Brazil House Panel Approves Distribution of Subsalt Oil Royalties

BRASILIA (Dow Jones), Nov. 11, 2009

A special committee in Brazil's lower house Wednesday approved a government plan for distribution of future royalties from the country's offshore subsalt oil reserves among Brazilian states and municipalities.

Under the plan, 15% of revenue from subsalt production will go toward royalty payments. Of that amount, 22% will be distributed to the federal government, 25% will go to oil-producing states, 6% will go to oil-producing municipalities and 3% will go toward municipalities with oil shipping ports. The remaining 44% will be distributed to other Brazilian states according to the government's state participation fund, or FPE.

The committee chairman, congressman Henrique Eduardo Alves, estimated that in addition to the royalty payments, the federal government would obtain approximately 49% of total revenue from subsalt production based on its stake in state-controlled oil company Petrobras (PBR).

Another 21% would stay with Petrobras and its partner companies and the remaining 15% would be invested in production.

The bill approved in committee Wednesday is one of four pieces of major legislation aimed at overhauling Brazil's oil sector rules in an effort to take maximum advantage of the country's recent discovery of the offshore oil reserves.

Brazilian speaker Michel Temer said Tuesday that he hopes the four bills could be approved on the floor of the lower house within the next 20 days.

After that, the bills would be sent to the country's senate for deliberation.

The so-called subsalt oil reserves, first revealed by Petrobras in 2007, are located under a thick layer of salt in the Santos Basin off the coast of Sao Paulo and Rio de Janeiro states in Southeastern Brazil. 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.

Initial government estimates put the total subsalt reserves at upwards of 8-billion barrels of oil equivalent.

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