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Is The Brazilian Oil Boom Overhyped?

Brazil Oil Auction

At least one large international oil player will refrain from taking part in the so-called transfer-of-rights oil auction Brazil has scheduled for next week.

Repsol Sinopec, a joint venture between Spain’s largest energy company and the top Chinese refiner has said it would not bid for the offshore fields to be offered in the auction.

Reuters reports that the company does sees the terms of the auction as unattractive, which means that the proof of huge reserves is not enough to convince an oil company it should invest in these reserves. Simply put, Repsol Sinopec believes the pleasure of developing these fields will be too expensive.

Yet the company said it will take part in another oil auction, to take part a day after the TOR one.

The much-hyped transfer-of-rights auction will take place on November 6 and will offer acreage in the notorious presalt zone offshore Brazil that was subject to a prolonged transfer-of-rights dispute between Petrobras and the Brazilian government.

The so-called transfer-of-rights area was assigned by the government to Petrobras back in 2010 with reserves estimated at 5 billion barrels of recoverable oil and gas based on the oil prices at the time. Later, it turned out the area could hold three times the initially estimated amount of oil.

Related: Is OPEC Doing Enough To Counter The Looming Oil Glut?

Both sides in the dispute claimed the other side owed it money for the transfer-of-rights area. After much dragging, the case was closed earlier this year, when the government agreed to pay Petrobras $9 billion for the rights to the area.

Despite Repsol Sinopec’s unwillingness to take part in the auction, another 14 companies are already lined up to bid for the offshore fields in the TOR area. The Brazilian government expects to pocket as much as $26.6 billion from the auction.

If fully developed, the transfer-of-rights area could turn Brazil into the world’s fifth largest producer of crude oil and double its total oil reserves to 30 billion barrels.

By Irina Slav for Oilprice.com

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