Brazil to Woo Big Oil by Offering 30% of Libra’s Profits
Brazil is preparing to woo producers by offering at most a 30 percent take for developing its largest oil field. Analysts say it’s enough to spur interest.
The oil regulator is preparing a road show to the U.S., Europe and Asia in late June and early July to market Libra, the largest oil discovery in Brazil that is up for auction in October, Magda Chambriard, the head of the National Petroleum Agency, said yesterday. The quality of the oil and the size of the reserves have lured the interest of all major companies from Chevron Corp (CVX). to China Petrochemical Corp., or Sinopec, she said.
Brazil is competing for investments at a time producers are using new technologies to extract crude from shale beds across the U.S. and explorers are expanding activity off the coast of Africa. The country is counting on the so-called pre-salt region where Libra and its biggest finds are located to double crude output by 2020.
“In my mind it is impossible to consider less than 70 percent as a government take,” Chambriard said in an interview yesterday. “When the field is larger, when it has more volume, the government percentage is more.”
The government take includes taxes, a signing bonus and so-called profit oil that companies must pledge to win a stake in the field, she said.
Companies could wind up handing the government about 80 percent of returns from the project because drilling has confirmed the high quality oil at Libra, compared with most oil auctions that offer unexplored tracts, said Bob Fryklund, vice president of energy consulting firm IHS CERA.
“It’s a different kettle of fish,” Fryklund said by phone from New York. “My gut is you’re looking for something in the 80 percent range. This is very unique, there hasn’t been anything like it.”
State-controlled Petroleo Brasileiro SA (PETR3) and Chevron declined to comment. Sinopec didn’t respond to requests for comment.
The prospect can “easily” reach a million barrels a day, double the output of OPEC member Ecuador, when 12 to 18 production platforms are eventually anchored across the field, Chambriard said. The field will start producing as soon as five years after it’s sold, she said.
Petrobras (PETR4), as the world’s biggest producer in waters deeper than 1,000 feet is known, will operate the project and must compete as a bidder to get more than the 30 percent it automatically gets by law. Other competitors can form groups or bid individually for the remaining 70 percent on Oct. 22.
Petrobras fell 3.2 percent to 18.20 reais at 4:38 p.m. in Sao Paulo. The stock is down 6.8 percent this year, less than the 19 percent drop in Brazil’s benchmark index.
“You are actually buying into an actual, real physical asset which does have substantial reserves of oil,” Ruaraidh Montgomery, a senior analyst at oil and gas researcher Wood Mackenzie, said by phone from Houston. “A government take of 70 percent would be not unreasonable by any means.”
Brazil’s government will determine a signing bonus for the project and the competitors will win by pledging the largest amount of so-called profit barrels to the government.
Individual wells at Libra will pump as much as 30,000 barrels a day, in line with the most productive in Brazil, she said.
The regulator, known as ANP, doubled the reserves estimates at Libra to 8 to 12 billion barrels on May 23 after CGG Veritas (CGG), 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. The previous estimate was 5 billion barrels.
Angola, which also produces in deep waters of the Atlantic, gets about a 70 percent take from oil projects, said Greg Priddy, an oil analyst at political consulting firm Eurasia Group. While companies in the U.S. Gulf of Mexico pay less than 50 percent, the prospects are smaller than in Brazil and are sold without previous drilling, he said.
“It’s certainly not a level people are going to be happy with, but its not prohibitive,” Priddy said by phone from Washington. “It’s not something I would see on the face of it as non-competitive.”
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