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Ian Wilkinson Meet the Global. Scot 7 th March 2011 Ian Wilkinson Meet the Global. Scot 7 th March 2011

Ian Wilkinson - introduction Geologist with Ph. D from UCWales 26 years in the Ian Wilkinson - introduction Geologist with Ph. D from UCWales 26 years in the industry – overseas project/company start-ups • 3 years UK-US • 2 years Venezuela • 8 years Soviet Union / Russia • 13 years Brazil Entrepenneur – started first company in 1987 Principal firms - JEBCO Seismic Ten-to-ten Group Petrolink Diverse direct experience - drilling, seismic, IT, scanning & DC, HSE, training, 3 D modelling, fabrication.

Ian Wilkinson – Brazil track record 1997 - started the setup of JEBCO Seismic Ian Wilkinson – Brazil track record 1997 - started the setup of JEBCO Seismic Brasil Ltda 2000 – set up EIC Trade Association in Brazil and assumed directorship 2001 – sold JEBCO to Petrolink 2000 -2008 Inside and outside EIC assisted directly in 40 UK oil & gas start ups in Brazil 2008 -present focussed on IT/drilling sector with Petrolink. Assisting companies where possible – including as a Global Scot Brazil experience – company setup, tax, contracts, Petrobras CRCC, importation, labour, visas, fabrication, local content, property

Petrolink Services - snapshot Set up in Aberdeen 1990 – telecoms and data distribution Petrolink Services - snapshot Set up in Aberdeen 1990 – telecoms and data distribution of drilling data 1990 -2005 Gradual international expansion and focus on IT – international benchmark for drill-data interchange between operators and partners (DDS). 2006 – Released real-time data system Power. Stream 2011 – 200+ employees spread over *** countries. Largest independent provider of realtime services worldwide. Still in hands of the original owners. Now expanding in realtime integration and logging application development. – Petro. Vault, Heavy focus on R&D and “seat of the pants” self-financed expansion. Principal clients – Exxon, BG, Aramco, Pemex, Petrobras, Total…. . Brazil company – ISO 9001, CRCC, 99. 6% local content

Petrolink Services - snapshot Petrolink Services - snapshot

Globalscot Network • Set Get you up the learning curve quicker and cheaper. • Globalscot Network • Set Get you up the learning curve quicker and cheaper. • Provide you with insights, assistance and guidance. • Help you to determine if your business is likely to be successful in the target market. • Help your company to get started and become established in the new location.

Oil and gas business in Brazil Cultural issues import tax language local content market Oil and gas business in Brazil Cultural issues import tax language local content market Petrobras supplier approval visas costs competition 7

Market E&P Market Petrobras, Shell, BP, Chevron, BG, Statoil, OGX, Anadarko, Repsol, ENI, Maersk, Market E&P Market Petrobras, Shell, BP, Chevron, BG, Statoil, OGX, Anadarko, Repsol, ENI, Maersk, Exxon, El Paso, Sonangol, ONGC, Perenco, Subsea Spenders Petrobras, Shell, Statoil, Chevron Development Petrobras, Shell (Parque das Conchas), BP (Devon-Polvo), Chevron Statoil (Peregrino) (Frade), El Paso (Camarupim, Pinauna), Discoveries Petrobras, Repsol, BP, Anadarko, El Paso, Shell, OGX 8

E & P market Drilling 58 floaters (46 for Petrobras) currently operating 32 on E & P market Drilling 58 floaters (46 for Petrobras) currently operating 32 on order (as well as the Petrobras 28 “local” rigs in bidding) – “Sete Brasil” formed As many as 14 to start operations in 2011 Vessel Operators: Petrobras, Daimond, Transocean, Noble, Pride, Brasdril (Diamond), Queiroz Galvao, Seadrill, Dolphin, Sevan, Petroserv, Odebrecht Subsea Big spending hike since 2010 – impact of pre-salt Over 1000 wet trees to be ordered 2011 Diamond 15 Transocean 12 Pride 8 Delba 6 Noble 6 Queiroz Galvao 6 Scahin 5 Seadrill 4 Odebrecht 3 Petroserv 3 Etesco 2 Sevan 2 Dolphin 1 Business in the hands of local subsidiaries of all the principal international subsea contractors 9

E & P market Production Units – current operations 80 fixed platforms, 38 floating E & P market Production Units – current operations 80 fixed platforms, 38 floating (19 FPSOs, 17 semisubs) Vessel operators: SBM, MODEC, Prosafe, Sevan, Saipem, Petrojarl, BWO, Maersk, Petroserv Maintenance contractors: Engevix, PCP, Imitame, UTC, IESA, Wood Group Production Units – new build 7 FPSOs 2 semisubs 1 TLWP 10

