Brazil's state oil company Petrobras was, until very recently, held up as an example of efficiency and sound management, one that the rest of Latin America's large state-controlled oil companies should follow. Those days are firmly over. 'Operation Car Wash', a corruption case involving the payment of hundreds of millions of dollars in bribes to Petrobras and government officials by companies that won contracts with Petrobras, is the latest in a series of problems fueling skepticism about the Brazilian oil sector.

Beyond the scandal, the country's oil production growth has slowed, the pace of exploration has leveled off, and oil prices remain depressed, all of which, in conjunction, expose serious problems in Brazil's oil model. Perhaps foremost amongst these is the inflexibility of the prevailing regulatory framework.

A general lack of interest in the only auction for pre-salt areas in 2013, and the recent postponement of the 13th licensing round for blocks in the Margen Oriental, are signs that Brazil's 'passport to the future' - a term coined by ex-president Lula da Silva in reference to the offshore pre-salt area and the riches oil would bring to the country - is in serious trouble.

Yet, paradoxically, the current situation could also open the door to new opportunities for oil companies. Indeed, the ambitious asset sale announced by Petrobras in February, and the possibility that certain aspects of the current regulatory framework will be modified, could well renew interest in the Brazilian market.

Then mining and energy minister Edison Lobão (second from left) at Brazil's first pre-salt oil auction on October 21, 2013, with oil executives. CREDIT: AFP FORUM


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