Proposals for a new petroleum regime in Brazil 2

Ever since the announcement of the Tupi discovery in November 2007, the eyes of the international oil industry have been firmly fixed on Brazil. This mega-field of 5 to 8 billion barrels of oil opened up an entirely new petroleum province, dubbed the “pre-salt” because its reserves are located beneath a thick layer of salt offshore Brazil. The pre-salt is widely expected to contain 50 to 100 billion barrels of oil, and promises to transform Brazil into one of the world’s leading petroleum producing nations.

The Brazilian Government responded quickly to the Tupi discovery by withdrawing a number of blocks in the pre-salt region from its ninth licensing round which was held in December 2007. Shortly afterwards, it announced a major review of Brazil’s petroleum licensing regime. After almost two years of deliberations, President Lula announced on 31 August 2009 his Government’s proposals for major changes to the country’s petroleum laws.

It was decided early on that Brazil would not seek to renegotiate existing petroleum concessions, even in the most prolific regions. The new regime will only apply to unlicensed acreage in the pre-salt region and other areas that may be classified as strategic by the Federal Government.
The Government has put forward a suite of four proposals:

• Use of production sharing contracts (PSCs), rather than the existing concessionary regime, in the pre-salt and other strategic areas. Petrobras, the State controlled oil company, will be granted operatorship and a participating interest of at least 30% in all PSCs.
• Creation of a new State oil company, dubbed Petro-Sal, to manage the State’s interests in the PSCs and the hydrocarbons produced.
• Grant of certain unlicensed pre-salt acreage to Petrobras in consideration for the State’s subscription for additional Petrobras shares.
• Creation of a federal social fund to manage the nation’s revenues from PSCs.

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