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Annual Sustainability Report 2012

Socio-Environmental performance

GRI 4.13 | EN26 | GC 8

QGEP made several investments directed to multiple projects in environmental protection initiatives

Respect for the environment and involvement in community development are fundamental to QGEP's business. Even before starting operations, the Company continuously evaluates its impacts on local communities and works to reduce risks to a minimum.

These processes begin with the impact matrix developed as part of the Environmental Impact Study and the Environmental Impact Report (EIS/EIR). These documents are prepared in compliance with the Oil and Gas Industry Requirements of the Brazilian Environmental and Renewable Natural Resources Institute (CGPEG/IBAMA). QGEP’s activities are always based on ethics, good corporate governance practices and respect for the environment. We strive to alway contribute to the development of communities adjacent to our operations.

The Company’s practices utilizes the Integrated Management System (IMS), which implements the guidelines of QGEP’s Integrated Management System Policy. The IMS  includes environmental, health, safety and operational aspects. It is based on internationally-recognized principles such as those of the International Organization for Standardization (ISO) and Occupational Health and Safety Assessment Services (OHSAS).  The IMS also meets the technical regulations of the ANP’s Operational Safety Management System (SGSO). The Policy is available in the Environment and Safety section of the QGEP website (www.qgep.com.br).

QGEP also works alongside such institutions such as the Brazilian Institute of Oil, Gas and Biofuels (IBP), the National Petroleum Industry Organization (Onip) and the Federation of Industries of the State of Rio de Janeiro (FIRJAN) to address issues of social and environmental responsibility. In its relationship with the public, QGEP’s focus is on operational and environmental safety and transparency. In order to achieve its goals, the Company uses the most advanced technology in its operations, making safety the highest priority. In terms of transparency, QGEP works diligently to keep the channels of dialogue open and strives for continuous disclosure of information through outlets such as town-hall meetings, letters and press releases.

In 2012 we invested R$1,628,914.22 million in environmental protection and mitigation initiatives including the Beach Monitoring Project (BMP), the Fisheries Catch Monitoring Project (FCMP), the Fishing Compensation Plan (FCP). During the period, QGEP incurred no fines or penalties resulting from non-compliance with environmental laws. GRI EN28 | EN30 | GC 8

371 km2 are covered by Block BM-J-2, in which QGEP holds a 100% equity stake

BIODIVERSITY

GRI EN13 | GC 8

Environmental licensing for the exploration and production of oil and natural gas is subject, among other requirements, to prior preparation of environmental impact studies (such asEIA/Rima), as well as the implementation of mitigation measures or environmental compensation for impacts caused on biodiversity. These studies, which also include impacts during operations and at the time of their completion, are also part of the Activity Deactivation Plan, which establishes the actions to be taken after the operations come to an end. Although all of the Company's projects rely on feasibility studies and deactivation plans, QGEP has yet to carry out a shutdown for any of its projects.

QGEP implements socio-environmental initiatives to strengthen its relationships with local communities


MAIN IUCN RED LIST AND BRAZIL CONSERVATION LIST SPECIES WITH HABITATS IN AREAS AFFECTED BY OPERATIONS, BY LEVEL OF EXTINCTION RISK. GRI EN15
Species Brazil IUCN
Southern right whale Endangered Low
Fin whale Endangered Threatened
Humpback whale Vulnerable Lesser concern
Loggerhead turtle Vulnerable Threatened
Green turtle Vulnerable Threatened
Hawksbill turtle In danger Vulnerable
Olive turtle Endangered Vulnerable
Leatherback turtle Endangered Critically endangered
Whale shark Vulnerable Vulnerable
Nurse shark Vulnerable Insufficient data
Black petrel Vulnerable Vulnerable
Spectacled petrel Endangered Vulnerable
Red-billed tropic-bird Vulnerable Lesser concern
Orange-billed tropic-bird Vulnerable Lesser concern
Royal tern Vulnerable No register

In the environmental analysis of BM-J-2, species of benthic and nektonic plankton were identified, many of them found on Brazil’s List of Endangered Species and the IUCN Red List.

