The Brazilian Oil & Gas Industry

Transcription

1 The Brazilian Oil & Gas Industry A period of great transformation

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3 The Brazilian Oil & Gas Industry Context The Brazilian Oil & Gas industry is undergoing a period of great transformation. The country, which already had a robust infrastructure for Oil & Gas exploration and production activities and led global production of hydrocarbons in deep and ultra-deep waters, expanded significantly its growth opportunities as from 2007, with important discoveries of light oil in the so called Pre-salt layer. According to the Organization of Petroleum Exporteing Countries (OPEC), Brazil s proven reserves amount to approximately 14 billion barrels of oil equivalent (bboe). Also, in accordance with preliminary estimates made by Coppe/UFRJ (Federal University of Rio de Janeiro), the country has the potential to expand its reserves by an additional 55 bboe, upon exploration of the Pre-salt reserves. Thus, it could be the nation with the highest reserve increase by 2020, jumping from 14 th to 8 th plece in the ranking of the world s oil reserves. The Brazilian Oil & Gas Industry 1

4 World Oil Reserves World Gas Reserves 2.5% 8.4% 7,8% 31.2% 13.2% 48.4% 43% 8.2% Middle East Central and South America North America 19.7% 7.7% 5.8% Europe Asia 4,1% Africa Argentina 0.1% Brazil 0.9% Colombia 0.1% Ecuador 0.5% Peru 0.1% Trinidad and Tobago - Venezuela 17.8% Other - According to BP Statistical Energy Review 2013 Argentina 0.2% Brazil 0.2% Colombia 0.2% Ecuador 0.1% Peru 0.2% Trinidad and Tobago 0.2% Venezuela 3.0% Other - World Oil Production World Oil Consumption 32.5% 20.3% 33.6% 24.6% Middle East 9.2% 9.6% 10.9% 17.5% 4% 7.3% 9.1% 21.3% Central and South America North America Europe Asia Africa Argentina 0.8% Brazil 2.7% Colombia 1.2% Ecuador 0.7% Peru 0.1% Trinidad and Tobago 0.1% Venezuela 3.4% Other 0.2% Argentina 0.7% Brazil 3.0% Chile 0.4% Colombia 0.3% Ecuador 0.3% Peru 0.2% Trinidad and Tobago Venezuela 0.9% Other 1.4% According to BP Statistical Energy Review PwC

5 World Gas Production World Gas Consumption 30.7% 26.8% 32.6% 27.5% Middle East Central and South America 16.3% 3.7% North America 5.3% 6.4% 14.5% 5% 12.4% 18.8% Europe Asia Africa Argentina 1.1% Brazil 0.5% Bolivia 0.6% Colombia 0.4% Peru 0.4% Trinidad and Tobago 1.3% Venezuela 1.0% Other 0.1% Argentina 1.4% Brazil 0.9% Chile 0.2% Colombia 0.3% Peru 0.2% Trinidad and Tobago 0.7% Venezuela 1.1% Other 0.2% According to BP Statistical Energy Review 2013 According to the BP Statistical Review 2013, Brazil produces 2.1 million barrels a day (2.7% of the world production), almost the same quantity as it consumes, 2.8 million barrels a day (3.0% of the world consuption). However, the oil currently produced in the country is heavy and requires stronger refining power. Considering that Brazilian refineries are not able to refine all the internally consumed oil, Brazil needs to export crude oil and to import oil products, mainly gasoline. Petrobras alone will invest approximately US$ 147 billion in E&P over the next 5 years, according to its Business Plan. In terms of gas, the Brazilian consumption (29.2 trillion cubic meters) is higher than the production (17.4 trillion cubic meters), both according to the BP Statistical Review 2013.This deficit is overcome by imports of gas from Bolivia. Currently, gas distribution is concentrated in a few cities in large urban centers and also thermoelectric plants. As the Brazilian energy matrix is based on hydropower, the use of thermal plants is intermittent. Approximately US$ 10 billion of investments were announced by Petrobras for the period , mainly in the expansion of natural gas logistics and chemical transformation. As a result of the Pre-salt discoveries, the debate and efforts for the development of the industry intensified. The need for technological advances, strengthening the domestic industry with the development of the supply chain and training of human resources became essential matters for the country s growth. The already existing local content policies were ratified for the exploration and development of the Pre-salt layer, averaging 65% for equipment and services from domestic suppliers. The Brazilian Oil & Gas Industry 3

