When The Going Gets Tough The Tough Get Going: Brazil Oil & Gas Thrives Despite The Pandemic

• Published date: 11 January 2021
• Subject Matter: Energy and Natural Resources, Coronavirus (COVID-19), Energy Law, Oil, Gas & Electricity, Litigation, Contracts and Force Majeure, Operational Impacts and Strategy
• Law Firm: Tauil & Chequer
• Author: Mr Norman Jacob Nadorff and Leandro Duarte

In a speech on 24 November 1992, marking her Ruby Jubilee on the throne, Queen Elizabeth II said, "1992 is not a year on which I shall look back with undiluted pleasure. In the words of one of my more sympathetic correspondents, it has turned out to be an annus horribilis."

Annus horribilis. This is a moniker that oil and gas insiders might well apply to 2020 given the disastrous effects on the industry from Covid-19 pandemic ("Pandemic") and its accompanying recession which brought a precipitous fall in demand and price. Indeed, in May the price of crude oil briefly went negative for the first time in history. This was followed by massive layoffs across the board and sharply curbed investments in planned and ongoing projects. Several major oil companies announced profound changes in their long-range focus from hydrocarbons to greener energy.

Brazil's oil and gas industry was by no means immune from Covid-19's fallout. In a June 29 communique, the Brazilian Petroleum Institute ("IBP") predicted that the negative effects of the pandemic would last through the end of 2021. In addition, the pandemic returned Brazil to recession after three years of modest recovery. Despite this adversity, the Brazilian oil and gas sector, led by a proactive National Petroleum Agency ("ANP"), managed to largely maintain focus on long-term industry goals, benefiting from certain short-term regulatory relief discussed below.

The long-term robustness of the Brazilian oil and gas sector, despite short-term obstacles, manifested itself in many ways in 2020. Below we discuss five positive factors in particular.

1. Petrobras Divestment Program.

In March 2015, Petrobras launched an aggressive divestment program ("Divestment Program) aimed at shedding the Company's non-core assets and using the resulting income to bankroll its ambitious goals in its key focus area - the prolific Pre-Salt basins. Despite the Pandemic, the Divestment Program made healthy strides in achieving its objectives. Petrobras has 49 divestment operations in play, including 7 projects in the initial phase of the divestment process, 32 projects in the binding phase and 10 contracts awaiting closing. Since January the Company has sold (i) Petrobras Oil & Gas B.V., (ii) the Macau cluster, (iii) its remaining 10% share in TAG , (iv) the Pampo and Enchova clusters, (v) the Ponta do Mel and Redonda cluster, and (vi) the Lagoa Parda cluster. Petrobras has also entered into contracts for the sale of (i) the Tucano Sul...