Brazil's energy ministry has called back its auctioned oil exploration blocks in the prolific offshore Santos Basin in the sub-salt region, from the winning bidders of the 2006 licensing round.
The move follows the government's non-committal stance over signing off the leases as binding contracts for more than five years. According to industry analysts this action by the government has been in the offing ever since the discovery of Petrobras's 2007 offshore Tupi prospect. Brazil is now looking to retain its hold on the field, which reportedly contains more than upward of 50 billion barrels of oil.
The ministry claims there has been no violation of the agreement as the government never completely signed off the concessions. "Brazil rigorously honors its contracts, but there was no contract of any kind signed in relation to the eighth round, which the National Energy Policy Council decided not to carry on further," energy minister Edison Loboa told reporters late on Wednesday.
The winning bidders of the 10 blocks that were auctioned include Brazil's state-controlled Petrobras (PETR4.SA), Italy's ENI (ENI.MI), Spain's Repsol (REP.MC), India's ONGC (ONGC.NS), and Norway's Norsk Hydro (NHY.OL). Analysts say, the blocks would have garnered much bigger sums had the government and the firms who participated in the auction were aware of the full value and scope of the prospect or the Tupi discovery. Tupi, which has been renamed Lula, and Cernambi are located in the Santos Basin, and hold as much as 8.3 billion barrels of oil and natural gas equivalent.
The region has been high on demand for many firms and was auctioned for significant amounts at a time when the full scope of the region was unclear. Energy giants like Eni had bid more than $187 million to win sole rights to explore and produce in the Santos Basin's BM-S-857 block.
The government halted auctions soon after 2007 Petrobras deepwater discoveries in the subsalt region that comprises Santos and Campos basins near Rio de Janeiro, followed by a new legislation that brought into force production sharing model as opposed to a concession model in the region. The ministry is yet to arrive at a decision regarding royalties and production distribution among the states.
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