Brazil licence sale will be test of firms' interest

Brazil's third sale of oil exploration and production licenses starting today should serve as a key litmus test for oil firms' interest five years after the industry was opened to competition.

Oil experts eagerly await the event, and although most expect local state oil giant Petrobras to dominate as in the first two rounds, some say the sale may bring big surprises, such as previously hushed oil discoveries.

"The round probably won't be as earth-shattering as it used to be, because it's the third already," said Myles McDougall, oil analyst with ABN Amro, adding that Petrobras would likely be the largest single participant there.

"But it will give an important indication of what the sector has been thinking about oil discoveries (in Brazil) so far, about the government's policy." Alison Shepperd, a Latin America oil analyst of Wood Mackenzie consultancy in Scotland, saw potential intrigue around recent oil exploration, which could spice up the sale.

"Oil firms have been very quiet recently about exploration results. It means that those are not so great or that they found something and are preparing to bid for blocks adjacent to where they are drilling. We'll find out in two days."

The round, organized by the National Petroleum Agency (ANP) will take place today and tomorrow. A total of 53 oil blocks, including 43 offshore, will be offered this time. Last year, Brazil sold 21 blocks out of 23 on offer. The country, which is still a big oil importer, formally opened up its highly prospective, but little explored areas for foreign exploration in 1997, ending 45 years of Petrobras' monopoly.

The auctions have been hailed as some of the most important events in global oil exploration and production in recent years and this year is no exception.

"The auction, which has more blocks than the previous two rounds combined promises to become...one of the main global attractions," Deutsche Bank said in a report. Analysts expect the peak of demand to fall on nine blocks in the Campos basin - where 80 per cent of Brazil's oil resources of nearly 13 billion barrels are located - 16 blocks in the Santos basin and nine in the Espirito Santo basin.

Forty-two firms were approved to take part including Royal Dutch/Shell, Chevron, El Paso, Australia's BHP, and Britain's BP. ANP superintendent of licensing rounds Ivan Simoes Filho told Reuters seven new companies were now among the bidders. "It's a very good start. We expect high demand."

While analysts expect Petrobras to flex its muscles during the auction to grab the maximum number of juicy areas, ANP abstained from forecasts. "It's always a surprise. Any big company can dominate," Simoes Filho said.

Ironically, Petrobras prevailed in both previous sales that had been intended to break the monolith's monopoly. Last year, it won a third of all blocks sold. Experts say Petrobras, which under the oil legislation has to return big areas where it has found no oil by August, would do its best to retain its leading position in local exploration, particularly deepwater, and bid hard.

Petrobras officials have abstained from comment on the company strategy in the new oil round. The company is one of the world leaders in ultra-deep water oil output. Some oil companies complain that Petrobras is in a privileged position in terms of data access as it had mapped some areas for ANP.

No oil has been found so far in the blocks auctioned since 1999, but Petrobras and foreign oil firms working in joint projects with it have found 125 signs of oil since 1997.

Petrobras still remains Brazil's only oil producer in commercial volumes. Brazil hopes to reach self-sufficiency in crude by 2005 with the help of Petrobras and foreign newcomers. Petrobras currently imports about 400,000 barrels per day, less than a third of its daily output of 1.3 million barrels.