Block BM-J-2 currently has an area of 371 square kilometers (100,726.36 hectares) and is part of a coastal marine biome. The area of ​​direct influence is in the municipalities of Ilheus, Una, Canavieiras and Belmonte, in the Brazilian state of Bahia. The Marine Extractive Reserve of Canavieiras is part of this region and is adjacent to four national parks: Descobrimento, Marinho dos Abrolhos, Pau Brazil and Monte Pascoal. Under the environmental operating license, activities in this region can only take place outside the area’s restriction period due to the presence of turtles and of the very unlikely possibility of an oil spill reaching the Abrolhos area. GRI EN11 | EN12

QGEP continued proactively with its socio-environmental projects underway in the region throughout 2012, even though work was suspended in Block BM-J-2 in September 2011. The Fishing Compensation Plan, Beach Monitoring Project and Fisheries Catch Monitoring Project all help improve relations with communities.
GRI EN14 | GC 8 | OG4

FISHING COMPENSATION PLAN

GRI SO1

The impact area of our operations with Block BM-J-2 reaches shallow waters which are home to extensive fishing activity. Accordingly, the company has developed a Fishing Compensation Plan which meets Ibama requirements for fishing compensation. Implementation of the FCP has involved investments in infrastructure and safety for communities in the municipalities of Ilheus, Una, Canavieiras and Belmonte in southern Bahia. These communities  engage in fishing activities typical of coastal areas, on the outer continental shelf and upper embankment areas. GRI SO9

Through the plan, QGEP has built up a working partnership with these communities in two areas: fishing safety and strengthening the Canavieiras Extractive Reserve (RESEX). Through the partnership,  the Ilhéus area communities (Ponta do Ramo, Ponta do Mamoã, Ponta da Tulha, Cururupe, Olivença, Barra de Itaípe and Mojiquiçaba) began receiving restored fishing vessels and nautical safety equipment in 2012. In the community of San Miguel, we provided office facilities for the Fishermen and Shellfish Collectors Association (APESMAR). Our efforts in the RESEX area will result in providing the construction and renovation of offices and other facilities for community associations in 2013. GRI EC8 | EC9 | SO10

This process is already in its final stages in Acuípe, an indigenous fishing community in the region of Ilhéus.  Local residents decided to work with the Company to build a community center, which is currently awaiting the approval from Funai (Brazil’s National Indian Foundation). QGEP is preparing a document  specifically addressing the issue of relations with indigenous communities, as its operations are situated near the tribal lands of the Tupinambás de Oliveira (being created), Mata Medonha, Coroa Vermelha Jaqueira, Imbiriba, Barra Velha and Águas Belas. GRI HR9 | OG9 | OG10

BEACH MONITORING PROJECT

The Beach/Beaching Monitoring Project (BMP) monitors the records of beached marine life in the municipalities of Ilhéus, Una, Canavieiras and Belmonte (BA) before, during and after drilling operations, and promotes rescue and rehabilitation of wildlife whenever possible. In 2012, QGEP invested R$307,198.59 in this initiative.

The support base of the BMP is located in Olivença, in the municipality of Ilhéus (BA), and was in operation throughout 2012. It is staffed by experienced biologists and veterinarians who are able to care for beached animals in the region and carry out monitoring and information campaigns when appropriate. During the year, 42 animals were rescued on the region's beaches, more than half of them turtles. Other animals included birds such as the Brazilian lapwing, black petrel and, penguins.

FISHERIES CATCH MONITORING PROJECT

The Fisheries Catch Monitoring Project (FCMP)is an important tool for understanding the dynamics of local fisheries and the influence we have on catches in Ilhéus, Una, Canavieiras and Belmonte (BA) before, during and after drilling operations. QGEP maintained the project in 2012, ensuring a continuous flow of data on the main types of fishing carried out in the region. Through the FCMP, information is periodically relayed to the monitors and the fishing community, allowing fishermen to learn the results of the project in which they are participating.

Eight monitors chosen from local communities work in the region’s major fishing ports to collect primary data on the main types of fishing carried out in the impact area. In 2012 QGEP invested R$359,530.24 in this initiative.

