Exploration / Development
OGJOURNAL

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Oct. 6 -- Brazil's Agencia Nacional de Petroleo (ANP), apparently bowing to pressure from the government, has reduced the number of exploration and production concession blocks to be auctioned at the 10th round, scheduled for Dec. 18.
ANP published a notice in the Federal Register that 130 blocks in eight sectors and seven sedimentary basins would be auctioned, down from previous notification of 162 blocks in 11 sectors and nine sedimentary basins.

ANP did not disclose its reasons for reducing the acreage scheduled for the auction. However, there has been concern in the country to restrict the availability of acreage in the presalt region due to the high probability of discoveries based on recent finds.

The 10th round was approved by the ANP in September. At the time, Mines and Energy Minister Edison Lobao said only land blocks would be auctioned, with deepwater sea blocks held back until a government committee completes studies of possible changes to Brazil's oil legislation.

Presalt region at stake
The presalt region is at the heart of possible changes to Brazil's oil legislation, given that the area could hold massive oil reserves. The Tupi area alone, in the Santos basin, is believed to contain 5-8 billion boe.

Brazilian President Luiz Inacio Lula da Silva created a commission to study possible changes to the country's oil legislation in light of the discovery of the nation's promising presalt oil deposits.

The commission was expected to present proposals to Lula by Sept. 19, but ANP announced at the end of August that meetings would likely continue 2 additional weeks, continuing through the start of October.

According to the state news agency, the delay was occasioned by a failure of panel members to reach a consensus on how best to maximize development of the country's promising presalt oil deposits.

The panel is comprised of Chief of Staff Dilma Rousseff, Finance Minister Guido Mantega, Planning Minister Paulo Bernardo, and Development Minister Miguel Jorge. In addition, Petroleo Brasileiro SA (PBR) Pres. Jose Sergio Gabrielli, Brazilian National Development Bank Pres. Luciano Coutinho and Lima are also members of the study group.

Aim of the legislation
The aim of the new legislation, according to Lobao, is for Brazil to retain maximum returns from its concession areas instead of allowing their departure via international oil companies.

He has attempted to drum up support for the changes by promising a better distribution of the royalties around the country.

In July, Lobao defended changes in the oil legislation that would allow for better distribution of oil and natural gas exploration royalties to states and municipalities.

"While some municipalities and states get rich, others end up not benefiting from that wealth," said the minister, in an interview with the Eldorado radio station.

The idea is not to hurt the current beneficiaries of the law, he said. "We just don't want (royalties) to be concentrated (in a few states and municipalities)."

100% state-owned
International oil companies and the International Energy Agency (IEA) have criticized proposed changes in Brazil's oil legislation.

They claim Brazil will need foreign investment for oil and gas exploration and criticize the apparent "resource nationalism" behind the proposed legislation.

Domestic opponents of the proposed legislative changes are concerned that royalties will most likely go to private investors. They note that Petroleo Brasileiro SA (Petrobras) has private investors who would unfairly benefit from the legislation.

Lula, determined that his country' oil resources should go towards social development, has suggested that his government might create a state-owned company to handle development of the presalt region.

That way, the government could bypass continuing arguments over revenues going to private Petrobras investors or to IOCs, and it could keep a significant slice of all future oil sector earnings to dedicate exclusively to key social sectors such as education.