Shell, IBP work to overcome Brazil's difficult tax structure

Fiscal incentives are needed in Brazil to make exploration and production commercially viable, due to the predominance of heavy oil in the country's reservoirs, contends John Haney, exploration director of Royal Dutch/Shell Group's Brazilian unit, the first foreign oil company to produce oil in Brazil (starting in July).

April 9, 2003

2 min read

By an OGJ correspondent

RIO DE JANEIRO, Apr. 9 -- Fiscal incentives are needed in Brazil to make exploration and production commercially viable because of the predominance of heavy oil in the country's reservoirs, contends John Haney, exploration director of Royal Dutch/Shell Group's Brazilian unit, the first foreign oil company to produce oil in Brazil (starting in July).

"Shell and the Brazilian Petroleum Institute (IBP) are preparing a study, analyzing the difficulties faced by oil companies due to Brazil's cumbersome tax structure," Haney said. "The study is in its final phase and will be delivered to the Mines and Energy Ministry (upon completion)."

Shell is pressing exploration of 14 blocks throughout Brazil either alone or in association with other companies. Haney observed that the company is considering diversifying its portfolio in light oil and heavy oil areas: "We have a long-range vision," he said.

Brazil's petroleum fiscal regime does not differentiate among different grades of crude oil. In addition, royalties and the Brazilian tax code do not take into account questions such as the water depth in which the production is carried out or the type of oil being produced, said an official with the National Petroleum Agency.

Shell has no experience in the production of heavy oil in deep water and is considering the establishment of a long-term production system in the area, similar to that which it uses in the Philippines and other regions of the world.

Shell also said it will not drop investments in Brazil during the post-Iraq-war phase when international companies ink exploration and production contracts and engage in rebuilding that country's oil infrastructure, said Haney.

Oil analysts in Brazil say that abandoning Brazil would not make business sense for the foreign companies that have invested billions of dollars here after demonopolization.