What would have been Brazil’s biggest oil auction ever has ended in what Bloomberg called a "total disaster", as oil majors steered clear of the pricey oil areas up for grabs. Brazil was hoping to rake in more than $25 billion from the auction to offset a portion of its budget deficit and change its nationalistic oil industry ways by offering foreign players at seat at the table.
Another $25 billion was set to go to Petrobras in exchange for work Petrobras had already done in exploring the areas up for grabs.
But Petroleo Brasileiro SA (Petrobras), and a consortium that involved Petrobras, were the only winning bidders, according to the Associated Press, picking up two of the four blocks. The other two blocks, however, went unsold in what was a major disappointment for Brazil—and Petrobras.
A Petrobras (90%) consortium that involved CNOOC and CNODC managed to take home the mega Buzios field, as expected, after Petrobras admitted it would bid to win for Buzios. Petrobras also secured the rights to the Itapu block, for which it was the only bidder.
But Petrobras will be stretched mighty thin in developing Buzios, as attractive as that block may be. And with just a tiny amount of the $25 billion it was expecting in fees from other winning bidders in the auction, it will be stretched even thinner.
Still, Brazil took in $17 billion in licensing fees from the two blocks that were awarded, and Brazil is calling it a success. Energy Minister Bento Albuquerque said it would offer the unsold blocks again next year.
“We’ll need to evaluate why oil majors didn’t participate,” Albuquerque told reporters.
But everyone else - including oil titan ExxonMobil, seems to know exactly why the oil majors didn’t participate: it was just too expensive.