Petrobras By John Mauldin
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John Mauldin's Outside the Box » Brazil: Reactions to a Proposed Energy Law
Brazil: Reactions to a Proposed Energy Law With the current financial crisis, we have to be even more astute in locating worthy investment opportunities. I've written lately about choices we're facing as a country – but we have choices as individuals as well: choices that demand solid insight to make wellinformed decisions and recognize opportunities at a time when they're not as plentiful as they used to be. It's not enough to know what's happening on Capitol Hill or Wall Street, we must expand our investigations to a global perspective. I'm including an article by my friends STRATFOR, a global intelligence company, about a proposed law in Brazil to regulate the country's massive deep sea oil reserves, which could make it a major oil exporter. It's just one example of the kind of event you need to be aware of if you're at all interested in global energy and investment. I recommend that you browse through the rest of STRATFOR's material, and check out their special offer for my readers. They provide just the kind of exclusive global insight you need.
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Brazil: Reactions to a Proposed Energy Law
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September 1, 2009 | 1938 GMT
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Summary Brazilian President Luiz Inacio Lula da Silva submitted a proposal for a new oil law to the country's legislature. The proposal favors state run energy company Petroleo Brasileiro SA (Petrobras) and shows that Brazil intends to protect its national interests when it comes to deepwater oil exploration and development.
Analysis After a government review that began in 2007, Brazilian President Luiz Inacio Lula da Silva on Aug. 31 unveiled a muchanticipated proposal for a new oil law that will govern the exploration and development of the country's massive deep sea pre salt oil reserves . The new regulatory framework was highly anticipated as Brazil's presalt reserves — oil deposits located in the sea bed under thick layers of salt — are estimated to contain anywhere from 14 to 100 billion barrels of oil and could turn Brazil into a major oil exporter in coming years. Stock prices in Brazil's staterun energy company Petroleo Brasileiro SA (Petrobras) plummeted on the release of the proposal, with the company losing 3.6 percent of its market value (about $7 billion) on Aug. 31 alone (though that was mitigated by a 1.4 percent rebound on Sept. 1). Although Brasilia might not actually pass the new energy law until next year, it is clear that Brazil sees its pre salt oil reserves as a strategic national asset that needs to be protected by the state, even at the risk of slowing the influx of foreign capital and technology that the country is trying to attract to boost the reserves' development.
Recent Posts Brazil: Reactions to a Proposed Energy Spain: The Hole In Europe's Balance Sh Between a Rock and a Hard Place Iraq Endgame Growth in Potential GDP
Have You Seen This?
Tags The most obvious aspect of the proposed law is its (fully expected) favoritism toward Petrobras, one of the world's upand coming energy companies and a majority stateowned enterprise. Petrobras would operate all of Brazil's presalt oil development projects. The government, through the National Petroleum Agency, would have the option of awarding a contract solely to Petrobras or asking for public bids to bring in other companies to share in projects. In public bids, companies would join in productionsharing agreements with the government rather than only acquiring concessions and paying royalties on revenues, as they did previously. This is meant to ensure that Petrobras gains knowledge and experience from outsiders who may bring better technology and expertise to the table when they sign on to a production agreement. Petrobras would be guaranteed a minimum 30 percent stake in any consortium (though this does not apply to preexisting contracts). Contracts will be awarded to foreign companies that promise to preserve the greatest share of "profit oil" — a field's production minus the equivalent of costs — for the Brazilian government. The proposal is surprisingly candid about the role of what is, in effect, bribery in companies' bids for contracts, stating that the National Energy Policy Council will assess "subscription bonuses" (which are not required but are no doubt encouraged by the law) on an ad hoc basis.
China
Cre Economic
Consumer Spending
Crisis Deflation Forecast Europe Financial Crisis GDP Geopolitics
George Friedma Global Economy
Housing
Housing Crisis Inflation Interest Rat The Brazilian government will also have the option of handing over to Petrobras certain areas that have not yet been opened to concession to other bidders. Petrobras and the government will work out the specifics of which geographical areas will be eligible and determine their value and the price that Petrobras will pay to have rights to the area transferred to it.
