Eric Watkins
OGJ Oil Diplomacy Editor
LOS ANGELES, Sept. 2
-- Brazil’s President Luiz Inacio Lula da Silva has proposed new
legislation aimed at governing the development of his country’s
potentially enormous reserves of oil in the offshore presalt layer,
about 270 km off Brazil.
“The subsalt oil fields are a gift
from God—wealth which, if properly managed, can drive major
transformations in Brazil, improving living conditions for our people,”
Lula said while announcing the proposal.
Lula also reiterated
that Brazil does not want to be a “mere exporter of crude oil” and that
the plan also aims to establish a powerful petrochemical industry to
refine the oil into derivatives in order to export value-added products
like gasoline.
The development model, which must be ratified
by Brazil’s Congress, includes: a new production-sharing system for
contracts; a new public company for presalt contract agreement and
administration; and a new social fund for investment in education and
mitigating poverty in Brazil.
Production-sharing system
The
new development model involves Brazil’s move from a concession model to
a production-sharing system for the award of new contracts.
Brazil’s
Minister of Mines and Energy Edison Lobao said the proposed
production-sharing system reflects a change in Brazil’s standing from
an oil importer to a self-sufficient global energy producer.
“With
the discovery of the presalt oil fields in 2007, the realities of
Brazil’s energy reserves have changed profoundly as have the
risk-reward ratios,” Lobao said.
“In 1997, when Brazil adopted
a concession model, the level of risk for exploration was much higher
with much lower profitability than currently estimated for the presalt
play,” the minister said, adding, “As an oil importer, the country
sought investments.”
But the discovery of the presalt area has
changed that outlook, not least due to the potentially high rewards and
low risk associated with the presalt layer.
“For strategic
reserves with low risk and high profitability, as is the case the in
the presalt area, the production-sharing system is more suitable,” said
Lobao.
Under the proposed system, Brazil’s state-owned
Petroleo Brasileiro SA (Petrobras) will be the operator of all
contracts for E&P of the presalt layer, while interested parties
can seek contracts through a partnership agreement.
The
production-sharing system will apply to new contracts signed for fields
in 72% of the presalt area, while previously awarded contracts, which
involve 28% of the presalt region, will remain unchanged.
Public company, social fund
The
government's new model also includes the creation of a public company
responsible for controlling and monitoring the cost of E&P of
presalt and the administration of sharing contracts.
This
company will represent the country in the consortia and operating
committees to be created for directly managing different sharing
contracts and monitoring all activities in E&P.
The
presalt development model will establish a social fund that will set up
a means to direct revenues from presalt exploration toward investment
in poverty reduction, in education and in science and technology.
The
new social fund will take the form of a public savings account that
receives income from various sources such as royalties, signature,
bonuses, and commercial revenues from petroleum and gas, originated in
production sharing, and resources from activities such as mining.
Reduced estimate
The
announcement of the proposed legislation coincided with a report that
Credit Suisse has reduced to 28.2 billion bbl from 50 billion bbl its
estimate for presalt oil reserves in Brazil's Santos basin.
According
to the report by Brazil’s state news agency, the previous estimate was
made when potential reserves of 8 billion and 4 billion bbbl were
announced respectively for the Tupi and Iara prospects.
In his
assessment, analyst Emerson Leite considered a total of 19 blocks,
located in Tupi or its immediate surroundings, known as the presalt
fringe.
According to Leite, the revision was necessary because
the region is becoming clearer as more wells are drilled. He noted that
in July two wells, drilled respectively on BM-S-22 and BM-S-52 blocks,
turned up dry.
“The market tends to get used to more dry wells
in the subsalt, given that no exploratory area has a rate of 100%
success," he said.
Although he hasn't raised estimates for any
areas, Leite made positive comments about the Guara prospect, on BM-S-9
block. “We believe this is the most promising area in the block,” he
said.
