By Jeff Fick
Of DOW JONES NEWSWIRES
RIO DE JANEIRO (Dow Jones)--Brazil's main oil regulator said Tuesday that it had discovered crude that could be part of the government's plan to seed federal oil company Petroleo Brasileiro (PBR, PETR4.BR) with enough cash to fund development of the country's presalt oil patch.
The National Petroleum Agency, or ANP, said the 2-ANP-1-RJS well tested positive for light oil rated at 28 degrees on the American Petroleum Institute's grading scale. The find was made northeast of Petrobras' Iara discovery.
The ANP has been drilling in government-owned offshore areas in search of oil that could be used in President Luiz Inacio Lula da Silva's complicated plan to capitalize Petrobras. The difficult task of discovering oil deep underwater, however, has proven easier than convincing Brazil's Congress to pass bills to change the country's oil laws--including approval of the capitalization plan.
Lula's proposals would give the government a greater stake in the so-called presalt finds, which were 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 under sand, rock and a shifting layer of salt.
The changes would also make Petrobras the lead operator of blocks currently under government control. But Petrobras needs a cash injection to fund development of the fields, keeping the company's leverage low enough to maintain its investment-grade credit rating.
The bills, however, are bogged down in Congress as lawmakers debate changes to royalties payments and other key issues. Election-year grandstanding has also caused delays as Brazil's key political parties jockey ahead of October's presidential election.
Petrobras officials still expect the capitalization plan to be approved in the first half of 2010.
Under the plan, Petrobras will receive the rights to explore and produce 5 billion barrels of crude as part of a government infusion of capital into the company. Petrobras will pay the government fair-market value for the oil in new shares, and minority shareholders will be allowed to accompany the share offer.
The ANP, Brazil's main regulator for the country's oil and natural gas industry, was tasked with finding the oil that would be used in the swap. The regulator hired Petrobras last year to conduct the drilling.
The Iara discovery was estimated to hold recoverable reserves of between 3 billion and 4 billion barrels of oil equivalent, or BOE. Meanwhile, the Tupi field--also in the BM-S-11 block--was estimated to hold between 5 billion and 8 billion recoverable BOE. Revealed in November 2007, Tupi was the Western Hemisphere's largest oil discovery in 30 years.
Petrobras is lead operator of the BM-S-11 block, holding a 65% stake. BG Groupl (BG.LN) has a 25% share, while Portugal's Galp Energia (GALP.LB) has a 10% stake.
In early trading on the Sao Paulo Stock Exchange, Petrobras shares traded 1.1% lower at 32.97 Brazilian reals ($18.80) as of 1329 GMT. The shares underperformed the broader market as measured by the Ibovespa stocks index, which was down 0.8% at 68,358 points.
-By Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; email@example.com