April 13, 2017 / 7:42 PM / 3 years ago

Exclusive: Brazil government mulls letting Petrobras back out of pre-salt bids

RIO DE JANEIRO (Reuters) - Brazil may allow Petrobras to pull out of auctions for exploration blocks in the offshore pre-salt area to which the state-run oil company committed, if it considers the price too high, two sources with knowledge of the matter told Reuters.

A man walks past the Brazil's state-run Petrobras oil company headquarters in Rio de Janeiro, Brazil April 13, 2017. REUTERS/Ricardo Moraes

Petroleo Brasileiro SA, as the company is formally known, had previously been obliged by Brazilian law to acquire a 30 percent stake and operate all newly auctioned blocks in the pre-salt area, where massive discoveries have been made since the end of the last decade.

A law passed last year, however, lifted this obligation and gave Petrobras the freedom to opt out of bidding for new pre-salt blocks.

The law, for which the detailed regulations are still being drawn up, gives Petrobras 30 days after the blocks up for auction are officially announced to decide whether it wants to be the operator.

If it opts to be the operator, the company is locked into paying at least 30 percent of the winning bid, even though Petrobras potentially has no control over the value of that bid.

To avoid being forced into a winning bid the company feels it cannot afford, the government is - according to the two sources - considering an additional rule to allow Petrobras to back out after being awarded the block.

Brazil is planning two pre-salt oil auctions for this year, the biggest expected in November.

According to two of the sources, Petrobras would not be able to pull out of being the operator if there were no other group competing for the block.

“Otherwise Petrobras could at first select to be operator on all blocks and later just choose to keep the best ones,” one source explained, speaking on the condition of anonymity because the issue is sensitive.

“An equilibrium will be sought between preserving the rights given to Petrobras in the law and maximizing competition and investment,” the source added.

If Petrobras pulled out, the winning consortium would be given the chance to negotiate among themselves as to whether they want to take up Petrobras’ stake and who would become operator, the sources said.

If the companies in the winning bid opt to pull their bid altogether, a new auction for the area would be held, the sources said.

Writing by Stephen Eisenhammer; Editing by Daniel Flynn and Steve Orlofsky

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