Government looks to rake in billions with deep sea oil auctions

pulse

October 26, 2017 8:06 PM

Brazils cash-strapped government hopes to drill into the pockets of some of the worlds biggest oil companies Friday at an auction of blocks in deep offshore, pre-salt oil fields.

Eight blocks will be up for grabs in two rounds of auctions which could bring in revenue of 7.75 billion reais ($2.36 billion) in signing bonuses, with far more coming in through production sharing down the road, the national petroleum agency said.

The last pre-salt auction was held four years ago, when foreign capital had a far harder time getting in on the action.

Sixteen companies are accredited, including giants ExxonMobil and Shell, at the auction in Rio de Janeiro.

The sales will provide welcome extra revenue for the government, which is trying to rebalance the books with austerity cuts and mass privatizations, following a severe two-year recession.

The pre-salt fields hold the promise of billions of barrels of oil, despite the technical challenges of operating in the deep Atlantic and the depressed state of global oil markets.

Scandal plagued center-right President Michel Temer has rewritten the rules since coming to power last year to make the auctions more appetizing to investors.

Chief among these is an end to the requirement for national champion Petrobas, which is emerging from a prolonged graft scandal, to operate and hold a minimum 30 percent stake in all pre-salt fields.

This frees up Petrobas, which still has a preemptive right to select blocks, and also opens the door wider to foreign partners.

Winners on Friday will be companies that offer the government the highest share of oil after cost in a production sharing scheme.

On September 27, Brazil held its most successful oil auction in history when Petrobras and ExxonMobil joined up to pay nearly $1.2 billion for drilling rights in non-pre-salt areas in the offshore Campos Basin.

But despite the government's enthusiasm for raising money through the oil auctions and infrastructure privatizations, a report from a congressional consultancy says the pre-salt sales will shortchange Brazil.

The signing bonuses are only a fraction of revenues the government hopes eventually to get.

The bulk will come through the profit sharing, but according to the report quoted by Folha newspaper, "the minimum percentages of surplus oil to be collected should be considered very low for pre-salt blocks."

Dilma Rousseff, the leftist president who was removed in an impeachment proceeding last year and replaced by Temer, lashed out the auction.

"Brazil is handing oil over to foreigners for the price of bananas," she tweeted.

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