Chris Christie, 7th September 2009
CMS Cameron McKenna opened its new offices on Queens Road, Aberdeen, at the beginning of August. Regular readers will know that we have had a dedicated team of energy lawyers here in Aberdeen for almost 18 years, and I am delighted that we are opening our doors as the energy industry comes together once more for Offshore Europe.
I have talked in this column before about my work with the Centre for Energy, Petroleum and Mineral Law and Policy at Dundee University and my focus on supporting the energy industry here in Scotland. However, as well as our increasing commitment to Aberdeen, and to Europe, through our distinctively European CMS network, it is so important for us to support our clients in their worldwide operations.
We have just put a team of oil&gas lawyers into Rio de Janeiro.
As drilling successes in the Brazilian “sub-salt” province have confirmed the initial hype, the scale of the development challenge and the opportunities for the offshore oil industry in Brazil have become clear. The sub-salt province is estimated to contain 50-80billion barrels of oil&gas, which will require about $500billion in investment over the next 30 years.
Never before have such huge reserves been discovered in such challenging conditions, up to 300km from shore, in water depths of 2,000-2,500m of water and beneath 2km of salt. Bringing these reserves to full-scale production will push technological frontiers in almost all areas, including drilling, offshore production, risers and flowlines, CO sequestration and probably offshore LNG liquefaction.
So it is no surprise that those international oil companies and suppliers wishing to keep up with these technological advances are looking very carefully at the Brazilian market.
The legal issues will not stand still, either. CMS Cameron McKenna has been providing cutting-edge legal advice to the oil&gas industry in the North Sea and internationally for many years. Our Rio team of Brazilian and English-qualified oil&gas lawyers will draw on this wealth of experience to help the Brazilian industry meet the challenges ahead.
As reported in Energy, the unprecedented scale of Petrobras’s demand for ultra-deepwater drilling rigs and floating production storage and offloading vessels (FPSOs) means the company is considering innovative contracting and financing models.
In order to reduce unit costs, Petrobras is simplifying and standardising engineering and ordering critical lead items in bulk, which can increase its integration risk. At the same time, its suppliers are struggling to obtain finance in the current economic conditions, so Petrobras is assuming increased risk in some of its charter arrangements to facilitate financing of the rigs. It is also acquiring its own new-build rigs and entering into leaseback arrangements to finance the construction of shipyards.
The sub-salt discoveries have also prompted a review of the current licensing regime, and the Brazilian government is widely expected to adopt a production-sharing contract (PSC) model for the remaining unlicensed blocks in the sub-salt area and to create a new state oil company along the lines of Norway’s Petoro.
Many of the largest sub-salt reservoirs underlie several blocks, which creates an interesting legal issue concerning the unitisation of concession blocks with PSC blocks. As the province matures, our lawyers’ understanding of North Sea pipeline transportation arrangements, decommissioning issues and acquisitions and disposals of oil&gas assets will also be increasingly important.
As many of Aberdeen’s world-beating service companies and suppliers seek to enter the Brazilian market, they will be confronted by a maze of red tape, which is still characteristic of doing business in Brazil. They will require advice on Brazilian local-content regulations, taxation, Petrobras tender procedures, incorporation of Brazilian subsidiaries and the establishment of joint ventures. Fortunately, we will have experts on the ground to advise on all of this and more.
We see this as the dawn of a new era of knowledge-sharing between the UK and Brazil, and this is a two-way process. Just as Aberdeen-based companies have exported their expertise from the North Sea to Brazil and beyond, so will companies based in Brazil export pioneering technological and legal solutions around the world. In a competitive and international oil&gas industry, geographical coverage is a crucial means of being at the cutting edge.
Penelope Warne is a partner and practice group manager for energy projects and construction at CMS Cameron McKenna; www.law-now.com