By Jeb Blount and Nidhi Verma
RIO DE JANEIRO/NEW DELHI, July 4 (Reuters) - Petrobras has
warned its Indian partners in a huge offshore project to not
expect oil from the site until 2022, according to sources, a
fresh sign of how low oil prices and the state-owned company's
corruption scandal and mountain of debt are dragging on Brazil's
energy industry.
The previously unreported, four-year delay in the
"super-giant" discovery off the northeastern coast of the
Brazilian state of Sergipe is forcing India's Oil and Natural
Gas Corp ONGC.NS and IBV Brasil Petroleo Ltd to seek ways to
speed up the Petrobras-led project which has cost them $2.1
billion with no return in sight.
The delay and pressure from the Indian partners is just one
of many challenges for new Petrobras Chief Executive Pedro
Parente, named by Brazil's interim-President Michel Temer in
late May amid an ongoing financial crisis.
In the face of a massive bribery and kickback scandal and
Petrobras' $126 billion of debt, Parente has pledged to run the
company in a more market-friendly way but has declined to
comment on individual projects. He has also promised a revamped
investment plan by the end of October - though it is unclear
whether it will address the Sergipe offshore standoff.
In April, Petrobras told IBV, a 50-50 joint venture between
state-owned Bharat Petroleum Corp BPCL.NS and privately held
Videocon Industries Inc VEDI.NS , that there will be no oil
output from Sergipe "until at least 2022," an IBV executive told
Reuters. A year ago, Petrobras' promised first oil by 2018.
Hoping to speed up development, IBV told Reuters it has
offered to arrange up to $10 billion in loans from Indian and
other international development banks to finance the Sergipe
development - Brazil's biggest oil prospect outside the prolific
subsalt region near Rio de Janeiro where Brazil is pinning hopes
of energy independence.
"It's a common and simple loan structure, if Petrobras is
willing to provide future output as collateral, it won't have to
pay a penny until oil starts flowing, something we could can
probably do by 2020," the IBV executive said.
"But we get the feeling that Petrobras has yet to accept its
new, more restricted circumstances," the executive added.
Petrobras told Reuters it has yet to receive a formal
proposal from its Indian partners to finance the project. Asked
about the delays, Petrobras said in a statement it has invested
about $3.5 billion on exploration in the Sergipe blocks it owns
with ONGC and IBV. It expects to complete a development plan for
the areas by 2020 but has no date for the first production of
oil.
All development decisions have been made in conjunction with
its partners, Petrobras said, and delays have been the result of
"considerable" deepwater technical challenges, efforts to reduce
costs and a lack of infrastructure to transport the area's
natural gas.
After investing $2.1 billion in the offshore finds since
2007, the Indian partners are getting impatient.
"We can't put off a return forever," the IBV executive,
whose company has spent $1.6 billion in Sergipe, told Reuters.
"We've been investing for nearly a decade. They now say we'll
have to wait at least four years more. In our experience with
Petrobras, it will probably be longer."
An ONGC executive, who also declined to be named, said the
partners hope the new Parente regime will speed up development
plans "so that we can monetize and unlock the potential at the
earliest."
The company did recently relinquish its stake in one of two
proposed production areas in the Sergipe block that it owns a
quarter of to partner Petrobras.
SHARED BLAME FOR DELAYS
In nine years, ONGC has invested $500 million exploring with
Petrobras off the coast of Sergipe. It has spent another $2
billion elsewhere in Brazil and produces about 12,000 barrels a
day in the country, a small amount considering the outlay so
far.
The expected prize, though, is Sergipe. The BM-SEAL-11
block, 40 percent controlled by IBV, holds more than 3 billion
barrels of oil and equivalent natural gas, enough to supply all
the world's petroleum needs for more than a month. There are no
public estimates for the two adjacent blocks, one fully owned by
Petrobras and the other owned 25 percent by ONGC, but people
involved with them say the volumes of oil and gas are very
large.
The Sergipe project's problems have also been compounded by
IBV and ONGC's own failures. Two sources involved with the
Indians in Sergipe exploration said IBV and ONGC often missed
deadlines to pay their share of costs, only paying after
Petrobras threatened legal action.
The Indians confirmed the delays, which they blamed on
partner Videocon, which has cash flow problems and may sell its
IBV stake. Videocon executives were not available for comment.
Venugopal Dhoot, chairman of Videocon told the Business
Standard Newspaper in June that his company was considering the
sale of its oil and gas assets to pay debt.
Both IBV and ONGC also declined to invoke clauses in the
blocks' contracts allowing them to move ahead with development
on their own if Petrobras demurred.
"Unfortunately, everybody in Brazil is afraid to challenge
Petrobras, even if they have a case. They know Petrobras, and
perhaps the government, will retaliate," said John Forman, a
geologist and former director of Brazil oil regulator ANP.
"Court fights can drag on for years, so you lose even if you
win."
Whatever the reason for delay, Brazil may be the biggest
loser. While ONGC and IBV bought their Sergipe stakes in 2007
from existing leaseholders Petrobras and Encana, Brazil's oil
regulator ANP has allowed partner Petrobras to delay a start to
production by extending exploration rights in the areas
repeatedly.
Had the ANP enforced tighter deadlines, designed to prevent
companies from hoarding assets without developing them, Sergipe
might be producing, or near first production, today and
providing revenue for Brazil's cash-strapped Treasury, Forman
said.
The tendency to give Petrobras such wide latitude underlines
Brazil's conflicted priorities as it tries to revive both its
economy and largest company, he noted.
"In Brazil we say 'the oil is ours', that it belongs to the
people. In reality we act like it belongs to Petrobras," he
said.
(Writing by Jeb Blount; Editing by Christian Plumb and Edward
Tobin)