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Highlights

Campos Basin blocks holding subsalt potential drive competition

Awarded blocks could generate output of 400,000-500,000 b/d

Signing bonuses set fresh concession record of Real 8.9 billion ($2.2 billion)

Rio de Janeiro — Brazil has sold 12 of the 36 offshore blocks on sale at the country's 16th bid round, with oil companies once again paying record signing bonuses for areas holding subsalt potential in the Campos Basin.

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The 36 blocks up for bid hold an estimated 70 billion barrels of unrisked oil under the P-50 model, which forecasts a 50% chance of exploration success, according to Brazil's National Petroleum Agency, or ANP.

Oil companies led by France's Total, Malaysia's Petronas Shell paid Real 8.9 billion ($2.2 billion) for the 12 blocks, according to the ANP. That was three times the minimum bonuses set for the sale and topped the previous record of Real 8.0 billion raised during Brazil's 15th bid round held last year.

The sale underscored oil companies' confidence in the Campos and Santos basins that covers most of the country's current oil output, including the massive subsalt frontier. Brazil sold 10 of the 13 blocks on sale in the Campos Basin, while two of the Santos Basin's 11 blocks further to the south were sold.

The blocks in the Campos and Santos basins were considered the most attractive in the sale because they hold subsalt potential but are located outside the subsalt polygon that requires production-sharing contracts. That means companies own the oil reserves and pay royalties on production, rather than give Brazil's government a share of profit oil.

The 12 blocks could eventually yield about 400,000-500,000 b/d of additional output and generate demand for three or four floating production, storage and offloading vessels, or FPSOs, estimated ANP Director General Decio Oddone.

The understanding of the region's oil deposits and how to develop them effectively was the driving force behind interest in the basins, Oddone said.

"The geologic understanding of the Campos and Santos basins is already consolidated, so that allows companies to be more aggressive," Oddone said. That stands in stark contrast to the lack of knowledge about frontier areas that were put on sale during the bid round in the Camamu-Almada, Jacuipe and Pernambuco-Parnaiba basins, Oddone said. None of the blocks received offers.

Mines and Energy Minister Bento Albuquerque and Oddone both downplayed a lawsuit brought by public prosecutors this week, which forced the ANP to warn potential bidders that blocks in the Camamu-Almada and Jacuipe basins would be subject to legal challenges.

CAMPOS BASIN PRIZE

Total led a consortium that edged out a rival bid from Brazilian state-led oil company Petrobras and Norway's Equinor for the Campos Basin's C-M-541 block, which was considered the bid round's most attractive acreage.

Total, Qatar Petroleum and Petronas offered a signing bonus of Real 4.03 billion for the block, which was less than Petrobras and Equinor's Real 4.09 billion signing bonus. The two signing bonus offers were the highest ever made for a single block, according to the ANP. Total's group, however, pledged to drill two wells in the block versus Petrobras and Equinor's single-well commitment in a move that tipped the bidding in its favor.

The C-M-541 block contained 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.

"Our goal was get an operatorship," Andre Glowacz, director of Total's Brazil operations, said of that company's strategy. Glowacz added that the group would move quickly to explore the block, including starting seismic analysis in 2020 and drilling the first exploration well in 2021.

Total will hold a 40% operating stake, while Qatar Petroleum will own a 40% minority share and Petronas 20%.

Petronas, meanwhile, was also aggressive on its own as the company rapidly expands its Brazilian portfolio after taking a 50% minority share of Brazilian state-led oil company Petrobras' offshore Tartaruga Verde Field earlier this year.

The Malaysian company topped a rival bid from BP Energy and Equinor to take a 100% stake in the Campos Basin's C-M-661 block. Petronas agreed to pay a Real 1.1 billion signing bonus and drill a single well in the block.

Petronas also won 100% development rights to the Campos Basin's C-M-715 block, paying a Real 24.9 million signing bonus and committing to drilling a single well.

Shell, which is Brazil's second-biggest oil and natural gas producer after Petrobras, also continued to expand its footprint in Brazil. The company led consortium's that made three bids, winning development rights to two blocks.

The company teamed with Chevron and Qatar Petroleum to win rights to the Campos Basin's C-M-713 block, paying a Real 551 million signing bonus. Shell will hold a 40% operating stake, which Chevron retaining 35% and Qatar Petroleum 25%.

The C-M-713 block holds the 16th bid round's second-biggest prospect in Tamboril, which was estimated to contain about 4.34 billion barrels of unrisked oil in place, according to the ANP.

Shell, Chevron and Qatar Petroleum also paid Real 714 million for development rights to the C-M-659 block, committing to drilling a single well in the acreage.

State-led oil Petrobras, which has dominated previous acreage sales, won a single block in partnership with BP. The companies paid Real 2.04 billion for development rights to the C-M-477 block. Petrobras will hold a 70% operating stake, with BP owning 30%.

ExxonMobil, which has been aggressive in recent bid rounds and production-sharing auctions, claimed a single block. The US-based giant paid Real 25.4 million for a 100% stake in the C-M-479 block located to the south of six blocks the company purchased in 2017's 14th bid round.

Spain's Repsol also was active, both as a solo player and in partnership with Chevron and Germany's Wintershall DEA.

Repsol purchased a 100% stake in the Campos Basin's C-M-795 block for Real 9.5 million. Repsol will also hold a 60% operating stake in the C-M-825 block, with Chevron retaining the remaining 40%.

Chevron, meanwhile, will hold a 40% operating stake in the Campos Basin's C-M-845 block and the Santos Basin's S-M-766 block. Repsol will own a 40% minority share in the two areas, with Wintershall retaining the remaining 20% in each block.

The blocks are all close to areas the three companies acquired in recent sales.

BP, meanwhile, paid Real 307 million for 100% of the Santos Basin's S-M-1500 block. The bid could be a precursor to an aggressive move at Brazil's sixth subsalt production-sharing auction on November 7, where the adjacent Bumerangue area will be sold.

-- Jeff Fick, newsdesk@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com