Decisive weeks in store for Brazilian oil patch

OREANDA-NEWS. June 06, 2016. The coming weeks should witness drastic changes in Brazil's oil and gas industry, but an intense political crisis remains a threat to reforms meant to rejuvenate the industry and navigate the country out of recession.

The ascendancy of interim President Michel Temer has revived investor hopes that policies enacted during the 13-year rule of the Workers Party (PT) will be dismantled, opening the door for more activity in Brazil's foundering oil industry.

On 12 May, former vice president Temer replaced Dilma Rousseff, whose second four-year mandate was suspended while a Senate impeachment committee deliberates on accusations that she illegally airbrushed 2014 accounts. She and her supporters say the impeachment process amounts to a coup.

The Senate has six months to conclude a trial that could definitively unseat Rousseff, but Temer and his allies are pushing to conclude the trial as early as next month.

An accelerated trial could provide some closure ahead of the 2016 Olympic Games, which start in Rio de Janeiro on 5 August and around which many big infrastructure projects remain in the works.

The sealing of Rousseff's fate could also embolden a fractious congress to approve unpopular measures such as reforming sub-salt rules that currently benefit one of the country's biggest employers, state-controlled oil company Petrobras.

The beleaguered company that is the main focus of a historic corruption investigation has changed tack under new chief executive Pedro Parente, who inherited an ambitious campaign to sell billions of dollars in assets.

Among his first remarks as chief executive, Parente said he supports legislation that would remove the firm's minimum 30pc operating mandate for all future sub-salt projects.

"As it stands, the law does not meet the interests of the company or the country. If the requirement is not revised, the result is delay without forecast for sub-salt exploitation. In addition, it restricts the company's freedom of choice," Parente said yesterday at his swearing-in ceremony.

A bill that would change the rule, known as the sole operator rule, has already been approved by the Senate and is expected to be put to a vote in the lower house as early as July, although a final decision on Rousseff's future could impact that timeline. Foreign oil executives have long said the existing Petrobras mandate is a drag on sub-salt development.

A series of high-profile missteps in the first weeks of Temer's government have raised the possibility Rousseff might overcome the impeachment. But new disclosures of her knowledge of the scandal-tainted 2006 acquisition of the 100,000 b/d Pasadena refinery in Texas, completed during her 2003-10 tenure as Petrobras chairwoman, have hampered the momentum her defense had gained in the last weeks of May.

In his plea deal published by the Supreme Court yesterday, Nestor Cerver?, the imprisoned former international area director for Petrobras, says Rousseff knew of corruption in the deal that federal spending watchdogs say cost the public coffers around \\$800mn. Rousseff denies the claims and says Cervero's division delivered a faulty report on the acquisition.