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Libra | Pass the Pre-Salt

«Going once ... going twice ...»

«Going once … going twice …»

Unions, business federations and major civil society groups gear up for protests on Monday, when the government plans to auction off exploration rights to Libra, the largest pre-salt oil field in Brazil and the first opened for bidding.

Source: Portal ClippingMP.

The Treasury Ministry has its eye on R$ 15 billion in signing bonuses as a solution for improving the primary surplus. China, represented by three state-owned companies, may be represented in different consortia because one of the companies, Sinopec, has associated itself with Repsol.

The army has been mustered to control protesters. The oilworkers, historic allies of the PT, are taking the side of the streets this time … reminding Dilma that she promised not to privatize the pre-salt assets. And a strike has paralyzed Petrobras.

Magda Chambriard, director-general of the National Petroleum Institute (ANP), responds to this criticism:

— After intense discussions with the Congress, we decided that we are a nation that wants competition. The model for most of our maritime platform is the concession. In the case of the pre-salt, the model will be apportionment. There is also a monopolist group (it favors a state monopoly), but it is in the minority.

There will be less competition than expected. Magda herself had spoken of 40 qualified groups. In the end, there were 11, and two have not yet paid their guaranty. Of the remaining nine, three are Chinese state-owned firms.  são estatais chinesas. Brazilian law prevents the same controller from taking part in different consortia. Magda says that the Chinese CNOOC and CNPC will have to bid together, but that Sinopec can join another consortium.

In an interview on Globonews, I asked Chambriard how Brazil would protect its technology for deepwater exploration, given that the Chinese have a reputation for copying technology and then going home.

— Brazil is the leading deepwater producer in the world. It conducts 25% of deepwater exploration. No one is going to compete with us  he said.

I argued that the danger is precisely this: We have secrets to keep, and Petrobras will partner with the winning group.

— Petrobras will be the operator, which implies an excellent opportunity for privileged access. This is our guaranty.

I asked why another state-owned firm, with voting and veto rights, should work closely with  Petrobras. Whether this did not express a lack of confidence in the company. She said that everyone trusts and that the purpose of PP SA is not to prop the company up.

 Brasil had 341,000 km2 of exploration fields in 2009, but that figure fell to 97,600 km2, a decline of 66,7%, when auctions were suspended. Magda does not agree that Brazil made a mistake in postponing the auctions. Preparations resumed this year with the same model of concession for areas that are not pre-salt. She said the discovery of the pre-salt led to a review of the concession model and the percentages of royalties. 

The fact is that in 2007 Brazil seemed like the ultimate frontier and now is merely one among others. There are new fields Africa, Mexico is opening its petroleum sector, and the U.S. is beginning to explore shale gas:

— I don’t think we made a mistake. What we have gleaned from the scenario is enormous interest in the eleventh round, to be disputed by 64 companies.

According to Magda, the Libra field will demand R$ 130 billion in investments on the development of the area alone. Over the next ten years, 12 to 18 platforms must be built. Production will begin in the fifth year. Peak production will be 1.4 million barrels per day:

— That is way we suggest that the next auction be held two or three years from now.

Immediately following the Libra auction, the 12th non-presalt oil and gas auction will be held, in which the government will offer shale gas fields underneath the Guarani Aquifer. There is an enormous risk of contamination. Magda said that a month of public hearings will be held to debate these risks.

Last Minute Legal Skirmishes

According to another local press source, the auction is the object of some twenty lawsuits in a last-minute attempt to bar the proceedings.

Source: G1

Former Petrobras director Ildo Sauer, who has sued to suspend the Libra auction — the first auction involving pre-salt assets — said Friday that he expects to receive an injunction to prevent the auction, which takes place Monday.

The suit argues that the process suffers from illegalities and that it is against the national interest.

According to Sauer, Judge Carla Meira agreed to expedite the case on Friday, and “we believe our arguments will make the judge very comfortable in ruling in our favor and granting the injunction.

Among the arguments contrary to the auction cited in the case is that it will lose the government between R$ 176.8 billion and R$ 331.3 billion, according to a simulation presented as part of the complaint. This sum equals the difference between what the government would earn with Petrobras operating the field on its own, with oil above US$ 160 or US$ 60 [sic].

Sauer, also a USP professor, filed a citizen’s company in a federal court in São Paulo on Thursday, requesting the suspension of the auction. “We believe this auction is illegal because it fails to demonstrate that the auction is in the national interest … ,” he said at a Friday press conference.

