1. Oil Sector Management presented by Decio Hamilton Barbosa Luanda, Angola, May 2006

2. 2 Topics International practice with respect to the role of government ministries/agencies and NOC in overseeing oil sector operations Government/NOC fiduciary relationships Experience of Brazil

3. 3 World oil Government –Practically everywhere in the world, petroleum resources are owned by the state In the underground Until produced Until exported Throughout the value chain –US onshore, parts of Canada excepted –NOC sometimes acts in the role of owner for the state Private capital –Takes most of the risk, makes most of the investment, conducts most of operations, pays the taxes / shares the production

4. 4 Host Government Owns –Practically everywhere (US onshore major exception) Legislates –Laws and agreements –Various government instruments Manages –Ministry, Agency, Regulator, NOC Invests –NOC Takes –Direct and indirect share of investments –Direct and indirect taxes and fiscal levies –Other requirements and obligations

5. 5 Role of the NOC Genesis –Participation –Nationalization Title holder of national (oil) resources –Oil, natural gas Contract administrator Recipient (and seller) of state share of production Importer –Price stabilizer Key component of national economy –Employer / social security –Foreign currency player whether as both exporter or importer Investor –Indigenous –International Not all of the items above apply in all cases, and are gradually evolving...

6. 6 IOC and NOC search synergy IOC versus NOC Production factors: Capital and Land $ $ Capital Land

7. 7 National Guardian / Monopolist –Original title-holder: PEMEX –Post-nationalization: Saudi ARAMCO, NIOC/NIGC, KOC (KPC) National Guardian and Regulator –Pertamina (pre-reform), PetroVietnam, Petronas, EGPC, NNPC, Sonatrach, Sonangol National Guardian and Foreign Investment Champion –Petronas, CNPC/CNOOC/Sinopec, PDVSA, NGC Domestic Investor (100% state owned) –OGDC, ONGC, SDFI National Wealth Participator –Petrobras, Statoil, PTTEP, YPFB (P.Andina / P.Chaco), CNPC/CNOOC/Sinopec Importing Nation Manager –ENAP Foreign Investment Champion –ENAP (Sipetrol), JNOC, KOC (Kufpec) Extinct –BNOC (Britoil), YPF, Repsol, PetroCanada (as NOC) Nouveaux Riches –Lukoil, Gasprom, Yukos, Sidanco, Sibneft, Rosneft Instruments of Forein Policy –BP, Shell, TotalFinaElf, ENI, ExxonMobil, ChevronTexaco NOC Types Simplified, arguable, roles continue to evolve... Source: Gaffney, Cline & Associates

8. 8 Regulatory Roles and Functions Contract management Resource planning Licensing Depletion policy Operations oversight Health and Safety Control of environmental sensitive areas Market influence Fiscal control Employment Goods and Services

9. 9 Who regulates ? Ministry Classical administrator Skills to NOC in many cases Agency Board Regulator NOC Conflict of roles Sector regulation vs. commercial Public interest vs. international standards Skills

10. 10 Selected countries: What they have in common E&P acreage area granted through bid rounds and concession agreements Significant E&P offshore areas Who regulates

11. 11 Main E&P areas: Gulf of Mexico, Texas and Alaska Main regulator of E&P sector: U. S. Department of Interior / Minerals Management Service - MMS (licensing of federal areas, royalties) Landowner has rights on the underground minerals Extremely competitive industry: ~ 2 millions of royalty owners, including 5.000 E&P companies Substantial source of income to government: ~ US$ 6,0 billions / yr of leasing revenues ~ US$ 5,6 billions / yr of royalties ~ US$ 3,7 millions / yr of severeance taxes (state areas) Regulator (s)

12. 12 Main E&P areas : Onshore area in Province of Alberta and offshore areas in northeastern coast (Newfoundland and Nova Scotia) Regulators of E&P sector in such a provinces: Newfoundland - Board (concession) and Department of Mines and Energy- DME (royalties) Nova Scotia - Board (concession) and Petroleum Directorate (royalties) Large oil and natural gas exporter to the US (~ 2 million boe / day) Production concentrated in Province of Alberta (~ 60%) Domestic market concentrated in east coast Regulator (s)

13. 13 Main E&P areas : Onshore West Australia (WA) and Queensland, offshore northwestern coast and Victoria coast Regulators of E&P sector in WA: Onshore licensing areas: Department of Minerals and Petroleum Resources (DMPR) jointly with the Federal Government Offshore licensing areas : Federal Government by means of Petroleum and Energy Division of the Commonwealth Department of Industry Tax and oil levies management: Federal offshore areas (PRRT): Australian Taxation Office (ATO) WA state onshore areas (royalties): DMPR Natural gas exporter, mainly to Japan, and oil importer: Indonesia is a significant oil supplier Regulator (s)

14. 14 Main E&P areas : Área offshore do Mar do Norte Regulators of E&P sector : Areas concession: Department of Trade and Industry (DTI) Management of government takes: PRT / Royalty: Oil Taxation Office (OTO), subordinado ao Inland Revenue Service Self-sufficient with respect to oil since 1980 and with respect to natural gas since 1996 Production declining from 1999 onwards; several mature areas near abandonment Regulator (s)

15. 15 Main E&P areas : offshore: North Sea, Norwegian Sea and Barents Sea (frontier) Main regulators of E&P sector: Licensing: Ministry of Petroleum and Energy (MPE) Management of government takes: Special Petroleum Tax (SPT): Oil Taxation Office, Ministry of Finance Royalties: Norwegian Petroleum Directorate (NPD), Ministry of Petroleum and Energy Major exporter of oil and gas to Europe Regulator (s)

16. 16 Experience of Brazil From monopoly to regulator

17. 17 Institutional Evolution 193119311934193419371937194519451953195319381938194419441995199519971997 Decree 20,799 - Government Authorization 1934 Constitution - Concessions 1937 Constitution - Reserves: State property CNP Set up Lobato first oil finding (BA) Liberal Trend for Oil Sector Law 2004 – Oil Monopoly / PETROBRAS 9,795 Amendment - End of PETROBRAS Monopoly Law 9,478 - ANP

18. 18 State monopoly from 1954 to 1995 Risk Service Contracts in years 70 and 80 Sole operator in early to mid 90s Oil Law (1997): –State grants E&P rights –Concessions through bid rounds E&P activities in Brazil

19. 19 Four key processes: Globalization: inevitable process – Brazils sovereign insertion in world context Trade Liberalization: encourage competition of indigenous products with imported ones / increase competitiveness of local industry National Currency Stabilization: resume economic planning activity and increased purchase power of low income population Privatization / state pull-out: relieve the state of activities not related to its end activities and develop its skills to regulate (interfere in) sectors which render public services. Changes in economy

20. 20 From Monopoly to State Regulator: Necessity of investment to upgrade and extend infra-structure Controversy of the role of an entrepreneur state Exhausted model regarding the direct involvement of the State in the economy Results: Reduction of inflation Insertion in international trade Attraction of long term foreign capital (productive sector) Search of fiscal balance Reasons of changing

21. 21 Dual role aspects Attract and foster E&P investments Licensing Rounds Division Regulator (control) Divisions responsible for the management of the concession agreement

22. 22 Foster E&P investments

23. 23 Regulator ( the watch dog)

24. 24 Not policy makers Independents and skilled Granted autonomy Organized as a board Board members with mandate for a given timeframe and non-coincident with each other Regulators in world context

25. 25 Thank you