Brazil Oil Auction Beats Expectations
October 27 2017 - 2:28PM
Dow Jones News
By Paul Kiernan
RIO DE JANEIRO -- Oil executives and government officials were
ebullient Friday following the conclusion of a major oil auction in
Brazil, where a yearlong effort to lure foreign investment into the
energy sector appeared to have paid off.
Brazil auctioned off six of eight exploration blocks on offer,
receiving commitments from oil majors to pay $1.88 billion in
signing bonuses. In four of the blocks, companies promised between
67% and 80% of so-called profit oil produced from the fields to the
Brazilian government, far exceeding minimum bids.
Officials have yet to convert those percentages into firm
revenue estimates, but Décio Oddone, head of energy regulator ANP,
said in a news conference, they will likely bring "tens of billions
of dollars" into public coffers.
"With today's auction, Brazil is back in the oil and gas
industry," Mr. Oddone said, adding that the results surpassed
expectations.
Friday's bidding rounds marked the second time Brazil has
auctioned off blocks in an ultra-deep layer off its southeastern
coast known as the pre-salt since discovering giant oil reserves
there a decade ago. Winners were determined based on the percentage
of profit oil that companies promised to the Brazilian
government.
The largest blocks sold Friday, named Peroba and Norte de
Carcará, hold an estimated 5.3 billion and 2.2 billion barrels of
oil, respectively.
Exploration rights in Peroba were won by a consortium led by
Brazilian state-run oil firm Petróleo Brasileiro alongside BP PLC
and China's CNODC. They offered 77% of profit oil from the block to
the Brazilian government, compared with a minimum bid of 14%.
"BP and our partners are thrilled with the outcome of the
auction just now, absolutely thrilled," said Howard Leach, BP's
global head of exploration, in an interview at the event. Of two
blocks in which BP won a stake Friday, Mr. Leach said, "They have
world-class-scale potential as oilfields."
Rights to the Norte de Carcará block were won by a consortium
led by Norwegian state-controlled oil firm Statoil ASA and
including Exxon Mobil Corp. and Portuguese energy firm Galp. They
promised 67% of profit oil to the Brazilian government, compared
with a minimum bid of 22%.
These three companies also announced "a number" of subsequent
transactions in the adjacent BM-S-8 block "to align equity
interests across the two blocks that together comprise the Carcará
oil discovery." Statoil, which acquired a 66% stake in BM-S-8 from
Petrobras last year for $2.5 billion, said in a news release it
stands to receive $1.19 billion from the transaction following the
auction.
"This has really allowed us to get into a very prolific basin
that we've been looking at for some time," said Jeffrey Woodbury,
Exxon's head of investor relations, in a conference call
Friday.
Government and company officials alike attributed the auction's
success to a steady overhaul of Brazil's energy sector over the
past year. Among the changes were a reduction in local-content
requirements that had driven up costs and the elimination of a rule
that Petrobras operate all pre-salt oilfields.
After the bids were finished, Shell's executive vice president
of deepwater, Wael Sawan, shook hands and patted the backs of his
counterparts at Chinese oil firm CNOOC, thanking them for
partnering with Shell in the Alto do Cabo Frio Oeste block.
"Now we need to make money," Mr. Sawan told them.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
October 27, 2017 14:13 ET (18:13 GMT)
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