Brazil has been held up as one of the greatest new energy plays of our times. With massive offshore discoveries yielding some of the largest oil fields to be found in the modern exploration age.
These finds have been expected to add substantially to global crude supply. Assuming they can be developed.
A little more doubt was cast over that issue this week. When serious concerns emerged about the soundness of management at Brazil's state-run oil firm, Petrobras.
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The warning was sounded by Petrobras' auditors PriceWaterhouseCoopers (PWC). Which refused to endorse Petrobras' third quarter financial statements--saying it needs more information about corporate governance issues within the company.
Specifically, the auditors are looking for clarification on corruption allegations that have come to light around Petrobras. Brazilian police have recently begun an investigation into alleged kickbacks from Petrobras contractors that were funnelled to the political party of President Dilma Rousseff.
In light of these events, PWC reportedly requested more information on potential corruption within Petrobras. Saying that it requires this in order to consider endorsing the most-recent financial statements.
Petrobras is reportedly now considering its next move. With the board of directors having delayed a meeting last Friday, and rescheduling it for later this week.
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Sources also suggested that PWC has threatened to take the case to U.S. authorities if a satisfactory resolution isn't put forward. A threat that could hold water, given that Petrobras currently trades on the New York Stock Exchange.
Whatever the outcome, these developments are an important indication that Petrobras--and Brazil's oil sector--may have some critical challenges to overcome. Especially as the industry moves toward development of offshore mega-projects, which will require a sophisticated and coordinated approach for success.
Watch for further information on the Petrobras case--which may provide an indication of the direction the company will take in making potential and necessary reforms.
Here's to growing pains,
Dave Forest
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