Petroleo Brasileiro SA sat out an oil licensing round in Brazil for the first time ever as the beleaguered state-run oil giant struggles to reduce the industry’s biggest debt load.
The country’s National Petroleum Agency sold only 37 of the 266 onshore and offshore blocks it offered Wednesday in the worst turnout in more than a decade. International majors operating in Brazil, including Statoil ASA, Royal Dutch Shell Plc and Total SA, didn’t submit any bids.
The 17 companies that won licenses were mostly Brazilian oil startups and mid-sized explorers that bid for onshore tracts, including QGEP Participacoes SA and Parnaiba Gas Natural, both based in Rio de Janeiro. The six foreign winners include Santiago-based Geopark Ltd. and French utility Engie, formerly known as GDF Suez, which partnered with Parnaiba Gas Natural. QGEP was the only bidder for offshore areas, winning two blocks in the Sergipe-Alagoas basin.
The auction took place amid a slump in crude prices and a national political crisis as Petrobras, the country’s dominant producer, grapples with cash constraints. While producers have traditionally preferred to join Petrobras as minority partners to limit risk, the company is balking at new financial commitments, according to Jotavio Gomes, an oil consultant and former geophysicist at the state-run firm.
Industry Headwinds
The country faced many of the same headwinds that hindered two oil auctions earlier this year in Mexico. Crude prices have slumped almost 50 percent in the past year and companies from ConocoPhillips to Royal Dutch Shell Plc are slashing investments. Petrobras, the most aggressive bidder in previous auctions, has cut investments twice this year in an attempt to reduce the largest debt load in the industry.
“The current level of oil prices had a decisive impact,” Magda Chambriard, the head of the oil regulator known as ANP, told reporters in Rio. “We will do our homework and study the reasons for this result.”
Petrobras’s absence may have discouraged other oil majors from participating without the expertise of the biggest producer in deep waters, said Marco Almeida, the oil and gas secretary at Brazil’s energy ministry. Foreign majors have a history of partnering with Petrobras in Brazil, he said.
Financial Restraint
Investors are encouraged by Petrobras’s financial restraint amid a wider effort to cut costs. The shares rose 3.4 percent to 8.47 reais in Sao Paulo.
Both onshore and offshore areas were up for grabs, including deepwater blocks in the Sergipe-Alagoas basin off the country’s northeastern coast, where Petrobras has made a series of discoveries in recent years. Only two deep-water blocks, where it costs more and takes longer to develop reservoirs, were sold. Six out of the ten basins received no offers.
Brazil has been seeking to lure more foreign operators to foster competition and bolster its flagging oil-services and naval industries. Petrobras accounts for more than 90 percent of the country’s oil production.
“Undoubtedly it could have been better,” said Antonio Guimaraes, the executive secretary for the Brazilian Petroleum Institute, a lobby group for the oil industry. “The oil price drop makes companies more selective.”
