Brazil, bon appetit!

The oil industry has all but handed Brazil’s new president, Michel Temer, a recipe for rekindling investor enthusiasm after his predecessor Dilma Rousseff was forced to step down yesterday. Ease local content rules, nix the sub-salt operating mandate of state-controlled Petrobras, level the playing field for transshipment, improve the framework for upstream unitisation. Tick the boxes, Mr Temer, and a sub-salt bidding round next year should restore Brazil’s prestige as an oil province, the industry says.

This shouldn’t be an Olympian task. Most Brazilians are weary of the political crisis that has gripped the country since Rousseff was re-elected in 2014. Her temporary suspension on fiscal responsibility charges that many cool heads find dubious was a watershed, and a relief for the business community that is just eager to move on. And after all, vice-president Temer has been preparing to take power for months.

But it won’t be easy. The impeachment trial itself, and a vengeful Workers party that sees Rousseff’s ousting as a coup, promise to drag out the process and provide a volatile backdrop for Temer’s reform agenda. As many have now pointed out, he didn’t help himself by selecting an all-white male cast for his cabinet in a country as diverse as Brazil. Even the Olympic Games that start in Rio in August are seen as something of a joke in a country that has too many other things to worry about.

Where does all this leave the oil sector? A humbled Petrobras is selling assets as fast as it can, while foreign oil companies led by Shell lobby for reforms to make the most of their gargantuan offshore holdings on leaner budgets. Brazil’s oil production itself is falling, because output growth from the sub-salt is still no match for the effect of maintenance and natural decline at ageing Campos basin fields.

That trend should eventually reverse. But the pace of a revival will depend on a more complex recipe, and a new chef.


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