Lula Fights For Pre-Salt Control

By Doug Gray, Contributing Reporter

RIO DE JANEIRO – Just a week after President Lula promised to tackle poverty with the oil riches held in the pre-salt layers some 500km off the coast of Rio de Janeiro, industry insiders are voicing caution as to the realistic size of the find and the chances for foreign companies to share in the wealth.

In the late 90s a new petroleum law was passed to encourage foreign companies to invest in the oil industry of which Brazil was slow to become a major part. No longer the possession of the country, oil was now the property of whoever extracted it and the concept of bidding for control of designated blocks of oil fields was introduced.

In 2007 the news that oil in the pre-salt layer in the Santos Basin under the Atlantic could yield around eight billion barrels of crude oil heralded one of the most important oil finds in the world and led to a huge upturn in foreign investment in the area.

The field was first predicted by geologists in the 50s as the one area most likely to harbour such deposits in Brazil, and half a century later those who continued to research how best to access this potential gold mine now look set to reap the rewards. Those initial estimates of the field size have now increased by up to 100 percent among some experts, and the value of the find to the country has multiplied accordingly.

The words ‘pre-sal’ (pre-salt) have now littered the front pages of the more discerning Brazilian newspapers for over a fortnight, with debates abounding over Lula’s intentions for the distribution of the money and the fight between states for a share of the wealth.

But as Petrobras readies itself for the dividing up of the pre-salt field into blocks and the beginning of the bidding process by the world’s major oil companies, Lula’s government is set to introduce a fresh reform of the law to keep International concerns out, and as much of the profit from the oil within Brazil as possible.

Currently Petrobras’ main partners in the productive Guara field in the Santos Basin are UK-based BG and Spain’s Repsol, with the former holding 30% ownership and the latter 25% of operations, and deals such as these will not be affected by any changes in legislation.

What Lula is suggesting is that for any new projects and discoveries, Petrobras will control 100% of the extraction and hope to carry out a large portion of the processing of the oil to maximise the profits within Brazil. BG currently has a twenty-five percent stake in the Tupi field which is said to hold at least ten Billion barrels of oil beneath several kilometres of water, shifting sand strata and a thick layer of salt.

The difficulty of the extraction process and Lula’s desire to have 100 percent control of operations could have a major impact on the speed at which it is brought to the market, inflating oil prices and, economists have predicted, hampering the global economic recovery.