New Market Research Report: Brazil Oil & Gas Report Q3 2013

With several deepwater fields yet to come online in H2 2013, such as Papa Terra or Roncador 3, along with Frade's restart, we expect Brazil's crude production to rebound from its 2012 fall. In the longer term, we forecast this upward trend to confirm itself based on Petrobras' colossal subsalt development plan. Fields such a Lula, Iracema or Franco will boost crude output above 4mn barrels per day by 2020. The 11th Licensing Round proved successful despite regulatory hurdles and uncertainty with regards to royalty law. Looking forward, the country's first subsalt auction will start in November 2013 and is yet to create upside risk to our long-term forecast. The round is likely to help Petrobras find the required liquidity to complete additional subsalt development. Finally, we believe there is a risk that Brazil will become increasingly dependent on LNG imports in the coming years, as large international sporting events will require the country to leverage on its gas power generation capacity.

Full Report Details at
- http://www.fastmr.com/prod/648304_brazil_oil_gas_report_q3_2013.aspx?afid=301

The key trends and developments in the Brazilian oil and gas sector are:

* We maintain our long-term bullish outlook for Brazil's crude production. While fields such as Papa Terra and Roncador 3 will help the country's output to rebound in 2013, we believe that it will be subsalt developments such as the massive Lula or Franco fields that will contribute to the country's long-term outlook. We expect oil production to keep growing throughout the forecast period, from 2.3mn b/d in 2013 to more than 4.5mn b/d after 2020.
* We nonetheless outline that with a total of 39 FPSO and production units required by Petrobras to meet its production target, the country's timely resource development is likely to face delays. Stringent local content requirement is overwhelming Brazilian shipyards. Not only could Petrobras face delay due to the slow construction of its production units, but the company could also miss its target because some of the shipyards in question are yet to be completed.
* Our short-term view is more cautious as Petrobras, the dominant player in the sector, seeks to implement an extensive reform agenda as a part of its US$236.5bn strategic plan for 2012-2016. The extent to which the company maintains a credible commitment to reform, however, will be an important bellwether for the next several quarters. Importantly, in terms of its financial health, Petrobras continues to be plagued by some critical factors largely outside of its control: a weakening real, the 'Custo Brasil', and an unsustainable domestic fuel pricing regime. That fuel pricing regime has improved considerably since June 2012, however, as the company and government have allowed fuel prices to increase substantially.

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