Brazil expects to raise up to USD1.421 billion for the 14th Round of Bids for blocks for the exploration and production of oil and natural gas, including the pre-salt layer (illustration: Petrobras)

The Brazilian federal government has announced a new policy to enhance and encourage investment in the oil and gas area in Brazil. The Minister of Mines and Energy, Fernando Coelho Filho, says there will be a change in the local content related obligations, which will be reduced by half on average.

With the new policy, which will come into force with the actions planned for September this year, five macro groups have been established. In previous sales, there were up to 70 items and sub-items, each with a different local content percentage. In the minister’s view, the percentage required was too high.

The new minimum local content requirement starts at 50% for exploration and on-shore development. For sea areas over 100 metres deep, the percentages are of 18% for exploration; 25% for well construction; 40% for collection and disposal system. The stationary production unit (EPU) gets 25%.

Private sector analysts say the changes announced by the government will result in job creation and income generation opportunities for the Brazilian population, as national companies will have more competitive prices. “Brazil will once again be on the investment map of major oil and gas companies in 2017,” says Filho.

“In the oil and gas industry, Rio de Janeiro does not compete with the Espirito Santo state, São Paulo or Bahia, but with other countries in the world. Hence the importance of having an aggressive local content policy able to make these companies choose Brazil,” he says.

Attracting new investments For the Secretary of Economic Monitoring of the Ministry of Finance, Mansueto Almeida, positive results go beyond the impacts on industry.

“This reduces what we call transaction cost and increases productivity for the oil and gas sector, and consequently, profitability and investment”, states Mansueto. “It will benefit oil and gas producers, as well as the government with higher tax collection and several vendors.”

The government estimates the event could raise between USD 47 million and USD 180 million.

Mines and Energy Minister Fernando Coelho says that the government expects to raise up to USD1.421 billion for the 14th Round of Bids for blocks for the exploration and production of oil and natural gas, including the pre-salt layer. The lease on the fields are scheduled for this year.

“Three rounds have been announced for this year: the round of onshore [areas], the second round of the pre-salt and the round of post-salt. We need to be united so that they are all a great success,” says the minister.

After the swearing-in ceremony of the new director of the National Agency for Petroleum, Natural Gas and Biofuels (ANP), Décio Oddone, in Rio de Janeiro, the minister says the government is working to make the bidding round of the onshore areas in May. The second round of the pre-salt areas shall be made in the first semester. Leases for post-salt areas shall be granted in September.

“We need to resume auctions. We don’t want to repeat our last failure. Whether it has been caused by Petrobras’ obligation to participate in it, or for the difficult moment faced by the company, or for a series of questions and doubts that the industry had, we are solving everything. We expect to have a great success in the bidding rounds this year and, then, we can have a regular schedule,” says Décio Oddone.

In the 13th Round of Bids, in October 2015, only 14% of the blocks offered were sold. Of the 266 blocks offered by the ANP, only 37 were sold by companies registered in the bidding rounds.

“The industry sees the regularity of bidding rounds as something positive. I also agree. A regular schedule allows the companies to prepare themselves, and learn better about the Brazilian soil. When we have companies that are familiar with the country, we have more competitive processes,” says Oddone.

Oddone points out that the oil and gas sectors in Brazil are in a new moment, attracting capital, showing process agility, and facilitating investment aimed at generating jobs and income.

Brazil anticipates booking USD 1.4 billion in signing fees from drillers this year as it holds a series of new bid rounds, according to Energy Minister Fernando Coelho Filho.

He says USD1 billion alone would come from the pre-salt auction. The minister was speaking at the swearing in of Decio Oddone, who is the new head of the national energy regulator, ANP.

The first auction round is due in May, though it will excite little interest given that it offers onshore fields with limited potential. But the government hopes that before the end of June it will have auctioned off several offshore pre-salt blocks, chosen as they are close to existing post-salt assets. As these already have infrastructure in place the government is betting operators of these producing blocks will be particularly interested in bidding.

This pre-salt auction will be the first since Brazil’s new government repealed legislation obliging Petrobras to be operator and participate in each exploration block. Coelho says he had held talks with the state-controlled driller but that it would decide its own strategy in the auction.

Peter Howard Wertheim and Dayse Abrantes are experienced energy journalists covering Brazil and other Latin American countries. They can be reached at : peterhw@frionline.com.br

The third auction round this year is scheduled for September. It will be the 14th round carried out under Brazil’s concessionary regime that has been in place for almost two decades, and will contain offshore post-salt blocks in basins that already have producing fields operated by Petrobras and other majors.

In his first speech as head of the energy regulator Oddone said there would be less “ideology” when it came to Brazil’s oil sector, after the increasing statism and energy nationalism during the 13 years of Workers Party rule that ended last year with the impeachment of Dilma Rousseff. He also said that Brazil would become self-sufficient in oil production by the start of the next decade.

Brazil declared itself self-sufficient in oil in 2006 but the failure of production to keep pace with rising domestic demand forced the country once again to rely on imports.

Tags: Petrobras