Pre-salt bidding rounds in November in Brazil will feature intense competition from major global operators

Despite Petrobras being able to exercise its preemptive right, the largest global operators are already outlining strategies to acquire blocks in the coveted Campo de Búzios and other assets

The upcoming three-round licensing auctions for Brazil's pre-salt area include four huge resource discovery opportunities (DROs) between two high-level exploration rounds. The deadline for this round is set for November 6, 2019, said Wood Mackenzie, an industry analyst, in a report released on Tuesday.

“We anticipate the Concession Round in the first part of our 2019 Brazil exploration bidding round series. record signing bonus cost. The reservoirs in the basins have excellent quality oil depth, with wells capable of producing up to 50 kbd,” said Wood Mac.

The next three rounds of bidding have one limiting factor in common: the incredibly high cost of entry. And with the timeline of attempts to place the three bidding rounds within weeks, it gives players little time to adjust bidding strategy throughout the process to reflect the results of previous rounds. This means participating companies must plan ahead for all possible scenarios across the three rounds or focus on a specific round. The rounds are very different in nature – Round 16 includes concessions and exploration, while Round 6 offers PSC and exploration.

The DRO will offer 10 billion boe, which corresponds to the discovered volume in excess of the rights transfer agreement (TOR) of 5 billion boe from Petrobras. DRO will be offered under a production-sharing agreement, which includes a $26 billion signing bonus.

Brazilian pre-salt DROs: surrounded by complexity

Wood Mac said there is no more than Brazil's TOR surplus for one of the most bewildering contract structures known to the oil industry.

“Spanning six high-quality pre-salt fields found between 2010 and 2013, the TOR areas hold 15 billion boe, of which 5 billion boe were allocated to Petrobras for the price of US$42,5 billion. This year's 10 billion boe TOR bid round comprises resources that exceed Petrobras' volumes in four of the six areas. One of the recent highlights is the Búzios field, which started commercial production in 2018, it is also the largest for a long period, ”said the analyst.

Petrobras exercises preemptive rights

In May, Petrobras declared interest in operating the Búzios and Itapu fields. Camps are two of the four areas offered in TOR surplus. Petrobras will spend at least 30% of the $18 billion signing bonus.

“We expect a single bid for Búzios, in view of the high bonus and co-participation in advance payment. Itapu was unexpected, as it has the lowest signing bonus and minimum participation in the round's profits. An FPSO is planned for this area in 2023,” said Wood Mac.

Pre-salt in Brazil occupies a privileged area with massive reserves

What is being auctioned? The right to all resources in each field that is in excess of the original volume allocated by Petrobras in the 2010 TOR contract.

The reserves will be auctioned under a production sharing agreement for the surplus volume between 6 billion and 15 billion boe. Wood Mac's estimate is a midpoint of 10,6 billion boe, which is equivalent to one-third of the country's remaining commercial reserves.

The assets are prime pre-salt areas with some of the highest production wells in the world, with a peak of 50 kbd in the best wells in Búzios.