Brazil's government wants to start up a pilot project tapping unconventional oil and natural gas reservoirs next year, likely in the state of Bahia, as part of broader efforts to expand onshore output, a Mines and Energy Ministry official said. 

Latin America's biggest country is well behind the curve in development of unconventional resources such as shale and tight oil and gas formations when compared with the US and neighboring Argentina. But much of the damage has been self-inflicted, with the government and regulators slow to respond to criticisms and lawsuits against current development policies. 

"The idea is to bring everybody to the table to gain a broader understanding about the benefits and risks of non-conventionals," Joao Vicente de Carvalho Vieira, the ministry's director of oil and gas exploration, said on the sidelines of an industry event in Rio de Janeiro late Friday. "There are a lot of negative reactions to the technique of hydraulic fracturing, but nobody knows the potential of these resources." 

Brazil could hold as much as 250 Tcf of gas and 5.4 billion barrels of oil in unconventional deposits, according to a study by the Energy Economics Institute at the Federal University of Rio de Janeiro. 

Public resistance against unconventional exploration is strong in Brazil, despite the country's history of onshore and offshore oil production. Exploration of Brazil's onshore unconventional resources has been blocked by a series of lawsuits, including concessions granted during the country's 11th and 12th bid rounds. 

The government will host a workshop with ministries, federal and state government agencies, regulators, and officials from the National Petroleum Agency, or ANP, in August, Vieira said. 

The latest initiative would also include a pilot project to test Brazil's unconventional potential, Vieira said. The project is still in its infancy, however, with questions about how it would be funded, who would operate it and where the test would be conducted, Vieira said. 

Bahia state government officials appeared to be interested in hosting the pilot project, Vieira said. Bahia is the home to Brazil's first producing oil well. Financing could also come from government grants or research and development funds, Vieira said. Brazil requires oil companies producing there to spend a certain percentage of oil-related profits on research and development initiatives, typically investments in research parks and university programs. 

Bringing everybody together to discuss the country's potential could also help tame some of the controversy, Vieira said. "We believe that there is a lot of potential, but we have to know what that potential is in order to know whether it's worth the risks," Vieira said.

CNPE MEETING 

Brazil's National Energy Policy Council -- the country's lead policy-making panel on energy matters, headed by the Mines and Energy Ministry -- will also likely discuss finalizing the schedule for bid rounds for 2020 and 2021, Vieira said. 

The government has already met the industry's request to return to a fixed calendar of licensing sales, scheduling nine bid rounds over the next three years. The ANP will host the country's 14th bid round on September 27, with the second and third sales of subsalt acreage under production-sharing agreements set to be held on October 27. 

The proposal for 2020 and 2021 will likely aim to repeat the current schedule of three auctions each year in 2018 and 2019, Vieira said. The schedule includes a "rodadinha," or sale of inactive fields holding marginal accumulations of oil and gas that typically targets small local players. The ANP's move to host a permanent portfolio of returned fields, exploration blocks and unsold concessions, however, could render the rodadinhas irrelevant, Vieira said. 

The current schedule includes the 15th bid round in 2018, the 16th in 2019, the fourth subsalt production-sharing sale in 2018 and the fifth in 2019. The government has also advised oil companies on the sectors and prospects that will be on offer or are under study for each bid round to give the industry greater visibility on planning, one of the adjustments made to make the country a more attractive place to invest. 

Using the government's current model, the 17th bid round and sixth subsalt production-sharing sale will likely be scheduled for 2020, with the 18th bid round and seventh production-sharing sale set for 2021. 

The CNPE will also likely approve the blocks that will be sold in the 15th bid round at the meeting, which is scheduled to be held December 7. The 15th round will feature offshore blocks in the Foz do Amazonas, Ceara and Potiguar basins, as well as deepwater blocks outside the subsalt polygon in the Campos and Santos basins, the CNPE said in April. In addition, onshore blocks in the Parana, Parnaiba, Sergipe-Alagoas, Reconcavo, Potiguar and Espirito Santo basins will be on offer.