Oil Royalties in 2011 Up 31% in Brazil

Laura Madden, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The Brazilian federal government paid oil royalties of R$12.99 billion in 2011, the National Agency of Petroleum, Natural Gas and Biofuels (ANP) announced last week. This represents an increase of 31 percent from the previous year. The largest chunk, R$8.28 billion, went to states and municipalities with Rio de Janeiro as the state receiving the most at R$2.46 billion, up from R$2.03 billion in 2010.

The cause for the rise in royalties according to ANP is an increase in Brazilian oil production and higher worldwide oil prices. Oil averaged its first full year at over US$100 per barrel at the end of 2011.

Other states that received royalties from 2011 were Alagoas, Amazonas, Bahia, Ceara, Espirito Santo, Rio Grande do Norte, São Paulo, and Sergipe.

The Campos Basin, where more than ninety percent of Brazil’s crude oil is produced, lies off the coast of Rio de Janeiro and Espirito Santo states, placing them as first and second, respectively, among Brazil’s top oil-producing states.

Amazonas became Brazil’s third-highest oil-producing state in November, just as the Urucu oil field hit its 25th anniversary.

Division of oil royalties has been a hot-button issue in Brazil, and for Rio specifically. In November, Cariocas protested again the proposed redistribution of royalties from oil-producing states and municipalities to benefit non-producing states as well.

Currently, oil producing states receive 26.25 percent, but would see significant reductions if a new law to redistribute the royalties is passed. The issue is on the government’s legislative agenda for this year, and Rio will be watching closely as it may effect the preparations for the 2016 Olympic Games.

The recent damage to the environment by the Chevron and Modec oil leaks have caused some to associate oil royalties to the risk shouldered by oil producing states, but industry expert Jim Kappeler, who lives and works in Rio, believes it will have little or no effect.

“Of course the producing states assume more risk from spills,” says Kappeler. “But [Rio de Janeiro state] also benefit[s] much more economically from the actual production because Petrobrás and most of the other oil companies have their headquarters in this state.”

In July 2011 Petrobras announced a five-year investment plan of US$224.7 billion for the period between 2011-2015. The company thinks it can nearly triple its production, from around two million barrels per day to six million by 2020, becoming the third largest oil producer in the world.

In 2007, Petrobrás made what is widely considered the Western Hemisphere’s largest oil discovery in thirty years, the Tupi field.

A number of foreign operators entered the market early on through joint ventures with Petrobras, or by participating in the open bidding for exploration blocks, which began in 1999. Although Petrobras remains the dominant oilfield operator, many foreign companies have managed to establish a presence in Brazil and continue to invest.

Also in oil news this week, Petrobrás announced oil and natural gas reserves of 16.41 billion barrels of oil equivalent (BOE) for 2011, an increase of 2.7 percent over the previous year. Ninety-five percent of the reserves were in Brazil, at 12.25 billion BOE while international reserves total 617 million BOE.