News | December 21, 1998

First Brazilian Oil and Gas Licensing Round


  • First round agenda
  • Brazil's first open round of E&P Concessions Bidding was formally announced by David Zylbersztajn, Director General of the country's Agência Nacional do Petróleo- ANP (National Petroleum Agency). This marks another stage in the opening of the oil market here and the end of the 45-year-old oil monopoly held by state company Petrobras. Except for a feeble attempt at a partial opening of E&P for foreign companies in the late 70s and early 80s, this will really be Brazil's first oil and gas licensing round.

    This first round will be comprised of 27 blocks, 23 in seven offshore basins including 12 in the Campos and Santos Basins. The areas being offered range from deep water in frontier and proven basins to shallow water gas plays as well as onshore gas plays in the largely unexplored Paraná Basin and low-risk exploration in the onshore, northeastern Potiguar Basin. The areas being offered in this round are very large by most standards, averaging over 4,500 km² (1.1 million acres, or about the same as 225 Gulf of Mexico blocks) and have exploration periods lasting up to nine years.

    In making the announcement at the ANP headquarters in Rio de Janeiro, Zylbersztajn said bid invitations were being mailed to 500 companies and the bidding process would involve a pre-tender, a January road show—Rio de Janeiro, Houston, New York, and London—pre-qualification, issue of formal, and complete, tender in April, final qualification, an end-of-May deadline for placing bids, all this leading to the signing for the first E&P contracts in June.

    The whole process is a rush job for Brazil's new regulatory body—ANP was established in January 1998—and much remains to be completed for this first round, including the geological data package, its cost, the actual contract terms, and the minimum bonus. Indeed this pre-Christmas "rush" announcement was the fulfillment of Zylbersztajn's promise to call the bids for the end of 1998.

    Other negotiations (back to top)
    This round of bidding is not to be confused with the round of negotiations under way for Petrobras joint-venture partnerships, in which 34 projects are under direct discussion with Petrobras, and only seven—the smallest ones at that—have so far been signed. The partnerships round is for the blocks that Petrobras "inherited" from its monopoly era and has three years to develop or prove commercial. Several of these partnership projects will cost more than a billion dollars, but they haven't been signed because of, among other things, the uncertainty of the amount of direct and indirect taxes to be levied, import duty on equipment, the "high" royalties, and the short, three-year, period to determine the commerciability of a block.

    One of the first terms stressed in the ANP round, is that the exploratory period could be as long as nine years. It was also pointed out that an exception would be made for temporary imports of oil exploration equipment and that if Petrobras shows interest in participation of the ANP round, it will have no privileges and will have to compete with all other qualified bidders.

    This first bidding round is in accordance with Law 9.478/97, known as the Petroleum Law, which was passed by the Brazilian Congress in August 1997. This legislation, along with a 1995 Constitutional Amendment, provided the authorization and roadmap for sweeping changes within the Brazilian energy sector through a comprehensive program of market-oriented reforms. These important initiatives comprised the removal of subsidies, import controls, and price controls on crude oil, refined products, and natural gas and ended the 45-year-old operating monopoly that Petrobras had held. The law provided the legal framework for the opening up of Brazil's oil and gas sector to private sector involvement and investment and established the Agência Nacional do Petróleo, which has the responsibility for the rational exploitation of the nation's petroleum resources and for maintaining a fertile and responsive business climate that protects and balances the interests of both the private and public sectors.

    ANP's stated objectives in this round are threefold: to broaden and accelerate the exploration effort within Brazil, to facilitate the transfer of appropriate technology and "best practice" to the sector, and to encourage the development of a robust and dynamic private sector, open to both foreign and domestic companies.

    "We recognize that we are coming to the market in the midst of an extraordinarily challenging time for the oil and gas industry," said Zylbersztajn. "This is because Brazil's people, through their elected president and congress, have signaled a groundswell of support for a transition to a more market-based economy. We believe that a broader, more competitive and dynamic oil and gas industry will have an important and lasting impact on the overall development of the Brazilian economy. We appreciate fully the current conditions in the international exploration business and the intense competition for the industry's human and financial capital and, notwithstanding current conditions, believe we have a compelling offering."

    Brazil has enjoyed extraordinary success in the exploration and production sector. Since 1982, oil production has increased by a factor of four to more than 1 million bbl/d and current plans are to reach 2 million bbl/d by around 2005. This has been led by extraordinary success in the Campos Basin, where numerous giant oil fields have been discovered since 1984. While the Campos Basin has enjoyed the vast proportion of the country's exploration activity, investment and management attention during the last 15 years, it is worth noting that Brazil is a very large country - about the same size as Europe or the US Lower 48. Some 8.5 million km² (3.3 million square miles) onshore and 8,000 km (5,000 miles) of coastline comprise a massive amount of unexplored (some of Brazil's basins are still undrilled) and underexplored exploration potential.

    In addition, Brazil has a massive and rapidly growing market. It is not only a place where a significant discovery can be made and commercialized, but also where business can be built. It is the ninth largest economy in the world and by far the largest economy in Latin America with a GDP greater than those of Argentina, Chile, Colombia, and Venezuela combined. The country's 160 million-strong populace comprises a large, fast-growing and oil import-dependent energy market. The imminent completion of the Bolivia-Brazil pipeline and the steps being taking to deregulate prices will integrate Brazil into the gas markets of the Southern Cone, greatly increasing the commercial potential for gas discoveries in the country.

    First Round Agenda: (back to top)

    January 14, 1999: Industry Presentations in Rio de Janeiro (Portuguese) and Houston (English)(Date Not Set for Industry Presentation in New York)

    January 18: Industry Presentation in London (English).

    January 14: Early option for submission of Expressions of Interest.

    January 22: Technical Pre-qualification.

    January 31: Notification of Technical Pre-qualification for early submissions.

    April 16: Last date for submission of Expression of Interest.

    February 1: Information Packages available (approximately).

    Mid-March: Comments on Concession Agreement.

    Mid-April: Definitive Concession Agreement and Final Tender Protocol.

    Late May:

    • Financial and Legal Qualification
    • Deadline for submissions Late April
    • Submission of Bids and Announcement of Winning Bidders.

    Mid June: Contract Signature.

    By Dev George