National Content in Brazil - An Ongoing Initiative With Cost-Effective Results
Authors: Firmo Jose , Gama Cesar 
Published: June 2014

At the beginning of the 21st century, countries are interested in developing their supply chain in the oil and gas industry and Brazil launched the methods of calculating local content percentages some years ago. Unfortunately, the local content calculation does not include strategic and longer term national investments. For example, investments in: research centers, development of human resources, and qualification of suppliers for locally used and exported products and services are not considered in the local content calculation. This measurable gap, which is not accounted for in the Brazilian local content calculation, is a fundamental part of the Schlumberger corporate strategy for national content in many of the countries where we work.

Schlumberger has been operating in Brazil since 1945. The company has progressively implemented human resources policies for the home-country workforce, including the development of local suppliers, to elevate technical know-how and to sustain the local workforce's knowledge during all market cycles. There have also been several local manufacturing initiatives in Brazil in the past which, in some cases, have provided good results despite some early missteps. Recently, new rules have enabled Schlumberger to better address the national content regulations while maintaining a focus on longer term corporate strategic plans, including recruitment policy, and infrastructure and technology investments needed for business sustainability. One example of addressing both current national content requirements and longer term strategic interests, including technology development and collaborations with customers, is the development of the Brazil Research & Geoengineering Center (BRGC), the first Schlumberger research center south of the Equator.

This paper covers, from a Schlumberger perspective, some key initiatives in line with the evolving national content policies, and addresses how the company has adapted to the more recent changes in Brazilian regulations. Also covered is a narrative discussion on the challenges of developing potential suppliers for tools and equipment used in an oilfield environment where costs and penalties are high and where financial procedures and regulations are complex. The stakes are high, but so too are the rewards. For Schlumberger, this represents a geographical expansion and consolidation of its technology leadership. For Brazil, this represents a more productive use of national resources, leading to value generation and continued growth in the national E&P sector.

The Oil and Gas Industry in Brazil

The oil and gas industry in Brazil dates back to the early 1930s. The initial hydrocarbon production was onshore, but over the years it expanded offshore, with water depths ranging from shallow to ultra-deepwater. The first pre-salt discoveries were made in 2006, opening the way for a new hydrocarbon province with reserves of more than 50 billion barrels of oil, a volume four times greater than the current national reserves. This exponential increase in reserves along with claims that less than 5% of the continental territory was under exploration or development, allowed Brazil to shine on the world's oil and gas industry stage. To take advantage of this economic opportunity to develop the country and to meet the anticipated local resource requirements needed to transform the incremental oil reserves to production, the Brazilian authorities introduced legislation to increase local content targets to incentivize the development of a national oil and gas supply chain. The methodology for the local content percentage calculations soon were adopted by Schlumberger, from supply chain through operations, to final invoicing.