The Brazilian energy matrix is diversified and the importance of oil and gas is growing in the country. They currently represent 27.29% of the energy mix – still relatively low when compared with hydropower, which accounts for 61.05% of the total energy matrix. Towards the end of 2016, Brazil produced 2.61 million bpd of oil and 111.1 million cu m of gas per day. Total proven reserves are estimated at 13,033 million barrels of oil and approximately 15.2 TCF of gas. Production in the pre-salt layer reached 1.16 million bpd of oil and 45.6 million cu m per day of natural gas in November 2016.

The Brazilian oil and gas industry has been affected by external and internal factors. One of the most important external factors is the drop of oil prices (the crude oil “Brent” price was around USD46.00 per barrel at the end of 2016). As for internal factors, due to the devaluation of the Brazilian real and the ongoing economic crisis, Petrobras announced a 25% cut in its investment plan for 2017-2021, with a new budget of approximately USD74.1 billion, of which 82% is allocated to exploration and production, 17% to refining and gas and 1% to other areas. Other budgetary cuts are expected to be announced in the near future.

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. Worth mentioning, amongst other transactions, are the sale of the gas pipeline company “Nova Transportadora do Sudeste” for USD5.19 million, the farm-down of the “Carcará” prospect located in the pre-salt polygon for USD2.5 billion, and the divestment of a minority interest in “Gaspetro”, Petrobras’s holding company for gas distribution assets.

In March 2017 the Federal Audit Court (Tribunal de Contas da União – TCU) determined that Petrobras should recommence its Divestment Plan to render it adequate to transparency and publicity standards as provided in the Bidding Law. In this respect, the negotiations that have not been concluded on the date of the Federal Audit Court decision were cancelled. As such, assets that were under negotiation are expected to be announced in a new divestment portfolio in the near future.

More recently, Petrobras announced, in May 2017, the divestment of its participating interest in Azulão and Juruá fields. To qualify for the bids, amongst other requirements, bidders must have expertise in carrying out exploratory and production activities in the Amazonas or Solimões Basins or to hold a minimum installed capacity to produce 200 MWh in Brazil.

New Bidding Rounds Expected for 2017

The Petroleum Agency (ANP) has scheduled three bidding rounds for exploration areas in 2017: one for blocks under the concession regime, and two for areas under the production-sharing regime in the pre-salt layer.

For “Brazil Round 14”, the ANP intends to offer 287 blocks in the offshore sedimentary basins of Sergipe-Alagoas, Espírito Santo, Santos, Campos and Pelotas, and in the onshore basins of Parnaíba, Paraná, Potiguar, Recôncavo, Sergipe-Alagoas and Espírito Santo. Amongst these there will be areas in deep waters outside the pre-salt polygon in the Campos Basin.

According to the ANP, the selection of the areas aims at offering blocks of high potential, new frontiers and mature basins, creating opportunities for independents and majors and for domestic and international operators of offshore and onshore areas.

As regards “Brazil Pre-Salt Round 2”, under the production-sharing regime, the ANP is considering offering blocks in areas to be unitised with the prospects of “Carcará”, “Gato do Mato” and “Sapinhoá” in the Santos Basin, and “Tartaruga Verde” in the Campos Basin. The amount of the signature bonuses varies from R$200 million to R$3 billion.

In April, 2017 the CNPE officially approved the minimum signature bonus for the “Brazil Pre-Salt Round 3”. The Round is expected to take place in November 2017 and the amount of the bonuses ranges from R$500 million to R$2 billion.

The CNPE approved by means of the Resolution No 10, of 11 April 2017, an ambitious schedule of bidding rounds to occur from 2018 and 2019, as follows:

Round       Announced Areas       Schedule

2nd Round of Production Sharing

(Pre-Salt)       Prospects of Norte de Carcará, Sul do Gato do Mato, Entorno de Sapinhoá, in the Santos Basin, and Sudoeste de Tartaruga Verde, in the Campos Basin.       Second semester of 2017

3rd Round of Production Sharing

(Pre-Salt)       Prospects of Pau Brasil, Peroba, Alto de Cabo Frio-Oeste and Alto de Cabo Frio-Central, in the Santos and Campos Basins.       November, 2017

4th Round of Production Sharing

(Pre-Salt)       Prospects of Saturno, Três Marias and Uirapuru, located in the Santos Basin.