The continuous monitoring of fisheries catches allows us to compile a solid and reliable fishing database, which also includes seasonal variations of fishing activity and characteristics of fleets operating in the region. From analysis of these records we can evaluate catches and species composition, as well as the main types of fishing which are conducted throughout the year. After an annual cycle is completed, the data allow us to make temporal analyses, and correlate the catches of the year with oceanographic and other variables. This helps us identify seasonal patterns and/or common trends among in the local fishing industry.

RESEARCH AND DEVELOPMENT PROJECTS

QGEP seeks to encourage the development of scientific capital and maintain a constant dialogue with academia. The Company interacts with industry groups such as the Social Responsibility and Health, Safety and Environment Committees of the Brazilian Institute of Oil, Gas and Biofuels and  attends seminars to learn about new studies and tools in socio-environmental exploration and production.

Our oil and gas exploration, development and production contracts contain a clause whereby 1% of the annual gross revenue from high production Fields is invested in research and development. In 2012 the Company invested R$2,874,135.51 in R&D, and expects to have invested a total of R$5,742,165.34 by the end of 2014 (values ​​adjusted as of 2011).

From the knowledge gained from its research, QGEP seeks to structure its activities and adapt its projects to mitigate potential risks at each stage. In addition to preventing situations that could result in contamination, the company intends to use its R&D to test bio-remediation-related methods and procedures for any potential environmental problem arising from accidents due to exploration, production and transportation of oil in the mangrove ecosystems of these areas. GRI EN29

Our R&D work also includes studies related to the involvement of the estuarine community. Local leaders, associations and institutions interested in the impact of our exploration work contributed valuable insights on the production process and social organizations. All this environmental research is made available to local communities, which helps further develop the local residents’ knowledge of their region.

In October 2011, QGEP carried out an integrated biogeochemical study (PETROTECMANGUE-BASUL) in partnership with the Federal University of Bahia (UFBA). This study was conducted on mangroves in southern Bahia to develop applicable technological processes for the remediation of these environmentally sensitive areas.

Three of the four sampling stages are now complete. By July 2013 the Jequitinhonha Basin should receive a Socio-Environmental Sensitivity Certificate, which will define those areas most sensitive to oil spills. As part of the requirements for this certificate, research is being carried out on soil use and cover, river dynamics and water flows in the region, as well as wind, meteorological and oceanographic conditions.

The results generated by these studies are periodically disclosed in partial technical and scientific reports and will be integrated into a database and final document that will be presented at the end of the research. The physical, chemical (organic and inorganic), biological and socio-economic parameters of the areas studied, and the results of bioremediation tests performed, will also appear in specific technical documents such as papers in national and international publications, undergraduate research, graduate monographs, masters’ dissertations and doctoral theses.

Our environmental modeling also includes analysis of the influence of climate change on the region, from scenarios constructed by the Intergovernmental Panel on Climate Change (IPCC). This will be the first time that the local impact of climate change in the region will be analyzed.

Our partnership with Fundação Coppe/UFRJ, which began in September 2011, includes studies to classify and monitor ecosystems in the coastal region of Una, Canavieiras and Belmonte (BA).

In 2012, satellite images were processed and analyzed in order to map land use, vegetation, geomorphology, topography and detailed dimensions of rivers in the coastal lowlands, as well as the coastline of the study area. These results help improve the quality of hydrodynamic modeling by giving a better local spatial scale.

Models have been implemented to create regional environmental marine and meteorological simulations, as well as marine climate simulations for the project's impact area. The project is currently compiling the information produced from each of the two major research areas: environmental computer modeling and remote sensing. The integrated analysis of the results obtained by these two major areas of research will be of fundamental importance for the spatial-temporal understanding of the sensitivity of coastal ecosystems to oil spills in the impact area.

ENERGY

QGEP’s administrative offices in Rio de Janeiro and Salvador consume energy directly from local utility providers. During our operational activities, the maritime unit and vessels involved use their own diesel generators. GRI OG3

GRI EN3

Direct energy consumption (GJ) * 2012 2011
Rio de Janeiro office 488.37 377.55
Salvador office 27.56 26.37
Total 515.93 403.92
*Electricity consumption supplied by local utility providers. Includes electrical appliances, office lighting and central air conditioning. There were no exploration operations in 2012.

