Independents more likely to bid on smaller acreage oil contracts

Monday, June 12, 2017

When he worked for Petrobras, Newton Monteiro started to develop the market for independent oil producers in Brazil, which was later consolidated during his time at the regulatory agency ANP. Monteiro spoke to BNamericas about the challenges that this market has been dealing with over the years and how he sees its future.
Monteiro thinks Brazil's last bidding round on marginal areas, which raised 7.98 million reais (US$2.44 mn) was a good result, but Petrobras' "project Topázio oil fields are much more interesting [for independent producers]", according to Monteiro.

BNamericas: Brazil's last bidding round of marginal areas has sold eight oil fields and raised 7.98 mn reais (US$2.4 mn). How do you interpret these results?

Monteiro: Overall, I believe it was a very good result. However, it is important to remember that this auction offers oil fields that have already gone through a production phase and, after that, they were deactivated. These were Petrobras fields, in which the company has explored, produced, and, when they were no longer economically interesting, the company returned them to ANP [Brazil's national agency of oil, gas and biofuels]. In the past, Petrobras would probably close the drilling wells and return those lands to Brazil's government.

During the time that I was working for ANP, the board got to the conclusion that, although those areas were not interesting for Petrobras, they could be interesting for a smaller oil company, for which the production of 20 or 30 barrels a day would be a good deal. After more deactivated small-sized oil fields were sent back to ANP, the agency made the first bid round of marginal areas. At that time, there were no small and independent oil producers in Brazil. ANP had to explain to several players of the industry what that auction was about. The result was that 14 small oil companies were founded in Brazil.

BNamericas: After that, there were no new auctions in the country for years. Are those companies ready for a comeback?

Monteiro: The problem is that Brazil has let too much time pass. No oil fields were offered to these companies for almost ten years. Last year there was one auction, this year another one, and now we have some more planned for the coming years. It's not the best kind of field, but it's what allows companies that don't come from the oil industry to get familiar with the auctions and to get to know how the industry works.

BNamericas: Would the mature oil fields included in Petrobras' sale of assets plan, called project Topázio, be more compelling to independent producers?

Monteiro: Yes, no doubt about that. Project Topázio fields are much more interesting. The problem is that this project was not made for small producers, as it should have been. This is one of the first times in my 50-year long career that I agree with the union [Brazil's independent oil producers association]. Brazil needs to increase the number of players, and that will only happen when more companies have the chance to compete for the oil fields. Project Topázio should be divided into smaller parts. For example, all oil fields located in the state of Sergipe were offered in only one contract, which means that a single company would have to buy almost 50 fields. Which small or medium-sized company would sign 50 concession contracts with ANP at a time? It would have to be a company almost as big as Petrobras and those companies are not interested in this kind of oil field. It seems like this plan did not consider Brazil's current situation. Petrobras missed a great opportunity to help bring new producers to the country, but I think that Petrobras is now remodeling the project to make it more transparent and feasible for the participation of all interested parts.

BNamericas: How does the approval of the three-year schedule of new oil and gas auctions affects the planning of independent producers seeking to expand their portfolio in Brazil?

Monteiro: The bidding round schedules are always important. No matter the size, every company needs to make short, medium and long-term plans. However, the next auctions will be mainly focused on exploratory areas, that is usually not the phase in which smaller producers participate. Exploration takes risk, something that majors can handle well. Independent oil companies need oil fields with proven reserves, so they can develop their businesses.