2012 07-03 - cmr singapore

Brazilian Shipping Industry: Opportunities for O&G Supply

Sao Paulo & Singapore – July 2nd, 2012

Dr. Roberto Giannini

Where are we?

São Paulo

Singapore

Good Evening

Good Morning

10.000 mi (16.000 km)

Paris

Presentation Contents

Brazilian Economy overview• Country facts and

figures

• Economic growth

• Future prospective

Brazilian O&G Scenario• Forecast of O&G in

Brazil

• The pre-salt province

• Oil companies and service providers needs

• Petrobras Business plan

Brazilian Shipping Industry• Local Infrastructure

• Brazilian Shipyards Scenario

• Future Prospective

Brazilian Economy Overview

The Carnival Parade

Brazil: Facts and Figuresstereotyped images of Brazil

FootballBeach

Samba

CarnivalBeautiful woman

Brazilian TeamWhen you hear about Brazil

you probably imagine…Or our natural beauties…

Brazil: Facts and FiguresAnother way to see Brazil

These images are correct

Life science

Sophisticated products

Defense industry

Connectivity

AgricultureKnowledgeMilitary jets

Huge industry

satellites

Sustainability

We are a Country of Innovation

But we are much more than that

Air crafts

Sixth larger GDP in the World(near 65% of South America GDP)

Population around 195 million inhabitants(About 50% of the South America population)

Strongly diversified economy(Mineral, agriculture, Industry and Services)

8.514 million km2 of continuous area(around 50% of the South America area)

Fifth larger Country in the world(about the size of continental US – except Alaska)

Brazil: Facts and Figures

Brazil is a Federation of 26 States

Capital City: Brasília

Local currency: Real (BRL)

literacy: 86,4%

Unemployment rate: 4,7%

Inflation rate: 4,5%

Government: Presidential republic

Federative Republic of Brazil

National flag Coat of Arms

4.400 km

4.60

0 km

Competitive and dynamic industry which ranks among the world’s top

Brazil: Facts and FiguresSelected facts & figures

Leader in clean and renewable energy, such as hydropower, biofuels, and wind farms

Largest consumer market in Latin America (195 mi inhabitants)

3rd largest market in the world for cell phones and cosmetics

3th main aircraft manufacturer and exporter

5th largest market for personal computers

5th main automobile manufacturer

4th largest consumer of automobiles

PopulationBrazil is an ethnical miscellaneous country, made through migration and miscegenation

47,3%European

0,3%Indian

2,1%Asian

7,6%African

43,1%Mixed

Source: IBGE Census, 2010

Population• Brazil counts 195 million inhabitants. Near 80% live in cities• Most of local population spread along the Atlantic Ocean coast

Some important metropolitan areas:

Porto Alegre (4,0 million)

São Paulo (20 million)

Rio de Janeiro (12 million)

Belo Horizonte (5,0 million)

Recife (3,7 million)

Fortaleza (3,6 million)

Brasília (2,7 million)

Manaus (2,1 million)

Population Density

22,4 Inhabitants/km2


Population

Age distribution

Economically active population

Source: IBGE Census, 2010 and IBGE/PNAD, 2009

24,1%

65,1 %

10,8% > 60 years

15-59 years

< 14 years

Life expectance at birth

101,1 million

73,7 yearsMan: 70 yearsWomen: 77,5 years

53% women47% men

Brazil: Facts and FiguresClimate

Equatorial rainforest

Semi-arid

Coastal

Tropical savanna

Humid subtropical

Due to the large size and varied topography, the climate of Brazil has a wide range of weather conditions. Even within the dominant tropical zone.

From the all-year hot Amazon Rainforest in the North till the winter snowfall in the Southern highlands and the humid tropical coast in Rio de Janeiro.

