Brazil’s pre-salt bid round, which was originally due to be held in November 2013, has recently been brought forward by one month to October. It is anticipated that further details will be made available shortly and detailed analysis of the proposed form of production sharing agreement will be key in order to establish the terms upon which acreage will be offered to potential investors.

According to Brazil’s Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP), the round will exclusively offer areas within the Santos Basin Libra prospect. The technically challenging, deep water environment will demand significant resources during both exploration and development phases. Since Petrobras is obliged by law to take a thirty per cent (30%) stake in each block and act as operator under the terms of Brazil’s new production sharing regime, the government will primarily be seeking investors. Larger players and national oil companies may be among those companies willing to forgo operatorship in pursuit of adding significant reserves to their asset portfolios.

The move will likely mean that the third auction covering onshore gas areas, aimed at opportunities for unconventional and shale exploration, will now be held in November. However, the schedule could be impacted by ongoing discussions with environmental authorities and formulation of specific regulations and draft agreements which may be adopted for the unconventional bid round. Whilst unconventional gas acreage may not be prioritised in the same manner as conventional oil and gas prospects, it promises to open up opportunities for Brazilian and international companies alike.

Outcome of Brazil’s 11th Oil and Gas Licensing Round

The results of Brazil’s 11th oil and gas licensing round were announced by ANP on May 14, 2013.

Of the 289 blocks made available, 142 blocks were auctioned off representing 100,300 km2 out of a possible 155,800 km2 in terms of acreage. A total of 39 companies participated and 30 companies picked up interests out of the 64 companies that were pre-qualified to participate.1

Subsequent reports have indicated that the bid round has provided much-needed assurance for the future of Brazil’s oil and gas sector, especially since it is the first bid round to be held in Brazil for five (5) years. With signature bonuses alone raising a record R$2.8 billion (US$1.4 billion) and companies committing to invest R$6.9 billion (US$3.4 billion) it has been hailed a success by ANP.

Partnering and Strategic Alliances

International oil and gas majors with an existing presence in Brazil used the auction to reinforce their interest in the country’s upstream and were rewarded with successful bids for a number of deepwater blocks. Many companies sought to strengthen strategic partnerships but were also successful in securing key assets for their own advantage.

Petrobras was awarded the largest total number of blocks and acquired non-operated interests in consortia with various international operators. OGX and Petra Energia also featured highly and onshore and shallow waters saw success for a number of Brazilian start-ups and new entrants.

As widely anticipated, the Equatorial Margin attracted significant attention. The area lays claim to geological similarities with reserves analogous to discoveries off Africa’s west coast and blocks in the deepwater portion of the Foz do Amazonas basin attracted compelling bids.

Despite certain absences in the final auction results, pre-qualified companies will have gained strategic experience, knowledge and contacts in anticipation of future bid rounds.

Future Bid Round Opportunities

Companies from China, India, Japan and Malaysia were notably absent amongst the 11th round winning bidders fueling speculation regarding participation in the upcoming pre-salt bid round.

Notwithstanding possible timing issues and the need for a precise regulatory framework, the next two bid rounds will undoubtedly attract interest as the government seeks to capitalise on the reported successes of the 11th bid round - with largely unexplored shale gas and pre-salt prospects offering significant potential for investors in Brazil’s upstream.