Hartke - Palisade Corporation

Risk Analysis of Offshore Multi-Field
Oil Production Projects at PETROBRAS
RAFAEL HARTKE, ERP
FINANCIAL PLANNING AND RISK MANAGEMENT
PETROBRAS
November, 2010
DISCLAIMER
FORWARD-LOOKING STATEMENTS:
DISCLAIMER
The presentation may contain forward-looking statements about
future events within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that are not based on historical facts and
are not assurances of future results. Such forward-looking
statements merely reflect the Company’s current views and
estimates of future economic circumstances, industry conditions,
company performance and financial results. Such terms as
"anticipate", "believe", "expect", "forecast", "intend", "plan", "project",
"seek", "should", along with similar or analogous expressions, are
used to identify such forward-looking statements. Readers are
cautioned that these statements are only projections and may differ
materially from actual future results or events. Readers are referred
to the documents filed by the Company with the SEC, specifically the
Company’s most recent Annual Report on Form 20-F, which identify
important risk factors that could cause actual results to differ from
those contained in the forward-looking statements, including, among
other things, risks relating to general economic and business
conditions, including crude oil and other commodity prices, refining
margins and prevailing exchange rates, uncertainties inherent in
making estimates of our oil and gas reserves including recently
discovered oil and gas reserves, international and Brazilian political,
economic and social developments, receipt of governmental
approvals and licenses and our ability to obtain financing.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information or future events or for any other reason. Figures
for 2010 on are estimates or targets.
All forward-looking statements are expressly qualified in their
entirety by this cautionary statement, and you should not
place reliance on any forward-looking statement contained in
this presentation.
NON-SEC COMPLIANT OIL AND GAS RESERVES:
CAUTIONARY STATEMENT FOR US INVESTORS
We present certain data in this presentation, such as oil and
gas resources, that we are not permitted to present in
documents filed with the United States Securities and
Exchange Commission (SEC) under new Subpart 1200 to
Regulation S-K because such terms do not qualify as proved,
probable or possible reserves under Rule 4-10(a) of
Regulation S-X.
2
SCHEDULE
• Motivation and Objective
• An Overview of PETROBRAS
• Upstream Business Segment
• Risk Analysis of Offshore Multi-Field Oil Production Project in Brazil
• Conclusion
• Final Remarks
3
MOTIVATION AND OBJETIVE
Motivation:
• All investment projects must undergo economic risk analysis in
PETROBRAS
• Corporate tool for economic risk analysis – PROGRIDE
• New projects and new exploratory frontier present a whole new level
of complexity – new techs, partnerships, optionalities, multi-fields...
• PROGRIDE not capable of handling this new complexity!
4
MOTIVATION AND OBJETIVE
Objective:
• Present PETROBRAS
• Examine the main issues in offshore multi-field oil production
projects in Brazil
• Present a solution integrating @RISK and PROGRIDE to perform risk
analysis of offshore multi-field oil production projects
5
An Overview of PETROBRAS
PETROBRAS: AN INVESTMENT GRADE, PUBLICLY TRADED, MAJOR
INTERNATIONAL OIL COMPANY
Incorporated in 1953 as the government
monopoly for all hydrocarbon activities in
Brazil
Government maintains controlling interest
with 55% of voting shares
Originally established as a refiner of
imported crude oil
Market cap of US$ 224 billion as of
September 30th, 2010
Became net exporter in 2006
Foreign currency ratings from Moody’s
(Baa1), Standard & Poors (BBB-), and Fitch
(BBB).
60% of total equity capital (common and
preferred) is now publicly traded
Petroleum
Law and ANP
creation:
End of
Monopoly
1997
First Public
Auction of Oil
Exploration
Areas
Petrobras
NYSE Listing
June 1999
Aug 2000
Full
Deregulation
Jan 2002
Upgraded to
Investment
Grade Issuer
Oct 2005
Crossed the
Brazil Self
US$100 billion Sufficient in
Market
Oil
Cap mark
2006
Apr 2006
2MM bpd,
$200MM market
cap, Discovery
of new oil
frontier: PreSalt (Tupi field)
A New E&P
Regulatory
Framework.