Joh
Investing Strategies Iran
Mauldin
Middle East Oil Politi
Recession Russia
Since Petrobras will be doing a lot of costly and technologically demanding oil production in these deep presalt layers, it will need to raise a lot of capital. The government has claimed it will inject around $50 billion into Petrobras upon passage of the new energy law. Moreover, the proposed law allows for Petrobras to issue new shares to get funding, while not calling for the restructuring or reorganization of the company. This preserves shareholders' right to maintain or up their stakes and the government's right to increase its stake, while ensuring that stock increases will not be used to squeeze out foreign investors for arbitrary or political purposes. The proposal contains a nationalist streak that grants the government great scope for intervention in the development of these strategic reserves. In particular, the law would give birth to a new stateoperated company — called Petrosal — that would have a representative, with full rights to vote and veto, on the board of any energy consortium doing business in Brazil's pre salt deposits. Because this company will not be allowed to invest in projects or take part in upstream development, it will not bring capital or technology or expertise to energy development projects. It will simply be an arbitrary government actor with the ability to put roadblocks along the way for energy producers as it sees fit.
Stratfor The Fed View more
Archives August 2009 (7) July 2009 (6) June 2009 (6) May 2009 (6)
Da Silva submitted the proposal to Congress with much fanfare, calling for it to be put on a "fast track" toward approval. But the proposal, published on the Petrobras Web site, must still go through the legislative process, and it must do so amid the politically charged atmosphere ahead of general elections in October 2010. Nevertheless, it reflects a yearslong review by a commission consisting of several government ministries, and thus gives a good indication of what direction Brazil's government wants to take in making energy sector regulations that are in line with its strategic interests.
April 2009 (6) March 2009 (7) February 2009 (6) January 2009 (7) December 2008 (7) November 2008 (6)
Disclaimer John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.
October 2008 (7) September 2008 (6) August 2008 (6) July 2008 (6) June 2008 (7)
Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC and InvestorsInsight Publishing, Inc. (InvestorsInsight) may or may not have investments in any funds, programs or companies cited above. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
May 2008 (6) April 2008 (5) March 2008 (6) February 2008 (3) January 2008 (5) December 2007 (5) November 2007 (5) October 2007 (6) September 2007 (6)
Communications from InvestorsInsight are intended solely for informational purposes. Statements made by various authors, advertisers, sponsors and other contributors do not necessarily reflect the opinions of InvestorsInsight, and should not be construed as an endorsement by InvestorsInsight, either expressed or implied. InvestorsInsight is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.
August 2007 (5) July 2007 (7) June 2007 (5) May 2007 (5) April 2007 (7) March 2007 (7) February 2007 (6)
Posted 09032009 12:43 PM by John Mauldin Filed under: George Friedman, Oil, Stratfor, Geopolitics, President Luiz Inacio Lula da Silva , Brazil, Petrobras , Energy Policy
January 2007 (6) December 2006 (5) November 2006 (5)
Related Articles and Posts I couldn't find any posts or articles related to this one. Are you feeling lucky?
October 2006 (7) September 2006 (5) August 2006 (5) July 2006 (5) June 2006 (4) May 2006 (5) April 2006 (4) March 2006 (4) February 2006 (4) January 2006 (4) December 2005 (4) November 2005 (4) October 2005 (5) September 2005 (4) August 2005 (5) July 2005 (4) June 2005 (4) May 2005 (5) April 2005 (4) March 2005 (4) February 2005 (4) January 2005 (5)
December 2004 (3) November 2004 (5) October 2004 (4) September 2004 (1) January 2004 (1)
Have You Seen This?
