Brazil’s PSC Round 6 disappoints as Petrobras lodges sole bid

Speaking after this morning’s PSC round, Juliana Miguez, from Wood Mackenzie’s Latin America upstream team, said: “Petrobras has returned to the headlines. One day after it dominated the Transfer of Rights Surplus round, the NOC placed the only bid of today’s auction.

“Despite 17 companies registering - a record for participation in a PSC auction – the Majors and small caps steered clear of the pre-salt acreage on offer.”

Marcelo de Assis, head of Wood Mackenzie’s Latin America upstream research, added: “The results of PSC 6 round in Brazil were disappointing. We live in a world where there is focus on capital discipline and on value instead of volume. And with the energy transition on the horizon, there is no appetite for an oil carnival at any cost.

“Considering yesterday´s partial success and today´s disappointment, we should start discussing a broad positive agenda for the future of the Brazilian offshore.

“In my view, a number of topics deserve attention, including clarity over the country’s fiscal regime. It is far from ideal to open a bid round when major changes are being discussed.”

The sixth pre-salt auction was the fourth and final of this year’s Brazilian rounds. PSC Round 6 offered 8,638 square kilometres across four large and highly prospective Santos basin pre-salt blocks and a smaller Campos basin block. Despite holding 40 billion barrels of unrisked in-place prospective resources, according to the ANP, the blocks failed to attract competition.

Petrobras won the Aram block, with a US$1.25 billion signature bonus.

Ms Miguez said: “The dry well at Peroba, which was awarded to Petrobras, BP and CNPC in PSC Round 3 in 2017, may have put companies off. The only discovery to date from blocks awarded via PSC rounds has been Mero.”

She added that since the 2017 rounds, the Majors have built up their holdings in Brazil, and may not feel the need to take on fresh acreage at this stage.

Regulatory hurdles may also have dampened appetites. The higher government take throughout project lifetimes under a PSC has a significant impact on full-cycle breakevens and may lead to blocks being relinquished or discoveries left undeveloped.

De Assis said: “This is not enough to boost interest in the upcoming rounds. The potential to deliver commercially-viable volumes can be restricted by continued licensing and permit issues. ANP and IBAMA should be manned and equipped to deal with licensing and guidelines in an expedited manner. Simplification of the Brazilian tax regime beyond Repetro-SPED is also an issue that needs to be addressed urgently.”