Why Billions of Barrels of Oil Go Untapped in Brazil
https://www.washingtonpost.com/business/why-billions-of-barrels-of-oil-go-untapped-in-brazil/2019/03/03/ea23a390-3de5-11e9-85ad-779ef05fd9d8_story.htmlMarch 4, 2019
There’s enough as-yet-unassigned oil under the Atlantic Ocean off Brazil’s Rio de Janeiro to keep the entire world running for almost six months. So why is the crude just sitting there? A contract dispute between oil giant Petrobras and the government has been dragging on since 2013, and until it’s resolved, drillers can’t start targeting those deep-water deposits.
1. What’s the dispute over?
Money. Developing a region that’s as big as the U.S. state of Illinois will cost hundreds of billions of dollars. When Petrobras organized a $70 billion share sale in 2010 to raise cash, the government -- intent on retaining control of Petrobras without having to spend money -- traded the rights to produce up to 5 billion barrels from seven pre-salt blocks in exchange for $42.5 billion, almost all in new shares. Both parties agreed to revise the value of this so-called Transfer of Rights contract after the fields were declared commercial, to take into account changes in oil prices, development costs and oil production volumes. Petrobras and the government have been arguing over who owes how much to whom since 2013, through successive presidential administrations.
2. Where do things stand?
As oil prices retreated after 2013, expectations shifted from Petrobras owing money to the government to the company being owed reimbursement of as much as $14 billion, either in cash or in additional rights to undeveloped oil reserves. President Jair Bolsonaro’s administration is the third to grapple with the conflicting priorities inherent in the contract review. A large payout to Petrobras would expand the fiscal deficit....
