Brazil scraps local content rules for marginal oilfield auction

Oil and gas companies bidding for contracts in Brazil's fourth licensing round for marginal fields will be exempt from strict local content rules, industry regulator ANP said on Thursday.

The announcement came as ANP published bidding and contract terms for the May 11 auction, which will offer rights to develop nine areas in the states of Espírito Santo, Rio Grande do Norte and Bahia.

Under rules designed to protect the national industry, oil and gas companies operating in Brazil are normally required to source up to 90% of equipment and services from local firms.

ANP said the measure took into account the smaller size of companies that operate marginal areas.

"The investments required for the operation of these blocks, which are lower than those required for other onshore areas, are disproportionate to the local content requirements for these companies and to the supply chain serving the segment," ANP said.

Areas available to bidders are: Garça Branca and Rio Mariricu (Espírito Santo basin); Iraúna, Noroeste do Morro Rosado and Urutau (Potiguar basin); Araçás Leste, Itaparica, Jacumirim and Vale do Quiricó (Recôncavo basin).

"The areas were selected in mature basins with the objective of increasing knowledge of the sedimentary basins and to offer opportunities to small and medium enterprises," ANP said.

Analysts have long argued that Brazil's local content rules have turned away major oil and gas companies due to the uncompetitive national supply chain.

The regulations are also seen as handicapping state-run oil company Petrobras, already burdened by the industry's largest debt load and a gargantuan corruption scandal.

PRO-MARKET

President Michel Temer has been quick to implement pro-market policies since replacing Dilma Rousseff on a permanent basis after her impeachment in August.

In November, Temer signed off on a law that lifts restrictions on private and foreign companies in pre-salt oilfields deep below the Atlantic.

He also announced plans for a raft of new concessions and privatizations for airports, highways, railways, port terminals and electricity distributors.

In addition to the rights tender for marginal oilfields, ANP plans to stage Brazil's 14th licensing round and up to two pre-salt rights auctions this year.

The government is hoping that an influx of private capital will kick-start Brazil's recession-hit economy and reduce a gaping fiscal deficit.