Pre-Salt and
Strategic
Areas
2007
Aug 2009
7
A WORLD-CLASS, PUBLIC, INTEGRATED ENERGY COMPANY
3.9
2009 Oil & Gas Production
3.9
Gas Production boe/d
3.2
Oil Production boe/d
2.7
(mmboe/d)
2.5
2.5
2.2
1.7
84%
(oil)
BP
XOM
RDS
Source: Evaluate Energy and Company reports
CVX
PBR
0.6
COP
Total
BG
Market Value as of September 30th, 2010
3 15
6, 271
3, 639
2, 902 2. 666
(US$ bn)
(thousand boe/d)
2009* Refining Capacity
ENI
224
18 3
12 1
T OT
PBR
CVX
ENI
87
85
E NI
C OP
67
311
X OM
BP
12 9
2 , 5 9 42 , 2 2 3 2 , 1 5 8
747
Source: PFC Energy
X ODecember
M
R D S2009C O P
*Report
16 3
STL
P BR
RDS
CV X
BP
T OT
ST L
Source: Bloomberg
8
Note: Peer companies selected above have a majority of capital traded in the public markets.
PETROBRAS CURRENT INTERNATIONAL PRESENCE
2009
2009 -- Brazil
Brazil
-- Production:
Production:
•• Oil
Oil and
and LNG:
LNG: 1.971
1.971 thous.
thous. bpd
bpd
•• Natural
Natural Gas:
Gas: 317
317 thous.
thous. bpd
bpd
• Oil Products: 1.823 thous. bpd
-- Proven
Proven Reserves:
Reserves: 14,2
14,2 million
million boe
boe
(SPE
(SPE Criteria)
Criteria)
-- Distribution
Distribution market
market share:
share: 38.6%
38.6%
- Ethanol Exportation: 362.000 m³
9
OFFSHORE DEEPWATER PRODUCTION DEVELOPMENT PROCESS
1977
Enchova
410ft
1988
Marimbá
1610ft
TUPI
WATER DEPTH = 7,125 ft
TOTAL DRILLING DEPTH = 17,431 ft
TIBER
WATER DEPTH = 4,134 ft
TOTAL DEPTH = 35,055 ft
1994
Marlin
3,370ft
2009
Tiber
4,134 ft
1997
Marlin Sul
5,600ft
2003
Roncador
6,180 ft
2009
Tupi
7,125 ft
2010
Cascade
Chinok
8,250ft
10
BUSINESS PLAN 2010-14: US$ 224 BILLION
Increased investment for integrated operations in Brazil
Business Segment
(US$ Billion)
1% 2%
Brazil and Abroad
(US$ Billion)
1%
2%
5.1 3.5
2.5 2.8
8%
3.5
International
5%
11.7
17.8
118.8
73.6
53%
212.3
33%
95%
Brazil
E&P
Downstream
G&E
Distribution
Biofuels
Corporate
Petrochemicals
11
Upstream Business Segment
DOMESTIC UPSTREAM PROFILE
2009 Production
14%
19%
2009 Proven Reserves (SPE)
10%
9% 10%
24%
57%
2,287 thousand boed
Onshore
Source: Petrobras
Shallow water (0-300m)
57%
14.17 billion boe
Deep water (300-1500m)
Ultra-deep water (> 1500m)
13
DOMESTIC PROVEN RESERVES PROFILE
Proven Reserves as of Dec/2009 (ANP/SPE)
(14,17 billion boe)
< 22º
22º API
(heavy)
Oil + Condensate
85%
50%
29%
15%
Gas
6%
22 – 31 º API
(intermediate)
> 31 º API (light)
10% 5%
Associated Gas
NonNon-Associated Gas
Undeveloped
Proven Reserves
43%
57%
Developed
Proven Reserves
14
MORE FIELDS ANDS BLOCKS WITH PARTNERS
o Petrobras’ current domestic production comes mainly from fields (97%) owned by the company
alone
o In blocks under development, 62% of blocks without partners
