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Brazil Seeks To Lure Oil Investors With Lower Royalties

Brazil’s oil industry regulator ANP has released the model contract for the next round of oil bids, seeking to motivate bidders with lower royalties and the removal of local content as a required part of the bid. The latter was a big problem for oil companies, but for the local government, it was a way to ensure that oil investments benefit local employment prospects.

Now, local content requirements will come into play after an offer is approved and will be more flexible than before. For onshore blocks, for example, the local content requirement will be a minimum of 50 percent under a concession regime. For offshore development, the minimum local content will be 18 percent for the exploration phase, 25 percent for well construction, 40 percent for collection and offloading systems, and 25 percent for stationary production operations.

The lower royalties will concern exploration areas where there has not been much activity before as well as mature deposits – two types of deposits where risks are greater, Reuters notes. Other changes also include lowering the minimum net worth of a company to qualify as non-operator in a project (25 percent of the minimum net worth of the operator candidate) and introducing a singe exploration phase.

Thanks to these changes, ANP’s chief Decio Oddone said that he expected the 14th bidding round to see more participants than previous ones. The watchdog will tender 287 blocks on September 27 in five offshore basins including Santos and Campos, and onshore blocks in six regions.

If all blocks find suitors, the minimum return for Brazil will be US$537 million (1.69 billion reals).

Related: U.S. May Halt Oil Imports From Venezuela

The 14th bidding round is part of an energy industry reform that began last year with the removal of a requirement that state oil company Petrobras must be the operator of all presalt oil and gas projects. It could become the operator if it so chooses, but it is no longer obligated to do so.

Tender plans include nine bidding rounds between this year and 2019. In five of these, blocks will be awarded as concessions, while the other four blocks will be awarded under production-sharing agreements.

By Irina Slav for Oilprice.com

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