Source: IBGE Atlas, 2012

Brazil: Facts and FiguresReligion

73.6%

15.4%1.6%

7.4%

2.0%

Roman Catholic Protestant Spiritualist None

Other


2003 2004 2005 2006 2007 2008 2009 2010 20110

10

20

30

40

50

60

70

80

90

100

Class A/B

Class C

Class D

Class E

Brazil: Facts and FiguresSocial class distribution

Poverty reduction

Source: FGV, 2012

Poverty reduction and social inclusion reinforce domestic market growthMiddle class expansion

Job Creation

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0

500

1,000

1,500

2,000

2,500

3,000

New

job

s (10

00)

2.079.188Net job creation in 2011

Total energy supply

Source: BEN, 2012

Diesel fuel

19.1% Electricity18.1%

Sugar cane

bagasse11.9%

Gasoline9.1%

Natural gas7.2%

Wood7.2%

Ethanol4.7%LPG

3.4%Lixivium

2.1%

Fuel oil2.0%

Kerosene1.6%

Other13.6%

Total energy supply 228.658.522,6 toeWorld: 12.267 x 106 toe

Industry Transportation Energy generation Houses Agriculture Commerce Public Sector0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1000

toe/

year

Energy consumption per sector

Source: BEN, 2012

Electricity supply

80%

20%

11%

89%

Renewable

FossilNon-renewable

World Brazil

15%

Brazil has the clearest energy matrix in the world due to the large scale use of biomass replacing fossil fuels (sugar cane bagasse and biodiesel) and hydropower plants to produce electricity.

Hydropower (81,7%)

Biomass (6,5%)

Wind (0,8%)

467.000 GWh

37.411 GWh

5.408 GWh

571.302 GWh

Total electricity supply (2011)

Source: BEN, 2012

Infrastructure investments

2003 2004 2005 2006 2007 2008 2009 2010 20110

20

40

60

80

100

120

140

160

180

33.1 33.8 42 48.862.3 71.9

87.3101.6 107.9

26.8 33.437.5 35.8

36.9

48.944.0

44.952.1

59.967.2

79.5 84.6

99.2

120.8131.3

146.5160.0

Private

Public

R$ (B

illio

n)

Source: BACEN, 2012

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

2012

0

0.5

1

1.5

2

2.5

3

3.5Exchange rate (R$/US$)

* Predicted Source: BACEN, 2012

*

1,95 ≤ R$/US$ ≥ 2,05Actual exchange rate

0

500

1000

1500

2000

2500

3000

3500

4000

4500

GDP (Local currency - R$)GDP (US$)

GDP evolution


*

R$ 4,33 Trillion2012 GDPUS$ 2,32 Trillion(Predicted)

Countries by nominal GDP

US$ 70 Tri

0

2

4

6

8

10

12

14

16

GDP

(US$

Tril

lion)

World GDPSource: World Bank, 2012

8 Countries represent 60% of the World GDP

GDP Annual grow

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

1

2

3

4

5

6

7

8

10 years average: 4,0 %


*

5.5%

27.5%

67.0%

Agriculture Industry services

GDP Composition

Industrial GDP:R$ 972,2 Billion

14.8%

53.0%

21.0%

11.2%Mining Manufacturing Construction

Eletricity and public services

Food and Beverage

Refining, nuclear energy and biofuels

Chemical products

Automobiles

Basic metallurgy

Heavy machinery

Cellulose and paper

Rubber

Mechanic industry

Non-metallic minerals

Printing industry

Eletric apparatus

Electronic apparatus

Textiles

Other transportation equipments

Leather

Furniture

Clothes

Wood

Other industries

17.3

13.4

10.8

8.7

8.5

6.0

3.7

3.7

3.7

3.5

3.1

2.3

2.2

2.2

2.0

1.8

1.7

1.7

1.4

2.4

Industrial sectors

As percent of industrial GDP

Source: IBGE, 2012

Industrial facilities distribution

The industrial areas are concentrated in the Southeast Region, specially in

São Paulo

Source: IBGE, 2012

Rio de Janeiro

Foreign Trade (US$ Billion)

* Predicted Source: SRF/Alice, 2012

*

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-50

0

50

100

150

200

250

300

Exports (US$) Imports (US$)

Iron OreOil

FoodVehiclesAircrafts

Source: SRF/Alice

Trade basket

ChemicalsElectronics

Heavy machineryFertilizers

Pharmaceuticals

Exports

Imports

ImportsUS$ 241,8

billion

ExportsUS$ 258,4

billion

Expected trade surplus:

