OREANDA-NEWS. June 25, 2018. Brazil's lower congressional house has approved a bill allowing state-controlled Petrobras to directly sell up to 70pc of the 5bn bl of oil equivalent (boe) of estimated reserves in the coveted Santos basin pre-salt cluster known as the transfer of rights (TOR) region.

The landmark bill, which will now proceed to the senate for approval, is considered the last and most important industry reform favoured by foreign oil companies. Under the bill introduced on 19 June, the 5bn boe awarded to Petrobras by the federal government in a 2010 capitalisation, valued at around 75bn reals ($42bn at the time of the transaction), will be governed by a TOR contract model. Excess volumes, which could be as high as 15bn boe, will be offered at auction under the production-sharing model.

The TOR model is considered the most favourable to foreign investors because the government take comes exclusively from royalties. Under the production-sharing model, companies must also give an agreed portion of "profit oil" to the government. The competing models raise questions about how the areas will be offered at auction, potentially in a fifth production-sharing round scheduled for 28 September. A possibility is that Petrobras will sell 70pc operating or working stakes in smaller fields in the cluster, and create a consortium at auction for larger fields, such as Buzios.

After days of heated debate, Brazil's lower house approved the bill, introduced by energy minister Fernando Coelho Filho, by 217 to 57. The main argument in favour of the change was Petrobras' limited investment capacity, which proponents say is insufficient to develop the massive TOR regions. Since taking office in May 2016, following the ousting of Dilma Rousseff, President Michel Temer has enacted reforms considered necessary to rejuvenate the oil sector. Among the most important are the opening of pre-salt operatorship to companies other than Petrobras and easing of local content rules.

Jewel in the crown

The changes prompted oil companies such as ExxonMobil, BP, Chevron, Shell and Norway's Equinor — previously Statoil — among others, to expand their offshore presence. The firms, mainly in partnership with Petrobras, have pledged billions of dollars for new post and pre-salt exploration assets in recent licensing rounds, but the TOR region is considered the jewel in Petrobras' crown.

Hailed as a "no risk" asset, Petrobras has already carried out exploration in the fields that make up the TOR region. The company pegged recoverable reserves in the area at around 20bn boe in 2014, using a recovery factor of 23-30pc — a figure still under discussion.