EMISSIONS

GRI EN16 | EN17

In 2012 QGEP consolidated its emissions calculation process and adhered to the Carbon Disclosure Project (CDP). This organization, created 12 years ago in the UK, brings together over 700 investors who hold US$87 trillion in assets. It encourages emissions management by companies worldwide, including the 80 Brazilian firms that participate in the CDP’s annual emissions report.

QGEP’s goal for 2013 is to prepare its emissions report by hiring specialized consultants, and cut office energy consumption per employee by 10%.

In QGEP’s operations, environmental studies identify the impact of the activities and propose mitigation measures

GRI EN16 | EN17

GHG emissions (tCO2e) Scope 11 Scope 2 Scope 32
  2012 2011 2012 2011 2012 2011
CO2 7.65 0 7.37 6.38 296.99 10,857.07
CH4 0 0 0 0 1.75 0.94
N20 0 0 0 0 0.87 0.47
Total 7.65 0 7.37 6.38 299.61 10,858.48
1 The measurement of scope 1 began in 2012.
2 Scope 3 is lower as there were no exploration operations in 2012.

WASTE AND EFFLUENTS

GRI EN2 | EN22 | GC 8 | GC 9

QGEP has developed a waste management plan consistent with the guidelines and best practices established by IBAMA’s Oil and Gas oversight unit (CGPEG). Waste production was not significant in 2012, as there were no exploration operations. As a result, waste production came only from QGEP’s administrative offices.  There was no transport of hazardous waste and no spills occurred.

In 2012, QGEP’s office generated 2.3 metric tons of recyclable waste, 12.6% of which were plastics, and 87.4% of which was paper and cardboard.

The company purchased 4,769.7 metric tons of paper (for office use), 95% of which (4,578.4 mt) was recycled paper, while the remaining 5% (191.3 mt) was white paper.

Total weight of waste, by type and method of disposal*
Weight (tons)
       
Consumption of recycled materials Disposal 2012 2011
Paper, cardboard, plastic, glass, scrap metal Recycling 2.3 32.41
Non-hazardous waste Disposal 2012 2011
Common waste and wood Landfill 0.0 14.13
Hazardous waste   2012 2011
Used lubrication oil Rerefining 0.0 26.97
Fluorescent lamps Decontamination and recycling 0.0 0.022
Health waste Incineration 0.0 0.063
Waste contaminated with oil or chemicals Incineration 0.0 24.58
Oily water Treatment plant 0.0 16.33
TOTAL   2.3 67.97
* 2011 data include BM-J-2 operations and QGEP offices. 2012 data include only QGEP offices, as there were no offshore operations during the year.

QGEP's offices in Rio de Janeiro and Salvador are situated in commercial centers that use the local water supply and do not have independent meters. Wastewater is discharged into the public sewage system. GRI EN21 | GC 8

In Rio de Janeiro QGEP has selective collection for paper and plastic waste. In 2012 we produced and recycled 292 kg of plastic and 2,029 kg of paper and cardboard, all of which was sent to waste collecting facilities for recycling. Discarded light bulbs and fluorescent tubes are in temporary storage at QGEP offices and will be reported when they are disposed of.

During 2012 there were no operations in Block BM-J-2. However, we conducted an evaluation of the procedures used in the 2011 operations, particularly in relation to solid waste and industrial effluent management. We analyzed the critical services provided by transporters and the end-disposal management and audits of solid waste and industrial effluents by potential new end-disposal managers. The results of these actions can only be evaluated at the end of the BM-J-2 drilling program, planned for the second half of 2013.

Environmental studies identify the impact of QGEP’s operations and propose mitigation measures. The Pollution Control Project (PCP) is an initiative based on CGPEG/DILIC/IBAMA Technical Note No. 1/11, and is designed to adequately manage the waste produced by operations. Each activity has a specific waste management plan that assesses the best options for final disposal, with an emphasis on reuse or recycling. GRI EN26 | GC 8

EMPLOYEES

GRI 4.16

To produce a healthy working environment QGEP bases the relationship with its employees on partnership, transparency and building motivation. To promote diversity and innovation we support a constant exchange of experiences between talented young employees and those who are well established in their careers.

