Brazil oil bonanza triggers royalties war

Sept. 16, 2011 at 3:07 PM
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RIO DE JANEIRO, Sept. 16 (UPI) -- Brazil's oil bonanza is threatening to ignite a royalties war between the country's oil-producing states and other regions not blessed with hydrocarbon reserves.

The disputes erupted after President Dilma Rousseff's government unveiled plans for the sharing of oil royalties between the federal government and the states. Some of the oil-producing states indicated they would like greater control of their oil and natural gas resources.

Brazilian states that aren't producing oil stepped in with demands that they are entitled to a share of the oil wealth, a development that officials said could delay development of untapped resources.

Brazil has unveiled a multibillion-dollar program for developing deep-water oil fields where multiple discoveries in recent years have raised the prospect of the Latin American country emerging as a major producer and exporter.

Brazil indicated it is investing heavily in the oil and gas sector to become one of the world's largest suppliers of crude oil outside the Organization of the Petroleum Exporting Countries. As exploration for new oil finds continues the so-called subsalt region offshore is believed to hold more than 50 billion barrels of oil.

However, harmony between the states fighting over greater royalty shares is key to the plan succeeding. Current revenue-sharing plans by the government have displeased oil-producing states, which are likely to receive reduced royalties, and non-producing states, which want a greater share of the income.

Since the start of discoveries of Brazil's deep-water reserves, non-producer states have been demanding a greater share of the income, which they argue is needed for economic regeneration and poverty reduction programs.

Unequal income distribution has meant that Brazilian states that don't produce oil are among the poorest in the country and unhappy with what they see as unequal sharing of the resources.

"There is a strong expectation that Brazil's future oil reserves will be much greater than those booked so far, as new oilfields are discovered and recoverable reserves at existing fields are revised," the London Center for Global Energy Studies said.

It said the information on Brazil's offshore subsalt discoveries has led to suggestions that up to 100 billion or 150 billion barrels of oil equivalent could be discovered in the coming years.

It said the country's onshore basins haven't been properly explored. There is also potential for more offshore oil discoveries other than those that are still expected, the center said in a Global Insight report.

"It is very likely that Brazil's future crude oil production could be even greater than 5 million barrels per day," CGES said. "Brazil is set to become a major oil exporting country within the decade to 2020."

Brazilian officials said current projections about Brazil's oil bonanza made workable royalty agreements among the states all the more important.

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