Brazil to Control Recent Big Oil Find

A Brazilian government proposal for exploiting recent deep-water oil discoveries calls for direct state control and is expected to give a key role to oil company Petroleo Brasileiro SA.

The new plan follows the discovery off Brazil’s coast of giant pools of oil. They are among the largest petroleum finds in recent years, and could make Brazil into a significant energy exporter.

Brazil’s government plans to greatly increase its role in managing huge deep-water oil finds off the coast. Details leaked in recent weeks indicate that Brazil will adopt a strategy common in the Middle East and other major oil-producing regions, in which companies sign production-sharing deals that give most of the barrels to the host government.

President Luiz Inácio Lula da Silva is reviewing a new plan on oil.

The plan appears to favor state-controlled Petrobras over foreign oil companies, but analysts say that could be a mixed blessing for the company.

An expert committee presented recommendations to President Luiz Inácio Lula da Silva on Wednesday. Following the meeting, however, officials said significant disagreements continued.

The plan has proved controversial because it marks a shift from Brazil’s system of competitive bidding for oil-exploration concessions, a model followed by the U.S. Such concessions have increased Brazil’s oil output.

Auctions of exploration rights in the promising deep-water fields were halted in 2007, freezing out new bidders. “There is an effort to bring the petroleum sector under state control,” says Adriano Pires, director of the Brazilian Infrastructure Center, a consulting firm in Rio de Janeiro.

Brazil’s governing Workers’ Party is counting on the discoveries to increase its chances of holding on to the presidency in elections next year. Mr. da Silva has said the expected windfall could be used to attack poverty and improve education.

Edison Lobão, minister of mines and energy, said last week that the new regulations “aren’t designed to hurt anyone, but to benefit Brazil.”

Shaping the plan is the belief that drilling in the new deep-water areas, while costly, is essentially a no-risk proposition because of the quantity of oil there. That has triggered calls among Mr. da Silva’s political base to reduce the role of foreign firms and increase the government’s take.

But some believe the plan underestimates the difficulties of discovering oil. Exxon Mobil Corp. said last month that it had failed to find any commercial quantities of oil or gas at its Guarani well off Brazil. Exxon is operator of a promising deep-water field there under a concession it won in a prior round of bidding.

The plan presented to Mr. da Silva calls for a new state enterprise that would control the oil fields, then contract with companies to pump the oil out. The government’s portion would pay for social projects.

Brazil needs the new state company because Petrobras, though controlled by the government, also has shares that trade in New York and São Paulo. That has prevented Mr. da Silva from turning the deep-water fields directly over to the company.

Some government ministers have proposed a major role for Petrobras, including assigning the company to operate all of the new deep-water fields, keeping foreign companies as passive investors.

If that proposal makes it into the final rule, it isn’t expected to sit well with big oil companies. Brazil’s oil fields are among the most attractive in the world, and oil companies would be hesitant to give up control over investment schedules and technical details.