By Doug Gray, Senior Contributing Reporter

RIO DE JANEIRO – As Petrobras faces something of a funding crisis having already blown the vast majority of its US$174 billion budget forecast up to 2013, the control of Brazil’s ‘goldmine’ of pre-salt oil is beginning to show signs of cracking.

IBP, the Instituto Brasileiro de Petróleo, Gás e Biocombustíve (Institute of Brazilian Petroleum and Gas).

With four crucial pieces of legislation regarding ‘ownership’ of the oil, Petrobras’ independence, profit sharing and the distribution of the money via the creation of a fund for the Brazilian people still to be passed through Congress, there has been little progress over the last six months. The announcement that funds have also dwindled with backs turned to international oil company investments could raise eyebrows further as to the government’s plans.

As a result the IBP, the Instituto Brasileiro de Petróleo, Gás e Biocombustíve (Institute of Brazilian Petroleum and Gas), to which the international companies who rely on their lobbying power and voice to the government, have been forced into a waiting game that could dangerously stall the country’s oil production plans. With Petrobras ‘inside’ the IBP but also alongside the Brazilian government, any real progress the Institute can make to assist their members has been minimal.

Brazil’s ANP, the National Petroleum Agency, has begun drilling ‘independently’ of Petrobras in order to raise some financial leverage. The plan is to bankroll Petrobras to the tune of five billion barrels of oil, with the money being raised via the issue of new shares onto the stock market. The rigs hired by the ANP are, of course, also owned by the country’s biggest petroleum company.

Guilherme de Oliveira Estrella, CEO of IBP, photo courtesy of Otcnet.

The pre-salt oil continues to be a matter of much debate as Brazil seeks to follow the Norwegian model of creating a second organ, in this case Petro-Sal, to administrate the drilling rights on behalf of Petrobras and by extension the Brazilian government.

The added complexities of the legislative changes, giving Petrobras the sole rights to all exploration and drilling and then selling off ‘shares’ of those blocks (whilst retaining a large percentage on all of them) have helped create the current stall. For each year of reduced activity costs will multiply dramatically, and experts predict that full-capacity production of the currently drilled wells could take fifteen years, and those still to be administrated another ten beyond that.

The Norwegian model worked largely because of the efficiency of Norwegian government and the even-handedness of the allocations and bidding process. Whilst companies like BG and Shell certainly expect similar treatment by Petro-Sal and the Brazilian Government, the added wariness of self-interest and the longer the delays go on could jeopardize their involvement. Further complicating matters, a company by the name of Petro-Sal already exists in Rio Grande do Norte and looks likely to force a name change and another round of bureaucratic hold-ups.

If the major international oil companies were to decide to pull out and concentrate on oil elsewhere in the world it would have a disastrous effect on the timeline of extraction and production for the entire pre-salt layer, and the vast profits that are seen as Brazil’s lifeline to becoming a top-five world economic power over the next decade would be severely dented. The IBP will do everything it can to prevent that happening, and that the alternative is the already troublesome African reserves is the one factor playing in to Brazilian hands.

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