The personal and career development of employees is achieved through training. The Company subsidizes 80% to 100% of employee expenses on educational courses and workshops. In 2012, R$718,000 was invested in external training. In addition, senior employees shared their knowledge with the new employees through internal courses and presentations. This initiative will be continued in 2013.

QGEP did not reach its target of investing R$1.7 million in training. This was because not all vacancies were filled and there was a significant change in the portfolio (Campos Basin) which involved substantial operational demands. Even so, the company had a 2.77% ratio of training hours in relation to total hours worked. For 2013 the goals are to invest R$1 million and improve this ratio.

STAFF PROFILE

Of QGEP’s 91 staff members, 72 are employed directly by the company, while the remainder comprises 13 subcontractors, 4 interns and 2 executive officers.

NUMBER OF EMPLOYEES, BY FUNCTIONAL LEVEL AND GENDER GRI LA1 2012 2011
  Men Women Men Women
Executive* 3* 1 3 1
Management 8 5 6 5
Leadership/Coordination 8 4 9 3
Technical/Supervision 10 3 5 4
Administrative 12 20 9 18
Operational 0 0 0 0
Subcontractors 9 4 8 3
Apprentices 0 0 0 0
Trainees 0 0 0 0
Interns 2 2 0 0
Total 52 39 40 34
* Two executive officers are statutory.

NUMBER OF EMPLOYEES, BY TYPE OF CONTRACT AND GENDER* 2012 2011
  Men Women Men Women
Fixed time 0 0 0 2
Variable time 39 33 29 29
Total 39 33 29 31
* All employees work a full workday.

NUMBER OF EMPLOYEES, BY REGION AND GENDER 2012 2011
  Men Women Men Women
Southeast 49 38 38 33
Midwest 0 0  0  0
Northeast 3 1 2 1
North  0 0  0  0
Total 52 39 40 34

GRI LA2 | GC 8

TURNOVER Indicators* admissions (number) Terminations (number) TURNOVER RATE (%)
  2012 2011 2012 2011 2012 2011
Total 16 35 4 3 4.17 10.00
By gender            
Men 10 19 0 3 0.00 20.00
Women 6 16 4 0 8.06 3.33
By age            
Under 30 5 9 2 2 12.50 16.67
30 - 50 4 16 2 1 2.78 7.14
Over 50 7 10 0 0 0.00 0.00
* All hirings and terminations in 2011 and 2012 occurred in the Southeast region. Statutory directors were not included in the turnover calculation.
HEALTH AND SAFETY IN THE WORKPLACE

All employees are covered by a collective bargaining agreement with Brazil’s Oil Workers Union (Sindipetro). Among the provisions laid down in this agreement are clauses related to periodic examinations, safety standards, communication in case of accidents and the use of a uniform and Personal Protective Equipment (PPE). The employment contract also confirms QGEP’s compliance with its Integrated Management Policy. GRI LA6 | LA9

QGEP’s Internal Accident Prevention Commission (CIPA) operates on a by-location basis. The CIPA ensures the participation of Company employees in safety decisions. Its president is appointed by QGEP management, while the vice president is chosen by  employees.

The CIPA in Rio de Janeiro is made up of 6 employees who were elected by direct and secret ballot among the employees, and another 6 who were chosen by senior management. The office in Salvador does not have a CIPA, as it has fewer than the minimum number of employees required under Labor Regulating Standard No. 5. To comply with this particular standard one employee has been made responsible for safety at this location. This employee participates via conference call in CIPA meetings. As there were no exploration operations during the year, CIPAs were not set up in the operational areas.

In 2012 the Environmental Risks Prevention Program (PPRA) completed its first year of operations. Its achievements included worked on meeting goals in health care, ergonomics, maintenance of the office environment and monitoring water quality. During the period we also held the second Workplace Accidents Prevention Week (SIPAT), which included simulated emergency evacuations, safety briefings at our head office and firefighting team training.