6 Technological development In order to improve the competitiveness of the Brazilian supply chain and support the requirements for local content, the Federal Government, together with the State Government of Rio de Janeiro, announced incentive measures for companies that place their research and development centers in the Technological Park of Ilha do Fundão - Rio de Janeiro. Located in an university region and near the Petrobras Research Center ( CENPES ), the Technological Park has already received more than US$ 260 million in investment and houses the development centers of companies such as Schlumberger, FMC Technologies, Baker Hughes, Halliburton, Tenaris Confab, Usiminas, GE, EMC2, Chemtech and BG Group. The Technological Park will allow Brazil to become an exporter of technology in addition to being an exporter of oil and oil products. Local content requirements Materials Equipment Systems and subsystems Services Growth of national industry Techonology development Training of local human resource Generation of jobs and income Local content requirements As with other countries with large natural reserves, Brasil implemented a Local Content Policy in order to foster the development of a strong and sustainable local supply chain. Local content is measured based on the percentage of goods and services made in Brazil in relation to the total acquired during the performance of the exploration and production development activities. The objective of the local content requirement is to raise the participation of the domestic goods and services industry in the oil and natural gas supply chain on a competitive basis. The Local Content policy began in the first bid round in 1999, with the establishment of minimum and maximum percentages in investment in the country. Despite the concerns over the increase in costs and potential delays in the development of solutions and equipment in Brazil, the policy is having an impact in certain sectors. An example of this is the water-oil submarine separator (SSAO) with production capacity of 18 thousand barrels a day. Produced to operate together with the Petrobras P-37 platform, it has 75% local content. The Brazilian Local Content Policy is supported by the Program for the Mobilization of the National Industry of Oil and Natural Gas ( PROMINP ), led by Petrobras and the National Development Bank (BNDES), with the participation of industry associations. The Federal Government estimates that US$ 400 billion will be invested in equipment and services, expansion and maintenance of the production until Together with the renewal of the supply chain is the widening of the contribution of the Oil & Gas industry to the Brazilian GDP, which currently is around 12% and is expected to be 20% in 2020, according to industry experts. Source: ANP 4 PwC

7 Shipping Platform Drilling rigs Oil tankers 48 Today 57 Today 55 Today How many more are needed 68 Challenge: Only 3 out of 13 categories of equipment and services necessary to build a platform have enough hiring availability in the country How many more are needed 65 Challenge: Perform the drilling of wells in the seabed. In the pre-salt, the drilling column achieves 7000m length How many more are needed 65 Challenge: Brazilian shipyards will have dikes with capacity to simultaneously build 5 hulls. The annual demand for vessels will require the simultaneous construction of 9 hulls, achieving 18 in the peak year US$ 400 billion will be invested and consumed in equipment and services of expansion and maintence of the production in the following years Manpower In addition to the challenges of the Local Content Policy, the current record low unemployment rate in the country poses a further challenge to industry. The Oil & Gas sector currently employs 450 thousand professionals, and this number should increase to 2 million in The National Program of Professional Qualification ( PNQP ) offers courses of basic, medium, technical and superior levels, in more than 175 professional categories linked to industry activities. However PROMINP has identified significant lack of professionals in areas of distinct complexity, from basic engineers for the construction of equipment and its operation to inspection professionals, including welders, mechanical, coppersmiths and painters. Also, in accordance with the National Council of Immigration, there is a deficit of almost 1000 officers for the merchant marine. This characteristic of the Brazilian scenario is a sensitive issue in the strategy of companies that need to fight for talent and/or widen the participation of expatriates in their operations, with their inherent higher costs. Regulatory framework In relation to the regulatory framework in force in the country, the exploration of hydrocarbons is made under the concession model, based on the Oil Law of However, the exploration and development of the Pre-salt will be made under a Production Sharing Agreement ( PSA ) system, where costs are first recovered and then the Oil & Gas is divided among the operators and the Federal Government. Also, in accordance with the legislation, Petrobras will always be the operator for areas in the Pre-salt. The Brazilian Oil & Gas Industry 5

