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Brazil, to further increase US investments in oil and gas industry, regulatory best practices

U.S. Secretary of Energy Dan Brouillette at the first ministerial meeting of the U.S.-Brazil Energy Forum Feb.1-3 at Rio de Janeiro, Brazil.

- Nuclear deal signed Monday; oil, gas under study
- Countries to share regulatory best practices

By Platts

Petroleumworld 02 03 2020

Brazil and the US will discuss issues surrounding oil and natural gas regulations in an effort to boost trade between the two countries and increase American investments in Latin America's largest economy, the top energy officials of each nation said Monday.

"One of the objectives of this forum is to create better business conditions for the oil and gas sector," Brazil's Mines and Energy Minister Bento Albuquerque said on the sidelines of bilateral talks in Rio de Janeiro. "We want legal and regulatory security for these investors."

Energy officials from the two countries met as part of the first Brazil-US Energy Forum, which is a working group created last year by US President Donald Trump and Brazilian counterpart Jair Bolsonaro. One of the group's first orders of business was brokering a deal to extend the working life of the Angra 1 nuclear reactor for 20 years between Eletronuclear and Westinghouse, with a memorandum of understanding between the two companies signed Monday.

Brazil's oil and natural gas regulatory regime is once again at the center of a heated debate after the country's sixth subsalt production-sharing auction and first transfer-of-rights sale failed to generate the level of competition expected. Brazil sold just one of the five areas up for bid and two of the four fields on offer at the transfer-of-rights sale.

The lackluster results stumped government and industry officials after similar sales held in 2017 and 2018 generated record-setting signing bonuses and profit-oil guarantees for the government. Industry officials attributed the downturn to high signing bonuses and the lack of existing exploration work in many of the areas.

The transfer-of-rights sale, meanwhile, also failed to attract competition because of uncertainties regarding reimbursements to Petrobras for investments already carried out at the fields, where Petrobras can pump up to 5 billion barrels but discovered as much as 20 billion barrels of resources.

"We learned some lessons during the last auctions held in November and we're going to implement those so that the next auctions will be successful," Albuquerque said.

Brazil's Congress is currently evaluating several bills that would once again change the country's regulatory regime, especially as it relates to the massive subsalt frontier, including eliminating the subsalt polygon that determines whether concession or production-sharing contracts are used and ending Petrobras' preferential right to hold at least a 30% operating stake in subsalt fields sold under production-sharing agreements.

Petrobras exercised its right for several fields put on offer at least year's auction, but didn't submit bids for all of the areas where the rights were exercised as it had done in the past.


The US can offer Brazil plenty of experience regarding regulatory best practices, with an eye toward further increasing US investments in Brazil's oil and gas industry, said US Energy Secretary Dan Brouillette.

"It's important to establish a regulatory regime that is certain, where everybody understands clearly what the rules are, and transparent," Brouillette said. "We want to work with Brazil so that we both have those same qualities and I look forward to conversations to establish those types of principles."

Brazil is especially keen to glean information about regulations for hydraulic fracturing and development of unconventional oil and gas reserves, where Latin America's biggest producer has lagged behind the rest of the world. Brazil currently produces about 250,000 b/d of oil equivalent onshore, where output has dropped by more than half over the past decade as Petrobras shifted its focus to the subsalt.

"We're working on it, but the US made huge advances in this sector that revolutionized the industry," Albuquerque said. "Brazil could benefit greatly by unconventional oil and gas production."

Government and industry officials believe that Brazil's traditional onshore oil production areas, such as the Reconcavo Basin in the northeast, could dramatically boost output should hydraulic fracturing and other enhanced oil recovery techniques be utilized at the mature deposits.

Public resistance to hydraulic fracturing and horizontal drilling, however, has been intense. The practice is currently barred in several Brazilian states after public prosecutors sued to block unconventional drilling.

Albuquerque noted that the government still plans a pilot project to carry out horizontal drilling and hydraulic fracturing, but has so far failed to find a company to participate in the project.

The pilot project "is essential for this activity to be used in our country," Albuquerque said.

By S&P Global Platts 02 03


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