TB Petroleum 38 by Webmaster TN Petróleo

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contents

issue #38 May 2017

Special interview

with Nelson Queiroz Tanure Filho, president of PetroRio

Every barrel matters

Special: bid rounds

Brazil will have new bidding season

Resumption of growth

Petrobras shows recovery

Disinvestment program

Leadership in Offshore Class and Related Services e-mail: absrio@eagle.org • Phone: + 55 21 2276-3535

EDITORIAL ADVISORY BOARD

Professional profile

Daniel Carvalho Guimarães

The important thing is being aware of the opportunities

Affonso Vianna Junior Alexandre Castanhola Gurgel Antonio Ricardo Pimentel de Oliveira Bruno Musso Colin Foster David Zylbersztajn Eduardo Mezzalira Eraldo Montenegro Flávio Franceschetti Gary A. Logsdon Geor Thomas Erhart Gilberto Israel Ivan Leão

Jean-Paul Terra Prates João Carlos S. Pacheco João Luiz de Deus Fernandes

Coffee Break

Museum of Tomorrow

José Fantine Josué Rocha Luiz B. Rêgo Luiz Eduardo Braga Xavier Marcelo Costa

(Museu do Amanhã) wins Mipim award

Márcio Giannini Márcio Rocha Melo Marcius Ferrari Marco Aurélio Latgé Maria das Graças Silva Mário Jorge C. dos Santos Maurício B. Figueiredo Nathan Medeiros Paulo Buarque Guimarães

articles 26 Improving safety by preventing dropped objects, by Chris Corcoran

Roberto Fainstein Ronaldo J. Alves Ronaldo Schubert Sampaio Rubens Langer

29 A new threat to the Brazilian oil and gas industryo, by Telmo Ghiorzi

31 Companies of the sector should go for fly to quality, by Adriano Sartori

33 Magic realism: is it the time to carry Petrobras on the onerous assignment regime?, by Paulo Valois Pires and José Eduardo Siqueira

sections 2 editorial 4 hot news 6 special interview 22 professional profile

Roberto Alfradique V. de Macedo

25 products and services 36 coffee break 38 meeting 39 opinion

Samuel Barbosa

Year XVII • Issue 38 • May 2016 Photo: T&B Petroleum Image Bank

editorial

It is necessary to take back the 'reins' of the industry THE RISE IN THE RATING OF PETROBRAS' corporate debt from B2 to B1 by Moody's risk rating agency, as well as the revision of the outlook from stable to positive, was an important signal for investors, who had not lost sight of Brazil even during the crisis throughout the industry. After all, there are few new hydrocarbon exploration frontiers with a potential similar to that of the Brazilian pre-salt, which now accounts for more than half of the national hydrocarbon production, and was responsible for the growth of 8.5% in the volume produced in 2016, which went from 3.1m barrels of oil equivalent (boe) in December 2015 to 3.4m in December 2016, according to data from the National Petroleum, Natural Gas and Biofuels Agency (ANP). Although scheduled shutdowns impacted production in the first quarter of this year, it seems that Petrobras is expected to maintain an upward trend by the end of the year, when three more units that will start operations: P-66 in Lula Sul, P-67 in Lula Norte, and the FPSO Cidade de Campos de Goytacazes in Tartaruga Verde, and Mestiça – as our readers will discover in the article Petrobras shows recovery. We also have a bidding calendar approved by the National Economic Policy Council (CNPE) and announced by the Ministry of Mines and Energy (MME), which anticipated the release of new indexes of national content for these new rounds, signaling the beginning of the revision in this industrial development policy. A necessary revision, but that should not undermine the essence and objective that every industrial policy should have - the sustainable development of this industry that is crucial to the economy of a country that historically suffers from the lack of effective or well-planned policies. In the face of all this, although the signs of the economy as a whole are not so encouraging and the price of the oil barrel has not reached levels that allow bolder steps from the operators, we have a new perspective ahead that should not be ignored. The oil and natural gas sector is, and will continue to be for a long time, one of the key segments for the resumption of the country's growth. We need to get out of the paralysis that has affected everyone due to the intense news about the “Car Wash” operation and the corruption of the police – which is nothing new nor particular of a single country or continent – in order to take back the reins of the industry, of growth, of social development. It is really necessary to fight corruption, but without forgetting that Brazil that wants to produce, and that it can succeed – a country that, besides being one of the ten largest economies in the world, has the capacity to position itself as a great nation.

Benício Biz Director of Benício Biz Editores

TB Petroleum 38

Rua Nilo Peçanha, 26/904 Centro – CEP 20020 100 Rio de Janeiro – RJ – Brasil Tel/fax: 55 21 3786-8365 www.tnpetroleo.com.br tnpetroleo@tnpetroleo.com.br

PUBLISHER Benício Biz - beniciobiz@tnpetroleo.com.br NEW BUSINESS DIRECTOR Lia Medeiros (55 21 98241-1133) liamedeiros@tnpetroleo.com.br EDITOR Beatriz Cardoso (55 21 99617-2360) beatrizcardoso@tnpetroleo.com.br ART and CULTURE EDITOR Orlando Santos (55 21 99491-5468) INTERNATIONAL AFFAIRS Dagmar Brasilio (55 21 99361-2876) dagmar.brasilio@tnpetroleo.com.br GRAPHIC DESIGN Benício Biz (55 21 99194-5172) beniciobiz@tnpetroleo.com.br PRODUCTION GRAPHIC and WEBMASTER Laércio Lourenço (55 21 3786-8365) laercio@tnpetroleo.com.br TRANSLATION Rick Toledano (55 21 99880-9905) COMMERCIAL Rodrigo Matias (55 21 2224 1349) matias@tnpetroleo.com.br PRINT Colorset DISTRIBUTION Benício Biz Editores Associados. Member of ANATEC The articles are the responsibility of the authors, not necessarily representing the opinion of the editors. T&B Petroleum is directed to engineers, geologists, technicians, researchers and buyers in the oil industry.

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hot news

Photo: Divulgation

tional efficiency and redevelopment of mature fields. Our business model was carefully executed throughout 2016, and it will be the same for this year", says the company's chief financial officer, Blener Mayhew.

PetroRio reaches historical profit in 2016: R$ 242 million Results grew 118% when compared to 2015 and the company cash has R$ 571 million for acquisitions. PETRORIO, ONE OF the leading independent oil and natural gas production companies in Brazil, closed 2016 with net income of R$ 242 million. The result is the highest in the company's history and represents 118% more than the net profit of R$ 110 million recorded in 2015. Despite the adverse scenario faced by the oil and gas sector, in which the barrel of oil was negotiated at US$ 27 in January 2016, the company closed last year with an Ebtida of R$ 329 million – 119% over the 2015 results. Company cash grew 14%, from R$ 497 million in 2015 to R$ 571 million last year. "These resources support the expansion of PetroRio through acquisitions of fields already in operation, capable of generating revenue. Such strategy is based on the company’s discipline with capital", says Nelson Queiroz Tanure, director of the company. In 2016, PetroRio executed a business model based on growth through the purchase of assets, as 4

TB Petroleum 38

well as on operational efficiency, focusing on reservoir engineering and cost reduction, which resulted in several actions throughout the year. The most recent one was the purchase of Brasoil, which diversifies its portfolio of assets and increases cash generation. The main appeal of Brasoil is the 10% stake in the Manati field (BA), and it is the sole stakeholder of the exploratory blocks FZA-M-254 and FZA-M-539, both in the Amazonas Estuary Basin. In addition to the acquisition of Brasoil, other actions that reflected the company's performance last year were the completion of the redevelopment program for the Polvo field, which increased the daily productivity by 20%; the increase of proven reserves developed by 9.1%; and by extending the life of the aforementioned field by two years. "We ended the year delivering the pillars of our growth strategy: acquisition of assets in production, low operating costs, excellent opera-

Operational performance – In 2016, the Polvo field produced 2.97 million barrels, an average of 8,145 barrels per day. The operating efficiency reached 93.4%, impacted by investments in the production wells in the first quarter of 2016. Despite the natural decline curve of mature fields such as Polvo, 2016 production was only 2.7% lower than in the previous year (82.5kbbl). As for operating costs, there was a reduction of 16% when compared to 2015, and 43% compared to 2014. Even with a lower production than last year when compared to the previous years, the company managed to obtain a cost per barrel of US$ 30.7/bbl in 2016 versus US$ 35.6/bbl and US$ 43.3/bbl in the previous periods. These values represent the lowest historical operating cost for the Polvo field. "We are optimistic about this year. We have a favorable financial balance, without debt, a significant cash position with US$ 159.3 million, and a strong team. There are opportunities in Brazil, as well as abroad (which we continuously monitor) in order to expand our borders and apply the successful model developed in Polvo in other operations", says Blener. Expansion plans – The current low oil price scenario, together with companies leveraged by divestiture programs for retailoring their portfolios, creates asset acquisition opportunities, according to the CFO. Throughout 2016, the company participated actively in Petrobras' divestment projects and other opportunities abroad, especially in the Gulf

of Mexico. He believes there will be "great opportunities" in 2017. "PetroRio's management, as well as its employee team, is prepared for new projects in order to deliver results that contribute to the sustainable development of the company. PetroRio is an organization focused on mergers and acquisitions

and is able to operate in low price contexts with tight margins. That is why we will continue to be attentive to the possibilities that arise in the current crisis of the oil and gas industry and to possible divestitures from large companies, as well as smaller businesses", emphasizes Nelson Queiroz Tanure.

Brazil is on the way out of its biggest recession in history

portant thing is that the deficit is now falling, and that we are coming out of the biggest recession Brazil has faced since we started measuring GDP over a century ago," he argued. Meirelles noted that the country has improved all economic results, and that soon public accounts are going back to equilibrium and the economy will grow again. "As the country grows, creates jobs and generates income, people begin paying more taxes, and with it we expect [public accounts] to gradually get better as a result," he said.

FINANCE MINISTER Henrique Meirelles has said that Brazil is on the way out of the country's biggest recession since the country has begun keeping track of its Gross Domestic Product (GDP). According to him, the reversal from the negative scenario was brought by an improved public spending environment, without the need to create more taxes. "In recent years, the country faced a crisis, the economy went into a downturn, corporate profits were down, the primary balance was down," the minister reported. "The most im-

Spending cuts – He recalled that the government is making this transition from recession to growth without increasing taxes and the burden on society. The path chosen to change the country's scenario, according to the Minister, was to cut costs and make public administration more efficient.

Brazil Central Bank cuts interest to 11.25% p.a. BRAZIL'S CENTRAL BANK has cut the country's benchmark interest rate (SELIC) for the fifth consecutive time. By unanimous decision this Wednesday (April 12), the Monetary Policy Committee (COPOM) lowered the SELIC rate by 1 percentage point from 12.25% to 11.25% per annum, a move that had been anticipated by financial analysts. With the latest cut, the SELIC rate has returned to the same level it was in December 2014. The impact

of regulated prices, including public utility rates, and prices of food items such as beans and milk, were leading inflationary pressures until August 2016. Since then, however, inflation has begun to ease off because of the economic recession and the decreasing dollar rate against the real. Interest cuts help boost the economy by encouraging production and consumption in times of economic slowdown.

