1. Pre-Salt: Capitalizing on Growth Opportunities Giovani Loss Thursday, June 17th, 2010 2010 Brazil Oil & Gas Seminar Brazilian-American Chamber of Commerce, Inc. June 2010

2. Agenda 1. Brazil – Offshore E&P 2. Brazil – Pre-Salt 3. Brazil – Developments in the Oil & Gas Regulatory Framework 4. Brazil – Current Status of the Industry and Investment Opportunities

3. Brazil - Offshore E&P Offshore E&P Industry  Nowadays, nearly 30 per cent of the world's oil production comes from offshore targets  Deep and ultra-deep offshore exploration - 75% of the economically producible volumes of oil and gas identified since 2003  The world's best deepwater prospects are in the Gulf of Mexico, West Africa and Brazil (the “Golden Triangle”)  Significant developments also occur in North Africa (Libya, Egypt and Algeria) and Asia (India and Indonesia)

4. Brazil – Offshore E&P Why Brazil is a leader in Offshore E&P?  Big coast + Surveys undertaken in the 1960s - the Amazon basin did not hold big oil reserves  PB started investing in offshore technology in the 1960s  PB to invest USD 4 billion in offshore R&D through 2013  PB operates 22% of global deepwater production and 18% of all operating vessels  Floating Production Systems operators (all contracted): 1 – PB – 45 FPSs 2 – Statoil – 15 FPSs 3 – Shell – 15 FPSs

5. INDEX 1. Brazil – Offshore E&P 2. Brazil – Pre-Salt 3. Brazil – Developments in the Oil & Gas Regulatory Framework 4. Brazil – Current Status of the Industry and Investment Opportunities

6. Brazil – Pre-Salt What is the Brazilian Pre-Salt area?  Reserves of up to 100 billion barrels  High quality light oil  200 to 300 km from the coast  5 to 8 km below the sea bottom  Water depths over 2 km  Total area: 112,000 km2  Total area under concession: 41,000 km2 (28%)

7. Brazil – Pre-Salt Technological Challenges  Long distance to the coast  Floating Production Units and tankers anchoring in ultradeep water  Deviation of wells in the salt zone  Presence of CO2 (corrosive)  Connections with risers under high pressure  Gas pipeline larger than 18” in water depth of 2,200 m

8. Brazil – Pre-Salt Financial Challenges  Exploration of Pre-Salt requires massive investments from E&P Companies and Service Providers  USD 600 billion over the next 30 years  Petrobras to invest USD 174 billion through 2013  Brazil to produce 3.4 million barrels per day by 2020

9. Brazil – Pre-Salt Commercial and Legal Challenges  Sharing of infrastructure required (complex legal structures – multiple consortiums involved)  Local content (currently around 75% - required in contract)  Lack of equipments and experienced humam resources (long term contract – strong default clauses)  Financing products to be developed (guarantees)  New technology to be developed (submarine and subsea – strong patent control)  Natural Gas: Shale Gas (FLNG)

10. Brazil – Pre-Salt O&G is the fastest growing industry in Brazil  1997 – 2.8% GDP  2008 – 10% GDP Number of O&G Service Providers in Brazil  2000 – 210 companies  2008 – 1761 companies  2020 – Expected 20% GDP for oil & gas industry  Brazil expected to become 6th largest oil producer in the World by 2030

11. INDEX 1. Brazil – Offshore E&P 2. Brazil – Pre-Salt 3. Brazil – Developments in the Oil & Gas Regulatory Framework 4. Brazil – Current Status of the Industry and Investment Opportunities

12. Brazil – Developments New Regulatory Framework: Natural Gas  Natural Gas Law issued on March 2009  Decree regulating the industry to be issued in 2010 Oil  Pre-Salt Bills under Discussion – Approved in Senate  Rules should remain the same for areas that are not considered part of the Pre-Salt or strategic

13. Brazil – Developments Natural Gas Law:  Creates a bid system for natural gas projects  allocates government funds to support certain projects  establishing stronger competition rules regarding open access to existing pipelines. Natural Gas Decree: secondary markets, criteria for public tenders, curtailment of supply and reversion of assets

