Petrobras Says ANP Now Drilling for Oil Rights Swap

RIO DE JANEIRO (Dow Jones), Dec. 1, 2009

Brazil's National Petroleum Agency, or ANP, has started drilling wells to define oil reserves that will be transferred to state-run energy giant Petroleo Brasileiro SA (PBR), or Petrobras, the company's CEO said Tuesday.

"The drilling is starting in the Santos Basin subsalt region," Petrobras Chief Executive Jose Sergio Gabrielli told the local Estado news agency.

Analysis of the drilling could take four or five months, Gabrielli said. "We're going to locate the areas where we could produce 5 billion barrels," the executive added.

The ANP hired drilling rigs operated by Petrobras to spud the wells, which will be used to define subsalt oil patches to be used in a complex capitalization of the national oil company. The capitalization is part of revisions to legislation covering Brazil's oil and natural gas industries.

Under the plan, Brazil's government will cede the rights to explore and produce 5 billion barrels of oil from subsalt deposits now under the government's control. Petrobras will pay for the rights with an issue of new shares.

The share offer will be proportional to the value of the 5 billion barrels of oil--which will be determined by independent analysis--with the total value of the offer about three times the value of the oil. The government will get roughly one-third of the shares, with minority shareholders getting the rest.

The value of the oil rights and subsequent share offer was "a guess" now because of the number of variables that could affect the valuation, Gabrielli said.

The so-called subsalt finds 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 package of measures is under debate in Brazil's Congress, with approval expected in the first half of 2010.

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