Nova Transportadora do Sudeste deal completed PETROBRAS COMPLETED, lthe sale, first announced on September 23, 2016, of 90% of the company's shares in Nova Transportadora do Sudeste ("NTS") to Nova Infraestrutura Fundo de Investimentos em Participações ("FIP"), managed by Brookfield Brasil Asset Management Investmentos Ltda. The transaction was completed on payment today of US$ 4.23 billion, after all the preconditions and adjustments in the sale agreement had been satisfied. In total, Petrobras received US$ 2.59 billion for the shares and US$ 1.64 billion for 10-year debentures convertible into shares issued by NTS in payment of a debt to Petrobras Global Trading B.V. ("PGT"), a wholly- owned subsidiary of Petrobras. The outstanding balance (US$ 850 million, also relating to the sale of shares) will be paid over five years, and adjusted accordingly. Petrobras will continue to use NTS natural gas transport facilities under current gas transport contracts, with no impact on deliveries of gas to distributors and other customers . Transpetro will remain in charge of the operation and maintenance of assets under a new 10-year service agreement signed with NTS today. After closing this transaction, FIP sold some of its shares in NTS to Investimentos Itaú S.A. ("Itaúsa"), under the same commercial conditions as those governing the transaction between Petrobras and FIP . With the completion of the two transactions, NTS now has the following ownership structure: FIP: 82.35%; Petrobras: 10%; Itaúsa: 7.65%. TB Petroleum 38

special interview

Every barrel

MATTERS

by Beatriz Cardoso

It is upon this premise that the Brazilian oil company PetroRio has been gaining position in the oil and gas market. With a production of around 9,000 barrels per day, it made it clear that the goal is to keep growing by acquiring 100% of Brasoil do Brasil – and thereby a 10% stake in the Manati field in the Camamu basin (BA). Manati is the eighth largest gas producer in the country and Camamu is the fourth largest basin in production of this kind of energy. APPROVED BY THE National Petroleum, Natural Gas and Biofuels Agency (ANP) and by the Administrative Council of Economic Defense (Cade), this operation will allow PetroRio to pull ahead in the national ranking, where it is currently the sixth largest operator in the country and the 13th concessionaire in production. It should surpass four competitors with the incorporation of 2.7 thousand barrels/ day – a volume in equivalent oil that corresponds to 10% of the 4.3 million cubic meters of natural gas per day extracted in Manati. "Whereas large oil companies only prioritize fields which can add large volumes, every barrel matters to PetroRio," says Nelson Tanure Filho, 31 years old, director of the company that increased production by 30 percent, showing that every barrel really matters to independent companies. According to the executive, strong financial management 6

TB Petroleum 38

is paramount, which in the case of PetroRio allows the company to leverage US$ 1 billion in investments whenever it wishes. TN Petróleo – What do you mean by leveraging $ 1 billion in resources? Nelson Tanure Filho – PetroRio's financial indicators are very good. Even with the acquisition of Brasoil, we have an excellent volume of cash resources (over R$ 600 million) and we keep it on the balance sheet with little debt. And in this line we have the capacity to make acquisitions up to US $ 1 billion through financing with banks or trading companies with no need of partners. Independent companies with this kind of financial capacity are rare: qualified as a class A operator, with an experienced technical team, with the financial and operational conditions to assume new assets. A good example of our background was the recognition as the best E&P

company in Latin America in 2015 by World Finance. The acquisition of Brasoil was consolidated step-by-step: the company had acquired the share of Goldman Sachs and then that of Brascan Oil, Gas and Energy Fund (FIP Brascan) at year end. Will PetroRio's growth strategy be based on the incorporation of assets and companies? We are attentive to every opportunity. If there is any project under development with great potential, we are willing to join as a minority partner – that’s fine. However, our focus is the assets in production or that are close to producing first oil. Assest not included in the portfolio of a major – such as Maersk Oil and BP, Petrobras, or what have you – is of interest to PetroRio. These assets still have a long economic life, provided they are operated by independent companies, which consider these assets a pri-

Nelson Queiroz Tanure Filho, president of PetroRio

PETRORIO'S FINANCIAL INDICATORS ARE VERY GOOD. EVEN WITH THE ACQUISITION OF BRASOIL, WE HAVE AN EXCELLENT VOLUME OF CASH RESOURCES.

ority. An example is the Polvo field, which had a life expectancy up to 2016 that was extended until 2022. Therefore, the acquisition of Brasoil is in line with our business model and our growth strategy, besides representing a diversification of our asset profile and sources of revenue. We have shown this positioning from the beginning. How was it possible to extend the useful life of Polvo? The former field operator, a major, had estimated that it would cease to be economically viable in 2016. However, we generated enough cash in 2015 and 2016 with Polvo â&#x20AC;&#x201C; even with Brent at a low price â&#x20AC;&#x201C; which only proved the viability of the field and of our model. With a meticulous reservoir management we achieved greater stability and a lower reduction of the production levels, as well as the extension of the useful life of this field. We also have the highest operational efficiency index of the Campos Basin: 95 to 96%. And afTB Petroleum 38

special interview

ter our interventions, we multiplied the proven reserves, which had been 2.8 million barrels, to 12.7 million barrels â&#x20AC;&#x201C; with yet the possibility of reaching 20 to 25 million if adding up probable and possible reserves. These practical examples from PetroRio prove the importance of the business vision of independent operators. PetroRio also started to have fields under development in its portfolio with the acquisition of Brasoil ... Yes, because we also incorporated 100% of the Pirapema Field, with a focus on natural gas, where there have already been registered discoveries in the development phase, and the FZAM-254 block, both in the Estuary of the Amazon River basin in the coastal region (offshore). We are operators in the last two. This will be our next step, in addition to continuing the Polvo project, which is a very special asset. What makes Polvo such a special asset? Polvo gave us a special position in the market and from day to day it has proven its enormous potential. We have just completed a recompletion project in 3 producing wells. We produced on a specific horizon in these wells, but our reservoir engineers thought that other parts of the reservoir had good potential. Thus, we extended the production horizon in these three wells. And with this investment we increased production from 7,500 to 9,500 barrels, which is equivalent to an increase of about 20%. The Polvo field was acquired in an old bid round and has unexplored areas. Polvo's drilling cost is relatively low due to the fact that it has its own the fixed platform. Will the company conduct the new offshore asset development plan? We have already shown with Polvo that we are good at managing and executing production with a high degree of 8

TB Petroleum 38

THE MORE ASSETS WE HAVE WITH EXTENDED PRODUCTION, THE MORE RESOURCES THE FEDERAL GOVERNMENT, STATES AND MUNICIPALITIES WILL RAISE. ONE CANNOT COLLECT EVERYTHING TODAY AND PUT "TOMORROW" AT RISK.

efficiency. We have maintained the level of production in this field, which had the declaration of commerciality in 2005 and first oil in 2007. And we achieved great results, maintaining the highest levels of operational safety and an efficient management of costs. Polvo has a record of days, which add up to years, without accidents with medical leave. Therefore, we can seek a partner with expertise to lead the development of these two fields at the estuary of the Amazon River, and we can take over or contribute at the time of operating production. What is missing for these companies to move forward? In Brazil, an independent company produces around 5,000-10,000 barrels, whereas in a mature market like the US, they produce from 100,000 to 500,000 barrels. When we evaluate any investment, we also check for everything that can go wrong. If even in an adverse scenario there is possibility of the investment to succeed, the business moves forward. However, there

is the need of more balanced regulations to encourage companies like PetroRio to make bigger investments. There is an important change under way in the ANP, pointing to a more constructive, more dialogue regarding regulations. We cannot have an agency which distrusts any claim or initiative of the operator. I am optimistic about the changes, because the supervisory model relying on imposing fines, treating the companies (and the investor) as suspicious, produced a very bad result: the scarce investment, with investors fleeing to other countries, like Mexico, for example. But it does not depend only on the ANP... Of course not. One of the duties of the agency is to create and monitor compliance with the rules and the regulatory framework, ensuring that all companies, large and small, are performing correctly. It also a duty of the ANP, together with the National Energy Policy Council (CNPE) and the Ministry of Mines and Energy (MME), to create the proper environment to maximize the production of this oil that belongs to the Federal Government. Including investments in the acquisition of new assets? The processes of farm-in and farmout in Brazil are still long and bureaucratic. While in the United States they last 90 days, they can take up to 2 years in Brazil. Moreover, current regulations require an excessive number of financial guarantees for a new buyer. If these guarantees were more flexible, they could unlock a series of investments to increase production and longevity. Certainly simple solutions would help to create a market of independent companies, thus generating more jobs, royalties and wealth, especially in the case of independent companies. With the changes that are already taking place in the ANP, I believe there will be a more balanced

Every barrel matters

treatment. The agency should look more closely at the farm-in/farm-out processes; examine case-by-case to make requirements that allow the investment in and development of an asset. One cannot demand payment today for something that will happen in a distant future, to the detriment of investment to increase oil production. It is difficult to boost the industry by charging a company that acquires a mature field what was had not been charged to the previous concessionaire that has already withdrawn large volumes of oil from that asset. Has this been a critical point in farm-out operations? Yes. And it goes against the very goals of the federal government, which formulated the concessions precisely to maximize the production of oil and natural gas that have a very long commercial life. The more assets we have with extended production, the more resources the federal government,

states and municipalities will raise. One cannot collect everything today and put "tomorrow" at risk. The industry has many years of life ahead, although the world's energy matrix should move towards cleaner production from renewable sources. However, there is still a big cycle ahead. What is the secret of PetroRio's success? The differential of the company are its people, the culture of the owner. Petrobras is excellent; however, since it is giant, decision-making over whether to use, say, injection of one type of polymer, can take two or three years. At PetroRio this decision is faster, from three to six months between testing, calling supplier companies and applying. This is due to the owner's culture, in which the remuneration of managers is directly related to production. In addition to encouraging the owner culture, we create an environment where information flows: we hold quarterly

meetings mobilizing all members of the company. May everyone give their opinions, their ideas? Yes. Our mantra is that the only hierarchy we follow is the hierarchy of ideas. We encourage everyone to speak up, to have more autonomy, because they will have to present all their ideas to be criticized or praised by others. We have a technical area with total autonomy, to search for what is the most modern in the world. If it does not make financial sense, we do not make the investment. It is the philosophy of production. Why does Polvo produce more economically? Because everyone cares about this production. For us, every barrel is important. If there is a way to increase production in any area, from geology to engineering, we will seriously study it to make it happen. But I state once again that PetroRio's main assets are its people and culture.

TB Petroleum 38

bid rounds

Brazil will have new

bidding season T

he National Energy Policy Council (CNPE), which had its first meeting in 2017 on April 11, indicates that a new bidding season is definitely open for domestic and foreign investors interested in exploring the Brazilian basins or in increasing their portfolio of assets in the country. "Today's CNPE restores to the oil and gas market and the international scene not only the return of the bid rounds, as the ones of

TB Petroleum 38

the pre-salt areas, but a calendar for bid rounds in the coming years," said Minister Fernando Coelho Filho, who presided over the special meeting held at the headquarters of the Ministry of Mines and Energy (MME).

