Rio de Janeiro, 02/06/2011

Local Content Framework

The Brazilian Experience

To be considered

To be considered

To be considered

Highlights

Brazil

• Area: 8,514,876 km²

• Population: 190 million

• GDP: U$ 2.2 trillion

• World´s seventh largest economy

• Political, Economical and stability

• Over US$ 306 billion in International

Reserves

• Investment grade (Moody’s, Fitch

and Standard and Poors)

• Oil, Natural Gas and Biofuels regulated under the same institutional environment (ANP)

highlights:

Brazilian Oil & Gas Market

• Mature & democratic State

• Economic stability

• Solid regulations environment:

• Successful & strong concession

agreements

• Pre-salt fields

• More than 70 active operators

• More than 3500 blocks offered & 730

concession agreements

• Lots of technology gaps

• Contractual commitment of

purchasing local goods and

services in competitive basis.

Definition:

What is Local Content? And why?

• Development of local suppliers

& technology

• Mass creation of jobs

• Development of the economy

(GDP)

Objectives:

Bids 1 to 4

Free LC offerings

LC Incentives

Local Content Framework: the Concession experience

Bids 5 and 6

Minimum offering limits

No more incentives

Bids 7 to 10

Max. & Min. offering limits

LC Certification by 3rd part

New methodology to calculatethe LC

Local Content was required in all Bid Rounds

2008200720062005200420032002200120001999

Local Content Commitments onConcession Agreements

*

Only on-shore blocks

0

10

20

30

40

50

60

70

80

90

100

1 2 3 4 5 6 7 8 9 10

E xploration Development

Local Content Average

BID ROUND

Loca

l Con

tent

Offe

rings

(%)

*

Pre-salt fields

High probability of penalities

Local Content Framework: the Concession experience

2008200720062005

Bids 7 to 10

LC calculation: 3rd part

(companies accredited by ANP)

Imported items cost VS sales price

Compulsory certification to prove local investments

Local Content Rules

Bids 7 to 10

Investimentos Locais Declarados

RIT

RodadaCorrente Constante (IGP‐M Março/2011)

Total Nacional Total Nacional

BID 07 R$ 7.165.289,07 R$ 3.424.143,06 R$ 7.711.652,29 R$ 3.758.168,11

BID 09 R$ 2.979.847,89 R$ 1.648.459,12 R$ 3.204.214,79 R$ 1.771.893,56

BID 10 R$ 71.484,57 R$ 67.270,63 R$ 75.273,62 R$ 70.807,91

Total R$ 10.216.621,54 R$ 5.139.872,81 R$ 10.991.140,70 R$ 5.600.869,59

RGT

RodadaCorrente Constante (IGP‐M Março/2011)

Total Nacional Total NacionalBID 01 R$ 3.091.649,76 R$ 1.802.757,19 R$ 4.612.491,30 R$ 2.820.284,58

BID 02 R$ 6.821.549,23 R$ 5.242.621,22 R$ 8.746.679,09 R$ 6.764.103,79

BID 03 R$ 4.431.353,70 R$ 3.147.500,07 R$ 5.733.025,40 R$ 4.143.013,64

BID 04 R$ 2.492.280,69 R$ 2.036.799,08 R$ 3.024.620,19 R$ 2.464.563,31

BID 05 R$ 1.949.756,68 R$ 1.107.686,04 R$ 2.354.488,58 R$ 1.352.931,92

BID 06 R$ 4.970.354,97 R$ 3.571.629,25 R$ 5.858.288,87 R$ 4.232.602,53

Total R$ 23.756.945,04 R$ 16.908.992,86 R$ 30.329.593,43 R$ 21.777.499,76

Local Investments Declared

 ‐

 1.000

 2.000

 3.000

 4.000

 5.000

 6.000

 7.000

 8.000

 9.000

BID 01 BID 02 BID 03 BID 04 BID 05 BID 06 BID 07 BID 09 BID 10

R$ m

ilhõe

s de

 mar/201

1

Investimentos Declarados nos Blocos ‐ Fase de Exploração

Total

Nacional

LC Certification in numbers

Valores Certificados Emitidos

CLMédioDescrição das Áreas Investimento Certificado Conteúdo local (R$)

Geologia e Geofísica R$ 657.590.948,38  R$  392.287.013,34  572 60%Sondas de Perfuração R$ 97.588.270,40  R$ 27.513.568,58  92 28%Apoio Logístico e Operacional R$ 1.411.336.187,41  R$935.450.466,37  991 66%Perfuração, Completação e Avaliação de Poços R$  227.028.661,01  R$ 182.974.952,57  1.429 81%Engenharia Básica e de Detalhamento R$ 4.307.095,39  R$ 3.646.025,69  15 85%Gerenciamento, Construção, Montagem e Comissionamento. R$ 12.379.232,91  R$ 11.129.105,73  44 90%Sistemas Elétricos, de Controle, Instrumentação e Medição. R$ 5.237.203,68  R$  5.138.605,26  98 98%Sistemas de Telecomunicações R$ 230.540,70  R$  228.762,61  5 99%Oleodutos, Gasodutos e Tanques de Armazenamento. R  760.382,03  R$  637.212,79  49 84%Unidades de Compressão. R$  110.022,31  R$  109.878,95  20 100%Unidades de Geração de Injeção de Vapor. R$  2.962,64  R$  2.934,79  2 99%Equipamentos e Controle Submarinos: linhas rígidas, flexíveis, umbilicais e manifolds. R$ 755.918,76  R$  445.394,62  13 59%

