Brazil Official Says Shell, Total Must Accept Petrobras as Partner

"This is very confused, and I don't see how this gets resolved in Shell's favor," said a senior Brazilian oil lawyer who asked not to be named because she has worked with parties to the dispute.

Shell's right to direct development in Gato do Mato stems from the prospect's extension beyond the border of the BM-S-54 block. Shell owns 80 percent and Total 20 percent. It was bought by Shell in 2005.

The neighboring area is in an un-leased part of the Subsalt Polygon, an Illinois-sized offshore district near Rio de Janeiro that is home to nearly 80 percent of Brazil's oil output as well as giant new discoveries trapped deep beneath the seabed by a layer of salt.

Under the 2010 law, Petrobras receives a minimum 30 percent stake and exclusive operating rights in any new Subsalt Polygon development. Rights are also sold under production-sharing contracts awarded to the Petrobras-led group that gives the government the largest share of oil to sell on its own account.

In Shell and Total's BM-S-54 block and other areas leased before 2008, all the oil produced is owned by the oil companies in exchange for a per-barrel royalty.

(Additional reporting by Marta Nogueira; Editing by Ken Wills)


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