Bolsonaro seeks RM126b Brazil oil boon where others failed

RIO DE JANEIRO • President-elect Jair Bolsonaro (picture) is pursuing the sale of Brazil’s deep-sea treasure-trove of oil, but just weeks after his election he’s facing the same political obstacles as his two predecessors.

While Bolsonaro’s transition team argues the sale could net some US$30 billion (RM126 billion) to help plug fiscal deficits, a squabble over how to divvy up the spoils between various states and municipalities is threatening to thwart the plan even before he takes office.

Last week, Senate chief Eunicio Oliveira put on hold a key bill authorising the tender, dealing a blow to Bolsonaro’s hopes that a path would soon be clear for oil majors to bid for the fields. At stake is a portion of the country’s so-called pre-salt crude reserves buried deep beneath the Atlantic Ocean’s seabed, which state-controlled Petroleo Brasileiro SA (Petrobras) has shown are commercially viable. Exxon Mobil Corp and Royal Dutch Shell plc have expressed interest in the deposits, which are estimated to hold more crude than Norway’s proven reserves. Bolsonaro, a former army captain, won a highly polarised election contest in October on pledges to unwind big-government policies from years of leftist rule and to sell energy assets to shore up public finances.

“The auction would bring valuable resources to Brazil and to the government, and help on the fiscal deficit,” Bolsonaro advisor Luciano de Castro said in an interview earlier this month.

But pushing ahead with the sale is proving to be a daunting task, as the president-elect’s team needs to negotiate with dozens of political parties and states with different agendas.

The legislation that stalled in the Senate last week would remove from Petrobras the exclusive rights to operate in the so-called “transfer of rights” area. That’s a controversial proposition in a country where nationalism and oil tend to go hand in hand. Bolsonaro himself has defended the state’s control of the country’s resources in the past.

The rights to five billion barrels of government oil were transferred to Petrobras in 2010 as payment for shares the state bought in the company as part of a US$70 billion sale of new stock. But as the producer drilled the area, it found much more crude than it was entitled to in the deal, leaving the government with a surplus while Petrobras remained the sole company allowed to operate those fields.

The area is attractive and low-risk because Petrobras has already made major discoveries there, equipment is on site and taxes have been paid, UBS analyst Luiz Carvalho said.

“These are projects that survive even if oil prices fall to US$20 per barrel,” Carvalho said last Thursday at an event in Rio.

But producers might like to have some regulatory and political assurance before spending billions of dollars to tap reserves more than 100 miles (160km) from the coast. And both the current government of President Michel Temer and Bolsonaro’s team fear the opportunity to fully capitalise on the country’s energy assets may be lost if the planned auction keeps getting stalled in Congress.

“For five years we’ve been discussing this,” the Energy Ministry’s executive secretary Marcio Felix said last Thursday. “If we don’t advance now and start all over again, the opportunity may be left behind.” — Bloomberg