Chinese firms to star in upcoming Brazil oil auction

Chinese oil giants CNOOC and CNPC will be in a prime position in next week's first auction of deep-water concessions in Brazil's coveted Libra oilfield, AFP reports citing experts. Monday's highly-anticipated auction covers Libra's estimated eight to 12 billion barrels of recoverable crude, or nearly a million barrels a day for five years, according to Brazil's National Petroleum Agency (ANP). "Markets expect Asian companies will be the stars of these auctions as the US majors are not at the table and will merely sit back," said Carlos Assis, head of Ernst&Young's Americas oil and gas unit. Petrobras workers launched an indefinite strike Thursday to demand the immediate suspension of the auction, according to the National Oil Workers Federation. The federation, which groups 12 Petrobras oil workers' unions, also called nationwide demonstrations to "denounce the threat to sovereignty and the losses the Brazilian nation will suffer if multinationals grab Libra." A defense ministry spokesman said a total of 1,100 security personnel from the army and police would be deployed around the Rio hotel where the auction will take place. The auction will be the first since Brazil announced the discovery of huge deep-water oil reserves off its southeastern coast in 2007. Finance Minister Guido Mantega said the Libra oilfield is expected to attract $180 billion in investment over the next 35 years. Speaking in Brasilia during a presentation on investment in the country's infrastructure, he noted that between 2014 and 2025, $80 billion is likely to be pledged to develop and exploit the deposits. With state-owned Brazilian giant Petrobras leading the pack, 11 companies have put up more than two million reais ($900,000) each to take part in the auction in which Brazil is assured of at least a 41.6 percent production stake. Seven bidders rank among the world's 11 biggest oil companies by market capitalization: second-ranked China National Petroleum Corporation (CNPC), number three Anglo-Dutch Shell, Colombia's Ecopetrol, Petrobras, France's Total, China National Offshore Oil Corporation (CNOOC) and Spain's Repsol/China's Sinopec. The sale of deepwater concessions to foreign companies has not passed without opposition here. Fearing possible protests, ANP said federal army troops would boost security during Monday's auction. "It is our obligation to provide security for all auctions. There has always been a security plan, but we are witnessing demonstrations in Rio in which peaceful protests degenerate into acts of vandalism," the official Agencia Brasil quoted ANP director general Magda Chambriard as saying. Petrobras will have sole operator status Petrobras will automatically be sole operator of any wells and will have a minimum 30 percent stake in any consortium under the terms of a 2010 law brought in under then president Luiz Inacio Lula da Silva. The law aimed to earmark some of the oil royalties for education and health. The National Petroleum Agency will oversee the sale of the remaining 70 percent, for which Petrobras can also bid alone or as part of a consortium. The winner will be the company or consortium that offers the most oil to the Brazilian state. An Ernst&Young study concluded that "market expectations are that the Chinese companies will propose at least 50 percent of the oil produced" go to the Brazilian government, Assis said. The Libra field is in the Atlantic off Rio de Janeiro where Brazil has discovered huge "pre-salt" deep water oil reserves. Buried under layers of salt, these deposits cover 149,000 square kilometers (58,000 square miles) and lie 183 kilometers (112 miles) off the coast. Currently, Brazil produces two million barrels a day but hopes to boost output to five million a day by 2020, thanks in large part to the pre-salt reserves. "With the exception of Shell and Total, the 'majors' are not taking part owing to a number of risk factors," said Assis. These include "a geological risk, the difficulty of extraction (and) the percentage of oil to hand over to the state," he said. Private investors are also turned off by the creation of a new state company, PPSA -- which enjoys right of veto -- to oversee offshore exploration, he added. But Assis said the auction might lead to an easing of the rules. "Those looking for a quick return, such as the US companies, are staying away," he said, comparing the American firms to those from energy-hungry Asian countries looking to feed long-term demand.