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oil companies could prove their local content by presenting the service’s invoice together with a statement from the supplier confirming that the service was per- formed in Brazil. After Round 7, concessionaires can only show their compliance by presenting certificates issued by Certification Bodies accredited by ANP, ac- cording to a specific methodology issued by ANP.
The local content policy has boosted the Brazilian services and supply in-
dustry and has acted as a driver for the re-birth of the local shipbuilding industry. According to its 2013-2017 Investment Plan, Petrobras plans to invest $147.5 billion in exploration and production activities, including investments to increase its fleet of offshore oil assets, focusing on vessels able to operate in the pre-salt layer. It is expected that offshore services companies with high local content in- dexes will have an advantage in securing charter and services contracts with oil concessionaires.
In this context, to meet local content requirements in the construction of
drilling rigs, Petrobras, pension funds, local banks and international funds in- corporated Sete Brasil, to build and operate at least 28 ultra-deep water drilling rigs, in partnership with various Brazilian and international drilling contractors. This project will require at least $20 billion in investments over a 10-year period, being the largest exploration expenditure program currently developed by Petro- bras. Other large projects are expected in the offshore supply industry, involving offshore oil assets such as supply boats and oil platforms.
Outlook: reserve based lending and other project finance structures likely to increase After almost five years since the last bidding round promoted (Round 10, in 2008), the Federal Government announced three bidding rounds for 2013. Round 11 of concessions (that does not include pre-salt blocks) began in January 2013 and the bid is scheduled to occur in mid-May. The first pre-salt round is expected for November and a special round focused on areas with possible ac- cumulations of unconventional resources is expected to occur in December. The resumption of bidding rounds has attracted more than 70 oil companies to Round 11 and various other companies and investors aiming at the business opportunities in the oil and gas offshore supply chain.
Activities in the pre-salt areas will require large sums of capital and are likely
to impact Petrobras in particular, given that will be the sole operator and have at least a 30% participation in pre-salt blocks to be awarded under production sharing agreements. Accordingly, the early 2000’s trend may repeat itself and
Rafael Baleroni Partner
Souza Cescon, Barrieu & Flesch Rio de Janeiro, Brazil
Tel: +55 21 2196 9299 Email:
rafael.baleroni@
scbf.com.br Web:
www.scbf.com.br
BRAZIL
Petrobras may require its partners to “carry” Petrobras’ investments in the ex- ploration phase. This practice will transfer the financial pressure from Petrobras to its private partners, which will need to seek innovative sources of capital.
In this scenario, private companies with producing fields may use reserve
based lending (RBL) structures to “recycle” its capital invested in producing projects to invest in exploration projects. Although more common in the United States, where ownership over the land also grants ownership over the underlying oil reserves in the most relevant oil producing states, RBL and other oil producing financing structures are also possible in Brazil, where own- ership of oil by the concessionaire begins only after its extraction. Early inno- vative structures – such as the Marlim field financing – may be revisited and updated by lenders and oil companies seeking this financing alternative still underused in Brazil.
In parallel, the demand for offshore oil assets and the construction of new
shipyards to serve this demand is also a strong driver for project financing trans- actions. In this sense, not only banking but also project bonds transactions have been used by offshore drilling contractors to raise funds backed by operating drilling assets chartered to Petrobras. New off-balance projects sponsored by oil companies, such as Sete Brasil, may involve the construction of oil platforms (FPSOs, FSOs), support vessels and other offshore oil equipment.
Finally, shale gas reservoirs are a business opportunity largely unexplored in
Brazil, which, according to the International Energy Agency, may have the 10th largest reserve in the world. Inspired by the gas monetisation strategy used by the EBX group in the Northeast of Brazil, which is building the largest gas-fired thermoelectric complex in Latin America close to its onshore gas reserves under development, ANP has signaled that it will take into account and make available the location of power transmission lines when offering onshore areas with gas potential.
The Brazilian oil and gas sector has shown less activity than expected during
the past five years, given the suspension of bidding rounds by the Brazilian Gov- ernment. This scenario is expected to change in 2013 as a result of the resump- tion of bidding rounds for concessions, the announcement of the first bidding round for pre-salt areas and the technological development for the exploration of unconventional resources, such as shale gas. Large investments and financings of oil companies’ and offshore contractors’ are underway and more are expected in the years to come.
About the author Rafael Baleroni is a partner in the Infrastructure and Project Finance department of Souza Cescon Barrieu & Flesch and is also active in banking and M&A. He holds a law degree from the Rio de Janeiro State University (UERJ), where he also obtained an oil and gas scholarship from the Brazilian oil agency. He also holds a LLM in International Law, with highest honours, from UERJ and a LLM from the University of Chicago. He has been appointed as leading lawyer by IFLR1000’s 2013 Latin American Energy & Infrastructure Guide and has participated in various major financing and acquisition transactions, including oil & gas transactions involving exploration and production, pipeline construction, oil and gas offshore assets and naval construction.
Maurício Teixeira dos Santos Founding partner
Souza Cescon Barrieu & Flesch Rio de Janeiro, Brazil
Tel: +55 21 2196 9212 Email:
mauricio.santos@
scbf.com.br Web:
www.scbf.com.br
About the author Maurício Teixeira dos Santos is a founding partner of Souza Cescon Barrieu & Flesch, co-head of its Infrastructure and Project Finance department, also active in banking, capital markets and M&A. He holds a law degree from the São Paulo University (USP), a LLM magna cum laude from the Universität Tübingen and an Executive MBA from INSEAD. He has been appointed as a leading Brazilian individual in project finance by various publications, including IFLR1000’s 2013 Latin American Energy & Infrastructure Guide, and has led firm’s teams in groundbreaking and prized transactions, including transactions in the oil & gas sector involving exploration and production, pipeline construction, oil and gas offshore assets and naval construction.
ENERGY & INFRASTRUCTURE | LATIN AMERICA 2013 39
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