Shell Libra Share to Support Output From 2020s, Analyst Says

Royal Dutch Shell Plc will be able to support oil output from the 2020s after winning an auction with its partners for the Libra field, Brazil’s biggest crude discovery, according to Sanford C. Bernstein & Co.

Libra, holding as much as 12 billion barrels of recoverable crude resources, will be able to pump 1.4 million barrels of oil a day, according to regulator ANP. A Petroleo Brasileiro SA-led group including Shell, Total SA, Cnooc Ltd. and China National Petroleum Corp. pledged the minimum 41.65 percent of profit oil, or barrels left after all costs are covered, to the government.

“The stake in the field supports longer-term production for Total and Shell, with volume expected to ramp up in the middle of the next decade,” Oswald Clint, a London-based analyst at Bernstein, wrote today in an e-mailed report.

Both companies would have a share of about 165,000 barrels a day after production sharing, equivalent to 5 percent of Shell’s and 7.5 percent of Total’s output last year, he said.

The group was the only bidder in the action and agreed to pay a total $6.9 billion signing bonus to win the 35-year project in deep waters of the Atlantic Ocean, said Peter Hutton, an analyst with RBC Capital Markets. 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 30 percent.

“We expect attention to focus on capital expenditure commitment,” Hutton wrote in an e-mailed report. “The commitment to 2017 is likely to be in the millions rather than billions,” or less than $300 million net each to Shell and Total over a four-year period, he estimated.

The production sharing contract is expected to be signed in November, according to Shell. It will pay its 20 percent share, or $1.4 billion, of the total signing bonus and fulfill the minimum work program no later than the end of 2017. Petrobras took 40 percent of the field, Total 20 percent while the rest is equally split between the Chinese companies.

The investors need to pay a 15 percent royalty on top of the profit-oil deduction, Deutsche Bank AG said today in a note. The field development will create about $1.8 billion of value for both Shell and Total, or 20 cents and 55 euro cents a share respectively, said Marcus Sequeira, an analyst at the bank.

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