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."


  • Show Comments (4)

  • The Guest

    “There are so many articles on Petrosal and Marina as a potential candidate, I missed your comment!”

    I understand. Sometime I begin reading one then realize that I read it before.

    “I remember the creation of “PauloPetro” in the 80À‚´s to confront the oil shocks and special taxes (ICMF & CPMF) in the late 90À‚´s to fund the health care.”

    I remember them and their lack of achievement also, but I have faith. At this point the opposition parties and jocking for power in the upcoming elections next year. Let’s see if Lula will spend some of his popularity to get this done. If it is completed he may get another passing grade from me, although implemention under his successor will be another matter.

  • João da Silva

    The Guest
    There are so many articles on Petrosal and Marina as a potential candidate, I missed your comment!

    [quote]I wrote about the creation of such a company in the past. Now to see if its creation will fullfill the stated goals[/quote]

    Even though your proposal to create this company is to attain the [i][b]noble[/b][/i] goals, the[b][i] timing [/i][/b]of launching this new enterprise and the people involved lead me to be cautious in applauding. I remember the creation of “PauloPetro” in the 80À‚´s to confront the oil shocks and special taxes (ICMF & CPMF) in the late 90À‚´s to fund the health care. The latest news is that the opposition parties are mustering themselves to vote against the proposed new legislation for the Oil and Gas Industry.


    it will only work if the politicans let it work
    Petrobras has reported that the President of Brazil submitted to Congress the new proposed legislation for the oil and gas industry. The proposals are based on studies conducted by the Inter-Ministry Commission that was created to study and propose changes to the oil and gas sector regulatory model.

    The proposed legislation includes the introduction of production-sharing contracts for oil and gas exploration and production in pre-salt layers and in potentially strategic areas as defined by the National Energy Policy Council (CNPE). The new production-sharing contracts introduce the concept of “profit oil,” representing the production of a certain field, after deduction of costs and expenses related to oil production. Another concept that was introduced is “cost oil,” corresponding to costs and investments made by the contracted party for the exploration and production. Under this proposal, the following are highlighted:

    ˢۢPetrobras will operate all blocks under this regime;
    ˢۢThe Brazilian government can either exclusively hire Petrobras or conduct public bids with the free participation of any company;
    ˢۢIn areas subject to public bids, Petrobras will have a minimum interest of 30%, with the additional right to participate in bidding processes to increase its interest in those areas;
    À¢€¢The winner of the bid will be the company that offers the highest percentage of “profit oil” for the Brazilian government. In this case, Petrobras will have to offer the same percentage offered by the winning bidder to the Brazilian Government state, in the proportion of its minimum participation. In areas in which Petrobras has exclusivity, CNPE will determine the percentage of “profit oil” to be paid to the Brazilian government.
    ˢۢThe payment of subscription bonus (which is not a criterion for the bid) will be defined on a case-by-case basis by CNPE, and royalty payments will follow the terms of Law No. 9,478 of August 6, 1997.
    There is a specific proposal for the creation of a new state-run company that will represent the interests of the Brazilian government in the production-sharing contracts. The new company will not conduct upstream activities or engage in investments, but it will participate in operational committees, with voting rights and veto powers, that will define consortium activities.

    Other legislative proposals include:

    À¢€¢The authorization to the Brazilian government to onerously transfer to Petrobras the oil and gas exploration and production activities in areas of the pre-salt layer that are not subject to concessions, limited to the maximum volume of 5 billion barrels of oil equivalent (“transfer of rights”).
    According to this proposal, Petrobras and the Brazilian government will sign a contract which will determine these geographical areas, the amount to be paid for the “transfer of rights,” the conditions for the reappraisal of the transfer value and the payment conditions for Petrobras, observing the best practices in the industry.

    Exploration and production activities in these areas will be regulated and supervised by the National Petroleum Agency (ANP). The ANP will also approve agreements concerning the unitization of production that may be required in this area.

    ˢۢThe authorization for the Brazilian government to subscribe for additional shares of capital stock of Petrobras.
    In anticipation of a rapid congressional approval of this proposal,
    Petrobras will promptly initiate the following:

    À¢€¢Corporate proceedings necessary to approve Petrobras’ capitalization according to its bylaws and Brazilian Corporate Law, including calling an extraordinary shareholders’ meeting to approve the capitalization and granting of shareholders’ right to exercise their preemptive rights to subscribe for additional shares of the company;
    ˢۢThe emission resulting from the increase in capital will follow the current proportion of the different classes of shares from the company;
    À¢€¢The appraisal of the “transfer of rights,” focusing the negotiations with the Brazilian government related to the onerous
    ˢۢtransfer, observing the best practices in the industry.
    ˢۢThe negotiation with the Brazilian government of the terms of the onerous transfer of the areas.
    Petrobras will use the proceeds from this capitalization for the payment for the transfer of said areas and to finance Petrobras’ investments under its business plan.

    Petrobras reinforces its commitment to sustainable development in Brazil, maintenance of its national oil self-sufficiency and equal treatment of all of its shareholders.

  • The Guest

    “The proposal is expected to create a new state-controlled oil management company – Petrosal – ….and implement a wealth management fund to support social and economic development in Brazil.”

    I wrote about the creation of such a company in the past. Now to see if its creation will fullfill the stated goals.

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