October 26, 2017 / 4:57 PM / in 2 years

Petrobras expects bidding for all pre-salt oil blocks on Friday

RIO DE JANEIRO (Reuters) - The world’s top energy companies will compete fiercely for deepwater oilfields Brazil will auction on Friday and all eight pre-salt blocks are likely to be awarded, according to the head of state-run oil giant Petroleo Brasileiro SA.

FILE PHOTO: The logo of state-run oil company Petrobras is pictured in the company headquarters in Vitoria, Espirito Santo, Brazil, February 10, 2017. REUTERS/Paulo Whitaker

The South American country was set to hold its first auction in four years for its prolific pre-salt fields, where billions of barrels of oil lie below thousands of feet of salt in the Atlantic Ocean off Brazil’s eastern coast.

Big oil companies will bid aggressively for reserves that can be pumped relatively cheaply, Pedro Parente, chief executive of the company known as Petrobras, said in an interview.

The relatively low cost of extraction makes the oil attractive even to a sector that has slashed spending to survive a prolonged slump in oil prices, he said.

“The success rate in the pre-salt is higher than anywhere else,” Parente said. “You need to be where there is high productivity and a low cost of lifting. Pre-salt is one of these areas. So I would be surprised if it is not competitive. I expect all of the blocks to receive bids.”

The world’s top energy companies, keen to get an edge, have jostled to form consortia with Petrobras for the bid round. Parente said watching oil majors position ahead of the auctions had been “instructive”.

He declined to give details on which companies Petrobras would partner with for bidding. Petrobras has flagged its intention to exercise preemptive rights on three blocks.

The auction marks the first time Brazil has offered oil companies the opportunity to operate pre-salt fields themselves, one of many reforms in the sector under President Michel Temer.

Previously, only Petrobras could operate the fields. Parente said that requirement had hurt country by slowing oil sector growth because Petrobras lacked cash and resources to fully develop reserves.


Petrobras will agree on the model for private investment in Brazil’s refining sector this year, Parente said, and start the process immediately afterward.

The model may include sales of pipelines and terminals so new participants can deliver fuel competitively, he added.

Ending the monopoly of Petrobras on refining should cement the liberalization of fuel pricing, Parente said, another reform enacted under Temer.

“It’s very important for the sustainability of the free pricing policy that we have other players in the field, so this decision has an important strategic element,” he said.

The refinery stake sale will be part of a $21 billion Petrobras divestment program through 2018. Parente took the top job at the world’s most indebted energy company in 2016 and has moved aggressively to cut debt.

Negotiations between Petrobras and the government over an issue known as the “transfer of rights” have yet to enter their most difficult phase, he said. That could make it tough to hit the government deadline for resolving the dispute by year end.

The dispute is over a 2010 contract between the government and the oil giant, signed as part of a Petrobras share offer. It gave the company rights to produce 5 billion barrels of oil from pre-salt fields.

The deal, which closed when oil prices stood at $90 a barrel, included an agreement to reevaluate the transaction. Since then, benchmark oil prices have sunk to around $50 a barrel, and Petrobras believes the government owes it a substantial sum.

The cash-strapped government would struggle to pay in cash, and the constitution forbids it from paying in oil.

Earnings at Petrobras through September this year have put it on track to pay a dividend for the first time for three years, Parente said, reinforcing a strong signal he gave in a May interview with Reuters.

“If we consider these numbers we would be paying dividends,” he said, declining to definitively confirm a payout. “What we want is to start paying dividends as soon as possible.”

($1 = 3.26 reais)

Additional reporting by Rodrigo Vigo and Alexandra Alper; Editing by Daniel Flynn and David Gregorio

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