Brazil Opens Up Offshore

Via The Financial Times, a detailed report on Brazil’s recent decision to invite iternational oil companies to bid for concessions in Brazil’s enormous “pre-salt” oil fields as early as next year.  As the article notes:

“…Brazil stopped selling concessions in the offshore pre-salt area, which oil industry executives say will rival the North Sea in size and importance, soon after their discovery in 2007.

The government has since been working on new regulations for the area, which presents enormous operational challenges but where the chances of finding large quantities of high quality crude are much greater than in other Brazilian oil fields.

The new reserves promise to turn Brazil into an important oil exporting nation and further hightlight the differences between Petrobras, Brazil’s publicly traded but government-controlled oil company of growing international status, and the declining fortunes of its regional rivals Pdvsa of Venezuela and Pemex of Mexico.

Mr Lobão said Petrobras could not on its own cope with the huge task of developing the reserves, trapped under several kilometres of seawater, rock and a layer of hard-to-penetrate salt off the country’s coast.

“We will certainly be holding auctions next year. This means the oil companies can begin to prepare their treasury reserves,” he said.

Oil industry analysts were surprised by his statement. “It would rest on the assumption that Brasília will be able to promulgate a new regulatory framework in the near term, but there are so many stakeholders vested in the development of these fields that the legislative debate may be more arduous than expected,” said ­RoseAnne Franco, lead analyst for Latin America at PFC Energy in the US.

Brazil sold several concessions in the pre-salt fields before their potential became clear and has promised not to change those contracts. Analysts say Petrobras, with partners that include ExxonMobil of the US, BG of the UK, Galp of Portugal, Repsol of Spain and Anglo-Dutch Royal Dutch Shell, will be kept busy for many years exploiting those concessions.

Many observers expected the government to be in no hurry to bring in new laws, which will be controversial and seem unlikely to pass through Brazil’s congress in the near future, especially as 2010 is an election year.

Mr Lobão said he favoured restrictive terms for new companies entering the pre-salt fields and the creation of a new oil company entirely under government control to oversee them. Nevertheless, he said he was aware of the dangers of alienating international oil companies, noting the bitter experience of Venezuela and Mexico.

After more than 50 years of dominance, Mexico and Venezuela are in danger of losing their positions as the continent’s most ­important oil exporters.

As governments from China to Washington as well as international oil companies line up to help Brazil develop its vast fields, they are shunning Mexico and its restrictive financial terms and are being put off Venezuela after years of bruising contract renegotiations.

Hugo Chavez, Venezuela’s populist president, has seized fields owned by international oil groups and recently sent the military to take over the projects of oil service contractors he can no longer afford to pay.

He has damaged Pdvsa, the country’s once well-regarded national oil company. This has had a profound effect on Venezuela’s ability to produce oil. Output has dropped from 3.4m barrels a day just before Mr Chavez came to power in 1999 to 2.4m today.

Mexico is arguably in an even worse position. For decades Mexico has used Pemex as the nation’s piggy bank, forcing it into deep debt but barring it from using foreign oil companies to help invest in its fields. As a result Pemex has been unable to halt the steep natural decline of Cantarell, the ageing field that at its peak produced more than 2m barrels of oil a day but no longer manages even half that.

In spite of recent political reforms, Mexico faces the prospect of becoming a net oil importer within a decade.

In contrast, Brazil in the past 10 years has doubled its daily oil production to 2.3m barrels and is beginning to export. Mr Lobão says the country will join Opec once exports ramp up.

This entry was posted on Friday, May 29th, 2009 at 8:32 am and is filed under Brazil, Petroleo Brasileiro.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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