E & P market 2010 Cidade de Santos FPSO Uruguai-Tambua MODEC Direct to gasline E & P market 2010 Cidade de Santos FPSO Uruguai-Tambua MODEC Direct to gasline Canapu Petrobras Dynamic Producer FPSO Guara TLD Petro. Serv Capixaba FPSO Baleis Franca-Cachalote SBM Cidade de Angra FPSO Tupi MODEC P-57 FPSO Jubarte Petrobras PMXL-1 semiaub Mexilhao Petrobras Cidade Rio das Ostras FPSO Aruana Petrojarl Cidade Sao Vicente FPSO Tupi NE BWO Peregrino FPSO+2 plats Peregrino (Statoil) Maersk P-56 semisub Marlim Sul III Angra for Petrobras 2011 2 more presalts TLDs Petrobras

E & P market 2012 Espadarte FPSO upgrade Baleia Azul Keppel (for SBM) P-55 E & P market 2012 Espadarte FPSO upgrade Baleia Azul Keppel (for SBM) P-55 semisub Roncador III PE&RS (for Petrobras) Cidade de Sao Paulo FPSO Guara Angra for MODEC Cidade de Itajai FPSO Tiro-Sidon Jurong (for Petrojarl) 4 presalt TLDs Petrobras 2013 P-61 TLWP Papa Terra Angra (for Keppel) P-63 FPSO Papa Terra Rio Grade (for QUIP) TBD FPSO Aruana TBD Cidade de Paraty FPSO Tupi NE Angra (for SBM) P-58 FPSO Whale Park Rio Grande (for QG-CC) P-62 FPSO Roncador IV Ipojuca PE (for QG-CC) TBD FPSO Guiama TBD 3 presalt TLDs 2014

Petrobras Upstream National Oil Production 1. 972 million bbl/d (Dec 2009) National Gas Production Petrobras Upstream National Oil Production 1. 972 million bbl/d (Dec 2009) National Gas Production 49. 548 million m 3/d (Dec 2009) Oil reserves 11. 19 billion bbl (2009) Gas reserves 335 billion m 3 (2009) Lift costs US$ 9. 02 /bbl (Q 3 2009) Exploration acreage 150, 000 km 2 Investment plan 2009 -13 US$ 175 billion 2010 investment US$ 45 billion Production platforms 112 (78 fixed, 34 floating) Offshore drill rigs (floaters) 46

OGX Launched with US$1. 3 billion capital in 2007 Public offering 2008 raised R$6. OGX Launched with US$1. 3 billion capital in 2007 Public offering 2008 raised R$6. 7 billion Now have 10 drilling rigs active on 29 exploration blocks Almost 100% success rate for first 24 wells US$3 billion spend on drilling 2010 -13 (79 wells), internally funded Estimate first production end 2011 Forecast production 1. 3 million bbl/d by 2019 48 production units over next 10 years Supported by EBX (shipbuilding), OSX (Services) and LLX (logistics) 14

IOCs Shell R$6 billion invested in E&P up to 2010 Production from Parque das IOCs Shell R$6 billion invested in E&P up to 2010 Production from Parque das Conchas and Bijipura-Salema fields (FPSOs) Ongoing development BS-4 Participation in 15 exploration blocks, 7 offshore. BP (Devon) Production from Polvo field Participation in 10 exploration blocks Discoveries – Xerelete, Wahoo, Itaipu El Paso Share of gas production from Camarupim Good acreage in shallow water Camamu-Almeida Basin, including Pinauna field 15

IOCs Anadarko Wahoo discovery Exploration acreage position with BP Exxon Operate the BM-S-22 presalt IOCs Anadarko Wahoo discovery Exploration acreage position with BP Exxon Operate the BM-S-22 presalt block in Santos – 3 dry holes BG Partners to Petrobras in Santos presalt Operate 4 blocks but drilling disappointing to date Chevron Production from Frade field Development in BS-4 with Shell and Papa Terra and Maromba with Petrobras Statoil Peregrino field development. 16

Language LANGUAGE • Portuguese is the preferred language for all activities, except technical. • Language LANGUAGE • Portuguese is the preferred language for all activities, except technical. • English is widely understood, but an inability to sell and build client relationships in Portuguese will have a significant impact on your rate of penetration into the local market • Countering this, the ability to communicate in English is a major benefit when dealing with technical and purchasing teams headed by ex-pats. It is vitally important to have access to Brazilian Portuguese speakers in any serious attempt to do business in Brazil, whether they be agents, employees or venture partners 17

Cultural Issues CONTACT WITH CUSTOMERS • Similar to many Latin cultures, Brazilian business draws Cultural Issues CONTACT WITH CUSTOMERS • Similar to many Latin cultures, Brazilian business draws heavily on personal relationships. • Incoming UK companies do not have the inherited family and career contacts in the market that local suppliers benefit from • Increasing travel costs means that giving the Brazilian market enough personal attention by UK sales staff is increasingly costly • Nothing happens quickly in Brazil. If your company is not regularly presenting to clients in Brazil, the likelyhood of quick sales and growth diminishes drastically A good agent, partner or local employee is almost impossible to do without KEEP THE CONTACT GOING • Don’t leave it all to your agent – someone else will take his attention • Brazilians need to feel they are taken seriously – listen to them • Things are different in Brazil – remember that 18

