Bolsonaro Seeks US$30 billion Brazil Oil Boon

President-elect Jair Bolsonaro is pursuing the sale of Brazil’s deep-sea treasure-trove of oil, but just weeks after his election he is facing the same political obstacles as his two predecessors.

While Mr Bolsonaro’s transition team argues the sale could net some US$30 billion to help plug fiscal deficits, a squabble over how to divvy up the spoils between various states and municipalities is threatening to thwart the plan even before he takes office.

Last week, Senate chief Eunicio Oliveira put on hold a key bill authorising the tender, dealing a blow to Mr Bolsonaro’s hopes that a path would soon be clear for oil majors to bid for the fields.

At stake is a portion of the country’s so-called pre-salt crude reserves buried deep beneath the Atlantic Ocean’s seabed, which state-controlled Petroleo Brasileiro SA has shown are commercially viable.

Exxon Mobil and Royal Dutch Shell have expressed interest in the deposits, which are estimated to hold more crude than Norway’s proven reserves.

Mr Bolsonaro, a former army captain, won a highly polarized election contest in October on pledges to unwind big-government policies from years of leftist rule and to sell energy assets to shore up public finances.

“The auction would bring valuable resources to Brazil and to the government, and help on the fiscal deficit,” Mr Bolsonaro’s adviser Luciano de Castro said  earlier this month.

But pushing ahead with the sale is proving to be a daunting task, as the president-elect’s team needs to negotiate with dozens of political parties and states with different agendas.

‘Transfer of Rights’

The legislation that stalled in the Senate this week would remove from Petrobras the exclusive rights to operate in the so-called “transfer of rights” area.

That is a controversial proposition in a country where nationalism and oil tend to go hand in hand. Mr Bolsonaro himself has defended the state’s control of the country’s resources in the past.

The rights to five billion barrels of government oil were transferred to Petrobras in 2010 as payment for shares the state bought in the company as part of a US$70 billion sale of new stock.

But as the producer drilled the area, it found much more crude than it was entitled to in the deal, leaving the government with a surplus while Petrobras remained the sole company allowed to operate those fields.

Low Risk

The area is attractive and low-risk because Petrobras has already made major discoveries there, equipment is on site and taxes have been paid, UBS analyst Luiz Carvalho said.

“These are projects that survive even if oil prices fall to $20 per barrel,” Mr Carvalho said on the 22^nd November at an event in Rio.

But producers might like to have some regulatory and political assurance before spending billions of dollars to tap reserves more than 100 miles from the coast.

And both the current government of President Michel Temer and Mr Bolsonaro’s team fear the opportunity to capitalise fully on the country’s energy assets may be lost if the planned auction keeps getting stalled in Congress.

“We’ve been discussing this for five years,” the Energy Ministry’s executive secretary, Marcio Felix said on the 22^nd November.

“If we don’t advance now and start all over again, the opportunity may be left behind.”

Source: Rigzone