Brazil’s offshore bidding round ‘a disaster’

Brazil’s offshore oil and gas auction that had been described as the largest ever came short of expectations. The round has even been described as a disaster, as only Petrobras and two Chinese companies submitted their bids on Wednesday, with other oil majors passing up on the opportunity.

The national petroleum regulator ANP had offered up for bidding the Buzios, Sepia, Atapu, and Itapu oil fields with confirmed reserves in the Transfer of Rights offshore area in the Santos Basin, but only Buzios and Itapu received bids.

“Total disaster is the best way to describe this morning’s round,” Welligence Energy analyst Pablo Medina tweeted said.

Brazil’s Petrobras had earlier had already exercised its preemptive rights – according to Brazil’s laws – to act as the operator of the Buzios and Itapu areas with a minimum of 30% stake ownership in any winning consortium.

Total disaster is the best way to describe this morning’s ?? round.

For the ANP, not one Major participating is a glaring failure, meanwhile the government misses out on US$9B in signature bonuses.

A not so gentle reminder that we are in a buyer’s market.

— Pablo Medina ? (@PabloWelligence) November 6, 2019

After the bidding round, Petrobras ended up as the operator with a 90% stake in the consortium with CNODC Brasil Petróleo e Gás Ltda. (5% stake) and CNOOC Petroleum Brasil Ltda. (5% stake), which acquired the exploration and production rights of the surplus volume of the Búzios field from the Transfer of Rights Agreement.

Also, Petrobras acquired 100% of the exploration and production rights of Itapu field surplus volume. Atapu and Sepia oil fields received no bids.

Brazil had hoped to get more than $26 billion from the upfront signing fees for the four areas on offer. However, it received $ 17,1 billion, most of it to be paid by Petrobras.

The round was doomed by high signature bonuses, the overly complex and non-transparent @petrobras reimbursements, and marginal economics.

Memo to many countries today – there are many opportunities out there, even the Surplus TOR competes for capital

— Pablo Medina ? (@PabloWelligence) November 6, 2019

“For the ANP, not one Major participating is a glaring failure; meanwhile the government misses out on US$9B in signature bonuses. A not so gentle reminder that we are in a buyer’s market. The round was doomed by high signature bonuses, the overly complex and non-transparent @petrobras reimbursements, and marginal economics. Memo to many countries today – there are many opportunities out there, even the Surplus TOR competes for capital,” Welligence’s Medina tweeted.

World-class Buzios field

Petrobras CEO Roberto Castello Branco said: “We are building the future for Petrobras. The Búzios oil field is, no doubt, a world-class asset. It’s the world’s largest offshore oil field, with substantial reserves, low extraction cost, low balance price, that is, it has a high return on invested capital”, highlighted Petrobras president,

Búzios field started producing in April 2018 and has so far produced around 100 million barrels of oil and gas equivalent (boe). The field has been described by Petrobras as the largest discovered deepwater field in the world. It has light oil and proven high productivity wells.

“The acquisition of the exploration and production rights of surplus volume of Búzios is consistent with the strategic to focus on investments in which we are the natural owner. The knowledge acquired over 10 years in the area and its great potential, combined with the conditions of the asset acquisition, with the signing bonus of R$ 68.194 billion, compatible with the value of the field and the oil profit of 23.24%, at the minimum level, increases the attractiveness of Búzios to the consortium led by Petrobras,” Petrobras said.

The average daily production of the field has reached 600,000 boed, considering the four units installed (P-74, P-75, P76, and P-77). A fifth platform, scheduled to start-up production in the second half of 2022, is already under construction. New units will be installed in the field to produce the surplus volume of the Transfer of Rights, in which the number and capacity will be established with the formalization of the co-participation agreement between the consortium participants – expected by September 2021 – the company said.

While the round has been widely seen as a disappointing one, the Brazil petroleum regulator’s Director-General Décio Oddone tried to find a silver lining and said the auction was successful.

He said: “It was a success because it was the biggest ever and raised the biggest bonus ever recorded in such an auction. And, mainly, because it was able to unlock a set of investments that will allow the collection and benefits of this wealth to come to Brazilian society.”

As said before, most of this investment will come from the country’s national oil company Petrobras.

Offshore Energy Today Staff

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