Rio de J aneiro, 03/ 10/ 2011

Local Content Framework

Challenges and Opportunities for E&P
Sector
Highlights
Br azi l
Area: 8,514,876 km
Population: 190 million
GDP: U$ 3.5 trillion
Worlds seventh largest economy
Political, Economical and stability
Over US$ 306 billion in International
Reserves
Investment grade (Moodys, Fitch
and Standard and Poors)
Oil, Natural Gas and Biofuels regulated under the same institutional environment (ANP)
highlights:
Br azi l i an Oi l & Gas Mar ket
Mature & democratic State
Economic stability
Solid regulations environment:
Successful & strong concession
agreements
Pre-salt fields
More than 70 active operators
More than 3500 blocks offered & 730
concession agreements
Lots of gaps (technology, HR,
infrastructure, etc)
To be c onsi der ed...
To be c onsi der ed...
Contractual commitment of
purchasing local goods and
services in competitive basis.
Definition:
What i s Loc al Cont ent ? And
w hy?
Development of local suppliers
& technology
Mass creation of jobs
Development of the economy
(GDP)
Objectives:
Bids 1 to 4
Free LC offerings
LC declared by suppIiers
Loc al Cont ent Fr amewor k : t he
Conc essi on ex per i enc e
Bids 5 and 6
Minimum offering limits
LC still declared by suppIiers
Bids 7 to 10
Max. & Min. offering limits
LC Certification by 3
rd
part
New methodology to calculate
the LC
Local Content was requiredin all Bid Rounds
2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Local Content Offerings
40%
MEP
40%
Bonus
Local Content represents 20%
of the final score
Bonus represents 40%
Minimum Exploratory Program
represents 40%
LC offering applied on the 20
th
clause of the concession
agreement
LC Certificates only way to
prove local investments
At the BidRound
20%
Local
Content
Local Investments
Certification
(by a 3
rd
party)
The on going Local
Content process
The concession
contracts set the local
content commitment
for the exploratory and
development phases
Concessionaires
Local goods & services acquisition
ANP monitoring and auditing the contractual local
content requirements
Loc al Cont ent Fr amewor k : t he
Conc essi on ex per i enc e
Loc al Cont ent Commi t ment s on
Conc essi on Agr eement s
*
Only on-shore blocks
0
10
20
30
40
50
60
70
80
90
100
1900ral 1900ral 1900ral 1900ral 1900ral 1900ral 1900ral 1900ral 1900ral 1900ral
E xploration Development
Local Content Average
BID ROUND
L
o
c
a
l

C
o
n
t
e
n
t
O
f
f
e
r
i
n
g
s
(
%
)
*
Pre-salt fields
Loc al Cont ent Fr amewor k : t he
Conc essi on ex per i enc e
Concession Agreement: 20
th
clause - LC terms
Include local suppliers in the companies invited to
submit proposal.
Ensure to local suppliers equal and adequate time to
present proposals in accordance with Best Practices of
Oil Industry.
Do not require technical qualifications or certifications
from local suppliers besides those required from foreign
suppliers
Keep tracking local suppliers and look for updated
information of local supply chain at trade associations
and entities (ONIP).
Loc al Cont ent Fr amewor k : t he
Conc essi on ex per i enc e
Concession Agreement: 20
th
clause - LC Certification
Concessionaires LC commitment shall be proved to
ANP by the presentation of LC Certification.
Concessionaire must request to suppliers the
certifications of their goods & services.
Suppliers may previously provide, at its own initiative,
the LC Certification of their goods & services.
Activities of LC Certification shall be performed only by
entities accredited by ANP.
ANP shall the monitor the LC certification process and
shall audit the accredited certification entities.
Loc al Cont ent Fr amewor k : t he
Conc essi on ex per i enc e
Concession agreement: 20
th
clause - LC Waivers
In case local market presents:
1) Excessively high prices,
2) Higher delivery time,
3) No technolgy
Concessionaires must request previously to ANP the
authorization to order goods and services abroad.
Besides the exceptionally given by the waive, the
global LC commitment originally bided for exploration
phase and development of production stage remains
the same.
Fees will be applied in case of non compliance of LC
terms established at the concession agreement.
Loc al Cont ent Audi t i ng
Check the accomplishment of contractual
Local Content requirements
Penalties when contract terms were not
completely accomplished.
Contractual fees can be very high. It is
calculate as a proportion between the
investment and the LC that has not been
achieved.
Procedures:
Loc al Cont ent Fr amewor k :
LC Cer t i f i c at i on
LC Certification: Resolution ANP no 36/2007
Applied on Concession Agreements from 7
th
Bid
up to 10
th
Bid:
Establishes the criteria and procedures for the
execution of activities of Local Content
Certification and:
The Cartilha de Contedo Local (Local Content
Primer) as the official tool of measurement of LC
(goods, services, systems and goods of
temporary use).
The Quarterly Certification Report.
The LC Certificate.
Loc al Cont ent Fr amewor k :
LC Cer t i f i c at i on
LC Certification: Resolution ANP no 37, 38 & 39/2007
Applied on Concession Agreements from 7
th
Bid up to 10
th
Bid:
Resolution ANP no 37/2007: establishes the
criteria and procedures for accreditation of LC
certification companies.
Resolution ANP no 38/2007: establishes the
procedures of auditing the LC certification
companies.
Resolution ANP no 39/2007: establishes the
Quarterly Investments Report where
concessionaires declares all the investments
done (local and imported)
2008 2007 2006 2005
Bids 7 to 10
LC calculation: 3rd part
(companies accredited by ANP)
Compulsory certification to prove
local investments
How t o per f or m LC
measur ement ?
GOODS
Formula
X = price of all imported components
Y = Product sell price

