Shell Drawn by Auction for $5 Trillion of Oil
Brazil’s first auction of oil licenses since 2008 is expected to lure companies from Royal Dutch Shell Plc (RDSA) to startup Niko Resources Ltd. (NKO) as producers seek to tap fields holding a third of the world’s new discoveries.
President Dilma Rousseff this week approved the plan to auction oil exploration areas as soon as May, including deep- water fields where Petroleo Brasileiro SA (PETR4) made the world’s largest oil finds in more than a decade. Round 11, as the auction is being called, will include 174 blocks on shore and off Brazil’s northeastern coast.
Brazil has repeatedly postponed the sale of exploration areas, leaving Exxon Mobil Corp. (XOM), Shell and other producers shut out of the offshore pre-salt area that holds at least $5 trillion of oil. The delays prompted producers to look elsewhere for oil discoveries. Total SA accelerated exploration off the coast of West Africa, and billionaire Eike Batista’s OGX Petroleo & Gas Participacoes SA is in Colombia.
The bidding round is “important not just to help fill the void of the last four years but also to develop new fields,” said Miguel Gradin, a partner at Rio de Janeiro-based energy startup Graal Energia and former chief executive officer of Odebrecht Oil & Gas. “It will attract new international players and also help Petrobras continue with its program.”
Brazil hasn’t auctioned any offshore permits since before announcing the potential of the pre-salt zone in 2007 and hasn’t sold any blocks since 2008, when it offered tracts of land. Meanwhile Petrobras, the state-run oil producer that pumps more than 90 percent of the country’s crude, is struggling to develop its deposits. Petrobras’s output grew 1.5 percent in 2011, the slowest pace in four years.
One third of the oil found in the world over the past five years is located below Brazilian waters, Fitch Ratings said in a report on Sept. 12.
“Shell will look with great interest at the areas that will be auctioned,” Andre Araujo, chief executive officer of Shell Brazil, said in an e-mailed statement. “I hope that the auctioning of the 11th round marks the return of regular bid rounds.”
“We have been expecting this for several months,” Angel Gonzalez, chief operating officer at Repsol SA’s Brazil unit, said yesterday at an oil conference in Rio, adding that the venture with China Petrochemical Corp., or Sinopec, is “ready” to participate in the auction.
Niko Resources, a Canadian company that explores for oil and gas in seven countries, is getting a head-start identifying the best prospects up for grabs in the auction areas, Rodrigo Senne dos Santos, Niko’s manager for Brazil, said in an interview.
Calgary-based Niko hired a vessel from SapuraCrest Petroleum Bhd. to conduct geologic studies and identify natural oil seeps off the coast of northeastern Brazil starting in November, he said.
Niko is negotiating with at least five other oil companies to split the costs of the program to collect data on 2,000 square kilometers a day. In August, Petrobras and BP Plc (BP/) discovered oil 76 kilometers (47 miles) off the coast in the Ceara Basin near where some of the blocks will be auctioned, underscoring the region’s potential, Santos said.
While a legislative change in 2007 put Petrobras in charge of all new contracts in the so-called pre-salt area off Brazil, the company hasn’t been able to extract oil fast enough to meet targets. Petrobras cut its long-term production forecast by 11 percent to 5.7 million barrels a day in 2020. Output will remain within 2 percent of 2011 levels until 2014, it said on June 14.
In addition to the 11th Round, the government also aims to hold an auction of pre-salt fields in deep waters, where Brazil’s largest oil deposits are located, in November 2013, Energy Minister Edison Lobao said in Brasilia on Sept. 18. Congress has to approve a new model for distributing oil royalties before that bidding round is held, Lobao said.
“Resolving the contentious issue of royalty distribution is still the key obstacle for policy makers,” T.J. Conway, a research and advisory manager at New York-based Energy Intelligence Group, said in an e-mailed response to questions. Even though fields in the northeast have shown “promising” results, “the Brazilian pre-salt has yielded exceptionally high success rates, and exploration success may prove harder to come by in these frontier offerings.”
While Petrobras and its partners have recently found oil near areas that will be auctioned, the region is also home to dry holes. Exxon Mobil explored about 200 kilometers off the coast of the Amazon area in 2001 and 2002 without finding any oil, spokesman Patrick McGinn said in an e-mailed response to questions. Exxon is interested in pursuing other opportunities in Brazil, McGinn said.
The Round 11 blocks include areas on shore and off Brazil’s northeastern coast where the geology is similar to recent discoveries in Suriname, French Guiana and the west coast of Africa, Eliane Petersohn, the superintendent in charge of defining new exploration blocks at the country’s oil regulator, said in a Sept. 18 interview.
The potential to find oil in the region is “enormous,” Marco Antonio Almeida, the head of oil and natural gas at the Energy Ministry, told reporters in Rio de Janeiro on Sept. 17.
“Everybody who works in exploration and production is excited about this round,” Danilo Oliveira, production director at QGEP Participacoes SA (QGEP3), said in an interview in Rio de Janeiro. “There are even greater expectations for the pre-salt round.”
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