Pre-salt round CNPE approved the 3rd bidding round with sharing regime,

in the pre-salt area, expected for November, in which four areas will be offered in the Campos and Santos Basins, in the region of the pre-salt polygon, related to the prospects of Pau Brazil, Peroba, Alto de Cabo Frio-Oeste and Alto de Cabo Frio-Central. It will be held after the second round, already approved in the last meeting of CNPE in 2016, which will offer four unitizable pre-salt areas in the Sapinhoรก field and the prospects of Carcarรก (BM-S-8 Block) and Gato do Mato (S-M-518), in the Santos

panies will focus on those assets and areas that will be offered in 2017/2018. Undoubtedly, this will bring a new dynamism to the oil and gas industry. The meeting was attended by the executive secretaries of the ministries of Finance, Daniel Sigelmann; of the Environment, Marcelo Cruz; of Industry, Foreign Trade and Services, Marcos Jorge de Lima; Planning, Development and Management, Esteves Colnago, executive secretary of the Ministry of Planning, Development and Management; and of MME, Paulo Pedrosa, as well as DĂŠcio Oddone, director general of the National Agency of Petroleum, Natural Gas and Biofuels.

Four block biddings under the sharing regime in the pre-salt area and seven rounds for exploratory blocks and mature fields in 14 basins are part of a

New bids

calendar approved by CNPE, which reviewed

Illustration: T&B Petroleum

local content indexes

Basin, and the Green Turtle Field (Mestizo Turtle deposit, former C-M401 Block), in the Campos basin. Two more rounds in the sharing regime are already scheduled. The fourth round will occur in 2018, for which will be evaluated the prospects of Saturn, TrĂŞs Marias and Uirapuru in the Santos basin, and the exploratory blocks C-M-537, C-M-655, C-M-657 and C-M709, located in the Campos Basin. The fifth round, scheduled for the second half of 2019, will offer the prospects for Aram, Southeast of

Lula, South and Southwest of Jupiter and Bumerangue, all of them in the Santos basin. "We hope that with the new changes implemented by the government that, considering the issue of the single pre-salt operator and the avanced notice that is being given, companies will have enough time to approve budgets", said the minister, mentioning the extinction of the single operator, sanctioned at the end of last year. "This moves the hiring, seismic and research industry, since com-

A multi-year calendar of bidding rounds, unprecedented in Brazil, for exploratory blocks, concession and sharing, and mature land fields was approved. This action offers a forecast to investors and companies of the industry, increasing the country's attractiveness for investment. In the view of CNPE, this will allow investors to plan better for the upcoming intensification of exploration and production activities in the country, which is reflected, in the very short term, in studies for the acquisition of geological and geophysical data. The calendar includes, still this year, three bidding rounds under the concession regime, of mature land fields (marginal accumulations): the first one, previously approved, for the current year, and two more bids, with areas still to be defined, for May 2018 and the second half of 2019. Later this year we will have the 14th bid round for exploratory blocks, in the concession modality, which are concentrated in 29 TB Petroleum 38

Photo: Petrobras Agency

bid rounds

Extension for Exploration Period in 12th Round CONSIDERING THE LOW OIL prices in the international market, with the consequent reduction of the investment capacity of the oil companies operating in the country, CNPE recommended ANP to analyze the extension of the exploration phase of the contracts related to blocks awarded in the 12th bidding round, in November 2013, considering not only the contractual clauses, but also the greater objective of the national interest and the preservation of the investments in the country. The possibility of extension of the exploration phase is included in the public notice and in the contract, depending on the criteria of the Agency. sectors located in five maritime sedimentary basins and in 6 terrestrial sedimentary basins. Offshore: Campos (SC-AP1 and SC-AP3), Sergipe-Alagoas (SSEAL-AP1, SSEAL-AP2 and SSEAL-AUP2), Espírito Santo (SES-AP1 and SES-AP2), Santos (SS-AR3, SS-AR4 e SS-AP4) and Pelotas (SP-AP4 and SP-AUP4). Onshore: Parnaíba (SPN-N and SPN-SE), Paraná (SPAR-CN), Potiguar (SPOT-T1B, SPOT-T2, SPOT-T4 and SPOT-T5), Recôncavo (SREC-T1, SREC-T2, SREC-T3 and SREC-T4), Sergipe-Alagoas (SSEAL-T1, SSEAL-T2, SSEAL-T4 and SSEAL-T5) and Espírito Santo (SES-T4 and SES-T6). 12

TB Petroleum 38

The 15th round is already approved for 2018 and is expected to happen in May, and will offer blocks of the sea basins of Foz do Amazonas (SFZA-AP1, AP2, AR1 and AR2 sectors), Ceará (SCE-AP2 and AP3 sectors) and Potiguar (SPOT-AP1, AP2 and AR2 sectors), of ultra-deep waters outside the pre-salt area of the Campos basins (SC-AP4 sector) and Santos (SS-AUP1 sector), and the basins of the Paraná SPAR-N and CN) and Parnaíba (SPN-SE and N sectors), as well as blocks of terrestrial sectors of the Sergipe-Alagoas, Recôncavo, Potiguar and Espírito Santo basins; The 16th round should occur in the second half of 2019, covering blocks of the Camamu-Almada basins (SCAL-AP1 and AP2 sectors) and Jacuípe (SJA-AP sector) and ultra-deep waters outside the pre-salt Polygon area of the Campos Basins (SS-AP5 sector) and Santos (SS-AUP5 sector), and the Solimões terrestrial basins (SSOL-C sector) and Parecis (SPRC-L and O sectors), as well as blocks of terrestrial sectors of the Sergipe-Alagoas, Recôncavo, Potiguar and Espírito Santo basins.

Local content CNPE has also defined local content rules for all bids. For the 4th bid round for onshore areas with accumulations and marginal areas of oil and natural gas, local content will not be subject to contractual requirements. In the case of production individualization (unitizable pre-salt areas), in situations where oil and natural gas deposits extend to non-contracted areas, the local content rules applicable to them may not create additional obligations in relation to those which are related to the area(s) under an adjacent agreement.

"The minimum mandatory Local Content to be required in each unitized non-contracted area of the 2nd bidding round under the production sharing regime in the pre-salt area shall be equal to the conditions required for this purpose in contracts of the adjacent areas", decided the members of CNPE. The minimum mandatory local content to be required in each area of the 3rd bid round under the production sharing regime in the pre-salt area will meet the following criteria: a) Exploration phase with a global mandatory minimum of 18%; b) Production Development Stage: 25% for Well Construction; 40% for the Collection and Drainage System, and 25% for the Stationary Production Unit. The minimum mandatory local content to be required in the 14th round under concession regime will meet the following criteria: a) The Local Content commitments will be defined in specific clauses of the Contract and will not be adopted as a criterion for judging the offers in the Bid; b) For Ground Blocks, the minimum percentages of Local Content required are as follows: • Exploration phase with an overall mandatory minimum of 50%; • Production Development Stage with an overall mandatory minimum of 50%. c) For Offshore Blocks, the minimum percentages of Local Content required will be as follows: • Exploration phase with an overall minimum of 18%; • Production Development Stage: 25% for Well Construction; 40% for the Collection and Drainage System; and 25% for the Stationary Production Unit.

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resumption of growth

Petrobras shows

recovery

The Brazilian oil company has its rating raised to B1 and now has a positive outlook after announcing its 2016 results with a reversal of losses, less debt, record production, and reiterating its commitment to divestment.

TB Petroleum 38

by Beatriz Cardoso

Photo: Petrobras Agency

xactly three weeks after announcing the results for 2016, Petrobras received the first recognition of its good performance: the rating agency Moody's upgraded the company's corporate debt rating from B2 to B1 and changed the perspective from stable to positive. It indicates that in the next 18 months, if the company's liquidity and credit risk continue to improve, there may be further advances in Petrobras' rating. In its report, Moody's highlighted "the continuous improvement of Petrobras' liquidity profile and financial metrics over the last quarters on its report, due to greater cost efficiency and the new fuel pricing policy". These factors also contributed to the company maintaining access to the capital market and ability to refinance part of its debt. According to a statement released by Petrobras, the agency would also have mentioned improvements in the Brazilian regulatory environment, allowing better returns for investments in the long-term. For the state-owned company, raising the rating is a recognition of the company's commitment to achieve the financial and operational targets set out in the 2017-2021 Business and Management Plan. "The review of Petrobras' credit rating by Moody's recognizes the intense work being done to improve the company's operational indicators, as well as the debt reduction effort. It shows that we are on the right path, but it is also the awareness that the work is just beginning and there is still a lot to be done," said Petrobras president, Pedro Parente.

The state-owned company also denied any ongoing partnerships with Exxon Mobil, after announcing the conclusion of the sale of 90% of the company's shares of Nova Transportadora do Sudeste ("NTS") to Nova Infraestrutura Fundo de Investimentos em ParticipaĂ§Ăľes ("FIP"), managed by Brookfield Brasil Asset Management Investimentos Ltda, an affiliate of Brookfield Asset Management. The oil company plans to start up three units: FPSO P-66, in Lula Sul, FPSO P-67 in Lula Norte, and the FPSO Cidade de Campos de Goytacazes, in Tartaruga Verde and MestiĂ§a. Among the 2016 hallmarks, highlighted by the board of directors, all of them related to pre-salt, is the 95% completion of the FPSO Pioneiro de Libra, which will conduct the LDTs (long-duration tests) in the area under the sharing regime. Petrobras, which last year announced that the field has the largest oil column ever discovered in the area, with 410 meters, expects first oil for July 2017, since 4 wells have already been drilled and 3 have been completed. Last February, the drilling of the ex-

ploratory well was initiated in the southeast area. Another milestone was the record time (47 days) in the completion of well 3-RJS-731, completed in February of this year, with a 28% reduction in time when compared to the first well (RJS-739 RJS-742 RJS-731), which took 65 days.

Positive signs Presenting its results on March 21, Petrobras demonstrated that there was a significant improvement in the company's operating performance throughout the year, reflected in a reversal of the 2016 third-quarter losses to a net profit of R$ 2.51 billion in the last half of the year, as well as a reduction in debt. The net income, still negative (-R$ 14.8 billion), represents a reduction of almost 60% in relation to the previous year. The operating income was R$ 17.8 billion, a variation of almost 240% if compared to the negative result of 2015 (-R$ 12.4 billion). Despite the lower oil price in 2016, the retraction of the national derivatives market, with an 8% decrease in sales volume in the TB Petroleum 38

resumption of growth

Relevant points of the annual and 4thQ16 results Net profit (R$ million) 2.510

• operating income of R$ 11.8 billion, compared to a loss of R$ 10.0 billion in 3Q16, mainly due to lower impairment;

(16.458)

• 25% reduction in net financial expenses;

(36.938) 4thQ15

3rdQ16

Petrobras reported net income of R$ 2.5 billion in 4Q16, compared to a loss of R$ 16.5 billion in 3Q16. This result was determined by:

4thQ16

• a 12% increase in exports, reinforcing the position of the net exporter; • 6% decrease in selling expenses, both general and administrative; and

Free cash flow (R$ million) 16.448 11.953

• In 2016, free cash flow was R$ 41.6 billion, 2.6 times higher than in 2015, reflecting the reduction of investments by 32% and a greater discipline in the use of capital; • The company presented positive free cash flow for the seventh consecutive quarter, reaching R$ 11.9 billion, 27% lower than in 3thQ16.

7.402

3rdQ16

4thQ16

Photo: Petrobras Agency

4thQ15

• gross capital gain of R$ 2.9 billion from the sale of the stake in BM-S-8 (Carcará)

domestic market and lower generation of electricity, the company operated with higher margins of diesel and gasoline, if compared to the previous year, and reduced its expenditures on imports, government investments and its selling, general and administrative 16

TB Petroleum 38

expenses, as well as net financial expenses. Exports increased 12% in the last three months of last year, totaling 634,000 bpd of oil and by-products, especially oil exports, which rose 14%, leading the company to become a net exporter in 2016.

