LATIN AMERICA ADVISOR ENERGY ADVISOR A WEEKLY PUBLICATION OF THE DIALOGUE www.thedialogue.org September 16, 2016 BOARD OF ADVISORS FEATURED Q&A TOP NEWS Mary Rose Brusewitz Partner, OIL & GAS Strasburger & Price Can Temer Boost Jeffrey Davidow Lula Charged Senior Counselor, in Petrobras The Cohen Group Brazil’s Struggling Graft Case Ramón Espinasa Consultant, Brazilian prosecutors on Inter-American Development Bank Energy Sector? Wednesday fi led charges against Luis Giusti former President Luiz Inácio Lula Senior Advisor, da Silva, his wife and six others Center for Strategic & in connection with the massive International Studies corruption scheme at state-run oil Jonathan C. Hamilton company Petrobras. Partner, Page 2 White & Case Raul Herrera Partner, POWER SECTOR Corporate & Securities Practice, Arnold & Porter IEnova Plans to James R. Jones Raise Over $1 Bn Chairman, ManattJones Global Strategies in Share Off ering Jorge Kamine Brazilian President Michel Temer has vowed to implement policies with the goal of attracting Mexican energy infrastructure Counsel, investment in the energy sector. // File Photo: Brazilian Government. company Infraestructura Energet- Skadden Arps ica Nova plans to raise more than Craig A. Kelly $1 billion in a secondary share of- Michel Temer was sworn in as Brazil’s president on Aug. Director, fering next month, which would be Americas Int’l Gov’t Relations, 31, replacing ousted President Dilma Rousseff. How will one of the biggest Mexican equity Exxon Mobil the change in government, which puts Temer in power until placements in recent years. Jeremy Martin Q Page 3 Director, 2018, affect Brazil’s struggling energy sector? Will the Te- Energy Program, mer administration be able to work with Congress and turn the page on Institute of the Americas Petrobras’ protracted corruption scandal? What energy policy changes OIL & GAS Larry Pascal Chairman, are expected to come from a Temer government? PDVSA Proposes Americas Practice Group, Haynes & Boone $7 Bn Debt Swap Charles Shapiro Johanna Mendelson Forman, senior advisor with the Man- PDVSA President Eulogio Del President, Pino on Tuesday announced a aging Across Boundaries Initiative at the Stimson Center: World Affairs Council of Atlanta proposed $7 billion bond swap in R. Kirk Sherr “President Michel Temer’s business-friendly Brazilian Demo- outstanding debt in order to ease President, cratic Movement Party may not be enough to help him rebuild cash-fl ow concerns for the state Clearview Strategy Group A the struggling energy sector in Brazil. Caught in a crisis of legitimacy, oil company. Garrett Soden Page 2 Director, Temer’s troubles with the Lava Jato legal investigation will not go away Etrion Corporation just because he was able to rid himself of Rousseff. The investigation has Mark Thurber revealed the connections between his party and the Workers’ Party to si- Partner, Andrews Kurth phon billions of dollars from Petrobras. Future outcomes in the corruption Alexandra Valderrama probe ultimately will not only affect the energy sector, but will also further Manager, International Government Affairs, erode the limited legitimacy that Temer and his government enjoy with Chevron ordinary Brazilians. Months before Dilma’s removal from offi ce at the end Lisa Viscidi of August, many international oil industry analysts thought that a change Program Director, Inter-American Dialogue in government would open a new chapter in Brazil’s energy sector. But the Max Yzaguirre scope of reforms needed may far exceed the government’s capacity, given President and CEO, the high level of distrust in Congress and in President Temer’s capacity The Yzaguirre Group to effect change. If Temer is able to set a reform agenda for Petrobras, he will face hostility from the Workers’ Party in Congress in making any Del Pino // File Photo: Venezuelan Government. Continued on page 3 COPYRIGHT © 2016, INTER-AMERICAN DIALOGUE PAGE 1 LATIN AMERICA ENERGY ADVISOR September 16, 2016 OIL & GAS SECTOR NEWS million more for planned crude imports than it NEWS BRIEFS had originally anticipated, according to internal PDVSA Proposes documents seen by Reuters, the wire service Argentina’s Aranguren reported Tuesday. Despite holding some of the Sells Stock in Shell $7 Bn Debt Swap world’s largest crude reserves, Venezuela in March made its fi rst crude purchase from BP Argentine Energy Minister Juan José Aranguren Amid Cash Shortage in order to dilute its own extra-heavy crude. has sold his stock in the energy company Royal Venezuela awarded BP a large tender, for which Dutch Shell, President Mauricio Macri con- Venezuelan state-run oil company PDVSA on the South American country had expected to fi rmed Tuesday to La Nación. The announce- Tuesday proposed a $7 billion bond swap in pay $230.9 million, or approximately $31 per ment comes after the country’s anti-corruption outstanding debt in order to ease cash-fl