Brazil oil field auction to test government's ambitions

Rio de Janeiro (AFP) –


Brazil will hold a major oil field auction Wednesday in a test of President Michel Temer's policy of loosening regulations and luring foreign investors to bring billions of dollars into the moribund economy.

The National Petroleum Agency is putting 287 land and offshore exploration blocks under the hammer in Rio de Janeiro, with a goal of fetching a minimum of 1.7 billion reais ($540 million).

Four hydroelectric facilities will also be on sale.

Major global companies like BP, ExxonMobil, Shell and Total have signed up to the oil sale, as well as Brazil's national champion Petrobras, which is rebuilding after a massive corruption scandal.

Of the 32 companies competing, small- to medium-sized players are expected to show the most interest.

However, the oil majors will be waiting more keenly for a next round of auctions October 27 of deep-ocean, or pre-sal, fields that are seen as among the richest in the world -- albeit requiring the technical capabilities to drill in such hostile conditions.

Twenty-five companies had expressed interest in the eight pre-sal blocks on offer, the mining and energy ministry said earlier this month.

The sales are part of a series of nine scheduled auctions that Brazil hopes will rack up as much as $80 billion by the end of 2019, a big boost to a government that is deeply in the red and struggling to nudge the economy out of its worst recession in history.

Wednesday will indicate whether Temer's new policy of weakening the protectionist policies of his leftist predecessor Dilma Rousseff will get investors to open their wallets.

The last oil auction, under Rousseff in 2015, was considered a flop, with only 14 percent of lots going under the hammer. In 2013, an auction saw 49 percent of lots sold.

"When people see how much the regulations have evolved and how much the government has embraced the sector's agenda, I imagine we'll have a better auction than in 2015," Antonio Guimaraes, secretary general of oil industry group IBP, told the website Portos e Navios, which covers oil and gas.

Eurasia Group analysts called the auctions "a test for a very ambitious agenda of oil and gas bid rounds from now until the end of 2019," but said there could still be wariness.

"Delays in granting environmental permits, however, remain a sticking point for the industry that the government will attempt to resolve in the coming months," Eurasia Group said.