In operational terms, for the second consecutive year the company also met its production target, reaching 2.1m barrels per day (bpd) of oil in Brazil and reaching record production of 2.9 million barrels of oil equivalent per day (boed), considering oil and gas in Brazil and abroad, in December. With a higher operational revenues and a 32% reduction in investments, the company achieved a cash flow of R$ 41.57 billion. It was the seventh consecutive quarter with positive free cash flow, demonstrating the greater capital discipline that the company has been trying to achieve. Net debt was reduced by 20% to R$ 314 billion or US$ 96.4 billion, due to the amortization and prepayment of debts, utilizing resources from disinvestment and cash, as well as from the appreciation of the Real. Debt management also made

Petrobras shows recovery

Relevant points of the annual and 4thQ16 results Adjusted EBITDA (R$ million) 24.788

22.261

• Adjusted EBITDA reached R$ 24.8 billion in 4Q16, 11% higher than 3Q16.

18.923

4thQ15

3rdQ16

• Adjusted EBITDA in 2016 was R$ 88.7 billion, 16% higher than in 2015, due to: • Higher margins of diesel and gasoline; • Lower spending on imports and government participations.

4thQ16

• Adjusted EBITDA margin was 35% in 4thQ16

Net debt/Adjusted EBITDA index

5.11

4thQ15

4.81

1stQ16

• Significant reduction of the net debt to adjusted EBITDA ratio of 5.11 at 12/31/2015 to 3.54 at 12/31/2016. In the same period, the leverage decreased from 60% to 55%. 4.30

2ndQ16

3.93

3rdQ16

3.54

4thQ16

• Gross debt fell by 22%, from R$ 493.0 billion on 12/31/2015 to R$ 385.8 billion, a reduction of R$ 107.2 billion, due to the prepayment and amortization of debt using resources of disinvestment and operational generation and the appreciation of the Real in 16.5% • Net debt decreased 20%, from R$ 392.1 billion to R $ 314.1 billion.

it possible to increase the average term from 7.14 to 7.46 years. EBITDA, a reference frequently used by the financial market as an approximation of the cash generation, was R$ 24.8 billion in the fourth quarter of 2016, totaling R$ 88.7 billion, 16% higher than the previous year. As a result, Petrobras' net debt/ EBITDA financial metric, designed by the company in its Business and Management Plan, was reduced from 5.11 at the end of 2015 to 3.54 at the end of 2016. The goal is for this indicator to reach 2.5 times EBITDA at the end of 2018.

Disinvestment program The Company announced that it is finalizing the review of the divestment portfolio, reaffirming the

US$ 21 billion target for 2017-2018. "Petrobras is taking all the necessary internal measures to approve its new divestment portfolio in up to two weeks. It will comply from the start with all the procedures specified by the new disinvestment system, in compliance with the decision of the Court of Audit of the Union ", reiterates the state-owned company in a note on the corporate website. On March 30, the executive board approved the closure of the projects in progress, whose purchase and sale contracts had not yet been signed, as well as the preparation of the new portfolio. The listed projects that are able to begin the structuring phase will be promptly initiated and subsequently disclosed. Projects whose purchase and sale contracts have

Photo: Petrobras Agency

• In dollars, the decrease was 4% in net debt, which went from US$ 100.4 million to US$ 96.4 billion on 12/31/2016. Debt management made it possible to increase the average debt term from 7.14 years to 7.46 years.

already been signed may proceed to completion. The tables below provide information on the divestment projects disclosed to the market since the second semester of 2016 and whose operational closure has not yet occurred. The first table shows the ones that will be revalued to compose the new portfolio and the second the ones that can be continued to completion. TB Petroleum 38

resumption of growth

Relevant points of the annual and 4thQ16 results Oil and natural gas production (thousand boed) 2.777

2.869

2.868

192

147

122

2.585

2.722

2.746

4thQ15

3rdQ16

Brazil

4thQ16 Abroad

• The company's average oil production in Brazil reached an annual record of 2,144 thousand bpd in 2016, 0.75% above the result of 2015 and in line with the target of 2,145 thousand bpd expected for the period. For the second consecutive year, Petrobras fulfilled the planning, reinforcing the commitment with its projections. • Petrobras' total oil production in Brazil in 4Q16 was 2,243 thousand bpd, an increase of 1% compared to 3Q16. • In the month of December, several production records were reached: • Oil and natural gas in Brazil and abroad: 2,937 thousand boed; • Oil and natural gas in Brazil: 2,811 boed; and • Petroleum and natural gas operated by Petrobras in the pre-salt: 1,580 thousand boed

Net exports (thousand bpd) 329

• In 2016 the company assumed the position of net exporter, due to the increase of exports by 6% and the reduction of imports by 30%.

210

186

4thQ15

3rdQ16

4thQ16

• In 4Q16, the production of derivatives in Brazil decreased by 3%, totaling 1,810 thousand bpd. Sales of oil products in the domestic market totaled 2.001 thousand bpd, a decrease of 4%, while oil and oil products exports increased 13% to 634 thousand bpd.

Headcount of the Petrobras system (number of employees) 78.470

71.152

69.829

• The company's headcount as of 12/31/2016 was 68,829 employees, a reduction of 12% compared to 2015, due to the Voluntary Resignation Incentive Plan

4thQ15

3rdQ16

4thQ16

Brazilian naval industry. A sector in expansion.

TB Petroleum 38

See on www.portalnaval.com.br

TB Petroleum 38

resumption of growth

Disinvestment program

he Company announced that it is finalizing the review of the divestment portfolio, reaffirming the US$ 21 billion target for 2017-2018. "Petrobras is taking all the necessary internal measures to approve its new divestment portfolio in up to two weeks. It will comply from the start with all the procedures specified by the new disinvestment system, in compliance with the decision of the Court of Audit of the Union ", reiterates the state-owned company in a note on the corporate website. On March 30, the executive board approved the closure of the projects in progress, whose purchase and sale contracts had not yet been signed, as well as the preparation of the new portfolio. The listed projects that are able to begin the structuring phase will be promptly initiated and subsequently disclosed. Projects whose purchase and sale contracts have already been signed may proceed to completion. The tables below provide information on the divestment projects disclosed to the market since the second semester of 2016 and whose operational closure has not yet occurred. The first table shows the ones that will be revalued to compose the new portfolio and the second the ones that can be continued to completion.

NTS sale completed According to announcement on September 23, 2016, Petrobras finalized the sale of 90% of the company's shares in Nova Transportadora do Sudeste ("NTS") to Nova Infrastructure Fundo de Investimentos em Participações ("FIP" ), managed by Brookfield Brasil Asset 20

TB Petroleum 38

Table 1 – Closed divestment projects that will be evaluated to compose the new portfolio

Project

Phase

Assignment of rights of a group of onshore fields

Process was already suspended by a preliminary decision of the Federal Court of Sergipe, according to relevant fact of 12/5/2016.

Assignment of the rights of concessions in shallow water in the States of Sergipe and Ceará

The Regional Federal Court of the 5th region revoked the injunction suspending the operation, according to the relevant fact of 01/23/2017.

Sale of equity stake in BR Distribuidora

Process was already suspended by a preliminary decision of the Federal Court of Sergipe, according to relevant fact of 12/5/2016.

Sale of concession rights in the fields of Baúna and Tartaruga Verde

It was an exception from the TCU injunction of 12/07/2016. The company withdrew from the measure in a suit in the Federal Supreme Court which sought to suspend the judicial injunction issued by the Federal Court of Sergipe, which prevented the signing of the contracts, and requested the extinction of this judicial process, according to the relevant fact of 03/29/2017.

Sale of participation in the Campo de Saint Malo in the Gulf of Mexico

An exception from the TCU decision of 03/15/2017. It will not be continued because the process has not achieved the expected results.

Management Investimentos Ltda, an affiliate of Brookfield Asset Management on April 4th. The operation was completed with the payment of US$ 4.23 billion, after compliance with all the previous conditions and adjustments provided for in the purchase and sale agreement. The total amount received by the state-owned company is composed by US$ 2.59 billion related to the sale of the shares and US$ 1.64 billion related to debentures convertible to shares issued by NTS, maturing in 10 years, to replace the debt with Petrobras Global Trading B.V.

("PGT"), an integral subsidiary of Petrobras. The remaining amount (US$ 850 million, also related to the sale of shares) will be paid in five years and updated during the period. Petrobras will continue to use the NTS natural gas transportation facilities through the existing gas transportation contracts, without any impact on its operations and the delivery of gas to distributors and other customers. Transpetro will remain responsible for the operation and maintenance of the assets, through a new service agreement, signed

Petrobras shows recovery

with NTS on this date, with a term of 10 years. Petrobras also communicated that, after the closing of this operation, FIP sold part of its shares in NTS to Itaúsa - Investimentos Itaú S.A. ("Itaúsa"), under the same commercial conditions of the transaction between Petrobras and FIP. With the completion of the two transactions on this date, NTS will have the following shareholding structure:

Table 2 – Disinvestment projects maintained

Project

Sale of 90% of the equity stake in Nova Transportadora do Sudeste

Contracts signed on 09/23/2016, prior to the TCU injunction of 12/07/2016, which prevented the signing of divestment agreements. Petrobras' General Shareholders Meeting approved the sale, according to material fact dated 11/30/2016. Suspended the injunction that determined the stoppage of the divestment process, according to relevant fact of 03/09/2017. Conclusion of the transaction still subject to the fulfillment of usual precedent conditions.

Sale of Liquigás

Contracts signed on 11/17/2016, prior to the TCU injunction of 12/07/2016. Petrobras' General Meeting approved the sale, according to the relevant fact of 01/31/2017. Completion of the transaction subject to compliance with usual precedent conditions, including approval by CADE.

• FIP: 82,35% • Petrobras: 10% • Itaúsa: 7,65% The NTS Board of Directors will be composed by seven members nominated by FIP, two by Petrobras and one by Itaúsa. The operation is part of the partnership and divestment program that totaled US$ 13.6 billion in the 2015-2016 biennium. The sale is in line with the company's Strategic Plan/PNG 2017-21, which describes the action in the oil and gas chain through partnerships. In addition, the operation opens up opportunities for partnerships with other companies to contribute to the strengthening of Brazil's natural gas industry, fostering new investments in the expansion of the gas transportation infrastructure.

Phase

Contracts signed on 12/28/2016, exception to the TCU injunction of 12/17/2016, The injunction suspending this project was suspended due to an appeal presented by Petrobras, according to the relevant fact Sale of PetroquímicaSuape and Citepe of 02/22/2017. Petrobras' General Meeting approved the sale, according to the relevant fact of 03/27/2017. Completion of the transaction subject to compliance with usual precedent conditions, including approval by CADE. Remark: It does not include strategic partnerships

INFORMATION WITH QUALITY. At your fingertips. www.tbpetroleum.com.br TB Petroleum 38

professional profile

The important thing is being aware of the

opportunities

by Beatriz Cardoso

Having recently turned 46, the business administrator Daniel Carvalho Guimarães could jokingly say he still works in his "first job". Beginning of his internship at Companhia Brasileira de Amarras (Brasilamarras) – part of the Spanish group Vicinay Marine S.L. – he has been working in companies of this group in Brazil and abroad, in different positions, since 1994. "These changes were essential for keeping motivation and focus on the new challenges of my career over these 23 years", he says.

