Monday, January 25th 2016 - 10:36 UTC

Oil price plunge distorts Brazilian market and leaves Rio cash strapped

Brazil's President Dilma Rousseff approved a resolution to maintain the current system for establishing the minimum price of oil on which royalty payments are paid by state-run oil company Petrobras to local governments.

“Brent Dated” index, based on a seven-day rolling average price for crude, will be used up to the price level of $50 a barrel, said the decree signed by Rousseff

Rio de Janeiro state, responsible for two-thirds of Brazil's oil output and 40% of its natural gas. Rio has been pressing the government to update the price methodology

Rio de Janeiro state, responsible for two-thirds of Brazil's oil output and 40% of its natural gas. Rio has been pressing the government to update the price methodology

 The so-called “Brent Dated” index, based on a seven-day rolling average price for crude, will be used up to the price level of $50 a barrel, the National Energy Policy Council said in the official government gazette on Friday.

Brent crude has fallen by more than half to $31.29 per barrel, from a 2015 peak of $67 per barrel. The plunge has dried up government revenues in many oil exporting countries.

Although not a major oil exporter, Brazil is struggling to curb growth in federal and state spending in the face of falling revenues. For states such as Rio de Janeiro, oil revenues are vital to funding public services.

Rio de Janeiro state, responsible for two-thirds of Brazil's oil output and 40% of its natural gas. Rio has been pressing the government to update the price methodology. The dispute has raised the perception of risk in Brazil's oil industry, adding to some investors' to opposition to Royal Dutch Shell Plc's $49 billion purchase of BG Group Plc, Brazil's No. 2 oil producer.

In December, unable to win changes from the government and facing a financial crisis, the state of Rio de Janeiro imposed taxes and fees on oil production. Rio hopes to raise 1.84 billion reais ($450 million) this year from the taxes. State officials believe the royalty formula undervalues growing volumes of valuable light crude from giant new “subsalt” fields off the coast.

Instead of higher royalties, producers such as Petrobras, BG, Shell, Portugal's Galp Energia SGPS SA, Norway's Statoil ASA and Spain's Repsol SA now face higher taxes.

Edmar de Almeida, economist at the Federal University of Rio de Janeiro, says the taxes put “subsalt” development at risk by cutting revenue by about a quarter.

With the taxes, the crude price needed for subsalt areas to break even rises to $60-80 per barrel from $40-50 a barrel. Late Friday, Brent crude futures traded at $31.52, down from more than $100 a barrel in late 2014.

While industry officials plan a court challenge, Rio is sticking to its guns. The state's budget crisis has left public servants unpaid, cut spending on Rio's 2016 Olympic Games in August, and turned the sick away from hospitals.

9 comments Feed

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1 yankeeboy (#) Jan 25th, 2016 - 01:15 pm Report abuse
That's a really quick way to get rid of all of your production and send the Int'ls out of the country.

I told you the Marxists would go back to type. Tax Spend Deflate Crash
Its all they know.
2 Jack Bauer (#) Jan 25th, 2016 - 03:33 pm Report abuse
The fat cow puts her foot in her mouth, yet again. She thinks she can legislate her way out of the crisis. Resigning would be a solution.

But I'm interested in hearing the BRasshole's take on the price of crude extracted from subsalt areas, needed to break even..........he told us last week that the cost was of extraction was only US$ 8 to 9 per barrel....

Brasshole ???
3 ChrisR (#) Jan 25th, 2016 - 06:33 pm Report abuse
@ 2 Jack Bauer

He forgot the zero after the 8 or 9!

DumbAss Dilma can't help but do exactly the wrong thing every time.

I wonder if the Military are firming up their plans to sort this crap out once and for all?
4 Brasileiro (#) Jan 25th, 2016 - 07:12 pm Report abuse
$ 8 a barrel! This is the cost of Petrobras extraction in the pre-salt.

www.jb.com.br/economia/noticias/2016/01/13/alta-produtividade-garante-que-pre-sal-seja-viavel-mesmo-com-barril-em-queda/
5 yankeeboy (#) Jan 25th, 2016 - 07:46 pm Report abuse
$8 to get it out and $20 for the barrel.
That doesn't leave much for transportation or overhead.

Or paying back the U$130B they owe.

PBR less than U$3
Default 3...2...
6 Brasileiro (#) Jan 25th, 2016 - 07:50 pm Report abuse
I have said for what reasons Petrobras is impossible to break.

Already the North American oil companies are breaking by the dozen.
7 yankeeboy (#) Jan 25th, 2016 - 08:04 pm Report abuse
PBR market cap is U$11B

Its a mid cap stock here
Pittance and irrelevant

Exxon/Mobile is 30X larger than PBR.

Bras you're just too brainwashed to be taken seriously.
8 Jack Bauer (#) Jan 26th, 2016 - 04:27 pm Report abuse
Was curious to see what PB had to say about 'their own' performance, so I opened the BRasshole's link @4 : PB alleges their cost of extraction is US$ 8 per barrel....but that value does not include royalties, 'special participations' (whatever that is - perhaps the PT's secret participation ?), nor return on investment. According to the same article, when the sub-salt projects were approved, PB expected the price per barrel ('Brent') to be between US$ 45-US$ 52, including all the taxation costs, for the investment to be economically viable. Today, the price (of 'Brent') is US$ 30......and in their last announcements regarding their 'very efficient' operation, they have omitted mentioning the new break-even point....I wonder why ?
But going back to the BRasshole's passionate defence of PB, by saying it “is impossible to break”, I'm inclined to agree with him, but for totally different reasons ; The fat cow has already 'suggested' that the national Treasury funds might be used to bail out PB, or even the use of Brazil's international reserves....as brainless and illegal that may be, the sad fact is that the PT knows, if PB breaks, they disappear along with it.
9 yankeeboy (#) Jan 26th, 2016 - 04:45 pm Report abuse
Brazil doesn't have enough money to bail out PBR. The best they can hope for is that the parts they sell off have buyers.

Don't be surprised if loans start to be called when it gets to U$1/share.
That may be next week :)

PBR is as toxic as Brazil is right now.
The majors will pick the good parts out and leave Brazil with the carcass and the debt.

Very soon oil will only be used by poor countries. Its time is almost done.

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