The Pre-Salt Oil Reserve Auction-October 21, 2013 / by Mark Langevin

 

The latest note from SECOM on the oil and gas auction....

On behalf of the Secretariat for Social Communication (SECOM) of the Presidency of Brazil, I am writing to provide you with some information on Brazil’s first “Pre-salt” oil reserve auction to be held on October 21, 2013.

As you may be aware, Brazil is home to significant oil reserves. The “Pre-salt” frontier, a series of ultra-deep oil fields that were discovered in recent years and stretch for 800 km off the coasts of the south-eastern states of Espirito Santo, Rio de Janeiro, São Paulo and Santa Catarina, could dramatically increase Brazil's proven reserves and transform the country into a major crude exporter.

The first area to be auctioned is the prospect of the Libra oil field, deep in the Atlantic Ocean, off the coast of the Rio de Janeiro state. The expected recoverable volume is 8 to 12 billion barrels of oil.

Accessing the “Pre-salt” oil fields, which were named because they are located under a layer of salt beneath the Atlantic Ocean, is a technical challenge. But once reached, Libra is expected to produce 1 million barrels of oil equivalent a day – about 50 percent of Brazil’s present production.

The first “Pre-salt” bidding round on October 21 will be the first time Brazil uses a production sharing agreement (PSA). In the PSA model approved by Congress in 2010, oil companies pay a fixed signing bonus (for Libra, it is R$ 15 billion, or about US$ 7 billion), bear drilling and production expenses and use revenue from oil sales to recover costs. The remaining oil – known as ‘profit oil’ – is shared between the company or consortium and the Brazilian government.

The winner of the auction will be the company or consortium that pledges the highest share of profit oil to the government. The Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) has fixed a minimum of 41 percent of profit oil share for the Government during the 30-year contract but it estimates that the Brazilian government will receive a much higher percentage in the Libra oil field auction.

Another stipulation of the oil auction is that state-controlled Petrobras be the mandatory operator of each PSA and have a minimum 30 percent stake in all “Pre-salt” projects. The remaining 70 percent stake may be split among up to five other companies.

The winning bidder will also agree to comply with Brazil’s environmental regulations. Earlier this year in May, the 11th Bidding Round for Oil and Gas Exploration Blocks showed tremendous international interest with 39 companies from 12 countries participating in the auctions.

The benefits of the sustainable exploration of the “Pre-salt” reserves will be shared by all Brazilians, with the promise of increased social inclusion and energy security.

For more information, please visit the ANP’s Oil & Gas Bidding Rounds website, available at this link:http://www.brasil-rounds.gov.br/index_e.asp