As mentioned in our legal briefing dated May 5 2015 (here), the National Petroleum Agency carried out this Wednesday, 7 October 2015, the 13th Bidding Round for onshore and offshore exploratory blocks.
The Round was the first after ANP Resolution No. 18/2015 was passed, inverting steps in the bidding process. Successful bidders will now present their qualifications after the relevant bids.
A number of 266 blocks and 10 inactive (marginal) areas were put for tender. The latter – returned by Petrobras to ANP – will be offered in December 2015
1. Summary of the results
The majority of the 266 blocks offered – all subject to the concession regime - are located on the on onshore basins. Among offshore blocks none are situated in the pre-salt area.
The Round indicated a stronger presence of Brazilian players as opposed to IOCs. The foreign exceptions were: (i) French and Canadian companies Alvopetro and Engie, bidding jointly for four onshore blocks in the Recôncavo basin; and (ii) Chinese Tek, Chilean Geopark, Panamanian Petrosynergy and Argentinian Oil M&S, which successfully bidded for blocks with smaller signature bonuses.
The Round resulted in successful bids for 37 blocks - 35 onshore and 2 offshore – and there were no bids for blocks located in the following basins: Camamu, Pelotas, Jacuípe, Espírito Santo, Amazonas and Campos.
Successful bidders will pay R$121 million in signature bonuses, while the overall amount of minimum investment for the exploration phase amounts to approximately R$216 million, mainly in relation to the the natural gas prospects in blocks located in the Parnaíba basin.
2. High interest in the Parnaíba basin (onshore) and high bonus in Sergipe
The Round started promisingly with the Parnaíba concessions. The bid for blocks on the gas rich basin - the fifth largest producer of oil and gas in the country - attracted high premiums. In total 11 blocks, out of the 22 blocks offered, were awarded.
Brazil's Parnaíba Gás Natural (PNG) acquired six blocks, where it will hold operatorship. In four blocks it was joined in consortiums: (i) with Engie for blocks PN-T-101 and PN-T-103; and (ii) with BPMP Parnaíba for blocks PN-T-69 and PN-T-87. OP Energia, BPMP (in consortium with Parnaíba Part.) and Vipetro also secured blocks in the Parnaíba basin.
Parnaíba contains three proved gas fields – Gavião Real, Gavião Azul e Gavião Branco – where OGX and Eneva had conducted their natural gas E&P and thermal electric power plants operations.
The outcome of the Round further represents an expansion of the activities for PNG after it issued the statement of commercial feasibility of the Gavião Vermelho field (in block PN-T-68) last month, where it operates in consortium with BPMB.
Notwithstanding the overall preference for onshore blocks, national heavyweight Queiroz Galvão paid the two highest bonuses in the Round – R$63 and R$36 million – for the only two offshore blocks awarded in the Sergipe-Alagoas basin. The blocks are comprised of 756 square km each and are located in the continental margin, off the Sergipe coast. The basin is considered a promising area, since it includes blocks where Petrobras reported the discovery of light oil reservoirs (in BM-SEAL-11).
3. Repercussion and next steps
The outcome of the 13th Bidding Round reflects: (i) the reduction of pace in exploration campaigns worldwide due to plummeting oil prices, mainly in new frontier areas and in countries with infrastructure bottlenecks; (ii) limitations to recourse to arbitration by concessionaires, due to changes to the concession contract which now provides that "questions concerning legal obligations and interpretation of legal definitions" would not benefit from the arbitration clause; (iii) limited flexibility on local content requirements; and (iv) the absence of Petrobras in the round, which has always acted as the driving force towards the Brazilian exploratory campaign.
As flagged on our May 2015 client briefing, the Government said to be reviewing local content rules. Despite requests by industry players for reductions in local content requirements, the minimum local content percentages and fines and sanctions for failure to comply with the requirements remained unaltered.
It remains to be seen the extent of farm-in and farm-out transactions in the aftermath of the Round, also in light of the Petrobras divestment programme. In addition, the December round for marginal basins is expected to receive interest, as these are areas where development and operational costs might be more easily anticipated.