Oil and gas production in Brazil is currently experiencing two very distinct moments. On one hand, the Pre-Salt Polygon, the top star of the major operators, produces on average about 25,000 boe (barrel of oil equivalente per well). On the other hand, we have the mature fields onshore and post-salt offshore, most of them in operation for more than twenty years and with production in strong decline. According to the National Agency of Petroleum, Natural Gas and Biofuel (ANP), offshore pos-salt production, over the past five years, and onshore production, from 2010 to 2017, have declined 30%.

If we consider that the pre-salt fields and most of the mature fields belong to the same companies, and if we think about the return of future investments in these assets, we can conclude that their interest in the mature fields should be small, especially in an environment of reduced capital and cheap oil.

However, mature fields in Brazil have recovery factor (RF) leverage potential considering that the Brazilian average is much lower than the world average. In the Campos Basin, for example, it is around 24%. It means that we extract only 24% of the total oil in a field, while the world average is 35%. With due consideration to the more or less favorable operating conditions of each asset, there is much to improve in terms of the recovery of the Brazilian fields in operation, and some companies look closely at this as a great opportunity to increase revenues in these assets.

But, what does it mean financially? According to ANP, taking the Campos Basin as an example, 1% increase in RF means $ 8 billion in investments and $ 5 billion in royalties. In other words, increasing the production of mature fields is still attractive to the government, and ANP has been in touch with large operators about their interest in maintaining investments in these assets. The government's apparent strategy is to have these areas being operated by companies focused on increasing RF, extending asset life and reduced production costs, encouraging the participation of operators willing to invest the necessary resources to maximize the recovery of existing volumes.

In this context, the government has been presenting a series of initiatives to stimulate the cession of rights to fields already in production. The extension of the production phase, extending the operational life of the assets, is one of them, giving new breath to new players and making new investments viable. Another important initiative is the reduction of the royalties on incremental production (ANP Resolution 749 of 2018), providing the attractiveness to pursuit increased production.

Recently, ANP published Resolution 785 of 2019, which governs the cession of oil and natural gas exploration and production contracts, the constitution of guarantees on rights arising from these contracts, the change in the corporate control of concessionaires or contractors, among others measures. The novelty is the possibility of using the existing reserves in the field as a guarantee of financing. It is the Reserve Based Lending (RBL), an option already known in the international market that it’s not allowed in Brazil until then.

The fact is that all these government actions provided a change in the scenario of mature fields in the country. In less than a year, we had many contract assignments in which companies such as Perenco, Potiguar E&P, Trident Energy, Karoon and 3R Petrolleum acquired fields in operation in the country. There are companies debuting as operators and others entering in Brazil, which means new investments, more jobs and a considerable activity in the supply chain.

In this case, it is the regulation beyond compliance. It is the government using legislation to foster oil and gas market development policies as well as regulation to bring security to the economic agent. What has been presented here is the result of successful initiatives that are in fact positively changing the profile of mature fields in the country.

Being familiar with the existing regulatory framework and the government's regulatory agenda, aiming to anticipate impacts and including this in corporate strategies can certainly benefit companies, whether by the opportunity for new business or by defining strategies to mitigate impacts on operations in the country.

*Antonio Souza is KPMG’s partner leader in oil and gas regulation.