PBR Petroleo Brasileiro ADR

RIO DE JANEIRO—Legislation to open coveted offshore oil fields in Brazil to foreign players took a major step forward this week, but still faces fierce resistance from opponents who consider the measure an affront to the country's control of a prized natural resource.

Brazil's Senate late Wednesday approved by a 40-to-26 vote a bill aimed at spurring global competition for massive oil reserves located in deep waters about 200 miles off Brazil's southeastern coast. The bill still faces a potentially long battle in the lower house, but the Senate approval was the strongest signal yet that the bill has a chance at becoming law.

The proposed bill would change part of a 2010 law that requires state oil giant Petró leo Brasileiro SA to be the lead operator and hold at least a 30% share of any drilling projects in these oil-rich fields. Instead, Petrobras would be offered the right of refusal to control and drill each field before it was put up for auction.

Proponents of the change say it could help attract fresh capital from foreign oil companies, many of whom balked at the old rules, and bring in more oil revenue for Brazil's government. It also lifts a costly mandate from Petrobras, which has had to borrow heavily to participate in pre-salt deals.

"The bill brings relief to Petrobras," said Joã o Augusto de Castro Neves, an analyst at Eurasia Group in Washington, D.C. "It removes one of the clouds looming over the company, because if any field were put up for auction Petrobras had a mandate to bid."

The bill could go to the lower house as soon as next week, though it could be months before a final vote is taken. It then would go to the desk of President Dilma Rousseff, whose ruling Workers' Party vehemently opposes the bill.

On Thursday, politicians on both sides of the bill were quick to weigh in.

"There is a monumental crisis at Petrobras. Petrobras can't afford developing the pre-salt on its own," said Marcus Pestana, a member of the lower house from the opposition PSDB party. Mr. Pestana supports the bill and says his party would work to get it approved quickly.

Petrobras is the most indebted oil company in the world, with total debt of 506.58 billion Brazilian reais at the end of its third quarter, up 44% from the end of 2014 in local-currency terms. And it is still dealing with the fallout from a giant corruption scandal that resulted in a roughly $20 billion write-down and during which several of its former executives were arrested. The company has denied wrongdoing in the corruption scandal and said it is cooperating with investigators.

Despite its recent troubles, Petrobras remains a symbol of national pride for many Brazilians, and most of the Workers' Party fiercely opposes the bill, painting it in stark terms as theft or sabotage of a national resource that belongs solely to Brazilians.

"We are against the bill. We think this is a strategic reserve for Brazil and investment will come in the long run because now oil is too cheap," said Paulo Teixeira, a congressman and the deputy leader of the Workers' Party in the lower house. "Nobody is going to explore [for oil] at current prices, it would be selling assets too cheap."

The bill arrives at the house amid a fierce political battle that could push the pre-salt bill to the back burner. Lawmakers are considering the impeachment of Ms. Rousseff, who is accused of using creative accounting to mask Brazil's fiscal troubles, something she firmly denies. Congress is also distracted by a widening corruption probe that has implicated several sitting lawmakers.

The pre-salt rules date back to 2010, when oil prices were high, Brazil's economy was booming and then-newly elected Ms. Rousseff was looking to use some of the money flowing from oil profits to boost social programs and to give Petrobras an edge against competitors.

The most controversial of those changes were those relating to so-called pre-salt fields, which lie beneath a thick layer of salt hundreds of miles off the coast of Brazil.

Advocates cheered the move. But as oil prices fell and Petrobras's debt pile continued to build, the pre-salt obligations became more burdensome. Now the company is embarking on a wide-ranging plan to divest $15 billion in assets by the end of 2016, and an additional $42 billion by the end of 2018.

"It's good news for Brazil, and it's been a longtime without good news in Brazil," Adriano Pires, an oil consultant in Rio, said. "It doesn't solve all of Petrobras' problems, but it improves their outlook."

Write to Will Connors at william.connors@wsj.com and Paulo Trevisani at paulo.trevisani@wsj.com

(END) Dow Jones Newswires

February 25, 2016 19:35 ET (00:35 GMT)

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