• 7 hours Russia Approves Profit-Based Oil Tax For 2019
  • 11 hours French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 13 hours Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 15 hours Oil Production Cuts Taking A Toll On Russia’s Economy
  • 17 hours Aramco In Talks With Chinese Petrochemical Producers
  • 18 hours Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 20 hours Maduro Names Chavez’ Cousin As Citgo Boss
  • 1 day Bidding Action Heats Up In UK’s Continental Shelf
  • 1 day Keystone Pipeline Restart Still Unknown
  • 1 day UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 2 days Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 2 days Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 2 days German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 2 days Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 2 days Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 3 days Oil Prices Rise After API Reports Major Crude Draw
  • 3 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 3 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 3 days Statoil Looks To Lighter Oil To Boost Profitability
  • 3 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 3 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 3 days Whitefish Energy Suspends Work In Puerto Rico
  • 3 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 3 days Thanksgiving Gas Prices At 3-Year High
  • 3 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 4 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 4 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 4 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 4 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 4 days ConocoPhillips Sets Price Ceiling For New Projects
  • 6 days Shell Oil Trading Head Steps Down After 29 Years
  • 6 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 7 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 7 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 7 days Venezuela Officially In Default
  • 7 days Iran Prepares To Export LNG To Boost Trade Relations
  • 7 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 7 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 7 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 7 days Rosneft Announces Completion Of World’s Longest Well
Global Risk Insights

Global Risk Insights

GlobalRiskInsights.com provides the web’s best political risk analysis for businesses and investors. Our contributors are some of the brightest minds in economics, politics, finance, and…

More Info

Corruption Scandal Threatens Brazilian Oil Developments

Corruption Scandal Threatens Brazilian Oil Developments

Petrobras looked like a model for transparency in the energy sector and, with a recent discovery of large offshore deposits, was poised to make Brazil a regional energy superpower. However, a corruption scandal clouds the company, leaving the future of Brazil’s pre-salts in doubt.

Brazil’s pre-salt deposits are the largest deep-water oil reservoirs globally with unparalleled revenue potential for operators with the adequate technological capacity. But foreign operators interested in developing pre-salt blocks are subject to a special set of rules in accordance with the Brazilian government’s “Three Systems Model”.

Besides mandatory local content, any block must be jointly developed with Petrobras, which requires a minimum 30 percent stake in any joint partnership, as well as compulsory reinvestment of a portion of E&P profits into R&D.

Related: This Energy Heavyweight's Auditors Just Refused To Sign

Given the risks associated with waiving ownership rights and direct government involvement in E&P contracts, the corruption allegations involving key decision-making levels within Petrobras will certainly increase the reputational risks for existing partners, and will likely hamper the execution of future projects.

In recent months, more than two-dozen Petrobras executives have been arrested on money laundering and corruption charges, linked to the allocation of construction contracts and kickbacks to individuals belonging to the main political parties. Proceedings have followed from the U.S. State Department and the Securities and Exchange Commission, as well as several class-action lawsuits from investors. This comes at a time where Petrobras faces mounting debt of over US $139billion, and it has lost more than half of its stock value in the last three months.

Adding to the complex scenario associated to pre-salt projects, there are broader risks within the country’s oil and gas industry. The sector suffers from infrastructure bottlenecks and key decision-making positions are filled with political appointees exposed to asymmetric pressures. Projects still face informal administrative obstacles and are both subject to a multitude of regulatory stakeholders and an influential environmental lobby.

Evidence uncovered by recent on-going investigations indicate the chronic failure of state institutions in overseeing the funding of contracts, the inability of regulatory bodies to properly investigate allegations, as well as political meddling in the review process in Brazil.

This apparent breakdown of governance mechanisms at all levels will have a greater impact on pre-salt projects due to the presence of third party bodies in downstream and upstream operations, and could potentially have far-reaching implications for the execution and immediate development of these offshore deposits.

Related: Four More Years Of Pain For Petrobras

It will take some time until the full extent of the crisis is fully revealed. More arrests are expected in the coming months. Meanwhile U.S. authorities are closely reviewing compliance of FCPA guidelines on current contracts, which will only add more uncertainty for investors over the next few months. As current and potential entrants re-assess their reputational damage and risk exposure, they are expected to delay any expansion of existing projects.

It is still unclear whether Rousseff’s government will adopt the necessary measures to strengthen transparency and accountability within the sector, as she has previously voiced opposition to giving away control of the country’s valuable energy deposits and further liberalizing the sector.

However, as long as the conditions exist for collusion between oil and gas sector executives and public officials, considerable risks remain. Given that a number of offshore deep wells could become commercially unviable as the price of oil dips below $50, the deepening of this crisis will likely darken the prospects of pre-salts deposits for the foreseeable future.

By Sergio Rojas

Source - http://globalriskinsights.com/ 

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News