Highlights and Commentary from Brazil Concession Round 15

Brazil's Round 15 closed yesterday, 29 March 2018, with the award of roughly half of the offshore blocks on offer. The round occurred six months following the closing of rounds 14 and 3 PSC last year, continuing the country's aggressive licensing push.

Commenting on the results of the auction, Horacio Cuenca, research director for Latin America at Wood Mackenzie, said: "In contrast to previous rounds, Round 15 stood out as more diverse, both in terms of companies bidding and geographies bid on. Although improved oil prices played a part, Brazil's recent regulatory improvements clearly had an effect in this round drawing a more diverse group of Majors and large E&Ps, and bids to less established basins."

As expected, all the blocks in the highly prospective Santos and Campos basins, with pre-salt exposure, drew most of the bidding. The Campos basin alone received US$2.3 billion in bonuses.  Leading a consortium formed by Petrobras and Qatar Petroleum, ExxonMobil paid US$848 million for block C-M-789, the highest bonus ever paid for a concession block.

ExxonMobil and Petrobras dominated the Round. ExxonMobil acquired stakes in eight deepwater blocks, six with pre-salt leads identified. Six of the blocks are operated and two non-operated in partnership with Petrobras and Statoil.

Petrobras did not present bids in the Santos basin but partnered with ExxonMobil and Statoil to win the two blocks adjacent to Dois Irmaos (an area of PSC Round 4), paying the second-highest individual bonuses of the round (US$1.1 billion together).

In contrast with recent rounds, the less established Potiguar and Ceara basins also saw active bidding, which has not happened since Round 11 in 2013. Low bonus and work commitment levels drew attention to this Equatorial Margin acreage where securing environmental licenses has been difficult in recent years.

Round 15 also saw a new entrant into Brazil's pre-salt, Qatar Petroleum International Ltd. The company joined Petrobras and ExxonMobil to bid heavily for pre-salt acreage, breaking the trend of partnering with Shell seen in previous Brazilian PSC and Mexico deepwater rounds.

"Qatar Petroleum is following the trend of acquiring acreage in Brazil's prolific pre-salt basins and lower-cost oilfields in Mexico. The company went big in the recent Mexico deepwater round and has now made a splash in Brazil," Mr. Cuenca said.

Breaking a long-term trend, Chevron was also very active in the round, picking up four blocks. "Chevron is active again after years of focusing on existing assets. Its lack of exposure in Brazil's pre-salt had been a noticeable gap in its portfolio," noted Mr. Cuenca.

The round set a new record in bonus government revenue, with a total of US$2.4 billion committed, well above government expectations of US$390 million and almost double the US$1.2 billion raised in Round 14 last year. Looking ahead to PSC Round 4 in June, however, a realistic cap on bidding would serve Brazil well to maximize overall government revenue and ensure the development of future discoveries.

"Last year, after Petrobras and ExxonMobil placed record high bids in Round 14, it is very likely Brazil adjusted its bid strategies upwards in the October PSC Rounds 2 and 3," Mr Cuenca said. "If that were to happen again in the upcoming June PSC Round 4, Brazil risks setting excessively high government profit-share rates and establishing a new, potentially uneconomic, norm for its pre-salt projects of the coming decade.”