Brazil oil and gas. Realities in a new frontier

Transcription

1 Brazil oil and gas Realities in a new frontier

2 Introduction Over the past 25 years, by exploiting its vast natural resources and huge labor pool and by taking advantage of large and well-developed agricultural, mining, manufacturing and service sectors, Brazil has become Latin America s leading economic power, rapidly expanding its presence in global markets. The national oil company, Petróleo Brasileiro or Petrobras, was created in The monopoly enjoyed by Petrobras ended in 1997 with the constitutional change that liberalized the oil and gas sector, partially privatized Petrobras and opened the oil and gas sector to private and foreign competition. offshore, beginning in late 1997 in the Santos basin and since then extending into the neighboring Campos and Espiritu Santo basins, has opened a new frontier, bringing both tremendous opportunities and daunting challenges. These pre-salt discoveries have triggered a reassessment of the Brazilian regulatory model and a restructuring of the Government s role in the industry, bringing uncertainty for 1. Attract the international capital to fund the development of these complex resources. 2. Create a national development fund for infrastructure, education, housing and social services. 3. Managing the complex interdependencies between these objectives will determine how successful Brazil will be in fully exploiting its pre-salt deepwater reserves potential.

3 Market overview Brazilian oil and natural gas reserves oil natural gas 12 Demand billion boe Brazil is the world s tenth-largest energy consumer. Domestic oil demand in 2009 totaled ~2.5 million b/d and growth over the next 20 years is expected to be approximately 1.9% per year, with oil demand the period, global oil demand growth is expected to average about 0.9% per year. 1 rapidly growing crude oil and biofuels production, Brazil is now self International Energy Database, US Department of Energy, accessed 10 September Brazilian oil production crude/condensate NGLs Other liquids Natural gas demand in Brazil was about 650 bcf in Gas demand growth of about 4.3% per year is expected over the next over the period. 2 production as well as by increased gas imports, both in the form of 000 b/d Production and reserves Brazil and as a result both production and reserves have increased dramatically. More than 93% of Brazil s oil reserves are located offshore, while about 80% of the country s natural gas reserves are of Brazil s oil reserves and about 45% of Brazil s natural gas reserves. natural gas production was offshore International Energy Database, US Department of Energy, accessed 10 September Brazilian natural gas production (marketed production) 400 bcf International Energy Outlook 2010, US Department of Energy, 27 July International Energy Database, US Department of Energy, accessed 10 September Brazil oil and gas: realities in a new frontier 1

4 Market overview continued While the recent gains in Brazilian production and reserves have been substantial, more important is the role that new production is expected to play in the future. Conventional long-term forecasts of oil supply and demand see new production from Brazil as the single largest source of new oil supply outside of the OPEC countries over the next years. 4 million b/d Expected changes in non-opec oil supply: conventional oil International Energy Outlook 2010, US Department of Energy, 27 July The domestic giant: Petrobras unconventional oil/other liquids Brazil Canada US Russia Caspian All other NOPEC (net) Petrobras currently accounts for about 95% of Brazil s national oil and in the next few years, with most of the production growth over the short term to come from the planned addition of new production as well as from more recent discoveries in the basin. Longer-term growth will come from the pre-salt cluster in the Santos Basin. Under dedicated to upstream. The new regulatory framework has allowed a recapitalization of Petrobras through a public share offering and a federal government grant of approximately 5 billion barrels of return for an increased stake in the state oil company. Integrated companies Petrobras was the nation s sole oil producer until August 2003, to start production. Although Petrobras lost its monopoly over oil exploration and production with the 1997 constitutional change, partners and competitors in the Brazilian upstream include many of estimated that as many as 36 foreign companies were involved in upstream activities in Brazil. 5 Like other oil-producing countries, Brazil is also attracting increased have been slower to enter the market but are starting to catch up following the signing of a strategic cooperation agreement in April 2010 that could pave the way for Sinopec to acquire part of Petrobras interests in two blocks and for Sinochem to take stakes in certain upstream operations. Other domestic players Another emerging trend is the heightened activity of privately owned domestic companies. The activities of local companies, apart from Petrobras, were once limited to participation in incremental oil production projects in mature onshore basins, but newcomers like OGX Petróleo e Gás and the mining giant, Vale, are now investing in offshore exploration as well. Downstream oil and alternative fuels While Petrobras lost its monopoly over the domestic downstream January 2002, it nonetheless remains the dominant player. Petrobras about 35% of Brazil s domestic product distribution market. Notably, many of the international integrated majors have been gradually 4 International Energy Outlook 2010, US Department of Energy, 27 July Brazil oil and gas: realities in a new frontier

