Brazil's Lux Oil eyeing bidding round, M&As

One of the newcomers registered to participate in Brazil's next oil and gas bidding round, Lux Oil is seeking exploration and production assets to build its portfolio.  

To achieve this, the company is counting on a favorable scenario for mergers and acquisitions, CEO Edmundo Marques told BNamericas.  

In this interview, he explains why there are many ongoing M&A opportunities and shares Lux Oil's expectations. 

BNamericas: What are the origins of Lux Oil, and why the interest in the next ANP bidding round?  

Marques: Lux Oil was created in December 2024 from a vision of opportunity in the secondary market for independent companies. To provide context, I worked at Petrobras, at Ouro Preto and helped create 3R Petroleum, where I was a director. I also worked at Enauta and had the opportunity to establish partnerships with companies such as Petrorecôncavo, all of which have been highly active in Petrobras’ divestment program.  

I'm very familiar with these divested assets, which form a secondary production market, ranging from 100 to 1,000b/d. They hold enormous potential for a low-cost company. In the onshore sector, Petrobras never needed to fully develop or maximize production from these assets, and they quickly became marginal in its portfolio. However, they're not marginal for the first wave of independent companies.  

Many of these assets, acquired by private firms, are underperforming in terms of production, have high production costs and no longer make sense for their current owners to retain. However, as they still have significant reserves, they could benefit from investments by low-cost companies like Lux Oil. 

These opportunities will necessarily start to emerge because the lock-up period in Petrobras' initial contracts has ended. This restriction prevented buyers from reselling acquired assets for a year, but that period has now expired. Now, companies are internally reassessing their portfolios, determining which assets they should retain or sell.  

We expect that companies like Brava Energia, Carmo Energy, Petrorecôncavo and possibly even Origem Energia will begin selling off these smaller assets.  

BNamericas: Brava Energia has already started doing that.  

Marques: Yes, they've begun, and we participated in the first bidding process. We made a very aggressive offer, but unfortunately, it didn't meet their expectations.  

Since then, our team has grown significantly stronger. We have industry veterans who have shaped Brazil's oil sector. I was at Petrobras when it discovered the pre-salt fields, and I was a manager of the Equatorial Margin. I'm a geologist, a geophysicist and exploration specialist, and I recognize the value – especially with high oil prices – of conducting exploration, though always with a cautious approach.  

We've also brought in an investor who is now the company's chairman, Elias Tasca. He has a strong interest in Brazil and sees many opportunities here despite the challenges. The Brazilian oil sector is highly regulated, and there have been no significant contract breaches in the country's recent oil history, which reassures investors.  

Another factor attracting investors is the expected oil price, which we anticipate will remain in the range of US$65-75/b in the short to medium term. Based on these numbers, with a low-cost and experienced company partnered with a risk-tolerant investor, we're in a strong position to capitalize on opportunities in the secondary market as well as participate in ANP's open acreage.  

BNamericas: This round is more focused on new exploratory frontier assets, where the risk is higher. How do you see this?  

Marques: The risk is higher, but so is the reward. We're analyzing the situation. I'd prefer if there were more traditional assets available, but without a doubt, this round is designed for frontier areas. Some very interesting offshore frontiers are included, though offshore isn't our focus at the moment.

So, we're looking at two areas: one in the Tucano basin and another in Parecis, which is a major frontier.  

BNamericas: Will you enter the auction alone or could it be through a consortium? Do you aim to be operators or would you consider joining as partners only?  

Marques: We've not yet decided whether we'll submit an offer. We're still analyzing the blocks. However, we have no issue forming partnerships or not being the operator. We're completely open to different approaches.  

We also have a strong strategic partnership in operational areas with the Argentine company Pecom, which is helping us evaluate the assets we intend to acquire in the secondary market. Pecom has been able to maximize reserves in Argentina through tertiary recovery techniques in their onshore fields until the discovery of Vaca Muerta, which elevated Argentina to a new level.  

Argentina has undergone an experience that we in Brazil haven't: maximizing the recovery factor in mature fields. This is because, in Brazil, we made major offshore discoveries and now have the full potential of the Equatorial Margin.  

BNamericas: Given your relationship with Pecom, would you consider investing in Argentina?  

Marques: For now, besides Brazil, we're analyzing opportunities in Texas. Argentina is an interesting market, but the entry cost, to acquire assets, is currently too high.  

BNamericas: Are you currently awaiting the outcome of any asset sale processes?  

Marques: Yes, we're involved in two processes.  

BNamericas: In Brazil, correct?  

Marques: Yes. We want to be one of the players evaluating opportunities, but with a conservative approach, given our deep knowledge of each asset's history. This provides greater confidence for investors.  

We plan to raise capital. Initially, we're seeking debt financing because, despite current high debt levels, equity financing is significantly more expensive. There's also the possibility of structuring a mix of debt and equity to bring investors into our projects.