Updates on Brazilian Oil & Gas Industry Pablo Sorj - - PowerPoint PPT Presentation

Updates on Brazilian Oil & Gas Industry

Pablo Sorj

psorj@mattosfilho.com.br

June 2017

What is happening in Brazil?

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What is happening in Brazil?

• President Dilma impeached – August 31, 2016
• Economy improves:
• Inflation under control
• Privatization program in the right track
• Approval of cap for public expenses
• Over 100,000 jobs created in 2017
• President Temer faces corruption charges
• House of Cards official twitter account remarks on the controversy:
• “It is getting difficult to compete with Brazil.”

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

Entering Brazilian Oil & Gas Business

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Next Bid Rounds (2017)

• 3 Bid Rounds scheduled for this year:
• 14th Bid Round - Concession Regime - September 27, 2017 - 287 blocks in 5 offshore

and 6 onshore basins. – tender documents released on May 18, 201.

• 2nd Bid Round - Production Sharing Regime - October 27 2017 - 4 non contracted

areas that may be subject to unitization - Santos and Campos basins.

• 3rd Bid Round - Production Sharing Regime - October 27 2017 - 4 areas - Santos and

Campos basins.

• Other opportunities in the next years: 6 Bid Rounds forecasted for 2018 and 2019.

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

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Next Bid Rounds: What will change?

• Qualification process will take place after the blocks are awarded, and not prior to the

Bid Round, as happened in the past.

• Local content policy for E&P projects was revised and requirements were reduced:
• The average reduction on the local content percentages is of roughly 50% .
• The overall penalties over Local Content non-compliances were also significantly

reduced.

• In the current context, these changes aim to increase attractiveness of future Bid Rounds.

All changes are applicable for 2017 Bid Rounds.

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

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Next Bid Rounds: What will change?

• Petrobras’ participation and operatorship in Production Sharing Agreements are no

longer mandatory. Now, Petrobras is entitled to decide if it will participate or not:

• 2nd Bidding Round – Petrobras exercised its preemptive rights for unitization areas adjacent

to Sapinhoá field.

• 3rd Bidding Round – Petrobras exercised its preemptive rights for Peroba and Cabo Frio

Central areas.

• For every area, Petrobras shall hold a participating interest of at least 30% .
• These percentages could be increased by partnership and bidding conditions with other

interested companies.

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

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Overview of Latin America’s scenario

• Last Bids of hydrocarbon fields in Latin American:
• Bolivia – last Bid Rounds in 2012 - 5 blocks were awarded;
• Colombia - promoted two Bid Rounds: Open Round 2014 - 26 blocks awarded - and

Ronda Campos 2016 - 6 blocks were awarded;

• Ecuador – held its 11th Bid Round in 2013 - 13 blocks were awarded;
• Peru - cancelled Bid Round 2013 - only one company expressed interest; and
• Uruguay - held 2 Bid Rounds in 2009 and 2012 - 10 blocks were awarded;
• Mexico - Ronda 1 included 5 bid rounds – in total, offered 55 blocks.
• Comparing with Brazil:
• Brazil in 2017 only: total of 295 blocks; and
• All other Latin American countries in the last 5 years: total of 115 blocks.
• Therefore: Brazil is by far the Latin American country with the largest number of
• pportunities.

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

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Increase and Decrease of M&A Activities since 2010

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

Year

• No. of Farm-ins

Foreign National Petrobras

2010 20 5 15 7 2011 43 28 15 2 2012 38 18 20 8 2013 8 2 6 2 2014 17 7 10 1 2015 3 3 3 2016 13 9 4 4

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Petrobras Divestment Plan: What you should know?

• Petrobras will make a substantial divestment – target of USD 21 billion until 2017/ 2018.
• Divestment will include upstream, midstream and downstream assets – opportunity for

foreign companies to enter into various sectors of the Brazilian oil and gas industry.

• Examples of some of the divestments so far:

– Petrobras sold 66% participating interest in Carcará to Statoil for USD 2.5 billion; – Petrobras sold the LNG distributor Liquigás to Ultra Group for BRL 2.8 billion; – Petrobras sold participating interest in the I ara and Lapa offshore fields and in

Termobahia thermal power plant to Total E&P for USD 2.2 billion; and

– Petrobras sold 90% of the gas pipelines of the gas transporation company NTS to a consortium led by Brookfield for USD 5.19 billion.

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

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Some relevant M&A Transactions of the last years

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

Total acquired 22,5% participating interest in I ara Field, 35% participating interest in

Lapa Field and 50% participation in Termobahia from Petrobras for USD 2.5 billion (2016/2017)

Shell and ONGC acquired 35% participating interest in Parque das Conchas from Petrobras for USD 1.64 billion (2013) Sinochem acquired 40% participating interest in Peregrino Field from Statoil for

USD 3.07 billion (2011)

Sinopec acquired 40% of Repsol Brasil for

USD 7.1 billion (2010)

Sinopec acquired 30% of Petrogal Brasil, a subsidiary of Galp, for USD 3.54 billion (2011) Statoil acquired 66% participating interest in Carcará from Petrobras for USD 2.5

billion (2016)

New Trends

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New Trends

• Dialogue with the industry:
• CNPE - Working Groups and initiatives
• Participation of market’s private agents
• Reference price
• Gas Market opportunities:
• End of Petrobras’ de facto monopoly
• “Gás Para Crescer” (“gas to grow”)
• BNDES - privatization of natural gas distributing companies
• Regasification market

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

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New Trends

• Litigation:
• Largest litigation in the history of the industry
• Reversal of few unfavorable decisions in higher courts
• No litigation regarding change in terms and conditions or direct expropriation
• Financing:
• Companies still under stress
• Petrobras has demonstrated better financial performance, deleveraging and access to capital

markets

• Petrobras more open to discussions re bankability of its contracts
• Brazil on negative watch (S&P and Moody´ s) – impact on Petrobras ratings
• Opportunities for acquisition finance

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

Takeaways

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Takeaways

• Political instability due to Temer’s corruption charges may affect the Oil & Gas business.
• Many opportunities in sight:
• In 2017 only, 295 blocks will be offered (dates are set); and
• Petrobras’ divestment program intends to sell USD 21 billion in assets during 2017/ 18.
• Bid Rounds planned until 2019: there is no more uncertainty on the occurrence of the

Rounds.

• There is a lot of litigation, so far no final decisions had unfavorable outcomes.
• Brazilian government is becoming more business oriented, with more dialogue with

private players and recent attractive regulatory changes have been approved.

Updates on Brazilian Oil & Gas Industry – Pablo Sorj

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