If the majors in Brazil, even those operating in the prolific pre-salt areas, are feeling the pain from low crude oil prices, the outlook is much worse for small and medium companies operating in the countryâs onshore. If things continue for long under the present conditions, some companies will have to end operations or mothball assets and fire workers. The scenario is very unexpected because at the end of 2019 there was much optimism about the future of onshore Brazil from both the smaller companies and the government looking to boost the sector. In February, Brazil had about 270 onshore producing fields with 6,496 wells, mostly in four basins which accounted for about 3% of Brazilâs total oil production and 13% of its natural gas. Onshore has remained on the backburner with big discoveries in the offshore pre-salt. However, in recent years Brazil has made some efforts to attract private companies to that segment of the industry, focusing especially on small and medium companies. Those efforts have been solidified by the pull back of Petrobras from this segment of the industry and offer most onshore and shelf fields as part of its US$ 20-30 billion divestment program. After oil prices crashed onshore players asked the energy ministry and the ANP to relax some rules to help them in the current market. One request was to give them greater flexibility in the sale of production to Petrobras, the state-controlled company which still has a virtual monopoly on Brazilâs refining infrastructure and dictates reductions from benchmark crude prices. Thus far the ANP has received requests for the mothballing of 12 onshore fields operated by Petrobras in Rio Grande do Norte and Sergipe states, as well as one field operated by local minnow Energizzi in the Bahia state. The ANP has still not provided any specific answers for the smaller operators onshore, although some of the general initiatives announced by the government thus far to help operators are useful, such as extending contract exploration periods by nine months. Onshore operators in Brazil already faced many challenges and this segment is largely not a high-volume game. However, there is largely a consensus that the country needs regulatory updates to support the onshore industry. Earlier in 2020 the energy ministry announced technical cooperation with the US Department of Energy to develop regulations for Brazilâs unconventional plays, but nothing has been accomplished yet. The energy ministry has also launched Reate 2020, a new phase of its program to boost onshore investments with a goal to increase onshore production from its current levels near 235,000 boe/d to 500,000 boe/d by 2030. Both programs now pale in comparison to the collapse of crude prices. The onshore sector in Brazil can be especially important for cities and regions far from the coast. These mostly poor areas suffer from low tax revenue and high unemployment, especially in northeastern Brazil. This segment of the industry is also significant for the development of local suppliers.
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