o More than half (53%) of the blocks under exploration or appraisal are joint ventures
Concessions Under Production
(247)
Production Development
Concessions (66)
97%
3%
38%
Exploration + Evaluation
Concessions (54)
53%
62%
47%
Petrobras (100%)
Petrobras in Partnerships
34 Oil and Gas Companies (2008)
15
SINN, July 2009
UPSTREAM PORTFOLIO AT DIFFERENT STAGES OF DEVELOPMENT
Margem Equatorial
Ceara & Potiguar
Solimões
Brazil
Potiguar
SEAL& REC & TUC
Bahia Sul
São Francisco
Espírito
Santo
Campos
Petrobras
Others
Santos
o Brazil
Exploration:
2009-13
US$
13.8 bn
o Exploratory Area:
155 thousand
km²
o 265 exploratory
blocks
o 35 appraisal
plans
o 313 production
concessions
Pelotas
16
MAIN PROJECTS 2010-2014
Updated business plan added new projects
Mexilhão
Mexilhão
NG
NG
Th. bpd
Uruguá/Tambaú
Uruguá/Tambaú
FPSO
FPSO Cidade
Cidade de
de Santos
Santos
Marlim
Marlim Sul
Sul
SS
SS P-56
P-56
Module
Module 33
100,000
100,000 bpd
bpd
Early
Early production
production of
of
Baleia
Baleia Azul
Azul
FPSO
FPSO Espadarte
Espadarte
100,000
100,000 bpd
bpd
Guará
Guará Pilot
Pilot FPSO
FPSO
120,000
120,000 bpd
bpd
Tupi
Tupi NE
NE Pilot
Pilot
FPSO
FPSO
120,000
120,000 bpd
bpd
NG/35,000bpd
NG/35,000bpd
2800
2400
2,980
Tupi
Tupi Pilot
Pilot
Cidade
Cidade de
de Angra
Angra dos
dos
Reis
Reis
100,000
100,000 bpd
bpd
Cachalote
Cachalote ee
Baleia
Baleia Franca
Franca
FPSO
FPSO Capixaba
Capixaba
100,000
100,000 bpd
bpd
Roncador
Roncador
SS
SS P-55
P-55
Module
Module 33
180,000
180,000 bpd
bpd
2,100
2000
1600
Tupi
Tupi NE
NE EWT
EWT
30.000
30.000 bpd
bpd
Guará
EWT
Guará EWT
Dynamic
Dynamic Producer
Producer
30,000
30,000 bpd
bpd
Tiro
Tiro EWT
EWT
SS-11
SS-11
30,000
30,000 bpd
bpd
Aruanã
Aruanã EWT
EWT
Jubarte
Jubarte
FPSO
FPSO P-57
P-57
180,000
180,000 bpd
bpd
15,000
15,000 bpd
bpd
44 EWT
EWT
Pre-salt
Pre-salt
2010
2011
Cidade
Cidade Rio
Rio das
das Ostras
Ostras
Papa-Terra
Papa-Terra
TLWP
TLWP P-61
P-61 &&
FPSO
FPSO P-63
P-63
150,000
150,000 bpd
bpd
Roncador
Roncador
FPSO
FPSO P-62
P-62
Module
Module 44
180,000
180,000 bpd
bpd
Tiro/Sidon
Tiro/Sidon
FPSO
FPSO
100,000
100,000 bpd
bpd
Whales
Whales Park
Park
FPSO
FPSO P-58
P-58
180,000
180,000 bpd
bpd
Aruanã
Aruanã
FPSO
FPSO
100,000
100,000 bpd
bpd
Guaiamá
Guaiamá
FPSO
FPSO
100,000
100,000 bpd
bpd
44 EWT
EWT
Pre-salt
Pre-salt
33 EWT
EWT
Pre-salt
Pre-salt
22 EWT
EWT
Pre-salt
Pre-salt
1200
Oil
2012
Pre-Salt
EWT = Extended Well Test
2013
2014
Natural Gas
17
PETROBRAS
• Major international energy company
• Very ambitious investment plan
• Many big upstream projects coming up in the next few years
• Deep and ultra-deep waters, new technologies, partnerships,
optionalities, multi-fields...
