Oswaldo A. Pedrosa Jr.

Pre-Sal Petroleo SA - PPSA

The New Production Sharing Regime for the Brazilian Pre-Salt

Subjects

1. Pre-Salt: History and Expectation

2. New Regulatory Regime for the Pre-Salt

3. PPSA’s Focus

4. Final Remarks

Pre-Salt: History and Expectation

Pre-Salt Region very large reservoirs trapped underneath giant salt layers in Campos and Santos Basins

PRE-SALT: HISTORY AND EXPECTATION

Santos Basin

Campos Basin

Santos Basin

• Deepwater pre-salt fields under accelerated development

• Largest potential recoverable resources in Brazil

Campos Basin

• Currently most productive region in Brazil

• Production takes place for more than 35 years

Brazil’s expected oil production to reach over 4 million bpd(*) in 2020, mostly from pre-salt reservoirs in Campos and Santos Basins

(*) WEO 2013 - IEA

In July 2014 oil production in the pre-salt reached 546 kbpd (*)

(*) Petrobras

PRE-SALT: HISTORY AND EXPECTATION

Brazil: in the last ten years, super giant fields have been discovered in Campos and Santos Basins, much more than in any oil province in the world

Current estimation: remaining recoverable resources (*) of 106 billion barrels of oil, 72% coming from Campos and Santos Basins, mostly from deepwater pre-salt

(*) includes reserves, contingent and

prospective resources

Brazil: huge potential for new discoveries 88% of ultimately recoverable resources remain to be produced

PRE-SALT: HISTORY AND EXPECTATION

New Regulatory Regime for the Pre-Salt

THREE REGULATORY REGIMES GOVERNING E&P ACTIVITIES IN BRAZIL

Concession Regime

Established in 1997 by Law 9.478

Bid rounds needed for licensing

No mandatory state participation

Oil production belongs to concessionaires after payment of royalties and taxes

Regime for Transfer of Rights to Petrobras

Established in 2010 by Law 12.276

Licenses granted to Petrobras for Franco prospect (now Buzios Field) and surrounding areas

Government capitalization of Petrobras with a direct transfer of rights to produce up to 5 billion boe

Established in 2010 by Law 12.304 and Law 12.351

Applicable to areas not granted to concession in the Pre-Salt Polygon of Campos and Santos Basins

Production Sharing Regime

THE NEW REGULATORY REGIME IN THE PRE-SALT

Production Sharing Agreement (PSA)

PRODUCTION SHARING REGIME

Main players:

o Petrobras: operator with at least 30% participation

o Non-operators: partners in the Consortium

o PPSA: consortium member representing the State’s interests in the PSA

o ANP: manages the bid rounds and regulate the production sharing agreements

Share of profit oil offered to the State

Qualified expenses for cost oil recovery: need to be approved by PPSA

Percentage of monthly recovered cost: established in the tender protocol and in the PSA

Royalties: 15%

License granted to consortium through tender

License granted directly toPetrobras

THE NEW REGULATORY REGIME IN THE PRE-SALT

THE NEW REGULATORY REGIME IN THE PRE-SALT

Chair the Operating Committee with 50% vote

and veto power

Manage and audit the project execution for

exploration, appraisal, development and

production

Monitor and audit the operating costs and

capital expenditures

Approve qualified expenditures for cost oil

recovery

Perform technical and economic analysis of

plans and programs to be executed in each PSA

Make sure the local content commitment is

accomplished

PPSA’s Roles

Total Production

Governmental Share of Profit OilCost Oil

Profit Oil

Royalties

Active role on PSA decision making process

Projects of high technological and operational complexity

PPSA´s need for a highly qualified and

experienced team

PPSA’s Focus

Management of PSA’s for surplus volumes from Transfer

of Rights to Petrobras

Management of Libra PSA

Government Representation in Production Unitization

Agreements

PPSA’S FOCUS

PPSA’S FOCUS

Oil Discovery:Well 2-ANP-002A – RJS27 °API oil and GOR of 410 to 450 m³/m³High productivity: 3667 bopd (choke 32/64”)

