RIO DE JANEIRO—After having successful presalt auctions in 2017, with supermajors such as Petrobras, Royal Dutch Shell, ExxonMobil, Statoil and BP winning exploration rights, the Brazilian government aims to make more acreage available.

The auction would offer blocks in a region known as the Transfer of Rights area in the Santos Basin.

Speaking during the World Economic Forum in Davos, Brazil’s Mines and Energy Minister Fernando Coelho Filho said the auction could raise roughly $35 billion. That is ten times more than the amount raised during presalt auctions last year. For that reason, the energy minister is calling the bid the mega-auction. The auction may be held in June 2018, he said.

The area is considered prolific. But despite some optimism, Brazil’s energy ministry will have some hurdles to overcome to carry out the mega-auction.

The Brazilian government granted state-owned Petrobras the right to drill for what is estimated to be about 5 billion barrels (Bbbl) of recoverable oil in 2010. Aafter Petrobras started activities in the region, Brazil’s oil regulator ANP announced the area is believed to hold between 6 Bbbl and 15 Bbbl of recoverable oil resources.

For comparison, the Libra Field—the largest presalt field offshore Brazil— is estimated to have up to 12 Bbbl of recoverable oil. Production began in November 2017. When rights were awarded for Libra to a consortium formed by Petrobras (operator, 40%), Shell Brasil (20%), Total (20%), CNPC (10%) and CNOOC Ltd., the signature bonus paid was $6 billion, making it one of the highest ever worldwide at that time.

Negotiating An Agreement

In 2010 Petrobras signed a contract in which the government exchanged exploratory rights over presalt areas, in the so-called onerous Transfer of Rights area, for Petrobras equity. The company paid $42.5 billion for exploration and drilling rights. However, since 2014 Petrobras and the Brazilian government have been in a dispute regarding the indemnity agreement, considering the change in oil prices. Oil prices dropped dramatically from when the contract was signed in 2010. New contract terms need to be settled for the auction to proceed this year.

In January the Brazilian government created a commission to negotiate a final agreement on terms between the government and Petrobras and the form of payment. The commission includes members from the energy, finance and planning ministries, according to a decree published in the official gazette.

Some experts believe that the Brazilian government owes Petrobras between $ 12 billion and $20 billion due to the difference between the price per barrel of oil barrel paid in 2010 and the current price. This money would prove beneficial in helping Petrobras to ease its $88 billion of debt.

Racing Against Time

Time poses another obstacle.

Brazil will hold its presidential election in October 2018. According to  federal legislation, the government cannot schedule any national auctions after July. Proceeds from the auction could go far in helping Brazil ease the country’s fiscal deficit.

The government is working to carry out this auction as soon as possible, according to  Brazil Oil and Gas Secretary Marcio Felix. “The deadline is July 7. We are working to create a feasible schedule. We [the government] need a prior understanding with Petrobras, and we should have a settlement by March,” Felix said.

Brazil is working to resolve the issue as countries in other parts of the world also work to entice oil and gas companies to develop their hydrocarbon resources.

But Felix said he is ​​confident that there will be no lack of interest in the market.