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Total, Shell Emerge As Top Bidders in Brazil’s $2 Billion Offshore Auction

Reuters
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December 17, 2021

By Gram Slattery, Marta Nogueira and Sabrina Valle

Reuters

RIO DE JANEIRO, Dec 17 (Reuters) – France’s TotalEnergies , Royal Dutch Shell, Petrobras, Malaysia’s Petronas and Qatar Energy scooped up bigoffshore fields in Brazil on Friday, raking in nearly $2 billion for the country’s cash-strapped government.

While TotalEnergies, Qatar Energy and Petronas won the rights to develop the coveted Sepia field, Brazil’s state-run Petrobras, formally Petroleo Brasileiro SA, later entered the consortium by exercising preference rights.

Petrobras, Total and Shell secured the nearby Atapu field.

The auction was widely seen as a test of Brazil’s investment climate and of large oil producers’ willingness to keep spending big on traditional assets. Officials, who had been keen to attract major foreign players, deemed it a success, and analysts said the offers agreed to were relatively rich.

The results suggested that some production assets can still fetch strong interest, even as traditional E&P budgets at the world’s top oil firms are increasingly constrained amid a broad shift toward green energy.

While the signing bonuses were fixed at 7.138 billion reais for Sepia and 4.002 billion reais for Atapu, the percentage of oil produced that will be handed over to the state, known as ‘oil profit,’ varied depending on the bidder. Oil profit for the winning Atapu consortium came to 31.68%, while oil profit for the winning Sepia bid came to 37.43%.

Bids “were high, which reduces returns,” said Marcelo de Assis, head of Latin America upstream research at Wood McKenzie. “They were more aggressive than we expected.”

Brazil-listed preferred shares in Petrobras were off 2.1% in afternoon trade, underperforming the nation’s benchmark Bovespa equities index, which had fallen 0.7%. London-listed shares in Shell fell 1.8% on Friday.

Brazil attempted to sell both fields in 2019, but neither received offers, even from Petrobras. At the time, complex legal issues and rich signing bonuses kept oil majors away.

This time, bidding terms were considered more attractive, several industry sources told Reuters, largely due to big cuts in both signing bonuses and minimum profit oil.

The fields are considered attractive as Petrobras has already discovered commercially recoverable oil in both blocks, eliminating exploration risk.

Eleven companies signed up for the chance to bid on Friday: Petrobras, Exxon Mobil Corp, Shell, Galp Energia SGPS SA , Chevron Corp, Ecopetrol SA, Equinor ASA, Enauta Participacoes SA, Petronas, TotalEnergies and Qatar Energy.

Petrobras holds a 30% stake in the winning Sepia consortium, TotalEnergies holds 28%, and Petronas and Qatar Energy hold 21% each. At Atapu, Petrobras holds a 52.5% stake, Shell has a 25% stake and TotalEnergies a 22.5% stake.

A second production unit is expected to be approved in the near future to increase Sepia’s overall capacity from 180,000 barrels per day (bpd) to more than 350,000 bpd, Qatar Energy CEO Saad Sherida Al-Kaabi said in a statement.

Production at Sepia has plateaud at 160,000 barrels per day, although a second production unit yet to be approved will raise this to 350,000 bpd, TotalEnergies said in its own statement.

The two fields could boost Brazil’s oil production by 12% over the next decade and bring in almost $40 billion in investment, its Energy Ministry said on Monday. Petrobras is set to receive $6.2 billion for past investments in the two fields. ($1 = 5.68 reais) (Reporting by Gram Slattery and Marta Nogueira in Rio de Janeiro and Sabrina Valle in Houston; Editing by David Gregorio, Diane Craft and Alexander Smith)

(c) Copyright Thomson Reuters 2021.

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