Shell, Total apply to drill in 16th bid round blocks offshore Brazil: IBAMA

Rio de Janeiro — Royal Dutch Shell and Total both applied for environmental permits to drill in offshore blocks acquired during Brazil's 16th bid round held last year, according to documents published Wednesday by federal environmental regulator IBAMA.

Shell applied to tap up to six wells in the Campos Basin C-M-659 block that could also include up to four well-formation tests, according to IBAMA. In addition, Shell wants to drill up to three wells in the C-M-713 block that could also include up to two well-formation tests. Shell expects to start the campaign in 2022-2024, IBAMA said.

Total, meanwhile, applied to drill up to five wells in the Campos Basin C-M-541 block, including two exploration wells and three evaluation wells, IBAMA said. The campaign could also include up to four well-formation tests, IBAMA said.

The two companies signed the concession contracts for the blocks on Friday, making the turnaround time less than a week.

The quick turnaround underscored the aggressive path international oil companies have taken since Brazil started holding regular sales of acreage under concession and production-sharing contracts in 2017, including making terms more competitive with rival sales in Mexico and the US Gulf of Mexico. Many winning bid groups from the recent licensing rounds have submitted requests for drilling permits and other administrative tasks nearly immediately after signing contracts, demonstrating the desire to move quickly to explore regions where a single well can pump as much as 50,000 b/d of oil equivalent. Among the changes made, Brazil allowed international oil companies to operate subsalt fields sold under production-sharing contracts and reduced requirements to use locally produced goods and services in exploration and development.

The changes made Brazil one of the world's hottest frontiers, with oil companies agreeing to record-setting signing bonuses and profit-oil guarantees to expand exploration portfolios over the past three years. That streak ended in November, when companies balked at paying sky-high signing bonuses for subsalt production-sharing areas and complicated negotiations to reimburse Petrobras for investments made at oil fields in the transfer-of-rights areas.

Brazil may eventually end the subsalt polygon that requires production-sharing agreements as well as Petrobras' preferential right to hold at least a 30% operating stake in the fields, with several bills working through Congress at the moment.

Shell, which is Brazil's second-largest oil and natural gas producer after state-led oil company Petrobras, holds a 40% operating stake in the C-M-659 block. Chevron retains a 35% minority share, with Qatar Petroleum owning 25%. The companies paid Real 714 million ($163 million) for the development rights, including a commitment to drill at least one well.

The three companies also paid Real 551 million for rights to the C-M-713 block, with the same ownership breakdown as the C-M-659 block. No drilling commitment was included in the winning bid submitted by the three companies.

The C-M-713 block contained the second-largest prospect available in the 16th bid round, dubbed Tamboril, according to the National Petroleum Agency, or ANP. Tamboril was estimated to hold about 4.34 billion barrels of unrisked oil in place, according to the ANP.

Total, meanwhile, captured the 16th bid round's biggest prize in the Campos Basin's C-M-541 block in a stunning upset of Petrobras, which had previously dominated auctions and typically secured the acreage for which it placed a bid. The winning consortium paid Real 4.03 billion for rights to the block and pledged to drill two wells, topping the commitment for a single well from the Petrobras-led group.

Total will hold a 40% operating stake, while Qatar Petroleum will own a 40% minority share and Petronas 20%. The C-M-541 block contains the Nemo prospect, which was considered the largest in the sale at an estimated 6.87 billion barrels of unrisked crude, according to the ANP.