Brazil’s Supreme Court suspends new oil-royalties regime

Jeff Fick – Fox Business/Dow Jones Newswires, 03/19/2013

Supreme Court Justice Carmen Lucia granted the injunction after Rio de Janeiro, Espirito Santo and Sao Paulo states filed lawsuits last week to block implementation of the new royalties regime. The states claim the new scheme is unconstitutional because it would break existing contracts, while also causing budget shortfalls that would severely crimp public services.

The ruling on the injunction will be reviewed by the full court at a later date, according to a court official.

In her decision, Ms. Lucia said that the case required urgent judicial attention from the court because royalties are paid on a monthly basis. The changes represented “unequaled risks” to the financial health of the states and cities involved, “impelling me to immediately grant the requested injunction,” Ms. Lucia said.

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Brazil’s new oil revenue law goes into effect

The Miami Herald/AP, 03/15/2013

A new oil law that gives a greater share of royalty revenues from Brazil’s vast oil fields to non-producing states went into effect on Friday and producing states say they will file appeals with the Supreme Court.

The law was published in the official gazette after President Dilma Rousseff signed it on Thursday.

The new law shares oil royalties, from existing and future drilling and production concessions, more evenly among all of Brazil’s 27 states instead of favoring top oil producers such as Rio de Janeiro, Espirito Santo and Sao Paulo states.

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Brazil’s QGEP: oil royalties dispute unlikely to delay concession auctions

Jeff Fick – Fox Business/Dow Jones Newswires, 03/14/2013

The threat of lawsuits by major oil-producing states Rio de Janeiro, Espirito Santo and Sao Paulo to fight the equal distribution of royalties from existing and future oil production between Brazil’s 27 states does “raise the risk” of a delay, QGEP Chief Executive Lincoln Guardado said Thursday during a conference call with analysts. The risk, however, has been diminished by recent signs that nonproducing states are willing to negotiate a deal to avoid a protracted fight in the courts.

The deal would reverse changes implemented last week when Brazil’s Congress voted to overturn a presidential veto of key portions of new oil-royalties legislation, equally distributing royalties from existing and future oil production between the country’s 27 states. Rio, Espirito Santo and Sao Paulo, however, plan to fight the changes by filing lawsuits with Brazil’s Supreme Court.

Oil companies are eagerly awaiting Brazil’s 11th-round auction of oil and natural-gas-exploration concessions, which is set for May 14-15. The last auction in Brazil was held in December 2008, and oil companies have said they are running out of areas to explore. Given the government’s desire to promote the bidding round, even if there is a delay because of a legal tussle the auction, “should still be held in the first half of 2013,” Mr. Guardado said.

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Brazil’s Petrobras: latest subsalt oil find opens new frontier

Jeff Fick – Dow Jones Newswires, 02/26/2013

Brazilian state-run energy giant Petroleo Brasileiro (PBR, PETR4.BR), or  Petrobras, said late Monday that a new subsalt oil discovery opens a new  exploration frontier in the Santos Basin, where billions of barrels of crude  have already been discovered.

The first well drilled in the offshore BM-S050 block, dubbed Sagitario, was  found to contain high-quality oil, Petrobras said. Petrobras operates the block  with a 60% stake. The local unit of BG Group PLC (BG.LN) holds 20%, while Repsol  Sinopec Brasil retains the remaining 20%.

The discovery is significant because it was made to the west of the cluster  of oil discoveries made deep under a thick layer of salt off Brazil’s Atlantic  Ocean coast in the mid-2000s. The Lula field, which holds estimated recoverable  reserves of between 5 billion and 8 billion barrels of oil equivalent, or BOE,  and is currently producing about 100,000 barrels a day, and the Sapinhoa field  that started pilot production earlier this month both sit due east of the  Sagitario discovery. Sapinhoa is estimated to hold recoverable reserves of 2.1  billion BOE.

