Auction of BRL 11 billion could be the last big offer of oil areas in the country

The auction of pre-salt areas scheduled for this Friday (17) is considered by the market as the last big offer of blocks for oil exploration and production in the country, given the end of the stock of high potential areas on the Brazilian coast and growing pressures for the energy transition.

At the auction, the government will try to grant two areas that have already been discovered in the Santos Basin, which had been offered to the market in 2019, but which did not attract interest. For this second attempt, the value of the signing bonuses was reduced by 70%.

These are areas of the so-called transfer of rights surplus, discovered by Petrobras during the exploration of blocks it obtained in exchange for shares in its 2010 capitalization process, but which exceed the limits under the control of the state-owned company.

The Sépia and Atapu blocks have signing bonuses of R$7 billion and R$4 billion, respectively. In pre-salt auctions, the bonus is fixed and the dispute is won by the company or consortium that undertakes to deliver the largest volume of production to the government.

According to the ANP (National Petroleum, Gas and Biofuels Agency), 11 companies are qualified to make offers, including Petrobras, which has preemptive rights provided for by law that guarantees it to decide whether to participate in the operator consortium even in the event of a defeat in the auction.

The government estimates that activities in Sépia and Atapu will demand R$ 204 billion in investments, with the generation of 160 thousand jobs. Expected production for the two areas has the potential to increase domestic oil production by 12%.

For specialists, the results of the last auctions and the growing pressure for restrictions on fossil fuels indicate that Brazil will no longer have offers of this size. The last auction held by the government, in October, had already been the worst since the opening of the sector, in 1999.

In it, only 5 of the 92 areas offered were auctioned, with a collection of around R$ 370 million, the lowest among all the bids ever made by the ANP with the offer of maritime areas. The number of participants was also the lowest in history.

In the market’s assessment, the weak result reflected a lower appetite for risk in the sector, which has been focusing more and more on renewable energies and has not yet managed to explore all the oil areas won in recent auctions in Brazil.

In addition, part of the areas were in regions of high environmental sensitivity, such as the Atol das Rocas and Fernando de Noronha archipelagos. The blocks offered in the well-known Campos and Santos basins were at great distances from the coast, with major logistical challenges.

The shortage of more attractive areas had already been signaled by former ANP general director Décio Oddone before the last auction under his command, in 2019, when only one of the five areas offered was purchased by a consortium formed by Petrobras and the Chinese CNODC.

In his closing speech at the auction, he said the era of billion-dollar bond auctions was coming to an end. “The known pre-salt areas have already been tendered and the companies have large portfolios in Brazil,” he says, in an interview with leaf.

Oddone recalls that the discovery of the pre-salt, in the mid-2000s, took place at a time when the world did not yet have the unconventional American reserves and the expectation was of growing demand. Therefore, the world bet on new oil frontiers to expand production.

“Brazil interrupted auctions right after pre-salt and, when it resumed, it did not offer pre-salt areas, so there was a very repressed demand for these areas, which led to very successful auctions between 2017 and 2019”, he says .

With the end of the stock of more attractive areas or with less environmental risk on the Southeast coast, the ANP had been betting on new frontiers, such as the Foz do Amazonas basin or blocks located beyond the 200 nautical miles that define Brazilian territorial waters.

In the first case, there is great expectation of giant discoveries such as those that have created an oil industry in Guyana, but so far no environmental license has been issued for exploration in the region, which has already led France’s Total to give up in the region to give up its assets. in the region.

In the second, studies show that the same structures that generated the pre-salt expand beyond Brazilian territorial waters, but the great depth and great distance from the coast would require the development of new technologies to make the extraction of reserves viable.

In the current scenario, however, oil companies’ appetite for risk has been impacted by a series of factors linked to the climate change process, such as greater restrictions on financing for fossil fuels, pressure from activist shareholders and the proximity of the beginning of the carbon market.

The coordinator of the Energy Portfolio at the ICS (Instituto Clima e Sociedade), Roberto Kishinami, says that Brazil has to start looking at the end of auctions as a possibility. It will not be a short-term process, he says, but “it is inevitable”.

“The simplest exploration fields, without major environmental threats and with reasonably known geological formations are practically gone,” he says. “This will be the last big auction, we are betting on it.”

The government itself has been betting on a new model of competition, called permanent offer, in which the blocks are displayed in a kind of shop window and only go to auction after expressions of interest in an oil company.

Recent experiences show, however, that bonuses tend to be smaller in this model. In the 2020 standing bid round, for example, Shell paid R$12 million for a block in the same region as another one acquired at a conventional auction a year earlier for R$550 million.

This Thursday (16), the ANP opened the third cycle of the permanent offer after receiving an expression of interest from a company. Oil companies will have until February 3rd to nominate blocks and the final list will be released two weeks later.

Confirmation of the expectation of a lower appetite for future auctions does not mean, however, that oil production in the country will stop growing in the coming years, as the current stock of fields under exploration or development still guarantees decades of production.

In its long-term projections, the EPE (Energy Research Company) estimates that national oil production will reach 6.1 million barrels per day in 2050, more than doubling the level of 2.7 million barrels verified in October.