How To Play Subsalt

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1 Potential Impacts for the Brazilian Economy: Case study. VIII Britcham International Seminar Mauro Andrade Petroleum Services, November 2008

2 Sub-Salt Cluster Context Block BM-S-8 BM-S-9 BM-S-10 BM-S-11 BM-S-17 Concessionaires (Working Interest %) PBRAS(66%); SHELL(20%); GALP(14%) PBRAS(45%); BG(30%); REPSOL(25%) PBRAS(65%); BG(25%); PARTEX(10%) PBRAS(65%); BG(25%); GALP(10%) PBRAS(100%) Petrobras on all blocks Exxon and Shell with WI in one block Chevron, BP,ConocoPhillips, Devon with subsalt experiences are not a member of the club in this Brazilian play Independents with significant stake How deep are their pockets? BM-S-21 BM-S-22 BM-S-24 BM-S-50 BM-S-52 Source: Petroview PBRAS(80%); GALP(20%) EXXON(40%); HESS(40%); PBRAS(20%) PBRAS(80%); GALP(20%) PBRAS(60%); BG(20%); REPSOL(20%) PBRAS(60%); BG(40%) Development risks still to be fully defined Uncertainties on engineering solutions Flow rates/number of wells Logistics Monetize gas reserves Others 2 1-Dec-08

3 Financial Markets Context DJIA I Internet Bubble II Enron/ Worldcom III Sarbanes-Oxley DJIA 14,000 IV Post-SOX V Sub Prime What s next? 11,000 11,000 9,000 9,000 7,000 7, / / Magnitude US$ billions Magnitude US$ trillions Source: Deloitte Petroleum Services 3 1-Dec-08

4 Sub Salt Blocks Participants in Selected Areas # of companies with interest in Sub-Salt Blocks in Selected Regions GOM West Africa Brazil Source: Deloitte Petroleum Services 4 1-Dec-08

5 Sub Salt Blocks Market Value: companies with interests in GoM GoM Companies Dec31st, 2007 (USD billion) EXXON MOBIL SHELL PETROBRAS BP E&P TOTAL BHP PET DEEP CHEVRON ENI CONOCOPHIL STATOIL MARATHON DEVON APACHE CORP HESS CORP ANADARKO W&T OFF NEXEN P OFF MURPHY USA NIPPON O USA NOBLE ENERGY ERT MARINER MAGNUM ATP O&G CORP PYRAMID MARUBENI FOUR STAR SOJITZ ENERGY PART MERIT MNG I MCX GOM MCOFF CV ENERGY Source: Deloitte Petroleum Services 5 1-Dec-08

6 Sub Salt Blocks Market Value: companies with interests in West Africa West Africa Companies Dec31st, 2007 (USD billion) CHINA NAT PET CORP EXXON MOBIL CORP SINOPEC CORP PETRONAS BP TOTAL CHEVRON ENI AL THANI EMIRATES STATOILHYDRO ASA GAZ DE FRANCE MARATHON OIL CORP DOMINION PETROLEUM GALP ENERGIA TULLOW OIL PLC SUDAPET SONANGOL PETRODAR ROC OIL DANA PETROLEUM Source: Deloitte Petroleum Services 6 1-Dec-08

7 Sub Salt Blocks Market Value: companies with interests in Brazil Companies in Brazil Dec31st, 2007 (USD billion) EXXON MOBIL SHELL PETROBRAS BG GROUP REPSOL-YPF HESS CORP GALP PARTEX Source: Deloitte Petroleum Services 7 1-Dec-08

8 So Far, So Good...So What? Funding the Oil Bonanza Finance investment needs can be an issue Pace of developments (phased, modular,??) Petrobras has USD 13 billion per year until 2012 to put the existing projects on stream Per our estimates a hyphotetical field in ultra-deep water with 5 bi boe of reserves would require US$ 50 billion capex Joint financial effort from all players Oil companies Suppliers Service Providers 8 1-Dec-08

9 Technical Assumptions... Production Curve Production from 2011 to 2040 Peak Production of 1,1 MM boe/day in 2016 Reserves 5,1 Billion BOE Average Decline Rate 7% in bpd Total Mod1 Mod2 Mod3 Mod4 Mod5 Mod6 Mod7 Mod8 9 1-Dec-08

