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Brazil' s first oil auction in five years draws record bids

BY JEFF FICK AND PAULO WINTERSTEIN

RIO DE JANEIRO -- Brazil saw record bidding at its first oil auction in five years as the growing promise of oil finds along the equator attracted huge interest in exploration blocks at the mouth of the Amazon River.

Large oil finds in the Gulf of Guinea off the coast of Africa, along with promising finds in French Guyana on the South American continent, have shifted attention to Brazil. Brazil suspended its annual oil auctions in 2008 after the discovery of the subsalt oil province, close to 40 Bboe trapped under a layer of salt several thousand meters below the South Atlantic seabed.

Interest in that so-called equatorial margin "created more appetite for companies to invest" said Magda Chambriard, head of Brazil' s national petroleum agency (ANP). "Those areas have become more important to the global oil industry, which was reflected in the heavy bidding for the blocks" she said.

A group led by Total, and that includes BP and Petrobras agreed to pay $172 million for rights to explore an area of about 900 sqkm at the mouth of the Amazon, topping a previous record set in 2006 for an oil field off Brazil' s southeastern coast.

Ms. Chambriard said she sees the possibility of several platforms in the region producing 120 Mbopd to 150 Mbopd, similar to what is already happening in the Jubilee oil field off the African coast.

At the end of the auction, Brazil' s government had raised $1.42 billion from selling exploration rights, topping the record $1.04 billion raised during a 2007 auction.

The record bids suggest that companies weren' t scared off by requirements imposed by Brazil' s government that a portion of exploration equipment be manufactured locally. However, bids hewed relatively close to the minimum local content level, showing that firms are being "more cautious," even as they acknowledge that the local content requirement is "here to stay," Ms. Chambriard said.

Those local content rules "are a concern for the global oil industry because it' s not easy to predict the ability of suppliers to meet demand in five years" said Denis Palluat de Besset, MD at the local unit of Total.

The heated bidding by foreign companies also was a sign they have moved past concerns about heavy government intervention after a 2011 accident and oil spill at a well operated by Chevron led to criminal charges and lawsuits seeking tens of billions of dollars in damages. The criminal charges were later dropped, and Chevron was allowed to resume activities in Brazil.

Chevron participated in the auction and was welcomed with open arms Ms. Chambriard said.

More than 20 oil companies, foreign as well as domestic, came away with exploration blocks in the auction. Notably absent from was HRT, which recently announced a management shuffle. HRT didn' t make any bids because of the company' s recent "instability" said Luiz Sguissardi, the company' s governmental affairs manager.

I think if we' d have had another 30 days or 60 days, we would have been able to participate Mr. Sguissardi said.

Also absent was China' s CNOOC. The company pulled out of the auction, ANP said without giving a reason for the company' s withdrawal.

Petrobras' s partnership in this latest auction also reflected a new strategy at the company of taking a supporting role in some blocks.

Our participation in the auctions this year is going to be focused and selective, Petrobras' CEO Maria das Gracas Foster said last month. "We are making it a priority to work in partnership with big oil companies."

Petrobras plans to invest $237 billion through 2017, and this week raised $11 billion in a record bond sale. Still, the company is selling off assets to ease its workload as it moves quickly to boost flagging crude oil output and bring the massive new subsalt fields into production.

The ANP initially expected to attract at least $99 million in bids. A total of 289 blocks were put up for bidding, with expected reserves of about 9 Bboe in the exploration areas.

The auction also marked Total' s quest to increase its presence in Latin America. Total, which already explores the equatorial margin via blocks in West Africa, previously held stakes in just two offshore blocks in Brazil. It grabbed 10 exploration blocks, with Total acting as operator in seven of the blocks and taking minority stakes in the other three.

OGX, controlled by billionaire Eike Batista, also invested heavily despite recent concerns about the company' s financial health. In addition to securing onshore blocks in northern Brazil, where it already has had success in producing natural gas to feed its thermoelectric plants, OGX nabbed a few blocks in shallow water and deep water areas.

OGX shares have plunged in the past year on concerns Mr. Batista may not have enough financing to execute his ambitious projects, which in addition to oil include electric, shipbuilding, transportation and mining companies.

Dow Jones Newswires

05/15/2013

 

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