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 The recent discovery of potentially vast oilfields buried beneath a thick layer of salt off the coast of Brazil has become a focus of excitement among many of the world's big energy firms. Though the total size of reserves is not yet known, government officials estimate 80 billion to 100 billion barrels - enough to vault Brazil into the top ten of oil-producing countries.
Described as "a gift from God" by Brazil's President Luiz Inácio Lula da Silva, the 'pre-salt' fields could significantly boost Brazil's economy and influence on the world stage, while shifting the dynamics of global resource geopolitics. For major oil and gas firms the pre-salt fields present a tantalizing opportunity for replacing their reserves (and this is notwithstanding the economic downturn - the planning horizon of most such firms is decades, beyond the current slump). Several western energy firms including Shell, ExxonMobil, BG Group, and StatoilHydro were fortunate to be awarded concessions before the government realized the vastness of the reserves - these and many other companies may soon be vying to expand their involvement. So the discovery of the pre-salt fields clearly holds promise for the industry. But a provisional assessment using LicenseSecure - a framework developed by Critical Resource to help companies strategically manage the 'sociopolitical license' of major projects - highlights that, for the foreign firms, winning and preserving access to this oil on profitable terms will not be easy, not least given uncertainties over the Brazilian government's oil policy. At the same time, the experience of resource companies in other countries suggests pulling the right sociopolitical levers - from leveraging home government support to meeting host country development needs - can help reduce their risk of being left out in the cold. Will Brasília Call Off the Carnaval? Consider first the Brazilian government's current indecision on how to approach foreign involvement. After the discovery of the Tupi oilfield in 2007 - the largest global oil find this side of the millennium - the government withdrew 41 blocks from auction to energy firms and established a cabinet-level committee to draw up plans on how to re-structure and regulate the industry. In the coming year, a new set of rules is likely to replace the current system of relatively open concessions in place since 1997. Major western energy firms will probably be needed for their technical expertise and capacity - the operational challenges of developing the pre-salt fields are unprecedented. But the Brazilian government, like governments of many other developing oil-rich nations, also has an appetite for state control. Indeed President Lula and Minister of Mines and Energy Edison Lobão are backing a proposal to create a new 100% state-controlled company to take ownership of the reserves, in place of Petrobras (only 60% state-owned), and develop them in partnership with others. Though foreign firms would not necessarily be excluded from such partnerships, they could lose various financial benefits of the current concession system. President Lula's attitude to foreign involvement appears grudging - he has revived Petrobras' old nationalist slogan, "The oil is ours," in making the case for the new state-controlled companies. An alternative, less radical approach said to be favored by Brazil's industry regulator would maintain the existing system of concessions but still put the squeeze on companies through higher taxes and royalty payments - Brazil's royalty rates are still markedly lower than many of its South American neighbors. Besides uncertainty about how newcomers will be treated, this also raises the issue of whether existing contracts might be reviewed. Hard-liners in the government are partly responding to popular undercurrents of resource nationalism, particularly given an election due in 2010. An apparent focal point of resistance to foreign involvement is the Committee in Defense of Petroleum for National Sovereignty which brings together social movements, trade unions and students. Debates, marches and strategy sessions are reportedly beginning to take place across the country. At the end of last year, some 30,000 Petrobras employees went on strike over the government's refusal to cancel an on-shore oil and gas licensing round because, as one union leader explained, "we want Brazil's sovereignty to be preserved after the recent oil discoveries ... [which] should be used to improve the quality of life in Brazil and not given over to foreign companies." With one in five Brazilians (some 40 million people) living below the national poverty line and over 8% unemployed, expectations for oil wealth to translate into socio-economic benefits are understandably high, and as in many other countries, could rebound on foreign companies seen not to contribute sufficiently. South-South Relations Another potential concern for western energy firms is a recent landmark agreement between Brazil and China that might, in time, give Chinese companies an advantage over western oil firms in gaining access to projects. The deal basically guarantees some long-term supplies of oil to China in return for US$ 10 billion to help Petrobras develop the oilfields. But the deal appears to be more than a simple exchange of oil for finance - it also appears to cover some joint development of projects (between Petrobras and Chinese national oil companies, Sinopec and PetroChina), as well as supply of goods and services to Petrobras by Chinese companies. The wide scope of the agreement is reminiscent of China's recent approach to securing resources across Africa and former Soviet Union countries. As ties between China and Brazil become stronger - described by Brazil's foreign minister following the recent agreement as "the most important South-South relationship"- the space available to the international oil companies (IOCs) might become further squeezed. Taken together, these factors suggest a provisional LicenseSecure rating for the western energy firms looking to gain access - or expand existing access - to the pre-salt fields in Brazil of BBB to CC (roughly in the middle of the full range of scores of AAA to D). This gives grounds for optimism, but also suggests the need for careful management of sociopolitical issues. Crude and Refined Forms of Leverage Though the context for access clearly will be set by Brazilian government policies, companies may be able to improve their chances of getting in on favorable terms - and hanging on to such deals for the long term - by pulling the right sociopolitical levers. Our analyses of past resource projects using the LicenseSecure methodology certainly suggests this. One basic course of action energy firms have often found effective elsewhere, for example, is to leverage home government support - that is, to persuade their home countries to lobby on behalf of their involvement in a project (host governments may be looking for stronger diplomatic