Brazil Strips Pre-Salt Licenses From Oil Companies

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In an expected move, Brazil's government has stripped licenses for potentially lucrative pre-salt fields from several oil majors that were awarded to the companies five years ago. Brazil's energy minster said the country has a tradition of honoring its oil contracts, but that the licenses in question were never formally contracted.

The decision comes after the government put off final signing and approval of the concessions for years even after it overturned legal challenges to the 2006 auction where the rights were sold. In the minds of some industry observers, the move to seize the licenses underscores the tight hold Brazil's government is looking to employ over the country's pre-salt oil discoveries.

Petrobras (PBR), Brazil's state-run oil giant, and Eni SpA (E), Italy's largest oil company, are among the companies affected. Spain's Repsol and India's Oil & Natural Gas Corp. also stand to lose licenses.

The companies won the bids just months before Petrobras announced the Lula discovery, the largest oil find in the Americas since the 1970s. Brazil's pre-salt fields are believed to hold up to 50 billion barrels of reserves and the country is South America's second-largest oil producer behind OPEC member Venezuela.

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