Brazil Gets Ready for Two Mammoth Petroleum Auctions in November

SÃO PAULO, BRAZIL – In little over a week, Brazil’s government will hold two auctions for oil and gas exploration and production areas, most of them located in deepwater pre-salt areas. According to experts, the auctions on November 6th and 7th, should raise over R$130 billion for the federal government and state-owned oil giant, Petrobras.

On November 6th, the government will sell off the surplus of reserves in four areas of the Santos Basin, already discovered by Petrobras, which exceed the contractual volume to be explored by the state-owned company .

In 2010, the government granted Petrobras the right to produce five billion barrels of oil in pre-salt areas in the Santos Basin in return for new shares issued by the company. Over the years, much larger volumes of reserves have been found in these four areas.

Now, the government intends to auction off this surplus volume. The winners of the auction will be entitled to all reserves exceeding the five billion barrels already ceded to Petrobras.

“There is interest, several companies signed up to participate in the auction,” said the director. “We know the region very well, so we believe it is a good exploratory field,” said Petrobras’ CFO and Investor Relations Director, Andrea Almeida, during a press conference on Friday (October 15th).

To be auctioned off are the areas of Atapu, Buzios, Itapu and Sepia in the Santos Basin. According to experts, there are an estimated 15 billion barrels of recoverable crude oil trapped beneath the pre-salt layers of the area, which total 1,385 square km.

The November 6th auction is expected to render the government R$25 billion in licensing fees, plus a share of their production.

Fourteen producers have signed up to participate in the auction, among them multinationals BP Energy, Chevron, ExxonMobil, Shell, Total and Petronas, as well as two Chinese companies, CNODC and CNOOC.

In official visits across Asia, Brazil’s President Jair Bolsonaro encouraged Chinese companies to participate in the November 6th and 7th auctions.

“These are the largest oil and gas auctions. China cannot be absent at this time,” he told journalists after meeting with Chinese officials.

“Today we can say that a considerable part of Brazil needs China and China needs Brazil as well,” President Bolsonaro said in gathering with leaders of China’s Communist Party.

On November 7th, the government will hold the 6th round of pre-salt bids. According to the National Agency of Oil, Gas and Biofuels (ANP) seventeen companies have qualified to participate in the auction.

This is the largest number of participants to a pre-salt auction held in the country. Among the oil companies interested are world giants such as US companies Exxon and Chevron, Anglo-Dutch Shell, British BP, Norwegian Equinor and French Total.

There are also companies with smaller participation in the Brazilian petroleum market, such as Spain’s Repsol, Germany’s Wintershall, Qatar’s QPI, and Malaysia’s Petronas

China’s CNODC and CNOOC are also expected to bid, as are Colombia’s Ecopetrol and Portugual’s Petrogal and Cepsa.

From Brazil, only Petrobras and Enauta, former Queiroz Galvão Exploration and Production, are expected to enter.

In this sixth round, five areas will be offered in the Santos and Campos basins. If all five are sold, ANP estimates that the government may raise upfront payments of R$106.5 billion, with a possibility of obtaining R$52.5 billion per year in production royalties, starting in 2024.

According to the agency, at least ten platforms will be built in the two areas, with the capacity of producing approximately 150,000 barrels per day starting in 2024.

Petrobras’s CEO Roberto Castello Branco said the auction of pre-salt areas is critical to the company’s growth plans. The executive defended an acceleration of investments in oil exploration and production projects in the pre-salt areas.

According to Castello Branco, ocean floor oil could lose value in the coming decades.

“In the long run, electric automobiles concern us: the trend is for oil demand to grow slowly, stagnate or even fall in the future,” he said in a public hearing at the House Mines and Energy Committee earlier this month.

“The pre-salt reserves are valuable and Petrobras owns these natural assets. The opportunity for the pre-salt is now, we cannot pass it up. We need to concentrate efforts and explore the pre-salt before it is too late,” he concluded.