Manifest, Bergen 17 February 2010

The Brazilian oil reforms

By Willy H Olsen, senior adviser INTSOK

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Brazil has moved from the periphery to the major league.. Delivering samba beat to the global oil industry

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A president with sugar cane in the tank! Brazil has the worlds most energyefficient ethanol production chain

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He is the leading the worlds most aggressive oil company

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Presalt discoveries are opening a new era Will need to invest more than $600 billion to tap the reserves

Top of the Albian Top of the K Top of the Salt Base of the Salt
f Top o ift the R ift ra-R t n I Disc

Sea bed

Everything which can be done in Brazil should be done in Brazil

Elections in October Who will replace President Lula?

Dilma Vana Rousseff Presidents Chief of Staff

Jos Serra Governor of the State of So Paulo

Optimistic about its future

More than a decade of economic stability and low inflation Strong macroeconomic framework Sustained fiscal discipline The financial crisis has been short Hydro Gas Brazil has enormous potential But also some major challenges Shortage of infrastructure Quality of education Biomass Oil Environmental issues Crime
Coal

Continuous fight against poverty

Petrobras the history

Petrobras had monopoly in the Brazilian oil and gas sector for more then 25 years Self sufficiency was the key issue Campos discoveries in 1974 created a new future Reforms opened for foreign companies in 1997 A new regulatory body, ANP, Petrobras was allowed more commercial freedom

President Getulio Vargas short period from 1953 was nationalistic, reducing foreign dependency

President Emilio Medicis period from 1969 started the Brazilian miracle with significant economic growth

From monopoly to listing

In recent years Petrobras has carried the two hats The commercial hat obvious abroad The hat as an instrument obvious at home Petrobras corporate culture has changed in the last decade More focus on shareholder value The Government owns 32% and BNDES 7.7%. Government maintains controlling interest with 58% of voting shares

President Lulas view on control

President Lula has caused some concern among private investors "It's not about dictating rules to Petrobras It's about saying Petrobras is controlled by the Brazilian government Petrobras needs to fit in a strategy to develop the country, while respecting its specific interests Petrobras must focus on social issues and not solely on profits

Aggressive expansion plans

Will spend $174 billion in the 20092013 business plan $128 billion in the presalt Large investments to expand domestic refinery capacity Substantial investments in gas and power Continued focus on biofuel

Source: Petrobras strategic plan January 2009

High ambitions for production growth

Presalt to contribute more than 1,2 mill b/d to the growth between 2013 and 2020
Thousand barrels per day

Reducing dependency on imported gas

LNG
Millions m3/day

Bolivia

Brazil

Source: Andre Cordeiro, Petrobras, 2008

The move to the top technology league

Petrobras has over the last 30 years moved from the periphery to the major league The third largest oil company in market capitalization in 2009 up from no 23 in 2000 The strategy has been to Explore geological opportunity Create inhouse technological capability Cooperation with IOC and suppliers Innovation management Customer oriented Financial freedom

CENPES an island of knowledge

R&D Management

R&D Exploration

R&D Production Basic Engineering

R&D Refining Technology Management

R&D Gas & Energy

Cenpes was the source of the innovative solutions that made Petrobras the recognized world leader in deepwater and ultradeep water Cenpes has 227 laboratories as a result of recent expansion Near 2,000 work for the institution directly Cenpes is the most visible feature in a giant network of investments that Petrobras has made in the area of technology Invested close to US$ 700 million in R&D 2008

Petrobras research programs

Research is more than deep water and presalt

Field Marlin Bicudo Aracas Pirauna Namoradu Rio Urucu Location Offshore Offshore Onshore Offshore Offshore Onshore Recovery factor 56% 56% 61% 63% 64% 61%

High ambitions of high recovery factors

The strong links to universities

Partnership with over 120 universities and research centers in Brazil, and 70 institutions abroad Many are dedicated to Petrobras technological goals Aim to create an environment that drives research outside Petrobras Stimulating interaction among Brazilian universities and good and service suppliers, both domestic and international Cooperation among Brazilian institutions and foreign R&D institutes But always in line with Petrobras business strategy

