Brazil Oil Industry Riled by Bill Passed in Protest-Fueled Rush

By MarEx 2013-06-28 08:02:00

A proposed change to rules governing the auction of Brazil's giant offshore oil fields, part of legislation rushed through Congress amid nationwide street protests, has caught the country's oil industry off guard, the head of industry group IBP told reporters on Thursday.

In the pre-dawn hours of Wednesday, a bill dedicating future oil royalties to education and healthcare passed the lower house of Congress with a little-noticed amendment. The change set the government's minimum share of oil from the offshore region known as the Subsalt Polygon at 60 percent, altering rules for a recently announced October auction.

Existing law allows the National Energy Council, with the approval of Brazil's President, to set the minimum amount of so-called "profit oil" that the winners of the concession will have to give to the government in exchange for the oil development rights, at any level it sees fit.

Profit oil is oil produced after covering a field's basic development costs. The winner of an auction for rights in the Polygon will be the company or group that offers the state the largest share of this oil to sell on its own account.

"This percentage can't be fixed by law, the amendment conspires against the idea of an auction," IBPPresident João Carlos de Luca told reporters in Rio de Janeiro. He said the new rule "runs roughshod" over auction regulations that are being put together by Brazilian oil regulator ANP.

The amendment, also opposed by the government of President Dilma Rousseff, passed the lower house during a flurry of activity prompted by three weeks of huge public demonstrations that have jolted Brazil's political elite.

While the protests began over rising bus fares, they have swelled into a broad attack on politics as usual with a particular focus on rampant corruption, the cost of hosting events like the soccer World Cup and Olympics, and poor public services such as health and education.

While the bill must pass the Senate and receive Rousseff's approval to become law, it has caused serious concern among members of the oil industry who believe it could complicate future oil-rights auctions, de Luca said.

The government's oil and gas secretary Marco Antonio Martins also criticized the amendment on Thursday for altering rules established in 2010 under which Brazil plans to sell the giant Libra prospect on Oct. 22.

Libra has an estimated 12 billion barrels of recoverable reserves, making it Brazil's largest discovery ever and the world's biggest oil prospect ever to be put up for auction, according to the ANP.

The auction will also be Brazil's first under a production sharing system that applies only to the Subsalt Polygon, an area half the size of Italy that may hold as much as 100 billion barrels of oil, according to Rio de Janeiro-State University.

By Sabrina Lorenzi and Jeb Blount (C) Reuters 2013.