Brazil tries to shake oil industry gloom with new bidding round
SABRINA VALLE and PETER MILLARD
RIO DE JANEIRO (Bloomberg) -- Brazil will auction crude-exploration blocks on Wednesday for the first time since a colossal corruption scandal crippled the nation’s oil industry and forced state-run Petroleo Brasileiro SA to scale back investments.
More than 260 onshore and offshore areas are up for grabs, including deepwater blocks in the Sergipe-Alagoas basin off the country’s northeastern coast, where Petrobras has made a series of discoveries in recent years. Brazil, which relies on Petrobras for more than 90% of its oil production, is seeking to lure more large foreign operators to foster competition and bolster its flagging oil-services and naval industries.
Brazil will face many of the same headwinds that have hindered two oil auctions this year in Mexico. Oil prices have slumped almost 50% in the past year and companies from ConocoPhillips to Royal Dutch Shell Plc are slashing investments. On top of that, accusations that Petrobras executives and builders colluded to rig contracts have soured foreign investors on Latin America’s largest economy.
Offshore discoveries
“If only the geological aspect of the blocks was being considered, the potential would be very promising,” said Pedro Zalan, a geologist with energy consultant ZAG in Rio de Janeiro. While companies that bid for contracts aren’t required to team up with Petrobras like in a 2013 auction of ultra-deepwater blocks, rules requiring them to use mostly locally made equipment and difficulties in getting some licenses could still deter a large turnout, he said.
Petrobras, which is selling $15.1 billion of assets and cutting its investment budget by more than a third, is expected to play a much smaller role in this auction than in previous sales, said Cleveland Jones, a geologist and researcher at Rio de Janeiro State University. If it does participate, it will likely take minority stakes and put more of the financial burden on its partners, he said. The company said in a statement late Monday that it cut an additional $11 billion in capital expenditures for this year and next year.
That opens the door to foreign operators to gain a bigger foothold in the nation holding the world’s largest group of offshore discoveries this century, he said.
“If you put some good blocks out there, there are takers even in this environment,” Jones said. “Foreign operators have to pick up some of the slack. That’s the only way some of these projects can be developed.”
More than 35 Brazilian and foreign companies qualified to bid, including Exxon Mobil Corp., Shell, BP Plc, Statoil ASA and Total SA, according to oil regulator ANP. The companies didn’t respond to requests for comment. Neither did Petrobras and Brazil’s Energy Ministry.
Petrobras’s stock rose 1.8% to 7.96 reais as of 10:30 a.m. in Sao Paulo trading, paring its year-to-date loss to 21%.
