According to a report from the Wall Street Journal,"Brazil heralded this week's auction of a huge oil field as a vindication of its state-dominant approach to its oil riches, but some industry experts say the country must modify its rules before new fields are sold for Brazil to achieve its aim of becoming an oil powerhouse".
"The government hailed the auction of the massive Libra oil field on Monday as a success after four foreign oil giants agreed to join forces with state-owned Petroleo Brasileiro to undertake the development.
The companies are expected to invest around $200 billion over the 35-year lifetime of the concession.
Brazil is competing to become a top oil producer following the discovery in 2007 of enormous "pre-salt fields" off the country's southeast coast, which sit under a deep layer of salt.
But detractors point out that it took the country five years to hold the first auction related to the discovery, and will take years more to develop. Meanwhile, Brazilian production has slipped to 1.9 million barrels a day from a peak of 2.11 million in 2011.
A big reason for the delay, industry experts say, was a new regulatory system that the government designed to give it about 80% of the proceeds from oil, one of the highest percentages in the world.
The rules also required Petróleo Brasileiro, or Petrobras, to have at least a 30% stake in every project and operate the fields. Those requirements, many say, are straining the company's capacities and potentially limiting the pace of development.
Experts also say the new rules that require private firms to buy roughly half of their supplies locally in an effort to spur Brazilian industry will drive up costs.
Further, the bidders, Royal Ducth Shell PLC, Total SA, Cnooc Ltd. and China National Petroleum Corp.,will provide a record signing bonus of about $7 billion.
The new legislation was put to the test for the first time on Monday, when the government sold the rights to operate Libra, a field with estimated reserves of between 8 billion and 12 billion barrels of oil, with a potential daily output of about 1.4 million barrels a day. And many people laud the results.
The government says the delay in writing new rules and holding an auction will produce better results for the economy. By requiring oil companies to invest locally, it hopes to spur local development. Even under the old rules, there have been some successes: the nation's naval construction industry is now undergoing an oil-related boom after it was decimated in the 1990s.
Yet that comes at a cost. After the government opened up the oil industry to the private-sector in 1998, there was a rush of investments that led to a series of discoveries, culminating with the pre-salt fields. But there followed a five-year period with no new auctions, slowing the pace of discoveries and sapping the industry of momentum".
