An Entry Strategy for Latin America

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Latin American Upstream Overview Selected
Countries Overview
Houston, November 2006
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RESERVES ARE LIKE FISH

• The fish is on the boat. You have weighed him
  you can smell him and you will eat him.
• The fish is on your hook in the water by the boat
  and you are ready to net him. You can tell how
  big he looks (they always look bigger in the
  water)
• There are fish in the lake. You may have caught
  some yesterday. You may be able to see them, but
  you have not caught any today.
• There is water in the lake. Someone may have
  told you there are fish in the lake. You have
  your boat on the trailer but you may go play golf
  instead.

• PROVED DEVELOPED
• PROVED UNDEVELOPED
• PROBABLE
• POSSIBLE

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Argentina
National name República Argentina President
Néstor Kirchner (2003) Land area 1,056,636 sq
mi (2,736,690 sq km) Population 39,921,833
Capital and largest city Buenos Aires,
13,349,000 Total exploratory wells drilled 7,648
(Onshore) / 188 (Offshore) Current Production
Mbo/d 665 MMcf/d 5,042 bc/d
35,466 Cumulative Production MMbo 9,536 Bcfg
33,467 Remaining Proven and probable Reserves
MMbo 3,269 Bcfg 27,230
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Production Consumption
Source EIA
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Operating Companies
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• Five mayor prospective basins currently producing
  in the country. Activity heavily concentrated in
  Neuquén and San Jorge basins
• Policy downturn may have reached bottom. Good
  long term stability prospect
• Struggle to maintain hydrocarbon self-sufficiency
  may bring some new incentives
• Strong economic recovery underway, giving room
  to gradual increase of domestic gas prices
• Expansion of TGN and TGS pipelines easy
  restrictions in the gas market
• Comparatively high MA activity. Still room for
  consolidation due to a substantial number of
  smaller operators

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Brazil
National name República Federativa do
Brasil President Luiz Inácio Lula da Silva
(2003) Land area 3,265,059 sq mi (8,456,511 sq
km) Population 188,078,227 Capital Brasília,
2,160,100 Largest cities São Paulo, 18,333,000
Rio de Janeiro, 11,469,000 Total exploratory
wells drilled 3,754 (Onshore) / 2,216
(Offshore) Current Production Bo/d 1,630,384
Mcf/d 1,711,216 Cumulative Production MMbo
8,477 Bcf 8,616 Remaining Reserves MMbo
11,77 Bcf 10,813
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Oil Production Consumption
Despite market liberalization, Petrobras still
controls over 90 percent of Brazils crude oil
production.
Source EIA
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Exploration Area under Concession
Source ANP
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Operating Companies
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• Political stability secured with recent
  reelection of Lula da Silva
• Regional success story, reaching self-sufficiency
  in spite of growing consumption
• Shelf to ultra-deepwater off-shore believed to
  offer a number of giant discoveries
• ANP taking measures to reduce Petrobras
  disproportionate presence.
• Limiting number of bids per operator in recent
  round
• Requesting relinquishment of up to 200 mature
  fields
• Expanding market and distribution infrastructure
  generates good gas price scenario

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Colombia
National name República de Colombia President
Alvaro Uribe (2006) Land area 401,042 sq mi
(1,038,699 sq km) Population (2006 est.)
43,593,035 Capital and largest city Bogotá,
7,594,000 Total exploratory wells drilled 2323
(Onshore) / 55 (Offshore) Current Production
Mbo/d 525.3 MMcf/d 3,521 Cumulative Production
MMbo 6,441 Bcf 15,416 Remaining Reserves
MMbo 1,453 Bcf 6,711
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Oil Production Consumption
Source IEA
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Source IHS
Source ANH
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Source ANH
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Source ANH
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Operating Companies
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• Alvaro Uribes pro-business policies to be
  enhanced under new mandate
• ANHs aggressively working to revert production
  decline. Bidding activity second only to Brazil
• Number of local players and small independents in
  the EP sector creates MA opportunities
• Mixed system of bidding rounds and open acreage
  makes possible to enter low exposure TEAs
• Best economic terms in the region, and great
  prospectivity (dont believe PEPS!)
• Improved security, but still a concern in the
  Llanos and Putumayo

