MercoPress. South Atlantic News Agency

Brazilian congress tightens grip on oil industry and new ‘strategic’ fields

Offshore deposits are making Brazil an oil world power

Brazil’s lower house of Congress approved this week new oil regulations that will increase government control over the energy industry and reduce competition against government managed Petrobras.

The new legislation allows Petrobras to be sole operator of oil fields where licenses haven’t yet been auctioned. The oil producer will be able to explore every field in areas designated “strategic.” The bill needs the president’s signature.

Brazil is tightening the state’s grip on the domestic oil industry after the discovery of the Tupi and Libra fields, which may hold as much as 8 billion barrels of oil and 15 billion barrels, respectively.

“This represents a strong position of the state to keep this wealth,” Petrobras Refining Director Paulo Roberto Costa told reporters today in Rio de Janeiro.

The new legislation grants Petrobras a minimum 30% stake in joint ventures that bid for exploration licenses. The government expects other oil companies to bid for the rights to explore fields as Petrobras’s partner. The companies that offer the biggest share of oil output to the government will win the contracts.

The bill defines strategic areas as fields in the so-called pre-salt region along Brazil’s coast and fields “with low exploratory risks and high oil output potential.” Under current laws, Petrobras is required to compete equally with other companies for exploration and production accords.

The bill also allows non-producing Brazilian states and cities to receive more royalties from the sale of oil and creates a fund to finance social programs with future oil revenue. Brazilian President Luiz Inacio Lula da Silva has said the South American country is relying on its oil wealth to help lift the nation’s 192 million residents from poverty.

Petrobras aims to invest 224 billion US dollars through 2014 to develop reserves in a deep-water region along Brazil’s coast. The budget doesn’t include any projects under the new law. The pre-salt region runs 800 kilometres along the coast from Espirito Santo state to Santa Catarina state and has oil deposits beneath a layer of salt resting as deep as 3,000 meters beneath the ocean surface and another 5,000 meters under the seabed.

Libra will be the first field the government sells next year under the new model, Magda Chambriard, a director at Brazil’s oil regulator, said in September. Brazil will still be able to boost production quickly even if it takes longer to organize an auction, Palacios said.