8 Characteristics of the tax systems Concession The State or other competent authority grants exclusive E&P rights for an area contracted with an oil company. The oil company owns all production and assumes al the risk involved with the granted area. The State may establish minimum domestic supply requirements. The State invests no capital in the project. Cash flow to the State comes from payment of taxes and royalties. Brazil, USA, United Arab Emirates and Canada Production Sharing Under a production sharing system, the State and a contracted company share the oil and natural gas extracted from a specific area. The costs of exploration, development and production cost in oil and royalties are deducted from the total oil produced. Costs are recovered from the Cost Oil, which in general leaves a fixed portion of production, called Profit Oil. Profit Oil is divided between the State and the operation either in a fixed proportion or a variable proportion based on the volume and price of crude oil. China, Russia, Angola, Colombia, Indonesia, Oman, Kazakhstan, Nigeria and India Services The oil company pays all exploration and development costs. The oil company is compensated for these expenses through a discount on the purchase of crude oil, cash payment or a percentage of production. The State appropriates all the production, although the operating company must be remunerated for the services rendered. Venezuela, Iran, Kuwait and Algeria ANP - The National Regulatory Agency of Petroleum, Natural Gas and Biofuels ANP Regulates Oversees Hires Establishes rules through ordinances, normative instructions and resolutions. Industry activities are regulated directly or through agreements with other government organs. Promotes bidding processes and enters into contracts on behalf of the Federal Government with concessionaires. The ANP is the regulatory body for activities that integrate the oil, natural gas and biofuels industry in Brazil. It reports to the Ministry of Mines and Energy. As a federal autarchy responsible for implementing the national policy for these sectors, ANP focuses on guaranteeing the fuel supply and protecting consumers interests. 6 PwC

9 Local funding options To support the local industry development, the Brazilian Government, through the BNDES - National Bank for Social and Economic Development, and Petrobras offers several funding sources: Brasil Maior Plan Launched in August 2011 by the Brazilian Government, with approximately US$ 70 billion in credit for investment, this plan addresses the industrial, technological and foreign trade policies in order to sustain economic growth in the current adverse context, focused on innovation and intensification of the Brazilian industrial sector. The Brazilian Oil & Gas Industry 7

10 BNDES Funding options BNDES O&G Structuring A credit line originated in the Brasil Maior Plan in order to create and expand the productive capacity of suppliers of goods and services related to Oil and Natural Gas, to support the merger and acquisition of companies, optimization and upgrading of industrial units as well as the search technology abroad; to support improvement of tools that empower businesses, expanding their market share; and to support the technological nature of the investments necessary to absorb the results of research and development or innovation. BNDES PSI - Investment Support Program A credit line created during the Brasil Maior Plan to stimulate the production, acquisition and export of capital goods and technological innovation. BNDES FINEM A credit line to support projects of development and production of oil fields, as well as marginal and mature fields, and installation, expansion and modernization of refineries. BNDES Proengenharia Supports engineering projects in the sectors of Capital Goods, Defense, Automotive, Aviation, Aerospace, Nuclear, Oil & Gas, Chemical and Petrochemical and their supply chains, to stimulate the improvement of competencies and the technical knowledge in the country. FINAME Program Financing of parts and components, including electronic, locally manufactured, provided by manufacturers registered with the BNDES, for incorporation in machinery and equipment in the production stage. Progressive Nationalization Plan (PNP) Plan which provides funding to manufacturers of products with reduced local content. There is a requirement to gradually increase the local content in order to reach these percentages within a specified period. Products can be submitted to the PNP if they present minimum local content percentage of 40%, with the commitment to reach the necessary 60% within 3 years. Progredir Launched in June 2011, the Progredir Financing Program allows companies within the Petrobras supply chain and its subsidiaries to obtain loans from accredited banks, using the supply contracts signed with Petrobras as guarantees. Requests for funding are submitted through the Progredir Gateway to all of the participating banks, implying an increase in competition between banks. This factor, coupled with the transparency of information and security, has the effect of reducing the financial costs to the supplier. The cost reductions in the borrowings range from 20% to 50%. 8 PwC

