Brazil oil industry riled by bill passed in protest-fueled rush

By Sabrina Lorenzi and Jeb Blount

RIO DE JANEIRO, June 27 (Reuters) - A proposed change torules governing the auction of Brazil's giant offshore oilfields, part of legislation rushed through Congress amidnationwide street protests, has caught the country's oilindustry off guard, the head of industry group IBP toldreporters on Thursday.

In the pre-dawn hours of Wednesday, a bill dedicating futureoil royalties to education and healthcare passed the lower houseof Congress with a little-noticed amendment. The change set thegovernment's minimum share of oil from the offshore region knownas the Subsalt Polygon at 60 percent, altering rules for arecently announced October auction.

Existing law allows the National Energy Council, with theapproval of Brazil's President, to set the minimum amount ofso-called "profit oil" that the winners of the concession willhave to give to the government in exchange for the oildevelopment rights, at any level it sees fit.

Profit oil is oil produced after covering a field's basicdevelopment costs. The winner of an auction for rights in thePolygon will be the company or group that offers the state thelargest share of this oil to sell on its own account.

"This percentage can't be fixed by law, the amendmentconspires against the idea of an auction," IBP President JoãoCarlos de Luca told reporters in Rio de Janeiro. He said the newrule "runs roughshod" over auction regulations that are beingput together by Brazilian oil regulator ANP.

The amendment, also opposed by the government of PresidentDilma Rousseff, passed the lower house during a flurry ofactivity prompted by three weeks of huge public demonstrationsthat have jolted Brazil's political elite.

While the protests began over rising bus fares, they haveswelled into a broad attack on politics as usual with aparticular focus on rampant corruption, the cost of hostingevents like the soccer World Cup and Olympics, and poor publicservices such as health and education.

While the bill must pass the Senate and receive Rousseff'sapproval to become law, it has caused serious concern amongmembers of the oil industry who believe it could complicatefuture oil-rights auctions, de Luca said.

The government's oil and gas secretary Marco Antonio Martinsalso criticized the amendment on Thursday for altering rulesestablished in 2010 under which Brazil plans to sell the giantLibra prospect on Oct. 22.

Libra has an estimated 12 billion barrels of recoverablereserves, making it Brazil's largest discovery ever and theworld's biggest oil prospect ever to be put up for auction,according to the ANP.

The auction will also be Brazil's first under a productionsharing system that applies only to the Subsalt Polygon, an areahalf the size of Italy that may hold as much as 100 billionbarrels of oil, according to Rio de Janeiro-State University.