5 withdrawing from the Brazilian downstream retail market. Of the majors, only Shell is actively growing its retail presence in Brazil. Brazil s alcohol fuels program dates to the mid-1970s and the policy designed to reduce oil dependence and leverage its surplus sugar cane production capacity. Brazil is the world s second-largest producer of ethanol and its largest exporter. All gasoline sold in Brazil contains at least 20-25% ethanol and a majority of the country s ethanol, Cosan and Shell announced a US$12 billion joint venture for the supply, distribution and sale of transportation fuels through their combined distribution and retail networks. Transaction activity years, particularly as the pre-salt potential has grown. With three major pre-salt deals, including two involving the Chinese NOC, Sinochem, transaction activity in 2010 totaled more than 22 billion. deal value (US $ billion) $25 $20 $15 $10 $5 $0 upstream downstream alternative fuels other number of deals Brazilian oil and gas M&A activity number of deals The Gulf of Mexico spill effects on Brazil With Brazil being the next major growth center for the offshore industry, it is important that the lessons from the Gulf of Mexico spill are learned both in terms of prevention and also in terms of incident response. As the industry moves inexorably into deeper and deeper waters, it will have to come to grips with the possibility that the surface may be exacerbated or require a totally different approach at a two-mile depth or deeper. Brazil s regulations on platform safety, largely put in place after the country s own rig disaster in 2001, are believed to be among the most advanced in the world. The ANP recently announced a review of safety systems and contingency strategies in light of the Gulf spill, given that the development presents a new series of technical challenges, potential dangers and environmental risks. Brazil oil and gas: realities in a new frontier 3

6 Opportunities, challenges and risks The positive drivers of the Brazilian business dynamic going forward are Brazil s political and economic stability, expected massive investments 6 Recent successful share offering but with greater state ownership. The recent successful share offering gives Petrobras the potential reserves to the asset base, adds to long-term production offering, the Government bought almost two-thirds of the shares. As a result, the Brazilian Government now directly or indirectly controls 64% of all Petrobras common shares and about 48% of all shares, down to about 52%, as opposed to 60% before the share offering. Political stability and geopolitics. The positive business implications of the political stability of the Lula years and the prospects of political continuity with his successor, Dilma Rousseff, will likely offset pledged to use the new oil revenues for the public good. Tax and regulatory structure. applies to existing discoveries, is a tax/royalty regime. The regime intention is that this regime will be ultimately superseded with a acreage, the PSC system has yet to be passed into law and it does not appear that this will be applied to the resource that forms the transfer of rights. The exact terms to be applied when valuing the 5 billion boe transfer are unclear, although it appears likely that the existing tax/royalty system will be used, but without the application of SPT. Local service, labor and infrastructure constraints. There are existing bottlenecks in equipment and skilled personnel availability, which are not expanding in step with acreage and production growth targets. The high local content provisions of the rights offer existing rig tenders are running a year behind schedule and Petrobras implied drilling plan for the rights offer areas could lead Investment requirements. The scale of the required investment in Brazil s infrastructure is enormous, with estimates approaching almost US$1 trillion over the next 10 years. Almost half of the required investment is expected to be dedicated to oil and gas, including exploration and development of the massive pre-salt petrochemical sector and expansion of the energy transportation and distribution infrastructure. The numerous large and complex projects will present huge opportunities for suppliers and partners. Technical challenges, production logistics and operational risks. The best prospects lie in ultra-deepwater, essentially at the technology frontiers. The water depth challenges are further complicated by high pressures and low temperatures and by the monetization and transport issues, such as moving gas to shore spill in the Gulf of Mexico highlighted some of the risks in deepwater that will need to be mitigated through the implementation of operational best practices and leading incident response procedures. 4 Brazil oil and gas: realities in a new frontier

7 How can Ernst & Young help? 8,300 professionals with extensive experience working in the oil and gas industry. Our professionals have experience serving a wide range of companies independent exploration and production companies, corporations and national oil companies. London, Moscow and Bahrain Centers, we have several Satellite Centers located around the globe, including in Aberdeen, Calgary, Cape Town, Beijing, Perth, Rio de Janiero, Singapore and Stavanger. Our service offerings particularly relevant to the Brazilian oil and gas Statutory accounting and compliance services, including external climate change and sustainability reporting services; accounting advisory services; and fraud investigation and dispute services Tax planning, advisory and compliance services, including in-bound supply chain advisory services Transaction advisory services, including partnership planning and optimization; portfolio planning and evaluation services; strategic and business modeling; and transaction integration services Performance improvement and risk management advisory services, including internal audit services and internal controls design and evaluation; business process innovation, transformation and governance; project life cycle management services and Project as strategic risk assessment, management and remediation. allows us to help companies in the oil and gas industry meet their goals and compete more effectively. Europe, Middle East, India and Africa 3,800 professionals Calgary Aberdeen Stavanger Moscow Houston Americas 2,800 professionals Brazil London Bahrain Beijing 1,700 professionals Singapore Perth Cape Town Legend Goiânia Campinas Recife Brasília Salvador Belo Horizonte São Paulo JK Rio de Janeiro São Paulo São Paulo Morumbi Curitiba Blumenau Porto Alegre Brazil oil and gas: realities in a new frontier 5

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