A consortium of five oil companies that turned out to be the sole bidder for Brazil’s gigantic offshore Libra field will share with the Brazilian government the risk and rewards of a region estimated to contain up to 12 bil- lion barrels of oil, the government said Monday.
The winning consortium of oil companies will pay a $6.9 billion signing bonus and agree to share a percentage of oil produced after expenses.
The group comprises Brazilian national oil company Petroleos Brasileiros, or Petrobras, with a 40 percent share; Shell Brazil, 20 percent; France’s Total, 20 percent; and two Chinese companies, CNPC and CNOOC, with 10 percent each.
Repsol, a Spanishjoint venture with China’s Sinopec, announced Monday morning that it had bowed out of the competition.
The auction in Rio de Janeiro was the first since Brazil adopted new laws governing contracts for its vast pre-salt offshore regions — oil deposits long hidden beneath layers of salt.
It will be the first time Brazil has entered into a production-sharing agreement — an arrangement under which the government’s partners bear the costs of exploration and production and take a cut of the crude they produce. Once oil starts flowing, the partners will deduct their costs from the proceeds of that oil and split the remaining crude, called profit oil, with the government.
Under the terms of the offer, the consortium will own 50 percent of the project — and rights to 50 percent of the profit oil — and the Brazilian government will own the remaining half. The consortium will offer 41.65 percent of its share of the profit oil, which was the minimum amount allowed under the terms of the contract.
Just moments after announcing the auction result, Brazilian officials said it affirmed the logic of the new laws.
“It is a win scenario,” said Roberto Ardenghy, head of trade promotions for Brazil’s consulate in Houston. “You have a very balanced consortium with the national oil companies like CNPC and CNOOC, but also big international players like Shell and Total with 20 percent each.
“The participation of the companies proved that international operators have indicated that they are favorable to investing in Brazil, and that these are good terms for projects in the pre-salt area.”
The auction has drawn protests from the nation’s oil workers’ union and others objecting to production-sharing, and soldiers protected the building where the bid took place as protesters gathered outside Monday, according to local reporters at a Web-streamed news conference.
But supporters of the deal say sharing the oil is necessary to attract the capital and technical expertise to tap the challenging deep-water field.
Magda Chambriard, general director of the Brazilian National Petroleum Agency, predicted while promoting the auction in Houston two months ago that it would draw dozens of bidders.
But only 11 companies other than Petrobras signed up to participate in the auction, and the five forming the consortium submitted the only bid.
Analysts say the strict terms of the contract reduced interest and may force the government to create more attractive terms for future pre-salt auctions.
“The big limitation in Brazil is that Petrobras has to be the mandated operator,” said Steve Otillar, an attorney specializing in international upstream energy projects with Akin Gump. “Most companies prefer to be in control.”
The law under which the contract was awarded Monday requires that Petrobras operate all pre-salt projects and retain at least 30 percent ownership. The laws also include ambitious local content requirements that some analysts say exceed the capacity of the domestic economy.
While multiple companies showed initial interest in the potentially prolific play, some major players including Exxon Mobil Corp. and BP backed off.
But Chambriard said at a news conference following the auction that it was the project’s huge size and gigantic price tag that frightened off some potential bidders.
The production-sharing contract is expected to be signed in November and marks a key step in funding the South American nation’s ambitious development strategy, including boosting its ship-building and other energy-related sectors.
“With these five companies we are absolutely sure that Libra is going to have the best development possible, if you consider the Brazilian people as an important part,” Chambriard said.
She said the government has earmarked 75 percent of the oil proceeds for education investment and 25 percent for health care.