Brazil oil auctions: they are really, really happening (really)

India Cairn Vedanta RescourcesAfter five years of legal battles, rumours and empty promises it’s finally happening: Brazil is auctioning off its oil blocks.

The country’s energy minister, Edison Lobão, told reporters on Thursday that the so-called 11th round of 172 onshore and offshore blocks would be held in May, or even earlier if possible.

Although the government promised last year to kick off the long-awaited auctions in 2013, there were doubts it would go ahead because of disagreements over the new law governing the distribution of royalties.

Originally the government had promised to sell concessions at 174 blocks but Lobão said 2 had been withdrawn for environmental reasons.

Brazil’s oil and gas regulator ANP later clarified where exactly these blocks are:

There will be 172 blocks up for offer, onshore and offshore, divided among 17 sectors, in nine sedimentary basins: Barreirinhas, Ceará, Parnaíba, Espírito Santo, Foz do Amazonas, Pará-Maranhão, Potiguar, Recôncavo and Sergipe-Alagoas. The highlight of the 11th round will be the Margem Equatorial (Equatorial Margin), made up of the Foz do Amazonas, Pará-Maranhão, Barreirinhas, Ceará and Potiguar basins. The region is considered highly promising due to the recent recorded discoveries. It is not expected that the round (of auctions) in May will include any pre-salt areas.

However, Lobão said another auction for oil rights in the vast sub-salt region off Brazil’s south-eastern coast will take place in November.

He also said the country was looking to develop a shale gas industry, adding that auctions for exploration rights could go ahead as early as December this year.

This should all come as good news to the mass of companies lining up to get into Brazil’s promising oil and gas industry.

Last year, Alessandro Novaes, president of Brazil’s Association for Independent Oil and Gas Producers, told the FT that at least 70 companies were waiting to enter the country’s onshore industry alone.

However, for those companies trying to sell off their existing stakes in the country’s oil blocks, the news may not be so welcome. Mining giant Vale, for example, has been trying to shift an estimated $1bn worth of stakes in oil and gas blocks since last year. So far, it only seems to have managed to sell its 25 per cent stake in the BM-ES-22A oil block off the coast of the south-eastern state of Espírito Santo to Statoil for $40m.

With hundreds more blocks now up for sale thanks to the government, Vale may find it even tougher to get rid of the remaining $960m.

Related reading:
Brazil oil auctions? Take it with a grain of pre-salt, beyondbrics
Pre-salt deposits: Development slowed by Brazil’s resolve to take profits, FT
Deep water Brazil: To venture where no driller has gone before, FT
Rio opposes Brazil’s oil royalties bill, FT