On 14 May 2013, the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP) of Brazil released the results of its 11th bid round for oil and natural gas rights in the country, resuming oil and gas licensing for the first time in five years (see previous Law Now article).
In the round, 289 blocks were offered, totalling 155,800 km² in 11 sedimentary basins, onshore and in shallow and deep waters offshore. 142 of these blocks were awarded in the auction, covering 100,300 km² for a record total of R$2.82 billion (US$1.38 billion), one third more that the R$2.1 billion achieved in the 9th round in November 2007 and surpassing the ANP’s earlier predictions of between R$2 and R$2.5 billion. The successful bidders have pledged to invest approximately R$7 billion in minimum work commitments arising from the awards. Winning bidders have up to eight years for exploration and 27 years for development and production activities.
As expected, the fiercest competition for blocks was in deep water areas of the equatorial margin off Brazil’s north east coast, which are understood to contain geology analogous to highly prospective areas of West Africa. Although a new record of 64 companies had qualified for the bid round, including many newcomers to Brazil, many of these blocks were awarded to international majors with an existing presence in country. Petrobras once again acquired the most blocks and offered the highest combined signature bonus, but this time they took more non-operated interests in consortia with a number of different international operators. This may indicate a change of direction for the Brazilian giant, which has recently struggled to bring its huge portfolio of projects online as quickly as forecast and seen its cash flow position deteriorate due to low local fuel prices. Total partnered with Petrobras and BP to bid aggressively for blocks in the deepwater portion of the Foz do Amazonas basin, securing five permits for signature bonuses of over R$620 million (US$310 million). BG Group was the most successful bidder for offshore blocks in the Barreirinhas basin, winning six on its own and a 50% stake in four more with Petrobras and Galp. Statoil was awarded all six deepwater blocks in the offshore Espirito Santo basin, four blocks as an operator and two blocks as non-operator, with stakes ranging from 35% to 50%.
OGX surprised the industry with a strong showing, picking up 13 blocks, including four onshore blocks in the Parnaiba basin near its current Gavião Real field which is producing over 4.5 million cubic metres per day of natural gas. Petra Energia was also awarded nine blocks in the same basin. The onshore and shallow waters also provided rich pickings for new entrants, with a number of Brazilian start-ups picking up blocks, as well as new British entrants GeoPark (which won seven blocks in mature onshore basins) and Chariot Oil & Gas (which won four blocks in shallow waters of the Barreirinhas basin).
The presence of 18 non-Brazilian companies from 11 different countries, among the 30 winners of the auction, was highlighted by ANP Director General Magda Chambriard as an indication of the round’s success. However, one of the big stories of the round was the absence of any Chinese or Japanese players. Sinochem, China National Offshore Oil Corporation, Repsol Sinopec, Mitsubishi, Mitsui, Sumitomo and JX Nippon had all qualified for bidding and there had been speculation as to whether the auction would mark the start of large scale Chinese/Japanese investment in the Brazilian oil and gas industry. However, no awards were made to any Chinese or Japanese companies and, except for a few bids from Mitsubishi and Repsol Sinopec, they did not even participate. Many now suspect that this round was used to gain experience, knowledge and contacts in advance of the pre-salt round late this year, which is likely to be the real target; a hypothesis acknowledged by Magda Chambriard and the ANP.
The long wait since the last Brazilian licensing round had caused a slow down in exploration activity in Brazil and the oil and gas industry had not lived up to the hype generated by its early pre-salt discoveries. With less than 5% of Brazil’s huge sedimentary basins under concession, and large areas with relatively little drilling history, the sector certainly has plenty of potential, even outside of the much vaunted pre-salt areas. In the face of lacklustre oil and gas production and economic growth, it seems that the Brazilian government has recognised the importance of continued private investment in the oil industry and decided to return to regular licensing of oil and gas rights. The success of this latest licensing round demonstrates the industry’s pent up demand for exploration opportunities in Brazil, and this demand should be further satisfied with two further bid rounds planned for October and November this year, one focussing on shale gas prospects and another on pre-salt areas. It is to be hoped that these rounds kick start a new period of growth for the industry.