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CONFIDENTIAL
FOR INTERNAL USE WITHIN CLIENT COMPANY ONLY
THE BRAZILIAN
OIL AND GAS SECTOR
OPPORTUNITIES AND CHALLENGES IN BRAZIL’S OIL AND GAS INDUSTRY
São Paulo
August 2015
BUSINESS SWEDEN 28 OCTOBER, 2015 2
BRAZIL IS EXPANDING E&P INVESTMENTS AND IS NOW
THE WORLD’S 11TH
LARGEST OIL AND GAS PRODUCER
SOURCE: IBGE, BRAZILIAN CENTRAL BANK *INCLUDES OIL AND GAS EXPLORATION AND PRODUCTION, SUPPORT ACTIVITIES AND OIL DERIVATIVES PRODUCTION
4,6% of Brazil’s GDP
BRL 223bn in 2013*
Brazil was the 11th largest oil and gas producer
in 2014 with an average of 2,3 million bpd
The volume of Brazilian extracted oil is 20% of the volume
extracted by the US, the largest producer in 2014
Large
investments
Lack of local
competition
Huge
pre-salt
reserves
2,3
0 1 2 3 4 5 6 7 8 9 10 11 12
Kazakhstan
Angola
Norway
Qatar
Brazil
Nigeria
Venezuela
Mexico
Kuwait
Iraq
Iran
Emirates
Canada
Russia
Saudi Arabia
United States
BUSINESS SWEDEN 28 OCTOBER, 2015 3
ON-GOING INVESTMENTS ARE EXPECTED TO MAKE
BRAZIL A TOP TEN GLOBAL OIL PRODUCER BY 2020
SOURCE: BRAZILIAN NATIONAL OIL AGENCY (ANP), IEA, BMI
0
5
10
15
20
25
30
35
0,0
0,5
1,0
1,5
2,0
2,5
3,0
Oil (million barrels per day) Natural Gas (billion m³)
THE PRE-SALT DISCOVERIES WILL BOOST BRAZILIAN OIL AND GAS PRODUCTION FURTHER IN THE NEXT YEARS
* FORECAST: BMI OIL & GAS REPORT
FORECAST
HEAVY INVESTMENTS IN EXPLORATION AND PRODUCTION TO INCREASE CAPACITY
RANKING OF TOP OIL PRODUCERS 2014, BY MILLION BPD BRAZIL OIL AND GAS PRODUCTION AND FORECAST, 2005-2020
BUSINESS SWEDEN 28 OCTOBER, 2015 4
96% OF OIL AND GAS PRODUCTION IN BRAZIL TAKES
PLACE OFFSHORE
SOURCE: BRAZILIAN NATIONAL OIL AGENCY (ANP)
E&P IN BRAZIL HIGHLY DEPENDENT ON OFFSHORE SOLUTIONS AND DEEP-SEA OIL EXTRACTION TECHNOLOGY
4%
96%
Land
Sea
Oil refinery
Shale refinery
Natural gas processing plant
Petrochemical plants
Oil and gas reserves
OIL AND GAS RESERVES BY LOCATION (LAND AND SEA)
BA
RN
CE AM
ES
MG
RJ
RS
PR
SP
Pre-salt
reserves
LARGEST RESERVES CONCENTRATED TO THE SOUTHEASTERN COAST LINE
BUSINESS SWEDEN 28 OCTOBER, 2015 5
PETROBRAS CONTROLS 86% OF OIL PRODUCTION AND
82% OF GAS PRODUCTION IN BRAZIL..
SOURCE: PETROBRAS, BRAZILIAN NATIONAL OIL AGENCY (ANP)
86%
Petrobras
BG Brasil
Statoil Brasil
Shell Brasil
Sinochem Petróleo
Repsol Sinopec
Others
82%
Petrobras
Parnaíba Gás
BG Brasil
Queiroz Galvão
BPMB Parnaíba
Repsol Sinopec
Petrogal Brasil
Others
PETROBRAS IS THE LARGEST COMPANY IN BRAZIL AND DOMINATES THE LOCAL OIL AND GAS INDUSTRY
Company Name Petróleo Brasileiro S.A.
