PETROBRAS PN (BOV:PETR4)
Gráfico Histórico do Ativo
2 Meses : De Out 2019 até Dez 2019
By Jeffrey T. Lewis and Luciana Magalhães
SÃO PAULO -- Brazil's second oil auction in two days ended in disappointment, just like the first, with no U.S. or European major oil companies even bidding and only one of the five blocks on offer being sold, to Brazil's state-controlled Petróleo Brasileiro SA and a Chinese partner.
The other big companies that had registered to bid on the blocks on Thursday, including Exxon Mobil Corp, Royal Dutch Shell PLC and BP PLC, ended up backing off because the rules for companies winning in the auction were too favorable to Petrobras and the government asked for too much money up front, some analysts said.
The terms for investors "don't work, especially now with low oil prices, " said Gabriel Francisco, an analyst at XP Investimentos in São Paulo. "To make these auctions work, something has to give."
Petrobras, as the Brazilian company is known, has special rights under Brazilian law to develop the offshore fields, allowing it to claim a 30% stake in any blocks up for sale. In a more lucrative auction Wednesday, the company was entitled to compensation for investments it had already made in the fields up for sale. Petrobras's U.S.-traded shares were up 2.9% at midafternoon Thursday, regaining the 2.5% they lost Wednesday, while the real was unchanged against the dollar.
On Thursday, the company won 80% of the Aram field, with China's CNODC taking the other 20%. In Wednesday's auction, a consortium of Petrobras, CNODC and another Chinese company, Cnooc Ltd., was the only bidder on the single biggest block up for sale, called Buzios. Petrobras bid alone on another field, leaving two more blocks unsold.
"We expected the majors were going to bid, but it didn't happen. It caught markets by surprise," said Paulo Dantas, a partner and infrastructure specialist at the Castro Barros law firm. There was too much uncertainty over compensating Petrobras, he said, referring to Wednesday's auction.
Brazil's cash-strapped government had asked for about $28 billion in fees for the blocks on sale over the two days, more than the country had raised from all of its previous oil-rights sales combined. The total instead came to only $18.3 billion, with only $1.9 billion in upfront fees coming from outside investors Cnooc and CNODC.
The total was still more than all of the previous sales, but a difference that is already pushing the government to reconsider the auction model.
"We have to learn from the auctions held this year," Mining and Energy Minister Bento Albuquerque said at a press conference following Thursday's auction, adding that he hopes the unsold blocks can be offered again next year. When Petrobras exercises its rights, "that reduces competitiveness...it doesn't make sense to keep the current rules."
It wasn't supposed to be this way. The blocks up for sale were expected to attract multiple bids because the fields have already been shown to be rich in oil. Petrobras began production 10 years ago in the pre-salt fields, so called because they lie under the seabed beneath thick layers of salt, and more than half of Brazil's production of 3.7 million barrels of oil equivalent a day now comes from the area.
Petrobras's pre-eminence in the region was baked into Brazilian law in 2010 after left-wing President Luiz Inácio Lula da Silva, made the company the only operator in the pre-salt, and gave it a minimum of 30% of the fields, a rule that was later softened to permit the company to take a stake that size in any field. In 2007, huge deposits had been discovered, prompting Mr. da Silva to proclaim that "God is Brazilian."
Petrobras and the government signed a contract after the passage of that law giving the company the right to pump 5 billion barrels of oil from the pre-salt fields, and Brazil's National Petroleum Agency, or ANP, now estimates the pre-salt holds as much as 15 billion barrels of oil.
Mr. da Silva and his protégée and successor, Dilma Rousseff, delayed the development of the pre-salt fields by insisting on Petrobras's control of the fields, and the country is still paying the price, according to Adriano Pires, director of the Rio-based think tank Brazilian Infrastructure Center.
"We lost the window of opportunity in 2008, when Lula decided to turn it into a political project," Mr. Pires said. "We thought then that Brazil would quickly become a major producer, and that Rio would become the next Houston."
Write to Jeffrey T. Lewis at firstname.lastname@example.org and Luciana Magalhães at Luciana.Magalhaes@wsj.com
(END) Dow Jones Newswires
November 07, 2019 14:23 ET (19:23 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.