Trade knowledge / Brazil Opens Offshore Oil Market to Foreign Investors
Date: 2016-10-15
Brazil Opens Offshore Oil Market to Foreign Investors
Earlier this month on October 5th, Brazil’s congress approved the key points of a polarizing bill, which would allow foreign investment in the nation's offshore oil fields. The bill overturns parts of a 2010 bill which was aimed at increasing government control over the lucrative oil fields. This law mandated that the state-run oil company, Petrobras, be the lead operator and hold a minimum of a 30% stake in any offshore drilling operations in so-called “pre-salt” fields.
The current outlook for offshore oil and the Brazilian economy as a whole, is in stark contrast to its prospects in 2010, when the original legislation was approved. Six years ago, the newly discovered pre-salt oil fields were viewed as extremely lucrative due to soaring oil prices and a booming economy. The government passed the initial legislation in hopes of capitalizing on the market with the plan to funnel their oil profits into government social projects.
The reality of situation was much different. Petrobras has missed every five year production target since 2006, all while racking the largest debt in the global oil industry, exceeding $26 billion, and losing billions more to corruption. The debt ridden state oil company no longer has sufficient cash to maintain its 30% minimum stake in all offshore drilling projects and invest in capital intensive new projects. The legislature is hoping that new foreign investors will be able to provide the resources and cash necessary to accelerate development on offshore oil projects, which could play a key part in turning around the national economy.
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