Petrobras, Total ink Strategic Alliance Deal

Petrobras signed a Master Agreement with French outfit Total today related to the strategic collaboration set forth in the memorandum of understanding signed on October 24 by our CEO Pedro Parente and Total CEO Patrick Pouyanné.

Under the new agreement, Petrobras will substantially increase the level of technological cooperation in the fields of geosciences, subsea systems, and in joint studies in areas of mutual interest with a view to reducing the risks of investments and increasing the likelihood of exploration success in the coming years. Besides it will also be partners in the Iara and Lapa fields, in the Santos Basin pre-salt area, and in two thermal plants located in the state of Bahia, sharing regasification terminal infrastructure.

In addition, Petrobras is committed to increase joint activities abroad and have the option to take a stake in the Lost Fold Belt area, in the Mexican portion of the Gulf of Mexico.

The transaction is estimated to be worth $2.2 billion, including cash inflow at sight, contingent payments, and a rollover of investments in the development of production assets common to the two companies, to be paid for as appropriate.

“In the case of this collaboration, the main driver is the strategic aspect of this decision. This is relevant because the two companies are able to develop studies to reduce exploration risks and to improve the performance of these fields that we will work together in,” said CEO, Pedro Parente.

The signature of the main Sale and Purchase Agreements (SPA) relating to the assets under of this agreement are subject to internal and regulatory agency approvals and outside oversight - including of the Federal Budget Oversight Board - with regard to the potential right of preference held by the current partners of Iara and other conditions precedent. The two companies have committed to making the necessary efforts for the signing of all contracts within 60 days.

Strategic partnerships are an important part of our 2017-2021 Business and Management Plan, since they contribute to mitigating risks, strengthening corporate governance, sharing information, experience and technology, and to improving the company's financial feasibility through the inflow of cash and exemption of investments.

Petrobras has great similarities with Total in exploration and production, sharing a common, relevant E&P asset base, and in the search for technological development in similar topics.

Petrobras is already partners in 19 exploration and production consortia in Brazil and abroad, with major projects such as the Libra area, in the pre-salt layer, which is the first production sharing project, and exploration areas in the Equatorial Margin, in the Espírito Santo Basin and in the Pelotas Basin. Furthermore, we are partners in the Bolivia-Brazil pipeline.

The main terms and conditions set forth in the agreement are:

- assignment of 22.5 percent of the rights to Total in the Iara concession area (Sururu, Cockle, and West of Atapu fields) in Block BM-S-11. We will continue as the operator and holder of the majority of the stakes of this area, with 42.5 percent of the total;

- assignment of 35 percent of the rights of the Lapa field, in Block BM-S-9, with the transfer of the operation to Total. We will keep a 10 percent interest in this concession;

- option to take on a 20 percent stake in block 2 of the Lost Fold Belt area, in the Mexican portion of the Gulf of Mexico, acquired by Total in partnership with Exxon in the licensing round the Mexican government held on May 12, 2016;

- sharing the use of the regasification terminal in Bahia, with capacity for 14 million cubic meters/day;

- partnership, with a 50 percent stake for Total, in the Rômulo de Almeida and Celso Furtado thermal plants, located in the state of Bahia, with a 322-MW power-generation capacity;

- joint studies in the exploration areas in the Equatorial Bank and the southern area of the Santos Basin, taking advantage of the synergy between the two companies, since each company has outstanding geological knowledge in the oil basins located on both margins of the Atlantic;

- technological partnership agreement in the fields of geological processing and subsea production systems, in which the companies have complementary expertise that can enhance the gains secured with the implementation of new technologies in the areas of collaboration.

The following is information related to the concessions set out in the agreement:

Concessions in Exploration & Production (E&P)

Petrobras holds 65 percent stakes and are the operator of the Iara concession. Shell, with 25 percent, and Galp, with 10 percent stakes, are partners in this area, which is part of the BM-S-11 Block. The reservoirs in this concession are more complex and are at the production development stage. The partnership with Total will bring benefits, such as a decrease in investment volumes and the incorporation of technological solutions for their development, maximizing profitability and the volume of oil to be recovered.

The limits of this consortium extend to the transfer of rights area called “Entorno de Iara” (Surroundings of Iara), of which we own a 100 percent interest. The Berbigão, Sururu, and West of Atapu fields are expected to sign Individualization of Production Agreements (unitization) with this transfer of rights area.

Petrobras holds 45 percent stakes and are the operators of the Lapa field. Shell, with 30 percent, and Repsol, with 25 percent stakes, are partners in this field, which is part of the BM-S-9 Block. The Lapa field development is at an advanced stage, with production going on stream recently, as announced on December 20, and has distinct geological and oil quality characteristics from other fields of the pre-salt. Total, as the future operator of the field, will benefit the consortium by incorporating its experience and knowledge in the continuity of its development plan.

The technological partnerships in the Iara and Lapa areas will develop and implement a few subsea technologies that are unprecedented in Brazil. The effort to reduce risks and increase the likelihood of success in exploration activities will rely on the use of 4D seismics in the context of carbonate reservoirs, with specific studies being done on CO2 migration and geomechanical studies, in addition to the development of a methodology for building investment decision support models. Get to know other pre-salt technologies.

Gas & Power (G&P) Concessions

In the G&P area, Petrobras is establishing an innovative partnership in the Brazilian thermal market with Total. This initiative is aligned with the strategies for the gas and power industry in the 2017-2021 BMP, which provides for restructuring the power business and maximizing the generation of the gas value chain, and, also, the evolution in regulatory issues, which has been being discussed by federal authorities, providing improvements in the rules for hiring and gaining access to the gas pipeline network and LNG regasification terminals.

The partnership with Total includes two thermal plants (Rômulo Almeida and Celso Furtado), linked to the regasification terminal located in São Francisco do Conde, Bahia.