Brazil says to hold oil rights sales in 2013

Brazil plans to hold in 2013 its first oil exploration rights auction in five years, Brazil’s energy minister Edison Lobao said on Tuesday, a sale that many petroleum companies consider essential to their continued health and survival in the country.

The so-called 11th Round oil concession auction will take place in May and will limit the sale of rights to 174 blocks — 87 onshore and 87 offshore, Lobao told reporters.

He added, however, that the new round would depend on Congress’ passage of a new law defining how future oil royalties will be used. Lobao expects the bill to pass by year end.

A second auction is planned for offshore oil rights in Brazil’s most promising subsalt region for November 2013, Lobao said. This round would be the first under a new production sharing law.

The end of auctions in the wake of the 2007 discovery of giant offshore oil resources in the subsalt near Rio de Janeiro forced companies such as Exxon Mobil (XOM.N), Royal Dutch Shell (RDSa.L), Devon Energy Corp (DVN.N) to scale back exploration activities.

Smaller companies “faced death”, Alessandro Novais, president of Brazil’s Independent Producers Association said on Tuesday.

Eloi Fernandez y Fernandez, president of Brazil’s National Oil Industry Organization, said today at the Rio Oil & Gas conference in Rio de Janeiro that the development of Brazil’s oil service and equipment industry depends on new auction rounds and the availability of new areas.

“The government is finally listening to our concerns,” he said.

ROYALTY AGREEMENT NEEDED

Congress could still hold up the auctions. Failure to agree on royalties has held up new auctions for nearly two years.

“Great, they’ve said their going to have an auction. All they need to do is solve the most difficult part first, the political part, the royalties,” said Cleveland Jones, a geologist with the National Petroleum Institute at the State University of Rio de Janeiro.

A royalty agreement, though, may be close. Julio Bueno, economic development secretary for Rio de Janeiro state, said on Monday at Rio Oil & Gas, Latin Americas largest oil fair, that a deal had been worked out among political leaders to resolve the fight over royalties.

Shell Brasil President Andre Araujo said his company plans to participate in the May auction.

“I think we should look at this positively,” said Joao Carlos de Luca, president of the IBP, Brazil’s petroleum industry association and president of oil company Barra Energia. “The government has committed to a date and I think they will find it hard not to deliver on that.”

The planned May auction will be held under Brazil’s 15-year-oil concession rules. De Luca estimated that groups bidding for the blocks would generate $1 billion in up-front revenue for the government.

The areas to be offered are likely in the so-called “Equatorial Margin” that runs along Brazil’s northeast coast near the mouth of the Amazon River that has geological characteristics similar to Nigeria’s offshore oil region.

Millions of years ago Brazil and Nigeria were attached before continental drift pulled them apart.

NOVEMBER AUCTION TO BE DIFFERENT

As part of the changes made to boost government control of resources after the 2007 subsalt discoveries, state-led oil company Petrobras will have a minimum 30 percent of all rights sold. Petrobras and its partners will have to give a portion of all output from the subsalt to the government.

For the purposes of the new law, the subsalt area is a New York sized zone near Rio de Janeiro and Sao Paulo that covers an area that already produces about 80 percent of Brazil’s nearly 2.5 million barrels a day of oil and natural gas.

This area contains about 100 billion barrels of recoverable oil according to the National Oil Institute, enough to provide all current U.S. oil needs for about 14 years.

Reuters