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Brazil Offshore Leases Draw Little Interest From Bidders

The coronavirus pandemic-led challenges resulted in a global economic slowdown and an oil market collapse. Although the global economy has been recovering from the pandemic-induced crisis and oil prices have also rebounded to multi-year highs, energy companies appear to be rather conservative in their outlook.

Brazil’s 17th bid round, which covers oil and natural gas licenses offshore, failed to attract the interest of major oil players as the pandemic continues to wreak havoc in the energy industry. The country was unable to sell exploration and production rights in the most prolific offshore oil-rich blocks. This is because the country’s first oil auction since the beginning of the pandemic brought just 37.1 million reais into state coffers.

Nine companies signed up for the auction compared with 17 at the 16th bidding round held in 2019. This is the smallest number for an oil rights auction in Brazil, which indicates the low attractiveness of the blocks for sale. Some of the companies, which registered for the oil rights auction, were Petrobras PBR, Chevron Corporation CVXRoyal Dutch Shell plc (RDS.A), TotalEnergies SE TTE, Ecopetrol SA EC and Murphy Oil Corporation MUR. Officials downplayed the lack of overall interest in the round.

In late 2020, Brazil announced details of its 17th bidding round. In total, there were 92 blocks up for sale in four offshore basins, which included Campos, Pelotas, Potiguar and Santos, covering 53,900 square kilometers. The combined minimum bids for the blocks were 558 million reais. However, only five blocks received bids, all of which are in the Santos Basin, offshore southeast Brazil.

A few blocks on sale prompted speculations that they comprised part of productive geology known as the pre-salt, wherein billions of oil barrels are trapped beneath a layer of salt under the ocean floor. The blocks had a combined minimum contract of 270 million reais. There were also some blocks available near ecologically sensitive marine protected areas. However, none of them attracted bidders.

Shell dominated the sale by acquiring stakes in five of the Santos basin blocks. The operator acquired 100% stakes in the S-M-1707, S-M-1715, S-M-1717, and S-M-1719 blocks for $5.5 million. Beside these, the company consolidated with Ecopetrol to lease S-M-1709 located in the Santos basin. Shell will hold a 70% operating interest in the block, while Ecopetrol will own the rest.

The unsold blocks will now be evaluated for possible inclusion in Brazil’s Open Acreage program, which involves all blocks and mature fields that were not sold at previous auctions. Despite the results, the bidding round was a success, considering the high exploratory risks of the blocks up for sale. Energy companies are likely to be selective about assets at difficult times, which affected interests in the blocks.


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Chevron Corporation (CVX): Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report
 
Petroleo Brasileiro S.A. Petrobras (PBR): Free Stock Analysis Report
 
Murphy Oil Corporation (MUR): Free Stock Analysis Report
 
Ecopetrol S.A. (EC): Free Stock Analysis Report
 
TotalEnergies SE Sponsored ADR (TTE): Free Stock Analysis Report
 
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