What would have been Brazil’s biggest oil auction ever has ended in a near-total flop, as oil majors steered clear of the pricey oil areas up for grabs. Brazil was hoping to rake in more than $25 billion from the auction to offset a portion of its budget deficit and change its nationalistic oil industry ways by offering foreign players at seat at the table.
Another $25 billion was set to go to Petrobras in exchange for work Petrobras had already done in exploring the areas up for grabs.
But Petroleo Brasileiro SA (Petrobras), and a consortium that involved Petrobras, were the only winning bidders, according to the Associated Press, picking up two of the four blocks. The other two blocks, however, went unsold in what was a major disappointment for Brazil—and Petrobras.
A Petrobras (90%) consortium that involved CNOOC and CNODC managed to take home the mega Buzios field, as expected, after Petrobras admitted it would bid to win for Buzios. Petrobras also secured the rights to the Itapu block, for which it was the only bidder.
But Petrobras will be stretched mighty thin in developing Buzios, as attractive as that block may be. And with just a tiny amount of the $25 billion it was expecting in fees from other winning bidders in the auction, it will be stretched even thinner.
Still, Brazil took in $17 billion in licensing fees from the two blocks that were awarded, and Brazil is calling it a success. Energy Minister Bento Albuquerque said it would offer the unsold blocks again next year. Related: The Next Stage Of Trump’s Plan To “Secure The Oil” In Syria
“We’ll need to evaluate why oil majors didn’t participate,” Albuquerque told reporters.
But everyone else—including oil titan ExxonMobil, seems to know exactly why the oil majors didn’t participate: it was just too expensive.
By Julianne Geiger for Oilprice.com
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When Brazil discovered in 2012 sizeable pre-salt oil reserves, some sources started hyping that these reserves could vault Brazil to seventh place in the world rankings in terms of proven oil reserves behind Saudi Arabia, Venezuela, Iran, Iraq, Kuwait and United Arab Emirates. Others claimed that Brazil could emerge as a major oil producer and exporter and that this will certainly change the balance of oil distribution in the world. Aside from the hype, Brazil’s proven oil reserves amount to only 13.4 billion barrels (bb) or 0.8% of global proven oil reserves according to the 2019 BP Statistical Review of World Energy. Moreover, the country will never be a large crude oil exporter as most of the oil will be used domestically to fuel the country’s economic growth.
As for the greed, Brazil made licencing fees extremely high which might have contributed to the near-total flop of its oil auction. Brazil was hoping to rake in more than $25 billion from the auction to offset a portion of its budget deficit. Another $25 bn was set to go to Petrobras in exchange for work Petrobras had already done in exploring the areas up for grabs.
Brazil is looked upon by many in the world of oil as an overstated high-risk oil province whose pre-salt oil is extremely challenging and very costly to produce. That is why oil majors including American oil giant ExxonMobil didn’t participate.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London