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Brazil eyes Asian, global oil majors in huge oil block auction

BY ERIC YEP

RIO DE JANEIRO -- Emerging energy powerhouse Brazil will auction offshore areas containing two-thirds of the country' s proven oil reserves in October, hoping Western and developing country oil majors will take the plunge and inject a massive inflow of cash into its sluggish economy.

The auction comes at a time of weakening oil prices, which may discourage bidders who will need deep pockets and face high per-barrel output costs from the southern Atlantic Libra field being put on the block. Much of the field lies under five kilometers of water.

If the auction is to succeed, bidders will need to accept the challenge of ballooning crude-oil output from shale oil fields in North America, which is eroding oil prices and making the exploitation of high-cost and technically difficult oil fields more risky. Brazil also has to compete with oil and gas auctions in, among others, Iraq, Myanmar, Sri Lanka, and possibly India.

The country needs the billions of dollars it would raise from the sale to increase government revenues and generate employment. While the government forecasts GDP growth of 3.5% in 2013, private sector economists expect the figure will come in well below this. Its economy grew only 0.9% in 2012.

"All the big guys should be interested in the bidding round we are promoting in October" said Magda Chambriard, director general of Brazil' s National Agency for Petroleum, Natural Gas and Biofuels, at a Singapore event to publicize the sale. "This is huge."

Technological challenges in accessing deep water oil reserves, the current contraction in oil prices and a tight economic environment won' t prevent Brazil from attracting investment in its oil auctions, she predicted.

The scale of the undertaking may well mean any participants in the auction will club together and make joint bids.

Brazil will hold roadshows in London and New York in the next few months, and Ms. Chambriard may also visit China in August. At the Singapore roadshow, queries had been received from Petroliam Nasional, she said.

Libra, the prize being auctioned on October 22 in Rio de Janeiro, is Brazil' s largest oil discovery. It lies in the Santos basin off the country' s southeast coast and has recoverable reserves of between 8 billion and 12 billion barrels of crude.

Companies mulling whether to dive in will remember only too well the potential problems that working in such a difficult environment can present, such as the 2010 BP Deepwater Horizon rig disaster in the Gulf of Mexico.

Brazil' s richest reserves lie off the coast, where billions of barrels of crude oil and big natural gas deposits are trapped deep underground beneath a layer of salt.

Ms Chambriard said that with an average of 10 billion barrels of recoverable reserves, the Libra prospect represents two thirds of Brazil' s current proven oil deposits.

Libra is expected to produce more than one million barrels of oil a day by 2018, she said.

Earlier this year, analysts at Bernstein Research said these "pre-salt" Brazil reserves appear to be the "best of the best" with "phenomenal resource quality."

The auction will require participants to pledge a signing bond of $6.6 billion and winning bids will be determined by the amount of profit oil companies are willing to share with the government.

New Brazilian auction rules stipulate that Petrobras will be the operator and must own at least 30% of the field.

Brazil' s new regulatory model includes 37% local content requirements in the exploratory phase, 55% in the development phase up to 2021, and 59% in the development phase after 2021.Brazil plans in November to hold a separate auction for onshore areas with natural gas and unconventional gas potential.

Dow Jones Newswires

07/05/2013

 

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