Brazil to tighten control over offshore oil reserves

Brazil unveiled Monday, a plan to increase its control on huge offshore oil reserves. This involves giving its state-owned company Petrobras sole operating rights, much to the disappointment of foreign oil companies.


AFP - Brazil unveiled plans Monday to boost state control of recently discovered offshore oil fields by giving its oil company Petrobras sole operating rights and a minimum 30 percent stake in any joint ventures.

The leading role for Petrobras is part of an overhaul of rules for the vast, untapped subsalt fields, superseding a concession system that already applies elsewhere in the country.

Brazil believes the oil finds could turn it into one of the world's top 10 oil exporting nations.

President Luiz Inacio Lula da Silva said in his weekly radio broadcast that the reform "represents a new Independence Day for Brazil."

Formally presenting the changes in a televised ceremony in Brasilia on Monday, he called the fossil fuel reserves "a passport to the future".

The offshore reserves are estimated to contain between 14 billion and 50 billion barrels of oil. Petrobras announced the discovery of the first big field, Tupi, in late 2007.

If confirmed, that could more than double the country's proven reserves and propel Brazil into the same oil production ranks as OPEC countries within a decade.

Lula's rules changes are designed to allocate many of the billions of dollars in anticipated oil revenue to develop science and technology and education, and reduce poverty.

First though, the draft laws will have to pass through Brazil's Congress. That could prove tricky as political jockeying intensifies ahead of October 2010 presidential, legislative and gubernatorial elections.

Lula said that by strengthening Petrobras, which is 55 percent government-owned, Brazil will "become a big nation" among the main oil exporting countries of the world.

His energy minister, Edison Lobao, said the government's proposal will also see the creation of a new company called Petrosal to manage the contracts for the offshore reserves.

Petrobras said in stockmarket documents filed on Monday that Petrosal would have veto rights over development of the fields.

Foreign oil companies, which had been kept in the dark about the rules overhaul, are concerned that their potential revenues from the offshore fields could be significantly reduced, making investment less attractive.

The oil reserves are located 500 kilometers (300 miles) off Brazil's southeast coast, and up to seven kilometers deep, including under rock and a troublesome layer of shifting salt.

That poses big technical challenges and will require enormous investment before the fossil fuel can be safely extracted.

Under the Petrobras documents filed on Monday, the oil company would have exclusive rights over all the blocs in the offshore fields.

It could either exploit the blocs alone, but at huge cost, or it could take on foreign partners that compete by auction while keeping its mandatory 30 percent minimum stake under a production-sharing arrangement.

Brazil's oil company said it would get a 50-billion-dollar capital boost to cope with the forecast heavy slew of future investments.

That, though, will dilute minority share holdings.

Petrobras's share price slid sharply after rumors of the capital injection appeared in Brazil's financial press last week.

Its preferred stock fell a further 3.59 percent on Monday, pulling the whole Bovespa index down with it.

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