In a move to increase foreign investment amid the nation’s worsening economic position, Brazil’s Congress has approved legislation that will remove state-controlled Petrobras’ obligation as sole operator on the country’s pre-salt developments. Discovered in 2007, these ultra-deepwater fields represent a huge opportunity – they are the largest group of offshore reserves discovered this century.
Financial difficulties resulting from the ongoing low oil price environment, combined with the crippling impact from the “Operation Car Wash” corruption scandal, have slowed development in the prolific pre-salt fields, as mounting financial pressure has led the NOC to cut Capex plans and production targets. The opening of these deepwater assets to foreign investors is intended to increase development and production from the pre-salt fields, whilst allowing Petrobras to shift focus to more developed plays with existing infrastructure and lower Capex requirements.
Due to the significant potential the pre-salt fields offer, many international E&P companies can be expected to vie for a slice of the substantial pie – Shell has previously commented on the nation’s need to open up to foreign investment. However, E&P activities in Brazil are largely controlled by Petrobras – the few internationals currently active in deepwater Brazil, namely Shell and Anadarko, may see themselves tied to commitments elsewhere. Shell’s recent acquisition of BG sees the company bound to projects inherited through the deal; and Anadarko has the large Shenandoah discovery in the GoM, as well as advancing developments in Mozambique.
As such, the impact from last week’s legislation change may not be as significant as the nation’s government hopes. The current oil price environment has the potential to deter some operators from the huge Capex required for ultra-deepwater developments, particularly if not already present in the nation. However, if OPEC’s recent announcement to cut production results in a significant oil price rally next year, it may become somewhat of a moot point, increasing the attractiveness of the pre-salt fields to international investors.
Authored by Kathryn Symes, Douglas-Westwood London
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