As an independent player in the oil and gas industry,Maha Energy is focused on developing and optimising mature oilfields to maximise value, seize opportunities, and drive profitability. Since 2016, Vieira Rezende has partnered with DBO Energy and later Maha Energy, supporting their impressive journey of starting and building an oil business.
· Kjetil Solbraekke, CEO of Maha Energy and founder of DBO Energy (KS)
· Daniela Davila, Partner and Head, Energy & NaturalResources, Vieira Rezende (DD)
· Thiago Silva, Partner, Energy & Natural Resources, Vieira Rezende (TS)
KS: Maha has collaborated closely with Brazilian private equity firm, Starboard, for several years. Starboard investors originally came to DBO Energy with the purpose to start up 3R. The Maha transaction was initiated by the two partners in collaboration. Starboard bought into Maha and DBO Energy later merged with Maha. They saw that Maha has the experience and competence in oil and gas. We saw the potential that lies within Brazil – and the benefits of working with a strong Brazilian partner.
One of my objectives as CEO was to increase our company valuation. We already had assets in Brazil but were headquartered in Sweden and historically focused on activities in Oman. We changed that focus, divesting assets in Oman and the United States to explore the Brazilian markets.
Initially, we divested two fields in Brazil. This was opportunistic, when a big company in the region expressed an interest and we were able to sell at a good price. It gave us the resources to do more business development and was the starting point to change the whole company. We moved our headquarters to Brazil and switched our focus to Latin America, with a lot of activity in Brazil and Venezuela.
“One of the biggest pieces of advice I would give to anyone interested in this area of opportunity is to find a strong Brazilian partner. Unless you are a big international oil company, you’ll have a much better chance of success with a local partner. They have to be the right partner, not just any Brazilian company. You need to be well matched and able to have an open and transparent dialogue.”
Kjetil Solbraekke, CEO of Maha Energy
KS: Brazil is the largest offshore oil and gas market in the world. It used to be Norway, so there are similarities and learnings that can be applied. That’s why there are a lot of Norwegian companies operating in Brazil – but unlike Norway there is still opportunity for growth. There is plenty of work still to be done on recent projects and many new projects that haven’t been identified yet.
The oil and gas market in Brazil has been a monopoly for decades. This has left a legacy, with very limited diversity of opinion when it comes to technical ideas regarding efficient operations and development. I believe Petrobras is a great company that has been hugely successful as pioneers in deep water development. But no one can prioritise everything.
Understandably the priority for Petrobras was to use the best fields first, only moving down the list when they needed to. This means there are still under-exploited oil and gas reserves with low recovery factor and room for growth. It was a hugely positive move when Petrobras sold some of these assets. It has already resulted in significant increased production, and reduced operating costs, and I am convinced that we will still see more production and developments as a result of the divestments from Petrobras going forward.
The Petrobras divestment has given us the opportunity to invest and operate in smaller fields – with some turning out to be bigger than expected. The next stage will be developing these newer discoveries and uncovering even more. Some Latin American countries have already been through this process, so there are less opportunities and more competition there.
TS: The train was moving fast towards divestment of natural gas assets in Brazil, opening opportunities to private players. But with a change in government, this commitment is also changing. We’ve seen that your business has been impacted. What’s your view? How has this affected natural gas plays in Brazil?
KS: Again, I don’t think it’s necessarily the best thing for Petrobras to dominate this market. While Petrobras controls the capacity in the pipelines, it limits the potential to negotiate tariffs and set market price. As long as Petrobras maintains control of many processing plants and pipeline capacity, you might have the gas but you are in the hands of Petrobras to get it to market.
If there is a shortage of gas the game might change, but there is still only one company holding all the capacity in the pipelines – Petrobras. You have to negotiate the tariff and might only get a marginal return as a gas owner in the field.
DD: The demand for natural gas is still high. It’s still more economic to reinject gas to produce oil in offshore fields, so major producers don’t have sufficient motivation to invest in the infrastructure to send gas to shore from many of the presalt fields.
We’re still reliant on imports in a volatile market with high prices and low production volumes. The price of natural gas is not decreasing as it needs to, to become competitive. Liquified natural gas (LNG) is expensive and we’re competing with Europe. This was exposed with the war in Ukraine and floating storage regasification units (FSRUs) and LNG shipments going to Germany at a price Brazil couldn’t compete with.
KS: Security of supply and energy flexibility is key for all countries and Brazil has several sources of energy, with natural gas playing a crucial role in balancing the intermittency of the renewable energy industry. Other countries are running out of gas, and the potential in different markets is high. There are lots of gas fields in Brazil, and Brazil could play a fantastic role in this market, but the tariff is a challenge and further funding for projects is needed.
“There is so much potential, we expect something to happen when it comes to natural gas. It’s a long game. You wait for the wave and know how to surf it. This is where it pays off.”
