Brazil: ready to do business

The recent decision by Petrobras to cut investment in its five-year business plan has once again thrown the spotlight on Brazil’s oil industry and some of the challenges that it continues to face.

But it also potentially opens more doors for foreign companies to do business in this rapidly rising player in the international oil scene.

Petrobras announced it had cut investment by 41% to $130.3 billion for 2015-2019, down $220.6 from the previous plan. Of the $130.3 billion, it has allocated $108.6 billion for exploration and production – a sizeable sum but a reduction of almost nearly 30% from the $153.9 billion in its previous five-year plan.

“The investment plan prioritises exploration and production projects in Brazil, focusing on the pre-salt,” the company said.

A look at the recent growth in the share of gross domestic product from oil and natural gas in Brazil tells a startling story. GDP increased from 3% in 2000 to 12% in 2010 and reaches 13% today. Put in a global context, Brazil should jump from 14th to 8th place in the world ranking of oil reserves by 2020.

Besides crude oil, the country has significant natural gas reserves and refinery capability. Added to that, new fields have been recently discovered in its vast pre salt basin and elsewhere, pointing towards significant future opportunities for the energy sector.

Against this backdrop, a reduction in investment from Petrobras to serve a growing range of reserves inevitably creates more opportunities for foreign companies to enter the market.

Many of the larger international oil companies are already operating in Brazil, and it is expected that even more will follow from the launch of the 13th oil and gas licensing round on October 7. The round does not incorporate the pre-salt area, which is the stated focus for Petrobras. However, it does include 266 exploration blocks elsewhere in Brazil, 84 of them offshore, and these will be available to be explored without a Brazilian partner.

“We see this as an opportunity for companies to increase their participation in the Brazilian market or enter for the first time,” Brazil Mines & Energy Minister Eduardo Braga is reported as saying.

In an increased drive towards regulatory compliance, there is also a growing force to change Brazil’s prohibitive local content policy among its contractor community, and for local companies to seek strategic technology partnerships with international players to achieve better results. While a change in local content rules may not feature in the 13th licensing round, it is hoped that the 14th round scheduled for next year may see a more enlightened approach to the working relationship between local and international providers.

So, putting to one side the unavoidable and short term difficulties of the current low oil price and the controversies surrounding Petrobras, there is a very real sense that Brazil’s energy industry is ready to do more business with the rest of the world.  The spending cut by Petrobras may create a space that others can fill. The time is right now to take advantage of this anticipated upswing.

Fifth Ring sees huge potential in Brazil. The country has been on our radar for several years, and our detailed research of the opportunities there led to us recently announcing our entry into a strategic alliance with Zoom Out, the country’s leading oil and gas focused B2B agency.

It’s a partnership which we believe will benefit Brazilian companies looking to internationalise, foreign businesses seeking to break in to the country and others, including many of our existing clients, who are already active there and need to raise awareness of their presence. Its deep and ultra deep waters are a natural market for the subsea engineering excellence that the oil and gas industry has developed in the North-east of Scotland over recent years, for example.

The Brazilian oil and gas industry is in a process of changing for the better. We are excited to be a part of that change and we look forward to helping others who can see the opportunities that exist there.