The bid-round litmus test facing Brazil

12 August 2015, News Wires – The countdown to Brazil’s next licensing round has begun, and the event will provide an opportunity to discover how much the South American star has dimmed in recent times.


President Dilma Rousseff of Brazil

Under successive left-leaning administrations, Brazilian oil and gas authorities have been guided by a conviction that the world wants what they have to offer.

This perception was reinforced when the pre-salt discoveries provided a beacon of hope for a global industry hit at that time by the credit crunch and the Macondo disaster.

Much of the excitement was about the Petrobras shopping list, and the state-run company’s unbridled interest in new technologies, but so many of the stellar promises have turned to dust.

Like other regions seeking to attract upstream investment, Brazil has to contend with an oil price hovering around $50 and a collection of cost issues, including the usual technological challenges of working in deep and ultra- deep waters.

This time Brazil cannot content itself with viewing these challenges as run of the mill — the country has had an unusually bad run in the eyes of investors.

Topping the list of negatives is the corruption scandal that has shaken Petrobras to its foundations.

Some may see opportunities as cash-strapped Petrobras stays out of the bidding, but it would be a mistake for Brazilians to imagine that there is not an image problem that has the power to deter.

Despite some hints of change, Brazil has done next to nothing to address the perception that local content requirements and stifling red-tape condemn all comers to high costs and delays.

Brazil was unnerved by Mexico’s entrance onto the world licensing stage, and especially so by its promise to avoid the “Brazilian mistake”of heavy local content requirements.

Critics say the disappointing outcome to the inaugural Mexican licensing round bodes badly for Brazil but, in government and regulatory circles, officials can be heard whispering that the result merely proves that investors have not jumped ship but remain as interested as ever in what Brazil has to offer from a sub-surface perspective.

Jose Gutman, a director of the ANP, Brazil’s hydrobarbons regulator, said as much last week.

Some of the acreage that Brazil is about to offer is undeniably attractive, especially the 10 blocks along a trend from recent Petrobras discoveries in the Sergipe-Alagoas basin.

This area accounted for 20 billion barrels of oil equivalent of the 48 billion boe unrisked estimate of oil in place that the ANP has released for the east coast blocks on offer in October.

Brazil will have a much harder job selling the huge swathes of acreage on offer in the Pelotas basin, a pure frontier with large marine mammals and cross-border issues posing challenges for environmental licensing.

It is against this backdrop that industry leaders offered the unusually-outspoken criticism of the terms and conditions on offer for the round.

While acknowledging that the Brazilian authorities have made progress in streamlining the environmental permitting process, there was bitter disappointment about the absence of change on issues such as local content and unitisation.

The 23 companies registered so far to see the data offer some comfort to worried officials, but Brazil is clearly taking a risk.

The real measure against Mexico would be to gauge bidding interest in the Pelotas basin versus the southern reaches of the Perdido foldbelt in the Gulf of Mexico.

That opportunity should come soon.

– Upstream

About the Author