Brazil Oil Auction Beats Expectations

By Paul Kiernan Features Dow Jones Newswires

Oil executives and government officials were ebullient Friday following the conclusion of a major oil auction in Brazil, where a yearlong effort to lure foreign investment into the energy sector appeared to have paid off.

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Brazil auctioned off six of eight exploration blocks on offer, receiving commitments from oil majors to pay $1.88 billion in signing bonuses. In four of the blocks, companies promised between 67% and 80% of so-called profit oil produced from the fields to the Brazilian government, far exceeding minimum bids.

Officials have yet to convert those percentages into firm revenue estimates, but Décio Oddone, head of energy regulator ANP, said in a news conference, they will likely bring "tens of billions of dollars" into public coffers.

"With today's auction, Brazil is back in the oil and gas industry," Mr. Oddone said, adding that the results surpassed expectations.

Friday's bidding rounds marked the second time Brazil has auctioned off blocks in an ultra-deep layer off its southeastern coast known as the pre-salt since discovering giant oil reserves there a decade ago. Winners were determined based on the percentage of profit oil that companies promised to the Brazilian government.

The largest blocks sold Friday, named Peroba and Norte de Carcará, hold an estimated 5.3 billion and 2.2 billion barrels of oil, respectively.

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Exploration rights in Peroba were won by a consortium led by Brazilian state-run oil firm Petróleo Brasileiro alongside BP PLC and China's CNODC. They offered 77% of profit oil from the block to the Brazilian government, compared with a minimum bid of 14%.

"BP and our partners are thrilled with the outcome of the auction just now, absolutely thrilled," said Howard Leach, BP's global head of exploration, in an interview at the event. Of two blocks in which BP won a stake Friday, Mr. Leach said, "They have world-class-scale potential as oilfields."

Rights to the Norte de Carcará block were won by a consortium led by Norwegian state-controlled oil firm Statoil ASA and including Exxon Mobil Corp. and Portuguese energy firm Galp. They promised 67% of profit oil to the Brazilian government, compared with a minimum bid of 22%.

These three companies also announced "a number" of subsequent transactions in the adjacent BM-S-8 block "to align equity interests across the two blocks that together comprise the Carcará oil discovery." Statoil, which acquired a 66% stake in BM-S-8 from Petrobras last year for $2.5 billion, said in a news release it stands to receive $1.19 billion from the transaction following the auction.

"This has really allowed us to get into a very prolific basin that we've been looking at for some time," said Jeffrey Woodbury, Exxon's head of investor relations, in a conference call Friday.

Government and company officials alike attributed the auction's success to a steady overhaul of Brazil's energy sector over the past year. Among the changes were a reduction in local-content requirements that had driven up costs and the elimination of a rule that Petrobras operate all pre-salt oilfields.

After the bids were finished, Shell's executive vice president of deepwater, Wael Sawan, shook hands and patted the backs of his counterparts at Chinese oil firm CNOOC, thanking them for partnering with Shell in the Alto do Cabo Frio Oeste block.

"Now we need to make money," Mr. Sawan told them.

Write to Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

October 27, 2017 14:13 ET (18:13 GMT)