The Brazilian Oil and Gas Sector

Resumption

Décio Oddone Director General

Rio de Janeiro

September 22nd, 2017

Notice

• This document was prepared by ANP considering reliable information, but, it does not represent it is accurate or complete and should not be relied upon as such.

• There is no guarantee of realization for the estimated values

• The data, information, opinions, estimates and projections presented in this document are subject to change without prior notice

Oil and Gas Scenario 1

Improvements 2

Bidding rounds

3

Outline

Gas and Downstream 4

Final Remarks 4

Oil Industry in Brazil

E&P

Downstrea

m

10th largest oil producer, the largest of Latin

America

311 blocks and 443 fields

95 companies

7thlargest consumer of oil products

3rd largest consumer of transportation

fuels

Refining Capacity (2016): 2.3 million bbl/d

126.472 companies

11% Industrial´s GDP (CNI, 2014)

50% Energy supply

R$295 billlions in government revenues

(2005-2016)

Billions of annual investments

Billions of investments in R,D&I

Millions of jobs

The numbers still

not reflect all the

brazilian potential

Five years without rounds (2008-2013), Petrobras´ investments reduction and oil price collapse: strong

decrease in exploratory activities

Exploration Scenario in Brazil

*Até 23/08/2017

76 73

92 104

132 133 146 149

173

130

81 73

22

8

0

50

100

150

200

Discoveries Notifications

9

91 94 108

149

186 182 176

238 232

163

94 85

39

0

50

100

150

200

250

Exploratory Wells Concluded

14

*Until 08/09/2017 *Until 08/09/2017

1 rig = 1,000 jobs

Reduction in the number of drilling rigs in operation

0

20

40

60

80

100

Jun

-12

Oct-

12

Feb

-13

Jun

-13

Oct-

13

Feb

-14

Jun

-14

Oct-

14

Feb

-15

Jun

-15

Oct-

15

Feb

-16

Jun

-16

Oct-

16

Feb

-17

Jun

-17

Number of Drilling Rigs in Brazil

(up to July 2017)

16

575

251

82

0

100

200

300

400

500

600

700

2015 2016 2017

Development Wells Concluded

82

Source: Baker Hughes

Drilling Scenario in Brazil

*Until 23/08/2017

Onshore Scenario in Brazil

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Ga

s (

tho

usa

nd

m³/

d)

Oil (

bb

l/d

)

Onshore Oil Production

Oil Gas

426

374 377

495

174

50

119 92

47 51 25

9 0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017

Onshore Wells Concluded

Development

Exploratory

*Until 13/07/2017

¹ Up to 06/2017

² BAR (31/12/2016)

³ Up to 08/09/2017

2012 2017 Variation (%)

Oil Production¹ (Thousand bbl) 180 131 -27%

Reserves² (Million boe) 1.382 1.018 -26%

Exploratory Wells Concluded³ 119 9 -92%

Development Wells Concluded³ 426 72 -83%

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

bo

e/d

Campos Basin – post-salt production

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

20072008200920102011201220132014201520162017

bo

e/d

Northeast Basins- offshore production

RNCE SEAL

Offshore Scenario

Total

Offshore Post salt Offshore Pre salt

3.047

1.563

1.484

Thousand b

oe/d

Were it not the pre-salt blocks offered in the

last decade… 0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

bo

e/d

Santos and ES Basins – post-salt

ES Santos

The pre-salt’s prospectivity

30,000 bbl/d

Top wells average oil production

Unparalleled Potential

Large Structures

Light Oil

High Quality Reservoirs

1.56 million boe/d

Average pre-salt production in 2017

Dozens Bbbl

of Potential Resources

(contracted and to be contracted)

A huge opportunity

‘

Prospectivity: besides the pre-salt

Area: ~ 1.5 million km²

Contracted Area: 0.054 million km²

Drilled wells: ~5,100

Fields: 111

‘

East Margin Equatorial Margin Onshore Basins

Area: ~ 1 million km²

Contracted Area: 0.033 million km²

Drilled wells: ~ 800

Fields: 28

New Frontier Basins

Geological evolution similar to the West African Margin and French Guiana

Expectation of light oil discoveries in turbidite reservoirs of the Upper

Cretaceous

All basins have potential for oil

discovery in turbidite

reservoirs from the Upper Cretaceous

to the Paleogene

Area: ~ 5 million km²

Contracted Area: 0.17 million km²

Drilled wells: ~ 23.000

Fields: 304

Mature Basins (Remaining Potential)

New Frontier Basins Solimões Basin: Potential for light oil

Other Basins: Potential for gas

Less than5% of the sedimentary areas are

contracted

Only 30.000

wells were drilled

2

basins without a single well

Shale: end of the high oil price (low for longer)

New Technologies and innovations

increase reserves and field´ production

Selectivity in the approval of new

investments

Global competition for investments

(2017: around 40 rounds in progress)

Renewable energy sources gaining

ground (transition to a low-carbon

economy)