18
Risk Analysis of Offshore Multi-Field Oil Production Project in Brazil
Taxation of Offshore Oil Production in Brazil
Oil production project specific taxes:
• Royalties
~ 10% of gross revenue
• Special Participation
~ 0 to 40% of gross revenue, per field/block
• R&D
~ 1%
• Area Rental
~ 0%
• REPETRO
optional tax excemption on imported
equipment (very complex!)
20
Special Participation
21
PROGRIDE
PROGRIDE is PETROBRAS’ corporate tool for economic analysis of upstream
investment projects:
• In-house Excel based solution
• Excel interface and C++ code on the background
• Adapted to the Brazilian upstream specifics (taxes, oil spreads,
logistic costs)
• Uniform methodology among all projects and explicit inputs (audits)
• Deterministic, sensitivities and risk analysis modules
22
PROGRIDE
Advantages of using PROGRIDE:
• Automatic calculation of taxes (Income Tax, Royalties, Special
Participation, R&D, Area Rental)
• Automatic calculation of depreciation, residual values and economic life
of the project
• Support for multiple dependent projects within the same block
• Support for earlier production projects (with negative production in
the future)
• Support for OPEX reduction projects (with negative OPEX in the
future)
23
PROGRIDE – Interface
24
PROGRIDE – Main results
• Net Present Value
• Probability of Negative NPV
• Payback Period
• Optimal Abandon Date
• Financial exposure
• Government take
• Equilibrium Oil Price
• Value @ Risk
25
Offshore Multi-Field Oil Production Projects in Brazil
Oil project with 2 fields producing to 1 FPSO:
FPSO
Field
B
Field
A
Integrated Project
A+B
26
Offshore Multi-Field Oil Production Projects in Brazil
Oil project with 2 fields producing to 1 FPSO:
• Production from 2 fields (independent production curves)
• Process oil in 1 FPSO
• Shared CAPEX (FPSO, pipelines)
• Independent CAPEX (wells, risers)
• Independent taxation for each field (Royalties, Special Participation)
27
Offshore Multi-Field Oil Production Projects in Brazil
Economic model main issues:
• CAPEX and OPEX ratio between fields
• Oil price and spread for each field
• Taxation (Royalties, Special Participation) for each field
• Correlation or competition between production curves of each field
28
Offshore Multi-Field Oil Production Projects in Brazil
Risk Analysis main issues:
• Some risk factors are shared among fields (Oil price, FPSO CAPEX)
• Therefore, Risk Analysis must be integrated!
• Some risk factors are independent (production curves, drilling
CAPEX)
• Therefore, taxation of each field (Royalties, Special Participation, R&D
and Area Rental) must be calculated independently!
PROGIDE is not capable of handling these issues!
29
PROGRIDE – Main limitations
• Internal C++ code (little flexibility, no access to risk scenarios)
• No seeding in Risk Analysis (oil prices, CAPEX, OPEX)
• No support for multiple production curves (correlation or competition)
• No support for multiple oil prices (different spreads)
• No support for Special Participation tax calculation with multiple fields
30
So…
Defining our problem:
• We’ve got a very ambitious investment plan
• We’ve got a complex tax system for offshore oil production projects
• We’ve got a corporate tool for Risk Analysis (and we must use it!)
But our tool is obsolete for Risk Analysis
in face of new complexity of projects!
31
Possible solutions…
New version of PROGRIDE for
Risk Analysis???
Adapt PROGRIDE
using @RISK!!!
