By Sabrina Lorenzi
RIO DE JANEIRO, Jan 27 (Reuters) - Brazil's ANP oilregulator said Royal Dutch Shell needs to negotiatewith the Brazilian government on an oil reservoir that exceedsthe limits of the concession block it controls with France'sTotal, according to an ANP document seen by Reuters onMonday.
The oil reserve, located in Shell's BM-S-54 block,encroaches on areas controlled by the Brazilian government thathave not yet been auctioned.
The ANP recommended that Shell open negotiations withBrazil's new federal oil company, known as Pré-Sal Petróleo SA(PPSA) and responsible for managing the subsalt oil reserves offthe country's southern coast.
Shell confirmed on Monday that the reservoir in factexceeded the limits of its concession block but gave noadditional details about its plans when asked by Reuters.
Shell controls 80 percent and Total the remaining 20 percentstake in BM-S-54, which is situated in one of the most promisingoil frontiers in the world, Brazil's subsalt region. Thecompanies registered discoveries in the block in 2010.
In accordance with Brazilian oil law, Shell and Total willneed to go through the process known as unitization with thePPSA or eventual owner of the area into which the reservoirencroaches.
The unitization process attempts to give preference to thegeological and engineering dynamics of extracting oil and gasmost efficiently from a reservoir, regardless of manmadeparameters of oil concession blocks. But it also tries to allotequitable stakes in the production to the various concessionholders involved.
"Shell could ask for authorization to use the entirereservoir, dividing up the production from it with the PPSA,that represents the government as owner of part of thisdeposit," a source with direct knowledge of the subject said.
If undertaken, it would be the first case of unitizationwith Brazil's PPSA. Other cases of unitization have occurred inthe past when reservoirs spanned various blocks controlled bydifferent concession holders.
Shell and Total's BM-S-54 is located in between importantsubsalt areas such as Florim and the Paraty (BM-S-10), both ofwhich the state oil company Petrobras operates.
Shell could request permission from the PPSA to drill a welloutside its concession block and divvy out the revenue or oilfrom the production in accordance with estimates of how muchlies in each area.
Shell and Total are already familiar with doing businesswith the PPSA. In October, Total and Shell were part of theconsortium led by state-owned Petrobras that won themassive Libra subsalt field that could hold as much as 12billion barrels of recoverable oil. The Libra is in the samearea as BM-S-54.
