Brazil to unleash its presalt potential in H2 2011

Brazil's government will auction rights to develop mammoth offshore oil and gas blocks in this year. The first auction of presalt fields could be held in the second half of the year, although new legislation on how much would be charged as a royalty on production, and how that money would be distributed among state and municipal governments would have to be approved first. 

A number of mammoth oil fields have been discovered off the southeast coast of Brazil, lying in ultra-deep water and below more than three miles of sand, rocks and a shifting layer of salt. The area is estimated to hold between 50 billion and 100 billion barrels of oil.

The auction is expected to include some of the reserves discovered in the massive Libra area, estimated by Brazil's Oil Regulatory Agency ANP to hold recoverable reserves of between 3.7 billion and 15 billion barrels of oil equivalent. These fields will be handed over under different terms from the more traditional concessions used in the oil.

Final approval for the planned 2011 auctions is still required from the country's National Energy Policy Commission, or CNPE, which will also define exactly which areas will be put up for auction. 

Why Pre-salt auctioning?

The only way for Brazil to make the most of its oil reserves is by farming out contracts to international exploration firms with the expertise and technology to break through the deep, compressed salt layer. But before Brazil opens up its reserves and takes bids from oil industry giants, the country’s parliament is hoping to secure Brazil’s financial future by ensuring the Petrobras, which owns a majority stake in the oil in question, benefits from any oil extraction programme.

The government, which owns Petrobras, will fund the exploration of pre-salt oil to the tune of $200-$220 billion (£140 billion), and will allow the firm to enter into any number of joint ventures with third parties capable of extracting oil. However, one of the major stipulations is that Petrobras will maintain a minimum of 30 per cent share in every exploration agreement it enters into.

Key Brazilian deal in last 3 years

Announce Date	Heading	Deal Value ($MM)
01-10-2010	Sinopec acquires 40% interest in Repsol’s Brazilian business	7,109
11-03-2010	Devon Energy divests Brazilian operations to BP	3,200
21-05-2010	Sinochem acquires 40% interest in Peregrino oil field from Statoil	3,070
23-12-2010	SK Energy divests Brazilian operations to Maersk	2,400
04-03-2008	StatoilHydro acquires interest in Brazilian oil property from Anadarko	1,800
27-11-2007	OGX awarded eleven exploration blocks in Brazil	754

Source: Derrick Petroleum E&P Transactions Database

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