The document discusses Brazil's experience with upstream oil and gas regulation. It outlines how ANP regulates the industry by establishing directives, contracting with companies through bid rounds, and monitoring activities. It highlights Brazil's significant proven reserves and growing production. The document also discusses local content policies that have strengthened Brazil's naval industry and investments in research and development. Strict health, safety, and environmental regulations are in place. The pre-salt area represents a new paradigm with huge accumulations discovered, requiring a different contractual framework. Overall the market opening and regulation have accelerated Brazil's knowledge of its basins and bright future prospects exist.

1. Best Practices in the Upstream Regulation
The Brazilian ExperienceThe Brazilian Experience
Waldyr Barroso
Director
World Petroleum Congress – WPC 2014
June 18th, 2014

2. Agenda
ANP role1
3
Bid Rounds2
Local Content and R, D&I4
Pre-Salt3
HSE5
Final comments6
2

3. Activity Before 1997 After 1997
Upstream(*)
E&P Petrobras Competitive Market
Geological Survey Petrobras
Proprietary surveys
SPEC surveys
Geological and
Geophysical
Databank
Petrobras ANP´s E&P Shared National Databank
SShorthort introductionintroduction
* Union monopoly: concession and authorization granted by the State
Midstream(*)
Refining
Petrobras
(except article 43 -
law 2.004/53)
Competitive Market under ANP
authorization
Transportation Petrobras
Unbundling
Open access
New agents
Imports and Exports Petrobras
Free under ANP (petroleum) and
MME (gas) approval
Oil Products and CNG
Downstream
Wholesale 208 distributors
315 distributors under ANP
authorization
Retail
“Brand fidelity”
23,900 service
stations
“Independent retailers” under ANP
authorization
85,390 service stations
3

4. Establishing directives, ordinances, resolutions and normativeEstablishing directives, ordinances, resolutions and normativeREGULATING
ANP is responsible for the implementation of the oil sector policy, in
accordance with Petroleum Law (Law 9.478/1997), Gas Law (Law 11.909/2009) and
Pre-Salt Laws (Laws 12.276/2010, 12.304/2010, 12.351/2010, 12.734/2012).
ANP
Institutional Framework
Establishing directives, ordinances, resolutions and normative
statements
Establishing directives, ordinances, resolutions and normative
statements
REGULATING
CONTRACTING
MONITORING
Promoting bidding rounds and entering into contracts with
petroleum companies on behalf of the Federal Government
Monitoring the activities of regulated industries, directly or
through agreements with other public agencies
4

5. Current scenario
and perspectives
Proven Reserves
Oil – ~15.6 billion bbl
Gas – ~458 billion m3
Near future: x2
25,0
30,0
35,0
40,0
Proven Reserves (B boe)
Production
Oil and NGL – 2.1 million bbl/day
Gas – 82.9 million m3/day
Near future: x2 *
* Considering discoveries already made,
mainly in the pre-salt area
0,0
5,0
10,0
15,0
20,0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Future
Petroleum Natural Gas
Forecast
2022
5

6. Oil Companies
in Brazil
Before 1999:
Now: > than 80 national and foreign oil companies
6

7. ANP bidding rounds
Royalties
Discussion
Pre-salt discoveries:
new paradigm
Creation of
Inter-ministerial Group
MP 592/12 & Law 12.734/12
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Pre-salt - new regulatory framework:
Higher potential
Petrobras CapitalizationBlocks in the
Pre-salt cluster
* Brazil attracted large part of data acquisition world fleet at the time of opening: from
1999 to 2001, 26 seismic data vessels came to the country.
* Acceleration of the knowledge of Brazilian basins and new discoveries, such as Pre-Salt.
7

8. Onerous
assignment:
6 blocks
One Country,
three systems
7.5 million km2
~ 2% of sedimentary areas:
Production Sharing Regime
1st Pre-salt Bidding Round
All other areas:
Concession Regime
• Pre-Salt and strategic areas: low risk + huge reserves.
• PSC motivation: Expansion of fundraising potential on promising exploration areas.
8

