Brazil Plans Shale-Gas Rights Auction for October

Source: Reuters 2/19/2013, Location: South America

Brazil's oil regulator said on Tuesday it plans to hold a special auction on Oct. 30 and 31 to sell rights to explore for natural gas in onshore shale deposits, a move that could help raise the supply of gas and cut its cost.

The auction, which requires the approval of the country's national energy council, is the third oil- and gas-rights auction planned for this year. Brazil has not auctioned exploration and production rights since 2008. "We are going to have an exciting 2013," Magda Chambriard, head of the ANP regulatory agency, told reporters at an event in Rio de Janeiro.

Brazil is seeking new and cheaper sources of gas as demand for energy rises faster than it can build hydroelectric dams, the source of about 70 percent of the country's electricity. Brazil uses natural gases when hydro-power reserves are low, but much of its gas used for electricity comes from high-cost offshore fields or is imported.

Onshore shale gas could increase supply and cut costs, as development of shale gas has done in the United States. High-cost gas has also hurt the country's petrochemical industry, which has had increasing trouble competing with U.S. petrochemical companies that use natural gas as a feedstock.

The first auction, planned for May 14 and 15, will sell oil concession rights to frontier oil and gas exploration areas outside Brazil's so-called Subsalt Polygon. Winners will own the oil they produce under concession contracts in exchange for royalty payments.

The ANP hopes to sell as many as 289 blocks and earn more than 1 billion reais ($511 million) in up-front auction fees.

The Subsalt Polygon makes up nearly all of the Campos and Santos basins northeast and south of Rio de Janeiro. The two sedimentary basins are home to more than 80 percent of Brazil's oil output.

Brazil will auction an estimated 10 areas in the Subsalt Polygon under a production-sharing system. Different from concession contracts, Brazil's government will own a share of any oil produced. State-led oil company Petrobras will be required to own at least 30 percent of any area and have control of exploration and production as the area's operator.

The ANP also said on Tuesday that it plans to hold annual auctions for small and mid-sized producers interested in buying rights to marginal or smaller exploration areas and fields. No dates for such auctions have yet been set.

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