Petrobras to Lead Brazil's Oil Efforts

RIO DE JANEIRO (Dow Jones Newswires), Aug. 7, 2009

The Brazilian government will maintain full control of key offshore oil fields, hiring state-run energy company Petroleo Brasileiro S/A to lead exploration and development efforts, local business daily Valor Economico reported Friday.

Presidential Chief of Staff Dilma Rousseff also told Valor that the National Petroleum Agency, or ANP, the lead oil regulator, will drill exploration wells in offshore acreage held by the government. The ANP has 1 billion Brazilian reals ($546 million) in cash, enough to drill four wells, she said.

The idea, according to Rousseff, is to find gigantic oil fields and then keep those fields exclusively under government control, and out of the concessions process.

"The government could reserve fields where there's a certainty of large reserves for direct exploration, contracting Petrobras as operator," Rousseff told Valor, referring to Petroleo Brasileiro. "In this case, there would be no concession auction."

Other fields would be evaluated on a case-by-case basis to determine a minimum level of oil that would be kept by the government under production-sharing agreements. Operation of the fields would be auctioned off, with the winner being the company that promised the largest share of production to the government.

Rousseff dismissed any chance that the changes to Brazil's concession system would have a chilling effect on private investment.

"In the world, a field with estimated reserves of 500 million barrels is considered gigantic. Here, at Tupi, we have reserves estimated at between 5 billion and 8 billion barrels. The potential is very promising," Rousseff said.

"We know it. Investors and large oil companies know it. This is the only large oil discovery in the world in the past few years; there isn't any other," Rousseff added.

On Wednesday, a government panel formed by President Luiz Inacio Lula da Silva submitted proposed changes to Brazil's oil legislation. The changes are aimed at giving the government a greater stake in recently discovered offshore oil reserves.

The so-called subsalt discoveries were made under a thick layer of salt in the Santos Basin off the coast of Sao Paulo and Rio de Janeiro states. The oil lies under more than 2,000 meters of water and a further 5,000 meters under sand, rock and a shifting layer of salt.

In November 2007, Petrobras shocked the oil industry when it estimated recoverable reserves at the Tupi field were between 5 billion and 8 billion barrels of oil equivalent, or BOE. That was the largest discovery in the Americas in more than 30 years.

Lula wants to maximize the government's take from the possibly massive reserves, using the proceeds to help end poverty and improve education in South America's largest country.

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