ow barrel, in prepaid shipments of 7.4 million bar- offi ce called on Aranguren to sell his shares concerns, Reuters reported. Following PDVSA rels. Venezuela’s delays in payments, however, in the company to avoid a confl ict of interest, President Eulogio Del Pino’s announcement had prevented BP from sending its crude to though Macri maintained that the minister sold of the program, the company’s bonds surged Venezuela on time, which resulted in BP repric- his shares “by his own volition.” Aranguren ing some of its cargoes, as well as charging served two years as head of Shell Argentina PDVSA for keeping vessels offshore. until 2015, when he left after 37 years, and They are doing this later was appointed energy minister by Macri in because they don’t have Brazilian Prosecutors December. other choices.” — Russ Dallen Charge Lula in Petrobras’ Pre-salt Petrobras Graft Case Oil & Gas Production Wednesday as investors bet that the debt-swap plan would bolster fi nances, The Wall Street Brazilian prosecutors on Wednesday fi led Grows 4 Percent Journal reported. The program would allow charges against former President Luiz Inácio Petrobras’ oil and natural gas production in bondholders to exchange debt maturing in Lula da Silva, his wife and six others in con- pre-salt fi elds grew by 4 percent last month to 2016 and 2017 for debt due in 2020. Detailed nection with the massive corruption scheme 1.36 million barrels of oil equivalent per day, terms on the program have not been disclosed. at state-run oil company Petrobras. In a news the state-run oil company announced Monday. The company had been racing to increase its conference, Public Prosecutor Deltan Dallagnol The new monthly record was attributed mainly cash fl ow amid reduced output, a global de- alleged that Lula was the mastermind behind to the connection of new wells as well as in- cline in oil prices and approximately $8 billion the scheme that siphoned some 6.2 billion creased production in wells already connected worth of debt maturing in 2016 and 2017, with reais ($1.9 billion) from the state oil company, to fl oating production storage and offl oading the majority due later this year. “They are doing The Wall Street Journal reported. Some of the vessels Cidade Maricá and Cidade de Saquare- this because they don’t have other choices,” money, prosecutors allege, was directed to Lu- ma in the Lula fi eld of the Santos Basin. said Russ Dallen, a managing partner at la’s Workers’ Party and its allies in an effort to Caracas Capital, an investment bank. The debt keep the then-ruling party’s coalition in power. swap is expected to reduce the oil company’s “He was the conductor of this criminal orches- near-term payments, and may help Venezuela’s tra,” Dallagnol said Wednesday of Lula, Reuters Pemex Discovers Six sovereign standing. It’s not clear, however, that reported. “The Petrobras graft scheme aimed New Crude Deposits the debt swap will be enough to “offset the at keeping the Workers’ Party in power by in the Gulf of Mexico worsening political situation,” when it comes to criminal means.” Lula has consistently denied Mexican state-run oil company Pemex has Venezuela’s sovereign rating, said Jaime Reus- wrongdoing, and his lawyers said Wednesday discovered six new offshore deposits of light che, an analyst at Moody’s Investors Service. that prosecutors lacked evidence to support crude oil, the company announced Tuesday, The cash shortage has impaired the company’s the charges. “This Lula-centered farce was The Wall Street Journal reported. The discov- ability to import much-needed diluents that trumped up as an affront to the democratic eries, which are located in the Gulf of Mexico, allow PDVSA to formulate exportable crude state and intelligence of Brazilian citizens,” likely contain between 190 and 220 million as well as produce refi ned products for the said one of the former president’s lawyers, barrels of oil equivalent. Pemex did not say country’s domestic market. Delayed payments Cristiano Zanin. The formal charges against when it will begin drilling the new wells. In for crude imports due to cash shortages have Lula and his wife focus on a more narrow alle- recent years, decreased revenue due to low oil been costly for the company, which will have gation—that the former president and his wife prices has led to severe budget and production to pay oil major British Petroleum at least $130 illegally received approximately $1.1 million cuts at the company. COPYRIGHT © 2016, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ENERGY ADVISOR September 16, 2016 in improvements and expenses related to a RENEWABLES NEWS a “threat to the health and wellbeing of society,” beachfront apartment, paid for by construction EFE reported. The two Latin American nations giant OAS, which was seeking government con- join top polluters the United States and China, tracts, The New York Times reported.