* Auction generates much less interest than expected
* Total, Shell, CNOOC, China National Petroleum join winning
* Police clash with protesters objecting to sale
* Libra area is Brazil's biggest-ever oil discovery
By Jeb Blount and Sabrina Lorenzi
RIO DE JANEIRO, Oct 21 Brazilian state-run
energy company Petrobras joined forces with European oil majors
and Chinese rivals on Monday to buy the country's biggest-ever
oil field with a lone bid at the minimum price, a
worse-than-expected outcome for a sale designed to launch Brazil
as a petroleum power.
The auction, conducted as police and the army clashed with
hundreds of protesters objecting to the sale of natural
resources to foreign companies, was notable because it sparked
only a fraction of the appetite that was originally expected.
Despite government assurances that the discovery is huge and
low risk, many major world oil companies that had shown strong
interest in previous auctions, such as Exxon Mobil Corp,
Chevron Corp and BP Plc, stayed away.
"An auction supposes a contest," said Carlos Sampaio, an
opposition legislator in the lower house of Brazil's Congress.
"Without that, the government failed."
But government officials painted the sale as a success and
said they expected $400 billion in state revenue from the Libra
field over 30 years, cash they hope will transform the country,
paying for education and health care needed to narrow a wide gap
between rich and poor.
The winning group did include a surprise. France's Total SA
and Anglo-Dutch Royal Dutch Shell Plc, the
only major non-state companies to sign up for the auction, took
40 percent of Libra.
While there are two Chinese partners, CNOOC Ltd
and China National Petroleum Corp, they have the smallest share.
That eased concerns of both left-leaning nationalists and
free-market industry figures that Chinese or state-owned Asian
companies would buy the biggest Libra stake.
"I don't think there is any problem with this being won by a
single group," said Delcídio Amaral, a Senator with Brazilian
President Dilma Rousseff's Workers' Party.
"Just when everyone was expecting Libra to be snapped up by
the Chinese, Shell and Total show up, two top-quality
experienced oil companies."
The consortium will be led by Petroleo Brasileiro SA
, as Petrobras is formally known, which took 40
percent of the field in the auction, more than the minimum 30
percent that it was guaranteed by law. The law also requires it
to be the field's sole operator.
Total and Shell will each have 20 percent of the
partnership, while China National Petroleum Corp and China's
CNOOC took 10 percent a piece.
The group now holds the rights to an offshore area holding
between 8 billion and 12 billion barrels of recoverable oil,
according to Brazil's oil regulator and Dallas-based oil
certification company Degolyer & MacNaughton (D&G).
If the estimates hold up Libra holds enough oil to nearly
double Brazil's reserves or supply all the world's oil needs for
as much as 19 weeks.
Highlighting the lackluster interest by most major oil
companies in this potentially huge area, the companies agreed to
give the government the minimum legal amount of so-called
"profit oil" from the fields - or oil produced after initial
investment costs are paid. Under the terms of a new
production-sharing contract, that minimum was set at 41.65
percent of profit oil.
They also agreed to pay their share of the 15 billion real
($6.88 billion) up-front signing bonus to finalize the purchase.
Despite the huge potential of the offshore region, many
foreign oil producers and other potential investors shied away
because they believed the rules for the new concessions offered
little upside for profit and too big a role for the government
A newly minted state-owned oil company known as PPSA has
been created to help manage Libra. In addition to receiving the
government's share of oil from Libra and selling it on its own
account, PPSA will have a major say and some veto power over how
the consortium spends the $50 billion expected to be needed for
developing the area.
In Libra, the government has worked to ensure it will get
the lion's share of the resources. Despite the low bid, 85
percent of the revenue from Libra over its lifetime will go to
the government as taxes, oil or direct social or research
commitments from the winners, Rousseff said in a speech to the
nation after the sale.
Efforts like this to control private investment have made in
harder for Rousseff's government to attract private partners for
other major projects such as high-speed rail, ports, highways
"The perception of Dilma (Rousseff) has become very
negative, she and her government are believed to have a very
arbitrary view of regulation," said Aldo Musacchio, an associate
professor at Harvard Business School who specializes in
Magda Chambriard, the head of Brazil's national oil
regulator ANP, suggested that many companies had stayed away
because they were daunted by the sheer size of Libra.
"Even though there was limited interest, the quality of the
(winning) group speaks for itself and leaves me wanting for
nothing better," Chambriard said at a news conference. She said
the next auction for Brazil's big subsalt region was not
expected for at least another two years.
Chambriard had expected "more than 40" companies to sign up
for the auction. Only 11 signed up and just five actually made
bids as part of the single, winning consortium.
Shares of Petrobras, a company whose investors have grown
increasingly frustrated by cost overruns and production delays,
surged after details of the bid emerged and dispelled fears that
the company would overpay. Its preferred shares rose more than 5
percent when the winning bid was announced.
The auction was the first under a three-year-old legal
framework that expands state control over Brazil's most prolific
oil region, the subsalt reserves off the coast of Rio that hold
billions of barrels of oil under a thick layer of salt beneath
the ocean floor.