Brazil auctioned off exploration rights for a major oil field off the coast of Rio de Janeiro on Monday to a host of foreign bidders, including Europe's Royal Dutch Shell and China's Cnooc Ltd. and China National Petroleum, The Wall Street Journal reports (paywall).
The field, which is known as Libra, is estimated to contain up to 12 billion barrels of recoverable oil. If this proves to be true, Libra would be poised to become one of the largest oil fields in the world.
State officials say the auction holds the promise of transforming Brazil from a net importer of oil to a net exporter, a move which would represent significant financial gains for the country. "The Libra auction is a landmark in the history of Brazil, transforming a limited resource, oil, into an undebatable gain," Brazil's President Dilma Rousseff said Monday.
Large numbers of Brazilians, however, are protesting the sale of exploration rights to foreign companies.
Petrobras, a Brazilian energy company, will have a stake in the reserves and Brazil is creating a new state-run company, Petroleo Presal SA, to supervise exploration in a bid to protect domestic interests. Brazilian officials have also mandated that foreign companies with a stake in the field pay $7 billion to Brazil's Treasury up front.
A number of major U.S. and European oil companies with deep-water drilling experience declined to participate in the auction, including Exxon Mobil, Chevron, and BP. Analysts say the firms may have been hesitant to bid on the reserves due to the terms and restrictions imposed on the sale by Brazilian officials.
The deal is likely, however, to strengthen economic ties between Brazil and China, which now has a major stake in the oil field. "It makes sense for China because China needs to secure energy resources, and can spare the massive investments, meanwhile Brazil doesn't have the savings and needs the investment," said Charles Tang, chairman of the Brazil-China chamber of commerce.