The Oil and Gas Industry in Brazil...Late 2016 Petrobras: no longer sole operator for the prepprreepre- ---salt play salt play (Law 13,365/2016) 2018 LC waiver for contracts up to

The Oil and Gas Industry The Oil and Gas Industry The Oil and Gas Industry The Oil and Gas Industry

in Brazil in Brazil in Brazil in Brazil

NYJune 29th , 2018

Décio Oddone

Director-General

NOTICE

• The ANP´s institutional presentation is based on currentand reliable information, but no representation orwarranty is made as to its accurateness andcompleteness, and it should not be relied upon as such.

• Projections and estimated values are included withoutany guarantee as to their future realization.

• Forward-looking data, information, projections andopinions expressed during the presentation are subjectto change without prior notice.

Outline

What is ongoing in Brazil and the need for

competition

02 REFINING 04 FINAL REMARKS

What we did, the results and what´s next

01 UPSTREAM

The current scenario

03 GAS MARKET

A lot has been achieved…

Late 2016

Petrobras: no Petrobras: no Petrobras: no Petrobras: no longer sole longer sole longer sole longer sole

operator for the operator for the operator for the operator for the prepreprepre----salt play salt play salt play salt play

(Law 13,365/2016)

2018

LC waiver for LC waiver for LC waiver for LC waiver for contracts up to contracts up to contracts up to contracts up to the 13the 13the 13the 13thththth bidding bidding bidding bidding

roundroundroundround(ANP Ordinance

726/2018)

6

Bidding Rounds Bidding Rounds Bidding Rounds Bidding Rounds (in 2017/2018)(in 2017/2018)(in 2017/2018)(in 2017/2018)

2017

Bidding Rounds Schedule Bidding Rounds Schedule Bidding Rounds Schedule Bidding Rounds Schedule until until until until 2019201920192019

(CNPE Resolution 10/2017)

New Local Content Policy New Local Content Policy New Local Content Policy New Local Content Policy –––– future future future future roundsroundsroundsrounds


New E&P PoliciesNew E&P PoliciesNew E&P PoliciesNew E&P Policies(CNPE Resolution 17/2017)

Exploratory Phase ExtensionExploratory Phase ExtensionExploratory Phase ExtensionExploratory Phase Extension(BID 11 and BID 12)(BID 11 and BID 12)(BID 11 and BID 12)(BID 11 and BID 12)


REPETRO Extension REPETRO Extension REPETRO Extension REPETRO Extension –––– fiscal regimefiscal regimefiscal regimefiscal regime(Law 13,586/2017)

Main Adopted Measures

Bidding rounds results

Bidding RoundAcquired Blocks

Signature Bonuses(R$ billion)

RegisteredCompanies

Winners Companies

Premium

37 (24 onshore and 13

offshore)

3.84 32 17 1,556%

22 8.01 17 12 622%

3 3.3 10 7 261%

3 2.85 14 6 202%

3 3.15 16 7 202%

Total 68 R$ 21.15 High competition and record results!

A great diversity winners in the last auctions

Consortia by blockConsortia by block

15th Bidding Round4th Pre-Salt Bidding Round

The new pre-salt exploratory scenario

Before After (up to 2019)

US$ 80B

R$ 300B

New Investments

US$ 334B

R$1.240B

Tax Revenues

2Million bpd

(peak production)

15New Platforms

Hundreds of Wells

And the potential results are…

*Brent = US$ 70/bblExchange Rate = R$ 3,70/US$

Potential results for the following bidding rounds:

The potential results for new LC Policy

Much more must be addressed…

Future: a high speed of transition and an increase of competition

Demand for oil grows before plateauing in the late2030s

Competitive pressures within global energy marketswill intensify

The global energy mix will the most diverse theworld has ever seen by 2040, with oil, gas, coal andnon-fossil fuels each contributing around 25%

Renewables are by far the fastest-growing fuelsource, increasing five-fold and providing around14% of primary energy

