PROCUREMENT POLICY AND CRITICAL EQUIPMENT SUPPLY July / 2008 1
Disclosure The presentation may contain forecasts about future events. Such forecasts merely reflect the expectations of the Company's management. Such terms as "anticipate", "believe", "expect", "forecast", "intend", "plan", "project", "seek", "should", along with similar or analogous expressions, are used to identify such forecasts. These predictions evidently involve risks and uncertainties, whether foreseen or not by the Company. Therefore, the future results of operations may differ from current expectations, and readers must not base their expectations exclusively on the information presented herein. The Company is not obliged to update the presentation/such forecasts in light of new information or future developments. Cautionary Statement for US investors The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as oil and gas resources, that the SEC s guidelines strictly prohibit us from including in filings with the SEC. 2
LOCAL CONTENT SUPPLY POLICY 3
Local Content Supply Policy Supply Policy to maximize Local Content Petrobras recognizes in local supplying market opportunities to improve cost effectiveness and quality standards of the present and future projects; Petrobras Local Content Policy After sales, provided by local suppliers, use to be faster and friendly if compared with the same service provided by foreign companies; The Petrobras focus on supply market (in Brazil or abroad) is over competitiveness and sustainability of the suppliers of goods and services; The Petrobras Local Content policy is connected and contributes for the Petrobras Social Responsibility Policy. 4
Local Content Supply Policy Supply policy to maximize local content Minimum Local Content requirement at contracts for oil field development Petrobras (as G&S purchasing company) Local content - also for G&S on downstream contracts Financing Agent (BNDES - development bank) Minimum Local Content requirement for financing concession Brazilian Regulatory Agency (ANP) Minimum Local Content requirement in 9 bidding rounds of exploratory blocks (since 1997) Local content (Manual for Local Content Assessment) Calculated with specific methodology to measure the real value of locally manufactured goods and services. 5
BRAZILIAN COMPANIES 6
Brazilian Companies Brazilian companies means companies that have manufacturing processes and after-sales services in Brazil, creating jobs and collecting taxes in the country. 7
CRITICAL GOODS AND SERVICES 8
Technological Basis Transforming Industry Metalurgical Tecnology Mechanical Technology Electric Technolog Services Marine parts Actions Sectors Insufficient fulfilment of future demands Product portfolio Low local 2content Low R&D Activity Process Technology Basic Industrial Technology Engineering Mills 1 1 0 0 0 0 0 0 0 0 Pipelines 1 2 0 0 0 0 0 0 0 0 Flanges and Connections Professional Qualification Boiler Works Rods and Socker Road Pumps 0 31 0 Polyester 0 0 cables 0and mooring 0 systems; 0 0 0 4 Subsea 1 1 1 1 1 0 0 0 0 0 Pumps 1 1 0 0 1 0 0 0 0 0 Compressors Gas and Diesel Motors 4 Turbines 1 0 systems 0 1 for drilling activities; 0 0 Cranes and Hoists Valves Generators and Electrical Motors 1 0 0 0 0 0 0 0 0 0 Drilling bits; Substations and Transformers 0 61 0 0 0 0 0 0 Automation and Instrumentation Engineering Services Construction Services Infrastructure 1 2 Increase of production capacity Competitiveness Diagnosis of Brazilian Industry 5 1 3 High Competitiveness Sectors Bottlenecks and challenges Technology CRITICAL EQUIPMENT Staff Special alloys (for boiler works) and forged alloys Pipelines 14-42 diameter with longitudinal welding; Polished rods with centering guides; Drilling pipes and fiberglass pipes; Electrical cables for CSP (Centrifugal submersible pumping); Well control systems, oil and gas metering Offshore drilling rigs; Gravel Packing; Production pipes with special alloys coatings (13 Cr, Super 13 Cr); Pumps - API standards; 5 Incentive to R&D activities Incentive in to R&D activities in Brazill Brazill Incentive 6 to domestic (Not a priority) (Not a priority) production Electrical of dry transformers; Sources: Institute of Economy UFRJ components Sources: Institute of Economy UFRJ 9