Company Status Open capital society (government majority)
Annual Sales (BRL) 304,9 billion
Net Profit (BRL) 23,6 billion
Number of Employees 86 111
Proven Reserves 16,6 billion boe*
Number of Production Platforms 134 (77 fixed, 57 floating)
Daily Production 2,54 million boe per day
Number of Refineries 15
Production of Oil Derivatives 2,12 million barrels per day
Extension of Pipeline 34 639 km
Number of Fuel Stations 7 710
Number of Biofuel Power Plants 15 (10 ethanol, 5 biodiesel)
Number of Thermal Power Plants 21 (16 natural gas)
Number of Wind Power Plants 4
Activities
Exploration and production, refining, marketing, transport, petrochemistry, distribution of derivatives, natural gas, electric energy, gas chemistry, biofuels
* ANP/SPE CRITERIA
OIL PRODUCTION IN BRAZIL BY COMPANY
NATURAL GAS PRODUCTION IN BRAZIL BY COMPANY
BUSINESS SWEDEN 28 OCTOBER, 2015 6
..AND 99% OF THE REFINING CAPACITY
SOURCE: BRAZILIAN NATIONAL OIL AGENCY (ANP)
0,0
0,5
1,0
1,5
2,0
2,5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Refinery State Municipality Operating
since Capacity
(bpd) Replan SP Paulínia 1972 415.128
RLAM BA São Francisco do Conde 1950 377.389
Revap SP São José dos Campos 1980 251.593
Reduc RJ Duque de Caxias 1961 242.158
Repar PR Araucária 1977 207.564
Refap RS Canoas 1968 201.274
RPBC SP Cubatão 1955 169.825
Regap MG Betim 1968 150.956
Recap SP Mauá 1954 53.463
Reman AM Manaus 1956 45.916
RPCC RN Guamaré 2000 37.739
Riograndense RS Rio Grande 1937 17.014
Manguinhos* RJ Rio de Janeiro 1954 13.838
Univen* SP Itupeva 2007 9.158
Lubnor CE Fortaleza 1966 8.177
Dax Oil* BA Camaçari 2008 2.095
* REFINERIES NOT CONTROLLED BY PETROBRAS
OIL REFINING CAPACITY IN BRAZIL, BY MILLION BPD BRAZILIAN OIL REFINERIES
Refining of Brazilian oil
Refining of foreign oil
Total capacity
TOTAL CAPACITY IS INCREASING AND REACHED 2,4 MILLION BARRELS/DAY IN 2014
BUSINESS SWEDEN 28 OCTOBER, 2015 7
PETROBRAS IS THE ONLY COMPANY SPANNING
THROUGH THE ENTIRE OIL AND GAS VALUE CHAIN
SOURCE: RESEARCH, BRAZIL OIL & GAS REPORT
Exploration Production Transportation Refining Retail
Upstream Downstream
Petrobras
Raízen
Repsol Sinopec
Shell
Ipiranga
Statoil
THE COMPANY DOMINATES BOTH UPSTREAM AND DOWNSTREAM SEGMENTS
Sinochem
BR
Shell is distributing through
Raízen, a joint venture with
a local company, Cosan
Shell recently acquired BG Group
BR is Petrobras’ distributor
Ipiranga’s old refinery
(Riograndense) is now
controlled by Petrobras,
Ultrapar and Braskem
Repsol is not refining in Brazil since 2010
THE FLUXOGRAM INCLUDES THE TOP PRODUCERS AND RETAILERS
BUSINESS SWEDEN 28 OCTOBER, 2015 8
USD 130 BILLION TO BE INVESTED 2015-2019
SOURCE: PETROBRAS
83%
10%
5% 2%
Exploration & Production
Supply
Gas and Energy
Other
69% OF PETROBRAS PLANNED INVESTMENTS 2015-2019 DESTINED FOR PRODUCTION DEVELOPMENT
Production Development 89,4 BUSD 82,0%
Operational Support 3,0 BUSD 3,0%
Exploration 11,3 BUSD 10,0%
International Investments 4,9 BUSD 5,0%
Total 108,6 BUSD 100,0%
