Following Brazil's record oil field auction yesterday, where ExxonMobil (NYSE: XOM) vastly expanded its presence in the country with winning stakes in ten blocks, including eight deepwater blocks in the Campos basin, Horacio Cuenca, Research Director, Upstream Latin America at Wood Mackenzie offers the following commentary:
Horacio Cuenca said: "The 14th round was good news for the Brazilian government from a fiscal perspective and a positive outcome for Petrobras as it establishes a strong partnership with ExxonMobil to develop its pre-salt acreage. The company had previously formed partnerships with world-class operators like Shell, Total and Statoil. These are likely to extend into the upcoming 2nd and 3rd pre-salt rounds and the surplus volumes transfer of rights round expected in 2018."
"For ExxonMobil, a lack of presence in Brazil's pre-salt has been arguably the biggest gap in its portfolio, especially now that Shell holds a dominant position in this prolific, relatively low-breakeven play. ExxonMobil's wins this round and its expected participation in the upcoming 2nd and 3rd production sharing contract rounds in October will help plug that gap and provide the company with perhaps the strongest pipeline of future oil growth opportunities within its peer group."
"Additionally, establishing a material position in Brazil's pre-salt play through exploration success would mark another positive step in repositioning ExxonMobil's oil portfolio lower down the oil cost curve, complementing Permian tight oil and Guyana."
In all, the licensing round raised a record 3.8 billion reais in signature bonuses, more than double the amount authorities had forecasted.
"The round rules heavily encouraged bidding on signature bonuses and the cash raised exceeded government's expectations. But the bonuses were very concentrated. Over 90% of the total offered came from only two blocks, which attracted the two highest bonuses ever paid in a concession round in Brazil."
Other basins during the lease sale, however, received very little interest. "Even after substantial regulatory enhancements implemented by Brazil, it still faces challenges attracting significant investment or a variety of operators to areas outside its pre-salt."