22 Mar /13

Drilling in Brazil: Foreign Investment and Local Regulation

25 years ago thoughts of Brazil conjured up images of sunny beaches and tourists, but Brazil has changed: it has gone from being solely a tourist destination to becoming Latin America’s foremost business destination.

As one of the “BRIC” economies (Brazil, Russia, India, and China), Brazil has grown to be an important economic player both in Latin America as well as in the global marketplace. Brazil’s rapid rise to the top can be attributed to a number of key policy implementations that have succeeded in boosting Brazil’s domestic economy and helped to attract foreign capital. Among other factors, targeted infrastructural investments and the reduction of regulatory hurdles are the reason why Brazil’s economy posts consistent growth rates of over 5% and has established itself firmly among the top ten world economies with an export rate of 60%.

In addition to sound economic policies, Brazil has another ace up its sleeve that will guarantee consistent growth of its economy for the near future, and that is natural resources, specifically energy resources. Recent hydrocarbon discoveries off the coast of Brazil have served to increase Brazil’s total presumed oil estimates from 20 billion barrels to approximately 70 billion barrels. This jump in proven reserves mixed with the fact that Brazilian domestic energy production has increased 40% while net energy imports have decreased by 21% demonstrates that Brazil is transitioning from a net energy importer to a net energy exporter. This trend, in turn, attracts outside capital. Foreign direct investment in Brazil has more than doubled from $31 billion in 2009 to $71 billion in 2011, with a large share of that investment going towards energy production and distribution.

The sudden hike in foreign investment in Brazil’s energy sector is also accompanied by a rush of international production companies seeking to capitalize on the nation’s oil boom. In the last decade, Shell, Chevron, Repsol, BP, Anadarko, El Paso, Galp Energia, Repsol, Statoil, BG Group, Sinopec, ONGC and TNK-BO have all begun operations in Brazil, forcing Brazilian lawmakers to ponder if and how to regulate the market in order to guarantee sustainable growth. The difficulty of such a task is apparent. While lawmakers must appease local environmental interest groups and domestic producers who fear that outside consortiums will push out Brazilian companies and in the process ruthlessly destroy fragile ecosystems, energy minister Edison Lobao must also satisfy foreign investors.

At the moment, it seems, Lobao is attempting to find a balance. While the country attracts investment with its focus on improving infrastructure, lowering corruption, and growing a skilled labor force, stringent environmental policies with heavy fines are meant to reign in reckless offshore activities. In 2012, Chevron, for instance, was fined $17 million for failure to meet strict requirements concerning the environmental impact of coastal oil drilling. In addition, foreign companies that have operations in Brazil must attain mandatory certification via a third party in conjunction with Brazilian entities. In response to these regulations, many firms have chosen to enter partnerships and joint ventures with local companies often better acquainted with the regulatory situation. As an efficient way to establish a strong foundation of their Brazilian projects on both the micro and macro levels, many E&P companies then employ a specialized translation company that deals with many problematic aspects before they become larger, increasingly costly issues. Through the use of a trusted, respected translation company that is familiar with the needs of business – especially in the energy sector – many issues can be completely avoided, thus saving the investor business time and  money.

EVS Translations is a specialist translation provider for the oil and gas industry. With more than twenty years of experience and over 100 in-house employees, you can leverage its multi-national presence and in-house teams of industry specific translators in the US, Europe, the Middle East and Asia through one contact. Excellent project management and processes mean that your projects can be completed in a cost-optimized fashion.