Brazil’s older basins are declining. Campos and Espírito Santo were once the beating heart of South American oil production, but declining output has left Brazil with a choice: scale up exploration and production (E&P) or risk becoming a hydrocarbon importer.
Both current president Luiz Inacio Lula da Silva and opposition leader Flávio Bolsonaro back the former. Despite the country’s position as an energy transition leader, with the lowest share of fossil fuels generating power among G20 countries, Brazilian politicians across the political spectrum largely deny that there is a conflict.
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They ascertain that revenue enables green investment, as Lula articulated at COP30 last November: “Directing part of the profits from oil exploration toward the energy transition remains a valid path for developing countries.”
Environmentalists and the country’s Climate Change Minister Marina Silva have pushed back, pointing to ecological risks and conflicts with national climate and net-zero goals. However, “most Brazilians do not see this as optional”, says Elizabeth Johnson, managing director of Brazil at TS Lombard.
“Consider the states of Rio and Espírito Santo. They rely heavily on oil and gas revenues, and Brazil has put structures in place so that municipalities with offshore blocks get compensated. This is a huge source of wealth for these states.”
Brazil’s Equatorial Margin is a highly anticipated region of exploration, expected to hold more than 30 billion barrels (bbbl) of oil. Since June 2025, rights and acreage have been auctioned off, including in the Foz do Amazonas, Ceará and Potiguar basins. Blocks in the Santos and Pelotas basins were also included in recent rounds, as auctions scaled up in line with new exploration plans and interest from international majors.
The auctions signal two trends: first, that the world’s biggest players want to cash in on Brazil’s offshore opportunity; second, that Lula’s government and many Brazilian states see oil and gas as necessary for reindustrialisation, and don’t accept that further E&P sits in conflict with its energy transition.
Brazil leads the energy transition and encourages oil and gas exploration
The arguments for further E&P in Brazil are twofold: oil and gas offer economic prosperity and energy security.
Most crude output is currently from deepwater fields in the Campos and Santos basins, which will reach maturity over the next decade. Declining output means that, without new reserves, Brazil could lose its status as a net oil exporter and risk becoming an importer again, making the Equatorial Margin essential “to ensuring our energy self-sufficiency”, according to the Brazilian Government’s Ministry of Mines and Energy (MME).
Johnson explains: “The government basically says ‘we have one of the cleanest energy mixes out there, and if we don’t profit from this oil, then we are going to be importing hydrocarbons or refined products from other countries’. So, it is about national sovereignty, and it is also definitely about taking advantage of the export market.”
With new exploration comes new economic opportunities. This is especially attractive to the underdeveloped regions of Brazil, where Lula’s Workers’ Party has historically held appeal. For example, the Foz do Amazonas Basin is located offshore from Amapá and Pará – in May 2023, the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) rejected national oil company Petrobras’ request for drilling because of insufficient spillage plans. However, a shift in environmental licensing saw Petrobras buy ten blocks in June 2025.
Pre-auction, the MME estimated that the drilling of the FZA-M-59 well in the Foz do Amazonas Basin would create more than 300,000 jobs and generate in excess of $196.73bn (almost 1tn reais) in future state revenues. Drilling began in October 2025, but actual figures have not been publicly disclosed.
The licensing shift was characterised as a political concession, made under pressure to capitalise on the Foz do Amazonas’ 10bbbl of reserves. IBAMA was reluctant, and Johnson explains that “it was definitely Brazil against itself in that sense”.
However, she notes that environmental scrutiny remains tight, and “the government’s view is that it must be extremely careful as it doesn’t want to make any mistakes on the environmental front”.
“There was a lot of political pressure for these blocs to move forward, but there was a negotiation with Petrobras so that they would expand safeguards for these environmentally sensitive coastal regions off of northern Brazil,” she adds.
Which oil majors are interested and where?
The Brazilian Petroleum, Gas and Biofuels Institute (Instituto Brasileiro de Petróleo, Gás e Biocombustíveis) estimates that development of the Equatorial Margin could increase Brazil’s output by 1.1 million barrels per day (mbbl/d) by 2030. The frontier contains five basins – Foz do Amazonas, Pará-Maranhão, Barreirinhas, Ceará and Potiguar – currently comprising more than 650 delimited blocks; 501 of these were added earlier this month (October 2026).
Offshore acreage is mostly deepwater and ultra-deepwater – Brazil’s “new frontier”, as Petrobras calls it. In June, Brazil’s Government sold 34 blocks (33 deepwater, one onshore) to nine companies: Chevron, CNPC, Dillianz, ExxonMobil, Equinor, Karoon, Petrobras, Petrogal Brasil and Shell.