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Ecuador
National name República del Ecuador President
Alfredo Palacio (2005) Land area 106,888 sq mi
(276,840 sq km Population 13,547,510 Capital
Quito 1,780,700 Largest cities Guayaquil,
2,597,600 Total exploratory wells drilled 513
(Onshore) / 93 (Offshore) Current Production Bo/d
531,817 Mcf/d 25,383 Cumulative Production
MMbo 3,836 Bcf 771 Remaining Reserves MMbo
4,600 Bcf 345
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Production Consumption
Source EIA
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Production by Sector
Source IEA
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Operating Companies
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• Substantial increase in exploration and
  production due to the OCP oil pipeline 2003
  completion
• Good prospectivity. Abundant exploration and
  rehabilitation opportunities if a future
  government brings some stability
• Marginal fields round failed to attract
  established operators. ITT will likely be
  different. Offshore, who knows?
• Actions to capture a portion of the
  high-oil-price driven windfall profits shouldnt
  scare investors (Cmon, its happening in
  Louisiana!)
• French IFP working with Ecuadorian government on
  new model contract and fiscal regime
• Finding your way in the bureaucratic jungle can
  be a burden, but it can be done. Security, on
  the other hand, is good

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Mexico
Official name Estados Unidos Mexicanos President
Felipe Calderon (2006) Land area 742,485 sq mi
(1,923,039 sq km) total area 761,606 sq mi
(1,972,550 sq km) Population (2006 est.)
107,449,525 Capital and largest city Mexico
City, 19,013,000 Total exploratory wells drilled
5,034 est. Current Production b/d 3,333,953
Mcfg/d 4,817,367 Cumulative Production MMbo
33,703 Bcfg 54,948 Remaining Reserves MMbo
23,500 Bcfg 40,000
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Oil Production Consumption
Source EIA
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Proyected Oil Production Consumption(US
10bn/year Investment Scenario)
Source Pemex
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Import / ExportGas and Refined Products
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Mexico Exploration Projects
Source Pemex
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• Closed to direct foreign (or private, to that
  matter) investment in the energy sector since
  1938 nationalization
• Pro-business PAN government was tentatively
  opening spaces (Burgos MSCs). Vicente Calderon
  is thought to have a better political chance to
  enhance that policy
• Opening should be driven by necessity. Mexicos
  critically low reserve to production ratios
  problem is now compounded by the production
  decline. (Cantarell, the second largest field in
  the world, (and producing 65 of the total
  Mexican oil output) is declining at about 14 a
  year)
• Pemex, most highly indebted company in the world,
  can not possibly undertake the needed investment
• Opportunities without equal in the Western
  hemisphere, where highly prospective country is
  mostly unexplored
• Scores of fields needing development or
  reactivation since Pemex concentrated in a few
  giants

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Peru
Capital Lima President Alan García
Pérez (2006) Area 1,285,216 km²  Population  27,96
8,000 Total exploratory wells drilled 1541
(Onshore) 361 (Offshore) Current Production Mbo/d
111 - MMcf/d 146 Cumulative Production MMbo
2,320 - Bcfg 3,253 Remaining Proven and
probable Reserves MMbo 1726 (2P) Tcfg 16.65
(2P)
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Production Consumption
Source EIA
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Operating Companies
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• Hopes of political stability after the Ollanta
  Humala scare. Alan Garcias initial steps seem
  to show he has learned from past mistakes
• Dramatically improved contract terms in 2003,
  generating a high number of awards in 2005.
  Exploration activity will be revitalized, but
  probably not to the 1998 level
• Blocks promoted by Perupetro are open to direct
  negotiation in a first-come first-served basis.
  Formal bidding rounds too
• Gas potential (currently 17 TCF 2p) should be
  unleashed with the construction of the Camisea
  LNG plant, and domestic transportation
  infrastructure
• Investor-friendly environment may attract
  companies willing to take exploration risk.
  Limited MA opportunities

