Brazilian Government Paves Way for Petrobras to Auction Billions of Barrels of Oil

The Brazilian government will announce “in a few days” an agreement with the state oil company Petrobras to resolve a multibillion-dollar dispute and pave the way for the auction of billions of barrels of oil off the Brazilian coast, a minister said on Monday. Paulo Guedes told reporters that his team recently sat down with officials from the Ministry of Mines and Energy and that “the agreement is made.”

It was reported on Monday that Petroleo Brasileiro SA (Petrobras), as it is formally known, and the government had “practically agreed” on the amount of a multibillion-dollar payment for Petrobras to resolve the dispute, according to a source knowledgeable about the matter.

According to the source, who requested anonymity to discuss private negotiations, the negotiations have turned to the terms of an oil auction for the excess oil in the so-called “transfer of rights” area in the Santos Basin, which will follow a formal agreement.

Guedes did not provide details about the agreement, and the source declined to comment on the exact amount Petrobras would receive from the government.

However, Senator Fernando Bezerra Coelho, who leads the government’s coalition in the upper house, said last week that the two sides are nearing US $ 9 billion.

The company may also receive nearly the same amount from the auction winners to compensate for the exploratory and infrastructure work it carried out in the basin.

The dispute over the transfer of rights dates back to a 2010 agreement between the government and Petrobras regarding a massive stock sale by the company that would have diluted the government’s stake.

To maintain control of the company, the government obtained new shares in exchange for granting Petrobras the right to extract 5 billion barrels of oil in the area off the Brazilian coast for 74.8 billion reais, or about US $ 43 billion at the time.

However, a dispute over the terms of that transaction left both sides debating additional compensation for years.

Until very recently, the two sides were apart by tens of billions of dollars. Petrobras claimed it was owed up to US $ 30 billion, while some officials said Petrobras owed money to the state.

Authorities have since stated that the gap has narrowed. Now, according to the source, the gap is effectively closed, with both sides focusing on the terms of the subsequent auction.

The Brazilian oil regulator (ANP) estimates there are about 6 billion to 15 billion recoverable barrels of oil in that area, in addition to the 5 billion granted to Petrobras. The government intends to auction the rights to extract the excess oil once the long-standing dispute is resolved.

Petrobras did not immediately comment, nor did the Ministry of Mines and Energy of Brazil. The Ministry of Economy of Brazil, which is also involved in negotiations, declined to comment.

It was reported late last year that the government expects the company to receive 30 billion reais (7.8 billion dollars) or more in compensation from the auction winners for the work it did, in addition to the payment it will receive from the government. However, the exact amount that Petrobras will receive from the winning bidders is still under discussion, according to the source.

The source estimated that an agreement could be ready for publication by mid-April, practically in line with public estimates from the authorities involved in the negotiations.