Exploration & Production Bid Rounds in Brazil - Overview, Process, and Opportunities

1. EXPLORATION AND PRODUCTION BID ROUNDS IN BRAZIL Milton R. Franke Brazilian Petroleum Agency - ANP June 2005

2. Program PART 1 • Overview of Brazilian oil & gas production, reserves and discovery cycles • Round 7 - blocks on offer PART 2 • Overview of bidding process • Company qualification process • Highlights of the bidding process • Conclusions

3. Overview of Brazilian oil & gas production, reserves and discovery cycles

4. Origin and short history • Created in 1997, by Law 9.478, the ANP has held 6 bidding rounds - seventh under way • Oil and gas production is increasing continuously - oil has been found • Proved reserves are growing • Considerable number of discoveries under evaluation and fields under development • Potential for new discoveries exists • Giant oil and gas fields • Mature basins • Additional recovery of mature fields • After six years, the sector has expanded and diversified, creating a new series of challenges

5. Oil and gas production is growing Oil and gas production (1993-2004) Source: Brazilian National Petroleum Agency - ANP

6. Oil Proved Reserves 12 11 10 9 8 7 BILLION BARRELS 6 5 4 3 2 1 0 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 YEAR Proved reserves of oil show continuous growth

7. 330 310 290 270 250 BILLION CUBIC METERS . 230 210 190 170 150 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 YEAR Natural gas reserves reflect recent discoveries Natural Gas Proved Reserves

8. Brazilian oil and gas potential - two open fronts • Two fronts are open for future new reserves: (1) Additional recovery from existing discoveries • Recovery factors are still very low • North Sea example: NPD established goals of RF=50% for oil and RF=75% for natural gas; (2) New giant oil and gas discoveries: • Recent examples of giant oil discoveries: Campos Basin • Recent giant gas discoveries: Santos Basin RF = Recovery Factor

9. Opportunities are classified according to three exploration models • Mature basins • Onshore portions of Potiguar, Recôncavo and E. Santo rift basins; • New Frontier Basins and/or areas • Foz do Amazonas, Costa do Pará-Maranhão, • Barreirinhas Basin, Camamu-Almada Basin • Jequitinhonha Basin, Pelotas Basin • Some specific areas of producing basins • High potential basins and/or areas • Santos, Campos, E. Santo and Sergipe-Alagoas basins • Deep waters.

10. Discovery cycles in Brazil

11. Round 7 - blocks on offer

12. BRASIL ROUND 7 SECTOR SUMMARY MAP

13. Mexilhão - giant gas discovery in Santos Basin Mexilhão Field Blocks on offer

14. Campos Basin - Main oil producing basin

15. Conclusions (1) Round 7 gives continuity to the bidding process in Brazil • Exploration blocks offered in 14 basins • Mature basins • New frontier basins • High potential basins • Small oil and gas discoveries • 17 discoveries in two basins • Digital data packages six months in advance • ANP staff will be available for meetings and technical discussions during AAPG

16. PART 2 - Overview of the 7th Licensing Round Marilda Rosado de Sá Ribeiro Brazilian National Petroleum Agency - ANP June 2005

17. Overview of bidding process

18. OVERVIEW • LEGAL BASIS • Petroleum Agency´s role – Petroleum Law nº 9.478/97 • Implement, in it scope, the national policy of oil, gas and biofuel: • Guaranteeing the supplying of oil products; • Promoting the development; • Increase of job opportunities; • Evaluating the energetic resources; • Atraction of investors for energy production.

