On 18 September 2012, following the approval of President Dilma Rousseff, Mines and Energy Minister Edison Lobão announced that the 11th round of bidding on oil and gas exploration blocks is scheduled for May 2013, with the exact dates and sites to be determined by the National Petroleum Agency (ANP).

The bidding will cover a total of 174 exploration blocks, half of which will be offshore sites, and is expected to focus on the Equatorial Margin, an area in the northeastern part of the country near the mouth of the Amazon River. According to the Brazilian Petroleum, Gas and Biofuels Institute (IBP), the 11th round blocks will follow the country’s 15-year oil concession laws, allowing the successful bidder to operate the field, and are expected to generate US$1 billion up-front for the government.

After conducting annual auctions for a decade, from 1999 through 2008, the Brazilian government halted the sale of new oil exploration and production rights in 2008, soon after the discovery of immense oil fields in the Santos, Campos and Espírito Santo basins located off the southeast coast. Since the discovery of these deep-water, pre-salt reservoirs, the oil and natural gas industry has been relatively on hold as the government increased domestic capacity to produce offshore drilling technologies and contemplated the best way to capitalize on its energy bounty. After five years of deliberation, it seems as though the government has found the way to do just that.

Though the broadcast of the 11th round created quite a stir at the Rio Oil & Gas Expo, held from 17 September to 20 September 2012, what perhaps garnered even more attention was the announcement by the Energy and Mines Minister that the first pre-salt auction will also take place in 2013 and is set for November. Typically high-quality, oil accumulated in the pre-salt rock layer is found beneath an extensive layer of salt, sometimes 2,000 meters thick, and deep beneath the surface of the ocean. The pre-salt reserves off the Brazilian coast represent an area the size of New York and are estimated by the government to contain between 8 and 13 billion barrels of recoverable oil, though private estimates extend as high as 100 billion barrels.

Unlike the 11th round sites, the pre-salt blocks are covered by the new production-sharing law, which mandates the state-owned oil company Petrobras be the operator with a minimum 30 percent stake in all rights sold. Recently, Petrobras signed a US$1.1 billion deal with GE Oil & Gas for the production of wellhead systems and installation tools to be made in GE’s Jandira plant, in the state of São Paulo, ensuring that production is retained domestically. Representing the world’s largest subsea wellhead production contract, the deal will provide Petrobras with the equipment it needs to expand and operate various pre-salt fields following the 2013 auctions.

The production-sharing law assures the government a sizeable share of all profits as the national energy industry looks to awaken from its slumber and live up to the 158 percent growth in oil production projected by the Empresa de Pesquisa Energética (EPE), expecting output to reach around 5.5 million barrels per day (bpd) by 2021. The EPE’s Ten Year Plan for Energy Expansion (PDE 2021), released on 24 September 2012, forecasts investments of US$540 billion in the Brazilian energy sector by 2021, with the largest portion, US$369 billion, for the oil and natural gas sector.

The only foreseeable issue that could delay the auctions and large-scale investments is greed. Before the bidding rounds can be approved, Congress must pass a new law governing the distribution of oil royalties among the 26 states and the federal district. Although the issue of royalties has been hotly debated, Lobão is confident that Congress will keep its promise to push the new royalties law before the end of the year.

Although estimated oil reserves and energy investments are nothing but that – estimates – Brazil can be assured that the next ten years will bring prosperity to its energy industry. After years of waiting, the South American giant finally seems set to capitalize on its immense offshore oil reserves and catapult into the top five oil producing countries worldwide.

Lyndon DeSalvo
Contributing Editor