Competitiveness Diagnosis of Brazilian Industry High Competitiveness Sectors Infrastructure Bottlenecks and challenges IMPORTED COMPONENTS Technology Staff Technological Basis Sectors Insufficient fulfilment of future demands Product portfolio Low local content Low R&D Activity Process Technology Basic Industrial Technology Engineering Professional Qualification Transforming Industry Metalurgical Tecnology Mechanical Technology Electric Technolog Marine parts Mills 1 1 0 0 0 0 0 0 0 0 Pipelines 1 2 0 0 0 0 0 0 0 0 Flanges and Connections Boiler Works Rods and Socker Road Pumps 0 31 0 0 0 pipes 0 and aramid 0 fiber; 0 0 0 Subsea 1 41 1 1 1 0 0 0 0 0 A Flexible pipelines: External Pumps 1 51 0 0 1 polymers 0 and 0alloys; 0 0 0 Compressors Gas and Diesel Motors Turbines 1 0 0 1 0 0 Cranes and Hoists Valves B Imported assembles Generators and Electrical Motors 1 0 0 B 0 0 Roller 0 bearings 0 and automation 0 0 0 Substations and Transformers 0 1 0 0 0 0 0 0 6 Automation and Instrumentation 1 2 A Christmas Trees forged alloys and electronic systems; Umbilicals: Nylon 11,inox flexible Steel and copper plates Services Engineering Services Construction Services Actions Increase of production capacity Incentive to domestic production of components Incentive to R&D activities in Brazill (Not a priority) Sources: Institute of Economy UFRJ 10
Competitiveness Diagnosis of Brazilian Industry Medium Competitiveness Sectors CRITICAL EQUIPMENT Technological Basis Transforming Industry Metalurgical Tecnology Mechanical Technology Electric Technolog Services Marine parts Mills Sectors Insufficient fulfilment of future Product portfolio Low local content Low R&D Activity Pipelines 7 Flanges and Connections 1 0 1 1 1 Boiler Works 1 71 1 1 1 1 1 Rods and Socker Road Pumps Subsea Pumps Compressors (Alternative) 1 81 1 Gas and Diesel Motors 1 91 8 1 Turbines Cranes and Hoists 1 101 1 11 9 Valves 1 1 1 1 1 1 Generators and Electrical Motors Substations and Transformers Infrastructure Bottlenecks and challenges Technology HCC Reactors (250-300 mm wall Staff width 200kgf/cm2 internal Basic pressure) Process Professional Industrial Engineering Boiler Technology works Qualification Technology with special alloys (reactors, towers and pressure vessels) Boilers (steam generators); High pressure heat exchangers with H2S traces Structured packing for process towers Moto-compressor and bare compressor Heavy service engines Offshore and marine cranes Automation and Instrumentation Engineering Services 1 121 1 1 1 1 11 Special submarine sphere valves Construction Services 1 1 1 1 10 Forged valves Actions Increase of production capacity 12 Basic and thermal design Technological update Partnership with foreign companies Source: Institute of Economy UFRJ and Petrobras 11
Competitiveness Diagnosis of Brazilian Industry Low Competitiveness Sectors Bottlenecks and challenges Technological Basis Metalurgical Tecnology Sectors Mills Pipelines Flanges and Connections Boiler Works Insufficient fulfilment of future Infrastructure Product portfolio Low local content Low R&D Activity Technology Process Technology Basic Industrial Technology Engineering Staff Professional Qualification Rods and Socker Road Pumps Transforming Industry Mechanical Technology Marine parts Subsea Pumps Compressors (Centrifugal) 1 1 1 1 1 1 1 1 1 1 Gas and Diesel Motors (heavy work) 1 1 1 1 1 1 1 1 1 1 Gas Turbines 1 1 1 1 1 1 1 1 1 1 Cranes and Hoists Valves Electric Technolog Generators and Electrical Motors Substations and Transformers Automation and Instrumentation 1 1 1 1 1 1 1 1 1 1 Services Engineering Services Construction Services Actions Importing / To incentive the introduction of foreign companies in Brazil Source: Institute of Economy UFRJ and Petrobras 12
Technological Development Materials and Equipment to be developed in next years Submarine sensor for measuring oil and grease degree in water; Signal optical cable for well temperature and pressure monitoring; Submarine optical connectors; Intelligent sensor network for natural gas flow measurement; Internal for piping in the radiation zone of industrial furnaces; Co-generation system using biomass as fuel; Submarine sphere valves; Monitored cathodic protection system for pipelines. 13
