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with Milto Costa, CEO, PETROBRAS

01.09.2011 / Energyboardroom

People compare the success of Petrobras with the situation Pemex faces. However as you said a few years ago, when we had the pleasure to interview you, the two countries and the two companies have faced different scenarios and situations. Saying that how does Petrobras see Pemex and the current oil and gas situation in Mexico?

Pemex is one of the biggest oil companies in the world. Today it produces around 4.1 million barrels of oil equivalent per day. This put it among the top 5 oil companies in the worldPemex is the only company responsible for supplying the energy needs of oil and gas and many derivatives to Mexico, which is far to be an easy task. However the current scenario is likely to evolve to a situation where the legislation and the legal framework of the country and the company, or companies, have to work together in a way that best fit the country.

They seem to be going that way?

The energy reform was something very important. However, time is going to prove whether changes made are going to achieved what authorities want Mexico is a fantastic country with a huge economy and a large population. It is a big challenge to supply the amount of energy that its industry and 110 millions inhabitants demand.Two years ago when President Calderon visited Petrobras he said that his government was looking for a strategic alliance between Pemex and Petrobras to improve the development of Pemex? Have there been any advances in that front?

Petrobras is a very appealing model to exemplify how a state oil company can be managed and grow very fast in a very successful way.The point is that conditions are different. In Brazil we were always looking for oil because we were not self-sufficient, while Mexico had considerable amounts of oil and gas. So the approaches were really very different. When we discovered oil in Brazil, it was in deep water, what meant a big challenge for Petrobras. Facing and solving this challenge has shaped our business culture and made Petrobras what is today. Since the beginning of the company, we were used to be looking for challenges and going beyond the current technology and know-how in the oil and gas business. Petrobras is always going far beyond everything. This culture of always trying to exceed and going beyond the current way of doing business can explain to a large extent the successful growth of Petrobras. Indeed, the last business plan of Petrobras says that the company is targeting to produce 6.4 million barrels of oil equivalent by 2020. This will turn Petrobras into the second biggest company in the world. Petrobras story is amazing, 10-15 years ago we were still looking for oil with a small production.

Talking about Petrobas business plan, it is said that the company will be investing $11 billion USD in Mexico between this year and 2015. Is that correct? If so can you please comment about the main reasons for this investment and the main areas where it will be allocated?

It was a misunderstanding. Petrobras Business Plan 2011- 2015 states that the Company is going to invest $224 billion in the next five years, and $11 billion out of that figure will be devoted to all the whole international area, not only Mexico. That amount of resources will be shared among the 28 countries where Petrobras have many different activities – upstream, mid-stream and downstream.

Since we last met you important things have happened in Mexico. One of them is that Pemex is developing its first deep-water field with Lakach with production set to start in 2015. With this new venture what new opportunities does Petrobras see in Mexico? Is deepwater the big trend for this country?

Deep water is likely the future of the Mexican oil industry. Mexico is one of the countries with a real tradition in oil, for more than 100 years. There are many opportunities in offshore areas. If we look at what the US side of the Gulf of Mexico achieved, the size of the Mexican side of the gulf is double. Without doubts, there are plenty of opportunities. The problem is how to develop it. It requires huge investments, large amounts of capital, technology, human resources, experience and know-how. Also a deep-water operation requires a huge infrastructure, not only to bring the oil and gas from the site but also to transport it.Pemex is investing significant amounts of resources in its deep-water projects, sooner o later, things shall happen. Maybe what Petrobras took 30 years to learn, Pemex can learn in 10 years or less. However, it still will require all the extra resources.

As you said they are diverse challenges to face: technology, investments, human capital etc. Is Pemex ready to face the challenges? And how can companies like Petrobras help them?

Pemex is preparing itself for these new challenges. It has many people being trained and it is using Leach project as a pilot to improve their capabilities.Petrobras has a huge expertise in deep waters. We are the company with the biggest reserves, the largest production in deep water. Also, we have the major number of sub-sea equipment and platforms. We have a lager experience and we can share it with Pemex. Today as many other IOCs or NOCs, we have a technical collaboration agreement with Pemex, where Pemex technicians visit Petrobras and vice versa. So these agreements are on the way and they are going well. Having this kind of agreements is very common in the oil industry. At the end the nature of the oil industry is a collaborative one. Why? Because of the risk, in our industry the risk is very high, so it is advisable to share it with other companies. In the way, you also share technology, know-how and best practices. This is something that the industry does very well. It is something that all of us are used to and I think Pemex is doing the same.

How do you explain that Mexico is often overshadowed by Brazil or Colombia, while its oil and gas sector is clearly much bigger than those countries? Can Mexico regain its image of a good place to be?

