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Brazil to Auction Oil Blocks as Offshore Rules Face Revisions




By Jeb Blount

Dec. 18 (Bloomberg) — Brazil plans to begin its 10th annual oil rights auction today as the government of Luiz Inacio Lula da Silva considers revising the country’s petroleum rules in the first major overhaul since a state monopoly ended in 1997.

The National Petroleum Agency, known by its Portuguese initials, ANP, plans to sell 130 exploration blocks covering 70,000 square kilometers (27,000 square miles) of onshore areas. The sale is the first to exclude offshore blocks and comes a year after areas near Tupi, the largest discovery in the Americas since 1976, were pulled from last year’s auction.

Estimates suggesting the so-called pre-salt cluster around Tupi may contain 80 billion barrels of oil, or enough for more than 10 years of U.S. consumption, prompted the government to try to gain more control and increase oil revenue. Tupi, a 5 billion- to 8 billion-barrel field, was announced in November 2007.

“This auction is both good news and bad news,” said Adriano Pires, head of the Brazilian Infrastructure Center, an energy and transportation research group. “On one hand, there is going to be an auction despite resistance. On the other, the entire successful system of Brazilian auctions is under question.”

Almost 50 companies have qualified to take part in the two- day auction. Seventeen international companies include U.S.-based Exxon Mobil Corp. and Hess Corp., Royal Dutch Shell Plc, the U.K.’s BP Plc, and Galp Energia SGPS SA of Portugal. The 30 participating Brazilian companies include Petroleo Brasileiro SA, Brazil’s state-controlled oil company, and OGX Petroleo e Gas Participacoes SA.

Rio de Janeiro-based OGX, which bought the largest amount of blocks in the auction in November 2007, plans to consider bidding this year.

Offshore Appeal

“We’re looking and we’re studying the blocks on offer,” Francisco Gros, OGX’s vice chairman and a former chief executive officer of Petrobras, said Dec. 10 at a Standard & Poor’s event in Rio de Janeiro. “The blocks, though, aren’t the most interesting. Ninety percent of Brazil’s oil is produced offshore.”

Gros would like the Brazilian government, which has delayed releasing its revised oil rules several times in recent months, to announce its decision soon.

“It’s great to consider changes to Brazil’s petroleum legislation as long as the changes are made now, and they are favorable to investors,” he said. “Oil discoveries can pull Brazil out of the mud, help us economically move from the slums to the good side of town.”

To contact the reporter on this story: Jeb Blount in Rio de Janeiro

Last Updated: December 18, 2008 05:49 EST

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