14. Brazil – Developments Pre-Salt Bills - Basics:  PSA Regime for the Pre-Salt area and other strategic areas  Petrobras as sole operator (minimum of 30% stake in all Pre-Salt fields), except in the case of unitization, which may be negotiated  Assignment of oil and gas rights in the adjacent areas with capital injection into Petrobras (almost a concession regime)  Creation of PetroSal and Oil Fund  PetroSal will participate in the operating committee, electing half of its members, including its chair

15. Brazil – Developments Main Brazilian Government Objectives:  Increase control over production  Increase control over commercialization  Increase government take  Enforce local content rules  Avoid Dutch disease

16. Brazil – Developments PSA Regime:  Applied in many large oil producting countries, such as Angola, China, India, Lybia and Nigeria  Will not increase control over production – production program is established during development phase, changes may reduce performance of the project  Will increase control only over commercialization of the Government share of the oil  May not increase government take as expected: costs with management of PetroSal should be very high

17. Brazil – Developments Petrobras Sole Operator:  Government apointing operador is not so uncommon, some countries that apply this rule are: Nigeria and Norway  May result in inefficiencies as operator can’t be removed  May reduce government take: companies may apply a discount rate to investments in the Pre-Salt considering bureaucracy  Will reduce incentives for other companies to invest in natural gas transportation

18. Brazil – Developments Assignment of oil and gas rights in the adjacent areas:  Capitalization will provide cash for Petrobras to invest  Vested rights under concession contracts will be respected  Assignment is similar to Concession - No economic imbalance between companies under different regimes  Faster unitization process - as Petrobras is operator in most licensed areas, less issues to be negotiated

19. Brazil – Developments PetroSal:  PSA requires the creation of a 100% National Oil Company  Government final word over operations is not so uncommon, some countries that apply this rule are: China and Indonesia  Investors may apply a discount rate, as PetroSal control over operations may bring inefficiencies

20. INDEX 1. Brazil – Offshore E&P 2. Brazil – Pre-Salt 3. Brazil – Developments in the Oil & Gas Regulatory Framework 4. Brazil – Current Status of the Industry and Investment Opportunities

21. Brazil – Status & Opportunities Current Status of the Pre-Salt Industry:  Technical Status: Use of current existing technology Starting studies on new technologies Pilot production to bring cash flow and to test technology  Commercial Status: E&P Players looking for financing alternatives (M&A, IPO, but not to project finance yet) Service Providers looking for finance alternatives and to invest in new technologies (M&A, IPO, Project Finance, FDIC, FIP) Increase on local content driven by Petrobras

22. Brazil – Status & Opportunities Opportunities for E&P Companies:  Areas under concession contract available for farm-in because companies may need cash (Devon Deal and Peregrino Deal)  There are non Pre-Salt areas and non-strategic areas that may be available for investment under the concession regime in the near future – 11th Bid Round to happen in 2010  PSA with private investors should be the most applicable regime, because Petrobras needs financings

23. Brazil – Status & Opportunities Opportunities for Service Providers:  Development of fields will require highly qualified suppliers  Local Content rules will require investments to be made in Brazil  Government of Brazil should develop incentives for service providers (BNDES, tax breaks, labor incentives, FDIC, FIP) Ex. fund for 28 rigs.  No matter what will be the regime the acquisition of goods and services should grow considerably

24. Brazil – Status & Opportunities Opportunities for other Players:  Banks to finance big service providers contracting with Petrobras (rig, FPSO and corporate finance)  Banks to finance operations after Pilot projects (lower technical risk, cash flow)  Banks to finance development of service providers industry in Brazil - FDIC and FIP  Private Equity funds to invest in service providers and use exit strategy (bring them to public market or sell)

25. THANK YOU! Giovani Loss giovaniloss@mattosfilho.com.br Presidente Wilson 231, 4th floor Rio de Janeiro, RJ, Brazil