Brazil is set to hold the fifth pre-salt round, which is likely to be the last auction prior to the presidential election in October.
Fifth Round Auction Details
The applications of six companies, which include BP plc (BP - Free Report) , Royal Dutch Shell plc (RDS.A - Free Report) and TOTAL SA (TOT - Free Report) , were the first to receive approval from Brazil’s oil regulator ANP for bidding in September 28. The auction includes four blocks under production sharing agreements (PSAs) in the pre-salt layer.
Other companies comprise China-owned CNODC, Germany’s DEA Deutsche Erdoel and Qatar’s QPI. BP, Royal Dutch Shell and TOTAL currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Of the six companies, only DEA Deutsche Erdoel does not have an exploration and production contract for oil and/or gas in Brazil. A total of 12 applications have been received by the regulator for the bid round and the remaining applications are expected to be evaluated in the next meeting.
The four blocks in the auction comprises Saturno, Tita, Pau-Brasil and Sudoeste de Tartaruga Verde. These blocks are located in the Campos and Santos basins.
This round is the last opportunity for oil companies to secure a stake in Brazil’s coveted pre-salt areas, as the outcome of the presidential elections can transform the rules for future auctions.
The impending elections pose uncertainty over the future of Brazilian oil auctions regime. Some of the candidates in the election support the return of Petrobras, which is likely to boost development of Brazil’s oil resources.
Reforms in Brazil’s Oil Sector
A series of regulatory changes have piqued the interest of oil majors for deepwater blocks in Brazil. Earlier, Petrobras had to be selected as the managing company, which is not compulsory anymore. The number of Brazilian machinery and construction material required for exploration and production has been reduced. The changes came into effect when most oil majors were reluctant to invest in offshore blocks amid rigid regulations and price volatility.
In Brazil’s fourth Production Sharing Round held in June, Exxon Mobil Corp. (XOM - Free Report) was an aggressive bidder. Moreover, consortiums comprising BP, Royal Dutch Shell, Equinor ASA and Chevron Corp. won the rights to explore three blocks in the Santos and Campos basins, besides Petrobras.
Per the International Energy Agency, Brazil is likely to be the second-biggest contributor, after United States, to growing oil supplies outside the Organization of the Petroleum Exporting Countries in the next few years.
A major portion of the contribution is expected to come from offshore drilling. In a recent report by the agency, Petrobras along with other international oil companies will boost global supplies by more than a million barrels a day by 2023, exceeding 1% of the global market.
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