As the oil and gas industry claws its way back from the downturn, Brazil is positioning itself to become more attractive not only for potential investors but for the country as a whole.

This involves listening and being willing to make regulatory changes—qualities seen by Brazil’s Minister of Mines and Energy Fernando Coelho Filho as being important to attracting investors to the country.

“I think we are far away from doing everything we want, but we have started moving in that direction,” Coelho Filho told a full house gathered for a luncheon on the opening day of the 2017 Offshore Technology Conference (OTC) in Houston. “We now have a clear calendar of dates of when the auctions will take place. … what is in our reach [and what] we are trying to do to give the stability [that] the industry needs.”

The Brazilian government’s latest efforts include offering additional licensing rounds such as for coveted presalt acreage in the prolific Campos and Santos basins—something many in the industry have been awaiting. Following OTC Brazil in October Brazil will have its second and third presalt bid rounds—the country’s first since the 2013 presalt licensing round for the Libra Field.

The Libra Field alone is estimated to hold between 8 Bbbl and 12 Bbbl of recoverable reserves. It is one of several massive discoveries made offshore Brazil in recent years, commanding the attention of oil and gas companies worldwide. But the country and its industry still face challenges—labor concerns that have sparked protests, economic issues and environmental licensing delays that have slowed exploration activity in parts of the country.

“Everybody here knows that Brazil has at least 10, 15, 20 points that we need to solve immediately, but we can’t face all the problems at once,” Coelho Filho said, noting a recently approved cap on government spending, labor reform moving through the legislature and forthcoming social security reform.

Coelho Filho told the crowd how the government has made changes to its presalt law, unitization process and local content numbers, which he said will be good for oil and gas companies and for Brazil.

Earlier this year Brazil dropped the requirement mandating companies to buy equipment locally by about 50% for operations and production onshore. The figure was lowered to 18% for exploration offshore and to 25% for construction of wells. Brazil also lowered the fines against oil companies that do not meet local content percentages from a 60% minimum to 40% and from a ceiling of 100% to 75%.

It was one of several moves Brazil made in an effort to attract investment during a time of corporate spending cutbacks. Brazil also revamped its presalt law, opening up operatorship of blocks to companies other than Petrobras, and created an auctions calendar scheduling dates for about 10 licensing rounds from 2017 to 2019 for exploratory blocks and mature onshore fields.

“We do want more investments. We do want more people to come to Brazil,” Coelho Filho said. “Bid rounds like the one we are trying to host in the second semester are going to be responsible for the Brazilian economic recovery to put Brazil back on track.”

There are many places in the world with oil and gas resources, not just Brazil, he said. “We need to send the right signs.”

While Brazil’s energy ministry has made strides, Coelho Filho admitted there are many challenges ahead. Brazil is working to increase gas production as the country’s agreement with Bolivia nears its end, and the environmental ministry is working on a bill to send to Congress to speed up the environmental licensing process for oil and gas development.

The minister said he is optimistic about the years to come, especially when it comes to oil and gas. He believes the turning point for Brazil will match that of the country’s oil and gas industry.

“We are trying to put the country back on track,” Coelho Filho said. He foresees pleasant years ahead for Brazil’s economy from 2017 on as the country’s oil and gas opportunities attract.

Let’s make a deal

In another time, there was little incentive to allow foreign oil companies to drill Brazil’s lucrative offshore presalt fields. It was Brazil’s treasure, and Brazil’s national energy company, Petrobras, would exploit it.

But after those efforts began more than a decade ago, things went south. Petrobras’ drilling results were poor, the company is saddled with debt, and Brazil is reeling from a presidential impeachment and an economy in disarray.

“The opportunities in Brazil are huge, but it’s slightly complicated for us to achieve what we need to achieve,” said Andre Araujo, president of Shell do Brasil.

The OTC panel session, “Operators Offshore in Brazil: Under a Promising and Positive New Environment,” reflected the interest shown by majors like Shell, Exxon- Mobil, Statoil and Total as Brazil’s government has issued directives aimed at encouraging badly needed foreign investment.

Mexico’s energy reform is a key driver, with companies now able to pursue different options in the hemisphere. Still, the possibility of 50 Bbbl of crude makes it hard to walk away.

