Bolsonaro Seeks $30 Billion Brazil Oil Boon Where Others Failed

(Bloomberg) -- President-elect Jair Bolsonaro is pursuing the sale of Brazil’s deep-sea treasure-trove of oil, but just weeks after his election he’s facing the same political obstacles as his two predecessors.

While Bolsonaro’s transition team argues the sale could net some $30 billion to help plug fiscal deficits, a squabble over how to divvy up the spoils between various states and municipalities is threatening to thwart the plan even before he takes office.

Bolsonaro Seeks $30 Billion Brazil Oil Boon Where Others Failed

This week, Senate chief Eunicio Oliveira put on hold a key bill authorizing the tender, dealing a blow to Bolsonaro’s hopes that a path would soon be clear for oil majors to bid for the fields.

At stake is a portion of the country’s so-called pre-salt crude reserves buried deep beneath the Atlantic Ocean’s seabed, which state-controlled Petroleo Brasileiro SA has shown are commercially viable. Exxon Mobil Corp. and Royal Dutch Shell Plc have expressed interest in the deposits, which are estimated to hold more crude than Norway’s proven reserves.

Bolsonaro, a former army captain, won a highly polarized election contest in October on pledges to unwind big-government policies from years of leftist rule and to sell energy assets to shore up public finances.

“The auction would bring valuable resources to Brazil and to the government, and help on the fiscal deficit,” Bolsonaro adviser Luciano de Castro said in an interview earlier this month.

But pushing ahead with the sale is proving to be a daunting task, as the president-elect’s team needs to negotiate with dozens of political parties and states with different agendas.

‘Transfer of Rights’

The legislation that stalled in the Senate this week would remove from Petrobras the exclusive rights to operate in the so-called “transfer of rights” area. That’s a controversial proposition in a country where nationalism and oil tend to go hand in hand. Bolsonaro himself has defended the state’s control of the country’s resources in the past.

The rights to 5 billion barrels of government oil were transferred to Petrobras in 2010 as payment for shares the state bought in the company as part of a $70 billion sale of new stock. But as the producer drilled the area, it found much more crude than it was entitled to in the deal, leaving the government with a surplus while Petrobras remained the sole company allowed to operate those fields.

Low Risk

The area is attractive and low-risk because Petrobras has already made major discoveries there, equipment is on site and taxes have been paid, UBS analyst Luiz Carvalho said.

“These are projects that survive even if oil prices fall to $20 per barrel,” Carvalho said Thursday at an event in Rio.

But producers might like to have some regulatory and political assurance before spending billions of dollars to tap reserves more than 100 miles from the coast. And both the current government of President Michel Temer and Bolsonaro’s team fear the opportunity to fully capitalize on the country’s energy assets may be lost if the planned auction keeps getting stalled in Congress.

“For five years we’ve been discussing this,” the Energy Ministry’s executive secretary, Marcio Felix said Thursday. “If we don’t advance now and start all over again, the opportunity may be left behind.”

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