Lula to Veto Brazil Oil Royalties Law Change -Report

SAO PAULO (Dow Jones Newswires), Dec. 21, 2010

Brazilian President Luiz Inacio Lula da Silva said he will veto a change in the distribution of the country's oil-exploration royalties, the government news agency reported Tuesday.

Lula said he had agreed with governors of oil-producing states Sao Paulo, Rio de Janeiro and Espirito Santo to veto the law change, the Agencia Brasil service reported, citing a speech by the president in Rio de Janeiro's Complexo de Alemao, a slum recently occupied by police.

The proposed change in the distribution of royalties is part of a broader change in how Brazil will explore its so-called pre-salt oil reserves. The change would give all states and municipalities an equal share of those proceeds, whereas in the current system, oil-producing areas receive a greater share.

The government wants to maintain current rules for licensed exploration blocks, while changing the rules for newly licensed areas only, Agencia Brasil said.

Lula said he will sign the rest of the bill into law Wednesday, which gives the government a greater stake in the recently discovered offshore oil fields, Valor Economico newspaper reported Tuesday.

Passage of the bill clears the way for Brazil to ramp up development of the pre-salt oil province, an ultra-deep-water region holding oil deposits buried more than three miles below sand, rocks and a shifting layer of salt. The area is estimated to hold between 50 billion and 100 billion barrels of oil, enough to turn Brazil into one of the world's top five crude-oil producers.

Earlier this year, Congress passed three other measures that Lula has already signed into law. One bill created the social investment fund that will use oil revenue for education and health care initiatives. Another bill created a new state-owned oil company, called Pre-Sal Petroleo, that will manage the government's pre-salt assets.

Brazil's National Petroleum Agency said earlier this year that it expects to hold the first auction of government-held pre-salt areas in 2011. The auction will likely include the Libra prospect, which is estimated to hold recoverable reserves of between 3.7 billion and 15 billion barrels of oil equivalent--although ANP officials said the best estimate is about 7.9 billion barrels.

Copyright (c) 2010 Dow Jones & Company, Inc.