Local Content Framework The Brazilian Experience Rio de Janeiro, 02/06/2011
To be considered
To be considered
To be considered
Brazil Highlights 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)
Brazilian Oil & Gas Market highlights: 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
What is Local Content? And why? Definition: Contractual commitment of purchasing local goods and services in competitive basis. Objectives: Development of local suppliers & technology Mass creation of jobs Development of the economy (GDP)
Local Content Framework: the Concession experience Local Content was required in all Bid Rounds Bids 7 to 10 Bids 1 to 4 Free LC offerings LC Incentives Max. & Min. offering limits LC Certification by 3 rd part New methodology to calculate the LC 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Bids 5 and 6 Minimum offering limits No more incentives
Local Content Commitments on Concession Agreements Local Content Offerings (%) 100 90 80 70 60 50 40 30 20 10 0 Local Content Average 1 2 3 4 5 6 7 8 9 10 BID ROUND High probability of penalities * Pre-salt fields E xploration Development * Only on-shore blocks
Local Content Framework: the Concession experience
Local Content Rules Bids 7 to 10 Bids 7 to 10 LC calculation: 3rd part (companies accredited by ANP) Imported items cost VS sales price Compulsory certification to prove local investments 2005 2006 2007 2008
Investimentos Locais Declarados RIT Corrente Constante (IGP M Março/2011) Rodada 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 Corrente Constante (IGP M Março/2011) Rodada Total Nacional Total Nacional BID 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 Investimentos Declarados nos Blocos Fase de Exploração 9.000 8.000 Total Nacional R$ milhões de mar/2011 7.000 6.000 5.000 4.000 3.000 2.000 1.000 BID 01 BID 02 BID 03 BID 04 BID 05 BID 06 BID 07 BID 09 BID 10
LC Certification in numbers Valores Certificados CL Descrição das Áreas Investimento Certificado Conteúdo local (R$) Emitidos Médio Geologia e Geofísica R$ 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 4000 3500 3000 2500 Certificados Emitidos no Trimestre Certificados Acumulados 2000 1500 1000 500 0 2009.I 2009.II 2009.III 2009.IV 2010.I 2010.II 2010.III 2010.IV 2011.I
Local Content Auditing Procedures: 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.
Local Content Auditing 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.
Brazilian Opportunities 11 th 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 11 th Bid Round is the Brazilian Equatorial Margin
The Equatorial Margin COSTA DO MARFIM GANA NÍGER NIGÉRIA LEGEND MarineA Marine B Marine Transitional Marine/Lacustrine BRASIL CAMARÕES CHADE Maturo Marine Tertiary Deltaic Lacustrine A Lacustrine B GABÃO Lacustrine C CONGO REPÚBLICA DEMOCRÁTICA DO CONGO ANGOLA
The Pre-Salt as a New Paradigm From 2004: 71 wells drilled 13 wells (19%) without discovery 2-ANP-1-RJS 2-ANP-2A-RJS
Brazilian Opportunities: Pre-Salt Campos & Santos Basins (50 billion barrels?) Campos Basin Source: PETROBRAS, 2009
Brazilian Opportunities: Pre-Salt Campos & Santos Basins (50 billion barrels?) 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 Source: PETROBRAS, 2009
Campos & Santos Pre-salt: challenges of local supply Local suppliers: Competitiveness Supply capacity Goods & services - Costs in Brazil Overcome Setbacks: Technology Human Resources Economy: Strong currency (Real) Importations boom
Local Content Perspectives Law nº 12.351/2010 Production Sharing Agreement: Art. 9º... I - the pace of blocks acquisition under the production sharing system will observe the energy policy and the development of national industry and the its ability to supply goods and services Local Content Policy: Focus on the methodology to calculate LC (LC Booklet) Focus on the LC Certification
Local Content Challenges for next Bidding Rounds Local Content Regulation: 11 TH BID Round & 1 st Pre-salt BID Round Simplify the table of commitments & offers of Local Content; Adjust the definitions of items of the Local Content commitments (Resolution N. 39/2007 ANP); Simplify the procedures for Local Content Certification, giving focus on the relevant activities. (Resolution No. 36/2007 ANP); Transparency of actions; Dialogue with the industry.
How to increase Local Content levels? Suggestions: 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.
Oil & Gas Activities in Brazil Objectives of Energy Policy Brazil will continuously develop the oil & gas activities (pre-salt & post-salt) based on two strong pillars: HSSE and Local Content. The Development of Oil & Gas Activities 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 Best practice HSSE Local Content 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 petroleum companies and for goods & services suppliers; ANP will promote the 11º bid-round in October focusing the equatorial margin; Working to promote the 1st bid round focusing Pre-Salt opportunities; The Brazilian policy for the O&G sector aims to reach a strong degree of nationalization and boost the Brazilian industry; Current investments in the supply chain have sufficient magnitude to induce the local industry; Foreign investments are welcome (as long as in accordance 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) 2112-8535 mmacedo@anp.gov.br ccl@anp.gov.br www.anp.gov.br