Brazil begins first open licensing round

Brazil's Exploration Acreage Offering [436,029 bytes]

Brazil's National Petroleum Agency (ANP) has conducted road shows promoting its first open licensing round.

The first presentation took place Jan. 14 in Rio de Janeiro, where the agency outlined details of the 27 blocks being offered. Following the that show, ANP made identical presentations in Houston and London.

Last year, the agency sent letters to about 500 oil companies around the world inviting them to participate in its first open bidding round. It presented a draft bid notice for prequalified parties on Jan. 14 in Rio de Janeiro. The deadline for pre-qualification is mid-April.

ANP will begin opening the sealed bid envelopes at the end of May. The bidding process will be handled one block at a time.

The areas

ANP announced the licensing round late last year (OGJ, Dec. 28, 1998, Newsletter).

The blocks are being opened to private domestic and foreign companies under Brazil's fledgling privatization program.

They represent about 2% of Brazil's sedimentary basins.

On offer are exploration and production rights on 27 blocks, 23 of which are offshore (see map, p. 39). The six blocks in the Campos basin, off Rio de Janeiro state, are expected to attract the most interest, because Campos is responsible for 75% of the 1.2 million b/d of crude oil produced by Brazil and holds about 70% of Brazil's 17.2 billion boe of reserves.

ANP is also putting out for tender:

Six blocks with indications of oil and gas in Santos basin.
Four blocks in Esp!rito Santo basin.
Three in Camamu/Almada basin.
Two in Cumuruxatiba basin.
Two in Potiguar basin, one of them onshore in Rio Grande do Norte state.
One in the mouth of the Amazon River.
Three onshore, in the Paran basin.

The blocks have an average size of 4,500 sq km, an area equivalent to 225 blocks in the Gulf of Mexico.

Petrobras is allowed to participate in the tenders, but private companies do not have to associate themselves with Petrobras.

ANP Executive Director David Zylbersztajn expects Brazil to receive $1.2 billion in investments in the 27 blocks put out for tender. "This bidding round represents the beginning of the opening of the 45-year monopoly enjoyed by Petrobras," he said.

Brazil's opening

In August 1997, Brazil's Congress passed a law giving ANP the right to determine which areas would be controlled by state firm Petroleo Brasileiro SA and which would be controlled by ANP.

Until recently, privatization had taken place only in the 397 areas ANP allowed Petrobras to retain, where it has been limited to the work done by 14 private firms under seven joint venture contracts with Petrobras. Initial investment in these deals was $103.8 million, and expected total investment is $440.8 million.

Local analysts attribute the disappointing initial results to the cumbersome and expensive indirect tax system, plus the tremendous bureaucracy involved in signing contracts.

In partial response to complaints by companies concerning high taxes, Zylbersztajn announced that, beginning Jan. 1, 1999, foreign oil companies will be temporarily exempt from import taxes, sales taxes, and industrial production taxes for machinery and equipment used in exploration and production.

According to Brazil's deregulation law, if, after 3 years, Petrobras is unable to establish commerciality in any of the blocks it retained, those blocks will be returned to ANP, which will then put them out for tender.

Oil companies have complained that 3 years is not enough time to establish commerciality-another reason for the scant interest in participating with Petrobras in its blocks.