Why the outlook for Brazil’s next oil bidding round is grim

Brazil’s 17th oil concession bidding round will see only 10 companies participating, the lowest since 2017, after key reforms in the local oil and gas sector were carried out by the government.  

The latest firm to have its registration approved by regulator ANP was 3R Petroleum, the watchdog said on Friday, joining Petrobras, Chevron, Shell, TotalEnergies, Ecopetrol, Murphy, Karoon and Wintershall. 

Four years ago, a total of 36 firms registered for the 14th round, the first held following the reduction of local content requirements and the extension of the Repetro oil and gas tax incentive regime – both long demands of the industry. 

On that occasion, 37 exploration blocks were acquired, 13 offshore and 24 onshore. 

The 15th and 16th auctions, which took place in 2018 and 2019, respectively, had 21 and 17 companies registered and 22 and 12 offshore assets sold. 

The decrease in the number of companies registered for the round scheduled for October 10 can be, in part, explained by the creation of the open acreage program in 2019, through which Brazil has tendered its onshore areas, in addition to offshore blocks previously offered but not bid for. 

Even so, the absence of medium-sized firms such as Enauta and Perenco, as well as large multinationals like ExxonMobil and China’s CNOOC and CNODC, in this year’s round, is noteworthy. 

The latter group could be saving cash for the transfer of rights surplus tender, in December, which will offer the low risk, highly prolific Sépia and Atapu areas. 

But there are other reasons behind the lack of interest in the 17th round. 

FGV Energia researcher Fernanda Delgado believes the uncertain economic environment, both domestically and internationally, has put companies off. 

“They’re waiting to see what will happen: how OPEC's production quotas will be released, how demand will behave and how the market will balance,” Delgado told BNamericas. 

Besides the “competition” with the transfer of rights tender, Delgado mentioned the environmental aspect as another issue that may have discouraged market players. 

“The companies are resentful of some areas where environmental licensing is troubling,” she said. 

In June, a federal judge in Brazil’s Santa Catarina state ruled that ANP must exclude from the 17th round 42 exploration blocks in the Pelotas offshore basin. 

Off Rio Grande do Norte state, in the northeast region of the country, the Potiguar basin may also present environmental licensing difficulties. 

Requesting anonymity, the CEO of one of the groups that will not participate in the auction told BNamericas that the lack of interest is due to the fact that several areas are in new frontier, riskier basins. 

“And, with the energy transition, exploration in frontier areas becomes less interesting,” he said. 

Rodrigo Leão, the technical coordinator at Brazilian petroleum institute Ineep, said the most attractive areas to be offered in the 17th round are in the Santos and Campos basins where blocks have already been acquired, like SS-AUP5 (BP Energy and Chevron), SC-AP1 (ExxonMobil) and SC-AP3 (Petrobras).

But there’s a caveat. “I imagine that companies are not really interested in entering areas close to these [areas acquired] due to the risk of unitization [when reservoirs or deposits overlap blocks],” he told BNamericas, adding Chevron is expected to bid for new assets in Santos and Petrobras in Campos. 

Leão also highlighted that the rhythm of bidding rounds in Brazil does not seem to follow the appetite of the industry. 

“Excluding the pre-salt, I don't think there’s such a large volume of companies willing to compete for these assets,” he said.

The 17th bidding round will offer 92 blocks with exploratory risk totaling 53,93km2, located in 11 sectors of four sedimentary basins: Campos, Pelotas, Potiguar and Santos. A map detailing the areas is available here.