Analysis: Why the world doesn’t want to explore for oil in Brazil

RIO DE JANEIRO, BRAZIL – The government didn’t want to admit that foreign companies have no interest in buying fields near environmental protection areas. And it was punished with the shameful disaster of the recent ANP auction, writes Alexander Busch*.

It was a great humiliation for the government: in the 17th round of bidding for oil and gas exploration areas, the National Petroleum Agency (ANP) offered investors 92 concession blocks.

But only five blocs were acquired – abd by only two companies. Shell and Ecopetrol of Colombia bought all five blocks last week without paying a premium over the minimum. They seemed confident that no one else would bid for the concessions.

It was the auction with the lowest success rate since the opening of the Brazilian oil sector 22 years ago. Companies paid just under US$ 7 million. The preparation and organization of the auction alone would have cost significantly more.

For comparison: in two auctions in 2018 and 2019, prepared by the previous government, international companies invested more than two billion dollars in Brazilian oil and gas fields.

There are several reasons behind the reluctance of the oil multinationals last week. Empty coffers after the pandemic year contributed to this. Their already high investments in Brazil in recent years also prevented them from spending more money.

TIPPING POINT

But what is much more important is that the industry is currently going through a tipping point: All the oil multinationals are trying to invest in climate-neutral energy production rather than investing in conventional oil and gas fields.

They are being pressured by shareholders and investors who are currently devaluing oil-related stocks and swapping them for green energy producers.

The Brazilian state oil regulatory agency does not seem to have noticed this trend, writes the journalist. Without hesitation, it has offered concession areas near the Fernando de Noronha and Atol das Rocas archipelagos.

The likelihood of oil companies obtaining a production license from the environmental authorities there is low. Also, in previous auctions, oil companies have acquired rights at the mouth of Amazon and are still waiting for the  licenses.

Entering an already difficult industry, such as the oil and gas industry, becomes even more complicated when the location is in Brazil. International oil companies will hardly want to expose themselves to the risk of compromising their reputation with an oil spill near known natural reserves, writes Busch.

Even though certain companies whose management or owners are undaunted by the danger exist, banks, investors, and shareholders want no further part of it.

It is also quite possible that companies will avoid investing in new deposits in Brazil due to the poor reputation the country now enjoys worldwide on environmental issues.

Therefore, the efficiency with which the market worked, in this case, is commendable. The signal from investors was clear: Hands off!

*For more than 25 years, journalist Alexander Busch has been the South America correspondent for the Handelsblatt publishing group (which publishes the weekly Wirtschaftswoche and the daily Handelsblatt) and the Neue Zürcher Zeitung newspaper. 

Source: Terra