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$ 20 Oil Can Destroy the Brazilian Offshore Oil Boom | Instant News


Brazil has suspended its 17th licensing round which will make the country’s oil regulator ANP offer 128 offshore exploration blocks across the country, worried that oil prices are plummeting and an unprecedented decline in global crude oil demand requires a double reduction in CAPEX will be the first step for another failure. With two failed pre-salt licensing rounds in November 2019 that marked the year of the overall success of Brazil and Petrobras, the clouds grew heavier around the future of upstream Brazil, which was once the leading deepwater investment hotspot in America. This time it’s not the government’s fault – he has tried to make up for his past mistakes with several new initiatives, but the coronavirus is blocking.

Until November 2019, everything seems to be going right for Brazil – recently last October had a rather successful pre-salt auction when it succeeded in delivering 12 of the 36 blocks offered, bringing the record number of signature bonuses ($ 2 billion). In a clear illustration of how competitive the auction was, Petrobras NOC Brazil only managed to get one block. With hopes of rising high, no one really hopes that the upcoming licensing round will be bleak. Sure enough, the rights transfer auction (TOR) has a fair quirk – for example, the offer will be bid on the 12.4 billion boe portion of recoverable resources, not the whole volume. The problem is that under the 2010 agreement Petrobras holds exclusive rights for the first 5 billion boe of recovered resources, while the auction is held only for the remaining 7.4 billion boe.

In the TOR bidding session, Petrobras won all the “prime” blocks such as Buzios and Itapu, with the Brazilian NOC bidding minimum profit oil levels and winning in both cases. It raised about $ 17.5 billion for the Federal government, although it is still questionable whether the move to move money from one bag to another is really worth it. The day after the TOR auction, 6th The Production Distribution Licensing Round took place, with the aim of attracting more international majors who could provide new technological solutions to Petrobras’ deep sea expertise. Oddities have ruined the prospect of the 6th round before salt, too – Brazil’s National Energy Policy Board (CNPE) has increased the distribution of the country’s minimum oil profit by 5-6% just a few months before the auction.

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In addition, the 3 blocks in the pre-salt offer will require a unitization agreement with Petrobras because they are adjacent to the area held in the blocks operated by adjacent Petrobras: in such cases, international NOCs have little or no opportunity to act as operator of deep sea projects. . If all 4 pre-salt and 5 pre-salt blocks are allocated, the aggregate signature bonus given to the Brazilian authorities will increase to $ 27 billion – roughly half will be given to the Federal Government. But even though 14 international majors were approved to participate in the TOR bid, in the end none of them participated – only CNODC and CNOOC China took small portions, with Petrobras basically refinancing the Brazilian state by applying for all licenses taken.

If one assesses all developments taking place from November 2019 onwards, the lack of foreign investment into Brazil’s oil and gas in terms of project financing might turn itself into an alarming trend – Brazil’s Ministry of Mines and Energy expects that the country’s aggregate output will increase to 5, 5 mbpd at the end of this decade, but failed to mention that all major FIDs were taken some time ago. But the goals set are very ambitious. After the development of the Buzios field (about $ 18 billion of upstream expenditure in 2020-2024, which is almost one third of Petrobras’s total), the production capacity must reach 1.86mbpd by the end of 2020, one can safely assume that the driving force of Brazil’s upstream future lies in its pre-salt basin, expected to represent 77% of the aggregate national output in 2029.

Here’s the hard part – by the end of 2019, Petrobrac’s net debt was $ 79 billion. Although far better than the $ 105 billion five years ago thanks to an ambitious divestment and optimization program, NOC Brazil remains one of the most indebted oil companies in the world that still has much to do to restore the company’s finances to health. In short, a large debt repayment commitment from the NOC could jeopardize the assumed increase in Brazilian output and Petrobras requires external participation to overcome ambitious goals. Needless to say, it seems that the time of great discovery by counting reserves in billions is lost forever – if Brazil wants to see smaller assets being developed, it must relinquish a portion of the economic interests involved.

The Brazilian Parliament has taken several steps in the right direction after the failure of the November auction – primarily aimed at making pre-salt projects more accessible by removing pre-salt polygon status from the Santos and Campos valleys. The main objective is to enable national regulators to flexibly select contract regimes for each given pre-salt block (ie a concession contract rather than a fixed regime production sharing contract) and to release Petrobras’ “strategic status” in all respects. related to pre-salt. Although the more frequent use of concessions will most likely cause each government to have a greater say in policy matters, they also provide opportunities for local governments because they will receive a higher share of oil revenues (compared to the federal government).

By Viktor Katona for Oilprice.com

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