One of the most eagerly-anticipated deepwater bidding battles of the year will take place next week, when a global line-up of oil majors go toe-to-toe for a slice of Brazil’s giant Libra pre-salt field.

Brazil’s National Petroleum Agency (ANP) will hold the country’s first pre-salt auction on October 21, with the prize an estimated 8-12 billion barrels of recoverable oil that are believed to be contained in the field. A total of 11 companies registered to bid in the Libra contest last month (see DI, 30 September 2013, page 7), with financial guarantees then being received by the ANP from nine of them, according to the agency’s Director, Helder Queiroz.

The financial guarantees were for up to 156 million Brazilian reais (US $69 million). The nine who submitted guarantees will therefore be allowed to lead a bidding group, if they wish, although the remaining two companies can still participate as minority partners, according to Queiroz. “I expect that we will have at least two or three different groups bidding,” he said.

One controversial aspect ahead of the bidding battle has included the ANP limiting China’s state-controlled oil companies to submit joint bids, amid concerns they could share data and reduce competition ahead of the auction, which will be the country’s first held under new production sharing agreements. China’s CNPC and CNOOC both registered to bid.

However the Spanish-Chinese joint venture company Repsol Sinopec will be able to participate in the auction either alone or in different consortia, according to Queiroz. That decision was made by a ‘Special Committee of Bid Auction’ the previous week. Sinopec also holds a stake in Portugal’s Galp Energia, which also registered for the auction.
Chinese players have increasingly stepped up their activities in Brazil’s offshore, having first entered the sector via several oil-for-financing deals in 2009 between Petrobras, CNPC and Sinopec. Sinochem later bought a 40% stake in Statoil’s Peregrino field for $3 billion. That was followed by its $7 billion acquisition of a 40% stake in Repsol’s Brazilian unit, forming the Repsol Sinopec JV, before also spending $5.2 billion buying a 30% stake in Galp.

In addition to CNOOC, CNPC and Petrobras, Japan’s Mitsui & Co, India’s ONGC Videsh, Malaysia’s Petronas, Ecopetrol of Colombia, Anglo-Dutch major Shell and Total of France also qualified to participate.

Petrobras is guaranteed a 30% operated stake in the block in any deal agreed.

Also worth noting is that remains major uncertainty about Libra’s potential. Although few doubt its potential, there have only been two wells drilled in the licence area in the Santos Basin, while the financial demands for the block’s development have been estimated at up to nearly US $200 billion in terms of exploration and development expenditure over the concession’s 35-year contract period. Libra will be subject to a profit-sharing model, where Petrobras and its eventual partners will give the government at least 41.65% of production after deducting enough output to cover costs.

The likely signature bonus for Libra has been put at up to 15 billion Brazilian reais ($6.35 billion).