An Oil Auction Provides Brazil a Needed Boost
Posted June 7, 2018 7:42 p.m. EDT
RIO DE JANEIRO — Oil companies bid for offshore drilling rights in an auction here on Thursday that provided some welcome good news for Brazil’s economy after weeks of political uncertainty and unrest.
The auction, the fourth one since September, came days after a strike by truck drivers over rising diesel prices paralyzed the country for nearly two weeks and prompted the resignation of the chief executive of the state-owned oil company Petrobras. Consortiums that included companies like Chevron, Exxon Mobil and Equinor of Norway bid 3.15 billion reais, about $808 million, and would give the government between 16 percent and 75 percent of the oil they produce — far higher than the minimum amounts set by the government.
“This process and model shows that what we need in Brazil is more competition,” Décio Oddone, head of the National Petroleum Agency, told reporters after the auction.
Thursday’s auction signals that Brazil, Latin America’s biggest economy, could become a more important source of oil for the rest of the world and possibly make up for lower production volumes from countries like Iran and Venezuela. The International Energy Agency has predicted that Brazil will be second only to the United States among non-Organization of the Petroleum Exporting Countries in contributing to the growth in oil supplies over the next several years.
The government offered four blocks that hold at least 4 billion barrels of recoverable oil under a thick layer of salt, according to IHS Markit, a research and consulting firm.
A consortium of oil companies that included Chevron, Royal Dutch Shell and others won one block. Chevron previously won stakes in four exploration blocks in a March auction, which was the first time the company had participated in a Brazilian auction since one of its fields near Rio de Janeiro had an oil spill in 2011. Another consortium made up of Exxon Mobil, Equinor and others, won a block that is considered the most promising of the four areas offered Thursday. Exxon now owns a stake in 25 blocks in Brazil.
A third consortium, which included Petrobras, Equinor and others won the third block; no company was declared the winner of the fourth. Petrobras exercised its option under Brazilian law to take a stake in all three blocks and serve as operator in each one.
Just a year ago, many energy companies were reluctant to begin expensive deepwater projects because the world was awash with oil and the price of the U.S. bench mark crude oil futures had slumped to about $45 a barrel. But a recent rally in oil prices and easing of government regulations has helped to revive interest in Brazil’s offshore fields.
Once thought to be complex and costly, blocks like those auctioned Thursday — known as pre-salt areas — in Brazil have become competitive as oil companies have used improved technology to reduce costs of deepwater drilling and worked in consortiums to reduce their financial risk.
“You are not seeing this in any other area of the world,” said Ricardo Bedregal, who specializes in Latin American oil and gas for IHS Markit.
But Brazil’s oil industry still remains subject to extensive government interference, as demonstrated by the recent strike. President Michel Temer agreed to subsidize gasoline and diesel at the pump to get truckers to end their strike.
The strike and the government’s response prompted the reform-minded chief executive of Petrobras, Pedro Parente, who had won praise for restoring stability to the company, to resign because he said he could no longer help the company and government.
Analysts say the government might be tempted to intervene in the industry and the economy again before a presidential election in October. Brazil’s economy is expected to grow 2.18 percent in 2018, according to a survey of analysts released on Monday by the country’s central bank. That’s down from a predicted 2.7 percent just four weeks ago.