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The perils of Petrobras

The Economist, 11/17/2012

BRAZIL’S discovery of oodles of offshore oil in 2007 felt like a transformative moment. For Petrobras, the state-controlled oil company, it raised the prospect of pumping 5m barrels a day by 2020, up from around 2m—meaning a windfall for the government and juicy returns for minority investors. Under Graça Foster (pictured), Petrobras’s boss since February, the find may yet prove a boon to both. But they and she face a white-knuckle ride first.

Recent history is less than encouraging. Investors who bought in during Petrobras’s share issue in 2010 have lost more than a quarter of their money at current prices. In August the firm posted its first quarterly loss in 13 years; the most recent quarterly results were limp. Meanwhile Colombia’s Ecopetrol has knocked the company into second place in South America by market capitalisation.

What went wrong? Back in 2007 Petrobras’s main worry seemed to be finding a way to pump the new oil, known as pré-sal (“beneath the salt”), which is buried under rock and salt in ultra-deep waters. But its engineers quickly cracked that problem: Petrobras produced 71,000 barrels a day of pré-sal last year. The world’s biggest corporate-investment programme is taking the oil from the sea bed to market. Instead of know-how, the glitches have included poor management and ballooning costs.

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Brazil debates how to divvy up oil wealth, pitting haves against have-nots

Associated Press/The Washington Post, 10/30/2012

Brazilian lawmakers are struggling over how to spread any wealth from the country’s vast and recently discovered offshore oil reserves. The battle pits states close to the oil deposits against those further away.

The lower house of Brazil’s congress plans to vote this week on a measure that would give the federal government 40 percent of the royalties. The rest would be split among states and cities, favoring those closest to the oil. A version passed earlier by the Senate would split the take equally across the country.

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In the Spotlight: Brazilian oil, Treasure or Trap?

Compiled by Elizabeth Sweitzer – Brazil Institute, 7/23/2012

Photo credit: Petrobas; BP

In the past decade, Brazil has been making tremendous strides in oil production, leading Latin American figures for total output and drawing the attention of international oil investors.  In the past 15 years alone, Brazil has tripled its production and is likely to double its production from its current 2.7 million barrels a day but the year 2020. According to a study by Harvard’s Kennedy School concerning global oil potential, Brazil ranks 4^th in the world.

Recently however, Brazil has entered into a phase of economic inefficiency in their oil industry. Brazil’s state-owned Petrobras has suffered very low net revenue in the past 12 months, consequently raising the price of oil to Petrobas’s disadvantage. Meanwhile, other nations are forging ahead on oil production; Brazil’s negative figures have been met with new projections of oil abundance in the US, Canada, parts of Latin America and Africa. While horizontal drilling and hydraulic fracturing techniques have revolutionized natural gas and oil extraction in the U.S., Brazil on the other hand has to adapt to ultra-deep, fiscally draining, and environmentally hazardous pre-salt oil extractions. Just last year Petrobras expressed concerned that fixation on their resource sector in areas like oil and natural gas would make Brazil vulnerable to Dutch disease.

Brazil’s oil industry faces serious challenges maintaining positive production patterns. For instance, Jose Pinto believes that public-private sector coordination will be necessary in order to make the country attractive to foreign investors and to protect local industries. Through investing in chemical industry and broadening its manufacturing base, Pinto believes Brazil will be able to significantly curb its trade deficit. Others propose that Brazil’s protectionist scheme is precisely what slows foreign investment, development and innovation. Peter Millard and Rodrigo Orihuela suggest that Brazil should learn lessons from Mexico’s negative experience, where oil production fell to its lowest in 22 years this April, arguably as a result of Mexico’s failure to invest in exploration back in 2004. Finally, Brazil desperately needs to invest in infrastructure; for example, when Brazilian billionaire Eike Batista promised the moon in terms of oil production, he did not compensate for the infrastructural needs that would follow.

Instances like this remind us of the volatility of the oil industry, the extent of its tremendous costs, and the environmental consequences if there are mistakes.  Brazil’s prospects for deep-sea drilling 7,000 m below the ocean floor are juxtaposed against a stark reality of spills and leaks that have incredible repercussions. On July 17, reports stated that Chevron could receive as much as a US$25 million dollar fine for oil spills off the coast of Brazil after a leak from one of their deep-sea drilling sites.