9. Pre-Salt
A new paradigm
Area: 149.000 kmArea: 149.000 km22
Libra
9

10. ≈ 192,000 linear 2D confidential post-
stack seismic data;
≈ 300,000 km linear
≈ 137,000 km2 3D confidential post-stack
seismic data;
≈ 21,000 km2 3D public post-stack
seismic data;
Pre-Salt
Data
seismic data;
323 exploratory wells: 70 reached pre-
salt layers.
10

11. 1st Pre-Salt Bidding Round
Terms and Results
Contractual term: 35 years
Exploratory phase: 4 years
Minimum Exploratory Program:
1,547 km2 - 3D Seismic
2 wells with 1 long term test
Investment - R$ 611 (US$ 265) millions
Signature bonus: R$ 15 (US$ 6.5) billion
Local Content:
37% - exploratory phase
55% - development phase up 2021
59% - development phase after 2021
41.65 % - Profit Oil
Production rate 10 to 12 thousand bbl/day
Brent price US$ 100 to 120 / bbl
BID PARAMETER
Winning Consortium
Petrobras – 40%*
Shell – 20% CNPC – 10%
Total – 20% CNOOC – 10%
*30% Minimum Mandatory + 10% in Consortium
11

12. Institutional Framework for theFramework for the
Local Content PolicyLocal Content Policy
Government
ANP
• Policy
• Incentives (e.g. Brazilian Program for
Increasing Nationalization - PNP)*
• Regulating
• Supervising
ONIP > suppliers list and
suppliers identification
ANP
IOC
• Supervising
• Auditing
• Accrediting
NOC
Fulfill LC requirements and development of
suppliers
* Financing line for foreign industries coming to Brazil and reaching 60% of local content in products weight or value in three to five years.
12

13. The Development
of Oil & Gas
Activities
Increase Best practiceSelf-
Boost development
What are we Looking for ?
Increase
Local Content
Best practice
HSE
Self-
Sufficiency
Boost development
Reduce social and
regional inequalities
Improve Human Life
and Environment
Protection
Boost the
Brazilian
Industry
Research & Development as an important leading factor
13

14. Local Content
Commitments
Local Content offers - Average (%)
60%
70%
80%
90%
100%
PSC and Onerous Assigment also have local content
commitments.
Exploração
Desenvolvimento
0%
10%
20%
30%
40%
50%
60%
Bid 1 Bid 2 Bid 3 Bid 4 Bid 5 Bid 6 Bid 7 Bid 9 Bid 10 Bid 11 Bid 12 Pre-Salt
1
Exploration Development
Exploaration
Development
14

15. 28 drilling rigs
6 in PE, 6 in BA, 7 in ES, 6 in RJ and 3 in RS
Atlântico Sul Shipyard
6 rigs
P-62; p-55 - hull
São Roque Shipyard
P-59
P60
Enseada do Paraguaçu Shipyard 6 rigs
Jurong Aracruz
Shipyard
7 rigs
P-68 - modules and topside
P-71 - modules and topside
OSX Shipyard P-67 and P-70 - modules and topside
Inhaúma
Shipyard
P-74, P-75, P-76, P-77 - hulls
Naval Industry
Source: Adapted from the 9th balance of PAC 2, 2014 (http://www.pac.gov.br/pub/up/pac/9/PAC_9_completo.pdf)
Action completed/operation
Running
Already auctioned
Shipyard
P-74, P-75, P-76, P-77 - hulls
Brasfels
Shipyard
P-57 (Jubarte)
P-56 (Marlim Sul)
P-61 (Papa-Terra)
6 rigs
P-66 and P-69 - modules and topside
Techint P-76 - modules and topside
Rio Grande
Shipyard
P-55 – modules and topside
P-66, P-67,P-68, P-69 - hulls
P-70, P-71, P-72, P-73 – hulls
3 rigs
Honório Bicalho
Shipyard
P-63
P-58
P75, P77 – modules and topside
Brasil Shipyard P-74 - modules and topside
15

