How are oil auctions made? find out here!

  • 11/12/2020
  • 9 minutes

Brazil is a country with an impressive natural wealth. In addition to the Amazon Forest — priceless for humanity — the national territory and the waters that bathe our coast are full of ores, not to mention the biological and energy resources that make domestic consumption feasible and favor exports. An oil auction takes place in this exact scenario.

These rounds for the purchase and sale of fossil fuel occur based on the definitions of the federal government, which bring together companies interested in exploring the extraction of oil for commercial use, provided that environmental issues are respected. In this article, we’ll talk about how such auctions work, who can participate and how to apply.

To do this, we spoke with Josie Quintella, deputy superintendent for the Promotion of Biddings at the National Agency for Petroleum, Natural Gas and Biofuels (ANP). Read the post to the end to learn more!

How does the oil auction work?

Petroleum auctions are summoned by the Federal Government, and private and public oil companies can participate in them. This presence takes place individually or through consortia, in which more than one organization bids together.

When talking specifically about an auction for oil and gas exploration and production, there are three types, detailed below. Keep reading!

Sharing auction

The Sharing Auction, governed by Law 12,351, of December 22, 2010, proposes a regime for sharing production with companies that obtain permission to explore the pre-salt. In this case, the oil belongs to the Federal Government and needs to be divided with it. The parties are not necessarily equal — the Federal Government decides a minimum percentage that goes to auction to find a partner willing to increase that amount.

Exploration blocks auction

The Exploration Blocks Auction, described in Law 9,478, of August 6, 1997, takes place under the concession regime. In other words, the company that won the auction will obtain a contract, through which it will be authorized to carry out its activities and, from a certain point previously agreed in the document, the oil starts to belong to the concessionaire.

Permanent offer auction

The Permanent Offer Auction is, according to the National Agency for Petroleum, Natural Gas and Biofuels, a modality that offers “a portfolio of blocks and areas with marginal accumulations for exploration and production of oil and natural gas”, according to Josie.

“Oil auctions are of the closed envelope type, so the competitor does not know how much the other bids. That way, whoever enters must enter with the best proposal”, adds the specialist.

Who can participate?

National or foreign legal persons, alone or in consortium. In addition to companies in the industry, investment funds can also be part of a consortium — however, it is not possible for such funds, individually, to participate in an auction.

Organizations in the oil sector can participate in an oil auction, both individually and through the formation of consortia with other companies in the segment. In fact, organizations established outside Brazil can also enter oil auctions in Brazil. Foreign companies, however, must set up a Brazilian company if they are declared the winners of the bid.

In addition, companies can participate in bids — either individually or in consortium — related to a single lot of oil or for all that are available. It is also possible to have an individual role in an auction and act as part of a consortium in another lot. “However, they cannot participate in two different ways in the auction for the same block”, emphasizes Josie.

How to participate in the oil auction?

To learn more about the bids, you need to follow the site Started in 1999, 16 rounds have already been held in the country, in relation to exploration blocks, until the first half of 2020. In addition to these, four bids for the exploration of mature fields and six pre-salt bids were carried out in the period.

The rounds must be previously authorized by the National Energy Policy Council (CNPE). For this reason, it is important that there is an adequate period for them to be properly publicized and that the information reaches the interested public. From there, space is opened for companies and consortia to register for the rounds.

A communication channel is made available to answer questions from those who want to participate. Just write to [email protected].

What are the biggest challenges facing auctions today?

Although it is possible to classify Brazilian geology as favorable, only its characteristics are not sufficient for the auctions to be successful. “The biggest challenge is to maintain their attractiveness, making them competitive when compared to the offers they have around the world,” notes Josie.

Due to the pandemic of the new coronavirus, which since March 2020 started to generate a crisis in the price of the barrel, among other economic and social consequences, keeping Brazilian oil auctions competitive became even more challenging, since they should be attractive to investors.

“Brazil has taken some steps in the auction calendar, which provides predictability for companies to organize their budgets to see when and how they can participate”, highlights the deputy superintendent.

According to Josie, there is a lot of openness in the market, both to listen and to debate with the industry, including the possibility of changes being implemented in the process. “The Brazilian government and the ANP have been doing this in a very effective way. We have to make the regulatory framework more complete and clearer, as well as the contracts, so that the risks of the activity can be minimized”, she concludes.

Throughout the article, we tried to address some of the most important points of an oil auction, how it works and who can participate, among other important details for the post-Covid-19 scenario, such as infrastructure investment.

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