19. OVERVIEW • CNPE´s Resolution No. 2, of December, 8th.,2004 • Legal authorization for the accomplishment of the 7th. Licensing Round • New opportunity:blocks containing inactive areas with marginal fields (Blocos contendo Áreas Inativas com Acumulação Marginal) • CNPE´s Resolution No. 2, of April, 13rd. of 2005 • Final Definition of the blocks and areas selected for the 7th. Licensing Round

20. THE 7TH. ROUND SCHEDULE Announcement of the researching areas for Round 7 January, 2005 February, 24th. of 2005 Public Audience (Rio de Janeiro) April, 18th. of 2005 Disclosure of the offered areas in Brasil Round 7 April, 29th. of 2005 Disclosure Seminar (Salvador) Publication of the Initial Tender Protocol May, 11th. of 2005 Publication of the Draft Concession Agreement May, 11th. of 2005 Data Packages Available May, 16th. of 2005 May, 16th. and 17th. of 2005 Legal/Financial Seminar (applies only for the ITP part A) Technical Workshop (applies only for the ITP part A) May, 17th. and 18th. of 2005 Data-Room (applies only for the ITP part B) June, 2005 Publication of the FTP and Concession Agreement July, 29th. of 2005 Deadline for submission of Expression of Interest and presentation of Documents August, 25th. of 2005 Deadline for payment and Participation Fees October, 7th. of 2005 Submission of Bids October, 17th. and 18th. of 2005 Signature of the Concession Agreement January, 16th.of 2006

21. THE 7TH. ROUND • Similar procedures of the past rounds: • Announcement and Disclosure • Public Audience • Publication of the Initial Tender Protocol and the Draft Concession Agreement • Qualification Process • Legal-Financial and Technical Seminaries • Publication of the Final Tender Protocol and the Concession Agreement • Submission of the Bids

22. THE 7TH. ROUND • Both Brazilian and foreign companies may participate of the Licensing Round • Special Licensing Committee • Responsible for the whole process • Composed by representatives of the Petroleum Agency, the Government Attorneys Union (AGU) and two representatives of society.

23. 1.Amerada Hess 2.Arbi Petróleo 3.Aurizônia Empreendimentos 4.BG Energy Holdings 5.Devon Energy 6.EnCana Corporation 7.Epic Gas Serviços (El Paso) 8.Kerr-McGee Corporation 9.Newfield Exploration Company 10.Partex Oil and Gas Corporation 11.Petrobras 12.Petrogal 13.PetroRecôncavo 14.PortSea Oil & Gas 15.Queiroz Galvão Perfurações 16.Repsol YPF Brasil 17.Schahin Engenharia 18.Shell Brasil 19.SK Corporation 20.Starfish Oil & Gas 21.Statoil 22.Synergy Group 23.Total 24. W. Washington Over 80 companies qualified to bid, 40 operators, 10 producing companies Sixth Bid Round - Qualified Companies • 9 Brazilian • 7 European • 6 USA/Canada • 2 Asia and Australia • Majors • Independents • Small, local companies

24. Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Interested companies 58 49 46 35 18 30 Access to data sets 42 48 44 33 14 27 Qualified companies 38 42 42 29 12 24 Offering companies 14 27 26 17 6 21 Winners 11 16 22 14 6 19 Short history of bid rounds Note- Around 20 oil companies have merged or were bought over six year period

25. Company qualification process

26. Qualification process (1) Technical qualification (2) Financial qualification (3) Legal qualification

27. Qualification ProcessTechnical Qualification • Operational Capacity • Punctuation per operation • Exploration and/or production • Offshore and/or onshore • Deep Water and/or Ultra deep water • Adverse environment • Experience in operation • Employers and managers experience

28. Technical Qualification - “A” Operator: All Blocks (81 points or more); • “B” Operator: Onshore blocks and shallow water (25 to 80 points) • “C” Operator: Onshore ( 1 to 24 points) • “D” Operator: Special technical qualification Non-operators – can participate only in consortia with operators.

29. Qualification ProcessFinancial Qualification • Financial Capacity • Financial Statement • Auditor´s opinion letter • Description of long-term debt • Contingent Liabilities • International Rating (Standard & Poors, Moody’s), or lines of credit, or credit agreements, or any other bank reference.

