Brazil expects big oil investment

An oil platform is under tow in Mage, deep into the Bay of Guanabara, Rio de Janeiro, Brazil, on July 3. The auctioning of oil block concessions in Brazil's huge deep-water reserves next year should lure the huge investments required for exploitation, analysts say while voicing concern about delayed legislative approval of a royalties law. An oil platform is under tow in Mage, deep into the Bay of Guanabara, Rio de Janeiro, Brazil, on July 3. The auctioning of oil block concessions in Brazil's huge deep-water reserves next year should lure the huge investments required for exploitation, analysts say while voicing concern about delayed legislative approval of a royalties law. - The auctioning of oil block concessions in Brazil's huge deep-water reserves next year should lure the huge investments required for exploitation, analysts say while voicing concern about delayed legislative approval of a royalties law. President Dilma Rousseff gave the green light Tuesday for an auction inside the so-called "pre-salt" reserves located off the country's southeast coast, to be held in November 2013. Next May, another auction involving 74 oil blocks, half at sea and half on land, is to be held outside the pre-salt reserves, which are buried beneath several kilometers of ocean, bedrock and hot salt beds. The two auctions will be the first since 2008 following the 2007 discovery of pre-salt reserves which, according to National Petroleum Agency estimates, could hold more than 100 billion barrels of high-quality recoverable crude. But before they can go ahead, the House of Deputies must approve legislation on the contentious distribution of oil royalties, an issue that divides producing and non-producing Brazilian states. The new royalties share-out plan proposed by the government cleared the Senate but has been blocked in the House of Deputies. "We absolutely need to know what will happen with the royalties law," stated-owned oil giant Petrobras chief Graca Foster told a Senate hearing Wednesday. Petrobras needs foreign investment and technology to meet the country's goal of doubling its oil production from around two million barrels a day currently to nearly five million by 2020, largely thanks to the pre-salt reserves. Less than 10 percent of oil production currently originates in the pre-salt layer. Joao Carlos de Luca, president of the Brazilian Petroleum Institute, which groups domestic and foreign energy companies, has welcomed the announcement of the auctions. "It's great news," he told reporters Tuesday. "It was the signal we were expecting from the government for a return to normal auctions. And the government will get a positive response from oil and gas producers." "This is very encouraging news...We are ready to take part," said Angel Gonzalez Lastra, head of operations at the Chinese-Spanish Repsol-Sinopec firm, which already operates in the pre-salt area and has invested $1 billion in the country. Energy Minister Edison Lobao said the government was holding talks with the House of Deputies with a view to ensuring that the bill is approved well ahead of time. "We are convinced the House will pass the royalties legislation without major problems, even this year," he was quoted as saying. After the huge pre-salt reserves were discovered, the government decided to suspend the auctions pending the definition of new rules in the sector. Foster said Petrobras, which currently operates 32 wells in the Santos basin located 210 kilometers (130 miles) from the Rio de Janeiro coast, has pockets deep enough to take part in the new auctions. "The resources will depend on the quality of each block on offer and we will make an assessment" once we have all the data, said Carlos Tadeo Fraga, head of Petrobras' pre-salt sector . With the pre-salt, Brazil's crude reserves would jump from the current 13.9 billion barrels to 55 billion barrels, according to the Federal University of Rio de Janeiro (UFRJ). Eleven foreign-controlled oil groups are currently operating in Brazil, according to the National Petroleum Agency. At least nine of them are expected to invest $30 billion by 2020, according to UFRJ.