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Brazil’s New Oil Company, Petrosal, May Soon Overshadow Petrobras

September 1st, 2009

petrobras_brazilThe Brazilian government has unveiled plans to bring more state control to its oil industry and take advantage of offshore reserves. The president of Brazil, Luiz Inácio Lula da Silva, proposed Monday, August 1st, switching to a system which would see the government own a part of all oil produced by changing concessions for production-sharing agreements.

Under the current concessions system companies bid to win the rights to explore for oil in blocks. With the new system when oil prices soar, most of the windfall earnings would be for the government.

Lula said the rules, which took 14 months to draft, if approved by congress, would see a “new Independence Day” for Brazil, helping tackle poverty and fund education and technological development.

It is believed Brazil’s recently discovered sub-salt reservoirs of oil could see it become a producer and exporter nation rivaling some OPEC countries such as Venezuela within a decade.

However the sub-salt discoveries lie under more than 2,000 meters of water and a further 5,000 meters of sand, rock and a shifting layer of salt, which is not cheap to extract.

In 2007, government managed Petrobras, shocked the world with the announcement of the Tupi discovery, the Western Hemisphere’s largest oil find in more than 30 years.

The Lula administration then withdrew exploration and production blocks from planned concession auctions.

Government managed oil firm Petrobras said it would be the sole operator of the new sub-salt fields and would have a minimum 30% stake in consortiums set up to drill for the oil in the fields, which are estimated to contain 50 billion barrels of oil.

Brazil is currently self-sufficient in oil, producing enough to meet consumption needs.

President Lula will present his plan to congress later, saying he wants to use income from the oil to tackle poverty and propel Brazil to developed status.

Brazil’s discovery of new reserves was “a passport to the future” if handled properly, he said. “We don’t have the right to take the money we’re going to get with this oil and waste it,” he said in his weekly radio address.

“What we want… is to use this oil to make Brazil a wealthier country, to make it more developed.”

However part of the task is to ensure that the government secures a bigger share of the profits without alienating foreign companies who could play an important part in extracting this oil and gas.

The Brazilian government says the state-controlled oil company Petrobras is a globally respected partner and that its new profit sharing model still offers excellent investment opportunities.

A new state-owned company, Petrosal will be created to manage the government’s precious assets. Petrosal could eventually overshadow Petrobras, according to some analysts.


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