Investor Blogs John Mauldin's Thoughts From The Frontline John Mauldin's Outside The Box Forecasts & Trends by Gary D. Halbert Daily Pfennig by Chuck Butler Musing on the Markets by Vinny Catalano AIA Advocate for Absolute Returns
Useful Links Richard Schwartz's Principles of the Stock Market The Options Report with Ken Trester The Stock Playbook with Dave Dispennette The Room with David Galland Retirement Watch by Bob Carlson Growth Report by Ian Wyatt Steve Cook's Strategic Stock Investments
Partners Advertise Privacy Policy Legal Statement Who Is Online Help
© 20032009 InvestorsInsight Publ
Home
Investor Blogs
Global Emerging Markets (GEMs)
Research Reports
Multimedia Galleries
Investor Community
Special Offers
John Mauldin's Outside the Box » Brazil: Reactions to a Proposed Energy Law
Brazil: Reactions to a Proposed Energy Law With the current financial crisis, we have to be even more astute in locating worthy investment opportunities. I've written lately about choices we're facing as a country – but we have choices as individuals as well: choices that demand solid insight to make wellinformed decisions and recognize opportunities at a time when they're not as plentiful as they used to be. It's not enough to know what's happening on Capitol Hill or Wall Street, we must expand our investigations to a global perspective. I'm including an article by my friends STRATFOR, a global intelligence company, about a proposed law in Brazil to regulate the country's massive deep sea oil reserves, which could make it a major oil exporter. It's just one example of the kind of event you need to be aware of if you're at all interested in global energy and investment. I recommend that you browse through the rest of STRATFOR's material, and check out their special offer for my readers. They provide just the kind of exclusive global insight you need.
John Mauldin's Outside t Box Home Contact
Blog Subscription Form Email Notifications Your Email Address
Go
Syndication
Brazil: Reactions to a Proposed Energy Law
RSS for Posts
September 1, 2009 | 1938 GMT
RSS for Comments
Atom
Summary Brazilian President Luiz Inacio Lula da Silva submitted a proposal for a new oil law to the country's legislature. The proposal favors state run energy company Petroleo Brasileiro SA (Petrobras) and shows that Brazil intends to protect its national interests when it comes to deepwater oil exploration and development.
Analysis After a government review that began in 2007, Brazilian President Luiz Inacio Lula da Silva on Aug. 31 unveiled a muchanticipated proposal for a new oil law that will govern the exploration and development of the country's massive deep sea pre salt oil reserves . The new regulatory framework was highly anticipated as Brazil's presalt reserves — oil deposits located in the sea bed under thick layers of salt — are estimated to contain anywhere from 14 to 100 billion barrels of oil and could turn Brazil into a major oil exporter in coming years. Stock prices in Brazil's staterun energy company Petroleo Brasileiro SA (Petrobras) plummeted on the release of the proposal, with the company losing 3.6 percent of its market value (about $7 billion) on Aug. 31 alone (though that was mitigated by a 1.4 percent rebound on Sept. 1). Although Brasilia might not actually pass the new energy law until next year, it is clear that Brazil sees its pre salt oil reserves as a strategic national asset that needs to be protected by the state, even at the risk of slowing the influx of foreign capital and technology that the country is trying to attract to boost the reserves' development.
Recent Posts Brazil: Reactions to a Proposed Energy Spain: The Hole In Europe's Balance Sh Between a Rock and a Hard Place Iraq Endgame Growth in Potential GDP
Have You Seen This?
Tags The most obvious aspect of the proposed law is its (fully expected) favoritism toward Petrobras, one of the world's upand coming energy companies and a majority stateowned enterprise. Petrobras would operate all of Brazil's presalt oil development projects. The government, through the National Petroleum Agency, would have the option of awarding a contract solely to Petrobras or asking for public bids to bring in other companies to share in projects. In public bids, companies would join in productionsharing agreements with the government rather than only acquiring concessions and paying royalties on revenues, as they did previously. This is meant to ensure that Petrobras gains knowledge and experience from outsiders who may bring better technology and expertise to the table when they sign on to a production agreement. Petrobras would be guaranteed a minimum 30 percent stake in any consortium (though this does not apply to preexisting contracts). Contracts will be awarded to foreign companies that promise to preserve the greatest share of "profit oil" — a field's production minus the equivalent of costs — for the Brazilian government. The proposal is surprisingly candid about the role of what is, in effect, bribery in companies' bids for contracts, stating that the National Energy Policy Council will assess "subscription bonuses" (which are not required but are no doubt encouraged by the law) on an ad hoc basis.
China
Cre Economic
Consumer Spending
Crisis Deflation Forecast Europe Financial Crisis GDP Geopolitics
George Friedma Global Economy
Housing
Housing Crisis Inflation Interest Rat The Brazilian government will also have the option of handing over to Petrobras certain areas that have not yet been opened to concession to other bidders. Petrobras and the government will work out the specifics of which geographical areas will be eligible and determine their value and the price that Petrobras will pay to have rights to the area transferred to it.
