Brazil's President Wants Tupi Oil to Guarantee Future

RIO DE JANEIRO (Dow Jones Newswires), May 4, 2009

Brazilian President Luiz Inacio Lula da Silva called Friday for officials to finalize new oil laws giving the country a greater stake in recent oil finds, saying the legislation was urgently needed to guarantee Brazil's future.

"This is a second independence for Brazil," Lula said, commemorating the first crude oil pumped from the Tupi field off the country's southeast Atlantic coast.

Lula wants a working group he formed last year to complete work on proposals to change Brazil's concession-based oil law. The populist president has pledged to use the newfound oil riches to ease Brazil's crushing poverty and improve the country's education system.

While work on the new oil legislation is nearly complete, Lula said that ministers and officials on the study panel "have the responsibility, but not much more time, to present to me a new regulatory regime covering the oil industry."

Lula also dismissed critics opposed to changes in the current oil laws, which helped make the discovery of the subsalt fields possible.

"There isn't any country in the world that hasn't implemented new regulations after discovering large oil reserves," Lula noted.

Analysts and industry experts have speculated that Brazil would adopt a regulatory model similar to Norway or perhaps use a hybrid system based on concessions, higher royalties and production-sharing agreements.

The clamor for changes to Brazil's current concession system, which auctions off exploration blocks to the highest bidder, started in 2007. That's when Petrobras shocked the world with the largest discovery in 30 years -- the Tupi field in the Santos Basin.

On Friday, Petrobras started a long-term test at Tupi. Tupi was estimated to hold between 5 billion and 8 billion barrels of oil equivalent, buried more than 7,000 meters underwater, rock and a layer of shifting salt.

Lula, however, attempted to ease concerns raised by private companies involved in subsalt oil blocks previously auctioned off, saying that "Brazil has the great capacity to respect contracts that are already signed." But, he added, the country also had to secure the future of Brazil's children, grandchildren and great-grandchildren.

"We have to plant the seeds now, not later," Lula said.

High seas and forecasts for bad weather forced Lula to celebrate the first oil from Tupi, 300 kilometers off the coast of Rio de Janeiro and Sao Paulo states, at a marina in Rio de Janeiro.

Lula had previously said he would take a bath in the first crude oil lifted from the ultra-deepwater field, expressing frustration with his security team for not allowing him to take a helicopter trip to the "Cidade de Sao Vicente" floating production, storage and offloading vessel.

The leftist firebrand had previously inaugurated oil platforms by dipping his hands in fresh crude and making hand prints on the orange jumpsuits worn by Petrobras workers -- and visiting government officials.

The May Day celebration also echoed calls from student groups and leftist parties in the 1950s, when the popular cry surrounding national oil company Petrobras was "the oil is ours!"

In a lighter moment, Lula tucked a small barrel of the fresh crude under his arm, smiled at the gathered crowd and said: "The oil is mine."

The trophy was later presented to Vice President Jose Alencar as a memento of his service to the country.  

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