Brazil oil sector awaits reformsOREANDA-NEWS. May 16, 2016.Foreign oil companies operating in Brazil are awaiting major reforms after President Dilma Rousseff was suspended from office when the senate approved an impeachment motion against her, making vice-president Michel Temer the interim president.

The 81-member senate voted 55-22 in favour of initiating an impeachment trial against Rousseff over allegations that she mismanaged state finances before her 2014 re-election, which she denies. Rousseff and her supporters call the impeachment campaign a coup. The senate's motion requires Rousseff to step down for up to 180 days while the body conducts an impeachment trial. If the trial results in her being ousted, Temer would serve out her term as president until 2018. This is the second impeachment case in the 31 years since Brazil returned to democracy after over two decades of military rule.

A Temer presidency is widely seen as a first step toward lifting Brazil out of a deep political malaise and economic recession, driven in part by a corruption scandal centred on state-controlled oil company Petrobras. Temer, whose political party is alleged to be one of the main beneficiaries of the corruption at Petrobras, has only a small window of opportunity to adopt measures that would address the country's finances and attract investors, analysts say. Brazil's GDP is expected to shrink by 3.7pc in 2016, largely in line with last year. Temer has already assembled a cabinet designed to facilitate the swift adoption of market-oriented economic reforms. But he faces intense opposition from Rousseff's PT party, which has led Brazil for the past 13 years.

Labour unions opposed to the impeachment proceedings against Rousseff and the privatisation agenda that Temer is expected to pursue have threatened to launch a general strike, which could hinder the transitional government's efforts and affect Petrobras' upstream and downstream activities. The union that represents workers at Petrobras transport subsidiary Transpetro say it could launch a nationwide, indefinite strike in the coming days.

Making a list

The oil industry's wish list for reforms of the sector includes a relaxation of strict local content rules that require projects to use domestically sourced goods and services, the elimination of a legal provision that mandates a minimum 30pc operator role for Petrobras in all sub-salt projects, and clearer and more flexible rules for oil transshipment in Brazilian waters.

The government also needs to adopt clear rules on the unitisation of interconnected post and sub-salt oil fields, state-owned sub-salt marketing firm Pre-Sal Petroleo director Edson Nakagawa says. The rules, particularly the so-called sole operator provision, are widely criticised as constraints on the development of the country's sub-salt reserves, which are estimated at more than 50bn bl of oil equivalent. Pre-Sal Petroleo puts the optimal price for sub-salt projects at \\$24-44/bl, but some industry executives say the breakeven price may be lower for specific schemes.

Recent sub-salt discoveries extending beyond the boundaries of post and sub-salt areas already under contract have raised questions for the government, which is still debating how these areas should be treated. Pre-Sal Petroleo, established in 2013 to represent the state's interest in production-sharing agreements, has concluded four unitisation agreements and is considering another eight. Nakagawa expects national energy council CNPE to publish regulations on unitisation in the coming weeks. The rules are seen as key to raising interest in a new bidding round planned for 2017.