Brazil's Petrobras puts Carmopolis, 10 onshore fields in Sergipe up for sale

Rio de Janeiro — Brazilian state-led oil company Petrobras continues to shed legacy onshore assets, putting the Carmopolis Field and 10 other production concessions up for sale in the latest expansion of the company's divestment program, Petrobras said in a prospectus released Oct. 23.

Petrobras called the assets an "independent complex with a high level of operational autonomy, considering the included treatment, export, storage and oil-transport infrastructure." The 11 production concessions include Carmopolis, Brazil's biggest onshore discovery at 1.76 billion barrels of oil equivalent, as well as the Aguilhada, Angelim, Aruari, Atalaia Sul, Brejo Grande, Castanhal, Ilha Pequena, Mato Grosso, Riachuelo and Sirizinho fields in Sergipe state.

The concessions, which are 100% owned by Petrobras, pumped an average of 10,452 b/d and 72,900 cu m/d of natural gas over the January-September period of 2020, Petrobras said. Output, however, was affected by limited well interventions and other maintenance work since late March, when Brazil implemented social distancing measures aimed at containing the world's second-deadliest coronavirus outbreak.

The launch of the Carmopolis prospectus was the latest move by Petrobras to shed older, mature production assets in order to focus on development of the more productive subsalt region, where the top oil well produced nearly 70,000 b/d of oil equivalent in September, according to Petrobras and the National Petroleum Agency, or ANP. Petrobras wants to raise $20 billion-$30 billion from the sales over the next five years.

The bulk of the cash will likely come from refinery sales. Petrobras is selling nine of its company-operated 13 refineries under an agreement with local antitrust regulators. The first binding offers are expected by the end of 2020, with Petrobras required by the deal to close the sales by the end of 2021. Concerns about whether the company will meet its asset sales target has also led to the addition of more production fields to the sales divestment lineup so far in 2020, including the recent inclusion of the Albacora and Albacora Leste fields in the Campos Basin.

The Carmopolis complex is one of the largest groups of onshore assets packaged by Petrobras for sale so far, with the acreage first producing oil in 1963.

The 11 production concessions covered by the Carmopolis complex also include 230 kilometers of oil and gas pipelines and 11 treatment stations, according to the prospectus. In addition, the deal also includes the Terminal Aquaviario de Aracaju, or Tecarmo, and other related logistics and export infrastructure.

ANP royalty proposal

Interest in the sale of the Carmopolis complex and other, similar oil fields currently in Petrobras' divestment portfolio also should get a boost by rule changes approved by ANP directors Oct. 22. Brazil and the ANP have targeted small- and medium-size oil companies as an important area for reform that could generate quick results.

The proposal would slash average royalties for small producers to 5% and for medium producers to 7.5%. Brazilian law currently requires royalty payments of 5%-10% on oil and natural gas production, depending on the volume of output. Special participation taxes are also collected on large production areas.

"The objective of the proposal is to give incentives for more investments in the fields these companies operate," the ANP said in a statement. Small companies currently operate 60 fields and medium-size companies operate 32 fields, according to the ANP.

The change should improve the economics for small and medium producers, leading to longer working lives that should partially offset the reduced royalty payments, the ANP said.

The ANP will hold a public debate on the proposal for 90 days, with a public audience to be scheduled at the end of the period, the regulator said.

The proposal will likely generate heated debate, with royalties an important source of revenue for state, federal and municipal governments. The ANP extended the public comment period on the proposal in order to let mayors elected at municipal elections held Nov. 15-29 to participate in the debate.

Brazil's government, however, has recognized the need to improve terms to lure more investment to Latin America's largest producer.

The ANP previously approved a reduction in royalties on mature offshore fields in exchange for investments aimed at increasing investments and recovery rates. Implementing the program has been slow, however, with Brazilian independent producer Petro Rio the lone company so far to utilize the program on a revitalization program at the Polvo Field.