Foreign Group Buys Brazilian Oil Field
Brazil on Monday sold the rights to develop a huge oil field to a consortium of five companies.
A demonstrator hurt during protests against the auction in Rio de Janeiro on Monday REUTERS RIO DE JANEIRO—Brazil on Monday sold the rights to develop a huge oil field to a consortium of five companies at Monday's auction, in a boost to the government's state-heavy strategy for developing its newfound oil wealth.
The sole bidder was one consortium made up of many flavors: it included two private-sector firms, Royal Dutch Shell RDSB.LN +0.65% PLC and Total SA, FP.FR -0.89% two Asian state-owned companies, CNOOC Ltd. and China National Petroleum Corp., and Brazil's state-owned Petróleo Brasileiro SA, or Petrobras, which, as determined by new legislation, will lead the consortium's operations.
The companies will be responsible for providing the financial muscle to develop Libra, a huge oil reserve that lies deep below the Atlantic seabed off Brazil's southeast coast. The field is estimated to contain between 8 billion and 12 billion barrels of oil, and the government has proclaimed it could generate $1 trillion in public revenues over 30 years.
The consortium's bid was to give 41.95% of the oil production from Libra to the government, the minimum amount set by the state before the auction. Critics argue that the lack of any more bidders reduced competition and detracted from the auction's success. The winning consortium will pay a $6.9 billion fee to the government when it signs the concession contracts.
Magda Chambriard, Brazil's oil regulator, the National Petroleum Agency, described the auction as a success, as five of the top 10 oil companies in the world will now develop the field. Ms. Chambriard said it was "hard to be sad" with the outcome. There was a degree of competition in the creation of the consortium, she said.
This is the first field to be developed under a new legislation which put Petrobras in charge of developing Libra. Petrobras' new partners will mostly be required to put up the money, although they will also have some say in the field's development program
The challenges are enormous, in terms of the scale of the operation, the exploration work still to be done and the environmental risks of operating in the harsh conditions. The winning consortium will have to spend an estimated $200 billion over 35 years to pump oil out of a reservoir buried under the thick layer of salt beneath deep Atlantic waters.
"We look forward to applying Shell's global deep water experience and technology, to support the profitable development of this exciting opportunity," said Peter Voser, chief executive officer of Royal Dutch Shell said in a statement.
All told, 10 foreign companies and Petrobras had registered for the auction. Many large foreign companies had stayed away, which analysts attributed to the prominent role that will be played by the Brazilian state in development of the oil field. Around 80% of the total proceeds from the field will go to the Brazilian government, according to the ANP.
As oil industry executives gathered in the calm atmosphere of the upscale beachfront hotel in the Barra da Tijuca district where the auction was held, a few hundred protesters had gathered earlier in the day a few blocks away to try to halt the proceedings. The demonstrators see the sale as relinquishing control over the country's oil wealth, and the activists, which included labor unions and student groups, waved flags and shouted slogans in the bright sunshine.
The protest quickly escalated into a confrontation in which the police fired teargas and rubber bullets, while some protesters threw rocks. Many peaceful protestors then left, although around 80 people remained, according to the defense ministry, taunting police and army troops near the hotel.
They set small trash fires and at one point they overturned a car and set it ablaze. A fire engine moved in to extinguish the fire and the car was removed.
About one block behind the first cordon there was a second, even more fortified security barrier. Two trucks with water cannons idled behind police lines and just a hundred yards or so off the beach, two steel-gray Navy patrol boats bobbed up and down in the surf.
"All this is because we don't want to hand over our oil," said Silvio Sinedino, 62, president of the Association of Petrobras' Engineers. "They don't have any arguments, they just have bullets."
Protests have been a regular feature in Brazil since June, when millions of Brazilians turned out onto the streets to protest a variety of social problems. While protests have died down in much of the country, they have remained a frequent, often violent, occurrence in Rio de Janeiro.
The government has said that a large part of the oil wealth will be set aside for a special fund that will invest in education and healthcare, two of the protesters' biggest concerns.
Standing at the barricade, Vitor Zanon, 21, said he would stay all day to try to stop the auction, and that he considers the day as a chance for Brazilians to show their political power. The government wants to sell the field "at gunpoint" without considering what people think.