MercoPress. South Atlantic News Agency

Brazil insists that Libra oil field auction was a major success

Minister Lobão said “seven of the 11 largest (oil firms) are participating, therefore we could not imagine a bigger success”

Brazil’s government is planning to give a boost to state-run oil company Petróleo Brasileiro by financing its participation in the October 21 auction of Libra, the country’s largest-ever oil discovery, the O Estado de Sao Paulo newspaper reported over the weekend.

The Brazilian government said last week that the Libra auction attracted only a quarter of the interest expected after many large, wealthy oil companies with experience in the region declined to sign up for the sale.

But Mining and Energy Minister Edison Lobão said “seven of the 11 largest (oil firms) are participating, therefore we could not imagine a bigger success,” confirming that Brazil’s headache will be for Petrobras to meet its contractual obligation to lead the site’s development.

The government is also considering other measures to help cash-strapped Petrobras pay for the large investments it is required to make in Libra under a 2010 Brazilian oil law, O Estado reported citing an unnamed government source.

These measures include the raising of Brazilian fuel prices, reduction of dividends on the government’s shareholding in Petrobras and changes to the terms of a 2010 oil-for-stock swap.

Petrobras Chief Executive Officer Maria das Graças Foster said this week that Petrobras has the capacity to explore and produce 100% of the oil from Libra, but does not have the financial capacity to cover the investments needed to develop the area.

Under the oil law, Petrobras will have to come up with 4.5 billion Reais no matter which of 11 companies signed up for the auction win the offshore area, the paper said.

The payment is Petrobras’ minimum share of the 15 billion Reais up-front fee that winners will pay Brazil for the rights to Libra. The winning bidder will be the company or group that gives Brazil’s government the biggest share of Libra’s future output to sell on its own account.

Under the law, Petrobras must take a minimum 30% stake in the winning group and lead exploration and development in the area as the group’s operator.

Petrobras must also supply at least 30% of the estimated 400 billion Reais (180 billion dollars) over 35 years that the government believes will be needed to develop the area. Libra, Brazil’s largest-ever oil discovery, has an estimated 8 billion to 12 billion barrels of oil, enough to supply world needs for three to five months.

Decreasing output from older offshore oil fields, delays in bringing on new areas, and government refusal to let the company charge Brazilians world prices for gasoline, diesel fuel and cooking gas has crimped revenue and forced the company to borrow more to pay for investments.

Petrobras is also in the middle of a 235bn five-year expansion plan. The plan, the world’s largest corporate spending program, does not include spending for Libra.

With Exxon Mobil, BP, BG Group, Chevron and other investor-owned oil companies choosing to stay away from last week’s auction, Asian state-owned companies, such as India’s Oil & National Gas Corp Ltd, Malaysia’s Petroliam Nasional, or Petronas, and China’s CNOOC Ltd, dominate the list of 11 companies that agreed to pay the 2.05 million real (US$931,818) registration fee.

Magda Chambriard, head of Brazilian petroleum regulator ANP, said last week that she had expected “more than 40” companies to bid for Libra.