1. So Paulo | Rio de Janeiro | Braslia | Curitiba | Porto Alegre | Recife Belo Horizonte | Campo Grande London | Lisbon | Shanghai | Miami | Buenos Aires | Beijing | Johannesburg |New DelhiOpportunities in the Oil & Gas Market in Brazil Some Legal AspectVera Dantas Aberdeen 15 March 2012

2. Pre-Pre-salt area SOURCE: Revista Brasileira de Tecnologia e Negcios de Petrleo, Gs, Petroqumica, Qumica Fina e Biocombustveis. Ano X jul./ago 2008 n. 61. p. 30.

3. Its remarkable offshore oil bonanza could do Brazil a lot of good. But getting the most out of it will not be easy. 5 Nov 2012

4. PRESENTATION TOPICS 1. Petrobras Investments 2. Oil & Gas Sector in Brazil - Legal Framework 3. Local Content Requirements 4. Establishing a presence in Brazil 5. Petrobras

5. 1. Petrobras Investments Petrobras Investment Plan, as announced last December: Petrobras will invest circa of US$ 224.7 billion until 2015; Internal demand in ten years could reach 3.3 million of barrels per day; Target : 6 million barrels per day by 2020; 2012 budget : R$ 77.9 billion (approximately 27.5 billion) to be invested in Brazil : Upstream: 65% for development of production and 18% for exploration;

6. Petrobras Investments cont.Downstream:17% for infra-structure refining, transport andcommercialization (including four new refineries inPernambuco, Maranho, Cear and Rio Grande do Norte). Source : Valor Econmico, 19 December 2011

7. Petrobras Investments cont.On 7 March 2012, 2:07 PM , O Estado de So Paulo:Petrobras already has the funds for investments in 2012 Graa guarantees. Objective is that the company invests US$ 50billion this year, compared to US$ 40 bilhes last year.Impact of such investments will be felt in the wholechain of suppliers of equipment and services thatform the Oil Industry.

8. 2. Oil & Gas Sector in Brazil LegalFramework Petrobras was created in 1953 as a State company and has maintained the exclusive control of all oil industry activities until 1995, when its monopoly came to an end - Constitutional Amendment number 9.

9. Oil & Gas Sector in Brazil LegalFramework - cont. Ownership of natural resources has been retained by constitutional provision; likewise, monopoly of Exploration & Production remained of the State, but the Brazilian Oil and Gas Law (number 9478, of 6 August 1997) allowed private companies to exercise exploration activities. With pre-salt discoveries, the legal framework has changed again with Law 12351, of 22 December 2010.

10. Legal Framework before the pre-saltreserves discoveries: concessionagreements Law 9478 of 6 August 1997 : Created the NATIONAL COUNCIL OF ENERGY POLICY (CNPE) and the NATIONAL AGENCY OF PETROLEUM, NATURAL GAS AND BIOFUELS (ANP*), the industrys regulator and supervisor. Sets forth the applicable rules for the exploration and production of oil. Private companies allowed to exercise activities of exploration and production of oil through concession agreements, preceded by invitations to bid. (*) renamed as such by Law 11097/2005

11. Legal Framework before the pre-saltreserve discoveries : concession agreements cont. ANP is responsible for issuing tenders to grant concessions. Concessionaires are entitled to ownership of all oil produced subject to taxes; government had signature bonus, royalties (10% to 5% - the latter where extreme conditions applied), etc. Bidders have to meet legal, technical and financial requirements. Exploration blocks were defined by ANP.

12. After the Pre-Salt reserves discoveries: Law12351 of 22 December 2010 theProduction Sharing Agreement (PSA) New regulatory structure : Exploration and production of oil : activity will be exercised, through concession, authorization or under the production sharing regime (Article 5 of Law 9478, as modified in December 2010). Now the CNPE defines the blocks that will be offered under the concession or the production sharing regime (Article 2, VIII) before, it was the ANP. Likewise, it decides which blocks will be contracted directly with Petrobras under a PSA and which blocks will go to auctions, also under a PSA. The ANP suggests, the Council decides.

13. New Rules Law 12351/2010 cont.Production Sharing Agreements : between the State andPetrobras (no tender) or between the State, Petrobras and theOil Company, preceded by tender (auction type).ANP still responsible for issuing invitations to bid both for theexploration and production of oil under a) PSAs (Article 11,III); and under b) concessions agreements (Article 8, IV and36).ANP still supervises (directly or indirectly with Brazilian Statesor other, as foreseen in Law 8078/1990) the oil industryactivities (VII).

14. New Rules Law 12351/2010 cont.Petrobras is the Operator.Where an oil company is allowed to bid for an explorationblock and wins the bid: consortium agreement betweenPetrobras, the bid winner and the Pre-Sal State company.If hired directly, or if it wins the bid, Petrobras will enter into aconsortium agreement with the Pre-Sal State company (Pr-Sal Petrleo S.A. PPSA, controlled by the BrazilianGovernment).Foreign company must undertake, when participating of theinvitation to bid, that it will create a Brazilian company if itwins same rule, as before (Article 17, IV).

15. 3. Local Content Requirements Its remarkable offshore oil bonanza could do Brazil a lot of good. But getting the most out of it will not be easy. But it is never too easy, is it ?

