Bottom Line: Rio’s 11th round of bidding for new concessions went down in an atmosphere of heavy competition, with Brazilian offshore acreage fast becoming some of the hottest oil and gas blocks out there thanks to some impressive pre-salt finds and developments.
Analysis: The National Petroleum Agency hosted the 11th round of oil concession bids in Rio de Janeiro, Brazil on 14 and 15 May. There was some very stiff competition for blocks in the Foz do Amazonas basin off the coast of Amapá state in northeastern Brazil. One deep-water concession here (FZA-M-57) garnered the single-highest bid of the event: $170.36 million from a joint BP, Total, and Petroleo Brasileiro SA proposal. Total will manage operations at the site. The final bill for bids by BP and Total was $306 million – just a fraction of the record $1.4 billion raised in this round of licensing. Brazil approved contracts for 142 of the 289 available blocks.
Licenses for blocks in the equatorial margin (including blocks in the Foz do Amazonas basin) were among the hottest. Investors were drawn to those sites because of rumored geographic similarities to fields off the coast of Ghana and the Ivory Coast where companies (including Total) report major oil discoveries. Total and Petrobras also partnered with Norway’s Statoil on a number of winning bids in the Foz do Amazonas basin near the border with French Guiana. ExxonMobil Corp. is returning to Brazil now as well, winning two operating licenses--one in the Potiguar basin and one in the Ceará basin, where it will share 50% interest with Brazil’s OGX.
OGX, owned by billionaire Eike Batista, won solo licenses for 10 blocks across 5 basins, both onshore and offshore, and another block where it will partner with Total and QGEP Participacoes SA. OGX bid aggressively, especially considering its business struggles; over the past year OGX missed production targets, laid off employees, and lost 87% of its market value. But on 15 May, following its gamble in Round 11 (for a final outlay of $185.58 million), OGX stock rose 5%.
In the end, 30 companies won licenses, and pledged to invest a minimum of $3.4 billion on-site in coming years. Other winning companies include: Ecopetrol (2 solo and one joint bid with Chevron); BHP Billiton (2 winning bids); BG Group (6 solo and 4 joint bids with Petroleo Brasileiro and Galp); Chariot Oil and Gas (4 blocks); GEOPark Holdings (7 blocks); and Brazilian producers Petra (5 blocks), Sabre International (1 license) and Ouro Preto Oleo & Gas SA (1 license).
Recommendation: If you’re not considering Brazil, you should be. This is THE place to be right now, and this latest licensing round illustrates the trend: Some concessions sold for more than 8 times the minimum asking price. The successful auction for oil exploration and production augurs well for auctions for unconventional shale gas and pre-salt oil and gas blocks scheduled for later in 2013. ExxonMobil’s return to the scene also bodes well for prospects.