Brazil will relicense the surplus volumes in Atapu and Sépia next month, offering bidders improved terms in the country’s second Surplus Transfer of Rights round.
The two production sharing contracts were offered in the first Surplus Transfer of Rights round, held in 2019, but failed to attract bids. In 2019, potential buyers stress-tested the assets at a $35/bbl Brent price scenario, and both failed to deliver double-digit returns.
For the 2021 round, signature bonuses have been reduced by 80%, and the reimbursement of past investment to Petrobras has already been defined. The reduction in entry cost and uncertainty improves the round profile.
Luiz Hayum, from Wood Mackenzie’s Latin America upstream research team, said: “The second surplus transfer of rights round will be an exciting test of capital discipline.”
“Despite the improved bidding terms, the economic results for Atapu and Sépia are still not convincing. In a $35/bbl Brent price scenario, we estimate Atapu’s internal rate of return (IRR) barely above 10%, while Sépia fails to deliver double-digit returns. And that’s assuming winning bids at the minimum government profit share.”
“In 2019, the lack of resilience to low oil price scenarios was a critical factor deterring bidders. In 2021, while we are experiencing a rally in oil prices, it will be exciting to see if companies will maintain the disciplined evaluation approach.”
Hayum added: “On a positive note, Atapu and Sépia are both producing, eliminating most project execution risk. Initial wells have stellar productivity reaching oil production rates above 50,000 b/d.”