Oil, State and Unity

Editorial

RIO DE JANEIRO, BRAZIL – It does not surprise me that such a massive issue has separated the state of Rio de Janeiro and Brazilian federal government regarding oil proceeds. Rio certainly has been counting on this income as part of its budget for the foreseeable future. Living here it’s hard not to have some bias, but one thing seems obvious, Brazil has a lot of eyes on the Cidade Maravilhosa (Marvelous City), and needs to keep investing in it.

Sometimes in Rio it seems that half the estrangeiros (Gringos) living or passing through work in the oil business. Most of these Americans are coming from the deep South, joined by a full range of Europeans with colorful tales of worldwide oil adventures from places like Nigeria and Iraq.

Clearly Rio is considered a choice assignment, with its beautiful beaches, agreeable climate and culture. Despite the occasional violence pouring out of the favelas and slow (or rapid – depending on your perspective) evolution into a “developing” nation, most oil workers are happy to spend a one or two year tour in-country.

Almost all the oil workers pass through the city of Rio, and after spending several weeks at a time on a “rig”, usually come back looking for some fun, or their wives, or both. The state of Rio is also where Macaé sits, which is the closest city to the newly discovered off-shore pre-salt exploration. This is of course is home to many expats, and has developed quickly, including infrastructure and schools for foreigners.

Even with all the buzz, it is often hard to gauge just how big Brazil’s oil & petroleum future is, but statistics from 2009 show it with over 12 billion barrels of reserve, much lower then leaders like Saudi Arabia, Iraq and Russia.

Brazil is currently listed in sixteenth place, with only about 10 percent of what neighboring Venezuela lists. Of course these statistics are slightly out-dated, and the world’s oil barons are not investing hundreds of billions of dollars for nothing.

Petrobras alone (55 percent owned by the Brazilian government) is reported to have plans to invest over $200 billion within the next four years on the pre-salt oil fields, which are believed to hold over 50 billion barrels of high-quality crude oil.

So it is not surprising that Brazil is getting serious about what to do with all this new-found wealth, and the national government is flexing it’s authority. According to the new proposed oil royalty plan, 52.5 percent will be spread among all of Brazil’s 26 states, 40 percent will go to the feds, and the oil producing states and cities will get the other 7.5 percent.

This is a far cry from the 30 percent that is currently received, and it will be interesting to see what happens after this current plan is re-negotiated. The only thing I hope for is that there is room in the budget to keep something like the BP offshore disaster in the Gulf of Mexico from destroying Rio’s beaches, and livelihood.