US$ 16,6 billion

Predicted trade balance 2012

Trade flow/GDP21,4 %

ImportsUS$

241,8 Bi*

ExportsUS$

258,4 Bi*

GDPUs$

2.340 Bi*

Foreign Trade 2012 (predictions )


Brazil still a closed economy based on

domestic market

Trade flow/GDP

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0

5.0

10.0

15.0

20.0

25.0

30.0


*

No border conflict with neighbourhood Countries

Consolidated leadership in South America

No ethnical conflicts

No active terrorist groups

Low-risk country

Consolidated democracy

Stable political system

Fernando HenriqueLula da SilvaDilma Rousseff

Political strengthBrazil is a peaceful and politically safe country:

She can run for a second term in 2014

Future prospectiveLa

rge

Coun

tries

(> 7

milli

on k

m2 )

Large population

(> 100 million)

Large GDP (> US$ 1,5 Trillion)

Why invest in Brazil Strong and fast growing domestic market

o large labor pool o Stable economic growth with social and environmental sustainability

Solid macroeconomic fundamentalso Declining net public debto Open capital marketso Floating exchange rateo Free capital flow, Limited barriers to FDIo Well-built, solid, and well regulated bank system

Opening up markets and reinforcing foreign trade Vast natural resources Cultural and natural wealth, vast and diverse population Clean energy matrix. Renewable, abundant and clean energy Democratic institutions and political stability

Brazilian O&G Industry

S. America O&G status

Country Reserves (109 bbl)

Production(103 bbl/day)

Argentina 2,5 651

Brazil 14,2 2.137

Colombia 1,9 801

Ecuador 6,2 495

Peru 1,2 157

Trinidad and Tobago 0,8 146

Venezuela 211,2 2.471

Other Countries 1,4 131

6% Regional reserves30% Regional production

70% Regional investment

Source: OPEC Annual Statistical Bulletin, 2011

Brazilian oil potential

31 sedimentary basins

6.430.000 km2

4.880.000 km2 1.550.000 km2

on shore off shore

- 60% Cenozoic- 25% Mesozoic- 15% Paleozoic

Origin

Sources: ANP Statistical Yearbook, 2011; IBGE Geographical Bulletin, 2012

Contracted areas for E&P

765

464 on shore301 off shore

Fields under concession

Total contracted area 526.555 km2

293.984 km2 on shore232.661 km2 off shore

8955

8.131 on shore 824 off shore

Producing wells

After 10 rounds (bids), last one took place in 2010

Exploratory phase

Development phase

Operational Fields

345

82

321

Source: ANP Statistical Yearbook, 2011

Spirit Santo Basin

Campos Basin

Santos Basin

Main producing areas

Basin Production (bbl/d)

Campos 1.756.277

Spirit Santo 68.079

Santos 49.009

Reconceive 43.545

Sergei 41.324

Slimes 35.697

Other 46.428

Almost 90% of oil reserves and production are located in Rio de Janeiro, Espírito Santo and São Paulo states shore. The most important industrial area in Brazil.

Campos and Espírito Santo Basins produce in the post-salt layer since 1976, major fields are expected to be close to the production peak, but still have new discoveries and fields to be bidden.

Santos Basin produces small quantities in the post-salt layer since 1979, but recently major reserves were find (specially for gas)

In spite of E&P activities in throughout the Country, the main reserves and production are concentrated on three offshore basins

Sources: ANP Statistical Yearbook, 2011; Roberto Giannini, 2012

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0.00

0.50

1.00

1.50

2.00

2.50

Produção on shoreProdução off shoreProdução total

Oil

Pro

duct

ion

(106

bpd

) Oil production evolution

Average 2011 production: 2,1 Mbpd

Source: ANP Statistical Yearbook, 2011

Oil production share

88.3%

2.9%

2.3% 2.4%

ONGC

Other Other

Frade Japão

Petrobras lead Brazilian oil market. The company is, and will be for a long time,

the major player in Brazil. There’s no oil business (technology, service or

equipment supply) without their agreement.

