Risk Analysis of Offshore Multi-Field

Oil Production Projects at PETROBRAS

RAFAEL HARTKE, ERP
FINANCIAL PLANNING AND RISK MANAGEMENT
PETROBRAS
November, 2010
 DISCLAIMER
FORWARD-LOOKING STATEMENTS:
DISCLAIMER
The presentation may contain forward-looking statements about
future events within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that are not based on historical facts and
are not assurances of future results. Such forward-looking
statements merely reflect the Companys current views and
estimates of future economic circumstances, industry conditions,
company performance and financial results. Such terms as
"anticipate", "believe", "expect", "forecast", "intend", "plan", "project",
"seek", "should", along with similar or analogous expressions, are
used to identify such forward-looking statements. Readers are
cautioned that these statements are only projections and may differ
materially from actual future results or events. Readers are referred
to the documents filed by the Company with the SEC, specifically the
Companys most recent Annual Report on Form 20-F, which identify
important risk factors that could cause actual results to differ from
those contained in the forward-looking statements, including, among
other things, risks relating to general economic and business
conditions, including crude oil and other commodity prices, refining
margins and prevailing exchange rates, uncertainties inherent in
making estimates of our oil and gas reserves including recently
discovered oil and gas reserves, international and Brazilian political,
economic and social developments, receipt of governmental
approvals and licenses and our ability to obtain financing.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information or future events or for any other reason. Figures
for 2010 on are estimates or targets.
All forward-looking statements are expressly qualified in their
entirety by this cautionary statement, and you should not
place reliance on any forward-looking statement contained in
this presentation.
NON-SEC COMPLIANT OIL AND GAS RESERVES:
CAUTIONARY STATEMENT FOR US INVESTORS
We present certain data in this presentation, such as oil and
gas resources, that we are not permitted to present in
documents filed with the United States Securities and
Exchange Commission (SEC) under new Subpart 1200 to
Regulation S-K because such terms do not qualify as proved,
probable or possible reserves under Rule 4-10(a) of
Regulation S-X.
2
SCHEDULE

Motivation and Objective

An Overview of PETROBRAS

Upstream Business Segment

Risk Analysis of Offshore Multi-Field Oil Production Project in Brazil

Conclusion

Final Remarks

3
MOTIVATION AND OBJETIVE

Motivation:

All investment projects must undergo economic risk analysis in

PETROBRAS

Corporate tool for economic risk analysis PROGRIDE

New projects and new exploratory frontier present a whole new level
of complexity new techs, partnerships, optionalities, multi-fields...

PROGRIDE not capable of handling this new complexity!

4
MOTIVATION AND OBJETIVE

Objective:

Present PETROBRAS

Examine the main issues in offshore multi-field oil production

projects in Brazil

Present a solution integrating @RISK and PROGRIDE to perform risk

analysis of offshore multi-field oil production projects

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An Overview of PETROBRAS
PETROBRAS: AN INVESTMENT GRADE, PUBLICLY TRADED, MAJOR
INTERNATIONAL OIL COMPANY

Incorporated in 1953 as the government

monopoly for all hydrocarbon activities in Government maintains controlling interest
Brazil with 55% of voting shares

Originally established as a refiner of Market cap of US$ 224 billion as of

imported crude oil September 30th, 2010

Became net exporter in 2006 Foreign currency ratings from Moodys

(Baa1), Standard & Poors (BBB-), and Fitch
(BBB).
60% of total equity capital (common and
preferred) is now publicly traded

Crossed the Brazil Self 2MM bpd, A New E&P

Petroleum First Public Petrobras Full Upgraded to
US$100 billion Sufficient in $200MM market Regulatory
Law and ANP Auction of Oil NYSE Listing Deregulation Investment
Market Oil cap, Discovery Framework.
creation: Exploration Grade Issuer
Cap mark of new oil Pre-Salt and
End of Areas frontier: Pre- Strategic
Monopoly Salt (Tupi field) Areas
1997 June 1999 Aug 2000 Jan 2002 Oct 2005 2006 Apr 2006 2007 Aug 2009

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A WORLD-CLASS, PUBLIC, INTEGRATED ENERGY COMPANY

3.9 3.9
2009 Oil & Gas Production Gas Production boe/d
3.2
Oil Production boe/d
2.7
2.5
(mmboe/d)

2.5
2.2
1.7

84%
(oil) 0.6

BP XOM RDS CVX PBR COP Total ENI BG

Source: Evaluate Energy and Company reports

2009* Refining Capacity Market Value as of September 30th, 2010

(thousand boe/d)

