Brazil's sixth licensing round draws 19 bidders

Brazil's sixth oil and natural gas licensing round began under heavy stress for representatives of the 24 qualified companies due to an injunction of a Supreme Court justice that would have suspended concession holders' rights to the oil they find in licensed exploration blocks.
As the round was starting, the president of the court, Nelson Jobim, suspended the injunction but said that the court's 11 members would meet in a plenary session at an undecided date to discuss the matter. The injunction was granted to Roberto Requiao, governor of the southern state of Parana, who argued that the round was unconstitutional.

"Since contracts will be signed in December of this year, and no one can predict what the court will decide, I feel that the licensing round should have been suspended," Wagner Victer, Rio de Janeiro's state petroleum, energy, and shipbuilding secretary, told. Despite this legal challenge, 19 companies paid a record-high bonus totalling $ 220 mm to acquire 154 of the 913 cell-blocks offered during the 2-day bidding round.
"This is by far the biggest sum obtained by the National Petroleum Agency (ANP) compared to the five previous rounds," said Sebastiao do Rego Bastos, president of Brazil's regulatory agency.

ANP calculates that the winning bidders committed to minimum expenditures of around $ 666 mm through 2010.
"Brazilian rounds have rarely put up very impressive percentages in terms of acreage acquired versus offered. So this time, nearly 17 %-154 blocks acquired out of 913 offered-is considered very good, and a big improvement over the 10 % acquired last year, especially taking into account the number of less desirable blocks onshore and in frontier basins that were included in this year's round," reported the international consultancy Macleod Dixon.

Brazil's state Petroleo Brasileiro (Petrobras) disbursed $ 145.6 mm to secure 107 blocks of the total blocks that were acquired. Petrobras took 55 blocks alone and an additional 52 in partnerships, committing itself to invest $ 500 mm in the next 2 years. Francisco Nepomuceno, Petrobras's exploration and production executive manager, said, "Our strategy was to circle blocks acquired in Round 0 in 1998, the so-called 'blue blocks,' to evaluate the discoveries we announced last year."
"Many companies committed themselves to local content percentages which despite being ideal are unattainable, not only in Brazil, but also abroad," said Eloi Fernandez y Fernandez, president of the National Organization of Petroleum Industry. One of the main tasks of the organization is to verify and report to ANP whether companies fulfil contracts.

After Petrobras, Petroleos de Portugal (Petrogal), Lisbon, won the largest number of concessions and also became the most frequent partner of Petrobras with joint ventures in 20 onshore blocks. The Portuguese company will operate 12. Petrogal's director Ricardo Peixoto said his company would invest $ 10 mm over the next 2 years.
EnCana, Calgary, which purchased 8 blocks, will invest $ 60 mm. Petrobras, Shell, and Repsol-YPF took 11 of the 21 blocks in the Santos basin. The area is in deep water, considered of high potential, and contains part of the blue blocks near the giant natural gas discovery on Block BS-500 announced by Petrobras in 2003.

Together and separately, Statoil and Petrobras picked up 7 of the 13 cell-blocks offered in deep water in the Camamu-Almada basin. The bids varied from a high of $ 1.2 mm to a low of $ 233,379. Petrobras and Devon Energy, Oklahoma City, mounted the biggest competition for the C-M-61 cell-block in the Campos Basin. Devon, with partners EnCana, Kerr-McGee, and SK Corp., Seoul, won the block with a $ 9.5 mm bonus. Petrobras-Repsol-YPF offered more money but lost the bid because of lower points for domestic content.
The highest bonus was $ 27.4 mm by the consortium Petrobras and Shell for the ES-M-525 block in the deepwater Espirito Santo basin, near areas were Petrobras found light oil last year. Petrobras and Shell also took the C-M-103 cell-block for $ 6.4 mm and Block C-M-151 for $ 11.3 mm, both in the Campos basin.

The consortium led by Petrobras won areas disputed in the Camamu-Almada basin. Petrobras 60 %, Queiroz Galvao Perfuracoes, Rio de Janeiro, 20 %, and El Paso affiliate Epic Gas International 20 % outbid EnCana for Blocks CAL-M-312 and 372. Synergy Group, Rio de Janeiro, 65 %, and PortSea Oil & Gas NL of Australia, 35 %, took all blocks in the SPOT-T-5 sector of the Potiguar basin, outbidding Aurizonia Empreendimentos and Arbi Petroleo, both of Rio de Janeiro, in four areas and Petrobras in two.
While Petrobras bid mainly for blocks near its deepwater discoveries, small Brazilian companies took onshore areas in the northeast. This was the case of Aurizonia and Queiroz Galvao, which have already exploited oil in Brazil, plus newcomers such as W. Washington Empreendimentos e Participacoes, Sao Paolo, and Arbi Petroleo. Besides Petrobras, 7 Brazilian companies won blocks, a record in these six rounds.

Besides the lawsuit filed by Gov. Requiao, another two motions of unconstitutionality that will directly affect the oil sector are awaiting a decision of the Supreme Court. The court will analyse the Noel and Valentim laws, both approved by Rio de Janeiro's state legislature.
The Noel law calls for charging 19 % ICMS tax over crude oil prices produced in Rio de Janeiro state. The state's crude oil output represents 80 % of Brazil's total production.
The Valentim law calls for an 18 % tax on imported equipment to be used in the state.

Joao Carlos de Luca, president of the Brazilian Petroleum and Gas Institute and president of Repsol-YPF in Brazil, told "that these laws [Valentim and Noel] have caused a sharp drop in investments because foreign companies do not know whether these laws are constitutional or not and whether they will be maintained by the Supreme Court."
Legal experts said that the Valentim law clashes directly with the federal law called Repetro that grants a tax exemption on imports of equipment for oil exploration and production and which the government recently extended to 2020 from 2007.