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Jun
25

Brazil to Auction Rights to Largest Oil Prospect

By JEFF FICK

RIO DE JANEIRO—Brazil plans to auction off its largest-ever offshore oil discovery in October, selling exploration and production rights for a single prospect that is estimated to hold between eight billion and 12 billion barrels of recoverable crude oil at the country’s first presalt-bid round, regulators said Thursday.

The presalt region lies in deep Atlantic Ocean waters off Brazil’s southeast coast, with large deposits of oil trapped beneath a salt layer several miles below the surface.

Libra, as the prospect is known, is larger than the Lula field that started Brazil’s presalt craze when it was announced in 2007, said Magda Chambriard, director of Brazil’s National Petroleum Agency, or ANP. Lula is estimated to hold recoverable reserves of between five billion and eight billion barrels, Ms. Chambriard said.

“I’ve never seen anything similar [to Libra],” Ms. Chambriard said, noting that her 32-year career in the oil industry started when Brazil was producing about 187,000 barrels of crude per day. In March, Brazil produced about 1.85 million barrels of crude per day.

Libra will be sold under Brazil’s new production-sharing regime, meaning the winning bidders will have to partner with Brazilian state-run energy giant Petróleo BrasileiroSA, PETR4.BR -1.93% or Petrobras, which will own at least 30% of the field and will act as operator. Winning bids will be determined by the amount of oil from the field that companies agree to give the Brazilian government.

Until now, oil companies have developed Brazil’s offshore fields and paid royalties on oil and natural-gas production in return.

The presalt auction follows last week’s successful sale of oil and natural-gas exploration concessions, which raised a record 2.8 billion Brazilian reais ($1.37 billion) in signing bonuses. The move to quickly announce the presalt-bid round will help Brazil capitalize on the interest generated by last week’s auction, which was the country’s first sale of exploration acreage in five years, analysts said.

Much like last week’s bid round, the presalt sale should be able to attract many of the world’s largest oil companies—including firms that didn’t win or bid at last week’s sale “like some of the major Asian companies,” said Bob Fryklund, vice president of global exploration analysis at consulting firm IHS.

That’s the audience the ANP is targeting, with regulators poised to only qualify the largest oil firms for the auction, Ms. Chambriard said. “[The auction] is for big people,” Ms. Chambriard said. “We hope that all of the large oil companies participate, including the Chinese [companies].”

The ANP drilled an exploration well in Libra in 2010 and found oil, and recently completed a fresh set of three-dimensional seismic readings that allowed the regulator to give its most recent estimate for how much oil the prospect holds, Ms. Chambriard said.

The amount of information that is available about Libra will make the field attractive to firms such as China’s national oil companies, which didn’t participate in last week’s round because exploration isn’t their “strong suit,” said Ford Tanner, an analyst at PFC Energy.

China’s Sinochem Group and China Petroleum & Chemical Corp., 600028.SH 0.00%known as Sinopec, do have a presence off Brazil’s coast through partnerships with companies such as Spain’s Repsol SA REP.MC +0.74% and Portugal’s Galp EnergiaGALP.LB +0.77% SGPS.

While Thursday’s announcement of the presalt auction was a bit of a surprise, Mr. Tanner at PFC Energy said oil companies will be ready. “Most of the companies that were going to participate in the round have already decided,” Mr. Tanner said.

The main motive behind moving the auction up to the second half of October was Brazilian President Dilma Rousseff’s agenda, Ms. Chambriard said. Given the size and importance of the Libra sale to Brazil, Ms. Rousseff will oversee the auction, which will be held in Brasilia, the capital.

“The fact that the government decided to hold the auction a little early is a good sign, because there existed some concern about whether the first presalt auction would actually take place this year,” said Karine Fragoso de Sequeira, oil and gas division chief at Rio de Janeiro state industrial federation Firjan.

The state’s industry, especially industry related to oil and natural gas, will feel the impact of investments over the next five or six years as the recent concession sales are developed and start production, Ms. Sequeira said. But, she added, there will be a learning curve under the production-sharing regime as the oil industry adapts and learns the new regulations.

 

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