Photos: Personal Archive

DURING THIS PERIOD, THE PERSISTENT mcitizen from Minas Gerais attended the business administration college course twice, due to his commitment to work, which led him to live eight years in Asia, resulting in a 16-year period from his first day at the university to graduation. Currently the Commercial Director of Brasilamarras, he says that working with passion is vital. "Devote yourself to what you do, never give up on a dream, and so you will seize every opportunity in your career – sometimes without realizing it", he suggests. Although many businessmen work for more than two decades in a single organization, few do so in the private sector as Daniel Carvalho Guimarães, Commercial Director of Companhia Brasileira de Amarras. He joined the company as a 23-year-old freshman at university, until his return as a commercial manager in 2007, after working in two companies of the group in China and in a third one in Singapore, on the other side of the planet. The familiarity with different cultures and new challenges is one of the reasons for the long permanence in this 'first job', something the young student did not expect when he joined the company. "I had six years of internship in the Production department and another six years in the Quality area, where I developed skills that still move and guide me. Iconic statements marked this trajectory, such as “do it right the first time”, Daniel emphasizes.

TB Petroleum 38

Towards China Daniel received the 'passport' to Asia in 1999, when a senior executive mentioned that one of the Vicinay Group's factories needed experienced professionals for the production and quality areas in order to restructure the company. Feeling the young employee's interest, he appointed Daniel for the job, and the group immediately accepted it. He had no doubts about taking a leave from college, since the course had been interrupted frequently. He packed and moved to China, to work in a joint venture of the group with a Chinese state-owned company, DaZhong Anchor Chain Co., a mooring manufacturer in the city of Foshan, in the Guangdong province. "I was in charge of supporting the organization of the production and quality departments. The unit was located in the countryside and, despite the contingent of 500 employees, there were just a few foreigners in the region. I became an attraction in the city. Everyone greeted me with a resounding ‘hello!’" he says, laughing. He would then move to S.I.V. China/Servicios Integrales Vicinay, which provided commercial support to the Group's parent company in Spain in the business in Asia. According to Daniel: "It was a new company. I was responsible for starting from scratch, developing the whole structure, from the organization of the office to the recruitment and hiring of employees. It was very challenging!” The greatest difficulty, apart from being away from family and friends, was becoming acquainted with the local culture. According to Daniel, "...the Chinese

today, everyone who has the opportunity should develop multicultural skills.".

New challenges

Place and date of birth: Belo Horizonte (MG), on 02/22/1971. Married? With Claudia and two children, Maria Clara (8 years old) and João Felipe (7 years old). Which books are you reading? What makes a leader: why emotional intelligence matters, by Daniel Goleman, and The Leadership Pipeline, by Ram Charan. What is your bedside book? Big Dream, by Cristiane Correa. What do you like to do in your spare time? I like sports, cooking and being with family and friends. What is your hobby? It is currently mountain bike on weekends with my wife, on the trails of the state of Rio de Janeiro. Favorite song? “I don’t want to miss a thing”, by Aerosmith.

individual is very different and particular, from the eating habits to the way of thinking. My first cultural shock was the food. On the second day in the country I was invited to a traditional dinner. I had to try all the dishes and my interpreter refused to tell me what I was eating. It was a great experience". He says the greatest lesson was the development of patience and the awareness about every culture having its own values. In his words, "...in a world without borders, like the one we live in

After nearly three years in China, he was invited to take over the group's commercial office in Singapore. He accepted the new opportunity immediately. "Singapore is fantastic, modern, organized, beautiful and very green. Everything works harmoniously, with several cultures sharing the same space. This miscegenation of cultures is seen in a natural and very respectful way by everybody", he says. The move to the commercial area was the biggest challenge, facilitated by the technical know-how about the product, acquired during the years in the production and quality departments. He then started to represent the company throughout Asia and Southeast Asia, knowing many countries, such as Korea, Taiwan, Japan, Malaysia and Indonesia, visiting or prospecting new clients during his five years in Singapore. He says: "I had to learn to communicate in a more commercial and formal way. I learned about different cultures, and about proper behavior during meetings and business meals". After eight years in Asia, he felt it was time to return to Brazil. "I had a girlfriend and our wedding was scheduled. I thought it was time to return ... But I remained open to new opportunities outside Brazil", he says, stating: "I came back happy and triumphant and with a sense of accomplishment." It was difficult to settle down again. "In the first few months I felt very uncomfortable with the public and private services. I was TB Petroleum 38

professional profile

Daniel and his wife, Claudia, in one of their favorite pastimes, the Montain Bike.

used to Singapore, where it was very easy to live and everything worked fine. At work, the focus and customers changed, but experience was fundamental to a rapid adaptation. I miss the organization and the gastronomic diversity that I learned to admire in Singapore". He would also find it difficult to resume his college studies. "When I tried to renew my registration, I found out most of the subjects had changed in the Business Administration course programs. I almost had to start the course from the beginning". Pointing out that the university degree would have come in handy, the greatest learning was getting in touch with new theories and to 24

TB Petroleum 38

analyzing different "case studies". "Recycling knowledge and learning updated management techniques make my job a lot easier. That's why I sought specialization studies in Management, and with the encouragement from family, I registered for the EMBA Empresarial of the Dom Cabral Foundation", he adds.

A company man According to Daniel, the long stay in the Vicinay group is due to the 23 years of activity in 'different' companies and areas. "These changes were essential to keep motivation and focus in the face of new challenges. Always working in the same group allows you to become well known:

I had several excellent professionals around, with whom I still have a relationship". For those who want to follow the same path, his tip is simple: "More than anything, it takes perseverance and patience to pursue goals; resilience to rise from inevitable falls during the course; patience to learn that your time will come; accept the loads of work with it â&#x20AC;&#x201C; moreover, pay attention to the chances that arise in life. Opportunities appear in our way and we often cannot see them. Work with passion, devote yourself to what you do and never give up on a dream. So you will seize every opportunity in your career, sometimes without realizing it."

products and services

Prysmian Group

A global center of excellence in Brazil THE PRYSMIAN GROUP, world leader in cables for energy and telecommunications, announces the creation of a new Global Center of Excellence in Brazil. The project, launched worldwide this month, is the organization's commitment to the growth and strengthening of the Brazilian and South American markets in the energy and telecommunications sectors, with investments reaching around R$ 150 million. In its full operation, it will be a competitive pole to serve the domestic wire and cable market, as well as to expand exports of the current product lines. "The investments in these new facilities show Prysmian's commitment to the Brazilian and South American markets and the intention of seeking even greater growth in these regions," said Marcello

Sistema FIRJAN represents the industries in Rio de Janeiro state.

Del Brenna, Prysmian's CEO in South America. Therefore, the Group's proposition is to increase the company's participation in the Brazilian markets, as well as to increase the level of competitiveness in the countries of the Southern Cone. Prysmian's Global Center of Excellence in Brazil will be built within the company's unit in Sorocaba (SP), and it is expected to start operations by the end of 2018. The new center will house the entire structure of the company's unit in Santo André (SP) and will have modern facilities in the industrial area and in the administrative building. The unification of these operations integrates the strategic plan of the company to make it even more modern and competitive.

"The investment in Brazil is part of the company's strategic plan to improve our global operating capabilities, making it even more efficient and competitive", says Andrea Pirondini, Chief Operating Officer of the Prysmian Group. In the South American market since 1917, Prysmian is a leader in power transmission and telecommunications solutions, with units in Argentina, Brazil and a distribution center in Chile, in addition to commercial offices. Established in Brazil since 1929, the company has a 25% market share and seven manufacturing units located in Santo André, Sorocaba (three factories), both in the state of São Paulo, Vila Velha and Cariacica, located in the state of Espírito Santo, and in Joinville, in the state of Santa Catarina.

COMPANY IN COMPLIANCE:

COMPANY MORE PRODUCTIVE:

Services to keep your company

Services to increase production output and reduce costs of your industry.

up to date regarding legislation requirements and, thus, preventing fines and unplanned expenses, in addition to dismissal of professionals. • Environment and Bioprocesses • Solutions in Technology and Innovation • Courses

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Technology and Innovation • Three Institutes of Technology specialized in automation and simulation, welding, and environment Education • Training courses • Basic Education Health and Welfare • Integrated sports, recreation, medical care and odontology services Work Safety • Programs, Studies and Technical Reports • Risk Management Social Responsibility • SESI Model of Sustainability

TB Petroleum 38

safety

Improving safety

by preventing dropped objects

afety in the offshore oil and gas industry has improved significantly over the years, but workers continue to suffer injuries caused by dropped objects. Statistics show that dropped objects cause thousands of injuries that require medical treatment, a large number of lost time injury (LTI) events, and up to 10% of industrial fatalities. The industry has invested in advancing safety, designing better safety equipment and creating more effective personal protective equipment, more thoughtful work processes and improved safety training. While these advances address a range of critical safety hazards offshore, work remains to be done to prevent the frequency and severity of dropped object incidents.

Accidents and incidents

Chris Corcoran is a Sr. Staff Advisor in the ABS Global Offshore division. He has served in various domestic and international roles in the ABS survey operations division involving development and application of classification and statutory compliance for offshore units, ships and fixed installations. Chrisâ&#x20AC;&#x2122;s career in the offshore and maritime industries spans 40 years, including 17 years with drilling contractors, where he managed global projects and technical operations support. He is a graduate of the University of Michigan and holds a Bachelor of Engineering Degree in Naval Architecture and Marine Engineering.

TB Petroleum 38

Records gathered for the UK Continental Shelf for 2015 provide an indication of the number and types of incidents resulting from dropped objects. Among the events recorded were objects dropped while executing derrick and well operations, issues resulting from crane and lifting events, and episodes that involved equipment and tools falling from scaffolding. Dropped objects spanned a broad spectrum that included tools being dropped during rig repairs, a vent pipe cowling that came loose, an inspection hatch that detached from a crane air intake vent and a dislodged scaffold pole that fell through a deck, penetrating the deck below. It might appear from these examples that the causes of dropped objects are too broad and varied to address effectively, but in fact, there are two primary preventive measures that can be used to minimize dropped objects and mitigate injuries caused by dropped objects. One is developing and following organized and repeatable processes for identifying dropped object hazards. This is the foundation for building an inspection and maintenance program that provides guidance for examining the structural and outfitting components of the asset to make sure nothing is unsecured or in a position to fall. An effective safety program outlines how all equipment at height should be inspected to uncover any defects that require repair or replacement, and the work procedures in the program should address the need to keep the workplace in order, never leaving tools in a place where they could become a dropped object. A program like this makes it possible to address dangerous work practices and poor housekeeping that can lead to falling or dropping objects. The other measure is to incorporate dropped object hazard elimination in the design of offshore equipment.

A case in point A dropped object Safety Alert reported to the International Association of Drilling Contractors in May 2013 recorded an accident that happened

Photo: Rawi Rochanavipart/Shutterstock

Up to 10% of industrial fatalities are caused by dropped objects. Focusing on equipment design standards for minimizing dropped objects and having an industry body to consult on engineering processes, will reduce dropped object safety incidents.

This situation was resolved by introducing a new type of pin and issuing new procedures for the crew that would take into account high winds during certain operations. While the company unarguably found and implemented a good solution, it was only able to address the problem after the accident took place. A better way to contend with dropped object prevention would be to address the problem in the design phase and to follow common guidelines for safety. This incident points out an opportunity for improvement: Specific focus on equipment design standards for minimizing dropped objects and an industry body to consult on engineering processes, will reduce dropped object safety incidents.