Need of Improvements to attract investments

“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world

runs out of oil”

R,D&I to explore our

potential

Sheik Zaki Yamani

Need of

improvements to:

attract new investments

expand knowledge

resume industry growth

(before oil loses relevance)

Blocks on offer in the next

rounds contain 41 areas

excluded from the 9th Bidding

Round

The blocks exclusion caused the

postponement/loss of billions of

reais in government revenues

It was the greatest opportunity lost

in a generation

Measures must be taken to resume activity

Oil and Gas Scenario 1

Improvements 2

Bidding rounds

3

Outline

Gas and Downstream 4

Final Remarks 4

Improvements in the energy policy

New E&P and LC Policies

Bidding rounds calendar

Petrobras is no longer sole

operator

2017 27.09.17

14th

2017 27.10.17

2nd PSC(Unitization)

3rd PSC

2018 (May)

15th

2018 (May)

4th PSC

2018 (tbd)

5th Marginal Fields

2019 3º q

16th

5th PSC

6th Marginal Fields

2017 27.10.17

2019 3º q

2019 (tbd)

Government Programs

(REATE etc)

REPETRO’s Extension

Improvements in the regulatory framework

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Measures to unlock investments in the medium

and long-term

More related to new contracts (rounds)

Measures to unlock investments in the

short-term

More related to ongoing contracts

(regulatory improvements)

05

04

03

02

01

Onerous Transfer of Rights

Negotiation

Speed up Environmental

Licenses Issuance

Exploratory Phase Extension

(11th and 12th Rounds)

Royalties reduction

regulation

Local Content Waiver

Regulation

Main Measures to unlock investments in the short-term

05 Onerous Transfer of Rights

Negotiation 06 Other measures (Regulatory

Agenda 2017/2018)

Local Content

Local

Content

Waiver

Regulation

Motivation

New Ordinance under public

consultation

Allow the operators choose the

same local content rules and

percentage from the 14th bidding

round

Unlock Investments

Accelerate development of

projects/reserves

US$ -2,6B

in government revenues for each year of delay

A significant impact in the

ramp up of pre-

salt fields

22 Production

Units still to be contracted

between 2017 – 2027

+

17 Production

Units from the new bidding

rounds

1% additional

in the

recovery

factor:

US$18B

US$11B

2,2Bboe

New Investments

Reserves

Royalties

Royalties reduction, up to 5%, on the

incremental production

RBL (Reserve base lending)

Production phase extensions

CNPE 17/2017: to promote new

technologies for oil and gas recovery

CNPE 17/2017: To encourage transfer of

rights

21%

70%

Brazil Noruega*

Recovery Factor (O&G)

*55% oil

Incentives to mature fields

05

04

03

02

01

Environmental Licenses

Improved Regulation

Open Acreage

Bidding Rounds

Main Measures to unlock investments in the medium and long-term

To revitalize onshore activity

To stimulate small and midsize companies

Open acreage

Blocks previously offered, except in the pre-salt polygon

Blocks/Fields relinquished

Example: Recôncavo and Tucano Sul basins

Round 14

Fields

Blocks offered but not awarded

Round 6 Round 7

Round 10

Round 11 Round 12

Round 13

Contracted Blocks

Round 9 Round 10

Round 11

Round 12

Round 13

Areas Nomination process under

development

First round in 2018

Potential Investments in Development (2017–2027)

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Ongoing

Contract

s

New

Contract

s

(rounds)

17 New Production Units to be

contracted

R$ +845B Investments (all fields)

between 2017/2027

+39 New Production Units

(to be contracted between

2017/2027)

15 New Productions Units to be

contracted

7New Production Units to be

contracted

R$ 260 B Investments

R$ 585 B Investments (all fields)

39 Projects Will be realized in Brazil with estimated expenditures of...

R$ 121 billions in WELLS and…

R$ 125 billions In SUBSEA INSTALLATIONS

~ 300 MODULES Will be contracted with the Brazilian industry for...

39 PLATFORMS With investments in Brazil around....

R$ 32 billions in MACHINES and EQUIPMENTS

R$ 53 billions In CONSTRUCTION, ASSEMBLY and INTEGRATION

R$ 13 billions In ENGINEERING

Potential Investments in Development in Brazil (2017-2027)

Stationary Production Units – SPU

Estimated Demand* (2017/2027)

Wells and Subsea

Estimated Demand*

(2017/2027)

R$ 344 billions

of potential

investments in Brazil

between 2017-2027

*Numbers estimated considering

Petrobras´forecast for 19 production

units of ongoing contracts and

ABESPETRO study “Estimativa de bens &

Serviços, PROJETO TIPO – Pré-sal”

(May/2017)

