Already mired in a multibillion dollar corruption scandal, Brazil's Petrobras faces the prospect of a funding crunch for its projects to develop huge deepwater oil deposits that represent the country's energy future.
With oil prices diving to their lowest level in five years and Brazil's currency also sliding, analysts say Petrobras is likely to encounter difficulty maintaining its current pace of investments in the so-called "pre-salt" deposits in the Atlantic.
Discovered in 2006, the deposits are estimated to hold 100 billion barrels of recoverable oil, more than double Brazil's known oil reserves. If successfully exploited, they could double Petrobras' daily production to five million barrels by 2020.
But the huge deposits are trapped below salt formations under the ocean floor 230 kilometers (150 miles) off the Brazilian coast, and extracting oil from them presents numerous technological challenges.
Encompassing a 149,000 square kilometers (57,530 square miles) area, they are not just far from shore but also below several kilometers of water, several layers of rock and another two kilometers of shifting salt.
Petrobras is committed to investing $82 billion overall in pre-salt between now and 2018, amid a $237 billion five-year investment plan comprising one of the world's biggest corporate spending programs.
Petrobras officials say that even with oil selling in New York and London in the mid-$60 a barrel range, it is still well above the oil company's breakeven price of $41 per barrel.
"I don't know of any pre-salt project that cannot resist the $70 or even the $60 mark," Magda Chambriard, chair of Brazil's National Petroleum Agency (ANP), said last week.
Petrobras has sole operator status for the pre-salt and a guaranteed minimum participation of 30 percent in each exploration bloc in partnership with foreign firms including Shell and Total and two Chinese companies.
- High cost -
Launching an onshore well costs around $5 million even without complications.
But in the pre-salt zone well out to sea the bill soars to $120 million.
To date, only one field, Lula, has reached the production phase.
Even if oil prices drop still further, foreign firms will likely keep wells in production as they come on stream in the knowledge costs will fall as production rises. Lula production, for example, costs just $9 per barrel.
Pre-salt production is currently running at more than 500,000 barrels per day, equivalent to 20 percent of the firm's overall production.
- Maintaining investment -
But analysts say the more pressing issue facing Petrobras is how to keep up investment during the most costly exploration phase.
The firm faces growing fallout from the kickbacks scandal which ratings agency Fitch last week warned could threaten its investment grade status. That in turn could make it more costly for Petrobras to borrow money.
Petrobras's investments in the scheme this year are set to top $40 billion but the price of oil will impact its ability to keep that up.
The company booked second-quarter sales of $37 billion but saw profits slide 20 percent.
"If things continue as they are there will be a high risk of not obtaining the cash to continue to invest $40 billion," warns Edmar Fagundes de Almeida, an economics professor specializing in energy at Rio University.
"Petrobras will opt to drop other refinery and gas projects," and also sell off shares in order to keep the pre-salt party going, Almeida believes.
Further problems the firm faces are the recent fall of the Brazilian real against the dollar, while the government has also forced Petrobras to apply fuel subsidies for domestic customers while it must import supplies at the full market rate from abroad.