OTC14: Brazil's PPSA CEO promises local content 'flexibility'

May 6, 2014

Oswaldo Pedrosa, CEO of Brazil's PPSABrazil's desire to fast-track development of the huge Libra pre-salt discovery will require flexibility in enforcing local content regulations, CEO Oswaldo Pedrosa of Pré-Sal Petróleo S.A. (PPSA), the new state-owned company representing Brazilian national interest in pre-salt ventures, told an OTC breakfast Monday.

The ultimate required percentages of Brazil-provided equipment and services will not change,  37% during exploration, 55% during development up to 2021, and 59% after 2021, Pedrosa explained to OE after his presentation. But as a project unfolds, early phases may be allowed to fall short of goals with the shortfall to be made up in later phases, he said.

"It's a different vision of flexibility," Pedrosa said. "It's the flexibility to make proper adjustments in local content requirements to avoid stopping fast-track development. . . . All countries, when they have a very important province of oil and gas, try to get benefit for local industry. But this cannot impact too much the fast-track development that is going to benefit the country."

For example, allowances must be made for lessons learned as a project moves forward, Pedrosa said. Less local content might be required in an extended well test phase and more might be required in the pilot phase or the production-equipment installation phase so that goals can be attained in the most efficient way. And technological improvements could affect the mix, he said.

Aside from enforcing local content rules, PPSA's main duties will be to represent federal interests on pre-salt joint venture operating committees, to manage unitization agreements where applicable and to trade the Brazilian government's share of profit oil produced from the pre-salt.

PPSA will chair all operating committees, will have 50% voting power and is empowered to veto committee decisions.

Pedrosa emphasized, however, that PPSA and pre-salt partners share the same overriding goal, to maximize production of Brazil's pre-salt resources. And he encouraged international companies to work with PPSA and consider partnering with Brazilian companies to meet their local content obligations.

"There is a challenge because we need to do fast-track development and we need to comply with local content requirements, which are very high," Pedrosa said. "There is a tight supply chain market. This is something that all of us need to think about and work together on."

The potential prize is huge. Pedrosa forecast that Libra, estimated to contain 8 billion to 12 billion boe, will be producing more than 1 million b/d by 2022. That level of operation will require 10 to 15 FPSO units handling 100,000 to 150,000 b/d each, he said.

Pedrosa cited estimates that remaining recoverable reserves in Brazil total 106 billion bbl, with 72% of the total coming from the pre-salt in the Campos and Santos basins. Some 88% of Brazil's oil remains to be found and produced, and overall Brazilian production is expected to nearly double to 4 million b/d by 2020, he said.



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