Brazil’s 4th Pre-Salt Round Results

Brazil

Following the success of Brazil’s recent oil and gas licensing rounds, the results of the 4th bid round under the production sharing regime, for areas located in the pre-salt region, were released this Thursday (7 June). Overall, the bid rounds saw a high level of interest and strong competition from a number of oil companies, and in raising a total signing bonus of R$3.15 billion, the perceived prospectivity was confirmed.

 

As established in the final tender protocol released in April (see Law-Now: Brazil- 4th Pre-Salt Bid Round Final Tender Protocol Released), the areas on offer included Itaimbezinho and Dois Irmãos in the Campos basin, and Três Marias and Uirapuru in the Santos basin. All blocks are located offshore the states of Rio de Janeiro and São Paulo, in South East Brazil.

 

Results:

 

Brazilian law gives state oil company, Petrobras, preferential rights in production-sharing auctions, which enables it to join the winning consortium as operator (see Law-Now: Petrobras priority rights in upcoming bids for Brazilian production sharing contracts). In this pre-salt round, Petrobras exercised its preferential rights to acquire a 30% participating interest as operator in three out of the four areas available: Dois Irmãos, Três Marias and Uirapuru.

 

Uirapuru

 

The Uirapuru pre-salt block, located in the Campos basin, saw intense competition, receiving offers from four consortia including: Petrobras, Equinor, ExxonMobil, Total, BP, Chevron and Shell, among others. Petrobras won this area but, for the first time, failed to do so with its first choice of partners. Petrobras bid for a 45% operated interest with Total (20%) and BP (35%), offering the state a profit oil share of 72.45%. However, it was outbid by a consortium of ExxonMobil, Equinor (formerly Statoil) and Petrogal, which offered 75.49%, three times the minimum established in the tender protocol. Petrobras decided to exercise its right to match that percentage and acquire a 30% operated interest. They will pay a fixed signature bonus of R$2.65 billion.

 

The Uirapuru area was particularly competitive due to its proximity to the Carcará oil field, which contains more than two billion barrels of estimated recoverable oil. Bidders anticipate similar geology in the Uirapuru area.

 

Três Marias

 

The Três Marias pre-salt area was also competitive and despite entering into a consortium with Total and BP, Petrobras was again outbid by a consortium made up of Chevron and Shell. As with Uirapuru, Petrobras exercised its preferential rights and entered the winning consortium with an operating 30% interest along with Shell and Chevron holding interests of 40% and 30% respectively. The difference in respective bids was far greater in this area, with Chevron-Shell offering a profit oil share of 49.95%, while the Petrobras-led group bid 18%. The government asked for a minimum profit oil share of 8.32% and a fixed signature bonus of R$100 million.

 

Dois Irmãos

 

Petrobras faced no competition in its bid for the Dois Irmãos pre-salt area located in the Campos basin and submitted the minimum profit oil share of 16.43%. Petrobras led the consortium with a 45% interest, with Equinor and BP holding interests of 25% and 30% respectively. The consortium agreed to pay a fixed signature bonus of R$400 million.

 

Itaimbezinho

 

The final area on offer was the Itaimbezinho pre-salt area in the Campos basin, which failed to attract a single bid.

 

Comment:

 

The 4th pre-salt round has been yet another successful licensing round for Brazil. Although all three blocks will be operated by Petrobras, this round has allowed a number of international oil companies to increase their exposure to this prolific oil and gas province and to scale up their activities in Brazil. R$3.15 billion (US$820 million) was raised for the Brazilian government in the process. The high profit oil percentage for the Uirapuru area is evidence of the anticipated profitability of the pre-salt projects, where wells are often highly productive in fields containing high quality, light oil. Combined with the successes of the 14th and 15th licensing rounds and with a 5th pre-salt round already confirmed for September 2018, this pre-salt round serves as further evidence of increasing competition and a sustained recovery of Brazil’s oil and gas sector.

 

Block

Winning consortium

Percentage interest (%)

Profit oil percentage (%)

Signature bonus (R$)

Uirapuru
(Santos basin)

Petrobras*

Petrogal

Equinor

ExxonMobil

30

14

28

28

75.49
(minimum 22.18)

2.65 billion

Dois Irmãos
(Campos basin)

Petrobras*

Equinor

BP

45

25

30

16.43
(minimum 16.43)

400 million

Três Marias
(Santos basin)

Petrobras*

Chevron

Shell

30

30

40

49.95
(minimum 8.32)

100 million

* denotes operator