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Inside Petrobras, opinion on how to respond to Ecuador’s actions was divided. One group was inclined to rely on the Brazilian government to assist in fashioning a broader political solution, similar to what happened in 2006 in response to the Bolivian government’s changes to Petrobras’s gas exploration and development contracts with that country. Another group advocated that, as a public company, Petrobras should act accordingly and seek compensation through international arbitration, perhaps at the International Center for Settlement of Investment Disputes (“ICSID”). (See Exhibit 2 for ICSID’s member States.)
Petrobras
When founded in 1953, Petrobras, Brazil's state-controlled oil company, was a vital symbol of national pride. "The oil is ours" was an oft-repeated slogan. The company was incorporated as a mixed-capital company1 with a government-granted monopoly for all crude oil and gas production, refining and distribution in Brazil. In 1997, Brazil enacted the so-called “Petroleum Law” to end the oil monopoly and open the oil and gas markets in Brazil to foreign investment. Restrictions on ownership by non-governmental entities of shares in Petrobras were lifted and foreign ownership of shares was permitted. In response to these changes, in August 2000, Petrobras was partially privatized through a listing of its shares (ADRs*) on the NYSE. As part of the company’s new strategy, it also sought additional opportunities to expand abroad.
Petrobras’ International Expansion
Petrobras’ goals of diversification and international expansion were shared by many companies in the oil industry, but Petrobras’ need to diversify and expand was particularly acute because 95% of its upstream revenues** were exposed to the risks of a single country, Brazil.2 “We need to diversify our portfolio of assets and generate hard currency cash flow, reduce costs of capital, and

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