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TotalEnergies and Shell Stand Out in Brazilian Oil Auction

European supermajors TotalEnergies SE and Royal Dutch Shell Plc will join Brazil’s state-controlled oil giant at two key fields, marking the latest expansion in Latin America’s largest crude producer and an important victory for President Jair Bolsonaro.

Petrobras's P-51 oil platform in the Marlim Sul field, 150 kilometers off the coast of Rio de Janeiro.
By Mariana Durao and Peter Millard
December 17, 2021 | 01:06 pm

Bloomberg — European supermajors TotalEnergies SE and Royal Dutch Shell Plc will join Brazil’s state-controlled oil giant at two key fields, marking the latest expansion in Latin America’s largest crude producer and an important victory for President Jair Bolsonaro.

TotalEnergies won stakes in both of the deepwater fields on offer Friday, and Shell was awarded a piece of the Atapu field. Both bids surpassed minimum requirements and market expectations. The French energy titan bid with Malaysia’s Petronas and Qatar Petroleum for the rights to Sepia by offering 37.43% of oil output that’s left over after accounting for extraction costs and taxes. Shell’s partners in the successful Atapu bid were TotalEnergies and Petrobras.

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The auction marks a turnaround from just two years ago when international oil explorers shunned the sale, and a second failure would have been an embarrassment for the business-friendly Bolsonaro administration. Sweeter terms and higher oil prices enhanced the appeal of Brazil’s offshore oil trove which includes some of the world’s largest oil discoveries this century.

“I’d like to celebrate this process and the increase in the number of participants,” Economy Minister Paulo Guedes said during a press conference at the event. “More players means more investment and production.”

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Petrobras already operates both fields and exercised its rights to a 30% stake in Sepia. Its new partners will have to compensate it for investments made to date and Petrobras won’t increase leverage to pay for the fields, Chief Financial Officer Rodrigo Araujo Alves said.

“Eventually there may be some additional dividend distribution because there will be additional cash inflow in 2022,” Alves said.

In 2019, Sepia and Atapu failed to attract buyers in what was possibly the world’s priciest oil auction, with bidders on nearby fields paying signing bonuses to the government that totaled $9 billion. Sepia and Atapu are part of a cluster holding an estimated 15 billion barrels of recoverable crude, according to a study by Houston-based consultancy Gaffney, Cline & Associates. The area also includes Petrobras’s Buzios and Itapu fields.

Petrobras already produces oil in the area, eliminating most exploration risks. The company’s partner in a block that borders on Sepia is Portugal’s Galp Energia SGPS. Galp, Total, and Shell are its partners in a block that borders on Atapu. The pre-salt region has driven Brazil’s growth in recent years.

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Crude from the sub-salt layer of rocks off Brazil’s coast has less sulfur than many grades, reducing the amount of pollution involved in converting it into gasoline. TotalEnergies described the pre-salt as low- emissions reserves in a statement.

“The presence of not one but two European supermajors proves that the pre-salt is a long term investment play that has the necessary and sufficient conditions to continue producing through the energy transition,” said Schreiner Parker, an analyst at Rystad Energy AS.