Brazil Panel Proposing State Co for Subsalt Oil Reserves

RIO DE JANEIRO (Dow Jones Newswires), Dec. 16, 2008

The Brazilian government panel discussing possible changes to the country's oil laws will propose creation of a new state company or agency to control promising subsalt reserves, according to a Tuesday news report.

The newspaper O Estado de Sao Paulo reported that the government panel has decided the safest course of action amid the current global financial crisis is to keep direct control of the subsalt oil reserves in government hands.

"The financial situation of the government is more solid, more stable than a mixed company subject to the vagaries of the market," an unnamed government source close to the panel told the newspaper.

The slide in shares of Brazilian state-run energy company Petrobras Petroleo Brasileiro and the company's difficulties raising funds in international credit markets caused the panel to discard greater subsalt participation by Petrobras.

Petrobras Chief Executive Jose Sergio Gabrielli had pushed the panel to propose shifting exploration blocks currently held by the government to Petrobras in return for a greater stake in the company.

The proposal gaining momentum at the moment, according to the newspaper, is one based on the so-called "Norway model." Under that model, the government would maintain direct control of oilfields under a production-sharing agreement, with the government and private companies working together to explore and develop the oil deposits.

In addition, a sovereign fund would be created with proceeds from oil production that would be used to fund further development as well as social projects.

There were still several factors under discussion, Estado reported.

The panel was deciding whether concession blocks would be auctioned off, as they currently are, or whether the government would decide which companies would participate in the oilfields. In addition, discussions included how to divide revenue from the fields between the government and private companies, and what type of taxes would be implemented on the production.

On Monday, Brazilian Mines and Energy Minister Edison Lobao said that the government panel would likely conclude its work at a meeting expected for Tuesday.

The government panel will then forward its proposals to President Luiz Inacio Lula da Silva. Lula has pledged to use proceeds from the subsalt oil deposits to diminish the country's crushing poverty and improve the educational system.  

Copyright (c) 2008 Dow Jones & Company, Inc.

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