Brazil to Hold Oil Rights Auction in 1st Half of 2015

Source: Reuters 9/15/2014, Location: South America

Brazil will hold a 13th round of oil rights auctions in the first half of next year in a sale that will include new areas in the country's promising Eastern Margin offshore region, a senior mines and energy ministry official said.

The auction plan, which had been presented as a possibility by the country's oil regulator, the ANP, has now been approved by Brazilian President Dilma Rousseff, Marco Antonio Martins, the undersecretary in charge of the oil industry at the ministry, said at an industry event in Rio de Janeiro.

The sale will be the first auction of concession rights since 2013 and only the third since 2008, when the government halted annual oil-rights auctions to re-write its oil law to boost control of new "subsalt" resources near Rio de Janeiro. Subsalt resources refer to oil trapped by a layer of mineral salts deep beneath the seabed.

The Eastern Margin, which runs along much of Brazil's central coast, contains some of the country's most-promising frontier exploration areas and is home to some large recente discoveries, Martins said.

Rousseff's backing of next year's planned sale follows complaints from industry executives and officials about the lack of recent oil rights auctions, which they said had reduced activity by foreign and private-sector Brazilian companies.

The same officials have said the dominance of state-run Petroleo Brasileiro SA, which has been favored under the new oil law, raised the risks faced in Brazil's oil equipment and service industry.

Financial difficulties at Petrobras, as the state oil company is known, have trickled down to the equipment and service industry, said Joao Carlos de Luca, head of Brazil's IBP oil industry association.

"Some companies have seen their dependence on Petrobras increase to 90 percent from 50 percent," de Luca said.

Under concession rules, oil exploration and production rights are sold to the highest bidder. All oil produced is owned by the winning oil company or group. Those rights remain in force as long as a royalty is paid and minimum exploration and local equipment and service contracting targets are met.

None of the areas in the next round of rights auctions will be in Brazil's so-called Subsalt Polygon, a region created under the new oil law that is already home to nearly 80 percent of Brazil's output and most of its existing and prospective reserves.

Under the new law all new rights in that area, which stretches along Brazil's coast near Rio de Janeiro, are sold under a production sharing system. Under production sharing, the government gets a cut of all oil produced to sell on its own account.


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