May 29, 2020

Brazil stumbles on the oil megasubasta by awarding two of four blocks

The millionaire oil auction organized on Wednesday by the Government of Brazil only raised 65% of the expected with the award of two of the four blocks offered, in a bid without disputes and in which the Brazilian state company Petrobras was the main protagonist.

The Government only raised 70,000 million reais (about 17,500 million dollars) of the 106,500 million reais (about 26,625 million dollars) that it foresaw with this "megasubasta", the largest bid in the sector carried out in the history of Brazil.

Despite not meeting expectations, the Government considered the auction a "success", since the amount is the largest received by the South American giant since the first contest of this type, in 1999.

The amount collected was the result of the award of two blocks, both to Petrobras, in one as leader of a consortium with the Chinese corporations CNODC and CNOOC and in another as an individual company.

The areas awarded were those of Búzios, the most desirable of the bid, and that of Itapú, while the other two areas offered (Atapú and Sepia) did not register bidders.

Although 14 multinationals in the sector signed up for the contest, only seven ended up participating in the millionaire auction.

In addition to Petrobras, the American Exxon Mobil, the Norwegian Equinor, the Chinese corporations CNODC and CNOOC, the Portuguese Petrogral and the Colombian Ecopetrol, participated, but only the Brazilian made offers.


The big winner of the day was Petrobras when Búzios was awarded – with the Chinese companies as partners of the consortium and the Itapú block, as the only bidder.

In the consortium that was presented by the Búzios area, Petrobras has a 90% stake, while the Chinese CNODC and the CNOOC each have 5%.

The Brazilian-Chinese consortium was the only one that made an offer for the contract of that block, for which it promised to pay about 17,134 million dollars, just for the license, and to give the State a share in its profits of 23.24 %, which was the minimum required by the National Petroleum Agency (ANP, regulator).

Búzios, located in the Santos basin, is the second most productive area of ​​the Brazilian pre-salt fields, the coveted exploitation horizon that Brazil discovered in very deep waters of the Atlantic Ocean below a layer of salt two kilometers thick and whose reserves can place Brazil as the world's fifth largest exporter of hydrocarbons.

With 54 wells already drilled, it is the only one of the four blocks auctioned today that is currently productive, and with a yield of 424,000 barrels a day of oil.

For the Itapú area, Petrobras was the only bidder, a block for which it promised to pay some 441.5 million dollars, only for the award of the license and to give the Brazilian State a share of its profits of 18.15% , also the minimum required by the regulatory body.

Unlike Búzios, Itapú, although it already has three wells drilled, is not an area currently in production.

Based on the rights of preference granted by law, Petrobras will be the operator of both blocks, with which the state will be responsible for the conduct and execution of all activities carried out in those areas of the pre-salt.


Despite not having achieved all the expected resources, the Government considered the auction a "success" and stressed that the value collected will have a strong impact on the task of helping to reduce the chronic fiscal deficit facing the country.

"It was a success because it was the biggest auction," said ANP director Décio Oddone, at a press conference at the end of the contest in which several members of the Government participated.

So far this year, the South American giant has raised 79,000 million reais (about 19,750 million dollars) for licenses in oil auctions, a considerable amount considering that the global collection for permits of this type in 2019 has been of about 50,000 million dollars.

"That is, only this year we had signature bonds for 40% of all that is spent in the world. So, this shows that Brazil is on the right track," said Minister of Mines and Energy, Bento Aburqueque in Press conference.

However, although the Government considered the auction as a "historical" event, the president of the Chamber of Deputies, Rodrigo Maia, lamented the lack of dispute on Wednesday and said that the private sector "fled" from the bid.

According to the Government, the investments for the four areas will be maintained because the Brazilian state-owned company Petrobras will continue the process of exploitation of the same despite the fact that no company was interested in two of the areas.

It is important to remember that the auctioned areas correspond to four blocks of the presal in which the oil company Petrobras has already identified gigantic reserves but had to return to the State because they correspond to a surplus that was not contemplated in the initial contract, a figure known as " onerous assignment. "

According to the minister, the two areas that were not offered will again be tendered next year.

"I have no doubt that in 2020 these areas will be offered and awarded," he said.

According to the ANP, the four areas that were offered in the auction can jointly produce 1.2 million barrels of oil a day and generate, in royalties alone, 52,500 million reais (about $ 13,125 million) annually from 2024

This Thursday another oil auction will be held where rights will be offered over five areas of the pre-call to oil companies willing to share their production with the State and where Brazil expects to raise a minimum of $ 7.8 billion for licenses.

María Angélica Troncoso

. (tagsToTranslate) Brazil (t) stumbles (t) megasubasta (t) oil (t) award

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