UPDATE 1-Brazil to hold next oil-rights auction in 2015-ministry

Tue Mar 25, 2014 1:14pm EDT

Related Topics

* Sale could be under concession or production-share systems

* Petrobras won't face new oil-for-stock swap price until 2015

* New oil-for-stock swap deal to come after viability declaration (Adds additional information about auction, auction types; adds detail about Petrobras oil-for-stock swap areas)

By Rodrigo Viga Gaier

RIO DE JANEIRO, March 25 (Reuters) - Brazil will hold its next oil-rights auction by the middle of 2015, a top energy official said on Tuesday, a move designed to give the government more time to draw up sale rules.

It was not stated whether the auction would be an oil rights concession auction or an auction of production-sharing rights, Marco Antônio Martins Almeida, the petroleum secretary of Brazil's energy ministry told reporters.

"Next year we will have an auction for sure, the first half at the latest," he said.

On March 13, Magda Chambriard, the head of Brazil's oil regulator, which runs all Brazilian oil auctions, said she was taking a "conservative" stance toward oil rights auctions this year, a comment taken to mean that the once annual sales would not happen in 2014.

Brazil's state-owned oil company Petroleo Brasileiro SA has also seen its ability to raise cash for auctions and new exploration activity undermined by the government's domestic fuel price controls and heavy spending to develop areas it already owns.

Under Brazilian law, production sharing auctions are held for Brazil's subsalt region, a giant offshore area where Brazil already produces about 80 percent of its petroleum and has made giant new discoveries since 2006. Winners are those groups that offer the government the biggest share of oil after development costs are covered. State-run oil company Petroleo Brasileiro SA must take a minimum 30 percent stake in all production sharing contracts and serve as operator.

Concession auctions apply to all other areas in Brazil. Under the concessions any group can be operator and the winning company or group owns all output after meeting minimum exploration and national content rules and paying a royalty. If the auction were held as a concession sale, it would be the 13th since 1999. Auctions were suspended from 2008 to 2013.

The gap has led some foreign companies to scale back their operations in the country.

PETROBRAS RENEGOTIATION DELAYED

Almeida also said that Petrobras will not have to sign until next year a new contract for 5 billion barrels of offshore oil and natural gas that it bought from Brazil's government in a 2010. The signing, he said will only happen after Petrobras declares the areas holding the resources commercially viable.

Petrobras paid $42.5 billion, or $8.51 a barrel, for the then minimally explored resources under an oil-for-stock swap that was part of a September 2010 share sale. The sale, the world's largest-ever stock offer, raised $70 billion for about a third of Petrobras stock in a secondary issuance.

Under the resource purchase accord, Petrobras and the government were expected to renegotiate the terms of the sale this year. Since then the price of oil has risen more than 40 percent and the areas purchased are expected to contain more resources than first expected, raising concerns that Petrobras may have to pay the government more to keep them.

Petrobras' financial health, though, has deteriorated after the 2010 stock sale and oil rights purchase. The entire company is now worth $74 billion, only $4 billion more than the value of the minority stake sold in 2010.

Paying more for the oil could add to cash and debt difficulties caused by the government's control of domestic fuel prices and a $221 billion expansion plan, the world's largest corporate-spending program.

Franca, an area that was part of the sale, is one of Brazil's largest ever discoveries and contains far more oil than originally expected, Almeida said.

Since the original contract was for only 5 billion barrels and no more the bigger than expected volume, if proven, could force further costs or contract negotiations on Petrobras. (Reporting by Rodrigo Viga Gaier; Writing by Jeb Blount; Editing by Jeffrey Benkoe and Sofina Mirza-Reid)

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