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Brazil's ANP approves revised local content rules, appeases shipbuilders

http://www.chemnet.com   Apr 13,2018 Platts
Brazil's National Petroleum Agency (ANP) approved lower requirements for the use of locally produced goods and services in oil field development, including a concession to shipbuilders that should help avoid lawsuits aimed at blocking the cuts, it said.

Oil companies will be required to use 50% local content during the exploration and production phases of onshore oil and natural gas projects, the ANP said in a statement late Wednesday. The local content level for offshore exploration will be 18%, while the offshore production phase will be divided into three subgroups: 25% for well construction, 40% for subsea systems and 40% for stationary production units.

"The indexes remain in line with those used in the most-recent bid rounds, except in the case of stationary production units," the ANP said.

In a move to appease local shipyard, who had threatened lawsuits to block the changes, the stationary production unit category was also divided into three subgroups that each require 40% local content: engineering; machinery and equipment; and construction, integration and manufacturing.

The concession likely means that hulls for the floating production, storage and offloading vessels, or FPSOs, that dominate output in offshore Brazilian waters will primarily be built at shipyards in China, Singapore and South Korea, industry officials said. But much of the construction and integration of processing modules and deck-mating activities, where Brazilian shipyards have performed well, will likely continue to be handled domestically.

"It's not an ideal situation, but this is the deal that everybody agreed to," one executive at a local supplier told S&P Global Platts. "Now, we need to keep moving forward and get activity going again."

Oil companies holding concession contracts for exploration and production blocks won during Brazil's 7th-13th bid rounds, production-sharing contracts for blocks won during the country's first and second subsalt bid rounds and Petrobras, which holds development contracts for the transfer-of-rights areas, will be allowed to migrate to the revised requirements, the ANP said.

Firm local content commitments were not included in Brazil's 1st to 6th bid rounds.

Oil companies that migrate to the revamped requirements will no longer be eligible to seek a waiver for non-compliance related to previous commitments, the ANP said. Companies will have to remain under the old rules in order to maintain the use of the waiver, which can be utilized when no local supplier exists, when prices or delivery times are excessive compared with those of international competitors or when new technology exists, the ANP said.

Many oil companies, including Petrobras, expressed an interest in migrating to the revamped rules. Industry executives said there were growing concerns about the size of fines that oil companies were exposed to for not meeting local content commitments under previous concession contracts, which likely would have stretched into the tens of billions of dollars.

In the 7th-13th bid rounds, local content commitments were used as an item to determine the winning bid. That resulted in many oil companies pledging higher local content commitments in order to win blocks, without regard to whether local industry would be able to meet demand.

The ANP removed local content as a factor in determining winning bids during the 14th bid round last year.
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