30. Qualification • Parent or Controlling Company • Company responsible for the emission of the Performance Guarantee, in the event that its not the signing company. • ANP may, at its sole discretion, allow the qualification of a significant subsidiary company • Company fully capable to guarantee the obligations of the signing company • Companies without explicit identification of control will not be qualified.

31. Qualification ProcessFinancial Qualification • Equity “A” Operator - Minimum of R$ 22 millions “B” Operator – Minimum of R$ 20 millions “C” Operator –Minimum of R$ 1.000.000,00 (if in consortium, C operator– R$ 350.000,00, but the consortium must have R$ 1 million of equity.) Non-Operator: participate in a consortium with operators

32. Qualification ProcessSimplified Qualification • Companies Qualified in Previous Rounds • Expression of Interest • Power of Attorney and Confidentiality Agreement • Declaration about relevant pending litigation or legal proceedings • Additional Information • Recent financial documentation • Statement to the effect that the documents presented previously remain valid • Updated version of all changed material • Technical progression is expected • Qualification is not guaranteed

33. Qualification ProcessLegal Qualification • Company or Group Legal Structure • Bylaw • Social Agreement • Declaration by the Acrredited Representative • Litigation or legal proceedings • Foreign Companies (along the above) • Organized and functions according to the laws of its home country. • In the event the Company is sucessful in the bidding, it will constitute a company, according to brazilian laws, with its headquarters and management in Brazil

34. Qualification ProcessParticipation Fee • Value established in the Initial Tender Protocol • By sectors or group of sectors (Table 9) • Fixed in Brazilian Reais (BR$) • Can be paid in dolars • Oficial selling exchange of the foregoing working day • Necessary to take part in Brasil Round 7 • Qualification and Participation Fee • Allows to receive the Data and Information Package • With the Expression of Interest

35. Highlights of the bidding process

36. Highlights on the Bidding Process • Bid Bond (Initial Tender Protocol, Part A) Per block • Offshore blocks, BR$ 60.000,00; • Onshore blocks, BR$ 6.000,00; • Letter of Credit or Insurance-Guarantee (up to October, 11th 2005)

37. Bid Bond • Letter of Credit or Insurance-Guarantee • Values in Brazilian Reais • Different for onshore and offshore blocks • Delivered by the company or consortium before the Bid • Any company of the consortium can provide it • Indicating whose bid bond will be used • Guarantee the winning bidder´s obligation to sign the Concession Agreement

38. Highlights on the Bidding Process Evaluation of bids: • Signature Bonus: weight of 70% • Minimum bonus established in the initial tender protocol. • Minimum Exploratory Program (in Working Units) : weight of 30%. • Proposed by bidding companies

39. Highlights on the Bidding Process • Detailed description of local goods and services acquisition plans(Minimum mandatory percentage): Local Content • Minimum Values for exploration and development phases. • Verification of the compliance with the guidelines of Local Contents of Goods, Systems and Services. • Penalties for the non-compliance of the minimum local content (Section 3.11 of the Initial Tender Protocol)

40. Data and Information Package • Requirement • Payment of Participation Fee Confirmation • Confidentiality Agreement • Content • Package changes according to basins and sectors • Geological setting and Overview • Location Maps • Seismic Data • Well data • Some information will pe provided in english

41. Conclusions

42. Conclusions (1) Six successful bidding rounds held (1999 - 2004) • 83 economic groups qualified • From 19 Countries (2) ANP commitment to: • Stability of rules • Maintenance of open dialog and cooperation with the industry • Strict observation of contract terms • Absolute transparency of procedures

43. Thank you! Please, contact us: Licensing Rounds PromotionAv. Rio Branco, 65 – 18th floorCentro - 20090-004 Rio de Janeiro - RJ - BrazilTel.: 5521 3804-0200Fax.: 5521 3804-0202 E-mail: brasil-round7@anp.gov.br www.brazil-rounds.gov.br www.anp.gov.br