FACTBOX: Possible changes to Brazil's oil laws

Thu Aug 28, 2008 11:40am EDT
(Reuters) - Brazil's government is studying ways to take greater control over the oil industry following huge subsalt reserve discoveries made by state energy company Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz)(PBR.N: Quote, Profile, Research, Stock Buzz) off its southern coast.
The Tupi field announced by Petrobras in November has estimated recoverable reserves of between 5 billion and 8 billion barrels, 85 percent of which is light crude, making it the world's second-biggest oil find in the past 20 years.
Potential further subsalt oil reserves stretching for 500 miles along the coast from Espirito Santo to Santa Catarina state could push Brazil above Nigeria to become the world's 10th biggest oil producer, Petrobras says.
Here are some of the possible changes to the law and different models believed to be under consideration.
A NEW STATE FIRM
The government could create a separate state company to manage oil exploration and production contracts in the subsalt cluster. The new entity, which has already been nicknamed Petrosal, would be needed if the government decides to shift to a production-sharing model. It would also have to be approved by Congress, which could lead to delays.
PRODUCTION-SHARING MODEL
Under this system, the government would own the oil but pay companies with part of the proceeds. Petrobras and its partners in the subsalt discoveries, including Galp (GALP.LS: Quote, Profile, Research, Stock Buzz), ExxonMobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz), Amerada Hess (HES.N: Quote, Profile, Research, Stock Buzz), BG Group (BG.L: Quote, Profile, Research, Stock Buzz), Repsol (REP.MC: Quote, Profile, Research, Stock Buzz) and Shell (RDSa.L: Quote, Profile, Research, Stock Buzz), currently have control over any oil they find and pay royalties and taxes to the government.
BIGGER GOVERNMENT STAKE IN PETROBRAS
Instead of creating a new firm, the government could raise its stake in Petrobras to reduce the influence of its Brazilian and foreign minority shareholders. Newspapers have reported that some in the government are worried that Petrobras could grow too powerful with the new oil riches.
STICK WITH CURRENT SYSTEM
Most energy firms hope the government will stick with the current model, under which companies buy concessions and own the rights to the oil they produce. In this scenario, the government could simply opt to raise the royalties and taxes it charges oil companies.
SOVEREIGN WEALTH FUND
The government's economic team advocates investing some of the revenue from the subsalt oil reserves in an offshore sovereign wealth fund. This would help prevent a flood of oil revenue into the Brazilian economy, which could stoke inflation and further strengthen the national currency, the real BRBY.
(Reporting by Fernando Exman; Writing by Stuart Grudgings; Editing by Kieran Murray)