China National Petroleum Corp., China’s biggest oil company, and China National Offshore Oil Corp., its biggest offshore producer, have registered for the Libra oilfield licensing round, the country’s oil regulator said in a statement yesterday. China Petrochemical Corp., known as Sinopec Group, is participating in the auction through a Brazil-based joint venture with Repsol SA.
The 11 registered companies also include Royal Dutch Shell Plc (RDSA), Total SA, Ecopetrol SA and Petroleo Brasileiro SA (PETR3), four of the nine largest oil companies by market value. Kuala Lumpur-based Petroliam Nasional Bhd. and Oil & Natural Gas (ONGC) Corp., India’s biggest explorer, also plan to compete in Brazil’s first licensing round, under new legislation that guarantees operating control and a minimum 30 percent stake for Rio de Janeiro-based Petrobras.
The “surprisingly small” turnout was caused by limited amount of geological data, a lack of experience with the production-sharing model and the potential size of investments, Bank of America Corp. analyst Frank McGann said in a note to clients dated yesterday.
“Lonely Libra,” McGann wrote. “This suggests that only two to three consortiums are likely to be formed to bid.”
The number of participants was about a quarter of the more than 40 companies expected by the regulator, Magda Chambriard, the head of Brazil’s oil regulator, told reporters in Rio de Janeiro yesterday. The absence of U.S. producers comes after Chevron Corp. was sued by prosecutors for a 2011 offshore oil spill and allegations this month by American journalist Glenn Greenwald that the U.S. was spying on Petrobras.
If a consortium led by U.S. companies wins the bid round it will face a “political firestorm,” political risk consultancy Eurasia Group wrote in a Sept. 10 note to clients. The country’s main oil union on Sept. 9 requested the bid be cancelled because of the spying claims.
Brazil is auctioning Libra, estimated to hold as much as 12 billion barrels of recoverable crude, under a new profit-sharing model where Petrobras and partners will give the government at least 41.65 percent of production after deducting output to cover costs. The government will choose the group that offers the most oil.
“Supermajors have a strong preference for operating projects of this size, that’s an important reason why you would see a company like Exxon not wanting to get involved,” T.J. Conway, a research and advisory manager at New York-based Energy Intelligence Group, said by telephone from Washington before the announcement.
The auction is more attractive to “national oil companies that are seeking big volumes and are comfortable with non-operated positions,” Conway said.
The 11 bidders will probably form into two separate groups to bid for Libra, he said.
“After reviewing this opportunity, we decided not to participate in the Libra bid round,” Patrick McGinn, an Exxon Mobil (XOM) spokesman, said in an e-mailed reply to questions. “We continually look for new exploration and development opportunities around the world where we can leverage our experience and technology, and we look forward to evaluating potential opportunities in Brazil.”
McGinn didn’t comment on whether spying allegations had an influence on Exxon’s decision not to participate.
UBS AG (UBSN) expected “low interest” in the auction, analysts led by Lilyanna Yang said in a Sept. 4 note to clients. Crude sales from Libra won’t begin until 2021, about two years longer than ANP estimates, and higher-than-expected levels of natural gas will increase extraction costs, the UBS analysts said.
A 15 billion reais ($6.8 billion) signing fee to be paid by the winning bidders makes it “nearly impossible” for smaller oil companies to compete, Energy Intelligence’s Conway said.
To contact the editor responsible for this story: James Attwood at firstname.lastname@example.org