Government holds the first pre-salt auction under a new model in the shadow of the State-Owned Companies Law

Under the shadow of changes in the State-owned Law and under protests from environmentalists, the Jair Bolsonaro government (PL) holds its last auction of areas for oil exploration in the pre-salt layer this Friday (16), with the offer of 11 blocks in the Campos and Santos basins.

It will be the first pre-salt auction under the permanent offer model, in which auctions are only scheduled after oil companies have expressed interest in the areas. Historically, the format has yielded smaller gains to the government than traditional auctions.

Experts expect some competition in the auction, but consider that the remaining pre-salt areas no longer have the size of the giant discoveries made in the region and offer greater exploratory risk, which should result in lower premiums.

The offensive for changes in the State-owned Law is another factor that weighs against the appetite of international oil companies, as it throws uncertainties about the management of Petrobras, which declared interest in the two most promising areas of the auction, Norte de Brava and Água Marinha.

The pre-salt auction model gives preference to Petrobras in disputes that are in its interest: even if it loses, it is entitled to evaluate a 30% slice of the winning consortium. In these auctions, signing bonuses are fixed and the proposal that commits to delivering more oil to the Union wins.

Norte de Brava has the biggest signing bonus of this Friday’s competition: R$ 511.7 million. It is an area adjacent to the Petrobras discovery already in production in the Campos Basin, which anticipates revenue for the new concessionaires.

If all areas are awarded, the government collects BRL 1.28 billion in signature bonuses – by way of comparison, the last auction of this type, in 2019, awarded only one block for the equivalent of BRL 6.2 billion today.

In addition to Petrobras, eight companies qualified for the dispute: BP Energy, Chevron, Ecopetrol, Equinor, Petronas, Qatar Energy, Shell and Total Energies.

But, although the sector is experiencing a scenario of record profits and cash on hand, driven by the rise in international oil prices after the pandemic, offers are not expected for all areas.

Consultant Pedro Zalan is betting on offers for five blocks: in addition to Norte de Brava and Água Marinha, Tupinambá, Sudoeste de Sagitário and Esmeralda, the last three in the Santos Basin. The others, they say, are at higher risk.

“This auction contains very interesting blocks”, he says, noting that the risk is greater than that of the first pre-salt discoveries. “They are all medium to large size opportunities, but none of them are super giants like Tupi and Búzios [os maiores campos de petróleo do país]🇧🇷

The auction is the subject of a public civil action filed by the environmental organizations Arayara and Observatório do Petróleo e Gás, which question the overlapping of the blocks offered with conservation areas for sensitive species or endangered species.

They also say that the opinions of the ministries of the Environment and of Mines and Energy that guarantee the auction disregard these restrictions and that there are no estimates of greenhouse gas emissions from oil production in eventual discoveries.

“It is evident that the mere offer of the aforementioned blocks with the irregularities pointed out completely blemishes the process, and even generates legal uncertainty for the private initiative”, say the organizations, in the lawsuit.