Relinquishments driving Petro bras to compete hard for licenses

July 1, 2000
License E & P action picking up

Brazil's Second Oil and Gas Licensing Round on June 7th demonstrated that the federally controlled oil company Petrobras is not content to let competing private oil companies increase their share of the country's booming exploration and production sector.

Petrobras emerged as the most aggressive bidder at the auction, securing eight of the 10 areas in which it bid. Of total bids made by groups with which Petrobras was associated came to some R$355 million (Brazilian real), around three-quarters of the total R$470 million real raised from the signature bonuses. Other deepwater winners included Shell, British Gas, and Amerada Hess. Of the 23 areas offered by the National Petroleum Agency (ANP), 13 were offshore blocks and seven in frontier depths of over 2,000 meters of water.

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Although the auction was widely recognized as a success, Petrobras found the bidding easier than expected: "We thought the competition was going to more intense than it was; after we won the first block, we lowered our bids substantially," one Petrobras source said. Petrobras' aggressive biding reflected a desire to build up a portfolio with concessions that will last another eight years, as it will be forced to relinquish a number of blocks in 2001 on which development has not started.


"Petrobras needs to get a hold of some blocks now, because it will have to relinquish as many as 50 next year and it needs new areas," noted one industry source. Sector monitors and industry sources also noted that it was little wonder that Petrobras' biding took center stage, given its extensive knowledge of Brazil's oil patch and the company's extensive credentials in deepwater drilling.

Petrobras went alone in only three bids. For the other blocks, it joined forces with groups including Chevron, British Gas International, Shell, Petrogal, Enterprise Oil, Repsol-YPF and Amerada Hess. Indeed, Petrobras led all but one of the consortiums for which it bid, while groups including Petrobras also snapped up all of the five blocks in the Santos Basin on offer. The Santos Basin promises to be in the spotlight in the coming years with both foreign outfits and Petrobras investing heavily in exploration.

On the first block on offer, a consortium made up of Petrobras (50%), Chevron (25%), and British Gas (25%) beat out bids from competing consortia for BM-S-10, Santos Basin. The company offered a signature R$101.995 million, with Kerr-McGee, Enterprise, Amerada Hess, and Odebrecht offering R$9.260 million. Repsol-YPF and Eni offered R$9 million.

Petrobras' Superintendent of Exploration and Production, Carlos Alberto Oliveira said that the group's high bid was based on BM-S-10's proximity to the Santos Basin Block BS-500 where Petrobras made a large oil discovery of around 600-700 million BOE last year.

Alberto said the group would invest $15 million over the next five years in exploration and drill anywhere between two and five wells, plus another well in BS-500.

Feeding frenzy

In contrast with the first round, one year ago - when less than half the areas offered were sold - the ANP sold 21 of the 23 areas offered, far surpassing the R$327 million raised in the previous round. "It would have been impossible for things to have gone better for us," said ANP Executive Secretary David Zylbersztajn.

The ANP had designed the second auction with smaller, more manageable blocks in a move to make it easier to pinpoint hydrocarbons and spur the participation of local companies. It had also discussed the size and location of the blocks with oil companies and tried to ensure that there was at least a verbal commitment of interest in each block from at least one operator. Three privately owned Brazilian companies - Ipiranga, Maritima, Odebrecht, and Queiroz Galvao - also snapped up assets on offer, boosting the participation of Brazilian companies in the Second Licensing Round to 40% from 26% last year.

Moreover, the ANP said it was "highly satisfied" with commitments made by companies to purchase goods and services from domestic companies. On average, companies pledged to acquire 41% of goods for exploration and 47% of goods for development from Brazilian firms. Some firms even agreed to as much as 70% participation of domestic goods.

In the sweepstakes for the BM-C-8 block, Campos Basin, a group led by US-based Santa Fe was outbid by a whisper by rival Maersk from Denmark. But Santa Fe secured the area on the basis of a greater commitment to Brazilian goods.

Santa Fe said that the company would decide over the next two years about a broader development program. The company plans to drill at least one well in the first phase of exploration.

Other winners included US-based Coastal, which was the sole bidder for BM-CAL-4. The company snapped up the block, located in the Camamu-Almada Basin for R$2.24 million.

Blocks put on offer in Brazil's Second licensing round. The ANP (Brazil's oil and gas regulatory agency) sold 21 of the 23 areas offered, far surpassing the R$327 million raised in the previous round.

"We don't know for certain how great an investment we will be making. In the first phase, we will be carrying out seismic; if this is encouraging, in the second phase we will drill an exploratory well," said Ben Welmaker, Director of International Relations.

Rainer Engineering, the oil and natural gas investment arm of local Maritima, an offshore construction company, picked up BT-REC-3, Reconcavo Basin, for a bid of R$151.666.