Other E&P Critical Services Area Services E&P Drilling ; Well Completions; Flexible lines and umbilicals (installation); Support to diving; Support to ROV operation; Support to mooring activities; Special support vessels; Well subsea connections. ACTION Each service has a specific strategy 14
Adapting the National Supply Estate Proposed approaches ACTIONS ACTIONS Competitive Sectors Sectors eligible to incentives Medium Competitiveness Sectors Sectors without local manufacturing General actions Introduction/enlargement Introduction/enlargement of industrial infrastructure of industrial infrastructure To incentive the domestic To incentive the domestic production of components production of components Mills Pipeline Subsea Pumps Steam Turbines Generators and electrical motors Subsea Generators and electrical motors Flanges and connectors Boiler works Alternative compressors Gas and Diesel Engines Cranes and winches Valves Engineering Construction and Assembling Centrifugal compressors Heavy duty gas and diesel engines Gas Turbines Automation and Instrumentation Technological update Technological update Flanges and connections Boiler works Valves Engineering Construction and Assembling Partnership with foreign companies 15
PETROBRAS GOODS AND SERVICES CONTRACTS HISTORICAL INFORMATION 16
Goods contracting US$ Millions 17
Services contracting US$ Millions 18
SUPPLY STRATEGIES FOR GOODS AND SERVICES US$ 5.2 Bi Manufacturers Distributors Retailers Equipment Chemicals Spare parts Etc. Seismic US$ 23.6 Bi Service providers Drilling Transport Etc. As per 2007 US$11.0 Bi EPC Shipyards Constructors Platform Refinery Revamps Etc. 19
SUPPLYING GOODS AND SERVICES TO PETROBRAS 20
Supplying to Petrobras Access www.petrobras.com.br Select English version; and than select Provider Channel, or Select Supplier Channel. Brazilian Law:» There you can access - CONDITIONS FOR THE SUPPLY OF MATERIAL - CFM 2005. DL 2745, devoted to Petrobras establishes clear rules for Petrobras and their suppliers. 21
RELEVANT EQUIPMENT DEMAND FOR THE PERIOD 2008-2015 22
Relevant equipment demand for the period 2008-2015 Items Units of Measurement Total Amount ( 2008 ~ 2015 ) Structural Steel t 1.252.000 Air Coolers un 721 Mooring Cables km 2.726 Christmas Trees un 3.930 Safety boats un 344 Pumps un 10.264 Lifeboats un 1.978 Well Heads un 3.657 Compressors un 969 Fan Coils un 2.818 Heat Furnaces un 252 Heat Reformers Furnace un 8 Eletric Generator un 439 Crane un 220 Flexible Pipes m 7.200 Diesel Engines un 717 Eletric Motors un 17.035 Reactors un 317 Storage Tanks un 2.824 Process Towers un 732 Eletric Transformers un 1.236 Heat Exchangers un 5.913 Pipe lines t 1.542.266 Turbines un 441 Production Rigs un 36 Pressure Vessels un 4.829 23
Strategies for Contracting Goods and Services Strategic Contracting Matrix High Market Complexity (External Factor) Low Bottlenecks Supply Source Management Categories of non-critical items and concentrated supply market. This category shall be managed in order to minimize the supply risks (ex:long term contracts, consortiums, outsourcing centralcoordination and local requests) Aquisition Process Management Categories of non-critical items on technical specifications and plenty of suppliers in the market. This category shall be managed aiming to minimize the acquisition process costs (ex: outsourcing, local purchases ordering, standardization, e- Procurement) Opportunities Strategic items Supplier Management Categories of strategical and complex items. This category shall be managed in order to provide the maximum control degree of the supply source (ex: partnerships, vertical integration, supplier development) Item Management Categories of high criticality items (technical specifications of utmost importance) and plenty of suppliers in the market. This category shall be managed in order to assure the repetitiveness of the low cost. The process shall allow the control of future price (ex: auctions, short term contracts, aggressive negotiations, replacement, consolidation etc) Levering The concept of the Strategic Matrix is to identify a contracting strategy for each item category, taking into account the criticality of the item and the complexity of the supplier market Low Criticality of Item (Internal factor) High 24
PROCUREMENT DEPARTMENT marcoramos@petrobras.com.br July / 2008 25