Among the illegalities Sauer perceives is the lack of competition, given that Petrobras cannot explore the field on its own, and the lack of a definite limit on oil that will remain government property, which he says will be below the limit of 41.65% established in the public notice.

According to the lawsuit, the public notice provides that the quantity of “petroleum remainder” will suffer a reduction because of the average daily production of the wells and the price per barrel, which is illegal. According to the pricing tables, this quantity should rise to 9.93% if the price of oil falls below US$ 60.01 and the average production of the wells below 4,000.

Backgrounder

This backgrounder from EBC, the state broadcaster, was useful.

The auction of the Libra Field, in the Campos Basin, scheduled for Monday (21) will be the first round of competitive bidding for concessions based on shared production in petroleum and natural gas in the pre-salt stratum.

See also

  • Oilworkers walk out against pre-salt auction
  • Leadership of state-owned company that will manage pre-salt exploration is named
  • ANP CEO says that partition mechanism is the best way to explore the pre-salt
  • ANP releases list of 11 companies interested in the pre-salt auction

As we have seen, others estimate the participation of four consortia, and I have just read a story in the Folha de S. Paulo on fears that only one consortium will participate, if any.

Infrastructure for exploring pre-salt remains a challenge for Petrobras

Oil from the pre-salt layer was discovered by Petrobras in extremely deep waters, from 5,000 to 7,000 meters below the case, which makes it difficult — and expensive — to explore and produce.

Under the scheme chosen for the Libra auction, the federal union is guaranteed the right to manage the reserves in this region. The state-owned Pré Sal Petróleo S.A (PPSA) was created precisely in order to represent the federal government in all dealings. The model also guarantees that the companies will divide a portion of the volume produced with the federal union. It is estimated, based on government sources, that the amount recuperable from the area varies between 8 and 12 billion barrels. Between 12 and 18 platforms will be constructed.

Peak production is estimated at 1 million barrels per day. Currently, Brazil produces 2 million barrels per day. Investment in the project will reach US$ 181 billion over a 35-year period. Petrobras, meanwhile, will be the exclusive operator of Pré-Sal, guaranteed at least a 30% stake in the winning consortium.

Disputes

Along with Petrobras, which may augment its share in the transaction, , eleven companies are vying for the remaining 70%. They are: China’s CNOOC and CNPC, Mitsui of Japan, Petrogal of Portugal, the Spanish-Chinese Repsol/Sinopec, Total of France, Ecopetrol of Colombia, ONGC Videsh of India, the Anglo-Dutch Shell and Petronas of Malaysia.

The winning bid will be selected according to how large a percentage the bidder is willing to pay the federal union for excess petroleum. By law, the minimum is  41.56%.  The division of income between the Union and the winning consortium will take place monthly, and the winner of this first auction will have to pay the Union a bonus of R$ 15 billion.

Under the rules, the government will receive, at a minimum,75% of the revenues of the project, bearing in mind on all the different kinds of returns predicted.

Contrato

The partition contract will be valid for 35 years, four of which will focus on the exploration of resources and the others, on development and production. The winning bidders will be free to explore petroleum belonging to its quota, in order to ensure that the oil ends up in the right hands. In specific cases of emergency, however, the ANP may limit export volume.

Royalties

The royalties will represent 15% of the nation’s total volume of oil and gas production, which is expected to yield $900 billion over 30 years to the federal union, states, and municipalities — taking into account the payment of royalties and the sharing of production. These will amount on average to R$ 30 billion per year, the same income currently earned from all preexisting oil production in Brazil.

As provided by a law passed in September of this year, 75% of royalties will be used for education and 25% for the healthcare system. The law also provides that 50% of the Pre-Salt Social Fund must go to education and healthcare.

Anti-Auction Protests

Various civil society groups have come out against the Libra auction. Among these are unions, politicians, academicians and experts, all of whom do not believe in the proposal to share income from oil reservers with foreign companies. Oil workers crossed their arms last Thursday, calling for the auction to be suspended.

Market observers also disagree with the model proposed by the government and with the scale of state intervention in the case. Still others question the technological capabilities of Petrobrás … to make the investments called for by the contract.

Security Tightened

O governo convocou na quinta-feira (17) o Exército e a Força Nacional de Segurança para atuar no evento em que será anunciado o resultado do leilão de Libra, em um hotel na Barra da Tijuca, Rio de Janeiro. Serão 1.100 agentes de segurança incluindo, também, as polícias Civil e Militar, o Corpo de Bombeiros e a Guarda Municipal do Rio de Janeiro.