Local Content Most major offshore exploration and production developments come with a local content Local Content Most major offshore exploration and production developments come with a local content percentage stipulation, both for equipment and services. Anything since round 7 had VERY HIGH bids on Local Content Local content – GOODS • All local costs and mark-up count as LC – bill and profit locally and you get LC • Any local fabrication or local parts will help – but assess costs Local content – SERVICES • Only labour costs considered – cost of international labour/total labour cost Local content is audited by ANP approved auditors. Billing has to be local. Anything less than 10% LC is = 0%. Information on local content certification can be found on the ANP website: www. anp. gov. br 19

Local Content 20 Local Content 20

Petrobras supplier approval is a web-based process – presenting data on technical, financial, legal, Petrobras supplier approval is a web-based process – presenting data on technical, financial, legal, HSE, social responsibility Nothing special, but requires time and effort to do (bureaucratic) and you must have a local legal representative. SLOW! Petrobras have thousands of companies in backlog. Assessment can take 6 months. You need a “champion” inside Petrobras to push your cause and get it to the top of the pile. Note: • Petrobras supplier approval is not needed for many categories of goods and services. • Sales to contractors by non-approved suppliers remains common. In this case, contractors approved supplier procedures are applied 21

Customs and Import • Brazil is notorious for difficulties and delays in importing goods Customs and Import • Brazil is notorious for difficulties and delays in importing goods • Goods attract IPI tax, ICMS tax and Import Duty. • Customs delays are the norm (but vary by location) & storage charges are high • Temporary tax-free import (under REPETRO) is complex to administer. Standard temporary import may be easier – especially for your client • Consider bonded warehousing and the use of favourable import regimes and locations (eg Vitoria FUNDAP). • Consider a local Trading Co. They handle the paperwork and assume risks. • Always get the documentation right before shipping (try to pre-clear) • Running stock in bonded facilities is feasible for some businesses where premium prices for rapid delivery apply Thorough research of importation alternatives is crucial. Your customs agent must be selected carefully Current favourable exchange rates make imported UK goods very competitive. 22

Visas are essential for any UK worker going into Brazil. There is a certain Visas are essential for any UK worker going into Brazil. There is a certain amount of time, paperwork and inconvenience in the UK or US involved in successful issue of visas. • Contract a visa specialist “despachante” as this is a constantly changing area and professional assistance (in all its forms) is needed. • Cost around $1200 per visa (working visas, technical visas or crew visas) valid for 1+1 years. Always based on contracts, either with client or between local subsidiary and parent company. An INPI registered technical services contract can serve as the basis for visas for multiple employees or multiple client jobs • Emergency temporary working visas are can be issued with 2 -3 days lead time • Currently, working visas are taking 4 -6 weeks for approval Note that vigilance at the airports is always high and entry is regularly refused 23

Tax planning must be the cornerstone of your strategy for Brazil. The tax regime Tax planning must be the cornerstone of your strategy for Brazil. The tax regime as a whole in Brazil is high – but good planning will bring corporate income tax to levels lower than those in the UK Goods - sales taxes – ICMS 18%, IPI (varies) 5% Services - ISS 5% (or less in some municipalities or concessions) Also “turnover” taxes PIS+COFINS 4. 65% of gross (3. 65% for PPR**) Basic profit tax is 15%, with additional 9% social tax, plus additional 10% on income of over R$240 k p/a – ie 34% total Direct payments abroad attract 25% witholding tax Company dividends are not taxed, even if remitted abroad **Service companies can opt for PPR presumed profit regime, where taxes are paid on an assumed profit equivalent to 30% of billed value. 24

Competition Due in part to Petrobras’ effort to professionalise their supply chain, local competition Competition Due in part to Petrobras’ effort to professionalise their supply chain, local competition is now strong – if not always competitive quality of goods or service, they normally are competitive on price. Local companies always have the major advantage of knowing how to work with the contracting and bidding system, and know how to “handle” corruption as it arises. Recognize that corruption does exist in Brazil, though you may not always encounter it. This needs to be recognized from the outset. Local labour taxes, labour law regulations, high wages (driven by a shortage of suitably trained personnel) and a strong R$ make local labour expensive in the offshore environment compared to expats. Likewise locally manufactured goods are often unable to compete on price with imported goods of equivalent quality. The expansion of the sector means that there is almost always room for new suppliers – but displacing long term Petrobras suppliers is difficult. 25

Costs • Brazil is not a cheap country. Most things now cost more in Costs • Brazil is not a cheap country. Most things now cost more in Brazil than in UK • Expensive logistics and high cost of qualified labour have particular impact • Business in Brazil also demands higher levels of administration effort than is normal in most markets. Company administration, accounts-tax administration, currency movements, stock administration and payroll administration all consume large amounts of time and cost. • It often takes much longer to break into the market in Brazil than in other countries – which means start-up in Brazil is costlier than in other markets. • Be aware of this long lead time, and the costs involved. Reducing this lead time using a well planned local partnership or by contracting a good agent, is clearly a strong strategy Experience shows that major investment, without first securing contracts, is often a risky strategy. 26

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