10 Cost Assumptions Eight FPSO s modules FPSOs of 1,600 USDMM each 25 Wells per FPSO: 21 producing 4 injection 68 drilling days/well: 490 k USD/day Flow rate/well: 8,500 bbl/d Pipeline 220 km off coast Capex USD 10 boe Opex USD 6 boe Major Cost Groups Drilling Subsea Wells Riser/Flowlines/Install. Pipes/Logistics/Other Services FPSO FEED/Engineering Serv. Total Capex Capex in thousand USD 14, , , , , , , Dec-08

11 Economical Assumptions Oil - 55 USD/Bbl Nominal analysis 10% discount rate Valuation Jan/2008 Costs profile Costs (in USDMM) Other Capex Opex 11 1-Dec-08

12 Case Study 1: Company leasing the FPSOs Economic Indicators & Cashflow Chart Pre-Tax Post-Tax NPV at 10% on 1 January 2008 (USDmm) , ,88 Internal Rate of Return 48,0% 18,2% PVI at 10% on 1 January ,5 1,4 Maximum Cash Exposure (USDmm) ,04 Project Payback 2018,0 (7 years) Discounted Project Payback at 10% 2019,0 (8 years) USDmm 15000, , , 0 0,0-5000, , USDmm Net Cashflow Cumulative Net Cashflow Petroscope 12 1-Dec-08

13 Case Study 2: Company acquiring the FPSOs Economic Indicators & Cashflow Chart Pre-Tax Post-Tax NPV at 10% on 1 January 2008 (USDmm) , ,92 Internal Rate of Return 40,8% 14,1% PVI at 10% on 1 January ,1 1,2 Maximum Cash Exposure (USDmm) ,65 Project Payback 2019,0 (8 years) Discounted Project Payback at 10% 2021,0 (10 years) USDmm 15000, , , 0 0,0-5000, , , , USDmm Net Cashflow Cumulative Net Cashflow Petroscope 13 1-Dec-08

14 Discounted Per barrel analysis 10%) Case 1 (lease & tax optimization) Case2 (acquisition) 25% 9% 23% 31% 7% 11% 20% PV Opex PV Government Take PV Net Cashflow 23% PV Capex PV Taxation 19% PV Opex PV Government Take PV Net Cashflow PV Capex PV Taxation 32% USD/boe PV Gross Revenue 16,23 PV Opex 3,79 PV Capex 3,73 PV Government Take 3,28 PV Taxation 3,98 PV Net Cashflow 1,45 USD/boe PV Gross Revenue 16,23 PV Opex 1,73 PV Capex 5,32 PV Government Take 3,07 PV Taxation 5,01 PV Net Cashflow 1,09 Petroscope 14 1-Dec-08

15 Sensitivity Analysis on Case 1 NPV at 10% on 1 Jan 2008 (Nominal USDmm) Base Case 7.933,88 Variable 80,00% 90,00% 100,00% 110,00% 120,00% Capex , , , , , ,88 Other Costs , , , , , ,12 Opex , , , , , ,38 55 Oil Price ,5 807, , , , ,26 Tornado Chart Variable Low High Range 55 Oil Price ,5 807, , ,14 Capex , , , ,58 Opex , , , ,48 Other Costs , , ,12 343,52 NPV at 10% on 1 Jan 2008 (Nominal USDmm) (297,62) 1.702, , , , , , , ,38 55 Oil Price ,5 Capex ,5 Opex ,5 Petroscope Other Costs ,5 Low High 15 1-Dec-08

16 Conclusions Under the current macroeconomic scenario finance the investments will be challenging Accessing cost competitive reserves is an important piece of the equation Would allow proper finance and the management of the risks associated with projects of such massive magnitude Debates over an eventual Oil Bonanza must ensure a fair regulatory framework Government wants to maximize returns from its resources, but has to ensure a fair balance Ensure an internationally competitive taxation system is key to attract foreign investment that will help to develop the resources In any given regulatory framework 16 1-Dec-08

17 This presentation does not constitute tax, legal or other advice from Deloitte, which assumes no responsibility with respect to assessing or advising the reader as to tax, legal, or other consequences arising from the reader s particular situation. Deloitte provides services in audit, tax, risk management, corporate finance, consulting, outsourcing, human capital management and actuarial consulting to clients spanning multiple industries. With a global network of member firms in more than140 countries, Deloitte brings world class capabilities and deep local expertise to help clients succeed the best performance, wherever they operate. Deloitte's 165,000 professionals are committed to becoming the standard of excellence and they are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from diversity. They enjoy an environment of continuous learning, challenging experiences, and enriching career opportunities. Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms Dec-08