International oil companies looking to start exploring Brazil, home to the largest discoveries in the past decade, can’t get near the crude.
Brazil has repeatedly delayed the sale of exploration areas since 2007, leaving Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc (RDSA) shut out of an offshore area that holds at least $5 trillion of oil. Meanwhile Petroleo Brasileiro SA (PETR4), the state-run company that pumps more than 90 percent of the country’s crude, is struggling to develop deposits it has already found. Petrobras’s output grew 1.5 percent in 2011, the slowest pace in four years.
Companies including Total SA (FP) have accelerated exploration off the coast of West Africa, where the geology is similar to Brazil and which holds large discoveries in deep waters. OGX Petroleo & Gas Participacoes SA, controlled by billionaire Eike Batista, began exploring in Colombia amid delays in offering new exploration tracts in Brazil.
“Brazil is someplace where we would like to be more present; at the same time we are in 130 countries, it’s not one against the other, it’s one plus,” Total Chief Executive Officer Christophe de Margerie said in a June 18 interview in Rio de Janeiro. “I hate to say it but if it doesn’t work it doesn’t work. We would like it to work.”
Petrobras this month increased its five-year spending plan 5.3 percent to $236.5 billion, the biggest in the oil industry, to develop deposits in waters as deep as 2,800 meters (9,200 feet) and trapped under a layer of salt.
Petrobras trades at 6.81 times its estimated 2013 earnings, compared with a ratio of 9.74 for Exxon, 7.12 for Shell and 6.28 for Total, according to data compiled by Bloomberg.
Revenue at the Brazilian producer totaled $150.7 billion in the trailing 12 months, less than Exxon’s $442.9 billion, Shell’s $480.2 billion and Total’s $236.2 billion.
While a legislation change in 2007 put Petrobras in charge of all new contracts in the so-called pre-salt area off Brazil, the company hasn’t been able to extract oil fast enough to meet targets. Petrobras cut its long-term production guidance by 11 percent to 5.7 million barrels a day in 2020. Output will remain within 2 percent of 2011 levels until 2014, it said on June 14.
The lack of new exploration areas in Brazil has encouraged some companies to concentrate on other regions such as offshore Africa, where Tullow Oil Plc (TLW) and Cobalt International Energy Inc. (CIE) have made discoveries in deep waters. Last year, Anadarko Petroleum Corp. (APC) announced plans to sell all its Brazil blocks, granted before the 2007 legislation change, as it boosts investment in natural-gas projects in Africa.
“The absence of bid rounds is affecting all oil companies in Brazil,” Joao Clark, the head of Ecopetrol SA (ECOPETL)’s Brazilian operations, said in an April 17 interview in Rio de Janeiro. “We need new blocks, we have to improve our portfolio.”
Exxon quit its only Brazilian block this year after drilling three dry holes in deep waters, Patrick McGinn, a company spokesman, said by e-mail from Irving, Texas. The explorer is seeking more opportunities in the country, he said.
Petrobras is failing to meet output goals after new offshore wells didn’t compensate for declines at older fields. That jeopardizes its 2020 target. Brazil is counting on the company to provide national energy self-sufficiency to meet demand from a growing economy. Petrobras pumped 93 percent of the country’s oil and 99 percent of its gas in April.
Foreign producers including Exxon and Total, with little acreage in Brazil, are seeking to eat into that share as fields dwindle in other areas such as the North Sea and Alaska’s North Slope. Brazil hasn’t auctioned any offshore permits since before announcing the potential of the pre-salt zone in 2007 and hasn’t sold any blocks at all since 2008, when it sold tracts on land.
“I understand quite well the anxiety of those companies,” Petrobras Chief Executive Officer Maria das Gracas Silva Foster told reporters in Rio on Feb. 13, the day she was promoted to the role. “For them it might be really important. For Petrobras, it makes no difference. We have a lot of work to do.”
Brazil probably won’t offer any areas in the region until 2013 because lawmakers are debating how to distribute future revenues, Marco Antonio Almeida, the Energy Ministry’s oil and gas secretary, said in a May 3 telephone interview from Brasilia. The pre-salt auctions will only occur after Congress votes on how to distribute the royalties from future output, the Energy Ministry said in an e-mailed response to questions.
The combination of political wrangling, requirements to buy locally built equipment and Petrobras’s budget constraints may even push new rounds to 2014 at the earliest, according to Christopher Garman, a Latin America analyst at Eurasia Group.
“The sentiment within the upper levels of government is they already have their hands full,” Garman said by phone from Washington. “What is really hurting the decisions of international oil companies to stay is the lack of a pipeline of new opportunities.”
Petrobras is required to have a minimum 30 percent stake in new pre-salt blocks. That means the Rio de Janeiro-based company can sign contracts before knowing who it will work with, making it hard to set up the auctions, Almeida said. “It’s a situation that doesn’t exist anywhere else in the world,” he said.
The lack of auctions has put a premium on existing permits. Companies that bought exploration areas before the discovery of Lula — the field previously known as Tupi, which was the Americas’ largest oil discovery in more than three decades — have seen the value of those areas increase as a result of oil- price gains and scarcity of acreage, Peter Gaw, head of oil, gas and chemicals at Standard Chartered Bank, said in an interview.
BG Group Plc (BG/) owns 25 percent of Lula, while Portugal’s Galp Energia SGPS SA (GALP) has a 10 percent stake. Repsol SA owns 25 percent of a neighboring block. Their properties, purchased years before anyone knew what they were worth, have since attracted global peers to the south Atlantic.
China Petrochemical Corp., Asia’s biggest refiner, has agreed to invest $12.3 billion to become a minority partner with Repsol and Galp in Brazil. BP Plc (BP/), who skipped the first pre- salt auctions, paid Devon Energy Corp. $3.2 billion last year for nine blocks in the country.
Petrobras doesn’t need to worry about the timing of new sales because oil will only gain in value in coming decades, Silvio Sinedino Pinheiro, elected to the company’s 10-member board by workers this year, said in an April 11 interview at its headquarters.
“Here at Petrobras we talk a lot about if it makes more sense to sell now at $100 a barrel, or sell in 30 years when it costs $200 a barrel,” he said.
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