Mayer Brown: Brazil reexamines its presalt policies

Brazil’s government is considering proposals to open operatorship of its presalt projects to companies other than state-run Petroleo Brasileiro SA (Petrobras), and this change might be made, Mayer Brown partner Alexandre R. Chequer told the law’s firm’s annual energy conference in Houston on May 15.

“There is too much oil for one company to develop,” Chequer said. “I think the government realized it made a big mistake” in stipulating that Petrobras operate all presalt projects offshore Brazil.

While Brazil was establishing a new policy structure for presalt developments, its oil and gas bid rounds were stopped for 5 years.

The Brazilian government is the controlling shareholder of Petrobras. Chequer said he believes Brazilian officials realize Petrobras needs help with finances and technology on developing the presalt resources.

“They realize they need private companies, they need investors,” Chequer said. Petrobras plans to invest $221 billion total during 2014-18 with $154 billion earmarked for exploration and production activities, including development of presalt resources in the Atlantic Ocean’s deep water offshore southeastern Brazil.

Chequer noted that Brazil’s government has honored all the oil and gas contracts that it has signed. Brazil has a presidential election scheduled for this year, but Chequer said he doubts that the election results will have any impact on existing contracts.

Petrobras has encountered a series of delays in the Atlantic’s deep waters. Meanwhile, Brazil’s production has stayed flat because of faster-than-expected declines in Campos basin oil fields.

Unconventional production

In other conference sessions, speakers discussed the rise of US unconventional oil and gas production.

David Carroll, Gas Technology Institute chief executive officer and president, encouraged the US natural gas industry to play an increasingly important role in the International Gas Union to help unlock the commodity’s global potential.

Carroll said the World Gas Conference is scheduled for Paris next year and for Washington, DC, in 2018. He noted industry estimates that gas will fill 25% of world energy needs by 2040.

Adam Sieminski, US Energy Information administrator, said much of the escalating US gas production will be used for electric power generation.

“The US within a couple of years is going to be a net exporter of natural gas,” he said. “The US does have the possibility of becoming self-sufficient in energy,” he said, noting the development of unconventional oil and gas.

Light, sweet crude oil production is growing so rapidly that US policymakers are reconsidering a ban on oil exports.

“Short of ending all the restrictions on crude oil exports, you could think of all sorts of things,” Sieminski said, suggesting that one possible option could be that US lawmakers might consider swapping light, sweet crude produced in the US for sour crude from Mexico given that the Gulf of Mexico refineries are set up to process sour crude. Sieminski quickly added that his role with EIA means that he is not involved in making energy policy decisions.

Contact Paula Dittrick at paulad@ogjonline.com.

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