Shell Is Working to Meet Brazil's Stringent Local Content Requirements

Shell is working to meet Brazil's stringent local content requirements, but says there is a worry about industry capacity four or five years down the line, Shell Brazil CEO Andre Araujo said Thursday. 

Local content rules set percentages for how much equipment and services need to be produced in Brazil -- as much as 70% for an oil platform. 

"For the projects we have in the future, where there is a higher percentage of local content, we plan to meet these percentages," said Araujo, speaking to reporters on the sidelines of a Shell event in Rio de Janeiro. 

"Our biggest risks will be in the future. I understand that today there is a big worry. We are worried. And we think that government entities, industry and providers need to understand how the picture will be four, five years from now," Araujo said. "We need to understand the capacity scenario together." 

David Reid, venture manager for Shell's BMS-54 Brazilian block, said Wednesday he believes that local content rules will cause a slowdown as Brazil's oil industry ramps up production of the country's vast subsalt reserves. 

"If you look at the amount of construction that's going on right now, we're running to catch up in terms of industry capability. I think there's going to be a slowdown," Reid said. 

"There's going to be a tension between local delivery and schedule," he said. "I think that will all correct itself." 

Araujo said Shell is studying technical data it received last week from Brazil's National Petroleum Agency, ANP, for Brazil's 11th bidding round, scheduled for May. 

Once the data is analyzed, in the next 30-50 days, the company will decide "if we are interested in participating in the 11th round, where, and in which form we will participate. Our focus now is a focus on the technical analysis of the data," Araujo said. 

He also indicated the company would be interested in the onshore, non-conventional gas round, which could happen as soon as October. 

"There is the expectation that these will be gas areas, and Shell will analyze these areas with a lot of interest," Araujo said. 

Shell's global Chief Technology Officer Gerald Schotman said at the industry event Thursday the company was optimistic about its onshore gas concessions in Brazil's Sao Francisco Basin, but that the company is a long way from finalizing its studies. A first exploration well is planned for the second half of this year. 

"From a geological perspective we are always optimistic, otherwise we wouldn't be there. And quite frankly, we are very keen to explore further," Schotman said. "The issue is often not to whether the gas is there, whether the hydrocarbons are there, but whether the subsurface will release these hydrocarbons in an efficient and an affordable way." 

Araujo would not comment on whether the company is negotiating with Petrobras over the Brazilian state giant's Gulf of Mexico assets. 

"We maintain regular contact with Petrobras and other companies, always looking for opportunities," he said. "It is one of our principal deepwater investment areas, and when opportunities come up, we will look at them."