Analysts criticize economics of Brazil’s Libra field bid

HOUSTON — Less than a week has passed since Brazil’s landmark auction of its gigantic offshore Libra field, but analysts already are saying that the country should not view the results as a success.

The hefty $6.9 billion bonus that the Brazilian government required of the successful bid lessened competition for the offshore field, estimated to hold as much as 12 billion barrels of oil, Raymond James wrote in a Monday analyst’s note. Ultimately, one bid — from a consortium of companies led by Petrobras — was placed in Brazil’s first production-sharing auction for one of its largest pre-salt reservoirs

With the bonus, investment returns on Libra will range between 9 percent and 15 percent, depending on the rate of daily production, Raymond James said. Under a traditional concession agreement, the field would have yielded 23 percent returns, assuming the 12,000 barrels per day production rates, the analysts said.

“Financial terms are thus clearly less attractive than a traditional concession,” Raymond James wrote in a Monday analyst’s note, explaining that the required $6.9 billion bonus meant that, at an oil price of $75 per barrel, the project would only break even at 12,000 barrels per day production.

New frontier: Large oil reserves discovered in Brazil

Under the terms of the offer, the consortium will own 50 percent of the project — and rights to 50 percent of the profit oil. The Brazilian government will own the other half.

Of that 50 percent, Petrobras will hold 40 percent interest, Total and Royal Dutch Shell each will have a 20 percent stake, and CNPC and CNOOC each will have a 10 percent share of the project.

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.

Raymond James estimates that the consortium will be able to book about 61 percent of the estimated 4.35 billion barrels of recoverable reserves, give both Total and Royal Dutch Shell about 870 million barrels each of recoverable shares.