Brazil Raises $123 Million in Auction of Oil Exploration Rights

Aiming to become an energy exporter within a decade, Brazil on Tuesday began a historic and highly anticipated auction of oil exploration rights, the first time in half a century that foreign companies have been given a crack at developing energy here.

Although it has dramatically raised its oil production and reserves in the 1990s, Brazil still imports more than a third of the 1.9 million barrels of oil it consumes daily. That dependency--and the high cost of energy exploration--spurred Brazil’s decision to open the industry to foreign investment, which could exceed $25 billion during the next 10 years.

Winning bidders in Tuesday’s first round included Texaco Inc. and Exxon Corp. of the U.S.; Agip of Italy; YPF of Argentina; and a U.S.-Brazilian partnership of Amerada Hess Corp., Kerr-McGee Corp. and Petroleo Brasileiro, or Petrobras, Brazil’s state-controlled oil company. Petrobras is losing its monopoly on Brazilian energy development but is free to bid alongside other companies for exploration rights.

Tuesday’s auction of 12 blocks raised $123 million. The bidding continues today for the rest of 27 blocks, nearly all located in deep water in the Atlantic. Thirty-eight companies, including Atlantic Richfield Co., Unocal Corp. and Chevron Corp. of California, have registered to bid.

During the next 10 years, Brazil hopes to attain energy self-sufficiency by doubling its oil production from its current 1.1 million barrels a day. Its best prospects lie in deep-water deposits in the Atlantic that Petrobras is already developing, but they will take vast amounts of capital to exploit.

Officials at Brazil’s National Petroleum Agency, or ANP, pronounced the auction a success.

“The premiums offered were far above the minimum prices, indicating very favorable results,” said Ivan Simoes Filho, ANP’s bidding promotions director.

But there have been complaints among oil companies about the terms of the leaseholds, the government’s relatively high 55% share of the revenues that will be produced in successful wells, and the competitive edge enjoyed by Petrobras.

Although Petrobras is losing its monopoly, the company has an edge in local knowledge and political pull and in deep-water drilling technology, in which it is a world leader. Petrobras and Shell, the U.S. subsidiary of Royal Dutch/Shell Group, have each sunk wells in 5,000-foot depths.

Chevron executive Pedro Paulo said Monday that the Brazilians have made adjustments to the bidding terms in the last two weeks to make the leases more attractive to foreign companies. But he declined to say whether his company will bid.

On Tuesday, winning bids ranged as high as $75 million from Agip for rights to a potential field off the coast of Santos, Brazil’s largest port. Texaco won its block with a bid of $3.4 million, well over the $142,000 minimum. But the winning bids are just drops in the bucket compared with what companies will have to spend to find and retrieve oil from the deep waters.

“We’re very pleased. But this is like commenting on the first quarter of a football game. We have a long way to go,” said Bruce Applebaum, an exploration vice president at Texaco.

Oil exploration is especially expensive in Brazil because its richest reserves are offshore, notably in the so-called Campos Basin south of Rio de Janeiro. The cost of developing, drilling and transporting oil from those depths can reach $1 billion per block, said Douglas R. Bohi of consulting firm Charles River Associates in Washington.

Petrobras and U.S. companies such as Shell and Chevron have developed sophisticated seismic-imaging systems and horizontal-drilling techniques that enable them, with high chances of success, to drill not just through a mile of ocean water but also through 10,000 feet of rock below the ocean floor, Bohi said.

“We’re talking about developments that rival in imagination and expense things that are going on in space,” he said.

Brazil is not expecting a quick energy fix from the auctions. ANP official Jose Cesario Cecchi said it will take five to 10 years for the blocks auctioned this week to yield energy.

Times staff writer Chris Kraul reported from San Diego; correspondent Paula Gobbi reported from Rio de Janeiro.