Monopoly ends for Brazil's Petrobras

Last month, the Brazilian regulatory body (ANP) signed the concession agreements with the international oil companies making the opening of the oil industry official.

Nov 1st, 1999
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Last month, the Brazilian regulatory body (ANP) signed the concession agreements with the international oil companies making the opening of the oil industry official. Twelve contracts were signed with 10 foreign firms and concluded the official end of the Petrobras monopoly.

Two days before that, Brazil did something it had not done in quite a while - recorded a major offshore discovery. Petrobras discovered a potentially world-class oil field in Block BS-500 in the Santos Basin in 5,230 ft water depth. Reserves are estimated to be 600-700 million bbl. Petrobras said that if this level is confirmed, then output should be around 100,000 b/d of oil and would satisfy about one-fifth of the country's imported oil demand (500,000 b/d).

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The discovery is already being compared to the last major field discovery - Roncador - drilled initially in 1996. Reserves for Roncador were originally estimated to be 700 million bbl, but have since been upped to 2.6 billion bbl.

This Santos Basin find proves the country has more to offer offshore than just the Campos Basin, and encourages interest in the Santos Basin, which has only one gas discovery to date. The majority of activity has been centered around the Campos Basin, which lies adjacent to the Santos Basin.

The ANP hopes this interest will translate into more bids in the Second Licensing Round. For the second round, 23 blocks will be on offer - 10 onshore and 13 offshore. Of those offshore, four of the blocks will be located in the Campos Basin, five in the Santos Basin, one in the Camamu-Almada Basin, one in the Pará-Maranhao, and two in the Sergipe-Alagoas Basin.

Roadshows are now underway promoting the new round. The ANP was scheduled to be in Houston on November 3, in Tokyo on the 12th, Calgary on the 15th, and London in the first quarter of next year. The rest of the schedule is as follows:

  • Initial tender protocol publication - 4th quarter, 1999
  • Data package available - 4th quarter, 1999
  • Technical workshop and legal/financial seminar - 1st quarter, 2000
  • Final tender protocol (Edital) - 1st quarter, 2000
  • Bidding conference - 2nd quarter, 2000
  • Concession contracts signature - 3rd quarter, 2000

ANP head David Zylbersztajn has said that he expects this round to attract triple the amount of interest than the first round due to the higher oil price. He added that he expects the offshore areas to attract bids upwards of $50 million. It was originally thought that the second round would be chiefly centered onshore. Apparently due to the results of the first round, which were below ANP expectations, they decided that the offshore industry had a little more money to give.

Exxon: are you in or out?

Just a little over a month after Exxon said that it was canceling its $15-billion drilling program offshore Sakhalin Island, Russia due to environmental concerns, it seems they are back in the game. Exxon has announced that it is preparing the application for a new license to drill in the area.

Plans to drill in the area were recently thwarted when the company failed to get approval from the Russian State Environment Protection Committee. In addition, ecologists and Greenpeace appeared in Russia's Supreme Court and contested the dumping of drilling mud. The Supreme Court ruled that the government resolution permitting drilling lacked a legal basis.

Exxon said this had little bearing on the issue because the government resolution permitting drilling was only effective through 1999 and would have to be renewed in 2000, regardless. Therefore, Exxon is planning to request the creation of another environmental commission to undertake a new investigation in accordance with the government's regulations. The investigation will determine whether what is permitted everywhere else in the world would be permitted in Russia.

After Exxon pulled out the first time, Texaco announced it had decided not to join the Sakhalin I group. The decision was made "on the basis of the thorough review Texaco conducted" and not on the basis of Exxon's cancellation. But, it can be inferred that if Exxon is having trouble in Russia, the rest of the world will take notice.

OPEC continues to restrain output

Regardless of rising oil prices, OPEC members say they will maintain production cuts until March 2000. In the 108th meeting of the Conference of the Organization of the Petroleum Exporting Countries, the vote indicated satisfaction with the present level of adherence by member countries to the production reductions agreed in March.

The group also noted that there is room for improvement and urged even greater compliance with agreed production levels. Group members were 90% compliant with the set level in August and are expected to be even more compliant now. OPEC decided it will review market conditions at the March 2000 meeting and make a decision that will ensure continued market stability.

While the cuts came as a welcome need to the flailing oil price in March, continued cuts are now producing dissention within the industry. Several industry analysts believe that the market is overheating and that production should be expanded to ease the pressure before the price gets out of control. US Senator Charles Schumer from New York even sent President Clinton and Energy Secretary Richardson to begin selling crude from the US strategic petroleum reserve to relieve the runup in prices, and even called the OPEC continued cuts "economic warfare."

Several OPEC members justified the continued cuts. Iraq's oil minister said prices in the market are normal, while the minister from Libya added that prices need to rise even higher before output can be increased. Also, Iran's minister said oil inventories need to fall considerably before OPEC would increase supply. The current belief is that high oil prices will induce OPEC members to begin opening up the valve before the end of the year.

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