Brazil is now actively considering expanding its renewable resource sector, investing in projects such as wind-power farms.  Nevertheless, Brazil depends on their oil manufacturing industry to provide some 390,000 jobs and billions of dollars in sales each year. Ensuring efficiency for their oil industry will be an asset for Brazil in the next few years in order to remain competitive in the global market and lead in global innovation.

Week in Review 07/20/2012

Each Friday, through the Brazil Portal feature “The Week in Review”, the Brazil Institute will highlight Brazil’s news topics in one concise summary.

The economic and investment climate in Brazil continued to feature prominently in this week’s headlines. One of the most puzzling facts for Brazilian economic analysts is that the nation’s consumer confidence remains high, despite the multitude of downward revisions for projected annual growth. Notwithstanding the flagging currency, nose-diving stock market and the decline of the nation’s ETF (exchange-traded fund), Brazil’s population still seems happy to spend. However, not all the news is so grim: successful projections for Brazil’s commodities such as coffee and sugar, which have seen a recent upswing, are tempering the pessimism.  Additionally, many international investors hope to capitalize on consumer spending; companies like Land Rover are expanding operations in Brazil. However, even this consumer spending is no golden ticket; the economic slowdown has some foreign investors rolling back production and threatening layoffs, often inciting anger or even massive strikes like the one seen at the GM Factory last Monday.

Oil was another major topic dominating Brazilian headlines, both from economic and environmental perspectives. On the environmental side are recent developments in the Chevron oil spill case: the ANP, Brazil’s petroleum regulation agency, reported that the fine against Chevron will not likely exceed 25 million. Chevron claims that they are not at fault, however, the ANP claims that the leak could have been prevented. Preemptive ties were drawn between the spill and the mysterious case of dead penguins washing up on the shores of Rio Grande do Sul, however it has recently been discovered that the penguins died of natural causes. On the economic side, Brazil’s Petrobras is hoping that raising oil prices will help their recent sales slump; the majority-state-owned company was proclaimed the worst performing major oil stock this year. Other oil companies, such as Norwegian owned Statoil, have seen more success in tapping Brazil’s sizable offshore resources.

In other news, rising rates of violence in the country have drawn the attention of the press. Geraldo Alckmin, governor of São Paulo state, attributes rising violence in his region to drug trafficking. Whatever the cause, studies have shown that violence is on the rise and is especially affecting youth; a recent study shows that Brazil has one of the highest youth homicide rates in the world.

Chevron could have prevented Brazil offshore spill: regulator

Reuters, 07/18/2012

(Reuters) – Brazil’s national oil regulator will report on Thursday that Chevron could have avoided an offshore spill last November by following its own procedures manuals, the agency said in a statement.

The report, which follows months of investigation by the agency after a spill in the Frade field off Rio de Janeiro, will also say that the amount of oil that leaked into the ocean by the spill totaled 3,700 barrels.

Previously, Chevron and the regulator, known as the ANP, had estimated the spill between 2,400 and 3,000 barrels. Chevron, in a statement, said it believes that 2,400 barrels remains more accurate and that it would “analyze the ANP’s estimate.”

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Brazil’s Petrobras raising prices as rivals’ sales drop

Peter Millard – Bloomberg, 06/17/2012

Petroleo Brasileiro SA, the worst- performing major oil stock this year, is raising fuel prices even as a recession in Europe and slowdown in China reduces revenue at global energy providers.

Petrobras (PETR4) said July 12 it would boost diesel prices by 6 percent, three weeks after it increased gasoline and diesel prices for the first time in seven months. The government, which controls Petrobras with a majority of voting shares, had resisted higher prices to avoid fanning inflation in the world’s second-largest emerging market. Petrobras has sold fuel below international prices since the start of 2011.

The price increases may help Petrobras improve its earnings outlook compared with global peers, whose margins are being pared by a 10 percent drop in oil prices this year, according to Oliver Leyland at Mirae Asset Global Investments. Petrobras’s net income fell 16 percent in the first quarter of this year, more than all other major oil companies except for BP Plc, according to Bloomberg Industries data.

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