Once a darling of the E&P world, Brazil’s struggles in growing into its role as a player in the upstream world are putting the country in a less flattering light.

Petrobrás’ progress in identifying prospects in ever-deeper waters stoked the interest of foreign oil companies looking for a piece of the pie. Brazil ended Petrobrás’ monopoly in 1995 and instituted a first round of E&P concession bids in 1999. Finds in the Campos and Santos basins, culminating in massive prospects under a thick layer of salt at water depths of over 2,000 meters (dubbed the “pre-salt”) rekindled companies’ interest in jumping in on the action.

However, the 11th hour cancellation of the 8th round of bids—the first one following pre-salt discoveries—and withdrawal of promising blocks from that round (later granted to Petrobrás in a “transfer of rights” deal) raised some eyebrows in the E&P community. In the two rounds held since then, acreage made available was slight, with no offshore acreage at all in the 10th round of 2008. The 11th round has been delayed repeatedly as the government grapples with how to reform the current royalties scheme.

Meanwhile, local content requirements for operators in Brazil were raised. At first, they had not been a factor in the bid process, but that changed in the 5th round. Local content in shallow waters was set at 60%, and 30% in deep waters; the 7th round upped them to 75% and 65%. Local suppliers still cannot compete with world-class players, exposing operators to cost inflation and less-than-timely deliveries.

Graph- five year plan

Petrobrás’ Budgeted Investment Under its Five-Year Plans

Not surprisingly, firms with a global portfolio of projects to choose from are not only looking elsewhere—some are divesting altogether. Devon sold its seven Brazil blocks in 2010; Shell divested itself of blocks in 2011; Anadarko has been rumored to be looking for buyers. The prospect of an oil glut—fueled by cheap shale oil and previously shut-in capacity in Iraq and Libya—is making high-cost plays like the pre-salt even less attractive.

On the other hand, the transfer of rights set the table for massive expansion in Petrobrás’ E&P spending. Planned investment has increased sevenfold since the pre-salt finds—and over the past three years E&P is beginning to displace funds from other segments and force divestitures, such as the sale of Petrobrás’ Pasadena, Texas, and Okinawa refineries. Project deadlines have not been met, and production growth is stagnating.

New president Maria das Graças Foster, who took over in February, is prioritizing tighter project-execution controls and has adjusted deadlines to reflect the challenging supply-chain environment. This attitude is a breath of fresh air, and the fact that the stock has remained range-bound since her 2012-2016 plan suggests investors are giving her the benefit of the doubt—for now.

Local enforcement action against Chevron over a spill in Frade Field this past November is adding to the sense of unease. The final report detailing the Agência Nacional de Petróleo’s findings—released late last month—sought to project rigor in its decision to fine Chevron $20 million for the 3,700-barrel spill. Nevertheless, local courts temporarily confiscated the passports of Chevron expatriates, threatened legal action in the billions of dollars and now want to shut down all Transocean rigs in the country as part of an investigation.

These actions are unlikely to buttress confidence in Brazil. This is confidence that had been hard-won through nearly two decades of fiscal, monetary and—for the most part—regulatory prudence.

The Chevron spill comes alongside a number of incidents involving Petrobrás. So far, legal action on that front has been muted—this too is unlikely to go unnoticed among foreign-based operators and service companies.

Brazil still shows tremendous promise, but must not lose sight of the fact that a global industry implies both global opportunities and global competition. A more evenhanded approach—both in enforcement and the limits of effective local-content promotion—will help it reach its potential.