Change in Brazil could benefit major players
Petroleo Brasileiro investors aren’t the only likely beneficiaries of a regime change in Brazil this month. Policies that saddled state-run Petrobras with $139 billion (R1.5bn) in debt and made offshore projects more expensive also stunted efforts by companies including Royal Dutch Shell and Halliburton to expand in the country.
Opposition candidate Aecio Neves’s pledges to auction exploration licences more frequently, raise fuel prices and ease made-in-Brazil requirements mirror recommendations from the industry.
Neves, whose Social Democracy Party opened oil to foreign producers in the late 1990s, surprised analysts to take second place in voting last weekend and force a run-off ballot.
Frustration among oil companies and their investors with his rival, President Dilma Rousseff, has grown since she took office in 2011.
Last month an oil lobbying group said the industry was in difficulties and some Petrobras suppliers might leave Brazil.
Neves has attacked Rousseff’s handling of Petrobras and hired an industry consultant and an official involved in 1990s privatisations to draft his energy programme.
“Opening the industry up to foreign investors, that’s what you’ll see in Brazil if Neves wins,” Robbert van Batenburg, director of market strategy at broker-dealer Newedge USA, said in a phone interview from New York.
“These restrictions on imports and trade barriers have been extremely unhelpful. If he wins, he will dial all that back.”
Neves, the former governor of Minas Gerais state, has pledged a programme of regular exploration auctions and is even considering changing legislation that requires Petrobras, the biggest producer in waters deeper than 1 000 feet (305 metres), to operate all projects in the so-called pre-salt region in deep waters with a minimum 30 percent stake.
Neves would get 46 percent of total votes in the October 26 vote, compared with 44 percent for Rousseff, according to a Datafolha poll released on Thursday.
Petrobras is Brazil’s second-best performing stock since he won a place in the run-off vote, surging 16 percent.
The stock has lost investors 34 percent in dollar terms in the past four years, the worst performance among major global producers.
Requirements for Petrobras to be the operator in every new oilfield discovered in the so-called pre-salt area should be reviewed to boost competition, Elena Landau, who advises Neves in energy matters, said in an interview in Rio de Janeiro on Thursday. Changes would need congressional approval, she said.
“When you have Petrobras as sole operator, you are limiting capacity,” said Landau, who was dubbed the “iron lady of privatisations” by the Brazilian press after her involvement in the divestment of public enterprises during the 1990s under former president Fernando Henrique Cardoso.
“It constrains competition.”
Petrobras declined to comment on the impact a Neves win would have on the company and the industry in an e-mailed response. Existing rules maximised the country’s participation in the industry while also luring foreign companies, Aloizio Mercadante, Rousseff’s campaign co-ordinator, said by e-mail.
“We want Petrobras to be the only operator company, and it will be able to develop highly scientific research and innovation, and use the whole industrial chain of gas and oil,” Mercadante responded to questions about the pre-salt area.
The requirement to have Petrobras operate all pre-salt projects “strangles” the company and limited opportunity for other companies to expand, said Landau, a co-ordinator for Neves’s energy programme.
“Foreign companies aren’t valued by this government,” she said.
Rousseff has pointed to more than 500 000 barrels a day of new production from the pre-salt during her administration and said fuel price caps had shielded consumers from volatility.
She predicts rapid output gains that will help finance social programmes and reduce poverty.
The elimination of fuel subsidies that have cost Petrobras at least 60 billion reais (R278bn) during Rousseff’s first term would boost the company’s profit and its ability to buy goods and services from suppliers such as Halliburton, according to industry lobby group Instituto Brasileiro de Petroleo, or IBP. – Bloomberg, Page 4