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Brazil's Senate to vote on transfer-of-rights bill November 27

Rio de Janeiro — Brazil's Senate will vote November 27 on a bill that would allow state-run oil company Petrobras to sell down its 100% stake in the subsalt transfer-of-rights areas and potentially open the door for an auction to sell development rights to as much as 15 billion barrels of crude, making it one of the world's biggest licensing sales.

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The date was set after Senators voted last week to approve an "urgent" definition for the bill, which keeps the bill out of committee debate and ensures that the measure will be considered by the Senate before the current legislative session ends later this year.

Brazil's oil industry considers passage of the transfer-of-rights bill as a key measure in accelerating development of the subsalt region, where a single well can produce as much as 40,000 b/d. The bill would allow Petrobras to sell up to 70% of its holdings in the areas, helping the company diversify its portfolio, reduce risk and spread development costs to partners. Petrobras would still be required to hold at least a 30% operating share in each area.

The legislation also includes directives for reducing requirements to use local goods and services in development of the oil deposits and other measures that will help facilitate negotiations between the government and Petrobras over the final price adjustment for the transfer-of-rights areas.

Petrobras won the right to pump up to 5 billion barrels from promising subsalt acreage controlled by the government in a 2010 oil-for-shares swap. Petrobras paid the equivalent of $8.51/b in shares as part of a capitalization plan for the company. The deal included a final price adjustment that would be made after the fields were declared commercially viable for development.

The final adjustment was added to allow the government to get paid more for the oil should international oil prices rise, as well as provided protection for Petrobras in case the company failed to find the 5 billion barrels of crude.

The collapse in oil prices and fallout from a corruption investigation at Petrobras in 2014-2016 complicated the talks just as the company was completing the commercial declarations for several transfer-of-rights fields, including Buzios, Sururu and Berbigao. Buzios, where recoverable reserves were estimated at 3.1 billion barrels, pumped first oil in April and will see four floating production units installed by mid-2019. Berbigao is expected to pump first oil in the first quarter of 2019.

The decline in oil prices will make Petrobras a creditor in the final calculation, officials have said. The bill provides for payment in additional barrels of oil or cash, which will also help facilitate a deal.

BIG SALE

More important, passage of the bill will also allow Brazil's National Petroleum Agency, or ANP, to move forward with plans to sell additional oil volumes discovered by Petrobras in the transfer-of-rights areas. The auction was previously planned for November 29, but had to be canceled when the Senate refused to vote on the bill ahead of October presidential elections. During exploration of the transfer-of-rights areas to delimit the 5 billion barrels the company purchased, Petrobras discovered as much as four times that much oil.

In addition to the 5 billion barrels promised to Petrobras, the transfer-of-rights areas hold 5.2 billion-15.1 billion barrels of recoverable crude, according to an estimate made by Gaffney, Cline & Associates on behalf of the ANP. That would make the so-called auction of the excess volumes in the transfer-of-rights areas one of the biggest sales of already discovered crude the world has seen.

ANP officials expect the transfer-of-rights auction to result in intense competition from global oil companies because the oil has already been drilled and discovered. The signing bonuses generated by the sale could reach as much as Real 100 billion, government officials say. That would make Brazil an even bigger player on the global rights scene.

The auction would likely put an exclamation point on Brazil's dominance of the fight for oil-industry investments, ANP Director General Decio Oddone said during an industry event late Wednesday. Oddone noted that since 2016, about 3,000 exploration and production concessions have been sold during licensing sales held in 82 countries around the world, generating about $7 billion worth of signing bonuses.

Brazil sold a total of 72 blocks during this period, which includes the 14th-15th bid rounds and 2nd-5th subsalt production-sharing auctions, with the country's sales accounting for 75% of the $7 billion in global signing bonuses, Oddone said.

Oddone expects the new government of president-elect Jair Bolsonaro to continue with the schedule of annual concession and subsalt production-sharing auctions next year, with the transfer-of-rights auction possible in the first half of 2019.

-- Jeff Fick, newsdesk@spglobal.com

-- Edited by Jeff Mower, newsdesk@spglobal.com