Local content requirements in Brazilian oil, gas auctions

BRASILIA, Oct 17 (Reuters) – President Michel Temer’s government will ease requirements that oil industry equipment be produced in Brazil as part of its effort to draw investment and lower costs that have hindered development of vast reserves, a senior official said on Monday.

Rules for future contracts will allow the importation of oil industry equipment that is not available in the country, Temer’s chief spokesman Marcio de Freitas told Reuters.

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“This will make it cheaper to produce oil and reduce the cost for Petrobras,” he said of Brazil’s state-led oil company.

De Freitas confirmed an earlier report by financial newspaper Valor Economico that Brazil will stop favoring companies that offer to purchase a larger amount of goods and services locally when selecting winners in oil and gas rights auctions.

Temer’s new centre-right government also intends to loosen minimum local content rules by not specifying whether individual components, such as bolts, have to be produced in the country.

Temer’s administration has been taking action to boost private investment in the country’s oil industry, such as removing a requirement that Petrobras be the sole operator of vast offshore reserves in the costly subsalt layer.

The largest deep-water oil fields ever found were discovered two decades ago but the fall in oil prices, restrictions such as the local content rules and the indebtedness of scandal-plagued Petrobras have slowed their development to a crawl.

(Reporting by Anthony Boadle in Brasilia and Bruno Federowski in Sao Paulo; Editing by Daniel Flynn and Andrew Hay)

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