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Brazil sells oil field rights for €1.6 billion

October 27, 2017

Brazil has traditionally protected its national oil champion, Petrobras, from international competition. But that has changed with embattled President Michel Temer trying to lure in foreign investment.

Petrobras offshore oil platform
Image: picture-alliance/AP Photo/F. Dana

Brazil sold the rights to develop six deepwater, pre-salt oilfields on Friday for 6.15 billion reais ($1.9 billion, €1.6 billion) after a court order on Thursday had almost prevented the highly anticipated auction from taking place.

The government had aimed to rake in 7.15 billion reais from the sale, but two of the eight auctioned blocks failed to sell.

Three blocks were sold to consortia led by Brazil's state-owned oil company, Petrobras, two to consortia led by British-Dutch Shell, and one to a consortium headed by Norway's state-owned oil company, Statoil.

Brazil auction for offshore, pre-salt oil fields
Sixteen companies took part in the auction for eight offshore, pre-salt oil blocksImage: Reuters/P. Olivares

Sixteen oil companies in total had registered for the auction.

Decio Oddone, director general of Brazil's National Petroleum Agency, told reporters after the auction that the results "far exceeded our expectations."

Fighting a court injunction

The sale started two hours later than planned due to a court injunction late Thursday.

Judge Ricardo Augusto de Sales suspended the auction after Brazil's left-wing Workers' Party and the country's biggest trade union complained that the government was selling off Brazil's wealth.

"Fighting against the handing over of pre-salt (reserves) is fighting for the creation of jobs and revenue in Brazil," said Carlos Zarattini, a senior Workers' Party lawmaker.

But Brazil's solicitor general said on Friday that the government had won an appeal against the injunction, paving the way for the auction to take place.

A change of heart

The auction was the first time Brazil has allowed foreign oil companies to buy the right to operate in national oil fields independent of Petrobras.

Governments had previously required the state-owned giant to have a 30 percent stake in oil ventures.

The break with the past is part of a broader effort by Brazil's center-right president, Michel Temer, to pull the economy out of a two-year recession and reduce state spending. Increasing foreign investment has been a key pillar of that plan.

Temer, who has been fighting corruption charges and falling favorability ratings, said Friday's auction was a "historic moment" that would generate 500,000 new jobs.

"This means more innovation and development for the regions directly benefiting and, naturally, for the whole country," he said.

Brazil's pre-salt reserves, which currently produce over 1 million barrels of oil per day, are located off the country's coast more than 3.5 miles (5.6 kilometers) below the waterline.

A lucrative sale?

The National Petroleum Agency has estimated that the government could receive $130 billion in royalties if all eight blocks were developed.

The Brazilian state also stands to make a lot of money from operating profits. Many of the successful bidders agreed to high profit shares for the government.

But some left-wing critics refused to back down after the sale. Former President Dilma Rousseff, who was removed from office in 2016, lashed out against the auction, saying: "Brazil is handing oil over to foreigners for the price of bananas."

amp/sms (AP, AFP)