Uncertainties at ME, GOM and WA making Brazil more attractive to O&G investors

This is true for all areas of the O&G industry and definitely highlights the importance of Brazil´s pre-salt E&P. The recent unrest experienced in Bahrain in the Middle East, the ongoing civil war in Libya, rampant attacks on oilfields in Nigeria and uncertainties in other WA countries, added to the drilling moratorium at the GOM may have a substantial influence in O&G related investments being increasingly channeled to Brazil.

One of the consequences of the international unrest that is influencing an increase in investments in the Brazilian pre-salt, is the increase in world oil prices, which is at around $113 a barrel of Brent, with the latest rise directly resulting from the clashes in Libya and unrest in other Middle East countries, such as Bahrain, Saudi Arabia, Iraq, Kuwait and the ever ebullient Iran. The higher oil prices also tend to make deepwater pre-salt E&P projects more attractive as they increase the profit margins for investors.

Another factor that is increasingly attracting investors to Brazil is the country´s political and economic stability, which in light of the instabilities in the Middle East and WA is a major factor in tipping the investment balance in Brazil´s favor. Although Brazil still faces a grim prospect in trying to curb illiteracy, violence and corruption, the country has proven to be a stable democracy in the last couple of decades and faces no imminent social, political or economic unrest. It could be said that Brazil´s main worries businesswise are in curbing corruption in its institutions, which is something that is very annoying to foreign investors. Also in modernizing the local bureaucracy would be welcome, since at time it can be very confusing and inefficient, increasing costs for for the country and for investors and making even simple procedures become unduly complicated, something that bothers investors accustomed to more efficient bureaucracies. A good example of efficiency in government services and bureaucracy in South America is undoubtedly Chile. Unfortunately, it is also the only example that can be given in Latin America

There is no doubt that investors in the O&G industry will continue flocking to Brazil and not only because of the pre-salt, as there is much still to be explored offshore and onshore in Brazil.

It will be immensely important that the Brazilian Federal and State governments crack down in corruption and in some way streamline and also increase the efficiency of present bureaucratic procedures as these will inevitably delay and eventually even curtain foreign investments entering the country.

Claudio Paschoa