Interest In Brazil On The Rise

The Brazilian government is looking to new exploration by overseas operators to help meet growing demand for crude oil along with natural gas for electrical generation.

Demand for gas is forecast to increase by 35% a year over the next four years, Daniel Pedroso, deputy general manager, licensing round, of the Brazilian National Petroleum Agency told a global business forum Thursday.

Brazil currently imports “a large amount” of natural gas from Bolivia and it's  difficult to say whether that will ever change because of the expected continued strong demand, he said following a presentation to the FGL Open Global Business Society forum.

About one-third of Brazil’s reserves are natural gas, said Pedroso. Brazil had proved gas reserves of 8.2 tcf at the end of 2000 with gas production of 7.7 billion cubic metres in 2000, according to a study by BP Energy. Brazil has about 7,500 kilometres of natural gas pipelines and 15,330 kilometres of oil pipelines, Pedroso told the forum.

Among the objectives of  the 1997 National Energy Policy were providing access to concessions for exploration and development, increased use of natural gas and safeguarding the environment, he said. Every year since then, a growing number of foreign operators have entered the bidding for exploration licences, said Pedroso.

Brazil is an attractive area with a high geological potential, fair contracts and concessions available for companies of all sizes, forum participants heard. Concessions may range in size from 200 square kilometres onshore to 5,000 square kilometres to 6,000 square kilometres for offshore"high-risk" blocks in less explored  areas.

The National Petroleum Agency, which acts as regulator, has just completed its third round of bids for concessions. There were 34 exploration blocks available with 26 bidding companies and 22 winning companies, including Petrobras, the state oil company.

Another winner was PanCanadian Petroleum Limited which paid $4 million for a 100% interest in a 570,000-acre deepwater block in the Para-Maranhao basin in northern Brazil. The company also holds a 50% share in an adjacent block and operates a block in the Campos basin in southern Brazil which it obtained in an earlier round. Pedroso said another Canadian company had qualified but did not submit a bid. The agency’s website lists Alberta Energy Company Ltd. as a qualified company for Round 3.

The National Petroleum Agency intends to conduct one round each year, with the blocks available likely announced in October and awarded in June 2002, Pedroso said. Interested operators must qualify legally and financially before they can place bids. “There are stable rules and they are clear and transparent,” he said. The process includes a minimum work commitment for seismic and drilling which is established at the outset.

In determining the winning bid, the National Petroleum Agency takes into account the company’s signature bond which accounts for 85% of the final points awarded and its local commitment which is worth the remaining 15%, Pedroso said later.

Exploration licences run for nine years and are comprised of two or three periods of two to four years. There are minimum work regulations with provision for partial relinquishment. Production agreements are for 27 years and operators are free to export production. Brazil also is planning for the future deregulation of internal oil prices.

The National Petroleum Agency is also co-operating with the Brazilian federal government’s environment ministry in dealing with offshore concessions and with the states onshore in proposed new environmental rules and regulations, said Pedroso. New seismic and drilling regulations also have been proposed.

Petrobras is the major operator in the country with proved reserves of more than nine billion bbls of oil. Current production is 1.4 million bbls of oil a day and that is expected to rise to two million bbls a day by 2004.

As the majority of its reserves are offshore and most of those are in deep water, Petrobras has focused on development of those sorts of technologies, said Pedroso. “We are going deeper and deeper,” he said. In Round 3, for example, some blocks were more than 3,000 metres of water depth, deeperthan the deepwater Gulf of Mexico. “That presents technological barriers to exploration,” he suggested.

Because many areas are so exploratory, it is difficult at this point to say whether  operators are likely to find gas or oil, said Pedroso. "Sometimes it depends on the profile of the company,” Pedroso said. “Bridge Gas, for example, is always looking for gas while other companies such as Shell Brasil and Petro Gas are always looking for oil.”

Some basins, though,  such as the onshore southern basin where El Paso CGP Company is exploring are prospective for gas, he said.  By 2005, natural gas is  expected to account for 10%  of the country’s total energy needs, up from the current three per cent, said another speaker, Halina Ostrovski, president of the Brazil-Canada Chamber of Commerce.


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