Brazil’s Dilemma: Another Petrobras to Manage New Oil?

Petrobras Brazil The President of Brazil, Luiz Inácio Lula da Silva is pondering whether to create a new state-run oil company to manage oil production from Brazil's new sub-salt reserves, according to press reports in São Paulo, in the Brazilian southeastern.

Since government managed oil and gas company Petrobras announced that it had discovered massive light oil reserves off Brazil's southern coast, there has been a growing debate about if the government should take greater control over the oil wealth.

Energy Minister Edison Lobão and other leaders in the ruling coalition have said they favor creating a 100% state-owned company to manage the promising sub-salt oil reserves, which probably will take years to develop.

One of Brazil's most influential newspapers, Folha de S. Paulo, reported that Lula also favored creating a new state oil company, citing unnamed government sources. But the president, who has asked a ministerial committee to draw up proposals on how to change Brazil's petroleum law, said he remained undecided.

"No new state company exists. I am not against it, or in favor," he told reporters at a Petrobras event in northeastern Brazil. "I'm only going to receive proposals on September 19. When I see them, we will make a decision that will be made known to the Brazilian public."

Petrobras shook the oil world last November when it said it had found 5 billion to 8 billion barrels of recoverable light crude in its Tupi field in the Santos basin, the largest deep-water find in history.

Other reserves thought to exist in the area, which some analysts say could total between 50 billion and 70 billion barrels, could vault Brazil to 10th from 17th among world oil producers.

Some government officials have said they favor shifting to a production-sharing model similar to the one used by Norway to extract oil from the North Sea. That would give the government the right to sell the oil and pay companies a share. Currently, oil companies own the oil they produce and pay the government royalties and taxes.

Petrobras Chief Executive José Sergio Gabrielli has said he opposes the creation of rival state oil company.

Finance Minister Guido Mantega has also joined the debate saying the government also intended to invest part of the new income abroad to prevent inflation and further currency appreciation.

But another major newspaper, Rio's daily O Globo, quoted unnamed company sources saying Petrobras would not be opposed to a new state firm, as long as Petrobras had the rights to explore the nine "mega-fields" already discovered and their contiguous areas.




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