BP’s Brazil Investment Plans Stall

By Jewellord Nem Singh, Contributing Reporter

RIO DE JANEIRO – Brazil’s National Petroleum Agency (ANP) announced on June 16th they are set to review the deal between UK oil giant British Petroleum (BP) and Devon Energy in light of the on-going clean up operations in the Gulf of Mexico. The ANP have said that the review is normal procedure, though it seems certain the decision was influenced by the prolonged environmental disaster and ensuing political conflict between the oil company and US government as regards their liability.

BP has tabled a seven billion dollar offer for the US oil firm, and the deal is designed to give the company the exploration concessions for 10 blocks of the pre-salt oil fields in the Campos and Parnáiba basins. Access to the Brazilian fields has been a long-term goal of CEO Tony Hayward.

Developments in the Gulf have been of great interest to the ANP, where there exist similar extraction conditions to those in Brazilian fields, from which 85 percent of the country’s crude is pumped. A commission was sent to observe the clean-up operation which is ongoing, alongside the claims of those hit financially and natural resource damages tabled by the US government, in which BP agreed to set aside a fund of twenty billion dollars over the next three years with at least five billion to be released in the third quarter of 2010. The legitimate claims against BP have already exceeded US$100 million.

Though BP shares have fallen to their lowest point since 1997, the company remains confident of its potential to explore and exploit the deep water basins.

Meanwhile, Lula’s commitment to make Petrobras a leading international oil company materialized again after Petrobras announced investment plans of $224 billion between 2010 and 2014. The money is to be used in exploration and production (54 percent), petroleum refining, transportation, and commercialization (thirty percent). Almost 95 percent of the money is expected to be spent in the domestic economy.

The problems with the Deepwater Horizon clean-up and the moves of the Brazilian government to enhance Petrobras’ capacity pose a dual challenge for BP. Already they and other major overseas oil companies including Shell and Exxon face tough measures to enter the lucrative joint ventures with Petrobras.

Although the state cannot discriminate against foreign and domestic private firms, positive public sentiments towards Petrobras and the long history of Brazilian state’s involvement in economic policies can turn the policy debate in this direction. The move is also part of the broader involvement of the federal government, which recently came in conflict with the state government over laws to change the distribution of royalty taxes towards the former.

But this is not to say that Petrobras is capable of handling accidents of dramatic proportions. In fact, no technology is yet available to completely avert oil explosions in the petroleum industry. In 1974, the accidents in Bahia de Guanabara (Guanabara Bay) and Rio Iguaçu have taught Petrobras of the need to make investments not just on exploration but also on risk management. The extractive resource industry remains one of most profitable yet dangerous businesses requiring not just capital but also potentially huge environmental consequences.