16. Brazil: Political stability and reliable rules
Huge demand for
goods and services
Finding the Way for Investments
in Brazilian O&G Sector
The gain of scale from
the Pre-Salt
R&D investments
policy
goods and services
Well-settled local
content policy
Technological
challenges
the Pre-Salt
16

17. Naval Industry with
Local Content
LC:
63%
LC:
79%
BrasFels Shipyard - RJ (P-61)
Rio Grande Shipyard - RS (P-55)
Atlântico Sul Shipyard - PE (P-62)
Honório Bicalho Shipyard - RS (P-63)BrasFels Shipyard - RJ (P-56)
LC:
73%
LC:
65%
LC:
65%
17

18. Research, Development
and Innovation
Mandatory Investments in R,D&I
(1998 - 2013)
US$ 3.8 billions
0,2
0,4
0,6
0,8
1,0
1,2
1,4
1,6
1,8
R,D&I Annual Investment Forecast (US$ billion)
Pre-salt
0,0
0,2
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
0,61
1,55
2,60
3,79
5,23
6,86
8,57
10,23
11,76
13,14
0
2
4
6
8
10
12
14
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
R,D&I Cumulative Investment Forecast (US$ billion)
Source: ANP - Boletim Petróleo e P&D, jan/2014. 18

19. * *
RN
* *
* *
PE
* *
* *
AL
* *
* *
PB
* *
SE
* *
HR Infrastructure For R&D
*
PI
*
* *
CE
* *
AM
DF
* *
PA
* * * *
MA
* *
TO
*
R&D Results
Lab infrastructure and Human Resources
* *
RJ
* *
* *
SP
* *
* *
BA
* *
* *
RS
* *
* *
PR
* *
* ** *
* *
MG
* *
*
MT
*
*
GO
*
MS * *
ES
* *
* *
SC
* *
Technological area- UFRJ
Currently with 22 companies
Research and technological development
activities the pre-salt.
19

20. Maritime Authority
• SOLAS (Safety of Life at
Sea)
• MODU (Mobile Offshore
Drilling Units) Code
• Further rules focused on
Brazilian Institute of
Environment (IBAMA)
• Environmental Licensing
• Spill response plans
• Rules focused on the
interaction of facilities with
Health, Safety and Environment
Regulation
PROCESS
SAFETY
(ANP)
PROCESS
SAFETY
(ANP)
• Further rules focused on
marine systems
(Communication, hull,
ballast, navigation,
general condition,
evacuation etc)
Labour Ministry
• Rules focused on the
occupational safety and
health risks
Petroleum Agency (ANP)
• Rules focused on the
process plant safety
• Subsea / Well Control
interaction of facilities with
the environment
20

21. Very strict auditing process
- 264 audits since 2006 (mainly offshore)
- 105 in drilling rigs;
- 138 in production plants;
- 17 onshore;
- 4 in pipelines.
- R$ 170 million in fines (≈ US$ 75 million)
Process Safety
Highlights
- R$ 170 million in fines (≈ US$ 75 million)
- 23 cautionary measures (operation halt)
Enhanced communication
- With environmental and health regulator;
- With industry (workshops);
- With society (website, workers unions);
- Among regulators (IRF).
http://www.akersolutions.com
21

22. Final Comments
Market opening accelerated knowledge about Brazilian
basins and led to huge discoveries.
Pre-Salt and Strategic areas: big accumulations and lowerPre-Salt and Strategic areas: big accumulations and lower
risk demanded a different contractual regime, permitting
higher social benefits.
Bright perspectives for the future in deep water also means
increasing focus on HSE and technology.
22

23. THANK YOU VERY MUCH!
National Agency of Petroleum, Natural Gas and Biofuels - ANP
Rio Branco Avenue, 65 - 12º to 22º floor - Center - Rio de Janeiro - Brazil
Phone: +55 (21) 2112-8100
www.anp.gov.br