Brazil plans oil law changes, oil management firm

Brazil's Mines and Energy Minister Edison Lobao plans to propose the creation of a new state-run firm that would manage oil discoveries made in recent months in the Santos basin.

Eric Watkins
Senior Correspondent

LOS ANGELES, June 30 -- Brazil's Mines and Energy Minister Edison Lobao plans to propose to President Luiz Inacio Lula da Silva the creation of a new state-run firm that would manage oil discoveries made in recent months in the subsalt layer of the Santos basin.

Lobao, who is responsible for developing a new model for oil exploration, is scheduled to present a study on the matter within 60 days, according to a report in Valor Economico business newspaper.

The paper reported that Lobao—after considering suggestions received in recent weeks—is convinced that the best solution for the country is to adopt a production-sharing regime, which would require legislation changes to Brazil's Petroleum Law.

In countries where this regime has been implemented, the paper said, state-owned companies have the role of deciding on production levels and supervising exploration in fields.

According to Lobao, the new state firm would neither drill wells nor extract oil but would hire government-owned Petroleo Brasileiro SA (Petrobras) or other firms as service suppliers.

In Lobao's view, this decision-making role is not one that Petrobras should assume.

"We can't do it. More than 40% of Petrobras is in private hands," he said. "No one will take property from those who bought (Petrobras) shares. But the resources below the soil belong to all Brazilians," he said.

In April Lobao reaffirmed plans to review Brazil's Petroleum Law. Speaking after a meeting with Petrobras directors, Lobao said the 1997 law could be improved even if the recent discoveries in the presalt layer had not been made.

According to analyst Global Insight, comments made by Brazilian authorities in recent months on possible new legislation for the Tupi find indicate that the federal government would like a larger share of returns from blocks with good prospects for future oil production.

Last November, Brazil's oil market regulator said the government plans to change the rules on oil and gas exploration, with a view to increasing returns to the public treasury.

The decision to change the Petroleum Law, which was approved in 1997 and opened Brazil's market to foreign oil companies, was made in early November after state-controlled Petrobras said its Tupi field may have recoverable reserves of as much as 8 billion bbl.

"What will be done isn't clear yet. It hasn't been decided. But we won't review the [entire] Petroleum Law, but the regulatory environment," Haroldo Lima, head of the National Petroleum Agency, told a senate committee.

Changes likely will be small, and Brazil probably won't adopt any "output sharing" measures similar to those in Venezuela or Angola, said Jean Paul Prates, at ExPetro consultancy.

"It would be absurd for the country to alter significantly a model that is working, that has allowed the country to reach (oil) self-sufficiency, and that has brought more than 50 companies to Brazil," Prates said.

Contact Eric Watkins at hippalus@yahoo.com.

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