BRASÍLIA: Brazil is weighing changes to lure foreign companies into its high-cost deepwater region after a corruption scandal and fiscal mismanagement left its national oil company unable to fund projects.
“The reality today is to attract investment,” Energy Minister Eduardo Braga said in an interview in Houston. Braga said. “There’s no way Petrobras can put down all the investments needed for the Brazilian economy.”
Currently, companies bidding to gain access to Brazil’s rich pre-salt oil reserves need to hand control of day-to-day operations in the region to Petroleo Brasileiro SA, along with a 30 percent stake. Those rules resulted in no companies competing against a Petrobras-led consortium at the first and only auction of the deep-water blocks, where exploration costs are among the highest in the industry.
The idea of giving outside companies a bigger role is part of Brazil’s broader effort to encourage investment in its oil sector, after Petrobras was hit by a corruption scandal as prices sank. Efforts to develop past discoveries have helped Petrobras become the world’s most indebted oil producer. Chief Executive Officer Aldemir Bendine said last week that under current rules, any new pre-salt ventures would increase its debt.
Petrobras rose 3.8 percent to 13.54 reais at 11:46 a.m. in Sao Paulo. The stock is down 23 percent in the past year.
Changes to regulations for the pre-salt area, which is about the size of Florida, will have to go through Congress, Braga said. He supports a plan that would keep existing profit-sharing and ensure Petrobras still has at least a 30 percent stake in fields it chooses to bid on. Braga said one proposal envisions Petrobras or Brazil’s National Energy Policy Council getting the final word on bidding participation.
Opt Out
“It’s the obligation of the operation that is being discussed,” Braga said. “I defend Petrobras’s right to opt not to participate.”
Brazil President Dilma Rousseff agreed in a March 31 interview that “drastic measures” are needed to turn Petrobras around, but said there was no need to change local-content rules or pre-salt ownership requirements at the core of the oil strategy.
The pre-salt region gets its name from the layer of salt formed at the end of the Mesozoic Era when dinosaurs lived. The salt layer traps crude beneath the Atlantic seabed. Tapping the deposits requires giant floating platforms that cost as much as $700,000 a day to lease.
Brazil’s goal is to auction some oil fields at least every two years, Braga said. Auctions next year may include some pre-salt areas. The government is assuming oil prices of $60 a barrel to set auction terms for the next round, scheduled for October, he said. Brazil plans to sell 269 blocks in this year’s auction, with the prized areas being Sergipe-Alagoas.
Bidding Rounds
Braga said international firms including Royal Dutch Shell Plc have expressed interest in both the coming round and future pre-salt auctions. Braga plans to meet with executives from BP Plc, Chevron Corp., Total SA and Shell this week at the Offshore Technology Conference in Houston.
A shortage of suppliers could force Petrobras to postpone production growth, Braga said. Suppliers are being investigated in connection with a kickback scheme that for almost a decade funneled money from inflated Petrobras contracts to executives and political parties.
“The size of the potential for Brazil’s oil industry is much bigger than the corruption investigation,” Braga said.
He also said that local-content requirements need to be adjusted. The ministry and regulator will present proposals in 30 to 60 days to change future contracts that force companies to buy equipment made in Brazil.
The reality for the global oil industry and for Brazil has changed, Braga said. The government’s position in Petrobras is “that of a shareholder.”
