UPDATE 1-Brazil Senate passes key part of Lula’s oil reform

* New rules to boost Brazil’s control over oil

* Boost state presence in deep water crude fields

* Key element of President Lula’s oil reform program
(Updates with details on vote, amendments, comments; adds
byline)

By Natuza Nery and Brian Ellsworth

BRASILIA/RIO DE JANEIRO, June 8 (BestGrowthStock) – Brazil’s Senate
on Thursday passed a plan that creates a production-sharing
model to replace the existing concession system in future oil
projects, boosting government control over massive deepwater
reserves off the country’s coastline.

Senators voted 38-to-31 with one abstention to approve the
plan, which is a key component of President Luiz Inacio Lula da
Silva’s efforts to boost state control over the country’s oil
reserves. The bill now goes back to the lower house for
conciliation after senators changed parts of the original
text.

The approval gives Lula a key legislative victory after
years of debate over how Brazil can ensure it gets a fair share
of the massive offshore oil reserves. The Senate is still
slated to vote on Thursday on a plan to transfer up to 5
billion barrels of oil to state-controlled oil giant Petrobras
in exchange for shares of the company.

Brazil is hoping the massive oil reserves, buried deep
beneath the ocean floor under a layer of salt in a basin known
as the subsalt region, will help the fledgling emerging market
economy move into the ranks of the developed nations and help
it become a major energy exporter.

“We are gaining the necessary financial, operating and legal
muscle needed to turn all this wealth into funds for
development,” Senator Delcidio Amaral, a government lawmaker
and a former director at Petrobras (PETR4.SA: )(PBR.N: ), told
fellow lawmakers ahead of the ballot.

Under the plan, Petrobras will be made the sole operator of
new projects in that region with a 30 percent minimum stake in
those projects.

Once the lower house approves the bill, Brazil can resume
auctions for the subsalt fields that the country suspended in
2007 after Petrobras announced their discovery, the biggest in
the Americas in three decades.
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For a factbox on production sharing agreements, click on
[ID:N09125922]

For a graphic of key Brazil oil projects click:

http://link.reuters.com/gek88k
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The bill also included a “social fund” aimed at channeling
money into poverty reduction, the environment and improving an
education system that lags much of the world.

Brazil’s move is part of a worldwide trend of governments
seeking greater control over natural resources. But Brazilian
officials stress their plan does not seek to shunt aside
foreign capital, as has happened in places like Venezuela and
Ecuador.

Investment Research

(Additional reporting and writing by Guillermo Parra-Bernal in
Sao Paulo; Editing by Michael Urquhart)

UPDATE 1-Brazil Senate passes key part of Lula’s oil reform