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Brazil’s Pre-Salt Auction and the Development of the Libra Field

September 30, 2013

by Christian Gómez, Jr.

On September 18, only 11 companies signed up to participate in the auction of Brazil’s pre-salt Libra oil field, one of the largest offshore oil discoveries since 2007. This outcome fell sharply below the Brazilian government’s expectations. In fact, Magda Chambriard, head of the Agência Nacional do Petróleo (National Petroleum Agency—ANP), said the following day that she expected about 40 companies to sign up for the auction.  

Because of its size and recoverable potential, the Libra field is known as one of the “elephants of pre-salt.” The field is estimated to contain between 8 to 12 billion barrels of oil, making it one of the largest in the world. Therefore, the Brazilian authorities placed a hefty price tag on registering for the auction—$2.05 million reais, or just over $900,000.

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The companies that registered to participate included several Asian firms, such as Petroliam Nasional and Petronas from Malaysia; Oil and Natural Gas Corporation Limited (ONGC) from India; and China’s National Offshore Oil Corporation (CNOOC) and China National Petroleum Corporation. There were also joint ventures—such as the Chinese company Sinopec’s alliance with Spain’s Repsol—in addition to individual international oil companies that will bid, such as Total S.A., Royal Dutch Shell and Mitsui. The only Latin American company to register was Ecopetrol of Colombia.

Analysts have pointed to the absence of large international companies such as ExxonMobil, Chevron, and BP as representing the “failure” of the registration process. As stated in a recent AS/COA report, “Brazil’s Energy Agenda: The Way Forward,” government intervention in the bidding process may have deterred some companies from participating. One such deterrent, for example, is that Petrobras must be the sole operator in the pre-salt fields, and they must take at least a 30 percent stake in the project.

The relative lack of interest may spur Petrobras to change the terms of its participation, but it is unlikely to do so. Petrobras CEO Maria das Graças Foster recently stated that the company has the technical capacity to explore and produce all the oil from Libra, but needs financial backing to invest. Thus, Petrobras will need the winning bidder to put up a large share of the oil to sell from its own account in order to maximize its financial gain.

The bottom line is that the Libra field is huge and international investors will eventually participate—even under the Brazilian government’s stringent terms. Some of the large oil companies that have demonstrated prior interest may be waiting on the sidelines for an opportunity to strike when the terms are better. Regardless, the interest of the Asian companies demonstrates the increased focus of countries like China in the Brazilian energy sector.

The auction will be held on October 21 and the winner will be responsible for a sizable investment that could well pay off, considering the field’s potential. The development of Libra will likely take years of exploration and production—and thus, it is a long-term play for the winning bidder.

Meanwhile, the Brazilian government seeks to funnel the profits from the pre-salt into health and education projects, which speak to the demands of the Brazilian people. The Libra field carries a lot of weight among the stakeholders—the Brazilian government, Petrobras, and the private sector—and they will have to wait and see how the field is developed under prevailing government conditions.

*Christian Gómez, Jr. is a contributing blogger to AQ Online. He is director of energy at the Council of the Americas. Follow him on Twitter at @cgomezenergy.

Tags: energy, Brazil, Libra oil field

To speak with an expert on this topic, please contact the communications office at: communications@as-coa.org or (212) 277-8384.
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