Brazil to Auction New Oil Concessions

By Andrew Willis, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The Brazilian government has announced that it will restart oil exploration rights auctions in 2013, ending a five-year hiatus that has complicated the investment decisions of oil companies operating in Brazil. Speaking from Brasília last week, energy minister Edison Lobao surprised senior civil servants and oil executives with the announcement, but cautioned that the new round would depend on congress passing a new law on oil royalties.

Lobao said he expects the bill to pass by the end of this year, allowing Brazil’s eleventh round oil concession auction to take place in May 2013 with the sale of rights to 174 blocks, half of them onshore and half offshore.

The blocks will be auctioned under Brazil’s current oil concession rules, with a majority likely to be located to the country’s north in the Equatorial Margin, a new offshore area near the mouth of the Amazon River.

The news helped to lift spirits at the Rio Oil and Gas Expo and Conference last week, the largest of it’s kind in Latin America. Oil industry associations like the Instituto Brasileiro do Petróleo (IBP), organizers of the large event, have long been pushing for a new round of auctions.

Major oil companies and small independent producers operating in Brazil have been forced to scale back exploration activities since the sale of initial pre-salt concessions in 2008. “I think we should look at this positively,” said Joao Carlos de Luca, president of the IBP, adding that signing bonuses from the May 2013 auction should generate roughly US$1 billion for the Brazilian government.

A second upcoming auction in Brazil’s most promising pre-salt region off the coast of Rio de Janeiro is now planned for November 2013, the first to take place under new production sharing rules.

The new rules will see Petrobras, Brazil’s state-led oil company, hold a minimum thirty percent stake of all rights sold, with a percentage of all oil output from the pre-salt fields also going to the government.

The extreme secrecy surrounding last week’s announcement surprised many at the Rio Oil and Gas Expo and Conference. “How did Magda Chambriard [director-general of ANP, Brazil’s National Oil Agency] and Marco Antonio de Almeida [executive-secretary at the Ministry of Mines and Energy] not know about this,” questioned one oil executive who wished to remain anonymous, reported the Valor newspaper.

The day before the announcement in Brasilia of the new oil auctions, Marco Antonio de Almeida told the Rio oil conference that no fixed date for future auctions had been set.

A question mark also hangs over the speed at which congress will approve a bill defining how future oil royalties will be used. The government wants the law approved by this year’s end, but this controversial legislation has proved difficult to negotiate so far.

“Great, they’ve said their going to have an auction. All they need to do is solve the most difficult part first, the political part, the royalties,” Cleveland Jones, a geologist with the National Petroleum Institute at the State University of Rio de Janeiro, told Reuters.