Petrobras' Indian Partners Fight Delay In Troubled Brazil Oil Project

Shared Blame for Delays

In nine years, ONGC has invested $500 million exploring with Petrobras off the coast of Sergipe. It has spent another $2 billion elsewhere in Brazil and produces about 12,000 barrels a day in the country, a small amount considering the outlay so far.

The expected prize, though, is Sergipe. The BM-SEAL-11 block, 40 percent controlled by IBV, holds more than 3 billion barrels of oil and equivalent natural gas, enough to supply all the world's petroleum needs for more than a month. There are no public estimates for the two adjacent blocks, one fully owned by Petrobras and the other owned 25 percent by ONGC, but people involved with them say the volumes of oil and gas are very large.

The Sergipe project's problems have also been compounded by IBV and ONGC's own failures. Two sources involved with the Indians in Sergipe exploration said IBV and ONGC often missed deadlines to pay their share of costs, only paying after Petrobras threatened legal action.

The Indians confirmed the delays, which they blamed on partner Videocon, which has cash flow problems and may sell its IBV stake. Videocon executives were not available for comment.

Venugopal Dhoot, chairman of Videocon told the Business Standard Newspaper in June that his company was considering the sale of its oil and gas assets to pay debt.

Both IBV and ONGC also declined to invoke clauses in the blocks' contracts allowing them to move ahead with development on their own if Petrobras demurred.

"Unfortunately, everybody in Brazil is afraid to challenge Petrobras, even if they have a case. They know Petrobras, and perhaps the government, will retaliate," said John Forman, a geologist and former director of Brazil oil regulator ANP. "Court fights can drag on for years, so you lose even if you win."

Whatever the reason for delay, Brazil may be the biggest loser. While ONGC and IBV bought their Sergipe stakes in 2007 from existing leaseholders Petrobras and Encana, Brazil's oil regulator ANP has allowed partner Petrobras to delay a start to production by extending exploration rights in the areas repeatedly.

Had the ANP enforced tighter deadlines, designed to prevent companies from hoarding assets without developing them, Sergipe might be producing, or near first production, today and providing revenue for Brazil's cash-strapped Treasury, Forman said.

The tendency to give Petrobras such wide latitude underlines Brazil's conflicted priorities as it tries to revive both its economy and largest company, he noted.

"In Brazil we say 'the oil is ours', that it belongs to the people. In reality we act like it belongs to Petrobras," he said.

(Writing by Jeb Blount; Editing by Christian Plumb and Edward Tobin)


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