Brazil legislators approve firm for subsalt contracts

Dec. 3, 2009
Brazil's Chamber of Deputies approved the first of four government-sponsored bills proposing legislation for the oil sector and the potentially oil-rich subsalt reserves.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Dec. 3 -- Brazil's Chamber of Deputies approved the first of four government-sponsored bills proposing legislation for the oil sector and the potentially oil-rich subsalt reserves.

With 250 votes in favor and 67 opposed, deputies approved the creation of Petrosal, a wholly owned state-run company that will manage contracts for new subsalt areas. The bill now goes to Brazil's Senate for approval.

Meanwhile, of the other pending subsalt bills, one proposes creation of production-sharing contracts and giving Petroleo Brasileiro SA (Petrobras) operator status and a minimum 30% stake for all new subsalt areas.

The third bill seeks to create a social fund to improve education and health care using new revenue from the offshore fields, while the fourth bill would exchange 5 billion bbl of future oil from unleased areas owned by the Brazilian government for new stock in Petrobras.

However, according to one analyst, the new measures by Brazil's government to take greater control of the country's oil industry could reverse much of the progress achieved in the sector in recent years.

Fitch corporate ratings director José Luis Villanueva told Business News Americas the proposed regulation to give Petrobras a minimum 30% stake in all new presalt and strategic areas is just one example of the government increasing its control in the industry.

Another measure, the prospective transfer of 5 billion bbl of oil reserves to Petrobras, could result in minority shareholders seeing their stake drop to 25% from the current 60% level, Villanueva said.

Though investors will be able to exercise preemptive rights, minority shareholders may not be able to compete with the government.

"They may not have the liquidity or the capital necessary to increase their stake, or they may think that the valuation of their reserves might be overpriced and they might not participate," Villanueva told BNAmericas.

"Brazil in general has been quite successful, Petrobras in particular, in increasing production and increasing reserves, but the risk is there that the government can spoil its very strong track record of the past," he told the agency.

Contact Eric Watkins at [email protected].