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Brazil’s 13th licensing round flops after 14% of blocks sold

Brazilian oil industry suffered the worst result in a decade, with only 37 of 266 blocks awarded

Brazil’s oil industry was left reeling after a disappointing 13th licensing round in which just 37 of 266 blocks were awarded. This was by far the worst result since the pre-salt discoveries a decade ago.

The biggest winners were Parnaiba Gas and GDF Suez’s Brazilian business, which each hauled in six blocks, many of which were focused on onshore gasfields. Brazilian independents QGEP and UTC also used the round to add to their acreage positions.

Widely seen as a referendum on the state of the oil industry, the round reflected the extent of the problems facing Brazil’s oil industry. It is not just the low oil price. The multi-billion dollar Petrobras Lava Jato corruption investigation has reverberated throughout the industry, with many key suppliers such as Odebrecht also engulfed in the scandal. 

The country’s economy has tipped into recession and its president, Dilma Rousseff, is facing potential impeachment hearings. At the same time, the country’s oil regulations – including stringent local content requirements, high government take and state control – were written up during an oil boom, and don’t reflect the oil patch’s new reality.

“Even bearing in mind the oil price backdrop, this outcome was surprisingly weak,” analysts at the investment bank Raymond James said in a research note. The country’s top oil regulator, Magda Chambriard, acknowledged the frustration: “We sold 14% of the blocks, which is a fair bit below what we were hoping for,” she said after the round. “We will do our homework and study the reasons for this result.”

Foreign oil majors and state-owned Petrobras registered for the round but ultimately decided to sit on the sidelines. Instead, it was mostly domestic independents and smaller foreign players that bid on the mix of onshore and offshore acreage up for bidding.

'We sold 14% of the blocks, which is a fair bit below what we were hoping for'

In total, 17 companies won rights to the 37 blocks, just two of which were offshore. The government earned $32m in signing bonuses, compared with the $1.42bn pledged in the last round in 2013, when oil majors enthusiastically snapped up acreage in frontier deep-water basins.

While disappointment and frustration were the watchwords following the round, the winners expressed more optimism. “The acquisition of these two blocks is an important advance for QGEP and consolidates our position as a leading Brazilian exploration and production player,” the company’s chief executive said.

“With the acquisition of these blocks PGN reinforces its position as Brazil´s largest private operator and producer of onshore natural gas,” Parnaiba Gas’ chief executive Pedro Zinner said.

Several pieces of industry reform legislation have been introduced in Brazil’s Congress, and the disappointing round may spur some action, especially ahead of a hotly anticipated pre-salt bid round expected in 2016 or 2017. Those reforms would address industry concerns over high local content requirements and rules that require Petrobras to operate and own at least 30% of all pre-salt projects.

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