Less thanLess thanLess thanLess than5555%%%%of the sedimentary areas are

contracted

Brazil has to boost O&G activities to generate economic growth while they have value

Source: BP Energy Outlook 2018

Only Only Only Only 30303030kkkkwells were drilled3333....3333MMMMboe/dboe/dboe/dboe/d

of O&G production

2,6Mbpd of oil

15151515BBBBboeboeboeboe

of proven reserves

1111MMMMbpdbpdbpdbpd

of crude oil exports

Brazil: the numbers do not reflect our potential

16,54716,54716,54716,547bpdbpdbpdbpd

Average oil production per well

Onshore Pre-SaltConventional Offshore

Three different E&P environments

88886666 wwwweeeellllllllssss

All the East Marginbesides the pre-saltregion and EquatorialMargin, including newfrontier areas and asignificant number oflarge mature fields.

Mature Basins andNew Frontier Basins(mostly gas prone).Potential forunconventional to beunleashed.

One of the World´shottest oil play, hometo the largest offshoreoil discoveries in thelast decade.

666644441111 wwwweeeellllllllssss

6666,,,,777799992222 wwwweeeellllllllssss

1,6541,6541,6541,654bpdbpdbpdbpd

17171717bpdbpdbpdbpd

54%54%54%54%39%39%39%39%7777%%%%Production

Onshore oil Production (May, 2018)

35%

111,192

Increasing exploration and revitalizing activities

91 94108

149

186 182 176

238 232

163

94 85

3926

10

Exploratory Wells Concluded

89%

2011/2017

0

200

400

600

800

2015 2016 2017 2018

Development Wells Concluded

59

*Updated (06/21/18)

70%

2015/2017

2012/2018

38%

2012/2018

0

500

1.000

1.500

2.000

2012 2013 2014 2015 2016 2017 2018

Th

ou

sa

nd

bp

d

Pos-Salt Campos Basin Oil Production

4.500

6.500

8.500

10.500

12.500

14.500

16.500

2013 2014 2015 2016 2017 2018

Th

ou

sa

nd

bp

d

Northeast Basins Offshore Oil Production

RNCE SEAL

62%

2014/2018 (SEAL)

0

200

400

600

800

1.000

1.200

1.400

1.600

01/2

01

2

06/2

01

2

11/2

01

2

04/2

01

3

09/2

01

3

02/2

01

4

07/2

01

4

12/2

01

4

05/2

01

5

10/2

01

5

03/2

01

6

08/2

01

6

01/2

01

7

06/2

01

7

11/2

01

7

04/2

01

8

Pre-Salt Oil Production

722%

2012/2018

Th

ou

sa

nd

bp

d

Current O&G Recovery Factor

Campos Basin

14%

Maximizing the recovery factor

Final O&G Recovery Factor

Brazil

21%

Average Final O&G Recovery Factor

Campos Basin

23%

Final O&G Recovery Factor

World

35%

*Source: Annual Reserves Bulletin (12/31/2017)

1111% addition in Campos Basin:

985MboeNew Reserves

1111% addition in Onshore:

200MboeNew Reserves

Attracting the right players

SupermajorsMajor Operators

Major OperatorsExploration SpecialistsMature Field Players

Small and Medium Companies030201

Pre-Salt Conventional Offshore

Onshore

Supported by oilfield service companies, suppliers and financial institutions

Our potential

5.5

Potential forecast production in 10 years

The most prominent deep water environment

Mature fields/basins

Low recovery rate in average. 1% addition in the Brazilian recovery factor: 2,2Bboe of new reserves and US$18B in

new investments

We barely know our potential.

Unconventional resources discussion

should progress

bpd

M >50

New FPSOs

Contracted or in progress Need to be unlocked

New Frontier Basins

We need a diversified industry to unlock our full potential US$490B

According to our analysts, the E&P sectorhas potential to attract R$ 1.8 trillion ofinvestments in the next 10 years. But westill have half of this value estimated undercontracts.

