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Oil & Gas Journal

Eric Watkins
Senior Correspondent

LOS ANGELES, July 3 -- The chief executive officer of Brazil's Petroleo Brasileiro SA (Petrobras), revisiting proposed changes in the country's oil law, said the state firm will present a new business plan later this year.

Sergio Gabrielli, speaking at the 4-day World Petroleum Congress in Madrid, said the company is revising 25 projects to be included in the new plan, which also would include developments in Brazil's promising presalt offshore area.

Gabrielli's statement appears to differ from an earlier decision by the government to withdraw 41 promising oil blocks in the presalt area from a coming exploration and production block auction.

According to reports, the blocks were withdrawn while ministers consider changes in the country's oil legislation that would guarantee a higher percentage for the government from crude oil production.

Under the current system, oil companies purchase a concession from the Brazilian government to explore for oil within the area of a defined block, often in partnership with Petrobras.

As a reward for the risk being assumed, the state hands control of any oil discovered to the operating companies and is paid royalties instead of oil.

According to analyst BMI, however, "It would appear that many in the Brazilian government now support the implementation of production-sharing agreements, under which hydrocarbon reserves remain state property and international oil companies are given a share of output."

Gabrielli recently defended the proposed revision of Brazil's oil legislation, saying that the existing regulations made investment so risk-free that it was like purchasing a "winning lottery ticket" especially since, in his view, the exploratory risk is very low in the presalt area where blocks to be auctioned off share geological conditions similar to those where the previous discoveries were made.

Echoing earlier statements by Brazilian President Luiz Inacio Lula da Silva, who last year said that those blocks in the presalt play that have already been auctioned off won't have their contract terms changed, Gabrielli said Petrobras was carefully considering the impact of reform and that any rule changes would apply only to new concessions, not existing contracts.

That view was welcomed by ExxonMobil Corp. Chief Executive Officer Rex Tillerson, who stressed the need for regulatory stability in Brazil, given the expected high cost to develop promising new oil fields in the country.

"Brazil's government said it will honor existing contracts," said Tillerson at the Madrid conference. "I'm pleased to hear they will keep existing agreements."

ExxonMobil has a 40% operating stake in Brazil's BM-S-22 block, which is adjacent to the BM-S-9 block where Petrobras has discovered oil in the Carioca and Guara wells. The BM-S-22 also is near the Tupi find, where Petrobras last year said it estimates reserves to be as much as 8 billion boe.