Oil & gas in Brazil: renewed prospects for investments

Major factors have recently aligned to create space for new significant investment flows into the oil & gas industry in Brazil. Petrobras’ new administration has confirmed it will focus on E&P, in particular in the highly profitable, offshore fields of the deep water pre-salt layer, and plans to implement an ambitious program of asset sales in the downstream and natural gas markets. This is in line with policies announced by Brazil’s new Federal Government to reduce state meddling in economic activities, including through divestment of state-controlled entities, such as those of the Petrobras group.

The process also resonates with increasing pressure for enhanced, effective competition in the industry. The Oil & Gas Act was enacted more than twenty years ago, but the competitive markets that it purported to create across the board remain a theoretical goal, with Petrobras’ dominance in all segments virtually unchallenged. Pressure had indeed been mounting in various fronts for more government initiatives aimed at fostering competition.

Felipe de Paula and Lucas Griebler da Motta discuss the remodeling of the natural gas industry in connection with initiatives by the industry watchdog National Oil Agency (ANP). Relevant investment opportunities should arise – as long as the administration does not get it wrong with respect to important regulatory decisions, as discussed in this article.

Petrobras is resuming an ambitious program of sale of its oil refineries after adjustments to meet requirements made by Brazil’s Supreme Court. Curiously enough, there is a risk the program is hampered by initiatives from Brazil’s antitrust authority CADE in response to suggestions made by ANP. Bolívar Moura Rocha, Marcos Drummond Malvar and Lucas Griebler submit that CADE should leave it for the federal administration to discuss and decide the framework for the restructuring of this industry.

Felipe de Paula and Rodrigo Dias comment on the adjustments to be implemented in the contractual arrangements (cessão onerosa) entered between Petrobras and the Federal Government in relation to the pre-salt fields, which should pave the way for an important bid round scheduled to occur in October. But key aspects are still to be decided upon, including compensation to Petrobras for the review of the original contractual terms; as well as to States and municipalities.

Finally, Marcos Drummond Malvar and Rodrigo Dias discuss pending decisions related to three lawsuits filed before Brazil’s highest courts in Brasília and which are bound to affect investment decisions in the oil & gas industry.

We hope you enjoy reading this issue of LS Brazil Outlook.