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You Didn’t Hear About It, But Every Oil Pro Is Watching This Gov’t Decision

offshore rig

It barely got any coverage in the press this week. But one of the biggest happenings in oil just came down, in a place everyone in the petro-world is looking at.

Offshore Brazil.

As I’ve discussed, there’s been a lot of hope for Brazil the last several months. With the government moving to make big-upside fields in the subsalt and presalt plays much more attractive for international operators.

One of the biggest changes was scrapping a law that required state E&P Petrobras to take a minimum 30% in all offshore fields — and act as operator. With this move raising hopes that foreign firms would be able to own and operate licenses for the first time ever.

But Brazil’s government did an abrupt about-face last month. Putting in new rules that allow Petrobras to opt for preferential rights in offshore bid rounds. And this week, the state firm took up the offer — declaring that it will exercise preemptive rights as part of two upcoming rounds.

Here’s how it works. When a bid round approaches, Petrobras is allowed to name blocks in which it will seek preferential rights. This week’s nomination by the company named three such projects: the Sapinhoá field, and the Peroba and Alto de Cabo Frio Central. Related: 4 Wildly Different Oil Price Scenarios For 2020

That election instantly changes the dynamics around the upcoming bid rounds. With three of the seven blocks being offered for bids now having Petrobras attached to them — leaving fewer options for international firms who want to own and operate.

Under the rules brought in last month, regulators now get to choose what percentage Petrobras will get in the declared projects. But it will be at least 30 percent — and Petrobras will have right of first refusal on acting as operator.

The key question now is, will foreign E&Ps back away from bidding? Watch for the results of the next licensing round, planned for Q3 this year.

Here’s to the elephant in the room.

By Dave Forest

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