Expert Guides – The future of Oil and Gas: Trends and Developments

Overview of the Brazilian Energy Mix

The Brazilian energy matrix is diversified, and the importance of oil and gas is growing in the country. They currently represent 13.87% of the energy mix – still relatively low when compared with hydropower, which accounts for 60.87% of the total energy matrix. Towards the end of 2017, Brazil produced 2.612 Mbbl/d of oil and 113 million m³ of gas per day. Total proven reserves are estimated at 12,666 MMbbl of oil and approximately 378,262 million m³ of gas. Production in the pre-salt layer reached 1.356 Mbbl/d of oil and 52 million m³ per day of natural gas in December 2017, which represented 50.7% of the total production in Brazil.

The Brazilian oil and gas industry has been affected by external and internal factors. One of the most important external factors is the drop in oil prices, despite the recent recovery in the second half of 2017. Petrobras announced its 2018-2022 strategic plan, with a new budget of approximately USD74.5 billion, of which 81% is allocated to exploration and production, 18% to refining and gas, and 1% to other areas.

Summary of the 2017 Bidding Rounds

In 2017, twenty companies participated in the 14th Brazil Round for blocks tendered under the concession regime. Seventeen companies acquired blocks (10 national companies and 7 foreign companies). The 14th Brazil Round generated the greatest total signature tender bonus in ANP history, exceeding US$1.16 billion.

Furthermore, at the 2ND Production Sharing Bidding Round, four blocks were offered with reserves that are subject to being unitized, and three blocks were acquired, generating approximately US$1 billion in signature bonuses and US$92.5 million in investments under the minimum exploratory program. At the 3rd Production Sharing Bidding Round, three of the four blocks offered were sold. This generated US$867 million in signature bonuses and US$138.7 million for the minimum exploratory program.

New Bidding Rounds Expected for 2018

In 2018, the Brazilian government will continue to offer new exploration areas located both in the pre-salt and post-salt layers. In this sense, Agência Nacional do Petróleo, Gás Natural e Biocombustíveis – ANP has announced the 4th Production Sharing Bidding Round and the 15th Brazil Round under the concession regime.

Moreover, CNPE Resolution No. 17/2017 authorized the ANP to designate areas that will be permanently available for acquisition by companies (outside of the typical bidding rounds), including blocks that have been relinquished or previously offered in the ANP bid rounds. The ANP selected 846 offshore and onshore areas on 13 sedimentary basins, amounting approximately 285,400 km². The ANP should announce the rules for the participation of potential buyers, and the technical and economic aspects of the areas by the end of April 2018.

Petrobras Divestment Plan

Since 2015, the devaluation of the Brazilian Real, followed by Petrobras’s decision to divest certain upstream, midstream and downstream assets, has opened up new opportunities for foreign investment. Petrobras Divestment Plan is an ambitious program with the goal to foster the monetization of assets and equity stakes held by the company. Petrobras has announced its intention to reach US$ 21 billion with the sale of assets in the 2017-2018 biennium.

In 2017, amongst other transactions, Petrobras divested 25% of its participating interest in Roncador field, located in the Santos Basin, for US$ 2.35 billion.

Still, in 2017, it should be highlighted the successful IPO of Petrobras´ by-products retail company, Petrobras Distribuidora S.A., which has managed to raise US$ 1.5 billion.

Petrobras Divestment Plan also covers the assignment of onshore fields located in Sergipe and Potiguar Basins (“Topázio Project II”), as well as certain areas located in shallow waters in the States of Ceará, Rio Grande do Norte, Sergipe, Rio de Janeiro, and São Paulo (“Projeto Artico”), both of which are still underway.

Last but not least, in 2018, Petrobras aims at completing the bid for the sale of 90% of the gas pipeline transportation company, “Transportadora Associada de Gás (“TAG”),” which could be the largest transaction within the framework of the Petrobras Divestment Plan.

