Deepwater revival: Can pre-salt oil bring investors back to Brazil?

Wednesday, October 19, 2016

Brazilian President Michel Temer is expected to soon sign off on a bill that lifts restrictions on foreign firms in Brazil's vast pre-salt oil and gas fields. But José de Sá, a partner at consultancy firm Bain & Company, tells BNamericas that this alone will not fulfill the government's aim to kick-start a "new investment cycle" amid the country's worst recession in decades. 

BNamericas: Earlier this month Brazil's lower house approved a bill that relieves state-run oil company Petrobras of an obligation to participate in all pre-salt fields, located in ultra-deep reservoirs below the Atlantic. What benefits will this bring?

Sá: The change in itself won't make a difference. For it to have any effect it needs to be accompanied by other regulatory changes in the sector, like tariffs and local content rules, so that Brazil can once again become a global hotspot for E&P activity. This would also help start a new investment cycle for the country. 

BNamericas: Petrobras could still have the first option for operating rights of pre-salt fields. Do you think this would reduce the chances other players have to secure attractive areas?

Sá: I don't see that being an issue in the next few years.

BNamericas: Which companies could be interested in bidding at the next pre-salt auction, slated for the second half of next year? And which firms do you think could be major pre-salt players in the future?

Sá: That will depend on regulations. Most countries are reviewing economic conditions of their [oil and gas] contracts so that they are more attractive to companies. Brazil has the potential to attract a wide range of investors thanks to vast reserves and institutional stability. But there must be an understanding that for this to materialize there needs to be an effort to make [the market] more attractive.

ALSO READ: Brazil pre-salt bill to rouse investors, says IBP

BNamericas: Do you think local content rules could change ahead of the next pre-salt auction and the 14th licensing round, which is also scheduled for the second half of 2017? 

Sá: It would be in everyone's best interests if these rules were changed before those auctions. It can help make Brazil more attractive in relation to other [countries]. In essence, we need to talk less about local content and more about developing a competitive local supply chain. 

BNamericas: Petrobras is focusing more than ever on pre-salt. What does that mean for onshore and shallow water fields?

Sá: It means that new market opportunities are opening up for companies with different operating profiles that can achieve growth in mature fields, for which demand has traditionally been strong. 

About José de Sá

José de Sá is a graduate in chemical engineering from the Universidade Federal da Bahia and has an MBA from Cornell University's Johnson Graduate School. He has more than 15 years of experience in management consulting for large national and multinational companies in industries such as oil and gas, energy and consumer goods. He has been a partner at Bain & Company since 2008.

About the company

Bain provides global management consultancy across all industries, focusing on areas such as strategy, marketing, organization, operations and technology, as well as mergers and acquisitions. Headquartered in Boston, Bain serves clients through 50 offices in 32 countries.