| RIO DE JANEIRO
RIO DE JANEIRO Brazil's upcoming sale of oil and natural gas rights, the first in five years, will be a test for the country's government and oil industry as they struggle to realize the potential of giant, new petroleum reserves.
At the auction on May 14-15, Brazilian oil regulator ANP will offer 64 Brazilian and international oil companies the rights to 289 onshore and offshore exploration and production blocks.
At the last sale in 2008, Brazil was the darling of the world's oil industry. The 2007 discovery of the so-called Lula field was one of the world's biggest in decades. After more giant fields were found nearby, researchers at Rio de Janeiro State University estimated the district stretching out from Lula along Brazil's coast, known as the "subsalt," may hold 100 billion barrels of crude oil, enough to supply all of the world's needs for more than three years.
But the excitement has dimmed. Grueling political battles over how to divide the bonanza ended a decade of annual oil auctions and raised government control of resources, discouraging new investment.
Output growth has slowed and project delays have lengthened. Even companies who made big Brazil bets, such as Chevron Corp (CVX.N) and BG Group Plc BG.L, rethought plans as the lack of new areas made it harder to justify more spending.
Meanwhile, Brazilian oil and gas production fell to 2.3 million barrels a day in March, a three-and-half-year low. Output is 15 percent below 2012 highs and less than half of what Brazil expects in 2020.
In the second quarter of 2012, state-run oil giant Petroleo Brasileiro SA (PETR4.SA) posted its first loss since 1999. Petrobras, as the company is known, owns 92 percent of Brazil's oil output.
"The government has a lot riding on the auction because Brazil is not as attractive to investors as it was five years ago," said Adriano Pires, head of the Brazilian Infrastructure Institute, a Rio de Janeiro energy research institute.
"The question hanging over the sale is credibility," said Pires, a longtime critic of government oil policy and a former ANP board member. "And credibility takes time to restore."
'AWAITING THE MONEY'
The government has a rosier outlook. It expects to raise more than 1 billion reais ($472 billion) from the sale, or more than double the minimum bids under auction rules.
A record 64 companies have qualified to participate, and 44 delivered financial guarantees needed to bid as of Wednesday, ANP president Magda Chambriard said at the Offshore Technology Conference in Houston on Thursday. Companies from six continents are qualified.
Qualified bidders include BG Group, Chevron and Petrobras as well as Exxon Mobil Corp (XOM.N), Royal Dutch Shell Plc (RDSa.L) Norway's Statoil ASA (STL.OL), Spain's Repsol SA (REP.MC), China's CNOOC Ltd (0883.HK), Britain's BP Group Plc (BP.L), Australia's BHP Billiton Plc (BHP.AX) and Angola's Sonangol.
"This is a great result for us. I'm just awaiting the money," Chambriard said.
Most blocks are in frontier regions, or underexplored areas with little or no oil or gas output. A 2010 oil law drafted after the euphoria of the Lula discovery has tightened state control of the most promising and productive regions. Brazil plans to sell blocks in that area, the so-called subsalt polygon, in November under the special, restricted rules.
The blocks have been broken into four onshore and seven offshore zones across 11 sedimentary basins. Areas likely to attract the most interest are offshore blocks in the Foz do Amazonas and Ceará basins and onshore blocks in the Parnaíba basin, said Hernani Chaves, a geologist and emeritus researcher at Rio de Janeiro State University.
EQUATORIAL OIL DREAMS
Foz do Amazonas and Ceará are part of Brazil's equatorial margin region on Brazil's far northern coast, where many geologists expect to find resources similar to those in West African countries such as Nigeria and Ghana, Chaves said.
Nigeria, a member of OPEC, is Africa's top producer with 2.5 million barrels a day of output.
Millions of years ago, Africa and Brazil were connected. Geologists say the carbon-based sediments that eventually became oil-producing rock were laid down in a giant rift valley that opened as the continents crept apart over millennia.
The Lula field near Rio de Janeiro is in an area once linked to Angola, an OPEC member and Africa's No. 2 producer.
Foz do Amazonas is adjacent to French Guyana waters, where Britain's Tullow Oil Plc TWL.L found oil in 2011. It also found oil in Ghana in 2007. The Ceará blocks are close to several producing fields.
"While Foz do Amazonas is very difficult technically with deep water, a lack of nearby ports and very strong currents, there's excitement about its chances," Chaves said. "Ceará, though, is a little better known and closer to usable ports."
Two of the Parnaíba onshore blocks are close to areas where OGX Petroleo e Gas SA (OGXP3.SA) and MPX Energia SA MPXE3.SA, companies controlled by Brazilian billionaire Eike Batista, are producing natural gas.
"The best place to find oil or gas is near where it has already been found," said Chaves, who is responsible for some of the most extensive oil surveys of Brazil. "Still, I'm not excited about everything on offer. Some blocks have very low chances."
(Additional reporting by Erwin Seba in Houston; Editing by Todd Benson and Jeffrey Benkoe)