Working with a common goal Many members of the industry have recognized that dropped objects pose a serious threat. Interest in addressing this issue has led to the formation of online communities like Dropsonline.org, an Aberdeen, UK-based organization that brings together industry participants to establish and publish best practice guidelines and provi-

when a traveling block struck a rod basket pin, knocking it out of position. The basket fell to the rig floor, and four stands of rods fell from the rod basket. It was windy on the day a derrickman latched tubing into an elevator, sending the traveling block upward. The combined forces of the wind and the swinging movement when the pipe was placed in the elevators caused the block to strike the rod basket pin, which broke the cotter key, knocking out the pin. In evaluating the cause of the incident to determine how such an event could be avoided in the future, the company recognized that the cotter pin, intended to serve as a means of secondary retention, posed a serious risk due to the nature of its design. The company mandated that its rigs would use only a style of pin that was designed such that dislodging it accidentally would be unlikely. Following this decision, the company replaced all old pins with new pins and created a tracking spreadsheet to verify that the new pins had been installed on all the rigs in its fleet. Taking a look at the causes of the incident, it is easy to attribute the accident primarily to the weather and the operating conditions on the day the rod basket fell. In fact, though, the solution was to take a look at the secondary retention pin and recognize that a design change had the potential to prevent a recurrence of this type of accident. The solution was to manage behavior and equipment. TB Petroleum 38

Photo: Aker Solutions/Slater King

safety

Defining dropped objects safety DOPP is the basic level of classification, which demonstrates compliance with the first part of the new guide. The DOPP class notation requirements center on best practices associated with the lifecycle management process for preventing dropped objects on board an offshore unit or installation. These requirements were written to align with the best practices of Dropsonline.org as well as those of a number of offshore operators. DOPP+ is the next level of a dropped object prevention class notation. The requirements established for this notation are unique to the industry and current best practices, focusing on the design of equipment that will be placed at height. A core part of this class notation requires that equipment installed at height carry ABS approval, verifying the designs have been evaluated to drops resistance criteria. des a forum for developing best work practices, promoting dialogue and providing personnel training. This organization has made progress in addressing dropped object safety. One example is work done by the North American Forum of Dropsonline.org, which has undertaken an important effort to standardize operational guidelines among operators. While this organization has made safety inroads, it was not designed to be a governing body; so it is unable to establish official guidance.

Developing guidance As a classification society, ABS identifies areas where safety improvement is needed and works with industry to create a solution. Recognizing a need to supplement current best practice for dropped object 28

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safety, ABS developed the industryâ&#x20AC;&#x2122;s first standard provisions for dropped objects prevention, which promotes global safety initiatives and introduces a shift in equipment design considerations. This guidance takes the current state of best practices to the international standard level and includes requirements for evaluating and certifying equipment designs. By employing a life cycle process based on continuous monitoring for compliance, the ABS Guide contains the format for an enhanced safety culture and creates a platform for focusing on the design of equipment that is inherently â&#x20AC;&#x153;drops resistant.â&#x20AC;? This guide provides a platform that combines current best practice with a format for equipment design considerations. Two ABS Class notations are provided to indicate the level of drops prevention management applied and certification of equipment designs for drops resistant features. The lifecycle process associated with these notations begins with the technical approval of the onboard management plan supplemented by initial and periodic verification by ABS Surveyors supported by drops specialist organizations qualified under the ABS External Specialist verification program. This process continues as long as class is maintained on the unit or installation and represents a formalized commitment to upholding an elevated level of safety on board. In presenting this industry-leading guidance, ABS has put forward a single reference that necessitates continuous monitoring for compliance and establishes a globally recognized platform as the foundation for an enhanced safety culture, introducing a new focus on the design and engineering of equipment that is inherently drops resistant.

oil and gas

A new threat to the BRAZILIAN OIL AND GAS industry

he Brazilian oil and gas industry faces a drastic reduction in its activity. Among several indicators of this, one to be highlighted is the reduction in the number of wells drilled per year. Drilling is the activity the paves the following activities in this industry and, therefore, its reduction implies reduction to the whole sector. A study performed by ABESPetro and Accenture, based on data from the Brazilian Agency of Petroleum (ANP), indicates that the number of wells drilled in 2015 and 2016 can only be compared with data from 1969. The figure below shows the evolution of this indicator.

Fig. 1 – Number of drilled wells per year (source: ABESPetro/Accenture)

The oil and gas sector is characterized by fluctuations caused by variations of the oil price, by the inherent cycle of exploration-development-production-deactivation and by the natural changes in the behavior of the reservoirs. In Brazil, however, one testifies variations even more intense than those of the international scenario. The country is facing what some analysts call the “perfect storm” of the Brazilian oil and gas industry. The combined effect of low oil prices with the decrease of Petrobras activity because of the so-called “Lava-Jato” scandal. Brazilian Government has announced new bid rounds to be realized in 2017 and more predictability regarding following years. This has created positive expectations to the sector, in particular to oil companies operating in Brazil and to the system of suppliers. However, there is an element that remains as a “Sword of Damocles” over the Brazilian oil and gas industry. No matter how positive the local initiatives are, they cannot resist the threat of the shale oil.

Telmo Ghiorzi is MSc in Petroleum Engineering and PhD in Public Policies, is board member of the Brazilian Association of Suppliers of Goods and Services to the Oil Industry.

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oil and gas

The innovation introduced by the USA in the production of hydrocarbons considered inaccessible years ago brought two challenges to the Brazilian oil and gas sector. One is general. Many analysts converge that the shale is replacing OPEC in the most influencing factor of the oil price dynamics. This new source of oil brought the dynamic of low for longer. The world may have oil prices around US$50-70/bbl for many years to come. There is another threat that may hit specifically and directly the Brazilian oil and gas industry. The shale oil, since 2015, has displaced the oil produced in ultra-deep-waters (UDW). The innovation of the shale oil production was followed by other innovations that reduced its production costs to levels below the production cost from UDW. The figure below shows this effect.

vations to ensure its robustness and competitiveness in front of the shale oil threat. Innovations and competence to innovate result from a combination of several factors. Public policies are important ones among them. In Brazil, there are two public policies that are of particular criticality to stimulate innovation in the petroleum industry. They materialize in the regulations of Local Content (LC) and of Research, Development and Innovation (RDI). The CL is been reviewed. Reduction in LC requirements and process simplification are positive changes. Improvements in the direction of stimulating capability and innovation instead of focus in capacity would also be beneficial. The PEDEFOR decree (signed in 2016, not yet implemented), by recognizing and awarding with extra CL the local design and engineering of products, goes in this direction. Engineering is one of the key-activity to induce innovations. It is, therefore, an essential factor in the construction of economic feasibility of any industrial sector. The RDI regulation can also be improved in the direction of actually stimulating innovation. Innovation is strongly dependent on the interaction of the Fig. 2 â&#x20AC;&#x201C; Displacement of UDW oil by the shale oil (source: ABESPetro/Accenture) different industry actors, such as oil companies, suppliers and The figure indicates that additional demand of universities. The impressive success cases resulting oil will be preferably supplied by shale oil rather from these interactions in USA and in Europe do not than oil from UDW. In other words, the shale oil derepeat in Brazil. An RDI regulation that promotes this velopment may imply, in the limit, that the Brazilian interaction, while stimulates key-activities to induce pre-salt will not see its potential turned into real innovation such as engineering, is essential to create economic benefits. and keep the economic feasibility of the Brazilian oil The way the shale oil industry evolved, based on and gas industry. the innovation competence present in the USA in The threat of the shale oil made it clear an general and, in particular, in its oil and gas industry, impasse to the Brazilian petroleum industry. All must be applied to Brazil. Innovations must be introingredients of a successful development are present, duced to allow continuous improvement of the pre-salt since the country has the largest UDW oil reserves competitiveness. There is no doubt of the technical of the world, many oil companies with local operafeasibility to explore the pre-salt. The question arising tion, a mature system of suppliers and universities now is on the economic feasibility of exploring the with recognized competence to produce science and Brazilian pre-salt. And the answer is in the innovatechnology. However, its regulatory framework is not tions, incremental or disruptive, that will improve the effective when it comes to development of innovapre-salt competitiveness. tions and, therefore, to ensure its economic feasibiWhat defines the economic phenomenon â&#x20AC;&#x2DC;innovality. This framework must be reviewed to turn the oil tionâ&#x20AC;&#x2122; is the commercial success of an idea or invention from UDW into economically feasible resources. In introduced in the market. The essence of the Capisuch quest for feasibility, one can seek turn Brazil talist system is this permanent creative-destruction into a global reference in technology and capability cycle. The Brazilian oil and gas industry needs innoto explore petroleum from UDW. 30

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business

Companies of the sector should go for

FLY TO QUALITY For specialist, this is the right moment to take advantage of high standard offers in order to improve quality of occupied spaces, through more efficient slabs and sustainable buildings.

he impact promoted by the crisis in the oil and gas business in the corporative real estate market of the city was remarkable. Rio de Janeiro, despite its diversity of economic activity, has always been quite dependent on the oil and gas industry. Until mid-2013, with Petrobrasâ&#x20AC;&#x2122; leadership, this sector represented around 60% to 70% of annual gross absorption of new spaces in the city and it was responsible for successive increase in net absorption (which measures the difference of volume occupied in the market). In the last three years, with the escalation of the crisis in the industry which extinguished employments and new projects, the companies of the sector drew back and reduced occupied spaces, generating a new historical series of net absorption, this time of decrease. Historically, there has always been a concentration of offices connected to Petrobras, whose headquarters are in the City Center. Today we can say that is no longer a rule. Although occupied volume in the Center is still considerable, the oil and gas companies are distributed in great number in the Botafogo, Flamengo and Barra da Tijuca regions, which form, together with the City Center, the main hubs of office market in Rio de Janeiro. At the moment, there is no specific migration from one region to another in the office market. Between years 2010 and 2012 we experienced an intense movement of companies migrating to the Barra da Tijuca area. In that time neighborhoods like Center and Botafogo presented a low vacancy rate (available vacant spaces) between 2% and 4%, including a considerably old stock, what ended up driving the price of good quality slabs available to extremely high levels. Barra, on the other hand, a market on the rise, combined competitive price with quality. Today, with the market flooded with good quality products in the central area, there is no appeal for displacement. Consequently, occupants are taking advantage of the fact that there is a variety of high standard offers to improve the quality of occupied spaces, through more efficient slabs and sustainable buildings. CBRE has amassed considerable expertise working in partnership with the major oil and gas companies operating in Brazil. In the last five years, in Rio de Janeiro alone, we were directly involved in the nego-

Adriano Sartori is the vice-president of CBRE Brazil.

