Brazil to Auction 172 Oil Blocks in May

By Andrew Willis, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Brazil is set to auction off 172 oil exploration blocks this May, according to a government announcement last week. The auction will end a five-year hiatus that has complicated the business strategies of oil firms operating inside the country.

Speaking in Brasília, Energy Minister Edison Lobão also said a second auction of blocks in the promising sub-salt region off Brazil’s south-eastern coast would take place in November.

A bitter dispute between politicians over oil royalties in Brazil had threatened to delay the two auctions, originally announced last year, but Lobão said the royalties debate was “no longer an issue”.

The May auction, known as the 11th round, was originally intended to include 174 blocks, but Brazil’s oil and gas regulator, the ANP, decided to remove two due to environmental concerns.

“There will be 172 blocks up for offer, onshore and offshore, divided among seventeen sectors, in nine sedimentary basins,” the ANP said in a statement.

“The highlight of the 11th round will be the Margem Equatorial (Equatorial Margin), made up of the Foz do Amazonas, Pará-Maranhão, Barreirinhas, Ceará and Potiguar basins. The region is considered highly promising due to the recent recorded discoveries,” it continued.

The lack of oil auctions since 2007 has complicated life for foreign oil companies operating in Brazil such as Shell and Exxon Mobil, many of which have had to scale back their exploration activities. Yet ANP Director Helder Queiro expects to see “a fierce competition” and explained the ANP will hold road shows and workshops for major national and international companies in the oil industry to disclose the round.

Australian expatriate, Michael Connell, working in Rio at Wilson, Sons, explained: “The more new concessions are auctioned and the sooner they are auctioned the better the opportunities for the oil service companies that provide things like the drilling rigs (Transocean, Noble, Diamond etc.), technology (Schluberger, Haliburton etc.) and in the case of Wilson, Sons logistical support such as supply boats and upstream oil support bases.”

Connell tells The Rio Times, “Naturally it follows the more there is activity the better the development potential of the country as a whole.”

More news for the firms may also be on the way this year, with the ANP reportedly reviewing contentious local content rules that have driven up company costs ad produced delays, according to the O Globo newspaper.

Under the strict rules, up to 65 percent of goods and services used in the oil industry must be produced in Brazil.

The announcement over the oil auctions comes as Brazil finds itself amid an ongoing energy crisis, caused by a shortage of rains last year.

Brazil relies on hydroelectric power for roughly 67 percent of its energy mix. In recent months, however, the country has been forced to import large quantities of expensive liquefied natural gas to make up for the shortfall.

Lobão dismissed talk of possible energy rationing, saying there was plenty of gas available for power generation. “The gas law states that the Ministry of Mines and Energy must always seek ways to increase the gas supply, but today there is no shortage of gas… the gas we don’t produce here we import,” Lobão said.