Maintenance and Infrastructure 8,8 BUSD 69,0%
RNEST Refinery (PE) 1,4 BUSD 11,0%
BR Distributor 1,3 BUSD 10,0%
Other (Supply) 1,3 BUSD 10,0%
Total 12,8 BUSD 100,0%
Gas Pipeline 5,0 BUSD 80,4%
Energy 0,9 BUSD 13,8%
Chemical Gas Plants 0,3 BUSD 5,3%
LNG Regasification 0,1 BUSD 1,0%
Total 6,3 BUSD 100,0%
Exploration
& Production
Supply
Gas &
Energy
PETROBRAS 2015-2019 BUSINESS PLAN INVESTMENTS
INVESTMENTS FOCUSED ON E&P BUT ALSO INFRASTRUCTURE INCLUDING GAS PIPELINES
50%
75%
25%
25% 20%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Components Assembly &Management
Profit Taxes Sales Price
BUSINESS SWEDEN 28 OCTOBER, 2015 9
LEGISLATION REQUIRES OIL & GAS OPERATORS TO
FULFILL LOCAL CONTENT REQUIREMENTS..
SOURCE: ANP, PETROBRAS, EXAME
PETROBRAS ARE FACING CHALLENGES TO FIND SUITABLE LOCAL SUPPLIERS TO FULFILL LOCAL CONTENT REQUIREMENTS
PRODUCT
SUPPLIER
EXAMPLE:
OIL & GAS
OPERATOR
BRAZILIAN
OIL & GAS AGENCY
% local content
(Local Content Report) (Local Content Certificate
+ Invoice)
Operators are obliged to
publish specific local
content targets for new
investments
The local content of a
good or service is
measured by a
percentage of the sales
price excluding taxes
ANP establishes the
minimum local content
for field exploration
concessions
$ Price
EXAMPLE OF LOCAL CONTENT CALCULATION
FOR PRODUCTS:
Product
has
75%
local
content
Water
(+100m depth)
Water (up to
100m depth)
Land
Exploration 37% 51% 70%
Development 55% 63% 77%
CURRENT MINIMUM LOCAL CONTENT FOR
OPERATORS (SUCH AS PETROBRAS):
Local Content Taxes Imported Content
(Regulation)
Extreme differences
between foreign and
local supplier prices
Compromising
delivery critical
deadlines
New technology,
unavailable locally
EXCEPTIONS:
3 2 1
TECHNICAL CHALLENGES IN BRAZIL FOR PRE-SALT OIL AND
GAS EXTRACTION, AS STATED BY THE NATIONAL OIL AGENCY
DEMANDED EQUIPMENT AND INFRASTRUCTURE
28 OCTOBER, 2015 BUSINESS SWEDEN 10
..YET FOREIGN COMPANIES ARE PRODUCING 80% OF
EQUIPMENT DELIVERED TO THE E&P SEGMENT
SOURCE: BRAZILIAN NATIONAL OIL AGENCY (ANP), PWC
Engineering
Subsea
facilities
Infrastructure
Shipping Platforms
Drilling Rigs
Oil Tankers
48 68
57 65
55 65
EXISTENT NEEDED*
SIGNIFICANT OPPORTUNITIES FOR SWEDISH TECH SUPPLIERS WITHIN OFFSHORE AND DEEP-SEA EXTRACTION
Turbo generators
Centrifugal compressor
Flares
Sulfate removal units
Gas engines
Gas turbines
Gas reciprocal compressor
Centrifugal air compressor
Subsea sphere valves
Diesel engines
Flow instruments
Positioning systems (POS)
Synchronized engines and
generators
Duplex and super-duplex steel
Multiphase and submersible
vertical pumps
* QUANTITY NEEDED IN ORDER TO REACH FULL PROJECTED CAPACITY
Gaps in basic and detail
engineering design
There is a demand for the following technologies:
Resistant materials: metallic alloys
Flexible risers for deep waters
Flow assurance and scaling control
New shipyards, ports and hundreds
of supply boats
THE ON-GOING CORRUPTION SCANDAL “LAVA JATO” HAS BEEN A MAJOR BLOW FOR PETROBRAS AND THE BRAZILIAN GOVERNMENT
