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On Monday, Chinese state owned oil companies will compete with other international oil majors to win rights for exploration and development of blocks in Brazil’s Libra pre-salt deepwater field.
If successful in their bids, it will mark a change in strategy for Chinese firms, who up until now have focused more on investing in existing fields that are already producing, rather than getting involved at the exploration phase, which can sometimes be much riskier.
CNOOC and China National Petroleum Corp. are the two Chinese firms registered to bid at the auction, for what Bloomberg has described as potentially the two largest deepwater fields in the world, requiring an estimated $184 billion investment to develop, what could be as much as 12 billion barrels of recoverable reserves.
Related article: Is Deepwater the Next Oil Bonanza?
Sinopec was also registered to bid in the auction in partnership with Repsol, but last week the Spanish energy company announced its withdrawal from the auction.
After years of buying into advanced production projects in Latin America, Chinese companies are starting to show more interest in oil exploration, possibly to secure stakes in new fields, and ensure a supply of oil and gas for the future as its economy and energy demand increase.
Since 2010 Chinese firms have invested in developed fields in Ecuador, Argentina, Venezuela, Brazil, and Colombia.
Caio Carvalhal, an oil equity analyst at JPMorgan Chase & Co., told Bloomberg that “the Chinese usually prefer to pay a bit more for production,” as opposed to exploration rights, and Ivan Cima, the head of Latin America research at Wood MacKenzie, explained that “this is too big an opportunity for them to miss.”
As well as rarely investing at the exploration phase, Chinese firms have little experience in deepwater drilling and will likely form partnerships with Petrobras, the world’s largest deepwater producer, to use its experience.
This round of auction will be the first to work on a production sharing model, and the winning bidders will have to spend an estimated $184 billion over the next 35 years in order to develop the field to its full potential, using 12 to 15 platforms to produce a maximum of one million barrels of oil a day.
Petrobras employees amongst others have been protesting the auction, and the Brazilian government has had to deploy armed troops to protect the Rio de Janeiro hotel where the auction will be held.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com