Brazil Auctions Off Rights to Massive Oil Field

RIO DE JANEIRO, BRAZIL - OCTOBER 18: People stand in front of state oil company Petrobras headquarters after Brazil's oil workers went on strike on October 18, 2013 in Rio de Janeiro, Brazil. Petrobras oil workers are calling for increased pay and for a stop to a planned auction next week of a share of the production rights to the huge offshore Libra oil field. Union leaders say that the about 90 percent of Petrobras' workers are on strike. 
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Clare Foran
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Clare Foran
Oct. 22, 2013, 3:34 a.m.

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.

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