On 18 September, Brazil's President Dilma Rousseff announced the long-awaited approval of the 11th licensing round for oil and gas concessions. This announcement represents a shift from the inertia which has characterised Brazil's oil and gas sector since the last licensing round in December 2008.
The 11th licensing round was approved by the National Council of Energy Policy (Conselho Nacional de Politica Energética or CNPE) in April 2011, an executive body responsible for formulating Brazil's energy policy. However, President Rousseff delayed her approval, despite numerous calls from the industry for a swift resumption of oil and gas licensing. There had not been any offshore licensing since the 9th round, held in 2007. After a delay of five years, the licensed exploration acreage in the country is being rapidly reduced by relinquishments under the terms of existing concession, and some major oil and gas companies were withdrawing from the upstream sector for lack of opportunities.
There were a number of reasons for the delay in approving the 11th licensing round. Edison Lobão, Minister of Mines and Energy, ascribed the delay the failure of the political branches of government to agree on the allocation of oil revenues. The government's royalties bill aims to reform the current revenue regime, where nine oil producing states receive the bulk of royalty revenues, and instead split such revenues broadly at the federal, state and municipal levels amongst oil producing and non producing states. The royalties bill has been fiercely resisted by oil producing states and municipalities, including Rio de Janeiro, but it has been approved by the Senate and is currently awaiting final deliberation by Congress.
The delay is also understood to have been motivated by concerns regarding local content and the capacity of Petrobras, the Brazilian state controlled oil company. Brazilian oil and gas concessions require operators to ensure that a certain percentage of goods and services required for exploration and development operations are acquired from local suppliers. These requirements have become steadily more demanding over the years and the recent rapid increase in oil and gas activity, prompted by pre-salt discoveries, has seen a lack of capacity in large parts of the Brazilian oil and gas supply chain.
Its pre-salt discoveries have also put huge demands on the capital and other resources of Petrobras. It was widely believed that Petrobras was in no...