DeGolyer and MacNaughton 5001 Spring Valley Road Suite 800 East Dallas, Texas 75244 This is a digital representation of a DeGolyer and MacNaughton report.This file is intended to be a manifestation of certain data in the subject report and as such aresubject to the same conditions thereof. The information and data contained in this file may besubject to misinterpretation; therefore, the signed and bound copy of this report should beconsidered the only authoritative source of such information.
DeGolyer and MacNaughton 5001 Spr ing Valley Road Suite 800 East Dallas, Texas 75244 August 31, 2010Petróleo Brasileiro S.A.Av. República de Chile 65Sala 1702CRio de Janeiro-RJ-BrazilCEP 20035-900Gentlemen: Pursuant to your request, we have conducted an economic evaluation of thepotential present worth of potential future net revenues of certain prospective andcontingent resources located in the Santos Basin, offshore from Brazil. The details ofthe prospective resources evaluation are contained in our report entitled “Report asof July 1, 2010 on the Prospective Resources of Certain Prospects located OffshoreBrazil” (the Prospective Resources Report). The contingent resources evaluation isdetailed in our report entitled “Report as of July 1, 2010 on the ContingentResources of Certain Properties located Offshore Brazil” (the Contingent ResourcesReport). This letter report has been prepared considering the provisions of the processknown as transfer of rights with compensation. This process involves the transfer ofrights by the Government of Brazil to Petróleo Brasileiro S.A. (Petrobras) to produceup to 5 billion barrels of oil equivalent (boe) in pre-salt reservoirs located in certainnon-licensed areas in the Santos Basin. In compensation for this transfer of rights,Petrobras has represented that it will pay the Government of Brazil an amountbased upon a negotiated price per boe of the potentially recoverable volumes. The prospects included in the original portfolio studied included in theProspective Resouces Report were the following: 1. Tupi Northeast 2. Tupi South 3. Guara East 4. Peroba
2DeGolyer and MacNaughton 5. Florim 6. Libra 7. Pau Brasil 8. Southwest Jupiter For the prospective resources, the Prospective Resources Report documentsthe estimates of prospective resources and corresponding potential present worth ofpotential future net revenues in each area should such resources be successfullydiscovered and developed. For the Prospective Resources Report at Petrobras’request, the Libra, Pau Brasil, and Southwest Jupiter areas have been removedfrom the portfolio. For the contingent resources, the Contingent Resources Report documentsthe estimates of contingent resources and corresponding potential present worth ofpotential future net revenues in the following areas should such resources besuccessfully developed: 1. Franco 2. Iara Offblock Petrobras requested that we prepare a summary table showing the results ofpotential future net revenue calculations for the “success case,” derived from thedevelopment and production of the truncated and TEFS-adjusted mean volumesestimated in the Prospective Resources Report. The success case scenario is based ona deterministic development scenario that was not adjusted for the probability ofgeologic risk (Pg) nor the probability of economic risk (Pe), and is thus an unlikelyoutcome. This scenario has been evaluated based upon Petrobras’ representationthat the terms and conditions of the “transfer of rights with compensation” contract(herein termed “the Contract”) being negotiated with the Government of Brazilcontains revision and reallocation clauses that guarantee the volume beingcontracted. According to such terms and conditions, in the event a prospect or areaunder the Contract does not produce the volume contracted, such volume may bereallocated to another prospect or area under the same Contract. In the event thereallocation procedure does not generate sufficient volumes equal to the contractedvolume, the Government of Brazil will reimburse Petrobras for the amountequivalent to the volume not produced. In addition, Petrobras requested that we prepare a summary table showingthe results of potential future net revenue calculations for the success case derived
3DeGolyer and MacNaughtonfrom the development and production of the 1C, 2C, and 3C contingent resourcesestimated in the Contingent Resources Report. Oil and gas prices used in this evaluation were provided by Petrobras. ABrent marker crude price of U.S.$79.23 per barrel was used and held constant forthe life of the forecast. A discount of 7.92 percent was applied to the marker price toaccount for crude gravity differential and transportation. A fixed wellhead sales gasprice of U.S.$4.27 per thousand cubic feet was used in the evaluation. Estimatedcapital and operating expenditures potentially required for development of theestimated prospective and contingent resources identified have not been escalated oradjusted for possible inflation. In this study, potential present worth values were estimated using a discountrate of 10 percent. Table 1 attached shows the results of the success case evaluation for theprospective resources. The success case mean potential present worth per boe isreported in Table P1 of the Prospective Resources Report. The estimates of potentialpresent worth presented in Table 1 attached are predicated on the small chance thatall of the prospects are geologic successes and can be economically developed. Table 2 attached shows the results of the success case evaluation for thecontingent resources in the Franco and Iara Offblock areas. A possibility exists that none of the prospects will result in successfuldiscoveries and development, in which case there would be no potential presentworth. There is no certainty that any portion of the prospective resources estimatedherein will be discovered. If discovered, there is no certainty that it will becommercially viable to produce any portion of the prospective resources evaluated. Prospective resources quantities estimates should not be confused with thosequantities that are associated with contingent resources or reserves due to theadditional risks involved. Contingent resources quantities estimates should not beconfused with those quantities that are associated with reserves due to theadditional risks involved. The estimated potential present worth of potential future net revenue for theprospective resources cannot be compared directly to, equated with, or aggregatedwith the potential present worth estimates that could be realized from contingent
TABLE 1 ESTIMATION of SUCCESS CASE POTENTIAL VALUE of the PROSPECTIVE RESOURCES of CERTAIN AREAS in BRAZIL as of JULY 1, 2010 Gross Truncated Success Case TEFS Adjusted Mean Potential Success Case P Mean Success Case Present Worth Mean Potential Prospective Resources Potential per Barrel of Oil Present Worth Barrels of Oil Present Worth Equivalent per Barrel of Oil Equivalent Value @ 10% 6Prospect (U.S.$/boe) (U.S.$/bbl) (10 boe) (106 U.S. $)Florim 7.07 7.98 467 3,301NE Tupi 6.24 7.25 428 2,668Guara East 5.18 5.85 319 1,651Tupi South 6.12 6.87 128 784Peroba 6.99 7.99 1,796 12,556Note: 1. Potential present worth of potential future net revenue is shown using a discount rate of 10 percent. 2. Gas was converted to barrels of oil equivalent by applying a ratio of 6,000 standard cubic feet per barrel of oil.