To double it, we need a diversified oilindustry with a significant number ofplayers in each environment. Nowadays,we only have around 100 E&P companiesand 9 production operators. Petrobras stilloperates 94% of the production.

R$1.8T

01

0402

03 05

06

Ongoing measures…

New ANP Ordinance: New ANP Ordinance: New ANP Ordinance: New ANP Ordinance: Royalties reduction for the incremental for the incremental for the incremental for the incremental

production in mature production in mature production in mature production in mature fieldsfieldsfieldsfields

New ANP Ordinance:New ANP Ordinance:New ANP Ordinance:New ANP Ordinance:

Reserve Based Lending

ANP Ordinance Update: ANP Ordinance Update: ANP Ordinance Update: ANP Ordinance Update:

LC measurement and and and and

certificationcertificationcertificationcertification

ANP Ordinance Update: ANP Ordinance Update: ANP Ordinance Update: ANP Ordinance Update:

R&D –––– a new strategy a new strategy a new strategy a new strategy

Bidding Rounds

(2ndS/2018)

(2ndS/2018)(July/2018)

(Public Hearing – 29th June)

Open Acreage ((((more attractive more attractive more attractive more attractive contractscontractscontractscontracts))))

PetrobrasPetrobrasPetrobrasPetrobras´́́́ Divestment Plan

September

28th

1st

SemesterAs from

November

Bidding rounds schedule

2018 2019

1st Wave 2nd Wave

3rd QNovember

29th

2020/2021

To be confirmed

346,035Km² area

14Mature

fields

15Sedimentary

basins

Open Acreage 1stWave

884Blocks

722 blocks in 9 onshore basins

162 blocks in 6 offshore basins

Blocks not awarded in the 15th Bidding Round are included

Open Acreage 2ndWave

441,400Km² area

20Sedimentary

basins

1,054Blocks

85 blocks in 7 onshore basins

969 blocks in 13 offshore basins

Deadline for the disclosure of parameters and rules:

December/2018

5th Pre-Salt Bidding Round

Estimated unrisked

oil in place

volumes (P50)

17 Bbbl

Legend

4areas

Sectors for the future concession bidding rounds

Legend

Round 16 – Sector

Round 16 – Area for Study

Round 17 - Sector

Round 17 - Area for Study

Round 18 - Sector

Round 18 - Area for Study

Pre-salt Polygon

State limit

Offshore basins

Onshore basins

Basement

Transfer of Rights Surplus Opportunities

Transfer of Rights Fields

LegendLegendLegendLegend

US$ 489B

R$1.809B

Tax Revenues

10.8Billion boe

( GCA P50 recoverable volumes)

17New Platforms

*Brent = US$ 70/bblExchange Rate = R$ 3,70/US$

10Fields

Outline

What is ongoing in Brazil and opportunities



01 UPSTREAM 03 GAS MARKET


8th

largest refiner park and

1st of LA

PETROBRAS REFINERIES

OTHERS REFINERIES

(only 2% of the capacity)

LUBNOR

RPCC

RNEST

DAX OIL

RLAM/FASF

REMAN

REDUCREVAP

REGAP

REPLAN

RIO GRANDENSE

REFAP

REPAR

RPBC

MANGUINHOS

UNIVEN

RECAP

46 kbpd

(2%)

553 kbpd

(23%)

432 kbpd

(18%)1,141 kbpd

(47%)

237

kbpd

(10%)

REFINING CAPACITY IN BRAZIL:

National Sales of Oil Products (2017)

~2,3 Million bpd

National Sales of Biofuels (2017)

515Thousand bpd

Imports (2017)(ethanol, naphtha, QAV, LPG,

Gasoline e Diesel)

538Thousand bpd

Capacity: ~ 570 thousand bpd (33 billion liters)

Capacity: 140 thousand bpd

51 Biodiesel Plants

383 Ethanol Mills

Strong and growing participation of biofuels

7th

Largest oil products consumer

2.2 Mbpd (80%)

17

REFINERIES

National Supply

Petrobras' monopoly

End of monopoly(Oil Act)