Joh
Investing Strategies Iran
Mauldin
Middle East Oil Politi
Recession Russia
Since Petrobras will be doing a lot of costly and technologically demanding oil production in these deep presalt layers, it will need to raise a lot of capital. The government has claimed it will inject around $50 billion into Petrobras upon passage of the new energy law. Moreover, the proposed law allows for Petrobras to issue new shares to get funding, while not calling for the restructuring or reorganization of the company. This preserves shareholders' right to maintain or up their stakes and the government's right to increase its stake, while ensuring that stock increases will not be used to squeeze out foreign investors for arbitrary or political purposes. The proposal contains a nationalist streak that grants the government great scope for intervention in the development of these strategic reserves. In particular, the law would give birth to a new stateoperated company — called Petrosal — that would have a representative, with full rights to vote and veto, on the board of any energy consortium doing business in Brazil's pre salt deposits. Because this company will not be allowed to invest in projects or take part in upstream development, it will not bring capital or technology or expertise to energy development projects. It will simply be an arbitrary government actor with the ability to put roadblocks along the way for energy producers as it sees fit.
Stratfor The Fed View more
Archives August 2009 (7) July 2009 (6) June 2009 (6) May 2009 (6)
Da Silva submitted the proposal to Congress with much fanfare, calling for it to be put on a "fast track" toward approval. But the proposal, published on the Petrobras Web site, must still go through the legislative process, and it must do so amid the politically charged atmosphere ahead of general elections in October 2010. Nevertheless, it reflects a yearslong review by a commission consisting of several government ministries, and thus gives a good indication of what direction Brazil's government wants to take in making energy sector regulations that are in line with its strategic interests.
April 2009 (6) March 2009 (7) February 2009 (6) January 2009 (7) December 2008 (7) November 2008 (6)
Disclaimer John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.
October 2008 (7) September 2008 (6) August 2008 (6) July 2008 (6) June 2008 (7)
Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC and InvestorsInsight Publishing, Inc. (InvestorsInsight) may or may not have investments in any funds, programs or companies cited above. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
May 2008 (6) April 2008 (5) March 2008 (6) February 2008 (3) January 2008 (5) December 2007 (5) November 2007 (5) October 2007 (6) September 2007 (6)
Communications from InvestorsInsight are intended solely for informational purposes. Statements made by various authors, advertisers, sponsors and other contributors do not necessarily reflect the opinions of InvestorsInsight, and should not be construed as an endorsement by InvestorsInsight, either expressed or implied. InvestorsInsight is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.
August 2007 (5) July 2007 (7) June 2007 (5) May 2007 (5) April 2007 (7) March 2007 (7) February 2007 (6)
Posted 09032009 12:43 PM by John Mauldin Filed under: George Friedman, Oil, Stratfor, Geopolitics, President Luiz Inacio Lula da Silva , Brazil, Petrobras , Energy Policy
January 2007 (6) December 2006 (5) November 2006 (5)
Related Articles and Posts I couldn't find any posts or articles related to this one. Are you feeling lucky?
October 2006 (7) September 2006 (5) August 2006 (5) July 2006 (5) June 2006 (4) May 2006 (5) April 2006 (4) March 2006 (4) February 2006 (4) January 2006 (4) December 2005 (4) November 2005 (4) October 2005 (5) September 2005 (4) August 2005 (5) July 2005 (4) June 2005 (4) May 2005 (5) April 2005 (4) March 2005 (4) February 2005 (4) January 2005 (5)
December 2004 (3) November 2004 (5) October 2004 (4) September 2004 (1) January 2004 (1)
Have You Seen This?
Investor Blogs John Mauldin's Thoughts From The Frontline John Mauldin's Outside The Box Forecasts & Trends by Gary D. Halbert Daily Pfennig by Chuck Butler Musing on the Markets by Vinny Catalano AIA Advocate for Absolute Returns
Useful Links Richard Schwartz's Principles of the Stock Market The Options Report with Ken Trester The Stock Playbook with Dave Dispennette The Room with David Galland Retirement Watch by Bob Carlson Growth Report by Ian Wyatt Steve Cook's Strategic Stock Investments
Partners Advertise Privacy Policy Legal Statement Who Is Online Help
© 20032009 InvestorsInsight Publ
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