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Venezuela
National name República Bolivariana de
Venezuela President Hugo Chavez (1999) Land
area 340,560 sq mi (882,050 sq km) total area
352,144 sq mi (912,050 sq km) Population
25,730,435 Capital (2003 est.) Caracas,
3,517,300 Total exploratory wells drilled 13,215
(Onshore) / 156 (Offshore) Current Production
Mbo/pd 3,216 Mmcf/d 6,646 b Cumulative
Production Mmbo 55,610 Bcf 84,550 Remaining
Reserves Mmbo 76,560 Bcf 147,860
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Production Consumption
Source EIA
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Source PDVSA
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Operating Companies
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New bid round for marginal fields in the works

• Bidding process likely to be announced Jan Feb,
  2007
• No plans to favor NOCs over IOCs.
• Independents expected to be encouraged to bid.
• 15 new mixed companies in fields throughout the
  country.
• Most of the fields are likely to be located in
  eastern Venezuela, specifically in the Oficina
  area.
• Fields will range from small (reserves less than
  30 MMBBL) to medium (reserves greater than 150
  MMBBL).

Source IPD
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New bid round for marginal fields in the works
Source PDVSA/IPD
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• Largest proven oil reserves outside the Middle
  East. (largest, period, if you count the Orinoco
  Belt). Two thirds of total Latin American gas
  reserves
• Dont take at face value what the media (and Hugo
  Chavez) are telling you. The Bolivarian
  Revolutions actual effect in the oil industry
  needs a second reading
• Increased rate of return per working interest
  point
• IOCs no longer mere service contractors now
  have direct title on the concession by partnering
  with PDVSA in the Empresas Mixtas
• The new regime gives the IOC access to price and
  production upsides
• IOCs may even be remunerated for performing
  operator-like functions
• Upper level PDVSA personnel fired after the 2003
  strike, creating a technical and managerial
  vacuum (and the corresponding need)
• Highly prospective basins, including gas-prone
  offshore.
• Both direct negotiations and access through
  bidding available
• The perfect counter-move field?

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Oil Gas Investment Scenario
How can ChileConsult help?

• Latin America business development, including
  entry strategy planning and implementation
• Country risk assessment and mitigation
• Regulatory authorities relationship building
• Business opportunity screening and targeting
• Contact facilitation with international and
  domestic players
• Contract Negotiations
• Tax and contract analysis and evaluation
• Due diligence processes, including environmental
  risk assessment
• Establishing foreign branches and securing local
  professional services

Why can ChileConsult help?

• Inside understanding of the cultural and economic
  forces in play
• Extensive contact base all throughout Latin
  America
• Deep knowledge of the regional oil gas industry
• Proven track record of deals closed

www.chileconsult.com
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Oil Gas Investment Scenario
ChileConsult Leading Partner
Alberto Harambour aharambour_at_chileconsult.com
An Attorney by education with extensive
experience in the fields of international
negotiations and new business development, as
well as in business opportunity screening,
project management and asset evaluation,
primarily in the energy industry. Alberto has
been exposed to a rich and varied experience
through a career of more than 25 years, working
efficiently with people from different
professional and cultural backgrounds, and enjoys
an extensive contact network in the international
oil gas business community as well as in
government and entrepreneurial circles throughout
Latin America Self-motivated and possessing a
creative problem-solving mentality, is fluent in
English and his native Spanish, and has working
knowledge of French and Portuguese. Based in
Houston, Alberto is an active member of the
Association of International Petroleum
Negotiators and the Chilean bar association. In
his spare time enjoys motorcycling, tennis and
shooting sports
Alberto Harambour 2004 Buffalo Terrace Houston,
TX 77019, USA 1 713 521 2664 1 713 922 9007
(mobile)
www.chileconsult.com
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