Uncertainty dissipated about Brazil's 7th licensing round

Brazil's Mines and Energy Minister Dilma Rousseff has confirmed that Brazil's seventh oil and gas exploration licensing round would not be canceled. Her comments were made during a press conference earlier this month in Rio de Janeiro at the Rio Oil & Gas Expo 2004.

Alvaro Teixeira, executive secretary of the Brazilian Petroleum and Gas Institute, which organized this year's conference, said that the oil sector was greatly relieved by the ministry's decision not to interrupt the licensing process.

"The ministry was considering canceling the seventh round for political reasons, linked to the maintenance of reserve-production relationship. If next year's round had been canceled a series of negative consequences would be unleashed. Brazil still needs huge investments in exploration. This country needs new oil industry models and new ideas and these come about with the arrival of new companies," Teixeira said.

Teixeira estimates that since the oil sector's opening to private competition in 1997, "private companies invested over $3 billion in risks. The first wave of investments was made in partnership with Brazil's state owned oil giant Petroleo Brasileiro SA (Petrobras) and during this process the companies failed to bring any new ideas.

"They ended up buying them from Petrobras, which had upstream monopoly since 1953, when it was founded. Now we are going into a phase where the companies are looking to invest in their ideas," he told the local press.

The IBP executive listed some of the main problems still facing private companies:

• Fiscal instability. Brazil is one of the few countries in the world that taxes investments. Taxes have to be charged on the product not the investment.

• Environmental issues. Although issues have greatly improved, some still suffer from political manipulation.

• The preponderance of heavy crude discovered in deepwater. Licenses have to be drafted by the government in accordance with the difficulties, so as to create projects and initiatives with consistent profitability.

• Commercialization of natural gas. Brazil lacks the needed infrastructure including sufficient oil and gas pipelines.

Analysts told OGJ that despite the fact that currently Brazil says it does not want to export gas, "the situation is fluid, the government does not have the capital to set up a gas infrastructure quickly without private sector participation and all private companies working in Brazil, including state-owned Petrobras, are members of IBP, giving the organization a powerful lobbying punch."