Foreign companies now hold 20% of Brazil’s oil and gas production

RIO DE JANEIRO, BRAZIL – With Petrobras stepping on the investment brake and selling off more assets, foreign oil companies are gaining ground in Brazil.

Together, Shell, Repsol Sinopec, Petrogal and TotalEnergies account for 20% of national oil and gas production, while the private sector (including Brazilian companies) now accounts for 27% of the total, according to data from the National Petroleum, Natural Gas and Biofuels Agency (ANP).

The new industry portrait also shows the transfer of investments to the pre-salt deep water areas, and the drop in the number of reservoir discoveries. The distribution of royalties among municipalities has also changed.

Representing large oil companies, the Brazilian Oil and Gas Institute (IBP) expects the share of foreign companies to grow even more as the pre-salt advances.

Petrobras’ investments have been declining since 2014, when the company became the target of corruption charges in Lava Jato Operation, the oil price plummeted, and its debt exceeded US$100 billion. Its managers have reduced investments from US$236.7 billion (for the period 2014 to 2018) to the current US$55 billion (from 2021 to 2025).

The state-owned entity abandoned its plan to become a chain-integrated company, sold off onshore and shallow-water fields, and committed less funds to exploration of new reserves, which would account for future discoveries. Few acquisitions have been made in recent years, except in the giant pre-salt areas of the Santos Basin, such as in Búzios, considered its best asset.

Petrobras’ share in national production dropped from 84% in April 2016 to 73% in the same month this year, down 11 percentage points in five years. In contrast, Shell’s share, which five years ago accounted for 7% of domestic oil and gas production, now stands at 12%. Part of this advance is due to the purchase of BG (formerly British Gas) in 2016.

Next come Petrogal (whose share rose from 1.4% to 3.4%) and TotalEnergies, which went from zero to almost 2%. Repsol Sinopec ranks fourth, but the volume it extracted fell 0.2% in the period.

There are also a number of large foreign companies – such as Chevron, Equinor and Exxon, which are betting on deepwater fields, including in the post-salt – and Brazilians, such as Enauta, PetroRio and Dommo, which have been growing, especially with the purchase of Petrobras’ areas.

A natural process

Petrobras said that the growth of foreign competitors in the market is “natural,” as well as the entry of new companies in assets that it has sold. The state company is working to maintain its leadership in the production of oil and gas in deep and ultra-deep waters, including the pre-salt, as reported by its press office.

The state company said that acting in partnership is a solution to reduce exposure to risk and add the partners’ knowledge and capital. According to the company, this business model helps the company “to be present in a greater number of opportunities and add competence.”

Petrobras argues that its oil production has grown in recent years, with the exception of 2018, and that it should maintain its leadership in the refining segment, even after disposing of half of its derivatives production capacity.

“Petrobras will continue to be the largest integrated company in Brazil, using its park to maximize returns and optimize its operations,” it said.

Shell, through its press advisory, said it holds assets in Brazil, in all phases, from exploration to the demobilization of platforms. Two of them are in the production phase: Parque das Conchas and Bijupirá-Salema, in Campos Basin.

“We also plan an exploratory well for this year in block CM-791, in the Campos Basin, which was bid in the 15th concession round (in 2018), demonstrating that our interest goes beyond the pre-salt,” it pointed out.

TotalEnergies said it has a “long-term commitment to Brazil” and that the country “offers great opportunities, particularly in the pre-salt.” The company plans to invest US$500 million per year in exploration and production by 2024 and increase the extracted volume to 150,000 barrels per day in the future.

Norway’s Equinor, the seventh largest domestic producer, said Brazil is strategic. “Since 2001, Equinor has been building a strong local organization,” it said. “The company has invested over US$11 billion in Brazil so far and expects to invest another US$15 billion by 2030,” it added.

For William Nozaki, coordinator of the Institute for Strategic Studies of Petroleum, Natural Gas and Biofuels (INEEP), Petrobras’ retraction has major negative impacts on production.

“The first effect is the reduction in the average rate of total investment, since foreign companies have invested less and do not offset the retraction of the state-owned company. In addition, production outside the Santos Basin (where the pre-salt is) fell. In the Campos Basin, for example, Shell, Equinor, Dommo reduced the volume extracted, and Chevron ceased to be an operator last year,” he said.

Oil and Gas expert Luciano Losekann, professor at the Fluminense Federal University (UFF), highlights the importance of continued investment to maintain royalty revenues. Rio de Janeiro remains the most favored state. However, internally, the collection of financial compensation migrates from Rio de Janeiro to its metropolitan region.

At the top of the list of most benefited are now the municipalities of Maricá and Niterói.

Source: O Estado de S. Paulo.