TABLE 2 ESTIMATION of SUCCESS CASE POTENTIAL VALUE of the CONTINGENT RESOURCES of CERTAIN AREAS in BRAZIL as of JULY 1, 2010 Success Case Gross Potential Success Case Contingent Success Case Present Worth Potential Resources Potential per Barrel of Oil Present Worth Barrels of Oil Present Worth Equivalent per Barrel of Oil Equivalent Value @ 10% 6Area (U.S.$/boe) (U.S.$/bbl) (10 boe) (106 U.S. $) 1C Contingent ResourcesFranco 8.14 9.19 439 3,571 2C Contingent ResourcesIara Offblock 3.73 4.11 91 341Franco 7.43 8.39 2,040 15,160 3C Contingent ResourcesIara Offblock 4.18 4.60 1,088 4,548Franco 5.34 6.03 6,056 32,340Note: 1. Potential present worth of potential future net revenue is shown using a discount rate of 10 percent. 2. Gas was converted to barrels of oil equivalent by applying a ratio of 6,000 standard cubic feet per barrel of oil.
DeGolyer and MacNaughtonGLOSSARY of TERMS1C – Denotes low estimate scenario of contingent resources.2C – Denotes best estimate scenario of contingent resources.3C – Denotes high estimate scenario of contingent resources.Contingent Resources – Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies.Mean Estimate – In accordance with petroleum industry standards, the mean estimate is the probability-weighted average, which typically has a probability in the P45 to P15 range, depending on the variance of prospective resources volume or associated value. Therefore, the probability of a prospect or accumulation containing the probability weighted average volume or greater is usually between 45 and 15 percent. The mean estimate is the preferred probabilistic estimate of resources volumes.Potential Future Gross Revenue – Potential future gross revenue is that revenue which will accrue to Petrobras from the potential production and sale of the estimated potentially recoverable quantities should such quantities be successfully discovered and/or developed.Potential Future Net Revenue – Potential future net revenue is calculated by deducting estimated royalties, operating expenses, capital costs, abandonment costs, and income taxes from the potential future gross revenue.Potential Present Worth of Future Net Revenue – Potential present worth of potential future net revenue is defined as potential future net revenue discounted at a specified arbitrary rate compounded monthly over the expected period of realization. In this appraisal, potential present worth values were estimated using a discount rate of 10 percent.
DeGolyer and MacNaughtonProbability of Economic Success – The probability of economic success (Pe) is defined as the probability that a given discovery will be economically viable. It takes into account Pg, PTEFS, TEFS, capital costs, operating expenses, the proposed development plan, the economic model (discounted cash flow analyses), and other business and economic factors. Pe is calculated as follows: Pe = Pg PTEFSProbability of Geologic Success – The probability of geologic success (Pg) is defined as the probability of discovering reservoirs that flow petroleum at a measurable rate. Pg is estimated by quantifying with a probability each of the following individual geologic chance factors: trap, source, reservoir, and migration. The product of the probabilities of these four chance factors is Pg.Probability of TEFS – The probability of threshold economic field size (PTEFS) is defined as the probability of discovering an accumulation that is large enough to be economically viable. PTEFS is estimated by using the prospective resources recoverable volumes distribution in conjunction with the TEFS. The probability associated with the TEFS can be determined graphically from the prospective gross recoverable volumes distribution.Prospect – A prospect is a potential accumulation that is sufficiently well defined to be a viable drilling target. For a prospect, sufficient data and analyses exist to identify and quantify the technical uncertainties, to determine reasonable ranges of geologic chance factors and engineering and petrophysical parameters, and to estimate prospective resources. In addition, a viable drilling target requires that 70 percent of the median potential production area be located within the block or license area of interest.Prospective Resources – Those quantities of petroleum that are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.Threshold Economic Field Size – The threshold economic field size (TEFS) is the minimum amount of the producible petroleum required to recover the total capital and operating expenditure used to establish the potential accumulation as having a potential present worth equal to zero.
DeGolyer and MacNaughtonTruncated Mean Estimate – The truncated mean estimate is the resulting expected value calculated from the truncation of the resources distribution by the threshold economic field size. This truncated distribution produces a new set of statistical metrics.