Daniela Davila, Partner and Head of Oil and Gas, Vieira Rezende
DD: What sets Maha Energy aside is that you have a long-term view. This is really important in Brazil. Most political strategies are cyclical and Brazil is no different. The Petrobras Divestment Program hasn’t continued in the way that was hoped for. I believe this will pass in the long term, but how long do you feel this will take?
KS: That’s a hard question, but reality usually prevails. It’s clear the divestment has been positive. It has been good for the state and production has increased. It’s a shame the people (in Petrobras) who worked so hard to make it happen are now seeing their efforts stalled and under appreciated.
I think the divestment was the right thing to do and should have been done earlier, and the program should have continued. Petrobras are still unable to prioritise all potential developments in their portfolio. It is a concern that new developments will be significantly postponed, which risks leaving huge development projects and valuable oil in the ground forever. Simply because energy transition is coming and one day the industry will not any longer be interested in developing capital intensive, deep water oil projects with a payback period of 15-20 years. However, I am hopeful the Government will realise this and again open for Petrobras divestments of the fields they are unable to prioritise.
DD: Also the world is changing, we are seeing a shortage of finance for investment in oil and gas. The window is closing.
KS: I agree and there is almost zero recognition of this as an issue – that’s disappointing. It’s a step back but I do believe reality will prevail.
TS: Brazil is looking to develop its offshore wind capability. How do you think this will move ahead – here and in the rest of the world?
KS: There’s an old saying that if you jump on a horse and try to ride it in all directions, you won’t get anywhere. This limited the ability of Petrobras to exploit fields that weren’t on their priority list – and the same applies with renewables. It is natural that Petrobras also participates in the development of renewable resources, but they should not be left alone at least.
In my opinion, anywhere with a long shallow coastline where you can easily put piles into the seabed and put a propellor on top – that has potential. The Northeast of Brazil is an example, perhaps less so in the South outside of Rio, where the coastal water is deep.
I think floating offshore wind is cool but it’s hard to see how it can be profitable. My own view on wind production is that it is better onshore or in shallow offshore waters. The drive for offshore is often from companies with offshore operations in oil and gas wanting to manage their own transition to renewables. But wind is very different to oil and I am not a great believer that offshore wind is the answer.
KS: I think it’s the right thing to focus on blue or green hydrogen. Brazil is one of the few countries in the world where it makes sense, but hydrogen is very expensive to produce. You’re taking the energy out of the wind or gas, and then you’re converting it again when you use it to split water. There’s a lot of energy lost during all those conversions.
Currently, wind is easier and more profitable, with less energy lost from source to grid. In the long term though, Brazil is well-positioned to develop hydrogen due to its abundant renewable natural resources. The question is how soon it will become a big business – which is a question globally as well.
TS: I agree. Green hydrogen doesn’t make sense out of the context of energy transition funding. The technology by itself isn’t competitive compared to traditional energy production, so it needs funding to bridge the financial gap if it is to compete with oil and gas. We are starting to see this coming through in Brazil, with a green hydrogen bill approved for over R$18bn for investments in hydrogen production.
There is high demand for hydrogen in carbon heavy countries such as Germany. Brazil is in the right position in terms of natural resources to produce and export green hydrogen. But we are in the wrong continent, so we need to find ways to transport it better with low carbon methods.
KS: I’m optimistic for Brazil’s future. When I travel around Latin America and compare Brazil to other countries, I see that Brazil is very well organised. Brazil’s institutions work well and we can have confidence in them, even with government changes. This is important for companies looking for opportunities. What’s more, there is still low hanging fruit and we could do even more. Brazil’s sheer size makes it an important hub for oil and gas, as well as renewable energy.
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KS: When we started working in the region, we knew we needed a local law firm. There were numerous legal issues to deal with when buying assets from Petrobras and no one had done this before. On the one hand, the divestment process from Petrobras was very rigid and on the other, there were different interpretations about what was binding. We realised quickly we needed some good lawyers to help us.
We looked at options but it was a quick and straightforward decision to go with Vieira Rezende. The main reason was that we had trust in Daniela and the team from day one, which was really important. Plus Vieira Rezende have solid expertise in oil and gas. Since working with Vieira Rezende, their tax assistance has also been excellent, alongside support from the rest of the multidisciplinary team.
“I’m optimistic for Brazil’s future. It’s very well organised with key institutions that work well, even with government changes. This brings a feeling of safety for potential investors, which in turn brings growth.”
Kjetil Solbraekke, CEO of Maha Energy
About Kjetil Solbraekke
Kjetil Solbraekke started his career in Norway as a public servant in the Ministry of Energy. He came to Brazil with Hydro Oil & Gas to develop the Peregrino oil field (now a project of Norwegian oil major Equinor), and then made an incredible journey to become a successful investor in 3R Petroleum Oleo e Gas, an independent oil company that acquired several assets in the Petrobras Divestment Program. Following this, Kjetil facilitated the amalgamation of 3R and Maha Energy (Maha became a shareholder in 3R), fostering the recent merger of 3R and Enauta.
