For Petrobras or any oil company, reserve replacement is a top priority. Chambriard, who replaced Jean-Paul Prates in the top role earlier this month, has stated as much in her first public comments and hopes to replicate the success seen in nearby Guyana in the Equatorial Margin of Brazil. Last year, Petrobras was denied a drilling permit for the Morpho-1, which was going to be its first exploration well in the Foz de Amazonas Basin. Although it had a drillship already on site, the federal environmental regulator, known as Ibama, rejected Petrobras’ application to drill the high-impact wildcat in the ultra-deepwater Block FZA-M-059. In issuing the denial, Ibama cited, amongst other reasons, environmental concerns and discrepancies in the environmental impact assessment studies that were carried out or were not done in the area. Petrobras immediately appealed the decision but hasn’t seen any resolution yet. Part of the issue, at least for the broader public, might be the contentious nature of the basin’s name, which translates to Mouth of the Amazon in English. Even President Luiz Ignacio Lula da Silva has tried to correct the misconception that drilling in this basin would affect the Amazon Forest or river in any way since the activities would occur more than 500 kilometers from shore. Although Petrobras has been granted permission to drill in the Potiguar Basin, which is also in the Equatorial Margin, the area it believes to be most prospective is in the Foz de Amazonas. It appears that Chambriard will push hard to make that exploration drilling a reality.

The other half of the story in the Brazilian oil and gas sector is the consolidation of the independents. The news flow and market talk of deal announcements this year have occurred at a dizzying pace as companies seek to get in on the best of the acreage that was divested from Petrobras’ portfolio. With Petrobras’s decision to halt its divestment drive last year, acreage positions that changed hands have become much more attractive. Initially, the Petrobras divestments created a broad swath of opportunities for various companies, including regional independents and foreign players like the majors and other national oil companies. During the actual divestment auctions, it was the regional independents that benefitted the most, having acquired nearly 60%, or around $9 billion, of the assets sold by Petrobras in terms of deal value since 2019. They were followed by NOCs outside of Brazil, which claimed 34%, or $5.1 billion; finally, the majors and IOCs, who acquired only around 9%, or $1.3 billion worth of assets. Now, with Petrobras’ divestments largely stalled, consolidation is the most viable option for short-term growth for the independents. The big four independents – PRIO, 3R, Enauta and PetroReconcavo – are actively considering acquisitions or are already engaged in merger discussions.

All the above points to the fact that the Brazilian hydrocarbon industry is in a healthy place. Assuming that it will receive the necessary permits, Petrobras will have plenty to focus on in the near term with its still untapped exploration acreage in the Equatorial Margin, alongside its massive development projects in the Santos Basin. The growing scene of independents in the Brazilian offshore space also offers equity investors an interesting entrance to the Brazilian oil sector, which differs significantly from investing in the sprawling government-controlled giant that is Petrobras. The newcomers also bring an ‘every bit helps’ mentality to the total Brazilian production story. Although their combined production today is still orders of magnitude smaller than that of Petrobras, any contribution they make in addition to the national oil company’s production will help Brazil get closer to becoming a global top-five producer by the end of this decade.