RIO DE JANEIRO—Major oil companies have eyed Brazil for E&P investments in 2017 due to its large oil reserves and business-oriented policies

In fact, after oil auctions this year—including two for presalt blocks that attracted giant oil companies such as ExxonMobil, Royal Dutch Shell, BP and others—the largest oil-producing country in Latin America confirmed its high attractiveness for E&P.

Yet, the success has posed some challenges about how Brazil’s oil and gas industry can address technology needs to develop the country’s oil fields.

According to Global Innovation Index 2017, Brazil ranks 69th in innovation and R&D, far behind countries like the U.S., U.K., Netherlands and Switzerland.

Brazil’s R&D segment has a long path ahead to achieve a better position in the world. Despite a slight financial recovery, the country still suffers from a sharp contraction in public and private resources available to foster innovation. Only 36% of Brazilian companies invest in R&D, according to Brazil’s Science and Technology Ministry.

Over the past 20 years, Brazil’s oil and gas industry received $4 billion for 10,000 R&D projects, according to the ANP, Brazil’s oil and gas regulator ANP.

For ANP director José Carlos Tigre, who participated in a conference on R&D in Rio de Janeiro, it is necessary to encourage research activities with higher levels of maturity to have new products on the market.

“ANP is already working on a regulatory framework for R&D regulation. The objective is to improve the business environment of the sector and unlock investments in the short term,” he said.

Tigre added, without mentioning details, that this new regulatory framework to encourage more innovation is scheduled to be released in 2018.

Currently, bureaucracy is seen as one of the main obstacles for companies that want to increase investments in innovation. So Brazil created a set of public policies for boosting innovation investments. As a result, there has been an increase in the number of companies supported by those policies. Over the past 10 years, however, this growth has been unsatisfactory.

But Brazil has some funding institutions aimed at encouraging innovation. These include the Financier of Studies and Projects as well as the National Council of Scientific and Technological Development.

In addition, Petrobras has been achieving success with oil and gas innovation. The major, which received the OTC Distinguished Achievement Award for Companies, Organizations and Institutions three times, is the No. 1 Brazilian company for R&D investments in the country.

In 2015 Petrobras invested $603 million in R&D, ranking sixth among oil majors for R&D investment, according to the consulting firm Evaluate Energy. In 2017, Petrobras invested $561 million in innovation, down from previous years as the company focuses more on reducing its debt.

Eduardo Santos, manager for the Petrobras Research Center, said Brazil needs to create a business environment that stimulates and brings startups to the oil and gas industry.

“Investments in R&D carried out by oil companies and universities are important. But the industry also needs the participation of startups, with innovation-oriented approach, in this process,” said Santos, who attended the conference.

He also mentioned the impact of upstream technologies, which includes intelligent management of complex systems through data analysis to a wider range of automation processes, with emphasis on the new generation of robotics solutions and the introduction of new materials and nanomaterials.

Among the challenges ahead is the need to reduce extraction costs and the increase of the recovery factor can stimulate and increase the participation of Brazil in the world oil industry, said Telmo Ghiorzi, director of ABESPetro, Brazil's oil service company association.

Brazil has good resources to address these challenges, according to Ghiorzi.

However, the industry and the government should establish an industrial policy based on innovation in the long term and focused on sustainability of the sector, Ghiorzi said.

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