Brazil House Panel OKs Petrobras Subsalt Capitalization Plan

BRASILIA (Dow Jones)--A special committee in Brazil's lower house Tuesday approved a government plan to capitalize state-controlled oil company Petrobras's (PBR, PETR4.BR) exploration of the country's offshore subsalt oil reserves.

Under the plan, which was approved by a vote of 14 to four, Brazil's government would cede rights to explore and produce 5 billion barrels of oil in the subsalt region to Petrobras. Petrobras would pay fair-market value for the oil with a share offering, and the company has pledged minority shareholders' rights would be maintained.

The share offer would be proportional to the value of the 5 billion barrels, with the total value of the offer about three times the value of the oil. The government would get roughly one-third of the shares, with minority (continue here) shareholders getting the rest.

Brazil's government, however, would be allowed to buy any shares that minority shareholders decline to subscribe, Petrobras officials have said. In addition, the government hasn't yet decided whether the government's unemployment fund, which holds 3.7% of voting shares and 2.1% of total shares, would be allowed to subscribe to the offer.

The capital infusion is part of government proposals aimed at changing the regulatory framework governing Brazil's oil and natural -gas sectors. The measures would also define how recently discovered offshore oil reserves will be developed.

The bill approved Tuesday, one of four major pieces of legislation proposed to alter Brazil's oil-sector regulatory framework, must still undergo a vote on the floor of the lower house and in the senate.

The so-called subsalt oil was made under a thick layer of salt in the Santos Basin off the coast of Sao Paulo and Rio de Janeiro states. The oil lies under more than 2,000 meters of water and a further 5,000 meters of sand, rock and a shifting layer of salt.

Initial government estimates put the total subsalt reserves at upwards of 8 billion barrels of oil equivalent.

-By Gerald Jeffris and Jeff Fick, Dow Jones Newswires