HOUSTON—State-run Petrobras’ plan to divest more than $15 billion in assets is reshaping the energy scene in Brazil, creating opportunities for more players to join the pursuit of not only oil, but gas.
Still, there are challenges to overcome, including getting needed infrastructure onshore—particularly in the northeast—and crafting incentives and regulations that attract companies with the skill and capital to develop the South American country’s vast hydrocarbon resources.
Understanding the opportunities and challenges in Brazil’s oil and gas sector was the topic of a Feb. 22 event hosted by Mayer Brown and Evercore featuring Márcio Félix, vice minister of Brazil’s Mines and Energy Ministry and executive secretary of Petroleum, Natural Gas and Renewable Fuel.
“Now we are experiencing a real opening of the market. … The Petrobras move is making the difference,” Félix said, pointing out the company’s decision to divest midstream and downstream assets as well as some of its upstream assets. “This is reshaping the sector.”
This comes as the company works to strengthen its balance sheet and reduce debt as it rebuilds from brutal market conditions and moves past a corruption scandal. Meanwhile, Brazil’s energy officials are working to attract oil and gas companies to develop some of the country’s 16 Bbbl and 453 Bcm (16 Tcf) of proved oil and natural gas reserves.
Recent efforts have included the January launching of an onshore E&P revitalization plan, which includes incentives such as a local content rule exemption and tax cuts, to lure developers. In addition, Brazilian legislators agreed last year to allow foreign oil companies to operate blocks in the presalt, something that was previously limited to Petrobras. The efforts precede auction rounds for blocks onshore and offshore.
“Brazil exports a lot of oil every year,” Félix said, later noting that OPEC forecast Brazil to have the most oil production growth in 2017. But he added that Brazil needs more refining capacity.
Brazil, home to some of the biggest offshore oil reserves in the world, also wants to increase gas production. The country currently imports gas from Bolivia, one of its smaller neighbors to the west. It is unknown whether Bolivia will have enough gas to help Brazil meet its long-term needs, but the issue is being discussed, Felix said.
Brazil aims to triple its own production by 2030, but he said it will be difficult to produce gas from some offshore areas because of high CO2 and sulfur content, which could affect recovery.
“We have big players needing gas in different areas of Brazil,” he said. “We have potential onshore to have a new gas market.”
Headway is being made on the regulatory front.
Local Content: Félix appeared in Houston the same day that Brazil’s government announced it was relaxing its local content rules, which could be seen as a plus for foreign investors but a negative for some Brazilians. The change drops the requirement mandating companies to buy equipment locally by about 50% for operations and production onshore.
The figure was lowered to 18% for exploration offshore and to 25% for construction of wells.
Brazil also lowered the fines against oil companies that do not meet local content percentages from a 60% minimum to 40%, and from a ceiling of 100% to 75%. The changes take affect with bidding rounds set to take place this year that did not have rules in place yet, Brazil’s Mines and Energy Ministry said.
Bid Rounds: “The bid rounds are coming back,” Félix added. “The fourth bid round for marginal onshore fields will be May 11. The 14th bid round for concessions is scheduled for September this year. Probably at the same time, we’ll have a bid round for presalt for production-sharing contracts.”
So far, Brazil has had only one presalt bid round. This was for the Libra Field, which was awarded to the consortium of Petrobras, Shell, Total, China National Offshore Oil Co. Ltd. and China National Petroleum Corp. in 2013.
A third round for the presalt could be held in November, with three or four exploration areas, Félix said, later adding that fourth and fifth rounds for presalt could be announced later in 2017—“one in May next year and another one probably in September/October 2019.”
Brazil aims to create a 10-year bid round schedule for onshore and offshore fields, he added.
Local content will not be a criterion for the 14th bid round for oil and gas concessions.
—Velda Addison