Moves by Brazilian authorities to create new rules to ease existing local content policy have pleased oil companies that perform E&P activities in the country. To them, the largest Latin American country still lacks a skilled workforce and high-technology performance in the offshore industry, which make investments more expensive and inefficient. For that, a new regulatory framework welcomes acquisition of equipment overseas to give E&P activities more efficiency.

However, the locals aren’t too happy.

Created to protect the local offshore industry in Brazil, the federal law establishes the minimum percentage of equipment, vessels and services that can be purchased by oil companies operating in Brazil’s oil fields. In some cases, the minimum local content percentage can be 40%.

“We are working to have more realistic and balanced rules for the next auctions,” Brazil’s Oil and Gas Secretary Marcio Felix said. “We are [in discussions] with the local industry and major oil companies, and I believe that we have advanced in many points, though we still have some adjustments to make before the official announcement of the changes in the local content policy.”

Yet those likely changes are making the local offshore industry unhappy. During 2017, a year when Brazil will auction roughly 300 exploratory fields, discussions about creating flexible rules for investments have sparked controversies within the segment. In that context, local suppliers have declared a war against this government proposal.

On Jan. 16, Brazilian Federal Judge Francisco Alexandre Ribeiro issued an injunction that suspended Petrobras’ bid for acquiring an FPSO unit for the presalt Libra Field in the Santos Basin. For this bid process, Petrobras asked the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) for a waiver to have more efficiency. The waiver is valid only for charter agreements of foreign offshore vessels and cannot be extended to labor force services, according to the local content rules.

The Brazilian Shipbuilding Syndicate (SINAVAL), which requested the injunction, claimed that the state-owned oil company’s waiver for the FPSO bidding process disrespects the local policy.

“Petrobras has only talked to foreign companies and none of the Brazilian industry was contacted. This is against the regulatory framework,” SINAVAL President Ariovaldo Rocha said in an official statement Jan. 23. He also said the government’s proposal to change the current local content rules could destroy the country’s shipbuilding industry if it is approved.

Petrobras, on the other hand, justified its intention of inviting foreign companies, stating that building an FPSO unit overseas is 40% cheaper than building one in Brazilian shipyards.

“The local content policy obliges us to divide the whole process in several contracts in order to ensure the participation of local shipbuilders,” the company said in a press statement. “This causes higher prices, technical risks and problems with several contracts, a situation that is contrary to the necessity of making new investments available to the country.”

Petrobras’ FPSO unit for operations in the Libra presalt layer is scheduled to be installed in 2020. The unit will be able to produce 180,000 bbl/d of oil. The state-owned oil company, however, has not set a new date for a new bidding process.

Libra was the first presalt field to be auctioned in Brazil in 2013. The area was acquired by the consortium of Petrobras, Royal Dutch Shell Plc, Total, CNPC and CNOOC. The consortium estimates that the field has between 8 Bbbl and 12 Bbbl of recoverable oil across a 1,500-sq-km (579-sq-mile) area.

Petrobras said it will file an appeal in Brazilian court to reverse the federal judge’s decision to block the waiver for the Libra FPSO unit. Also, despite the controversy, Petrobras still plans to ask the ANP for more waivers to acquire FPSO units and other equipment outside Brazil for the company’s future E&P activities.

“The country’s economic recovery depends on the resuming of investments and jobs creation. We welcome discussions about the best policies for the local offshore industry,” Petrobras press staff said. “Nevertheless, simplistic views about nonexistent preferences for foreign companies vs. Brazilian companies do not contribute to the discussion. Also, those views are very disrespectful to millions of Brazilians who are looking for a job at this moment.”

—Brunno Braga