The oil and gas industry will be pleased to learn that Brazil's long-proclaimed oil law is inching along the country's corridors of power.
Without it, there can be little progress regarding long-awaited permits in the presalt layer. But with the law, assuming it is perceived as fair to all, those permits will readily flow.
Progress came last week when Mines and Energy Minister Edison Lobao said a proposal by Brazil's government to more-equitably distribute royalties from crude oil production "is sufficient to close a deal shortly."
Lobao said the government's proposal made last week to reduce its take in oil royalties by 10% starting next year was "within the government's limits."
Special taxes dismissed
The minister also dismissed as "not favorable" proposals made by state governors in the oil-producing states of Rio de Janeiro and Espirito Santo to raise special-participation taxes on heavy producing oil fields.
Lobao said raising the special-participation taxes would represent a breach of existing concession contracts and result in lawsuits as the size of the tax was written into each contract.
According to Lobao, the worst possible scenario for Brazil would be a host of lawsuits surrounding distribution of royalties. Indeed, one can easily imagine the resulting raised eyebrows in the boardrooms of international oil companies.
"Everyone has to give something up," Lobao said. Under the government's proposal, the federal government and oil-producing states would cede about 4% of royalty revenue that would be redistributed to nonproducing states, Lobao noted.
That fits in with the view of leaders of government-allied parties in Congress who last week noted that Brazil will give up $994.5 million in revenues from oil exploration in order to compensate nonproducing states and municipalities.
The government share
The share of oil royalties the government receives will be reduced to 20% from 30%, while the share of special participations will be cut to 46% from 50%, according to the government proposal submitted last week.
Romero Juca, the government leader in the Senate, echoing Lobao, said, "The government has set an example that it is possible to give up revenues. Now it's up to Congress."
In July, numbers were being bandied about by government officials, including President Dilma Rousseff who supported a division of subsalt royalties of 25% for oil-producing states and 22% for nonoil producing states.
Back then, another interesting set of numbers emerged, too: the division of royalties from subsalt oil finds would be Petroleo Brasileiro SA (Petrobras) 30%, nonoil producing states 22%, municipalities 6%, the Brazilian government 19%, and 25% to the three oil-producing states of Rio de Janeiro, Sao Paulo and Espirito Santo.
Subsequently, those percentage breakouts add up to 102%.
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