Brazil’s Oil Auction Raises $2 Billion as Total, Shell Pile In

Brazil’s Oil Auction Raises $2 Billion as Total, Shell Pile In

France’s TotalEnergies (TTEF.PA), Royal Dutch Shell (RDSa.L), Malaysia’s Petronas and Qatar Energy on Friday scooped up big offshore fields in Brazil together with state-owned Petrobras, paying nearly $2 billion to its cash-strapped government.

While TotalEnergies (28%), Qatar Energy (21%) and Petronas (21%) made the top offer for Sepia field, Petrobras, formally Petroleo Brasileiro SA (PETR4.SA), later entered the consortium by exercising preference rights to take a 30% stake.

Petrobras (52.5%), Shell (25%) and Total (22.5%) secured the nearby Atapu field.

Officials, who had been keen to attract major foreign players, deemed the auction a success, and analysts said the offers agreed to were relatively rich.

The selloff was widely seen as a test of Brazil’s investment climate and of large oil producers’ willingness to keep spending big on traditional oil assets, despite increasing pressure over climate change and toward energy transition.

TotalEnergies, which snapped up a stake in both blocks, said the investment will bring output with “costs well below $20 per barrel of oil equivalent” and with carbon emissions rates below industry levels.

“These are unique opportunities to access giant low-cost and low emissions oil reserves,” CEO Patrick Pouyanné said in a statement.

Signing bonuses were fixed in reais at the equivalent of $1.3 billion for Sepia and $740,000 for Atapu. Companies bid for a percentage of the production they were willing to share with the government, winning the highest: 37.43% for Sepia and 31.68% for Atapu.

Petrobras, TotalEergies and Shell shares fell on Friday, following a 2.60% decrease in Brent prices.

Brazil attempted to auction both fields in 2019, but neither received offers, even from Petrobras. At the time, complex legal issues and rich signing bonuses kept oil majors away.

This time, the bidding terms were considered more attractive, several industry sources told Reuters, largely due to big cuts in both signing bonuses and minimum profit oil.

Government moves to streamline rules and lower fees “drew bids well above the minimums for both assets,” said Andre Fangundes, vice president of consultancy Welligence.

“Companies were more aggressive than we expected,” said Marcelo de Assis, head of Latin America upstream research at Wood Mackenzie.

Eleven companies signed up for the chance to bid on Friday. Exxon Mobil Corp (XOM.N)made final arrangements to bid together with Petrobras and a subsidiary of Portugal’s Galp Energia SGPS SA (GALP.LS), people close to the negotiations said, but never presented a final offer.

Oil majors will be able to add production to their portfolios in the short term. Petrobras is ramping up production at Sepia to 180,000 bpd and has reached the 160,000 bpd maximum capacity at Atapu. A second platform is planned for each field.

Cementing Brazil’s status as Latin Americas biggest oil producer, the two fields could boost the country’s production by 12% over the next six years, adding 700,000 bpd, and bringing in almost $40 billion in investment, its energy ministry said after the auction. Petrobras is set to receive $6.2 billion for past investments in the two fields.

Reuters by Gram Slattery, December 20, 2021