3 15
6, 271
(US$ bn)
224
18 3 16 3
3, 639
12 9 12 1
2, 902 2. 666
87 85
2 , 5 9 42 , 2 2 3 2 , 1 5 8 67
747
311
X OM P BR RDS CV X BP T OT E NI C OP ST L
Source: PFC Energy
X ODecember
*Report M R D S2009C O P BP T OT PBR CVX ENI STL Source: Bloomberg

8
Note: Peer companies selected above have a majority of capital traded in the public markets.
PETROBRAS CURRENT INTERNATIONAL PRESENCE

2009
2009 -- Brazil
Brazil
-- Production:
Production:
OilOil and
and LNG:
LNG: 1.971
1.971 thous.
thous. bpd
bpd
Natural
Natural Gas:
Gas: 317
317 thous.
thous. bpd
bpd
Oil Products: 1.823 thous. bpd
-- Proven
Proven Reserves:
Reserves: 14,2
14,2 million
million boe
boe
(SPE
(SPE Criteria)
Criteria)
-- Distribution
Distribution market
market share:
share: 38.6%
38.6%
- Ethanol Exportation: 362.000 m

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 OFFSHORE DEEPWATER PRODUCTION DEVELOPMENT PROCESS

1977
Enchova
410ft

1988
Marimb
1610ft

TUPI
WATER DEPTH = 7,125 ft 1994
TOTAL DRILLING DEPTH = 17,431 ft Marlin
3,370ft
TIBER 2009
WATER DEPTH = 4,134 ft Tiber
1997
TOTAL DEPTH = 35,055 ft 4,134 ft Marlin Sul
5,600ft
2003
Roncador
6,180 ft 2009 2010
Tupi Cascade
7,125 ft Chinok
8,250ft

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BUSINESS PLAN 2010-14: US$ 224 BILLION
Increased investment for integrated operations in Brazil

Business Segment
(US$ Billion)
Brazil and Abroad
1% 2% (US$ Billion)
1%
2% 3.5
8% 5.1 3.5 International
2.5 2.8 5%

17.8 11.7

118.8
53%
73.6 212.3

33%

95%
Brazil

E&P Downstream G&E Petrochemicals

Distribution Biofuels Corporate

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Upstream Business Segment
DOMESTIC UPSTREAM PROFILE

2009 Production 2009 Proven Reserves (SPE)

14% 10% 9% 10%

19%
24%

57% 57%

2,287 thousand boed 14.17 billion boe

Onshore Shallow water (0-300m) Deep water (300-1500m) Ultra-deep water (> 1500m)

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Source: Petrobras
DOMESTIC PROVEN RESERVES PROFILE

Proven Reserves as of Dec/2009 (ANP/SPE)

(14,17 billion boe)
< 22
22 API Oil + Condensate
(heavy)
85%
50%
29% 22 31 API
(intermediate) 10% 5%
15% 6%

Gas > 31 API (light) Associated Gas

Non-
Non-Associated Gas

43%
Undeveloped 57% Developed
Proven Reserves Proven Reserves

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MORE FIELDS ANDS BLOCKS WITH PARTNERS

o Petrobras current domestic production comes mainly from fields (97%) owned by the company
alone
o In blocks under development, 62% of blocks without partners
o More than half (53%) of the blocks under exploration or appraisal are joint ventures

Concessions Under Production Production Development Exploration + Evaluation

(247) Concessions (66) Concessions (54)

97% 53%
38%
62%
47%
3%

Petrobras (100%)
Petrobras in Partnerships 34 Oil and Gas Companies (2008)

15
SINN, July 2009
UPSTREAM PORTFOLIO AT DIFFERENT STAGES OF DEVELOPMENT

Margem Equatorial o Brazil

Ceara & Potiguar Exploration:
2009-13 US$
Solimes 13.8 bn

Brazil Potiguar o Exploratory Area:

155 thousand
SEAL& REC & TUC
km
Bahia Sul
o 265 exploratory
So Francisco blocks
Esprito
Santo o 35 appraisal
plans
Campos

Petrobras Santos o 313 production

Others concessions
Pelotas

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MAIN PROJECTS 2010-2014
Updated business plan added new projects

Mexilho
Mexilho Marlim
Marlim Sul
Sul Guar
Guar Pilot
Pilot FPSO
FPSO Tupi
Tupi NE
NE Pilot
Pilot
NG Early
Early production
production of
of
NG 120,000
120,000 bpd
bpd FPSO
FPSO
SS
SS P-56
P-56 Baleia
Baleia Azul
Azul 120,000
120,000 bpd
bpd
Module FPSO
FPSO Espadarte
Espadarte
Urugu/Tamba
Urugu/Tamba Module 33
Th. bpd 100,000 100,000
100,000 bpd
bpd
FPSO
FPSO Cidade
Cidade de
de Santos
Santos 100,000 bpd
bpd
NG/35,000bpd
NG/35,000bpd
2,980
Tupi
Tupi Pilot
Pilot
2800 Cidade
Cidade de
de Angra
Angra dos
dos
Reis
Reis
100,000
100,000 bpd
bpd

