Aug. 25 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, fell the most in three weeks in Sao Paulo trading after Itau Corretora said the government is likely to raise taxes on existing oil concessions in the so-called pre- salt fields once production begins.

Petrobras, as the company is known, dropped 4.2 percent to 33.81 reais. The Bovespa index declined 2.5 percent and crude oil gained 0.6 percent to $115.22 a barrel.

``We agree that the government would likely never decide to expropriate already awarded concessions, but this is not the point,'' wrote Itau analyst Paula Kovarsky. ``The existing concessions are the ones that will produce some oil, if any, within the next five years (we guess it will take a little longer) and once the oil starts flowing, we very much doubt that taxation will remain the same.''

A Brazilian committee comprised of government ministers and Petrobras Chief Executive Officer Jose Sergio Gabrielli are discussing changes to the country's oil laws to deal with new finds in the pre-salt region off Brazil's coast.

The government removed all unsold exploration concessions in the region from an oil rights auction in November to reassess the potential of the area after Petrobras found the 5 billion to eight-billion barrel Tupi field in the region. Tupi is the largest oil discovery in the Americas since 1976.

Gabrielli told reporters Aug. 23 that the Rio de Janeiro- based company won't comment on the pre-salt fields until the government makes its decision on the subject.

No Decision

The government has made no decision on what to do with rules governing the pre-salt fields, a press spokeswoman for Brazil's presidential palace said. While the government has the power to change taxes, it has made no decision regarding oil taxes and is waiting a report from an inter-ministerial commission before it takes a position. The report is expected sometime around Sept. 19, she said.

O Globo reported yesterday that the government may take back pre-salt oil fields that have been licensed to companies such as Petrobras. Authorities may expropriate wells if they find links to others that haven't yet been auctioned, the newspaper said, citing Mines and Energy Minister Edison Lobao.

The pre-salt region may contain 50 billion barrels of oil, according to Peter Wells, a director at U.K. research company Neftex Petroleum Consultants Ltd.

To contact the reporters on this story: James Attwood in Santiago at jattwood3@bloomberg.net; Jeb Blount in Rio de Janeiro at jblount@bloomberg.net.

Last Updated: August 25, 2008 16:11 EDT