Rio de Janeiro - Brazil is considering lifting a requirement for its national oil company to operate all new projects in a deepwater region where exploration costs are some of the highest in the industry.
Any changes to regulations for the so-called pre-salt area will have to go through Congress with lawmakers “open to alternatives”, Energy Minister Eduardo Braga said Sunday in an interview in Houston before the Offshore Technology Conference. The government is also giving Petroleo Brasileiro SA freedom to set fuel prices, he said. The state-run company known as Petrobras lost billions subsidising gasoline and diesel imports in President Dilma Rousseff’s first term.
Efforts to develop discoveries it already made has contributed to Petrobras becoming the world’s most indebted oil producer. Chief Executive Officer Aldemir Bendine said last week that under current rules any new pre-salt ventures would increase leverage. More participation from foreign operators is welcome, Braga said.
“The reality today is to attract investment,” Braga said. “There’s no way Petrobras can put down all the investments needed for the Brazilian economy and for the downstream part of the oil industry.”
Under existing rules, any consortium that bids against Petrobras for pre-salt acreage and wins would then need to hand control of day-to-day operations to the state-run producer along with a 30-percent stake after the bidding showdown. This is awkward for both sides and hasn’t produced the desired results. No one competed against a Petrobras-led consortium at the first and only auction under the new model.
No decision
The government hasn’t made a final decision if it will sponsor changes to Petrobras’s role in developing an area almost the size of Florida that holds Brazil’s biggest discoveries, he said. He said under the plan he supports, the profit-sharing part of current legislation will remain, and Petrobras will still have at least a 30-percent stake in fields for which it chooses to bid. Under one proposal Braga described, Petrobras or Brazil’s National Energy Policy Council would have the final word on bidding participation.
Rousseff, while agreeing in a March 31 interview that “drastic measures” are needed to turn Petrobras around, still saw at that time no need to change local-content rules or pre-salt ownership requirement at the core of the oil strategy.
The pre-salt region gets its name from the layer of Cretaceous-era salt formed at a time when dinosaurs still lived and which traps the crude under the Atlantic seabed. Tapping the deposits requires giant floating platforms that cost as much as $700 000 per day to lease.
“It’s the obligation of the operation that is being discussed,” Braga said. “I defend Petrobras’s right to opt not to participate.”
Next round
Brazil’s goal is to auction some fields at least every two years, Braga said, adding that there’s a 50:50 chance a bidding round next year could include pre-salt areas. While that plan depends on market and economic conditions, he underlined the importance of regular sales to maintain flow of investments.
“With current oil prices we’d be getting ahead of ourselves to promise a round of auctions every year,” he said.
The so-called 13th round, scheduled for October, probably will require a signing bonus of at least 2 billion reais ($663 million), Braga said, citing previously undisclosed government plans. The contracts should be signed by December, in time for the signing bonus to count toward Brazil’s 2015 primary surplus goal, Braga said.
Bidding terms
The government is working with oil prices at $60 a barrel to set auction terms, Braga said. Brazil plans to sell 269 blocks in this year’s auction, with the prized areas being Sergipe-Alagoas. Details of areas will be disclosed on Wednesday, Magda Chambriard, Brazil’s chief hydrocarbons regulator, said at an event in Houston late Sunday.
Braga said international firms including Royal Dutch Shell have expressed interest in both the 13th round and future pre-salt auctions. He said he plans to meet with executives from BP, Chevron, Total SA and Shell at the conference in Houston this week.
Outside firms throughout the oil supply chain have an opportunity in Brazil, Braga said, with 27 companies banned from bidding for new contracts. Those suppliers are being investigated by police in connection with a kickback scheme that for almost a decade funnelled money from inflated Petrobras contracts to executives and political parties.
Output headwinds
Supplier constraints could force Petrobras to postpone its production curve growth, Braga said. He said that while the Brazilian companies under investigation must sign leniency agreements to survive, it will also be important to create new suppliers both to fill the industry’s contracting needs and hire recently laid off workers.
“The size of the potential for Brazil’s oil industry is much bigger than the corruption investigation,” Braga said. “International companies are very welcome.”
The local-content requirements that were important for supporting the development of Brazil’s oil industry now need to be adjusted, although not eased, Braga said, promising that the ministry and regulator will present proposals in 30 to 60 days.
He said changes will apply to future contracts only. Past commitments will have to be met, with specific cases analysed individually, he said: “Brazil has rules and contracts, those have to be followed.”
One of the heaviest areas of government influence - fuel price subsidies - is also set to change, Braga said. After years of taking on debt to sell fuel to consumers below international prices, Petrobras will now have the freedom to set its own pricing policy, Braga said.
The reality for the global oil industry and for Brazil, has changed, Braga said, and now the “government’s position in Petrobras is that of a shareholder”.
“If fuel-price policy is more transparent and trustworthy for the market, it will be understood that Petrobras really does have freedom to set prices,” Braga said. “The market will notice facts, not words.”
Bloomberg