* Production-sharing auction to be 1st under 2010 law
* Giant Libra area seen producing up to 12 bln barrels
* Auction moved up 1 month to meet president's schedule
By Jeb Blount
RIO DE JANEIRO, May 23 Brazil plans to sell the
right to explore and develop its largest-ever oil discovery in
October, putting up for auction an offshore petroleum prospect
that is expected to produce about 12 billion barrels of oil over
The sale of the Libra prospect, which Brazil on Thursday
said will be held a month earlier than expected, will be the
first under new rules that tighten state control and raise
government participation in a Bangladesh-sized offshore area
near Rio de Janeiro.
Known as the Subsalt Polygon, the area is home to several
giant discoveries, including Libra, as well as more than 80
percent of Brazil's current oil output. The name refers to Libra
and other giant strikes where oil is trapped in rock under a
Much of the oil in the region, though, is trapped in
reservoirs above the salt layer.
Brazil's oil agency, the ANP, discovered Libra in May 2010.
With certification agency Veritas, the ANP estimates Libra holds
26 billion to 42 billion barrels of oil in place. Of that,
production could recover 8 billion to 12 billion barrels, or an
amount equivalent to three to five months of world oil demand.
"In my 30 years in the oil business, I've never seen someone
auction off something of this magnitude," Magda Chambriard,
director-general, of the ANP told reporters. "This is a big,
The auction was moved up from November to conform with
Brazilian President Dilma Rousseff's schedule, Chambriard said.
Unlike previous auctions, the sale will be held in Brasilia, the
capital, rather than Rio de Janeiro, the center of Brazil's oil
"Something of this size clearly requires the presence of the
president," Chambriard said. "This is a very significant area."
NEW AUCTION RULES
The announcement comes on the heels of a sale of higher-risk
frontier exploration areas last week, Brazil's first oil-rights
sale in five years.
The auction sold 142 areas to 30 companies from 12
countries. It raised $1.4 billion in cash and promises to invest
at least $3.4 billion in exploration, easing concern that
growing government intervention in the oil industry would curb
the appetite of foreign and domestic oil companies and
That auction was held under Brazil's longstanding concession
system, which still applies to all future sales in areas outside
of the Subsalt Polygon. Under the concession system, winners own
the rights to all output in exchange for the payment of a
royalty, and in the case of unexpectedly large discoveries, an
additional "windfall" payment on the excess.
In the Subsalt Polygon, winners will be those companies that
offer the government the largest share of future oil output to
sell on its own account. This "profit oil" will only be paid to
the government after the winning bidder or group has paid off
the initial costs of exploration and development.
Additionally, state-controlled oil company Petroleo
Brasileiro SA, or Petrobras, will have to take a
minimum 30 percent stake - as well as pay 30 percent of all
investment - in any winning bid group.
PETROBRAS TO DOMINATE
Petrobras will be the only company licensed as operator of
new Subsalt Polygon areas, meaning it will have control of most
exploration and development decisions. Other partners will be
primarily financial investors.
If Petrobras wants a bigger stake it will have to bid for it
like any other company, Chambriard said. When the rules were
passed in 2010 analysts said the new system would primarily be
attractive to large state-owned oil companies more interested in
long-term supply than in developing the prospect.
Because the government is more interested in maximizing its
share of future oil output than winning a large up-front
payment, the auction will have a fixed entry fee and bidding
will focus on the amount of oil companies are willing to give
Brazil's government, Chambriard said.
The size of the potential new fields in the Subsalt Polygon
make it unlikely that the government will sell areas in its
borders more than once every two years, Chambriard said.
The Subsalt Polygon may contain as much as 100 billion
barrels of oil, according to the Brazilian Petroleum Institute
of Rio de Janeiro-State University.
A separate auction for natural gas prospects, both shale and
conventional, was pushed back until November so the subsalt
auction can be moved up, Energy Minister Edison Lobão said
The government hopes to hold annual auctions for oil and gas
prospects outside the Subsalt Polygon on an annual basis,
returning to a schedule that was in effect from 1999 to 2008.
Auctions were halted for five years as the government drafted
new rules to boost its control of giant new offshore reserves in
the Subsalt Polygon.