“We are seriously considering opportunities in Brazil,” said Carla Lacerda, president of ExxonMobil Brasil. “I hope to show you the perspective of an investor looking for material opportunity, particularly via exploration. We are convinced that the resources here are so significant that there are opportunities for all of us.”

As long as the price is right.

“With lower oil prices, less available capital and weaker cash flow, companies have become even more selective in their investment choices,” Lacerda said.

Her colleagues on the panel echoed that sense of hesitation. Maxime Rabilloud, president of Total do Brasil, offered two sets of solutions to move Brazil’s E&P program forward. In the short term, Brazil could:

  • Grant environmental licenses to participants in the Round 11 auction;
  • Extend Repetro, the fiscal regime that provided tax breaks to encourage oil and gas activity (Repetro was suspended in February); and
  • Give the go-ahead to launch projects that are ready to go.

“Our view is that there are a lot of barrels of oil and gas to be discovered in Brazil,” he said. His suggestions for the long term include:

  • Keeping up with regular bidding rounds;
  • Adapting fiscal terms depending on the region;
  • Granting upfront licensing and include the licensing conditions into the calls for tender;
  • Easing the tax burden at final investment decision; and
  • Unlocking commercialization of discovered reserves and promoting synergies among players in the sector.

Shell is also in search of better terms but is committed to Brazil even without presalt operations, Araujo said.

“Right now, if we don’t do any new investment, Shell already has committed to invest $10 billion in Brazil in the next five years,” he said. “If any of you ask me if Shell is overly exposed in Brazil at this point, let me tell you that we keep looking for opportunities if the terms are competitive, the fiscal environment is safe and the products compete globally.”

Brazil still has more work to do, Lacerda said, who noted that many countries possess “great rocks.” She offered ExxonMobil’s wish list:

  • Extend Repetro;
  • Finalize the unitization regulatory framework;
  • Ensure that the new production sharing contract is competitive;
  • Ensure that fiscal terms are commensurate with the risk and reward of opportunity; and
  • Execute and follow through on a bid round schedule.

What it boils down to are fair terms and conditions for foreign companies to take the risk. As far as the panel appeared to be concerned, the next move is up to Brazil.

“Every country around the world is looking for investment,” Araujo said. “While hydrocarbons are still important for our industry in the years to come, it’s the right time right now to secure and monetize those investments. These are special times we are in. Brazil is potentially a huge place to invest.”

But not the only place.

“The resources will go where it is simpler and easier to do business,” Araujo said.

New initiatives, new opportunities

Meanwhile, representatives from the Brazilian government and the Brazilian Petroleum, Gas and Biofuels Institute (IBP) discussed regulatory changes that will create more investment and exploration possibilities during the “New Business Opportunities in Brazil” breakfast at OTC.

“Now is the time for Petrobas to share with other players,” said Marcio Felix, secretary of petroleum gas for the Brazilian Ministry of Mines and Energy.

Felix was joined by Decio Oddone, general director at the Brazilian National Petroleum Agency, and Jorge Camargo, president at IBP. The panel promoted changes in the country’s regulatory framework designed to create a more pro-business climate in a country that has faced logistical and economic challenges in recent years in developing its vast energy resources.

“Brazil is emerging from the largest political and economic crisis in its history,” Camargo said. “As a result, Brazil is transforming itself for the better. In the oil and gas sector we are watching the end of the model that has prevailed over the last few years. We are beginning a new era where we have more transparency and a friendly environment for private investment.”

During the next three years Brazil will conduct a series of bids on 287 blocks for both its onshore and offshore reserves, held during 10 bidding rounds. Bidding rounds scheduled for this year focus primarily on the country’s east margin and onshore basins. Oddone said the bidding process marks the first time Brazil has offered new acreage in its highly productive presalt reservoirs. The blocks hold an estimated 50 Bbbl of unrisked oil in place.

“Some of the blocks on offer are among the most attractive exploration opportunities available in the world,” Oddone said.

He explained the country’s new acreage offerings could result in the development of 300 offshore wells, 17 new production units, 200 drilling rigs working simultaneously, 1,100 km (683.5 miles) of flowlines, 600 km (372.8 miles) of gas pipelines, 101 MMcm/d (3.5 Bcf/d) of gas and 2 MMbbl/d of oil by 2027, along with “billions in new investments.”

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