Estimate Resources: 8 to 12 billion boe(*)(*) Source: ANP

Libra PSA

Bid Round in Oct 21, 2013

Signature Bonus: R$ 15 billion

Winner Consortium:Petrobras (Operator) .... 40%

Shell Brazil ..................... 20%

Total Brazil ..................... 20%

CNODC Brazil ................. 10%

CNOOC Brazil ................. 10%

Signing of PSA: Dec 02, 2013

Government Share in Profit Oil:

41.65% for average productivity of 12 kboe/d and oil price of US$ 100/bbl

Actual percentage adjusted monthly based on average well production and oil price

Percentage of Cost Recovery:

50% in the first two years and 30% thereafter

LIBRA PROJECT

PPSA’S FOCUS

Areas Surplus VolumesBillion boe (*)

Franco (Buzios) 6.5 to 10.0

Iara Surrounding 2.5 to 4.0

Florim (Itapu) 0.3 to 0.5

NE Tupi (Sepia) 0.5 to 0.7

Total 9.8 to 15.2

Areas VolumesBillion boe

Franco 3.058

Iara Surrounding 0.600

Florim 0.467

NE Tupi 0.428

S Lula 0.128

S Guara 0.319

Total 5.000

Transfer of Rights to Petrobras(Contracted volumes in 2010)

PSA’s directly granted to Petrobras for surplus volumes

Key issues

o Very large potential resources with low risk

o 17 wells already drilled in the four areas totaling 2,046 km²

o One field already being developed (Buzios) and the other three areas in appraisal

o First oil of transfer of rights surplus in 2021

Contract Requirements

o Signature bonus of 2 billion R$

o Forward payment of part of the Government share of profit oil in 2015-2018, if requested by the Federal Government

o 35 yrs contract

PPSA’S FOCUSGovernment Representation in Unitization Agreements

Campos Basin

Santos Basin

Cases of oil discoveries in areas already leased

(Concession Regime) where reservoirs extend over non-contracted areas in the Pre-

Salt Polygon

PPSA’s role: represent the Federal Government in the

unitization agreements

Unitization Agreements Current Activities

o Engagement with Petrobras to get a common understanding on technical aspects of the following cases of unitization: Lula , Sapinhoá and Carcará (Santos Basin) and Tartaruga Mestiça (Campos Basin)

o Engagement with Shell to get a common understanding on technical aspects of a case for unitization in Gato do Mato (Santos Basin)

PPSA’S FOCUS

Final Remarks

Deepwater production development in Brazil based primarily on floating production units and subsea completion

Main region for growth in global FPSO development

Brazilian shipbuilding industry growing fast (more than 80,000 people employed up to 2014, more than three times the number in 2006) (1)

Around 70 FPSOs will be operating in Brazil by 2020 (2)

22 contracted FPSOs today (2)

12 hull conversions (6 in Brazil and 6 outside)

10 new builds contracted (8 in Brazil and 2 outside)

Supply Chain Market on Focus

FINAL REMARKS

(1) Sinaval 2012

(2) IEA 2013

Forecast of US$ 285 billion to be invested in the O&G business in the period 2013-2016 (*)

Petrobras’ share on O&G local investment is 79% and 21% for the other oil companies

(*) Petrobras and IBP

Supply Chain Market on Focus

Scale of investment in O&G business in Brazil need for policies to create long term value and

employment in the local industry

Local Content Requirement

Challenge how to conciliate fast-track development with high local content

requirements in a tight supply chain market

FINAL REMARKS

FINAL REMARKS

Technological and Operational Complexity

Deepwater Pre-Salt Development highly attractive environment for technology development and

innovation

Use of new technology for improving seismic imaging underneath the salt

Impact of subsurface uncertainties (reservoir quality, heterogeneity, and connectivity) on project development

Performance of improved recovery methods, particularly water-alternating-gas (WAG)

Drilling of thick salt layer requires advanced technology to avoid wellbore creeping and deformation

Need for high capacity drilling rigs

Extensive use of remotely operated vehicles in harsh deepwater environment

Complex logistics for platform supply at long distances from shore

Handling and treatment of associated gas with high CO2 content in FPSO plants

Need for fit-for-purpose floating production units

Key aspects of operational complexity

Deepwater Pre-Salt Development among the most complex projects in the global O&G industry

Thank You