Resumption of oil auctions attracts investors to oil and gas sector

July 29, 2019

ANP estimates Brazil could triple daily output over next decade and double proven reserves

In addition to including new areas for oil and gas exploration in the auctions to be held in the coming years, the government wants to accelerate the ongoing bids to increase investments in the sector. According to estimates by the National Petroleum Agency (ANP) and consultancy McKinsey, the country is expected to triple daily production and double the volume of proven reserves in the next decade.

In parallel with advances in pre-salt, experts also cite as inducers of this growth the government’s new natural gas plan and recent discoveries around the Sergipe-Alagoas Basin, which could develop a possible production hub in the Northeast. This new phase of the sector begins this year, when the oil and gas segment should reach R$ 24 billion in investments, up 20% over 2018, estimates the Brazilian Petroleum Institute (IBP). For next year, the expectation is to reach R$ 30 billion.

The mega auction, which should generate more than $ 100 billion for the government, scheduled for November, boosts the optimism of the oil industry in the country. Petrobras has ongoing bids for projects that will start operations from 2022. Suppliers already make foreign investments and oil companies expand operations in the country. Qatar Petroleum, for example, has just opened an office in Rio.

– The investor comes to where he sees profitability. Today, we already see demand in seismic activity and services for the sector in general, with the ordering of equipment. Another reflection is that when a giant invests in Brazil, it attracts its local suppliers, generating more jobs and business here – says Anderson Dutra, expert at consulting firm KPMG.

– We have received inquiries from companies wanting to invest in the country, seeking information about assets and asking questions about taxation. We have twelve due diligence projects. The new gas plan is another factor.

Production is still a challenge

The first step towards the resumption of the sector began with the reactivation of the oil auction calendar, starting in 2017, followed by the change in local content rules and the extension of the special tax regime for over 20 years, attests Dutra. Thus, with more predictability, more foreign oil companies started to invest in Brazil. These include Exxon, as well as Wintershall, Murphy, Karoon, Equinor and Qatar Petroleum.

Among the suppliers, Equinix, an American technology company for the sector, decided to double the storage capacity of its data center in Del Castilho, in the North Zone of Rio, mainly to serve oil and gas companies, he says.

Only with orders in the seismic and equipment sector, as well as new platforms, is expected to generate 100,000 jobs this year, says the IBP. The prospect of hiring, however, is far from recovering the 400,000 jobs lost by the sector over the last few years, in the wake of the effects of Operation Car Wash, which led Petrobras to reduce investments, and the sharp drop in the price of the barrel of oil in the international market, retracting the entire chain of this industry in Brazil. Now, the state-owned company sells assets to concentrate investments in oil exploration and production.

Even in the wake of the October mega auction and with growing optimism about the resumption of the sector, setbacks persist. Last week, Petrobras announced a 3% drop in oil production in the first half. As a result, it revised its production target for the year down from 2.8 million barrels of oil equivalent per day to 2.7 million, up or down 2.5%. The state company has focused on selling assets to be able to concentrate investments in production.

Economy Minister Paulo Guedes has been pushing for the acceleration of oil exploration via private initiative. For him, with the transition to renewable energy matrixes globally in two or three decades, oil will no longer have value. Manuel Fernandes, a partner at KPMG, confirms that the concern of companies in the sector today is to exploit reserves with agility while oil still has economic value.

Marcos Bonfim, leader of Oil & Gas consulting firm EY, points out that if it had not been six years without auctions in the past decade, the country would be producing around 5.5 million barrels of oil per day today, instead of 3.1. million in total.

Level Change

With the bids scheduled for this year there is potential for Brazil’s oil and gas production to rise from the current 3.1 million barrels per day to at least 7.5 million barrels by 2030, consolidating the country among the world’s largest producers. Similar movement will occur with proven reserves: they could double from the current 15.9 billion barrels to 31.8 billion.

– There will be a change of level. Brazil leaves a medium role to become relevant. In six years, we will reach seven million barrels a day. The pre-salt is a unique opportunity and will greatly benefit the Southeast, like Rio. In the Northeast, recent gas discoveries will feed the industry – says Décio Oddone, ANP Director-General.

Government wants to auction new oil frontier and expand reserves by 50%

Brazil will have a ‘pre-salt mirror’ for sale over the next two years. An area the size of Uruguay has been recognized

The government wants to open a new frontier for oil exploration to private enterprise, in an area the size of the pre-salt. The Ministry of Mines and Energy intends to auction offshore exploratory blocks over the next two years beyond the 200-nautical-mile limit established by the United Nations (UN) as the country’s exclusive economic area. .

The main focus is the range near the pre-salt. Experts estimate that the exploration of this maritime area could increase the volume of oil and gas reserves in Brazil, today estimated at 15.9 billion barrels, by 50%.

Source: O Globo

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