Brazil Govt: Subsalt Winners to Pay E&P Block Premium

RIO DE JANEIRO (Dow Jones Newswires), Aug. 28, 2009

The Brazilian government will require winners of offshore oil concession auctions to pay a fixed bonus when production-sharing agreements are signed, a government source told the local Estado news agency late Thursday.

The premium will be fixed at each auction of offshore exploration and production blocks, but will not be part of the criteria for selecting auction winners, the report said.

Details about the bonus were being finalized by the government ahead of Monday's launch of Brazil's new regulatory framework covering the oil and natural gas sector.

Proceeds from the premium to be paid will be used to capitalize a social investment fund, which will invest Brazil's newfound oil wealth in an effort to improve the country's education system and ease crushing poverty.

Winning bids will be judged by which company provides the government the greatest share of production out of the so-called subsalt oil fields, recently discovered off Brazil's coast.

The so-called subsalt oil 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.

The first of the subsalt discoveries, called Tupi, was estimated to hold recoverable reserves of between 5 billion and 8 billion barrels of oil equivalent. That was the Western Hemisphere's largest oil find in more than 30 years.  

Copyright (c) 2009 Dow Jones & Company, Inc.