Corporate Finance

Fourth Pre-salt Auction Successful Despite Turmoil

The Dois Irmãos, Uirapuru and Três Marias lots sold for a combined R$3.15 billion

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The Brazilian government has successfully auctioned three of the four lots showcased in the fourth pre-salt round of concessions. The Dois Irmãos, Uirapuru and Três Marias lots were sold for a combined total of R$3.15 billion, with the latter notably selling for over 500% of the initial bid. The fourth lot, Itaimbezinho, received no offers.

 

All pre-salt auctions have been won by companies or consortiums offering the largest share of profit oil to the federal government. By opening offshore blocks to foreign exploration, the Brazilian government looks to boost the country’s economic recovery.

 

In November 2016, the compulsory participation of Petrobras in all pre-salt exploration consortiums was revoked by the federal government, allowing the state-owned giant to choose which blocks to operate instead. A recent 33% surge in oil prices means offshore drilling projects have also become more attractive to foreign corporations.

 

The fourth auction was described as ‘an extraordinary result’ by Décio Oddone, director-general of the National Agency of Petroleum, Gas and Biofuelds (ANP), especially in light of the recent turbulence which has affected the Brazilian oil sector. In late May, Petrobras employees halted rig work in at least 25 locations of the Campos Basin, demanding changes to the company’s diesel price policy.

 

International oil heavyweights have remained undeterred by local turmoil, even as ANP announced it would discuss plans for a price policy to stabilize the national fuel market. Proof of this lies in the fact that a record 16 oil companies signed up for this fourth pre-salt round of concessions which took place in Rio de Janeiro, on the 7th of June.  

 

The Uirapuru and Três Marias lots were auctioned amidst intense competition. In both cases, after being defeated, Petrobras exercised its optional right to 30% of the lots. The winning consortium for Uirapuru, which consists of Petrogal, Equinor, Exxon and Petrobras, offered 75.49% profit oil to the Brazilian government and a fixed signature bonus of R$2.65 billion.

 

The victorious consortium for the Três Marias lot, which consists of Shell, Chevron and Petrobras, offered a winning bid of 49.95% profit oil and a signing bonus of R$100 million.

 

With regards to the Dois Irmãos block, a consortium made up of Petrobras, BP Energy and Statoil Brasil O&G triumphed, offering 16.43% in profit oil and a fixed bonus of R$400 million.

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