Sources: ANP Monthly Statistical Bulletin, 2011/2012; Companies

Spirit Santo Basin

Campos Basin

Santos Basin

The pre-salt provinceIn 2006 Petrobras finds oil on Campos Basin on the pre-salt layer. In 2008 the “pre-salt province” was mapped.

Total pre-salt province area (As defined in the regulation)

Previously contracted area

Available area(will be bided until 2014)

107.228 km2

149.000km2

41.772 km2Petrobras 35.739 km2

Other (IOC’s and local ) 6.033 km2

Expected recoverable reserves

80 ~ 100 x109 bblSources: Roberto Giannini, 2011

Oil on pre-salt layer

Water Seafloor

Sedimentary rocks layer

Salt layerPrimitive seafloor

Primitive Sedimentary rocks layerMagmatic rocks

Post-salt oil deposits

Pre-salt oil deposits

FPSO Well

Pre-salt oil drilling challenge

Ocean deep: 2.200~3.300 m

Salt layer : 1.500~2.400 m

Post-salt layer: 1.000~2.500 m

Pre-salt layer: 500~1.500 m

Well deep:

3.000~6.400 m

By the way…

Linear distance to the coast: 150~330 km

Pre-salt production potential

Source: ANP - Boletim da Produção de Petróleo e Gás Natural, Janeiro de 2012

Pre-salt production potential

Source: ANP - Boletim da Produção de Petróleo e Gás Natural, Janeiro de 2012

Pre-salt well cost evolution

First Well drilledTook 1 year to be completed

Cost US$ 240 million

Last well drilledTook 60 days to be completed

Cost US$ 66 million

Learning curve

Petrobras Strategic Plan

Source: Petrobras CFO conference @ BTG CEO Conference 2011

Petrobras strategic plan

Source: Petrobras CFO conference @ BTG CEO Conference 2011


Source: Petrobras CFO presentation @ BTG CEO Conference 2011

Considering only Petrobras units in Brazil

Actual Refining Capacity: 2.1 Mbpd

Planned revamps: 0,4 Mbpd

New refineries: 1,5 Mbpd

Projected capacity (2014): 4,0 Mbpd

13 Refineries


Source: Petrobras CFO presentation @ BTG CEO Conference 2011


How can we take advantage

of this scenario and convert it

into business opportunities?

The million dollar question:

Field operator’s main challenges

Reservoir characterization and data interpretation

Logistics, production management and cost

Operational safety and production

control

Technology development

Services provider’s challenge

Seismic and reservoir characterization

Drilling and exploration

Production optimization and oil flow

Well completation andwell services

Information systems and databases

Production Management and logistics

Field development and delimitation

Services integration

Brazilian Shipping Industry

Industry summary

47 operating yards 11 facilities under construction

386 Contracts6,9 million DWT order book59.000 employees

Operating Brazilian shipyards

Main operating yardsYard Steel Process (t/y) Area (m2) Dry Dock Slipway Dock

Eisa 52.000 150.000 0 2 3BrasFELS 50.000 410.000 1 3 2

Mauá 36.000 334.000 1 1 4STX OSV 15.000 120.000 1 1 1Aliança 10.000 61.000 0 1 2

Wilson, Sons 10.000 22.000 1 1 1

Navship 15.000 175.000 0 1 2Rio Grande 30.000 100.000 1 1 1

Quip N.a. 70.000 0 0 1

UTC N.a. 112.000 0 0 2

Atlântico Sul 160.000 15.000 0 2 2

Sum 378.000 1.569.000 5 13 21

Other 184.000 1.257.000 13 8 21

Grand Total 562.000 2.826.000 18 21 42

Oil & Gas demand

Demand assured for the next 10 years (2011–2020) due to the world’s largest E&P investment program:

50 • Production Platforms

50 • Drill Rigs

500 • Offshore supply vessels

130 • Oil tankers

Contracted platforms & FPSO

Unit Status Brazil International

P55 Semi-Sub Construction Hull + Top sides NoneP56 Semi-Sub Concluded Hull + Top sides None

P57 FPSO Concluded Hull + Top sides HullP58 FPSO Construction Hull + Top sides HullP62 FPSO Construction Hull + Top sides Hull

FPSO Construction Top sides Hull

FPSO Construction Top sides HullFPSO Twins 8 units under contruction Hull + Top sides None

P63 FPSO Construction Top sides Hull

FPSO 4 units under bid Hull + Top sides None

- Seven drilling ships are in construction at Atlantico Sul Shipyard- Two jack ups drilling rigs are finishing construction at Consorcio Rio

Paraguaçu - 12 drilling rigs build in international yards by Brazilian operators will

start operations in 2012 and 2013.

