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Brazil expanding roster of upstream rounds

25 Oct 2017, 12.57 pm GMT

Brazil expanding roster of upstream rounds

Rio de Janeiro, 25 October (Argus) — Brazil is expanding its roster of upstream licensing rounds ahead of coveted back-to-back sub-salt auctions later this week.

The government is currently evaluating whether to add new sub-salt rounds in 2018 and plans to extend the current licensing schedule to 2021 from 2019.

With the second and third sub-salt rounds on 27 October, Brazilian oil regulator ANP will have carried out four upstream tenders this year, including a successful mature basin round in May and a record-setting concession model round on 27 September.

The government had previously announced plans to hold one mature basin, post-salt and sub-salt auction per year through 2019, a clear auction schedule the oil industry had been requesting for years. Renewed industry optimism has now prompted the mines and energy ministry to expand and extend the auction schedule.

Joris Grimbergen, an upstream manager for Shell, says a long-term auction schedule is necessary for underpinning exploration investment in Brazil, which has flatlined in recent years. After a record 45 wildcat wells in 2009, three years after the first sub-salt discovery, ultra-deepwater exploration drilling stopped in 2015-16.

The government has yet to define which areas would be included in the rounds under discussion for 2020-21. National energy policy council CNPE should decide the matter during its 7 December meeting, the ministry's energy secretary Marcio Felix said at an oil conference yesterday.

Felix said the 2018 rounds should take place before June, so as not to interfere with the World Cup football tournament.

Likely in May 2018, the ANP will hold a fourth production-sharing round focused on the Saturno, Três Marias and Uirapuru sub-salt blocks in the Santos basin and the C-M-537, C-M-655, C-M-657 and C-M-709 sub-salt exploration blocks in the Campos basin.

In the same month, the government also plans to launch a 15th round covering onshore and post-salt acreage in more than 10 basins, including Campos and Santos.

The government may also expand the 2018 schedule to include a production-sharing round, possibly jointly with the fourth round, covering the so-called transfer of rights (TOR) regions.

In 2010, the government assigned six sub-salt areas in the Santos basin to Petrobras, along with the exclusive right to produce up to 5bn bl of oil equivalent (boe) in exchange for 75bn reals ($42bn at the time of the transaction).

The deal allowed Petrobras to generate around R120.25bn in revenue through a huge offering of common and preferred shares.

When the company declared the areas commercial in 2014, it said recoverable volumes were 15bn-20bn boe, considering a recovery factor of 23pc-30pc. But crude prices had basically halved since the original contract and declaration of commerciality, when the final terms of the agreement were to be established.

The government and Petrobras are now renegotiating the contract, with Petrobras likely to emerge a creditor amounting to more than R20bn ($6.17bn). Felix says the parties are seeking equilibrium in the final contract.

The most likely scenario would see Petrobras reimbursed with the right to produce more oil, among other in-kind benefits. Some of the six areas could be devolved to the government and then put up for auction under the production-sharing model.

The government and Petrobras have not committed to a firm deadline for a revised final contract, though market expectation is year-end or early 2018.

Felix quashed talk that the government could consider removing the sub-salt "polygon", a geographic designation that determines whether assets are governed by the concession model or production-sharing terms.

Industry officials recently said such a change to a 2010 petroleum law establishing the sub-salt region, spanning the Campos and Santos basins, would accelerate offshore development.

After a paradigm shift in regulations governing Brazil's oil and gas sector, major foreign companies are gearing up for a new investment cycle.

Petrobras, Shell, BP, ExxonMobil, Chevron, Total and other foreign firms are pre-qualified for the 27 October sub-salt rounds. The government expects to attract around R7.7bn in signing bonuses.

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