Pemex is much bigger than Petrobras or Ecopetrol. Perhaps, Petrobras is going to reach Pemex level of production in 2015 or 2016. Ecopetrol is targeting one million barrels in 2015. The point is that both Petrobras and Ecopetrol took a different path of growth, a different model. We opened the companies; we have capital in the stock markets. On the other hand, Pemex still belongs completely to the Mexican state. I think people should compare Pemex, not with Petrobras and Ecopetrol that have completely different business models, but with a state company like Saudi Aramco.

If we came back five years from now, what will we see in Petrobras Mexico?

I would like to see Petrobras Mexico growing with more operations in the country, especially in deep water because that is our expertise. Let’s see how Mexican legislation evolves and what new opportunities come. Petrobras respect strongly foreign legislations, and our business always complies with local laws. If Mexican authorities change the legislation and it creates more opportunities in the oil and gas sector, Petrobras is open to analyze them, and to see if those opportunities are aligned to our business strategy. All businesses, new and current ones, has to fit the guidelines given by our headquarters. In 2001-2002, Petrobras came to Mexico to evaluate the opportunities that the Mexican market offered; then we decided to participate in the multiple services contracts. Having signed a couple of contracts with PEMEX, we started activities in the Burgos Basin in February 2004, and after eight year we are still working here.During those eight years Petrobras strategy has changed significantly, and Petrobras Mexico have had to adapt itself to that fact. To expand our activities in Mexico depends on having opportunities that meet all the requirements set by our headquarters.

Sir, you are also the President of the ARPEL. In that role can you please tell all our readers what position Latin America play in the world’s energy needs and to what extent is the region aware of the responsibilities it holds?

Latin America is a region with one of the biggest reserves in the world. I think it has the third largest reserves after the Middle East and Asia. Venezuela leads the Region in terms of reserves, after it comes Brazil, Mexico, Argentina, Bolivia, Peru, Colombia, among other countries. Latin America is a performing reasonably very well. The economy is growing very fast in spite of the big economic crisis that we are having in the world – in the US, in Europe and Japan. The significant economy growth across Latin American economies is putting big pressure on the energy sector because economic growth means more energy. So Latin America Energy sector has to grow faster to supply the energy that their economies need. Under this context, many countries are adapting their legislation and changing the rules in order to prepared their energy sectors to satisfy the growing energy demand.The energy sector is very sensitive to the political environment so it depends on the ideology and the way countries are choosing their course. That will influence considerable the way the energy sector will develop. We can see countries like Bolivia changing and trying to readapt. Argentina is facing many challenges after a period what was not very successful, now there are many opportunities especially with shale gas. Peru is a booming country and it is amazing how gas is pushing the development of the industry. There is going to be many developments in Peru in the oil sector. Petro Peru was a downstream company that is now moving to the upstream market. Colombia is a marvelous example of how to create a booming industry. Not only Ecopetrol but also the private sector is also working very well.Brazil is the biggest economy in the region. We started the changes before Colombia and Peru and many other countries. So after 15 years, Brazilian oil and gas sector has reached good results. We can see the impact of the oil industry in the Brazilian GDP. In 1993-1994 the oil industry represented three percent of the GDP. Nowadays, it is more than 10 percent and growing very fast. This is really an outstanding achievement. Looking at Latin America as a whole, we can see a region that is developing very well. We can see many small- medium-sized companies moving to other countries. There are many Argentinean and Colombian companies in Brazil.With regards what is happening in North Africa and the Middle East, there are big changes going on, meaning big risk for the companies at the moment. If a company wants to work in the oil business in Libya or Yemen, for example, it is a difficult task carrying a huge risk. Saying that, Latin American is gaining ground vis-à-vis the North Africa and the Middle East in terms of investments attraction. Latin America, in spite of many different countries and cultures, is much safer and less risky to invest in, rather than in Africa or the Middle East. This is important especially as the region has significant reserves. As more companies come to Latin America, it creates more opportunities for everyone.

On a personal level what is the most pleasing part of working for a company like Petrobras?

Petrobras is a company that believes in human capital. It is a company that has invested more resources in training and the development of human capital than many other companies in the industry. This model of investing heavily in its HR has created lots of opportunities for their employees for studying and developing, as well as for working in different areas. I have had a career in Petrobras and worked in many different departments and areas form downstream and upstream. It is a pleasure to be in a company that will support you and open up opportunities to many different jobs and allow employees to develop themselves. I think this is one of the most important parts of Petrobras, and sometimes having such developments is much rewarding than just pecuniary incentives. Petrobras offers a balance and it is a great company to work f



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