Offshore Drilling Platforms Sete Brazil, a joint venture of Petrobras, some local pension funds and Brazilian banks, was announced as the winner of the bid to build in local yards 21 drilling rigs.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0

500

1,000

1,500

2,000

2,500

3,000

(R$

Mill

ion)

Merchant Marine Fund (FMM)

The FMM annual disbursements on loans for ship construction covers up to 90% of total investment.

Brazilian Merchant Marine Fund is a clearly defined and well-regulated legal system for the financing of shipbuilding, in place for over 50 years.

Local Content achievementBrazilian industry associations developed the data base of equipments, products and materials needed by shipyard, based on real case purchases for a Platform Supply Vessel, a tanker and a FPSO platform. The data base is shared with the supply chain to increase local production.

TankerOSVFPSO

Local (%)

• 70,8• 61,0• 64,2

29,239,035,8

Local Content Ships Work Groups

• Structural steel, steel plates, sections of steel and steel shapes A

• Machinery, motors, compressors and pumpsB

• Piping and valvesC• Electric systems, wiring, cables and control

panelsD

• Hull accessoriesE

• Finishing materialsF

• Paint and corrosion protectionG

Local Content

Electric Package reached 100% of local content for some items: Electric cables

Control Panels

Auxiliary motors for energy generation

Actually on this group, the most critical items for suppliers are: Propulsion Motors above 650 HP

Cargo and ballast pumps

Navigation, communication and safety equipments

Platform and Drill Rigs Workgroups count 11 equipments family and 111 sub-groups, summing 534 critical items

Conclusions Brazilian modern shipbuilding industry is active since the 60’s,

experienced downfalls from the middle of the 80’s until the end of the 90’s. Since 2003 became a government priority

A consistent regulatory and legislation arrangement is in place

Demand is clearly visible for at least the next 10 years, based on the offshore demand of high valued drill rigs, oil production platforms, OSV and tankers

Labor relations are recognized as an example by the International Labor Organization

Challenges are identified and the industry works closely with the government departments to develop sustainable solutions

However, the local industry has a huge technology gap, when compared to the world leaders

Doing business in

Find a local partner and focus on hiring local content

Companies want to see technology… show them ready-to-use technology

Keep your attention on Health, Safety and Environment

In general, companies are well capitalized and have access to government funds to invest. But… You can be creative and show ways do fund globally…

Many non-Petrobras companies teams and directors are ex-Petrobras employees. You will see Petrobras way to do business everywhere…

Doing business in Brazil - Focus

Brazil is a democratic, low-risk and stable country, both in political and economic fields.

Europeans are well respected for their tradition, culture, respectability and low-profile approach to business.

Brazilians are not used to do business with people and companies they don’t know. Be low-key and invest time to work with your local counterpart.

Relationships and face-to-face contacts are very important

Portuguese is the language spoken in Brazil (all other Latin American countries speaks Spanish)

Doing business in Brazil - Tips

Brazil is not corrupt. Don’t make that assumption! If you try “shortcuts”, you’ll have problems…

In other hand… We are very bureaucratic... Learn the System and be patient...

Taxation laws and fiscal issues are complex and change frequently

Labor laws and social costs are burdensome and favor the employee

The business culture is sophisticated and westernized

Laws and contracts are respected and enforced

Doing business in Brazil - Tips

Final message

When you plan an overseas investment

Take a look at Brazil

Dr. Roberto Giannini + 55 11 9266-4273

[email protected]

Yvan Bernardin + 55 11 9938-2388

[email protected]