The newfound wealth must bring development Must not be allowed to undermine other industries It is a treasure that belongs to all Brazilians
Minister of Mines and Energy Edison Lobao

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New reforms under way

President Lula has proposed new to secure more national control of the giant presalt reserves New national oil company, Petrosal, will have a majority vote in the management committee Petrosal will not invest Reserving exclusive operating rights for Petrobras Securing Petrobras 30% in all new presalt contracts Oil revenues into a national development fund Used for education, science, technology and anti poverty projects.

Reducing the role of international oil companies

Congress is discussing the reforms

Petrobras will be in charge

Brazil believes that a single operator is needed to ensure the governments goal of buying most of its platforms, ships, rigs and equipment from domestic or foreignowned suppliers in Brazil

Petrobras CEO ose Sergio Gabrielli and President Lula

Only Petrobras has the size needed to keep costs down By placing big orders and standardizing technology we can do this; with lots of companies this wont happen. We are the only one who can ensure expansion of the national industry.

The giant presalt challenge

Challenges
Equipments Human Resources Cost Inflation

Petrobras strategy
Aggressive bidding program for rigs, FPSOs, supply vessels and anchor handlers, mainly new built units Longterm contract with service providers Renewal of current contracts Supporting expansion of the suppliers capacity Training programs for own employees and for the supply chain workforce

Maximizing local content

Challenge Maximize local content Strategic issues

Qualification
Technology qualification Professional qualification Supplier development Industry capacity

Industrial policy
Financing Tax policy Regulation Foster micro and SMEs

Industry performance
Sustainable Competitive HSE Initiatives on competitiveness

Funding initiatives

SME sector is an economic force

The SME sector is an economic force in Brazil 98% of industrial, commercial and service undertakings Represents more than 60% of urban jobs Provides 21% of GDP More than 14.000.000 entrepreneurs Petrobras has set up two funds to help SMEs Offering certified suppliers preapproved credit Paying them in advance up to 50% of contract value Lenders will get an advance on future revenues Benefiting from tax exemption

Petrobras work with small suppliers

Petrobras demands high quality Helps local firms to achieve necessary standards Agreement with the Government Agency Sebrae to include SMEs in the supply chain Qualification of Micro and Small companies to be potential suppliers Networking and cooperation between local companies and Oil & Gas Companies 2300 small and micro companies participate 50% Petrobras funding and 50% Sebrae More than $700 mill used to assist companies 200 local oil service companies qualified in 2000 Reached near 1800 qualified suppliers in 2008

Involving the whole education sector

Engineering 5967 Civil construction 15020
Basic 15020

Construction & assembly 84576

Basic 54476 High school 19386 Technician s 2196 Graduates 4290 Inspectors 4228

Operations & maintenance 7062

Basic 3744 High school 3542 Technician s 320

High school 2927 Technician s 460 Graduates 2580

Domestic capacity will not be large enough

imports

5. Incentive for settling down international companies in Brazil 4. Incentive for association between national and international companies 3. Incentive for new national entrants 2. Develop competition among medium competitive sectors 1. Increase productivity capacity of highly competitive sectors

Increase in National Supply Capacity of G&S imports

Current Demand

Future Demand

The largest global offshore markets

Expected expenditure 201013

Billion USD
Source: INTSOKs annual market report

Brazil attractive for Norwegian firms

Source: INTSOKs partner survey 2009

Aker

Sevan

Acergy Petrobras

Seadrill

Siemens

Marintek AGR

FMC

It is not necessary for a Norwegian company that has ambition to gain a contract to be present in Brazil, but it is an advantage. All the Norwegian companies I do business with are represented in Rio
Jose Formigli Petrobras, Vice President, Presalt Development
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Large potential for our advanced technological solutions

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