Oil Sector Management

1. Oil Sector Management presented by Decio Hamilton BarbosaLuanda, Angola, May 2006

2. International practice with respect to the role of government ministries/agencies and NOC in overseeing oil sector operations Government/NOC fiduciary relationships Experience of Brazil Topics

3. World oil • Government • Practically everywhere in the world, petroleum resources are owned by the state • In the underground • Until produced • Until exported • Throughout the value chain • US onshore, parts of Canada excepted • NOC sometimes acts in the role of owner for the state • Private capital • Takes most of the risk, makes most of the investment, conducts most of operations, pays the taxes / shares the production

4. Owns Practically everywhere (US onshore major exception) Legislates Laws and agreements Various government instruments Manages Ministry, Agency, Regulator, NOC Invests NOC Takes Direct and indirect share of investments Direct and indirect taxes and fiscal levies Other requirements and obligations Host Government

5. Genesis Participation Nationalization Title holder of national (oil) resources Oil, natural gas Contract administrator Recipient (and seller) of state share of production Importer Price stabilizer Key component of national economy Employer / social security Foreign currency player whether as both exporter or importer Investor Indigenous International Not all of the items above apply in all cases, and are gradually evolving ... Role of the NOC

6. IOC and NOC search synergy Production factors: Capital and Land IOC versus NOC $ Capital $ Land

7. National Guardian / Monopolist Original title-holder: PEMEX Post-nationalization: Saudi ARAMCO, NIOC/NIGC, KOC (KPC) National Guardian and Regulator Pertamina (pre-reform), PetroVietnam, Petronas, EGPC, NNPC, Sonatrach, Sonangol National Guardian and Foreign Investment Champion Petronas, CNPC/CNOOC/Sinopec, PDVSA, NGC Domestic Investor (100% state owned) OGDC, ONGC, SDFI National Wealth Participator Petrobras, Statoil, PTTEP, YPFB (P.Andina / P.Chaco), CNPC/CNOOC/Sinopec Importing Nation Manager ENAP Foreign Investment Champion ENAP (Sipetrol), JNOC, KOC (Kufpec) Extinct BNOC (Britoil), YPF, Repsol, PetroCanada (as NOC) Nouveaux Riches Lukoil, Gasprom, Yukos, Sidanco, Sibneft, Rosneft Instruments of Forein Policy BP, Shell, TotalFinaElf, ENI, ExxonMobil, ChevronTexaco NOC Types Simplified, arguable, roles continue to evolve ... Source: Gaffney, Cline & Associates

8. Regulatory Roles and Functions • Contract management • Resource planning • Licensing • Depletion policy • Operations oversight • Health and Safety • Control of environmental sensitive areas • Market influence • Fiscal control • Employment • Goods and Services

9. Who regulates ? • Ministry • Classical administrator • Skills to NOC in many cases • Agency • Board • Regulator • NOC • Conflict of roles • Sector regulation vs. commercial • Public interest vs. international standards • Skills

10. Who regulates • Selected countries: • What they have in common • E&P acreage area granted through bid rounds and concession agreements • Significant E&P offshore areas

11. Regulator (s) • Main E&P areas: Gulf of Mexico, Texas and Alaska • Main regulator of E&P sector: U. S. Department of Interior / Minerals Management Service - MMS (licensing of federal areas, royalties) • Landowner has rights on the underground minerals • Extremely competitive industry: ~ 2 millions of royalty owners, including 5.000 E&P companies • Substantial source of income to government: • ~ US$ 6,0 billions / yr of leasing revenues • ~ US$ 5,6 billions / yr of royalties • ~ US$ 3,7 millions / yr of severeance taxes (state areas)

12. Regulator (s) • Main E&P areas : Onshore area in Province of Alberta and offshore areas in northeastern coast (Newfoundland and Nova Scotia) • Regulators of E&P sector in such a provinces: • Newfoundland - “Board” (concession) and Department of Mines and Energy- DME (royalties) • Nova Scotia - “Board” (concession) and Petroleum Directorate (royalties) • Large oil and natural gas exporter to the US (~ 2 million boe / day) • Production concentrated in Province of Alberta (~ 60%) • Domestic market concentrated in east coast

13. Regulator (s) • Main E&P areas : Onshore West Australia (WA) and Queensland, offshore northwestern coast and Victoria coast • Regulators of E&P sector in WA: • Onshore licensing areas: Department of Minerals and Petroleum Resources (DMPR) jointly with the Federal Government • Offshore licensing areas : Federal Government by means of Petroleum and Energy Division of the Commonwealth Department of Industry • Tax and oil levies management: Federal offshore areas (PRRT): Australian Taxation Office (ATO) WA state onshore areas (royalties): DMPR • Natural gas exporter, mainly to Japan, and oil importer: Indonesia is a significant oil supplier

14. Regulator (s) • Main E&P areas : Área “offshore” do Mar do Norte • Regulators of E&P sector : • Areas concession: Department of Trade and Industry (DTI) • Management of government takes: PRT / Royalty: Oil Taxation Office (OTO), subordinado ao Inland Revenue Service • Self-sufficient with respect to oil since 1980 and with respect to natural gas since 1996 • Production declining from 1999 onwards; several mature areas near abandonment

15. Regulator (s) • Main E&P areas : offshore: North Sea, Norwegian Sea and Barents Sea (frontier) • Main regulators of E&P sector: • Licensing: Ministry of Petroleum and Energy (MPE) • Management of government takes: Special Petroleum Tax (SPT): Oil Taxation Office, Ministry of Finance Royalties: Norwegian Petroleum Directorate (NPD), Ministry of Petroleum and Energy • Major exporter of oil and gas to Europe

16. Experience of Brazil From monopoly to regulator

17. 1931 1934 1937 1938 1944 1945 1953 1995 1997 Institutional Evolution • Decree 20,799 - Government Authorization • 1934 Constitution - Concessions • 1937 Constitution - Reserves: State property • CNP Set up • Lobato first oil finding (BA) • Liberal Trend for Oil Sector • Law 2004 – Oil Monopoly / PETROBRAS • 9,795 Amendment - End of PETROBRAS Monopoly • Law 9,478 - ANP

18. State monopoly from 1954 to 1995 Risk Service Contracts in years 70 and 80 Sole operator in early to mid 90s Oil Law (1997): State grants E&P rights Concessions through bid rounds E&P activities in Brazil

19. Changes in economy Four key processes: • Globalization: inevitable process – Brazil’s sovereign insertion in world context • Trade Liberalization: encourage competition of indigenous products with imported ones / increase competitiveness of local industry • National Currency Stabilization: resume economic planning activity and increased purchase power of low income population • Privatization / “state pull-out”: relieve the state of activities not related to its end activities and develop its skills to regulate (interfere in) sectors which render public services.

20. Reasons of changing From Monopoly to State Regulator: • Necessity of investment to upgrade and extend infra-structure • Controversy of the role of an “entrepreneur state” • Exhausted model regarding the direct involvement of the State in the economy Results: • Reduction of inflation • Insertion in international trade • Attraction of long term foreign capital (productive sector) • Search of fiscal balance

21. Dual role aspects • Attract and foster E&P investments • Licensing Rounds Division • Regulator (control) • Divisions responsible for the management of the concession agreement

22. Foster E&P investments

23. Regulator ( the watch dog)

24. Regulators in world context • Not policy makers • Independents and skilled • Granted autonomy • Organized as a board • Board members with mandate for a given timeframe and non-coincident with each other

25. Thank you