Analysis: Embattled Brazil to delay upstream round

OREANDA-NEWS. February 13, 2015. The odds that Brazil will hold its next upstream tender around mid-year are growing longer as state-controlled Petrobras works to contain the damage from a widespread corruption scandal.

Originally expected to take place in May or June, the 13th upstream licensing round has been delayed until around October in the best-case scenario, a government official close to the process tells Argus.

Brazil resumed upstream bidding in 2013 after a five-year hiatus. The resumption of licensing included a high-profile sub-salt round in which the 8bn-12bn Libra block was awarded to a consortium led by Petrobras and including Shell, Total and Chinese state-owned firms CNPC and CNOOC. The consortium recently drilled and tested its first appraisal well on the Santos basin block.

In anticipation of the new tender, Brazilian oil regulator ANP issued its acreage recommendations to the country's energy policy council (CNPE) late last year. The ANP has said the round will cover post-salt acreage in basins along the country's eastern coastline.

In December, the CNPE gave a general nod to the process, but approval of the details is still pending.

Petrobras like other oil companies has curtailed spending in response to the sharp decline in oil prices since mid-2014. The company said it would cut investment spending from \\$44bn to around \\$31bn in 2015, but has yet to elaborate on where those cuts will be made.

The firm says it will keep its exploration plans to a minimum this year.

Petrobras is already burdened with major exploration commitments for areas secured in the three recent licensing rounds, including its 40pc operating stake in Libra.

Local content rules, which require Brazilian sourcing for a certain percentage of goods and services, are also a major concern for Petrobras and other companies.

Many Brazilian construction firms have been temporarily banned from doing business with Petrobras while the corruption investigations are carried out. As a result, the contracting process is expected to take place more slowly and cautiously than before. Talk of relaxing the local content rules, and diminishing Petrobras? controversial 30pc minimum operating mandate for sub-salt blocks, has not turned into action so far.

Petrobras itself is still adjusting to a new management led by Aldemir Bendine who was appointed by President Dilma Rousseff last week to try to move the company past the crisis.

The effort to rehabilitate the company?s tattered image was dealt a blow with yesterday?s deadly platform explosion in a Petrobras-operated offshore field.