Brazil's Petrobras Favors Law Change For Deep Oil Area

RIO DE JANEIRO, March 19, 2008 (Dow Jones Newswires)

Brazil should adapt its oil legislation concerning the promising ultra-deep presalt area, Sergio Gabrielli, the chief executive of state-run oil firm Petroleo Brasileiro SA, or Petrobras, is quoted as saying in the O Globo newspaper Wednesday.

Petrobras in November said it estimated reserves at its giant Tupi field in the presalt area of Brazil's Santos Basin at up to 8 billion barrels of oil equivalent. In January, the company announced it found a giant gas field nearby, which it dubbed Jupiter.

Following the announcements, the exploratory risk in new areas in the presalt oil area that lie close to those fields has greatly diminished, Gabrielli argued.

"The law needs to be changed" for those areas, Gabrielli said, adding that he was expressing his personal opinion, and not the company's.

Tupi lies at a water depth of more than 2,000 meters, and then a further 5,000 meters below sand, rocks and salt. But while that makes exploration challenging and expensive, the government has said it thinks the entire presalt area may contain reserves that are so big that they could turn Brazil into a major oil exporter.

Brazil's government, after the Tupi announcement, removed 41 promising blocks in the presalt play from an annual auction of oil and gas exploration areas held in December.

Because of the expectations for further massive oil finds in the presalt area, the government is currently considering ways to increase royalty payments on oil and gas production, Haroldo Lima, the head of the National Petroleum Agency, or ANP, said last week.

The ANP is studying a hike in the so-called "special participation" tax on big oil fields, Lima said.

Oil companies currently have to pay between 10% and 40% in special participation on top of regular royalties of about 10%.

Brazilian media also speculate the government may change oil production contracts and grant foreign oil companies only service-provider contracts for promising areas in the presalt play.

The ANP in two months will hand over its studies on a change in royalty rules to the Energy Ministry, the Valor newspaper reported last week.

Brazil's Congress will eventually have the final word on changes to the oil legislation, Gabrielli said. Gabrielli is a member of President Luiz Inacio Lula da Silva's Workers Party, or PT.

Petrobras currently produces more than 95% of Brazil's oil and gas.

RIO DE JANEIRO, March 19, 2008 (Dow Jones Newswires)