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Brazil Cuts Local Content Requirements to Attract Oil Investors

Brazil is looking to cut local content requirements for future oil E&P contracts in a bid to satisfy the demands of local suppliers and allow new customs breaks for oil majors active in the South American country.

“The proposal is already in place, it should be voted on this week and it will be compensation for the absence of tariff barriers from Repetro,” Cesar Prata, Vice President of the local supplier union Abimaq, said, referring to the Brazilian tax program for oil and gas companies.

Tough local content requirements have stifled oil firms’ investment interest in Brazil. They complain that complying to the rules made oil development in open blocks unprofitable.

In recent leasing rounds, Brazil has not had trouble attracting bids from oil majors for fossil fuel development. Brazil accepted bids for eight blocks in late October, six of which went to multinational oil majors, including Shell and ExxonMobil.

Shell is confident that it can produce oil from Brazil’s promising prolific pre-salt layer for less than $40 per barrel, which is why the supermajor made a competitive bid in the Brazilian auction, Wael Sawan, Executive Vice President Deepwater at Shell, told Reuters earlier this year.

The pre-salt layer holds high-quality and prolific oil reserves, and recent Brazilian reforms have made them more attractive assets, Sawan told Reuters on the sidelines of an oil industry event in Rio de Janeiro in October. Shell believes that it can extract oil from those fields below its targeted breakeven cost of $40 a barrel, otherwise it would not have taken part in the auction, Shell’s manager noted.

“The success rate in the pre-salt is higher than anywhere else,” Petrobras CEO Pedro Parente said. “You need to be where there is high productivity and a low cost of lifting. Pre-salt is one of these areas.”

By Zainab Calcuttawala for Oilprice.com

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