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About the Sector

Brazilian Oil and Natural Gas Industry

Background of the Industry in Brazil

According to the 2011 BP Statistical Review of World Energy, Brazil‘s reserves of oil and natural gas are among the fastest growing in the world, increasing at an annual rate of 7.9%, from 3.4 billion proven BOE in 1989, to 17 billion BOE at the end of 2010. Additionally, the daily output of oil and natural gas in Brazil grows at a compound annual rate of 6.2%, from 0.7 million BOEPD in 1989, to 2.23 million at the end of 2010. About 90% of this country‘s proven oil and natural gas reserves are in offshore basins, and 10% in onshore basins.

Source: BP Statistical Review 2011

Since November 2007, discoveries ranging from five to eight billion BOE in the Tupi field in the SantosBasin have been announced. This has led many industry experts to increase their estimates of Brazil‘s oil and natural gas reserves.

In billion of barrels

According to the ANP, Brazil has approximately 7.5 million square kilometers (1.9 billion acres) of sedimentary areas, mostly spread across 38 major sedimentary basins, of which about 2.5 million square kilometers are located offshore. Exploration and production concessions have been granted for less than 4% of this area.

Historically, the oil and natural gas industry in Brazil is controlled by Petrobras, a Brazilian state-owned company created in 1953. In 1995, the Brazilian Constitution was amended to allow private and other government owned companies to explore and produce oil and natural gas, subject to the conditions set forth in specific legislation governing the industry. In August 1997, Law Nº 9.478 was approved as amended, becoming what is known as the "Petroleum Law," creating the ANP to manage, regulate and oversee the Brazilian crude oil and natural gas industry and conduct tenders for concession areas.

The opening of the Brazilian Crude Oil industry attracted the interest of large private companies. By January 2011, 74 companies were involved in crude oil and natural gas exploration and production in Brazil, 38 of them Brazilian, and the others from numerous countries such as the US, UK, Canada, Norway, India, Italy, Japan, Denmark, Angola, Portugal, Spain, Netherlands, South Korea, France, Colombia and Australia.

To date, the ANP has organized and completed ten bidding rounds. The following chart shows the number of exploration blocks submitted for bidding at each round.

Source: ANP

Reserves and Production of Crude Oil and Natural Gas

According to the 2011 BP Statistical Review of World Energy, in 2010, Brazil had 17 billion BOE of proven oil and natural gas reserves, the second largest in South America, behind only Venezuela. Brazil‘s recent discoveries position the country as one of the world‘s most promising regions in the world in terms of recoverable oil and natural gas potential. Most of the country‘s proven crude oil and natural gas reserves are in the Campos basin, in the Southeast of Brazil.

Brazil‘s production of oil and natural gas has increased substantially in recent years, with the Campos basin accounting for about 75% of the country‘s total output in 2011. This growth should continue in the next decade, as production in key fields increases, and the more recent discoveries in the Espírito Santo and Santos basins are developed.

Brazilian Gas Production (Billion cubic meters) - Source: ANP

Brazilian Oil Production (Million barrels day) - Source: ANP

Brazil‘s Sedimentary Basins

According to the ANP, Brazil‘s sedimentary areas are distributed over more than 40 sedimentary basins, as indicated in the map below. Twenty-nine of the basins, as set forth by the bold names below, are considered the main basins, 15 of which are located offshore.

Brazil‘s tectonic-sedimentary framework is made up of (1) two ancient crystalline rock shields named the Guyana and Brazilian shields; and (2) many extensive depressions where proterozoic and paleozoic sedimentary basins were formed, particularly the Solimões, Amazonas, Parnaíba, São Francisco, Parecis & Alto Xingú and Paraná basins. The evolution of the Brazilian offshore basins was controlled by events subsequent to the Mesozoicbreak-up of South America from Africa followed by the opening of the South Atlantic Ocean. It led to rift type basins containing rich oil source rocks, deposited in lakes as rifting began and overlain byun stable salt deposits derived from shallow seas that intermittently engulfed these basins before evaporating. Above the salt deposits carbonates were deposited in an open sea environment, and then covered by a thick section of clastics composed of shales and sandstones, as the waters deepened. At the distal part of these sequences, turbidite sandstones were deposited, as consequence of submarine landslides, forming reservoirs. These carbonates and, more importantly, the individual turbidite fans over large surface areas, are the main reservoirs of the basin.

The offshore Brazilian basins are individually separated by uplifted geological features known as archesor highs, usually related to large fault zones and volcanic ridges.

Market Opportunity in Brazil

According to the Energy Information Administration (EIA), the average demand for oil in 2010 was of 86.7 million barrels per day, 2.8% higher than seen in 2009. On the other hand, the average oil production and fluids of 84.8 million barrels per day in 2009, incresing 2.4% ending 2010 with an average of 86.3 million barrels per day.

EIA estimates the oil market fundamentals are still tight for the next two years. EIA forecast is that the world consumption increase in an average of 1.5 million barrels per day until 2012, while production for the OPEP countries will increase 0.3 million barrels per day in 2011 and will maintain at this level in 2012. Therefore, the excess in demand would have to be supplied by the current stock from the OECD countries and by a significant production increase from OPEP, reducing its idle capacity at critical levels.

This scenario favored companies with exposure to countries in sub-explored areas with great exploration potential, placing them in strategic position to capture this potential demand excess and consequent increase in prices.

The combination of vast untapped potential oil and natural gas resources with a favorable regulatory framework positions Brazil as one of the most attractive petroleum regions in the world today. A stable, market-driven regulatory framework has been in place in Brazil for over ten years, resulting in the increased participation by global industry players in Brazil‘s exploration and production activities.