(Corrects number of blocks to which OGX had secured rights up
to that point to 8, not 78, paragraph 7)
* Comes as govt intervention mounts, global supply seen up
* Petrobras, Galp, OGX, Total, BP, BG win blocksmk
* Areas offered believed to hold at least 35 bln barrels
By Jeb Blount and Sabrina Lorenzi
RIO DE JANEIRO, May 14 Global energy companies
were strong bidders on Tuesday at Brazil's first auction for oil
and natural gas rights in five years, alleviating fears that
government intervention and growth in new global supplies might
crimp enthusiasm for the South American country's oil sector.
By mid-day Tuesday, only a quarter of the way through the
two-day auction, Brazil's oil agency had accepted 1.7 billion
reais ($846 million) in bids - or four times the value of the
minimum bids established for those rights. Some offers for the
most sought-after blocks were up to 40 times the minimum values,
and regulators predicted the sale could raise as much as 2
billion reais by the time it wraps up Wednesday.
The auction comes one day after state-run energy company
Petroleo Brasileiro SA, or Petrobras, successfully sold $11
billion worth of global debt despite heavy criticism from
investors in recent years because of missed production targets
and sagging profits. Demand for the bonds, coupled with strong
demand in the ongoing auction, indicate investors remain eager
to be in Brazil following discoveries of massive new offshore
reserves in 2007.
After an anxious lead-up to the auction, with doubts
persisting about the interest in Brazilian oil, Brazil's
government expressed joy over the soaring bids. "We never saw
anything like this," said Marco Antonio Martins Almeida,
Brazil's oil secretary, in an interview.
The auction kicked off with the sale of onshore blocks in
the northeastern Parnaiba basin, followed by offshore blocks in
the Foz do Amazonas basin, near the mouth of the Amazon river,
and in the Barreirinhas basin further south.
Petrobras, Portugal's Galp Energia SGPS SA
and OGX Petroleo e Gas SA, the oil startup
controlled by Brazilian billionaire Eike Batista, won early
OGX, which has lost nearly 90 percent of its market value
since the company failed to meet initial production targets,
aggressively charged into the auction securing rights to 8
blocks so far, both onshore and off, through bids totalling
about 158 million reais.
Britain's BP Group Plc and France's Total SA
were among the successful bidders for the offshore
Amazon blocks, located just south of a major 2012 oil discovery
off the coast of French Guyana. Other successful bidders
included Australia's BHP Billiton Plc, until now not a
big player in Brazilian oil, and Britain's BG Group Plc.
On offer are rights to 289 onshore and offshore exploration
and production blocks that add up to an area roughly the size of
Bangladesh. The blocks, in regions outside the offshore swath
near Rio de Janeiro where the big recent reserves were
discovered, are estimated to contain at least 35 billion barrels
of oil, or just over a year's worth of global crude oil demand.
A CHANGED LANDSCAPE
Though a record number of participants signed up to take
part in the auction, government officials, industry suppliers
and others were unsure before the sale how much the 64 Brazilian
and international companies that registered would be willing to
bet on Brazilian oil and gas.
Officials have been eager to know whether interest would
remain strong among major multinational energy companies or
whether smaller, adventuresome investors would prove more
willing than bigger competitors.
Also of interest is how much appetite may come from the
state-run energy companies of other developing countries, which
are increasingly seeking cross-border ventures with like-minded
Doubts ahead of the auction reflect what is a dramatically
different energy landscape compared with the last time oil and
gas rights were sold in Brazil, a promising oil frontier where
production has nonetheless fallen in recent years as the
government halted sales of new blocks and reworked the rules for
its most promising reserves.
For starters, the world appears to have more oil than what
investors had believed five years go. A shale-oil boom in the
United States - and increasingly successful efforts to extract
once hard-to-reach oil in Canada, Venezuela and elsewhere - mean
that bidders no longer see an industry defined by dwindling
And Brazil has startled many investors since the huge
reserves near Rio were discovered. Seeking greater control over
future concessions, and a greater share of oil produced in the
so-called subsalt region where the big new discoveries lie, the
government upended a regulatory model that had proven popular
with foreign investors since the 1990s.
'THE SIZE OF THE PRIZE'
Still, the potential for profit appears to be motivating
bidders, many of whom are used to operating in countries far
less investor-friendly than Brazil. In addition to whatever
upside the blocks on auction this week offer, many investors are
eager to gain or increase exposure in a country that could still
boast vast undiscovered reserves.
"The size of the prize in the country is really too big for
companies to ignore," said Ruaraidh Montgomery, a Latin America
analyst for energy consultancy Wood Mackenzie. "The
opportunity's just too great."
Investors are being selective, though.
While they bid fiercely for the offshore Amazon blocks,
located in promising deepwater fields, the regulator said
bidders showed little interest in more speculative blocks. Only
two companies, for instance, made bids for three of 26 blocks
offered in shallow water closer to shore in the same basin.
Brazil's government had initially said it expected to raise
little more than 1 billion reais from the sale.
Brazilian companies are taking part despite production
delays and sluggish development of new fields. Petrobras, for
instance, in the second quarter of 2012 posted its first
quarterly loss since 1999 and this year has struggled to ramp up
OGX, meanwhile, symbolizes the mundane new reality for
Batista, the once high-flying commodities and energy magnate who
has lost billions of dollars in net worth over the past year as
investors sold off shares in the oil company and other ventures,
which are taking longer to pay returns than initially promised.
Other registered foreign bidders include Chevron Corp
, Exxon Mobil Corp, Royal Dutch Shell Plc
, Norway's Statoil ASA, Spain's Repsol SA
, China's CNOOC Ltd and Angola's Sonangol.
Most blocks being sold are in frontier regions, or under
explored areas with little or no existing oil or gas output.
The blocks, mostly in north and northeast Brazil, have been
broken into four onshore and seven offshore zones across 11
sedimentary basins. In addition to the Foz do Amazonas and
Parnaiba basins, another area likely to attract heavy interest
is the offshore blocks in the Ceara basin, off the coast near
the northeastern city of Fortaleza.
Like the rest of Brazil's offshore oil bounty, geologists
believe the blocks could mirror the deep subsea oil deposits off
the west coast of Africa. The deposits, scientists say, were
formed over millions of years as biological matter settled in
sediments deep in the rift between South America and Africa as
the two continents, once contiguous, drifted apart.
($1 = 2.01 Brazilian reais)
(Additional reporting by Kristen Hays in Houston and Pedro
Fonseca and Walter Brandimarte in Rio de Janeiro; Writing by
Paulo Prada; editing by Todd Benson, Dale Hudson and Bob