Brazil Energy Min: Country Needs to Adjust Oil Legislation

RIO DE JANEIRO Nov 27, 2007 (Dow Jones Newswires)

Brazil needs to make "little adjustments" to its oil legislation after the government withdrew the most promising oil blocks from a licensing round taking place Tuesday and Wednesday, Mines and Energy Minister Nelson Hubner said.

The government earlier this month cut 41 blocks from the exploration and production auction that lie close to the Tupi mega-field, or in similar geographical conditions. State-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, has estimated that Tupi contains oil and gas reserves of up to 8 billion barrels of oil equivalent, or BOE.

"We didn't know the potential of the discovery yet, and once we found out, at least we needed to have some time to think it over," Hubner said at the auction.

Tupi and the blocks withdrawn lie in Brazil's ultra-deep pre-salt area at water depths of more than 2,000 meters, and a further 5,000 meters below the bottom of the sea, beyond thick layers of sand, rocks and salt.

Despite the withdrawal of the 41 blocks, after half a day the oil block auction had already become its biggest ever. The National Petroleum Agency, or ANP, Tuesday morning auctioned off 40 blocks in five different basins for 1.6 billion reals ($862 million).

The ANP now is studying the real potential of the pre-salt area, and is still examining what the best method for its exploration is, ANP Director General Haroldo Lima said at the sidelines of the auction.

Lima had said earlier that the government is studying whether it may offer the withdrawn blocks under new rules, such as shared-production licenses.

Petrobras is working on mapping Tupi and nearby pre-salt areas such as the Carioca field and the BM-S-10 block, said Francisco Nepomuceno, the company's executive manager for exploration and production. Petrobras will also map the pre-salt blocks in the Espirito Santo basin further north off Brazil's coast.

The government's decision to cut out the pre-salt blocks from the licensing round, reflects Brazil's "national sovereignty," he said. Nepomuceno also said he couldn't tell how long it will take until the government will have analyzed the pre-salt area and decided what to do with the blocks.

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