ties with the home country, for example). In the early 1990s, western firms' access to the three biggest former Soviet oilfields - Kovytka, Karachaganak and Kashagan - was unlocked at least in part with the help of targeted support by western governments, including high-level talks between government officials. In Africa, meanwhile, diplomatic support from Beijing has helped win Chinese oil firms access to reserves in Angola, Nigeria and elsewhere. Clearly such tactics need to be responsibly applied (lobbying should never metamorphose into bribery, for example), and with an eye to the long term: if host countries feel they have been pressured into a bad deal they may subsequently try to revise its terms (as later happened with some of the post-Soviet deals). But leveraging the support of home governments could be particularly helpful for western energy firms in Brazil as a way of balancing China's increasing involvement. Reports that Petrobras is negotiating with the governments of four other countries, including the US, suggest more scope for this. Contributions That Count Perhaps even more important for the foreign firms in the Brazilian context is to develop an access offer tailored to the country's broader development needs. Support for a country's domestic energy industry, national infrastructure and particular economic requirements has certainly made offers by foreign firms more attractive in the past. At Karachaganak in Kazakhstan, for example, British Gas and Agip's agreement to help fund improvements in local infrastructure and social and environmental conditions was reportedly a "key factor" in winning the tender for the massive reserves in the mid-1990s. In Brazil, foreign energy firms might consider how to support regionally balanced economic development, a particular priority - for example, by supporting the development of oil refineries and other production infrastructure in suitable parts of the country if this is commercially viable. Local employment and sourcing also can help win support, a point most of the major energy firms understand well (this could be a potential differentiator for the western firms given Brazil's apparent agreement with China for Petrobras to be supplied by Chinese companies). Finally, experience in other countries also suggests that IOCs can build closer ties with governments by engaging with them on how to maximize the broader economic benefits from resource revenues (or put another way, how to avoid the 'oil curse'). In the mining sector, research by the International Council on Mining and Metals has identified practical ways in which resource companies can bring together partnership involving governments and other stakeholders to improve socio-economic outcomes from mineral revenues, ultimately helping companies strengthen their license to operate. In Brazil, the administration is looking to the governments of other resource-rich countries such as Norway to help develop its approach, implying further scope for bringing together international governance coalitions. Clearly all such tactics will only go so far if Brazil decides to severely limit foreign involvement. But at the margin they could make the difference for companies seeking to gain or hang on to access - and for a commercial opportunity potentially worth tens of billions of dollars, even marginal advantages may be worth pursuing with determination. Critical Resource rates the health of the "sociopolitical license to operate" of resource projects using its own methodology, LicenseSecure. Ratings are based on a range of factors, including potential risks surrounding the project, the views of stakeholders (including governments and regulators), and also the way in which the company itself manages these issues. See the LicenseSecure page for more details. Please note this article provides a provisional rating for Brazil's pre-salt fields, based on publicly-available information, and hence sets out a range of potential scores. A full rating has yet to be calculated for projects in this area. Juliet Hepker is a senior associate at Critical Resource, an advisory firm specializing in sustainability and stakeholder issues in the natural resources sector. Input and guidance on this article was provided by Daniel Litvin. Juliet.Hepker@c-resource.com. www.c-resource.com.
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that only scientists and oil men knew was coming, but man was it big. It was a revised report (hadn't been updated since '95) on how much oil was in this area of the western 2/3 of North Dakota ; western South Dakota ; and extreme eastern Montana .... check THIS out: 
I also sent the information to all senators, (including my friend former president Jose Sarney) and to all dep**ado federais (congressmen) in Brazil. I also sent the information to a number of members of president Lula’s cabinet.
It was no accident the direct deal between Petrobras and the Chinese government. The Chinese did the smart thing, and I am sure they have been paying attention to these articles and the following discussions on the comments section.
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Brazzil Magazine – July 2008
“Why Brazilians Should Demand the Renationalization of Petrobras”
Written by Ricardo C. Amaral
http://www.brazzil.com/article...obras.html
Hits: 7457
Comments: 346
As of July 20, 2009
*****
RGE Monitor – July 2008
“Why Brazilians Should Demand the Renationalization of Petrobras”
Written by Ricardo C. Amaral
http://www.rgemonitor.com/lata...tion_of_p
etrobras
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“Petrobras Gets $10 Billion China Loan, Sinopec Deal”
By Iuri Dantas and Jeb Blount
Bloomberg News – February 19, 2009
Feb. 19 (Bloomberg) – Petroleo Brasileiro SA, (Petrobras) Brazil’s state-controlled oil company, agreed to a $10 billion loan from the China Development Bank, and to supply oil to the Asian nation.
“There are two important commercial agreements and a finance accord that demonstrates new possibilities for raising money,” Chief Executive Officer Jose Sergio Gabrielli told reporters after a signing ceremony in Brasilia today.
Petrobras, as the Rio de Janeiro-based firm is known, also agreed to sell as much as 100,000 barrels of oil this year to China Petroleum & Chemical Corp.’s Sinopec unit, Gabrielli said.
The loan will be used for general corporate purposes and to help Petrobras pay for a $174.4 billion, five-year investment plan, Gabrielli said, without giving details of the loan’s cost. The final terms of the loan will be worked out between now and May, when Brazilian President Luiz Inacio Lula da Silva travels to China on a state visit, a spokeswoman for Gabrielli said. The spokeswoman asked not to be named, citing company rules.
Petrobras has been talking with China about the loan since last year. The company has been seeking alternatives to international bank lending and bonds to finance its spending plan in the face of an international credit crunch.
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