Petrobras-led group wins 'disappointing' Brazil oil auction

PUBLISHED : Tuesday, 22 October, 2013, 12:03pm
UPDATED : Wednesday, 23 October, 2013, 2:37am

Brazilian state-run energy company Petrobras teamed up with European oil majors and Chinese rivals on Monday to buy the country’s biggest-ever oil field with a lone bid at the minimum price, a disappointing outcome for a sale that was supposed to launch Brazil as a petroleum power.

The auction, which proceeded as hundreds of protesters criticised the sale to private companies of the country’s natural resources, was notable because it drew only a fraction of the interest originally expected.

Failing to attract the many global energy players who had long expressed interest in fast-growing Brazilian discoveries, the auction for the giant offshore Libra oil area drew just one tepid bid from a consortium offering the minimum price allowed.

Petroleo Brasileiro, as Petrobras is formally known, took 40 per cent of the field in the auction, more than the minimum 30 per cent that it was guaranteed by law. France’s Total and Anglo-Dutch major Royal Dutch Shell will each have 20 per cent of the partnership, while China National Petroleum Corp and Chinese offshore oil giant CNOOC took 10 per cent apiece.

Highlighting the lacklustre interest from most majors in the auction, the winners agreed to give the government the minimum legal amount of so-called “profit oil” from the fields, oil produced after initial investment costs are paid. Under the terms of a new production-sharing contract, that minimum was set at 41.65 per cent of profit oil.

Even though there was limited interest, the quality of the [winning] group speaks for itself and leaves me wanting for nothing better
Regulator Magda Chambriard

Though hailed by the government as the start of development for its largest-ever oil discovery, the sole bid reaffirmed the fact that most multinational oil companies were turned off by the auction.

Despite the huge potential of the offshore region, many foreign oil producers and other potential investors shied away because they believed the rules for the new concessions offered little upside for profit and too big a role for the government and Petrobras.

“An auction supposes a contest,” said Carlos Sampaio, an opposition legislator in the lower house of Brazil’s Congress. “Without that, the government failed.”

Magda Chambriard, the head of Brazil’s national oil regulator, suggested that many companies had stayed away because they were daunted by the sheer size of Libra, estimated to hold as much as 12 billion barrels of recoverable oil.

“Even though there was limited interest, the quality of the [winning] group speaks for itself and leaves me wanting for nothing better,” Chambriard said at a news conference. She said the next auction for Brazil’s big subsalt region was not expected for at least another two years.

The rules governing the sale, giving Petrobras at least a 30 per cent stake in every concession and the lead role in all production and exploration, were considered so unattractive by most foreign investors that only 11 companies signed up for the auction, a quarter of what the government had expected.

Even then, some of those who signed up did not participate.