Investors are not afraid of risk, but they cannot live with relevant uncertainty because, in turn, that brings more risk.

Manuel FERNANDES RODRIGUES DE SOUSA Energy and Natural Resources Sector Leader for Brazil KPMG Brasil

On the road to Brazil’s oil and gas recovery

June 22, 2018

Manuel Fernandes Rodrigues de Sousa, managing director of KPMG Brasil, talks to TOGY about the trajectory of the domestic hydrocarbons market and the firm’s role in supporting companies through challenges or transitions. KPMG has a global network of offices providing audit, tax and advisory services to multiple industries, including oil and gas.

• On industry recovery: “The industry is certainly recovering. In my opinion, there are two important factors that will foster this economic growth and industrial activity in the coming quarters: firstly, the recent changes in local content regulations, and secondly, the exciting bid rounds scheduled by the ANP.”

• On local content: “Brazilians are very aware of the importance of this sector for the economy, and I do not see any changes affecting local content regulations that would somehow impair our ability to attract investors. The regulatory body, the ANP, has independence to make those decisions and keep them on the right track in terms of attracting investors.”

• On risk: “Political instability steers investment away. It is very difficult to invest if you are not sure inflation will be under control, what the foreign exchange situation will be and so on. Investors are not afraid of risk, but they cannot live with relevant uncertainty because, in turn, that brings more risk.”

Most TOGY interviews are published exclusively on our business intelligence platform, TOGYiN, but you can find the full interview with Manuel Fernandes Rodrigues de Sousa below.

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How would you characterise the Brazilian oil and gas industry?
The industry is certainly recovering. In my opinion, there are two important factors that will foster this economic growth and industrial activity in the coming quarters: firstly, the recent changes in local content regulations, and secondly, the exciting bid rounds scheduled by the ANP [National Agency of Petroleum, Natural Gas and Biofuels].
On top of this, the fact that Petrobras no longer has a monopoly on pre-salt exploration has obviously attracted many new players since 2016.

How have these changes resulted in a more active local oil and gas industry?
The last bids were very successful and attracted companies that were not previously working in Brazil, such as ExxonMobil, which entered the market by making a huge investment with Petrobras.
Not only the Americans, but also the Russians are looking into the market as we speak, as are the Australians and others. Moreover, we have Shell, Total and CNPC [China National Petroleum Corporation] investing in the Libra field, and also investing heavily across the value chain.

 

What is KPMG’s role in this recovery?
KPMG is contributing to this trend by providing key services to most of the aforementioned companies. We are external auditors of Petrobras and perform consulting work for ExxonMobil, Shell and Total. We also help local petroleum institutions such as IBP [Brazilian Institute of Petroleum] transform their businesses and reach their target efficiency and leadership levels.

What are the latest developments that the domestic industry should adopt?
Business digitalisation is a must for everyone now; monitoring your production processes and making sure that your wells are working properly against the production benchmark is a must-do.
At KPMG, we have some offers involving IoT on producing assets. We are already in discussions with some operators and we have four or five proposals submitted as of June 2018. KPMG has always had a technology-driven business. Globally, we invest in what we call strategic growth initiatives, including digitalisation, data analytics and customer experience.

Under the political uncertainty in Brazil, should the current local content regime be maintained after the October 2018 general elections?
There is uncertainty in terms of who is going to be in office, but Brazilians are very aware of the importance of this sector for the economy, and I do not see any changes affecting local content regulations that would somehow impair our ability to attract investors. The regulatory body, the ANP, has independence to make those decisions and keep them on the right track in terms of attracting investors.

What is Brazil’s competitive advantage when it comes to local expertise?
Local subsea companies perform state-of-the-art engineering. Brazil has incredible potential in this regard. One of the things that is always discussed with some authorities is why we are not a hub for this specific segment.

What challenges does Brazil face in regaining its position in the international energy market?
Political instability steers investment away. It is very difficult to invest if you are not sure inflation will be under control, what the foreign exchange situation will be and so on. Investors are not afraid of risk, but they cannot live with relevant uncertainty because, in turn, that brings more risk.
Corruption also does not help, but the fact is that important people have been fairly judged and are going to jail these days. This also speaks to how committed the Brazilians are to eradicating this scourge.

Where will the next opportunities for KPMG come from in the near future?
Although we are currently working with most of the big players, we see ourselves working more collectively and serving companies on a global initiative, maybe implementing a specific system or doing a specific tax structure for operations. This is becoming global.
Brazil will be working a lot in the market – together with KPMG offices around the Americas and around the globe – on drivers such as technology and cybersecurity, systems in general, processes and efficiency. All of these will be drivers for us, as these are hot topics on the tables of most of the big companies.

For more information on the Brazilian oil and gas industry, see our business intelligence platform, TOGYiN.
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