Brazil Creates Petrosal to Explore New-Found Oil

Brazil oil Brazilian president, Luiz Inácio Lula da Silva, is introducing a proposal calling for significant changes in Brazil's legal and regulatory framework for the exploration and development of oil and gas resources located off Brazil's southeastern coast.

The 112,000 square kilometer pre-salt region, first found to contain oil with the Tupi discovery in 2007, is estimated to hold recoverable reserves of as much as 50 billion barrels of oil.

The proposal is expected to create a new state-controlled oil management company – Petrosal – adopt a production sharing model for future pre-salt contracts, may appoint Petrobras as the only operator for the still unleased blocks in the area, and implement a wealth management fund to support social and economic development in Brazil.

The proposal is not expected to change existing legal and regulatory frameworks or current concessions for the exploration and development of resources outside of the pre-salt area.

"The proposed legislation will receive a great deal of Congressional scrutiny and the ensuring debate could be protracted," says Alexandre Chequer, Partner in the São Paulo office of international law firm of Thompson & Knight, who is attending today's official announcement.

"The government has proposed a model that may complicate an already successful system. However, the oil and gas industry successfully works in a variety of contractual systems worldwide and will adapt to the regulatory environment," says Andrew Derman, Partner in the Dallas office of Thompson & Knight.

Thompson & Knight LLP is actively representing many oil and gas companies, construction and oil field service providers doing business in Brazil.

"The development of these resources is the most important event in the oil sector in the last 20 years, requiring massive financial investments, advanced technologies and highly skilled human resources," says Renato Bertani, President and CEO of Thompson & Knight Global Energy Services and former President of Petrobras America.

"Despite these challenges, it's hoped the new regulatory framework will be attractive to investors and provide for a fair distribution of the wealth between oil companies and the Brazilian society."

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