11 Investments Petrobras Business Plan Petrobras has recently announced the Business & Management Plan ( BMP), with expected investments of US$ 237 billion, maintaining the same level of investments as the BMP. The BMP is based on the following assumptions: Maintaining the same production targets for oil & natural gas production; No additional projects, except those related to oil & natural gas exploration and production in Brazil; Incorporating the results of the structural support programs; and Expanding the scope of the divestment program (PRODESIN). The Brazilian oil exploratory campaign is among the world s most expensive projects in course, close to the Chinese high speed train project (with investments of US$ 300 billion to build a 25,000 km net speed rail network) and the construction of physical and sport infrastructure for the Qatar 2020 FIFA Soccer World Cup (with US$ 250 billion of investments). Segments Investments (US$ billions) % Exploration & Production (E & P) % Refi ning 65 27% Gas 10 4% International 5 2% Biofuels 3 1% Distribution 3 1% ETM (Engineering, Technology and Materials) 2 1% Other Areas 1 0,4% Total % The Brazilian Oil & Gas Industry 9

12 How PwC can help Regulatory aspects and tax issues Regulatory changes and emerging market trends have shifted the focus of most tax and tax accounting functions toward compliance-based activities, such as improving financial statement reporting and mitigating internal control deficiencies. Running an energy company today means much more than managing employees, operations and finances. Today s energy executives must address issues related to technology, foreign policy, sustainability and regulatory change, in addition to more traditional focuses. PwC tax professionals can assist companies in determining what taxes are imposed in Brazil, which activities of your company are subject to the tax requirements, and how to structure the company s activities so as to avoid unnecessary payment of taxes or assist in complying with all filling requirements. Due to the significant differences in taxes and related rules, which may be subject to different interpretations, it may be possible to minimize the overall tax burden through proper planning. The regulatory environment, combined with a lack of proper tax accounting regulation applicable to the Oil & Gas industry in Brazil, adds to the complex condition that companies operating in the industry face. In addition, such companies are strongly supported by special tax programs/incentives which may reduce significantly their tax burden. Therefore, in order to ensure long-term success from a tax standpoint, your company must not only strategically plan the tax initiatives but also must be in compliance with the Brazilian tax laws, regulations and filing requirements. 10 PwC

13 Our solutions Tax function review Tax strategy developments Risk assessment mitigation Process improvement and control reviews and recommendations Enterprise risk management activities Tax accounting and Tax accounting consulting and support compliance services Tax provision services Tax return review Deferred tax analysis and other specialized tax accounting services IFRS conversion and consulting services Tax fi ling services and compliance Indirect tax compliance Tax advice and compliance for special tax programs available to Oil & Gas companies International International tax advice and tax planning strategies tax services Tax support for leasing and charter transactions Thin capitalization compliance Due diligence Tax advice on Contract Drafts Transfer pricing studies Import duties and customs support Tax consulting for secondment of foreign personnel to work temporarily in Brazil Tax advisory on labor and social security issues Individual tax advice and compliance Corporate tax services Tax assistance for setting up a legal entity in Brazil (i.e., formation procedures and schedules) The Brazilian Oil & Gas Industry 11

14 Skilled workforce People & Change Organization Organization design provides a rich description of how an organization actually works in practice, to support delivery of strategic objectives. We work with our clients to determine the optimal design for their business, taking into account the other fundamental building blocks of any organization - processes, systems and culture. Our solutions Organization Diagnostic & Design Governance and Management Modeling Organization due diligence & Merger integration assistance Business synergy analysis Right sizing Talent Management Talent management focuses on the client s strategies to attract, retain and develop the right people and get the best results from them. Our solutions Workforce planning Talent Management Lifecycle Performance Management Employee Engagement Learning & Development Strategies Knowledge Management Compensation strategy, design and risk assessment HR Due diligence & Integration HR Transform HR Transform helps companies to have the best HR function operation to support their talent management strategy. Our solutions HR organizational and processes design Alternative service delivery and sourcing solutions analysis strategy, design and implementation HR technology strategy, selection, optimization, implementation and upgrade HRO transition advisory HR professionals capability & training 12 PwC

