Brazil's Pre-salt Exclusive Economic Zone discussion postponed for 2020

4/17/2019

HOUSTON -- The government postponed for next year the discussion on the definition of exploratory oil and gas blocks in a promising pre-salt area located beyond the limits of the Exclusive Economic Zone (EEZ), 200 nautical mi off the Brazilian coast. The issue will not be discussed at a meeting of the National Energy Policy Council (CNPE), which leaves the subject for 2020.

"This is a subject for next year, probably," a source with knowledge of the subject told Valor.

According to expert calculations, these blocks have the potential to increase the current volume of Brazil's oil reserves by as much as 50%, currently in the order of 13 Bbbl. Prior to the pre-salt discoveries, Brazilian reserves totaled 11.4 Bbbl of oil.

The area where this potential is located is not yet expected to be offered to the market by the government. Some companies in the sector, however, understand that there is already jurisprudence in the United Nations for Brazil to offer these blocks, whose exploration and production can accelerate the growth of the country's reserves and generate more revenue for the government through of bonuses and royalties.

Interpretation made by ZAG Consultoria, by Petrobras senior geologist and former consultant Pedro Zalán, based on a seismic survey by the multinational Spectrum in an area of the Santos Basin beyond 200 nautical miles, indicated a contingent resource potential of 20 Bbbl to 30 Bbbl of oil "in situ" (total of oil, not yet certified, contained in reservoir and not necessarily recoverable).

Considering the average observed in the oil industry, that at least 20% of in situ resources can be turned into reserves, there is an unsecured potential of 4 Bbbl to 6 Bbbl of oil.

According to João Correa, Spectrum's chief executive in Brazil, ZAG Consultoria has identified structures very similar to the already established discoveries in the Brazilian pre-salt.

The case is peculiar. The continental shelf of a country is a legal term that involves the space at sea that the country has right and exclusivity in the exercise of economic activity of 200 nautical miles. This is the EEZ. The continental margin of a country is a geological concept. And in some cases, this continental margin exceeds 200 miles.

In these situations, the country can petition the UN to explore this area, by paying royalties of 5% to the entity. Brazil submitted its case in 2004. The case, however, has not yet been concluded.

Zalán and Correa explain that, once the litigation has been made, the country can already offer these areas to the market. Case law is due to the fact that Canada has already made similar proceedings. In one of the areas offered in that country has already been discovered by Equinor.

According to Rafael Feldmann, R. Feldmann Advogados, as the Brazilian litigation for the extension of the continental shelf is accepted, the assimilation of the new areas by local regulators, especially Ibama and the National Agency of Petroleum, Natural Gas and Biofuels (ANP) ), should be simple and without major complications.

With the postponement of the discussion by CNPE, it is possible that the eventual supply of blocks in this area will occur only after 2021. "The 2020 areas [to be offered at auctions next year] have already been pre-defined," said another source with knowledge of the topic.

One favorable point is that, because it is not located in the "pre-salt polygon", a region defined by law and where only blocks under the pre-salt sharing regime can be offered, blocks located beyond the EEZ can be auctioned under the concessions regime, in conventional rounds of ANP.

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