The Brazilian government has adopted new measures to improve the competitiveness of its bid rounds by adding 11 offshore exploration blocks located in the prolific pre-salt zone to its permanent offer initiative.
The decision takes place after the country’s 17th licensing round was deemed a flop when only five of the 92 blocks on display received bids.
Created in 2017 as part of an extensive review of Brazil’s upstream sector, the permanent offer was designed to make acreage available on an ongoing basis to give more dynamics to the country’s oil and gas sector.
Instead of waiting for the government to nominate areas in formal bid rounds, the permanent offer allows companies to select areas of interest, both onshore and offshore, leading to an auction.
There are now hundreds of exploration blocks that were either relinquished or never received bids by oil companies included in the permanent offer initiative.
Brazil’s National Council for Energy Policy (CNPE) axed plans to offer acreage through pre-salt bidding rounds and instead authorised market regulator ANP to make these areas available in the permanent offer mechanism.
These include the Agata, Agua Marinha and Esmeralda areas, which were to be offered in the seventh pre-salt round, as well as the Jade, Tupinamba and Turmalina areas that were to be featured in the eighth round.
Also included in the permanent offer were blocks that failed to secure bids in previous pre-salt rounds such as Itaimbezinho, Bumerangue, Cruzeiro do Sul, North of Brava and Southwest of Sagitario.
The CNPE, presided over by Mines & Energy Minister Bento Albuquerque, has also determined the fixed signature bonus and minimum share of profit oil for each of the 11 areas, suggesting potential investments in exploration and production development, in case of commercial discoveries, may reach $150 billion.
If all 11 blocks are acquired, the government predicts it will raise 1.28 billion reais ($226.5 million) in signature bonuses.
North of Brava carries the largest signature bonus at 551.7 million reais, followed by Southwest of Sagitario at 330.3 million reais, Cruzeiro do Sul at 134 million reais and Jade at 104.7 million reais.
The remaining seven areas are much cheaper and feature signature bonuses ranging from 7 million reais in Tupinamba to 65.4 million reais in Agua Marinha.
The 11 tracts will be offered to investors under the same set of rules as if they were auctioned off in a pre-salt round, under a production sharing contract format.
State-controlled company Petrobras has been given 30 days to exercise its preferential bidding rights for any of the areas, which will trigger the round.
Under Brazilian law, Petrobras can take a minimum 30% operating stake at any block offered in the pre-salt province, but in order to be declared the winner the company would still have to submit a competitive proposal in the round.
Should a rival bidder offer the government a higher share of the profit oil than the Petrobras-led consortium, then the Brazilian giant still retains the right — although not an obligation — to join the winning group and acquire the statutory 30% operating stake in the process.
The CNPE also ruled that exploration blocks on offer in the 18th licensing round, tentatively scheduled for next year, are also to be included in the permanent offer initiative.
The change of directive happens as the ANP is set to host on 17 December the second round featuring surplus volumes in the Atapu and Sepia pre-salt fields, where the goal is to raise 11.1 billion reais in signature bonuses and unlock investments in both developments.
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