Petrobras Said To Delay Oil Policy Plan Till July

Sources say delay meant to wait for the time of government rescue program announcement.

Brazilian oil giant, Petróleo Brasileiro Petrobras SA (ADR) (NYSE:BPR), is reported to have delayed plans to announce the details of  its major cuts of its more than $220 billion spending program till next month, apparently waiting for the government to announce plans to rescue the program for the energy industry.

In the face of struggling corruption scandal, steep low oil prices, and possession of the biggest debt of any oil business, Petrobras has had to commit deep spending cuts to about 30% of its committed spending till the end of this month.

But that move is facing political and internal resistance in terms of said cuts, assuming the importance of the oil major playing in the country’s economy, which has been facing a slowdown due to high interest rates to fight inflation, corruption, infrastructure bottlenecks, red tape etc., according to executives in the company.

However, any government involvement is likely to make the Brazilain oil major even weaker than it is, as a sign that the country is resorting to nationalism of its resources, and could probable spook away potential foreign investors in oil sector, already dented by the high cost of operating in a fairly inhospitable environment.

Petrobras is known to spend at least $40 billion of annual expenditure on ships, oil systems, platforms, and refineries, which are more than double of the government’s discretionary spending.

Sources stated that the government’s rescue program likely replicates the one proclaimed earlier this month to boost funding in highways, ports, and other infrastructure with private capital. This is because following the scandal, Petrobras was not able to pay its suppliers and had to depend on government to do that, though most of the contractors still had to file for bankruptcy.

There needs to be a change in the oil law, which calls for Petrobras to hold at least a 30% stake and serve as any new development contract in Brazil’s most prolific oil fields. Ending that requirement will open up spaces for the private sector, such as Exxon Mobil and BP, to give a shot in the development of the field.

However, this would not be an easy ride though, despite support from Petrobras CEO, Aldemir Bendine, the Head of Oil Regulator, ANP, and Brazil's Energy Minister, Eduardo Braga. One coalition official said that for now consultations are taking place, and quite a lot are in for the change, but not everyone has thought about it in Congress. The President is the one to consider the matter, as well as what her type of law she wants.

Petrobras stock price ended the day flat at $9.50.