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Source: BNamericas.com
Date: 04/26/2006 00:00
Brazil`s federal government needs to improve the business environment for private investors and avoid controlling domestic fuel prices to ensure the country maintains its recently obtained self-sufficiency in oil, independent oil consultants told BNamericas.
"Brazil has the possibility to keep this self-sufficiency for a long-time," Márcio Mello, director at Brazilian geological services company HRT Petróleo and president of the national association of oil geologists, told BNamericas.
"The country`s geology shows there is the possibility of increasing reserves and doubling output in 10 years if you keep the same level of investments," he said.
Brazil`s federal energy company Petrobras (PBR: NYSE) is investing 37mn reais (US$17.4mn) in an advertising campaign to celebrate reaching the self-sufficiency target, which was set in 1953 when the company was created.
According to Petrobras, the symbolic start of commercial operations at the 180,000 barrel-a-day (b/d) P-50 floating production, storage and offloading vessel in the Albacora field will allow the company, which accounts for over 90% of Brazil`s oil output, to produce over 1.9 million barrels a day (Mb/d) of oil this year up from last year`s average of 1.85Mb/d.
"The company has been investing over US$1bn a year to increase production and all indications show this will continue," said Mello in reference to Petrobras`` US$56bn, 2006-2010 strategic investment plan.
Of the total, Petrobras plans to invest US$34bn in exploration and production, which will increase production 9.1% a year to 2.3Mb/d by 2010. This compares with Petrobras` projected increase in domestic fuel consumption of 2.6% a year, for which the company needs to add 1 billion barrels (Bb) of oil a year to its 12Bb of oil reserves, independent oil industry consultant Giuseppe Baccoccoli told BNamericas.
"This is equivalent to one Papa Terra field a year," he said, referring to the company`s find in the Espirito Santo basin in December 2005, which took eight years of exploration.
But for investments in E&P to continue at this rate, Brazil`s government must allow Petrobras to manage domestic oil derivative prices based on business criteria.
"Any kind of government intervention on prices would be disastrous," said Baccoccoli. "The company needs to preserve its investment capacity."
Despite denials, market analysts and consultants say that current fuel pricing policies are strongly influenced by the government, which has six seats, including the chairman, on Petrobras` nine-man board.
In 2005, while international oil prices surged some 30%, Petrobras - which controls 95% of Brazil`s refining - raised wholesale oil prices three times during the year, a total increase of some 10%.
PRIVATE INVESTMENT
Optimism about the sustainability of Brazil`s oil self sufficiency is not only based on Petrobras`` investment capacity but also on the country`s geology.
About 85% of the country`s output comes from the offshore Campos basin, which started producing in the 1980s, and only eight of the country`s 29 or 30 sedimentary basins are being explored by Petrobras and other companies, Baccoccoli said.
"We have only started to explore the Santos and Espírito Santo basins," Mello said. "These basins will yield a lot of results and even in Campos there is potential in ultra-deep waters as we move away from the coast."
Discoveries have been made recently in both these basins, including in the BS-400 and BS-500 blocks in the Santos basin.
Although Petrobras is expected to lead investments and production, private companies that have participated in the last seven exploration licensing round are slowly gaining ground. According to hydrocarbons regulator ANP, there are 55 oil companies besides Petrobras operating in the country.
Many are small companies operating onshore, mainly in the northeast, where oil was first discovered in 1934, but some international companies are finally obtaining returns on investments in the country.
While US oil companies Devon and Kerr McGee (NYSE: KMG) have started investing in development of recent offshore finds, Anglo Dutch oil major Shell (NYSE: RDS-B) is looking at increasing its 40,000b/d output from new developments. Chevron (NYSE: CVX) and Canada`s Nexen have 30% and 20% interests respectively in the Papa Terra field, which should start producing in 2011.
However, the country needs to improve the local business environment to guarantee these companies continue investing and new ones come to Brazil, Mello said.
There are at least three areas the government needs to focus on: implementing a clearer and more expedient licensing process; outlining long-term exploration goals by unveiling details of future licensing rounds ahead of time: and strengthening ANP, which has been underfunded for years.
"Huge investments are being made in Africa, while Colombia and Peru are aggressively seeking new investments, so Brazil needs to go after investors," Mello said.

