Expert: Low Taxes Boost Round 9 Prospects

Lower taxation on upstream activities in Brazil could provide a boost to the 9th hydrocarbons licensing round, according to Edmar Fagundes de Almeida, an industry expert and professor at Rio de Janeiro federal university (UFRJ).

Although the 8th round last year was suspended, investors are aware of the risks in Brazil but attracted to potential margins, he said during the Latin Upstream Conference in Rio de Janeiro.

"If you consider the average cost of gas production in Latin America, you will come up with a figure a little over US$1/MBTU. You have an enormous margin to attract investors," said Almeida.

By comparison, gas closed at US$7.5/MBTU on the Henry Hub index on April 18.

"Gas is no longer a cheap commodity, in particular because there is demand but lack of supply," said Almeida, who belongs to UFRJ's energy economics group.

Many Latin American governments have raised taxes due to the surge in hydrocarbons prices in recent year, he said.

"In countries like Bolivia, the government take is very high on upstream."

Argentina upped oil and gas E&P taxes to 75% from 48% in 2001 and Bolivia has raised taxes from 43% to 78%, he said. In Venezuela, the government's take has grown 93% to 96%, while Brazil's remains at 12%.

"Brazil did not raise its taxes on upstream. That is why [Brazil's federal energy company] Petrobras is making huge profits," he said on the conference sidelines.

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