Naval Industry with

Local Content

LC:

63%

LC:

79%

BrasFels Shipyard - RJ (P-61)

Rio Grande Shipyard - RS (P-55)Atlântico Sul Shipyard - PE (P-62)

Honório Bicalho Shipyard - RS (P-63)BrasFels Shipyard - RJ (P-56)

LC:

73%LC:

65%LC:

65%

17

Research, Development

and Innovation

Mandatory Investments in R,D&I(1998 - 2013)

US$ 3.8 billions

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

R,D&I Annual Investment Forecast (US$ billion)

Pre-salt

0,0

0,2

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

0,611,55

2,60

3,79

5,23

6,86

8,57

10,23

11,76

13,14

0

2

4

6

8

10

12

14

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

R,D&I Cumulative Investment Forecast (US$ billion)

Source: ANP - Boletim Petróleo e P&D, jan/2014. 18

* *RN

* *

* *PE

* *

* *AL

* *

* *PB

* *

SE

* *

HR Infrastructure For R&D

*PI

** *CE

* *

AM

DF

* *PA

* * * *MA

* *

TO

*

R&D ResultsLab infrastructure and Human Resources

* *RJ

* *

* *SP

* *

* *BA

* *

* *RS

* *

* *PR

* *

* ** *

* *MG

* **

MT

*

*GO

*MS * *

ES

* *

* *SC

* *

Technological area- UFRJ

Currently with 22 companiesResearch and technological development

activities the pre-salt.

19

Maritime Authority

• SOLAS (Safety of Life at

Sea)

• MODU (Mobile Offshore

Drilling Units) Code

• Further rules focused on

Brazilian Institute of

Environment (IBAMA)

• Environmental Licensing

• Spill response plans

• Rules focused on the

interaction of facilities with

Health, Safety and Environment Regulation

PROCESSSAFETY (ANP)

PROCESSSAFETY (ANP)

• Further rules focused on

marine systems

(Communication, hull,

ballast, navigation,

general condition,

evacuation etc)

Labour Ministry

• Rules focused on the

occupational safety and

health risks

Petroleum Agency (ANP)

• Rules focused on the

process plant safety

• Subsea / Well Control

interaction of facilities with

the environment

20

Very strict auditing process

- 264 audits since 2006 (mainly offshore)

- 105 in drilling rigs;

- 138 in production plants;

- 17 onshore;

- 4 in pipelines.

- R$ 170 million in fines (≈ US$ 75 million)

Process SafetyHighlights

- R$ 170 million in fines (≈ US$ 75 million)

- 23 cautionary measures (operation halt)

Enhanced communication

- With environmental and health regulator;

- With industry (workshops);

- With society (website, workers unions);

- Among regulators (IRF).

http://www.akersolutions.com

21

Final Comments

�Market opening accelerated knowledge about Brazilian

basins and led to huge discoveries.

�Pre-Salt and Strategic areas: big accumulations and lower �Pre-Salt and Strategic areas: big accumulations and lower

risk demanded a different contractual regime, permitting

higher social benefits.

�Bright perspectives for the future in deep water also means

increasing focus on HSE and technology.

22

THANK YOU VERY MUCH!

National Agency of Petroleum, Natural Gas and Biofuels - ANP

Rio Branco Avenue, 65 - 12º to 22º floor - Center - Rio de Janeiro - Brazil

Phone: +55 (21) 2112-8100

www.anp.gov.br