Concession Auction Unlikely in 2014 - Brazil's Oil Regulator

October 18, 2013

The head of Brazil's oil regulator said on October 17 that her agency is unlikely to recommend an auction of oil exploration concessions in 2014, raising doubts of a revival of an annual auction cycle after a five-year hiatus, Reuters has reported.

"I'm not so concerned about having annual auctions as I am about having good areas to sell," Magda Chambriard told reporters in Rio de Janeiro. "Right now I think it unlikely that we will recommend an auction next year."

On May 15, Brazil raised about $1.4 billion at its first oil rights concession auction since 2008. Many investors and experts consider annual auctions essential to the long-term health of the Brazilian oil industry, allowing companies to plan while knowing they have or can buy new projects to replace any old or diminished field.

Chambriard said it was also unlikely that a new production-sharing auction would be held next year as the oil prospects in the area covered by the new framework are too large and require too much investment to be tendered on an annual basis.

The concession system gives exploration and production rights to the highest bidder, Brazilian or foreign, in exchange for an exploration commitment, an agreement to buy a minimum of related goods and services in Brazil- usually more than half - and the payment of a royalty. All oil produced is owned by the concession holder and can be sold wherever the owner wishes.

This system still applies to all areas outside the Subsalt Polygon, an area that comprises most of the Campo and Santos offshore basins south and northeast of Rio de Janeiro, already home to more than 80 percent of Brazilian output. Those basins are also where the main subsalt finds were made.

All future development in the Subsalt Polygon will be done under production sharing contracts.

Copyright: Reuters, 2013