Brazil's Oil Laws Should Be Approved By Start of 2010

RIO DE JANEIRO (Dow Jones), Nov. 10, 2009

Brazil's Congress should approve a new regulatory framework for the oil and natural gas sectors by the start of 2010, Mines and Energy Minister Edison Lobao said Tuesday.

Quoted by the local Estado news agency, Lobao said that "I have hope the voting will end this year, or at the maximum the start of next year." That would include voting in both the Lower House and Senate, the minister confirmed.

A delay of about "two or three days" was expected for the Lower House voting, Lobao said. The voting had been expected to be completed Tuesday.

Lower House committees so far have approved just two of the four bills proposed by President Luiz Inacio Lula da Silva in September.

Last week, separate lower house committees approved the creation of a new state-owned oil company to administer exploration and production in the offshore oil fields. The creation of a social welfare fund to manage royalties from the deposits was also approved.

However, bills implementing a production-sharing regime for the so-called subsalt oil discoveries, as well as a separate bill that would infuse capital into state-run energy giant Petrobras (PBR), still need to be approved by their respective committees.

The bills would then move to the Senate for debate.

The Lower House debate has been undermined by a discussion over royalties, a sensitive issue with key oil-producing states Espirito Santo, Rio de Janeiro and Sao Paulo. The states are chafing at proposals that would more evenly distribute the royalties.

The government officials, including Lobao, previously said that they expected the measures to be approved in the first half of 2010. That will be a difficult task given the importance of the measures and the fact that 2010 is an election year. Such a high profile debate gives lawmakers -- especially those in government-opposition parties -- leverage in any negotiations over changes.

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.

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