Petrobras publishes a new Regulation for Bids and Agreements

On January 15, 2018, the new Petrobras Bids and Agreements Regulation (“Petrobras New Regulation”) was published. In general terms, this Petrobras New Regulation sets out the rules to be followed by Petrobras and the participants of the bids in all phases of the bidding process, from the preparation phase to the publication of results. The implementation of the New Regulation by Petrobras will be phased and will follow a defined schedule up to May 15, 2018. The procedures and agreements initiated under the scope of the company’s old contracting policy shall continue to follow the previously established internal rules. With the New Regulation, over time, standardization and simplification of the of the Petrobras bidding procedures are expected to occur, especially those regarding the sale of assets, to make the process more attractive for the company and participants in the bids.

Gas Transportation and LNG Market in Brazil

There are also LNG opportunities worth mentioning. The size of the gas market in the country is approximately 110 million m³ per day, with a total production in 2017 of 40 billion m³ of gas. Petrobras holds participations in three terminals located in different states. Other companies currently intend to develop long-term projects aiming at importing LNG to supply the power generation market in Brazil.

Petrobras has already demonstrated its interest in selling regasification terminals in the States of Rio de Janeiro, Bahia and Ceará, which have regasification capacities of 20 million m³ per day, 14 million m³ per day and 7 million m³ per day, respectively.

In 2017, it is worth mentioning the sale of 90% equity stake held by Petrobras in the Nova Transportadora do Sudeste (“NTS”), for the amount of U$4.23 billion. NTS is a gas pipeline company with a network over 2,000 kilometers connecting the States of Rio de Janeiro, Minas Gerais, and São Paulo to the Brazil-Bolivia Gas Pipeline.

Governmental Initiatives in the Brazilian Oil and Gas Industry

The Ministry of Mines and Energy (“MME”) is considering issuing new strategic guidelines to improve the gas regulatory framework in response to Petrobras’s expected divestments in this sector. The MME launched a programme known as Gás para Crescer (“gas to grow”) with the purpose of looking at measures to foster competition in the gas market and to improve the open access rules to permit third-party access to core infrastructures, such as natural gas processing units and regasification terminals.

Regarding taxation, the government has adopted a series of measures to mitigate risks to investors arising from the upstream activities. One of these measures is the extension of the REPETRO regime until 2040. The REPETRO is a special customs regime created to suspend the taxes levying on the importation of certain assets meant for the upstream activities. More recently, a new tax regime to benefit the upstream activities was enacted, the “REPETRO-Sped”, which shall reduce the tax burden on the importation of assets and their acquisition in the local market by oil and gas companies performing exploration and production activities in Brazil.


Schmidt, Valois, Miranda, Ferreira & Agel is the first Brazilian firm exclusively dedicated to natural resources and infrastructure. The firm has participated in the development of upstream, midstream and downstream projects in Brazil, assisting domestic and foreign suppliers in their negotiations with PETROBRAS and other operators. Formed by partners with an extensive background in natural resources, particularly in oil and gas, the firm provides legal services on a regular basis to a significant number of domestic and international companies. The firm has been involved in several farm-in and farm-out transactions, concerning onshore, offshore, exploratory, development and producing fields in the Brazilian upstream sector. Another area of great exposure of the firm is downstream – oil products’ matters. Lately, SVMFA has been experiencing growth in legal advice for LNG importation and regasification, as well as natural gas distribution.

Paulo Valois Pires’s practice involves the representation of IOCs, NOCs, private equities, financial institutions and suppliers in O&G, M&A, private placements, offshore supply, pipeline construction, LNG projects, infrastructure, and tax-related matters. He represents international and domestic clients in international tenders promoted by the Petroleum Agency and Petrobras for the divestment of onshore and offshore blocks, and also in complex bidding procedures for the charter of FPSOs, FSRUs, and FSOs. He started his career in 1989 as in-house counsel for Shell in Brazil. He is the co-head of the O&G practice group of the firm and managing partner of the Rio de Janeiro office.

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