16. Local Content Requirements cont. The local content requirement is present both in the concession and in the PSA regimes as well as in the downstream contracts with Petrobras. It is policy of the Brazilian Government. Concession system Local Content is imposed in the concession agreement executed between ANP and the concessionaire, who must observe a minimum percentage of participation of Brazilian companies in the supply of equipment and services under the agreement.

17. Local Content cont.This percentage is determined in the invitation tobid and detailed in the concession agreement.The clause in the agreement states that theconcessionaires must give preference to Braziliansuppliers whenever their services or productspresent conditions of price, term and qualitywhich are equivalent to those of other suppliersinvited to quote.

18. Local Content cont. PSA system The CNPE will decide on the applicable local content requirements (upon suggestions received from the Ministry of Mines and Energy of Brazil Article 10, III, e) from the new law). The minimum local content requirements will be specified in the invitation to bid and in the model of agreement attached to it (Article 15,VIII of Law 12351/2010).

19. Local Content cont.In the first rounds, the local content percentagesoffered by the bidders were taken into considerationfor the effects of punctuation of the offers foracquisition of the blocks.As of the 5th bidding round, local content percentagehas reached approximately 80% in the explorationphase and 85% in the development phase.As of the Seventh Round, there were more specificrequirements and a Booklet of Local Content waspublished.

20. Local Content cont. In 2007 ANP created a system for the certification of Local Content . The accredited entities measure and inform ANP the local content of goods and services hired by the concessionaires of the activities of Exploration & Production (we had no company operating under a PSA at time of writing). ANP has four Regulations that deal with the matter.

21. Local Content Petrobras Presently, the Local Content requirement is only regulated in the upstream sector, in the concession agreements and PSAs (new law is clear about it) and in the Local Content Certification System. However, Petrobras, in spite of the lack of regulation of local content for the downstream segment, has been asking for the clause. The majority of contracts of construction of refinery for example include specific clauses of minimum Local Content, to be reached by the Contracted Parties.

22. 4. Establishing a presence in Brazil Preliminary Considerations Setting up your own Company

23. Establishing a presence in BrazilPreliminary considerations Memoranda of understanding are binding in Brazil Defaults of obligations under a proposal will be subject to indemnification of losses and damages under the general rules of the Civil Code, to which one should add court fees and legal costs. Term Sheet must be cautiously drafted by experienced lawyers, in order not to create a binding obligation between them.

24. Setting up your own company; jointventuresWhich Type of Company?Most frequently used company structures:"Sociedade Annima" (S.A.) and"Sociedade Empresria Limitada" (Limitada)in both cases the participants have limited liability.

25. Decision process of relevance if the investor is a minority shareholder(a) in a Limitada the social contract and the 75% vote rule Decisions must be taken by majority of votes, except for the cases of alteration of the social contract or merger, consolidation or winding up of the company, in which cases it must be taken by at least 75% of the votes representing the social capital. Be careful with quotaholders agreement!

26. Decision process of relevance if the investor is a minority shareholder(b) in a S.A. Shareholders Agreement General rule applying to S.A.s : decisions are taken by the majority of voting shareholders. Obligations set forth in a Shareholders Agreement can be subject to specific performance. Under its umbrella, important matters can be decided : quorum for strategic decisions; management mechanisms; board of directors may be integrated by foreign individual; corporate governance policies; right of first refusal; tag along; etc.

27. If despite Local Content requirementsthere is no local presence... Services Agreement: Tax payable at remittance Services 25% income tax Royalties 25% (15% income tax + 10% CIDE) Agreement to state clearly which party is to be responsible for that payment.

28. Compared to taxation of a Braziliancompany Basic rate of income tax on corporate profits (including capital gains), as adjusted for tax purposes, is 15%, with an additional surtax of 10% on taxable profits exceeding R$ 240,000 (approximately 84,000) per annum. Social Contribution on profits is 9% of taxable profits. Top tax rate on profits is therefore 34%. There is no withholding tax on distribution of dividends.

29. 5. PETROBRASPetrobras is subject to the Simplified Bidding Process(Procedimento Licitatrio Simplificado da Petrobras)established by Decree number 2745, of 24 August1998.Electronic procurement is widely used : Petronect.Bidders must be registered with the system in orderto receive bidding notices.

30. PETROBRAS cont.Legal Representative in the country is required (power ofattorney) by law.Commercial Representative is normally required byPetrobras.Normally agreements are not negotiable.In case of doubts or comments, these must be presentedin writing before the bid takes place.Clauses in the agreement will deal with issues of liability.

31. PETROBRAS cont.Product and service suppliers are liable, independently offault, for damages caused to consumers by defect in theproduct or in the rendering of services (Protection ofConsumers Code).Civil Code :damages due to the creditor shall comprisewhat the creditor has effectively lost and thereasonable lost profits (Article 402); damages onlyinclude effective losses (actually suffered) and lostprofits arising directly and immediately from theinexecution of the obligation (Article 403).

32. PETROBRAS cont.Documents issued or signed out of Brazil (such as POA orCommercial Representation Agreement required byPetrobras) must follow the rules of notarization andlegalization at the Brazilian Consulate.Instruments executed in a foreign language must betranslated into Portuguese by sworn translators in Brazilfor use in Brazil.

33. Thank you. NORONHA ADVOGADOS, London Vera Dantas Phone: (20) 7581-5040 Facsimile: (20) 7581-8002vmd@noronhaadvogados.com.brwww.noronhaadvogados.com.br