Petroleo Brasileiro SA Petrobras (ADR)(NYSE:PBR) has been ruling Brazilian oil industry for years. Company’s leading position is hurting other firms’ profits as well as market share. According to reports, Ben van Beurden, Chief Executive Officer, Royal Dutch Shell Oil was quoted mentioning in Estado de Sao Paulo newspaper that Petrobras should step aside and cede its drilling rights to other firms in the country.
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Beurden was talking about higher private investment in the offshore oil fields of Brazil rather than the current practices which require Petrobras to hold a minimum of 50% ownership in oil fields of the country. Going by his statement, if the government changes rules, it will allow foreign firms to keep more oil share to themselves rather than sharing 50% of it with Petrobras. Although it wouldn’t impact government royalties, foreign companies like Shell Oil will get greater exposure in Brazil and indulge into the development of deepwater oil fields on their own.
Petrobras is certainly the most indebted firm in Latin America; therefore, the Brazilian government is planning to consider these changes in an attempt to reduce some debt pressure of Petrobras in a hassle-free manner.
While talking to a National Daily, Beurden said that Congress would take the last decision; however, there’s nothing wrong in calling other firms that have enough resources, technology and funds to explore country’s oil fields. He went on to say that this step wouldn’t harm Brazilian economy by any means.
Even though the ball seems to have fallen in Brazilian government’s court, reality is different. The government is under heavy pressure to get some quick cash to reduce Petrobras’ debt as soon as possible. And this step is the best and most feasible solution available in front of the country.
Petrobras wanted to sell assets worth $14 billion in 2014 to tackle rising expenditure, but it hasn’t sold even 50% of that until now. It will be great to see how Brazilian government get out of this troublesome situation.