15 Change The purpose of the communications and change management strategy is to develop the foundation for change and an infrastructure for sustainability, develop organizational leadership at multiple levels, guide the implementation of communication and change management solutions, providing a roadmap for major transformation within an organization. Our solutions Change Readiness and Impact Assessment Leadership Alignment Change Strategy & Planning Stakeholder Engagement Communication Strategy & Planning Training Strategy & Planning Implementation support The Brazilian Oil & Gas Industry 13

16 Megaprojects have a significant impact on business and inherent risks which can be mitigated from the start, through implementation of control over processes, monitoring of action plans and governance of decision-making Mergers and acquisitions/deals Pre-salt creates huge opportunities, but it also creates massive challenges for suppliers in the Brazilian Oil & Gas industry. So how are companies maximizing value in Brazil? PwC offers a range of services required in this changing environment and offers the value of broad global and Brazilian networks. Our solutions Corporate Finance Pre-deal and Deal execution Market review/screening Business/asset valuation Lead fi nancial advisory and negotiation support Project fi nance and Public Private Partnerships (PPPs) Post-deal Purchase Price Allocation (PPA) Post-deal Integration Transaction Services Vendor assistance Buy-side fi nancial, tax and labor due diligence Tax planning and structuring Capital projects and infrastructure The main characteristics of the Oil & Gas Industry projects are the high investment volume and the involvement of a number of suppliers for extended periods of time and different work fronts, which significantly increase the complexity in managing these investments. It is essential that these projects are well managed so that they can be completed within the projected schedule and budget. Megaprojects have a significant impact on business and inherent risks which can be mitigated from the start, through implementation of control over processes, monitoring of action plans and governance of decision-making. Our solutions Principles of megaproject management Capital investment planning Segmented approval process ( decision gates ) Strategy and contracting plan Risk management Processes and management tools Governance and control 14 PwC

17 Performance Improvement The Oil & Gas Industry in Brazil is experiencing a time of great opportunities and investments but, at the same time, is facing the challenge of growing with efficient processes, the best management practices, appropriate and balanced controls and controlled costs. How to grow fast without a loss of control over the processes? How to generate accurate and timely reporting? How to maintain agility and effectiveness in the supply chain & logistics? How to attract and retain the best professionals in the industry? How to align IT strategy with the company s growth? These are some issues that are increasingly more common among top management of the Oil & Gas Industry. PwC approach The Transform Framework is our global consistent and proven framework for delivering all aspects of a change initiative (be they transformational or smaller in scale), from strategy through to implementation, which remain sustainable long after implementation programs are completed. As it is fully tailored, the Transform Framework is industry-independent and application-independent. Specific components for the Oil & Gas Industry can be added for fully addressing the project requirements. It is flexible in that only certain Phases may be used or specific Tasks or Steps may be selected. It is also scalable, in that for large-scale transformations each phase may be undertaken by separate teams with appropriate skills or, for smaller projects, one multi-skilled team may undertake all of the tasks concurrently and some of the phases may also be collapsed into one another. Our solutions Strategy Strategic Planning Growth Strategy Financial & Acquisition Strategy Customer Strategy Business & Technology Design Organizational Strategy Finance Finance Assessment & Visioning Operational Finance & Sourcing Performance Management Treasury Financial Risk & Cash Management Operations Management and Process Improvement Supply Chain Management Sourcing and Shared Services Cost Management. Technology IT Strategy IT Architecture and Design Enterprise Applications Sourcing Project Management IT Operations Management People & Change Organizational Design HR Strategies and Operational Change Management Risk Risk Management Governance and Compliance Program Design and Implementation Forensic services Crisis Management Business Recovery Dispute Analysis Investigations The Brazilian Oil & Gas Industry 15

18 Contacts For further information, please contact: Marcos Panassol [55](21) André Castello Branco [55](21) João Lins [55](11) Ronaldo Valiño [55](21) Cyro Cunha [55](21) Felipe Gomes [55](21) PwC

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20 Follow us facebook.com/pwcbrasil 2013 PricewaterhouseCoopers Brasil Ltda. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers Brasil Ltda., which is a member firm of PricewaterhouseCoopers, each member firm of which is a separate legal entity. PwC refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm s professional judgment or bind another member firm or PwCIL in any way.