Remains Petrobras’ dominant

Refining: history of fuel pricing policy

1953

1997

2002

Start of practicing International Prices

(import parity)

Interference in fuel prices

2003

2016

Increase in exchange

rate and oil price

Petrobras´s new pricing policy (October): monthly adjustments for diesel and

gasoline prices

2017Petrobras´s new pricing

policy (July): daily adjustments for diesel and

gasoline prices

2018

Truckers Strike (may)

Increase in exchange rate and oil price

Government´s subsidies (R0,46/l)

ANP announced apublic hearing in

order to discuss the frequency of transfer

of fuel price adjustments(5th of June)

Why the public hearing?

Brazilian society has questionedPetrobras´ price volatility. There areno room for investment in a countrywhen the society is questioning thepricing policy.

Concentrated refining market in asingle large company + current fueltaxation system = need of regulatorymeasures that protect the consumerand preserve the key values of amarket economy.

There is only one way to ensurethat the fuel prices offered to theconsumer are fair and adequate:when they are established in anopen, diversified and

competitive market.

The public hearing proposes to build a joint and transparent solution with the companies and the society, stabilizing the scenario for staid discussions. There is NO intention to interfere in the freedom

of price formation, which is established in the Brazilian legislation

PAST PRESENT

An open, diversified and competitive market with multiple

players

EXPECTED FUTURE

Monopoly

• Interference in Petrobras´s pricing policy

• Investment needs • Import dependency

• Import Parity• Risk of new price controls or

adoption of anticompetitive practices • Investment needs • Increase in import dependency

De facto monopoly

• Market Price• New Investments• Increase in national production

and reduction in import dependency

Creating an open and competitive market

1937

1937

1937

1937

RIOGRANDENSE

(RS)

1950

1950

1950

1950

1954

1954

1954

1954

1955

1955

1955

1955

1956

1956

1956

1956

1961

1961

1961

1961

1966

1966

1966

1966

1968

1968

1968

1968

1972

1972

1972

1972

1977

1977

1977

1977

1980

1980

1980

1980

2000

2000

2000

2000

2007

2007

2007

2007

2008

2008

2008

2008

2014

2014

2014

2014

RLAM

(BA)RECAP

(SP)

MANGUINHOS

(RJ)

RPBC

(SP)REMAN

(AM)

REDUC

(RJ)

LUBNOR

(CE)

REFAP

(RS)

REGAP

(MG)

REPLAN

(SP)

REPAR

(PR)

DAX OIL

(BA)

REVAP

(SP)

RPCC

(RN)UNIVEN

(SP)RNEST

(PE)

FUTUREFUTUREFUTUREFUTURE

RNEST 2RNEST 2RNEST 2RNEST 2ndndndnd UUUUnnnniiiitttt CCCCOOOOMMMMPPPPEEEERRRRJJJJ ((((RRRRJJJJ))))SSSSmmmmaaaallllllll rrrreeeeffffiiiinnnneeeerrrriiiieeeessssNew ProjectsNew ProjectsNew ProjectsNew Projects

Increase of competitiveness and capacity by:

- gradual increase in third-party participation with the market´s growth or

- process acceleration through Petrobras' partnerships / divestments

Conclusion of stopped projects / new refineries

Small refineries

Refining: perspectives

Opportunities for investments in refining involve the demand growth and Petrobras´ divestment plan. They depend on the practice of market prices and can benefit from the cost of the logistical tour

