Political Risk Latin America Blog @PolRiskLatam

Brazil industry: Petrobras under pressure

Posted in News and Articles by politicalrisklatam on August 26, 2010

by The Economist Intelligence Unit, August 26th, 2010.

Petróleo Brasileiro (Petrobras), Brazil’s state-controlled energy giant, has become one of the fastest-growing oil and gas companies in recent years, mainly thanks to huge discoveries in ultra-deep waters. It has unveiled ambitious investment plans, and the government is seeking to alter the regulatory framework to ensure that Petrobras plays a commanding role in the development of such key resources. Nevertheless, the company’s market capitalisation took a battering on financial markets lately as it is facing a higher level of debt. The timing of a planned rights issue is also in doubt. And Petrobras’s safety record has come under increased scrutiny as it prepares to break a new frontier in oil exploration.

Production tests are currently under way at Tupi and at least two other ultra-deep oil fields off the Brazilian coast. Drilling has to reach an unprecedented depth of more than 6,000 metres under the seabed, through a thick layer of sand, rock and salt (hence the expression “pre-salt” oil reserves). Brazil’s current proven reserves of 14bn barrels are set to triple, according to official estimates. Petrobras also plans to extract the equivalent of 1.2m barrels per day from pre-salt reserves by 2020 (out of a total of 5.4m barrels of oil equivalent).

In order to achieve this, the Brazilian oil giant has boosted its already ambitious medium-term investment plans to US$224bn through 2014 (up from US$173bn under the previous five-year investment plan). Pre-salt-related investments are slated to total US$30.9bn. This will require extra funding, on top of the record US$41.5bn Petrobras secured from financial markets last year. (continue reading… )

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