TB Petroleum 38

Photo: Divulgation

business

tiation of over 100,000 square meters of offices for companies in this field, working with names such as Statoil, British Petroleum, Schlumberger, Saipem, Repsol, Sinopec, Total, Modec, among many others, besides Petrobras. Our hope is that the impending decrease of Petrobras’ leadership in the exploitation of pre-salt might represent a very positive turning point in the market. The flexibility of the regulatory framework will attract new and valuable investments to the sector, which may be decisive for the recovery of this niche. We have a very high potential to generate businesses from now on. Companies of this sector, particularly the multinationals, look for buildings that comply with a rigorous standard of technical specifications, security and location. In general terms, we are talking about buildings classified with Triple A. In regards to technical specifications, features like central air-conditioning, raised floor, clear high ceiling, size and shape of the slab (required to be regular and without columns) are 32

TB Petroleum 38

taken into account, as well as other important requirements such as LEED (Leadership in Energy and Environmental Design ) certification, parking spaces and generating sets. The security systems offered by the building make all the difference for the companies in this sector and must reflect what they have in their headquarters around the world. The building must have access control, electronic turnstiles to access elevators, CFTV system and building automation, complete systems of fire prevention and firefighting with at least two (pressurized) emergency stairs and independent escape routes. Its surroundings must offer safety and necessary infrastructure to meet all the users’ needs, especially when it comes to eating and proximity to public transportation. A good example of a product which comprises all these characteristics is the Vista Guanabara building. Conceived by GTIS Partners and Autonomy, two real estate investment management companies, the building was designed to offer the corporative real estate market the highest standard of quality and infrastructure. Built on a 3,887-square-meter estate, Vista Guanabara comprises 27 floors, 17 of which are offices with 1,700 to 1,800 square meters slabs, and eight garage floors, with 382 parking spaces altogether, besides the bicycle racks. With topnotch technology and focus on sustainability and efficiency of the project, Vista Guanabara holds a LEED Gold precertification, a stamp that certifies international standards of sustainable construction, glass with solar control for heat reduction of internal environment, high acoustic insulation and monitoring of air quality. The Vista Guanabara project was conceived by renowned office of architecture Kohn Pedersen Fox Associates (KPF) – responsible for remarkable skyscrapers like Ping An International Finance Centre, Shanghai World Financial Center - both in China -, One Vanderbuilt, and for the Hudson Yards mixed-use development – both in the United States, and for Brazilian company Arq&Urb Projects. Located in the most privileged point of the Olympic Boulevard, the occupants of the building are granted mobility via VLT (Light Rail Vehicle), an effective mean of transportation which connects the wharf of Rio de Janeiro to the subway, bus routes, BRTs, trains, ferryboats, and to Santos Dumont airport. The region of Porto Maravilha will pretty soon become one of the most important business hubs of Rio de Janeiro. It is right in that area that Vista Guanabara offers the market the best and most modern corporative building of Rio de Janeiro city.

onerous assignment

Magic realism: is it the time to carry Petrobras on the onerous assignment regime?

n an oil price scenario in the range of USD 50-60, perhaps the time has come for the Brazilian Government to seek alternatives that would make affordable financial support for Petrobras in exploration areas which require high “CAPEX” investments. One of the alternatives to be examined would be the amendment of Law No. 12,276, of June 30, 2010, which authorizes the federal government without a bidding procedure to “onerously assign” to Petrobras the performance of exploration and production activities in certain areas located in the Pre-salt (”Onerous Assignment Law”). According to the Onerous Assignment Law, Petrobras must in return pay the federal government in securities of federal public debt, which would be received by the former as a capital increase subscribed by the latter. That is to say, the premise was always that no cash would be involved in the Assignment and nothing would come from Petrobras’ resources, since the payment for the Assignment would be made with securities received from the controlling shareholder, the federal government. The effectiveness of the Onerous Assignment is not permanent and is limited to 5 billion/boe. The hydrocarbons volumes and their respective values will be determined according to technical reports prepared by experts in reserves certification, in accordance with the Best Practices of the Petroleum Industry. It will be up to the Petroleum Agency (the “ANP”) to secure a technical report which will assist the federal government in negotiations with Petrobras concerning the amounts and volumes involved in the Onerous Assignment. For future production in these areas, royalties will be levied at a rate of 10%. In addition, the Assignee must contract activities and services with domestic universities or technological research institutions, and for these purposes, must spend a minimum of 0.5% of the annual gross production revenue. In summary, the Onerous Assignment Agreement provides for: (I) the identification and geographical boundaries of the areas; (ii) the respective volumes, subject to the limit of 5 billion/boe; (iii) minimum amounts and progressive targets of local content in exploration and production activities throughout the life of the agreement; (iv) terms and conditions of payment; and (v) terms for the revision of the agreement. The Onerous Assignment Agreement and any amendments are to be approved by the National Energy Policy Council (CNPE).

Paulo Valois Pires, is partner at Schmidt, Valois, Miranda, Ferreira & Agel.

José Eduardo Siqueira, is associate at Schmidt, Valois, Miranda, Ferreira & Agel.

TB Petroleum 38

Photo: Petrobras Agency

onerous assignment

Background In the Message sent to the Presidency by the then Minister of Mines and Energy, Minister of Finance and others, the enactment of the Onerous Assignment Law was justified “by the interest of the federal government as controlling shareholder of Petrobras in strengthening the company with resources derived from areas of low exploratory risk and considerable potential for profitability.” The promulgation of the Onerous Assignment Law took place at the time the Brent crude oil price revolved at around USD 74.00/ barrel, with an upward bias, which was confirmed in the following months when the price exceeded USD 120.00/barrel in March 2012. At that time, the general mood was still euphoric, or at least optimistic, within the petroleum industry, and particularly within Petrobras, as can be seen from the excerpt from the above Message: “Moreover, since the federal government does not have the necessary structure for exploratory activities for such petroleum potential, assigning the exercise of these activities to Petrobras in exchange for adequate compensation also contributes to the growth and strengthening of a NOC, of which the federal government is a controlling shareholder.”

Petrobras’ Primary Public Offer of 2010 Just after the Onerous Assignment Law had come into effect, Petrobras held, in September 2010, the largest public offering of shares in history, which resulted in the capitalization of approximately R$ 120.25 billion (USD 67 billion), of which R$ 74.8 billion was meant to pay for the Onerous Assignment at a price of R$ 29.65 per common share (USD 17.29) and R$ 26.30 per preferred share (USD 15.33). With the capitalization, the federal government increased its interest in Petrobras, whose capital was then structured as follows: 34

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Ordinary Preferential Capital Stock Shares Shares Federal Government 3,991,413,128 66,019,291 4,057,432,419 BNDESPar 173,400,392 1,341,348,766 1,514,749,158 BNDES 218,845,426 2,433,460 218,845,426 Social Participation 6,000,000 161,596,958 8,433,460 Fund - FPS Sovereign Fund 344,055,327 1,477,085,956 505,652,285 FFIE American Depositary Receipt 1,521,989,590 1,477,085,956 2,999,075,456 ("ADR") Level 3 FMP - FGTS 183,772,748 – 183,772,748 Petrobras Foreign 405,837,965 785,119,479 1,190,957,444 Participation Others 597,139,566 1,768,438,878 2,365,578,444 Total

7,444,454,142 5,602,042,788

13,044,496,930

Source: www.investidorPetrobrasPetrobras.com.br/pt/governancacorporativa/capital-social

Executed Onerous Assignments Under the Onerous Assignment Agreement, the federal government assigned to Petrobras the exploration rights in the blocks of Florim, Sul de Guará, Entorno de Iara, Sul de Tupi, Nordeste de Tupi, and Peroba, in the Santos Basin, with a limit of 5 billion barrels of oil equivalent. Petrobras disbursed approximately R$ 75 billion, at a weighted average price of R$ 14.96/boe. The terms of the Onerous Assignment Agreement were approved by CNPE Resolution No. 2, dated of September 1st, 2010. The agreement between Petrobras and the federal government was signed on September 3rd, 2010. Four years later, CNPE Resolution No. 1, dated of July 24, 2014, approved the direct contracting of Petrobras, in a sharing regime, for production that exceeds the limit established by the Onerous Assignment Law, in the fields of Búzios, Entorno de Iara, Florim and Nordeste de Tupi, according to the following

Magic realism: is it the time to carry Petrobras on the onerous assignment regime?

parameters, amongst others: (i) US$ 105.00/barrel; (ii) average production of 11,000 barrels/day per active well; (iii) monthly appropriation of the “cost oil”, respecting the threshold of 50% of the gross amount of production in the first two years and 30% in the following years; and (iv) signature bonus of R$ 2 billion. It is worth noting that the areas delimited in this new sharing agreement are non-transferable.

Issues concerning asset evaluation The issues surrounding the asset evaluation for the purpose of reviewing the Onerous Assignment Agreement began in 2014, when the ANP and Petrobras contracted Gaffney, Cline and Associates and DeGolyer and MacNaughton, respectively, to prepare the technical reports, in accordance with the Best Practices of the Oil Industry. The revision procedure is set forth in Clause Eight and will begin “immediately after the Declaration of Commerciality of each Field” and “may result in the renegotiation of the following items: (I) the contract value; (ii) maximum volumes; (iii) term; and (iv) minimum local content percentages”. Annex V of the Agreement also establishes the guidelines that should be observed for the review of assets using the discounted cash flow methodology to calculate the net present value (NPV) of the boe, according to the technical and economic assumptions established therein, and among these are the discount rate (8.83% per year) and the hydrocarbons reference price. Note that if the revised contract value exceeds the initial amount established in the agreement (approximately R$ 75 billion), Petrobras will either (I) pay the difference in cash or in securities of federal public debt, or (ii) compensate the surplus amount by reducing the maximum volume to be produced in each field. On the other hand, if the revised contract value is less than the amount of R$ 75 billion, Petrobras will be a creditor of the federal government. This may happen due to the drop in oil prices in the international market. Such revision procedure was analyzed by the Decision No. 353/2016 from the Federal Audit Courts (Tribunal de Contas da União), which summarized the main differences between Petrobras’s and ANP’s positions regarding the geological and petrophysical models

to estimate and evaluate the volumes in place and to simulate the field recovery curve, among other issues. Prohibition of the farm-out of the areas subject to the Onerous Assignment The Onerous Assignment Law states that the assignment of rights is non-transferable. Thus, Petrobras is unable to assign, even partially, the areas of Florim, Sul do Guará, Entorno de Iara, Sul de Tupi, Nordeste de Tupi, and Peroba in the Santos Basin. Clause 30 of the Assignment Agreement also provides for its non-transferability to third parties. Likewise, the definitions of the Agreement set forth that the operator of the blocks will be Petrobras. In the same way, the sole paragraph of Article 31 of Law No. 12,351, of December 22, 2010, which introduced the production sharing regime, authorizes Petrobras to transfer its participation only in production sharing contracts that the company has entered by means of a bidding regime. This restriction is also reproduced in Article 4 of CNPE Resolution No. 1/2014. Currently, therefore, it is not possible to transfer to third parties the contracts that resulted from the direct contracting of Petrobras with the federal government. In other words: there are many restrictions, perhaps due to a prevailing view at the time that Petrobras would be permanently assured of the exclusive right to carry out exploration and production activities in areas considered as strategic under the Onerous Assignment, since the company would have sufficient cash to pay for these operations over time. In practice, such restrictions prevent Petrobras from entering into even partial farm-outs of the areas received under the Onerous Assignment and of the surplus in the production sharing regime under CNPE Resolution No. 1/2014. In a time in which capital costs are more expensive, even though Petrobras was successful at the beginning of the year with raising funds through the issuance of securities in the international market, there is no doubt that this prohibition restricts the company’s ability to seek partners that may provide it with “carries” for the development of these areas. A concrete aspect of the application of the “Magic Realism” of Gabriel Garcia Marques, notably by the crystallization in legal rules of current situations as if they were going to be permanent.

