Brazil sells excess production from Atapu, Sepia transfer-of-rights fields

Brazil sold excess production volumes from the Atapu and Sepia fields in the country's second transfer-of-rights production sharing auction Dec. 17, with state-led producer Petrobras claiming a share of both fields despite aggressive offers that more than doubled profit-oil guarantees for the government.

"We had an extraordinary result for Brazil that surpassed our expectations," said Rodolfo Saboia, the director-general at Brazil's National Petroleum Agency, or ANP. Investments in the two fields should top $35 billion, Saboia said.

The ANP expected competitive bidding for the two fields after Brazil improved terms compared with the first transfer-of-rights production sharing auction held in November 2019. While the Buzios and Itapu fields generated offers during that bid round, Atapu and Sepia were ignored by oil companies including Petrobras. The latest production sharing sale featured much lower signing bonuses and minimum profit-oil guarantees.

"We eliminated the uncertainties so that the companies could participate, with greater legal and regulatory security as well as greater predictability," Mines and Energy Minister Bento Albuquerque said about the changes made between the two sales. "We emphasized investments rather than signing bonuses."

Industry officials also cited a structural change in the way offers were presented at the auction that may have led to higher profit oil guarantees. During the auction, each of the 11 companies registered for the sale were required to submit an offer envelope. Previously, oil companies were not required to submit an envelope.

That typically meant that companies interested in an area would have multiple offer envelopes ready to submit, including a bid that met the area's minimum requirements, depending on whether there were rival bids.

Petrobras outbid

The auction kicked off with surprising competition for the Sepia Field, which pumped first oil in August. The field produced 43,403 b/d of oil equivalent in November, according to the ANP.

While Petrobras went solo and submitted an offer for 100% of the field with a profit-oil guarantee of 30.3%, France's TotalEnergies led a consortium that included Malaysia's Petronas and Qatar Petroleum that submitted an offer with a profit-oil guarantee of 37.43%. The minimum profit-oil guarantee for Sepia was 15.02%.

Petrobras, however, had previously exercised its preferential right to hold a 30% stake in the winning consortium. The better offer by TotalEnergies, Petronas and Qatar Petroleum triggered a 30-minute period for Petrobras to decide whether it would accompany the higher bid from the group.

Petrobras opted to retain its 30% operating stake, with TotalEnergies holding a 28% minority share. Petronas and Qatar Petroleum will each have 21% equity stakes.

The companies also will pay a $1.25 billion signing bonus. The group will also have to reimburse Petrobras $3.2 billion for investments already made at the field, minus 30% for the stake Petrobras will retain in the area.

Bidding for Atapu, however, was limited to a single bid led by Petrobras but still generated a significant increase from the minimum profit-oil guarantee of 5.89% set ahead of the sale.

Petrobras, Shell and TotalEnergies teamed to snap up Atapu by guaranteeing Brazil 31.68% of profit oil from the field, which pumped 157,793 boe/d in November. The companies will also pay a signing bonus of $702 million, while Petrobras will be reimbursed $3.25 billion for investments already made in the area.

Petrobras will own a 52.5% operating stake in Atapu, while Shell will hold a 25% minority stake and TotalEnergies 22.5%.

Each field is expected to require at least one additional floating production unit to reach its full output potential, according to Petrobras.

The transfer-of-rights regime covers subsalt acreage that Petrobras was granted development rights to in a 2010 oil-for-shares swap with the government. Petrobras received the rights to pump 5 billion barrels of subsalt acreage owned by the government. During exploration, however, Petrobras found about 15 billion additional barrels of recoverable reserves. The transfer-of-rights production-sharing auctions feature the sale of the excess oil and natural gas volumes that Petrobras discovered.

Atapu pumped first oil in June 2020, when the FPSO P-70 floating production, storage and offloading vessel was installed. The FPSO has installed capacity to produce 150,000 b/d and process 6 million cu m/d. The FPSO P-70 is connected to eight production and eight injection wells.

Petrobras received 550 million boe under the original transfer-of-rights agreement. The ANP, however, estimated that the field could hold an additional 2.5 billion-4.0 billion boe.

The FPSO Carioca pumped first oil from Sepia in August. The FPSO has installed capacity to pump 180,000 b/d and process 12 million cu m/d.

Petrobras will pump 500 million boe from Sepia under the original transfer-of-rights agreement. The ANP estimated the field could hold an additional 500 million-700 million boe.

The auction was likely the last traditional, regularly scheduled licensing sale in Brazil. Brazil's National Energy Policy Council, or CNPE, on Dec. 10 authorized the ANP to include blocks and production-sharing areas targeted for future auctions in the country's Open Acreage program. That will likely be the model going forward, Albuquerque said.

"We're headed down a path away from having auctions similar to this one," Albuquerque said. "We're going to concentrate on Open Acreage auctions. That's the trend, that's the future."