RIO DE JANEIRO (Reuters) – Brazilian state-run energy company Petrobras joined forces with European oil majors and Chinese rivals yesterday to buy the country’s biggest-ever oil field with a lone bid at the minimum price, a worse-than-expected outcome for a sale designed to launch Brazil as a petroleum power.
The auction, conducted as police and the army clashed with hundreds of protesters objecting to the sale of natural resources to foreign companies, was notable because it sparked only a fraction of the appetite that was originally expected.
Despite government assurances that the discovery is huge and low risk, many major world oil companies that had shown strong interest in previous auctions, such as Exxon Mobil Corp, Chevron Corp and BP Plc, stayed away.
“An auction supposes a contest,” said Carlos Sampaio, an opposition legislator in the lower house of Brazil’s Congress. “Without that, the government failed.”
But government officials painted the sale as a success and said they expected $400 billion in state revenue from the Libra field over 30 years, cash they hope will transform the country, paying for education and health care needed to narrow a wide gap between rich and poor.
The winning group did include a surprise. France’s Total SA and Anglo-Dutch Royal Dutch Shell Plc, the only major non-state companies to sign up for the auction, took 40 per cent of Libra.
While there are two Chinese partners, CNOOC Ltd and China National Petroleum Corp, they have the smallest share. That eased concerns of both left-leaning nationalists and free-market industry figures that Chinese or state-owned Asian companies would buy the biggest Libra stake.
The consortium will be led by Petroleo Brasileiro SA, as Petrobras is formally known, which took 40 percent of the field in the auction, more than the minimum 30 percent that it was guaranteed by law. The law also requires it to be the field’s sole operator.
Total and Shell will each have 20 percent of the partnership, while China National Petroleum Corp and China’s CNOOC took 10 percent a piece.
The group now holds the rights to an offshore area holding between 8 billion and 12 billion barrels of recoverable oil, according to Brazil’s oil regulator and Dallas-based oil certification company Degolyer & MacNaughton (D&G).
If the estimates hold up Libra holds enough oil to nearly double Brazil’s reserves or supply all the world’s oil needs for as much as 19 weeks.
Highlighting the lacklustre interest by most major oil companies in this potentially huge area, the companies agreed to give the government the minimum legal amount of so-called “profit oil” from the fields – or oil produced after initial investment costs are paid. Under the terms of a new production-sharing contract, that minimum was set at 41.65 per cent of profit oil.
They also agreed to pay their share of the 15 billion real ($6.88 billion) up-front signing bonus to finalize the purchase.
Despite the huge potential of the offshore region, many foreign oil producers and other potential investors shied away because they believed the rules for the new concessions offered little upside for profit and too big a role for the government and Petrobras. A newly minted state-owned oil company known as PPSA has been created to help manage Libra. In addition to receiving the government’s share of oil from Libra and selling it on its own account, PPSA will have a major say and some veto power over how the consortium spends the $50 billion expected to be needed for developing the area.