Cachalote
Cachalote ee
Baleia
Baleia Franca
Franca
2400 FPSO
FPSO Capixaba
Capixaba Roncador
Roncador Papa-Terra
Papa-Terra Roncador
Roncador
100,000
100,000 bpd
bpd SS
SS P-55
P-55 TLWP
TLWP P-61
P-61 && FPSO
FPSO P-62
P-62
Module
Module 33 FPSO
FPSO P-63
P-63 Module
Module 44
180,000
180,000 bpd
bpd 150,000
150,000 bpd
bpd 180,000
180,000 bpd
bpd
2,100
2000 Tupi
Tupi NE
NE EWT
EWT Jubarte
Jubarte Tiro/Sidon Whales
Tiro/Sidon Whales Park
Park
30.000
30.000 bpd
bpd FPSO
FPSO P-57
P-57 FPSO FPSO
FPSO FPSO P-58
P-58
Guar EWT 180,000
180,000 bpd
bpd 100,000
Guar EWT 100,000 bpd
bpd 180,000
180,000 bpd
bpd
Dynamic
Dynamic Producer
Producer
30,000
30,000 bpd
bpd
Aruan
Aruan Guaiam
Guaiam
Tiro
Tiro EWT
EWT
1600 SS-11
SS-11
FPSO
FPSO FPSO
FPSO
100,000
100,000 bpd
bpd 100,000
100,000 bpd
bpd
30,000
30,000 bpd
bpd
Aruan
Aruan EWT
EWT
Cidade
Cidade Rio
Rio das
das Ostras
Ostras 44 EWT
EWT 44 EWT
EWT 33 EWT
EWT 22 EWT
EWT
15,000
15,000 bpd
bpd Pre-salt
Pre-salt Pre-salt
Pre-salt Pre-salt
Pre-salt Pre-salt
Pre-salt
1200
2010 2011 2012 2013 2014

Oil Pre-Salt Natural Gas

17
EWT = Extended Well Test
PETROBRAS

Major international energy company

Very ambitious investment plan

Many big upstream projects coming up in the next few years

Deep and ultra-deep waters, new technologies, partnerships,

optionalities, multi-fields...

18
Risk Analysis of Offshore Multi-Field Oil Production Project in Brazil
Taxation of Offshore Oil Production in Brazil

Oil production project specific taxes:

Royalties ~ 10% of gross revenue

Special Participation ~ 0 to 40% of gross revenue, per field/block

R&D ~ 1%

Area Rental ~ 0%

REPETRO optional tax excemption on imported

equipment (very complex!)

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Special Participation

21
PROGRIDE

PROGRIDE is PETROBRAS corporate tool for economic analysis of upstream

investment projects:

In-house Excel based solution

Excel interface and C++ code on the background

Adapted to the Brazilian upstream specifics (taxes, oil spreads,

logistic costs)

Uniform methodology among all projects and explicit inputs (audits)

Deterministic, sensitivities and risk analysis modules

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PROGRIDE

Advantages of using PROGRIDE:

Automatic calculation of taxes (Income Tax, Royalties, Special

Participation, R&D, Area Rental)

Automatic calculation of depreciation, residual values and economic life

of the project

Support for multiple dependent projects within the same block

Support for earlier production projects (with negative production in

the future)

Support for OPEX reduction projects (with negative OPEX in the

future)

23
PROGRIDE Interface

24
PROGRIDE Main results

Net Present Value

Probability of Negative NPV

Payback Period

Optimal Abandon Date

Financial exposure

Government take

Equilibrium Oil Price

Value @ Risk
25
Offshore Multi-Field Oil Production Projects in Brazil

Oil project with 2 fields producing to 1 FPSO:

FPSO

Field
Field B
A
Integrated Project
A+B

26
Offshore Multi-Field Oil Production Projects in Brazil

Oil project with 2 fields producing to 1 FPSO:

Production from 2 fields (independent production curves)

Process oil in 1 FPSO

Shared CAPEX (FPSO, pipelines)

Independent CAPEX (wells, risers)

Independent taxation for each field (Royalties, Special Participation)

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Offshore Multi-Field Oil Production Projects in Brazil

Economic model main issues:

CAPEX and OPEX ratio between fields

Oil price and spread for each field

Taxation (Royalties, Special Participation) for each field

Correlation or competition between production curves of each field

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Offshore Multi-Field Oil Production Projects in Brazil

Risk Analysis main issues:

Some risk factors are shared among fields (Oil price, FPSO CAPEX)

Therefore, Risk Analysis must be integrated!

