Brazil's Lower House Sets Profit-Oil Minimum for Presalt Auction

RIO DE JANEIRO - In a rush to appease an ongoing protest movement in Brazil, the country's Lower House passed a measure that could damp interest in Brazil's first presalt auction, the head of the Brazilian Petroleum Institute, or IBP, said Thursday.

As part of a bill directing oil royalties from offshore oil fields toward improving education and health care, the Chamber of Deputies also set the minimum for the amount oil companies must give Brazil's government at 60%, IBP President Joao Carlos de Luca said on the sidelines of an event.

"This is a very big concern," Mr. De Luca said, adding that it could make areas less attractive to the industry. "It's unwise to fix the level of profit oil in law. It's the same thing as fixing the inflation target by law."

Profit oil, or the amount of oil after development costs winning bidders offer the government, is the lone element in the presalt bidding process. Brazil's National Petroleum Agency, or ANP, will auction off the Libra prospect in the first such sale under new production-sharing agreements Oct. 22 in Rio.

Libra is estimated to hold recoverable reserves of between 8 billion and 12 billion barrels of crude, making it Brazil's largest oil discovery.

The profit oil minimum could affect bidding not only for Libra, but also other "higher-risk" areas that don't have the same level of prior exploration work, Mr. De Luca said. "It's absurd," the official said. "Now, some areas may not receive bids or even be put on offer" at future auctions.

Copyright (c) 2012 Dow Jones & Company, Inc.


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