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Brazil Libra oil field

Brazil seeks at least $7 bln from largest oil find auction

Thu Jul 4, 2013 3:43pm EDT

* Expects $7 billion signature bond from Libra auction

* Firms must offer Brazil 40 pct of Libra profit oil -CNPE

* Libra’s oil output seen at more than 1 mln bpd, may start
in 5 years

* OGX is qualified to bid

SINGAPORE/RIO DE JANEIRO, July 4 (Reuters) – Brazil expects
an upfront payment of at least 15 billion reais ($7 billion)
from the winner of the October auction for rights to develop
Libra, the country’s largest-ever oil discovery, the government
said on Thursday.

The sale, Brazil’s first under the production-sharing
contract (PSC) model, requires the winner to give at least 40
percent of Libra’s output after expenses to the government to
sell on its own account, the Energy Planning Council (CNPE)
said.

Under the model, initial oil output is credited against
investors’ exploration and development costs. Once those costs
are paid, the “profit oil” is shared between investors and the
government.

The profit oil calculation will take into account the
upfront signing bonus of the multiple platforms, production
systems expected for the area, and Libra’s cash flow over the
duration of the PSC, the CNPE said in the government’s Official
Gazette.

President Dilma Rousseff hopes to use profits from the
auction to fund education and health initiatives in Brazil,
where a new middle class took to the streets last month in the
largest national protest in 20 years to demand better public
services.

 

LOCAL CONTENT

The auction requires at least 37 percent of local goods and
services during the exploration stage and 55 to 59 percent in
the development phase, the CNPE said.

Brazil has required foreign firms to buy a certain amount of
their equipment locally on a number of occasions to protect
local industry, causing the cost of developing oil assets in
Brazil to rise above world market levels.

Under a 2010 law, in the sale of Libra and other unleased
areas in Brazil’s Subsalt Polygon, state-run Petroleo Brasileiro
SA, or Petrobras, has to be the operator and put up
30 percent of all investment, even if it is not part of the
winning bid group.

Libra, with an estimated 12 billion barrels of recoverable
oil, or enough to meet 1-1/2 years of U.S. demand, is the
world’s biggest prospect to be put up for auction.

Production is expected to begin in five years. The $7
billion compares with the $4.6 billion Brazil had considered
earlier.

Brazil expects more than 1 million barrels per day (bpd) of
oil out of Libra, said Magda Chambriard, director-general of
Brazil’s National Agency for Petroleum, Natural Gas and Biofuels
(ANP), on the sidelines of an industry conference in Singapore
on Thursday.

That would be enough to supply all of Australia’s oil needs
at 2012 consumption levels. If the Libra area were a country, it
would be the 20th largest oil producer, according to data from
Reuters and BP Plc.

Chambriard was in Singapore to promote the auctions of
Brazil’s pre-salt oil and onshore natural gas reserve areas.

The Subsalt Polygon is an offshore area half the size of
Italy. It covers oil provinces that produce more than 80 percent
of Brazil’s output and may contain as much as 100 billion
barrels of oil, according to Rio de Janeiro State University.

The area gets its name from giant discoveries made starting
in 2007 below a layer of salt, deep beneath the seabed. Most
current output and much of the remaining potential now lies
above the salt layer.

 

OGX QUALIFIES

Chambriard also said Brazilian billionaire Eike Batista’s
flagship oil company OGX Petroleo e Gas SA has
qualified to participate in the October auction.

“They fulfill the requirements we have and that is enough,”
Chambriard said, without providing further details.

OGX on Monday slashed capital spending and pulled the plug
on three offshore oil prospects as it continues to struggle to
turn promising offshore discoveries into producing fields.

 

Once Brazil’s second-largest oil company by market value and
a symbol of the country’s stalling, decade-long commodities
boom, OGX shares are trading at less than 3 percent of their
all-time high.

Brazil held its first oil auction in nearly five years in
May and received serious interest from private investors in
high-risk frontier regions with little or no oil output.

André Araújo, president of Royal Dutch Shell in
Brazil, said his firm was still waiting for more details on the
October auction, expected later this month, before deciding
whether or not to participate.

“We are awaiting the draft definition of the contract that
will be even placed in public hearing,” he told reporters at an
event in Rio de Janeiro.

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