Source: Petrobras

Opportunities in

the refining sector

INTERNATIONAL PRICES

LOGISTICS INEFFICIENCY

DEMAND GROWTH

PETROBRAS´́́́ DIVESTMENT PLAN

Gasoline/diesel imports: ~ 4 to 6 US$/bbl

Oil exports: ~ 2 to 4 US$/bbl

Total potential by barrel of oil product: ~ 6 to 10 US$

INCREASE IN OIL EXPORTS

60%60%60%60% 60%60%60%60%

Outline




01 UPSTREAM


03 GAS MARKET

The gas market in Brazil

101 Million

Domestic Supply

66%

Imports from Bolivia

31%

LNG Imports

3%

m³/d

Power Generation

32%

Automotive

8%

Cogeneration

4%

Industrial

53%

23.4

6

2.8

38.9

Others

3%

2.4

Consumption by Sector

80Million m³/d 73.5 Million m³/d

SUPPLY DEMAND

52

25

2.4

March 2018

Gas market scenario

Petrobras' repositioningPetrobras' repositioning

Development of pre-salt fields andnew gas areas, increasing thenatural gas domestic productionin the future


Increase of renewable in theelectricity generation, demandingnatural gas thermal power plantsas back up systems


Petrobras' repositioning



The driving forces In progress…

Gas to GrowGas to GrowGas to GrowGas to Grow

The draft bill proposed in 2017 setsa “Market Design”, aiming a liquid,diversified and competitive naturalgas market

The transition is already beingimplemented: 2018 Open-seasonfor Bolívia-Brasil Pipeline capacityoffering (entry-exit regime)

Regardless of the gas bill approval, the ANP will continue to implement regulatory measures to modernize and open the gas market

Opportunities for LNG in Brazil will continue to exist

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

5

10

15

20

25

2013 2014 2015 2016 2017 2018

% S

up

ply

Mill

ion

m³

Average LNG Import

The LNG market

01

02

LNG terminals: Pecem-CE, Bahia deGuanabara-RJ and Bahia

Opening of LNG terminals for third parties

Project Opportunities withcombined supplies (LNG, domesticgas)

03

LNG shall be used as a bridge until domesticnatural gas is available. In the future, naturalgas abundance can turn Brazil into a LNGexporter.LNG Import % of natural gas supply

Outline




01 UPSTREAM 03 GAS MARKET


*Exchange rate – R$3,70/US$

Potential Investments in the O&G Industry

SectorInvestments (US$ billion)

Investments(R$ billion)

E&P 490 1.813

Refining, Processing and

Petrochemical Plants58 216

Biofuels 28 105

Pipelines 10 35

Logistics Supply 8 31

Total 594 2.200

How much investments in the Oil, Gas & Biofuels Industry would be

necessary to develop all the

Brazilian potential in the next 10

years?

The greatest transformation in the Brazilian E&P sector, completing the opening which started in 1997

Diverse and Diverse and Diverse and Diverse and Competitive Competitive Competitive Competitive E&P MarketE&P MarketE&P MarketE&P Market

Petrobras divestment plan

Bidding round schedule and open acreage

Need of additional service companies

Improvements in the energy policy

O&G scenario in 2018Unique E&P opportunity:Unique E&P opportunity:Unique E&P opportunity:Unique E&P opportunity:

- immediate reserves certification

- fast production development

- reserves and production growth

First ever effective opening in the natural gas First ever effective opening in the natural gas First ever effective opening in the natural gas First ever effective opening in the natural gas businessbusinessbusinessbusiness

Creation of a competitive, open, diverse and internationally Creation of a competitive, open, diverse and internationally Creation of a competitive, open, diverse and internationally Creation of a competitive, open, diverse and internationally referred refining and fuels marketreferred refining and fuels marketreferred refining and fuels marketreferred refining and fuels market

Development of a diverse and competitive supply chain and Development of a diverse and competitive supply chain and Development of a diverse and competitive supply chain and Development of a diverse and competitive supply chain and services marketservices marketservices marketservices market

More information:

http://rodadas.anp.gov.br/pt/

anp.gov.br

National Agency of Petroleum, Natural Gas and Biofuels ANP

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

Phone: +55 (21) 2112-8100

Documents

The Oil and Gas Industry in Brazil...Late 2016 Petrobras: no longer sole operator for the prepprreepre- ---salt play salt play (Law 13,365/2016) 2018 LC waiver for contracts up to