Petrobras’ plan to accelerate the sale of mature land and shallow water fields may trigger a series of investments in these areas and in the supply chain of the oil and natural gas industry, according to experts and executives heard by Valor. The expectation is that the development of these fields, in the hands of other smaller companies, should generate more demand for equipment and tax collection.
“We have land fields, shallow water fields and some deep-water fields that have aged, they are small in relation to the size of the larger deep-water fields and the pre-salt, so we are sure that other producers will be able to take better care of them “Petrobras President Roberto Castello Branco told a news conference on the result of 2018 last week.
The oil company has already informed the National Petroleum, Natural Gas and Biofuels Agency (ANP) that it intends to sell 70% of a total of 250 mature land and shallow water fields. For the director ANP, Décio Oddone, the measure may provoke a resumption of investments in these areas.
“For the Union, it is important that these fields receive investments as soon as possible,” Oddone said. “We will not modernize the oil industry in Brazil just by bringing the big companies to operate in the pre-salt,” he added.
According to the agency, shallow-water oil production in the country fell 40% between 2013 and 2018 to 166,000 barrels per day. Land production, in turn, declined 36% between 2012 and 2018 to 115 thousand barrels per day. In the exploration area, the number of wells drilled in shallow water fell by 90% between 2012 and 2017 to seven wells, while land drilling fell by 73% between 2015 and 2017 to 85 wells.
According to Marcelo Bastos, Managing Partner of B-in Partners Consulting, smaller companies will have better conditions to develop these areas, since they operate with a lower cost standard. “The result is increased oil production in the country, higher royalties and higher demand for the service industry,” he added.
Victor Galante, partner of Tauil & Checker Advogados, agrees with the consultant’s assessment. “When you develop a mature, shallow-water field, onshore blocks, you can move the entire industry. You will have small and medium-sized businesses hiring, contracting drilling services, production services,” he explained.
Last week, Petrobras reported that the binding phase of the process of divesting all of its holdings in the Lagoa Parda, Lagoa Parda Norte and Lagoa Piabanha cluster in Espírito Santo began.
The oil company has been trying to sell its fields in shallow and terrestrial waters since 2016, but the process of divesting these assets has barely advanced since then. In three years, the balance is 37 concessions sold and 66 are still in the negotiation phase. Although about one-third of the assets have been negotiated, no business has been completed so far.
In the first year, the sale of these assets suffered some setbacks in Justice and within the Audit Court of the Union (TCU), which questioned the Petrobras lack of transparency in its divestment processes. The replies led the oil company to adopt a new system and in 2017 the divestments were resumed from scratch.
At the end of last year, the company closed its first two contracts: with Perenco, for sale of the Pargo, Carapeba and Vermelho fields, off the coast of the state of Rio de Janeiro, for US $ 370 million; and with 3R Petroleum, for the sale of 34 terrestrial fields in the Potiguar Basin, for US $ 453.1 million.
The sale of land assets, however, has been suspended since December, pursuant to an injunction granted by the Labor Court of Rio Grande do Norte, alleging that the employee representative was not present at the meeting of the board of directors that approved the deal.
In the face of the delay in completing the negotiations, the ANP decided last year to press for Petrobras to accelerate negotiations on its land and shallow water fields. The regulator has forced Petrobras to submit a list with the production fields of Round Zero (whose concessions expire after 2025) with which it intends to stay and those it intends to sell and return to the Union.
The agency then set a deadline up to June this year for the state company to complete the ongoing divestment processes. It was after the decision of the local authority that the oil company reported its intention to sell about 70% of these concessions. In addition, the state company has called for the delay of the deadline to complete the business. The agency is still reviewing the lawsuit.
For the professor of the Energy Economics Group of the Federal University of Rio de Janeiro (GEE / UFRJ) Edmar Almeida there are some obstacles that make it difficult to sell assets on land and shallow water in Brazil. In the case of the onshore fields, he points out that oil monetization is difficult and very dependent on Petrobras, which concentrates 98% of the country’s refining capacity and holds most of the outflow logistics.
The expert also explains that there are regulatory issues related to decommissioning activities, especially on offshore platforms.
“Many fields still depend on the extension of the concession contracts and, while the ANP and Ibama do not complete the review of the regulatory framework for decommissioning, there are uncertainties about who are left with the abandonment liabilities of the platforms. Petrobras does not sell these assets, there are no investments. The production of these mature fields continues to decline and the supply chain continues to be demobilized, “said Almeida.
Bastos, from B-In Partners, shares the teacher’s vision. For him, the delay in reviewing regulation for decommissioning leads smaller companies to be more conservative, underestimating asset values for security. “This may make the acquisition unviable economically by failing to produce a relevant volume of oil, reducing industry activity and accelerating the loss of revenue for municipalities in mature areas.”