New bid rounds in Brazil: A chance to attract investment

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Tuesday, February 14, 2017

An oil and gas specialist and former director of hydrocarbons regulator​ ANP, Helder Queiroz spoke to BNamericas about the return of bid rounds in Brazil. This year, the country will hold the 14th bid round, the third auction of pre-salt areas and a round for marginal oilfields. These are great opportunities to attract investments, according to Queiroz.

Queiroz also gave his opinion on local content rules, which may undergo some important changes soon.​ "One thing is certain: Brazil needs to find a balance between the interests of the oil sector and the interests of the national equipment industry," he says.

BNamericas: After a period of political and economic uncertainty, it seems like Brazil is ready to catch up with the oil sector agenda. What is your expectation for 2017?

Queiroz: Generally speaking, even though Brazil has not completely solved its economic and institutional crisis yet, the country's oil industry has solid bases. First, we have to consider that some important issues have already been unraveled, answering to old requests of the industry. An example, perhaps one of the most important, is the end of the sole operator [Petrobras] for pre-salt oilfields.

The second reason is the huge potential of the offshore areas. Brazil is the country with the biggest volume of discovered oil resources in the world, so it's a promising exploration and production frontier from the geological point of view of the oil industry. In addition to that, there are amazing human and technological resources available. For other countries, this could be a problem, but Brazil has excellent engineers, geologists and geophysicists. If we look back, the first pre-salt oilfield was discovered 10 years ago, a new frontier for the industry. Now, it's producing more than 1Mb per day.

BNamericas: The 13th bid round, the last one held in Brazil, was not very successful. Now, however, there are big expectations for the 14th round and also for the new pre-salt auction. How do you assess the possible results?

Queiroz: Two-and-a-half years ago, a barrel of oil was costing US$100. After that, the price fell month after month, until it got to US$28. At that time, many companies had doubts about what the minimum price could be, if it could fall even more. There was a lot of uncertainty, which seriously affects investment decisions. The 13th bid round experienced some of this global uncertainty, as well as the political instability in Brazil. Now, it seems like neither of these issues will affect the auction results.

BNamericas: Because the oil price has increased...

Queiroz: Yes, mainly because the oil price has settled at between US$50 and US$60/b, and companies are getting used to this scenario. I don't think anyone is making business plans considering a higher price. The majors have adjusted their business plans to this new price level, at least for now. And as for Brazilian politics, the atmosphere is more stable now, which reduces the uncertainty for new investment. I truly believe that companies have great opportunities in these two upcoming auctions, both in the post and in the pre-salt areas.

BNamericas: Brazil is currently discussing its local content rules. What would be the most appropriate approach to ensure industry development without affecting the auctions' competitiveness?

Queiroz: I believe the local content concept should be preserved. Every country in the world with an oil and gas industry has also encouraged the industry's supply chain, as it is called in economics. Brazil already has a sophisticated national industry, it's not a country like Angola, that depends on imports of mineral water. Local content is important, but maybe it's time to change some of the rules. For example, it would be better to divide the local content rules between exploration and production, because they're different phases in which different companies participate.

Another idea is to gather clusters of local content demands, instead of just using one global figure. Then, companies would be able to balance the incentives and penalties involved in each opportunity. One thing is certain: Brazil needs to find a balance between the interests of the oil sector and the interests of the national equipment industry.


About Helder Queiroz

During his time at the helm of ANP, Helder Queiroz helped deploy contract sharing for oil production and was also responsible for coordinating the first pre-salt auction in 2013. Queiroz left the position last year, when he returned to the institute of economics of the Federal University of Rio de Janeiro (UFRJ) as a professor.