Petrobras is “extremely good at ultra-deepwater”, according to Johnson. “They use their own technology that they have developed over time.”
Deepwater and ultra-deepwater projects demand heavy upfront capital, long lead times and specialised rigs and floating production platforms. The Equatorial Margin is therefore attractive specifically to those with deepwater expertise, including international operators that have recently been active in Guyana’s offshore areas, such as Chevron and ExxonMobil.
The June 2025 auction signalled the return of both of these US oil companies to Brazil. Chevron partnered with CNPC to win nine blocks (all to be operated by Chevron), while ExxonMobil formed a consortia with Petrobras to win ten blocks (operating five each). “They believe [the Equatorial Margin] to be a similar geological environment [to Guyana], and that is definitely what attracted them to bid,” says Johnson.
Johnson also highlights Equinor’s interest in the Equatorial Margin, pointing to the transferrable expertise gained through its Raia project (operated in partnership with Repsol Sinopec and Petrobras) in the Santos Basin. Primarily a gas play, the project consists of three pre-salt discoveries and is due to start producing in 2028.
“Equinor is a very important player, both in partnership with Petrobras and in existing and producing pre-salt blocks offshore,” she says. Pre-salt offshore production has been increasingly consistently in Brazil as operators apply new expertise. In 2019, 2.18 billion barrels of oil equivalent per day (bboe/d) was produced, compared to 3.3bboe/d in 2023.
Lula, Bolsonaro and geopolitics: how will operations scale under the next leader?
Without new plays, Brazil’s crude production is expected to peak at 5.3mbbl/d in 2030, before declining to 4.4mbbl/d by 2034. The Equatorial Margin is therefore seen as key to maintaining and expanding Brazil’s importance in globally sensitive oil and gas supply chains.
With this year’s presidential election in progress, questions loom around how operations will scale under the next leader. Earlier this month, the first-round ended with neither Lula nor Bolsonaro securing an absolute majority; the final winner will be determined in a runoff election on 25 October 2026.
Lula sees the country’s hydrocarbon reserves as a means for growth and a lever in the party’s reindustrialisation plan. Bolsonaro also sees fossil expansion as an economic strategy and critical to energy security but emphasises using new E&P as a vehicle for global market integration and private capital attraction.
According to Johnson, voters too want E&P, regardless of the broader strategy. “The Equatorial Margin is all across the north-eastern coast of Brazil, and that is where some of the poorest states are located […] they see that having the offshore industry – potentially onshore industry as well – would be a huge benefit for them, even if it is just from a royalties perspective but also hopefully a jobs perspective.”
TS Lombard analysis suggests that Brazil is benefitting from the current geopolitical climate and, while it maintains its current ‘strategic non-alignment’ policy, will continue to do so: “Brazil’s oil industry has become more attractive, highlighting the potential for Latin America – and not least Brazil – to help its friends and allies develop resilient supply chains,” says TS Lombard’s Drill Brazil Drill report.
Brazil is particularly looking to solidify relationships with the Asia-Pacific region, which has been disproportionately hit by current constraints, triggered by the Iran War and the closure of the Strait of Hormuz. Pre-conflict, 80–85% of the oil that came from the Gulf through the Strait was bound for Asia.
“From a geopolitical perspective right now, there is a huge opportunity for South American oil and gas producers across the board,” says Johnson. “There is no Strait of Hormuz. There is no bottleneck.”
Brazil is investing big in expanding upstream production, which will benefit the transition by enabling more investment. Looking ahead, however, it is notable that neither Lula nor Bolsonaro has said that they would construct new oil and gas refineries. Brazil is clear that its long-term future is still clean, and hydrocarbon expansion is a short to medium-term financial move.
“Petrobras’ new downstream investments are all in sustainable aviation fuel and green diesel. They see future demand destruction, so they don’t feel that building new refineries makes sense,” Johnson explains.
Brazilian leadership maintains that clean and traditional energy don’t have to clash. Even within its fossil operations, the country tows a delicate line, balancing economic development with sustainability commitments. Petrobras claims that oil produced in Brazil has a carbon footprint roughly 40% lower than the global industry average, due to high-productivity ultra-deepwater wells and massive carbon capture and reinjection operations. Increasingly, new projects also use combined-cycle technology, which reduces emissions by capturing waste heat to generate extra power.
As Johnson summarises: “The government certainly does not see the transition as a contradiction in any way.”
