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Brazil getting with the rhythm Foreign firms swallow doubts, join Brazil’s pursuit of oil self-sufficiency, but state-owned Petrobras keeps most blocks under its control Gary Park Petroleum News Calgary Correspondent
Global oil giants seem to have decided that there’s more than an “awful lot of coffee in Brazil,’ but they’re not quite ready to samba.
In what was billed as a key test of the investment climate under the left-leaning government of President Luiz Inacio Lula da Silva (better known simply as Lula), they took an active part in Brazil’s sixth government licensing round Aug. 17 and 18.
The sale attracted $704 million for 154 blocks, far eclipsing the dismal results in 2003, which generated only $9 million for the government.
The round is anticipated to generate $26 billion in new investments and boost Brazil’s oil reserves by 1.3 billion barrels to 14 billion barrels, overtaking the current South American leader, Venezuela, which has 8.3 billion barrels.
It is also expected to close the gap between Brazil’s output of 1.6 million barrels per day and its consumption of 1.8 million bpd, setting the stage to meet the government’s goal of 500,000 bpd in net exports by 2012.
But doubts still hang over the South American country.
Despite the vote of confidence by such foreign operators as Shell, Devon Energy, EnCana, Kerr McGee, El Paso, Spain’s Repsol YPF, Norway’s Statoil and South Korea’s SK, most of the big players continued giving a wide berth to the licensing round.
Their misgivings were reinforced by the confusion stemming from a Brazil Supreme Court ruling prior to the sale, the fact that Brazil’s state-owned Petrobras took a role in 107 of the 154 blocks that were sold and indications from government officials that Brazil will skip the 2005 round, after holding a tender every year since 1999 when it opened its oil industry to private companies.
The mines and energy ministry’s oil and gas secretary Maria das Gracas Foster told the opening day of Round 6 that as Brazil gets close to self-sufficiency “we need to better plan the development of our reserves.” Foreigners might not be able to export oil She said that although foreign and private companies can explore and produce, a decision on whether they can export their production will hinge on the government’s strategy and national consumption trends.
That thinking echoed an August 16 Supreme Court ruling that foreign operators of auctioned blocks should not be allowed to own the oil they produce and might not be able to export it. They would also be required to obtain federal approval for all of their development plans.
Although the ruling was overturned by the Supreme Court president August 17 and das Gracas Foster declared the “problem solved,” the bidding companies think it is likely the dispute is far from over.
Shell, for instance, currently exports about 55,000 bpd from its Brazil operations because it views the Petrobras pricing policy as uncompetitive.
Repeated calls from the private sector for Brazil to make its investment terms more attractive have also gone unheeded, prompting consultant Wood Mackenzie to note last year that the government of Rio de Janiero, which controls the key Campos Basin, has a tax regime that leaves “existing and potential investors extremely wary of Brazil.”
However, there has been a hint of movement, with the federal government extending a tax exemption on imported capital goods used in the offshore to 2009 from 2007.
Paulo Kastrup Netto, an attorney representing several of the bidding companies, told the Financial Times that although the federal government has stripped some regulatory agencies of their policymaking powers it “recognized the important role they can and should play.” Shell, Kerr-McGee, EnCana top foreign bidders Shell was the top foreign bidder in Round 6, spending $23 million, followed by Kerr McGee $13 million, EnCana $10.6 million, Devon $8.6 million and Repsol $6 million.
Shell, Repsol and El Paso bid in tandem with Petrobras, acquiring equity stakes but leaving Petrobras with majority interests and the operator role.
A Devon-led group including EnCana, Kerr McGee and SK opted to go it alone on one block in the Sergipe Alagoas Basin, which has strong light oil prospects and was acquired for $16.4 million.
An EnCana spokeswoman told the Financial Post that the Canadian independent, based on five years experience in Brazil, feels the country is “politically stable and has good exploration opportunities.”
EnCana plans to take a role in six wells over the next four years, with its eye on adding Brazil to its other South American interest in Ecuador, where it produces 68,000-74,000 bpd.
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