Some risk factors are independent (production curves, drilling

CAPEX)

Therefore, taxation of each field (Royalties, Special Participation, R&D

and Area Rental) must be calculated independently!

PROGIDE is not capable of handling these issues!

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PROGRIDE Main limitations

Internal C++ code (little flexibility, no access to risk scenarios)

No seeding in Risk Analysis (oil prices, CAPEX, OPEX)

No support for multiple production curves (correlation or competition)

No support for multiple oil prices (different spreads)

No support for Special Participation tax calculation with multiple fields

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So

Defining our problem:

Weve got a very ambitious investment plan

Weve got a complex tax system for offshore oil production projects

Weve got a corporate tool for Risk Analysis (and we must use it!)

But our tool is obsolete for Risk Analysis

in face of new complexity of projects!

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Possible solutions

New version of PROGRIDE for

Risk Analysis???

Adapt PROGRIDE
using @RISK!!!
32
Risk Analysis in Multi-field Oil Production Projects

@RISK+PROGRIDE Integration:

Use independent PROGRIDE for each field (deterministic interface)

Use @RISK to model independent risk factors inside PROGRIDE

(production curves, drilling CAPEX)

Use @RISK to create a stand-alone set of risk scenarios for the shared
risk factors (Oil price, FPSO CAPEX)

Make PROGRIDE read the set of risk scenarios

Run @RISK, calling PROGRIDE through a Macro

Monitor the desired Outputs of PROPGRIDE with @RISK (NPV,

probability of negative NPV, V@R)
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@RISK+PROGRIDE Integration

@RISK @RISK @RISK

Models for A Models Models for B
(independent) (Shared) (independent)

Risk Risk Risk

Scenarios Scenarios Scenarios
for Field A (Shared) for Field B

Progride Progride
for Field A for Field B
(deterministic) (deterministic)

34
 @RISK+PROGRIDE Integration

Progride Progride
for Field A for Field B
(deterministic) (deterministic)

Run @RISK Run @RISK

5000 iterations 5000 iterations
RiskCurrentIter() RiskCurrentIter()
Run Macro Run Macro

Risk Risk Results Risk

Results for Project Results
for Field A (Fields A+B) for Field B

35
@RISK+PROGRIDE Integration

How to make PROGRIDE read the risk scenarios pre-generated by @RISK:

RiskCurrentIter() = 0125000

36
@RISK+PROGRIDE Integration

How to make PROGRIDE read the risk scenarios pre-generated by @RISK:

RiskCurrentIter() = 0125000

37
Risk Analysis in Multi-field Oil Production Projects Results

NPV histogram:
NPV < 0 N P V < D e te r m in is tic
0 ,2 % 4 7 ,3 %
0,0 0 0 3 0 Results here...

0,0 0 0 2 5

0,0 0 0 2 0

0,0 0 0 1 5

0,0 0 0 1 0

0,0 0 0 0 5

0,0 0 0 0 0
- 2 0 00 0 20 0 0 4 0 00 N P V6 [U
0 0S0$ M M ] 8000 1 0 00 0 12000 14000

38
@RISK+PROGRIDE Integration some notes

The shared risk factors can be modeled using:

@RISK functions + seed directly in Excel: quicker, easier, but offers

less control over the process

Pre-generated scenarios: using @RISK to create a stand-alone set of

risk scenarios takes some time and effort, but is more well suited for
an experimental process

39
@RISK+PROGRIDE Integration some notes

Special @RISK and Excel functions used:

RiskCurrentIter(): function from @RISK Statistics, returns the current

iteration while running a simulation

Offset(ref;X;Y;;): Excel function, returns the value of a cell offset X

lines and Y columns from an initial reference

Macros in @RISK: Run an Excel Macro After Each Iterations

recalculation

40
Conclusion

@RISK+PROGRIDE integration allows:

Flexibility to model shared risk factors among independent projects in

a porfolio

Flexibility to model real options inside PROGRIDE

Risk analysis of multi-field oil production projects

Risk analysis of oil production projects with partners

Risk analysis under the new Brazilian regulatory framework???

41
Final Remarks

Integration of @RISK to any Excel based system:

@RISK+PROGRIDE integration uses only PROGRIDEs Excel

interface, @RISKs special functions and @RISKs Macro controls

Therefore, is it possible to couple @RISK to any Excel based system

(without reworking with the system)?

Will this method allow performing Risk Analysis in other corporate

(legacy) systems through an Excel interface?

Will this method allow performing risk analysis with optimization

under uncertainty in portfolios?

Will @RISK RDK help speed up this process?

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Information:

Rafael Hartke Investor Relations

+55 21 3224-3447 +55 21 3224-1510
hartke@petrobras.com.br petroinvest@petrobras.com.br

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