GOVERNMENT

GRI 4.16

The oil and gas sector is regulated by the Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (ANP), a federal agency responsible for the implementation of the National Energy Sector Policy for Petroleum, Natural Gas and Biofuels. The ANP auctions the concessions, authorizes the activities of the companies in the sector and supervises their compliance with these rules and applicable directives. It is also a reference center for information on the industry and keeps a complete and up-to-date database on the sector, promotes studies and research and widely publicizes any findings and official estimates.

The federal government may impose temporary currency exchange restrictions on the sector whenever there is a considerable imbalance in Brazil’s balance of payments, or for reasons that may indicate a potential imbalance. This type of intervention may impair or prevent the conversion of dividends, profit distribution or revenue.

QGEP also structures its management to monitor and respond to – in a timely and effective manner – the demands of regulatory bodies such as the ANP and IBAMA, the guidelines of which have a direct influence on the company’s activities.

CUSTOMERS AND SOCIETY

GRI 4.16 | OG1

In addition to being a strategic partner in the operation of the Blocks, Petrobras is QGEP's main customer. Through a long-term contract, QGEP sells 100% of the gas produced in the Manati Field to Petrobras. Condensate, a by-product of natural gas, is sold by QGEP to Dax Oil Refino S.A. GRI 2.7

QGEP always acts responsibly and in a participatory manner to involve the community in the activities developed in the Blocks where it works as an operator, and in the implementation of projects that contribute to local development. It is part of the Social Responsibility Committee of the Brazilian Institute of Oil, Gas and Biofuels, and attends seminars to learn about new studies and tools in socio-environmental responsibility, exploration and production.



PROGRAMS AND PROJECTS

Viva Volleyball Project

Since 2011 QGEP has been supporting the Viva Volleyball project in fishing communities in the area influenced by Block BM-J-2. In 2012 the project included 200 children aged 7 to 14 in 2 centers (Canavieiras and Campinhos), with weekly sports classes as well as socio-instructional monitoring and an activities interchange. Created in 1999 by the Brazilian Volleyball Confederation and managed by the Instituto Viva Vôlei, the project is designed to reduce truancy, keep children away from crime and drugs and help develop children’s personal characters.

Publicity for this project has also produced meaningful benefits. An internal campaign involving 66 employees saw the donation of 106 pairs of shoes to the children involved. In 2011, media exposure on a televised sports program led to volunteer medical assistance being provided to treat a special needs child who was one of the participants. In 2012 the Ilhéus (BA) center for the Viva Volleyball project was closed, but the Canavieiras and Campinhos centers remain in operation.

Portinari Project: Art and Environment

QGEP has been a sponsor and partner in the Portinari project, which promotes the work of Brazilian artist Candido Portinari, since 2010. The Portinari Exhibition: Art and Environment includes 28 prints of the painter's works, with images of Brazil’s landscapes and plant and animal life. The goal is to encourage thought on the need to preserve the environment. The exhibition has been shown in several cities in southern Bahia.

The exhibition Portinari: Art and Environment was also shown at the Rio+20 United Nations Conference on Sustainable Development held in June 2012 in Rio de Janeiro. Set up in the Armazém da Popularização on the Rio waterfront, the show was visited by the Miriam Belchior (Brazil’s minister of Planning, Budget and Management), and Marco Antonio Raupp (minister of Science, Technology and Innovation). During their visit QGEP distributed 7,500 activity books for children aged 4 to 10, 3,000 memory games for children and adolescents, 300 teaching books and 50 Queiroz Galvão-Portinari calendars for public school teachers.

Between these various events, a total of about 80,000 children saw the exhibit. The exhibition was also put on in the Casa da Ciência in Rio de Janeiro between September and December of 2012. In 2013 the exhibition will be held in municipalities in the state of Rio de Janeiro which are in the area of ​​direct influence of the Block BS-4 activities. There will also be a launch of the new Portinari Project site, which is one of the project’s first partnerships with QGEP. The redesigned website provides broad, easy access for students and teachers to view and learn more about the painter's work.

Winter Clothing Drive

The Winter Clothing Drive took place in late autumn. To maintain QGEP’s volunteer spirit, we invited all employees to contribute by donating warm clothing and blankets. A total of 88 people from teams in Atlanta and Carcará were involved in the campaign, and 981 items were collected and sent to the Children’s Health Association, which QGEP has supported since the institution was founded.