BUSINESS SWEDEN 28 OCTOBER, 2015 11
PETROBRAS IS GOING THROUGH A MAJOR CRISIS
SOURCE: PETROBRAS, WORLDBANK, IBOVESPA, MEDIA OUTLETS
0
5
10
15
20
25
30
35
0,00
20,00
40,00
60,00
80,00
100,00
120,00
2011 2012 2013 2014 2015 2016 2017
0
10
20
30
40
50
60
1T11 1T12 1T13 1T14 1T15
PETROBRAS AND THE BRAZILIAN GOVERNMENT IS CURRENTLY STRUGGLING TO REGAIN CREDIBILITY FROM THE PUBLIC AND INVESTORS
In March 2014, an investigation was
triggered about a money laundry scheme
involving high executives from Petrobras
and large EPC contractors.
Brazil’s largest construction companies
such as Odebrecht, Andrade Gutierrez
and Camargo Corrêa are under
investigation for setting up illegal kickback
schemes linked to (former) Petrobras’
directors in order to win major
construction contracts.
Politicians within the current
administration are also under
investigation for receiving money from
contractors, causing public outrage
towards the government party.
It is estimated that Petrobras had a loss
of 20 BBRL due the scheme, 6,2 BBRL
only in 2014.
So far 16 companies and 138 individuals
have been incriminated.
Downfall of stock prices and
threatened relationship with
investors
Decrease of 37% from 2014 on
predicted investments compared to
the new 130 BUSD from 2015
Divestments of 13 BUSD in 2015
and 2016
2011-01 2015-08
PETROBRAS STOCKS PRICE, BRL
DECREASE OF OIL PRICES
INCREASE OF DEBT
CRUDE OIL AVERAGE PRICE* ($/BBL)
NET DEBT / NET CAPITALIZATION (%)
PETROBRAS CRISIS “LAVA JATO” SCANDAL
* DATA AND FORECAST BY WORLD BANK
BUSINESS SWEDEN 28 OCTOBER, 2015 12
DESPITE CRISIS, GREAT OPPORTUNITIES AS
PETROBRAS CONTINUES HEAVY INVESTMENTS
CRISIS COULD RESULT IN REFORM OF OIL AND GAS SECTOR OPENING NEW OPPORTUNITIES FOR FOREIGN SUPPLIERS
Which
opportunities
make Brazil
interesting?
What
challenges
should companies
be ready to face?
Excessive bureaucracy and complex tax system
Local content requirements for oil and gas operators
High production costs
Current economic crisis
Decrease of Petrobras’
forecasted investments
“Lava Jato” scandal
and Petrobras’ crisis
Government control
over Petrobras
Lack of qualified labor force
Petrobras’ continues large
investment plans
Lack of local
competition
Large unexplored pre-salt reserves
Growing production and refining capacity
Business concentrated in the Southeast region (SP and
RJ), next to industrial complexes
Privilege for companies
producing in Brazil
High demand for new technology and megaprojects
Petrobras monopoly upstream and downstream
Exploration of unconventional reserves such as shale oil
Recovery of mature fields and environmental investments
Industry
Players
Market Trends
Industry
Business in Brazil
Players
BUSINESS SWEDEN OFFERS A FULL SERVICE
PORTFOLIO FOR EFFICIENT MARKET ENTRY
* BSO SERVICES INCLUDE: OFFICE PLACE & SERVICE, ADMINISTRATION, COMPANY ESTABLISHMENT (INCL
LEGAL ADRESS) , DELEGATE MANAGER AND FINANCIAL ANALYSIS
28 OCTOBER, 2015 BUSINESS SWEDEN 13
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