Court order cancels Brazil’s eighth licensing round

Dec. 4, 2006
A federal judge in Brasila issued an injunction Nov. 27 suspending Brazil’s eighth oil and gas licensing round.

A federal judge in Brasila issued an injunction Nov. 27 suspending Brazil’s eighth oil and gas licensing round. The round was scheduled for Nov. 28-29 (OGJ Online, Nov. 27, 2006).

The court objected to limits in the number of offers a bidder can make, a rule included by the National Petroleum Agency (ANP) for this bid round.

A federal Workers Party congresswoman requested the injunction to “protect” state-owned Petroleo Brasileiro SA (Petrobras) from being limited in the number of offers it could submit. Petrobras, responsible for some 90% of Brazil’s oil and gas production, dominated previous rounds.

Bidders also were unhappy about ANP’s exclusion of Campos and parts of Santos basins from the licensing round. “Campos is responsible for some 80% of Brazil’s 1.9 million b/d of oil,” said Alvaro Teixeira, executive secretary of the Brazilian Petroleum and Gas Institute, which has some 220 members, including 32 oil multinationals.

Two appeals to overturn the injunction, failed, but legal experts told OGJ, “this matter will probably end up in a drawn up court battle.”

It is not known whether the winning bids announced during the first days of the round are legally valid or what effect the cancellation may have on future investments in Brazil’s E&P. Several multinational oil executives and consultants said the cancellation bodes ill for future investments.

High bidders

Petrobras made offers for 21 blocks and won 20, becoming the operator in 8 of them. Even with the ANP limitation, Petrobras bought the largest number of blocks in the auction.

Nevertheless, Petrobras argued that the rule limiting offers was prejudicial for the company: In 2005 during the seventh round, Petrobras secured 96 of the 251 blocks available. “We have to continuously produce more oil to maintain the country’s self-sufficiency,” said Petrobras Corporate General Manager Francisco Nepomuceno Filho. “I estimate that we must discover at least an additional 700 million bbl/year in reserves, and this ANP rule hampered our strategy.”

ONGC Videsh Ltd., the overseas arm of India’s state-run Oil and Natural Gas Corp., participating for the first time in a Brazilian oil bid round, paid $68 million to win the offshore S-M-1103 block in the Santos basin.

Eni SPA placed the $140 million winning bid for rights to drill in a new deepwater frontier area in the Santos basin off Sao Paulo’s coast.

Norway’s Norsk Hydro ASA won a block in the same area with a $3.3 million bid. The company also had a stake in two more winning bids for blocks with Spanish-Argentine Repsol-YPF and Brazil’s Petrobras as lead operators.