Brazil Congress to Pass Oil Law This Year

LISBON (Dow Jones), Oct. 15, 2009

Brazil's Congress should approve measures to revise laws covering the country's oil and natural gas industry by the end of the year, Mines and Energy Minister Edison Lobao said Thursday.

Next year, the new regulatory framework will be established and new auctions for the exploration and development of the subsalt oil region can be held, Lobao told journalists at the sidelines of an event with Portuguese oil company Galp Energia SPGS SA (GALP.LB).

The year-end timetable, however, is much more aggressive than what analysts and government officials expect, with many estimating approval sometime in the first half of 2010. Government officials expect Brazil's lower house to approve the measures Nov. 10, with Senate debate taking place over the next 45 to 60 days.

Petrobras' investor relations director, Theodore Helms, said earlier Thursday that it was unlikely the laws would be passed before March.

The new regulatory framework will give Brazil's government a greater stake in offshore oil reserves in the promising subsalt oil region, where several of the world's biggest oil finds in recent years have been made. The government first announced its plans for the new regime in late August.

The so-called subsalt oil discoveries were made recently 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.

The new rules, however, will greatly limit the space for international oil companies to profit from the prolific new region. Brazil's state-oil company Petroleo Brasileiro SA (PBR), or Petrobras, will hold an operating stake in all not-yet-licensed oil or gas acreage in the subsalt region.

The government will also cede the rights to explore and produce 5 billion barrels of crude oil as part of a capitalization plan for Petrobras. Lobao said that the 5 billion barrels would come from areas surrounding current exploration concessions that need to be "unitized" with the recent discoveries.

Guilherme Estrella, Petrobras' director of exploration and production, said in September that several of the fields extended beyond current concession boundaries to differing degrees. Under the unitization process, operators of the concession and neighboring blocks negotiate to connect up the reservoir for production purposes, dividing the crude oil production.

"In the case that these unitized blocks were not sufficient (to meet the 5 billion barrel requirement), we could cede other exploration blocks to capitalize Petrobras," Lobao added.  

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