By Jeffrey T. Lewis and Luciana Magalhães
SÃO PAULO -- Brazil's second oil auction in two days ended in
disappointment, just like the first, with no U.S. or European major
oil companies even bidding and only one of the five blocks on offer
being sold, to Brazil's state-controlled Petróleo Brasileiro SA and
a Chinese partner.
The other big companies that had registered to bid on the blocks
on Thursday, including Exxon Mobil Corp, Royal Dutch Shell PLC and
BP PLC, ended up backing off because the rules for companies
winning in the auction were too favorable to Petrobras and the
government asked for too much money up front, some analysts
The terms for investors "don't work, especially now with low oil
prices, " said Gabriel Francisco, an analyst at XP Investimentos in
São Paulo. "To make these auctions work, something has to
Petrobras, as the Brazilian company is known, has special rights
under Brazilian law to develop the offshore fields, allowing it to
claim a 30% stake in any blocks up for sale. In a more lucrative
auction Wednesday, the company was entitled to compensation for
investments it had already made in the fields up for sale.
Petrobras's U.S.-traded shares were up 2.9% at midafternoon
Thursday, regaining the 2.5% they lost Wednesday, while the real
was unchanged against the dollar.
On Thursday, the company won 80% of the Aram field, with China's
CNODC taking the other 20%. In Wednesday's auction, a consortium of
Petrobras, CNODC and another Chinese company, Cnooc Ltd., was the
only bidder on the single biggest block up for sale, called Buzios.
Petrobras bid alone on another field, leaving two more blocks
"We expected the majors were going to bid, but it didn't happen.
It caught markets by surprise," said Paulo Dantas, a partner and
infrastructure specialist at the Castro Barros law firm. There was
too much uncertainty over compensating Petrobras, he said,
referring to Wednesday's auction.
Brazil's cash-strapped government had asked for about $28
billion in fees for the blocks on sale over the two days, more than
the country had raised from all of its previous oil-rights sales
combined. The total instead came to only $18.3 billion, with only
$1.9 billion in upfront fees coming from outside investors Cnooc
The total was still more than all of the previous sales, but a
difference that is already pushing the government to reconsider the
"We have to learn from the auctions held this year," Mining and
Energy Minister Bento Albuquerque said at a press conference
following Thursday's auction, adding that he hopes the unsold
blocks can be offered again next year. When Petrobras exercises its
rights, "that reduces competitiveness...it doesn't make sense to
keep the current rules."
It wasn't supposed to be this way. The blocks up for sale were
expected to attract multiple bids because the fields have already
been shown to be rich in oil. Petrobras began production 10 years
ago in the pre-salt fields, so called because they lie under the
seabed beneath thick layers of salt, and more than half of Brazil's
production of 3.7 million barrels of oil equivalent a day now comes
from the area.
Petrobras's pre-eminence in the region was baked into Brazilian
law in 2010 after left-wing President Luiz Inácio Lula da Silva,
made the company the only operator in the pre-salt, and gave it a
minimum of 30% of the fields, a rule that was later softened to
permit the company to take a stake that size in any field. In 2007,
huge deposits had been discovered, prompting Mr. da Silva to
proclaim that "God is Brazilian."
Petrobras and the government signed a contract after the passage
of that law giving the company the right to pump 5 billion barrels
of oil from the pre-salt fields, and Brazil's National Petroleum
Agency, or ANP, now estimates the pre-salt holds as much as 15
billion barrels of oil.
Mr. da Silva and his protégée and successor, Dilma Rousseff,
delayed the development of the pre-salt fields by insisting on
Petrobras's control of the fields, and the country is still paying
the price, according to Adriano Pires, director of the Rio-based
think tank Brazilian Infrastructure Center.
"We lost the window of opportunity in 2008, when Lula decided to
turn it into a political project," Mr. Pires said. "We thought then
that Brazil would quickly become a major producer, and that Rio
would become the next Houston."
Write to Jeffrey T. Lewis at firstname.lastname@example.org and Luciana
Magalhães at Luciana.Magalhaes@wsj.com
(END) Dow Jones Newswires
November 07, 2019 14:23 ET (19:23 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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