May 10, 2013 / 4:07 PM / 4 years ago

Factbox: Brazil oil auction seeks to sell an area the size of New York

7 Min Read

(Reuters) - Brazil's first oil auction in five years will offer 289 onshore and offshore areas from 11 sedimentary basins covering 155,800 square kilometers (60,155 square miles) of Brazilian territory, an area the size of Bangladesh or the U.S. state of Georgia.

Brazil's oil regulator ANP has qualified 64 companies to bid in the auction. As of Thursday, 44 of them had made the required financial guarantees, ANP said.

Scheduled for May 14-15, the auction is largely restricted to frontier zones, or areas with little or no oil production. Because there is little geological information about the areas, the risk of failure is far higher than it is in the Campos and Santos offshore basins near Rio de Janeiro.

Campos and Santos, while only representing a small part of Brazil's total area, are home to more than 80 percent of the country's oil and gas output.

Promising Areas Excluded

Campos and Santos also include a series of giant offshore oil finds that started with the discovery of the 8-billion-barrel Lula field in August 2007.

After a series of equally large finds, Campos and Santos are believed to contain about 100 billion barrels of undiscovered oil and gas, according to estimates from Rio de Janeiro State University's Brazilian Oil Institute, an amount equivalent to more than three years of world oil consumption.

No areas in Campos or Santos will be offered at the auction, and the vast majority of the basins were declared off limits to conventional Brazilian oil development under a 2010 revision to Brazil's 1997 oil law.

Auction Rules

The auction, known as the 11th round, will be conducted under the same rules as the previous ten, which ran annually from 1999 to 2008.

Oil companies that meet ANP requirements can bid alone or in groups for the right to explore for oil and gas in the offered areas, known as blocks. If they find oil, they can produce and sell it freely in exchange for paying a royalty and contract maintenance fee.

Bids will be judged on the amount of cash that winning bidders agree to pay for the rights, plus points for the minimum amount of seismic and other oil hunting studies the bidders promise to conduct, the number of wells they promise to drill, and the percentage of Brazilian goods and services they promise to buy or contract during the exploration and potential production phases of the concession, or lease contract.

Qualified nonoil companies can bid as purely financial investors, giving them ownership of a portion of future output as long as a qualified oil company manages the exploration and production.

After the auction, ANP hopes to complete long-term contracts with the winners by August.

Winners will have between five and eight years, depending on the area, to find oil and declare the area commercially viable or return the area's oil and gas rights to Brazil.

Qualified Companies

Companies qualified for bidding come from six continents, 18 countries and three British offshore territories.

Major Brazilian companies include state-run oil company Petroleo Brasileiro SA, or Petrobras (PETR4.SA), OGX Petroleo e Gas SA (OGXP3.SA), HRT Participações em Petroleo SA HRTP3.SA and QGEP Participações SA (QGEP3.SA).

U.S. companies include Exxon Mobil Corp (XOM.N), Chevron Corp (CVX.N), ConocoPhillips (COP.N), Hess Corp (HES.N), Murphy Oil Corp (MUR.N) and El Paso Corp EP.N.

British-based companies are Royal Dutch Shell Plc (RDSa.L), Britain's BG Group Plc BG.L and BP Plc (BP.L) as well as Perenco SA. Chariot Oil Ltd (CHARC.L), based on the British island of Guernsey, Barra Energia, Partex from the Cayman Islands and Geopark Holdings Ltd GPK.L and Kosmos Energy Ltd (KOS.N) from Bermuda are also qualified.

The Australian companies are BHP Billiton Ltd. (BHP.AX), Woodside Petroleum Ltd (WPL.AX) and Karoon Gas Australia Ltd (KAR.AX).

Ecopetrol SA ECO.CN, Hupecol and Trayectoria are listed as qualified.

From China, CNOOC Ltd (0883.HK) and Sinochem (600500.SS) are qualified, and China's Sinopec (600688.SS) is bidding in partnership with Spain's Repsol SA REP.SAM.

From Southeast Asia, Malaysia's Petroliam Nasional Bhp, or Petronas PETR.UL, and Thailand's PTT PCL have signed up.

Potential Japanese bidders are JX Holdings Inc (5020.T), Mitsubishi Corp (8058.T), Inpex Corp (1605.T) Sumitomo Corp (8053.T), Mitsui Co (8031.T).

French companies are Total SA (TOTF.PA) and GDF Suez SA GSZ.PA. Galp Energia SGPS SA (GALP.LS) represents Portugal.

Among other qualified companies, Maersk Group (MAERSKb.CO) comes from Denmark, Statoil ASA (STL.OL) from Norway, and Angola's state-owned Sonangol has signed on.

Shale-Gas Auction

The ANP also plans to have an auction on similar terms later this year for onshore blocks with a potential to find shale gas reserves. It is also planning an auction for small-scale onshore areas that would be suitable for development by small companies.

Subsalt Auction Changes

The first auction for areas in the so-called "subsalt polygon," the area in the Campos and Santos basins subject to more restrictive auction rules in the 2010 law, is scheduled for November.

In that auction, bidders will have to offer the Brazilian government a portion of output that it will sell on its own account in addition to an upfront bonus, a minimum commitment to exploration and the purchase of Brazilian goods and services.

Additionally, Petrobras will have to take a minimum 30 percent stake in all winning groups. Petrobras will be the only company allowed to act as operator in subsalt polygon blocks, making its partners financial investors that receive a share of oil but have little say about how exploration and potential production will be handled.

Brazil Oil Output

(In millions of barrels of oil and natural gas equivalent per day, or mboepd)

March 2013: 2.342 mboepd

2012: 2.390 mboepd

2011: 2.523 mboepd

2010: 2.453 mboepd

2009: 2.317 mboepd

2008: 2.186 mboepd

2007: 2.063 mboepd

2006: 2.030 mboepd

2005: 1.941 mboepd

2004: 1.771 mboepd

2003: 1.770 mboepd

2002: 1.724 mboepd

2001: 1.536 mboepd

Source: ANP

Reporting by Jeb Blount; Editing by Jeffrey Benkoe

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