Brazil & Southern Cone - July 2011 (ISSN 1741-4431)

The Brazilian government has denied reports in the daily O Globo, which  hinted on 14 July that President Dilma Rousseff was about to appoint a woman, Maria das Graças Foster, to the top position in the state oil giant and national champion, Petrobras.

O Globo reported that Maria das Graças Foster, 57, who currently heads up the gas and energy unit at Petrobras, would replace José Sérgio Gabrielli, appointed in 2005 by Rousseff’s predecessor and mentor, Lula da Silva (2003-2010). A chemical and nuclear engineer with an MBA in economics, she is very well known within the industry. She previously worked alongside Rousseff in the mining and energy ministry and was previously rumoured for the post. 

Upon taking office in January last, Rousseff kept Gabrielli on, against expectations, citing his long experience. However, the board of Petrobras has always been staffed with political appointees and the latest shake up, if it materializes, would correspond to the need to maintain the delicate balance between the ruling Partido dos Trabalhadores (PT) and its main coalition partner, the Partido do Movimento Democrático Brasileiro (PMDB), which since 2007 has controlled the mining and energy ministry through Edison Lobão.

Any leadership changes at Petrobras and its latest investment plan for 2011-2015 will be approved at a scheduled administrative council meeting on 22 July.  O Globo also suggested that the current director of exploration and production, Guilherme Estrella, is poised to become head of the new state company Petrosal, which will administer the development of the new offshore deepwater Atlantic oil fields that promise to pole vault Brazil into the league of top global oil (and gas) producers. Almir Barbossa is expected to remain on as the firm’s financial director. 

The so-called pre-salt oilfields, which may hold up between 50bn and 80bn barrels of oil on the most optimistic estimates, are the equivalent of the UK’s North Sea oil, according to Petrobras officials.  However, the oil will be very difficult and expensive to extract and there are concerns about Petrobras’s financial capacity, despite its massive US$70bn share offering in September 2010. The break-even price for the pre-salt fields is now estimated at about US$35/b-US$40/b, down from US$40/b-US$45/b previously, Gabrielli said at a conference in Houston, Texas, in early May. He explained that as Petrobras improves its knowledge of the pre-salt area, it has also managed to improve production in the first batch of pre-salt wells and thus the company has been able to reduce its forecast production investment costs by some 45%. The firm has already pulled back from some operations abroad to concentrate on its Brazilian fields. Petrobras’s US$224bn investment plan for 2010-2014 was the largest ever for an oil company

The Brazilian government last year secured congressional approval for a new regulatory framework for the offshore fields, assigning the state more control over the sector and giving it more of the earnings.  The final element of the new framework – the distribution of oil royalties between the main producer states (Rio de Janeiro, Espírito Santo and São Paulo) and the rest of the states in the country – has yet to be decided. On 14 July, the governor of Matto Grosso do Sul, André Puccinelli, of the PMDB, said after a meeting with President Dilma Rousseff that the president had defended the notion that the royalties should be shared by all states. Puccinelli hinted that she was favourable to a proposal whereby the producer states would take 25% of the pre-salt royalties, with 22% for non-producer states, 6% for municipalities, 19% for the Union and 28% for Petrobras.

Rio de Janeiro, the main producer state, is also governed by the PMDB under Sérgio Cabral, who has been instrumental in keeping the PMDB in line with the government coalition but has been very vocal in his demands to retain a larger share of royalties. Rousseff needs the PMDB’s political support to govern, and also potentially with a view to a re-election bid in 2014. São Paulo and Rio are then most important electoral colleges.

• Infrastructure
  Petrobras has issued two rig tenders, one for the construction of rigs in Brazil and another for the leasing for rigs constructed in Brazil. The government is keen to develop value added manufacturing and engineering (and scientific proficiency) on the back of the nascent oil industry. Construction tenders for seven rigs have been awarded to Estaleiro Atlantico Sul, in North-East Brazil. The company needs another 21 rigs. Petrobras is also planning to build offshore logistical “hubs” for fluids and diesel, to be located midway between shore and platform, which typically ranges from 300km to 350km. Other transport hubs, for people and cargo, are in the ‘conceptual’ phase, according to the company.