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 counter-productive.
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 year.
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 delays.
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 losses.
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.