32
Risk Analysis in Multi-field Oil Production Projects
@RISK+PROGRIDE Integration:
• Use independent PROGRIDE for each field (deterministic interface)
• Use @RISK to model independent risk factors inside PROGRIDE
(production curves, drilling CAPEX)
• Use @RISK to create a stand-alone set of risk scenarios for the shared
risk factors (Oil price, FPSO CAPEX)
• Make PROGRIDE read the set of risk scenarios
• Run @RISK, calling PROGRIDE through a Macro
• Monitor the desired Outputs of PROPGRIDE with @RISK (NPV,
probability of negative NPV, V@R)
33
@RISK+PROGRIDE Integration
@RISK
Models for A
(independent)
@RISK
Models
(Shared)
@RISK
Models for B
(independent)
Risk
Scenarios
for Field A
Risk
Scenarios
(Shared)
Risk
Scenarios
for Field B
Progride
for Field A
(deterministic)
Progride
for Field B
(deterministic)
34
@RISK+PROGRIDE Integration
Progride
for Field A
(deterministic)
Progride
for Field B
(deterministic)
Run @RISK
5000 iterations
RiskCurrentIter()
Run Macro
Risk
Results
for Field A
Run @RISK
5000 iterations
RiskCurrentIter()
Run Macro
Risk Results
for Project
(Fields A+B)
Risk
Results
for Field B
35
@RISK+PROGRIDE Integration
How to make PROGRIDE “read” the risk scenarios pre-generated by @RISK:
• RiskCurrentIter() = 0125000
36
@RISK+PROGRIDE Integration
How to make PROGRIDE “read” the risk scenarios pre-generated by @RISK:
• RiskCurrentIter() = 0125000
37
Risk Analysis in Multi-field Oil Production Projects – Results
NPV histogram:
NPV < 0
0 ,2 %
0,0 0 0 3 0
N P V < D e te r m in is tic
4 7 ,3 %
• Results here...
0,0 0 0 2 5
0,0 0 0 2 0
0,0 0 0 1 5
0,0 0 0 1 0
0,0 0 0 0 5
0,0 0 0 0 0
- 2 0 00
0
20 0 0
4 0 00
N P V6 [U
0 0S0$ M M ]
8000
1 0 00 0
12000
14000
38
@RISK+PROGRIDE Integration – some notes…
The shared risk factors can be modeled using:
• @RISK functions + seed directly in Excel: quicker, easier, but offers
less control over the process
• Pre-generated scenarios: using @RISK to create a stand-alone set of
risk scenarios takes some time and effort, but is more well suited for
an experimental process
39
@RISK+PROGRIDE Integration – some notes…
Special @RISK and Excel functions used:
• RiskCurrentIter(): function from @RISK Statistics, returns the current
iteration while running a simulation
• Offset(ref;X;Y;;): Excel function, returns the value of a cell offset X
lines and Y columns from an initial reference
• Macros in @RISK: Run an Excel Macro After Each Iteration´s
recalculation
40
Conclusion
@RISK+PROGRIDE integration allows:
• Flexibility to model shared risk factors among independent projects in
a porfolio
• Flexibility to model real options inside PROGRIDE
• Risk analysis of multi-field oil production projects
• Risk analysis of oil production projects with partners
• Risk analysis under the new Brazilian regulatory framework???
41
Final Remarks
Integration of @RISK to any Excel based system:
• @RISK+PROGRIDE integration uses only PROGRIDE’s Excel
interface, @RISK’s special functions and @RISK’s Macro controls
• Therefore, is it possible to couple @RISK to any Excel based system
(without reworking with the system)?
• Will this method allow performing Risk Analysis in other corporate
(legacy) systems through an Excel interface?
• Will this method allow performing risk analysis with optimization
under uncertainty in portfolios?
• Will @RISK RDK help speed up this process?
42
Information:
Rafael Hartke
Investor Relations
+55 21 3224-3447
+55 21 3224-1510
hartke@petrobras.com.br
petroinvest@petrobras.com.br
43