In an auction with a single bid, Brazil on Monday sold production rights to develop the giant offshore Libra oil area to a consortium led by Brazilian state-run oil company Petroleo Brasileiro SA. Petrobras took 40 percent of the field, 10 percent above the legal minimum, in an auction that took place in a hotel as hundreds of demonstrators gathered outside, sometimes clashing with police.
France's Total SA and Anglo-Dutch Royal Dutch Shell Plc will each have 20 percent of the partnership, while China National Petroleum Corp and China's CNOOC will each have 10 percent. Highlighting the lacklustre interest by most major oil companies in Monday's auction, the companies agreed to give the government the minimum legal amount of so-called "profit oil" from the fields - or oil produced after initial investment costs are paid. Under the terms of a new production-sharing contract, that minimum was set at 41.65 percent of profit oil.
Though hailed by the government as the start of development for its largest-ever oil discovery, the sole bid reaffirmed the fact that most multinational oil companies were turned off by the auction. Despite the huge potential of the offshore region, many foreign oil producers and other potential investors shied away because they believed the rules for the new concessions offered little upside for profit and too big a role for the government and Petrobras.
At a press conference following the auction, Magda Chambriard, the head of Brazil's national oil regulator, dismissed their absence and suggested that many foreign companies had stayed away because they were daunted by the sheer size of the Libra field, estimated to hold as much as 12 billion barrels of recoverable oil. "Even though there was limited interest, the quality of the (winning) group speaks for itself and leaves me wanting for nothing better," Chambriard said, adding that the next auction for Brazil's big subsalt region isn't expected for at least another two years.
Monday's sale, the target of nationalist sentiment ever since Brazil found the oil, proceeded as hundreds of demonstrators outside the beachfront hotel that hosted the auction squared off against more than a thousand federal troops and other security personnel dressed in riot gear. Some of the protesters, who flipped a local television crew's vehicle and used fence segments from a nearby construction site as shields, clashed with the police, who fired tear gas and pushed back with shields and batons of their own. Helicopters buzzed overhead and navy boats patrolled offshore.
Despite fears by some in Brazil that the sale amounted to the exploitation of the country's natural resources by foreign corporations, the auction was notable for the opposite - the absence of most big, publicly traded international oil companies. The rules governing the sale, giving Petrobras at least a 30 percent stake in every concession and the lead role in all production and exploration, were considered so unattractive by most foreign investors that only 11 companies signed up for the auction, a quarter of what the government had expected.
Even then, some of those who signed up did not participate. Some observers were surprised that Shell and Total took part, as many had expected bidders to consist mostly of Petrobras and other state companies, mostly from China. "The entry of Total and Shell is a very good thing because it shows that non-state international companies are interested in this project," said Julio Bueno, secretary of economic development for the state of Rio de Janeiro, Brazil's top oil producing state. Shares of Petrobras, a company whose investors have grown increasingly frustrated by cost overruns and production delays, surged after details of the bid emerged. Its preferred shares rose more than 5 percent just as the winning the bid was announced.
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