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Key Moment for Brazil Oil and Gas – The 11th Bid Round Breaks Records


14 May 2013 would prove to be a crucial moment for Brazil oil and gas. The country conducted its Eleventh Bid Round, and its first round in five years.

Hopes were high for the Brazilians and the stakes were high as well.

Probably a billion dollars or so would change hands on bonus money payments with maybe a few more billion being committed for required work program investments. Jobs, careers, fates and fortunes of companies and even the fate of the slowing economy in Brazil affecting over 200 million people could be impacted by the round.

Despite having been an editor for ten years, this was my first time covering a large, high profile bid round. I was not even sure if I would be allowed to attend in person, so I decided to use the live internet feed with simultaneous translation.

Up for Grabs

There were 289 blocks offered in the round and I was surprised at how fast the bidding went. The first sector offered was the SPN-SE, comprised of 13 blocks in the Parnaiba Basin, a frontier gas prone basin in the north central part of the country just beginning to be developed. Blocks were not bid individually, but rather the companies were asked to place envelopes with their offers for blocks within a given sector. This usually only took about five minutes.

Then the bids were read out loud and posted, and a winner was declared for each block. The whole thing only took about 10 minutes to preliminarily award 13 blocks.

Brazil Oil and Gas - ANP Round 11

Later I learned many of the companies adopted a special technique to take advantage of the format of this bid round. They had two envelopes ready for each planned sector bid. When the bid time was called they watched to see which companies and how many were bidding on a particular sector. They would then decide whether to submit the high bid or the low bid envelope. I found the use of this strategy ingenious and a bit dubious, but veterans of the bid round saw nothing extraordinary about it.

All 13 blocks were claimed in the first bid sector. Seven companies bid and six won something. 39,000 sq km of land changed hands, with a work commitment of over US$ 220 million and bonus money paid of over US$ 30 million. “Hey this is pretty exciting,” I thought.

Then it happened.

The internet connection started going up and down. After trying briefly to improve the problem, I realized I was getting nowhere and at that point I knew I had to get to the bid round.

I figured it was highly likely I could show up and talk them out of a press pass. Although I could follow very little about what was going on through the sporadic internet feed before heading out, I did pick up on the fact that after less than one half day, Round 11 was already well on the way to setting a record for the total offered bonuses. I got in a cab to head for the bid round hotel, arrived and got my press pass just in time for the start of the lunch break.

Coming up to Speed

Before the afternoon session started I spied a friend from Houston. He was the New Ventures Team Leader for a major oil company and he filled me in on some of what I had missed.

The hottest bidding he told me had taken place for a Foz do Amazonas Basin sector where his company had been beaten by a group led by Total. This indeed turned out to be the case as 17 companies bid in the sector claiming eight of nine offered blocks and offering about US$ 375 million in bonuses and US$ 750 million in work commitments for 6,131 sq km.

In the end, the ANP Brazilian Eleventh Licensing Round successfully was closed in one day, instead of the two days that were planned. The round set a new record in Brazil for bonuses collected at about US$ 1.4 billion, breaking the previous record set in 2007 with the Ninth round collecting around US$ 1.1 billion.

Brazil Oil and Gas Total Contract Awards by Year

In total of the 289 offered blocks, 142 were given preliminary awards, an average signing bonus of US$13.450 million per block. The highest single bid was just under 346 million Reais or about US$ 169.5 million for Block FZA-M-57 in the Foz do Amazonas Basin which was won by a consortium of Total 40%, BP 30% and Petrobras 30%.

The FZA-M-57 Block was hotly contested with six bidders including BHP Billiton, a consortium of ExxonMobil, Kosmos and OGX, a consortium of Chevron, ConocoPhillips and Mitsubishi, a consortium of Repsol and Ecopetrol and Shell Oil among the losers for the block.

Big Winners in Brazil Oil and Gas

From a company standpoint, Petrobras, as in all previous rounds, was again the leader gaining 34 new blocks where they held interests. However, the company was not as comprehensive or as aggressive in the bidding as in previous rounds. Petrobras also placed 21 non-winning bids in the round and was much more likely to be involved in bidding groups than in the past.

In second place for new company interests was Petra Energia with 28 new positions, all but 4 of these are operated and 100% ownership. The company seems intent on continuing its course of acquiring land in over looked frontier basins with 15 blocks in the Tucano Sul Basin, 9 in the Parnaiba Basin and 4 in the Pernambuco-Paraiba Basin.

OGX won 13 new blocks in the bidding, showing that recent financial problems for the company have not deterred it from the aggressive bidding for which it is well known. The positions are spread out with two blocks in the Potiguar offshore, four in the Parnaiba Basin, three blocks each in the Ceara and Barreirinhas basins and one in the Foz do Amazonas.

Brazil Oil and Gas ANP Round 11

BG and Total were also certainly among the big winners in the round with each company acquiring ten block interests. BG acquired 10 blocks, 6 for 100% and 4 for 50% in the Barreirinhas Basin, another very hotly contested area. The company won 10 of the 12 total bids it made and pledged to invest US$ 200 million in signature bonuses and US$ 700 million in work commitment investments. Total won five blocks in the Foz do Amazonas Basin, three in the Espirito Santo Basin and one each in the Ceara and Barreirinhas basin. Total always bid as a consortium member and will be the operator on the Foz do Amazonas Basin blocks where it has 40%.

Some other notable companies in the round included BP, winners of eight blocks and always bidding in a group and ExxonMobil with blocks in the offshore Potiguar and Ceara basins bidding in a group. The company also had four losing bids.

Petrogal and Queiroz Galvao each also acquired positions in nine and eight blocks respectively.

The round was Brazil’s first since 2008, but will also be the country’s first of three rounds in 2013 with the Onshore Gas Round scheduled in November and a the first Pre-salt Round to be held in October. The final award contracts for the Eleventh Round are expected to be finalized in August and will offer up to eight years in the exploration phase and thirty years in the production phase. And if this round is any indication, 2013 is shaping up to be a banner year for Brazil oil and gas.

Your Turn

What is your opinion on Brazil’s Round 11? Will the frontier equatorial margin regions open up new commercial production areas? How will Round 11 compare with the upcoming First Pre-Salt Round and the 12th Round featuring onshore gas and the first unconventional plays? Please, leave your thoughts in the comments below.

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Scott Stewart

Scott Stewart has more than 27 years of experience in the oil & gas industry. He has been directing intelligence efforts in the Latin American region for the last 11 years. Scott has a Bachelor of Science in Geology from the University of Tennessee.