May 14, 2013 / 11:46 PM / in 5 years

RPT-UPDATE 1-Brazil kicks off first oil, gas auction in five years

* Comes as govt intervention mounts, global supply seen up

* Petrobras, Galp, OGX win blocks in early bidding

* Areas on offer believed to hold 35 bln barrels of oil

By Jeb Blount and Sabrina Lorenzi

RIO DE JANEIRO, May 14 (Reuters) - Brazil on Tuesday kicked off its first auction for oil and natural gas rights in five years, gauging whether government intervention and growth in new global supplies have crimped the interest that followed discoveries of huge offshore reserves in 2007.

The two-day auction by Brazil’s national oil regulator began with the sale of onshore blocks in the northeastern Paranaiba basin.

Bids from state-run energy company Petroleo Brasileiro SA , Portugal’s Galp Energia SGPS SA and OGX Petroleo e Gas SA, the oil startup controlled by Brazilian billionaire Eike Batista, won early blocks there.

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.

Though a record number of participants signed up to take part in the auction, government officials, industry suppliers and others are watching the sale closely to determine how much the 64 Brazilian and international companies registered are willing to bet on Brazilian oil and gas.

Officials are eager to know whether interest will remain strong among major multinational energy companies or whether smaller, adventuresome investors could 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 enterprises.

The questions 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 investors 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 supply.

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.

Still, the potential for profit means that bidders, many of whom are used to operating in countries far less investor-friendly than Brazil, aren’t likely to show up half-hearted. 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.”

Brazil’s government has said it expects to raise more than 1 billion reais ($498 million) from the sale - or possibly twice as much as the 628 million reais in minimum bids set for the auction.

Brazilian companies are taking part despite production delays and sluggish development of new fields. Petrobras, as the state-run company is known, in the second quarter of 2012 posted its first quarterly loss since 1999 and this year has struggled to ramp up output.

OGX, meanwhile, has lost nearly 90 percent of its market value after the company failed to meet initial production targets.

Other registered foreign bidders include BG Group Plc , Chevron Corp, Exxon Mobil Corp, Royal Dutch Shell Plc, Norway’s Statoil ASA, Spain’s Repsol SA, China’s CNOOC Ltd, Britain’s BP Group Plc, Australia’s BHP Billiton Plc and Angola’s Sonangol.

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