@portalnaval TB Petroleum 38

coffee break

Museum of Tomorrow

(Museu do Amanhã) wins Mipim award Photos: Laércio Lourenço

by Orlando Santos

Solar energy and the use of water from Guanabara Bay in refrigeration contributed to the museum winning the international award granted to sustainable construction.

Address: 1 Mauá Square Downtown. Rio de Janeiro, RJ Opening Hours: Tuesday to Sunday, from 10 a.m. to 6 p.m. (with the last entry at 5 p.m.) Tickets: on-site and online

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THE MUSEUM OF TOMORROW is the first Brazilian institution of its kind to win the MIPIM international prize in the category "Most Innovative Green Building". A landmark for the revitalization of the Rio de Janeiro Port Region, the museum shows some differentials, such as the solar energy capturing technology and the use of cold water from the bottom of Guanabara Bay in the air-conditioning system. It outperformed competitors such as the Siemens headquarters building in Munich, a residential building at 119 Ebury Street, London, and the Värtan Bioenergy plant in Stockholm. "We are very happy for this recognition. The award crowns a constant effort by the Museum of Tomorrow to combine innovation and sustainability. Besides encouraging the daily discussion on topics such as the use of solar energy and the recovery of the Guanabara Bay, the intention from the beginning was to incorporate these themes into the building itself. This award shows that we are on the right track", celebrates Ricardo Piquet, President-Director of the Museum of Tomorrow. With more than ten international recognitions, the Museum of Tomorrow has gained global notoriety. In 2016, the British Leading Culture Destinations Awards, the "Oscar of Museums", chose the institution from Rio de Janeiro as the "Best New Museum of the Year". It also rose to the podium with one gold and two bronze medals at the International Design & Communication Awards (IDCA), in Canada.

Created in 1991, the MIPIM Award is an international competition that selects the most notable completed or under-construction projects worldwide. The awards ceremony is held during the fair by the same name, the largest event of the real estate market in the world. The ceremony was held at the Palais des Festivals in Cannes, where the Film Festival also takes place. Prominence in the digital world – A space managed by the Institute of Development and Management (IDG), the museum consolidated its position as one of the main tourist and cultural attractions of the country in its first year of operation. The space is an initiative of the City Hall of Rio de Janeiro, conceived and carried out jointly with the Roberto Marinho Foundation, with Banco Santander as a main sponsor. The sponsoring network of the Museum of Tomorrow also includes Shell, IBM, IRB-Brasil RE, Engie, Globo Group, CCR, Deloitte, Intel, Cisco, Engie Foundation, and JCDecaux. In addition, the State Government, through the Environment Department, and the Federal Government, through the Studies and Projects Funding Agency (Finep), support the institution. The site was the most photographed in Brazil in 2016, according to Instagram, and also ranked first among the most visited institutions in the country, with a mark of 1.5 million visitors. In its first year of operation, the Museum of Tomorrow established partnerships and scientific cooperation agreements with renowned institutions such as Google, the Science Museum Group, the British Council, UNHCRONU, Dom Cabral Foundation and Engie Foundation, among others.

Golden Sustainability IN 2016, THE SUSTAINABLE guidelines of the Museum of Tomorrow were also recognized with the Golden Seal of the LEED certification, awarded by the Green Building Council – the leading American institution for the green building seal. It was the first museum in the country to obtain this recognition at the second highest level of classification (there are four levels: certificate, silver, gold and platinum). Water savings: 9.6 million liters per year – The Museum of Tomorrow has sustainable architecture in line with its content. By the Spanish architect Santiago Calatrava, the project is geared towards the best use of natural resources in the region. The technology employed in capturing solar energy and the use of the cold water from the bottom of Guanabara Bay in the air-conditioning system are among

its differentials. It is estimated that 9.6 million liters of water and 2,400 megawatts/hour (MWh) of electricity are saved a year, which would be enough to supply more than 1,200 homes. The water of the Guanabara Bay is used by the museum for two purposes: to supply the water mirrors and the cooling system, where it is used in heat exchange. After filtering for solid waste removal and use in the air conditioning of the Museum, the water is returned to the sea. Rational use of water also occurs in the treatment and reuse of water from sinks, lavatories, showers and rainfall, as well as the volume resulting from air dehumidification (the "dripping" from the air conditioner) – which by itself can reach up to 4,000 liters of water a day. Part of the energy used in the building is generated by the capture of solar energy: the large steel structures installed in its mobile cover serve as the basis for photovoltaic panels and, throughout the day, they move like wings to follow the positioning of the sun. The project also prioritizes the entrance of natural light. The landscaping project, signed by the Burle Marx firm, shows native species that require little watering, emphasizing the typical vegetation of the coastal region of the city – more than 5,500 square meters of gardens. Waste management during construction – Measures aimed at environmental sustainability were adopted since the beginning of the construction of the museum, with the reduction and correct allocation of waste for recycling – remnants of foundation piles, for example, were used in the construction of the sheds of the building site. Tons of steel were spared with this action. The selection of materials also followed environmental criteria, giving preference to materials with recycled components, low toxicity, high durability and produced near the building site, in addition to the use of FSC certified wood. TB Petroleum 38

meeting

2017 May

16 - 17 – United Kingdom IDTC: 17th International Downstream Technology & Strategy Conference Local: Dubrovnik Phone: +359 884 884 535 e-mail: marina_marchovska@europetro.com europetro.com/event/49/0

22 - 27 – Brazil Argus Rio Crude Conference 2017 Local: Rio de Janeiro Phone: 713.360.7566 e-mail: bel.cevallos@argusmedia.comm goo.gl/VMmHO6

24-25 – Thailand Asian Utility Week 2017 Local: Bangkok Phone: +65.6590.3970 e-mail: infoasia@clarionevents.com www.asian-utility-week.com

20-21 – Singapore Floating LNG 2017 Local: Singapore Phone: 6567229393 e-mail: rani.kuppusamy@iqpc.com.sg flngworldcongress.iqpc.sg/

27 – United Kingdom Oil and Gas Industry in a New Epoch Local: London Phone: 02072993300 e-mail: formslondon@spe.org goo.gl/iW2Y84

June

15-16 – USA Downstream Engineering and Construction 2017 Local: New Orleans Phone: 02073757227 e-mail: josh@petchem-update.com www.petchem-update.com/

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Sonia Agel isLawyer specialized in Oil & Gas – Partner with Schmidt, Valois, Miranda, Ferreira & Agel - Advogados

opinion

Light at the bottom of the well: Unitization The perspective for holding the second auction of Pre Salt areas, among other recent announcements by the Brazilian government, provides some light at the end of the tunnel for investors in the Oil & Gas Sector.

mong the new features increasing the attractiveness of the sector are the recent changes in the law establishing that Petrobras is no longer required to have a minimum 30% interest and be the operator in consortiums for exploration and production of Pre Salt areas, and the fact that some of the blocks that will be offered have hydrocarbon reserves extending into other blocks already auctioned. These changes are part of a program adopted by the new government aiming to stimulate the depressed petroleum industry by reducing the negative impacts of the unnecessary alteration in the Petroleum Law. Such negative alteration created a different legal framework to that successfully implemented in 1998, causing investments in the sector to plunge, accentuated by the drop in the oil price, the substantial weakening of the Real against the Dollar and the crisis within Petrobras, among other reasons of a political nature which caused a severe economic crisis in Brazil. According to the calculations disclosed in the press by specialists in the Oil & Gas Sector, the realization of the auction for contiguous reserves to the Pre Salt blocks has the potential to attract investments in the order of US$ 100 billion. This means that the winners of the auction for these contiguous reserves will have to submit to unitization, by executing production individualization agreements with the concessionaires of the existing blocks with interconnected reserves, in order to define a fair division of the unitized reservoir. The turtle-like movement in the Brazilian Oil & Gas Sector in recent years has been concentrated in many discoveries of reservoirs subject to unitization. However, even with the recent changes, many regulatory hurdles need to be overcome for

the processes related to unitization to be concluded with agility and optimally, so as not to cause harm to existing concessionaires and negatively impact the development of production. As known, the unitization procedure was initially regulated by the Petroleum Law, which established the simple and succinct rule that “in the case of fields that extend into neighboring blocks where distinct concessionaires operate, they must enter into agreements for individualization of production.” However, the discovery of huge oil and gas deposits located under the offshore salt layers prompted a substantial alteration of the legal framework of the sector in 2010, with the creation of different regimes for exploration and production of hydrocarbons, making the unitization process highly complex on a legal, economic and operational perspective. In fact, four distinct situations arose regarding unitization, with different procedures and players: (i) unitization between two areas already auctioned under the concession regime; (ii) unitization between an existing concession area and an area not yet conceded; (iii) unitization between an existing concession area and an area subject to the production sharing regime (this regime applies to the Pre Salt reserves); and (iv) unitization between an existing concession area and areas subject to the paid assignment regime (the so called “Cessão Onerosa”). Law 12,351/10, which established the production sharing regime, traced out the guidelines for the different types of unitization and instituted different actors with responsibility for conducting and obtaining regulatory approval of unitization. In this respect, the law delegated power to the state-owned company Pré-Sal Petróleo S.A. – PPSA to execute production individualization agreements on behalf of the Brazilian government, covering TB Petroleum 38

opinion

shared deposits in Pre Salt areas or other areas considered strategic whose extension overlaps an area not yet contracted – notwithstanding the fact that the ANP also has to approve the referred agreements. On the other hand, in the case of shared deposits subject to individualization agreements not located in Pre Salt areas or areas deemed to be strategic, the power to execute the contracts rests with the ANP itself, as the representative of the federal government. In this scenario, it is not hard to conclude that the requirement of different bodies and authorities’ manifestations and authorizations makes the unitization process very slow, and thus inefficient, since slowness is fundamentally incompatible with achievement of the main objective, which is to optimize production. Furthermore, it is worth to mention the complexity of negotiations involving the different unitization processes, mainly considering obligations to pay royalties and special participation, plus the need to satisfy local content rules with different percentages depending on each contract involved. An example of this is the mechanism for distribution of government revenues established by Article 42-B of Law 12,351/10, which ties the percentages for distribution of royalties owed on the oil and gas output to the place of production. Despite the complications, the production individualization arrangement is certainly the most accurate way to divide deposits, not only to avoid individualistic and anti-competitive production

and unnecessary drilling, but also to optimize the recovery rates and to protect the related rights. However, to attain these advantages and to enable speedy processing with less red tape, clear and objective regulations are necessary, so that the framework will be in harmony with the dynamics of the Oil & Gas Sector. Therefore, the government’s initiative to create incentives for resumption of the bidding rounds, both in the Pre Salt areas and others, with emphasis on areas with reservoirs connected to blocks in existing concessions is laudable, since this is a requirement to hasten a renewed growth of the Oil & Gas Sector in Brazil. It is undeniable that the opening of the sector in 1997 was successful, by attracting investments, expanding the country’s industrial park, generating jobs and making Brazil a candidate to join the leading oil and gas producers in the world. Lamentably, the subsequent alteration of the legal framework was responsible for a long period of uncertainties and insecurity for investors, resulting in a process of retreat for at least a decade. In short, the time has come for resuming national growth, considering Brazil’s natural endowment in Oil & Gas. To achieve this, it is essential to have a regulatory climate in line with the best practices in the industry, by implementing clear, objective, less bureaucratic and faster processes. This is the only way to reach the light at the bottom of the well.

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