Sector News

Brazil official says Shell, Total must accept Petrobras as partner

September 18, 2014
(Reuters) – Royal Dutch Shell Plc and Total SA must accept Brazil’s state-run Petrobras as a partner in their Gato do Mato offshore oil prospect under new Brazilian law, the country’s top oil regulator said Wednesday, a move that could strip Shell of operational control of the resource.
The statement by Magda Chambriard, director general of oil regulator ANP, appeared to contradict comments on Tuesday by Brazilian government lawyers that Shell’s rights would likely be preserved. She spoke at an oil industry event in Rio de Janeiro.
On Tuesday the lawyers said recent ANP regulations would allow Shell to remain as operator – or lead partner – in the area despite the 2010 law. Under its provisions, Petroleo Brasileiro SA, as Petrobras is formally known, has exclusive operating rights in a neighboring area into which a small part of Shell and Total’s discovery encroaches.
Chambriard’s comments come as oil industry officials expressed concern this week that government intervention is causing oil investors to lose interest in Brazil. It has also added to expectations the government may break a promise to honor all oil-rights contracts signed before the 2010 law.
“Whatever the case, Gato do Mato extends beyond the limit of Shell and Total’s block and there will have to be a unitization,” Chambriard said. “Petrobras has to be on the other side.”
Unitization refers to rules that require all fields encroaching on an area controlled by another company to be consolidated into a single unit run by a single operator.
While saying that Shell’s status as operator was still under discussion, lawyers contacted by Reuters said her interpretation makes it likely Shell will be reduced to a mere financial investor in Gato do Mato.
“This is very confused, and I don’t see how this gets resolved in Shell’s favor,” said a senior Brazilian oil lawyer who asked not to be named because she has worked with parties to the dispute.
Shell’s right to direct development in Gato do Mato stems from the prospect’s extension beyond the border of the BM-S-54 block. Shell owns 80 percent and Total 20 percent. It was bought by Shell in 2005.
The neighboring area is in an un-leased part of the Subsalt Polygon, an Illinois-sized offshore district near Rio de Janeiro that is home to nearly 80 percent of Brazil’s oil output as well as giant new discoveries trapped deep beneath the seabed by a layer of salt.
Under the 2010 law, Petrobras receives a minimum 30 percent stake and exclusive operating rights in any new Subsalt Polygon development. Rights are also sold under production-sharing contracts awarded to the Petrobras-led group that gives the government the largest share of oil to sell on its own account.
In Shell and Total’s BM-S-54 block and other areas leased before 2008, all the oil produced is owned by the oil companies in exchange for a per-barrel royalty.
By Jeb Blount (Additional reporting by Marta Nogueira; Editing by Ken Wills)

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