BM-SEAL-5 located in the Sergipe-Alagoas basin was snapped up by a consortium made up of Amerada Hess and Odebrecht, which beat out Canada's Hunt Oil Company with R$9.0 million signature bonus. The competing bid from Hunt Oil Company was for R$1.503 million. Meanwhile, Pan Canadian was the sole bidder for the BMC-7 block, offering R$4,693,577 million.

"We have been watching for opportunities in Brazil since the First Round and Petrobras partnerships. Just now we feel safe about participating," PanCanadian Randolph Hiscock, Manager for Latin America said.

An all-Brazilian consortium made up of Queiroz Galvao and Ipiranga were the only bidders for BT-REC-1, offering R$2.220,000 million for the block.

Shell Brazil's US$36.12 million bid secured it offshore Block BM-C-10 in the Campos Basin. Shell Brazil Exploration & Production Vice President Phillip Hanson said the company would develop the necessary skills and technology to explore and develop the block, which lies at the limit of existing deepwater technologies at between 3,000 meters and 3,200 meters water depth. In consortium with Petrobras and Portugal's state oil company Petrogal, Shell also won a concession for Block BM-S-8 in Santos Basin.

First private oil

Meanwhile, Houston-based exploration and production company Santa Fe Snyder, operator of the Caraúna block, and partners Repsol-YPF, Sotep, and Brazil's Petrobras, are poised to kick off Brazil's first private offshore oil production this year. Officials at the company's Brazilian subsidiary said that production from the block could begin as early as July or August.

Caraúna, which covers an area of 130 sq km in the Potiguar Basin, is located off the coast of Ceará State. The company is targeting producing up to 500,000 bbl of oil by the close of 2000, officials say.

In the field, Santa Fe and the other equity holders have performed workovers and re-entry on previously drilled Petrobras wells. This year, Santa Fe Snyder may drill up to four wells where Petrobras had made previous hydrocarbon discoveries," said an official.

In late May, Santa Fe Snyder received a license from Brazil's Environment Ministry - Ibama for produc-tion. Authorization for the Ministry was given for the wells, CES-118 and CES-124, which had produced for Petrobras.

Santa Fe has also been seeking authorization for the wells CES-118A and CES-118B. In the Bpot-2 block, also located in the northeastern Potiguar Basin, the company has sought approval from Ibama to begin drilling. Another foreigner oper-ator in Brazil, Coastal hopes to receive licenses from Ibama to drill wells for the blocks Bcam-2 and Bas-97, located in the Camamu-Almada Basin, Bahia State.

While Santa Fe Snyder and Union Pacific could tap oil and natural gas this year, Coastal may be the first foreign company to actually drill its own wells in Brazil. Drilling, once the licenses are given, could begin as early as between August and September with the Petrobras owned PA-3 platform.

Winning companies in Brazil's second oil licensing round

  • Petrobras-Chevron-BG: BM-S-10 R$101.99mn (US$56.54mn)
  • Coastal: BM-CAL-4 R$2.21mn (US$1.23mn)
  • Rainier Eng.: BT-REC-3 R$100,000
  • Amerada Hess-Odebrecht: BM-SEAL-5 R$9.37mn (US$5.19mn)
  • Petrobras-Shell-Petrogal: BM-S-8 R$51.45mn (US$28.47mn)
  • Pan Canadian Petroleum: BM-C-7 R$4.69mn (US$2.6mn)
  • Petrobras: BT-SEAL-2 R$432,235 (US$239,332)
  • Shell: BM-C-10 R$65.17mn (US$36.12mn)
  • Petrobras: BT-POT-4 R$658,789 (US$365,182)
  • Coastal: BT-PR-4 R$4.68mn (US$2.59mn)
  • Petrobras-Chevron: BM-S-7 R$67.64mn (US$37.49mn)
  • Union Pacific Resources: BT-SEAL-1 R$902,347 (US$500,192)
  • Santa Fe Snyder-SK-Odebrecht: BM-C-8 R$12.25mn (US$6.79mn)
  • Queiroz Galvao-Ipiranga: BT-REC-1 R$2.22mn (US$1.23mn)
  • Petrobras-BG-YPF: BM-S-9 R$116.28mn (US$64.60mn)
  • None: BT-AM-1
  • Rainier Engineering: BT-POT-3 R$1.05mn (US$584,632)
  • Petrobras-Amerada Hess: BM-SEAL-4 R$2.36mn (US$1.31mn)
  • Coastal-Pan Canadian: BN-PAMA-1 R$9.23mn (US$5.14mn)
  • Rainier Eng.: BT-SEAL-3 R$105,666 (US$58,801)
  • Petrobras-Petrogal-BG International: R$15.16mn (US$8.44mn)
  • None: BM-C-9
  • Rainier Eng.: BT-REC-2 R$851,666 (US$473,937)