Caixin
Sep 09, 2013 06:16 PM

Prospective Partners

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Brazil is planning to auction off the rights to co-develop one of its largest oil discoveries, the Libra oilfield, in October. The field is estimated to hold 12 billion barrels of oil, about three-fourth of Brazil's reserves, and may produce more than 1 million barrels per day. 

But this huge potential comes with a steep price tag. The winning bidder will need to invest about US$ 170 billion over the course of a 35-year contract, making it the most expensive single oil field development contract in history. The Brazilian government will take at least 75 percent of the oil produced at Libra, possibly more depending on the accepted bid. Costs will be pushed even higher by a regulatory requirement that companies buy a certain percentage of local goods and services. In addition, Brazil's state-controlled oil company, Petrobras, will automatically be the exclusive operator and own a 30 percent stake. 

Magda Chambriard, head of National Agency for Petroleum, Natural Gas and Biofuels (ANP), Brazil's oil regulator, talked to Caixin in Beijing on September 5 about the Libra field. Chambriard worked at Petrabras for more than 20 years, and was the reservoir expert in the exploratory and development department before joining ANP. 

Chambriard said two Chinese state-owned oil companies – China Petrochemical Corp. (Sinopec Group) and China National Offshore Oil Corp. (CNOOC) – are involved in the early bidding process. She said her country views China as a good partner, and would welcome the involvement of the two giants in developing the Libra field

The following are experts of the Chambriard's interview:

Caixin: You said you consider China a good partner. Why?

Magda Chambriard: China has very big oil companies, companies that are accustomed to working offshore and have the size to participate in the project we are offering, which is unique because of its size. So the size of this project and the size of China and the oil companies in China make it seem to us that China should be a very important partner in developing this project. I have plans to meet individually with the Chinese oil companies. China is a very good partner of Brazil. Business between the two countries increased a lot last year. There is no reason to not have China participate in the bids.
 
ANP has estimated the investment to be about US$ 170 billion. How much of that do you expect will come from domestic investors and how much from foreign investors?

I prefer not to forecast investments because investment depends on the project companies we will use to develop the area. Also, it depends on the technology and efficiency involved. What I can say is that drilling an oil well takes 100 days and is very expensive. This is a project for big oil companies only, like the companies in China. With 100, 200 oil wells, we are talking about billions.

Can several oil companies join forces to bid for the project?

We already have some oil companies from several different countries acquiring data to participate in this round of bidding. It's attracting the attention of the whole world, and to participate in such bidding, the companies have to be really big. It's possible to participate alone or in a consortium. The consortium can be a maximum of four of five companies.

Are you optimistic about Chinese firms' participation in the bidding?

Yes. I'm not an optimistic person, but in this case it is easy to be optimistic because the project is so big and so unique. There is a possibility of having about 1.4 million barrels per day or even more. In a project like this, we have all reasons to be optimistic.

You said it's a unique project. Does it have unique challenges?

Sure. This is a project 107 kilometers off the coast, and we will need wells 5 kilometers to 7 kilometers deep. This is also unique. That's why we want companies with expertise offshore, otherwise they cannot take good care of the project.

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