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Inside, confidential and off the record






Crude lesson

Pilar Olivares / Reuters

Visitors walk during a visit to Brazil's Petrobras P-66 oil rig in
the offshore Santos basin in Rio de Janeiro, Brazil September 5, 2018.

Dearth of oil bids is mostly about Brazil, not oil



International oil companies stood up Brazil this week. The government held what was supposed to be a record-breaking oil-deposit auction. But in the end almost all of the bids came from the majority-state-owned oil company Petrobras. If President Jair Bolsonaro wants to increase foreign investment, he needs to prove that the state's grip on the sector really is loosening.

The world's ninth-largest oil producer put up four deep-sea blocks on Wednesday, estimated to hold around 15 billion barrels of crude. It hoped to net over $25 billion in signing bonuses to help narrow its budget deficit. It didn't quite work out.

While over a dozen oil firms – including Exxon Mobil and Royal Dutch Shell – registered, only Petrobras and two Chinese state firms actually bid on any of the blocks. A separate auction on Thursday also flopped. Petrobras Chief Executive Roberto Castello Branco summed it up: “We thought there would be competition. There wasn't.”

Demand was stifled by high prices, complicated production-sharing deals and overall wariness of Brazil's energy story. The government wants to increase daily production from 3 million barrels a day to 7 million by the 2030s. While Petrobras has announced plans to divest over a hundred onshore and offshore projects, the cumbersome process has discouraged many investors.

Global energy companies also don't yet know if the controversial Bolsonaro will be able to push through more reforms to the country's state-heavy business sector. The leader's recent 20-minute video rant in which he called the media “scumbags” probably didn't help.

Energy companies are already hesitant about offshore projects. Around 3,000 such ventures approved between 2010 and 2014 are expected to generate little to no value, according to Rystad Energy. Competition from renewables, fears of climate-related regulation and uncertainty about the future of the Organization of the Petroleum Exporting Countries all add to the reluctance.

Still, Exxon is plowing billions into offshore projects in Guyana, and McKinsey recently forecast that a full 30% of the world's additional oil needs from new projects will come from offshore sources by 2035. And Brazil is considered one of the most promising long-term plays.

So this week's lack of enthusiasm is telling. The outlook for oil has something to do with it, but it's mostly about Brazil.




Anna Szymanski  / www.breakingviews.com / Nov. 07, 2019


Original article

ISSUES.... 11 / 08 / 2019 - Send Us Your Issues

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