Tuesday, December 7, 2021

Six oil companies will compete to sell up to 55 million barrels of Brazil crude

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(S&P Global Platts) Six oil companies will compete for the rights to buy Brazil’s share of profit oil from four subsalt production sharing fields, with up to 55 million barrels of crude available, government subsalt management company Pre-Sal Petroleo SA, or PPSA, said Nov. 12.

China National Petroleum Corp., or CNPC, Norway’s Equinor, state-led Petrobras, Portugal’s Galp Energia, Chinese-Spanish joint-venture company Repsol Sinopec Brasil SA and France’s TotalEnergies were approved to participate in the Nov. 26 auction, PPSA said. The sale will feature the government’s share of profit oil from the Buzios, Mero, Sapinhoa and Tupi subsalt fields.

The lineup underscored growing industry interest in crude from Brazil’s subsalt frontier, especially after the implementation of IMO 2020 standards for bunker fuel and amid the wider transition to a low-carbon environment. Many Brazilian medium-to-light subsalt grades naturally contain low levels of contaminants, particularly sulfur, that makes them ideal for processing to ultra-low sulfur diesel and low-sulfur bunker fuel.

The Buzios, Mero, Tupi and Sapinhoa are all graded at 28-30 API and contain 0.3%-0.5% sulfur content.

The oil companies also could be looking ahead, with Brazil’s subsalt region poised to expand the volume of crude available in future sales. PPSA expects Brazil’s share of production sharing output to reach 615,000 b/d by 2030. The surge has already started, according to PPSA, with crude volumes expected to jump to 33,000 b/d in 2022, from 6,000 b/d in 2021.

Petrobras, Repsol Sinopec and TotalEnergies previously participated in the PPSA’s second auction of the government’s share of subsalt production sharing crude, which was held in August 2018. Petrobras submitted the winning bids for 36-month contracts covering output from the Mero and Sapinhoa fields, while TotalEnergies won a 12-month contract for crude from the Tupi Field. The contracts covered 12.3 million barrels of crude.

Phased sale

The auction will feature up to three phases, with crude from each field available in two lots of different contract lengths, according to the PPSA. The first phase will feature the longest contract length, with winning bidders determined by the highest premium to a reference price for the crude calculated by the National Petroleum Agency, or ANP. The second phase would use the shorter contract length, with the highest premium determining the winning offer.

The third phase will feature the shortest contract length, with winning bids determined by which company offered the smallest discount to the ANP’s reference price.

The biggest sales volumes available will be from the Mero Field in the Libra production sharing area, which will start commercial production in the first quarter of 2022. The first lot will feature 43.4 million barrels of 29.1 API crude delivered over a 36-month contract. Should the first lot go unsold, a second lot of 19.8 million barrels over a 24-month contract will be put up for sale.

The ANP’s reference price for Mero crude in September was $70.4141/b. Brazil receives 41.65% of profit oil at Mero.

PPSA will also offer a 36-month contract covering 6.6 million barrels of Buzios crude. A second lot of 4.2 million barrels over a 24-month contract will be put up for bid should the first lot fail to elicit an offer.

The reference price for Buzios crude in September was $70.5856/b, according to the ANP. The co-participation agreement for Buzios went into effect Sept. 1, with Brazil receiving the first barrels of its 23.24% share of profit oil.

Two lots of 31.0 API crude from the Tupi Field also will be sold, including a 60-month contract covering 3.3 million barrels and a 36-month contract covering 2 million barrels, PPSA said.

Tupi crude had a reference price of $71.3467/b in September, the ANP said. Brazil owns a 0.6% share of output because of the 2019 unitization of Tupi with the adjacent Sul de Tupi area owned by the government.

PPSA also plans to sell the government’s share of 30.01 API crude pumped from the Sapinhoa Field. The crude will be offered in a 60-month contract covering 2.4 million barrels, or a 36-month contract of 1.6 million barrels.

Sapinhoa’s reference price was $70.1695/b in September, according to the ANP. Brazil receives about 3.7% of output after unitization with adjacent acreage owned by the government.

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