Brazil Offshore Oil Drilling Rights Draw Interest at Auction

“We hope we have turned the page,” said Fernando Coelho Filho, the minister of mines and energy, at a news conference in Rio de Janeiro after the auction. “We want to promote a competitive exploration and production market in Brazil.” He added that the presence of Exxon Mobil and other international companies that had abandoned Brazil gave him reason for optimism.

But the outcome was a far cry from the potential that oil companies saw for Brazil a decade ago when huge offshore reserves were discovered. The price of oil at that time had climbed above $100 a barrel, political turmoil roiled North Africa and the Middle East, and oil companies sought new reserves in politically stable countries.

Brazil decided in 2010 to designate Petrobras as the sole operator in the prime offshore fields. Exploration plummeted as international companies looked elsewhere to produce.

Then came a frenzy of drilling in American shale fields that became accessible with horizontal drilling and hydraulic fracturing, methods designed to unlock hydrocarbons from hard rocks. A global glut and price collapse followed, making deepwater drilling expensive relative to other exploration activities, although prices are starting to revive.

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Over the last two and a half years, the oil industry experienced its deepest downturn since at least the 1990s.

To make Brazil even less attractive, Mexico, Guyana and several African countries have opened their rich deepwater fields to foreign companies, leading to expectations of new large-scale production over the next decade. And Petrobras, crippled by a series of corruption scandals, is now deeply in debt.

The auction follows a series of reforms started last year, dropping the designation of Petrobras as sole operator and lowering requirements for allotted Brazilian content in machinery and construction for exploration and production. The government also guaranteed that those winning exploration rights would own the oil and natural gas that is produced, minus royalties, taxes and a government share of profits.

Petrobras retains the right to choose areas of operation, although it may decide to operate in production-sharing agreements.

“Brazil now faces competition,” said Jorge R. Piñon, the former president of Amoco Oil Latin America. “That is good news for the oil companies because Brazil can no longer demand to be the operator, and they have to be cognizant that oil companies have limited capital with today’s oil price at about $50.”

The auction did not offer the most coveted areas, which will still await auction. In Mexico, early auctions in offshore areas recently opened to foreign investment produced modest results. But after the government sweetened its offerings, in part with looser regulations, companies showed more interest.

“The significance of today is the return of Exxon Mobil to the Brazilian market,” said Adriano Pires, the director of Brazilian Center for Infrastructure, a consultancy based in Rio de Janeiro. “The government is going in the right direction.”

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