Brazil bill could reduce Petrobras stake in pre salt oil fields
BY JEFF FICK AND GERALD JEFFRIS
RIO DE JANEIRO -- Brazil's Congress is considering a bill that would reduce the burden placed Petrobras to develop pre salt oil fields, potentially opening up the promising offshore region to greater private sector investment.
The proposal would reverse a controversial provision of Brazil's 2010 overhaul of its oil laws, which forced Petrobras to operate and hold a 30% stake in pre salt areas under a new production sharing regime. The regulatory framework was aimed at giving the government a greater stake in the pre salt area, where billions of barrels of crude oil were discovered under a thick layer of salt miles below the Atlantic Ocean.
But the mandate to develop the pre salt places a heavy financial and resource burden on Petrobras, which already plans to spend $237 billion through 2017 to develop a healthy portfolio of oil discoveries, proponents of the bill said.
The existing law imposes an obligation on Petrobras that the company is unable to assume said Congressman Raul Henry. He proposed the changes after Petrobras experienced a dismal year in 2012, when stagnant crude oil production and a surge in costly fuel imports caused the company to post its worst annual earnings in eight years.
Brazil could also avoid development delays caused by forcing Petrobras to lead exploration and production in the area, analysts said. Brazil would be able to hold more frequent auctions of pre salt oil and natural gas concessions by allowing independent local and foreign oil companies to operate the blocks, thereby boosting crude oil output more quickly.
By removing this rule, some of the pressure is removed from Petrobras, and opportunities are created for other companies said Ruraidh Montgomery, an analyst at oil industry consulting group Wood Mackenzie. "This should ensure that resources are developed more quickly than if Petrobras operates everything."
The first auction of a pre salt concession will take place in October, Brazil's National Petroleum Agency (ANP), announced last month. The auction will feature a single prospect, called Libra that contains Brazil's largest oil discovery to date. The ANP, which drilled the Libra well in 2010, estimates the prospect holds recoverable reserves of between 8 Bboe and 12 Bboe.
Libra will be sold under the new production sharing regime, meaning the winning bidders will have to partner with Petrobras. Petrobras will own at least 30% of the field and will act as operator. Winning bids will be determined by the amount of oil companies agree to hand over to the government.
Terms of the pre salt auction are different from those used in mid May auction of oil and natural gas exploration blocks. In that auction, which did not contain any pre salt areas, companies offered signing bonuses, investment commitments and royalties on future oil and natural gas production as part of their bids.
The Libra sale is expected to generate heavy interest from international oil companies because oil has already been discovered at the prospect. Future pre salt sales, however, will be higher risk because they involve areas with little or no previous exploration, so more attractive terms may be necessary to drum up interest.
So far, government officials have denied potential changes. "It's in the national interest to have Petrobras be the operator in the pre salt" Mines and Energy Minister Edison Lobao said recently.
While Congressman Henry's bill is still in the early stages of debate, lawmakers said it enjoys broad support because of what it could mean for Brazil's flagging economy.
I take a favorable view of the possibility of more Brazilian and foreign oil companies investing in oil exploration in Brazil without the participation of Petrobras said Eduardo da Fonte, chairman of the Chamber of Deputies Mines and Energy Committee. "These companies are going to invest and create jobs in Brazil."
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