Petrobras-Led Group Wins Brazil’s Top Prospect; Shares Rally

A group led by Petroleo Brasileiro SA (PETR3) won a license to develop Brazil’s biggest oil discovery under more favorable terms than analysts estimated. Shares in Petrobras, as the state-run producer is known, surged.

Petrobras and partners Royal Dutch Shell Plc (RDSA), Total SA (FP), Cnooc Ltd. (883) and China National Petroleum Corp., pledged to the government the minimum 41.65 percent of profit oil, or the barrels remaining after all costs are covered, to win the 35-year project in deep waters of the Atlantic Ocean. Bank of America Corp. said in an Oct. 14 report that profit oil of less than 50 percent would be seen as beneficial for Petrobras. The companies will pay a 15 billion-real ($6.9 billion) signing fee.

Libra is the first auction of subsea prospects known as pre-salt using a production-sharing model that makes Petrobras the operator of all new projects and requires it to own at least a 30 percent stake. Brazil increased its control of the oil industry under former President Luiz Inacio Lula da Silva after it announced in 2007 the discovery of at least 50 billion barrels trapped under a layer of salt two miles below the seabed.

“Given already negative sentiment toward the stock, we would expect a positive reaction for Petrobras’s stock as long as profit oil levels offered are not viewed as excessive and its stake does not go above 40 percent,” Bank of America analysts Frank McGann and Vicente Falanga Neto said in the report.

Petrobras, which will take a 40 percent stake in the concession, rose 5.1 percent, the most in two months, to 18.85 reais at 4:21 p.m. in Sao Paulo. The stock is down 15 percent in the past year compared with a 5 percent drop by Brazil’s benchmark equity index.

Offshore Platforms

Petrobras, the biggest producer in waters deeper than 1,000 feet, plans to double crude output by 2020 with most of the gains coming from the pre-salt that contains the biggest discoveries this century. Libra will require an investment of 400 billion reais over the 35-year concession, which will include 12 to 15 offshore platforms that will pump more than 1 million barrels a day when fully ramped up, according to the oil regulator.

The legislation calls for a new state company, Pre-Sal Petroleo SA, or PPSA, to represent the government with the power to veto decisions at pre-salt projects, including Libra.

Estimate Doubled

Brazil’s regulator ANP doubled reserve estimates at Libra to 8 billion to 12 billion barrels on May 23 after CGG Veritas, a geophysical services company, conducted a study of the first exploration well. ANP encountered a layer of oil 326 meters deep at the well and did imaging of the surrounding area. Lula, the first producing pre-salt field, has estimated reserves of about 6.5 billion barrels.

Petrobras was hired to drill two wells at Libra. The first was abandoned after problems with well construction.

Today’s auction result is “satisfactory,” although work is needed, including seismic studies, Andre Araujo, who heads The Hague-based Shell’s Brazilian operations, told reporters.

For Cnooc and CNPC, Libra represents a shift in strategy to one of drilling and developing new deposits, after years of buying into operating fields and more advanced exploration projects in Latin America.

While only one bid was received, the auction was successful and the government’s total take from the field, including taxes, will be about 80 percent, which is one of the highest rates in the world, Magda Chambriard, who heads the ANP, told reporters.

Total’s relationship with Shell and Petrobras meant forming the group was “easy” for what was always a strategic asset for the Paris-based company, country manager Denis Paullat said. “It’s hard to imagine a team with more expertise than this,” he said.

To contact the reporters on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net; Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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