Plagued by recent corruption scandals, Brazil is working to lure oil companies to new exploration contracts, offering the most offshore acreage in its history and promising to lower local content requirements, taxes and royalties for riskier investments.
The South American country plans to auction off 287 exploration blocks in 10 separate bidding rounds over the next three years, an effort that could lift Brazil’s daily oil production by 2 million barrels over the next decade, Brazilian energy officials said at the Offshore Technology Conference in Houston on Monday.
Brazil hopes oil companies will invest billions and drill some 300 offshore wells across some 120,000 square kilometers with an estimated 10 billion barrels of recoverable oil.
“Brazil is emerging from the worst economic and political crisis in its modern history,” said Jorge Camargo, president at the Instituto Brasileiro do Petroleo, a group that represents energy companies in Brazil. “We’re beginning now a new era where we have a more diverse, competitive, transparent and friendly environment for private investment.”
In recent years, offshore discoveries in Brazil have attracted companies like Royal Dutch Shell, and oil companies have drilled wells that can pump 20,000 barrels a day. That’s enough oil to make pre-salt formations profitable between $40 and $60 a barrel oil, and among the most competitive regions in the world, according to energy research firm Wood Mackenzie.
In recent years, the country’s output from pre-salt formations has climbed to 1.5 million barrels a day. Camargo said Brazil could double its output over the next decade if it can remove regulatory obstacles that have hampered investments in the past. He noted the country hasn’t made enough progress with environmental licensing or stabilizing its regulatory and tax environment.
“I don’t want to convey Brazil has solved all its problems,” he said. “We still have challenges we have to address. If it was easy, it would already be solved.”
Decio Oddone, director general of Brazil’s National Agency of Petroleum, Natural Gas and Biofuels, said Brazil is reworking local content rules that would require oil companies to use Brazilian labor and materials in their deep-water operations. The government has also considered extending the period of time companies are allowed to explore the region.
The first auction of so-called marginal fields begins next week. Brazil’s state-run oil company, Petrobras, also plans to sell off billions in assets this year in an effort to diversify the country’s energy industry.
“We’re offering acreage containing billions of barrels of oil in place,” Oddone said. “We’ve never had in Brazil such a (bidding) calendar. We’re going through the largest transformation ever.”