Brazil has been developeding strong offshore E&P oil activities. The objective of this paper is to propose alternative policies for Brazil to boost onshore activities, reducing its exposure to the economic cycles of the petroleum business. In particular, new contract mechanisms should allow for a more attractive splitting of risks between the country and investors; inducing favorably the latter's investment decisions.


Since 1999 the National Petroleum Agency - ANP, the federal organ that has been attributed the right to grant permissions for E&P oil activities in the Brazil, has held four annual bidding rounds. In all, 157 areas were offered: 40 land based and 117 at sea. From those, 87 areas were granted for exploration: 27 on land and 60 at sea. That is, sea based areas correspond to70% of the total.1 Therefore, the tendency to concentrate efforts offshore prevails.

One should point out that this tendency has been dominant since the middle of the seventies, which resulted in Brazil having found most of its proven oil and gas reserves at sea. Fig. 1 demonstrates the evolution of the Brazilian reserves in the last ten years.

The Campos basin was transformed into one of the most prolific off shore areas in the world. On Table 1, we can see the share of the Campos Basin in the national total oil and gas production.

Brazil's, enormous onshore sedimentary areas have been little explored and its development potential has stagnated. On Tables 2 and 3, one can respectively observe the recent evolution of Brazil's smaller oil and gas production onshore as well as some projections up to 2005, given us the current business condition.

Investments so far in the onshore basins are relatively small compared to the offshore segment. For example, in 2002, the national oil company, Petrobras, which holds 98% of the total proven oil and gas reserves in the country, invested almost US$ 3.4 billion in production development, of which US$ 2.9 billion were destined to the offshore fields.2

With the opening up of the Brazilian petroleum sector in 1997, after the approval of the New Petroleum Law - NLP3, other large oil companies have been interested in developing E&P activities in the country. Many in partnership with Petrobras, and they have also primarily focused on offshore.These activities, however, being more complex and demanding larger investments are accessible mostly to the larger oil companies, with capital available and higher propensity for risk.

Brazil's crude oil production is growing fast. The country is prepared to attain the self-sufficiency by 2005. As shown in Fig. 2, the share of domestic production in the national crude oil consumption increased from 53% in1992 to 90% in 2002. The nation is certainly less vulnerable regarding its dependence on crude imports. 4

However, as Brazil acquired world recognition as an important area for high-tech and more expensive deepwater offshore oil, the country still finds itself highly exposed to the economic cycles of the global petroleum business. Most of new entrants are global players with important stakes elsewhere. Theymay be tempted to give up or reduce substantially the commitments with the country unless they can improve the economic conditions of their projects in Brazil. Since nations are fighting fiercely to attract foreign investments, particularly for developing more complex offshore activities, Brazil may have its bargain power damaged by a more competitive environment in its major upstream segment.

Brazil must therefore find ways to diversify its upstream industry, trying to increase the attractiveness of its large onshore sedimentary basins. The country must induce the entrance of a greater number of small-and-medium size companies. Brazil's onshore areas can become an important niche of market for those smaller investors.

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