Brazil Urged to Reform Production-Sharing Contracts to Unlock Pre-Salt Potential

Brazil must revamp how it writes its production-sharing contracts to maximize investment in its massive pre-salt oil fields, according to a new report by several influential groups of international developers.

As Brazil prepares to auction on October 21 the promising Libra prospect offshore, interest in the lease-sale may be dampened if the country does not provide greater incentives for companies to invest, said the report by the Americas Society and Council of Americas Energy Action Group.

Christian Gomez, the Council of Americas' energy director who authored the report, said state-affiliated Petrobras' insistence on production-sharing agreements, in which oil remains the property of the state, may stretch the company too thin when it comes to developing the Libra field.

The agreements call for Petrobras to be the sole operator of drilling projects, with a minimum 30% stake.

"Production-sharing contracts should balance the right amount of risk and probability potential," Gomez said at a forum in Washington to discuss the report. "[Petrobras] may not have the resources to operate a large number of fields in the pre-salt."

Richard Mosbacher, chairman of Mosbacher Energy Company, added that the production-sharing agreements put Brazil in "a position that may be proven to be disadvantageous...."

Gomez, who compiled the report after a June summit of energy executives, developers and lawmakers in Brasilia, said regulatory certainty is lacking in the country.

"You see a lot of changes in regulatory policy that governs the energy sector," he said. "Brazil's competitiveness is not guaranteed. The resources are there. It's just going to take the right policies to get them...."

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