Sistema de Processamento e Tratamento de Óleo. R$ 6.283,00  R$   5.920,55  2 94%Sistema de Processamento e Tratamento de Gás Natural. R$  11.304,68  R$ 11.304,68  2 100%Construção Naval (casco, turret, ancoragem e sistemas navais). R$ 68.867.461,06  R$   43.696.404,04  1 63%Segurança Operacional R$ 9.680.695,61  R$  8.609.997,56  97 89%Obras Civis e Utilidades R$  9.060.920,31  R$   8.956.875,77  24 99%Total geral R$ 2.504.954.090,26  R$ 1.620.844.423,90  3.456 65%

LC Certification in numbers

0

500

1000

1500

2000

2500

3000

3500

4000

2009.I 2009.II 2009.III 2009.IV 2010.I 2010.II 2010.III 2010.IV 2011.I

Certificados Emitidos no Trimestre

Certificados Acumulados

Local Content Auditing

• Check the accomplishment of contractual

Local Content requirements

• Penalties when contract terms are not

completely fulfilled.

• Fines are proportional to the non-realized

local investment.

Procedures:

Audits:

• 2008/2010

• 11 blocks (BID 1st to 4th), no penalities.

• 5 blocks (AM) , no penalities.

• 2011- new new technical approach

• 5 blocks (BID 1st to 4th), no penalities.

• 69 blocks (BID 5th a 6th) with high probability of

penalities

• 60 blocks - notification sent to operators .

Local Content Auditing

Brazilian Opportunities11th Bid Round

ANP shall bid:

Pre-Salt areas under PSC(~ 2,3% sedimentary area)

Other areas under concession contracts

(> 97% sedimentary area)

The focus of the 11th

Bid Round is the Brazilian Equatorial

Margin

The Equatorial Margin

LEGENDMarineAMarine BMarine TransitionalMarine/LacustrineMaturo MarineTertiary DeltaicLacustrine ALacustrine BLacustrine C

BRASIL

COSTA DO MARFIM

GANA NÍGER

NIGÉRIA

CAMARÕES CHADE

GABÃO

CONGO

REPÚBLICA DEMOCRÁTICA DO CONGO

ANGOLA

The Pre-Salt as a New Paradigm

2-ANP-2A-RJS2-ANP-1-RJS

From 2004:

71 wells drilled

13 wells (19%)

without discovery

Source: PETROBRAS, 2009

Campos Basin

Brazilian Opportunities:Pre-Salt Campos & Santos Basins

(50 billion barrels ?)

Source: PETROBRAS, 2009

Brazil deepwater oil production is about 25% of the country’s oil production. 

Pre‐salt new province shall increase this percentage 

significantly.

If proven the way ANP forecasted, Brazil shall need to invest heavily 

in infrastructure (platforms, pipelines, oil pipelines, ports, 

ships, steel, etc.).

Santos Basin

Brazilian Opportunities:Pre-Salt Campos & Santos Basins

(50 billion barrels ?)

• Competitiveness

• Supply capacity

• Goods & services - Costs in Brazil

Local suppliers:

• Technology

• Human Resources

Overcome Setbacks:

Campos & Santos Pre-salt: challenges of local supply

• Strong currency (Real)

• Importations “boom”

Economy:

Local Content Perspectives

• Art. 9º...

“I - the pace of blocks acquisitionunder the production sharingsystem will observe the energypolicy and the development ofnational industry and the itsability to supply goods andservices”

Law nº 12.351/2010 –Production Sharing Agreement:

• Focus on the methodology to calculate LC (LC Booklet)

• Focus on the LC Certification

Local Content Policy:

• Simplify the table of commitments &offers of Local Content;

• Adjust the definitions of items of theLocal Content commitments (ResolutionN°. 39/2007 ANP);

• Simplify the procedures for LocalContent Certification, giving focus onthe relevant activities. (Resolution No.36/2007 ANP);

• Transparency of actions;

• Dialogue with the industry.

Local Content Challenges for next Bidding Rounds

Local Content Regulation: 11TH BID Round & 1st Pre-salt BID Round

How to increase Local Content levels?

• Partnership and cooperation

with local companies;

• Install production units in

Brazil;

• Increase the share of local

professionals on services;

• Obtain local content

certification on goods and

services.

Suggestions:

Objectives of Energy Policy

Oil & GasActivities in Brazil

The Development of Oil & GasActivities

Local Content

Best practiceHSSE

• Brazil will continuously develop the oil & gas

activities (pre-salt & post-salt) based on two

strong pillars: HSSE and Local Content.

• The Law 12.351/2010 sets that the pace of

blocks acquisition under the Production

Sharing System will observe the energy policy

and the development of national industry and

its capacity to supply goods and services.

• Brazil shall be, in medium term, an oil & gas

exporter regarding this strategic model.

Self‐Sufficiency

Final Remarks

Brazil is the biggest exploratory opportunity in the world;

Brazilian petroleum sector is an extraordinary(worldwide) business opportunity for petroleumcompanies and for goods & services suppliers;

ANP will promote the 11º bid-round in October focusingthe equatorial margin;

Working to promote the 1st bid round focusing Pre-Saltopportunities;

The Brazilian policy for the O&G sector aims to reach astrong degree of nationalization and boost the Brazilianindustry;

Current investments in the supply chain have sufficientmagnitude to induce the local industry;

Foreign investments are welcome (as long as inaccordance with Brazilian goals).

Agência Nacional do Petróleo, Gás Natural e Biocombustíveis - ANP

Coordenadoria de Conteúdo Local (CCL)

Marcelo Mafra Borges de Macedo

Av. Rio Branco, 65 - 17º andar - Rio de Janeiro – RJ – Brasil

Tel.: (55 21) 2112-8550 / (55 21) 2112-8535mmacedo@anp.gov.br

ccl@anp.gov.br www.anp.gov.br