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Brazil crisis clouds sub-salt licensing plans

19 May 2017, 7.37 pm GMT

Brazil crisis clouds sub-salt licensing plans

Rio de Janeiro, 19 May (Argus) — Brazilian oil regulator ANP published the draft contract for a 27 September onshore and post-salt licensing round, but two sub-salt rounds planned for October could be pushed back by a fresh corruption scandal dogging the presidency of Michel Temer.

The draft notice for the 14th licensing round covering 287 onshore, shallow and deepwater blocks was published yesterday. A public hearing on the contracts is scheduled for 27 June, followed by an 8 August deadline for expressions of interest.

The 14th round is the first auction of deepwater acreage in Brazil since a disappointing 13th licensing round in October 2015, which only awarded 37 of 266 blocks on offer.

Total minimum signing bonuses for the 14th round is around R1.69bn ($513mn), mainly corresponding to 110 offshore blocks.

Around 17 of those blocks are holdovers from the 13th round, but most have had minimum signing bonuses slashed, some by more than R30mn. The roster includes another 24 onshore blocks that did not attract bids in the 13th round.

With more foreign oil companies eyeing the sub-salt areas to be offered in the second half of the year, Brazil has sweetened concession terms such as simplified lower local content commitments and clearer rules on the participation of investment funds.

The more investor-friendly terms in the draft contracts have been well received by the industry, but local executives tell Argus the new political uncertainty could have a detrimental effect on the success of the round.

The fate of the two sub-salt rounds, the first since a 2016 change opening operatorship to firms other than state-controlled Petrobras, has sparked worries that a prolonged political battle could paralyze decisions in the oil patch.

The ANP released the 14th round draft contract the same day the supreme court decided to open probes into the president on allegations of corruption and obstruction of justice. Hours later, the court released damaging audio of a secret meeting between Temer and Joesley Batista, chairman of meatpacking giant JBS.

News of the audio, part of a plea deal between JBS and federal prosecutors, rocked Brazil yesterday, forcing Temer to defend his presidency and vehemently deny his intentions of resigning.

Today's supreme court release of the depositions detailing bribes to hundreds of politicians is likely to intensify calls for Temer to step down before his term ends at the end of next year.

His removal from the office he assumed from ousted president Dilma Rousseff in May 2016 is still a possibility, injecting fresh uncertainty into an economy that was starting to show signs of growth after two years of contraction.

The second production-sharing round covering four unitization assets and a third covering four Santos basin fields, both planned for 27 October, are expected to inject around R7bn into the economy this year.

Executives and government officials are now questioning whether there is enough political stability for Brazil's national energy policy council (CNPE) to pass resolutions needed to move forward with the rounds.

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