Brazil Oil Industry Sees Reforms Advancing If Government Changes

(Bloomberg) - Brazil is more likely to reform its struggling oil industry to attract investments if there is a change in government, some of the country’s top oil executives said at an industry gathering in Houston.

Brazil is expected to ease Buy in Brazil restrictions and auction exploration acreage more regularly if a new government takes over, Jorge Camargo, the head of a lobby group known as the Brazilian Petroleum Institute, said Monday at the Offshore Technology Conference in Houston. Such a move would increase competition in an industry dominated by state-controlled Petroleo Brasileiro SA. Royal Dutch Shell Plc, Total SA, and Barra Energia Petroleo e Gas hope to see reforms accelerate under new leadership, senior executives said at the event.

"We don’t know who will be the next energy minister; there is a lot of uncertainty, but there is a positive expectation that the country has a chance to have a new start," Camargo told a panel on Monday. “Brazil will soon overcome this crisis.”

Brazilian stocks and bonds have rallied this year on expectations that President Dilma Rousseff will be replaced by her more market-friendly vice president, Michel Temer, who is expected to take steps to stimulate an economy that is in its worst two-year recession on record. Rousseff may have to step down temporarily as early as next week if the Senate votes to begin impeachment proceedings.

Temer’s office didn’t respond to an e-mail requesting comment on his plans for the oil industry. Producers may enjoy a more investor-friendly environment under Temer, said Joao Carlos de Luca, Barra Energia’s chairman who expects the impeachment to go forward.

Brazil needs to set rules for how to develop oil fields that span more than one single operating concession to accelerate investments, said Andre Araujo, the head of Royal Dutch Plc’s Brazil unit. Oil companies often discover deposits that extend beyond their licensed areas, and need to negotiate with neighboring operators to set a development plan. Brazil has 8 billion to 10 billion barrels of oil that companies are are unable to develop because there are no regulations on how to share the output from such fields, Camargo said.

"We expect in the short term these topics will be addressed if Brazil wants to keep competitive," Araujo told a panel at the conference Monday. It’s “in the hands of the government."

Total’s exploration and production general manager for in Brazil, Maxime Rabilloud, said Brazil needs to make local content rules more flexible. Brazil’s so-called pre-salt region has very high productivity and the company expects to continue expanding in the country, he said.

Brazil’s Congress also needs to take steps to attract oil investments and help Brazil pull out of recession, Camargo said.

In February, Senators approved legislation eliminating the requirement that Petrobras operates all pre-salt fields with a minimum 30 percent stake, and the bill is now in the lower house. There will be a surge in demand for pre-salt acreage if the bill is passed, helping to revive the industry, Camargo said.

Brazil put Petrobras in charge of developing the pre-salt, which holds the biggest group of offshore discoveries this century, as part of a package of nationalistic oil policies Rousseff implemented during the commodities boom in an effort to double Petrobras’s output and expand the domestic supply chain.

Fuel subsidies, unprofitable investments in refining and the oil price crash have prevented Petrobras from meeting growth targets in recent years. Foreign oil companies would be more eager to join projects where they could manage day to day operations, Camargo said.

“Only this change would already help Brazil get out of recession,” Camargo said.


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Copyright 2016 Bloomberg News.

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