X
Y
CLb = 1 - * 100
Ex pl or at i on Phase - I nvest i ment os
Loc ai s Decl ar ados
BID
DeclaredInvestments
Total(US$) Local(US$)
BID07 5.398.380.300,00 2.618.064.820,00
BID09 3.128.999.770,00 1.653.063.110,00
BID10 100.926.090,00 94.090.920,00
Total 8.628.306.160,00 4.365.218.860,00
BID
DeclaredInvestments
Total(US$) Local(US$)
BID01 3.479.599.410,00 2.127.583.540,00
BID02 6.598.373.310,00 5.102.746.010,00
BID03 4.324.914.790,00 3.125.431.990,00
BID04 2.281.731.490,00 1.859.232.350,00
BID05 1.776.193.510,00 1.020.633.060,00
BID06 4.419.411.810,00 3.193.016.600,00
Total
22.880.224.310,00 16.428.643.560,00
FromBid1toBid10
morethenUS$30
billionofinvestments
attheExploration
phase.US$20billion
declaredaslocal
investment.
UnderLCcertification
framework
LC Cer t i f i c at i on i n number s
Descrio dasreas
TotalInvestments
(US$)
LocalInvestments
(US$)
Certificates
Issued
Geology&Geophysics 509.011.799,03 328.829.021,95 830
Drillingrigs 87.982.667,60 38.159.445,91 108
Logisticsand operationalsupport 1.059.027.366,53 747.455.739,02 1.422
Well drilling,Completionand Assesment 231.118.544,24 196.350.967,26 1.784
Basic engineeringansDetailing 6.488.363,77 6.055.066,47 21
Management, Construction,Assembly&Comissioning 7.830.713,54 7.044.224,51 50
Electrical,Control,Instruments&MeasurementSystems 3.659.729,94 3.604.943,09 162
TelecommSystems 144.087,94 142.976,63 5
Oil &GsPipelines,StorageTanks 1.037.960,33 795.894,89 71
Compression Units 3.654.154,78 3.000.205,26 24
SteamGenerationandInjectionUnits 1.851,65 1.834,24 2
SubseaEquipmentsandControlSystems 538.261,73 338.853,33 15
Oil ProcessingandTreatmentSystems 2.357.937,74 2.035.274,59 14
Natural GasProcessingandTreatmentSystems 7.065,43 7.065,43 2
Platform andShipBuilding (hull,turret,anchorsystms) 43.360.210,73 27.561.176,13 5
HSSE 16.331.123,13 14.649.155,68 177
Civil worksandUtilities 18.738.874,40 18.440.296,52 82
Total 1.991.290.712,50 1.394.472.140,89 4.774
LC Cer t i f i c at i on i n
number s
1900ral
1901ral
1902ral
1904ral
1905ral
1906ral
1908ral
1909ral
1910ral
1912ral
1913ral
2009.I 2009.II 2009.III 2009.IV 2010.I 2010.II 2010.III 2010.IV 2011.I 2011.II
LCCertificatesissuedoneachquarter
TotalLCCertificatesissued
The Pr e-Sal t as a New
Par adi gm
2-ANP-2A-RJ S
2-ANP-1-RJ S
Brazildeepwateroil
productionisabout25%of
theglobaloilproduction.
Presaltnewprovinceshall
increasethispercentage
significantly.
IfproventhewayANPforecasted,
Brazilshallneedtoinvestheavilyin
infrastructure(platforms,pipelines,
oilpipelines,ports,vessels,ships,
drillingrigs,steel,etc.).
Competitiveness
Supply capacity
Goods & services - Costs in Brazil
Local suppliers:
Technology
Human Resources
Overcome Setbacks:
Campos & Sant os Pr e-sal t :
c hal l enges of l oc al suppl y
Strong currency (Real)
Importations boom
Economy:
Loc al Cont ent Per spec t i ves
Art. 9...
I - the pace of blocks acquisition
under the production sharing
system will observe the energy
policy and the development of
national industry and the its
ability to supply goods and
services
Law n 12.351/ 2010
ProductionSharingAgreement:
Focus on the methodology to
calculate LC (LC Promer)
Focus on the LC Certification
Local Content Policy:
Simplify the number of LC
requirements giving focus on
relevant activities;
Simplify the procedures of Local
Content Certification, giving focus
on relevant activities. (Resolution
No. 36/2007 ANP) - LC Certification
Forum;
Use LC data to drive R&D
investments;
Transparency of actions;
Dialogue with the industry.
Loc al Cont ent Chal l enges
f or nex t Bi ddi ng Rounds
Local Content Regulation Challenges:
How t o i nc r ease Loc al
Cont ent l evel s?
Partnership and cooperation
with local companies;
Install production units in
Brazil;
Increase the share of local
professionals on services;
Obtain local content
certification on goods and
services.
Suggestions:
Agnc i a Nac i onal do Pet r l eo, Gs Nat ur al e
Bi oc ombust vei s - ANP
Coor denador i a de Cont edo Loc al (CCL)
Marcelo Mafra Borges de Macedo
Av. Rio Branco, 65 - 17 andar - Rio de J aneiro RJ Brasil
Tel.: (55 21) 2112-8550 / (55 21) 2112-8535
mmacedo@anp.gov.br
ccl@anp.gov.br
www.anp.gov.br