Exploration Blocks C-M-537, C-M-655, C-M-657 and C-M-709, located in the Campos Basin.       May, 2018

5th Round of Production Sharing

(Pre-Salt)       Prospects of Aram, Sudeste de Lula, Sul de Jupiter, Sudoeste de Jupiter and Bumerangue (Santos Basin).       Second semester of 2019

14th Concession regime Bidding Round       Offshore exploration blocks located in the Campos, Sergipe-Alagoas, Espírito Santo, Santos and Pelotas Basins.

Onshore exploration blocks located in the Parnaiba, Parana, Potiguar, Reconcavo, Sergipe-Alagoas and Espirito Santo Basins.       September, 2017

15th Concession regime Bidding Round       Offshore exploration blocks in the Foz do Amazonas, Ceara and Potiguar Basins.

Exploration blocks located in ultra-deep waters outside the pre-salt polygon in the Campos and Santos Basins.

Onshore exploration blocks in the Paraná and Parnaíba Basins.

Onshore blocks in the Sergipe-Alagoas, Reconcavo, Potiguar, and Espirito Santo Basins.       May, 2018

16th Concession regime Bidding Round       Exploration blocks in the Camamu-Almada, and Jacuípe Basins.

Exploration blocks in ultra-deep waters outside the Pre-Salt Polygon of the Campos and Santos Basins.

Onshore Exploration blocks in the Solimões, and Parecis Basins.

Onshore exploration blocks in the Sergipe-Alagoas, Recôncavo, Potiguar, and Espírito Santo Basins.       Second semester of 2019

4th Marginal Fields Bidding Round       Araçás Leste, Garça Branca, Iraúna, Itaparica, Jacumirim, Noroeste do Morro Rosado, Rio Mariricu, Urutau, and Vale do Quiricó Fields.       In progress

5th Marginal Fields Bidding Round       Yet to be defined       May, 2018

6th Marginal Fields Bidding Round       Yet to be defined       Second Semester of 2019

Last year, the Brazilian Congress enacted Law 13,365/2016, which removed the requirement that Petrobras be the sole and exclusive operator of the pre-salt areas. Due to the new provisions, Petrobras will be offered the pre-emptive rights in the operatorship of the blocks under the production-sharing regimes in future Pre-Salt Rounds. The new provisions were well received by the industry, as they represent a major milestone in the development of upstream activities in Brazil, and open up opportunities for companies which intend to operate blocks in the pre-salt polygon.

More recently, the Federal Government issued on 2 May 2017, Decree 9,041, which regulates the procedure for the exercise of Petrobras’ pre-emptive rights, as introduced by Law 13,365/2016. According to the new Decree, the Ministry of Mines and Energy will offer to the CNPE the blocks in which Petrobras could be appointed as operator with an interest equal to or greater than 30% under the production-sharing regime. Petrobras will have a period of 30 days to exercise its pre-emptive right and must give its reasons.

If Petrobras exercises its pre-emptive right:

(i) it must, after the making of the award in the bidding process, be the operator of the area and form part of the consortium with the winning bidder, if the share of the Federal Government’s profit oil is equal to the minimum percentage established in the tender protocol; or

(ii) it may form part of the consortium, if the share of the Federal Government’s profit oil offered in the bid is higher than the minimum percentage established in the tender protocol.

If Petrobras does not exercise its pre-emptive right, it may still participate in the bid on equal terms with the other bidders.

LNG Market in Brazil

There are also LNG opportunities worth mentioning. The size of the gas market in the country is approximately 100 million cu m per day, of which 32 million cu m per day is currently imported from Bolivia. 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 announced that it is considering divesting its terminals in the States of Rio de Janeiro, Bahia and Ceará, which have regasification capacities of 20 million cu m per day, 14 million cu m per day  and 7 million cu m per day, respectively.

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 infrastructure, such as natural gas processing units and regasification terminals.

In view of all the above, 2017 will definitely attract attention and capital for promising investments in the oil and gas industry.


Schmidt, Valois, Miranda, Ferreira & Agel (Rio de Janeiro – RJ – HQ) SVMFA was the first Brazilian firm exclusively dedicated to natural resources and infrastructure, focusing on oil, natural gas, energy, mining, water resources, hotel management, construction and operation of ports, platforms, vessels, pipelines, offshore equipment, roads and highways, project finance and financing. 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.