RIO DE JANEIRO—Brazil’s 5th presalt production-sharing round results were beyond the government's expectations, with all the blocks offered acquired by world’s major oil companies, such as Exxon Mobil Corp. (NYSE: XOM), BP Plc (NYSE: BP), Chevron Corp. (NYSE: CVX) and Royal Dutch Shell Plc (NYSE: RDS.A).
The auction, which was held on Sept. 28, raised roughly US$1.705 billion in signing bonuses and a commitment of US$250 million in planned investments in the exploratory phase. The areas offered by Brazil’s government were located in Santos Basin (Saturno, Titã and Pau-Brasil) and Campos Basin (Tartaruga Verde). Those areas are expected to hold roughly 12 billion barrels of oil equivalent.
“Since the beginning of the [production] sharing bidding rounds [started in 2013], 96% of the blocks were acquired,” said Décio Oddone, head of Brazil's oil and gas regulator ANP. “I don’t know any area in the world that could have achieved such success.”
During the press conference after the round, Brazil's Deputy Mining and Energy Minister Márcio Félix said “Brazil is experiencing a new reality in the sector.”
Félix attributed the success of the bidding round to efforts to create a more business-friendly environment and the law that removes the obligation of Petrobras to be a single operator in the presalt.
“We need diversification for the benefit of the industry as a whole,” he said. Six oil majors are now responsible for operations in Brazil’s presalt areas: Petrobras, Shell, Equinor ASA (NYSE: EQNR), Exxon Mobil and BP.
The average of the goodwill of the profit oil was 171%. In the production-sharing bidding rounds, winning companies are those that offer the Brazilian State the highest profit oil (that is, the largest portion of the exceeding oil), starting from a minimum percentage established in the tender protocol. The signing bonuses, also established in the tender protocol, are fixed.
Saturno presalt area, located in the Santos Basin, received the highest goodwill of the profit oil (300.23%). In a consortium formed by Royal Dutch Shell Brazil (50%) and Chevron Brasil Óleo (50%), the group spent roughly $781 million in signing bonus and offered 70.2% in profit oil. Shell will be the operator of the area.
Titã presalt field was acquired by the consortium formed by Exxon Mobil Brasil (64%) and Qatar Petroleum International, offering 23.49% in profit oil, which represents a rate of 146.48% of goodwill of the profit oil previously established in the tender protocol. The consortium will spend $781 million in signing bonus. The area received two offers. Exxon Mobil will be the operator of the Titã presalt field.
Pau Brasil area was acquired by the consortium formed by BP Energy (50%); CNOOC Ltd. (30%); and Ecopetrol (20%). The consortium will spend $125 million in signing bonus and offered 63.79% in profit oil. The goodwill of the profit oil is 157.01%. With this acquisition, BP debuted as the operator in Brazil’s presalt area.
Tartaruga Verde presalt field. the only block offered located in the Campos Basin, received only one offer and was acquired by the Brazilian state-owned Petrobras alone. The Brazilian major will spend $17.5 million in signing bonuses and offered 10.01% in profit oil
Brazil’s Presidential Elections
The auction was held 10 days before the upcoming presidential elections. According to recent polls, two candidates with strong opposing views have chances to win.
Jair Bolsonaro, who leads the polls, is a former army captain who has been a congressman since 1991. He has advocated for a major state interventionism in the energy market for a long time. But he recently changed this position and embraced a more business-oriented profile. Paulo Guedes, a conservative economist and Bolsonaro’s top economic adviser, is famous for defending deregulation of Brazil’s economy, including the energy market. Bolsonaro is running as a candidate for the small Social Liberty Party (PSL).
Fernando Haddad, from the leftist Workers Party, comes in the second place, according to the polls. He is the political heir of Brazil’s popular former president, Luiz Inácio Lula da Silva, who was ordered to serve a 12-year jail sentence after being convicted of corruption in the Petrobras scandal. His political views include the comeback of a certain state interventionism in Petrobras, although he has recently stated he is against the fuel prices control, a policy that was adopted when the Workers Party was in office.
Márcio Félix said he believes that most of the changes made to the regulation of the oil industry will be maintained by the next government.
“I believe that common sense will prevail because the oil industry's latest results are strong and the country needs this,” Félix said.
DJR Energy agreed to acquire Encana’s San Juan position, which includes about 182,000 net acres and 5,400 boe/d of production in northern New Mexico.
Activist investor Elliott Management offered to buy oil and gas producer QEP Resources in an all-cash deal valued at $2.07 billion, saying that the company is "deeply undervalued."
Overall, 2018 was the Year of Consolidation as several E&Ps agreed to merge throughout the U.S., including inside and outside the prolific Permian Basin.