After Failure in Negotiations With Exxon, Petrobras Was Left Isolated in Auctions, Sources Say

The Negotiations Between Petrobras and the American Exxon for the Formation of a Consortium Were the Most Promising Among Attempts to Make Transactions with Private Companies.

Amid the largest oil auction ever held in Brazil, the state-owned oil company Petrobras has been maintaining increasingly frequent discussions in search of foreign partners willing to share enormous signing bonuses and investments, informed sources familiar with the matter. On Thursday, Petrobras announced the sale of Liquigás for 3.7 billion reais.

According to four sources from Reuters, the negotiations between Petrobras and the American Exxon for the formation of a consortium were the most promising among attempts to make transactions with private companies, but the talks ended days before the bidding round.

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As a result, Petrobras made an agreement with Chinese state-owned companies to place bids in the auction, which was considered frustrating by the market, which expected the presence of large foreign private companies.

The sources also indicated that most negotiations to form consortia between the Brazilian state company and other oil companies seemed to have a short lifespan and relatively informal nature. With Exxon, which could have secured a large share of the Búzios block, it was no different.

A possible consortium between the Brazilian state company and the American one, which would also include the two state-owned Chinese companies that purchased 10% of the rights to the Búzios block —CNODC and CNOOC—, would have given a stamp of approval from the private sector for the awaited auction.

The reason the negotiations did not move forward has not yet been revealed; however, one of the sources said that there were disagreements between Petrobras and Exxon over how billions of dollars would be paid to the Brazilian company in compensation for previous exploration.

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Others cited differences over how much to invest in platforms to accelerate production and also the American company’s interest in taking over field operations, something that Petrobras did not agree to.

“It’s a terrible system,” said Minister of Economy, Paulo Guedes, on Thursday. “You need to go through many layers of negotiations just to reach the oil,” to explain why the country has been unable to attract money from foreign oil companies.

Due to the agreement signed between Petrobras and the Brazilian government in 2010, the state company already has rights to develop up to 5 billion barrels of oil equivalent in the region of the onerous concession.

The auction on Wednesday sought to sell volumes beyond those already contracted; as a result, any winning member of a consortium would need to finalize, after the auction, an agreement that would compensate Petrobras for investments already made in the region.

In the end, Petrobras was practically alone in submitting minimum bids for two of the four areas in the bidding round for the excesses of the onerous concession, which authorities expected would cement Brazil’s rise as the undisputed power of Latin America.

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In addition to Búzios, Petrobras also won Itapu, the smallest block on offer, with an individual bid. Sépia and Atapu, the second and third largest blocks in the auction, respectively, did not receive bids.

The government’s revenue expectation was around 106.5 billion reais in signing bonuses. Instead, Brazil collected just under 70 billion reais.

On the 7th, the Brazilian state oil company placed a bid for the largest of the five oil blocks offered in the 6th Round of the pre-salt, called Aram. And the Chinese CNODC committed to a 20% stake.

No private companies made bids for fields known to hold billions of untapped barrels of oil, and this unexpected behavior was disappointing for the market.

After the results, Minister of Mines and Energy, Bento Albuquerque, told Reuters, “We may change the exploration regime, those parameters as a whole, the auction methodology, in other words, the process as a whole is what we are evaluating, and I am sure we will improve it.”