Peter Howard Wertheim
OGJ correspondent
RIO DE JANEIRO, Aug. 25 -- Brazil's state-owned company Petroleo Brasileiro SA (Petrobras), in a bid to replenish its E&P portfolio, dominated Brazil's fifth round bids of oil exploration and production concessions organized by the National Petroleum Agency (ANP) Aug. 19-20. Petrobras was the only company bidding on deepwater blocks in the round.
Petrobras gained concessions for 88 of the 101 blocks purchased during the round, which offered 908 blocks. Total investments for bonus payments came to $9.1 million, the largest of which was for the $2.6 million high bid for one block in the Jequitinhonha basin, off Bahia state, where Petrobras bid $4.8 million for five neighboring blocks. The minimum bonus on the blocks was $33,000.
Petrobras also gained seven blocks in the Campos basin, one block in the onshore Reconcavo Bahiano basin, and another block in Foz do Amazonas.
"Much more important than the value of the bonus now is the increase in local content (equipment and services purchased within Brazil), which has been decreed by the new government," Daniel Pedroso, ANP's tender superintendent, told OGJ.
Pedroso said the average local content commitment by companies that won concessions was as follows:
· Exploration phase - Local average content required was 100% for geological and geophysical data interpretation in water deeper than 400 m, 78% for shallow water, and 92% for onshore.
· Drilling phase - For completion and evaluation, the local content average was 30% in deep water, 55% in shallow water, and 88% onshore.
· Development phase - Engineering had a local content average of 90% in deep water, 88.5% in shallow water, and 97.3% onshore, and for drilling, platforms, and risers, 50% of deepwater was local content, 70.9% shallow water, and 90.5% onshore.
Surprise bids came from the Brazilian newcomer Aurizonia Emprendimentos, which secured six onshore blocks. Others receiving concessions were Maritima Petróleo e Engenharia Ltda., a unit of Brazilian firm Synergy Group Corp., four blocks; Houston-based Newfield Exploration Co., two blocks; Mærsk Olie & Gas AS, two blocks; and Partex Oil & Gas (Holding) Corp., two blocks in partnership with Petrobras.
Taxation review needed
"We are evaluating the possibility of reviewing royalties and the fiscal burden for heavy oil discoveries in deep waters," said Maria das Graças Silva Foster, executive secretary for oil and gas of the mines and energy ministry. This is a sensibility study because it might involve changes in legislation and will apply to companies that won concessions during round zero in 1998. Among the companies requesting taxation changes are Shell Brazil SA and Total SA, which made discoveries on concessions acquired during Round zero, but which did not participate in the latest round.
"Today, royalties are 10%, whether the oil is heavy or light, and (are) independent of the depth at which the oil was discovered or the size of the field," said Sebastião de Rego Barros, ANP's executive-director.
Special Participation, the name for a series of taxes, is progressive, increasing with the amount of oil output, and it may reach 40% of the net revenues in a high-productivity field, added the director.
Foreign companies have been alerting Brazilian authorities about the risks of the tax code's impact and the meager commercial discoveries of oil, only small and medium in size, in deep waters and with 15-19° heavy oil. Many companies have said that they are turning their sights towards the Gulf of Mexico and off West Africa.
"Petrobras decided to participate in the ANP's fifth round after major recent discoveries, particularly in Santos basin. Before these discoveries, Brazil had more oil than gas¿8.9 billion bbl of proven reserves of oil and 11 billion boe. With the recent string of discoveries, we estimate that Brazil's reserves will rise by 3-5 billion boe," Francisco Nepomuceno Filho, Petrobras E&P corporate manager told OGJ.
Cosme Peruzzolo, country manager of Veritas do Brasil Ltda., a geophysical company, told OGJ that the 18% tax on imported equipment, recently enacted by Rio de Janeiro's legislature, made it more difficult to work in Brazil because of increased costs.
The executive pinpointed other problems:
· Brazilian customs (airports and ports) are extremely bureaucratic and have complex rules.
· Brazil's legislation does not allow a ship to stay in Brazilian waters during an interval between contracts. If a vessel is working on a contract in a certain area and the contract ends, the ship must leave Brazilian waters until a new contract is inked in another area. Fines can be high, and ship personnel arrested.
· Warehousing costs are severely high compared with international standards, concluded the Veritas executive.
Only six companies submitted bids in this latest round. Previous rounds had attracted 38, 42, 42, and 29 companies, respectively, since 1999. ANP said that it would carry out two more oil exploration and production licensing rounds next year.
WoodMac's views
Matthew Shaw, senior Latin America analyst at Edinburgh-based Wood Mackenzie, indicated in a recent report, however, that a continuation of the licensing round strategy is unlikely to attract many more new local players for several reasons: the new bidding guidelines were "squarely directed at smaller players," discouraging international oil companies from bidding; exploration results have been disappointing, especially in deep water; and the "tough fiscal terms that render uneconomic the little that has been discovered to date."
In addition, Shaw said, "We suggest that the only way to truly stimulate this local aspect of the industry is for Petrobras to offload its extremely long tail of peripheral, onshore fields." "Ultimately there is no reason why Petrobras should not extricate itself almost entirely from the onshore arena, as its myriad of small fields simply does not fit within the portfolio of a major international oil company," he added.