Petrobras, Brazils state-controlled oil company, is
pressing ahead with its expanded investment programme
despite fresh delays in Congress approving a new regulatory
framework for exploring new reserves.
But oil industry sources warn that the limits on private
capital implied by the proposed legislation could be
The strategic debate on developing Brazils oil
potential is getting increasingly contaminated by the murky
electoral climate ahead of the October polls.
Petrobras envisages $47.3 billion of capital expenditure
this year, as part of an ambitious five-year investment plan of
up to $220 billion, compared to $175 billion earmarked in the
previous 2009-2013 plan.
Almir Barbassa, Petrobras chief financial officer, said on
Friday, presenting 2009 results, that the basis for expanding
investment is rising Brent [crude prices], and also
assuming the capitalization gets underway, which we expect will
happen by the end of July.
The company is seeking increased capitalization, the amount
of which has yet to be set, to help fund exploration in ultra
deep waters below the salt layer. It is part of package of four
bills that the Brazilian government sent to Congress last
The new investment plan, which sets a minimum of $200
billion until 2014, was unveiled as the company reported a 12%
drop in net income in 2009 compared to 2008, at 29 billion
reais. Its prospects have been boosted by discoveries of huge
quantities of oil in ultra deep waters off the Brazilian coast
that may triple reserves.
The laws proposed by the government would give Petrobras the
lions share of the recently found oil wealth. It would in
effect be the sole operator in the new oil fields with a
minimum share of 30% in all of them.
Putting Petrobras in the driving seat as the single operator
has worried private foreign investors. Enrique Cira, director
for Latin America at IHS Cambridge Energy Research Associates,
said: This might be a turn off and a no-go for these very
large integrated companies. The whole industry will suffer
The lower house has approved the package after much
controversy on the role of Petrobras and changes in the
distribution of royalties among Brazilian states and other
local authorities. But the row is set to intensify as the
senate comes to grasp with the issues, and disgruntled producer
states threaten to go to the Supreme court due to revenue
The governor of Rio de Janeiro, Sergio Cabral, went as far
as saying the proposed changes would prevent his state to
prepare to host the 2016 Olympics.
Adriano Pires, director of the Brazilian centre for
infrastructure, commented: This is a more interventionist
policy with a greater presence of the state.
The stakes have been raised very high ahead of the October
general elections. Introducing this in an election year
also creates some sort of insecurity among investors and all of
this is really bad, Pires said.
If [the legislation] is voted the way it is, it is not
going to attract large private foreign companies in Brazil.
Traditional companies such as Exxon Mobil and Shell will show
less interest than they have until today.