MercoPress. South Atlantic News Agency

New legislation envisions Brazil as oil resources and technological giant

Oil companies must develop services and equipment factories in Brazil

The Brazilian Executive will present a bill aimed at increasing government control of offshore oil reserves to Congress in July before an annual legislative holiday. However the existing oil exploration rights which have been sold under the current auction system will not be changed with the new proposals.

Under the proposed new law, Brazil will divide oil output with companies that agree to develop blocks and give Brazil’s government a share of production, Development Minister Paulo Bernardo said in an interview in Londrina, Brazil. The company that offers the biggest share of output at auction will win the right to develop the area.

Brazil’s President Lula da Silva asked his top ministers to review the country’s system of leasing oil exploration blocks to the highest bidder after the November 2007 announcement of Tupi, a 5 billion to 8 billion barrel offshore field that is the largest discovery in the Americas in three decades.

“We’ve already met with Lula da Silva and given him our proposals,” said Bernardo, a member of the committee advising Lula on the bill. “He will present his bill to Congress before the recess.”

Tupi is part of an offshore “pre-salt” area that may contain 100 million barrels according to Marcio Mello, president of Brazil’s petroleum geologist’s association. Congress is scheduled to go on recess July 17.

Lula da Silva has already reviewed the proposed legislation presented by a committee of ministers and the chief executive of state-controlled Petrobras, said Bernardo.

As part of the plan, the government will set up a new state-owned oil company to manage the government’s stake in new oil developments, he said. The company will remain “skinny”, staffed by a small number of technically oriented bureaucrats and won’t operate oil fields, only manage the proceeds from fields the government owns.

Brazil also plans to require companies providing important oil equipment and services in the country to set up factories and local operations, Bernardo said.

“We want Brazil to become an exporter of oil equipment and services, not just an oil exporter,” he said.

Existing oil exploration rights sold to companies such as Petrobras, BG Group Plc, Repsol YPF SA, Exxon Mobil Corp. and Galp Energia SGPS SA will be respected.