Oil Crisis – Northeast Municipalities May Lose Nearly 20% in Revenues, According to ANP

ANP Estimates Nearly 20% Loss in Oil Royalty Revenues for Northeast Municipalities in 2020

According to estimates from the National Agency of Petroleum, Natural Gas and Biofuels (ANP), the drop in oil prices is expected to reduce royalty revenues for municipalities in the Northeast by 18%, equivalent to R$ 200 million this year.

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The Northeast region faces losses not only from the devaluation of oil prices but also in the regional economy. Petrobras alone has deactivated dozens of shallow water fields and plans to reduce onshore activities in the region in the coming months.

According to the company and within the business logic, the halt in activities will occur due to high asset costs and because it represents only 1% of the company’s production. For municipalities in the region, where the economy revolves around the oil industry, the impact may be much greater.

As an alternative, Petrobras has opened a voluntary dismissal program and is reallocating those who wish to stay employed from deactivated fields to other units across the country. For outsourced companies, there are no alternatives other than layoffs.

In April, during a conference call with journalists, Petrobras President Roberto Castello Branco commented on the layoffs. “Regarding [layoffs of] outsourced workers, that question should be addressed to those companies, not to Petrobras.”

According to Valor, the impact on municipalities in the Northeast will not be homogeneous. The main states affected by Petrobras’s deactivations will be Bahia, Ceará, Rio Grande do Norte, and Sergipe. For the vast majority of northeastern municipalities, the decline in royalty revenues will not compromise the budget.

Petrobras justified the deactivation of platforms in shallow waters as a measure “focused on the sustainability of the company in what is the worst crisis in the oil industry in a hundred years” and highlighted that the assets do not have economic conditions to operate with low oil prices. The company also clarified that onshore fields continue to operate and that the processes for asset sales are ongoing. With the crisis, municipalities are expected to receive 18% less this year and the ANP estimates a loss of R$ 200 million.