Brazil's planned auction of its
biggest-ever oil discovery attracted only a quarter of the interest expected by
the government after many of the large, wealthy oil companies with experience
in the region declined to sign up for the sale.
With Exxon Mobil Corp, BP Plc, BG Group Plc, Chevron Corp
and other investor-owned oil companies choosing to stay away, Asian state-owned
companies, such as India's Oil & National Gas Corp Ltd, Malaysia's Petroliam Nasional, or Petronas, and China's CNOOC Ltd, dominate the list
of 11 companies that agreed to pay the 2.05 million real ($931,818)
registration fee.
Magda Chambriard, head of Brazilian petroleum regulator ANP,
said on Thursday that she had expected "more than 40" companies to
bid for Libra, which holds an estimated 8 billion to 12 billion barrels of oil,
enough to supply all world oil demand for three to five months.
"This is a surprise, the area is extremely promising
and there are not any opportunities in the world like this," said Paulo
Roberto da Costa, an oil industry consultant and former head of refining
at Petroleo Brasileiro SA, or Petrobras, Brazil's
state-run oil company. "I expected a much larger number because of its
potential."
The sale will be Brazil's first under a 2010
production-sharing law that sought to strengthen the Brazilian
government's control over substantial new offshore oil reserves.
With Brazil also finding it hard to attract
private investment in highway, port, rail and airport projects, the
lower-than-expected interest could revive criticism that the Workers'
Party-led government of Dilma Rousseff is unsympathetic to the needs of
investors.
Rights to explore for and produce oil from the area will be
given to the company or group that offers the largest share of output to the
government for sale on its own account. Petrobras will also have to take a
minimum 30 percent stake in any winning group, and the law requires that
Petrobras run exploration and production in the area as Libra's operator.
Some suggest the new rules and Petrobras'
slower-than-expected development of other big fields nearby are to blame for
the lukewarm interest. Others voiced concerns that the area might not be as
promising as billed by the government.
"The fact that companies with important production in
the area didn't even sign up for the auction says to me that not everyone is
convinced that Libra will live up to its potential," said Wagner
Freire, a Rio de Janeiro geologist, oil industry consultant and
former head of geophysics at Petrobras.
"Exxon and the others staying out is also a comment on
Petrobras," he added. "Strategically, I don't think they want the
trouble of dealing with Petrobras and the government. You can get good oil
assets elsewhere without that."
WARNINGS COME TRUE
When the rules were changed in 2010, many oil industry
experts said the production-sharing model would reduce interest in Brazil's
"subsalt" province, an area in
the Campos and Santos basins where new fields were being
discovered beneath thousands of meters of water, sub-sea rock and an ancient
layer of salt.
The auction will also require that the government get about
75 percent of the oil produced after costs are recovered. That means that Brent
crude must remain at about $110 a barrel for Libra to make money,
said Enrique Sira, senior director of research at IHS CERA told Reuters
in Houston. Brent closed at $108.82 a barrel on Thursday.
Local content rules requiring most equipment and services to
be built or sourced in Brazil will also increase costs and delays.
"Libra is a great opportunity, but also a big
challenge," Sira said. "Local content requirements, costs structure, Brazilian
exploration and production industry structure and regulation could
substantially diminish its value."
Low growth and high inflation in Brazil could also
hurt, he said, adding that they expect Brazilian oil industry costs to rise at
more than double the world average by 2020.
After the rules were released for the Libra auction, more
than 200 requests for changes were made and turned down by Chambriard, who said
the area's size and potential meant that the government could charge almost
whatever it wanted for the rights.
"Libra is beyond any possible comparison nowadays to
other fields," she said during an August trip toHouston to promote
the auction. "If companies participate, it is because they see potential
value. This is the biggest auction in 30 to 40 years around the globe."
Brazil, which expects to get about $400 billion in royalties
and other taxes from Libra over 30 years, sees the new rules, which apply to
all new development in the Campos and Santos basins
near Rio de Janeiro, as a way to gain more control over natural resources
and finance improvements in health care and education.
Oil rights in the rest of Brazil will continue to
be sold on a concession basis, where oil companies own all the output, but pay
a royalty of at least 10 percent on everything produced.
The registered bidders include five state-led or state-owned
oil companies: Petrobras, India's Oil & National Gas
Co, Malaysia's Petronas, Colombia's Ecopetrol SA, China's CNOOC and China National Petroleum Corp,
the ANP said in a statement.
A sixth state-owned company, China's Sinopec, will take part through its minority joint ventures with the
Brazilian units of Spain's Repsol SA and Portugal's Galp Energia SGPS SA.
Non-state-owned companies are Japanese trading
company Mitsui & Co Ltd, France's Total
SA and Anglo-Dutch oil company Royal Dutch
Shell Plc.
Of the companies that have signed up, only three, Repsol,
Galp and Shell, have production in areas close to Libra.
($1 = 2.20 Brazilian reais)
Source: Reuters