Oil and Gas Scenario 1

Improvements 2

Bidding rounds

3

Outline

Gas and Downstream 4

Final Remarks 4

• 14th Bidding Round

287 Blocks

~50 Bbbl - OOIP

• 15th Bidding Round

• 16th Bidding Round

Concession Rounds

18 Areas in the

pre-salt

3 In the 5th

PSC Round

4 In the 2nd

PSC Round

4 In the 3rd

PSC Round

7 In the 4th

PSC Round

Production Sharing Rounds

Bidding Rounds

3rd PSC Bidding Round

2nd PSC Bidding Round

14th Bidding Round

Done Blocks, Tender Protocols and Contracts Approved

Improvements in the

14th Round

Bidding Rounds – In the pipeline

Sectors being defined to

2020 and 2021

4th and 5th PSC Bidding Rounds

15th and 16th Bidding Rounds

(Blocks being defined, Tender Protocols

and Contracts under development)

(Blocks being defined, Tender Protocols and

Contracts under development)

BID

2020

2021

PSC

Rounds

Bidding rounds expected results

+300 New offshore wells

US$ +80 B

New Investments

+17 New Productions

Units

+600 Km

Gas Pipeline

+20 Offshores Rigs

simultaneously

+10 Bbbl

Recoverable

+1.100 Km

Flow Lines

+2 Mbpd

Oil in 2027

Thousands of

Jobs

Oil and Gas Scenario 1

Improvements 2

Bidding rounds

3

Outline

Gas and Downstream 4

Final Remarks 4

Natural Gas Infrastructure

Current infrastructure is insufficient for such a

large country

Brazil’s gas production is expected to grow significantly

A number of opportunities to invest in

profitable projects, e.g.:

• NGL terminals

• Gas pipelines

• Natural gas processing plants

Natural Gas Market

Petrobras´s repositioning

Increasing domestic and global offer

Growing consumption in power

generation

LDCs direct contracting Bolivian gas and

LNG

Investments in NG logistics

0

30

60

90

120

2012 2013 2014 2015 2016 2017

Mill

ion m

³/day

Natural gas supply and demand

Local Bolivian gas LNG Demand

For the first time ever an open, diverse and competitive natural gas market

Downstream Infrastructure

Current infrastructure is insufficient for such a large country

A number of opportunities to invest in

profitable projects, e.g.:

• Refineries

• Fuel terminals

• Oil pipelines

Petrobras´s repositioning

International prices

Increasing competition

Increasing oil exports

Logistics inefficiency: 4 to 7 US$/bbl

CO2 emission reduction targets

Increasing % mix of biodiesel

Increasing oil products imports, mainly ethanol

2nd generation ethanol

Refining capacity expansion Biofuels production increase

Downstream Opportunities

0

1,000

2,000

3,000

4,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Tho

usa

nd

bb

l/d

Crude oil exports

3.329

Source: EPE (PDE 2026)

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

m³

Biodiesel Production

*Up to June/2017

Downstream

Increasing oil products and ethanol imports

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2012 2013 2014 2015 2016 2017*

Imp

ort

(m

³)

Pro

d.,

Con

s.

an

d E

xp

(m

³)

Ethanol

Production Export Consumption Import

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Imp

ort

(m

³)

Pro

d. an

d C

on

s. (m

³)

Gasoline

Production Consumption Import

0

4,000

8,000

12,000

16,000

2013 2014 2015 2016

Th

ou

sa

nd

m³

Petrobras - diesel Petrobras - gasoline Other - diesel Other - gasoline

Gasoline and diesel imports

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Imp

ort

(m

³)

Pro

d. a

nd

Co

ns. (m

³)

Diesel

Production Consumption Import

*2017 Results up to June

Oil and Gas Scenario 1

Improvements 2

Bidding rounds

3

Outline

Gas and Downstream 4

Final Remarks 5

O&G sector in Brazil since the 50’s

2016 2010 1997 1975 1953

Petrobras

monopoly Risk Contracts:

minimal impact

End of monopoly (Oil Act)

Bidding Rounds (Concession contracts)

New pre-salt

law (Petrobras sole

operation– PSC)

New E&P policies

Petrobras´

Repositioning (focus on large offshore

fields)

Downstream, logistics and natural gas

Exploration and Production

2016 1997 1953

Petrobras

monopoly

End of monopoly (Oil Act)

Remains Petrobras’

dominance

Petrobras’

Repositioning (In favor of an open and

competitive market)

The greatest transformation in the Brazilian E&P sector

Diverse and Competitive

Market

Petrobras

divestment plan

Bidding round

schedule and open

acreage

Need of additional

service companies

Improvements in the

energy policy

O&G scenario in 2017

Unique E&P opportunity:

- immediate reserves certification

- fast production development

- reserves and production growth

First ever effective opening in the natural gas business

Creation of a competitive, open, diverse and internationally

referred refining and fuels market

Development of a diverse and competitive supply chain and

services market

National Agency of Petroleum, Natural Gas and Biofuels ANP

Av. Rio Branco, 65, 21st floor Rio de Janeiro – Brazil

Phone: +55 (21) 2112-8100

www.anp.gov.br

www.brasil-rounds.gov.br