Brazilian Oil And Gas Industry: An Update

Marilda Rosado de Sá Ribeiro at Lobo de Rizzo Advogados assesses recent developments in Brazil's oil and gas industry including changes to the regulatory framework, signs of recovery and expectations for the future

Brazil went through a period of increasing expectations for economic growth and social development in the first decade after Law 9.478/97, the Petroleum Law. In those years, positive institutional changes and a series of successful bidding rounds created a cycle of stability and brought a diverse set of investors to the country.

In spite of some regulatory issues that risked the success of those early years, there were many positive developments. Since the approval of several bills in 2010 that modified the Brazilian regulatory framework, three structural changes have been carried out: the introduction of the production-sharing contract regime in the pre-salt area, by Law 12.351/2010 (the Pre-Salt Law); the setting-up of a new national oil company, the Pré-Sal Petróleo (PPSA); and 5 billion barrels of oil from the pre-salt layer being assigned to Petrobras, without public bidding.

In 2008, there were 35 foreign companies acting in the Brazilian E&P sector, almost matching the 36 Brazilian companies in the same sector. According to the Brazilian Central Bank, direct foreign investments increased by US$30 billion in 2010, and by US$23.7 billion in 2012. However, in 2015 it suffered a substantial downturn, decreasing by US$124 billion. Moreover, in the same year, the country recorded the largest decline of proved reserves in the world, falling by 3.2 billion barrels.

Two factors explain the difficulties that occurred between 2014 and 2016: the scandals that affected the national oil company, Petrobras; and the drop in oil prices that affected the global oil industry.

After the 10th bidding round of exploratory blocks, Brazil went five years without promoting oil and gas bids. During this period, some issues were discussed, such as the split of royalties and the legal and institutional aspects of exploring the pre-salt area. The 11th and 12th bidding rounds occurred in 2013, when the first pre-salt field was auctioned under the Pre-Salt Law; while the 13th bidding round happened only in 2015. Despite challenges, the pre-salt developments were perceived as as a positive outcome. The discovery made in the pre-salt area of Santos Basin gave the country, for the first time, the status of a big oil producer.

There are signs of recovery in 2017. This would be a good moment for a turning point in Brazil...