Brazil has been one of the hottest plays going in the oil and gas sector the last several years. But recent financial and corruption woes in the country are prompting some critical changes.
The Brazilian Senate last week passed a bill to allow foreign E&Ps to take greater control of offshore fields. And late last Friday, the country announced an even bigger deal — securing a massive funding package from China, in return for oil supply. Related: Brazilian Oil Giant Petrobras Could Lose Its Most Valuable Assets
State-owned oil firm Petrobras said in a filing that the company has signed up a $10 billion loan from China Development Bank. An amount the firm needed in order to cover commitments on its massive debt burden for the coming year.
The most interesting part is what China gets in return for the funding. Namely, crude supply — with Petrobras saying that the loan comes with supply commitments to Chinese buyers.
Such “dollars for barrels” deals have been a common theme for China in Latin America of late. With three Chinese banks having already leant $10 billion to Petrobras last year. And Chinese lenders have also been active in Venezuela’s oil sector recently, to help that nation service its burgeoning debt. Related: Gulf Stock Markets Feel The Pain From Low Oil Prices
Petrobras didn’t say how much oil it is committing to send to China. But similar-sized deals by Chinese banks globally have involved exports in the range of 150,000 to 200,000 barrels per day — representing a significant amount of production.
This deal is yet another sign that China isn’t slowing down in its pursuit of natural resource supply. And in fact may be using the current downturn in energy markets to leverage its massive cash reserves into tangible commodities. Related: Oil Companies On Edge Ahead Of Super Tuesday
For its part, Petrobras is far from out of the woods financially. With the company still having $20 billion in debt coming due over the next two years.
If other solutions aren’t found to those issues, watch for China to continue lending in this part of the world. A move that could sew up a significant amount of supply, under the noses of other crude consumers.
Here’s to being a borrower and a lender.
By Dave Forest
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