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9 Oilgram News / Volume 91 / Number 56 / Wednesday, March 20, 2013
Rio de Janeiro—Petrobras will participate in
the three bidding rounds the Brazilian govern-
ment plans this year, company executives
indicated. But, the state-controlled company
will look for partners for future concessions.
“This will be the participation strategy in
the bids that will happen this year,” Explora-
tion and Production Director Jose Formigli
said during a teleconference with analysts
March 19 to discuss the company’s 2013-
2017 business plan, released March 15.
Formigli said the company was optimis-
tic about concessions in northeast Brazil.
Blocks from the so-called Equatorial Margin
will be offered in the bidding round being
held in May. “We continue focusing on the
Equatorial Margin and East Margin, and we
believe that there could be big plays there,”
Formigli also deflected industry concern
about Petrobras’ capacity to operate and fund
new subsalt concessions. A subsalt round is
planned for November, and under the “profit
share” model introduced in 2010, Petrobras
is required to operate all new subsalt con-
cessions with a minimum 30% participation.
Formigli said this meant that up to 70% of
investment cost could be met by partners.
“In the profit-share model, we will obliga-
torily have 30% participation, and 70% could
be us or by other partners,” said Formigli.
“We can only know how the scenario will be
when the government decides how the bid
will be, what areas will be in the next profit-
Using a new exploration policy that was
developed last year, the company is devel-
oping scenarios to work with partners, said
Formigli. “We are prepared for the areas that
will be in the bid to be defined, and we will be
ready to make our competitive participation in
it viable,” he said.
CEO Graca Foster also said the company
has contracted a service company to work
inside Petrobras on evaluating Brazil’s non-
conventional reserves with an eye to the
non-conventional reserves auction planned for
later this year.
Foster said that production of non-conven-
tional gas was one of the company’s priori-
ties, but that the existence of commercial
reserves needed to be confirmed. “We are
going to produce this gas,” she said.
At a press conference at Petrobras
headquarters in Rio de Janeiro following the
teleconference, Foster said: “The priority of
the company indisputably is exploration and
production.” But the CEO said that refinery
projects remained important.
Despite four domestic price rises in the
last nine months, Petrobras continues to lose
money importing gasoline and diesel at high
international prices it then sells at fixed lower
prices to meet rising domestic demand.
“If there is something we learned really
well in 2012, it was the importance of new
refineries,” Foster said.
Foster said that the Abreu e Lima refinery
being constructed near Recife in northeast
Brazil is 70.6% completed and its final cost
will be $17.35 billion. But she admitted
that the company had still not been able to
confirm the participation of Venezuelan state-
owned PDVSA in the project.
The latest deadline for PDVSA to decide
if it would enter as a partner in the refinery
expired February 28, but the death of Venezu-
elan president Hugo Chavez had complicated
discussions, Foster said. A meeting with the
PDVSA CEO had been requested.
“We are available for PDVSA,” said Foster.
“There is no way to look in the rearview mir-
ror, to look backwards. We have to conclude
Foster said that two other ambitious
refinery construction projects—the Premium
I and Premium II refineries in Maranhao and
Ceara states in northeast Brazil are still on
paper. Both projects are still in the “evalua-
The CEO said the company had spent
years on the refinery projects but they still
only existed on paper. “All of this was con-
ceived years ago. The only thing we did was
write,” said Foster. “We learned in 2012
that we don’t have these refineries. It was
Following staff changes in the downstream
department, both refinery projects have been
significantly changed. “The challenge now is
to make these refineries viable for them to
be extremely competitive in the international
arena,” said Foster.— Dom Phillips
Petrobras to participate in three bid rounds
Sees E&P as a priority, but new refineries also part of company strategy
Brazil court grants injunction against oil royalties law
Rio de Janeiro—A justice at Brazil’s Supreme
Court granted a temporary injunction sus-
pending the new distribution of oil royalties
amongst Brazil’s 27 states, as mandated by
the nation’s new oil royalties law.
Justice Carmen Lucia ordered late March
18 that no new royalty payments be made
until the Supreme Federal Court can rule on
the issue. A spokeswoman for the court said
a date for a decision has not yet been set.
Lucia’s injunction was in response to
an appeal against the new law filed March
15 by the government of Rio de Janeiro,
which says it stands to lose Reals 27 bil-
lion ($13.6 billion) in revenue by 2020. Bra-
zil’s other producing states, Espirito Santo
and Sao Paulo, also filed lawsuits March
15 against the new law, but a Supreme
Court statement regarding Lucia’s decision
referred only to Rio’s complaint.
Congress passed the law in November
in order to distribute royalties between
producing and non-producing states more
equally. Following aggressive lobbying by
producing states, mainly Rio de Janeiro and
Espirito Santo, President Dilma Rousseff
made a line-item veto to the bill that would
guarantee producing states revenue from
existing contracts. Congress overthrew that
veto March 7, and the law went into effect a
week and a day later when it was published
in the Diario Oficial da Uniao (Official Gov-
The producing states say the law is
unconstitutional as it breaks existing con-
tracts and deprives them of revenue as
compensation for environmental and other
risks associated with oil and gas explora-
tion. Sergio Cabral, governor of Rio, argued
in the 51 page document filed March 15
that Brazil’s 1988 Constitution stipulates
how royalties should be distributed and
changes cannot be made by the regular
Constitutional lawyer Claudio A Pinho, who
specializes in oil and gas regulation, says he
has “no doubt” that breaking existing contracts
is unconstitutional, and that the Supreme
Court will maintain President Rousseff’s veto,
thus maintaining existing contracts.
“There is a provision in article 5, para-
graph 36, of the constitution that says that
no new law can change the right to consoli-
dated income rights,” he said. “This means
that the producing states have the rights to
the money [from royalties] that was agreed
in the contract...if the law changes two
years later, it doesn’t matter, this income
Pinho said the law could, however, change
the way that royalties from future contracts be
distributed, such as those that will be signed
during the long-awaited 11th bidding round for
oil and gas concessions on May 14 and 15.
Pinho added that he saw no danger of delay-
ing the auction.
However, for Adriano Pires of the Brazil-
ian Center for Infrastructure, there is a real
risk that the Supreme Court will not have
resolved the issue by May’s round, the coun-
try’s first since 2008. Brazil needs a new
working royalties law before the auctions
can go ahead.
“This would be extremely bad for the oil
and gas sector,” he said.
Brazilian government officials have
insisted that the case will not affect the
country’s bidding round, but even so, the
injunction is likely to cause some jitters
among investors and therefore possibly
diminish returns on the blocks up for auc-
tion, Pires said.— Lucy Jordan