Brazil Senate Votes to Limit Petrobras Role in Deep Waters

  • Legislators voted 40 to 26; bill now goes to lower house
  • Proposal eliminates company requirement to operate pre-salt

Brazil’s Senate approved legislation that relieves Petrobras of its role as sole operator and mandatory stakeholder in so-called pre-salt deepwater oilfields, potentially allowing the state-run company to direct resources to more profitable operations.

Legislators on Wednesday night voted 40 to 26 in favor of the bill, which was introduced by opposition Senator Jose Serra and now goes to the lower house of Congress for consideration. The legislation eliminates the requirement for Petrobras to operate all pre-salt operations and hold a minimum 30 percent stake in the projects, while giving it first dibs to explore an area if it so chooses.

President Dilma Rousseff’s coalition is divided over the bill, with some legislators in her party saying it amounts to giving up sovereignty over fields that hold some of Brazil’s largest oil reserves. Yet Senate President Renan Calheiros, a member of the ruling alliance, has said repeatedly that Brazil must limit the state’s role in the economy to revive growth. Proponents also say the bill would reduce the oil company’s financial burden.

“This legislation protects Petrobras’s strategic interests,” said Senator Romero Juca, a member of Calheiros’s party and a sponsor of the bill. “This eliminates the burden of operating all pre-salt fields.”

Preferred shares of Petroleo Brasileiro SA, the formal name for the oil company, defied a drop in international oil prices and rose 2.5 percent to 4.99 reais at 10:50 a.m. local time. “The news is positive in the short term for the company, considering its high debt level,” analysts with Rico brokerage wrote in a note to clients.

Commodities Boom

Brazil put Petrobras in charge of developing the pre-salt during the commodities boom when the company was investing more than $40 billion a year. The crash in oil prices and investments in unprofitable refining projects sent the company’s debt levels soaring, forcing it to slash spending and sell assets. Companies with a smaller debt burden such as Royal Dutch Shell Plc. say they are eager to invest in the region, where production has exceeded expectations.

Petrobras’s shares have fallen by more than half since August last year and plummeted to 4.2 reais in January, its lowest in more than 15 years. The company slashed its business plan for the five years through 2019 to $98.4 billion, the latest adjustment to the original $130 billion announced in 2015.

“Petrobras is under major cash restrictions,” Alexandre Calmon, a partner at the Vieira Rezende Advogados law firm who specializes in the oil industry, said before Wednesday’s vote. “Without changes in the regulation, you can’t put any pre-salt area up for a bid.”

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